14 Ill. Adm. Code 200.APPENDIX
A Franchise Registration Forms
Section 200
Section 200.APPENDIX A
Franchise Registration Forms
Section 200.ILLUSTRATION L Requirements
for Preparation of a Uniform Franchise Offering Circular
THE
UNIFORM FRANCHISE OFFERING CIRCULAR GUIDELINES
GENERAL
INSTRUCTIONS
90. Introduction: The
Uniform Franchise Offering Circular (UFOC) Guidelines consist of the
Requirements, Instructions and Sample Answers (Appendix A, Illustration L).
The UFOC Guidelines were prepared and adopted by the North American Securities
Administrators Association ("NASAA") and its predecessor, the Midwest
Securities Commission Association June 10, 1993. The members of NASAA cannot
create statutes since that is the constitutional province of state legislators,
but NASAA intends for the UFOC Guidelines to facilitate compliance with
disclosure requirements under state franchise investment laws. Where possible,
NASAA has developed uniform disclosure requirements, but differences in state
laws bearing on the franchise relationship may necessitate changes. In
addition, state administrators will continue to review the application for
deficient disclosure and additional disclosure necessitated by special problems
or risks in the proposed offering.
100. Follow these General
Instructions and the Requirement and Instruction for each Item in franchise
registration applications and disclosure in the Uniform Franchise Offering
Circular.
110. Original Registration
Application – Documents to File:
(a) Uniform Franchise Registration Application Page (also known as
"Facing Page") (Appendix A, Illustration A);
(b) Supplemental Information Pages(s) (Appendix A, Illustration
B);
(c) Certification Page (Appendix A, Illustration G);
(d) Uniform Consent to Service of Process (Appendix A, Illustration
D);
(e) Sales Agent Disclosure Form (Appendix A, Illustration C);
(f) If the applicant is a corporation or partnership, an
authorizing resolution if the application is verified by a person other than
applicant's officer or general partner (Appendix A, Illustrations E, F, M and
N);
(g) Uniform Franchise Offering Circular (Appendix A, Illustration
L);
(h) Application Fee (Section 40 of the Act);
(i) Auditor's consent (or a photocopy of the consent) to the use
of the latest audited financial statements in the offering circular (Appendix
A, Illustration H).
120. Renewal Application:
When state law requires renewal, mark "renewal" on the application
page. Submit all documents required for an initial application with additions
to the previously filed documents underlined. Changes must be clearly marked so
that the change is noticed easily. File a renewal application before the prior
registration has expired (see Section 10 of Act). If the prior registration
has expired, mark "Registration of an Offer or Sale of Franchises" on
the facing page and pay the fee charged for initial registrations. Redlining
and bracketing changes from the last filing will speed a re-registration. Do
not mark the amendment boxes on the application page on the first renewal
filing even if documents are revised. In Illinois you can make as many changes
in a renewal filing as are necessary without paying an amendment fee.
150. "Disclose"
means to state all material facts in an accurate and unambiguous manner.
Disclose clearly, concisely and in a narrative form that is understandable by a
person unfamiliar with the franchise business. For clear and concise
disclosure avoid legal antiques
1
and repetitive phrases
2
.
When possible, use active, not passive voice
3
. Limit the length and
complexity of disclosure through careful organization of information in the
disclosure. Avoid technical language and unnecessary detail. Make the format
and chronological order consistent within each Item.
NOTES:
1 Avoid these legal antiques. Preferred substitutes are in
parentheses: aforesaid; arising from (from); as between; as an inducement for;
as part of the consideration; as set forth in (in); as the case may be, at a
later point in time; binding upon and inure; commence (begin); condition
precedent (before); condition subsequent (after); consist of (are); engaged in
business of offering (offers); for and in consideration of the grant of the
franchise; for a period of (for); foregoing; forthwith; from time to time;
hereby; herein; hereinafter; hereto; heretofore; if necessary; in the event
(if); including but not limited to (including); in any manner whatsoever;
including without limitation (including); in conjunction with; in connection
with; in no event of (if); in whole or in part; it will be specifically
understood that; manner in which; not later than (within, by); not less than
(at least); notwithstanding; offers to an individual, corporation or
partnership (offer); on behalf of (for); precendent (before); prescribed
(required); prior to (before); provided however (but, unless); provided that
(if, unless); purporting to; relating to (under); subsequent (after); such
(this); so as to (to); so long as (while); thereafter, therefrom; thereof;
thereunder; without limiting the foregoing; whatsoever; with respect to.
2 Avoid repetitive phrases. Preferred substitutes are in
parentheses: agrees, acknowledges and recognizes; any and all; are and remain;
based upon, related to, or growing out of (because); certified as true and
correct (certified); consultation, assistance and guidance (guidance); each and
every; equipment, furniture, supplies and inventory set forth on the equipment
list attached as Exhibit
___
(items on Exhibit
____
); necessary
and appropriate; sample, test and review (test); twenty-three (23) (write as
23).
3 The preferred phrase in the parentheses: As the franchisor
prescribes (you must); being offered (offers); consists of (is); engaged in the
business of offering (offer); giving rise to; if it becomes necessary for (if);
inure to the benefit of (benefits); if granted the right to (can); is given an
opportunity to (can); is required to (must); shall be no less than (a minimum
of); shall continue in effect (continues); with the exception of (except).
160. Since prospective
franchisees must have sufficient disclosure to understand economic commitments
and to develop a business plan, Items 5, 6, 7 and 8 must disclose the minimum
and maximum franchisee cost. The franchisor should provide reasonably
available information to allow franchisees to forecast future charges listed in
these Items and to be paid to person who are independent of the franchisor.
Future payments to the franchisor should be specific as is required by
individual Items.
170. The disclosure for each
UFOC Item should be separately titled and in the required order. Do not repeat
the UFOC question in the offering circular. Respond to each question fully. If
the disclosure is not applicable, respond in the negative but if an answer is
required "if applicable," respond only if the requested information
applies. Do not qualify a response with a reference to another document unless
permitted by the instructions to that Item.
180. For each Item in the
UFOC, type the Requirement's Item title and number. Sub-items may be
designated by descriptive headings, but do not use sub-item letters and
numbers.
190. Separate documents (for
example, a confidential operations manual) must not make representations or
impose terms that contradict or are materially different from the disclosure in
the offering circular.
200. Use 8½ by 11 inch paper
for the entire application.
210. When the applicant is a
master franchisor seeking to sell subfranchises, references in these
requirements and instructions to "franchisee" include the
subfranchisor unless the language context requires a different meaning.
220. The offer of
subfranchises is an offer separate from the offer of franchises and usually
requires a separate registration or exemption. A single application may
register the sale of single unit and multi-unit franchises if the offering
circular is not confusing.
230. When the applicant is a
subfranchisor, disclose the same information concerning the subfranchisor that
is required about the franchisor, to the extent applicable.
240. In offerings by a
subfranchisor, "franchisor" means both the franchisor and
subfranchisor.
250. When state requirements
conflict with these Guidelines, the state requirements control. The State
Administrator may modify or waive these Guidelines or may require additional
documentation or information.
260. Grossly deficient
applications may be rejected summarily by the Administrator as incomplete for
filing. It is not the function of an Administrator to prepare, in effect, an
applicant's application. The additional examiner time reviewing the grossly
deficient product delays the processing of diligently prepared and pursued
applications.
270. The Guidelines that continue
after these Instructions use the following format:
(a) The title of the Item follows the Item number. It is
capitalized and centered on the page.
(b) The "Item" is a restatement of the Uniform Franchise
Offering Circular (UFOC) Item Requirement. It is capitalized and follows the
title of the Item.
(c) The "Instruction" appears beneath the Item. It
explains portions of the Item requirements.
(d) The "Sample Answer" at the end of each Item provides
sample disclosures. Double horizontal lines divide the Sample Answer from the
Instructions.
COVER PAGE: The State cover
page of the offering circular must state:
1. The title in boldface type: FRANCHISE OFFERING CIRCULAR
2. The franchisor's name, type of business organization,
principal business address and telephone number.
3. A sample of the primary business trademark, logotype, trade
name, or commercial label or symbol under which the franchisee will conduct its
business. (Place in upper left-hand corner of the cover page.)
4. A brief description of the franchised business.
5. The total amounts in Items 5 and 7 of the offering circular:
Franchisee's Initial Franchise Fee or Other Payment and Franchisee's Initial
Investment.
6. The following statements:
Information comparing franchisors is available. Call the
State administrators listed in Exhibit
______
or your public library for
sources of information.
Registration of this franchise by a state does not mean that
the state recommends it or has verified the information in this offering
circular. If you learn that anything in the offering is untrue, contact the
Federal Trade Commission and Illinois Attorney General.
7. Effective Date: (Leave blank until notified of effectiveness
by State regulatory authority.)
Cover Page Instructions:
i. Present information in the required order. Except for risk
factors or when instructed by the examiner, do not capitalize or underline.
ii. The estimated cash investment should agree with the Item 7
total. This total should represent the franchisee's entire initial investment
minus only exclusions allowed by Item 7. Do not state what the total includes.
iii. Limit the cover page disclosure to one page unless risk factors
require additional space. Disclosure on the cover page should be brief. Limit
the description of the business to the product or service offered by the
franchisor. Unless required by a State regulator, do not disclose financing
arrangements or the franchisee's right to use the trademark. Exclude
non-required information unless necessary as a risk factor or required by a
State regulator.
iv. If applicable, disclose the following risk factors using the
following language on the cover:
a. THE FRANCHISE AGREEMENT PERMITS THE FRANCHISEE (TO
SUE) (TO
ARBITRATE WITH)
(franchisor)
ONLY IN
(state)
. OUT OF
STATE (ARBITRATION) (LITIGATION)
MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY
ALSO COST MORE (TO
SUE) (TO
ARBITRATE WITH)
(franchisor).
IN
(state)
THAN IN
YOUR HOME STATE.
b. THE FRANCHISE AGREEMENT STATES THAT
(state)
LAW GOVERNS THE AGREEMENT, AND
THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU
MAY WANT TO COMPARE THESE LAWS.
c. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
v. In addition to the above language, disclose other risk
factors required by a State regulator.
vi. Use capital letters for risk factor disclosure.
vii. In multistate offerings in which the franchisor uses a single
offering circular, refer to an exhibit to the offering circular for a list of
State or Provincial authority.
Sample
Cover Page
(Logo) Franchise Offering
Circular
Belmont
Mufflers, Inc.
A Minnesota
Corporation
First Street
Jackson,
Minnesota 55000
(612)
266-3430
The
franchisee will repair and install motor vehicle exhaust systems.
The initial
franchise fee is $10,000. The estimated initial investment required ranges
from $132,700 to $160,200. This sum does not include rent for the business
location.
Risk Factors:
THE FRANCHISE
AGREEMENT REQUIRES THAT ALL DISAGREEMENTS BE SETTLED BY ARBITRATION IN
MINNESOTA. OUT OF STATE ARBITRATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE
SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU MORE TO ARBITRATE WITH US IN
MINNESOTA THAN IN YOUR HOME STATE.
Information
about comparisons of franchisors is available. Call the state administrators
listed in Exhibit
_____________
or your public library for sources of
information.
Registration
of this franchise with the state does not mean that the state recommends it or
has verified the information in this offering circular. If you learn that
anything in this offering circular is untrue, contact the Federal Trade
Commission and Illinois Attorney General.
Effective
date:
TABLE OF CONTENTS: INCLUDE A
TABLE OF CONTENTS BASED ON THE REQUIREMENTS OF THIS OFFERING CIRCULAR.
Table of Contents Instructions:
Refer to UFOC Items and state
the page where each UFOC Item disclosure begins. List exhibits by letter. Use
the following format:
SAMPLE TABLE OF CONTENTS:
TABLE
OF CONTENTS
ITEM
PAGE
1
The Franchisor, its
Predecessors and Affiliates...................................
2
Business Experience............................................................................
3
Litigation..............................................................................................
4
Bankruptcy...........................................................................................
5
Initial Franchise Fee............................................................................
6
Other Fees............................................................................................
7
Initial Investment.................................................................................
8
Restrictions on Sources of
Products and Services...............................
9
Franchisee's Obligations......................................................................
10
Financing.............................................................................................
11
Franchisor's Obligations......................................................................
12
Territory...............................................................................................
13
Trademarks..........................................................................................
14
Patents, Copyrights and
Proprietary
Information..........................................................................................
15
Obligation to Participate in
the Actual
Operation of the Franchise
Business...................................................
16
Restrictions on What the
Franchise May Sell..............................................................................
17
Renewal, Termination, Transfer
and Dispute Resolution........................................................................
18
Public Figures......................................................................................
19
Earnings Claims...................................................................................
20
List of Outlets......................................................................................
21
Financial Statements............................................................................
22
Contracts..............................................................................................
23
Receipt.................................................................................................
Exhibits
A.
Franchise Agreement...........................................................................
B.
Equipment Lease.................................................................................
C.
Lease for Premises...............................................................................
D.
Loan Agreement..................................................................................
Item
1
THE
FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
Item 1 Instructions:
i. Use the word "we," initials or one or two words to
refer to the franchisor. Use different initials or a different one or two
words to refer to other persons contracting with the franchisee under the
franchise agreement. Except in the 23 Item titles, use these initials or the
word(s) to describe these persons or entities throughout the offering circular.
ii. Define the franchisee as "you" and use this
description throughout the offering circular. If the franchisee could be a
corporation, partnership or other entity, disclose whether "you"
includes the franchisee's owners.
iii. "Predecessor" in Item 1 means a person from whom
the franchisor acquired directly or indirectly the major portion of the
franchisor's assets.
iv. The disclosure regarding predecessors need only cover the 10
year period immediately before the close of the franchisor's most recent fiscal
year.
v. Affiliate in Item 1 means a person (other than a natural
person) controlled by, controlling or under common control with the franchisor,
which is offering franchises in any line of business or is providing products
or services to the franchisees of the franchisor.
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.
Item 1B Instruction:
If the franchisor does business
under a name different from the name disclosed in Item 1A, state that other
name. If not, state that the franchisor does not do business under another
name.
C. THE PRINCIPAL BUSINESS ADDRESS OF THE FRANCHISOR, ITS
PREDECESSORS AND AFFILIATES, AND THE FRANCHISOR'S AGENT FOR SERVICE OF PROCESS.
Item 1C Instructions:
i. Principal business address means "home office" in
the United States, not in the state for which the offering circular was
prepared. If appropriate, also disclose the location of an international
"home office." The business address cannot be a post office box.
ii. In a multi-state offering in which the agent for service of
process is required, the franchisor may use an exhibit or the acknowledgement
of receipt to disclose this agent.
D. THE BUSINESS FORM OF THE FRANCHISOR
Item 1D Instruction:
Disclose the state of
incorporation or business organization and the type of business organization.
E. THE FRANCHISOR'S BUSINESS AND THE FRANCHISES TO BE OFFERED IN
THIS STATE.
Item 1E Instructions:
Disclose the following:
i. That the franchisor sells or grants franchises;
ii. Whether the franchisor operates businesses of the type being
franchised;
iii. The franchisor's other business activities;
iv. The business to be conducted by the franchisees;
v. The general market for the product or service to be offered
by the franchisee. (For example, is the market developed or developing? Will
the goods be sold primarily to a certain group? Are sales seasonal?);
vi. 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;
vii. A general description of the competition.
F. THE PRIOR BUSINESS EXPERIENCE OF THE FRANCHISOR. ITS
PREDECESSORS AND AFFILIATES INCLUDE:
(1) THE LENGTH OF TIME THE FRANCHISOR HAS CONDUCTED A BUSINESS OF
THE TYPE TO BE OPERATED BY THE FRANCHISEE.
(2) THE LENGTH OF TIME EACH PREDECESSOR AND AFFILIATE HAS
CONDUCTED A BUSINESS OF THE TYPE TO BE OPERATED BY THE FRANCHISEE.
(3) THE LENGTH OF TIME THE FRANCHISOR HAS OFFERED FRANCHISES FOR
THE SAME TYPE OF BUSINESS AS THAT TO BE OPERATED BY THE FRANCHISEE.
(4) THE LENGTH OF TIME EACH PREDECESSOR AND AFFILIATE OFFERED
FRANCHISES FOR THE SAME TYPE OF BUSINESS AS THAT TO BE OPERATED BY THE
FRANCHISEE.
(5) 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 THE FRANCHISOR HAS OFFERED EACH OTHER
FRANCHISE.
(6) WHETHER EACH PREDECESSOR AND AFFILIATE 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 EACH PREDECESSOR AND AFFILIATE OFFERED EACH
OTHER FRANCHISE.
Item 1F Instruction:
Limit disclosure about
predecessors to the time before the franchisor acquired the predecessor's
assets. Thus, under the 10 year limitation, if a franchisor acquired the
assets of a predecessor 8 years ago, the disclosure about the predecessor
should cover only the 2 year period before the acquisition.
Sample
Answer 1
To simplify the language in this
offering circular "Belmont" means Belmont Mufflers Inc., the
franchisor. "You" means the person who buys the franchise. Belmont
is a Minnesota corporation that was incorporated on September 3, 1963. Belmont
does business as Belmont Muffler Shops. Our principal business address is 111
First Street, Jackson, Minnesota 55555.
Belmont's agent for service of
process is disclosed in Exhibit
_____
.
Belmont currently operates 12
Belmont Muffler Shops and sells pipe bending machines and mufflers to various
muffler shops.
Belmont franchises the right to
sell and install mufflers for the public. You must honor our guarantee to
replace mufflers or exhaust pipes that wear out if the vehicle ownership has
not changed. Belmont's franchisees often operate their muffler shop franchise
with their service stations or tire center. Your competitors include
department store service departments, service stations and other national
chains of muffler shops. Exhibit
_____
is attached to this offering
circular and contains a summary of the special regulations for muffler
installation in your state.
During the past 5 years Belmont
has operated 7 muffler shops that are similar to the franchised shops being
offered. All these shops are located in urban areas, have approximately xxxxx
square feet of floor space and are located on busy streets. An additional 3
muffler shops were opened in 1990. From 1968 to 1973, Belmont offered
franchises for "Repair-All Transmission Shops." "Repair-All"
franchises repaired and replaced motor vehicle transmissions under a marketing
plan similar to the franchise in this offering circular. Belmont sold 40 of
these franchises primarily in the states of Minnesota, Michigan, Wisconsin and
Illinois. In 1973, Belmont sold this transmission repair company to CTF Inc.
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 2 Instructions:
i. Principal officers include the chief executive and chief
operating officer, the president, financial, franchise marketing, training and
franchise operations officers.
ii. First disclose the position and the name of the person
holding it. Underline this information; then skip one line.
iii. Disclose the beginning date and departure date for each job
held in the five year period whether or not this date is within the past five
years. Disclose the location of the job.
iv. Do not disclose home addresses, home telephones, social
security numbers or birth dates in this Item.
v. Disclose the required information concerning the franchise
broker's directors, principal officers and executives with management
responsibility to market or service the franchises.
vi. In a multi-state offering in which the franchisor uses a
single offering circular and franchise brokers and executives with direct
management responsibility to the franchisees differs from state to state, use
an exhibit to refer to these personnel.
Sample
Answer 2
President: Jane J. Doe
From June 1978, until April,
1986, Ms. Doe was Vice President of Atlas Inc., a Houston, Texas based
manufacturer of automobile wheels. In April 1986, she joined Belmont as a
Director and Vice President. She was promoted to President in June 1987.
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 MATERIAL CIVIL ACTION
PENDING AGAINST THAT PERSON ALLEGING A VIOLATION OF A FRANCHISE, ANTITRUST OR
SECURITIES LAW, FRAUD, UNFAIR OR DECEPTIVE PRACTICES, OR COMPARABLE
ALLEGATIONS. IN ADDITION, INCLUDE ACTIONS OTHER THAN ORDINARY ROUTINE
LITIGATION INCIDENTAL TO THE BUSINESS WHICH ARE SIGNIFICANT IN THE CONTEXT 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 A CONSENT TO
USE OF THE SUMMARY OPINION IS INCLUDED AS PART OF THIS OFFERING CIRCULAR
.
B. HAS DURING THE 10 YEAR PERIOD IMMEDIATELY BEFORE THE DATE OF
THE OFFERING CIRCULAR BEEN CONVICTED OR A FELONY OR PLEADED NOLO CONTENDERE TO
A FELONY CHARGE; OR BEEN HELD LIABLE IN A CIVIL ACTION BY FINAL JUDGMENT OR
BEEN THE SUBJECT OF A MATERIAL ACTION INVOLVING VIOLATION OF A FRANCHISE,
ANTITRUST OR SECURITIES LAW, FRAUD, 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 AN/OR TERMS OF SETTLEMENTS.
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. IF SO, DISCLOSE THE NAME OF THE PERSON, THE PUBLIC AGENCY AND COURT, A
SUMMARY OF THE ALLEGATIONS OR FACTS FOUND BY THE AGENCY OR COURT AND THE DATE,
NATURE, TERMS AND CONDITIONS OF THE ORDER OR DECREE
.
Item 3 Instructions:
i. Definitions:
a. For purposes of these instructions to Item 3,
"franchisor" includes the franchisor, its predecessors, persons
identified in Item 2 and affiliates offering franchises under the franchisor's
principal trademarks.
b. Action: Action includes complaints, cross claims,
counterclaims, and third party complaints in a judicial proceeding, and their
equivalents in an administrative action or arbitration proceeding. The
franchisor may disclose its counterclaims. Omit actions that were dismissed by
final judgment without liability of or entry of an adverse order against the
franchisor.
c. Included in the definition of material is an action or an
aggregate of actions if a reasonable prospective franchisee would consider it
important in making a decision about the franchised business.
d. In this Item, settlement of an action does not diminish its
materiality if the franchisor agrees to pay material consideration or agrees to
be bound by obligations which are materially adverse to its interests.
e. "Ordinary routine litigation" means actions which
ordinarily result from the business and which do not depart from the normal
kinds of actions in the business.
f. "Held liable" includes a finding by final judgment
in a judicial, binding arbitration or administrative proceeding that the
franchisor, as a result of claims or counterclaims, must pay money or other
consideration, must reduce an indebtedness by the amount of an award, cannot
enforce its rights, or must take action adverse to its interests.
g. "Currently Effective": An injunctive or
restrictive order or decree is "currently effective" unless it has
been vacated or rescinded by a court or by the issuing public agency. An order
that has expired by its own terms is not "currently effective." If
the named party(s) have fully complied with an order (for example, through
registration of its franchise offer), the order is not "currently
effective." A party has not fully complied with an order to act or to
refrain from an act (for example, to comply with the franchise law or to
refrain from violating the franchise law) until the order expires by its own
terms.
ii. Civil
Litigation or Injunctive or Restrictive Order:
a. Use Sample Answer 3-1 for a negative response to Item 3 if the
franchisor has never been named in litigation or if the only litigation naming
the franchisor is outside the scope of Item 3.
b. Disclose in the same order as the instructions below appear.
c. Title each action and state its case number or citation in
parentheses. Underline the title of the action.
d. For each action state the action's initial filing date and the
opposing party's name and relationship with the franchisor. Relationships
include competitor, supplier, lessor, franchisee, former franchisee, or class
of franchisees.
e. Summarize the legal and factual nature of each claim in the
action.
f. Summarize the relief sought or obtained. Summarize
conclusions of law or fact.
g. State that other than these (list number of actions) no
litigation is required to be disclosed in this offering circular.
iii. Criminal
Convictions or Pleas:
a. Disclose
in the same order as the following instructions appear.
b. Title each action and state its citation in parentheses.
Underline the title of the action.
c. Name the person convicted or who pleaded.
d. State the crime or violation and the date of conviction.
e. Disclose the sentence or penalty imposed.
f. State that other than these (list the number of actions)
actions, no litigation is required to be disclosed in this offering circular.
Sample
Answer 3-1
No litigation is required to be
disclosed in this offering circular.
Sample Answer 3-2
Doe v. Belmont Muffler Service,
Inc. (cite) On March 1, 1985, our franchisee, Donald Doe, sought to enjoin us
from terminating him for nonpayment of royalty fees. Doe alleged
________
.
On April 3, 1986, Doe withdrew the case when we repurchased his franchise for
$90,000 and agreed not to enforce non-compete clauses against him.
Indiana v. Belmont Muffler
Service, Inc. (cite) On April 1, 1985, the Attorney General of Indiana sought
to enjoin us from offering unregistered franchises and from using false income
representations. The Attorney General alleged that the earnings claims were
false because.... The court found that we had offered franchises, that the offers
were not registered and that we had made the alleged false representations in
our earnings claims. The court enjoined us from repeating those acts.
Other than these 2 actions, no
litigation is required to be disclosed in this offering circular.
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 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 OR COMPANY THAT WAS THE
DEBTOR UNDER THE BANKRUPTCY CODE, THE DATE OF THE ACTION AND THE MATERIAL
FACTS.
