Z-1506               _______________________________________________

                                                   SENATE BILL NO. 6720

                        _______________________________________________

State of Washington                               51st Legislature                              1990 Regular Session

By Senators Nelson, Talmadge, Newhouse  and Rasmussen

Read first time 1/24/90 and referred to Committee on  Law & Justice.

AN ACT Relating to franchise investment protection; amending RCW 19.100.010, 19.100.020, 19.100.030, 19.100.040, 19.100.070, 19.100.080, 19.100.100, 19.100.140, 19.100.160, 19.100.170, 19.100.180, 19.100.220, and 19.100.240; and adding new sections to chapter 19.100 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

        Sec. 1.  Section 1, chapter 252, Laws of 1971 ex. sess. as last amended by section 83, chapter 158, Laws of 1979 and RCW 19.100.010 are each amended to read as follows:

          When used in this chapter, unless the context otherwise requires:

          (1) "Advertisement" means any written or printed communication or any communication by means of recorded telephone messages or spoken on radio, television, or similar communication media published in connection with an offer or sale of a franchise.

          (2) (("Community interest" means a continuing financial interest between the franchisor and franchisee in the operation of the franchise business.))  "Affiliate" means a person controlling, controlled by, or under common control with another person, every officer or director of such person, and every person occupying a similar status or performing similar functions.

          (3) "Director" means the director of licensing.

          (4) "Franchise" means:

(a) An ((oral or written contract or)) agreement, ((either expressed)) express or implied, ((in)) oral or written, by which:

(i) A person ((grants to another person, a license to use a trade name,)) is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan prescribed or suggested in substantial part by the grantor;

(ii) The operation of the business is substantially associated with a trademark, service mark, ((trade mark, logotype or related characteristic in which there is a community interest in the business of offering, selling, distributing goods or services at wholesale or retail, leasing, or otherwise and in which the franchisee)) name, advertising, or other commercial symbol designating, owned by, or licensed by the grantor or its affiliate; and

(iii) The person pays, agrees to pay, or is required to pay, directly or indirectly, a franchise fee((:  PROVIDED, That none of the)).

(b) The following shall not be construed as a franchise within the meaning of this chapter:

          (((a))) (i) The payment of a reasonable service charge to the issuer of a credit card by an establishment accepting or honoring such credit card or any transaction relating to a bank credit card plan;

          (((b))) (ii) Actions or transactions otherwise permitted, prohibited or regulated under laws administered by the insurance commissioner of this state;

          (((c))) (iii) Any motor vehicle dealer franchise subject to the provisions of chapter 46.70 RCW.

          (5) "Bank credit card plan" means a credit card plan in which the issuer of credit cards ((as defined by RCW 9.26A.010(1))) is a national bank, state bank, trust company or any other banking institution subject to the supervision of the supervisor of banking of this state or any parent or subsidiary of such bank.

          (6) "Franchisee" means a person to whom a franchise is offered or granted.

          (7) "Franchisor" means a person who grants a franchise to another person.

          (8) (("Area franchise" means any contract or agreement between a franchisor or subfranchisor whereby the subfranchisor is granted the right to))  "Subfranchise" means an agreement, express or implied, oral or written, by which a person pays or agrees to pay, directly or indirectly, a franchisor or affiliate for the right to grant, sell or negotiate the sale of ((franchises in the name or on behalf of the franchisor)) a franchise.

          (9) "Subfranchisor" means a person to whom ((an area franchise)) a subfranchise is granted.

          (10) "Franchise broker ((or selling agent))" means a person who directly or indirectly engages in the business of the offer or sale of franchises.  The term does not include a franchisor, subfranchisor, or their officers, directors, or employees.

          (11) "Franchise fee" means any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business or to continue a business under a franchise agreement, including, but not limited to, the payment either in lump sum or by installments of an initial capital investment fee, any fee or charges based upon a percentage of gross or net sales whether or not referred to as royalty fees, any payment for the mandatory purchase of goods or services or any payment for goods or services available only from the franchisor, or any training fees or training school fees or charges; however, the following shall not be considered payment of a franchise fee:  (a) the purchase or agreement to purchase goods at a bona fide wholesale price; (b) the purchase or agreement to purchase goods by consignment; if, and only if the proceeds remitted by the franchisee from any such sale shall reflect only the bona fide wholesale price of such goods; (c) a bona fide loan to the franchisee from the franchisor; (d) the purchase or agreement to purchase goods at a bona fide retail price subject to a bona fide commission or compensation plan that in substance reflects only a bona fide wholesale transaction; (e) the purchase or lease or agreement to purchase or lease supplies or fixtures necessary to enter into the business or to continue the business under the franchise agreement at their fair market or rental value; (f) the purchase or lease or agreement to purchase or lease real property necessary to enter into the business or to continue the business under the franchise agreement at the fair market or rental value; (g) amounts paid for trading stamps redeemable in cash only; (h) amounts paid for trading stamps to be used as incentives only and not to be used in, with, or for the sale of any goods.

