UFOC
The original documents were scanned as an image. The original file can be downloaded at the link above.
Sample UFOC
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RELAX THE BACK franchise offering circular
Relax The Back Corporation
a Delaware corporation
17785 Center Court Drive, Suite 250
Cerritos, CA 90703
(800) 290-2225
The Franchisee will operate a retail store featuring back-related equipment, furniture and products the Franchisor approves under the trade name "Relax The Back". We also offer Area Development Agreement on a limited basis.
The initial franchise fee is $2§30,000. Under current policy, which may change, additional franchises have an initial franchise fee of $+§20,000. The initial franchise fee is due at the time you sign your Franchise Agreement. The estimated initial investment required ranges from $213,700 to $333,000192,200 to $320,500.
| For Area Developers, there is a development fee of $§70007,500 for each location to be opened, due at the time you sign your Area Development Agreement, along with an initial franchise fee of $25,000 for your first Store. For each subsequent Store opened under the Area Development Agreement an initial
| franchise fee of $4520,000 (less the $&t0007,500 per location paid through the Development Fee) is due at the time the Franchise Agreement is signed.
Risk Factors:
| THE FRANCHISE AGREEMENT AND THE AREA DEVELOPMENT AGREEMENT PERMITS THE FRANCHISEE TO ARBITRATE OR LITIGATE WITH US ONLY IN CALIFORNIA. OUT OF STATE OR AREA ARBITRATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO ARBITRATE WITH US IN THE LOCATION WE SELECT THAN IN YOUR HOME STATE.
THE FRANCHISE AGREEMENT AND AREA DEVELOPMENT AGREEMENT STATE THAT DELAWARE LAW GOVERNS THESE AGREEMENTS, AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS.
THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Information about comparisons of franchisors is available. Call the state administrators listed in Exhibit E 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 E.
Effective Date of this Offering Circular is__________, 2004, unless otherwise noted on an
addendum for your state included in Exhibit H of this Offering Circular. Effoctivo Pato: Soo
Addendum for your stoto in Exhibit H
| Relax The Back Corporation UFOC 9/16/03 2004
DISCLOSURES REQUIRED BY MICHIGAN LAW
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.
(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 the 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.
(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.
Relax The Back Corporation UFOC 9/16/03 2004
(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.
Michigan law provides that a franchisor whose most recent statements are unaudited and which show a net worth of less than $100,000 shall, at the request of a franchisee, arrange for the escrow of initial investment and other funds paid by the franchisee or subfranchisor until the obligations to provide real estate, improvements, equipment, inventory, training, or other items included in the franchise offering are fulfilled. At the option of the franchisor, a surety bond may be provided in place of escrow. In the event that an escrow is so established, the escrow agent shall be a financial institution authorized to do business in the State of Michigan. The escrow agent may release to the franchisor those amounts of the escrowed funds applicable to a specific franchisee or subfranchisor upon presentation of an affidavit executed by the franchisee and an affidavit executed by the franchisor stating that the franchisor has fulfilled its obligation to provide real estate, improvements, equipment, inventory, training, or other items. This portion of the Michigan law does not prohibit a partial release of escrowed funds upon receipt of affidavits of partial fulfillment of the franchisor's obligation.
SHOULD THE PROSPECTIVE FRANCHISEE HAVE ANY QUESTIONS REGARDING THE NOTICE OF THIS FILING WITH THE ATTORNEY GENERAL, SUCH QUESTIONS SHOULD BE ADDRESSED TO:
ADMINISTRATOR
CONSUMER PROTECTION DIVISION
ANTITRUST AND FRANCHISE UNIT
MICHIGAN DEPARTMENT OF THE ATTORNEY GENERAL
P.O. BOX 30213
LANSING, MICHIGAN 48909
(517) 373-7117
Relax The Back Corporation UFOC 9/16/03 2004
TABLE OF CONTENTS
ITEM PAGE
1. THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES 1
2. BUSINESS EXPERIENCE 3
3. LITIGATION 5
4. BANKRUPTCY 6
5. INITIAL FRANCHISE FEE 7
6. OTHER FEES 8
7. INITIAL INVESTMENT 11
8. RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES 14
9. FRANCHISEE'S OBLIGATIONS 16
10. FINANCING 17
11. FRANCHISOR'S OBLIGATIONS 17
12. TERRITORY 27
13. TRADEMARKS 31
14. PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION 32
15. OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION
OF THE FRANCHISE BUSINESS 34
16. RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL 34
17. RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION 35
18. PUBLIC FIGURES 40
19. EARNINGS CLAIMS 40
20. LIST OF OUTLETS 42
21. FINANCIAL STATEMENTS 45
22. CONTRACTS 45
23. RECEIPT 45
Relax The Back Corporation UFOC 9/16/03 2004
EXHIBITS
A. FRANCHISE AGREEMENT AND EXHIBITS
B. FINANCIAL STATEMENTS
C. LIST OF CURRENT FRANCHISEES AND DEVELOPERS
D. LIST OF FORMER FRANCHISEES AND DEVELOPERS
E. STATE ADMINISTRATORS AND AGENTS FOR SERVICE OF PROCESS
F. AREA DEVELOPMENT AGREEMENT
G. OPERATIONS MANUAL TABLE OF CONTENTS H. STATE ADDENDA
I. LIST OF FRANCHISE BROKERS
J. EARNINGS CLAIM
4K. STATEMENT OF PROSPECTIVE FRANCHISEE
KL. RECEIPT
Relax The Back Corporation UFOC 9/16/03 2004
ITEM 1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
This Offering Circular sets forth the terms and conditions on which we currently offer franchises in this state. The descriptions of various documents are required to be brief and are for general informational purposes only. The actual documents will control in any case, and you should refer to the Franchise Agreement and other exhibits for more complete information. You are urged to carefully review this Offering Circular and all documents with independent advisors who can provide legal, business and/or economic guidance. This recommendation applies to persons acquiring a new franchise, as well as to those involved in a renewal, replacement or transfer of an existing Franchise Agreement and who may want to compare prior agreements.
The Franchisor
The Franchisor is Relax The Back Corporation (formerly known as "RTB Acquisition Corporation"). To simplify the language in this Offering Circular, Relax The Back Corporation will be referred to as "we," "us," "RTB" or "RTBC". We will refer to the person who buys the franchise as "you" throughout the Offering Circular, as well as to your owners, if you are a corporation, partnership or other entity.
