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, 1999
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANG
ACT OF 1934
For the transition period from ________________ to ______________.
Commission file Number: 0-18686
PAK MAIL CENTERS OF AMERICA, INC.
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(Name of small business issuer in its charter)
Colorado 84-0934575
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) (Identification No.)
7173 South Havana, Suite 600, Englewood, CO 80112
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 303-957-1000
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. [ ]
The Issuer's revenues for its most recent fiscal year were $5,085,660.
The aggregate market value of the Issuer's voting stock held as of a recent date
by non-affiliates 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 18, 2000, the Issuer had 3,873,738 shares of its $0.001 par value
common stock issued and outstanding.
Transitional small business disclosure format: YES NO X
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PAK MAIL CENTERS OF AMERICA, INC.
1999 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART I Page No.
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Item 1. Description of Business...........................................1
Item 2. Description of Property...........................................6
Item 3. Legal Proceedings.................................................6
Item 4. Submission of Matters to Vote of Security Holders.................7
PART II
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Item 5. Market for Common Equity and Related Stockholder Matters..........7
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..............................8
Item 7. Financial Statements.............................................11
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..............................11
Part III
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Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.......12
Item 10. Executive Compensation...........................................14
Item 11. Security Ownership of Certain Beneficial Owners and Management...16
Item 12. Certain Relationships and Related Transactions...................19
Item 13. Exhibits and Reports on Form 8-K ................................20
Signatures.......................................................22
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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
Company is principally engaged in franchising of retail service centers which
specialize in the packaging and shipping business ("Pak Mail Centers" or
"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.
(b) Business of Issuer.
(1)(2) Principal Products or Services; Distribution Methods. The Company'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 18, 2000, there were 410 individual franchises and
38 area agreements in existence.
Franchise Program
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The Company offers individual franchise agreements and area marketing
agreements. Individual franchisees are granted the nonexclusive right, within a
specified area, to use the Pak Mail trademarks as well as Pak Mail's proprietary
operating procedures, techniques, forms, equipment and advertising materials in
the operation of a Pak Mail Center. 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 and the
marketing efforts of its area marketers and developers.
Franchise Agreements, Fees and Related Matters
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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 $27,950, although franchisees who 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
$580 and $900 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
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in each calendar year of five percent of the first $200,000 of the franchisee's
royalty based revenues, plus four and one-half percent for the next $50,000 of
royalty based revenues, plus four percent for the next $50,000 of royalty based
revenues, plus three and one-half percent for the next $50,000 of royalty based
revenues, plus 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
their franchise rights.
Area 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 marketing agreement grants the right to market franchises within a
specified territory using certain of the Company's trademarks. When an area
marketer successfully markets an individual franchise in its territory, the
Company typically pays the area marketer 40% of the franchise fee paid by the
individual franchisee. 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 marketing agreements based on special
circumstances affecting the geographic area and the area marketer.
Area Developer Franchises
The Company no longer offers area developer agreements. Under area
developer agreements previously entered into, initial franchise fees paid to the
Company by individual franchisees 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, the Company retains all fees and royalties.
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 franchisee 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.
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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,
1999, there were ten international franchise agreements in existence with
respect to geographic areas in the Mexican cities of Mexico City and
Guadalajara, the Mexican states of Baja California and Sonora and the countries
of Chile, Argentina, Venezuela, Honduras, Panama, Nicaragua, El Salvador, Costa
Rica, Belize, Guatemala, 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
nine day training class with regard to packaging, pricing and available shipping
and mailing services; preparation and execution of marketing and placement of
advertising; record keeping and systems operation; the Company's proprietary
software; soliciting and servicing customers; selecting and training personnel;
and store 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 three days of on-the-job training in an individual
franchisee's 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 hardware and 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 assistance 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
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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.
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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, 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.
