Supercuts 2003 Annual Report Download - page 16

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Table of Contents
Standards of Operations
Franchisees are required to conform to company-established operational policies and procedures relating to quality of service, training, design
and decor of stores, and trademark usage. The Company’s field personnel make periodic visits to franchised stores to ensure that the stores are
operating in conformity with the standards for each franchising program.
To further ensure conformity, the Company may enter into the lease for the store site directly with the landlord, and subsequently sublease the
site to the franchisee. The franchise agreement and sublease provide the Company with the right to terminate the sublease and gain possession
of the store 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.
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.
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