UFOC
Sample UFOC
BEARD PAPA'S SWEETS CAFE
beard papa
INFORMATION FOR PROSPECTIVE FRANCHISEES REQUIRED BY FEDERAL TRADE COMMISSION
To protect you, we've required your franchisor to give you this information. We haven H checked it and don 7 know if it's correct. It should help you make up your mind. Study it carefully. While it includes some information about your contract, don't rely on it alone to understand your contract. Read all of your contract carefully. Buying a franchise is a complicated investment. Take your time to decide. If possible, show your contract and this information to an advisor, like a lawyer or an accountant.
If you find anything you think may be wrong or anything important that's been left out, you should let us know about it. It may be against the law.
There may also be laws on franchising in your state. Ask your state agencies about
them.
Federal Trade Commission, Washington, D.C.
Issue Date: February 15, 2006 STATE-SPECIFIC EFFECTIVE DATES
State
California
Hawaii
Illinois
Maryland
New York
Washington
Effective
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FRANCHISE OFFERING CIRCULAR
Muginoho USA, Inc.
1040 Avenue of the Americas, Suite 2415
New York, NY 10018
212-382-4627
We offer two types of franchises: Beard Papa's Sweets Cafe franchises for the operation of food shops selling cream puffs under Muginoho USA, Inc.'s system and trademarks ("Cafe franchises"); and Area Development franchises granting you the right to open an agreed number of Cafe franchises in a specific geographic area and to recruit Cafe franchise prospects and provide ongoing support and supervision to Cafe franchisees in a specific geographic area in exchange for a share of the franchise fees. We offer two size categories of Cafe franchises: (1) up to 600 square feet ("Food Court Unit") and (2) more than 600 square feet ("Standalone Unit").
The initial franchise fee for a Standalone Unit is $40,000. The initial franchise fee for a Food Court Unit is $20,000. If you have signed a Development Agreement the initial franchise fee is $30,000 for a Standalone Unit and $15,000 for a Food Court Unit. The estimated initial investment required ranges from $261,000 to $326,000 for each Standalone Unit, and from $161,000 to $226,000 for each Food Court Unit. These sums do not include real estate acquisition, building improvements or rent for the cafe premises. The initial fee for an Area Development franchise is typically $120,000 to $240,000. The initial fee is equal to $12,000 multiplied by the agreed minimum number of franchises to be developed over the initial five-year term of the Development Agreement, which is typically ten or more franchises. The Area Developer's estimated initial investment required (not counting any investment in individual Cafes opened by the Area Developer) ranges from $140,000 to $270,000, plus your investment in your first Cafe franchise.
RISK FACTORS:
1. the franchise agreement and development agreement each states that new York law governs the agreement. This law may not provide the same protections and benefits as the law in your state. you may want to compare these laws. in addition, local law may apply in your state, as indicated in the state-specific amendments (exhibit k).
2. The franchise AGREEMENT AND DEVELOPMENT AGREEMENT EACH PERMITS YOU TO
ARBITRATE ONLY IN NEW YORK. YOU ALSO CONSENT TO JURISDICTION IN NEW YORK IN ANY LITIGATION TO COMPEL ARBITRATION, TO ENFORCE THE ARBITRATION AWARD OR FOR PRELIMINARY RELIEF PENDING THE APPOINTMENT OF THE ARBITRATOR. OUT OF STATE ARBITRATION OR LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU MORE TO ARBITRATE OR DEFEND A LAWSUIT IN NEW YORK THAN IN YOUR HOME STATE.
3. THE FRANCHISOR DOES NOT GRANT AN EXCLUSIVE TERRITORY FOR A CAFE FRANCHISE.
4. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Information comparing franchisors is available. Call the state administrators listed in Exhibit A or your public library for sources of information.
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Registration of this franchise with the state does not mean that the state recommends it or has verified the information in this offering circular. If you leam that anything in this offering circular is untrue, contact the Federal Trade Commission or your state administrator. (See Exhibit A.)
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Page
.. 38 .. 39 ...40 .. 41 .. 41
EXHIBITS
A State Regulatory Authorities and Agents for Service of Process
B Table of Contents of Manual
C List of Beard Papa's Sweets Cafe Franchisees
D List of Area Development Franchisees
E List of Former Franchisees
F Financial Statements
G Franchise Agreement, Personal Guaranty and Lease Addendum
H Franchise Deposit Agreement
I Development Agreement and Personal Guaranty
J Area Development Deposit Agreement
K State Specific Amendments
L Acknowledgement of Receipt
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TABLE OF CONTENTS
(Continued) Item
19 Earnings Claims................................................
20 List of Outlets....................................................
21 Financial Statements..........................................
22 Contracts............................................................
23 Receipt...............................................................
BEARD PAPA'S SWEETS CAFE
FRANCHISE OFFERING CIRCULAR
TABLE OF CONTENTS
Item Page
1 The Franchisor, its Predecessors and Affiliates............................... 1
2 Business Experience........................................................................ 4
3 Litigation......................................................................................... 5
4 Bankruptcy...................................................................................... 5
5 Initial Franchise Fee........................................................................ 5
6 Other Fees....................................................................................... 7
7 Initial Investment............................................................................. 12
8 Restrictions on Sources of Products and Services...........................16
9 Franchisee's Obligations..................................................................18
10 Financing......................................................................................... 20
11 Franchisor's Obligations..................................................................21
12 Territory.......................................................................................... 28
13 Trademarks...................................................................................... 30
14 Patents, Copyrights and Proprietary Information............................ 31
15 Obligation to Participate in the Actual Operation
of the Franchise Business................................................................ 32
16 Restrictions on What the Franchisee May Sell................................32
17 Renewal, Termination, Transfer and Dispute Resolution............... 33
18 Public Figures.................................................................................. 38
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Iteml
THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
To simplify the language in this offering circular, "Muginoho USA", "we" or "us" means Muginoho USA, Inc., the franchisor. "You" means the person who buys the franchise, and it may refer to the owner or owners of the buyer entity.
The Franchisor, its Predecessors and Affiliates
Muginoho USA is a New York corporation organized September 24, 2002. Our principal business address is 1040 Avenue of the Americas, Suite 2415, New York, NY 10018.
Muginoho USA is a subsidiary of Muginoho Co., Ltd., a Japanese company formed on December 22, 1997 ("Muginoho Japan"). The principal business address of Muginoho Japan is Tenjinbashi 2-chome, 2-ban, 10-go, Wise Building 9F, Kita-ku, Osaka-shi 530-0041, Japan. Muginoho Japan operates cafes and sells franchises in Japan and other countries similar to the ones we sell in the U.S.A. Muginoho Japan began selling Beard Papa franchises in Japan in March 2000. As of the date of this offering circular, there are approximately 265 Beard Papa Sweets cafes outside the United States, approximately 200 of which are franchisees.
Muginoho Japan has several wholly-owned subsidiaries in Japan, China and Korea. Some of these subsidiaries own and operate restaurants and fast food businesses outside of the U.S.A.
Muginoho Japan also has a franchise business called Tio Glutton that specializes in cheesecakes. Muginoho Japan started franchising the Tio Glutton business in 2003. There are currently 10 franchises in Japan, 1 in Singapore and 1 in Korea. Tio Glutton franchises are not offered in the U.S.A.
We began operations in the U.S.A. with the opening of a company-owned cafe at 2167 Broadway, New York, NY 10024, on March 5,2004. This cafe sells cream puffs as its primary product but also sells cheesecakes and certain other products on a test basis. Our affiliate, Why Group LLC, a New York limited liability company formed on June 4, 2004, opened a second Beard Papa Sweets Cafe at 740 Broadway New York NY 10003, on September 17, 2004. We began offering franchises in December 2004. We authorize franchised cafes to sell only Beard Papa cream puffs. We have no other company-owned cafe in the U.S.A. although we may decide in the future to add company-owned operations that will complement and not compete with the franchise operations. We also intend to operate other food businesses, such as cheesecake, crepe and udon (noodle) stores.
Muginoho Japan has extensive experience and know-how in franchising in Japan and other Asian countries. We bring that experience and know-how to the U.S. market.
We have not offered franchises in other lines of business.
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Our agents for service of process are listed in Exhibit A of this offering circular.
The Beard Papa Sweets Cafe Franchise
We offer the right to operate a Beard Papa Sweets Cafe at a specified location. Beard Papa Sweets Cafes sell cream puffs and coffee.
Beard Papa cream puffs are baked fresh on the cafe premises with all natural ingredients and served to order. Customers can watch as the cream puffs are filled with the sweet whipped cream custard each time an order is placed, then sprinkled with powdered sugar and served for immediate enjoyment or boxed to go. Beard Papa cream puffs are distinguished by a proprietary double-layered crust recipe, which combines an inner choux pastry shell with an outer pie crust, and a luscious filling that blends whipped cream, custard and lavish amounts of fresh vanilla bean. They contain no preservatives and use only the best and freshest ingredients.
