S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  10076

                          I N  A S S E M B L Y

                              June 11, 2014
                               ___________

Introduced by COMMITTEE ON RULES -- (at request of M. of A. Schimminger)
  -- read once and referred to the Committee on Economic Development

AN  ACT  to  amend the general business law, in relation to the New York
  franchise act

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1. Section 680 of the general business law, as added by chap-
ter 730 of the laws of 1980, is amended to read as follows:
  S 680. Legislative findings and declaration of policy. [1. The  legis-
lature  hereby finds and declares that the widespread sale of franchises
is a relatively new form of business which has created numerous problems
in New York.  New York residents have suffered substantial losses  where
the  franchisor or his representative has not provided full and complete
information  regarding  the  franchisor-franchisee   relationship,   the
details of the contract between the franchisor and franchisee, the prior
business experience of the franchisor, and other factors relevant to the
franchise offered for sale.
  2.]  It  is  hereby determined and declared that the offer and sale of
franchises, as defined in this article, is  a  matter  affected  with  a
public  interest  and  subject  to the supervision of the state, for the
purpose of providing prospective franchisees  [and  potential  franchise
investors]  with material details of the franchise offering so that they
may participate in the franchise system  in  a  manner  that  may  avoid
detriment  to  the public interest and benefit the commerce and industry
of the state. Further, it is the intent of this law to prohibit the sale
of franchises where such sale would lead to fraud or a  likelihood  that
the franchisor's promises would not be fulfilled.
  S  2. Section 681 of the general business law, as added by chapter 730
of the laws of 1980, and paragraph (b) of subdivision 3  as  amended  by
chapter 87 of the laws of 1981, is amended to read as follows:
  S 681. Definitions. 1. "Advertisement" includes any [written or print-
ed  communication,  or  any communication by means of recorded telephone
messages or spoken  on  radio,  television,  or  similar  communications
media,  published  in  connection  with an offer or sale of a franchise]

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
              

                                                           LBD15479-01-4

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PRINTED, BROADCAST  OR  ELECTRONICALLY  DISSEMINATED  MASS  OR  MULTIPLE
COMMUNICATION  OF  ANY TYPE OR NATURE INTENDED TO ADVERTISE OR PROMOTE A
FRANCHISE OFFERING TO PROSPECTIVE FRANCHISEES, WHETHER  COMMUNICATED  IN
BROADCAST  MEDIA, OVER THE INTERNET, IN PRINTED MEDIA, BY EMAIL OR OTHER
ELECTRONIC COMMUNICATIONS OR OTHERWISE.
  2. "Department" means the department of law.
  3. "FRACTIONAL FRANCHISE" MEANS A FRANCHISE RELATIONSHIP  THAT  SATIS-
FIES THE FOLLOWING CRITERIA WHEN THE RELATIONSHIP IS CREATED:
  (A) THE FRANCHISEE, ANY OF THE FRANCHISEE'S CURRENT DIRECTORS OR OFFI-
CERS, OR ANY CURRENT DIRECTORS OR OFFICERS OF A PARENT OR AFFILIATE, HAS
MORE THAN TWO YEARS OF EXPERIENCE IN THE SAME TYPE OF BUSINESS; AND
  (B)  THE  PARTIES HAVE A REASONABLE BASIS TO ANTICIPATE THAT THE SALES
ARISING FROM THE RELATIONSHIP WILL NOT  EXCEED  TWENTY  PERCENT  OF  THE
FRANCHISEE'S TOTAL DOLLAR VOLUME IN SALES DURING THE FIRST YEAR OF OPER-
ATION.
  4.  (A) "Franchise" means a contract or agreement, either expressed or
implied, whether oral or written, between two or more persons by which:
  [(a) A franchisee is granted the right to engage in  the  business  of
offering,  selling,  or distributing goods or services under a marketing
plan or system prescribed in substantial part by a franchisor,  and  the
franchisee  is required to pay, directly or indirectly, a franchise fee,
or
  (b) A franchisee is granted the right to engage  in  the  business  of
offering, selling, or distributing goods or services substantially asso-
ciated  with the franchisor's trademark, service mark, trade name, logo-
type, advertising, or other commercial symbol designating the franchisor
or its affiliate, and the franchisee is required  to  pay,  directly  or
indirectly, a franchise fee.
  A  franchise  under  this  article  shall  not  include any agreement,
contract, or franchise subject to the provisions of article eleven-B  of
this  chapter or section one hundred ninety-nine of this chapter, or any
agreement or contract for the sale of motor fuel.
  4. A] (I) A FRANCHISEE IS GRANTED THE RIGHT TO ENGAGE IN THE  BUSINESS
OF  OFFERING, SELLING, OR DISTRIBUTING GOODS OR SERVICES UNDER A MARKET-
ING PLAN OR SYSTEM PRESCRIBED IN SUBSTANTIAL PART BY A FRANCHISOR;
  (II) THE OPERATION OF THE FRANCHISEE'S BUSINESS PURSUANT TO SUCH  PLAN
OR  SYSTEM  IS SUBSTANTIALLY ASSOCIATED WITH THE FRANCHISOR'S TRADEMARK,
SERVICE MARK, TRADE NAME,  LOGOTYPE,  ADVERTISING  OR  OTHER  COMMERCIAL
SYMBOL DESIGNATING THE FRANCHISOR OR ITS AFFILIATE; AND
  (III) AS A CONDITION OF OBTAINING OR COMMENCING OPERATION OF THE FRAN-
CHISE,  THE  FRANCHISEE  MAKES  A  REQUIRED PAYMENT OR COMMITS TO MAKE A
REQUIRED PAYMENT TO THE FRANCHISOR OR ITS AFFILIATE.
  (B) NONE  OF  THE  FOLLOWING  CONSTITUTES  A  "REQUIRED  PAYMENT"  FOR
PURPOSES OF ITEM (III) OF PARAGRAPH (A) OF THIS SUBDIVISION:
  (I)  THE PURCHASE OR AGREEMENT TO PURCHASE GOODS AT A BONA FIDE WHOLE-
SALE PRICE;
  (II) THE PAYMENT OF A REASONABLE SERVICE CHARGE TO  THE  ISSUER  OF  A
CREDIT CARD BY AN ESTABLISHMENT ACCEPTING OR HONORING SUCH CREDIT CARD;
  (III)  AMOUNTS  PAID  TO  A  TRADING STAMP COMPANY BY A PERSON ISSUING
TRADING STAMPS IN CONNECTION WITH THE  RETAIL  SALE  OF  MERCHANDISE  OR
SERVICES;
  (IV)  THE PURCHASE OR LEASE, AT FAIR MARKET VALUE, OF REAL PROPERTY OR
AGREEMENT TO SO PURCHASE OR LEASE REAL PROPERTY NECESSARY TO ENTER  INTO
THE  BUSINESS OR TO CONTINUE THE BUSINESS UNDER THE FRANCHISE AGREEMENT;
OR

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  (V) THE  PURCHASE  OF  SALES  DEMONSTRATION  EQUIPMENT  AND  MATERIALS
FURNISHED AT COST FOR USE IN MAKING SALES AND NOT FOR RESALE.
  5. A "franchisee" [is] MEANS a person to whom a franchise is granted.
  [5. A "franchisor" is]
  6.  "FRANCHISE  SELLER"  MEANS A PERSON WHO OFFERS FOR SALE, SELLS, OR
ARRANGES FOR THE SALE OF A FRANCHISE. IT INCLUDES THE FRANCHISOR AND THE
FRANCHISOR'S EMPLOYEES,  REPRESENTATIVES,  AGENTS,  SUBFRANCHISORS,  AND
THIRD-PARTY  BROKERS  WHO ARE INVOLVED IN FRANCHISE SALES ACTIVITIES. IT
DOES NOT INCLUDE EXISTING FRANCHISEES WHO SELL ONLY THEIR OWN OUTLET AND
WHO ARE OTHERWISE NOT ENGAGED IN FRANCHISE SALES ON BEHALF OF THE  FRAN-
CHISOR.
  7.  "FRANCHISOR" MEANS a person who grants a franchise AS THE PARTY TO
A CONTRACT WITH A  FRANCHISEE.  UNLESS  OTHERWISE  STATED,  IT  INCLUDES
SUBFRANCHISORS.
  [6.  "Area franchise" means a contract or agreement between a franchi-
sor and a subfranchisor whereby the subfranchisor is granted the  right,
for  consideration  given in whole or in part for such right, to sell or
negotiate the sale of franchises in the name or on behalf of  the  fran-
chisor; unless specifically stated otherwise, "franchise" includes "area
franchise".
  7.  "Franchise  fee"  means  any  fee  or  charge that a franchisee or
subfranchisor is required to pay or agrees to pay directly or indirectly
for the right to enter into a business under a  franchise  agreement  or
otherwise  sell,  resell  or  distribute  goods, services, or franchises
under such an agreement, including, but not limited to, any such payment
for goods or services. The following are not the payment of a  franchise
fee:
  (a)  The purchase or agreement to purchase goods at a bona fide whole-
sale price;
  (b) The payment of a reasonable service charge  to  the  issuer  of  a
credit card by an establishment accepting or honoring such credit card;
  (c)  Amounts paid to a trading stamp company by a person issuing trad-
ing stamps  in  connection  with  the  retail  sale  of  merchandise  or
services;
  (d)  The  purchase or lease, at fair market value, of real property or
agreement to so purchase or lease real property necessary to enter  into
the business or to continue the business under the franchise agreement;
  (e) The payment of a fee which on an annual basis does not exceed five
hundred  dollars  where  the payor receives sales materials of an equiv-
alent or greater value than his payment;
  (f) The  purchase  of  sales  demonstration  equipment  and  materials
furnished at cost for use in making sales and not for resale;
  (g)  A  lease, license or other agreement by a retailer permitting the
lessee, licensee or beneficiary to offer, sell or  distribute  goods  or
services on or about the premises occupied by said retailer.
  8.  "Franchise  sales agent" means a person who directly or indirectly
engages in the offer or sale of any  franchise  on  behalf  of  another.
Franchisors,  subfranchisors,  and their employees are not to be consid-
ered franchise sales agents.
  9. "Franchise salesman" means each and  every  person  employed  by  a
franchisor or franchise sales agent for the purpose of representing such
franchisor  or  franchise  sales agent in the offer or sale of any fran-
chise.
  10.] 8. "Fraud," "fraudulent practice," and "deceit" are  not  limited
to common law fraud or deceit, and include:

