A. HUMAN RESOURCES MANAGEMENT 1.

Manpower and Management As of December 31, 2010, the Group accounted for a total of 2,098 employees, distributed as follows:

The members of the Board of Directors of Pancake House, Inc. each received fees of Pesos: Ten Thousand (P10, 000.00) net of tax, for every board meeting attended starting Year 2003. The employees of the Group do not have any labor union or affiliation with any group that intends to represent the labor force to either Management or any group. However, the Group has established an Employees Consultative Council to encourage employees' involvement in policies, programs, and projects related to their employment with the Company. The Group also put in place a system where employees can communicate any concern with the companies through a text messaging facility. 2. Management Incentive Plans The Company has established a performance-based Management Incentive Plan (MIP) to provide key executives and management employees with a long-term incentive program designed to promote a sense of ownership, loyalty, and focus on both short-term and longterm income. The MIP utilizes a cash bonus system. The MIP shall grant incentive bonuses to executives and managers of specified salary grade levels provided that the relevant financial targets are met.

3. Employee Stock Option Plan The Companys stockholders, in their meeting on June 26, 2001, approved the establishment of an Executive Stock Option Plan ("ESOP") to provide key executives and management employees with a long-term incentive program designed to promote a sense of ownership, loyalty, and focus on both short-term and long-term income. The officers and employees, only upon the satisfaction of certain conditions under the Plan, become entitled to exercise an option to subscribe to the shares of the stock of the Company at a Committeedetermined and approved Subscription Price. The Company has not affected the plan nor submitted the same to the Securities and Exchange Commission for approval. 4. Code of Conduct for the Employees This is an overview look of how the company through the Human Resource Department controls and monitor employee behaviors. It also includes disciplinary actions to be taken when offenses are made by the employees. The Code of Conduct offers guidelines for which all employees must adhere to. Group I: Absences and Tardiness 1. An absence shall be considered unexcused if: y Reason given for absence is proven to be false or unjustifiable. Advice of absence (telephone) was not received by immediate superior or manager at least 2 hours before the start of the work shift of the employee. Employee should make a personal call unless physically unable to do so. Text messages are not acceptable. The employee is also required to submit an accomplished leave of absence form upon returning to work. 2. Employees must report for work on the 1st working day following an authorized leave of absence. Any extension must have the prior written approval of the immediate superior. 3. Absence without leave for an extended period (4 consecutive working days or more) may be considered as abandonment of work. 4. Habitual Tardiness For HEAD OFFICE EMPLOYEES y A. Being late more than ten (10) minutes but not beyond thirty (30) minutes four (4) times within one (1) month. B. Being late more than thirty minutes three times within one month. C. A regular pattern of five tardiness within one month beyond ten and or thirty minutes whichever comes first.

Group II: insubordination 1. Refusal to follow verbal or written reasonable orders or instruction of a superior in connection with ones work. This includes refusal to accept transfer or reassignment to another restaurant or another division. 2. Refusal to follow verbal or written orders/instructions of a superior after two or more successive reminders or warnings. 3. Physical assault upon ones superior. 4. Gross disrespect, rudeness, arrogance or any other unbecoming behavior towards a superior. 5. Threatening, coercing, intimidating or subjecting to verbal abuse ones immediate superior. 6. Unjustified refusal to render holiday/overtime work in cases of emergencies or operational exigencies; 7. Unjustified and/or deliberate non-attendance to company business meetings and corporate activities despite prior notification.

Group III: Fraud and Acts of Dishonesty 1. Making false statements in employment applications or personal records. 2. Engaging in fictitious transactions. Fake invoicing, invoice padding and other sales malpractices. 3. Use of company premises. Equipment or facilities for illegal acts or transactions including gambling. 4. Misappropriation or embezzlement of company funds or property and other acts of dishonesty not covered by any rule. 5. Obtaining or releasing company money, property or documents fraudulently, either in person or in collusion with others. 6. Unauthorized withdrawal from company cash collections, revolving fund and tips. 7. Breach of trust or loss of confidence. 8. Giving away restricted or classified company information, forms, documents and/or clearance from management to any outsider or to those not authorized to possess such materials. 9. Using or giving false testimony, document or information in any company investigation, proceeding or inquiry. 10. Swiping, punching or tampering with a co-employees timecard/keying in coemployees time in/out into computer. 11. Falsifying company records or documents or knowingly using falsified records or documents.