We offer two size categories of Beard Papa Sweets Cafe (the "Cafe franchise"). The two size categories of Cafe franchises are (1) up to 600 square feet of total space, including cafe space open to customers, storage space and preparation area ("Food Court Unit"), and (2) more than 600 square feet ("Standalone Unit"). Both categories of Cafe franchise are governed by the Cafe franchise agreement (the "Franchise Agreement"), but the initial fee and initial investment differ.
The Area Development Franchise
We also offer Area Development franchises. An Area Developer signs a Development Agreement, giving the Area Developer the right, in a specific geographic area (the "Territory"), to enter into Franchise Agreements and to recruit prospective third-party Cafe franchisees, and the obligations to meet certain minimum annual performance criteria and to provide certain services to Cafe franchisees in the Territory. The Territory is defined in Schedule A of the Development Agreement. The Territory will be either a state or a portion of a state.
Each Area Developer undertakes to develop an agreed minimum number of Cafe franchises in the Territory each year over the course of the initial five-year term, either by entering into Franchise Agreements or by recruiting third-party franchisees. The Development Schedule setting forth this obligation is contained in Schedule B of the Development Agreement. The smallest Development Schedule will typically call for the development of at least 10 Cafe franchises during the five-year term of the agreement.
As an Area Developer, you or your affiliate must enter into at least one Franchise Agreement in the Territory described in your Development Agreement before you may recruit third-party franchisees in that Territory. If you enter into a second Development Agreement, you or your affiliate must enter into at least one Franchise Agreement in the Territory described in that Development Agreement before you may recruit third-party franchisees under that agreement.
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In your role as a recruiter of third-party franchisees, you act as a broker for us. You do not have the authority to sign franchise agreements on our behalf. While we rely on you to present us with those applicants whom you pre-qualify using our criteria, we make the final decision on whether we will sell a franchise to the candidates you present. If we approve the candidate, we and the candidate will sign a franchise agreement, and you are not a party to that contract. However, you will provide support services to the franchisees in the Territory.
The Market
While the market for Beard Papa products is just beginning to develop, Beard Papa's customers are people of all ages, backgrounds and tastes rather than a particular group of people. Beard Papa Sweets Cafes sell all year round.
The Competition
The only competitive store we know of that sells fresh cream puffs made to order is Choux Factory in New York. We anticipate that other imitators may arise, based on our experience in other countries. Indirect competitors include donut shops, such as Krispy Kreme and Dunkin Donuts, coffee bars, such as Starbucks, and local coffee shops and bakeries. As a dessert destination, our broader competition includes ice cream and yogurt shops of all types, although our cafes do not sell ice cream or yogurt. You will have to compete with these and other stores offering similar dessert products and services.
Industry Laws
There are no regulations specific to the operation of a cream puff cafe. However, your operation of a Beard Papa Sweets Cafe is subject to laws and regulations affecting retail food businesses generally. These laws include tax regulations, labor laws, business licensing requirements, laws relating to site location and building construction, and health laws regulating the storage, preparation and sale of food to the public. There may be other laws applicable to your business. It is your responsibility to comply with all these laws and to keep in force all permits and licenses required by public authorities. We urge you to consult with your legal advisor about applicable laws.
For Area Developers, both the Federal Trade Commission and many states regulate the sale of franchises and the relationship between franchisors and franchisees. You agree to comply with these regulations when you act as an Area Developer offering Cafe franchises in the Territory and in providing support services to Cafe franchisees. You also agree to comply with all applicable laws of a more general nature that affect your business, including employment, workers' compensation, corporate, tax, licensing and similar laws and regulations.
The franchise disclosure laws require us to list Area Developers as our franchise brokers in our franchise offering circular. Therefore, we will, at our expense, add appropriate disclosure about you in Items 2 and 3 of our franchise offering circular, and we will register you as our franchise broker if the laws in the Territory require registration. We will furnish you with our
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current franchise offering circular and all amendments for you to use in soliciting prospective franchisees in the Territory. You are responsible for providing to us all information, signed documents and certifications we may require in order for us to make the required disclosures about you and to register you as a franchise broker, and for notifying us immediately of any material changes in the information that you give to us for purposes of our complying with the franchise disclosure laws.
Item 2
BUSINESS EXPERIENCE
Mr. Minoru Inagaki - President and Chief Executive Officer
Mr. Minoru Inagaki has been President and Chief Executive Officer of Muginoho USA since its inception on September 24,2002. From July 2001 until September 2002, Mr. Inagaki was Overseas Franchise Manager of Muginoho Japan, in Osaka, Japan, where he worked with the Chief of the Franchising Division of that company to master the art of manufacturing Beard Papa cream puffs and of managing the franchise system. From 1998 until July 2001, Mr. Inagaki was the Manager for the Fukuoka region of Daiwa Jitsugyo Group, a company that owned and operated a chain of restaurants in Japan.
Mr. Yuji Hirota - Director
Mr. Yuji Hirota is the founder of Muginoho Japan and has been its President and Chief Executive Officer since the company's inception in 1997. He has also been a director of Muginoho USA since its inception on September 24, 2002.
Mr. Yasushi Yoshikawa - Director
Mr. Yasushi Yoshikawa is a co-founder of Muginoho Japan and has been its Managing Director since the company's inception in 1997. He has also been a director of Muginoho USA since its inception on September 24,2002.
Mr. Craig Takiguchi - Executive Vice President and Chief Operating Officer
Mr. Craig Takiguchi has been Executive Vice President and Chief Operating Officer of Muginoho USA since December 19, 2005. From April 2004 until December 2005, he was Executive Vice President - Sales of Muginoho USA. From May 2001 until March 2004, Mr. Takiguchi was Senior Vice President, Business & Finance, of Edison Schools Inc., New York, NY. From October 1999 until April 2001, Mr. Takiguchi was Director, Product Management and Strategy of Ameritrade/OnMoney.com, in White Plains, NY. Before that, he held various management positions at Pepsico, Sony and The Walt Disney Company.
Our Area Developers are listed in Exhibit D.
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Item 3
LITIGATION
No litigation is required to be disclosed in this offering circular. See Exhibit K for additional disclosures relating to California and New York.
Item 4
BANKRUPTCY
No person previously identified in Items 1 or 2 of this offering circular has been involved as a debtor in proceedings under the U.S. Bankruptcy Code required to be disclosed in this Item.
Item 5
INITIAL FRANCHISE FEE
Cafe Franchise
The initial franchise fee for the Standalone Unit (i.e., a Cafe franchise of more than 600 square feet) is $40,000. The initial franchise fee for the Food Court Unit (i.e., a Cafe franchise of up to 600 square feet) is $20,000. This fee is payable in a lump sum at the time you sign the Franchise Agreement, except in California, as described in Exhibit K.
If you enter into a Development Agreement (described below), the initial franchise fee for each Standalone Unit is $30,000 and the initial franchise fee for each Food Court Unit is $15,000. This fee is payable in a lump sum at the time you sign each Franchise Agreement.
After you sign the lease for your Cafe, you must pay us $20,000 to $30,000 to cover the architect's fees. The exact amount will depend on the architect's billing rate. We will either provide an architect to you or give you a selection of authorized architects.
Before you open your franchised business, you must purchase from us or a vendor approved by us in writing the equipment specially designed and manufactured for creating the Beard Papa products. This equipment consists of a pre-programmed oven and custard cream mixing machines and tools. The cost of this equipment ranges from $35,000 to $65,000, depending on the size of operation that you envision. (See Item 7.)
Also prior to opening, you must purchase from us an initial inventory of the dough used for the cream puff shells. We may also require you to purchase from us the menu boards, the signs and the packaging materials in which you will serve the cream puffs to your customers. We prepare the dough in advance, using a method patented in Japan. We deliver the frozen dough to you in individual portions, ready for baking. The cost of the initial inventory of dough and packaging materials ranges from $20,000 to $25,000. As of the date of this offering circular,
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we prepare the dough in Japan. At some point in the future, we may prepare the dough in the U.S.
We may require you to pay us in advance by certified or cashier's check for your initial purchase of equipment, starting inventory, packaging, signage and other items that we supply to you or purchase on your behalf. We charge you a fee of 4% of the cost of these items to compensate us for coordinating these purchases for you. This fee is included in the costs indicated above and in Item 7.
The initial franchise fee, the architect's fee and the amounts paid for equipment and initial inventory are not refundable, although upon termination of the Franchise Agreement we may repurchase, at its fair market value, the equipment that you purchased from us. (Franchise Agreement, Section 5.3 (a) (viii).)
Before we enter into a Franchise Agreement with you, and in order to conduct further evaluation about your qualifications to become one of our franchisees, we may ask you to enter into a Franchise Deposit Agreement (Exhibit H). If you enter into the Franchise Deposit Agreement, you will submit to us a $5,000 deposit which we will credit against your initial franchise fee when you sign the Franchise Agreement. If you do not enter into a Franchise Agreement, the deposit will not be refunded unless we reject your application for any reason before we commence our evaluation. Your deposit will be used to cover some of our costs in evaluating you if you do not sign a Franchise Agreement. The Franchise Deposit Agreement does not confer upon you any franchise or territorial rights.
