Franchise Agreement

Download PDF: Beard Papa Franchise Agreement

The original documents were scanned as an image. The original file can be downloaded at the link above.

Sample Franchise Agreement

Muginoho USA, Inc.

Beard Papa's Sweets Cafe

Franchise Agreement

Franchisee:

Location:

Date:

Version 2/15/2006

Beard Papa's Sweets Cafe

Franchise Agreement

Table of Contents

Page

Preamble 1

Article I - Grant and Operation of the Franchise 1

Section 1.1 - Location Rights 1

(a) Grant of Rights 1

(b) Single Site 2

(d) Types of Sales 2

(e) Other Limitations 2

(f) Rights We Reserve 2

(g) Guaranty 2

Section 1.2 - Site Selection and Development; Opening 3

(a) Site Selection 3

(b) Our Approval Does Not Constitute a Warranty 3

(d) Lease 3

(e) Site Development 3

(f) Conditions to Opening 4

(g) Time of Opening 4

Section 1.3 - Equipment; Suppliers; Insurance 4

(a) Purchases from Us 4

(b) Purchases from Other Suppliers 5

(d) Computer and Cash Register Systems 5

(e) Insurance 5

(f) Compensation from Suppliers 6

Section 1.4-Manual; System Modifications 6

(a) Manual 6

(b) System Modifications by Us 7

Version 2/15/2006

Section 1.5 - Training and Support 7

(a) Initial Training 8

(b) Ongoing Training 8

(d) Operational Reviews

Section 1.6 - Your Conduct of the Franchised Business 8

(a) Conduct of the Business 8

(b) Customer Service 8

(d) Undertakings by Managers 9

(e) Setoff 9

(f) Maintaining Goodwill 9

(g) Compliance with Laws 9 (h) Health Standards 9 (i) Maintaining the Premises 9 (j) Remodeling 10 (k) Use of the Premises 10 (1) No Vending Machines 10 (m) Entity Requirements 10 (n) Franchisee Advisory Council 10

Section 1.7 - Marketing, Promotion and Advertising 1

(a) Signage 1

(b) Grand Opening 1

(d) Local Advertising Materials 1

(e) Cooperative Advertising 12

(f) National and Regional Advertising 12

(g) Establishment of an Advertising Fund 12 (h) Use of the Advertising Fund 12 (i) Accounting for the Advertising Fund 13 (j) Advertising Fund Entity 13 (k) Distribution of Advertising Expenditures 13 (1) Termination of Advertising Fund 13 (m) Internet Advertising 13

Section 1.8-Website 13

(a) Establishment of a System Website 14

(b) Maintenance of Your Web Page 14

(d) Promotion of the System Website 14

(e) Franchisee Extranet 14

Version 2/15/2006

-11-

Article II - Fees; Payments; Records; Inspections

Section 2.1 -Fees	15
(a) Initial Fee	15
(b) Royalties	15
(c) Definition of Gross Sales	15
(d) Advertising Fee	15
(e) Accounting Period	15
(f) Reporting and Payment	16
(g) Interest on Late Payments	16
(h) No Setoff	16
(i) Application of Payments	16
(j) Taxes	16
Section 2.2 - Records; Inspection	16
(a) Records	16
(b) Computer System	16
(c) Right to Inspect	17
(d) Right to Audit	17
(e) Discrepancies	17
(f) Cost	18
(g) Survival of Inspection and Audit Rights	18
(h) Disclosure of Your Financial Information	18
III - Proprietary Rights; Confidentiality; Noncompetition	18
Section 3.1 - Our Copyrights and Trademarks	18
(a) Our Copyrights	18
(b) Our Trademarks	18
(c) Proper Use of Marks	19
(d) Modifying the Marks	19
(e) Infringement	19
Section 3.2 - Confidentiality of Our Information	20
(a) Confidential Information	20
(b) Nondisclosure and Non-Use	20
(c) Isolated Disclosures	21
(d) Exceptions	21
(e) Disclosures Required by Law	21
Section 3.3 -Noncompetition	21
(a) Agreement Not to Compete	21
(b) Definition of Competitive Business	22

-inversion 2/15/2006

Article IV - Transfer

Section 4.1 - Transfer by Us 22

Section 4.2 - Transfer by You 22

(a) No Transfer Without Our Approval 22

(b) Definition of Transfer 22

(d) Conditions to Transfer 23

(e) Exceptions 24

(f) Transfer Upon Death or Disability 25

(g) Operation of the Franchised Business Upon Death or Disability 25 (h) Stock Offerings 25

Section 4.3 - Our Right of First Refusal 26

(a) Notice of Third Party Offer 26

(b) Exercise of Our Right of First Refusal 26

(d) Exceptions 26

Article V - Term and Termination 27

Section 5.1 - Term and Renewal 27

(a) Term 27

(b) Renewal 27

Section 5.2 - Termination 28

(a) Termination by Either Party 28

(b) Termination by Us 28

Section 5.3 - Consequences of Termination 31

(a) Events Upon Termination 31

(b) Covenant Not to Compete After Termination 32

Section 5.4 - Our Right to Purchase the Franchised Business Upon Termination 32

(a) Exercise of Option 32

(b) Leasehold Rights or Ownership of the Premises 32

(d) Appraisal 33

(e) Closing 33

(f) Option to Buy Certain Fixtures and Equipment 33

� iv �

Version 2/15/2006

Article VI - Representations and Warranties; Indemnification 34

Section 6.1 - Representations and Warranties 34

(a) Your Representations 34

(b) Your Representations as an Entity 35

Section 6.2 - Indemnification 35

(a) Your Indemnity 35

(b) Our Indemnity 35

Article VII - Miscellaneous 36

Section 7.1 - Relationship of the Parties 36

Section 7.2 - Reasonable Business Judgment 36

Section 7.3 - Injunctive Relief 36

Section 7.4 - Severability 36

Section 7.5 - No Waiver of Rights 37

Section 7.6 - Notices 37

Section 7.7 - Affiliates 37

Section 7.8 - Limitation of Actions 37

Section 7.9 - Waiver of Damages 37

Section 7.10- Governing Law 37

Section 7.11 - Mediation 38

Section 7.12 -Arbitration 38

Section 7.13 - Jurisdiction and Venue 38

Section 7.14 - Entire Agreement 38

Schedule A - Franchise Information Schedule B - Guaranty Schedule C - Addendum to Lease

Version 2/15/2006

- v-

Muginoho USA, Inc.

Beard Papa's Sweets Cafe

Franchise 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").

