EX-10.88 FRANCHISE AGREEMENT

 

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                                                                   EXHIBIT 10.88

 

                              SEATTLE'S BEST COFFEE

                               FRANCHISE AGREEMENT

 

                                     BETWEEN

 

                    CINNABON, INC., SUCCESSOR IN INTEREST TO

                           SEATTLE'S BEST COFFEE, LLC

 

                                       AND

 

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

 

                                                                Unit No.: ______

                                                           Dev. Agr. No.: ______

                                                            Dated: _____________

 

                                                             [ ] Cafe  [ ] Kiosk

 

                                                   [ ]Trad. Ven. [ ]Captive Ven.

 

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                              SEATTLE'S BEST COFFEE

                               FRANCHISE AGREEMENT

 

         THIS AGREEMENT (the "Agreement") is made this _______ day of

_________________, 200___, by and between CINNABON, INC., SUCCESSOR IN INTEREST

TO SEATTLE'S BEST COFFEE, LLC, a Washington corporation, with offices at Six

Concourse Parkway, Suite 1700, Atlanta, Georgia, 30328-5352 U.S.A. ("Franchisor"

or "SEATTLE'S BEST COFFEE") and _______ , [jointly and severally where more than

one], ("Franchisee").

 

                                   WITNESSETH:

 

         WHEREAS, Seattle's Best Coffee, LLC has developed and owns a unique and

distinctive system for the development, establishment and operation of retail

Cafes ("SBC Cafes") and Kiosks ("SBC Kiosks") (collectively, "SBC RETAIL UNITS")

specializing in the preparation and sale of specialty coffee beverages,

proprietary coffee products and other menu items developed and owned by

Franchisor (the "Seattle's Best Coffee System", "SBC System" or "System");

 

         WHEREAS, the distinguishing characteristics of the SBC SYSTEM include,

without limitation, the name "SEATTLE'S BEST COFFEE"; distinctive interior and

exterior design and layouts, decor, color schemes, and furnishings; confidential

food formulae and recipes used in the preparation of food products, formulas and

specifications for preparing specialty coffee drinks and other coffee and

non-coffee-based products; specialized menus; standards and specifications for

equipment, equipment layouts, products, operating procedures, and management

programs, all of which may be changed, improved, and further developed by

Franchisor from time to time;

 

         WHEREAS, Franchisor identifies the SBC SYSTEM by means of certain trade

names, service marks, trademarks, logos, emblems, and other indicia of origin,

including, but not limited to, the marks "SEATTLE'S BEST COFFEE", "SBC" and such

other trade names, service marks, trademarks and trade dress as are now, or may

hereafter, be designated by Franchisor for use in connection with the SBC SYSTEM

(collectively referred to as the "Proprietary Marks");

 

         WHEREAS, pursuant to a Master License Agreement and First Amendment

thereto, both dated July 13, 2003, by and between Cinnabon Inc., SBC and Seattle

Coffee Company, SBC granted a license to CBI for the use of the SBC System and

proprietary marks in performing its obligations under this Agreement;

 

         WHEREAS, Franchisor continues to develop, use, and control the use of

such Proprietary Marks in order to identify for the public the source of

services and products marketed thereunder in the SBC SYSTEM and to represent the

System's high standards of quality, appearance, and service;

 

         WHEREAS, Franchisee wishes to be assisted, trained, and licensed by

Franchisor as an SBC franchisee and licensed to use, in connection therewith,

the SBC SYSTEM and to continuously operate one SBC Retail Unit at the location

specified in Section 1.01 herein (the "Franchised Location");

 

         WHEREAS, Franchisee understands the importance of the SBC SYSTEM and

SEATTLE'S BEST COFFEE'S high and uniform standards of quality, cleanliness,

appearance, and service, and the necessity of opening and operating SBC RETAIL

UNITS in conformity with the SBC SYSTEM;

 

         NOW, THEREFORE, the parties hereto agree as follows:

 

I.                APPOINTMENT

 

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         1.01.    Franchisor grants to Franchisee a franchise to open and

operate an SBC Unit (the "Franchised Unit", or "Franchised Business") at one

location only, such location to be described as:

 

STORE NUMBER:

 

FRANCHISED

LOCATION:

 

UNIT FORMAT:      [ ] SBC Cafe            [ ] SBC Kiosk

 

                  [ ] Traditional Venue   [ ] Captive Venue

 

upon the terms and conditions herein contained and subject to the terms and

conditions contained in the development agreement between Franchisor and

Franchisee, dated _________, (the "Development Agreement"), which is

incorporated herein by reference; and a license to use in connection therewith

Franchisor's Proprietary Marks and the SBC SYSTEM. Franchisee may not operate

the Franchised Unit at any site other than the Franchised Location.

 

         1.02.    Except as otherwise set forth herein, (a) the franchise

granted to Franchisee under this Agreement is non-exclusive, and grants to

Franchisee the rights to establish and operate the Franchised Unit at only the

specific location set forth hereinabove, (b) no exclusive, protected or other

territorial rights in the contiguous area or market of such Franchised Unit or

otherwise is hereby granted or to be inferred and (c) Franchisor and/or its

affiliates have the right to operate and grant as many other franchises for the

operation of SBC Retail Units, anywhere in the world, as they shall, in their

sole discretion, elect. In addition to the foregoing, Franchisor may sell SBC

brand coffee and related coffee products anywhere, including, but not limited

to, sales on the Internet, by mail order, or through wholesale distribution

channels, including, but not limited to independent coffee retailers, department

stores, food marts, restaurants, cafes and grocery stores, during and after the

term of this Agreement ("Wholesale Accounts"). Wholesale Accounts of Franchisor

may, in return, sell SBC coffee and related products under the same or different

trademarks.

