The

Disclosure Document

1. Introduction

2. Key Franchise Details

3. Background of the Lumber City Franchise

4. Information Regarding Current Franchisees

5. Profile of the Ideal Lumber City Franchisee

6. Site Details

7. Franchise Agreement Summary

8. Franchisor Support

9. Operations Manual

10. Financial Information

11. Trademarks Curriculum Vitae of Key Franchise Officers

Accountant’s Certificate

Director’s Statement

Business Plan

The Lumber City Franchise Agreement

p. 1

p. 1

p. 2

p. 2

p. 3

p. 3

p. 4

p. 4

p. 6

p. 8

p. 8

Appendix One

Appendix Two

Appendix Three

See elsewhere on CD

See elsewhere on CD

Index

Dear Prospective Franchisee,

Thank you for showing interest in our very exciting franchise.

Southern Africa has an enormous housing backlog which, compounded by population growth, will almost certainly increase to crisis proportions in the years ahead. Homes are desperately needed by all sectors of the population, and needed as cheaply and quickly as possible. The demand for the materials found in our Lumber City stores will increase in line with the need for housing.

You have already received our marketing CD and you will find that most of the information contained on the CD is also found in this document. Information in this document should be read in conjunction with the information found in the CD

1. Introduction:

This Disclosure Document should help you to make up your mind. While it includes some information about your contract (franchise agreement), don’t rely on it alone to understand your contract. Read all of your contract carefully. Buying a Lumber City Franchise is a serious undertaking. Take your time to decide. It is recommended that you have the contract explained to you by an attorney and you should seek accounting and financial advice on the franchise proposition. For the calendar year 2009, Lumber City is a member in good standing with the Franchise Association of Southern Africa and, if required, further information on this membership can be obtained from: The Executive Director, FASA, PO Box 31708, Braamfontein, 2017.

Other documents which may be of interest and are recommended to study are:• The Lumber City Marketing CD – (supplied with the disclosure document)• The FASA booklet “How to Evaluate a Franchise - (obtainable from FASA)

The Lumber City Franchise hereby states our commitment to the supply of the disclosure document and franchise agreement at least 14 (fourteen) days prior to the signing of the franchise agreement or any other binding document.

2. Key Franchise Details:

2.1 Legal and trading name of franchisor: Lumber City Pty (Ltd) trading as Lumber City Franchise

2.2 Contact details: Lumber City Pty (Ltd) 39(b) Stella Road PO Box 37066 Montague Gardens Chempet 7442 7441 Tel: (+27) 021 551 3433 Fax: (+27) 021 551 3479 E-mail: franchise@lumbercity.co.za Web address: www.lumbercity.co.za

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2.3 Membership status with FASA:

Active

2.4 Key franchise officers, shareholders and employees:

Charles Fleming (franchisor and shareholder)

Ian Martin (Managing Director)

Joan Swart (Administrative)

2.5 Franchisees:

There are 45 independent Lumber City franchises in Southern Africa. (There are currently 3 in Botswana, 3 in Namibia and 1 in

Nigeria)

The Disclosure Document

BillDing

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2.

3. Background of the Lumber City Franchise:

The first Lumber City opened its doors in Lansdowne, Cape Town in 1979. Soon, there were a few stores in the Western Cape and in the middle ’80’s some of these stores were franchised. In 1989 Charles Fleming bought the Lumber City in Montague Gardens. By 1993 he opened another 3 Lumber City’s. In September 1994 he bought the franchise. At the time there were 8 Lumber City’s, all of them in the Western Cape.

Soon he discovered that to manage his outlets and expanding the Lumber City Franchise effectively at the same time, was an impossible task. His mission was to be the biggest group of flat board merchants in Southern Africa and to accomplish his goal, he sold his retail outlets and in 1997 established the Lumber City Franchise Office and concentrated on the expansion of the group.

