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BRAZILIAN FRANCHISE LAW NO. 8, 955/94 Date: June 18, 2011 Name: Luciana Bassani E-mail: BRAZILIAN FRANCHISE LAW NO. 8, 955/94 Date: June 18, 2011 Name: Luciana Bassani E-mail: [email protected] com. br © 2011 Dannemann Siemsen. All rights reserved. 1

Data as of 2010: • 1, 855 franchise networks • 86, 365 units (outlets) Data as of 2010: • 1, 855 franchise networks • 86, 365 units (outlets) • Approximately US$ 47 billion (which correspond to 75, 987 billion Brazilian Reais) in revenue • 4 th largest country in the world (no. of networks) • 6 th largest country in the world (no. of units) • 2009 x 2010 Growth = 20, 4% © 2011 Dannemann Siemsen. All rights reserved. 2

Presence of International Networks © 2011 Dannemann Siemsen. All rights reserved. 3 Presence of International Networks © 2011 Dannemann Siemsen. All rights reserved. 3

RANKING – Size of the Networks – 2010 Ranking Network Segment Total 1º O RANKING – Size of the Networks – 2010 Ranking Network Segment Total 1º O BOTICÁRIO Cosmetics & Perfume 3. 134 2º KUMON Education & Training 1. 655 3º COLCHÕES ORTOBOM Furniture, Decorations & Gifts 1. 636 4º L’ACQUA DI FIORI Cosmetics & Perfume 1. 166 5º WIZARD IDIOMAS Language Schools 1. 163 6º CACAU SHOW Food 1. 035 7º AM PM MINI MARKET Business, Services and Convenience 1. 026 8º ESCOLAS FISK Language Schools 1. 002 9º HOKEN 10º Beauty, Healthcare & Natural Products 898 CCAA Language Schools 774 11º BOB’S Food 750 12º MICROLINS Education & Training 746 13º JET OIL Automative Services 706 14º CNA Language Schools 637 15º ÁGUA DE CHEIRO Cosmetics & Perfume 620 16º MC’ DONALDS Food 616 17º SUBWAY Food 606 18º BR MANIA Business, Services and Convenience 517 19º UNEPX MIL 48 HORAS Automative Services 514 20º CARRINHO CHOPP BRAHMA Food 504 © 2011 Dannemann Siemsen. All rights reserved. 4

Brazilian Franchise Law • Brazilian Law No. 8, 955/94 (the “Brazilian Franchise Law 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”). © 2011 Dannemann Siemsen. All rights reserved. 5

Legal Definition of Franchise Agreements • Article 2 of the Brazilian Franchise Law defines 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. " © 2011 Dannemann Siemsen. All rights reserved. 6

Deadline to Deliver FOC • Article 4 of the Franchise Law requires that a 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. © 2011 Dannemann Siemsen. All rights reserved. 7

Consequences of Failure • A failure by franchisor to provide a prospective franchisee with 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. © 2011 Dannemann Siemsen. All rights reserved. 8

FOC Content: 15 items (Article 3) • (1) A summary of the background of FOC Content: 15 items (Article 3) • (1) A summary of the background of franchisor; • (2) Balance sheets and financial statements of the franchisor (two preceding years); • (3) Description of all pending lawsuits involving the franchisor and its affiliated companies, and other franchisees or ex-franchisees relating to the franchise agreement (this applies to lawsuits filed worldwide); © 2011 Dannemann Siemsen. All rights reserved. 9

FOC Content • (4) Detailed description of the business; • (5) Characteristics of the FOC Content • (4) Detailed description of the business; • (5) Characteristics of the "ideal franchisee"; • (6) Requirements regarding the direct involvement of the franchisee; © 2011 Dannemann Siemsen. All rights reserved. 10

FOC Content • (7) Specifications regarding: (a) estimated initial investment (b) initial affiliation fee 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 exfranchisees within the last twelve months (this includes all international franchisees); © 2011 Dannemann Siemsen. All rights reserved. 11

FOC Content • (10) With respect to the territory: (a) exclusivity or a right 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. ); © 2011 Dannemann Siemsen. All rights reserved. 12

FOC Content • (13) Status of the licensed trademarks and patents with the Brazilian FOC Content • (13) Status of the licensed trademarks and patents with the Brazilian National Institute of Industrial Property - 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. © 2011 Dannemann Siemsen. All rights reserved. 13

FOC • Generally, foreign franchisors may use their international FOC, with an addendum containing 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; © 2011 Dannemann Siemsen. All rights reserved. 14

Recordal at the INPI • Renders the agreement effective against third parties; • Allows 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; © 2011 Dannemann Siemsen. All rights reserved. 15

Recordal at the INPI • Official forms provided by the INPI; • Franchise Agreement 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. © 2011 Dannemann Siemsen. All rights reserved. 16

Recordal at the INPI • Payments: the parties may freely set out the remuneration Recordal at the INPI • Payments: the parties may freely set out the remuneration insofar as it stays within the price commonly practiced in the involved field and in the national and international market. • Controlled companies (parent and subsidiary): payments limited to the corresponding ceiling of fiscal deductibility (Regulation 436/58), which vary between 1% to 5% of the net sales price of products, depending on the technology field. © 2011 Dannemann Siemsen. All rights reserved. 17

Recordal at the INPI • Initial term of the Agreement: If the agreement is Recordal at the INPI • Initial term of the Agreement: If the agreement is not presented in a 60 -day term from its signature, the INPI will consider the filing date as the initial term for recordal purposes. Consequently, remittance of payments derived from sales occurred between the date of execution of the agreement and the date of presentation at the INPI will not be permitted. • INPI’s Legal term: 30 days - in practice, 40 days - Certificate of Recordal or an office action requesting further details and clarifications regarding the agreement. © 2011 Dannemann Siemsen. All rights reserved. 18

Registration with the Central Bank • After the Certificate of Recordal is issued, the 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. © 2011 Dannemann Siemsen. All rights reserved. 19

Franchising Scenarios in Brazil Franchisor Br Franchisee Master Franchisor (parent) FA duly recorded with Franchising Scenarios in Brazil Franchisor Br Franchisee Master Franchisor (parent) FA duly recorded with INPI and registered at BACEN. Br Master Franchisor Br Master Franchisee Unit Franchisees MFA duly recorded with INPI and registered at BACEN. Master Franchisee (subsidiary) Unit Franchise Agreements: registration is not mandatory. Unit Franchisees © 2011 Dannemann Siemsen. All rights reserved. 20 MFA duly recorded with INPI and registered at BACEN. Remittances limited up to 5%; alternative to send dividends instead of royalties, exempt from income tax since 1996. Unit Franchise Agreements: registration is not mandatory.

Choice of Law and Jurisdiction • The parties are free to select a foreign Choice of Law and Jurisdiction • The parties are free to select a foreign 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). © 2011 Dannemann Siemsen. All rights reserved. 21

BRAZIL Obrigada! © 2011 Dannemann Siemsen. All rights reserved. 22 BRAZIL Obrigada! © 2011 Dannemann Siemsen. All rights reserved. 22