1. Franchising In China & Elsewhere in Asia Presented by: Philip F. Zeidman DLA Piper US LLP

2. Laws Applicable to Franchising August 2007 Blue = Disclosure Law Green = Relationship Law Red = Disclosure & Relationship Laws Black = Other The Americas Barbados Brazil Canada Alberta Ontario Prince Edward Island Mexico United States Federal Several States Venezuela Europe EU Within EU Belgium Estonia France Lithuania Italy Spain Sweden Non-EU Albania Belarus Croatia Georgia Moldova Romania Russia Ukraine Central Asia Kazakhstan Kyrgyzstan Asia China Japan Macau South Korea Taiwan Vietnam The Middle East Saudi Arabia South Pacific Australia Indonesia Malaysia Does Not Include: Codes of conduct which do not provide for governmental or private enforcement, even if (e.g., South Africa) promulgated under governmental authority. Bodies of law (e.g. competition, intellectual property, etc.) which also cover franchising, unless explicitly mentioned. 4854521

3. Blue = Disclosure Law Green = Relationship Law Red = Disclosure & Relationship Laws Black = Other Central Asia Kazakhstan Kyrgyzstan Asia China Japan Macau South Korea Taiwan Vietnam Does Not Include: Codes of conduct which do not provide for governmental or private enforcement, even if (e.g., South Africa) promulgated under governmental authority. Bodies of law (e.g. competition, intellectual property, etc.) which also cover franchising, unless explicitly mentioned. South Pacific Australia Indonesia Malaysia Laws in Asia Applicable to Franchising August 2007

4. www.franchise.org Asia: Relationship Laws Only Kazakhstan Kyrgyzstan

5. www.franchise.org Taiwan Asia: Disclosure Laws Only

6. www.franchise.org Australia China Indonesia Japan Macau Malaysia South Korea Vietnam Asia: Disclosure & Relationship Laws

7. www.franchise.org China Indonesia Malaysia Vietnam Asia: Disclosure & Registration Laws

8. www.franchise.org The Development Of Franchising In China

9. www.franchise.org The Growth of Services

10. www.franchise.org Source: China Chain Store & Franchise Association

11. www.franchise.org Foreign Franchisors

12. www.franchise.org Franchise Law In China: How Did It Come About?

13. www.franchise.org Fraud Direct selling Fear of social unrest

14. www.franchise.org The Franchise Rules (1997) The Franchise Measures (2005) The Predecessors of the New Franchise Regulation

15. www.franchise.org Several Agencies involved (MOFCOM, Legislative Affairs Office of the State Council, State Administration of Industry and Commerce) Closed and secretive process The Rule Making Process of the Regulation (2005-2007)

16. www.franchise.org The revised “two plus one” rule Franchisor’s outlets do not have to be within China Qualifications

17. www.franchise.org The information provided by the franchisor shall be true, accurate and complete; and Shall not conceal the relevant information; and Shall not provide any false information Disclosure

18. www.franchise.org Name Trademark Fees Prices (products, services, equipments) Training Operations plan Investment Budget Existing Franchisees Financial Reports Litigations/ Arbitrations Illegal Operation Other Disclosure

19. www.franchise.org Provide a more detailed explanation of what is to be disclosed for each of the 12 items Other provisions Implementation Guidelines

20. www.franchise.org Cover items which must be covered in the agreement between franchisor and franchisee In general, do not describe provision in detail The provision that the franchisor bear joint and several liabilities for injuries significant, but not included Relationship Provisions

21. www.franchise.org Franchisor is required to register within 15 days after the execution of its first franchise agreement Foreign Franchisors should register with MOFCOM Franchisor must update certain information annually Government is required to register a franchisor within 10 days after receipt Registration

22. www.franchise.org “Cooling- off period” Existing franchisors exempted from “two plus one” requirement Features Worth Noting

23. www.franchise.org Interaction with general contract law The status of the franchise measures Cross-border Franchising Trademark law’s effects on franchise operations in China Other Related Issues

24. www.franchise.org Other laws (anti monopoly, dispute resolution, foreign exchange) The discretion of government officials The role of the CCFA Other Related Issues

25. www.franchise.org Questions For The Future

26. www.franchise.org Business And Cultural Questions Legal Questions

27. www.franchise.org Conclusion