Key Items to Watch out for in the Mrs. Fields Franchising, LLC 2020 FDD
Certain states require that the following risk(s) be highlighted: 1. Out-of-State Dispute Resolution. The franchise agreement requires you to resolve disputes with the franchisor by arbitration and/or litigation only in Colorado. Out-of-state arbitration or litigation may force you to accept a less favorable settlement for disputes. It may also cost more to arbitrate or litigate with the franchisor in Colorado than in your own state. 2. Spousal Liability. Your spouse must sign a document that makes your spouse liable for all financial obligations under the franchise agreement even though your spouse has no ownership interest in the franchise. This guarantee will place both your and your spouse’s marital and personal assets, perhaps including your house, at risk if your franchise fails. 3. Financial Condition. The franchisor’s parent company’s financial condition, as reflected in its financial statements (see Item 21), calls into question the franchisor’s ability to provide services and support to you.
Certain states may require other risks to be highlighted. Check the “State Specific Addenda” (if any) to see whether your state requires other risks to be highlighted.
Item 5: Initial Fees
You must pay us, on your execution of the Franchise Agreement, a nonrecurring, non-refundable initial franchise fee in the amount of $35,000. We may reduce the initial franchise fee to $25,000 if you are an honorably discharged veteran of the United States military or if you are an existing franchi see. We may modify or eliminate these discounted initial franchise fee programs at any time. Except as described above, the initial franchise fee is uniform and deemed fully earned by us when we sign the Franchise Agreement.
Item 8: Restrictions on Sources of Products and Services
Development of Your Store In developing and operating your Store, you must: (i) use only the fixtures, furnishings, equipment and signs that we require and have approved for Stores as meeting our System Standards; (ii) place or display at the Premises (interior and exterior) only the signs, emblems, lettering, logos and display materials that we approve in writing; (iii) use the computer equipment and operating software, including any point-of-sale or electronic cash register (“Computer System”) that we specify from time to time; and (iv) purchase the products and services only from those vendors, distributors, suppliers and producers that we approve or specify.
Development of Your Store In developing and operating your Store, you must: (i) use only the fixtures, furnishings, equipment and signs that we require and have approved for Stores as meeting our System Standards; (ii) place or display at the Premises (interior and exterior) only the signs, emblems, lettering, logos and display materials that we approve in writing; (iii) use the computer equipment and operating software, including any point-of-sale or electronic cash register (“Computer System”) that we specify from time to time; and (iv) purchase the products and services only from those vendors, distributors, suppliers and producers that we approve or specify.Our affiliates, MFG and MFGL, sell certain packaging to our franchisees for resale in their Stores and are the only suppliers of such packaging. Except for MFG and MFGL, neither we nor any of our affiliates is currently an approved or designated supplier, but we may be so in the future. None of our officers currently owns an interest in any approved or designated supplier.
Required Franchisee Purchases; Rebates We estimate that the cost of required purchases of products, supplies, fixtures, furnishings, equipment, signs and leases from approved suppliers or otherwise will represent, for Stores, 80% to 90% of your overall purchases of those items in establishing your Store, and 65% to 75% of your overall purchases of those items in operating your Store. During our fiscal year ended June 27, 2020, we received $1,141,500 in revenue from franchisees’ required purchases of products or services. This amount represents 43% of our total revenue from all sources during our last fiscal year, which was $2,639,435. We computed these figures from our internally prepared financial statements. Our affiliates did not derive any revenue from our franchisees’ required purchases of products or services during our last fiscal year. We and our affiliates may receive rebates or other payments from distributors, suppliers and other service providers based (directly or indirectly) on sales to franchisees. These payments have ranged or may range from less than 1% to 15% or more of the amount of those purchases by franchisees. We or our affiliates may negotiate purchase arrangements, including prices and terms, with designated and approved suppliers for Stores. We do not participate in any purchasing or distribution cooperatives. We do not provide material benefits to franchisees based on their purchase of particular products or services.
Insurance Throughout the term of the Franchise Agreement, you must maintain in force and at your sole expense, comprehensive insurance policies we specify. Currently, we require you to maintain general liability coverage which must include, contractual liability, broad form property damage, products and completed operations, personal and advertising injury, fire legal liability and premise and operations coverage. The minimum policy limits on the general liability insurance coverage described above is $1,000,000 per occurrence and $2,000,000 in the aggregate. Additionally, we require you to carry property insurance (contents coverage) with 100% coverage of the full replacement cost against loss or damage from fire and other risks normally insured against in special cause of loss coverage. You also must maintain workers’ compensation insurance for your employees to comply with laws applicable in the state in which your Store is operated. We place no restriction on what insurance carrier you use to obtain the coverage outlined above. We may periodically change the amounts of coverage required under these insurance policies, require a minimum rated insurance carrier, or require different or additional insurance coverages (including reasonable excess liability insurance) at any time to reflect inflation, identification of new risks, changes in law or standards of liability, higher damage awards or other relevant changes in circumstances
Item 10: Financing
We do not offer direct or indirect financing. We do not guarantee your note, lease or any other obligation.