We were formed in Delaware on November 17, 2000, for the purpose of acquiring and operating the Relax The Back® franchise system. Our principal business address is 17785 Center Court Drive, Suite 250, Cerritos, CA 90703. The original Relax The Back Corporation, our predecessor company, sold substantially all its assets to us on May 31, 2001. We will refer to this previous Relax The Back Corporation as "our Predecessor" throughout this Offering Circular. Our Predecessor's principal business address was 10350 Heritage Park Drive, Suite 202, Santa Fe Springs, CA 90670.
We filed a Certificate of Amendment in Delaware on February 27, 2003 to change our name from RTB Acquisition Corporation to Relax The Back Corporation. We also have filed in California a Name Change Certificate of Qualification as Relax The Back Corporation. To the extent we operate in any states other than California and Delaware, we now operate under our new name, except in a few states. To the extent we actually operate in New York and New Jersey, we operate under the name, "Delaware Relax The Back Corporation." In other states where we are unable to use "Relax the Back Corporation," we will use "Delaware Relax The Back" or "RTB Acquisition Corporation." Both company-owned and franchised retail locations do business under the trade name "Relax The Back®".
Our Predecessor was formed on August 6, 1996, in the state of Delaware for the purpose of acquiring the Relax The Back® franchise system from Relax The Back Franchising Company. Relax The Back Franchising Company, a corporation, was formed in Texas in September, 1989. Its principal business address was 900 Congress Avenue, Suite 400, Austin, TX 78701. Through an affiliate Texas corporation, Relax The Back/ARC Enterprises, Inc., Relax The Back Franchising Company operated a company-owned Relax The Back® store from 1988 to August 30, 1996, when our Predecessor acquired it and a second Austin store (opened July, 1996) to operate as company stores.
The first Relax The Back® Store was founded in 1984 by Dr. John Schepman, D.O., who recognized through his practice the need for a central source of supplies for individuals with back problems. The founder of the Relax The Back® franchise system, Ms. Virginia Rogers, purchased that store in 1988 and capitalized on this unique concept by expanding the store's marketing efforts, product development and diversification.
We also have an affiliate, BackSaver Acquisition Corp. ("BAC"). BAC was formed on January 23, 2001 in the state of Delaware and established for the purpose of acquiring on May 31, 2001, substantially all of the assets of BackSaver Products Co., also a Delaware corporation. BackSaver Products Co. was a wholly owned subsidiary of our Predecessor. On February 1, 2002, we acquired BackSaver.com, which
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was merged into us. Prior to that, BackSaver.com was a separate corporation and was formed in the state of Delaware on June 17, 1999. The principal business address for BAC is 53 Jeffrey Avenue, Holliston, MA 01746. This was also the principal business address for BackSaver Products Co. Prior to our acquisition of it, BackSaver.com was headquartered in Santa Fe Springs, CA.
Our agents for service of process are disclosed in Exhibit E.
The Franchise and Development Rights Offered
We are offering franchises with this Offering Circular. Our Predecessor began offering franchises in 1996, when it acquired Relax The Back Franchising Company, which had begun offering Relax The Back franchises in 1989. We acquired the then existing Relax The Back franchise agreements from our predecessor in May, 2001. As of January December 31, 20033, we have 72-86 existing franchises (the "Existing Franchisees"). Each A majority of these franchisees are operating under franchise agreements that differ in material ways from the franchise agreement offered under this Offering Circular. Some but not all of those differences are noted in this Offering Circular.
We offer Relax The Back® franchises, granting the right to operate retail stores selling back-related products from an approved location under our trade name of "Relax The Back". Our current form of Franchise Agreement and related documents are attached to this Offering Circular as Exhibit A. A Relax The Back® Store is a carefully designed concept, specializing in products for the relief, prevention, care and treatment of back pain and discomfort. The franchise offers guidance and assistance; distinctive interior design and operating specifications; and training in site selection, marketing, purchasing, store layout, signage, business operations, inventory and accounting systems. Stores depend on sorving a largo volume of customers for their success.For that reason, they Stores are usually located within shopping centers and inline locations in retail space averaging 1,800 to 3,000 square feet. We currently have more than 2r0001,000 approved items purchased directly by franchisees from more than 425-75 different suppliers. We also have an Area Development program available to qualified candidates for development of an agreed upon number of Relax The Back® Franchise Businesses within a designated geographic area.
Products are marketed to customers of all ages and economic levels, but we have found the majority of our company Store customers to be between ages 35 to 54 and with annual household incomes of $84,000 or more. You should expect competition with a variety of local retail stores, as well as internet sites and direct mail marketers of back related products. BAC approves retailers to distribute its products, including Relax The Back® stores and other competing outlets. There will be some (but not all) BAC products that are and/or will be exclusive to the Relax The Back® system.
As of January December 31, 20032003, we own and operate 8- 3 Relax The Back® stores in California and 1 in Connecticut. We plan to either sell, transfer or close these Stores in 2004. We
may or may not choose to sell or grant franchises for any of theso etoro locations.
In addition to operating and franchising Relax The Back® stores, we market BAC products and back related products from other vendors through a direct mail catalogue and an internet web site promoting the Relax The Back® marks, trade name, and the Relax The Back system (our Relax The operations). Sales through these channels may be made to customers located anywhere, including in your marketing area. (See Items 8 and 12 for more information on our website and catalogue product marketing).
Some jurisdictions require that sellers of bedding and other home furnishings products be licensed. There may be laws and regulations in your state that apply to the operation of a retail unit selling products such as those offered by our franchisees. In addition, you will need to identify the typical, general laws affecting any retail business. You will be required to comply with all applicable local, state
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and federal laws in the operation of your franchise. We urge you to make further inquiries about these laws.
Neither we, nor our affiliates, nor our Predecessor have offered, or do offer, franchises in other lines of business.
A fundamental requirement of your joining and remaining part of the Relax The Back® System will be your commitment to the operation of your Relax The Back® Franchise in accordance with the Relax The Back® System Standards. During the term of the Franchise Agreement, you must, at all times, develop, maintain and operate your Relax The Back® Franchise in compliance with all Relax The Back® System Standards, as modified by us in the future.
