On what basis can a Big O Tires franchisee receive reductions or rebates on royalty payments?

• a. The royalty rate that you pay for the period from the date your Store begins operations until the end of that calendar year will generally be 5.0%. However, you may be able to receive reductions or rebates of a portion of these royalty payments based on the Royalty Matrix as described below. The royalty rate applies to your Adjusted Gross Sales.
  • i. Your royalty rate will be calculated in accordance with the Royalty Matrix, which is included in Schedule 9 to Exhibit B-1 (the BF Franchise

Agreement). The Royalty Matrix provides for a royalty rate for a given year based on your Adjusted Gross Sales for that year. This Royalty Matrix will change each year based on the prior year average retail store sales. For new Stores, under the current Royalty Matrix, generally the maximum Royalty Rate will not exceed 5.0% and the lowest royalty rate will not be less than 3.5%. The minimum royalty rate under the Royalty Matrix is subject to change by Big O. Big O will update and distribute the Royalty Matrix annually. For instance, if you sign the Franchise Agreement (Exhibit B-1) in 2025, the initial Royalty Matrix will be the 2025 Royalty Matrix, it will be updated annually. Big O may also adjust the Royalty Matrix during the course of a year. The Royalty Matrix will establish the minimum amount at which a rebate may be earned by a single Store, which minimum amount is the greater of: (a) $1.47 million, or (b) the average Store Gross Sales of all Big O stores for the previous year, excluding the top 10% of Stores and bottom 10% of Stores and adding $190,000 and rounding down to the nearest $10,000.

ii. If you own more than one Store, you may apply to us to become part of a Multi-Store Royalty Group. We may require, among other things, that Stores in a Multi-Store Royalty Group have 50% or more common ownership by one owner or that the Stores have 2 to 5 common owners with each owner having a 20% or more ownership of each Store.

Qualified Multi-Store Royalty Groups that elect to be treated as a group will have a lower per Store annual Gross Sales requirement to qualify for lower royalty rates than single Store franchisees that are not part of a Multi-Store Royalty Group.

Multi-Store Royalty Groups have a maximum royalty rate of 5.0%, but the royalty rate is subject to reduction on their Adjusted Gross Sales (defined exactly the same as for a single Store for this purpose).

• iii. We have adopted royalty payment and true-up rules that are included in Schedule 9, Annex 2 of Exhibit B-1. These govern the application of the Royalty Matrix and various transition situations. These rules also cover the reconciliation of royalty payments made during the year based on estimated annual Gross Sales to the royalty payments that should be paid based on the actual annual Gross Sales.
• b. Big O has a policy under which Big O will rebate to a qualified (as defined in the Manual) Business Format Franchisee a portion of its royalty payments if Big O fails to meet certain "fill rate" standards for certain "Big O Program Products" designated in the policy. "Big O Program Products" are all tires bearing the Big O brand or Big O exclusive products that do not carry the Big O label and all other products designated by Big O periodically in its discretion. This policy may be changed periodically by Big O in consultation with the Franchise Advisory Council (which is further described in Note 4 of this Item 6 below). "Fill Rate" is the rate that Big O fulfills an order with the product ordered or an approved substitution product as designated by Big O. The Fill Rate will be measured on a warehouse by warehouse basis using a popularity code system. The amount, calculation and other details concerning the rebates paid under the Fill Rate Policy will be set forth in the Manual. Failure to fulfill orders due to causes beyond our control (such as natural disasters, strikes, governmental actions, war(s), or other causes), do not count against the Fill Rate or qualify a franchisee for a royalty rebate.

• c. For certain incentive programs that are identified and described in Item 5, we will temporarily charge reduced royalties during the first term of the Franchise Agreement, depending on the program. The reduced rates range from 0% to 3% of the monthly Adjusted Gross Sales during the first two to three years following the commencement date of the Store.

Source: Item 6 — OTHER FEES (FDD pages 21–35)