ating marketing and brand standards related to the promotion of the Franchised Business;

• (6) Approving or disapproving of Franchisee requests related to marketing materials and Digital Media that may be used to market the Franchised Business; and
• (7) Establishing and communicating System standards and requirements in the form of the Operations Manual and, as Franchisor, in Franchisor's sole discretion.

4.C. OPERATIONS MANUAL

Franchisor shall provide Franchisee with access to the Operations Manual. The Operations Manual contains, as designated and determined by Franchisor, mandatory and, as applicable, suggested specifications, standards and operating procedures that Franchisor prescribes for MRCOOL Centers. Franchisee shall operate the Franchised Business in strict accordance with the standards, specifications, and requirements set forth in the Operations Manual as, such standards, specifications, and requirements including, but not limited to, the Approved Services and Products, System Supplies, and, authorized and designated suppliers, as of the Effective Date of this Agreement, and, as they may be supplemented, modified, changed, and/or replaced in the future and, from time to time, by Franchisor, in Franchisor's Reasonable Business Judgment. Franchisee shall keep and maintain the confidentiality of the Operations Manual and, shall keep and maintain all files, data and information contained in the Operations Manual in a secure location and/or in a protected confidential state and, as otherwise directed by Franchisor. The master copy and official version of the Operations Manual is and shall be the copy and/or version maintained and designated by Franchisor in Franchisor's ordinary course of business.

Franchisor shall provide Franchisee with reasonable notice of modifications and changes made to the Operations Manual and, such notice may take form of electronic communications including emails and, if the Operations Manual is maintained on an online web based platform, notifications within said platform. Franchisor shall provide Franchisee with a reasonable period of time, as determined by Franchisor, in Franchisor's Reasonable Business Judgment, to implement change and modifications to the as set forth in the Operations Manual. Without limitation to the foregoing, Franchisee may only offer and sell the Approved Services and Products and utilize the System Supplies as designated by Franchisor, in Franchisor's Reasonable Business Judgment, in the Operations Manual and, in accordance with the terms, specifications and requirements set forth in the Operations Manual and as Franchisor may supplement and modify the Operations Manual from time to time or, as Franchisor may otherwise designate in writing.

ARTICLE 5 FEES

5.A. INITIAL FRANCHISE FEE

Upon execution of this Agreement Franchisee shall pay to Franchisor a non-recurring initial franchisee fee (the "Initial Franchise Fee") of $50,000 for the Designated Territory encompassing an area containing 2,000,000 households ("Base Territory"). If Franchisee's Base Territory is supplemented with additional households, the Initial Franchise Fee shall be increased $0.05 for each additional household above the Base Territory and shall be the amount set forth in Schedule 1 of this Agreement. The Initial Franchise Fee is fully earned by Franchisor upon execution of this Agreement and is not refundable.

5.B. ROYALTY FEES

Throughout the Term of this Agreement, Franchisee shall pay to Franchisor a continuing monthly nonrefundable royalty fee (the "Royalty Fee") in an amount equal to the greater of either (i) 1% (the "Royalty Rate") of your monthly Gross Sales; or (ii) the minimum royalty based upon the following schedule ("Minimum Royalty"):

| ASSETS | | | | |---|---|---|---| | Current assets | | | | | Cash | $ 8 47 | $ -0- | | | Prepaid expenses | 1 ,080 | | -0- | | Total current assets | 1 ,927 | | -0- | Franchisor may increase the Royalty Rate at any time in the future in our sole discretion, provided that the Royalty Rate will not exceed 2.5% of your monthly Gross Sales and further provided that Franchisor will not increase the Royalty Rate by more than 0.5% in any calendar year during the Term of the Agreement. Franchisor reserves the right to modify the Minimum Royalty in any Renewal Franchise Agreement in Franchisor's Reasonable Business Judgment. During the term of any Renewal Franchise Agreement, the Minimum Royalty will not be less than the Minimum Royalty set forth in the above table for Year "4 and thereafter."

The Royalty Fee shall be calculated on a monthly basis for each respective monthly Accounting Period. The Royalty Fee during any Renewal Term shall be determined by Franchisor but shall not be less than the Royalty Fee and Royalty Rate set forth in this Agreement. If any federal, state or local tax or withholding obligation, other than an income tax, is imposed on the Royalty Fee paid by Franchisee to Franchisor that, Franchisor cannot directly and, dollar for dollar, offset against taxes required to be paid by Franchisor under any applicable federal or state laws, then Franchisee must compensate Franchisor in amounts that offset the tax/withholding obligations.

Source: Item 23 — RECEIPTS (FDD pages 55–263)