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  (a)  Any  deception, concealment, suppression, device, scheme or arti-
fice employed by a [franchisor, franchise sales agent, subfranchisor  or
franchise  salesman]  FRANCHISE  SELLER  to obtain any money, promissory
note, commitment or property by any false or visionary pretense,  repre-
sentation or promise;
  (b)  Any  material  misrepresentation  in  any registered [prospectus]
DISCLOSURE DOCUMENT filed under this article; or
  (c) The omission of any material fact in any  registered  [prospectus]
DISCLOSURE DOCUMENT filed under this article.
  [11.]  9.  "Offer" or "offer to sell" includes any attempt to offer to
dispose of, or solicitation of an offer to buy, a franchise or  interest
in  a  franchise for value. The terms "offer" and "offer to sell" do not
include the renewal or extension of an existing franchise where there is
no interruption in the operation of the franchised business by the fran-
chisee.
  [12.] 10. (a) An offer or sale of a franchise is made  in  this  state
when  an  offer  to  sell  is  made in this state, or an offer to buy is
accepted in this state, or, if  the  franchisee  is  domiciled  in  this
state, the franchised business is or will be operated in this state.
  (b) An offer to sell is made in this state when the offer either orig-
inated  from  this state or is directed by the offeror to this state and
received at the place to which it is  directed.  An  offer  to  sell  is
accepted  in  this  state when acceptance is communicated to the offeror
from this state.
  (c) An offer to sell is not  made  in  this  state  merely  because  a
publisher  circulates or there is circulated on his behalf in this state
a bona fide newspaper or other publication of general, regular and  paid
circulation  which  has  had  more  than  two-thirds  of its circulation
outside this state during the past twelve months, or a  radio  or  tele-
vision program originating outside this state is received in this state.
  [13.] 11. "Person" means an individual, corporation, LIMITED LIABILITY
COMPANY,  LIMITED  OR  GENERAL  partnership, joint venture, association,
company, trust, unincorporated organization or other  entity  and  shall
include  any  other  person that has a substantial interest in or effec-
tively controls such person, as well as the individual officers,  direc-
tors,  general  partners,  MANAGING  PARTNERS, LIMITED LIABILITY COMPANY
MANAGERS OR MANAGING MEMBERS, trustees or other individuals  in  control
of the activities of each such person.
  12.  "PROSPECTIVE  FRANCHISEE"  MEANS ANY PERSON (INCLUDING ANY AGENT,
REPRESENTATIVE OR EMPLOYEE)_ WHO APPROACHES OR IS APPROACHED BY A  FRAN-
CHISE  SELLER  TO  DISCUSS  THE  POSSIBLE  ESTABLISHMENT  OF A FRANCHISE
RELATIONSHIP.
  [14.] 13. "Publish" means  publicly  to  issue  [or]  ,  circulate  OR
DISSEMINATE  by  newspaper,  mail,  radio  [or] , television, ELECTRONIC
COMMUNICATIONS (INCLUDING THOSE ACHIEVED THROUGH THE INTERNET, ELECTRON-
IC MAIL AND OTHER FORMS OF ELECTRONIC  OR  COMPUTER  COMMUNICATIONS)  or
otherwise [to disseminate to the public].
  [15.]  14.  "Sale"  or  "sell" includes every contract or agreement of
sale, contract to sell, or disposition of, a franchise or interest in  a
franchise  for  value.   "SALE" OR "SELL" DOES NOT INCLUDE THE TRANSFER,
SALE OR ASSIGNMENT OF A FRANCHISE BY AN EXISTING  FRANCHISEE  WHERE  THE
FRANCHISOR HAD NO SIGNIFICANT INVOLVEMENT IN ARRANGING FOR OR EFFECTUAT-
ING  THE  FRANCHISEE'S  SALE, TRANSFER OR ASSIGNMENT OF ITS FRANCHISE. A
FRANCHISOR'S APPROVAL OR DISAPPROVAL OF A FRANCHISEE SALE,  TRANSFER  OR
ASSIGNMENT  ALONE  IS  NOT  DEEMED  TO  BE  SIGNIFICANT  INVOLVEMENT.  A
FRANCHISOR'S ENTERING INTO OF A SUBSTITUTE FRANCHISE  AGREEMENT  WITH  A

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FRANCHISE  PURCHASER, TRANSFEREE OR ASSIGNEE IS NOT DEEMED TO BE SIGNIF-
ICANT INVOLVEMENT IF SUCH SUBSTITUTE AGREEMENT CONTAINS TERMS AND CONDI-
TIONS THAT DO NOT DIFFER MATERIALLY FROM THE ORIGINAL  FRANCHISE  AGREE-
MENT.
  [16.]  15.    "State" means any state, territory, or possession of the
United States, INCLUDING the District of Columbia and Puerto Rico.
  [17.] 16. "Subfranchisor" means a franchisee [who  has  the  right  to
sell or subdivide his franchise to another or others, known as "subfran-
chisees,"  while  having  and  retaining all or part of the franchisor's
interest or rights under franchise agreements with  such  subfranchisee.
Under  this  article  and  in this situation, the subfranchisee shall be
considered the franchisee, and both the  principal  franchisor  and  the
subfranchisor  shall  be  considered  the  franchisor]  WHOSE  FRANCHISE
INCLUDES THE RIGHT TO GRANT FRANCHISES  TO  OTHER  PERSONS,  MEANING  TO
OFFER  AND  ENTER  INTO AGREEMENTS WITH OTHER PERSONS GRANTING FRANCHISE
RIGHTS TO SUCH OTHER PERSONS (KNOWN AS "SUBFRANCHISEES").    UNDER  THIS
ARTICLE,  BOTH  THE  PRINCIPAL FRANCHISOR AND THE SUBFRANCHISOR SHALL BE
CONSIDERED THE "FRANCHISOR" IN INSTANCES IN WHICH BOTH ARE  INVOLVED  IN
OFFERING  AND  SELLING  THE SUBJECT FRANCHISE AND BOTH FULFILL POST-SALE
OBLIGATIONS TO THE SUBJECT SUBFRANCHISEE. UNDER THIS ARTICLE,  ONLY  THE
SUBFRANCHISOR  SHALL BE CONSIDERED THE "FRANCHISOR", TO THE EXCLUSION OF
THE PRINCIPAL FRANCHISOR, IF IT IS THE SUBFRANCHISOR ALONE WHICH  OFFERS
AND  SELLS  FRANCHISES TO SUBFRANCHISEES AND IS ENTIRELY RESPONSIBLE FOR
FULFILLING ALL CONTRACTUAL DUTIES AND OBLIGATIONS TO  SUCH  FRANCHISEES.
UNDER THIS ARTICLE, A SUBFRANCHISEE SHALL BE CONSIDERED A "FRANCHISEE".
  [18.]  17. In any proceeding under this article, the burden of proving
an exemption or an exception from a definition is upon the person claim-
ing it.
  S 3. Section 682 of the general business law, as added by chapter  730
of the laws of 1980, is amended to read as follows:
  S  682.  Scope.  The  disclosure requirements mandated by this article
apply to all [written or oral  arrangements  between  a  franchisor  and
franchisee  in connection with the offer or sale of a franchise, includ-
ing, but not limited to, the franchise offering,  the  franchise  agree-
ment,  sales  of  goods  or  services,  leases  and mortgages of real or
personal property, promises to pay, security interests, pledges,  insur-
ance,  advertising,  construction  or  installation contracts, servicing
contracts, and  all  other  arrangements  in  which  the  franchisor  or
subfranchisor  has  an  interest] OFFERS AND SALES OF FRANCHISES MADE IN
THIS STATE, EXCEPT FOR THOSE OFFERS  AND  SALES  THAT  ARE  SPECIFICALLY
EXEMPTED OR EXCLUDED BY THIS ARTICLE.
  S  4. Section 683 of the general business law, as added by chapter 730
of the laws of 1980, subdivision 8 as amended by chapter 193 of the laws
of 1982, is amended to read as follows:
  S 683. [Disclosure] REGISTRATION AND DISCLOSURE  requirements.  1.  It
shall be unlawful and prohibited for any person to offer to sell or sell
in  this  state  any  franchise  unless  and until there shall have been
registered with the department of law, prior to such offer  or  sale,  a
written  [statement  to  be known as an "offering prospectus"] FRANCHISE
DISCLOSURE DOCUMENT concerning the contemplated  offer  or  sale,  which
shall  contain  the  information  and  representations  set forth in and
required by this [section] ARTICLE AND THE REGULATIONS PROMULGATED UNDER
THIS ARTICLE, EXCEPT AS OTHERWISE PROVIDED  UNDER  SECTION  SIX  HUNDRED
EIGHTY-FOUR  OF  THIS  ARTICLE. Any uniform disclosure document approved
for use by any agency of the federal government or sister state  may  be

