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18 Franchise L.J. 1 (1998-1999)

handle is hein.journals/fchlj18 and id is 1 raw text is: FRNCHISE



Y2K Implications for Franchising

ost public companies,
including public franchise
companies, have been
making Year 2000 (Y2K) disclo-
sures in their annual and quarterly
securities filings at least since the
first quarter of 1998. The high
degree of Y2K disclosure by public
companies for securities law pur-
poses is in stark contrast to Y2K
disclosure in franchise offering cir-
culars, a topic that franchisors are  Thomas M. Pitegoff
only now beginning to consider.
Should franchisors make Y2K disclosures to prospective
franchisees as part of their franchise offering circulars? Like
securities prospectuses, franchise offering circulars are
intended to provide information to investors for their protec-
tion. Purchasers of franchises, like purchasers of securities,
are entitled to receive information that may have a material
effect on their investments and might affect their decision to
invest. Although there are significant differences between
securities and franchise laws, there is good reason for fran-
chisors to consider making some form of Y2K disclosure to
prospective franchisees.
Aside from the disclosure question, some franchisors may
have contractual responsibilities that would imply an obliga-
tion to assist their franchisees with their Y2K compliance.
Finally, both franchisors and franchisees should be assessing
the impact of the Y2K problem on their operations for the
sake of their own business survival.
What is the Y2K Problem?
As every business executive and attorney knows by now, the
Y2K problem results from the fact that many software pro-
grams and computing devices store year values in two
Mr. Pitegoff, a partner at the law firm of Halket & Pitegoff LLP in
White Plains, New York, is on the Y2K and franchise panels of the CPR
Institute for Dispute Resolution. He can be reached at pitegoff@hal-
pit. com.

digits.' These programs and devices recognize the value 98
as 1998, but incorrectly read the value 00 as 1900
instead of 2000. This misreading of the year can result in a
system failure or miscalculations causing business disrup-
tions. The software or device may be unable to process trans-
actions, send invoices, or engage in similar normal business
activities. Some software that recognizes the year 2000 may
not recognize it as a leap year. The problem can arise early,
as some data base programs recognize 9/9/99 as a place
holder rather than a date, or when businesses find that their
insurance companies have excluded Y2K risks. Any compa-
ny's assessment of the problem cannot be confined to its
internal operations. Suppliers may be unable to fill orders.
Banks may be unable to extend credit. Franchisees may be
unable to supply accurate reports or to make required pay-
ments to franchisors.
(continued on page 23)
In This Issue
Y2K  Implications for Franchising  .................... 1
The Misuse of Integration, No Representation,
and No Reliance Clauses in the Name of
Contract Certainty ................ .......... 3
Selecting the Proper Forum to Enforce One's
Choice  of Forum   ................................. 7
Franchisor Liability for the Criminal Acts of Others.   11
Chair's Column ............................2
Editor-in-Chief s Column  ........................... 2
Franchising  Bookshelf  ............................ 19
Franchising  Currents .................. ............ 31
(Including cases on: implied duty of good faith and
fair dealing; arbitration; jurisdiction and venue;
Petroleum Marketing Practices Act; enforcement of
contractual provisions; and others)

IA                               L

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