UFOC
The original documents were scanned as an image. The original file can be downloaded at the link above.
Sample UFOC
PAF
Km
MERI
ICA
Number:
FRANCfflSE OFFERING CIRCULAR
REce\vED
PARTY AMERICA FRANCHISING, INC.
A Minnesota Corporation UJ^ \ 8 2W
980 Atlantic Avenue nrnorations
Suite 103 nPDartment ot oo-v
Alameda, California 94501 ' °GP Los Angles
Telephone: (510)747-1800
Fax: (510)747-1810
The franchisee will own and operate a Party America® Store from which the franchisee will sell specialty retail party supplies, related season merchandise, greeting cards, balloons and paper products.
The Initial Fee is $25,000. You also may purchase an initial supply and interior sign package from the franchisor or an affiliate, ranging in cost from $8,000 to $13,000. The estimated initial investment required ranges from $250,800 to $491,500, depending on square footage. If you sign an area development agreement, you pay a nonrefundable territory fee of $5,000 multiplied by the number of stores you agree to develop.
RISK FACTORS:
1. THE FRANCHISE AGREEMENT AND AREA DEVELOPMENT AGREEMENT PERMIT YOU TO SUE OR ARBITRATE WITH PARTY AMERICA FRANCHISING ONLY IN THE STATE OF CALIFORNIA. OUT OF STATE LITIGATION OR ARBITRATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO SUE OR ARBITRATE WITH PARTY AMERICA FRANCHISING IN CALIFORNIA THAN IN YOUR HOME STATE.
2. CERTAIN STATES REQUIRE US TO MAKE ADDITIONAL DISCLOSURES RELATED TO THE INFORMATION CONTAINED IN THIS OFFERING CIRCULAR. IF APPLICABLE, THESE ADDITIONAL DISCLOSURES WILL BE FURNISHED TO YOU IN THE ADDENDA INCLUDED AS EXHIBIT H TO THIS OFFERING CIRCULAR. PLEASE REFER TO THE ADDENDUM FOR YOUR STATE, IF ANY.
3. THE FRANCHISE AGREEMENT FOR A SINGLE STORE DOES NOT PROVIDE AN EXCLUSIVE TERRITORY FOR YOUR PARTY AMERICA STORE. PARTY AMERICA FRANCHISING AND OUR PARENT, PA ACQUISITION CORP., MAY ESTABLISH OTHER FRANCHISED OR COMPANY OWNED LOCATIONS AND OTHER CHANNELS OF DISTRIBUTION AND MAY SELL OR DISTRIBUTE ANY PRODUCT OR SERVICE TO THE GENERAL PUBLIC IN COMPETITION WITH YOUR PARTY AMERICA STORE.
4. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Information comparing franchisors is available. Call the state administrators listed in Exhibit G or your public library for sources of information.
Registration of this franchise by a state does not mean that the state recommends it or has verified the information in this offering circular. If you learn that anything in the offering circular is untrue, contact the Federal Trade Commission and the state authority listed in Exhibit G.
The Effective Date of this Offering Circular is listed on Exhibit G.
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PARTY AMERICA FRANCHISING, INC.
980 Atlantic Avenue, Suite 103 Alameda, California 94501 Telephone: (510)747-1800
INFORMATION FOR PROSPECTIVE FRANCHISEES REQUIRED BY FEDERAL TRADE COMMISSION
To protect you, we've required your franchisor to give you this information. We haven't checked it. and don't 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.
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NOTICE REQUIRED
BY
STATE OF MICHIGAN
THE STATE OF MICHIGAN PROHIBITS CERTAIN UNFAIR PROVISIONS THAT ARE SOMETIMES IN FRANCHISE DOCUMENTS. IF ANY OF THE FOLLOWING PROVISIONS ARE IN THESE FRANCHISE DOCUMENTS, THE PROVISIONS ARE VOID AND CANNOT BE ENFORCED AGAINST YOU.
Each of the following provisions is void and unenforceable if contained in any documents relating to a franchise:
(a) A prohibition on the right of a franchisee to join an association of franchisees.
(b) A requirement that a franchisee assent to a release, assignment, novation, waiver, or estoppel which deprives a franchisee of rights and protections provided in this act. This shall not Preclude a franchisee, after entering into a franchise agreement, from settling any and all claims.
(c) A provision that permits a franchisor, to terminate a franchise prior to the expiration of its term except for good cause. Good cause shall include the failure of the franchisee to comply with any lawful provision of the franchise agreement and to cure such failure after being given written notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure such failure.
(d) A provision that permits a franchisor to refuse to renew a franchise without fairly compensating the franchisee by repurchase or other means for the fair market value at the time of expiration of the. franchisee's inventory, supplies, equipment, fixtures, and furnishings. Personalized materials which have no value to the franchisor and inventory, supplies, equipment, fixtures, and furnishings not reasonably required in the conduct of the franchise business are not subject to compensation. This subsection applies only if: (i) the term of the franchise is less than 5 years and (ii) the franchisee is prohibited by the franchise or other agreement from continuing to conduct substantially the same business under another trademark, service mark, trade name, logotype, advertising, or other commercial symbol in the same area subsequent to the expiration of the franchise or the franchisee does not receive at least 6 months advance notice of franchisor's intent not to renew the franchise.
