FORM 10-KSB
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 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: 0-18686
PAK MAIL CENTERS OF AMERICA, INC.
(Name of small business issuer in its charter)
Colorado 89-0934575
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3033 S. Parker Road, Suite 1200, Aurora, Colorado 80014
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 303-752-3500
Securities registered pursuant to Section 12(b) of the Exchange Act:
NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share.
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d)of the Exchange Act during the past
12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES [X] NO
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of Issuer's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Issuer's revenues for its most recent fiscal year were
$3,472,593.
The aggregate market value of the Issuer's voting stock held as
of a recent date by nonaffiliates of the Issuer cannot be
ascertained due to the absence of reliable information as to
quoted prices with respect to the Issuer's common stock.
As of January 31, 1997, the Issuer had 2,989,483 shares of its
$0.001 par value common stock issued and outstanding.
<PAGE>
Transitional small business disclosure format: YES NO [X]
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) Business Development. Pak Mail Centers of America,
Inc. (the "Issuer" or "Company") was incorporated in the State of
Colorado on January 27, 1984. The Issuer is principally engaged
in marketing and franchising service centers and retail stores
which specialize in the shipping and packaging business ("Pak
Mail Centers"). Pak Mail Centers typically provide mailbox
service, parcel shipping and receiving, freight forwarding and
other communications services to commercial and residential
customers through a variety of carriers and may offer a variety
of related items such as stamps, greeting cards, stationery
supplies, keys and passport photographs. On March 24, 1995, the
Company effected a reverse stock split whereby each pre-reverse
stock split share of common stock was reclassified and changed
into one-fiftieth of a share of common stock on a post-reverse
stock split basis. The total number of outstanding shares of
common stock was reduced from 149,474,125 to 2,989,483 as a
result of the reverse stock split.
(b) Business of Issuer.
(1)(2) Principal Products or Services; Distribution
Methods. The Issuer's principal business is the marketing of Pak
Mail Center franchises and its principal source of revenues is
derived from royalties and franchise fees as well as from the
sale of certain equipment, supplies, forms and materials to
franchisees. As of February 3, 1997, there were 287 individual
franchises and 24 area agreements in existence.
Franchise Program
The Company offers individual franchise agreements and area
director marketing agreements. Individual franchisees are
granted the exclusive right, within a specified area, to use the
Pak Mail name and trademark as well as Pak Mail's standardized
decor, operating procedures, techniques, forms, equipment and
advertising presentation. Area marketers and, under a previously
offered area franchise program, area developers are granted
rights to sell individual franchises for the Company in
designated areas and are required to provide site selection and
start up assistance and continuing support for individual
franchisees within those areas. The Company locates prospective
franchisees through advertising, referrals from existing
franchisees, the marketing efforts of its area marketers and
developers, and, to a small extent, through the use of franchise
brokers.
Franchise Agreements, Fees and Related Matters
Individual Franchises
Each individual franchisee enters into a franchise agreement
(the "Franchise Agreement") with the Company. The Franchise
Agreement requires payment of an initial franchise fee of
$22,950, although franchisees who initially commit to acquire
more than one franchise are eligible for certain discounts.
Individual franchisees are also charged an initial fee ranging
between $450 and $800 for a grand opening advertising and
marketing program which is provided by the Company at or around
the time the individual franchisee commences operation of a Pak
Mail Center. Under the Company's current standard Franchise
Agreement, individual franchisees pay a sliding scale monthly
royalty in each calendar year of five percent for the first
$200,000 of the franchisee's gross revenues, four and one-half
percent for the next $50,000 of gross revenues, four percent for
the next $50,000 of gross revenues, three and one-half percent
for the next $50,000 of gross revenues, and then three percent
for all subsequent gross revenues received in that calendar year.
No royalty fee is paid with respect to revenues from postage
stamps. Individual franchisees are also required to pay an
advertising fee each month in the amount of two percent of gross
revenues, with the exception of franchisees operating under
agreements entered into prior to March 1990 who are required to
pay an advertising fee of one percent of gross revenues. The
advertising fees are held in a separate legal trust controlled by
the Company. These fees are used in connection with the
formulation and execution of national and regional advertising
and for other marketing purposes. The Company's current standard
Franchise Agreement has a term of ten years. With the approval
of the Company, the franchisee has the right to transfer and
assign the Franchise Agreement.
Area Director Marketing Agreement
Each area marketer franchisee enters into an area marketing
agreement which requires the payment of an initial fee based upon
several factors including population and other demographic
factors in the designated geographic region. The Company may
finance a portion of the fee. The area director marketing
agreement grants the right to market and sell franchises within
the specified area. Upon the sale of individual franchises
within the area that were solicited by the area marketer, the
Company typically receives 60% of the individual franchise fee
and the area marketer receives 40%. The area marketer receives
20% of the individual franchise fees upon the sale of individual
franchises within the areas that were solicited by someone other
that the area marketer. The area marketer receives 20% of the
royalties from individual franchisees within the area, which
percentage increases to 40% when the area marketer has sold one
half of the total number of franchises to be sold by the area
marketer under the area marketing agreement. There may be
variations in the terms of specific area director marketing
agreements based on special circumstances affecting the
geographic area and the area marketer.
Area Developer Franchises
The Company no longer offers area developer agreements.
Under area developer agreements previously entered into, initial
franchise fees of individual franchises within an area are
generally divided 60% and 40% between the Company and the area
franchisee, respectively. Generally, the individual franchise
royalty fees are divided equally between the Company and the area
franchisee. All franchise fees and royalties are paid directly
to the Company, which then remits the portion of fees owed to the
area franchisee. For individual franchisees in locations which
are not encompassed by an area franchise, all fees and royalties
are retained by the Company.
International Area Franchises
The Company's international area franchise agreements
require the payment of an initial franchise fee based upon
several factors including population and other demographic
factors in the designated country or geographic region. The
Company often finances a portion of the area franchise fee. The
international area franchise is responsible for individual
franchise marketing, site selection assistance and lease
negotiation, on site training and continuing local support of the
individual franchisees within their areas.
Generally, the division of initial franchise fees of
individual franchises within an international area and the
individual franchise royalty fees within an international area is
negotiated on a case by case basis. As of November 30, 1996,
there were four international franchise agreements in existence
with respect to geographic areas in the Mexican cities of Mexico
City, Guadalajara and Monterrey, respectively, and an area
covering the Mexican states of Baja California and Sonora and the
countries of Chile and Argentina. Because of the large number of
factors that exist with respect to different countries and
different geographic locations within a given country which may
affect the terms of an international area franchise agreement,
the specific terms of international area franchises may vary
significantly from one another.
Related Matters
The Company provides various training and support to its
franchisees. The Company furnishes to each franchisee an
operations manual, which sets forth many of the Company's
standards and specifications and contains certain provisions
designed to assure the quality of the Pak Mail Center, and
provides updates thereto. In addition, each franchisee is
required to attend a 12 day training class with regard to
packaging, pricing and available shipping and mailing services;
preparation and placement of advertising; record keeping and
systems operation; use of forms and forms management; soliciting
and servicing customers; selecting and training personnel; and
stock location and operation. There is no charge for the class,
but franchisees pay their own expenses, including travel, lodging
and meals. The Company also provides an initial advertising and
marketing program at or around the time that a franchisee opens
the Pak Mail Center.
The Company offers to franchisees various equipment,
supplies, forms and materials necessary or useful in connection
with the operation of the Pak Mail Center, although, with the
exception of required computer software, the franchisees are not
required to purchase such items from the Company. Prior to and
upon the opening of a new franchisee's Pak Mail Center, the
Company or area franchisee provides additional on site training
to the franchisee. The Company maintains ongoing communications
with its franchisees designed to inform the franchisees of new
services to be provided by the Company, marketing techniques and
other operational aspects of the Pak Mail system.
Services
The typical Pak Mail Center offers a wide range of services
and products for personal and business support, communications
services and convenience items and services. The type and
importance of particular services and products vary from center
to center. Prices for services and products are set by
individual franchisees and depend on competitive conditions in
their respective franchise locations.
Major services and products offered at Pak Mail Centers
include the following:
Shipping and Receiving. Pak Mail Centers offer shipping
services through a variety of carriers and can assist the
customer in selecting the fastest and most cost effective method
of sending goods. Pak Mail Centers also act as receiving agents
for goods shipped to their customers. Pak Mail Centers advise
customers as to the packaging requirements of the various
carriers, provide packaging of items for shipment and sell
packaging materials.
Business Support Products and Services. Small businesses
are often major users of a Pak Mail Center. Pak Mail Centers
provide a small business with a variety of business services and
products such as mailbox rental, telephone message service,
notary public services, telecopy transmission, copying and office
supplies.
Communications Services. Pak Mail Centers offer customers
a wide range of communications services such as telecopies and
wire transfer of funds.
Convenience Items and Services. Pak Mail Centers generally
offer convenience items such as postage stamps, envelopes, rubber
stamps, engraving, laminating, passport and identification photos
and keys. Most Pak Mail Centers also offer office supplies,
greeting cards, gift wrapping, and other gift items.
Insurance. Also available at the customer's option is loss
damage insurance which can be purchased either through the
courier's insurance carrier and/or separate parcel insurance
which is available on an as needed basis from the Company's
carrier. The insurance prices for the Company's insurance vary
from those charged by couriers.
Private Mailbox Service. Pak Mail Centers offer private
mailbox rentals. Mailbox rental fees vary based on the size of
the box, the rental terms and the location of the Pak Mail
Center.
(3) Status of Product. There has been no public
announcement of, nor has the Company otherwise made public
information about, any new product or service of the Company
requiring the investment by the Company of a material amount of
its total assets or which is otherwise material to the Company's
operations.
(4) Competition. The Company and its franchisees face
competition primarily from independent service centers and other
franchised operations offering similar services. Mail Boxes Etc.
is the largest competitor. The Company's franchising approach
and the operations of a Pak Mail Center are not unique or
patentable and can be imitated by others. Although the Company
and its franchisees offer services similar to those offered by
the U.S. Postal Service, such as private mail box service and
parcel handling, the U.S. Postal Service does not offer certain
of the business support, communications and personal services
offered by Pak Mail Centers.
(5) Raw Materials. The Company purchases materials
for resale to its franchisees. These materials are available
from a variety of suppliers, and the Company has not experienced
any delays in obtaining such materials.
(6) Customer Dependence. The Company does not depend
upon a single customer, or a few customers, for its revenues, the
loss of any one or more which would have a material adverse
effect on the Company.
(7) Patents, Trademarks, Licenses, Etc. The Company
has registered the service mark "Pak Mail" and the Pak Mail logo
on the Principle Register of the United States Patent and
Trademark Office.
(8)(9) Government Regulations
The Federal Trade Commission has adopted a rule that
requires franchisors to make certain disclosures to prospective
franchisees prior to the offer or sale of franchises. This rule
requires the disclosure of information necessary for a franchisee
to make an informed decision as to whether to enter into a
franchise relationship and delineates the circumstances in which
franchisors may make predictions on future sales, income and
profits. Failure to comply with this rule constitutes an unfair
or deceptive act or practice under the Federal Trade Commission
Act.
Numerous states have adopted laws regulating franchise
operations and the franchisor/franchisee relationship.
Applicable franchise laws vary from filing and disclosure
requirements in the offer and sale of franchises to the
application of statutory standards regulating the establishment
and termination of franchise relationships. Although the
foregoing matters may result in some modification of the
Company's franchising activities and the legal inability to
enforce all of the terms of its franchise agreements in certain
states, such inabilities have not had a material adverse effect
on the operations or business of the Company to date. However,
the law applicable to franchise operations and relationships is
subject to change, and the Company is unable to predict the
effect, if any, on its operations of additional laws, regulations
or restrictions that may be enacted or promulgated or of court
decisions that may be adverse to the franchise industry.
(10) Research and Development. The Company has not
engaged in material research and development activities during
its last two fiscal years.
(11) Environmental Regulation. Compliance with
federal, state and local environmental law provisions does not
have any material effect on the capital expenditures, earnings
and competitive position of the Company.
(12) Employees. As of December 31, 1996, the Company
had 19 employees, all of whom are full time employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices are located in approximately
12,000 square feet of office space in Aurora, Colorado under a
lease expiring in April 2000 with a base rental currently at
approximately $12,300 per month and rising to approximately
$13,300 per month by the end of the term. The offices are in
good condition.
ITEM 3. LEGAL PROCEEDINGS
Manelle Enterprises, Inc. v. Pak Mail Centers of America,
Inc., Civil Action No. 96013471. On September 30, 1996, Manelle
Enterprises, Inc. ("Manelle"), a franchisee, filed an action in
the Seventeenth Judicial Circuit Court, Broward County, Florida,
alleging that South Florida Realprop, Inc. d/b/a Pak Mail Centers
of America Southern Region ("SFRI"), Jerald N. Cohn and Jerry G.
Nestos fraudulently induced Manelle to sign a franchise agreement
and a lease relating to a Pak Mail store located in Hollywood,
Florida. Manelle also alleges that the Company failed to fulfill
the Company's obligations under the franchise agreement. Manelle
also alleges that the Company violated Florida statutes and
breached the implied covenant of good faith and fair dealing.
Manelle seeks rescission of the franchisee agreement and an
unspecified amount of damages, attorney's fees, costs and
interest. The Company has filed a motion to dismiss the claims
of Manelle and such motion is scheduled to be argued on February
7, 1997.
Irwin Jacobs v. Pak Mail Centers of America, Inc. and South
Florida Realprop, Inc. d/b/a/ Pak Mail Centers of America
Southern Region, Civil Action, File No. 95A4565-4, Cobb County,
Georgia. The complaint alleges wrongdoing on the part of the
Company regarding the termination of plaintiff's franchise
agreement by the Company. Additionally, plaintiff alleges that
South Florida Realprop, Inc. ("SFRP") provided plaintiff with
certain equipment that SFRP did not have title to, that SFRP and
the Company somehow inappropriately diverted potential buyers of
plaintiff's franchise, that SFRP and the Company somehow deceived
plaintiff into surrendering possession of his franchise and then
inappropriately operated the franchise under his business
license, that SFRP and the Company wrongfully sold plaintiff's
terminated franchise and did not account to plaintiff or turn
over proceeds, and that misrepresentations were made to the
purchaser of the franchise respecting plaintiff's operation of
the franchise. Plaintiff seeks $60,000 of compensatory damages
and $150,000 of punitive damages, as well as costs, interest and
attorneys' fees. The case was removed by the Company to the
United States District Court for the Northern District of Georgia
on August 29, 1995 and now bears a Civil Action No. of 1 95-CV-
2190-RLV. Contemporaneously with removal of the action, the
Company filed a Motion to Stay the Proceedings Pending
Arbitration, which was granted on January 29, 1996. The Company
intends to contest vigorously any arbitration filed by Jacobs,
however, as of January 14, 1997 the plaintiff has not filed any
such arbitration.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the
fiscal year covered by this report to a vote of the Company's
security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information.
The Company's common stock is sporadically traded in the
over-the-counter market. During fiscal 1996 and 1995 there was
no established trading market for the Company's common stock, and
the Company has been unable to obtain reliable information as to
quoted prices with respect to the common stock.
(b) Holders.
As of January 27, 1997, the Company had 1,204 holders of
record of its $0.001 par value common stock.
(c) Dividends.
The Company has not declared cash dividends on its common
stock in the last two fiscal years and in any subsequent period
for which financial information is required. The Company does
not anticipate paying any cash dividends in the foreseeable
future.
(d) Recent Sales of Unregistered Securities
The Company has not sold securities within the past three
years without registering the securities under the Securities Act
of 1933, as amended.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company experienced cash flow deficiencies from
operating activities of $149,182 during the fiscal year ended
November 30, 1996 compared to $280,912 during the fiscal year
ended November 30, 1995. During the fiscal year ended November
30, 1995, the deficiency was covered by the existing cash balance
the Company maintained at the beginning of the year and the
increase in payments received on notes receivable. During the
fiscal year ended November 30, 1996, the deficiency was financed
through payments received on notes receivable and $100,000 in
loans issued from D. P. Kelly and Associates, L.P.
Working capital increased $164,030 to a positive $96,701 at
November 30, 1996. The main contributors were an increase in
cash of $50,197 and a decrease in accounts payable of $111,267.
The decrease in trade accounts payable primarily represents the
elimination of an amount that was owed to one vendor at the end
of 1995.
At November 30, 1996, the average age of accounts receivable
was approximately 64 days. Accounts receivable relate primarily
to royalties from franchisees and sales of equipment, supplies
and services. Royalties are payable on a monthly basis and
invoices for equipment, supplies and services are payable within
30 days. The Company continues to take an aggressive approach to
managing accounts receivable and reducing the average age by
implementing a proactive collection system and hiring the
personnel to maintain it.
Results of Operations
Fiscal 1996 Compared to Fiscal 1995
The Company recorded a profit of $51,957 in the fiscal year
ended November 30, 1996, compared to a $2,096 profit in the
fiscal year ended November 30, 1995. The $49,864 increase was
attributable to a decrease in costs and expenses (down 11.3% from
$3,856,312 to $3,420,633) offset by a decrease in revenues (down
10.0% from $3,858,408 to $3,472,593).
The $385,815 decrease in revenues during the fiscal year
ended November 30, 1996 is primarily attributable to decreases in
individual franchise fees (down 20.6% from $917,210 to $728,268),
area representative fees (down 20.9)( from $325,177 to $257,261)
and sales of equipment, supplies and services (down 34.1% from
$1,023,264 to $673,870) offset by an increase in royalties from
franchisees (up 16.2% from $1,520,629 to $1,767,023).
The $188,942 decease in individual franchise fees is
represented by a decrease in sales recognized during the fiscal
year ended November 30, 1996 compared to the fiscal year ended
November 30, 1995 and a differing mix of per franchise revenue
recognition. The Company awarded 35 and 51 individual franchises
during the fiscal year ended November 30, 1996 and the fiscal
year ended November 30, 1995, respectively. In the fiscal year
ended November 30, 1995, the Company recognized revenue on 30 of
the 35 individual franchises awarded. In addition, the revenue
from eight individual franchises awarded and deferred in 1995,
was recognized in the fiscal year ended November 30, 1996. There
were five individual franchises awarded but deferred as of
November 30, 1996.
The $67,916 decrease in area representative fees represents
one domestic award during the fiscal year ended November 30, 1996
compared to four domestic and one international award during the
fiscal year ended November 30, 1995. In addition, the Company
amortized more deferred area representative fees during the
fiscal year ended November 30, 1996 than in the fiscal year ended
November 30, 1995.
The $246,394 increase in royalties from franchisees is due
to an increase in the average sales volume per store and the
number of stores open and operating throughout the year.
The $349,394 decrease in sales of equipment, supplies and
services primarily relate to the decrease in the number of new
stores opened in the fiscal year ended November 30, 1996 and the
formation of direct relationships between vendors and
franchisees.
The $435,676 decrease in costs and expenses is primarily
attributable to decreases in cost of sales of equipment, supplies
and services (down 32.2% from $892,654 to $605,195) and other
selling, general and administrative expenses (down 15.2% from
$1,892,556 to $1,604,325) offset by an increase in royalties paid
to area franchisees (up 56.8% from $351,663 to $551,497).
The $287,459 decrease in cost of sales of equipment,
supplies and services primarily relate to the increase in the
number of new stores opened in the fiscal year ended November 30,
1996 and the formation of direct relationships between vendors
and franchisees.
The $288,231 decrease in other selling, general and
administrative was primarily due to the elimination of the
regional office the Company maintained during the fiscal year
ended November 30, 1995 and decreases in legal fees, personnel,
convention and printing costs. The decrease resulting from the
elimination of the regional offices represents primarily
personnel costs, travel, office rent and consulting costs.
The $199,834 increase in royalties paid to area franchisees
is due primarily to the higher proportion of stores operating
within area franchisee regions during the fiscal year ended
November 30, 1996 compared to the fiscal year ended November 30,
1995.
The foregoing discussion contains certain forward looking
statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934, which are intended to be covered by the safe harbors
created thereby. These statements include the plans and
objectives of management for future operations, including plans
and objectives relating to the development. The forward looking
statements included herein are based on current expectations that
involve numerous risks and uncertainties. Assumptions relating
to the foregoing involve judgments with respect to, among other
things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the
control of the Company. Although the Company believes that the
assumptions underlying the forward looking statements are
reasonable, any of the assumptions could be inaccurate and,
therefore, there can be no assurance that the forward looking
statements included in this Form 10-KSB will prove to be
accurate. In light of the significant uncertainties inherent in
the forward looking statements included herein, the inclusion of
such information should not be regarded as a representation by
the Company or any other person that the objectives and plans of
the Company will be achieved.
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements in this report following the
signature page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the Company's two most recent fiscal years and any
interim period, the principle independent accountant on whom the
principle accountant expressed reliance in the report, has not
resigned (or declined to stand for re-election) or been
dismissed.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
(a) Identification of Directors and Executive Officers.
The present term of office of each director will expire at
the next annual meeting of shareholders. The executive officers
of the Company are elected annually at the first meeting of the
Company's Board of Directors held after each annual meeting of
shareholders. Each executive officer holds office until his or
her successor is duly elected and qualified or until his or her
resignation or until he or she shall be removed in the manner
provided by the Company's Bylaws. The name, position with the
Company, the age of each director and executive officer, and the
period during which each has served are as follows:
Name, Age and Director or Principal Occupation
Position in the Officer During the Last Five
Company Since Years
John E. Kelly, 56 September, Executive officer of the
(President, Chief 1989 Company since September,
Executive Officer and 1989.
Director)
P. Evan Lasky, 55 March, 1988 Executive officer of the
(Executive Vice Company since March,
President and Chief 1988.
Operating Officer)
Raymond S. Goshorn, December, Executive officer of the
38 (Chief Financial 1988 Company since December,
Officer, Treasurer, 1988.
Secretary)
Tonya D. Sarina, 35 December, Executive officer of the
(Vice President of 1996 Company since December
Sales and Marketing) 1996; Marketing manager
of the Company from
March, 1991 through
November, 1996.
