Key Items to Watch out for in the Yogurtland Franchising, Inc. 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 mediation, arbitration and/or litigation only in California. Out-of-state mediation, arbitration, or litigation may force you to accept a less favorable settlement for disputes. It may also cost more to mediate, arbitrate, or litigate with the franchisor in California than in your own state.
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
1. Single Store. You sign our standard franchise agreement, under which you pay us a non-refundable Initial Franchise Fee of $35,000 on signing your Franchise Agreement. However, for eligible third, fourth, fifth, etc., Standard franchise agreements issued to the same franchisee, we currently offer a reduction of $10,000 off the current standard Initial Franchise Fee. To be eligible for the reduction, at the time you sign your Franchise Agreement, you must have signed already (and paid the full Initial Franchise Fee for) two (2) or more Yogurtland Franchise Agreements and not be in default of any of them. We reserve the right to terminate this reduced Initial Franchise Fee program at any time with at least 180 days’ notice to our franchisees. If we terminate this program, then only those Franchise Agreements already signed at the time of the notice and those Franchise Agreements entered into within the 180-day notice period will count toward eligibility for the reduction in the Initial Franchise Fee. Eligibility for reduced fees is not transferable, and neither is any reduction. Each of them applies only to the third and any additional franchise agreements between you and us; or, if you operate the franchised business under an entity approved by us as a franchisee, then the eligibility and any reduction will only apply to eligible franchise agreements between that entity and us. The range of Initial Franchise Fees paid to us during the fiscal year ended December 31, 2019 was $25,000 to $35,000. You do not need to enter into an Area Development Agreement (“Development Agreement”) to be eligible for the $10,000 reduction in the Initial Franchise Fee; however, the $10,000 reduction does apply to the third and any additional franchise agreements entered into pursuant to a Development Agreement.
Area Development. If you sign an Area Development Agreement, the total estimated investment necessary to begin operation of a Yogurtland franchise will include a development fee equal to $25,000 for your first store plus $10,000 times the number of additional Yogurtland Stores you commit to open under the Development Agreement. This fee is payable and fully earned upon signing the Development Agreement. It is not refundable, in whole or in part, under any circumstances. For the first Store you open under the Development Agreement $25,000 of the development fee is credited against the $35,000 initial franchise fee. For each of the remaining Stores opened under the Development Agreement a $10,000 portion of the development fee is credited against the initial franchise fee due for that Store, which is $35,000 for the second Store and $25,000 for each additional Store. In addition, you must pay us, before opening your store, a one-time fee of $4,000 for limited construction project management services for the store in order to receive our preliminary floor plan layout and prototype design development package for your Yogurtland(R) store and our limited construction project management services. Depending on your Store’s proximity to our Support Center in Irvine, California, the experience and capability of you, your employees and contracted parties, and other factors, the estimated range of our out-of-pocket expenses runs from $0 to $2,000. You must purchase certain initial supplies from us at an approximate cost of $1,400 to $3,400. You will also need to purchase from our other approved suppliers other inventory, supplies, equipment, and fixtures. See Items 7 and 8. Each of these fees is due upon demand, which is generally prior to your Store’s opening. You are obligated to reimburse us for the out-of-pocket expenses we incur to provide our trainers to your store to provide initial training to you and your employees. This includes expenses for travel, lodging, meals, mileage, etc. Depending on your Store’s proximity to our Support Center in Irvine, California, the experience and capability of the staff at your Store, and other factors, the estimated range of our out-of- pocket expenses runs from $500 – $3,000. This reimbursement is due to us from you upon demand, which will generally occur just prior to your Store’s opening. Except as expressly provided above, we do not provide or offer any refunds of the initial fees paid to us. We do not currently offer any financing of the initial franchise fee or of any equipment that you must purchase from us. All fees imposed by us are uniform for new franchisees in this state, except as to the above described, reduced Initial Franchise Fees and the fees that may range as provided above. If you acquire a franchise for an existing store owned by us or one of our affiliates, you will enter into an Asset Purchase Agreement and you will assume other obligations under existing third party contracts for services and products used in the store. You will enter into a sublease agreement, pursuant to which you will sublet the premises of the store from us or our affiliate. You will pay a price for the assets and going concern value of that store that you and we or our affiliate negotiates. No company-owned or affiliate-owned stores were sold in our fiscal year ending December 31, 2019.
