Franchise Agreement PDF

EX-10.4 2 d26962exv10w4.htm CURRENT FORM OF FRANCHISE AGREEMENT Exhibit 10.4 ROCKY MOUNTAIN CHOCOLATE FACTORY FRANCHISE AGREEMENT Franchisee: Date: Franchised...

EX-10.4 2 d26962exv10w4.htm CURRENT FORM OF FRANCHISE AGREEMENT Exhibit 10.4 ROCKY MOUNTAIN CHOCOLATE FACTORY FRANCHISE AGREEMENT Franchisee: Date: Franchised Location: ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. FRANCHISE AGREEMENT TABLE OF CONTENTS 1. PURPOSE 1 2. GRANT OF FRANCHISE 1 2.1. Grant of Franchise 1 2.2. Scope of Franchise Operations 1 3. FRANCHISED LOCATION AND DESIGNATED AREA 2 3.1. Franchised Location 2 3.2. Limitation on Franchise Rights; Relocation 2 3.3. Franchisor’s Reservation of Rights 2 4. INITIAL FRANCHISE FEE 3 4.1. Initial Franchise Fee 3 5. DEVELOPMENT OF FRANCHISED LOCATION 3 5.1. Approval of Lease 3 5.2. Conversion and Design 4 5.3. Signs 4 5.4. Equipment 4 5.5. Permits and Licenses 5 5.6. Commencement of Operations 5 6. TRAINING 5 6.1. Initial Training Program 5 6.2. Length of Training 6 6.3. Additional Training 6 7. DEVELOPMENT ASSISTANCE 6 7.1. Franchisor’s Development Assistance 6 8. OPERATIONS MANUAL 7 8.1. Operations Manual 7 8.2. Conﬁdentiality of Operations Manual Contents 7 8.3. Changes to Operations Manual 7 9. OPERATING ASSISTANCE 8 9.1. Franchisor’s Services 8 9.2. Additional Franchisor Services 8 10. FRANCHISEE’S OPERATIONAL COVENANTS 8 10.1. Store Operations 8 11. ROYALTIES 11 11.1. Monthly Royalty 11 11.2. Gross Retail Sales 12 11.3. Royalty Payments 12 11.4. Authorization for Prearranged Payments by Electronic Transfer 12 12. ADVERTISING 13 12.1. Approval of Advertising 13 12.2. Local Advertising 13 12.3. Marketing and Promotion Fee 13 12.4. Regional Advertising Programs 14 12.5. Marketing Services 14 13. QUALITY CONTROL 15 13.1. Compliance with Operations Manual 15 13.2. Standards and Speciﬁcations 15 13.3. Inspections 15 13.4. Restrictions on Services and Products 15 13.5. Approved Suppliers 16 13.6. Request to Change Supplier 16 13.7. Approval of Intended Supplier 16 14. TRADEMARKS, TRADE NAMES AND PROPRIETARY INTERESTS 16 14.1. Marks 16 14.2. No Use of Other Marks 17 14.3. Licensed Methods 17 14.4. Effect of Termination 17 14.5. Mark Infringement 17 14.6. Franchisee’s Business Name 17 14.7. Change of Marks 18 14.8. Creative Ownership 18 15. REPORTS, RECORDS AND FINANCIAL STATEMENTS 18 15.1. Franchisee Reports 18 15.2. Annual Financial Statements 19 15.3. Veriﬁcation 19 15.4. Books and Records 19 15.5. Audit of Books and Records 19 15.6. Failure to Comply with Reporting Requirements 19 15.7. Shopping Service 20 16. TRANSFER 20 16.1. Transfer by Franchisee 20 16.2. Pre-Conditions to Franchisee’s Transfer 20 16.3. Franchisor’s Approval of Transfer 21 16.4. Right of First Refusal 21 16.5. Types of Transfers 22 16.6. Transfer by the Franchisor 22 16.7. Franchisee’s Death or Disability 22 17. TERM AND EXPIRATION 23 17.1. Term 23 17.2. Continuation 23 17.3. Rights Upon Expiration 23 17.4. Exercise of Option for Successor Franchise 23 17.5. Conditions of Refusal 24 18. DEFAULT AND TERMINATION 24 18.1. Termination by Franchisor — Effective Upon Notice 24 18.2. Termination by Franchisor — Thirty Days Notice 25 18.3. Franchisor’s Remedies 26 18.4. Right to Purchase 26 18.5. Obligations of Franchisee Upon Termination or Expiration 27 18.6. State and Federal Law 28 19. BUSINESS RELATIONSHIP 29 19.1. Independent Businesspersons 29 19.2. Payment of Third Party Obligations 29 19.3. Indemniﬁcation 29 20. RESTRICTIVE COVENANTS 29 20.1. Non-Competition During Term 29 20.2. Post-Termination Covenant Not to Compete 30 20.3. Conﬁdentiality of Proprietary Information 30 20.4. Conﬁdentiality Agreement 31 21. INSURANCE 31 21.1. Insurance Coverage 31 21.2. Proof of Insurance Coverage 31 22. MISCELLANEOUS PROVISIONS 31 22.1. Governing Law/Consent to Venue and Jurisdiction 31 22.2. Cumulative Rights 32 22.3. Modiﬁcation 32 22.4. Entire Agreement 32 22.5. Delegation by the Franchisor 32 22.6. Effective Date 32 22.7. Review of Agreement 33 22.8. Attorneys’ Fees 33 22.9. Injunctive Relief 33 22.10. No Waiver 33 22.11. No Right to Set Off 33 22.12. Invalidity 33 22.13. Notices 33 22.14. Payment of Taxes 34 22.15. Acknowledgement 34 EXHIBITS I. Addendum to Franchise Agreement — Location Approval II. Personal Guaranty III. Statement of Ownership IV. Addendum to Franchise Agreement Related to the Authorization of Prearranged Payments V. Permit, License and Construction Certiﬁcate VI. Conﬁdentiality and Noncompetition Agreement ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. FRANCHISE AGREEMENT THIS AGREEMENT (the “Agreement”) is made this ___day of ___, 20___, by and between ROCKY MOUNTAIN CHOCOLATE FACTORY, INC., a Colorado corporation, located at 265 Turner Drive, Durango, Colorado 81303 (the “Franchisor”) and ______, located at ______(the “Franchisee”), who, on the basis of the following understandings and agreements, agree as follows: 1. PURPOSE 1.1 The Franchisor has developed methods for establishing, operating and promoting retail stores selling gourmet chocolates and other premium confectionery products (“ROCKY MOUNTAIN CHOCOLATE FACTORY Stores” or “Stores”) using the service mark “ROCKY MOUNTAIN CHOCOLATE FACTORY” and related trade names and trademarks (“Marks”) and the Franchisor’s proprietary methods of doing business (the “Licensed Methods”). 1.2. The Franchisor grants the right to others to develop and operate ROCKY MOUNTAIN CHOCOLATE FACTORY Stores, under the Marks and pursuant to the Licensed Methods. 1.3. The Franchisee desires to establish a ROCKY MOUNTAIN CHOCOLATE FACTORY Store at a location identiﬁed herein or to be later identiﬁed, and the Franchisor desires to grant the Franchisee the right to operate a ROCKY MOUNTAIN CHOCOLATE FACTORY Store at such location under the terms and conditions which are contained in this Agreement. 2. GRANT OF FRANCHISE 2.1. Grant of Franchise. The Franchisor grants to the Franchisee, and the Franchisee accepts from the Franchisor, the right to use the Marks and Licensed Methods in connection with the establishment and operation of a ROCKY MOUNTAIN CHOCOLATE FACTORY Store, at the location described in Article 3 of this Agreement. The Franchisee agrees to use the Marks and Licensed Methods, as they may be changed, improved, and further developed by the Franchisor from time to time, only in accordance with the terms and conditions of this Agreement. 2.2. Scope of Franchise Operations. The Franchisee agrees at all times to faithfully, honestly and diligently perform the Franchisee’s obligations hereunder, and to continuously exert best efforts to promote the ROCKY MOUNTAIN CHOCOLATE FACTORY Store. The Franchisee agrees to utilize the Marks and Licensed Methods to operate all aspects of the business franchised hereunder in accordance with the methods and systems developed and prescribed from time to time by the Franchisor, all of which are a part of the Licensed Methods. The Franchisee’s ROCKY MOUNTAIN CHOCOLATE FACTORY Store shall offer such products and services as the Franchisor shall designate and shall be restricted from manufacturing, offering or selling any products or services not previously approved by the Franchisor in writing. The Franchisee is required to devote a minimum of 50% of all retail display space to ROCKY MOUNTAIN CHOCOLATE FACTORY brand assorted bulk chocolates and boxed and packaged candies. The Franchisee’s ROCKY MOUNTAIN CHOCOLATE FACTORY Store must feature ROCKY MOUNTAIN CHOCOLATE FACTORY brand candy manufactured by the Franchisor or its designees (“Factory Candy”) and related nonconfectionery items (“Items”) approved by the Franchisor in writing. Depending on the retail environment and the conﬁguration of the Store, the Franchisee may also be permitted to make, offer and sell store-made candies (“Store Candy”) prepared in accordance with recipes and techniques set forth in the Operations Manual, as that term is deﬁned in Section 8.1. Some Stores do not offer Store Candy. 3. FRANCHISED LOCATION AND DESIGNATED AREA 3.1. Franchised Location. The Franchisee is granted the right and franchise to own and operate one ROCKY MOUNTAIN CHOCOLATE FACTORY Store at the address and location which shall be set forth in Exhibit I, attached hereto (“Franchised Location”). The type of Store conﬁguration shall also be set forth in Exhibit I, attached hereto. Some smaller Stores are designated as “Kiosks” or “Kiosk Stores” in this Agreement and all references to “Stores” include Kiosk Stores. 3.2. Limitation on Franchise Rights; Relocation. The rights that are hereby granted to the Franchisee are for the speciﬁc Franchised Location and cannot be transferred to an alternative Franchised Location, or any other location, without the prior written approval of the Franchisor. If the Franchisee has operated a ROCKY MOUNTAIN CHOCOLATE FACTORY Store for not less than 12 months and desires to relocate it to an alternative site, the Franchisee must set forth its reasons for requesting the relocation in writing to the Franchisor, along with a proposed new location. The Franchisor will have 30 days from receipt of the Franchisee’s written request to respond. If the Franchisor approves the relocation and the proposed new location, and if the ownership of the Franchisee does not change in any respect from the ownership of the Franchisee before the relocation, then the Franchisee may move its Store to the new approved location, provided that the Franchisee signs the Franchisor’s then current form of Franchise Agreement and opens the Store at the new location within 12 months after the Store closes at its former Franchised Location. In addition, the Franchisee will be required to pay a nonrefundable design fee of $2,500 to the Franchisor for the Franchisor’s Store designers to design the layout of the Franchisee’s new Store location. A similar design fee will also apply if the Franchisee requests design assistance in remodeling its Store at any time during the term of this Agreement. See Section 5.2 below. The Marks and Licensed Methods are licensed to the Franchisee for the operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store only at the Franchised Location; therefore, the Franchisee may not operate food carts, participate in food festivals or offer any other type of off-site food services using the Marks and Licensed Methods without the prior written consent of the Franchisor, in which case the Franchisor and the Franchisee shall execute an addendum to this Agreement relating to the operation of “Satellite Stores” (if this Agreement governs the operation of a traditional Store, any Satellite Store(s) shall be governed by separate Franchise Agreements) or “Temporary Stores.” 3.3. Franchisor’s Reservation of Rights. The Franchisee acknowledges that the franchise granted hereunder is non-exclusive and that the Franchisor retains the rights, among others: (1) to use, and to license others to use, the Marks and Licensed Methods for the operation of ROCKY MOUNTAIN CHOCOLATE FACTORY Stores, Kiosk Stores, Satellite Stores and Temporary Stores, at any location other than at the Franchised Location; (2) to use the Marks and Licensed Methods to identify services and products, promotional and marketing efforts or related items, and to identify products and services similar to those which the Franchisee will sell, but made available through alternative channels of distribution other than through traditional ROCKY 2 MOUNTAIN CHOCOLATE FACTORY Stores, at any location other than at the Franchised Location, including, but not limited to, through Satellite Stores, Temporary Stores, Kiosk Stores, by way of mail order, (including electronic mail order), the Internet, catalog, television, retail store display or through the wholesale sale of its products to unrelated retail outlets or to candy distributors or outlets located in stadiums, arenas, airports, turnpike rest stops or supermarkets; and (3) to use and license the use of other proprietary marks or methods in connection with the sale of products and services similar to those which the Franchisee will sell or in connection with the operation of retail stores selling gourmet chocolates or other premium confectionery products, at any location other than at the Franchised Location, which stores are the same as, or similar to, or different from a traditional ROCKY MOUNTAIN CHOCOLATE FACTORY Store or a Satellite Store, a Temporary Store or a Kiosk Store, on any terms and conditions as the Franchisor deems advisable, and without granting the Franchisee any rights therein. 