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utilized and sought to be registered, provided that said uniform disclo-
sure documents comply with the provisions of this article.
  2.  [The  offering prospectus sought to be registered with the depart-
ment of law shall be filed with the department, accompanied by an appli-
cation for registration on forms prescribed by the department, and shall
contain the following:
  (a) The name of the franchisor, the name under which the franchisor is
doing or intends to do business, and the name of any  parent  or  affil-
iated  company  that  will engage in business transactions with franchi-
sees.
  (b) The franchisor's principal  business  address  and  the  name  and
address of its agent in this state authorized to receive process.
  (c)  The  business form of the franchisor, whether corporate, partner-
ship, or otherwise.
  (d) Such information concerning the identity and  business  experience
of  persons  affiliated with the franchisor as the department of law may
by rule prescribe.
  (e) A statement as to whether the franchisor and its principals, offi-
cers, partners, directors, or any other person identified in the  appli-
cation for registration:
  (1)  Has  been  convicted of a felony, or pleaded nolo contendere to a
felony charge, or held liable or enjoined in a civil action by  a  final
judgment  if  such civil action involved fraud, embezzlement, fraudulent
conversion or misappropriation of property.
  (2) Is subject to any currently effective order of the  United  States
securities  and  exchange  commission or the securities administrator of
any state denying the registration of or barring, revoking or suspending
the registration of such person as a securities  broker  or  dealer,  or
investment advisor, or securities agent or registered representative, or
is  subject  to any currently effective order of any national securities
association or national securities exchange, as defined in  the  Securi-
ties  and Exchange Act of 1934, suspending or expelling such person from
membership in such association or exchange.
  (3) Is subject to a currently effective order or ruling of the federal
trade commission.
  (4) Is subject to any currently effective  injunctive  or  restrictive
order  relating to business activity as a result of an action brought by
a public agency or department, including,  without  limitation,  actions
affecting a license as a real estate broker or salesman.
  Such  statement shall set forth the court, date of conviction or judg-
ment, any penalty imposed or damages assessed, or the date,  nature  and
issuer of such order.
  (f) The length of time the franchisor: (1) has conducted a business of
the  type  to be operated by the franchisees, (2) has granted franchises
for such business, and (3) has granted  franchises  in  other  lines  of
business.
  (g)  The  most  recent financial statement of the franchisor, together
with a statement of any material changes in the financial  condition  of
the  franchisor from the date thereof. The department of law may by rule
or order prescribe (1) the form  and  content  of  financial  statements
required  under  this article, (2) the circumstances under which consol-
idated financial statements shall be required, and (3) the circumstances
under which financial statements shall be audited by independent  certi-
fied public accountants.
  (h) A statement of the franchise fee charged, the proposed application
of  the proceeds of such fee by the franchisor, and the formula by which

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the amount of the fee is determined if the fee is not  uniform  and  the
same in all cases.
  (i)  A  statement describing any payments or fees other than franchise
fees that the franchisee or subfranchisor is  required  to  pay  to  the
franchisor,  including royalties and payments of fees which the franchi-
sor collects in whole or in part on behalf of a third party or parties.
  (j) A statement of the conditions under which the franchise  agreement
may be terminated or renewal refused or repurchased at the option of the
franchisor.
  (k) A statement as to whether, by the terms of the franchise agreement
or  by  other  device  or  practice,  the franchisee or subfranchisor is
required to purchase from  the  franchisor  or  his  designee  services,
supplies,  products,  fixtures or other goods relating to the establish-
ment or operation of the franchise business, together with a description
and the terms and conditions thereof.
  (l) A statement as to whether, by the terms of the franchise agreement
or other device or practice, the franchisee is limited in the  goods  or
services offered by him to his customers.
  (m)  A statement of the terms and conditions of any financing arrange-
ments when offered directly or indirectly by the franchisor or his agent
or affiliate.
  (n) A statement of any past or present practice or of  any  intent  of
the  franchisor  to sell, assign, or discount to a third party any note,
contract, or other obligation of  the  franchisee  or  subfranchisor  in
whole or in part.
  (o)  Any  representation of estimated or projected franchisee earnings
or income, together with a statement setting forth the data, methods and
computations upon which such estimate or projection is based.
  (p) A statement of any compensation or other benefit given or promised
to a public figure arising, in whole or in part, from (1) the use of the
public figure in the name  or  symbol  of  the  franchise,  or  (2)  the
endorsement  or  recommendation of the franchise by the public figure in
advertisements.
  (q) A statement of the total number and location of  franchises  pres-
ently operating and proposed to be sold.
  (r) A statement as to whether franchisees or subfranchisors receive an
exclusive area or territory.
  (s) A representation that the registered prospectus does not knowingly
omit  any  material  fact  or contain any untrue statement of a material
fact.
  (t) Other information which the franchisor may desire to present.
  (u) Other information or such additional disclosures  related  to  the
offer or sale of the franchise as the department of law may prescribe by
rules  or  regulations promulgated under section six hundred ninety-four
of this article as will afford prospective franchisees an adequate basis
upon which to found their judgment.
  (v) When the person filing the  application  for  registration  of  an
offering  prospectus  is  a  subfranchisor,  the  prospectus  shall also
include the same information concerning the subfranchisor as is required
from the franchisor pursuant to this article.
  3. Applications for registration of an offering  prospectus  shall  be
signed  and  verified  by  the franchisor or by the subfranchisor in the
same manner provided in the civil practice law and rules for the verifi-
cation of pleadings.
  4. Every application by a franchisor for registration of  an  offering
prospectus  shall  be  accompanied  by  a  copy of the typical franchise

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contract or agreement proposed for use or in use in this state,  includ-
ing all amendments, deletions, variations, and supplements thereto.
  5.  Every  application by a franchisor for registration of an offering
prospectus shall be accompanied by] THE DEPARTMENT WILL NOT  REGISTER  A
FRANCHISE DISCLOSURE DOCUMENT SUBMITTED TO THE DEPARTMENT WITH AN APPLI-
CATION   FOR  REGISTRATION  UNLESS  THE  FRANCHISE  DISCLOSURE  DOCUMENT
CONTAINS SUCH DISCLOSURES AS THE DEPARTMENT MAY BY  RULE  OR  REGULATION
REQUIRE,  TOGETHER  WITH  such  materials, data, records, [or] AND other
information as the department may by  rule  OR  REGULATION  require  [in
connection with its consideration of the application].
  [6.]  3. The [offering prospectus] FRANCHISE DISCLOSURE DOCUMENT shall
recite [in bold type of not less than  twelve-point]  that  registration
does  not  [constitute approval, recommendation, or endorsement by] MEAN
THAT the department [of law] RECOMMENDS THE FRANCHISE  OR  HAS  VERIFIED
THE  INFORMATION  IN THE DISCLOSURE DOCUMENT. The department may require
that the applicant set forth in its  [prospectus]  FRANCHISE  DISCLOSURE
DOCUMENT potentially adverse information [in]. THE DEPARTMENT MAY SPECI-
FY  designated  positions and [in a] type [size] SIZES acceptable to the
department FOR THE DISCLOSURE REQUIRED BY THIS SUBDIVISION.
  [7.] 4. Unless otherwise provided by regulation issued by the  depart-
ment,  applications  to  register  the  [offering  prospectus] FRANCHISE
DISCLOSURE DOCUMENT required by subdivision one of this section shall be
filed with the department [of law] at its office in the city of New York
[prior to the offering of the franchise involved]. No offer,  advertise-
ment,  or  sale of [such] a franchise DESCRIBED IN THE FRANCHISE DISCLO-
SURE DOCUMENT shall be made in or from the state of New York  until  the
department  has  issued  to  the  franchisor [or other offeror] a letter
stating that the [offering  prospectus]  FRANCHISE  DISCLOSURE  DOCUMENT
sought  to be registered has been [accepted for filing and filed] REGIS-
TERED.  The department, not later than thirty days  after  such  filing,
shall  issue  such  a  letter  or, in the alternative, a notification in
writing indicating the respect in which the application for registration
or the proposed  [offering  prospectus]  FRANCHISE  DISCLOSURE  DOCUMENT
itself  is deficient or otherwise fails to make adequate disclosure.  [A
refusal to register an offering prospectus,  and  notification  thereof,
shall  be forthcoming] THE DEPARTMENT SHALL DENY REGISTRATION OF A FRAN-
CHISE DISCLOSURE DOCUMENT AND SHALL NOTIFY THE APPLICANT OF SUCH  DENIAL
if the department finds:
  (a) That there has been a failure to comply with any of the provisions
of this article or the rules of the department pertaining thereto.
  (b) That the offer or sale of the franchise would constitute misrepre-
sentation to, or deceit or fraud of, prospective franchisees.
  (c)  That the application for registration of the [offering prospectus
or the] proposed [offering  prospectus]  FRANCHISE  DISCLOSURE  DOCUMENT
itself  is  incomplete in any material respect or contains any statement
which is, in light of the circumstances under which it was  made,  false
or misleading with respect to any material fact.
  (d) That the franchisor's method of business includes or would include
activities which are illegal where performed.
  (e) That a person identified in the application WHO has been convicted
of  an offense [described in subparagraph one of paragraph (e) of subdi-
vision two of this section,] is subject to an administrative  order,  or
has  had  a  civil  judgment  entered  against him involving the illegal
offering of franchises or securities, and the department determines that
the involvement of the person in the sale or management of the franchise
creates an unreasonable risk to prospective franchisees.

