UFOC
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Sample UFOC
FRANCHISE OFFERING CIRCULAR
®
PACIUGO FRANCHISING LP
(a Texas limited partnership)
9761 Clifford Drive, Suite 170
Dallas, Texas 75220
214-654-9501
The franchise described in this offering circular is for a retail outlet ("Unit") which makes and sells gelato, and other specialty food items, beverage items, and products. There are 2 types of Units available - stand-alone Units and kiosk Units.
The initial franchise fee for a stand-alone Unit is $30,000, and you must purchase goods and services from the franchisor's affiliate, ranging from $5,000 to $8,000, before the Unit opens. The total estimated initial investment required to begin operation of each stand-alone Unit, including the initial franchise fee, required purchases and initial operating capital, ranges from $175,700 to $372,600.
The initial franchise fee for a kiosk Unit is $30,000, and you must purchase goods and services from the franchisor's affiliate, ranging from $ 5,000 to $8,000, before the Unit opens. The total estimated initial investment required to begin operation of each kiosk Unit, including the initial franchise fee, required purchases and initial operating capital, ranges from $75,500 to $193,500.
The franchisor also offers a development program for a specified area within which you must open an agreed-upon number of Units according to the development schedule, with a separate franchise agreement for each store. The development fee is $5,000 for each Unit to be opened, all of which will be credited towards the initial franchise fee for each Unit.
Risk factors:
1. THE FRANCHISE AGREEMENT AND DEVELOPMENT AGREEMENT STATE THAT THE LAW OF TEXAS GOVERNS THE AGREEMENT, AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS.
2. THE FRANCHISE AGREEMENT AND DEVELOPMENT AGREEMENT PERMIT YOU TO MEDIATE AND ARBITRATE ONLY IN THE CITY WHERE WE HAVE OUR PRINCIPAL PLACE OF BUSINESS (CURRENTLY DALLAS, TEXAS). OUT OF STATE MEDIATION OR ARBITRATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO
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PACIUGO UFOC 033006
MEDIATE OR ARBITRATE WITH US IN OUR HOME STATE THAN IN YOUR HOME STATE.
3. THE FRANCHISOR HAS BEEN IN EXISTENCE ONLY A SHORT PERIOD OF TIME. THERE IS ONLY A BRIEF OPERATING HISTORY TO ASSIST YOU IN JUDGING WHETHER OR NOT TO MAKE THIS INVESTMENT.
4. THE FRANCHISEE WILL BE REQUIRED TO MAKE AN ESTIMATED INITIAL INVESTMENT RANGING FROM $78,500 TO $377,600. THIS AMOUNT EXCEEDS THE FRANCHISOR'S STOCKHOLDERS EQUITY AS OF DECEMBER 31, 2005, WHICH WAS $81,959.
5. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
LOCAL LAW MAY SUPERSEDE THESE AGREEMENT PROVISIONS. CERTAIN STATES REQUIRE THE SUPERSEDING PROVISIONS TO APPEAR IN AN ADDENDUM IN THIS OFFERING CIRCULAR. SEE EXHIBIT A.
Information about comparisons of franchisors is available. Call the state administrators listed in Exhibit B or your public library for sources of information. 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 learn that anything in this offering circular is untrue, contact the Federal Trade Commission and the state administrators listed in Exhibit B.
The effective dates of this Offering Circular for the States of California, Florida, Hawaii, Illinois, Indiana, Kentucky, Maryland, Michigan, Minnesota, Nebraska, New York, North Dakota, Rhode Island, South Dakota, Texas, Utah, Virginia, Washington and Wisconsin are listed on Exhibit A. The effective date in all other states is March 30, 2006.