We may offer (and our Predecessor has offered) Relax The Back® franchises (and/or Area Development Agreements) on economic and/or other terms which differ from those offered by this Offering Circular. Also, there may be instances where we will vary the terms on which we offer franchises to suit the circumstances of a particular transaction. In some cases, other franchisees' terms may be more favorable than the terms contained in the Franchise Agreement offered under this Offering Circular. We strongly urge vou to carefully review all documents and this Offering Circular with independent advisors who can provide legal, business and/or economic guidance, including a comparison to any prior Agreement if a renewal or replacement of an existing Franchise Agreement is involved.
The purchase of a Relax The Back® (or any other) franchise is a speculative investment. Significant investment beyond that outlined in this Offering Circular may be required to succeed. There are no guarantees of success, and the most important factors in the success of any Relax The Back® Business are your personal business, marketing, management, judgment and other skills and your willingness to work hard and diligently follow the Relax The Back® System Standards.
ITEM 2 BUSINESS EXPERIENCE
Director: Michael K. Lee
Mr. Lee has served on our Board of Directors since our formation. Mr. Lee was a member of the Board of Directors for our Predecessor starting in August, 1996. Since 1985, Mr. Lee has been President of Dominion Ventures, Inc., a venture capital company in San Francisco, CA and one of our investors.
Director: Nathan W. Bell
Mr. Bell has served on our Board of Directors since our formation. Mr. Bell was a member of the Board of Directors for our Predecessor starting in August, 1996. From March 1994 to present, Mr. Bell has been General Partner of Pacific Private Capital, a partnership serving as the General Partner of Pacific Mezzanine Fund, a limited partnership, in Los Angeles, CA.
Director: Marvin Storm
Mr. Storm has served on our Board of Directors since our formation. In 1999, he became CEO of Navis Logistics Network located in Englewood, CO, and presently holds that position. From 1985 to 1999, Mr. Storm operated soven 7 Packaging Store franchises and developed a total of 18 stores in the San Francisco Bay Area. From 1991 to 2001 he was a Master Franchisee/Area Developer based in Moraga, CA for five franchise companies, awarding and/or managing approximately 100 franchises.
Director. President, and Chief Executive Officer: Richard W. Palfrevman
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Mr. Palfreyman has been President and Chief Executive Officer since November 2001. As such he is responsible for all aspects of our activities, under the direction of the Board of Directors. Mr. Palfreyman has over 37 years of experience in a broad range of businesses. From October 2000 to July 2001, he was the Chief Operating Officer/Chief Financial Officer of Spa Finder, Inc. in New York City. From October 1997 until July 2000, he was Chief Operating Officer/Chief Financial Officer of Spectra Entertainment in Moorpark, CA. From March 1995 until September 1097, he was the Chief Operating Officer of Accountants 4 Contract in San Francisco, CA.
Senior Vice President of Franchising: David Lamb
Mr. Lamb joined us in September of 2001, assuming his present position at that time. From 1998 to 2001, he was Director of Franchising with Franchise Development Center in Atlanta, GA. He has over 20 years of franchising experience with companies such as Haagen Dazs, Great Clips, California Closets and Deck The Walls. Prior to that, he was Director of Development for Franchise Concepts, Inc. of Houston, TX from 1997 to 1998.Mr. Lamb served as Regional Director of Great Clipc Regional Companies in Minneapolis, MN from 1994 to 1997.
Chief Operations Officer: John Montgomery
Mr. Montgomery has 20 years of management experience in finance, operations and systems development. He joined us in August 2003 as Chief Operations Officer. From June 2001 to March 2003, Mr. Montgomery served as Chief Financial Officer of Aptas, Inc., a software development firm headquartered in Denver, Colorado. He was employed by Amplespace (a broadband service provider located in Milpitas, California) from January 2000 until October 2000 as Chief Operations Officer. In 1994, he founded Prime One TeleTV, a wireless digital cable system, and served as its CFO from 1996 until selling the business in 2000.
Vice President of Marketing: Leanne Mattes
Ms. Mattes joined us in July 2001. From September 1997 to July 2001, Ms. Mattes was a Senior Retail Analyst with Ambrosi, one of the largest print advertising agencies in the nation. From 1996 to September 1997, Ms. Mattes was the V.P. of Marketing for KidsMart, a specialty retailer of apparel and accessories for children, with 300 locationc nationwide.
Vice President of Operations: David Purves
Mr. Purves joined us in February 2003. From 1998 to 2003 he was Director of Training and Development for Sir Speedy, Inc. in Mission Viejo, California. From 1988 to 1998 ho woe coif employed as a management consultant, froolanco writor and businoes owner.
Vice President of Finance and Controller: Nick Bahl
Mr. Bahl joined us in Soptombor 2002October 1998. Mr. Bahl has 15 years of financial retail and manufacturing experience with companies such as Scintrex Limited, Decor Concepts, Little Tikes Commercial play systems. Prior to joining us, he was a Controller for Mendelson and Associates, a fine jewelry manufacturer and retailer. Mr. Bahl has an ownership interest in a franchisee that owns 4 franchised Stores in southern California.
Vice President of Merchandising: J.D. Nespoli
Mr. Nespoli has 27 years of retail merchandising experience. He joined us as our Vice President of Merchandising in September 2003. From 1997 to August 2003, he served as the Director of
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Merchandising for Evolution Furniture Company, an independently owned home furnishings company based in the Bay Area of California.
Director of Franchise Sales: Michael Coniqliaro
Mr. Conigliaro joined us in April 2003. From 1998 to March 2003, Mr. Conigliaro was the Franchise Development Manager with Gold's Gym Franchising, Inc. Mr. Conigliaro's responsibilities included Sales, Franchise Advertising and Marketing, as well as training. From 1997 to 1998, Mr. Conigliaro was an Executive Search Consultant with Evie Krioslor & Associates which specialized in the placement of retail, wholesale and manufacturing executives.
Franchise Brokers and Referral Programs
We use Franchise Brokers to sell franchises. Please see Exhibit I for our current list of Franchise Brokers.
Wo have also instituted a referral fee program to rocognizo tho contribution that our franchisees make to the growth of the franchise cyctom by referring franchioe candidates to us.To any existing franchisoo who reforc comoone to us who is awarded a franchico, wo will pay a roforral fee of $1,000 for tho now franchisee's first store when opened, and $250 for any additional stores opened under the same franchisee's Area Dovolopmont Agreement, if applicable. This referral fee is payable through a royalty credit.