          (12) "Person" means a natural person, corporation, partnership, trust, or other entity and in the case of an entity, it shall include any other entity which has a majority interest in such an entity or effectively controls such other entity as well as the individual officers, directors, and other persons in act of control of the activities of each such entity.

          (13) "Publish" means publicly to issue or circulate by newspaper, mail, radio, or television or otherwise to disseminate to the public.

          (14) "Sale or sell" includes every contract of sale, contract to sell, or disposition of a franchise.

          (15) "Offer or offer to sell" includes every attempt or offer to dispose of or solicitation of an offer to buy a franchise or an interest in a franchise.

        Sec. 2.  Section 2, chapter 252, Laws of 1971 ex. sess. and RCW 19.100.020 are each amended to read as follows:

(1) It is unlawful for any franchisor or subfranchisor to sell or offer to sell any franchise in this state unless the offer of the franchise has been registered under this chapter or exempted under RCW 19.100.030.

(2) For the purpose of this section, an offer to sell a franchise is in this state when:  (a) The offer is directed by the offeror into this state from within or outside this state and is received where it is directed, (b) the offer originates from this state and violates the franchise or business opportunity law of the state or foreign jurisdiction into which it is directed, (c) the offeree is a resident of this state, or (d) the franchise business that is the subject of the offer is to be located or operated, wholly or partly, in this state.

(3) For the purpose of this section, a sale of any franchise is in this state when:  (a) An offer to sell is accepted in this state, (b) an offer originating from this state is accepted and violates the franchise or business opportunity law of the state or foreign jurisdiction in which it is accepted, (c) the purchaser of the franchise is a resident of this state, or (d) the franchise business that is the subject of the sale is to be located or operated, wholly or partly, in this state.

(4) For the purpose of this section, an offer to sell is not made in this state solely because the offer appears:  (a) In a newspaper or other publication of general and regular circulation if the publication has had more than two-thirds of its circulation outside this state during the twelve months before the offer is published, or (b) in a broadcast or transmission originating outside this state.

        Sec. 3.  Section 3, chapter 252, Laws of 1971 ex. sess. as amended by section 2, chapter 116, Laws of 1972 ex. sess. and RCW 19.100.030 are each amended to read as follows:

          The registration requirements of this chapter shall not apply to:

          (1) ((A)) The offer or sale or transfer of a franchise by a franchisee ((whether voluntary or involuntary if such sale is an isolated sale)) who is not an affiliate of the franchisor for the franchisee's own account if the franchisee's entire franchise is sold and the sale is not effected by or through the franchisor.  A sale is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove the sale or requires payment of a reasonable transfer fee.  This exemption applies to the offer or sale of a subfranchise if the entire subfranchise is sold.

          (2) ((Any transaction)) The offer or sale of a franchise by an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, ((or)) conservator, or pursuant to a court-approved offer or sale, on behalf of a person other than the franchisor or the estate of the franchisor.

          (3) ((Any)) The offer or sale of a franchise to a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act of 1940, pension or profit sharing trust, or other financial institution or institutional buyer or to a broker dealer where the purchaser is acting for itself or in some fiduciary capacity.

          (4) ((Any)) The offer or sale of a franchise by a franchisor:

          (a) Who has ((disclosed)) delivered in writing to each prospective franchisee, at least ((forty-eight hours)) ten days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least ((forty-eight hours)) ten days prior to the receipt of any consideration, ((the following information:

          (i) The name of the franchisor and the name under which the franchisor is doing or intends to do business.

          (ii) The franchisor's principal business address and the name and address of his agent in the state of Washington authorized to receive process.

          (iii) The business form of the franchisor whether corporate, partnership, or otherwise.

          (iv) A statement of when, where, and how long the franchisor has:

          (A) Conducted a business of the type to be operated by the franchisees;

          (B) Has granted franchises for such business; and

          (C) Has granted franchises in other lines of business.

