1. © 2008 Dannemann Siemsen. All rights reserved. BRAZILIAN FRANCHISE LAW NO. 8,955/94 Date: 17/04/09 Name: Luciana Bassani E-mail: lbassani@dannemann.com.br Date: 17/04/09 Name: Luciana Bassani E-mail: lbassani@dannemann.com.br

2. © 2008 Dannemann Siemsen. All rights reserved. 2 Data as of 2008:  1,379 franchise networks  71,954 units (outlets)  $ 24,458 billion in revenue  4th largest country in the world (no. of units)  2007 x 2008 Growth = 19,5%  1,379 franchise networks  71,954 units (outlets)  $ 24,458 billion in revenue  4th largest country in the world (no. of units)  2007 x 2008 Growth = 19,5%

3. © 2008 Dannemann Siemsen. All rights reserved. 3 Presence of International Networks Foreign Networks 11% Brazilian Networks 89%

4. © 2008 Dannemann Siemsen. All rights reserved. 4 Presence of International Networks Argentina Costa Rica United States Canada England Spain France Portugal Italy – 2% Switzerland Japan

5. © 2008 Dannemann Siemsen. All rights reserved. 5 RANKING – Size of the Networks – 2008 Ranking NetworkSegment Total Units 1ºO BOTICÁRIO Cosmetics & Perfume2.667 2ºKUMON Education & Training1.555 3ºWIZARD IDIOMAS Language Schools1.246 4ºCOLCHÕES ORTOBOM Furniture, Decorations & Gifts 1.149 5º ESCOLAS FISK Language Schools 966 6º L’ACQUA DI FIORI Cosmetics & Perfume966 7º HOKEN Beauty, Healthcare & Natural Products898 8º CCAA Language Schools805 9º MICROLINS Education & Training 745 10º AM PM MINI MARKET Business, Services and Convenience 725 11º BOB’S Food659 12º JET OIL Automotive Services622 13º CACAU SHOW Food 615 14º ÁGUA DE CHEIRO Cosmetics & Perfume 580 15º MCDONALD’S Food549 16º ESTAPAR Automotive Servies 518 17º BR MANIA Business, Services and Convenience 517 18º CNA Language Schools 480 19º DROGARIAS FARMAIS Beauty, Healthcare & Natural Products470 20º CASA DO PÃO DE QUEIJO Food 450

6. © 2008 Dannemann Siemsen. All rights reserved. 6 Brazilian Franchise Law  Brazilian Law No. 8,955/94 (the “Brazilian Franchise Law") governs all franchise relationships that are "established and operated in the Brazilian territory."  In fact, the Brazilian Franchise Law solely governs the content of the Franchise Offering Circular (“FOC”).  Brazilian Law No. 8,955/94 (the “Brazilian Franchise Law") governs all franchise relationships that are "established and operated in the Brazilian territory."  In fact, the Brazilian Franchise Law solely governs the content of the Franchise Offering Circular (“FOC”).

7. © 2008 Dannemann Siemsen. All rights reserved. 7 Legal Definition of Franchise Agreements  Article 2 of the Brazilian Franchise Law defines a commercial franchise as "a system whereby a franchisor grants to franchisee the right to use a certain trademark or patent, associated to the right to distribute products or services on an exclusive or semi-exclusive basis and, possibly, also the right to use know-how related to the implantation and management of a business or operating system developed or used by franchisor, in exchange for direct or indirect compensation, without, however, being characterized as an employment relationship."  Article 2 of the Brazilian Franchise Law defines a commercial franchise as "a system whereby a franchisor grants to franchisee the right to use a certain trademark or patent, associated to the right to distribute products or services on an exclusive or semi-exclusive basis and, possibly, also the right to use know-how related to the implantation and management of a business or operating system developed or used by franchisor, in exchange for direct or indirect compensation, without, however, being characterized as an employment relationship."