PACIUGO UFOC 033006
FRANCHISE OFFERING CIRCULAR Table of Contents
PAGE
ITEM 1 THE FRANCHISOR, ITS PREDECESSOR, AND AFFILIATES......................... 1
ITEM 2 BUSINESS EXPERIENCE.................................................................................3
ITEM 3 LITIGATION.......................................................................................................4
ITEM 4 BANKRUPTCY..................................................................................................4
ITEM 5 INITIAL FRANCHISE FEE.................................................................................4
ITEM 6 OTHER FEES................................................................................................... 5
ITEM 7 INITIAL INVESTMENT........................................................................................7
ITEM 8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES................10
ITEM 9 FRANCHISEE'S OBLIGATIONS.......................................................................12
ITEM 10 FINANCING....................................................................................................14
ITEM 11 FRANCHISOR'S OBLIGATIONS....................................................................14
ITEM 12 TERRITORY...................................................................................................23
ITEM 13 TRADEMARKS...............................................................................................25
ITEM 14 PATENTS, COPYRIGHTS, AND PROPRIETARY INFORMATION................27
ITEM 15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE FRANCHISED BUSINESS...........................28
ITEM 16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL.........................29
ITEM 17 RENEWAL, TERMINATION, TRANSFER
AND DISPUTE RESOLUTION.....................................................................................30
ITEM 18 PUBLIC FIGURES..........................................................................................33
ITEM 19 EARNINGS CLAIMS.......................................................................................33
PACIUGOUFOC 033006
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ITEM 20 LIST OF OUTLETS.........................................................................................35
ITEM 21 FINANCIAL STATEMENTS............................................................................37
ITEM 22 CONTRACTS..................................................................................................37
ITEM 23 RECEIPT........................................................................................................38
EXHIBITS
EXHIBIT A STATE EFFECTIVE DATES AND ADDENDA
EXHIBIT B LIST OF ADMINISTRATORS AND AGENTS FOR SERVICE OF
PROCESS
EXHIBIT C FRANCHISE AGREEMENT
EXHIBIT D OWNER AGREEMENT
EXHIBIT E DEVELOPMENT AGREEMENT
EXHIBIT F FINANCIAL STATEMENTS
EXHIBIT G TABLE OF CONTENTS FOR FRANCHISE MANUAL
EXHIBIT H LIST OF FRANCHISEES
EXHIBIT I FORM OF GENERAL RELEASE
EXHIBIT J RECEIPTS
PACIUGOUFOC 033006 ii
PACIUGO FRANCHISING LP
FRANCHISE OFFERING CIRCULAR
ITEM 1 THE FRANCHISOR, ITS PREDECESSOR, AND AFFILIATES
To simplify the language in this offering circular, "we" or "us" means Paciugo Franchising LP, the franchisor. "You" means the person or entity to whom we grant a franchise, as franchisee. If you are a corporation, partnership or other legal entity, "you" may also include your owners, depending on the context. "You" also includes the person or entity with whom we enter into a development agreement, and the entity's owners, depending on the context.
The Franchisor
We were formed in Texas on July 17, 2001. Our principal business address is 9761 Clifford Drive, Suite 170, Dallas, Texas 75220. We do not do business under any other name. We began offering franchises as described in this offering circular in August 2004, and have never offered franchises in any other line of business. We do not own or operate any business which is similar to the business being franchised, and we do not engage in any other business. Our agents for service of process are listed in Exhibit B.
Our Predecessor and Affiliates
Our affiliate, Authentic Gelato LP ("Authentic Gelato"), has operated one or more retail outlets making and selling gelato, and other specialty food items, beverage items, and other products since 2000. Authentic Gelato has its principal business address at 9761 Clifford Drive, Suite 170, Dallas, Texas 75220. It was originally formed as a Texas limited liability company on April 5, 2000, and then converted to a Texas limited partnership on July 25, 2001. Authentic Gelato's units are similar to the franchised business we offer under this offering circular. We have no affiliates which offer (or have ever offered) franchises in any line of business.
Our affiliate, Paciugo Supply Co. LP ("Paciugo Supply"), supplies certain products and services to our franchisees, and it owns and/or operates concessions in grocery stores. Paciugo Supply is a Texas limited partnership formed in July 2001 with its principal business address at 9761 Clifford Drive, Suite 170, Dallas, Texas 75220. We have no other affiliates which supply products and services to our franchisees. Paciugo Supply has never owned or operated any business which is similar to the business being franchised.
Another affiliate, Paciugo Properties LP ("Paciugo Properties"), a Delaware limited partnership with its principal business address at 9761 Clifford Drive, Suite 170, Dallas, Texas 75220, owns the trademarks, trade names, service marks, recipes, know how
PACIUGO UFOC 033006 1
and other intellectual property relating to the operation of Authentic Gelato units, the Paciugo Supply kiosks and the Franchised Businesses. Paciugo Properties has licensed Authentic Gelato, Paciugo Supply and us to use this intellectual property. See Item 13. Paciugo Properties has never owned or operated any business which is similar to the business being franchised.
The Franchised Business
We award franchises for the operation of retail gelato outlets which use the trade names, service marks, trademarks, logos, emblems and indicia of origin licensed to us by Paciugo Properties (collectively, the "Marks") and operate under distinctive operating procedures and standards we specify (the "System"). A retail business operated under the System and Marks is referred to in this offering circular as the "Franchised Business" or "Unit." There are 2 types of Units available - stand-alone Units and kiosk Units. Stand-alone Units and kiosk Units will make and sell high-quality gelato and other specialty food items and beverage items, and sell related products. Stand-alone Units and kiosk Units may also offer authorized gelato catering services.