A. 10076                            9

  (f) That the franchise offering sought to be registered is the subject
of a permanent or temporary injunction  entered  under  any  federal  or
state act applicable to the offering.
  (g) That the franchisor has failed to pay the [proper] fee REQUIRED BY
THE DEPARTMENT.
  [8.  A  franchise  which is subject to registration under this article
shall not be sold without first providing to the prospective franchisee,
a copy of the offering prospectus, together with a copy of all  proposed
agreements  relating  to the sale of the franchise at the earlier of (a)
the first personal meeting between the franchisor or its agent  and  the
prospective  franchisee,  (b)  at  least  ten business days prior to the
execution of a binding franchise or other agreement, or (c) at least ten
days prior to the receipt of any consideration in  connection  with  the
sale  or proposed sale of a franchise. For the purposes of this chapter,
the words: (i) "first personal meeting" shall mean  the  first  face  to
face meeting between a franchisor or franchisor's agent or any represen-
tative  or  employee  thereof and a prospective franchisee which is held
for the purpose of discussing the sale or possible sale of a  franchise;
(ii)  "other agreement" shall mean an agreement imposing a binding legal
obligation on such prospective franchisee, about which  the  franchisor,
franchise sales agent, or any agent, representative or employee thereof,
knows  or should know, in connection with the sale or proposed sale of a
franchise; and, (iii) "receipt of  any  consideration"  shall  mean  the
payment  by  a prospective franchisee, about which the franchisor, fran-
chise sales agent, or any agent,  representative  or  employee  thereof,
knows  or  should know, of any consideration in connection with the sale
or proposed sale of a franchise.]
  5. TO ENHANCE THE UNIFORM AND EFFICIENT ADMINISTRATION AND THE  EFFEC-
TIVE  ENFORCEMENT  OF  THIS ARTICLE, IT IS THE INTENT OF THE LEGISLATURE
THAT THE DEPARTMENT MAINTAIN A RISK-BASED PROCESS OF REVIEWING  APPLICA-
TIONS  FOR  REGISTRATION  OF  FRANCHISE  DISCLOSURE DOCUMENTS. UNDER THE
RISK-BASED REVIEW PROCESS,  THE  DEPARTMENT  SHALL  FOCUS  ON  REVIEWING
APPLICATION  INFORMATION POSING SIGNIFICANT RISK TO PROSPECTIVE FRANCHI-
SEES, WITH EMPHASIS ON RISKS ASSOCIATED WITH THE FRANCHISOR'S  FINANCIAL
CONDITION, THE FRANCHISOR'S COMPLIANCE RECORD, AND SIGNIFICANT DEFICIEN-
CIES  WITH THE FRANCHISOR'S APPLICATION. WHEN REVIEWING FRANCHISE REGIS-
TRATION APPLICATIONS UNDER THIS ARTICLE, THE  DEPARTMENT  SHALL  CONCEN-
TRATE   ON  HELPING  TO  PREVENT  MISAPPROPRIATION,  MISMANAGEMENT,  AND
MISREPRESENTATION IN CONNECTION WITH THE OFFER OR SALE OF ANY  FRANCHISE
SUBJECT TO THIS ARTICLE.
  6.  (A)  A FRANCHISOR MAY NOT SELL A FRANCHISE SUBJECT TO REGISTRATION
IN THIS STATE WITHOUT DELIVERING TO THE PROSPECTIVE FRANCHISEE A COPY OF
THE FRANCHISOR'S CURRENTLY REGISTERED FRANCHISE DISCLOSURE  DOCUMENT  AT
THE  EARLIER OF: (I) FOURTEEN CALENDAR DAYS BEFORE THE PROSPECTIVE FRAN-
CHISEE SIGNS A BINDING AGREEMENT WITH THE FRANCHISOR, OR  (II)  FOURTEEN
CALENDAR  DAYS  BEFORE THE PROSPECTIVE FRANCHISEE PAYS ANY CONSIDERATION
TO THE FRANCHISOR OR ITS AFFILIATE THAT RELATES TO  THE  PROPOSED  FRAN-
CHISE  SALE.  SUCH  FOURTEEN  CALENDAR DAY PERIOD SHALL COMMENCE THE DAY
AFTER THE DISCLOSURE DOCUMENT IS RECEIVED, OR DEEMED  RECEIVED,  BY  THE
PROSPECTIVE  FRANCHISEE. THE FRANCHISOR SHALL DELIVER TO THE PROSPECTIVE
FRANCHISEE A COPY OF THE  FRANCHISOR'S  CURRENTLY  REGISTERED  FRANCHISE
DISCLOSURE  DOCUMENT  EARLIER  IN THE SALES PROCESS UPON THE PROSPECTIVE
FRANCHISEE'S REASONABLE REQUEST.
  (B) IF THE FRANCHISE DISCLOSURE DOCUMENT HAS BEEN AMENDED OR OTHERWISE
REVISED AFTER THE FRANCHISOR HAS FURNISHED IT TO THE  PROSPECTIVE  FRAN-
CHISEE,  BUT  BEFORE  THE  FRANCHISE  SALE, THEN, EXCEPT AS SET FORTH IN

A. 10076                           10

PARAGRAPH (C) OF THIS SUBDIVISION, THE FRANCHISOR SHALL FURNISH TO  SUCH
PROSPECTIVE  FRANCHISEE  A  COPY  OF THE FRANCHISOR'S AMENDED OR REVISED
DISCLOSURE DOCUMENT BEFORE THE PROSPECTIVE FRANCHISEE SIGNS AN AGREEMENT
OR  MAKES  ANY  PAYMENT TO THE FRANCHISOR OR ITS AFFILIATE IN CONNECTION
WITH THE SALE OF THE FRANCHISE.
  (C) IF THE FRANCHISE DISCLOSURE DOCUMENT HAS BEEN AMENDED OR OTHERWISE
REVISED AFTER THE FRANCHISOR HAS FURNISHED IT TO THE  PROSPECTIVE  FRAN-
CHISEE,  BUT  BEFORE  THE  FRANCHISE SALE, AND SUCH AMENDMENT INCLUDES A
MATERIAL ALTERATION OF THE FRANCHISE AGREEMENT OR ANY RELATED AGREEMENT,
THEN THE FRANCHISOR SHALL FURNISH TO THE PROSPECTIVE FRANCHISEE  A  COPY
OF  EACH  SUCH REVISED AGREEMENT AT LEAST SEVEN CALENDAR DAYS BEFORE THE
PROSPECTIVE FRANCHISEE SIGNS AN AGREEMENT OR MAKES ANY  PAYMENT  TO  THE
FRANCHISOR  OR  ITS  AFFILIATE  IN CONNECTION WITH THE SALE OF THE FRAN-
CHISE, SUCH SEVEN CALENDAR DAY PERIOD TO  COMMENCE  THE  DAY  AFTER  THE
FRANCHISOR  FURNISHES  THE REVISED AGREEMENT TO THE PROSPECTIVE FRANCHI-
SEE.  CHANGES TO AN AGREEMENT THAT ARISE OUT OF  NEGOTIATIONS  INITIATED
BY  THE  PROSPECTIVE  FRANCHISEE  DO NOT TRIGGER THIS SEVEN CALENDAR DAY
WAITING PERIOD.
  (D) A FRANCHISOR WILL HAVE SATISFIED ITS DISCLOSURE OBLIGATIONS  UNDER
THIS  SUBDIVISION  IF  THE  FRANCHISOR  HAS: (I) HAND DELIVERED, SENT BY
OVERNIGHT DELIVERY SERVICE, FAXED, EMAILED OR OTHERWISE DELIVERED TO THE
PROSPECTIVE FRANCHISEE  THE  FRANCHISOR'S  LATEST  REGISTERED  FRANCHISE
DISCLOSURE  DOCUMENT BY THE REQUIRED ATE OR DATES; (II) FURNISHED TO THE
PROSPECTIVE FRANCHISEE DIRECTIONS FOR ACCESSING THE FRANCHISOR'S  LATEST
REGISTERED  FRANCHISE  DISCLOSURE  DOCUMENT  ON THE INTERNET OR BY OTHER
READILY ACCESSIBLE ELECTRONIC MEANS BY THE REQUIRED DATE OR  DATES;  OR,
(III)  SENT  A  PAPER  OR  TANGIBLE  ELECTRONIC COPY, INCLUDING, BUT NOT
LIMITED TO, COMPUTER DISK OR CD-ROM TO  THE  ADDRESS  SPECIFIED  BY  THE
PROSPECTIVE  FRANCHISEE BY FIRST CLASS UNITED STATES MAIL AT LEAST THREE
CALENDAR DAYS BEFORE THE REQUIRED DATE OR DATES.
  [9.] 7. (a) A franchisor shall promptly notify the department in writ-
ing, by an application to amend  the  registered  [offering  prospectus]
FRANCHISE DISCLOSURE DOCUMENT, of any material change in the information
contained in the [prospectus as originally submitted or amended] DISCLO-
SURE  DOCUMENT.    The  department  may further define by rule what is a
material change for the purpose and circumstances under which an  amend-
ment  of a registered [prospectus] DISCLOSURE DOCUMENT shall be mandato-
ry.
  (b) An amendment  to  a  registered  [offering  prospectus]  FRANCHISE
DISCLOSURE  DOCUMENT  filed after the effective date of the registration
of the original [offering prospectus] FRANCHISE DISCLOSURE DOCUMENT,  if
the  amendment  is approved by the department, shall become effective on
such date the department may determine, having due regard for the public
interest and the protection of franchisees.
  [10.] 8. (a) Neither the fact that an application for registration  of
[an  offering  prospectus]  A  FRANCHISE  DISCLOSURE DOCUMENT under this
article has been filed, nor the fact that such registration  has  become
effective,  constitutes  a  finding  by the department that any document
filed under this article, including the registered [offering prospectus]
FRANCHISE DISCLOSURE DOCUMENT, is  true,  complete  or  not  misleading.
Neither  any such fact nor the fact that an exemption is available for a
transaction means that the department has passed in  any  way  upon  the
merits  or  qualifications  of, or recommended or given approval to, any
person, franchise, or transaction.