-----------Wo have also instituted a referral program for selected vendors. To select vendor employees that
refer to us someono who is awarded a franchise, we will pay a referral fee of $1,000 for the new franchisee's first store whon opened and $250 for any additional stores oponod under the same franchisoo'o Area Development Agreement, if applicable.
-----------Wo can change and/or eliminate either or both of the above described roforral policies at any
timer
ITEM 3 LITIGATION
RTB Acquisition Corp. vs. Cobv Dietrick (American Arbitration Association Case No. 701140035902 (San Antonio, TX); Case Number SA-02CA0260-OG, U.S. District Court, Western District of Texas, San Antonio Division). On March 15, 2002 RTB Acquisition Corporation filed a complaint alleging that Coby Dietrick, a San Antonio Relax The Back® franchisee, defaulted on his Franchise Agreement by failing to pay royalties, leaving the system without de-identifying the store. The action sought an injunction against continued competition and use of the Marks, lost royalties in excess of $50,000, and unspecified lost future royalties. On April 11, 2002 Dietrick filed a counterclaim and sought a declaration by the Court that he is not bound by the Agreement. On April 29, 2002, the parties stipulated to submit their disputes to arbitration, and the Court dismissed the case, retaining jurisdiction to enforce the Agreement and the Court's order requiring Dietrick to de-identify, to refrain from infringing use of the Marks, and to return to RTB Acquisition Corporation's Trade Secrets. RTBAC filed a demand for arbitration similar to the described U.S. District Court complaint. On June 24, 2002, Dietrick filed a counterclaim alleging fraud in the inducement of the Franchise Agreement and seeking declaratory relief providing that he is not bound by the agreement or the non-compete provisions thereof, is not infringing the marks and that any performance under the agreement by him is excused by the Franchisor's failure to perform. The matter was then submitted to mediation, but failed to settle. The matter then was submitted to arbitration. On the first day of arbitration, a formula for settlement was accepted by the parties which requires Dietrick to sell his business to the Franchisor or a qualified prospective franchisee and to agree not to compete for a period of time. Dietrick is licensed to use the Relax The Back brand in exchange for
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royalty payments until a transfer occurs. If a sale to a third party is not made within a prescribed timeframe, then the Franchisor must buy the store inventory and assets. The final settlement agreement was signed September 30, 2003, and a Consent Award was entered on October 23, 2003.Tho cottlemont is procontly being memorialized in a formal cottlement agreement and consent award.
RTB Acquisition Corp. vs. Hunter C. Sledd III and Digbv. Inc. (Case number 72 114 00316 02 MAPU, American Arbitration Association, Fresno Office). On March 15, 2002, RTB Acquisition Corporation filed for arbitration under Franchise Agreements between its predecessor and former franchisee Hunter C. Sledd. RTBAC's demand alleges that Sledd abandoned and sold his four units to a competitor without its consent, leaving unpaid royalties to RTBAC, as well as unpaid bills to the predecessor affiliate, BackSaver Products Co., all in violation of the Agreements. RTBAC sought damages in the amount of $300,000 for arrearages to RTBAC and BackSaver, for future lost royalties and for failure to pay transfer fees. On May 7, 2002, Sledd filed a counterclaim with AAA seeking unspecified damages. Sledd claimed that, for one of the franchises he purchased, RTBAC's predecessor failed to deliver an Offering Circular that conformed to Maryland law. The matter went to arbitration and the Arbitrator issued an award dismissing all claims.
The following action involved the company from which our Predecessor acquired the franchise system:
On April 4, 1994, Relax The Back Franchising Company ("RTBFC"), terminated Jim and Monika Webb's Franchise Agreements for two Relax The Back® Stores in Houston, Texas for non-payment of royalties and advertising fees and other performance defaults. They filed a demand for arbitration with the American Arbitration Association in Houston, Texas (Case Number B-70-114-002-94-B, Jim and Monika Webb v. Relax The Back Franchising Company), claiming breach of contract and nonperformance by RTBFC. On January 27, 1995, RTBFC settled the dispute by entering into confidential agreements in which the former franchisees paid RTBFC $30,000, signed a release and license agreement and paid a fee to use its common law trademark, "The Back Store" at their current locations, and consented to a final judgment and permanent injunction regarding the ownership of our trademarks and proprietary material. In exchange, RTBFC released them from the balance of their non-competition restrictions, and they have removed all identification and trade dress associated with "Relax The Back®" stores.
Please see Exhibit I for a description of litigation involving a-Franchise Brokers.
Other than the abovese 3 actions, no litigation is required to be disclosed in the Offering Circular.
Neither we nor any person listed in Item 2 of the UFOC is subject to any currently effective order of any national securities association or national securities exchange, as defined in the Securities Exchange Act of 1934, 15 U.S.C.A. 78a et seq., suspending or expelling such persons from membership in such association or exchange.
ITEM 4 BANKRUPTCY
On November 8, 2000, our Predecessor filed a petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code. On May 2, 2001, the bankruptcy court approved the sale by our Predecessor of substantially all of its assets to us. The court also approved the sale by our Predecessor's subsidiaries, BackSaver Products Co. and BackSaver.com, of substantially all of their respective assets to our affiliate, BAC, on the same date. Our Predecessor obtained a dismissal from the Bankruptcy Court on June 13, 2001. (U.S. Bankruptcy Court for the Central District of California, Los Angeles Division, Cases LA-00-41435-AA and LA-00-41441-AA) Michael Lee and Nathan Bell, each of whom are identified in Item 2, above, were officers and/or directors of our Predecessor.
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-----------Additionally, Richard Palfreyman, our President and CEO, and a Director of the corporation, was
Chief Financial Officer of Photo & Sound Company when it filed for reorganization under Chapter 11 of the U.S. Bankruptcy Codo in the United States Bankruptcy Court, Northern District of California, San Francisco Division, on November 16, 1091.Upon the recommendation of the Unsecured Creditors Committoo and with the approval of tho Court, he was appointed President and Chief Executive Officer. The re organization plan was confirmed by the court on October 21, 1993. The company was sold to a competitor shortly thereafter. (Case No. SF 01 34479 TC)
In 1997, Mr. Palfreyman was hired by Spectra F/X, Inc. (d/b/a Spectra Entertainment), which was then in the process of reorganization, and left in 2000, before the resolution of that process. That company had filed under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court, Central District of California, Northern Division, on May 2, 1997. The re-organization plan was confirmed by the court, on April 22, 1999. (Case No. ND-97-12264-RR)
Nathan Bell, our Chairman of the Board, was a General Partner in a firm that foreclosed on the secured assets of its debtor, Kleer Vu Plastics Corporation. For purposes of liquidating those assets, Mr. Bell was installed as CEO of Kleer Vu, and filed its bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court, Central District of California, Los Angeles Division, on March 10, 1997. Subsequently, this was converted to a Chapter 7 filing, and a discharge was obtained on June 3, 1997. (Case No. LA-97-18996-EC)
Other than the actions listed above, 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
Initial Franchise Fee
If you are awarded your first Relax The Back® Franchise Agreement under this Offering Circular, | then you'll pay us an initial franchise fee of $2^00030,000 for a single location franchise when signing the Franchise Agreement.