Alex Zai, 37 May, 1996 Executive officer of the
(Vice President of Company since May, 1996;
Store Operations) director of store
operations since April,
1994.
J. S. Corcoran, 53 September, Self-employed as a
(Director) 1989 business consultant
since October, 1996.
Executive officer of
D.P. Kelly & Associates
L.P., a firm offering
management services,
from November, 1988 to
January, 1997; executive
officer of Envirodyne
Industries, Inc., a man-
ufacturer of food pack-
aging and food service
supplies, from June,
1989 to March, 1996.
John W. Grant, 72 September, Retired since September,
(Director) 1989 1987.
F. Edward Gustafson, September, Executive officer of
55 1989 D.P. Kelly & Associates
(Director) L.P., a firm offering
management services,
since November, 1988;
executive officer of
Envirodyne Industries,
Inc., manufacturer of
food packaging and food
service supplies, since
June, 1989; director of
Envirodyne Industries,
Inc. since December,
1993; executive officer
of Viskase Corporation,
a wholly-owned subsidiary
of Envirodyne Industries,
Inc., from
February, 1990 to
August, 1993.
William F. White, 66 September, Executive officer of
(Director) 1989 Whitnell & Co., an
investment advisory
firm, since January,
1988; executive officer
of Donegal, Inc., an
investment management
firm, since January,
1991.
(b) Identification of Certain Significant Employees.
Not Applicable.
(c) Family Relationships.
Not Applicable.
(d) Involvement in Certain Legal Proceedings.
J.S. Corcoran was an executive officer of Envirodyne
Industries, Inc, ("Envirodyne") until March, 1996 and F. Edward
Gustafson is an executive officer and a director of Envirodyne.
On January 7, 1993, Envirodyne and its major domestic
subsidiaries filed voluntary petitions pursuant to Chapter 11 of
the United States Bankruptcy Code. On December 31, 1993,
Envirodyne consummated a plan of reorganization and emerged from
bankruptcy.
(e) Compliance With Section 16(a) of the Exchange Act.
Tonya D. Sarina and Alex Zai, who became executive officers
of the Company during the fiscal year ended November 30, 1996,
failed to file on a timely basis their Forms 3 as required by
Section 16(a) of the Securities and Exchange Act of 1934, as
amended.
ITEM 10. EXECUTIVE COMPENSATION
Cash Compensation.
The following table shows all cash compensation paid by the
Company for services rendered during the fiscal years ended
November 30, 1996, November 30, 1995 and November 30, 1994 to
John E. Kelly and P. Evan Lasky (there were no other executive
officers of the Company whose annual salary and bonus exceeded
$100,000).
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Name and
Principal Fiscal Other Annual
Position Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
John E. Kelly 1996 $126,000 $33,600 $7,980<F2>
President and
Chief Executive 1995 $120,000 $21,895<F1> $7,980<F2>
Officer
1994 $114,600 $32,151<F1> $7,980<F2>
P. Evan Lasky 1996 $ 86,000 $16,583 $ -0-
Executive Vice
President and 1995 $ 80,500 $10,183 $ -0-
Chief
Operating 1994 $ 76,850 $12,035 $ -0-
Officer
________________
<FN>
<F1> Bonus was paid in the fiscal year indicated but with respect
to performance in the prior fiscal year.
<F2> The amount for each of fiscal 1996, 1995 and 1994 consists of
a $4,800 car allowance and $3,180 of country club dues.
</TABLE>
<PAGE>
Option/SAR Grants.
The Company maintains no stock option plan or other plan
providing for stock or SAR grants. Pursuant to a Stock Purchase
Agreement dated as of July 15, 1990 (the "Stock Purchase
Agreement"), the Company has agreed to issue and sell, and Mr.
Kelly has agreed to purchase, 4,000 shares of the Company's
common stock at a price of $2.75 per share on July 15 of each of
the years 1990 through 1994. To date, with the most recent
purchase in December 1992, Mr. Kelly has purchased 12,000 shares
under the Stock Purchase Agreement at an aggregate price of
$33,000.
Compensation of Directors--Standard Arrangement.
Members of the Board of Directors, other than members who
are also officers of the Company, are entitled to receive a fee
of $2,000 per year and $250 for each attended meeting of the
Board of Directors. In practice, the Company has not paid
directors' fees.
Compensation of Directors--Other Arrangements.
Not applicable.
Termination of Employment and Change of Control
Arrangements.
Not applicable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners.
<TABLE>
The following persons are the only persons known to the
Company who on January 28, 1997, owned beneficially more than 5%
of the Company's $0.001 par value common stock, its only class of
outstanding voting securities:
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership<F1> of Class
<S> <C> <C>
Pak Mail Investment 1,800,000 60.2%
Partnership L.P.
701 Harger Road, Suite 190
Oak Brook, Illinois 60521
Janie M. D'Addio 188,833<F2> 6.3%
c/o Security Manufacturing
Corporation
815 S. Main Street
Grapevine, Texas 76051
__________
<FN>
<F1> Beneficial owners listed have sole voting and investment
power with respect to the shares shown unless otherwise indicated.
<F2> Information with respect to Ms. D'Addio's common stock
is given to the best of the Company's knowledge.
</TABLE>
<PAGE>
(b) Security Ownership of Management.
<TABLE>
The following table shows as of February 28, 1997, the shares
of the Company's $0.001 par value common stock beneficially owned
by each director, each executive officer and by all the executive
officers and directors as a group:
<CAPTION>
Amount and Nature Percent
Name of Holder of Beneficial Ownership Of Class
<S> <C> <C>
J. S. Corcoran 1,000 <F1> * <F5>
Raymond S. Goshorn 1,000 * <F5>
John W. Grant 800<F2> * <F5>
F. Edward Gustafson 20,000<F1><F3> * <F5>
John E. Kelly 12,000<F4> * <F5>
William F. White 2,000 * <F5>
P. Evan Lasky 0 * <F5>
Tonya D. Sarina 0 * <F5>
Alex Zai 112 * <F5>
All directors and
officers as a group
(9 persons) 36,912<F1> 1.2%
<FN>
<F1> Excludes 1,800,000 shares of common stock owned by
PMIP. Mr. Corcoran and Mr. Gustafson are officers, directors and
shareholders of Wexford Corporation, which exercises control over
PMIP, and therefore may be deemed to have the ability to vote or
dispose of securities owned by PMIP. Messrs. Corcoran and
Gustafson disclaim beneficial ownership of the shares of common
stock owned by PMIP.
<F2> Shares owned jointly by Mr. Grant and his wife.
<F3> Includes 6,000 shares of common stock owned by Mr.
Gustafson's children, for whom he acts as custodian.
<F4> Excludes 8,000 shares of common stock that Mr. Kelly has not
yet purchased pursuant to a Stock Purchase Agreement dated
July 15, 1990. See "Item 10. Executive Compensation".
<F5> Less than 1%.
</TABLE>
(c) Changes in Control. Not applicable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a)(b) Transactions With Management and Others and Certain
Business Relationships.
The Company purchases mailboxes from Security Manufacturing
Corporation ("Security") for resale to the Company's franchisees.
Security is controlled by Janie M. D'Addio. During fiscal 1996
and fiscal 1995, the Company made purchases in the total
amounts of $64,300 and $90,120, respectively, from Security.
(c) Parent Companies. PMIP owns a controlling interest in
the Company through its ownership of 1,800,000 shares of common
stock, representing approximately 60.2% of the outstanding common
stock.
(d) Transactions With Promoters. Not applicable.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(3)(a) Articles of Incorporation incorporated by reference
to Exhibit (3)(a) of the Company's Annual
Report on Form 10-KSB for the fiscal year ended
November 30, 1995.
(3)(b) Bylaws incorporated by reference to Exhibit (3)(b)
of the Company's Annual Report on Form 10-K dated
March 13, 1992.
(10)(1) Stock Purchase Agreement dated as of July 15,
1990 by and between the Company and John E.
Kelly.
(10)(2) Individual Franchise Agreement.
(10)(3) Agreement by and between Security Manufacturing
Corporation and the Company dated July 10, 1995
(10)(4) Pak Mail Centers of America, Inc. Management
Incentive Plan for Fiscal Year 1996.
(21) Subsidiaries of the Registrant.
(b) 8-K Reports. None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: February 28, 1997.
PAK MAIL CENTERS OF AMERICA, INC.
a Colorado corporation
By: /s/ John E. Kelly
John E. Kelly, President and
Chief Executive Officer
By:/s/ Raymond S. Goshorn
Raymond S. Goshorn, Chief Financial
Officer, Treasurer and Secretary
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Date Name and Title Signature
February 28, 1997 J. S. Corcoran /s/ J. S. Corcoran
Director
February 28, 1997 John W. Grant /s/ John W. Grant
Director
February 28, 1997 F. Edward Gustafson /s/ F.Edward Gustafson
Director
February 28, 1997 John E. Kelly /s/ John E. Kelly
Director
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Financial Statements and
Independent Auditors' Report
November 30, 1996 and 1995
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F - 1
Financial Statements
Consolidated Balance Sheets - November 30, 1996 and 1995 F - 2
Consolidated Statements of Operations - For the Years Ended
November 30, 1996 and 1995 F - 3
Consolidated Statements of Stockholders' Equity - For the
Years Ended November 30, 1996 and 1995 F - 4
Consolidated Statements of Cash Flows - For the Years Ended
November 30, 1996 and 1995 F - 5
Notes to Consolidated Financial Statements F - 6
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Pak Mail Centers of America, Inc. and Subsidiary
Aurora, Colorado
We have audited the accompanying consolidated
balance sheets of Pak Mail Centers of America,
Inc. and Subsidiary as of November 30, 1996 and
1995, and the related consolidated statements
of operations, changes in stockholders' equity,
and cash flows for the years then ended. These
consolidated financial statements are the
responsibility of the Companies' management.
Our responsibility is to express an opinion on
these consolidated financial statements based
on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about
whether the consolidated financial statements
are free of material misstatement. An audit
includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
consolidated financial statements. An audit
also includes assessing the accounting
principles used and significant estimates made
by management, as well as evaluating the
overall financial statement presentation. We
believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in
all material respects, the financial position
of Pak Mail Centers of America, Inc. and
Subsidiary as of November 30, 1996 and 1995,
and the results of their operations, and their
cash flows for the years then ended, in
conformity with generally accepted accounting
principals.
Ehrhardt Keefe Steiner & Hottman PC
January 10, 1997
Denver, Colorado
F - 1
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
<TABLE>
Consolidated Balance Sheets
<CAPTION>
November 30,
1996 1995
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 72,179 $ 21,982
Restricted cash (Note 7) 80,293 32,317
Accounts receivable, net of allowance
of $115,572 (1996) and $169,361 (1995) 264,879 335,377
Inventories 33,769 46,438
Prepaid expenses and other current assets 38,448 40,918
Total current assets 489,568 477,032
Property and equipment, net of accumulated
depreciation (Note 2) 35,692 53,542
Other assets
Notes receivable, net (Note 3) 618,771 805,585
Investments in Non-operating assets
held for sale 20,000 33,921
Deposits and other 52,185 54,116
Deferred franchise costs, net of accumulated
amortization of $13,367 (1996)
and $5,347 (1995) 146,955 141,258
Total other assets 837,911 1,034,880
$ 1,363,171 $ 1,565,454
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term
debt (Note 4) $ 15,276 $ 31,242
Trade accounts payable 249,723 360,990
Accrued commissions 22,149 30,021
Other accrued expenses 45,376 89,791
Due to advertising fund (Note 6) 60,343 32,317
Total current liabilities 392,867 544,361
Deferred revenue 460,367 649,351
Long-term debt (Note 4) 100,000 13,762
Commitments and
Contingencies (Notes 6, 10 and 11)
Stockholders' equity (Note 5)
Series A redeemable preferred stock,
$1,000 par value; 8% cumulative; 1,500
shares authorized; 1,216.668 shares issued
and outstanding (liquidation preference
$1,723,600 - 1996 and $1,626,268 - 1995) 1,216,668 1,216,668
Series B redeemable preferred stock,
$1,000 par value; 8% cumulative; 1,000
shares authorized; 1,000 shares issued and
outstanding (liquidation preference
$1,200,000 (1996) and $1,120,000 (1995)) 1,000,000 1,000,000
Common stock, $.001 par value; 200,000,000
shares authorized, 2,989,483 shares issued
and outstanding 2,990 2,990
Additional paid-in capital 5,026,453 5,026,453
Accumulated deficit (6,836,174) (6,888,131)
Total stockholders' equity 409,937 357,980
$ 1,363,171 $ 1,565,454
<FN>
See notes to consolidated financial statements.
</TABLE>
F - 2
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Operations
<CAPTION>
For the Years Ended
November 30,
1996 1995
<S> <C> <C>
Revenue
Royalties from franchisees $ 1,767,023 $ 1,520,629
Sales of equipment, supplies, and services 673,870 1,023,264
Individual franchise fees 728,268 917,210
Area franchise fees, net 257,261 325,177
Interest income 24,583 8,972
Other 21,588 63,156
3,472,593 3,858,408
Costs and expenses
Selling, general, and administrative 1,604,325 1,892,556
Cost of sales of equipment, supplies
and services (Note 7) 605,195 892,654
Commissions on franchise sales 414,773 443,219
Royalties paid to area franchisees 551,497 351,663
Advertising 181,323 172,985
Loss on investment in assets held for resale 13,921 45,240
Depreciation and amortization 44,629 50,620
Interest 4,973 7,375
3,420,636 3,856,312
Net income $ 51,957 $ 2,096
Primary earnings per common share $ .02 $ *
Fully diluted earnings per common share $ * $ *
Weighted average number of common
shares outstanding 2,989,483 $ 2,989,483
* Amount less than $.01 per share.
<FN>
See notes to consolidated financial statements.
</TABLE>
F - 3
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statement of Stockholders' Equity
For the Years Ended November 30, 1996 and 1995
<CAPTION>
Preferred Stock Preferred Stock Additional Total
Series A Series B Common Stock paid-in Accumulated Stockholders'
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1994 1,216.668 $ 1,216,668 1,000 $1,000,000 2,989,483 $ 2,990 $ 5,026,453 $(6,890,227) $ 355,884
Net income - - - - - - - 2,096 2,096
Balance, November 30, 1995 1,216.668 $ 1,216,668 1,000 $1,000,000 2,989,483 $ 2,990 $ 5,026,453 $(6,888,131) $ 357,980
Net income - - - - - - - 51,957 51,957
Balance, November 30, 1996 1,216.668 $ 1,216,668 1,000 $1,000,000 2,989,483 $ 2,990 $ 5,026,453 $(6,836,174) $ 409,937
<FN>
See notes to consolidated financial statements.
</TABLE>
F - 4
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended
November 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net income $ 51,957 $ 2,096
Adjustments to reconcile net income
to net cash from operating activities -
Depreciation and amortization 44,629 50,620
Provision for loss on accounts receivable (43,789) 8,000
Provision for loss on notes receivable 17,100 (1,358)
Net loss on investment in assets held
for sale 13,921 45,240
Discount on notes receivable (1,628) (3,256)
Deferred rent - (4,928)
Deferred franchise costs (13,717) (82,967)
Franchise fee revenue financed through
notes receivable (24,500) (203,726)
Franchise fee revenue recognized on sale
of assets held for sale - (19,950)
Changes in operating assets and liabilities -
Accounts receivable 114,287 (37,131)
Inventories 12,669 (19,655)
Prepaid expenses and other
current assets 2,470 (12,070)
Deposits and other 1,931 18,860
Trade accounts payable (111,267) 125,723
Accrued expenses (52,287) 13,569
Deposits from franchisees - (7,500)
Due to advertising fund 28,026 3,061
Deferred revenue, net (188,984) (155,540)
(201,139) (283,008)
Net cash (used by)
operating activities (149,182) (280,912)
Cash flows from investing activities
Capital expenditures (18,759) (27,182)
Purchase/additions of assets held for sale - (34,750)
Proceeds from sale of assets held for sale - 25,000
Payments on notes receivable 195,842 241,677
Net cash provided by
investing activities 177,083 204,745
Cash flows from financing activities
Payments on long-term debt (29,728) (27,366)
Proceeds from long-term debt 100,000 -
Increase in restricted cash (47,976) (32,317)
Net cash provided by
(used by) financing activities 22,296 (59,683)
Net Increase (decrease) in cash
and cash equivalents 50,197 (135,850)
Cash and cash equivalents, beginning of year 21,982 157,832
Cash and cash equivalents, end of year $ 72,179 $ 21,982
<FN>
See notes to consolidated financial statements.
</TABLE>
Supplemental disclosure of cash flow information -
Cash paid during the year for interest was approximately
$5,000 (1996) and $7,400 (1995).
Supplemental schedule of non-cash investing and financing activities:
During the year ended November 30, 1995, pursuant to the resale
of two franchises, notes receivable of $52,000 were issued.
At 1995, $140,000 of notes receivable additions are included
in deferred revenue.
F - 5
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting
Policies
Organization
Pak Mail Centers of America, Inc. was incorporated in
Colorado in 1984 and is engaged in the business of
marketing, franchising, and owning Pak Mail Retail and
Service Centers which specialize in custom packaging of
items to be mailed or shipped throughout the United States
and Mexico.
The consolidated financial statements include the accounts
of Pak Mail Centers of America, Inc. and its wholly owned
subsidiary, Pak Mail Crating and Freight Service,
collectively referred to as the Company. All significant
intercompany transactions and balances have been eliminated
in consolidation.
<TABLE>
The following table summarizes the number of domestic Pak
Mail Retail and Service Centers in operation during the last
two fiscal years:
<CAPTION>
November 30,
1996 1995
<S> <C> <C>
Domestic franchises:
Franchise centers in operation 272 249
Rights to franchise centers sold and not in operation 16 14
288 263
</TABLE>
As shown in the accompanying consolidated financial statements, the Company
realized net income of approximately $52,000 and $2,000 for the years ended
November 30, 1996 and 1995, respectively. The Company has sought and
received assurances from an affiliate of the majority stockholder of the
Company as to its financial ability and intent to provide ongoing financial
support so as to enable the Company to continue as a going concern through
November 30, 1997.
Cash and Cash Equivalents
The Company considers cash on hand and investments with original maturities
of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable and accrued expenses approximate fair values as of
November 30, 1996, as a result of the relatively short maturity of these
instruments.
The fair value of the notes receivable approximate the carrying value because
both the stated rate and discount rate on the notes approximate the estimated
current market rate.
F - 6
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting
Policies (continued)
Fair Value of Financial Instruments (continued)
Based on rates currently available to the Company for debt which is similar to
the terms on the remaining maturities, the fair value of existing debt
approximates its carrying value.
Inventories
Inventories consist of equipment and supplies held for resale to franchisees
for use at their store locations or held at corporate owned stores for resale
to the public and are stated at the lower of cost (determined on the first-in,
first-out method) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over an estimated useful life of three years.
Investments in Assets Held for Sale
Investments in assets held for sale are stores which have been repurchased
from franchisees or built-out by the Company and are stated at cost which
management believes approximates, or is lower than, market.
Franchise Fee Revenue Recognition
The Company has awarded franchise rights under the following franchise
agreements:
Individual franchise agreement - Right to operate one store at a location to
be determined. Franchise fees are payable in cash or notes upon execution of
agreement.
Area franchise agreement - Right to develop stores within a specified
geographic area. The area franchise fee (based upon the estimated
development potential of area) is payable in cash and notes upon execution
of the franchise agreement. Upon awarding of individual franchises
within the franchise area, the Company typically receives 60% of the
individual franchise fee and the area developer receives 40%. The area
developer receives 50% to 60% of the royalties from individual
franchisees within the area.
Area director marketing agreement - Right to market and sell franchises
within a specified geographic region. The marketing fee is payable in
cash and notes upon execution of the director marketing agreement. Upon
selling of individual franchises within the area, the Company typically
receives 60% of the individual franchise fee and the area director receives
40%. The area director receives 50% of the royalties from individual
franchisees within the area.
F - 7
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting
Policies (continued)
Franchise Fee Revenue Recognition (continued)
Individual franchise fees outside a developer area are recognized as revenue
when all material services and conditions relating to the sale have been
substantially performed by the Company and the franchise has commenced
operations.
Domestic area franchise fees are deferred and recognized as revenue on a
straight-line basis as the stores within the area are opened or upon
completion of the initial training program depending on the terms of
the agreement. Individual franchise fees within a domestic developer
area are recognized as revenue when all material services and conditions
relating to the sale have been substantially performed by the Company,
principally site selection and training.
Area director marketing fees are recognized as income upon completion of the
initial training to the area director and collection of the marketing fee.
The Company has the option to terminate the agreement before training is
completed at which time the marketing fee is refundable.
During 1993, the Company began offering foreign area franchises outside of the
United States of America. Foreign area franchise fees are deferred and
recognized as revenue upon completion of the material service to the area
developer, which is initial training to the area developer, and upon
collection of notes receivable being reasonably assured. The Company does
not participate in any franchise fees or royalties for franchises sold within
the foreign area, however, the Company has agreed to train all new franchisees
for a flat fee.
Royalties From Franchisees
Royalties from franchisees are based upon a percentage of each franchisee's
sales and are recognized when earned based upon reported sales activity by each
franchisee.
Net Income Per Common Share
Income per common share is determined by dividing net income applicable to
common stock by the weighted average number of common shares outstanding
during the year. Common stock equivalents have been excluded as their effect
would be immaterial.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statements
and tax basis of assets and liabilities using the enacted tax rates in effect
for the year in which the differences are expected to reverse. The
measurement of deferred tax assets is reduced, if necessary, by the amount
of any tax benefits that, based on available evidence, are not expected to
be realized.
F - 8
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting
Policies (continued)
Deferred Franchise Costs
Costs related to the development of the franchise operations are capitalized
and amortized over the expected period of benefit of five years. These costs
are primarily comprised of costs incurred to develop the franchise documents.