The Lumber City Franchises are Board, Timber and Hardware merchants. Our branches distribute a wide variety of plain, melamine & veneer faced chipboards and other board products such as hardboard, block board and ply, as well as certain building materials, hardware and timber products to the carpentry, cabinet, building and DIY sectors. In addition to this, a cutting service is provided where board products are cut to size, edged and drilled for concealed hinges which ensures a professional final product. In providing all these services to our large customer base, many of our Lumber City’s has expanded their businesses by having a division that manufacture and install kitchen and bedroom cupboards and other furniture components.

Lumber City has a respected and nationally recognised brand name. Upon joining us you will be part of a well established group with a well known image in the industry. Even though you will remain your own boss and will be able to express your own individuality, support will come from the Franchise Office and from the Lumber City group in your area and you will enjoy group pricing discounts – even if you are a smaller store.

Our primary goal at the Lumber City Franchise Office is to ensure maximum growth of the Lumber City Group – ensuring optimum margins and associated pricing edge maintained over stand alone competitors.

4. Information regarding current franchisees:

4.1 Contact Details:

AREA Est. Contact Person Tel. No Fax. No

Alberton 2000 D. Buitendag 011 – 613 6946 011 – 613 6946

Bloemfontein

George

Clanwilliam

Durbanville

Gaborone

Groblersdal

Kommetjie

Lansdowne

Lichtenburg

Malmesbury

Montague Gardens

2003

1998

2002

1999

1998

1995

1999

1994

1979

1999

1998

1986

F. Jooste

C. & H. Gey v Pittius

G. Woolley

A. Vashi

G. Koch

K. Otto

F.&W. Blignaut

G. Fletcher

G. Woolley

051 – 430 7465

02748 – 21 514

021 – 975 7353

00267 – 316 5776

02838 – 40 881

044 – 874 2924

013 – 262 5956

018 – 632 6902

021 – 761 5881

021 – 783 5820

051 – 447 5543

02248 – 72 961

018 – 632 0515

021 – 761 5885

021 – 783 5825

013 – 262 5899

044 – 874 3824

02838 – 40 882

00267 – 316 5779

021 – 975 7374

02748 – 21 517

E. Nel

T. Knoetzen

G. Woolley

02248 – 72 844

021 – 551 2635 021 – 551 3654

Empangeni 2002 G. & B. Tyack 035 – 787 1453 035 – 787 0312

Ballito

Edenvale

Francistown

Hillcrest

Kuruman

Margate

Middelburg

2004

2005

2007

2007

2005

2005

G. & B. Tyack

A. Vashi

S. Bayley, M. Oelofse

K &R. Haynes

C. Koekemoer

Esterhuizen Family

J. Knoessen2007

032 – 946 8400

011 – 454 6689

00267 – 241 6067

031 – 765 6073

053 – 714 3200

039 – 317 4566

013 – 243 0684

032 – 946 8418

011 – 454 6703

00267 – 241 6069

031 – 765 7051

053 – 714 3201

039 – 317 4567

013 – 243 0684

Gansbaai

Lagos 2007 Marcel & Funmi O Njoku234 1 8754445 N/A

Strand

Trichardt

Upington

Vanderbijlpark

Windhoek

1987

2000

1996

2001

1998

J. Steyl

Heghter Family

J. Knoessen

S. Van der Heever

M da Rocha 00264 – 61 306750

016 – 981 3670

017 – 638 0123

054 – 337 0250

021 – 853 1084

016 – 931 9681

054 – 331 1841

017 – 638 0129

021 – 853 1086

00264 – 61 306751

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3.

4.2 Terminated franchises:

In the past year Midrand, New Germany, Pietermaritzburg and Roodepoort have closed. No other Lumber City franchises terminated or did not renew their contracts during the past year.

4.3 Litigation:

There is no current or unresolved litigation with any of our existing or former Lumber City franchisees.

4.4 Proceedings against the Lumber City Franchise:

To date there has never been any material debt, criminal, civil or administrative proceedings, or bankruptcies / insolvencies concerning the franchisor, the Lumber City Franchise office or its officers.

