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| Continental Franchise Review.. |
Boroian placed in solitary confinement due to prison investigation
(Previous article: Franchisetimes.com Boroian Oct. 2006, CFR)
 Janet Sparks is the former publisher of Continental Franchise Review, an industry newsletter that covered the franchise community for more than 30 years before being acquired by Franchise Times Corporation. Janet can be reached at 303-799-7398 or at jsparks@franchisetimes.com |
Although Donald Boroian, founder of Francorp, Inc., was due to be released from the Duluth Federal Prison Camp early, that date has changed due to a prison investigation which landed him in solitary confinement, according to responsible sources. Allegations claiming he had been conducting business on a regular basis behind bars, a violation of the federal prison policy, triggered the investigation. Sources close to the Francorp business operations stated that he was making telephone calls to staff and clients on a weekly and sometimes daily basis, and that he was receiving business mail and documents.
Boroian, who is serving a one year, one day sentence for tax evasion, was imprisoned on July 27, 2006. Although sources had stated that he was being released to a halfway house the first week of April on good behavior, prison officials would not confirm it due to security reasons. His projected release date was June 9 prior to the investigation, but changed to July 13, 2007 more recently. Once he is released, Boroian will be on “supervised release” for a two-year period, according to his sentencing documents.
During his imprisonment, Francorp has continually issued press releases on newly-obtained clients and, according to its Web site, the franchise development firm has been conducting seminars around the country for prospects. In explaining Boroian’s absence, staff has been telling callers that Boroian is on “sabbatical leave.”
Francorp’s State of Financial Affairs
In March 2006, Boroian admitted in a plea agreement with the U.S. Attorney in U.S. District Court of Illinois to misstating his income in 1998 by more than $388,000, and to similar actions for 1997, 1999 and 2000. It states that he failed to pay a total of $542,000 in taxes during the four-year period. On July 19—one week prior to his incarceration—the Internal Revenue Service slapped him with a $706,126.07 tax lien for 941 quarterly payroll taxes, for the period of June 2003 to December 2005. That lien was in addition to several others listed as state and federal on Cook County Recorder of Deeds.
According to tax attorney Alan F. Segal in Chicago, even after the criminal case is over, the IRS will still be filing civil action against him. He also said you have to look at the plea agreement to see if Boroian has worked out a payment schedule, which can only be done if the company is current on recent quarters on employee payroll taxes. In looking at the July 2006 tax lien, it is all for 941 payroll taxes, but according to Segal, by now at least four more quarters have been accrued, so there may be additional liens in the near future. He said penalties and interest can also add up very quickly.
The plea agreement does state that his compliance extends throughout and beyond the period of his sentence, and failure to abide by any term of it is in violation of the agreement. If he is determined to be in violation, the government, at its option, may move to vacate the agreement, rendering it null and void, and thereafter prosecute Boroian.
KnowledgePoints builds unique structure in aftermath of legal battles
(Previous article: Franchisetimes.com KnowledgePoints, Sept. 2006)
As the dust settles from the legal wrangling among former franchise owners, the newly constructed foundation of KnowledgePoints Learning Centers is now in place and the franchise is ready to take on a unique structure. According to President John F. Gohde, it has taken six months to draw up the plans before knowing what the franchisee-owned company will look like. He explained, “Things are going very well, but there has to be some education teaching franchisees to understand what it is to be a franchisor. And, as the franchisor, we have had to learn about our sensitivities of being franchisees.”
Previous owners merged two companies in 2003, but the acquisition proved anything but amiable. After franchisees received an interim award in an arbitration case, the company settled. But legal disputes between the owners erupted and they had to resolve their own lawsuits. At that point, a group of approximately 40 franchisees still in the system decided to buy it.
“You talk about taking a very negative situation and turning it into a positive, that’s exactly what we have been able to do,” said Gohde. He had been at KnowledgePoints for a short time before the purchase and before the problems started, so he said he wasn’t a party to it. According to Gohde, Jeff Elgin handled the legal matters, keeping him separate from them. “I wasn’t involved so it allowed me to concentrate on the business, and that is how we were able to more forward,” he said.
Building a better model
Gohde said their board of directors is now made up of seven franchisees, all with backgrounds in diverse business areas. He said, “If I was looking at putting together a president’s cabinet, I couldn’t have selected a better group.”
Not only are all 40 franchisee-owners shareholders, but some of their employees are as well. Gohde said he thinks most of the franchisees who stayed on with the company after the settlement were given the opportunity to be part of the purchasing group, although not everyone chose to be.
For guidance of the company beyond the board, they have committees that are made up of franchisees, directing areas such as marketing, education and IT. Gohde said, “Leadership is the franchisee community. They bring their expertise to bear which is fantastic.”
The new company also had the opportunity to get a new valuation, by enlisting major players to help develop a strong franchise organization, as well as to become a leader in the educational field. The Nixon Peabody law firm, under Craig Tractenberg, helped develop that directional plan. KnowledgePoints has now made its Uniform Franchise Offering Circular more franchisee-friendly, and by doing so it will be able to improve its business model. Gohde said, “We actually reduced the royalty rate from what it was before, so it could go on a sliding scale based on franchisees operating more units. Now there is an incentive for the franchisee to open more units rapidly. It’s good for franchisee and franchisor.” They also created a national ad fund.
Gohde said another great thing was that there is no need for the company to have an independent franchisee association. Although new franchisees will not have the opportunity right now to become shareholders, a decision made by the shareholders, they will realize they have people involved where the rubber meets the road. He said it will give them a degree of trust regarding the decision process—the process that franchisees go through in making an impact on the organization.
With the new structure in place, Gohde said they now have people who are very interested in their brand and they are selling again. He said, “We are very excited about our future.