 

         1.03.    Nothing herein shall be deemed to be a grant to Franchisee of

any rights as a commercial agent or distributor of SBC Coffee and/or coffee

products in any jurisdiction. Franchisor reserves the right, in its sole

discretion, to grant such rights to any third party, during or after the term of

this Agreement. Franchisee may not sell any SBC Coffee Products (as defined

herein) and/or any other materials, supplies, or inventory bearing the

Proprietary Marks anywhere except at the SBC Retail Unit, without SBC's prior

written consent. Franchisee shall specifically be prohibited from selling any

such items at wholesale, except as specifically agreed to, in writing, by

Franchisor. The foregoing restriction shall not apply to catering events and/or

the offer of samples of SBC coffee products at or directly in front of the

Franchised Unit.

 

         1.04.    Franchisee acknowledges that, over time, Franchisor has

entered, and will continue to enter, into franchise agreements with other

franchisees that may contain provisions, conditions and obligations that differ

from those contained in this Agreement, including, without limitation, franchise

agreements for the operation of SBC Retail Units. The existence of different

forms of agreement and the fact that Franchisor and other franchisees may have

different rights and obligations does not affect the parties' duty to comply

with the terms of this Agreement.

 

II.               TERM

 

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         2.01.    Except as otherwise provided in this Agreement, the initial

term of this Franchise Agreement (the "Term") shall expire on the tenth (10th)

anniversary of the date of commencement of operation of the Franchised Unit. For

all purposes under this Agreement, the date of commencement of operation of the

Franchised Unit shall be the date verified in writing by Franchisor and

delivered to Franchisee in a form substantially similar to the "Notice" attached

hereto as Exhibit "A". Franchisee agrees and shall be obligated to operate the

Franchised Unit and perform hereunder for the full Term of this Agreement.

 

         2.02.    Franchisee may, at its option, renew this franchise for one

(1) additional period of five (5) years, provided that, at the time of such

renewal:

 

                  A.       Franchisee gives Franchisor written notice of such

                           election to renew not less than six (6) months nor

                           more than twelve (12) months prior to the end of the

                           then-current term. Failure by Franchisee to timely

                           provide Franchisor the required notice constitutes a

                           waiver by Franchisee of its option to remain a

                           franchisee beyond the expiration of the Initial Term

                           or the first Renewal Term;

 

                  B.       Franchisee executes Franchisor's then-current

                           standard form of franchise agreement, which may

                           include, without limitation, a higher royalty fee and

                           a higher advertising contribution, if any, than that

                           contained in this Agreement; and the term of which

                           shall be the renewal term as specified in Section

                           2.02. hereof, but shall contain no further renewal

                           rights;

 

                  C.       Franchisee shall execute a general release and a

                           covenant not to sue, in a form satisfactory to

                           Franchisor, of any and all claims against Franchisor

                           and its subsidiaries and affiliates, and their

                           respective past and present officers, directors,

                           shareholders, agents and employees, in their

                           corporate and individual capacities, including,

                           without limitation, claims arising under federal,

                           state and local laws, rules and ordinances, and

                           claims arising out of, or relating to, this

                           Agreement, any other agreements between Franchisee

                           and Franchisor and Franchisee's operation of the

                           Franchised Unit and/or other SBC Retail Units

                           operated by Franchisee;

 

                  D.       Franchisee is not in default under this Agreement or

                           any other agreements between Franchisee and

                           Franchisor (or any parent, subsidiary or affiliate of

                           Franchisor), and Franchisee has fully and faithfully

                           performed all of Franchisee's obligations throughout

                           the term of this Agreement; Franchisee is not in

                           default beyond the applicable cure period under any

                           real estate lease, equipment lease or financing

                           instrument relating to the Franchised Unit;

                           Franchisee is not in default beyond the applicable

                           cure period with any vendor or supplier to the

                           Franchised Unit; and, Franchisee shall not have been

                           in default beyond the applicable cure period under

                           this Agreement or any other agreements between

                           Franchisor and Franchisee more than 3 times during

                           the period 12 months before the date of Franchisee's

                           notice and 12 months before the expiration of the

                           Initial Term;

 

                  E.       Franchisee has paid or otherwise satisfied all

                           monetary obligations owed by Franchisee to Franchisor

                           and its subsidiaries and affiliates and any

                           indebtedness of Franchisee which is guaranteed by

                           Franchisor, and Franchisee has timely paid or

                           otherwise satisfied these obligations throughout the

                           term of this Agreement;

 

                  F.       Franchisee agrees, at its sole cost and expense, to

                           reimage, renovate, refurbish and modernize the

                           Franchised Unit, within the time frame required by

                           Franchisor, including the building design, parking

                           lot, landscaping, equipment, signs, interior and

                           exterior decor items, fixtures, furnishings, trade

                           dress, color scheme, presentation of trademarks

 

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                           and service marks, supplies and other products and

                           materials to meet Franchisor's then-current

                           standards, specifications and design criteria for SBC

                           RETAIL UNITS , as contained in the then-current

                           franchise agreement, Confidential Operating Standards

                           Manual (as defined herein), or otherwise in writing,

                           including, without limitation, such structural

                           changes, remodeling and redecoration and such

                           modifications to existing improvement as may be

                           necessary to do so;

 

                  G.       Franchisee shall pay to Franchisor a renewal fee

                           equal to fifty percent (50%) of Franchisor's standard

                           initial franchise fee in effect at the date of

                           renewal.