If we approve your franchise application, you will have the right to sign a franchise agreement ("Franchise Agreement"), as franchisee, with us for the establishment and operation of a single Unit at a specific location. Our standard form Franchise Agreement applicable to both stand-alone Units and kiosk Units is attached to this offering circular as Exhibit C.
We also offer to qualified individuals and entities a development opportunity for the right to open a certain number of Units, at the times and geographic areas described in the development schedule included in the development agreement ("Development Agreement"). Our standard form Development Agreement is attached to this offering circular as Exhibit E. If you are a developer, you will sign a separate Franchise Agreement for each Unit you open. Unless otherwise noted, the terms of the development opportunity are the same as the franchise opportunity, and "you" will refer to developers, as well as franchisees.
General Market and Competition
The primary market for the services and products offered by the Franchised Business are customers who appreciate authentic, high-quality gelato. Typically, stand-alone Units are located in multi-tenant retail locations to take advantage of existing customer traffic; however, virtually any type of retail structure could be suitable for a stand-alone Unit, subject to our site-selection criteria. Kiosk units are typically located within established retail stores or other commercial locations that meet our site-selection criteria.
The frozen dessert market, as a whole, is highly competitive, and includes retail units and kiosks selling ice cream, frozen yogurt, shaved ice, industrial and freshly-made gelato and smoothies. In some locations - primarily in certain parts of major
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metropolitan areas - the frozen dessert market appears to have reached saturation. You may have to compete with numerous other independent and chain-affiliated businesses, some of which may be franchised. Many ice cream and frozen yogurt franchise systems, in particular, have already established national and international brand recognition. Additionally, many grocery stores, convenience stores, and other types of retail locations sell individual servings of ice cream, sherbet, sorbet, slurpies, industrial gelato and other frozen desserts.
The gelato segment of the frozen dessert market is not well-developed in the United States. In fact, many potential customers who regularly eat ice cream and frozen yogurt have never tried gelato. Indeed, many may have never even heard of gelato. You should consider the Franchised Business as a developing business in a general market segment with many well-established competitors.
Industry-Specific Laws and Regulations
You must comply with all local, state, and federal laws and regulations that apply to your Franchised Business operations. In addition to the statutes, regulations and ordinances applicable to businesses generally, such as the Americans with Disabilities Act, Federal Wage and Hour Laws, and the Occupational Safety and Health Act, you should be aware that certain aspects of the food and beverage service business are heavily regulated by federal, state and local statutes, rules and ordinances. The U.S. Food and Drug Administration, the U.S. Department of Agriculture, and state and local departments of health, and other agencies have statutes, regulations and ordinances concerning the preparation of foods and beverages, and the sanitary condition of Unit facilities. State and local agencies routinely conduct inspections for compliance with these requirements. You should consult with an attorney or business advisor about the laws, regulations and ordinances that may affect operation of your Unit.
ITEM 2 BUSINESS EXPERIENCE
Our directors, principal officers and other executives who have management responsibility in connection with the operation of our business relating to the franchise described in this offering circular are:
Chairman & CEO: Ugo Ginatta
Mr. Ginatta has been our President since our inception in July 2001. He has been president of Authentic Gelato in Dallas, Texas since April 2000. From November 1993 to September 1999, he was CEO of Executrain Italia SpA, a computer consulting and education master franchisor in Turin, Italy, with units in Turin, Milan and Rome.
PACIUGOUFOC 033006 3
COO. Senior Vice President and Treasurer: Cristiana Acerbi Ginatta
Mrs. Ginatta has been our Executive Vice President and Treasurer since our inception in July 2001. She has been executive vice president and treasurer of Authentic Gelato in Dallas, Texas since April 2000. From June 1997 to January 2000, she was director of human resources for Executrain Italia SpA, a computer consulting and education master franchisor in Turin, Italy.
Technical Senior Vice President: Vincent J. Ginatta
Mr. Ginatta has been our Technical Director since our inception in July 2001. He has been technical director of Authentic Gelato in Dallas, Texas since December 2000. From August 1996 until his graduation in December 2000, he was a student in the mechanical engineering department at Trinity University in San Antonio, Texas.
ITEM 3 LITIGATION
No litigation is required to be disclosed in this offering circular.
ITEM 4 BANKRUPTCY
No person identified in Item 1, or officer identified in Item 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
Franchise Agreement
Your initial franchise fee will be $30,000. You must pay the initial franchise fee to us in a lump sum when you sign the Franchise Agreement. We will not refund any portion of the initial franchise fee. If you sign a Franchise Agreement as part of your obligations under a Development Agreement, we will deduct from your initial franchise fee the development fee you paid for the relevant Unit.
