the "Training Expenses"). (Franchise Agreement - Section 6.6)

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.

The franchise is granted for mobile operations within a defined Territory, which will be described in Exhibit "A" to your Franchise Agreement. Your Territory will be defined as a specific geographic area identified using commonly understood state, county, municipal or postal area definitions. There is no minimum area granted for a Territory.

We will not operate or grant franchises for HydroDog Businesses from a fixed location or mobile method (vehicle) within your Territory.

You are required to meet the Territory Development Schedule, which requires you to maintain one (1) HydroDog Vehicle for every 100,000 population (or fraction thereof) in your Territory. You must add each required additional HydroDog Vehicle within six (6) months after commencing operations or within six (6) months of any population increase that triggers the requirement for an additional vehicle. Your failure to achieve either the required customer satisfaction index score results or the required customer retention rate results is grounds either for us to require your mandatory attendance at any remedial training program that we specify or for us to allow other franchisees to operate in your Territory, or for us to terminate the Franchise Agreement. In addition, if you do not open the number of mobile pet grooming vehicles as required by the Territory Development Schedule, we may terminate your Franchise Agreement.

You cannot operate your HydroDog Business outside the Territory or relocate without our prior written approval. If, in our business judgment, there is a change in character of your Territory sufficiently detrimental to its business potential to warrant your HydroDog Business's relocation to a new geographic area, we will permit you to relocate your HydroDog Business.

You must notify us of all inquiries for Products and Services received from any prospective customer outside of your Territory. We will forward these types of inquiries to the franchisee, if any, in whose Territory the prospective customer account is situated. If there is no existing franchisee within whose territory the prospective customer account is situated, we may allow you to provide services or products to such customer account for so long as the customer account is not located in the territory of another franchisee. If you obtain our approval for relocation, you must reopen your HydroDog Business within the new or modified Territory as soon as practicable, but in no event more than 30 days after our approval is given, unless we agree in writing to extend such period due to circumstances beyond your reasonable control.

Except for our HydroDog website and any electronic marketing programs that we authorize, you are prohibited from marketing or selling through the Internet, World Wide Web, or any other electronic means of marketing and distribution of Products and Services, or any other distribution channel outside of your HydroDog Business.

We do not offer options, rights of first refusal or similar rights to acquire additional franchises.

Rights We Retain

Under the Franchise Agreement we (and our affiliates) retain the right in our sole discretion to:

• 1. Sell or otherwise distribute any products or services anywhere, whether at wholesale, retail or otherwise and whether or not using the Marks or System, without restriction of any kind, in any alternative or other channel of distribution other than mobile facilities providing pet grooming services under the Marks and System, whether or not located in the Territory, and to customers located anywhere.
• 1. Distribute branded products through any outlet (including sales through general retail stores, pet stores or otherwise and/or by electronic means) located anywhere;
• 1. Own and/or operate ourselves or authorize others to own and/or operate (a) any business located outside the Territory, whether or not using the Marks and/or System, (b) any business anywhere, whether using the Marks and/or System or not, which is not substantially similar to the business franchised to you under the Agreement and/or (c) any business anywhere which does not use the Marks;

• 1. Acquire, merge, affiliate with or engage in any transaction with other businesses (whether competitive or not), with units located anywhere, including arrangements in which we are acquired, and/or company-owned, franchised or other businesses are converted to another format, maintained under the HydroDog System or otherwise. The HydroDog Business awarded to you will fully participate in any conversion subject to any person/entity merging with, or acquiring us, reimbursing you for reasonable costs directly related to the conversion; and

Source: Item 12 — TERRITORY (FDD pages 30–32)