(e) A provision that permits the franchisor to refuse to renew a franchise on terms generally available to other franchisees of the same class or type under similar circumstances. This section does not require a renewal provision.
(f) A provision requiring that arbitration or litigation be conducted outside this state. This shall not preclude the franchisee from entering into an agreement, at the time of arbitration, to conduct arbitration at a location outside this state.
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(g) A provision which permits a franchisor to refuse to permit a transfer of ownership of a franchise, except for good cause. This subdivision does not prevent a franchisor from exercising a right of first refusal to purchase the franchise. Good cause shall include, but is not limited to:
(i) The failure of the proposed transferee to meet the franchisor's then-current reasonable qualifications or standards.
(ii) The fact that the proposed transferee is a competitor of the franchisor or subfranchisor.
(iii) The unwillingness of the proposed transferee to agree in writing to comply with all lawful obligations.
(iv) The failure of the franchisee or proposed transferee to pay any sums owing to the franchisor or to cure any default in the franchise agreement existing at the time of the proposed transfer.
(h) A provision that requires the franchisee to resell to the franchisor items that are not uniquely identified with the franchisor. This subdivision does not prohibit a provision that grants to a franchisor a right of first refusal to purchase the assets of a franchise on the same terms and conditions as a bona fide third party willing and able to purchase those assets, nor does this subdivision prohibit a provision that grants the franchisor the right to acquire the assets of a franchise for the market or appraised value of such assets if the franchisee has breached the lawful provisions of the franchise agreement and has failed to cure the breach in the manner provided in subdivision (c).
(i) A provision which permits the franchisor to directly or indirectly convey, assign, or otherwise transfer its obligations to fulfill contractual obligations to the franchisee unless provision has been made for providing the required contractual services.
The fact that there is a notice of this offering on file with the attorney general does not constitute approval, recommendation, or endorsement by the attorney general.
Any questions regarding this notice should be directed to the Department of Attorney General, State of Michigan, 670 Williams Building, Lansing, Michigan 48913, telephone (517) 373-7117.
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PARTY AMERICA FRANCHISING, INC. TABLE OF CONTENTS
Item
1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES....................................1
2 BUSINESS EXPERIENCE.................................................................................................3
3 LITIGATION.......................................................................................................................3
4 BANKRUPTCY..................................................................................................................4
5 INITIAL FRANCHISE FEE................................................................................................4
6 OTHER FEES......................................................................................................................5
7 INITIAL INVESTMENT.....................................................................................................9
8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES............................12
9 FRANCHISEE'S OBLIGATIONS....................................................................................13
10 FINANCING......................................................................................................................15
11 FRANCHISOR'S OBLIGATIONS...................................................................................15
12 TERRITORY.....................................................................................................................22
13 TRADEMARKS................................................................................................................24
14 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION............................25
15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF
THE FRANCHISED BUSINESS......................................................................................25
16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL.....................................26
17 RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION...............26
18 PUBLIC FIGURES............................................................................................................31
19 EARNINGS CLAIM..........................................................................................................31
20 LIST OF FRANCHISED OUTLETS................................................................................35
21 FINANCIAL STATEMENTS...........................................................................................37
22 CONTRACTS....................................................................................................................38
23 RECEIPT...........................................................................................................................38
EXHIBITS
A - List of Operational Franchise Stores
B - List of Terminated and Reacquired Franchises
C - PA Acquisition Corp. and Subsidiaries Consolidated Financial Statements
D - Franchise Agreement (including Schedules)
E - Area Development Agreement
F - Franchisee Personal Profile Form
G - List of State Agents/Effective Dates
H - State Specific Addenda
I - Receipt
Offering Circular #1582020 v2 _j _
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Iteml
THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
To simplify the language in this Offering Circular, "PAF" or "we" means Party America Franchising, Inc., the franchisor. "You" means the person who buys the franchise. If the franchisee is a corporation, partnership, or other entity, "you" may also refer to its owners.
PAF was incorporated as "Paper Warehouse Franchising, Inc." under the laws of the State of Minnesota on July 28, 1987. The name change to Party America Franchising, Inc. occurred on September 29, 2003. PAF's principal business address is 980 Atlantic Avenue, Suite 103, Alameda, California 94501; telephone: (510) 747-1800; website: www.partyamerica.com. PAF generally conducts business under the name "Party America." PAF's agents for service of process are disclosed in Exhibit G.
PAF's parent corporation is PA Acquisition Corp., a Delaware corporation ("PA Corp."). PA Corp. is also considered an affiliate of PAF. PA Corp.'s address is the same as PAF's address.
PA Corp. acquired PAF as part of an Asset Purchase Agreement with Paper Warehouse, Inc. ("PWI"), dated August 6, 2003. This acquisition was done through the bankruptcy proceedings of PWI, as further noted in Item 4. PWI had been located at 7630 Excelsior Boulevard, Minneapolis, Minnesota. PAF was previously located at that same Minneapolis address until PAF was acquired by PA Corp. PWI operated Paper Warehouse® Stores from August 1983 to August 2003. It did-not offer franchises in any line of business.
