Measures for the Administration of Information Disclosure in Connection with Commercial Franchising

Article 2: These Measures shall apply to commercial franchising activities conducted in the People's Republic of China.

Article 3: For the purposes of these Measures, the term "affiliate" means the parent of a franchisor, subsidiaries in which the franchisor directly or indirectly holds all or a majority of the equity and companies, together with the franchisor, whose equity is all or in the majority owned directly or indirectly by one owner.

Article 4: At least 30 days prior to the conclusion of a franchise contract, the franchisor shall, in accordance with the requirements of the Regulations, disclose to the franchisee in writing the information set forth in Article 5 hereof and provide to it the franchise contract.

Article 5: The information disclosed by a franchisor shall include the following:

(1) basic particulars of the franchisor and the franchise activities:

(a) the franchisor's name, correspondence address, contact information, legal representative, general manager, registered capital amount, scope of business and the number, addresses and contact telephones of existing directly operated stores;

(b) an overview of the commercial franchising activities engaged in by the franchisor;

(c) the basic particulars placed on the record by the franchisor;

(d) if products or services are to be provided to the franchisee by an affiliate of the franchisor, the basic particulars of such affiliate; and

(e) details of any bankruptcy of, or filing for bankruptcy by, the franchisor or its affiliate during the last five years;

(2) basic information on the business resources owned by the franchisor:

(a) the franchisor shall give the franchisee a written explanation of the registered trademarks, enterprise logos, patents, proprietary technology, business model and other business resources it can provide;

(b) if the owner of the aforementioned business resources is an affiliate of the franchisor, it shall disclose the basic particulars of such affiliate and explain how the franchise system will be handled in the event of the termination of the licensing contract with the affiliate; and

(c) details of lawsuits or arbitration procedures relating to the registered trademarks, enterprise logos, patents, proprietary technology or other such business resources of the franchisor (or its affiliate);

(3) basic information on the franchise fees:

(a) the types, amounts and rates of, and payment method for, the fees charged by the franchisor or on behalf of a third party; if the same cannot be disclosed, the reason therefor shall be given; if the fee rates vary, the highest and lowest rates shall be disclosed and the reasons for such variance shall be given;

(b) charging of a deposit, and the conditions for, and the time and method of, refunding the same;

(c) if the franchisee is required to pay fees before the franchise contract is entered into, a written explanation of the purpose of such fees, and the conditions for, and method of, refunding the same shall be given to the franchisee;

(4) details, such as the price of and conditions under which products, services and equipment are provided to the franchisee:

(a) whether the franchisee is required to purchase products, services or equipment from the franchisor (or an affiliate thereof) and the relevant prices, conditions, etc.;

(b) whether the franchisee is required to purchase products, services or equipment from suppliers designated (or approved) by the franchisor; and

(c) whether the franchisee can opt for other suppliers and the criteria that such suppliers are required to satisfy;

(5) details of the continuing services to be provided to the franchisee:

(a) the specifics and method of provision of, and implementation plan for, business training, including the training venue, method and duration; and

(b) the specifics of the technical support and an explanation of the table of contents of the franchise operation handbook and relevant number of pages;

(6) the method and details of the guidance and monitoring of the franchisee's business activities:

(a) the method and details of the franchisor's guidance and monitoring of the franchisee's business activities, the obligations the franchisee is required to perform and the consequences of its failure to perform such obligations; and

(b) whether the franchisor bears joint and several liability for consumer complaints and compensation, and how the same are to be borne;

(7) details of the investment budget for franchise outlets:

(a) the investment budget may include the following charges and expenses: the franchise fee, training fees, real property and fitting out expenses, expenses for the purchase of equipment, office supplies, furniture, etc., initial inventory, water, electricity and gas charges, expenses for obtaining licences and other government approvals and startup working capital; and

(b) the source of the data for and the basis for estimating the foregoing expenses;

(8) relevant information on franchisees in China:

(a) the number, geographical distribution and scope of authorization of current and projected franchisees and whether they have exclusive territories (if they do, the forecast specific boundaries thereof shall be stated); and

(b) an evaluation of the business positions of the franchisees, disclosing information on the franchisees' actual or projected average sales volumes, costs, gross profits and net profits; additionally, an explanation of the source of such information, the time covered and the franchise outlets covered shall be given; if the information given is an estimate, the basis of the estimate shall be given and a statement to the effect that the franchisees' actual business positions may be different from the estimate shall be expressly stated;

(9) abstracts of the franchisor's financial accounting reports and audit reports for the most recent two years audited by an accounting firm or auditing firm;

(10) details of material lawsuits or arbitration proceedings relating to the franchise in which the franchisor was involved during the most recent five years:

(a) the term "material lawsuits and arbitration proceedings" means lawsuits and arbitration proceedings in which the subject amount is at least Rmb500,000;

(b) the basic details of such lawsuits, the places where they occurred and the results thereof shall be disclosed;

(11) details of the record of major illegal operations by the franchisor and its legal representative and such record:

(a) fines of not less than Rmb300,000 and not more than Rmb500,000 imposed by the relevant administrative law enforcement departments; and

(b) criminal convictions; and

(12) the franchise contract:

(a) a sample of the franchise contract; and

(b) if the franchisor requires the franchisee to execute other contracts relating to the franchise with it (or its affiliate(s)), samples of such contracts shall also be provided.

Article 6: The franchisor may not practise deception or attempt to mislead in its promotional and publicity activities, and the advertisements that it releases may not publicize the returns derived by any one franchisee in engaging in the franchise activities.

Article 7: Before it discloses information to a franchisee, the franchisor shall have the right to require the franchisee to execute a confidentiality agreement.

Article 8: Once the franchisor has disclosed information to the franchisee, the franchisee shall issue to the franchisor a written acknowledgement (in duplicate) in respect of the information it obtained, which the franchisee shall sign. One copy shall be retained by the franchisee and one copy by the franchisor.

Article 9: If a franchisor conceals information that it ought to have disclosed or discloses false information, the franchisee may terminate the franchise contract.

Article 10: If a franchisor violates these Measures, the franchisee shall have the right to report the same to the department in charge of commerce. If the violation is ascertained to be true after an investigation, the department in charge of commerce shall order rectification and impose a fine of not less than Rmb10,000 and not more than Rmb50,000. If the circumstances are serious, it shall impose a fine of not less than Rmb50,000 and not more than Rmb100,000 and publish an announcement.

Article 11: The Ministry of Commerce of the People's Republic of China is in charge of interpreting these Measures.

Article 12: These Measures shall be effective as of May 1 2007.