Area Development Franchise
The initial fee for an Area Development franchise is typically $120,000 to $240,000, but may be more or less, depending on the size of the territory and the agreed minimum number of Cafe franchises to be developed. The initial fee is equal to $12,000 multiplied by the agreed minimum number of franchises to be developed over the initial five-year term of the Development Agreement.
An Area Developer has the right to enter into Cafe franchise agreements (at a reduced initial fee, indicated above and in Item 5) and to recruit prospective Cafe franchisees, and the obligations to meet certain minimum annual performance criteria and to provide certain services to Cafe franchisees, in a specified Territory.
The initial fee for the Area Development franchise is not refundable.
Before we enter into a Development Agreement with you, and in order to conduct further evaluation about your qualifications to become an Area Development franchisee, we may ask you to enter into an Area Development Deposit Agreement (Exhibit J). If you enter into the Area Development Deposit Agreement, you will submit to us a deposit in an amount equal to 15% of the projected initial fee, which we will credit against your initial fee when you sign the Development Agreement. If you do not enter into an Area Development Agreement, the deposit
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will not be refunded unless we reject the application for any reason before we commence our evaluation. Your deposit will be used to cover some of our costs in evaluating you if you do not sign a Development Agreement. The Area Development Deposit Agreement does not confer upon you any franchise, development or territorial rights.
Item 6
OTHER FEES
Cafe Franchise
The following fees apply to all Cafe franchises (both Standalone Units and Food Court Units):
Name of Fee
Royalty
Inventory of prepared dough
Amount
5% of Gross Sales
$6,500 to $25,000 per month, depending on sales volume
Advertising Fund Up to 1% of Gross Sales
Date Due
Within three days after the end of each two-week period with respect to Gross Sales in that period
Upon delivery
Within the three days after the end of each two-week period with respect to Gross Sales in that period
Remarks
Gross Sales includes all revenues derived from the franchised business (including off-premises sales) but do not include sales tax.
All dough must be purchased from us.
We do not currently have an advertising fund, but we reserve the right to establish one at any time.
|
Additional |
Per day charges for |
Within 7 days after |
Per day charges apply for |
|
training |
attending training: |
receipt of invoice |
additional training at your |
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Manager- $150 |
request. Hourly charges |
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Employee - $100; |
plus travel, lodging and |
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or our then-current |
meal expenses, apply if we |
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hourly fee, plus |
need to train at your |
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expenses |
location due to your default |
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Name of Fee Amount
Date Due
Remarks
Systems fee
Will vary
As incurred
Fee for web page
Late charge
Audit
An amount we As incurred
specify, that will not
exceed $500 for
each revision after
the first 8 revisions
in any year
Interest equal to 1.5% per month or the highest rate allowed by law, whichever is less
Cost of audit plus the amount of any underpayment and interest on such amount at 1.5% per month
As incurred
We do not currently charge this fee, but we have the right to charge a reasonable systems fee for software or computer system enhancements that we license to you or other computer support services we provide to you.
We do not currently offer a web page or revisions, but we have the right to do so. If we do, we will revise your web page up to 8 times a year without charge. (Franchise Agreement, Section 1.8 (b).)
Payable on overdue amounts
15 days after receipt of Payable only if audit audit report shows an understatement
of 3% or more
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Name of Fee Amount
Date Due
Remarks
Transfer
Renewal fee
$12,000
$12,000
Before the transfer is consummated
Payable upon the transfer of the Franchise Agreement, the assets of your business or a change of ownership of your company (other than to owners or approved family members). This fee, if imposed, will be increased in proportion to increases in the consumer price index. (Franchise Agreement, Section 4.2 (d) (iv).)
When you give us your See Item 17 notice of renewal
Insurance
Attorneys' fees and costs
Indemnification
When premiums are due
Our actual costs of the premium for the period of coverage plus a service charge equal to 25% of such costs
Will vary depending As incurred on the circumstances
Will vary depending As incurred on the circumstances
Payable if you fail to carry the insurance we require and if we decide to purchase it for you (although we are not obligated to do so). (Franchise Agreement, Section 1.3 (e).)
Payable if incurred by us in obtaining injunctive or other relief for the enforcement of any term of the Franchise Agreement
You have to reimburse us if we are held liable for claims from your business operations
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Name of Fee
Amount
Date Due
Remarks
Remedial work to correct unhealthy or unsafe condition
Replacement
Manual
Alternate supplier testing fee
Our actual costs for such work, including labor, materials, travel, supervision and subcontractors, plus a service charge equal to 25% of such costs
$1,000 per volume, plus shipping costs
Based on our actual cost
Upon receipt of invoice
Upon receipt of invoice
When you request approval of an alternate supplier. (See Item 8.)
Payable if you fail to correct an unhealthy or unsafe condition and if we decide to correct the condition for you (although we are not obligated to do so). (Franchise Agreement, Section 1.6(h).)
You must obtain a replacement manual on loan from us if your manual is lost or stolen. (Franchise Agreement, Section 1.4 (a)-)
You or the supplier must pay a charge not to exceed the reasonable cost of inspection and the actual cost of tests. (Franchise Agreement, Section 1.3 (c).)
All fees noted above are imposed by and payable to us and are non-refundable.
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Area Development Franchise
Name of Fee
Transfer
Renewal fee
Attorneys' fees and costs
Indemnification
Amount
$12,000
Date Due
Before the transfer is consummated
Upon the signing of the renewal agreement
$12,000 multiplied by the minimum number of Cafe franchises you are obligated to develop during the renewal term, increased in proportion to increases in the consumer price index.
Will vary depending As incurred on the circumstances
Will vary depending As incurred on the circumstances
Remarks
Payable upon the transfer of the Development Agreement, the assets of your business or a change of ownership of your company (other than to owners or approved family members). This fee, if imposed, will be increased in proportion to increases in the consumer price index. (Development Agreement, Section 6.2 (d) (hi).)
See Item 17
Payable if incurred by us in obtaining injunctive or other relief for the enforcement of any term of the Development Agreement
You have to reimburse us if we are held liable for claims from your business operations
All fees noted above are imposed by and payable to us and are non-refundable.
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Item 7
INITIAL INVESTMENT Cafe Franchise Estimated Initial Investment
Amount
Standalone Unit Food Court Unit
|
Method |
To Whom |
|
|
of |
When Due |
Payment is |
|
Payment |
to be Made |
|
Initial |
$30,000 to |
$15,000 to |
Lump |
At signing of |
Muginoho |
|
franchise fee |
$40,000 |
$20,000 |
sum |
the Franchise |
USA |
|
(Note 1) |
Agreement. We may require a $5,000 deposit before the Franchise Agreement is signed. (See Item 5.) |
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|
Training fee |
$6,000 |
$6,000 |
Lump |
Before training |
Muginoho |
|
(Note 2) |
sum |
begins |
USA |
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|
Travel and |
$10,000 to |
$10,000 to |
As incurred |
Airlines, |
|
|
living |
$30,000 |
$30,000 |
during training |
hotels and |
|
|
expenses |
restaurants |
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|
while |
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|
training |
|||||
|
Architect |
$20,000 to |
$15,000 to |
Lump |
After lease is |
Muginoho |
|
$30,000 |
$25,000 |
sum |
signed |
USA |
|
|
Real estate |
(Note 3) |
(Note 3) |
(Note 3) |
Landlord |
|
|
and im- |
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|
provements |
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|
Amount |
Method of Payment |
When Due |
To Whom Payment is to be Made |
|||
|
Standalone Unit |
Food Court Unit |
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|
Oven and mixing equipment (Note 4) |
$45,000 to $65,000 |
$35,000 to $60,000 |
Lump sum, by certified or cashier's check |
In advance, as incurred |
Muginoho USA or approved suppliers |
|
|
Furniture, fixtures & equipment |
$35,000 to $40,000 |
$30,000 to $35,000 |
Lump sum |
As required |
Approved suppliers |
|
|
Initial inventory of dough, menu boards, signs and |
$25,000 |
$20,000 |
Lump sum, by certified or cashier's check |
In advance, as incurred |
Muginoho USA and approved suppliers |
|
packaging materials
Miscellaneous opening costs (Note 5)
Grand opening public
relations and advertising
Additional funds 3 months (Note 6)
Total (Note 7)
$50,000
$10,000
$30,000
$10,000
$5,000
As As incurred Suppliers,
incurred utilities, etc.
Lump As incurred Local firms
sum
$15,000
As As required
required
Employees,
suppliers,
utilities
$261,000 to $326,000
$161,000 to $226,000
Does not include real estate acquisition, building improvements or rent. (Note 3)
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Note 1: No payments to Muginoho USA are refundable, although upon termination of the Franchise Agreement we may repurchase, at its fair market value, the equipment that you purchased from us. (Franchise Agreement, Section 5.3 (a) (viii).). Muginoho USA does not finance any fee.
Note 2: The initial franchise fee includes training for one Cafe manager and two employees for roughly four weeks. We charge $150 a day to train an additional manager and $100 a day to train an additional employee.
