Current through Register Vol. 46, No. 12, March 20, 2024
Present information in the required order. Except for risk
factors or when instructed by the examiner, do not capitalize or
underline.
(c)
Body
of offering prospectus.
The offering prospectus shall contain the following
information clearly and concisely stated in narrative form and in plain
English:
Item 1: THE FRANCHISOR, ITS PREDECESSORS AND
AFFILIATES
Disclose in summary form:
A. The name of the franchisor, its
predecessors and affiliates.
B. The
name under which the franchisor does or intends to do business.
C. The principal business address of the
franchisor, its predecessors and affiliates, and the franchisor's agent for
service of process.
D. The business
form of the franchisor.
E. The
nature of the franchisor's business and that of the franchises to be offered in
this state. Additionally disclose the following:
i. The general market for the product or
service to be offered by the franchisee.
ii. In general terms any regulations specific
to the industry in which the franchise business operates. It is not necessary
to include laws or regulations that apply to businesses generally.
iii. A general description of the
competition.
F. The
prior business experience of the franchisor, its predecessors and affiliates,
including:
i. The length of time for which the
franchisor has conducted a business of the type to be operated by the
franchisee.
ii. The length of time
for which each predecessor and affiliate has conducted a business of the type
to be operated by the franchisee.
iii. The length of time for which the
franchisor has offered franchises for the same type of business as that to be
operated by the franchisee.
iv. The
length of time for which each predecessor and affiliate has offered franchises
for the same type of business as that to be operated by the
franchisee.
v. Whether the
franchisor has offered franchises in other lines of business, including:
(a) A description of each other line of
business;
(b) The number of
franchises sold in each other line of business; and
(c) The length of time for which each
predecessor and affiliate has offered each other franchise.
vi. Whether each predecessor and
affiliate has offered franchises in other lines of business, including:
(a) A description of each other line of
business;
(b) The number of
franchises sold in each other line of business; and
(c) The length of time for which each
predecessor and affiliate has offered each other franchise.
Item 2: BUSINESS EXPERIENCE
List by name and position the directors, trustees and/or
general partners, the principal officers and other executives or subfranchisors
who will have management responsibility relating to the franchises offered by
this offering circular. List all franchise brokers. State each person's
principal occupations and employers during the past five years.
Item 3: LITIGATION
Disclose whether the franchisor, its predecessor, a person
identified in item 2, or an affiliate offering franchises under the
franchisor's principal trademark:
A.
Has an administrative, criminal or civil action pending against that person
alleging: a felony; a violation of a franchise, antitrust or securities law;
fraud, embezzlement, fraudulent conversion, misappropriation of property;
unfair or deceptive practices or comparable civil or misdemeanor allegations.
In addition, include pending actions, other than routine litigation incidental
to the business, which are significant in the context of the number of
franchisees and the size, nature or financial condition of the franchise system
or its business operations. If so, disclose the names of the parties, the
forum, nature, and current status of the pending action. Franchisor may include
a summary opinion of counsel concerning the action if the attorney's consent to
the use of the summary opinion is included as part of this offering
circular.
B. Has been convicted of
a felony or pleaded nolo contendere to a felony charge or, within the ten-year
period immediately preceding the application for registration, has been
convicted of or pleaded nolo contendere to a misdemeanor charge or has been the
subject of a civil action alleging: violation of a franchise, antifraud or
securities law; fraud, embezzlement, fraudulent conversion or misappropriation
of property, or unfair or deceptive practices or comparable allegations. If so,
disclose the names of the parties, the forum and date of conviction or date
judgment was entered; penalty or damages assessed, and/or terms of
settlement.
C. Is subject to a
currently effective injunctive or restrictive order or decree relating to the
franchise, or under a federal, State or Canadian franchise, securities,
antitrust, trade regulation or trade practice law, resulting from a concluded
or pending action or proceeding brought by a public agency; or is subject to
any currently effective order of any national securities association or
national securities exchange, as defined in the Securities and Exchange Act of
1934, suspending or expelling such person from membership in such association
or exchange; or is subject to a currently effective injunctive or restrictive
order relating to any other business activity as a result of an action brought
by a public agency or department, including, without limitation, actions
affecting a license as a real estate broker or sales agent. If so, disclose the
name of the person; the public agency, association, or exchange; the court, or
other forum; a summary of the allegations or facts found by the agency,
association, exchange or court; and the date, nature, terms and conditions of
the order or decree.