Item 8: Restrictions on Sources of Products and Services
We consider the reputation, good will, high standards, and uniformity of Yogurtland stores to be important to our success. Accordingly, there are products you must purchase from us and our designated or approved suppliers and vendors (including our affiliates) in accordance with our specifications and guidelines. All equipment, fixtures, supplies, inventory, and signs for use or sale in your store must meet our specifications. (Franchise Agmt. ?? 7.15, 7.17, 8.5) We can revise our specifications and guidelines on written notice to you. You must hire and use at your expense a Yogurtland-approved, licensed architect or general contractor to conduct a site survey and to prepare as-built drawings for the job site after the lease for your Store is signed. You must also use a Yogurtland-approved general contractor to construct your Store.
You must purchase all food ingredients, materials, and equipment from us or from thirdparty sources we designate or approve. (Franchise Agmt. ?? 7.15, 7.17) We can require you to purchase and use specific brand items in operating your store. We will lend you a Confidential Business Operations Manual, which will contain specifications and standards developed by us and which you must strictly follow. (Franchise Agmt. ?? 3.1-6, 7.10, 7.20, 7.21) The recipes, formulations, and specifications of all Yogurtland Products are trade secrets belonging exclusively to us. You must purchase all yogurt, drink base mixes, toppings, and all other items for the preparation of Yogurtland products from us or our designated or approved suppliers and vendors as specified in the Confidential Business Operations Manual. (Franchise Agmt. ? 7.15, 7.17, 7.26)
We and/or our affiliates are the sole providers of the Yogurtland yogurt base, drink base mixes, and soft goods, such as napkins, paper cups, boxes, and other items, which are part of the Yogurtland System and which use our trademarks. Other supplies are provided by approved suppliers. Purchases of unapproved products or from unapproved vendors in violation of the franchise agreement will entitle us, among other things, to terminate your franchise agreement. We negotiate purchase arrangements with our suppliers for the benefit of our franchisees. We will supply you with our list of suggested and preferred suppliers, which may be updated from time to time in our sole discretion. (Franchise Agmt. ? 7.15, 7.17, 7.26) You must purchase a complete POS System that we designate and meets specifications we set. You must purchase, service, and maintain the POS System at your cost. We will require that the POS System connect electronically with and provide electronic access from our equipment. The specifications for the POS are listed in Item 11. (Franchise Agmt. Section 7.18)
We may also designate an affiliated entity as an approved supplier of items for the operation of the franchised business including products, materials, services, supplies, equipment, and facilities. Other than the franchisor and our affiliate Joseph Trading, Inc., there are no approved suppliers in which our officers own an interest.
If you want to offer something we haven’t approved, or buy from a supplier we haven’t approved, you must first obtain our written approval, which we may withhold in our discretion. In seeking our approval, you will first need to notify us in writing, provide us samples and other information we require to evaluate the product and supplier (other than an architect) and pay us the supplier evaluation fee of $1,500, plus reimburse us for our expenses incurred in the evaluation. (See Item 6.) We may require you to provide us information on the history and credit rating of the proposed supplier, description of items you want to purchase from the proposed supplier, information relevant to the proposed supplier’s ability to satisfy our standards, ability to provide reliable service, references, and other information that we may request or designate. You must arrange for the proposed supplier to cooperate in testing or analyzing the supplier’s products at your or the supplier’s expense, to enable us to determine if the supplier and proposed items to be purchased are of satisfactory quality, reliability, and other characteristics. We will try to notify you in writing of our decision regarding the proposed supplier and the reasons for any disapproval, all within 15 business days after our receipt of all information that we deem necessary to make our decision. (Franchise Agmt. ? 7.16) You may not contract directly with any proposed supplier until you obtain our written consent. We may revoke approval of suppliers at any time. If we do so, we will notify you in writing and you must comply.