 

                  H.       Franchisee and its employees at the Franchised Unit

                           shall be in compliance with the then-current SBC

                           System training requirements.

 

                  I.       Franchisee has the right to remain in possession of

                           the premises of the Franchised Unit, or other

                           premises acceptable to Franchisor, for the Renewal

                           Term and all monetary obligations owed to

                           Franchisee's landlord must be current.

 

                  J.       As determined by Franchisor in its sole discretion,

                           Franchisee has operated the Franchised Unit in

                           accordance with this Agreement and the SBC System (as

                           set forth in the Manual or otherwise in writing and

                           as revised from time to time) and has operated all of

                           its other SBC Retail Units that are franchised by

                           Franchisor in accordance with the applicable

                           franchise agreements.

 

III.              FEES

 

         3.01.    In consideration of the franchise granted to Franchisee

herein, Franchisee shall pay to the Franchisor the following:

 

                  A.       A franchise fee of ___________THOUSAND DOLLARS

                           ($_________) payable upon execution of this Agreement

                           by Franchisee, less __________ Dollars ($________),

                           representing the portion of the Development Fee (as

                           defined in the Development Agreement), applicable to

                           the Franchise Fee payable hereunder. Such franchise

                           fee shall be fully earned by Franchisor upon

                           execution of this Agreement by Franchisee and is in

                           addition to any development fees paid to Franchisor

                           by Franchisee.

 

                  B.       A recurring, non-refundable royalty fee of FOUR

                           PERCENT (4%) of Gross Sales (as defined herein)

                           during the term of this Agreement, payable weekly, on

                           the Gross Sales of the preceding week (or on such

                           other basis as may be set forth in the Confidential

                           Operating Standards Manual (as defined herein) or

                           otherwise agreed to in writing by Franchisor). Upon

                           thirty (30) days prior written notice, Franchisor may

                           require Franchisee to authorize Franchisor to make

                           electronic debits from Franchisee's operating account

                           as a means of paying the royalty fee.

 

         3.02.    In addition to the payments provided for in Section 3.01.

hereof, Franchisee, recognizing the value of advertising and the importance of

the standardization of advertising and promotion to the goodwill and public

image of the System, agrees to pay to the SEATTLE'S BEST COFFEE national

marketing fund (the "NMF", f/k/a "NCP Fund") a recurring, non-refundable

contribution ("NMF Contribution", f/k/a "NCP Fund Contribution") in an amount to

be determined by Franchisor, in its sole discretion, up to [ ] THREE PERCENT

(3%) [ ] ONE PERCENT (1%) of the Gross Sales of the Franchised Unit, payable

weekly, for the preceding week (or on such other basis as may be set forth in

the Confidential Operating Standards Manual or otherwise agreed to in writing by

Franchisor). Upon thirty (30) days prior written notice, Franchisor may require

Franchisee to authorize Franchisor to make electronic

 

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debits from Franchisee's operating account as a means of paying the NMF

Contribution. The NMF Contribution shall be expended by the NMF for national,

regional, and/or local advertising and promotional materials and market research

for the SBC SYSTEM, under the following conditions and limitations:

 

                  A.       The NMF, all contributions thereto, and any earnings

                           thereon, shall be used exclusively to pay any and all

                           costs of maintaining, administering, directing,

                           producing and preparing market research, advertising,

                           marketing materials and/or promotional activities for

                           the SBC SYSTEM. Franchisee shall pay the NMF

                           Contribution by separate check made payable to the

                           NMF. All sums paid by the Franchisee to the NMF shall

                           be maintained in an account separate from other funds

                           of Franchisor and shall not be used to defray any of

                           Franchisor's expenses except as provided herein, and

                           as Franchisor may incur in activities reasonably

                           related to the administration or direction of the NMF

                           and advertising and marketing programs for

                           franchisees and the SBC SYSTEM. The NMF and its

                           earnings shall not otherwise inure to the benefit of

                           Franchisor. Franchisor shall maintain a separate

                           bookkeeping account for the NMF.

 

                  B.       The selection of media and locale for media placement

                           shall be at the sole discretion of the Franchisor.

 

                  C.       All reasonable costs incurred by Franchisor or

                           charged to Franchisor by third parties for market

                           research and the production and dissemination of

                           advertising, marketing and promotional materials may

                           be charged to the NMF.

 

                  D.       Franchisor, upon request, shall provide Franchisee

                           with an annual accounting of receipts and

                           disbursements of the NMF.

 

                  E.       It is anticipated that all contributions to and

                           earnings of the NMF will be expended for market

                           research, costs of creating and producing advertising

                           materials, marketing and/or promotional purposes and

                           reimbursement to Franchisor of costs directly related

                           to the management of the NMF (including personnel

                           costs) during the taxable year in which contributions

                           and earnings are received. If, however, excess

                           amounts remain in the NMF at the end of a taxable

                           year, all expenditures in the following taxable

                           year(s) shall be made first out of accumulated

                           earnings from previous years, next out of earnings in

                           the current year, and finally from contributions.

