Document:

Exhibit 10.7

 

FORM OF

GLORIA JEAN’S

FRANCHISE AGREEMENT

 

 

	
  UNIT NO.:

  	
   

  	
   

  	
   

  	
  DATE:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  FRANCHISEE:

  	
   

  	
   

  	
   

  	
   

  
										

 

 

TABLE
OF CONTENTS

 

	
  1.

  	
  BUSINESS BACKGROUND AND PRELIMINARY AGREEMENTS

  
	
   

  	
   

  
	
  2.

  	
  GRANT
  AND RENEWAL OF FRANCHISE

  
	
   

  	
  A.

  	
  GRANT OF FRANCHISE

  
	
   

  	
  B.

  	
  NON-EXCLUSIVITY

  
	
   

  	
  C.

  	
  RIGHT OF FIRST OPPORTUNITY

  
	
   

  	
  D.

  	
  TERM

  
	
   

  	
  E.

  	
  RENEWAL OF FRANCHISE

  
	
   

  	
  F.

  	
  MANNER OF RENEWAL

  
	
   

  	
   

  	
   

  
	
  3.

  	
  DEVELOPMENT AND OPENING OF STORE

  
	
   

  	
  A.

  	
  LEASE
  OR SUBLEASE OF PREMISES OF STORE

  
	
   

  	
  B.

  	
  DEVELOPMENT OF THE STORE

  
	
   

  	
  C.

  	
  FIXTURES, EQUIPMENT, STOREFRONT, SUPPLIES
  AND SIGNS

  
	
   

  	
  D.

  	
  STORE
  OPENING

  
	
   

  	
  E.

  	
  TERMINATION
  UPON FAILURE OF FRANCHISEE TO OPEN THE STORE

  
	
   

  	
  F.

  	
  GRAND OPENING PROGRAM

  
	
   

  	
   

  	
   

  
	
  4.

  	
  TRAINING
  AND OPERATING ASSISTANCE

  
	
   

  	
  A.

  	
  TRAINING

  
	
   

  	
  B.

  	
  HIRING AND TRAINING OF EMPLOYEES BY FRANCHISEE

  
	
   

  	
  C.

  	
  OPERATING ASSISTANCE

  
	
   

  	
   

  	
   

  
	
  5.

  	
  OPERATING
  MANUAL

  
	
   

  	
   

  
	
  6.

  	
  STORE IMAGE AND OPERATING STANDARD

  
	
   

  	
  A.

  	
  CONDITION AND APPEARANCE OF STORE

  
	
   

  	
  B.

  	
  ALTERATIONS
  TO THE STORE

  
	
   

  	
  C.

  	
  REFURBISHING
  THE STORE

  
	
   

  	
  D.

  	
  AUTHORIZED PRODUCTS

  
	
   

  	
  E.

  	
  APPROVED
  BRANDS AND/OR SUPPLIES

  
	
   

  	
  F.

  	
  SUPPLIERS
  OF COFFEE

  
	
   

  	
  G.

  	
  USE OF SUPPLIES IMPRINTED WITH NAMES AND MARKS

  
	
   

  	
  H.

  	
  STANDARDS
  OF SERVICE

  
	
   

  	
  I.

  	
  DETERIORATED PRODUCTS AND COMPLAINTS

  
	
   

  	
  J.

  	
  SPECIFICATIONS,
  STANDARDS AND PROCEDURES

  
	
   

  	
  K.

  	
  COMPLIANCE
  WITH LAWS AND GOOD BUSINESS PRACTICES

  
	
   

  	
  L.

  	
  MANAGEMENT
  OF THE STORE

  
	
   

  	
  M.

  	
  CONFLICTING
  AND COMPETING INTERESTS

  
	
   

  	
  N.

  	
  INSURANCE

  
	
   

  	
   

  	
   

  
	
  7.

  	
  PROPRIETARY AND CONFIDENTIAL INFORMATION OF FRANCHISOR

  
	
   

  	
   

  
	
  8.

  	
  ADVERTISING AND PROMOTION

  
	
   

  	
  A.

  	
  BY
  FRANCHISOR

  

 

i

 

	
   

  	
  B.

  	
  MARKETING
  FUND

  
	
   

  	
  C.

  	
  BY
  FRANCHISEE

  
	
   

  	
  D.

  	
  WEBSITE

  
	
   

  	
   

  	
   

  
	
  9.

  	
  REPORTS, BOOKS AND RECORDS, INSPECTIONS

  
	
   

  	
  A.

  	
  GENERAL REPORTING

  
	
   

  	
  B.

  	
  INSPECTIONS

  
	
   

  	
  C.

  	
  AUDITS

  
	
   

  	
   

  	
   

  
	
  10.

  	
  NAMES
  AND MARKS

  
	
   

  	
  A.

  	
  OWNERSHIP OF NAMES AND MARKS

  
	
   

  	
  B.

  	
  LIMITATIONS
  ON FRANCHISEE’S USE OF NAMES AND MARKS

  
	
   

  	
  C.

  	
  NOTIFICATION
  OF INFRINGEMENTS AND CLAIMS

  
	
   

  	
  D.

  	
  DISCONTINUANCE
  OF USE OF NAME AND/OR MARKS

  
	
   

  	
  E.

  	
  INDEMNIFICATION
  OF THE FRANCHISEE.

  
	
   

  	
   

  	
   

  
	
  11.

  	
  INITIAL FRANCHISE FEE

  
	
   

  	
   

  
	
  12.

  	
  ROYALTY FEE

  
	
   

  	
  A.

  	
  AMOUNT OF ROYALTY FEE

  
	
   

  	
  B.

  	
  DEFINITION
  OF “GROSS SALES”

  
	
   

  	
  C.

  	
  PAYMENT OF ROYALTY FEE AND MARKETING FUND
  CONTRIBUTION

  
	
   

  	
  D.

  	
  INTEREST ON LATE PAYMENTS AND LATE FEES

  
	
   

  	
   

  	
   

  
	
  13.

  	
  TERMINATION OF FRANCHISE

  
	
   

  	
  A.

  	
  TERMINATION
  BY FRANCHISEE

  
	
   

  	
  B.

  	
  BY
  FRANCHISOR

  
	
   

  	
  C.

  	
  RIGHT
  OF FRANCHISOR TO DISCONTINUE PRODUCTS TO FRANCHISEE AFTER NOTICE OF DEFAULT
  TO FRANCHISEE

  
	
   

  	
  D.

  	
  CROSS-DEFAULTS,
  NON-EXCLUSIVE REMEDIES, ETC.

  
	
   

  	
   

  	
   

  
	
  14.

  	
  FRANCHISEE’S OBLIGATION UPON TERMINATION OR EXPIRATION

  
	
   

  	
  A.

  	
  PAYMENT OF AMOUNTS OWED TO FRANCHISOR

  
	
   

  	
  B.

  	
  RETURN OF MANUALS.

  
	
   

  	
  C.

  	
  CANCELLATION
  OF ASSUMED NAMES AND TRANSFER OF PHONE NUMBERS.

  
	
   

  	
  D.

  	
  FRANCHISOR
  HAS RIGHT TO PURCHASE STORE.

  
	
   

  	
  E.

  	
  COVENANT
  NOT TO COMPETE

  
	
   

  	
  F.

  	
  CONTINUING
  OBLIGATIONS

  
	
   

  	
   

  	
   

  
	
  15.

  	
  ASSIGNMENT,
  TRANSFER AND ENCUMBRANCE

  
	
   

  	
  A.

  	
  BY
  FRANCHISOR

  
	
   

  	
  B.

  	
  FRANCHISEE MAY NOT ASSIGN WITHOUT APPROVAL OF
  FRANCHISOR

  
	
   

  	
  C.

  	
  ASSIGNMENT TO PARTNERSHIP, LIMITED LIABILITY COMPANY OR CORPORATION

  
	
   

  	
  D.

  	
  FRANCHISOR’S RIGHT OF FIRST REFUSAL

  
	
   

  	
  E.

  	
  DEATH OR PERMANENT DISABILITY OF FRANCHISEE

  
	
   

  	
  F.

  	
  RELEASE, EFFECT OF TRANSFER

  

 

ii

 

	
  16.

  	
  DISPUTE RESOLUTION

  
	
   

  	
  A.

  	
  MEDIATION

  
	
   

  	
  B.

  	
  ARBITRATION

  
	
   

  	
  C.

  	
  WAIVER
  OF PUNITIVE DAMAGES AND JURY TRIAL.

  
	
   

  	
  D.

  	
  LIMITATION
  OF CLAIMS.

  
	
   

  	
  E.

  	
  CONSENT TO JURISDICTION.

  
	
   

  	
  F.

  	
  SURVIVAL AND CONSTRUCTION

  
	
   

  	
  G.

  	
  COSTS AND ATTORNEYS’ FEES

  
	
   

  	
  H.

  	
  INJUNCTIVE
  RELIEF

  
	
   

  	
  I.

  	
  BINDING EFFECT, MODIFICATION AND
  REPRESENTATIONS

  
	
   

  	
   

  	
   

  
	
  17.

  	
  CONSTRUCTION,
  ETC

  
	
   

  	
   

  
	
  18.

  	
  NON-RETENTION
  OF FUNDS

  
	
   

  	
   

  
	
  19.

  	
  SEVERABILITY;
  SUBSTITUTION OF VALID PROVISIONS

  
	
   

  	
   

  
	
  20.

  	
  WAIVERS

  
	
   

  	
   

  
	
  21.

  	
  CHOICE
  OF LAWS

  
	
   

  	
   

  
	
  22.

  	
  ENTIRE
  AGREEMENT

  
	
   

  	
   

  
	
  23.

  	
  INDEPENDENT CONTRACTORS AND INDEMNIFICATION

  
	
   

  	
   

  
	
  24.

  	
  NOTICES

  
	
   

  	
   

  
	
  25.

  	
  EFFECTIVE
  DATE OF AGREEMENT

  
	
   

  	
   

  
	
  26.

  	
  ACKNOWLEDGMENTS

  

 

iii

 

GLORIA JEAN’S®

FRANCHISE AGREEMENT

 

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

 

1.                                      BUSINESS BACKGROUND AND PRELIMINARY
AGREEMENTS

 

FRANCHISOR and
its affiliated company, Gloria Jean’s Gourmet Coffees Corp. (“GJGC Corp.”),
have developed a full service store offering for retail sale bulk gourmet
coffees, teas, beverages, coffee and tea makers and related supplies,
accessories and gifts.  These stores are
known as GLORIA JEAN’S COFFEES STORES (hereinafter referred to as a “GJC
STORE(S)”).  Most GJC STORES carry
beverages for immediate consumption on the premises, including coffee,
espresso, cappuccino and tea.  In
addition, some GJC STORES carry pastries, cookies and baked goods and have
seating areas.  FRANCHISOR and GJGC
Corp. have also developed a kiosk concept and a cart concept, both offering
beverages and certain other products offered by GJC STORES (hereinafter
referred to as a “GJC KIOSK(S)” and a “GJC CART(S)”).  (Unless otherwise specified, all references to GJC STORES herein
include GJC KIOSKS and GJC CARTS.) 
Products authorized by FRANCHISOR for sale by GJC STORES are referred to
herein as the “PRODUCTS.”  All such GJC
STORES are operated with uniform formats, signs, equipment, layout, systems,
methods, procedures and designs which utilize a unique architectural design,
offer uniform products, and utilize certain trademarks, service marks, trade
dress and other commercial symbols, including “Gloria Jean’s Coffees” “Gloria
Jean’s Coffee Bean” and “Gloria Jean’s.” 
(Such trademarks, service marks and other commercial symbols are
hereinafter referred to as the “Names and Marks.”)  GJC STORES operate at locations that feature a distinctive format
and method of doing business, including color scheme, signs, equipment,
layouts, systems, methods, procedures, designs and marketing and advertising
standards and formats (the “GLORIA JEAN’S System”), any element of which
FRANCHISOR can modify from time-to-time and with which FRANCHISEE will promptly
comply.

 

FRANCHISOR
grants to qualified persons franchises to own and operate GJC STORES, GJC
KIOSKS and GJC CARTS offering the PRODUCTS authorized and approved by
FRANCHISOR and utilizing the GLORIA JEAN’S System and the Names and Marks.  FRANCHISEE has applied for a franchise to
own and operate a GJC STORE, a GJC KIOSK or a GJC CART at the premises
identified in Paragraph A of Section 2 below and such application has been
approved by FRANCHISOR in reliance upon all of the representations made
therein.

 

FRANCHISEE
acknowledges receiving and reading this Agreement and any addenda hereto and
FRANCHISOR’s Uniform Franchise Offering Circular (with all exhibits) and has
been given an opportunity to clarify any provision FRANCHISEE did not
understand. FRANCHISEE further acknowledges that he understands and accepts the
terms, conditions and covenants contained in this Agreement as being reasonably
necessary to maintain FRANCHISOR’s high standards of quality and service and
the uniformity of those standards at all GJC STORES and thereby to protect and
preserve the goodwill of the Names and Marks.

 

 

2.                                      GRANT AND RENEWAL OF FRANCHISE

 

A.                                    GRANT
OF FRANCHISE

 

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

 

FRANCHISEE
acknowledges and agrees that FRANCHISOR’s approval of the Location does not constitute
an assurance, representation or warranty of any kind, express or implied, as to
the suitability of the Location for a GJC STORE.  FRANCHISOR’s approval of the Location indicates only that
FRANCHISOR believes the Location complies with acceptable minimum criteria
established by FRANCHISOR solely for its purposes as of the time of the
evaluation.  FRANCHISEE further
acknowledges and agrees that its acceptance of a franchise for the operation of
a GJC STORE at the Location is based on its own independent investigation of
the suitability of the site.  It shall
be the sole responsibility of FRANCHISEE to undertake site selection and
otherwise secure premises for the STORE.

 

B.                                    NON-EXCLUSIVITY

 

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

 

2

 

C.                                    RIGHT
OF FIRST OPPORTUNITY

 

If, during the
term of this Agreement, FRANCHISEE is in compliance with this Agreement and
FRANCHISOR decides to establish and/or grant a franchisee the right to
establish a GJC STORE in the shopping mall in which the STORE is located,
FRANCHISOR will give FRANCHISEE the opportunity to be considered for such
GJC STORE.  In those circumstances,
FRANCHISOR will provide FRANCHISEE with notification of its intent, and may
require FRANCHISEE to submit to FRANCHISOR, within thirty (30) days after
FRANCHISOR’s notification, any information and material that FRANCHISOR then
typically considers in selecting franchisees and granting franchises in order
to determine whether FRANCHISEE’s application should be accepted. FRANCHISEE
acknowledges the foregoing right of opportunity is only available if the STORE
is located in a shopping mall and that FRANCHISOR’s obligation to consider
FRANCHISEE for additional GJC STORES apply only with respect to
GJC STORES to be located in the same shopping mall as the STORE.  In the event FRANCHISOR accepts FRANCHISEE’s
application, FRANCHISEE must acquire an additional franchise for the operation
of the GJC STORE by executing FRANCHISOR’s then current form of franchise
agreement and paying FRANCHISOR the then current initial franchise fee.

 

D.                                    TERM

 

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

 

E.                                      RENEWAL
OF FRANCHISE

 

If upon
expiration of the initial term of the FRANCHISE: (1) FRANCHISEE has fully and
continuously complied with this Agreement and all other agreements with
FRANCHISOR (and/or any affiliate of FRANCHISOR), in each case without any
defaults, cured or uncured, during the Term; and (2) FRANCHISEE maintains
possession of the premises of the STORE and, prior to any renewal term
beginning, refurbishes, remodels, expands and otherwise brings the STORE and
its operation into full compliance with all then-applicable standards
(including then-applicable design standards, including equipment) applicable to
franchises awarded for new GJC STORES and in compliance with any lease or
sublease requirements applicable to the STORE premises, then FRANCHISEE shall
have the right to renew the FRANCHISE for a single additional term for a period
of ten (10) years or the remaining term of the lease or sublease, whichever is
less; provided, however, that in no event shall FRANCHISOR be obligated to
negotiate or obtain any renewal, extension or otherwise of any lease or
sublease, or solicit or accept any proposal from the landlord (or other
person/entity controlling the premises) for a renewal, extension or otherwise
of any lease or sublease, even if on the same terms and conditions as have
previously been applicable to the premises.

 

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

 

3

 

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

 

In connection
with any renewal, FRANCHISEE must meet FRANCHISOR’s then-current qualification
and training requirements.  FRANCHISOR
may require FRANCHISEE and/or any of its personnel to attend and successfully
complete any retraining program(s), and at such times and location(s), as
FRANCHISOR then specifies.  There will
be no charge for any retraining program(s), but FRANCHISEE will be responsible
for all compensation, travel, meals, lodging and other expenses of its
personnel.

 

F.                                      MANNER OF
RENEWAL

 

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

 

3.                                      DEVELOPMENT AND OPENING OF STORE

 

A.                                    LEASE OR SUBLEASE OF
PREMISES OF STORE

 

FRANCHISEE
will contemporaneously with the execution of this Agreement or such later date
specified by FRANCHISOR, lease or sublease the Location in the form and manner
prescribed by FRANCHISOR and deliver a copy of such lease or sublease to
FRANCHISOR at least 15 days prior to the execution thereof.  FRANCHISOR has the right to review and approve
any lease or sublease for the premises of the STORE.  FRANCHISEE agrees not to execute any lease or sublease which has
not been approved in writing by FRANCHISOR. 
FRANCHISEE shall neither create nor purport to create any obligations on
behalf of FRANCHISOR, not grant or purport to grant to the landlord thereunder
any rights against FRANCHISOR, nor agree to any other term, condition, or
covenant which is inconsistent with any provision of this Agreement.  The lease obtained by FRANCHISEE shall be
collaterally assigned to FRANCHISOR pursuant to the terms of FRANCHISOR’s
standard collateral assignment of lease form, to secure the performance by
FRANCHISEE of its obligations hereunder. 
The lease or sublease for the premises of the STORE shall contain substantially
the following provisions:

 

4

 

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

 

(2)           “Lessee hereby agrees that Lessor
may, upon the written request of Gloria Jean’s Gourmet Coffees Franchising
Corp., disclose to said corporation all reports, information or data in
Lessor’s possession with respect to sales made in, upon or from the leased
premises.”

 

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

 

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

 

The lease may not contain any non-competition
covenant which purports to restrict FRANCHISOR, its affiliates or any of
FRANCHISOR’s franchisees or licensees from operating a GJC STORE or any other
retail establishment.

 

B.                                    DEVELOPMENT
OF THE STORE

 

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

 

When
completed, the STORE shall in all respects strictly comply with FRANCHISOR’s
specifications therefor, as modified or revised if applicable with FRANCHISOR’s
prior written consent.  FRANCHISEE must
submit to FRANCHISOR one (1) set of “Project Record Drawings” within sixty (60)
days of the STORE opening.  “Project

 

5

 

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

 

C.                                    FIXTURES, EQUIPMENT, STOREFRONT, SUPPLIES AND SIGNS

 

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

 

D.                                    STORE OPENING

 

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

 

E.                                      TERMINATION UPON FAILURE OF FRANCHISEE TO OPEN
THE STORE

 

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

 

F.                                      GRAND OPENING PROGRAM

 

FRANCHISEE
agrees to spend between One Thousand Dollars ($1,000.00) and Four Thousand
Dollars ($4,000.00) to conduct grand opening advertising and promotions, such
advertising and promotions (which must be approved in advance in writing by
FRANCHISOR) to occur within the four (4) month period following the opening of
the STORE for business.

 

6

 

4.                                      TRAINING AND OPERATING ASSISTANCE

 

A.                                    TRAINING

 

Prior to the
opening of the STORE, FRANCHISOR shall furnish and FRANCHISEE (or the Managing
Owner (as defined in Section 6.L) if FRANCHISEE is a business entity) shall
attend and complete to FRANCHISOR’s satisfaction a training program on the
operation of a GJC STORE, furnished at such time and place as FRANCHISOR may
designate.  Such training will be given
by FRANCHISOR without charge; provided that FRANCHISEE shall be solely
responsible for the compensation of the trainees as well as such trainees’
travel, lodging and personal expenses. 
Such  training will consist of and four (4) to five (5) weeks of in
store training, three (3) days of classroom training, and such additional days
as FRANCHISOR may elect of training.  If
FRANCHISEE (or the Managing Owner) fails to complete training to FRANCHISOR’s
satisfaction, FRANCHISOR may require such person to undergo further training by
FRANCHISOR at a time scheduled by FRANCHISOR, until FRANCHISOR is satisfied
that FRANCHISEE (or the Managing Owner) has satisfactorily completed the
training course.  In such event,
FRANCHISEE shall advance or reimburse, at FRANCHISOR’s option, all direct and
indirect costs and expenses that FRANCHISOR may incur for the wages, lodging,
subsistence and travel of FRANCHISOR’s personnel for the duration of the
extended training and shall pay FRANCHISOR the then-current standard training
fee charged by FRANCHISOR.