Item 4: BANKRUPTCY
State whether the franchisor, its affiliate, its predecessor,
officers, or general partner during the 10-year period immediately before the
date of the offering circular:
(a)
filed as debtor (or had filed against it) a petition to start an action under
the U.S. Bankruptcy Code;
(b)
obtained a discharge of its debts under the bankruptcy code; or
(c) was a principal officer of a company or a
general partner in a partnership that either filed as a debtor (or had filed
against it) a petition to start an action under the U.S. Bankruptcy Code or
that obtained a discharge of its debts under the U.S. Bankruptcy Code during or
within 1 year after the officer or general partner of the franchisor held this
position in the company or partnership. If so, disclose the name of the person
and/or company that was the debtor under the Bankruptcy Code, the date of the
action and the material facts.
Item 5: INITIAL FRANCHISE FEE
Disclose the initial franchise fee and state the conditions
under which this fee is refundable.
A.
State whether the initial fee or payment is payable in a lump sum or in
installments. Describe the purpose for which the fee or payment will be
used.
B. If the initial fee or
payment is not uniform, disclose the formula by which the amount of the fee is
determined.
Item 6: OTHER FEES
Disclose other recurring or isolated fees or payments that
the franchisee must pay to the franchisor or its affiliates or that the
franchisor or its affiliates impose or collect in whole or in part on behalf of
a third party. Include the formula used to compute these other fees and
payments. If any fee is refundable, state the conditions under which each fee
or payment is refundable.
Item 7: INITIAL INVESTMENT
Disclose the following expenditures, stating to whom the
payments are made, when payments are due, whether each payment is refundable,
the conditions under which each payment is refundable, and, if part of the
franchisee's initial investment in the franchise may be financed, an estimate
of the loan repayments, including interest:
A. Real property, whether purchased or
leased. If neither can be estimated or described by a low-high range, describe
requirements such as property type, location and building size.
B. Equipment, fixtures, other fixed assets,
construction, remodeling, leasehold improvements and decorating costs, whether
purchased or leased.
C. Inventory
required to begin operation.
D.
Security deposits, utility deposits, business licenses, other prepaid
expenses.
E. Additional funds
required to be expended by the franchisee before operations begin and during
the initial phase of the franchise.
F. Other payments that the franchisee must
make to begin operations.
Item 8: RESTRICTIONS ON SOURCES OF PRODUCTS
AND SERVICES
Disclose the franchisee's obligations to purchase or in
accordance with the franchisor or its designee or from suppliers approved by
the franchisor or in accordance with the franchisor's specifications. For each
obligation disclose:
A. The goods,
services, supplies, fixtures, equipment, inventory, computer hardware and
software, and real estate relating to establishing or operating the franchised
business.
B. The manner in which
the franchisor issues and modifies specifications to, and grants and revokes
approval of suppliers.
C. Whether,
and for what categories of goods and services, the franchisor or its affiliates
are approved suppliers or the only approved suppliers.
D. Whether, and if so, the precise basis by
which the franchisor or its affiliates will or may derive revenue or other
material consideration as a result of required purchases or leases.
E. The estimated proportion of these required
purchases and leases to all purchases and leases by the franchisee of goods and
services in establishing and operating the franchised business.
F. The existence of purchasing or
distribution cooperatives.
Item 9: FRANCHISEE'S OBLIGATIONS
Disclose the principal obligations of the franchisee under
the franchise and other agreements after the signing of its agreements.
A. Disclose the obligations in tabular form.
Refer to the section of the agreement that contains the obligation and any item
of the prospectus that further describes the obligation.