 

                  F.       The NMF is not, and shall not be, an asset of

                           Franchisor. Although the NMF is intended to be of

                           perpetual duration, Franchisor maintains the right to

                           terminate the NMF; provided, however, that the NMF

                           shall not be terminated until all monies in the NMF

                           have been expended for the purposes stated herein.

 

                  G.       Franchisee understands that such advertising and

                           marketing is intended to maximize the public's

                           awareness of SBC Retail Units and the SBC System, and

                           that Franchisor accordingly undertakes no obligation

                           to insure that any individual Franchisee benefits

                           directly or on a pro rata basis from the placement,

                           if any, of such advertising or marketing in its local

                           market. Franchisee further acknowledges that its

                           failure to derive any such benefit, whether directly

                           or indirectly, shall not be cause for Franchisee's

                           nonpayment or reduction of the required contributions

                           to the NMF.

 

         3.03.    If any monetary obligations owed by Franchisee to Franchisor

and its subsidiaries and affiliates are more than seven (7) days overdue,

Franchisee shall, in addition to such obligations, pay to Franchisor a sum equal

to one and one-half percent (1-1/2%) of the overdue balance per month, or the

highest rate permitted by law, whichever is less, from the date said payment is

due.

 

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         3.04.    For the purposes of this Agreement, the term "Gross Sales"

shall mean all revenues generated by Franchisee's business conducted upon, from

or with respect to the Franchised Unit, whether such sales are evidenced by

cash, check, credit, charge, account, barter or exchange. Gross Sales shall

include, without limitation, monies or credit received from the sale of food and

merchandise, from tangible property of every kind and nature, promotional or

otherwise, and for services performed from or at the Franchised Unit, including

without limitation such off-premises services as catering and delivery. Gross

Sales shall not include the sale of food or merchandise for which refunds have

been made in good faith to customers, the sale of equipment used in the

operation of the Franchised Unit, nor shall it include sales, meals, use or

excise tax imposed by a governmental authority directly on sales and collected

from customers; provided that the amount for such tax is added to the selling

price or absorbed therein, and is actually paid by Franchisee to such

governmental authority.

 

         3.05.    In addition to the payments otherwise provided for in Section

3.02, above, Franchisee shall expend each month during the term of this

Franchise Agreement an amount to be determined by Franchisor, in its sole

discretion, up to [ ] TWO PERCENT (2%) [ ] ONE PERCENT (1%) of the Gross Sales

of the Franchised Unit for the preceding week, which sum shall be expended by

Franchisee for local advertising, which shall be conducted in a dignified manner

and shall conform to such standards and requirements as Franchisor may specify

(hereinafter the "Local Area Marketing Expenditure", f/k/a ""Local Advertising

Expenditure"). Franchisee shall not use any advertising or promotional plans or

materials unless and until Franchisee has received written approval from

Franchisor, pursuant to the procedures and terms set forth in Section 10.09.

hereof. Franchisee's Local Area Marketing Expenditure shall be reduced by an

amount equal to Franchisee's actual contribution, for the corresponding period,

to a Local Area Marketing Cooperative established pursuant to Section 10.06. of

this Agreement, if any.

 

         3.06.    In addition to the payments provided for in Sections 3.01,

3.02 and 3.05 hereof, Franchisee shall expend at least [ ] TEN THOUSAND AND

NO/100 DOLLARS ($10,000.00) [ ] FIVE THOUSAND AND NO/100 DOLLARS ($5,000.00) for

grand opening advertising of the Franchised Unit during the first two (2) months

following the opening of the SBC Retail Unit, which advertising must be

approved, in advance, by Franchisor.

 

IV.               ACCOUNTING AND RECORDS

 

         4.01.    ACCURATE BOOKS AND RECORDS. During the Term of this Agreement,

Franchisee shall maintain and preserve, for at least three (3) years from the

dates of their preparation, full, complete and accurate books, records and

accounts in accordance with generally accepted accounting principles and in the

form and the manner prescribed by Franchisor from time-to-time in the

Confidential Operating Standards Manual or otherwise in writing. These records

shall include, without limitation, cash register sales tape (including

non-resettable readings), meals, sales and other tax returns, duplicate deposit

slips and other evidence of Gross Sales and all other business transactions.

 

         4.02.    ROYALTY REPORTS. Franchisee shall submit to Franchisor, weekly

reports on forms prescribed by Franchisor, accurately reflecting all Gross Sales

during the preceding week and such other forms, reports, records, financial

statements or information as Franchisor may reasonably require in the

Confidential Operating Standards Manual, or otherwise in writing. Even if

Franchisor requires Franchisee to implement an electronic cash register system

that transmits Franchisee's Gross Sales to Franchisor on a periodic basis,

Franchisor may still require Franchisee to submit written reports.