Incremental direct development costs, such as commissions, are deferred, but
not in excess of the deferred revenue and are expensed when the related
franchise fee revenue is recognized.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist of cash and cash equivalents, and accounts and notes
receivable from franchisees, area developers and marketing directors. The
Company places its temporary cash investments in high credit quality financial
institutions. To reduce credit risk, the Company reserves the right to
terminate franchise agreements for non-payment of amounts owed. Additionally,
at November 30, 1996, $198,866 of notes receivable are offset by comparable
amounts in deferred revenue.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 - Furniture and Equipment
<TABLE>
Furniture and equipment consists of the following:
<CAPTION>
November 30,
1996 1995
<S> <C> <C>
Office equipment $ 247,937 $ 228,604
Furniture and fixtures 142,472 143,046
390,409 371,650
Less accumulated depreciation (354,717) (318,108)
$ 35,692 $ 53,542
</TABLE>
F - 9
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3 - Notes Receivable
Notes receivable consist of franchise fees and area developer fees financed by
the Company. The notes are collateralized by the underlying franchise
agreements and by essentially all of the franchisees' assets incidental to the
operation of the franchise center and the majority of the notes are personally
guaranteed by the owners of each franchise. Notes receivable consist of the
following:
<TABLE>
<CAPTION>
November 30,
1996 1995
<S> <C> <C>
Non-interest-bearing notes; interest
imputed at 8%, net of unamortized
discounts of $4,885 (1996) and
$6,513 (1996) $ 367,118 $ 463,936
Interest-bearing notes; interest
rates from 8% to 12.5% 304,750 377,646
671,868 841,582
Less allowance for doubtful collections (53,097) (35,997)
$ 618,771 $ 805,585
</TABLE>
Notes receivable include $198,866 of financed franchise fees and area developer
fees which are included in deferred revenue. It is the Company's policy not to
impute interest on these notes until the earnings process is complete.
Included in these notes are financed area developer fees the maturities of
which are based upon the expected opening of franchises within the area.
Future minimum principal payments to be received pursuant to the notes are as
follows:
<TABLE>
<CAPTION>
Year Ending November 30,
<S> <C>
1997 $ 336,493
1998 212,705
1999 119,710
2000 7,845
$ 676,753
Less unamortized
discount (4,885)
$ 671,868
</TABLE>
At the time the notes receivable are executed, the Company reserves an
allowance for doubtful collections. The provision for uncollectible amounts
is continually reviewed and adjusted to maintain the allowance at a level
considered adequate to cover future losses. The allowance is management's
best estimate of uncollectible amounts and is determined based on historical
performance of the notes which is tracked by the Company on an ongoing basis.
The losses ultimately incurred could differ materially in the near term from
the amounts estimated in determining the allowance.
F - 10
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 4 - Long-Term Debt
<TABLE>
<CAPTION>
November 30,
1996 1995
<S> <C> <C>
Unsecured note payable, stated interest
at 3%, net of unamortized discounts of
$1,494 and $3,008 at November 30, 1996
and 1995, respectively. Due in annual
principal and interest installments
through October 1997.
$ 15,276 $ 45,004
Note payable - affiliate, interest 100,000 -
at 2% over prime (8.25% at
November 30, 1996). Due on demand,
effective December 1, 1997.
115,276 45,004
Less current portion (15,276) (31,242)
$ 100,000 $ 13,762
</TABLE>
<TABLE>
Maturities of long-term debt are as follows:
<CAPTION>
Year Ending November 30,
<S> <C>
1997 $ 15,276
1998 100,000
$ 115,276
</TABLE>
Note 5 - Stockholders' Equity
In January, 1995, the Board of Directors approved a 1:50 reverse stock split.
All references in the accompanying consolidated financial statements to the
number of shares and per share amounts for all periods presented have been
restated to reflect the reverse stock split.
Dividends on the Series A and Series B Preferred Stock (Stock) accrue at 8%
commencing on the date of issuance and are payable annually, subject to
certain cumulative net income requirements, as declared by the Board of
Directors, commencing March 31, 1993 and March 31, 1995, respectively. As of
November 30, 1996, dividends of approximately $707,000 were in arrears.
The Stock may be redeemed at the option of the Company, in whole or in part,
and holds a liquidation preference at a price per share equal to $1,000 plus
all dividends accrued and unpaid to the date of redemption. Both series of
preferred stock, among other items, have certain preferential rights related
to the appraisal on the sale of stock or assets of the Company.
F - 11
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 5 - Stockholders' Equity (continued)
Mr. John Kelly, an officer of the Company, and the Company are parties to a
stock purchase agreement dated July 15, 1990 (the Stock Purchase Agreement),
pursuant to which the Company has agreed to issue and sell, and Mr. Kelly has
agreed to purchase, 4,000 shares of the Company's common stock at a price of
$2.75 per share on July 15 of each of the years 1990 through 1994. The 1994
and 1993 purchases have not yet been consummated.
Note 6 - Advertising Fund
All franchisees are required to pay a monthly advertising fee to the Company
which is used to provide national, regional and local marketing for the
franchisees. The Company acts as agent for the advertising fees. During
fiscal year 1994, the Company created trusts to separately account for all
advertising fund activity. Certain franchisees within various regions are
co-trustees of the trust. At November 30, 1996 and 1995, the advertising
fund is a separate legal entity, and therefore, the Company is no longer
contingently liable for any fund liabilities incurred; nor is the fund
activity reflected in the accompanying consolidated financial statements.
Note 7 - Restricted Cash
At November 30, 1996 and 1995, the amounts due the advertising fund of
$60,343 and $32,317, respectively, are included in restricted cash. In
addition, at November 30, 1996, $19,950 of a franchisee fee was held in
escrow, in the Company's name, to be released upon the related franchise
opening.
Note 8 - Income Taxes
The components of long-term deferred tax assets are as follows:
<TABLE>
<CAPTION>
November 30,
1996 1995
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 1,819,000 $ 1,857,000
Reserves and other deferrals 78,000 55,500
Depreciation 11,000 3,500
Total deferred tax assets 1,908,000 1,916,000
Valuation allowance (1,908,000) (1,916,000)
$ - $ -
</TABLE>
At November 30, 1996, the Company has net operating loss carryforwards for
tax purposes of approximately $6,063,000. If not used, these carryforwards
will expire in varying amounts during the years 1999 to 2009. Due to changes
in ownership in 1989, the net operating loss carryforwards may be limited in
the amount that can be utilized.
F - 12
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 9 - Related Party Transactions
The Company purchases certain equipment for resale through an exclusive
supplier agreement with a stockholder and former director of the Company.
Purchases were $64,300 and $90,120, in 1996 and 1995, respectively.
Note 10 - Employee Benefit Plan
Effective December 1, 1991, the Company established the Pak Mail 401(k)
Profit Sharing Plan (the Plan). All employees of the Company who are 21
years of age and have completed one year of eligibility service, as defined,
may participate in the Plan. Participants may make tax deferred contributions
in any amount up to the maximum allowable under current federal tax laws. The
Company will contribute an amount equal to 50% of each participant's
contribution, limited to 3% of the participant's compensation as defined in the
Plan. Costs incurred by the Company in connection with the Plan were
approximately $9,200 and $10,500 for the years ended November 30, 1996 and
1995, respectively.
Note 11 - Commitments and Contingencies
Operating Lease Commitments
The Company leases office space and office equipment under noncancelable
operating leases. Aggregate future minimum rental commitments for these
operating leases as of November 30, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ending November 30,
<S> <C>
1997 $ 158,157
1998 154,794
1999 157,776
2000 79,632
$ 550,359
</TABLE>
Rental expense for 1996 and 1995 was approximately $208,000 and $238,000,
respectively.
Note 11 - Commitments and Contingencies (continued)
Litigation
The Company is involved in two claims which arose in the ordinary course of
business with former franchisees in the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position.
F - 13
<PAGE>
EXHIBIT INDEX
Document Page No.
(3)(a) Articles of Incorporation incorporated by
reference to Exhibit (3)(a) of the Company's
Annual Report on Form 10-KSB for the fiscal
year ended November 30, 1995.
(3)(b) Bylaws incorporated by reference to Exhibit (3)(b)
of the Company's Annual Report on Form 10-K dated
March 13, 1992.
(10)(a) Stock Purchase Agreement dated as of July
15, 1990 by and between the Company and John
E. Kelly.
(10)(b) Individual Franchise Agreement.
(10)(c) Agreement by and between Security
Manufacturing Corporation and the Company
dated July 10, 1995.
(10)(d) Pak Mail Centers of America, Inc. Management
Incentive Plan for Fiscal Year 1996.
(21) Subsidiaries of the Registrant.
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of July 15, 1990, by
and between Pak Mail Centers of America, Inc., a Colorado
corporation (the "Company"), and John E. Kelly ("Purchaser").
RECITALS
WHEREAS, Purchaser is the President and Chief Executive
Officer of the Company; and
WHEREAS, the Company desires to issue and sell to Purchaser,
and Purchaser desires to purchase from the Company, 1,000,000
shares of the Company's common stock, par value $.001 per share
(the "Common Stock" );
NOW, THEREFORE, the parties hereto agree as follows:
1. Purchase and Sale of Common Stock. Subject to the
provisions of Paragraph 4 hereof, the Company hereby agrees to
issue and sell to Purchaser, and Purchaser agrees to purchase from
the Company, 1,000,000 shares of Common Stock (the "Shares"), at
a price of $.055 per Share, payable in cash.
2. Timing of Purchases. Shares purchased and sold hereunder
shall be purchased and sold at closings on the following dates and
in the following amounts:
DATE NUMBER OF SHARES
July 15, 1990 200,000
July 15, 1991 200,000
July 15, 1992 200,000
July 15, 1993 200,000
July 15, 1994 200,000
If, prior to July 15, 1994, the Company shall propose to
consolidate or merge into another corporation (other than a
<PAGE>
consolidation or merger to effect a reverse split of the Common
Stock) or liquidate, Purchaser, at his option, shall be entitled
to purchase, prior to the effective time of such consolidation,
merger or liquidation, the number of Shares that Purchaser has not
theretofore purchased pursuant to this Agreement; provided,
however, that in the event Purchaser does not exercise such option,
the obligation to purchase and sell the Shares shall terminate at
the effective time of such consolidation, merger or liquidation.
3. Payment and Delivery of Certificates. At any closing
hereunder, Purchaser will pay the aggregate purchase price for the
Shares to be purchased by delivery of a check to the order of the
Company in the amount of $.055 multiplied by the number of Shares
to be so purchased, and the Company will deliver to Purchaser a
certificate or certificates representing the Shares so purchased,
registered in the name of Purchaser or his designee, in
denominations designated by Purchaser.
4. Effect of Termination of Employment. In the event that
Purchaser's employment with the Company is terminated for any
reason, all Shares previously purchased hereunder by Purchaser
shall remain the property of Purchaser. In the event that
Purchaser's employment with the Company is terminated because of
Purchaser's resignation, this Agreement shall terminate, and there
shall be no further obligation on the part of Purchaser to
purchase, nor on the part of the Company to sell, any further
Shares hereunder. In the event that Purchaser's employment with
the Company is terminated for a reason other than Purchaser's
2
<PAGE>
resignation, this Agreement shall, at the option of Purchaser by
notice given within 30 days of the date of such termination,
continue in full force and effect.
5. Representations and Warranties of the Company. The
Company hereby represents and warrants to Purchaser as follows:
(a) Due Authorization. The Company has the requisite
corporate power and authority to enter into and perform this
Agreement. This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been
duly executed by a duly authorized officer of the Company and is
the valid and binding agreement of the Company.
(b) Shares. The Company has taken all necessary
corporate and other action to authorize and reserve and to permit
it to issue, and at all times from the date hereof until such time
as the obligation to deliver Shares hereunder terminates, will have
reserved for issuance, pursuant to this Agreement, 1,000,000 Shares
(less the number of Shares previously issued and sold pursuant to
this Agreement), all of which Shares, upon issuance pursuant
hereto, shall be duly and validly issued, fully paid and
nonassessable, and shall be delivered free and clear of all claims,
liens, charges, encumbrances and security interests, including any
preemptive right of the shareholders of the Company.
(c) No Conflicts. Neither the execution and delivery
of this Agreement by the Company nor the performance by the Company
of its obligations hereunder will constitute a violation of,
conflict with or result in a default under, any term of the
3
<PAGE>
Articles of Incorporation or Bylaws of the Company or any contract,
commitment, agreement, understanding, arrangement or restriction
of any kind to which the Company is a party or by which it is bound
(or require the consent of any party thereto) or any judgment,
decree or order applicable to the Company. Neither the execution
or delivery of this Agreement nor the performance by the Company
of its obligations hereunder will violate any provision of law
applicable to the Company or require any consent or approval of,
or filing with or notice to, any public body or authority under any
provision of law applicable to the Company.
6. Representations and Warranties of Purchaser. Purchaser
hereby represents and warrants to the Company as follows:
(a) Due Authorization. Purchaser has the requisite
power and authority to enter into and perform this Agreement. This
Agreement is the valid and binding agreement of Purchaser.
(b) Distribution. Any Shares to be acquired hereunder
will not be acquired by Purchaser with a view to the public
distribution thereof and will not be transferred except in a
transaction registered or exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act").
7. Adjustment Upon Changes in Capitalization. In the event
of any change in the outstanding Shares by reason of stock
dividends, stock splits, mergers, recapitalizations,
reclassifications, combinations, conversions, exchanges of shares
or the like, the number and kind of shares or securities subject
4
<PAGE>
to this Agreement and the purchase price per Share shall be
appropriately adjusted.
8. Miscellaneous.
(a) Amendments. This Agreement may not be modified,
amended, altered or supplemented, except upon the execution and
delivery of a written agreement executed by the parties hereto.
(b) Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be
given (and shall be deemed to have been duly received if so given)
by delivery, by cable, telegram or telex, or by registered or
certified mail, postage prepaid, return receipt requested, to the
respective parties as follows:
If to the Company: Pak Mail Centers of America, Inc.
10555 E. Dartmouth Avenue
Suite 360
Aurora, Colorado 80014
Attn- Secretary
If to Purchaser: John E. Kelly
c/o Pak Mail Centers of America, Inc.
10555 E. Dartmouth Avenue
Suite 360
Aurora, Colorado 80014
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change or address shall only be effective upon receipt.
(c) Governinq Law. This Agreement shall be
governed by and construed in accordance with the substantive law
of the State of Colorado without giving effect to the principles
of conflicts of laws thereof.
(d) Severability. If any term, provision, covenant
5
<PAGE>
or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions of this
Agreement shall continue in full force and effect and shall in no
way be affected, impaired or invalidated.
(e) Counterparts. This Agreement may be executed
in several counterparts, each of which shall be an original, but
all of which together shall constitute one and the same agreement.
(f) Effect of Headings. The paragraph headings
herein are for convenience only and shall not affect the
construction hereof.
(g) Assignment. This Agreement shall be binding
upon each party hereto and such party's successors and assigns.
This Agreement shall not be assignable by either party hereto
without the prior written consent of the other party.
(h) Waiver. Any failure of either of the parties
to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof
only by a written instrument signed by the party granting such
waiver, but such waiver or failure to insist upon strict compliance
with such obligation, covenant, agreement or condition shall not
6
<PAGE>
operate as a waiver of, or estoppel with respect to, any subsequent
or other failure.
IN WITNESS WHEREOF, the Company and Purchaser have caused
this Agreement to be duly executed as of the day and year first
above written.
/s/ John E. Kelly
John E. Kelly
PAK MAIL CENTERS OF AMERICA, INC.
By /s/ P. Evan Lasky
P. Evan Lasky
Its Vice President
PAK MAIL CENTERS OF AMERICA, INC.
FRANCHISE AGREEMENT
Franchisee:
Date:
Franchised Location:
PAK MAIL CENTERS OF AMERICA, INC.
FRANCHISE AGREEMENT
TABLE OF CONTENTS
1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. GRANT OF FRANCHISE. . . . . . . . . . . . . . . . . . . . . . . . 1
2.1. Grant of Franchise . . . . . . . . . . . . . . . . . . . . . 1
2.2. Scope of Franchise Operations. . . . . . . . . . . . . . . . 1
3. FRANCHISED LOCATION AND TERRITORIAL RIGHTS. . . . . . . . . . . . 2
3.1. Franchised Location. . . . . . . . . . . . . . . . . . . . . 2
3.2. Protected Territory. . . . . . . . . . . . . . . . . . . . . 2
3.3. Limitation on Franchise Rights . . . . . . . . . . . . . . . 2
3.4. Franchisor's Reservation of Rights . . . . . . . . . . . . . 2
4. INITIAL FRANCHISE FEE . . . . . . . . . . . . . . . . . . . . . . 3
4.1. Initial Franchise Fee. . . . . . . . . . . . . . . . . . . . 3
5. DEVELOPMENT OF FRANCHISED LOCATION. . . . . . . . . . . . . . . . 3
5.1. Approval of Franchised Location. . . . . . . . . . . . . . . 3
5.2. Approval of Lease. . . . . . . . . . . . . . . . . . . . . . 3
5.3. Conversion and Design. . . . . . . . . . . . . . . . . . . . 3
5.4. Signs. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.5. Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.6. Permits and Licenses . . . . . . . . . . . . . . . . . . . . 4
5.7. Commencement of Operations . . . . . . . . . . . . . . . . . 5
6. TRAINING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.1. Initial Training Program . . . . . . . . . . . . . . . . . . 5
6.2. Length of Training . . . . . . . . . . . . . . . . . . . . . 5
6.3. Additional Training. . . . . . . . . . . . . . . . . . . . . 5
7. DEVELOPMENT ASSISTANCE . . . . . . . . . . . . . . . . . . . . . 6
7.1. Franchisor's Development Assistance. . . . . . . . . . . . . 6
8. OPERATIONS MANUAL . . . . . . . . . . . . . . . . . . . . . . . . 7
8.1. Operations Manual. . . . . . . . . . . . . . . . . . . . . . 7
8.2. Confidentiality of Operations Manual
Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.3. Changes to Operations Manual . . . . . . . . . . . . . . . . 7
9. OPERATING ASSISTANCE. . . . . . . . . . . . . . . . . . . . . . . 8
9.1. Franchisor's Services. . . . . . . . . . . . . . . . . . . . 8
9.2. Additional Franchisor Services . . . . . . . . . . . . . . . 8
10. FRANCHISEE'S OPERATIONAL COVENANTS. . . . . . . . . . . . . . . . 9
10.1. Business Operations . . . . . . . . . . . . . . . . . . 9
11. ROYALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.1. Monthly Royalty . . . . . . . . . . . . . . . . . . . . 11
11.2. Gross Revenues. . . . . . . . . . . . . . . . . . . . . 11
11.3. Royalty Payments. . . . . . . . . . . . . . . . . . . . 11
11.4. Application of Payments . . . . . . . . . . . . . . . . 12
12. ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12.1. Approval of Advertising . . . . . . . . . . . . . . . . 12
12.2. Marketing Material Beginning Inventory. . . . . . . . . 12
12.3. Advertising Contribution. . . . . . . . . . . . . . . . 12
12.4. Regional Advertising Programs . . . . . . . . . . . . . 14
13. QUALITY CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . 15
13.1. Compliance with Operations Manual . . . . . . . . . . . 15
13.2. Standards and Specifications. . . . . . . . . . . . . . 15
13.3. Inspections . . . . . . . . . . . . . . . . . . . . . . 15
13.4. Restrictions on Services and Products . . . . . . . . . 15
13.7. Shopping Service. . . . . . . . . . . . . . . . . . . . 16
14. MARKS, TRADE NAMES AND PROPRIETARY INTERESTS. . . . . . . . . . . 16
14.1. Marks . . . . . . . . . . . . . . . . . . . . . . . . . 16
14.2. No Use of Other Marks . . . . . . . . . . . . . . . . . 16
14.3. System. . . . . . . . . . . . . . . . . . . . . . . . . 17
14.4. Mark Infringement . . . . . . . . . . . . . . . . . . . 17
14.5. Franchisee's Business Name. . . . . . . . . . . . . . . 17
14.6. Change of Marks . . . . . . . . . . . . . . . . . . . . 17
15. REPORTS, RECORDS AND FINANCIAL STATEMENTS . . . . . . . . . . . . 18
15.1. Franchisee Reports. . . . . . . . . . . . . . . . . . . 18
15.2. Verification. . . . . . . . . . . . . . . . . . . . . . 18
15.3. Books and Records . . . . . . . . . . . . . . . . . . . 19
15.4. Audit of Books and Records. . . . . . . . . . . . . . . 19
16. TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
16.1. Transfer by Franchisee. . . . . . . . . . . . . . . . . 19
16.2. Pre-Conditions to Franchisee's Transfer . . . . . . . . 19
16.3. Franchisor's Approval of Transfer . . . . . . . . . . . 20
16.4. Right of First Refusal. . . . . . . . . . . . . . . . . 21
16.5. Specific Types of Transfers . . . . . . . . . . . . . . 22
16.6. Assignment by the Franchisor. . . . . . . . . . . . . . 22
16.7. Franchisee's Death or Disability. . . . . . . . . . . . 22
17. TERM AND EXPIRATION . . . . . . . . . . . . . . . . . . . . . . . 23
17.1. Term. . . . . . . . . . . . . . . . . . . . . . . . . . 23
17.2. Rights Upon Expiration. . . . . . . . . . . . . . . . . 23
17.3. Exercise of Option for Successor
Franchise. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
17.4. Conditions of Refusal . . . . . . . . . . . . . . . . . 23
18. DEFAULT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . 24
18.1. Termination by Franchisee . . . . . . . . . . . . . . . 24
18.2. Termination by Franchisor - Effective
Upon Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
18.3. Termination by Franchisor - Thirty Days
Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
18.4. Right to Purchase.. . . . . . . . . . . . . . . . . . . 26
18.5. Obligations of Franchisee Upon
Termination or Expiration. . . . . . . . . . . . . . . . . . . . 27
18.6. State and Federal Law . . . . . . . . . . . . . . . . . 28
19. BUSINESS RELATIONSHIP . . . . . . . . . . . . . . . . . . . . . . 29
19.1. Independent Businesspersons . . . . . . . . . . . . . . 29
19.2. Payment of Third Party Obligations. . . . . . . . . . . 29
19.3. Indemnification . . . . . . . . . . . . . . . . . . . . 29
20. RESTRICTIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 29
20.1. Non-Competition During Term . . . . . . . . . . . . . . 29
20.2. Post-Termination Covenant Not to Compete. . . . . . . . 30
20.3. Confidentiality of Proprietary
Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
20.4. Confidentiality Agreement . . . . . . . . . . . . . . . 31
21. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
21.1. Insurance Coverage. . . . . . . . . . . . . . . . . . . 31
21.2. Proof of Insurance Coverage . . . . . . . . . . . . . . 31
22. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . 32
22.1. Governing Law/Consent to Venue and
Jurisdiction.. . . . . . . . . . . . . . . . . . . . . . . . . . 32
22.2. Modification. . . . . . . . . . . . . . . . . . . . . . 32
22.3. Entire Agreement. . . . . . . . . . . . . . . . . . . . 32
22.4. Delegation by the Franchisor. . . . . . . . . . . . . . 32
22.5. Effective Date. . . . . . . . . . . . . . . . . . . . . 33
22.6. Review of Agreement . . . . . . . . . . . . . . . . . . 33
22.7. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . 33
22.8. Injunctive Relief . . . . . . . . . . . . . . . . . . . 33
22.9. No Waiver . . . . . . . . . . . . . . . . . . . . . . . 33
22.10. No Right to Set Off . . . . . . . . . . . . . . . . . . 33
22.11. Invalidity. . . . . . . . . . . . . . . . . . . . . . . 33
22.12. Notices . . . . . . . . . . . . . . . . . . . . . . . . 33
22.13. Acknowledgement . . . . . . . . . . . . . . . . . . . . 34
EXHIBITS
I. Addendum to Franchise Agreement - Location
Approval
II. Personal Guaranty
III. Statement of Ownership
PAK MAIL CENTERS OF AMERICA, INC.