A. 10076                           11

  (b) It is unlawful to make or cause to  be  made  to  any  prospective
purchaser or offeree a representation inconsistent with paragraph (a) of
this subdivision.
  [11.  No  offer  of  a  franchise shall be made except by the offering
prospectus registered with  the  department  of  law  pursuant  to  this
section. Any advertisement in whatever form, including periodicals or on
radio  or  television,  shall  contain a statement that no offer of such
franchise is made except by  such  offering  prospectus,  and  all  such
advertising shall be consistent with the representations and information
required  to  be  set  forth  in such prospectus as hereinbefore in this
section provided.
  12. In all literature employed in the offer and sale  of  a  franchise
and   in  all  advertising  in  connection  therewith,  there  shall  be
contained, in easily readable print on the  face  thereof,  a  statement
that  the filing of an application for registration of an offering pros-
pectus or the acceptance and filing thereof by the department of law  as
required by this section does not constitute approval of the offering or
the  sale  of  such  franchise  by the department of law or the attorney
general of this state.
  13. A person shall not offer to sell or sell a franchise in this state
on behalf of a  franchisor  or  subfranchisor,  except  in  transactions
exempted  under this article, unless the franchisor or subfranchisor and
the person file a franchise agent's application with the  department  of
law  on the form prescribed by the department, and the department issues
an order of registration for such person. The department  may  prescribe
rules  relating  to the qualifications, conduct, and denial, suspension,
or revocation or registrations of franchise sales agents.
  14.] 9. ALL ADVERTISING, MARKETING AND PROMOTION OF A FRANCHISE OFFER-
ING IN WHATEVER FORM - WHETHER PRINT, BROADCAST, ELECTRONIC OR OTHERWISE
- SHALL BE CONSISTENT WITH THE REPRESENTATIONS AND INFORMATION SET FORTH
IN THE FRANCHISE DISCLOSURE DOCUMENT.
  10. (a) Every franchisor [or] AND  subfranchisor  offering  franchises
for  sale  in this state shall keep and maintain a complete set of books
and records and shall keep and maintain accounts of franchise  sales  in
accordance with generally accepted accounting principles, and shall make
and  file with the department such reports as the department may by rule
prescribe, including an annual report setting forth the franchises  sold
by  it  [and  the  proceeds derived therefrom], and shall furnish to the
department such materials relating to the offer or sale of the franchise
as it may by rule require. All such records are subject at any  time  to
reasonable  periodic, special, or other examinations by a representative
of the department, within or without this state, as the department deems
necessary or appropriate in the public interest or for the protection of
[investors] FRANCHISEES.
  (b) The department may consider the opinions, appraisals, and  reports
of  engineers, appraisers, or other experts which may be presented by an
applicant or any interested party, on any question of fact concerning or
affecting the franchises proposed to be offered and sold. In lieu of, or
in addition to, such opinions, appraisals, and reports,  the  department
may  have  any  or  all  matters concerning or affecting such franchises
investigated, appraised, passed upon, and certified to it by  engineers,
appraisers, or other experts selected by it. The experts' cost of travel
and  lodging  relating  to such investigation, and the costs of experts'
fees, shall be borne by the applicant and shall be  paid  before  effec-
tiveness  of  its  registration,  provided that the applicant shall have
agreed in writing with the department to bear such costs  and  fees,  or

A. 10076                           12

shall  have  had  the opportunity to establish that no good cause exists
for such investigation or expenditure, or shall have  himself  furnished
the desired information to the department.
  (c) If information that the department deems necessary relating to the
franchise  is  requested  by  the department and is not furnished by the
applicant, or the department deems information submitted to  be  unreli-
able  or substantially incomplete, the department may investigate any or
all matters concerning or affecting such franchise.  The  costs  of  all
travel  and  lodging expenses relating to investigations outside of this
state shall be borne by the applicant and shall be  paid  before  effec-
tiveness of its registration.
  [15.]  11.  The department may by rule require the filing and approval
prior to use of any pamphlet, circular, form letter,  advertisement,  or
other  sales  literature  or  advertising  communication addressed to or
intended for distribution to prospective franchisees.
  S 5. Section 684 of the general business law, as added by chapter  730
of the laws of 1980, and subdivision 6 as further amended by section 104
of  part  A  of  chapter  62  of the laws of 2011, is amended to read as
follows:
  S 684. Exemptions. 1. The department [of law] is hereby authorized and
empowered to exempt by rule or  regulation  any  person,  franchise,  or
transaction  from  any  provision of section six hundred eighty-three of
this article or from any rule or regulation thereunder if the department
finds that such action is not inconsistent with the public  interest  or
the protection of prospective franchisees.
  2.  The  department  [of  law]  may,  upon  application and within its
discretion, exempt from the registration AND DISCLOSURE requirements  of
section six hundred eighty-three of this article the offer and sale of a
franchise if:
  (a)  The franchisor has a net worth on a consolidated basis, according
to its most recently audited financial statement, of not less than  five
million  dollars;  or  the  franchisor has a net worth, according to its
most [recently audited] RECENT financial statement, of not less than one
million dollars and is at least eighty percent owned  by  a  corporation
which  has  a  net  worth on a consolidated basis, according to its most
recently audited financial statement, of  not  less  than  five  million
dollars; and
  (b)  The  franchisor files with the department [of law] an application
for an exemption, on forms and in the manner prescribed by  the  depart-
ment,  and  a  consent to service of process on the form required by the
department[; and].
  [(c) The franchisor discloses in writing to each prospective  franchi-
see, at least seven days prior to the execution by the prospective fran-
chisee  of  any  binding franchise or other agreement, or at least seven
days prior to the receipt of any consideration, whichever occurs  first,
the following information:
  (1) The name of the franchisor, the name under which the franchisor is
doing  or  intends  to do business, and the name of any parent or affil-
iated company that will engage in business transaction with the franchi-
see.
  (2) The franchisor's principal  business  address  and  the  name  and
address of its agent in this state authorized to receive process.
  (3)  The  business form of the franchisor, whether corporate, partner-
ship, or otherwise.

A. 10076                           13

  (4) Such information concerning the identity and  business  experience
of  persons affiliated with the franchisor as the department may by rule
prescribe.
  (5) The business experience of the franchisor, including the length of
time the franchisor (i) has conducted a business of the type to be oper-
ated  by franchisees, (ii) has granted franchises for such business, and
(iii) has granted franchises in other lines of business.
  (6) A copy of the typical franchise contract or agreement proposed for
use and in use in this state, including all amendments, deletions, vari-
ations, and supplements thereto.
  (7) A statement of the franchise fee charged, the proposed application
of the proceeds of such fee by the franchisor, and the formula by  which
the  amount  of  the fee is determined if the fee is not uniform and the
same in all cases.
  (8) A statement describing any payments or fees other  than  franchise
fees that the franchisee is required to pay to the franchisor, including
royalties and payments or fees which the franchisor collects in whole or
in part on behalf of a third party or parties.
  (9)  A statement of the conditions under which the franchise agreement
may be terminated or renewal refused, or repurchased at  the  option  of
the franchisor.
  (10)  A  statement  as to whether, by the terms of the agreement or by
other device or practice, the franchisee is required  to  purchase  from
the franchisor or his designee services, supplies, products, fixtures or
other  goods relating to the establishment or operation of the franchise
business, together with a description and the terms and conditions ther-
eof.
  (11) A statement as to whether, by the terms of the  franchise  agree-
ment  or  by  other device or practice, the franchisee is limited in the
goods or services offered by him to his customers.
  (12) A statement of the terms and conditions of any financing arrange-
ments when offered directly or indirectly by the franchisor or his agent
or affiliate.
  (13) A statement of any past or present practice or of any  intent  of
the  franchisor  to sell, assign, or discount to a third party any note,
contract, or other obligation of the franchisee in whole or in part.
  (14) If any statement of estimated or projected franchisee earnings or
income is used, a statement of such estimate or projection and the data,
methods and computations upon  which  such  estimate  or  projection  is
based.
  (15)  A  statement as to whether franchisees receive an exclusive area
or territory.
  (16) Other information related to the offer and sale of the  franchise
as the department of law may reasonably require.
  (d)  Applications  for  exemptions shall be signed and verified by the
franchisor in the same manner provided in the  civil  practice  law  and
rules  for  the  verification  of pleadings, and shall be filed with the
department of law at its office in the city of New York.]
  APPLICATIONS FOR EXEMPTIONS SHALL BE FILED WITH THE DEPARTMENT IN  THE
MANNER  DESCRIBED IN REGULATIONS PROMULGATED BY THE DEPARTMENT HEREUNDER
UNDER AUTHORITY VESTED BY SECTION SIX HUNDRED NINETY-FOUR OF THIS  ARTI-
CLE  AND  SHALL  BE  FILED AT THE DEPARTMENT'S OFFICE IN THE CITY OF NEW
YORK OR SUCH OTHER LOCATION AS THE REGULATIONS MAY SPECIFY.
  3. There shall  be  exempted  from  the  registration  AND  DISCLOSURE
provisions of section six hundred eighty-three of this article the offer
and sale of a franchise if:

A. 10076                           14

  (a)  [(i)]  The  franchisor  has  a net worth on a consolidated basis,
according to its most recent audited financial statement,  of  not  less
than fifteen million dollars; or the franchisor has a net worth, accord-
ing  to  its most recent [audited] financial statement, of not less than
[three]  ONE  million  dollars and is at least eighty percent owned by a
corporation which has a net worth on a consolidated basis, according  to
its  most  recent  audited financial statement, of not less than fifteen
million dollars[; and].
  [(ii) The franchisor discloses in writing to each prospective franchi-
see, at least seven days prior to the execution by the prospective fran-
chisee of any binding franchise or other agreement, or  at  least  seven
days  prior to the receipt of any consideration, whichever occurs first,
such information as is required to be disclosed under  subparagraph  two
of paragraph (c) of subdivision two of this section.]
  (b)  The offer or sale is to a bank, savings institution, trust compa-
ny, insurance company, investment company, or other  financial  institu-
tion,  association, or institutional buyer, or to a broker-dealer, where
the purchaser is acting for itself or in some fiduciary capacity.
  (c) The transaction is pursuant to an offer directed by the franchisor
to not more than two persons,  other  than  persons  specified  in  this
subdivision,  if [the franchisor does not grant the franchisee the right
to offer franchises to others,] a commission or  other  remuneration  is
not  paid directly or indirectly for soliciting a prospective franchisee
in this state, and the franchisor is domiciled  in  this  state  or  has
filed  with the department [of law] its consent to service of process on
the form prescribed by the department.
  (d) The offer or sale by a franchisor of a franchise to one  of  [his]
THE FRANCHISOR'S existing franchisees. This exemption shall apply where:
  (i)  the  existing franchisee has actively operated a franchise of the
selling franchisor for the eighteen months preceding the offer; and
  (ii) the existing franchisee purchases the franchise in order to oper-
ate the business and not for the purpose of resale; and
  (iii) the franchisor reports the sale to the department [of law on the
form required by the department within fifteen days of the sale] IN  THE
ANNUAL REPORT REQUIRED BY THIS ARTICLE.
  [4.  The  department  of law may, in its discretion, deny or revoke an
exemption with respect to a specific franchisor or transaction, or with-
draw or further condition any exemption enumerated in this section.
  5.] (E) THE FRANCHISE RELATIONSHIP IS A FRACTIONAL FRANCHISE.
  (F) THE FRANCHISE RELATIONSHIP IS A LEASED DEPARTMENT.
  (G) THE FRANCHISE IS GOVERNED BY THE FEDERAL PETROLEUM MARKETING PRAC-
TICES ACT OR ANY SUCCESSOR THERETO, ARTICLE ELEVEN-B OF THIS CHAPTER, OR
SECTION ONE HUNDRED NINETY-NINE OF THIS CHAPTER.
  (H)(I) THE FRANCHISEE'S INITIAL INVESTMENT,  EXCLUDING  ANY  FINANCING
RECEIVED  FROM  THE FRANCHISOR OR AN AFFILIATE AND EXCLUDING THE COST OF
UNIMPROVED LAND, TOTALS AT LEAST ONE MILLION DOLLARS, PROVIDED THAT,  IF
THE PROSPECTIVE FRANCHISEE IS AN INVESTOR GROUP, AT LEAST ONE INDIVIDUAL
WITHIN SUCH GROUP QUALIFY FOR THE EXEMPTION BY INVESTING AT THIS THRESH-
OLD  LEVEL,  AND (II) THE PROSPECTIVE FRANCHISEE SIGNS AN ACKNOWLEDGMENT
VERIFYING THE GROUNDS FOR THE EXEMPTION.
  (I) THE FRANCHISEE OR ITS PARENT OR ANY AFFILIATE IS  AN  ENTITY  THAT
HAS  BEEN  IN BUSINESS FOR AT LEAST FIVE YEARS AND HAS A NET WORTH OF AT
LEAST FIVE MILLION DOLLARS.
  (J) ONE OR MORE PURCHASERS OF  AT  LEAST  A  FIFTY  PERCENT  OWNERSHIP
INTEREST  IN THE FRANCHISE, WITHIN SIXTY DAYS OF THE SALE, HAS BEEN, FOR
AT LEAST TWO YEARS, AN OFFICER, DIRECTOR,  GENERAL  PARTNER,  INDIVIDUAL