          (v) A copy of the typical franchise contract or agreement proposed for use including all amendments thereto.

          (vi) A statement of the franchise fee charged, the proposed application of the proceeds of such fee by the franchisor, and the formula by which the amount of the fee is determined if the fee is not the same in all cases; a statement indicating whether and under what conditions all or part of the initial franchise fee may be returned to the franchisee; and a statement of the estimated total investment to be made by the franchisee for:

          (A) The initial franchise fee and other fees, whether payable in one sum or in installments;

          (B) Fixed assets other than real property and leases for real property, whether or not financed by contract or installment purchase, leasing or otherwise;

          (C) Working capital, deposits and prepaid expenses;

          (D) Real property, whether or not financed by contract or installment purchase or otherwise, and leases for real property; and

          (E) All other goods and services which the franchisee will be required to purchase or lease.

          (vii) A statement describing a payment of fees other than franchise fees that the franchisee is required to pay to the franchisor including royalties and payments or fees which the franchisor collects in whole or in part on behalf of a third party or parties.

          (viii) A statement of the conditions under which the franchise agreement may be terminated or renewed or renewal refused.

          (ix) A statement of the conditions under which the franchise may be sold, transferred, or assigned.

          (x) A statement of the conditions imposed by the franchisor whether by the terms of the franchise agreement or by other device or practice whereby the franchisee is required to purchase services, supplies, products, fixtures, or other goods relating to the establishment or operation of the franchise business from the franchisor or his designee together with a statement of whether and of the means by which the franchisor derives income from such purchases.

          (xi) A statement of any restriction or condition imposed by the franchisor whether by the terms of the franchise agreement or by other device or practice whereby the franchisee is limited and/or required in the goods or services offered by him.

          (xii) A statement of the terms and conditions of any financing arrangements when offered directly or indirectly by the franchisor or his agent or affiliate.

          (xiii) A statement of any intent of the franchisor to sell, assign, or discount to a third party any note, contract, or other obligation of the franchisee in whole or in part.

          (xiv) A copy of any statement of estimated or projected franchisee sales or earnings prepared for presentation to prospective franchisees or other persons together with a statement immediately following such statement setting forth the data upon which the estimations or projections are based and explaining clearly the manner and extent to which such data relates to the actual operations of businesses conducted by the franchisor or its franchisees.

          (xv) A statement of business failures of franchisees, resales to the franchisor, sales of the franchise to others, and transfers in the state of Washington during the two year period preceding the date of the statement.

          (xvi) A statement describing the training program, supervision, and assistance the franchisor has and will provide the franchisee.

          (xvii) A statement as to whether or not franchisees are granted a specific area or territory within which the franchisor agrees not to operate or grant additional franchises for the operation of the franchise business or in which the franchisor will operate or grant franchises for the operation of no more than a specified number of additional franchise businesses.

          (xviii) A list of the names, addresses and telephone numbers of all operating franchise businesses under franchise agreement with the franchisor located in the state of Washington.

          (xix) A statement explaining the terms and effects of any covenant not to compete which is or will be included in the franchise or other agreement to be executed by the franchisee.

          (xx) A statement setting forth such additional information and such comments and explanations relative to the information contained in the disclosure statement as the franchisor may desire to present; and)) whichever occurs first, an offering circular complying with guidelines adopted by rule of the director.  The director shall be guided in adopting such a rule by the guidelines for the preparation of the uniform franchise offering circular adopted by the North American securities administrators association, inc., or its successor, as such guidelines may be revised from time to time;

          (b) Who either:

          (i) (A) Has a net worth on a consolidated basis, according to its most recent audited financial statement, of not less than five million dollars or who has a net worth, according to its most recent audited financial statement, of not less than one million dollars and is at least eighty percent owned by a corporation which has a net worth on a consolidated basis, according to its most recent audited financial statement, of not less than five million dollars; and

          (B) Has had at least twenty-five franchisees conducting business at all times during the five-year period immediately preceding the offer or sale or has conducted business which is the subject of the franchise continuously for not less than five years preceding the offer or sale or if any corporation which owns at least eighty percent of the franchisor, has had at least twenty-five ((franchises [franchisees])) franchisees conducting business at all times during the five-year period immediately preceding the offer or sale ((or)) of such corporation has conducted business which is the subject of the franchise continuously for not less than five years preceding the offer or sale; and

          (C) Requires an initial investment by the franchisee of more than one hundred thousand dollars;

(D) Files annually with the director a statement prescribed by rule of the director giving notice of such claim, and pays a filing fee as set forth in RCW 19.100.240; or

