+ FRANCHISING NAVIGATING THROUGH YOUR FRANCHISE AGREEMENT April 5, 2015 PRESENTED BY: MAHESH I. PATEL

+ Patel & Associates A trusted name for all your legal needs. Mahesh I. Patel Patel & Associates, PLLC 2929 N. Central Expressway Richardson, TX Tel: (972) Fax: (972)

+ Entering into the Franchise Relationship We hope to quickly cover the Franchise Agreement negotiation highlighting key areas where some foresight and some insight can protect you over the full term of the Agreement. We will cover: Entering the Franchise Relationship Choosing the Brand Understanding your Exit upon Entry Key Sections in Navigating the Franchise Agreement Living with your decision – Quality of Life Issues

+ Choosing the Brand The Right Fit is Essential Independent vs Brand Understanding the Track Record with Franchisees Monetizing the Loyalty Program Old vs New Concepts Old vs New Product

+ The Importance of Understanding your Exit on Entry Termination on Sale Termination for Cause Liquidated Damages Hidden Costs Cost of Reflag and PIP (periodic renovations)

+ Key Sections in Navigating the Franchise Agreement Personal Guaranty Area of Protection Liquidated Damages Key Money (Development Incentives) Marketing Fees Royalty Fees

+ Personal Liability Limit Personal Guaranty (remove if minority owner) Limit Personal Liability to amount of entity ownership (i.e. 35%) Limit Personal Liability by a “burn-off” provision (i.e. up to 3 years) Protect assets by creating Limited Partnerships/Irrevocable Trusts/Life Insurance Trusts/Homestead/401K Plans, etc. (see handout) ABOVE ALL ELSE DO NOT IGNORE LAWSUITS/ARBITRATION

+ Living With your Flag Quality of Life Issues Brand Standards Fees Brand Stratification Brand Segmentation Support

+ Integration Clause The Franchisor’s Best Friend? Entire Agreement. The Preambles and any exhibits, addenda and appendices attached hereto are a part of this Agreement. This Agreement constitutes the entire agreement of the parties, and there are no other oral or written understandings or agreements between us and you relating to the subject matter of this Agreement, except that you acknowledge that we justifiably have relied on your representations made prior to the execution of this Agreement. Nothing in this Agreement is intended to disclaim the representations we made in the franchise disclosure document that we furnished to you.

+ FTC Franchise Rule Highlights Persons Liable All franchise sellers who participate in preparation of the disclosure document Covers unfair/deceptive acts/practices

+ FTC Franchise Rule Highlights Franchisor Initiated Litigation Commenced previous fiscal year only Material cases only May group cases in categories No elaboration required Quarterly updates not required

+ FTC Franchise Rule Highlights Financial Performance Representations Still Not Mandatory! Historic performance v. forecast Mandatory statements Item 19 disclosures are permitted by law If no disclosure, warning not to rely on unauthorized disclosure Cost data permitted Update required

+ FRANCHISEE PERSPECTIVE TRUTHFUL DISCLOSURES HONEST, GOOD FAITH PERFORMANCE PROTECTION OF EQUITY FULL PROTECTION BY THE LEGAL SYSTEM

+ The Written Franchise Agreement The only evidence you’ll ever need? Evidence to be considered along with the parties’ communications and conduct – and other factors such as market conditions.

+ UNIVERSE OF EVIDENCE ◄ Time ►  Franchise relationship  System history  Market changes ▲ Other Transactions & Occurrences ▼

+ WINNING ARGUMENTS Freedom of Contract vs.  Intent of the parties  Reasonable expectations  Benefit of the bargain  Good faith performance  Faithful to common purpose  Trusting? Naive? Oppression  Bad faith  Opportunistic  Unforeseen  Taking advantage  Abusive  Lying  Undeserving  Stealing  Reckless (arrogant)

+ Aid to Construction of Existing Terms Fills “Gaps” Requires Proper Motive Protects Reasonable Expectations of Parties IMPLIED COVENANT OF GOOD FAITH & FAIR DEALING

+  antitrust  statutory regulation & public policy  unconscionability  fiduciary duties (general & agency theory)  good faith & fair dealing  independent associations & collective bargaining  fair franchising standards Franchisee Advocacy

+ FRANCHISEE STRATEGY Improve Bargaining Power!  greater due diligence  document lack of negotiation  support independent associations  demand collective bargaining mutual  seek mutual respect

+ FRANCHISING NAVIGATING THROUGH YOUR FRANCHISE AGREEMENT April 5, 2015 END THANK YOU