Key Items to Watch out for in the Budget Rent A Car System, Inc. 2019 FDD
Please consider the following RISK FACTORS before you buy this franchise: 1. THE FRANCHISE AGREEMENT REQUIRES YOU TO RESOLVE DISPUTES WITH US ONLY IN NEW JERSEY. OUT-OF-STATE LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU MORE TO SUE US IN NEW JERSEY THAN IN YOUR OWN STATE. 2. THE FRANCHISE AGREEMENT STATES THAT NEW JERSEY LAW GOVERNS THE AGREEMENT, AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTION AND BENEFITS AS LOCAL LAW. YOU MIGHT WANT TO COMPARE THESE LAWS. 3. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Item 5: Initial Fees
When you sign the Budget License Agreement, you must pay Budget fees (the “Initial License Purchase Fee”) based on the population of the territory covered by that agreement. The Initial License Purchase Fees are not uniform. Budget calculates the Initial License Purchase Fee as follows: 1. $25,000 for a territory with a population of 50,000 people (or under), plus 2. an additional $5,000 for each 5,000 population increment over 50,000 people. Population is determined by using figures reported by the United States Census Bureau and updated regularly by a consulting company. Budget reserves the right to waive or charge Initial License Purchase Fees greater or less than that specified above based on a variety of factors, including certain characteristics of your territory (for example, the existence of an airport, resort, large hotel, university, or other prime commercial rental location; whether you are converting an existing business; and the level of competition in your territory). Initial License Purchase Fees are not refundable under any circumstances.
Item 8: Restrictions on Sources of Products and Services
Designated and Approved Suppliers. Your Budget Franchise must participate in Wizard, according to the Rental System Agreement. ABCR administers the Wizard System and is the only supplier of reservation and rental system services to Budget Franchises. ABCR also provides reservation and rental processing services using Wizard for Avis and the Avis Rent A Car business network. All of the fees and other revenues that ABCR currently receives from Budget Franchises for providing Wizard services are described in Item 6. During 2018, Wizard Service, Inc. received approximately $6,359,515 from providing reservation services to the Network (based on Wizard Services, Inc.’s internal unaudited financial records). Except as described in this Item, neither Budget nor its affiliates derive any revenue as a result of required purchases or leases of franchisees. Budget requires you to execute the Rental System Agreement with ABCR, which agreement provides for all reservation and back office functionalities to your Budget Franchise. Under the Rental System Agreement you must buy certain hardware, software, and communications utilized in connecting to Wizard only from Approved Suppliers (see Item 11). In connection with a Thin Client infrastructure providing you with PCI compliant access to the Wizard System, the Thin Client Terminals must be purchased from an Approved Supplier through ABCR. The fee collected from you is forwarded to the supplier. (Schedule B to the Rental System Agreement and Schedule 4of the Administrative Services Addendum). Additionally, the Site Surveys must be purchased only from Approved Suppliers. Subject to Budget’s approval, you may, and if Budget requires, you must, in addition to renting vehicles, sell or rent to your vehicle rental customers products and services directly related to your vehicle rental business. Budget may require you to sell or rent to your customers designated product brands and to obtain the products or services that you will sell to your customers only from designated or approved sources. Budget does not currently require you to sell any products or services other than Loss Damage Waiver, but may do so in the future. Unless you have a Budget Car Sales Addendum, you are not authorized to sell vehicles using Budget’s Proprietary Marks. You must purchase from us, Budget or our approved supplier, sequentially-numbered Standard Rental Agreement forms and jackets and additional driver forms for use in renting vehicles. Together these documents contain the terms and conditions of the rental contract, and the purchase of these documents from us and/or our approved supplier achieves uniformity and quality control for the System. The Standard Rental Agreement, a multipart form, is also designed to meet specifications for the Wizard System and the Avis Computer System (together “Wizard”) and our audit requirements. We may derive revenue from selling Standard Rental Agreement forms and jackets and additional driver forms to you. Budget derives revenue from the sale of Standard Rental Agreement forms and jackets and additional driver forms to franchisees. For the fiscal year ending 2018, BRACS’ revenues from the sale of Standard Rental Agreement forms and jackets and additional driver forms was approximately $319,429 of BRACS’ total revenue. In addition, you must purchase items that bear a Proprietary Mark or which are part of the System identity that meet our specifications as to style, color, design, etc. Examples of these items are