          (ii) (A) Has ((and is offering for sale fewer than ten franchises)) no outstanding franchises granted for businesses located or to be located outside the state of Washington, (B) has granted and grants no more than three franchises for franchise businesses to be situated within the state of Washington ((under franchise agreement; and

          (B) does not advertise, using radio, television, newspaper, magazine, billboard, or other advertising medium the principal office of which is located in the state of Washington or Oregon, concerning the sale of or offer to sell franchises)), (C) does not publish an advertisement or engage in general solicitation for the franchise sold, and (D) the buyer is represented or advised in the transaction by independent legal counsel or certified public accountant; or

          (iii) (((A))) Does not charge a franchise fee, as defined in RCW 19.100.010(11), in excess of ((fifteen)) five hundred dollars ((per year, and

          (B) does not advertise, using radio, television, newspaper, magazine, billboard, or other advertising medium, the principal office of which is located in the state of Washington or Oregon, concerning the sale of or offer to sell franchises)); and

          (c) Who has not been found by a court of competent jurisdiction to have been in violation of this chapter, chapter 19.86 RCW, or any of the various federal statutes dealing with the same or similar matters, within seven years of any sale or offer to sell franchise business under franchise agreement in the state of Washington.

          (5) ((Neither the registration requirements nor the provisions of RCW 19.100.180(2), as now or hereafter amended, shall apply to any franchisor:

          (a) Who meets the tests and requirements set forth in subsections (4)(a), (4)(b)(i)(A), 4(b)(i)(B), and 4(c) of this section; and

          (b) Who is engaged in the business of renting or leasing motor vehicles through an interdependent system of direct and franchised operations in interstate commerce in twenty or more states; and

          (c) Who is subject to the jurisdiction of the federal trade commission and the federal anti-trust laws)) The offer or sale of a franchise to an accredited investor, as defined by rule adopted by the director.  The director shall be guided in adopting such a rule by the rules defining accredited investors promulgated by the federal securities and exchange commission.

          Any franchisor or subfranchisor who claims an exemption under subsection ((4(a) and 4(b)(i))) (4)(b)(i) of this section shall file with the director a statement giving notice of such claim and setting forth the name and address of franchisor or subfranchisor and the name under which the franchisor or subfranchisor is doing or intends to do business.

(6) The offer or sale of an additional franchise to an existing franchisee of the franchisor for the franchisee's own account that is substantially the same as the franchise that the franchisee has operated for at least two years at the time of the offer or sale, provided the prior sale to the franchisee was pursuant to a franchise offering that was registered in the state of Washington.

        Sec. 4.  Section 4, chapter 252, Laws of 1971 ex. sess. as amended by section 3, chapter 116, Laws of 1972 ex. sess. and RCW 19.100.040 are each amended to read as follows:

(1) The application for registration of the offer, signed by the franchisor, subfranchisor, or by any person on whose behalf the offering is to be made, must be filed with the director and shall contain:

          (((1) The name of the franchisor and the name under which the franchisor is doing or intends to do business.

          (2) The franchisor's principal business address and the name and address of his agent in the state of Washington authorized to receive process.

          (3) The business form of the franchisor whether corporate, partnership, or otherwise.

          (4) Such other information concerning the identity and business experience of persons affiliated with the franchisor including franchise brokers as the director may by rule prescribe.

          (5) A statement whether any person identified in the application for registration:

          (a) Has been found guilty of a felony or held liable in a civil action by final judgment if such civil action involved fraud, embezzlement, fraudulent conversion, or misappropriation of property, within ten years of the date of such application; or

          (b) Is subject to any currently effective order of the securities and exchange commission or the securities administrator of any state denying registration to or revoking or suspending the registration of such person as a securities broker or dealer or investment advisor or is subject to any currently effective order of any national security association or national securities exchange (as defined in the Securities & Exchange Act of 1934) suspending or expelling such person from membership of such association or exchange; or

          (c) Is subject to any currently effective order or ruling of the Federal Trade Commission pertaining to any franchise granted by franchisor or is subject to any currently effective order relating to business activity as a franchisor as a result of an action brought by the attorney general's office or by any public agency or department.

          Such statement shall set forth the court, the date of conviction or judgment, any penalty imposed, or damages assessed or the date, nature, and issue of such order.

          (6) A statement of when, where, and how long the franchisor has:

          (a) Conducted a business of the type to be operated by the franchisees;

          (b) Has granted franchises for such business; and

          (c) Has granted franchises in other lines of business.