FRANCHISE AGREEMENT
THIS AGREEMENT (the "Agreement") is made this
____ day of ________, 199__, by and between PAK MAIL
CENTERS OF AMERICA, INC., a Colorado corporation,
located at 3033 S. Parker Road, Suite 1200, Aurora,
Colorado 80014 (the "Franchisor") and
, located
at
(the "Franchisee"), who, on the
basis of the following understandings and agreements,
agree as follows:
1. PURPOSE
1.1. The Franchisor has developed methods for
establishing, operating and promoting stores offering
a variety of packaging, shipping, crating, freight
forwarding, mailing and communications services ("PAK
MAIL Centers" or "Centers") which use the service mark
"PAK MAIL" and related trade names and trademarks
("Marks") and the Franchisor's proprietary methods of
doing business ("System").
1.2. The Franchisor grants the right to others
to develop and operate a PAK MAIL Center, under the
Marks and pursuant to the System.
1.3. The Franchisee desires to establish a PAK
MAIL Center at a location identified herein or to be
later identified, and the Franchisor desires to grant
the Franchisee the right to operate a PAK MAIL Center
at such location under the terms and conditions which
are contained in this Agreement.
2. GRANT OF FRANCHISE
2.1. Grant of Franchise. The Franchisor
grants to the Franchisee, and the Franchisee accepts
from the Franchisor, the right to use the Marks and
System in connection with the establishment and
operation of a PAK MAIL Center, at the location
described in Article 3 of this Agreement. The
Franchisee agrees to use the Marks and System, as they
may be changed, improved, and further developed by the
Franchisor from time to time, only in accordance with
the terms and conditions of this Agreement.
2.2. Scope of Franchise Operations. The
Franchisee agrees at all times to faithfully, honestly
and diligently perform the Franchisee's obligations
hereunder, and to continuously use best efforts to
promote the PAK MAIL Center. The Franchisee agrees to
utilize the Marks and System to operate all aspects of
the business franchised hereunder in accordance with
the methods and systems developed and prescribed from
time to time by the Franchisor, all of which are a
part of the System. The Franchisee's PAK MAIL Center
shall offer all products and services as the
Franchisor shall designate and shall be restricted
from offering or selling any products and services not
previously approved by the Franchisor in writing.
3. FRANCHISED LOCATION AND TERRITORIAL RIGHTS
3.1. Franchised Location. The Franchisee is
granted the right and franchise to own and operate a
PAK MAIL Center at the address and location which
shall be set forth in Exhibit I, attached hereto
("Franchised Location"). If, at the time of execution
of this Agreement, the Franchised Location cannot be
designated as a specific address because a location
has not been selected and approved, then the
Franchisee shall promptly take steps to choose and
acquire a location for its PAK MAIL Center within the
Designated Area, set forth in Exhibit I. In such
circumstances, the Franchisee shall select and propose
to the Franchisor for the Franchisor's prior approval
a specific location for the Franchised Location which,
once approved by the Franchisor, shall hereinafter be
set forth in the rider to Exhibit I.
3.2. Protected Territory. So long as the
Franchisee is in compliance with this Agreement, the
Franchisor shall not establish or license another
person or entity to establish a PAK MAIL Center within
a certain geographic area as set forth in Exhibit I
("Protected Territory").
3.3. Limitation on Franchise Rights. The
rights that are granted to the Franchisee are for the
specific Franchised Location and Protected Territory
and cannot be transferred to an alternative Franchised
Location or Protected Territory, or any other
location, without the prior written approval of the
Franchisor, which approval shall not be unreasonably
withheld. The Franchisee shall not operate another
Center or offer services which are part of the System
at any site other than the Franchised Location without
the Franchisor's prior written approval, which
approval can be withheld for any reason, in the
Franchisor's sole discretion.
3.4. Franchisor's Reservation of Rights. The
Franchisee acknowledges that its franchise rights as
granted are non-exclusive and that the Franchisor
retains the rights, among others: (1) to use, and to
license others to use, the Marks and System in
connection with the operation of a Pak Mail Center, at
any location other than in the Protected Territory;
(2) to use the Marks to identify other services and
products other than those which the Franchisee sells,
promotional and marketing efforts or related items, or
to identify services and products made available
through alternative channels of distribution, at any
location; and (3) to use and license the use of other
proprietary marks or methods in connection with the
sale of products and services similar to those which
the Franchisee will sell, whether in alternative
channels of distribution or in connection with the
operation of packaging and mailing businesses at any
location, which businesses are the same as, or similar
to, or different from PAK MAIL Centers, on any terms
and conditions as the Franchisor deems advisable.
4. INITIAL FRANCHISE FEE
4.1. Initial Franchise Fee. In consideration
for the right to develop and operate one PAK MAIL
Center, the Franchisee agrees to pay to the Franchisor
an initial franchise fee of $22,950 as of the date of
execution of this Agreement. The Franchisee
acknowledges and agrees that the initial franchise fee
represents payment for the initial grant of the rights
to use the Marks and System, that the Franchisor has
earned the initial franchise fee upon receipt thereof
and that the fee is under no circumstances refundable
to the Franchisee after it is paid, unless otherwise
specifically set forth in this Agreement.
5. DEVELOPMENT OF FRANCHISED LOCATION
5.1. Approval of Franchised Location. The
Franchisee shall follow the Franchisor's site
selection procedures in locating a Franchised Location
for the PAK MAIL Center. The Franchisee shall seek
the Franchisor's approval of any site proposed as a
Franchised Location, by submitting a complete site
submittal package, including demographics and other
materials requested by the Franchisor, containing all
information reasonably required by the Franchisor to
assess a proposed Franchised Location. The Franchisor
will not unreasonably withhold approval of a proposed
site that meets all of the Franchisor's site selection
criteria.
5.2. Approval of Lease. The Franchisee shall
obtain the Franchisor's prior written approval before
executing any lease or purchase agreement for the
Franchised Location. Any lease for the Franchised
Location shall, at the option of the Franchisor,
contain a provision: (1) allowing for assignment of
the lease to the Franchisor in the event that this
Agreement is terminated or not renewed for any reason;
(2) giving the Franchisor the right to cure any
default by the Franchisee under such lease; and (3)
providing the Franchisor with the right, exercisable
upon and as a condition of the approval of the
Franchised Location, to execute the lease agreement or
other document providing entitlement to the use of the
Franchised Location in its own name or jointly with
the Franchisee as lessee and, upon the exercise of
such option, the Franchisor shall provide the
Franchisee with the right to use the premises as its
sublessee, assignee, or other similar capacity upon
the same terms and conditions as obtained by the
Franchisor. The lease shall be collaterally assigned
to the Franchisor as security for the Franchisee's
timely performance of all obligations under this
Agreement; the Franchisee shall obtain the lessor's
consent to such collateral assignment. The Franchisee
shall deliver a copy of the signed lease for the
Franchised Location to the Franchisor within 15 days
of its execution. The Franchisee acknowledges that
approval of a lease for the Franchised Location by the
Franchisor does not constitute a recommendation,
endorsement or guarantee by the Franchisor of the
suitability or profitability of the location or the
lease and the Franchisee should take all steps
necessary to ascertain whether such location and lease
are acceptable to the Franchisee.
5.3. Conversion and Design. The Franchisee
acknowledges that the layout, design, decoration and
color scheme of PAK MAIL Centers are an integral part
of the Franchisor's proprietary System and
accordingly, the Franchisee shall convert, design and
decorate the Franchised Location in accordance with
the Franchisor's plans and specifications and with the
assistance of contractors and suppliers designated by
or otherwise approved by the Franchisor. The
Franchisee shall obtain the Franchisor's written
consent to any conversion, design or decoration of the
premises before remodeling or decorating begins,
recognizing that any related costs are the Fran-
chisee's sole responsibility. It shall be the
Franchisee's responsibility to have prepared all
required construction plans and specifications to suit
the shape and dimensions of the Franchised Location
and to insure compliance with applicable laws and the
lease.
5.4. Signs. The Franchisee shall purchase or
otherwise obtain for use at the Franchised Location
and in connection with the PAK MAIL Center signs which
comply with the standards and specifications of the
Franchisor as set forth in the Operations Manual, as
that term is defined in Section 8.1. It is the
Franchisee's sole responsibility to insure that any
signs comply with applicable local ordinances, mall
regulations, building codes and zoning regulations.
Any modifications to the Franchisor's standards and
specifications for signs which must be made due to
local ordinances, codes or regulations shall be
submitted to the Franchisor for prior written
approval. The Franchisee acknowledges the Marks, or
any other name, symbol or identifying marks on any
signs shall only be used in accordance with the
Franchisor's standards and specifications and only
with the prior written approval of the Franchisor.
5.5. Equipment. The Franchisee shall purchase
or otherwise obtain for use at the Franchised Location
equipment of a type and in an amount which complies
with the standards and specifications of the
Franchisor. The Franchisee acknowledges that the
type, quality, configuration, capability and/or
performance of the equipment are all standards and
specifications which are a part of the System and
therefore such equipment must be purchased, leased, or
otherwise obtained in accordance with the Franchisor's
standards and specifications and only from sources
approved by the Franchisor. The Franchisee shall
equip the Center with point-of-sale systems, computer
hardware and software, copiers, facsimile machines and
mailboxes and other designated equipment as is
consistent with the standards and specifications of
the Franchisor.
5.6. Permits and Licenses. The Franchisee
agrees to obtain all such permits and certifications
as may be required for the lawful construction and
operation of the PAK MAIL Center together with all
certifications from government authorities having
jurisdiction over the site that all requirements for
construction and operation have been met, including
without limitation, zoning, access, sign, health,
safety requirements, building and other required
construction permits, licenses to do business and
fictitious name registrations, sales tax permits,
health and sanitation permits and ratings and fire
clearances. The Franchisee agrees to obtain all
customary contractors' sworn statements and partial
and final lien waivers for construction, remodeling,
decorating and installation of equipment at the
Franchised Location. Copies of all subsequent
inspection reports, warnings, certificates and ratings
issued by any governmental entity during the term of
this Agreement in connection with the conduct of the
PAK MAIL Center which indicates the Franchisee's
failure to meet or maintain the highest governmental
standards, or less than full compliance by the
Franchisee with any applicable law, rule or
regulation, shall be forwarded to the Franchisor
within five days of the Franchisee's receipt thereof.
5.7. Commencement of Operations. Unless
otherwise agreed to in writing by the Franchisor and
the Franchisee, the Franchisee has 180 days from the
date of this Agreement within which to: (1) secure
all necessary financing for the Center; (2) complete
the initial training program described in Section 6.1
of this Agreement; (3) select, lease and develop the
Franchised Location; (4) purchase an opening inventory
of materials and supplies; (5) obtain and provide
evidence of insurance as described in Section 21.1
below; and (6) commence operation of the PAK MAIL
Center. The Franchisor will extend the time in which
the Franchisee has to commence operations for a
reasonable period of time in the event factors beyond
the Franchisee's reasonable control prevent the
Franchisee from meeting this development schedule, so
long as the Franchisee has made reasonable and
continuing efforts to comply with such development
obligations and the Franchisee requests, in writing,
an extension of time in which to have its PAK MAIL
Center established before such development period
lapses. The Franchisee shall obtain the Franchisor's
approval prior to opening the Center for business.
6. TRAINING
6.1. Initial Training Program. The Franchisee
or, if the Franchisee is not an individual, the person
designated by the Franchisee to assume primary
responsibility for the management of the PAK MAIL
Center ("Principal Operator"), is required to attend
and successfully complete the initial training program
which is offered by the Franchisor at one of the
Franchisor's designated training facilities. Up to
two individuals are eligible to participate in the
Franchisor's initial training program without charge
of a tuition or fee. The Franchisee shall be
responsible for any and all traveling and living
expenses incurred in connection with attendance at the
training program. At least one individual must
successfully complete the initial training program
prior to the Franchisee's commencement of operation of
its PAK MAIL Center.
6.2. Length of Training. The initial training
program shall consist of a total of 12 days, nine of
which shall be classroom instruction at a location
designated by the Franchisor and three of which shall
be on-site at the Franchised Location at or around the
time the Center opens for business. The Franchisee,
and if applicable, the Principal Operator, shall
attend the on-site training at the Franchised
Location. The Franchisor reserves the right to waive
a portion of the training program or alter the
training schedule, if in the Franchisor's sole
discretion, the Franchisee or Principal Operator has
sufficient prior experience or training.
6.3. Additional Training. From time to time,
the Franchisor may present seminars, conventions or
continuing development programs or conduct meetings
for the benefit of the Franchisee. The Franchisee or
its Principal Operator shall be required to attend any
ongoing mandatory seminars, conventions, programs or
meetings as may be offered by the Franchisor. The
Franchisor shall give the Franchisee at least 30 days
prior written notice of any ongoing seminar,
convention or program which is deemed mandatory. The
Franchisor shall not require that the Franchisee
attend any ongoing training more often than once a
year. All mandatory training will be offered without
charge of a tuition or fee; provided, however, the
Franchisee will be responsible for all traveling and
living expenses which are associated with attendance
at the same.
7. DEVELOPMENT ASSISTANCE
7.1. Franchisor's Development Assistance. The
Franchisor shall provide the Franchisee with
assistance in the initial establishment of the PAK
MAIL Center as follows:
a. Provision of the initial training program
to be conducted at the Franchisor's designated
training facilities or at another location
designated by the Franchisor, as described in
Article 6 above.
b. Provision of written specifications for a
Franchised Location which shall include, without
limitation, specifications for space
requirements, build out and the demographics and
character of the surrounding market area. The
Franchisee acknowledges that the Franchisor shall
have no other obligation to provide assistance in
the selection and approval of a Franchised
Location other than the provision of such written
specifications and approval or disapproval of a
proposed Franchised Location, which approval or
disapproval shall be based on information
submitted to the Franchisor in a form sufficient
to assess the proposed location as may be
reasonably required by the Franchisor.
c. Directives regarding the required
conversion, design and decoration of the PAK MAIL
Center premises, plus specifications concerning
signs, decor, color, equipment, machines,
uniforms and equipment.
d. Information regarding the selection of
suppliers of equipment, items and materials used
and inventory and services offered for sale in
connection with the PAK MAIL Center. After
execution of this Agreement, the Franchisor will
provide the Franchisee with a list of approved
suppliers, if any, of such equipment, items,
materials, inventory and services and, if
available, a description of any national or
central purchase and supply agreements offered by
such approved suppliers for the benefit of PAK
MAIL franchisees.
e. Provision of an operations manual in
accordance with Section 8.1 below.
f. The Franchisor will make available to the
Franchisee at or around the commencement of
operations of the Franchisee's PAK MAIL Center a
representative to be present for three days
during the initial operation of the Franchisee's
PAK MAIL Center. The representative will assist
the Franchisee's employees in the initial
operation of the Center at a time scheduled by
the Franchisor, unless in the Franchisor's
determination, the Franchisee or the Principal
Operator have had sufficient prior training or
experience.
g. The Franchisor will grant the Franchisee
a non-exclusive, non-transferable license to use
certain proprietary computer programs and related
materials developed for use in the operation of
Pak Mail Centers ("Program") in accordance with
the terms of the Franchisor's standard Software
License Agreement ("Software License Agreement").
The Franchisee will use the Program in accordance
with the terms of the Software License Agreement,
including using certain computer equipment
designated by the Franchisor as meeting its
specifications ("Designated Equipment").
8. OPERATIONS MANUAL
8.1. Operations Manual. The Franchisor agrees
to provide to the Franchisee one or more manuals,
technical bulletins, or other written materials
(collectively referred to as "Operations Manual")
covering certain standards and specifications for
packaging, shipping, crating, freight forwarding,
mailing and communications services and other
operating and marketing techniques for the PAK MAIL
Center. The Franchisee agrees that it shall comply
with the Operations Manual as an essential aspect of
its obligations under this Agreement and failure by
the Franchisee to substantially comply with the
Operations Manual may be considered by the Franchisor
to be a breach of this Agreement.
8.2. Confidentiality of Operations Manual
Contents. The Franchisee agrees to use the Marks and
System only as specified in the Operations Manual.
The Operations Manual is the sole property of the
Franchisor and shall be used by the Franchisee only
during the term of this Agreement and in strict
accordance with the terms and conditions hereof. The
Franchisee shall not duplicate the Operations Manual
nor disclose its contents to persons other than its
employees or officers who have signed a
confidentiality and noncompetition agreement in a form
approved by the Franchisor. The Franchisee shall
return the Operations Manual to the Franchisor upon
the expiration, termination or assignment of this
Agreement.
8.3. Changes to Operations Manual. The
Franchisor reserves the right to revise the Operations
Manual from time to time as it deems necessary to
update or change operating and marketing techniques or
standards and specifications. The Franchisee, upon
receipt of any updated information, shall update its
copy of the Operations Manual as instructed by the
Franchisor and shall conform its operations with the
updated provisions within a reasonable time
thereafter. The Franchisee acknowledges that a master
copy of the Operations Manual maintained by the
Franchisor at its principal office shall be
controlling in the event of a dispute relative to the
content of any Operations Manual.
9. OPERATING ASSISTANCE
9.1. Franchisor's Services. The Franchisor
agrees that, during the Franchisee's operation of the
PAK MAIL Center, the Franchisor shall make available
to the Franchisee the following services:
a. Upon the reasonable request of the
Franchisee, consultation by telephone, facsimile
or electronic mail, regarding the continued
operation and management of a PAK MAIL Center and
advice regarding the packaging and shipping
services, quality control, inventory issues,
customer and supplier relations issues and
similar advice.
b. Access to advertising and promotional
materials as may be developed by the Franchisor,
the cost of which may be passed on to the
Franchisee, at the Franchisor's option.
c. On-going updates of information and
programs regarding the packaging and shipping
industry, the competition, the PAK MAIL concept
and the System, including, without limitation,
information about special or new products which
may be developed and made available to PAK MAIL
franchisees as a part of the System.
d. The Franchisor shall make the initial
training program available to replacement or
additional Principal Operators during the term of
this Agreement. The Franchisee shall be
responsible for all travel and living expenses
incurred by its personnel during the training
program. The availability of the training
programs shall be subject to space considerations
and prior commitments to new PAK MAIL franchi-
sees.
9.2. Additional Franchisor Services. Although
not obligated to do so, the Franchisor may make its
employees or designated agents available to the
Franchisee for on-site advice and assistance in
connection with the on-going operation of the PAK MAIL
Center governed by this Agreement.
10. FRANCHISEE'S OPERATIONAL COVENANTS
10.1. Business Operations. The Franchisee
acknowledges that it is solely responsible for the
successful operation of its PAK MAIL Center and that
the continued successful operation thereof is, in
part, dependent upon the Franchisee's compliance with
this Agreement and the Operations Manual. In addition
to all other obligations contained in this Agreement
and in the Operations Manual, the Franchisee covenants
that:
a. The Franchisee shall maintain clean,
efficient and high quality PAK MAIL Center
operations and shall operate the business in
accordance with the Operations Manual and in such
a manner as not to detract from or adversely
reflect upon the name and reputation of the
Franchisor and the goodwill associated with the
PAK MAIL name and Marks.
b. The Franchisee will conduct itself and
operate its PAK MAIL Center in compliance with
all applicable laws, health department
regulations and other ordinances and in such a
manner so as to promote a good public image in
the business community. In connection therewith,
the Franchisee will be solely and fully
responsible for obtaining any and all licenses to
carry on business at the PAK MAIL Center.
c. The Franchisee acknowledges that proper
management of the PAK MAIL Center is important
and shall insure that the Franchisee or a
designated Principal Operator who has completed
the Franchisor's initial training program be
responsible for the management of the PAK MAIL
Center.
d. The Franchisee shall offer only products
and services through its Center which meet or
exceed the minimum standards and specifications
established by the Franchisor more fully
described in the Operations Manual. The
Franchisee shall offer all types of products and
services as from time to time may be prescribed
by the Franchisor and shall refrain from offering
any other types of products or services, or
operating or engaging in any other type of
business or profession, from or through the PAK
MAIL Center.
e. The Franchisee will pay on a timely basis
all amounts due and owing to the Franchisor
pursuant to any separate agreements between the
Franchisee and the Franchisor and all amounts due
and owing by the Franchisee to all third parties,
including national vendors and taxing
authorities, with whom the Franchisee does
business at or through the Center. In connection
with any amounts due and owing by the Franchisee
to third parties, the Franchisee expressly
acknowledges that a default by the Franchisee
with respect to such indebtedness may be
considered a default hereunder and the Franchisor
may avail itself of all remedies provided for
herein in the event of default.
f. The Franchisee shall comply with all
agreements with third parties related to the PAK
MAIL Center including, in particular, all
provisions of any premises lease and the Software
License Agreement.
g. The Franchisee and all employees of the
Franchisee shall present a professional
appearance, as described in the Operations
Manual, and shall render competent and courteous
service to customers of the PAK MAIL Center while
working at the Franchised Location. The
Franchisee is required, at the Franchisee's
expense, to purchase specified wearing apparel
from suppliers approved by the Franchisor. All
Principal Operators, employees of the Franchisee,
the Franchisee and its owners, shall wear the
specified uniform at all times while working at
the Franchised Location. The Franchisor has the
right, in its sole and absolute discretion, to
change or modify such dress code guidelines.
h. The Franchisee agrees to renovate,
refurbish, remodel or replace, at its own
expense, the real and personal property and
equipment used in the operation of the PAK MAIL
Center, when reasonably required by the
Franchisor in order to comply with the image,
standards of operation and performance capability
established by the Franchisor from time to time.
