Quiznos 02 2008 FDD

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<p>FRANCHISE DISCLOSURE DOCUMENTIssuance Date: March 30, 2007 As Amended February 1, 2008</p> <p>FRANCHISE DISCLOSURE DOCUMENT QUIZNOS FRANCHISING II LLC (a Delaware limited liability company) 1475 Lawrence Street Suite 400 Denver, Colorado 80202 Telephone: (720) 359-3300 www.quiznos.com quiznosfranchises.com Quiznos Franchising II LLC (we or us) is offering franchises to operate a restaurant offering submarine and other sandwiches, salads, soups, soft drinks and related other products under the service mark QUIZNOS and QUIZNOS SUB. The total investment necessary to begin operation of a traditional QUIZNOS Restaurant ranges from $215,000 to $283,160. This includes $127,150 to $141,110 that must be paid to the franchisor or its affiliate, but does not include rent for the Franchised Location. (See Footnote 10, Item 7) The total investment necessary to begin operation of a non-traditional QUIZNOS Restaurant ranges from $88,200 to $323,860. This includes $69,200 to $114,560 that must be paid to the franchisor or its affiliate, but does not include rent for the Franchised Location. The total investment necessary to begin operation of a non-traditional QUIZNOS Kiosk ranges from $77,500 to $199,500. This includes $61,000 to $115,500 that must be paid to the franchisor or its affiliate. The total investment necessary to begin operation of a non-traditional QUIZNOS Cooler ranges from $26,800 to $28,800. This includes $21,800 to $28,800 that must be paid to the franchisor or its affiliate. This Franchise Disclosure Document summarizes certain provisions of your franchise agreement and other information in plain English. Read this Franchise Disclosure Document and all accompanying agreements carefully. You must receive this Franchise Disclosure Document at least 14 calendar days before you sign a binding agreement with, or make any payment to, the franchisor or an affiliate in connection with the proposed franchise sale. Note, however, that no government agency has verified the information contained in this document. You may wish to receive your Franchise Disclosure Document in another format that is more convenient for you. To discuss the availability of disclosures in different formats, contact Laura Sporrer, 1475 Lawrence Street, Suite 400, Denver, Colorado 80202, (720) 359-3300, Lsporrer@quiznos.com. The terms of your contract will govern your franchise relationship. Dont rely on the Franchise Disclosure Document alone to understand your contract. Read all of your contract carefully. Show your contract and this Franchise Disclosure Document to an advisor, like a lawyer or an accountant. Buying a franchise is a complex investment. The information in this Franchise Disclosure Document can help you make up your mind. More information on franchising, such as A Consumers Guide to Buying a Franchise, which can help you understand how to use this Franchise Disclosure Document, is available from the Federal Trade Commission. You can contact the FTC at 1-877-FTC-HELP or by writing to the FTC at 600 Pennsylvania Avenue, NW, Washington, D.C. 20580. You can also visit the FTCs home page at www.ftc.gov for additional information. Call your state agency or visit your public library for other sources of information on franchising. There may also be laws on franchising in your state. Ask your state agencies about them. ISSUANCE DATE: MARCH 30, 2007, AS AMENDED FEBRUARY 1, 2008</p> <p>QFII (Unit) FDD (02/2008) v3</p> <p>STATE COVER PAGE Your state may have a franchise law that requires a franchisor to register or file with a state franchise administrator before offering or selling in your state. REGISTRATION OF A FRANCHISE BY A STATE DOES NOT MEAN THAT THE STATE RECOMMENDS THE FRANCHISE OR HAS VERIFIED THE INFORMATION IN THIS FRANCHISE DISCLOSURE DOCUMENT. Call the state franchise administrators listed in Exhibit A for information about the franchisor, or about franchising in your state. MANY FRANCHISE AGREEMENTS DO NOT ALLOW YOU TO RENEW UNCONDITIONALLY AFTER THE INITIAL TERM EXPIRES. YOU MAY HAVE TO SIGN A NEW AGREEMENT WITH DIFFERENT TERMS AND CONDITIONS IN ORDER TO CONTINUE TO OPERATE YOUR BUSINESS. BEFORE YOU BUY, CONSIDER WHAT RIGHTS YOU HAVE TO RENEW YOUR FRANCHISE, IF ANY, AND WHAT TERMS YOU MIGHT HAVE TO ACCEPT IN ORDER TO RENEW. Please consider the following RISK FACTORS before you buy this franchise: 1. THE FRANCHISE AGREEMENT REQUIRES YOU TO RESOLVE DISPUTES WITH US BY LITIGATION ONLY IN COLORADO. ALSO, ANY LEGAL ACTION THAT WE BRING AGAINST YOU WILL BE FILED ONLY IN COLORADO. OUT OF STATE LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT ALSO MAY COST YOU MORE TO LITIGATE WITH US IN COLORADO THAN IN YOUR HOME STATE. THE FRANCHISE AGREEMENT STATES THAT COLORADO LAW GOVERNS THE AGREEMENT, AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTION AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS. SOME STATE FRANCHISE LAWS PROVIDE THAT CONSENT TO JURISDICTION AND CHOICE OF LAW PROVISIONS ARE VOID OR SUPERSEDED. YOU MIGHT WANT TO INVESTIGATE WHETHER YOU ARE PROTECTED BY A STATE FRANCHISE LAW. YOU SHOULD REVIEW ANY ADDENDA OR RIDERS ATTACHED TO THIS FRANCHISE DISCLOSURE DOCUMENT FOR DISCLOSURES REGARDING STATE FRANCHISE LAWS. AS OF DECEMBER 31, 2007, 1146 QUIZNOS FRANCHISEES HAD NOT OPENED THEIR RESTAURANTS WITHIN 12 MONTHS OF SIGNING THE FRANCHISE AGREEMENT. THIS NUMBER REPRESENTS APPROXIMATELY 83.28% OF ALL FRANCHISEES WHO HAD NOT OPENED A RESTAURANT AS OF THAT DATE. WE MAY TERMINATE YOUR FRANCHISE AGREEMENT IF YOU DO NOT OPEN YOUR RESTAURANT WITHIN 12 MONTHS AFTER YOU SIGN THE FRANCHISE AGREEMENT. THE FRANCHISE FEE IS NONREFUNDABLE.