December 20, 1999
VIA FEDERAL EXPRESS
Mr. Donald S. Clark
Dear Mr. Clark:
This comment is submitted in response to the Federal Trade Commission ("FTC") Notice of Proposed Rulemaking ("NPR") regarding the trade regulation rule on Franchising and Business Opportunity Ventures (the "Rule"). This firm previously submitted comments to the FTC on behalf of the firm as well as for certain firm clients. Members of the firm have appeared as invited panelists at the public workshop conferences conducted by the FTC at a number of locations throughout the U.S. Because of the firm's extensive practice representing franchise companies, we submit these comments to the FTC on the firm's behalf.
I. GENERAL MATTERS
As a preliminary matter, we would like to compliment the FTC for its forward-thinking and practical approach in a number of areas covered in the NPR. We support and concur in the following conclusions, among others, reached by the FTC with respect to amendments to the Rule in the NPR:
All of the foregoing proposed modifications to the Rule are necessary and appropriate; to the extent that we have comments on any of the details of these proposals, they are stated below.
The removal of business opportunity transactions from the Rule, a change which we support, has material implications with respect to many of the proposed revisions in the NPR, primarily because it eliminates the significantly greater need for regulation required by business opportunity sales. Indeed, the FTC has long recognized the special needs of, and greater risks incurred by, business opportunity purchasers, as evidenced, for example, by the significantly greater number of enforcement actions which the FTC has initiated against business opportunity sellers. Purchasers of franchises, compared to purchasers of business opportunities, typically are better educated, better financed, have greater business experience, make a larger investment, and are more likely to evaluate their proposed investment with the assistance of other knowledgeable professionals such as attorneys, accountants, and officers of lending institutions. As the Rule transitions to focusing solely on the more sophisticated and stable franchise community, the FTC can no longer assume that many of the protections that were appropriate for business opportunity transactions remain necessary, or continue to justify the transactional costs and burdens imposed by compliance. We recommend that the FTC weigh these issues in its overall review of the Rule and, in particular, take into account the removal of business opportunity transactions when considering the comments that follow.
II. EXEMPTIONS AND EXCLUSIONS
The NPR states that certain exclusions are eliminated in order to "streamline the Rule." These exclusions cover: employer/employee relationships, general partnerships, cooperative memberships, testing or certification services and single trademark licenses. We believe that these exclusions are not self-evident nor are they familiar to the broader community of businesses and lawyers involved in structuring distribution programs. The exclusions serve an important function and should be retained.
B. Sophisticated Investor Exemption (Section 436.9(e))
We concur that a sophisticated investor exemption is an appropriate addition to the Rule. We suggest, however, that several of the prerequisites for the exemption be modified. We believe that the minimum transaction size is set too high at $1.5 million. This threshold essentially eliminates all but a very few franchised businesses, typically lodging facilities and perhaps the most expensive restaurant franchises. We suggest a $500,000 threshold as a more reasonable alternative based on the franchisee's likely resort to sophisticated advisory services from accountants and/or attorneys and the probable need for financing, and resulting due diligence oversight, from a financial institution.
We also note some drafting concerns with the current proposal. More specifically, in its current form, the net worth exemption is available only for corporations. Surely, other forms of business entities may be sophisticated, such as partnerships, LLCs, and even individuals. There are numerous legitimate business reasons why a sophisticated and well capitalized purchaser may wish to create a "franchisee" entity (such as a newly formed LLC) which would clearly not satisfy either the five year experience or the net worth requirements. Such legal entity could be every bit as sophisticated as the person or entities that control it and no distinction is warranted (not dissimilar from the imputed experience allowed under the fractional franchise exemption).
Finally, the NPR suggests that inflationary adjustments be made to the thresholds in this section. While we concur in the need for possible adjustments to the Rule outside of a normal rulemaking process (see our comments below on the interplay between federal and state regulatory review), we suggest that other features of the Rule be considered for periodic review. For example, the $500 initial payment exemption in Section 436.9(a) (which has not been changed in 20 years) should be increased now and should also be periodically reviewed.