Franchise Offered
PAF franchises specialty retail party products stores (sometimes referred to as a "Store") under the terms of the Franchise Agreement in the form included in this Offering Circular as Exhibit D (the "Franchise Agreement"). A Store is a specialty retail store selling party supplies, related seasonal merchandise, greeting cards, balloons and paper products for home, office and commercial use using the trademark and trade name PARTY AMERICA®. The typical square footage for a Store ranges from 8,000 to 10,000 square feet.
The customers for the products sold at your Store include all consumers of party and paper products and greeting cards. The market is developing as consumers increasingly demand disposable products. Business tends to be seasonal with increased sales activity during certain holiday seasons (Halloween, Christmas, Graduation and Weddings).
PAF has developed a marketing system that creates, in the minds of customers, a certain image that our franchised Stores offer a wide assortment of party and paper products at a competitive price. PAF also has developed a business strategy for attracting and retaining customers, and an operations system designed to maintain high quality standards in services offered at the Stores. PAF has developed all of these as part of the business system (the "Business System"), which you will receive the right to use. PAF uses and licenses certain service marks and trademarks, logos, trade dress and other commercial symbols, including the service mark Party America (the "Trademark"). PAF may, in the future, modify or enhance the
PAF RECEIPT # i 582020 V2
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Trademark as well as add new trademarks, service marks, logos, trade dress and other commercial symbols.
The purchase of a PARTY America franchise permits you: (i) to use PAF's recognized Trademarks; (ii) to obtain access to the distinctive operational and management attributes of the Business System, including a confidential manual describing guidelines for the operation of a Store (the "Operations Manual"); (iii) to take advantage of the combined purchasing power of all Stores to obtain supplies and inventory at a competitive price; and (iv) to receive the benefits of association with a franchise system, including various forms of opening and operational assistance from PAF (see Item 11). You must comply with all of PAF's requirements described in the Franchise Agreement.
You must comply with all laws, rules and regulations governing the operation of the Store, and obtain all permits and licenses necessary to operate the Store. In addition to laws and regulations that apply to businesses generally, your Store may be subject to various federal, state and local government regulations relating to site location and zoning.
If qualified, you may enter into an Area Development Agreement for the development of a prescribed number of Party America Stores in a designated geographic area called the "Territory." Under this arrangement, you must develop a specified number of Party America Stores in the Territory within a given period of time, depending upon the population of the area and its market potential. You must sign a separate Franchise Agreement for each Store you open under the Area Development Agreement.
Competition
There are a growing number of direct competitors in this business. You will likely compete with other regional and national party retail stores. You will also compete with grocery stores, drug stores, discount stores, gift shops and greeting card shops. In addition, PA Corp. may acquire an existing business or franchise system. The stores in the existing business or franchise system may compete with you. As described below, PA Corp. also sells products through its partyamerica.com web site.
Franchisor's Predecessors and Affiliates
As of January 31, 2004, PA Corp. operated 37 Stores under the Party America trademark and 26 Stores under the Paper Warehouse trademark. Most or all of these 26 Stores will be converted to Party America Stores over the next 12 months. PA Corp. also offers supplies and services to you for your Store (see Items 8 and 11). PA Corp. has never offered franchises for Stores under any trademark and has not offered franchises in any other line of business.
PA Corp. owns www.partyamerica.com, a web site that provides visitors with party planning ideas, costumes, personalized invitations and other party supplies and merchandise. Visitors also are able to purchase party and paper products from PA Corp. by placing orders through the web site. Partyamerica.com also includes a locator map that allows visitors to obtain a listing of Party America Stores within each state and directions to each store.
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Franchise Activities
PAF's sole business is the administration of its franchise system. PAF does not directly operate any Party America Stores. As noted above, prior to its name change on September 29, 2003, PAF operated under the name Paper Warehouse Franchising, Inc. It offered franchises under the Paper Warehouse trademark since October 1987 and the Party Universe trademark since 1995. As of October 2003, PAF only offers franchises under the Party America trademark. PAF has not offered franchises in any other line of business.
Item 2 BUSINESS EXPERIENCE
Marty Allen - Chief Executive Officer, President and Director
Marty has been PAF's CEO and President and a PAF Director since August 2003. He also is the CEO and President of PA Corp. and has been since 1996. Prior to that, he was President of California Closets, based in California, from January 1991 to August 1995.
Matthew Kahn - Director
Matthew has been a PAF Director since August 2003. He has been President of GB Palladin Capital, based in Boston, Massachusetts, since January 1998. Previously, he ran GB Asset Advisors, also based in Boston, Massachusetts, from August 1995 to December 1997. Matthew also is a Certified Public Accountant.