5. Profile of the ideal Lumber City Franchisee:

There is far more involvement in being a successful franchisee than having the money for a franchise. Having said this, many of our franchisees come from all walks of life which includes: lawyers, teachers, farmers, bankers, representatives and sales staff from a wide variety of businesses and they have all made a great success of their businesses.

Listed below are a number of personal attributes which are important in the success of a franchise:

5.1 Have an interest in and preferably knowledge of this particular franchise.

5.2 Be prepared to work as hard as is necessary to get the job done.

5.3 Have an interest in meeting people and be capable of getting on with the buying public.

5.4 Have a satisfactory credit history.

5.5 Have the total support of their family.

5.6 Be self-motivated.

5.7 Be self-disciplined.

5.8 Be sales-orientated.

Silverton 2000 J. de Wet 012 – 804 5628 012 – 804 4648

Rustenburg

Retreat

2000

1999

W. Breedt

G. Woolley

014 – 592 4331

021 – 702 1317

014 – 592 4696

021 – 702 1316

Nelspruit

Oshakati

Polokwane

Richards Bay

Standerton

Vredendal

Walvis Bay

Woodmead

2004

2008

2004

2006

2005

1998

J. du Preez

C. Olivier

G. Akussah

P. van As

H. de Waal

R. Clay

2006

013 – 752 3641

00264 – 65 224687

015 – 297 7232

035 – 789 4999

017 – 712 3401

027 – 213 4468

00264 – 64 209905

011 – 802 6189

013 – 752 3641

015 – 297 3342

035 – 789 1991

027 – 213 1087

011 – 802 32492005

N. Eksteen

C. Olivier

00264 – 65 224687

017 – 712 3401

00264 – 64 209905

Woodstock 021 – 447 2201 1981 G. Woolley 021 – 447 5243

Oudtshoorn 2008 Louis de Jager 044- 2727100 044- 2727100

6. Site details:

When searching for a building to house your new Lumber City, the following should be considered:6.1 The dust and noise factor of the saw and edging machine – most shopping complexes will not allow saws and dust extraction

units to operate within their buildings.

6.2 Three phase electrical points for the saw and in some cases for the edging machine and dust extractor are needed.6.3 Board products are big, bulky and heavy and in most circumstances it would be offloaded with a forklift.

6.4 High volume buildings (typical factories with high ceilings) are preferred as stacks of board can be piled to save space.

6.5 As most of our stores are reasonably big (400m² to 3000m²) factories in industrial areas have a much lower rental rate than

shopping centers.

6.6 Enough customer parking must be provided.

4.

6.7 The building should lend itself to the easy offloading of interlinks of boards with a forklift with a separate door (other than the

entrance) for goods received and dispatched.

6.8 The floor should be of sufficient strength to withstand seven stacks of board each weighing 1,860 ton (+2600kg/m²) and the

continuous driving of the forklift.

6.9 Buildings in popular industrial areas where a mixture of businesses are found which will not only attract specific customers, but

also the broader buying public.

6.10 History has shown us that shopping centers are not suitable for a Lumber City store, for the following reasons:

6.10.1 The rental is to high.

6.10.2 The ceilings are to low.

6.10.3 The offloading of interlinks in parking areas is virtually impossible.

6.10.4 The difficulty of loading your own trucks/LDV’s in parking areas.

6.10.5 The difficulty of loading your customer’s board in parking areas.

6.10.6 The typical Lumber City client prefers to shop in industrial areas where other commodities for his trade are

obtainable.

6.10.7 Complaints of the noise and dust from other lessees in the complex.

6.11 The size of the store will be largely determined by the following:

6.11.1 The viability of the trading area.

6.11.2 The amount of capital you wish to invest in the business.

6.11.3 The quantity of stock you can hold.

7. Franchise Agreement Summary:

Following are a summary of the key clauses in the franchise agreement:

7.1 Termination (Clause 62) The term of the agreement is for 10 (ten) years from the opening date unless the license and

franchise is otherwise terminated by mutual consent of both parties or in accordance with the provisions stipulated in the

Franchise Agreement.

