U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended: November 30, 1997
|_| TRANSITION REPORT UNDER 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
3033 South Parker Road, Suite 1200, Aurora, Colorado 80014
- ---------------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 303-752-3500
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under 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 $4,164,330.
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 February 26, 1997, the Issuer had 2,989,483 shares of its $0.001 par value
common stock issued and outstanding.
Transitional small business disclosure format: YES NO X
----- -----
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC.
1997 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART I Page No.
- ------ --------
Item 1. Description of Business..........................................1
Item 2. Description of Property..........................................6
Item 3. Legal Proceedings................................................7
Item 4. Submission of Matters to Vote of Security Holders................7
PART II
- -------
Item 5. Market for Common Equity and Related Stockholder Matters.........8
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................9
Item 7. Financial Statements............................................12
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................12
Part III
- --------
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act......13
Item 10. Executive Compensation..........................................15
Item 11. Security Ownership of Certain Beneficial Owners and Management..18
Item 12. Certain Relationships and Related Transactions..................10
Item 13. Exhibits and Reports on Form 8-K ...............................20
Signatures......................................................21
<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 franchising of retail service centers which
specialize in the packaging and shipping business ("Pak Mail Centers"). Pak Mail
Centers typically provide mailbox service, parcel shipping and receiving,
packaging, freight forwarding and other communications and information products
and 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. In February 1998, holders of the Series A
and Series B Preferred Stock exchanged the Series A and Series B Preferred Stock
for a new Series C Preferred Stock and 10 year warrants to purchase 884,264
shares of the Company's common stock at $0.10 each. The new Series C Preferred
Stock has a 6% annual dividend that is payable on March 31 of each year,
beginning in 1999. Effective November 30, 1997, the holders of the Series A and
Series B Preferred Stock agreed that they had no further rights, and that the
Company had no further obligations, with respect to the Series A and Series B
Preferred Stock.
(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 16, 1998, there were 325 individual franchises and
28 area agreements in existence.
Franchise Program
- -----------------
The Company offers individual franchise agreements and area director
marketing agreements. Individual franchisees are granted the nonexclusive right,
within a specified area, to use the Pak Mail name and trademarks as well as Pak
Mail's proprietary 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.
1
<PAGE>
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 $23,950, although franchisees who
initially commit to acquire more than one franchise are eligible for certain
discounts and may be eligible for financing of the discounted initial franchise
fees for second and subsequent Centers. Individual franchisees are also charged
an initial fee ranging between $571 and $890 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 royalty based revenues, four and one-half
percent for the next $50,000 of royalty based revenues, four percent for the
next $50,000 of royalty based revenues, three and one-half percent for the next
$50,000 of royalty based revenues, and then three percent for all subsequent
royalty based 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
royalty based 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 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 area director marketing agreement grants the right to market and sell
franchises within a specified territory. When an area marketer sells an
individual franchise in its territory, the Company typically receives 60% of the
individual franchise fee and the area marketer receives 40%. The area marketer
receives 50% of the royalties paid to the company by individual franchisees in
its territory. If an individual franchise is sold in an area where there is no
area marketer, the Company retains 100% of all fees and royalties paid by the
franchisee. 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.
2
<PAGE>
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,
1997, 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, Argentina, Venezuela,
Australia, New Zealand and Japan. 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 ensure uniformity in 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 execution of marketing and placement of
3
<PAGE>
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 typical retail 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 may offer customers a wide range
of communications services such as telecopies, wire transfer of funds and
electronic mail and Internet access.
4
<PAGE>
Convenience Items and Services. Pak Mail Centers generally offer
convenience items such as postage stamps, envelopes, custom rubber stamps,
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 usually 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 packaging and shipping service centers and other
franchised operations offering similar products and 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 most Pak Mail Centers.
(5) Raw Materials and Supplies. 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 Principal Register of the
United States Patent and Trademark Office. The service mark registration expires
in 2000, and the logo expires in 2005.
5
<PAGE>
(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, 1997, the Company had 20 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.
6
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
None.
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.
7
<PAGE>
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 1997 and 1996 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 February 17, 1998, the Company had 1,186 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
On January 26, 1998, the Company designated 2,500 shares of its no par
value preferred stock as Series C Preferred Stock. In November 1997, the holder
of the Company's Series A Preferred Stock and the holder of the Company's Series
B Preferred Stock offered to exchange their shares of preferred stock for an
equal number of shares of Series C Preferred Stock, and for a warrant to
purchase shares of common stock of the Company. On February 4, 1997, the Company
issued 1,216.668 shares and 1,000 shares of the Series C Preferred Stock to two
shareholders in exchange for their shares of Series A Preferred Stock and Series
B Preferred Stock, respectively. In connection with this transaction, the
Company issued warrants to the former holders of Series A Preferred Stock and
Series B Preferred Stock to purchase 604,264 and 280,000 shares of the Company's
common stock, respectively. The warrants have an exercise price of $0.10 per
share and expire on November 30, 2007.
8
<PAGE>
The offer and sale of the Series C Preferred Stock and warrants were made
in reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended ("Securities Act"). In connection with such
offer, the purchasers represented that they were " accredited investors" as that
term is defined in Regulation D adopted under the Securities Act, and that they
were provided access to complete information concerning the Company. The
purchasers have represented that they will hold the Series C Preferred Stock for
the purchaser's own account and that they have no present agreement,
understanding or arrangement to subdivide, sell, assign, transfer or otherwise
dispose of all or part of the Series C Preferred to any other person.. The
purchasers further agreed that they understood that the Series C Preferred Stock
had not been registered under the Securities Act and that the purchaser could
not resell the securities without compliance with the provisions of the
Securities Act of 1933, as amended. All certificates issued to the purchasers
were impressed with a restrictive legend advising that the securities
represented by the certificates may not be sold, transferred, pledged or
hypothecated without having first been registered or the availability of an
exemption from registration established. No underwriters were involved in these
transactions and no commissions were paid by the Company.
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
$31,561 during the fiscal year ended November 30, 1997 compared to cash flow
deficiencies of $149,182 during the fiscal year ended November 30, 1996. 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. During the fiscal year ended November 30, 1997, the
deficiency was financed through payments received on notes receivable.
At November 30, 1997, the average age of accounts receivable was
approximately 49 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. The Company believes
that cash flow from operating activities will be adequate to cover capital needs
for the next 12 months. The Company does not have any material commitments for
capital expenditures to be incurred in the next 12 months.
Results of Operations
- ---------------------
9
<PAGE>
Fiscal 1997 Compared to Fiscal 1996
-----------------------------------
The Company recorded a profit of $327,920 in the fiscal year ended November
30, 1997, including an income tax benefit of $136,100 due to recent operating
profits. The net income before income tax benefit was $191,820 as compared to
$51,957 in the fiscal year ended November 30, 1996. The $139,863 increase was
attributable to an increase in revenues (up 19.9% from $3,472,593 to $4,164,330)
offset by a lesser increase in costs and expenses (up 16.1% from $3,420,633 to
$3,972,510).
The $691,737 increase in revenues during the fiscal year ended November 30,
1997 is primarily attributable to increases in individual franchise fees (up
58.3% from $728,268 to $1,152,990), royalties from franchisees (up 10.2% from
$1,767,023 to $1,947,464) and sales of equipment, supplies and services (up
11.0% from $673,870 to $748,148) offset by a decrease in area representative
fees (down 10.1% from $257,261 to $231,194).
The $424,722 increase in individual franchise fees is represented by an
increase in franchise sales recognized during the fiscal year ended November 30,
1997 compared to the fiscal year ended November 30, 1996 and a differing mix of
per franchise revenue recognition. The Company awarded 54 and 35 individual
franchises during the fiscal year ended November 30, 1997 and the fiscal year
ended November 30, 1996, respectively. In the fiscal year ended November 30,
1997, the Company recognized revenue on 49 of the 54 individual franchises
awarded. In addition, the revenue from three individual franchises awarded and
deferred in 1996, was recognized in the fiscal year ended November 30, 1997.
There were five individual franchises awarded but deferred as of November 30,
1997.
The $180,441 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 $74,278 increase in sales of equipment, supplies and services primarily
relates to the decrease in the number of new stores opened in the fiscal year
ended November 30, 1997.
The $26,067 decrease in area representative fees represents one domestic
award and two international awards during the fiscal year ended November 30,
1997 compared to one domestic award during the fiscal year ended November 30,
1996. Although the Company awarded more new areas in fiscal 1997, only the cash
down payments of the 2 international franchises were recognized as income during
fiscal 1997. The note portions of the 2 international franchises were deferred
as of November 30, 1997, and will be recognized at the time the note payments
are received.
10
<PAGE>
The $551,874 increase in costs and expenses is primarily attributable to
increases in other selling, general and administrative expenses (up 10.1% from
$1,604,325 to $1,765,735), cost of sales of equipment, supplies and services (up
11.6% from $605,195 to $675,685), commissions on franchise sales (up 48.1% from
$414,773 to $614,449) and royalties paid to area franchisees (up 22.9% from
$551,497 to $677,555).
The $161,410 increase in other selling, general and administrative expenses
is primarily due to increases in convention, personnel, and travel and
entertainment costs during fiscal 1997.
The $70,490 increase in cost of sales of equipment, supplies and services
primarily relates to the increase in the number of new stores opened in the
fiscal year ended November 30, 1997.
The $199,676 increase in commissions is primarily due to the increased
number of individual and area franchise sales made during the fiscal year ended
November 30, 1997 compared to the same prior year period and the differing mix
of commissions per franchise.
The $126,058 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, 1997 compared to the same
prior year period.
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000" problem
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two-digit year value to 00. The issue is
whether computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
The Company is utilizing internal resources to identify, correct or
reprogram, and test its systems for year 2000 compliance. It is anticipated that
all reprogramming efforts will be completed in fiscal 1998. To date,
confirmations have been received from the Company's primary processing vendors
that plans are being developed to address processing of transactions in the year
2000. Management believes that the costs of compliance and potential impact on
operations will not be material.
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 of the Company. 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
11
<PAGE>
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 principal independent accountant of the Company did not resign (or decline
to stand for re-election) and was not dismissed.
12
<PAGE>
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:
<TABLE>
<CAPTION>
Name, Age and Director or Principal Occupation
Position in the Company Officer Since During the Last Five Years
- ----------------------- ------------- --------------------------
<S> <C> <C>
John E. Kelly, 57 September, 1989 Executive officer of the
(President, Chief Executive Company since September, 1989.
Officer and Director)
P. Evan Lasky, 56 March, 1988 Executive officer of the
(Executive Vice President Company since March, 1988.
and Chief Operating Officer)
Raymond S. Goshorn, 39 December, 1988 Executive officer of the
(Chief Financial Officer, Company since December, 1988.
Treasurer, Secretary)
Tonya D. Sarina, 36 December, 1996 Executive officer of the
(Vice President of Sales Company since December 1996;
and Marketing) Marketing manager of the Company
from March, 1991 through November, 1996.
Alex Zai, 38 May, 1996 Executive officer of the
(Vice President of Company since May, 1996;
Store Operations) director of store operations
of the Company since April, 1994.
13
<PAGE>
Name, Age and Director or Principal Occupation
Position in the Company Officer Since During the Last Five Years
- ----------------------- ------------- --------------------------
J. S. Corcoran, 54 September, 1989 Self-employed as a business
(Director) 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 manufacturer
of food packaging from June, 1989 to March, 1996.
John W. Grant, 73 September, 1989 Retired since September, 1987.
(Director)
F. Edward Gustafson, 56 September, 1989 Executive officer of D.P. Kelly & Associates L.P.,
(Director) a firm offering management services, since November,
1988; executive officer of Envirodyne Industries, Inc.,
a 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, 67 September, 1989 Executive officer of Whitnell & Co., an investment
(Director) advisory firm, since January, 1988; executive officer
of Donegal, Inc., an investment management firm, since
January, 1991.
14
</TABLE>
<PAGE>
(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.
Not Applicable.
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, 1997, November 30,
1996 and November 30, 1995 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).
15
<PAGE>
SUMMARY COMPENSATION TABLE
Name and Other Annual
Principal Position Fiscal Year Salary Bonus Compensation
- ------------------ ----------- ------ ----- ------------
John E. Kelly 1997 $131,040 $16,630(1) $7,980(2)
President and Chief 1996 $126,000 $33,600(1) $7,980(2)
Executive Officer 1995 $120,000 $21,895(1) $7,980(2)
P. Evan Lasky 1997 $ 91,000 $11,000(1) -0-
Executive Vice 1996 $ 86,000 $16,583(1) -0-
President and Chief 1995 $ 80,500 $10,183(1) -0-
Operating Officer
(1) Bonus was paid in the fiscal year indicated but with respect to
performance in the prior fiscal year.