 

         4.03.    QUARTERLY STATEMENT. Franchisee shall, at its expense, submit

to Franchisor quarterly, within thirty (30) days following the end of each

quarter during the Term hereof, an unaudited financial statement with such

detail as Franchisor may reasonably require (hereinafter, "Quarterly Statement")

together with a certificate executed by Franchisee stating that such financial

statement is true and accurate. Upon Franchisor's request, Franchisee shall

submit to Franchisor, with each Quarterly Statement, copies of any state or

local sales tax returns

 

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("Sales Tax Returns") filed by Franchisee for the period included in the

Quarterly Statement. In the event Franchisee prepares financial statements on

the basis of thirteen (13), four (4) week periods ("Periods"), the Quarterly

Statements shall be submitted within thirty (30) days following the end of the

third (3rd), sixth (6th), ninth (9th) and thirteenth (13th) Periods.

 

         4.04.    ANNUAL FINANCIAL STATEMENTS. Franchisee shall, at its expense,

submit to Franchisor within ninety (90) days following the end of each calendar

or fiscal year during the Term of this Agreement, an unaudited financial

statement for the preceding calendar or fiscal year with such detail and in a

format as Franchisor may reasonably require, together with a certificate

executed by Franchisee certifying that such financial statement is true and

accurate (hereinafter, "Annual Financial Statements") and such other information

in such form as Franchisor may reasonably require. Upon written request from

Franchisor, the foregoing Annual Financial Statement shall include both a profit

and loss statement and a balance sheet, and shall be prepared in accordance with

generally accepted accounting principles. In the event Franchisee defaults under

this Agreement, Franchisor may require, upon written notice to Franchisee, that

all Annual Financial Statements submitted thereafter include a "Review Report"

prepared by an independent Certified Public Accountant.

 

         4.05.    OTHER REPORTS. Franchisee shall also submit to Franchisor, for

review or auditing, such other forms, financial statements, reports, records,

information and data as Franchisor may reasonably designate, in the form and at

the times and places reasonably required by Franchisor, upon request and as

specified from time-to-time in the Confidential Operating Standards Manual or

otherwise in writing. If Franchisee has combined or consolidated financial

information relating to the Franchised Unit with that of any other business or

businesses, including a business licensed by Franchisor, Franchisee shall

simultaneously submit to Franchisor, for review or auditing, the forms, reports,

records and financial statements (including, but not limited to the Quarterly

Statements and Annual Financial Statements) which contain the detailed financial

information relating to the Franchised Unit, separate and apart from the

financial information of such other businesses. Franchisee hereby authorizes all

of its suppliers and distributors to release to Franchisor, upon Franchisor's

request, any and all of its books, records, accounts or other information

relating to goods, products and supplies sold to Franchisee and/or the

Franchised Unit.

 

         4.06.    EQUIPMENT. Franchisee shall record all sales on cash registers

or other point-of-sale equipment approved, in writing, by Franchisor

(hereinafter "POS Equipment"). Franchisee agrees that Franchisor shall have the

free and unfettered right to retrieve any data and information from Franchisee's

P.O.S. Equipment and computers as Franchisor, in its sole discretion, deems

appropriate, with the telephonic cost of the retrieval to be borne by

Franchisor, including electronically polling the daily sales, menu mix and other

data of the Franchised Unit.

 

         4.07.    FRANCHISOR'S RIGHT OF AUDIT. Franchisor or its designated

agents or auditors shall have the right at all reasonable times to audit, review

and examine by any means, including electronically through the use of

telecommunications devices or otherwise, at its expense, the books, records,

accounts, and tax returns of Franchisee related to the Franchised Unit. If any

such audit, review or examination reveals that Gross Sales have been understated

in any report to Franchisor, Franchisee shall immediately pay to Franchisor the

royalty fee and NCP Fund Contribution due with respect to the amount understated

upon demand, in addition to interest from the date such amount was due until

paid, at the rate of one and one-half percent (1.5%) per month. If any such

understatement exceeds two percent (2%) of Gross Sales as set forth in the

report, Franchisee shall, in addition, upon demand, reimburse Franchisor for any

and all costs and expenses connected with such audit, review or examination

(including, without limitation, reasonable accounting and attorneys' fees). The

foregoing remedies shall be in addition to any other rights and remedies

Franchisor may have.

 

V.                PROPRIETARY MARKS

 

         5.01.    It is understood and agreed that the franchise granted herein

to use Franchisor's Proprietary Marks applies only to use in connection with the

operation of the Franchised Unit franchised in this Agreement at the

 

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location designated in Section I hereof, and includes only such Proprietary

Marks as are now designated or which may hereafter be designated, in the

Confidential Operating Standards Manual or otherwise in writing as a part of the

SBC System (which might or might not be all of the Proprietary Marks pertaining

to the System owned by the Franchisor), and does not include any other mark,

name, or indicia of origin of Franchisor now existing or which may hereafter be

adopted or acquired by Franchisor.

 

         5.02.    With respect to Franchisee's use of the Proprietary Marks

pursuant to this Agreement, Franchisee acknowledges and agrees that:

 

                  A.       Franchisee shall not use the Proprietary Marks as

                           part of Franchisee's corporate or other business

                           name;

 

                  B.       Franchisee shall not hold out or otherwise use the

                           Proprietary Marks to perform any activity or incur

                           any obligation or indebtedness in such manner as

                           might, in any way, make Franchisor liable therefor,

                           without Franchisor's prior written consent;

 

                  C.       Franchisee shall execute any documents and provide

                           such other assistance deemed necessary by Franchisor

                           or its counsel to obtain protection for the

                           Proprietary Marks or to maintain the continued

                           validity of such Proprietary Marks; and

 

                  D.       Franchisor reserves the right to substitute different

                           Proprietary Marks for use in identifying the System

                           and the franchised businesses operating thereunder,

                           and Franchisee agrees to immediately substitute

                           Proprietary Marks upon receipt of written notice from

                           Franchisor.