4. INITIAL FRANCHISE FEE 4.1. Initial Franchise Fee. In consideration for the right to develop and operate one ROCKY MOUNTAIN CHOCOLATE FACTORY Store, the Franchisee agrees to pay to the Franchisor an initial franchise fee in the amount set forth in Exhibit I attached hereto, all of which is due and payable on the date the Franchisee signs this Agreement. The Franchisee acknowledges and agrees that the initial franchise fee represents payment for the initial grant of the rights to use the Marks and Licensed Methods, that the Franchisor has earned the initial franchise fee upon receipt thereof and that the fee is under no circumstances refundable to the Franchisee after it is paid, except as set forth in Section 5.6 of this Agreement. If a transfer occurs, no initial franchise fee shall be due at the time that the Franchisee transfers the Store to another party, but a transfer fee will apply as set forth in Section 16.2 of this Agreement. 5. DEVELOPMENT OF FRANCHISED LOCATION 5.1. Approval of Lease. The Franchisee shall obtain the Franchisor’s prior written approval before executing any lease or purchase agreement for the Franchised Location. Any lease for the Franchised Location shall, at the option of the Franchisor, contain provisions including: (1) allowing for assignment of the lease to the Franchisor in the event that this Agreement is terminated or not renewed for any reason; (2) giving the Franchisor the right to cure any default by the Franchisee under such lease; and/or (3) providing the Franchisor with the right, exercisable upon and as a condition of the approval of the Franchised Location, to execute the lease agreement or other document providing entitlement to the use of the Franchised Location in its own name or jointly with the Franchisee as lessee and, upon the exercise of such option, the Franchisor shall provide the Franchisee with the right to use the premises as its sublessee, assignee, or other similar capacity upon the same terms and conditions as obtained by the Franchisor. The Franchisor may choose to hire a third party professional to negotiate the Franchisee’s lease and the Franchisee agrees to reimburse the Franchisor for its actual costs associated with any such negotiation. The Franchisee shall deliver a copy of the signed lease for the Franchised Location to the Franchisor within 15 days of its execution. The Franchisee acknowledges that approval of a lease for the Franchised Location by the Franchisor does not constitute a recommendation, endorsement or guarantee by the Franchisor of the suitability of the location or the lease and the Franchisee should take all steps necessary to ascertain whether such location and lease are acceptable to the Franchisee. 3 5.2. Conversion and Design. The Franchisee acknowledges that the layout, design, decoration and color scheme of ROCKY MOUNTAIN CHOCOLATE FACTORY Stores are an integral part of the Franchisor’s proprietary Licensed Methods and accordingly, the Franchisee shall convert, design and decorate the Franchised Location in accordance with the Franchisor’s plans and speciﬁcations which are contained in a Design and Construction Manual that is considered, for the purposes of this Agreement, to be a part of the Operations Manual, deﬁned in Section 8.1. The Franchisee shall hire an architect/designer to prepare written plans for the Store’s layout and construction, which plans shall be submitted to the Franchisor for its prior written approval. Throughout the term of this Agreement, the Franchisee shall also obtain the Franchisor’s written consent to any remodeling or decoration of the premises before remodeling or decorating begins, recognizing that such remodeling, decoration and any related costs are the Franchisee’s sole responsibility. If the Franchisee remodels its Store at any time during the term of this Agreement, the Franchisee shall pay the Franchisor $2,500 for the Franchisor’s design services. 5.3. Signs. The Franchisee shall purchase or otherwise obtain for use at the Franchised Location and in connection with the ROCKY MOUNTAIN CHOCOLATE FACTORY Store, signs which comply with the standards and speciﬁcations of the Franchisor as set forth in the Operations Manual, as that term is deﬁned in Section 8.1. It is the Franchisee’s sole responsibility to insure that any signs comply with applicable local ordinances, building codes and zoning regulations. Any modiﬁcations to the Franchisor’s standards and speciﬁcations for signs that must be made due to local ordinances, codes or regulations shall be submitted to the Franchisor for prior written approval. The Franchisee acknowledges the Marks, or any other name, symbol or identifying marks on any signs shall only be used in accordance with the Franchisor’s standards and speciﬁcations and only with the prior written approval of the Franchisor. 5.4. Equipment. The Franchisee shall purchase or otherwise obtain for use at the Franchised Location and in connection with the ROCKY MOUNTAIN CHOCOLATE FACTORY Store, equipment of a type and in an amount which complies with the standards and speciﬁcations of the Franchisor. The Franchisee acknowledges that the type, quality, conﬁguration, capability and/or performance of the equipment are all standards and speciﬁcations which are a part of the Licensed Methods and therefore such equipment must be purchased, leased, or otherwise obtained in accordance with the Franchisor’s standards and speciﬁcations and only from suppliers or other sources approved by the Franchisor. The Franchisee must purchase a facsimile machine and connect it to a phone line that is separate from the main phone number for the Store. The Franchisee shall equip the Store with an integrated store information system (“System”), computer hardware and software, printers and other designated equipment consistent with the standards and speciﬁcations of the Franchisor. The Franchisor requires that it be given reasonable access to information and data regarding the Franchisee’s ROCKY MOUNTAIN CHOCOLATE FACTORY Store by computer modem with a separate phone line dedicated to such modem, or by another form of electronic transmission. The Franchisee must purchase and maintain throughout the term of this Agreement a maintenance and support agreement for the System with the Franchisor’s designated supplier. The Franchisor also requires the Franchisee to obtain and maintain an account with an Internet service provider that meets the Franchisor’s standards and speciﬁcations to facilitate electronic communication. 4 5.5. Permits and Licenses. The Franchisee agrees to obtain all such permits and certiﬁcations as may be required for the lawful construction and operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store together with all certiﬁcations from government authorities having jurisdiction over the site, that all requirements for construction and operation have been met, including without limitation, zoning, access, sign, health, safety requirements, building and other required construction permits, licenses to do business and ﬁctitious name registrations, sales tax permits, health and sanitation permits and ratings and ﬁre clearances. The Franchisee agrees to obtain all customary contractors’ sworn statements and partial and ﬁnal lien waivers for construction, remodeling, decorating and installation of equipment at the Franchised Location. The Franchisee shall sign and deliver to the Franchisor the Permit, License and Construction Certiﬁcate set forth as Exhibit V to this Agreement, to conﬁrm Franchisee’s compliance with the Americans with Disabilities Act and other provisions of this Section 5.5 not later than 30 days prior to the date the Store begins operating. Copies of all inspection reports, warnings, certiﬁcates and ratings issued by any governmental entity during the term of this Agreement in connection with the conduct of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store which indicates the Franchisee’s failure to meet or maintain the highest governmental standards, or less than full compliance by the Franchisee with any applicable law, rule or regulation, shall be forwarded to the Franchisor within ﬁve days of the Franchisee’s receipt thereof. 5.6. Commencement of Operations. Unless otherwise agreed in writing by the Franchisor and the Franchisee, the Franchisee has 180 days from the date of this Agreement within which to complete the initial training program, described in Section 6.1 of this Agreement, develop the Franchised Location and commence operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store. Failure to commence operations within this time frame shall constitute grounds for termination under Article 18 of this Agreement. If this Agreement is terminated by the Franchisor for failure to commence operation of the Store within applicable time limits, $5,000 of the initial franchise fee will be refunded to the Franchisee. The Franchisor will extend the time in which the Franchisee has to commence operations for a reasonable period of time in the event factors beyond the Franchisee’s reasonable control prevent the Franchisee from meeting this development schedule, so long as the Franchisee has made reasonable and continuing efforts to comply with such development obligations and the Franchisee requests, in writing, an extension of time in which to have its ROCKY MOUNTAIN CHOCOLATE FACTORY Store established before such development period lapses. However, notwithstanding the Franchisor’s written agreement to extend the Franchisee’s development period, if more than 270 days elapse between the date of this Agreement and the commencement of operation of the Store, the Franchisor reserves the right, in its sole discretion, to require the Franchisee to execute the Franchisor’s then current form of Franchise Agreement or an amendment to this Agreement to conform this Agreement with the terms of the then current Franchise Agreement. 6. TRAINING 6.1. Initial Training Program. After the Franchisee executes a lease for the Franchised Location, the Franchisee or, if the Franchisee is not an individual, the person designated by the Franchisee to assume primary responsibility for the management of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store, (“General Manager”) is required to attend and successfully complete the initial training program which is offered by the Franchisor at one of the Franchisor’s designated training facilities. Up to three individuals are eligible to participate in the Franchisor’s initial training program without charge of a tuition or fee. The 5 Franchisee shall be responsible for any and all traveling and living expenses incurred in connection with attendance at the training program. At least one individual must successfully complete the initial training program prior to the Franchisee’s commencement of operation of its ROCKY MOUNTAIN CHOCOLATE FACTORY Store. 