7.2 Renewal (Clause 62) The agreement is renewed automatically for further periods of 1 (one) year unless either party gives

notice of cancellation at least 12 (twelve) months prior to end of current time.

7.3 Goodwill (Clauses 68 and 77) On sale or disposal of the business, the goodwill is included in the calculation (in certain

circumstances) as indicated in clauses 68 and 77.

7.4 Assignment of rights (Clauses 63 – 76) The LICENCEE may only assign its rights under the agreement with prior written

consent of the LICENSOR. Any new LICENCEE will have to enter into a new agreement with the LICENSOR.

7.5 Effective date (page 1 line 18) This is the date of the first day of trading (opening date). From this date the 10 (Ten) year

agreement term is calculated.

7.6 Shopping hours (Clause 19.5) Although the franchise agreement stipulates fixed business hours, consent may be obtained

from the LICENSOR to alter the above to suit the trading style of the area and other complications that may arise.

7.7 Licensed Territory (Clause 87 – 90) The territory for which the license and franchise agreement is granted is indicated on

page 1 of the franchise agreement under the heading “Definitions” point #2.

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5.

7.8 Financial information (page 9 point 11): At the end of each financial year a Balance Sheet and Profit and Loss Statement

must be forwarded to the Franchise Office.

8. Franchisor support:

8.1 Initial support before opening:

8.1.1 Help with the interior lay-out of the store.

8.1.2 Help with the lay-out of exterior signage.

8.1.3 Help with the completion of all credit applications with suppliers.

8.1.4 Help with the selection of the initial stock to suit the store size, projected turnovers, finances available, etc.

8.1.5 Help with the ordering of the initial stock.8.1.6 Organising of signage for the exterior of the building.

8.1.7 Help the franchisee in acquiring the machinery needed.

8.1.8 Software point of sale package (optional).

8.1.9 Software board optimisation program (board cutting program) available.

8.1.10 Goods available from the franchise office includes: Invoice books, order books, quote pads, credit return

vouchers, overalls, caps, T-shirts, golf shirts, flags, vehicle decals, printed plastic bags and exterior signage.

8.1.11 Assisting the franchisee ensuring that the “1-6 Week Plan to Open a Lumber City” is followed and on track

with the time table, which includes inter alia the following:

- Registering of new Closed Corporation / PTY (LTD)

- Suitable premises found

- Suppliers notified of new franchisee and location

- Credit applications completed

- Internal lay-out of store done

- Application for telephone, faximile and modem lines

- Application for electricity connections

- New bank account, overdraft facilities, interest rates and

bank charges negotiated.

- Credit card machine organised

- Order panel saw, dust extractor, edging machine and drill

press.

- Order material and build racking for timber, shelving, etc.

- Negotiate leases / HP’s for vehicles, panel saw, edging

machine and computers if necessary.

- Register for VAT, PAYE, UIF and Regional Services.

- Advertise for staff

- Etcetera8.2 Support during period of opening:

8.2.1 5 Day assistance by one of our operational staff before opening day.

8.2.2 During this time the franchisee will be trained to use:

- Software point of sale ( By Supplier)

- The cutting program

- Machine operation and settings

8.2.3 The franchisee will be assisted with the offloading of stock, the display, packing and pricing thereof.

8.2.4 The operational staff member of the franchise office will organise marketing material from suppliers

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6.

8.2.5 The operational staff member will assist with the mark up and gross profit percentages of each commodity and ensure that the

franchisee understand how to use the computer programs effectively and put them in touch with the help line of the suppliers

of the software if any unexpected problems should arise.

8.2.6 During this period the operational staff will make sure that the franchisee can use the Operations Manual on CD effectively.