In addition to the initial franchise fee paid to us, you will make payments to Paciugo Supply before opening the Unit for opening inventory and supplies in the range of $5,000 to $8,000. These items are available for purchase only from Paciugo Supply, and your payments are non-refundable. Except as specified in this Item, you are not
PACIUGO UFOC 033006
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required to purchase or lease any items or services from us or our affiliates before you open your Unit.
See Item 7 for additional information.
Development Agreement
If you sign a Development Agreement, you will pay a lump sum development fee of $5,000 for each Unit to be developed, as listed in the development schedule accompanying the Development Agreement. The development fee is non-refundable; however, the full amount you paid for each Unit to be developed will be credited towards the initial franchise fee when you sign the Franchise Agreement for the relevant Unit.
ITEM 6 OTHER FEES
|
NAME OF FEE |
AMOUNT |
DATE DUE |
REMARKS |
|
Royalty |
4.5% of weekly Gross Sales. |
Friday of each week on prior week's Gross Sales |
See Note 2 for the definition of Gross Sales. |
|
Marketing Fee |
2.5% of weekly Gross Sales. |
Same as Royalty. |
Funds the Marketing Program. See Item 11 for additional details. |
|
Initial Training Fee |
No fee for initial training of initial manager for Unit. You must pay then-current tuition and expenses for initial training of any successor manager. |
As incurred. |
See Item 11 for additional details. |
|
Other Training Fee |
Amount of tuition charged to each trainee, and our expenses for any materials we provide. |
Upon demand. |
We may offer or require additional or refresher training programs. See Item 11 for additional details. |
|
Conference Fee |
Amount charged to each franchisee necessary to cover our expenses. |
Before conference. |
Franchisees, their owners or managers may be required to attend. See Item 11 for additional details. |
|
Per Diem Fee |
Currently $500 per person per day |
Upon demand. |
Payable if you request additional assistance or if you are not ready to open the Unit as scheduled. |
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|
NAME OF FEE |
AMOUNT |
DATE DUE |
REMARKS |
|
Transfer Fee |
One-half of the initial franchise fee that we would then charge a new franchise. |
On or before date of transfer. |
To be paid by you or your transferee. |
|
Renewal Fee |
$15,000 |
Upon written notice of your desire to renew. |
Payable if you desire to renew the right to operate the Unit after the initial term |
|
Manual Replacement Fee |
$5,000 |
As incurred. |
We loan you one Manual for each Unit at no expense. You must pay for any replacements. |
|
Audit and Inspection Cost Recovery |
Cost of audit or inspection and related expenses. |
Upon demand. |
Payable when an audit reveals you have paid less than 97% of the correct amount of fees for any month, or when you fail to cooperate with our auditor or inspector. |
|
Taxes |
Amount assessed us by federal, state and local tax authorities on any payments you make to us. |
Upon demand. |
Includes sales, gross receipt, excise, use or similar taxes (but not income tax) assessed against us. |
|
Indemnification Costs |
Costs of defending and resolving indemnified claims, including attorneys fees. |
Upon demand. |
If we are held liable for claims arising in connection with your operation of the Franchised Business. |
|
Dispute Resolution Costs |
Our costs, including attorneys fees. |
Upon demand. |
Payable if we incur attorneys fees or other expenses as a result of your default or breach of any agreement with us. |
|
Late Payment Fee |
Lesser of 1.5% per month or maximum rate permitted by applicable law on the unpaid amount. |
Upon demand. |
Payable on amounts you owe to us but have not paid. |
NOTES:
1. This table lists other recurring or isolated fees or payments that each franchisee must pay. All fees are payable to only us. All fees are imposed and collected by us, and are non-refundable.
2. Gross Sales includes all revenue from your sale of products and services, including the sale of food, beverages and merchandise, catering and all other
PACIUGOUFOC 033006 6
income of whatever nature relating to the Unit, whether for cash or credit, and regardless of collection in the case of credit.
