Franchise Agreement

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Sample Franchise Agreement

IT'S A GRIND FRANCHISE AGREEMENT

This Franchise Agreement fthe "Agreement") is made and entered into on the date executed by the Franchisor as set forth on the last page of this Agreement, by and between IAG COFFEE FRANCHISE. LLC, a California limited liability company, fthe "Franchisor"), and the franchisee identified on the last page of this Agreement fthe "Franchisee"), upon the following terms. conditions, covenants and agreements:

A. WHEREAS, Franchisor has developed and administers a franchise system, including various business techniques and methods, trade secrets, copyrights (possibly patentable ideas), confidential and proprietary information and other intellectual property rights (the "System") for the establishment and operation of retail specialty coffee beverage stores offering fresh roasted specialty whole bean coffees, traditional and espresso based coffee drinks, iced and blended coffee drinks, tea and tea-based drinks, fruit smoothies, bagels, muffins, scones and associated bakery products (the "It's A Grind Stores") identified by the It's A Grind trade name and other trademarks and service marks licensed hereunder (the "Marks").

B. WHEREAS, the System includes the Marks and Franchisor's trade secrets, proprietary methods and information and procedures for the establishment and operation of It's A Grind Stores, including, without limitation, recipes, menu specifications, marketing, advertising and sales promotions, equipment, furniture and fixtures, cost controls, accounting and reporting procedures, personnel management, training methods, distinctive interior design and display procedures, and color scheme and decor.

C. WHEREAS, Franchisor has the right to license the System and the Marks in connection with its franchise program. Franchisor grants to qualified persons who are willing to undertake the required investment and effort, a license to open an It's A Grind Store.

D. WHEREAS, Franchisee desires to become a franchised operator of an It's A Grind Store as a licensee of the It's A Grind Marks and System under the terms and conditions of this Agreement.

E. WHEREAS, Franchisor is entering into this Agreement in reliance upon the representations of Franchisee as to itself and to the person(s) who will participate in the ownership and management of the It's A Grind Store.

F. WHEREAS, Franchisee understands and acknowledges the importance of Franchisor's high and uniform standards of quality and service and the necessity of operating the business franchised hereunder in conformity with Franchisor's standards and specifications.

G. WHEREAS, Franchisee acknowledges having received a copy of Franchisor's Uniform Franchise Offering Circular and having had an adequate opportunity to investigate the business contemplated by this Agreement and to discuss the terms and conditions of this Agreement with financial and legal advisors of Franchisee's choosing at least ten (10) business days (excluding weekends and holidays), prior to signing. Franchisee confirms that it is not relying upon any representation as to profits and/or sales volume that Franchisee may achieve nor upon any representations or promises by Franchisor that are not contained in this Agreement.

NOW, THEREFORE, in consideration of the premises and of the considerations set below, the parties agree as follows:

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Franchise Agreement - 6/98/16/04

1. GRANT OF LICENSE; LOCATION

"I-¹ Grant. Subject to any pre-existing rights of Franchisor's predecessor and owner of the "It's A Grind" marks and subject to the rights reserved by Franchisor in this Agreement, Franchisor grants to Franchisee, subject to the terms and conditions of this Agreement, the nonexclusive right and license to:

A. Establish and operate one (1) retail specialty coffee "It's A Grind Store" utilizing only the System and Marks, including, without limitation, menus items and recipes developed and approved by Franchisor, at a location that has been authorized by Franchisor (the "Authorized Location");

B. Use the Marks of Franchisor under the terms of this Agreement to identify and promote the It's A Grind Store offered hereunder; and

C. Use Franchisor's proprietary business methods and know-how as set forth periodically in Franchisor's Operations Manual (as defined herein), other manual, training programs, or otherwise communicated to Franchisee.

1.2 Authorized Location. The Authorized Location for the It's A Grind Store is:

________________________________________________. If the Authorized Location has not

been identified at the time this Agreement is signed, Franchisee must identify a site approved by Franchisor within the following Designated Market Area:

__________________________________________________________. Franchisee

expressly acknowledges and agrees that i) the Designated Market Area is not, and shall not be construed to be, Franchisee's Protected Area, and ii) Franchisor may locate, or authorize others to locate at any time, a traditional It's A Grind Store anywhere in the Designated Market Area, so long as Franchisor is otherwise in compliance with this Agreement, including Section 1.3, below. Before Franchisor shall be obligated to consider approving a proposed location, Franchisee must submit to Franchisor a complete report containing all information Franchisor may reasonably request concerning the proposed location including, without limitation, population density, demographics, proximity to other It's A Grind Coffee Stores, traffic flow and entrance to and exit from the site (the "Location Report"). Franchisor shall deliver to Franchisee written notice of approval or disapproval of a proposed location within 30 days after Franchisor receives the Location Report. Franchisor's approval of the proposed site shall be deemed to be a binding addendum to this Agreement upon Franchisor | and Franchisee's execution of Exhibit GrlFA-l, which is attached hereto and incorporated herein by reference, and which will set forth the Authorized Location. Franchisor agrees not to withhold unreasonably approval of a site that meets its site criteria. Franchisee acknowledges that Franchisor's approval of a proposed site is permission only and not an assurance or guaranty to Franchisee of the availability, suitability or success of a location, and cannot create a liability for Franchisor. While Franchisor will provide site selection assistance as specified in Section 6.1 herein, Franchisee alone is ultimately responsible for selecting and developing an acceptable location for the It's A Grind Store. Franchisee agrees to hold Franchisor harmless with respect to the selection of the Authorized Location by Franchisee. Franchisee must obtain lawful possession of an Authorized Location by lease, purchase or other method and open for regular, continuous business as an It's A Grind Store within eighteen (18) months of the date that Franchisor accepts this Agreement.

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1.3 Protected Area.

A. Except as otherwise permitted in this Agreement, ~~dur~~ing as of the date that Franchisor approves Franchisee's Authorized Location and for the balance of the term of this Agreement, Franchisor will not establish a company owned, traditional, full service It's A Grind Store or grant a franchise to anyone other than Franchisee for the operation of a traditional, full service It's A Grind Store within a circular area defined by a radius of one (1) mile from the center point of the It's A Grind Store (the "Protected Area") without Franchisee's prior written consent so long as Franchisee shall: (i) fully comply with the methods, procedures, standards and specifications required by Franchisor in the Operations Manual or otherwise in writing, and (ii) not violate any of the other terms and covenants of this Agreement or any other Agreement with Franchisor. Franchisee shall not acquire rights to any other location or territory by virtue of this Agreement, and Franchisor may operate or grant franchises to others to operate an It's A Grind Store anywhere outside the Protected Area. Franchisee understands and agrees that, except as expressly provided herein, this franchise is non-exclusive.

B. If the Authorized Location is determined by Franchisor to be a non-traditional or unique site (for example, without limitation, central business districts, downtown areas, densely populated urban areas, airports, sports and entertainment venues, tourist areas, etc.), then Franchisor may reduce the size of the Protected Area, which reduced Protected Area shall be described or depicted in detail in an addendum to this Agreement, executed concurrently with this Agreement.

C. Except for the right to operate a single, traditional, full service It's A Grind Store from the Authorized Location, Franchisee is not granted any rights to use the System and Marks in connection with any other channel of commerce or method of distribution, including, without limitation, distribution of products or services through supermarkets, grocery stores, convenience stores, gasoline stations, discount stores, department stores, bookstores, music stores, mobile facilities, vending carts, kiosks, stadiums, convention centers, concert hails, amusement parks, fair grounds and other areas of public gatherings, any temporary or mobile facilities, mail order facilities, internet based facilities, direct response media, or onsite coffee services for business locations (collectively, the "Alternative Channels of Distribution"), all such rights being retained by Franchisor. Notwithstanding the foregoing or anything else in this Agreement or otherwise, Franchisor (and those that Franchisor may appoint) retain all rights to sell It's A Grind brand (or any other brand) products and services (whether or not competitive) to customers located anywhere (including within the Protected Area) using Alternative Channels of Distribution (i.e., other than a traditional, full service It's A Grind Store located in the Protected Area), and Franchisee has no expectation that Franchisor will not use those means of distribution. With respect to sales by any Alternative Channel of Distribution, there is no limitation on Franchisor's ability (and the ability of anyone Franchisor appoints) to sell to customers located anywhere.

D. If Franchisee is granted the right to operate an It's A Grind business through an "Alternative Channel of Distribution" at the Authorized Location, in lieu of a traditional, full service It's A Grind Store (as may be described in an addendum to this Agreement), then Franchisee shall have no "Protected Area" whatsoever unless a special Addendum is executed concurrently with this Agreement, specifying any such "Protected Area."