8.3 Ongoing support:

8.3.1 Ongoing pricing negotiations with suppliers is done from the franchise office.

8.3.2 The franchise office is at all times committed to attempt to solve any problems that may occur from time to time.

8.3.3 The franchisee is responsible for local advertising.

9. Operations Manual:

The Operations Manual is on a CD and consists inter alia of the following:

9.1 Product Knowledge – 92 pages containing the following:

Board products and suppliers

Types of chipboard

Hardboard products

Other flat board products

Useful board facts

Designing of cupboards manufactured from chipboard

Services

Timber products – Planed all round timber for DIY

- Sizes and load bearing strengths

- Mouldings

Cabinet hardware

9.2 Business Models – A business models for a 800square meter store. This model contains the following: A Detailed drawing of a suggested floor lay-out.

Suggested stock for each specific model.

Suggested staff compliment.

Estimated overheads.

Additional expenses that the franchisee can expect.

A projected cash flow.

9.3 Interactive budget plans on an Excel Spreadsheets:

Spreadsheet 1 – Budget

Spreadsheet 2 – Actual

Spreadsheet 3 – Budget and Actual

9.4 Business Documentation:

The logo

Branch Letterhead

Request for Credit and Surityship

Business Card

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7.

9.5 Legal Documentation – Disciplinary Procedures in interactive files in English and Afrikaans:

Permanent Employment Contract

Temporary Employment Contract

Disciplinary Code

Disciplinary Policy and Procedure

Written Warning

Final Written Warning

Notice of Disciplinary Hearing

Notice of Outcome of Disciplinary Hearing

Notice of Appeal against Outcome of Disciplinary Hearing

9.6 Glass & Aluminium:

Should the franchisee, at a later stage, wish to expand his business by having a Glass & Aluminium section within his store, a

business plan for such a venture is supplied on the CD containing the following information:

Suggested floor layout for a Glass and Aluminium section.

Details regarding the manufacturing of fixtures and fittings such as glass racking, glass cutting table, A-frame for

glass, patio doors and shower doors and a glass drilling table.

Tools and vehicles required, suggested staff compliment, estimated overheads, suggested stock and a projected

cash flow projection for this section.

9.7 Advertising: This section contains the following:

Examples of designing an advert

Examples of slogans for advertising

An interactive advertising clipart section

9.8 Signage: Printable examples of a typical front elevation and signage of a Lumber City building.

9.9 Fixtures and Fittings: Printable presentations for the manufacturing of the following fixtures and fittings:

9 X 6 Board display stands (A-frame)

9 X 6 Board display stands (wall)

Shelving stands

Horizontal post formed top stand

Vertical post formed top stand

Planed all round timber rack (horizontal - steel)

Planed all round timber rack (space saver – vertical)

Ply and hardboard rack

Design of a straight counter

Design of a L-shaped counter

9.10 Golden Business Rules: Everyday rules and business practices found to be of invaluable use in business in general and

specifically in a Lumber City trading environment.

8.

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9.11 Audio Material: The following is to be found on the CD:

- The Lumber City Audio Jingle

10. Financial Information:

A comprehensive business plan for a 800m2 Lumber City store, Appendix 4 will assist you in determining the financial costs of a store after establishing and evaluating your needs, the finances you have available, the area of operation, the type of machinery etc.,

This business plan contains, inter alia, the following information:

- Estimated Staff Compliment - A Cash Flow Projection

- Estimated Overheads (monthly expenses) - An Income Statement

- Estimated Establishment Costs - A Balance Sheet

- Estimated Opening Stock - The Total Investment Required

The total investment required is set out at the end of the business plan and is subdivided in the following categories:

10.1 Initial Entrance Fee:

The entrance fee of R30 000,00 (excluding VAT) and is payable upon the signing of the franchise agreement by both parties. This cost is a joining fee which includes providing the support from the franchise office as stipulated on page 4 & 5 of this document under the headings “Initial support before opening” and “Support during period of opening.”

10.2 Monthly Payments to the Franchise Office:

The following fees are payable to the Lumber City Franchise Office each month:

Royalties 1% of gross turnover (inclusive of VAT)

Website Hosting Fee R 50,00 (inclusive of VAT)

10.3 Establishment Cost:

There is an itemised listing of the estimated costs associated with setting up a Lumber City Store in the business plan. These items include: Registration Fees (e.g. Closed Corporation, VAT, etc.), Deposits (e.g. Rental, Fuel, Electricity), Office Equipment, Decorating, Signage, Computer Software, Computer Hardware, Racking and Counters, Stationary (e.g. Invoice-, Order-, Quote-, etc. Books), Advertising (opening specials), Machinery (bought cash), Clothing (e.g. Overalls, T-shirts, etc) and Sundries (e.g. Plastic bags, Flags, Name Tags, etc.).