3. For information on marketing cooperatives, see Item 11.
ITEM 7 INITIAL INVESTMENT
|
TYPE OF |
STAND-ALONE |
KIOSK |
WHEN DUE |
TO WHOM PAYMENT |
|
PAYMENT |
UNIT RANGE OR ESTIMATED AMOUNT |
UNIT RANGE OR ESTIMATED AMOUNT |
IS MADE |
|
|
Franchise Fee |
$30,000 |
$30,000 |
When you sign the |
Us |
|
(Notel) |
Franchise Agreement |
|||
|
Rent |
$2,000 |
$500 |
Monthly |
Landlord |
|
(Note 2) |
$8,000 |
$4,000 |
||
|
Leasehold |
$60,000 |
$0 |
As incurred, |
Various suppliers |
|
Improvements |
$165,000 |
$35,000 |
before opening |
|
|
(Note 3) |
||||
|
Equipment |
$40,000 |
$30,000 |
As incurred, |
Approved suppliers |
|
(Note 4) |
$86,000 |
$60,000 |
before opening |
|
|
Decor |
$5,000 |
$0 |
As incurred, |
Approved suppliers |
|
(Note 5) |
$18,600 |
$10,000 |
before opening |
|
|
Signs |
$5,000 |
$2,500 |
As incurred, |
Approved suppliers |
|
(Note 6) |
$14,500 |
$5,000 |
before opening |
|
|
Opening |
$5,000 |
$5,000 |
As incurred, |
Paciugo Supply |
|
Inventory and |
$8,000 |
$8,000 |
before opening |
|
|
Supplies |
||||
|
(Note 7) |
||||
|
Installation |
$3,000 |
$1,000 |
As incurred, |
Approved suppliers |
|
(Note 8) |
$6,000 |
$5,000 |
before opening |
|
|
Computer |
$18,000 |
$0 |
As incurred, |
Approved suppliers |
|
System |
$19,000 |
$22,000 |
before opening |
|
|
(Note 9) |
||||
|
Training |
$500 |
$500 |
As incurred, |
Airlines, hotels, |
|
Expenses |
$4,000 |
$4,000 |
before opening |
restaurants, etc. |
|
(Note 10) |
||||
|
Grand Openinq |
$3,000 |
$3,000 |
As incurred, |
Approved supplies, |
|
Costs |
$5,000 |
$5,000 |
before opening |
postal service, etc. |
|
(Note 11) |
||||
|
Miscellaneous |
$1,200 |
$0 |
As incurred, |
Utility companies, |
|
Opening Costs |
$4,000 |
$1,000 |
before opening |
governmental |
|
(Note 12) |
agencies, insurance companies, suppliers, etc. |
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|
Additional Funds |
$6,000 |
$6,000 |
As incurred, |
Employees, |
|
For First 3 |
$9,500 |
$9,500 |
before or after |
suppliers, |
|
Months (Note |
opening |
professionals, utility |
||
|
13) |
companies, governmental agencies, insurance companies, suppliers etc. |
|||
|
TOTAL: |
$178,700 $377,600 |
$78,500 $198,500 |
NOTES:
None of the fees and costs payable to us are refundable, unless otherwise described. Fees and costs payable to others are generally not refundable unless you negotiate this right with them.
1. Franchise Fee. The initial franchise fee and certain pre-opening expenses are described in Item 5 of this offering circular, and are non-refundable, except as described in Item 5.
2. Rent. We estimate that a typical stand-alone Unit will need from 800 to 1,300 square feet of floor space and approximately 300 square feet for additional laboratory and storage. We estimate that a typical kiosk Unit will need from 100 to 250 square feet of floor space and approximately 200 square feet for additional laboratory and storage. It is not possible for us to estimate your rent expenses with much certainty, due to the material differences in these costs from location to location, and because some institutional landlords may charge a variable rent based on a percentage of your sales, with no fixed minimum rental charge. You should investigate rents in your own area.
3. Leasehold Improvements. Leasehold improvements involve expenses associated with the design and build out of the Unit, such as plumbing, electrical and remodeling work. You may be able to negotiate with your landlord for a landlord contribution for these expenses. The considerable spread from minimum to maximum is due to factors such as Unit size and type, configuration, remodeling needs, location and unions. The estimate shown does not reflect any landlord contribution. The contractor must be approved.
4. Equipment. The estimates are for the equipment you will need to open a Unit. All of these items are available for purchase from the approved suppliers.
5. Decor. The estimates are for the decor items (including furnishings and fixtures) you will need to open a Unit. All of these items are available for purchase from approved suppliers.
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6. Signs. The estimates are for the signs you will need to open a Unit. These signs are available for purchase from approved suppliers.
7. Opening Inventory and Supplies. The estimates are for opening inventory and supplies, which are available for purchase from Paciugo Supply.
8. Installation. The estimates are for the costs of installing the equipment. Approved suppliers will provide these installation services.
9. Computer System. Includes purchase of point-of-sale system and installation, and purchase of remote monitoring / remote management system and installation. See Item 11 for additional information.
