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/leaseii. Pre-opening purchases/leasesiii. Site development and other pre-opening requirementsiv. Initial and ongoing trainingvii. Compliance with standards and policies/Operating Manualviii. Trademarks and proprietary informationix. Restrictions on products/services offeredx. Warranty and customer service requirementsxi. Territorial development and sales quotasxii. Ongoing product/service purchasesxiii. Maintenance, appearance and remodeling requirementsxvii. Owner's participation/management/staffingxviii. Records and reportsxix. Inspections and auditsxxii. Post-termination obligationsxxiii. Non-competition covenants 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; andvi. 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 franchiseii. Renewal or extension of the termiii. Requirements for franchisee to renew or extendiv. Termination by franchiseev. Termination by franchisor without causevi. Termination by franchisor with causevii. "Cause" defined - curable defaultsviii. "Cause" defined - defaults which cannot be curedix. Franchisee's obligations on termination/non-renewalx. Assignment of contract by franchisorxi. "Transfer" by franchisee - definedxii. Franchisor approval of transfer by franchiseexiii. Conditions for franchisor approval of transferxiv. Franchisor's right of first refusal to acquire franchisee's businessxv. Franchisor's option to purchase franchisee's businessxvi. Death or disability of franchiseexvii. Non-competition covenants during the term of the franchisexviii. Non-competition covenants after the franchise is terminated or expiresxix. Modification of the agreementxx. Integration/merger clausexxi. Dispute resolution by arbitration or mediationItem 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, orii. 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; orv. 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.)