Is Extreme Art Studio restricted in how it uses revenue derived from franchisee purchases?

ening Extension Fee (defined below) until you open or until the Franchise Agreement (or, in our discretion, Extreme Art Rider) is terminated.

3. FEES.

3.1 INITIAL FRANCHISE FEE. When you sign this Franchise Agreement, you will pay us a nonrecurring, nonrefundable initial franchise fee in the amount as set forth in Attachment A ("Initial Franchise Fee"). If you purchase a Standard Franchise, you will not be required to pay a separate Initial Franchise Fee when you sign the Extreme Art Rider (all other fees will apply). The Initial Franchise Fee is uniform, earned by us when paid, and is not refundable. The Initial Franchise Fee is in consideration of all of our pre-opening assistance that we provide to allow you to open your Franchised Businesses and our loss of deferred opportunity to enter into this Franchise Agreement with others, and it also offsets some of our expenses for franchisee recruitment.

3.2 ROYALTY FEE.

• 3.2.1 You agree to pay us a recurring royalty fee ("Royalty") for each calendar month (or other accounting period that we may designate from time to time). The amount of the Royalty will be equal to the greater of: (i) eight percent (8%) of your Gross Sales from all of your Extreme Art Studio Businesses for the previous calendar month (or other accounting period we designate); or (ii) $500 per month for each Extreme Art Studio Business you operate under this Franchise Agreement ("Minimum Royalty"). The Minimum Royalty shall begin being charged by us 6 months after you open your first Extreme Art Studio Business under this Franchise Agreement and immediately upon opening each subsequent Extreme Art Studio Business under a Standard Franchise (if applicable).
• 3.2.2 For purposes of this Franchise Agreement, "Gross Sales" means all revenue that you receive from operating the Franchised Business (including any modules), including, but not limited to, all amounts or other consideration that you receive, directly or indirectly, at or away

from the Extreme Art Studio Business, and in the form of cash, check, credit and debit card, barter exchange, trade credit, or other credit transactions, and including all proceeds from any business interruption insurance. For example, Gross Sales includes, without limitation, the following:

• (a) all monies you receive from customers, including, but not limited to, monies received from the sale of products and services;
  • (b) the amount of gift card redemptions;
• (c) the proceeds of any business loss or interruption insurance or similar insurance; and
  • (d) any other revenue you derive.
• 3.2.3 Gross Sales does not include any federal, state, or municipal sales, use, or service taxes collected from customers and paid to the appropriate taxing authority, any bona fide customer refunds or customer tips. Gross Sales are deemed received at the time the products or services from which they were derived are delivered or rendered, or at the time the relevant sale takes place, whichever occurs first, regardless of whether final payment (e.g., collection on an account receivable) actually has been received.
• 3.2.4 You must pay your Royalty to us via electronic funds transfer ("EFT"), or other means approved by us. All Royalty payments to us are fully earned when paid and are nonrefundable under any circumstances.
• 3.3 MARKETING FEES. You agree to pay us a Brand Fund Contribution (as both terms are defined in Section 9.3) and, if established, a Local Advertising Cooperative (as defined in Section 9.4) contribution (collectively, the "Marketing Fees") for each of your Extreme Art Studio Businesses. The Marketing Fees are due and payable in the same manner as the Royalty. If you use marketing materials that we have not approved in accordance with Section 9.2.3, we may charge you a fee of $500 per occurrence.
• 3.4 TECHNOLOGY FEES.

Source: Item 22 — CONTRACTS (FDD page 49)