Sec. 02.02.08.10. Exemptions

A. Basis of Exemption. Under the Maryland Franchise Law, Business Regulation Article, §14-214(b)(3), Annotated Code of Maryland, the Commissioner has determined that the offers or sales described in B-----G of this regulation are exempt from the registration provisions of the Maryland Franchise Law because the transactions are not within the purpose of the Maryland Franchise Law and registration of the transactions is not necessary or appropriate for the protection of investors.

B. Out-of-State Sales.

(1) The registration provisions of the Maryland Franchise Law do not apply to an offer or sale of a franchise to a resident of a foreign state, territory, or country who is not a resident of Maryland to the knowledge of the seller.

(2) The exemption set forth in §B(1) of this regulation may be claimed only if:

(a) The franchised business is not to be operated wholly or partially in Maryland;

(b) The sale of the franchise does not violate any law of the foreign state, territory, or country of which the offeree or buyer is a resident; and

(c) The sale of the franchise does not violate the antifraud provisions of the Maryland Franchise Law.

C. Nominal Franchise Fee. The registration provisions of the Maryland Franchise Law do not apply to an offer or sale of a franchise when the franchise fee does not exceed $100 on an annual basis.

D. Seasoned Franchisor.

(1) The registration provisions of the Maryland Franchise Law do not apply to any offer or sale of a franchise when the franchisor has:

(a) A net equity, according to its most recently audited financial statements, of not less than:

(i) $10,000,000 on a consolidated basis, or

(ii) $1,000,000 and is at least 80 percent owned by a corporation or entity that has a net equity, on a consolidated basis, according to its most recently audited financial statements, of not less than $10,000,000, which 80 percent owner guarantees the performance of the franchisor's obligations; and

(b) Had at least 25 franchisees conducting the same franchised business at all times during the 5-year period immediately preceding the offer or sale.

(2) The exemption set forth in §D(1) of this regulation may be claimed only if the franchisor:

(a) Files a Form F-1 Notice of Exemption:

(i) Not later than 10 business days before the offer or sale of any franchise, which Notice of Exemption shall expire after a period of 1 year, and

(ii) If the franchisor intends to offer or sell for an additional period annually after that, at least 10 business days before the expiration of the previously filed Notice of Exemption;

(b) Files a Consent to Service of Process naming the Commissioner as the franchisor's agent to receive process in Maryland;

(c) Files an undertaking by which it agrees to supply any additional information the Commissioner may reasonably request;

(d) Pays the filing fee required by the Maryland Franchise Law, Business Regulation Article, §14-214(d), Annotated Code of Maryland;

(e) Submits financial statements demonstrating compliance with the conditions set forth in §D(1)(a) of this regulation;

(f) Submits a representation that the franchisor complies with the condition set forth in §D(1)(b) of this regulation; and

(g) Files one copy of its current offering circular.

E. Sophisticated Franchisee.

(1) The registration provisions of the Maryland Franchise Law do not apply to any offer or sale of a franchise for which the franchisor requires an initial investment by the franchisee of more than $750,000.

(2) The exemption set forth in §E(1) of this regulation may be claimed only if the franchisor:

(a) Files a Form F-1 Notice of Exemption:

(i) Not later than 10 business days before the offer or sale of any franchise, which Notice of Exemption shall expire after a period of 1 year, and

(ii) If the franchisor intends to offer or sell for an additional period annually after that, at least 10 business days before the expiration of the previously filed Notice of Exemption;

(b) Files a Consent to Service of Process naming the Commissioner as the franchisor's agent to receive process in Maryland;

(c) Files an undertaking by which it agrees to supply any additional information the Commissioner may reasonably request;

(d) Pays the filing fee required by the Maryland Franchise Law, Business Regulation Article, §14-214(d), Annotated Code of Maryland; and

(e) Files one copy of its current offering circular.