E. Other than as expressly provided herein, Franchisee is awarded an It's A Grind Store Franchise for a single store location only, as approved by Franchisor.

F. (1) Notwithstanding anything to the contrary in this Agreement or otherwise, Franchisor and/or any of Franchisor's affiliates can acquire, be acquired by, merge, affiliate with or engage in any transaction with other businesses (whether competitive or not), with units located anywhere (including in the Protected Area), and including arrangements in which (1)

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other units are (or are not) converted to the It's A Grind Store or other format (including using the System and/or Marks) and/or (2) Franchisor and/or any of Franchisor's affiliates are acquired, and/or company-owned, franchised or other businesses (including the traditional It's A Grind Store) are converted to another format, maintained under the System or otherwise. All It's A Grind Stores owned by Franchisee (whether traditional, full service type or Alternative Channel of Distribution type) will fully participate in any such conversion, at Franchisee's sole expense; provided, however, Franchisee shall have a period of twelve (12) months to complete the conversion, and if Franchisee has commenced operations within twenty-four (24) months of the date of the notice from Franchisor or has undertaken any renovations, upgrades or capital improvements costing more than Fifty Thousand Dollars ($50,000) within twelve (12) months prior to the date of the notice from Franchisor, then Franchisee shall have a period of twenty-four (24) months to complete the conversion from the date of the notice from Franchisor; provided, further, Franchisee shall not be obliged to complete any conversions if the notice from Franchisor is delivered to Franchisee within twenty-four (24) months of the end of the term of this Agreement and this Agreement is not renewed.

(2) Franchisee acknowledges and agrees that if the It's A Grind System is converted to a different format or brand name, Franchisor may immediately commence to promote and market the new format and/or brand name. Franchisor may direct that funds from the National Fund be used likewise, even though Franchisee defers the conversion of Franchisee's It's A Grind Store to the new format and/or brand name, and Franchisee shall be obligated to continue to make contributions to the National Fund.

2. ACCEPTANCE BY FRANCHISEE

Franchisee accepts this Agreement and the license granted herein and agrees to develop and operate the It's A Grind Store on the terms and conditions specified herein, to comply with Franchisor's Operations Manual, standards, authorized products, operating and business systems and all other aspects of the System prescribed by Franchisor, which are subject to change at Franchisor's discretion. Franchisee agrees to execute all exhibits, addenda, agreements and attachments to this Agreement requiring Franchisee's signature at the time of request by Franchisor.

3. TERM AND RENEWAL

3.1 Term. The term of this Agreement shall be for a period of ten (10) years beginning on the date this Agreement is accepted by Franchisor; provided, however, the term of this Agreement shall be shortened (but not extended) to conform to the term of the Lease for the Authorized Location (if the Lease is shorter than ten (10) years).

3-2 Renewal. Unless terminated at an earlier date, upon the expiration of the initial term, Franchisee shall have the right to renew this Agreement for consecutive additional option terms equal to the new or extended term of the Lease for the Authorized Location (or suitable alternative location approved by Franchisor), subject to satisfaction of each of the following conditions:

A. Prior to each such renewal, Franchisee shall execute Franchisor's standard form

franchise agreement being offered at the time of each such renewal. The provisions of each such renewal franchise agreement may differ from and shall supersede this Agreement in all respects, including, without limitation, changes in royalty and advertising fees, except that Franchisee shall pay the renewal fee specified in Section 3.2.G instead of the initial franchise fee. Franchisee's failure or refusal to execute and return Franchisor's then current standard form Franchise

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Agreement to Franchisor within thirty (30) days after receipt by Franchisee shall constitute Franchisee's election not to renew;

B. Franchisee shall present evidence satisfactory to Franchisor that Franchisee has the right to remain in possession of the Authorized Location for the duration of the renewal term, or Franchisee has been able to secure and develop in compliance with the then applicable standards used in granting of a franchise for It's A Grind a suitable alternative site acceptable to Franchisor;

C. In consideration of each such renewal of the franchise, Franchisee shall execute a general release in a form prescribed by Franchisor of all claims to the fullest extent permitted by law that Franchisee may have against Franchisor and each of Franchisor's affiliates, officers, directors, members, shareholders, representatives, employees and agents;

D. At Franchisee's sole expense, Franchisee and Franchisee's management employees shall complete such training as Franchisor may require to bring Franchisee into conformity with the then current qualifications and training requirements for new franchisees;

E. Franchisee shall have completed or made arrangements to make, at Franchisee's expense such renovation and modernization of the It's A Grind Store, including the interior and exterior of the building, grounds, leasehold improvements, signs, furnishings, fixtures, equipment, uniforms and decor as Franchisor reasonably requires so the It's A Grind Store conforms with the then current standards and image of Franchisor;

F. Franchisee, during the term of this Agreement, shall have substantially complied with all of the provisions this Agreement and all other Agreements with Franchisor, and shall be in compliance with the Operations Manual and with Franchisor's policies, standards and specifications on the date of the notice of renewal and at the expiration of the initial term;

G. Franchisee shall pay to Franchisor a renewal fee of Two Thousand Five Hundred Dollars ($2,500); and

H. Franchisee shall have given Franchisor written notice of renewal not less than 90

or more than 180 days before expiration of the initial term.

3.3 Franchisor's Refusal to Renew Franchise. Franchisor may refuse to renew the franchise if Franchisee is in default under this Agreement, or any other agreement with Franchisor or an affiliate of Franchisor, or if Franchisee fails to satisfy any of the foregoing conditions. Subject to the above, Franchisor will not unreasonably deny renewal of a Franchise.

3.4 Notice of Expiration Required by Law. If applicable law requires that Franchisor give a longer period of notice to Franchisee than herein provided prior to the expiration of the initial term or any additional term, Franchisor will give such additional required notice. If Franchisor does not give such required additional notice, this Agreement shall remain in effect on a month-to-mo nth basis until Franchisee have received such required notice.

4. TRADEMARK STANDARDS

4.1 Name and Ownership. Franchisee acknowledges the validity of the Mark "It's A Grind" and all other Marks that now or in the future are or will be part of the System and agrees and recognizes that the Marks are the sole and exclusive property of Franchisor and/or the affiliates of Franchisor. Franchisee further acknowledges that Franchisee's right's to use the Marks is derived solely from this Agreement and is limited to the conduct of It's A Grind Store pursuant to and in

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compliance with this Agreement and all applicable standards, specifications and operating procedures prescribed by Franchisor from time to time. Any unauthorized use of the Marks by Franchisee is a breach of this Agreement and an infringement of the rights of Franchisor and its affiliates. Franchisee's use of the Marks inures to the benefit of Franchisor, which owns all goodwill now and hereafter associated with the Marks. Franchisee agrees not to contest ownership or registration of the Marks. Franchisor (and/or its affiliates) owns all right, title and interest in and to the Marks and Franchisee has and acquires hereby only the qualified license granted in this Agreement.

4.2 Use.

A. Franchisee shall not use any Mark as part of any corporate or business name with any prefix, suffix or other modifying words, terms, designs or symbols, or in any modified form. Franchisee shall display and use the Marks only in the manner and form prescribed or authorized by Franchisor and shall conduct no other business than that prescribed by Franchisor. Franchisee shall not use any other mark, name, commercial symbol or logotype in connection with the operation of the It's A Grind Store and shall not market any product from in or in connection with the It's A Grind Store without Franchisor's written consent, and if such consent is granted, such product must be marketed in a manner acceptable to Franchisor. Franchisor may also permit Franchisee to use from time to time other trademarks, service marks, trade names and commercial symbols as may be designated in writing. Franchisee will use or display the Marks on authorized materials and stationery used in connection with the It's A Grind Store only as Franchisor permits and as provided in this Agreement, the Manuals or any other written or oral communication to Franchisee by Franchisor. You will display the following notice in a prominent place at the It's A Grind Store: "The It's A Grind ® trademarks are owned by It's A Grind, Inc. and the independent franchised operator of this store is a licensed user of such trademarks."

B. Franchisee agrees to give such notices of trademark and service mark registrations and copyrights as the Franchisor specifies and to obtain such fictitious or assumed name registrations as may be required under applicable law.

C. Franchisee is prohibited from using the Marks in advertising, promotion or otherwise, without the appropriate "©" or "®" (copyright and registration marks) or the designations"�" or^uSM" (trademark and service mark), where applicable.

