ITEM 10 FINANCING
Except as described below, we
do not offer direct or indirect financing. We will not guarantee your note,
lease or other obligation.
However, we have established
relationships with several regional and national banks that are active
participants in the federal SBA guaranteed loan program. We also have
established relationships with several companies that specialize in franchise
financing. At your request, we will introduce you to one of these banks or
finance companies. We receive no compensation for introducing franchisees to
banks or finance companies.
Under the Franchise Agreement,
you are required to grant to us a security interest in all of your personal
property used in your Franchised Business. This secures the payment of all
monetary obligations that you owe to us (e.g., Initial Franchise Fees, royalty
fees, Marketing Development Fund and Cooperative contributions (as described in
Item 11 below) and interest, costs and expenses of collection.
All shareholders, partners or
members of an entity which is a franchisee are required to sign a Guarantee
Indemnification and Acknowledgement ("Guaranty"). A Guaranty means that as a
shareholder, partner or member, you must personally guarantee to us the payment
of the monetary obligations and the performance of all of the non-monetary
obligations of your Treatery to us under the Franchise Agreement. If your
spouse is a shareholder, partner or member, then he or she is required to
personally guarantee the monetary obligations of your Treatery in favor of us
as well. A copy of the Guaranty that you must sign is attached as Exhibit C
to the Franchise Agreement. If you or your spouse is not a shareholder, partner
or member, then he or she will be required to sign a spousal consent to allow
assets jointly held by you and your spouse to be subject to claims under the
Guaranty.
Co-Branded
Franchise Program Financing
If we determine that you are
an Eligible Franchisee and you enter the Franchise Agreement for a Co-Branded
Franchise to be operated within the premises of your franchise with one of our
Co-Brand Partners, we may offer you financing to provide you with capital to
cover the amount of the granting fee and the initial franchise fee under the
Franchise Agreement. This financing program is only available to Eligible
Franchisees of one of our Co-Brand Partners who are purchasing a Co-Branded
Franchise. We are not obligated to offer any franchisee any financing at all.
We will evaluate Eligible Franchisees based upon their individual financial
position and credit rating. We are not obligated to offer all Eligible
Franchisees the same terms as indicated in the Promissory Note or as otherwise
described in this Item 10. We may offer financing on different terms, or not offer an Eligible
Franchisee any financing at all. Approval of financing is subject to an
Eligible Franchisee''s financial position, credit rating and other factors.
Under the Co-Branded Franchise
Program, we will provide you with financing for the $10,000 initial franchise
fee for the Co-Branded Franchise. See Item 5 for a description of the amount of the initial
franchise fee.
The
amount borrowed will be evidenced by a Promissory Note in the form of Exhibit 13.
We do not have any past or
present practice or intent to sell, assign, or discount to a third party, in
whole or in part, any note, contract or other instrument that you execute,
however, we reserve the right to do so in the future. Neither we nor any of our
Affiliates receive any payments for the placement of financing.
The
general terms of the Promissory Note are summarized below:
Interest. The interest rate will be set
at the London Interbank Offering Rate ("LIBOR") on the date of
execution of the Promissory Note plus 2%. The default rate of interest is 18%
per year or the highest interest rate permitted by law, if lower.
Payment Terms. Principal and interest will be
paid on a monthly basis on the first business day of each month.
Default. Upon default, we may
accelerate the loan and adjust the interest rate on any accrued and unpaid
interest to the default rate. Default is defined to include your default of the
Franchise Agreement with us, or any agreement between you or your Affiliate, on
the one hand, and us or one of our Affiliates, on the other hand. We may
recover all fees and expenses relating to the enforcement of the your
obligations under the Promissory Note.
Administrative Charge. We may charge an
administrative fee of the lesser of $100 or 5% of any payment that is more than
five days past due to reimburse us for the administrative costs incurred in
handling the past due payment.
Waiver of Legal Rights and
Defenses. Except
as provided below, the Promissory Note does not provide for the waiver of any
legal rights or prevent you from asserting any defenses it may have against us.
a.
We
may accelerate the maturity of the Promissory Note upon default without notice
of any kind.
b.
You
waive presentment for payment, demand, protest, notice of demand, protest and
nonpayment.
Security Interest in Assets. You are required to grant us a
security interest in the assets of your franchised business as collateral to
secure the payment of the Note.
Guaranty. The obligation to pay the
Promissory Note is included in the Guaranty referred to above (Exhibit 4 to this Offering Circular).
You or, if you are an entity, all Entity Owners will be personally liable for
the payment of the Promissory Note.
The
Co-Branded Franchise Program is not available in the State of California.
