MIDAS ITEM 7 NOTES AND REFERENCES FOR OPENING A NEW 8-BAY MIDAS SHOP
NOTES: General Note: We are relying on our years of experience in the automotive repair and service business to compile these estimates. It is impossible to provide the exact investment required of each Midas franchisee due to the many factors that influence the total project cost, such as location, amount of space leased, cost of land and building and other costs peculiar to a specific site. The initial investment, as well as the availability and terms of financing, will vary considerably depending on the methods and amount of financing, your creditworthiness, collateral you may have and lending policies of financial institutions. The equipment and other items are shown in full, although they may be financed or leased. You are encouraged to discuss the operations of the Midas Shop with Midas franchisees. (See Exhibits A-1 and A-2 for lists of current and former Midas franchisees.) You should also review these figures carefully with a business advisor before making any decision to purchase the Midas Shop franchise. None of the fees or payments to us listed in this Item are refundable, unless otherwise provided. Payments to third parties may or may not be refundable depending on your agreement with such third parties; however, usually such payments are nonrefundable.
A. Initial Franchise Fee or Minimum Site Payment. See Item 5 for a description of the range of initial franchise fees (under applicable incentive programs this fee may be waived or reduced) and the Minimum Site Payment. If an Application deposit is required, the deposit of $10,000 is applied towards the initial franchise fee or Minimum Site Payment, as applicable. All initial franchise fees are deemed fully earned once we receive them and are non-refundable, except that the $10,000 Application deposit may be refundable under limited circumstances where we reject or terminate the Application, and a portion of the initial franchise fee paid may be refundable if we and you are unable to obtain our approval of a site, all as described above in Item 5.
B. Marketing Support Program or Other Grand Opening Advertising. If applicable, you will pay the Franchisee Commitment Funds as described in the “Marketing Support Program” section in Item 5 to us upon signing the Franchise Agreement or at the later date that your site is selected. You will sign the Marketing Funds Agreement in Exhibit D-11.
C. Travel & Living Expenses While Training. You are responsible for all transportation, lodging, meals and other expenses associated with the Operations Training Program for you and your managers and employees. There is no charge for the training itself. The expenses estimated in this Item are for 1 person to attend training. The amount will vary depending on travel distance and mode of travel, lodging requirements, and other related personal costs.
D. Security Deposit, Licenses & Permits. You may be required to pay a security deposit for the leased premises. Typically, a security deposit will be equal to the amount of one month’s rent and taxes, but this amount may vary depending upon negotiations with the landlord. Generally, the security deposit is refundable to the extent it is not applied. Various permits may be required and may include building inspection fees and occupational license fees. Utility companies may also require a deposit before the installation of utilities and telephones. We cannot provide a meaningful estimate of these expenses, as these fees depend on local market conditions unknown to us.
E. Rent and Real Estate Taxes. Typically, you will enter into a third party lease for the property of your Franchised Unit and negotiate your own payment terms, or you may acquire the land and construct the building and improvements yourself. Alternatively when Midas Realty or Midas Property own or lease the property, Midas Realty or Midas Property may lease or sublease the Franchised Unit to you. When you lease or sublease the property from Midas Realty or Midas Property, the first month’s rent and taxes must be paid when the Franchised Unit opens. In most cases when you lease or sublease from a third party landlord, you will also be required to remit a security deposit that is equal to one month’s rent and taxes. In addition, Midas Realty or Midas Property may acquire the land through purchase or lease, construct the improvements and then lease or sublease it to you or you may acquire the land and construct the improvements yourself. Typical locations for Midas Shops are in retail and commercial areas. The typical Midas Shop (8-bay) has 4,500 to 5,500 square feet. The cost of acceptably located real estate is estimated to be between $400,000 and $700,000. The cost of constructing a typical Midas Shop is estimated to range between $600,000 and $725,000. Your monthly rent and real estate taxes for a new Midas Shop will typically range between $5,000 and $14,000 depending on factors such as size, condition and location of the leased premises. Provided, however, if you lease or sublease the property from Midas Realty or Midas Property, your actual rent will be the fixed minimum rent ($3,500 - $14,000 per month). If you are renewing your Franchise Agreement and extending the term of your sublease or lease with Midas Realty or Midas Property, or acquiring an existing Midas Franchised Unit that is being subleased or leased from Midas Realty or Midas Property, your rent may be the greater of the fixed minimum rent or 7% of the Franchised Unit’s Gross Sales (“Percentage Rent”). The Percentage Rent may be higher than 7% if you are subleasing from Midas Realty or Midas Property and Midas Realty’s or Midas Property’s lease with the landlord has a higher Percentage Rent amount. Any difference in rent based on the Franchised Unit’s Gross Sales is calculated after calendar year end and is due by March 1st of the succeeding year. Under the ACH Agreement, you will authorize Midas Realty and Midas Property to debit the amount of rent, real estate taxes and other monetary obligations from your account on or after the first of each month. You may also be required to pay property taxes and other leasehold costs. These amounts may vary depending upon the location of the retail space, condition of the premises, local market conditions, and other factors. Where the rent is lower, remodeling the premises may require $25,000 to $150,000 in additional expense.
