Are Exit's notes receivable secured, and if so, by what?

According to Exit's 2025 Franchise Disclosure Document, the notes receivable, which represent balances due on the sale of Canadian and U.S. regions from sub-franchisors, are indeed secured. These notes receivable bear interest rates ranging from 3.00% to 10.00% and mature between 2024 and 2033.

Specifically, the notes are secured by performance contracts included within the franchisor agreements. This means that Exit has a legal claim against the sub-franchisors' performance under the franchise agreement as collateral for the notes. If a sub-franchisor fails to meet the obligations outlined in the performance contracts, Exit can take action to recover the outstanding balance of the notes receivable.

For a prospective Exit franchisee, this security on notes receivable indicates a degree of risk mitigation for Exit. However, it's important to note that the value of the security depends on the enforceability and terms of the performance contracts. Additionally, the FDD mentions that when a region is reacquired due to non-performance by the sub-franchisor, the uncollected notes receivable amount is added to the cost of regional rights on the balance sheet. This could potentially impact the financial statements if such re acquisitions occur.