B. The table should contain a response to
each category listed below. If the response to any category is that no
obligation is imposed, the table should so state. Do not change the names of
the categories. Fit all obligations within the listed categories. If other
material obligations fall outside the scope of all of the prescribed
categories, add additional categories as needed. The categories of franchisee
obligations are:
i. Site selection and
acquisition/lease
ii. Pre-opening
purchases/leases
iii. Site
development and other pre-opening requirements
iv. Initial and ongoing training
v. Opening
vi. Fees
vii. Compliance with standards and
policies/Operating Manual
viii.
Trademarks and proprietary information
ix. Restrictions on products/services
offered
x. Warranty and customer
service requirements
xi.
Territorial development and sales quotas
xii. Ongoing product/service
purchases
xiii. Maintenance,
appearance and remodeling requirements
xiv. Insurance
xv. Advertising
xvi. Indemnification
xvii. Owner's
participation/management/staffing
xviii. Records and reports
xix. Inspections and audits
xx. Transfer
xxi. Renewal
xxii. Post-termination obligations
xxiii. Non-competition covenants
xiv. Dispute resolution
xv. Other (describe)
C. Before the table, state the following:
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE
FRANCHISE AND OTHER AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION
ABOUT YOUR OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING
CIRCULAR.
Item 10: FINANCING
Disclose the terms and conditions of each financing
arrangement that the franchisor, its agents or affiliates offers directly or
indirectly to the franchisee, including:
A. A waiver of defenses or similar provisions
in a document.
B. The franchisor's
practice or its intent to sell, assign, or discount to a third party all or
part of the financing arrangement.
C. Payments to the franchisor or affiliate(s)
for the placement of financing with the lender.
Item 11: FRANCHISOR'S OBLIGATIONS
Disclose the following:
A. The obligations that the franchisor will
perform before the franchise business opens. Cite by section the provisions of
the agreement requiring performance.
B. The obligations to be met by the
franchisor during the operation of the franchised business.
C. The methods used by the franchisor to
select the location of the franchisee's business.
D. The typical length of time between the
signing of the franchise agreement or the first payment of consideration for
the franchise and the opening of the franchisee's business.
E. The training program of the franchisor
including:
i. The location, duration and
general outline of the training program;
ii. How often the training program will be
conducted;
iii. The experience that
the instructors have with the franchisor;
iv. Charges to be made to the franchisee and
who must pay travel and living expenses of the enrollees in the training
program;
v. If the training program
is not mandatory, the percentage of new franchisees that enrolled in the
training program during the preceding 12 months; and
vi. Whether any additional training programs
and/or refresher courses are required.
Item 12: TERRITORY
Describe any exclusive territory granted the franchisee. If
an exclusive or partially exclusive territory is granted, disclose, with
respect to that territory, whether:
A.
The franchisor has established or may establish another franchisee who may also
use the franchisor's trademark;
B.
The franchisor has established or may establish a company-owned outlet or other
channel of distribution using the franchisor's trademark;
C. The franchisor or its affiliate has
established or may establish other franchises or company- owned outlets or
another channel of distribution, selling or leasing similar products or
services under a different trademark;
D. Continuation of the franchisee's
territorial exclusivity depends on achievement of a certain sales volume,
market penetration or other contingency and under what circumstances the
franchisee's territory may be altered.
Item 13: TRADEMARKS
Disclose the principal trademarks to be licensed to the
franchisee including:
A. Whether the
principal trademarks are registered with the United States Patent and Trademark
Office. For each registration state the registration date and number and
whether the registration is on the principal or supplemental
register.
B. Currently effective
material determinations of the patent and trademark office, trademark trial and
appeal board, or any court; pending infringement, opposition or cancellation
proceedings; and pending material litigation involving the principal
trademarks.
C. Agreements currently
in effect which significantly limit the rights of the franchisor to use or
license the use of the listed trademarks in a manner material to the
franchise.
D. Whether the
franchisor must protect the franchisee's right to use the listed trademarks, or
must protect the franchisee against claims of infringement or unfair
competition arising out of the franchisee's use of them.
E. Whether the franchisor knows of either
superior prior rights or infringing uses which could materially affect the
franchisee's use of the principal trademarks in this State or the State in
which the franchised business is to be located.