A. 10076                           15

WITH   MANAGEMENT   RESPONSIBILITY   FOR  THE  OFFER  AND  SALE  OF  THE
FRANCHISOR'S FRANCHISES OR AN ADMINISTRATOR OF THE  FRANCHISED  NETWORK,
OR  WITHIN  SIXTY  DAYS OF THE SALE HAS BEEN, FOR AT LEAST TWO YEARS, AN
OWNER OF AT LEAST A TWENTY-FIVE PERCENT INTEREST IN THE FRANCHISOR.
  (K)  THE  TOTAL  REQUIRED  PAYMENT BY THE FRANCHISEE TO THE FRANCHISOR
DURING THE FIRST SIX MONTHS AFTER COMMENCING OPERATION OF THE  FRANCHISE
IS LESS THAN FIVE HUNDRED DOLLARS.
  (L)  THE  PARTIES  CONTEMPLATE, AT THE TIME THE FRANCHISE AGREEMENT IS
SIGNED, THAT ALL FRANCHISED LOCATIONS WILL BE  LOCATED  OUTSIDE  OF  THE
UNITED STATES, ITS TERRITORIES AND POSSESSIONS.
  4.  The  offer  or  sale  of a franchise by a franchisee for [his] THE
FRANCHISEE'S own account [or the offer and sale of an entire area  fran-
chise owned by a subfranchisor for his own account] is exempted from the
registration  AND  DISCLOSURE  provisions of section six hundred eighty-
three of this article if:
  (a) The sale is an isolated sale and not part of a  plan  of  distrib-
ution of franchises; and
  (b) The sale is not "effected by or through a franchisor[; and]"
  [(c)  The  franchisee furnishes to the prospective purchaser, at least
one week prior to the execution of  any  binding  contract  or  purchase
agreement,  or  at  least one week prior to the receipt of any consider-
ation, whichever occurs first, a copy of the offering prospectus of  the
franchisor  (including amendments, if any) currently registered with the
department of law.]
  A sale is not "effected by or through a franchisor [merely because a]"
IF THE franchisor has [a right to  approve  or  disapprove  a  different
franchisee]  NO  SIGNIFICANT  INVOLVEMENT WITH THE PROSPECTIVE ASSIGNEE;
WILL NOT ENTER INTO A NEW OR SUBSTITUTE  FRANCHISE  AGREEMENT  WITH  THE
ASSIGNEE  THAT  CONTAINS MATERIALLY DIFFERENT TERMS AND CONDITIONS; AND,
DOES NOT OTHERWISE SOLICIT THE ASSIGNEE OR PARTICIPATE IN  THE  SALE  OF
THE SUBJECT FRANCHISE TO THE ASSIGNEE. A FRANCHISOR'S APPROVAL OR DISAP-
PROVAL  OF  A SALE OR TRANSFER OF AN EXISTING FRANCHISE, STANDING ALONE,
IS NOT DEEMED TO BE SIGNIFICANT INVOLVEMENT.
  [6.] 5. This article shall not be applicable to any transaction relat-
ing to a bank credit card plan. "Bank credit card plan" means  a  credit
card plan in which the issuers of credit cards are only: banks regulated
by  or  under  the supervision of the Federal Reserve Board; the Federal
Deposit Insurance Corporation; the Controller of  the  Currency  of  the
United  States;  or  the  Superintendent  of Financial Services [of this
state]; or persons controlling such banks, provided that the  assets  of
such  a  bank  or  banks represent a majority of the assets on a consol-
idated basis of any holding company system of which  such  card  issuers
may be a party; or, persons controlled by such banks.
  S  6. Section 685 of the general business law, as added by chapter 730
of the laws of 1980, is amended to read as follows:
  S 685. Escrows and impoundments. If the department [of law] finds that
the applicant for registration has failed to demonstrate  that  adequate
financial  arrangements have been made to fulfill obligations to provide
real estate, improvements,  equipment,  inventory,  training,  or  other
items included in the offering, the department may require the escrow or
impoundment  of franchise fees and other funds paid by the franchisee or
subfranchisor until the obligations are fulfilled, or, at the option  of
the  franchisor,  the furnishing of a surety bond OR THE SATISFACTION OF
ANY OTHER CONDITIONS as provided by rule of the department [of  law]  if
it  finds  that  the requirement is necessary and appropriate to protect
prospective franchisees or subfranchisors.

A. 10076                           16

  S 7. Section 686 of the general business law, as added by chapter  730
of the laws of 1980, is amended to read as follows:
  S 686. Designation of secretary of state as agent for service of proc-
ess;  service  of process. [Any person who shall offer to sell or sell a
franchise in this state as  a  franchisor,  subfranchisor  or  franchise
sales  agent]  A  FRANCHISE  SELLER  shall be deemed to have irrevocably
appointed the secretary of state as his or its agent upon  whom  may  be
served  any  summons, complaint, subpoena, subpoena duces tecum, notice,
order or other process directed to such person, or any partner,  princi-
pal[,] officer, [salesman] or director thereof, or his or its successor,
administrator  or  executor, in any action, investigation, or proceeding
which arises under this article or a rule hereunder, with the same force
and validity as if served personally on such  person.  Service  of  such
process upon the secretary of state shall be made by personally deliver-
ing to and leaving with him or a deputy secretary of state a copy there-
of at the office of the department [of state], and such service shall be
sufficient provided that notice of such service and a copy of such proc-
ess  are  sent forthwith by the department to such person, by registered
or certified mail with return receipt requested, at his OR  HER  address
as  set forth in the application for registration of his [offering pros-
pectus] OR HER  FRANCHISE  DISCLOSURE  DOCUMENT  or  in  the  registered
[offering  prospectus]  FRANCHISE  DISCLOSURE DOCUMENT itself filed with
the department [of law] pursuant to this article, or in default  of  the
filing   of   such  application  or  [prospectus]  FRANCHISE  DISCLOSURE
DOCUMENT, at the last address known to the department. Service  of  such
process  shall  be  complete  upon receipt by the department of a return
receipt purporting to be signed by the addressee or a  person  qualified
to  receive  his or its registered or certified mail, in accordance with
the rules and customs of the post office department, or,  if  acceptance
was refused or unclaimed by the addressee or his or its agent, or if the
addressee moved without leaving a forwarding address, upon return to the
department  of  the  original  envelope bearing a notation by the postal
authorities that receipt thereof was  refused  or  that  such  mail  was
otherwise undeliverable.
  S  8. Section 687 of the general business law, as added by chapter 730
of the laws of 1980, is amended to read as follows:
  S 687. Fraudulent and unlawful practices. 1. It is  unlawful  for  any
person  to  make any untrue statement of a material fact in any applica-
tion, notice, statement, [prospectus] FRANCHISE DISCLOSURE  DOCUMENT  or
report filed with the department under this article, or wilfully to omit
to  state in any such application, notice, statement, [prospectus] FRAN-
CHISE DISCLOSURE DOCUMENT or report any material fact which is  required
to be stated therein, or to fail to notify the department of any materi-
al change as required by this article.
  2.  It is unlawful for a person, in connection with the offer, sale or
purchase of any franchise, to directly or indirectly:
  (a) Employ any device, scheme, or artifice to defraud.
  (b) Make any untrue statement of a material fact or omit  to  state  a
material  fact  necessary  in  order to make the statements made, in the
light of the circumstances under which they were made,  not  misleading.
It  is an affirmative defense to one accused of omitting to state such a
material fact that said omission was not an intentional act.
  (c) Engage in any act, practice, or course of  business  [which]  THAT
operates or would operate as a fraud or deceit upon any person.

