What happens if an Alloy franchisee fails to comply with their obligations?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
If you fail to achieve the minimum annual Gross Sales a first time, you must receive additional on-site training and assistance from one of our representatives, at your expense (including payment of our then-current per diem fee plus reimbursement of our representative's expenses). If you fail to achieve the minimum annual Gross Sales a second time, we may again require you to receive additional on-site training and assistance. If you fail to achieve the minimum annual Gross Sales a third time, we may terminate your Franchise Agreement without giving you the opportunity to cure the default. You must pay any shortfall of royalty fees for each failure to achieve the minimum annual Gross Sales.
YOUR DUTIES
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- You must perform the following obligations:
- A. You must comply with all of the terms and conditions of each Franchise Agreement, including the operating requirements specified in each Franchise Agreement.
- B. You and your Owners, officers, directors, shareholders, partners, members and managers (if any) acknowledge that your entire knowledge of the operation of an ALLOY Facility and the System, including the knowledge or know-how regarding the specifications, standards and operating procedures of the services and activities, is derived from information we disclose to you and that certain information is proprietary, confidential and constitutes our trade secrets. The term "trade secrets" refers to the whole or any portion of know-how, knowledge, methods, specifications, processes, procedures and/or improvements regarding the business that is valuable and secret in the sense that it is not generally known to our competitors and any proprietary information contained in the Manuals or otherwise communicated to you in writing, verbally or through the Internet or other online or computer communications, and any other knowledge or knowhow concerning the methods of operation of the Facilities. You and your Owners, officers, directors, shareholders, partners, members and managers (if any), jointly and severally, agree that at all times during and after the term of this Agreement, you will maintain the absolute confidentiality of all such proprietary information and will not disclose, copy, reproduce, sell or use any such information in any other business or in any manner not specifically authorized or approved in advance in writing by us. We may require that you obtain nondisclosure and confidentiality agreements in a form satisfactory to us from the individuals identified in the first sentence of this paragraph and other key employees.
- C. You must comply with all requirements of federal, state and local laws, rules and regulations.
If you fail to either execute a Franchise Agreement or to open an Facility according to the dates set forth in this Agreement or otherwise fail to comply with the Development Schedule, we have the right to immediately terminate this Agreement pursuant to Section 7.B.
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 51–56)
What This Means (2025 FDD)
According to Alloy's 2025 Franchise Disclosure Document, several consequences can arise if a franchisee fails to meet their obligations. One specific instance is failing to achieve the minimum annual Gross Sales. If this occurs for the first time, the franchisee is required to undergo additional on-site training and assistance from an Alloy representative, bearing the expenses of the training, including the representative's per diem fee and other costs. If the franchisee fails to meet the minimum annual Gross Sales a second time, Alloy may again require additional on-site training and assistance. A third failure gives Alloy the right to terminate the Franchise Agreement without allowing the franchisee an opportunity to correct the issue. Additionally, the franchisee must cover any shortfall in royalty fees for each failure to achieve the minimum annual Gross Sales.
Beyond the specific example of failing to meet minimum gross sales, Alloy franchisees have a general duty to comply with all terms and conditions of the Franchise Agreement. This includes adhering to the operating requirements outlined in the agreement. Franchisees must also comply with all federal, state, and local laws, rules, and regulations. Alloy emphasizes the importance of maintaining the confidentiality of proprietary information and trade secrets disclosed to the franchisee, which are essential for operating an Alloy facility.
Failure to comply with these and other obligations can lead to various penalties, including termination of the franchise agreement. The FDD excerpt highlights the importance of meeting the Development Schedule, which includes executing Franchise Agreements and opening facilities by specified dates. Failure to meet these deadlines gives Alloy the right to immediately terminate the Development Agreement. Prospective franchisees should carefully review the Franchise Agreement and Development Agreement to fully understand their obligations and the potential consequences of non-compliance.