          (7) A financial statement of the franchisor.  The director may describe:

          (a) Form and content of the financial statements required under this law;

          (b) The circumstances under which consolidated financial statements can be filed; and

          (c) The circumstances under which financial statements shall be audited by independent, certified public accountants.

          (8) A copy of the typical franchise contract or agreement proposed for use including all amendments thereto.

          (9) A statement of the franchise fee charged, the proposed application of the proceeds of such fee by the franchisor, and the formula by which the amount of the fee is determined if the fee is not the same in all cases; a statement indicating whether and under what conditions all or part of the initial franchise fee may be returned to the franchisee; and a statement of the estimated total investment to be made by the franchisee for:

          (a) The initial franchise fee and other fees, whether payable in one sum or in installments;

          (b) Fixed assets other than real property and leases for real property, whether or not financed by contract or installment purchase, leasing or otherwise;

          (c) Working capital, deposits and prepaid expenses;

          (d) Real property, whether or not financed by contract or installment purchase or otherwise, and leases for real property; and

          (e) All other goods and services which the franchisee will be required to purchase or lease.

          (10) A statement describing a payment of fees other than franchise fees that the franchisee is required to pay to the franchisor including royalties and payments or fees which the franchisor collects in whole or in part on behalf of a third party or parties.

          (11) A statement of the conditions under which the franchise agreement may be terminated or renewed or renewal refused.

          (12) A statement of the conditions under which the franchise may be sold, transferred, or assigned.

          (13) A statement of the conditions imposed by the franchisor whether by the terms of the franchise agreement or by other device or practice whereby the franchisee is required to purchase services, supplies, products, fixtures, or other goods relating to the establishment or operation of the franchise business from the franchisor or his designee together with a statement of whether and of the means by which the franchisor derives income from such purchases.

          (14) A statement of any restriction or condition imposed by the franchisor whether by the terms of the franchise agreement or by other device or practice whereby the franchisee is limited and/or required in the goods and services offered by him.

          (15) A statement of the terms and conditions of any financing arrangements when offered directly or indirectly by the franchisor or his agent or affiliate.

          (16) A statement of any intent of the franchisor to sell, assign, or discount to a third party any note, contract, or other obligation of the franchisee in whole or in part.

          (17) A copy of any statement of estimated or projected franchisee sales or earnings prepared for presentation to prospective franchisees or other persons, together with a statement immediately following such statement setting forth the data upon which the estimations or projections are based and explaining clearly the manner and extent to which such data relates to the actual operations of businesses conducted by the franchisor or its franchisees.

          (18) A statement of business failures of franchisees, resales to the franchisor, sales of the franchise to others, and transfers in the state of Washington during the two year period preceding the date of the statement.

          (19) A statement describing the training program, supervision, and assistance the franchisor has and will provide the franchisee.

          (20) Such other information as the director may reasonably require.

          (21) A list of the names, addresses and telephone numbers of all operating franchise businesses under franchise agreement with the franchisor located in the state of Washington.

          (22) A statement explaining the terms and effects of any covenant not to compete which is or will be included in the franchise or other agreement to be executed by the franchisee.

          (23) A statement setting forth such additional information and such comments and explanations relative to the information contained in the disclosure statement as the franchisor may desire to present.

          (24))) (a) A copy of the franchisor's or subfranchisor's offering circular which shall be prepared in compliance with guidelines adopted by rule of the director.  The director shall be guided in adopting such rule by the guidelines for the preparation of the uniform franchise offering circular adopted by the North American securities administrators association, inc., or its successor, as such guidelines may be revised from time to time;

(b) A copy of all agreements to be proposed to franchisees;

(c) A consent to service of process as required by RCW 19.100.160;

(d) The application for registration of a franchise broker, if any;

(e) The filing fee for such applications; and

(f) Such other information as the director determines, by rule or order, to be necessary or appropriate to facilitate the administration of this chapter.

(2) The director may require the filing of financial statements of the franchisor or subfranchisor audited by an independent certified public accountant and prepared in accordance with generally accepted accounting principles.

          When the person filing the application for registration is a subfranchisor, the application shall also include the same information concerning the subfranchisor as is required from the franchisor pursuant to this section.