Item 14: PATENTS, COPYRIGHTS AND PROPRIETARY
INFORMATION
If the franchisor owns rights in patents or copyrights that
are material to the franchise, describe these patents and copyrights and their
relationship to the franchise. Include their duration and whether the
franchisor can and intends to renew the copyrights. To the extent relevant,
disclose the information required by item 13 concerning these patents and
copyrights. If the franchisor claims proprietary rights in confidential
information or trade secrets, disclose their general subject matter and terms
and conditions for use by the franchisee.
Item 15: OBLIGATION TO PARTICIPATE IN THE
ACTUAL OPERATION OF THE FRANCHISE BUSINESS
Disclose the franchisee's obligation to participate
personally in the direct operation of the franchised business and, if not
required, whether the franchisor recommends participation.
Item 16: RESTRICTIONS ON WHAT THE FRANCHISEE
MAY SELL
Disclose restrictions or conditions imposed by the franchisor
on the goods or services that the franchisee may sell or that limit the
customers to whom the franchisee may sell goods or services.
Item 17: RENEWAL, TERMINATION, TRANSFER AND
DISPUTE RESOLUTION
Summarize the provisions of the franchise and other
agreements dealing with termination, renewal, transfer, dispute resolution and
other important aspects of the franchise relationship.
A. Begin Item 17 disclosure with the
following statement:
THIS TABLE LISTS CERTAIN IMPORTANT PROVISIONS OF THE
FRANCHISE AND RELATED AGREEMENTS. YOU SHOULD READ THESE PROVISIONS IN THE
AGREEMENTS ATTACHED TO THIS OFFERING CIRCULAR.
B. Provide information in tabular form. Refer
to the section of the agreement that covers each subject.
C. The table should contain a "summary"
column to summarize briefly the disclosed provision. The summary is intended to
provide a concise overview of the provision in no more than a few words or a
sentence. Do not specify in detail all matters covered by a
provision.
D. The table should
contain a response to each category listed below. Do not change the names of
the categories. List all contractual provisions relevant to each category. If
the response to any category is that the agreement does not contain the
relevant provision, the table should so state. If the agreement is silent
concerning a category but the franchisor unilaterally offers to provide certain
benefits or protections to franchisees as a matter of policy, a footnote should
describe this policy and state whether the policy is subject to change. The
categories are:
i. Length of the term of the
franchise
ii. Renewal or extension
of the term
iii. Requirements for
franchisee to renew or extend
iv.
Termination by franchisee
v.
Termination by franchisor without cause
vi. Termination by franchisor with
cause
vii. "Cause" defined -
curable defaults
viii. "Cause"
defined - defaults which cannot be cured
ix. Franchisee's obligations on
termination/non-renewal
x.
Assignment of contract by franchisor
xi. "Transfer" by franchisee -
defined
xii. Franchisor approval of
transfer by franchisee
xiii.
Conditions for franchisor approval of transfer
xiv. Franchisor's right of first refusal to
acquire franchisee's business
xv.
Franchisor's option to purchase franchisee's business
xvi. Death or disability of
franchisee
xvii. Non-competition
covenants during the term of the franchise
xviii. Non-competition covenants after the
franchise is terminated or expires
xix. Modification of the agreement
xx. Integration/merger clause
xxi. Dispute resolution by arbitration or
mediation
xxii. Choice of
forum
xxiii. Choice of law
Item 18: PUBLIC FIGURES
Disclose the following:
A. Compensation or other benefit given or
promised to a public figure arising from:
i.
The use of the public figure in the franchise name or symbol, or
ii. The endorsement or recommendation of the
franchise to prospective franchisees.
B. The extent to which the public figure is
involved in the actual management or control of the franchisor.
C. The total investment of the public figure
in the franchisor.