Note 3: If you do not own adequate space for a Cafe, you will need to lease the space for the Cafe. The typical Standalone Unit has approximately 1,200 square feet, and the typical Food Court Unit has approximately 500 to 600 square feet of total space, including cafe space open to customers, storage space and preparation area. Rent is estimated to be between $50 and $200 per square foot per year, depending primarily on the location of the leased premises. The total yearly rent, then, would typically range between $25,000 and $240,000.
Note 4: We expect that most franchisees will purchase two of our pre-programmed ovens, although we anticipate that some franchisees will purchase three ovens, depending on the size of the operation that the franchisee anticipates. These amounts are based on the range of costs for ovens and mixing equipment, from a small operation that will use one oven to a large operation that will use three. You determine the size of your operation.
Note 5: Includes security deposits, utility costs, insurance, legal and accounting fees. Also includes initial inventory of items from companies other than Muginoho USA, which items include letterhead, boxes, plastic bags, napkins and uniforms, all of which must display the Beard Papa trademarks.
Note 6: This estimates your initial start up expenses. These expenses include payroll costs. These figures are estimates and Muginoho USA cannot guarantee that you will not have additional expenses starting the business. Your costs will depend on factors such as: the extent to which you follow Muginoho USA's methods and procedures; your management skill, experience and business acumen; local economic conditions; the local market for our product; the prevailing wage rate; competition; and the sales level reached during the initial period.
Note 7: Muginoho USA has relied on its experience in the cream puff cafe retail business and that of its parent company to compile these estimates. You should review these figures carefully with a business advisor before making any decision to purchase the franchise.
Note 8: Muginoho USA does not offer direct or indirect financing to franchisees for any items.
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Area Development Estimated Initial Investment
Amount
|
Initial Area Development fee |
$120,000 to $240,000 (Note 9) |
|
Initial marketing costs |
$10,000 to $15,000 |
|
Miscellaneous and additional funds - 3 months |
$10,000 to $15,000 (Note 10) |
|
Total |
$140,000 to $270,000 (Note 11) |
Note 9: The initial fee for an Area Development franchise is typically $120,000 to $240,000, but may be more or less, depending on the size of the territory and the agreed minimum number of Cafe franchises to be developed. The initial fee is equal to $12,000 multiplied by the agreed minimum number of franchises to be developed over the initial five-year term of the Development Agreement.
Note 10: We do not require that you rent commercial office space, nor do we impose specifications for business equipment, insurance, minimum number of employees or otherwise. We may impose specifications for office decoration, furnishings and fixtures. You may locate the office for your Area Development business in your home or on your Cafe premises. However, we expect you will incur miscellaneous expenses to establish your Area Development business, including the requirements to equip the office with (a) computer hardware and software that comply with our standards and specifications, (b) other suitable office equipment to operate the business, including at least one dedicated telephone line with 24-hour voice mail or professional answering, (c) a DSL or equivalent Internet connection and e-mail capability, and (d) business cards. This chart assumes you do not incur any real estate leasing costs, but allows for the lease or purchase of office furniture; business equipment, including computer equipment and special business software; insurance, travel costs in your Territory; and legal and professional expenses to acquire the franchise and form a business entity to own the Area Development franchise.
Method of Payment
When Due
Lump sum At signing of the Development Agreement.
To Whom Payment is to be Made
Muginoho USA
As incurred As incurred
Third party suppliers
As required As required
Employees, suppliers, utilities
These figures do not include the initial investment in your first cafe franchise.
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Note 11: In addition to these costs, each Area Developer must open at least one Cafe franchise, for which you will incur the costs described in the Cafe franchise Initial Investment Chart in this Item 7.
Item 8
RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES
As noted in Item 5, you must purchase from us or a vendor approved by us in writing the oven used to bake the cream puff shells and the machines and tools used to mix the custard cream. You must also purchase from us all inventory of the dough used for the cream puff shells. We prepare the dough in advance, using a method patented in Japan. We deliver the frozen dough to you in individual portions, ready for baking.
We require that approximately 95% of your purchases and leases of goods and services in establishing and operating the franchised business be specified or approved by us. You must use only such paper products, plastic bags, boxes and uniforms as we approve or specify, from suppliers designated or approved by us as meeting our standards. In addition, we require that you purchase food ingredients such as eggs, milk, heavy cream, butter, vanilla beans, flour and sugar from suppliers specifically designated by us. The purpose of these requirements is to ensure that your franchised business maintains the highest quality products and services at all times. Your failure to comply would be a material breach of the franchise agreement, giving us the right to terminate the franchise agreement.
In our fiscal year ending August 31, 2005, our revenues from the sale or lease of products and services to franchisees totaled $343,982, which represented 19.5% of our total revenue of $1,762,418. $66,358, or 3.8% of our total revenue, was derived from the sale of ovens to bake the cream puff shells and machines and tools to mix the custard cream. $277,624, or 15.7% of our total revenue, was derived from the sale of inventory of frozen dough used for the cream puff shells. None of our affiliates derive any revenue from sales of products and services to franchisees.
Upon completion of the Franchise Agreement, you will receive a copy of our confidential operations manual, which contains our required specifications and a list of suppliers that meet our standards. If we modify our specifications or standards, we will notify you and our approved suppliers. We will also notify you if we revoke our approval of any supplier. If you desire to use any item or supplier we have not approved, you must submit to us a written request for such approval, or request the supplier itself to do so. We will give such approval to buy from other suppliers only if, in our sole discretion, we determine that such item and supplier meet all of our standards and specifications. We have the right to require that our representatives be permitted to inspect the suppliers' facilities and that specifications, photographs and samples from the supplier be delivered, at our option, either to us or to an independent laboratory designated by us for testing. You will bear the cost of such testing. We will use reasonable efforts to begin an investigation of the proposed supplier or product within 30 days of your request. We will notify you within a reasonable time whether such supplies or supplier meet our specifications and
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standards. We may reinspect the supplier's facility and retest samples and revoke our approval if the supplier or the product fails to meet our specifications or standards at any time.
We receive rebates on some franchisee purchases from certain suppliers that range from 1% to 5% of franchisee purchases. To date, we have used the money received from the rebates to subsidize some of our costs to cover operating costs. We receive discounts on ovens and other equipment, boxes, bags and other paperware, coffee and various architectural services, which we pass on to you. Our affiliates may also receive payments from any supplier on account of their dealings with you and other franchisees (on purchases of proprietary products, nonproprietary products, equipment or other goods or services). Both we and our affiliates may use these payments for any purpose without restriction unless we or our affiliates agree otherwise. During the fiscal year ending August 31,2005, our affiliates did not receive any payment from third party suppliers.
There are no purchasing or distribution cooperatives as of the date of this offering circular, although we may participate in such cooperatives in the future. We negotiate purchase agreements with suppliers for the benefit of franchisees, but we are under no obligation to do so. We do not provide material benefits to you based on your use of designated or approved sources, other than quality assurance and standards maintenance and possibly favorable prices.
All materials you use in local advertising, promotional and public relations must conform to our standards. All such materials must be clear, factual and not misleading. You agree to submit to us, before you use them, samples of all materials you intend to use that we have not prepared or previously approved. If you do not receive our written disapproval within fifteen days after our receipt of such materials, we will be deemed to have given the required approval, but we may withdraw our approval at any time. You agree to use all point of sale materials that we may supply to you from time to time, in the manner prescribed by us.
You must submit a copy of the executed lease for the premises of your franchised business to us within 14 days after you and the lessor sign it. The lease must include the terms and conditions that are specifically described in the Franchise Agreement. At our request, you must collaterally assign the lease or sublease for the premises to us as security for your timely performance of all obligations under the Franchise Agreement, and you must secure the lessor's consent to the collateral assignment.
The premises of the franchised business must be constructed in accordance with our specifications.
You must provide us with certificates of insurance required by the Franchise Agreement.
See Item 11 for your further requirements relating to computers and software, and Item 16 for restrictions on what you may sell in the context of your franchised business.
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Item 9
FRANCHISEE'S OBLIGATIONS
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AND OTHER AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.
