Does Spray Net require franchisees to purchase from approved suppliers?

u must obtain our prior written approval as described more fully in this Item.

Approved Suppliers

We have the right to require you to purchase or lease any items or services necessary to operate your Franchised Business, including but not limited to equipment, fixtures, inventory, and paper goods, from a supplier that we approve or designate (each, an "Approved Supplier"), which may include us or our affiliate(s). We will provide you with a list of our Approved Suppliers in writing as part of our Manual or otherwise in writing, and we may update or modify this list as we deem appropriate.

As of the Issuance Date, we have Approved Suppliers for the following items: (i) the business management software and certain other required software that you must license and use in connection with your Franchised Business (collectively, the "Required Software"); (ii) equipment (including Mobile Services Unit) that we expect, and our standard offering assumes, you will lease from a third-party lessor we approve or authorize; (iii) the Marketing Kit, Production Supplies Kit, and Sales Kit; (iv) supplies such as masking paper, tape, and caulking; (v) vehicle signage and related installation; and (vi) all or some of the marketing, advertising and promotional materials and services on which you must expend your Local Advertising Requirement and Initial Marketing Investment; (vii) home show booth and spray booth; (viii) call center and sales center; (xiv) accounting software (QuickBooks); (xv) bookkeeping services (Journey); and (xvi) if and once applicable, certain equipment, hardware and/or operating supplies necessary to provide one (1) or more of the Ancillary Services we approve or otherwise require you to provide as described more fully in Item 16 of this Disclosure Document.

As of the Issuance Date, be advised that: (i) SN Distribution is the designated supplier for Proprietary Products and some inventory/supplies necessary to provide the Approved Services and/or operate the Franchised Business; and (ii) we are the designated supplier for (a) the Marketing Kit, Production Supplies Kit, and Sales Kit, (b) our System-associated business management software, and (c) certain digital and other marketing management services on which you must expend a portion of your Initial Marketing Investment and Local Advertising Requirement.

Except as provided above, neither we nor our affiliates are the designated or Approved Supplier for any item or service you are required to purchase or lease in connection with the establishment and/or ongoing operation of your Franchised Business. Carmelo Marsala and David Garofano own interests in Groupe Spray-Net and, through its subsidiaries, including SN Distribution, will indirectly derive revenue from required franchisee purchases. Except as stated above, none of our officers owns an interest in any of our Approved Suppliers.

Non-Approved Product/Service and Alternative Supplier Approval

We may, but are not obligated to, grant your request to: (i) offer any products or services in connection with your Franchised Business other than the Approved Services (which includes the Proprietary Products); or (ii) purchase any item or service we require you to purchase from an Approved Supplier from an alternative supplier.

If you wish to undertake either of these actions, you must request and obtain our approval in writing before: (i) using or offering the non-approved product or service in connection with your Franchised Business; or (ii) purchasing from a non-approved supplier. We may ask you to submit samples or information so that we can make an informed decision whether the goods, equipment, supplies or supplier meet our specifications and quality standards. In evaluating a supplier that you propose to us, we consider not only the quality of the particular product at issue, but also the supplier's production and delivery capability, overall business reputation and financial condition. We may provide any alternate supplier you propose with a copy of our then-current specifications for any product(s) you wish the supplier to supply, provided the supplier enters into a confidentiality and non-disclosure agreement in the form we specify. We may also inspect a proposed supplier's facilities and test its products, and request that you reimburse our actual costs associated with the testing/inspection.

We will notify you in writing within 30 days after we receive all necessary information and/or complete our inspection or testing to advise you if we approve or disapprove the proposed item and/or supplier. The criteria we use in approving or rejecting new suppliers is proprietary, but we may (but are not required to) make it available to you upon request. Each supplier that we approve of must comply with our usual and customary requirements regarding insurance, indemnification and non-disclosure. If we incur any costs in connection with testing a particular product or evaluating an unapproved supplier at your request, you must reimburse us for our reasonable testing costs, regardless of whether we subsequently approve the item or supplier. If we approve any supplier, we will not guarantee your performance of any supply contract with that supplier under any circumstances. We may re-inspect and/or revoke our approval of a supplier or item at any time and for any reason to protect the best interests and goodwill of our System and Proprietary Marks. The revocation of a previously approved product or alternative supplier is effective immediately when you receive written notice from us of revocation and, following receipt of our notice, you may not place any new orders for the revoked product, or with the revoked supplier.

Required Purchases and the Right to Derive Revenue

We estimate that the costs of your purchases from designated or approved suppliers, or according to our standards and specifications, may range from 90% to 95% of your total purchases in connection with the establishment of your Franchised Business, and between 35% and 45% of your ongoing expenses. We may designate sources for additional goods and services, we may receive revenue, rebates, commission or other material consideration from franchisee purchases.

We derive revenue as a result of required purchases or leases by you in accordance with specifications or standards required by us, or from suppliers approved by us. Except as noted above, there are no goods or services required in the operation of the outlet for which we or persons affiliated with us are the only approved suppliers. We currently receive rebates from suppliers amounting to approximately 2-3% of the purchase price our franchisees pay them. During the year ending December 31, 2024, we received $14,161.24 in rebates from these suppliers based on our franchisee's purchases from them.

In the year ending December 31, 2024, we derived $1,490,118 in revenue from Franchisee required purchases of digital marketing, initial marketing investment, and tech packages, or 52.03% of our total revenue of $2,863,931 per our most recent audited financials. These amounts were, in turn, paid directly to third-party suppliers of digital marketing and technology services. This amount does not include initial franchise fees or training fees.

In the year ending December 31, 2024, SN Distribution's revenue from the sale of paints and supplies to our franchisees (U.S.

Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 33–36)