        Sec. 5.  Section 7, chapter 252, Laws of 1971 ex. sess. as amended by section 5, chapter 116, Laws of 1972 ex. sess. and RCW 19.100.070 are each amended to read as follows:

          (1) A franchise offering shall be deemed duly registered, and a claim of exemption under RCW 19.100.030(4)(b)(i) shall be duly filed, for a period of one year from the effective date of registration or filing unless the director specifies a different period.

          (2) Registration of a franchise offer may be renewed for additional periods of one year each, unless the director by rule or order specifies a different period, by filing with the director no later than fifteen business days prior to the expiration thereof a renewal application containing such information as the director may require to indicate any substantial changes in the information contained in the original application for a renewal application and payment of the ((proscribed)) prescribed fee.

          (3) If a material adverse change in the condition of the franchisor or the subfranchisor or any material change in the information contained in its offering circular should occur during any year, ((a supplemental report shall be filed)) the franchiser or subfranchiser shall so amend the registration on file with the director as soon as reasonably possible and in any case, before the further sale of any franchise.

        Sec. 6.  Section 8, chapter 252, Laws of 1971 ex. sess. as amended by section 6, chapter 116, Laws of 1972 ex. sess. and RCW 19.100.080 are each amended to read as follows:

          ((Any person offering for sale or selling a franchise within this state, whether or not one or more franchises will be located within this state, must present to the prospective franchisee or his representative, at least forty-eight hours prior))  It is unlawful for any person to sell a franchise that is registered or required to be registered under this chapter without first delivering to the offeree, at least ten business days prior to the execution by the offeree of any binding franchise or other agreement, or at least ten business days prior to the receipt of any consideration, whichever occurs first, a copy of the offering circular required under RCW 19.100.040, with any addition or amendment to the offering circular required by RCW 19.100.070, together with a copy of the proposed agreements relating to the sale of the franchise((, copies of the materials specified in RCW 19.100.030(4)(a) and all supplemental reports of the franchisor and the subfranchisor on file with the director)).

        Sec. 7.  Section 10, chapter 252, Laws of 1971 ex. sess. and RCW 19.100.100 are each amended to read as follows:

          No ((persons)) person shall publish in this state any advertisements offering a franchise subject to the registration requirements of this law unless a true copy of the advertisement has been filed in the office of the director at least seven days prior to the publication or such shorter period as the director by rule or order may allow.

        Sec. 8.  Section 14, chapter 252, Laws of 1971 ex. sess. as amended by section 9, chapter 116, Laws of 1972 ex. sess. and RCW 19.100.140 are each amended to read as follows:

          (1) It is unlawful for any ((person)) franchise broker to offer to sell or sell a franchise ((which is subject to the registration requirements of RCW 19.100.040)) in this state unless he or she is registered under this chapter.  It is unlawful for any franchisor, subfranchisor, or franchisee((, except if the transaction is exempt under RCW 19.100.030)) to employ a franchise broker ((or selling agent)) unless he or she is registered.

          (2) The franchise broker ((or selling agent may)) shall apply for registration by filing with the director an application together with a consent to service of process in such form as the director shall prescribe and payment of the fee prescribed in RCW 19.100.240.

          (3) The application shall contain whatever information the director requires concerning such matters as:

          (a) The applicant's form and place of organization.

          (b) The applicant's proposed method of doing business.

          (c) The qualifications and business history of the applicant.

          (d) Any injunction or administrative order or conviction of a misdemeanor involving a security or any aspect of the securities business and any conviction of a felony; and

          (e) The applicant's financial condition and history.

        Sec. 9.  Section 16, chapter 252, Laws of 1971 ex. sess. and RCW 19.100.160 are each amended to read as follows:

          Any person who is engaged or hereafter engaged directly or indirectly in the sale or offer to sell a franchise or a subfranchise or in business dealings concerning a franchise, either in person or in any other form of communication, shall be subject to the provisions of this chapter, shall be amenable to the jurisdiction of the courts of this state and shall be amenable to the service of process under RCW 4.28.180, 4.28.185 and 19.86.160.  Every applicant for registration of a franchise under this law (by other than a Washington corporation) shall file with the director in such form as he by rule prescribed, an irrevocable consent appointing the director or his successor in office to be his attorney, to receive service or any lawful process in any noncriminal suit, action, or proceeding against him or his successors, executor, or administrator which arises under this law or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing consent.  A person who has filed such a consent in connection with a previous registration under this law need not file another.  Service may be made by leaving a copy of the process in the office of the director but it is not as effective unless:

          (1) The plaintiff, who may be the director, in a suit, action, or proceeding instituted by him forthwith sends notice of the service and a copy of the process by registered or certified mail to the defendant or respondent at his last address on file with the director; and

          (2) The plaintiff's affidavit of compliance with this section is filed in the case on or before the return day of the process, if any, or within such further times the court allows.

