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FF 10/96© STP 5010-1 § 5. Sample Regulator's Comment Letters and Responses Form 5.01 Comment Letters [Letter from Maryland Securities Division, Office of Attorney General]  Re: Dear With regard to the application for renewal of the registration for the above-referenced fra nchisor, the following deficiencies require correction before this application may be made effective in Maryland: 1. Please amend the acknowledgment of receipt page to reflect the correct address of the Maryland Division of Securities, i.e., 200 St. Paul Place, 20th Floor Baltimore, Maryland 21202-2020 2. On the acknowledgment of receipt page, please designate the “Maryland Securities C ommissioner, 200 St. Paul Place, 20th Floor, Baltimore, Maryland 21202-2020” as your registered agent authorized t o receive process in Maryland. 3. Pursuant to Section 02.02.10.12(k) of the Code of Maryland Regulations, please disclose the manner by which a franchisee may obtain an accounting of the advertising fund. 4. The franchise agreement provides for termination upon the bankruptcy of the franchisee. Please include a statement in Item 17 that this provision may not be enforceable under federal bankruptc y law (11 U.S.C. Section 101 et seq.). 5. Please amend Item 17 of the offering circular and the appropriate section(s) of the Franc hise Agreement to the effect that the general release required as a condition of transfer shall not apply to any liability under the Maryland Franchise Registration and Disclosure Law. 6. Please provide updated information in the addendum to Item 20. This registration cannot be made effective until the above described deficiencies have been cured. Your documents will be reviewed upon receipt and, if all is in order, an effective date will then be assigned. You will receive written notification of effectiveness. Please note the file number referenced above. Please include this number in all future correspondence to enable the Division to process all requests with maximum efficiency. In submitting this information please submit a red-lined copy denoting all changes a nd a clean copy of the entire document . Should you have any additional questions, please contact me. Thank you. Sincerely yours,____________________________________________ Senior Franchise Examiner  Reprinted with permission. Form 5.01 5010-2 © STP FF 10/96 [Letter from Attorney General, State of Illinois] , 19 Re: _________________________________________ File No. _____________________________________ Dear We have reviewed your application for registration under the Illinois Franchise Disclosure Act . Before we can approve the registration, certain revisions to your circular are necessary. See the attached page(s). This request for additional information stops the statutory twenty business day review period. Your application will not be effective until the additional information is submitted and approved by this office. No franchise may be advertised. offered, or sold in this state until you are notified of registration. If you have any questions contact the undersigned. Sincerely,____________________________________________ Franchise Examiner Franchise Division  Reprinted with permission. Form 5.01 FF 10/96© STP 5010-3 ADDITIONAL INFORMATION REQUESTED: File no. 1. Submit an originally executed Uniform Consent to Service of Process, with Corporate Acknowledgment, which names the Illinois Attorney General the franchisor's attorney in Illinoi s for service of process. Be advised that the latter document must conform to the language set forth in Section 200, Appendix A, Illustration D of the Rules and Regulations of the Illinois Franchise Disclosure Act. 2. With regard to the Escrow Agreement filed be advised of the following: A. you must file a duplicate original of the Agreement; and B. the Illinois Attorney General is the Administrator of the Illinois Franchise Disclosure Act. 3. The financing arrangements referred to in the Advertisement Materials are not disc losed in Items 5, 7 and 10 of the Offering Circular. Revise accordingly. 4. The journal article entitled cannot be distributed in Illinois because it disclose s sales levels which have not been substantiated in Item 19 of the Offering Circular. 5. The journal article entitled cannot be used for the same reason referred to in numbe r 4 above. 6. The Winter, 1991 Newsletter cannot be used for the same reason referred to in number 4 above. 7. Revise the Uniform Franchise Offering Circular (UFOC) cover page to leave the effective date blank until notified of such by this office. 8. Revise the third paragraph of the required boldface disclosure on the UFOC cover page to read: IF THIS OFFERING CIRCULAR IS NOT DELIVERED ON TIME, OR IF IT CONTAINS A FALSE, INCOMPLETE, INACCURATE OR MISLEADING STATEMENT, A VIOLATION OF FEDERAL AND STATE LAW MAY HAVE OCCURRED AND SHOULD BE REPORTED TO THE FEDERAL TRADE COMMISSION, WASHINGTON, D.C. 20580 AND TO THE ILLINOIS ATTORNEY GENERAL'S OFFICE, 500 SOUTH SECOND STREET, SPRINGFIELD, ILLINOIS 62706, WHICH ADMINISTERS AND ENFORCES THE ILLINOIS FRANCHISE DISCLOSURE ACT. 9. Delete your fourth paragraph of the boldface disclosure. 