Item 19: EARNING CLAIMS
A. An earnings claim made in connection with
an offer of a franchise must be included in full in the offering circular and
must have a reasonable basis at the time it is made. If no earnings claim is
made, item 19 of the offering circular must contain the negative disclosure
prescribed below, with the heading "representations regarding earnings
capability."
i. Definition: "Earnings claim"
means information given to a prospective franchisee by, on behalf of, or at the
direction of the franchisor or its agent, from which a specific level or range
of actual or potential sales, costs, income or profit from franchised or non-
franchised units may be easily ascertained. A chart, table or mathematical
calculation presented to demonstrate possible results based upon a combination
of variables (such as multiples of price and quantity to reflect gross sales)
is an earnings claim subject to this item. An earnings claim limited solely to
the actual operating results of a specific unit being offered for sale need not
comply with this Item if it is given only to potential purchasers of that unit
and is accompanied by the name and last known address of each owner of the unit
during the prior three years.
ii.
Supplemental earnings claim: If a franchisor has made an earnings claim in
accordance with this Item, the franchisor may deliver to a prospective
franchisee a supplemental earnings claim directed to a particular location or
circumstance, apart from the offering circular. The supplemental earnings claim
must be in writing, explain the departure from the earnings claim in the
offering circular, be prepared in accordance with this Item, and be left with
the prospective franchisee.
iii.
Scope of requirement: An earnings claim is not required in connection with the
offer of franchises; if made, however, its presentation must conform to this
Item.
[NEGATIVE DISCLOSURE 19]
REPRESENTATIONS REGARDING EARNINGS
CAPABILITY
[FRANCHISOR] DOES NOT FURNISH OR AUTHORIZE ITS SALESPERSONS
TO FURNISH ANY ORAL OR WRITTEN INFORMATION CONCERNING THE ACTUAL OR POTENTIAL
SALES, COSTS, INCOME OR PROFITS OF A [FRANCHISE]. ACTUAL RESULTS VARY FROM UNIT
TO UNIT AND [FRANCHISOR] CANNOT ESTIMATE THE EARNINGS OF ANY PARTICULAR
FRANCHISE.
B. An
earnings claim shall include a description of its factual basis and the
material assumptions underlying its preparation and presentation. These shall
include, but not be limited to, the data, methods and computations on which any
estimated or projected earnings claim is based.
i. Factual Basis: The factual basis of an
earnings claim includes significant matters upon which a franchisee's future
results are expected to depend. This includes, for example, economic or market
conditions which are basic to a franchisee's operation, and encompasses matters
affecting or likely to affect, among other things, a franchisee's sales, the
cost of goods or services sold and operating expenses. In the absence of an
adequate operating experience of its own, a franchisor may base an earnings
claim upon the results of operations of a substantially similar business of a
person affiliated with the franchisor, or franchisees of that person, provided
that disclosure is made of any material differences in the economic or market
conditions known to, or reasonably ascertainable by, the franchisor.
ii. Basic Disclosures: The earnings claim
must set forth:
(a) Material assumptions,
other than matters of common knowledge, underlying the claim;
(b) Whether or not it is based on the actual
experience of franchised units. If it is based on actual experience, the claim
shall disclose the percentage of franchised outlets in operation for the period
covered by the earnings claim that have actually attained or surpassed the
stated results;
(c) As to claims
regarding future performance, the conspicuous admonition that a new
franchisee's individual financial results are likely to differ from the result
stated in the earnings claim; and
(d) A statement that the data used in
preparing the earnings claim will be made available to the prospective
franchisee on request.
Item 20: LIST OF OUTLETS
Disclose the following:
A. The number of franchises, franchised by
the franchisor, of a type substantially similar to those offered and the number
of franchisor-owned or operated outlets as of the close of each of the
franchisor's last 3 fiscal years. Segregate franchises that are operational
from franchises not yet operational. Segregate disclosure by state. Total each
category.
B. The names of all
franchisees and the addresses and telephone numbers of all of their outlets.
The franchisor may limit its disclosure to all franchisee outlets in the state,
but if these franchisee outlets total fewer than 100, disclose franchisee
outlets from all contiguous states and then the next closest state(s) until at
least 100 franchisee outlets are listed.
C. The estimated number of franchises
expected to be sold during the 1-year period after the close of the
franchisor's most recent fiscal year.
D. The number of franchisee outlets in the
following categories that, for the 3-year period immediately before the close
of franchisor's most recent fiscal year, have:
i. Transferred controlling
ownership;
ii. Been cancelled or
terminated by the franchisor;
iii.