        Sec. 10.  Section 17, chapter 252, Laws of 1971 ex. sess. and RCW 19.100.170 are each amended to read as follows:

          It is unlawful for any person in connection with the offer, sale, or purchase of any franchise or subfranchise in this state directly or indirectly:

          (1) To make any untrue statement of a material fact in any application, notice, or report filed with the director under this law or willfully to omit to state in any application, notice or report, any material fact which is required to be stated therein or fails to notify the director of any material change as required by RCW 19.100.070(3).

          (2) To sell or offer to sell ((a franchise in this state)) by means of any written or oral communication which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made in light of the circumstances under which they were made not misleading.

          (3) To employ any device, scheme, or artifice to defraud.

          (4) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

          (5) To violate any order of the director.

        Sec. 11.  Section 18, chapter 252, Laws of 1971 ex. sess. as last amended by section 1, chapter 63, Laws of 1980 and RCW 19.100.180 are each amended to read as follows:

          Without limiting the other provisions of this chapter, the following specific rights and prohibitions shall govern the relation between the franchisor or subfranchisor and the franchisees:

          (1) The parties shall deal with each other in good faith.

          (2) For the purposes of this chapter and without limiting its general application, it shall be an unfair or deceptive act or practice or an unfair method of competition and therefore unlawful and a violation of this chapter for any person to:

          (a) Restrict or inhibit the right of the franchisees to join an association of franchisees.

          (b) Require a franchisee to purchase or lease goods or services of the franchisor or from approved sources of supply unless and to the extent that the franchisor satisfies the burden of proving that such restrictive purchasing agreements are reasonably necessary for a lawful purpose justified on business grounds, and do not substantially affect competition:  PROVIDED, That this provision shall not apply to the initial inventory of the franchise.  In determining whether a requirement to purchase or lease goods or services constitutes an unfair or deceptive act or practice or an unfair method of competition the courts shall be guided by the decisions of the courts of the United States interpreting and applying the anti-trust laws of the United States.

          (c) Discriminate between franchisees in the charges offered or made for royalties, goods, services, equipment, rentals, advertising services, or in any other business dealing, unless and to the extent that the franchisor satisfies the burden of proving that any classification of or discrimination between franchisees is:  (i) Reasonable, ((is)) (ii) based on franchises granted at materially different times and such discrimination is reasonably related to such difference in time, or is based on other proper and justifiable distinctions considering the purposes of this chapter, and (iii) is not arbitrary.  However, nothing in this subsection precludes negotiation of the terms and conditions of a franchise.

          (d) Sell, rent, or offer to sell to a franchisee any product or service for more than a fair and reasonable price.

          (e) Obtain money, goods, services, anything of value, or any other benefit from any other person with whom the franchisee does business on account of such business unless such benefit is disclosed to the franchisee.

          (f) If the franchise provides that the franchisee has an exclusive territory, which exclusive territory shall be specified in the franchise agreement, for the franchisor or subfranchisor to compete with the franchisee in an exclusive territory or to grant competitive franchises in the exclusive territory area previously granted to another franchisee.

          (g) Require franchisee to assent to a release, assignment, novation, or waiver which would relieve any person from liability imposed by this chapter:  PROVIDED, That a release executed by a franchisee pursuant to a negotiated settlement in connection with a bona fide dispute between a franchisee and a franchisor in which the franchisee is represented by independent legal counsel is not a release required by the franchisor for the purpose of this subsection.

          (h) Impose on a franchisee by contract, rule, or regulation, whether written or oral, any standard of conduct unless the person so doing can sustain the burden of proving such to be reasonable and necessary.

          (i) Refuse to renew a franchise without fairly compensating the franchisee for the fair market value, at the time of expiration of the franchise, of the franchisee's inventory, supplies, equipment, and furnishings purchased from the franchisor, and good will, exclusive of personalized materials which have no value to the franchisor, and inventory, supplies, equipment and furnishings not reasonably required in the conduct of the franchise business:  PROVIDED, That compensation need not be made to a franchisee for good will if (i) the franchisee has been given one year's notice of nonrenewal and (ii) the franchisor agrees in writing not to enforce any covenant which restrains the franchisee from competing with the franchisor:  PROVIDED FURTHER, That a franchisor may offset against amounts owed to a franchisee under this subsection any amounts owed by such franchisee to the franchisor.