4.3 Litigation. Franchisee agrees to notify Franchisor immediately in writing if it becomes aware that any person who is not a licensee of Franchisor is using or infringing any of the Marks. Franchisee may not communicate with any person other than Franchisor and its counsel in connection with any such use or infringement. Franchisor will have discretion to determine what steps, if any, are to be taken in any instance of unauthorized use or infringement of any of its Marks and will have complete control of any litigation or settlement in connection with any claim of an infringement or unfair competition or unauthorized use with respect to the Marks. Franchisee at Franchisee's own expense will execute any and all instruments and documents and will assist and cooperate with any suit or other action undertaken by Franchisor with respect to such unauthorized use or infringement such as by giving testimony or furnishing documents or other evidence. Franchisor will be responsible for legal expenses incurred by Franchisor in connection with any litigation or other legal proceeding involving such third party. Franchisor shall not be liable for any legal expenses of Franchisee unless approved in writing by Franchisor in its discretion.

4.4 Modification, Discontinuance or Substitution. Franchisor reserves the right if necessary in Franchisor's sole judgment to change the principal Mark(s) of the System on a national or regional basis, and promptly upon notice to Franchisee shall at its expense adopt a

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new principal Mark(s) designated by Franchisor to identify the It's A Grind Store. Franchisor shall have no liability or obligation whatsoever with respect to Franchisee's change of any Mark. Franchisor shall have no liability for any expenses or damages incurred by Franchisee as a result of Franchisor's election to change the use of any or all of the Marks.

4.5 Franchisor's Revenues. Franchisor and its affiliates may offer to sell to Franchisee at a reasonable profit various goods and services, and Franchisor reserves the right to receive fees or other consideration in connection with "It's A Grind" sales promotion and advertising programs or from System vendors.

5. FEES

5.1 Initial Franchise Fee. Franchisee agrees to pay Franchisor the sum of Thirty Thousand Dollars ($30,000) upon execution of this Agreement in the form of a cashier's check or bank wire transfer. The Initial Franchise Fee is not refundable. Notwithstanding the foregoing, if Franchisee is executing this Agreement pursuant to an It's A Grind Area Development Agreement that states that Franchisee shall have a different Initial Franchise Fee, then Franchisee shall pay the Initial Franchise Fee stated in the It's A Grind Area Development Agreement in lieu of the Initial Franchise Fee stated above. Additionally, if the It's A Grind Area Development Agreement states that Franchisee shall be entitled to a credit towards the Initial Franchise Fee, then the Initial Franchise Fee shall be reduced by the amount of the credit stated in the It's A Grind Area Development Agreement.

5.2 Continuing Royalty Fee. During the term of this Agreement, Franchisee agrees to pay Franchisor, without set-off, credit or deduction of any nature, a Continuing Royalty Fee equal to six percent (6%) of Franchisee's Gross Sales each week for the term of this Agreement in accordance with procedures specified in this Agreement, or as otherwise directed by Franchisor. "Gross Sales" as used in this Agreement shall mean all sums charged by Franchisee for products and services through the operation of the It's A Grind Store, whether for on-site or off-site consumption, less sales or excise taxes. Upon Franchisor's request, Franchisee shall submit a weekly report showing the computation of the Continuing Royalty Fee and all other fees and amounts payable under this Agreement upon forms provided by Franchisor. Franchisee shall permit Franchisor to access or "poll" by telephone, Internet or other technology, remotely or on-site, Franchisee's computer system and business records to verify the "Gross Sales" and all fees payable under this Agreement.

5.3 Advertising and National Marketing and Development Fund Fee. In addition to the above-referenced fees, during the term of this Agreement, Franchisee agrees to pay to Franchisor, without set-off, credit or deduction of any nature, an Advertising and National Marketing and Development Fund Fee (the "National Development Fund Fee"), at the same time and in the same manner as the Continuing Royalty Fee is paid, an amount equal to one percent (1%) of Franchisee's Gross Sales, as defined above. The National Development Fund Fee shall be expended in accordance with Section 9.2 herein. Franchisee acknowledges and agrees that its potential success requires Franchisee to expend substantially more on advertising and promotion than the one percent (1%) contribution to the National Development Fund Fee.

5.4 Enterprise System and Gift Card Program Fees.

A. Franchisee agrees to participate in the "Enterprise" system, or similar system as

may be determined by Franchisor, and the customer gift card program arranged or provided by Franchisor, which programs allow Franchisee to set up various e-mail alerts, to generate detailed sales, inventory, product mix, employee performance, labor scheduling and payroll reports, to record and report sales activities and gift card sales and redemption and to permit Franchisor to

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access or poll Franchisee's sales and operational activities. Commencing at the time the Enterprise system and customer gift card program vendors start charging fees for services to Franchisee and continuing throughout the term of this Agreement, Franchisee agrees to pay Franchisor, without set-off, credit or deduction of any nature, weekly or at such other interval specified by Franchisor the ongoing fees for Franchisee's participation in the Enterprise system and the customer gift card program. Upon receipt of payment from Franchisee, Franchisor shall pay the corresponding amounts to each vendor for the account of Franchisee.

B. Unless Franchisor specifies otherwise, all such fees shall be payable at the same time and in the same manner as the Continuing Royalty Fee is paid. Franchisee acknowledges and agrees that the fees for Franchisee's participation in the above-referenced programs are cumulative of other expenses and costs for the purchase (or lease) of cash registers, computer systems, operating, bookkeeping and other necessary software, internet service provider fees and related charges and that Franchisee shall be charged fees on a uniform and consistent basis as such fees are charged to other It's A Grind franchisees participating in such programs.

C. Franchisee acknowledges and agrees that the current fees for the Enterprise system and the customer gift card program are One Hundred Thirty Dollars ($130) per month (payable in averaged weekly installments of Thirty Dollars ($30)) and that this amount may change from time to time, as changes occur in the programs, vendors and fee arrangements with vendors. Franchisee agrees to pay all current fees at the current rates and future fees at rates established by Franchisor in its reasonable discretion. In establishing and modifying fee rates from time to time, Franchisor may take into consideration Franchisor's ongoing costs charged by vendors, research, development and programming expenses and reasonable management, administrative and overhead expenses, as well as other expenses reasonably related to such programs.

D. Franchisor may commingle fees collected from Franchisee with other monies of Franchisor. To the extent Franchisor actually receives payment from Franchisee, Franchisor agrees to pay the same amount to the appropriate vendor(s) for Franchisee's account.

E. Franchisee agrees to execute any and all agreements and forms with Franchisor and/or the vendors(s) who supplies services in connection with the Enterprise system, or similar system as may be determined by Franchisor, and the customer gift card program, as may be requested from time to time, provided that all such agreements shall be in substantially the same forms as presented to other It's A Grind franchisees participating in such program. Except as to fees actually paid to Franchisor in connection with the Enterprise system and the customer gift card program, Franchisee agrees to indemnify, defend and hold Franchisor harmless for all obligations and liability of Franchisee in connection with Franchisee's participation in such programs.

F. All transactions in connection with/associated with/relating to or arising out of the gift card program will be reconciled pursuant to Section 8.10 of this Agreement.

5.5 Payment of the Continuing Royalty. National Development Fund, Enterprise

System and Gift Card Program Fees and Other Payments: Electronic Transfer.

A. Unless Franchisor in its discretion specifies otherwise, Franchisee agrees to pay

the Continuing Royalty Fee, the National Development Fund Fee, the Enterprise system, or similar system as may be determined by Franchisor, and gift card program fees and all other fees or payments currently due to Franchisor weekly on each Thursday by pre-authorized electronic debit to Franchisor's bank or other financial institution account in an amount based on Gross Sales for the proceeding calendar week. For purposes of this Agreement, each calendar week shall commence Monday at 12:01 AM and shall end at midnight the following Sunday. (This calendar week is referred to in this Agreement as the "Accounting Period"). Franchisor shall not

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less than quarterly provide an adjustment for any over or under payment of fees paid during the prior period.

B. Franchisee agrees to complete and execute the "Electronic Funds Transfer Agreement" attached to this Agreement as Exhibit Gr2FA-ll and any other form, including, without limitation, an "Electronic Debit Authorization Form," attached to this Agreement as Exhibit GrSFA-III, prescribed by Franchisor in its discretion for the purpose of authorizing an electronic debit, and to submit any information required by Franchisor for such authorization. Franchisee agrees to execute such additional documents and agreements requested by Franchisor from time to time as may be necessary to permit Franchisor to continue to debit electronically Franchisee's bank account. By signing this Agreement, Franchisee gives authorization to permit Franchisor to debit electronically Franchisee's account. Franchisee agrees to maintain an account at a bank or other financial institution that has the capacity to perform electronic debits to its account.

C. Upon Franchisor's request, Franchisee shall submit to Franchisor by 5:00 PM (Pacific Time) on Tuesday of each week a report, in the form specified by Franchisor, that includes Gross Sales figures for the prior Accounting Period. If Franchisor does not timely receive this report, or is unable, for any reason whatsoever, to poll Franchisee's point of sale ("POS") computer system to determine Franchisee's weekly Gross Sales figures, then Franchisor is authorized to withdraw by electronic transfer an amount from Franchisee's bank account for the Continuing Royalty Fee and the National Development Fund Fee with respect to the prior Accounting Period equal to the amount withdrawn for the most recent week plus ten percent (10%) (As an estimate of the Accounting Period's Continuing Royalty Fee and the National Development Fund Fee).

