INFORMATION FOR PROSPECTIVE FRANCHISEES
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REQUIRED BY THE FEDERAL TRADE COMMISSION
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PRETZEL TIME, INC.
2855 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah 84121
(801) 736-5600
Effective Date: May 15, 1998
As Amended: November 24, 1998
To protect you, we've required your franchisor to give you this information. We haven't checked it and don't know if it's correct. It should
---------------------------------------------------- help you make up your mind. Study it carefully. While it includes some information about your contract, don't rely on it alone to understand your contract. Read all of your contract carefully. Buying a franchise is a complicated investment. Take your time to decide. If possible, show your contract and this information to an advisor, like a lawyer or an accountant. If you find anything you think may be wrong or anything important that's been left out, you should let us know about it. It may be against the law.
There may also be laws on franchising in your state. Ask your state agencies about them.
FEDERAL TRADE COMMISSION
Washington, D.C. 20580
FRANCHISE OFFERING CIRCULAR
FOR PROSPECTIVE FRANCHISEES
PRETZEL TIME, INC.
2855 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah 84121
(801) 763-5600
The name of the franchisor is Pretzel Time, Inc. If you become a Pretzel Time Store franchisee, you will have the right to operate a Pretzel Time Store from which you will offer a variety of freshly baked, hand-rolled soft pretzels prepared according to our unique recipe, other pretzel-related products, pretzel toppings, beverages and other food products and, in certain instances, TCBY frozen yogurt products.
The initial franchise fee for a Pretzel Time Store is $25,000, unless the Pretzel Time Store is operated in a cart or kiosk format, in which case the initial franchise fee is $15,000. The estimated initial investment required for a franchise, including the initial franchise fee, is from $117,000 to $236,000. If you are granted the right to sell TCBY frozen yogurt products from the premises of your Pretzel Time Store, you will pay an additional $1,000 fee and an additional estimated initial investment of $39,500 to $93,000. These sums do not include real estate lease costs and assume you are not operating in a cart or kiosk format. These sums are not your total investment in your franchise. For a detailed explanation of your total investment, you should consult Items 5 through 7 of this Offering Circular.
Risk Factors: - ------------
THE FRANCHISE AGREEMENTS REQUIRE THAT ALL DISAGREEMENTS BE SETTLED BY
ARBITRATION IN SALT LAKE CITY, UTAH. OUT OF STATE ARBITRATION MAY FORCE
YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT. IT MAY ALSO COST YOU MORE TO
ARBITRATE WITH US IN UTAH THAN IN YOUR HOME STATE.
THE FRANCHISE AGREEMENTS STATE THAT UTAH LAW GOVERNS THE AGREEMENTS, AND
THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW.
YOU MAY WANT TO COMPARE THESE LAWS.
ALTHOUGH THE FRANCHISE AGREEMENTS SET FORTH THE ARBITRATION AND GOVERNING
LAW PROVISIONS DESCRIBED ABOVE, LOCAL LAW MAY GOVERN THESE REQUIREMENTS IN
YOUR STATE, PLEASE REFER TO ANY STATE-SPECIFIC ADDENDUM THAT MAY BE
ATTACHED TO THE OFFERING CIRCULAR FOR DETAILS.
THERE MAY BE OTHER RISKS CONCERNING THESE FRANCHISES.
Information comparing franchisors is available. Call the state administrators listed on Schedule 4 to this Offering Circular or your public library for sources of information.
Registration of these franchises by a state does not mean that the state recommends them or has verified the information in this Offering Circular. If you learn that anything in this Offering Circular is untrue, contact the Federal Trade Commission or the state administrator in your state.
