What standards must a Closet Storage Concepts franchisee adhere to when operating the franchised business?

chisee shall at all times maintain and employ working capital as Franchisor may reasonably deem necessary to enable Franchisee to properly and fully carry out and perform all of its duties, obligations and responsibilities under this Agreement and to operate the business in a businesslike, proper and efficient manner.

• 5.3.4 Franchisee shall operate the Franchised Business in conformity with the highest ethical standards and sound business practices and in a manner which shall enhance the Closet & Storage Concepts Proprietary Marks and the Closet & Storage Concepts System. Franchisee shall be solely responsible for all employment decisions and functions, including hiring, firing, discipline, supervision, setting terms of employment and compensation and implementing a training program for employees of the Franchised Business in accordance with training standards and procedures Franchisor specifies in order for Franchisee to conduct the business of the Franchised Business at all times in compliance with Franchisor's requirements. Franchisee shall never represent or imply to prospective employees and employees that they shall be or are employed by Franchisor.
• 5.3.5 The Franchised Business must be properly maintained at all times, including periodic repainting of the exterior and interior and all maintenance and repairs to all fixtures, furnishings, uniforms, signs and equipment to keep and run the Franchised Business as directed by the Operations Manual and otherwise as Franchisor reasonably directs.
• 5.3.6 Franchisee will at all times give prompt, courteous, and efficient service to the public; will perform work competently and in a workmanlike manner; and in all business dealings with members of the public, will be governed by the highest standards of honesty, integrity, fair dealing, and ethical conduct. Franchisee will do nothing that would tend to discredit, dishonor, reflect adversely upon, or in any manner injure the reputation of Franchisor or any franchisee of the System.
• 5.3.7 Franchisee acknowledges that a public demand has been created and exists for genuine products carrying certain of the Proprietary Marks and that the public have come and will come to expect that they will be able to obtain the products at an authorized Closet & Storage Concepts Business. Accordingly, Franchisee agrees that Franchisee will at all times during the term of this Agreement maintain an inventory of the products and of such other items which Franchisor may from time to time designate, which is adequate, both in terms of range of the products and other items covered and in terms of the quantities of the products and other items, to fulfill the public demand in Franchisee's market for the

products and other items and to promptly satisfy customers seeking the products and other items at the Franchised Business.

• 5.4 Managerial Responsibility. Subject to the provisions of Sections 5.4.1 of this Section 5.4, it is agreed that at all times during the term of this Agreement, Franchisee (if Franchisee is an individual, or if Franchisee is an entity, its shareholders, partners, members or principals, as the case may be) or Franchisee's duly authorized designated manager (who may or may not be a partner or principal of Franchisee) designated in writing to Franchisor shall: (i) devote his or their full time and effort to the active management and operation of the Franchised Business; (ii) irrespective of any delegation of authority not inconsistent with clause (i), reserve and exercise ultimate authority and responsibility with respect to the management and operation of the Franchised Business; (iii) not engage in or be connected with any other business or activity that interferes with the business under this Agreement; and (iv) represent and act on behalf of Franchisee in all dealings with Franchisor. If two or more individuals are named herein, each of them shall fulfill the requirements of clause (i), and both or all of them shall jointly fulfill the requirements of clauses (ii), (iii) and (iv). Regardless of if a manager is appointed, Franchisee is still responsible for the operations of the Franchised Business and its obligations under the Franchise Agreement. Franchisee may not change the manager of the Franchised Business without Franchisor's prior approval. Franchisor must be given notice if a manager resigns or is otherwise terminated within seventy-two hours and Franchisee must engage a suitable replacement as soon as possible, but in no event more than 60 days from the date of termination and Franchisee must provide suitable coverage in the interim. Franchisee will disclose to the manager only the information needed to operate the Franchised Business and the manager will be advised that any confidential information is Franchisor's trade secret.
• 5.4.1 In the event of the resignation, disability, or death of the individual or individuals referenced under this Section 5.4, the provisions of Article 7 hereof shall govern; provided however, that if two or more individuals are named herein then upon the resignation, disability, or death of one or more but less than all of such individuals, the provisions of Article 7 shall not govern and the provisions of this Section shall apply to the remaining or surviving individual or individuals.
• 5.4.2 If required by Franchisor, Franchisee shall cause a designated manager to execute an agreement to be bound by the restrictions set forth in Section 5.7 of this Agreement.
• 5.5 Updating Premises. Franchisee agrees that, in order to maintain a modern, progressive, sanitary and uniform image, Franchisor has the right to require Franchisee to perform remodeling, repairs, replacements and redecoration in and upon the premises of the Approved Location, fixtures, equipment and furnishings Franchisee uses as Franchisor reasonably deems necessary and practical to bring the premises, fixtures, equipment and furnishings up to the then current standards of newly developed System locations (Remodeling Requirements); provided, however, Franchisee shall not be required to make such modifications or improvements more than once every five (5) years or during the initial five (5) years of the term of this Agreement. In addition, in order to introduce new products or services, Franchisee may be required to expend additional amounts on new, different or modified equipment or fixtures necessary to offer such new services or products ("Replacement Requirements").
• 5.6 Applicable Laws. Franchisee shall investigate, keep informed of and comply with all applicable federal, state and local laws, ordinances and regulations regarding the operation of the Franchised Business, including employment, licensing, zoning, and bond requirements. If these legal requirements impose a greater standard or duty than Franchisor requires in the Operations Manual or

elsewhere, Franchisee must comply with the greater standard or duty and notify Franchisor in writing promptly after Franchisee becomes aware of the discrepancy. Franchisee shall abide by all applicable laws pertaining to privacy of information collected or maintained regarding customers or other individuals ("Privacy"), and shall comply with Franchisor's standards and policies pertaining to Privacy. If there is a conflict between Franchisor's standards and policies pertaining to Privacy and applicable law, Franchisee shall: (i) comply with the requirements of applicable law;

Source: Item 22 — CONTRACTS (FDD page 59)