Under what condition can a Big Apple Bagels franchisee engage in wholesale distribution?

• 1. Franchisee is granted the right to sell at wholesale unbranded bagels and muffins or "Jacobs Bros." branded bagels ("Wholesale Products") produced in the BAGELS Production Store on a nonexclusive basis outside of the BAGELS Production Store under the conditions as set forth herein. The right of Franchisee to participate in this Wholesale Program is expressly conditioned upon Franchisee being in good standing.
• 1. Franchisee must obtain Franchisor's prior written approval for each wholesale customer to whom Franchisee wishes to sell Wholesale Products. Franchisee must submit to Franchisor the name of each proposed wholesale customer, including the customer's address and purchase requirements. Franchisee may not sell Wholesale Products to any customer until Franchisor gives its approval in writing.
• 1. Franchisee explicitly acknowledges and agrees that any delivery of Wholesale Products is his sole and exclusive responsibility. Franchisee is to determine whether customers are to pick up Wholesale Products at the BAGELS Production Store or Franchisee may deliver Wholesale Products to customers. Franchisee is responsible for conforming to all applicable health, sanitation, food handling, and food transportation requirements and the condition of Wholesale Products delivered by Franchisee to customer or picked up by customers at the BAGELS Production Store. At no time should bagels or muffins that are not freshly baked be delivered to or picked up by customers. Franchisee is strictly prohibited from selling anything other than finished products. In the event Franchisee distributes Wholesale Products in such a manner so as to result in the Wholesale Products being resold in another franchisee's Wholesale Market Area as defined herein, Franchisor may, in its sole and absolute discretion, elect to: (a) terminate Franchisee's right to sell under this Wholesale Program; (b) terminate Franchisee's Franchise Agreement; or (c) take other appropriate action.
• 1. This Wholesale Program must be operated in strict conformance with provisions of the Franchise Agreement and the Operations Manual. All wholesale sales will be subject to Paragraph 8.b. of the Franchise Agreement (pertaining to the royalty fees). Franchisee acknowledges and agrees that any breach of any provision of this Addendum shall be deemed a breach of the Franchise

Agreement, conferring upon Franchisor the remedies set forth in the Franchise Agreement.

• 1. Wholesale sales conducted in compliance with this Addendum are included in Gross Revenues, but are not subject to the Marketing Fund contributions described in Paragraph 10.a. of the Franchise Agreement.
• 1. Franchisee may solicit or deliver Wholesale Products only to retailers or other distribution parties for resale or distribution to the ultimate consumer in a Wholesale Market Area determined as follows: (a) if Franchisee has a protected area under an existing Area Development Agreement, anywhere within that protected area;

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