Claude Hagopian - Director of Franchise Development
Claude has been PAF's Director of Franchise Development since September 2003. He worked in Business Development for UPS, based in Oakland, California, from February 2002 to September 2003. From November 2000 to July 2001, he was the Business Development Manager for Aztec Software, based in Santa Clara, California. Prior to that, he worked in Channel Sales and Partner Alliances for Managemark, based in Sunnyvale, California, from August 1999 to October 2000. From January 1997 to August 1999, he worked in North American Sales for Avant! Corporation based in Fremont, California.
Item 3 LITIGATION
No litigation is required to be disclosed in this Offering Circular.
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Item 4
BANKRUPTCY
Paper Warehouse, Inc. filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code on June 2, 2003. (In re Paper Warehouse, Inc., Case No. 03-44030, U.S. Bankruptcy Court, District of Minnesota.) At the time it filed its Chapter 11 case, Paper Warehouse, Inc. was the sole shareholder of PAF (then known as Paper Warehouse Franchising, Inc.). PA Corp. acquired all of the outstanding shares of stock in PAF from Paper Warehouse, Inc. pursuant to an asset purchase agreement that was approved by the U.S. Bankruptcy Court on August 7, 2003. PAF did not file a case under the U.S. Bankruptcy Code. Other than the Paper Warehouse, Inc. Chapter 11 case, no person previously identified in Items 1 or 2 of this Offering Circular has been involved as a debtor in a case under the U.S. Bankruptcy Code required to be disclosed in this Item.
Item 5 INITIAL FRANCHISE FEE
Initial Fee. You must pay to PAF an "Initial Fee." The total amount of your Initial Fee will depend on whether you are opening your first or a subsequent Party America Store. The amount of the Initial Fee for your Store is currently as follows:
Store Number |
Initial Fee |
Your First Store |
$25,000 |
Your Second Store |
$20,000 |
Your Third Store or Subsequent Store |
$10,000 |
You must pay $5,000 of the Initial Fee when you sign the Franchise Agreement. If you cannot secure a suitable location or obtain the necessary financing within 6 months after you sign the Franchise Agreement, PAF will refund to you the $5,000 less PAF's out-of-pocket expenses related to site location and evaluation, loan portfolio development, market research, selling costs and similar services. In addition to these out-of-pocket expenses, PAF will deduct fees (at $75 per hour) from the $5,000 for providing these services to you. The amount PAF will deduct from the $5,000 for out-of-pocket expenses and other fees generally ranges from $1,000 to $3,000. After this 6-month period expires, the $5,000 is nonrefundable. You must pay the balance of the Initial Fee in full when you sign a lease for your Store or otherwise secure a suitable location.
If PAF terminates the Franchise Agreement before you open your Store (because you failed to successfully complete the training program or provided false or incomplete information to PAF), PAF will refund the Initial Fee less $2,000 as well as all expenses PAF incurred in
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processing your application, training, travel expenses, long distance telephone calls, attorneys' fees, accountants' fees and other related costs. The Initial Fee is not otherwise refundable. The amount PAF will deduct from the Initial Fee for expenses may range from $0 to $3,000.
Supplies and Interior Signs. You likely will purchase an initial supply and interior sign package from PA Corp., although you are not required to do so. This supply and signs package currently costs $8,000 - $13,000. This amount is nonrefundable.
Territory Fee. If you are an Area Developer, you must pay PAF a nonrefundable Territory Fee equal to $5,000 multiplied by the number of Party America Stores you will develop in the Territory PAF grants to you. You must pay the Territory Fee when you sign the Area Development Agreement. The Territory Fee is nonrefundable and is not credited toward the amount of the Initial Fee you will pay for each Store. PAF and you will determine the number of Stores you will develop in the Territory before you sign the Area Development Agreement. If you do not already own and operate at least one Party America Store before signing the Area Development Agreement, you must also sign a Franchise Agreement for your first Party America Store when you sign the Area Development Agreement. You must sign a separate Franchise Agreement for each additional Party America Store you open. In addition to the Territory Fee, you will pay an Initial Fee for each Store when you sign a Franchise Agreement for that Store as set forth in the chart under the Initial Fee section above.
