What factors determine the licensed territory for a Burros Fries franchise?

ing the term of your Franchise Agreement.

Your licensed Territory is determined by population, business potential, traffic patterns, proximity to major roads, demographics of the surrounding area, available parking, market penetration or other conditions important to the successful operation of your Business, as we deem appropriate and as identified in your Franchise Agreement. Your licensed Territory is determined by us once a location is chosen, and will not be altered even if there is a population increase or decrease. It will also not be affected by your sales volume. In certain cases, if you are in default we may change your Territory. Certain locations, such as major metropolitan areas may have smaller territories of densely populated areas. We must have consented to the location for your Business within your defined Territory in writing before you open for operation.

You must submit a separate application for each Franchised Business to be established by you. You must pay the fee for each additional acquisition mentioned in Item 5 and be in compliance with all of the terms and conditions of your existing Franchise Agreement. We must approve the location of any additional Burros & Fries Businesses as mentioned in Items 11 and 12 above.

If you are provided with a Territory, you are encouraged to directly advertise and market for guests to serve approved menu items, sell retail items and offer catering services within your Territory. You may be able to perform catering services in other geographical areas outside your Territory away from your facility under certain circumstances (as further described below). If the other geographical areas are unassigned, we have the right to sell or assign it, or part of it, at any time, without notice to you and you might not have the right of first refusal or option to buy the territory that was formally unassigned. You may serve guests and sell retail items to anyone who comes from anywhere so long as all such items are being sold from your Business. We, other franchisees and companyowned businesses are subject to the same restrictions and reserve the same right to serve guests and sell retail items to anyone who comes from anywhere without compensation to you. You are prohibited from soliciting and marketing

in general to sell retail items and/or provide catering services by any means outside of your Territory; and must not specifically engage in target marketing ("Target Marketing") within the Territory of another Burros & Fries Business (franchise and/or a company/affiliate owned business). Target Marketing means a concerted effort by a franchisee to solicit and obtain business through any type of advertisement or marketing, directed at all or a portion of another franchisee's territory. We will use commercially reasonable efforts to enforce this requirement regarding Target Marketing if you or any other franchisee violates it.

If you are asked to conduct off-site events (such as: community events, consumer shows, festivals, expos, etc.) to promote your Business or provide catering services in another geographical area in which there is another franchisee or company-owned business you must immediately refer that request to the franchisee in that geographical area or directly to us. If the other franchisee or company-owned business determines it in the best interest for you to conduct such off-site event or perform such catering services, then you can immediately proceed. If there is not a Burros & Fries Business in that geographical area then you can immediately conduct such off-site event or perform catering services, however you must be prepared to refer such off-site event or catering business to another franchisee when that unassigned area is purchased. If during the term of the Franchise Agreement, you are unable to promptly and properly provide services and/or products due to excessive work or other cause then you must refer that person or business to another franchisee in the System or to us. For any default of the Franchise Agreement, as an alternative to terminate, we may modify or completely eliminate any rights that you may have with respect to the protected status of your Territory, effective ten (10) days after delivery of written notice to you. In addition, we may modify or eliminate completely, the Territory (Franchise Agreement Sections 6, 12.H and 23.F).

We encourage the owners of all Franchised Businesses to work out a referral relationship and advertising strategy or arrangement if they are within close proximity of each other (defined as being within a ten-mile radius of each other). We must be notified of all such arrangements.

We reserve the right to issue binding policies to coordinate marketing councils and/or advertising cooperative programs. For example, we may require that all franchisees within close proximity to consumer food shows, conventions or exhibitions where food products are being sold to participate in the cost and benefit of the show. All such programs and policies are our proprietary trade secrets. In such programs, we may require the customer that is acquired through such programs, to be served by the closest or other franchisee and may or may not require franchisees serving the person to do so at a minimum price or pay a reasonable referral fee.

Any rights not expressly granted to you are reserved to us. Such rights reserved to us include, but are not limited to:

• (1) Advertise, market and sell Burros & Fries branded products other than those sold by our System (including menu and retail items), kitchen equipment (if we choose to develop kitchen equipment in the future);
• (2) Advertise and offer products (including menu and retail items) and services to promote the System through the Internet and/or other similar venues no matter where the person is based to brand the System and/or fulfill demand anywhere;

Source: Item 12 — TERRITORY (FDD pages 38–40)