Wendy's International (WEN)

Franchise Network

ARG seeks to identify potential franchisees that have experience in owning and operating quick service restaurant units, have a willingness to develop and operate Arby’s restaurants and have sufficient net worth. ARG identifies applicants through its website, targeted mailings, maintaining a presence at industry trade shows and conventions, existing customer and supplier contacts and regularly placed advertisements in trade and other publications. Prospective franchisees are contacted by an ARG sales agent and complete an application for a franchise. As part of the application process, ARG requires and reviews substantial documentation, including financial statements and documents relating to the corporate or other business organization of the applicant. Franchisees that already operate one or more Arby’s restaurants must satisfy certain criteria in order to be eligible to enter into additional franchise agreements, including capital resources commensurate with the proposed development plan submitted by the franchisee, a commitment by the franchisee to employ trained restaurant management and to maintain proper staffing levels, compliance by the franchisee with all of its existing franchise agreements, a record of operation in compliance with Arby’s operating standards, a satisfactory credit rating and the absence of any existing or threatened legal disputes with Arby’s. The initial term of the typical “traditional” franchise agreement is 20 years.

ARG currently does not offer any financing arrangements to franchisees seeking to build new franchised units. In 2006, ARG terminated a program offered through CIT Group to provide remodel financing to Arby’s franchisees, with ARG having no financial obligations under the program. ARG continues to evaluate potential new financial programs to assist franchisees in remodeling existing Arby’s restaurants.

As of December 31, 2006, Canadian franchisees have committed to open two Arby’s restaurants over the next two years. During 2006, one new Arby’s unit was opened in Canada and four Arby’s units in Canada were closed. During 2006, no other Arby’s units were opened or closed outside the United States.

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ARG offers franchises for the development of both single and multiple “traditional” restaurant locations. Both new and existing franchisees may enter into either a development agreement, which requires the franchisee to develop two or more Arby’s restaurants in a particular geographic area within a specified time period, or a license option agreement that grants the franchisee the option, exercisable for a one year period, to build an Arby’s restaurant on a specified site. All franchisees are required to execute standard franchise agreements. ARG’s standard U.S. franchise agreement for new Arby’s franchises currently requires an initial $37,500 franchise fee for the first franchised unit and $25,000 for each subsequent unit and a monthly royalty payment equal to 4.0% of restaurant sales for the term of the franchise agreement. Franchisees typically pay a $10,000 commitment fee, which is credited against the franchise fee during the development process for a new restaurant. Because of lower royalty rates still in effect under earlier agreements, the average royalty rate paid by U.S. franchisees was approximately 3.5% in 2004 and 2005 and 3.6% in 2006.

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. ARG monitors franchisee operations and inspects restaurants periodically to ensure that company practices and procedures are being followed.

Franchise Network

       ARG seeks to identify potential franchisees that have experience in owning and operating quick service restaurant units, have a willingness to develop and operate Arby's restaurants and have sufficient net worth. ARG identifies applicants through targeted mailings, maintaining a presence at industry trade shows and conventions, existing customer and supplier contacts and regularly placed advertisements in trade and other publications. Prospective franchisees are contacted by an ARG sales agent and complete an application for a franchise. As part of the application process, ARG requires and reviews substantial documentation, including financial statements and documents relating to the corporate or other business organization of the applicant. Franchisees that already operate one or more Arby's restaurants must satisfy certain criteria in order to be eligible to enter into additional franchise agreements, including capital resources commensurate with the proposed development plan submitted by the franchisee, a commitment by the franchisee to employ trained restaurant management and to maintain proper staffing levels, compliance by the franchisee with all of its existing franchise agreements, a record of operation in compliance with Arby's operating standards, a satisfactory credit rating and the absence of any existing or threatened legal disputes with Arby's. The initial term of the typical “traditional” franchise agreement is 20 years.

       ARG does not offer any financing arrangements to franchisees seeking to build new franchised units. However, in the fourth quarter of 2005, ARG entered into an agreement with CIT Group pursuant to which CIT has made $25 million available to Arby's franchisees who wish to remodel their existing Arby's restaurants. Pursuant to the loan program, subject to certain terms and conditions, franchisees are eligible for 100% remodel financing over a five- or seven-year term. ARG has guaranteed 20% of the credit line extended by CIT under the program. As of January 1, 2006, no loans were outstanding under the CIT program.

       As of January 1, 2006, ARG had one development agreement with a Canadian franchisee pursuant to which this franchisee has the exclusive right to open an Arby's restaurant in a specific region of Canada. During 2005, no new Arby's units were opened outside the United States and four units in Canada were closed.

       ARG offers franchises for the development of both single and multiple “traditional” restaurant locations. Both new and existing franchisees may enter into either a development agreement, which requires the franchisee to develop two or more Arby's restaurants in a particular geographic area within a specified time period, or a license option agreement that grants the franchisee the option, exercisable for a one year period, to build an Arby's restaurant on a specified site. All franchisees are required to execute standard franchise agreements. ARG's standard U.S. franchise agreement for new Arby's franchises currently requires an initial $37,500 franchise fee for the first franchised unit and $25,000 for each subsequent unit and a monthly royalty payment equal to 4.0% of restaurant sales for the term of the franchise agreement. Franchisees typically pay a $10,000 commitment fee, which is credited against the franchise fee during the development process for a new restaurant. Because of lower royalty rates still in effect under earlier agreements, the average royalty rate paid by U.S. franchisees was approximately 3.4% in 2003, and 3.5% in 2004 and 2005.

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       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. ARG monitors franchisee operations and inspects restaurants periodically to ensure that company practices and procedures are being followed.