6.2. Length of Training. The initial training program shall consist of 7 days of instruction at a location designated by the Franchisor; provided, however, that the Franchisor reserves the right to waive a portion of the training program or alter the training schedule, if in the Franchisor’s sole discretion, the Franchisee or General Manager has sufficient prior experience or training. 6.3. Additional Training. From time to time, the Franchisor may present seminars, conventions or continuing development programs or conduct meetings for the beneﬁt of the Franchisee. The Franchisee or its General Manager shall be required to attend any ongoing mandatory seminars, conventions, programs or meetings as may be offered by the Franchisor. The Franchisor shall give the Franchisee at least 30 days prior written notice of any ongoing seminar, convention or program that is deemed mandatory. The Franchisor shall not require that the Franchisee attend any ongoing training more often than once a year. All mandatory training will be offered without charge of a tuition or fee; provided, however, the Franchisee will be responsible for all traveling and living expenses which are associated with attendance at the same. 7. DEVELOPMENT ASSISTANCE 7.1. Franchisor’s Development Assistance. The Franchisor shall provide the Franchisee with assistance in the initial establishment of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store as follows: a. Provision of the initial training program to be conducted at the Franchisor’s designated training facilities or at another location designated by the Franchisor, as described in Article 6 above. b. Provision of written guidelines for a Franchised Location that shall include, without limitation, speciﬁcations for space requirements and build out. The Franchisee acknowledges that the Franchisor shall have no other obligation to provide assistance in the selection and approval of a Franchised Location other than the provision of such written speciﬁcations and approval or disapproval of a proposed Franchised Location, which approval or disapproval shall be based on information submitted to the Franchisor in a form sufficient to assess the proposed location as may be required by the Franchisor, in the Franchisor’s sole discretion, and on information gathered by the Franchisor. c. Direction regarding the required conversion, design and decoration of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store premises, plus speciﬁcations concerning signs, seasonal graphics, music, decor and equipment. d. Direction regarding the selection of suppliers of equipment, seasonal graphics, music, items and materials used and inventory offered for sale in connection with the ROCKY MOUNTAIN CHOCOLATE FACTORY Store. The Franchisor will determine the Franchisee’s initial inventory of Factory Candy that the Franchisee will purchase, depending on the size and 6 conﬁguration of the Store. After execution of this Agreement, the Franchisor will provide the Franchisee with a list of approved suppliers, if any, of such equipment, items, seasonal graphics, music, materials and inventory and, if available, a description of any national or central purchase and supply agreements offered by such approved suppliers for the beneﬁt of ROCKY MOUNTAIN CHOCOLATE FACTORY franchisees. e. Provision of an Operations Manual in accordance with Section 8.1 below. f. As the Franchisor may reasonably schedule, and depending on availability of personnel, the Franchisor will make available to the Franchisee at or close to the opening of the Franchisee’s ROCKY MOUNTAIN CHOCOLATE FACTORY Store, a representative (“Site Representative”) who will be present for up to ﬁve days beginning approximately three days prior to the opening of the Franchisee’s ROCKY MOUNTAIN CHOCOLATE FACTORY Store. If the Franchisee’s Store opens on or near a holiday, however, the Site Representative shall not begin the in-Store assistance until three days after the holiday. Holidays shall include, but not be limited to, New Years Day, Valentines Day, Easter, Memorial Day, Fourth of July, Labor Day, Thanksgiving, Hanukkah and Christmas. There will be no charge to the Franchisee for this service provided by the Franchisor. The Site Representative will assist the Franchisee’s employees in opening the Store, unless in the Franchisor’s determination, the Franchisee or the General Manager have sufficient prior training or experience. 8. OPERATIONS MANUAL 8.1. Operations Manual. The Franchisor agrees to loan to the Franchisee one or more manuals, technical bulletins, cookbooks and recipes and other written materials (collectively referred to as “Operations Manual”) covering Factory Candy ordering, Store Candy manufacturing, processing and stocking and other operating and in-store marketing techniques for the ROCKY MOUNTAIN CHOCOLATE FACTORY Store. The Franchisee agrees that it shall comply with the Operations Manual as an essential aspect of its obligations under this Agreement, that the Operations Manual shall be deemed to be incorporated herein by reference and failure by the Franchisee to substantially comply with the Operations Manual may be considered by the Franchisor to be a breach of this Agreement. 8.2. Conﬁdentiality of Operations Manual Contents. The Franchisee agrees to use the Marks and Licensed Methods only as speciﬁed in the Operations Manual. The Operations Manual is the sole property of the Franchisor and shall be used by the Franchisee only during the term of this Agreement and in strict accordance with the terms and conditions hereof. The Franchisee shall not duplicate the Operations Manual nor disclose its contents to persons other than its employees or officers who have signed the form of Conﬁdentiality and Noncompetition Agreement attached hereto as Exhibit VI and incorporated herein by reference. The Franchisee shall return the Operations Manual to the Franchisor upon the expiration, termination or transfer of this Agreement. 8.3. Changes to Operations Manual. The Franchisor reserves the right to revise the Operations Manual from time to time as it deems necessary to update or change operating and marketing techniques, standards and speciﬁcations for all components of the Licensed Methods and approved Factory Candy, Items and Store Candy offered by Stores. The Franchisee, within 30 days of receiving any updated information, shall in turn update its copy of the Operations Manual as instructed by the Franchisor and shall conform its operations with the 7 updated provisions within a reasonable time after receipt of such updated information. The Franchisee acknowledges that a master copy of the Operations Manual maintained by the Franchisor at its principal office shall be controlling in the event of a dispute relative to the content of any Operations Manual. 9. OPERATING ASSISTANCE 9.1. Franchisor’s Services. The Franchisor agrees that, during the Franchisee’s operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store, the Franchisor shall make available to the Franchisee the following services: a. Upon the reasonable request of the Franchisee, consultation by telephone and electronic mail regarding the continued operation and management of a ROCKY MOUNTAIN CHOCOLATE FACTORY Store and advice regarding the retail services, product quality control, inventory issues, customer relations issues and similar advice. b. Access to advertising and promotional materials as may be developed by the Franchisor, the cost of which may be passed on to the Franchisee at the Franchisor’s option. c. On-going updates of information and programs regarding the candy industry, the ROCKY MOUNTAIN CHOCOLATE FACTORY concept and related Licensed Methods, including, without limitation, information about special or new products which may be developed and made available to ROCKY MOUNTAIN CHOCOLATE FACTORY franchisees. d. Depending on availability, allow replacement or additional General Managers to attend the initial training program. The Franchisor reserves the right to charge a tuition or fee in an amount payable in advance, commensurate with the Franchisor’s then current published prices for such training. The Franchisee shall be responsible for all travel and living expenses incurred by its personnel during the training program. Further, the availability of the training program shall be subject to space considerations and prior commitments to new ROCKY MOUNTAIN CHOCOLATE FACTORY franchisees. 9.2. Additional Franchisor Services. Although not obligated to do so, upon the reasonable request of the Franchisee, the Franchisor may make its employees or designated agents available to the Franchisee for on-site advice and assistance in connection with the on-going operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store governed by this Agreement. In the event that the Franchisee requests such additional assistance and the Franchisor agrees to provide the same, the Franchisor reserves the right to charge the Franchisee for all travel, lodging, living expenses, telephone charges and other identiﬁable expenses associated with such assistance, plus a fee based on the time spent by each employee on behalf of the Franchisee, which fee will be charged in accordance with the then current daily or hourly rates being charged by the Franchisor for assistance. 10. FRANCHISEE’S OPERATIONAL COVENANTS 10.1. Store Operations. The Franchisee acknowledges that it is solely responsible for the successful operation of its ROCKY MOUNTAIN CHOCOLATE FACTORY Store and that the continued successful operation 8 thereof is, in part, dependent upon the Franchisee’s compliance with this Agreement and the Operations Manual. In addition to all other obligations contained in this Agreement and in the Operations Manual, the Franchisee covenants that: a. The Franchisee shall maintain clean, efficient and high quality ROCKY MOUNTAIN CHOCOLATE FACTORY Store operations and shall operate the business in accordance with the Operations Manual and in such a manner as not to detract from or adversely reﬂect upon the name and reputation of the Franchisor and the goodwill associated with the ROCKY MOUNTAIN CHOCOLATE FACTORY name and Marks. b. The Franchisee will operate its ROCKY MOUNTAIN CHOCOLATE FACTORY Store in compliance with all applicable laws, health department regulations and other ordinances. In connection therewith, the Franchisee will be solely and fully responsible for obtaining any and all licenses to operate the ROCKY MOUNTAIN CHOCOLATE FACTORY Store. The Franchisee shall promptly forward to the Franchisor copies of all health department, ﬁre department, building department and other similar reports of inspections as and when they become available. c. The Franchisee and all persons who work behind the counter at the Store in any capacity, whether or not they are employees of the Franchisee (“Personnel”), shall conduct themselves in such a manner so as to promote a good image to the public and to the business community. At no time shall any of the Personnel engage in unreasonable or disrespectful behavior toward anyone, including using offensive or rude language or gestures. The Franchisee shall at all times require its Personnel to follow the Code of Conduct as set forth in the Operations Manual. d. The Franchisee acknowledges that proper management of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store is important and shall insure that the Franchisee or a designated General Manager who has completed the Franchisor’s initial training program be responsible for the management of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store after commencement of Store operations and be present at the Franchised Location during operation of the Store. e. The Franchisee shall offer only authorized products and services as are more fully described