Area Development Agreement

Sample Area Development Agreement


Version 2/15/2006

Muginoho USA, Inc.

beard papa's sweets cafe

Development Agreement

Area Developer: Territory:


Version 2/15/2006

Beard Papa's Sweets Cafe

Development Agreement

Table of Contents


Article I - Grant of Rights to You

Section 1.1 - Grant of Rights

Section 1.2 - Exclusivity

Section 1.3 - Limited Use of Trademarks

Section 1.4 - Duty to Operate Cafes

Section 1.5 - "Affiliate" Defined

Section 1.6 - Franchise Agreements

Section 1.7 - Entity Requirements

Section 1.8 - Management

Section 1.9 - Undertakings by Managers

Section 1.10- Guaranty

Article II - Your Development Obligations

Section 2.1 - Commencement of Business

Section 2.2 - Time is of the Essence

Section 2.3 - Compliance with Laws

Section 2.4 - Franchise Recruiting and Screening

Section 2.5 - Our Approval of New Franchisees

Section 2.6 - Franchise Services

Section 2.7 - Dealings with Franchisees

Section 2.8 - Your Inspections of Franchises

Section 2.9 - Our Enforcement of Franchise Agreements

Section 2.10 - Standards of Service

Section 2.11- Reports to Us

Section 2.12 -Your Failure to Perform

Article III - Fees

Section 3.1 - Development Fee

Section 3.2 - Initial Fees for Franchise Agreements

Section 3.3 - Payments to You

Section 3.4 - Application of Payments to You; Setoffs

Section 3.5 - Time of Payment; Other Deductions

Section 3.6 - Records; Reports; Inspection

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Article IV - Our Support Obligations to You                                                                   13

Section 4.1 - Operating Assistance                                                                       13

Section 4.2 - Training; Manual                                                                            14

Article V - Confidentiality and Noncompetition                                                              14

Section 5.1- Confidentiality                                                                                14

Section 5.2 - Noncompetition                                                                              15

Article VI - Transfer                                                                                                      16

Section 6.1 - Transfer by Us                                                                                16

Section 6.2 - Transfer by You                                                                              16

Section 6.3 - Our Right of First Refusal                                                               18

Article VII - Term and Termination                                                                                19

Section 7.1 Term and Renewal                                                                          19

Section 7.2 - Termination                                                                                   20

Section 7.3 - Consequences of Termination                                                         21

Section 7.4 - Continuing Effect of Franchise Agreements                                     21

Section 7.5 - Other Remedies                                                                              22

Article VIII - Representations and Warranties; Indemnification                                       22

Section 8.1 - Representations and Warranties                                                       22

Section 8.2 - Indemnification                                                                              23

Article IX - Miscellaneous                                                                                             24

Section 9.1 - Relationship of the Parties                                                               24

Section 9.2 - Injunctive Relief                                                                            24

Section 9.3 - Severability                                                                                    24

Section 9.4 - No Waiver of Rights                                                                       24

Section 9.5 - Notices                                                                                          24

Section 9.6 - Affiliates                                                                                       25

Section 9.7 Limitation of Actions                                                                     25

Section 9.8 - Waiver of Damages                                                                        25

Section 9.9 - Governing Law                                                                              25

Section 9.10 - Mediation                                                                                    25

Section 9.11- Arbitration                                                                                   26

Section 9.12 - Jurisdiction and Venue                                                                 26

Section 9.13 - Entire Agreement                                                                         26

Schedule A - Territory

Schedule B - Development Schedule

Schedule C - Entity Information of Area Developer

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Muginoho USA, Inc.

beard papa's sweets cafe

Development Agreement

AGREEMENT made as of__________________between MUGINOHO USA, INC., a

New York corporation (referred to in this Agreement as "we" or "us"), and________________

_________________________,_________________[if entity, indicate type] (referred to in this

Agreement as "you" or "your company").


We and our affiliated companies have developed an integrated system for the production and sale of fresh cream puffs through retail stores called Beard Papa's Sweets Cafes (the "Cafes"). The cream puffs are baked fresh on the store premises with all natural ingredients and served to order. Customers can watch as the cream puffs are filled with a sweet whipped cream custard each time an order is placed, then sprinkled with powdered sugar and served for immediate enjoyment or boxed to go. Beard Papa cream puffs are distinguished by a secret, double-layer crust recipe, which combines an inner choux pastry shell with an outer pie crust, and a luscious filling that blends whipped cream, custard and lavish amounts of fresh vanilla bean. They contain no preservatives and use only the best and freshest ingredients.

You desire to obtain certain rights, in a defined geographic area, (a) to own and operate Cafes and (b) to serve as our independent Area Developer to coordinate the development of Cafes, including recruiting franchisees to operate Cafes and providing training and continuing operational and supervisory assistance, and we desire to grant such rights to you upon the terms and conditions set forth below. Accordingly, you and we agree as follows:


Section 1.1 Grant of Rights. We grant to you the right, and you undertake the obligation, under the terms and conditions contained in this Agreement, in accordance with the development schedule set forth in Schedule B (the "Development Schedule"), (a) to enter into franchise agreements with us for the operation of Cafes in the geographic area described in Schedule A (the "Territory"), (b) to recruit prospective Cafe franchisees in the Territory and (c) to provide certain services to Cafe franchisees in the Territory.

Section 1.2 - Exclusivity. During the term of this Agreement, we will not grant to any other person the right to perform the functions of an Area Developer in the Territory. We retain

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the right to engage in franchise sales and support services in the Territory, in consultation with you.

Section 1.3 Limited Use of Trademarks, You may use our trademarks only as necessary to recruit individual Cafe franchisees and to provide services to Cafe franchisees in the Territory pursuant to the terms and conditions of this Agreement and any manuals and instructions we may give you from time to time. You acknowledge and agree that your use of our trademarks and any goodwill established by such use will be exclusively for our benefit and that this Agreement does not confer any goodwill or other interests in our trademarks upon you. You may not use any of our trademarks as part of any corporate or legal business name or with any prefix, suffix or other modifying words, terms, designs or symbols (other than logos licensed to you under this Agreement), or in any modified form, nor may you use any of our trademarks in connection with the performance or sale of any unauthorized products or services or in any other manner we have not expressly authorized in writing. You may not use any of our trademarks as part of a domain name or electronic address of a website.

Section 1.4 - Duty to Operate Cafes. As a material condition of your appointment as an Area Developer, you or any of your Affiliates (as defined in Section 1.5) will enter into one or more franchise agreements with us for the operation of a Cafe in the Territory (the "Franchise Agreement"). You or your Affiliate must open and commence operating at least one Cafe franchise before you begin recruiting unaffiliated persons or entities to be Cafe franchisees. For as long as this Agreement remains in effect, you or your Affiliate must continuously own and operate at least one Cafe in the Territory pursuant to a valid Franchise Agreement, and you and your Affiliates must not be in material default of any Franchise Agreement. Neither you nor any other person or entity has the right to open or operate a Cafe by virtue of this Agreement. We grant such rights only pursuant to Franchise Agreements.

Section 1.5 - "Affiliate" Defined. An "Affiliate" means any of the following persons or entities: (a) any one or more of the partners owning at least a majority equity interest in a partnership; (b) any one or more of the shareholders of a corporation or members of a limited liability company owning at least a majority equity interest in the company; or (c) a company entirely owned by the partners, shareholders or members holding a majority equity interest.

Section 1.6- Franchise Agreements. The numbers of Cafes referred to in the Development Schedule include both those owned by you and your Affiliates and those owned by unaffiliated persons or entities. Before you begin to develop a Cafe at any specific location, you or your Affiliate, and each newly-recruited franchisee, will enter into our then-current standard form of Franchise Agreement setting forth the terms and conditions under which you or such person or entity will open and operate the Cafe. This standard form may vary from the form we currently use, except that the initial fee for Franchise Agreements to be signed by you or your Affiliate will be the amount set forth in Section 3.2. For each proposed site for a Cafe, you must follow our site approval procedure.

