Under what condition will Big Apple Bagels not unreasonably withhold approval of a franchise transfer?

pledged, mortgaged or liened without the prior written approval of Franchisor, and any such transfer or attempt to transfer without such approval shall constitute a breach hereof, such be null and void, and shall convey no rights to or interests in this Agreement, the Franchise, Franchisee, the BAGELS Store or its assets.

• ii. Conditions for Approval of Transfer. If Franchisee and its owners are in full compliance with this Agreement, Franchisor shall not unreasonably withhold its approval of a transfer that meets all the applicable requirements of this Paragraph. The proposed transferee and its owners must be

individuals of good moral character and otherwise meet Franchisor's then applicable standards for BAGELS Store franchisees. Franchisor shall interview and evaluate the proposed transferee at Franchisor's principal place of business or at such other location that Franchisor designates. A transfer of ownership in the BAGELS Store may only be made in conjunction with a transfer of this Franchise Agreement. All of the following conditions must be met prior to or concurrently with the effective date of the transfer (unless otherwise specified):

• (1) the assignee, transferee or purchaser shall have been approved by Franchisor for financial responsibility, good moral character and suitability as an operator of a BAGELS Store;

• (2) Franchisee shall pay to Franchisor prior to transferee attending the required training program a transfer fee of Five Thousand Dollars ($5,000.00), which is not refundable in whole or in part under any circumstances;

• (3) the assignee, transferee or purchaser shall not be engaged in any activity which would be prohibited by Paragraph 9.f. of this Agreement;

• (4) Franchisee shall have paid all outstanding debts and obligations to Franchisor and its Affiliates, including the royalty fees and all amounts due the Marketing Fund, and to its designated suppliers;

• (5) Franchisee and its owners, and the transferee (if it has had any previous relationship with Franchisor or Franchisor's affiliates), shall execute a release of any and all claims against Franchisor, and Franchisor's officers, directors, agents, employees and Affiliates, arising out of or related to this Agreement, as well as claims arising out of or related to the relationship of the parties created under this Agreement, which release shall contain language and be of the form prescribed by Franchisor;

• (6) the assignee, transferee or purchaser (and its owners) shall, at Franchisor's sole discretion, have executed and agreed to be bound by: (i) an assignment and assumption agreement satisfactory to the Franchisor, whereby the transferee assumes the obligations of Franchisee under this Agreement; or (ii) Franchisor's then-current form of Franchise Agreement, for a new term (not equal to the remaining term of the assignor's franchise), which may provide for a different rate for royalty fees and Marketing Fund contributions required hereunder;

• (7) if required, the lessor of the premises of the BAGELS Store has consented to Franchisee's assignment or sublease of said premises to the proposed transferee;

• (8) Franchisor shall have approved the material terms and conditions of such assignment;

• (9) Franchisee shall have entered into an agreement with Franchisor agreeing to that any obligations of transferee to Franchisee (such as any obligations of such transferee to make installment payments of the purchase price to Franchisee) shall be subordinate to all of transferee's obligations to Franchisor;

• (10) the assignee, transferee or purchaser shall complete to Franchisor's satisfaction, at transferee's expense and upon such terms and conditions as Franchisor may reasonably require, the Franchisor's training programs modified to be applicable for transferees, at such time and place designated by Franchisor;

• (11) if the transfer is of a BAGELS Satellite Store, the transferee must have a BAGELS Production Store.

• (12) if the transferee, prior to his or her initial contact with Franchisee, had contact with Franchisor with respect to a franchise opportunity, Franchisee shall pay Franchisor, in addition to the transfer fee described in Paragraph 14.b.ii.(2) above, a sum equal to ten percent (10%) of the gross sales price relating to the transaction between Franchisee and transferee, but in no event shall such sum be greater than Franchisor's then-current initial Franchise Fee;

• (13) the transferor and its owners will remain liable (and will execute a guaranty if requested by Franchisor) for the performance by the transferee of its obligations under the Franchise Agreement, for a duration, not to exceed the remainder of the term of the transferor's Franchise Agreement, as determined by Franchisor;

• (14) the transferee must submit a Store Opening Marketing Fee in the amount of One Thousand Dollars ($1,000), to conduct a "re-Grand Opening," to be expended in the same manner as the Store Opening Marketing Fee described in the Paragraph 3.f. above, except that references to the date the BAGELS Store opens shall be replaced with the date the transferee re-opens the BAGELS Store; and

• (15) the transferee must execute the Transferee's Waiver and Release, attached as Exhibit O to Franchisor's disclosure document.

• iii. In the event Franchisee shall request consent to a transfer of this Agreement or a controlling interest in Franchisee and for any reason such transfer is not completed or consummated, Franchisor shall be entitled to reimbursement of its reasonable expenses incurred in connection with such proposed transfer in the manner and in accordance with the procedures set forth herein, including, without limitation, expenses related to investigating, processing and training any proposed transferee.

• iv. Transfer to a Wholly-owned Corporation. If Franchisee is in full compliance with this Agreement, Franchisor shall not unreasonably withhold its approval of a transfer in the case of a proposed assignment or transfer of this Agreement and the Franchise to a corporation, LLC, or partnership which conducts no business other than the BAGELS Store, which is actually managed by Franchisee and in which Franchisee maintains management control and owns and controls at least fifty-one percent (51%) of the equity and voting power of all issued and outstanding capital stock, membership interest, or general partnership interest, and provided that all owners of such corporation, LLC or partnership agree jointly and severally to guarantee the obligations of Franchisee under this Agreement and to be bound by the provisions of this Agreement in the form prescribed by Franchisor. A transfer under this Paragraph 14.b.iv.

Source: Item 22 — CONTRACTS (FDD pages 86–87)