Preamble

We and our affiliated companies have developed an integrated system (the "System") for the production and sale of fresh cream puffs through retail cafes (the "Beard Papa 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 proprietary, double-layered 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.

We market and sell the System under the trademarks BEARD PAPA, BEARD PAPA'S SWEETS CAFE, BEARD PAPA'S FRESH 'N NATURAL CREAM PUFFS, and a logo showing the face of a smiling man with a white beard, a yellow hat and a pipe, and we may create, use and license additional trademarks or substitute different trademarks in the future in conjunction with the operation of the Beard Papa Cafes (collectively, the "Marks").

You have applied for a franchise to own and operate a Beard Papa Cafe and we desire to grant such franchise to you upon the terms and conditions set forth below. Accordingly, you and we agree as follows:

ARTICLE I - GRANT AND OPERATION OF THE FRANCHISE

Section 1.1 -Location Rights

(a) Grant of Rights. We grant to you a nonexclusive right, and you undertake the obligation, to operate a Beard Papa Cafe in conjunction with the Marks, in accordance with our standards, policies and procedures as amended from time to time, for the term described in Article V, and in accordance with the terms and conditions contained in this Agreement.

Version 2/15/2006

(b) Single Site. You must operate your franchised Beard Papa Cafe (the "Franchised Business") only at the location described in Schedule A to this Agreement (the "Site"). You may not relocate the Franchised Business or operate the Franchised Business from any location other than the Site without our prior written approval, which we may withhold in our discretion. If we consent to the relocation of the Franchised Business, you will bear the costs of the relocation and we have the right to charge you for the expenses we incur in connection with the relocation. You may not carry out any business at the Site other than the Franchised Business.

(c) No Territorial Rights. We do not grant any territorial rights to you other than the right to own and operate the Franchised Business at the Site. We do not grant to you any exclusive area, market or territorial rights.

(d) Types of Sales. The primary business of a Beard Papa Cafe is the direct sale of freshly-baked Beard Papa cream puffs at the store premises. You may also accept local orders in person or via e-mail, telephone or fax provided that you deliver the product so that each customer receives it fresh, meaning within one hour of baking. You may not sell cream puffs or any other products from the store premises in any manner to food wholesalers or retailers, such as convenience stores, grocery stores, bakeries or others for resale. You may not cater to parties, supply product to charities for resale or discount the sale of unsold product that is not fresh.

(e) Other Limitations. You may not use the Marks except as authorized under this Agreement. You must sell at the premises of the Franchised Business all menu items, products and services we specify, and you may not sell under the Marks or at such premises any menu items, products or services we do not specify or approve. You do not have the right to grant sub-franchises of the rights granted under this Agreement.

(f) Rights We Reserve. We retain all rights not specifically granted to you under this Agreement. These rights include, without limitation, the right to establish and to grant to other persons and entities the right to establish Beard Papa Cafes at any location, without regard to proximity to the Franchised Business; the right to sell cream puffs and any other products under the Marks and any other trademarks to grocery stores, supermarkets or similar outlets for resale at any time, and directly to customers anywhere through our website; and the right to acquire and operate, or be acquired by, any company, including, without limitation, a company operating one or more food service businesses, including, without limitation, businesses selling cream puffs under a trademark other than the Marks.

(g) Guaranty. Our grant of this franchise is made in reliance on the personal attributes of your company's owners and managers named in Schedule A. 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 this franchise 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 B (the "Guaranty"). Transfers of interest are restricted in accordance with Article IV. Upon our request at any time, you will furnish us with a list of all

-2-Version 2/15/2006

holders of legal and beneficial interests in your company, together with descriptions of the type of interests owned and percentage amounts, and the names, addresses and telephone numbers of the owners, certified as correct in the manner we specify. If any of your company's general partners, managers, officers or directors ceases to serve as such or if any new person becomes a general partner, manager, officer or director after the date of this Agreement, you will notify us of such change within ten days.

Section 1.2 - Site Selection and Development; Opening

(a) Site Selection. You are solely responsible for selecting the Site for the Franchised Business. We merely approve the Site if it is acceptable.

(b) Our Approval Does Not Constitute a Warranty. You acknowledge and agree that our recommendation or approval of the Site or lease, and any information regarding the Site communicated to you, do not constitute a guarantee, assurance, representation or warranty of any kind, express or implied, as to the suitability of the Site for a Beard Papa Cafe or of the successful operation or profitability of a Beard Papa Cafe at the Site. You acknowledge and agree that your acceptance of the franchise is based on your own independent investigation of the suitability of the Site.

(c) Purchase of the Site. If you intend to purchase the Site, you must submit the purchase agreement to us for our prior written approval. At our request, if you own the premises, you must enter into a lease with us for a term equal to the term of this Agreement. In such case, we will sublease the premises back to you on the same terms as the prime lease. You are responsible for all commercial rental taxes or sales taxes relating to the sublease.

(d) Lease. If you intend to lease or sublease the premises for the Franchised Business, you must submit your proposed lease to us for our prior written approval. At our request, if you lease or sublease the premises, (i) the lease or sublease must contain an addendum substantially in the form of Schedule C, approved by the lessor; and (ii) unless you are prohibited by the terms of the lease from doing so, you will collaterally assign the lease or sublease to us as security for your timely performance of all obligations under this Agreement, and you will secure the lessor's consent to the collateral assignment. You acknowledge that we have advised you to have an attorney review and evaluate the lease or sublease. If we do not have a copy of the signed lease or sublease, you must deliver such copy to us within fourteen days after it is signed by you and the lessor.

(e) Site Development. Within 30 days after we approve a site, you must, at your expense, complete the acquisition or lease arrangements to acquire or lease the approved premises for the Franchised Business. You are solely responsible, at your own expense, for obtaining any necessary financing and all required building, utility, sign, health, sanitation, business and other permits and licenses required to operate the Franchised Business, construct all required improvements to the Site and decorate the Franchised Business in compliance with plans and specifications we have approved. We will furnish you with mandatory and suggested specifications

-3-Version 2/15/2006

and layouts for a Beard Papa Cafe, including requirements for dimensions, design, image, interior layout, decor, equipment, fixtures, furnishings and signs, which we items will be supplied either by us or by suppliers we specify or approve. You (or your lessor on your behalf) must engage an architect to prepare all required construction plans and specifications to comply with all applicable ordinances, building codes and permit requirements and with all lease or sublease requirements and restrictions, if any. You must submit construction plans and specifications to us for approval before construction of improvements to the Site commences. You understand that you may modify our mandatory specifications only to the extent required to comply with applicable ordinances, building codes and permit requirements, and only with our prior written approval.