 

B.                                    HIRING AND TRAINING OF
EMPLOYEES BY FRANCHISEE

 

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

 

C.                                    OPERATING ASSISTANCE

 

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

 

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

 

(2)           additional products and services
authorized for a GJC STORE;

 

(3)           purchasing of PRODUCTS and supplies;

 

7

 

(4)           formulating and implementing
advertising, merchandising and 
promotional programs; and

 

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

 

FRANCHISEE
understands and agrees that all advice and guidance provided by FRANCHISOR is
only supportive of the operation of the STORE and that the overall success of
the STORE is primarily dependent upon FRANCHISEE’s business abilities and
efforts.  FRANCHISOR will not charge
FRANCHISEE for such operating assistance unless such operating assistance is
made necessary by FRANCHISEE’s failure to comply with this Agreement or if
FRANCHISEE requests operating assistance in excess of what is normally provided
by FRANCHISOR.  Any such charges will be
reasonable and payable upon FRANCHISEE’s receipt of an invoice for the same.

 

5.                                      OPERATING MANUAL

 

                FRANCHISOR will loan to FRANCHISEE during the term of the FRANCHISE one
copy of an operating manual, which consists of one or more manuals (hereinafter
referred to as the “OPERATING MANUAL”), for a GJC STORE containing mandatory
and suggested specifications, standards and operating procedures prescribed
from time to time by FRANCHISOR for a GJC STORE and information relative to
other obligations of FRANCHISEE hereunder. 
FRANCHISOR shall have the right to add to and otherwise modify the
OPERATING MANUAL from time to time to reflect changes in the type or quantity
of authorized PRODUCTS, standards of service or product quality, the operation
of a GJC STORE or to meet competition. 
Any such addition or modification takes precedence over all prior
communications and in the event of a dispute, the master OPERATING MANUAL
maintained at FRANCHISOR’s office shall control.  The provisions of the OPERATING MANUAL as modified from time to
time by FRANCHISOR and communicated to FRANCHISEE constitute provisions of this
Agreement and as such are binding upon FRANCHISEE.  The OPERATING MANUAL contains proprietary information of
FRANCHISOR and FRANCHISEE agrees to keep the OPERATING MANUAL and information
contained therein confidential at all times during and after the term of the
FRANCHISE.

 

6.                                      STORE IMAGE AND OPERATING STANDARD

 

A.                                    CONDITION AND APPEARANCE OF STORE

 

FRANCHISEE
agrees to maintain the condition and appearance of the STORE consistent with
the image of a GJC STORE as an attractive, clean, convenient and efficiently
operated specialty shop offering high quality PRODUCTS and efficient and
courteous service, and pleasant ambiance. 
FRANCHISEE agrees to effect such maintenance of the STORE as is
reasonably required from time to time to maintain such condition, appearance
and efficient operation, including, without limitation, replacement of worn out
or obsolete fixtures, equipment and signs, repair of the interior and exterior
of the STORE and periodic cleaning and decorating or as is required by
FRANCHISEE’s lease or sublease. 
FRANCHISEE shall also replace and/or

 

8

 

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

 

B.                                    ALTERATIONS TO THE STORE

 

FRANCHISEE
shall make no material alterations to the leasehold improvements or appearance
of the STORE nor shall FRANCHISEE make any material replacements of or
alterations to the fixtures, equipment or signs of the STORE without prior
written approval by FRANCHISOR and any approval that may be necessary under the
lease or sublease for the premises.

 

C.                                    REFURBISHING THE STORE

 

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

 

D.                                    AUTHORIZED PRODUCTS

 

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

 

E.                                      APPROVED BRANDS AND/OR SUPPLIES

 

The reputation
and goodwill of GJC STORES is based upon, and can be maintained only by, the
sale of high-quality products. 
FRANCHISEE therefore agrees that the STORE will only offer for sale
authorized PRODUCTS as specified by FRANCHISOR and other products approved for
the STORE from time to time as being acceptable and from approved
suppliers.  The term PRODUCTS as used in
this Agreement, include all products

 

9

 

hereafter approved and/or developed by
FRANCHISOR.  FRANCHISOR may from time to
time modify the list of approved brands and/or suppliers and FRANCHISEE shall
not, after receipt in writing of such modification, reorder any brand or from
any supplier which has been determined to be no longer of acceptable
quality.  Subject to Section 6.F.
below, if FRANCHISEE proposes to sell any product of a brand which has not been
approved as being acceptable or from a supplier which has not been approved, it
shall first notify FRANCHISOR in writing and submit sufficient photographs,
drawings, specifications, samples and/or other information concerning the
product and/or the supplier and FRANCHISOR shall, within a reasonable time,
notify FRANCHISEE in writing whether or not such proposed brand and/or such
proposed supplier is acceptable. 
FRANCHISOR may approve a supplier for any PRODUCTS and may approve a
supplier only as to certain PRODUCTS. 
FRANCHISOR may concentrate purchases with one or more suppliers to
obtain lower prices and/or the best advertising support and/or services for a
group of GJC STORES owned or franchised by FRANCHISOR or its affiliates.  FRANCHISOR and its affiliates reserve the
right to receive revenue from approved suppliers based on transactions with
franchisees and FRANCHISOR (or its affiliate). 
Approval of a supplier may be conditioned on requirements related to the
frequency of delivery, standards of service, including prompt attention to
customer complaints, consistency and reliability and may be temporary pending a
further evaluation of such supplier by FRANCHISOR.  FRANCHISOR will require any supplier applying for approval to
allow FRANCHISOR or its affiliates to inspect the proposed supplier’s
facilities to assist FRANCHISOR in determining if the proposed supplier meets
FRANCHISOR’s criteria.  FRANCHISEE shall
at all times maintain an adequate and representative inventory of PRODUCTS,
sufficient in quality, quantity and variety, to satisfy customer demand and
realize the full potential of the STORE, as prescribed from time to time by
FRANCHISOR.  The inventory of the STORE
shall contain a representative number of each “Gloria Jean’s” brand or other
private brands of FRANCHISOR which shall be given representative display
area.  FRANCHISOR shall not have any
liability to FRANCHISEE if FRANCHISOR is at any time unable for any reason to
offer any “Gloria Jean’s” brand or other brand of PRODUCTS for purchase by
FRANCHISEE or at competitive prices. 
Certain PRODUCTS may be offered by an affiliate of FRANCHISOR.

 

F.                                      SUPPLIERS OF COFFEE

 

In recognition
that the quality and uniformity of the coffee carried by GJC STORES are of
paramount importance to the reputation and goodwill of GJC STORES, FRANCHISEE
must purchase all coffee offered at the STORE from GJGC Corp.  In the event GJGC Corp. ceases supplying
FRANCHISEE with coffee, FRANCHISOR will designate another supplier or suppliers
of coffee.  In such event, FRANCHISEE
may propose a supplier to FRANCHISOR in accordance with the procedure for
obtaining approval of suppliers with respect to other PRODUCTS offered by
FRANCHISEE, set forth in Section 6.E. above.  In addition to the criteria listed in Section 6.E. a
proposed supplier must also meet FRANCHISOR’s criteria as to the size of the
coffee bean, the method of preparation of the bean, the region of origin of the
bean, the quality of flavoring used in bean preparation the consistency of bean
color and moisture content after roasting, the type of packaging and the type
of roaster used.  FRANCHISOR will
require any supplier applying for approval to allow FRANCHISOR or its
affiliates to inspect the proposed supplier’s roasting facilities and green
bean purchase contracts to assist FRANCHISOR in determining if the proposed
supplier meets FRANCHISOR’s criteria.

 

10

 

G.                                    USE OF SUPPLIES IMPRINTED WITH NAMES
AND MARKS

 

FRANCHISEE
shall in the operation of the STORE use displays, boxes, bags, paper, forms,
packaging materials, labels and other paper and plastic products and supplies
imprinted with the Names and Marks as prescribed from time to time by
FRANCHISOR.

 

H.                                    STANDARDS OF SERVICE

 

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

 

I.                                         DETERIORATED PRODUCTS AND COMPLAINTS

 

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

 

J.                                      SPECIFICATIONS, STANDARDS AND PROCEDURES

 

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

 

(1)           type, quality and shelf life of
PRODUCTS offered;

 

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

 

(3)           merchandising techniques;

 

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

 

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

 

(6)           use of Names and Marks;

 

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

 

(8)           use and retention of standard forms;

 

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

 

11

 

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

 

Mandatory
specifications, standards and operating procedures prescribed from time to time
by FRANCHISOR in the OPERATING MANUAL or otherwise communicated to FRANCHISEE
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.  Though FRANCHISOR
retains the right to establish and periodically modify such mandatory
specifications, standards and operating procedures which FRANCHISEE has agreed
to maintain in the operation of the STORE, FRANCHISEE retains the right and
sole responsibility for the day-to-day management and operation of the STORE
and the implementation and maintenance of such mandatory specifications,
standards and operating procedures at the STORE.

 

K.                                    COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES

 

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

 

L.                                     MANAGEMENT OF THE STORE

 

The STORE
shall be managed by FRANCHISEE.  If
FRANCHISEE is a corporation, partnership or limited liability company, one of
the owners of FRANCHISEE must be designated as the “Managing Owner” who must be
a natural person who owns and controls not less than ten percent (10%) of the
equity and voting power of FRANCHISEE. FRANCHISEE (or the Managing Owner) must
have at least two (2) years of retail or restaurant management experience.  FRANCHISEE (or the Managing Owner) must
complete, to the satisfaction of FRANCHISOR, the training program.  If FRANCHISEE (or the Managing Owner) has
completed the franchise training, FRANCHISEE shall be qualified to train its
managers.  If and in the event
FRANCHISOR, in its sole discretion, determines that the FRANCHISEE (or the
Managing Owner) is not properly performing his duties, FRANCHISOR shall advise
FRANCHISEE and FRANCHISEE shall take such corrective measures as are necessary
to immediately rectify the situation. 
FRANCHISEE shall keep FRANCHISOR informed at all times of the identity
of any Managing Owner(s) of the STORE.

 

M.                                  CONFLICTING AND COMPETING INTERESTS

 

FRANCHISEE
agrees that FRANCHISEE will at all times faithfully, honestly and diligently
perform its obligations hereunder, that it will continuously exert its best
efforts to promote and enhance the business of the STORE and that it will not
engage in any business or

 

12

 

other activity that will conflict with its
obligations hereunder.  FRANCHISEE shall
not divert elsewhere any trade, commerce or business which ordinarily would be
transacted by FRANCHISEE in or from the STORE and to this end, FRANCHISEE shall
not at any time sell or rent to anyone any list of customers or permit the use
of such list by anyone for any purpose other than the mailing of advertising
material for the STORE.  FRANCHISEE
further agrees that neither FRANCHISEE nor any of its owners (through a member
of the immediate family of FRANCHISEE or an owner of FRANCHISEE or otherwise)
will, during the term of the FRANCHISE, have any interest as an owner of
(except of publicly-traded securities or interests in other GJC STORES pursuant
to other franchise agreements with FRANCHISOR or its affiliates), or assist or
perform services as a director, officer, employee, consultant, representative,
agent, or in any other capacity for, any other business principally offering
products substantially similar to the PRODUCTS then being offered by the
majority of the GJC STORES, nor will they have any interest, as aforesaid, in
any entity which franchises or otherwise grants to others the right to sell
products similar to the PRODUCTS then being offered by the majority of the GJC
STORES.

 

N.                                    INSURANCE

 

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

 

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

 

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

 

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

 

(4)           workers’ compensation insurance
coverage of $1,000,000 per employee, $1,000,000 per accident, $1,000,000 per
disease; and

 

(5)           windstorm, fire, and extended
coverage insurance, insuring the construction of improvements and completed
STORE operated by FRANCHISEE, for the full replacement value thereof.

 

In the event
of damage to the STORE covered by insurance, the proceeds of any such insurance
shall be used to restore the STORE to its original condition (but in accordance
with FRANCHISOR’s then-current standards and specifications) as soon as
possible, unless such restoration is prohibited by the lease or FRANCHISOR has
otherwise consented to in writing. 
FRANCHISEE shall promptly provide to FRANCHISOR proof of such insurance
coverage upon the obtaining of such insurance, and at such other times upon the
request of FRANCHISOR.

 

FRANCHISEE
shall, prior to opening the STORE, file with FRANCHISOR, certificates of such
insurance and shall promptly pay all premiums on the policies as they become
due. All such liability insurance policies shall name FRANCHISOR and its
affiliates as

 

13

 

additional insureds.  In addition, the policies shall contain a
provision requiring 30 days prior written notice to FRANCHISOR of any proposed
cancellation, modification, or termination of insurance.  If FRANCHISEE at any time fails or refuses
to maintain in effect any insurance coverage required by FRANCHISOR, or to
furnish satisfactory evidence thereof, FRANCHISOR, at its option and in
addition to its other rights and remedies hereunder, may, but need not, obtain
such insurance coverage, on behalf of FRANCHISEE, and FRANCHISEE shall promptly
execute any applications or other forms or instruments required to obtain any
such insurance and pay to FRANCHISOR, on demand, any costs and premiums
incurred by FRANCHISOR.

 

7.                                      PROPRIETARY AND CONFIDENTIAL
INFORMATION OF FRANCHISOR

 

FRANCHISEE
acknowledges and agrees that FRANCHISOR possesses certain confidential and
proprietary information in which FRANCHISOR possesses valuable industrial and
intellectual property rights consisting of the methods, techniques, formats,
specifications, procedures, information, systems, methods of business
management, sales and promotion techniques and knowledge of and experience in
the operation and franchising of GJC STORES (the “Confidential
Information”).  FRANCHISOR will disclose
such parts of the Confidential Information as are required for the operation of
a GJC STORE to FRANCHISEE in furnishing FRANCHISEE the training program, the
OPERATING MANUAL and in guidance furnished to FRANCHISEE during the term of the
FRANCHISE.

 

FRANCHISEE
acknowledges and agrees that it will not acquire any interest in the
Confidential Information, other than the right to utilize it in the development
and operation of the STORE during the term of the FRANCHISE, and that the use
or duplication of the Confidential Information in any other business would
constitute an unfair method of competition with FRANCHISOR and other GJC STORE
franchisees.  FRANCHISEE acknowledges
that the Confidential Information is disclosed to FRANCHISEE solely on the
condition that FRANCHISEE agrees, and FRANCHISEE does hereby agree, that
FRANCHISEE (and each of its owners, if the FRANCHISEE is a company, partnership
or limited liability company): 
(1) will not use the Confidential Information in any other business
or capacity; (2) will maintain the absolute confidentiality of the
Confidential Information during and after the term of this Agreement;
(3) will not make unauthorized copies of any portion of the Confidential
Information disclosed in written form; and (4) will adopt and implement
all reasonable procedures prescribed from time to time by FRANCHISOR to prevent
unauthorized use or disclosure of the Confidential Information, including
without limitation, requiring (a) all owners, officers, directors, managing
members, and full time managers of FRANCHISEE and any other employee of
FRANCHISEE designated by FRANCHISOR to execute confidentiality and
non-competition agreements in the form attached hereto as Exhibit B (the
“Confidentiality and Non-Competition Agreement”) and (b) any other person who
will have access to Confidential Information to execute confidentiality
agreements in the form attached hereto as Exhibit C (the “Confidentiality
Agreement”).

 

Notwithstanding
anything to the contrary contained in this Agreement, the restrictions on
FRANCHISEE’s disclosure and use of the Confidential Information shall not apply
to (a) information, processes or techniques which are or become generally
known by operators of businesses that are competitive with franchisees of
FRANCHISOR, other than through

 

14

 

disclosure (whether deliberate or
inadvertent) by FRANCHISEE; or (b) disclosure of Confidential Information
in judicial, arbitral or administrative proceedings to the extent FRANCHISEE is
legally compelled to disclose such information, provided FRANCHISEE shall have
used its best efforts, and shall have afforded FRANCHISOR the opportunity, to
obtain an appropriate protective order or other assurance satisfactory to
FRANCHISOR of confidential treatment for the information required to be so
disclosed.

 

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

 

8.                                      ADVERTISING AND PROMOTION

 

A.                                    BY FRANCHISOR

 

FRANCHISOR
will develop, prepare and offer to FRANCHISEE (with or without charge) such
posters, ad formats, direct mail, point of sale and other advertising materials
for the STORE as FRANCHISOR deems appropriate and will implement a marketing
program as described below.  FRANCHISEE
shall be required to participate in all advertising and/or promotional
campaigns which FRANCHISOR may establish.

 

B.                                    MARKETING FUND

 

FRANCHISOR’s
experience and business judgment is that a unified marketing program, on both a
local and broader level, is an essential factor in the potential success of all
GJC STORES, to achieve top-of-mind awareness in potential customers, to build
and retain goodwill associated with the Name and Marks thereby hopefully
benefiting all GJC STORE operators, to create improved brand loyalty among new
and future customers and to achieve a favorable retail position for all GJC
STORES.  To maximize the possibility of
obtaining these goals, FRANCHISOR and FRANCHISEE have agreed to a marketing
program as follows:

 

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

 

15

 

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

 

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

 

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

 

(4)           FRANCHISEE will participate in all
advertising and public relations programs instituted by the Marketing Fund but
will retain full freedom to set FRANCHISEE’s own prices, except that FRANCHISOR
may specify maximum prices above which FRANCHISEE will not sell or otherwise
provide any goods or services and FRANCHISEE will comply with all such maximum
prices.  The Marketing Fund will, as
available, furnish FRANCHISEE with marketing, advertising and promotional
formats and sample materials and may charge the direct cost of producing them
plus shipping and handling.  FRANCHISOR
may use the Marketing Fund to pay the costs of advertising,
advertising-related, marketing and/or public relations programs, services
and/or materials with respect to locations, programs or

 

16

 

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

 

(5)           The Marketing Fund will be accounted
for separately from FRANCHISOR’s other funds (but may be commingled with
FRANCHISOR’s other funds) and will not be used to defray any of FRANCHISOR’s
general operating expenses, except for such salaries, administrative costs,
overhead and other expenses as FRANCHISOR may reasonably incur in activities
related to the Marketing Fund and its programs (including, without limitation,
conducting market research, preparing advertising and marketing materials,
insurance, legal costs and collecting and accounting for the Marketing
Fund.)  FRANCHISOR may, in FRANCHISOR’s
sole and absolute discretion, spend in any fiscal year an amount greater or
less than the aggregate contributions to the Marketing Fund in that year and
the Marketing Fund may borrow from FRANCHISOR or other lenders to cover
deficits of the Marketing Fund or cause the Marketing Fund to invest any surplus
for future use by the Marketing Fund. 
FRANCHISEE authorizes FRANCHISOR to collect for remission to the
Marketing Fund any advertising or promotional monies or credits offered by any
supplier based upon purchases by FRANCHISEE or otherwise.  All interest earned on monies contributed to
the Marketing Fund will be contributed to the Marketing Fund and will be used
to pay costs before using the Marketing Fund’s other assets.  A statement of monies collected and costs
incurred by the Marketing Fund will be prepared annually by FRANCHISOR and be
furnished to FRANCHISEE upon written request. 
FRANCHISOR may (but is not required to) have financial statements of the
Marketing Fund audited and any costs in connection therewith will be paid by
the Marketing Fund.  FRANCHISOR will
have the right to cause the Marketing Fund to be incorporated or operated
through an entity separate from FRANCHISOR as FRANCHISOR deems appropriate in
its sole and absolute discretion, and such successor entity will have all
rights and duties of FRANCHISOR relating to the Marketing Fund.

 

(6)           FRANCHISOR may (but is not required
to) remit a portion of Marketing Fund contributions back to a franchisee on
such terms and conditions as determined by FRANCHISOR including (but not
limited to) reimbursement of local advertising expenditures made by a
Franchisee and FRANCHISOR may waive and/or compromise claims for contributions
to, and/or claims against or with respect to, the Marketing Fund in
FRANCHISOR’s sole and absolute discretion, using the Marketing Fund to pay any
such claims.  FRANCHISOR will have sole
and absolute discretion as to whether or not FRANCHISOR takes legal or other
action against any franchisee who is in default of his or her obligations with
respect to the Marketing Fund (including obligations to make contributions) or
otherwise and whether a franchisee may be allowed to make direct advertising
expenditures in place of contributions to the Marketing Fund.

 

(7)           FRANCHISEE acknowledges and agrees
that the Marketing Fund is generally intended to maximize general recognition
of the Name and/or Marks and patronage of GJC STORES.  FRANCHISEE understands and acknowledges that the STORE may not
benefit directly or in proportion to its contribution to the Marketing Fund
from the development and placement of advertising and development of marketing
materials. FRANCHISOR will have no

 

17

 

obligation to cause other GJC STORES,
licensees or outlets (some of which may be under different arrangements) to
contribute to the Marketing Fund, any cooperative or engage in local
marketing.  FRANCHISEE and FRANCHISOR,
each having a mutual interest in, and agreeing on the critical practical
business importance of, FRANCHISEE’s and FRANCHISOR’s relationship being
governed solely by written instruments signed by the parties to be bound (and
not having either FRANCHISEE or FRANCHISOR subject to the uncertainty and
ambiguity inherent in the application of legal or other concepts not expressly
agreed to in writing by FRANCHISEE and FRANCHISOR), agree that FRANCHISEE’s and
FRANCHISOR’s rights and obligations with respect to the Marketing Fund and all
related matters are governed solely by the express terms of this Agreement and
that this Agreement (and the parties’ relationship and all rights and
obligations with respect to the Marketing Fund) does not create a “trust,”
“fiduciary relationship” or similar special arrangement.  FRANCHISOR may maintain Marketing Fund
assets in one or more accounts designated as “trust accounts” (or similarly
designated), for purposes of protecting such assets from claims of third-party
creditors or otherwise, but such designation and/or treatment will not operate
to create any “trust,” “fiduciary relationship” or similar special arrangement
as to the Marketing Fund, its assets or otherwise.