D. Franchisee agrees to install at its expense and use such pre-authorized payment and computerized point of sales systems, credit verification systems, automatic payment systems, electronic"furKis^_transfer systems, or automatic^-blinking system as Franchisor in its discretion may require. This requirement may be specified by Franchisor to fulfill any business purpose reasonably related to the operation of the franchise and the franchise system or to permit Franchisee to make all required payments to Franchisor by automatic bank transfer.

E. Franchisee agrees to maintain account balances sufficient to make all Continuing Royalty Fee payments, National Development Fund Fee payments, Enterprise system, or similar system as may be determined by Franchisor, payments and gift card program payments, and other payments to Franchisor by electronic transfer. Any insufficiency of funds in Franchisee's bank account shall constitute a default in payment pursuant to Section 15.2(2) of this Agreement. Any charges incurred by Franchisor due to a shortage of funds in Franchisee's account shall be promptly reimbursed by Franchisee to Franchisor.

5.6 Interest and Late Charges. Amounts due to Franchisor (except interest on unpaid amounts due) not paid when due shall bear interest from the date due until paid at the lesser of one and one-half percent (1.5%) per month, or the highest rate of interest allowed by law. Franchisor may also recover its reasonable attorneys' fees, costs and other expenses incurred in collecting amounts owed by Franchisee.

5.7 No Accord or Satisfaction: Application of Funds.

A. If Franchisee pays, or Franchisor otherwise receives, a lesser amount than the

full amount due under this Agreement for any payment due hereunder, such payment or receipt shall be applied against the longest outstanding amount due Franchisor. Franchisor may accept any check or payment in any amount without prejudice to Franchisor's right to recover the balance of the amount due or to pursue any other right or remedy. No endorsement or statement on any check or payment or in any letter accompanying any check or payment or elsewhere shall

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constitute or be construed as an accord or satisfaction. Franchisor and any of its affiliates' acceptance of any payments made by Franchisee shall not be construed to be a waiver of any breach or default of any provision in this Agreement.

B. Notwithstanding any designation by Franchisee, Franchisor shall have the sole

discretion to apply any payments made by, or on behalf of, Franchisee (and to apply any amounts owed to Franchisee or any of its affiliates by Franchisor or any of Franchisor's affiliates) to any of Franchisee's past due indebtedness for Continuing Royalty Fees, National Development Fund Fees, Enterprise system fees, gift card program fees and other amounts owing to Franchisor or any of Franchisor's affiliates, interest or any other indebtedness of Franchisee or any of Franchisee's affiliates to Franchisor or any of Franchisor's affiliates. No restrictive endorsement on any check or in any letter or other communications accompanying any payment shall bind Franchisor or any of its affiliates.

6. FRANCHISOR SERVICES

6.1 Site Selection. Letter of Intent and Lease Negotiations. Franchisee is solely responsible for locating, obtaining and evaluating the suitability and prospects of the It's A Grind Store location, and for the review and negotiation of Franchisee's letter of intent and lease. Franchisor shall assist Franchisee in site selection and the review and negotiation of Franchisee's letter of intent and lease by furnishing Franchisee with Franchisor's standard site documents, such as confidential site evaluation criteria, recommended form of letter of intent, "vanilla shell" construction exhibit, key lease points document, and by general consulting with and counseling Franchisee, and, at Franchisor's discretion, conducting field inspections of proposed sites at mutually convenient times. Franchisee must obtain the approval of Franchisor for any site for Franchisee's It's A Grind location. Franchisor agrees not to withhold approval unreasonably of a site that meets its site criteria. Franchisee acknowledges that Franchisee is solely responsible for the selection of a site for Franchisee's It's A Grind Store location and that Franchisor's assistance to Franchisee in the review and negotiation of a letter of intent or lease and Franchisor's approval of a proposed site are permission only and not an assurance or guaranty to Franchisee of the availability, suitability or success of a location, and that participation, consulting or counseling by Franchisor in the site selection, letter of intent or lease process or in making any recommendation to Franchisee as to the selection of any real estate, financial or legal professionals, consultants, architects, engineers or contractors, shall not create any responsibility or liability for Franchisor. Franchisee acknowledges that Franchisee is solely responsible for hiring Franchisee's own real estate, financial and legal professionals, consultants, architects, engineers and contractors to assist Franchisee, and Franchisee agrees to hold Franchisor harmless with respect to the selection of the Authorized Location for Franchisee's It's A Grind Store.

6.2 Unit Development.

A. Franchisee shall be solely responsible for the construction and development of

the It's A Grind Store at the Authorized Location. After Franchisee has executed a lease for the It's A Grind Store, Franchisee shall obtain from Franchisee's te&sorlandlord and submit to an architect designated by Franchisor (the "Franchisor's Architect") detailed, "as built" construction drawings and a detailed site plan of the proposed premises for the It's A Grind Store^, unless such plans and drawings have already been delivered to, or were developed by, Franchisor's Architect. Upon receipt of the construction drawings and site plan, Franchisor will arrange to have Franchisor's Architect provide Franchisee, at Franchisee's sole expense, unless otherwise specified herein, with a preliminary layout and design ("test fit") for the It's A Grind Store. Franchisor has arranged with Franchisor's Architect for a standard fee of Five Hundred Dollars ($500) to be paid by Franchisee for preparation of the "test fit." Notwithstanding the foregoing, Franchisor recommends that Franchisee has a test fit done prior to lease

It's A Grind California - Franchise Agreement - 6/98/16/04

execution, especially if the location is not a standard size or shape for an It's A Grind Store. Upon receipt of the approved test fit by Franchisee, Franchisee shall retain the services of a qualified architect (the "Franchisee's Architect"), approved by Franchisor, at Franchisee's sole expense, to prepare a complete set of site-specific, architectural design drawings, including the mechanical, plumbing, electrical and other applicable plans, (the "architectural drawings") for the It's A Grind Store, which shall be consistent with the test fit and shall be in compliance with Franchisor's standards and specifications. Franchisee shall submit the architectural drawings to Franchisor's Architect for Franchisor's Architect's and Franchisor's approval. Unless otherwise specified herein, Franchisee shall pay Franchisor's Architect a standard fee of One Thousand Five Hundred Dollars ($1,500) for Franchisor's Architect's review of Franchisee's Architectural drawings and for consultations with Franchisee and Franchisee's Architect. Franchisor shall arrange to have Franchisor's Architect, at its offices or at such other location designated by Franchisor, review Franchisee's Architectural drawings. Franchisee agrees to make no changes, alterations or modifications whatsoever to the original test fit without obtaining prior written consent from Franchisor. If there is a conflict between Franchisee and Franchisor regarding the test fit or any other section(s) of the architectural drawings of the It's A Grind Store, Franchisor's recommendations shall control.

B. Franchisor shall recommend that Franchisee utilize the services of Franchisor's Architect to prepare and complete Franchisee's architectural drawings; but Franchisee shall have the option to hire either Franchisor's Architect or Franchisee's Architect to prepare and complete the architectural drawings. If Franchisee elects to use the services of Franchisor's Architect, then Franchisee shall not be required to pay Franchisor's Architect's standard fee of Five Hundred Dollars ($500) for the preparation of the "test fit," and Franchisee shall not be required to pay Franchisor's Architect's standard fee of One Thousand Five Hundred Dollars ($1,500) for the review of Franchisee's architectural drawings and consultations with Franchisee's Architect. In such case, Franchisee shall only pay Franchisor's Architect for the preparation and completion of Franchisee's architectural drawings and other services, as agreed upon directly between Franchisee and Franchisor's Architect.

C. If Franchisee elects not to contract with and use Franchisor's Architect to prepare and complete the architectural drawings, excluding the mechanical, plumbing and engineering, for the It's A Grind Store, for any reason whatsoever, Franchisee shall pay Franchisor's Architect the standard fee of Five Hundred Dollars ($500) for the preparation of the "test fit," and in addition to the "test fit" fee, Franchisee shall pay Franchisor's Architect One Thousand Five Hundred Dollars ($1,500) for the consultation and review of Franchisee's architectural drawings, plus any additional charges by Franchisor's Architect for extraordinary services in excess of those provided in the course of a typical It's A Grind Store construction project.

