Wendy's 2013 Annual Report Download - page 11

The rights and obligations governing the majority of franchised restaurants operating in the United States are
set forth in the Wendy’s Unit Franchise Agreement (non-traditional locations may operate under an amended
agreement). This document provides the franchisee the right to construct, own and operate a Wendy’s restaurant
upon a site accepted by Wendy’s and to use the Wendy’s system in connection with the operation of the restaurant at
that site. The Unit Franchise Agreement provides for a 20-year term and a 10-year renewal subject to certain
conditions. Wendy’s has in the past franchised under different agreements on a multi-unit basis; however, Wendy’s
now grants new Wendy’s franchises on a unit-by-unit basis.
The Wendy’s Unit Franchise Agreement requires that the franchisee pay a royalty of 4% of monthly sales, as
defined in the agreement, from the operation of the restaurant or $1,000, whichever is greater. The agreement also
typically requires that the franchisee pay Wendy’s an initial technical assistance fee. In the United States, the standard
technical assistance fee required under a newly executed Unit Franchise Agreement is currently $40,000 for each
restaurant.
The technical assistance fee is used to defray some of the costs to Wendy’s for training, start-up and transitional
services related to new and existing franchisees acquiring company owned restaurants and in the development and
opening of new restaurants. In certain limited instances (such as the regranting of franchise rights for a previously
closed restaurant, a reduced franchise agreement term, or other unique circumstances), Wendy’s may charge a reduced
technical assistance fee or may waive the technical assistance fee. Wendy’s does not select or employ personnel on
behalf of franchisees.
Wendy’s also enters into development and/or relationship agreements with certain franchisees. The
development agreement provides the franchisee with the right to develop a specified number of new Wendy’s
restaurants using the Image Activation design within a stated territory for a specified period, subject to the franchisee
meeting interim new restaurant development requirements. The relationship agreement addresses other aspects of the
franchisor-franchisee relationship, such as restrictions on operating competing restaurants, participation in brand
initiatives such as the Image Activation program, employment of approved operators, confidentiality and restrictions
on engaging in sale/leaseback or debt refinancing transactions without Wendy’s prior consent.
Wendy’s Restaurants of Canada Inc. (“WROC”), a 100% owned subsidiary of Wendy’s, holds master franchise
rights for Canada. The rights and obligations governing the majority of franchised restaurants operating in Canada are
set forth in a Single Unit Sub-Franchise Agreement. This document provides the franchisee the right to construct,
own and operate a Wendy’s restaurant upon a site accepted by WROC and to use the Wendy’s system in connection
with the operation of the restaurant at that site. The Single Unit Sub-Franchise Agreement provides for a 20-year
term and a 10-year renewal subject to certain conditions. The sub-franchisee pays to WROC a monthly royalty of 4%
of sales, as defined in the agreement, from the operation of the restaurant or C$1,000, whichever is greater. The
agreement also typically requires that the franchisee pay WROC an initial technical assistance fee. The standard
technical assistance fee is currently C$40,000 for each restaurant.
Wendy’s has an incentive program for franchisees that commence Image Activation restaurant remodels or open
newly constructed Image Activation design restaurants during 2014 and for franchisees that open newly constructed
Image Activation design restaurants during 2015. The incentive program provides reductions in royalty payments for
up to the first three years after the completion of construction. In addition, the program includes cash incentives for
new and remodeled restaurants in the Image Activation design during 2014. Wendy’s also had an incentive program
for franchisees’ participation in Wendy’s Image Activation program during 2013.
In addition to the Image Activation incentive programs described above, Wendy’s has executed an agreement to
partner with a third-party lender to establish a financing program for franchisees that participate in our Image
Activation program. Under the program, the lender is providing loans to franchisees to be used for the reimaging of
restaurants according to the guidelines and specifications under the Image Activation program.
See “Management’s Discussion and Analysis—Liquidity and Capital Resources—Guarantees and Other
Contingencies” in Item 7 herein, for further information regarding guarantee obligations.
Franchised restaurants are required to be operated under uniform operating standards and specifications relating
to the selection, quality and preparation of menu items, signage, decor, equipment, uniforms, suppliers, maintenance
and cleanliness of premises and customer service. Wendy’s monitors franchisee operations and inspects restaurants
periodically to ensure that required practices and procedures are being followed.
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