Item 4 Instructions:
i. First, name the party that filed (or had filed against it)
the petition in bankruptcy and the party's relationship to the franchisor. If
the debtor in a bankruptcy proceeding was or is affiliated with the franchisor,
state the relationship. If the debtor in a bankruptcy proceeding is
unaffiliated with the franchisor, state the name, address and principal
business of the bankrupt company.
ii. Disclose that the entity filed bankruptcy or reorganization
under the bankruptcy law and the date of the original filing.
iii. Identify the bankruptcy court, and the case name and
number. Put this information in parentheses.
iv. State the date on which the debtor obtained a discharge in
bankruptcy (including discharges under Chapter 7 and confirmation of any plans
of reorganization under Chapters 11 and 13 of the U.S. Bankruptcy Code).
v. Disclose other material facts.
vi. Cases, actions and other proceedings under the laws of
foreign nations relating to bankruptcy proceedings should be included in
answers, where responses are required, as if those cases, actions and
proceedings took place under the U.S. Bankruptcy Code.
vii. If information is disclosed in this Item, at the end of the
disclosure add Sample Answer 4-1 with the qualification "other than these
actions."
viii. Use Sample Answer 4-1 if no person listed in Items 1 or 2 has
been involved as a debtor in bankruptcy proceedings or any person listed in
Items 1 or 2 has been involved as debtor in bankruptcy proceedings but the
bankruptcy proceedings (under the U.S. Bankruptcy Code or its predecessor, the
National Bankruptcy Act of 1898) were discharged more than 10 years ago.
"Person" includes natural persons and legal entities listed in Items
1 and 2. Person does not include anyone acting solely as the franchisor's
agent for service of process.
Sample
Answer 4-1
No person previously identified
in Items 1 or 2 of this offering circular has been involved as a debtor in
proceedings under the U.S. Bankruptcy Code required to be disclosed in this
Item.
Sample
Answer 4-2
On March 2, 1984, Belmont filed
a petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code. We were
allowed to continue to operate under bankruptcy court supervision. On October
2, 1985, the bankruptcy court approved our plan of reorganization and
discharged the proceedings. (US Bankruptcy Court for the District of
Case
B 84-301.)
Belmont's present president,
Roger Rowe, was president of Acme Muffler Service, Inc., a Houston, Texas based
manufacturer of exhaust systems, from July 1, 1978, through June 14, 1983. On
June 6, 1983, an involuntary petition under the U.S. Bankruptcy Code was filed
against Acme by its creditors. On July 14, 1983, the court entered an order of
relief. Acme sold its assets and was dissolved.
Other than these 2 actions, no
person previously identified in Items 1 or 2 of this offering circular has been
involved as a debtor in proceedings under the U.S. Bankruptcy Code required to
be disclosed in this Item.
Item
5
INITIAL
FRANCHISE FEE
DISCLOSE THE INITIAL FRANCHISE
FEE AND STATE THE CONDITIONS WHEN THIS FEE IS REFUNDABLE.
Item 5 Instructions:
i. "Initial fee" includes all fees and payments for
services or goods received from the franchisor before the franchisee's business
opens. "Initial fee" includes all fees and payments whether payable
in lump sum or installments.
ii. If the initial fee is not uniform, disclose the formula or
the range of initial fees paid in the fiscal year before the application date
and the factors that determined the amount.
iii. Disclose installment payment terms in this Item or in Item
10.
Sample
Answer 5-1
All franchisees pay a $10,000
lump sum franchise fee when they sign the franchise agreement. Belmont will
refund the entire amount if we do not approve your application within 45 days.
Belmont will refund $9,000 of this fee if you do not satisfactorily complete
your 2-week training. There are no refunds under other circumstances.
Sample
Answer 5-2
You must pay a franchise license
fee of $________ per thousand licensed drivers who reside within your exclusive
area when the franchise agreement is signed. The number of licensed drivers is
determined by the latest abstract of the state agency which issues driver's
licenses. The minimum fee is $20,000. When you send your application, you
must pay a non-refundable $500 application fee. You must pay an additional
$10,000 when you receive your equipment. The balance of your fee is payable in
12 equal monthly installments of $______. The first installment payment is due
1 year after your shop opens. Belmont charges 10% annual interest on the
unpaid balance. Interest compounds daily and accrues from the date that you
receive your equipment. All buyers pay this uniform fee and receive the same
financing terms on the fee. If your application is not accepted, Belmont
retains the $500 for investigative costs, but you are not liable for the
$19,500 remainder. Belmont does not give refunds under other circumstances.
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
WHEN EACH FEE OR PAYMENT IS REFUNDABLE.
Item 6 Instructions:
i. First disclose fees in tabular form. Use footnotes or a
"remarks" column to elaborate on the information in the table or to
disclose caveats. If elaborations are lengthy, use footnotes instead of a
remarks column.
ii. Disclose the amount of each fee. A dollar amount or a
percentage of gross sales is acceptable if the term gross sales is defined. If
dollar amounts may increase, disclose the formula which determines the increase
or the maximum amount of the increase.
iii. Disclose the due date for recurring payments.
iv. If all fees are payable to only the franchisor, disclose this
in a footnote.
v. If all fees are imposed and collected by the franchisor,
disclose this in a footnote.
vi. If all fees are non-refundable, state this in a footnote.
vii. Disclose the voting power of franchisor owned outlets on any
fees imposed by cooperatives. If franchisor outlets have controlling voting
power, disclose a range for the fee. Disclose this information in a footnote
or a "remarks" column.
viii. The franchisor need not repeat information contained in Items
8 & 9, but the table should direct the franchisees to those Items.
ix. Examples of fees are royalty, lease negotiation,
construction, remodeling, additional training, advertising, group advertising,
additional assistance, audit, accounting/inventory, and transfer and renewal
fee.
Sample
Answer 6-1
Name of Fee
Amount
Due
Date
Remarks
Royalty
1
4% of total gross sales
Payable monthly on the 10
th
day of the next month
Gross sales includes all
revenue from the franchise location. Gross sales does not include sales tax
or use tax.
Advertising
1
2% of total gross sales
Same as Royalty fee
Cooperative Advertising
1
Maximum − 2% of gross
sales
Established by franchisees
Franchisees may form an
advertising cooperative and establish local advertising fees. Company owned
stores have no vote in these cooperatives.
Additional Training
1
$1,000 per person
2 weeks prior to beginning of
training
Belmont trains 2 persons free
− See Item 11
Additional Assistance
1
$500 per day
30 days after billing
Belmont provides opening
assistance free − See Item 11
Transfer
1
$1,000
Prior to consummation of
transfer
Payable when you sell your
franchise. No charge if franchise transferred to a corporation which you
control.
Audit
1
Cost of audit plus 10%
interest on underpayment
2
30 days after billing
Payable only if audit shows an
understatement of at least 2% of gross sales for any month
Renewal Fee
1
$1,000
30 days before renewal
Notes:
1
All fees are imposed by and are payable to Belmont. All
fees are non-refundable.
2
Interest begins from the date of the underpayment.
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 WHEN 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
ESTIMABLE NOR DESCRIBABLE 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 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 7 Instructions:
i. Begin disclosure by listing expenditures in tabular form.
List preopening expenses first. Use footnotes to comment on expected
expenditures.
ii. Disclose payments required by the franchise agreement and
all costs necessary to begin operation of the franchise and operate the
franchise during the initial phase of the business. A reasonable time for the
initial phase of the business is at least 3 months or a reasonable period for
the industry. Include an entry titled "additional funds" and disclose
the length of the initial phase in the entry.
iii. If a specific expenditure amount is not ascertainable, use a
low-high range based on the franchisor's current experience. If real property
costs cannot be estimated in a low-high range, disclose the approximate size of
the property and building involved. Describe the probable location of the
building (for example, strip shopping center, mall, downtown, rural or
highway).
iv. The franchisor may include additional expenditure tables to
show expenditure variations caused by differences in site location, premise
size, etc. Describe in general terms the factors, basis and experience that
the franchisor considered or relied upon in formulating the amount required for
additional funds.
v. If the franchisor or an affiliate finances part of the
initial investment, state the expenditures that it will finance. State the
required down payment, annual percentage rate of interest, rate factors, and
the estimated loan repayments. Make the discussion brief, and refer to Item
10.
vi. Total the initial investment. This total should be the same
as the total investment on the offering circular cover.
Sample Answer 7
YOUR
ESTIMATED INITIAL INVESTMENT
AMOUNT
METHOD OF PAYMENT
WHEN DUE
TO WHOM PAYMENT IS TO BE MADE
INITIAL
FRANCHISE
FEE
$20,000
(Note 1)
Lump
Sum
At
Signing of Franchise Agreement
Belmont, Inc.
TRAVEL AND LIVING EXPENSES WHILE TRAINING
$2,500 to $5,000
As
Incurred
During
Training
Airlines, Hotels & Restaurants
REAL
ESTATE AND IMPROVEMENTS
(Note 2)
(Note
2)
(Note
2)
(Note 2)
EQUIPMENT
$40,000
(Note 3)
Lump
Sum
Prior
to Opening
Belmont or vendors
SIGNS
$2,200
Lump
Sum
Prior
to Opening
Abbey Sign Company
MISCELLANEOUS
OPENING COSTS
$8,000
(Note 4)
As
Incurred
As
Incurred
Suppliers, Utilities, etc.
OPENING
INVENTORY
$8,000
(Note 5)
Lump
Sum
Prior
to Opening
Belmont or vendors
ADVERTISING
FEE − 3 MONTHS
$500
Monthly
Belmont
ADDITIONAL
FUNDS − 3 MONTHS
$50,000 to $75,000
(Note 6)
As
Incurred
As
Incurred
Employees, Suppliers, Utilities
TOTAL
$132,700 to $160,200
(Note 7)
(Does not include real estate costs)
Notes:
1
See Item 5 for the conditions when this fee is partly
refundable. Belmont does not finance any fee.
2
If you do not own adequate shop space, you must lease the
land and building for the Belmont Muffler Shop. Typical locations are light
industrial and commercial areas. The typical Belmont Muffler Shop has 5,000 –
8,000 square feet. Former three or four bay gasoline service stations have
been converted with relative ease into Belmont Muffler Shops. Rent is
estimated to be between $12,000 – $20,000 per year depending on factors such as
size, condition and location of the leased premises.
3
This payment is fully refundable before equipment
installation. After installation, Belmont deducts $3,000 installation costs
from your refund.
4
Includes security deposits, utility costs, incorporation
fee.
5
This payment is fully refundable before Belmont delivers
your inventory. After delivery Belmont deducts a 10% restocking fee from your
refund.
6
This estimates your start up expenses. These expenses include
payroll costs. These figures are estimates and Belmont cannot guarantee that
you will not have additional expenses starting the business. Your costs will
depend on factors such as: how much you follow Belmont's methods and
procedures; your management skill, experience and business acumen; local
economic conditions; the local market for our product; the prevailing wage
rate; competition; and the sales level reached during the initial period.
7
Belmont relied on its 30 years of experience in the muffler
business to compile these estimates. You should review these figures carefully
with a business advisor before making any decision to purchase the franchise.
8
Belmont does not offer direct or indirect financing to
franchisees for any items.
Item
8
RESTRICTIONS
ON SOURCES
OF
PRODUCTS AND SERVICES
DISCLOSE FRANCHISEE OBLIGATIONS
TO PURCHASE OR LEASE FROM THE FRANCHISOR, ITS DESIGNEE OR FROM SUPPLIERS
APPROVED BY THE FRANCHISOR OR UNDER THE FRANCHISOR'S SPECIFICATIONS. FOR EACH
OBLIGATION DISCLOSE:
A. THE GOODS, SERVICES, SUPPLIES, FIXTURES, EQUIPMENT, INVENTORY,
COMPUTER HARDWARE AND SOFTWARE OR REAL ESTATE RELATING TO ESTABLISHING OR
OPERATING THE FRANCHISED BUSINESS.
B. THE MANNER IN WHICH THE FRANCHISOR ISSUES AND MODIFIES
SPECIFICATIONS OR GRANTS AND REVOKES APPROVAL TO 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 8 Instructions:
i. An obligation includes those imposed by written agreement or
by the franchisor's practice. The franchisor may include the reason for the
requirement.
ii. Do not include goods or services provided as part of the
franchise and without a separate charge (for example, a fee for initial
training when the cost is included in the franchise fee). These fees should be
described in Item 5. Do not include fees disclosed in response to Item 6.
iii. For "precise basis," disclose the franchisor's
total revenues and the franchisor's revenues from all required purchases and
leases of products and services. Also, disclose the percentage of the
franchisor's total revenues represented by the franchisor's revenues from
required purchases or leases. If the franchisor's affiliates also sell or
lease products or services to franchisees, disclose affiliate revenues from
those sales or leases. These amounts should be taken from the franchisor's
statement of operations (or profit and loss statement) from the most recent
annual audited financial statement attached to the offering circular. If the
franchisor's annual audited financial statement is not required to be attached
to the offering circular or if the franchisor's affiliate sells or leases
required products or services to franchisees, disclose the sources of
information used in computing revenues.
iv. State how the franchisor formulates and modifies
specifications and standards imposed on franchisees.
v. Disclose whether specifications and standards are issued to
franchisees, subfranchisors, or approved suppliers.
vi. Describe how suppliers are evaluated, approved or
disapproved. Disclose whether the franchisor's criteria for supplier approval
are available to franchisees. State the fees and procedure to secure approval
and how approvals are revoked. State the time period when the franchisee will
receive notification of approval or disapproval.
vii. If the designated supplier will make payments to the
franchisor because of transactions with franchisees, disclose the basis for the
payment. Specify a percentage or a flat amount. Purchases of similar goods or
services by the franchisor at a lower price than that available to franchisees
is a payment.
viii. Disclose whether the franchisor negotiates purchase
arrangements with suppliers (including price terms) for the benefit of
franchisees.
ix. Disclose whether the franchisor provides material benefits
(for example, renewal or granting additional franchises) to a franchisee based
on a franchisee's use of designated or approved sources.
x. Use Sample Answer 8-1 if the response to Item 8 is negative.
Sample
Answer 8-1
Belmont has no required
specifications, designated suppliers, or approved suppliers for goods, services
or real estate relating to your franchise business. Belmont will not derive
revenue from your purchases or leases.
Sample
Answer 8-2
You must purchase your pipe
bending machine, hoist, cutting torch and suppliers under specifications in the
operations manual. These specifications include standards for delivery,
performance, design and appearance. You may purchase this equipment from
Belmont. In the year ending December 31, 1992, Belmont's revenues from the
sale of this equipment to franchisees was $500,000, or 5% of Belmont's total
revenues of $10,000,000. The cost of equipment purchased in accordance with
specifications represents 10% of your total purchases in connection with
establishment of your store.
Belmont's affiliate, Muffler
Supply Co., is an approved supplier of mufflers to franchisees. In the year
ending December 31, 1992, the affiliate's revenues from the sale of mufflers to
franchisees was $2,000,000. The purchase of mufflers from approved sources
will represent 15 to 20% of your overall purchases in operating the store.
Belmont has approved other suppliers of mufflers and exhaust pipe. If you
would like to purchase these items from another supplier, you may request our
"Supplier Approval Criteria and Request Form." Based on the
information and samples you supply to us and your payment of a $500 fee, we
will test the items supplied and review the proposed supplier's financial
records, business reputation, delivery performance, credit rating and other
information. Our review typically is completed in 30 days.
One of the approved suppliers of
mufflers and exhaust pipes, Scottie's Pipes, Inc., pays Belmont a rebate of 1%
of all franchisee purchases, which is deposited in the Belmont Advertising
Fund. Another approved supplier, Michael's Clean-Air, Inc., pays Belmont 2% of
all franchisee purchases of catalytic converters. This amount is used in
Belmont's training center for classes in catalytic converter repair and
replacement.
Item
9
FRANCHISEE'S
OBLIGATIONS
DISCLOSE THE PRINCIPAL OBLIGATIONS OF THE FRANCHISEE UNDER
THE FRANCHISE AND OTHER AGREEMENTS AFTER THE SIGNING OF THESE AGREEMENTS.
Item 9 Instructions:
i. Disclose obligations in tabular form. Refer to the section
of the agreement that contains the obligation and any Item of the offering
circular that further describes the obligation.
ii. 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 state that. 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:
a. Site selection and acquisition/lease
b. Pre-opening purchases/leases
c. Site development and other pre-opening requirements
d. Initial and ongoing training
e. Opening
f. Fees
g. Compliance with standards and policies/Operating Manual
h. Trademarks and proprietary information
i. Restrictions on products/services offered
j. Warranty and customer service requirements
k. Territorial development and sales quotas
l. Ongoing product/service purchases
m. Maintenance, appearance and remodeling requirements
n. Insurance
o. Advertising
p. Indemnification
q. Owner's participation/management/staffing
r. Records and reports
s. Inspections and audits
t. Transfer
u. Renewal
v. Post-termination obligations
w. Non-competition covenants
x. Dispute resolution
y. Other (describe)
iii. 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.
Sample
Answer 9
Obligation
Section
In Agreement
Item
in Offering Circular
a.
Site Selection and
acquisition/lease
Section 2A of Franchise
Agreement
Items 6 and 11
b.
Pre-opening purchases/leases
Section 3B of Franchise Agreement
Item 8
c.
Site development and other
pre-opening requirements
Sections 3A and 3B of
Franchise Agreement
Items 6, 7 and 11
d.
Initial and ongoing training
Section 5 of Franchise
Agreement
Item 11
e.
Opening
Section 4 of Franchise
Agreement
Item 11
f.
Fees
Section 6 of Franchise
Agreement
Items 5 and 6
g.
Compliance with standards and
policies/Operating Manual
Section 8A of Franchise
Agreement
Item 11
h.
Trademarks and proprietary
information
Sections 7 and 11 of Franchise
Agreement
Items 13 and 14
i.
Restrictions on
products/services offered
Section 12 of Franchise
Agreement
Item 16
j.
Warranty and customer service
requirements
Section 8B of Franchise
Agreement
Item 11
k.
Territorial development and
sales quotas
None
l.
Ongoing product/service
purchases
Section 9 of Franchise
Agreement
Item 8
m.
Maintenance, appearance and
remodeling requirements
Sections 8C and 10 of
Franchise Agreement
Item 11
n.
Insurance
Section 13A of Franchise
Agreement
Items 6 and 8
o.
Advertising
Section 15 of Franchise
Agreement
Items 6 and 11
p.
Indemnification
Section 13B of Franchise
Agreement
Item 6
q.
Owner's participation/management/
staffing
Sections 4, 5 and 14 of
Franchise Agreement
Items 11 and 15
r.
Records/reports
Section 17A of Franchise
Agreement
Item 6
s.
Inspections/audits
Section 17B of Franchise
Agreement
Items 6 and 11
t.
Transfer
Section 18 of Franchise
Agreement
Item 17
u.
Renewal
Section 20 of Franchise
Agreement
Item 17
v.
Post-termination
Section 22 of Franchise
Agreement
Item 17
w.
Non-competition covenants
Sections 11, 18 and 22C of Franchise
Agreement
Item 17
x.
Dispute resolution
Section 24 of Franchise
Agreement
Item 17
Item
10
FINANCING
DISCLOSE THE TERMS AND
CONDITIONS OF EACH FINANCING ARRANGEMENT THAT THE FRANCHISOR, ITS AGENT OR
AFFILIATE OFFERS DIRECTLY OR INDIRECTLY TO THE FRANCHISEE.
Item 10 Instructions:
i. "Financing" includes leases and installment
contracts.
ii. Payments due within 90 days on open account financing need
not be disclosed under this Item.
iii. A written arrangement between a franchisor or its affiliate
and a lender for the lender to offer financing to the franchisee or an
arrangement in which a franchisor or its affiliate receives a benefit from a
lender for franchisee financing is an "indirect offer of financing"
and must be disclosed under this Item. The franchisor's guarantee of a note,
lease or obligation of the franchisee is an "indirect offer of financing"
and must be disclosed under this Item.
iv. If financing of the initial fee is disclosed in the Item 7
disclosure, a cross reference to Item 7 is sufficient if all the disclosure
which Item 10 requires is provided in Item 7.
v. If an affiliate offers financing, identify the affiliate and
its relationship to the franchisor.
vi. The franchisor may summarize the terms of each financing
arrangement in tabular form, using footnotes to entries in the chart to provide
additional information required by these instructions that does not fit in the
chart.
vii. If a financing arrangement is for the establishment of the
franchised business, disclose what the financing covers, including:
a. Initial franchise fee;
b. Site acquisition;
c. Construction or remodeling;
d. Equipment or fixtures; and
e. Opening inventory or supplies.
viii. If the franchisor generally offers financing for the
operation of the franchised business, disclose what the financing arrangement
covers, including:
a. Inventory or supplies;
b. Replacement equipment or fixtures; and
c. Other continuing expenses.
ix. Disclose the terms of each financing arrangement, including:
a. The identity of the lender(s) providing the financing and its
relationship to the franchisor (for example, affiliate);
b. The amount of financing offered or, if the amount depends on
an actual cost that may vary, the percentage of the cost that will be financed;
c. The annual percentage rate of interest ("APR")
charged, computed as provided by Sections 106-107 of the Consumer Protection
Credit Act, 15 USC Secs. 106-107. If the APR may differ depending on when the
financing is issued, disclose the APR on a specified recent date;
d. The number of payments or the period of repayment;
e. Nature of security interest required by the lender;
f. Whether a person other than the franchise (for example
spouse, shareholder of the franchisee) must personally guarantee the debt;
g. Whether the debt can be prepaid and the nature of any
prepayment penalty;
h. The franchisee's potential liabilities upon default,
including any accelerated obligation to pay the entire amount due, court costs
and attorney's fees for collection, and termination of the franchise, or other
cross default clauses whether directly, as a result of non-payment, or
indirectly, as a result of loss of necessary facilities; and
i. Other material financing terms.
x. Include specimen copies of the financing documents as an
exhibit to Item 22. Cite the section and name of the document containing the
financing terms. Put this information in parentheses at the end of the
description of the term.
xi. Use Sample Answer 10-1 if the franchisor does not offer
financing.
A. A WAIVER OF DEFENSES
OR SIMILAR PROVISIONS IN A DOCUMENT.
Item 10A Instructions:
i. Disclose the terms of waivers of legal rights by the
franchise under the terms of the financing arrangement (for example confession
of judgment).
ii. Describe provisions of the loan agreement that bar the
franchisee from asserting a defense against the lender, the lender's assignee
or the franchisor.
iii. If the loan agreement does not contain the provisions in i.
or ii., disclose that fact.
iv. Cite the section and name of the document containing these
terms. Put this information in parentheses at the end of the description of the
term.
B. THE FRANCHISOR'S PRACTICE OR ITS INTENT TO SELL, ASSIGN, OR
DISCOUNT TO A THIRD PARTY ALL OR PART OF THE FINANCING ARRANGEMENT.
Item 10B Instructions:
i. Practice includes past or present practice and future intent
to sell or assign franchisee financing arrangements.
ii. Disclose the assignment terms including whether the
franchisor will remain primarily obligated to provide the financed goods or
services.
iii. If the franchisor may sell or assign its rights under the
financing agreement, disclose that the franchise may lose all its defenses
against the lender as a result of the sale or assignment.
iv. Cite the section and name of the document containing these
terms. Put this information in parentheses at the end of the description of the
term.
v. If no disclosure is required by Instruction 10B, disclose
that fact.
C. PAYMENTS TO THE FRANCHISOR OR AN AFFILIATE(S) FOR THE
PLACEMENT OF FINANCING WITH THE LENDER.
Item 10C Instructions:
i. Describe the payments.
ii. If no disclosure is required by Instruction 10C i. for a
financing arrangement, disclose that fact.
iii. Identify the source of the payment and the relationship of
the source to the franchisor or its affiliates.
iv. Disclose the amount or the method of determining the payment.
v. Cite the section and name of the document containing these
arrangements. Put this information in parentheses at the end of the
description of the term.
Sample Answer 10-1
Belmont does not offer direct or
indirect financing. Belmont does not guarantee your note, lease or obligation.
Sample
Answer 10-2
SAMPLE ANSWER 10-2 SUMMARY OF FINANCING OFFERED
ITEM
LIABILITY
LOSS OF LEGAL
FINANCED
AMOUNT
DOWN
TERM
APR
MONTHLY
PREPAY
SECURITY
UPON
RIGHT ON
(Source)
FINANCED
PAYMENT
(YRS)
%
PAYMENT
PENALTY
REQUIRED
DEFAULT
DEFAULT
INITIAL FEE
$
LOSS OF
WAIVE NOTICE
(NOTE 1)
$10,000
10
18
NONE
PERSONAL
FRANCHISE
CONFESS
(BELMONT)
GUARANTEE
UNPAID LOAN
JUDGEMENT
LAND/
NONE
CONSTRUCT
LEASED
LOSS OF FRAN-
SPACE
CHISE-BACK
(NOTE 2)
$2,000
7 to 10
N/A
$
NONE
PERSONAL
RENT-2 MOS.
NONE
(BELMONT)
(secur.
GUARANTEE
FRANCHISE
dep.)
RIGHTS-
ATTY'S FEES
EQUIPMENT
LEASE (NOTE 3)
$5,000
NONE
5
15
$
NONE
EQUIPMENT
COST OF
LOSE ALL
(USA CREDIT
PERSONAL
REMOVAL
DEFENSES
CORP.)
GUARANTEE
EQUIPMENT
PURCHASE
$3,750
$1,250
2 to 7
15
$
$500
EQUIPMENT
LOSS OF
NONE
(NOTE 4)
(25%)
PERSONAL
FRANCHISE
(BELMONT)
GUARANTEE
ATTY'S FEES
OPENING
NONE
INVENT.