III. DOCUMENT DELIVERY
We support the FTC's initiative to facilitate disclosure by electronic means. Such efforts, however, should be tempered by the need to accommodate the rapid pace of technological change. For example, the three page paper summary required to be provided along with any form of e-disclosure, may be unnecessary in only a few years due to advances in confirmation of the fact and completeness of electronic disclosure. The FTC should retain the right to revisit on a periodic basis the need for such paper summaries. In addition, the NPR requires that the paper summary be provided "simultaneously" with the e-disclosure. This is impractical; instead the paper summary should be deliverable in advance of the normal 14 day holding period.
B. 5-Day Rule - Final Contract (Section 436.2(a)(2))
The NPR continues the requirement that the final contract be delivered in advance of signing. (It appropriately changes the holding period from 5 business days to 5 days.) In practice, the 5-day rule typically hurts rather than aids franchisees, since the "price" of an additional concession by the franchisor is an additional 5-day delay. Franchisees often are more time sensitive than franchisors, either because of a financing commitment or a lease option that might be expiring or the need to attend a training program. As a result, the 5-day rule can discourage a franchisee from requesting last-minute changes. Thus, the current provision, especially now that business opportunities are not covered, has little potential benefit to either franchisor or franchisee and may, in fact, discourage, rather than promote, last minute negotiations.
In addition, Section 436.10(e) of the NPR requires that the franchisee initial any contractual changes (which may be impractical since changes are usually made via rider or addendum) and again mandates a 5 day holding period. All of these requirements are prejudicial to the interest of prospective franchises and ultimately result in reduced opportunities for negotiations between the parties.
C. The New 5-Day Rule - Franchisor Receipt of Receipt (Section 436.5(w)(2))
The NPR creates a new receipt requirement: the franchisor must prove that it received the UFOC receipt 5 days before contract signing and receipt of any fee. It is unclear why this additional paperwork burden is necessary nor is there any indication of abusive practices in the area. Franchisors often have difficulty retrieving receipts from franchisees (and sometimes resort to obtaining affidavits from franchisees who claim to have lost the receipt). As long as the franchisor obtains the receipt and retains same for the necessary 3-year period, no other requirement should be imposed.
IV. UPDATING REQUIREMENTS
The NPR continues to require an annual update within 90 days after a franchisor's fiscal year end. Many franchisors have difficulty obtaining annual audited financial statements from their auditors within this time period (particularly those with December 31 fiscal year ends, whose auditors are usually overwhelmed with financial statement preparation during an extraordinarily busy tax season). Certain state franchise regulators have recognized this problem and allow the annual update to be completed within 120 days of fiscal year end.
The requirement to update the UFOC following every fiscal year end will also cause another problem, as franchisors naturally attempt to coordinate their federal update with state updates and state renewal registrations. While on its surface, a rule tied to "fiscal year end" seems fine, in fact it is problematic as virtually all franchisors have the same fiscal year end - December 31. This creates a "bunching" of state renewal registration filings at the same time each year, overloading administrators, causing administrators to provide less than full reviews, and delaying their responses to such renewal applications. The "bunching" also causes franchisors to have difficulty in timely filing renewal applications at this single time each year, often resulting in lapses in their authorizations to sell in the states.
B. Material Change - Immediate Update Versus Quarterly Update (Section 436.8(c))
The current Rule contains a bright line quarterly updating requirement. This rule is clear and intelligible to franchisors and their counsel. The NPR adds a provision that "material changes" be immediately disclosed to prospective franchisees. It is unclear whether these "material changes" must be more "material" than any changes disclosable in the quarterly updates. Depending on the answer to this question, is there any need to require quarterly updates when immediate updates are mandated; i.e., does the immediate update rule preclude the need for the quarterly update? Also, this provision raises the question of whether a franchisor must amend all of its state franchise registrations at the time it makes this material change disclosure.
V. INTERPLAY OF FEDERAL AND STATE LAW
An FTC rulemaking is, as required by law, a time-consuming process. It is not well-suited to updating and clarifying disclosure requirements. During the time period of this rulemaking process, the Franchise Committee of the North American Securities Administrators Association ("NASAA"), which has oversight over the Uniform Franchise Offering Circular ("UFOC") guidelines largely adopted in the NPR, has issued a UFOC Commentary and later supplemented such Commentary with additional interpretations and clarifications. In areas like electronic disclosure, new distribution methods and others, it is essential that the FTC establish ongoing review procedures to fine tune the Rule.