F. Warranty Registration Fee. These warranty registration fees are required under the warranty registration program that became effective January 1, 2008. The current warranty program provides that we will assess a warranty registration fee against each Midas Shop’s trade account in each instance that a Midas lifetime muffler, brake shoe, brake pad, shock or strut is installed and the corresponding warranty is registered with us. Under this warranty program, each Midas Shop’s warranty registration expense will be clearly and separately identified on the Midas Shop’s Trade Account Statement. See the “Midas Warranty Program and Registration Fees” section in Item 8 below.
G. Equipment & Tools. You must have the following equipment for the operation of your Franchised Unit: oil lubrication and dispensing, tune-up, brake lathes and accessories, air conditioning, radiator flush, lifts, transmission flush, alignment, fluid maintenance, exhaust, compressors, tire machines, tools and other miscellaneous equipment. The equipment and tools may be used. The cost of this equipment may vary depending upon whether the equipment is purchased new, purchased used or leased. The cost estimates shown here assume the equipment is purchased new. The equipment cost estimates do not include applicable sales and use tax, if any. If the equipment is purchased from us, you will receive a monthly Trade Account Statement, which encompasses, approximately, a 30-day billing, and reflects all open invoices and credit memos and indicates the date by which the net balance is due for payment, which is, in most cases (depending on the billing cycle), by the 17th day of the month. Otherwise, payment will be made directly to the third party or vendor according to their payment terms. We do not finance any of these costs. However, we may assist you in locating financing opportunities from third party vendors.
H. Office & Waiting Room Furniture. You must purchase or lease furniture for your business office and customer lounge and fixtures as well as point-of-sale materials according to our specifications, as described in the Manual or other written communications. The amount in the tables includes shipping and installation.
I. Branding. You must purchase certain interior and exterior signs for the identification of your Franchised Unit according to our specifications, as described in the Manual or other written communications.
J. Initial Inventory & Supplies. You must purchase initial inventory and supplies for the operation of the Franchised Unit. Items purchased from us will be included on the Trade Account Statement, the net balance of which is due for payment, in most cases (depending on the billing cycle), by the 17th day of the month. For items purchased from third party vendors, payment will be due according to the vendors’ credit terms.
K. R.O. Writer System. The fees related to the R.O. Writer system are paid to our third party supplier, CRI (defined in Item 8). This system is required to be used by new franchisees, and is recommended for other franchisees. Prices are as of the date of this Disclosure Document, which CRI may increase or otherwise change periodically.
L. Insurance. This is the estimated cost for three months of general liability or garage liability insurance ($2 million aggregate minimum requirement), garage keeper liability insurance ($60,000 direct primary minimum requirement), employer liability insurance ($1 million/$1 million/$1 million minimum requirement), and auto insurance ($2 million minimum requirement) for each location and Midas Shop that you own and operate. This estimate does not include workers’ compensation insurance coverage, as required by state law. Additional limits of liability are required when you own and operate more than one Midas Shop. In addition, you must maintain insurance on the property as required by the real estate documents you execute. During the term of the Franchise Agreement and any renewal term, you are responsible for all insurance premiums specified in the Franchise Agreement and in the Manual. You must name us and any other party required in your real estate agreements and documents as an additional insured, at your expense, and furnish us with certificates providing that the insurance is not cancelable without 30 days’ prior notice to us, along with evidence that the premiums have been paid. You are liable for any expense, including attorneys’ fees, which we incur in connection with the insurance required under the Franchise Agreement. Some lenders may require you to provide life insurance on your principal owners to get financing.
M. Legal & Accounting. This item is the estimated cost of basic legal and accounting services provided to you by legal and accounting firms and includes legal and administrative fees and costs for corporate or other business entity organization start-up.
N. Additional Funds. The disclosure laws require us to include this estimate of all costs and expenses to operate your Franchised Unit during the “initial period” of the business, which is defined as three months or a longer period if “reasonable for the industry.” We are not aware of any established longer “reasonable period,” so our disclosures cover a three-month period. This entry estimates additional funds you may need for the first three months of operation, including payroll costs (but not including any draw or salary for you) and working capital for other expenses that could exceed receipts. These figures are estimates, and we cannot guarantee that you will not have additional expenses starting the Franchised Unit. Your costs will depend on factors such as: to what extent you follow our methods and procedures; your management skill, experience, and business acumen; local economic conditions; the local market for our services; the prevailing wage rate; competition; and the
sales level reached during the initial period. This amount does not represent a “break even” estimate or a representation that you will attain any level of profitability by a certain stage of your operation.
O. Miscellaneous. You may incur other expenses due to local requirements and/or to purchase additional items of equipment.
P. Total Estimated Initial Investment. This table does not include royalties. This total assumes that the real property and building for the Franchised Unit will be leased by you. Amounts for the lease depend on factors such as rental rates and land and building costs in your area, and whether or not the landlord requires you to pay first and last month’s rent in advance. These figures also do not include the cost of any investigation into or compliance with various Federal, state or local environmental laws, statutes, regulations or ordinances relating to the use, handling, treatment, storage, disposal and recycling of oil, used oil, oil filters and other substances which are designated to be hazardous.