Item 6
OTHER FEES
Name of Fee |
Amount (See Note 1) |
Due Date |
Remarks |
Continuing Fee |
4% of Gross Sales up to $2,000,000 and 2% for Gross Sales over $2,000,000 for each Store in a twelve-month period (February through January) |
On or before the seventh business day of each month for the previous month |
See Note 2 |
Local Advertising Expenses |
Minimum annual amount, when combined with cooperative advertising expenses, is 4% of your Gross Sales or $30,000, whichever is greater |
Minimum amount must be spent during each calendar year |
See Note 3 |
Cooperative Advertising Fee |
Amount your coop agrees to contribute |
Established by franchisees in your area |
See Note 4 |
Offering Circular tt 1582020 v2
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Name of Fee |
Amount (See Note 1) |
Due Date |
Remarks |
Yellow Page Advertising |
Will vary depending on area and type of listing |
When incurred |
Must be placed in the primary yellow page directory serving your area |
Transfer Fee for Franchise Agreement |
10% of then-current Initial Fee |
Before completion of transfer |
You pay the transfer fee when you transfer the Franchise Agreement or substantial portion of the assets of the Store or any controlling interest |
Transfer Fee for Area Development Agreement |
$5,000 |
Before completion of transfer |
You pay the transfer fee when you transfer the Development Agreement or any controlling interest |
Audit Expenses |
$500-$1,500 |
After inspection or audit |
You pay audit expenses only if under-statement is greater than 2% |
Renewal Fee |
10% of then-current Initial Fee |
Before you renew the Franchise Agreement |
|
Remodeling Expenses |
Will vary under circumstances |
Before you renew the Franchise Agreement |
See Note 5 |
Insurance |
Will vary under certain circumstances |
When PAF requests reimbursement |
You pay to PAF if you do not pay insurance premium and PAF pays it for you |
Interest Expenses |
Lesser of 15% per year or maximum rate permitted by law |
When due |
You pay if Continuing Fee, Advertising Fees or other amounts due PAF are not timely paid |
Costs and Attorneys* Fees |
Will vary under circumstances |
When incurred |
PAF may recover costs and reasonable attorneys fees if you lose in a dispute with PAF |
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Name of Fee |
Amount (See Note 1) |
Due Date |
Remarks |
Relocation/Expansion Fee |
$1,500 |
When incurred |
You pay this fee to PAF if you relocate or expand your Store |
New Store Manager Training Fee |
Currently $1,000 |
Before training |
You pay this fee if you hire a new Store Manager after the opening of your Store |
Store Set-Up Fee (due under Area Development Agreement only) |
First three stores are free of charge. Additional Stores: currently $1,000 plus expenses See Note 6 |
When optional service requested |
This is an optional service provided by PAF under the Area Development Agreement |
Store Manager Training Fee (due under Area Development Agreement only) |
Currently $ 1,000 for each Store Manager after the first three See Note 7 |
Before training |
If you develop your own program to train Store Managers, then you will not incur this fee |
Notes:
(1) Except where otherwise noted, all fees are payable to PAF and are nonrefundable.
(2) "Gross Sales" means the gross revenue you receive from the sale of goods and services at or through the Store, less sales taxes, customer refunds and promotional discounts. You will begin paying Continuing Fees of 4% of Gross Sales to PAF when your Store opens. Subsequently, for purposes of calculating Gross Sales, the "twelve-month period" will begin each February and will run through the following January. If you reach $2,000,000 in Gross Sales within the twelve-month period, you will pay 2% of Gross Sales over $2,000,000 for the remainder of the twelve-month period. Beginning each February, you will resume paying Continuing Fees of 4% of Gross Sales until and unless you reach $2,000,000 in Gross Sales within the twelve-month period.
(3) To the extent your annual expenditures for advertising are less than 4% of your Store's Gross Sales or $30,000 (whichever amount is greater), you must conduct additional advertising and promotional activities in your local geographic area. The amount you spend on advertising may depend on the size of your market in terms of households and flyer distribution. If you choose to distribute the maximum number of flyers offered during the year, with an insertion of an average of 30,000 flyers per time, your advertising expenditure can be as high as $38,000 per year. Therefore, you should expect that your
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advertising expenditure will be somewhere between $30,000 and $45,000 per year. Your local advertising activities, however, will not eliminate your obligations to contribute to cooperative advertising programs. If you do not spend at least 4% of Store Gross Sales or $30,000, whichever is greater, for the calendar year for cooperative or local advertising, you must pay to PAF the difference between what you should have spent for advertising during the calendar year and what you actually spent. PAF may, on 60 days' notice, require that you pay a separate "Advertising Fee" equal to 1% of your Store Gross Sales. If PAF imposes this requirement, the Advertising Fee will be deposited in an "Advertising Fund" which PAF will manage (see Item 11). Any amounts you pay in the future for Advertising Fees will not count towards your minimum required local advertising expenses.
(4) PAF may establish a regional advertising cooperative in your area. The advertising cooperative in your regional market will establish the amount of Cooperative Advertising Fees; however, PAF will establish the cooperative's bylaws and other rules that will govern the cooperative. Each company-owned (or affiliate-owned) Store (63 total) will have voting power equal to that of each franchised Store. Stores owned by PA Corp. currently have controlling voting power in the Kansas City, Oklahoma City, Tucson and Tulsa marketing areas.
(5) You must modernize your Store as a condition to renewing your Franchise Agreement. The modernization must conform to the standards that PAF requires at that time for similarly situated new Stores. The scope of modernization may range from simply repainting the Store to completely refurbishing the entire Store, including remodeling, redecorating and replacing fixtures, signs, supplies and equipment. PAF cannot estimate the current costs for a modernization project because PAF has no history on which to base an estimate of these costs. You may make these payments in whole or in part to third parties. Before you modernize your Store, you must submit your modernization plans to PAF for our approval.
(6) If you are an Area Developer, PAF will provide Store set-up services to you for the first three Party America Stores opened in the Territory free of charge. If you open any additional Stores in the Territory, you may request Store set-up services from PAF. If you request Store set-up services, you must pay PAF the then-current Store set-up fees PAF charges.
