$148

Business Description

Papa Murphy’s International LLC, a Delaware limited liability company, formerly known as Papa Murphy’s International, Inc., a Delaware corporation, is the franchisor and was incorporated in June 2004 and converted to a Delaware limited liability company in May 2010. Our principal business address is 8000 NE Parkway Drive, Suite 350, Vancouver, Washington 98662. At the end of our last fiscal year, on January 1, 2018, there were 1,519 Papa Murphy’s Stores operating. In the United States there were 1,334 Franchised Stores and 40 stores were operating in Canada and the United Arab Emirates. See ITEM 20, Table 3 for additional information on these numbers. At the end of our 2017 fiscal year, 145 stores were company operated. We do not conduct any business activity other than franchising Papa Murphy’s Stores and operating Papa Murphy’s Stores.

Prior Experience

We have offered take and bake pizza franchises since 1995. Our predecessor, Papa Aldo’s International, Inc., offered franchises beginning in 1982. Comurphyco Franchise Corporation, also a predecessor-in-interest offered franchises from 1986. These companies merged into Papa Murphy’s International, Inc., now known as Papa Murphy’s International LLC and we have been franchising under this name since 1995. We, or our affiliates, operate company-owned stores of the type being franchised. These stores are part of the Papa Murphy’s franchise system and are listed in ITEM 20. We have not offered franchises for any other business, and have not engaged in any other business.

Business Offered

We offer the right to operate one or more Papa Murphy’s Franchised Stores. A copy of the Franchise Agreement is attached to this Disclosure Document as Exhibit D. In certain items of this Disclosure Document we will refer to specific provisions of the Franchise Agreement. For the sake of brevity, “FA” will refer to the Franchise Agreement. For selected areas, and for qualified candidates, we may offer an area development agreement (“Area Development Agreement”), attached to this Disclosure Document as Exhibit G or a Multiple Store Commitment (“Multiple Store Commitment”), attached to this Disclosure Document as Exhibit H. We may periodically make changes to the systems, menu, standards, and facility, signage, equipment and fixture requirements. You may have to make additional investments in the Franchised Store periodically during the term of the franchise agreement if those types of changes are made or if your Franchised Store’s equipment or facilities wear out or become obsolete, or for other reasons (for example, as may be needed to comply with a change in the system standards or code changes). All Franchised Stores must be developed and operated to our specifications and standards. Uniformity of products sold in Franchised Stores is important, and you will have no discretion in the products you sell. The franchise agreement is limited to a single, specific location,and we have the right to operate or franchise or license to others who may compete with you for the same customers. The distinguishing characteristics of the Papa Murphy’s system include, for example, distinctive exterior and interior design, decor, color and identification schemes; special menu items; standards, specifications and procedures for operations, quality of products and services offered; training and assistance; and marketing, advertising and promotional programs, all of which we may change, supplement, and further develop.