 

C.                                    BY FRANCHISEE.

 

FRANCHISEE
shall submit for prior approval by FRANCHISOR, any and all advertising and
promotional materials prepared by FRANCHISEE for the STORE and FRANCHISEE shall
not use any disapproved or unapproved advertising or promotional
materials.  FRANCHISEE shall comply with
any advertising requirements contained in its lease or sublease for the
premises of the STORE.  All advertising
and promotional materials used by FRANCHISEE must be completely factual, comply
with all applicable laws and conform to the highest standards of ethical
advertising and policies prescribed from time to time by FRANCHISOR.

 

FRANCHISEE
shall list and advertise the STORE in the principal classified telephone
directory distributed within its primary trading area, in such business
classifications as FRANCHISOR prescribes from time to time, utilizing
FRANCHISOR’s standard classified telephone directory advertisement at
FRANCHISEE’s sole expense.  When more
than one GJC STORE serves a metropolitan area, FRANCHISOR may require all such
GJC STORES to be listed in the classified directory advertisement and
FRANCHISEE shall pay an equal share of the cost thereof.

 

D.                                    WEBSITE.

 

FRANCHISEE
specifically acknowledges and agrees that any Website (as defined below) shall
be deemed “advertising” under this Agreement, and will be subject to (among
other things) FRANCHISOR’s approval under Paragraph C of this
Section.  (As used in this Agreement,
the term “Website” means an interactive electronic document, contained in a
network of computers linked by communications software that refers to the
STORE, other GJC STORES or the Names and Marks.  The term Website includes, but is not limited to, Internet and
World Wide Web home pages.)  In
connection with any Website, FRANCHISEE agrees to the following:

 

18

 

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

 

(2)           If FRANCHISOR approves, in writing, a
separate Website for FRANCHISEE, then each of the following provisions shall
apply:

 

(a)           FRANCHISEE shall not
establish or use the Website without FRANCHISOR’s prior written approval.

 

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

 

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

 

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

 

(e)           FRANCHISOR may
revoke its approval at any time, in writing, and require that FRANCHISEE
discontinue use of a separate Website.

 

9.                                      REPORTS, BOOKS AND RECORDS, INSPECTIONS

 

A.                                    GENERAL REPORTING 

 

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

 

19

 

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

 

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

 

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

 

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

 

FRANCHISEE
shall submit to FRANCHISOR a semi-annual Profit and Loss Statement, signed and
certified by FRANCHISEE.  The Profit and
Loss Statement shall be prepared by a Certified Public Accountant, in accordance
with GAAP, and shall provide FRANCHISEE’s sales, expenses and financial status
with respect to the STORE.  FRANCHISEE
shall submit to FRANCHISOR a copy of the original signed 1120 or 1120S tax form
each and every year or any other forms which take the place of the 1120 or
1120S forms.  FRANCHISEE shall also
provide FRANCHISOR with copies of signed original sales and use tax forms
contemporaneously with their filing with the appropriate state or local authority.  FRANCHISOR reserves the right to require
such further information concerning the STORE as FRANCHISOR may from time to
time reasonably request.

 

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

 

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

 

20

 

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

 

B.                                    INSPECTIONS

 

FRANCHISOR’s
authorized representatives shall have the right to enter the Location and the
STORE during business hours, with or without notice, without unreasonably
disrupting FRANCHISEE’s business operations, for the purposes of examining
same, conferring with FRANCHISEE’s employees, inspecting and checking
operations, food, beverages, furnishings, interior and exterior decor,
supplies, fixtures, and equipment, and determining whether the business is
being conducted in accordance with this Agreement, the GLORIA JEAN’S System and
the OPERATING MANUALS.  If any such
inspection indicates any deficiency or unsatisfactory condition with respect to
any matter required under this Agreement or the OPERATING MANUALS, including
but not limited to quality, cleanliness, service, health and authorized product
line, FRANCHISOR will notify FRANCHISEE in writing of FRANCHISEE’s
non-compliance with the OPERATING MANUALS, the GLORIA JEAN’S System, or this
Agreement.  FRANCHISEE shall have 24
hours after receipt of such notice, or such other greater time period as
FRANCHISOR may provide, to correct or repair such deficiency or unsatisfactory
condition, if it can be corrected or repaired within such period of time.  If not, FRANCHISEE shall within such time
period commence such correction or repair and thereafter diligently pursue it
to completion.

 

C.                                    AUDITS

 

Upon ten (10)
days prior written notice, FRANCHISOR, its agents or representatives may audit
FRANCHISEE’s books and records.  In
connection with such audit(s) or other operational visits, FRANCHISEE shall
keep its cash receipts records, monthly control forms, accounts payable records
including all payments to FRANCHISEE’s suppliers at the Location or at its
business office for five (5) years after their due date, which records shall be
available for examination by FRANCHISOR or its representative(s), at
FRANCHISOR’s request.  Without any prior
written notice, FRANCHISOR, its agents or representatives may inspect the STORE
and FRANCHISEE’s daily, weekly and monthly statistical information which is
required under the OPERATING MANUAL. 
FRANCHISEE shall make such information available for such inspections in
recognition that an operational inspection cannot succeed without review of
essential statistical information.  If
any audit or other investigation reveals an under-reporting or under-recording
error of two percent (2%) or more, then in addition to any other sums due, the
expenses of the audit/inspection shall be borne and paid by FRANCHISEE upon
billing by FRANCHISOR, plus interest as provided under Section 12.D below.

 

21

 

10.                               NAMES AND MARKS

 

A.                                    OWNERSHIP OF NAMES AND MARKS

 

FRANCHISOR is
the licensee of GJGC Corp. of the Names and Marks licensed to FRANCHISEE by
this Agreement and FRANCHISEE’s right to use the Names and Marks is derived
solely from this Agreement and is limited to the operation of the STORE in
compliance with this Agreement at the Location (or a substitute premises
hereafter approved by FRANCHISOR as provided in Section 2), and by all
applicable standards, specifications and operating procedures prescribed by
FRANCHISOR from time to time during the term of this FRANCHISE.  FRANCHISEE agrees that all usage of the
Names and Marks, including usage on computerized media and/or electronic media
if approved by FRANCHISOR (including but not limited to the World Wide Web, the
Internet, Telnet, newsgroups, bulletin boards, FTP, and the like), by
FRANCHISEE and any goodwill established thereby shall inure to the exclusive
benefit of FRANCHISOR and GJGC Corp. 
FRANCHISEE further agrees that after the termination or expiration of
the FRANCHISE, it will not directly or indirectly at any time or in any manner
identify, the STORE, FRANCHISEE, any owner or other business as a GJC STORE, a
former GJC STORE or as a franchisee of or otherwise associated with FRANCHISOR,
or use in any manner or for any purpose any of the Names and Marks or other
indicia of a GJC STORE.

 

B.                                    LIMITATIONS ON FRANCHISEE’S USE OF NAMES AND
MARKS

 

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

 

C.                                    NOTIFICATION OF INFRINGEMENTS AND CLAIMS

 

FRANCHISEE shall
immediately notify FRANCHISOR of any apparent infringement of or challenge to
FRANCHISEE’s use of any of the Names and Marks or claim by any person of any
rights in any of the Names and Marks and FRANCHISEE shall not communicate with
any person other than FRANCHISOR and GJGC Corp. and their counsel in connection
with any such infringement, challenge or claim.  FRANCHISOR and its affiliates shall have sole discretion to take
such action as they deem appropriate and the right to exclusively control any
litigation or Patent and Trademark Office or other administrative proceeding
arising out of any such infringement, challenge or claim or otherwise relating
to any Names and Marks.  FRANCHISEE
agrees to execute any and all instruments and documents, render such
assistance, and do such acts and things as may, in the opinion of FRANCHISOR’s
or

 

22

 

GJGC Corp.’s counsel, be necessary or
advisable to protect and maintain FRANCHISOR’s and GJGC Corp.’s interests in any
litigation or Patent and Trademark Office or other proceeding or to otherwise
protect and maintain FRANCHISOR’s and GJGC Corp.’s interests in any of the
Names and Marks.

 

D.                                    DISCONTINUANCE OF USE OF NAME AND/OR MARKS 

 

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

 

E.                                      INDEMNIFICATION OF THE FRANCHISEE.

 

FRANCHISOR
agrees to indemnify FRANCHISEE against and to reimburse FRANCHISEE for all
damages for which FRANCHISEE is held liable in any proceeding rising out of
FRANCHISEE’s use of any of the Names and Marks pursuant to and in compliance
with this Agreement and for all costs reasonably incurred by FRANCHISEE in the
defense of any such claim brought against FRANCHISEE or in any such proceeding
in which FRANCHISEE is named as a party; provided that FRANCHISEE has timely
notified FRANCHISOR of such claim or proceeding and has otherwise complied with
this Agreement.

 

11.                               INITIAL FRANCHISE FEE

 

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

 

12.                               ROYALTY FEE

 

A.                                    AMOUNT OF ROYALTY FEE

 

FRANCHISEE
agrees to pay to FRANCHISOR a royalty fee of six percent (6%) of the gross
sales of the STORE, as defined in Paragraph B below, payable as provided
in Paragraph C below.

 

23

 

B.                                    DEFINITION OF “GROSS SALES”

 

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

 

C.                                    PAYMENT OF ROYALTY FEE AND MARKETING FUND
CONTRIBUTION

 

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

 

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

 

D.                                    INTEREST ON LATE PAYMENTS AND LATE FEES

 

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

 

24

 

13.                               TERMINATION OF FRANCHISE

 

A.                                    TERMINATION BY FRANCHISEE

 

If FRANCHISEE
has materially complied with all of its obligations under this Agreement and
FRANCHISOR has materially breached this Agreement, FRANCHISEE will have a right
to terminate this Agreement if (1) FRANCHISEE provides FRANCHISOR with written
notice of FRANCHISOR’s breach within ninety (90) days of the occurrence of the
material breach and (2) FRANCHISOR fails to cure FRANCHISOR’s breach within
sixty (60) days after FRANCHISOR receives the written notice of such breach or,
in a case where FRANCHISOR’s breach cannot reasonably be cured within sixty
(60) days after FRANCHISOR receives written notice of its breach, fail to
provide FRANCHISEE with reasonable evidence of FRANCHISOR’s continuing efforts
to correct its breach within a reasonable time. If FRANCHISOR disputes the
occurrence of a material breach or FRANCHISEE’s allegation that FRANCHISOR has
failed to timely cure any breach or to provide FRANCHISEE with reasonable
evidence of FRANCHISOR’s continuing efforts to correct its breach within a
reasonable time, then FRANCHISOR will provide FRANCHISEE with written notice of
the dispute.  FRANCHISEE must then commence
mediation pursuant to this Agreement within twenty (20) days after FRANCHISEE
receives such written notice. 
FRANCHISEE’s failure to commence mediation within such twenty (20) day
period shall operate as a waiver of any alleged breach by FRANCHISOR to
date.  During the pendency of the
mediation proceeding (or arbitration proceeding if the dispute cannot be
resolved by mediation pursuant to Paragraph A of Section 16), this Agreement
shall not terminate unless otherwise terminable by FRANCHISOR hereunder or upon
agreement of the parties.

 

To terminate
this Agreement under this Paragraph A, FRANCHISEE must give FRANCHISOR a
separate written notice of termination which will be effective thirty (30) days
after delivery of such notice to FRANCHISOR.

 

B.                                    BY FRANCHISOR

 

FRANCHISOR may
terminate this Agreement effective upon delivery of notice of termination to
FRANCHISEE, if:

 

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

 

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

 

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

 

25

 

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

 

(5)           FRANCHISEE suffers termination of or
fails to obtain renewal or extension of the lease or sublease for, or otherwise
fails to maintain possession of the Location or a substitute premises approved
by FRANCHISOR;

 

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

 

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

 

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

 

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

 

(10)         FRANCHISEE fails to pay any amount owed
to FRANCHISOR or its affiliates when the same is due and payable and does not
correct such failure within five (5) days after written notice of such failure
to comply is delivered to FRANCHISEE;

 

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

 

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

 

(13)         FRANCHISEE fails to comply with any
other material provision of this Agreement, any lease or sublease, any other
agreement with FRANCHISOR and/or any of its affiliates or any mandatory
specification, standard or operating procedure prescribed by FRANCHISOR and
does not correct such failure within fifteen (15) days after written notice of
such failure to comply (which shall describe the action that FRANCHISEE must
take) is delivered to FRANCHISEE.

 

26

 

C.                                    RIGHT OF FRANCHISOR TO DISCONTINUE PRODUCTS
TO FRANCHISEE AFTER NOTICE OF DEFAULT TO FRANCHISEE

 

If FRANCHISOR
delivers to FRANCHISEE a notice of default or non-compliance pursuant to
Section 13 of this Agreement, in addition FRANCHISOR’s other rights and
remedies, FRANCHISOR reserves the right of FRANCHISOR (and its affiliates) if
currently selling PRODUCTS, to discontinue selling PRODUCTS to FRANCHISEE until
such time as FRANCHISEE corrects the default. 
Additionally, if FRANCHISEE fails to adhere to the standard credit terms
of FRANCHISOR’s affiliates with respect to payment for any PRODUCTS sold by
FRANCHISOR’s affiliates to FRANCHISEE, FRANCHISOR’s affiliates reserve the
right to cease selling PRODUCTS to FRANCHISEE or requiring FRANCHISEE to pay
C.O.D. (i.e., cash on delivery) by certified check until such time as
FRANCHISEE corrects this problem.

 

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

 

Any default by
FRANCHISEE (or any person/company affiliated with FRANCHISEE) under the terms
and conditions of this Agreement or any lease or sublease, or any other
agreement between FRANCHISOR, or its affiliate, and FRANCHISEE, shall be deemed
to be a material default of each and every said agreement, and furthermore, in
the event of termination, for any cause, of this Agreement, or any other
agreement between the parties hereto, FRANCHISOR may, at its option, terminate
any or all said agreements.  No right or
remedy which FRANCHISOR may have (including termination) is exclusive of any
other right or remedy provided under law or equity and FRANCHISOR may pursue
any rights and/or remedies available.

 

14.                               FRANCHISEE’S OBLIGATION UPON
TERMINATION OR EXPIRATION

 

A.                                    PAYMENT OF AMOUNTS OWED TO FRANCHISOR

 

FRANCHISEE
agrees to pay to FRANCHISOR and its affiliates within ten (10) days after the
effective date of termination or expiration of the FRANCHISE, or such later
date that the amounts due to FRANCHISOR and its affiliates are determined, such
royalty fees, advertising contributions, amounts owed for PRODUCTS purchased by
FRANCHISEE from FRANCHISOR and its affiliates and all other amounts owed to
FRANCHISOR and its affiliates which are then unpaid, including any interest and
late fees due pursuant to this Agreement as provided in Paragraph D of
Section 12.

 

B.                                    RETURN OF MANUALS.

 

FRANCHISEE
agrees that upon termination or expiration of the FRANCHISE, it will
immediately return to FRANCHISOR all copies of the OPERATING MANUAL for a GJC
STORE which have been loaned to it by FRANCHISOR.

 

C.                                    CANCELLATION OF ASSUMED NAMES AND TRANSFER OF
PHONE NUMBERS.

 

FRANCHISEE
agrees that upon termination or expiration of the FRANCHISE, it will take such
action as may be required to cancel all assumed names or equivalent
registrations

 

27

 

relating to its use of the Names and Marks
and to notify the telephone company and all listing agencies of the termination
or expiration of FRANCHISEE’s right to use any telephone number and any
classified and other telephone directory listings associated with any Names and
Marks and with a GJC STORE and to authorize transfer of same to FRANCHISOR or
its designee.  FRANCHISEE acknowledges
that as between FRANCHISOR and FRANCHISEE, FRANCHISOR has the sole right to and
interest in all telephone numbers and directory listings associated with any
Names and Marks of the STORE and FRANCHISEE authorizes FRANCHISOR, and hereby
appoints FRANCHISOR and any officer of FRANCHISOR as its attorney-in-fact, to
direct the telephone company and all listing agencies to transfer the same to
FRANCHISOR or its designee should FRANCHISEE fail or refuse to do so.  The telephone company and all listing
agencies may accept such direction or this Agreement as conclusive evidence of
the exclusive rights of FRANCHISOR in such telephone numbers and directory
listings and its authority to direct their transfer.

 

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

 

D.                                    FRANCHISOR HAS RIGHT TO PURCHASE STORE.

 

If this
Agreement is terminated prior to its scheduled expiration date by FRANCHISOR in
accordance with the provisions of this Agreement, FRANCHISOR or its designee
shall have the right and option (exercisable by written notice thereof within
thirty (30) days after the determination of the purchase price pursuant to this
Paragraph) to purchase (at the purchase price determined pursuant to this
Paragraph) from FRANCHISEE some or all of the assets (including FRANCHISEE’s
inventory of saleable PRODUCTS which have been fully paid for by FRANCHISEE) of
the STORE and if the premises were not leased to FRANCHISEE by FRANCHISOR or
its affiliates, the right to an assignment of FRANCHISEE’s lease or sublease
for the premises of the STORE (or, if assignment is prohibited, a sublease for
the full remaining term and on the same terms and conditions as FRANCHISEE’s
lease).  There shall be no provision for
payment for leasehold improvements, the title of which shall be governed by the
terms of FRANCHISEE’s lease or sublease for the STORE premises.  The purchase price for the assets of the
STORE shall be the depreciated value of those assets as shown on FRANCHISEE’s
most current federal tax return; provided that the purchase price shall not
contain any factor or increment for “goodwill” or “going concern value.”  FRANCHISOR may exclude from the assets
purchased hereunder any fixtures, equipment, signs or PRODUCTS and supplies in
the inventory of the STORE that are not approved as meeting quality standards
for a GJC STORE.  The purchase price
shall be paid by FRANCHISOR in cash at the closing of the purchase.  Contemporaneously therewith, FRANCHISEE
shall: (i) deliver instruments transferring good and merchantable title to
the assets purchased, free and clear of all liens and encumbrances to
FRANCHISOR or its nominee with all sales and other transfer taxes paid by
FRANCHISEE; and (ii) assign or transfer all licenses or permits which may
be assigned or transferred.  In the
event that FRANCHISEE cannot deliver clear title to all of the purchased assets
as aforesaid, or in the event there shall be other unresolved issues, the
closing of the sale shall be accomplished through an escrow.  Further, FRANCHISEE and FRANCHISOR shall,
prior to closing, comply with any applicable bulk filings required in the state
where the STORE is located.  If
FRANCHISOR

 

28

 

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

 

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

 

In the event
FRANCHISOR does not exercise said option to purchase, FRANCHISEE shall, within
ten (10) days after the earlier of (i) the expiration of the option period
without exercise by FRANCHISOR of its option or (ii) service by FRANCHISOR
upon FRANCHISEE of written notice that FRANCHISOR does not intend to exercise
its option, remove from the STORE by physical removal or in the case of signs,
by obliteration, painting over or otherwise, and cease to use, either at the
STORE or elsewhere, all names, distinctive architectural or other designs, signs,
pictures, crests, shields, and other advertising and equipment which are
indicative of FRANCHISOR or FRANCHISEE. 
All PRODUCTS which are not merchantable due to physical deterioration or
which are “out-of-date” shall be destroyed by FRANCHISEE.

 

E.                                      COVENANT NOT TO COMPETE

 

If this
Agreement expires or is terminated by FRANCHISOR for any reason, FRANCHISEE and
its owners agree that for a period of two (2) years, commencing on the
effective date of termination of this Agreement or the date on which FRANCHISEE
ceases to conduct the business conducted pursuant to this Agreement, whichever
is later, neither FRANCHISEE nor its owners (through a member of the immediate
family of FRANCHISEE or otherwise) will have any interest as an owner (except
of publicly-traded securities and interests in other GJC STORES pursuant to
other franchise agreements heretofore or hereafter entered into) of, or assist
or perform services as a director, officer, employee, consultant,
representative, agent, or in any other capacity for, any business principally
offering products substantially similar to the PRODUCTS then being offered by
the majority of the GJC STORES and located within either: (i) the Standard
Metropolitan Statistical Area wherein the STORE is located; or (ii) a ten
(10) mile radius from any then existing GJC STORE, nor will they have any
interest, as aforesaid, in any entity which franchises or grants to others the
right to sell products similar to the PRODUCTS then being offered by the
majority of the GJC STORES.

 

F.                                      CONTINUING OBLIGATIONS

 

All
obligations of FRANCHISOR and FRANCHISEE which expressly or by their nature
survive the expiration or termination of the FRANCHISE shall continue in full
force and

 

29

 

effect subsequent to and notwithstanding the
expiration or termination of this Agreement and until they are satisfied in
full or by their nature expire.

