DQ Treat

Of the 6 cases initiated against the franchisor in the past 3 years, what were the primary allegations and outcomes? How many of the 5 pending cases involve franchise-related disputes?

Given the system contracted by 101 units over 3 years, what is management's explanation for the decline and what specific initiatives are in place to stabilize or grow unit count?

Can you provide details on the 39 unit closures in 2022? Were these due to market conditions, franchisor decision, or franchisee choice? Has closure frequency changed due to specific operational changes?

The termination rate of 2.1% is above typical for this category. What are the most common reasons for franchisor termination, and has this rate changed over the past 3 years?

The ad fund rate of 5.0% exceeds the typical range of 2.0-4.0%. How is this fund allocated, and what marketing/advertising benefits do franchisees receive per dollar contributed?

The technology fee of $413/month is at the high end of the typical range. What specific technology systems and services are included, and are there any plans to increase this fee?

The non-compete clause is limited to 1 year, which is below the typical 2-year standard. After the franchise ends, how does the franchisor prevent former franchisees from operating similar businesses in the same territory?

Can you clarify the renewal conditions and explain why the renewal term is 15 years instead of the more typical 5-10 years? What happens if a franchisee does not meet the 8 renewal conditions?

The franchise has no exclusive territory and no encroachment protection. Has the franchisor opened new units in areas adjacent to or overlapping with existing franchisees? How many encroachment disputes have occurred?

Regarding the dispute resolution clause requiring arbitration in Minneapolis, Minnesota: what are the average costs for franchisees to pursue arbitration, and are there any recent arbitration cases you can reference?

The personal guarantee requirement means franchisees are personally liable for all franchise obligations. Are there any limitations on the personal guarantee, such as time limits or damage caps?

Can you provide a breakdown of the 24 closures in 2024 by reason (voluntary closure, franchisor termination, bankruptcy, relocation, etc.) and identify any geographic patterns?

The franchise fee is $25,000 with a $6,000 transfer fee and $10,000 renewal fee. Are there other material costs required before opening (build-out, equipment, inventory, training) that should be factored into initial investment?

What is the average unit-level profitability for franchisees, including revenue, COGS, labor, rent, and franchise fees? How many franchisees are profitable after year 1, 2, and 3?

The operational control clause allows the franchisor to designate single-source approved suppliers for up to 6 categories. Which product categories are currently single-sourced, and what is the price competitiveness compared to alternative suppliers?

With 5 pending litigation cases, what is the nature of these disputes? Are they franchisee-related, employment-related, or trademark/IP-related? What are the estimated timelines for resolution?

The cure period for defaults that materially impair trademark goodwill is only 24 hours. What specific actions constitute such a default, and has the franchisor terminated franchises for trademark-related violations in the past 3 years?

Has the franchisor enforced the indemnification clause against franchisees for third-party claims? What types of claims have resulted in franchisee indemnification obligations?