Initial Fees

Franchise Agreement You must pay us a Franchise Fee of $25,000 when you sign the Franchise Agreement for the purchase of your Franchised Store unless you have signed an Area Development Agreement and paid an Area Development Fee. If you have signed an Area Development Agreement and paid an Area Development Fee, there will be no Franchise Fee for your first store. You will pay us a nonrefundable Franchise Fee of $10,000, as a non-recurring franchise fee at the time(s) set forth in the Area Development Agreement for each additional Franchised Store built pursuant to the Area Development Agreement. Except where otherwise noted, the Franchise Fee is not refundable. In the past, we have waived franchise fees in limited circumstances. We reserve the right to increase or decrease the Franchise Fee at any time. If this is your first Franchised Store, you must work in an existing Papa Murphy’s Store for a test period of approximately 30 hours within 30 days of signing the Franchise Agreement (“In-Store Experience”). We do not pay you any compensation or give you any benefits or insurance coverage while you work during the In-Store Experience. You or we may decide for any reason to terminate the Franchise Agreement at any time during the In-Store Experience. If you terminate the Franchise Agreement during the In-Store Experience, we will return the Franchise Fee less $5,000, subject to compliance with the Franchise Agreement. If we terminate the Franchise Agreement during the In-Store Experience, we will return the entire Franchise Fee. If this is your first Franchised Store and it is pursuant to a transfer agreement, and you terminate during the In-Store Experience, we will return the Transfer Fee, less $5,000. In the event the Transfer Fee is less than $5,000, we will retain the entire Transfer Fee. If this is your first Franchised Store and it is pursuant to a transfer agreement, and we terminate during the In-Store Experience, we will return the entire Transfer Fee. In the case of termination or revocation, you will be bound by and must confirm before receiving your refund, your post-termination obligations, including but not limited to nondisclosure, noncompetition, indemnity and mutual releases. You must also sign a Termination, Mutual Release, and Confidentiality Agreement releasing us from all claims. The Franchise Fee and the Transfer Fee are otherwise nonrefundable and are deemed fully earned. In our latest fiscal year ended January 1, 2018, our actual range of Franchise Fees payable was $0 to $25,000, except for stores subject to the Area Development Fee described below. Area Development Agreement For qualified candidates, we may grant development rights allowing a franchisee to open more than one Franchised Store under an Area Development Agreement. The nonrefundable area development fee (“Area Development Fee”) for an Area Development Agreement that is not part of an incentive program is $25,000 for the first Franchised Store, and $15,000 multiplied by the remaining number of Franchised Stores to be opened under the Area Development Agreement. If you sign an Area Development Agreement that is not part of an incentive program and pay the Area Development Fee, there will be no Franchise Fee for your first Franchised Store and, as described above, your Franchise Fee will be $10,000 for each subsequent Franchised Store you develop under the Area Development Agreement. We currently offer an area development incentive program to qualified Area Developers (as defined in ITEM 12) under which the Area Developer agrees to open up a certain number of new stores in a designated market within an agreed upon timeframe and in exchange will receive financial support for marketing and operating expenses, incentive payments for compliance with the agreed upon development schedule and a revised fee schedule. The Area Development Fee for an Area Development Agreement that is part of an incentive program is $25,000 for each store to be opened under the Area Development Agreement. If you sign an Area Development Agreement that is part of an incentive program and pay the Area Development Fee, there will be no Franchise Fee for each Franchised Store you must develop under the Area Development Agreement. Each Franchised Store is governed by the terms of the then-current Franchise Agreement executed at the time the site for the Franchised Store is approved. The Area Development Fee is deemed fully earned upon receipt and not refundable in whole or in part under any circumstances, even if you fail or are unable to open any of the Franchised Stores provided for under the Area Development Agreement. Multiple Store Commitment For qualified candidates, we may grant a franchisee the right to develop multiple stores pursuant to a Multiple Store Commitment Letter and Amendment to Franchise Agreements. The nonrefundable multiple store fee (“Multiple Store Fee”) for a Multiple Store Commitment is $25,000 for each store and is due upon signing. If you sign a Multiple Store Commitment Letter and Amendment to Franchise Agreement, you will sign a Franchise Agreement for each Franchised Store under the Multiple Store Commitment. The Multiple Store Fee is deemed fully earned upon receipt and not refundable in whole or in part under any circumstances, even if you fail or are unable to open any of the Franchised Stores provided for under the Multiple Store Commitment Letter and Amendment to Franchise Agreements. Development Billing Agreement Separately, we may require you to enter into a “Development Billing Agreement” in substantially the form set forth in Exhibit M attached to this Disclosure Document. Under the Development Billing Agreement, we will pay on your behalf various third party vendors for the development of the Franchised Store. You will place funds in a specified bank account and authorize us to access such account electronically to pay third party vendors for various costs related to the build-out of the Franchised Store. We will not be liable for any vendor-related costs associated with Franchised Store development and you must indemnify us from all damages, claims and expenses in providing this service to you. The amount you may be required to reimburse us for payments we make under the Development Billing Agreement will range from $130,200 to $198,200. Such amounts you pay to us are non-refundable. Growth Market Development Incentive Program We currently are offering a Growth Market Development Incentive Program to qualified prospects located in certain new and existing markets. If we determine that you qualify for and you participate in the Growth Market Development Incentive Program, you will sign either an Area Development Agreement or a Multiple Store Commitment Letter. As part of the Growth Market Development Incentive Program and provided that you are in full compliance with the terms of all agreements with us and our affiliates, we will reduce the Franchise Fee for each store by $5,000 and waive the Royalty Fee for each store for a period of 12 months after the date such store opens. If you sign an Area Development Agreement, the Franchise Fee reduction for the first store to be developed will be applied to the Area Development Fee, and the Franchise Fee reductions for the remaining stores to be developed will be applied when you sign the Franchise Agreements for such stores. If you sign a Multiple Store Commitment Letter, the total amount of the Franchise Fee reduction will be applied to the Multiple Store Fee. If you are opening stores in a new market, the number of stores you agree to develop must be according to a mutually agreed upon schedule. We may terminate or suspend the Growth Market Development Incentive Program at any time. A copy of the Growth Market Development Incentive Program Addenda that you must sign in connection with the Area Development Agreement or each Franchise Agreement is attached as Exhibit N. Military Discount In addition, we currently are offering a reduced royalty program to active military personnel and veterans who were honorably discharged from the United States Armed Forces and meet our other qualifications. If you qualify for the military program, you will pay a reduced royalty rate for the first three years of operation.

