What are the requirements for operating a Burros Fries restaurant in strict conformity to requirements?

Franchisee assumes all costs, liability, expense, and responsibility for locating, obtaining and developing a site for the Franchise Business to be established under the Franchise Agreement and for equipping the Business at such premises. A typical Burros & Fries Business has approximately 2,500- 3,000 square feet of space. The space must be enclosed and separate from other businesses with its own locking door. Franchisee may buy or lease the required real property and improvements from any source and on terms approved by us in writing. Franchisee may not sign a lease (or a contract to purchase the premises, if applicable) for the Business until Franchisee has obtained our written approval. Franchisee must not invest any monies for a site in which Franchisee wishes to open a Business until Franchisee has obtained our written approval for the site which will be made by email or any other form of written communication. On the execution of any lease for the Franchise Business, Franchisee will deliver to us a copy of the executed lease and an option to assume the lease executed by the lessor in favor of us in a form acceptable to us. All improvements to the Business must be approved by us.

FRANCHISEE ACKNOWLEDGES THAT OUR ACCEPTANCE OF A PROSPECTIVE SITE AND THE RENDERING OF ASSISTANCE IN THE SELECTION OF A SITE DOES NOT CONSTITUTE A REPRESENTATION, PROMISE, WARRANTY, OR GUARANTEE BY US THAT A BURROS & FRIES FRANCHISE OPERATED AT THAT SITE WILL BE PROFITABLE OR OTHERWISE SUCCESSFUL.

Franchisee acknowledges that we have spent considerable amount of time choosing and creating the décor and outfitting Burros & Fries Businesses. It is part of our trade dress. Franchisee acknowledges and agrees that the design, layout and other characteristics of the Business constitute and/or contain

Directly or indirectly, for yourself or through, on behalf of or in conjunction with any person, partnership or corporation, own, maintain, operate, engage in or have any financial or beneficial interest in (including interest in corporations, limited liability companies, partnerships, trusts, unincorporated associations or joint ventures), advise, assist or make loans to, any business which is the same as or similar to the Burros & Fries Business including, but not limited to, the offering of products and services that are similar to the Products and Services which have been offered through the Business or is intended to be, located within a ten (10) mile radius of the Approved Location in the Franchise Agreement or of any Burros & Fries business (which includes companyowned businesses and/or other franchise businesses) in existence or under construction as of the expiration or termination of, or the transfer of all or your interest in, the Franchise Agreement.

You undertake to use your best efforts to ensure that your staff acts as required by this Agreement.

You agree that in the event of a breach of this Agreement, we would be irreparably injured and be without an adequate remedy at law.

Therefore, in the event of such a breach, or threatened or attempted breach of any of the provisions hereof, we shall be entitled to enforce this Agreement and shall be entitled, in addition to any other remedies which are available to us at law or in equity, including the right to terminate the Franchise Agreement, to a temporary and/or permanent injunction and a decree for the specific performance of the terms of this Agreement, without the necessity of showing actual or threatened harm and without being required to furnish a bond or other security.

You agree to pay all expenses (including court costs and reasonable legal fees) incurred by us and You in enforcing this Agreement.

Any failure by us or You to object or to take action with respect to any breach of this Agreement by You shall not operate or be construed as a waiver of or consent to that breach or any later breach by You.

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA.

Franchisee acknowledges that a Burros & Fries Business involves hard work and long hours. Franchisee acknowledges that we have not represented that this Business is going to be easy for Franchisee (or any of its Owners) and agrees to participate in the day-to-day operation of the Business. Unless otherwise approved in writing by us, Franchisee (or one of its Owners) is required to participate in the dayto-day operation of the Business for at least the first year of operation. After Franchisee's first year of operation, Franchisee (or one of its Owners) is not required to participate in the day-to-day operation, however Franchisee agrees that the Business must be at all times under the operation of a General Manager approved by us (as described in Section 12.F of this Agreement). Franchisee agrees that the General Manager will oversee the operations and supervise all Employees. The General Manager will also be responsible for providing continuing guidance, oversight, day-to-day management, oversee all food preparation, enforce service standards and properly process all paperwork, reports and complaints.

FRANCHISE AGREEMENT

PARTIES

THIS FRANCHISE AGREEMENT ("Agreement") is made by and between Burros & Fries Franchise, Inc, a California corporation, hereinafter sometimes referred to as "Burros & Fries" or "Franchisor" and that party or parties described as the Franchisee in this Agreement and on the signature line, hereinafter known as "you" or "Franchisee." If the Franchisee is a corporation or limited liability company, partnership or other entity, certain provisions of this Agreement also apply to your shareholders, members, partners or owners. Any such entity may be referred to as an "Entity" and those who own the Entity may be referred to as "Owners." For ease of reference, Burros & Fries, Inc., will also be referred to as "we," "us" or "our" in this Agreement. The persons signing as Franchisee, Owners or Guarantors will also be referenced to herein individually as "you" or "yours" or collectively as "Franchisee." The parties hereto are entering into this Agreement to evidence the agreement and understanding between the parties as follows:

RECITALS

WHEREAS, We have devised a uniform system for the establishment and operation of a Burros & Fries restaurant that serves a variety of sandwiches, plates and salads and beverages (such as carbonated drinks, juices, teas and bottled water) for lunch and dinner and made fresh daily using proprietary recipes with an operational emphasis on quality and superior service (the "System") either within a shopping center or free-standing structure. You may sell novelty items and other products approved by us (hereinafter referred to as "Products"), as well as offering catering services (the "Services") (hereinafter referred to as the "Business," "Franchise Business," "Franchised Business," "Franchise" or "Burros & Fries Restaurant;" and

In addition, with respect to all credit card transactions and guest information obtained through credit card usage, Franchisee agrees to diligently comply with all laws and rules regarding such usage and Franchisee will protect the privacy of credit card users. Franchisee must be at all times in compliance with the Payment Card Industry Data Security Standards ("PCI Compliant"). Copies of any and all notices, inspection reports or other communication from any governmental entity with respect to the conduct your Business which indicates the Franchisee's failure to meet or maintain governmental standards, or less than substantial compliance by the Franchisee with any applicable law, rule or regulation, shall be forwarded to us within five (5) days of the Franchisee's receipt thereof. Franchisee agreesto indemnify us under Section 18 of this Agreement which includes any claims arising out of Franchisee's failure to perform its obligations as described above.

