FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended : June 30, 1996
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- ----------------
Commission file number: 0-11927
Moto Photo Inc.
(Exact name of registrant as specified in its charter)
Delaware 31-1080650
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or organization)
4444 Lake Center Dr. Dayton, OH 45426
(Address of principal executive offices with Zip Code)
(513) 854-6686
(Registrant's telephone number, including area code)
No Change
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
As of July 31, 1996:
7,785,973 - Voting Common, 0 - Non - Voting Common
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, December 31,
1996 1995
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash $ 660,949 $ 1,539,688
Accounts receivable, less allowances of
$844,000 in 1996 and $769,000 in 1995 5,087,211 5,068,668
Notes receivable, less allowances of $70,000 in
1996 and 1995 223,000 269,000
Inventory 1,426,276 1,681,351
Deferred tax assets 730,000 730,000
Prepaid expenses 283,352 564,131
Total current assets 8,410,788 9,852,838
Property and equipment 2,895,163 3,130,533
Other assets:
Notes receivable, less allowances of $515,000
in 1996 and 1995 1,888,590 1,695,397
Cost of franchises and contracts acquired 270,196 293,565
Goodwill 4,840,867 4,898,385
Deferred tax assets 352,000 352,000
Other assets 1,083,320 1,101,756
Total assets $ 19,740,924 $ 21,324,474
</TABLE>
<TABLE>
MOTO PHOTO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, December 31,
1996 1995
<CAPTION>
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Line of credit $ 1,300,000 $ 1,000,000
Note payable 650,000 750,000
Accounts payable 5,806,026 6,711,669
Accrued payroll and benefits 637,758 740,742
Accrued expenses 654,047 815,221
Current portion of long-term obligations 1,225,333 1,214,023
Other 179,257 173,000
Total current liabilities 10,452,421 11,404,655
Long-term debt 7,112,660 7,399,327
Capitalized leases 386,843 496,325
Deferred revenue 115,842 115,842
Stockholders' equity
Preferred stock $.01 par value:
Authorized shares - 2,000,000:
Series G cumulative nonvoting preferred
shares, 1,000,000 shares issued and
outstanding with preferences aggregating
$10,000,000 10,000 10,000
Common shares $.01 par value:
Authorized shares - 30,000,000
Issued and outstanding shares - 7,785,973
in 1996 and 1995 77,860 77,860
Paid-in capital 6,908,933 7,013,610
(Deficit)retained earnings subsequent to (5,323,635) (5,193,145)
June 30, 1991
Total stockholders' equity 1,673,158 1,908,325
Total liabilities and stockholders' equity $ 19,740,924 $ 21,324,474
</TABLE>
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30,1996 June 30,1995 June 30,1996 June 30,1995
<CAPTION>
<S> <C> <C> <C> <C>
Company store sales $ 4,774,962 $ 5,197,738 $ 8,611,893 $ 9,309,941
Merchandise sales 4,442,147 4,015,935 7,843,755 6,957,637
Royalties 1,082,903 1,066,311 2,024,755 1,957,574
Franchise fees 266,529 345,946 345,447 658,159
Investment income 62,205 50,380 102,204 69,331
Other income 161,098 88,388 283,095 157,508
10,789,844 10,764,698 19,211,149 19,110,150
Expenses
Company store cost of sales and
operating expenses 3,809,987 4,238,162 7,451,475 8,115,583
Merchandise cost of sales and
operating expenses 3,811,314 3,423,658 6,795,897 5,860,335
Selling, general, and
administrative costs 1,816,412 2,092,791 3,517,872 3,994,865
Advertising 442,608 391,730 802,226 793,289
Depreciation and amortization 181,752 365,046 363,751 728,918
Interest expense 147,415 96,652 255,095 174,469
10,209,488 10,608,039 19,186,316 19,667,459
Income (Loss) Before Income Taxes 580,356 156,659 24,833 (557,309)
Income tax benefit (expense) (271,000) (98,000) (10,000) 223,000
Net Income (Loss) 309,356 58,659 14,833 (334,309)
Preferred Stock Dividend
Requirements (72,493) (73,349) (145,323) (161,173)
Adjustment to Income Applicable to
Common Stock 0 0 0 673,219
Net Income (loss) Applicable to
Common Stock $ 236,863 $ (14,690) $ (130,490) $ 177,737
Net Income (loss) Per Common Share $ 0.03 $ (0.00) $ (0.02) $ 0.02
Average Shares Outstanding 7,785,973 7,783,263 7,785,973 7,586,890
</TABLE>
<TABLE>
MOTO PHOTO INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASHFLOWS
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, June 30,
1996 1995
<CAPTION>
<S> <C> <C>
Operating Activities
Net income (loss) $ 14,833 $ (334,309)
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for income taxes 10,000 (223,000)
Depreciation and amortization 363,751 728,918
Provision for losses on inventory and
receivables 367,897 147,316
Notes receivable increase from sale of
franchise (30,000) 0
Provision for (gain) or loss on disposition
of assets 0 29,980
Increase (decrease) resulting from changes
in:
Accounts receivable (662,929) (1,384,668)
Inventory and prepaid expenses 523,854 120,022
Other assets 15,502 (10,494)
Accounts payable and accrued expenses (1,169,801) (742,266)
Deferred revenues and other liabilities (3,743) 175,910
Net cash provided by (used in) operating
activities (570,636) (1,492,591)
Investing Activities
Purchases of equipment and leaseholds (50,474) (541,715)
Proceeds from sale of assets 68,000 4,220
Payments received on notes receivable 134,580 74,094
Net cash provided by (used in) investing
activities 152,106 (463,401)
Financing Activities
Proceeds from revolving line of credit and
borrowings 4,100,000 2,282,592
Principal payments on revolving line of
credit, long-term debt and capital lease
obligations (4,310,209) (1,447,120)
Payments of preferred dividends (250,000) (200,000)
Proceeds from stock option exercise 0 4,375
Payments related to redemption of preferred (853,664)
stock 0
Net cash provided by (used in) financing
activities (460,209) (213,817)
Increase (decrease) in cash and equivalents (878,739) (2,169,809)
Cash and cash equivalents at beginning of 1,539,688 2,269,722
period
Cash and cash equivalents at end of period $ 660,949 $ 99,913
</TABLE>
MOTO PHOTO, INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
``UNAUDITED''
1.In the opinion of management, the accompanying financial statements
contain all adjustments necessary to present fairly the financial postion
and results of operations for the period covered in this report. These
statements should be read in conjunction with the Notes to the
Consolidated Financial Statements for the year ended December 31,1995.