OTHER
NONE
FINANCING
Notes:
1
If you meet Belmont's credit standards, Belmont will
finance the $10,000 initial franchisee fee over a 10-year period at an APR of
18%, using the standard form note in Exhibit A. The only security Belmont
requires is a personal guarantee of the note by you and your spouse or by all
the shareholders of your corporation. (Loan Agreement Section ______) The
note can be prepaid without penalty at any time during its 10-year term. (Loan
Agreement Section ______) If you do not pay on time, Belmont can call the loan
and demand immediate payment of the full outstanding balance and obtain court
costs and attorney's fees if a collection action is necessary. (Loan Agreement
Section ______) Belmont also has the right to terminate your franchise if you
do not make your payments on time more than three times during the note term.
(Loan Agreement Section ______) You waive your rights to notice of a
collection action and to assert any defenses to collection against Belmont.
(Loan Agreement Section ______) Belmont discounts these notes to a third party
who may be immune under the law to any defenses to payment you may have against
Belmont. (Loan Agreement Section ______)
2
In most cases Belmont will sublease the franchised premises
to you but will guarantee your lease with a third party if you have acceptable
credit and that is the only way to obtain an exceptional location. (Lease
Section ______) The precise terms of Belmont's standard lease in Exhibit B
will vary depending on the size and location of the premises, but the chart
reflects a typical range of payments for Belmont's standard 6-day franchise
outlet, including payment of one month's rent as a security deposit. (Lease
Section ______) The only other security Belmont requires is a personal
guarantee of the lease by you and your spouse or by all the shareholders of
your corporation. (Lease Section ______) The lease can be prepaid without
penalty at any time during its term. (Lease Section ______) If you do not make
a rent payment on time, Belmont has the right to collect the unpaid rent plus
an additional two months rent, as liquidated damages. (Lease Section ______)
Belmont can also obtain court costs and attorney's fees if a collection action
is necessary. (Lease Section______) If you are late with your rent more than
three times during the lease term, Belmont has the right to terminate the
lease, take over the premises, and terminate your franchise. If Belmont
guarantees your lease, Belmont will require you to sign the guarantee agreement
in Exhibit F. (Lease Section______) This gives Belmont the same legal rights
as the sublease but requires you to give Belmont the right to approve your
lease and pay the rent for you if you fail to pay on time. (Lease Section______)
3
If you want to lease the pipe bending machine and other
equipment you need, Belmont has arranged an equipment lease (see Exhibit C)
from USA Credit Corporation of Las Vegas, Nevada. If you choose this option,
you will pay $100 a month for 60 months (5 years) at an APR of 15% based on a
cash price of $5,000, with no money down. (Equipment Lease Section ______) At
the end of the lease term, you may purchase the equipment with a one-time
payment of $2,500. (Equipment Lease Section ______) USA Credit requires a
personal guarantee from you and your spouse or from all the shareholders of
your corporation and retains a security interest in the equipment. (Equipment
Lease Section ______) The equipment lease can be prepaid at any time, but the
interest you might otherwise save will be reduced by application of the Rule of
78's for computing finance charges. (Equipment Lease Section ______) If you
do not make a payment on time, USA Credit can demand payment of all past due
payments, remove the equipment, and charge you $1,000 as liquidated damages.
(Equipment Lease Section ______) USA Credit can also recover its costs of
collection, including court costs and attorney's fees. (Equipment Lease
Section ______) While Belmont does not know USA Credit's policies, USA Credit
may discount the lease to a third party who may be immune under the law to
claims or defenses you may have against USA Credit, the equipment manufacturer
or Belmont. Belmont receives a referral fee of $500 from USA Credit for every
franchisee who leases equipment from it.
4
If you prefer, Belmont will sell you the pipe bending
machine and other necessary equipment on time. (Equipment Purchase Agreement
Section ______) Belmont requires a 25% down payment of $1,250. (Equipment
Purchase Agreement Section ______) Belmont will finance the remainder over a
2-7 year period at your option at an APR of 15%. (Equipment Purchase Agreement
Section ______) Payments range from $228.11 a month over 7 years to $821.58 a
month over 2 years. (Equipment Purchase Agreement Section ______) Belmont's
standard equipment financing note in Exhibit D must be personally guaranteed by
you and your spouse or by all the shareholders of your corporation, and Belmont
will retain a security interest in the equipment. (Equipment Purchase Agreement
Section ______) You may purchase the equipment at any time during the lease
period by paying the remainder of the principal plus a $500 prepayment
penalty. (Equipment Purchase Agreement Section ______) If you do not make a
payment on time, Belmont can demand all overdue payments, repossess the
equipment, and terminate your franchise. Belmont can also recover its costs of
collection, including court costs and attorney's fees. (Equipment Purchase
Agreement Section ______)
Except as disclosed in Note 1,
Belmont does not offer financing that requires you to waive notice, confess
judgment or waive a defense against Belmont or the vendor, although you may
lose your defenses against Belmont and others in a collection action on a note
that is sold or discounted, as disclosed in Notes 2 and 3.
Except as disclosed in Note 3,
Belmont does not arrange financing from other sources.
Except as disclosed in Notes 1
and 3, commercial paper from franchisees has not been and is not sold or
assigned to anyone, and Belmont has no plans to do so.
Except as disclosed in Note 3,
Belmont does not receive direct or indirect payments for placing financing.
Except as disclosed in Note 2,
Belmont does not guarantee your obligations to third parties.
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.
Item 11A Instructions:
i. Begin the disclosure by stating: "Except as listed
below,
(the franchisor)
need not provide any assistance to you."
ii. Pre-opening obligations include assistance to:
a. Locate a site for the franchised business and negotiate the
purchase or lease of this site. State whether the franchisor generally owns
the premises and leases it to the franchisee;
b. Conform the premises to local ordinances and building codes
and obtain the required permits (i.e., health, sanitation, building, driveway,
utility and sign permits);
c. Construct, remodel or decorate the premises for the
franchised business;
d. Purchase or lease equipment, signs, fixtures, opening
inventory and supplies. Disclose whether the franchisor provides these items
directly or merely the names of approved suppliers. Disclose whether the
franchisor provides written specifications for these items. Disclose whether
the franchisor delivers or installs these items. (The franchisor may cross
reference Item 8 for details); and
e. Hire and train employees.
iii. After describing the obligation, cite the section number of
the agreement imposing the obligation. Put the citation in parentheses. Use
this format throughout this Item.
B. THE OBLIGATIONS TO BE MET BY THE FRANCHISOR DURING THE
OPERATION OF THE FRANCHISE BUSINESS.
Item 11B Instructions:
i. Include assistance in:
a. Products or services to be offered by the franchisee to its
customers;
b. Hiring and training of employees;
c. Improvements and developments in the franchised business;
d. Pricing;
e. Administrative, bookkeeping, accounting and inventory control
procedures; and
f. Operating problems encountered by the franchisee.
ii. For the franchisor's advertising program for the product or
service offered by the franchisee:
a. Disclose the media in which the advertising may be
disseminated (for example, print, radio, or television).
b. Disclose whether the coverage of the media is local,
regional, or national in scope.
c. Disclose the source of the advertising (for example, in-house
advertising department, a national or regional advertising agency).
d. Disclose the conditions when the franchisor permits
franchisees to use their own advertising material.
e. If there is an advertising council composed of franchisees
that advises the franchisor on advertising policies, disclose:
(1) How members of the council are selected.
(2) Whether the council serves in an advisory capacity only or has
operational or decision-making power.
(3) Whether the franchisor has the power to form, change, or
dissolve the advertising council.
f. If the franchisee must participate in a local or regional
advertising cooperative, disclose:
(1) How the area or membership of the cooperative is defined.
(2) How the franchisee's contribution to the cooperative is
calculated (may reference Item 6).
(3) Who is responsible for administration of the cooperative (for
example, franchisor, franchisees, advertising agency).
(4) Whether cooperatives must operate from written governing
documents and whether the documents are available for review by the franchisee.
(5) Whether cooperatives must prepare annual or periodic financial
statements and whether the statements are available for review by the
franchisee.
(6) Whether the franchisor has the power to require cooperatives
to be formed, changed, dissolved or merged.
g. If applicable, for each advertising fund not described in
above subsection (f), disclose:
(1) Who contributes to each fund (for example, franchisees,
franchisor, franchisor-owned units, outside vendors or suppliers).
(2) Whether the franchisor-owned units must contribute to the fund
and, if so, whether it is on the same bases as franchisees.
(3) How much the franchisee must contribute to the advertising
fund(s) (may reference Item 6) and whether other franchisees are required to
contribute at a different rate (it is not necessary to disclose the specific
rates).
(4) Who administers the fund(s). Whether the fund is audited and
when, and whether financial statements of the fund are available for review by
the franchisee.
(5) Use of the fund(s) in the most recently concluded fiscal year,
the percentages spent on production, media placement, administrative expenses,
and other (with a description of what constitutes "other"). Totals
should equal 100%.
(6) Whether the franchisor or an affiliate receives payment for
providing goods or services to an advertising fund.
h. State whether the franchisor must spend any amount on
advertising in the area or territory where the franchisee is located.
i. If all advertising fees are not spent in the fiscal year in
which they accrue, explain how the franchisor uses the remaining amounts.
Indicate whether franchisees will receive a periodic accounting of how
advertising fees are spent.
j. Disclose the percentage of advertising funds, if any, used
for advertising that is principally a solicitation for the sale of franchises.
k. Cross reference Items 6, 8 and 9.
iii. If the franchisor requires that franchisees buy or use
electronic cash register or computer systems, provide a general description of
the systems in non-technical language:
a. Identify each hardware component and software program by
brand, type and principal functions.
(1) If the hardware component or software program is the
proprietary property of the franchisor, an affiliate or a third party, state
whether the franchisor, an affiliate or a third party has the contractual right
or obligation to provide ongoing maintenance, repairs, upgrades or updates.
Disclose the current annual cost of any optional or required maintenance and
support contracts, upgrades and updates.
(2) If the hardware component or software program is the
proprietary property of a third party, and no compatible equivalent component
or program has been approved by the franchisor for use with the system to
perform the same functions, identify the third party by name, business address
and telephone number, and state the length of time the component or program has
been in continuous use by the franchisor and its franchisees.
(3) If the hardware component or software program is not
proprietary, identify compatible equivalent components or programs that perform
the same functions and indicate whether they have been approved by the
franchisor.
b. State whether the franchisee has any contractual obligation
to upgrade or update any hardware component or software program during the term
of the franchise, and if so, whether there are any contractual limitations on
the frequency and cost of the obligation.
c. For each electronic cash register system or software program,
describe how it will be used in the franchisee's business, and the type of
business information or data that will be collected and generated. State
whether the franchisor will have independent access to the information and
data, and if so, whether there are any contractual limitations on the
franchisor's right to access the information and data.
iv. After describing the obligation, cite the section number of
the agreement imposing the obligation. Put the citation in parentheses.
v. Disclose if the franchisor is not obligated to provide or to
assist the franchisee to obtain the above items or services.
vi. Do not repeat, but do cross reference disclosure made in Item
6.
vii. Disclose the table of contents of the operating manual(s)
provided to the franchisee as of the franchisor's last fiscal year end or a
more recent date. State the number of pages devoted to each subject and the
total number of pages in the manual as of this date. Alternatively, this
disclosure may be omitted if the prospective franchisee views the manual before
purchase of the franchise.
C. THE METHODS USED BY THE FRANCHISOR TO SELECT THE LOCATION OF
THE FRANCHISEE'S BUSINESS.
Item 11C Instructions:
i. Disclose whether the franchisor selects the site or approves
an area within which the franchisee selects a site. Disclose how and whether
the franchisor must approve a franchisee selected site.
ii. Disclose the factors which the franchisor considers in selecting
or approving sites (for example, general location and neighborhood, traffic
patterns, parking, size, physical characteristics of existing buildings and
lease terms).
iii. Disclose the time limit for the franchisor to locate or to
approve or disapprove the site. Disclose the consequences if the franchisor
and franchisee cannot agree on a site.
iv. Disclosure made in response to Item 11A need not be repeated
or cross referenced in the response to Item 11C.
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.
Item 11D Instructions:
i. Disclosure may be a range of times if the range is specific.
ii. Describe the factors which may affect the time period such
as ability to obtain a lease, financing or building permits, zoning and local
ordinances, weather conditions, shortages, or delayed installation of
equipment, fixtures and signs.
E. THE TRAINING PROGRAM OF THE FRANCHISOR AS OF THE FRANCHISOR'S
LAST FISCAL YEAR END OR A MORE RECENT DATE INCLUDING:
(1) The location, duration and general outline of the training
program;
(2) How often the training program will be conducted;
(3) The experience that the instructors have with the franchisor;
(4) Charges to be made to the franchisee and who must pay travel
and living expenses of the enrollees in the training program;
(5) If the training program is not mandatory, the percentage of
new franchisees that enrolled in the training program during the preceding 12
months; and
(6) Whether any additional training programs and/or refresher
courses are required.
F. DESCRIBE THE NATURE AND EXTENT OF TRAINING UNDER THE
FRANCHISOR'S TRAINING PROGRAM.
Item 11F Instructions:
i. Use a table to state the subjects taught and the number of
hours of classroom and "on the job training" devoted to each subject
in the franchisor's training program. Use footnotes to explain.
ii. For each subject disclose the training location and how
often training classes are held.
iii. Describe the location or facility where the training is held
(for example, company, home, office, company owned store).
iv. State how long after the signing of the agreement or before
the opening date of the business the franchisee must complete the required
training.
v. Describe the nature of instruction material. Disclose the
minimum experience of the instructors. Disclose only experience that is
relevant to the subject taught and the franchisor's operations.
vi. State who may and who is required to attend the training.
State whether the franchisee or other persons must complete the program to the
franchisor's satisfaction.
vii. Charges for training or training materials should be
disclosed in Item 5 if the obligation to pay arises before the franchise
location opens.
viii. Disclose who pays the travel and living expenses of the
persons receiving the training.
Sample Answer 11
Except as disclosed below,
Belmont need not provide any assistance to you.
Before you open your business,
Belmont will:
(1) Designate your exclusive territory (Franchise Agreement -
paragraph 2).
(2) Assist you in selecting a business site. Your site must be at
least square fee in area, have parking spaces, and an average of cars
per hour driving by. We must approve or disapprove your site within 20 days
after we receive notice of the location.
(3) Within 30 days of your signing the Franchise Agreement, assist
you to find and negotiate the lease or purchase of a location for your muffler
shop (Franchise Agreement – paragraph____). Your store location will be
purchased or leased by you from independent third parties.
(4) Within 60 days of your signing the Franchise Agreement,
provide written specifications for store construction or remodeling and for all
required and replacement equipment, inventory and supplies (Franchise Agreement
– paragraph____). See Item 8 of this offering circular.
(5) Within 60 days of your signing the Franchise Agreement,
provide blueprints for your store construction or remodeling and obtain health,
sanitation, building, utility and sign permits for your premises. You pay for
the construction or remodeling (Franchise Agreement – paragraph____).
(6) Within 60 days of your signing the Franchise Agreement, train
you and one other person as follows:
Subject
Time Begun
Instructional Material
Hours of Class Room Training
Hours of on the Job Training
Instructor
Belmont does not charge for this
training or service, but you must pay the travel and living expenses for you
and your employees. All training occurs at Belmont's Jackson, Minnesota
headquarters.
During the operation of the
franchised business, Belmont will:
(1) Develop new products and methods and provide you with
information about developments (Franchise Agreement – paragraph____).
(2) Loan you a copy of our operations manual which contains
mandatory and suggested specifications, standards and procedures. This manual
is confidential and remains our property. Belmont will modify this manual, but
the modification will not alter your status and rights under the Franchise
Agreement (Franchise Agreement – paragraph____). The table of contents is as
follows:
Each week for the first 90 days
after you open your shop, Belmont will telephone to discuss your operational
problems.
Belmont will hold annual
conferences to discuss sales techniques, personnel training, bookkeeping,
accounting, inventory control, performance standards, advertising program and
merchandising procedures. There is no conference fee, but you must pay all
your travel and living expenses. These elective conferences are held at our
Jackson, Minnesota headquarters or at a location chosen by a majority vote of
all franchisees.
Belmont provides advertising
materials and services to you through a national advertising fund (the
"National Fund"). Materials provided by the National Fund to all
franchisees include video and audio tapes, mats, posters, banners and miscellaneous
point-of-sale items. You will receive one sample of each at no charge. If you
want additional copies you must pay duplication costs.
You may develop advertising
materials for your own use, at your own cost. Belmont must approve the
advertising materials in advance and in writing.
Belmont occasionally provides
for placement of advertising on behalf of the entire Belmont system, including
franchisees. However, most placement is done on a local basis, typically by
local advertising agencies hired by individual franchisees or advertising
cooperatives. Belmont reserves the right to use advertising fees from the
Belmont system to place advertising in national media (including broadcast,
print or other media) in the future. In the past Belmont has used an outside
advertising agency to create and place advertising. Neither Belmont nor its
affiliate receives payment from the National Fund. Advertising funds are used
to promote the product sold by the franchisee and are not used to sell
additional franchises.
The National Fund is a nonprofit
corporation which collects advertising fees from all franchisees. Each
franchisor owned store of Belmont contributes to the National Fund on the same
basis as franchisees. All payments to the National Fund must be spent on advertising,
promotion and marketing of goods and services provided by Belmont Muffler
Shops. You must contribute the amounts described in Item 6, under the heading
"Advertising Fees and Expenses."
The National Fund is
administered by Belmont's accounting and marketing personnel under the
direction of the Advertising Council. An annual audited financial statement of
the National Fund is available to any franchisee upon request. During the last
fiscal year of the National Fund (ending on December 31, 1990), the National
Fund spent 39% of its income on the production of advertisements and other
promotional materials, 36% for media placement, 18% for general and
administrative expenses, and 7% for other expenses (the purchase of glassware
given to customers of Belmont shops as part of a promotional campaign).
The Advertising Council acts as
the board of directors of the National Fund. The Advertising Council has 8
members: the President, Treasurer, Vice President-Marketing, and Vice
President-Operations of Belmont; and 4 franchisee representatives who are
elected by the governing board of the Belmont Franchisee Association.
Once your shop opens, you must
participate in the local advertising cooperative established in the Area of
Dominant Influence (ADI) where your store is located. The amount of your
contribution to the local advertising cooperative is described in Item 6 under
the heading "Advertising Fees and Expenses."
Each local advertising
cooperative must adopt written governing documents. A copy of the governing
documents of the cooperative (if one has been established) for your ADI is
available upon request. Each cooperative may determine its own voting
procedures; however, each company-owned Belmont Shop will be entitled to one
vote in any local advertising cooperative. The members and their elected
officers are responsible for administration of the cooperative. Advertising
cooperatives must prepare quarterly and annual financial statements. The
annual financial statement must be prepared by an independent CPA and be made
available to all franchisees in that advertising cooperative.
You select your business site
within your exclusive area subject to our approval. Belmont assists in site
selection by telling you the number of new car registrations, population
density, traffic patterns and proximity of the proposed site to other Belmont
Muffler Shops.
Franchisees typically open their
shops 4 to 7 months after they sign a franchise agreement. The factors that
affect this time are the ability to obtain a lease, financing or building
permits, zoning and local ordinances, weather conditions, shortages, and
delayed installation of equipment fixtures and signs.
Item
12
TERRITORY
DESCRIBE ANY EXCLUSIVE TERRITORY
GRANTED THE FRANCHISEE. CONCERNING THE FRANCHISEE'S LOCATION (WITH OR WITHOUT
EXCLUSIVE TERRITORY), DISCLOSE 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 CHANNELS OF
DISTRIBUTION USING THE FRANCHISOR'S TRADEMARK.
Item 12 Instructions:
i. As used in Item 12,
trademark includes name, trademarks, logos and other commercial symbols.
ii. If appropriate,
describe the minimum area granted to the franchisee. The franchisor may use an
area encompassed within a specific radius, a distance sufficient to encompass a
specified population or another specific designation.
iii. State whether the
franchise is granted for a specific location or a location to be approved by
the franchisor.
iv. If appropriate, state
the conditions under which the franchisor will approve the relocation of the
franchised business or the establishment of additional franchised outlets.
v. Describe restrictions
on the franchisor regarding operating company-owned stores or on granting
franchised outlets for a similar or competitive business within the defined
area.
vi. Describe restrictions
on franchisees from soliciting or accepting orders outside of their defined
territories.
vii. Describe restrictions
on the franchisor from soliciting or accepting order inside the franchisee's
defined territory. State compensation that the franchisor must pay for
soliciting or accepting orders inside the franchisee's defined territories.
viii. Describe franchisees
options, rights of first refusal or similar rights to acquire additional
franchises within the territory or contiguous territories.
ix. If the franchisor
does not grant territorial rights, use Sample Answer 12-1.
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.
Item 12C Instructions:
i. "Similar
products and services" includes competing, interchangeable or substitute
products but not products or services which are not part of the same product or
service market.
ii. If the franchisor or
an affiliate operates, franchises or has present plans to operate or franchise
a business under a different trademark and that business sells goods or
services similar to those to be offered by the franchisee, describe:
a. The similar goods and
services;
b. The trade names and
trademarks;
c. Whether outlets will
be franchisor owned or operated;
d. Whether the
franchisor or its franchisees who use the different trademark will solicit or
accept orders within the franchisee's territory;
e. A timetable for the
plan;
f. How the franchisor
will resolve conflicts between the franchisor and the franchisees and between
the franchisees of each system regarding territory, customers or franchisor
support; and
g. If appropriate,
disclose the principal business address of the franchisor's similar operating
business. If it is the same as the franchisor's principal business address
disclosed in Item 1, disclose whether the franchisor maintains (or plans to
maintain) physically separate offices and training facilities for the similar
competing business.
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 12D Instructions:
i. Disclose conditions
for the franchisee's keeping its territoral rights (for example, sales quotas
or the opening of additional business outlets). Specify the quotas or
conditions and the franchisor's rights if the franchisee fails to meet the
requirements.
ii. Disclose other
circumstances that permit the franchisor to modify the franchisee's territoral
rights (for example, a population increase in the territory giving the
franchisor the right to grant an additional franchise within the area).
Disclose the effect on the franchisee's rights.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 12-1
You will not receive an
exclusive territory. Belmont may establish other franchised or company owned
outlets that may compete with your location.
Sample Answer 12-2
You will receive an exclusive
territory with a minimum population of 50,000 people. You will operate from
one location and must receive Belmont's permission before relocating. Belmont
will not operate stores or grant franchises for a similar or competitive
business within your area. Except when advertising cooperatively with
appropriate franchisees, neither Belmont nor you can advertise or solicit
orders within another franchisee's territory. You and Belmont can accept
orders from outside your territory without special payment.
You do not receive the right to
acquire additional franchises within your area.
There is no minimum sales
quota. You maintain rights to your area even though the population increases.
Item
13
TRADEMARKS
DISCLOSE THE PRINCIPAL
TRADEMARKS TO BE LICENSED TO THE FRANCHISEE INCLUDING:
Item 13 Instructions:
i. As used in Item 13,
"principal trademarks" means the primary trademarks, service marks,
names, logos and symbols to be used by the franchisee to identify the franchised
business. It does not include every trademark owned by a franchisor.
ii. The franchisor may
limit Item 13 disclosure to information that is relevant to the state where the
franchised business will be located. The franchisor may include all states to eliminate
the need for multiple disclosure in Item 13 but must amend its offering
circular to reflect any material change in the list.
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.
Item 13A Instructions:
i. Identify each
principal trademark which the franchisee may use. The franchisor may reproduce
these trademarks in this Item.
ii. State the date and
identification number of each trademark registration or registration
application listed. State whether the franchisor has filed all required
affidavits. State whether any registration has been renewed.
iii. State whether the
principal trademarks are registered on the principal or supplemental register
of the U.S. Patent and Trademark Office, and if not, whether an "intent to
use" application or an application based on actual use has been filed with
the U.S. Patent and Trademark Office. If the principal trademark to be used by
the franchisee is not registered on the Principal Register of the U.S. Patent
and Trademark Office, state:
By not having a
principal federal registration for (name or description of symbol), (name of
franchisor) does not have certain presumptive legal rights granted by a
registration.
B. DISCLOSE CURRENTLY EFFECTIVE
MATERIAL DETERMINATIONS OF THE PATENT AND TRADEMARK OFFICE, TRADEMARK TRAIL AND
APPEAL BOARD, THE TRADEMARK ADMINISTRATOR OF THIS STATE OR ANY COURT; PENDING
INFRINGEMENT, OPPOSITION OR CANCELLATION; AND PENDING MATERIAL LITIGATION
INVOLVING THE PRINCIPAL TRADEMARKS.
Item 13B Instructions:
i. Litigation or an
action is material if it could significantly affect the ownership or use of a
trademark listed under Item 13. Describe how the determination affects the
ownership, use or licensing. Describe any decided infringement, cancellation
or opposition proceedings. Include fringement, opposition or cancellation
proceedings in which the franchisor unsuccessfully sought to prevent
registration of a trademark in order to protect a trademark licensed by the
franchisor.
ii. For pending material
federal or state litigation regarding the franchisor's use or ownership rights
in a trademark disclose:
a. The forum and case
number;
b. The nature of claims
made opposing the franchisor's use or by the franchisor opposing another
person's use; and
c. Any effective court
or administrative agency ruling concerning the matter.
iii. Do not repeat
disclosure made in response to Item 13A.
iv. The franchisor need
not disclose historical challenges to registrations of trademarks listed in
Item 13 that were resolved in the franchisor's favor.
v. The franchisor may
include an attorney's opinion relative to the merits of litigation or of an
action if the attorney issuing the opinion consents to its use. The text of
the disclosure may include a summary of the opinion if the full opinion is
attached and the attorney issuing the opinion consents to the use of the summary.