Section 1.7' Entity Requirements. If your company is a corporation or limited liability company, it must be newly organized and its charter, certificate of incorporation or operating


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agreement must at all times provide that its activities are confined solely to developing Cafes pursuant to this Agreement. All certificates representing stock or other ownership interests in your company must contain a legend stating that transfer of such stock or ownership interest is limited by the provisions of this Agreement. Upon our request, you will deliver to us copies of all organizational documents of your company, including articles of incorporation, by-laws, shareholders' agreements, limited liability company articles and operating agreements, and any certificates we may request certifying any resolution of directors authorizing your company to enter into this Agreement. If your company is a partnership, its activities must also be confined solely to developing Cafes pursuant to this Agreement, and you agree, upon our request, to deliver to us a copy of your partnership agreement.

Section 1.8 Management. You will ensure that the Area Developer business you are undertaking pursuant to this Agreement (the "Business") is always actively managed by one or more managers who have attended and successfully completed such training as we may require from time to time. Each such manager will actively devote his or her full time, attention and effort to the Franchised Business, unless we otherwise agree. You will use your best efforts to ensure that such managers, at all times, faithfully, honestly and diligently perform your company's obligations under this Agreement.

Section 1.9 - Undertakings by Managers. Each manager of the Business must sign a written agreement with you that will include the manager's undertakings (i) not to assume any business responsibilities that would be inconsistent with the proper operational requirements and best interest of the Business as long as such manager continues to manage the Business, and (ii) to comply with the confidentiality and noncompetition requirements set forth in Sections 5.1 and 5.2 to the same extent that you are obligated to us.

Section 1.10- Guaranty. Our grant of rights pursuant to this Agreement is made in reliance on the personal attributes of your company's owners and managers named in Schedule C. If your company is a legal entity such as a corporation or limited liability company rather than a sole proprietorship or general partnership, then our grant of rights under this Agreement is made on the condition that each person who now or later owns or acquires, either legally or beneficially, 10% or more of the equity or voting interests of your company (the "Guarantor" or "Guarantors") must execute and deliver to us a guaranty in a form attached as Schedule D (the "Guaranty"). Transfers of interest are restricted in accordance with Article VI.


Section 2.1 Commencement of Business. Before you begin recruiting unaffiliated persons or entities to be Cafe franchisees, you agree, at your expense, to open an office in the Territory to conduct the Business, and to purchase or otherwise equip such office with the following: (a) computer hardware and software that meet our standards and specifications; (b) suitable office equipment to operate the Business, including at least one dedicated telephone line with 24-hour voice mail or professional answering; (c) a DSL or equivalent Internet connection and e-mail capability; and (d) business cards. You may establish such office in any location that allows you to perform your obligations, whether in an office building, in your home or


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elsewhere. You select the location of the office, subject to our approval, which we will not unreasonably withhold. We may impose specifications for office decoration, furnishings and fixtures.

Section 2.2 - Time is of the Essence. You agree to open or arrange for the opening of Cafe franchises in accordance with the Development Schedule. In this connection, you acknowledge that time is of the essence.

Section 2.3 - Compliance with Laws.

(a)  You will perform your services under this Agreement in full compliance with all applicable laws and regulations. You acknowledge that many jurisdictions have enacted laws concerning the advertising, sale, renewal and termination of, and continuing relationship between parties to a Franchise Agreement, including laws concerning pre-sale disclosure and registration of persons who engage in the offer and sale of franchises.

(b)  Neither you nor any of your employees or representatives will solicit prospective franchisees if we notify you that our Uniform Franchise Offering Circular ("UFOC") or registration is no longer effective or must be amended or renewed in order to remain effective.

(c)  If your activities pursuant to this Agreement require that you or we prepare, amend, register or file information or any UFOC or other documents, we or our designee will prepare and file all requisite UFOCs, ancillary documents and registration applications, and you may not solicit prospective Cafe franchisees until we notify you we have made the necessary filing or secured the necessary registration. As long as you comply with your obligations under this Section 2.3, we will bear the cost to prepare, amend, register or file information or documents to enable you to recruit prospective franchisees in the Territory on our behalf. In this connection, you will:

(i) prepare and forward to us verified financial statements of your company in such form and for such periods as we designate, including audited financial statements, if necessary and appropriate;

(ii) promptly provide all information we reasonably require about you and your employees and, upon our request, certify in writing that the information supplied is true, correct and not misleading, so that we may prepare all requisite offering circulars, franchise broker filings and ancillary documents for the offering of franchises throughout the Territory; and

(iii) execute all documents we require to enable us to register to offer franchises, with you as our sales agent or franchise broker in the Territory.

(d)  You agree promptly to review all information pertaining to you that we prepare for purposes of complying with legal requirements for selling franchises in the Territory, and to verify its accuracy if we so request. You acknowledge that we and our affiliates and designees


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will not be liable to you for any errors or omissions in the content, or delays in the preparation or registration of our UFOC; provided, however, if we do not have a currently effective UFOC for a period of six months or longer, the parties will adjust the Development Schedule in proportion to the length of time for which the UFOC is not currently effective.

(e)  You are responsible for complying with all pre-sale disclosure laws in force in the Territory. In discharging these obligations, you will use only the specific disclosure documents prepared by us.

(f)  Before you solicit the possible sale of any franchise, you will in each case take reasonable steps to confirm that the information contained in any written materials, agreements, UFOC or other documents that you use to recruit prospects and sell franchises in the Territory is true, correct and not misleading at the time of such offer or sale and that the offer or sale of such franchise will not at that time be contrary to or in violation of any applicable state law relating to the registration of the franchise offering or disclosure to a prospective franchisee. You will not be liable for the accuracy of information of which you do not possess actual knowledge or should not reasonably know if the information is true, correct and not misleading. We will provide you with amendments, revisions and updates to our written materials, agreements, UFOC and other documents on a timely basis and, upon request, provide you with confirmation that the information contained in the written materials, agreements or documents which we supply to you is true, correct and not misleading, except for the information which you supply to us of which we do not possess actual knowledge or should not reasonably know if the information is true, correct and not misleading. If you notify us of an error in any information in our documents, we will have a reasonable period of time to attempt to correct any deficiencies, misrepresentations or omissions in such information.

Section 2.4 - Franchise Recruiting and Screening.

(a)  You are responsible for recruiting, screening and interviewing prospects for Cafe franchisees in the Territory, and submitting to us applications solely of qualified applicants. A qualified applicant is an individual who, or a company whose primary owners are, of good character, have adequate financial resources and meet our criteria for franchisees. Each application submitted to us must be in writing in such format as we require from time to time, containing such information regarding the applicant, its owners, if applicable, the applicant's proposed franchise location, and all other information that we then customarily require concerning prospective franchisees, including financial statements and credit information. We may require personal interviews at our offices.

(b)  Your recruiting responsibilities include engaging in local advertising for prospective franchisees. You will submit to us for prior approval and filing, if necessary, all sales, promotional and advertising and other materials which relate to recruiting new franchisees or for proposed use by a franchisee to attract customers. We will endeavor to notify you of our approval of the proposed materials and programs within 10 days after our receipt of such materials or, where filing is required, as soon as state law permits. If you do not receive our written disapproval within 14 days after our receipt of such materials, we will be deemed to have


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given the required approval, but we may withdraw our approval at any time. If we withdraw our approval, you will immediately cease using, distributing and disseminating such material. Any advertising, marketing or sales concepts, programs or materials proposed or developed by you and approved by us may be used by us and by our affiliates and other Area Developers without any compensation to you. We may provide you with sample solicitation advertising for your local use; provided, however, that we may impose a reasonable charge if you request, and we agree to furnish, multiple copies of any solicitation advertising or to customize any solicitation advertising that we create. You understand and agree that we will not be obligated to supply sample advertising, copies or customizing services.