(f) Conditions to Opening. You may not open the Franchised Business for business until

(i) all of your obligations pursuant to Sections 1.2 (c), (d) and (e) are fulfilled;

(ii) we determine that the premises have been constructed, furnished, equipped and decorated in accordance with our requirements;

(iii) you and your manager have each completed the initial training to our satisfaction;

(iv) the initial franchise fee and all other amounts due to us and our affiliates have been paid in full;

(v) you have furnished us with certificates of insurance and copies of all insurance policies or such other evidence of insurance coverage as we reasonably request, as well as with copies of all bonds that may be required under state or local law; and

(vi) you receive our approval of the opening in writing. We may grant or withhold such approval in our sole discretion.

(g) Time of Opening. You agree to open the Franchised Business no later than six months after the date of this Agreement.

Section 1.3 - Equipment; Suppliers; Insurance

(a) Purchases from Us. In order to maintain the high standards of quality, taste and uniformity associated with Beard Papa cream puffs, we are the sole supplier to you of (i) the oven, the custard cream mixing machine and the tools used in the production of cream puffs, and (ii) dough used for the cream puff shells; although we retain the right to designate other suppliers of these items in the future and to require you to purchase additional items from us. Our oven, mixing machine and tools are specially designed and manufactured to our specifications. We deliver the frozen dough to you in individual portions, ready for baking. Before you open the Franchised Business, you must purchase the oven, mixing machine and tools and an initial inventory

Version 2/15/2006

of our dough. All of your purchases from us will be made in accordance with our then-current prices and terms and conditions of sale, delivery and payment. We may require you to pay us in advance by certified or cashier's check for your initial purchase of equipment, starting inventory, packaging, signage and other items that we supply to you or purchase on your behalf. We reserve the right to charge a reasonable fee to coordinate these purchases for you.

(b) Purchases from Other Suppliers. You agree to purchase all food ingredients not supplied by us only from suppliers we designate or approve as meeting our quality standards. Such ingredients include, without limitation, eggs, milk, heavy cream, vanilla beans, butter, corn starch, flour and sugar. You agree to purchase all equipment not supplied by us, and all fixtures, furnishings, signs, menu boards, advertising materials, services, paper products, plastic bags, boxes, uniforms and other supplies, products and materials for the Franchised Business only from suppliers we designate or approve as meeting our specifications and standards for quality, design, appearance, function and performance. We approve only those suppliers who demonstrate, to our continuing reasonable satisfaction, the ability to meet our then-current standards and specifications; who possess adequate quality controls and capacity to supply your needs promptly and reliably; and whose approval would enable the System, in our sole opinion, to take advantage of marketplace efficiencies. We will provide you with a list of approved products, supplies and suppliers and we will issue revisions to this list from time to time.

(c) Approval of Other Suppliers. If you wish to purchase or use any type or brand of product or supply item that is not approved by us, or products or supplies from a supplier that is not approved by us, you must notify us of your desire to do so and submit to us specifications, photographs, samples and other information we request to enable us to determine whether such products, supplies or suppliers meet our specifications and standards. We will have the right to require that our representatives be permitted to inspect the supplier's facilities, and that samples from the supplier be delivered either to us or to an independent laboratory designated by us for testing. You or the supplier must pay a charge not to exceed the reasonable cost of the inspection and the actual cost of the tests. We will use reasonable efforts to begin an investigation of the proposed supplier or product within 30 days of your request. We will notify you within 10 days after we complete our investigation whether we approve the proposed supplier or product. You may not purchase any product from any supplier until, and unless, we approve that product and supplier. We reserve the right, at our option, to re-inspect the facilities and products of any approved supplier and to revoke our approval upon the supplier's failure to continue to meet any of our then-current criteria. We will not be required to approve any particular supplier nor to make available to any prospective supplier any of our standards, specifications or formulas.

(d) Computer and Cash Register Systems. You agree to install, maintain and use in the Franchised Business such computer hardware, software and cash register systems as we specify from time to time in accordance with Section 2.2 (b).

(e) Insurance. During the term of this Agreement and any renewal hereof, you will obtain and maintain, at your own expense, such insurance as the landlord of the premises of the Franchised Business requires, and such other insurance as may be required by law. At a mini-

-5-Version 2/15/2006

mum, you will maintain broad form comprehensive general liability coverage with limits of not less than $1,000,000 per occurrence and in the aggregate and a deductible of no more than $5,000. Such insurance must name us as additional insured. The insurance must be primary coverage without right of contribution from any other insurance of ours. The policy will provide that it may not be modified or canceled unless we are given at least thirty days' prior written notice by the insurance carrier. You will provide us with a certificate of such insurance issued by your insurance carrier before or on the date hereof and subsequently, before the renewal of such policy. We may, from time to time and in our sole discretion, make such changes in minimum policy limits and endorsements as we may determine, provided that all changes will apply to all of our franchisees that are similarly situated. If you fail to obtain or maintain the required insurance in accordance with this section, we may, without waiving our right to declare a breach of this Agreement based on your default, obtain the required insurance coverage at your expense, although we have no obligation to do so. If we obtain such insurance on your behalf, you will pay us an amount equal to the premiums and related costs for the required insurance in full upon receipt of the invoice, plus a 25% service charge.

(f) Compensation from Suppliers. We reserve the right to receive rebates, credits and other compensation from suppliers we designate or approve to provide goods or services to you based upon the purchases by you and other franchisees of goods and services from such suppliers. We may use such compensation for any purpose we deem appropriate.

Section 1.4 -Manual; System Modifications

(a) Manual. We will loan to you during the term of this Agreement one copy of the confidential operations manual that we generally furnish to franchisees from time to time for use in operating a Beard Papa Cafe (the "Manual"). The Manual and the bulletins and other written materials we provide to you (including, if applicable, audiotapes, videotapes, magnetic media and computer software) contain mandatory and suggested specifications, standards, operating procedures, policies, methods and rules ("System Standards") that we prescribe from time to time for the operation of a Beard Papa Cafe and information relating to your other obligations under this Agreement. The Manual is and will remain at all times our sole property. You may not at any time copy, duplicate, record or otherwise reproduce any part of the Manual except as we may specifically authorize. You further agree to keep your copy of the Manual current at all times with all updates and modifications we furnish to you, and to store the Manual in a secure location at the premises of the Franchised Business. In the event of a dispute relating to its contents, the master copy of the Manual we maintain at our principal office will control. If your copy of the Manual or any portion of it is lost, stolen, destroyed or significantly damaged, you agree to report such loss, theft, destruction or damage immediately to us. Partial loss, destruction or damage to the Manual is considered to be complete loss, destruction or damage. We will loan you a replacement copy or portion of the current Manual provided that the loss is not the result of a breach of your duty to keep the Manual's contents confidential and you are not otherwise in material default under this Agreement. In the event that we loan you a replacement Manual or portion of the Manual, you will pay us a fee of $1,000 plus all shipping expenses in full upon your receipt of our invoice.