(2) The amount for each of fiscal 1997, 1996 and 1995 consists of a $4,800
car allowance and $3,180 of country club dues.
Option/SAR Grants and Long-Term Incentive Plans.
------------------------------------------------
Not Applicable.
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.
Compensation of Directors--Other Arrangements.
----------------------------------------------
Not Applicable.
Employment Contracts and Termination of Employment and Change of Control
- --------------------------------------------------------------------------------
Arrangements.
- -------------
Not Applicable.
16
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners.
The following persons are the only persons known to the Company who on
February 16, 1998, owned beneficially more than 5% of the Company's $0.001 par
value common stock, its only class of outstanding voting securities:
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership(1) of Class
- ------------------------------------ ----------------------- --------
Pak Mail Investment Partnership L.P. 1,800,000 60.2%
701 Harger Road, Suite 190
Oak Brook, Illinois 60521
Janie M. D'Addio 188,833(2) 6.3%
c/o Security Manufacturing Corporation
815 South Main Street
Grapevine, Texas 76051
(1) The beneficial owners listed have sole voting and investment power with
respect to the shares shown unless otherwise indicated.
(2) Information with respect to Ms. D'Addio's common stock is given to the
best of the Company's knowledge.
(b) Security Ownership of Management.
The following table shows as of February 16, 1998, 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:
Name and Address of Amount and Nature of
Beneficial Holder Beneficial Ownership Percent of Class
----------------- -------------------- ----------------
J. S. Corcoran 1,000(1) (5)
701 Harger Road, Suite 190
Oak Brook, Illinois 60521
Raymond S. Goshorn 1,000 (5)
3033 S Parker Rd Suite 1200
Aurora Colorado 80014
17
<PAGE>
Name and Address of Amount and Nature of
Beneficial Holder Beneficial Ownership Percent of Class
----------------- -------------------- ----------------
John W. Grant 800(2) (5)
701 Harger Road, Suite 190
Oak Brook, Illinois 60521
F. Edward Gustafson 20,000(1)(3) (5)
701 Harger Road, Suite 190
Illinois 60521
John E. Kelly 12,000(4) (5)
3033 S Parker Rd Suite 1200
Aurora, Colorado 80014
William F. White 2,000 (5)
701 Harger Road, Suite 190
Oak Brook, Illinois 60521
P. Evan Lasky -0- (5)
3033 S Parker Rd Suite 1200
Aurora, Colorado 80014
Tonya D. Sarina -0- (5)
3033 S Parker Rd Suite 1200
Aurora, Colorado 80014
Alex Zai 112 (5)
3033 S Parker Rd Suite 1200
Aurora, Colorado 80014
All directors and officers 36,912(1) 1.2%
as a group (9 persons)
(1) Excludes 1,800,000 shares of common stock owned by Pak Mail Investment
Partners, L.P. ("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.
(2) Shares owned jointly by Mr. Grant and his wife.
(3) Includes 6,000 shares of common stock owned by Mr. Gustafson's
children, for whom he acts as custodian.
18
<PAGE>
(4) 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".
(5) Less than 1%.
(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, who owns 6.3% of the Company's $0.001 par value common stock.
During fiscal 1997 and fiscal 1996, the Company made purchases in the total
amounts of $82,128 and $64,300, 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.
In February 1998, holders of the Series A and Series B Preferred Stock of
the Company exchanged the Series A and Series B Preferred Stock for a new Series
C Preferred Stock and 10 year warrants to purchase 884,264 shares of the
Company's common stock at $0.10 each. The new Series C Preferred Stock has a 6%
annual dividend that is payable on March 31 of each year, beginning in 1999.
Effective November 30, 1997, the holders of the Series A and Series B Preferred
Stock agreed that they had no further rights, and that the Company had no
further obligations, with respect to the Series A and Series B Preferred Stock.
(d) Transactions With Promoters. Not Applicable.
19
<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) Articles of Amendment to the Articles of Incorporation filed with the
Colorado Secretary of State on January 26, 1998.
(3)(c) Bylaws incorporated by reference to Exhibit 3(b) of the Company's
Annual Report on Form 10-K dated March 13, 1992.
(4)(a) Letter of Exchange of Series A Preferred Stock for Series C Preferred
Stock.
(4)(b) Letter of Exchange of Series B Preferred Stock for Series C Preferred
Stock.
(4)(c) Warrant to Purchase Shares of Common Stock granted in connection with
exchange of Series A Preferred Stock for Series C Preferred Stock.
(4)(d) Warrant to Purchase Shares of Common Stock granted in connection with
exchange of Series B Preferred Stock for Series C Preferred Stock.
(10)(a) Stock Purchase Agreement dated as of July 15, 1990 by and between the
Company and John E. Kelly incorporated by reference to Exhibit (10)(1)
of the Company's Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1996.
(10)(b) Individual Franchise Agreement.
(10)(c) Agreement by and between Security Manufacturing Corporation and the
Company dated July 10, 1995 incorporated by reference to Exhibit
(10)(3) of the Company's Annual Report on Form 10-KSB for the fiscal
year ended November 30, 1996.
(10)(d) Pak Mail Centers of America, Inc. Management Incentive Plan for Fiscal
Year 1997.
(21) Subsidiaries of the Registrant.
(27) Financial Data Schedule
(b) 8-K Reports. None.
20
<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.
PAK MAIL CENTERS OF AMERICA, INC.,
a Colorado corporation
By:
-------------------------------------
John E. Kelly, President and
Chief Executive Officer
By:
-------------------------------------
Raymond S. Goshorn, Chief Financial
Officer, Treasurer and Secretary
Dated: February 26, 1998.
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.
Name and Title Signature Date
- -------------- --------- ----
J.S. Corcoran February ___, 1998
Director ------------------------
John W. Grant February ___, 1998
Director ------------------------
F. Edward Gustafson February ___, 1998
Director ------------------------
John E. Kelly February ___, 1998
Director ------------------------
William F. White February ___, 1998
Director ------------------------
21
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC.
AND SUBSIDIARY
Financial Statements and
Independent Auditors' Report
November 30, 1997 and 1996*
<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, 1997 and 1996.........F - 2
Consolidated Statements of Income - For the
Years Ended November 30, 1997 and 1996..........................F - 3
Consolidated Statement of Stockholders' Equity -
For the Years Ended November 30, 1997 and 1996..................F - 4
Consolidated Statements of Cash Flows - For the
Years Ended November 30, 1997 and 1996..........................F - 5
Notes to Consolidated Financial Statements...............................F - 6
Accompanying Schedule
Independent Auditors' Report on Accompanying Schedule.............F - 17
Schedule of Selling, General and Administrative Expenses..........F - 18
<PAGE>
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, 1997 and 1996, and the
related consolidated statements of income, 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, 1997 and 1996, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Ehrhardt Keefe Steiner & Hottman
-------------------------------------
Ehrhardt Keefe Steiner & Hottman PC
January 15, 1998
Denver, Colorado
F - 1
<PAGE>
<TABLE>
<CAPTION>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Balance Sheets
November 30,
--------------------------
1997 1996
Assets ----------- -----------
Current assets
<S> <C> <C>
Cash and cash equivalents $ 87,405 $ 72,179
Restricted cash (Note 7) 23,780 80,293
Accounts receivable, net of allowance of
$101,039 (1997) and $115,572 (1996)
262,791 264,879
Inventories 34,514 33,769
Prepaid expenses and other current assets 31,805 38,448
Deferred income tax benefit - current 136,100 --
----------- -----------
Total current assets 576,395 489,568
----------- -----------
Furniture and equipment, net of accumulated
depreciation (Note 2) 61,892 35,692
----------- -----------
Other assets
Notes receivable, net (Note 3) 722,478 618,771
Investments in non-operating assets held for sale -- 20,000
Deposits and other 90,130 52,185
Deferred franchise costs, net of accumulated
amortization of $36,360 (1997) and $13,367 (1996)
175,943 146,955
Capitalized software costs 124,202 --
----------- -----------
Total other assets 1,112,753 837,911
----------- -----------
$ 1,751,040 $ 1,363,171
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt (Note 4) $ 100,000 $ 15,276
Trade accounts payable 284,355 249,723
Accrued commissions 52,950 22,149
Other accrued expenses 18,580 45,376
Due to advertising fund (Note 6) 23,780 60,343
----------- -----------
Total current liabilities 479,665 392,867
----------- -----------
Deferred revenue 533,518 460,367
Long-term debt (Note 4) -- 100,000
Commitments (Notes 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 -- 1,216,668
Series B redeemable preferred stock,
$1,000 par value; 8% cumulative; 1,000
shares authorized; 1,000 shares issued
and outstanding -- 1,000,000
Series C redeemable preferred stock,
$1,000 par value; 6% cumulative;
2,500 shares authorized 2,216.668 shares issued
and outstanding (liquidation preference $2,216,668) 2,216,668 --
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 (6,508,254) (6,836,174)
----------- -----------
Total stockholders' equity 737,857 409,937
----------- -----------
$ 1,751,040 $ 1,363,171
=========== ===========
See notes to consolidated financial statements.
F - 2
</TABLE>
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the Years Ended
November 30,
-----------------------
1997 1996
---------- ----------
Revenue
Royalties from franchisees $1,947,464 $1,767,023
Individual franchise fees 1,152,990 728,268
Sales of equipment, supplies, and services 748,148 673,870
Area franchise fees, net 231,194 257,261
Interest income 16,723 24,583
Other 67,811 21,588
---------- ----------
4,164,330 3,472,593
---------- ----------
Costs and expenses
Selling, general and administrative 1,765,735 1,604,325
Cost of sales of equipment, supplies
and services (Note 9)
675,685 605,195
Royalties paid to area franchisees 677,555 551,497
Commissions on franchise sales 614,449 414,773
Advertising 178,783 181,323
Loss on investment in assets held for resale -- 13,921
Depreciation and amortization 57,810 44,629
Interest 2,493 4,973
---------- ----------
3,972,510 3,420,636
---------- ----------
Net income before income tax benefit 191,820 51,957
Income tax benefit (Note 8) 136,100 --
---------- ----------
Net income $ 327,920 $ 51,957
========== ==========
Net income per common share .11 .02
========== ==========
Weighted average common shares outstanding 2,989,483 2,989,483
========== ==========
See notes to consolidated financial statements.
F - 3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Stockholders' Equity
For the Years Ended November 30, 1997 and 1996
Preferred Stock Preferred Stock Preferred Stock
Series A Series B Series C
Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1995 1,216.668 $ 1,216,668 1,000 $ 1,000,000 -- $ --
Net income -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, November 30, 1996 1,216.668 1,216,668 1,000 1,000,000 -- --
Exchange of Series A and B for
Series C preferred stock (Note 5) (1,216.668) (1,216,668) (1,000) (1,000,000) 2,216.668 2,216,668
Net income -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, November 30, 1997 -- $ -- -- $ -- 2,216.668 $ 2,216,668
=========== =========== =========== =========== =========== ===========
Consolidated Statement of Stockholders' Equity
For the Years Ended November 30, 1997 and 1996
(Continued)
Additional Total
Common Stock paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
----------- ----------- ----------- ----------- -----------
Balance, November 30, 1998 2,989.483 $ 2,990 $ 5,026,453 $(6,888,131) $ 357,980
Net income -- -- -- 51,957 51,957
----------- ----------- ----------- ----------- -----------
Balance, November 30, 1996 2,989.483 2,990 5,026,453 (6,836,174) 409,937
Exchange of Series A and B for
Series C preferred stock (Note 5) -- -- -- -- --
Net income -- -- -- 327,920 327,920
----------- ----------- ----------- ----------- -----------
Balance, November 30, 1997 2,989.483 $ 2,990 $ 5,026,453 $(6,508,254) $ 737,857
=========== =========== =========== =========== ===========
See notes to consolidated financial statements.