(7) If you are an Area Developer, PAF will provide training free of charge for your Senior Executive, Supervisors and first three Store Managers. After your first three Store Managers successfully complete training, you may develop a training program, certified by PAF, for training of all your additional Store Managers. If you do not develop a Manager training program, PAF will provide training to your new Store Managers for $1,000 each.
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Item 7
INITIAL INVESTMENT
EXPENDITURES |
ESTIMATED AMOUNT OR ESTIMATED LOW-HIGH RANGE (See Note 1) |
METHOD OF PAYMENT |
WHEN PAYABLE |
TO WHOM PAYMENT IS TO BE MADE |
INITIAL FEE |
$25,000 (See Note 2) |
2 installments |
$5,000 when you sign the Franchise Agreement, balance due when you sign a lease for your Store or secure a site |
PAF |
REAL ESTATE AND LEASEHOLD IMPROVEMENTS |
$0 to $45,000 (See Note 3) |
As incurred |
Before opening |
Third-party contractors and architects |
EQUIPMENT AND FIXTURES |
$29,000 to $86,000 (See Note 4) |
Lump sum |
Before opening |
Third-party suppliers and PA Corp. |
SIGNS |
$8,000 to $13,000 (See Note 5) |
Lumpsum |
At Store opening |
Third-party suppliers |
COMPUTER HARDWARE/ SOFTWARE SYSTEM |
$15,000 to $25,000 (See Note 6) |
Lump sum or can be leased |
At or before Store opening |
Third-party suppliers |
DEPOSITS AND BUSINESS LICENSES |
$3,800 to $12,500 (See Note 7) |
Lump sum |
Before opening |
Landlord, utility companies and government agencies |
GRAND OPENING PROMOTION |
$5,000 (See Note 8) |
As incurred |
Before and at opening |
Third-party suppliers |
OPENING INVENTORY |
$125,000 to $200,000 (See Note 9) |
Varies-vendor will determine |
Before opening |
Third-party suppliers), and PA Corp. |
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EXPENDITURES |
ESTIMATED AMOUNT OR ESTIMATED LOW-HIGH RANGE (See Note 1) |
METHOD OF PAYMENT |
WHEN PAYABLE |
TO WHOM PAYMENT IS TO BE MADE |
ADDITIONAL FUNDS-3 MONTHS |
$40,000 to $80,000 (See Note 10) |
Varies-vendor will determine |
Before opening and as incurred |
PAF, employees, third-party suppliers |
TOTAL (See Note 11) |
$250,800 to $491,500 |
Notes:
(1) Except where otherwise noted, all fees that you pay to PAF are nonrefundable. Third-party lessors, contractors, and suppliers will decide if payments to them are refundable.
(2) The Initial Fee for additional Stores is stated in the "Initial Fee" chart in Item 5. See Item 5 for the conditions when this fee is partially refundable.
(3) You will need to lease the premises for your Store. The low end of the estimate in the table will apply if the cost of the leasehold improvement is included in your monthly rent. Typical locations for your Store are retail power centers and smaller freestanding locations. The amount of space that you will need for your Store will vary depending on the layout of the premises and other factors. The approximate size, however, varies from 4,500 square feet to 10,000 square fee. Although most franchisees do not directly pay for leasehold improvements (the cost of improvements are often figured in the base rent cost), you may need to make certain leasehold improvements to the lease premises for your Store to comply with PAF's approved plans and specifications. PAF estimates that the monthly gross rent for your Store premises will range from $10,000 to $20,000 or more. If you do directly pay for leasehold improvements, the maximum estimated cost of leasehold improvements includes flooring, lighting, electrical, plumbing, painting, doors, windows, sprinkler system and HVAC. The exact cost will depend on several factors, including the size and condition of the premises, whether you elect to do more than the minimum required renovations, the landlord's agreement to reimburse you for certain improvements and other economic factors.
(4) Your investment in equipment and fixtures necessary to operate the Store is highly variable. Your exact investment depends on several factors, including the size and location of the proposed Store, local labor costs, current prices charged by suppliers, discretionary expenditures, inflation, financing costs and similar factors beyond PAF's or your control. The cost will increase as the number of square feet increases.
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(5) This item is for indoor and outdoor signs for the Store. The signs must meet PAF's standards and specifications and comply with any local government regulations.
(6) PAF requires that you use a computerized point-of-sale system (the POS System) in your Store, including hardware and certain software, which meets established computer industry standards and meets PAF's operating specifications. (See Item 11.)
(7) This amount includes utility deposits, your security deposits for the lease (which likely will equal one month's rent) and business licenses. Deposits are generally refundable, but license fees are not.
(8) You must obtain PAF's approval before conducting your grand opening promotion and advertising. If you open your Store during a scheduled system-wide promotion, you must participate in the promotion but do not otherwise need to comply with the minimum promotion requirement. Amounts you spend for grand opening promotion and advertising do not count toward your minimum required local advertising expenses. (See Item 6).
