Supercuts 2008 Annual Report Download - page 16

if the franchisee fails to comply with the Company's operational policies and procedures. See Note 6 of "Notes to Consolidated Financial
Statements" for further information about the Company's commitments and contingencies, including leases.
Franchise Terms. Pursuant to their franchise agreement with the Company, each franchisee pays an initial fee for each store and
ongoing royalties to the Company. In addition, for most franchise concepts, the Company collects advertising funds from franchisees and
administers the funds on behalf of the concept. Franchisees are responsible for the costs of leasehold improvements, furniture, fixtures,
equipment, supplies, inventory, payroll costs and certain other items, including initial working capital.
Additional information regarding each of the major franchisee brands is listed below:
Supercuts (North America)
The majority of existing Supercuts franchise agreements have a perpetual term, subject to termination of the underlying lease
agreement or termination of the franchise agreement by either the Company or the franchisee. The agreements also provide the Company
a right of first refusal if the store is to be sold. The franchisee must obtain the Company's approval in all instances where there is a sale of
the franchise. The current franchise agreement is site specific and does not provide any territorial protection to a franchisee, although
some older franchise agreements do include limited territorial protection. Development agreements for new markets include limited
territory protection for the Supercuts concept. The Company has a comprehensive impact policy that resolves potential conflicts among
franchisees and/or the Company regarding proposed salon sites.
Cost Cutters, First Choice Haircutters and Magicuts (North America)
The majority of existing Cost Cutters' franchise agreements have a 15 year term with a 15 year option to renew (at the option of the
franchisee), while the majority of First Choice Haircutters' franchise agreements have a ten year term with a five year option to renew.
The majority of Magicuts' franchise agreements have a term equal to the greater of five years or the current initial term of the lease
agreement with an option to renew for two additional five year periods. All of the agreements also provide the Company a right of first
refusal if the store is to be sold. The franchisee must obtain the Company's approval in all instances where there is a sale of the franchise.
The current franchise agreement is site specific. Franchisees may enter into development agreements with the Company which provide
limited territorial protection.
Pro Cuts (North America)
The majority of existing Pro Cuts franchise agreements have a ten year term with a ten year option to renew. The agreements also
provide the Company a right of first refusal if the store is to be sold or transferred. The current franchise agreement is site specific.
Franchisees may enter into development agreements with the Company which provide limited territorial protection.
Franchisee Training. The Company provides new franchisees with training, focusing on the various aspects of store management, including
operations, personnel management, marketing fundamentals and financial controls. Existing franchisees receive training, counseling and
information from the Company on a continuous basis. The Company provides store managers and stylists with extensive technical training for
Supercuts franchises. For further description of the Company's education and training programs, see the "Salon Education and Training
Programs" section of this document.
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