What governs the site selection and approval process for a Black Bear Diner restaurant?

Franchisee acknowledges and agrees that, notwithstanding the execution of this Development Agreement and any applicable exhibits and attachments thereto, the selection and approval of a site that may become an Approved Location under a Franchise Agreement shall be governed by the Franchise Agreement and Franchisor's site review and approval procedures as set forth in Franchisor's Manual.

Within 30 days after receipt of the site approval package by Franchisor, Franchisor shall deliver two (2) copies of the Franchise

Agreement along with a copy of its then current franchise disclosure document, if required by law. Immediately upon receipt of the franchise disclosure document, Developer shall return to Franchisor a signed copy of the Receipt Page of the disclosure document. Developer shall execute and deliver as instructed by Franchisor two copies of said Franchise Agreement and the balance of the Franchise Fee therefore as provided in Section 3.1 above.

4.3 Franchisor's Duties

Franchisor shall furnish to Developer site selection guidelines, including Franchisor's minimum standards for a location for the Black Bear Diner restaurant, and such site selection assistance as Franchisor may deem advisable. In response to Developer's request for site approval, Franchisor shall perform one (1) on-site evaluation of a proposed site for each Black Bear Diner restaurant to be developed hereunder. Franchisor shall perform additional on site evaluations as Franchisor may deem advisable in response to Developer's requests for site approval; provided, however, that Franchisor shall not be required to provide on-site evaluation for any proposed site(s) in addition to Franchisee's first proposed site for each Black Bear Diner restaurant. If additional on-site evaluation is deemed necessary and appropriate by Franchisor (on its own initiative or at Franchisee's request) for any Black Bear Diner restaurant to be established, Developer shall reimburse Franchisor for all reasonable expenses incurred by Franchisor in connection with such on-site evaluation visit(s), including, without limitation, the cost of travel, lodging and meals.

4.4 Conditions Precedent to Franchisor's Obligations

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4.2 Exercise of Development Rights

For each Black Bear Diner restaurant to be developed hereunder, Developer shall submit to Franchisor, in a form specified by Franchisor, a completed site approval package which shall include a site approval form prescribed by Franchisor, an option contract, letter of intent, term sheet, or other evidence satisfactory to Franchisor which describes Developer's favorable prospects for obtaining such site, and such other information or materials as Franchisor may reasonably require.

No site shall be deemed approved unless it has been expressly approved in writing by Franchisor.

Developer hereby acknowledges and agrees that approval by Franchisor of a site does not constitute an assurance, representation, or warranty of any kind, express or implied, as to the suitability of the site for the Black Bear Diner restaurant or for any other purpose.

Approval by Franchisor of the site indicates only that Franchisor believes the site complies with acceptable minimum criteria established by Franchisor solely for its purposes as of the time of the evaluation.

Both Franchisee and Franchisor acknowledge that application of criteria that may have been effective with respect to other sites and premises may not be predictive of potential for all sites and that, subsequent to approval by Franchisor of a site, demographic and/or economic factors, such as competition from other similar businesses, included in or excluded from criteria used by Franchisor could change, thereby altering the potential of a site.

Such factors are unpredictable and are beyond the control of Franchisor.

Franchisor shall not be responsible for the failure of a site approved by Franchisor to meet Developer's expectations as to revenue or operational criteria.

Developer further acknowledges and agrees that its acceptance of a franchise for the operation of a Black Bear Diner restaurant at a site is based on its own independent investigation of the suitability of the site.

For each Black Bear Diner restaurant to be developed hereunder, Developer shall execute a lease/sublease that complies with the applicable provisions of the Franchise Agreement, or a binding agreement to purchase the site.

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2.3 Approved Location Not Determined

If a particular site has not been selected and approved at the time this Agreement is signed, Franchisee will be solely and completely responsible for selecting an appropriate location for the Franchised Restaurant. After Franchisor has approved a location for the Franchised Restaurant, Franchisor will unilaterally modify Attachment A and the specific address of that location will automatically become the Approved Location as if originally set forth in Attachment A.

2.4 Protected Area

Subject to the provisions of this Agreement, including Section 2.5 below, Franchisor will not operate or license others to operate a Black Bear Diner restaurant within a three (3) mile radius from the Approved Location, otherwise known as the "Protected Area."

2.5 Franchisor's Reservation of Rights

Notwithstanding Section 2.4 above, Franchisee acknowledges that the Franchise granted under this Agreement is non-exclusive and Franchisor expressly retains all rights and discretion with respect to the Marks and System, including the right to: (1) own, acquire, establish and operate, and to license others to establish and operate, Black Bear Diner restaurants at any location outside of the Protected Area; (2) own, acquire, establish and operate, and license others to establish and operate, other businesses including similar restaurant concepts, using other trademarks, service marks and commercial symbols at any location either within or outside of the Protected Area; (3) sell or distribute, at retail or wholesale, directly or indirectly, or license others to sell or distribute, any products authorized for use and resale at the Franchised Restaurant, including the Gift Shop Products or any other products which bear any trademarks including the Marks, through alternative channels of distribution including, but not limited to, grocery stores, convenience stores, mail order and Internet sales to customers wherever located, including customers that may be located within or outside the Protected Area; and (4) engage in any activities not expressly forbidden by this Agreement.

