What are 'source-restricted' goods and services for a Chop5 Salad Kitchen franchise?

[Item 8: RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES]

ITEM 8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES

Source-Restricted Purchases and Leases - Generally

You must purchase or lease certain "source-restricted" goods and services for the development and operation of your Restaurant. By "source-restricted", we mean the good or service must meet our specifications and/or must be purchased from an approved or designated supplier (in some cases, an exclusive designated supplier, which may be us or an affiliate). The Manual includes our specifications and supplier list. We notify you of changes to our specifications and suppliers by email, updates to the Manual or other means of communication.

Supplier Criteria

Our criteria for evaluating a supplier include standards for quality, delivery, performance, design, appearance and price of the product or service as well as the dependability, reputation and financial viability of the supplier. Upon request, we will provide you with any objective specifications pertaining to our evaluation of a supplier or product, although certain important subjective criteria (e.g., product appearance, taste, design, functionality, etc.) are important to our evaluation but cannot be described in writing.

If you wish to purchase or lease a source-restricted item from a non-approved supplier, you must send us a written request for approval and submit all additional information we request. We may require that you send us samples from the supplier for testing. We may also require that we be allowed to inspect the supplier's facility.

We will use best efforts to notify you of our decision within 45 days after we receive your request for approval and all additional information and samples we require. If we fail to issue our written approval within the 45-day period, we are deemed to have disapproved the proposed supplier. We may periodically re-inspect the facilities and products of an approved supplier and revoke our approval if the supplier fails to meet our then-current criteria. You must reimburse us for all costs we incur to review products and suppliers you propose.

Current Source-Restricted Items

We estimate nearly 70% to 95% of the total purchases and leases to establish your Restaurant and 35% to 60% of ongoing operating expenses will consist of source-restricted goods or services, as further described below.

Site Selection Services

You must contract with and utilize the Real Estate Company we designate to assist you in finding a suitable site for your Restaurant. However, it is ultimately your responsibility to find a suitable site meeting both your and our minimum standards and other requirements.

Lease / Purchase Agreement

You must contract with and utilize the Real Estate Company we designate to assist you in reviewing and negotiating your lease or purchase agreement. If you lease the premises for your Restaurant, you must use best efforts to ensure your landlord signs the Lease Addendum attached to the Franchise Agreement as ATTACHMENT "C". We do not review the substantive terms of your lease except to ensure compliance with our brand standards.

Project Management Services

You must contract with and utilize the Project Manager we designate to provide Project Management Services.

Design and Construction Services

You must hire an architect to prepare initial design plans and detailed construction plans for the construction of your Restaurant. We must approve all plans before constructions begins. Once approved, you must construct and equip your Restaurant according to the approved plans and the specifications in the Manual. Your architect and general contractor must be appropriately licensed and bonded to the extent required by applicable law. We must approve all architects, engineers, contractors, project management companies and other professionals involved with the design, construction and/or development of your Restaurant.

Furniture and Fixtures

All furniture and fixtures must meet our standards and specifications. We do not restrict the suppliers from whom you may purchase these items.

Kitchen Equipment and Smallwares

All kitchen equipment and smallwares must our standards and specifications. We may designate one or more models or brands for certain kitchen equipment, such as your ovens. We do not restrict the suppliers from whom you may purchase these items.

Technology Systems

Your Technology Systems (including hardware, software, equipment, software applications, mobile apps and similar items) must meet our standards and specifications. Certain components of your Technology Systems must be purchased from approved or designated suppliers while other components may be purchased from any supplier of your choosing. We may also require that certain services relating to the establishment, use, maintenance, monitoring, security or improvement of your Technology Systems be purchased from approved or designated suppliers. We currently require that you purchase the Toast point-of-sale system. You must license the POS software exclusively from Toast.

Signage

All interior and exterior signage and graphics must meet our standards and specifications. We do not restrict the suppliers from whom you may purchase these items.

Inventory

All inventory (including food and beverage products, paper and plastic products, uniforms, cleaning supplies, etc.) must meet our standards and specifications. We do not currently restrict the suppliers from whom you purchase inventory items but we may do so in the future in order to: (a) better assure the supply and quality of products used in preparing approved menu items; and/or (b) negotiate favorable pricing.

Marketing Materials and Services

All marketing materials must comply with our standards and requirements. We must approve your marketing materials prior to use. You must purchase branded marketing materials only from us or other suppliers we designate or approve. We may require you to contract with a marketing company we designate to implement your grand opening marketing campaign and/or manage your social media.

Delivery Service Providers

We reserve the right to restrict the third-party delivery service providers that you may use.

Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 20–23)