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 New Product or Service. For the past three years, the
Company has been developing a software program ("Program") for inclusion in the
computerized point of sale system ("POS System") required to be used by Pak Mail
franchisees in their Centers. Management's decision to develop the Program was
based upon two main issues: software purchased from third parties did not handle
specific industry needs and requirements or meet the requirements of the
Company's unique markets, and the software previously used was not fully Year
2000 compliant. During fiscal 1999, the Company was granted a copyright
registration on the Program. Total capitalized expenditures for development of
the POS System through November 30, 1999 were $850,854. Early release of the
Program started in December of 1999 and conversion of the entire franchise
system was completed by February 7, 2000. Capitalization of development costs
for the POS System ended on November 30, 1999. All additional expenditures are
being expensed as incurred. The Company charges the franchisees an annual fee of
$500 to $600 for maintaining, servicing and developing updates for the Program
as needed. It is expected that the new POS System will lower operating costs of
the Centers and give Pak Mail franchisees a competitive advantage.
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(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 ("USPTO"). The service mark
registration expires in December 2000, and the logo expires in 2005. The Company
intends to renew its registrations before they expire. The Company has
registered several other related service marks on the Principal Register of the
USPTO, and has registered the service mark "Pak Mail" and the Pak Mail logo in
several international countries.
(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 laws applicable to franchise operations and
relationships are 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.
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(10) Research and Development. In developing the Company's new POS
System, the Company spent $227,005 in fiscal 1998 and $499,647 in fiscal 1999.
The Company's new franchisees are required to purchase the POS System when they
establish a Center and existing franchisees are required to purchase updates to
their existing system to that of a POS System. Other than developing the POS
System, 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 November 30, 1999, the Company had 22 employees,
all of whom are full time employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices are located in approximately 12,540 square
feet of office space in Englewood, Colorado under a lease expiring in May 2006
with a base rental currently at approximately $14,940 per month and rising to
approximately $15,840 per month by the end of the term. The Company is the first
tenant in this office space and the offices are in excellent condition.
ITEM 3. LEGAL PROCEEDINGS
On October 6, 1999 the Company received a judgment against Jaime Mercado in
United States District Court Civil Action No. 98-WM-2391 in the amount of
$24,476.06. The judgment against Mercado included an injunction precluding
Mercado from using the Company's trademarks, trade secrets, operations manual
and software. An identical injunction had previously been entered in the same
action against Mercado's company Golden Commerce, Inc. as well as judgment
against such company in the amount of $21,326.96 together with costs of $309.38.
Interest is accruing on both judgments at the statutory rate. All counterclaims
of Mercado and his Company were dismissed with prejudice. The Company has
retained collection counsel on a contingency basis in Miami, Florida and intends
to otherwise vigorously police the injunctions entered in this matter.
On February 4, 2000 the Company filed Arapahoe County District Court Case
No. 00 CV 295, Division 5 against its Ramona, California franchisee, Sherry
Foreman. The Complaint asserts causes of action for breach of contract and
unjust enrichment and seeks to recover $12,415 in past royalties and advertising
fees, $63,000 in future royalties and $11,095.33 for sums advanced on Foreman's
behalf. The Complaint is currently out for service and thus no counterclaims are
pending as of this date. Consequently, it is too soon to assess the likelihood
of an unfavorable outcome. The Company intends to pursue this matter diligently
and, if applicable, defend itself vigorously against any counterclaim.
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Other than the civil actions described above, no litigation is required to
be disclosed in this Item 3.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of the Company's security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
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The Company's common stock is sporadically traded in the over-the-counter
market. During fiscal 1999 and 1998 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.
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As of February 18, 2000, the Company had 1,134 holders of record of its
$0.001 par value common stock.
(c) Dividends.
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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 has issued and outstanding 2,216.668 shares of its Series
C Preferred Stock, which have a 6% annual dividend payable on March 31 of each
year. The Company must pay all dividends in arrears on the Series C Preferred
Stock before any dividends may be paid or declared and set aside for payment and
before any other distribution may be made on the Company's common stock. The
Company does not anticipate paying any cash dividends on its common stock in the
foreseeable future.