8. © 2008 Dannemann Siemsen. All rights reserved. 8 Deadline to Deliver FOC  Article 4 of the Franchise Law requires that a Franchise Offering Circular (“FOC”) be delivered to the prospective franchisee, at least ten (10) days prior to the execution of any binding document related to the franchise and/or receipt of any payment by franchisor.  The statute of limitations for a franchisee to assert a claim of non-compliance is two years from the delivery of the Offering Circular.  Article 4 of the Franchise Law requires that a Franchise Offering Circular (“FOC”) be delivered to the prospective franchisee, at least ten (10) days prior to the execution of any binding document related to the franchise and/or receipt of any payment by franchisor.  The statute of limitations for a franchisee to assert a claim of non-compliance is two years from the delivery of the Offering Circular.

9. © 2008 Dannemann Siemsen. All rights reserved. 9 Consequences of Failure  A failure by franchisor to provide a prospective franchisee with the appropriate FOC renders the agreement void and gives a franchisee the right to demand a refund of all amounts paid by franchisee, plus recovery of damages.  Franchisors tend to be conservative in relation to this requirement as the local law provides for a severe penalty in the event of failure to comply with this legal obligation.  Key due diligence issue for the acquisition of a franchise system in Brazil.  A failure by franchisor to provide a prospective franchisee with the appropriate FOC renders the agreement void and gives a franchisee the right to demand a refund of all amounts paid by franchisee, plus recovery of damages.  Franchisors tend to be conservative in relation to this requirement as the local law provides for a severe penalty in the event of failure to comply with this legal obligation.  Key due diligence issue for the acquisition of a franchise system in Brazil.

10. © 2008 Dannemann Siemsen. All rights reserved. 10 FOC Content: 15 items (Article 3)  (1) A summary of the background of franchisor;  (2) Balance sheets and financial statements of the franchisor for the two preceding years (no need to be audited);  (3) Description of all pending lawsuits involving the franchisor, its controlling companies, subfranchisors, and the owners of licensed trademarks, patents and copyrights, and other franchisees or ex-franchisees relating to the franchise agreement (this applies to lawsuits filed worldwide);  (1) A summary of the background of franchisor;  (2) Balance sheets and financial statements of the franchisor for the two preceding years (no need to be audited);  (3) Description of all pending lawsuits involving the franchisor, its controlling companies, subfranchisors, and the owners of licensed trademarks, patents and copyrights, and other franchisees or ex-franchisees relating to the franchise agreement (this applies to lawsuits filed worldwide);

11. © 2008 Dannemann Siemsen. All rights reserved. 11 FOC Content  (4)Detailed description of the business;  (5)Characteristics of the "ideal franchisee";  (6)Requirements regarding the direct involvement of the franchisee;  (4)Detailed description of the business;  (5)Characteristics of the "ideal franchisee";  (6)Requirements regarding the direct involvement of the franchisee;

12. © 2008 Dannemann Siemsen. All rights reserved. 12 FOC Content  (7)Specifications regarding: (a) estimated initial investment (b) initial affiliation fee or franchise fee and (c) estimated cost of the facilities;  (8)Clear information regarding periodic fees (royalties; advertising fee; minimum insurance coverage amounts, etc.);  (9)Complete listing of all the franchisees and ex- franchisees within the last twelve months (this includes all international franchisees);  (7)Specifications regarding: (a) estimated initial investment (b) initial affiliation fee or franchise fee and (c) estimated cost of the facilities;  (8)Clear information regarding periodic fees (royalties; advertising fee; minimum insurance coverage amounts, etc.);  (9)Complete listing of all the franchisees and ex- franchisees within the last twelve months (this includes all international franchisees);

13. © 2008 Dannemann Siemsen. All rights reserved. 13 FOC Content  (10) With respect to the territory: (a) exclusivity or a right of first refusal; and (b) if the franchisee has the right to sell or render services outside its territory or outside Brazil;  (11) List of required suppliers;  (12) Description of services and products offered to the franchisee by the franchisor (supervision; training; franchise manuals; assistance on the selection of the location; layout and architectural plans of the facility; etc.);  (10) With respect to the territory: (a) exclusivity or a right of first refusal; and (b) if the franchisee has the right to sell or render services outside its territory or outside Brazil;  (11) List of required suppliers;  (12) Description of services and products offered to the franchisee by the franchisor (supervision; training; franchise manuals; assistance on the selection of the location; layout and architectural plans of the facility; etc.);