F - 4
</TABLE>
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended
November 30,
-----------------------
1997 1996
--------- ----------
Cash flows from operating activities
Net income $ 327,920 $ 51,957
--------- ---------
Adjustments to reconcile net income to net cash
used by operating activities
Depreciation and amortization 55,114 44,629
Provision for loss on accounts receivable (14,533) (43,789)
Provision for loss on notes receivable 36 17,100
Net loss on investment in non-operating
assets held for sale -- 13,921
Discount on notes receivable -- (1,628)
Deferred franchise costs (51,981) (13,717)
Franchise fee revenue financed through
notes receivable (95,816) (24,500)
Deferred income taxes (136,100) --
Changes in operating assets and liabilities -
Accounts receivable 16,621 114,287
Inventories (745) 12,669
Prepaid expenses and other current assets 6,643 2,470
Deposits and other (37,945) 1,931
Trade accounts payable 34,632 (111,267)
Accrued expenses 4,005 (52,287)
Due to advertising fund (36,563) 28,026
Deferred revenue (102,849) (188,984)
--------- ---------
(359,481) (201,139)
--------- ---------
Net cash used by operating activities (31,561) (149,182)
--------- ---------
Cash flows from investing activities
Capital expenditures (58,321) (18,759)
Capitalized software costs (124,202) --
Proceeds from sale of assets held for sale 20,000 --
Payments on notes receivable 168,073 195,842
--------- ---------
Net cash provided by investing activities 5,550 177,083
--------- ---------
Cash flows from financing activities
Payments on long-term debt (15,276) (29,728)
Proceeds from long-term debt -- 100,000
Decrease (increase) in restricted cash 56,513 (47,976)
--------- ---------
Net cash provided by financing activities 41,237 22,296
--------- ---------
Net increase in cash and cash equivalents 15,226 50,197
Cash and cash equivalents, beginning of year 72,179 21,982
--------- ---------
Cash and cash equivalents, end of year $ 87,405 $ 72,179
========= =========
Supplemental disclosure of cash flow information -
Cash paid during the year for interest was approximately $2,500 (1997) and
$5,000 (1996).
Supplemental schedule of non-cash investing and financing activities:
At November 30, 1997 and 1996 $176,000 and $198,866 of notes receivable
additions are included in deferred revenue.
See notes to consolidated financial statements.
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 and franchising 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, Inc., collectively referred to as the Company. All significant
intercompany transactions and balances have been eliminated in consolidation.
The following table summarizes the number of Pak Mail Retail and Service Centers
in operation during the last two fiscal years:
November 30,
----------------
1997 1996
---- ----
Franchises:
Franchise centers in operation 299 272
Rights to franchise centers sold
and not in operation 5 16
--- ---
304 288
=== ===
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, 1997, 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.
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.
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)
- --------------------------------------------------------------------------------
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 the 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 by 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.
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.
Software Revenue Recognition
- ----------------------------
The Company's products are generally licensed to franchisees for a one-time
initial fee and subsequent annual license and maintenance fees. The initial
license fee is recognized as revenue upon execution of a signed contract,
delivery of licensed software and when the Company believes that the collection
of the receivable is probable.
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.
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)
- --------------------------------------------------------------------------------
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.
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.
Capitalized Software Costs
- --------------------------
Capitalized software costs consist of costs of internally developed software.
Capitalization of internally developed software costs begins upon the
establishment of the technological feasibility of a product. The recoverability
of capitalized software costs requires considerable judgment by management with
respect to certain external factors, including, but not limited to,
technological feasibility, anticipated future gross revenues, estimated economic
life and changes in software and hardware technologies. Amortization of
internally developed software costs is provided on a product- by-product basis
using the greater of the amount computed by the straight-line method over the
remaining economic life of the product. Generally, an original estimated
economic life of three years is assigned to capitalized software costs.
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, 1997, approximately $370,000 of notes receivable are offset by comparable
amounts in deferred revenue.
F - 9
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Concentration of Credit Risk (continued)
- ----------------------------------------
At November 30, 1997, the Company had approximately $35,000 of cash deposits in
excess of federally insured limits.
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.
The Company has recorded an allowance for doubtful collection on notes
receivable of approximately $53,000 (Note 3). This allowance is continually
reviewed based upon changes in the nature of the notes receivable outstanding.
Accordingly, the allowance is subject to changes due to circumstances not
presently known.
Accounting Standards Not Yet Adopted
- ------------------------------------
In December 1997, the FASB issued statement No. 128, "Earnings Per Share" (FAS
128). FAS 128 establishes standards for computing and presenting earnings per
share. FAS 128 is effective for transactions entered into in fiscal years ending
after December 15, 1997. The Company currently computes earnings per share under
the provisions for Accounting Principles Board Opinion No. 15, as permitted by
FAS 128.
In December 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (FAS 130). FAS 130 incorporates the all-inclusive concept of income
recognition. It requires that all items that are required to be recognized as
comprehensive income (adjustments to equity) be reported in a financial
statement that is displayed with the same prominence as other financial
statements. FAS 130 is effective for fiscal years beginning after December 15,
1997, consequently, the Company has not yet adopted FAS 130.
F - 10
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2 - Furniture and Equipment
- --------------------------------
Furniture and equipment consists of the following:
November 30,
----------------------------
1997 1996
--------- ----------
Office equipment $ 305,167 $ 247,937
Furniture and fixtures 143,563 142,472
--------- ---------
448,730 390,409
Less accumulated depreciation (386,838) (354,717)
--------- ---------
$ 61,892 $ 35,692
========= =========
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:
November 30,
----------------------
1997 1996
--------- ---------
Non-interest-bearing notes; interest imputed
at 8%, net of unamortized discounts
of $6,513 (1997 and 1996)
$ 479,073 $ 367,118
Interest-bearing notes; interest rates from 6% to 8% 296,538 304,750
--------- ---------
775,611 671,868
Less allowance for doubtful collections (53,133) (53,097)
--------- ---------
$ 722,478 $ 618,771
========= =========
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.
F - 11
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3 - Notes Receivable (continued)
- -------------------------------------
Future minimum principal payments to be received pursuant to the notes are as
follows:
Year Ending November 30,
------------------------
1998 $ 463,107
1999 209,688
2000 67,139
2001 33,027
2002 2,525
Thereafter 6,638
----------
782,124
Less unamortized discount (6,513)
----------
$ 775,611
==========
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.
Note 4 - Long-Term Debt
- -----------------------
November 30,
------------------------
1997 1996
--------- ---------
Unsecured note payable - paid in full
during fiscal year 1997 $ -- $ 15,276
Note payable - affiliate, interest at
2% over prime (8.25% at November 30,
1997). This note was paid in full
subsequent to year end
100,000 100,000
--------- ---------
100,000 115,276
Less current portion (100,000) (15,276)
--------- ---------
$ -- $ 100,000
========= =========
F - 12
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 5 - Stockholders' Equity
- -----------------------------
Dividends on the Series A and Series B Preferred Stock accrue at 8% commencing
on the date of issuance and are payable annually, subject to certain cumulative
net income requirements which were not achieved by the Company.
Effective November 30, 1997, all holders of Series A and B Preferred Stock
exchanged their Series A and B Preferred Stock for 2,216.660 shares of Series C
Preferred Stock. Dividends on the Series C Preferred Stock will accrue at 6% per
year commencing December 1, 1997. Dividends are payable annually commencing
March 31, 1999 and each March 31 thereafter for the previous year end. The
preferred stock does not vote although holders of 51% must approve certain items
such as any change in control, sale of the Company or a sale of the majority of
the Company's assets. The Series C Preferred Stock may be redeemed at the
Company's option any time at $1,000 per share plus accrued dividends.
As an incentive to exchange for the Series C preferred stock, the preferred
shareholders were granted a total of 884,264 common stock warrants. There was no
fair value attributed to the warrants as no material imputed value was estimated
in the Company pricing model.
The fair values of the warrants granted are estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants: dividend yield of 0; expected volatility of 133%;
discount rate of 5.25% and expected lives of 10 years.
Note 6 - Advertising Fund
- -------------------------
The Company has established an advertising trust to administer funds collected
from franchisees for advertising. The advertising trust is a separate legal
entity, and therefore, the Company is not contingently liable for any trust
liabilities incurred; nor is the trust activity reflected in the accompanying
consolidated financial statements.
Note 7 - Restricted Cash
- ------------------------
At November 30, 1997 and 1996, the amounts due the advertising trust of $23,780
and $60,343, respectively, are included in restricted cash. In addition, at
November 30, 1996, $19,950 of franchisee fees were held in escrow, in the
Company's name, to be released upon the related franchise opening.
F - 13
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 8 - Income Taxes
- ---------------------
During 1997, the Company utilized approximately $80,000 in net operating loss
carryforwards to offset current taxable income. This resulted in tax savings of
approximately $28,000. In addition the Company reduced its operating valuation
allowance on its remaining net operating loss carryforward resulting in a
deferred tax asset of $136,100. This estimate is based on the Company's two
consecutive years of taxable income.
The components of long-term deferred tax assets are as follows:
November 30,
----------------------------
1997 1996
----------- -----------
Deferred tax assets
Net operating loss carryforward $ 2,058,718 $ 2,086,000
Reserves and other deferrals 54,633 78,000
Depreciation and amortization (26,497) 15,000
----------- -----------
Total deferred tax assets 2,086,854 2,179,000
Valuation allowance (1,950,754) (2,179,000)
----------- -----------
$ 136,100 $ --
=========== ===========
At November 30, 1997, the Company has net operating loss carryforwards for tax
purposes of approximately $6,055,055. If not used, these carryforwards will
expire in varying amounts during the years 1999 to 2009.
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
$82,128 and $64,300, in 1997 and 1996, 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 $6,794 and $9,200 for
the years ended November 30, 1997 and 1996, respectively.
F - 14
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 11 - Commitments
- ---------------------
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, 1997 are as follows:
Year Ending November 30,
------------------------
1998 $ 170,994
1999 173,976
2000 95,832
2001 9,450
---------
$ 450,252
=========
Rental expense for 1997 and 1996 was approximately $210,000 and $208,000,
respectively.
F - 15
<PAGE>
ACCOMPANYING SCHEDULE
F - 16
<PAGE>
INDEPENDENT AUDITORS' REPORT ON ACCOMPANYING SCHEDULE
To the Board of Directors
Pak Mail Centers of America, Inc. and Subsidiary
Aurora, Colorado
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule is presented
for purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Ehrhardt Keefe Steiner & Hottman PC
January 15, 1998
Denver, Colorado
F - 17
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Schedule of Selling, General and Administrative Expenses
For the Year Ended
November 30,
---------------------------
1997 1996
---------- ----------
General and Administrative Expenses
Salaries and bonuses $ 813,814 $ 736,896
Repairs and maintenance 7,020 8,116
Rent 209,861 207,938
Operating insurance 6,114 7,350
Payroll taxes 58,169 57,453
Employee benefits 34,883 42,389
Supplies 15,675 10,709
Training 38,202 19,663
Trade shows 12,285 13,768
Telephone 56,569 45,619
Freight 7,904 9,118
Health insurance 59,812 58,901
Other taxes 10,874 5,977
Contract labor 5,531 13,475
Professional services 108,243 119,642
Travel and entertainment 164,185 76,218
Bad debts, net of recoveries 25,158 46,172
Dues and fees 18,406 26,735
Printing 26,051 30,418
Subscriptions 3,890 5,201
Postage 19,714 19,452
Miscellaneous expense and other 62,218 41,898
Donations 1,157 1,217
---------- ----------
$1,765,735 $1,604,325
========== ==========
F - 18
<PAGE>
EXHIBIT INDEX
(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) Articles of Amendment to the Articles of Incorporation filed with the
Colorado Secretary of State on January 26, 1998.
(3)(c) Bylaws incorporated by reference to Exhibit 3(b) of the Company's
Annual Report on Form 10-K dated March 13, 1992.
(4)(a) Letter of Exchange of Series A Preferred Stock for Series C Preferred
Stock.
(4)(b) Letter of Exchange of Series B Preferred Stock for Series C Preferred
Stock.
(4)(c) Warrant to Purchase Shares of Common Stock granted in connection with
exchange of Series A Preferred Stock for Series C Preferred Stock.
(4)(d) Warrant to Purchase Shares of Common Stock granted in connection with
exchange of Series B Preferred Stock for Series C Preferred Stock.
(10)(a) Stock Purchase Agreement dated as of July 15, 1990 by and between the
Company and John E. Kelly incorporated by reference to Exhibit (10)(1)
of the Company's Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1996.
(10)(b) Individual Franchise Agreement.