Obligation
a. Site selection and acquisition/lease
b. Pre-opening puchases/leases
c. Site development and other pre-opening requirements
d. Initial and ongoing training
e. Opening
f. Fees
Sections in the Franchise Agreement ("FA"), the Franchise Deposit Agreement ("FDA "), the Development Agreement ("DA ") and the Developer Deposit Agreement ("DDA")
FA: Sections 1.1 (b) and 1.2 (a)
FDA: Section 4
FA: Section 1.3
FA: Sections 1.2 and 1.3
FA: Sections 1.5 (a) and (b)
Item in Offering Circular
Items 7, 11 and 12
Items 7, 8 and 11
Items 7 and 11
Item 11
FA: Sections 1.2 (f) and (g), and Item 11 1.7(b)
g. Compliance with standards and policies/operating manual
DA: Section 2.1
FA: Section 2.1
FDA: Sections 2 and 3
DA: Sections 3.1 and 3.2
DDA: Section 2
FA: Sections 1.4 (a) and 1.6
DA: Sections 2.7 and 2.10
Items 5 and 6
Items 8, 11 and 16
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Obligation
h. Trademarks and proprietary information
i. Restrictions on products/services offered
j. Warranty and customer service requirements
k. Territorial development and sales quotas
1. Ongoing product/service purchases
m. Maintenance, appearance and remodeling requirements
n. Insurance
o. Advertising
p. Indemnification
q. Owner's participation / management / staffing
Sections in the Franchise Agreement ("FA "), the Fran-chise Deposit Agreement ("FDA"), the Development Agreement ("DA ") and the Developer Deposit Agreement ("DDA")
FA: Sections 3.1 and 3.2
DA: Section 1.3
FA: Section 1.1 (d)
DA: Section 2.7
FA: Section 1.6 (b)
DA: Section 3.6
FA: Sections 1.1 (a)-(c)
DA: Sections 1.1 and 2.2
FA: Section 1.3
FA: Sections 1.6 (h) and 5.1 (b) (iv)
FA: Section 1.3(e)
FA: Sections 1.7 and 1.8
DA: Section 2.4
FA: Section 6.2
DA: Section 8.2
FA: Section 1.6(c)
DA: Section 1.8
Item in Offering Circular
Items 13 and 14
Item 16
Item 11
Item 12
Item 8 Item 11
Items 7 and 8 Items 7 and 11
Item 13
Items 11 and 15
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Obligation
r. Records and reports
s. Inspections and audits
t. Transfer
u. Renewal
v. Post-termination obligations
w. Non-competition covenants
x. Dispute resolution
We do not offer direct obligation.
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Sections in the Franchise Agreement ("FA"), the Franchise Deposit Agreement ("FDA "), the Development Agreement ("DA ") and the Developer Deposit Agreement ("DDA")
FA: Sections 2.1 (e) and 2.2 (a)
DA: Sections 2.11 and 3.6
FA: Sections 2.2 (c) - (g)
DA: Section 3.6
FA: Article IV
DA: Article VI
FA: Sections 5.1 (b) and (c)
DA: Section 7.1
FA: Section 5.3
DA: Sections 5.1, 5.2, 7.3, 7.4 and 8.2
FA: Sections 3.3 and 5.3(b)
DA: Section 5.2
FA: Article VII
DA: Article IX
DDA: Section 9
Item 10 FINANCING
indirect financing. We do not
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Item in Offering Circular
Item 11
Item 11
Item 17
Item 17
Item 17
Items 16 and 17
Item 17
;uaranty your note, lease or
Item 11
FRANCHISOR'S OBLIGATIONS
Except as disclosed below, we need not provide any assistance to you. Before Opening - Cafe Franchise
Before you open your Cafe franchise business, we will:
1. Approve the location where the franchised business will be located, and approve the lease. (Franchise Agreement, Sections 1.1 (b) and 1.2 (a).)
2. Provide the drawings and specifications to accommodate our specially designed oven and mixing equipment, or work with your architect to prepare them. (Franchise Agreement, Section 1.2 (e).)
3. Provide the oven and mixing equipment. (Franchise Agreement, Section 1.3 (a).)
4. Provide the opening inventory of dough. (Franchise Agreement, Section 1.3 (a).)
5. Train one manager and two employees to operate your franchise, as described below. (Franchise Agreement, Section 1.5 (a).)
6. Loan you a copy of our confidential operations manual, which contains mandatory and suggested specifications, standards and procedures. (Franchise Agreement, Section 1.4 (a).) This manual is confidential and remains our property. As of the date of this Offering Circular, the operations manual contains approximately 32 pages. We may modify the manual from time to time, but the modifications will not alter your status and rights under the Franchise Agreement. The table of contents is attached to this offering circular as Exhibit B.
7. Approve or provide you with materials for your initial public relations and advertising. (Franchise Agreement, Section 1.7 (b).)
8. Provide such other assistance and support as we may deem necessary or desirable to assist you with the launch of your Beard Papa business.
Before Opening - Area Development Franchise
We do not provide any assistance to you as an Area Developer before you open your Area Developer business. However, as an Area Developer, you or your affiliate must enter into at least one Franchise Agreement before you may recruit third-party franchisees. Under that Franchise Agreement, we will provide the same services that we provide to other Cafe franchi-
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sees, as described under the headings "Before Opening - Cafe Franchise" and "Training Program" in this Item 11.
Training Program
Before you open your Beard Papa Sweets Cafe, we will train at least one manager and two of your employees. (Franchise Agreement, Section 1.5 (a).) We do not charge for training these three people, but you must pay their compensation and travel and living expenses. We will train additional people, but you must pay us our standard fee for training such additional people. We currently charge $150 a day to train an additional manager and $100 a day to train an additional employee.
The training program consists of 18 days (approximately four weeks) of training at Muginoho USA's headquarters in New York, NY. We will time the commencement of your training program so that it ends at the time of the scheduled opening or your franchised cafe. We will hold training programs before each franchised cafe opens. If your franchise is located within the territory of an Area Developer, the Area Developer will hold training programs at its facility, in closer proximity to you than our headquarters. (See Exhibit K.)
Mr. Takuji Jimura is the Muginoho USA official in charge of training. Mr. Jimura is the General Manager of the company-owned cafe at 2167 Broadway, New York, NY, a position he has held since before the cafe opened on March 5, 2004. Before that, Mr. Jimura was an operations manager for Muginoho USA and Muginoho Japan, reporting directly to Mr. Inagaki, whose background is described in Item 2. All subjects will be taught either by Mr. Jimura or by other employees of Muginoho USA who work at the company cafe. The personnel of Area Developers handle the training Cafe franchisees in their Territories. (See Exhibit K.)
The following tables provide detailed information about the initial training programs for employees and for managers, respectively. Each table shows an approximation of the amount of time spent each day (for 18 days) on each of the itemized subjects:
Employee Training Program
|
Subject |
Daily Hours of Training |
|
Introduction - store rules; company rules; etc. |
30 minutes |
|
Cashier training |
1 hour |
|
Enveloping (packaging) |
2 hours |
|
Pumping |
1 hour |
|
Nama custard mixing |
1 hour |
|
Custard production |
1 hour |
|
Oven |
1 hour |
|
Miscellaneous |
30 minutes |
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Manager Training Program
|
Subject |
Daily Hours of Training |
|
Training to place orders, check inventory, check product, order plan, expiration date, storage, suppliers |
30 minutes |
|
How to create work schedule; know accurate number of workers; weekly and hourly number; labor costs |
30 minutes |
|
How to operate the store positions; deploy workers; know position changes and timing; basic working training |
5 hours |
|
How to deal with complaints via telephone and in the store; equipment malfunctions; lack of materials; lack of workers |
15 minutes |
|
Working with sales production plan and sales prediction; work plan; food costs and labor costs |
15 minutes |
|
How to identify problems in store operation and store management |
15 minutes |
|
Desk work |
15 minutes |
Although we provide training to Cafe franchisees, we are not obligated to provide additional training under the Development Agreement.
During Operation - Cafe Franchise
During the operation of the franchised Cafe business, Muginoho USA will do the following:
1. Provide refresher courses for such of your key personnel as we may designate, at such locations as we may reasonably require from time to time, although none of your personnel will be required to attend more than three days of such programs during any calendar year. (Franchise Agreement, Section 1.5 (b).) We do not charge for these courses that we require your personnel to take, but you must pay the travel and living expenses.
2. Provide such advice and assistance as you may reasonably require, in our opinion, with respect to:
(a) materials for your use in local advertising (Franchise Agreement, Section 1.7 (d));
(b) identifying sources of supply for equipment, services and supplies (Franchise Agreement, Sections 1.3 (b) and (c));
(c) ongoing training (Franchise Agreement, Section 1.5 (b));
(d) maintaining the quality of the products and services offered to customers; and
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(e) administrative, bookkeeping, accounting and general operating procedures for the proper operation of a Beard Papa franchise.
If you require additional assistance, we may charge you a reasonable fee for providing such assistance. (Franchise Agreement, Section 1.5 (c).)
3. Provide regular operational reviews both to ensure compliance and to recommend improvements. (Franchise Agreement, Section 1.5 (c).)
During Operation - Area Development Franchise
We provide the same services for an Area Developer during the operation of the Developer's Cafe franchise business as we provide for other Cafe franchisees., and we provide such other assistance and support for the Area Developer as we may deem necessary or desirable.
In addition, we pay you a commission equal to 50% of the initial franchise fee paid to us by each franchisee that is not affiliated with you for the purchase of Cafe franchises to be located within your territory or to renew an existing franchise for a Cafe in the territory, and a commission equal to 30% of the royalties paid to us by franchisees located in your territory that are not affiliated with you. (Development Agreement, Section 3.3.)
Advertising - Cafe Franchise
We require that you spend at least $5,000 on an opening advertising campaign. (Franchise Agreement, Section 1.7 (b).)
We also require you to spend at least 2% of the gross revenue of your franchised business on local advertising, promotion and public relations programs and activities. (Franchise Agreement, Section 1.7 (c).) You may develop local advertising materials for your own use, at your own cost, following marketing criteria that we establish. We must approve the advertising materials in advance. (Franchise Agreement, Section 1.7 (d).)
We have the right to establish and coordinate cooperative advertising and sales programs, customer satisfaction programs and similar programs from time to time among Beard Papa franchisees. We may require you to participate in such programs on an equitable basis with other participants. (Franchise Agreement, Section 1.7 (e).) We have the power to form, change or dissolve advertising councils.