 

         5.03.    Franchisee expressly acknowledges Franchisor's exclusive right

to use the marks "SEATTLE'S BEST COFFEE" and "SBC" for restaurant services,

coffee products, and other related food and beverage products; the building

configuration; and the other Proprietary Marks of the System. Franchisee agrees

not to represent in any manner that it has any ownership in the Proprietary

Marks or the right to use the Proprietary Marks except as provided in this

Agreement. Franchisee further agrees that its use of the Proprietary Marks shall

not create in its favor any right, title, or interest in or to the Proprietary

Marks, and that all of such use shall inure to the benefit of Franchisor.

 

         5.04.    Franchisee acknowledges that the use of the Proprietary Marks

outside the scope of this license, without Franchisor's prior written consent,

is an infringement of Franchisor's exclusive right to use the Proprietary Marks,

and during the term of this Agreement and after the expiration or termination

hereof, Franchisee covenants not to, directly or indirectly, commit an act of

infringement or contest or aid in contesting the validity or ownership of

Franchisor's Proprietary Marks, or take any other action in derogation thereof.

 

         5.05.    Franchisee shall promptly notify Franchisor of any suspected

infringement of, or challenge to, the validity of the ownership of, or

Franchisor's right to use, the Proprietary Marks licensed hereunder. Franchisee

acknowledges that Franchisor has the right to control any administrative

proceeding or litigation involving the Proprietary Marks. In the event

Franchisor undertakes the defense or prosecution of any litigation relating to

the Proprietary Marks, Franchisee agrees to execute any and all documents and to

do such acts and things as may, in the opinion of counsel for Franchisor, be

necessary to carry out such defense or prosecution. Except to the extent that

such litigation is the result of Franchisee's use of the Proprietary Marks in a

manner inconsistent with the terms of this Agreement, Franchisor agrees to

reimburse Franchisee for its out of pocket costs in doing such acts and things,

except that Franchisee shall bear the salary costs of its employees.

 

         5.06.    Franchisee understands and agrees that its license with

respect to the Proprietary Marks is non-exclusive to the extent that Franchisor

has and retains the right under this Agreement:

 

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                  A.       To grant other licenses for the Proprietary Marks, in

                           addition to those licenses already granted to

                           existing franchisees;

 

                  B.       To develop and establish other franchise systems for

                           the same, similar, or different products or services

                           utilizing proprietary marks not now or hereafter

                           designated as part of the System licensed by this

                           Agreement, and to grant licenses thereto, without

                           providing Franchisee any right therein; and

 

                  C.       To develop and establish other systems for the sale,

                           at wholesale or retail, of similar or different

                           products utilizing the same or similar Proprietary

                           Marks, without providing Franchisee any right

                           therein.

 

         5.07.    Franchisee acknowledges and expressly agrees that any and all

goodwill associated with the System and identified by the Proprietary Marks used

in connection therewith shall inure directly and exclusively to the benefit of

Franchisor and is the property of Franchisor, and that upon the expiration or

termination of this Agreement or any other agreement, no monetary amount shall

be assigned as attributable to any goodwill associated with any of Franchisee's

activities in the operation of the Franchised Unit granted herein, or

Franchisee's use of the Proprietary Marks.

 

         5.08.    Franchisee understands and acknowledges that each and every

detail of the SBC SYSTEM is important to Franchisee, Franchisor, and other

franchisees in order to develop and maintain high and uniform standards of

quality and services, and hence to protect the reputation and goodwill of SBC

RETAIL UNITS. Accordingly, Franchisee covenants:

 

                  A.       To operate and advertise the Franchised Unit, at

                           Franchisee's own expense, under the name "SEATTLE'S

                           BEST COFFEE," without prefix or suffix;

 

                  B.       To adopt and use the Proprietary Marks licensed

                           hereunder solely in the manner prescribed by

                           Franchisor;

 

                  C.       To observe such reasonable requirements with respect

                           to trademark registration notices as Franchisor may

                           from time to time direct in the Confidential

                           Operating Standards Manual or otherwise in writing.

 

         5.09.    In order to preserve the validity and integrity of the

Proprietary Marks licensed herein and to assure that Franchisee is properly

employing the same in the operation of the Franchised Unit, Franchisor or its

agents shall at all reasonable times have the right to inspect Franchisee's

operations, premises, and Franchised Unit and make periodic evaluations of the

services provided and the products sold and used therein. Franchisee shall

cooperate with Franchisor's representatives in such inspections and render such

assistance to the representatives as may reasonably be requested.

 

         5.10.    Franchisee shall not hold out or otherwise employ the

Proprietary Marks to perform any activity, or to incur any obligation or

indebtedness in such a manner as might, in any way, make Franchisor liable

therefor, without Franchisor's prior written consent.

