What constitutes a failure to maintain standards or procedures that could lead to a Canine Dimensions franchise default?

---------------| | | terms and conditions of a Franchise Agreement with Canine Dimensions Franchising, LLC | | dated" | |

• 4.7.4 Franchisee must maintain a current list of all owners of record and beneficial owners of any class of voting stock of Franchisee and shall furnish the list to Franchisor upon request.
• 4.7.5 Each owner of an interest in Franchisee must execute and return to Franchisor the "Guaranty and Assumption of Obligations," attached as "Schedule D."

4.8 Compliance with Laws and Ethical Business Practices

4.8.1 Franchisee shall secure and maintain in force, in its name, all required licenses, permits and certificates relating to the operation of the Franchised Business. Franchisee shall operate its Franchised Business in full compliance with all applicable laws, ordinances and regulations, including, without limitation, workers' compensation insurance, unemployment insurance, and withholding and payment of income taxes, social security taxes and sales taxes. All advertising by Franchisee will be completely factual, in good taste in Franchisor's sole and absolute discretion, and will conform to high standards of ethical advertising. Franchisee will, in all dealings with customers, suppliers and the public,

adhere to high standards of honesty, integrity, fair dealing and ethical conduct. Franchisee will refrain from any business or advertising practice which may be injurious to Franchisor's business and the goodwill associated with the Marks and other Canine Dimensions Businesses. Franchisee will notify Franchisor in writing within five (5) days of the commencement of any action, suit or proceeding, and of the issuance of any order, writ, injunction, award or decree of any court, agency, or other governmental instrumentality, which relates to or which may affect the operation or financial condition of Franchisee and/or its Franchised Business. Franchisee agrees to manage the employment functions of the Franchised Business in compliance with federal, state, and local employment laws.

• 4.8.2 Franchisee and its owners agree to comply, and to assist Franchisor to the fullest extent possible in its efforts to comply with Anti-Terrorism Laws (defined below). In connection with that compliance, Franchisee and its owners certify, represent, and warrant that none of Franchisee's property or interests is subject to being blocked under, and that Franchisee and its owners otherwise are not in violation of, any of the Anti-Terrorism Laws. "Anti-Terrorism Laws" mean Executive Order 13224 issued by the President of the United States, the USA PATRIOT Act, and all other present and future federal, state, and local laws, ordinances, regulations, policies, lists, and other requirements of any governmental authority addressing or in any way relating to terrorist acts and acts of war. Any violation of the Anti-Terrorism Laws by Franchisee or its owners, or any blocking of Franchisee or its owners' assets under the Anti-Terrorism Laws, shall constitute good cause for immediate termination of this Agreement.
• 4.8.3 Franchisee agrees to comply with the then-current Payment Card Industry Data Security Standards as those standards may be revised and modified by the PCI Security Standards Council, LLC (see www.pcisecuritystandards.org), or any successor organization or standards that Franchisor may reasonably specify. Among other things, Franchisee agrees to implement the enhancements, security requirements, and other standards that the PCI Security Standards Council (or its successor) requires of a merchant that accepts payment by credit and/or debit cards. Franchisee must demonstrate compliance upon reasonable request, which may include having an independent third-party Qualified Security Assessor (QSA) conduct a PCI/DSS audit.
• 4.8.4 Franchisee understands that as part of obtaining the Franchise, Franchisor has conducted a criminal background check on each of Franchisee's owners. Franchisee will ensure that each of Franchisee's employees or independent contractors who will come into contact with client animals, or will be entering client homes, also passes a criminal background check before such employee is permitted access to client animals or client homes. During the Term, Franchisor has the right (at any time and at Franchisor's discretion) to require Franchisee and its owners to submit to a new, updated criminal background check.

Source: Item 22 — CONTRACTS (FDD page 36)