What are 'source restricted goods and services' for a Casiola Business, and why are they required?

tricted Purchases and Leases – Generally**

We require that you purchase or lease certain source restricted goods and services for the development and operation of your Casiola Business. Source restricted goods and services are goods and services that must meet our specifications and/or must be purchased from an approved or designated supplier. We may designate a supplier (which may include us or our affiliates) as the exclusive supplier for the System. Our specifications and list of approved and designated suppliers is contained in our Manuals. We will notify you of any changes to our specifications or list of approved or designated suppliers. If we have previously approved a supplier, and their standards fall below our designated standards, we will revoke our approval. We will notify you in writing of us

revoking our approval. We may notify you of these changes in various ways, including written or electronic correspondence, amendments and updates to our Manuals, verbal and other forms of communication. We formulate and modify our standards and specifications for products and services based on our industry experience and our management decisions as to the overall operation and expansion of the System or as we may otherwise designate and approve in writing. If we have previously approved a supplier, and their standards fall below our designated standards, we will revoke our approval. We will notify you in writing of us revoking our approval.

Suppliers and Supplier Criteria

We may designate ourselves and our affiliates as exclusive suppliers of source restricted goods and services. We may designate ourselves or a third party as exclusive supplier irrespective of the existence of competing suppliers. If, in the Manuals, we do not designate a supplier for a particular item, you will purchase all such products, supplies and services from suppliers who meet our specifications and standards.

We are the designated supplier of all booking services, the Property Management System, and contact center services that you are required to use. Except as disclosed in the preceding sentence, we are not and our affiliates are not approved suppliers of the source restricted goods and services identified below.

If we have previously approved a supplier, and their standards fall below our designated standards, we will revoke our approval. We will notify you in writing of us revoking our approval.

If you want to purchase or lease a source restricted item from a supplier that has not been previously approved or designated by us in writing, you must send us a written request for approval and submit additional information that we may request. We may charge you a supplier review and testing fee and we may request that you send us samples from the supplier for testing and documentation from the supplier for evaluation. We may also require, subject to our discretion, that we be allowed to inspect the supplier's facilities. We will notify you of our approval or disapproval within a reasonable time, not to exceed 60 days, after we receive your written request for approval and all additional information and samples that we may request. We may, in our discretion, withhold our approval. When evaluating the approval of a particular supplier, among other things, we consider: whether the supplier can demonstrate to our reasonable satisfaction the ability to meet our standards, specifications and production requirements, the supplier's quality control, whether or not we are the exclusive supplier of the particular item, whether or not our affiliate or affiliates are the exclusive supplier of the particular item, and whether or not the supplier's approval, in our sole determination, will allow us to advance the overall interests of the System.

We estimate that your purchase of goods and services from suppliers according to our specifications, including your purchase of goods or services from our designated exclusive suppliers to represent approximately 90% of your total purchases and leases in establishing the Franchised Business and approximately 20% of the on-going operating expenses of the Franchised Business. We currently require that you purchase or lease the following source restricted goods and services from either us or our designated supplier:

• 1. System Supplies You must maintain an initial and ongoing inventory of System Supplies. You must purchase the System Supplies, as designated by us, from us, our affiliates, and/or our designated suppliers.
• 1. Property Management System You are required to license, purchase and utilize the Casiola Property Management System from us, our affiliates, or our parent company. At all times we will have direct access to all information entered by you and/or maintained in our Casiola operations software application. We will earn revenue from your licensing and use of our application.
• 1. Bookings Platforms and Payment Processing You must utilize our services or the services of our designated affiliate for all rental bookings, customer contacts, and payment, and credit card processing. We will also exclusively designate all online travel agencies that you may use.
• 1. Branded Items and Marketing Materials All materials bearing the Licensed Marks including, but not limited

to, stationary, business cards, brochures, apparel, signs and displays, must meet our standards and specifications and must be purchased from us directly or our designated suppliers. All of your marketing materials must comply with our standards and specifications and must be approved by us before you use them. You may market your Casiola Business through approved digital media and social media platforms provided that you do so in accordance with our digital media and social media policies. You must purchase all branded marketing materials from either us or our designated exclusive supplier. We may require that you exclusively use, at your cost, our designated supplier for social and digital media marketing services and exclusively use, at your cost, our social media platforms, vendors and marketing channels.

• 1. Point of Sale System and Computer Equipment Currently you are required to purchase, license and utilize Wheelhouse revenue management system, Travelnet Solutions property management system (PMS), and channel manager system that you must exclusively license and use in the day to day operations and overall management of your Casiola Business. You must purchase and maintain a computer system at your administrative office. In general, you will be required to obtain a computer system that will consist of certain hardware, software, and peripheral devices such as printers. You will be required to meet our requirements involving back office and point of sale systems, phone system, security systems, printers, back-up systems, and high-speed internet access. At all times we will have direct access to all information entered by you and/or maintained in the point of sale, property management system and channel manager system.
• 1. Computer System You must purchase and maintain a laptop computer at your administrative office and a smartphone that maintains cellular internet access. In general, you will be required to obtain a computer system that will consist of certain hardware, software, and peripheral devices such as printers. You will be required to meet our requirements involving back office and point of sale systems, security systems, printers, back-up systems, and high-speed internet access.
• 1. Insurance You must obtain the insurance coverage that we require from time to time as presently disclosed in the Manuals and as we may modify. All insurance policies required under your Franchise Agreement and as set forth in the Franchise Agreement must be written by a responsible carrier, reasonably acceptable to us, and all insurance, excluding workers' compensation, must name us, our officers, directors, shareholders, partners, agents, representatives and independent contractors as additional insureds. The insurance policies must include a provision that the insurance carrier must provide us with no less than 30 days' prior written notice in the event of a material alteration to, or cancellation of, any insurance policy. A certificate of insurance must be furnished by you to use at the earlier of 90 days after the Effective Date of the Franchise Agreement or prior to the commencement of our initial training program. Insurance coverage must be at least as comprehensive as the minimum requirements set forth below and in the Franchise Agreement (Franchise Agreement, Article 8). You must consult your carrier representative to determine the level of coverage necessary for the Franchised Business.

Minimum Insurance Requirements

• (a) Commercial General Liability Insurance for bodily injury, death, or third party property damage, including the following coverage: (i) premises and operations; (ii) liquor liability; (iii) independent contractors; (iv) contractual liability; (v) products and completed operations; (vi) advertising / personal injury and; (vii) innkeeper's and safe deposit box liability in an amount not less than $1,000,000 per occurrence and in the annual aggregate.
• (b) Automobile Liability Insurance including all owned, non-owned, and hired vehicles used in conjunction with the services provided by Franchisee with a combined single limit of not less than $1,000,000 each occurrence.
• (c) Workers' Compensation Insurance that complies with the applicable laws governing the Franchise and all employees, subcontractors, and agents working for the Franchisee and Employers' Liability Insurance for not less than $500,000 per accident.

(d) All other insurance that we require in the Manuals or that is required by law.

Purchase Agreements and Cooperatives

We may, in our discretion, negotiate purchase agreements, including price terms, with designated suppliers for source restricted goods and services on behalf of the System.

Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 20–24)