The franchisor is Quality Is Our Recipe, LLC. To simplify the language in this disclosure document, “Quality”, “we” or “us” means Quality Is Our Recipe, LLC, the franchisor. Quality is a Delaware limited liability company formed in April 2015. Quality does business and intends to do business under the names “Wendy’s” and “Wendy’s Old Fashioned Hamburgers.” Quality’s principal business address is One Dave Thomas Boulevard, Dublin, Ohio 43017. Unless indicated differently, all dollar amounts referenced in this disclosure document will refer to U.S. dollars.
One of our predecessors and intermediate corporate parents is Wendy’s International, LLC (“WIL”), an Ohio limited liability company which has been doing business since November, 1969, when it opened its first Wendy’s Restaurant in Columbus, Ohio. From its inception through December 31, 2013, WIL did business as a corporation as “Wendy’s International, Inc.”; it converted from a corporation to a limited liability company -- Wendy’s International, LLC -- on December 31, 2013. As a result, references in this disclosure document to Wendy’s International, LLC, for events preceding December 31, 2013, are to Wendy’s International, Inc. WIL’s principal business address is One Dave Thomas Boulevard, Dublin, Ohio 43017. WIL offered franchises for Wendy’s Restaurants in the United States between 1971 and June 1, 2015, the date the financing transaction described below became effective. We became the franchisor of Wendy’s Restaurants in the United States on that date. We also became the franchisor of Wendy’s Restaurants outside of the United States (except in Canada) on June 1, 2015. Before that date, our predecessors Wendy’s Global, Inc. and Wendy’s Global Restaurants, LLC granted franchises for Wendy’s Restaurants in countries other than the United States and Canada. Both entities maintained their principal place of business at One Dave Thomas Boulevard, Dublin, Ohio 43017. On September 29, 2008, pursuant to a Merger Agreement, WIL became a wholly-owned subsidiary of Wendy’s/Arby’s Group, Inc. (“WAG”), a Delaware corporation, which was located at 1155 Perimeter Center West, Atlanta, Georgia 30338. On January 12, 2009, WAG contributed its ownership of WIL to Wendy’s/Arby’s Restaurants, LLC (“WAR”), a wholly-owned Delaware subsidiary of WAG that was located at 1155 Perimeter Center West, Atlanta, Georgia 30338, and, as a result, WIL became a whollyowned subsidiary of WAR. WAR was also the direct parent of Arby’s Restaurant Group, Inc. (“Arby’s”), which is the franchisor of Arby’s restaurants. On July 4, 2011, WAR completed the sale of 100% of the common stock of Arby’s to ARG IH Corporation. As the result of that sale, Arby’s was no longer an affiliate of WIL. On July 5, 2011, WAG changed its name to The Wendy’s Company (“Wendy’s Co.”) and WAR changed its name to Wendy’s Restaurants, LLC (“Wendy’s LLC”). Wendy’s Co. is our ultimate corporate parent and Wendy’s LLC is one of our intermediate corporate parents. Both entities are located at One Dave Thomas Boulevard, Dublin, Ohio 43017.
Quality grants franchises for the operation of Wendy’s Restaurants, Quality and/or its affiliates also own and operate Wendy’s Restaurants (“Company Restaurants”) and on occasion lease and sell Wendy’s Restaurants as well as other real estate interests owned by Quality and/or its affiliates. The only franchise currently offered by Quality is a franchise to own and operate Wendy’s Restaurants. Quality has not offered franchises in any other line of business. As of December 30, 2018, there were 5,810 Wendy’s Restaurants operating in the United States and 901 Wendy’s Restaurants operating outside the United States. Of the total in the United States, 5,457 are franchised and 353 are company operated. R. Dave Thomas was the founder of Wendy’s. The person (or persons) who signs a Franchise Agreement with Quality will be referred to in this disclosure document as “you.” Certain provisions of the Franchise Agreement will also apply to your partners (if you are a partnership), to your shareholders (if you are a corporation), and to certain other parties involved in your business, like guarantors, managers and operators. You will be required to operate your Wendy’s Restaurant in accordance with the Franchise Agreement and Quality’s standards and specifications. The Franchise Agreement is attached to this disclosure document as Exhibit B. In some unique instances, Quality may modify certain provisions of the Franchise Agreement which pertain to specific non-traditional locations like those described in Item 12 of this disclosure document. A franchisee may be required to enter into a Development Agreement (Exhibit C) in some situations, such as the purchase of a Company Restaurant from Quality and/or one of its affiliates, or in other instances. In addition, a franchisee may be required to sign a Relationship Agreement (Exhibit D) in some situations, including the purchase of a Company Restaurant from Quality and/or one of its affiliates, significant transfers of interest, and joint capital and market plans in which Quality and/or one of its affiliates is providing consideration or accommodations.