In the event you prefer to use an architect that has not been approved by us and we consent to your preference, we charge you a fee of $5,000 to compensate us for the time our staff will likely spend working with your architect to ensure that he or she fully understands the needs of our brand and image. (Franchise Agmt ?7.2) We are entitled to the benefit of all discounts, volume rebates, administration fees, commissions, advertising allowances, or other advantages that we may obtain from any person supplying products or services to you or to other franchisees. (Franchise Agmt. ? 7.15, 7.17) We currently have arrangements to derive revenue from your purchases or leases from third parties. There aren’t any purchasing or distribution cooperatives. We do not provide material benefits to you based on your use of our designated or approved sources.
If you are purchasing an existing affiliate-owned store, you will enter into an Asset Purchase Agreement and you will assume other obligations under existing third party contracts for services and products used in the store. You will enter into a sublease agreement pursuant to which you will sublet the premises of the store from us or the affiliate. If you sublease real property from us or our affiliates, we or our affiliate will derive revenue from such sublease. We and our affiliates derive revenue from your purchases from us, our affiliates, and certain other suppliers. The revenue from our sales and those of our affiliates to you equals the amount we or our affiliates charge you. For the year ending December 31, 2019, our total revenue was $9,108,277, and our total revenue from all required purchases and leases of products and services was $8,436,213, which represented 92.6% of our revenue. Franchisees are required to make purchases from our affiliate, Joseph Trading, Inc. (“JT”). JT’s revenue from products and services sold or leased to franchisees was $25,782,620 for the year ending December 31, 2019. Paramount Dairy, Inc., our affiliate, sells products to JT which are then sold to franchisees. Paramount Dairy does not sell or lease products or services to franchisees.
For the year ending December 31, 2019, the combined revenues of Paramount Dairy, Inc., Joseph Trading, Inc. and Yogurtland Franchising, Inc. for all purchases by our franchisees of products and services from any of us were $34,218,833 which represents 71.2% of 2019 combined revenue of Franchisor, Paramount Dairy, Inc. and Joseph Trading, Inc. The purchase of required items (equipment, products and services) from either of our affiliates Paramount Dairy, Inc. or Joseph Trading, Inc. or from us will represent from 1 to 5% of your overall purchases in establishing your business and will represent from 85 to 90% of your overall purchases in operating your business. For the year ending December 31, 2019, we received $0.00 in total from commissions and other benefits from unaffiliated suppliers, which range from zero to ten percent of the price to our franchisees.
As we assess consumer preferences and trends in the marketplace and develop new marketing techniques, products, and services, we anticipate that we will formulate and modify our standards and specifications and our approved suppliers and we will notify you of these developments through amendments to our confidential operations manual, newsletters, or other bulletins. (Franchise Agmt. ?? 3.4, 4.4)All Yogurtland stores must meet the construction and appearance as well as equipment standards in our then-current manual or written directive. We will provide you a list of approved companies and contractors for this purpose. (Franchise Agmt. ?? 7.3, 7.15, 7.17, 8.2, 8.5)
Item 10: Financing
We do not offer any direct or indirect financing. We do not guarantee your note, lease or obligation. If you are a corporation, partnership, or limited liability company, the respective shareholders, officers, partners, and members, must personally guarantee your obligations under the Franchise Agreement.