Effective Date: May 15, 1998, as amended November 24, 1998. - --------------
TABLE OF CONTENTS
Item Page - ---- ----
ITEM 1. THE FRANCHISOR, ITS PREDECESSORS, AND AFFILIATES 1 ITEM 2. BUSINESS EXPERIENCE 6 ITEM 3. LITIGATION 9 ITEM 4. BANKRUPTCY 10 ITEM 5. INITIAL FRANCHISE FEE 11 ITEM 6. OTHER FEES 12 ITEM 7. INITIAL INVESTMENT 18 ITEM 8. RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES 25 ITEM 9. FRANCHISEE'S OBLIGATIONS 27 ITEM 10. FINANCING 30 ITEM 11. FRANCHISOR'S OBLIGATIONS 32 ITEM 12. TERRITORY 41 ITEM 13. TRADEMARKS 43 ITEM 14. PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION 47 ITEM 15. OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE
FRANCHISE BUSINESS 49 ITEM 16. RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL 49 ITEM 17. RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION 50 ITEM 18. PUBLIC FIGURES 63 ITEM 19. EARNINGS CLAIMS 63 ITEM 20. LIST OF OUTLETS 64 ITEM 21. FINANCIAL STATEMENTS 69 ITEM 22. CONTRACTS 69 ITEM 23. RECEIPT 70
SCHEDULES - ---------
SCHEDULE 1 DEFINITIONS SCHEDULE 2 LIST OF AGENTS FOR SERVICE OF PROCESS SCHEDULE 3 FINANCIAL STATEMENTS SCHEDULE 4 STATE ADMINISTRATORS SCHEDULE 5 OPERATIONS MANUALS TABLE OF CONTENTS SCHEDULE 6 FRANCHISEE INFORMATION
PART 1 - LIST OF PRETZEL TIME FRANCHISEES
PART 2 - LIST OF PRETZEL TIME FRANCHISEES TERMINATED,
CANCELLED, NOT RENEWED, OR THAT HAVE CEASED DOING
BUSINESS SCHEDULE 7 LIST OF PRETZEL TIME AREA DEVELOPERS
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EXHIBITS - --------
EXHIBIT A FRANCHISE AGREEMENT (WITH ACKNOWLEDGMENT ADDENDUM,
OWNERSHIP ADDENDUM, AUTHORIZATION AGREEMENT FOR
PREARRANGED PAYMENTS (APPENDIX A), TCBY YOGURT PRODUCT
ADDENDUM, AND SATELLITE UNIT ADDENDUM)
EXHIBIT B GUARANTY OF AGREEMENT EXHIBIT C RESERVATION LETTER EXHIBIT D SUBLEASE AGREEMENT
NOTICE
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UNLESS OTHERWISE INDICATED, THE INFORMATION APPEARING IN THIS OFFERING CIRCULAR APPLIES TO PRETZEL TIME STORE FRANCHISES. UNLESS OTHERWISE INDICATED, THE TERMS OF ALL FRANCHISE OFFERS ARE THE SAME.
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ITEM 1. THE FRANCHISOR, ITS PREDECESSORS, AND AFFILIATES
Description of the Franchisor and its Predecessors and Affiliates. - -----------------------------------------------------------------
To simplify the language in this Offering Circular, "we", and similar words, refer to Pretzel Time, Inc., the franchisor; "MFHCI" means Mrs. Fields Holding Company, Inc., a Delaware corporation; "MFOCI" means Mrs. Fields' Original Cookies, Inc., a Delaware corporation; "MFBI" means The Mrs. Fields' Brand, Inc., a Delaware corporation; "GACC" means Great American Cookie Company, Inc., a Delaware corporation; "Pretzelmaker" means Pretzelmaker, Inc., a Utah corporation; and "Pretzelmaker-Canada" means Pretzelmaker-Canada, Inc., an Ontario corporation. "You" and similar words, means the person or persons, including a corporate or other legal entity, individually and collectively, buying a franchise from us; and "your Store" means the Pretzel Time Store that you will operate if we enter into a Pretzel Time franchise agreement with you. We have also attached as Schedule 1 a list of additional defined terms used in this Offering Circular. If a capitalized term is not defined in the body of this Offering Circular, please refer to Schedule 1 for the definition.