Item 12: Territory
You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control. You receive no minimum territory and we must approve the location of your Store. You are not granted an exclusive area or protected territory around the Premises within which we or our affiliates agree not to issue franchises or operate competing businesses. Our affiliate, TCBY Systems, LLC, may operate or franchise others to operate outlets that compete with Stores. TCBY outlets offer frozen and non-frozen dessert and treat items, such as cakes and pies, sorbet, smoothies and fresh yogurt. The principal trademarks used by TCBY Systems, LLC are TCBY and THE COUNTRY’S BEST YOGURT. One or more of these competing outlets may already be located near your proposed Store, or may be established near the Store in the future. Additionally, we or our affiliates may establish, acquire or cobrand new concepts operating under different trademarks and those outlets may be located near the Store. We have no system or method for resolving conflicts between our franchisees and franchisees of these competing concepts. As stated in Item 1, we share our principal address with TCBY, and we have no plans to maintain physically separate offices or training facilities from TCBY.
We and our affiliates may, anywhere in the world, issue franchises, grant licenses for products or services, and conduct any other business or activities, with or without the Marks and in any type of distribution channel, including the internet, regardless whether such activities are competitive with your Store. We have not yet established other franchises or company-owned Stores that sell or lease similar products or services under a different trademark, but we may do so in the future. There are no restrictions on these activities and neither we nor our affiliates will be required to provide you with any compensation for, or any right to participate in, any such activities.
You may not operate your Store at any site other than the Premises without our prior written consent. In addition, you may only offer and sell finished Approved Products that have been approved for sale over the counter to retail customers from your Store, and may not sell Approved Products or any materials, supplies, or inventory bearing the Marks at any other location or through any alternative channel of distribution without our prior written consent. “Alternative channels of distribution” include, but are not limited to, the operation of a food cart or kiosk, sales through the Internet (or any other form of electronic commerce), vending machine sales, and mail order and telephone sales. You may, however, (i) offer and sell Approved Products as part of off-site catering events and company account programs, provided you deliver (and do not engage a major carrier to deliver) Approved Products that meet System Standards for freshness the same day they are made and the sales are not part of a mail order program; (ii) offer samples of Approved Products at or directly in front of your Store or other locations near your Store as approved by your landlord; or (iii) upon our prior written approval, offer and sell Approved Products from a table, kiosk or cart at satellite locations that we approve. You may not sell to anyone any materials, supplies, or inventory used in the preparation of any Approved Products. You may not sell any Approved Products to any person or entity purchasing the Approved Products for resale. Your Franchise Agreement does not grant you the ability to relocate, any options, rights of first refusal or similar rights to acquire additional franchises.
Item 15: Obligation to Participate in the Actual Operation of the Franchise Business
We recommend that you participate personally in the direct operation of your Store, although the Franchise Agreement does not specifically obligate you to do so. However, you must either manage your Store yourself, or use a full time “on Premises” manager. The manager need not have an equity interest in the franchisee entity to act as manager. Both you (or one of your Entity Owners, if you are an entity) and the manager of your Store must be certified by us as having completed all phases of our training program to our satisfaction and must participate in all other activities required to open your Store. Replacement managers must also satisfactorily complete all phases of our training program.
If you are an entity, each Entity Owner (as defined below) must guarantee your obligations under the Franchise Agreement by signing the Guaranty attached to the Franchise Agreement, a copy of which is included in Exhibit B to the Franchise Agreement. Your Entity Owner’s spouse, who has no ownership interest in the business, is also required to acknowledge the Guaranty, which will place an Entity Owner’s and his or her spouse’s marital assets at risk. We may require certain key employees (including you and any Entity Owner or manager) to sign a confidentiality agreement. In addition, we may require each manager of a Store to agree to the noncompetition covenants described in Item 17 of this disclosure document.
An Entity Owner means, with respect to an entity, any shareholder owning directly or beneficially five percent (5%) or more of any class of securities of the entity; any general partner or co-venturer in the entity; any partner in a limited liability partnership or member in a limited liability company owning directly or beneficially 5% or more of the ownership interests in the limited liability partnership or limited liability company; the trustees or administrators of any trust or estate; and any beneficiary of a trust or estate owning, directly or beneficially, five percent (5%) or more of the interests in the trust or estate. If any Entity Owner within the scope of this definition is itself an entity (including an Entity Owner that is an Entity Owner because of this sentence), the term “Entity Owner” also includes Entity Owners (as defined in the preceding sentence) in the entity. It is the intent of this definition to “trace back” and include within the definition of Entity Owner each natural person owning the requisite interests to qualify as Entity Owners.
Item 16: RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
In operating your Store, you must use and offer for sale all of, and only, the Approved Products and any other products or services that we mandate or approve from time to time for you to sell at the Premises. The Approved Products that you initially are authorized to offer at your Store are explained in the Operations Manual (as defined in Item 11). In the future, we may change or add to the Approved Products that you are authorized to offer at the Premises and notify you of such changes or additions, as we determine, through references to the Operations Manual, bulletins and other written materials, electronic computer messages, telephonic conversations, and/or consultations at our offices or at your Store. There are no limits on our right to make such changes. Although the Approved Products sold at Stores may vary from Store to Store, you may only sell and offer to sell those Approved Products that we mandate or authorize you to sell from your Store. Your lease may also impose other obligations or restrictions on the types of products that you may offer from your Premises, and you must comply with those restrictions and obligations even if they would prevent you from offering certain Approved Products.
You may not use your Store for any purpose other than the operation of a Store in compliance with the Franchise Agreement. You may not: (a) offer Approved Products or materials, supplies, or inventory bearing the Marks at any site other than the Premises of your Store, (b) offer for sale any materials, supplies or inventory used in the preparation of any of the Approved Products; or (c) sell any Approved Products to any person or entity purchasing the Approved Products for resale. You may only sell Approved Products to retail customers. Except as disclosed in this Item, we do not impose any restrictions regarding the customers to whom you may sell authorized products or services.
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