Not been renewed by the franchisor;
iv. Been reacquired by the franchisor;
or
v. Been reasonably known by the
franchisor to have otherwise ceased to do business in the system.
E. The name and last known home
address and telephone number of every franchisee who has had an outlet
terminated, cancelled, not renewed, or otherwise voluntarily or involuntarily
ceased to do business under the franchise agreement during the most recently
completed fiscal year or who has not communicated with the franchisor within 10
weeks of the application date.
Item 21: FINANCIAL STATEMENTS
Prepare financial statements in accordance with generally
accepted accounting principles. These financial statements must be audited by
an independent certified public accountant. Unaudited statements may be used
for interim periods. Include the following financial statements:
A. The franchisor's balance sheets for the
last two full fiscal years before the application date. In addition, include
statements of operations (profit and loss statements), of stockholders equity
and of cash flows for each of the franchisor's last three fiscal years. If the
most recent balance sheet and statement of operations are as of a date more
than 90 days before the application date, also submit an unaudited balance
sheet and statement of operations as of a date within 90 days of the
application date.
B. Affiliated
company statements. Instead of the disclosure required by item 21A, the
franchisor may include financial statements of its affiliated company if the
affiliated company's financial statements satisfy item 21A, and the affiliated
company absolutely and unconditionally guarantees to assume the duties and
obligations of the franchisor under the franchise agreement. Additionally, the
affiliated company must file with the Secretary of State a consent to service
of process in New York State.
C.
Consolidated and separate statements:
i. A
franchisor's financial statements shall be integrated with that of its
subsidiaries to reflect the companies' consolidated financial
condition.
ii. When the applicant
is a subfranchisor, it shall include its financial statements as well as those
of its franchisor.
Item 22: CONTRACTS
Attach a copy of all agreements proposed for use by the
franchisor or in use in this State regarding the offering of a franchise,
including but not limited to the franchise agreement, leases, options and
purchase agreements.
Item 23: RECEIPT
The last page of the offering circular is a detachable
document acknowledging receipt of the offering circular by the prospective
franchisee. It must contain the following statement in boldface type:
THIS OFFERING CIRCULAR SUMMARIZES CERTAIN PROVISIONS OF
THE FRANCHISE AGREEMENT AND OTHER INFORMATION IN PLAIN LANGUAGE. READ THIS
OFFERING CIRCULAR AND ALL AGREEMENTS CAREFULLY. IF WE OFFER YOU A FRANCHISE, WE
MUST PROVIDE THIS OFFERING CIRCULAR TO YOU BY THE EARLIEST OF:
(1)
THE FIRST PERSONAL MEETING TO
DISCUSS OUR FRANCHISE; OR
(2)
TEN BUSINESS DAYS BEFORE THE
SIGNING OF A BINDING AGREEMENT; OR
(3)
TEN BUSINESS DAYS BEFORE A PAYMENT
TO (FRANCHISOR OR ITS AGENT).
YOU MUST ALSO RECEIVE A FRANCHISE AGREEMENT CONTAINING
ALL MATERIAL TERMS AT LEAST FIVE BUSINESS DAYS BEFORE YOU SIGN A FRANCHISE
AGREEMENT. IF WE DO NOT DELIVER THIS OFFERING CIRCULAR ON TIME OR IF IT
CONTAINS A FALSE OR MISLEADING STATEMENT, OR A MATERIAL OMISSION, A VIOLATION
OF FEDERAL AND STATE LAW MAY HAVE OCCURRED AND SHOULD BE REPORTED TO THE
FEDERAL TRADE COMMISSION, WASHINGTON, D.C. 20580, AND TO THE NEW YORK STATE
DEPARTMENT OF LAW, BUREAU OF INVESTOR PROTECTION, 28 LIBERTY STREET, NEW YORK,
NY 10005.
A. Make two copies of the receipt; one for
retention by the franchisee and one by the franchisor.
B. Disclose the names, principal business
addresses and telephone numbers of the subfranchisors or franchise brokers
offering the franchises in this state.
C. List the titles of all attached
exhibits.
D. Effective Date: (Leave
blank until notified of effectiveness by the New York State Department of
Law.)