10. Training Expenses. See Item 11 for additional information. The estimates include costs for the attendance of 1 trainee. Travel expenses vary substantially depending on method of travel, point of origin, distance, advance purchase requirements, and other factors. The low estimate is for a franchisee within daily driving distance of Dallas, Texas. The high estimate includes amounts for airfare, hotel, rent car and meals. These estimates do not include any salary or wages you may pay to any of your trainees for the time they spend in training.
11. Grand Opening Costs. The estimates are for the costs of design customization, printing and mailing grand opening announcements, opening discounts, and free product give-aways in connection with your grand opening celebration.
12. Miscellaneous Opening Costs. Includes utility costs and deposits, security deposits, insurance premiums, and business licenses and permits.
13. Additional Funds. You will need capital to support on-going expenses, such as payroll, insurance premiums, taxes, bonds, initial accounting services, overhead, and other miscellaneous expenses, to the extent these expenses may exceed your sales revenues. We believe that the estimated amount will be sufficient to cover on-going expenses in excess of your sales revenues for the first 3 months of operation. This amount is an estimate, and it does not include any debt service payments. We cannot guarantee that you will not have additional expenses starting your business. Your actual costs will depend on factors such as your management skill, experience and business acumen, economic conditions, the local market for your business, the local prevailing wage rate, competition and the performance of your Unit. We relied on our experience and Authentic Gelato's experience since 2000 in estimating your needs for additional funds.
The table in this item estimates the major initial expense categories involved in establishing one Unit in accordance with our current plans and specifications. ACTUAL
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EXPENSES WILL VARY AMONG FRANCHISEES. CAREFUL FINANCIAL PLANNING IS ESSENTIAL FOR ALL PROSPECTIVE FRANCHISEES. You should consult with a business advisor before making any decision to purchase a franchise.
Neither we nor any affiliate offer direct or indirect financing for any fees or expenses. See Item 10.
ITEM 8
RESTRICTIONS ON SOURCES OF
PRODUCTS AND SERVICES
To ensure uniformity and quality in all Units, you must purchase all furnishings, fixtures, equipment, signs, supplies, inventory, uniforms, and other products and materials, and services, used in the establishment and operation of the Unit in accordance with our written specifications. These specifications may include minimum standards for quality, delivery, performance, design, appearance, and other restrictions, as we periodically determine. These specifications are contained in the Manual or will otherwise be provided to you in writing, and we may, by written notice to you or through changes to the Manual, periodically change these specifications. You may incur an expense or increased costs to comply with these changes.
You must purchase certain items and services from suppliers that we have approved in writing. A list of these items and the approved suppliers is contained in the Manual or will otherwise be provided to you in writing. Our approved suppliers have demonstrated to our satisfaction that they have the ability to meet our standards and specifications for the relevant items, they possess adequate quality controls, and they have the capacity to supply your needs promptly and reliably. Approved suppliers do not currently make payments to us on account of transactions with our franchisees, but we may receive these types of payments in the future.
Our affiliate, Paciugo Supply, is an approved supplier for some of the items used in the establishment and operation of the Unit. Paciugo Supply is currently the sole approved supplier for certain items of inventory and supplies, including the proprietary gelato mixtures, flavors, and certain supplies such as paper cups, spoons and take-away containers. We or our affiliates may become the sole approved supplier of additional products or services in the future. We and our affiliates may derive revenue from the sale of these items to you. However, we expect that we and our affiliates will offer products and services to you at or below market price. In 2005, we received revenues of $38,047 as a result of purchases by our franchisees, and Paciugo Supply received revenues of $0 as a result of purchases by our franchisees.
If you desire to use or offer additional items or services that we have not approved, or you desire to purchase approved items and services from a supplier that we have not approved, you must first obtain our written consent. We do not have any formal policies or procedures for approving new items, services or suppliers, or for revoking approval.
PACIUGO UFOC 033006 10
We may require you to provide us with photographs, drawings, specifications, samples or any additional materials or information we desire to evaluate your request. You must pay for our reasonable expenses in evaluating your request. We will notify you of our approval or disapproval of any new item, service or supplier requested by you within a reasonable time (typically within 120 days) after we have received all of the relevant information we requested. We may withhold approval of any item, service or supplier, as we determine in our discretion. We can revoke approval of an approved item, service, or supplier at any time in our sole discretion, and we will notify you of any revocation of approval.
The cost of purchasing items from us or our affiliates could represent about 4% to 7% of your total purchases in connection with establishment of a Unit (not including rent or the cost of leasehold improvements), and about 80% of your total purchases in connection with the ongoing operation of the Unit. We estimate that the cost of purchasing items from approved suppliers (other than us or our affiliates) will represent approximately 75% to 85% of your total purchases in establishing your Unit, and 3% of your total purchases in the continuing operation of the Unit. We estimate that the cost of purchasing items in accordance with our specifications where no approved suppliers have been identified will represent approximately 2% to 5% of your total purchases in establishing your Unit and 5% of your total purchases in the continuing operation of the Unit.