In addition, we have the right to establish a public relations and advertising fund (the "Advertising Fund") and to require you to pay us an advertising fee of up to 1% of the gross revenue of your franchised business, as a contribution to the Advertising Fund. You may credit these payments against your obligation to spend at least 2% of your gross revenue on local advertising. (Franchise Agreement, Section 1.7 (f).)
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If we establish the Advertising Fund, we will direct all programs that it finances. (Franchise Agreement, Section 1.7 (g).) The fund will be accounted for separately from our other funds and will not be used to defray any of our general operating expenses, except for reasonable salaries, administrative costs, travel expenses and overhead as we may incur in activities related to the administration of the Advertising Fund and its programs.
The fund will be used to pay the costs of producing video, audio and written advertising materials, administering national and regional advertising programs, and engaging advertising, promotion and marketing agencies to assist us, and supporting public relations, market research and other advertising, promotion and marketing activities. Such advertising may use any form of media, including print ads, radio and television. The source of the advertising may be our in-house advertising department or an outside advertismg agency.
Any amounts of advertising fees that we do not spend in the year they accrue will be carried forward and included in the following year's advertising budget. Contributions to the Advertising Fund will not be used to sell additional franchises, although we may use materials resulting from such contributions on the System Website (discussed below), which may advertise the Beard Papa franchise opportunity.
Although we will endeavor to use the Advertising Fund to develop advertising programs and to place advertising that will benefit all franchisees, we cannot ensure that expenditures from the Advertising Fund in any geographic area are proportionate or equivalent to contributions to the fund by franchisees operating in the geographic area or that your franchised business will benefit directly or in proportion to your contribution to the fund.
We may establish an entity to operate the Advertising Fund, but we have no obligation to do so.
If we establish the Advertising Fund, we will, upon your request, provide to you an accounting of the advertising fees we collected in any year, showing the allocation of our advertising expenditures. Advertising receipts and expenditures are administered by us and are not audited.
Advertising -Area Development Franchise
Area Developers are required to engage in local advertising for prospective franchisees. (Development Agreement, Section 2.4.) There is no minimum required expenditure.
You may develop local advertising materials for your own use, at your own cost, following marketing criteria that we establish. We must approve the advertising materials in advance. (Development Agreement, Section 2.4.)
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Website - Cafe Franchise
We have the right to establish and maintain a website to advertise, market and promote the Beard Papa business and the Beard Papa franchise opportunity (a "System Website"). We require you to participate in the System Website by providing you with a web page on the System Website that references your franchised business. We maintain the System Website, including your web page, and we may use the Advertising Fund's assets to develop, maintain and update the System Website. We periodically update and modify the System Website, including your web page. At your request, we will update the information on your web page or add information that we approve. You must notify us whenever any information on your web page changes or is not accurate. We will update or add information that we approve to your web page up to eight times during each calendar year at no charge. We may charge you for additional changes in an amount that will not exceed $500 for each update or change.
We have final approval rights over all information on the System Website (including your web page). We will maintain your web page on the System Website only while you are in full compliance with the Franchise Agreement. All advertising, marketing and promotional materials that you develop for your franchised business must contain notices of the System Website's domain name in the manner we designate.
The System Website is the only way in which you may advertise your franchised business by means of the Internet. You may not advertise your franchised business in any website or in any metatags or as an Internet domain name. (Section 1.7 (1) of the Franchise Agreement.)
Site Selection - Cafe Franchise
You will operate from premises approved by us. (Franchise Agreement, Sections 1.1 (b) and 1.2 (a).) You select your site subject to our approval before you sign the Franchise Agreement. We will approve or disapprove a site you select within 30 days after we receive all the materials we request in order to permit us to evaluate the site. In the event that you and we fail to agree on a site within six months after the date of the Franchise Deposit Agreement, we may reject your application for a franchise. (Franchise Deposit Agreement, Section 5.)
In evaluating sites for approval or disapproval, we consider factors including demographic characteristics, traffic patterns, parking, the predominant character of the neighborhood, competition from other businesses providing similar products or services within the area, the availability of appropriate sites in the area, the proximity of other Beard Papa Sweets Cafes, and any other factors that we may consider relevant.
Within 30 days after we sign the franchise agreement, you must, at your expense, complete the acquisition or lease arrangements.
You may not relocate the franchise without first obtaining our written consent.
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Site Selection - Area Development Franchise
Before you begin recruiting unaffiliated persons or entities to be Cafe franchisees, you must open an office in the Territory to conduct the Area Development business. We do not require that you rent commercial office space. You may locate the office for your Area Development business in your home or on your Cafe premises. You select your site subject to our approval. (Development Agreement, Section 2.1.) We will approve or disapprove a site you select within 30 days after we receive all the materials we request in order to permit us to evaluate the site. In the event that you and we fail to agree on a site, you are obligated to select an alternative site acceptable to us. You may not begin recruiting unaffiliated persons or entities to be Cafe franchisees until we have approved the site and you have opened an office at that site.
You may not relocate the office without first obtaining our written consent.
Time of Opening
We require that you open your Cafe franchise for business within 6 months after the date of the Franchise Agreement. (Franchise Agreement, Section 1.2 (g).) The factors that affect this time include the time it takes you to locate a site acceptable to us; the time it takes to obtain, negotiate and sign a lease acceptable to us; the time it takes you to obtain any required financing;, construction delays; and compliance with local ordinances and regulations. We have the right to terminate the Franchise Agreement if you do not sign the lease and open the franchise for business within the required time.
The Development Agreement does not contain a required time of opening, but it does require you to open or arrange for the opening of a minimum number of Cafe franchises during the first 12 months after the agreement is signed. If you fail to meet this requirement, we may terminate the Development Agreement.
Computer Hardware and Software
We require each Cafe franchisee to purchase a MICROS computerized cash register system and any compatible computer using the Microsoft Windows XP operating system, to be approved by us in writing. The MICROS system allows us to retrieve daily sales and inventory information. Compatible equivalent components that perform the same function are TEC, Panasonic, NCR and Casio, but we have not approved these systems.
We reserve the right to modify and impose additional computer hardware and software requirements in the future upon reasonable notice to you. (Franchise Agreement, Section 2.2 (b).) Such systems may permit us to access your cash registers and computer terminals and your computer system and to retrieve all information relating to the franchised business. We may require you to incur costs to purchase, lease and license computer hardware and software and to obtain service and support. You acknowledge that we cannot estimate the future costs of the computer and software system, the cash register system, or additions or modifications to these systems, and that these costs may not be fully amortizable over the remaining term of this
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Agreement. We will not require you to spend more than $2,000 annually for computer and software system, the cash register system, additions or modifications to these systems, service and support after the initial payment for the required computer hardware and software. We have the right to charge a reasonable systems fee for software or systems modifications and enhancement specifically made for us that are licensed to you and other maintenance and support services that we or our affiliate furnish to you.
We require Area Developers to equip their office with computer hardware and software that meet our standards and specifications. (Development Agreement, Section 2.1.) We have not yet developed these standards or specifications. However, we do required that you have suitable office equipment to operate the business, including voice mail, a DSL or equivalent Internet connection and e-mail capability.
Item 12
TERRITORY
Cafe Franchise
You will not receive an exclusive territory as a Cafe franchisee. (Franchise Agreement, Section 1.1 (c).) The Franchise Agreement grants you the right to operate one Beard Papa Sweets Cafe at a single location that we approve. Schedule A of the Franchise Agreement indicates the specific street address of the approved location. You must operate the franchised business only at this approved location and you may not relocate the business without first obtaining our written consent.
We may establish other franchised or company owned cafes that may compete with your location. Nevertheless, in granting franchises, we generally assume that a population of 500,000 will support one Beard Papa Sweets Cafe, and we take this factor into account in evaluating prospective franchisees.
You may deliver Beard Papa cream puffs to customers in your area. The only restriction on the geographic scope of such deliveries is that the customers must receive the cream puffs fresh, meaning within one hour of baking. Except for such deliveries, you may not sell Beard Papa cream puffs in any manner except from the cafe premises.
Because Beard Papa cream puffs are distinguished by their freshness, we do not sell Beard Papa cream puffs as a prepackaged item to grocery stores, supermarkets or similar outlets. However, we reserve our right to modify our system by selling prepackaged cream puffs under the BEARD PAPA trademarks to grocery stores, supermarkets or similar outlets for resale at any time. We also reserve the right to sell cream puffs to customers anywhere through our website. Such sales may affect your sales of the fresh cream puffs.
In the event that we merge with, acquire or are acquired by another company that competes with Beard Papa, we and our affiliates reserve the right to offer and sell and authorize
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others to offer and sell competing products and services under any other names and marks while your Franchise Agreement is in effect.
You do not receive the right to acquire additional franchises or to establish or operate another Beard Papa Sweets Cafe unless you enter into a separate Franchise Agreement with us.
There is no minimum sales quota.