</p> <p>2.</p> <p>3.</p> <p>4.</p> <p>5.</p> <p>QFII (Unit) FDD (02/2008) v3</p> <p>6.</p> <p>THE FRANCHISE AGREEMENT PERMITS US AND OUR AFFILIATES TO ESTABLISH OTHER FRANCHISED OR COMPANY-OWNED LOCATIONS AT ANY LOCATION OTHER THAN YOUR FRANCHISED LOCATION, TO SELL OR DISTRIBUTE ANY PRODUCT OR SERVICE TO THE GENERAL PUBLIC, OR TO ESTABLISH OTHER CHANNELS OF DISTRIBUTION WHICH MAY COMPETE WITH YOUR FRANCHISE. WE WILL REQUIRE YOUR SPOUSE (OR, IF YOU ARE AN ENTITY, THE SPOUSE OF ANY OWNER WITH A 25% OR MORE INTEREST IN THE ENTITY) TO SIGN A GUARANTY AND ASSUMPTION OF FRANCHISEES OBLIGATIONS CAUSING YOUR SPOUSE (OR THE OWNERS SPOUSE) TO BECOME INDIVIDUALLY LIABLE FOR ALL OBLIGATIONS OF THE FRANCHISE AND BOUND BY THE RESTRICTIVE COVENANTS, CONFIDENTIALITY PROVISIONS, AND INDEMNIFICATION PROVISIONS OF THE FRANCHISE AGREEMENT, EVEN IF YOUR SPOUSE IS NOT INVOLVED IN THE OPERATION OF THE FRANCHISE BUSINESS. THIS REQUIREMENT PLACES THE PERSONAL ASSETS OF OWNERS AND SPOUSES AT RISK. IF THE FRANCHISE AGREEMENT IS TERMINATED BECAUSE OF YOUR DEFAULT, YOU WILL BE LIABLE TO US FOR A LUMP SUM AMOUNT EQUAL TO THE NET PRESENT VALUE OF THE ROYALTIES, MARKETING AND PROMOTION FEES, LOCAL ADVERTISING FEES, AND REGIONAL ADVERTISING FEES THAT WOULD HAVE BECOME DUE FOLLOWING TERMINATION OF THE FRANCHISE AGREEMENT FOR THE PERIOD THE FRANCHISE AGREEMENT WOULD HAVE REMAINED IN EFFECT BUT FOR YOUR DEFAULT. ROYALTIES AND MARKETING AND PROMOTION FEES WILL BE CALCULATED BASED ON YOUR RESTAURANTS AVERAGE MONTHLY GROSS SALES FOR THE 12 MONTHS PRECEDING THE TERMINATION DATE. IT MAY TAKE 8 TO 18 MONTHS TO FIND AN ACCEPTABLE SITE AND/OR OBTAIN AN ACCEPTABLE LEASE. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.</p> <p>7.</p> <p>8.</p> <p>9. 10.</p> <p>We use the services of one or more franchise brokers or referral sources to assist us in selling our franchise. A franchise broker or referral source represents us, not you. We pay this person a fee for selling our franchise or referring you to us. You should be sure to do your own investigation of the franchise. The effective dates of this Franchise Disclosure Document in the states with franchise registration laws are in Exhibit A.</p> <p>2QFII (Unit) FDD (02/2008) v3</p> <p>THE FOLLOWING APPLIES ONLY TO TRANSACTIONS GOVERNED BY THE MICHIGAN FRANCHISE INVESTMENT LAW THE STATE OF MICHIGAN PROHIBITS CERTAIN UNFAIR PROVISIONS THAT ARE SOMETIMES IN FRANCHISE DOCUMENTS. IF ANY OF THE FOLLOWING PROVISIONS ARE IN THESE FRANCHISE DOCUMENTS, THE PROVISIONS ARE VOID AND CANNOT BE ENFORCED AGAINST YOU: (a) A prohibition on the right of a franchisee to join an association of franchisees.</p> <p>(b) A requirement that a franchisee assent to a release, assignment, novation, waiver, or estoppel which deprives a franchisee of rights and protections provided in this act. This shall not preclude a franchisee, after entering into a franchise agreement, from settling any and all claims. (c) A provision that permits a franchisor to terminate a franchise prior to the expiration of its term except for good cause. Good cause shall include the failure of the franchisee to comply with any lawful provision of the franchise agreement and to cure such failure after being given written notice thereof and a reasonable opportunity, which in no event need be more than 30 days, to cure such failure. (d) A provision that permits a franchisor to refuse to renew a franchise without fairly compensating the franchisee by repurchase or other means for the fair market value at the time of expiration of the franchisees inventory, supplies, equipment, fixtures, and furnishings. Personalized materials which have no value to the franchisor and inventory, supplies, equipment, fixtures, and furnishings not reasonably required in the conduct of the franchise business are not subject to compensation. This subsection applies only if: (i) the term of the franchise is less than 5 years and (ii) the franchisee is prohibited by the franchise or other agreement from continuing to conduct substantially the same business under another trademark, service mark, trade name, logotype, advertising, or other commercial symbol in the same area subsequent to the expiration of the franchise or the franchisee does not receive at least 6 months advance notice of franchisors intent not to renew the franchise. (e) A provision that permits the franchisor to refuse to renew a