We may attempt to negotiate discount purchase arrangements from approved suppliers for the benefit of our franchisees, based upon the combined buying power of our franchise network. These discounts, when obtained, may result in lower prices for the items being purchased. Currently, we have 3 of these purchase arrangements with manufacturers of batch freezers and display cases. You may be able to negotiate discounts off standard pricing on your own in the future. In order for our franchisees to obtain volume discounts, you may be required to purchase items from suppliers with whom we have negotiated discount purchase arrangements.
We do not currently have purchasing or distribution cooperatives, but may have in the future.
For stand-alone Units, you must obtain and maintain insurance from an insurance company acceptable to us, in accordance with our specifications, which we may periodically change. For kiosk Units, you must provide us with proof acceptable to us that we are covered by your existing insurance policies, which must meet our specifications. If you offer catering, your catering operations must be insured in accordance with our specifications.
We consider a variety of factors when determining whether to grant additional franchises. Among the factors we consider is compliance with the requirements described above. Otherwise, we do not offer any benefits to franchisees for following the requirements in this Item.
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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 |
SECTION IN FRANCHISE AGREEMENT |
SECTION IN DEVELOPMENT AGREEMENT |
ITEM IN OFFERING CIRCULAR |
|
a. Site selection and acquisition / lease |
2,3.11 |
3.2 |
Item 11 |
|
b. Pre-opening purchases / leases |
2.3, 3.2, 3.9, 3.16, 3.22 |
None |
Items 5, 7 and 8 |
|
c. Site development and other pre-opening requirements |
2.3, 3.2, 3.9 |
None |
Items 8 and 11 |
|
d. Initial and ongoing training |
3.3, 3.4, 3.5 |
None |
Item 11 |
|
e. Opening |
3.2 |
3.5 |
Item 11 |
|
f. Fees |
5 |
2.1 |
Items 5 and 6 |
|
g. Compliance with standards and policies / operating manuals |
6 |
5.1 |
Items 11 and 14 |
|
h. Trademarks and proprietary information |
7 |
None |
Items 13 and 14 |
|
i. Restrictions on products/services offered |
1.5,3.7 |
None |
Items 5, 8 and 16 |
|
j. Warranty and customer service requirements |
3.19 |
None |
Item 16 |
|
k. Territorial development and sales quotas |
None |
3.1 |
Item 12 |
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|
OBLIGATION |
SECTION IN FRANCHISE AGREEMENT |
SECTION IN DEVELOPMENT AGREEMENT |
ITEM IN OFFERING CIRCULAR |
|
1. Ongoing product/ service purchases |
3.16 |
None |
Items 8 and 16 |
|
m. Maintenance, appearance and remodeling requirements |
3.9,3.10 |
None |
Item 8 |
|
n. Insurance |
3.14 |
None |
Items 7 and 8 |
|
o. Advertising |
3.6, 3.21 |
5.3 |
Items 6, 8 and 11 |
|
p. Indemnification |
11 |
10.2 |
Item 6 |
|
q. Owner's participation / management / staffing |
3.1,3.5 |
7.2,7.3 |
Item 15 |
|
r. Records / reports |
3.13 |
None |
None |
|
s. Inspection /audits |
9 |
None |
Items 6 and 11 |
|
t. Transfer |
12 |
8 |
Items 6 and 17 |
|
u. Renewal |
1.7 |
None |
Item 17 |
|
v. Post-termination obligations |
14 |
6.5, 9.3 |
Item 17 |
|
w. Non-competition covenants |
3.18, 14.7 |
9 |
Items 15 and 17 |
|
x. Dispute resolution |
15 |
11.2 |
Item 17 |
|
y. Taxes / permits |
3.12 |
None |
Iteml |
/
PACIUGO UFOC 033006 13
ITEM 10 FINANCING
We currently do not offer any direct or indirect financing. We do not guarantee any of your notes, leases or other obligations.
ITEM 11 FRANCHISORS OBLIGATIONS
Except as listed below, we need not provide any assistance to you. This Item describes the minimum assistance we are contractually obligated to provide to you. We may provide you with more assistance than listed below.
Pre-Opening Obligations
The Franchise Agreement obligates us to provide certain supervision, assistance, and services to you, but the Franchise Agreement generally does not specify whether these services must be provided before or after you open your Unit. It is our intention, however, to provide the following assistance and services before you open your Unit: (Section numbers refer to the Franchise Agreement.