 

15.                               ASSIGNMENT, TRANSFER AND ENCUMBRANCE

 

A.                                    BY FRANCHISOR.

 

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

 

B.                                    FRANCHISEE MAY NOT ASSIGN WITHOUT APPROVAL OF
FRANCHISOR

 

The FRANCHISE
is personal to FRANCHISEE (and its owners) and neither the FRANCHISE, this
Agreement (except as hereinafter provided with respect to assignment to a
partnership, limited liability company or corporation), the STORE or its assets
(other than in the ordinary course of its business) nor any part or all of the
ownership of FRANCHISEE may be voluntarily, involuntarily, directly or
indirectly assigned, subdivided, subfranchised or otherwise transferred by
FRANCHISEE or its owners (including, without limitation, in the event of the
death of FRANCHISEE or an owner of FRANCHISEE, by will, declaration of or
transfer in trust or the laws of intestate succession) without the prior
written consent of FRANCHISOR, and any such assignment or transfer without such
consent shall constitute a breach hereof and shall convey no rights to or
interest in the FRANCHISE, this Agreement, the STORE or its assets or any part or
all of the ownership interest in FRANCHISEE, and shall be null and void.  A transfer of ownership in the STORE may
only be made in conjunction with a transfer of the FRANCHISE.  If the transfer is of the FRANCHISE, this
Agreement or a controlling interest in FRANCHISEE, or is one of a series of
transfers which in the aggregate constitute the transfer of the FRANCHISE, this
Agreement or a controlling interest in FRANCHISEE, all of the following
conditions must be met prior to, or concurrently with the effective date of the
transfer: (1) the transferee must have sufficient business experience and
financial resources; (2) the transferee must assume all existing
obligations of the transferor hereunder and under the lease or sublease;
(3) the transferee must attend and complete the training program to the
satisfaction of FRANCHISOR; (4) if any part of the sale price of the
transferred interest is financed, FRANCHISEE and its owners and the transferor
shall have agreed that all obligations of the transferee to either of them
shall be subordinate to the obligations of the transferee to pay all fees and
other amounts due to FRANCHISOR and its affiliates, and otherwise comply with
the Agreement or the franchise agreement executed by the transferee;
(5) the STORE must be in compliance with or be brought up to the
then-current design and equipment standards for GJC STORES; and (6) the
transferee must execute and be bound by all provisions of FRANCHISOR’s
then-current form of franchise agreement (and sublease if the STORE was
subleased directly from FRANCHISOR or its affiliates), which may provide for a
higher royalty fee and advertising contributions and other significant
provisions may vary from what is provided hereunder and shall provide for a
term equal to the remaining term of the FRANCHISE.  FRANCHISOR shall not charge such transferee an initial franchise
fee for the

 

30

 

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

 

C.                                    ASSIGNMENT TO PARTNERSHIP, LIMITED
LIABILITY COMPANY OR CORPORATION.

 

If FRANCHISEE
is in full compliance with this Agreement, FRANCHISOR shall not unreasonably
withhold its consent to a transfer of the FRANCHISE, this Agreement, the STORE
and its assets to a partnership, limited liability company or corporation which
conducts no business other than the STORE (and other GJC STORES under franchise
agreements with FRANCHISOR), which is actively managed by FRANCHISEE and in
which FRANCHISEE owns and controls not less than fifty-one percent (51%) of the
equity and voting power of all issued and outstanding stock or membership or
partnership interest; provided that the corporation, limited liability company
or partnership execute FRANCHISOR’s standard assignment and assumption
agreement, and the shareholders, members or partners, in form approved by
FRANCHISOR, agree to be personally bound jointly and severally by all
provisions of this Agreement and guarantee the performance thereof and all
other agreements between FRANCHISEE and FRANCHISOR and its affiliates, to the
same extent as if they had been parties to the original agreements, and all
issued and outstanding stock certificates of such corporation shall bear a
legend reflecting or referring to the restrictions of Paragraph B of this
Section.

 

D.                                    FRANCHISOR’S RIGHT OF FIRST REFUSAL.

 

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

 

E.                                      DEATH OR PERMANENT DISABILITY OF FRANCHISEE

 

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

 

31

 

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

 

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

 

F.                                      RELEASE, EFFECT OF TRANSFER

 

In connection
with any
assignment, etc. of any interest of or by FRANCHISEE (including, but not
limited to, an assignment to a corporation) FRANCHISEE and each of its owners
and/or affiliates and the transferee (and each owner and/or affiliate of the
transferee) if the transferee or such owner and/or affiliate is or has been a
franchisee of, or had any other relationship with, FRANCHISOR or any of its affiliates
must execute a general release in the form approved by FRANCHISOR.

 

FRANCHISOR’s
consent to a transfer, or failure to exercise any right-of-first-refusal, will
not constitute a waiver of any claims FRANCHISOR may have against FRANCHISEE
(or its owners or affiliates), nor will it be deemed a waiver of FRANCHISOR’s
right to demand exact compliance with any of the terms or conditions of this
Agreement or any other agreement by any transferor or transferee.  Unless FRANCHISOR expressly in writing releases
FRANCHISEE from its obligations under this Agreement (which FRANCHISOR has no
obligation to do), FRANCHISEE will remain and be liable for all of the payment
and other obligations under this Agreement (and any other agreement with us
and/or any affiliate) and any Franchise Agreement and/or other agreement
executed by any transferee.  Any
transfer (including any transfer consented to by FRANCHISOR and even if the
transferee executes a new franchise agreement) will not act as a termination of
FRANCHISEE’s (or its owner’s) confidentiality, indemnity, covenant not to
compete and other obligations under this Agreement which by their nature
survive the term of this Agreement.  In
the event of a transfer of an ownership interest in FRANCHISEE, the
transferring owner must also comply with such obligations, including, without
limitation, the covenant not to compete under Section 14.E.

 

16.                               DISPUTE RESOLUTION

 

A.                                    MEDIATION

 

Except for
controversies, disputes, or claims related to or based on FRANCHISEE’s use of
the Names and Marks, FRANCHISEE’s obligation to make royalty or

 

32

 

other payments to FRANCHISOR or FRANCHISEE’s
post-termination obligations, the parties agree to submit any dispute arising
between them to non-binding mediation before submitting dispute to
arbitration.  The mediation is to be
administered by the American Arbitration Association and conducted by one (1)
mediator selected by the American Arbitration Association under the
then-current commercial mediation rules of the American Arbitration
Association, at a facility selected by the mediator that is located within
fifty (50) miles of FRANCHISOR’s then-current principal place of business.  FRANCHISOR and FRANCHISEE agree that
statements made by FRANCHISOR, FRANCHISEE or any other party in any such
mediation proceeding will not be admissible in any arbitration or other legal
proceeding.  Each party shall bear its
own costs and expenses of conducting the mediation and share equally the costs
of any third parties who are required to participate in the mediation.

 

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

 

B.                                    ARBITRATION

 

ALL
CONTROVERSIES, DISPUTES OR CLAIMS ARISING BETWEEN FRANCHISOR, ITS AFFILIATES,
OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND ATTORNEYS (IN THEIR REPRESENTATIVE
CAPACITY) AND FRANCHISEE (AND ITS OWNERS AND GUARANTORS, IF APPLICABLE) ARISING
OUT OF OR RELATED TO IN WHOLE OR IN PART: 
(1) THIS AGREEMENT OR ANY RELATED AGREEMENT; (2) THE
RELATIONSHIP OF THE PARTIES HERETO; (3) THE VALIDITY OF THIS AGREEMENT OR
ANY RELATED AGREEMENT, OR ANY PROVISION THEREOF; OR (4) ANY SPECIFICATION,
STANDARD OR OPERATING PROCEDURE RELATING TO THE ESTABLISHMENT OR OPERATION OF
THE STORE, SHALL BE SUBMITTED FOR BINDING ARBITRATION TO BE ADMINISTERED BY THE
AMERICAN ARBITRATION ASSOCIATION; PROVIDED THAT FRANCHISOR AND ITS AFFILIATES
SHALL HAVE THE RIGHT TO ENFORCE BY JUDICIAL PROCESS ANY RIGHTS IT MAY HAVE TO
POSSESSION OF THE PREMISES OF THE STORE UNDER ANY SUBLEASE OR COLLATERAL
ASSIGNMENT OF LEASE WITH FRANCHISEE. 
SUCH ARBITRATION PROCEEDING SHALL BE CONDUCTED BY A SINGLE ARBITRATOR
APPROVED BY THE AMERICAN ARBITRATION ASSOCIATION IN ACCORDANCE WITH ITS RULES
AT A FACILITY DETERMINED BY THE ARBITRATOR THAT IS LOCATED WITHIN FIFTY (50)
MILES OF FRANCHISOR’S PRINCIPAL PLACE OF BUSINESS AND SHALL BE CONDUCTED IN
ACCORDANCE WITH THE THEN-CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION.  JUDGMENT UPON
THE AWARD MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. THE PARTIES
FURTHER AGREE THAT, IN CONNECTION WITH ANY SUCH ARBITRATION PROCEEDING, EACH
SHALL SUBMIT OR FILE ANY CLAIM WHICH WOULD CONSTITUTE A COMPULSORY COUNTERCLAIM
(AS DEFINED BY RULE 13 OF THE FEDERAL RULES OF CIVIL PROCEDURE) WITHIN THE
SAME PROCEEDING AS THE CLAIM TO WHICH IT RELATES.  ANY SUCH CLAIM WHICH IS NOT SUBMITTED OR FILED IN SUCH PROCEEDING
SHALL BE FOREVER BARRED.

 

33

 

THIS PROVISION SHALL CONTINUE IN FULL FORCE
AND EFFECT SUBSEQUENT TO AND NOTWITHSTANDING EXPIRATION OR TERMINATION OF THIS
AGREEMENT.  FRANCHISEE AND FRANCHISOR
AGREE THAT ARBITRATION SHALL BE CONDUCTED ON AN INDIVIDUAL, NOT A CLASS-WIDE,
BASIS AND THAT FRANCHISOR (AND/OR ITS AFFILIATE AND THEIR RESPECTIVE
SHAREHOLDER, OFFICER, DIRECTORS, AGENTS, AND/OR EMPLOYEES) AND FRANCHISEE
(AND/OR ITS OWNERS, GUARANTORS, AFFILIATES, AND/OR EMPLOYEES) SHALL BE THE ONLY
PARTIES TO ANY ARBITRATION PROCEEDING DESCRIBED IN THIS SECTION AND THAT NO
SUCH ARBITRATION PROCEEDING MAY BE CONSOLIDATED WITH ANY OTHER ARBITRATION
PROCEEDING, NOR SHALL ANY OTHER PERSON BE JOINED AS A PARTY TO SUCH ARBITRATION
PROCEEDING.

 

C.                                    WAIVER OF PUNITIVE DAMAGES AND JURY TRIAL.

 

Except as
provided under Section 23, FRANCHISOR and FRANCHISEE hereby waive to the
fullest extent permitted by law, any right to or claim for any punitive or
exemplary damages against the other and agree that in the event of a dispute
between them (including arbitration proceedings) each shall be limited to the
recovery of any actual damages sustained by it.  FRANCHISOR and the FRANCHISEE irrevocably waive trial by jury in
any action, proceeding or counterclaim, whether at law or in equity, brought by
either of them.

 

D.                                    LIMITATION OF CLAIMS.

 

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

 

E.                                      CONSENT TO JURISDICTION.

 

FRANCHISEE agrees
that any action arising out of or relating to this Agreement otherwise as a
result of the relationship between FRANCHISOR and FRANCHISEE (which is not
required to be arbitrated hereunder or as to which arbitration is waived) must
be commenced in the state or federal court of general jurisdiction closest to
FRANCHISOR’s then-current principal place of business, and FRANCHISEE and each
of its owners irrevocably submits to the jurisdiction of such courts and waives
any objection to jurisdiction or venue of such court.

 

F.                                      SURVIVAL AND CONSTRUCTION

 

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

 

34

 

Each party
reserves the right to challenge any law, rule or judicial or other construction
which would have the effect of varying or rendering ineffective any provision
of this Agreement. The benefits and protections of this Agreement which apply
to FRANCHISOR (including, but not limited to, all provisions relating to
indemnification and/or releases) shall also apply to any past, current and/or
future affiliates as if they were expressly named beneficiaries of such
provisions.

 

G.                                    COSTS AND ATTORNEYS’ FEES  

 

If a claim for
amounts owed by FRANCHISEE to FRANCHISOR or its affiliate is asserted in any
legal proceeding before a court of competent jurisdiction or an arbitrator, or
if FRANCHISOR or FRANCHISEE is required to enforce this Agreement in a judicial
or arbitration proceeding, the party prevailing in such proceeding shall be
entitled to recover from the other its costs and expenses, including reasonable
accounting, paralegal, legal, expert witness, attorneys’ fees and arbitrator
fees, whether incurred prior to, in preparation for or in contemplation of the
filing of any such proceeding.  If
FRANCHISOR engages legal counsel in connection with any failure by FRANCHISEE
to pay when due amounts due the FRANCHISOR or to submit when due any reports,
information or supporting records, or in connection with any failure to
otherwise comply with this Agreement, the FRANCHISEE shall reimburse the
FRANCHISOR for any of the above listed costs and expenses incurred by it,
whether or not legal proceedings are initiated.

 

H.                                    INJUNCTIVE RELIEF

 

Nothing in
this Agreement bars FRANCHISOR’s right to obtain specific performance of the
provisions of this Agreement and injunctive relief against threatened conduct
that will cause FRANCHISOR, the Names and Marks or the GLORIA JEAN’S System
loss or damage, under customary equity rules, including applicable rules for
obtaining restraining orders and preliminary injunctions (subject to
FRANCHISOR’s obligation to arbitrate the underlying claim if required by
Section 16.B).  FRANCHISEE  agrees that FRANCHISOR may obtain such
injunctive relief in addition to such further or other relief as may be
available at law or in equity. 
FRANCHISEE agrees that FRANCHISOR will not be required to post a bond to
obtain injunctive relief and that FRANCHISEE’s only remedy if an injunction is
entered against FRANCHISEE will be the dissolution of that injunction, if
warranted, upon due hearing (all claims for damages by injunction being
expressly waived hereby).

 

I.                                         BINDING EFFECT, MODIFICATION AND REPRESENTATIONS

 

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

 

35

 

any representations or agreements on behalf
of FRANCHISOR, and any such modifications, representations and/or agreements
shall not be binding on FRANCHISOR.

 

17.          CONSTRUCTION,
ETC.

 

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

 

18.                               NON-RETENTION OF FUNDS

 

FRANCHISEE
does not have the right to offset or withhold payments owed to FRANCHISOR
(and/or any affiliate) for amounts purportedly due FRANCHISEE (or any affiliate
of FRANCHISEE’s) from FRANCHISOR and/or any of its affiliates as a result of
any dispute of any nature or otherwise, but will pay such amounts to FRANCHISOR
(or FRANCHISOR’s affiliate) and only thereafter seek reimbursement in
accordance with the provisions of Section 16. 
If FRANCHISEE believes that FRANCHISOR or any other person/entity has
violated any legal duty to FRANCHISEE, FRANCHISEE will, notwithstanding such
dispute, pay as designated all sums specified under this Agreement or any other
agreement, whether to be paid to FRANCHISOR or any affiliate (including
royalties, any unpaid portion of the initial franchise fee and any marketing
contributions and/or amounts payable to franchisee councils and/or
cooperatives) and will not withhold any payments until and unless such dispute
has been finally determined in FRANCHISEE’s favor.

 

36

 

19.                               SEVERABILITY; SUBSTITUTION OF VALID PROVISIONS

 

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

 

20.                               WAIVERS

 

FRANCHISOR’s
waiver of any breach(es) under this or any other agreement (whether by failure
to exercise a power or right available to FRANCHISOR, failure to insist on
strict compliance with the terms, obligations or conditions of any agreement,
development of a custom or practice between FRANCHISEE and FRANCHISOR (or
others) which is at variance with the terms of any agreement, acceptance of
partial or other payments or otherwise), whether with respect to FRANCHISEE or
others, will not affect FRANCHISOR’s rights with regard to any breach by
FRANCHISEE or anyone else or constitute a waiver of FRANCHISOR’s right to
demand exact compliance by FRANCHISEE with the terms of this Agreement or
otherwise.  Subsequent or other
acceptance by FRANCHISOR of any payments or performance by FRANCHISEE will not
be deemed a waiver of any preceding or other breach by FRANCHISEE of this
Agreement or otherwise.  The rights and
remedies provided in this Agreement are cumulative and FRANCHISOR will not be
prohibited from exercising any rights or remedies provided under this Agreement
or permitted under law or equity.

 

21.                               CHOICE OF LAWS

 

Except to the
extent governed by the United States Trademark Act of 1946 (Lanham Act, 15
U.S.C. §§ 1051 et  seq.) and except that all issues relating
to arbitrability or the enforcement or interpretation of the agreement to
arbitrate set forth in Paragraph B of this Section shall be governed by
the Federal Arbitration Act (9 U.S.C. §§ 1 et  seq.) and the
federal common law relating to arbitration, this Agreement, the FRANCHISE and
all other matters concerning FRANCHISEE and FRANCHISOR (and its affiliates)
shall be governed by the internal laws of the state where the STORE is located
(without reference to the choice of law and conflict of law rules of that
state), except that the provisions of any law of that state regarding franchise
disclosure, registration or relationship and the regulations thereunder shall
not apply unless its jurisdictional requirements are met independently without
reference to this Paragraph.

 

22.                               ENTIRE AGREEMENT

 

This
Agreement, including the introduction and exhibits to it, together with the
OPERATING MANUAL, constitutes the entire agreement between FRANCHISOR and

 

37

 

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

 

23.                               INDEPENDENT CONTRACTORS AND
INDEMNIFICATION

 

FRANCHISOR and
FRANCHISEE are independent contractors. 
FRANCHISOR and FRANCHISEE agree that there does not exist any fiduciary
relationship between them.  FRANCHISEE
shall conspicuously identify FRANCHISEE at the premises of the STORE and in all
dealings with suppliers, as the owner of the STORE.  Neither FRANCHISOR nor FRANCHISEE shall make any agreements or
representations in the name of or on behalf of the other or that their
relationship is other than FRANCHISOR and FRANCHISEE and neither FRANCHISOR nor
FRANCHISEE shall be obligated by or have any liability under any agreements or
representations made by the other that are not expressly authorized hereunder,
nor shall FRANCHISOR be obligated for any damages to any person or property
directly or indirectly arising out of the operation of the STORE or
FRANCHISEE’s business conducted pursuant to the FRANCHISE, whether caused by
FRANCHISEE’s negligent or willful action or failure to act, FRANCHISOR shall
have no liability for any sales, use, excise, income, property or other taxes
levied upon the STORE or its assets or in connection with the sales made or business
conducted by the STORE.  FRANCHISEE
agrees to indemnify FRANCHISOR, its affiliates, and their respective
shareholders, directors, officers, employees, agents, representatives,
successors and assigns (the “Indemnified Parties”) from and against, and to
reimburse any of the Indemnified Parties for, any and all claims, obligations,
damages, costs and taxes arising directly or indirectly out of the STORE’s
operations, the business FRANCHISEE conducts under this Agreement, or
FRANCHISEE’s breach of this Agreement. 
This indemnification shall be fully applicable, and shall not be voided
or otherwise affected by any allegation or claims that FRANCHISOR has been
negligent in any degree.  For the
purposes of this indemnification, “claims” includes all obligations, damages
(actual, consequential, punitive or otherwise) and costs that any Indemnified
Party reasonably incurs in defending any claim against it, including, without
limitation, reasonable accountants’, arbitrators’, attorneys’ and expert
witness fees, costs of investigation and proof of facts, court costs, and other
expenses of litigation, arbitration or alternative dispute resolution,
including travel and living expenses, regardless of whether litigation,
arbitration or alternative dispute resolution is commenced.  FRANCHISOR shall have the right to defend
any such claim against it.  The
indemnities and assumptions of liabilities and obligations herein shall
continue in full force and effect subsequent to and notwithstanding the
expiration or termination of this Agreement.

 

24.                               NOTICES

 

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

 

38

 

25.                               EFFECTIVE DATE OF AGREEMENT

 

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

 

26.                               ACKNOWLEDGMENTS

 

FRANCHISEE
acknowledges that it has conducted an independent investiga­tion of the
business authorized hereunder and recognizes that the business venture con­templated
by this Agreement involves business risks and that its success will be largely
dependent upon the ability of FRANCHISEE as an independent
business-person.  FRANCHISOR expressly
disclaims the making of, and FRANCHISEE acknowledges that it has not received,
any warranty or guarantee, express or implied, as to the potential volume,
profits, or success of the business venture contemplated by this
Agreement.  FRANCHISEE acknowledges that
it has read this Agree­ment and the FRANCHISOR’s Uniform Franchise Offering
Circular and that it has no knowledge of any representation by the FRANCHISOR,
or its officers, directors, sharehold­ers, employees or agents that are
contrary to the statements made in the FRANCHISOR’s Uniform Franchise Offering
Circular or to the terms herein.

 

FRANCHISEE
acknowledges that it has received, read, and understood this Agreement and
FRANCHISOR’s Uniform Franchise Offering Circular; that FRANCHISOR has fully and
adequately explained the provisions of each to FRANCHISEE’s satisfaction; and
that FRANCHISOR has accorded FRANCHISEE ample time and opportunity to consult
with advisors of its own choosing about the potential benefits and risks of
entering into this Agreement.