          (j) Terminate a franchise prior to the expiration of its term except for good cause.  Good cause shall include, without limitation, the failure of the franchisee to comply with lawful material provisions of the franchise or other agreement between the franchisor and the franchisee and to cure such default after being given written notice thereof and a reasonable opportunity, which in no event need be more than thirty days, to cure such default, or if such default cannot reasonably be cured within thirty days, the failure of the franchisee to initiate within thirty days substantial and continuing action to cure such default:  PROVIDED, That after three willful and material breaches of the same term of the franchise agreement occurring within a twelve-month period, for which the franchisee has been given notice and an opportunity to cure as provided in this subsection, the franchisor may terminate the agreement upon any subsequent willful and material breach of the same term within the twelve-month period without providing notice or opportunity to cure:  PROVIDED FURTHER, That a franchisor may terminate a franchise without giving prior notice or opportunity to cure a default if the franchisee:  (i) Is adjudicated a bankrupt or insolvent; (ii) makes an assignment for the benefit of creditors or similar disposition of the assets of the franchise business; (iii) voluntarily abandons the franchise business; or (iv) is convicted of or pleads guilty or no contest to a charge of violating any law relating to the franchise business.  Upon termination for good cause, the franchisor shall purchase from the franchisee at a fair market value at the time of termination, the franchisee's inventory and supplies, exclusive of (i) personalized materials which have no value to the franchisor; (ii) inventory and supplies not reasonably required in the conduct of the franchise business; and (iii), if the franchisee is to retain control of the premises of the franchise business, any inventory and supplies not purchased from the franchisor or on his express requirement:  PROVIDED, That a franchisor may offset against amounts owed to a franchisee under this subsection any amounts owed by such franchisee to the franchisor.

NEW SECTION. Sec. 12.  A new section is added to chapter 19.100 RCW to read as follows:

          Nothing in this chapter precludes negotiation of the terms and conditions of a franchise.  After the initial offer to a franchisee using the offering circular required by RCW 19.100.030 or 19.100.040, a franchisor need not provide any amended offering circular or make supplemental disclosure to that franchisee or make supplemental disclosure to that franchisee by reason of a change being negotiated with that franchisee in the terms and conditions of a franchise.

NEW SECTION. Sec. 13.  A new section is added to chapter 19.100 RCW to read as follows:

          After the initial offer to a franchisee using the offering circular required by RCW 19.100.030 or 19.100.040, a franchisor need not provide an amended offering circular or make supplemental disclosure to that franchisee by reason of a change in the terms and conditions of a franchise being negotiated at the initiative of that franchisee.

        Sec. 14.  Section 22, chapter 252, Laws of 1971 ex. sess. as amended by section 14, chapter 116, Laws of 1972 ex. sess. and RCW 19.100.220 are each amended to read as follows:

          In any proceeding under this chapter, the burden of proving an exception from a definition or an exemption ((from definition)) is upon the person claiming it.  Any condition, stipulation or provision, including a choice of law provision, purporting to bind any person acquiring a franchise at the time of entering into a franchise or other agreement to waive compliance with any provision of this chapter or any rule or order hereunder is void.  It is hereby declared that this chapter represents a fundamental policy of the state of Washington.

        Sec. 15.  Section 24, chapter 252, Laws of 1971 ex. sess. and RCW 19.100.240 are each amended to read as follows:

          The director shall charge and collect fees fixed by this section.  All fees collected under this chapter shall be deposited in the state treasury and shall not be refundable except as herein provided:

          (1) The fee for filing an application for registration on the sale of franchise under RCW 19.100.040 is five hundred dollars;

          (2) The fee for filing an application for renewal of a registration under RCW 19.100.070 is one hundred dollars;

          (3) The fee for filing an amendment to the application filed under RCW 19.100.040 is one hundred dollars;

          (4) The fee for registration of a franchise broker ((or selling agent)) shall be fifty dollars for original registration and twenty-five dollars for each annual renewal;

(5) The fee for filing a notice of claim of exemption is fifty dollars for the original filing and twenty-five dollars for each annual renewal.

NEW SECTION. Sec. 16.  A new section is added to chapter 19.100 RCW to read as follows:

          An action for rescission under RCW 19.100.190 for failure to register may not be commenced more than two years after the act or transaction on which the action is based.  Any other action under RCW 19.100.190 may not be commenced more than four years after the cause of action accrues.