(c)  You will make no earnings claims, promises, representations or commitments to any prospective franchisee other than as stated in the then current UFOC and Franchise Agreement.

(d)  You will not hire or retain the services of any person or business entity as a finder, sales agent or in a related capacity to assist you in performing your obligations under this Agreement without our prior written consent, which we may withhold in our discretion.

Section 2.5 - Our Approval ofNew Franchisees. By delivery of written notice to you, we will approve or disapprove applicants to become Cafe franchisees. We agree to use our best efforts to deliver such notification to you within 30 days after the later of (a) receipt by us of a complete application, financial statements and other materials regarding the applicant requested by us, or (b) the personal interview or other personal analysis of the applicant's potential as a Cafe franchisee by us or on our behalf if we elect to conduct (or use a third party service to conduct) a personal interview or other screening analysis. We may refuse to grant a franchise to an applicant for any reason in our discretion. The grant of the franchise will be effected only upon and after the full execution of the then-current Franchise Agreement by us and the applicant. If the applicant does not sign the Franchise Agreement within 30 days after the applicant receives execution copies of the Franchise Agreement, we may withdraw our approval. You acknowledge that our approval will not be an assurance, indication, representation or warranty of any kind, express or implied, of a franchisee's ability to succeed at that specific location. You will advise applicants in the Territory of this fact.

Section 2.6 - Franchise Services.

(a) You will perform the following site-related Services on our behalf with respect to each Cafe located in the Territory:

(i) assist each new or prospective franchisee in locating a site for the Cafe, which will consist of providing each franchisee with our site selection criteria and assisting each franchisee in completing a site submittal package for our approval, containing such property descriptions, lease forms, traffic pattern reports, demographic, commercial and other information as we may reasonably require, for each location at which a franchisee proposes to establish and operate a Cafe franchise;


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(ii) assist each new or prospective franchisee in engaging an attorney or other competent business advisor to review the lease and to advise the franchisee with respect to applicable local laws and any licenses, permits and approvals necessary to operate a Cafe at the site;

(iii) assist each new or prospective franchisee in negotiating any lease addendum we may require;

(iv) coordinate the selection and work of contractors and architects with respect to the development of each Cafe franchise in accordance with our requirements; and

(vi) assist each new franchisee to procure the building materials, fixtures, furniture and decorating items for the build out, interior design, layout, floor plan, signs, designs, for the Cafe in the manner we require.

(b)  You will perform the following pre-opening and opening support services on our behalf with respect to each Cafe located in the Territory:

(i) advise franchisees regarding the standards and specifications for the equipment, POS system, supplies, ingredients and materials used in each Cafe and advise regarding selecting suppliers for purchasing items used in connection with each Cafe franchise;

(ii) provide our initial training and on-site assistance program to each franchisee and the franchisee's required attendees in accordance with our then-current standards at an operating Cafe in the Territory or at such alternate location as you and we may agree; and

(iii) provide guidance to each franchisee in implementing grand opening and continuing advertising and marketing programs, operating and sales procedures and bookkeeping and accounting programs.

(c)  You will perform the following ongoing support services on our behalf with respect to each Cafe located in the Territory:

(i) provide regular consultation and advice in response to each franchisee's inquiries about specific administrative and operating issues that a franchisee brings to our or your attention including mandatory and recommended specifications, standards and operating procedures of the Cafe system;

(ii) provide advice and assistance to each franchisee in connection with developing and improving franchisee's business performance;

(iii) make monthly contact with all franchisees within the Territory for the purpose of consultation, assistance and guidance;


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(iv) provide franchisees with advice and assistance regarding local advertising and promotional programs and the use of materials developed by us from time to time through the application of the Advertising Fund; and

(v) upon our request from time to time, arrange for and conduct regional seminars within the Territory for all franchisees in the Territory, for the purpose of training and general advisory assistance. You will notify us in writing at least four weeks before conducting such regional seminars so that we may have the opportunity to provide an instructor, at our expense, in our discretion.

Section 2.7 - Dealings with Franchisees.

(a)  You acknowledge that we are delegating to you the performance of certain duties that we owe to franchisees in the Territory under our Franchise Agreements and we are relying on you to perform such duties in good faith.

(b)  Nothing herein gives you the right to sue a franchisee to enforce our rights under any Franchise Agreement.

(c)  In providing services to our franchisees in the Territory, you will in all respects comply with the terms and conditions of each Franchise Agreement and other contract that is in effect between us and the franchisee. You will continue to perform your obligations under this Agreement to each franchisee in the Territory until we notify you in writing that a Franchise Agreement has been terminated.

(d)  You will not sell any products or other items to, or collect any money for any reason from, franchisees without our prior written approval.

(e)  You accept the risk that, during the Term, our form of Franchise Agreement may materially change, which could materially affect the scope or nature of your duties, or the cost to you of discharging your duties under this Agreement.

Section 2.8 - Your Inspections of Franchises. Every three months, you or your representatives must visit each franchisee in the Territory. Within five business days after each such visit, you or your representative will prepare and submit to us a Cafe evaluation report, signed by the relevant franchisee ("Evaluation Report"). The Evaluation Report will outline any suggested changes or improvements in the operation of the Cafe and details of any default in such operations which become evident as a result of any such contact. Within 30 days after each visit, you will provide advice and assistance to the franchisee regarding improvements that can be made in the areas that are rated as average or below average as indicated in the Evaluation Report. You will assist the franchisees with the curing of any non-monetary defaults.


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Section 2.9 - Our Enforcement of Franchise Agreements.

(a)  You understand and acknowledge that we will have:

(i) the right to inspect and ascertain each franchisee's compliance with the applicable Franchise Agreement as if this Agreement were not in effect;

(ii) the sole right to send notices of default to franchisees;

(iii) the sole right to terminate a Franchise Agreement;

(iv) the sole right to determine if a franchisee has timely and adequately cured a default in cases where the Franchise Agreement permits the franchisee to cure; and

(v) the sole right to enforce a Franchise Agreement.

(b)  You will assist us in the enforcement of all provisions of any Franchise Agreement, lease or sublease for any franchise established or to be established in the Territory, including but not limited to the collection of monies due to us, and franchisees' compliance with required reporting obligations.

(c)  If you believe that any franchisee in the Territory has breached a Franchise Agreement, you will document in writing all facts related to the alleged breach and request in writing that we investigate the alleged breach. If, as a result of our investigation, we determine that a franchisee has committed a breach of its Franchise Agreement, we may take such action as we deem appropriate in our sole judgment; provided, however, that you understand and agree that our right to exercise our judgment in the event of a franchisee's breach will entitle us to determine the specific enforcement methods appropriate for each breach or franchisee and the right to take no enforcement action. You will have no cause of action against us arising from the manner in which we act or our failure to act in the exercise of our judgment.

Section 2.10 - Standards of Service.

(a)  You will at all times give prompt, courteous and efficient service to each franchisee and prospective franchisee in the Territory. You will, in all dealings with franchisees, prospective franchisees and the public, adhere to the highest standards of honesty, integrity, fair dealing and ethical conduct.

(b)  You will monitor all communications from us and from franchisees and prospective franchisees in the Territory, whether by mail, voice mail, facsimile or e-mail, on a daily basis, and you will respond to all such communications within 24 hours.

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Section 2.11 -Reports to Us.

(a)  You agree to submit to us periodic reports on activities in the Territory using procedures and forms prescribed by us.

(b)  You will notify us in writing within five days after the commencement of any action, suit arbitration, proceeding or investigation, or the issuance of any order, writ, injunction, award or decree by any court, agency or other governmental instrumentality which names you or otherwise concerns the operation or financial condition or you, your business or any franchisee in the Territory.

