Can a Burros Fries franchisee face competition from other channels of distribution that Burros Fries controls?

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ITEM 12 TERRITORY

You must operate your Business within the specific location identified in your Franchise Agreement. You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control. Subject to the prohibitions set forth in this Item 12, you may face competition from other franchisees and company-owned businesses we operate or from other channels of distribution or competitive brands that we control. You are awarded a protected territory ("Territory") that will include up to three (3) miles driven in any direction from the Franchise Business as defined by MapQuest or a similar mapping program, provided we reserve the right to grant a territory that is larger or smaller than this area described above, in order to account for more densely or sparsely populated areas and other factors. We will determine population based on the most recently published data from the U.S. Census Bureau (or such other source we may indicate to you). You may not conduct business out of any other location other than the accepted location that has been entered in your Franchise Agreement or made part of by an addendum attached to your Franchise Agreement. You may service guests and sell approved retail items to anyone who comes from anywhere so long as your sales do not result from any Target Marketing (as defined below) activities by you. However, you can perform off-site events (such as community events, consumer shows, festivals, expos, etc.) and catering services within your Territory. You may also be able to perform off-site events and/or catering services in geographic areas outside your Territory under certain circumstances (as described below). You may not relocate your Business without our written consent, which we will not unreasonably withhold or delay.

If you are provided with a Territory, we cannot establish either a company-owned business, franchise or license another to locate a Burros & Fries business within your Territory during 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.

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