(d) Recent Sales of Unregistered Securities
---------------------------------------
On January 26, 1998, the Company designated 2,500 shares of its $1,000 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
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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, 1998, 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, with an exercise price of $0.10 per share and an
expiration date of November 30, 2007. In April 1999, the warrants were exercised
and the Company issued 884,264 shares were of its common stock for $88,426.40
that it received in connection with the exercise of the warrants.
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
Changes in Accounting Principle Imposed by the SEC
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The Company changed its accounting policy to reflect a decision made by the
Securities and Exchange Commission ("SEC") in December 1999 relative to the
recognition of area developer/marketer franchise fee revenue. Revenue from area
developer/marketer agreements is now initially deferred and recognized on a
straight line basis over the life of the agreement. The Company's policy in
previous fiscal years was to recognize sales to area developers/marketers on a
cash received basis. As cash was received on a sales contract, the Company
recognized the associated income. The area marketing agreements were typically
executed for a 5 year period. Under the new method, all payments received must
be capitalized and amortized over the life of the agreement regardless of cash
flow and the new method is applied retroactively on all contracts in existence.
This accounting method change has had an immense negative impact on the
Company's net income attributable to common shares of $340,580 for fiscal 1999
and nearly eliminated all reported earnings. Fiscal 1999 area franchise fees
were reduced by $237,752 and the prior year's cumulative effect net of income
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tax benefits was a negative $140,728. In comparing fiscal 1998 earnings to
fiscal 1999 earnings, this adjustment must be taken into consideration. Due to
this accounting method change, the Company will recognize $125,000 in area
franchise fee revenue amortized into income during the fiscal year ending
November 30, 2000 from sales made in previous fiscal years.
This change is strictly an accounting reporting issue and has no affect on
cash flow or the Company's business operations.
Liquidity and Capital Resources
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The Company had cash provided from operating activities of $11,661 during
fiscal 1999 compared to cash provided from operating activities of $206,712
during fiscal 1998. Other sources of cash were a line of credit with KeyBank of
which $20,000 had been withdrawn by the Company as of November 30, 1999, a
$100,000 loan from D.P. Kelley & Associates LP, a shareholder of the Company,
and the exercise of warrants issued in 1998 generating $88,426. A significant
portion of the cash generated during the fiscal years ended November 30, 1998
and November 30, 1999 was used to pay for capitalized software costs.
At November 30, 1999, the average age of accounts receivable was
approximately 58 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
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Financial statements for the year ended November 30, 1997 are included
strictly for franchising purposes and no comparisons will be included in
management's discussion and analysis.
Fiscal 1999 Compared to Fiscal 1998
-----------------------------------
The Company's recorded net income from operations for fiscal 1999 was
$368,789 compared to $430,686 in fiscal 1998. The $61,897 reduction was
attributable to an increase in revenues (up 10% from $4,615,467 to $5,085,660)
offset by a larger increase in costs and expenses (up 13% from $4,184,781 to
$4,716,871). The 10% increase in revenues includes and reflects a $237,752
reduction in area franchise fee revenue due to the change in accounting
principle. The Company's net income attributable to common shares was further
impacted by the change in accounting principle, which had a negative cumulative
effect of $140,728, net of a $72,500 income tax benefit.
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After giving effect to the change in accounting principle, the 10% increase
in revenues for fiscal 1999 compared to fiscal 1998 was primarily attributable
to a 10% increase in royalties from franchisees, a 24% increase in individual
franchise fees, and a 48% increase in sales of equipment, supplies and services,
offset by a 56% decrease in area franchise fees. Excluding the effect of the
change in accounting principle, the Company's revenues for fiscal 1999 would
have increased 15%, as the decrease in area franchise fees results from a 21%
decrease in area franchise fees from the prior fiscal year and a 35% decrease
due to the change in accounting principle.