We are a Pennsylvania corporation incorporated in May 1991. We originally incorporated under the name Mr. Pretzel, Inc., but shortly thereafter changed our name to Pretzel Time, Inc. We do business under the name Pretzel Time Stores (or variations of that name). In September 1997, MFHCI acquired 56% of our outstanding shares. At the same time, we entered into a Management Agreement with MFHCI under which MFHCI agreed to provide, either by itself or through one of its affiliates, management services to us. MFHCI is a Delaware corporation incorporated in August 1996. In November, 1997, MFHCI assigned all of its interest in our outstanding shares to MFOCI. MFOCI is a Delaware corporation incorporated in September 1996. MFOCI is a wholly-owned subsidiary of MFHCI and an Affiliate of us. In January 1998, MFOCI acquired an additional 4% of our outstanding shares. Similarly, in June 1998, MFOCI acquired an additional 10% of our outstanding shares. Consequently, as of the date of this Offering Circular, MFOCI owns 70% of our outstanding shares.
Our principal business address is 2855 East Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121, and our telephone number is 801-736-5600. The principal business address and telephone number of MFHCI, MFOCI, MFBI, GACC, Pretzelmaker and Pretzelmaker-Canada are the same as ours. Our agents for service of process in the various states where we do business are listed on Schedule 2 to this Offering Circular. We have no predecessors from which we acquired a substantial portion of our assets.
Pretzelmaker is a Utah corporation incorporated on August 31, 1992 under the name Four Pretzels, Inc. Pretzelmaker changed its name to Pretzelvania, Inc. on September 23, 1992 and to its current name on December 17, 1992. Pretzelmaker-Canada is an Ontario corporation incorporated on September 26, 1996, and a wholly-owned subsidiary of Pretzelmaker. On November 19, 1998, MFOCI acquired all of the stock of Pretzelmaker Holdings, Inc. ("PHI"), a Colorado corporation incorporated on February 24, 1995 and the parent corporation of Pretzelmaker. As a result of the merger, Pretzelmaker-Canada remains a wholly-owned subsidiary of Pretzelmaker, Pretzelmaker remains a wholly-owned subsidiary of PHI, and PHI is now a wholly-owned subsidiary of MFOCI.
MFBI is a Delaware corporation incorporated in August 1996. MFBI is also a wholly-owned subsidiary of MFHCI and an Affiliate of us. MFBI has granted MFOCI a perpetual, fully paid license to use the Mrs. Fields trademarks in connection with all Mrs. Fields Cookie Stores.
GACC is a Delaware corporation incorporated on June 10, 1977. GACC incorporated under the name "The Original Great American Chocolate Chip Cookie Company, Inc." and changed to its existing
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name as of December 10, 1993. Cookies USA, Inc. ("Cookies USA"), a Delaware corporation, acquired GACC on December 10, 1993 and GACC became a wholly-owned subsidiary of Cookies USA. On August 24, 1998, MFOCI acquired all of the stock of Cookies USA. Immediately thereafter, MFOCI merged Cookies USA with and into itself. As a result of the merger, GACC is now an indirect, wholly-owned subsidiary of MFOCI and an Affiliate of ours.
Concurrent with MFOCI's acquisition of Cookies USA, MFOCI acquired 29 Great American Cookie Company Stores through the acquisition of all of the stock of 2 corporate Great American Cookie Company franchisees. Immediately thereafter, MFOCI merged the 2 Great American Cookie Company franchisees with and into GACC. GACC now operates these 29 Great American Cookie Company Stores for its own account. Concurrent with MFOCI's acquisition of Cookies USA, MFOCI also acquired 8 additional Great American Cookie Company Stores through the acquisition of all of the assets of 6 corporate Great American Cookie Company franchisees all owned by the same entity. Since the acquisition, MFOCI has operated these 8 Great American Cookie Company Stores as a franchisee of GACC.
MFOCI intends to continue to operate both the Pretzel Time System and the Pretzelmaker System as separate franchise systems. In addition, MFOCI intends to continue to operate both the Mrs. Fields System and the Great American Cookie Company System as separate franchise systems.
MFHCI, MFOCI, MFBI and GACC are separate corporations and, except as described in Item 21, are not liable to you for any actions taken or obligations incurred by us.