 

FRANCHISEE
acknowledges that it received a copy of this Agreement, and any agreements relating
thereto, at least five (5) business days prior to the date on which this
Agreement has been executed.  FRANCHISEE
further acknowledges that FRANCHISEE has received the disclosure document
required by the Trade Regulation Rule of the Federal Trade Commission entitled
Disclosure Requirement and Prohibitions Concern­ing Franchising and Business
Opportunity Ventures and applicable state laws, if any, at least ten (10)
business days prior to the date on which this Agreement has been executed.

 

39

 

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

 

	
  FRANCHISOR:

  	
  FRANCHISEE(S) (INDIVIDUAL):

  
	
   

  	
   

  
	
  GLORIA JEAN’S GOURMET

  COFFEES FRANCHISING CORP.

  	
   

  
	
   

  	
  Name

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Signature

  
	
   

  	
  Signature

  	
   

  
	
   

  	
  Name

  
	
   

  	
   

  	
   

  
	
  Name

  	
  Signature

  
	
   

  	
   

  	
   

  
	
  Title

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FRANCHISEE (Corp., LLC or

  Partnership)

  
	
   

  	
   

  
	
   

  	
  Name

  
	
   

  	
  a/an                                       corporation

  a/an                                        partnership

  a/an                               limited
  liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Signature

  
	
   

  	
   

  
	
   

  	
  Name and Title

  
								

 

40

 

EXHIBIT A

GUARANTY AND ASSUMPTION OF
OBLIGATIONS

 

 

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

 

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

 

(2)                                  notice
of demand for payment of any indebtedness or nonperformance of any obligations
hereby guaranteed;

 

(3)                                  protest
and notice of default to any party with respect to the indebtedness or
nonperformance of any obligations hereby guaranteed; and

 

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

 

Each of the
undersigned consents and agrees that:

 

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

 

(b)                                 he
shall render any payment or performance required under the Agreement upon
demand if FRANCHISEE fails or refuses punctually to do so;

 

(c)                                  such
liability shall not be contingent upon or conditioned upon pursuit by
FRANCHISOR of any remedies against FRANCHISEE or any other person; and

 

(d)                                 such
liability shall not be diminished, relieved or otherwise affected by any
extension of time, credit or the indulgence which FRANCHISOR may from time to
time grant to FRANCHISEE or to any other person, including, without limitation,
the acceptance of any partial payment or performance, or the compromise or
release of any claims, none of which shall in any way modify or amend this
guaranty, which shall be continuing and irrevocable during the term of the
Agreement.

 

If FRANCHISOR
is required to enforce this Guaranty and Assumption of Obligations in any
judicial or arbitration proceeding or appeal thereof, the GUARANTORS shall
reimburse

 

A-1

 

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

 

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

 

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

 

	
  WITNESS

  	
   

  	
  GUARANTORS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  
					

 

State
of                                   }

County
of                               }                                       ss.

 

On                               ,  before
me,                                                                                                                                         ,

	
  Date

  	
  Name and Title of Officer (e.g., “Jane Doe, Notary Public”)

  

 

	
  personally
  appeared                                                                                                                                                                 ,

  
	
   

  	
  Name(s) of Signer(s)

  	
   

  

 

•                  personally
known to me

•                  proved
to me on the basis of satisfactory evidence

 

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

 

	
   

  	
  Witness my hand and official seal.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Place Notary Seal Above

  	
  Signature of Notary Public

  	
   

  
				

 

A-2

 

EXHIBIT B

 

CONFIDENTIALITY AND
NON-COMPETITION AGREEMENT

 

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

 

“Franchisee”:

 

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

 

Address:

 

 

 

1.                                       PREAMBLES

 

Franchisor has
executed or intends to execute a “Franchise Agreement” with Franchisee under
which Franchisor grants to Franchisee certain rights with regard to a “Gloria
Jeans Coffees Store” (“GJC Store”), a “Gloria Jeans Coffees Kiosk” (“GJC
Kiosk”) or a “Gloria Jeans Coffees Cart” (“GJC Cart”).  Unless otherwise specified, all references
herein to GJC Stores include GJC Kiosks and GJC Carts.  Before allowing Covenantor to have access to
the Confidential Information (as defined below) and as a material term of the
Franchise Agreement necessary to protect Franchisor’s confidential know-how and
distinctive systems, designs, decor, trade dress, specifications, standards and
procedures authorized or required by Franchisor from time to time for use in
the operation of Franchisee’s GJC Store, GJC Kiosk or GJC Cart (the “Store”)
and Franchisor’s proprietary rights in and Franchisee’s right to use the
Confidential Information, Franchisor and Franchisee require that Covenantor
enter into this Agreement.

 

To induce
Franchisor to enter into the Franchise Agreement and/or to avoid a material
breach thereof Franchisor, Franchisee and Covenantor desire and consider it to
be in Covenantor’s best interests that Covenantor enter into this Agreement.  Due to the nature of Franchisor’s and
Franchisee’s business any use or disclosure of the Confidential Information
other than in accordance with this Agreement will cause Franchisor and
Franchisee substantial harm.

 

B-1

 

2.                                       PROTECTION
OF CONFIDENTIAL INFORMATION

 

Covenantor
acknowledges and agrees that Franchisor possesses certain confidential and
proprietary information in which Franchisor possesses valuable industrial and
intellectual property rights consisting of the methods, techniques, formats,
specifications, procedures, information, systems, methods of business
management, sales and promotion techniques and knowledge of and experience in
the operation and franchising of GJC STORES (the “Confidential Information”).  Franchisor and Franchisee will disclose such
parts of the Confidential Information as are required for Covenantor to perform
its obligations to Franchisee in furnishing Covenantor the training program,
the Operating Manual (as defined in the Franchise Agreement) and in guidance
furnished to Covenantor for his/her performance of services to Franchisee.

 

Covenantor
agrees to use the Confidential Informa­tion only to the extent reasonably
necessary to perform Covenantor’s duties for Franchisee taking into
consideration the confidential nature of the Confidential Information.  Covenantor may disclose the Confidential
Information only as agent for Franchisee. 
Covenantor acknowledges and agrees that the unauthorized use or
duplication of the Confidential Information, including, without limitation, in
connection with any other business would be detrimental to Franchisor and
Franchisee and would constitute a breach of Covenantor’s obligations of
confidentiality and an unfair method of competition with Franchisor and other
GJC Stores owned by Franchisor, its affiliates or franchisees.

 

Covenantor
acknowledges and agrees that the Confidential Information is confidential to
and a valuable asset of Franchisor.  The
Confidential Information will be disclosed to Covenantor solely on the
condition that Covenantor agrees to the terms and conditions of this
Agreement.  Covenantor therefore agrees
that during the term of the Franchise Agreement and thereafter, he/she:  (a) will not use the Confidential
Information in any other business or capacity; (b) will maintain the
absolute confidentiality of the Confidential Information; (c) will not
make unauthorized copies of any portion of the Confidential Information
disclosed or recorded in written or other tangible form; and (d) will
adopt and implement all reasonable procedures prescribed from time to time by
Franchisor and Franchisee to prevent unauthorized use or disclosure of or
access to the Confidential Information.

 

Notwithstanding
anything to the contrary contained in this Agreement the restrictions on
Covenantor’s disclosure and use of the Confidential Information shall not apply
to the following:  (a) information,
methods, procedures, techniques and knowledge which are or become generally
known or easily accessible other than by Covenantor’s breach of an obligation
of confidentiality; and (b) the disclosure of the Confidential Information
pursuant to applicable law or in judicial or administrative proceedings to the
extent that Covenantor is legally compelled or required by a regulatory body to
disclose such information, provided Covenantor has notified Franchisor and
Franchisee prior to disclosure and shall have used his/her best efforts to
obtain, and shall have afforded Franchisor and Franchisee the opportunity to
obtain, an appropriate assurance reasonably

 

B-2

 

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

 

3.                                       IN-TERM
RESTRICTIVE COVENANT.

 

Covenantor
acknowledges and agrees that Franchisor and Franchisee would be unable to
protect the Confidential Information against unauthorized use or disclosure and
Franchisor would be unable to achieve a free exchange of ideas and information
among GJC Stores if persons authorized to use the Confidential Information were
permitted to engage in, have ownership interests in or perform services for
Competitive Businesses (as defined below). 
Covenantor therefore agrees that for as long as Covenantor is an owner,
director, officer, general partner, managing member or manager of Franchisee or
is otherwise employed or engaged by Franchisee, Covenantor shall not  (through a member of the immediate family or
otherwise) have any interest as an owner of (except of publicly-traded
securities or interests in other GJC Stores pursuant to other franchise
agreements with Franchisor or its affiliates), or assist or perform services as
a director, officer, employee, consultant, representative, agent or in any
other capacity, for, any business principally offering products substantially
similar to the products then being offered by the majority of the GJC Stores (a
“Competitive Business”), nor will Covenantor have any interest, as aforesaid,
in, or serve in any capacity, any entity which franchises or otherwise grants to
others the right to operate a Competitive Business.

 

4.                                       RESTRICTIVE
COVENANT UPON TERMINATION OR EXPIRATION OF THE FRANCHISE AGREEMENT OR
COVENANTOR’S ASSOCIATION WITH FRANCHISEE.

 

Upon the first
to occur of:  (a) termination or
expiration without renewal of the Franchise Agreement; or (b) the date as
of which Covenantor ceases to be an owner, director, officer, general partner,
managing member or manager of, or otherwise employed or engaged by, Franchisee
(both referred to herein as a “Termination Event”), Covenantor agrees that, for
a period of two (2) years commencing on the effective date of a Termination
Event, Covenantor shall not  (through a
member of the immediate family or otherwise) have any interest as an owner of
(except of publicly-traded securities or interests in other GJC Stores pursuant
to other franchise agreements with Franchisor or its affiliates), or assist or
perform services as a director, officer, employee, consultant, representative,
agent or in any other capacity for, any Competitive Business located within
either (i) the Standard Metropolitan Statistical Area wherein the Store is
located or (ii) a ten (10) mile radius from any then existing GJC Store, nor
will Covenantor have any interest, as aforesaid, in, or serve in any capacity,
any entity which franchises or otherwise grants to others the right to operate
a Competitive Business

 

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

 

B-3

 

shall not be void, but that the restrictions
contained therein shall be deemed reduced to the extent necessary to permit the
enforcement of such covenants.

 

Covenantor
expressly acknowledges and agrees that Covenantor possesses skills and
abilities of a general nature and has opportunities for exploiting such
skills.  Consequently enforcement of the
covenants made in Sections 3 and 4 of this Agreement will not deprive Covenantor
of the ability to earn a living.

 

5.                                       SURRENDER
OF DOCUMENTS.

 

Covenantor
agrees that, as of the effective date of a Termination Event, Covenantor shall
immediately cease to use the Confidential Information disclosed to or otherwise
learned or acquired by Covenantor and return to Franchisee or to Franchisor if
directed by Franchisor all copies of the Confidential Information loaned or
made available to Covenantor.

 

6.                                       COSTS AND
ATTORNEYS’ FEES.

 

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

 

7.                                       WAIVER.

 

Failure to
insist upon strict compliance with any of the terms, covenants or conditions
hereof shall not be deemed a waiver of such term, covenant or condition, nor
shall any waiver or relinquishment of any right or remedy hereunder at any one
or more times be deemed a waiver or relinquishment of such right or remedy at
any other time or times.

 

8.                                       SEVERABILITY.

 

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

 

B-4

 

9.                                       RIGHTS OF
PARTIES ARE CUMULATIVE.

 

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

 

10.                                 BENEFIT.

 

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

 

11.                                 EFFECTIVENESS.

 

This Agreement
shall be enforceable and effective when signed by Covenantor regardless of
whether and when Franchisor or Franchisee signs this Agreement.

 

12.                                 GOVERNING
LAW/CONSENT TO JURISDICTION.

 

This Agreement
and the relationship between the parties hereto shall be construed and governed
in accordance with the internal laws of the state in which the Store is located
without regard to its conflict of laws principles.  Covenantor and Franchisee agree that they shall institute and
that Franchisor may institute any action against any of the parties hereto in
any state or federal court of general jurisdiction in the state court of
general jurisdiction or the Federal District Court nearest to Franchisor’s
principal place of business at the time such action is filed.  Covenantor and Franchisee irrevocably submit
to the jurisdiction of such courts and waive any objections to either the
jurisdiction or venue of such court.

 

B-5

 

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

 

 

	
  Covenantor:

  	
  Franchisee:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Print name of Covenantor

  	
   

  	
  Print name of Franchisee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  	 

	
  Signature of Covenantor

  	
   

  	
  Print Name:

  	
   

  	
   

  	 

	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Franchisor:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GLORIA JEAN’S GOURMET

  COFFEES FRANCHISING

  CORP.

  
	
   

  	
   

  	
  an Illinois corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Print Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
															

 

B-6

 

EXHIBIT C

 

CONFIDENTIALITY AGREEMENT

 

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

 

“Franchisee”:

 

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

 

Address:

 

 

1.                                       PREAMBLES

 

Franchisor has
executed or intends to execute a “Franchise Agreement” with Franchisee under
which Franchisor grants to Franchisee certain rights with regard to “Gloria
Jean’s Coffees Stores” (“GJC Stores”), “Gloria Jean’s Coffees Kiosks” (“GJC
Kiosks”) or “Gloria Jean’s Coffees Carts” (“GJC Carts”).  Unless otherwise specified, all references
herein to GJC Stores include GJC Kiosks and GJC Carts.  Before allowing Covenantor to have access to
the Confidential Information (as defined below) and as a material term of the
Franchise Agreement necessary to protect Franchisor’s confidential know-how and
distinctive systems, designs, decor, trade dress, specifications, standards and
procedures authorized or required by Franchisor from time to time for use in
the operation of Franchisee’s GJC Store, GJC Kiosk or GJC Cart (the “Store”)
and Franchisor’s proprietary rights in and Franchisee’s right to use the
Confidential Information, Franchisor and Franchisee require that Covenantor enter
into this Agreement.

 

To induce
Franchisor to enter into the Franchise Agreement and/or to avoid a material
breach thereof Franchisor, Franchisee and Covenantor desire and consider it to
be in Covenantor’s best interests that Covenantor enter into this Agreement.  Due to the nature of Franchisor’s and
Franchisee’s business any use or disclosure of the Confidential Information
other than in accordance with this Agreement will cause Franchisor and
Franchisee substantial harm.

 

2.                                       PROTECTION
OF CONFIDENTIAL INFORMATION.

 

Covenantor
acknowledges and agrees that Franchisor possesses certain confidential and
proprietary information in which Franchisor possesses valuable industrial and
intellectual property rights consisting of the methods, techniques, formats, specifications,
procedures,

 

C-1

 

information, systems, methods of business
management, sales and promotion techniques and knowledge of and experience in
the operation and franchising of GJC STORES (the “Confidential
Information”).  Franchisor and
Franchisee will disclose such parts of the Confidential Information as are
required for Covenantor to perform his/her obligations to Franchisee in
furnishing Covenantor the training program, the Operating Manual (as defined in
the Franchise Agreement) and in guidance furnished to Covenantor for his/her
performance of services to Franchisee.

 

Covenantor
agrees to use the Confidential Informa­tion only to the extent reasonably
necessary to perform Covenantor’s duties for Franchisee taking into
consideration the confidential nature of the Confidential Information.  Covenantor may disclose the Confidential
Information only as agent for Franchisee. Covenantor acknowledges and agrees
that the unauthorized use or duplication of the Confidential Information,
including, without limitation, in connection with any other business would be
detrimental to Franchisor and Franchisee and would constitute a breach of
Covenantor’s obligations of confidentiality and an unfair method of competition
with Franchisor and other GJC Stores owned by Franchisor, its affiliates or
franchisees.

 

Covenantor
acknowledges and agrees that the Confidential Information is confidential to
and a valuable asset of Franchisor.  The
Confidential Information will be disclosed to Covenantor solely on the
condition that Covenantor agrees to the terms and conditions of this
Agreement.  Covenantor therefore agrees
that during the term of the Franchise Agreement and thereafter, he/she:  (a) will not use the Confidential
Information in any other business or capacity; (b) will maintain the
absolute confidentiality of the Confidential Information; (c) will not
make unauthorized copies of any portion of the Confidential Information
disclosed or recorded in written or other tangible form; and (d) will
adopt and implement all reasonable procedures prescribed from time to time by
Franchisor and Franchisee to prevent unauthorized use or disclosure of or
access to the Confidential Information.

 

Notwithstanding
anything to the contrary contained in this Agreement the restrictions on
Covenantor’s disclosure and use of the Confidential Information shall not apply
to the following:  (a) information,
methods, procedures, techniques and knowledge which are or become generally
known or easily accessible other than by Covenantor’s breach of an obligation
of confidentiality; and (b) the disclosure of the Confidential Information
pursuant to applicable law or in judicial or administrative proceedings to the
extent that Covenantor is legally compelled or required by a regulatory body to
disclose such information, provided Covenantor has notified Franchisor and
Franchisee prior to disclosure and shall have used his/her best efforts to
obtain, and shall have afforded Franchisor and Franchisee the opportunity to
obtain, an appropriate assurance reasonably satisfactory to Franchisor of
confidential treatment for the information required to be so disclosed.

 

4.                                       SURRENDER
OF DOCUMENTS.

 

Covenantor
agrees that as of the date on which Covenantor ceases to perform services for
Franchisee in connection with the Store, Covenantor shall immediately cease to
use the Confidential Information disclosed to or otherwise learned or acquired
by Covenantor and return

 

C-2

 

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

 

5.                                       COSTS AND
ATTORNEYS’ FEES.

 

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

 

6.                                       WAIVER.

 

Failure to
insist upon strict compliance with any of the terms, covenants or conditions
hereof shall not be deemed a waiver of such term, covenant or condition, nor
shall any waiver or relinquishment of any right or remedy hereunder at any one
or more times be deemed a waiver or relinquishment of such right or remedy at
any other time or times.

 

7.                                       SEVERABILITY.

 

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

 

8.                                       RIGHTS OF
PARTIES ARE CUMULATIVE.

 

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

 

9.                                       BENEFIT.

 

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

 

C-3

 

10.                                 EFFECTIVENESS.

 

This Agreement
shall be enforceable and effective when signed by Covenantor regardless of
whether and when Franchisor or Franchisee signs this Agreement.

 

11.                                 GOVERNING LAW/CONSENT TO JURISDICTION.

 

This Agreement
and the relationship between the parties hereto shall be construed and governed
in accordance with the internal laws of the state in which the Store is located
without regard to its conflicts of laws principles.  Covenantor and Franchisee agree that they shall institute and
that Franchisor may institute any action against any of the parties hereto in
any state or federal court of general jurisdiction in the state court of
general jurisdiction or the Federal District Court nearest to Franchisor’s
principal place of business at the time such action is filed.  Covenantor and Franchisee irrevocably submit
to the jurisdiction of such courts and waive any objections to either the
jurisdiction or venue of such court.

 

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

 

	
  Covenantor:

  	
  Franchisee:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Print name of Covenantor

  	
  Print name of Franchisee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Signature of Covenantor

  	
   

  	
  Print Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Franchisor:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GLORIA JEAN’S GOURMET

  COFFEES FRANCHISING CORP.

  
	
   

  	
   

  	
  an Illinois corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Print Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
										

 

C-4Exhibit 10.8

 

FORM OF

 

DIEDRICH COFFEE, INC.,

 

AREA DEVELOPMENT AGREEMENT

 

Dated:            

 

 

TABLE OF CONTENTS

 

	
  I.

  	
  GRANT OF
  AREA DEVELOPMENT FRANCHISE

  
	
   

  	
  1.1

  	
  Grant of Area Development Franchise

  
	
   

  	
  1.2

  	
  No Trademark License

  
	
   

  	
  1.3

  	
  Definitions

  
	
   

  	
   

  
	
  II.

  	
  DEVELOPER’S
  DEVELOPMENT OBLIGATION

  
	
   

  	
  2.1

  	
  Minimum Development Obligation

  
	
   

  	
  2.2

  	
  Force Majeure

  
	
   

  	
  2.3

  	
  Developer May Exceed Minimum
  Development Obligation

  
	
   

  	
   

  	
   

  
	
  III.

  	
  EXCLUSIVITY

  
	
   

  	
  3.1

  	
  Exclusivity

  
	
   

  	
   

  	
   

  
	
  IV.

  	
  TERM
  OF AREA DEVELOPMENT AGREEMENT

  
	
   

  	
  4.1

  	
  Term

  
	
   

  	
  4.2

  	
  Limited Additional Development Right

  
	
   

  	
  4.3

  	
  Renewal

  
	
   

  	
  4.4

  	
  Exercise of Right of Additional
  Development.

  
	
   

  	
  4.5

  	
  Conditions to Exercise of Right of
  Additional Development

  
	
   

  	
   

  	
   

  
	
  V.

  	
  PAYMENTS
  BY DEVELOPER

  
	
   

  	
  5.1

  	
  Development Area Fees

  
	
   

  	
  5.2

  	
  Franchise Agreements for Each Coffeehouse

  
	
   

  	
  5.3

  	
  Credit Against Initial Fee

  
	
   

  	
   

  	
   

  
	
  VI.