If you are new to the Wendy’s system, you must sign the Preliminary Letter Agreement attached to this disclosure document as Exhibit H, and you must pay an Application Fee of $5,000 to help defray some of the costs of processing the application and initial orientation. If you are already part of the Wendy’s system, or in other unique, limited instances, Quality may waive the Application Fee. Quality is under no obligation to refund the Application Fee under any circumstances. Quality conducts a background investigation on all individuals who will become a named franchisee, guarantor, or who will own 5% or more ownership interest in a franchisee entity. Quality requires reimbursement for the $500 cost of each background investigation. Whether you are new to the Wendy’s system or are an existing Wendy’s Franchisee, you must pay a Technical Assistance Fee of $50,000 for each Wendy’s Restaurant at the time the Franchise Agreement is executed. Quality is under no obligation to refund the Technical Assistance Fee under any circumstance. If you have never built a Wendy’s Restaurant or your last new Restaurant was built prior to 2007, you are considered a “First Time Builder”. If you are a First Time Builder and are participating in the Groundbreaker Incentive Program, your Technical Assistance Fee may be reduced by 50% for the first restaurant you develop under Wendy’s current form of Development Agreement entered into on or before July 1, 2019, in accordance with the Groundbreaking Incentive Program. To receive this discounted Technical Assistance Fee, you must also utilize Wendy’s Franchise Development Program, be offered and execute the current form of Development Agreement (and/or modify an existing Development Agreement to reflect the terms in our current form Development Agreement and to add incremental Restaurant count in the development schedule), and also execute the Development Agreement’s Groundbreaking Incentive Program Addendum (see Exhibit C - Development Agreement at Exhibit C). In some limited instances (like a reduced Franchise Agreement term or other unique circumstances), Quality may charge a modified Technical Assistance Fee or may waive the Technical Assistance Fee entirely. A Technical Assistance Fee of $25,000 is generally applicable to non-traditional sites with characteristics like limited seating, a reduced Franchise Agreement term and unique real estate provisions. The Technical Assistance Fee may be waived only in very unusual situations, and you should not anticipate a waiver of the Technical Assistance Fee. Under the Wendy’s Franchise Development Program (“FDP”), Wendy’s franchisees who build a new Wendy’s Restaurant or remodel an existing Restaurant will have the option of contracting with Quality and/or one of its affiliates as an independent contractor, to perform project management services. Under the FDP, you and Quality and/or one of its affiliates must sign the Project Management Agreement which is attached to this disclosure document as Exhibit I. If you remodel your Restaurant, the fee due under the Project Management Agreement, which is known as the “Project Fee” (“Project Fee”) will be $20,000. For new restaurant construction, scrapes and rebuilds and guts and rebuilds, the Project Fee will be $30,000. If your Restaurant is reimaged with an approved standard refresh design (“Refresh”) or low-cost standard refresh-lite design (“Refresh Lite”), the Project Fee will be $15,000, with additional amounts for more extensive work. In addition to the Project Fee, you are responsible for all out-of-pocket expenses incurred by Quality and/or its affiliates on each project, including travel expenses (see Item 7). The Project Fee must be paid upon execution of the Project Management Agreement, attached as Exhibit I to this disclosure document, and shall be applied to the final project fee as determined by the scope of the project. Under Wendy’s Real Estate Procurement Program (“REPP”), you may elect to have Wendy’s select and procure for you new Restaurant sites subject to your agreement and approval. If you use REPP to obtain such real estate services, which include negotiation of a purchase contract or lease for the Restaurant site, you are required to pay a Real Estate Services Fee of $12,500 and a Transaction Services Fee of $17,500 to cover certain of Wendy’s costs. The Transaction Services Fee shall be refundable until the date on which Wendy’s has approved the proposed site for the development of a new Wendy’s Restaurant. In addition, you must sign a REPP Letter of Agreement, attached as Exhibit J to this disclosure document, as well as a REPP Sublease Agreement and General Release of All Claims, both of which are attached as exhibits to the REPP Letter of Agreement. Further, under the REPP, you are