in the vendor lists which are a part of the Operations Manual, which may include, without limitation, Factory Candy, Store Candy, Items and other authorized confectionery food and beverage products. Further, the Franchisee shall operate the Store using only those supplies, equipment, ingredients, signs, décor, music and methods which are described in the Operations Manual. The Franchisee shall offer only the types of products and services as from time to time may be prescribed by the Franchisor and shall refrain from offering any other types of products or services, from or through the ROCKY MOUNTAIN CHOCOLATE FACTORY Store, including, without limitation, ﬁlling “Wholesale Orders,” deﬁned below, selling Factory Candy, Store Candy, Items or other authorized products through the Internet, or catering or other off-premises sales, without the prior written consent of the Franchisor. “Wholesale Orders” are deﬁned as those orders or sales where the principal purpose of the purchase is for resale, not consumption, or any sale other than those sold over the counter at a price other than that price charged to the general public; provided, however, that volume discounted sales made on the premises at the Franchised Location to a single purchaser, not for resale, and discounted sales made on the premises at the Franchised Location to charitable organizations for fund-raising purposes shall be 9 permitted. Factory Candy, Store Candy and Items shall never be sold in containers or bags other than those approved and supplied by the Franchisor or other supplier approved by the Franchisor. f. The Franchisee shall promptly pay when due all taxes and other obligations owed to third parties in the operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store, including without limitation, unemployment and sales taxes, and any and all accounts or other indebtedness of every kind incurred by the Franchisee in the conduct of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store. In the event of a bona ﬁde dispute as to the liability for taxes assessed or other indebtedness, the Franchisee may contest the validity or the amount of the tax or indebtedness in accordance with procedures of the taxing authority or applicable law; however, in no event shall the Franchisee permit a tax sale or seizure by levy or execution or similar writ or warrant, or attachment by a creditor to occur against the premises of the Franchised Location, or any improvement thereon. g. The Franchisee shall subscribe for and maintain not fewer than two or three separate telephone numbers for its ROCKY MOUNTAIN CHOCOLATE FACTORY Store at the Franchised Location, depending on the size and conﬁguration of the Store or Kiosk. One number shall be used exclusively for voice communication, the second shall be used exclusively for the modem that is included in the System. If a third telephone number is required, it shall be used exclusively for a facsimile machine. The telephone number and, if applicable, the facsimile machine number, shall be listed and identiﬁed exclusively with the ROCKY MOUNTAIN CHOCOLATE FACTORY Store in all official telephone directories and in all advertising in which such numbers appear and shall be separate and distinct from all other telephone numbers subscribed for by the Franchisee. h. The Franchisee shall comply with all agreements with third parties related to the ROCKY MOUNTAIN CHOCOLATE FACTORY Store including, in particular, all provisions of any lease for the Franchised Location. i. The Franchisee and all employees of the Franchisee shall adhere to strict grooming and dress code guidelines, as described in the Code of Conduct set forth in the Operations Manual, while on duty at the Franchised Location. The Franchisee is required, at the Franchisee’s expense, to purchase speciﬁed apparel from suppliers approved by the Franchisor. All General Managers, employees of the Franchisee, the Franchisee and its owners shall wear the speciﬁed apparel at all times while working at the Franchised Location. The Franchisor has the right, in its sole and absolute discretion, to change or modify such grooming and dress code guidelines in the Operations Manual. j. The Franchisee agrees to renovate, refurbish, remodel or replace, at its own expense, the personal property and equipment used in the operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store, when reasonably required by the Franchisor in order to comply with the image, standards of operation and performance capability established by the Franchisor from time to time. If the Franchisor changes its image or standards of operation, it shall give the Franchisee a reasonable period of time within which to comply with such changes. k. The Franchisee shall be responsible for training all of its Personnel who work in any capacity in the ROCKY MOUNTAIN CHOCOLATE FACTORY Store. The Franchisee must conduct its Personnel training in the manner and according to the standards as prescribed in the Operations Manual. All Personnel who do not satisfactorily complete the training shall not work in any capacity in the Franchisee’s ROCKY MOUNTAIN CHOCOLATE FACTORY Store. 10 l. The Franchisee shall at all times during the term of this Agreement own and control the ROCKY MOUNTAIN CHOCOLATE FACTORY Store authorized hereunder. The Franchisee shall not operate any other business or profession from or through the Store. If the Franchisee is an entity, the entity shall only operate the ROCKY MOUNTAIN CHOCOLATE FACTORY Store governed by this Agreement and no other business, unless the Franchisee receives the Franchisor’s prior written approval. Upon request of the Franchisor, the Franchisee shall promptly provide satisfactory proof of such ownership to the Franchisor. The Franchisee represents that the Statement of Ownership, attached hereto as Exhibit III and by this reference incorporated herein, is true, complete, accurate and not misleading, and, in accordance with the information contained in the Statement of Ownership, the controlling ownership of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store is held by the Franchisee. The Franchisee shall promptly provide the Franchisor with a written notiﬁcation if the information contained in the Statement of Ownership changes at any time during the term of this Agreement and shall comply with the applicable transfer provisions contained in Article 16 herein. In addition, if the Franchisee is an entity, all of the owners of the Franchisee shall sign the Personal Guaranty attached hereto as Exhibit II. m. The Franchisee shall at all times during the term of this Agreement keep its ROCKY MOUNTAIN CHOCOLATE FACTORY Store open during the business hours designated by the Franchisor from time to time in the Operations Manual. n. Unless notiﬁed in writing otherwise by the Franchisor, all Factory Candy and related products shall be sold and shipped to the Franchisee on a net 30-day basis, or according to the then current payment terms set by the Franchisor or its designated suppliers. The Franchisor reserves the right to charge interest at the rate of 1.5% per month if the Franchisee fails to pay for its orders on time and the Franchisor reserves the right to discontinue shipment of Factory Candy and related products to the Franchisee if the Franchisee is repeatedly delinquent in paying for its Factory Candy and related products, in the Franchisor’s sole discretion. The Franchisee may be required to “prepay” Factory Candy orders, notwithstanding the payment policy set forth above, in the event of poor payment performance. The Franchisor reserves the right to change payment terms and policies at any time. The Franchisor also reserves the right to change the price for Factory Candy and related products from time to time as may be set forth in the most recent price bulletin sent to all franchisees or the then current Operations Manual. 11. ROYALTIES 11.1. Monthly Royalty. The Franchisee agrees to pay to the Franchisor a monthly royalty (“Royalty”) equal to 5% of its Gross Retail Sales generated from or through its ROCKY MOUNTAIN CHOCOLATE FACTORY Store. The Franchisee also agrees to pay a quarterly Royalty based on Adjusted Gross Retail Sales during each calendar quarter. The amount of monthly Royalty paid during each quarter shall be credited toward the amount of quarterly Royalty owed. Within 15 days following the end of each calendar quarter, the Franchisor shall calculate the amount of the Franchisee’s Adjusted Gross Retail Sales during the previous quarter and the Franchisee shall owe the Franchisor a quarterly Royalty equal to 10% of its Adjusted Gross Retail Sales. “Adjusted Gross Retail Sales” shall be calculated as the amount of “Gross Retail Sales,” deﬁned in Section 11.2 below, minus a ﬁxed dollar amount for each pound of Factory Candy purchased from the Franchisor and minus a multiple of the wholesale price, as speciﬁed by the Franchisor, on certain Store Candy ingredients, packaging and other products and supplies purchased from the Franchisor during the previous calendar quarter. The Franchisor reserves the right to change the 11 ﬁxed dollar amount per pound of Factory Candy and the multiple of the wholesale price from time to time, in the Franchisor’s sole discretion. The Franchisee shall be notiﬁed of any credits from or amounts owing to the Franchisor for the quarterly Royalty based on Adjusted Gross Retail Sales. Any credits or amounts owed will be added to or deducted from the following month’s monthly Royalty payment. If the Franchisee owns other ROCKY MOUNTAIN CHOCOLATE FACTORY Stores governed by other franchise agreements that calculate Royalties differently than described above, the Franchisor reserves the right to adjust the calculation of Adjusted Gross Retail Sales based on variances in other Stores’ past and current purchases. 11.2. Gross Retail Sales. “Gross Retail Sales” shall be deﬁned as receipts and income of any kind from all products or services sold from or through the ROCKY MOUNTAIN CHOCOLATE FACTORY Store, including any such sale of products or services made for cash or upon credit, or partly for cash and partly for credit, regardless of collection of charges for which credit is given, less returns for which refunds are made, provided that the refund shall not exceed the sales price and exclusive of discounts, sales taxes and other taxes, amounts received in settlement of a loss of merchandise, shipping expenses paid by the customer and discount sales to corporations or to charities for fund-raising purposes. “Gross Retail Sales” shall also include the fair market value of any services or products received by the Franchisee in barter or in exchange for its services and products. 11.3. Royalty Payments. The Franchisee agrees that Royalty payments shall be paid monthly and sent to the Franchisor, post-marked no later than the 15th of each month based on Gross Retail Sales for the immediately preceding month. Royalty payments shall be accompanied by monthly reports, as more fully described in Article 15 hereof, and standard transmittal forms containing information regarding the Franchisee’s Gross Retail Sales and such additional information as may be requested by the Franchisor. The Franchisor reserves the right to require Royalty payments be made on a weekly or bi-weekly basis if the Franchisee does not timely or fully submit the required payments or reports. The Franchisor shall have the right to verify such Royalty payments from time to time as it deems necessary, in any reasonable manner. In the event that the Franchisee fails to pay any Royalties within 14 days after they are due, the Franchisee shall, in addition to such Royalties, pay a late charge equivalent to 18% of the late Royalty payment; provided, however, in no event shall the Franchisee be required to pay a late payment at a rate greater than the maximum interest rate permitted by applicable law. If the Franchisee pays Royalties with a check returned for non-sufficient funds more than one time in any calendar year, in addition to all other remedies which may be available, the Franchisor shall have the right to require that Royalty payments be made by certiﬁed or cashier’s checks. 