  	
  EXECUTION
  OF INDIVIDUAL FRANCHISE AGREEMENTS, TRAINING

  
	
   

  	
  6.1

  	
  Site Approval, Submission of Offering
  Circular, Execution of Franchise Agreement

  
	
   

  	
  6.2

  	
  Condition Precedent to Company’s
  Obligations

  
	
   

  	
  6.3

  	
  Lease

  
	
   

  	
  6.4

  	
  Training

  
	
   

  	
   

  	
   

  
	
  VII.

  	
  ASSIGNMENT
  AND SUBFRANCHISING

  
	
   

  	
  7.1

  	
  Assignment By Company

  
	
   

  	
  7.2

  	
  No Subfranchising by Developer

  
	
   

  	
  7.3

  	
  Assignment by Developer

  
	
   

  	
  7.4

  	
  Individual Franchise Agreements

  
	
   

  	
   

  	
   

  
	
  VIII.

  	
  NON-COMPETITION, NON-SOLICITATION, TRADE SECRETS

  
	
   

  	
  8.1

  	
  In Term

  
	
   

  	
  8.2

  	
  Post-Term

  
	
   

  	
  8.3

  	
  Modification

  

 

i

 

	
   

  	
  8.4

  	
  Personnel

  
	
   

  	
  8.5

  	
  Trade Secrets.

  
	
   

  	
  8.6

  	
  Developer’s Affiliates

  
	
   

  	
   

  	
   

  
	
  IX.

  	
  TERMINATION

  
	
   

  	
  9.1

  	
  Termination Pursuant to a Material Breach
  of This Agreement.

  
	
   

  	
  9.2

  	
  Termination by Reason of a Material Breach
  of Other Agreement

  
	
   

  	
  9.3

  	
  Effect of Termination

  
	
   

  	
   

  	
   

  
	
  X.

  	
  BUSINESS
  ENTITY DEVELOPER

  
	
   

  	
  10.1

  	
  Business Entity Developer

  
	
   

  	
  10.2

  	
  Limitation on Activities

  
	
   

  	
  10.3

  	
  Guaranty and Subordination Agreement

  
	
   

  	
   

  	
   

  
	
  XI.

  	
  GENERAL
  CONDITIONS AND PROVISIONS

  
	
   

  	
  11.1

  	
  Relationship of Developer to Company

  
	
   

  	
  11.2

  	
  Indemnity by Developer

  
	
   

  	
  11.3

  	
  Limitation of Liability

  
	
   

  	
  11.4

  	
  Waiver and Delay

  
	
   

  	
  11.5

  	
  Survival of Covenants

  
	
   

  	
  11.6

  	
  Successors and Assigns

  
	
   

  	
  11.7

  	
  Joint and Several Liability

  
	
   

  	
  11.8

  	
  Governing Law

  
	
   

  	
  11.9

  	
  Entire Agreement

  
	
   

  	
  11.10

  	
  Titles For Convenience

  
	
   

  	
  11.11

  	
  Gender And Construction

  
	
   

  	
  11.12

  	
  Severability

  
	
   

  	
  11.13

  	
  Counterparts

  
	
   

  	
  11.14

  	
  Fees and Expenses

  
	
   

  	
  11.15

  	
  Notices

  
	
   

  	
   

  	
   

  
	
  XII.

  	
  SUBMISSION
  OF AGREEMENT

  
	
   

  	
  12.1

  	
  General

  
	
   

  	
   

  	
   

  
	
  XIII.

  	
  ACKNOWLEDGMENT

  
	
   

  	
  13.1

  	
  General

  
	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
  DEVELOPMENT AREA

  
	
   

  
	
  EXHIBIT B

  	
  MINIMUM DEVELOPMENT OBLIGATIONS

  
	
   

  
	
  EXHIBIT C

  	
  DEVELOPER INFORMATION

  
	
   

  
	
  EXHIBIT D

  	
  EXCEPTIONS TO SECTION 8.1

  
	
   

  	
   

  
	
  EXHIBIT E

  	
  GUARANTY AND SUBORDINATION AGREEMENT

  

 

ii

 

AREA DEVELOPMENT AGREEMENT

 

THIS AREA
DEVELOPMENT AGREEMENT (the “Agreement”) is made and entered into
this        day
of                              ,                   ,
(the “Effective Date”) by and between Diedrich Coffee, Inc. (“Company”), a
Delaware corporation, and                                                                                           ,
[  ] an individual OR [  ]
a                         organized
under t he laws of                                      (“the
Developer”), with reference to the following facts:

 

A.            Company owns and intends to license
certain proprietary and other property rights and interests in and to the
“Diedrich Coffee” trademark and service mark, and such other trademarks, trade
names, service marks, logo types, insignias, trade dress,  designs, and commercial symbols which Company
may from time to time authorize or direct Developer to use in connection with
the operation of “Diedrich Coffee” Coffeehouses (the “Marks”).

 

B.            Company has developed and continues
to develop a system for the operation of coffeehouses, kiosks and coffee carts
and merchandising of Diedrich Coffee Authorized Products, which system features
distinctive signs, recipes, and various Trade Secrets and other confidential
information, and in some cases also includes architectural designs, trade
dress, uniforms, equipment specifications, layout plans, inventory,
record-keeping and marketing techniques (the “System”).

 

C.            Company desires to expand and
develop its system of “Diedrich Coffee” Coffeehouses, and seeks sophisticated
and efficient multi-unit franchisees who will develop numerous “Diedrich
Coffee” Coffeehouses within designated areas.

 

D.            Developer desires to build and
operate “Diedrich Coffee” Coffeehouses, and Company desires to grant to
Developer the right to build and operate said “Diedrich Coffee” Coffeehouses in
accordance with the terms and upon the conditions contained in this Agreement.

 

WHEREFORE
IT IS AGREED

 

I.

GRANT
OF AREA DEVELOPMENT FRANCHISE

 

1.1           Grant of Area Development Franchise.

 

Upon the terms
and subject to the conditions of this Agreement, Company hereby grants to
Developer, and Developer hereby accepts, the right and obligation during the
Term hereof, to develop “Diedrich Coffee” Coffeehouses solely at Venues within
the Development Area.

 

1.1.1        Developer within thirty (30) days of
execution of this Agreement, shall meet with Company and begin preparation of a
market development plan for the Development Area (identifying and specifying
key areas and trade areas in the Development Area) and all development pursuant
to this Agreement shall be in accordance with this plan (the “Market
Plan”).  The Market Plan shall include
proposed target trade areas where sites are to be located, ranking and
prioritization of site locations and other information customarily utilized by
market planners in the restaurant industry. 
Developer shall

 

1

 

propose the Market Plan and Company shall
approve or disapprove the Market Plan in its reasonable discretion.  The initial Market Plan shall be completed
and approved by Company and Developer no later than sixty (60) days from the
date of execution of this Agreement. 
Developer acknowledges that no extensions of time with regard to the
Minimum Development Obligation shall be granted by Company to Developer as a
result of Developer’s failure to complete a satisfactory Market Plan within
sixty  (60) days of execution of this
Agreement.  The parties recognize that
demographics, market economics, real estate values, competition and other
conditions may change in the Development Area over the term of this Agreement
and that such changes may impact the Market Plan. Therefore, the parties agree
that it is in their respective best interests to review the Market Plan
periodically throughout the term of this Agreement.  On the first anniversary of the approval of the initial Market
Plan and at least once annually thereafter, Developer and Company shall review
the Market Plan and make such revisions as are required to maximize the
successful development of the Diedrich Coffee brand in the Development Area.

 

1.1.2        From time to time, Company may request
updates, status reports, or other information from Developer regarding
development of the Market Area. 
Developer shall respond promptly, accurately and completely to such requests
within a reasonable time, but in no event more than 30 days after the request
by Company.  Without limiting the
generality of the foregoing, the information requested may relate to
demographics, market economics, real estate values, competition and other
conditions in the Development Area.

 

1.2           No Trademark License.

 

No right or
license is granted to Developer hereunder to use the Marks or the System or any
other trademarks, trade names, service marks, logotypes, insignias, trade dress
or designs owned by Company, such right and license being granted solely
pursuant to Franchise Agreement(s) executed pursuant to Section 6.1 below.

 

1.3           Definitions.  In this Agreement, (a) capitalized terms not
otherwise defined herein shall have the meaning given such term in the
Franchise Agreement, and (b) the following capitalized terms shall have the
meanings set forth below, unless the context otherwise requires:

 

“Applicable Law” means and includes
applicable common law and all applicable statutes, laws, rules, regulations,
ordinances, policies and procedures established by any Governmental Authority,
governing the development or operation of a “Diedrich Coffee” Coffeehouse,
including all immigration, labor, disability, food and drug laws, health and
safety regulations, and Americans With Disabilities Act requirements, as in
effect on the Effective Date hereof, and as may be amended, supplemented or
enacted  from time to time.

 

“Authorized Products” means the specific
espresso drinks and coffees, roasted coffee beans and blends, premium teas,
baked goods, snacks and other food items and ancillary products, which may
include coffee making equipment, cups, hats, t-shirts and novelty items, as
specified by Company from time to time in Company’s Manuals, or as otherwise directed
by Company in writing, for sale at the Developer’s “Diedrich Coffee”
Coffeehouses, prepared and served in strict accordance with Company’s recipes,
quality standards and specifications, including specifications as to
ingredients, brand names, preparation and presentation.

 

2

 

“Business Entity” means any limited liability
company or Partnership, and any association, corporation or other entity which
is not an individual.

 

“Competitive Activities” shall mean to, own,
operate, lend to, advise, be employed by, or have any financial interest in any
business that engages in the roasting of green coffee beans; the sale of
roasted coffee beans or ground coffee produced by third parties; or the
production or sale at retail or wholesale of any espresso or coffee product, or
any other food products featured by “Diedrich Coffee” coffeehouses.

 

“Development Area” shall mean and refer to
the geographical area set forth in Exhibit “A” which is annexed hereto and by
this reference made a part hereof

 

“Development Period” shall mean each of the
time periods during which Developer shall have the right and obligation to
construct, equip, open and thereafter continue to operate “Diedrich Coffee”
Coffeehouses in accordance with the Minimum Development Obligation.

 

“Diedrich Coffee Branded Product” is any
product now existing or developed in the future that bears or is packaged under
any of the Marks.

 

“‘Diedrich Coffee’ Coffeehouse” means a full
service location, kiosk, or coffee cart operated under the Marks and in
accordance with the System and specializing in the sale of Authorized Products,
pursuant to a validly executed Franchise Agreement.

 

“Effective Date” means the date indicated in
the first paragraph of this Agreement.

 

“Franchise Agreement” means the Then-current
form of agreement prescribed by Company and used to grant to Developer (as
“Franchisee”) the right to own and operate a single “Diedrich Coffee”
Coffeehouse in the Development Area, including all exhibits, riders, guarantees
or other related instruments, all as amended from time to time (references in
this Agreement to “Developer’s Franchise Agreements” will mean Franchise
Agreements issued to Developer as “Franchisee” under those Franchise
Agreements).

 

“Full Service Coffeehouse” means a “Diedrich
Coffee” Coffeehouse consisting of at least 1,200 rentable square feet and which
has at least 24 seats dedicated (i.e. exclusive of common seating areas) for
use by customers of such “Diedrich Coffee” Coffeehouse.

 

“Governmental Authority” means and includes
all federal, state, county, municipal and local governmental and
quasi-governmental agencies, commissions and authorities.

 

“Gross Sales” of each of Developer’s
“Diedrich Coffee” Coffeehouses means gross revenues (excluding allowances and
sales taxes) received or receivable by Developer as payment, whether in cash or
for credit or barter (and, if for credit or barter, whether or not payment is
received therefor), for all espresso, coffee, tea and other beverages, roasted
coffee beans, food, and other goods, services, and supplies sold or prepared in
the “Diedrich Coffee” Coffeehouse, or which are promoted or sold under any of
the Marks.

 

“Internet” means collectively the myriad of
computer and telecommunications facilities, including equipment and software,
which comprise the interconnected worldwide network of networks that employ the
TCP/IP [Transmission Control Protocol/Internet Protocol], or any predecessor or
successor protocols

 

3

 

to such protocol, to communicate information
of all kinds by fiber optics, wire, radio, or other methods of transmission

 

“Lease” means the lease or sublease or other
agreement or instrument pursuant to which Developer obtains the right to occupy
a “Diedrich Coffee” Coffeehouse location and Premises.

 

“Manuals” means Company’s Front Line Team
Member Training Guide;  training
software; Diedrich Coffee Operations Manual and Support Manual, and related
manuals now or hereafter created by Company for use in connection with the
operation of a “Diedrich Coffee” Coffeehouse, as the same may be amended and
revised from time to time, including all bulletins, supplements and ancillary
manuals.

 

“Marks” shall have the meaning set forth in
Recital A.

 

“Minimum Development Obligation” shall mean
the Developer’s right and obligation to construct, equip, open and thereafter
continue to operate at Venues within the Development Area not less than the
cumulative number of Full Service Coffeehouses set forth in Exhibit “B,” which
is annexed hereto and by this reference made a part hereof, and within each of
the Development Periods specified therein.

 

“Non-Exclusive Venues” shall mean stores
operated at institutional settings and locations of a “non-standard” nature,
including, but not limited to, airports and other public transportation
facilities, colleges, universities, schools, hospitals, military and other
governmental/municipal facilities, office or in-plant food service facilities,
shopping mall food courts, hotels, motels, resorts, theme parks, stadiums, and
any venue in which food service is or may be provided by a master
concessionaire or contract food service provider.

 

“Offering Circular” means the Uniform
Franchise Offering Circular or its equivalent as may be required by applicable
law.

 

“Owner” means any shareholder, member,
general or limited partner, trustee, or other equity owner of a Business
Entity; except that if Company has any ownership interest in Licensee, the term
“Owner” shall not include or refer to the Company or its Owners or affiliates,
and no obligation or restriction upon the “Developer”, or its Owners, directors
or officers shall bind Company, its Owners or affiliates, or their respective
Owners, directors or officers.

 

“Partnership” means any general partnership,
limited partnership or limited liability company

 

“Partnership Rights” means voting power,
property, profits or losses, or partnership interests of a Partner.

 

“Permits” means and include all applicable
franchises, licenses, permits, registrations, certificates and other operating
authority required by Applicable Law.

 

“Premises” means, in the case of a kiosk or
cart, the property at which such “Diedrich Coffee” Coffeehouse is located,
including unless otherwise expressly provided, any ancillary common areas,
campus, buildings and other structures associated with the Premises.

 

“Term” shall have the meaning set forth in
Section 4.1 including any extensions thereof.

 

4

 

“Then-current” as used in this Agreement and
applied to the Offering Circular, Franchise Agreement or area development
agreement shall mean the form then currently provided to prospective
franchisees or area developers, or if not then being so provided, then such
form selected by the Company which previously shall have been delivered to and
executed by a franchisee or area developer of Company.

 

“Trade Secrets” shall have the meaning set
forth in Section 8.5.1.

 

“System” shall have the meaning set forth in
Recital B.

 

“Venue” shall mean all types of locations
other than “Non-Exclusive Venues”.

 

“Week” shall refer to the 7 day period ending
on Sunday of each calendar week, or such other reporting period hereafter
specified by Company.

 

II.

DEVELOPER’S
DEVELOPMENT OBLIGATION

 

2.1           Minimum Development Obligation.

 

2.1.1        Developer shall construct, equip, open
and thereafter continue to operate at Venues within the Development Area not
less than the cumulative number of Full Service Coffeehouses within each of the
Development Periods specified in Exhibit “B”.

 

2.1.2        Within any 12 month period, Developer
shall have the right to close one “Diedrich Coffee” Coffeehouse opened pursuant
to this Agreement if Developer demonstrates to Company’s reasonable
satisfaction that the site has not operated profitably and is unlikely in the
future to operate profitably, provided that Developer obtains Company’s prior
written consent to such closure, which Company shall grant or withhold in
Company’s reasonable business judgment. 
Upon Company’s request, Developer shall promptly provide such
substantiating financial data concerning the “Diedrich Coffee” Coffeehouse’s
historical performance and its future prospects as Company may require, and
which may include market studies prepared by qualified, reputable and
independent third parties or other objective evidence satisfactory to
Company.  For purposes of Developer’s
Minimum Development Obligation, any Full Service Coffeehouse closed pursuant to
this Section 2.1.2 with Company’s consent shall continue to be counted as
an operating Full Service Coffeehouse for a period of 12 months following
closure, and Developer shall be deemed in breach of the Minimum Development
Obligation if immediately after said 12 month period the cumulative number of
Full Service Coffeehouses then-operating is not equal to or greater than the
cumulative number required to have been in operation as of the end of the
immediately preceding Development Period. Developer shall execute a new
Franchise Agreement pursuant to Section 6.1 for each subsequently opened
“Diedrich Coffee” Coffeehouse, even if opened as a “replacement” for the closed
“Diedrich Coffee” Coffeehouse.

 

2.1.3        If a Full Service Coffeehouse opened and
operated by Developer is destroyed or damaged, other than by a voluntary act of
Developer, so that such “Diedrich Coffee” Coffeehouse cannot continue to
operate, the destroyed or damaged Full Service Coffeehouse shall continue to
count toward satisfaction of the Minimum Development Obligation (during the period
until such substitute location

 

5

 

opens), but only if (i) Developer
shall repair and restore such Full Service Coffeehouse to Company’s then
approved plans and specifications within 120 days after the occurrence of such
destruction or damage, subject to delays permitted by Section 2.2, or
(ii) Developer shall, within 120 days after the occurrence of such
destruction or damage, open a Full Service Coffeehouse at a substitute location
within the Development Area in accordance with Company’s then approved plans
and specifications (any such substitute location and the Lease for such
location must be approved in writing in advance by Company pursuant hereto and
Developer shall execute a new Franchise Agreement therefor, pursuant to
Section 6.1).

 

2.2           Force Majeure.

 

Should
Developer be unable to meet the Minimum Development Obligation solely as the
result of “Force Majeure,” including, but not limited to strikes, material
shortages, fires, floods, earthquakes, and other acts of God, or by force of
law (including, but not limited to any legal disability of Company to deliver
any Offering Circular required by law to be delivered as contemplated by
Section 6.1 of this Agreement), which result in the inability of Developer
to construct or operate “Diedrich Coffee” Coffeehouse(s) in all or
substantially all of the Development Area, and which Developer could not by the
exercise of due diligence have avoided, Developer may request that Company
extend the affected Development Periods by the amount of time during which such
Force Majeure shall exist.  Company will
not unreasonably decline to extend the applicable Development Period(s) in such
event, provided that Developer shall have promptly (in any event not more than
30 days after commencement of the Force Majeure) submitted its request therefor
in writing and promptly furnished Company such information concerning the
circumstances as Company may reasonably require.  In the event of any said legal disability of Company to deliver
an Offering Circular, Company shall diligently use all commercially reasonable
efforts promptly to remove such legal disability.

 

2.3           Developer May Exceed Minimum
Development Obligation.

 

2.3.1        Provided that Company is satisfied, in
its sole subjective judgment, that Developer has the requisite skills,
financial resources, management structure, personnel and other capabilities to
do so, and subject to the terms and conditions of this Agreement and the
Franchise Agreements, Developer may during the Term construct, equip, open and
operate more “Diedrich Coffee” Coffeehouses at Venues within the Development
Area than required in the Minimum Development Obligation. Only with Company’s
prior written consent in each instance, Developer may open Coffeehouses at
Non-Exclusive Venues in the Development Area, but such “Diedrich Coffee”
Coffeehouses shall not count toward the Developer’s Minimum Development
Obligation.  Further, Developer shall
not contact or solicit any owner, lessee or operator of a Non-Exclusive Venue
about the possibility of opening a “Diedrich Coffee” Coffeehouse without first
having obtained Company’s prior written consent to do so.

 

2.3.2        Although Company reserves the right to
assess Developer’s  capabilities to
exceed the Minimum Development Obligation, nothing in this Section 2.3 is
intended to limit or restrict Developer’s right or ability, subject to the
terms of this Agreement, to construct, equip, open and operate the number of
“Diedrich Coffee” Coffeehouses within the Development Area required by the
Minimum Development Obligation.

 

6

 

III.

EXCLUSIVITY

 

3.1           Exclusivity.

 

3.1.1        During the Term of this Agreement,
subject to Sections 3.1.2 and 3.1.3, Company shall not operate or grant a license
or franchise to any other person to operate a “Diedrich Coffee” coffeehouse at
any site within the Development Area other than a Non-Exclusive Venue.

 

3.1.2        Company expressly reserves the
exclusive, unrestricted right, in its sole and absolute discretion, directly
and indirectly, through its employees, affiliates, representatives, licensees,
assigns, agents and others, to own or operate and to franchise or license
others (which may include its affiliates and joint ventures in which it or its
affiliates are participants) to own or operate “Diedrich Coffee” coffeehouses
(i) at any location outside the Development Area, including immediately
adjacent to the Development Area, and (ii) at any site or location which is a
Non-Exclusive Venue, even if located within the Development Area, and
regardless of its proximity to any “Diedrich Coffee” Coffeehouse developed or
under development or consideration by Developer.