Section 2.12 - Your Failure to Perform. In the event you fail to perform any of your duties or any obligations imposed on you by the terms of this Agreement, after being given a 60 day period of time to resolve, correct or otherwise bring into compliance any terms of this Agreement, we have the right but not the obligation to perform such duties or obligations and you agree to pay us our then current per diem charge for each representative of ours for his or her services in connection therewith, together with any expenses we incur in performing such services, including travel, meals and lodging expenses. Any portion of any royalty payment or other payments we owe to you hereunder may be offset by any amounts you owe to us if we elect to perform any of your duties or obligations under the terms of this Agreement pursuant to this section.


Section 3.1- Development Fee. You will pay us an initial fee in the amount of

$_______in consideration for your appointment as the Area Developer for the Territory, which

is equal to $12,000 multiplied by the minimum number of Cafes to be developed in the Territory during the Term pursuant to the Development Schedule. This fee is payable in full by certified check or wire transfer upon your execution of this Agreement. The amount of any deposit already paid will be deducted from this initial fee. This fee is fully earned when received by us and is not refundable under any circumstances. It compensates us for our expenses and administrative costs, and for our lost or deferred opportunity to grant Area Developer rights to others for the Territory. In the event that this Agreement is renewed pursuant to Section 7.1(b), you will pay a renewal fee equal to $12,000 multiplied by the minimum number of Cafes you and we agree will be developed in the Territory during the renewal term, multiplied by the increase in the Metropolitan Area Consumer Price Index for All Urban Consumers from the month immediately preceding the date of this Agreement to the month immediately preceding the date of renewal, as published by the U.S. Department of Labor, or a successor index.

Section 3.2- Initial Fees for Franchise Agreements. The initial fee for each Franchise Agreement you or your Affiliate signs pursuant to this Agreement will be $30,000 for a Cafe of more than 600 square feet (a "Standalone Unit"), and $15,000 for a Cafe of up to 600 square feet (a "Food Court Unit"), notwithstanding any different amount we may charge as the initial fee under our then-current standard form of Franchise Agreement. The amount of the initial fee for each non-affiliated third-party franchisee that you solicit and we accept will be our then-current


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initial franchise fee. In the event that this Agreement is renewed pursuant to Section 7.1(b), the initial fee for each Franchise Agreement you or your Affiliate signs pursuant to this Agreement will be $30,000 for a Standalone Unit or $15,000 for a Food Court Unit, increased to reflect the increase in the Metropolitan Area Consumer Price Index for All Urban Consumers from the month immediately preceding the date of this Agreement to the month immediately preceding date of renewal, as published by the U.S. Department of Labor, or a successor index.

Section 3.3 -Payments to You.

(a)  During the term of this Agreement, we will pay you a commission, as set forth in Section 3.3(b), based on a percentage of initial franchise fees and renewal fees paid by franchisees that are not affiliated with you for the purchase of Cafe franchises to be located within the Territory or to renew an existing franchise for a Cafe in the Territory with a franchisee that is not affiliated with you, provided that:

(i) the prospective franchisee executes a Franchise Agreement with us

(ii) we actually receive the initial franchise fee or renewal fee payable in connection with the franchise sale or renewal; provided that we will not be deemed to have received any fees paid into escrow, if applicable, until such fees are actually remitted to us;

(iii) the sale for which an initial franchise fee is paid is not a resale of an existing Cafe franchise or any interest in such franchise business;

(iv) you have complied with all of your other obligations under this Agreement with respect to the sale; and

(v) you will not be entitled to receive a fee for any Cafe that we or our Affiliate opens in the Territory, nor for any Cafe that you or your Affiliate opens in the Territory.

(b) The commission you earn pursuant to Section 3.3(a) will be an amount equal to 50% of the initial franchise fee paid to us for each franchise sold, and 50% of the renewal franchise fee paid to us for each franchise renewed; provided, however, that:

(i) in the event that we are required for any reason to refund the franchise fee to the franchisee, we will either not remit your portion of such franchise fee to you or we will deduct such portion from future payments to you;

(ii) in the event that we are obligated to pay a third party broker a referral fee for the sale, the amount of the referral fee will reduce the total initial franchise fee on which we calculate the 50% fee to you; and

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(iii) in our discretion, you will share or otherwise be required to split fees from franchise sales in the Territory that result from a referral or introduction from us or another Area Developer or any other source.

(c) During the term of this Agreement, we will pay you a commission equal to 30% of the Royalties (as defined in the Franchise Agreement) actually received by us from franchisees located in the Territory that are not affiliated with you, provided that:

(i) we actually receive the Royalties;

(ii) you have provided to the franchisee all of the support services described in this Agreement in a timely manner in accordance with our standards;

(iii) you will not be entitled to receive any payment on account of Royalties paid by franchisees in the Territory before the time you complete the initial training program and begin performing support services on a full-time basis;

(iv) you will not be entitled to receive any payments of any kind on account of Cafes that we or our Affiliates own in the Territory;

(v) you will not be entitled to receive payments on account of any Royalties which are paid on behalf of Cafes in the Territory owned by you, one of your principal owners or one of your Affiliates; and

(vi) we will deduct from payment to you any collection costs, late charges to the franchisee pursuant to the Franchise Agreement, or legal fees we incur in collecting these payments.

Section 3.4 -Application of Payments to You; Setoffs

(a)  We only pay based on amounts actually collected from franchisees, not on payments accrued, due or owing. We have no duty to initiate a collection action against a delinquent franchisee.

(b)  If the Franchise Agreement for a Cafe in the Territory terminates under circumstances entitling the franchisee to the return of all or part of the initial franchise fee or Royalty (or in the event that we become legally obligated or decide for any reason to return any portion of the initial franchise fee or Royalty), we may deduct the portion of the amount to be returned to franchisee in the same proportion as you shared in the initial franchise fee or Royalty from any future amounts owed to you.

(c)  We may apply any payment received from a franchisee to any past due indebtedness of that franchisee for Royalty, advertising contributions, purchases from us or our affiliates, interest, or any other indebtedness the franchisee may owe to us or our affiliates regardless of how the franchisee may characterize its payment. To the extent that such payments are applied


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to a franchisee's overdue Royalty payments, you will be entitled to your pro rata share of such payments, less any costs of collection that we have paid to third parties in order to collect the Royalty.

(d) We have the right to set off against amounts we owe to you under this Agreement any monies that you owe to us under this Agreement.

Section 3.5 - Time of Payment; Other Deductions

(a)  We will pay you the amounts due to you pursuant to Sections 3.3 and 3.4 within 30 days after we receive payment from the franchisee.

(b)  We will deduct from all payments made to you: (i) any initial franchise fees paid to you for franchises which fail to open; and (ii) any royalty percentages paid to you which were supported by insufficient funds.

(c)  We will provide you with a detailed accounting report each month setting forth such payments and deductions.

(d)  You will not receive payments, discounts, products, rebates or the like from any existing or prospective franchisee, landlord, vendor, distributor or supplier or any agent of any of the foregoing, in connection with the business of our franchisees or our franchise system.

Section 3.6-Records; Reports; Inspection

(a)  You must keep accurate records concerning all transactions and communications between us, you and franchisees relating to the operation of any Cafe in the Territory, and submit copies to us. Our duly authorized representative will have the right at all reasonable hours to examine all such records, and will have full and free access to such records for such purpose and for the purpose of making extracts. You will keep all such records available for at least three years after the expiration or termination of this Agreement.

(b)  You will keep current financial records in accordance with generally accepted accounting principles and provide us with a balance sheet and profit and loss statement, reviewed by an independent Certified Public Accountant, within 90 days of your company's fiscal year end.

(c)  We have the right to inspect your books, records and tax statements to verify your compliance with our requirements and procedures. Such inspections will be at our expense upon five days' prior written notice.