Under our current policy, if the award of this Franchise Agreement is for a second or subsequent
| Relax The Back franchise, then you'll pay us an initial franchise fee of $4520,000 for a single location
franchise when signing the Franchise Agreement. The initial franchise fee for franchisees opening a
second or subsequent franchise under a currently effective Area Development Agreement will be the
| lesser of $4520,000 or the fee described in their Area Development Agreement (see section below on the
Development Fee). We have the right to eliminate or modify this policy at any time.
If you cannot locate a site acceptable to us within the necessary timeframe, and your Franchise Agreement is terminated for this reason, we will refund a portion of your Initial Franchise Fee. The refund will be either one half of the Initial Franchise Fee paid by you, or the Initial Franchise Fee minus our
| related costs, whichever refund amount is less. Costs may include legal fees, broker commissions, training expenses, among other costs. You (and each affiliate of yours) must sign for us a General Release of all claims which will be in our then current form. The current form of General Release typically
| used by us is attached as Appendix Exhibit 1.2 (A) of the Franchise Agreement. We may change this form in our business judgment. (See Item 11 for additional information on Site Selection).
Also, if we decide that you have not successfully completed your initial training, we may terminate the Franchise Agreement and/or any other agreements with you and refund to you either one half of the Initial Franchise Fee paid by you, or the initial Franchise Fee minus our related costs,
| Relax The Back Corporation UFOC 9/46/03 3/29/04 Page 7
whichever refund amount is less. Costs may include legal fees, broker commissions, training expenses, among other costs, f-eturn tho Initial Franchise Fee to you (less $10,000 to covor our sales, training and other coots). You are required to return all Manuals, and sign a General Release. We will release you from your obligations under the Franchise Agreement, except that your indemnity, noncompetition, and confidentiality obligations and the dispute avoidance and resolution provisions will continue.
The Initial Franchise Fee is not refundable in any other circumstances.
Initial Marketing Package
You are required to purchase from us an initial marketing package prior to opening your Store. The current fee for the package is $3,500. Package contents currently include various collateral materials, such as grand opening and "opening soon" banners and in-store displays. Both the contents and the fee are subject to adjustment by us to reflect changes in production costs, product promotions, advertising effectiveness, and other factors.
Area Development Fee
We offer, on a limited basis, a standard Area Development Agreement (the "ADA") for the establishment of one or more Stores in a specified geographical territory. ADAs may only be offered by us when and if we choose. Candidates must be experienced in Relax The Back® or similar store operations aod-or must otherwise satisfy us that an ADA is appropriate for them, their resources and their business strategy. Individual Franchise Agreements will be signed for each Store to be opened under the ADA. The Development Fee is paid to us at the time of signing the ADA and is $§7,5000 multiplied by the total number of Franchise locations to be opened under the ADA. When you sign the ADA, the Development Fee is fully earned by us in consideration for signing the ADA with you and is not refundable under any circumstances. At the time that you pay to us the Development Fee, you also will pay to us the Initial Franchise Fee (currently $2530,000) for your first Relax The Back® Store Franchise Agreement. This Initial Franchise Fee for your first Store is entirely non-refundable. For the second and subsequent franchise locations, the Initial Franchise Fee is $4520,000, and is non-refundable except in the limited instances described in the section above. Under the ADA, these Initial Fees are due at the signing of the Franchise Agreement related to the Development Unit, less the $§77,5000 per location paid through the Development Fee. Subsequent Franchise Agreements must be signed by you along with a General Release, except for claims related only to the offer and sale of the Franchise then being awarded (if such an exception is required by applicable law) and applicable Initial Franchise Fees paid according to the schedule indicated in your Development Agreement.
ITEM 6
OTHER FEES1
Continuing Royalty2
Up to 54% of Grees VolumoAdjusted Gross Sales3
By 10th day of each month for preceding month's Gross VolwrneAdjusted Gross Sales3
Currently we require only 4% of Grocc VolumoAdjusted Gross Sales be paid. We have the right to require you to pay up to 5%, and will re-evaluate the level of contribution at least annually.
May be reduced on certain commercial accounts.2
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Marketing Fund |
Up to 2% of |
By 10th day of each |
Currently we require only 1% of |
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Fee4 |
ed Gross Sales |
month |
Grose Volume Adjusted Gross |
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Sales3 be paid. We have the right |
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to require you to pay up to 2%, |
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and will re-evaluate the level of |
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contribution at least annually. |
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Local |
Greater of $1,000 |
As incurred for local |
Subject to Franchise Agreement |
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Advertising5 |
per month or 3% of |
advertising |
limitations, you control how funds |
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preceding month's |
are spent. |
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Gross |
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VelumeAdjusted |
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Gross Sales3 |
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Training Costs" |
As incurred |
As incurred |
You must pay all costs for attending training, including travel, living, personnel compensation costs, and other expenses. |
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Initial Marketing |
$3,500 |
Prior to opening |
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Package Fee |
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Transfer Fee7 |
$7,5§rO00 |
Upon notice from |
We may reduce, defer or waive |
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you of proposed |
this fee in individual cases. Same |
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transfer |
amount for ADA transfer, plus transfer fee for each unit. At our option, when new owner granted full 10 year franchise a pro rated initial franchise fee may be charged.7 |
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Audit Costs |
Costs of audit, in |
Upon receipt of |
Applies only if you fail to submit |
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addition to |
invoice |
reports or you understate |
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understated |
Adjusted Gross Sales Volume3 |
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amounts |
by 2% or more. Includes all costs related to the inspection and audit, such as accounting and attorney fees, travel expenses, any employee compensation8 |
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Interest on Late |
Maximum legal |
Payable on Demand |
Not to exceed or violate any |
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Payments and/or |
interest (18% cap) |
applicable legal restrictions. |
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Reports |
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Successor |
40% of then current |
Payable with notice |
Non-refundable unless successor |
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Franchise Fee |
Initial Franchise Fee |
of election to renew; |
agreement is denied. Current |
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for first franchise. |
not less than 6 |
policy is not to charge successor |
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months before |
franchise fee, but we can change |
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Not currently being |
expiration of |
this policy at any time. |
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charged. |
franchise term |
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Management Fees |
Reasonable amount; currently, these costs range from $125 to $200 per day plus costs |
At time of occurrence |
In the event of your disability, death, or default by you, we may operate the business on your behalf. We may pay ourselves for our management services plus other costs including compensation, travel, meals and incidental expenses of the manager. |
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Convention Costs9 |
As Incurred |
As incurred |
Travel, lodging, food, and other expenses. |
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Grant of Security Interest10 |
You grant us a security interest in assets/proceeds |
Granted with Franchise Agreement |
You must complete financing statements or other documents within 10 days of receipt from us |
Items 7, 8, 9, 12 and 17 of this Offering Circular also provide information about costs that you may incur in connection with your Franchise Business.