(10)(c) Agreement by and between Security Manufacturing Corporation and the
Company dated July 10, 1995 incorporated by reference to Exhibit
(10)(3) of the Company's Annual Report on Form 10-KSB for the fiscal
year ended November 30, 1996.
(10)(d) Pak Mail Centers of America, Inc. Management Incentive Plan for Fiscal
Year 1997.
(21) Subsidiaries of the Registrant.
(27) Financial Data Schedule
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
PAK MAIL CENTERS OF AMERICA, INC.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is Pak Mail Centers of America, Inc.
SECOND: The following amendments to the Articles of Incorporation were duly
adopted by the board of directors on December 18, 1997, in accordance with
Section 7-106- 102 of the Colorado Business Corporation Act.
Article IV of the Articles of Incorporation is hereby amended by adding the
following:
4.10 Series C Preferred Stock. 2,500 shares of the Corporation's
preferred stock shall consist of Series C Preferred Stock (hereinafter
referred to as "Series C Preferred Stock"). Such number of shares may be
decreased, at any time and from time to time, by resolution of the Board of
Directors; provided that no decrease shall reduce the number of shares of
Series C Preferred Stock to a number less than that of the shares then
outstanding. The Series C Preferred Stock shall rank senior to the Common
Stock and subordinate to the Series A and Series B Preferred Stock of the
Corporation with respect to the payment of dividends and to the
distribution of assets upon liquidation, dissolution or winding up. The
rights, preferences, privileges and restrictions imposed upon the Series C
Preferred Stock are as follows:
(a) Dividends. (i) For the purposes of this Paragraph (a), each March
31 (other than March 31, 1998) on which any Series C Preferred Stock is
outstanding shall be deemed to be a "Dividend Due Date." The holders of
Series C Preferred Stock shall be entitled to receive, if, when and as
declared by the Board of Directors out of funds legally available therefor,
cumulative dividends at the rate of $60.00 per twelve month period
commencing December 1, 1997, on each share of Series C Preferred Stock and
no more, calculated on the basis of a year of 360 days consisting of twelve
30-day months. Dividends shall be payable annually on each Dividend Due
Date, commencing March 31, 1999. If less than a twelve month period shall
have elapsed from December 1 of any year to the date on which a share of
Series C Preferred Stock is no longer outstanding, the dividend payable
with respect to such share of Series C Preferred Stock on the date the
share of Series C Preferred Stock is no longer outstanding shall be $60.00
multiplied by a fraction, the numerator of which is the number of days from
<PAGE>
the preceding December 1, to the date the share of Series C Preferred Stock
is no longer outstanding and the denominator of which is 360. The record
date for the payment of dividends on the Series C Preferred Stock shall in
no event be more than sixty (60) days prior to a Dividend Due Date.
On each Dividend Due Date all dividends which shall have accrued on
each share of Series C Preferred Stock outstanding on such Dividend Due
Date shall accumulate and be deemed to become "due". Any dividend which
shall not be paid on the Dividend Due Date shall be deemed to be "past due"
until such dividend shall be paid or until the share of Series C Preferred
Stock with respect to which such dividend became due shall no longer be
outstanding, whichever is the earlier to occur. No interest, sum of money
in lieu of interest, or other property or securities shall be payable in
respect of any dividend payment or payments which are past due. Dividends
paid on shares of Series C Preferred Stock in an amount less than the total
amount of such dividends at the time accumulated and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such shares
at the time outstanding.
All dividends with respect to the Series C Preferred Stock that are
due or past due shall be payable by the Corporation in connection with the
redemption or repurchase of shares of such Series C Preferred Stock or upon
the liquidation, dissolution or winding up of the Corporation.
If a dividend upon any shares of Series C Preferred Stock, or any
other outstanding preferred stock of the Corporation ranking on a parity
with the Series C Preferred Stock as to dividends, is in arrears, all
dividends or other distributions declared upon each series of such stock
(other than dividends paid in stock of the Corporation ranking junior to
the Series C Preferred Stock as to dividends and upon liquidation,
dissolution or winding up) may only be declared pro rata so that in all
cases the amount of dividends or other distributions declared per share on
each such series bears to each other the same ratio that the accumulated
and unpaid dividends per share on the shares of each such series bear to
each other. Except as set forth above, if a dividend upon any shares of
Series C Preferred Stock, or any other outstanding stock of the Corporation
ranking on a parity with the Series C Preferred Stock as to dividends, is
in arrears: (A) no dividends, in cash, stock or other property, may be paid
or declared and set aside for payment or any other distribution made upon
any stock of the Corporation ranking junior to the Series C Preferred Stock
as to dividends (other than dividends or distributions in stock of the
Corporation ranking junior to the Series C Preferred Stock as to dividends
and upon liquidation, dissolution or winding up); (B) no stock of the
Corporation ranking on a parity with the Series C Preferred Stock as to
dividends may be (1) redeemed pursuant to a sinking fund or otherwise,
2
<PAGE>
except a) by means of a redemption pursuant to which all outstanding shares
of the Series C Preferred Stock and all stock of the Corporation ranking on
a parity with the Series C Preferred Stock as to dividends are redeemed or
pursuant to which a pro rata redemption is made from all holders of the
Series C Preferred Stock and all stock of the Corporation ranking on a
parity with the Series C Preferred Stock as to dividends, the amount
allocable to each series of such stock being determined on the basis of the
aggregate liquidation preference of the outstanding shares of each series
and the shares of each series being redeemed only on a pro rata basis, or
b) by conversion of such parity stock into, or exchange of such parity
stock for, stock of the Corporation ranking junior to the Series C
Preferred Stock as to dividends and upon liquidation, dissolution or
winding up, or (2) purchased or otherwise acquired for any consideration by
the Corporation except a) pursuant to an acquisition made pursuant to the
terms of one or more offers to purchase all of the outstanding shares of
the Series C Preferred Stock and all stock of the Corporation ranking on a
parity with the Series C Preferred Stock as to dividends (which offers
shall describe such proposed acquisition of all such parity stock), which
offers shall each have been accepted by the holders of at least 50% of the
shares of each series or class of stock receiving such offer outstanding at
the commencement of the first such purchase offers, or b) by conversion of
such parity stock into, or exchange of such parity stock for, stock of the
Corporation ranking junior to the Series C Preferred Stock as to dividends
and upon liquidation, dissolution or winding up; and (C) no stock ranking
junior to the Series C Preferred Stock as to dividends may be redeemed,
purchased, or otherwise acquired for consideration (including pursuant to
sinking fund requirements) except by conversion into or exchange for stock
of the Corporation ranking junior to the Series C Preferred Stock as to
dividends and upon liquidation, dissolution or winding up.
(ii) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under
subparagraph (i) of this Paragraph (a), purchase or otherwise acquire such
shares at such time and in such manner.
(b) Voting Rights. Except as provided in this Paragraph (b), the
Series C Preferred Stock shall not have any right to vote for the election
of directors or for any other purpose. So long as the Series C Preferred
Stock is outstanding, the Corporation shall not, without the affirmative
vote or consent of the holders of at least a majority of all outstanding
shares of Series C Preferred Stock voting separately as a series, amend,
alter or repeal any provision of the Articles of Incorporation or the
Bylaws of the Corporation so as to adversely affect the powers, preferences
or special rights of the Series C Preferred Stock. Without the affirmative
3
<PAGE>
vote or consent of the holders of at least a majority of all outstanding
shares of Series C Preferred Stock, the Corporation shall not authorize, or
increase the authorized amount of, any class or series of stock, or any
equity security convertible into stock of such class or series, ranking
senior to the Series C Preferred Stock in respect of the payment of
dividends or upon liquidation, dissolution or winding up. The Series C
Preferred Stock shall also be entitled to vote as a series (the affirmative
vote or consent of the holders of at least a majority of the outstanding
shares of Series C Preferred Stock being required) on any reclassification
of the Series C Preferred Stock and to vote on any matter with respect to
which a class or series vote by the Series C Preferred Stock (whether
together with another class or series of the stock of the Corporation or by
itself) shall be expressly required by Colorado law and on any other matter
with respect to which the Corpor- ation's Board of Directors shall direct
(whether together with another class or series of the stock of the
Corporation or by itself) that the Series C Preferred Stock is to be voted
as a separate class or series. A class or series vote on the part of the
Series C Preferred Stock shall, without limitation, specifically not be
required (except as otherwise required by law or resolution of the Corpor-
ation's Board of Directors) in connection with: (A) the authorization,
issuance or increase in the authorized amount of any shares of any other
class or series of stock which ranks junior to, or on a parity with, the
Series C Preferred Stock as to dividends and upon the liquidation,
dissolution or winding up of the Corporation; (B) the authorization,
issuance or increase in the amount of any bonds, mortgages, debentures or
other obligations of the Corporation; or (C) any reclassification of any
stock ranking junior to, or on a parity with, the Series C Preferred Stock
as to dividends and upon liquidation, dissolution or winding up.
The affirmative vote or consent of the holders of a majority of the
outstanding shares of Series C Preferred Stock, voting or consenting
separately as a series, shall be required to approve (i) any merger or
consolidation of the corporation with or into any other corporation or
entity, (ii) any sale, lease, exchange or other transfer of a majority of
the assets of the Corporation and (iii) any issuance of shares of Common
Stock of the Corporation that would cause the ownership of the outstanding
shares of Common Stock by the holders of shares of Series C Preferred Stock
to be less than 51% of the outstanding Common Stock of the Corporation.
With respect to the matters set forth in this Paragraph (b), shares of
the Series C Preferred Stock entitled to vote pursuant to the terms of such
Paragraph (b) shall be entitled to one vote per share.
(c) Redemption. The Series C Preferred Stock may be redeemed at the
option of the Corporation, as a whole at any time or in part from time to
time, at a price per share equal to $1,000 plus all dividends (whether or
not declared or due) accrued and unpaid to the date of redemption (the
"Redemption Price").
No sinking fund shall be established for the Series C Preferred Stock.
4
<PAGE>
Notice of any proposed redemption of shares of Series C Preferred
Stock shall be mailed by means of first class mail, postage paid, addressed
to the holders of record of the shares of Series C Preferred Stock to be
redeemed, at their respective addresses then appearing on the books of the
Corporation, at least thirty (30) but not more than sixty (60) days prior
to the date fixed for such redemption (herein referred to as the
"Redemption Date"). Each such notice shall specify (i) the Redemption Date,
(ii) the Redemption Price, (iii) the place for payment and for delivering
the stock certificate(s) and transfer instrument(s) in order to collect the
Redemption Price and (iv) the shares of Series C Preferred Stock to be
redeemed. Any notice mailed in such manner shall be conclusively deemed to
have been duly given whether or not such notice is in fact received. If
less than all the outstanding shares of Series C Preferred Stock are to be
redeemed, the Corporation will select those to be redeemed pro rata, by lot
or by a substantially equivalent method. In order to facilitate the
redemption of the Series C Preferred Stock, the Board of Directors may fix
a record date for determination of holders of Series C Preferred Stock to
be redeemed, which shall not be more than sixty (60) days prior to the
Redemption Date with respect thereto.
The holder of any shares of Series C Preferred Stock redeemed upon any
exercise of the Corporation's redemption right shall not be entitled to
receive payment of the Redemption Price for such shares until such holder
shall cause to be delivered to the place specified in the notice given with
respect to such redemption (i) the certificates representing such shares of
Series C Preferred Stock and (ii) transfer instrument(s) satisfactory to
the Corporation and sufficient to transfer such shares of Series C
Preferred Stock to the Corporation free of any adverse interest. No
interest shall accrue on the Redemption Price of any share of Series C
Preferred Stock after its Redemption Date.
At the close of business on the Redemption Date for any share of
Series C Preferred Stock, such share shall (provided the Redemption Price
(including any accrued and unpaid dividends to the Redemption Date) of such
share has been paid or properly provided for) be deemed to cease to be
outstanding and all rights of any person other than the Corporation in such
share shall be extinguished on the Redemption Date for such share
(including all rights to receive future dividends with respect to such
share) except for the right to receive the Redemption Price (including any
accrued and unpaid dividends to the Redemption Date), without interest, for
such share in accordance with the provisions of this Paragraph (c), subject
to applicable escheat laws.
Subject to Paragraph (a) hereof, the Corporation shall have the right
at any time to acquire any shares of Series C Preferred Stock from the
owner of such shares on such terms as may be agreeable to such owner.