C. DISCLOSE AGREEMENTS
CURRENTLY IN EFFECT WHICH SIGNIFICANTLY LIMIT THE RIGHTS OF THE FRANCHISOR TO
USE OR LICENSE THE USE OF TRADEMARKS LISTED IN ITEM 13 IN A MANNER MATERIAL TO
THE FRANCHISE.
Item 13C Instructions:
For each agreement disclose:
i. The manner and
extent of the limitation or grant;
ii. The agreement's
duration;
iii. The parties to the
agreement;
iv. The circumstances
under which the agreement may be cancelled or modified; and
v. All other material
terms.
D. WHETHER THE FRANCHISOR MUST
PROTECT THE FRANCHISEE'S RIGHT TO USE THE PRINCIPAL TRADEMARKS LISTED IN ITEM
13, AND MUST PROTECT THE FRANCHISEE AGAINST CLAIMS OF INFRINGEMENT OR UNFAIR
COMPETITION ARISING OUT OF THE FRANCHISEE'S USE OF THEM.
Item 13D Instructions:
i. Disclose the
franchisee's obligation to notify the franchisor of the use of, or claims of
rights to, a trademark identical to, or confusingly similar to, a trademark
licensed to the franchisee.
ii. State whether the
franchise agreement requires the franchisor to take affirmative action when
notified of these uses or claims. Identify who has the right to control
administrative proceedings or litigation.
iii. State whether the
franchise agreement requires the franchisor to participate in the franchisee's
defense and/or indemnify the franchisee for expenses or damages if the
franchisee is a party to an administrative or judicial proceeding involving a
trademark licensed by the franchisor to the franchisee, or if the proceeding is
resolved unfavorably to the franchisee.
iv. Disclose the
franchisee's rights under the franchise if the franchisor requires the
franchisee to modify or discontinue the use of a trademark as a result of a
proceeding or settlement.
E. WHETHER THE FRANCHISOR
ACTUALLY KNOWS OF EITHER SUPERIOR PRIOR RIGHTS OR INFRINGING USES THAT 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 13E Instructions:
For each use of a principal
trademark that the franchisor believes constitutes an infringement that could
materially affect the franchisee's use of a trademark, state:
i. The location(s)
where the infringement is occurring;
ii. To the extent known,
the length of time of the infringement; and
iii. Action taken by the
franchisor.
If the franchisor knows of a use
of a trademark by another in a geographic area relevant to the franchisee which
is or is likely to be based on a claim of superior prior rights to the
franchisor's, state the nature of the use by the other person and the place or
area where it is occurring.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 13
Belmont grants you the right to
operate a shop under the name Belmont Muffler Shop. You may also use our other
current or future trademarks to operate your shop. By trademark Belmont means
trade names, trademarks, service marks and logos used to identify your shop.
Belmont registered the below trademark on the United State Patent and Trademark
Office principal register:
You must follow our rules when
you use these marks. You cannot use a name or mark as part of a corporate name
or with modifying words, designs or symbols except for those which Belmont
licenses to you. You may not use Belmont's registered name in connection with
the sale of an unauthorized product or service or in a manner not authorized in
writing by Belmont.
On June 4, 1973, the United
States Patent and Trademark Office rejected Belmont's application to register
the mark "Super Mufflers" because the mark was found to be
confusingly similar to a registered mark. Belmont's inability to register this
mark on a federal level permits others to establish rights to use the mark.
This use will not be in areas where our franchisees are operating, or
advertising under the mark, or in the natural zone of expansion for Belmont's
shops. In addition, these users must act in good faith and without actual
knowledge of Belmont's prior use of the mark. However, if others establish
rights to use Belmont's mark, Belmont may not be able to expand into these
areas using the mark.
No agreements limit Belmont's
right to use or license the use of Belmont's trademarks.
You must notify Belmont
immediately when you learn about an infringement of, or challenge to, your use
of our trademark. Belmont will take the action we think appropriate. While
Belmont is not required to defend you against a claim against your use of our
trademark, Belmont will reimburse you for your liability and reasonable costs
in connection with defending Belmont's trademark. To receive reimbursement you
must have notified Belmont immediately when you learned about the infringement
or challenge.
You must modify or discontinue
the use of a trademark if Belmont modifies or discontinues it. If this
happens, Belmont will reimburse you for your tangible costs of compliance (for
example, changing signs). You must not directly or indirectly contest our
right to our trademarks, trade secrets or business techniques that are part of
our business.
Belmont does not know of any
infringing uses that could materially affect your use of Belmont's trademark.
or
John E. Jones, 4231 Main Street,
Reno, Nevada is currently doing business as Belmont Muffler Shoppe at 4231 Main
Street, Reno, Nevada. We believe that this is an infringing use of our
federally registered trademark "Belmont Muffler Shop," and we have
filed an action to enjoin Mr. Jones and to recover damages. If the court holds
that Mr. Jones' use is not infringing, Belmont may not be able to use Belmont's
trademark in Mr. Jones' immediate area. (Belmont Muffler Shop v. Belmont
Muffler Shoppe-cite)
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 THE TERMS AND CONDITIONS FOR USE BY THE FRANCHISEE.
Item 14 Instructions:
i. State the patent
number, issue date and title for each patent. State the serial number, filing
date and title of each patent application. Describe the type of patent or patent
application (for example mechanical, process, or design). State the
registration number and date of each copyright.
ii. Describe the
relationship of the patent, patent application or copyright to the franchised
business.
iii. Describe any current
determination of the Patent and Trademark Office, Copyright Office (Library of
Congress) or court regarding the patent or copyright. Include the forum, case
number and effect on the franchised business.
iv. State the forum, case
number, claims asserted, issues involved and effective determinations for any
proceedings pending in the Patent and Trademark Office or the Court of Appeals
for the Federal Circuit.
v. If counsel consents,
the franchisor may include a counsel's opinion or a summary of the opinion
about patent or copyright issues discussed in this Item.
vi. If an agreement
limits the use of the patent, patent application or copyright, state the
parties to and duration of the agreement, the extent to which the franchisee
may be affected by the agreement, and other material terms of the agreement.
vii. Disclose the
franchisor's obligation to protect the patent, patent application or
copyright. State:
a. Whether franchisee
must notify the franchisor of claims or infringements or if the action is
discretionary.
b. Whether the
franchisor must take affirmative action when notified of infringement or if the
action is discretionary.
c. Who has the right to
control litigation.
d. Whether the
franchisor must participate in the defense of a franchisee or indemnify the
franchisee for expenses or damages in a proceeding involving a patent, patent
application or copyright licensed to the franchisee.
e. Requirements that the
franchisee modify or discontinue use of the subject matter covered by the
patent or copyright.
f. Franchisee's rights
if the franchisor requires the franchisee to modify or discontinue the use of
the subject matter covered by the patent or copyright.
viii. If the franchisor
actually knows of an infringement that could materially affect the franchisee,
state:
a. The nature of the
infringement.
b. The location(s) where
the infringement is occurring.
c. The length of time of
the infringement.
d. Action taken or
anticipated by the franchisor.
ix. State whether the
franchisor intends to renew the copyright when the registration expires.
x. Discuss in general
terms other proprietary information communicated to the franchisee (for
example, whether there is a formula or recipe considered to be a trade secret).
xi. Use Sample Answer
14-1 if no patents or copyrights are material to the franchise.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 14-1
No patents or copyrights are
material to the franchise.
Sample Answer 14-2
You do not receive the right to
use an item covered by a patent or copyright, but you can use the proprietary
information in Belmont's Operations Manual. The Operations Manual is described
in Item 11. Although Belmont has not filed an application for a copyright
registration for the Operations Manual, it claims a copyright and the
information is proprietary. Item 11 describes limitations on the use of this
manual by you and your employees.
You must also promptly tell us
when you learn about unauthorized use of this proprietary information. Belmont
is not obligated to take any action but will respond to this information as we
think appropriate. Belmont will indemnify you for losses brought by a third
party concerning your use of this information.
Sample Answer 14-3
U.S. Patent 3999442 was issued
on December 14, 1980. It describes a process for exhaust system installation.
The process describes the steps in making a straight length of exhaust pipe,
bending this pipe, coating the inside and outside of this pipe with our Pipe
Protector and installing the exhaust pipe on a motor vehicle. You will use
equipment utilizing this process.
On December 15, 1970, Belmont
obtained a copyright registration for its Operations Manual under Registration
A41139. Amendments to the manual were registered on January 7, 1983 (Reg.
A521,371) and June 6, 1974 (Reg. A 541,333). Belmont intends to renew these
copyrights. Item 11 of this Offering Circular describes the Operations Manual
and the manner in which you are permitted to use it.
Belmont's right to use or
license these patents and copyrighted items is not materially limited by any
agreement or known infringing use.
You must tell us immediately if
you learn about an infringement or challenge to our use of these patents or
copyrights. Belmont will take the action that Belmont thinks appropriate. You
must also agree not to contest Belmont's interest in these or our other trade
secrets.
If Belmont decides to add,
modify or discontinue the use of an item or process covered by a patent or
copyright, you must also do so. Belmont's sole obligation is to reimburse you
for the tangible cost of complying with is obligation.
Although Belmont is not
obligated to defend your use of these items or processes, Belmont will
reimburse you for damages and reasonable costs incurred in litigation about
them.
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 FRANCHISE
BUSINESS AND WHETHER THE FRANCHISOR RECOMMENDS PARTICIPATION.
Item 15 Instructions:
i. Include obligations
arising from written agreement (including personal guaranty, confidentiality
agreement or noncompetition agreement) or from the franchisor's practice.
ii. If personal "on
premises" supervision is not required:
a. If the franchisee is
an individual, state whether the franchisor recommends "on premises"
supervision by the franchisee;
b. State limitations on
whom the franchisee can hire as an on premises supervisor;
c. Whether this "on
premises" supervisor must successfully complete the franchisor's training
program; and
d. If the franchisee is
a business entity, state the amount of equity interest that the "on
premises" supervisor must have in the franchise.
iii. Disclose the
restrictions which the franchisee must place on its manager (for example,
maintain trade secrets, non-competition).
iv. The franchisor may
reference Items 14 and 17 in its answer.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 15-1
If you are an individual, you
must directly supervise the franchised business on its premises. If you are a
corporation, the direct, on-site supervision must be done by a person who owns
at least ⅓ of the corporate equity.
Sample Answer 15-2
Belmont does not require that
you personally supervise the franchised business. The business must be
directly supervised "on premises" by a manager who has successfully
completed Belmont's training program. The on premises manager cannot have an
interest or business relationship with any of Belmont's business competitors.
The manager need not have an ownership interest in a corporate or partnership
franchisee. The manager must sign a written agreement to maintain
confidentiality of the trade secrets described in Item 14 and to conform with
the covenants not to compete described in Item 17.
Each individual who owns a 5% or
greater interest in the franchisee entity must sign an agreement (Exhibit )
assuming and agreeing to discharge all obligations of the
"franchisee" under the Franchise Agreement.
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 16 Instructions:
i. Describe the
franchisee's obligation to sell only goods and services approved by the
franchisor.
ii. Disclose any
franchisee obligation to sell all goods and services authorized by the
franchisor. Disclose whether the franchisor has the right to change the types
of authorized goods and service and whether there are limits on the
franchisor's right to make changes.
iii. If the franchisee is
restricted regarding customers, disclose the restrictions.
iv. The applicant may
cross reference disclosures made in Items 8, 9, and 12.
v. Use Sample Answer
16-1 for a negative response.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 16-1
Belmont does not restrict the
type of goods or services that you may offer.
Sample Answer 16-2
Belmont requires you to offer
and sell only those goods and services that Belmont has approved (see Item 9).
You must offer all goods and
services that Belmont designates as required for all franchisees. These
required services are muffler inspection, repair and replacement. Parts,
supplies, and equipment used in your Belmont Muffler business must be approved
by Belmont (see Item 8).
Belmont has the right to add
additional authorized services that the franchisee is required to offer. There
are no limits on Belmont's right to do so except that the investment required
of a franchisee (for equipment, supplies and initial inventory) will not exceed
$5,000 per year.
Belmont also designates some
services as optional for qualified franchisees. Current optional services are
brake inspection, repair and replacement, tire rotation, wheel balancing, and
alignment and rustproofing. To offer optional goods or services, you must be
in substantial compliance with all material obligations under your Franchise
Agreement. In addition, Belmont may require you to comply with other
requirements (such as training, marketing, insurance) before Belmont will allow
you to offer certain optional services.
As long as you meet your annual
agreed sales quotas (see Item 12), Belmont will not restrict you from
soliciting any customers, no matter who they are or where they are located. If
you do not meet your annual sales quota, Belmont may deny you the right to
receive any further fleet business referrals from Belmont and may either keep
the fleet business referrals for itself or give them to another franchisee.
Failure to meet your annual sales quota is a default under your Franchise
Agreement and grounds for termination of your franchise (see Item 17).
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.
Item 17 Instructions:
i. 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.
ii. Respond in tabular
form. Refer to the section of the agreement which covers each subject.
iii. Use a separate table
for any other significant franchise-related agreement. If a provision in any
other agreement affects the provisions of the franchise or franchise-related
agreements disclosed in this Item (for example, the term of the franchise will
be equal to the term of the lease), disclose that provision in the applicable
category in the table.
iv. 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.
v. The table should
respond to each category listed below. Do not change the names of the
categories. List all contractual provisions relevant to each category in the
table. 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:
a. Length of the term of
the franchise
b. Renewal or extension
of the term
c. Requirements for
franchisee to renew or extend
d. Termination by
franchisee
e. Termination by
franchisor without cause
f. Termination by
franchisor with "cause"
g. "Cause"
defined – curable defaults
h. "Cause"
defined – defaults which cannot be cured
i. Franchisee's
obligations on termination/non-renewal
j. Assignment of
contract by franchisor
k. "Transfer"
by franchisee – denied
l. Fanchisor approval
of transfer by franchisee
m. Conditions for
franchisor approval of transfer
n. Franchisor's right of
first refusal to acquire franchisee's business
o. Franchisor's option
to purchase franchisee's business
p. Death or disability
of franchisee
q. Non-competition
covenants during the term of the franchise
r. Non-competition
covenants after the franchise is terminated or expires
s. Modification of the
agreement
t. Integration/merger
clause
u. Dispute resolution by
arbitration or mediation
v. Choice of forum
w. Choice of law
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 17
This table lists important
provisions of the franchise and related agreements. You should read these
provisions in the agreements attached to this offering circular.
Note:
(1) Franchisor is not
obligated by the Agreement to do so, but, if the franchise is terminated,
franchisor's policy is to buy back inventory at fair market value. This policy
is subject to change at any time.
These states have
statutes which may supersede the franchise agreement in your relationship with
the franchisor including the areas of termination and renewal of your
franchise: ARKANSAS (Stat. Section 70-807), CALIFORNIA (Bus. & Prof. Code
Sections 20000-20043), CONNECTICUT (Gen. Stat. Section 42-133e et seq.),
DELAWARE (Code, Tit.), HAWAII (Rev. Stat. Section 482E-1), ILLINOIS [815
Compiled Stat. 705/19 and 20], INDIANA (Stat. Section 23-2-2.7), IOWA (Code
Sections 523H.1-523H.17), MICHIGAN (Stat. Section 19.854(27)), MINNESOTA (Stat.
Section 80C.14), MISSISSIPPI (Code Section 75-24-51), MISSOURI (Stat. Section 407.400),
NEBRASKA (Rev. Stat. Section 87-401), NEW JERSEY (Stat. Section 56:10-1), SOUTH
DAKOTA (Codified Laws Section 37-5A-51), VIRGINIA (Code 13.1-557-574-13.1-564),
WASHINGTON (Code Section 19.100.180), WISCONSIN (Stat. Section 135.03). These
and other states may have court decisions which may supersede the Franchise
Agreement in your relationship with the franchisor including the areas of
termination and renewal of your franchise.
Item
18
PUBLIC
FIGURES
DISCLOSE THE FOLLOWING:
A. COMPENSATION OR OTHER
BENEFIT GIVEN OR PROMISED TO A PUBLIC FIGURE ARISING FROM:
(1) The use of the public
figure in the franchise name or symbol or
(2) 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 18 Instructions:
i. A "public
figure" is a person whose name or physical appearance is generally known
to the public in the geographic area where the franchise will be located.
ii. Disclose the
compensation paid or promised for the endorsement or use of the name of the
public figure.
iii. Describe the public
figure's position and duties in the franchisor's business structure.
iv. State the amount of
the public figure's investment. Describe the extent of the amount contributed
in services performed or to be performed. State the type of investment (for
example, common stock, promissory note).
v. Use Sample Answer
18-1 for a negative response.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 18-1
Belmont does not use any public
figure to promote its franchise.
Sample Answer 18-2
Belmont has paid Ralph Doister
$50,000 for the use of his name in promoting the sale of our franchise. The
right expires December 31, 1992. Belmont has produced newspaper ads, a
brochure and a video which feature Mr. Doister. Mr. Doister does not manage or
own an interest in Belmont.
Item
19
EARNINGS
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 IN THE INSTRUCTION.
Item 19 Instructions:
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 19, 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 19, 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 with this Item 19.
If an earnings claim is not made, then negative disclosure 19 (below) must be
used.
iv. Claims regarding
future performance: A statement or prediction of future performance that is
prepared as a forecast or projection in accordance with the statement on
standards for accountants' services on prospective financial information (or
its successor) issued by the American Institute of Certified Public
Accountants, Inc., is presumed to have a reasonable basis.
v. Burden of proof: The
burden is upon the franchisor to show that it had a reasonable basis for its
earnings claim.
______________________________________________________________________________
[NEGATIVE
DISCLOSURE 19]
REPRESENTATIONS
REGARDING EARNINGS CAPABILITY
Belmont 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
Belmont muffler shop]. Actual results vary from unit to unit and Belmont
cannot estimate the results 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.
Item 19B Instructions:
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 encompass matters affecting, among other things, 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 state:
a. Material assumptions,
other than matters of common knowledge, underlying the claim (see Definition
iii under Item 3 for the definition of "material");
b. A concise summary of
the basis for the claim including a statement of whether the claim is based
upon actual experience of franchised units and, if so, 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. A 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
substantiation of the data used in preparing the earnings claim will be made
available to the prospective franchisee on reasonable request.
Item
20
LIST
OF OUTLETS
A. THE NUMBER OF FRANCHISES 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 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:
(1) Transferred
controlling ownership;
(2) Been cancelled or
terminated by the franchisor;
(3) Not been renewed by
the franchisor;
(4) Been reacquired by
the franchisor; or
(5) 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 20 Instructions:
i. Do not include a
transfer when beneficial ownership of the franchise does not change.
ii. List an outlet that
is reacquired by the franchisor in that column whether or not it also fits
another category.
iii. Other than the
franchisee names, addresses, and telephone numbers, disclose Item 20
information in tabular form. Use footnotes or a "remarks" column to
elaborate on information in the table or to disclose caveats. Disclose the
number of franchised and franchisor owned outlets sold, opened and closed. Disclose
the total number of franchised and franchisor owned outlets open at the end of
each year. Disclose information for each of the last 3 fiscal years.
iv. If an outlet has been
operated by more than one franchisee, disclose each transfer in the transfer
column.
v. Disclose information
about franchisor owned outlets that are substantially similar to the franchised
outlets. In this Item "franchisor owned" outlets include outlets
owned by the franchisor and by its affiliates. Use a separate table with a format
similar to the format for franchised outlets. The same table may be used if
the franchisor owned outlets are separated from franchised outlets.
vi. For franchisees
operating within the system disclose franchisee business addresses and
telephone numbers. List outlets owned by the persons listed in Item 2 and
their immediate families or by business entities owned by them as franchisor
owned outlets. These outlets can be identified in the table by an asterisk.
vii. Separate information
by state. List all states for which franchisor has information responsive to
this Item.
viii. When the requirement
states "most recent fiscal year," the franchisor may use a more
recent date if it discloses that date and uses that date for all disclosures in
this Item.
ix. When the requirement
states "most recent fiscal year," the state may require a more recent
date.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 20
FRANCHISED
STORE
STATUS SUMMARY
FOR
YEARS 1992/1991/1990
FRANCHISED STORE STATUS SUMMARY FOR YEARS 1992/1991/1990
State
Transfers
Canceled or
Not
Reacquired
Left
Total
Franchises
Terminated
Renewed
by
the System
from left
operating at
Franchisor
Other
columns (2)
year end
Alaska
2/0/0
Arizona
2/1/0
2/1/0
8/6/2
Arkansas
6/4/2
California
1/1/0
1/1/0
4/0/0
Colorado
3/3/3
Conneticut
5/3/1
Delaware
1/0/0
1/0/0
6/4/0
Florida
2/0/0
Georgia
2/0/0
Idaho
2/0/0
Totals
2/1/0
1/0/0
0/0/0
0/0/0
1/1/0
4/2/0
40/20/8
Notes:
(1) All numbers are as of
December 31 for each year.
(2) The numbers in the
"Total" column may exceed the number of stores affected because
several events may have affected the same store. For example, the same store
may have had multiple owners.
Note: Belmont no longer
operates company owned stores.
PROJECTED
OPENINGS
AS
OF DECEMBER 31, 1992
Note:
(1) As of December 31,
1992
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 FISCAL YEAR ENDS BEFORE THE APPLICATION DATE. IN
ADDITION, INCLUDE STATEMENTS OF OPERATIONS, 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, THEN 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.
C. CONSOLIDATED AND SEPARATE
STATEMENTS:
(1) When a franchisor
owns a direct or beneficial, controlling financial interest in another
corporation, its financial statements should reflect the financial condition of
the franchisor and its subsidiaries.
(2) If the applicant is a
subfranchisor include separate financial statements for the franchisor and
subfranchisor related entity.
(3) Prepare consolidated
and separate financial statements in accordance with generally accepted
accounting principles.
Item 21 Instructions:
i. States may require
financial statements additional to those listed in this Item.
ii. A company
controlling 80% or more of a franchisor may be required to include its
financial statements.
iii. Present required
financials in a format of columns which compare at least 2 fiscal years.
iv. In Item 21A, the
required financial statements for a franchisor with a calendar fiscal year end
and a July 15, 1989 application filing date are:
a. Unaudited balance
sheet as of either April 30, May 31 or June 30, 1989 with an unaudited income
statement for the period from January 1, 1989 to the date of the balance sheet;
b. Balance sheets,
statements of operations, of stockholders equity and of cash flow. The balance
sheets should be audited and as of December 31, 1987 and 1988. The remaining
statements should be audited and should be for periods ending December 31,
1986, 1987 and 1988; and
c. If the franchisor has
never had an audit, it need not supply the financial statement required by (b)
if it supplies either an audit as of its last fiscal year end or the statements
required by (a) in an audited form.
v. In the Item 21B
response, the affiliate's guarantee need cover only the franchisor's
obligations to the franchisee. The guarantee need not extend to third
parties. A sample guarantee is on page in Exhibit .
vi. In the Item 21B
response the filing state may permit a surety bond instead of the parent
company's guarantee.
vii. Disclose the
existence of a guarantee.
Item
22
CONTRACTS
ATTACH A COPY OF ALL AGREEMENTS
PROPOSED FOR USE OR IN USE IN THIS STATE REGARDING THE OFFERING OF A FRANCHISE,
INCLUDING THE FRANCHISE AGREEMENT, LEASES, OPTIONS AND PURCHASE AGREEMENTS.
Item 22 Instructions:
i. Copies of agreements
attached to the offering circular under Item 22 are part of the offering
circular. Each offering circular delivered to a prospective franchisee must
include copies of all agreements to be offered.
ii. The franchisor may
cross reference Item 10 for financing 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 OFFERS YOU A
FRANCHISE, 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 .
YOU MUST ALSO RECEIVE A
FRANCHISE AGREEMENT CONTAINING ALL MATERIAL TERMS AT LEAST FIVE BUSINESS DAYS
BEFORE YOU SIGN A FRANCHISE AGREEMENT.
IF DOES 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 THE ILLINOIS ATTORNEY GENERAL OFFICE, 500 SOUTH
SECOND STREET, SPRINGFIELD, ILLINOIS 62706. (Any additional state disclosure
time or required statutory language.)
Item 23 Instructions:
i. Place the name of
the franchisor in the blank.
ii. Make two copies of
the Receipt: one for retention by the franchisee and one by the franchisor.
iii. Disclose the name,
principal business address and telephone number of the subfranchisor or
franchise broker offering the franchise in this State.
iv. List the title of all
attached exhibits.
v. Effective Date:
(Leave blank until notified of effectiveness by State regulatory authority.).
vi. The name and address
of the franchisor's registered agent authorized to receive service of process
if not disclosed in Item 1.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 23
RECEIPT
THIS OFFERING CIRCULAR
SUMMARIZES PROVISIONS OF THE FRANCHISE AGREEMENT AND OTHER INFORMATION IN PLAIN
LANGUAGE. READ THIS OFFERING CIRCULAR AND ALL AGREEMENTS CAREFULLY.
IF BELMONT OFFERS YOU A
FRANCHISE, BELMONT 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
SIGNING OF A BINDING AGREEMENT; OR
(3) TEN BUSINESS DAYS BEFORE
ANY PAYMENT TO BELMONT.