The internal accounting for the Company is on a fiscal calendar quarter
basis. The fiscal quarter dates may vary from the calendar quarter dates,
(i.e. June 29 vs. June 30 for the second quarter 1996), except for the
fourth quarter which ends on December 31. The differences in interim
periods are immaterial.
2.The first six months of the year are seasonally slower and do not
represent 50% of the year.
3.In the first six months of 1996 $250,000 of dividends were paid on the
Series G preferred shares. Of this amount $104,677 was for previously
reported and accreted dividends.
4.The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect amounts reported in the financial statements. Actual results could
differ from those estimates.
5.Certain amounts have been reclassified in the 1995 financial statements to
conform with 1996 presentation.
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1996 VS 1995
The Company reported net income of $309,356 and income per common share of
$.03 for the second quarter 1996, compared to net income of $58,659 and
earnings per common share of $.00 for the second quarter 1995. For the six
months ended June 30, 1996, the Company recorded net income of $14,833 and a
loss per common share of $.02 compared to a loss of $334,309 and earnings per
common share of $.02 for the same period a year ago. 1995 per share earnings
include a one-time positive adjustment of $673,219, or nine cents per share,
related to the redemption of the $1.20 Preferred shares. Per share
calculations are made after provision for Series G preferred dividend
requirements.
Sales from Company stores were down $423,000, or 8% for the second quarter
1996, and down $698,000, or 8% on a year-to-date basis compared to the same
period a year ago primarily due to fewer Company stores in operation. Sales
from comparable Company stores were flat with increased merchandise and
portrait sales offset by lower film processing sales of approximately 1%.
Merchandise sales increased $426,000, or 11% for the second quarter 1996, and
$886,000, or 13% on a year-to-date basis compared to the same period a year
ago. This increase is primarily the result of new products being sold by the
Company in addition to the increasing number of U.S. franchise stores in
operation from 289 on June 30, 1995 to 306 on June 30, 1996. Continued
growth in merchandise sales is anticipated through 1996 as the Company
completes the transition back to Fuji paper and regains customers.
Royalty revenues increased $17,000, or 2% for the second quarter 1996, and
$67,000, or 3% year-to-date compared to the same period a year ago primarily
as a result of an increase in franchisee comparable store sales.
Franchise fees were down $79,000, or 23% for the second quarter 1996, and
$313,000, or 48% year-to-date compared to the same period a year ago due to
13 franchise store openings in the first six months of 1995 and only nine in
the first six months of 1996.
Investment income was up $12,000, or 23% for the quarter and $33,000, or 47%
year-to-date due to a higher notes receivable balance.
Other income increased $73,000, or 82% for the quarter and $126,000, or 80%
year-to-date due to increasing telemarketing service revenues.
Company store cost of sales and operating expenses fell $428,000, or 10% for
the second quarter 1996, and $664,000, or 8% year-to-date compared to the
same period a year ago. This decrease reflects the Company's planned
reduction in labor and fixed costs related to Company store operations.
Merchandise cost of sales and operating expenses increased $388,000, or 11%
for the second quarter 1996, and $936,000, or 16% year-to-date compared to
the same period a year ago consistent with increased merchandise sales.
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1996 VS 1995 (CONTINUED)
Selling, general, and administrative costs decreased $276,000, or 13%, for
the second quarter 1996, and $477,000, or 12% year-to-date compared to the
same period a year ago. This decrease reflects the Company's planned cost
reductions, particularly in the franchise development area.
Depreciation and amortization charges were $183,000 lower in the second
quarter 1996, and $365,000, or 50% lower year-to-date compared to the same
period a year ago primarily due to the restructuring charge taken in the
fourth quarter of 1995 which adjusted the carrying value of company stores
held for sale to their fair value thus requiring no depreciation charges on
these stores.
Interest expense was up $51,000 for the quarter and $81,000, or 46% year-to-
date compared to the same period a year ago due to increased borrowings.
LIQUIDITY AND CAPITAL RESOURCES
For the first six months of 1996, cash used in operating activities decreased
by $922,000 compared to the same period a year ago. This improvement is
primarily the result of less of an increase in accounts receivable, larger
reductions in inventory and prepaid items, and improved net income offset by
a decrease in accounts payable and accrued expenses.
Cash provided by investing activities increased $616,000 for the first six
months of 1996 from the same period a year ago primarily due to lower capital
expenditures and increased collections on notes receivable.
Cash used in financing activities increased $246,000 for the first six months
of 1996 compared to the same period a year ago primarily due to payments
related to the redemption of preferred stock in 1995 offset by increased
dividend and principal payment requirements.