Section 4.1 - Operating Assistance. In your recruiting of unaffiliated persons and entities as franchisees, we will provide regular consultation and advice to you from time to time

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in response to your inquiries about specific administrative and operating issues that you bring to our attention, including mandatory and recommended specifications, standards and operating procedures of our franchise system or in the procedures and methods applicable to conducting the services described in Article II.

Section 4.2 - Training; Manual. Although we provide training and manuals to Cafe franchisees pursuant to Franchise Agreements, we are not obligated to provide training or any manual pursuant to this Agreement. In the event that we do provide a manual for Area Developers, you agree to conduct the Business in accordance with such manual. In the event that we provide Area Developer training, you agree to attend and successfully complete such training as we may require from time to time.


Section 5.1 - Confidentiality.

(a) Confidential Information. We possess and will continue to develop and acquire certain confidential information relating to the development and operation of Cafes ("Confidential Information"). Confidential Information includes, without limitation:

(i) product recipes, mixes and formulas;

(ii) site selection criteria;

(iii) methods, formats, specifications, standards, systems, procedures and sales and marketing techniques;

(iv) marketing and advertising programs and plans for Cafes;

(v) current and concluded research, development and test programs for products, services and operations of Cafes;

(vi) the content of all training provided by us, all assistance provided by us;

(vii) the contents of the confidential manuals that we generally furnish to franchisees and all instructions and other information we furnish to Area Developers from time to time;

(viii) knowledge of specifications for and suppliers of certain equipment, fixtures, furnishings, signs, materials and supplies; and

(ix) knowledge of the operating results and financial performance of Cafes other than those owned or controlled by you.

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You acknowledge and agree that you will not acquire any interest in any Confidential Information other than the right to use Confidential Information pursuant to the terms of this Agreement and any Franchise Agreement you sign.

(b)  Nondisclosure and Non-Use. At all times both during the term and after the expiration or termination of this Agreement, (i) you will keep all Confidential Information in the strictest confidence and you will not disclose any Confidential Information to any person other than your employees, agents or representatives who have a legitimate need to know such information and who are informed of this obligation of confidentiality, and (ii) you will not use any Confidential Information except for the purpose of fulfilling your obligations under this Agreement or the Franchise Agreements. Upon our request, you will promptly return to us all Confidential Information and all copies thereof in your possession or under your control, and you will destroy all copies thereof on your computers, disks and other digital storage devices.

(c)  Isolated Disclosures. Notwithstanding the foregoing, we will not deem you to be in default of this Agreement as a result of isolated incidents of disclosure of Confidential Information by an employee other than an owner, provided that you have taken reasonable steps to prevent such disclosure, including but not limited to the steps a reasonable and prudent owner of confidential and proprietary information would take to prevent disclosure of such information by his employees, and further provided that you pursue all reasonable legal and equitable remedies against such employee for such disclosure of such Confidential Information.

(d)  Exceptions. The obligations of confidentiality and non-use described above will not apply to information that (i) is or becomes generally known in the food service business in the U.S. other than through disclosure by you or any of your personnel or representative; or (ii) can be clearly shown by you to have been received by you on a nonconfidential basis from a third party that is not prohibited from disclosing such information by a legal, contractual or fiduciary obligation.

(e)  Disclosures Required by Law. In the event that you become legally compelled to disclose any Confidential Information, you will (i) promptly notify us that such information is required to be disclosed, (ii) use your best efforts to obtain legally binding assurance that all those who receive disclosure of such information are bound by an obligation of confidentiality, and (iii) disclose only that portion of the Confidential Information that your legal counsel advises is legally required to be disclosed.

Section 5.2 - Noncompetition.

(a) Agreement Not to Compete. You agree that during the term of this Agreement (and thereafter as set forth in Section 5.2(b)), you will not, directly or indirectly (through one of your company's affiliates or owners or a member of the immediate family of any owner), either (i) have a direct or indirect interest in a Competitive Business located or operating anywhere in the U.S. or within 5 miles of any Beard Papa Store outside of the U.S.; (ii) perform services as a director, officer, manager, employee, consultant, representative, agent or otherwise for a Competitive Business, wherever located or operating; (iii) divert or attempt to divert any

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business or customer of the Franchised Business to any competitor in any manner; or (iv) recruit or hire any person who is our employee or the employee of any Beard Papa Store (whether company or affiliate-owned or franchised) or who has been our employee or the employee of any Beard Papa Store within the six month period before such recruiting or hiring without the prior written permission of that person's employer. If we permit you to hire any such person, you agree to pay us a nonrefundable fee equal to the first year's salary of such person, but not less than $25,000.

(b)  Covenant Not to Compete After Termination. Upon the expiration of this Agreement, your termination of this Agreement without cause or our termination of this Agreement in accordance with its terms and conditions, you and your company's owners agree to continue for a period of two years following such expiration or termination to comply with the obligations described in Section 5.2(a).

(c)  Definition of Competitive Business. As used in this Agreement, the term "Competitive Business" means any business that operates, or solicits or grants franchises or licenses to others to operate, a food service business that sells cream puffs in any distribution channels to any consumer for consumption or resale and such sales comprise five percent or more of such business' revenues (other than a Beard Papa Store operated under a Franchise Agreement with us or our affiliate). The restrictions of this section will not apply to the ownership of publicly traded securities that constitute less than three percent of a class of ownership interests of the issuing company.


Section 6.1 - Transfer by Us. We may sell, assign or transfer our rights and obligations under this Agreement to any party, without the approval of or prior notice to you, provided that such sale, assignment or transfer is made in connection with a sale of the Beard Papa franchise system in the U.S., a merger, or the restructuring of the group of companies of which we are then a part. After such transfer, we will not be liable for obligations of the transferee arising after the date of transfer.

Section 6.2 - Transfer by You

(a)  No Transfer Without Our Approval. This Agreement is personal to you. We have granted Area Developer rights to you in reliance upon our perceptions of your (or your company's owner's) individual or collective character, skill, aptitude, business ability and financial capacity. Accordingly, you may make no Transfer (as defined below) without our prior written approval. Any purported Transfer without such approval will be a breach of this Agreement and will entitle us to terminate this Agreement as provided below.

(b)  Definition of Transfer. As used in this Agreement, the term "Transfer" means your (or your company's owner's) voluntary, involuntary, direct or indirect assignment, sale, gift, pledge or other disposition of any legal or beneficial interest in this'Agreement or your company. "Transfer" also includes (i) the merger or consolidation of your company; (ii) the issuance of


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additional securities or other ownership interests of your company, and (iii) the admission or departure of a partner or owner. It includes, without limitation, transfers resulting from proceedings under the U.S. Bankruptcy Code or any similar law, and transfers resulting from divorce.

(c)  Notice of Transfer. You agree to notify us of any planned Transfer, and to provide us with any information we may reasonably request in order to permit us to evaluate the planned Transfer. If we approve the Transfer, then you will be free, for ninety days following such approval, to effect the Transfer to the person or persons approved by us. If we disapprove the Transfer, then we will have the right to terminate this Agreement. We agree not to unreasonably withhold our approval of a Transfer. You may not transfer any percentage ownership of your company to a direct competitor of ours. Our consent to a Transfer does not constitute a representation as to the fairness of the terms of any contract between you or your company's owners and the transferee, a guaranty of the successful operation of any Cafe by the transferee or a waiver of any claims we may have against you or your company's owners or of our right to demand the transferee's compliance with any of the terms or conditions of this Agreement.

(d)  Conditions to Transfer. The following conditions will apply with respect to any Transfer other than a Transfer described in Section 6.2 (e):

(i) The proposed transferee, its management and owners, must be individuals of good character with sufficient business experience, aptitude, and financial resources to operate a Cafe and otherwise meet our then applicable standards for a new Beard Papa franchisee.

(ii) You will cure any default under this Agreement that we will have notified to you.