(1) We will provide you with reasonable assistance and consultation regarding the location, placement and layout of the Unit at the Approved Location. (Section 4.1)
(2) We will provide you with a detailed checklist, referred to as the "Paciugo Turnkey," covering substantially all of the operating steps required to establish and open the Unit. (Section 4.2)
(3) We will make available standard plans and specifications for the construction and/or build out for your Unit. (Section 4.3)
(4) We will provide you with reasonable assistance and consultation regarding constructing, remodeling or decorating the Unit. (Section 4.3)
(5) We will offer an initial training program to your initial manager and each successor manager, unless your manager has at least 6 months' prior experience in the management and operation of one or more Units, and we elect not to provide this training. (Section 4.4)
(6) We will provide you with reasonable pre-opening assistance and consultation. (Section 4.6)
(7) We will provide, at your expense, promotional and advertising materials and consultation in connection with the opening of your Unit. (Section 4.6)
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(8) We will provide you with reasonable on-site assistance and supervision regarding the opening of your Unit, including 7 days of on-site assistance by 1 of our representatives in connection with your opening. (Section 4.6) Typically, our representative will be at your Unit for 2 days before the scheduled opening date, on the day of opening, and for 4 days after opening.
(9) We will provide you with our list of approved items and our list of approved suppliers. (Section 4.8)
(10) We will loan to you one copy of the Manual. (Section 4.12)
Continuing Obligations
During your operation of the Unit, we must provide the following assistance and services:
(1) We will provide you with reasonable assistance and consultation regarding operation of your Unit. (Section 4.9)
(2) We will provide you with any new proprietary methods and formulas relating to approved menu items or operation of the Unit. (Section 4.9)
(3) We will provide you with suggested retail prices for approved menu items. (Section 4.10)
(4) We will sponsor franchisee conferences if and when we desire. (Section 4.11)
(5) We will review samples of all marketing materials and other materials bearing our Marks you submit to us, and we will consider your requests for approval of these materials. (Section 7.3)
Development Agreement
The Development Agreement obligates us to provide the following assistance and services to you:
(1) We will enter into franchise agreements with you, if you satisfy certain conditions. (Section 3.3)
Site Selection *
The Franchise Agreement grants a franchise for a specific location which you have selected and we have approved. The factors we consider in approving sites may include location, size, suitability, layout, access and visibility of the proposed location, age and disposable income levels of prospective customers, location and nature of any
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competitors, population density, vehicle and pedestrian traffic levels, existing tenant mix, parking convenience, and other factors that may be relevant to your market. The same site selection criteria will generally be applicable to all System franchisees, although the criteria are different for stand-alone Units and kiosk Units. We will supply you with a typical Paciugo® store layout for your type of Unit, which will assist you in planning the layout of your Unit. (Section 4.1) The Franchise Agreement does not specify any deadlines in connection with the site selection and approval process, but it does require you to open a Unit and begin business within 6 months after you sign the Franchise Agreement. If you and we are not able to agree on a suitable site within this time period, we may terminate the Franchise Agreement.
The Development Agreement requires that all of your Units must be located within the development area described in the Development Agreement. (Section 1.1)
Opening
You must open a Unit and begin business within 6 months after you sign the Franchise Agreement. The typical time between signing the Franchise Agreement and opening the Unit is 4 to 6 months. Factors that affect this length of time include: negotiating the lease; completing leasehold improvements; obtaining necessary permits; completing our initial training program; and hiring and training a manager and employees. (Section 3.2)
Training Programs
Initial Training Program
Within 2 months after you sign the Franchise Agreement, you must designate to us in writing an individual to serve as the initial manager for the Franchised Business. Your manager must successfully complete our initial training program to our satisfaction before you open your Unit. The initial training program will be offered at a Unit operated by a franchisee or an affiliate, at our training facility in Dallas, Texas, at your Unit, or at some other location in the United States we select. Our initial training program will be offered periodically as needed, subject to scheduling, and will consist primarily of on-the-job training, plus about 60 hours of classroom training. Some of the training topics are covered in DVD format. Training materials include the Manual and a training DVD.
There is no training fee for the initial training program for your initial manager. We will provide training instructors and training materials. You will be responsible for all other expenses, including travel, transportation, meals, lodging, incidental expenses, and any wages incurred for your manager to attend this training.
Any manager you hire later also must satisfactorily complete the initial training program, if we determine in our sole opinion that this training is necessary. You may send additional trainees to the initial training we provide, on a space-available basis. For any training of additional trainees, including later-hired managers, you must pay our then-
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The original documents were scanned as an image. The original file can be downloaded at the link above.