Supercuts 2002 Annual Report Download - page 17

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Table of Contents
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
and certain other items, including initial working capital.
Supercuts
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. During fiscal 2001, the Company began selling development agreements for new markets
which include limited territory protection for the Supercuts brand. 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
The majority of existing Cost Cutters’ franchise agreements have a 15-year term with a 15-year option to renew, 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 provides limited territorial protection.
Groupe Gerard Glemain(GGG) and Jean Louis David (JLD)
The majority of GGG’s franchise contracts have a five-year term with an implied option to renew for a term of three years. All new JLD
contracts have five-year terms, although a substantial number of JLD’s existing contracts provide for an eight-year term. The franchise
agreements for both GGG and JLD are site specific and only a small minority of the contracts provide for territorial exclusivity. The
agreements provide for the right of first refusal if the salon is to be sold and the franchisee must obtain the Company’s approval before selling
of the salon. Neither GGG nor JLD act as lessor for their franchisees.
14