During the Due Diligence Period, what rights does Noodles & Company have regarding investigations?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
YOUR NOODLES & COMPANY RESTAURANT; AUDITS.
13.01 Inspections. We and our designees have the right at any reasonable time and without prior notice to: (a) inspect your Noodles & Company Restaurant; (b) observe, photograph, audio-tape and/or video tape the operations of your Noodles & Company Restaurant; (c) remove samples of any food and beverage products, materials or supplies for testing and analysis; and (d) interview personnel and customers of your Noodles & Company Restaurant. You agree to cooperate fully with such activities. You shall furnish to us immediately upon receipt by you all inspection reports, citations or warnings received from municipal or other authorities.
13.02 Audits. We have the right at any time during business hours, and on 10 days' prior notice to you, to inspect, copy and audit the books, records, tax returns and documents relating to the development, ownership, lease, occupancy or operation of your Noodles & Company Restaurant. You must cooperate fully with our representatives and independent accountants conducting such audits. If any inspection or audit discloses an understatement of Net Royalty Sales, you must pay us, within seven days after receipt of the audit report, the royalties and any advertising contributions due on the amount of such understatement, plus interest (as provided in Section 6.05) from the
Source: Item 23 — RECEIPT (FDD pages 99–350)
What This Means (2025 FDD)
The 2025 Noodles & Company Franchise Disclosure Document outlines Noodles & Company's right to conduct audits of a franchisee's restaurant operations. Noodles & Company can inspect, copy, and audit books, records, tax returns, and other documents related to the restaurant's development, ownership, lease, or operation. Noodles & Company must provide 10 days' prior notice before conducting such an audit and can perform these audits at any time during business hours.
If an audit reveals an understatement of Net Royalty Sales, the franchisee is responsible for paying the owed royalties, advertising contributions, and interest within seven days of receiving the audit report. Furthermore, if the understatement of Net Royalty Sales exceeds 1% for the audited period, or if the audit was necessary due to the franchisee's failure to provide timely reports, Noodles & Company can require the franchisee to cover the costs of the audit. These costs include charges from attorneys and independent accountants, travel expenses, room and board, and compensation for Noodles & Company's employees, attorneys, and independent accountants, plus an additional $3,500 to offset Noodles & Company's internal costs.
This audit provision ensures that Noodles & Company can verify the accuracy of reported sales and compliance with the franchise agreement. It also incentivizes franchisees to maintain accurate records and submit timely reports to avoid potential audit costs and penalties. The $3,500 internal cost offset suggests Noodles & Company incurs significant administrative expenses related to audits, justifying the charge to franchisees in cases of non-compliance or significant underreporting.