-6-Version 2/15/2006

(b) System Modifications by Us. We may modify or change the System Standards from time to time, and upon notice to you, we may make additions to, deletions from or revisions in the Manual to reflect such modifications or changes. Such modifications or changes may include, for example, the addition or discontinuation of products and services that you are required to sell at the Franchised Business, and may obligate you to invest additional capital in the Franchised Business ("Capital Modifications"). No modification or change that we make will alter your fundamental status and rights under this Agreement. We will not obligate you to make any Capital Modification when you cannot reasonably amortize the investment required during the remaining term of this Agreement and with respect to leasehold improvements over the remaining term of your lease, unless we agree to extend the term of this Agreement or unless such investment is necessary in order to comply with applicable laws. You agree to adopt or comply with each new or changed procedure, policy, method and requirement as promptly as practicable after notice from us, and in any event within the time period we reasonably require.

(c) System Modifications by You. You agree not to implement any modification or change in the System Standards or in the Franchised Business without our prior written approval, which we may withhold in our discretion. If you or any of your employees makes an improvement to the System Standards, such improvement will be our property. We will have the right to use such improvements and to offer them to our affiliates and other franchisees for their use. For example, if you desire to sell cream puffs of a new flavor you create, you must first submit the recipe to us. We or our affiliate will test the product to see if it merits approval. You may not sell such product without our prior written approval. Any such new recipe will be an improvement owned by us that we may use at our company and affiliate cafes and that we and our affiliates may authorize other franchisees to use. You assign to us all rights to such improvements and you agree to sign any documents and to require that your employees sign any documents that we may reasonably request from time to time to evidence such assignment. Except as specified or approved by us in writing, you may not make any changes to the menu offered at the Franchised Business.

Section 1.5 � Training and Support

(a) Initial Training. Before you begin operating the Franchised Business, we will train at least one manager and two of your employees in the operation of a Beard Papa Cafe. We do not charge for training these three people. At your request and if space is available, we will train additional personnel of your company, but you must pay us our standard fee for training such additional personnel. We currently charge $150 a day to train an additional manager and $100 a day to train an additional employee, and we may change these fees in the future. You must pay the compensation and travel and living expenses of all of your personnel who attend our training, regardless of whether we charge you a fee for such training. The training program consists of four weeks of training at Beard Papa's headquarters in New York, NY. We will time the commencement of your training program so that it is completed immediately before the scheduled opening of the Franchised Business.

Version 2/15/2006

-7-

(b) Ongoing Training. We may require previously trained and experienced managers and employees to attend periodic refresher training courses at such times and locations that we designate, not to exceed three days of such refresher training in any calendar year. We do not charge for these courses that we require your personnel to take except as set forth in Section 1.5 (d), but you must pay the travel and living expenses of your personnel. Subject to space availability, you may send one or more managers and employees to take part in additional scheduled training upon prior notice to us and your payment of our then-current fees. In the event that you request and we agree to send our personnel to your Franchised Business for training, you agree to pay our then current per diem charges and travel and living expenses for our personnel.

(c) Ongoing Support. We will advise you from time to time, either in person, by telephone, by e-mail or in writing, regarding the operation of the Franchised Business based on reports you submit to us or inspections we make. At your request, and if we agree, we will furnish additional guidance and assistance and, in such case, we may require you to pay the per diem fees and charges we establish from time to time.

(d) Operational Reviews. We will provide regular operational reviews and advise you from time to time regarding the operation of the Franchised Business based on reports you submit to us and inspections we make, to ensure compliance with the System Standards and to recommend improvements. We or our designated representatives will also have the right to inspect your operation pursuant to Section 2.2 (c). Your failure to implement any corrective action required by us will constitute a material breach of this Agreement and may result in termination pursuant to Section 5.2 (b). If any review indicates a noncompliance with System Standards or if we receive negative customer feedback, we may require previously trained and experienced managers and employees to attend refresher training courses at such times and locations that we designate, and we may send our personnel to your Franchised Business for training. In such event, you agree to pay our then current fees for training and our per diem charges and travel and living expenses for our personnel.

Section 1.6 - Your Conduct of the Franchised Business

(a) Conduct of the Business. You agree to operate the Franchised Business in strict accordance with all System Standards in effect from time to time. You understand and acknowledge that every detail of the Franchised Business is important to you, to us and to other Beard Papa franchisees in order to develop and maintain high operating standards, to increase the demand for the services and products sold by all franchisees, and to protect our reputation and goodwill. You agree to keep the Franchised Business open and in normal operation for such hours and days as we may specify from time to time or, if different, for such hours as the lease of the Cafe premises may require.

(b) Customer Service. You will provide prompt, courteous and efficient service to all customers and treat all customers with respect. You will give prompt attention to all complaints from dissatisfied customers, if any.

-8-

Version 2/15/2006

(c) Management. You will ensure that the Franchised Business is always actively managed by a manager who has 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 and provide direct, on-premises, day-to-day supervision of the operation of the Franchised Business at all times. Each such manager will ensure at all times the proper management of staff and proper levels of customer service in accordance with the Manual and this Agreement. You will use your best efforts to ensure that such personnel, at all times, faithfully, honestly and diligently perform your company's obligations under this Agreement.

(d) Undertakings by Managers. Each manager of the Franchised 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 Franchised Business as long as such manager continues to manage the Franchised Business, and (ii) to comply with the confidentiality and noncompetition requirements set forth in Sections 3.2, 3.3 and 5.3 (b) to the same extent that you are obligated to us.

(e) Staff. In addition to one or more managers, you will maintain a competent, conscientious, trained staff in numbers sufficient to promptly service customers and maximize revenues and profits.

(f) Maintaining Goodwill. You will do nothing that, in our reasonable opinion, tends to discredit the Marks or the System or to bring either into disrepute, or that might diminish or affect adversely our reputation or goodwill.