B. Use of the "Legislative History" of the UFOC
The NPR does not include material portions of the UFOC instructions, the sample answers and the UFOC Commentary. The nuances and subtleties of UFOC interpretation are critical to franchisors and their counsel in their ongoing efforts to comply with the law. Hopefully, the FTC will provide interpretive guides or some other vehicle to "fill-the-gaps" in the language of the Rule which will incorporate the UFOC instructions, sample answers and Commentary. Unfortunately, it is unclear whether the public will have an opportunity to comment on such anticipated interpretive guides, particularly to the extent that there are differences with the above-described NASAA "legislative history." The FTC and NASAA have worked together for several decades on disclosure issues and it is imperative that they continue joint efforts to avoid different disclosure standards.
We believe that there should be a single disclosure document format. That single format has become the UFOC. However, the NPR, while largely adopting the UFOC, contains a number of changes in the UFOC requirements. The effect of those changes on state requirements is unclear. The NPR states that state requirements are preempted, but only if they are inconsistent with the Rule, and they are not inconsistent if they provide equal or greater protection than the Rule. We doubt that it is possible to discern the level of protection afforded by fine differences in disclosure requirements. Similarly, some of the forward-thinking aspects of the NPR can be easily rendered ineffective by contrarian policies of other regulators. For example, the phase-in of audited financial statements permitted by the NPR may well be rejected by one or more state administrators and, as a result, the audit phase-in will be unusable by the franchisor anywhere in the U.S. unless the franchisor avoids franchising activities in the disputatious state(s). Another example is the cover page: if a state mandates an additional cover page format, it lengthens the cover page so that it no longer functions as a short form summary of the franchise offering with concise warning legends.
We do not challenge the right of the states to comment on a franchisor's failure to comply with a required disclosure format. However, when formats differ, a franchisor must create multiple forms of disclosure document, or lengthen the standard format to accommodate a range of additional disclosures. The format specified in the NPR, or some compromise standard format worked out by the FTC and NASAA, should be the only format permitted.
VI. SUBSTANTIVE DISCLOSURE REQUIREMENTS
The Rule's definition of predecessor has been expanded in the NPR to include entities "from whom the franchisor obtained a license to use the trademark or trade secrets in the franchise operation." Aside from the fact that this expansion is unjustified by the plain meaning of the term "predecessor," it is unclear why the current UFOC definition is insufficient in its scope. Also, the language above can be read to refer to any trademark or any trade secret, so even a third party selling a recipe for a food item to a franchisor could be treated as a predecessor. A franchisor may not even be able to obtain information for its disclosure document from such a putative third party predecessor. Because of this broad definition, it may require the inclusion of irrelevant and confusing disclosures in Items 1, 3, 4 and elsewhere, much of which will have nothing to do with the franchise system or be of any interest or use to prospective franchisees.
The inclusion of the concept of "de facto" officers is unduly complicated and confusing. Titles nearly always are a meaningful indicator of a person's responsibilities and authority; however, to define a de facto officer as a person "whose title does not reflect the nature of the position" merely begs the question. It would be simpler to follow the UFOC philosophy and revise Section 436.5(b) by adding after "parent" in the second line " and any other person " This focuses on the need to disclose any person who will have management responsibility with respect to the franchise program.
The NPR mandates a variety of disclosures about parent companies throughout the disclosure document. In some respects, this requirement is surplusage because the UFOC definition of affiliate subsumes parent entities. (In addition, note that the definition of "affiliate" as applied to parent companies is actually quite broad; it would cover direct and indirect parent entities. The NPR does not specify the breadth of its parent definition.) However, as a practical matter, we do not oppose general descriptive disclosures about parent companies in Item 1. (The NPR cites only potential competition from a parent as a justification for inclusion of such information in the disclosure document. However, the NPR does not refer to "parent" in the section that deals with competition issues, Item 12; rather it appears to rely on the broad definition of "affiliate" in Item 12 to cover parent companies.)
In certain Items, particularly Item 3, required disclosure of parent information is confusing, diversionary and offers little benefit to prospective franchisees. If a franchisor's parent is a public company, the parent may face securities fraud claims as such arise in the normal course of events for Fortune 1000 and other publicly traded entities. Likewise, a large company may face a variety of product liability and other tort claims where the stated damage amounts are astronomical. In addition, based on the low thresholds for reporting litigation in the NPR, a franchisor would have to disclose hundreds of cases not otherwise reportable for SEC or financial statement purposes. All of this simply means that the disclosure document will be overflowing with largely irrelevant parent litigation summaries, obscuring and diverting readers from the more important disclosures of franchisor litigation, and greatly increasing compliance burdens and costs.