Shares of Series C Preferred Stock may be acquired by the Corporation from
any holder of Series C Preferred Stock pursuant to this paragraph without
offering any other holder of Series C Preferred Stock an equal opportunity
5
<PAGE>
to sell such holder's Series C Preferred Stock to the Corporation, and no
purchase by the Corporation from any holder of Series C Preferred Stock
pursuant to this paragraph shall be deemed to create any right on the part
of any other holder of Series C Preferred Stock to sell any shares of
Series C Preferred Stock (or any other stock) to the Corporation.
Notwithstanding the foregoing provisions of this Paragraph (c), and
subject to the provisions of Paragraph (a) hereof, if a dividend upon any
shares of Series C Preferred Stock is past due, (A) no shares of the Series
C Preferred Stock may be redeemed, except (1) by means of a redemption
pursuant to which all outstanding shares of the Series C Preferred Stock
are simultaneously redeemed or pursuant to which the outstanding shares of
the Series C Preferred Stock are redeemed on a pro rata basis or (2) by
conversion of shares of Series C Preferred Stock into, or exchange of such
shares for, Common Stock or any other stock of the Corporation ranking
junior to the Series C Preferred Stock as to dividends and upon
liquidation, dissolution or winding up, and (B) the Corporation shall not
purchase or otherwise acquire any shares of the Series C Preferred Stock
except (1) pursuant to a purchase or exchange offer made on the same terms
to all holders of the Series C Preferred Stock or (2) by conversion of
shares of Series C Preferred Stock into, or exchange of such shares for,
Common Stock or any other stock of the Corporation ranking junior to the
Series C Preferred Stock as to dividends and upon liquidation, dissolution
or winding up.
(d) Liquidation. In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation (for the purposes
of this Paragraph (d), a "Liquidation"), before any distribution of assets
shall be made to the holders of the Common Stock or the holders of any
other stock that ranks junior to the Series C Preferred Stock in respect of
distributions upon the Liquidation of the Corporation, the holder of each
share of Series C Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, an amount per share equal to $1,000 plus all dividends
(whether or not declared or due) accrued and unpaid on such share on the
date fixed for the distribution of assets of the Corporation to the holders
of Series C Preferred Stock.
If upon any Liquidation of the Corporation, the assets available for
distribution to the holders of Series C Preferred Stock and any other stock
of the Corporation ranking on a parity with the Series C Preferred Stock
upon Liquidation issued by the Corporation which shall then be outstanding
(hereinafter in this paragraph called the "Total Amount Available") shall
be insufficient to pay the holders of all outstanding shares of Series C
Preferred Stock and all other such parity stock the full amounts (including
all dividends accrued and unpaid) to which they shall be entitled by reason
of such Liquidation of the Corporation, then there shall be paid to the
6
<PAGE>
holders of the Series C Preferred Stock in connection with such Liquidation
of the Corporation, an amount equal to the product derived by multiplying
the Total Amount Available by a fraction, the numerator of which shall be
the full amount to which the holders of the Series C Preferred Stock shall
be entitled under the terms of the preceding paragraph by reason of such
Liquidation of the Corporation and the denominator of which shall be the
total amount which would have been distributed by reason of such
Liquidation of the Corporation with respect to the Series C Preferred Stock
and all other stock ranking on a parity with the Series C Preferred Stock
upon Liquidation then outstanding had the Corporation possessed sufficient
assets to pay the maximum amount which the holders of all such stock would
be entitled to receive in connection with such Liquidation of the
Corporation.
The voluntary sale, conveyance, lease, exchange or transfer of all or
substantially all the property or assets of the Corporation, or the merger
or consolidation of the Corporation into or with any other corporation, or
the merger of any other corporation into the Corporation, or any purchase
or redemption of some or all of the shares of any class or series of stock
of the Corporation, shall not be deemed to be a Liquidation of the
Corporation for the purpose of this Paragraph (d) (unless in connection
therewith the Liquidation of the Corporation is specifically approved).
The holder of any shares of Series C Preferred Stock shall not be
entitled to receive any payment owed for such shares under this Paragraph
(d) until such holder shall cause to be delivered to the Corporation: (A)
the certificate(s) representing such shares of Series C Preferred Stock and
(B) transfer instrument(s) satisfactory to the Corporation and sufficient
to transfer such shares of the Series C Preferred Stock to the Corporation
free of any adverse interest. As in the case of the Redemption Price, no
interest shall accrue on any payment upon Liquidation after the due date
thereof.
After payment of the full amount of the liquidating dividend to which
they are entitled, the holders of shares of the Series C Preferred Stock
will not be entitled to any further participation in any distribution of
assets by the Corporation.
(e) Payments. Any payment which may be owed for the payment of the
Redemption Price for any shares of Series C Preferred Stock pursuant to
Paragraph (c) or the payment of any amount distributable with respect to
any shares of Series C Preferred Stock under Paragraph (d) shall be deemed
to have been "paid or properly provided for" upon the earlier to occur of
the date upon which a check payable to the person entitled to receive such
payment shall be (A) delivered to such person or (B) mailed to such person
at either the address of such person then appearing on the books of the
Corporation or such other address as the Corporation shall deem reasonable.
7
<PAGE>
(f) Status of Reacquired Shares of Series C Preferred Stock. Shares of
Series C Preferred Stock issued and reacquired by the Corporation
(including, without limitation, shares of Series C Preferred Stock which
have been redeemed pursuant to the terms of Paragraph (c) hereof) shall
have the status of authorized and unissued shares of preferred stock,
undesignated as to series, subject to later issuance.
(g) Fractional Shares. In the event a holder of Series C Preferred
Stock shall be entitled to receive a fractional interest in a share of
Series C Preferred Stock, except as otherwise provided herein, the
Corporation shall either, in the sole discretion of the Board of Directors,
(A) round such fractional interest up to the next whole share of Series C
Preferred Stock, (B) issue a fractional share of such stock, (C) deliver
cash in the amount of the fair market value of such fractional interest or
(D) issue scrip representing a fractional share of such stock entitling the
holder to receive a full share of such stock upon the surrender of such
scrip aggregating a full share of such stock.
(h) Preemptive Rights. The Series C Preferred Stock is not entitled to
any preemptive or subscription rights in respect of any securities of the
Corporation.
Dated: January 20, 1998
PAK MAIL CENTERS OF AMERICA, INC.,
a Colorado corporation
By:
-------------------------------------
John E. Kelly, President
8
February 4, 1998
Pak Mail Centers of America, Inc.
3033 South Parker Road, Suite 1200
Aurora, Colorado 80014-2934
Re: Exchange of Series A Preferred Stock for Series C Preferred Stock
Ladies and Gentlemen:
The undersigned is the registered holder of 1,216.668 shares of Series A
Preferred Stock ("Preferred Stock") of Pak Mail Centers of America, Inc. ("Pak
Mail"). Effective November 30, 1997, the undersigned has relinquished any rights
to dividends on the Preferred Stock. In November 1997, the undersigned offered
to exchange the undersigned's shares of Preferred Stock for 1,216.668 shares of
Series C Preferred Stock having the terms and conditions set forth in the
Articles of Amendment to the Articles of Incorporation of Pak Mail Centers of
America, Inc. attached hereto as Exhibit A and for a warrant to purchase 604,264
shares of the Common Stock of Pak Mail as set forth in the Warrant to Purchase
Shares of Common Stock of Pak Mail Centers of America, Inc. that is attached
hereto as Exhibit B.
In connection with such offer, the undersigned represents to Pak Mail that
the undersigned has had access made available to the undersigned to complete
information concerning Pak Mail, that the undersigned is an "accredited
investor" as that term is defined in Regulation D adopted under the Securities
Act of 1933, as amended ("Act"), that the undersigned will hold the Series C
Preferred Stock and any shares of Common Stock issued upon conversion of the
Series C Preferred Stock for the undersigned's own account and that the
undersigned has no present agreement, understanding or arrangement to subdivide,
sell, assign, transfer or otherwise dispose of all or any part of the Series C
Preferred Stock or any shares of Common Stock issued upon conversion of the
Series C Preferred Stock to any other person.
The undersigned understands that the Series C Preferred Stock has not been
registered under the Act and that the undersigned cannot sell the shares of
Series C Preferred Stock unless such shares are registered under the Act and any
applicable state securities laws or unless exemptions from such registration
requirements are available.
The undersigned understands that the certificate evidencing the shares of
Series C Preferred Stock will contain a legend restricting transfer pursuant to
an effective registration statement under the Act or pursuant to an exemption
from the registration requirements of the Act, the availability of which must be
established to the satisfaction of Pak Mail.
<PAGE>
Pak Mail Centers of America, Inc.
February 4, 1998
Page 2
If the undersigned's offer to exchange is acceptable to Pak Mail, please so
indicate by executing a copy of this letter where provided and the undersigned
will return to Pak Mail for exchange the certificates representing the shares of
Preferred Stock to be exchanged for 1,216.668 shares of Series C Preferred Stock
and the warrants. Further, the undersigned agrees that upon such exchange being
made, effective November 30, 1997, the undersigned will have no further rights
pursuant to the Series A Preferred Stock and that Pak Mail will have no further
obligations with respect thereto.
Sincerely yours,
PAK MAIL INVESTMENT PARTNERSHIP, L.P.
By: Wexford Partners L.P., its General Partner
By: Wexford Corporation, its General Partner
By: /s/ F. Edward Gustafson
-------------------------------------------
F. Edward Gustafson
Executive Vice President
The offer of exchange of PAK MAIL INVESTMENT PARTNERSHIP, L.P. is hereby
accepted this 4th day of February, 1998.
PAK MAIL CENTERS OF AMERICA, INC.
By: /s/ John E. Kelly
-------------------------------------------
John E. Kelly, President
February 4, 1998
Pak Mail Centers of America, Inc.
3033 South Parker Road, Suite 1200
Aurora, Colorado 80014-2934
Re: Exchange of Series B Preferred Stock for Series C Preferred Stock
Ladies and Gentlemen:
The undersigned is the registered holder of 1,000 shares of Series B
Preferred Stock ("Preferred Stock") of Pak Mail Centers of America, Inc. ("Pak
Mail"). Effective November 30, 1997, the undersigned has relinquished any rights
to dividends on the Preferred Stock. In November 1997, the undersigned offered
to exchange the undersigned's shares of Preferred Stock for 1,000 shares of
Series C Preferred Stock having the terms and conditions set forth in the
Articles of Amendment to the Articles of Incorporation of Pak Mail Centers of
America, Inc. attached hereto as Exhibit A and for a warrant to purchase 280,000
shares of the Common Stock of Pak Mail as set forth in the Warrant to Purchase
Shares of Common Stock of Pak Mail Centers of America, Inc. that is attached
hereto as Exhibit B.
In connection with such offer, the undersigned represents to Pak Mail that
the undersigned has had access made available to the undersigned to complete
information concerning Pak Mail, that the undersigned is an "accredited
investor" as that term is defined in Regulation D adopted under the Securities
Act of 1933, as amended ("Act"), that the undersigned will hold the Series C
Preferred Stock and any shares of Common Stock issued upon conversion of the
Series C Preferred Stock for the undersigned's own account and that the
undersigned has no present agreement, understanding or arrangement to subdivide,
sell, assign, transfer or otherwise dispose of all or any part of the Series C
Preferred Stock or any shares of Common Stock issued upon conversion of the
Series C Preferred Stock to any other person.
The undersigned understands that the Series C Preferred Stock has not been
registered under the Act and that the undersigned cannot sell the shares of
Series C Preferred Stock unless such shares are registered under the Act and any
applicable state securities laws or unless exemptions from such registration
requirements are available.
The undersigned understands that the certificate evidencing the shares of
Series C Preferred Stock will contain a legend restricting transfer pursuant to
an effective registration statement under the Act or pursuant to an exemption
from the registration requirements of the Act, the availability of which must be
established to the satisfaction of Pak Mail.
<PAGE>
Pak Mail Centers of America, Inc.
February 4, 1998
Page 2
If the undersigned's offer to exchange is acceptable to Pak Mail, please so
indicate by executing a copy of this letter where provided and the undersigned
will return to Pak Mail for exchange the certificates representing the shares of
Preferred Stock to be exchanged for 1,000 shares of Series C Preferred Stock and
the warrants. Further, the undersigned agrees that upon such exchange being
made, effective November 30, 1997, the undersigned will have no further rights
pursuant to the Series A Preferred Stock and that Pak Mail will have no further
obligations with respect thereto.
