LETTER OF INTENT
(LETTER OF INTENT)
RE: Master Franchise for (YOUR COUNTRY)_____________________
On behalf of Meineke Car Care Centers, Inc. (“Meineke”), we are very pleased to learn of your interest (“Master Franchisee”) in opening a series of Meineke Car Care Centers in the Country of (YOUR COUNTRY)_____________________. The manner in which Meineke would be prepared to offer this opportunity to the Master Franchisee is through a master franchise agreement (“Master Franchise Agreement”). Under this type of relationship, Meineke would grant the Master Franchisee the right to use the Meineke trademarks, patents (if applicable), technology, and the business system for the Master Franchisee to either open Meineke centers for its own account or to franchise others to open Meineke centers, at the Master Franchisee option, within the Territory.
As referenced above, the conventional manner to support the Meineke system abroad would be to enter into a Master Franchise Agreement whereby Master Franchisee would be granted the exclusive right to use the Meineke trademarks, patents (if applicable), technology and the Meineke business system to open a series of Meineke Car Care Centers either directly by the Master Franchisee or through subsequent grants of Meineke franchises to various users, at the Master Franchisee option, within the Territory. In such case, Master Franchisee will have the right to supply products and goods to be used by the subfranchisees. Meineke would provide the Master Franchisee with an exclusive right to develop the Master Franchise in the Territory, initially in (YOUR COUNTRY)_____________________ contingent upon the development of a series of Meineke Car Care Centers within the Territory within an agreed upon time frame. The Master Franchisee and Meineke would memorialize the strategic plan for the development of the Franchise in a development schedule that would be mutually agreed upon and produced within 30 (thirty) days after the signature hereof (“Development Schedule”).
The Master Franchisee requests that it be granted the exclusive rights to develop all of the Meineke Car Care Centers within (YOUR COUNTRY)_____________________. Accordingly, we would require that the Master Franchisee commit to the opening of a specific number of Meineke centers that would constitute a critical mass within that specific market, before the Master Franchisee would be permitted to develop additional markets. While the Master Franchisee is developing a given market, the Master Franchisee would maintain the exclusive development rights for the country so long as the Master Franchisee meets the mutual agreed upon Development Schedule. Please understand, that if the Master Franchisee does not meet the Development Schedule or any payments due to Meineke related to the Franchise (including sub-franchise on-going fees and advertising contributions) then Meineke would reserve the right to terminate the agreement.
3. Services to Be Provided By Meineke:
Meineke would provide the Master Franchisee with training and the Meineke business system for adaptation in (YOUR COUNTRY)_____________________. Specifically, Meineke would provide the Master Franchisee with instruction and/or consultation in the following areas of the business system:
a) site selection;
b) facility design, engineering, site planning, interior design, layout;
c) sales and installation product supply through American, Canadian, Chinese, GCC suppliers, at competitive prices;
d) product management;
e) employee and franchisee training and employee utilization within your prospective country (3-5 trips per year for the first 3 years to get the operation off the ground)
f) 1 month training in Charlotte, North Carolina
g) Operational training in (YOUR COUNTRY)_____________________ for you and all your staff.
h) Technical training in (YOUR COUNTRY)_____________________ for you and all your staff
i) advertising, promotion, public relations and marketing;
j) auditing, inspection, franchise services and other unit services;
k) operating procedures;
l) franchise marketing and compliance program and procedures;
m) operations manual (updated regularly); Franchising 101 manuals
n) technical manuals; videos
o) Source codes to our POS system (in English)
p) intellectual property license;
q) appointment of suppliers located in the GCC countries
r) Periodic visits; training (including technical)
4. Master Franchisee Obligations:
In entering into a Master Franchise relationship with Meineke, the Master Franchisee would be expected to develop the Meineke system in the various markets outlined in the Development Schedule. In addition, while Meineke would provide the Master Franchisee with a form of Sub-Franchise Agreement, to be signed by the Master Franchisee and each of the operating sub-franchisees (signature by Meineke will not be required), it would be up to the Master Franchisee to adjust the Sub-Franchise Agreements to (YOUR COUNTRY)_____________________ legal requirements, and local business needs. In addition, the Master Franchisee would need to adapt to (YOUR COUNTRY)_____________________ standards a point of sale program that would be used in each of the sub-franchisee’s centers, which would enable them to receive all of the sales information for each of the other Meineke centers. Meineke will make the source codes of the point of sales program readily available to the Master Franchisee, in English. We would expect that the Master Franchisee maintain the same quality standards and conform to the Meineke business system as other Meineke franchisees throughout the Meineke system. Any Local Marks developed in the Territory would be owned by Meineke and licensed to the Master Franchisee.
5. Pilot Centers:
Under the terms of the Master Franchise Agreement, Meineke will require the Master Franchisee to establish a prototype Meineke Car Care Center wherein sub-franchisees will be trained, pursuant to the same training system provided by Meineke to the Master Franchisee. The continuing fees that Master Franchisee will pay to Meineke, relative to the operation of such pilot center, will be consistent with the provisions stated in Sections 7, 8, and 9 of this letter of intent.