stationery, signage, backwall counter modules, and uniforms. Precise product specifications exist for each of these items and are made available to franchisees. However, existing franchisees purchase most of these required items from the suppliers with which we have negotiated purchase contracts due to the better pricing and available supply. Modifications to existing specifications and standards are communicated to franchisees through bulletins and revisions to the Manual. Collectively, the purchases and leases you will make from designated or approved suppliers or according to the Standards represent approximately 15% of your total purchases and leases in establishing, and approximately 10% of your total purchases and leases in operating your Budget Franchise. Except as described in this Item, Budget currently provides no material benefits (like renewal rights or granting additional franchises) to licensees for using designated, approved, or recommended sources. Currently, except as described above, there are no other goods, services, supplies, fixtures, equipment, inventory, computer hardware or software, or real estate relating to the establishment or operation of your Budget Franchise that you must purchase or lease from Budget, a Budget affiliate, or suppliers that Budget designates or approves. Except as described above in this Item, neither Budget nor its affiliates are approved suppliers for any items or services for your Budget Franchise. However, during the license term Budget may require you to purchase additional items only from suppliers it designates or approves (which might include or be limited to Budget or its affiliates). Upon Budget’s request, or if you want to use any item that Budget has not yet evaluated or buy from a supplier that Budget has not yet approved (for those items that require supplier approval), you first must submit sufficient information, specifications, and samples for Budget to determine whether the item complies with the Standards or the supplier meets Budget’s criteria. Budget currently charges no fee for product or supplier evaluation, but may do so in the future. Within a reasonable time (typically 30 days) after receiving this information, Budget will approve or reject the product or supplier. If Budget requires supplier approval, it may condition this approval on the proposed supplier’s financial record, business reputation, delivery performance, credit rating, and other criteria; however, currently Budget does not have any set criteria for approving suppliers. If Budget determines at any time that a product or supplier no longer satisfies the Standards, it may revoke its approval by notifying you and/or the supplier in writing. You may not purchase any items or buy from a supplier Budget has disapproved.
Purchase Arrangements with Recommended Suppliers. Budget has no purchasing or distribution cooperatives. However, Budget and its affiliates negotiate purchase arrangements (including price terms) with various sources for many of the services and supplies needed to establish and operate a Budget Franchise. Budget currently maintains electronic purchasing information, which is published on the Budget extranet website. For those Budget Franchises who do not have access to the Budget extranet, the Budget Licensee Relations Department provides Budget Franchises information as requested by individual Franchises. The electronic purchasing information describes the arrangements it has negotiated for many items that Budget Franchisees need. Supplies currently available through Budget’s purchasing cooperatives include automobile parts, business forms, commercial print, decals and signage, chemicals and shop supplies, service equipment, interior finish products, packing materials, office supplies, fuel, uniforms, and office equipment. Budget administers some of these purchasing arrangements but most simply provide Budget Franchises a direct contact with suppliers. Although Budget has agreed to exclusively promote the use of a supplier to Budget Franchises in some purchasing arrangements, you are not required to purchase from these suppliers, unless stated otherwise herein. Budget and its affiliates receive rebates from some of the suppliers from a percentage of the invoice cost of the applicable products or services. Some rebates are conditioned upon the supplier receiving a minimum volume of orders from members of the Network. Also, Budget and its affiliates occasionally receive better pricing than Budget Franchises for some items from recommended suppliers. These price differences usually arise because of Budget’s good credit, payment history, and agreement to buy certain items only from one supplier for all Budget Rent A Car businesses that it and its affiliates operate. You currently are not obligated to purchase from these companies or under the terms of these purchase programs. You can obtain these items and services from any supplier you choose, unless and until Budget specifies a brand or designates a source for the product or service as described above.
Item 10: Financing
Neither Budget nor its affiliates offers direct or indirect financing to Budget Franchise owners. Budget does not guarantee your note, lease, vendor purchases, or any other obligation.