Sincerely yours,
D. P. KELLY & ASSOCIATES, L.P.
By: C&G Management Company, Inc.
its General Partner
By: /s/ F. Edward Gustafson
---------------------------------------
F. Edward Gustafson
Executive Vice President
The offer of exchange of PAK MAIL INVESTMENT PARTNERSHIP, L.P. is hereby
accepted this 4th day of February, 1998.
PAK MAIL CENTERS OF AMERICA, INC.
By: /s/ John E. Kelly
---------------------------------------
John E. Kelly, President
WARRANT NO. 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE, AND THE SECURITIES ISSUED UPON
EXERCISE HEREOF, MAY NOT BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT WHICH MUST BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
VOID AFTER 3:30 P.M., DENVER, COLORADO TIME, ON NOVEMBER 30, 2007.
Warrant to Purchase
280,000 Shares of Common Stock
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
PAK MAIL CENTERS OF AMERICA, INC.
This is to certify that, FOR VALUE RECEIVED, D. P. KELLY & ASSOCIATES, L.P. or
registered assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from PAK MAIL CENTERS OF AMERICA, INC., a Colorado
corporation ("Company"), at any time not later than 3:30 p.m., Denver, Colorado
Time, on November 30, 2007 (the "Expiration Date") Two Hundred Eighty Thousand
(280,000) shares of common stock, having $0.001 par value, of the Company
("Common Stock") at an exercise price, subject to adjustment as set forth below,
of $0.10 per share. The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for a share of Common Stock
are subject to adjustment from time to time as hereinafter set forth. The shares
of the Common Stock deliverable upon such exercise, and as adjusted from time to
time, are hereinafter sometimes referred to as "Warrant Stock" and the exercise
price of a share of Common Stock in effect at any time and as adjusted from time
to time is hereinafter sometimes referred to as the "Exercise Price."
(a) Exercise of Warrant. Subject to the provisions of Sections (h) and
(m) hereof, this Warrant may be exercised in whole or in part at any time,
and from time to time not later than 3:30 p.m., Denver, Colorado time, on
November 30, 2007, or if November 30, 2007 is a day on which banking
institutions are authorized by law to close, then on the next succeeding
day which shall not be such a day, by presentation and surrender hereof to
the Company with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of shares
specified in such form, together with all federal and state taxes
applicable upon such exercise. If this Warrant should be exercised in part
only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the holder to
purchase the balance of the shares purchasable hereunder. Upon receipt by
the Company of this Warrant at the office or agency of the Company, in
<PAGE>
proper form for exercise, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such securities shall not then be
actually delivered to the Holder.
(b) Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of its Common Stock as shall be required for
issuance or delivery upon exercise of this Warrant.
(c) Exchange, Assignment or Loss of Warrant. This Warrant is
assignable and exchangeable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company or at the office of
its stock transfer agent, if any, for other Warrants of different
denominations entitling the holder thereof to purchase in the aggregate the
same number of shares of Common Stock purchasable hereunder. This Warrant
may not be sold, transferred, assigned, or hypothecated except in
compliance with the Securities Act of 1933, as amended, and any applicable
state securities laws. Any such assignment shall be made by surrender of
this Warrant to the Company or at the office of its stock transfer agent,
if any, with the Assignment Form annexed hereto duly executed and funds
sufficient to pay any transfer tax; whereupon the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee named
in such instrument of assignment and this Warrant promptly shall be
canceled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the office of the Company
or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants
are to be issued and signed by the Holder hereof. The term "Warrant" as
used herein includes any Warrants issued in substitution for or replacement
of this Warrant, or into which this Warrant may be divided or exchanged.
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification including
a surety bond, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new Warrant of like tenor
and date. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or
not this Warrant so lost, stolen, destroyed, or mutilated shall be at any
time enforceable by anyone.
(d) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder of the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent
set forth herein.
2
<PAGE>
(e) Anti-Dilution Provisions.
(1) Stock Splits and Stock Dividends. In case the Company shall
at any time issue Common Stock by way of dividend or other
distribution on any stock of the Company or subdivide or combine the
outstanding shares of Common Stock, the Exercise Price shall be
proportionately decreased in the case of such issuance (on the day
following the date fixed for determining shareholders entitled to
receive such dividend or other distribution) or decreased in the case
of such subdivision or increased in the case of such combination (on
the date that such subdivision or combination shall become effective).
(2) No Adjustment for Small Amounts. Anything in this Section (e)
to the contrary notwithstanding, the Company shall not be required to
give effect to any adjustment in the Exercise Price unless and until
the net effect of one or more adjustments, determined as above
provided, shall have required a change of the Exercise Price by at
least one cent, but when the cumulative net effect of more than one
adjustment so determined shall be to change the actual Exercise Price
by at least two cents, such change in the Exercise Price shall
thereupon be given effect.
(3) Number of Shares Adjusted. Upon any adjustment of the
Exercise Price, the holder of this Warrant shall thereafter (until
another such adjustment) be entitled to purchase, at the new Exercise
Price, the number of Shares, calculated to the nearest full share,
obtained by multiplying the number of shares of Common Stock initially
issuable upon exercise of this Warrant by the Exercise Price in effect
on the date hereof and dividing the product so obtained by the new
Exercise Price.
(4) Common Stock Defined. Whenever reference is made in this
Section (e) to the issue or sale of shares of Common Stock, the term
"Common Stock" shall mean the Common Stock of the Company of the class
authorized as of the date hereof and any other class of stock ranking
on a parity with such Common Stock. However, subject to the provisions
of Section (i) hereof, shares issuable upon exercise hereof shall
include only shares of the class designated as Common Stock of the
Company as of the date hereof.
(f) Officer's Certificate. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section (e) hereof, the Company
shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office, and with its stock transfer agent, if
any, an officer's certificate showing the adjusted Exercise Price
determined as herein provided and setting forth in reasonable detail the
facts requiring such adjustment and the calculation thereof. Each such
officer's certificate shall be made available at all reasonable times for
inspection by the Holder and the Company shall, forthwith after each such
adjustment, mail a copy of such certificate to the Holder.
3
<PAGE>
(g) Notices to Holders. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock or (ii) if the Company shall offer to
the holders of Common Stock for subscription or purchase by them any shares
of stock of any class or any other rights or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be delivered
to the Holder, at least 30 days prior to the date specified in (x) or (y)
below, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record is to be taken
for the purpose of such dividend, distribution or rights, or (y) such
reclassifica- tion, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the
date, if any, is to be fixed, as of which the holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation
or winding up.
(h) Reclassification, Reorganization or Merger. Upon the occurrence of
any of the following events, the Company shall cause effective provision to
be made so that the Holder shall have the right thereafter, by the exercise
of this Warrant, to purchase for the aggregate Exercise Price described in
this Warrant the kind and amount of shares of stock and other securities,
and property and interests, as would be issued or payable with respect to
or in exchange for the number of shares of the Company that are then
purchasable pursuant to this Warrant as if such shares had been issued to
the Holder immediately before such event: (1) the reclassification, capital
reorganization, or other similar change of outstanding shares of Common
Stock of the Company, other than as described and provided for in Section
(e) above; (2) the merger or consolidation of the Company with one or more
other corporations or other entities, other than a merger with a subsidiary
or affiliate pursuant to which the Company is the continuing entity and the
outstanding shares of Common Stock, including the Shares purchasable
pursuant to this Warrant, are not affected; or (3) the spin-off of assets
to a subsidiary or an affiliated entity, or the sale, lease, or exchange of
a significant portion of the Company's assets, in a transaction pursuant to
which the Company's shareholders of record are to receive securities or
other interests in a successor entity. Any such provision made by the
Company for adjustments with respect to this Warrant shall be as nearly
equivalent to the adjustments otherwise provided for in this Warrant as is
reasonably practicable. The foregoing provisions of this Section (h) shall
similarly apply to successive reclassifications, capital reorganizations
and similar changes of shares of Common Stock and to successive
consolidations, mergers, spin-offs, sales, leases or exchanges.
4
<PAGE>
(i) Dissolution. If, at any time prior to the expiration of this
Warrant and prior to the exercise thereof, any dissolution, liquidation or
winding up of the Company shall be proposed, the Company shall cause at
least 30 days' notice to be mailed by certified mail to the registered
holder of this Warrant at his address as it appears on the books of the
Company. Such notice shall specify the date as of which holders of record
of Common Stock shall participate in any distribution or shall be entitled
to exchange their Common Stock for securities or other property,
deliverable upon such dissolution, liquidation or winding up, as the case
may be; to the end that, during such period of 30 days, the holders of this
Warrant may exercise this Warrant and purchase Common Stock (or other stock
substituted therefor as hereinbefore provided) and be entitled in respect
of shares so purchased to all of the rights of the other holders of Common
Stock of the Company. In case of a dissolution, liquidation or winding up
of the Company, all purchase rights under this Warrant shall terminate at
the close of business on the date as of which holders of record of the
Common Stock shall be entitled to participate in a distribution of the
assets of the Company in connection with such dissolution, liquidation or
winding up (provided that in no event shall said date be less than 30 days
after completion of service by certified mail of notice as aforesaid). Any
Warrant not exercised prior to such time shall be void and no rights shall
exist thereunder. In any such case of termination of purchase rights, a
statement thereof shall be included in the notice provided for herein.
(j) Notice. Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in writing
and delivered personally (including by telex, telecopier, telegram or other
acknowledged receipt) or three days following deposit in the United States
mails, sent by registered or certified mail, return receipt requested,
addressed as follows:
Holder: D. P. Kelly & Associates, L.P.
701 Harger Road, Suite 190
Oak Brook, Illinois 60521
Company: Pak Mail Centers of America, Inc.
3033 South Parker Road, Suite 1200
Aurora, Colorado 80014
Attn: John E. Kelly, President
Any person may change the address for the giving of notice by notice duly
given effective five (5) business days thereafter.
5
<PAGE>
(k) Amendments and Waivers. Any term, condition or provision of this
Warrant may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Holder. Any
amendment or waiver effected in accordance herewith shall be binding upon
each such Holder, his heirs, personal representatives, successors and
assigns, and the Company.
(l) Entire Agreement. This Warrant constitutes the entire agreement
among the parties hereto and supersedes any and all prior agreements
whether written or oral.
(m) Transfer to Comply With the Securities Act of 1933.
(1) Restricted Securities. This Warrant or the Warrant Stock or
any other security issued or issuable upon exercise of this Warrant
may not be offered or sold except in conformity with the Securities
Act of 1933, as amended, and then only against receipt of an agreement
of such person to whom such offer of sale is made to comply with the
provisions of this Section (m) with respect to any resale or other
disposition of such securities.
(2) Restrictive Legend. The Company may cause the following
legend to be set forth on each certificate representing Warrant Stock
or any other security issued or issuable upon exercise of this
Warrant, unless counsel for the Company is of the opinion as to any
such certificate that such legend is unnecessary:
"The securities represented by this
certificate may not be offered for sale, sold
or otherwise transferred except pursuant to
an effective registration statement made
under the Securities Act of 1933 (the "Act"),
or pursuant to an exemption from registration
under the Act the availability of which is to
be established to the satisfaction of the
Company."
6
<PAGE>
(n) Applicable Law. This Warrant shall be governed by, and construed
in accordance with, the laws of the state of Colorado.
PAK MAIL CENTERS OF AMERICA, INC.
ATTEST:
/s/ Raymond S. Goshorn By:
- ---------------------------------- -------------------------------------
Raymond S. Goshorn, Secretary John E. Kelly, President
[ S E A L ] Date: January __, 1998
7
<PAGE>
PURCHASE FORM
Dated ________________, 19__
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing _________ shares of Common Stock and ereby makes
payment of $________ in payment of the actual exercise price thereof.
_________________________________
INSTRUCTION FOR REGISTRATION OF UNITS
Name____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
Signature_______________________________________________________________________
Social Security or Employer I.D. No.____________________________________________
_________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED,________________________________________________________
hereby sells, assigns and transfers unto________________________________________
________________________________________________________________________________
(Name - please typewrite or print in block letters)
Address_________________________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent the
_____ Shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint_________________________________________________________,
attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.
Signature:_________________________________
Dated:_____________________________________
8
WARRANT NO. 2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE, AND THE SECURITIES ISSUED UPON
EXERCISE HEREOF, MAY NOT BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT WHICH MUST BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
VOID AFTER 3:30 P.M., DENVER, COLORADO TIME, ON NOVEMBER 30, 2007.
