What is the threshold for underpayment of royalty payments that triggers reimbursement of inspection and audit costs to Engel & Volkers?

Question

Accepted Answer

| Type of Fee | Amount | Due Date | Remarks |
|---|---|---|---|
| Additional Technology Services Fees | According to then current Technology Price List. | Upon receipt of an invoice. | Payable to us or our agent. (See Note 12) |
| Development Services Designation Annual Fee | $2,500 - $6,000 depending on number of participating designees. | Upon receipt of an invoice. | Development services designation is an optional program for qualified franchisees. (See Note 13) |
| Development Services Consulting Fee | Varies. | Upon receipt of an invoice. | (See Note 13) |
| Commerical Designation Annual Fee | $5,000 - $6,000 per year (depending on obtaining a Commercial Designation) | Upon receipt of invoice | The Commercial Designation is an optional program for qualified franchisees. (See Note 13) |
| Limited Purpose Location Fee | $2,500 per location | Upon receipt of an invoice. | Payable if we permit you to open an additional physical location as a limited purpose location for sales or administrative purposes. |
| Transfer Fee (See Note 1) | $2,500 administrative fee. $10,000 or such higher amount as is necessary to reimburse our reasonable costs, in the case of a securities offering. | Before or at transfer. | There are no other requirements. (See Note 14) |
| Purchases of marketing articles (See Note 1) | (See Note 13) | Upon receipt of an invoice. | (See Note 15) |
| Renewal Fee (See Note 1) | 50% of Initial Franchise Fee | Before the effective date of the Renewal Term | There are other requirements for renewal in addition to paying the renewal fee. |
| Interest (See Note 1) | The highest rate permitted by applicable law, or if there is no such rate 4% above the prime rate of interest identified by Citibank, N.A. in New York City | On demand. | Payable on all amounts in arrears from the first day of each month that an amount is past due. For any fees that were not timely reported interest will be payable from the first day of each month that an amount is past due, should |
| Type of Fee | Amount | Due Date | Remarks they have been timely reported. |
| Attorneys’ Fees | Varies | On demand. | You are responsible for our costs and attorney’s fees if we incur them in any litigation proceeding with you in which we prevail or if we have to obtain an injunction against you. |
| Indemnification | You must indemnify us and other parties against all costs and expenses, including attorney’s fees, arising out of claims by third parties as a result of your actions or omissions | On demand | Payable to us or our affiliates and their respective directors, officers, employees or agents. |
| Tax indemnity | You must pay us the amount of any state or local sales, use, gross receipts or similar tax that we may be required to pay on payments which you make to us | On demand | You must pay regardless of whether the tax is imposed directly on us, or required to be withheld by you from amounts due us, or is otherwise required to be collected by you from us. |
| Inspection and Audit Costs | You must reimburse us for the cost of inspection or audit, including the charges of our employees, attorneys and accountants, and travel expenses. | On demand | Payable if the inspection or audit shows an underpayment of royalty payments greater than 2%. |

Source: Item 6 — OTHER FEES (FDD pages 22–30)

What is the threshold for underpayment of royalty payments that triggers reimbursement of inspection and audit costs to Engel & Volkers?

Answer from 2025 FDD Document

What This Means (2025 FDD)

Type of Fee	Amount	Due Date	Remarks
Additional Technology Services Fees	According to then current Technology Price List.	Upon receipt of an invoice.	Payable to us or our agent. (See Note 12)
Development Services Designation Annual Fee	$2,500 - $6,000 depending on number of participating designees.	Upon receipt of an invoice.	Development services designation is an optional program for qualified franchisees. (See Note 13)
Development Services Consulting Fee	Varies.	Upon receipt of an invoice.	(See Note 13)
Commerical Designation Annual Fee	$5,000 - $6,000 per year (depending on obtaining a Commercial Designation)	Upon receipt of invoice	The Commercial Designation is an optional program for qualified franchisees. (See Note 13)
Limited Purpose Location Fee	$2,500 per location	Upon receipt of an invoice.	Payable if we permit you to open an additional physical location as a limited purpose location for sales or administrative purposes.
Transfer Fee (See Note 1)	$2,500 administrative fee. $10,000 or such higher amount as is necessary to reimburse our reasonable costs, in the case of a securities offering.	Before or at transfer.	There are no other requirements. (See Note 14)
Purchases of marketing articles (See Note 1)	(See Note 13)	Upon receipt of an invoice.	(See Note 15)
Renewal Fee (See Note 1)	50% of Initial Franchise Fee	Before the effective date of the Renewal Term	There are other requirements for renewal in addition to paying the renewal fee.
Interest (See Note 1)	The highest rate permitted by applicable law, or if there is no such rate 4% above the prime rate of interest identified by Citibank, N.A. in New York City	On demand.	Payable on all amounts in arrears from the first day of each month that an amount is past due. For any fees that were not timely reported interest will be payable from the first day of each month that an amount is past due, should
Type of Fee	Amount	Due Date	Remarks they have been timely reported.
Attorneys’ Fees	Varies	On demand.	You are responsible for our costs and attorney’s fees if we incur them in any litigation proceeding with you in which we prevail or if we have to obtain an injunction against you.
Indemnification	You must indemnify us and other parties against all costs and expenses, including attorney’s fees, arising out of claims by third parties as a result of your actions or omissions	On demand	Payable to us or our affiliates and their respective directors, officers, employees or agents.
Tax indemnity	You must pay us the amount of any state or local sales, use, gross receipts or similar tax that we may be required to pay on payments which you make to us	On demand	You must pay regardless of whether the tax is imposed directly on us, or required to be withheld by you from amounts due us, or is otherwise required to be collected by you from us.
Inspection and Audit Costs	You must reimburse us for the cost of inspection or audit, including the charges of our employees, attorneys and accountants, and travel expenses.	On demand	Payable if the inspection or audit shows an underpayment of royalty payments greater than 2%.