The NPR's mandate that pending franchisor-initiated litigation be disclosed is problematic for many of the same reasons described above. Disclosure about a franchisor's litigation history is designed to inform the franchisee about proven or alleged franchisor actions which may reflect poorly on the franchisor; disclosure also is required for franchisor-initiated litigation whenever a defendant files a counterclaim containing specified claims. A franchisor's lawsuit against the franchisee, in the absence of a relevant counterclaim, does not reflect any adverse conduct by the franchisor. Such a disclosure requirement may also dissuade a franchisor from filing litigation to protect the system and its brand image. This inhibition is not only a result of the need to include a new disclosure; it also arises from the obligation to cease sales while the disclosure document is amended and, in some states, while the amendment filing is processed and reviewed. If the FTC concludes that franchisor-initiated litigation be included, it should consider as an alternative a simple requirement that, on an annual basis, a franchisor should disclose the number of litigation and arbitration proceedings it has pending against franchisees, along with a general summary of the types of claims involved.
We are concerned that there is no provision allowing omission of settled litigation where the settlement is favorable to the franchisor or otherwise neutral. See instruction iv of Item 3, Definitions, of the UFOC. This may be an appropriate subject for coverage in the forthcoming Interpretive Guides because the NPR is silent on the issue.
Similar to the issue raised above, we are concerned about a gap in the language of the NPR regarding the definition of "initial phase" of operation. Like the UFOC, the NPR refers to the initial phase as "at least three months or a reasonable period for the industry." However, the NPR does not refer to the clear standard set forth in the UFOC Commentary that a 3 month initial phase is reasonable. Further, the NPR implies that the initial phase should cover the period of time until the franchisee "can break even." This will allow a franchisor to make financial performance representations without complying with the rules described in Item 19. Even those franchisors that make Item 19 claims rarely engage in future-oriented break-even analyses. In addition, the UFOC Commentary specifically notes the exclusions (such as inventory and owner's salary) from the "additional funds" line item, which the NPR now calls "other payments." (For example, with respect to the exclusion of inventory, NASAA recognized that data would be distorted if a business with significant inventory turns had to report 3 months of inventory costs. ) These issues should be the subject of additional FTC guidance.
The NPR requires disclosure of the "criteria for evaluating, approving, or disapproving of alternative suppliers." This goes beyond the UFOC disclosures and may result in the disclosure of confidential and proprietary information. The UFOC only requires a description of the evaluation process and whether its criteria are available to franchisees.
The NPR mandates use of a warning legend if the franchisor does not grant exclusive territories. While we do not dispute the theoretical usefulness of such a disclosure, we are concerned about the NPR's lack of definition of the term "exclusive territory." For example, the legend may be entirely appropriate for situations where a franchisor grants a franchise for a specific site and otherwise reserves the right to put new locations anywhere. However, what about competition from alternate channels of distribution, such as mail order or Internet sales, or competition from an affiliated company using a different brand name for a similar or competitive concept? Do these alternative forms of competition render a territory something less than "exclusive"? Such competition may actually have more impact than the development of a new same-brand outlet near the franchisee's outlet.
As a result, it may be appropriate to consider either dropping the legend or broadening its coverage to include competition from alternative forms of distribution. If the legend is so revised, then even franchisors offering some form of exclusive territory will have to include the legend in their disclosure documents because of the possibility of competition from other channels of distribution. It should be recognized that nearly every disclosure document will of necessity include some form of such an expanded legend.
The NPR requires that financial performance representations based on historical data be prepared in accordance with generally accepted accounting principles ("GAAP"). The NPR does not cite any basis for such requirement (see footnote 293 of the NPR) nor are we familiar with any abuses involving non-GAAP earnings claims. (We recognize that the current Rule requires GAAP reporting but, to our knowledge, it has not been vigorously enforced.) It should be recognized that most, if not all, historical financial performance representations are not prepared in accordance with GAAP. Since franchisors rely on data from disparate sources, including franchisees, it will be impossible to police GAAP compliance. NASAA has recognized the difficulties of enforcing such a requirement and does not mandate GAAP reporting in Item 19 of the UFOC. It is likely that the data, although likely to be reliable, may not even comply with GAAP at the reporting entity level. For all of these reasons, we would anticipate that most franchisors now voluntarily providing earnings claims would no longer be able to do so under the NPR rules.
