KEY PROVISIONS OF FRANCHISE AGREEMENTS

1. KEY PROVISIONS OF FRANCHISE AGREEMENTS Claro F. Certeza SPCMBLAW

2. TRAINING/ON-GOING SUPPORT BY FRANCHISOR To ensure uniformity of operations and preserve brand reputation Each franchisor has its own training program for franchisees and their staff, which can include training done at the franchisee's location or at the corporate headquarters or a combination. Most franchisors offer on-going support including administrative and technical support.

3. Training • Par. 4, A • Training is given for 2 store manager • Training is given in a training facility or an existing store • Manager to be replace if found not qualified • Attendance at refresher courses is required • Required to allow store to be used as training facility

4. Territory To ensure that the outlet’s location is suited to the franchise concept Assigned territory. The Franchise Agreement designates the territory in which franchisee will operate Exclusivity. A designated area is reserved for exclusive exploitation of franchisee.

5. Territory • Par. 1, D • Grant is limited to one site • Cannot operate the store in any other site without prior written consent subject to payment of fees for evaluating the new site • Cannot conduct a competing business at the site • Cannot sell to third parties for re-sale • Territorial protection is given within the area designated in the attachment to FA – provided franchisee is in full compliance with the FA

6. Franchise Term A franchise is a privilege that is given for a limited period of time only Length of Term. The term should be long enough to allow the franchisee to recoup his investment and earn a substantial profit.

7. Franchise Term Par. 1, D Term is 15 years No renewal clause

8. Investment The FA should state clearly the initial cost of investment to avoid misunderstanding Franchise Fee. Franchisees are required to pay an initial franchise fee that grants them the right to use the franchisor's trademark and operating system. Investment. There should be an itemized cost for store construction, insurance, initial inventory, and a schedule for drawdown.

9. Investment • Initial Fee (Par. 3) • Franchise fee – US $25,000 • When payable – concurrently with the signing of the FA • Nature – non-recurring, non-refundable, fully-earned when paid • Investment • Par. 2, C – merely requires the franchisee to secure all financing to develop and operate the store.

10. On-going Fees Ongoing fees and expenses should be clearly stated to avoid misunderstanding Royalties. Most franchisors require franchisees to pay an ongoing royalty, usually a percentage of total sales, typically on a monthly basis. Advertising Contribution. Franchisors require their franchisees to contribute to a fund for national advertising. Security Deposits. Some Franchisors require their franchisees to make a security deposit to cover obligations that may arise in favor of the franchisor.

11. On-going Fees Par. 3, B – royalty is fixed at 4.5% gross sales Basis for computation – Gross Sales defined in Par. 3, C Interest on late payments – interest is fixed at 1.5%/ month (under Art. 1956 no interest shall be due unless stipulated in writing)

12. Trademark To preserve brand reputation, the use of the trademark should be regulated. Trademark, patent, and signage use. This provision covers how a franchisee can use the franchisor's trademark, patent and signage. Trademark should be used only in connection with the operation of the franchised store. Trademark can only be used strictly in accordance the Operations Manual.

13. Trademark • Par. 5 • Ownership – derived solely from the FA and limited to the operation of the store • Goodwill – redounds to the benefit of the Franchisor exclusively • Goodwill – reputation of good name of an establishment (Anderson vs. Posadas, 66 Phil 29) • Cannot use the trademark as part of franchisee’s corporate name

14. Operations Success is enhanced by strict adherence to the business format. Operating protocol. This section details how franchisees run their outlets. Operating guidelines found in Franchisor’s Operating Manual which is made part of the agreement. Compliance. Compliance with the Operations Manual is monitored thru right of inspection by franchisor’s representatives. Operations Manual. The manual is only loaned to the franchisee. The contents are to be kept confidential by the Franchisee and must be returned upon termination.

15. Provisions Re: Operating Standards • Par. 8 • Operation and maintenance of store in accordance with the Standards is necessary to preserve goodwill. • Agree to operate in accordance with system standards. • Enumerates areas regulated by system standards. • Agreement that system standards prescribed from time to time and communicated to franchisee forms part of the FA. • Commitment that the store shall be under the direct, on premises management by franchisee or manager designated by franchisee.

16. Right to Audit • Par. 10, B • Right to conduct audit at any time during business hours without prior notice • Covers financial records and access to computer systems • If there is variance in Gross Sales reported by more than 5%, reimburse cost of inspection and audit • Does not cover operations’ audit

17. Renewal/Termination Renewal should be clearly defined. Grounds for Termination if not provided limits the same to substantial breach Renewal. Absence of renewal provision implies that renewal is subject to mutual agreement. Conditional renewal allows renewal upon franchisee’s meeting certain conditions. Termination. Grounds for termination is listed to cover violations that are non-negotiable. Further, the effects of termination is clearly defined.

18. Sale of Franchise The franchise is granted upon reliance to the qualifications of the franchisee, a change in franchisee requires consent of the franchisor Resale Rights. Some franchisors write in buy back or right of first refusal clauses, which allow the franchisor to buy back the franchise at a rate determined by them or to match any potential buyer's offer who has expressed interest in buying your franchise.

19. Sale of Franchise Award of franchise is personal to franchisee. If franchisee desires to transfer the franchise, Franchisor’s consent is required. The term transfer includes: Sale, transfer, or pledge of the rights in the franchise. Approval to issue if franchisee is not in default under the FA and transferee meets the standards for new franchisees.

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