10.4 Initial Working Capital:

The amount calculated for the initial working capital is the highest estimated negative figure reflected in the closing bank balance in the cash flows of the business plans.

9.

Appendix 1/…

10.5 Unforeseen Expenses:

One would be naïve not to budget for unforeseen expenses. In the business plans the following expenses were taken into consideration:

- Bad debt = 3% of debtors

- Theft = 1% of turnover

- Unforeseen escalation on Expenses = 3% of expenses (excluding depreciation)

10.6 Total Investment Required:

In the business plan, the estimated values of the above four categories are calculated. The sum of the four categories is the total investment required.

11. Trademarks:

South African Trade Mark applications 2003/03050 – 03055 (as indicated in Annexure “A” in the Franchise Agreement) are pending for

“LUMBER CITY”, “LUMBER CITY LOGO” and “WE’RE THE WOOD GUYS”.

Summary Curriculum Vitae of Key Lumber City Franchise Officers:

1. Charles Fleming (Franchisor):

Prior to Lumber City:• Teacher for 12 years• Actively involved in the building industry and a qualified draughtsman.

Becoming a Lumber City Franchisee:• Bought the Lumber City franchise in Montague Gardens as a going concern in 1989.• In the following 4 years opened another 3 Lumber City stores.

Involvement in the Franchising Industry:• Bought the Lumber City Franchise in September 1994.• Established the Lumber City Franchise Office in 1997, concentrating on the expansion of

the Lumber City Franchise only.

2. Ian Martin (Managing Director): Prior to Lumber City:• Senior electronic technician at the Post Office for 15 years.• Owner of cabinet making and building venture.

Involvement in Lumber City:• Manager at Lumber City Montague Gardens in 1995.• Owner / operator of a Lumber City in Cape Town in 1996.

Involvement in the Franchising Industry:• Joined the Lumber City Franchise Office in 1997.

3. Joan Swart (Administrative):

Prior to Lumber City:• Bookkeeper for a big Bookkeeping Firm in Cape Town for 8 years prior to joining Lumber

City.

Involvement in Lumber City:• In house bookkeeper for the 4 Lumber City stores and the Glass & Aluminium store

belonging to Charles Fleming from 1992.• Head of the administrative department of the above group of companies.

Involvement in the Franchising Industry:• In charge of all administrative duties since the establishing of the Lumber City Franchise

Office in 1997.

Appendix One

Lumber City (Pty) Ltd C.J. Fleming (Franchisor) I.J. Martin (MD) J.C. Swart (Administrative)Reg. No 2002/023565/07

Dear Potential Franchisee

Selecting a professional and viable franchise opportunity out of many different businesses on offer today, can be a difficult task. Making the decision to invest capital into a venture should be based on the grounds of ensuring that you join a company that has a reputable and credible brand name, is well established and has been operating for an acceptable period of time.

The Lumber City Franchise Office appreciates the concerns of a potential franchisee and as such encourages you to scrutinise our operation. The first Lumber City opened in Cape Town in 1979 and currently we have stores throughout South Africa as well as in Botswana, Namibia and Nigeria.

If one takes a closer look at our stores, and discuss our business with the owners, it becomes apparent that owning a Lumber City is a good, solid investment! A dedicated owner and staff ensure long term sustainable growth of the business.

Taking cognisance of the above, I am able to certify to the viability of a Lumber City Franchise.

The Lumber City Franchise Office is well established and in a sound financial position. We are able to pay all debts as and when they become due.

Yours sincerely

Charles Fleming (Franchisor)

BillDing

Appendix Three

We’re the good guyswood Franchise