The Business of the Franchisor, its Predecessors, and Affiliates. - ----------------------------------------------------------------
Since January 1992, we have been in the business of granting licenses and franchises for the operation of Pretzel Time Stores. From October 1991 to December, 1997, we were also in the business of owning and operating Pretzel Time Stores. As of the date of this Offering Circular, we do not own or operate any Pretzel Time Stores. Pursuant to a national sales agreement we entered into with TCBY Systems, Inc. (as further described below in this Item 1), we have offered Pretzel Time franchisees the right to add the TCBY Concept to the Premises of new or existing Pretzel Time Stores since February 1995.
We or one of our Affiliates may establish a new business or franchise system or acquire an existing business or franchise system (which may be one of your competitors) operating under trademarks, service marks and tradenames other than the Pretzel Time Trademarks or TCBY Trademarks. The new or existing business or franchise system may compete with you.
Since January 1992, we have been in the business of granting area developer rights to certain qualified persons ("Area Developers") pursuant to a Pretzel Time Area Development Agreement (the "Development Agreement"). Under the Development Agreement, Area Developers are granted the right to develop, own and operate a specified number of Pretzel Time Stores at approved shopping mall locations within a defined geographic area (the "Territory"). Area Developers are also granted the right to market and service the Pretzel Time System at shopping mall locations within their Territories, for which they receive a fee. Finally, under the Development Agreement, Area Developers are granted the right to receive compensation from us for finding Pretzel Time franchisees for shopping mall locations within their Territories. Area Developers, however, do not have the authority to grant the rights to license or operate a Pretzel Time franchise or enter into a Pretzel Time franchise agreement with a potential franchisee. While an Area Developer may initiate contact with potential franchisees, only we may enter into a Pretzel Time franchise agreement with such potential franchisees. Currently, we are no
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longer entering into Development Agreements for additional Territories, although we may enter into new Development Agreements with new or existing Area Developers for existing Territories. In addition, we may offer some other form of area development grants for Pretzel Time Stores which permit the development and operation of multiple Pretzel Time franchises in designated geographic areas. We offer Area Developer rights and other area development rights through separate offering circulars, if at all. As of June 12, 1998, there were 10 Area Developers with whom we have entered into Development Agreements. See Item 2 and Schedule 7 for a list of our Area Developers and their respective Territories. These Area Developers are independent contractors. As further described in Item 11 of this Offering Circular, an Area Developer may be obligated to provide certain services to you if your Store is located in a shopping mall within such Area Developer's Territory.
In July 1997, Mrs. Fields' Pretzel Concepts, Inc. ("MFPCI"), a wholly-owned subsidiary of MFHCI, purchased 79 Pretzel Time Stores from one of our Area Developers, H&M Concepts Ltd. Co. At the time of the purchase, MFPCI entered into an Area Development Agreement and a franchise agreement with us. MFPCI operated the 79 Pretzel Time Stores as our franchisee until MFPCI merged into MFOCI on November 26, 1997. Since the merger, MFOCI has operated the 79 Pretzel Time Stores as our franchisee. See Item 20 and Part 2 of Schedule 6 for more information on these Stores.
In June 1998, MFOCI purchased a total of 5 Pretzel Time Stores from one of our Area Developers, Virginia Concepts, Inc. At the time of the purchase, Virginia Concepts, Inc. transferred to MFOCI the respective Area Development Agreement and 5 franchise agreements it had entered into with us. Since the purchase, MFOCI has operated the 5 Pretzel Time Stores as our franchisee. See Item 20 and Part 1 of Schedule 6 for more information on these Stores.
Since September 1992, Pretzelmaker has been in the business of granting franchises for the operation of Pretzelmaker Stores in the United States. Since August 1995, Pretzelmaker has also been in the business of owning and operating Pretzelmaker Stores. In addition, since September 1996, Pretzelmaker-Canada has been in the business of granting franchises for the operation of Pretzelmaker Stores in Canada. A Pretzelmaker Store offers soft pretzels, pretzel products and other complementary food and beverages. In some circumstances, a Pretzelmaker Store may also offer branded frozen desserts and coffee products. Following our acquisition of PHI, there were approximately 215 Pretzelmaker Store franchises and licenses, 9 Pretzelmaker Store locations owned and operated by Pretzelmaker and no Pretzelmaker Stores owned and operated by Pretzelmaker- Canada.
