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assistance in the design of costumes and training of
horses and actors. Finally, we consider that the
license should be an exclusive license for a limited
area (e.g. Orange County, California) rather than the
nonexclusive license for the whole of the U.S. as is in
the current draft agreement.
The retention by the licensor of quality control
powers, extensive cancellation rights and the right to
sublease in the U.S. will assist the argument for a
super royalty. These all point to the licensor
retaining control of the future marketing, development
and profitability of the licensed concept.
We consider that the proposed widely worded franchise
agreement will restrict the basis on which a management
fee may be charged. However, it is still possible to
enter into an independent management agreement and to
charge a separate management fee. We suggest that such
a fee be limited to either a cost plus basis or a
relatively low rate, say no more than 2% of gross
revenue. We emphasize that the services provided
should go beyond the normal stewardship functions that
shareholders may exercise. These include ensuring that
the information provided to shareholders is adequate
and even the selection of senior personnel. The
management agreement should emphasize services that a
independent management consultant may provide such as
detailed advice on:
(i) the accounting and administration system;
(ii) a financing strategy; and
(iii) personnel selection at all levels.
We do not recommend charging a separate management fee
on top of a “super royalty” under the proposed
franchise agreement. However, if you wish to have a
separate management fee charged to the U.S. operating
companies, we would appreciate the opportunity of
reviewing the draft agreement prepared by your
attorneys.
The draft listed actions that needed to be completed,
including actions that needed to be commenced immediately after a
November 20, 1986, meeting. The matters that still needed to be
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