Area Development Franchise
Each Area Developer receives an exclusive territory. The territory will typically be large enough to accommodate more than 20 Cafe franchises, based on our market studies. We intend to grant Development Agreements for territories that encompass either a section of a state comprised of multiple counties, an entire state, or an area covering all or parts of more than one state.
Your application for an Area Development franchise will be for a specific territory. At the time that we enter into an Area Development Deposit Agreement with you, we will define the proposed territory for the desired Area Development franchise. If we approve your application, the agreed territory will be described in Schedule A of your Development Agreement.
During our negotiations with you for a possible Development Agreement, we will not grant to any other person the right to perform Area Development functions in the territory. We are not obligated to negotiate longer than six months, and although we will negotiate in good faith, we may reject your application at any time.
During the term of the Development Agreement, we will not grant to any other person the right to perform the functions of an Area Developer in your territory. We retain the right to engage in franchise sales and support services in the territory, in consultation with you.
In order for you to maintain your rights in the territory under the Development Agreement, you must meet minimum requirements contained in Schedule B of the agreement (the Development Schedule). The Development Schedule requires that a specified minimum number of Cafes be opened in each 12-month period during the term of the agreement, whether by you or by independent third parties recruited by you. The development requirements are determined based on our market studies of the territory and our discussions with you. The smallest Development Schedule will typically call for the development of at least 10 Cafe franchises during the initial five-year term of the agreement.
You maintain rights to your exclusive territory during the term of your Development Agreement even if the population increases.
In the event that we merge with, acquire or are acquired by another company that competes with Beard Papa, we and our affiliates reserve the right to offer and sell and authorize
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others to offer and sell competing products and services under any other names and marks while your Development Agreement is in effect.
You do not receive the right to acquire additional territories, or to develop franchises outside of your territory, unless you enter into another Development Agreement with us. However, you may develop more Cafe franchises within your territory than the numbers contained in the Development Schedule if you and we agree that the market can bear additional units.
Item 13
TRADEMARKS
Muginoho USA grants you the right to operate a cafe under the name "Beard Papa's Sweets Cafe" and to use in connection with this cafe our current or future trademarks. By trademarks we mean trade names, trademarks, service marks and logos used to identify your cafe.
The following trademarks are registered on the principal register of the United States Patent and Trademark Office:
Mark Registration No. Registration Date
BEARD PAPA'S FRESH'N 2933851 March 15, 2005
NATURAL CREAM PUFFS
BEARD PAPA LOGO 2960525 June 7,2005
Because these trademarks have not yet been registered for five years, no Section 8 or 14 affidavits have been filed, although Muginoho USA intends to file these affidavits when due.
Muginoho USA has applied for registration of the following trademark on the principal register of the United States Patent and Trademark Office:
Mark Serial No. Filing Date Published
BEARD PAPA 76545734 September 22,2003 November 9,2004
This trademark was approved for publication on the date indicated above under the heading "Published", but is not yet registered as of the date of this offering circular. By not having a principal register federal registration for this trademark, we do not have certain presumptive legal rights granted by a registration.
You must follow our rules when you use our marks. You cannot use our name or mark as part of a corporate name or with modifying words, designs or symbols except for those that we license to you. You may not use our name or mark in connection with the sale of an unau-
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thorized product or service or in a manner not authorized in writing by us. (Franchise Agreement, Section 1.1 (e).)
No agreements limit our right to use or license the use of our trademarks.
You must notify us immediately of any unauthorized use of the BEARD PAPA trademarks or any name or trademark confusingly similar to the BEARD PAPA trademarks or any claim or litigation against you involving these trademarks. We have the right to control any actions involving the BEARD PAPA trademarks, although you must cooperate fully in those actions. (Franchise Agreement, Section 3.1 (c).)
We will indemnify you against any claim against your use of the BEARD PAPA trademark provided that you notify us in a timely manner of such action or threatened action. We have the right to control such litigation or proceeding. (Franchise Agreement, Section 6.2(b).)
You must modify or discontinue the use of a trademark if we modify or discontinue it. We may modify or discontinue a mark or adopt a new one for use in the system in our discretion. (Franchise Agreement, Section 3.1 (d).)
There are no determinations of the Patent and Trademark Office, Trademark Trial and Appeal Board, or any state trademark administrator or court, or any pending interference, opposition or cancellation proceedings or pending material litigation involving the BEARD PAPA trademark which is relevant to its use in the states in which the franchised business is to be located.
We do not know of any infringing uses that could materially affect your use of the BEARD PAPA trademarks.
Item 14
PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION
Muginoho Japan owns a patent in Japan on the method used to manufacture the dough for the Beard Papa cream puff shells. Muginoho Japan produces the shells in Japan and we arrange to deliver them to you at your cafe. The method used to manufacture the dough is not patented in the U.S.A.
Aside from this Japanese patent, no patents are material to the franchise.
We claim all rights and interests, including all copyrights, to the information contained in the manuals, advertising materials, and all our communications to you in writing or otherwise setting forth our standards, requirements, operating procedures or policies relating to the operation of a Beard Papa franchise, as well as any revisions and additions to these materials. (Franchise Agreement, Sections 1.4 (c) and 3.1 (a).) We have not registered the copyrights in any of these materials.
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The information contained in the manuals and the information presented during training is confidential material of Muginoho USA. You and your employees involved in the franchised business may use Muginoho USA's confidential and proprietary information only in furtherance of the franchised business and only in the manner we specify from time to time. (Franchise Agreement, Sections 1.4 (a) and 3.2.)
You must notify us promptly in writing if you learn about any unauthorized use of our copyrights or proprietary information. We are not obligated to take any action but we will respond to this information as we think appropriate. (Franchise Agreement, Section 3.1 (e).)
All improvements in the Beard Papa system that you develop will become the property of Muginoho USA. We will have the sole right to protect such improvements in our name or in the name of any of our affiliates by means of copyright, patent, trade secret or trademark law. You must promptly disclose all such improvements to us. (Franchise Agreement, Section 1.4 (c).)
Item 15
OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISE BUSINESS
We do not require that you personally supervise the franchised business, whether it be a Cafe franchise or an Area Development Franchise. The business must be directly supervised by one or more managers who have successfully completed our training program. The managers may not have an interest or business relationship with any business competitor of Muginoho USA and may not take on other business responsibilities that would be inconsistent with the operational requirements of the franchised business or contrary to its best interest. The managers need not have an ownership interest in a corporate or partnership franchisee. The managers must sign a written agreement with you to maintain confidentiality of the trade secrets described in Item 14 and to comply with the covenants not to compete described in Item 17. All of your employees who attend our training program must sign a confidentiality agreement with you.
If you are a legal entity such as a corporation or limited liability company rather than an individual or general partnership, then each person who owns or acquires 10% or more of the equity or voting interests of your company must execute a guaranty assuming and agreeing to discharge all obligations of the franchisee under the Franchise Agreement.
Item 16
RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
Cafe Franchise
We require you, as a Cafe franchisee, to offer and sell only those goods and services that we have authorized or approved.
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You must offer all goods and services that we designate as required for all franchisees. We require you to sell Beard Papa cream puffs and nothing else, although we may authorize you to sell additional products in the future. We also require you to adhere to our style of servicing customers. You may not adopt your own style. You may not sell the cream puffs in any manner other than the direct, fresh and on-site sale at the cafe premises, although we permit you to accept local orders in person or via e-mail, telephone or fax and deliver locally as long as the product is delivered fresh. You may not wholesale to local bakeries or cater to parties, donate product to charities for resale or discount the sale of unsold, less-than-fresh products. (Franchise Agreement, Section 1.1 (d).) This policy is important to maintain the Beard Papa hallmark image of "freshly baked cream puffs", and is strictly enforced.
We have the right to add additional authorized goods and services that you are required to offer. There are no limits on our right to do so except that we must act reasonably and our requirements must stay within the scope of a retail cream puff business.
If you desire to sell cream puffs of a different flavor you create, you must first submit the recipe to us. We or Muginoho Japan will test the product to see if it merits approval. You may not sell such product without our prior written approval. Any such new recipe will be an improvement owned by us that we may use at our company and affiliate stores and that we and our affiliates may authorize other franchisees to use. (See Item 14.)
There are no restrictions regarding customers you may service.
Area Development Franchise
In addition to territorial limits on prospective franchisee recruitment (see Item 12), you must comply with our standards for advertising and for screening prospective franchisees. You must submit applications, financial statements, business plans and other materials that we request using our forms. You may use our franchise disclosure documents and marketing materials only if we have approved them for use in your territory. You may not, under any circumstances, sell any items to, or collect any money from, prospective franchisee candidates or existing franchisees without our prior written consent.
Item 17
RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION
This table lists important provisions of the franchise and related agreements pertaining to renewal, termination, transfer and dispute resolution. You should read these provisions in the agreements attached to this Offering Circular.