Since September 1996, MFOCI has been in the business of granting licenses and franchises for the operation of Mrs. Fields Cookie Stores and operating and owning Mrs. Fields Cookie Stores for its own account. A Mrs. Fields Cookie Store offers a variety of specially prepared food items, such as cookies, brownies, muffins and beverages. As of December 31, 1997, there were 165 Mrs. Fields Cookie Store franchises and 144 Mrs. Fields Cookie Stores owned and operated by MFOCI.
Between September 1996 and November 1997, MFOCI was in the business of granting licenses and franchises for the operation of Hot Sam Pretzel and Bakery Stores. Currently, MFOCI is no longer granting Hot Sam Pretzel and Bakery Store licenses and franchises. Since September 1996, MFOCI has also been in the business of owning and operating Hot Sam Pretzel and Bakery Stores. A Hot Sam Pretzel and Bakery Store offers a variety of freshly prepared soft pretzels and pretzel products (including Bavarian and sweet dough pretzel sticks), various toppings and sauces, freshly squeezed lemonade and other food items and beverages which are similar to those offered at a Pretzel Time Store. As of December 31, 1997, there were no Hot Sam Pretzel and Bakery Store licenses or franchises, and 102 Hot Sam Pretzel and Bakery Stores owned and operated by MFOCI.
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In certain situations, you may be able to purchase an existing Hot Sam Pretzel and Bakery Store location and its physical assets from MFOCI and convert the location to a Pretzel Time Store of the type offered in this Offering Circular. The acquisition of the existing Hot Sam Pretzel and Bakery location and assets from MFOCI will be negotiated between you and MFOCI on an individual basis, independently, separately and in addition to your entering into a Pretzel Time Franchise Agreement with us to operate a Pretzel Time Store. This Offering Circular makes no disclosures or representations regarding the terms and conditions of any such transaction you may negotiate with MFOCI.
Since September 1996, MFOCI has been in the business of operating and owning Original Cookie Company Stores for its own account. An Original Cookie Company Store offers a variety of specially prepared food items, such as cookies, brownies, muffins and beverages. As of December 31, 1997, there were 155 Original Cookie Company Stores owned and operated by MFOCI and no Original Cookie Company Store franchises.
Since September 1977, GACC has been in the business of granting licenses and franchises for the operation of Great American Cookie Company Stores. Since June 1977, GACC has also been in the business of owning and operating Great American Cookie Company Stores. A Great American Cookie Company Store offers different types of cookies, other baked products and beverages and is typically located in an enclosed shopping mall. Following MFOCI's acquisition of Cookies USA and the 10 Great American Cookie Company franchisees, as described above, there were approximately 218 Great American Cookie Company Store licenses or franchises, and 106 Great American Cookie Company Stores owned and operated by GACC.
These are the only franchised businesses that have been offered by us and our Affiliates.
Description of the Franchises Offered. - ------------------------------------- Pretzel Time Stores: - -------------------
We offer franchises (the "Franchises") for Pretzel Time Stores offering various Pretzel Time Products in accordance with the terms of our Pretzel Time franchise agreement (the "Pretzel Time Franchise Agreement"). A copy of the Pretzel Time Franchise Agreement is attached to this Offering Circular as Exhibit A. If you enter into a Pretzel Time Franchise Agreement, you will be authorized to use the Pretzel Time System under which Pretzel Time Stores operate. If you do business as an Entity, we may require each of your Entity Owners at any time during the term of the Franchise Agreement to execute a Guaranty of Agreement in the form of Exhibit B to this Offering Circular, guaranteeing your obligations under the Franchise Agreement.
On a case by case basis, we may offer existing Pretzel Time franchisees the right to operate a cart (the "Satellite Unit") in proximity to their Pretzel Time Store in accordance with the terms of our Satellite Unit Addendum to Pretzel Time Franchise Agreement (the "Satellite Unit Addendum"). A copy of the Satellite Unit Addendum is attached to the Franchise Agreement in Exhibit A of this Offering Circular.