If the Franchisor changes its image or standards
of operation, it shall give the Franchisee a
reasonable period of time within which to comply
with such changes.
i. The Franchisee shall be responsible for
training all of its employees who work in any
capacity in the PAK MAIL Center and shall be
fully responsible for all employees' compliance
with the operational standards which are part of
the System. The Franchisee must conduct its
employee training in the manner and according to
the standards as prescribed in the Operations
Manual. Any employee who does not satisfactorily
complete the training shall not work in any
capacity in the Franchisee's PAK MAIL Center.
j. The Franchisee shall at all times during
the term of this Agreement own and control the
PAK MAIL Center authorized hereunder. Upon
request of the Franchisor, the Franchisee shall
promptly provide satisfactory proof of such
ownership to the Franchisor. The Franchisee
represents that the Statement of Ownership,
attached hereto as Exhibit III and by this
reference incorporated herein, is true, complete,
accurate and not misleading, and, in accordance
with the information contained in the Statement
of Ownership, the controlling ownership of the
PAK MAIL Center is held by the Franchisee. The
Franchisee shall promptly provide the Franchisor
with a written notification if the information
contained in the Statement of Ownership changes
at any time during the term of this Agreement and
shall comply with the applicable transfer
provisions contained in Article 16 herein. In
addition, if the Franchisee is an entity, all of
the owners of the Franchisee shall sign the
Personal Guaranty attached hereto as Exhibit II.
k. The Franchisee shall at all times during
the term of this Agreement keep its PAK MAIL
Center open during the business hours as may be
designated by the Franchisor from time to time in
the Operations Manual and shall maintain
sufficient supplies of products and employ
adequate personnel at all times so as to operate
the Center at its maximum capacity and
efficiency.
11. ROYALTIES
11.1. Monthly Royalty. The Franchisee agrees
to pay to the Franchisor a monthly royalty ("Royalty")
equal to 5% of the total amount of its "Gross
Revenues" (defined in Section 11.2 below) for the
first $200,000 of the Center's Gross Revenues, 4 1/2% for
the next $50,000 of the Center's Gross Revenues, 4%
for the next $50,000 of the Center's Gross Revenues,
3 1/2% for the next $50,000 of the Center's Gross
Revenues, and 3% for all subsequent Gross Revenues of
the Center received in that calendar year.
11.2. Gross Revenues. "Gross Revenues" shall
mean and include the aggregate amount of all sales of
services, products or merchandise of every kind or
nature performed, sold from, at or in connection with
the operation of the Center or arising out of the
operation or conduct of business by the Center,
including sales made at or away from the Center,
whether for cash or credit, but excluding all:
(i) federal, state or municipal sales or service taxes
collected from customers and paid to the appropriate
taxing authority; (ii) income generated from the sale
of postage stamps; (iii) key deposits; and (iv) other
exclusions as may be authorized in writing by the
Franchisor.
11.3. Royalty Payments. Royalty payments shall
be made monthly and sent to the Franchisor, postmarked
or otherwise transmitted no later than the 10th day of
each month based on Gross Revenues for the immediately
preceding month. Royalty payments shall be
accompanied by monthly reports, as more fully
described in Article 15 hereof, on standard
transmittal forms containing information regarding the
Franchisee's Gross Revenues and such additional
information as may be requested by the Franchisor.
The Franchisor reserves the right to require Royalty
payments be made on a weekly or bi-weekly basis if the
Franchisee does not timely or fully submit the
required payments or reports. The Franchisor shall
have the right to verify such Royalty payments from
time to time as it deems necessary, in any reasonable
manner. In the event that the Franchisee fails to pay
any Royalties when they are due, the Franchisee shall,
in addition to such Royalties, owe interest after the
due date at the highest applicable legal rate for open
account business credit, not to exceed 1 1/2% per month.
The Franchisee acknowledges that this Section 11.3
shall not constitute the Franchisor's or its
affiliates' agreement to accept such payments after
they are due or a commitment to extend credit to or
otherwise finance operation of the Center. The
Franchisor reserves the right to automatically assess
a $50 late charge for any report and/or financial
statement required under Section 10 below which is not
timely filed by the Franchisee. Such late charge
shall continue to accrue each month that said
report(s) and financial statement(s) remain unfiled,
and shall be due and payable in full upon demand by
the Franchisor. In the event such late charge(s)
is/are not paid upon demand, the Franchisor may elect
to pursue its remedies as further set forth in this
Agreement. In no event shall the Franchisee be
required to pay a late payment and/or interest at a
rate greater than the maximum interest rate permitted
by applicable law.
11.4. Application of Payments. Notwithstanding
any designation by the Franchisee, the Franchisor
shall have sole discretion to apply any payments by
the Franchisee, and any credits received by the
Franchisor on the Franchisee's behalf from third party
vendors, to any of Franchisee's past due indebtedness
to Franchisor for Royalties, Advertising Contribu-
tions, purchases from the Franchisor or its affili-
ates, interest or any other indebtedness.
12. ADVERTISING
12.1. Approval of Advertising. The Franchisee
shall obtain the Franchisor's prior written approval
of all written advertising or other marketing or
promotional programs regarding the PAK MAIL Center,
including, without limitation, "Yellow Pages"
advertising, newspaper ads, flyers, brochures,
coupons, direct mail pieces, specialty and novelty
items and radio and television advertising. The
Franchisee shall also obtain the Franchisor's prior
written approval before using any promotional
materials as may be provided by vendors. The proposed
written advertising or a description of the marketing
or promotional program shall be submitted to the
Franchisor at least 30 days prior to publication,
broadcast or use. The Franchisee acknowledges that
advertising and promoting the PAK MAIL Center in
accordance with the Franchisor's standards and
specifications is an essential aspect of the System,
and the Franchisee agrees to comply with all
advertising standards and specifications. The
Franchisee shall display all required promotional
materials, signs, point of purchase displays and other
marketing materials in its PAK MAIL Center and in the
manner prescribed by the Franchisor.
12.2. Marketing Material Beginning Inventory.
If this Agreement governs the first Center to be
opened and operated by the Franchisee, then the
Franchisee shall pay to the Franchisor and other
suppliers a nonrefundable, nonrecurring fee for
marketing material beginning inventory ("Marketing
Material Beginning Inventory") in an amount between
$571 and $890 for Franchisor's provision of a
beginning inventory of marketing material for the
Franchisee's PAK MAIL Center. The exact amount
payable for the Marketing Material Beginning Inventory
fee shall be determined by the Franchisee. All or a
part of that amount will be due and payable to the
Franchisor and other suppliers by the Franchisee on or
before the Franchisee's commencement of the initial
training program. The Marketing Material Beginning
Inventory will be provided by the Franchisor and other
suppliers at or around the opening of the Franchisee's
Center.
12.3. Advertising Contribution. The Franchisee
shall contribute to an advertising fund established by
the Franchisor ("Advertising Fund") a fee 2% of the
total amount of the Franchisee's Gross Revenues
("Advertising Contribution"). The Advertising
Contribution shall be paid to the Franchisor in
addition to Royalties and the following terms and
conditions shall apply:
a. The Advertising Contribution shall be
payable concurrently with the payment of the
Royalties, mailed to the Franchisor, postmarked
or otherwise transmitted no later than the 10th
day of each month, for the Advertising
Contribution based on the Gross Revenues of the
immediately preceding month.
b. The Advertising Contributions will be
subject to the same late charges as the
Royalties, in an amount and manner set forth in
Section 11.3 above.
c. Upon the request of the Franchisee, the
Franchisor will make available to the Franchisee,
no later than 30 days after the end of each
fiscal quarter, an unaudited financial statement
which indicates how the Advertising Fund has been
spent.
d. The Franchisor shall direct all
advertising and marketing programs financed by
the Advertising Fund, with sole discretion over
the creative concepts, materials and endorsements
used therein, geographic, market and media
placement and allocation, and the administration
thereof. The Franchisee agrees that the
Advertising Fund may be used to pay the costs of
preparing and producing video and audio and
written advertising materials; administering
multi-regional advertising programs, including,
without limitation, purchasing direct mail and
other media advertising and employing advertising
agencies and staff to assist therewith; and
supporting public relations, market research and
other advertising and marketing activities.
e. The Advertising Fund shall be accounted
for separately from the Franchisor's other funds
and shall not be used to defray any of the
Franchisor's general operating expenses, except
for such reasonable administrative costs,
salaries and overhead as the Franchisor may incur
in activities related to the administration of
the Advertising Fund and its marketing programs,
including, without limitation, conducting market
research, preparing material, incurring related
accounting and legal expenses, collecting and
accounting for Advertising Fund contributions and
all costs and expenses related to the Franchise
System Advisory Council. The Franchisor may
spend in any fiscal year an amount greater or
less than the aggregate contribution of all PAK
MAIL Centers to the Advertising Fund in that year
and the Advertising Fund may borrow from the
Franchisor or other lenders to cover deficits or
cause the Advertising Fund to invest any surplus
for future use. All interest earned on monies
contributed to the Advertising Fund will be first
used to pay costs. The Advertising Fund may be
incorporated or operated through an entity
separate from the Franchisor at such time as the
Franchisor deems appropriate, and such successor
entity shall have all rights and duties of the
Franchisor pursuant to this Section 12.3.
f. The Franchisee understands and
acknowledges that the Advertising Fund is
intended to maximize recognition of the Marks and
patronage of PAK MAIL Centers. Although the
Franchisor will endeavor to utilize the
Advertising Fund to develop advertising and
marketing materials and programs and to place
advertising that will benefit all PAK MAIL
Centers, the Franchisor undertakes no obligation
to ensure that expenditures by the Advertising
Fund in or affecting any geographic area are
proportionate or equivalent to the contributions
by PAK MAIL Centers operating in that geographic
area or that any PAK MAIL Center will benefit
directly or in proportion to its contribution
from the development of advertising and marketing
materials or the placement of advertising.
Except as expressly provided in this Section
12.3, the Franchisor assumes no direct or
indirect liability or obligation to the
Franchisee with respect to the maintenance,
direction or administration of the Advertising
Fund.
g. The Franchisor reserves the right to
terminate the Advertising Fund, upon 30 days'
written notice to the Franchisee. All unspent
monies on the date of termination shall be
distributed to the Franchisor's franchisees in
proportion to their respective contributions to
the Advertising Fund during the preceding 12
month period. The Franchisor shall have the
right to reinstate the Advertising Fund upon the
same terms and conditions set forth herein upon
30 days' prior written notice to the Franchisee.
12.4. Regional Advertising Programs. The
Franchisor reserves the right, upon 30 days prior
written notice to the Franchisee, to create a regional
advertising association ("Association") for the
benefit of PAK MAIL franchisees located within a
particular geographic area. If an Association is
established for the area where the Franchisee is
located, the Franchisee will be required to
participate in the Association for the purpose of
selecting and participating in regional marketing and
promotion programs for PAK MAIL Centers. The
Franchisor, in its sole discretion, will contribute up
to one-half of the Advertising Fund payments received
by the Franchisor from franchisees in the Association
for such marketing and advertising programs. The
Franchisee will be required to remain a member of and
be bound by the decisions of the majority of the
members of the Association regarding expenditures,
assessments and dues of the Association, to the extent
that they are approved by the Franchisor. Each
Association has the right, by majority vote, to
require its members to pay additional monthly dues to
the Association. The failure of the Franchisee to
participate in the Association or pay any dues
required by the Association, may, at the option of the
Franchisor, be deemed to be a breach of this
Agreement. The Franchisor has the right, in its sole
discretion, to determine the composition of all
geographic territories and market areas for the
implementation of such regional advertising and
promotion campaigns and to require that the Franchisee
participate in such regional advertising programs as
and when they may be established by the Franchisor.
If a regional advertising program is implemented on
behalf of a particular region by the Franchisor, the
Franchisor, to the extent reasonably calculable, will
only use contributions from PAK MAIL franchisees
within such region for the particular regional
advertising program. The Franchisor also reserves the
right to establish an advertising cooperative for a
particular region to enable the cooperative to self-
administer the regional advertising program.
13. QUALITY CONTROL
13.1. Compliance with Operations Manual. The
Franchisee agrees to maintain and operate the PAK MAIL
Center in compliance with this Agreement and the
standards and specifications contained in the
Operations Manual, as the same may be modified from
time to time by the Franchisor.
13.2. Standards and Specifications. The
Franchisor will make available to the Franchisee
standards and specifications for products and services
offered at or through the PAK MAIL Center and for
decor, displays, uniforms, materials, forms, items,
supplies and services used in connection with the
Center. The Franchisor reserves the right to change
standards and specifications for services and products
offered at or through the PAK MAIL Center and for the
decor, displays, uniforms, materials, forms, items,
supplies and services used in connection with the
Center, upon 30 days prior written notice to the
Franchisee. The Franchisee shall, throughout the term
of this Agreement, remain in compliance and strictly
adhere to all of the Franchisor's current standards
and specifications for the PAK MAIL Center as
prescribed from time to time.
13.3. Inspections. The Franchisor shall have
the right to examine the Franchised Location,
including the inventory, products, equipment,
materials, supplies or services used or sold there, to
ensure compliance with all standards and
specifications set by the Franchisor. The Franchisor
shall conduct such inspections during regular business
hours and the Franchisee may be present at such
inspections. The Franchisor, however, reserves the
right to conduct the inspections without prior notice
to the Franchisee.
13.4. Restrictions on Services and
Products. The Franchisee is prohibited from offering
or selling any products or services not authorized by
Franchisor as being a part of the System. However, if
the Franchisee proposes to offer, conduct or utilize
any products, services, materials, forms, items,
supplies or services for use in connection with or
sale through the PAK MAIL Center which are not
previously approved by the Franchisor as meeting its
specifications, the Franchisee shall first notify the
Franchisor in writing requesting approval. The
Franchisor may, in its sole discretion, for any reason
whatsoever, elect to withhold such approval; however,
in order to make such determination, the Franchisor
may require submission of specifications, information,
or samples of such products, services, materials,
forms, items or supplies. The Franchisor will advise
the Franchisee within a reasonable time whether such
products, services, materials, forms, items or
supplies meet its specifications.
13.5. Approved Suppliers. The Franchisee shall
purchase all products, services, supplies and
materials required for the operation of the PAK MAIL
Center from suppliers designated or approved by the
Franchisor or, if there is no designated or approved
supplier for a particular product, service, supply or
material, from such other suppliers who meet all of
the Franchisor's specifications and standards as to
quality, composition, finish, appearance and service,
and who shall adequately demonstrate their capacity
and facilities to supply the Franchisee's needs in the
quantities, at the times, and with the reliability
requisite to an efficient operation of the PAK MAIL
Center.
13.6. Request to Approve Supplier. In the
event the Franchisee desires to purchase or use
products, services, supplies or materials from
suppliers other than those previously approved by the
Franchisor, the Franchisee shall, prior to purchasing
from or otherwise utilizing any supplier give the
Franchisor a written request to approve the supplier.
In the event the Franchisor rejects the Franchisee's
requested new supplier, the Franchisor must, within 60
days of the receipt of the Franchisee's request to
approve the supplier notify the Franchisee in writing
of its rejection. The Franchisor may continue from
time to time to inspect any suppliers' facilities and
products to assure compliance with the Franchisor's
standards and specifications. Permission for such
inspection shall be a condition of the continued
approval of such supplier. The Franchisor may at its
sole discretion, for any reason whatsoever, elect to
withhold approval of the supplier; however, in order
to make such determination, the Franchisor may require
that samples from a proposed new supplier be delivered
to the Franchisor for testing prior to approval and
use. A charge not to exceed the actual cost of the
test may be made by the Franchisor and shall be paid
by the Franchisee.
13.7. Shopping Service. The Franchisor
reserves the right to use third party shopping
services from time to time to evaluate the conduct of
the Franchisee's PAK MAIL Center, including such
things as customer service, cleanliness, merchandising
and proper use of registers. Franchisor may use such
shopping services to inspect the Franchisee's PAK MAIL
Center at any time at the Franchisor's expense,
without prior notification to the Franchisee. The
Franchisor may make the results of any such service
evaluation available to the Franchisee, in the
Franchisor's sole discretion.
14. MARKS, TRADE NAMES AND PROPRIETARY INTERESTS
14.1. Marks. The Franchisee acknowledges that
the Franchisor has the sole right to own, license and
control the Franchisee's use of the PAK MAIL service
mark and other of the Marks, and that such Marks shall
remain under the sole and exclusive ownership and
control of the Franchisor. The Franchisee
acknowledges that it has not acquired any right, title
or interest in such Marks except for the right to use
such marks in the operation of its PAK MAIL Center as
it is governed by this Agreement.
14.2. No Use of Other Marks. The Franchisee
agrees that no service mark other than "PAK MAIL" or
such other Marks as may be specified by the Franchisor
shall be used in the identification, marketing,
promotion or operation of the PAK MAIL Center.
14.3. System. The Franchisee acknowledges that
the Franchisor owns and controls the distinctive plan
for the establishment, operation and promotion of the
PAK MAIL Center and all related licensed methods of
doing business, previously defined as the "System",
which include, but are not limited to, methods for
shipping, crating, freight forwarding, mailing,
communications, inventory type and control, technical
equipment standards, customer relations, marketing
techniques, written promotional materials,
advertising, and accounting systems, all of which
constitute confidential trade secrets of the
Franchisor, and the Franchisee acknowledges that the
Franchisor has valuable rights in and to such trade
secrets. The Franchisee further acknowledges that it
has not acquired any right, title or interest in the
System except for the right to use the System in the
operation of the PAK MAIL Center as it is governed by
this Agreement and that it is obligated to maintain
the confidentiality of the System in accordance with
Section 20.3 below.
14.4. Mark Infringement. The Franchisee agrees
to notify the Franchisor in writing of any possible
infringement or illegal use by others of a trademark
the same as or confusingly similar to the Marks which
may come to its attention. The Franchisee
acknowledges that the Franchisor shall have the right,
in its sole discretion, to determine whether any
action will be taken on account of any possible
infringement or illegal use. The Franchisor may
commence or prosecute such action in the Franchisor's
own name and may join the Franchisee as a party to the
action if the Franchisor determines it to be
reasonably necessary for the continued protection and
quality control of the Marks and System. The
Franchisor shall bear the reasonable cost of any such
action, including attorneys' fees. The Franchisee
agrees to fully cooperate with the Franchisor in any
such litigation.
14.5. Franchisee's Business Name. The
Franchisee acknowledges that the Franchisor has a
prior and superior claim to the "PAK MAIL" trade name.
The Franchisee shall not use the words "PAK MAIL" in
the legal name of its corporation, partnership or any
other business entity used in conducting the business
provided for in this Agreement. The Franchisee also
agrees not to register or attempt to register a trade
name using the word "PAK MAIL" in the Franchisee's
name or that of any other person or business entity,
without prior written consent of the Franchisor. The
Franchisee shall not identify itself as being "Pak
Mail Centers of America, Inc." or as being associated
with the Franchisor in any manner other than as a
franchisee or licensee. The Franchisee further agrees
that in all advertising and promotion and promotional
materials it will display its business name only in
obvious conjunction with the phrase "PAK MAIL
Licensee" or "PAK MAIL Franchisee" or with such other
words and in such other phrases to identify itself as
an independent owner of the PAK MAIL Center, as may
from time to time be prescribed in the Operations
Manual.
14.6. Change of Marks. In the event that the
Franchisor, in its sole discretion, shall determine it
necessary to modify or discontinue use of any
proprietary Marks, or to develop additional or
substitute marks, the Franchisee shall, within a
reasonable time after receipt of written notice of
such a modification or discontinuation from the
Franchisor, take such action, at the Franchisee's sole
expense, as may be necessary to comply with such
modification, discontinuation, addition or
substitution.
15. REPORTS, RECORDS AND FINANCIAL STATEMENTS
15.1. Franchisee Reports. The Franchisee shall
establish and maintain, at its own expense,
bookkeeping, accounting and data processing systems
which conform to the specifications which the
Franchisor may prescribe from time to time (including,
without limitation, requirements for timely entry of
information into data bases of the Program, periodic
printouts of reports generated by the Program and the
Franchisor's access to all Program data by modem).