D. Upon Franchisee's request, Franchisor shall consult and advise Franchisee on obtaining an architect, general contractor, proper display of the Marks and signs, procurement of equipment, furniture, fixtures and initial inventories, and managing construction or remodeling of the It's A Grind Store. After Franchisee has executed a lease for the Authorized Location, Franchisor shall deliver to Franchisee Franchisor's Construction Guidelines and Specifications Manual which includes specifications and standards for construction, equipment, furnishings, fixtures, and signage relating to the Authorized Location and shall provide reasonable consultation in connection with the development of the It's A Grind Store.

6.3 Initial Training. Prior to the opening of the It's A Grind Store and at no charge beyond the Initial Franchise Fee, Franchisor will provide Franchisee and Franchisee's designated manager, if applicable, one (1) initial training course; provided, however, Franchisee and Franchisee's designated manager must attend such course simultaneously. The length of the initial training program shall be two (2) weeks, consisting of a combination of classroom training at Franchisor's headquarters or such other location as designated by Franchisor and on the job

| It's A Grind California - Franchise Agreement - 6/98/16/04-------------------------------------------------

training conducted at Franchisor Owned Stores or such other training facilities designated by Franchisor. The training will cover basic aspects of establishing and operating the It's A Grind Store, including POS Computer System, forms, cost control, purchasing, inventory control and disposition, customer service, marketing, selling skills, employee hiring, training and scheduling procedures, job functions and maintenance of quality standards. All of the required training is mandatory. Franchisee, and its designated manager must satisfactorily complete such course, which includes attendance at all scheduled training days and times, as communicated in advance of the training, within the timeframe established by Franchisor. Franchisee is responsible for all travel, lodging, food, wages, wage related expenses and other expenses in connection with said training for Franchisee and Franchisee's designated manager. Franchisee agrees that it will require all designated managers employed after the initial It's A Grind Store is opened to complete Franchisor's training program within 30 days following the commencement date of employment at a location designated by Franchisor. Franchisee must complete, sign and return | the Electronic Debit Authorization Form (Exhibit GrSFA-lll to this Agreement) and must send in the list of initial training class attendees with their biographies and store positions, prior to Franchisee attending the Initial Training Class. Unless Franchisor consents otherwise in writing, Franchisee shall pay during the Initial Training Program, the Minimum Grand Opening Expenditure, as described below in Section 9.4. Franchisee will be deemed not to have successfully completed the Initial Training Program if the Minimum Grand Opening Expenditure is not paid during Franchisee's scheduled Initial Training Program, unless as otherwise consented in writing by Franchisor.

6.4 Store Opening Training.

A. To facilitate the opening of the It's A Grind Store, Franchisor at its sole expense (except as otherwise provided in this Agreement) shall send at least one (1) of its representatives to the It's A Grind Store to provide ten (10) training days of store opening training for Franchisee and Franchisee's employees. This store opening training generally shall include four (4) days of "pre-opening" training, which Franchisee and Franchisee's designated manager, if applicable, shall complete to Franchisor's satisfaction, prior to opening the Store for business to the public, and six (6) days of "post opening" training, which Franchisee and Franchisee's designated manager, if applicable, shall complete to Franchisor's satisfaction. Franchisor in its discretion may adjust the number of days allocated to either pre-opening or post-opening training depending on Franchisee's training needs and skills. Franchisee agrees to have a "certified operator" (i.e., Franchisee or Franchisee's designated manager, if applicable, who has completed the Initial Training Class to Franchisor's satisfaction) on site at all times during the ten opening training days. Franchisor will determine, in its discretion, the number of representatives to be sent and the actual scheduling of all training. Franchisor shall bear all expenses of Franchisor's representative(s) with respect to the training at the It's A Grind Store. Franchisee shall obtain, and provide Franchisor with a copy of, a Certificate of Occupancy prior to scheduling any store opening training, and, further, Franchisee must meet all of Franchisor's opening training requirements (as set forth by Franchisor in the initial training course, in this Agreement, in the Operations Manual, in other manuals or bulletins or as otherwise communicated to Franchisee) and meet all of Franchisor's initial training requirements (as set forth in this Agreement, the Operations Manual, other manuals, bulletins or otherwise communicated to Franchisee and provided at Franchisor's headquarters or other location specified by Franchisor) prior to the commencement of either the "pre-opening" store training or the "post-opening" store training. Franchisee agrees that Franchisor will not be obligated to commence store opening training, until Franchisee has implemented and paid for all Grand Opening advertising, marketing and promotions approved by Franchisor for the It's A Grind Store at the Authorized Location.

B. If Franchisor sends a representative to Franchisee's It's A Grind Store for the store opening training and Franchisee has not met all of Franchisor's requirements and Franchisor is required to reschedule the store opening training, Franchisee agrees to reimburse

| It's A Grind California - Franchise Agreement - 6/98/16/04--------------------------------------------------

Franchisor for Franchisor's travel, lodging, wage related expenses, off-site food and beverage expenses, plus all other expenses incurred by Franchisor, and, in such case, Franchisor shall reschedule the store opening training at a date and time convenient to Franchisor.

C. If Franchisor sends a representative to Franchisee's It's A Grind Store for the store opening training and Franchisee has not met all of Franchisor's requirements and Franchisor is required to extend the store opening training, in Franchisor's sole discretion, Franchisee agrees to reimburse Franchisor for Franchisor's additional travel, lodging, wage related expenses, off-site food and beverage expenses, plus all other expenses incurred by Franchisor for the extended training period.

6.5 Additional Training. If at any time after completion of the initial training, Franchisee requests additional training for Franchisee or any of its employees or if Franchisee employs a new designated manager, Franchisee shall reimburse Franchisor for its travel, lodging and off-site food and beverage expenses, wages and wage related expenses, plus all other expenses incurred by Franchisor in providing the additional training. Franchisee shall pay all expenses (including, without limitation, travel, food, lodging, wages and wage related expenses) incurred by Franchisee, its employee(s) and/or its designated manager in receiving the training at the location at which the training is provided.

6.6 Operations Manual. Franchisor will lend Franchisee one (1) copy of Franchisor's Operations Manual during the term of this Agreement, which contains mandatory and suggested specifications, standards and operating procedures prescribed by Franchisor. For purposes of this Agreement, the Operations Manual means the entire collection of manuals, guidelines, standards and specifications provided to Franchisee in connection with the development, construction and operation of Franchisee's It's A Grind Store. Franchisee acknowledges that Franchisor may from time to time revise the contents of the Operations Manual, and Franchisee agrees to comply with each new or changed standard and specification upon notice from Franchisor. The Operations Manual shall remain the sole property of Franchisor and shall be kept confidential by Franchisee both during the term of the Franchise and subsequent to the termination, expiration, or non-renewal of this Agreement. In the event of any dispute as to the contents of the Operations Manual, the terms of the master copy of the Operations Manual maintained at Franchisor's principal office shall be controlling.

6.7 Continuing Services. Franchisor shall provide such continuing advisory assistance and information to Franchisee in the operation of the It's A Grind Store as Franchisor deems advisable. Such assistance may be provided, in Franchisor's discretion, by Company directives, Systems bulletins, meetings and seminars, telephone, computer, e-mail, fax, personal visits, newsletters or manuals.

6.8 Approved Lists. Franchisor shall provide and from time to time, add to, alter or delete, at Franchisor's discretion, lists of specifications, approved distributors and suppliers, approved services, products, materials and supplies, and training that may benefit Franchisee in the operation of the It's A Grind Store.

6.9 Pricing. Franchisor may, from time to time, advise or offer guidance to Franchisee relative to prices of products and sen/ices offered by the It's A Grind Store. Such prices are offered as a suggestion only based on an analysis of costs, prices charged for competitive products and services and the experience of the Franchisor and its Franchisees. Franchisee is not obligated to use the "suggested" prices and shall have the sole right to determine the prices to be charged by the It's A Grind Store. In no such instance should Franchisor's "suggested" price be deemed or construed to impose upon Franchisee any obligation to charge any fixed, minimum or maximum prices for any products or services offered by the It's A Grind Store.

| It's A Grind California - Franchise Agreement-6/88/16/04

6.10 Advertising and National Marketing and Development Fund. Franchisor will institute, maintain and administer an Advertising and National Marketing and Development Fund for such advertising or public relations programs as Franchisor, in its discretion, may deem necessary or appropriate to advertise and promote the It's A Grind Stores pursuant to Section 9.2 of this Agreement.

6.11 Local Advertising Assistance. From time to time, Franchisor in its discretion will consult and advise Franchisee relative to the advertising and marketing programs and materials approved for use throughout the It's A Grind Franchise System pursuant to Section 9.3 of this Agreement.