11.4. Authorization for Prearranged Payments by Electronic Transfer. The Franchisor reserves the right to require that Royalty payments, late charges and payment of the Marketing and Promotion Fee and late charges (as set forth in Section 12.3 below) be made by means of electronic funds transfer and the Franchisee agrees to provide the information necessary to implement such transfer payments within 30 days of receiving notice that such a program is being implemented. By signing this Agreement, the Franchisee authorizes the Franchisor to initiate debit entries and/or credit correction entries to the Franchisee’s checking or savings account indicated on the Addendum to this Agreement related to the Authorization of Prearranged Payments attached to this Agreement as Exhibit IV, and authorizes the depository named on Exhibit IV (“Depository”) to debit such account pursuant to the Franchisor’s instructions. The Franchisee shall complete the form attached as Exhibit IV with the information requested. This authority is to remain in full force and effect until Depository has received 12 joint written notiﬁcation from the Franchisor and the Franchisee of the Franchisee’s termination of such authority in such time and in such manner as to afford Depository a reasonable opportunity to act on it. Notwithstanding the foregoing, Depository shall provide the Franchisor and the Franchisee with 30 days’ prior written notice of the termination of this authority. If an erroneous debit entry is initiated to the Franchisee’s account, the Franchisee shall have the right to have the amount of such entry credited to such account by Depository, if (a) within 15 calendar days following the date on which Depository sent to the Franchisee a statement of account or a written notice pertaining to such entry or (b) 45 days after posting, whichever occurs ﬁrst, the Franchisee shall have sent to Depository a written notice identifying such entry, stating that such entry was in error and requesting Depository to credit the amount thereof to such account. These rights are in addition to any rights the Franchisee may have under federal and state banking laws. 12. ADVERTISING 12.1. Approval of Advertising. The Franchisee shall obtain the Franchisor’s prior written approval of all advertising or other marketing or promotional programs published by any method, including print, broadcast and electronic media, regarding the ROCKY MOUNTAIN CHOCOLATE FACTORY Store, including, without limitation, “Yellow Pages” advertising, newspaper ads, ﬂyers, brochures, coupons, direct mail pieces, specialty and novelty items, radio, television, Internet and World Wide Web advertising. The Franchisee acknowledges and agrees that the Franchisor may disapprove of any advertising, marketing or promotional programs submitted to the Franchisor, for any reason, in the Franchisor’s sole discretion. The Franchisee shall also obtain the Franchisor’s prior written approval of all promotional materials provided by vendors. The proposed written advertising or a description of the marketing or promotional program shall be submitted to the Franchisor at least 10 days prior to publication, broadcast or use. The Franchisee acknowledges that advertising and promoting the ROCKY MOUNTAIN CHOCOLATE FACTORY Store in accordance with the Franchisor’s standards and speciﬁcations is an essential aspect of the Licensed Methods, and the Franchisee agrees to comply with all advertising standards and speciﬁcations. The Franchisee shall display all required promotional materials, signs, point of purchase displays and other marketing materials in its ROCKY MOUNTAIN CHOCOLATE FACTORY Store in the manner prescribed by the Franchisor. The Franchisee shall not, under any circumstances, use handwritten signs in the operation of its Store. 12.2. Local Advertising. The Franchisor reserves the right to require the Franchisee to spend up to 1% of monthly Gross Retail Sales on local advertising to create public awareness of the Franchisee’s ROCKY MOUNTAIN CHOCOLATE FACTORY Store. The Franchisee will submit to the Franchisor an accounting of the amounts spent on advertising within 30 days following the end of each calendar quarter. If the Franchisor requires its franchisees to advertise locally as described above, all Franchisor-owned Stores will be required to spend money for local advertising on an equal percentage basis with all franchised Stores. If the Franchisee’s lease requires it to advertise locally, the Franchisor may, in its sole discretion, count such expenditures toward the Franchisee’s local advertising expenditure required by this Section 12.2. The Franchisee shall obtain the Franchisor’s prior written approval of all written advertising and promotional materials before publication, in accordance with Section 12.1 above. 12.3. Marketing and Promotion Fee. The Franchisee shall pay to the Franchisor, in addition to Royalties, a fee of 1% of the total amount of the Franchisee’s Gross Retail Sales (“Marketing and Promotion Fee”). The Marketing and 13 Promotion Fee shall be in addition to and not in lieu of the Franchisee’s expenditures for local advertising, as described in Section 12.2 above. The following terms and conditions will apply: a. The Marketing and Promotion Fee shall be payable concurrently with the payment of the Royalties, and transmitted to the Franchisor in accordance with Section 11.3 above, for all Marketing and Promotion Fees for the immediately preceding month. b. The Marketing and Promotion Fees will be subject to the same late charges as the Royalties, in an amount and manner set forth in Section 11.3 above. c. Upon written request by the Franchisee, the Franchisor will make available to the Franchisee, no later than 120 days after the end of each ﬁscal year, an annual ﬁnancial statement which indicates how the Marketing and Promotion Fees have been spent. d. The Marketing and Promotion Fees will be administered by the Franchisor, in its sole discretion, and may be used for production and placement of point of purchase advertising, in-store signage, in-store promotions, media advertising, direct mailings, brochures, collateral material advertising, surveys of advertising effectiveness, packaging development, logo, design or other advertising or public relations expenditures relating to advertising the Franchisee’s products and services. e. The Franchisor may reimburse itself for independent audits, reasonable accounting, bookkeeping, reporting and legal expenses, taxes and other reasonable direct and indirect expenses as may be incurred by the Franchisor or its authorized representatives in connection with the programs funded by the Marketing and Promotion Fees. The Franchisor will not be liable for any act or omission with respect to such Marketing and Promotion Fees that is consistent with this Agreement and is done in good faith. 12.4. Regional Advertising Programs. Although not obligated to do so, the Franchisor reserves the right to allocate up to 50% of the Marketing and Promotion Fees as may be collected in accordance with Section 12.3 above toward a regional advertising program for the beneﬁt of ROCKY MOUNTAIN CHOCOLATE FACTORY franchisees located within a particular region. The Franchisor has the right, in its sole discretion, to determine the composition of all geographic territories and market areas for the implementation of such regional advertising and promotion campaigns and to require that the Franchisee participate in such regional advertising programs as and when they may be established by the Franchisor. If a regional advertising program is implemented on behalf of a particular region by the Franchisor, the Franchisor, to the extent reasonably calculable, will only use contributions from ROCKY MOUNTAIN CHOCOLATE FACTORY franchisees within such region for the particular regional advertising program. The Franchisor also reserves the right to establish a co- operative for a particular region to enable the co-operative to self-administer the regional advertising program. If a regional advertising co-operative is established by the Franchisor, the Franchisee agrees that it will participate in it. If the Franchisor creates a regional advertising program, either as a co-operative or otherwise, the Franchisor has the right to charge the program for the actual costs of forming and administering the program. 12.5. Marketing Services. The Franchisor may, in its sole discretion, offer marketing and merchandising services to the Franchisee at rates that are competitive with those charged by third parties offering similar services. The 14 Franchisee may utilize such services, if they are offered, at the Franchisee’s option. Services offered by the Franchisor may include marketing consulting, graphic design, copywriting, advertising, public relations and merchandising consultations. 13. QUALITY CONTROL 13.1. Compliance with Operations Manual. The Franchisee agrees to maintain and operate the ROCKY MOUNTAIN CHOCOLATE FACTORY Store in compliance with this Agreement and the standards and speciﬁcations contained in the Operations Manual, as the same may be modiﬁed from time to time by the Franchisor. 13.2. Standards and Speciﬁcations. The Franchisor will make available to the Franchisee standards and speciﬁcations for products and services offered at or through the ROCKY MOUNTAIN CHOCOLATE FACTORY Store and speciﬁcally, for the recipes for Store Candy, display cases, uniforms, materials, forms, menu boards, items and supplies used in connection with the Store. The Franchisor reserves the right to change standards and speciﬁcations for services and products offered at or through the ROCKY MOUNTAIN CHOCOLATE FACTORY Store and for the recipes for Store Candy, display cases, uniforms, materials, forms, items and supplies used in connection with the Store upon 30 days prior written notice to the Franchisee. The Franchisee shall strictly adhere to all of the Franchisor’s current standards and speciﬁcations for the ROCKY MOUNTAIN CHOCOLATE FACTORY Store as prescribed from time to time. 13.3. Inspections. The Franchisor shall have the right to examine the Franchised Location, including the inventory, products, equipment, materials and supplies, to ensure compliance with all standards and speciﬁcations set by the Franchisor. The Franchisor shall conduct such inspections during regular business hours and the Franchisee may be present at such inspections. The Franchisor, however, reserves the right to conduct the inspections without prior notice to the Franchisee. 