10. Be advised that if you intend to offer subfranchise rights in Illinois, the entire Offering Circular will have to be revised to disclose such offer, and the agreement will have to be ma de part thereof. If not, disclose such in Item 1. 11. Set forth in Item 5 the amount, or formula for determining the amount, by which the init ial fee will be reduced in the case of multiple purchases. 12. Set forth in Item 7 whether the Franchisor offers financing for all or part of the initial investment. 13. Set forth in Item 6, rather than Item 8, the information regarding the charge for on-going comput er software support. 14. Set forth in Item 11 the criteria the Franchisor uses to grant site approval. Form 5.01 5010-4 © STP FF 10/96 15. Due to an amendment to the Illinois Franchise Disclosure Act regarding the terminat ion and non- renewal of a franchise by the franchisor, the following statement reading “The conditions under which your franchise can be terminated and your rights upon non-renewal may be affected by Illinois l aw, Ill. Rev. Stat., 1989, ch. 121, pars. 1719 and 1720” must be inserted into Item 17 or in an addendum to the Offering Circular. 16. Pursuant to Section 22(a)(8) of the Illinois Franchise Disclosure Act and Rule Section 200.500 thereunder, any franchise registration will be denied where the applicant's most recent B alance Sheet discloses negative stockholder's equity. You have the option of 1) withdrawing the application, 2) submitti ng an executed Escrow Agreement prepared in accordance with the form prescribed in Rule Sect ion 200.502 under the Illinois Franchise Disclosure Act, or 3) submitting an executed Surety Bond in an amount to be determined by our Office using the form prescribed in Rule Section 200.505. An Order of Denial will be issued should you fail to respond as indicated above. 17. Item 12 is inconsistent with Article 2 of the Franchise Agreement. Revise accordingly. P.S. Where the additional information requested requires the revision(s) of any page(s) of your Franchise Offering Circular, please make the revision(s) and send the revised page(s) in duplica te to this office. You must underline the changes in red on one set of the submitted page(s). Form 5.01 FF 10/96© STP 5010-5 CERTIFICATE OF MAILING , Franchise Examiner in the Illinois Attorney General’s Office herein certifies that she has served a copy of the foregoing letter upon [ ] by mailing to the franchisor a true copy thereof at in an envelope addressed to the franchisor, bearing proper first class postage and deposited in the U.S. mail at Springfield this 9th day of August, 1991. ____________________________________________ Franchise Examiner 500 South Second Street Springfield, IL 62706(217) 782-4465 Form 5.01 5010-6 © STP FF 10/96 [Letter from State of New York, Department of Law]  Re: _________________________________________ Gentlemen: The franchise offering prospectus of , , which was received by this office on , has been reviewed by the undersigned and the following comments are noted: 1. Item 11, p. 11—After the paragraph which is headed “Confidential Operations and Training Ma nuals” state: “However, no changes to the manual will be made which would impose an unreasonabl e economic burden on the Franchisee or unreasonably increase its obligations.” This also applies to the Franchise Agreement, paragraph 4B.3., pages 2 and 3. 2. Item 12, pages 12 and 13—The franchise regulations require that the exclusive territory be described. You should clearly state that an exclusive area will consist of territory embraced by a zip code, county lines, city lines, other municipal boundaries, population or other quantifiable criteria. 3. Item 17, pages 1720—In the section which is headed “Default and Termination” the Franchi see's right to terminate must be provided for and the grounds upon which such termination may be accom plished set forth. One of the grounds for termination by the Franchisee should be if Franchisor has committed a substantial breach of the Agreement. This comment also applies to the Franchise Agreement, paragra ph 12, pages 10 and 11. 4. Item 17, p. 21—After the first paragraph of the section which is headed “Assignment and Transfer” state: “However, no assignment shall be made except to an Assignee who, in the good fait h judgment of Franchisor, is able to assume Franchisor's obligations under this Agreement.” This also applies to the Franchise Agreement, paragraph 10.A, p. 7. 5. Item 17, p. 23—At the end of the last paragraph of this page after “and that, as such, the y be enforceable by” add “application for.” 6. Franchise Agreement, paragraph 9.A, p. 7—After this paragraph which ends “of the Proprietary Marks.” state: “However, Franchisee shall not be required to indemnify for any claims arisi ng out of a breach of the Agreement or other civil wrongs of the Franchisor.” 7. New York Rider to Franchise Agreement— a) In paragraph 1.a. after “Notwithstanding the provisions of paragraph” state “X(C)(5)” not “X(D)5.” b) In paragraph 1.b. after “the choice of law provisions of paragraph” state 16 not 19. 8. Two corrected prospectuses should be submitted to this office, one of which should be redlined t o show the language that has been revised in response to this letter. Very truly yours,____________________________________________ Associate Accountant  Reprinted with permission.