TCBY Concept: - ------------
Under certain circumstances (as further described below in this Item 1), we offer Pretzel Time franchisees the right to add the TCBY Concept to the Premises of a new or existing Pretzel Time Store. Pretzel Time franchisees that are granted a TCBY Concept, offer TCBY Yogurt Products in accordance with the terms of a TCBY Yogurt Product Addendum to Pretzel Time Franchise Agreement (the "Yogurt
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Addendum"). A copy of the Yogurt Addendum is attached to the Franchise Agreement in Exhibit A of this Offering Circular.
On June 15, 1994, we entered into a TCBY National Sales Agreement (the "TCBY Sales Agreement") with TCBY Systems, Inc., an Arkansas corporation with its principal office at 1200 TCBY Tower, 425 West Capitol Avenue, Little Rock, Arkansas 72201 ("TCBY"). Pursuant to the TCBY Sales Agreement, TCBY has granted to us the right to use the TCBY Trademarks, including "TCBY," and the TCBY System in conjunction with the operation and sale of Pretzel Time Retail Outlets. Pretzel Time Retail Outlets may only sell TCBY Yogurt Products if the location has been approved by both TCBY and us. TCBY has retained the right to operate or to grant other persons the right to operate TCBY Stores of any type at locations it decides and the right to sell products and services through similar or dissimilar channels of distribution.
Your right to add the TCBY Concept to the Premises of a new or existing Pretzel Time Store depends on landlord restraints and the current territorial restrictions given by TCBY to existing and future TCBY franchisees. If you enter into a Yogurt Addendum, you will be authorized to sell TCBY Yogurt Products from the Premises of your Pretzel Time Store and use the TCBY System under which TCBY Stores operate. As further described in the Yogurt Addendum, your right to sell TCBY Yogurt Products from the Premises of your Pretzel Time Store and use the TCBY System will continue until the earliest of: (i) the termination or the expiration of the TCBY Sales Agreement (the expiration date of the TCBY Sales Agreement is June 14, 2009); or (ii) the termination of the Franchise Agreement.
We do not operate, offer or sell TCBY franchises. We only offer the sale of TCBY Yogurt Products as a dual concept with the hand-rolled soft pretzel concept. Both concepts are incorporated into one leasehold space that makes up the Premises. Our right to grant TCBY Concepts is limited by territorial restrictions given by TCBY to TCBY franchisees and may not be available in all locations. Our right to grant TCBY Concepts may also be limited by the landlord of a given location. For example, a landlord might not allow the sale of TCBY Yogurt Products because of the existence of other tenants who sell yogurt in those malls. Thus, we cannot grant TCBY Concepts for all mall locations with a Pretzel Time Store.
TCBY Stores offer a number of TCBY Yogurt Products. TCBY Stores sell yogurt in a variety of specialty flavors. Vanilla and chocolate are available in each TCBY Store daily along with 2, 4 or 6 other flavors depending on the number of frozen yogurt dispensing machines used. The yogurt is served in a variety of ways including in regular cones, waffle cones, sundaes, waffle sundaes, frozen on a stick, shakes and with a variety of toppings, including various candies, cookies and fruits and other food products approved or required by TCBY for sale at TCBY Stores.
Neither TCBY nor any of its affiliates are directly or indirectly responsible for any obligation, undertaking, covenant, or other duty to perform or to refrain from any action under or by virtue of any agreement between us and you. Neither TCBY nor any of its affiliates are a party to any agreement between us and you, but TCBY does stand in a position of third party beneficiary under the agreement. The TCBY Trademarks are the property of TCBY or its affiliate, and nothing contained in this Offering
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Circular will in any manner create any property rights in or to, or relating to the TCBY Trademarks as against TCBY. TCBY's representatives have the right to inspect the Premises of your Store and your books to the extent they relate to the operations of a TCBY Concept.
The Markets. - ----------- Pretzel Time: - ------------
Your Pretzel Time Store will offer a variety of Pretzel Time Products to the general public, and you will have to compete with bakeries, some fast-food restaurants, snack food stores, convenience stores (including Pretzelmaker Stores), and facilities owned by us or our Affiliates, all of which offer specialty retail snack foods and beverages. You will also have to compete with other Pretzel Time Retail Outlets selling various Pretzel Time Products and other products and serv ...
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