The Company historically operates with a working capital deficit. The
Company believes that the nature of its business allows it to operate
adequately with a deficit working capital. The factors which contribute to
this are the substantial percentage of sales for cash, favorable terms with
suppliers, significant non-cash charges to income resulting from depreciation
and amortization expenses, and the line of credit availability to meet
seasonal needs. However, if the Company suffers a moderate decline from its
planned operational levels, additional funding would be required from one or
more of the following sources: added equity or credit sources, the sale or
liquidation of certain assets, reduction of capital expenditures, or
adjustment of debt retirement schedules. Added liquidity is contemplated
from the refranchising of 31 Company stores, however, this process is
anticipated to take up to two years to complete.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On June 27, 1996, the Company held its annual meeting of shareholders.
(c) At the meeting the shareholders voted on the election of the following
directors. The voting tabulation for each director if set next to his name.
<TABLE>
<CAPTION> Votes For Votes Withheld
<S> <C> <C>
Michael F. Adler 5,901,920 45,680
Frank W. Benson 5,907,620 39,980
Leslie Charm 5,907,570 40,030
Dexter B. Dawes 5,907,420 40,180
Harry D. Loyle 5,906,620 40,980
David A. Mason 5,902,570 45,030
Douglas M. Thomsen 5,907,720 39,980
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: See Exhibit Index immediately preceding exhibits.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during
the quarter ended June 30, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
MOTO PHOTO, INC.
By /s/ David A Mason
David A. Mason
Executive Vice President,
Treasurer, and Chief
Financial Officer
Date: August 6, 1996
EXHIBITS TO
FORM 10-Q
for the quarter ended
June 30, 1996
No. Description
10.1 Employment Agreement dated June 1, 1996 with Frank M.
Montano
10.2 Employment Agreement dated June 1, 1996 with David A.
Mason
11 Statement Re: Computation of Per Share Amounts
27 Financial Data Schedule
<TABLE>
Moto Photo, Inc. and Subsidiaries
Exhibit 11 - Computation of Per Share Earnings
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
30-June-96 30-June-95 30-June-96 30-June-95
<CAPTION>
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 7,785,973 7,783,263 7,785,973 7,586,890
Net effect of dilutive common
equivalents --
based on the treasury stock method
using
average market price (B) (A) (A) (B)
TOTAL 7,785,973 7,783,263 7,785,973 7,586,890
Net Income (Loss) $ 309,356 $ 58,659 $ 14,833 $ (334,309)
Adjustment to Income Applicable to
Common Stock 673,219
Less Preferred Stock dividend
requirements (72,493) (73,349) (145,323) (161,173)
Net Income (Loss) applicable to
Common Stock 236,863 (14,690) (130,490) 177,737
Per share amount $ 0.03 $ (0.00) $ (0.02) $ 0.02
FULLY DILUTED
Average shares outstanding 7,785,973 7,783,263 7,785,973 7,586,890
Net effect of dilutive common stock
equivalents -- based on the
treasury
stock method using the quarter-
end market
price, if higher than average (B) (B) (B) (B)
market price
Assumed conversion of Series G
convertible preferred shares 7,388,802 5,178,547 7,953,677 5,412,580
TOTAL 15,174,775 12,961,810 15,739,650 12,999,470
Net Income(Loss) $ 309,356 $ 58,659 $ 14,833 $ (334,309)
Pref Series G Previously Accreted
Dividends 1,236,037 1,368,677 1,236,037 1,368,677
Pref $1.20 Previously Accreted
Dividends 0 0 0 673,219
Fully Diluted Net Income(Loss) 1,545,393 1,427,336 1,250,870 1,707,587
Per share amount $ 0.10 $ 0.11 $ 0.08 $ 0.13
(A) The effects of conversion of common stock equivalents to common stock
are antidilutive to the earnings per share calculations.
(B) Less than 3%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from Moto Photo Inc's 1996
Second Quarter 10-Q and is qualified in its entirety by reference to such 10-Q
filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 660,949
<SECURITIES> 0
<RECEIVABLES> 7,198,801
<ALLOWANCES> 1,429,000
<INVENTORY> 1,426,276
<CURRENT-ASSETS> 8,410,788
<PP&E> 2,895,163
<DEPRECIATION> 8,726,791
<TOTAL-ASSETS> 19,740,924
<CURRENT-LIABILITIES> 10,452,421
<BONDS> 0
0
10,000
<COMMON> 77,860
<OTHER-SE> 1,585,298
<TOTAL-LIABILITY-AND-EQUITY> 19,740,924
<SALES> 16,455,648
<TOTAL-REVENUES> 19,211,149
<CGS> 8,825,509
<TOTAL-COSTS> 14,247,372
<OTHER-EXPENSES> 1,165,977
<LOSS-PROVISION> 367,897
<INTEREST-EXPENSE> 255,095
<INCOME-PRETAX> 24,833
<INCOME-TAX> 10,000
<INCOME-CONTINUING> 14,833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,833
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0.08
</TABLE>
EMPLOYMENT AGREEMENT
This agreement is made this 1st day of June, 1996, by and between MOTO PHOTO,
INC. a Delaware Corporation ("Employer"), and Frank M. Montano ("Employee")
under the following circumstances:
WHEREAS, the parties desire to enter into an Employment Agreement upon the
terms and conditions set forth herein.
WHEREAS, during the term of his employment, Employee will receive access to
proprietary information and/or trade secrets relating to Employer's business,
its franchisees and its business contacts which are of a highly confidential,
unique, and valuable nature. In addition, Employee may be adding to
confidential information of Employer.