F. Institutional Franchisee.

(1) The registration provisions of the Maryland Franchise Law do not apply to an offer or sale of a franchise to a bank, savings bank, savings and loan association, trust company, insurance company, investment company, or other financial institution, or to a broker-dealer when the:

(a) Purchaser is acting for itself or in a fiduciary capacity; and

(b) Franchise is not being purchased for the purpose of resale.

(2) The exemption set forth in §F(1) of this regulation may be claimed only if the franchisor:

(a) Files a Form F-1 Notice of Exemption at least 10 business days before each offer or sale of each franchise;

(b) Files a Consent to Service of Process naming the Commissioner as the franchisor's agent to receive process in Maryland;

(c) Files an undertaking by which it agrees to supply any additional information as the Commissioner may reasonably request; and

(d) Pays the filing fee required by the Maryland Franchise Law, Business Regulation Article, §14-214(d), Annotated Code of Maryland.

G. Exemption by Order.

(1) The registration provisions of the Maryland Franchise Law do not apply to an offer or sale of a franchise or class of franchises not otherwise described in B-----F of this regulation if the Commissioner, by order, determines that:

(a) The transaction or class of franchises is not one within the purpose of the Maryland Franchise Law; and

(b) Registration of the transaction or class of franchises is not necessary or appropriate in the public interest or for the protection of franchisees.

(2) A request for an order exempting the offer and sale of a franchise or class of franchises under this section shall:

(a) Be filed with the Commissioner;

(b) Contain a description of the transaction or class of franchises for which an exemption is sought and the reasons why an order of exemption is appropriate under the criteria described in §G(1) of this regulation; and

(c) Include a representation that the person making the request shall provide any additional information the Commissioner requires.

(3) A request for an order under this section may be made either by a franchisor or a franchisee.

(4) The Commissioner's order exempting the offer and sale of a franchise or class of franchises shall include findings of fact and reasons why granting the exemption is appropriate under the criteria described in §G(1) of this regulation.

(5) Unless the Commissioner orders otherwise, if the Commissioner finds that a franchise or class of franchises satisfies the criteria described in §G(1) of this regulation, an exemption may be claimed only if the franchisor:

(a) Files a Form F-1 Notice of Exemption, as set forth in Regulation .11 of this chapter, not later than 10 business days before the offer or sale of any franchise, which Notice of Exemption shall expire after a period of 1 year, and if the franchisor intends to offer or sell for an additional period annually after that, at least 10 business days before the expiration of the previously filed Notice of Exemption;

(b) Files a Consent to Service of Process naming the Commissioner as the franchisor's agent to receive process in Maryland;

(c) Files an undertaking by which it agrees to supply any additional information the Commissioner may reasonably require;

(d) Pays the filing fee required by the Maryland Franchise Law, Business Regulation Article, §14-214(d), Annotated Code of Maryland; and

(e) Files one copy of its current offering circular.

H. Disclosure Requirements.

(1) Unless the Commissioner orders otherwise, if a franchisor relies upon any of the exemptions set forth in §D, E, F, or G of this regulation, the franchisor shall provide an offering circular, together with all proposed agreements relating to the sale of the franchise, to a prospective franchisee at the earlier of:

(a) The prospective franchisee's first personal meeting with the franchisor; or

(b) 10 business days before the signing of the agreement or the payment of any consideration.

(2) Instead of providing an offering circular prepared in accordance with the Maryland Franchise Law, Business Regulation Article, §14-216, Annotated Code of Maryland, and Regulation .04 of this chapter, a franchisor may provide an offering circular that complies with the requirements of the:

(a) Federal Trade Commission's trade regulation entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures", 16 CFR 436;

(b) Franchise disclosure law of another state; or

(c) UFOC.

(3) Franchisors filing a claim of exemption under §D, E, F, or G of this regulation shall include a self-addressed stamped envelope by which the Division may return to the franchisor confirmation of receipt of the filing and the exemption file number assigned. Correspondents shall refer to the assigned file number in all subsequent related filings and correspondence with the Division.