Financing

Except as described below, neither we nor any affiliate offer direct or indirect financing. We do not assist in providing financing for you. We do not currently guarantee any notes or financial obligations you may incur in setting up and operating your franchise. We may use our creditworthiness with vendors to leverage better payment terms with these vendors for franchisees.

Franchisee Revenue and Profit

In the sections below, we have provided • Unaudited statement of system store performance, and • Unaudited benchmark costs for franchised stores. Information for franchise-owned stores has been taken from self-reported weekly sales and period profit and loss statements. We have not audited or verified these figures or reports nor have we asked questions of the submitting franchisees to determine whether the information provided to us is in fact accurate and complete, although we have no reason to believe it is unreliable. We do not know whether the information was prepared consistent with generally accepted accounting principles. The amount of sales realized and costs and expenses incurred will vary from store to store. The sales, costs and expenses of your Franchised Store will be directly affected by many factors, such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace; the presence of other Papa Murphy’s stores; the quality of management and service at the Franchised Store; contractual relationships with lessors and vendors; the extent to which you finance the construction and operation of the Franchised Store; your legal, accounting, real estate and other professional fees; federal, state and local income, gross profits or other taxes; discretionary expenditures; and accounting methods used. You should, therefore, use this analysis only as a reference. Where we state percentages in this section, those percentages have been rounded to the nearest one-tenth. Where we report dollar amounts, they have been rounded to the nearest dollar. You are urged to consult with appropriate financial, business and legal advisors to conduct your own analysis of the information contained in this section. System Store Performance As of October 2, 2017 there were 1,501 domestic Papa Murphy’s Take ‘N’ Bake Pizza stores open. The statements in this System Store Performance section are based on information reported by the 1,436 domestic Papa Murphy’s Take ‘N’ Bake Pizza stores, both franchise-owned and company-owned, that were open and operating for all of the trailing 53 weeks ending on October 2, 2017. These stores represent 145 company-owned stores and 1,291 franchise-owned stores (collectively referred to herein as “System Stores”). The System Stores were divided into three groups with the same number of stores in each group based on Net Sales results: top third (“High”), middle third (“Medium”), and lower third (“Low”). The average annual Net Sales of the System Stores was $574,557 (“System Store Average”) per store. Of the 1,436 stores, 567 (or 39.5%) met or exceeded this average. These System Stores offer substantially the same menu and product mix that your Franchised Store will offer. New Store Performance Of the 31 new stores opened in fiscal year 2017, 25 stores had 12 or more full operating weeks as of the week ended January 1, 2018. (In all cases, the first partial week of operation has been excluded due to inconsistency in operations for this week.) The average weekly Net Sales for individual stores during the first 12 full operating weeks was $8,331. Of the 25 stores, 9 (36.0%) met or exceeded this average. The actual annual average Net Sales achieved may vary due to seasonality, location characteristics, owner involvement, marketing plans and competition, as well as other factors disclosed in this Disclosure Document. Other than the preceding financial performance representations, we do not make any financial performance representations. We also do not authorize our employees or representatives to make any such representations either orally or in writing. If you are purchasing an existing outlet, however, we may provide you with the actual records of that outlet. If you receive any other financial performance information or projections of your future revenue and/or income, you should report it to the franchisor’s management by contacting Victoria Tullett, Papa Murphy’s International LLC, at 8000 NE Parkway Drive, Suite 350, Vancouver, Washington 98662, (360) 449-4122, the Federal Trade Commission, and the appropriate state regulatory agencies.