(g) Compliance with Laws. You will comply with all applicable laws, rules and regulations in the operation of the Franchised Business. You will satisfy all safety and regulatory standards that may be imposed upon the Franchised Business or its employees.

(h) Health Standards. You will meet and maintain a high degree of sanitation at the premises and the highest health standards and ratings applicable to the operation of the Franchised Business. You will furnish us, within five days after you receive it, a copy of each inspection report, warning, citation, certificate and rating resulting from an inspection conducted by any federal, state, county or municipal agency with jurisdiction over the Franchised Business. You will notify us within five days of the occurrence of any accident or injury that may adversely affect the operation of the Salon or your financial condition, or give rise to liability or a claim against you or us.

(i) Maintaining the Premises. You will at all times maintain the premises of the Franchised Business in excellent repair and condition. You will make such additions, alterations, repairs and replacements as may be required for that purpose, including, without limitation, such periodic repainting and replacement of obsolete signs, furnishings, equipment and decor as we may reasonably direct. If we notify you of remedial work that is necessary to correct an unhealthy or unsafe condition and you fail to commence such work in good faith or to complete

-9-

Version 2/15/2006

such work within the period specified in our notice, we will have the right, in addition to all other remedies, but not the obligation, to enter the store premises and complete the required repair or corrective work on your behalf. We will have no liability to you for any work performed. If we perform such work, we will invoice you for labor and materials, plus a 25% service charge and an amount sufficient to reimburse us for our actual direct costs to supervise, perform and inspect the work and procure any replacement items, including labor, materials, transportation, lodging, meals, contractor fees and other direct expenses, all of which will be due and payable upon your receipt of our invoice.

(j) Remodeling. In addition to the requirements of Section 1.6(h), you will at your expense modify the Cafe premises in accordance with our standards as modified from time to time in writing, including any Capital Modifications referred to in Section 1.4(b) and as a condition to renewal pursuant to Section 5.1(b)(v). You will complete all such remodeling within six months after your receipt of our written notice. We will not require you to spend more than $25,000 towards any such remodeling during the five-year term of this Agreement, excluding amounts required for the repair and normal upkeep of the Salon premises pursuant to Section 1.6(h) and excluding equipment upgrades pursuant to Section 2.2(b). You will make no structural improvements to the Cafe premises without our prior approval.

(k) Use of the Premises. You will use the premises of the Franchised Business solely for the operation of the Franchised Business and for no other purpose or activity.

(1) No Vending Machines. You will refrain from installing or permitting to be installed any vending machine, game or coin-operated or similar device, unless specifically approved by us in writing in advance.

(m) 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 agreement must at all times provide that its activities are confined solely to operating the Franchised Business. 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 operating the Franchised Business, and you agree, upon our request, to deliver to us a copy of your partnership agreement.

(n) Franchisee Advisory Council. We reserve the right to create a "Franchisee Advisory Council" for the purpose of fostering communication among and between franchisees and us, and to advise us in establishing, modifying or discussing various policies applicable to Ouidad franchised businesses. If and when the Franchisee Advisory Council is created, you will be required to participate in such of its meetings and programs as we designate. The Franchisee Ad-

Version 2/15/2006

-10-

visory Council may advise and make recommendations, but will not act as a policy-making board and will have no authority whatsoever. We will determine or approve the rules under which the Franchisee Advisory Council functions. We may require you to pay dues to the Franchisee Advisory Council and you will pay all costs and expenses incurred by you in connection with participation in the Franchisee Advisory Council, including the costs of transportation, lodging and meals.

Section 1.7 -Marketing, Promotion and Advertising

(a) Signage. You will post prominent signage relating to the franchised business in easily-seen locations both inside and outside the premises of the Franchised Business. We will prescribe or approve from time to time in writing the size, form, color scheme, content and location of all such signage. You agree to display and maintain signs reflecting the current image of Beard Papa franchises. You agree to discontinue the use of and destroy such signs as we declare to be obsolete within the reasonable time that we specify for such destruction, which will not be less than thirty days. Because of the importance of the Beard Papa image, you grant to us the right to enter the premises of the Franchised Business to remove and destroy unapproved or obsolete signs in the event that you have failed to do so within the time we specify.

(b) Grand Opening. You agree to conduct a grand opening public relations and advertising program for the Franchised Business during the period commencing thirty days before and ending ninety days after its opening and to expend at least $5,000 for such program. Such public relations and advertising program will use the materials we have developed or approved for public relations and advertising. We will provide you with guidelines and lists of suppliers and consult with you on your grand opening public relations and marketing program, but it will be your sole responsibility to develop and implement this program.

(c) Local Advertising Expenditures. You are responsible at your expense for providing local advertising, marketing, promotional and public relations programs and activities for the Franchised Business. You may use any materials we have prepared or previously approved. You agree to spend annually for advertising and promotion of the Franchised Business not less than two percent of the Gross Sales of the Franchised Business (as defined in Section 2.1(c).) You may credit against your obligation for local advertising and promotion the amount of your contribution to the Advertising Fund described below, if any. Your combined required payments for advertising and promotion, cooperative advertising and contributions to the Advertising Fund will not exceed two percent of the Gross Sales of the Franchised Business, although you may spend additional amounts in your discretion, and we encourage you to do so. We have the right to review your books and records from time to time to determine your expenditures for such advertising and promotion. If we determine that you have not spent the requisite amounts, we may require you to pay such unexpended amounts to the Advertising Fund.

(d) Local Advertising Materials. All materials you use in local advertising, marketing, promotional and public relations programs and activities must conform to such standards and requirements as we may specify from time to time. All such materials must be clear, factual and

-11-Version 2/15/2006

not misleading. You agree to submit to us, before you use them, samples of all materials you intend to use that we have not prepared or previously approved. If you do not receive our written disapproval within fifteen days after our receipt of such materials, we will be deemed to have given the required approval, but we may withdraw our approval at any time. If we withdraw our approval, you will immediately cease the use, distribution and dissemination of such material. Any advertising, marketing or sales concepts, programs or materials proposed or developed by you for the franchised business and approved by us may be used by us and by our affiliates and other franchisees without any compensation to you. You agree to use all point of sale materials that we may supply to you from time to time, in the manner prescribed by us.

(e) Cooperative Advertising. We may establish and coordinate from time to time cooperative advertising, marketing and sales programs, customer satisfaction programs and other programs or activities among Beard Papa franchisees. These programs or activities may be on a local, regional or national basis. You will participate in such programs and activities as we may prescribe. Such programs and activities may (at our option) be paid for partially or wholly by the Advertising Fund described below or on any other equitable basis by the participants.