It is Franchisee's sole responsibility and absolute obligation to research all applicable federal, state and local laws and regulations governing the operation of a Burros & Fries Business. Franchisee must secure and maintain in force all required licenses, permits and certificates relating to the operation of its Business and must at all times operate it in full compliance with all applicable laws, ordinances and regulations (including without limitation, regulations relating to fictitious name registrations, sales tax permits, fire clearances, safety, truth in advertising, occupational hazards, indoor air quality, health, laws relating to non-discrimination in hiring and accessibility, worker's compensation and unemployment insurance). In addition, Franchisee must comply with consumer protection laws and regulations concerning food preparation, handling and storage, "Truth in Menu" concerning menu item names, product content, labeling and nutritional claims. We make no representations or assurances as to what inspections, licenses, permits, authorizations or otherwise will be required for Franchisee in the Franchisee's area in connection with its Business. It is Franchisee's sole responsibility to identify and obtain all licenses,

permits, certifications and authorizations necessary for operation. Franchisee agrees to maintain high standards of honesty, integrity, fair dealing and ethical conduct in all business activities.

Franchisee acknowledges that we have spent considerable time in developing the Products, Services, standards, processes, methods and technology used in the operation of a Burros & Fries Business. Accordingly, Franchisee acknowledges that Franchisee is to use only approved products, supplies, kitchen equipment, vendors, suppliers and services that includes, but is not limited to: ingredients (such as dry goods, our spice packages, sauces, dressings, condiments, etc.), fresh produce, dairy products; beverage products (such as: tea, carbonated drinks, juices and specialty beverages), supplies (such as small wares, disposables, packaging materials, disposables and cooking supplies), any merchandise for sale (such as: shirts, hats, baby bibs, etc.), kitchen equipment (such as: refrigerators, freezers, etc. as described in Item 7), furnishing and fixtures, technology items (such as computers, POS system, sound system, etc.), software, printed menus, signage, uniforms, professional laundry services, merchant services, POS and technology support services and printed advertising materials necessary for the operation of the Business. We may derive income through license fees, promotional fees, advertising allowances, rebates or other monies paid by approved vendors and/or suppliers. We do not know the precise basis of these payments because we have never previously collected them but if we collect such payments we have the discretion to use them as we determine. If we require Franchisee to buy from us, products, supplies or kitchen equipment the price and quality will be comparable to similar products, supplies and kitchen equipment from other sources Franchisee agreesthat we may periodically and upon written notice, add to, modify or change such approved products, supplies, kitchen equipment, vendors and suppliers and there is no limit in our right do so. Franchisee promises to promptly accept and implement, in the operation of its Business, all such additions, modifications and changes at Franchisees expense. In addition, Franchisee acknowledgesthat:

We have spent considerable time designing the decoration and outfitting of a Burros & Fries Business with specific kitchen equipment, furnishing, fixtures, décor items and signage.

This is part of our trade dress.

• 1. Any person or entity, which has been or become franchisees of the System and any investors therein;
• 1. Any person or entity which has, have been or becomes patrons of the Business;
• 1. The terms of and negotiations relating to past or current Franchise Agreements with respect to the System;
• 1. The operating procedures of the System, including without limitation: specific food preparation methods and techniques; product knowledge, ingredients and specifications, food presentation standards, kitchen equipment operation, safety procedures, usage of POS system and related software, cost and pricing strategies; use of contracts, forms and waivers; record keeping, accounting systems and procedures; effective advertising, promotional and marketing methods, recommendations for hiring and training staff and strategies when purchasing from vendors and suppliers;
• 1. The economic and financial characteristics of the System and franchisees, including without limitation: pricing policies, training, profitability, earnings and losses and capital and debt structures;
• 1. The Products and Services of a Burros & Fries Business, including, without limitation, the scope of services performed and services refused; and
• 1. All documentation of the information listed in Section 16.A including, without limitation, our training program and Operations Manual. During the term of this Agreement and for a period of five (5) years following the expiration or termination of this Agreement, Franchisee agrees not to use, divulge, directly or indirectly, any Confidential Information, without our prior written consent. Nothing contained herein shall be construed so as to require Franchisee to divulge any secret processes, techniques, formulas, or the like.
• B. Franchisee's Employees Will Not Disclose Confidential Information

Franchisee must keep the methods of operations (confidential information found in our materials and other documents) and Operations Manuals confidential and not disclose them except to Franchisee's employees, agents and representatives, as they must have access to it in order to operate the Business. Franchisee must follow all our security procedures, which include the execution and delivery to us of

The Franchisee shall maintain the Business in accordance with the provisions and requirements of Section 12 hereof, and must secure a lease that has been approved by us (as described in Section 12.S) within eighteen (18) months of the execution of this Franchise Agreement ("Effective Date") and open the Business for operation (the "Opening") within twenty-four (24) months from the date of execution of this Franchise Agreement. Upon Franchisee's failure to meet either of the above requirements; then we may, at our sole discretion, terminate the Franchise and this Ag

Source: Item 22 — CONTRACTS (FDD page 53)