WHEREAS, the parties acknowledge that the Employer would suffer great loss
and damage in the event that any Confidential Information (as hereinafter
defined in Section 4) is divulged at any time other than for the benefit of the
Employer.
WHEREAS, the parties further acknowledge that Employee may establish close
working relationships with valued employees of Employer and its franchisees and
that Employer's business may suffer substantial harm if, upon the termination of
Employee's employment with Employer, Employee should thereafter employ or
attempt to employ, directly or indirectly, certain personnel of Employer, its
franchisees or their employees.
NOW, THEREFORE, in consideration of the foregoing promises contained herein, the
parties agree as follows:
1. Duties. Employer hereby employs Employee as Executive Vice President
and Chief Operating Officer, and the Employee hereby accepts such
employment upon the terms and conditions specified in this Agreement.
During the term of his employment, Employee shall work for Employer
as the Chief Operating Officer and he will report to the President and
Chief Executive Officer and he shall have the following duties:
1.1 He will be in charge of the operation of the Employer owned
stores and franchised stores and designated staff functions; and
1.2 He will perform such other duties as directed from time to time
by the Chief Executive Officer of the Employer and/or the Board
of Directors of Employer.
2. Compensation. As base compensation for Employee's services to
Employer during the term of this Agreement, Employer shall pay
Employee a regular salary at the rate of One Hundred Fifty Thousand
Dollars ($150,000) per year payable in such a manner as the Employer
pays its other executives. In addition, the Employee shall be
entitled to a bonus for the fiscal year January 1, 1996 to December
31, 1996 in an amount equal to $19,500 if the employer's pre-tax
income is $1,400,000 or greater, plus four percent (4%) if the
Employer's pre-tax income is $1,400,000, including the gains or losses
from the sale of company stores, as determined by the Employer's
independent accountants. Such income determination will be final and
binding and any bonus will be paid to the extent due according the
calculation in this Section, by March 30 of the following year. Such
pre-tax income will be determined by adding back any bonuses of
executives (including Employee) of the Employer who have a bonus on
pre-tax corporate income, to the pre-tax income of the Employers as
verified by the Employer's independent CPA firm.
Prior to December 31st of each year of this agreement, the Employer
will review the compensation of the Employee for the subsequent year.
The base salary may be increased and the bonus may be adjusted either
higher or lower.
3. Term. The term of the Employee's employment with the Employer shall
be from January 1, 1996 and shall continue thereafter until December
31, 1998. Commencing January 1, 1998, the term of this Agreement
shall be extended so that the term of this Agreement shall always be
for a period of one year until and unless either party gives the other
party a one year notice to terminate the Employee's employment under
this Agreement, unless sooner terminated in accordance with Section
1.1 of the Agreement. The term of the Employee's employment under
this Agreement shall be extended in accordance with Section 10 of this
Agreement.
4. Restrictive Covenants.
4.1 Duties. During the term of this Agreement, Employee shall devote
his best efforts and full time, subject to Section 5, to advance
the business and welfare of Employer. Employee shall not take
any action against the best interest of Employer and he shall
pursue no other business interests during the term of this
Agreement that conflict with his employment with the Employer.
4.2 Covenant Not to Compete. Employee acknowledges that Employer's
activities are international in scope. During the term of this
Agreement and for a period of two years after the termination of
Employee's employment with Employer, its successors or assigns,
Employee shall not, directly or indirectly, engage or be
interested (as principal, agent, manager, employee, consultant,
owner, partner, officer, director, stockholder, trustee or
otherwise) in any entity engaged in a business which competes in
a material manner with Employer within a three mile radius of any
business location of Employer or any of its subsidiaries,
affiliates, or franchisees. Employee's ownership of less than
two percent (2%) of the outstanding voting stock of any publicly
held corporation, or any other entity specifically authorized by
the Board of Directors of Employer, shall not constitute a
violation of this Section 4.
4.3 Confidentiality. During the term of this Agreement and
thereafter, Employee shall not at any time other than for the
benefit of the Employer: (i) divulge, furnish, disclose, or make
accessible to any person, firm, or corporation, or use for his
own purposes, any Confidential Information (ii) make or cause to
be made any copies, facsimiles, or other reproductions of any
Confidential Information without Employer's express written
consent; or (iii) remove any Confidential Information from
Employer's premises or fail or refuse to surrender
(notwithstanding the failure of Employer to make demands for such
materials) the same to Employer immediately upon termination
of Employee's employment with Employer or at any time prior
thereto upon Employer's request.
For purposes of this Agreement, the term "Confidential
Information" shall mean and include (a) any information with
respect to Employer's accounts, plans, business policies,
software, know-how, trade secrets, customers, franchisees,
prospects, mailing lists, suppliers, pricing policies or rates,
marketing techniques, or any other information which may now or
in the future be considered confidential or proprietary
information of Employer and (b) manuals, files, records,
software, memoranda, correspondence, drawings, designs, or other
writings belonging to or in the possession of Employer or which
may be produced by or come into Employer's possession in the
course of Employee's employment with Employer.
4.4 Solicitation of Employer's Employees. For a period of three
years after the termination of Employee's employment with
Employer, its successors or assigns, Employee shall not (i)
employ or attempt to employ directly or indirectly, personally or
through any entity in which Employee may be associated (as
principal, agent, manager, employee, consultant, owner, partner,
officer, director, stockholder, trustee, or otherwise) any
employee of Employer, its subsidiaries or affiliates, or (ii)
induce any employee of Employer, its subsidiaries or
affiliates, to leave the employment of Employer, its subsidiaries
or affiliates, or (iii) induce any employee of any franchisee of
Employer to leave the employment of any franchisee.