Warrant to Purchase
604,264 Shares of Common Stock
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
PAK MAIL CENTERS OF AMERICA, INC.
This is to certify that, FOR VALUE RECEIVED, PAK MAIL INVESTMENT PARTNERSHIP
L.P. or registered assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from PAK MAIL CENTERS OF AMERICA, INC., a Colorado
corporation ("Company"), at any time not later than 3:30 p.m., Denver, Colorado
Time, on November 30, 2007 (the "Expiration Date") Six Hundred Four Thousand Two
Hundred and Sixty Four (604,264) shares of common stock, having $0.001 par
value, of the Company ("Common Stock") at an exercise price, subject to
adjustment as set forth below, of $0.10 per share. The number of shares of
Common Stock to be received upon the exercise of this Warrant and the price to
be paid for a share of Common Stock are subject to adjustment from time to time
as hereinafter set forth. The shares of the Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Stock" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price."
(a) Exercise of Warrant. Subject to the provisions of Sections (h) and
(m) hereof, this Warrant may be exercised in whole or in part at any time,
and from time to time not later than 3:30 p.m., Denver, Colorado time, on
November 30, 2007, or if November 30, 2007 is a day on which banking
institutions are authorized by law to close, then on the next succeeding
day which shall not be such a day, by presentation and surrender hereof to
the Company with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of shares
specified in such form, together with all federal and state taxes
applicable upon such exercise. If this Warrant should be exercised in part
only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the holder to
purchase the balance of the shares purchasable hereunder. Upon receipt by
the Company of this Warrant at the office or agency of the Company, in
<PAGE>
proper form for exercise, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such securities shall not then be
actually delivered to the Holder.
(b) Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of its Common Stock as shall be required for
issuance or delivery upon exercise of this Warrant.
(c) Exchange, Assignment or Loss of Warrant. This Warrant is
assignable and exchangeable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company or at the office of
its stock transfer agent, if any, for other Warrants of different
denominations entitling the holder thereof to purchase in the aggregate the
same number of shares of Common Stock purchasable hereunder. This Warrant
may not be sold, transferred, assigned, or hypothecated except in
compliance with the Securities Act of 1933, as amended, and any applicable
state securities laws. Any such assignment shall be made by surrender of
this Warrant to the Company or at the office of its stock transfer agent,
if any, with the Assignment Form annexed hereto duly executed and funds
sufficient to pay any transfer tax; whereupon the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee named
in such instrument of assignment and this Warrant promptly shall be
canceled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the office of the Company
or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants
are to be issued and signed by the Holder hereof. The term "Warrant" as
used herein includes any Warrants issued in substitution for or replacement
of this Warrant, or into which this Warrant may be divided or exchanged.
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification including
a surety bond, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new Warrant of like tenor
and date. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or
not this Warrant so lost, stolen, destroyed, or mutilated shall be at any
time enforceable by anyone.
(d) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder of the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent
set forth herein.
2
<PAGE>
(e) Anti-Dilution Provisions.
(1) Stock Splits and Stock Dividends. In case the Company shall
at any time issue Common Stock by way of dividend or other
distribution on any stock of the Company or subdivide or combine the
outstanding shares of Common Stock, the Exercise Price shall be
proportionately decreased in the case of such issuance (on the day
following the date fixed for determining shareholders entitled to
receive such dividend or other distribution) or decreased in the case
of such subdivision or increased in the case of such combination (on
the date that such subdivision or combination shall become effective).
(2) No Adjustment for Small Amounts. Anything in this Section (e)
to the contrary notwithstanding, the Company shall not be required to
give effect to any adjustment in the Exercise Price unless and until
the net effect of one or more adjustments, determined as above
provided, shall have required a change of the Exercise Price by at
least one cent, but when the cumulative net effect of more than one
adjustment so determined shall be to change the actual Exercise Price
by at least two cents, such change in the Exercise Price shall
thereupon be given effect.
(3) Number of Shares Adjusted. Upon any adjustment of the
Exercise Price, the holder of this Warrant shall thereafter (until
another such adjustment) be entitled to purchase, at the new Exercise
Price, the number of Shares, calculated to the nearest full share,
obtained by multiplying the number of shares of Common Stock initially
issuable upon exercise of this Warrant by the Exercise Price in effect
on the date hereof and dividing the product so obtained by the new
Exercise Price.
(4) Common Stock Defined. Whenever reference is made in this
Section (e) to the issue or sale of shares of Common Stock, the term
"Common Stock" shall mean the Common Stock of the Company of the class
authorized as of the date hereof and any other class of stock ranking
on a parity with such Common Stock. However, subject to the provisions
of Section (i) hereof, shares issuable upon exercise hereof shall
include only shares of the class designated as Common Stock of the
Company as of the date hereof.
(f) Officer's Certificate. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section (e) hereof, the Company
shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office, and with its stock transfer agent, if
any, an officer's certificate showing the adjusted Exercise Price
determined as herein provided and setting forth in reasonable detail the
facts requiring such adjustment and the calculation thereof. Each such
officer's certificate shall be made available at all reasonable times for
inspection by the Holder and the Company shall, forthwith after each such
adjustment, mail a copy of such certificate to the Holder.
3
<PAGE>
(g) Notices to Holders. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock or (ii) if the Company shall offer to
the holders of Common Stock for subscription or purchase by them any shares
of stock of any class or any other rights or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be delivered
to the Holder, at least 30 days prior to the date specified in (x) or (y)
below, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record is to be taken
for the purpose of such dividend, distribution or rights, or (y) such
reclassifica- tion, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the
date, if any, is to be fixed, as of which the holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation
or winding up.
(h) Reclassification, Reorganization or Merger. Upon the occurrence of
any of the following events, the Company shall cause effective provision to
be made so that the Holder shall have the right thereafter, by the exercise
of this Warrant, to purchase for the aggregate Exercise Price described in
this Warrant the kind and amount of shares of stock and other securities,
and property and interests, as would be issued or payable with respect to
or in exchange for the number of shares of the Company that are then
purchasable pursuant to this Warrant as if such shares had been issued to
the Holder immediately before such event: (1) the reclassification, capital
reorganization, or other similar change of outstanding shares of Common
Stock of the Company, other than as described and provided for in Section
(e) above; (2) the merger or consolidation of the Company with one or more
other corporations or other entities, other than a merger with a subsidiary
or affiliate pursuant to which the Company is the continuing entity and the
outstanding shares of Common Stock, including the Shares purchasable
pursuant to this Warrant, are not affected; or (3) the spin-off of assets
to a subsidiary or an affiliated entity, or the sale, lease, or exchange of
a significant portion of the Company's assets, in a transaction pursuant to
which the Company's shareholders of record are to receive securities or
other interests in a successor entity. Any such provision made by the
Company for adjustments with respect to this Warrant shall be as nearly
equivalent to the adjustments otherwise provided for in this Warrant as is
4
<PAGE>
reasonably practicable. The foregoing provisions of this Section (h) shall
similarly apply to successive reclassifications, capital reorganizations
and similar changes of shares of Common Stock and to successive
consolidations, mergers, spin-offs, sales, leases or exchanges.
(i) Dissolution. If, at any time prior to the expiration of this
Warrant and prior to the exercise thereof, any dissolution, liquidation or
winding up of the Company shall be proposed, the Company shall cause at
least 30 days' notice to be mailed by certified mail to the registered
holder of this Warrant at his address as it appears on the books of the
Company. Such notice shall specify the date as of which holders of record
of Common Stock shall participate in any distribution or shall be entitled
to exchange their Common Stock for securities or other property,
deliverable upon such dissolution, liquidation or winding up, as the case
may be; to the end that, during such period of 30 days, the holders of this
Warrant may exercise this Warrant and purchase Common Stock (or other stock
substituted therefor as hereinbefore provided) and be entitled in respect
of shares so purchased to all of the rights of the other holders of Common
Stock of the Company. In case of a dissolution, liquidation or winding up
of the Company, all purchase rights under this Warrant shall terminate at
the close of business on the date as of which holders of record of the
Common Stock shall be entitled to participate in a distribution of the
assets of the Company in connection with such dissolution, liquidation or
winding up (provided that in no event shall said date be less than 30 days
after completion of service by certified mail of notice as aforesaid). Any
Warrant not exercised prior to such time shall be void and no rights shall
exist thereunder. In any such case of termination of purchase rights, a
statement thereof shall be included in the notice provided for herein.
(j) Notice. Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in writing
and delivered personally (including by telex, telecopier, telegram or other
acknowledged receipt) or three days following deposit in the United States
mails, sent by registered or certified mail, return receipt requested,
addressed as follows:
Holder: Pak Mail Investment Partnership L.P.
701 Harger Road, Suite 190
Oakbrook, Illinois 60521
Company: Pak Mail Centers of America, Inc.
3033 South Parker Road, Suite 1200
Aurora, Colorado 80014
Attn: John E. Kelly, President
Any person may change the address for the giving of notice by notice duly
given effective five (5) business days thereafter.
5
<PAGE>
(k) Amendments and Waivers. Any term, condition or provision of this
Warrant may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Holder. Any
amendment or waiver effected in accordance herewith shall be binding upon
each such Holder, his heirs, personal representatives, successors and
assigns, and the Company.
(l) Entire Agreement. This Warrant constitutes the entire agreement
among the parties hereto and supersedes any and all prior agreements
whether written or oral.
(m) Transfer to Comply With the Securities Act of 1933.
(1) Restricted Securities. This Warrant or the Warrant Stock or
any other security issued or issuable upon exercise of this Warrant
may not be offered or sold except in conformity with the Securities
Act of 1933, as amended, and then only against receipt of an agreement
of such person to whom such offer of sale is made to comply with the
provisions of this Section (m) with respect to any resale or other
disposition of such securities.
(2) Restrictive Legend. The Company may cause the following
legend to be set forth on each certificate representing Warrant Stock
or any other security issued or issuable upon exercise of this
Warrant, unless counsel for the Company is of the opinion as to any
such certificate that such legend is unnecessary:
"The securities represented by this
certificate may not be offered for sale,
sold or otherwise transferred except
pursuant to an effective registration
statement made under the Securities Act
of 1933 (the "Act"), or pursuant to an
exemption from registration under the
Act the availability of which is to be
established to the satisfaction of the
Company."
6
<PAGE>
(n) Applicable Law. This Warrant shall be governed by, and construed
in accordance with, the laws of the state of Colorado.
PAK MAIL CENTERS OF AMERICA, INC.
ATTEST:
- -------------------------------- By:
Raymond S. Goshorn, Secretary -------------------------------------
John E. Kelly, President
[ S E A L ] Date: January __, 1998
7
<PAGE>
PURCHASE FORM
Dated ________________, 19__
The undersigned hereby irrevocably elects to exercise the within Warrant to
the exten of purchasing _________ shares of Common Stock and hereby makes
payment of $________ in payment of the actual exercise price thereof.
________________________________
INSTRUCTION FOR REGISTRATION OF UNITS
Name
____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
Signature_______________________________________________________________________
Social Security or Employer I.D. No.____________________________________________
________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED,________________________________________________________
hereby sells, assigns and transfers unto________________________________________
________________________________________________________________________________
(Name - please typewrite or print in block letters)
Address_________________________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent the
_____ Shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint_________________________________________________________,
attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.
Signature:___________________________________
Dated:_____________________________________
8
PAK MAIL CENTERS OF AMERICA, INC.