YOU MUST ALSO RECEIVE A
FRANCHISE AGREEMENT CONTAINING ALL MATERIAL TERMS AT LEAST FIVE BUSINESS DAYS
BEFORE YOU SIGN ANY FRANCHISE AGREEMENT.
IF BELMONT DOES 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
(STATE AGENCY).
Belmont authorizes Legal Process
Corp at 448 West Washington Avenue, City, State to receive service of process
for Belmont. I have received a Uniform Franchise Offering Circular dated ________.
This offering circular included the following Exhibits:
A. License Agreement
B. Equipment Lease
C. Lease for Premises
D. Loan Agreement
____ _________
Date Franchisee
Uniform Franchise Registration Application Page (also known as
"Facing Page") (Appendix A, Illustration A);
(b) Supplemental Information Pages(s) (Appendix A, Illustration
B);
(c) Certification Page (Appendix A, Illustration G);
(d) Uniform Consent to Service of Process (Appendix A, Illustration
D);
(e) Sales Agent Disclosure Form (Appendix A, Illustration C);
(f) If the applicant is a corporation or partnership, an
authorizing resolution if the application is verified by a person other than
applicant's officer or general partner (Appendix A, Illustrations E, F, M and
N);
(g) Uniform Franchise Offering Circular (Appendix A, Illustration
L);
(h) Application Fee (Section 40 of the Act);
(i) Auditor's consent (or a photocopy of the consent) to the use
of the latest audited financial statements in the offering circular (Appendix
A, Illustration H).
120. Renewal Application:
When state law requires renewal, mark "renewal" on the application
page. Submit all documents required for an initial application with additions
to the previously filed documents underlined. Changes must be clearly marked so
that the change is noticed easily. File a renewal application before the prior
registration has expired (see Section 10 of Act). If the prior registration
has expired, mark "Registration of an Offer or Sale of Franchises" on
the facing page and pay the fee charged for initial registrations. Redlining
and bracketing changes from the last filing will speed a re-registration. Do
not mark the amendment boxes on the application page on the first renewal
filing even if documents are revised. In Illinois you can make as many changes
in a renewal filing as are necessary without paying an amendment fee.
150. "Disclose"
means to state all material facts in an accurate and unambiguous manner.
Disclose clearly, concisely and in a narrative form that is understandable by a
person unfamiliar with the franchise business. For clear and concise
disclosure avoid legal antiques
1
and repetitive phrases
2
.
When possible, use active, not passive voice
3
. Limit the length and
complexity of disclosure through careful organization of information in the
disclosure. Avoid technical language and unnecessary detail. Make the format
and chronological order consistent within each Item.
NOTES:
1 Avoid these legal antiques. Preferred substitutes are in
parentheses: aforesaid; arising from (from); as between; as an inducement for;
as part of the consideration; as set forth in (in); as the case may be, at a
later point in time; binding upon and inure; commence (begin); condition
precedent (before); condition subsequent (after); consist of (are); engaged in
business of offering (offers); for and in consideration of the grant of the
franchise; for a period of (for); foregoing; forthwith; from time to time;
hereby; herein; hereinafter; hereto; heretofore; if necessary; in the event
(if); including but not limited to (including); in any manner whatsoever;
including without limitation (including); in conjunction with; in connection
with; in no event of (if); in whole or in part; it will be specifically
understood that; manner in which; not later than (within, by); not less than
(at least); notwithstanding; offers to an individual, corporation or
partnership (offer); on behalf of (for); precendent (before); prescribed
(required); prior to (before); provided however (but, unless); provided that
(if, unless); purporting to; relating to (under); subsequent (after); such
(this); so as to (to); so long as (while); thereafter, therefrom; thereof;
thereunder; without limiting the foregoing; whatsoever; with respect to.
2 Avoid repetitive phrases. Preferred substitutes are in
parentheses: agrees, acknowledges and recognizes; any and all; are and remain;
based upon, related to, or growing out of (because); certified as true and
correct (certified); consultation, assistance and guidance (guidance); each and
every; equipment, furniture, supplies and inventory set forth on the equipment
list attached as Exhibit
___
(items on Exhibit
____
); necessary
and appropriate; sample, test and review (test); twenty-three (23) (write as
23).
3 The preferred phrase in the parentheses: As the franchisor
prescribes (you must); being offered (offers); consists of (is); engaged in the
business of offering (offer); giving rise to; if it becomes necessary for (if);
inure to the benefit of (benefits); if granted the right to (can); is given an
opportunity to (can); is required to (must); shall be no less than (a minimum
of); shall continue in effect (continues); with the exception of (except).
160. Since prospective
franchisees must have sufficient disclosure to understand economic commitments
and to develop a business plan, Items 5, 6, 7 and 8 must disclose the minimum
and maximum franchisee cost. The franchisor should provide reasonably
available information to allow franchisees to forecast future charges listed in
these Items and to be paid to person who are independent of the franchisor.
Future payments to the franchisor should be specific as is required by
individual Items.
170. The disclosure for each
UFOC Item should be separately titled and in the required order. Do not repeat
the UFOC question in the offering circular. Respond to each question fully. If
the disclosure is not applicable, respond in the negative but if an answer is
required "if applicable," respond only if the requested information
applies. Do not qualify a response with a reference to another document unless
permitted by the instructions to that Item.
180. For each Item in the
UFOC, type the Requirement's Item title and number. Sub-items may be
designated by descriptive headings, but do not use sub-item letters and
numbers.
190. Separate documents (for
example, a confidential operations manual) must not make representations or
impose terms that contradict or are materially different from the disclosure in
the offering circular.
200. Use 8½ by 11 inch paper
for the entire application.
210. When the applicant is a
master franchisor seeking to sell subfranchises, references in these
requirements and instructions to "franchisee" include the
subfranchisor unless the language context requires a different meaning.
220. The offer of
subfranchises is an offer separate from the offer of franchises and usually
requires a separate registration or exemption. A single application may
register the sale of single unit and multi-unit franchises if the offering
circular is not confusing.
230. When the applicant is a
subfranchisor, disclose the same information concerning the subfranchisor that
is required about the franchisor, to the extent applicable.
240. In offerings by a
subfranchisor, "franchisor" means both the franchisor and
subfranchisor.
250. When state requirements
conflict with these Guidelines, the state requirements control. The State
Administrator may modify or waive these Guidelines or may require additional
documentation or information.
260. Grossly deficient
applications may be rejected summarily by the Administrator as incomplete for
filing. It is not the function of an Administrator to prepare, in effect, an
applicant's application. The additional examiner time reviewing the grossly
deficient product delays the processing of diligently prepared and pursued
applications.
270. The Guidelines that continue
after these Instructions use the following format:
(a) The title of the Item follows the Item number. It is
capitalized and centered on the page.
(b) The "Item" is a restatement of the Uniform Franchise
Offering Circular (UFOC) Item Requirement. It is capitalized and follows the
title of the Item.
(c) The "Instruction" appears beneath the Item. It
explains portions of the Item requirements.
(d) The "Sample Answer" at the end of each Item provides
sample disclosures. Double horizontal lines divide the Sample Answer from the
Instructions.
COVER PAGE: The State cover
page of the offering circular must state:
1. The title in boldface type: FRANCHISE OFFERING CIRCULAR
2. The franchisor's name, type of business organization,
principal business address and telephone number.
3. A sample of the primary business trademark, logotype, trade
name, or commercial label or symbol under which the franchisee will conduct its
business. (Place in upper left-hand corner of the cover page.)
4. A brief description of the franchised business.
5. The total amounts in Items 5 and 7 of the offering circular:
Franchisee's Initial Franchise Fee or Other Payment and Franchisee's Initial
Investment.
6. The following statements:
Information comparing franchisors is available. Call the
State administrators listed in Exhibit
______
or your public library for
sources of information.
Registration of this franchise by a state does not mean that
the state recommends it or has verified the information in this offering
circular. If you learn that anything in the offering is untrue, contact the
Federal Trade Commission and Illinois Attorney General.
7. Effective Date: (Leave blank until notified of effectiveness
by State regulatory authority.)
Cover Page Instructions:
i. Present information in the required order. Except for risk
factors or when instructed by the examiner, do not capitalize or underline.
ii. The estimated cash investment should agree with the Item 7
total. This total should represent the franchisee's entire initial investment
minus only exclusions allowed by Item 7. Do not state what the total includes.
iii. Limit the cover page disclosure to one page unless risk factors
require additional space. Disclosure on the cover page should be brief. Limit
the description of the business to the product or service offered by the
franchisor. Unless required by a State regulator, do not disclose financing
arrangements or the franchisee's right to use the trademark. Exclude
non-required information unless necessary as a risk factor or required by a
State regulator.
iv. If applicable, disclose the following risk factors using the
following language on the cover:
a. THE FRANCHISE AGREEMENT PERMITS THE FRANCHISEE (TO
SUE) (TO
ARBITRATE WITH)
(franchisor)
ONLY IN
(state)
. OUT OF
STATE (ARBITRATION) (LITIGATION)
MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY
ALSO COST MORE (TO
SUE) (TO
ARBITRATE WITH)
(franchisor).
IN
(state)
THAN IN
YOUR HOME STATE.
b. THE FRANCHISE AGREEMENT STATES THAT
(state)
LAW GOVERNS THE AGREEMENT, AND
THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU
MAY WANT TO COMPARE THESE LAWS.
c. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
v. In addition to the above language, disclose other risk
factors required by a State regulator.
vi. Use capital letters for risk factor disclosure.
vii. In multistate offerings in which the franchisor uses a single
offering circular, refer to an exhibit to the offering circular for a list of
State or Provincial authority.
Sample
Cover Page
(Logo) Franchise Offering
Circular
Belmont
Mufflers, Inc.
A Minnesota
Corporation
First Street
Jackson,
Minnesota 55000
(612)
266-3430
The
franchisee will repair and install motor vehicle exhaust systems.
The initial
franchise fee is $10,000. The estimated initial investment required ranges
from $132,700 to $160,200. This sum does not include rent for the business
location.
Risk Factors:
THE FRANCHISE
AGREEMENT REQUIRES THAT ALL DISAGREEMENTS BE SETTLED BY ARBITRATION IN
MINNESOTA. OUT OF STATE ARBITRATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE
SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU MORE TO ARBITRATE WITH US IN
MINNESOTA THAN IN YOUR HOME STATE.
Information
about comparisons of franchisors is available. Call the state administrators
listed in Exhibit
_____________
or your public library for sources of
information.
Registration
of this franchise with the state does not mean that the state recommends it or
has verified the information in this offering circular. If you learn that
anything in this offering circular is untrue, contact the Federal Trade
Commission and Illinois Attorney General.
Effective
date:
TABLE OF CONTENTS: INCLUDE A
TABLE OF CONTENTS BASED ON THE REQUIREMENTS OF THIS OFFERING CIRCULAR.
Table of Contents Instructions:
Refer to UFOC Items and state
the page where each UFOC Item disclosure begins. List exhibits by letter. Use
the following format:
SAMPLE TABLE OF CONTENTS:
TABLE
OF CONTENTS
ITEM
PAGE
1
The Franchisor, its
Predecessors and Affiliates...................................
2
Business Experience............................................................................
3
Litigation..............................................................................................
4
Bankruptcy...........................................................................................
5
Initial Franchise Fee............................................................................
6
Other Fees............................................................................................
7
Initial Investment.................................................................................
8
Restrictions on Sources of
Products and Services...............................
9
Franchisee's Obligations......................................................................
10
Financing.............................................................................................
11
Franchisor's Obligations......................................................................
12
Territory...............................................................................................
13
Trademarks..........................................................................................
14
Patents, Copyrights and
Proprietary
Information..........................................................................................
15
Obligation to Participate in
the Actual
Operation of the Franchise
Business...................................................
16
Restrictions on What the
Franchise May Sell..............................................................................
17
Renewal, Termination, Transfer
and Dispute Resolution........................................................................
18
Public Figures......................................................................................
19
Earnings Claims...................................................................................
20
List of Outlets......................................................................................
21
Financial Statements............................................................................
22
Contracts..............................................................................................
23
Receipt.................................................................................................
Exhibits
A.
Franchise Agreement...........................................................................
B.
Equipment Lease.................................................................................
C.
Lease for Premises...............................................................................
D.
Loan Agreement..................................................................................
Item
1
THE
FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
Item 1 Instructions:
i. Use the word "we," initials or one or two words to
refer to the franchisor. Use different initials or a different one or two
words to refer to other persons contracting with the franchisee under the
franchise agreement. Except in the 23 Item titles, use these initials or the
word(s) to describe these persons or entities throughout the offering circular.
ii. Define the franchisee as "you" and use this
description throughout the offering circular. If the franchisee could be a
corporation, partnership or other entity, disclose whether "you"
includes the franchisee's owners.
iii. "Predecessor" in Item 1 means a person from whom
the franchisor acquired directly or indirectly the major portion of the
franchisor's assets.
iv. The disclosure regarding predecessors need only cover the 10
year period immediately before the close of the franchisor's most recent fiscal
year.
v. Affiliate in Item 1 means a person (other than a natural
person) controlled by, controlling or under common control with the franchisor,
which is offering franchises in any line of business or is providing products
or services to the franchisees of the franchisor.
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.
Item 1B Instruction:
If the franchisor does business
under a name different from the name disclosed in Item 1A, state that other
name. If not, state that the franchisor does not do business under another
name.
C. THE PRINCIPAL BUSINESS ADDRESS OF THE FRANCHISOR, ITS
PREDECESSORS AND AFFILIATES, AND THE FRANCHISOR'S AGENT FOR SERVICE OF PROCESS.
Item 1C Instructions:
i. Principal business address means "home office" in
the United States, not in the state for which the offering circular was
prepared. If appropriate, also disclose the location of an international
"home office." The business address cannot be a post office box.
ii. In a multi-state offering in which the agent for service of
process is required, the franchisor may use an exhibit or the acknowledgement
of receipt to disclose this agent.
D. THE BUSINESS FORM OF THE FRANCHISOR
Item 1D Instruction:
Disclose the state of
incorporation or business organization and the type of business organization.
E. THE FRANCHISOR'S BUSINESS AND THE FRANCHISES TO BE OFFERED IN
THIS STATE.
Item 1E Instructions:
Disclose the following:
i. That the franchisor sells or grants franchises;
ii. Whether the franchisor operates businesses of the type being
franchised;
iii. The franchisor's other business activities;
iv. The business to be conducted by the franchisees;
v. The general market for the product or service to be offered
by the franchisee. (For example, is the market developed or developing? Will
the goods be sold primarily to a certain group? Are sales seasonal?);
vi. 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;
vii. A general description of the competition.
F. THE PRIOR BUSINESS EXPERIENCE OF THE FRANCHISOR. ITS
PREDECESSORS AND AFFILIATES INCLUDE:
(1) THE LENGTH OF TIME THE FRANCHISOR HAS CONDUCTED A BUSINESS OF
THE TYPE TO BE OPERATED BY THE FRANCHISEE.
(2) THE LENGTH OF TIME EACH PREDECESSOR AND AFFILIATE HAS
CONDUCTED A BUSINESS OF THE TYPE TO BE OPERATED BY THE FRANCHISEE.
(3) THE LENGTH OF TIME THE FRANCHISOR HAS OFFERED FRANCHISES FOR
THE SAME TYPE OF BUSINESS AS THAT TO BE OPERATED BY THE FRANCHISEE.
(4) THE LENGTH OF TIME EACH PREDECESSOR AND AFFILIATE OFFERED
FRANCHISES FOR THE SAME TYPE OF BUSINESS AS THAT TO BE OPERATED BY THE
FRANCHISEE.
(5) 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 THE FRANCHISOR HAS OFFERED EACH OTHER
FRANCHISE.
(6) WHETHER EACH PREDECESSOR AND AFFILIATE 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 EACH PREDECESSOR AND AFFILIATE OFFERED EACH
OTHER FRANCHISE.
Item 1F Instruction:
Limit disclosure about
predecessors to the time before the franchisor acquired the predecessor's
assets. Thus, under the 10 year limitation, if a franchisor acquired the
assets of a predecessor 8 years ago, the disclosure about the predecessor
should cover only the 2 year period before the acquisition.
Sample
Answer 1
To simplify the language in this
offering circular "Belmont" means Belmont Mufflers Inc., the
franchisor. "You" means the person who buys the franchise. Belmont
is a Minnesota corporation that was incorporated on September 3, 1963. Belmont
does business as Belmont Muffler Shops. Our principal business address is 111
First Street, Jackson, Minnesota 55555.
Belmont's agent for service of
process is disclosed in Exhibit
_____
.
Belmont currently operates 12
Belmont Muffler Shops and sells pipe bending machines and mufflers to various
muffler shops.
Belmont franchises the right to
sell and install mufflers for the public. You must honor our guarantee to
replace mufflers or exhaust pipes that wear out if the vehicle ownership has
not changed. Belmont's franchisees often operate their muffler shop franchise
with their service stations or tire center. Your competitors include
department store service departments, service stations and other national
chains of muffler shops. Exhibit
_____
is attached to this offering
circular and contains a summary of the special regulations for muffler
installation in your state.
During the past 5 years Belmont
has operated 7 muffler shops that are similar to the franchised shops being
offered. All these shops are located in urban areas, have approximately xxxxx
square feet of floor space and are located on busy streets. An additional 3
muffler shops were opened in 1990. From 1968 to 1973, Belmont offered
franchises for "Repair-All Transmission Shops." "Repair-All"
franchises repaired and replaced motor vehicle transmissions under a marketing
plan similar to the franchise in this offering circular. Belmont sold 40 of
these franchises primarily in the states of Minnesota, Michigan, Wisconsin and
Illinois. In 1973, Belmont sold this transmission repair company to CTF Inc.
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 2 Instructions:
i. Principal officers include the chief executive and chief
operating officer, the president, financial, franchise marketing, training and
franchise operations officers.
ii. First disclose the position and the name of the person
holding it. Underline this information; then skip one line.
iii. Disclose the beginning date and departure date for each job
held in the five year period whether or not this date is within the past five
years. Disclose the location of the job.
iv. Do not disclose home addresses, home telephones, social
security numbers or birth dates in this Item.
v. Disclose the required information concerning the franchise
broker's directors, principal officers and executives with management
responsibility to market or service the franchises.
vi. In a multi-state offering in which the franchisor uses a
single offering circular and franchise brokers and executives with direct
management responsibility to the franchisees differs from state to state, use
an exhibit to refer to these personnel.
Sample
Answer 2
President: Jane J. Doe
From June 1978, until April,
1986, Ms. Doe was Vice President of Atlas Inc., a Houston, Texas based
manufacturer of automobile wheels. In April 1986, she joined Belmont as a
Director and Vice President. She was promoted to President in June 1987.
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 MATERIAL CIVIL ACTION
PENDING AGAINST THAT PERSON ALLEGING A VIOLATION OF A FRANCHISE, ANTITRUST OR
SECURITIES LAW, FRAUD, UNFAIR OR DECEPTIVE PRACTICES, OR COMPARABLE
ALLEGATIONS. IN ADDITION, INCLUDE ACTIONS OTHER THAN ORDINARY ROUTINE
LITIGATION INCIDENTAL TO THE BUSINESS WHICH ARE SIGNIFICANT IN THE CONTEXT 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 A CONSENT TO
USE OF THE SUMMARY OPINION IS INCLUDED AS PART OF THIS OFFERING CIRCULAR
.
B. HAS DURING THE 10 YEAR PERIOD IMMEDIATELY BEFORE THE DATE OF
THE OFFERING CIRCULAR BEEN CONVICTED OR A FELONY OR PLEADED NOLO CONTENDERE TO
A FELONY CHARGE; OR BEEN HELD LIABLE IN A CIVIL ACTION BY FINAL JUDGMENT OR
BEEN THE SUBJECT OF A MATERIAL ACTION INVOLVING VIOLATION OF A FRANCHISE,
ANTITRUST OR SECURITIES LAW, FRAUD, 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 AN/OR TERMS OF SETTLEMENTS.
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. IF SO, DISCLOSE THE NAME OF THE PERSON, THE PUBLIC AGENCY AND COURT, A
SUMMARY OF THE ALLEGATIONS OR FACTS FOUND BY THE AGENCY OR COURT AND THE DATE,
NATURE, TERMS AND CONDITIONS OF THE ORDER OR DECREE
.
Item 3 Instructions:
i. Definitions:
a. For purposes of these instructions to Item 3,
"franchisor" includes the franchisor, its predecessors, persons
identified in Item 2 and affiliates offering franchises under the franchisor's
principal trademarks.
b. Action: Action includes complaints, cross claims,
counterclaims, and third party complaints in a judicial proceeding, and their
equivalents in an administrative action or arbitration proceeding. The
franchisor may disclose its counterclaims. Omit actions that were dismissed by
final judgment without liability of or entry of an adverse order against the
franchisor.
c. Included in the definition of material is an action or an
aggregate of actions if a reasonable prospective franchisee would consider it
important in making a decision about the franchised business.
d. In this Item, settlement of an action does not diminish its
materiality if the franchisor agrees to pay material consideration or agrees to
be bound by obligations which are materially adverse to its interests.
e. "Ordinary routine litigation" means actions which
ordinarily result from the business and which do not depart from the normal
kinds of actions in the business.
f. "Held liable" includes a finding by final judgment
in a judicial, binding arbitration or administrative proceeding that the
franchisor, as a result of claims or counterclaims, must pay money or other
consideration, must reduce an indebtedness by the amount of an award, cannot
enforce its rights, or must take action adverse to its interests.
g. "Currently Effective": An injunctive or
restrictive order or decree is "currently effective" unless it has
been vacated or rescinded by a court or by the issuing public agency. An order
that has expired by its own terms is not "currently effective." If
the named party(s) have fully complied with an order (for example, through
registration of its franchise offer), the order is not "currently
effective." A party has not fully complied with an order to act or to
refrain from an act (for example, to comply with the franchise law or to
refrain from violating the franchise law) until the order expires by its own
terms.
ii. Civil
Litigation or Injunctive or Restrictive Order:
a. Use Sample Answer 3-1 for a negative response to Item 3 if the
franchisor has never been named in litigation or if the only litigation naming
the franchisor is outside the scope of Item 3.
b. Disclose in the same order as the instructions below appear.
c. Title each action and state its case number or citation in
parentheses. Underline the title of the action.
d. For each action state the action's initial filing date and the
opposing party's name and relationship with the franchisor. Relationships
include competitor, supplier, lessor, franchisee, former franchisee, or class
of franchisees.
e. Summarize the legal and factual nature of each claim in the
action.
f. Summarize the relief sought or obtained. Summarize
conclusions of law or fact.
g. State that other than these (list number of actions) no
litigation is required to be disclosed in this offering circular.
iii. Criminal
Convictions or Pleas:
a. Disclose
in the same order as the following instructions appear.
b. Title each action and state its citation in parentheses.
Underline the title of the action.
c. Name the person convicted or who pleaded.
d. State the crime or violation and the date of conviction.
e. Disclose the sentence or penalty imposed.
f. State that other than these (list the number of actions)
actions, no litigation is required to be disclosed in this offering circular.
Sample
Answer 3-1
No litigation is required to be
disclosed in this offering circular.
Sample Answer 3-2
Doe v. Belmont Muffler Service,
Inc. (cite) On March 1, 1985, our franchisee, Donald Doe, sought to enjoin us
from terminating him for nonpayment of royalty fees. Doe alleged
________
.
On April 3, 1986, Doe withdrew the case when we repurchased his franchise for
$90,000 and agreed not to enforce non-compete clauses against him.
Indiana v. Belmont Muffler
Service, Inc. (cite) On April 1, 1985, the Attorney General of Indiana sought
to enjoin us from offering unregistered franchises and from using false income
representations. The Attorney General alleged that the earnings claims were
false because.... The court found that we had offered franchises, that the offers
were not registered and that we had made the alleged false representations in
our earnings claims. The court enjoined us from repeating those acts.
Other than these 2 actions, no
litigation is required to be disclosed in this offering circular.
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 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 OR COMPANY THAT WAS THE
DEBTOR UNDER THE BANKRUPTCY CODE, THE DATE OF THE ACTION AND THE MATERIAL
FACTS.
Item 4 Instructions:
i. First, name the party that filed (or had filed against it)
the petition in bankruptcy and the party's relationship to the franchisor. If
the debtor in a bankruptcy proceeding was or is affiliated with the franchisor,
state the relationship. If the debtor in a bankruptcy proceeding is
unaffiliated with the franchisor, state the name, address and principal
business of the bankrupt company.
ii. Disclose that the entity filed bankruptcy or reorganization
under the bankruptcy law and the date of the original filing.
iii. Identify the bankruptcy court, and the case name and
number. Put this information in parentheses.
iv. State the date on which the debtor obtained a discharge in
bankruptcy (including discharges under Chapter 7 and confirmation of any plans
of reorganization under Chapters 11 and 13 of the U.S. Bankruptcy Code).
v. Disclose other material facts.
vi. Cases, actions and other proceedings under the laws of
foreign nations relating to bankruptcy proceedings should be included in
answers, where responses are required, as if those cases, actions and
proceedings took place under the U.S. Bankruptcy Code.
vii. If information is disclosed in this Item, at the end of the
disclosure add Sample Answer 4-1 with the qualification "other than these
actions."
viii. Use Sample Answer 4-1 if no person listed in Items 1 or 2 has
been involved as a debtor in bankruptcy proceedings or any person listed in
Items 1 or 2 has been involved as debtor in bankruptcy proceedings but the
bankruptcy proceedings (under the U.S. Bankruptcy Code or its predecessor, the
National Bankruptcy Act of 1898) were discharged more than 10 years ago.