6.12 Grand Opening Advertising Assistance. Franchisor will coordinate with Franchisee in implementing Franchisee's advertising and marketing for the Grand Opening of the It's A Grind Store pursuant to Section 9.4 of this Agreement in accordance with Franchisor's standard Grand Opening plan, as adapted by Franchisor in its discretion to suit Franchisee's particular circumstances. Franchisee acknowledges that Franchisor makes no assurances or guarantees as to the success of any program or the efficacy of any expenditure for Franchisee's Grand Opening and agrees to hold Franchisor harmless for all actions taken and expenditures incurred by Franchisor in the good faith conduct of Franchisee's Grand Opening.

6.13 Franchisor Services. The rendering of any Franchisor consultation, advise, assistance, consent, approval or services set forth in this Agreement does not constitute any assurance or guaranty that such consultation, advise, assistance, consent, approval or services will result in any level of success of Franchisee's business. Any Franchisor services set forth in this Agreement may be provided by Franchisor and/or representative(s) or designee(s) of Franchisor.

7. FACILITY STANDARDS, DEVELOPMENT; LETTER OF INTENT AND LEASE

7.1 Facility Standards. Franchisee acknowledges and agrees that Franchisee's It's A Grind Store must meet the following conditions:

A. The It's A Grind Store shall be laid out, designed, constructed or improved, equipped and furnished, including signage, in accordance with Franchisor's standards and specifications. Equipment, furnishings, fixtures, decor and signs for the It's A Grind Store shall be purchased from suppliers approved by Franchisor. Franchisee may remodel or alter the It's A Grind Store, or change its equipment, signage, furniture or fixtures, only with Franchisor's written consent. Franchisee must obtain necessary permits, licenses and other legal or architectural requirements. The It's A Grind Store shall contain or display only signage that Franchisor has specifically approved or designed, and shall use only the type and style of menu board designated or approved by Franchisor.

B. The It's A Grind Store shall be maintained in accordance with standards and specifications established by Franchisor or prescribed after inspection of the It's A Grind Store. Franchisee shall promptly repair or replace defective or obsolete equipment, signage, fixtures or any other item of the interior or exterior that is in need of repair, refurbishing or redecorating in accordance with such standards established (and updated from time to time) by Franchisor or as may be required by Franchisee's lease.

| C. Franchisor may place in a conspicuous location signage, language and

informational materials, including, without limitation, a brochure rack, on the customer and/or

| condiment counter and various signage and/or language on the front doors and/or windows relating to its franchise opportunities.

It's A Grind California - Franchise Agreement - §/88/16/04

D. The It's A Grind Store shall contain signage prominently identifying Franchisee by name as an independently owned and operated franchisee of Franchisor-------

, in a form and manner determined by Franchisor, in its sole discretion.

E. Franchisee's business and the It's A Grind Store shall be identified only by those Marks approved in writing by Franchisor with at least one outside sign as designated by Franchisor.

7.2 Letter of Intent and Facility Development. ~~Franch~~isoo ~~agr~~ee~~s th~~at after exo~~cut~~i~~ng th~~e lease ~~for th~~e ~~Authoriz~~e~~d Locat~~i~~on, Franchis~~e~~e sha~~l~~l prompt~~l~~y comp~~lete ~~the fo~~l~~low~~i~~ng act~~i~~ons for th~~e ~~It's A Gr~~i~~nd Stor~~e ~~at the Author~~ize~~d Locat~~i~~on at Franchisoo'~~c solo expense:

-----------A,--------Franchisee shall ~~prov~~ide Fra~~nch~~isor^ ~~Archit~~e~~ct with lessor's d~~e~~tail~~ed, "ac built"

~~construct~~i~~on dr~~a~~wings, a detai~~le~~d s~~ite pla~~n, and l~~ess~~or's approv~~ed si~~gn crit~~eri~~a for th~~e

A. Franchisee agrees that prior to submitting a Letter of Intent (LOI) to the landlord for the proposed leased premises for the It's A Grind Store ~~at tho Author~~ized (the "Location"), Franchisee shall complete the following actions at Franchisee's sole cost and expense:

1. Franchisee shall submit the LOI for the Location to Franchisor for Franchisor's written approval;

2. Franchisee shall provide Franchisor and Franchisor's sign contractor with landlord's approved sign criteria for the Location;

3. Franchisee shall ensure that there is language in the LOI that requires the Approved Sign Criteria and Approved Sign Plan, as both are defined below, to be incorporated into the Lease as executed between Franchisee and landlord for the Location.

4. Franchisee shall obtain Franchisor's advance written approval of the LOI as it is to be executed between Franchisee and landlord of the Location. Franchisor will not withhold consent arbitrarily; however, Franchisee agrees that any LOI shall include substantially the provisions specified by Franchisor and Franchisor's Approved Sign Criteria, as defined below.

B. Prior to execution of the lease Franchisee shall obtain an It's A Grind sign drawing that meets all of Franchisor's specifications and is specific to the Location (the "Approved Sign Criteria"). If Franchisee does not retain Franchisor's designated sign contractor to construct and install Franchisee's sign(s), Franchisee shall pay Franchisor's designated sign contractor Five Hundred Dollars ($500) for the review of Franchisee's sign drawings and for related consultations. Franchisee shall, at Franchisee's sole cost and expense, immediately remove and replace any sign at the It's A Grind Store Authorized Location that does not meet Franchisor's Approved Sign Criteria and Approved Sign Plan, as defined below in this Section. In addition to the Approved Sign Criteria there shall be developed, a conceptual, visual sign as it would appear on the It's A Grind Store, including the logo, graphics, color and dimensions, and the same shall be submitted to Franchisor for its advance written approval. Franchisee shall also submit such proposed sign to Franchisor's designated sign contractor, if Franchisee has employed an alternative sign contractor. Franchisee agrees to make such corrections and/or modifications to the sign as may be required by Franchisor, in its sole discretion, and to obtain a final approved sign plan from Franchisor and/or its designee (the "Approved Sign Plan"). The Franchisee

| It's A Grind California -

Franchise Agreement - 6/98/16/04

shall then cause the Approved Sign Criteria and Approved Sign Plan to be incorporated into the lease executed by Franchisee and landlord for the Authorized Location.

C. Franchisee agrees that after executing the lease for the Authorized Location, Franchisee shall promptly complete the following actions for the It's A Grind Store at the Authorized Location at Franchisee's sole expense:

1. Franchisee shall provide Franchisor's Architect with landlord's detailed, "as built" construction drawings and a detailed site plan for the leased premises for the It's A Grind Store at the Authorized Location;

2. Franchisee shall obtain a preliminary store layout and design (the "test fit"), for the It's A Grind Store and a Construction and Guideline Specifications Manual from Franchisor's Architect and a site specific It's A Grind sign plan meeting all Franchisor's specifications from an approved sign vendor; and unless Franchisee retains Franchisor's Architect to prepare Franchisee's architectural drawings (in lieu of retaining Franchisee's Architect), Franchisee shall pay Franchisor's Architect's standard fee of Five Hundred Dollars ($500) for the preparation of the test fit;

-----------Q-.-------- 3. If Franchisee does not employ Franchisor's Architect,

Franchisee shall employ Franchisee's Architect (who shall be approved by Franchisor), as required by state or local codes, to prepare, in accordance with Franchisor's specifications and standards all requisite drawings, designs, plans and specifications for the It's A Grind Store;

©4. Franchisee shall submit to Franchisor, Franchisor's Architect, tessoflandlord, and local authorities for approval all requisite drawings, designs, plans and specifications, including, without limitation, signage, prepared by such architect; and unless Franchisee retains Franchisor's Architect to prepare Franchisee's architectural drawings (in lieu of retaining Franchisee's Architect), Franchisee shall pay Franchisor's Architect's standard fee of One Thousand Five Hundred Dollars ($1,500) for review of Franchisee's architectural drawings and for related consultations;

�5. Franchisee shall obtain approval of such requisite drawings, designs, plans and specifications~~, inc~~l~~uding, w~~i~~thout~~ limi~~tat~~i~~on, signag~~e, from Franchisor, Franchisor's Architect, lesser-landlord, Franchisor's sign contractor and local authorities prior to commencement of construction of the It's A Grind Store;

�6. Franchisee shall employ a Franchisor approved, licensed general contractor to construct or remodel the It's A Grind Store in accordance with the approved requisite drawings, designs, plans and specifications, incl~~uding~~ s~~ignag~~e;

Gt7. Franchisee shall obtain all permits and certifications required for lawful construction and operation of the It's A Grind Store, including, without limitation, zoning, building, access, sign, fire and health requirements;

HB. Franchisee shall obtain or require the general contractor to obtain payment and performance bonds;

49. Franchisee shall obtain all customary contractor's sworn statements and partial

and final waivers of lien for construction, remodeling, decorating and installation services for the It's A Grind Store;

J10. Franchisee shall obtain or have the general contractor obtain builders risk Insurance naming Franchisee as a loss payee;

It's A Grind California - Franchise Agreement - 6/98/16/04

11. Franchisee shall start and complete the construction or remodeling of the It's A Grind Store in full and strict compliance with plans and specifications, including, without limitation, the Approved Sign Plan and any signage specifications approved by Franchisor, Franchisor's Architect, lessoflandlord, Franchisor's sign contractor and local authorities and with all applicable ordinances, building codes and permit requirements;

| 1=12. Franchisee shall purchase or lease, in accordance with Franchisor's standards

and specifications and from suppliers approved by Franchisor, all equipment, furniture, fixtures, menu boards, inventory, supplies and signs required for the It's A Grind Store;

| M13. Franchisee shall hire and train the initial operating personnel in accordance with

Franchisor's standards and specifications;

| N14. Franchisee shall complete development of and have the It's A Grind Store open

for regular, continuous business not later than eighteen (18) months after the date that Franchisor accepts this Agreement; and

for business, furnish to Franchisor an itemized breakdown of the costs incurred by Franchisee in developing the It's A Grind Store, including, without limitation, design, construction, equipment, furniture, fixtures, signage, inventory and supplies.

