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

                                  4880

                       2015-2016 Regular Sessions

                          I N  A S S E M B L Y

                            February 9, 2015
                               ___________

Introduced  by  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:

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD08344-01-5

              

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  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]
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;

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  (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
  (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

A. 4880                             4

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:
  (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 DISSEM-
INATE  by  newspaper,  mail, radio [or], television, ELECTRONIC COMMUNI-
CATIONS (INCLUDING THOSE ACHIEVED THROUGH THE INTERNET, ELECTRONIC  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-

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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
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

A. 4880                             6

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
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

A. 4880                             7

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
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

A. 4880                             8

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
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

A. 4880                             9

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.
  (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

A. 4880                            10

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
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 DATE 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

A. 4880                            11

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.
  (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'

A. 4880                            12

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
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.

A. 4880                            13

  (3)  The  business form of the franchisor, whether corporate, partner-
ship, or otherwise.
  (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.

A. 4880                            14

  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)  [(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 QUALIFIES FOR  THE  EXEMPTION  BY  INVESTING  AT  THIS
THRESHOLD  LEVEL,  AND (II) THE PROSPECTIVE FRANCHISEE SIGNS AN ACKNOWL-
EDGMENT 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.

A. 4880                            15

  (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
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

A. 4880                            16

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.
  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.

A. 4880                            17

  (c)  Engage  in  any act, practice, or course of business [which] THAT
operates or would operate as a fraud or deceit upon any person.
  (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. 4880                            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. 4880                            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. 4880                            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. 4880                            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. 4880                            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. 4880                            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.