(iii) You or the transferee will pay us a nonrefundable transfer fee of $12,000 (increased from time to time to reflect increases in the Metropolitan Area Consumer Price Index for All Urban Consumers from the date of this Agreement, as published by the U.S. Department of Labor, or a successor index).

(iv) At our option, the transferee or your company under ownership by the transferee will, at the time of closing, either agree to be bound by the terms and conditions of this Agreement or enter into an assignment of this Agreement.

(v) Your company and each person who is transferring an ownership interest must sign an agreement (in a form satisfactory to us) acknowledging a continuing obligation after such transfer to comply with Section 5.1, and a continuing obligation for a period of two years after such transfer to comply with the requirements of Section 5.2.

(vi) The transferee signs any guaranty we require pursuant to Section 1.10 and agrees to send a manager and to attend and complete any training course we require.

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(vii) We have approved the material terms and conditions of such transfer and determined that the price and terms of payment will not adversely affect the transferee's operation of the Business.

(viii) You will give us not less than five business days' written notice of the date, time and place of the closing of such Transfer, and you will give us an opportunity to have a representative present.

(e)  Exceptions. If the proposed Transfer is among the owners of your company or their immediate family members, then subsection 6.2 (d) (ii) will not apply, although the transferee is required to reimburse us for any administrative costs, not to exceed $500, which we incur in connection with the Transfer. If you are in full compliance with this Agreement, you may transfer this Agreement to an entity in which you maintain management control and of which you own and control 100% of the equity and voting power.

(f)   Transfer Upon Death or Disability. You or your executor or other personal representative must promptly notify us in the event of your death or disability or, if your company is an entity, the death or disability of the owner of a 10% or greater interest in your company. Any transfer upon death or disability will be subject to the same terms and conditions as those that apply to other transfers, as described in Sections 6.2 (a) through (e); provided, however, that you or your executor or other personal representative will have a period of twelve months in which to effect a transfer acceptable to us. As used herein, the term "disability" means a mental or physical disability, impairment or condition that is reasonably expected to prevent or actually does prevent a person from performing the obligations set forth in this Agreement for at least six consecutive months.

Section 6.3 - Our Right of First Refusal

(a)  Notice of Third Party Offer. If you or any of your company's owners at any time desire to sell, assign or transfer for consideration an interest in this Agreement or an ownership interest in your company to anyone other than as described in Section 6.3 (d), you will obtain and immediately submit to us a true and complete copy of a bona fide written offer from the third party that desires to acquire such interest (the "Third Party Offer"). The Third Party Offer must include lists of the record and beneficial owners of any entity offeror and all partners of any partnership offeror and, in the case of a publicly-held entity, copies of the most current annual and quarterly reports and Form 10K. The Third Party Offer must contain details of the payment terms of the proposed sale and the source and terms of any financing of the proposed purchase price, and may not include or be contingent upon the purchase of assets of yours or your company's owner other than those related to the Cafes you develop pursuant to this Agreement.

(b)  Exercise of Our Right of First Refusal. We will have the right, exercisable by notice delivered to you or your company's selling owner or owners within thirty days after the date of our receipt of a copy of the Third Party Offer and all other information we request, to purchase such interest for the price and on the terms and conditions contained in the Third Party Offer, provided that (i) we may substitute cash for any form of payment proposed in such offer; and (ii)


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we will have at least sixty days after giving notice of our election to prepare for closing. If we exercise our right of first refusal, you and your selling owners agree that, for a period of two years commencing on the date of the closing, you and your selling owners will be bound by the noncompetition covenant contained in Section 5.2.

(c)  Consequence ofNonexercise of Our Right of First Refusal. If we do not exercise our right of first refusal, you or your owners may complete the sale to such purchaser pursuant to and on the exact terms of such offer, subject to our approval of the transfer as provided above; provided that if the sale to such purchaser is not completed within 120 days after delivery of the Third Party Offer to us, or if there is a material change in the terms of the sale (which you agree promptly to communicate to us), we will have an additional right of first refusal during the thirty day period following either the expiration of such 120 day period or the notice to us of the material changes in the terms of the sale, either on the terms originally offered or the modified terms, at our option.

(d)  Exceptions. Our right of first refusal will not apply if the proposed transfer is among the current owners of your company or the immediate family members of the owners, or if it would constitute a transfer (whether in a single transaction or a series of transactions) of less than a 10% interest in your company.


Section 7.1 - Term and Renewal

(a)   Term. This Agreement will be effective as of the date first above written and, unless sooner terminated as provided herein, will continue in effect for a term of five years.

(b)  Renewal. You will have the right to renew the franchise for one additional five-year term, provided that:

(i) you will have given us notice of your desire to renew not less than six months nor more than twelve months before the end of the initial term;

(ii) you and your affiliated companies must not be in default under this Agreement or any Franchise Agreement with us or any of our affiliates at the time you give your renewal notice, or if you are in default, you have cured such default in the manner described below;

(iii) you must not have received more than three notices of default during any 24 month period during the initial term, whether or not such defaults have been cured; and

(iv) you will execute our then-current standard form of Development Agreement for a 5-year term, which agreement will supersede this Agreement in all respects; provided, however, that (A) you will have no additional renewal rights even if the renewal agreement contains a renewal option that is different than the terms of this


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Agreement, (B) you and we, negotiating in good faith, reach agreement on a new Development Schedule for the renewal term at least 90 days before the commencement of renewal term, and (C) you will pay the initial fee for the renewal term as described in Section 3.1. You understand that the renewal agreement may contain materially different terms than this Agreement.

If you or any of your affiliated companies is in default under this Agreement or any Franchise Agreement with us or any of our affiliates at the time you give your renewal notice, we will give you notice, not more than thirty days after receipt by us of notice of your desire to renew, of such default, and we will give you thirty days to cure. In the event that you fail to cure in that period, or in the event that any other condition set forth in this Section 7.1(b) is not satisfied, your right to renew will terminate.

Section 7.2 Termination.

(a)  Termination by Either Party. Either party may terminate this Agreement upon written notice to the other party with immediate effect in the event that the other party breaches a material provision of this Agreement and fails to cure such breach within thirty days after notice from the nonbreaching party, which notice will specifically refer to this provision.

(b)  Termination by Us. In addition to our right to terminate pursuant to Section 7.2(a), we have the right to terminate this Agreement upon notice to you with immediate effect if:

(i) you or any of your company's owners have made any material misrepresentation or omission in connection with your application for and purchase of the area development franchise granted by this Agreement;

(ii) you no longer have a sufficient number of adequately trained personnel employed at the Business;

(iii) you fail to meet your obligations under the Development Schedule and Section 2.2 or any other material term of this Agreement;

(iv) you or any of your Affiliates fails to comply with any material term of any Franchise Agreement and fails to cure such default within the period required under such Franchise Agreement, or upon the occurrence of any other event that would give rise to our right to terminate a Franchise Agreement;

(v) you or any of your Affiliates use or disclose any Confidential Information in violation of the requirements of Section 5.1;

(vi) you or any of your owners make any unauthorized use of our trademarks or challenge or seek to challenge the validity of any of our trademarks;

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(vii) you or your company's owner or owners effect or attempt to effect a Transfer without our approval and contrary to the provisions of Article VI;

(viii) in the event of your death or disability or the death or disability of the owner of a controlling interest in your company, this Agreement or such owner's interest in your company is not assigned as required by Article VI; or

(ix) you or any of your company's owners are or have been convicted by a trial court of, or plead guilty or have pleaded no contest to, a felony or any other crime or offense, or engage in any dishonest or unethical conduct, that may adversely affect the reputation of the Business, the Beard Papa Cafes or the goodwill associated with our trademarks;

(x) you fail to pay when due any federal or state income, service, sales or other taxes due on the operations of the Franchised Business, unless you are contesting your liability for such taxes in good faith;

(xi) you or any of your Affiliates make an assignment for the benefit of creditors or admit in writing your insolvency or inability to pay your debts generally as they become due; you consent to the appointment of a receiver, trustee or liquidator of all or the substantial part of your property; or any order appointing a receiver, trustee or liquidator of your company is not vacated within thirty days following the entry of such order.