4.5 Equitable Relief. The parties acknowledge and agree that a
breach of this Section 4 cannot be compensated for by monetary
damages and that any remedy at law is inadequate and Employee
agrees that, in the event of a breach of any restrictive covenant
set forth herein, Employer may seek and obtain a temporary
restraining order, preliminary injunction, and permanent
injunction restraining Employee from violating Section 4 of this
Agreement in addition to any other legal relief available to
Employer. For the purposes of this provision, the parties confer
jurisdiction upon the courts located in Montgomery County, Ohio,
and agree on venue in Montgomery County, Ohio.
4.6 Reformation. In the event that any provision of this Section 4
should be determined by a court of competent jurisdiction to be
unenforceable by reason of its being extended for too great a
period of time, for too large a geographic area, or for too great
a range of activities, it shall be reformed to extend only over
the maximum period of time, geographic area, or range of
activities as to which it may be enforceable.
5. Vacation. Employee shall be entitled to vacation in accordance with
Company policy, to be taken at such times as determined by Employee,
subject to Employer's prior approval and Employee giving sufficient
notice so that Employer's business may operate effectively in
Employee's absence.
6. Health and Insurance Plans; Fringe Benefits. Employee shall be
entitled to participate in all plans or agreements maintained by
Employer relating to health insurance for the Employee, his wife and
children, subject to the terms and conditions of such plans in effect
from time to time. Employee shall also be entitled to all other
fringe benefits provided senior officers of the Employer.
7. Reimbursement for Expenses. Employer shall reimburse Employee for all
reasonable expenses incurred on behalf of Employer in line with
Employer policies.
8. Automobile. Employer shall furnish Employee with the use of an
automobile or an automobile allowance during the term of this contract
for use on the Employer's business, subject to company policy.
9. Notice. Any notice required to be given pursuant to the provisions of
the Agreement shall be in writing and shall be delivered by certified
mail or in person to the parties at the following addresses:
Employer:
Moto Photo, Inc.
4444 Lake Center Drive
Dayton, Ohio 45426
Attn.: Michael F. Adler, Pres. & CEO
Employee:
Frank M. Montano
10500 Watch Hill Lane
Dayton, Ohio 45458-4440
or at such other place as either party may designate in writing to the
other.
10. Change in control. In the event of a change in control as defined
below, the term of the employee's employment with the employer shall
be extended so that it is for a period of three years from the time
of any such change in control as defined in this agreement. For the
purposes of this agreement change in control means:
10.1 In excess of forty-nine percent(49%) of Employers outstanding
voting shares of common stock has been acquired other than directly
from employer in exchange for cash or property by any person.
10.2 There shall be a merger, consolidation, or other combination of
employer with one or more other corporations as a result of which
morer than forty-nine persent(49%) of the voting stock of the merged,
consolidated or combined corporation is held by former stockholders
of the corporations (other than employer) which are parties to such
merger, consolidation or other combination; or
10.3 Three or more persons who are not nominated as candidates by
the Board of Directors of employer in proxy statements forwarded to
stockholders during any period which covers two consecutive annual
stockholders meetings of employer are elected to the board of
directors fo employer by the stockholders of employer voting in
person or by proxy and such persons so elected are nominated as
candidates for the board of directors by anyone other than the board
of directors of employer or those acting on behalf of the board and
fill three board positions at the same time.
For purposes of this section 10, the term person shall have the same
meaning as in section 13 of the securities exchange act of 1934 and
the term employer also includes successors by merger or otherwise.
11. Termination. Employer may terminate Employee's employment under this
Agreement for cause upon written notice to Employee. For purposes of
this Agreement, the term "cause" means those situations or occurrences
described below:
11.1 Dishonesty, embezzlement, fraud, breach of fiduciary duty,
actions involving moral turpitude, or conviction of a felony
by Employee; or
11.2 Gross neglect of duty or gross insubordination by Employee,
including the failure to abide by any reasonable and
material instructions of Employer; provided, however, that
it will not be reasonable if such instructions request or
demand actions which would be inconsistent with the duties
of a senior corporate executive; or
11.3 Material breach of the provisions of Section 4 of this
Agreement.
11.4 Should Employee dispute that his discharge was for cause,
Employee must submit his claim to arbitration in accordance
with Section 12 within sixty (60) days after his termination
of employment. If a discharge of Employee is eventually
determined under arbitration to have been for cause, or if
no arbitration is requested by Employee within (60) days
after the termination of Employee's employment, Employer
shall have no liability whatsoever under this Agreement from
and after the date of termination. If the termination of
Employee is without cause, Employer shall be responsible for
payment of compensation as outlined in Section 2
(Compensation) subject to Section 12 (Mitigation).
Should termination be voluntary or involuntary with cause,
Employee shall be entitled to a bonus, as described in
Section 2, prorated to the end of the month prior to the
termination of Employee's employment.
Should Employee voluntarily terminate his employment with
Employer for any reason, all obligations of Employer, except
for the prorated bonus described in the immediately
preceding paragraph under this Agreement shall be
extinguished as of the date of termination of employment,
but Employee shall remain subject to all of his covenants in
Section 4.
12. Death or Disability. In the event of the death of the Employee,
employment will terminate but Employee's spouse or estate shall
receive Employee's then current salary and the benefits contemplated
by paragraphs 2, 6, 7 and 8 for 90 days after the death of the
Employee.
If Employee is disabled and cannot perform the duties of his
assignment, he will continue to receive full compensation at the time
the disability began for the first six months of continuous
disability. After six months of continuous disability, the Employee
will receive 70% of full compensation, reduced by any benefits paid
under the Employer's long term disability insurance program until the
earlier of death, the Employee is able to return to work or the
expiration of the employment contract. If the Employee remains
continuously disabled subsequent to the expiration of the employment
contract, Employee will continue to be entitled to benefits due under
the Employer's long term disability insurance program.