(9) You must purchase the initial product inventory PAF recommends to commence Store operations. The maximum amount reflects the larger amount of initial product inventory you will need should you open your Store during any period before certain holidays (Halloween, Christmas and Graduation). The estimated low amount of the range does not include the additional $15,000 necessary if you choose to include greeting cards in your product inventory. The estimated amount does not reflect amounts needed to replenish inventory during the initial stage of operation.
(10) This amount estimates your initial pre-opening expenses not otherwise mentioned in the Table and expenses you will incur during the first 3 months of Store operations, including lodging, meals and travel expense for you and, if applicable, your Store Manager to attend the initial training program, initial wages and fringe benefits, rent, insurance premiums, advertising, taxes, office, paper and cleaning supplies, and telephone hook-up. It does not include inventory costs beyond the opening inventory costs identified in the Table. The amounts are estimates, and PAF cannot guarantee that you will not incur additional expenses in starting the business. Your costs will depend on factors such as how closely you follow PAF's systems and procedures, your management skills and experience, local economic conditions, the local market for Party America Stores, the prevailing wage rate, competition and the sales level reached during the initial period.
(11) This total is an estimate of your initial investment and is based on PAF's estimate of average costs and prevailing market conditions, the experience of Stores PA Corp. owns, and PAF's 17 years of experience in the business. You should review this amount carefully with a business advisor before making any decision to purchase the franchise. These figures are estimates only and PAF cannot guarantee that you will not have additional expenses starting your Party America business.
If you are an Area Developer, you will pay a Territory Fee equal to $5,000 times the number of Party America Stores you will open, and the Initial Fees you pay PAF will be in the
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amounts described in Item 5. The balance of your initial investment requirements for your first Store is described in the above table. As described in Item 5, you will incur additional Initial Fees for each Franchised Location, together with other additional costs and expenses during the term of the Area Development Agreement to open the remaining number of Party America Stores you must develop. Those additional costs of development may increase over the term of the Area Development Agreement, based on inflation and other economic factors.
Item 8
RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES
To insure a uniform image and quality of products and services throughout the Party America system, you must maintain PAF's quality standards. Although you are not required to lease real estate from PAF, PAF must consent to the location of your Store (see Item 11). You must comply with PAF's then-current approved specifications and standards in constructing and equipping your Store. In addition to meeting PAF's design specifications and standards, it is your responsibility to insure that your building plans comply with the Americans With Disabilities Act and all other federal, state and local laws. You also must use equipment (including hardware and software for a point-of-sale system), signage, fixtures, furnishings, products, supplies and advertising materials that meet our specifications and standards, which PAF may modify.
PAF requires that you sell or use in your Store only those products and services that PAF approves. Approved products and services must meet specifications and standards that PAF develops. PAF will provide you a list identifying the approved products and services, including the merchandise assortment for resale to customers ("Approved Merchandise List"). PAF may periodically update and alter the Approved Merchandise List and modify the specifications and standards. PAF also provides you with a list of approved vendors, suppliers and distributors ("Approved Suppliers List"). From time to time PAF, an affiliate or a third party vendor or supplier may be the only approved supplier for certain merchandise and other products. PAF will publish the Approved Merchandise List and Approved Suppliers List in a book provided to you ("Vendor Book").
You must obtain our prior written approval prior to purchasing merchandise that is not listed on the Approved Merchandise List. You also must obtain our prior written approval prior to purchasing items from a vendor not listed on the Approved Suppliers List. Generally, PAF's approval or non-approval of merchandise or vendors is issued within 7 business days after receiving the request. Although it currently does not do so, PAF reserves the right to charge you a fee to evaluate an item or vendor that is outside the Approved Merchandise List or Approved Suppliers List.
PAF's affiliate, PA Corp. is an "approved" supplier for certain products used in your Store. The products include advertising and sales promotion materials, supplies, certain product inventory such as Halloween costumes and other seasonal items, and other classes of products and supplies that you may use in operating your Store. In addition, PA Corp. has negotiated programs for the merchandise assortment, including price terms, with a number of manufacturers
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and suppliers so that franchisees can benefit from volume purchasing. To the extent PA Corp. purchases inventory from manufacturers or suppliers under a volume purchasing program for the assortment, PA Corp. may collect an administrative fee of these purchases you make. This administrative fee is intended to offset PA Corp.'s administrative expenses related to these volume purchasing programs. PA Corp. otherwise will pass on to you all supplier discounts for the assortment. Neither PAF nor PA Corp. is the only approved supplier of any goods, services, supplies, fixtures, equipment, inventory or real estate you need to establish and operate your Store. Since PA Corp. just recently acquired PAF, PA Corp. has not derived any revenue from the sale of products and supplies to franchisees.
PAF and PA Corp. reserve the right to receive rebates or other consideration from suppliers in connection with the System-wide purchase of goods, products and services as described in this Item 8. Some of these payments are calculated on an amount based on products sold to Stores in the System and some are paid in a lump sum. PAF will retain and use such payments for advertising production, signage and promotional material, or otherwise as PAF deems appropriate or as required by the vendor. For its fiscal year ended January 31, 2004, PA Corp. received revenues of approximately $783,237 from approved vendors supplying to company owned stores, which equaled approximately 1.3% of its total sales of $59,148,633.