Item 12: Territory
We grant you a franchise to use our trademarks for a single store at a specific location and nowhere else. You may only operate your store at a location we approve. You may not operate your store at any other site without our prior written consent. If you have not selected a particular site for your store when you sign the franchise agreement, we will designate a general geographic area specifying the area within which you may seek a location for your store. You may not offer for sale or sell products or services or any material, supplies, or inventory bearing the trademarks at any site other than your store without our prior written consent. (Fran. Agmt. ? 1.1, 1.2, 1.3) We use our business judgment with respect to the location of each proposed site, as to whether it is satisfactory for a new store. Although we consider the proposed location in relation to existing System Stores, there is no minimum distance that would prevent us from developing or approving a new store at any particular distance from your Store.
You may not relocate your store without first obtaining our prior written consent, which may be conditioned on: (i) the new location meeting our then-current criteria for new locations; (ii) we are satisfied that the proposed relocation will not have an adverse competitive impact on the Yogurtland system; (iii) you are current on all obligations to us; and (iv) you sign a general release of all claims. (Fran. Agmt. ? 1.2) The franchise agreement does not grant you any option rights or rights of first refusal or similar rights to acquire any additional franchises. 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. We reserve the right to develop and operate, and to license others to develop and operate, additional Yogurtland Stores in new locations as we deem appropriate, which new locations may in some instances be perceived by existing Yogurtland operators as impacting their business. (Fran. Agmt. ? 1.2, 1.3)
We and our affiliates retain the right to do the following: (1) establish, operate, sell and franchise and license others to establish and operate Yogurtland stores and to sell Yogurtland products and other items and services under the trademarks and other trademarks and service marks through Yogurtland(R) stores located anywhere; and (2) sell, market, distribute, solicit, and license others to sell, market, distribute and solicit sales of pre-packaged products, yogurt materials and other items identified as Yogurtland or by other brand names, whether or not these brands are authorized for your use as well as other products or services under our marks and other marks through different channels of commerce such as super markets, wholesale markets, other yogurt stores and convenience stores as well as via the Internet, telemarketing, catalog sales, or other direct marketing sales. These activities may compete with you. (Fran. Agmt. ?1.3) We have no obligation and do not intend to compensate you for any of the potential sales described in the paragraph immediately above this one.
Under the terms of the franchise agreement, you are allowed to make sales ONLY from the premises of the Store, and channels approved by us. You have no right to use other channels of distribution such as the Internet, catalog sales, telemarketing, or other direct marketing, to make sales other than in-store sales from the Store. Neither we nor any affiliate of ours operates, franchises, or has plans to operate or franchise a business under a different trademark that sells or will sell goods or services similar to those the franchisee will offer, although we and our affiliates reserve the right to do so.
Development Agreement If you sign an Area Development Agreement, you will have the right and the obligation to develop and open a specified number of Stores only at Traditional Venues (which means any location that is not a Non-Traditional Venue as defined below) within a mutually agreed upon geographical area (the “Development Area”) and timeframe. The term of the Development Agreement commences on the Effective Date and ends on the earliest of: a) its expiration date, b) the opening of all authorized Stores to be developed under the Development Agreement; or c) termination for breach including failure to make satisfactory development progress. During the term of your Area Development Agreement, we will not operate or grant a license or franchise to any other person or business entity to operate a Store at a Traditional Venue within the Development Area. We reserve the right: (i) to develop, own, operate and grant licenses and franchises for Stores at locations and on terms that we deem appropriate at any location outside the Development Area; (ii) without any geographic limitation, to make and sell, or cause to be made and sold, products (including without limitation products that are also authorized for Stores at Traditional Venues) under our or other trademarks, service marks, logos or commercial symbols, through other retail stores and other distribution channels on such terms as we deem appropriate; (iii) to develop, own, operate and grant licenses and franchises for Stores inside the Development Area after the expiration or termination of the Area Development Agreement; and (iv) to develop, own, operate and grant licenses and franchises for Stores at Non-Traditional Venues (defined as locations within another primary business or in conjunction with institutional and other business or institutional settings, including resorts, hotels and motels, ships, ports, piers, casinos, arenas, stadiums, airports, gyms, colleges and universities, schools, hospitals, military and other governmental facilities, toll roads, travel plazas, office or in-plant food facilities, health clubs, Shopping Malls, supermarkets, grocery stores, anchor retail department stores, big-box retailers, specialty retailers, convenience stores, fast food operations such as food courts and any site for which the lessor, where the owner or operator has indicated its intent to prefer or limit the operation of similar businesses to a master concessionaire or similar provider) at any and all locations and on terms that we deem appropriate, regardless of whether these locations are within or outside the Development Area. Until the termination or expiration of the Area Development Agreement, you retain your right of exclusivity as long as you comply with your development schedule and other obligations under the Area Development Agreement. Except to the extent expressly provided in the Area Development Agreement as to developing new franchise locations, you do not acquire any rights of first refusal, options, or similar rights to acquire additional Yogurtland(R) franchises.