 

VI.               OBLIGATIONS OF CORPORATE OR PARTNERSHIP FRANCHISEE

 

         6.01.    If Franchisee, or any successor to or assignee of Franchisee,

is a corporation, or limited liability company:

 

                                                                              10

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                  A.       Franchisee shall furnish to Franchisor, upon

                           execution or any subsequent transfer of this

                           Agreement, a copy of the Franchisee's Articles of

                           Incorporation, Certificate of Incorporation, Bylaws

                           and a list of shareholders showing the percentage

                           interest of each, and shall thereafter promptly

                           furnish Franchisor with a copy of any and all

                           amendments or modifications thereto;

 

                  B.       Franchisee shall promptly furnish Franchisor, on a

                           regular basis, with certified copies of such

                           corporate records (or limited liability company

                           records) material to the Franchised Business as

                           Franchisor may require from time to time in the

                           Confidential Operating Standards Manual or otherwise

                           in writing; and

 

                  C.       Franchisee shall maintain stop-transfer instructions

                           against the transfer, on its records, of any

                           securities with voting rights, subject to the

                           restrictions of this Agreement, and each stock

                           certificate of the corporate Franchisee representing

                           each share of stock, shall have conspicuously

                           endorsed upon it the following legend:

 

                                    "THE TRANSFER OF THIS STOCK IS SUBJECT

                                    TO THE TERMS AND CONDITIONS OF A

                                    SEATTLE'S BEST COFFEE FRANCHISE

                                    AGREEMENT WITH SEATTLE'S BEST COFFEE,

                                    LLC. DATED ___________. REFERENCE IS

                                    MADE TO THE PROVISIONS OF SAID

                                    FRANCHISE AGREEMENT AND TO THE ARTICLES

                                    AND BY-LAWS OF THIS CORPORATION."

 

         6.02.    If the Franchisee, or any successor to or assignee of

                  Franchisee, is a partnership, limited partnership or limited

                  liability partnership, Franchisee shall furnish to Franchisor,

                  upon execution or any subsequent transfer of this Agreement, a

                  copy of Franchisee's Articles of Partnership, if any, and

                  Partnership Agreement, and shall thereafter promptly furnish

                  Franchisor with a copy of any and all amendments or

                  modifications thereto.

 

         6.03.    Franchisee shall, upon execution of this Agreement, furnish to

Franchisor a completed Statement of Legal Composition attached as Exhibit C

hereto as to all the parties with an ownership interest in Franchisee, the

amount of such ownership interests, the jurisdiction in which Franchisee is

legally incorporated or organized, and other information specified. Franchisee

shall thereafter furnish to Franchisor an updated Statement of Legal Composition

promptly when requested by Franchisor. Franchisee shall promptly advise

Franchisor of any change in such information. Franchisee warrants, represents,

and covenants to Franchisor that all of the information furnished in the

completed Statement of Legal Composition is true and correct as of the date of

this Agreement, and when subsequently furnished to Franchisor.

 

VII.              CONFIDENTIAL OPERATING STANDARDS MANUAL.

 

         7.01.    In order to protect the reputation and goodwill of Franchisor

and the SBC SYSTEM and to maintain uniform standards of operation under

Franchisor's Proprietary Marks, Franchisee shall conduct the Franchised Business

in accordance with Franchisor's Confidential Operating Standards Manual

(hereinafter, together with any other manuals created or approved for use in the

operation of the Franchised Business granted herein, and all amendments and

updates thereto, the "Manual").

 

         7.02.    Franchisee shall at all times treat the Manual, and the

information contained therein, as confidential, and shall use all reasonable

efforts to keep such information secret and confidential. Franchisee shall not,

at any time, without Franchisor's prior written consent, copy, duplicate,

record, or otherwise make the Manual available to any unauthorized person or

entity.

 

         7.03.    The Manual shall at all times remain the sole property of

Franchisor.

 

                                                                              11

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         7.04.    In order for Franchisee to benefit from new knowledge

information, methods and technology adopted and used by Franchisor in the

operation of the System, Franchisor may from time-to-time revise the Manual and

Franchisee agrees to adhere to and abide by all such revisions.

 

         7.05.    Franchisee agrees at all times to keep its copy of the Manual

current and up-to-date, and in the event of any dispute as to the contents of

Franchisee's Manual, the terms of the master copy of the Manual maintained by

Franchisor at Franchisor's home office, shall be controlling.

 

         7.06.    The Manual is intended to further the purposes of this

Agreement, and is specifically incorporated, by reference, into this Agreement.

Except as otherwise set forth in this Agreement, in the event of a conflict

between the terms of this Agreement and the terms of the Manual, the terms of

this Agreement shall control.

 

VIII.             TRAINING

 

         8.01.    Franchisee, a partner of Franchisee if Franchisee is a

partnership, or a principal shareholder of Franchisee if Franchisee is a

corporation (or a principal member of Franchisee if Franchisee is a limited

liability company), must complete, to Franchisor's satisfaction, the SEATTLE'S

BEST COFFEE New Franchisee Orientation Program ("NFOP") prior to opening the

first franchised SBC RETAIL UNIT operated by Franchisee. NFOP shall consist of

up to three (3) days of workshops and seminars conducted at a training facility

and designated by Franchisor.

 

         8.02.    In addition to completing the NFOP, Franchisee (or a partner,

principal shareholder, principal member of Franchisee, or an Operations

Director/District Manager designated by Franchisee, and at least one designated

management employees of Franchisee (and, in all instances, a senior management

employee of Franchisee responsible for daily operations of the Franchised Unit),

must attend and complete, to Franchisor's satisfaction, the SBC FRANCHISE

ACADEMY PROGRAM ("FAP"), prior to opening the Franchised Unit. FAP l consists of

up to four (4) weeks of classroom and and operations training at an SBC Cafe

designated by Franchisor (an "SBC Certified Training Cafe"). A management

employee of Franchisee that successfully completes FAP, shall be certified by

Franchisor as an "SBC Certified Manager".