13.4. Restrictions on Services and Products. The Franchisee will be required to purchase all of its Factory Candy for its ROCKY MOUNTAIN CHOCOLATE FACTORY Store from the Franchisor or its designee. Factory Candy shall consist of any and all varieties from time to time made available to the Franchisor’s franchisees by the Franchisor and its designated suppliers. The parties hereby acknowledge the uniqueness and importance of Factory Candy being prepared by the Franchisor or its designee in order to maintain the uniformity, quality and uniqueness of Factory Candy, and therefore the Franchisor and its designees are hereby appointed the Franchisee’s exclusive source of Factory Candy. The Franchisee is prohibited from offering or selling any products or services not authorized by Franchisor, including, without limitation, operating a catering or wholesale business or offering Factory Candy, Items, Store Candy or other authorized products for sale on the Internet, as part of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store. However, if the Franchisee proposes to offer, conduct or utilize any products, services, materials, forms, items or supplies for use in connection with or sale through the ROCKY MOUNTAIN CHOCOLATE FACTORY Store which are not previously approved by the Franchisor as meeting its speciﬁcations, the Franchisee shall ﬁrst notify the Franchisor in writing requesting approval. The Franchisor may, in its sole discretion, for any reason whatsoever, elect to withhold such approval. In order to make such determination, the Franchisor may require submission of speciﬁcations, information, or samples of such 15 products, services, materials, forms, items or supplies. The Franchisor will advise the Franchisee within a reasonable time whether such products, services, materials, forms, items or supplies meet its speciﬁcations. 13.5. Approved Suppliers. The Franchisee shall purchase all products, services, supplies and materials required for the operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store licensed herein, from manufacturers, suppliers or distributors designated by the Franchisor or, if there is no designated supplier for a particular product, service, supply or material, from such other suppliers who meet all of the Franchisor’s speciﬁcations and standards as to quality, composition, ﬁnish, appearance and service, and who shall adequately demonstrate their capacity and facilities to supply the Franchisee’s needs in the quantities, at the times, and with the reliability requisite to an efficient operation. 13.6. Request to Change Supplier. In the event the Franchisee desires to purchase products, services, supplies or materials from manufacturers, suppliers or distributors other than those previously approved by the Franchisor, the Franchisee shall, prior to purchasing any such products, services, supplies or materials, give the Franchisor a written request by certiﬁed mail, return receipt requested, to change supplier. In the event the Franchisor rejects the Franchisee’s requested new manufacturer, supplier or distributor, the Franchisor must, within 60 days of the receipt of the Franchisee’s request to change supplier, notify the Franchisee of its rejection. Failure to notify the Franchisee within such time period shall not constitute approval or a waiver of objections. The Franchisor may continue from time to time to inspect any manufacturer’s, supplier’s, or distributor’s facilities and products to assure proper production, processing, storing and transportation of products, services, supplies or materials to be purchased from the manufacturer, supplier or distributor by the Franchisee. Permission for such inspection shall be a condition of the continued approval of such manufacturer, supplier or distributor. 13.7. Approval of Intended Supplier. The Franchisor may at its sole discretion, for any reason whatsoever, elect to withhold approval of the manufacturer, supplier or distributor; however, in order to make such determination, the Franchisor may require that samples from a proposed new supplier be delivered to the Franchisor for testing prior to approval and use. A charge not to exceed the actual cost of the test may be made by the Franchisor and shall be paid by the Franchisee. 14. TRADEMARKS, TRADE NAMES AND PROPRIETARY INTERESTS 14.1. Marks. The Franchisee hereby acknowledges that the Franchisor has the sole right to license and control the Franchisee’s use of the ROCKY MOUNTAIN CHOCOLATE FACTORY service mark and other of the Marks, and that such Marks shall remain under the sole and exclusive ownership and control of the Franchisor. The Franchisee acknowledges that it has not acquired any right, title or interest in such Marks except for the right to use such Marks in the operation of its ROCKY MOUNTAIN CHOCOLATE FACTORY Store as it is governed by this Agreement. Except as permitted in the Operations Manual, the Franchisee agrees not to use any of the Marks as part of an electronic mail address, or on any sites on the Internet or World Wide Web and the Franchisee agrees not to use or register any of the Marks as a domain name on the Internet. 16 14.2. No Use of Other Marks. The Franchisee further agrees that no service mark other than “ROCKY MOUNTAIN CHOCOLATE FACTORY” or such other Marks as may be speciﬁed by the Franchisor shall be used in the marketing, promotion or operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store. 14.3. Licensed Methods. The Franchisee hereby acknowledges that the Franchisor owns and controls the distinctive plan for the establishment, operation and promotion of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store and all related licensed methods of doing business, previously deﬁned as the “Licensed Methods”, which include, but are not limited to, gourmet chocolate specialty recipes and cooking methods, confectionery ordering, processing, manufacturing, stocking and inventory control, technical equipment standards, order fulﬁllment methods and customer relations, marketing techniques, written promotional materials, advertising, and accounting systems, all of which constitute trade secrets of the Franchisor, and the Franchisee acknowledges that the Franchisor has valuable rights in and to such trade secrets. The Franchisee further acknowledges that it has not acquired any right, title or interest in the Licensed Methods except for the right to use the Licensed Methods in the operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store as it is governed by this Agreement. 14.4. Effect of Termination. In the event this Agreement is terminated for any reason, the Franchisee shall immediately cease using any of the Licensed Methods and Marks, trade names, trade dress, trade secrets, copyrights or any other symbols used to identify the ROCKY MOUNTAIN CHOCOLATE FACTORY Store, and all rights the Franchisee had to the same shall automatically terminate. The Franchisee agrees to execute any documents of assignment as may be necessary to transfer any rights the Franchisee may possess in and to the Marks. 14.5. Mark Infringement. The Franchisee agrees to notify the Franchisor in writing of any possible infringement or illegal use by others of a trademark the same as or confusingly similar to the Marks which may come to its attention. The Franchisee acknowledges that the Franchisor shall have the right, in its sole discretion, to determine whether any action will be taken on account of any possible infringement or illegal use. The Franchisor may commence or prosecute such action in the Franchisor’s own name and may join the Franchisee as a party thereto if the Franchisor determines it to be reasonably necessary for the continued protection and quality control of the Marks and Licensed Methods. The Franchisor shall bear the reasonable cost of any such action, including attorneys’ fees. The Franchisee agrees to fully cooperate with the Franchisor in any such litigation. 14.6. Franchisee’s Business Name. The Franchisee acknowledges that the Franchisor has a prior and superior claim to the ROCKY MOUNTAIN CHOCOLATE FACTORY trade name. The Franchisee shall not use the phrase or two or more of the words “ROCKY MOUNTAIN CHOCOLATE FACTORY” or abbreviations thereof in the legal name of its corporation, partnership or any other business entity used in conducting the business provided for in this Agreement. The Franchisee also agrees not to register or attempt to register a trade name using the phrase or two or more of the words “ROCKY MOUNTAIN CHOCOLATE FACTORY” or abbreviations thereof in the Franchisee’s name or that of any other person or business entity, without the prior written consent of the Franchisor. When this Agreement is terminated, the Franchisee shall 17 execute any assignment or other document the Franchisor requires to transfer to itself any rights the Franchisee may possess in a trade name utilizing any or all of the words “ROCKY MOUNTAIN CHOCOLATE FACTORY,” any abbreviations thereof or any other Mark owned by the Franchisor. The Franchisee further agrees that it will not identify itself as being “Rocky Mountain Chocolate Factory, Inc.” or as being associated with the Franchisor in any manner other than as a franchisee or licensee. The Franchisee further agrees that in all advertising and promotion and promotional materials it will display its business name only in obvious conjunction with the phrase “ROCKY MOUNTAIN CHOCOLATE FACTORY Licensee” or “ROCKY MOUNTAIN CHOCOLATE FACTORY Franchisee” or with such other words and in such other phrases as may from time to time be prescribed in the Operations Manual, in the Franchisor’s sole discretion. 14.7. Change of Marks. In the event that the Franchisor, in its sole discretion, shall determine it necessary to modify or discontinue use of any proprietary Marks, or to develop additional or substitute marks, the Franchisee shall, within a reasonable time after receipt of written notice of such a modiﬁcation or discontinuation from the Franchisor, take such action, at the Franchisee’s sole expense, as may be necessary to comply with such modiﬁcation, discontinuation, addition or substitution. 14.8. Creative Ownership. All copyrightable works created by the Franchisee or any of its owners, officers or employees in connection with the Store shall be the sole property of the Franchisor. The Franchisee assigns all proprietary rights, including copyrights, in these works to the Franchisor without additional consideration. The Franchisee hereby assigns and will execute such additional assignments or documentation to effectuate the assignment of all intellectual property, inventions, copyrights and trade secrets developed in part or in whole in relation to the Store, during the term of this Agreement, as the Franchisor may deem necessary in order to enable it, at its expense, to apply for, prosecute and obtain copyrights, patents or other proprietary rights in the United States and in foreign countries or in order to transfer to the Franchisor all right, title, and interest in said property. The Franchisee shall promptly disclose to the Franchisor all inventions, discoveries, improvements, recipes, creations, patents, copyrights, trademarks and conﬁdential information relating to the Store which it or any of its owners, officers or employees has made or may make solely, jointly or commonly with others and shall promptly create a written record of the same. In addition to the foregoing, the Franchisee acknowledges and agrees that any improvements or modiﬁcations, whether or not copyrightable, directly or indirectly related to the Store, shall be deemed to be a part of the Licensed Methods and shall inure to the beneﬁt of the Franchisor. 