required to pay a Project Fee of $30,000 and sign the REPP Project Management Agreement attached as Exhibit J at Exhibit C to this disclosure document. At the time that the Restaurant location has been approved by Wendy’s and by the franchisee, and contemporaneous with Wendy’s signing a prime lease with the landlord for the Restaurant premises, or signing a purchase contract for Wendy’s acquisition of a fee simple interest in the Restaurant premises, franchisees must sign and deliver to Wendy’s (i) Wendy’s then-current franchise agreement, (ii) a REPP Sublease Agreement, and (iii) a Release of Claims, and pay the then-current Technical Assistance Fee as required under the franchise agreement. If Wendy’s purchases a fee simple interest in the Restaurant premises, a Wendy’s form of lease agreement will be used and will be substantially similar to the REPP Sublease Agreement and the rental will be mutually determined between the parties. If you acquire your Wendy’s Restaurant from another franchisee, and we consent to the transfer of the Franchise Agreement to you and you are not participating in the Franchise Flip Program, no other initial franchise fee or other initial payment (other than a transfer fee) is required to be paid by you to Quality. If you acquire your Wendy’s Restaurant from Quality or one of its affiliates, there may be leasing or financing costs as well as the reimbursement of various other costs due to Quality or its affiliates before opening, as also discussed in Item 10. Specifically, these other costs may include Quality’s Technical Assistance Fee, rent, inventory, working capital, training costs and other costs associated with opening a Wendy’s Restaurant (see Items 6 and 7). Finally, if you are approved to participate in Quality’s Franchise Flip program, which involves the sale of Restaurants by an existing Franchisee and our provision of valuation and deal management services, you will receive a new Franchise Agreement for each Restaurant, which will provide a 20-year term, and you will pay a Franchise Flip TAF of $20,000 for each Restaurant at the time the Franchise Agreement is executed. If you previously executed a development agreement with us, the Technical Assistance Fee for the Restaurant may be credited through the application of any previously-paid development fee. The current form of Development Agreement does not require an up-front fee.
On occasion, Quality and/or its affiliates cooperate with various lenders in the lenders’ efforts to provide financing to qualified franchisees for various purposes. The terms of financing offered by these lenders may vary depending upon many factors (including the purpose of the loan, the financial strength of the franchisee, the number of Wendy’s Restaurants involved and the financial climate at the time of the request) and therefore, the financing terms must be discussed with the lenders directly. You should consider these lenders only as financing alternatives, and you are under no obligation to finance through any lender. Quality and/or its affiliates are under no obligation to its franchisees to provide information regarding potential lenders. Quality and/or its affiliates may in some situations offer its own leasing programs to new or existing franchisees who are in full compliance with their obligations to Quality and its affiliates. These programs require that the franchisee sign the various documentation described in each program below. In addition, if applicable, Guarantors may also be required to sign documentation, as well as the Guaranty described in Item 15 of this disclosure document, and which is attached as an exhibit to the Franchise Agreement. The financing programs which Quality and/or its affiliates may offer include the following: LEASING OF COMPANY-OWNED RESTAURANT PROPERTY As part of the disposition of certain Company Restaurants, Quality and/or its affiliates may lease or sublease a Wendy’s Restaurant to a franchisee. The lease or sublease terms provided will vary on a caseby-case basis, but the franchisee must sign a standard Lease or Sublease along with other documents required by Quality and/or its affiliates as part of its disposition program, such as an Asset Purchase Agreement, Bill of Sale and General Release of All Claims. The terms under a Sublease executed in connection with a disposition may vary substantially because, in this instance, Quality or one of its affiliates is itself obligated under the terms of an underlying prime lease. The rent payable by a franchisee under a Sublease will often exceed the amount of rent paid by Quality or its affiliate under the underlying prime lease. Specimen copies of the documents required by Quality or one of its affiliates when leasing or subleasing a Wendy’s Restaurant to a franchisee