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FRANCHISINGNAVIGATING THROUGH YOUR FRANCHISE AGREEMENT

April 5, 2015

PRESENTED BY: MAHESH I. PATEL

+Patel & Associates

A trusted name forall your legal needs.

Mahesh I. PatelPatel & Associates, PLLC

2929 N. Central ExpresswayRichardson, TX 75080Tel: (972) 643-1813 Fax: (972) 231-0104

www.patellaw.net

+ 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 BrandThe 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 PERSPECTIVETRUTHFUL DISCLOSURES

HONEST, GOOD FAITH PERFORMANCE

PROTECTION OF EQUITY

FULL PROTECTION BY THE LEGAL SYSTEM

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The Written Franchise AgreementThe 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 relationshipSystem historyMarket changes

▲Other Transactions

& Occurrences▼

+ WINNING ARGUMENTS

Freedom of Contract vs.Intent of the partiesReasonable expectationsBenefit of the bargainGood faith performanceFaithful to common purpose

Trusting? Naive?

OppressionBad faithOpportunisticUnforeseenTaking advantageAbusiveLyingUndeservingStealingReckless (arrogant)

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Aid to Construction of Existing Terms

Fills “Gaps”

Requires Proper Motive

Protects Reasonable Expectations of Parties

IMPLIED COVENANT OFGOOD FAITH & FAIR DEALING

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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 seek mutual respect

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FRANCHISINGNAVIGATING THROUGH YOUR FRANCHISE AGREEMENT

April 5, 2015

END

THANK YOU