Item 15: Obligation to Participate in the Actual Operation of the Franchise Business
You or your manager must devote best efforts and dedicate a minimum of forty (40) hours per week to on site management of your franchised business. If you are a corporation, partnership, limited liability company, or other business organization, you must designate an individual we can rely on for the personal and direct onsite management of the franchised business. This designated person must complete the initial training program to our satisfaction. If the designated person separates from the franchised business, then you must designate another person, who must then complete the initial training program to our satisfaction within ninety (90) days of his or her predecessor’s separation from the franchised business. The manager need not have an ownership interest in your Yogurtland business. One of the following combinations of individuals must complete all phases of our training program to our satisfaction and participate in all other activities we require to open your store. Those combinations are (a) Franchisee and Franchisee’s initial store manager, or (b) Franchisee and spouse IF both are actively involved in the operation of the Store. Each and every replacement manager must satisfactorily complete our training program within sixty (60) days of becoming the manager. If you use a manager (instead of participating directly in your operations), we still recommend that you personally remain involved in your business. (See Franchise Agmt. Article 4, Sections 7.5, 7.6, 7.9, 7.30, 9.7, 9.9, Article 10, Article 11, Section 13.2.)
You are responsible to ensure that there is an approved ANSI Food Safety certified employee present during all shifts at your store. (Franchise Agrmt. Section 7.9) You must operate your store continuously during the hours we specify. We may require you to open your store for business as early as 7 A.M. and stay open until as late as midnight or later, and remain open 7 days per week, up to 365 days per year (366 days in a leap year). (Franchise Agrmt. Section 7.7) If you are a business organization, each owner of the business organization must sign a Guaranty agreement (see Exhibit I) personally guaranteeing the franchisee’s obligations under the franchise agreement. (Franchise Agrmt. Section 16.1) In addition, the respective spouse of each of the owners of the business organization must also sign the Guaranty agreement. Each of your managers must sign a confidentiality agreement as well as a covenant not to compete with us. See Exhibit J. (Franchise Agrmt. Section 10.2)
Item 16: RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
You must offer for sale all and only the goods we designate for your store and which comply with our standards for kind and quality according to our operation manual or as otherwise we designate in writing. The restrictions on what you are permitted to sell may change, and you must comply with these changes with reasonable notice to you. There are no limits on our right to make changes. You must offer all products we authorize you to sell. However, we are not obligated to authorize you to sell all available Yogurtland products that we may have.
Without our prior written consent, you may not offer or sell any Yogurtland products or services at any site other than your licensed store. You may only sell finished Yogurtland products that have been approved for sale at your licensed store and only to retail customers. You may not sell any Yogurtland products, whether finished or unfinished, to any person or entity for resale. In addition, you may not use your licensed store for any purpose other than operation of the Yogurtland store. You may not install or operate in your store any ATM machine, public telephone, jukebox, vending machine, lottery ticket terminal, video game, or any other game or machine without our written approval. If you sell products, services, or anything else that we have not approved, we may require you to remove the unapproved products, services, or items. We may also declare you in default for doing so. (See Franchise. Agmt. Sections 7.4, 7.6, 7.10, 7.15, 7.17, 7.20, 7.21, 7.26, 7.29)
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