(f) National and Regional Advertising. We or our designee will exclusively maintain and administer any national and regional advertising, public relations and marketing programs and market research, including without limitation the System Website and all programs financed by the Advertising Fund, as described below.

(g) Establishment of an Advertising Fund. At any time during the term of this Agreement, we may establish a public relations and advertising fund (the "Advertising Fund"), subsidized by fees paid by Beard Papa franchisees, for such advertising, promotion, marketing and public relations programs and materials as we deem necessary or appropriate. You agree to begin contributing to the Advertising Fund, on a date specified by us upon at least 90 days' notice to you, the amount we specify, which amount will be no more than one percent of the Gross Sales of the Franchised Business (as defined in Section 2.1(c),) payable monthly together with the payment of Royalties. All Beard Papa Cafes owned by us will contribute to the Advertising Fund based on their retail sales on the same basis as a franchisee under the terms of a standard franchise agreement for a Beard Papa Cafe.

(h) Use of the Advertising Fund. The Advertising Fund will be used to enhance the recognition of the Marks and the patronage of Beard Papa Cafes nationally or regionally. We or our designee will have sole discretion over the creative concepts, materials and endorsements used, and the geographic, market and media placement and allocation. The Advertising Fund may be used to pay the costs of preparing and producing video, audio and written advertising materials; administering national and regional advertising programs, and engaging advertising, promotion and marketing agencies to assist us; and supporting public relations, market research and other advertising, promotion and marketing activities. The Advertising Fund will not be used to defray any of our general operating expenses, except for such reasonable salaries, administrative costs, travel expenses and overhead as we may incur in activities related to the administration of the Advertising Fund and its programs, including, without limitation, conducting market research,

-12-Version 2/15/2006

preparing advertising, promotion and marketing materials and collecting and accounting for contributions to the Advertising Fund.

(i) Accounting for the Advertising Fund. We will separately account for the Advertising Fund monies, but we may commingle such monies with our other monies or maintain the Advertising Fund monies in one or more separate accounts, in our discretion. We may spend, on behalf of the Advertising Fund, in any fiscal year, an amount greater or less than the aggregate contribution of all Beard Papa Cafes to the Advertising Fund in that year, and the Advertising Fund may borrow from us or others at reasonable interest rates to cover deficits or invest any surplus for future use. All interest earned on monies contributed to the Advertising Fund will be used to pay advertising costs before other assets of the Advertising Fund are expended. We will prepare annually, or cause to be prepared, a report or reports of the operations of the Advertising Funds. We will furnish such report or reports to you upon your written request.

(j) Advertising Fund Entity. We have the right, but not the obligation, to establish a separate entity to operate the Advertising Fund at any time. Any such entity will have all of the rights and duties with respect to the Advertising Fund that we have under this section. The Advertising Fund will not be deemed a trust, and we will have no fiduciary obligation to you in connection with the collection or administration of the Advertising Fund.

(k) Distribution of Advertising Expenditures. Although we will endeavor to use the Advertising Fund to develop advertising and marketing materials and programs and to place advertising that will benefit all Beard Papa Cafes, we undertake no obligation to ensure that expenditures by the Advertising Fund will benefit all Beard Papa Cafes equally nor in proportion to contributions.

(1) Termination of Advertising Fund. We reserve the right to defer or reduce contributions and, upon thirty days' prior notice to you, to reduce or suspend contributions to and operations of the Advertising Fund for one or more periods of any length and to terminate (and, if terminated, to reinstate) the Advertising Fund (and, if suspended, deferred or reduced, to reinstate such contributions). If the Advertising Fund is terminated, all unspent monies, if any, on the date of termination will be distributed to Beard Papa Cafes in proportion to their respective contributions to the Advertising Fund during the preceding twelve month period.

(m) Internet Advertising. You may not advertise the Franchised Business over the Internet except on a website created by us in the manner described in Section 1.8. You may not develop, maintain or authorize any website that mentions or describes the Franchised Business or displays any of the Marks; nor may you own an Internet domain name or use a meta tag or title tag that includes any of the Marks or variations of any of the Marks.

Section 1.8- Website

(a) Establishment of a System Website. At our option, we may establish one or more websites to advertise, market and promote Beard Papa Cafes, the products sold at such cafes and

-13-Version 2/15/2006

the Beard Papa franchise opportunity. If we establish a systemwide website (the "System Website"), we may require you to participate in such website by providing you with a web page on the System Website that refers to the Franchised Business. If we provide you with a web page on the System Website, you agree to give us the information and materials we request to enable us to develop, update and modify your web page. By providing such information and materials to us, you will be representing and warranting to us that, to the best of your knowledge, all information and materials you provide will be accurate and not misleading and will not infringe any third party's rights. You agree to indemnify, defend and hold us, our affiliates and our directors, officers, employees, agents and assigns harmless against any liabilities incurred due to inaccuracies in the information you provide to us or any resulting infringement. We will own all intellectual property and other rights in the System Website, your web page and all information it contains.

(b) Maintenance of Your Web Page. We will maintain the System Website, including your web page, if established pursuant to Section 1.8 (a). At your request, we will update the information on your web page or add information that we approve. You must notify us whenever any information on your web page changes or is not accurate. We will update or add information that we approve to your web page up to eight times during each calendar year at no charge. You must pay our then current fee for each additional update or addition that you request, which fee will not exceed $500. You acknowledge that we have final approval rights over all information on the System Website, including your web page. We may implement and periodically modify System Standards relating to the System Website. We may at any time and in our sole discretion discontinue using the System Website, including your web page. If we discontinue using the System Website, we may at any time and in our sole discretion resume using it.

(c) Removal of Your Web Page. We will be obligated to maintain your web page on the System Website only while you are in full compliance with this Agreement and all System Standards. If you are in default of any obligation under this Agreement or the System Standards, then we may, in addition to our other remedies, temporarily remove your web page from the System Website until you fully cure the default. We will permanently remove your web page from the System Website upon the expiration or termination of this Agreement.

(d) Promotion of the System Website. All advertising, marketing and promotional materials that you develop for the Franchised Business must contain notices of the System Website's domain name in the manner we designate.