The UFOC offers great flexibility in the preparation of Item 19 disclosures. Even with that flexibility, most franchisors do not utilize Item 19 earnings claims. To the extent that the NPR increases the disclosure burden for franchisors, the FTC may find more franchisors gravitating away from making financial performance representations in Item 19. It is appropriate to consider relaxing some of the requirements of Section 436.5(s)(3)(ii)(A) through (F).
We believe the FTC has taken steps to resolve some of the reporting problems arising from Item 20 of the UFOC. However, we think that the solution proposed in the NPR is too complicated and does not allow for an accurate assessment of turnover and related matters.
First, most of the definitions for the events covered by the Franchised Outlets Summary are adequate. Two definitions, however, should be revised; subsections (1)(iv) and (1)(vi) describe termination and non-renewal, respectively, as events that are fully completed merely by the sending of an "unconditional notice." The definition of "unconditional" is not stated but reality indicates that, even if franchisors send such notices, they do not necessarily result in completion of the event described in the notice. Thus, a franchisor may send a termination notice to a franchisee but, if the franchisee cures the default or transfers the franchise, the termination is never implemented.
The fact is that most franchisors do not report an event unless the event actually transpires. Therefore, a franchisor will report the last event to occur as to a given outlet, exemplified by the following:
There are numerous examples like this but the effect is the same: as a practical and common sense matter, the last-in-time event to occur should be reported. (The author acknowledges that his prior recommendation to focus on the first-in-time event to occur was flawed. Such a first-in-time prioritization would result in the mischaracterization of the actual disposition of a given outlet.) A last-in-time prioritization is appropriate for at least three reasons: (a) it allows for an easily ascertainable confirmation of the event; (2) it represents a fact, rather than an intention (e.g., a termination notice) or a proposal (e.g., a transfer approval request); (3) in dispute situations, it labels the event in a manner consistent with the parties settlement of their dispute.
With respect to possible formats, we recommend the specimens attached as Exhibit A. The proposed format includes four tables:
We believe that these charts will provide a readable and concise summary of the necessary information. Aside from concerns that the NPR charts will cause double-counting (particularly because the franchised outlet summary includes transfers, which do not impact on the total number of outlets in operation), we also believe that the NPR presentation is unduly complex and will be confusing to franchisors and franchisees. In addition, because new Item 20 will require changes in how franchisors report these events, the FTC should allow for a reasonable phase-in period.
In order to track and confirm the events reported in the charts, we also suggest a coordination of the chart data with the list of franchisees who left the system in the past year (Section 436.5(t)(5)). For each event described in the charts during the prior fiscal year, there must be a match on the list of former franchisees attached to the disclosure document. Accordingly, the list of former franchisee names, addresses and telephone numbers would also include the appropriate event label from the chart indicating why he/she is no longer a franchisee.
In the end, the objective should be to utilize concise, readable charts with clear event characterizations. Also, the data must be accurate and reconcilable, not only to comply with disclosure requirements, but also to satisfy a widespread interest in turnover data.
We acknowledge the FTC's concern about prospects being unable to raise questions with current or former franchisees who are subject to confidentiality requirements. The FTC's position is particularly understandable if a gag clause prevents all franchisee communication about the franchise system. There are, however, narrowly focused confidentiality provisions, such as settlement agreements (unless otherwise required to be disclosed in Item 3) or negotiated changes to contracts, where both parties may want to maintain confidentiality as to those specific agreements.
We believe that the NPR overstates the need for disclosure of franchisee organizations but, more importantly, does not permit any screening as to the existence of insubstantial or fictitious groups. How can a franchisor determine whether any organization is real or a figment of a franchisee's or lawyer's imagination? We believe that there should be some minimal proof that the organization represents some material number of franchisees. (For example, the organizers should verify that some percentage of franchisees are members.) In addition, a franchisor should not be required to recognize an anonymous group; a Board of Directors or comparable governing body should be identified. Unless these changes are made, the listing of such organizations in Item 20 may elevate their importance far beyond their role in the franchise system and result in distorted information being provided to prospects.