The $229,971 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 $206,330 increase in individual franchise fees is represented by an
increase in franchise sales recognized during the fiscal year ended November 30,
1999. The Company awarded 50 individual franchises in fiscal 1998 and 37 in
fiscal 1999. In fiscal 1998, the Company recognized revenue on 36 individual
franchises awarded, whereas the Company recognized revenue on 48 individual
franchises in fiscal 1999. There were 14 individual franchises awarded but
deferred as of November 30, 1998 and 3 individual franchises awarded but
deferred as of November 30, 1999.
The $357,242 increase in sales of equipment, supplies and services is
associated with the new software package that the Company brought to market in
fiscal 1999, reflecting the Company's commitment to state-of-the-art computer
systems and software for all franchisees. By supplying the computer systems to
the franchisees, the Company can insure that the systems in use by its
franchisees are compatible with its proprietary software.
The $382,459 decrease in area franchise fees is due primarily to a $237,752
reduction in fiscal 1999 from the change in accounting principle, and a large
single sale that occurred in fiscal 1998. The Company realized area franchise
fees of $500,000 during fiscal 1998 on the sale relating to the country of
Japan.
The $532,090 increase in costs and expenses is primarily attributable to a
35% increase in the cost of sales of equipment for fiscal 1999 compared to
fiscal 1998. The cost of these items has gone up proportionately with the
increase in sales.
The $146,662 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, 1999 compared to the same
prior year period.
The only other significant cost increase was in rent. During fiscal 1999,
the Company moved the corporate offices to a new facility, which has a
sufficient power supply to support the Company's increased use of computers. The
assumption was made that the previously rented office facilities would be
sub-let. However, no tenant has been found to date and the existing lease will
expire in April of 2000.
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Prior to December 31, 2000, the Company had taken steps to identify,
correct, reprogram and test its computer and banking systems with respect to the
Year 2000 issues associated with the programming code rollover of the two-digit
year value to 00 on January 1, 2000. The Company's expenditures to alleviate any
Year 2000 issues were not material during the fiscal year ended November 30,
1999. As of February 18, 2000, the Company, to the best of its knowledge, has
not experienced any significant Year 2000 problems with its computer or banking
systems and is not aware of any Year 2000 problems for its franchisees or
suppliers.
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
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. Three
years of Financial Statements are presented in this filing. The two most recent
years are compared to each other, fiscal 1999 and fiscal 1998. Fiscal 1997 is
presented for informational purposes only.
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.
11
<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, 59 September, 1989 Executive officer of the Company
(President, Chief Executive since September, 1989.
Officer and Director)
P. Evan Lasky, 58 March, 1988 Executive officer of the Company
(Executive Vice President since March, 1988.
and Chief Operating Officer)
James Q. Race, 50 December, 1999 Executive officer of the Company since
(Controller, Treasurer, Secretary) December, 1999; consultant for George S. May
International Company, a business consulting
company, from May, 1999 to
December, 1999; Controller of R & S Steel
Co. from 1996 to May, 1999; and Controller of
Nelowet Business Machines, a copier sales
and service company, from 1992 to 1996.
Tonya D. Sarina, 38 December, 1996 Executive officer of the Company since
(Vice President of December 1996; marketing manager of the
Sales and Marketing) Company from March, 1991 through November, 1996.
12
<PAGE>
Name, Age and Director or Principal Occupation
Position in the Company Officer Since During the Last Five Years
- ----------------------- ------------- --------------------------
Alex Zai, 40 May, 1996 Executive officer of the Company since May,
(Vice President of 1996; director of store operations of the
Store Operations) Company since April, 1994.
J. S. Corcoran, 56 September, 1989 Self-employed as a business consultant since
(Director) 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 and food service
supplies, from June, 1989 to March, 1996.
John W. Grant, 75 September, 1989 Retired since September, 1987.
(Director)
F. Edward Gustafson, 58 September, 1989 Executive officer of D.P. Kelly & Associates
(Director) L.P., 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, 68 September, 1989 Executive officer of Whitnell & Co., an
(Director) Passed away in December investment advisory firm, since January,
1999. Position will be filled when 1988; executive officer of Donegal, Inc., an
practicable investment management firm, since January, 1991.