(e) Franchisee Extranet. In addition to the System Website, we may establish an extranet or other website for all Beard Papa franchisees that can be accessed only by means of user names and passwords and that will not be available to the general public. We may use this website to provide support for franchisees and to allow for electronic franchise discussion groups. You agree both during and after the term of this Agreement not to disclose your user name or password to any person or entity who is not under your direct supervision and who does not have a need to know such password. You agree to inform all persons under your supervision who

-14-Version 2/15/2006

may have access to such password of this obligation of confidentiality. You further agree to comply with all guidelines and rules we establish from time to time for the use of this extranet or website.

ARTICLE II - FEES; PAYMENTS; RECORDS; INSPECTIONS

Section 2.1 -Fees and Reports

(a) Initial Fee. Upon your signing of this Agreement, you will pay us an initial fee of $40,000 for a Cafe of more than 600 square feet of total space, including cafe space open to customers, storage space and preparation area (a "Standalone Unit"), or $20,000 for a Cafe of up to 600 square feet (a "Food Court Unit"), unless you and we have agreed to a different initial fee pursuant to a Development Agreement. The designation of your franchise as a Standalone Unit or a Food Court Unit is set forth in Schedule A. The amount of any deposit already paid will be deducted from this initial fee. This initial fee is fully earned at the time we grant the franchise and is not refundable under any circumstances. It pays for our administrative and other costs in granting the franchise and for our lost or deferred opportunity to franchise others.

(b) Royalties. You agree to pay us royalties ("Royalties") in the amount of five percent of the Gross Sales (as defined below) of the Franchised Business each Accounting Period (defined below).

(c) Definition of Gross Sales. As used in this Agreement, the term "Gross Sales" or "Gross Sales of the Franchised Business" means all revenue you derive from sales in the operation of the Franchised Business, including, but not limited to, all amounts you receive at or away from the premises of the Franchised Business, and whether from cash, check, credit card or credit transactions, including proceeds of any business interruption insurance policies, but excluding all federal, state or municipal sales or use taxes collected from customers for payment to the appropriate taxing authorities.

(d) Advertising Fee. If we initiate an Advertising Fund (as described in Section 1.7(f)), you agree to pay us an advertising fee each Accounting Period (the "Advertising Fee") commencing on the date specified in our notice. We will specify the amount of the Advertising fee at any given time in our notice, which amount will not exceed one percent of the Gross Sales of the Franchised Business each Accounting Period. We may change the amount of the Advertising Fee from time to time upon notice to you.

(e) Accounting Period. "Accounting Period" means the specific period that we designate from time to time in the Manual or otherwise in writing for purposes of your financial reporting and payment obligations described in this Agreement. The Accounting Period may be a calendar month or a shorter or longer time period that we select, but not shorter than one week. We may designate different Accounting Periods for different purposes.

-15-Version 2/15/2006

(f) Reporting and Payment. You will submit a report to us within three days after the end of each Accounting Period setting forth your true and correct Gross Sales for such Accounting Period in such detail and in such manner as we require from time to time. Together with each report, you will submit to us a check, payable to us, in the amount of the Royalties and Advertising Fee, if any, owed to us based on such Gross Sales. We will have the right, upon notice to you: (i) to require you to submit to us quarterly and annual balance sheets and income statements for the Franchised Business, prepared in accordance with generally accepted accounting principles consistently applied, in the format we prescribe, and verified as correct in the manner we prescribe from time to time; and (ii) to require you to supply us with reviewed financial statements prepared annually.

(g) Interest on Late Payments. Any payment that is not made by the date it is due will be subject to interest at the rate of one and one-half (V/₂ %) percent per month or the highest rate allowed by law, whichever is less. Your failure to pay all amounts when due constitutes grounds for termination of this Agreement, as provided, in Section 5.2 (b) (ii). This charge will accrue whether or not we exercise our right to terminate. You acknowledge that this subsection does not constitute our agreement to accept any payments after they are due or our commitment to extend credit to you or otherwise finance your operation of the Franchised Business.

(h) No Setoff. Your obligations to make payments in accordance with this Agreement and any other agreement with us or any of our affiliates with respect to the Franchised Business are not subject to any abatement, reduction, setoff, defense or counterclaim due or alleged to be due for any past, present or future claim that you have or may have against us or any of our affiliates.

(i) Application of Payments. All payments you make to us will be applied in such order as we may designate from time to time, regardless of any designation you may make with respect to the application of such payments, even if you specifically make payment conditional on our acceptance of your designated application or instructions.

(j) Taxes. In the event that we are required to collect and pay any sales or use tax from you for payment to any tax authority based on your purchase of the franchise or any items relating to the franchise, or based on any continuing payments you make to us under this Agreement, you will pay such amounts upon receipt of our invoice.

Section 2.2 �Records; Inspection

(a) Records. You agree to maintain at the Franchised Business full, complete and accurate records and reports of the Franchised Business. You will maintain bookkeeping, accounting and records retention systems conforming to the requirements that we prescribe from time to time, and records relating to Franchised Business operations, employee turnover and such other records that we prescribe from time to time. You agree to maintain and to furnish to us upon request complete copies of all income, sales, value added, use and service tax returns, and employee withholding, worker's compensation and similar reports filed by you reflecting activities

-16-

Version 2/15/2006

of the Franchised Business. You agree to preserve all records described in this Section 2.2 (a) for a period of at least seven years after their creation, or such longer period as may be required by law, during both the term and each renewal term of this Agreement and following the expiration or termination of this Agreement.

(b) Computer System. You agree to install, maintain and use in the Franchised Business such computer hardware, software and cash register systems as we specify from time to time. We may use such systems to collect electronically the reports referred to in Section 2.1 (e) and the records referred to in Section 2.2 (a). We have the right to establish requirements that will permit us, as often as we deem appropriate, to access all cash registers and computer terminals and your computer system and to retrieve all information relating to the Franchised Business. We may require you to incur costs to purchase, lease and license computer hardware and software and to obtain service and support, and to upgrade and make such changes to the electronic equipment used in the Franchised Business as we may specify in writing. You acknowledge that we cannot estimate the future costs of the computer and software system, the cash register system, or additions or modifications to these systems, and that these costs may not be fully amor-tizable over the remaining term of this Agreement. Nevertheless, you agree to incur such costs, provided that we will not require you to spend more than $2,000 annually for computer and software system, the cash register system, additions or modifications to these systems, service and support. We have the right to charge a reasonable systems fee for software or systems modifications and enhancement specifically made for us that are licensed to you and other maintenance and support services that we or our affiliate furnish to you.