FRANCHISE AGREEMENT
Franchisee:
Date:
Franchised Location:
<PAGE>
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. A.M. P.M. MOVERS Program. .............................. 2
3.5. 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.................................... 4
5.4. Signs.................................................... 4
5.5. Equipment................................................ 4
5.6. Permits and Licenses..................................... 5
5.7. Commencement of Operations............................... 5
6. TRAINING............................................................... 5
6.1. Initial Training Program................................. 5
6.2. Length of Training....................................... 6
6.3. Additional Training...................................... 6
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............ 8
8.3. Changes to Operations Manual............................. 8
9. OPERATING ASSISTANCE................................................... 8
9.1. Franchisor's Services.................................... 8
9.2. Additional Franchisor Services........................... 9
<PAGE>
10. FRANCHISEE'S OPERATIONAL COVENANTS.................................... 9
10.1. Business Operations...................................... 9
11. ROYALTIES............................................................. 11
11.1. Monthly Royalty.......................................... 11
11.2. Royalty Based 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................... 13
12.3. Advertising Contribution................................. 13
12.4. Regional Advertising Programs............................ 15
13. QUALITY CONTROL....................................................... 15
13.1. Compliance with Operations Manual........................ 15
13.2. Standards and Specifications............................. 15
13.3. Inspections.............................................. 16
13.4. Restrictions on Services and Products.................... 16
13.5. Approved Suppliers....................................... 16
13.6. Request to Approve Supplier.............................. 16
13.7. Shopping Service......................................... 17
14. MARKS, TRADE NAMES AND PROPRIETARY INTERESTS.......................... 17
14.1. Marks.................................................... 17
14.2. No Use of Other Marks.................................... 17
14.3. System................................................... 17
14.4. Mark Infringement........................................ 18
14.5. Franchisee's Business Name............................... 18
14.6. Change of Marks.......................................... 18
15. REPORTS, RECORDS AND FINANCIAL STATEMENTS............................. 18
15.1. Franchisee Reports....................................... 18
15.2. Verification............................................. 19
15.3. Books and Records........................................ 19
15.4. Audit of Books and Records............................... 19
16. TRANSFER.............................................................. 20
16.1. Transfer by Franchisee................................... 20
16.2. Pre-Conditions to Franchisee's Transfer.................. 20
16.3. Franchisor's Approval of Transfer........................ 21
16.4. Right of First Refusal................................... 21
16.5. Specific Types of Transfers.............................. 22
<PAGE>
16.6. Assignment by the Franchisor............................. 23
16.7. Franchisee's Death or Disability......................... 23
17. TERM AND EXPIRATION................................................... 23
17.1. Term..................................................... 23
17.2. Rights Upon Expiration................................... 23
17.3. Exercise of Option for Successor Franchise............... 24
17.4. Conditions of Refusal.................................... 24
18. DEFAULT AND TERMINATION............................................... 24
18.1. Termination by Franchisee................................ 24
18.2. Termination by Franchisor - Effective Upon Notice........ 25
18.3. Termination by Franchisor - Thirty Days Notice........... 26
18.4. Right to Purchase........................................ 27
18.5. Obligations of Franchisee Upon Termination or Expiration. 28
18.6. Acknowledgement.......................................... 29
18.7. State and Federal Law.................................... 29
19. BUSINESS RELATIONSHIP................................................. 30
19.1. Independent Businesspersons.............................. 30
19.2. Payment of Third Party Obligations....................... 30
19.3. Indemnification.......................................... 30
20. RESTRICTIVE COVENANTS................................................. 30
20.1. Non-Competition During Term.............................. 30
20.2. Post-Termination Covenant Not to Compete................. 31
20.3. Confidentiality of Proprietary Information............... 32
20.4. Confidentiality Agreement................................ 32
21. INSURANCE............................................................. 32
21.1. Insurance Coverage....................................... 32
21.2. Proof of Insurance Coverage.............................. 32
22. MISCELLANEOUS PROVISIONS ............................................. 33
22.1. Governing Law/Consent to Venue and Jurisdiction.......... 33
22.2. Modification............................................. 33
22.3. Entire Agreement......................................... 33
22.4. Delegation by the Franchisor............................. 34
22.5. Effective Date........................................... 34
22.6. Review of Agreement...................................... 34
22.7. Attorneys' Fees.......................................... 34
22.8. Injunctive Relief........................................ 34
22.9. No Waiver................................................ 34
22.10. No Right to Set Off...................................... 34
22.11. Invalidity............................................... 34
<PAGE>
22.12. Notices.................................................. 35
22.13. Acknowledgement.......................................... 35
EXHIBITS
--------
I. Addendum to Franchise Agreement - Location Approval
II. Guaranty and Assumption of Franchisee's Obligations
III. Statement of Ownership
IV. Authorization Agreement for Prearranged Payments
<PAGE>
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, communications and information 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.
<PAGE>
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. A.M. P.M. MOVERS Program. The Franchisor may offer the Franchisee the
opportunity to participate in the "A.M. P.M. MOVERS Program," whereby local
moving services for individuals and small business customers are either provided
by the Franchisee or arranged by the Franchisee with a third party using the
A.M. P.M. MOVERS Mark. The Franchisee may not participate in the A.M. P.M.
MOVERS Program without the Franchisor's prior written permission, which will be
given when the Franchisor and the Franchisee sign the Franchisor's then current
A.M. P.M. MOVERS Program Amendment to this Agreement.
3.5. 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
2
<PAGE>
products similar to those which the Franchisee sells, 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 $23,950 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
3
<PAGE>
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 Franchisee'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 other designated equipment as are
consistent with the standards and specifications of the Franchisor.
4
<PAGE>
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.
5
<PAGE>
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
6
<PAGE>
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 Franchis- or's determination,
the Franchisee or the Principal Operator have had sufficient prior training
or experience.
g. The Franchisor will grant the Franchisee a nonexclusive,
nontransferable 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.
7
<PAGE>
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 franchisees.
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.
8
<PAGE>
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.
9
<PAGE>
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.
10
<PAGE>
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 "Royalty
Based Revenues" (defined in Section 11.2 below) for the first $200,000 of the
Center's Royalty Based Revenues, 4 1/2% for the next $50,000 of the Center's
Royalty Based Revenues, 4% for the next $50,000 of the Center's Royalty Based
Revenues, 3 1/2% for the next $50,000 of the Center's Royalty Based Revenues,
and 3% for all subsequent Royalty Based Revenues of the Center received in that
calendar year.
11.2. Royalty Based Revenues. "Royalty Based 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 by electronic funds transfer no later than the 10th day of each
month or such other day which the Franchisor will designate from time to time
("Due Date") based on Royalty Based Revenues for the immediately preceding
month. At the Franchisor's request and in no event later than 30 days prior to
the opening of the Center, the Franchisee shall execute an Authorization
Agreement for Prearranged Payment of Royalties by electronic transfer of funds
from the Franchisee's bank account to the Franchisor's bank account, in the form
attached to this Agreement as Exhibit IV. No later than the Due Date of each
month, the Franchisee shall report to the Franchisor by electronic means or in
written form, as may be reasonably directed by the Franchisor, in a manner more
fully described in Section 15.1 below, with such information and pursuant to
such standard transmittal procedures regarding the Franchisee's Royalty Based
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 have sufficient funds in its
account or otherwise fails to pay any Royalties as of the Due Date, the
Franchisee shall owe, in addition to such Royalties, 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
11
<PAGE>
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 monthly $50 late charge for any report and/or financial
statement required under Section 15.1 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 Contributions, purchases from the
Franchisor or its affiliates, 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, Internet advertising, including on the World Wide
Web, 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
<PAGE>
12.3. Advertising Contribution. The Franchisee shall contribute to an
advertising fund established by the Franchisor ("Advertising Fund") a fee equal
to 2% of the total amount of the Franchisee's Royalty Based 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 to "Pak Mail National
Ad Fund" and made concurrently with the payment of the Royalties by
electronic transfer of funds from the Franchisee's bank account to a bank
account designated by the Franchisor, no later than the 10th day of each
month, for the Advertising Contribution based on the Royalty Based 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.
13
<PAGE>
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, may 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 form and terminate all Associations and 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
Association in the form of a cooperative for a particular region and enable the
cooperative Association to self-administer the regional advertising program.
14
<PAGE>
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
15
<PAGE>
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. Except as may be permitted in the Operations Manual,
the Franchisee agrees not to use any of the Marks as part of an electronic mail
address or on any sites on the Internet or the World Wide Web and the Franchisee
agrees not to use or register any of the Marks as a domain name on the Internet.
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.
16
<PAGE>
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.
17
<PAGE>
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 Royalty
Based 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.
18
<PAGE>
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 information, 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 Royalty Based 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;
19
<PAGE>
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
20
<PAGE>
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
21
<PAGE>
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.
22
<PAGE>
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 $2,500.
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.
23
<PAGE>
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.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;
24
<PAGE>
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;
25
<PAGE>
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.
26
<PAGE>
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;
27
<PAGE>
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.
28
<PAGE>
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.
29
<PAGE>
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
30
<PAGE>
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.
31
<PAGE>
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
32
<PAGE>
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 obligations 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 reasonable 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. If the Franchisor seeks an injunction, the
Franchisor will not be required to post a bond in excess of $500.
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.
33
<PAGE>
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.
34
<PAGE>
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:
------------------ -------------
(___/___/98)
35
<PAGE>
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:
- -------------------------------------------------------------------------------.
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:
-----------------------------------------
<PAGE>
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:
---------------------------------------
<PAGE>
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 nonperfor- mance 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)
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
<PAGE>
EXHIBIT III
TO FRANCHISE AGREEMENT
STATEMENT OF OWNERSHIP
Franchisee:
---------------------------------------------------------------------
Trade Name (if different from above):
------------------------------------------
- --------------------------------------------------------------------------------
Form of Ownership
(Check One)
Limited
______ Individual ______ Partnership ______ Corporation ______ Liability
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
<PAGE>
EXHIBIT IV
TO FRANCHISE AGREEMENT
AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS
(DIRECT DEBITS)
The undersigned depositor ("Depositor") hereby (1) authorizes Pak Mail Centers
of America, Inc. ("Company") to initiate debit entries and/or credit correction
entries to the undersigned's checking and/or savings account indicated below and
(2) authorizes the depository designated below ("Depository") to debit such
account pursuant to Company's instructions.
- -------------------------------------- -------------------------------
Depository Branch
- ------------------------- ----------------------- ----------------------
City State Zip Code
- ----------------------- -------------------------
Bank Transit/ABA Number Account Number
This authority is to remain in full force and effect until Depository has
received joint written notification from Company and Depositor of the
Depositor's termination of such authority in such time and in such manner as to
afford Depository a reasonable opportunity to act on it. Notwithstanding the
foregoing, Depository shall provide Company and Depositor with 30 days' prior
written notice of the termination of this authority. If an erroneous debit entry
is initiated to Depositor's account, Depositor shall have the right to have the
amount of such entry credited to such account by Depository, if (a) within 15
calendar days following the date on which Depository sent to Depositor a
statement of account or a written notice pertaining to such entry or (b) 45 days
after posting, whichever occurs first, Depositor shall have sent to Depository a
written notice identifying such entry, stating that such entry was in error and
requesting Depository to credit the amount thereof to such account. These rights
are in addition to any rights Depositor may have under federal and state banking
laws.
- -------------------------------------- -----------------------------------
DEPOSITOR (Print Name) DEPOSITORY (Print Name)
By: By:
----------------------------------- -------------------------------
Its: Its:
---------------------------------- -------------------------------
Date: Date:
--------------------------------- ------------------------------
PAK MAIL CENTERS OF AMERICA, INC.
MANAGEMENT INCENTIVE PLAN
Fiscal Year 1997
I. Purpose
-------
The Pak Mail Centers of America, Inc. Management Incentive Plan (MIP) has
been established for fiscal year 1997 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.
<PAGE>
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.
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 financial goals as set forth in the annual
business plan. The relationship of actual achievement to the
performance range will be determined by using straight-line
interpolation 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 earned or 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.
2
<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
3
<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 which 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.
4
<PAGE>
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 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.
5
<PAGE>
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.
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.
6
<PAGE>
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.
2-4-97 /s/ F. Edward Gastafson
--------------------- --------------------------------
Final Approval Date Executive Committee of the Board
/s/ John E. Kelly
--------------------------------
Chief Executive Officer
Exhibit (21)
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Subsidiary Jurisdiction of Incorporation
- ---------- -----------------------------
Pak Mail Crating & Freight Delaware
Service, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<CASH> 87,405
<SECURITIES> 0
<RECEIVABLES> 363,830
<ALLOWANCES> 101,039
<INVENTORY> 34,514
<CURRENT-ASSETS> 576,395
<PP&E> 448,730
<DEPRECIATION> 386,838
<TOTAL-ASSETS> 1,751,040
<CURRENT-LIABILITIES> 479,665
<BONDS> 0
0
2,216,668
<COMMON> 2,990
<OTHER-SE> (1,481,801)
<TOTAL-LIABILITY-AND-EQUITY> 1,751,040
<SALES> 748,148
<TOTAL-REVENUES> 4,164,330
<CGS> 675,685
<TOTAL-COSTS> 1,967,689
<OTHER-EXPENSES> 2,004,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,493
<INCOME-PRETAX> 191,820
<INCOME-TAX> (136,100)
<INCOME-CONTINUING> 327,920
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 327,920
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