14. © 2008 Dannemann Siemsen. All rights reserved. 14 FOC Content  (13) Status of the licensed trademarks and patents with the Brazilian Patent Office - INPI;  (14) Situation of franchisee after termination of the franchising agreement, regarding: a) know-how or industrial secrets; and b) non–competition obligations;  (15) Draft of the standard franchise agreement, as well as the preliminary franchise agreement, if any.  (13) Status of the licensed trademarks and patents with the Brazilian Patent Office - INPI;  (14) Situation of franchisee after termination of the franchising agreement, regarding: a) know-how or industrial secrets; and b) non–competition obligations;  (15) Draft of the standard franchise agreement, as well as the preliminary franchise agreement, if any.

15. © 2008 Dannemann Siemsen. All rights reserved. 15 FOC  Generally, foreign franchisors may use their international FOC, with an addendum containing the additional Brazilian requirements;  Statement of Delivery of the FOC in accordance with Brazilian law is essential for the purposes of the INPI;  Generally, foreign franchisors may use their international FOC, with an addendum containing the additional Brazilian requirements;  Statement of Delivery of the FOC in accordance with Brazilian law is essential for the purposes of the INPI;

16. © 2008 Dannemann Siemsen. All rights reserved. 16 Recordal at the INPI  Renders the agreement effective against third parties;  Allows remittance of royalties to the foreign franchisor;  Qualifies franchisee for tax deduction;  Franchisor must have at least applied for registration of its trademarks in Brazil, at the INPI;  The INPI’s prerogative: to decide upon the validity of the licensed trademarks in Brazil. Thus, the related INPI serial numbers must be listed in the agreement.  Renders the agreement effective against third parties;  Allows remittance of royalties to the foreign franchisor;  Qualifies franchisee for tax deduction;  Franchisor must have at least applied for registration of its trademarks in Brazil, at the INPI;  The INPI’s prerogative: to decide upon the validity of the licensed trademarks in Brazil. Thus, the related INPI serial numbers must be listed in the agreement.

17. © 2008 Dannemann Siemsen. All rights reserved. 17 Recordal at the INPI  Official forms provided by the INPI;  Franchise Agreement and its translation into Portuguese, containing a list of the licensed trademarks with the INPI application/registration numbers;  Statement of Delivery of the FOC;  Copy of the Articles of Association of franchisee.  Official forms provided by the INPI;  Franchise Agreement and its translation into Portuguese, containing a list of the licensed trademarks with the INPI application/registration numbers;  Statement of Delivery of the FOC;  Copy of the Articles of Association of franchisee.

18. © 2008 Dannemann Siemsen. All rights reserved. 18 Recordal at the INPI  Legal term of 30 days - in practice, 40 days - Certificate of Recordal or an office action requesting further details and clarifications regarding the agreement.

19. © 2008 Dannemann Siemsen. All rights reserved. 19 Registration with the Central Bank  After the Certificate of Recordal is issued, the agreement must be registered with the Brazilian Central Bank for remittance of payments. This registration is a very simple procedure and can usually be accomplished in about 2 days.

20. © 2008 Dannemann Siemsen. All rights reserved. 20 Choice of Law and Jurisdiction  The parties are free to select Italian law and jurisdiction to govern the franchise relationship.  However, there are practical difficulties toward enforcing foreign decisions in Brazil (necessary approval by the Superior Court of Justice in Brazil; homologation of foreign judgment” - exequatur).  The parties are free to select Italian law and jurisdiction to govern the franchise relationship.  However, there are practical difficulties toward enforcing foreign decisions in Brazil (necessary approval by the Superior Court of Justice in Brazil; homologation of foreign judgment” - exequatur).

21. © 2008 Dannemann Siemsen. All rights reserved. 21 Choice of Law and Jurisdiction  Examples of requirements for enforcement of a foreign decision:  (a) evidence that the judgment complies with all legal formalities in Brazil, as the Foreign judgment cannot be contrary to Brazilian public policy and local practices;  (b) the decision must be final, with no possibility of further appeal;  (c) notarized, legalized and translated; and  (d) the Brazilian party must have been served through “letters rogatory” in accordance with Brazilian formalities.  Examples of requirements for enforcement of a foreign decision:  (a) evidence that the judgment complies with all legal formalities in Brazil, as the Foreign judgment cannot be contrary to Brazilian public policy and local practices;  (b) the decision must be final, with no possibility of further appeal;  (c) notarized, legalized and translated; and  (d) the Brazilian party must have been served through “letters rogatory” in accordance with Brazilian formalities.

