ng to discharge all obligations of the "Franchisee" under the Franchise Agreement.

ITEM 16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL

You must conduct your business in accordance with our confidential and proprietary Operations Manual, other Manual(s), training materials and System policies in order to protect our reputation and goodwill and to maintain our high standards of operation under our Proprietary Marks.

You must use the premises solely for the operation of the Franchised Business, and must keep the location open and in normal operation for the hours and days as we may specify in the Manual or as we may otherwise approve in writing.

You are prohibited from offering or selling any products or services not authorized in writing by us. The non-competition of this agreement (Item 17) does not permit you to have ownership or interest in a competing business, including any operation, formal or otherwise, of a business that offers any of the products or services provided by Businesses (which includes any services that affects the building envelope of a residential or commercial structure, regardless of age). Any and all services you provide to your customers must be provided in accordance with the standards established by us.

You are not limited in the customers you may serve from your Franchised Business, but you may not serve customers who reside in the Designated Territory of another Business without obtaining the prior written consent of the owner of the Designated Territory where that customer resides. You are not permitted to distribute Spray-Net Inc. products on a non-retail or wholesale basis without our prior written consent.

You may only, and must, offer and provide the Approved Services we designate, and which we may supplement, change or otherwise modify from time to time in the Manuals or otherwise in a writing to you.

• During your initial period of operations, our standard franchise offering expects and assumes that you will operate from a home office and will provide the painting and other initial Approved Services that all of our new System franchisees are typically authorized to provide upon completion of training and all other pre-opening requirements under the Franchise Agreement.
• Before any one (1) of your personnel or Designated Manager may engage in providing any of the Approved Services, that individual must complete the necessary training to become an Authorized Painter with respect to the Authorized Painter Services that the individual intends to provide to customers of the Franchised Business.
• Once you have launched your Franchised Business and been operating in compliance with your Franchise Agreement for a period of one (1) year (or other period of time we agree to in a separate writing outside our standard franchise offering), you may request the right to provide one (1) or more of the Ancillary Services that we generally allow only our more experienced Business operators promote and perform on behalf of Clients. As of the Issuance Date, we may condition our approval of any request you make to provide a given Ancillary Service on the following (the "Current Ancillary Service Conditions" or "CASCs"):
  • o Your operation of the Franchised Business over the one (1) year period disclosed above;
  • o You demonstrating to us that the Franchised Business has otherwise been able to timely provide the Approved Services and progress Client Projects without Client complaint, or any reporting or other issue;
  • o Acquiring any additional equipment and/or other operating supplies we designate as necessary to commence offering the Ancillary Service(s) at issue (total cost of this is approximately $20,000 to $30,000), as well as any additional or supplemental training we require and additional marketing expenditures for such Ancillary Service(s) (approximately $25,000), at your expense and prior to you offering or providing such Ancillary Service(s) via your Franchised Business in any manner;

• o Your Franchised Business generating Gross Sales necessary to meet and exceed your thencurrent Minimum Gross Sales under the Franchise Agreement by 15% for a period of at least three (3) consecutive months;

Source: Item 16 — RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL (FDD pages 55–57)