"Person" includes natural persons and legal entities listed in Items
1 and 2. Person does not include anyone acting solely as the franchisor's
agent for service of process.
Sample
Answer 4-1
No person previously identified
in Items 1 or 2 of this offering circular has been involved as a debtor in
proceedings under the U.S. Bankruptcy Code required to be disclosed in this
Item.
Sample
Answer 4-2
On March 2, 1984, Belmont filed
a petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code. We were
allowed to continue to operate under bankruptcy court supervision. On October
2, 1985, the bankruptcy court approved our plan of reorganization and
discharged the proceedings. (US Bankruptcy Court for the District of
Case
B 84-301.)
Belmont's present president,
Roger Rowe, was president of Acme Muffler Service, Inc., a Houston, Texas based
manufacturer of exhaust systems, from July 1, 1978, through June 14, 1983. On
June 6, 1983, an involuntary petition under the U.S. Bankruptcy Code was filed
against Acme by its creditors. On July 14, 1983, the court entered an order of
relief. Acme sold its assets and was dissolved.
Other than these 2 actions, no
person previously identified in Items 1 or 2 of this offering circular has been
involved as a debtor in proceedings under the U.S. Bankruptcy Code required to
be disclosed in this Item.
Item
5
INITIAL
FRANCHISE FEE
DISCLOSE THE INITIAL FRANCHISE
FEE AND STATE THE CONDITIONS WHEN THIS FEE IS REFUNDABLE.
Item 5 Instructions:
i. "Initial fee" includes all fees and payments for
services or goods received from the franchisor before the franchisee's business
opens. "Initial fee" includes all fees and payments whether payable
in lump sum or installments.
ii. If the initial fee is not uniform, disclose the formula or
the range of initial fees paid in the fiscal year before the application date
and the factors that determined the amount.
iii. Disclose installment payment terms in this Item or in Item
10.
Sample
Answer 5-1
All franchisees pay a $10,000
lump sum franchise fee when they sign the franchise agreement. Belmont will
refund the entire amount if we do not approve your application within 45 days.
Belmont will refund $9,000 of this fee if you do not satisfactorily complete
your 2-week training. There are no refunds under other circumstances.
Sample
Answer 5-2
You must pay a franchise license
fee of $________ per thousand licensed drivers who reside within your exclusive
area when the franchise agreement is signed. The number of licensed drivers is
determined by the latest abstract of the state agency which issues driver's
licenses. The minimum fee is $20,000. When you send your application, you
must pay a non-refundable $500 application fee. You must pay an additional
$10,000 when you receive your equipment. The balance of your fee is payable in
12 equal monthly installments of $______. The first installment payment is due
1 year after your shop opens. Belmont charges 10% annual interest on the
unpaid balance. Interest compounds daily and accrues from the date that you
receive your equipment. All buyers pay this uniform fee and receive the same
financing terms on the fee. If your application is not accepted, Belmont
retains the $500 for investigative costs, but you are not liable for the
$19,500 remainder. Belmont does not give refunds under other circumstances.
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
WHEN EACH FEE OR PAYMENT IS REFUNDABLE.
Item 6 Instructions:
i. First disclose fees in tabular form. Use footnotes or a
"remarks" column to elaborate on the information in the table or to
disclose caveats. If elaborations are lengthy, use footnotes instead of a
remarks column.
ii. Disclose the amount of each fee. A dollar amount or a
percentage of gross sales is acceptable if the term gross sales is defined. If
dollar amounts may increase, disclose the formula which determines the increase
or the maximum amount of the increase.
iii. Disclose the due date for recurring payments.
iv. If all fees are payable to only the franchisor, disclose this
in a footnote.
v. If all fees are imposed and collected by the franchisor,
disclose this in a footnote.
vi. If all fees are non-refundable, state this in a footnote.
vii. Disclose the voting power of franchisor owned outlets on any
fees imposed by cooperatives. If franchisor outlets have controlling voting
power, disclose a range for the fee. Disclose this information in a footnote
or a "remarks" column.
viii. The franchisor need not repeat information contained in Items
8 & 9, but the table should direct the franchisees to those Items.
ix. Examples of fees are royalty, lease negotiation,
construction, remodeling, additional training, advertising, group advertising,
additional assistance, audit, accounting/inventory, and transfer and renewal
fee.
Sample
Answer 6-1
Name of Fee
Amount
Due
Date
Remarks
Royalty
1
4% of total gross sales
Payable monthly on the 10
th
day of the next month
Gross sales includes all
revenue from the franchise location. Gross sales does not include sales tax
or use tax.
Advertising
1
2% of total gross sales
Same as Royalty fee
Cooperative Advertising
1
Maximum − 2% of gross
sales
Established by franchisees
Franchisees may form an
advertising cooperative and establish local advertising fees. Company owned
stores have no vote in these cooperatives.
Additional Training
1
$1,000 per person
2 weeks prior to beginning of
training
Belmont trains 2 persons free
− See Item 11
Additional Assistance
1
$500 per day
30 days after billing
Belmont provides opening
assistance free − See Item 11
Transfer
1
$1,000
Prior to consummation of
transfer
Payable when you sell your
franchise. No charge if franchise transferred to a corporation which you
control.
Audit
1
Cost of audit plus 10%
interest on underpayment
2
30 days after billing
Payable only if audit shows an
understatement of at least 2% of gross sales for any month
Renewal Fee
1
$1,000
30 days before renewal
Notes:
1
All fees are imposed by and are payable to Belmont. All
fees are non-refundable.
2
Interest begins from the date of the underpayment.
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 WHEN 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
ESTIMABLE NOR DESCRIBABLE 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 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 7 Instructions:
i. Begin disclosure by listing expenditures in tabular form.
List preopening expenses first. Use footnotes to comment on expected
expenditures.
ii. Disclose payments required by the franchise agreement and
all costs necessary to begin operation of the franchise and operate the
franchise during the initial phase of the business. A reasonable time for the
initial phase of the business is at least 3 months or a reasonable period for
the industry. Include an entry titled "additional funds" and disclose
the length of the initial phase in the entry.
iii. If a specific expenditure amount is not ascertainable, use a
low-high range based on the franchisor's current experience. If real property
costs cannot be estimated in a low-high range, disclose the approximate size of
the property and building involved. Describe the probable location of the
building (for example, strip shopping center, mall, downtown, rural or
highway).
iv. The franchisor may include additional expenditure tables to
show expenditure variations caused by differences in site location, premise
size, etc. Describe in general terms the factors, basis and experience that
the franchisor considered or relied upon in formulating the amount required for
additional funds.
v. If the franchisor or an affiliate finances part of the
initial investment, state the expenditures that it will finance. State the
required down payment, annual percentage rate of interest, rate factors, and
the estimated loan repayments. Make the discussion brief, and refer to Item
10.
vi. Total the initial investment. This total should be the same
as the total investment on the offering circular cover.
Sample Answer 7
YOUR
ESTIMATED INITIAL INVESTMENT
AMOUNT
METHOD OF PAYMENT
WHEN DUE
TO WHOM PAYMENT IS TO BE MADE
INITIAL
FRANCHISE
FEE
$20,000
(Note 1)
Lump
Sum
At
Signing of Franchise Agreement
Belmont, Inc.
TRAVEL AND LIVING EXPENSES WHILE TRAINING
$2,500 to $5,000
As
Incurred
During
Training
Airlines, Hotels & Restaurants
REAL
ESTATE AND IMPROVEMENTS
(Note 2)
(Note
2)
(Note
2)
(Note 2)
EQUIPMENT
$40,000
(Note 3)
Lump
Sum
Prior
to Opening
Belmont or vendors
SIGNS
$2,200
Lump
Sum
Prior
to Opening
Abbey Sign Company
MISCELLANEOUS
OPENING COSTS
$8,000
(Note 4)
As
Incurred
As
Incurred
Suppliers, Utilities, etc.
OPENING
INVENTORY
$8,000
(Note 5)
Lump
Sum
Prior
to Opening
Belmont or vendors
ADVERTISING
FEE − 3 MONTHS
$500
Monthly
Belmont
ADDITIONAL
FUNDS − 3 MONTHS
$50,000 to $75,000
(Note 6)
As
Incurred
As
Incurred
Employees, Suppliers, Utilities
TOTAL
$132,700 to $160,200
(Note 7)
(Does not include real estate costs)
Notes:
1
See Item 5 for the conditions when this fee is partly
refundable. Belmont does not finance any fee.
2
If you do not own adequate shop space, you must lease the
land and building for the Belmont Muffler Shop. Typical locations are light
industrial and commercial areas. The typical Belmont Muffler Shop has 5,000 –
8,000 square feet. Former three or four bay gasoline service stations have
been converted with relative ease into Belmont Muffler Shops. Rent is
estimated to be between $12,000 – $20,000 per year depending on factors such as
size, condition and location of the leased premises.
3
This payment is fully refundable before equipment
installation. After installation, Belmont deducts $3,000 installation costs
from your refund.
4
Includes security deposits, utility costs, incorporation
fee.
5
This payment is fully refundable before Belmont delivers
your inventory. After delivery Belmont deducts a 10% restocking fee from your
refund.
6
This estimates your start up expenses. These expenses include
payroll costs. These figures are estimates and Belmont cannot guarantee that
you will not have additional expenses starting the business. Your costs will
depend on factors such as: how much you follow Belmont's methods and
procedures; your management skill, experience and business acumen; local
economic conditions; the local market for our product; the prevailing wage
rate; competition; and the sales level reached during the initial period.
7
Belmont relied on its 30 years of experience in the muffler
business to compile these estimates. You should review these figures carefully
with a business advisor before making any decision to purchase the franchise.
8
Belmont does not offer direct or indirect financing to
franchisees for any items.
Item
8
RESTRICTIONS
ON SOURCES
OF
PRODUCTS AND SERVICES
DISCLOSE FRANCHISEE OBLIGATIONS
TO PURCHASE OR LEASE FROM THE FRANCHISOR, ITS DESIGNEE OR FROM SUPPLIERS
APPROVED BY THE FRANCHISOR OR UNDER THE FRANCHISOR'S SPECIFICATIONS. FOR EACH
OBLIGATION DISCLOSE:
A. THE GOODS, SERVICES, SUPPLIES, FIXTURES, EQUIPMENT, INVENTORY,
COMPUTER HARDWARE AND SOFTWARE OR REAL ESTATE RELATING TO ESTABLISHING OR
OPERATING THE FRANCHISED BUSINESS.
B. THE MANNER IN WHICH THE FRANCHISOR ISSUES AND MODIFIES
SPECIFICATIONS OR GRANTS AND REVOKES APPROVAL TO 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 8 Instructions:
i. An obligation includes those imposed by written agreement or
by the franchisor's practice. The franchisor may include the reason for the
requirement.
ii. Do not include goods or services provided as part of the
franchise and without a separate charge (for example, a fee for initial
training when the cost is included in the franchise fee). These fees should be
described in Item 5. Do not include fees disclosed in response to Item 6.
iii. For "precise basis," disclose the franchisor's
total revenues and the franchisor's revenues from all required purchases and
leases of products and services. Also, disclose the percentage of the
franchisor's total revenues represented by the franchisor's revenues from
required purchases or leases. If the franchisor's affiliates also sell or
lease products or services to franchisees, disclose affiliate revenues from
those sales or leases. These amounts should be taken from the franchisor's
statement of operations (or profit and loss statement) from the most recent
annual audited financial statement attached to the offering circular. If the
franchisor's annual audited financial statement is not required to be attached
to the offering circular or if the franchisor's affiliate sells or leases
required products or services to franchisees, disclose the sources of
information used in computing revenues.
iv. State how the franchisor formulates and modifies
specifications and standards imposed on franchisees.
v. Disclose whether specifications and standards are issued to
franchisees, subfranchisors, or approved suppliers.
vi. Describe how suppliers are evaluated, approved or
disapproved. Disclose whether the franchisor's criteria for supplier approval
are available to franchisees. State the fees and procedure to secure approval
and how approvals are revoked. State the time period when the franchisee will
receive notification of approval or disapproval.
vii. If the designated supplier will make payments to the
franchisor because of transactions with franchisees, disclose the basis for the
payment. Specify a percentage or a flat amount. Purchases of similar goods or
services by the franchisor at a lower price than that available to franchisees
is a payment.
viii. Disclose whether the franchisor negotiates purchase
arrangements with suppliers (including price terms) for the benefit of
franchisees.
ix. Disclose whether the franchisor provides material benefits
(for example, renewal or granting additional franchises) to a franchisee based
on a franchisee's use of designated or approved sources.
x. Use Sample Answer 8-1 if the response to Item 8 is negative.
Sample
Answer 8-1
Belmont has no required
specifications, designated suppliers, or approved suppliers for goods, services
or real estate relating to your franchise business. Belmont will not derive
revenue from your purchases or leases.
Sample
Answer 8-2
You must purchase your pipe
bending machine, hoist, cutting torch and suppliers under specifications in the
operations manual. These specifications include standards for delivery,
performance, design and appearance. You may purchase this equipment from
Belmont. In the year ending December 31, 1992, Belmont's revenues from the
sale of this equipment to franchisees was $500,000, or 5% of Belmont's total
revenues of $10,000,000. The cost of equipment purchased in accordance with
specifications represents 10% of your total purchases in connection with
establishment of your store.
Belmont's affiliate, Muffler
Supply Co., is an approved supplier of mufflers to franchisees. In the year
ending December 31, 1992, the affiliate's revenues from the sale of mufflers to
franchisees was $2,000,000. The purchase of mufflers from approved sources
will represent 15 to 20% of your overall purchases in operating the store.
Belmont has approved other suppliers of mufflers and exhaust pipe. If you
would like to purchase these items from another supplier, you may request our
"Supplier Approval Criteria and Request Form." Based on the
information and samples you supply to us and your payment of a $500 fee, we
will test the items supplied and review the proposed supplier's financial
records, business reputation, delivery performance, credit rating and other
information. Our review typically is completed in 30 days.
One of the approved suppliers of
mufflers and exhaust pipes, Scottie's Pipes, Inc., pays Belmont a rebate of 1%
of all franchisee purchases, which is deposited in the Belmont Advertising
Fund. Another approved supplier, Michael's Clean-Air, Inc., pays Belmont 2% of
all franchisee purchases of catalytic converters. This amount is used in
Belmont's training center for classes in catalytic converter repair and
replacement.
Item
9
FRANCHISEE'S
OBLIGATIONS
DISCLOSE THE PRINCIPAL OBLIGATIONS OF THE FRANCHISEE UNDER
THE FRANCHISE AND OTHER AGREEMENTS AFTER THE SIGNING OF THESE AGREEMENTS.
Item 9 Instructions:
i. Disclose obligations in tabular form. Refer to the section
of the agreement that contains the obligation and any Item of the offering
circular that further describes the obligation.
ii. 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 state that. 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:
a. Site selection and acquisition/lease
b. Pre-opening purchases/leases
c. Site development and other pre-opening requirements
d. Initial and ongoing training
e. Opening
f. Fees
g. Compliance with standards and policies/Operating Manual
h. Trademarks and proprietary information
i. Restrictions on products/services offered
j. Warranty and customer service requirements
k. Territorial development and sales quotas
l. Ongoing product/service purchases
m. Maintenance, appearance and remodeling requirements
n. Insurance
o. Advertising
p. Indemnification
q. Owner's participation/management/staffing
r. Records and reports
s. Inspections and audits
t. Transfer
u. Renewal
v. Post-termination obligations
w. Non-competition covenants
x. Dispute resolution
y. Other (describe)
iii. 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.
Sample
Answer 9
Obligation
Section
In Agreement
Item
in Offering Circular
a.
Site Selection and
acquisition/lease
Section 2A of Franchise
Agreement
Items 6 and 11
b.
Pre-opening purchases/leases
Section 3B of Franchise Agreement
Item 8
c.
Site development and other
pre-opening requirements
Sections 3A and 3B of
Franchise Agreement
Items 6, 7 and 11
d.
Initial and ongoing training
Section 5 of Franchise
Agreement
Item 11
e.
Opening
Section 4 of Franchise
Agreement
Item 11
f.
Fees
Section 6 of Franchise
Agreement
Items 5 and 6
g.
Compliance with standards and
policies/Operating Manual
Section 8A of Franchise
Agreement
Item 11
h.
Trademarks and proprietary
information
Sections 7 and 11 of Franchise
Agreement
Items 13 and 14
i.
Restrictions on
products/services offered
Section 12 of Franchise
Agreement
Item 16
j.
Warranty and customer service
requirements
Section 8B of Franchise
Agreement
Item 11
k.
Territorial development and
sales quotas
None
l.
Ongoing product/service
purchases
Section 9 of Franchise
Agreement
Item 8
m.
Maintenance, appearance and
remodeling requirements
Sections 8C and 10 of
Franchise Agreement
Item 11
n.
Insurance
Section 13A of Franchise
Agreement
Items 6 and 8
o.
Advertising
Section 15 of Franchise
Agreement
Items 6 and 11
p.
Indemnification
Section 13B of Franchise
Agreement
Item 6
q.
Owner's participation/management/
staffing
Sections 4, 5 and 14 of
Franchise Agreement
Items 11 and 15
r.
Records/reports
Section 17A of Franchise
Agreement
Item 6
s.
Inspections/audits
Section 17B of Franchise
Agreement
Items 6 and 11
t.
Transfer
Section 18 of Franchise
Agreement
Item 17
u.
Renewal
Section 20 of Franchise
Agreement
Item 17
v.
Post-termination
Section 22 of Franchise
Agreement
Item 17
w.
Non-competition covenants
Sections 11, 18 and 22C of Franchise
Agreement
Item 17
x.
Dispute resolution
Section 24 of Franchise
Agreement
Item 17
Item
10
FINANCING
DISCLOSE THE TERMS AND
CONDITIONS OF EACH FINANCING ARRANGEMENT THAT THE FRANCHISOR, ITS AGENT OR
AFFILIATE OFFERS DIRECTLY OR INDIRECTLY TO THE FRANCHISEE.
Item 10 Instructions:
i. "Financing" includes leases and installment
contracts.
ii. Payments due within 90 days on open account financing need
not be disclosed under this Item.
iii. A written arrangement between a franchisor or its affiliate
and a lender for the lender to offer financing to the franchisee or an
arrangement in which a franchisor or its affiliate receives a benefit from a
lender for franchisee financing is an "indirect offer of financing"
and must be disclosed under this Item. The franchisor's guarantee of a note,
lease or obligation of the franchisee is an "indirect offer of financing"
and must be disclosed under this Item.
iv. If financing of the initial fee is disclosed in the Item 7
disclosure, a cross reference to Item 7 is sufficient if all the disclosure
which Item 10 requires is provided in Item 7.
v. If an affiliate offers financing, identify the affiliate and
its relationship to the franchisor.
vi. The franchisor may summarize the terms of each financing
arrangement in tabular form, using footnotes to entries in the chart to provide
additional information required by these instructions that does not fit in the
chart.
vii. If a financing arrangement is for the establishment of the
franchised business, disclose what the financing covers, including:
a. Initial franchise fee;
b. Site acquisition;
c. Construction or remodeling;
d. Equipment or fixtures; and
e. Opening inventory or supplies.
viii. If the franchisor generally offers financing for the
operation of the franchised business, disclose what the financing arrangement
covers, including:
a. Inventory or supplies;
b. Replacement equipment or fixtures; and
c. Other continuing expenses.
ix. Disclose the terms of each financing arrangement, including:
a. The identity of the lender(s) providing the financing and its
relationship to the franchisor (for example, affiliate);
b. The amount of financing offered or, if the amount depends on
an actual cost that may vary, the percentage of the cost that will be financed;
c. The annual percentage rate of interest ("APR")
charged, computed as provided by Sections 106-107 of the Consumer Protection
Credit Act, 15 USC Secs. 106-107. If the APR may differ depending on when the
financing is issued, disclose the APR on a specified recent date;
d. The number of payments or the period of repayment;
e. Nature of security interest required by the lender;
f. Whether a person other than the franchise (for example
spouse, shareholder of the franchisee) must personally guarantee the debt;
g. Whether the debt can be prepaid and the nature of any
prepayment penalty;
h. The franchisee's potential liabilities upon default,
including any accelerated obligation to pay the entire amount due, court costs
and attorney's fees for collection, and termination of the franchise, or other
cross default clauses whether directly, as a result of non-payment, or
indirectly, as a result of loss of necessary facilities; and
i. Other material financing terms.
x. Include specimen copies of the financing documents as an
exhibit to Item 22. Cite the section and name of the document containing the
financing terms. Put this information in parentheses at the end of the
description of the term.
xi. Use Sample Answer 10-1 if the franchisor does not offer
financing.
A. A WAIVER OF DEFENSES
OR SIMILAR PROVISIONS IN A DOCUMENT.
Item 10A Instructions:
i. Disclose the terms of waivers of legal rights by the
franchise under the terms of the financing arrangement (for example confession
of judgment).
ii. Describe provisions of the loan agreement that bar the
franchisee from asserting a defense against the lender, the lender's assignee
or the franchisor.
iii. If the loan agreement does not contain the provisions in i.
or ii., disclose that fact.
iv. Cite the section and name of the document containing these
terms. Put this information in parentheses at the end of the description of the
term.
B. THE FRANCHISOR'S PRACTICE OR ITS INTENT TO SELL, ASSIGN, OR
DISCOUNT TO A THIRD PARTY ALL OR PART OF THE FINANCING ARRANGEMENT.
Item 10B Instructions:
i. Practice includes past or present practice and future intent
to sell or assign franchisee financing arrangements.
ii. Disclose the assignment terms including whether the
franchisor will remain primarily obligated to provide the financed goods or
services.
iii. If the franchisor may sell or assign its rights under the
financing agreement, disclose that the franchise may lose all its defenses
against the lender as a result of the sale or assignment.
iv. Cite the section and name of the document containing these
terms. Put this information in parentheses at the end of the description of the
term.
v. If no disclosure is required by Instruction 10B, disclose
that fact.
C. PAYMENTS TO THE FRANCHISOR OR AN AFFILIATE(S) FOR THE
PLACEMENT OF FINANCING WITH THE LENDER.
Item 10C Instructions:
i. Describe the payments.
ii. If no disclosure is required by Instruction 10C i. for a
financing arrangement, disclose that fact.
iii. Identify the source of the payment and the relationship of
the source to the franchisor or its affiliates.
iv. Disclose the amount or the method of determining the payment.
v. Cite the section and name of the document containing these
arrangements. Put this information in parentheses at the end of the
description of the term.
Sample Answer 10-1
Belmont does not offer direct or
indirect financing. Belmont does not guarantee your note, lease or obligation.
Sample
Answer 10-2
SAMPLE ANSWER 10-2 SUMMARY OF FINANCING OFFERED
ITEM
LIABILITY
LOSS OF LEGAL
FINANCED
AMOUNT
DOWN
TERM
APR
MONTHLY
PREPAY
SECURITY
UPON
RIGHT ON
(Source)
FINANCED
PAYMENT
(YRS)
%
PAYMENT
PENALTY
REQUIRED
DEFAULT
DEFAULT
INITIAL FEE
$
LOSS OF
WAIVE NOTICE
(NOTE 1)
$10,000
10
18
NONE
PERSONAL
FRANCHISE
CONFESS
(BELMONT)
GUARANTEE
UNPAID LOAN
JUDGEMENT
LAND/
NONE
CONSTRUCT
LEASED
LOSS OF FRAN-
SPACE
CHISE-BACK
(NOTE 2)
$2,000
7 to 10
N/A
$
NONE
PERSONAL
RENT-2 MOS.
NONE
(BELMONT)
(secur.
GUARANTEE
FRANCHISE
dep.)
RIGHTS-
ATTY'S FEES
EQUIPMENT
LEASE (NOTE 3)
$5,000
NONE
5
15
$
NONE
EQUIPMENT
COST OF
LOSE ALL
(USA CREDIT
PERSONAL
REMOVAL
DEFENSES
CORP.)
GUARANTEE
EQUIPMENT
PURCHASE
$3,750
$1,250
2 to 7
15
$
$500
EQUIPMENT
LOSS OF
NONE
(NOTE 4)
(25%)
PERSONAL
FRANCHISE
(BELMONT)
GUARANTEE
ATTY'S FEES
OPENING
NONE
INVENT.
OTHER
NONE
FINANCING
Notes:
1
If you meet Belmont's credit standards, Belmont will
finance the $10,000 initial franchisee fee over a 10-year period at an APR of
18%, using the standard form note in Exhibit A. The only security Belmont
requires is a personal guarantee of the note by you and your spouse or by all
the shareholders of your corporation. (Loan Agreement Section ______) The
note can be prepaid without penalty at any time during its 10-year term. (Loan
Agreement Section ______) If you do not pay on time, Belmont can call the loan
and demand immediate payment of the full outstanding balance and obtain court
costs and attorney's fees if a collection action is necessary. (Loan Agreement
Section ______) Belmont also has the right to terminate your franchise if you
do not make your payments on time more than three times during the note term.
(Loan Agreement Section ______) You waive your rights to notice of a
collection action and to assert any defenses to collection against Belmont.