1) All fees are imposed by and payable to us as provided in the Franchise Agreement, unless otherwise noted. All fees are non-refundable, unless otherwise stated. You must participate in our then-current reporting and funds transforfee payment programs. If we implement one, you must participate in an electronic funds transfer and reporting program, which would authorize us to use a pre-authorized bank debit system, and as we may chango it. We can apply any payments owed by you to any debt of yours that we choose (except for marketing fund payments), set off any amounts owed to you against any amount owed by you to us/certain third parties, and retain amounts received on your account for debts owed to us and/or certain other parties. We may elect to waive and/or credit, reduce or defer payment of any and all fees and charges of any kind in connection with the franchise on a case by case basis as we consider appropriate and as permitted bv law. Existing Franchisees are operating under franchise agreements that are different in some material ways from the Franchise Agreement under this Offering Circular, including certain more favorable economic terms.
2) Royalty payments are due from the first month of your Relax The Back Store® operations. As cignificant discounting is usuatiy necessary to make lafge Outside Salec, wo currently allow franchisees who submit the required salos documentation the choice of paying either A% of Grocc Volume on outsido sales or 8% of Gross Margin. "Gross Margin" is the Gro6s Volume on the outside sales, less the actual cost to you of goods sold. An "Outside Salo" is a single sale of 5 identical items with a total invoice cost of $5,000 or more. This altornative royalty is a matter of policy, and we reserve the right to modify or eliminate it at any timo and however wo choose.
3) "Gross Volume Adjusted Gross Sales" includes all revenues, except sales tax (collected and properly paid) and actual customer refunds, adjustments and credits, which are, or could be, received or earned by you (and/or any affiliate and/or on/for your behalf or benefit):
(i) by, at or with respect to your Relax The Back® Store;
(ii) which relate to the type of goods or services which are or could be provided, sold, rented
or otherwise distributed at, through or in association with a Relax The Back® Store;
(iii) with respect to any goods or services which are, or could be, distributed in association with the Marks or the Relax The Back® System, or the operation of any Similar Business (but our receipt of any royalties with respect to any Similar Business is not an approval of your involvement with any Similar Business); and/or
| Relax The Back Corporation UFOC 9/16/03 3/29/04
Page 10
(iv) with respect to any co-branding activities.
All sales and/or billings, whether collected or not, will be included in Gross Volume Adjusted Gross Sales, with no deduction for credit card or other charges.
Gross VolumeAdjusted Gross_SaJes is_used to jneasure royalties owedThe Gross Volume Adjusted Gross ".Saleg amounTlc^otually an adjusted gross sales"figuro, cihcosalos tax custom or refunds and the, other, adjustments noted inJhe^aboyo dofimtion are deductejjffrom gross^ sales to arrive at Gross yQiMJTigAdjuistId Grogs Sajos?
You are required to meet all financial obligations to us under the Franchise Agreement during any closure of your Relax The Back® S-store for any reason. Monthly Gross Volume Adjusted Gross Sales will be assumed to be the same as the average monthly Gro6S Volume Adjusted Gross Sales during the prior 12-month period. (See Section 10.7 of the Franchise Agreement for more information.)
Occasionally significant discounting is necessary to make large Outside Sales, we currently allow franchisees who submit the required sales documentation the choice of paying either 4% of Grass VolumoAdjusted Gross Sales on outside sales or 8% of Gross Margin. "Gross Margin" is the Gross VeJumeAdjusted Gross Sales on the outside sales, less the actual cost to you of goods sold. An "Outside Sale" is a single sale of 5 identical items with a total invoice cost of $5,000 or more. This alternative royalty is a matter of policy, and we reserve the right to modify or eliminate it at any time and however we choose.
4) If your Gross VolumeAdjusted Gross Sales in any calendar year exceeds $1,500,000, then your Marketing Fund contributions on Gross VolumeAdjusted Gross Sales over $1,500,000 will be 1% of Gross VolumeAdjusted Gross Sales for the rest of that year, even if the then current contribution level is higher. Payments are due at the same time and in the same manner as royalties. (See Item 11 of this Offering Circular for additional information on the Marketing Fund).
5) You are required to submit verification of your expenditures in the form and at the times that we require them. (See Item 11 for restrictions on Local Marketing activities). If an ad co-op is formed, you will have to comply with its requirements, including any payment obligations. No such co-ops currently exist, but we reserve the right to form one at a later date.
6) The Initial Franchise Fee covers an initial training program that is mandatory for you and your initial Relax The Back® Store manager. The program is at a time and place, and for such period, as we choose. Subsequent managers also must attend and complete our training program to our satisfaction before managing your store operations. We can require successful completion of training by all of your supervisory personnel. We may charge a reasonable fee for training of subsequent managers and/or other supervisory personnel, unless otherwise expressly agreed by us in writing. You and your manager must attend additional and/or refresher training programs conducted at location(s) specified by us, including national and regional conferences, conventions and meetings. Your other employees may be required to attend mandatory training programs presented by us at your Relax The Back® Store. While we have in the past agreed not to charge certain franchisees any training fees, under the Franchise Agreement provided with this Offering Circular we have the right to charge reasonable fees for optional training programs. As a matter of policy, we are not currently charging you such fees, but we can change this policy at any time.