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|
Provision |
Sections in the Franchise Agreement ("FA "), the Franchise Deposit Agreement ("FDA"), the Development Agreement ("DA") and the Developer Deposit Agreement ("DDA") |
Summary |
|
a. Term of the franchise |
FA: Section 5.1 (a) DA: Section 7.1 (a) |
Five years. |
|
b. Renewal or extension of the term |
FA: Sections 5.1 (b) and (c) DA: Section 7.1 (b) |
You may renew for one additional five year term. Extension beyond one renewal term is in our discretion. |
|
c. Requirements for you to renew or extend |
FA: Section 5.1 (b) DA: Section 7.1 (b) |
Notify us of your desire to renew 6-12 months before the end of the term; sign a new agreement; pay fee. |
|
d. Termination by you |
FA: Section 5.2 (a) DA: Section 7.2 (a) |
You may terminate the agreement upon our breach and failure to cure. |
|
e. Termination by us without "cause" |
FA: None DA: None |
|
|
f. Termination by us with "cause" |
FA: Sections 5.2 (a) and(b) FDA: Section 5 DA: Sections 7.2 (a) and (b) DDA: Section 5 |
FA and DA: We may terminate only if you default. FDA and DDA: We will evaluate your application in good faith, but we may reject your application for any reason. |
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|
Provision |
Sections in the Franchise Agreement ("FA "), the Franchise Deposit Agreement ("FDA"), the Development Agreement ("DA") and the Developer Deposit Agreement ("DDA") |
Summary |
|
g. "Cause" defined defaults that can be cured |
FA: Section 5.2 (a) and (b) DA: Sections 7.2 (a) and(b) |
FA: You have 3 days to cure a violation of a health, sanitation or safety law; 5 days to cure a failure to pay; and 30 days to cure most other breaches. DA: You fail to meet your development obligation in any year; material breach by you or your affiliate of a Franchise Agreement and failure to cure; and 30 days to cure most other breaches. |
|
h. "Cause" defined defaults that cannot be cured |
FA: Section 5.2(b) DA: Section 7.2 (b) |
Disclosure of confidential information; attempted transfer without our approval; failure to pay taxes; abandonment of the business; false representations to us; failure to record any transaction; criminal conviction. |
|
i. Your obligations on termination /non-renewal |
FA: Section 5.3 DA: Section 7.3 |
Obligations include complete deiden-tification, return of manual and payment of amounts due. (See also "r" below.) |
|
j. Assignment of contract by us |
FA: Section 4.1 DA: Section 6.1 |
No restriction on our right to assign. |
|
k. "Transfer" by you defined |
FA: Section 4.2 (b) DA: Section 6.2(b) |
Includes transfer of contract or assets or ownership change. |
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|
Provision |
Sections in the Franchise Agreement ("FA"), the Franchise Deposit Agreement ("FDA "), the Development Agreement ("DA") and the Developer Deposit Agreement ("DDA") |
Summary |
|
1. Our approval of a transfer by you |
FA: Section 4.2 (c) DA: Section 6.2 (c) |
We have the right to approve all transfers, but we will not unreasonably withhold approval. |
|
m. Conditions for our approval of the transfer |
FA: Section 4.2 (d) DA: Section 6.2 (d) |
You are in compliance; all franchise fees are paid; transfer fee is paid; transferee signs new form of agreement; the transferee meets our criteria for Beard Papa franchisees; we approve the terms of the transfer; the guarantees we require are signed. |
|
n. Our right of first refusal to acquire your business |
FA: Section 4.3 DA: Section 6.3 |
We can match any offer for your business. |
|
o. Our option to purchase your business |
FA: Section 5.4 DA: None |
FA: On termination or nonrenewal, we may purchase the physical assets used in your business at their fair market value. |
|
p. Your death or disability |
FA: Section 4.2 (f) DA: Section 6.2 (f) |
The estate must assign the franchise to an approved buyer. |
|
q. Non-competition covenants during the term of the franchise |
FA: Section 3.3 DA: Section 5.2 |
No involvement in a competing business anywhere in the U.S. or within 5 miles of a Beard Papa Sweets Cafe outside the U.S. |
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|
Provision |
Sections in the Franchise Agreement ("FA"), the Franchise Deposit Agreement ("FDA"), the Development Agreement ("DA") and the Developer Deposit Agreement ("DDA ") |
Summary |
|
r. Non-competition covenants after the franchise is terminated or expires |
FA: Section 5.3 (b) DA: Section 5.2 (b) |
No involvement in a competing business for 2 years anywhere in the U.S. or within 5 miles of a Beard Papa Sweets Cafe outside the U.S. (including after assignment). |
|
s. Modification of the Franchise Agreement |
FA: Section 7.12 DA: Section 9.11 |
No modifications unless signed by the parties, but the manual is subject to change. |
|
t. Integration/merger clause |
FA: Section 7.12 FDA: Section 9 DA: Section 9.11 DDA: Section 8 |
Only the terms of the written agreement are binding (subject to state law). Any other promises may not be enforceable. |
|
u. Dispute resolution by arbitration or mediation |
FA: Sections 7.9 and 7.10 DA: Sections 9.8 and 9.9 |
Except for certain claims, all disputes must be mediated. If mediation is not successful, disputes must be arbitrated in New York, NY, except as otherwise noted in Exhibit K. |
|
v. Choice of forum |
FA: Section 7.11 DA: Section 9.10 |
Litigation must be in New York, NY, except as otherwise noted in Exhibit K. |
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|
Provision |
Sections in the Fran-chise Agreement ("FA "), the Franchise Deposit Agreement ("FDA"), the Development Agreement ("DA") and the Developer Deposit Agreement ("DDA ") |
Summary |
|
w. Choice of law |
FA: Section 7.8 FDA: Section 10 DA: Section 9.7 DDA: Section 9 |
New York law applies, except as otherwise noted in Exhibit K. |
Several states have statutes and court decisions that may supersede the Franchise Agreement in your relationship with the franchisor, including the areas of termination and renewal of your franchise and dispute resolution. See Exhibit K for references to those laws in California, Illinois, Maryland, North Dakota and Rhode Island.
Item 18 PUBLIC FIGURES
We do not use any public figure to promote our franchise.
Item 19
EARNINGS CLAIMS
Muginoho USA does not furnish or authorize its salespersons to furnish any oral or written information concerning the actual or potential sales, costs, income or profits of a Beard Papa franchise. Actual results vary from unit to unit and Muginoho USA cannot estimate the results of any particular franchise.
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Item 20
LIST OF OUTLETS
FRANCHISED OUTLET STATUS SUMMARY FOR THE PERIODS ENDED AUGUST 31, 2005/2004
State
California
Hawaii Massachusetts New lersey New York
Totals
Transfers
Cancelled or Terminated
Not Renewed
Reacquired Left the by Fran- System; chisor Other
Total
from
Left
Columns
Franchises
Operating
at Year
End
1/0
2/0
1/0
2/0
2/0
8/0
AREA DEVELOPER STATUS SUMMARY FOR THE PERIODS ENDED AUGUST 31, 2005/2004
State
California Hawaii
Massachusetts Totals
Transfers
Cancelled or Terminated
Not
Renewed
Reacquired by Franchisor
Left the
System;
Other
Total
from
Left
Columns
Franchises
Operating
at Year
End
2/0
1/0
1/0
4/0
STATUS OF COMPANY-OWNED OUTLETS FOR THE PERIODS ENDED AUGUST 31, 2005/2004
State
New York Totals
Cafes Closed During Year
0
|
Cafes Opened During Year |
Total Cafes Operating at End of Period |
|
1/1 1/1 |
2/1 2/1 |
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PROJECTED OPENINGS AS OF AUGUST 31 2005
|
State |
Franchise Agreements Signed But Cafe Not Open |
Projected New Franchises in the Next Fiscal Year |
Projected Company-Owned Openings in Next Fiscal Year |
|||
|
Unit |
Developer |
|||||
|
California |
1 |
5 |
2 |
|||
|
Hawaii |
3 |
|||||
|
Nevada |
2 |
1 |
||||
|
Washington |
1 |
2 |
||||
|
Totals |
1 |
11 |
5 |
0 |
||
Attached to this Offering Circular as Exhibit E is a list of names, addresses and telephone numbers of all franchisees, if any, that have left the Muginoho USA system within the last fiscal year or have not communicated with Muginoho USA within ten weeks of the application.
Item 21
FINANCIAL STATEMENTS
Attached to this Offering Circular as Exhibit F is a compilation report and balance sheet of Muginoho USA as at August 31,2003, the end of its fiscal year, and the related statement of operations for the period from the date of the company's inception, to August 31, 2003. Also attached as Exhibit F are the audited balance sheets of Muginoho USA as at August 31, 2005 and 2004, and the related statements of income, retained earnings and cash flows for the years then ended, as well as an unaudited balance sheet and statement of operations as of November 30, 2005.
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Item 22 CONTRACTS
The following contracts comprise the following exhibits to this Offering Circular:
Exhibit G Franchise Agreement, Personal Guaranty and Lease Addendum
Exhibit H Franchise Deposit Agreement
Exhibit I Development Agreement and Personal Guaranty
Exhibit J Area Development Deposit Agreement
Item 23
RECEIPT
A form for your use to acknowledge your receipt of this Offering Circular, including all exhibits, is attached as Exhibit L. You must date and sign one copy of the Acknowledgement of Receipt and deliver it to us or to our legal counsel.
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