are attached to this disclosure document as part of collective Exhibit E. In some circumstances, we may approve the transfer of a franchise to occur directly from an existing franchisee (“Transferor Franchisee”) to a new franchisee (“Transferee Franchisee”). In such cases, where Quality’s affiliate was previously in the lease chain as landlord, Quality’s affiliate may so continue. After you obtain Quality’s approval and consent and provide proof of the assignment of the lease or sublease, Quality’s affiliate acting as landlord will consent to the assignment of the lease or sublease in writing. The terms of the lease or sublease in this instance will be governed by the Transferor Franchisee’s lease/sublease. The standard Lease and Sublease provide that the rent due will be automatically drafted (Lease Agreement, page 5, Sublease Agreement, page 5). OTHER DIRECT AND INDIRECT FINANCING In limited circumstances, Quality or its affiliates may offer deferrals, loans, waivers, setoffs and other forms of financial assistance in unique instances to existing franchisees (see Item 6). That assistance may be for ongoing franchise obligations, rent, real estate taxes or similar obligations which meet Quality or its affiliates’ criteria. The terms of this financing may vary depending upon a number of factors, including the financial and operational status of the franchisee, the number of Wendy’s Restaurants involved, and market conditions. In many cases, franchisee financing through Quality or its affiliates may be secured by satisfactory collateral, including the assets of the franchisee’s business and other unencumbered assets, including the franchisee’s personal assets (Security Agreement Section 2). (In these instances, the franchisee must typically sign a Secured Promissory Note, Security Agreement, UCC-1 Financing Statements, Real Estate Mortgage, and other applicable documents). In all cases, whether the financing is secured or unsecured, a General Release of All Claims must be signed. Specimen copies of these documents (except for the real estate mortgage, which varies state by state) are attached to this disclosure document as part of collective Exhibit E. The financing arrangements provided by Quality or its affiliates as described in the preceding paragraph may provide a variety of repayment terms, typically up to 5 years, depending on the amount financed, the type of collateral provided, and other factors. The interest rate charged will vary depending on when financing is obtained as well as other factors; however, the simple annual interest rate generally charged by Quality is 8.5%. This rate is not an annual percentage rate calculated in accordance with the Consumer Credit Protection Act (“Truth in Lending”) and Regulation Z. Quality encourages prepayment and no prepayment penalty associated with financing of less than $50,000 or for loan terms of less than 3 years applies (Secured Promissory Note, page 2). For financing of $50,000 or more or a loan term of 3 years or more, however, while Quality will not itself enforce any prepayment penalty, if Quality sells or assigns a Note to a third-party purchaser, then a prepayment penalty will apply (Secured Promissory Note at page 2). In addition, for Notes with loan terms longer than 7 years, an additional prepayment factor will apply (Secured Promissory Note, at pages 2 and 3). Upon default by the franchisee, Quality may accelerate the balance of the Note and assess attorneys’ fees and other costs incurred by Quality and associated with collection of the debt (Secured Promissory Note, pages 4 and 5 and Security Agreement, Section 7). In addition, the financing documentation contains cross-defaults to the Franchise Agreement (Security Agreement Section 8 and the Secured Promissory Note, page 4) and other documentation signed by the franchisee, and may also include a confession of judgment and other waivers (Secured Promissory Note at page 5 and Security Agreement, Sections 8, 9 and 11). The financing documentation may also contain waivers of certain defenses customary in financing arrangements. Any prepayment penalties associated with this financing are described in the paragraph above (Secured Promissory Note at pages 2 and 3). The collateral taken as security under the Security Agreement will vary depending upon the circumstances but may include both real estate and personal property as well as other assets (Security Agreement Section 2). Quality may also provide unique financial arrangements for franchisees who have filed for protection under the United States Bankruptcy Code or who are involved in a state court receivership or similar financial restructurings. These financial arrangements may vary from Quality’s standard policies and practices, and may require court approval.