15. REPORTS, RECORDS AND FINANCIAL STATEMENTS 15.1. Franchisee Reports. The Franchisee shall establish and maintain at its own expense a bookkeeping and accounting system which conforms to the speciﬁcations which the Franchisor may prescribe from time to time, including the Franchisor’s current “Standard Code of Accounts” as described in the Operations Manual. The Franchisee shall supply to the Franchisor such reports in a manner and form as the Franchisor may from time to time reasonably require, including: a. Monthly summary reports, in a form as may be prescribed by the Franchisor, mailed to the Franchisor postmarked no later than the 15th day of the month and containing information relative to the previous month’s operations; and 18 b. Quarterly ﬁnancial statements, prepared in accordance with generally accepted accounting principles (“GAAP”), and consisting of a proﬁt and loss statement and balance sheet for the ROCKY MOUNTAIN CHOCOLATE FACTORY Store, mailed to the Franchisor postmarked no later than the 15th day following the end of the calendar quarter, based on operating results of the prior quarter, which shall be submitted in a form approved by the Franchisor and shall be certiﬁed by the Franchisee to be correct. The Franchisor reserves the right to disclose data derived from such reports, without identifying the Franchisee, except to the extent identiﬁcation of the Franchisee is required by law. 15.2. Annual Financial Statements. The Franchisee shall, within 90 days after the end of its ﬁscal year, provide to the Franchisor annual unaudited ﬁnancial statements, compiled or reviewed by an independent certiﬁed public accountant acceptable to and approved by the Franchisor and prepared in accordance with GAAP, and state and federal income tax returns prepared by a certiﬁed public accountant. If these ﬁnancial statements or tax returns show an underpayment of any amounts owed to the Franchisor, these amounts shall be paid to the Franchisor concurrently with the submission of the statements or returns. 15.3. Veriﬁcation. Each report and ﬁnancial statement to be submitted to the Franchisor hereunder shall be signed and veriﬁed by the Franchisee. 15.4. Books and Records. The Franchisee shall maintain all books and records for its ROCKY MOUNTAIN CHOCOLATE FACTORY Store in accordance with GAAP, consistently applied, and preserve these records for at least ﬁve years after the ﬁscal year to which they relate. 15.5. Audit of Books and Records. The Franchisee shall permit the Franchisor to inspect and audit the books and records of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store at any reasonable time, at the Franchisor’s expense. If any audit discloses a deﬁciency in amounts for payments owed to the Franchisor pursuant to this Agreement, then such amounts shall become immediately payable to the Franchisor by the Franchisee, with interest from the date such payments were due at the lesser of 11/2% per month or the maximum rate allowed by law. In addition, if it is found by such audit that the Gross Retail Sales of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store have been understated by ﬁve percent (5%) or more during the period audited, the Franchisee shall pay all reasonable costs and expenses the Franchisor incurred in connection with such audit. 15.6. Failure to Comply with Reporting Requirements. If the Franchisee fails to prepare and submit any statement or report as required under this Article 15, then the Franchisor shall have the right to treat the Franchisee’s failure as good cause for termination of this Agreement. In addition to all other remedies available to the Franchisor, in the event that the Franchisee fails to prepare and submit any statement or report required under this Article 15 for two consecutive reporting periods, the Franchisor shall be entitled to make an audit, at the expense of the Franchisee, of the Franchisee’s books, records and accounts, including the Franchisee’s bank accounts, which in any way pertain to the Gross Retail Sales or the Adjusted Gross Retail Sales of the ROCKY 19 MOUNTAIN CHOCOLATE FACTORY Store. The statements or reports not previously submitted shall be prepared by or under the direction and supervision of an independent certiﬁed public accountant selected by the Franchisor. 15.7. Shopping Service. The Franchisor reserves the right to use third party shopping services from time to time to evaluate the conduct of the Franchisee’s ROCKY MOUNTAIN CHOCOLATE FACTORY Store, including such things as customer service, cleanliness, merchandising and proper use of registers. The Franchisor may use such shopping services to inspect the Franchisee’s ROCKY MOUNTAIN CHOCOLATE FACTORY Store at any time at the Franchisor’s expense, without prior notiﬁcation to the Franchisee. The Franchisor may make the results of any such service evaluation available to the Franchisee, in the Franchisor’s sole discretion. 16. TRANSFER 16.1. Transfer by Franchisee. The franchise granted herein is personal to the Franchisee and, except as stated below, the Franchisor shall not allow or permit any transfer, assignment, subfranchise or conveyance of this Agreement or any interest hereunder. As used in this Agreement, the term “transfer” includes the Franchisee’s voluntary, involuntary, direct or indirect assignment, sale, gift or other disposition of any interest in: (1) this Agreement; (2) the Franchisee entity; (3) the Store governed by this Agreement; or (4) all or a substantial portion of the assets of the Store. 16.2. Pre-Conditions to Franchisee’s Transfer. The Franchisee shall not engage in a transfer unless the Franchisee obtains the Franchisor’s written consent and the Franchisee and the proposed transferee comply with the following requirements: a. All amounts due and owing pursuant to this Agreement by the Franchisee to the Franchisor or its affiliates or to third parties whose debts or obligations the Franchisor has guaranteed on behalf of the Franchisee, if any, are paid in full; b. The proposed transferee agrees to operate the Store as a ROCKY MOUNTAIN CHOCOLATE FACTORY Store and agrees to satisfactorily complete the initial training program described in this Agreement, which training must be completed to the Franchisor’s satisfaction prior to the effectiveness of the transfer; c. The proposed transferee agrees to execute the then current form of Franchise Agreement which shall supersede this Agreement in all respects. If a new Franchise Agreement is signed, the terms thereof may differ from the terms of this Agreement; provided, however, the transferee will not be required to pay any initial franchise fee; d. The Franchisee provides written notice to the Franchisor 30 days’ prior to the proposed effective date of the transfer, and includes information reasonably detailed to enable the Franchisor to evaluate the terms and conditions of the proposed transfer and which at a minimum includes a written offer from the proposed transferee; 20 e. The proposed transferee provides information to the Franchisor sufficient for the Franchisor to assess the proposed transferee’s business experience, aptitude and ﬁnancial qualiﬁcation, and the Franchisor approves the proposed transferee as a franchisee; f. The Franchisee executes a general release, in a form satisfactory to the Franchisor, of any and all claims against the Franchisor, its affiliates and their respective officers, directors, employees and agents; g. The Franchisee or the proposed transferee pay a nonrefundable transfer fee of $5,000 before the proposed transferee attends the initial training program; provided, however, that no transfer fee will be charged for a transfer by the Franchisee to a corporation wholly- owned by the Franchisee, between partners of a partnership Franchisee or to a spouse of a Franchisee upon the death or disability of the Franchisee; h. The Franchisee remodels the Store and upgrades equipment, including installing the Franchisor’s then current System, ﬁxtures, furnishings and signage, if the Franchisor so requires; and i. The Franchisee agrees to abide by all post-termination covenants set forth herein, including, without limitation, the covenant not to compete in Section 20.2 below. 16.3. Franchisor’s Approval of Transfer. The Franchisor has 30 days from the date of the written notice to approve or disapprove in writing, of the Franchisee’s proposed transfer, which approval shall not be unreasonably withheld. The Franchisee acknowledges that the proposed transferee shall be evaluated for approval by the Franchisor based on the same criteria as is currently being used to assess new franchisees of the Franchisor and that the Franchisor shall provide such proposed transferee, if appropriate, with such disclosures as may be required by state or federal law. If the Franchisee and its proposed transferee comply with all conditions for transfer set forth herein and the Franchisor has not given the Franchisee notice of its approval or disapproval within such period, approval is deemed granted. 16.4. Right of First Refusal. In the event the Franchisee wishes to engage in a transfer, the Franchisee agrees to grant to the Franchisor a 30 day right of ﬁrst refusal to purchase such rights, interest or assets on the same terms and conditions as are contained in the written notice set forth in Section 16.2.d; provided, however, the following additional terms and conditions shall apply: a. The 30 day right of ﬁrst refusal period will run concurrently with the period in which the Franchisor has to approve or disapprove the proposed transferee; b. The right of ﬁrst refusal will be effective for each proposed transfer and any material change in the terms or conditions of the proposed transfer shall be deemed a separate offer on which the Franchisor shall have a new 30 day right of ﬁrst refusal; c. If the consideration or manner of payment offered by a proposed transferee is such that the Franchisor may not reasonably be required to furnish the same, then the Franchisor may purchase the interest which is proposed to be sold for the reasonable cash equivalent. If the parties cannot agree within a reasonable time on the cash consideration, each of the Franchisor and the Franchisee shall designate an independent appraiser who, in turn, shall designate a third 21 independent appraiser. The third appraiser’s determination will be binding upon the parties. All expenses of the appraiser shall be paid for equally between the Franchisor and the Franchisee; and d. If the Franchisor chooses not to exercise its right of ﬁrst refusal, the Franchisee shall be free to complete the transfer subject to compliance with Sections 16.2 and 16.3 above. Absence of a reply to the Franchisee’s notice of a proposed transfer within the 30-day period may be deemed a waiver of such right of ﬁrst refusal. 16.5. Types of Transfers. The Franchisee acknowledges that the Franchisor’s right to approve or disapprove of a proposed transfer as provided for above, shall apply (1) if the Franchisee is a partnership, corporation or other business association, (i) to the addition or deletion of a partner, shareholder or members of the association or the transfer of any ownership interest among existing partners, shareholders or members; (ii) to any proposed transfer of 25% or more of the interest (whether stock, partnership interest or membership interest) to a third party, whether such transfer occurs in a single transaction or several transactions; and (2) if the Franchisee is an individual, to the transfer from such individual or individuals to a corporation or other entity controlled by them, in which case the Franchisor’s approval will be conditioned upon: (i) the continuing personal guarantee of the individual (or individuals) for the performance of obligations under this Agreement; and (ii) a limitation on the corporation’s or other entity’s business activity to that of operating the ROCKY MOUNTAIN CHOCOLATE FACTORY Store and related activities provided that with respect to such transfer, the Franchisor’s right of ﬁrst refusal to purchase shall not apply and the Franchisor will not charge any transfer fee. 16.6. Transfer by the Franchisor. This Agreement is fully assignable by the Franchisor and shall inure to the beneﬁt of any assignee or other legal successor in interest, and the Franchisor shall in such event be fully released from the same. 16.7. Franchisee’s Death or Disability. Upon the death or permanent disability of the Franchisee (or individual owning 25% or more of, or controlling the Franchisee entity), the personal representative of such person shall transfer the Franchisee’s interest in this Agreement or such interest in the Franchisee entity to an approved third party. Such disposition of this Agreement or such interest (including, without limitation, transfer by bequest or inheritance) shall be completed within a reasonable time, not to exceed 120 days from the date of death or permanent disability (unless extended by probate proceedings), and shall be subject to all terms and conditions applicable to transfers contained in this Article 16. Provided, however, that for purposes of this Section 16.7, there shall be no transfer fee charged by the Franchisor. Failure to transfer the interest within said period of time shall constitute a breach of this Agreement. For the purposes hereof, the term “permanent disability” shall mean a mental or physical disability, impairment or condition that is reasonably expected to prevent or actually does prevent the Franchisee (or the owner of 25% or more of, or controlling, the Franchisee entity) from supervising the management and operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store for a period of 120 days from the onset of such disability, impairment or condition. 