Each transaction of the Center shall be processed on
the Program in the manner prescribed by the
Franchisor. The Franchisor shall have the right of
access to the Program and all data processed thereon
with respect to the Center. The Franchisee shall
provide access to the Franchisor at any time by
installing a modem which meets the Company's standards
and specifications. The Franchisee shall supply to
the Franchisor such types of reports in a manner and
form as the Franchisor may from time to time
reasonably require, including:
a. within 10 days after the end of each
calendar month (or weekly if the Franchisor
requires the Franchisee to pay the Royalty
described in Section 5.B. hereof on a weekly
basis), a report on the Center's Gross Revenues
for such calendar month (or week);
b. within 90 days after the end of the
Franchisee's fiscal year, a balance sheet and
profit and loss statement for the Center for such
year (or monthly or quarterly if required by the
Franchisor, in which case such statements shall
also reflect year-to-date information); and
c. upon request of the Franchisor, within 10
days after such returns are filed, exact copies
of federal and state income, sales and any other
tax returns and such other forms, records, books
and other information as the Franchisor may
periodically require.
The Franchisor reserves the right to require that the
Franchisees submit financial statements on a quarterly
or monthly basis and within such time periods as may
be reasonable under the circumstances. The Franchisor
also reserves the right to disclose data derived from
such reports, without identifying the Franchisee,
except to the extent identification of the Franchisee
is required by law. The Franchisee consents to the
Franchisor obtaining financial and account information
regarding the Center and its operations from third
parties with whom the Franchisee does business, as and
when deemed necessary by the Franchisor.
15.2. Verification. Each report and financial
statement to be submitted to the Franchisor pursuant
to this Agreement shall be signed and verified by the
Franchisee.
15.3. Books and Records. The Franchisee shall
maintain all books and records for its PAK MAIL Center
in accordance with generally accepted accounting
principles, consistently applied, and in a manner as
reasonably prescribed by the Franchisor, and shall
preserve these records for at least five years after
the fiscal year to which they relate.
15.4. Audit of Books and Records. The
Franchisee shall permit the Franchisor to inspect and
audit the books and records of the PAK MAIL Center at
any reasonable time, at the Franchisor's expense. If
any audit discloses a deficiency in amounts for
payments owed to the Franchisor pursuant to this
Agreement, then such amounts shall become immediately
payable to the Franchisor by the Franchisee, with
interest from the date such payments were due at the
lesser of 1 1/2% per month or the maximum rate allowed by
law. In the event such inspection or audit is made
necessary by the Franchisee's failure to furnish
required reports, supporting records or other infor-
mation, or to furnish such information on a timely
basis for two or more consecutive reporting periods,
or if the Franchisee has received advance notice from
the Franchisor and fails to have the books and records
available for such audit or otherwise fails to
cooperate therewith or if an understatement of Gross
Revenues for the period of any audit is determined by
any such audit or inspection to be greater than 5%,
the Franchisee shall reimburse the Franchisor for the
cost of such audit or inspection, including, without
limitation, the charges of attorneys and any
independent accountants and the travel expenses, room
and board and compensation of the Franchisor's
employees.
16. TRANSFER
16.1. Transfer by Franchisee. The franchise
granted herein is personal to the Franchisee and,
except as stated below, the Franchisor shall not allow
or permit any transfer, assignment, subfranchise or
conveyance of this Agreement or any interest
hereunder. As used in this Agreement, the term
"transfer" shall mean and include the voluntary,
involuntary, direct or indirect assignment, sale, gift
or other disposition by the Franchisee (or any of its
owners) of any interest in: (1) this Agreement;
(2) the ownership of the Franchisee; or (3) the Center
or any assets of the Center. An assignment, sale,
gift or other disposition shall include a transfer
resulting from a divorce, insolvency, corporate or
partnership dissolution proceeding or otherwise by
operation of law or, in the event of the death of the
Franchisee, or an owner of the Franchisee by will,
declaration of or transfer in trust or under the laws
of intestate succession.
16.2. Pre-Conditions to Franchisee's Transfer.
The Franchisee shall not transfer its rights under
this Agreement or any interest in it, or any part or
portion of any business entity that owns it or all or
a substantial portion of the assets of the PAK MAIL
Center, unless the Franchisee obtains the Franchisor's
written consent and complies with the following
requirements:
a. Payment of all amounts due and owing
pursuant to this Agreement by the Franchisee to
the Franchisor or its affiliates or to third
parties holding a security interest in any asset
of the franchised business;
b. Agreement by the proposed transferee to
satisfactorily complete the initial training
program described in this Agreement, which
training may be completed by the transferee
either prior to or immediately after assignment
of this Agreement;
c. Execution of a Franchise Agreement in a
form then currently offered by the Franchisor,
which shall supersede this Agreement in all
respects. If a new Franchise Agreement is
signed, the terms thereof may differ from the
terms of this Agreement; provided, however, the
transferee will not be required to pay any
additional initial franchise fee;
d. Provision by the Franchisee of written
notice to the Franchisor 30 days' prior to the
proposed effective date of the transfer, such
notice to contain information reasonably detailed
to enable the Franchisor to evaluate the terms
and conditions of the proposed transfer;
e. The proposed transferee shall have
provided information to the Franchisor sufficient
for the Franchisor to assess the proposed
transferee's business experience, aptitude and
financial qualification, and the Franchisor shall
have ascertained that the proposed transferee
meets such qualifications;
f. Execution by Franchisee of a general
release, in a form satisfactory to the
Franchisor, of any and all claims against the
Franchisor, its affiliates and their respective
officers, directors, employees and agents;
g. Payment by the Franchisee or the proposed
transferee of $2,500; and
h. Agreement by the Franchisee to abide by
the post-termination covenant not to compete set
forth in Section 20.2 below.
16.3. Franchisor's Approval of Transfer. The
Franchisor has 30 days from the date of the written
notice of the proposed transfer to approve or
disapprove in writing, of the Franchisee's proposed
transfer. The Franchisee acknowledges that the
proposed transferee shall be evaluated for approval by
the Franchisor based on the same criteria as is
currently being used to assess new franchisees of the
Franchisor and that such proposed transferee shall be
provided, if appropriate, with such disclosures as may
be required by state or federal law. The Franchisor
shall have the right to approve the material terms and
conditions of the transfer, including, without
limitation, the right to confirm that the price and
terms of payment are not so burdensome as to affect
adversely the transferee's operation of the Center.
If the Franchisee (and/or the transferring owners)
finance any part of the sale price of the transferred
interest, if any, unless waived in writing by the
Franchisor, the Franchisee and/or its owners must
agree that all obligations of the transferee under or
pursuant to any promissory notes, agreements or
security interests reserved by the Franchisee or its
owners in the assets of the Center or the Franchised
Location shall be subordinate to the transferee's
obligations to pay royalty fees, Advertising
Contributions and other amounts due to the Franchisor
and its affiliates and to otherwise comply with this
Agreement. If the Franchisee and the proposed
transferee comply with all conditions for assignment
set forth herein and the Franchisor has not given the
Franchisee notice of its approval or disapproval
within the 30 day period, approval is deemed granted.
16.4. Right of First Refusal. In the event the
Franchisee wishes to transfer its rights under this
Agreement or any interest in it, or any part or
portion of any business entity that owns it, or all or
a substantial portion of the assets of the PAK MAIL
Center, the Franchisee agrees to grant to the
Franchisor a 30 day right of first refusal to purchase
such rights, interest or assets on the same terms and
conditions as are contained in the written offer to
purchase submitted to the Franchisee by the proposed
purchaser; provided, however, the following additional
terms and conditions shall apply:
a. The Franchisee shall notify the
Franchisor of such offer by sending a written
notice to the Franchisor (which notice may be the
same notice as required by Section 16.2(d)
above), enclosing a copy of the written offer
from the proposed purchaser;
b. The 30 day right of first refusal period
will run concurrently with the period in which
the Franchisor has to approve or disapprove the
proposed transferee;
c. Such right of first refusal is effective
for each proposed transfer and any material
change in the terms or conditions of the proposed
transfer shall be deemed a separate offer on
which a new 30 day right of first refusal shall
be given to the Franchisor;
d. If the consideration or manner of payment
offered by a third party is such that the
Franchisor may not reasonably be required to
furnish the same, then the Franchisor may
purchase the interest which is proposed to be
sold for the reasonable cash equivalent. If the
parties cannot agree within a reasonable time on
the cash consideration, an independent appraiser
shall be designated by the Franchisor, whose
determination will be binding upon the parties.
All expenses of the appraiser shall be paid for
equally between the Franchisor and the
Franchisee; and
e. If the Franchisor chooses not to exercise
its right of first refusal, the Franchisee shall
be free to complete the sale, transfer or
assignment, subject to compliance with Sections
16.2 and 16.3 above. Absence of a reply to the
Franchisee's notice of a proposed sale within the
30 day period is deemed a waiver of such right of
first refusal.
16.5. Specific Types of Transfers. The
Franchisee acknowledges that the Franchisor's right to
approve or disapprove of a proposed sale or transfer,
and all other requirements and rights related to such
proposed sale or transfer, as provided for above,
shall apply (1) if the Franchisee is a partnership or
other business association, to the addition or
deletion of a partner or members of the association or
the transfer of any partnership or membership among
existing partners or members; (2) if the Franchisee is
a corporation, to any proposed transfer or assignment
of 25% or more of the stock of the corporate
Franchisee, whether such transfer occurs in a single
transaction or several transactions; and (3) if the
Franchisee is an individual, to the transfer from such
individual or individuals to a corporation controlled
by them, in which case the Franchisor's approval will
be conditioned upon: (i) the continuing personal
guarantee of the individual (or individuals) for the
performance of obligations under this Agreement; (ii)
the issuance and/or transfer of shares which would
affect a change in ownership of 25% or more of the
stock in the corporation being conditioned on the
Franchisor's prior written approval; (iii) a
limitation on the corporation's business activity to
that of operating the PAK MAIL Center and related
activities; and (iv) other reasonable conditions.
With respect to a proposed transfer as described in
subsection (1) and (3) of this Section, the
Franchisor's right of first refusal to purchase, as
set forth above, shall not apply and the Franchisor
will waive any transfer fee chargeable to the
Franchisee for a transfer under these circumstances.
16.6. Assignment by the Franchisor. This
Agreement is fully assignable by the Franchisor and
shall inure to the benefit of any assignee or other
legal successor in interest, and the Franchisor shall
in such event be fully released from the same.
16.7. Franchisee's Death or Disability. Upon
the death or permanent disability of the Franchisee
(or the Franchisee's individual controlling the
Franchisee entity), the executor, administrator,
conservator, guardian or other personal representative
of such person shall transfer the Franchisee's
interest in this Agreement or such interest in the
Franchisee entity to an approved third party. Such
disposition of this Agreement or such interest
(including, without limitation, transfer by bequest or
inheritance) shall be completed within a reasonable
time, not to exceed 120 days from the date of death or
permanent disability, and shall be subject to all
terms and conditions applicable to transfers contained
in this Article 16. Provided, however, that for
purposes of this Section 16.7, there shall be no fee
charged by the Franchisor for the initial training
program offered to the transferee. Failure to
transfer the interest in this Agreement or such
interest in the Franchisee entity within said period
of time shall constitute a breach of this Agreement.
For the purposes hereof, the term "permanent
disability" shall mean a mental or physical
disability, impairment or condition that is reasonably
expected to prevent or actually does prevent the
Franchisee or the owner of a controlling interest in
the Franchisee entity from supervising the management
and operation of the PAK MAIL Center for a period of
120 days from the onset of such disability, impairment
or condition.
17. TERM AND EXPIRATION
17.1. Term. The term of this Agreement is for
a period of 10 years from the date of this Agreement,
unless sooner terminated as provided herein.
17.2. Rights Upon Expiration. At the end of
the initial term hereof the Franchisee shall have the
option to renew its franchise rights for an additional
term, by acquiring successor franchise rights, if the
Franchisor does not exercise its right not to offer a
successor franchise in accordance with Section 17.4
below and if the Franchisee:
a. At least 30 days prior to expiration of
the term, executes the form of Franchise
Agreement then in use by the Franchisor;
b. Has complied with all provisions of this
Agreement during the current term, including the
payment on a timely basis of all Royalties and
other fees due hereunder. "Compliance" shall
mean, at a minimum, that the Franchisee has not
received any written notification from the
Franchisor of breach hereunder more than four
times during the term hereof;
c. Upgrades and/or remodels the PAK MAIL
Center and its operations at the Franchisee's
sole expense (the necessity of which shall be in
the sole discretion of the Franchisor) to conform
with the then current Operations Manual;
d. Executes a general release, in a form
satisfactory to the Franchisor, of any and all
claims against the Franchisor and its affiliates,
and their respective officers, directors,
employees and agents arising out of or relating
to this Agreement; and
e. Pays a successor franchise fee of up to
$5,000.
17.3. Exercise of Option for Successor
Franchise. The Franchisee may exercise its option for
a successor franchise by giving written notice of such
exercise to the Franchisor not later than 180 days
prior to the scheduled expiration of this Agreement.
The Franchisee's successor franchise rights shall
become effective by signing the Franchise Agreement
then currently being offered to new franchisees of the
Franchisor.
17.4. Conditions of Refusal. The Franchisor
shall not be obligated to offer the Franchisee a
successor franchise upon the expiration of this
Agreement if the Franchisee fails to comply with any
of the above conditions of renewal. In such event
(except for failure to execute the then current
Franchise Agreement or pay the successor franchise
fee) the Franchisor shall give notice of expiration at
least 180 days prior to the expiration of the term,
and such notice shall set forth the reasons for such
refusal to offer successor franchise rights. Upon the
expiration of this Agreement, the Franchisee shall
comply with the provisions of Section 18.5 below.
18. DEFAULT AND TERMINATION
18.1. Termination by Franchisee. If the
Franchisee and its owners are in compliance with this
Agreement and the Franchisor fails to comply with this
Agreement and fails to correct such failure within 30
days after written notice of failure to comply is
delivered to the Franchisor, the Franchisee may
terminate this Agreement effective 10 days after
delivery to the Franchisor of notice of termination.
A termination of this Agreement by the Franchisee for
any other reason, or without notice and right to cure,
shall be deemed a termination by the Franchisee
without cause and in no way shall release the
Franchisee from the terms and conditions of this
Agreement.
18.2. Termination by Franchisor - Effective
Upon Notice. The Franchisor shall have the right, at
its option, to terminate this Agreement and all rights
granted the Franchisee hereunder, without affording
the Franchisee any opportunity to cure any default
(subject to any state laws to the contrary, where
state law shall prevail), effective upon receipt of
notice by the Franchisee, addressed as provided in
Section 22.12, upon the occurrence of any of the
following events:
a. Abandonment. If the Franchisee ceases to
operate the PAK MAIL Center or otherwise abandons
the PAK MAIL Center for a period of three
consecutive days, or any shorter period that
indicates an intent by the Franchisee to
discontinue operation of the PAK MAIL Center,
unless and only to the extent that full operation
of the PAK MAIL Center is suspended or terminated
due to fire, flood, earthquake or other similar
causes beyond the Franchisee's control and not
related to the availability of funds to the
Franchisee;
b. Insolvency; Assignments. If the
Franchisee becomes insolvent or is adjudicated a
bankrupt; or any action is taken by the
Franchisee, or by others against the Franchisee
under any insolvency, bankruptcy or
reorganization act, (this provision may not be
enforceable under federal bankruptcy law, 11
U.S.C. SS 101 et seq.), or if the Franchisee
makes an assignment for the benefit of creditors,
or a receiver is appointed by the Franchisee;
c. Unsatisfied Judgments; Levy;
Foreclosure. If any material judgment (or
several judgments which in the aggregate are
material) is obtained against the Franchisee and
remains unsatisfied or of record for 30 days or
longer (unless a supersedeas or other appeal bond
has been filed); or if execution is levied
against the Franchisee's business or any of the
property used in the operation of the PAK MAIL
Center and is not discharged within five days; or
if the real or personal property of the
Franchisee's business shall be sold after levy
thereupon by any sheriff, marshall or constable;
d. Criminal Conviction. If the Franchisee
is convicted of a felony, a crime involving moral
turpitude, or any crime or offense that is
reasonably likely, in the sole opinion of the
Franchisor, to materially and unfavorably affect
the System, Marks, goodwill or reputation
thereof;
e. Failure to Make Payments. If the
Franchisee fails to pay any amounts due the
Franchisor or affiliates, including any amounts
which may be due as a result of any subleases or
lease assignments between the Franchisee and the
Franchisor, within 10 days after receiving notice
that such fees or amounts are overdue;
f. Misuse of Marks. If the Franchisee
misuses or fails to follow the Franchisor's
directions and guidelines concerning use of the
Franchisor's Marks and fails to correct the
misuse or failure within ten days after
notification from the Franchisor;
g. Unauthorized Disclosure. If the
Franchisee intentionally or negligently discloses
to any unauthorized person the contents of or any
part of the Franchisor's Operations Manual or any
other trade secrets or confidential information
of the Franchisor;
h. Repeated Noncompliance. If the
Franchisee has received two previous notices of
default from the Franchisor and is again in
default of this Agreement within a 12 month
period, regardless of whether the previous
defaults were cured by the Franchisee; or
i. Unauthorized Transfer. If the Franchisee
sells, transfers or otherwise assigns the
Franchise, an interest in the Franchise or the
Franchisee entity, this Agreement, the PAK MAIL
Center or a substantial portion of the assets of
the PAK MAIL Center owned by the Franchisee
without complying with the provisions of Article
16 above.
18.3. Termination by Franchisor - Thirty Days
Notice. The Franchisor shall have the right to
terminate this Agreement (subject to any state laws to
the contrary, where state law shall prevail),
effective upon 30 days written notice to the
Franchisee, if the Franchisee breaches any other
provision of this Agreement and fails to cure the
default during such 30 day period. In that event,
this Agreement will terminate without further notice
to the Franchisee, effective upon expiration of the 30
day period. Defaults shall include, but not be
limited to, the following:
a. Failure to Maintain Standards. The
Franchisee fails to maintain the then current
operating procedures and adhere to the
specifications and standards established by the
Franchisor as set forth herein or in the
Operations Manual or otherwise communicated to
the Franchisee;
b. Deceptive Practices. The Franchisee
engages in any unauthorized business or practice
or sells any unauthorized product or service
under the Franchisor's Marks or under a name or
mark which is confusingly similar to the
Franchisor's Marks;
c. Failure to Obtain Consent. The
Franchisee fails, refuses or neglects to obtain
the Franchisor's prior written approval or
consent as required by this Agreement;
d. Failure to Comply with Manual. The
Franchisee fails or refuses to comply with the
then-current requirements of the Operations
Manual; or
e. Breach of Related Agreement. The
Franchisee defaults under any term of the
sublease or lease assignment for the Franchised
Location, any other agreement material to the PAK
MAIL Center or any other Franchise Agreement
between the Franchisor and the Franchisee and
such default is not cured within the time
specified in such sublease, other agreement or
other Franchise Agreement.
Notwithstanding the foregoing, if the breach is
curable, but is of a nature which cannot be reasonably
cured within such 30 day period and the Franchisee has
commenced and is continuing to make good faith efforts
to cure the breach during such 30 day period, the
Franchisee shall be given an additional reasonable
period of time to cure the same, and this Agreement
shall not automatically terminate without written
notice from the Franchisor.
18.4. Right to Purchase. Upon termination or
expiration of this Agreement for any reason, the
Franchisor shall have the option to purchase the PAK
MAIL Center or a portion of the assets of the Center,
which may include, at the Franchisor's option, all of
the Franchisee's interest, if any, in and to the real
estate upon which the PAK MAIL Center is located, and
all buildings and other improvements thereon,
including leasehold interests, at fair market value,
less any amount apportioned to the goodwill of the PAK
MAIL Center which is attributable to the Franchisor's
Marks and System, and less any amounts owed to the
Franchisor by the Franchisee. The following
additional terms shall apply to the Franchisor's
exercise of this option:
a. The Franchisor's option hereunder shall
be exercisable by providing the Franchisee with
written notice of its intention to exercise the
option given to the Franchisee no later than the
effective date of termination, in the case of
termination, or at least 90 days prior to the
expiration of the term of the franchise, in the
case of non-renewal.
b. The Franchisor and the Franchisee agree
that the terms and conditions of this right and
option to purchase may be recorded, if deemed
appropriate by the Franchisor, in the real
property records and the Franchisor and the
Franchisee further agree to execute such
additional documentation as may be necessary and
appropriate to effectuate such recording.
c. The Franchisor shall set the closing for
the purchase of the PAK MAIL Center to take place
no later than 60 days after the termination or
nonrenewal date. The Franchisor will pay the
purchase price in full at the closing, or, at its
option, in five equal consecutive monthly
installments with interest at a rate of ten
percent per annum. The Franchisee must sign all
documents of assignment and transfer as are
reasonably necessary for purchase of the PAK MAIL
Center or its assets by the Franchisor.
d. During the time after the Franchisor
notifies the Franchisee of the exercise of the
option but before the closing ("Interim Period"),
the Franchisor has the right to obtain an
independent appraisal of the fair market value of
the assets being purchased and, if such an
appraisal is obtained, the appraisal shall be
binding on both parties. The obligation of the
Franchisor to close shall be contingent on the
appraisal being acceptable to the Franchisor.
In the event that the Franchisor does not exercise the
Franchisor's right to purchase the Franchisee's PAK
MAIL Center as set forth above, the Franchisee will be
free to keep or to sell, after such termination or
expiration, to any third party, all of the physical
assets of its PAK MAIL Center; provided, however, that
all appearances of the Marks are first removed in a
manner approved in writing by the Franchisor.