Termination or expiration of this Agreement for any reason shall not
affect any obligations of Employee under Section 4 of this agreement.
13. Mitigation. In the event of the termination of this Agreement,
Employee will use his best efforts to mitigate his damages, if any, by
seeking suitable employment for which he is qualified.
14. Arbitration. Except as provided for in Section 4.6 of this Agreement,
any controversy or claim arising out of or relating to this Agreement,
shall be settled by arbitration in Dayton, Ohio in accordance with the
Commercial Rules of Arbitration of the American Arbitration
Association. Such Arbitration may be commenced by either party
notifying the other and also the American Arbitration Association that
it or he intends to seek arbitration. The decision of the American
Arbitration Association shall be final and binding upon all parties
hereto. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The expenses of
Arbitration shall be borne by the non-prevailing party.
15. Governing Law. The Agreement shall be construed and enforced in
accordance with the laws of the State of Ohio.
16. Assignability. This Agreement is personal and shall not be assignable
by Employee; provided, however, that the terms of this Agreement shall
be binding upon, shall inure to the benefit of, and shall be
enforceable by Employer, its successor and assigns.
17. Waiver. The waiver of either party of any breach of any provision of
this Agreement shall not be construed as or constitute a continuing
waiver or a waiver of any other breach of any provision of this
Agreement.
18. Partial Invalidity. In the event that any word, phrase, clause,
sentence, or other provision herein violates any applicable statute,
ordinance, or rule of law in any jurisdiction in which it is used,
such provision shall be ineffective to the extent of such violation,
without violating any other provision herein.
19. Complete Agreement; Modification. This Agreement supersedes all prior
agreements, written or oral, is intended as a complete and exclusive
statement of the terms of the Agreement between parties, and may be
amended, modified, or rescinded only by a written instrument executed
by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first above written.
WITNESSES: EMPLOYER:
MOTO PHOTO, INC.
BY/s/ Michael F Adler
- --------------------------------- -----------------------------
Michael F. Adler, President &
- --------------------------------
CEO
EMPLOYEE:
BY /s/ Frank Montano
Frank M Montano
EMPLOYMENT AGREEMENT
This agreement is made this 1st day of June, 1996, by and between MOTO PHOTO,
INC. a Delaware Corporation ("Employer"), and David A. Mason ("Employee") under
the following circumstances:
WHEREAS, the parties desire to enter into an Employment Agreement upon the
terms and conditions set forth herein.
WHEREAS, during the term of his employment, Employee will receive access to
proprietary information and/or trade secrets relating to Employer's business,
its franchisees and its business contacts which are of a highly confidential,
unique, and valuable nature. In addition, Employee may be adding to
confidential information of Employer.
WHEREAS, the parties acknowledge that the Employer would suffer great loss
and damage in the event that any Confidential Information (as hereinafter
defined in Section 4) is divulged at any time other than for the benefit of the
Employer.
WHEREAS, the parties further acknowledge that Employee may establish close
working relationships with valued employees of Employer and its franchisees and
that Employer's business may suffer substantial harm if, upon the termination of
Employee's employment with Employer, Employee should thereafter employ or
attempt to employ, directly or indirectly, certain personnel of Employer, its
franchisees or their employees.
NOW, THEREFORE, in consideration of the foregoing promises contained herein, the
parties agree as follows:
1. Duties. Employer hereby employs Employee as Executive Vice President
and Chief Financial Officer, and the Employee hereby accepts such
employment upon the terms and conditions specified in this Agreement.
During the term of his employment, Employee shall work for Employer
as the Chief Financial Officer and he will report to the Chief
Executive Officer and he shall have the following duties:
1.1 Analyze and identify capital requirements, develop financing
strategies, and arrange and implement business financing.
Coordinate with CPA's and related financial and legal services.
Maintain relationships and provide access to shareholders and
their representatives. Advise and consult with major franchisees
on similar subjects. Participate in franchise development
activities. Participate with CEO and COO in development of
strategic direction of the business and perform such other duties
reasonably requested of a senior executive.
2. Compensation. As base compensation for Employee's services to
Employer during the term of this Agreement, Employer shall pay
Employee a regular salary at the rate of One Hundred Fourteen Thousand
Four hundred Dollars ($114,400) per year payable in such a manner as
the Employer pays its other executives. In addition, the Employee
shall be entitled to a bonus for the fiscal year January 1, 1996 to
December 31, 1996 in an amount equal to $18,500 if the employer's pre-
tax income is $1,400,000 or greater, plus four percent (4%) if the
Employer's pre-tax income is $1,400,000, including the gains or losses
from the sale of company stores, as determined by the Employer's
independent accountants. Such income determination will be final and
binding and any bonus will be paid to the extent due according the
calculation in this Section, by March 30 of the following year. Such
pre-tax income will be determined by adding back any bonuses of
executives (including Employee) of the Employer who have a bonus on
pre-tax corporate income, to the pre-tax income of the Employers as
verified by the Employer's independent CPA firm.
Prior to December 31st of each year of this agreement, the Employer
will review the compensation of the Employee for the subsequent year.
The base salary may be increased and the bonus may be adjusted either
higher or lower.
3. Term. The term of the Employee's employment with the Employer shall
be from January 1, 1996 and shall continue thereafter until December
31, 1998. Commencing January 1, 1998, the term of this Agreement
shall be extended so that the term of this Agreement shall always be
for a period of one year until and unless either party gives the other
party a one year notice to terminate the Employee's employment under
this Agreement, unless sooner terminated in accordance with Section
1.1 of the Agreement. The term of the Employee's employment under
this Agreement shall be extended in accordance with Section 10 of this
Agreement.