12. Offering or accepting anything of value in exchange for job, work location or favorable condition of employment. 13. Eating/sampling of completed and uncompleted products or customers leftover (Pilferage) 14. Failure to remit any/call collection from sales of company products and other articles whether in cash, check credit or consignment by the morning of the following day. 15. Any act or attempt to give or steal products or properties of the company, customer or fellow employees, including tips. Group IV: Misconduct and Misdemeanor 1. Loafing or loitering during company time. 2. Leaving ones workplace before quitting time without permission from immediate superior. 3. Fighting or disorderly conduct on or off duty within company premises. 4. Sleeping or napping on the job. 5. Failure or refusal to cooperate in a company investigation when testimony is required. 6. Concealing pertinent information leading to an offense committed by another employee. 7. Drinking/taking alcoholic or intoxicating beverages within company premises. 8. Reporting to work under the influence of alcoholic beverages. 9. Violating or refusing to follow safety and security rules and requirements or posted safety/security signs. 10. Possession/illegal use or indiscriminate firing of firearms or deadly weapons within company premises. 11. Physical assault upon a customer or a co-employee. 12. Gross disrespect, rudeness, arrogance or any other unbecoming behavior towards a customer or a co-employee. 13. Threatening, coercing, intimidating or subjecting to verbal abuse a customer or a coemployee. 14. Entering company premises under the influence of drugs prohibited by law, such as shabu, ecstasy, opium, opium derivative, marijuana, LSD, Madrax, seconal, etc. including possession and/or taking of such prohibited drugs within company premises or vehicles. 15. Engaging in scandalous or indecent acts within or outside company premises. 16. Committing acts of sexual harassment. 17. Extorting or unauthorized solicitation of money within company premises for personal ends. 18. An authorized employee driving a company vehicle without a valid and current drivers license.

19. Refusal to submit to medical, drug test and other physical examinations prescribed by the company at the companys expense. 20. Usurpation and/or misrepresentation of official company function or position resulting in prejudice to company interest. 21. Posting, circulating, writing or painting of subversive/scandalous materials or libelous, derogatory or offensive comments/statements/remarks against any employee in company premises, lockers or vehicles/ 22. Using profane or abusive language against a co-employee, guest, visitors and suppliers while on duty. 23. Making false or malicious statements about any employee, customers or company and/or its products. 24. Arguing loudly in front of customers. 25. Unauthorized use of company property or facilities for personal gain. 26. Leaving personal belongings inside the company lockers i.e. clothes, shoes, bags, etc. after the work shift. The company is not responsible for the loss of money, valuables, or other items deposited inside the company locker. 27. Smoking while on duty within or outside the outlet, office premises or in prohibited areas. 28. Smoking within the outlet, office premises, and in prohibited areas during break time. 29. Unauthorized borrowing from the tip fund. 30. Borrowing money from a subordinate by a superior. 31. Inflicting bodily harm or injury on another employee within or outside of company premises. 32. Personal relationships interfering with work. 33. Use of mobile phones during work hours in restaurant and commissary operations or excessive use of mobile phones for head office employees. Group V: Sabotage and Damage to Property 1. Giving company identification card and/or materials to any person not entitled to it, or assisting an authorized person to enter the company premises and/or restricted areas without Management permission. 2. Willful tampering, defacing, damaging/sabotage or destruction of company products, machines, equipment or property. 3. Unauthorized use of company vehicle resulting in loss/damage to the vehicle or injury to another person. 4. Making false statements about the company or its products/services that could result in a negative impact on the companys image or reputation.

Group VI: Negligence and Omissions 1. Non-wearing and non-compliance to prescribed company uniforms (ID for office personnel) during work hours. 2. Failure to report defects due to accident or other causes in any company equipment or vehicle at once to the immediate superior by the employee operating the equipment or vehicle. 3. Failure to log in and out when required. Using somebody elses password in POS transactions. 4. Failure to report to HRD or the division head when suffering from a serious contagious disease which could endanger co-employees health or lives. 5. Failure to observe sanitary rules and regulations in company premises and vehicles, including littering. 6. Two consecutive work performance appraisal below company standard/expectation. 7. Failure to comply with any policy/standard procedure. 8. Failure to comply with established policies, systems and procedures resulting to financial loss or damage to property of the company. 9. Gross negligence, inefficiency in the performance of ones job resulting in property or financial loss to the company. Group VII: Other Offenses 1. The enumeration of offenses in the Code of Conduct is not exclusive. Other offenses under Article 282 and 285 of the Revised Labor Code and offenses punishable under the Revised Penal Code and special laws shall subject the employee concerned to appropriate Corrective Action. Special Provisions y These Rules and Regulations shall apply to any worker/employee whenever he/she is in the restaurant or commissary, company vehicle, franchised outlets and head office of PANCAKE HOUSE GROUP or is engaged in delivery of company services or products and during any company-related activity. A disciplinary suspension shall be computed in terms of the company working days. Disciplinary action for code of conduct is PROGRESSIVE. Cleansing period for all offenses except attendance and cash handling is 12 months. For attendance and cash handling offense, cleansing period is two (2) months.

y y

Corrective Action Scale Offenses Classification A B C D Range of Corrective Action - Verbal Warning - Written Reprimand - Disciplinary Suspension (1 to 12 working days - Termination

y y y

y y

In determining the appropriate corrective action to be applied, the factors enumerated in the guidelines on Corrective Action should be applied. Preventive Suspension should not exceed 30 calendar days. In D offenses involving dishonesty and misappropriation of company funds or property, the penalty to be applied even on first offense should be termination unless there are strong mitigating circumstances present. In imposing the proper corrective action, the mitigating and aggravating circumstances, if any, shall always be taken into consideration. If a certain infraction falls under two or more categories with different penalties. The determination as to which penalty to apply will depend on the mitigating or aggravating circumstances present.