18.5. Obligations of Franchisee Upon
Termination or Expiration. The Franchisee is
obligated upon termination or expiration of this
Agreement to immediately:
a. Pay to the Franchisor all Royalties,
Advertising Contributions, other fees, and any
and all amounts or accounts payable then owed the
Franchisor or its affiliates pursuant to this
Agreement, or pursuant to any other agreement,
whether written or oral, including subleases and
lease assignments, between the parties;
b. Cease to identify itself as a PAK MAIL
franchisee or publicly identify itself as a
former Franchisee or use any of the Franchisor's
trade secrets, signs, symbols, devices, trade
names, trademarks, or other materials.
c. Immediately cease to identify the
Franchised Location as being, or having been,
associated with the Franchisor and, if deemed
necessary by the Franchisor, paint or otherwise
change the interior and exterior of the Center to
distinguish it from a PAK MAIL Center and
immediately cease using any proprietary mark of
the Franchisor or any mark in any way associated
with the PAK MAIL Marks and System;
d. Deliver to the Franchisor all items which
bear the PAK MAIL Mark, signs, sign-faces,
advertising materials, forms and other materials
bearing any of the Marks or otherwise identified
with the Franchisor and obtained by and in
connection with this Agreement;
e. Immediately deliver to the Franchisor the
Operations Manual and all other information,
documents and copies thereof which are
proprietary to the Franchisor;
f. Promptly take such action as may be
required to cancel all fictitious or assumed
names or equivalent registrations relating to its
use of any Marks which are under the exclusive
control of the Franchisor or, at the option of
the Franchisor, assign the same to the
Franchisor;
g. Notify the telephone company and all
telephone directory publishers of the termination
or expiration of the Franchisee's right to use
any telephone number and any regular, classified
or other telephone directory listings associated
with any Mark and to authorize transfer thereof
to the Franchisor or its designee. The
Franchisee acknowledges that, as between the
Franchisee and the Franchisor, the Franchisor has
the sole rights to and interest in all telephone,
telecopy or facsimile machine numbers and
directory listings associated with any Mark. The
Franchisee authorizes the Franchisor, and hereby
appoints the Franchisor and any of its officers
as the Franchisee's attorney-in-fact, to direct
the telephone company and all telephone directory
publishers to transfer any telephone, telecopy or
facsimile machine numbers and directory listings
relating to the PAK MAIL Center to the Franchisor
or its designee, should the Franchisee fail or
refuse to do so, and the telephone company and
all telephone directory publishers may accept
such direction or this Agreement as conclusive of
the Franchisor's exclusive rights in such
telephone numbers and directory listings and the
Franchisor's authority to direct their transfer;
h. Comply with all applicable provisions of
the Software License Agreement; and
i. Abide by all restrictive covenants set
forth in Article 20 of this Agreement.
18.6. Acknowledgement. In the event this
Agreement is terminated by the Franchisor prior to its
expiration as set forth in Sections 18.2 and 18.3
above, the Franchisee acknowledges and agrees that, in
addition to all other available remedies, the
Franchisor shall have the right to recover lost future
royalties during any period in which the Franchisee
fails to pay such royalties through and including the
remainder of the then current term of this Agreement.
18.7. State and Federal Law. THE PARTIES
ACKNOWLEDGE THAT IN THE EVENT THAT THE TERMS OF THIS
AGREEMENT REGARDING TERMINATION OR EXPIRATION ARE
INCONSISTENT WITH APPLICABLE STATE OR FEDERAL LAW,
SUCH LAW SHALL GOVERN THE FRANCHISEE'S RIGHTS
REGARDING TERMINATION OR EXPIRATION OF THIS AGREEMENT.
19. BUSINESS RELATIONSHIP
19.1. Independent Businesspersons. The parties
agree that each of them are independent
businesspersons, their only relationship is by virtue
of this Agreement and that no fiduciary relationship
is created hereunder. Neither party is liable or
responsible for the other's debts or obligations, nor
shall either party be obligated for any damages to any
person or property directly or indirectly arising out
of the operation of the other party's business
authorized by or conducted pursuant to this Agreement.
The Franchisor and the Franchisee agree that neither
of them will hold themselves out to be the agent,
employer or partner of the other and that neither of
them has the authority to bind or incur liability on
behalf of the other.
19.2. Payment of Third Party Obligations. The
Franchisor shall have no liability for the
Franchisee's obligations to pay any third parties,
including without limitation, any product vendors, or
any sales, use, service, occupation, excise, gross
receipts, income, property or other tax levied upon
the Franchisee, the Franchisee's property, the PAK
MAIL Center or upon the Franchisor in connection with
the sales made or business conducted by the Franchisee
(except any taxes the Franchisor is required by law to
collect from the Franchisee with respect to purchases
from the Franchisor).
19.3. Indemnification. The Franchisee agrees
to indemnify, defend and hold harmless the Franchisor,
its subsidiaries and affiliates, and their respective
shareholders, directors, officers, employees, agents,
successors and assignees, (the "Indemnified Parties")
against, and to reimburse them for all claims,
obligations and damages described in this Section
19.3, any and all third party obligations described in
Section 19.2 and any and all claims and liabilities
directly or indirectly arising out of the operation of
the PAK MAIL Center or arising out of the use of the
Marks and System in any manner not in accordance with
this Agreement. For purposes of this indemnification,
claims shall mean and include all obligations, actual
and consequential damages and costs reasonably
incurred in the defense of any claim against the
Indemnified Parties, including, without limitation,
reasonable accountants', attorneys' and expert witness
fees, costs of investigation and proof of facts, court
costs, other litigation expenses and travel and living
expenses. The Franchisor shall have the right to
defend any such claim against it. This indemnity
shall continue in full force and effect subsequent to
and notwithstanding the expiration or termination of
this Agreement.
20. RESTRICTIVE COVENANTS
20.1. Non-Competition During Term. The
Franchisee acknowledges that, in addition to the
license of the Marks hereunder, the Franchisor has
also licensed commercially valuable information which
comprises and is a part of the System, including
without limitation, operations, marketing, advertising
and related information and materials and that the
value of this information derives not only from the
time, effort and money which went into its
compilation, but from the usage of the same by all the
franchisees of the Franchisor using the Marks and
System. The Franchisee therefore agrees that other
than the PAK MAIL Center licensed herein or authorized
by separate agreement with the Franchisor, neither the
Franchisee nor any of the Franchisee's officers,
directors, shareholders or partners, nor any member of
his or their immediate families, shall during the term
of this Agreement:
a. have any direct or indirect controlling
interest as a disclosed or beneficial owner in a
"Competitive Business" as defined below;
b. perform services as a director, officer,
manager, employee, consultant, representative,
agent or otherwise for a Competitive Business; or
c. divert or attempt to divert any business
related to, or any customer or account of the PAK
MAIL Center, the Franchisor's business or any
other PAK MAIL franchisee's business, by direct
inducement or otherwise, or divert or attempt to
divert the employment of any employee of the
Franchisor or another franchisee licensed by the
Franchisor to use the Marks and System, to any
Competitive Business by any direct inducement or
otherwise.
The term "Competitive Business" as used in this
Agreement shall mean any business operating, or
granting franchises or licenses to others to operate,
a packaging, crating, freight forwarding and/or
mailing business or any similar business (excluding
operating or granting franchises or licenses to others
for PAK MAIL Centers operated under franchise
agreements with the Franchisor). Notwithstanding the
foregoing, the Franchisee shall not be prohibited from
owning securities in a Competitive Business if such
securities are listed on a stock exchange or traded on
the over-the-counter market and represent 5% or less
of that class of securities issued and outstanding.
20.2. Post-Termination Covenant Not to
Compete. Upon termination or expiration of this
Agreement for any reason, the Franchisee and its
officers, directors, shareholders, and/or partners
agree that, for a period of two years commencing on
the effective date of termination or expiration, or
the date on which the Franchisee ceases to conduct
business, whichever is later, neither Franchisee nor
its officers, directors, shareholders, and/or partners
shall have any direct or indirect interest (through a
member of any immediate family of the Franchisee or
its Owners or otherwise) as a disclosed or beneficial
owner, investor, partner, director, officer, employee,
consultant, representative or agent or in any other
capacity in any Competitive Business, defined in
Section 20.1 above, located or operating within a 25
mile radius of the Franchised Location or within 25
miles of any other franchised or company-owned PAK
MAIL Center. The restrictions of this Section shall
not be applicable to the ownership of shares of a
class of securities listed on a stock exchange or
traded on the over-the-counter market that represent
5% or less of the number of shares of that class of
securities issued and outstanding. The Franchisee and
its officers, directors, shareholders, and/or partners
expressly acknowledge that they possess skills and
abilities of a general nature and have other
opportunities for exploiting such skills.
Consequently, enforcement of the covenants made in
this Section will not deprive them of their personal
goodwill or ability to earn a living.
20.3. Confidentiality of Proprietary
Information. The Franchisee shall treat all
information it receives which comprises or is a part
of the System licensed hereunder as proprietary and
confidential and will not use such information in an
unauthorized manner or disclose the same to any
unauthorized person without first obtaining the
Franchisor's written consent. The Franchisee
acknowledges that the Marks and the System have
valuable goodwill attached to them, that the
protection and maintenance thereof is essential to the
Franchisor and that any unauthorized use or disclosure
of the Marks and System will result in irreparable
harm to the Franchisor.
20.4. Confidentiality Agreement. The
Franchisor reserves the right to require that the
Franchisee cause each of its officers, directors,
partners, shareholders, and Principal Operator, and,
if the Franchisee is an individual, immediate family
members, to execute a Nondisclosure and Noncompetition
Agreement containing the above restrictions, in a form
approved by the Franchisor.
21. INSURANCE
21.1. Insurance Coverage. The Franchisee shall
procure, maintain and provide evidence of (i)
comprehensive general liability insurance for the
Franchised Location and its operations with a limit of
not less than $1,000,000 combined single limit, or
such greater limit as may be required as part of any
lease agreement for the Franchised Location; (ii)
automobile liability insurance covering all employees
of the PAK MAIL Center with authority to operate a
motor vehicle in an amount not less than $1,000,000
or, with the prior written consent of the Franchisor,
such lesser amount as may be available at a
commercially reasonable rate, but in no event less
than any statutorily imposed minimum coverage; (iii)
unemployment and worker's compensation insurance with
a broad form all-states endorsement coverage
sufficient to meet the requirements of the law; and
(iv) all-risk personal property insurance in an amount
equal to at least 100% of the replacement costs of the
contents and tenant improvements located at the PAK
MAIL Center. All of the required policies of
insurance shall name the Franchisor as an additional
named insured and shall provide for a 30 day advance
written notice to the Franchisor of cancellation.
21.2. Proof of Insurance Coverage. The
Franchisee will provide proof of insurance to the
Franchisor prior to commencement of operations at its
PAK MAIL Center. This proof will show that the
insurer has been authorized to inform the Franchisor
in the event any policies lapse or are cancelled. The
Franchisor has the right to change the minimum amount
of insurance the Franchisee is required to maintain by
giving the Franchisee prior reasonable notice, giving
due consideration to what is reasonable and customary
in the similar business. Noncompliance with the
insurance provisions set forth herein shall be deemed
a material breach of this Agreement; in the event of
any lapse in insurance coverage, in addition to all
other remedies, the Franchisor shall have the right to
demand that the Franchisee cease operations of the PAK
MAIL Centers until coverage is reinstated, or, in the
alternative, pay any delinquencies in premium payments
and charge the same back to the Franchisee.
22. MISCELLANEOUS PROVISIONS
22.1. Governing Law/Consent to Venue and
Jurisdiction. Except to the extent governed by the
United States Trademark Act of 1946 (Lanham Act, 15
U.S.C. Sections 1051 et seq.) or other federal law,
this Agreement shall be interpreted under the laws of
the state of Colorado and any dispute between the
parties shall be governed by and determined in
accordance with the substantive laws of the state of
Colorado, which laws shall prevail in the event of any
conflict of law. The Franchisee and the Franchisor
have negotiated regarding a forum in which to resolve
any disputes which may arise between them and have
agreed to select a forum in order to promote stability
in their relationship. Therefore, if a claim is
asserted in any legal proceeding involving the
Franchisee, its officers or directors (collectively,
"Franchisee Affiliates") and the Franchisor, its
officers, directors or sales employees (collectively,
"Franchisor Affiliates") both parties agree that the
exclusive venue for disputes between them shall be in
the state and federal courts of Colorado and each
waive any objection either may have to the personal
jurisdiction of or venue in the state and federal
courts of Colorado. The Franchisor, the Franchisor
Affiliates, the Franchisee and the Franchisee
Affiliates each waive their rights to a trial by jury.
22.2. Modification. The Franchisor and/or the
Franchisee may modify this Agreement only upon
execution of a written agreement between the two
parties. The Franchisee acknowledges that the
Franchisor may modify its standards and specifications
and operating and marketing techniques set forth in
the Operations Manual unilaterally under any
conditions and to the extent in which the Franchisor,
in its sole discretion, deems necessary to protect,
promote, or improve the Marks and the quality of the
System, but under no circumstances will such
modifications be made arbitrarily without such
determination.
22.3. Entire Agreement. This Agreement,
including all exhibits and addenda, contains the
entire agreement between the parties and supersedes
any and all prior agreements concerning the subject
matter hereof. The Franchisee agrees and understands
that the Franchisor shall not be liable or obligated
for any oral representations or commitments made prior
to the execution hereof or for claims of negligent or
fraudulent misrepresentation and that no modifications
of this Agreement shall be effective except those in
writing and signed by both parties. The Franchisor
does not authorize and will not be bound by any
representation of any nature other than those
expressed in this Agreement. The Franchisee further
acknowledges and agrees that no representations have
been made to it by the Franchisor regarding projected
sales volumes, market potential, revenues, profits of
the Franchisee's PAK MAIL Center, or operational
assistance other than as stated in this Agreement or
in any disclosure document provided by the Franchisor
or its representatives.
22.4. Delegation by the Franchisor. From time
to time, the Franchisor shall have the right to
delegate the performance of any portion or all of its
obligations and duties hereunder to third parties,
whether the same are agents of the Franchisor or
independent contractors which the Franchisor has
contracted with to provide such services. The
Franchisee agrees in advance to any such delegation by
the Franchisor of any portion or all of its obliga-
tions and duties hereunder.
22.5. Effective Date. This Agreement shall not
be effective until accepted by the Franchisor as
evidenced by dating and signing by an officer of the
Franchisor.
22.6. Review of Agreement. The Franchisee
acknowledges that it had a copy of this Agreement in
its possession for a period of time not less than ten
full business days, during which time the Franchisee
has had the opportunity to submit same for
professional review and advice of the Franchisee's
choosing prior to freely executing this Agreement.
22.7. Attorneys' Fees. In the event of any
default on the part of either party to this Agreement,
in addition to all other remedies, the party in
default will pay the aggrieved party all amounts due
and all damages, costs and expenses, including reason-
able attorneys' fees, incurred by the aggrieved party
in any legal action, arbitration or other proceeding
as a result of such default, plus interest at the
highest rate allowable by law, accruing from the date
of such default.
22.8. Injunctive Relief. Nothing herein shall
prevent the Franchisor or the Franchisee from seeking
injunctive relief to prevent irreparable harm, in
addition to all other remedies.
22.9. No Waiver. No waiver of any condition or
covenant contained in this Agreement or failure to
exercise a right or remedy by the Franchisor or the
Franchisee shall be considered to imply or constitute
a further waiver by the Franchisor or the Franchisee
of the same or any other condition, covenant, right,
or remedy.
22.10. No Right to Set Off. The Franchisee
shall not be allowed to set off amounts owed to the
Franchisor for Royalties, fees or other amounts due
hereunder, against any monies owed to Franchisee, nor
shall the Franchisee in any event withhold such
amounts due to any alleged nonperformance by the
Franchisor hereunder, which right of set off is hereby
expressly waived by the Franchisee.
22.11. Invalidity. If any provision of this
Agreement is held invalid by any tribunal in a final
decision from which no appeal is or can be taken, such
provision shall be deemed modified to eliminate the
invalid element and, as so modified, such provision
shall be deemed a part of this Agreement as though
originally included. The remaining provisions of this
Agreement shall not be affected by such modification.
22.12. Notices. All notices required to be
given under this Agreement shall be given in writing,
by certified mail, return receipt requested, or by an
overnight delivery service providing documentation of
receipt, at the address set forth in the first Section
of this Agreement or at such other addresses as the
Franchisor or the Franchisee may designate from time
to time, and shall be effectively given when deposited
in the United States mails, postage prepaid, or when
received via overnight delivery, as may be applicable.
22.13. Acknowledgement. BEFORE SIGNING THIS
AGREEMENT, THE FRANCHISEE SHOULD READ IT CAREFULLY
WITH THE ASSISTANCE OF LEGAL COUNSEL. THE FRANCHISEE
ACKNOWLEDGES THAT:
(A) THE SUCCESS OF THE BUSINESS VENTURE
CONTEMPLATED HEREIN INVOLVES SUBSTANTIAL RISKS
AND DEPENDS UPON THE FRANCHISEE'S ABILITY AS AN
INDEPENDENT BUSINESS PERSON AND ITS ACTIVE
PARTICIPATION IN THE DAILY AFFAIRS OF THE
BUSINESS, AND
(B) NO ASSURANCE OR WARRANTY, EXPRESS OR
IMPLIED, HAS BEEN GIVEN AS TO THE POTENTIAL
SUCCESS OF SUCH BUSINESS VENTURE OR THE EARNINGS
LIKELY TO BE ACHIEVED, AND
(C) NO STATEMENT, REPRESENTATION OR OTHER
ACT, EVENT OR COMMUNICATION, EXCEPT AS SET FORTH
IN THIS DOCUMENT, AND IN ANY OFFERING CIRCULAR
SUPPLIED TO THE FRANCHISEE IS BINDING ON THE
FRANCHISOR IN CONNECTION WITH THE SUBJECT MATTER
OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed
this Agreement as of the date first above set forth.
PAK MAIL CENTERS OF FRANCHISEE
AMERICA, INC.,
a Colorado corporation
(Print Name)
By:
Individually
Name:
Title:
Address:
City:
State: Zip:
OR:
(if a corporation or
partnership)
Company Name
By:
Name:
Title:
Address:
City:
State: Zip:
(2/27/97)
EXHIBIT I TO
FRANCHISE AGREEMENT
ADDENDUM TO PAK MAIL CENTERS OF AMERICA, INC.
FRANCHISE AGREEMENT
1. Franchised Location and Protected Territory.
The Franchised Location, set forth in Section 3.1 of
the Agreement shall be:
, and the Protected Territory
described in Section 3.2 of the Agreement, shall be:
OR
Designated Area. The Franchisor and the
Franchisee acknowledge that the Franchised Location
cannot be designated in Section 1 above as a specific
address because the location has not been selected and
approved; therefore, within 90 days following the date
of the Agreement, the Franchisee shall take steps to
choose and acquire a location for its PAK MAIL Center
within the following geographic area ("Designated
Area"):
2. Acknowledgement. By executing this Exhibit
and/or the Rider hereto, the Franchisee acknowledges
that the Franchisor's approval of a site does not
constitute a representation or warranty of any kind,
express or implied, as to the suitability of the site
for a PAK MAIL Center or for any other purpose and
that the Franchisee's acceptance of a franchise for
the operation of a PAK MAIL Center at the site is
based on its own independent investigation of the
suitability of the site.
Fully executed this day of
, 19 .
PAK MAIL CENTERS OF AMERICA, INC.
By:
Title:
FRANCHISEE
By:
Title:
EXHIBIT I-1
TO FRANCHISE AGREEMENT
RIDER TO ADDENDUM - LOCATION APPROVAL
1. Franchised Location. The Franchised
Location, set forth in Section 3.1 of the Agreement
shall be:
2. Legal Address. The business address for any
notices mailed pursuant to Section 22.12 of the
Agreement shall be changed to read as follows:
3. Protected Territory. The Protected Territory
described in Section 3.2 of the Agreement, shall be:
Fully executed this day of
, 19 .
PAK MAIL CENTERS OF AMERICA, INC.
By:
Title:
FRANCHISEE
By:
Title:
EXHIBIT II
TO FRANCHISE AGREEMENT
GUARANTY AND ASSUMPTION OF FRANCHISEE'S OBLIGATIONS
In consideration of, and as an inducement to, the
execution of the above Franchise Agreement (the
"Agreement") by Pak Mail Centers of America, Inc. (the
"Franchisor"), each of the undersigned hereby personally
and unconditionally:
Guarantees to the Franchisor and its successors and
assigns, for the term of this Agreement, including
renewals thereof, that the franchisee as that term is
defined in the Agreement ("Franchisee") shall
punctually pay and perform each and every undertaking,
agreement and covenant set forth in the Agreement; and
Agrees to be personally bound by, and personally
liable for the breach of, each and every provision in
the Agreement.
Each of the undersigned waives the following:
1. Acceptance and notice of acceptance by the
Franchisor of the foregoing undertaking;
2. Notice of demand for payment of any indebtedness
or nonperformance of any obligations hereby
guaranteed;
3. Protest and notice of default to any party with
respect to the indebtedness or nonperformance of
any obligations hereby guaranteed;
4. Any right he or she may have to require that any
action be brought against Franchisee or any other
person as a condition of liability; and
5. Any and all other notices and legal or equitable
defenses to which he or she may be entitled.
Each of the undersigned consents and agrees that:
1. His or her direct and immediate liability under
this guaranty shall be joint and several;
2. He or she shall render any payment or performance
required under the Agreement upon demand if
Franchisee fails or refuses punctually to do so;
3. Such liability shall not be contingent or
conditioned upon pursuit by the Franchisor of any
remedies against Franchisee or any other person;
and
4. Such liability shall not be diminished, relieved
or otherwise affected by any extension of time,
credit or other indulgence which the Franchisor
may from time to time grant to Franchisee or to
any other person, including without limitation the
acceptance of any partial payment or performance,
or the compromise or release of any claims, none
of which shall in any way modify or amend this
guaranty, which shall be continuing and
irrevocable during the term of the Agreement,
including renewals thereof.
IN WITNESS WHEREOF, each of the undersigned has
affixed his or her signature effective on the same day and
year as the Agreement was executed.
WITNESS GUARANTOR(S)
__________________________________
________________________________________
__________________________________
________________________________________
__________________________________
________________________________________
__________________________________
________________________________________
EXHIBIT III
TO FRANCHISE AGREEMENT
STATEMENT OF OWNERSHIP
Franchisee:
Trade Name (if different from above):
Form of Ownership
(Check One)
______ ______ ______ ______
Individual Partnership Corporation Liability
Limited Company
If a Partnership, provide name and address of each
partner showing percentage owned, whether active in
management, and indicate the state in which the
partnership was formed.
If a Limited Liability Company, provide name and
address of each member and each manager showing
percentage owned and indicate the state in which the
Limited Liability Company was formed.