4. Restrictive Covenants.
4.1 Duties. During the term of this Agreement, Employee shall devote
his best efforts and full time, subject to Section 5, to advance
the business and welfare of Employer. Employee shall not take
any action against the best interest of Employer and he shall
pursue no other business interests during the term of this
Agreement that conflict with his employment with the Employer.
4.2 Covenant Not to Compete. Employee acknowledges that Employer's
activities are international in scope. During the term of this
Agreement and for a period of two years after the termination of
Employee's employment with Employer, its successors or assigns,
Employee shall not, directly or indirectly, engage or be
interested (as principal, agent, manager, employee, consultant,
owner, partner, officer, director, stockholder, trustee or
otherwise) in any entity engaged in a business which competes in
a material manner with Employer within a three mile radius of any
business location of Employer or any of its subsidiaries,
affiliates, or franchisees. Employee's ownership of less than
two percent (2%) of the outstanding voting stock of any publicly
held corporation, or any other entity specifically authorized by
the Board of Directors of Employer, shall not constitute a
violation of this Section 4.
It is expressly acknowledged that Employee's ownership and
activities with, National Photo Labs, II, Inc., and Progressive
Industries Corporation are permissible and do not violate any
terms of this agreement.
4.3 Confidentiality. During the term of this Agreement and
thereafter, Employee shall not at any time other than for the
benefit of the Employer: (i) divulge, furnish, disclose, or make
accessible to any person, firm, or corporation, or use for his
own purposes, any Confidential Information (ii) make or cause to
be made any copies, facsimiles, or other reproductions of any
Confidential Information without Employer's express written
consent; or (iii) remove any Confidential Information from
Employer's premises or fail or refuse to surrender
(notwithstanding the failure of Employer to make demands for such
materials) the same to Employer immediately upon termination of
Employee's employment with Employer or at any time prior thereto
upon Employer's request.
For purposes of this Agreement, the term "Confidential
Information" shall mean and include (a) any information with
respect to Employer's accounts, plans, business policies,
software, know-how, trade secrets, customers, franchisees,
prospects, mailing lists, suppliers, pricing policies or rates,
marketing techniques, or any other information which may now or
in the future be considered confidential or proprietary
information of Employer and (b) manuals, files, records,
software, memoranda, correspondence, drawings, designs, or other
writings belonging to or in the possession of Employer or which
may be produced by or come into Employer's possession in the
course of Employee's employment with Employer.
4.4 Solicitation of Employer's Employees. For a period of three
years after the termination of Employee's employment with
Employer, its successors or assigns, Employee shall not (i)
employ or attempt to employ directly or indirectly, personally or
through any entity in which Employee may be associated (as
principal, agent, manager, employee, consultant, owner, partner,
officer, director, stockholder, trustee, or otherwise) any
employee of Employer, its subsidiaries or affiliates, or (ii)
induce any employee of Employer, its subsidiaries or affiliates,
to leave the employment of Employer, its subsidiaries or
affiliates, or (iii) induce any employee of any franchisee of
Employer to leave the employment of any franchisee.
4.5 Equitable Relief. The parties acknowledge and agree that a
breach of this Section 4 cannot be compensated for by monetary
damages and that any remedy at law is inadequate and Employee
agrees that, in the event of a breach of any restrictive covenant
set forth herein, Employer may seek and obtain a temporary
restraining order, preliminary injunction, and permanent
injunction restraining Employee from violating Section 4 of this
Agreement in addition to any other legal relief available to
Employer. For the purposes of this provision, the parties confer
jurisdiction upon the courts located in Montgomery County, Ohio,
and agree on venue in Montgomery County, Ohio.
4.6 Reformation. In the event that any provision of this Section 4
should be determined by a court of competent jurisdiction to be
unenforceable by reason of its being extended for too great a
period of time, for too large a geographic area, or for too great
a range of activities, it shall be reformed to extend only over
the maximum period of time, geographic area, or range of
activities as to which it may be enforceable.
5. Vacation. Employee shall be entitled to vacation in accordance with
Company policy, to be taken at such times as determined by Employee,
subject to Employer's prior approval and Employee giving sufficient
notice so that Employer's business may operate effectively in
Employee's absence.
6. Health and Insurance Plans; Fringe Benefits. Employee shall be
entitled to participate in all plans or agreements maintained by
Employer relating to health insurance for the Employee, his wife and
children, subject to the terms and conditions of such plans in effect
from time to time. Employee shall also be entitled to all other
fringe benefits provided senior officers of the Employer.
7. Reimbursement for Expenses. Employer shall reimburse Employee for all
reasonable expenses incurred on behalf of Employer in line with
Employer policies.
8. Automobile. Employer shall furnish Employee with the use of an
automobile or an automobile allowance during the term of this contract
for use on the Employer's business, subject to company policy.
9. Notice. Any notice required to be given pursuant to the provisions of
the Agreement shall be in writing and shall be delivered by certified
mail or in person to the parties at the following addresses:
Employer:
Moto Photo, Inc.
4444 Lake Center Drive
Dayton, Ohio 45426
Attn.: Michael F. Adler, Pres. & CEO
Employee:
David A. Mason
211 Trailwoods Drive
Dayton, Ohio 45415
or at such other place as either party may designate in writing to the
other.