7) This fee will be refunded only if we refuse consent to the transfer, or we exercise our right-of-first-refusal. This fee will not be charged for transfers to an Immediate Family member, if that person has managed the Store for the previous two-2 years, or for transfers to wholly owned entities made by you within 90 days of acquiring this Franchise. (See Section 9.1 of the Franchise Agreement).
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8) If any inspection or audit discloses an understatement of Gross VolumeAdjusted Gross Sales, you are required to pay to us the royalties and Marketing Fund contributions due, plus interest, from the date originally due. If any inspection or audit is necessary because of your failure to timely furnish reports, supporting records, other information or financial statements; or if an understatement of Gross VolumeAdjusted Gross Sales for any period is determined by any audit or inspection to be greater than 2%, you will reimburse us for the cost of the inspection or audit. If any audit reveals an intentional understatement of Gross VolumeAdjusted Gross Sales for any period in any amount, or an understatement (whether intentional or not) of Grose VolumeAdjusted Gross Sales greater than 10%, we may terminate the Franchise Agreement, in addition to all other remedies and rights of ours.
9) Convention attendance is mandatory. If you own more than one franchised store, then at least one management level person must attend from each store. We will not charge an attendance fee for one porson por store, but wo may charge for materials, meals, entertainment, and special programs. Your costs of attendance are your sole responsibility (e.g., lodging, food, transportation, etc.).
10) The security interest granted by you is prior to all others except for (a) purchase money security interests and (b) interests granted to a third party in connection with original financing. (See Section 18 of the Franchise Agreement for terms).
ITEM 7
INITIAL INVESTMENT
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Estimated Initial Investment (3 Month Period)1 |
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Initial Franchise Fee* |
$2§30,000 |
Lump sum |
On signing FA |
Us |
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Real Property, Lease Payments and Improvements3 |
$35,000 to $77,000 |
As Arranged |
As arranged |
Lessor, vendors, contractors. architects, as applicable |
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Equipment, Fixtures, & Supplies4 |
$29,000 to $43,000 |
As Arranged |
As Arranged |
Suppliers |
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Inventory* |
$$6T70,000 to $?080,000 |
As Arranged |
As Arranged |
Suppliers |
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Training Related Expenses6 |
$2,100 to $7,500 |
As Arranged |
As Arranged |
Vendors and Us, as applicable |
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Grand Opening and Initial Marketing Pacakpe7 |
$?rQ0010,500 to $4013,0500 |
As Arranged |
During first 60 days of operation |
Printers, Vendors, Media |
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Insurance" |
$3,000 to $8,000 |
As Arranged |
As Incurred |
Carriers or Brokers |
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Signs* |
$4,100 to $15,000 |
As Arranged |
As Arranged |
Vendors |
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Computer Hardware & Software10 |
$152,000 to $2418,000 |
As Arranged |
As Incurred |
Vendors |
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Miscellaneous Costs |
$5,000 to $11,000 |
As Arranged |
As Incurred |
Vendors and other providers |
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3 months' Additional Funds11 |
$10,000 to $30,000 |
As Arranged |
As Incurred |
Suppliers. Employees, Tradesmen |
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Page 12
1) None of the expenditures paid to us are refundable except, in limited instances, Initial Franchise Fees. See Item 5 for details. These figures are estimates of the range of your initial costs in the first three months of operation only, and are based on the experience of our Predecessor. The actual amounts you pay could be higher or lower, based upon your particular circumstances and your decisions. (See the footnotes below for additional information on cost variables). These figures do not include the purchase price of an existing franchised Relax The Back® Store operation, which may vary widely and is established directly between the buyers and sellers.) including uo in tho instanco of a
2) In addition to the Initial Franchise Fee for the first unit, Area Developers also pay a one-time only Development Fee at the time of signing the Area Development Agreement. The Development Fee is equal to the number of Stores to be developed multiplied by $5t©007,500. Subsequent Stores opened under an ADA have Initial Franchise Fees of $4520,000 each, less the $§t©0Q7,500 per location paid through the Development Fee, due at the time of signing the relevant Franchise Agreement.
3) If you do not own adequate space to operate your Relax The Back® business, you must lease the land and building. Locations typically are in retail areas. The typical Relax The Back® store has between 1,800 and 3,000 square feet. Costs can vary greatly depending upon location, terms of lease, market conditions, space and numerous other factors. You will be required to build out the premises to conform to our standards and specifications. Build out costs may be included in lease costs or installed by you at your own cost. The range provided includes estimated construction/remodel costs, architectural fees and other related expenses. Your actual costs may vary significantly from estimated expenses due to a variety of factors, including landlord and deposit requirements, construction wages and prevailing labor costs, the extent of architectural and design services employed, and any loan packaging fees, among others. The range provided is intended to reflect an typical real estate environment. It does not reflect possible high end real estate market costs or extensive/high end store remodels or buildouts, which are not required or recommended.
4) You are required to buy certain equipment meeting our specifications, including decoration, fixtures and lighting.
5) You are not required to purchase any particular itoms/amounts for your opening inventory, but we may suggoct certain productc/quantities. We require you to purchase from our approved suppliers a minimum opening inventory of core products designated by us. Core inventory can vary from store to store, depending on a variety of factors, including store size, geographic area and market preferences, among others. The $70,000 to $80,000 range provided is the estimated cost of such required opening inventory. Your cCosts will vary significantly depending upon the quantity and costs of items purchoood selected by you for purchase in addition to the opening inventory amount and/or to replace any products sold.
6) The Initial Franchise Fee covers an initial training program that is mandatory for you and your initial Relax The Back® Store manager. You are responsible for all costs associated with attendance at the program, such as travel, lodging, meals, transportation and incidental expenses incurred by you and your manager. The range provided assumes attendance by twe-2 people. However, costs can vary significantly depending upon the distance you are required to travel and your personal travel preferences.
7) You'll spend at least $7,000 on a Grand Opening marketing program, using marketing, advertising and
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public relations programs, media and materials approved by us. We'll furnish advice and guidance to you with respect to the program for you to follow. This estimate includes the cost of Initial Marketing Package as described in Items 5 and 6 of this Offering Circular.