3. FEES

In addition to other fees as may be required under the terms of this Agreement, Franchisee agrees to pay Franchisor the following fees and amounts at the times specified herein:

3.1 Initial Franchise Fee

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Franchisor's review of the lease or any advice or recommendation offered by Franchisor shall not constitute a representation or guarantee that Franchisee will succeed at the Approved Location or an expression of Franchisor's opinion regarding the terms of the lease**.**

If Franchisee does not consummate a lease for the Approved Location within 180 days from the date of this Agreement, Franchisor shall have the right terminate this Agreement immediately on notice without any need for a cure opportunity.

5.3 Development of Approved Location

After Franchisee has selected and obtained Franchisor's approval of the site for the Franchised Restaurant, Franchisee agrees to develop the site in accordance with the following procedures:

Franchisor will provide to Franchisee copies of Franchisor's standard plans and specifications for the design and layout of the exterior and interior of a typical Black Bear Diner restaurant including fixtures, equipment, furnishings, décor and signs. Franchisee assumes all cost, liability and expense for the construction, renovation or remodeling at the Approved Location. If any alterations are required to be made to the standard plans and specifications, such alterations

must be approved by Franchisor in writing before any work is begun on the Franchised Restaurant. It shall be Franchisee's responsibility to submit the final plans and layout to the Franchisor for written approval. Nothing in this section shall be construed as an endorsement or guarantee of the conformity of such plans to applicable local, state or federal building or safety codes. Franchisee agrees that it is responsible for the accuracy of all drawings, plans and specifications used for the construction, renovation or remodeling of the Franchised Restaurant.

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5.5 Pre-conditions to Opening; Opening Deadline

Franchisee expressly acknowledges and agrees that a pre-condition to opening the Black Bear Diner restaurant shall be the Franchisor's written authorization to open, which authorization shall be given only upon Franchisee's completing, to Franchisor's satisfaction, (i) construction, renovation and remodeling of the Approved Location and Franchised Restaurant and (ii) training as required by Section 8 of this Agreement. In an effort to obtain Franchisor's authorization to open and begin operation of the Franchised Restaurant, Franchisee agrees to notify Franchisor on such

form as Franchisor may prescribe verifying that all pre-opening obligations have been completed in compliance with this Agreement.

Once Franchisor has approved the site for the Franchised Restaurant, Franchisee has 365 days to actually open and begin operating the Franchised Restaurant. If Franchisee fails to open and begin operating the Franchised Restaurant within 365 days after Franchisor has approved the site for the Franchised Restaurant, Franchisor has the right to terminate the Franchise Agreement immediately on notice without any need for a cure opportunity.

5.6 Relocation

Franchisee may, with the prior written approval of the Franchisor, relocate the Approved Location if the proposed new location does not compete with any Black Bear Diner restaurant operated by Franchisor or any other Black Bear Diner franchisee and the proposed new location is within the Franchisee's Protected Area. The new location of the Franchised Restaurant, including the real estate and the building, must comply with all applicable provisions of this Agreement and with the Franchisor's then-current image, decor and specifications. Within 10 days after receipt by the Franchisee of the Franchisor's written approval to relocate the Approved Location, the Franchisee will pay to the Franchisor a Relocation Fee of $5,000.

5.7 Remodeling, Repairs and Maintenance

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Franchisee shall have the right to acquire a successor franchise at the expiration of the initial term for an additional term of ten (10) years ("Renewal Term"), provided the following conditions must have been fulfilled and remain true as of the last day of the Initial Term of this Agreement:

• (a) Franchisee has, during the entire term of this Agreement, substantially complied with all its provisions and is not in default at time of renewal;
• (b) Franchisee shall have the right to remain in possession of the Approved Location for the duration of the Renewal Term;
• (c) Franchisee shall make capital expenditures necessary to remodel, modernize and redecorate the Franchised Restaurant so that the Franchised Restaurant reflects the then-current physical appearance and image for a new Black Bear Diner restaurant;
• (d) Franchisee has given notice to Franchisor of its intent to renew not less than nine (9) months nor more than twelve (12) months prior to the end of the Initial Term;
• (e) Franchisee shall execute and deliver Franchisor's then-current form of franchise agreement to Franchisor. The new franchise agreement shall supersede this Agreement in all respects, and the terms of which may differ from the terms of this Agreement including, without limitation, a different percentage Royalty Fee and Marketing Fund Contribution; provided, however, Franchisee shall not be required to pay the then-current Franchise Fee;
• (f) Franchisee has complied with Franchisor's then-current training requirements for franchisees and their employees;
• (g) Franchisee pays a renewal fee of $5,000 at time of signing the then-current form of franchise agreement; and
• (g) Franchisee has executed a general release of any and all claims against Franchisor and any affiliate, and their respective officers, directors, agents, and employees, arising out of or related to this Agreement, or any related agreement.

5. SELECTION AND DEVELOPMENT OF APPROVED LOCATION

5.1 Site Selection

If the site for the Approved Location has been located by Franchisee and approved by Franchisor upon execution of this Agreement, then such Approved Location will be identified in Exhibit A to this Agreement. Otherwise, Franchisee agrees to locate a suitable site for the Approved Location within 60 days after execution of this Agreement. In the event a site for the Approved

Source: Item 23 — RECEIPT (FDD pages 56–243)