 

3.1.3        In addition, Company expressly reserves
the exclusive, unrestricted right, in its sole and absolute discretion,
directly and indirectly, through its employees, affiliates, representatives,
licensees, assigns, agents and others, (i) to own or operate and to franchise
or license others (which may include its affiliates and joint ventures in which
it or its affiliates are participants) to own or operate coffeehouses,
restaurants and other businesses which operate under names other than “Diedrich
Coffee” at any location, and of any type or category whatsoever, and whether
within or outside the Development Area, and regardless of its proximity to any
“Diedrich Coffee” Coffeehouse developed or under development or consideration
by Developer; and (ii) to produce, promote, license, distribute and market
Diedrich Coffee Branded Products, and products bearing other marks, including
espresso, ground coffee and roasted coffee beans, tea, and other food and
beverage products, clothing, souvenirs and novelty items, at or through any
location or outlet, including grocery stores and convenience stores (including
those which may be located within the Development Area), and through any
distribution channel, at wholesale or retail, including by means of mail order
catalogs, direct mail advertising, the Internet, and other distribution
methods.

 

IV.

TERM
OF AREA DEVELOPMENT AGREEMENT

 

4.1           Term.

 

The Term of
this Agreement shall commence on the Effective Date and, unless sooner
terminated in accordance with the provisions herein, or extended as provided in
Section 2.2, shall continue for a period of
                       
(     ) years.

 

7

 

4.2           Limited Additional Development Right.

 

Within 60 days
prior to the expiration of the Term, if Company shall determine that further
development of the Development Area is desirable, Company shall notify
Developer in writing of Company’s determination to develop additional “Diedrich
Coffee” Coffeehouses in the Development Area and a plan for such development
over a five year term.  Subject to the
conditions set forth in Section 4.5 of this Agreement, Developer shall
have a prior right to undertake the additional development which Company shall
have set forth in its notice to Developer. This right of additional development
by Developer shall be exercised only in accordance with Section 4.4.  If such right of additional development is
not exercised by Developer, Company or any franchisee or area developer of
Company may construct, equip, open and operate additional “Diedrich Coffee”
Coffeehouses in the Development Area.

 

4.3           Renewal.

 

Except to the
extent otherwise provided in any area development agreement executed pursuant
to Section 4.4, Developer shall have no right to renew this Agreement and
after the expiration of the Term, or the sooner termination of this Agreement,
Company, and its affiliates may construct, equip, open and operate, and license
or franchise others to construct, equip, open and operate additional “Diedrich
Coffee” Coffeehouses in the Development Area, without any restriction.

 

4.4           Exercise of Right of Additional Development.

 

At the time
Company delivers to Developer Company’s written notice of its determination to
undertake additional development in the Development Area, Company shall also
deliver to Developer a copy of Company’s Then-current Offering Circular and two
copies of the Then-current area development agreement.  The new area development agreement, which
may vary substantially from this Agreement, will reflect Developer’s new
development obligation consistent with Company’s plan for additional
development set forth in its notice to Developer.  Notwithstanding the foregoing or inconsistent terms of such area
development agreement, (a) upon execution thereof, Developer shall pay Company
a Development Area Fee for each “Diedrich Coffee” Coffeehouse required to be
opened thereunder equal to the then-current Development Area Fee and (b) each
Franchise Agreement signed pursuant thereto shall provide for an Initial Fee
and Continuing Royalty at the rates specified in the Franchise Agreement.   Within thirty (30) days after Developer’s
receipt of the Offering Circular and the new area development agreement, but no
sooner than immediately after any applicable waiting periods prescribed by
Applicable Law have passed, Developer shall execute two copies of the area development
agreement described in the Offering Circular and return them to Company
together with the applicable Development Area Fee. If Developer has so executed
and returned the copies and has satisfied the conditions set forth in
Section 4.5, Company will execute the copies and return one fully executed
copy to Developer.

 

4.5           Conditions to Exercise of Right of
Additional Development.

 

Developer’s
right to additional development described in Section 4.2 shall be subject
to Developer’s fulfillment of the following conditions precedent:

 

8

 

4.5.1        Developer shall have fully performed all
of its obligations under this Agreement and all other agreements between
Company and Developer.

 

4.5.2        Developer shall have demonstrated to
Company Developer’s  financial capacity
to perform the additional development obligations set forth in the new area
development agreement. In determining if Developer is financially capable,
Company will apply the same criteria to Developer as it applies to prospective
area developers at that time.

 

4.5.3        At expiration of the Term, Developer
shall continue to operate, in the Development Area, not less than the
cumulative number of Full Service Coffeehouses required by the Minimum
Development Obligation set forth in Exhibit “B”.

 

4.5.4        Developer and all affiliates of
Developer who then have a currently effective Franchise Agreement or area
development agreement with Company shall have signed a general release on a
form prescribed by Company.

 

V.

PAYMENTS
BY DEVELOPER

 

5.1           Development Area Fees.  Developer shall pay a “Development Area Fee”
of
$                      ,
payable upon execution of this Agreement. 
The Development Area Fees shall be deemed fully earned upon the payment
thereof and shall be non-refundable under any circumstances.

 

5.2           Franchise Agreements for Each
Coffeehouse.  Notwithstanding
the terms of Company’s Franchise Agreement that Developer shall execute
pursuant to Section  6.1 of this Agreement for each “Diedrich Coffee”
Coffeehouse opened in the Development Area, the definition of “Gross Sales” set
forth herein shall apply to all Franchise Agreements executed by Developer
pursuant to Section 6.1, notwithstanding any inconsistent definition in
such Franchise Agreements.

 

5.3           Credit Against Initial Fee.  For each Full Service Coffeehouse developed
by Developer in accordance with this agreement, Developer shall receive a
credit of $5,000 against the Initial Fee at the time Franchise Agreement is
signed, up to a maximum cumulative number of full service Coffeehouses that
Developer has committed to develop in accordance with Exhibit “B.”  Developer will receive no credit against the
initial fee of “Diedrich Coffee” Coffeehouses that are kiosks or coffee carts,
nor will Developer receive any credit for Full Service Coffeehouses in excess
of the Minimum Development Obligation.

 

VI.

EXECUTION
OF INDIVIDUAL FRANCHISE AGREEMENTS, TRAINING

 

6.1           Site Approval, Submission of Offering Circular,
Execution of Franchise Agreement.

 

6.1.1        After Developer has located a site for
construction of a “Diedrich Coffee” Coffeehouse, Developer shall submit to
Company such information regarding the proposed site as Company shall require,
in the form which Company shall from time to time require, together with a copy

 

9

 

of an executed letter of intent containing
the terms of the proposed Lease for such site. 
Company may seek such additional information as it deems necessary
within 30 days after Developer’s submission of the letter of intent and
required site information, and Developer shall respond promptly, accurately and
completely to such request for additional information.

 

6.1.2        If Company shall not reject the site in
writing within 30 days, or within 30 days after a receipt of such additional
information, whichever is later, the site shall be deemed preliminarily
accepted by Company.  Company’s
acceptance of a site proposed by Developer will not be unreasonably withheld or
delayed.

 

6.1.3        Promptly after Company’s preliminary
acceptance of each site:

 

(a)        Company shall, if required by Applicable
Law and if it has not done so already, transmit to Developer an Offering
Circular and two execution copies of the Franchise Agreement pertaining to the
approved site.  Immediately upon receipt
of the Offering Circular, Developer shall return to Company a signed copy of
the Acknowledgment of Receipt of the Offering Circular; and

 

(b)        Developer shall proceed promptly to
negotiate a Lease for the site (which shall comply with Section 6.3 below)
and shall submit the proposed Lease to Company for review and approval.
Developer shall not execute the Lease for the site until it has been reviewed
and accepted by Company; and

 

(c)        Following Company’s delivery of any such
required Offering Circular and any waiting period required by Applicable Law,
but not later than the date on which Developer executes the Lease which has
been reviewed and accepted by Company: (i) Developer shall execute and deliver
to Company two copies of said Franchise Agreement; (ii) Developer and each of
its affiliates who then has a currently effective Franchise Agreement or area
development agreement with Company shall execute and deliver two copies of a
general release on a form prescribed by Company, and (iii) Developer shall pay
to the Company the Initial Fee therefor as provided in the applicable Franchise
Agreement.

 

6.1.4        Company shall, promptly upon receipt of
said documents and Initial Fee, execute and return to Developer one copy of the
Franchise Agreement.  Developer shall
then procure the site by purchase or lease, and return one copy of the fully
executed Lease (which shall conform to the terms approved by Company) or, if
purchased, the deed evidencing Developer’s right to occupy the approved site.  Developer shall then commence construction
and operation of the “Diedrich Coffee” Coffeehouse pursuant to the terms of the
Franchise Agreement.

 

6.1.5        Notwithstanding the foregoing, Company’s
obligation to deliver Franchise Agreements shall be subject to Company’s legal
authority to do so, and if Company is not legally able to deliver an Offering
Circular to Developer by reason of any lapse or expiration of its franchise
registration, or because Company is in the process of amending any such
registration, or for any reason beyond Company’s reasonable control, Company
may delay approval of the site for Developer’s proposed “Diedrich Coffee”
Coffeehouse and delivery of its Offering Circular until such time as Company is
legally able to deliver an Offering Circular. 
In no event shall Company be liable to Developer for any loss, cost or
expense occasioned by such delays.

 

10

 

6.2           Condition Precedent To Company’s
Obligations.

 

It shall be a
condition precedent to Company’s obligations pursuant to Section 6.1, that
Developer shall have performed all of his obligations under and pursuant to all
agreements between Developer and Company.

 

6.3           Lease.

 

If a site is
leased or subleased by Developer, (i) Company shall have the right of approval
of such lease or sublease, as applicable (the “Lease”), a true and correct copy
of which shall be delivered to Company at least 15 days prior to the execution
thereof; (ii) the term of said Lease shall be for a period which is not less
than the term of the applicable Franchise Agreement, unless Company shall
approve, in writing, a shorter term; (iii) Developer shall neither create nor
purport to create any obligations on behalf of Company, nor grant or purport to
grant to the landlord thereunder any rights against Company, nor agree to any
other term, condition, or covenant which is inconsistent with any provision of
the applicable Franchise Agreement; (iv) Developer shall duly and timely
perform all of the terms, conditions, covenants and obligations imposed upon
him under the Lease; (v) the site shall be constructed and improved pursuant to
the provisions of the applicable Franchise Agreement; (vi) the Lease shall
grant Company an option, without cost or expense to Company, to assume the
Lease in the event of termination or expiration of the applicable Franchise
Agreement for any reason, and shall expressly provide that Company shall have
the right (but not the obligation) to succeed to Developer’s rights under the
Lease if Developer fails to exercise any option to renew, and upon Developer’s
default thereunder, and that upon any alleged breach thereof by Developer, the
landlord thereunder shall be obligated to notify Company in writing at least 15
days prior to its termination or non-renewal and, in the case of a default,
Company shall have the right, but not the obligation, to cure the breach and to
succeed to Developer’s rights under said Lease by giving written notice of such
election to Developer and such landlord; Developer hereby appoints Company as
its attorney-in-fact to execute an assignment and all other documents and
instruments which Company deems necessary or appropriate to effectuate the
foregoing; (vii) a fully executed copy of said Lease shall be delivered to
Company promptly following the execution thereof; (viii) the Lease shall
provide that it may not be assigned, subleased, modified or amended without
Company’s prior written consent and that Company shall be provided with copies
of all such assignments, subleases, modifications and amendments, and the
landlord shall consent in advance to any assignment or sublease to Company or a
“Diedrich Coffee” franchisee or licensee approved by Company during the initial
term or any renewal term of the Lease; and (ix) the Lease may not contain a
non-competition covenant which purports to restrict the Company, or any
developer or licensee of the Company (or its affiliates), from operating a
“Diedrich Coffee” Coffeehouse or any other retail establishment, unless such
covenant is approved by the Company in writing prior to the execution of the
Lease.  In all cases, the Lease shall
provide that upon expiration or termination thereof for any reason, Developer
shall, upon Company’s demand, remove all of the Marks from the site and modify the
decor of the site so that it no longer resembles, in whole or in part, a
“Diedrich Coffee” coffeehouse, kiosk or cart and that if Developer shall fail
do so, Company will be given written notice and the right to enter the site to
make such alterations, in which event Developer shall reimburse Company for all
direct and indirect costs and expense it may incur in connection therewith,
including attorney’s fees.

 

11

 

6.4           Training.

 

At no extra
charge, Company shall provide to up to 3 persons selected by Developer and
acceptable to Company an initial developer orientation program to familiarize
Developer with Company’s System and methods of operation.  Said initial orientation program shall be
for a period of up to 3 days of training, as Company in its reasonable judgment
may determine, at one or more of the following locations: (i) Company’s
corporate headquarters in Irvine, California, (ii) at a Company-owned or
franchised coffeehouse, or (iii) at such place or places as may be
designated by Company.  In the case of a
Developer which is a Business Entity, Company may require the trainees to
include the Developer’s general manager and one or more Owners, officers or
other designated representative selected by Developer and acceptable to, and
approved by Company (“Designated Developer Representative”). Company will bear
its costs of providing the initial orientation program concurrently to up to 3
persons pursuant to this Section 6.4, including Company’s staff salaries,
materials, and all technical training tools. 
Developer shall pay all travel, living, compensation, and other
expenses, if any, incurred by Developer and/or Developer’s Owners and employees
in connection with attendance at the program.  
Company shall pay no compensation for any services performed by
trainee(s) in connection with such training programs.

 

6.4.1        The contents of the initial orientation
program and manner of conducting such program shall be at Company’s sole
discretion and control, however, the training course will be structured to
provide guidance in locating potential sites for “Diedrich Coffee” Coffeehouses
in the Development Area and an overview of the topics which will be addressed
in the initial training program that will be provided in connection with the
first Coffeehouse opened by Developer.

 

6.4.2        Pursuant to the first Franchise
Agreement executed hereunder, Company shall provide an additional initial
training program for the general manager and one or more assistant managers and
other employees acceptable to Company (up to a total of 5 persons) for
Developer’s first “Diedrich Coffee” Coffeehouse.  Company shall also train Developer’s Designated Developer
Representative, or other person acceptable to Company, to act as Developer’s
certified trainer who will in turn train the manager, assistant manager(s) and
staff of each “Diedrich Coffee” Coffeehouse, other than the first one,  in accordance with Company’s policies and
standards. Developer may not open any “Diedrich Coffee” Coffeehouse until the
general manager, assistant manager and staff shall have been certified by
Company or by Developer’s Company-approved certified trainer as having
successfully completed such training.

 

VII.

ASSIGNMENT
AND SUBFRANCHISING

 

7.1           Assignment By Company.

 

This Agreement
is fully transferable by Company, in whole or in part, without the consent of
Developer and shall inure to the benefit of any transferee or their legal
successor to Company’s interests herein; provided, however, that such
transferee and successor shall expressly agree to assume Company’s obligations
under this Agreement.  Without limiting
the foregoing, Company may (i) assign any or all of its rights and obligations
under this Agreement to a subsidiary or affiliated entity; (ii) sell its
assets, its Marks, or its System outright to a third party (including or
subject to this Agreement); (iii) go public; (iv) engage in a private placement
of some or all of its securities; (v) merge, acquire other

 

12

 

corporations, or be acquired by another
corporation; or (vi) undertake a refinancing, recapitalization, leveraged
buy-out or other economic or financial restructuring.  Company shall be permitted to perform such actions without
liability or obligation to Developer who expressly and specifically waives any
claims, demands or damages arising from or related to any or all of the above
actions (or variations thereof). 
Company shall have no liability for the performance of any obligations
contained in this Agreement after the effective date of such transfer or
assignment.

 

7.2           No Subfranchising by Developer.

 

Developer
shall not offer, sell, or negotiate the sale of “Diedrich Coffee” franchises to
any third party, either in Developer’s own name or in the name and on behalf of
Company, or otherwise subfranchise, subcontract, share, divide or partition
this Agreement, and nothing in this Agreement will be construed as granting
Developer the right to do so.

 

7.3           Assignment by Developer.

 

7.3.1        This Agreement has been entered into by
Company in  reliance upon and in
consideration of the individual or collective character, reputation, skill,
attitude, business ability, and financial capacity of Developer or, if applicable,
its Owners who will actively and substantially participate in the development,
ownership and operation of the “Diedrich Coffee” Coffeehouses. Accordingly,
except as otherwise may be permitted herein, neither Developer nor any of
Developer’s Owners shall directly or indirectly sell, assign, transfer, convey,
give away, pledge, mortgage, or otherwise encumber any direct or indirect
interest in this Agreement or in all or substantially all of Developer’s
assets, voluntarily or involuntarily, in whole or in part, by operation of law
or otherwise (an “Assignment”), without Company’s prior written consent,  which consent may be withheld for any reason
whatsoever in Company’s sole subjective judgment.

 

7.3.2        If Developer is a Business Entity, each
of the following shall be deemed to be an Assignment of this Agreement: (i) the
sale, assignment, transfer, conveyance, gift, pledge, mortgage, or other
encumbrance of 50% or more in the aggregate, whether in one or more
transactions, of the assets, capital stock, membership interests or voting
power of Developer, by operation of law or otherwise; (ii) the issuance of
any securities by Developer which itself or in combination with any other
transaction(s) results in the Owners existing as of the Effective Date, owning
50% or less of the outstanding shares, membership interests or voting power of
Developer as constituted as of the date hereof; (iii) if Developer is a
Partnership, the withdrawal, death or legal incapacity of a general partner or
limited partner owning 50% or more of the voting power, property, profits or
losses, or partnership interests of the Partnership (each of which is referred
to hereinafter as a “Partnership Right”), or the admission of any additional
general partner or the transfer by any general partner of any of its
Partnership Rights in the Partnership; (iv) the death or legal incapacity
of any Owner owning 50% or more of the capital stock, voting power, or
Partnership Rights of Developer; and (v) any merger, stock redemption,
consolidation, reorganization, recapitalization or other transfer control of
the Developer, however effected.

 

7.3.3        Developer shall not in any event have
the right to pledge, encumber, hypothecate or otherwise give any third party a
security interest in this Agreement in any manner

 

13

 

whatsoever without the express prior written
permission of Company, which permission may be withheld for any reason
whatsoever in Company’s sole subjective judgment.

 

7.4           Individual Franchise Agreements.

 

Developer
shall not execute any Franchise Agreement, or construct or equip any “Diedrich
Coffee” Coffeehouse with the intent of transferring or assigning such Franchise
Agreement or “Diedrich Coffee” Coffeehouse. 
Developer acknowledges and agrees that it will not be permitted to assign
any Franchise Agreement executed pursuant to this Agreement except in
conjunction with a concurrent assignment to the same assignee of this Agreement
and all of the Franchise Agreements executed pursuant to this Agreement, and
otherwise in accordance with the terms and conditions of said Franchise
Agreement(s).

 

VIII.

NON-COMPETITION,
NON-SOLICITATION, TRADE SECRETS

 

8.1           In
Term.

 

Subject to the
terms and to the exceptions, if any, explicitly set forth in Exhibit “D”
hereto, during the Term, neither Developer, nor any officer, director, or
direct or indirect Owner of a Developer which is a Business Entity, shall in
any capacity, either directly or indirectly, through one or more subsidiaries
or affiliated companies engage in any Competitive Activities, at any location,
whether within or outside the Development Area, unless Company shall consent
thereto in writing; provided that, with Company’s prior written consent, which
Company will not unreasonably withhold, Developer or any Owner, officer or director
of Developer may own and operate one or more restaurants, or any other retail
establishment, which sells brewed coffee, espresso or coffee products if and
for so long as such restaurant, or retail establishment, does not derive 20% or
more of its gross revenues from the sale of espresso drinks, brewed coffee,
roasted coffee beans and blends, premium teas, and coffee-related products and
equipment, or any of them, during any day part.

 

8.2           Post-Term.

 

Subject
to the terms and to the exceptions, if any, explicitly set forth in Exhibit
“D”, to the extent permitted by Applicable Law, upon the expiration or
termination of this Agreement, or if Developer shall make any Assignment to any
person or Business Entity, or if any Owner, officer or director of Developer
shall terminate his or her relationship with Developer, then for a period of 24
months thereafter, such terminating Owner, officer or director, if applicable,
or in the case of expiration, termination or Assignment, Developer, and each
officer, director, and direct or indirect Owner of Developer shall not in any
capacity, either directly or indirectly, through one or more subsidiaries or
affiliated companies, engage in any Competitive Activities, (i) within the
Development Area, (ii) within the County in which any “Diedrich Coffee”
Coffeehouse operated by Developer is located, or (iii) within an area within
ten (10) miles from the location or any then existing “Diedrich Coffee”
Coffeehouse, without the Company’s prior written consent.  In applying for such consent, Developer will
have the burden of establishing that any such activity by it will not involve
the use of benefits provided under this Agreement or constitute unfair
competition with Company or other franchisees or area developers of the

 

14

 

Company;
provided that, with Company’s prior written consent, which Company will not
unreasonably withhold, Developer or any Owner, officer or director of Developer
may own and operate one or more restaurants, or any other retail
establishment,  which sells brewed
coffee, espresso or coffee products if and for so long as such restaurant, or
retail establishment, does not derive 20% or more of its gross revenues from
the sale of espresso drinks, brewed coffee, roasted coffee beans and blends,
premium teas, and coffee-related products and equipment, or any of them, during
any day part.