 

         8.03.    Franchisee shall maintain the number of FAP Certified Managers

designated by the Franchisor in the employ of the Franchised Unit throughout the

term of this Agreement, which in no event shall be less than one (1). In the

event that Franchisee or any SBC Certified Manager ceases active employment at

the Franchised Unit, Franchisee must enroll a qualified replacement in FAP

within thirty (30) days of cessation of such individual's employment. The

replacement employee shall attend and complete the next regularly scheduled FAP

to Franchisor's satisfaction.

 

         8.04.    The cost of conducting the initial NFOP and FAP (instruction

and required materials) shall be borne by Franchisor. All other expenses during

NFOP and FAP, including meals and lodging, wages and travel, shall be borne by

Franchisee.

 

         8.05.    Franchisor reserves the right to test any and all SBC

Certified Managers at any time, and may require such individuals to attend and

complete additional training at a training facility designated by Franchisor,

and at Franchisee's sole cost and expense, in the event they fail to achieve a

satisfactory score on such test. Additionally, Franchisor may make available to

Franchisee or Franchisee's employees, from time to time, such additional

training programs as Franchisor, in its sole discretion, may choose to conduct.

Attendance at said training programs may be mandatory. The cost of conducting

such additional training programs (instruction and required materials) shall be

borne by Franchisor. All other expenses during the training period, including

meals and lodging, wages and travel, shall be borne by the Franchisee.

 

                                                                              12

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IX.               DUTIES OF THE FRANCHISOR

 

         9.01.    Franchisor will make available to Franchisee standard plans

and specifications to be utilized only in the construction of the Franchised

Unit. No modification to or deviations from the standard plans and

specifications may be made without the written consent of Franchisor. Franchisee

shall obtain, at its expense, further qualified architectural and engineering

services to prepare surveys, site and foundation plans, and to adapt the

standard plans and specifications to applicable local or state laws, regulations

or ordinances. Franchisee shall bear the cost of preparing plans containing

deviations or modifications from the standard plans.

 

         9.02.    Franchisor shall provide consultation and advice to Franchisee

as Franchisor deems appropriate with regard to construction or renovation and

operation of the Franchised Unit, building layout, furnishings, fixtures and

equipment plans and specifications, employee selection and training, purchasing

and inventory control and those other matters as Franchisor deems appropriate.

 

         9.03.    Franchisor will make available to Franchisee such continuing

advisory assistance in the operation of the Franchised Business, in person or by

electronic or written bulletins made available from time to time, as Franchisor

may deem appropriate.

 

         9.04.    Franchisor, in its sole discretion, may provide opening

assistance to Franchisee at the Franchised Unit.

 

         9.05.    Franchisor will loan one (1) copy of the Manual to Franchisee

for the duration of this Agreement, which the Manual contains the standards,

specifications, procedures and techniques of the SBC System.

 

         9.06.    Franchisor will continue its efforts to maintain high and

uniform standards of quality, cleanliness, appearance and service at all SBC

Retail Units, to protect and enhance the reputation of the SBC System and the

demand for the products and services of the System. Franchisor will establish

uniform criteria for approving suppliers; make every reasonable effort to

disseminate its standards and specifications to prospective suppliers of the

Franchisee upon the written request of the Franchisee, provided that Franchisor

may elect not to make available to prospective suppliers the standards and

specifications for such food formulae or equipment designs deemed by Franchisor

in its sole discretion to be confidential; and may conduct periodic inspections

of the premises and evaluations of the products used and sold at the Franchised

Unit and in all other SBC Retail Units.

 

         9.07.    Franchisor will provide training to Franchisee as set forth in

Article VIII hereof.

 

X.                DUTIES OF THE FRANCHISEE

 

         Franchisee understands and acknowledges that every detail of the System

is important to Franchisor, Franchisee and other franchisees in order to develop

and maintain high and uniform operating standards, to increase the demand for

SEATTLE'S BEST COFFEE products and services, and to protect the reputation and

goodwill of Franchisor. Accordingly, Franchisee agrees that:

 

         10.01.   Franchisee shall maintain, at all times during the term of

this Agreement, at Franchisee's expense, the premises of the Franchised Unit and

all fixtures, furnishings, signs, systems and equipment (hereinafter

"improvements") thereon or therein, in conformity with Franchisor's high

standards and public image and to make such additions, alterations, repairs, and

replacements thereto (but no others, without Franchisor's prior written consent)

as may be required by Franchisor, including but not limited to the following:

 

                  A.       To keep the Franchised Unit in the highest degree of

                           sanitation and repair, including, without limitation,

                           such periodic repainting, repairs or replacement of

                           impaired equipment, and replacement of obsolete

                           signs, as Franchisor may reasonably direct;

 

                                                                              13

<PAGE>

 

                  B.       To meet and maintain the highest governmental

                           standards and ratings applicable to the operation of

                           the Franchised Business;

 

                  C.       At its sole cost and expense, to complete a full

                           reimaging, renovation, refurbishment and

                           modernization of the Franchised Unit, within the time