22. © 2008 Dannemann Siemsen. All rights reserved. 22 Franchise System M&A  Confidentiality requirements: sensitive aspect especially when the buyer is a competitor (strategic buyer) and not a financial buyer - NDA;  Key due diligence (“DD”) issues:  (i) if deadline to deliver FOC was observed;  (ii) if the FOC comprises the Brazilian Franchise law requirements;  (iii) the seller’s right to assign the franchise agreement without the prior consent of franchisees;  Confidentiality requirements: sensitive aspect especially when the buyer is a competitor (strategic buyer) and not a financial buyer - NDA;  Key due diligence (“DD”) issues:  (i) if deadline to deliver FOC was observed;  (ii) if the FOC comprises the Brazilian Franchise law requirements;  (iii) the seller’s right to assign the franchise agreement without the prior consent of franchisees;

23. © 2008 Dannemann Siemsen. All rights reserved. 23 Franchise System M&A  (iv) ownership of the licensed trademarks (or other IP rights) registered with the INPI by franchisor or other legal entity being acquired (in-depth investigation of IP rights: if seller is merely a licensee of a trademark rather than the owner, license agreement must be assigned);  (v) any existing or threatened litigation, specially involving past, current and disassociated franchisees or with regard to IP rights;  (vi) statistics related to renewals and non-renewals of franchises and recent growth of units;  (iv) ownership of the licensed trademarks (or other IP rights) registered with the INPI by franchisor or other legal entity being acquired (in-depth investigation of IP rights: if seller is merely a licensee of a trademark rather than the owner, license agreement must be assigned);  (v) any existing or threatened litigation, specially involving past, current and disassociated franchisees or with regard to IP rights;  (vi) statistics related to renewals and non-renewals of franchises and recent growth of units;

24. © 2008 Dannemann Siemsen. All rights reserved. 24 Franchise System M&A  (vii) frequency of the franchisor’s royalty or revenue audits of its franchisees and its results.  Confidentiality related to DD conducted: knowledge could lead franchisees to insert themselves into the sales process looking for concessions.  Reps & Wars specifically related to the purchase of a franchise system: (i) internal operations of the system; (ii) financial and non-financial condition of its franchisees; (iii) mandatory and or regulatory compliance (FOC, licenses and authorizations), etc.  (vii) frequency of the franchisor’s royalty or revenue audits of its franchisees and its results.  Confidentiality related to DD conducted: knowledge could lead franchisees to insert themselves into the sales process looking for concessions.  Reps & Wars specifically related to the purchase of a franchise system: (i) internal operations of the system; (ii) financial and non-financial condition of its franchisees; (iii) mandatory and or regulatory compliance (FOC, licenses and authorizations), etc.

25. © 2008 Dannemann Siemsen. All rights reserved. 25 Franchise System M&A  Advising Franchisees of the Transaction: (i) through a planned and coordinated effort; (ii) if public disclosure requirements are not applicable, the franchisees should be advised after the closing; (iii) people skilled at preparing these types of disclosures should be consulted; (iv) franchisee associations or the franchisee advisory council could be very valuable.  Avoid: concessions and/or modifications to some or all the franchise agreements. This may occur if contractual the parties have not properly prepared the transaction disclosure to franchisees.  Advising Franchisees of the Transaction: (i) through a planned and coordinated effort; (ii) if public disclosure requirements are not applicable, the franchisees should be advised after the closing; (iii) people skilled at preparing these types of disclosures should be consulted; (iv) franchisee associations or the franchisee advisory council could be very valuable.  Avoid: concessions and/or modifications to some or all the franchise agreements. This may occur if contractual the parties have not properly prepared the transaction disclosure to franchisees.

26. © 2008 Dannemann Siemsen. All rights reserved. 26 BRAZIL  Obrigada!