§ 684 — Exemptions

§ 684. Exemptions. 1. The department of law is hereby authorized and\nempowered to exempt by rule or regulation any person, franchise, or\ntransaction from any provision of section six hundred eighty-three of\nthis article or from any rule or regulation thereunder if the department\nfinds that such action is not inconsistent with the public interest or\nthe protection of prospective franchisees.\n 2. The department of law may, upon application and within its\ndiscretion, exempt from the registration requirements of section six\nhundred eighty-three of this article the offer and sale of a franchise\nif:\n (a) The franchisor has a net worth on a consolidated basis, according\nto its most recently audited financial statement, of not less than five\nmillion dollars; or the franchisor has a net worth, according to its\nmost recently audited financial statement, of not less than one million\ndollars and is at least eighty percent owned by a corporation which has\na net worth on a consolidated basis, according to its most recently\naudited financial statement, of not less than five million dollars; and\n (b) The franchisor files with the department of law an application for\nan exemption, on forms and in the manner prescribed by the department,\nand a consent to service of process on the form required by the\ndepartment; and\n (c) The franchisor discloses in writing to each prospective\nfranchisee, at least seven days prior to the execution by the\nprospective franchisee of any binding franchise or other agreement, or\nat least seven days prior to the receipt of any consideration, whichever\noccurs first, the following information:\n (1) The name of the franchisor, the name under which the franchisor is\ndoing or intends to do business, and the name of any parent or\naffiliated company that will engage in business transaction with the\nfranchisee.\n (2) The franchisor's principal business address and the name and\naddress of its agent in this state authorized to receive process.\n (3) The business form of the franchisor, whether corporate,\npartnership, or otherwise.\n (4) Such information concerning the identity and business experience\nof persons affiliated with the franchisor as the department may by rule\nprescribe.\n (5) The business experience of the franchisor, including the length of\ntime the franchisor (i) has conducted a business of the type to be\noperated by franchisees, (ii) has granted franchises for such business,\nand (iii) has granted franchises in other lines of business.\n (6) A copy of the typical franchise contract or agreement proposed for\nuse and in use in this state, including all amendments, deletions,\nvariations, and supplements thereto.\n (7) A statement of the franchise fee charged, the proposed application\nof the proceeds of such fee by the franchisor, and the formula by which\nthe amount of the fee is determined if the fee is not uniform and the\nsame in all cases.\n (8) A statement describing any payments or fees other than franchise\nfees that the franchisee is required to pay to the franchisor, including\nroyalties and payments or fees which the franchisor collects in whole or\nin part on behalf of a third party or parties.\n (9) A statement of the conditions under which the franchise agreement\nmay be terminated or renewal refused, or repurchased at the option of\nthe franchisor.\n (10) A statement as to whether, by the terms of the agreement or by\nother device or practice, the franchisee is required to purchase from\nthe franchisor or his designee services, supplies, products, fixtures or\nother goods relating to the establishment or operation of the franchise\nbusiness, together with a description and the terms and conditions\nthereof.\n (11) A statement as to whether, by the terms of the franchise\nagreement or by other device or practice, the franchisee is limited in\nthe goods or services offered by him to his customers.\n (12) A statement of the terms and conditions of any financing\narrangements when offered directly or indirectly by the franchisor or\nhis agent or affiliate.\n (13) A statement of any past or present practice or of any intent of\nthe franchisor to sell, assign, or discount to a third party any note,\ncontract, or other obligation of the franchisee in whole or in part.\n (14) If any statement of estimated or projected franchisee earnings or\nincome is used, a statement of such estimate or projection and the data,\nmethods and computations upon which such estimate or projection is\nbased.\n (15) A statement as to whether franchisees receive an exclusive area\nor territory.\n (16) Other information related to the offer and sale of the franchise\nas the department of law may reasonably require.\n (d) Applications for exemptions shall be signed and verified by the\nfranchisor in the same manner provided in the civil practice law and\nrules for the verification of pleadings, and shall be filed with the\ndepartment of law at its office in the city of New York.\n 3. There shall be exempted from the registration provisions of section\nsix hundred eighty-three of this article the offer and sale of a\nfranchise if:\n (a) (i) The franchisor has a net worth on a consolidated basis,\naccording to its most recent audited financial statement, of not less\nthan fifteen million dollars; or the franchisor has a net worth,\naccording to its most recent audited financial statement, of not less\nthan three million dollars and is at least eighty percent owned by a\ncorporation which has a net worth on a consolidated basis, according to\nits most recent audited financial statement, of not less than fifteen\nmillion dollars; and\n (ii) The franchisor discloses in writing to each prospective\nfranchisee, at least seven days prior to the execution by the\nprospective franchisee of any binding franchise or other agreement, or\nat least seven days prior to the receipt of any consideration, whichever\noccurs first, such information as is required to be disclosed under\nsubparagraph two of paragraph (c) of subdivision two of this section.\n (b) The offer or sale is to a bank, savings institution, trust\ncompany, insurance company, investment company, or other financial\ninstitution, association, or institutional buyer, or to a broker-dealer,\nwhere the purchaser is acting for itself or in some fiduciary capacity.\n (c) The transaction is pursuant to an offer directed by the franchisor\nto not more than two persons, other than persons specified in this\nsubdivision, if the franchisor does not grant the franchisee the right\nto offer franchises to others, a commission or other remuneration is not\npaid directly or indirectly for soliciting a prospective franchisee in\nthis state, and the franchisor is domiciled in this state or has filed\nwith the department of law its consent to service of process on the form\nprescribed by the department.\n (d) The offer or sale by a franchisor of a franchise to one of his\nexisting franchisees. This exemption shall apply where:\n (i) the existing franchisee has actively operated a franchise of the\nselling franchisor for the eighteen months preceding the offer; and\n (ii) the existing franchisee purchases the franchise in order to\noperate the business and not for the purpose of resale; and\n (iii) the franchisor reports the sale to the department of law on the\nform required by the department within fifteen days of the sale.\n 4. The department of law may, in its discretion, deny or revoke an\nexemption with respect to a specific franchisor or transaction, or\nwithdraw or further condition any exemption enumerated in this section.\n 5. The offer or sale of a franchise by a franchisee for his own\naccount or the offer and sale of an entire area franchise owned by a\nsubfranchisor for his own account is exempted from the registration\nprovisions of section six hundred eighty-three of this article if:\n (a) The sale is an isolated sale and not part of a plan of\ndistribution of franchises; and\n (b) The sale is not effected by or through a franchisor; and\n (c) The franchisee furnishes to the prospective purchaser, at least\none week prior to the execution of any binding contract or purchase\nagreement, or at least one week prior to the receipt of any\nconsideration, whichever occurs first, a copy of the offering prospectus\nof the franchisor (including amendments, if any) currently registered\nwith the department of law.\n A sale is not effected by or through a franchisor merely because a\nfranchisor has a right to approve or disapprove a different franchisee.\n 6. This article shall not be applicable to any transaction relating to\na bank credit card plan. "Bank credit card plan" means a credit card\nplan in which the issuers of credit cards are only: banks regulated by\nor under the supervision of the Federal Reserve Board; the Federal\nDeposit Insurance Corporation; the Controller of the Currency of the\nUnited States; or the Superintendent of Financial Services of this\nstate; or persons controlling such banks, provided that the assets of\nsuch a bank or banks represent a majority of the assets on a\nconsolidated basis of any holding company system of which such card\nissuers may be a party; or, persons controlled by such banks.\n