I 7.3 ~~Lottor of~~ I~~ntont~~ and Franchisee's Lease.

A. (1) Franchisee acknowledges and agrees that Franchisee is solely responsible

for leasing a suitable site for the It's A Grind Store. Franchisee ~~must subm~~i~~t a Lett~~e~~r of~~ Into~~nt (th~~o ~~"LO~~I~~") for th~~o It's ~~A Gr~~i~~nd Stor~~e ~~to Franchisor for~~ i~~ts wr~~itte~~n con~~se~~nt b~~e~~for~~e Fra~~nchis~~ee exe~~cut~~e~~s th~~e ~~LOI o~~r receives a lea~~se for th~~e ~~Authorized Loc~~ation. ~~Franch~~isor will ~~not w~~i~~thho~~l~~d cons~~ent arbitraril~~y; how~~e~~ver, Franchis~~ee ~~agr~~ees tha~~t any LO~~I ~~sha~~ll include ~~substant~~i~~ally tho prov~~isi~~ons~~ spe~~cif~~ie~~d by Franch~~i~~sor. Franchisee a~~cknowledges and agrees (a) that the te~~rms~~ Franchisor's Approved Sign Criteria, Approved Sign Plan and recommended ~~by Franch~~i~~sor ar~~e and/or required LOI or lease terms are important for the successful operation of Franchisee's business; (b) that although Franchisor may advise and consult with Franchisee regarding the site selection, the LOI and the lease, Franchisee shall hold. Franchisor harmless with respect to Franchisee's selection of a site and for the terms of the LOI and lease negotiated by Franchisee, and (c) that it is Franchisee's sole responsibility to negotiate the LOI and the lease for Franchisee's It's A Grind Store, according to terms acceptable to Franchisee.

| (2) Franchisee must atee-submit the lease for the It's A Grind Store to

Franchisor for its written consent before Franchisee executes the lease for the Authorized Location. Franchisor will not withhold consent arbitrarily; however, Franchisee agrees that in addition to provisions generally recommended by Franchisor, and the Approved Sign Criteria and Approved Sign Plan required by Franchisor, there will be a provision incorporating a lease rider granting Franchisor or its designee rights to the conditional assignment of the lease, which shall provide that Franchisor (or its designee) may, upon termination, expiration or nonrenewal of this Agreement or a default by Franchisee under the lease, at Franchisor's sole option, take an assignment of Franchisee's interest thereunder, without the consent of the

| lessoflandlord or property owner, without payment of additional consideration or increase in rent, and at any time thereafter, reassign the lease to a new franchisee; and other provisions requested by Franchisor, all of which provisions shall be in a form reasonably acceptable to Franchisor. Franchisor's execution of this Agreement is conditioned upon Franchisee obtaining the above-referenced lease rider in each lease for the It's A Grind Store, which shall be signed by

| Franchisee, lessoflandlord and Franchisor and attached and made part of the lease for the It's A

I It's A Grind California - Franchise Agreement-6/98/16/04

Grind Store. Franchisee acknowledges and agrees that the execution of such a lease rider in a form acceptable to Franchisor is a material obligation of Franchisee under this Agreements and does not convey any obligations or requirements upon Franchisor relative to the terms and/or conditions in the lease. Franchisor may choose, in its sole discretion and in lieu of the lease rider, to approve a lease form containing the exact terms of the lease rider..

B. Franchisee may not terminate, renew or in anyway alter or amend the lease for the It's A Grind Store during the term thereof, or any renewal term thereof, without Franchisor's written consent, except as otherwise provided in this Agreement. Franchisee may not sublicense or assign rights granted in this Agreement except in accordance with Article 14.

C. Franchisee's execution of a lease for the It's A Grind Store shall constitute: (1) acceptance by Franchisee of such site and location and the terms of such lease; and (2) waiver of any claim or right against Franchisor relating to the choice of such site and location or the terms of such lease.

D. Franchisee shall provide Franchisor with a copy of Franchisee's fully executed lease with all exhibits and attachments thereto for the It's A Grind Store promptly after execution.

E. Franchisee acknowledges that Franchisee has been advised to have any lease reviewed by Franchisee's own legal counsel.

7.4 Franchisee Responsibility. Notwithstanding the foregoing, Franchisee acknowledges and agrees that although Franchisor and/or Franchisor's Architect and/or Franchisor's sign contractor may provide Franchisee with various standard or sample plans, guidelines, and specifications, and-a store layout and design (test fit)-), Franchisor's Approved Sign Criteria and site specific sign drawings (collectively referred to as the "store development information") with respect to constructing, furnishing and equipping an It's A Grind Store, and although Franchisor may recommend various architects, contractors and other consultants and professionals, it is Franchisee's sole responsibility to retain Franchisee's own architects, contractors, consultants and professionals and to construct, furnish and equip, including signage, the It's A Grind Store in compliance with all applicable federal, state and local laws and regulations, including, without limitation, all building codes, fire and safety codes, environmental laws, Occupational Safety and Health Administration laws, health laws, sanitation iaws, Americans with Disabilities Act and any other requirements that may be prescribed by any federal, state or local governmental agency. Franchisor makes no representations or warranties that any of the store plans, specifications, guidelines or other development information provided to Franchisee comply with such laws and regulations. Franchisee agrees to indemnify, defend, and hold harmless Franchisor and Franchisor's affiliated companies, and the officers, directors, shareholders, managers, members, employees, agents, attorneys and representatives of Franchisor and each such affiliated company (collectively referred to as the "Franchisor Affiliates"), and Franchisor's Architect and Franchisor's sign contractor with respect to claims, damages or liability arising with respect to the selection of any architect, contractor, consultant or professional retained by Franchisee or with respect to any store plans, specifications, guidelines or other development information provided by Franchisor, Franchisor's Architect, Franchisor's sign contractor or other representatives of Franchisor and with respect to the constructing, furnishing and equipping, including signage, of Franchisee's It's A Grind Store.

8. FACILITY IMAGE AND OPERATING STANDARDS.

8.1 Compliance. Franchisee acknowledges and agrees that every detail regarding the appearance and operation of the It's A Grind Store is important to Franchisee, the System and other It's A Grind franchisees in order to maintain high and uniform operating standards, to

It's A Grind California - Franchise Agreement - &S8/16/04

increase demand for the products and services sold by all franchisees, and to protect It's A Grind's reputation and goodwill, and accordingly, Franchisee agrees to comply strictly at all times with the requirements of this Agreement and Franchisor's standards and specifications, (whether contained in the Operations Manual or any other written or oral communication to Franchisee by Franchisor) relating to the appearance or operation of the It's A Grind Store. Franchisee further agrees to promptly implement any changes in operational and facility requirements when prescribed by Franchisor, even should additional investment or expenditures be required. Franchisee acknowledges that other It's A Grind Stores may operate under different forms of agreement with Franchisor, and that the rights and obligations of parties to other agreements may differ from those hereunder.

8.2 Franchisor's Right to Inspection. To determine whether Franchisee is complying with this Agreement and Franchisor's standards and specifications, Franchisor reserves the right to supervise, determine and approve the standards of appearance, quality and service pertinent to the It's A Grind Store including, without limitation, the right at any reasonable time and without prior notice to Franchisee to: (i) inspect and examine the business premises, equipment, facilities and operation of the It's A Grind Store; (ii) interview Franchisee and Franchisee's employees; (iii) interview Franchisee's customers, suppliers and any other person with whom Franchisee does business; and (iv) confer with members and staff of government agencies with authority over Franchisee about matters relevant to the It's A Grind Store.

