Does Closet Storage Concepts grant franchisees an exclusive territory?

[Item 12: TERRITORY]

ITEM 12 - TERRITORY

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.

You will receive a protected territory identified in the Franchise Agreement in which to operate your Closet & Storage Concepts business (the "Territory"). Our standard Territory consists of a population of 1 million people or more. The designation of a protected territory will vary from location to location and will depend upon population density, demographics, area, geographic size of counties or other governmental subdivisions in a particular trading area and proximity of competition. You are permitted to operate only one location in the Territory.

You are not permitted to operate your business at any location outside of the Territory. You are not permitted to establish additional locations in a contiguous territory. You will not be permitted to establish additional locations within your Territory without first obtaining our prior written consent. Before we will give this permission, we must determine that your Territory will support one or more additional locations. If we make this determination, you will have the right to establish an additional location under the procedures in the Franchise Agreement which you followed to establish your initial location.

If we independently determine that your Territory will support an additional location and the opening of this additional location is desirable, you will have a 30 day right of first refusal to open the additional location. If you decide to open the additional location, you must open the location within 3 months after you make your decision under the procedures in the Franchise Agreement which you followed to establish your initial location. If within the 30 day period you decide not to open the additional location or, after you make a decision to open, you fail to open the additional location within 3 months, we will have the right to offer the additional location in your Territory to another prospective franchisee or to operate a company business at the additional location. The Franchise Agreement for a particular Territory will apply to each additional location that you establish within the Territory. For purposes of determining Royalty fee and Local Advertising payments, Gross Revenues from all of your locations within a single Territory will be aggregated.

[Item 12: TERRITORY]

Rights We Retain

You have no right to distribute any products or services offered by your Franchised Business through any alternate channels of distribution such as Internet, catalogs, telemarketing or direct marketing.

We and/or our affiliates reserve all other rights with respect to your Territory, which include but are not limited to: (i) the right to own, operate, franchise or license (whether in connection with a merger or acquisition or otherwise), businesses of any type operating under names other than the Proprietary Marks, regardless of whether or not these other concepts offer products and services which are similar to or competitive with those offered by your Franchised Business and the right to convert those locations to Franchised Businesses; (ii) the right to distribute products and services in alternative channels of distribution both within and outside the Territory, (which alternative channels of distribution include but are not limited to: sales of products at or through club stores, and specialty stores, in addition to sales of products by mail order, catalog, or via the internet, and any similar outlets or distribution methods); (iii) the right to be acquired by (or merge or become affiliated with) any other business operating under names other than the Proprietary Marks, including a competing business, with locations anywhere, which may result in the required conversion of Franchised Businesses. We and our affiliates are under no

obligation to pay you any compensation for selling similar products or services through other channels of distribution under the same and/or different proprietary marks within the Territory.

We and/or our affiliates retain the right to use and to license others to use the System for the operation and licensing of other Closet & Storage Concept businesses at any locations outside of the Territory.

We currently also grant franchises under the mark More Space Place® which is headquartered at our address. We currently operate one such location. More Space Place businesses sell and service our products and other products that utilize the concepts of vertical storage and space-saving and maximize multi-functional use of existing space to create spacious rooms. Your Territory and the territory of a More Space Place franchisee may overlap. We have no current plans to grant franchises under any other marks, but reserve our right to do so.

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