The NPR mandates the inclusion of parent company financial statements but cites no justification for this new requirement. Under the UFOC, state examiners have the right to ask for the inclusion of these statements; in practice, state franchise examiners have rarely requested their inclusion, and for good reason: These statements are not relevant to the prospective franchisee's purchase decision. The parent and the franchisor are two separate entities, and neither the franchisee nor the parent has any contractual rights or obligations viz-a-viz the other. More importantly, the inclusion of a parent company's financial statements could very well mislead a franchisee into believing, incorrectly, that the parent is somehow guaranteeing or, at a minimum, will somehow assist the franchisor if a problem arises concerning the franchisor's performance under the franchise agreement. Aside from the element of confusion, inclusion of these statements will further lengthen an already expansive document. In addition, as described above, the NPR is unclear as to whether it covers direct or indirect parent entities.
VII. PROHIBITED PRACTICES
The NPR generally maintains the media claim rules of the current Rule. There is no recognition of the amount of information available on the Internet which is not directed at prospective franchisees, but which is accessible by them on a franchisor's (or its affiliate's) website. For example, most public companies have websites which contain volumes of information on financial performance, including same store sales and other outlet performance indicators. Some of this information is required by, and filed with, the SEC and other governmental agencies. The FTC should consider whether such general information resources are truly "disseminated" to prospective franchisees. Unless the information is located or linked from a franchise solicitation section of a website, the FTC should not treat same as a claim directed to prospects. It should be recognized that most franchisors do not make Item 19 earnings claims, and they would be in jeopardy if their or an affiliate's website contained financial performance information which is part of otherwise publicly available data.
While the NPR disclaims any intention to ban the use of integration clauses, the express language of this provision has this very effect. We are unaware of any reported decision where a franchisor's integration clause was interpreted by a court to effectively disclaim representations made in a UFOC or other disclosure document. The FTC's proposal would render all integration clauses null and void, even those in contracts that have been in effect for many years.
We appreciate the opportunity to provide these comments to you. If a public workshop conference is scheduled, we would like the opportunity to participate in same.
Very truly yours,
PIPER MARBURY RUDNICK & WOLFE
Dennis E. Wieczorek
cc: Steven Toporoff (via Fed Ex)
Table No. 1
The purpose of this table is to show an overall nationwide status of the system as of the beginning and end of each year. It also summarizes the data from the other charts in Item 20 and will reinforce the need to reconcile all of the change-in-outlet-status information.
SYSTEMWIDE OUTLET SUMMARY
Table No. 2
Transfers should be reported separately from events such as termination and non-renewal. The franchise system suffers no loss or gain in outlet totals from a transfer. While some transfers may be prompted by disputes between the parties, many are simply the result of an existing franchisee's desire to retire, realize a profit on his/her investment or shift attention to another opportunity. While transfer statistics should be reported, the neutrality of the event suggests that they be summarized in a separate chart. Alternatively, transfer data could be reported in a column at the end of Table No. 3 (described below), but that may further complicate an already extensive chart.
TRANSFERS OF FRANCHISED OUTLETS
Table No. 3
We believe it is essential that this table accurately tracks "turnover" and that it allows a prospective franchisee to easily follow the numbers in arithmetic fashion across the chart. This table should indicate all "inflow" and "outflow" of franchised outlets. With a "last-in-time" bias in characterizing events, there should be little likelihood of double counting and the charts should yield verifiable data. The titles to each column are self-explanatory but note that Column 7 (Ceased operations - other reasons) includes any event (other than those already accounted for in columns 4, 5 and 6) where an outlet ceases to operate under the franchise agreement, including situations where the outlet continues operations but under a different trademark. Perhaps this should be conveyed in a footnote. Also, Column 3 information includes newly opened outlets and existing outlets sold to a franchisee by the franchisor (perhaps also deserving a footnoted explanation). Finally, note that Columns 2 and 8 are the basis for the disclosures in Table No. 1.
STATUS OF FRANCHISED OUTLETS
Table No. 4
This table is similar to the coordinate table in the NPR but it breaks down the categories for the sake of clarity. Column 4 should be identical to Column 6 in Table No. 3. Column 5 should be footnoted to indicate that it includes physical closures and outlets that cease to operate under the franchisor's trademarks (e.g., outlets sold to a competitive chain). Finally, note that Columns 2 and 7 are the basis for the disclosures in Table No. 1.
STATUS OF FRANCHISOR-OWNED OUTLETS