A. 10076                           17

  (D) MAKE ANY CLAIM OR REPRESENTATION, ORALLY, VISUALLY, OR IN WRITING,
THAT  CONTRADICTS  THE  INFORMATION  REQUIRED  TO  BE  DISCLOSED BY THIS
SECTION.
  (E) MISREPRESENT THAT ANY PERSON:
  (I)  PURCHASED A FRANCHISE FROM THE FRANCHISOR OR OPERATED A FRANCHISE
OF THE TYPE OFFERED BY THE FRANCHISOR.
  (II) CAN PROVIDE AN INDEPENDENT AND RELIABLE REPORT  ABOUT  THE  FRAN-
CHISE OR THE EXPERIENCES OF ANY CURRENT OR FORMER FRANCHISEES.
  (F)  DISSEMINATE ANY FINANCIAL PERFORMANCE REPRESENTATIONS TO PROSPEC-
TIVE FRANCHISEES UNLESS THE FRANCHISOR HAS A REASONABLE BASIS AND  WRIT-
TEN SUBSTANTIATION FOR THE REPRESENTATION AT THE TIME THE REPRESENTATION
IS  MADE, AND THE REPRESENTATION IS INCLUDED IN THE FRANCHISOR'S DISCLO-
SURE DOCUMENT. IN CONJUNCTION WITH ANY SUCH FINANCIAL PERFORMANCE REPRE-
SENTATION, THE FRANCHISOR SHALL ALSO:
  (I) DISCLOSE THE INFORMATION REQUIRED BY THIS ARTICLE  AND  THE  REGU-
LATIONS  PROMULGATED HEREUNDER IF THE REPRESENTATION RELATES TO THE PAST
PERFORMANCE OF THE FRANCHISOR'S OUTLETS.
  (II)  INCLUDE  A  CLEAR  AND  CONSPICUOUS  ADMONITION   THAT   A   NEW
FRANCHISEE'S  INDIVIDUAL  FINANCIAL  RESULTS  MAY DIFFER FROM THE RESULT
STATED IN THE FINANCIAL PERFORMANCE REPRESENTATION.
  (G) FAIL TO MAKE AVAILABLE TO  PROSPECTIVE  FRANCHISEES,  AND  TO  THE
DEPARTMENT  UPON  REASONABLE  REQUEST,  WRITTEN  SUBSTANTIATION  FOR ANY
FINANCIAL PERFORMANCE REPRESENTATIONS MADE IN A  FRANCHISOR'S  FRANCHISE
DISCLOSURE DOCUMENT OR OTHERWISE.
  (H)  DISCLAIM OR REQUIRE A PROSPECTIVE FRANCHISEE TO WAIVE RELIANCE ON
ANY REPRESENTATION MADE IN THE DISCLOSURE DOCUMENT OR IN ITS EXHIBITS OR
AMENDMENTS, PROVIDED, HOWEVER, THAT THIS PROVISION IS  NOT  INTENDED  TO
PREVENT  A  PROSPECTIVE  FRANCHISEE  FROM  VOLUNTARILY  WAIVING SPECIFIC
CONTRACT TERMS AND CONDITIONS SET FORTH IN HIS OR HER  DISCLOSURE  DOCU-
MENT DURING THE COURSE OF FRANCHISE SALE NEGOTIATIONS.
  (I) FAIL TO RETURN ANY FUNDS OR DEPOSITS IN ACCORDANCE WITH ANY CONDI-
TIONS  DISCLOSED  IN  THE  FRANCHISOR'S  DISCLOSURE  DOCUMENT, FRANCHISE
AGREEMENT, OR ANY RELATED DOCUMENT.
  3. It is unlawful for any person to  violate  any  provision  of  this
article,  or  any  rule  of the department promulgated hereunder, or any
condition to the effectiveness of the registration of [an offering pros-
pectus] A FRANCHISE DISCLOSURE DOCUMENT or  of  an  exemption  from  the
registration provisions of this article.
  4.  Any  condition,  stipulation,  or provision purporting to bind any
person acquiring any franchise to waive compliance with any provision of
this law, or rule promulgated hereunder, shall be void.
  5. It is unlawful to require a franchisee  to  assent  to  a  release,
assignment,  novation,  waiver  or estoppel [which] THAT would relieve a
person from any duty or liability imposed by this article.
  S 9. Subdivision 1 of section 688 of  the  general  business  law,  as
added by chapter 730 of the laws of 1980, is amended to read as follows:
  1.  Whenever  it  shall appear to the department [of law], either upon
complaint or otherwise, that any person has violated  any  provision  of
this article, the department:
  (a) may make such investigations within or outside of this state as it
deems  necessary  to  determine  whether  any  person  has  violated any
provision of this article or any rule or regulation hereunder, or to aid
in the enforcement of this article or in the prescribing  of  rules  and
forms hereunder, and

A. 10076                           18

  (b)  may  require or permit any person to file a statement in writing,
under oath or otherwise as the attorney general determines,  as  to  all
the facts and circumstances concerning the matter to be investigated.
  S 10. Section 689 of the general business law, as added by chapter 730
of the laws of 1980, is amended to read as follows:
  S  689.  Action  by  the department of law. 1. Whenever the department
shall believe from evidence satisfactory  to  it  that  any  person  has
engaged  in  or  is  engaged in or is about to engage in any practice or
transaction heretofore referred to as and declared to be an unlawful  or
a  fraudulent practice, it may bring an action in the name and on behalf
of the people of the state of New York against such person and any other
person theretofore concerned in or in  any  way  participating  in  such
unlawful  or  fraudulent practice, to enjoin such person or persons from
continuing such unlawful and fraudulent practice or engaging therein  or
doing  any  act  or  acts  in  furtherance thereof or, if the department
should believe from such evidence that such person actually  has  or  is
engaged  in  any such unlawful or fraudulent practice, it may include in
such action an application to enjoin permanently such  person  and  such
other  person  as  may  have been or may be concerned with or in any way
participating in such unlawful or fraudulent practice, from  selling  or
offering  for  sale  within  or from this state as franchisor, franchise
[sales agent, franchise salesman] SELLER, or a principal EXECUTIVE OFFI-
CER OR DIRECTOR thereof, any franchise offered or to be offered or sold,
or from continuing any such practice. In said action an order or a judg-
ment may be entered awarding the relief applied for or so  much  thereof
as  the  court  may deem proper. Upon a showing by the department in its
application for a permanent  injunction  hereunder  that  the  defendant
named  in the action or an officer thereof has refused to be sworn or to
be examined or to answer a material question or to  produce  a  book  or
paper  relevant to the inquiry when duly ordered to do so by the officer
or judge duly conducting an inquiry into the subject matter forming  the
basis  of  the  application  for  such injunction, such refusal shall be
prima facie proof that such defendant is or has engaged in  an  unlawful
or  fraudulent practice as set forth in such application and a permanent
injunction may issue from the supreme court without further  showing  by
the  department.  In  an action brought under this section the court may
award to the plaintiff a sum not in excess of ten thousand  dollars  for
each defendant as an additional allowance.
  2.  Upon a showing by the department, in an application for an injunc-
tion, that any person engaged in the offer or sale  of  a  franchise  in
this  state has ever been convicted by a court of competent jurisdiction
in any state or county of any felony or of any other criminal offense by
any such court, whether or not constituting a  felony,  involving  fran-
chises, securities or subdivided land, the supreme court after a hearing
may  issue a permanent injunction awarding the relief applied for, or so
much thereof as the court may deem proper, against such person shown  to
have  been so convicted, in the form and manner provided for in subdivi-
sion one of this section in the case of  one  who  actually  has  or  is
engaged in any unlawful or fraudulent practice.
  3. If a franchise is offered or sold within the state of New York by a
non-resident  person and such non-resident person has not filed pursuant
to laws heretofore or hereafter existing the  designation  of  a  person
upon  whom process against him or it may be served or the designation of
the secretary of state as such  person,  pursuant  to  section  thirteen
hundred four of the business corporation law or other laws heretofore or
hereafter  existing,  or  in lieu thereof, an instrument in writing duly

A. 10076                           19

acknowledged and filed in the office of the secretary of state designat-
ing the secretary of state as the person upon whom  may  be  served  any
subpoena, subpoena duces tecum or other process directed to such non-re-
sident person and issued in any investigation, examination or proceeding
pending  or  about to be instituted under and pursuant to the provisions
of this article, the department may serve a notice upon  such  non-resi-
dent  person  by  mailing the same in a securely sealed postpaid wrapper
addressed to such non-resident person at its or his last known place  of
business  or residence, and may in such notice require that such non-re-
sident person furnish a written statement under  oath,  as  required  in
said  notice,  giving  the information therein specified relating to the
franchise offered, to be offered or sold in the state  of  New  York  by
such  non-resident person or, in the alternative, that such non-resident
person shall appear within a reasonable time from the  date  of  mailing
such  notice at a designated place within this state for examination and
shall produce at the time and place of such examination such  books  and
papers of such non-resident person as may be designated in such notice.
  If  such  non-resident person shall fail to appear pursuant thereto or
to produce the books and papers required  thereby  to  be  produced,  or
shall  refuse to submit to examination or to answer any proper question,
the proof of such  failure  or  refusal  shall  constitute  prima  facie
evidence  that  the  offer  or  sale of a franchise by such non-resident
person constitutes a fraudulent practice and may in  the  discretion  of
the  court  be  treated as a sufficient basis for a permanent injunction
against the continuance of such fraudulent practice.
  4. In any action brought by the department as provided in  this  arti-
cle, the court at any stage of the proceedings may appoint a receiver of
any  and  all  property derived by the defendant or defendants or any of
them by means of any such unlawful  or  fraudulent  practice,  including
also  all  property with which such property has been commingled if such
property cannot be identified  in  kind  because  of  such  commingling,
together  with  any  or  all books of account and papers relating to the
same. The judgment entered in such action may provide that such receiver
shall take title to any or all such property and books  of  account  and
papers  relating  to  the  same  and liquidate such property or any part
thereof for the benefit of all persons intervening in  the  said  action
and  establishing  an  interest  in such property. The judgment may also
provide that all such property, the title to or interest  in  which  has
not  been  established in such action by intervenors or otherwise by due
process to be in a person or persons other than defendant or defendants,
shall be returned to the defendant or defendants as their  interest  may
appear. Such receiver shall be subject to all the duties of receivers in
civil actions as far as practicable except that such provisions relating
to  commissions  or compensation of receivers shall not be applicable to
receivers appointed pursuant to this section, but  such  commissions  or
compensations  shall  be  fixed  by the court in any amount which it may
determine to be just and equitable. In any action brought by the depart-
ment as provided in this article the court  may  grant  such  other  and
further relief as may be proper.
  5.  Whenever the department has determined to commence an action under
this article, it may present to any justice of the supreme court, before
beginning such action, an application in writing for an order  directing
the  person or persons mentioned in the application to appear before the
justice of the supreme court or referee designated  in  such  order  and
answer  such  questions  as  may be put to them or to any of them, or to
produce such papers, documents and books concerning the alleged unlawful

