What is the purpose of Cost Cutters Family Hair Salon requiring franchisees to comply with Article 7?

[Item 23: RECEIPT]

ARTICLE 7 QUALITY CONTROL, UNIFORMITY AND STANDARDS REQUIRED OF THE FRANCHISEE

COST CUTTERS will promulgate, from time to time, uniform standards of quality and service regarding the business operations of the FRANCHISEE'S Cost Cutters Business so as to protect and maintain (for the benefit of all Cost Cutters Franchisees and COST CUTTERS) the distinction, valuable goodwill and uniformity represented and symbolized by the Marks and the Business System. Accordingly, to insure that all Cost Cutters Franchisees will maintain the uniform requirements and quality standards for products and services associated with the Marks and the Business System, the FRANCHISEE agrees to maintain the uniformity and quality standards required by COST CUTTERS for all products and services and agrees to comply with the provisions of this Article to assure the public that all Cost Cutters businesses will be uniform in nature and will sell and dispense quality products and services:

7.1 IDENTIFICATION OF BUSINESS. The FRANCHISEE will operate its business so that it is clearly identified and advertised as a Cost Cutters Business. However, the style and form of the words Cost Cutters® in any advertising, marketing, public relations, telemarketing or promotional program must have the prior written approval of COST CUTTERS and must conform to COST CUTTERS' standards and requirements for use of the Marks. The FRANCHISEE will use the name Cost Cutters® and all graphics commonly associated with the Marks which now or hereafter may form a part of COST CUTTERS' Business System on all paper supplies, furnishings, advertising materials, signs, stationery, business cards and other articles in the identical combination and manner prescribed by COST CUTTERS in writing. The FRANCHISEE will, at its expense, comply with all notices of registration required by COST CUTTERS and will, at its expense, comply with any other trademark, trade name, service mark, copyright, patent or other notice marking requirements that are required by COST CUTTERS or by applicable law.

• 7.2 IDENTIFICATION AS FRANCHISEE. The FRANCHISEE will not use the words Cost Cutters® or any combination of these words in its corporate, partnership or sole proprietorship name.

The FRANCHISEE will hold itself out to the public as an independent contractor operating its Cost Cutters Business pursuant to a franchise from COST CUTTERS.

[Item 23: RECEIPT]

The FRANCHISEE will begin remodeling the Franchised Location within three (3) months from the date that the FRANCHISEE receives written notice

from COST CUTTERS specifying the required remodeling and will diligently complete such remodeling within a reasonable time after its commencement. Except as provided in Article 7.13 of this Agreement, the FRANCHISEE will not be required to remodel the Franchised Location or to replace and modernize its furniture, fixtures, supplies and equipment more than once every five (5) years during the term of this Agreement. In the event this Agreement is assigned by FRANCHISEE with COST CUTTERS' approval pursuant to Article 20.4, to a transferee FRANCHISEE, and at the date of such assignment, the Franchised Location is over seven (7) years old and has not been remodeled within the previous five (5) years, then COST CUTTERS has the right and option to require the transferee FRANCHISEE to modernize the Franchised Location to meet COST CUTTERS' approval. The FRANCHISEE'S failure to comply with the requirements of this Article 7.6 will be a material breach of this Agreement.

• 7.7 USE OF MARKS AND BUSINESS SYSTEM. The FRANCHISEE will use the Marks and the Business System in strict compliance with the quality standards, moral and ethical standards, operating procedures, specifications, requirements and instructions required by COST CUTTERS, which may be amended and supplemented by COST CUTTERS from time to time.

• 7.8 PRODUCTS AND SERVICES. The FRANCHISEE will offer for sale all, but only those, products and services prescribed and approved by COST CUTTERS in writing.

The FRANCHISEE shall purchase all hair care products, supplies, and merchandise, including without limitation, all retail inventory, backbar and shop supplies for use and resale at FRANCHISEE's Cost Cutters Business from COST CUTTERS' designated and/or approved vendor (which may include COST CUTTERS and its affiliates) at such minimum levels as may be established by COST CUTTERS.

The FRANCHISEE will conform to all customer service standards prescribed by COST CUTTERS in writing.

The FRANCHISEE will have the absolute right to sell all products and services at whatever prices and on whatever terms it deems appropriate.

Source: Item 23 — RECEIPT (FDD pages 76–439)