(Loan Agreement Section ______) Belmont discounts these notes to a third party
who may be immune under the law to any defenses to payment you may have against
Belmont. (Loan Agreement Section ______)
2
In most cases Belmont will sublease the franchised premises
to you but will guarantee your lease with a third party if you have acceptable
credit and that is the only way to obtain an exceptional location. (Lease
Section ______) The precise terms of Belmont's standard lease in Exhibit B
will vary depending on the size and location of the premises, but the chart
reflects a typical range of payments for Belmont's standard 6-day franchise
outlet, including payment of one month's rent as a security deposit. (Lease
Section ______) The only other security Belmont requires is a personal
guarantee of the lease by you and your spouse or by all the shareholders of
your corporation. (Lease Section ______) The lease can be prepaid without
penalty at any time during its term. (Lease Section ______) If you do not make
a rent payment on time, Belmont has the right to collect the unpaid rent plus
an additional two months rent, as liquidated damages. (Lease Section ______)
Belmont can also obtain court costs and attorney's fees if a collection action
is necessary. (Lease Section______) If you are late with your rent more than
three times during the lease term, Belmont has the right to terminate the
lease, take over the premises, and terminate your franchise. If Belmont
guarantees your lease, Belmont will require you to sign the guarantee agreement
in Exhibit F. (Lease Section______) This gives Belmont the same legal rights
as the sublease but requires you to give Belmont the right to approve your
lease and pay the rent for you if you fail to pay on time. (Lease Section______)
3
If you want to lease the pipe bending machine and other
equipment you need, Belmont has arranged an equipment lease (see Exhibit C)
from USA Credit Corporation of Las Vegas, Nevada. If you choose this option,
you will pay $100 a month for 60 months (5 years) at an APR of 15% based on a
cash price of $5,000, with no money down. (Equipment Lease Section ______) At
the end of the lease term, you may purchase the equipment with a one-time
payment of $2,500. (Equipment Lease Section ______) USA Credit requires a
personal guarantee from you and your spouse or from all the shareholders of
your corporation and retains a security interest in the equipment. (Equipment
Lease Section ______) The equipment lease can be prepaid at any time, but the
interest you might otherwise save will be reduced by application of the Rule of
78's for computing finance charges. (Equipment Lease Section ______) If you
do not make a payment on time, USA Credit can demand payment of all past due
payments, remove the equipment, and charge you $1,000 as liquidated damages.
(Equipment Lease Section ______) USA Credit can also recover its costs of
collection, including court costs and attorney's fees. (Equipment Lease
Section ______) While Belmont does not know USA Credit's policies, USA Credit
may discount the lease to a third party who may be immune under the law to
claims or defenses you may have against USA Credit, the equipment manufacturer
or Belmont. Belmont receives a referral fee of $500 from USA Credit for every
franchisee who leases equipment from it.
4
If you prefer, Belmont will sell you the pipe bending
machine and other necessary equipment on time. (Equipment Purchase Agreement
Section ______) Belmont requires a 25% down payment of $1,250. (Equipment
Purchase Agreement Section ______) Belmont will finance the remainder over a
2-7 year period at your option at an APR of 15%. (Equipment Purchase Agreement
Section ______) Payments range from $228.11 a month over 7 years to $821.58 a
month over 2 years. (Equipment Purchase Agreement Section ______) Belmont's
standard equipment financing note in Exhibit D must be personally guaranteed by
you and your spouse or by all the shareholders of your corporation, and Belmont
will retain a security interest in the equipment. (Equipment Purchase Agreement
Section ______) You may purchase the equipment at any time during the lease
period by paying the remainder of the principal plus a $500 prepayment
penalty. (Equipment Purchase Agreement Section ______) If you do not make a
payment on time, Belmont can demand all overdue payments, repossess the
equipment, and terminate your franchise. Belmont can also recover its costs of
collection, including court costs and attorney's fees. (Equipment Purchase
Agreement Section ______)
Except as disclosed in Note 1,
Belmont does not offer financing that requires you to waive notice, confess
judgment or waive a defense against Belmont or the vendor, although you may
lose your defenses against Belmont and others in a collection action on a note
that is sold or discounted, as disclosed in Notes 2 and 3.
Except as disclosed in Note 3,
Belmont does not arrange financing from other sources.
Except as disclosed in Notes 1
and 3, commercial paper from franchisees has not been and is not sold or
assigned to anyone, and Belmont has no plans to do so.
Except as disclosed in Note 3,
Belmont does not receive direct or indirect payments for placing financing.
Except as disclosed in Note 2,
Belmont does not guarantee your obligations to third parties.
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.
Item 11A Instructions:
i. Begin the disclosure by stating: "Except as listed
below,
(the franchisor)
need not provide any assistance to you."
ii. Pre-opening obligations include assistance to:
a. Locate a site for the franchised business and negotiate the
purchase or lease of this site. State whether the franchisor generally owns
the premises and leases it to the franchisee;
b. Conform the premises to local ordinances and building codes
and obtain the required permits (i.e., health, sanitation, building, driveway,
utility and sign permits);
c. Construct, remodel or decorate the premises for the
franchised business;
d. Purchase or lease equipment, signs, fixtures, opening
inventory and supplies. Disclose whether the franchisor provides these items
directly or merely the names of approved suppliers. Disclose whether the
franchisor provides written specifications for these items. Disclose whether
the franchisor delivers or installs these items. (The franchisor may cross
reference Item 8 for details); and
e. Hire and train employees.
iii. After describing the obligation, cite the section number of
the agreement imposing the obligation. Put the citation in parentheses. Use
this format throughout this Item.
B. THE OBLIGATIONS TO BE MET BY THE FRANCHISOR DURING THE
OPERATION OF THE FRANCHISE BUSINESS.
Item 11B Instructions:
i. Include assistance in:
a. Products or services to be offered by the franchisee to its
customers;
b. Hiring and training of employees;
c. Improvements and developments in the franchised business;
d. Pricing;
e. Administrative, bookkeeping, accounting and inventory control
procedures; and
f. Operating problems encountered by the franchisee.
ii. For the franchisor's advertising program for the product or
service offered by the franchisee:
a. Disclose the media in which the advertising may be
disseminated (for example, print, radio, or television).
b. Disclose whether the coverage of the media is local,
regional, or national in scope.
c. Disclose the source of the advertising (for example, in-house
advertising department, a national or regional advertising agency).
d. Disclose the conditions when the franchisor permits
franchisees to use their own advertising material.
e. If there is an advertising council composed of franchisees
that advises the franchisor on advertising policies, disclose:
(1) How members of the council are selected.
(2) Whether the council serves in an advisory capacity only or has
operational or decision-making power.
(3) Whether the franchisor has the power to form, change, or
dissolve the advertising council.
f. If the franchisee must participate in a local or regional
advertising cooperative, disclose:
(1) How the area or membership of the cooperative is defined.
(2) How the franchisee's contribution to the cooperative is
calculated (may reference Item 6).
(3) Who is responsible for administration of the cooperative (for
example, franchisor, franchisees, advertising agency).
(4) Whether cooperatives must operate from written governing
documents and whether the documents are available for review by the franchisee.
(5) Whether cooperatives must prepare annual or periodic financial
statements and whether the statements are available for review by the
franchisee.
(6) Whether the franchisor has the power to require cooperatives
to be formed, changed, dissolved or merged.
g. If applicable, for each advertising fund not described in
above subsection (f), disclose:
(1) Who contributes to each fund (for example, franchisees,
franchisor, franchisor-owned units, outside vendors or suppliers).
(2) Whether the franchisor-owned units must contribute to the fund
and, if so, whether it is on the same bases as franchisees.
(3) How much the franchisee must contribute to the advertising
fund(s) (may reference Item 6) and whether other franchisees are required to
contribute at a different rate (it is not necessary to disclose the specific
rates).
(4) Who administers the fund(s). Whether the fund is audited and
when, and whether financial statements of the fund are available for review by
the franchisee.
(5) Use of the fund(s) in the most recently concluded fiscal year,
the percentages spent on production, media placement, administrative expenses,
and other (with a description of what constitutes "other"). Totals
should equal 100%.
(6) Whether the franchisor or an affiliate receives payment for
providing goods or services to an advertising fund.
h. State whether the franchisor must spend any amount on
advertising in the area or territory where the franchisee is located.
i. If all advertising fees are not spent in the fiscal year in
which they accrue, explain how the franchisor uses the remaining amounts.
Indicate whether franchisees will receive a periodic accounting of how
advertising fees are spent.
j. Disclose the percentage of advertising funds, if any, used
for advertising that is principally a solicitation for the sale of franchises.
k. Cross reference Items 6, 8 and 9.
iii. If the franchisor requires that franchisees buy or use
electronic cash register or computer systems, provide a general description of
the systems in non-technical language:
a. Identify each hardware component and software program by
brand, type and principal functions.
(1) If the hardware component or software program is the
proprietary property of the franchisor, an affiliate or a third party, state
whether the franchisor, an affiliate or a third party has the contractual right
or obligation to provide ongoing maintenance, repairs, upgrades or updates.
Disclose the current annual cost of any optional or required maintenance and
support contracts, upgrades and updates.
(2) If the hardware component or software program is the
proprietary property of a third party, and no compatible equivalent component
or program has been approved by the franchisor for use with the system to
perform the same functions, identify the third party by name, business address
and telephone number, and state the length of time the component or program has
been in continuous use by the franchisor and its franchisees.
(3) If the hardware component or software program is not
proprietary, identify compatible equivalent components or programs that perform
the same functions and indicate whether they have been approved by the
franchisor.
b. State whether the franchisee has any contractual obligation
to upgrade or update any hardware component or software program during the term
of the franchise, and if so, whether there are any contractual limitations on
the frequency and cost of the obligation.
c. For each electronic cash register system or software program,
describe how it will be used in the franchisee's business, and the type of
business information or data that will be collected and generated. State
whether the franchisor will have independent access to the information and
data, and if so, whether there are any contractual limitations on the
franchisor's right to access the information and data.
iv. After describing the obligation, cite the section number of
the agreement imposing the obligation. Put the citation in parentheses.
v. Disclose if the franchisor is not obligated to provide or to
assist the franchisee to obtain the above items or services.
vi. Do not repeat, but do cross reference disclosure made in Item
6.
vii. Disclose the table of contents of the operating manual(s)
provided to the franchisee as of the franchisor's last fiscal year end or a
more recent date. State the number of pages devoted to each subject and the
total number of pages in the manual as of this date. Alternatively, this
disclosure may be omitted if the prospective franchisee views the manual before
purchase of the franchise.
C. THE METHODS USED BY THE FRANCHISOR TO SELECT THE LOCATION OF
THE FRANCHISEE'S BUSINESS.
Item 11C Instructions:
i. Disclose whether the franchisor selects the site or approves
an area within which the franchisee selects a site. Disclose how and whether
the franchisor must approve a franchisee selected site.
ii. Disclose the factors which the franchisor considers in selecting
or approving sites (for example, general location and neighborhood, traffic
patterns, parking, size, physical characteristics of existing buildings and
lease terms).
iii. Disclose the time limit for the franchisor to locate or to
approve or disapprove the site. Disclose the consequences if the franchisor
and franchisee cannot agree on a site.
iv. Disclosure made in response to Item 11A need not be repeated
or cross referenced in the response to Item 11C.
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.
Item 11D Instructions:
i. Disclosure may be a range of times if the range is specific.
ii. Describe the factors which may affect the time period such
as ability to obtain a lease, financing or building permits, zoning and local
ordinances, weather conditions, shortages, or delayed installation of
equipment, fixtures and signs.
E. THE TRAINING PROGRAM OF THE FRANCHISOR AS OF THE FRANCHISOR'S
LAST FISCAL YEAR END OR A MORE RECENT DATE INCLUDING:
(1) The location, duration and general outline of the training
program;
(2) How often the training program will be conducted;
(3) The experience that the instructors have with the franchisor;
(4) Charges to be made to the franchisee and who must pay travel
and living expenses of the enrollees in the training program;
(5) If the training program is not mandatory, the percentage of
new franchisees that enrolled in the training program during the preceding 12
months; and
(6) Whether any additional training programs and/or refresher
courses are required.
F. DESCRIBE THE NATURE AND EXTENT OF TRAINING UNDER THE
FRANCHISOR'S TRAINING PROGRAM.
Item 11F Instructions:
i. Use a table to state the subjects taught and the number of
hours of classroom and "on the job training" devoted to each subject
in the franchisor's training program. Use footnotes to explain.
ii. For each subject disclose the training location and how
often training classes are held.
iii. Describe the location or facility where the training is held
(for example, company, home, office, company owned store).
iv. State how long after the signing of the agreement or before
the opening date of the business the franchisee must complete the required
training.
v. Describe the nature of instruction material. Disclose the
minimum experience of the instructors. Disclose only experience that is
relevant to the subject taught and the franchisor's operations.
vi. State who may and who is required to attend the training.
State whether the franchisee or other persons must complete the program to the
franchisor's satisfaction.
vii. Charges for training or training materials should be
disclosed in Item 5 if the obligation to pay arises before the franchise
location opens.
viii. Disclose who pays the travel and living expenses of the
persons receiving the training.
Sample Answer 11
Except as disclosed below,
Belmont need not provide any assistance to you.
Before you open your business,
Belmont will:
(1) Designate your exclusive territory (Franchise Agreement -
paragraph 2).
(2) Assist you in selecting a business site. Your site must be at
least square fee in area, have parking spaces, and an average of cars
per hour driving by. We must approve or disapprove your site within 20 days
after we receive notice of the location.
(3) Within 30 days of your signing the Franchise Agreement, assist
you to find and negotiate the lease or purchase of a location for your muffler
shop (Franchise Agreement – paragraph____). Your store location will be
purchased or leased by you from independent third parties.
(4) Within 60 days of your signing the Franchise Agreement,
provide written specifications for store construction or remodeling and for all
required and replacement equipment, inventory and supplies (Franchise Agreement
– paragraph____). See Item 8 of this offering circular.
(5) Within 60 days of your signing the Franchise Agreement,
provide blueprints for your store construction or remodeling and obtain health,
sanitation, building, utility and sign permits for your premises. You pay for
the construction or remodeling (Franchise Agreement – paragraph____).
(6) Within 60 days of your signing the Franchise Agreement, train
you and one other person as follows:
Subject
Time Begun
Instructional Material
Hours of Class Room Training
Hours of on the Job Training
Instructor
Belmont does not charge for this
training or service, but you must pay the travel and living expenses for you
and your employees. All training occurs at Belmont's Jackson, Minnesota
headquarters.
During the operation of the
franchised business, Belmont will:
(1) Develop new products and methods and provide you with
information about developments (Franchise Agreement – paragraph____).
(2) Loan you a copy of our operations manual which contains
mandatory and suggested specifications, standards and procedures. This manual
is confidential and remains our property. Belmont will modify this manual, but
the modification will not alter your status and rights under the Franchise
Agreement (Franchise Agreement – paragraph____). The table of contents is as
follows:
Each week for the first 90 days
after you open your shop, Belmont will telephone to discuss your operational
problems.
Belmont will hold annual
conferences to discuss sales techniques, personnel training, bookkeeping,
accounting, inventory control, performance standards, advertising program and
merchandising procedures. There is no conference fee, but you must pay all
your travel and living expenses. These elective conferences are held at our
Jackson, Minnesota headquarters or at a location chosen by a majority vote of
all franchisees.
Belmont provides advertising
materials and services to you through a national advertising fund (the
"National Fund"). Materials provided by the National Fund to all
franchisees include video and audio tapes, mats, posters, banners and miscellaneous
point-of-sale items. You will receive one sample of each at no charge. If you
want additional copies you must pay duplication costs.
You may develop advertising
materials for your own use, at your own cost. Belmont must approve the
advertising materials in advance and in writing.
Belmont occasionally provides
for placement of advertising on behalf of the entire Belmont system, including
franchisees. However, most placement is done on a local basis, typically by
local advertising agencies hired by individual franchisees or advertising
cooperatives. Belmont reserves the right to use advertising fees from the
Belmont system to place advertising in national media (including broadcast,
print or other media) in the future. In the past Belmont has used an outside
advertising agency to create and place advertising. Neither Belmont nor its
affiliate receives payment from the National Fund. Advertising funds are used
to promote the product sold by the franchisee and are not used to sell
additional franchises.
The National Fund is a nonprofit
corporation which collects advertising fees from all franchisees. Each
franchisor owned store of Belmont contributes to the National Fund on the same
basis as franchisees. All payments to the National Fund must be spent on advertising,
promotion and marketing of goods and services provided by Belmont Muffler
Shops. You must contribute the amounts described in Item 6, under the heading
"Advertising Fees and Expenses."
The National Fund is
administered by Belmont's accounting and marketing personnel under the
direction of the Advertising Council. An annual audited financial statement of
the National Fund is available to any franchisee upon request. During the last
fiscal year of the National Fund (ending on December 31, 1990), the National
Fund spent 39% of its income on the production of advertisements and other
promotional materials, 36% for media placement, 18% for general and
administrative expenses, and 7% for other expenses (the purchase of glassware
given to customers of Belmont shops as part of a promotional campaign).
The Advertising Council acts as
the board of directors of the National Fund. The Advertising Council has 8
members: the President, Treasurer, Vice President-Marketing, and Vice
President-Operations of Belmont; and 4 franchisee representatives who are
elected by the governing board of the Belmont Franchisee Association.
Once your shop opens, you must
participate in the local advertising cooperative established in the Area of
Dominant Influence (ADI) where your store is located. The amount of your
contribution to the local advertising cooperative is described in Item 6 under
the heading "Advertising Fees and Expenses."
Each local advertising
cooperative must adopt written governing documents. A copy of the governing
documents of the cooperative (if one has been established) for your ADI is
available upon request. Each cooperative may determine its own voting
procedures; however, each company-owned Belmont Shop will be entitled to one
vote in any local advertising cooperative. The members and their elected
officers are responsible for administration of the cooperative. Advertising
cooperatives must prepare quarterly and annual financial statements. The
annual financial statement must be prepared by an independent CPA and be made
available to all franchisees in that advertising cooperative.
You select your business site
within your exclusive area subject to our approval. Belmont assists in site
selection by telling you the number of new car registrations, population
density, traffic patterns and proximity of the proposed site to other Belmont
Muffler Shops.
Franchisees typically open their
shops 4 to 7 months after they sign a franchise agreement. The factors that
affect this time are the ability to obtain a lease, financing or building
permits, zoning and local ordinances, weather conditions, shortages, and
delayed installation of equipment fixtures and signs.
Item
12
TERRITORY
DESCRIBE ANY EXCLUSIVE TERRITORY
GRANTED THE FRANCHISEE. CONCERNING THE FRANCHISEE'S LOCATION (WITH OR WITHOUT
EXCLUSIVE TERRITORY), DISCLOSE 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 CHANNELS OF
DISTRIBUTION USING THE FRANCHISOR'S TRADEMARK.
Item 12 Instructions:
i. As used in Item 12,
trademark includes name, trademarks, logos and other commercial symbols.
ii. If appropriate,
describe the minimum area granted to the franchisee. The franchisor may use an
area encompassed within a specific radius, a distance sufficient to encompass a
specified population or another specific designation.
iii. State whether the
franchise is granted for a specific location or a location to be approved by
the franchisor.
iv. If appropriate, state
the conditions under which the franchisor will approve the relocation of the
franchised business or the establishment of additional franchised outlets.
v. Describe restrictions
on the franchisor regarding operating company-owned stores or on granting
franchised outlets for a similar or competitive business within the defined
area.
vi. Describe restrictions
on franchisees from soliciting or accepting orders outside of their defined
territories.
vii. Describe restrictions
on the franchisor from soliciting or accepting order inside the franchisee's
defined territory. State compensation that the franchisor must pay for
soliciting or accepting orders inside the franchisee's defined territories.
viii. Describe franchisees
options, rights of first refusal or similar rights to acquire additional
franchises within the territory or contiguous territories.
ix. If the franchisor
does not grant territorial rights, use Sample Answer 12-1.
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.
Item 12C Instructions:
i. "Similar
products and services" includes competing, interchangeable or substitute
products but not products or services which are not part of the same product or
service market.
ii. If the franchisor or
an affiliate operates, franchises or has present plans to operate or franchise
a business under a different trademark and that business sells goods or
services similar to those to be offered by the franchisee, describe:
a. The similar goods and
services;
b. The trade names and
trademarks;
c. Whether outlets will
be franchisor owned or operated;
d. Whether the
franchisor or its franchisees who use the different trademark will solicit or
accept orders within the franchisee's territory;
e. A timetable for the
plan;
f. How the franchisor
will resolve conflicts between the franchisor and the franchisees and between
the franchisees of each system regarding territory, customers or franchisor
support; and
g. If appropriate,
disclose the principal business address of the franchisor's similar operating
business. If it is the same as the franchisor's principal business address
disclosed in Item 1, disclose whether the franchisor maintains (or plans to
maintain) physically separate offices and training facilities for the similar
competing business.
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 12D Instructions:
i. Disclose conditions
for the franchisee's keeping its territoral rights (for example, sales quotas
or the opening of additional business outlets). Specify the quotas or
conditions and the franchisor's rights if the franchisee fails to meet the
requirements.
ii. Disclose other
circumstances that permit the franchisor to modify the franchisee's territoral
rights (for example, a population increase in the territory giving the
franchisor the right to grant an additional franchise within the area).
Disclose the effect on the franchisee's rights.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 12-1
You will not receive an
exclusive territory. Belmont may establish other franchised or company owned
outlets that may compete with your location.
Sample Answer 12-2
You will receive an exclusive
territory with a minimum population of 50,000 people. You will operate from
one location and must receive Belmont's permission before relocating. Belmont
will not operate stores or grant franchises for a similar or competitive
business within your area. Except when advertising cooperatively with
appropriate franchisees, neither Belmont nor you can advertise or solicit
orders within another franchisee's territory. You and Belmont can accept
orders from outside your territory without special payment.
You do not receive the right to
acquire additional franchises within your area.
There is no minimum sales
quota. You maintain rights to your area even though the population increases.
Item
13
TRADEMARKS
DISCLOSE THE PRINCIPAL
TRADEMARKS TO BE LICENSED TO THE FRANCHISEE INCLUDING:
Item 13 Instructions:
i. As used in Item 13,
"principal trademarks" means the primary trademarks, service marks,
names, logos and symbols to be used by the franchisee to identify the franchised
business. It does not include every trademark owned by a franchisor.
ii. The franchisor may
limit Item 13 disclosure to information that is relevant to the state where the
franchised business will be located. The franchisor may include all states to eliminate
the need for multiple disclosure in Item 13 but must amend its offering
circular to reflect any material change in the list.
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.
Item 13A Instructions:
i. Identify each
principal trademark which the franchisee may use. The franchisor may reproduce
these trademarks in this Item.
ii. State the date and
identification number of each trademark registration or registration
application listed. State whether the franchisor has filed all required
affidavits. State whether any registration has been renewed.
iii. State whether the
principal trademarks are registered on the principal or supplemental register
of the U.S. Patent and Trademark Office, and if not, whether an "intent to
use" application or an application based on actual use has been filed with
the U.S. Patent and Trademark Office. If the principal trademark to be used by
the franchisee is not registered on the Principal Register of the U.S. Patent
and Trademark Office, state:
By not having a
principal federal registration for (name or description of symbol), (name of
franchisor) does not have certain presumptive legal rights granted by a
registration.
B. DISCLOSE CURRENTLY EFFECTIVE
MATERIAL DETERMINATIONS OF THE PATENT AND TRADEMARK OFFICE, TRADEMARK TRAIL AND
APPEAL BOARD, THE TRADEMARK ADMINISTRATOR OF THIS STATE OR ANY COURT; PENDING
INFRINGEMENT, OPPOSITION OR CANCELLATION; AND PENDING MATERIAL LITIGATION
INVOLVING THE PRINCIPAL TRADEMARKS.
Item 13B Instructions:
i. Litigation or an
action is material if it could significantly affect the ownership or use of a
trademark listed under Item 13. Describe how the determination affects the
ownership, use or licensing. Describe any decided infringement, cancellation
or opposition proceedings. Include fringement, opposition or cancellation
proceedings in which the franchisor unsuccessfully sought to prevent
registration of a trademark in order to protect a trademark licensed by the
franchisor.
ii. For pending material
federal or state litigation regarding the franchisor's use or ownership rights
in a trademark disclose:
a. The forum and case
number;
b. The nature of claims
made opposing the franchisor's use or by the franchisor opposing another
person's use; and
c. Any effective court
or administrative agency ruling concerning the matter.
iii. Do not repeat
disclosure made in response to Item 13A.
iv. The franchisor need
not disclose historical challenges to registrations of trademarks listed in
Item 13 that were resolved in the franchisor's favor.
v. The franchisor may
include an attorney's opinion relative to the merits of litigation or of an
action if the attorney issuing the opinion consents to its use. The text of
the disclosure may include a summary of the opinion if the full opinion is
attached and the attorney issuing the opinion consents to the use of the summary.
C. DISCLOSE AGREEMENTS
CURRENTLY IN EFFECT WHICH SIGNIFICANTLY LIMIT THE RIGHTS OF THE FRANCHISOR TO
USE OR LICENSE THE USE OF TRADEMARKS LISTED IN ITEM 13 IN A MANNER MATERIAL TO
THE FRANCHISE.
Item 13C Instructions:
For each agreement disclose:
i. The manner and
extent of the limitation or grant;
ii. The agreement's
duration;
iii. The parties to the
agreement;
iv. The circumstances
under which the agreement may be cancelled or modified; and
v. All other material
terms.