 

8.3           Modification.

 

The parties
have attempted in Sections 8.1 and 8.2 above to limit the Developer’s right to
compete only to the extent necessary to protect the Company from unfair
competition.  The parties hereby
expressly agree that if the scope or enforceability of Section  8.1 and
8.2 is disputed at any time by Developer, a court or arbitrator, as the case
may be, may modify either or both of such provisions to the extent that it
deems necessary to make such provision(s) enforceable under Applicable
Law.  In addition, the Company reserves
the right to reduce the scope of either, or both, of said provisions without
Developer’s consent, at any time or times, effective immediately upon notice to
Developer.

 

8.4           Personnel.

 

8.4.1        During the Term of this Agreement,
Developer shall not, without the prior written consent of Company, directly or
indirectly: (a) employ or attempt to employ any person who at that time is
employed by Company, an affiliate of Company, or any other franchisee or area
developer, including, without limitation, any coffeehouse manager, assistant
coffeehouse manager, or head chef (“Personnel”); (b) employ or attempt to
employ any Personnel who within six (6) months prior thereto had been employed
by Company, an affiliate of Company, or any other franchisee or area developer;
or (c) induce or attempt to induce any Personnel to leave his or her employment
with Company, an affiliate of Company, or any other franchisee or area
developer.

 

8.4.2        The prohibitions set forth in
Section 8.4.1 above shall also apply during the one (1) year period after
the expiration or termination of this Agreement.

 

8.4.3        During the Term of this Agreement,
Company shall not, without the prior written consent of Developer, directly or
indirectly: (a) employ or attempt to employ any person who at that time is
employed by Developer or an affiliate of Developer; or (b) induce or attempt to
induce any person to leave his or her employment with Developer or an affiliate
of Developer.

 

8.5           Trade Secrets.

 

8.5.1        Company possesses and continues to
develop, and during the course of the relationship established hereunder,
Developer shall have access to, proprietary and confidential information,
including recipes, secret ingredients, specifications, procedures, concepts and
methods and techniques of developing, marketing and operating coffeehouses,
restaurants and other retail outlets featuring espresso, ground coffee and
roasted coffee beans, tea, and other food and beverage products (the “Trade
Secrets”).  Certain of the Trade Secrets
may be disclosed to Developer in Operating Manuals, bulletins, supplements,
confidential correspondence, or other confidential communications, and through
the Company’s training program and other guidance and management assistance,
and in performing 

 

15

 

Company’s other obligations and exercising
Company’s rights under this Agreement or the Franchise Agreements executed
pursuant hereto. “Trade Secrets” shall not include information which: (a) has
entered the public domain or was known to Developer prior to Company’s
disclosure of such information to Developer, other than by the breach of an
obligation of confidentiality owed (by anyone) to Company; (b) becomes known to
Developer from a source other than Company and other than by the breach of an
obligation of confidentiality owed (by anyone) to Company; or (c) was
independently developed by Developer without the use or benefit of Company’s
Trade Secrets.  The burden of proving
the applicability of the foregoing will reside with Developer.

 

8.5.2        Developer shall acquire no interest in
the Trade Secrets other than the right to use them in developing and operating
“Diedrich offee” Coffeehouses pursuant to the Franchise Agreements executed
pursuant to Section 6.1 during the Term thereof.  Developer’s duplication or use of the Trade Secrets in any other
endeavor or business shall constitute an unfair method of competition.  Developer shall: (i) not use the Trade
Secrets in any business or other endeavor other than in connection with such
“Diedrich Coffee” Coffeehouses; (ii) maintain absolute confidentiality of
the Trade Secrets during and after this Agreement’s Term; (iii) make no
unauthorized copy of any portion of the Trade Secrets, including without
limitation, all or any part of the Manuals, bulletins, supplements,
confidential correspondence, or other confidential communications, whether
written or oral; and (iv) operate and implement all reasonable procedures
prescribed from time to time by Company to prevent unauthorized use and
disclosure of the Trade Secrets, including without limitation, restrictions
limiting disclosure to certain employees and use of non-disclosure and
non-competition provisions as Company prescribes in employment agreements with
employees who may have access to the Trade Secrets.  Promptly upon Company’s request, Developer shall deliver executed
copies of such agreements to Company. 
The provisions of this Section 8.5 shall be in additional to and
not in lieu of any other confidentiality obligation of Developer, or any other
person, whether pursuant to another agreement, or pursuant to Applicable Law.

 

8.6           Developer’s Affiliates.  For purposes of this Article only,
“Developer” shall mean and include the individual Developer; Developer’s spouse
and minor children and its Owners, officers and directors if Developer is a
Business Entity and Developer shall, except as Company may otherwise agree,
cause each such person to acknowledge and agree to be bound by the provisions
of Section 8.1 through 8.5.  The
provisions of this Article shall not limit, restrain or otherwise affect
any right or cause of action which may accrue to Company for any infringement
of, violation of, or interference with, this Agreement, or Company’s Marks,
System, trade secrets, or any other proprietary aspects of Company’s business.

 

IX.

TERMINATION

 

9.1           Termination Pursuant to a Material
Breach of This Agreement.  

 

This Agreement
may be terminated by Company in the event of any material breach by Developer
of this Agreement, unless such default is cured by Developer within 15 days
following written notice of the default (or 5 days in the case of a default in
the payment of money); provided that the following defaults shall be deemed
incurable: (i) any attempt by Developer to make any Assignment in violation of
the terms of this Agreement, or without the written consents required, pursuant
to this

 

16

 

Agreement; (ii) failure of Developer to meet
the Minimum Development Obligation; and (iii) any violation by Developer of
Article VIII.

 

9.2           Termination by Reason of a Material
Breach of Other Agreement.

 

This Agreement
may be terminated, at the election of Company, in the event of the termination
by reason of a material breach by Developer of an individual Franchise
Agreement or any other agreement between Company and Developer, subject to the
notice and the opportunity to cure, if any, specified in the Franchise
Agreement or other such agreement.

 

9.3           Effect of Termination.

 

Upon the
expiration of the Term, or upon the prior termination of this Agreement:

 

9.3.1        Developer shall have no further right to
construct, equip, own, open or operate additional “Diedrich Coffee”
Coffeehouses which are not, at the time of such termination or expiration, the
subject of a then existing Franchise Agreement between Developer and Company
which is in full force and effect; and

 

9.3.2        Company and its affiliates may
construct, equip, open, own or operate, or franchise or license others to
construct, equip, open, own or operate “Diedrich Coffee” Coffeehouses in the
Development Area, except as may be expressly provided to the contrary in any
Franchise Agreement executed pursuant to this Agreement.

 

 

X.

BUSINESS
ENTITY DEVELOPER

 

10.1         Business Entity Developer.  If Developer is a Business Entity, the
following provisions will apply:

 

10.1.1      Developer represents and warrants that the
information set forth in Exhibit “C” which is annexed hereto and by this
reference made a part hereof, is accurate and complete in all material
respects.

 

10.1.2      Developer shall notify Company in writing
within ten (10) days of any change in the information set forth in Exhibit “C”.

 

10.1.3      Developer promptly shall provide such
additional information as Company may from time to time request concerning all
persons who may have any direct or indirect financial interest in Developer.

 

10.2         Limitation on Activities.  If Developer is a Business Entity, all of
Developer’s organizational documents (including articles of partnership,
partnership agreements, articles of incorporation, bylaws, shareholders’
agreements, trust instruments, or their equivalent) will provide that the
issuance and transfer of any interest in Developer is restricted by the terms
of this Agreement, and

 

17

 

that the sole purpose for which Developer is
formed (and the sole activity in which Developer is or will be engaged) is the
development and operation of “Diedrich Coffee” Coffeehouses, pursuant to one or
more area development agreements and one or more franchise agreements from
Company.  Developer will submit to
Company, upon the execution of this Agreement, a resolution of Developer (or
its governing body) confirming that Developer is in compliance with this
provision.

 

10.3         Guaranty and Subordination Agreement.  Upon the execution of this Agreement, upon
each transfer of an interest in Developer, and at any other time upon Company’s
request, all holders of a 10% or greater interest in Developer will execute a
written agreement in the form of Exhibit “E”, personally guaranteeing, jointly
and severally, with all other holders of a 10% or greater interest in
Developer, the full payment and performance of Developer’s obligations to
Company and to Company’s affiliates.

 

XI.

GENERAL
CONDITIONS AND PROVISIONS

 

11.1         Relationship of Developer to Company.

 

It is
expressly agreed that the parties intend by this Agreement to establish between
Company and Developer the relationship of franchisor and franchisee.  It is further agreed that Developer has no
authority to create or assume in Company’s name or on behalf of Company, any
obligation, express or implied, or to act or purport to act as agent or
representative on behalf of Company for any purpose whatsoever.  Neither Company nor Developer is the
employer, employee, agent, partner or co-venturer of or with the other, each
being independent.  Developer agrees
that he will not hold himself out as the agent, employee, partner or
co-venturer of Company.  All employees
hired by or working for Developer shall be the employees of Developer and shall
not, for any purpose, be deemed employees of Company or subject to Company
control.  Each of the parties agrees to
file its own tax, regulatory and payroll reports with respect to its respective
employees and operations, saving and indemnifying the other party hereto of and
from any liability of any nature whatsoever by virtue thereof.

 

11..2        Indemnity by Developer.

 

Developer
hereby agrees to protect, defend and indemnify Company, and all of its past,
present and future direct and indirect Owners, subsidiaries, affiliates,
officers, directors, employees, attorneys and designees and hold them harmless
from and against any and all costs and expenses, including attorneys’ fees,
court costs, losses, liabilities, damages, claims and demands of every kind or
nature on account of any actual or alleged loss, injury or damage to any person
or Business Entity or to any property arising out of or in connection with
Developer’s operation of “Diedrich Coffee” Coffeehouses pursuant hereto, except
to the extent resulting from the negligence or intentional misconduct of
Company.

 

11..3        Limitation of Liability

 

11.3.1      Company shall not be liable to Developer
for any consequential damages, including but not limited to lost profits,
interest expense, increased construction or occupancy  costs, or other costs and expenses incurred by Developer by
reason of any delay in the delivery of Company’s

 

18

 

Offering Circular caused by legal incapacity
during the Term, events beyond Company’s reasonable control, or other conduct
not due to the gross negligence or misfeasance of Company.

 

11.3.2      In the event of the termination of this
Agreement solely by reason of Developer’s breach of its Minimum Development
Obligation, Company shall waive its right to recover lost profits on account of
the undeveloped “Diedrich Coffee” Coffeehouses on condition that Developer
shall abide by its obligations under Article VIII.  This Section 11.3.2 shall not otherwise
limit any other remedy available to Company at law or in equity, nor limit the
recovery of damages to Company, except as provided herein.

 

11.4         Waiver and Delay.

 

No waiver by
Company of any breach or series of breaches or defaults in performance by
Developer, and no failure, refusal or neglect of Company to exercise any right,
power or option given to it hereunder or under any other franchise agreement
between Company and Developer, whether entered into before, after or
contemporaneously with the execution hereof (and whether or not related to the
“Diedrich Coffee” Coffeehouses) or to insist upon strict compliance with or
performance of Developer’s obligations under this Agreement or any Franchise
Agreement between Company and Developer, whether entered into before, after or
contemporaneously with the execution hereof (and whether or not related to the
“Diedrich Coffee” Coffeehouses), shall constitute a waiver of the provisions of
this Agreement with respect to any subsequent breach thereof or a waiver by
Company of its right at any time thereafter to require exact and strict
compliance with the provisions thereof.

 

11.5         Survival of Covenants.

 

The covenants
contained in this Agreement which, by their terms, require performance by the
parties after the expiration or termination of this Agreement, shall be
enforceable notwithstanding said expiration or other termination of this
Agreement for any reason whatsoever.

 

11.6         Successors and Assigns.

 

This Agreement
shall be binding upon and inure to the benefit of the successors and assigns of
Company and shall be binding upon and inure to the benefit of Developer and his
or their respective heirs, executors, administrators, successors and assigns,
subject to the prohibitions against Assignment contained herein.

 

11.7         Joint and Several Liability.

 

If Developer
consists of more than one person or business entity, or a combination thereof,
the obligations and liabilities of each such person or business entity to
Company are joint and several.

 

11.8         Governing
Law.

 

This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
giving effect to any conflict of laws, excepting however the provisions of
Article

 

19

 

VIII which shall be construed and enforced in
accordance with the laws of the State where the breach of said Section occurs.

 

THE PARTIES
HEREBY WAIVE THEIR RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY DISPUTE ARISING
UNDER THIS AGREEMENT, AND THEY AGREE THAT, EXCEPT TO THE EXTENT PROHIBITED BY
LAW, ORANGE COUNTY, CALIFORNIA SHALL BE THE VENUE FOR ANY LITIGATION ARISING
UNDER THIS AGREEMENT.  THE PARTIES
ACKNOWLEDGE THAT THEY HAVE REVIEWED THIS SECTION AND HAVE HAD THE
OPPORTUNITY TO SEEK INDEPENDENT LEGAL ADVICE AS TO ITS MEANING AND EFFECT.

 

11.9         Entire
Agreement.

 

This Agreement
and the Exhibits incorporated herein contain all of the terms and conditions
agreed upon by the parties hereto concerning the subject matter hereof.  No other agreements concerning the subject
matter hereof, written or oral, shall be deemed to exist or to bind any of the
parties hereto and all prior agreements, understandings and representations,
are merged herein and superseded hereby. 
Developer represents that there are no contemporaneous agreements or
understandings between the parties relating to the subject matter of this
Agreement that are not contained herein. 
No officer or employee or agent of Company has any authority to make any
representation or promise not contained in this Agreement or any Offering
Circular for prospective franchisees required by Applicable Law, and Developer
agrees that he has executed this Agreement without reliance upon any such
representation or promise.  This
Agreement cannot be modified or changed except by written instrument signed by
all of the parties hereto.

 

11.10       Titles For Convenience.

 

Article and
paragraph titles used in this Agreement are for convenience only and shall not
be deemed to affect the meaning or construction of any of the terms,
provisions, covenants, or conditions of this Agreement.

 

11.11       Gender And Construction.

 

All terms used
in any one number or gender shall extend to mean and include any other number
and gender as the facts, context, or sense of this Agreement or any
article or paragraph hereof may require. 
As used in this Agreement, the words “include,” “includes” or
“including” are used in a non-exclusive sense. 
Unless otherwise expressly provided herein to the contrary, any consent,
approval or authorization of Company which Developer may be required to obtain
hereunder may be given or withheld by Company in its sole discretion, and on
any occasion where Company is required or permitted hereunder to make any
judgment or determination, including any 
decision as to whether any condition or circumstance meets Company’s
standards or satisfaction, Company may do so in its sole subjective judgment.

 

11.12       Severability.

 

Nothing
contained in this Agreement shall be construed as requiring the commission of
any act contrary to law.  Whenever there
is any conflict between any provisions of this Agreement and any

 

20

 

present or future statute, law, ordinance or
regulation contrary to which the parties have no legal right to contract, the
latter shall prevail, but in such event the provisions of this Agreement thus
affected shall be curtailed and limited only to the extent necessary to bring
it within the requirements of the law. 
In the event that any part, article, paragraph, sentence or clause of
this Agreement shall be held to be indefinite, invalid or otherwise
unenforceable, the indefinite, invalid or unenforceable provision shall
(subject to Section 8.3) be deemed deleted, and the remaining part of this
Agreement shall continue in full force and effect.

 

11.13       Counterparts.

 

This Agreement
may be executed in any number of counterparts, each of which shall be deemed to
be an original and all of which together shall be deemed to be one and the same
instrument.

 

11.14       Fees and Expenses.

 

Should any
party hereto commence any action or proceeding for the purpose of enforcing, or
preventing the breach of, any provision hereof, whether by arbitration,
judicial or quasi-judicial action or otherwise, or for damages for any alleged
breach of any provision hereof, or for a declaration of such party’s rights or
obligations hereunder, then the prevailing party shall be reimbursed by the
losing party for all costs and expenses incurred in connection therewith,
including, but not limited to, reasonable attorneys’ fees for the services
rendered to such prevailing party.

 

11.15       Notices.

 

Except as
otherwise expressly provided herein, all written notices and reports permitted
or required to be delivered by the parties pursuant hereto shall be deemed so
delivered at the time delivered by hand, one (1) business day after confirmed
transmission by facsimile or other electronic system (with confirmation copy
sent by regular U.S. Mail), or three (3) business days after placement in the
United States Mail by Registered or Certified Mail, Return Receipt Requested,
postage prepaid and addressed as follows:

 

	
  If to Company:

  
	
   

  
	
   

  	
  Diedrich Coffee, Inc.

  
	
   

  	
  2144 Michelson Drive

  
	
   

  	
  Irvine, California 92612

  
	
   

  	
  Attention: Vice President Franchise Sales

  
	
   

  	
  Facsimile No.:  (949) 260-6731

  

 

21

 

If to Developer:

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Facsimile
  No.:  (      )

  	
   

  

 

With Copy to:

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Facsimile
  No.:  (      )

  	
   

  

 

or to such other address as such party may
designate by ten (10) days’ advance written notice to the other party.

 

XII.

SUBMISSION OF AGREEMENT

 

12.1         General.

 

The submission
of this Agreement does not constitute an offer and this Agreement shall become
effective only upon the execution thereof by Company and Developer.

 

XIII.

ACKNOWLEDGMENT

 

13.1         General.

 

Developer, and
its Owners, jointly and severally acknowledge that they have carefully read
this Agreement and all other related documents to be executed concurrently or
in conjunction with the execution hereof, that they have obtained the advice of
counsel in connection with entering into this Agreement, that they understand the
nature of this Agreement, and that they intend to comply herewith and be bound
hereby.

 

22

 

IN WITNESS
WHEREOF, the parties hereto have caused this Agreement to be executed as of the
first date set forth above.

 

	
  ACCEPTED on
  this      day
  of                          ,                  .

  
	
   

  
	
  COMPANY:

  
	
  Diedrich Coffee, Inc.

  
	
   

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  
	
  Its:

  	
   

  	
   

  

 

 

	
  DEVELOPER:

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  
	
  Its:

  	
   

  	
   

  
	
   

  
	
   

  	
   

  
	
  an Individual

  
	
   

  
	
   

  	
   

  
	
  an Individual

  
	
   

  
	
   

  	
   

  
	
  an Individual

  

 

23

 

EXHIBIT A

DEVELOPMENT
AREA

 

 

EXHIBIT B

MINIMUM
DEVELOPMENT OBLIGATIONS

 

 

	
  Development

  Period

  Ending

  	
   

  	
  Cumulative
  Number of

  Full Service Coffeehouses

  to be in Operation

  
	
   

  	
   

  	
   

  
	
  1                ,
  20    

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  2                ,
  20    

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  3                ,
  20    

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  4                ,
  20    

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  5                ,
  20    

  	
   

  	
   

  

 

 

EXHIBIT C

DEVELOPER
INFORMATION

 

Developer is a (check as applicable):

o
corporation    o
limited partnership

o
limited liability company    o
general partnership

o
Other (specify): 
                                                 

 

The name and address of each Owner of
Developer is:

 

	
  NAME

  	
   

  	
  ADDRESS

  	
   

  	
  NUMBER OF

  SHARES OR

  PERCENTAGE

  INTEREST

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

There is set forth below the name and address
of each director, member, or general partner, as applicable, of Developer:

 

	
  NAME

  	
   

  	
  ADDRESS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

There is set forth below the names, and
addresses and titles of Developer’s principal officers or partners who will be
devoting their full time to the “Diedrich Coffee” Coffeehouses:

 

	
  NAME

  	
   

  	
  ADDRESS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

The address where Developer’s Financial
Records, and Business Entity records (e.g. Articles of Incorporation, Bylaws,
Operating Agreement, Partnership Agreement, etc.) are maintained is:

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

EXHIBIT D

 

EXCEPTIONS
TO SECTION 8.1

 

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

If no exceptions are
inserted above and initialed by both parties, no exceptions apply.  If any exception is described above, it is
limited to the identified business as it exists on the Effective Date of this
Agreement and does not extend to or include any material change made to the
business after the Effective Date, including any change in the menu or products
or services featured by the business. 
In no event shall any identified exception include any business if
(a) its sales of espresso drinks, 
coffee, roasted coffee beans and blends, and premium teas, or any of
them, exceeds 20% during any day part, or (b) its sales of bakery goods
exceeds 9% of all revenues derived by the business during any day part, or
(c) 85% or more of such business’ total beverage sales are comprised of
non-coffee beverages.  By way of
illustration, and not limitation, even if a restaurant is identified above, the
exception will be void if the restaurant’s sales of coffee or bakery goods
exceed the stated thresholds, whether on the Effective Date, or by reason of a
subsequent change in the restaurant’s menu or marketing.

 

 

EXHIBIT E

 

GUARANTY
AND SUBORDINATION AGREEMENT

 

 

SPOUSAL
CONSENT

 

Each of the
undersigned, each being the spouse of an individual who executed this Agreement
as Developer (or if Developer is a partnership, a spouse of a general partner),
consents to all of the terms of this Agreement and the execution thereof, and
agrees not to assist any person who is a party to this Agreement to violate any
of that party’s duties under this Agreement.

 

 

	
  By:

  	
   

  	
   

  	
  Dated:

  	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Dated:

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