10. Change in Control. In the event of a Change in Control as defined
below, the term of the employee's employment with the employer shall
be extended so that it is for a period of three years from the time
of three years from the time of any such change in control as
defined in this agreement. For the purposes of this agreement,
change in control means:
10.1 In excess of forty-nine percent (49%) of the employers
outstanding voting shares of common stock has been acquired other
than directly from employer in exchange for cash or other property
by any person.
10.2 There shall be a merger, consolidation or other combination of
employer with one or more other corporations as a result of which
more than forty-nine percent (49%) of the voting stock of the merged
consolidated or combined corporation is held by former stockholders
of the corporations (other than employer) which are parties to such
merger, consolidation or other combination; or
10.3 Three or more persons who ar not nominated as candidates by the
board of directors of employer in proxy statements forwarded to
stockholders during any period which covers two consecutive annual
stockholders meetings of employer are elected to the Board of
Directors of employer by the stockholders of employer voting in
person or by proxy, and such persons so elected are nominated as
candidates for the board of directors by anyone other than the
Board of Directors of employer or those acting on behalf of the
Board and fill three Board positions at the same time.
For purposes of thios section 10, the term person shall have the
same meaning as in Section 13 of the Securities Exchange Act of
1934 and the term employer also includes successors by merger
or otherwise.
11. Termination. Employer may terminate Employee's employment under this
Agreement for cause upon written notice to Employee. For purposes of
this Agreement, the term "cause" means those situations or occurrences
described below:
11.1 Dishonesty, embezzlement, fraud, breach of fiduciary duty,
actions involving moral turpitude, or conviction of a felony by
Employee; or
11.2 Gross neglect of duty or gross insubordination by Employee,
including the failure to abide by any reasonable and material
instructions of Employer; provided, however, that it will not be
reasonable if such instructions request or demand actions which
would be inconsistent with the duties of a senior corporate
executive; or
11.3 Material breach of the provisions of Section 4 of this Agreement.
11.4 Should Employee dispute that his discharge was for cause,
Employee must submit his claim to arbitration in accordance with
Section 12 within sixty (60) days after his termination of
employment. If a discharge of Employee is eventually determined
under arbitration to have been for cause, or if no arbitration is
requested by Employee within (60) days after the termination of
Employee's employment, Employer shall have no liability
whatsoever under this Agreement from and after the date of
termination. If the termination of Employee is without cause,
Employer shall be responsible for payment of compensation as
outlined in Section 2 (Compensation) subject to Section 12
(Mitigation).
Should termination be voluntary or involuntary with cause,
Employee shall be entitled to a bonus, as described in Section 2,
prorated to the end of the month prior to the termination of
Employee's employment.
Should Employee voluntarily terminate his employment with
Employer for any reason, all obligations of Employer, except for
the prorated bonus described in the immediately preceding
paragraph under this Agreement shall be extinguished as of the
date of termination of employment, but Employee shall remain
subject to all of his covenants in Section 4.
12. Death or Disability. In the event of the death of the Employee,
employment will terminate but Employee's spouse or estate shall
receive Employee's then current salary and the benefits contemplated
by paragraphs 2, 6, 7 and 8 for 90 days after the death of the
Employee.
If Employee is disabled and cannot perform the duties of his
assignment, he will continue to receive full compensation at the time
the disability began for the first six months of continuous
disability. After six months of continuous disability, the Employee
will receive 70% of full compensation, reduced by any benefits paid
under the Employer's long term disability insurance program until the
earlier of death, the Employee is able to return to work or the
expiration of the employment contract. If the Employee remains
continuously disabled subsequent to the expiration of the employment
contract, Employee will continue to be entitled to benefits due under
the Employer's long term disability insurance program.
Termination or expiration of this Agreement for any reason shall not
affect any obligations of Employee under Section 4 of this agreement.
13. Mitigation. In the event of the termination of this Agreement,
Employee will use his best efforts to mitigate his damages, if any, by
seeking suitable employment for which he is qualified.
14. Arbitration. Except as provided for in Section 4.6 of this Agreement,
any controversy or claim arising out of or relating to this Agreement,
shall be settled by arbitration in Dayton, Ohio in accordance with the
Commercial Rules of Arbitration of the American Arbitration
Association. Such Arbitration may be commenced by either party
notifying the other and also the American Arbitration Association that
it or he intends to seek arbitration. The decision of the American
Arbitration Association shall be final and binding upon all parties
hereto. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The expenses of
Arbitration shall be borne by the non-prevailing party.
15. Governing Law. The Agreement shall be construed and enforced in
accordance with the laws of the State of Ohio.
16. Assignability. This Agreement is personal and shall not be assignable
by Employee; provided, however, that the terms of this Agreement shall
be binding upon, shall inure to the benefit of, and shall be
enforceable by Employer, its successor and assigns.
17. Waiver. The waiver of either party of any breach of any provision of
this Agreement shall not be construed as or constitute a continuing
waiver or a waiver of any other breach of any provision of this
Agreement.
18. Partial Invalidity. In the event that any word, phrase, clause,
sentence, or other provision herein violates any applicable statute,
ordinance, or rule of law in any jurisdiction in which it is used,
such provision shall be ineffective to the extent of such violation,
without violating any other provision herein.
19. Complete Agreement; Modification. This Agreement supersedes all prior
agreements, written or oral, is intended as a complete and exclusive
statement of the terms of the Agreement between parties, and may be
amended, modified, or rescinded only by a written instrument executed
by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first above written.
WITNESSES: EMPLOYER:
MOTO PHOTO, INC.
BY/s/ Michael F Adler
- --------------------------------- -----------------------------
Michael F. Adler, President & CEO
- --------------------------------
EMPLOYEE:
By/s/ David A Mason
David A Mason