(c) Right to Inspect. During the term of this Agreement, we or our designated representatives will also have the right, at any time during your regular business hours, without prior notice to you, to enter upon the premises of the Franchised Business to inspect the premises; observe, photograph and videotape the operations of the Franchised Business for such periods as we deem necessary; remove samples of any products, materials or supplies for testing and analysis; interview your personnel and customers; and inspect the books and records of the Franchised Business and take excerpts. You agree to cooperate fully with us and our representatives during all inspections, observations, photographing, videotaping, product removal and interviews; to present to your customers such evaluation forms as we periodically prescribe; to participate and request your customers to participate in any surveys performed by us or on our behalf; and to take all steps reasonably necessary to correct any deficiencies in your compliance with System Standards or this Agreement within the time we specify.

(d) Right to Audit. We generally compare the quantities of dough you purchase from us to your reports of Gross Sales. These quantities give us a good indication of the level of Gross Sales we would expect you to be reporting to us. In addition, we have the right at any time during your business hours, without prior notice to you, to inspect and audit the records of the Franchised Business, or to cause such records to be inspected and audited. This right includes the right to access your computer systems.

-17-Version 2/15/2006

(e) Discrepancies. If any inspection or audit demonstrates an understatement of Gross Sales, you will pay the deficiency to us within 15 days after you receive the inspection or audit report.

(f) Cost. All inspections and audits will be at our expense; provided, however, that in the event that an inspection or audit is made necessary by your failure to furnish reports, supporting records, other information or financial statements as required by us, or by your failure to furnish such reports, records, information or financial statements on a timely basis, or if an understatement of Gross Sales for the period of any audit or inspection is determined by any such audit or inspection to be greater than three percent (3%), you agree, within 15 days after our request, to reimburse us for the cost of such inspection or audit, including, without limitation, legal and accounting fees, and the travel expenses, including lodging, meals and per diem charges of the inspecting or auditing personnel. The foregoing remedies are in addition to our other remedies and rights under this Agreement and applicable law.

(g) Survival of Inspection and Audit Rights. Our rights to inspect the books and records of the Franchised Business and to take excerpts, and to audit the Franchised Business, will continue for a period of six months following the expiration or termination of this Agreement; provided, however, that we may only inspect such books and records or perform any such audit following the expiration or termination of this Agreement upon at least 24 hours* prior notice to you.

(h) Disclosure of Your Financial Information. We have the right to disclose data we receive from you regarding the Franchised Business without identifying you or the location of the Franchised Business, except for any disclosure required by law, in which event we will notify you of the disclosure to be made and, if you request, endeavor to obtain legally binding assurance that those who receive such disclosure are bound by an obligation of confidentiality.

ARTICLE III - PROPRIETARY RIGHTS; CONFIDENTIALITY; NONCOMPETITION

Section 3.1 - Our Copyrights and Trademarks

(a) Our Copyrights. We are the sole owner of all copyrights in the Manual and of all advertising and promotional material created by or for us. You may not copy any materials described in this Section 3.1 (a), nor create derivative works of any such materials, except as specifically authorized or permitted by us.

(b) Our Trademarks. Your right to use the Marks is derived solely from this Agreement and is limited to your operation of the Franchised Business at and from the premises of the Franchised Business pursuant to and in compliance with this Agreement and all System Standards we prescribe from time to time during its term. Your unauthorized use of the Marks will be a breach of this Agreement and an infringement of our rights in and to the Marks. You acknowledge and agree that your use of the Marks 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 the Marks

-18-Version 2/15/2006

upon you (other than the right to operate the Franchised Business in compliance with this Agreement). You will not contest or assist others in contesting our right to use the Marks.

(c) Proper Use of Marks. You understand that any use of the Marks other than as expressly authorized by this Agreement, without our prior written consent, may constitute infringement and that your right to use the Marks does not extend beyond the expiration or termination of this Agreement. You agree to use the Marks as the sole identification of the Franchised Business, except that you agree to identify yourself as the independent owner of the Franchised Business in the manner we prescribe. You may not use any Mark 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 Mark 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 Mark as part of a domain name or electronic address of a website. You agree to display the Marks prominently in the manner we prescribe at the Franchised Business, on packaging and serving materials that we designate and in connection with forms and advertising and marketing materials. You agree to give such notices of trademark and service mark registrations and such other trademark and service mark notices as we specify and to obtain any fictitious or assumed name registrations required under applicable law.

(d) Modifying the Marks. We will have the right to modify or change any Mark from time to time upon written notice to you specifically referring to this Agreement and describing such modification or change. Such right will include the right to use a trademark that is entirely different from "Beard Papa" and the right to require you to use one or more additional logos and marks; provided, however, that we will make all such changes in the Marks only for good faith marketing, trademark or other reasons on a uniform basis for all Beard Papa franchisees in the U.S. You agree, upon notice from us, to regard each such modified, changed, new or additional trademark as being within the definition of "Marks" hereunder, and to adopt and use each such trademark at your expense in accordance with the terms and conditions of this Agreement. If we require a change in signage, we will reimburse you for your reasonable direct expenses of changing the signs at the premises of the Franchised Business. However, we will not be obligated to reimburse you for any loss of revenue or expenses caused by any such modification or change.

(e) Infringement. You agree to notify us of any apparent infringement of any Mark or of any of our copyrights, by any third party, as soon as such apparent infringement comes to your attention, and to notify us immediately of any challenge to your use of any Mark and of any claim by any person of any rights in any Mark, and you agree not to communicate with any person other than us, our attorneys and your attorneys in connection with any such infringement, challenge or claim. We have sole discretion to take such action as we deem appropriate with respect to such apparent infringement, challenge or claim and the right to control exclusively any litigation, U.S. Patent and Trademark Office proceeding or any other administrative proceeding arising out of any such infringement, challenge or claim or otherwise relating to any Mark or our copyrights. You agree not to initiate any such action or proceedings, but to cooperate with us in any such action or proceeding and sign any and all instruments and documents, render such as-

-19-

Version 2/15/2006

sistance and do such acts and things as may be necessary or advisable, in the opinion of our attorneys, to protect and maintain our interests in any litigation or any proceeding at the Patent and Trademark Office, or otherwise to protect and maintain our interests in the Marks or copyrights. In the event any sum is recovered based on our claim of infringement, we will have the exclusive right thereto.

Section 3.2 - Confidentiality of Our Information

(a) Confidential Information. We possess and will continue to develop and acquire certain confidential information relating to the development and operation of Beard Papa 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 Beard Papa Cafes;

(v) current and concluded research, development and

The Free Franchise Resource Center

Franchise Agreement

Sample Franchise Agreement