22 17. TERM AND EXPIRATION 17.1. Term. The term of this Agreement begins on the date this Agreement is fully executed and ends ten years later, unless sooner terminated as provided herein. 17.2. Continuation. If, for any reason, the Franchisee continues to operate the Store beyond the term of this Agreement or any subsequent renewal period, it shall be deemed to be on a month-to- month basis under the terms of this Agreement and subject to termination upon 30 days notice or as required by law. If said holdover period exceeds 90 days, this Agreement is subject to immediate termination unless applicable law requires a longer period. Upon termination after any holdover period, the Franchisee and those in active concert with the Franchisee, including family members, officers, directors, partners and managing agents, are subject to the terms of Articles 20 and 22 and Section 18.5 of this Agreement and all other applicable post-termination obligations contained in this Agreement. 17.3. Rights Upon Expiration. At the end of the initial term hereof the Franchisee shall have the option to renew its franchise rights for one additional ten year term, by acquiring successor franchise rights, if the Franchisor does not exercise its right not to offer a successor franchise in accordance with Section 17.5 below and if the Franchisee: a. At least 30 days prior to expiration of the term, executes the form of Franchise Agreement then in use by the Franchisor; b. Has complied with all provisions of this Agreement during the current term, including the payment on a timely basis of all Royalties and other fees due hereunder. “Compliance” shall mean, at a minimum, that the Franchisee has not received any written notiﬁcation from the Franchisor of breach hereunder more than four times during the term hereof; c. Upgrades and/or remodels the ROCKY MOUNTAIN CHOCOLATE FACTORY Store and its operations at the Franchisee’s sole expense (the necessity of which shall be in the sole discretion of the Franchisor) to conform with the then current Operations Manual; d. Executes a general release, in a form satisfactory to the Franchisor, of any and all claims against the Franchisor and its affiliates, and their respective officers, directors, employees and agents arising out of or relating to this Agreement; and e. Pays a successor franchise fee of (i) $2,500 if a new Franchise Agreement is executed by the Franchisee within 30 days of receipt of the new Franchise Agreement, or (ii) $5,000 if the new Franchise Agreement is signed more than 30 days after receipt of the new Franchise Agreement. 17.4. Exercise of Option for Successor Franchise. The Franchisee may exercise its option for a successor franchise by giving written notice of such exercise to the Franchisor not less than 90 days prior to the scheduled expiration of this Agreement. If the Franchisee fails to provide such notice to the Franchisor within the time frame set forth in the preceding 23 sentence, but notiﬁes the Franchisor of its desire to obtain a successor franchise prior to the expiration of the then-current term of this Agreement, the Franchisee shall pay the Franchisor a penalty of $1,000 for every 30-day period that the Franchisee was late, plus attorneys’ and administrative fees and expenses attributable to such late renewal. The Franchisee’s successor franchise rights shall become effective by signing the Franchise Agreement then currently being offered to new franchisees of the Franchisor. 17.5. Conditions of Refusal. The Franchisor shall not be obligated to offer the Franchisee a successor franchise upon the expiration of this Agreement if the Franchisee fails to comply with any of the above conditions of renewal. In such event, except for failure to execute the then current Franchise Agreement or pay the successor franchise fee, the Franchisor shall give notice of expiration at least 180 days prior to the expiration of the term, and such notice shall set forth the reasons for such refusal to offer successor franchise rights. Upon the expiration of this Agreement, the Franchisee shall comply with the provisions of Section 18.5 below. 18. DEFAULT AND TERMINATION 18.1. Termination by Franchisor — Effective Upon Notice. The Franchisor shall have the right, at its option, to terminate this Agreement and all rights granted the Franchisee hereunder, without affording the Franchisee any opportunity to cure any default (subject to any state laws to the contrary, where state law shall prevail), effective upon receipt of notice by the Franchisee, addressed as provided in Section 22.12, upon the occurrence of any of the following events: a. Abandonment. If the Franchisee ceases to operate the ROCKY MOUNTAIN CHOCOLATE FACTORY Store or otherwise abandons the ROCKY MOUNTAIN CHOCOLATE FACTORY Store for a period of ﬁve consecutive days, or any shorter period that indicates an intent by the Franchisee to discontinue operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store, unless and only to the extent that full operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store is suspended or terminated due to ﬁre, ﬂood, earthquake or other similar causes beyond the Franchisee’s control and not related to the availability of funds to the Franchisee; b. Insolvency; Assignments. If the Franchisee becomes insolvent or is adjudicated a bankrupt; or any action is taken by the Franchisee, or by others against the Franchisee under any insolvency, bankruptcy or reorganization act, (this provision may not be enforceable under federal bankruptcy law, 11 U.S.C. §§ 101 et seq.), or if the Franchisee makes an assignment for the beneﬁt of creditors, or a receiver is appointed by the Franchisee; c. Unsatisﬁed Judgments; Levy; Foreclosure. If any material judgment (or several judgments which in the aggregate are material) is obtained against the Franchisee and remains unsatisﬁed or of record for 30 days or longer (unless a supersedeas or other appeal bond has been ﬁled); or if execution is levied against the Franchisee’s business or any of the property used in the operation of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store and is not discharged within ﬁve days; or if the real or personal property of the Franchisee’s business shall be sold after levy thereupon by any sheriff, marshal or constable; d. Criminal Conviction. If the Franchisee is convicted of a felony, a crime involving moral turpitude, or any crime or offense that is reasonably likely, in the sole opinion of 24 the Franchisor, to materially and unfavorably affect the Licensed Methods, Marks, goodwill or reputation thereof; e. Failure to Make Payments. If the Franchisee fails to pay any amounts due the Franchisor or affiliates, including any amounts which may be due as a result of any subleases or lease assignments between the Franchisee and the Franchisor, within 10 days after receiving notice that such fees or amounts are overdue; f. Misuse of Marks. If the Franchisee misuses or fails to follow the Franchisor’s directions and guidelines concerning use of the Franchisor’s Marks and fails to correct the misuse or failure within ten days after notiﬁcation from the Franchisor; g. Unauthorized Disclosure. If the Franchisee intentionally or negligently discloses to any unauthorized person the contents of or any part of the Franchisor’s Operations Manual or any other trade secrets or conﬁdential information of the Franchisor; h. Repeated Noncompliance. If the Franchisee has received two previous notices of default from the Franchisor and is again in default of this Agreement at any time during the term of this Agreement, regardless of whether the previous defaults were cured by the Franchisee, provided, however, that following the Franchisee’s receipt of three notices of default, the Franchisor reserves the right to assess a penalty in the amount of the then current initial franchise fee payable within 10 days of receipt of notice related thereto, in lieu of immediately terminating the Franchise Agreement, on the condition that a fourth notice of default may result in immediate termination of the Franchise Agreement; or i. Unauthorized Transfer. If the Franchisee sells, transfers or otherwise assigns the Franchise, an interest in the Franchise or the Franchisee entity, this Agreement, the ROCKY MOUNTAIN CHOCOLATE FACTORY Store or a substantial portion of the assets of the ROCKY MOUNTAIN CHOCOLATE FACTORY Store owned by the Franchisee without complying with the provisions of Article 16 above. 18.2. Termination by Franchisor — Thirty Days Notice. The Franchisor shall have the right to terminate this Agreement (subject to any state laws to the contrary, where state law shall prevail), effective upon 30 days written notice to the Franchisee, if the Franchisee breaches any other provision of this Agreement and fails to cure the default during such 30-day period. In that event, this Agreement will terminate without further notice to the Franchisee, effective upon expiration of the 30-day period. Defaults shall include, but not be limited to, the following: a. Failure to Maintain Standards. The Franchisee fails to maintain the then-current operating procedures and adhere to the speciﬁcations and standards established by the Franchisor as set forth herein or in the Operations Manual or otherwise communicated to the Franchisee; b. Deceptive Practices. The Franchisee engages in any unauthorized business or practice or sells any unauthorized product or service under the Franchisor’s Marks or under a name or mark which is confusingly similar to the Franchisor’s Marks; c. Failure to Obtain Consent. The Franchisee fails, refuses or neglects to obtain the Franchisor’s prior written approval or consent as required by this Agreement; 25 d. Failure to Comply with Manual. The Franchisee fails or refuses to comply with the then-current requirements of the Operations Manual; or e. Breach of Related Agreement. The Franchisee defaults under any term of the lease, sublease or lease assignment for the Franchised Location, any equipment lease or any other agreement material to the ROCKY MOUNTAIN CHOCOLATE FACTORY Store or any other Franchise Agreement between the Franchisor and the Franchisee and such default is not cured within the time speciﬁed in such lease, sublease, other agreement or other Franchise Agreement. Provided, however, so long as ﬁnancing from the United States Small Business Administration remains outstanding, the Franchisee will be given the same opportunity to cure

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