Corrective Action On Absences and Tardiness For Operation Staff Offense Late, no show and Overbreak AWOL 1st Offense Verbal Warning 3 Days suspension Verbal warning 2nd Offense Written warning 3rd Offense 4th Offense 5th Offense 3 Days 5 Days DISMISSAL Suspension suspension

Hampering operations due to excessive late or absence. Abandonment DISMISSAL

5 Days Dismissal suspension Written 3 Days 5 Days DISMISSAL warning Suspension suspension

A Medical Certificate from the affiliate clinic shall be submitted on the first day an employee reports back to work from sickness. An absence due to sickness shall be considered unexcused if no Medical Certificate is presented.

y y

y For Operations Staff

Late, absences and over-breaks are considered the same. All swapping of schedule should be acknowledged by the reliever and approved by the duty, scheduling or restaurant manager at least 1 day ahead of schedule. Changes in schedule should be approved by scheduling or restaurant manager at least 3 days in advance. Employee requesting for change schedule should find a reliever first. Calls for late should be made at least 1 hour before duty.

Excessive Late/Absences Frequency of Offense 3 Excused Late 3 Excused Absences Is Considered 1 Late 1 No Show

1 Offense 1 Offense

y If an employee incurs a violation on attendance, he/she will receive two (2) months prescriptive period after each disciplinary action. When a prescriptive period has been completed, disciplinary action shall start again as first offense. y Any two suspensions on attendance within a period of six months will lead to dismissal. V. SWOT ANALYSIS STRENGTHS  The company has acquired different brands which indicate that it has gained many assets and expansion for growth. The growing house of brands under its name is a big advantage among other competitors.  The company is a listed corporation which means it can be able to generate capital from the public investors as well.  The company was able to establish a good brand name and has become one of the most trusted restaurants in the country.  Related diversification and acquisition of the brands gives the company a stronger market base and thereby increasing chance of better profitability. The Groups brands wield both appeal and flexibility, making them ideal for complementing foreign brands and enticing the latters markets.  Product differentiation is evident in the company as well. A high product differentiation is good for the consumer because they have many options to choose from.

 The diverse brands almost offer many products for the diverse demography of the country.  The company has recently acquired another brand which is the Yellow Cab Food Chain. This could be seen as a positive move for the company since Yellow Cab is very well known in the country and is considered one of the best restaurants when it comes to the niche of pizza making.  Pancake House has been expanding its menus and even featured some of menus created by the Junior Master Chefs currently airing on the ABS-CBN Broadcasting Corporation.  The companys first school is also strength for the company as it will also serve as a training ground for potential employees of Pancake House in the future.  Pancake House has also made its presence from the neighboring countries such as in Malaysia. It is also looking up to put stores in Indonesia and in Thailand. It is taking advantage of the Asian mainstream as well.  Pancake House has also opened a store in Boracay, which will cater to the booming tourism industry in the area. WEAKNESSES  The company has a wide portfolio of brands which is both strength and could also be a sign of weakness. Diversification has benefits but it must be managed well by the company so as not to have any problems.  The companys stocks/shares in the stock exchange are not currently actively traded.  Pancake House doesnt have any heavy advertisements especially on the television. Maxs Restaurant, a competitor, for example, makes frequent ads on the television.  Although the company is making a stir in the industry, it is still not widely recognized by majority of the Filipinos. Maxs Restaurant seems to be more popular. OPPORTUNITIES  The proliferation of one-stop shopping malls that offer various recreational facilities and amenities, likewise, eases the entry of potential restaurant and fast food players. These malls spare the restaurant industry from spending extensive business development studies for their outlets; mall magnates Henry Sy and John Gokongwei Jr. have established formidable track records in building malls.  The population of the Philippines is large, thereby giving the industry in which the Pancake House, Inc. is in a large market base.  Globalization has made it easier for the company expansion to other foreign countries. The company can take advantage of this trend.  People today are growing more health conscious with what they eat. This growing health trends among consumers is an opportunity the company cannot put aside.  There is a pocket of opportunities because of the boom in regional tourism.

THREATS  The low barriers to entry in the industry pose a threat to many potential new entrants or players.  The expansion of the company to other countries will make the company more vulnerable to foreign exchange rate risks or fluctuating foreign currencies.  The expansion of the company to other countries might pose struggles when it comes to meeting customer expectations because of the differences in culture.  A drop in tourism would also hit the restaurant industry indirectly or directly.