What About The Exhibits And Amendments?

 

Believe it or not, your store agreement contains 9 exhibits, no less than 10 amendments (ranging from the ATM amendment, money order amendment and credit card amendment) and a multitude of other attachments, including authorizations and acknowledgments by you, plus general information, incorporated into the basic agreement. In total, the 2010 agreement, with all its exhibits, amendments and other attachments, exceeds 250 pages. This is a far cry from the 8- or 9-page agreement that old-timers may remember from the 1960s and 1970s.

Most of these documents will not be of any concern to you for the term of your agreement, but for a few of them it is critical that you familiarize yourself with their contents. In this article, I would like to discuss the significance of Exhibits A, C, and E.

Exhibit A: I cannot tell you the incredible number of calls I get from franchisees inquiring how an owner can go about getting information on the status of the lease to the store. No need to get frustrated trying to get information from your market office, just pull out your agreement and find Exhibit A. There you will find out whether SEI owns or leases the property and, if leased, the initial term of the lease, any remaining options, and the period of each option.

That exhibit parrots other language in the main agreement that SEI has no obligation to renew or exercise any option to extend the lease. Moreover, it warns, “The term of this agreement will end on the expiration date”(Defined in Exhibit E). In order for SEI to avoid being faced with accusations by a franchisee that he or she was not aware of the lease status of the store, there is a further document, buried deep in the bowels of the agreement, called the “Lease Expiration Date Acknowledgement,” which requires your signature and repeats the information that is in Exhibit A.

Exhibit C: Another exhibit that you may well need to refer to during the term of your agreement is Exhibit C—“7-Eleven Contractual Indemnification.” It is important that every franchisee know exactly what coverage is afforded under this indemnification and, very importantly, the amount of coverage. I can tell you without hesitation that the coverage is inadequate and should be supplemented by private insurance for both personal injury liability, as well as for losses from fire and other perils (lightning, windstorm, hail, explosion, riot, vandalism, smoke, and malicious mischief) burglary, and robbery. For instance, liability to third persons for bodily injury or property damage is limited to $500,000—not enough! Robbery indemnification won’t get you more than $500 and probably less, and the indemnification for burglary provides only minimal coverage. With respect to fire, windstorm and other perils, coverage is somewhat better and will provide for full replacement cost of inventory and store surplus. BUT, read this exhibit to learn of all the exceptions and exclusions—there are several.

Exhibit E: Probably the most informative document in the entire store agreement is Exhibit E, entitled “Definitions.” It is to this exhibit that I very frequently refer when the language in the main agreement is ambiguous or confusing (not a rare occurrence), and it is this exhibit that you should examine if you cannot readily find an answer to your question regarding your rights and obligations. The definitions are detailed and run the gamut from “Bookkeeping Records” to “Recommended Vender Purchase Requirement” to “7-Eleven System,” and are intended to “flesh out” the main agreement.

Coincidentally, as I was writing this article, I received a phone call from an outgoing franchisee who wanted to know if a business he was contemplating purchasing would be a prohibited post-term competitive business under the non-competition provision in paragraph 5(d). A quick reading of the definition of “Competitive Business” in Exhibit E enabled me to advise the franchisee to go ahead with his new business plans without fear of violating the agreement.

Do yourself a favor—pull out your agreement and read over these three extremely important documents. It won’t take very long, but it will provide a real education to help in the operation of your store and business.

Have a great summer.