If a Corporation, give the state and date of
incorporation, the names and addresses of each officer
and director, and list the names and addresses of every
shareholder showing what percentage of stock is owned
by each.
Franchisee acknowledges that this Statement of
Ownership applies to the PAK MAIL Center authorized
under the Franchise Agreement.
Use additional sheets if necessary. Any and all
changes to the above information must be reported to
the Franchisor in writing.
Date Name
AGREEMENT
THIS AGREEMENT made and entered into this 20th day of
June 1995, by and between B.L.L. CORPORATION (DBA
SECURITY MFG.), a Texas corporation (hereinafter referred
to as "SECURITY") and PAK-MAIL CENTERS OF AMERICA, a
Colorado corporation (hereinafter referred to as "PAK-
MAIL").
WITNESSETH
WHEREAS, PAK-MAIL is a franchisor of individual
franchisees in United States wherein the franchisees
provide a service to the general public, including, but not
limited to, providing private mail service, shipping,
packaging, electronic mail communications, and message
services. As part of its franchise arrangement with it's
franchisees, PAK-MAIL sells various items of equipment to
it's franchisees, including, but not limited to, mail boxes.
WHEREAS, SECURITY is in the business of manufacturing
mail boxes including those used by PAK-MAIL and its
franchisees in franchise locations; and
WHEREAS, PAK-MAIL provides a package to its franchisees
such that the products of SECURITY are an essential
ingredient of the franchised systems formula for success,
so that the style of the mail boxes manufactured by SECURITY
and used in all of PAK-MAIL franchise operations while
providing a quality, durable mail box to service the
franchisee's customers.
1
<PAGE>
WHEREAS, SECURITY has consistently met all requirements
of PAK-MAIL for the manufacture and delivery of mail boxes
for PAK-MAIL franchise operations at a competitive price.
WHEREAS, PAK-MAIL desires to enter into this agreement
with SECURITY to assure the prompt and regular manufacturing
and delivery of mail boxes to PAK-MAIL and its franchisees
in quantities as may be necessary to fill all orders which
PAK-MAIL obtains for its own use and for the use of its
franchisees.
NOT, THEREFORE, in consideration of the mutual
promises, convenants and agreements as hereinafter set
forth, the parties hereto agree as follows:
1. OBLIGATIONS OF MANUFACTURER
SECURITY will manufacture and deliver and PAK-MAIL will
accept and buy all of the mail boxes which may be required
by PAK-MAIL for the operation of PAK-MAIL and its
franchisees. The parties acknowledge that the PAK-MAIL
franchise is a new and growing business and therefore
any projections or estimates as to the quantity of mail
boxes required by PAK-MAIL are estimates and not firm
commitments.
2.TERM OF THIS AGREEMENT
The term of this Agreement shall be for a period of
three (3) years starting June 20th, 1995 and automatically
2
<PAGE>
renewed, if no notice is given, each three (3) year cycle
for a period of three (3) . Either party can terminate this
Agreement at the end of the three (3) year period with a
written letter 120 days prior to renewal date.
3. PLANS AND SPECIFICATIONS
All mail boxes manufactured by SECURITY shall be
manufactured in accordance with plans and specifications now
being used by PAK-MAIL in all of its stores which plans and
specifications are attached hereto as EXHIBIT "A" and by
this reference made a part hereof.
4. TIME FOR PRODUCTION AND DELIVERY
PAK-MAIL shall have the right to specify the date of
delivery to carrier of mail boxes ordered by PAK-MAIL. But
in no event shall the date specified for completion of the
manufacture and delivery be unreasonable. The date specified
by PAK-MAIL for manufacture and shipping of the mail boxes
shall not be less than fifteen (15) calender days from
SECURITY'S receipt of PAK-MAIL written purchase order for
said mail boxes.
5. PLACE AND DELIVERY
SECURITY shall deliver all mail boxes manufactured
for PAK-MAIL at locations specified in writing by PAK-MAIL,
by common carrier or carrier selected by PAK-MAIL, cost of
delivery to be borne by PAK-MAIL.
3
<PAGE>
6. RISK OF LOSS
Upon tender of delivery to the common carrier of the
mail boxes by SECURITY all risks of loss shall pass to PAK-
MAIL.
7. TITLE
Title to the mail boxes shall remain with SECURITY
until the mail boxes are fully paid for. PAK-MAIL shall
assume all responsibility for payment of mail boxes to
SECURITY.
8. WARRANTIES
SECURITY warrants that the mail boxes shall be suitable
for their intended purpose and manufactured pursuant to the
plans and specifications set forth in Exhibit "A". No other
express or implied warranties are made by SECURITY except as
set forth in the written guarantee attached hereto as
Exhibit "B" and made a part thereof.
9. PRICE
PAK-MAIL shall pay for the mail boxes manufactured and
delivered by SECURITY in accordance with the price list
attached hereto as Exhibit "C" and made a part hereof.
Said price list shall be guaranteed for three (3) years.
If there is to be a change in price, notice must be given
and price agreed to six (6) months prior to the end of the
three (3) year contract. Payment terms shall be thirty (30)
days net from the date of shipping of the boxes by Security.
4
<PAGE>
10. EXCLUSIVE MANUFACTURER
It being understood by the parties that PAK-MAIL makes
available to its franchisees, a package consisting of the
integral components of the business method that is being
franchised and each of said components is an essential
ingredient of the franchised systems formula for success,
part of this package is mail boxes. PAK-MAIL agrees not to
purchase, lease or borrow any mail boxes for its operations
or operations of its franchisees from any party other than
SECURITY even though PAK-MAIL has no authority to force its
franchisees to buy from SECURITY. PAK-MAIL will not allow
any other manufacturer to distribute literature or display
at any meetings or conventions any mail boxes other than
SECURITY'S and PAK-MAIL will not refer or recommend any
other manufacturer. PAK-MAIL will do its best to persuade
all franchisees to keep the PAK-MAIL "look" in the stores.
SECURITY shall not be restricted as to its rights to sell,
rent, or lease mail boxes to other parties.
11. SECURITY will ship orders prepaid and will bill
PAK-MAIL the discounted rate they are charged. SECURITY
can use any shipper PAK-MAIL requests. SECURITY will answer
any calls from PAK-MAIL Corp. office related to freight
claims and assist to the best of their ability in handling
claims. PAK-MAIL will instruct their franchisees in how to
handle claims with truck lines.
5
<PAGE>
12. PAK-MAIL will stock and sell locks and keys made by
SECURITY.
13. PAK-MAIL will provide SECURITY with a quarterly
projection of store installation and updated list of
existing stores quarterly.
14. ASSIGNMENT
The rights or obligations of any of the parties
hereto may be assigned in connection with the sale of
fifty percent (50%) or more of the business of the
assigning party: provided, however, that the assignee
continues the transferred business upon essentially
the same or larger scale as the assignor prior to the
assignment and the assignee agrees to assume and be
bound by the terms and provisions of this Agreement
as defined herein.
16. SEVERABLE
If any provisions or portions thereof this Agreement
shall be deemed invalid and/or inoperative under any
applicable statue or rule of law such invalidity shall
not affect the remainder of this Agreement.
17. ENTIRE AGREEMENT
This Agreement contains the entire understanding among
the parties hereto and supersedes any proposals oral or
written in all the communications between the parties
relating to the subject matter of this Agreement. There
6
<PAGE>
are no other representations, agreements, arrangements or
understandings, oral or written, between or among the
parties hereto relating to the subject matter of this
Agreement which are not fully expressed herein.
18. GOVERNING LAW
This Agreement and all the rights and liabilities of
the parties hereto with respect to the provisions hereof
shall be governed by the laws of the State of Texas.
19. ATTORNEYS' FEES AND COSTS
Should any legal action be commenced by the parties in
order to enforce any of the terms and provisions of this
Agreement, to seek a declaration interpreting any of such
terms or provisions, or to recover damages or any sums due
and payable under this Agreement, or to obtain relief, at
law or in equity, then the prevailing party in such
litigation shall be entitled to recover, in addition to
court cost, such amounts as the court may adjudge as
reasonable attorneys' fees.
20. NOTICES
Any notices to be given hereunder must be given in
writing by personal delivery or certified or registered
mail, return receipt requested as follows:
PAK-MAIL CENTERS OF AMERICA SECURITY MFG CORP
3033 SOUTH PARKER #1200 815 S. MAIN ST.
AURORA, CO 80014 GRAPEVINE, TX 76051
7
<PAGE>
All notices or other communications given under this
Agreement shall be in writing sent to the address
hereinabove or such other addresses as the parties may
designate to each other in writing.
21. MODIFICATIONS
No modifications of this Agreement shall be valid or
binding on the parties unless acknowledged in writing by
their duly authorized representatives.
22. AUTHORITY
The parties executing this Agreement on behalf of
PAK-MAIL and SECURITY represent that they are authorized to
bind the aforementioned corporations to the terms and
conditions of this Agreement.
IN WITNESS WHEREOF, this Agreement is executed as of
the date first above written.
PAK-MAIL CENTERS OF AMERICA SECURITY MFG CORP.
BY: /s/ John E. Kelly BY:/s/ Janie D'Addio
John E. Kelly Janie D'Addio
President President
Date: 7/6/95 Date: 7/10/95
8
<PAGE>
EXHIBIT "A"
PLANS AND SPECIFICATIONS
DESCRIPTION:
MAILBOXES ( REAR LOAD )
MODULE DIMENSIONS ARE 22 1/4" W x 26 1/2" H x 15" D
MODEL 2030:30 small boxes
Size: 31/2" W x 5" H x 15" D
MODEL 2016 16 medium boxes
Size: 5 1/2" W x 6" H X 15" D
MODEL 2008 8 large boxes
Size: 11" W x 6" H x 15" D
- --------------------------------------------------------------
MAILBOXES ( FRONT LOAD )
MODULE DIMENSIONS ARE 25 3/4" W x 28 3/4" H x 15" D
MODEL 3030: 30 small boxes
Size: 3 1/2" W x 5" H x 15" D
MODEL 3016: 16 medium boxes
Size: 5 1/2" W x 6" H x 15" D
MODEL 3008: 8 large boxes
Size: 11" W x 6" H x 15" D
THIS INCLUDES TRIM - NO EXTRA NEEDED
- --------------------------------------------------------------
BOX NUMBERS: "B" PACKAGE(standard) Includes front and
rear load numbers 101 thru 400
"C" PACKAGE Includes front and rear load
numbers 101 thru 650
NUMBERS IN GROUPS OF 50
- ---------------------------------------------------------------
Shipped Freight FOB Grapevine.
<PAGE>
EXHIBIT "B"
WRITTEN GUARANTY
MODULE WARRANTY
All SECURITY products are guaranteed in material and
workmanship for a period of five (5) years. SECURITY'S
obligation under this warranty is expressly limited to
repair or replacement of any unit or component part
which in SECURITY'S judgement does not meet this
warranty. All products must be returned to SECURITY
at the customer's expense. SECURITY MFG CORP's
obligation shall in no event include repair on
damage resulting from transportation, neglect or
misuse or for any consequential damage.
<PAGE>
EXHIBIT "C"
PRICE LIST
REAR LOAD
2030 - 300.00
2016 - 250.00
2008 - 265.00
FRONT LOAD
3030 - 380.00
3016 - 320.00
3008 - 300.00
LOCKS & KEYS
LOCKS - 10 PER PACKAGE 29.50
KEY BLANKS - 100 PER PACKAGE 20.00
MISC.
PACKAGE B NUMBERS 26.75
PACKAGE C NUMBERS 50.45
KEY CABINET 157 65.00
COLLAPSIBLE BOX (REAR LOAD ONLY)
REAR LOAD
2030 - 293.80
2016 - 233.00
2008 - 251.90
For collapsible box see notes:
Weight is 12 lb. (approx.) for front or back, this saves you
$6.20 on the 2030, $17.00 on the 2016, $13.10 on the 2008,
plus 1/2 of the regular shipping cost.
Remember these boxes have the trim on sides, top and bottom,
no extra trim is necessary.
You should have a sample June 20th and delivery 30 days
after.
PAK MAIL CENTERS OF AMERICA, INC.
MANAGEMENT INCENTIVE PLAN
Fiscal Year 1996
I. Purpose
The Pak Mail Centers of America, Inc. Management Incentive
Plan (MIP) has been established for fiscal year 1996 for those
covered employees defined under Section III below.
The purpose of this Management Incentive Plan is to provide
additional compensation to participants for their contribution
to the achievement of the objectives of the Company including:
- Assisting in attracting and retaining highly qualified
key employees.
- Encouraging and stimulating superior performance by such
personnel.
II. Definitions
A. Base Salary equals the salary earnings for the portion
of the Fiscal Year during which the participant was an
active employee in the particular level of management
for which the computation is being made. Salary
earnings do not include Plan awards, long-term incentive
awards, imputed income from such programs as executive
life insurance or non-recurring earnings such as moving
expenses and is based on salary earnings before
reductions for such items as contributions under Section
401-(K) of the Internal Revenue Code of 1986 as amended.
B. Company means Pak Mail Centers of America, Inc., its
successors and assigns.
C. Fiscal Year means the Company's Fiscal Year beginning
December 1 and ending the last day of November.
D. Plan means the Pak Mail Centers of America, Inc.
Management Incentive Plan as from time to time amended.
E. Executive Committee of the Board of Directors which
means the Executive Committee of the Board as appointed
by the full Board of Directors of Pak Mail Centers of
America, Inc.
F. Financial Targets are the financial goal(s) appropriate
to the company for the Fiscal Year. These goals are
identified in Exhibit B and are specifically identified
by participant in Exhibit C.
G. Discretionary Goals refer to the personal goals and
objectives set by each participant and his/her
supervisor at the beginning of each Fiscal Year against
which performance is measured.
<PAGE>
III. EMPLOYEES COVERED BY THIS PLAN
The Plan is applicable to those management employees and
other key personnel in the management levels specified in
the attached Exhibit C.
IV. FINANCIAL AWARD
A participant in the Plan shall be entitled to a Financial
Award computed in accordance with the following formula:
Base Financial Bonus Financial
Salary x Performance x Percent = Performance
Incentive Allocated Award
Earned To Financial
Targets
Where:
- "Base Salary" is as defined in Section II A.
- "Financial Performance Incentive Earned" is determined by
the relationship of actual achievement to targeted goals
and can range from minimum performance to maximum.
Target is defined as the full attainment of the Company's
The relationship of actualachievement to the
performance range will be determined by using
straight-line interpolation for achievement
between the target and the minimum or the maximum of
the payout range as applicable (see Exhibit B).
Actual performance below the minimum of the range will
result in no award being paid on that particular
financial measure.
- "Bonus Percent Allocated To Financial Targets" shall
range from 0% to 100%.
If a participant was in more than one management level during
a Fiscal Year, a separate computation shall be made for each
level applicable to the participant during such Fiscal Year;
the sum of the separate computations shall be the
participant's Financial Performance Award.
<PAGE>
V. Personal Performance Award
Goals for each participant are to be developed jointly by the
participant and his/her supervisor at the beginning of a
Fiscal Year. It is anticipated that both quantifiable and
non-quantifiable goals will be developed in the process.
Each goal should be weighted from 0% to 100%, with the sum of
the weights equal to 100%.
A participant in the Plan shall be entitled to a Personal
Performance Award computed in accordance with the following
formula:
Base Personal Bonus Personal
Salary x Performance x Percent = Performance
Incentive Allocated Award
Earned To Personal
Objectives
Where:
- "Base Salary" is as defined in Section II A.
- "Percent of Personal Objectives Achieved" ranges from 0%
to 100% and is determined by the agreed upon performance
of the individual against pre-established individual goals.
- "Percent of Bonus Allocated to Personal Objectives" shall
range from 0% to 25%.
It is intended that the participant and his or her supervisor
will agree on meaningful individual goals. The following is
a partial list of the type of goals or objectives that may be
developed:
- Achievement of royalty income goals
- Development of subordinates
- Opening of new franchise outlets
- Successful development of new franchise outlets
- Development of existing franchise outlets
- Improvement in product merchandising programs
- Attainment of self-development objectives
- Control or reduction of operating expenses
<PAGE>
At the end of a Fiscal Year, each participant will review
and evaluate his/her accomplishment of personal goals and
objectives. The participant and his/her supervisor will
then review the preliminary rating. Thereafter, the
supervisor will assign a Personal Performance %, from 0% to
100%, reflecting the participant's achievement of his/her
goals during such Fiscal Year. The Personal Performance %
recommendation of the supervisor shall be reviewed by the
Chief Executive Officer of the Company, who shall recommend
an appropriate Personal Performance % to the Executive
Committee of the Board who shall approve the final Personal
Performance % for each participant.
VI. Performance Measures, Targets and Payout Ranges
The financial performance measures, targets and payout
ranges used for incentive purposes shall be established by
the Company based on the annual business plan. Those
measures, targets and payout ranges, as appropriate, shall
be approved by the Executive Committee of the Board. The
performance measures, targets and payout ranges are defined
in Exhibit B.
VII. Participant Bonus Composition
The composition of each participant's bonus shall be
determined by the Chief Executive Officer of the Company or
his designee(s). The composition may have a Discretionary
portion and a Financial portion. The composition of the
bonuses are established in Exhibit C.
VIII. Computation and Disbursement of Funds
As soon as possible after the close of the Fiscal Year, the
Chief Executive Officer of the Company will recommend a
final personal goal achievement percentage and incentive
award payment to the Executive Committee of the Board. Once
approved, payment of the awards shall be made within sixty
(60) days after the end of the Fiscal Year.
If the participant dies before receiving his/her award, the
amount due will be paid to the designated beneficiaries on
file with the Company and, in the absence of such
designation, to the participant's estate. All payment
awards shall be reduced by amounts required to be withheld
for taxes at the time payments are made.
IX. Changes to Target
The Chief Executive Officer of the Company may recommend to
the Executive Committee of the Board, at any time prior to
the final determination of awards, changes to the performance
measures, targets, and payout ranges used for incentive
purposes. If, in the judgment of the Executive Committee of
the Board, such change(s) is/are desirable in the interests
of equitable treatment of the participants and the Company as
a result of extraordinary or non-recurring events, changes in
applicable accounting rules or principles, changes in the
<PAGE>
Company's methods of accounting, changes in applicable law,
changes due to consolidation, acquisitions, or reorganiza-
tion, the Executive Committee of the Board shall authorize
and approve such change(s) for immediate incorporation into
the Plan. Further, should actual performance on any one or
all of the financial measure(s) be less than or greater than
target by twenty-five percent (25%) or more, the award
actually earned under that measure(s) will be at the sole
discretion of the Chief Executive Officer subject to approval
by the Executive Committee of the Board.
X. Partial Awards
A participant shall be entitled to payment of a partial
Financial Award and a partial Personal Objectives Award,
computed in accordance with Sections IV and V, and based on
Base Salary in a Fiscal Year, if prior to the end of such
Fiscal Year, a participant:
- Dies,
- Retires (is eligible to immediately receive retirement
benefits under a Company sponsored retirement plan),
- Becomes permanently disabled,
- Transfers to a position with a salary grade not eligible
for participation in the Plan,
- Enters military service,
- Takes an approved leave of absence,
- Is appointed or elected to public office,
- Is terminated due to position elimination,
provided that the participant was an active employee for a
minimum of 30 consecutive calendar days during such Fiscal
Year. Such partial awards shall be paid when payments of
non-deferred awards for such Fiscal Year are made.
Participants hired during the course of a Fiscal Year and who
are employed through the end of such Fiscal Year shall be
eligible for an award based on their Base Salary during such
Fiscal Year, provided that such employees begin active
service prior to December 1 of such Fiscal Year.
XI. Forfeiture of Bonus
Except as provided in Section X, no participant who ceases to
be an employee of the Company prior to the end of a Fiscal
Year shall be entitled to any amounts under this Plan for
such Fiscal Year unless the Executive Committee of the Board
decides otherwise.
Participants who cease to be an employee of the Company
between the end of a Fiscal Year and the payment date of
awards for such Fiscal Year shall be entitled to awards
earned during such Fiscal Year.
<PAGE>
XII. Administration
This Plan shall be administered by the Chief Executive
Officer of the Company, subject to the control and
supervision of the Executive Committee of the Board. The
decision of the Executive Committee of the Board as to the
facts in any case arising hereunder, and the meaning and
intent of any provision hereof, or its application, shall be
final and conclusive.
XIII. No Employment Contract; Future Plans
Participation in this Plan shall not confer upon any
participant any right to continue in the employ of the
Company nor interfere in any way with the right of the
Company to terminate any participant's employment at any
time. The company is under no obligation to continue the
Plan in future Fiscal Years.
XIV. Amendment or Termination
The Company may at any time, or from time to time, (a) amend,
alter or modify the provisions of this Plan, (b) terminate
this Plan, or (c) terminate the participation of an employee
or group of employees in this Plan; provided, however, that
in the event of the termination of this Plan or a termination
of participation, the Company shall provide the partial
awards to the affected participant(s) for the portion of the
Fiscal Year during which such employee(s) were participants
in this Plan, in a manner in which the Company, in its sole
judgment, determines to be equitable to such participants and
the Company.
XV. General Provisions
(a) No right under the Plan shall be assignable, either
voluntarily or involuntarily by way of encumbrance, pledge,
attachment, level or charge of any nature (except as may be
required by state or federal law).
(b) Nothing in the Plan shall require the Company to
segregate or set aside any funds or other property for the
purpose of paying any portion of an award. No participant,
beneficiary or other person shall have any right, title or
interest in any amount awarded under the Plan prior to the
close of the Fiscal Year, or in any property of the Company
or its subsidiaries.
F. Edward Gustafson
Executive Committee
of the Board
January 24, 1996 J. S. Corcoran
Final Approval Date Executive Committee
of the Board
By: /s/ John E. Kelly
John E. Kelly, President and
Chief Executive Officer
Exhibit (21)
SUBSIDIARIES OF THE ISSUER
Subsidiary Jurisdiction of Incorporation
Pak Mail Crating & Freight Delaware
Service, Inc.