Section 7.3 - Consequences of Termination. Upon the expiration of this Agreement or its termination for any reason:

(i) you will have no right to establish or operate any Beard Papa franchised business for which a Franchise Agreement has not been executed at the time of termination or expiration;

(ii) you will cease to conduct any Area Developer activities on our behalf and to identify yourself as an Area Developer of Beard Papa Cafe franchises;

(iii) all rights granted hereunder to you will immediately terminate; and

(iv) you will promptly return to us or deliver to us or otherwise dispose of as we may instruct, any Area Director manual, all amendments and revisions thereto, and all copies thereof (including copies stored electronically), as well as all other Confidential Information and all copies of such information in your possession or under your control, and you will remove and destroy all copies thereof from your computers and other electronic storage media.

Section 7.4 - Continuing Effect of Franchise Agreements. No default under this Agreement will constitute a default under any Franchise Agreement.

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Section 7.5 - Other Remedies. If we are entitled to terminate this Agreement in accordance with Section 7.2, we will have the unrestricted right, in our discretion, to undertake any one or more of the following actions upon notice to you with immediate effect instead of terminating this Agreement:

(i) we may reduce the size of the Territory in a manner determined solely by us; and

(ii) we may modify the Development Schedule by reducing the number of Cafes to be opened or changing the time periods for opening, or both, as determined solely by us.

Any such action shall be without prejudice to our right to terminate this Agreement in accordance with Section 7.2.


Section 8.1 -Representations and Warranties

(a) Your Representations. You represent and warrant as follows:

(i) you have not relied on any promises, representations or agreements not expressly contained in this agreement or the beard papa franchise Offering Circular in making your decision to sign this Agreement. We and our representatives have not made any promises, representations or agreements, oral or written, except as expressly contained in this agreement and the Beard Papa Franchise Offering Circular.

(ii) you have conducted an independent investigation of the business venture contemplated by this agreement, and you recognize that, like any other business, an investment in an area developer business involves business risks and that your abilities and efforts are vital to the success of the





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(b) Your Representations as an Entity. If your company is a corporation, limited liability company or partnership, you further represent and warrant as follows:

(i) Your company is duly organized or formed and in good standing under the laws of the state of its formation.

(ii) Your company has the power and authority to enter into this Agreement and to perform its obligations under this Agreement.

(iii) Your company's organizational documents, operating agreement or partnership agreement will recite that the issuance and transfer of your company's ownership interests are restricted by the terms of this Agreement, and all certificates and other documents representing your company's ownership interests will bear a legend referring to the restrictions of this Agreement.

(viii) Schedule C completely and accurately describes all of your company's owners, directors, officers, partners and managers and their ownership interests and management positions in your company.

Section 8.2 - Indemnification

(a) Indemnification. You will indemnify and hold us and our affiliates, and the stockholders, directors, officers, employees and agents of us and our affiliates, harmless from and against all costs, expenses, liabilities and losses, including reasonable attorneys' fees and disbursements, directly or indirectly relating to: (i) the failure of any of your representations, warranties or covenants set forth herein and in the schedules hereto; (ii) any act or conduct of yours that is not in compliance with the requirements of this Agreement, including the schedules


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hereto; or (iii) any act or omission of yours or anyone associated with or employed by or affiliated with you. We will have the right to participate in the defense, with counsel of our own choice and at our own expense, of any action that may give rise to your obligation hereunder to indemnity, and to reject any settlement that might adversely affect us.

(b) Notice of Claim; Survival. We will give you notice of any claim that may require indemnification hereunder promptly after we learn of such claim. The rights and obligations of the parties under this Section 5.2 will survive the expiration or termination of this Agreement and remain in effect for a period of three years thereafter.


Section 9.1 - Relationship of the Parties. You are an independent contractor and not an agent of ours. You will have no power or authority to make any commitment or enter into any contract or agreement obligating or purporting to obligate us, and you will not hold yourself out as having such power or authority. Nothing in this Agreement creates a fiduciary relationship between the parties.

Section 9.2 - Injunctive Relief. Your covenants set forth in Article V constitute essential elements of this Agreement. If you fail to comply strictly with any such covenants, we will suffer irreparable harm and will have a cause of action for damages or injunctive relief or both against you in a court of competent jurisdiction, notwithstanding the provisions of Sections 9.8 and 9.9. In the event that we prevail in any such litigation, you will reimburse us for all costs, attorneys' fees and other expenses incurred by us in connection therewith.

Section 9.3 -Severability. If any restrictive covenant in this Agreement is held to be invalid or unenforceable because its duration is too long or its scope is too broad, you and we agree that the court making such determination will have the power to reduce the duration or scope in such a manner that the remaining revised covenant will be valid and enforceable. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable law, but if any provision hereof is prohibited by or invalid under applicable law, such prohibition or invalidity will not invalidate the remainder of such provision or the other provisions of this Agreement.

Section 9.4 - No Waiver of Rights. No delay or failure to exercise any right or remedy provided for herein will be deemed to be a waiver thereof or acquiescence in the event giving rise to such right or remedy, but every such right or remedy may be exercised from time to time and so often as may be deemed expedient by the party exercising such right or remedy.

Section 9.5 - Notices. All notices, requests, consents and other communications required or permitted by this Agreement will be in writing and will be delivered by hand, overnight delivery service, or registered or certified first class mail, to the following address, or such other address as either party, by like notice, designates with respect to its own address:


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If to us:                Muginoho USA, Inc.

1040 Avenue of the Americas, Suite 2415 New York, NY 10018 Attn: President

If to you:

Any such notice, request, consent or other communication will be deemed given and be effective upon receipt at such address.

Section 9.6 -Affiliates. As used herein, the term "affiliate" of party means a company directly or indirectly controlling, controlled by or under common control with such party. "Control" of another company, as used herein, means the ownership of or the power to vote, directly or indirectly through majority-owned companies, fifty-one percent or more of the voting stock or voting rights of such other company.

Section 9.7' Limitation of Actions. Any and all claims and actions arising out of or relating to this Agreement brought by either party against the other must be brought or asserted before the expiration of the earlier of (a) the time period for bringing an action under any applicable statute of limitations; (b) one year after the date upon which a party discovered, or should have discovered, the facts giving rise to the claim; or (c) two years after the first act or omission giving rise to the alleged claim; or it is expressly acknowledged and agreed that such claims or actions will be irrevocably barred. Claims by us of your underreporting of sales, and claims for failure to pay monies owed or for indemnification will be subject only to the applicable statute of limitations.

Section 9.8 Waiver of Damages. Each of the parties waives to the fullest extent permitted by law any right to or claim of any punitive or exemplary damages against the other, and agree that any recovery in a dispute between them will be limited to actual damages sustained.

Section 9.9 - Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within the State of New York, without regard to New York's conflicts of laws principles; provided, however, that nothing herein will be deemed to extend the application of the New York Franchise Sales Act to the sale of franchises outside of the State of New York.

Section 9 A§ ~ Mediation. The parties will endeavor to resolve amicably any dispute arising under or in connection with this Agreement and any claim relating to its validity, construction, effect, performance, termination or breach. If any such dispute has not been resolved by negotiation within 45 days after one party notifies the other of the existence of such dispute, then both parties agree that, at the request of either party, the parties will resolve the dispute by mediation under the then current rules of the National Franchise Mediation Program


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administered by the CPR Institute for Dispute Resolution. Nothing in this paragraph will be deemed to limit our rights under Section 9.2.