franchise on terms generally available to other franchisees of the same class or type under similar circumstances. This section does not require a renewal provision. (f) A provision requiring that arbitration or litigation be conducted outside this state. This shall not preclude the franchisee from entering into an agreement, at the time of arbitration, to conduct arbitration at a location outside this state. (g) A provision which permits a franchisor to refuse to permit a transfer of ownership of a franchise, except for good cause. This subdivision does not prevent a franchisor from exercising a right of first refusal to purchase the franchise. Good cause shall include, but is not limited to:</p> <p>Michigan 1QFII (Unit) FDD (02/2008) v3</p> <p>(i) The failure of the proposed franchisee to meet the franchisors then current reasonable qualifications or standards. (ii) The fact that the proposed transferee is a competitor of the franchisor or subfranchisor. (iii) The unwillingness of the proposed transferee to agree in writing to comply with all lawful obligations. (iv) The failure of the franchisee or proposed transferee to pay any sums owing to the franchisor or to cure any default in the franchise agreement existing at the time of the proposed transfer. (h) A provision that requires the franchisee to resell to the franchisor items that are not uniquely identified with the franchisor. This subdivision does not prohibit a provision that grants to a franchisor a right of first refusal to purchase the assets of a franchise on the same terms and conditions as a bona fide third party willing and able to purchase those assets, nor does this subdivision prohibit a provision that grants the franchisor the right to acquire the assets of a franchise for the market or appraised value of such assets if the franchisee has breached the lawful provisions of the franchise agreement and has failed to cure the breach in the manner provided in subdivision (c). (i) A provision which permits the franchisor to directly or indirectly convey, assign, or otherwise transfer its obligations to fulfill contractual obligations to the franchisee unless provision has been made for providing the required contractual services. If the franchisors most recent financial statements are unaudited and show a net worth of less than $100,000, the franchisor shall, at the request of a franchisee, arrange for the escrow of initial investment and other funds paid by the franchisee or subfranchisor until the obligations to provide real estate, improvements, equipment, inventory, training, or other items included in the franchise offering are fulfilled. At the option of the franchisor, a surety bond may be provided in place of escrow. THE FACT THAT THERE IS A NOTICE OF THIS OFFERING ON FILE WITH THE ATTORNEY GENERAL DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION, OR ENDORSEMENT BY THE ATTORNEY GENERAL. Any questions regarding the notice should be directed to: State of Michigan Consumer Protection Division Attention: Franchise 670 G. Mennen Williams Building 525 West Ottawa Lansing, Michigan 48933 Telephone: 517-373-7117 Michigan 2QFII (Unit) FDD (02/2008) v3</p> <p>TABLE OF CONTENTS ITEM 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 PAGE THE FRANCHISOR, AND ANY PARENTS, PREDECESSORS, AND AFFILIATES .......................................................................................................................1 BUSINESS EXPERIENCE .................................................................................................5 LITIGATION.....................................................................................................................10 BANKRUPTCY ................................................................................................................10 INITIAL FEES...................................................................................................................10 OTHER FEES....................................................................................................................14 ESTIMATED INITIAL INVESTMENT...........................................................................20 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES ............................23 FRANCHISEES OBLIGATIONS ...................................................................................29 FINANCING......................................................................................................................30 FRANCHISORS ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND TRAINING...............................................................................................................31 TERRITORY .....................................................................................................................41 TRADEMARKS ................................................................................................................43 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION............................45...</p>