The following tables and notes provide financial performance representations that are historical, and that are based on information from existing Company Restaurants owned by one or more affiliates of Quality (together, Wendy’s Restaurants). Before beginning to review the information contained within this Item 19, please note the following: 1. There are twelve tables that follow. Please read them together with all notes and explanatory information contained in the conclusion below. 2. Quality will make available to you, on reasonable request, written substantiation of the data used in preparing the statements listed in this Item 19. 3. Other than the following financial performance representation, 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 income, you should report it to the franchisor’s management by contacting Kris Kaffenbarger, Vice President, Global System Optimization, Franchise & Portfolio Management, the Federal Trade Commission, and the appropriate state regulatory agencies. 4. Some outlets have earned this amount. Your individual results may vary. There are no assurances that you’ll earn as much. 5. As of the end of fiscal year 2018 (1/1/2018 to 12/30/2018), there were 353 domestic Wendy’s Company Restaurants; and 5,457 domestic Wendy’s Restaurants owned by Wendy’s franchisees (“Franchised Restaurants”). Image Activation - Remodels The following tables reflect Image Activation average lift, which is derived by calculating the percentage change for the post-remodel Image Activation average weekly Gross Sales (following remodeling and re-opening under Image Activation) through December 2018 vs. the pre-remodel Image Activation average weekly Gross Sales for a given restaurant. The post-remodel Image Activation average weekly Gross Sales results include results commencing with the first full week after re-opening the Restaurants and concluding up to one year post-reimage. The post-remodel Image Activation average weekly Gross Sales results reflect a range of post-Image Activation Remodel timeframes that are directly comparable to the average Gross Sales results for the same timeframes one year prior (pre-remodel). Similar to the variability that we observe with operations and new product marketing tests on an individual Restaurant basis, we have experienced a wide range of Image Activation remodel average weekly Gross Sales performance. The change in average weekly Gross Sales may be attributable to Image Activation or to other factors. These factors may include seasonality, weather, road construction, competitor activity, operational issues, etc. that can impact the observed change in average weekly Gross Sales. The sales performance in the following tables is an average based on different post-remodel time periods for each Restaurant, as indicated by the range of weeks after remodeling is completed. Consistent with Quality’s approach used in new product testing and to better determine the impact of Image Activation, we have also calculated Image Activation remodel Gross Sales lift by comparing the performance of these Restaurants to the performance of a group of control Restaurants. For each Image Activation Restaurant, Quality has identified a group of approximately 30 control Restaurants (Company Restaurants or Franchised Restaurants in any DMA in the United States) that have not been remodeled under one of Wendy’s Image Activation designs, and that exhibited similar historical Gross Sales trends to the remodeled Restaurants prior to completion of the Image Activation remodel. When measuring Gross Sales performance of the Image Activation Remodels compared to the control Restaurants described above, the use of a trailing 365-day pre-remodel base period provides a reasonable basis for comparison to postremodel results as both the test Image Activation Remodels and the control Restaurants that have not been remodeled under one of Wendy’s Image Activation designs are measured for the same time frame. As disclosed in the following table, Quality compared the post-remodel Image Activation Gross Sales results through December 2018 to pre-remodel Gross Sales results (during the trailing 365-day period prior to the commencement of construction) for those Restaurants and calculated the percentage Gross Sales lift relative to the change in Gross Sales for the control group of Restaurants during the pre- and post-remodel time frame. The post-remodel time frame commences with the first full week after re-opening the Restaurant and concludes up to one year post-reimage. This Gross Sales lift versus control measure is intended to isolate the impact of the remodel activity by mitigating the impact of seasonality and other non-Image Activation related factors that may influence (favorably or unfavorably) pre-remodel and post-remodel Image Activation Gross Sales results. Changes in a Restaurant’s sales performance vs. controls may be impacted by road construction, competitor activity, operational issues, etc. that can impact the observed change in average weekly Gross Sales.