8) You must maintain policies of insurance issued by carriers approved by us covering various risks: (1) comprehensive general liability insurance against claims for bodily and personal injury, death and property damage caused by, or occurring in conjunction with, your Relax The Back® Store; (2) all risk property and casualty insurance for the replacement value of your Relax The Back® Store and all associated items; and (3) business interruption insurance. We may reasonably require different and/or additional kinds of insurance at any time. We currently require comprehensive general liability insurance with not less than $1,000,000 single limit coverage and a $2,000,000 aggregate, and (for Stores with annual Gross Volume Adjusted Gross Sales of $1,000,000 or more), supplemental "umbrella" coverage of an additional $1,000,000. You must furnish us with certificates of insurance on all insurance policies showing the coverage and payment of premiums required by your Franchise Agreement and naming us as an additional insured.
9) You must purchase exterior signage meeting our specifications. We recommend sign suppliers to you.
10) You must purchase and use an electronic cash register and computer system meeting our specifications (See Item 11 for current requirements).
11) Additional Funds is an estimate of the funds needed to cover certain business (not personal) expenses during the first 3 months of operation of the franchised business. These funds are in addition to those other expense items shown on the chart. Your actual costs may be higher. You need capital to support on-going costs of your business, such as payroll, utilities, taxes, loan payments, inventory purchases and other expenses, to the extent that revenues do not cover business costs. New businesses (franchised or not) often have larger expenses than revenues. This is only an estimate. You may need additional funds during the 3 months of initial operation or afterwards. In addition, the estimates presented relate only to costs associated with the franchised business and do not cover any personal, "living" or other expenses you may have or, royalty payments, Marketing Fund contributions, debt service on any loans, state sales and/or use taxes on goods and services, Manager and other employee wages, salesperson draws and commissions, and a variety of other amounts not described above.
12) We relied on the experience of our Predecessor and staff members with more than 5 years in the industry in compiling this estimate. This estimates certain initial startup expenses through the first 3 months of operation. It is not all inclusive, as noted above, and we cannot guarantee that you will not have additional expenses. No provision has been made for, and we do not authorize salespersons or anyone else to make estimates of, capital or other reserve funds necessary for you to reach "break-even" or any other financial position. These estimates do not include any finance charges, interest or debt service obligations. Total costs to begin operations and other financial requirements may be more or less than the figures specified above, depending on the size of business (number of employees, anticipated volume of business, payments to suppliers and landlords, etc.) which you intend to operate and other factors such as: how well you follow our methods and procedures; your management skill, lease and inventory terms, experience and business acumen; local economic conditions; the local market for your products and services; the prevailing wage rate; competition; and the sales levels you achieve. Since most, if not all, of these factors are outside our control, we can't make a reliable estimate as to your costs or financial results. You should review these estimates carefully with a business advisor before making any decision to purchase the franchise.
The information in this Item 7 relates to the establishment of the single franchise to be awarded under this Offering Circular. If you have an ADA, the costs to develop additional franchise units may vary significantly from the costs provided above, depending upon a wide variety of factors such as then current economic conditions, real estate costs, labor availability, supply costs and many others. In addition, you
Relax The Back Corporation UFOC 9/16/03 3/29/04 Page 14
should note that the ADA permits us to require you to maintain positive working capital and a minimum net worth of $250,000 multiplied by the number of Development Units.
We strongly recommend that you (1) obtain, before vou purchase a franchise or make any commitments, independent estimates from third-partv vendors and your accountant of the costs which would apply to vour proposed establishment and continued operation of a Relax The Back'8 Franchise. (2) discuss with current Relax The Back9 Franchisees their economic experiences (including initial costs) in opening and operating a Relax The Back'"' Franchise and (3) carefully evaluate the adequacy of your total financial reserves.
Although we make no estimates or representations regarding financial performance of a Relax The Back® Franchise, we recommend that, in addition to the additional funds shown, you have sufficient personal savings and/or income so that you are self-sufficient and need not draw funds from the franchised Relax The Back® business at least during the first six months of operation.
ITEM 8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES
The reputation and goodwill of each Relax The Back® Business is based on the satisfaction of customers who rely on the availability of a wide variety of quality Designated Equipment, Products and Services to be used or provided by Relax The Back® Businesses. We've already specified, and plan to specify in the future, various suppliers of Designated Equipment, Products and/or Services that meet our standards and requirements, which we can change at any time. Your Relax The Back® Business will purchase, use and offer each of, and only, such types, brands and/or quality of Designated Equipment, Products and Services as we designate. When required, you will use only suppliers designated by us. Designated suppliers may include, and may be limited to, us and/or companies affiliated with us.
You must purchase equipment, fixtures, furniture, trade dress items, supplies, inventory, and back-related products meeting our standards and specifications from approved suppliers. Our affiliate, BackSaver Acquisition Corp., is an approved supplier for sleep, home and office products, primarily for ergonomic chairs. Certain of these products are exclusive to the Relax The Back system. In the period from January 31, 20022003 ending February^December 31, 20032003, BAC derived $3,371,94,746,566 34 in revenue from purchases by franchisees. These figures are based upon BAC's sales records for the fiscal year ending February 1 December 31, 20032003.
We maintain a list of approved suppliers who are selected on the basis of product quality, service, and pricing, among other factors. As applicable, we will provide you with standards, specifications and a list of approved vendors and items. We have the right to change the list at any time as we choose. To obtain our approval of a supplier you or the supplier must submit to us (in writing) the information and the items that we consider appropriate, including among others: financial and business condition and reputation, facilities, distribution structure, insurance, credit rating, warranty and credit policies; as well as product information and samples, test results, photographs, records or production, and specifications. The supplier must also arrange for a demonstration of the equipment/products at our company headquarters, currently in Cerritos, CA. We'll notify you within a reasonable time of our receipt of the necessary information whether or not you're authorized to purchase or use the proposed item or to deal with the proposed supplier. Under the Franchise Agreement, you agree not to make any claims against us with respect to any supplier (and/or our designation and/or our supervision of or our relationship with, a supplier) and to make any claims only against the supplier in question. You agree not to take any legal or other action with respect to any vendors without our prior written consent, which we may grant if we choose.
We may require that you join and make all purchases/leases solely through, a Relax The Back® purchasing cooperative or other entity designated by us (the "Co-op"). You must promptly pay all amounts due any such entity. The Co-op may adopt its own bylaws, rules, regulations and procedures,
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Page 15
The original documents were scanned as an image. The original file can be downloaded at the link above.