8.3 Franchisor's Notice of Deficiency. If at anytime in Franchisor's sole judgment Franchisee fails to comply with this Agreement or Franchisor's standards and specifications, Franchisor shall notify Franchisee specifying both the time period and the action to be taken by Franchisee to correct such non-compliance. If Franchisee fails or refuses to correct the noncompliance within the required period of time, Franchisor has the right, in addition to all other remedies, to take such corrective action as is, in the sole determination of Franchisor, necessary and appropriate to bring the It's A Grind Store in compliance with Franchisor's specifications, standards, methods, policies and procedures, and Franchisee shall pay the entire cost thereof to Franchisor on demand.

8.4 Adherence to Good Business Practices. Franchisee shall adhere to good business practices, observing high standards of honesty, integrity, fair dealing and ethical business conduct in all business dealings with customers, employees, vendors and Franchisor.

8.5 Personnel. Franchisee agrees to employ in the operation of the It's A Grind Store only persons of high character and ability who maintain and exhibit traits of enthusiasm, cleanliness, neatness, friendliness, honesty and loyalty, it being recognized by Franchisee that such persons are necessary in order to promote and maintain customer satisfaction and the goodwill of It's A Grind Stores. Franchisee agrees to staff the It's A Grind Store at all times with a sufficient number of qualified, competent personnel who have been trained in accordance with Franchisor's standards and who shall wear Franchisor approved uniforms during working hours. Franchisee shall be the employer of employees of the It's A Grind Store, and shall have the sole right to hire, discipline, discharge and establish wages, hours, benefits, employment policies and other terms and conditions of employment. Franchisor shall have no responsibility for the terms and conditions of employment of Franchisee's employees. Franchisee shall engage in no discriminatory employment practices and shall in every way comply with all applicable laws, rules and regulations of federal, state and local governmental agencies. Franchisee agrees to make all necessary filings with, and to pay all taxes and fees due to, the Internal Revenue Service and all other federal, state and local governmental agencies or entities to which filings and payments are required.

8.6 Products and Services to be Offered for Sale.

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A. Franchisee acknowledges that the presentation of a uniform image to the public and the offering of uniform product lines is an essential element of a successful franchise system. In order to insure consistency, quality and uniformity throughout the System, Franchisee agrees to sell or offer for sale only items, products and services which have been expressly approved for sale by Franchisor; agrees to sell or offer for sale all menu items, products and services required by Franchisor; agrees to not deviate from Franchisor's methods, standards and specifications regarding, without limitation, ingredients, methods of preparation and service, and weight, quality and dimensions of products served; and agrees to discontinue selling and offering for sale any menu items, products or services that Franchisor may, in its discretion, disapprove at any time. Franchisor will assist Franchisee in obtaining items, products and services that conform to Franchisor's quality standards and specifications. Franchisor shall supply Franchisee with a list of suppliers from which Franchisee is required to purchase items, products or services for the It's A Grind Store. Franchisor may change this list from time to time and upon notification to Franchisee, and Franchisee shall only purchase items, products or services from approved suppliers as specified on the changed list. All of the packaging materials, paper and plastic products used in the operation of the Store that are available imprinted must be imprinted with the Marks and other insignias as prescribed by Franchisor from time to time. Franchisee agrees to keep the It's A Grind Store well stocked and be able at all times during business hours to provide customers with all menu items specified by Franchisor. Franchisor shall determine at its discretion whether Franchisee is adequately stocked.

B. In order to maintain consistency of product, quality, taste and identity of coffee and coffee products, the Franchisee agrees that all coffee and coffee products, except those coffee or coffee products specifically approved in writing by Franchisor, must be purchased exclusively from suppliers designated or approved by Franchisor.

C. If Franchisee proposes to offer for sale any items, products or services which have not been approved by Franchisor, Franchisee shall first notify the Franchisor in writing and submit sufficient information, specifications and samples concerning such product and/or supplier and/or service for a determination by the Franchisor whether such product or supplier or service complies with the Franchisor's specifications and standards and/or whether such supplier meets the Franchisor's approved supplier criteria. Franchisor shall, within ninety (90) days, notify Franchisee whether or not such proposed product and/or supplier or service is approved, as determined in Franchisor's discretion. Franchisor may from time to time prescribe procedures for the submission of requests for approved products and/or suppliers or services and obligations that approved suppliers must assume (which may be incorporated in a written agreement to be executed by approved suppliers). Franchisor reserves the right to revoke its approval of a previously authorized supplier, product or service when Franchisor determines in its discretion that such supplier, product or service is not meeting the specifications and standards established by Franchisor. If Franchisor modifies its list of approved products, and/or suppliers and/or services, Franchisee shall not, after receipt in writing of such modification, reorder any product or utilize any supplier, product or service that is no longer approved.

D. Franchisee acknowledges and agrees that the offer or sale of any products or services not approved by Franchisor shall constitute a material breach of this Agreement.

E. Franchisee acknowledges and agrees that Franchisor may become an approved or designated supplier for all coffee and coffee products, logo items, menu boards, furniture, in store signage and artwork, POS related computer software and database management systems, etc., that Franchisor may derive income from the sale of such items and that the price charged by Franchisor may reflect an ordinary and reasonable profit consistent with a business of the kind that produces and/or supplies such items.

8.7 Compliance with Laws.

It's A Grind California - Franchise Agreement - §/98/16/04

A. Franchisee agrees to comply with all federal, state and local laws, rules, and regulations and shall as soon as practicable, but in any event prior to the opening for business of the It's A Grind Store, obtain all municipal and state permits, certificates or licenses necessary to operate the It's A Grind Store and shall file and publish, if required by applicable law, a certificate of doing business (whether under a fictitious name or otherwise). Franchisee shall make all such permits, licenses and certificates available for inspection by representatives of Franchisor prior to the opening for business of the It's A Grind Store and thereafter at all times during Franchisee's business hours. Franchisee shall operate and maintain the It's A Grind Store in strict compliance with all building codes, fire and safety codes, environmental laws, Occupational Safety and Health Administration laws, health laws, sanitation laws, Americans with Disabilities Act and any other requirements that may be prescribed by any federal, state or local governmental agency. Franchisee agrees to provide immediately Franchisor with a copy of any notice received by Franchisee from any state, local or governmental agency pertaining to compliance with any codes or requirements, or the failure to comply with any codes or requirements, at the It's A Grind Store. Franchisee must at all times be current in its knowledge and understanding of all laws as they relate to the operation of the It's A Grind Store.

B. Franchisee shall manage the It's A Grind Store and its staff in compliance with all laws, the Operations Manual and any other general policies as prescribed by Franchisor. Franchisee agrees to abide by all employment laws, including, without limitation, Title VII of the Civil Rights Act, Family and Medical Leave Act, Americans With Disabilities Act, Consolidated Omnibus Budget Reconciliation Act, Fair Labor Standards Act, all state wage and hour laws, Internal Revenue Code and the immigration laws. Franchisor may from time to time provide information or training to assist Franchisee in gaining knowledge about applicable laws, but this does not in any way relieve Franchisee of its full responsibility and sole obligation to comply with such laws.

8.8 Operational Efforts. Franchisee shall apply Franchisee's best efforts to the development, management and operation of the It's A Grind Store and shall at all times, faithfully, honestly and diligently perform Franchisee's obligations as outlined in this Agreement. Franchisee may hire a designated manager to assume the direct, day-to-day, full time supervision responsibilities of the It's A Grind Store. Franchisee and Franchisee's designated manager must attend and successfully complete Franchisor's training program. Franchisee agrees to keep the It's A Grind Store opened for the hours stated in the Operations Manual and as deemed appropriate by Franchisor.

8.9 Communications. Franchisee agrees during the term of this Agreement and at Franchisee's sole expense, to maintain Internet access and, to use an It's A Grind assigned e-mail address and a fax number for purposes of communicating with Franchisor and other persons regarding Franchisee's business. Franchisee agrees to check Franchisee's e-mail and fax on a daily basis (except for weekends) and respond promptly to all e-mail, fax and other communications. Franchisee agrees to install and maintain a high speed internet connection with a minimum upload rate of 156K baud, i.e., DSL, cable-modem or comparable connection that allows real-time communications between Franchisee and Franchisor regarding Franchisee's POS computer system and security camera system.

8.10 POS Computer System; Gift Card Program Transactions: Security Systems: Technology.

A. Franchisee agrees to use the POS computer system and software programs that

are approved by Franchisor and to operate the same so that it is fully compatible with Franchisor's network computer system. Franchisee agrees to obtain and operate the equipment at Franchisee's sole expense. Franchisee agrees to grant Franchisor full, independent access to

| It's A Grind California - Franchise Agreement - 6/98/16/04-------------------------------------------------

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