D. WHETHER THE FRANCHISOR MUST
PROTECT THE FRANCHISEE'S RIGHT TO USE THE PRINCIPAL TRADEMARKS LISTED IN ITEM
13, AND MUST PROTECT THE FRANCHISEE AGAINST CLAIMS OF INFRINGEMENT OR UNFAIR
COMPETITION ARISING OUT OF THE FRANCHISEE'S USE OF THEM.
Item 13D Instructions:
i. Disclose the
franchisee's obligation to notify the franchisor of the use of, or claims of
rights to, a trademark identical to, or confusingly similar to, a trademark
licensed to the franchisee.
ii. State whether the
franchise agreement requires the franchisor to take affirmative action when
notified of these uses or claims. Identify who has the right to control
administrative proceedings or litigation.
iii. State whether the
franchise agreement requires the franchisor to participate in the franchisee's
defense and/or indemnify the franchisee for expenses or damages if the
franchisee is a party to an administrative or judicial proceeding involving a
trademark licensed by the franchisor to the franchisee, or if the proceeding is
resolved unfavorably to the franchisee.
iv. Disclose the
franchisee's rights under the franchise if the franchisor requires the
franchisee to modify or discontinue the use of a trademark as a result of a
proceeding or settlement.
E. WHETHER THE FRANCHISOR
ACTUALLY KNOWS OF EITHER SUPERIOR PRIOR RIGHTS OR INFRINGING USES THAT 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 13E Instructions:
For each use of a principal
trademark that the franchisor believes constitutes an infringement that could
materially affect the franchisee's use of a trademark, state:
i. The location(s)
where the infringement is occurring;
ii. To the extent known,
the length of time of the infringement; and
iii. Action taken by the
franchisor.
If the franchisor knows of a use
of a trademark by another in a geographic area relevant to the franchisee which
is or is likely to be based on a claim of superior prior rights to the
franchisor's, state the nature of the use by the other person and the place or
area where it is occurring.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 13
Belmont grants you the right to
operate a shop under the name Belmont Muffler Shop. You may also use our other
current or future trademarks to operate your shop. By trademark Belmont means
trade names, trademarks, service marks and logos used to identify your shop.
Belmont registered the below trademark on the United State Patent and Trademark
Office principal register:
You must follow our rules when
you use these marks. You cannot use a name or mark as part of a corporate name
or with modifying words, designs or symbols except for those which Belmont
licenses to you. You may not use Belmont's registered name in connection with
the sale of an unauthorized product or service or in a manner not authorized in
writing by Belmont.
On June 4, 1973, the United
States Patent and Trademark Office rejected Belmont's application to register
the mark "Super Mufflers" because the mark was found to be
confusingly similar to a registered mark. Belmont's inability to register this
mark on a federal level permits others to establish rights to use the mark.
This use will not be in areas where our franchisees are operating, or
advertising under the mark, or in the natural zone of expansion for Belmont's
shops. In addition, these users must act in good faith and without actual
knowledge of Belmont's prior use of the mark. However, if others establish
rights to use Belmont's mark, Belmont may not be able to expand into these
areas using the mark.
No agreements limit Belmont's
right to use or license the use of Belmont's trademarks.
You must notify Belmont
immediately when you learn about an infringement of, or challenge to, your use
of our trademark. Belmont will take the action we think appropriate. While
Belmont is not required to defend you against a claim against your use of our
trademark, Belmont will reimburse you for your liability and reasonable costs
in connection with defending Belmont's trademark. To receive reimbursement you
must have notified Belmont immediately when you learned about the infringement
or challenge.
You must modify or discontinue
the use of a trademark if Belmont modifies or discontinues it. If this
happens, Belmont will reimburse you for your tangible costs of compliance (for
example, changing signs). You must not directly or indirectly contest our
right to our trademarks, trade secrets or business techniques that are part of
our business.
Belmont does not know of any
infringing uses that could materially affect your use of Belmont's trademark.
or
John E. Jones, 4231 Main Street,
Reno, Nevada is currently doing business as Belmont Muffler Shoppe at 4231 Main
Street, Reno, Nevada. We believe that this is an infringing use of our
federally registered trademark "Belmont Muffler Shop," and we have
filed an action to enjoin Mr. Jones and to recover damages. If the court holds
that Mr. Jones' use is not infringing, Belmont may not be able to use Belmont's
trademark in Mr. Jones' immediate area. (Belmont Muffler Shop v. Belmont
Muffler Shoppe-cite)
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 THE TERMS AND CONDITIONS FOR USE BY THE FRANCHISEE.
Item 14 Instructions:
i. State the patent
number, issue date and title for each patent. State the serial number, filing
date and title of each patent application. Describe the type of patent or patent
application (for example mechanical, process, or design). State the
registration number and date of each copyright.
ii. Describe the
relationship of the patent, patent application or copyright to the franchised
business.
iii. Describe any current
determination of the Patent and Trademark Office, Copyright Office (Library of
Congress) or court regarding the patent or copyright. Include the forum, case
number and effect on the franchised business.
iv. State the forum, case
number, claims asserted, issues involved and effective determinations for any
proceedings pending in the Patent and Trademark Office or the Court of Appeals
for the Federal Circuit.
v. If counsel consents,
the franchisor may include a counsel's opinion or a summary of the opinion
about patent or copyright issues discussed in this Item.
vi. If an agreement
limits the use of the patent, patent application or copyright, state the
parties to and duration of the agreement, the extent to which the franchisee
may be affected by the agreement, and other material terms of the agreement.
vii. Disclose the
franchisor's obligation to protect the patent, patent application or
copyright. State:
a. Whether franchisee
must notify the franchisor of claims or infringements or if the action is
discretionary.
b. Whether the
franchisor must take affirmative action when notified of infringement or if the
action is discretionary.
c. Who has the right to
control litigation.
d. Whether the
franchisor must participate in the defense of a franchisee or indemnify the
franchisee for expenses or damages in a proceeding involving a patent, patent
application or copyright licensed to the franchisee.
e. Requirements that the
franchisee modify or discontinue use of the subject matter covered by the
patent or copyright.
f. Franchisee's rights
if the franchisor requires the franchisee to modify or discontinue the use of
the subject matter covered by the patent or copyright.
viii. If the franchisor
actually knows of an infringement that could materially affect the franchisee,
state:
a. The nature of the
infringement.
b. The location(s) where
the infringement is occurring.
c. The length of time of
the infringement.
d. Action taken or
anticipated by the franchisor.
ix. State whether the
franchisor intends to renew the copyright when the registration expires.
x. Discuss in general
terms other proprietary information communicated to the franchisee (for
example, whether there is a formula or recipe considered to be a trade secret).
xi. Use Sample Answer
14-1 if no patents or copyrights are material to the franchise.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 14-1
No patents or copyrights are
material to the franchise.
Sample Answer 14-2
You do not receive the right to
use an item covered by a patent or copyright, but you can use the proprietary
information in Belmont's Operations Manual. The Operations Manual is described
in Item 11. Although Belmont has not filed an application for a copyright
registration for the Operations Manual, it claims a copyright and the
information is proprietary. Item 11 describes limitations on the use of this
manual by you and your employees.
You must also promptly tell us
when you learn about unauthorized use of this proprietary information. Belmont
is not obligated to take any action but will respond to this information as we
think appropriate. Belmont will indemnify you for losses brought by a third
party concerning your use of this information.
Sample Answer 14-3
U.S. Patent 3999442 was issued
on December 14, 1980. It describes a process for exhaust system installation.
The process describes the steps in making a straight length of exhaust pipe,
bending this pipe, coating the inside and outside of this pipe with our Pipe
Protector and installing the exhaust pipe on a motor vehicle. You will use
equipment utilizing this process.
On December 15, 1970, Belmont
obtained a copyright registration for its Operations Manual under Registration
A41139. Amendments to the manual were registered on January 7, 1983 (Reg.
A521,371) and June 6, 1974 (Reg. A 541,333). Belmont intends to renew these
copyrights. Item 11 of this Offering Circular describes the Operations Manual
and the manner in which you are permitted to use it.
Belmont's right to use or
license these patents and copyrighted items is not materially limited by any
agreement or known infringing use.
You must tell us immediately if
you learn about an infringement or challenge to our use of these patents or
copyrights. Belmont will take the action that Belmont thinks appropriate. You
must also agree not to contest Belmont's interest in these or our other trade
secrets.
If Belmont decides to add,
modify or discontinue the use of an item or process covered by a patent or
copyright, you must also do so. Belmont's sole obligation is to reimburse you
for the tangible cost of complying with is obligation.
Although Belmont is not
obligated to defend your use of these items or processes, Belmont will
reimburse you for damages and reasonable costs incurred in litigation about
them.
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 FRANCHISE
BUSINESS AND WHETHER THE FRANCHISOR RECOMMENDS PARTICIPATION.
Item 15 Instructions:
i. Include obligations
arising from written agreement (including personal guaranty, confidentiality
agreement or noncompetition agreement) or from the franchisor's practice.
ii. If personal "on
premises" supervision is not required:
a. If the franchisee is
an individual, state whether the franchisor recommends "on premises"
supervision by the franchisee;
b. State limitations on
whom the franchisee can hire as an on premises supervisor;
c. Whether this "on
premises" supervisor must successfully complete the franchisor's training
program; and
d. If the franchisee is
a business entity, state the amount of equity interest that the "on
premises" supervisor must have in the franchise.
iii. Disclose the
restrictions which the franchisee must place on its manager (for example,
maintain trade secrets, non-competition).
iv. The franchisor may
reference Items 14 and 17 in its answer.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 15-1
If you are an individual, you
must directly supervise the franchised business on its premises. If you are a
corporation, the direct, on-site supervision must be done by a person who owns
at least ⅓ of the corporate equity.
Sample Answer 15-2
Belmont does not require that
you personally supervise the franchised business. The business must be
directly supervised "on premises" by a manager who has successfully
completed Belmont's training program. The on premises manager cannot have an
interest or business relationship with any of Belmont's business competitors.
The manager need not have an ownership interest in a corporate or partnership
franchisee. The manager must sign a written agreement to maintain
confidentiality of the trade secrets described in Item 14 and to conform with
the covenants not to compete described in Item 17.
Each individual who owns a 5% or
greater interest in the franchisee entity must sign an agreement (Exhibit )
assuming and agreeing to discharge all obligations of the
"franchisee" under the Franchise Agreement.
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 16 Instructions:
i. Describe the
franchisee's obligation to sell only goods and services approved by the
franchisor.
ii. Disclose any
franchisee obligation to sell all goods and services authorized by the
franchisor. Disclose whether the franchisor has the right to change the types
of authorized goods and service and whether there are limits on the
franchisor's right to make changes.
iii. If the franchisee is
restricted regarding customers, disclose the restrictions.
iv. The applicant may
cross reference disclosures made in Items 8, 9, and 12.
v. Use Sample Answer
16-1 for a negative response.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 16-1
Belmont does not restrict the
type of goods or services that you may offer.
Sample Answer 16-2
Belmont requires you to offer
and sell only those goods and services that Belmont has approved (see Item 9).
You must offer all goods and
services that Belmont designates as required for all franchisees. These
required services are muffler inspection, repair and replacement. Parts,
supplies, and equipment used in your Belmont Muffler business must be approved
by Belmont (see Item 8).
Belmont has the right to add
additional authorized services that the franchisee is required to offer. There
are no limits on Belmont's right to do so except that the investment required
of a franchisee (for equipment, supplies and initial inventory) will not exceed
$5,000 per year.
Belmont also designates some
services as optional for qualified franchisees. Current optional services are
brake inspection, repair and replacement, tire rotation, wheel balancing, and
alignment and rustproofing. To offer optional goods or services, you must be
in substantial compliance with all material obligations under your Franchise
Agreement. In addition, Belmont may require you to comply with other
requirements (such as training, marketing, insurance) before Belmont will allow
you to offer certain optional services.
As long as you meet your annual
agreed sales quotas (see Item 12), Belmont will not restrict you from
soliciting any customers, no matter who they are or where they are located. If
you do not meet your annual sales quota, Belmont may deny you the right to
receive any further fleet business referrals from Belmont and may either keep
the fleet business referrals for itself or give them to another franchisee.
Failure to meet your annual sales quota is a default under your Franchise
Agreement and grounds for termination of your franchise (see Item 17).
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.
Item 17 Instructions:
i. 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.
ii. Respond in tabular
form. Refer to the section of the agreement which covers each subject.
iii. Use a separate table
for any other significant franchise-related agreement. If a provision in any
other agreement affects the provisions of the franchise or franchise-related
agreements disclosed in this Item (for example, the term of the franchise will
be equal to the term of the lease), disclose that provision in the applicable
category in the table.
iv. 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.
v. The table should
respond to each category listed below. Do not change the names of the
categories. List all contractual provisions relevant to each category in the
table. 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:
a. Length of the term of
the franchise
b. Renewal or extension
of the term
c. Requirements for
franchisee to renew or extend
d. Termination by
franchisee
e. Termination by
franchisor without cause
f. Termination by
franchisor with "cause"
g. "Cause"
defined – curable defaults
h. "Cause"
defined – defaults which cannot be cured
i. Franchisee's
obligations on termination/non-renewal
j. Assignment of
contract by franchisor
k. "Transfer"
by franchisee – denied
l. Fanchisor approval
of transfer by franchisee
m. Conditions for
franchisor approval of transfer
n. Franchisor's right of
first refusal to acquire franchisee's business
o. Franchisor's option
to purchase franchisee's business
p. Death or disability
of franchisee
q. Non-competition
covenants during the term of the franchise
r. Non-competition
covenants after the franchise is terminated or expires
s. Modification of the
agreement
t. Integration/merger
clause
u. Dispute resolution by
arbitration or mediation
v. Choice of forum
w. Choice of law
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 17
This table lists important
provisions of the franchise and related agreements. You should read these
provisions in the agreements attached to this offering circular.
Note:
(1) Franchisor is not
obligated by the Agreement to do so, but, if the franchise is terminated,
franchisor's policy is to buy back inventory at fair market value. This policy
is subject to change at any time.
These states have
statutes which may supersede the franchise agreement in your relationship with
the franchisor including the areas of termination and renewal of your
franchise: ARKANSAS (Stat. Section 70-807), CALIFORNIA (Bus. & Prof. Code
Sections 20000-20043), CONNECTICUT (Gen. Stat. Section 42-133e et seq.),
DELAWARE (Code, Tit.), HAWAII (Rev. Stat. Section 482E-1), ILLINOIS [815
Compiled Stat. 705/19 and 20], INDIANA (Stat. Section 23-2-2.7), IOWA (Code
Sections 523H.1-523H.17), MICHIGAN (Stat. Section 19.854(27)), MINNESOTA (Stat.
Section 80C.14), MISSISSIPPI (Code Section 75-24-51), MISSOURI (Stat. Section 407.400),
NEBRASKA (Rev. Stat. Section 87-401), NEW JERSEY (Stat. Section 56:10-1), SOUTH
DAKOTA (Codified Laws Section 37-5A-51), VIRGINIA (Code 13.1-557-574-13.1-564),
WASHINGTON (Code Section 19.100.180), WISCONSIN (Stat. Section 135.03). These
and other states may have court decisions which may supersede the Franchise
Agreement in your relationship with the franchisor including the areas of
termination and renewal of your franchise.
Item
18
PUBLIC
FIGURES
DISCLOSE THE FOLLOWING:
A. COMPENSATION OR OTHER
BENEFIT GIVEN OR PROMISED TO A PUBLIC FIGURE ARISING FROM:
(1) The use of the public
figure in the franchise name or symbol or
(2) 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 18 Instructions:
i. A "public
figure" is a person whose name or physical appearance is generally known
to the public in the geographic area where the franchise will be located.
ii. Disclose the
compensation paid or promised for the endorsement or use of the name of the
public figure.
iii. Describe the public
figure's position and duties in the franchisor's business structure.
iv. State the amount of
the public figure's investment. Describe the extent of the amount contributed
in services performed or to be performed. State the type of investment (for
example, common stock, promissory note).
v. Use Sample Answer
18-1 for a negative response.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 18-1
Belmont does not use any public
figure to promote its franchise.
Sample Answer 18-2
Belmont has paid Ralph Doister
$50,000 for the use of his name in promoting the sale of our franchise. The
right expires December 31, 1992. Belmont has produced newspaper ads, a
brochure and a video which feature Mr. Doister. Mr. Doister does not manage or
own an interest in Belmont.
Item
19
EARNINGS
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 IN THE INSTRUCTION.
Item 19 Instructions:
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 19, 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 19, 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 with this Item 19.
If an earnings claim is not made, then negative disclosure 19 (below) must be
used.
iv. Claims regarding
future performance: A statement or prediction of future performance that is
prepared as a forecast or projection in accordance with the statement on
standards for accountants' services on prospective financial information (or
its successor) issued by the American Institute of Certified Public
Accountants, Inc., is presumed to have a reasonable basis.
v. Burden of proof: The
burden is upon the franchisor to show that it had a reasonable basis for its
earnings claim.
______________________________________________________________________________
[NEGATIVE
DISCLOSURE 19]
REPRESENTATIONS
REGARDING EARNINGS CAPABILITY
Belmont 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
Belmont muffler shop]. Actual results vary from unit to unit and Belmont
cannot estimate the results 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.
Item 19B Instructions:
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 encompass matters affecting, among other things, 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 state:
a. Material assumptions,
other than matters of common knowledge, underlying the claim (see Definition
iii under Item 3 for the definition of "material");
b. A concise summary of
the basis for the claim including a statement of whether the claim is based
upon actual experience of franchised units and, if so, 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. A 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
substantiation of the data used in preparing the earnings claim will be made
available to the prospective franchisee on reasonable request.
Item
20
LIST
OF OUTLETS
A. THE NUMBER OF FRANCHISES 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 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:
(1) Transferred
controlling ownership;
(2) Been cancelled or
terminated by the franchisor;
(3) Not been renewed by
the franchisor;
(4) Been reacquired by
the franchisor; or
(5) 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 20 Instructions:
i. Do not include a
transfer when beneficial ownership of the franchise does not change.
ii. List an outlet that
is reacquired by the franchisor in that column whether or not it also fits
another category.
iii. Other than the
franchisee names, addresses, and telephone numbers, disclose Item 20
information in tabular form. Use footnotes or a "remarks" column to
elaborate on information in the table or to disclose caveats. Disclose the
number of franchised and franchisor owned outlets sold, opened and closed. Disclose
the total number of franchised and franchisor owned outlets open at the end of
each year. Disclose information for each of the last 3 fiscal years.
iv. If an outlet has been
operated by more than one franchisee, disclose each transfer in the transfer
column.
v. Disclose information
about franchisor owned outlets that are substantially similar to the franchised
outlets. In this Item "franchisor owned" outlets include outlets
owned by the franchisor and by its affiliates. Use a separate table with a format
similar to the format for franchised outlets. The same table may be used if
the franchisor owned outlets are separated from franchised outlets.
vi. For franchisees
operating within the system disclose franchisee business addresses and
telephone numbers. List outlets owned by the persons listed in Item 2 and
their immediate families or by business entities owned by them as franchisor
owned outlets. These outlets can be identified in the table by an asterisk.
vii. Separate information
by state. List all states for which franchisor has information responsive to
this Item.
viii. When the requirement
states "most recent fiscal year," the franchisor may use a more
recent date if it discloses that date and uses that date for all disclosures in
this Item.
ix. When the requirement
states "most recent fiscal year," the state may require a more recent
date.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 20
FRANCHISED
STORE
STATUS SUMMARY
FOR
YEARS 1992/1991/1990
FRANCHISED STORE STATUS SUMMARY FOR YEARS 1992/1991/1990
State
Transfers
Canceled or
Not
Reacquired
Left
Total
Franchises
Terminated
Renewed
by
the System
from left
operating at
Franchisor
Other
columns (2)
year end
Alaska
2/0/0
Arizona
2/1/0
2/1/0
8/6/2
Arkansas
6/4/2
California
1/1/0
1/1/0
4/0/0
Colorado
3/3/3
Conneticut
5/3/1
Delaware
1/0/0
1/0/0
6/4/0
Florida
2/0/0
Georgia
2/0/0
Idaho
2/0/0
Totals
2/1/0
1/0/0
0/0/0
0/0/0
1/1/0
4/2/0
40/20/8
Notes:
(1) All numbers are as of
December 31 for each year.
(2) The numbers in the
"Total" column may exceed the number of stores affected because
several events may have affected the same store. For example, the same store
may have had multiple owners.
Note: Belmont no longer
operates company owned stores.
PROJECTED
OPENINGS
AS
OF DECEMBER 31, 1992
Note:
(1) As of December 31,
1992
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 FISCAL YEAR ENDS BEFORE THE APPLICATION DATE. IN
ADDITION, INCLUDE STATEMENTS OF OPERATIONS, 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, THEN 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.
C. CONSOLIDATED AND SEPARATE
STATEMENTS:
(1) When a franchisor
owns a direct or beneficial, controlling financial interest in another
corporation, its financial statements should reflect the financial condition of
the franchisor and its subsidiaries.
(2) If the applicant is a
subfranchisor include separate financial statements for the franchisor and
subfranchisor related entity.
(3) Prepare consolidated
and separate financial statements in accordance with generally accepted
accounting principles.
Item 21 Instructions:
i. States may require
financial statements additional to those listed in this Item.
ii. A company
controlling 80% or more of a franchisor may be required to include its
financial statements.
iii. Present required
financials in a format of columns which compare at least 2 fiscal years.
iv. In Item 21A, the
required financial statements for a franchisor with a calendar fiscal year end
and a July 15, 1989 application filing date are:
a. Unaudited balance
sheet as of either April 30, May 31 or June 30, 1989 with an unaudited income
statement for the period from January 1, 1989 to the date of the balance sheet;
b. Balance sheets,
statements of operations, of stockholders equity and of cash flow. The balance
sheets should be audited and as of December 31, 1987 and 1988. The remaining
statements should be audited and should be for periods ending December 31,
1986, 1987 and 1988; and
c. If the franchisor has
never had an audit, it need not supply the financial statement required by (b)
if it supplies either an audit as of its last fiscal year end or the statements
required by (a) in an audited form.
v. In the Item 21B
response, the affiliate's guarantee need cover only the franchisor's
obligations to the franchisee. The guarantee need not extend to third
parties. A sample guarantee is on page in Exhibit .
vi. In the Item 21B
response the filing state may permit a surety bond instead of the parent
company's guarantee.
vii. Disclose the
existence of a guarantee.
Item
22
CONTRACTS
ATTACH A COPY OF ALL AGREEMENTS
PROPOSED FOR USE OR IN USE IN THIS STATE REGARDING THE OFFERING OF A FRANCHISE,
INCLUDING THE FRANCHISE AGREEMENT, LEASES, OPTIONS AND PURCHASE AGREEMENTS.
Item 22 Instructions:
i. Copies of agreements
attached to the offering circular under Item 22 are part of the offering
circular. Each offering circular delivered to a prospective franchisee must
include copies of all agreements to be offered.
ii. The franchisor may
cross reference Item 10 for financing 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 OFFERS YOU A
FRANCHISE, 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 .
YOU MUST ALSO RECEIVE A
FRANCHISE AGREEMENT CONTAINING ALL MATERIAL TERMS AT LEAST FIVE BUSINESS DAYS
BEFORE YOU SIGN A FRANCHISE AGREEMENT.
IF DOES 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 THE ILLINOIS ATTORNEY GENERAL OFFICE, 500 SOUTH
SECOND STREET, SPRINGFIELD, ILLINOIS 62706. (Any additional state disclosure
time or required statutory language.)
Item 23 Instructions:
i. Place the name of
the franchisor in the blank.
ii. Make two copies of
the Receipt: one for retention by the franchisee and one by the franchisor.
iii. Disclose the name,
principal business address and telephone number of the subfranchisor or
franchise broker offering the franchise in this State.
iv. List the title of all
attached exhibits.
v. Effective Date:
(Leave blank until notified of effectiveness by State regulatory authority.).
vi. The name and address
of the franchisor's registered agent authorized to receive service of process
if not disclosed in Item 1.
______________________________________________________________________________
______________________________________________________________________________
Sample Answer 23
RECEIPT
THIS OFFERING CIRCULAR
SUMMARIZES PROVISIONS OF THE FRANCHISE AGREEMENT AND OTHER INFORMATION IN PLAIN
LANGUAGE. READ THIS OFFERING CIRCULAR AND ALL AGREEMENTS CAREFULLY.
IF BELMONT OFFERS YOU A
FRANCHISE, BELMONT 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
SIGNING OF A BINDING AGREEMENT; OR
(3) TEN BUSINESS DAYS BEFORE
ANY PAYMENT TO BELMONT.
YOU MUST ALSO RECEIVE A
FRANCHISE AGREEMENT CONTAINING ALL MATERIAL TERMS AT LEAST FIVE BUSINESS DAYS
BEFORE YOU SIGN ANY FRANCHISE AGREEMENT.
IF BELMONT DOES 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
(STATE AGENCY).
Belmont authorizes Legal Process
Corp at 448 West Washington Avenue, City, State to receive service of process
for Belmont. I have received a Uniform Franchise Offering Circular dated ________.
This offering circular included the following Exhibits:
A. License Agreement
B. Equipment Lease
C. Lease for Premises
D. Loan Agreement
____ _________
Date Franchisee