6. Other Undertakings:
The Master Franchisee will be responsible to set up a local advertising program for their Meineke centers and distribute such advertising throughout the Territory. Meineke will make available to the Master Franchisee the development of advertising materials that it makes available to other franchisees in the Meineke chain in relation to the development of creative concepts and advertisements. In addition, Meineke will provide the Master Franchisee with guidance and support in setting up an advertising program that it may use in developing the Master Franchise operating system. The cost of setting up this program and the cost of such advertising agency(s) shall be borne exclusively by the Master Franchisee, from resources deposited in the Local Marketing Fund, as defined in Section 10 hereof. The Master Franchisee will be responsible for collecting the requisite amount of advertising contributions to spend in the preparation and the placement of retail advertising in the Territory. Master Franchisee shall pay to Meineke an ongoing advertising contribution relating to the operation of all Meineke centers as outlined in Section 10 of this letter of intent.
In exchange for granting the Master Franchisee the exclusive right to develop the Master Franchise in (YOUR COUNTRY)_____________________ under the terms and conditions of this letter of intent and the governing Master Franchise Agreement, the Master Franchisee shall pay to Meineke the master franchise fee of U.S$___________________ net (U.S. currency). The payment of the master franchise fee would be as follows:
a) U.S.$25,000 net (U.S. currency) upon Master Franchisee’s execution of a letter of intent. This initial deposit shall be non-refundable and will be used primarily to conduct due-diligence and travel. (see note 12);
b) U.S.$___________ net (U.S. currency) upon the mutual execution of the Master Franchise Agreement by Master Franchisee and Meineke.
c) The remaining U.S $____________ net to be paid in 24 monthly installments starting 6 months after signing of the contract. 24 monthly installments of ($_______________ dollars per month)
8. Sub-Franchisee and Area Developer Initial Fees:
During the term of the contract, the Master Franchise shall pay to Meineke the sum of $5,000 dollars that the Master Franchisee may charge to each unit sub-franchisee for such initial fee or area development fee.
9. Continuing Royalty payments:
In addition to the initial fee for each center to be developed by the Master Franchisee, it will be required to pay Meineke on a monthly basis an annual continuing royalty payment in the following amounts:
a) for year one of the Master License Agreement: No royalty fees
b) for year two of the Master License Agreement: No royalty fees.
c) for year three of the Master Franchise Agreement 2.5% of the gross sales for each center operating in the Territory during that year.
d) for year four of the Master Franchise Agreement the greater of 2.5% of gross sales for each center operating in the Territory during that year or a minimum of $10,000 in the aggregate for all centers operating in the Territory during that year, whichever is the higher.
e) for year five of the Master Franchise Agreement the greater of 2.5% of gross sales for each center operating in the Territory during that year or a minimum of $20,000 in the aggregate for all centers in the Territory during that year, whichever is the higher.
f) for year six and every year thereafter of the Master Franchise Agreement, the greater of 2.5% of gross sales for each center operating in the Territory during that year or a minimum of $25,000 in the aggregate for all centers operating in the Territory during that year, whichever is the higher.
These continuing royalty fees, although calculated on an annual basis, shall be paid in monthly installments for the year that such fees accrue in amounts equal to 2.5% of the gross sales conducted at all of the centers operating in the Territory during that year.
At the end of each calendar year, the Master Franchisee shall remit to Meineke the difference between the amount paid in royalties for that year and the minimum amounts due under the Master Franchise Agreement for that year.
10. Advertising Fees:
Under the Sub-Franchise Agreements executed between Master Franchisee and the sub-franchisees, Meineke would expect that Master Franchisee would collect, in addition to the continuing royalty payment, an advertising contribution of 3%-7% of the gross sales generated at each store during that month, that would cover the cost of both national and local advertising, as may be appropriate in (YOUR COUNTRY)_____________________ (“Local Advertising Fund)
11. Primary Term:
Meineke will grant the Master Franchisee an initial term of 20 years in which to develop and operate the Meineke system in (YOUR COUNTRY)_____________________, with an option to further renew those rights for a renewal fee of U.S. $25,000. The Master Franchise Agreement will provide that in the event that the Master Franchise Agreement is terminated, Meineke will have the option to take over the then existing Subfranchise Agreements between Master Franchisee and each unit subfranchisee; and to acquire any centers owned and operated by the Master Franchisee for an amount to be agreed by the Master Franchisee and Meineke.
12. The grant of a master franchise to the Master Franchisee is contingent upon Master Franchisee and Meineke entering into a Master Franchise Agreement within 45 (forty five) days from the date of signing a letter of intent, which will cover the parameters of the master franchise relationship. The grant of a master franchise is also contingent upon Meineke completing a satisfactory due diligence review of the Master Franchisee’s professional, personal, and financial background, and the background of all people or organizations that will be either in partnership with the Master Franchisee or through whom they will operate their Meineke master franchises. In that regard, the prospective Master Franchisee will agree to execute any documents Meineke deems to be reasonably required to conduct such due diligence investigation prior to signing the Master Franchise Agreement. In conjunction with this due diligence investigation, the prospective Master Franchisee should provide us with their most recent curriculum vitae together with a copy of their passport, and a personal and corporate financial statement. Additionally, if there are to be any other owner participants for the proposed master franchise, then please have them provide us with similar information. In the event that the Master Franchisee is to be a corporation, then the individual stockholders will be required to provide personal guaranties of the performance of the Master Franchisee entity. Upon the Master Franchisee’s execution of this letter of intent, they will pay to Meineke U.S.$25,000 (U.S. currency) that will be used, in part, to conduct the due diligence of the Master Franchisee.
I hope this gives you a pretty good summary of the key salient points. I am sure you will have plenty of questions and I look forward to talking with you soon.
Very truly yours,
Director of International Operations
Meineke Car Care Centers, Inc.