You must purchase and maintain, at your expense, comprehensive public and product liability insurance with minimum limits of $1,000,000 per person and $1,000,000 per occurrence, "All Risk" insurance on stock, equipment and leasehold improvements of at least 90% of replacement costs, business interruption insurance, and other types of insurance that PAF may periodically designate. All insurance policies must expressly protect both you, PAF and PA Corp. and require the insurer to defend you, PAF and PA Corp. in any action.
PAF negotiates prices for numerous products for the benefit of the System but not on behalf of individual franchisees. PAF is not currently aware of any purchasing or distribution cooperatives in the System that offer to you certain products used in your Store. PAF will try to receive volume discounts for the System. PAF does not provide material benefits to you because of your use of approved suppliers.
PAF estimates that the purchase or lease of equipment, signs, fixtures, furnishings, products, supplies, and advertising and sales promotion materials (see Item 11 for information on advertising and sales promotion materials) that meet PAF's specifications and standards will represent approximately 65% to 90% of the cost to establish your Store and 55% to 75% of the cost to operate your Store.
Item 9
FRANCHISEE'S OBLIGATIONS
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AGREEMENT AND THE AREA DEVELOPMENT AGREEMENT. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.
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Obligation |
Section in Agreement |
Item in Offering Circular |
|
a. |
Site selection and acquisition/lease |
Sections 7(A) and 8(0) of Franchise Agreement |
Item 11 |
b. |
Pre-opening purchases/lease |
Sections 6(D) and 8(E) and (0) of Franchise Agreement |
Items 5, 7, and 8 |
c. |
Site development and other pre-opening requirements |
Section 8(B) of Franchise Agreement |
Items 5, 7, and 11 |
d. |
Initial and ongoing training |
Sections 7(D) and 8(P) of Franchise Agreement |
Items 7 and 11 |
e. |
Opening |
Section 6(D) of Franchise Agreement |
Items 5 and 11 |
f. |
Fees |
Sections 1(B), 2(B)(5), 4, 5, 6 and 14(D) of Franchise Agreement and Sections 3 and 4.8 of Area Development Agreement |
Items 5, 6 and 7 |
g- |
Compliance with standards and policies/Operating Manual |
Sections 8(D), (J) and (N) of Franchise Agreement and Section 5 of Area Development Agreement |
Items 11 and 16 |
h. |
Trademarks and proprietary information |
Sections 3 and 9 of Franchise Agreement and Section 5 of Area Development Agreement |
Items 13 and 14 |
i. |
Restrictions on products/services offered |
Sections 1 and 8(E) of Franchise Agreement |
Items 8, 11 and 16 |
j- |
Warranty and customer service requirements |
None |
None |
k. |
Territorial development and sales quotas |
Section 3 of Area Development Agreement |
Item 12 |
1. |
Ongoing product/service purchases |
Section 8(E) of Franchise Agreement |
Items 8 and 11 |
m. |
Maintenance, appearance and remodeling requirements |
Sections 2(B)(4) and 8(B) and (F) of Franchise Agreement |
Item 11 |
n. |
Insurance |
Section 10 of Franchise Agreement |
Items 6 and 8 |
0. |
Advertising |
Section 6 of Franchise Agreement and Sections 4.5 and 4.6 of Area Development Agreement |
Items 6, 7 and 11 |
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Obligation |
Section in Agreement |
Item in Offering Circular |
|
P- |
Indemnification |
Section 11(B) of Franchise Agreement and Section 9.2 of Area Development Agreement |
None |
q- |
Owner's participation/ management/staffing |
Sections 7(D) and 8(A) and (K) of Franchise Agreement and Section 4.2 of Area Development Agreement |
Items 11 and 15 |
r. |
Records/reports |
Sections 12(A) and (B) of Franchise Agreement |
Item 6 |
s. |
Inspections/audits |
Section 12(C) of Franchise Agreement |
Item 6 |
t. |
Transfer |
Sections 13 and 14 of Franchise Agreement and Section 10 of Area Development Agreement |
Items 6 and 17 |
u. |
Renewal |
Section 2(B) of Franchise Agreement and Section 2 of Area Development Agreement |
Items 6 and 17 |
v. |
Post-termination obligations |
Section 17 of Franchise Agreement and Section 7 of Area Development Agreement |
Item 17 |
w. |
Non-competition covenants |
Section 18 of Franchise Agreement and Section 8 of Area Development Agreement |
Item 17 |
X. |
Dispute resolution |
Section 19 of Franchise Agreement and Section 11 of Area Development Agreement |
Item 17 |
Item 10
FINANCING
PAF does not offer direct or indirect financing. PAF does not guarantee your note, lease or obligation.
Item 11 FRANCHISOR'S OBLIGATIONS
Except as listed below, PAF need not provide any assistance to you under the Franchise
Agreement or Area Development Agreement.
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The original documents were scanned as an image. The original file can be downloaded at the link above.