A. 10076                           20

or fraudulent practices to which the action  which  the  department  has
determined  to bring relates, and it shall be the duty of the justice of
the supreme court to whom such application for  the  order  is  made  to
grant  such  application. The application for such order may simply show
upon information and belief that the testimony of such person or persons
is material and necessary. The provisions of the civil practice law  and
rules,  relating  to  an application for an order for the examination of
witnesses before the  commencement  of  an  action  and  the  method  of
proceeding  on  such  examination,  shall  not  apply  except  as herein
prescribed. The order shall be granted by the  justice  of  the  supreme
court  to  whom  the  application  has  been  made with such preliminary
injunction or stay as may appear to such justice to be proper and  expe-
dient  and shall specify the time when and place where the witnesses are
required to appear. The justice or referee may adjourn such  examination
from  time  to time and witnesses must attend accordingly. The testimony
of each witness must be subscribed by him  and  must  be  filed  in  the
office of the clerk of the county in which such order for examination is
filed.
  6. The order for such examination must be signed by the justice making
it,  and service of a copy thereof with an endorsement by the department
to the effect that the person named therein is required to appear and be
examined at the time and place before the justice and referee  specified
in  such  endorsement,  shall be sufficient notice for the attendance of
witnesses. Such endorsement may contain a clause requiring  such  person
to  produce  at  such examination all books, papers and documents in his
possession or under his control relating to the subject of such examina-
tion.  The order shall be served upon the person  named  in  [the]  SUCH
endorsement  [aforesaid]  by  delivering to and leaving with it or him a
certified copy thereof, endorsed  as  above  provided,  subject  to  the
payment  of  witness fees and mileage as and when provided to be paid by
paragraph (b) of subdivision four of section six hundred eighty-eight of
this article in connection with attendance pursuant to subpoenas author-
ized to be issued under [said] SUCH section. Service of  such  an  order
may  also be served under section six hundred eighty-six of this article
in cases falling thereunder.
  7. The referee appointed as provided in this article possesses all the
powers and is subject to all the duties of  a  referee  appointed  in  a
civil  action,  so  far  as  practicable,  and may punish for contempt a
witness duly served with the papers as prescribed in  this  article  for
non-attendance or refusal to be sworn or to testify or to produce books,
papers  and  documents according to the direction of [the] SUCH endorse-
ment [aforesaid] in the same manner and to the same extent as a  referee
to hear, try and determine an issue of fact or law.
  8.  Any  person  against  whom a permanent injunction has been granted
under the provisions of this article may apply to the supreme  court  at
any  time upon at least sixty days notice to the department for an order
dissolving such injunction or modifying the same  upon  such  terms  and
conditions  as  the court deems necessary or desirable. Such application
for dissolution or modification of such injunction shall contain a reci-
tation of the facts and circumstances which caused the granting  of  the
injunction;  the  occupation  and  employment  of  the person making the
application and his financial remuneration therefrom since the time  the
injunction was granted; his net worth at the time of the application and
the  source  thereof;  together  with  any  other facts bearing upon the
reasonableness of the application and the character of the applicant  as
may  enable  the  court  to issue an order that will properly dispose of

A. 10076                           21

such application in the interest of justice. A copy of such  application
together  with  copies  of  any other papers in support thereof shall be
served upon the department at least sixty days prior to the return  date
thereof.  In  addition thereto the applicant shall file with the court a
good and sufficient surety bond in the sum of one thousand dollars guar-
anteeing that he will pay all costs and expenses of an investigation  by
the  department  of such applicant and the statements and claims alleged
in the application together with any  further  investigation  which  the
department  may  deem  necessary  or  desirable  to determine whether it
should consent to the application, oppose the same, or make  such  other
recommendations  to  the  court  as  in  its opinion are desirable to be
included in any modification of such injunction. Should it appear in the
course of such investigation by the department  that  said  sum  is  not
sufficient,  the  department  may  apply to the court by usual notice of
motion or order to show cause for an increase in the amount of  security
or  further  surety  bond necessary to fully pay all of the costs of the
investigation and the court may require such further bond as  the  situ-
ation requires to fully pay the costs and expenses of the investigation.
Upon  the  completion  of such investigation, the department may file an
answer to such application setting forth such facts as are pertinent  to
the  determination by the court of the matter before it and whether said
injunction should be dissolved, modified or continued  in  whole  or  in
part  and  what conditions, if any, shall be attached to any dissolution
or modification of said injunction. After a hearing upon  such  applica-
tion  and  after any further investigation, proof or testimony which the
court may desire has been offered, or at any  adjourned  dates  thereof,
the  court may make a final order dissolving the permanent injunction or
modifying the same upon such terms and conditions as in its opinion  are
just  and desirable, or in its discretion may deny the application. Such
order shall contain a direction that the applicant pay to the department
the costs and expenses of  the  investigation  in  connection  with  the
proceeding,  and  any  judgment entered thereon may be enforced directly
against the surety on the bond. The court shall grant  no  temporary  or
other  relief from the injunction in force pending a final determination
of such application. No application  under  this  subdivision  shall  be
entertained:
  (a)  in any case where the applicant has been convicted of a felony or
a crime that would be a felony if committed in the  state  of  New  York
since the issuance of the injunction, nor
  (b) in any case where the injunction was granted incident to a felony,
or  the applicant has been convicted at any time of any felony involving
franchises which are the subject  matter  of  this  article.  Nor  shall
anything contained in this subdivision be construed to deny to or inter-
fere  with  the  power  of  the  department to bring any other action or
proceeding, civil or criminal, against the applicant at any time.
  9. The provisions of the civil practice law and rules shall  apply  to
all  actions  brought  under  this  article  except  as herein otherwise
provided.
  S 11. Section 691 of the general business law, as added by chapter 730
of the laws of 1980, subdivision 4 as amended by chapter 86 of the  laws
of 1981, is amended to read as follows:
  S  691. Civil remedies. 1. A person who offers or sells a franchise in
violation of section six hundred eighty-three, six  hundred  eighty-four
or  six  hundred  eighty-seven  of  this article is liable to the person
purchasing the franchise [for damages and, if such violation is  willful
and  material,]  for rescission, with interest [at six percent per year]

A. 10076                           22

from the date of purchase, [and] AT AN ANNUAL INTEREST RATE SET FORTH IN
OR DETERMINED IN ACCORDANCE WITH RULES OR REGULATIONS PROMULGATED BY THE
DEPARTMENT, AND IF SUCH VIOLATION IS WILLFUL AND MATERIAL, FOR  DAMAGES,
IN EACH INSTANCE ALONG WITH reasonable attorney fees and court costs.
  2.  A  person  may not file or maintain suit under this section if the
franchisee or such person received a written offer before suit, and at a
time when he owned the  franchise,  to  refund  the  consideration  paid
together  with  interest  at  [six  percent per year] AN ANNUAL RATE SET
FORTH IN OR DETERMINED IN ACCORDANCE WITH RULES OR  REGULATIONS  PROMUL-
GATED  BY  THE  DEPARTMENT  from the date of payment, less the amount of
income earned by the franchisee from  the  franchise,  conditioned  only
upon tender by the person of all items received by him for the consider-
ation and not sold, and failed to accept the offer within thirty days of
its  receipt,  provided that the offering documents are submitted to the
department for approval at least ten business days prior  to  submission
to  the  franchisee. The rescission offer shall recite the provisions of
this section. If  the  franchise  involves  a  substantial  building  or
substantial  equipment  or fixtures and a significant period of time has
elapsed since the sale of the franchise to the franchisee,  the  depart-
ment  in  approving  a  rescission  offer may approve an equitable offer
recognizing depreciation, amortization, and  other  factors  which  bear
upon  the value of the franchise being returned to the franchisor. Noth-
ing in this subdivision shall prohibit settlement of any dispute arising
under or involving  claims  based  on  this  chapter,  with  or  without
approval of the department.
  3.  A person who directly or indirectly controls a person liable under
this article, a partner in a firm so liable, a principal executive offi-
cer or director of a corporation so liable, a person occupying a similar
status or performing similar functions, and an employee of a  person  so
liable,  who  materially aids in the act of transaction constituting the
violation, is also liable jointly and severally with  and  to  the  same
extent  as  the controlled person, partnership, corporation or employer.
It shall be a defense to any action based upon such liability  that  the
defendant  did  not  know or could not have known by the exercise of due
diligence the facts upon which the action is predicated.
  4. An action shall not be maintained to enforce  a  liability  created
under  this  section unless brought before the expiration of three years
after the act or transaction constituting the violation.
  5. Except as explicitly provided in this article, civil  liability  in
favor  of  any  private party shall not arise against a person by impli-
cation from or as a result of the violation of a provision of this arti-
cle or a rule, regulation or order hereunder. Nothing  in  this  article
shall  limit  a liability which may exist by virtue of any other statute
or under common law if this article were not in effect.
  S 12. Section 694 of the general business law, as added by chapter 730
of the laws of 1980, subdivision 1 as amended by chapter 61 of the  laws
of 1989, is amended to read as follows:
  S 694. Administration. [1. The department shall charge and collect the
fees fixed by this section.
  (a)  The fee for filing an application for registration of an offering
prospectus under subdivision two of section six hundred eighty-three  of
this article is seven hundred fifty dollars.
  (b)  The  fee for filing an amendment to any registered offering pros-
pectus filed under subdivision two, nine  or  thirteen  of  section  six
hundred eighty-three of this article is one hundred fifty dollars.

A. 10076                           23

  (c)  The fee for filing a franchise agent's application under subdivi-
sion thirteen of section six hundred eighty-three of this article is one
hundred fifty dollars.
  2.] The department may from time to time make, amend, and rescind such
rules,  forms  and  regulations  as  are  necessary  to  carry  out  the
provisions of this article, including rules and forms governing applica-
tions and reports, and defining any terms, whether or not used  in  this
article,  insofar  as  the  definitions  are  not  inconsistent with the
provisions of this article.
  S 13. This act shall take effect immediately.