Item 12: Territory
Budget grants licenses to operate a Budget Franchise to persons with the ability to operate and promote a Budget Franchise in a particular geographic territory. Budget will assign you an exclusive Rent A Car territory in which to operate under the Budget License Agreement and in which you choose your business locations, subject to Budget’s approval (see Item 11). Because the size of the licensed territory depends on factors like population, the presence or absence of an airport, and your operational abilities and experience, it is not possible to specify the minimum area granted to a Budget Franchise. The territory is usually described by political boundaries (for example, part of a city or county), but in certain areas might be a circle with your location at the center. Budget may use accepted industry parameters, census tracts, population densities, zip code boundaries, buying patterns, traffic counts, and projected commercial and residential growth to determine the territory’s boundaries. However, a territory will not usually include a population of less than 25,000 people. The term “exclusive” means that, during the term of your Budget License Agreement and subject to your compliance with all of your other obligations under the Budget License Agreement, Budget will not operate on its own behalf, or grant a license to another party to operate, a Budget Franchise within the licensed territory.
Budget reserves all rights not expressly granted to you under your Budget License Agreement, including the rights of Budget and its affiliates to: (1) operate, and grant others the right to operate Budget Franchises outside your licensed territory and, under certain circumstances (for National Accountsor if you fail to comply with the Budget License Agreement, as described below), inside the licensed territory, on any terms and conditions Budget deems appropriate; (2) hire and/or appoint sales persons and general sales agents and negotiate and enter into local, regional, national, and international sales and marketing agreements with persons or entities located within your licensed territory; (3) use Budget’s Proprietary Marks for any purpose within your licensed territory, other than for the operation of a Budget Rent A Car business location offering for rental the vehicles offered through your Budget Franchise (“Vehicles”), subject to Budget’s rights under the Budget License Agreement; and (4) operate, and grant others the right to operate, businesses (including businesses that offer for rent or sale Vehicles and other motorized and non-motorized equipment and parking business) outside and within the licensed territory under trademarks different than Budget’s Proprietary Marks. Nothing in the Budget License Agreement prohibits Budget or its parent company, subsidiaries, or affiliates from: (a) engaging in the activities referred to above; (b) operating, or granting others the right to operate, Budget Rent A Car businesses in the licensed territory that offer for rental vehicles other than the Vehicles including, but not limited to, renting or leasing motor vehicles that are designed, used, or maintained for the transportation of property, cargo, or goods (collectively defined as “Trucks”); (c) operating or granting others the right to operate Used Car Sales Businesses under Budget’s Proprietary Marks; or (d) selling their assets, engaging in a public offering or private placement of ownership interests, merging with or acquiring other corporations or entities, or being acquired by another corporation or entity (including a corporation or entity that owns or operates systems or chains that may be competitive with or similar to the Network).
Budget and its affiliates have established, and may in the future establish, other franchises or company-owned outlets or other channels of distribution selling or leasing products or services similar to those of a Budget Franchise under different trademarks or under Budget’s Proprietary Marks. As described in Item 1, our affiliates currently operate and grant franchises for businesses that rent vehicles without drivers to the general public. Such affiliates’ business locations might be located in your licensed territory, and these locations (whether within or outside your licensed territory) may solicit and accept orders from customers within your licensed territory. Likewise, your Budget Franchise may solicit and accept orders from customers and potential customers of our affiliates’ business locations. Budget is under no obligation to take any action if conflicts arise concerning Budget Franchise owners and our affiliates’ business operators.
If you fail to: (i) open and continue operating the required minimum number of locations for your Budget Franchise, including requirements to develop additional rental offices at Budget’s request; (ii) achieve and/or maintain average market penetration quotas Budget periodically establishes in the Budget License Agreement for automobile penetration; or (iii) participate in and comply with mandatory programs; then Budget may, in lieu of terminating your Budget License Agreement and in its sole discretion on 30 days’ notice to you: (a) terminate the Budget License Agreement with respect to the portion of the licensed territory that Budget determines you have failed to develop; or (b) convert your exclusive rights in the geographic market that Budget determines is underdeveloped, and/or your rights with respect to those products and services that Budget determines are underdeveloped, to become nonexclusive in nature.