Section 9.11- Arbitration. If after one party requests mediation the other party declines to participate in mediation, or if the parties are unable to resolve a dispute within sixty days after either party has requested mediation, then the dispute will be resolved by arbitration in accordance with the then current CPR Non-Administered Arbitration Rules, by one arbitrator selected from a panel of attorneys who are familiar with franchise agreements and complex commercial disputes. Any such arbitration will take place in New York, New York. Any provisional or equitable remedy that would be available from a court of law will be available to the parties from the arbitrator. All issues regarding discovery requests will be decided by the arbitrator. Judgment upon the award of the arbitrator may be enforced in any court having jurisdiction thereof. Nothing in this paragraph will be deemed to limit our rights under Section 9.2.

Section 9.12 - Jurisdiction and Venue. The parties hereby irrevocably consent to the non-exclusive jurisdiction of the federal and state courts located in New York, New York, in any action (i) to compel arbitration, (ii) to enforce the award of the arbitrator or (iii) prior to the appointment and confirmation of the arbitrator, for temporary, interim or provisional equitable remedies. The parties hereby waive, to the full extent permitted by law, defenses based on jurisdiction, venue and forum non conveniens. The parties further consent to service of process in any action by registered mail, return receipt requested, or by any other means permitted by law.

Section 9.13 - Entire Agreement This Agreement and the agreements executed simultaneously with this Agreement constitute the entire understanding of the parties and supersede any and all prior oral or written agreements between the parties with respect to its subject matter. Except for changes permitted hereunder to be made unilaterally by us, no amendment, change, or variance from this Agreement will be binding on either party unless agreed to by the parties in writing and executed by their authorized officers.

IN WITNESS WHEREOF, the parties have signed this Agreement on the dates set forth below, with effect as of the date first above written.

MUGINOHO USA, INC.                                        [Area Developer]

By______________________                                 By______________________

Title                                                                      Title

Date _____________________                                Date

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All Cafes developed under this Development Agreement will be located within the boundaries of the following area:

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You agree to satisfy the development schedule set forth below:

Time periods following the date of this Agreement

Minimum number of Cafes to be opened in the Territory during each period

Minimum cumulative number of Cafes to be open and operating in the Territory in good standing at the end of each period

First 12-month period

Second 12-month period

Third 12-month period

Fourth 12-month period

Fifth 12-month period

The numbers of Cafes referred to above include both your own (and those of your affiliates) and those owned by unaffiliated third parties.

They refer to both Standalone Units (more than 600 square feet) and Food Court Units (up to 600 square feet).

The opening of any Cafes in excess of the minimum number required in any period will be not be credited to the subsequent time period. You must meet the requirements for each 12-month period as well as the cumulative minimum requirements.

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1. Your company's owners and percentage ownership interest:

2.        Your company's management:

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Referred to in Section 1.10

In order to induce MUGINOHO USA, INC., a New York corporation (the "Franchisor"),

to execute the Beard Papa's Sweets Cafe Development Agreement dated as of_____________,

200_ (the "Development Agreement"), between Franchisor and_______________________, a

______________________(the "Developer"), for the development of Beard Papa franchises in a

territory encompassing_______________________________________________, each of the

undersigned owners or stockholders of the Developer (the "Guarantor(s)"), jointly and severally, hereby agrees as follows:

1.  Each Guarantor personally and unconditionally guarantees to Franchisor and Franchisor's successors and assigns the due, punctual and complete payment and performance by the Developer of all of the Developer's obligations under the Development Agreement and under any modification of, amendment to or renewal of the Development Agreement.

2.  Each Guarantor waives to the fullest extent permitted by law (a) any defense based upon any (i) legal disability or lack of authority of the Developer, (ii) legal or equitable discharge or limitation of the liability of the Developer, whether consensual or arising by operation of law, (iii) bankruptcy, insolvency, reorganization or other similar proceeding affecting Guarantor or the Developer, or (iv) invalidity, irregularity or unenforceability of any or all of the provisions of this Guaranty or the Development Agreement; (b) presentment, demand, protest or notice of any other kind; (c) notice of acceptance of this Guaranty; (d) other defenses available to a guarantor under applicable law; or (e) any requirement of diligence on the party of Franchisor or any right Guarantor may have to require Franchisor to proceed first against the Developer.

3.  This is a guaranty of payment and not of collection. The Franchisor shall have the right to require the performance by each Guarantor of each and every one of the Developer's obligations under the Development Agreement and to sue for damages and other relief at law and in equity (including specific performance) for breach of any such obligations without first seeking or taking any action against the Developer.

4.  The liability of each Guarantor shall be unaffected by (a) any modification, amendment, termination or variation in or addition to the Development Agreement; (b) any extension of time for performance or any waiver of performance or any delay of the Franchisor in enforcing any right, remedy, power or privilege which the Franchisor may have against the Developer or any other person; (c) the release of the Developer, in whole or in part, from performance or observance of any of the agreements, covenants, terms or conditions contained in the Development Agreement, whether made with or without notice to Guarantor; or (d) any other guaranty now or hereafter executed by anyone else in connection with the transactions contemplated by the Development Agreement.

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5.  Without in any way restricting or limiting the guaranty given by the Guarantor as set forth above or any other rights and remedies to which the Franchisor may be entitled, the Guarantor hereby covenants and agrees to indemnify and save the Franchisor harmless against any and all liabilities, losses, suits, claims, demands, costs, fines and actions of any kind or nature whatsoever to which the Franchisor shall or may become liable for, or suffer, by reason of any breach, violation or non-performance by the Developer of any term or condition of the Agreements including, but not limited to any legal or administrative fees incurred with respect to any notices of default.

6.  Each of the Guarantors under this Agreement is jointly and severally obligated along with the Developer for the fulfillment of all covenants, obligations and agreements of the Developer under the Development Agreement, including but not limited to the obligations of confidentiality and noncompetition. Each Guarantor acknowledges reviewing all of the provisions of this Agreement and agrees to be bound by all of the provisions, including without limitation, the provisions which by their nature survive expiration or termination of the Development Agreement. In the enforcement of its rights under this guaranty, the Franchisor may proceed against the Guarantor (or any one of them) as if the Guarantor were named as the Developer under the Development Agreement. The Franchisor will not be required to proceed against the Developer or to proceed against or to exhaust any security held from the Developer or to pursue any other remedy whatsoever which may be available to the Franchisor before proceeding against the Guarantor, and the Guarantor hereby waives any right to require the Franchisor to do so.

7.  In the event this Guaranty is placed in the hands of an attorney for enforcement, each Guarantor will reimburse the Franchisor for all reasonable expense incurred directly in the enforcement of the Franchisor's rights hereunder, including reasonable attorneys' fees and expenses, if the Franchisor is the prevailing party.

8.  This Guaranty will be construed and enforced in accordance with the laws of the state in which the franchised outlet is located, without regard to its conflicts of law principles.

9.  No modification, waiver, amendment, discharge or change in this Guaranty shall be valid unless in writing and approved by the Franchisor.

10.  All covenants and agreements by or on behalf of Guarantor in this Guaranty shall bind Guarantor's heirs, successors and assigns and shall inure to the benefit of the Franchisor, its successors and assigns.

11.  This Guaranty shall be transferable and negotiable, with the same force and effect and to the same extent as all rights of the Franchisor under the Development Agreement are transferable, and any transferee shall have under this Guaranty, upon such transfer, all of the rights granted to the Franchisor under this Guaranty.

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IN WITNESS WHEREOF, each Guarantor has signed this Guaranty as of the date of the Development Agreement.

Date                                                                       Date

STATE OF                                                 )

)          ss.:

COUNTY OF                                              )

On the____day of_______________, 200_, before me personally came

____________and____________________, to me known to be the individuals described in and

who executed the foregoing guaranty, and they acknowledged that they executed the same.

Notary Public

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