You may serve any customer without regard to his or her domicile. You may not operate your Budget Franchise or any part of it from a location outside the licensed territory. You may not pick up customers who reside outside your Budget Franchise’s territory unless authorized by Budget in writing. Otherwise, there are no restrictions on your accepting customers who reside outside your licensed territory or on other Network members’ accepting customers who reside inside your licensed territory. You must obtain Budget’s prior written consent for your initial location, any change in your location, or construction of additional facilities (see Item 11). You have no options, rights of first refusal or similar rights to acquire additional franchises within your licensed territory or contiguous territories. As described above in this Item, your exclusive right to the licensed territory depends on your meeting market penetration quotas for automobile rental and otherwise complying with your Budget License Agreement. In addition, if you do not meet minimum fleet and royalty requirements set forth in the Budget License Agreement, you may risk termination of your Budget Franchise. Budget may negotiate development terms for the Budget License Agreements it offers to Budget Licensees.
You may apply to be non-exclusively licensed pursuant to the Used Car Sales Addendum (Budget License Agreement, Exhibit E), to use the Budget Trademarks in connection with the offer or sale of any used fleet Vehicle, with Budget’s prior written consent pursuant to the Standards and terms set forth therein (“Used Car Sales Business” or together with the car rental business, “Licensed Businesses”). Budget and its affiliates reserve the right to grant others the right to operate similar businesses within your Licensed Territory (Budget License Agreement, Paragraph 1.3).
You may not relocate your Budget Franchise without Budget’s prior written approval. You may apply for the right to open additional Budget Franchises under separate franchise agreements, but we have no obligation to allow you to open additional Budget Franchises. Budget does not compensate you for soliciting or accepting orders from persons residing in your licensed territory.
Item 15: Obligation to Participate in the Actual Operation of the Franchise Business
Budget does not require you to participate personally in the direct operation of your Budget Franchise, but strongly urges you to do so. You must employ on a full-time basis, at all times during the term of your Budget License Agreement, at least one General Manager who has completed the instruction Budget furnishes and who will devote his or her entire time during normal business hours to the management, operation, and development of your Budget Franchise as required in the Standards and the Manual. Your General Manager need not have an equity interest in the Budget Franchise or in you.
Persons who are the beneficial owners and principal officers of your Budget Franchise must sign certain documents included in the Budget License Agreement, including Budget’s Nondisclosure and Noncompetition Agreement. Budget may negotiate provisions in this section for the Budget License Agreements it offers to Budget Licensees.
Item 16: RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
Budget requires you to rent, and you are authorized to rent, only those types of motor vehicles that Budget specifies (see Item 8). Budget currently does not, by any restriction or condition, limit you regarding the make or model of automobiles that you offer to rent (although it may impose these restrictions or conditions in the future). The Budget License Agreement limits the class of vehicles your Budget Franchise may rent (for example, you may not rent trucks, which definition excludes SUVs of any size, crossovers, passenger vans of any occupancy, and smaller than medium duty pickup trucks. In addition, you may not rent motorcycles, snow mobiles, all-terrain vehicles (ATVs), bicycles, horse-drawn vehicles, or other similar vehicles under the “Budget” name without Budget’s consent). The Budget License Agreement and the Standards regulate age and other standards of quality regarding the automobiles you offer for rental or sale.
Subject to Budget’s approval, and as part of your Budget Franchise, you may, and if required by Budget, must, in addition to renting motor vehicles, sell or rent to your vehicle rental customers products and services directly related to your vehicle rental business. Budget reserves the right to require you to sell or rent to your customers, as applicable, designated product brands and to obtain products and services to be sold or rented to your customers from designated sources. Your Budget Franchise may not offer any products or services that Budget has not authorized in advance in writing. Budget may periodically change required and authorized products and services, and there are no limits on Budget’s right to do so. Other than approval granted by Budget under the Used Car Sales Addendum, you are not authorized to sell used vehicles using Budget’s Proprietary Marks.
Under the Budget License Agreement, you must adhere to Budget’s rental rates to the maximum extent the law allows, including for maximum rates. You also must honor all rental rates that you communicate to Budget for your Budget Franchise. Under the Intercity Program, you must enforce and abide by certain minimum rental qualifications for customers when renting vehicles owned by another Budget Franchise or a Budget affiliate. Under the Corporate Rate Program, with regard to National Accounts, you must abide by any pre-negotiated rental rates and other terms that Budget negotiates for Corporate Rate Program participants.
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