13
</TABLE>
<PAGE>
(b) Identification of Certain Significant Employees.
----------------------------------------------------
Not Applicable.
(c) Family Relationships.
-------------------------
Not Applicable.
(d) Involvement in Certain Legal Proceedings.
---------------------------------------------
Not Applicable.
(e) Section 16(a) Beneficial Ownership Reporting Compliance.
------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than 10% of the Company's
outstanding common stock to file reports of ownership with the SEC. Officers,
directors and greater than 10% shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of Form 3, 4 and 5 and amendments thereto
furnished to the Company during and for the Company's fiscal year ended November
30, 1999, there were no directors, officers or more than 10% shareholders of the
Company that failed to timely file a Form 3, Form 4 or Form 5, other than F.
Edward Gustafson, who failed to file a Form 4 for one transaction, D. P. Kelly &
Associates, which failed to file a Form 4 for two transactions and Pak Mail
Investment Partners, L.P., which failed to file a Form 4 for one transaction.
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, 1999, November 30,
1998 and November 30, 1997 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).
14
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Other Annual
Principal Position Fiscal Year Salary Bonus Compensation
- ------------------ ----------- ------ ----- ------------
<S> <C> <C> <C> <C>
John E. Kelly 1999 $146,000 $33,016 (1) $8,520(2)
President and Chief 1998 $138,000 $47,472 (1) $7,980(2)
Executive Officer 1997 $131,040 $44,554 (1) $7,980(2)
P. Evan Lasky 1999 $102,000 $19,573 (1) -0-
Executive Vice 1998 $ 96,000 $28,205 (1) -0-
President and Chief 1997 $ 91,000 $21,840 (1) -0-
Operating Officer
</TABLE>
- ----------------
(1) Bonus was earned in the fiscal year indicated, although it may have
been paid in the following fiscal year.
(2) The amount for fiscal 1999 consists of a $4,800 car allowance and
$3,720 of country club dues 1998 and 1997 consists of a $4,800 car
allowance and $3,180 of country club dues.
Stock Option Plans.
-------------------
Effective January 1, 1999, the Company adopted the 1999 Incentive and
Nonstatutory Stock Option Plan ("1999 Plan"). The 1999 Plan authorizes the
granting of options to employees and non-employee directors of the Company to
purchase an aggregate of 400,000 shares of the Company's common stock. No
options may be granted after December 31, 2008 under the 1999 Plan. For the
fiscal year ended November 30, 1999, employees of the Company were issued
options under the 1999 Plan to purchase a total of 157,227 shares of the
Company's common stock at $.75 per share expiring in December 2009. There were
no options issued during the year ended November 30, 1998.
Options/SAR Grants.
-------------------
The following table sets forth the individual grants of stock options made
during the last completed fiscal year to each of the named executive officers:
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Number of Securities Percent of Total
Underlying Options Options Granted to
Granted Employees in Fiscal Exercise
Name Year Price Expiration Date
- -------------------- ---------------------- ----------------------- ------------ ------------------------
<S> <C> <C> <C> <C>
John E. Kelly 30,000 19.1% $0.75 December 31, 2009
P. Evan Lasky 22,000 14.0% $0.75 December 31, 2009
</TABLE>
15
<PAGE>
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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a)(b) Security Ownership of Certain Beneficial Owners and Management.
----------------------------------------------------------------------
The following table sets forth as of February 18, 2000, the number of
shares of the Company's $0.001 par value common stock, its only class of
outstanding voting securities, beneficially owned by each of the Company's
current directors and executive officers, by all of the Company's current
directors and executive officers as a group, and by each person who owned of
record, or was known to own beneficially, more than 5% of the Company's
outstanding shares of common stock:
16
<PAGE>
Name and Address Amount and Nature of Percent
Of Beneficial Holder Beneficial Ownership(1) of Class
- -------------------- ----------------------- --------
J. S. Corcoran 2,405,264(2) 62.1%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
John W. Grant 800(3) (7)
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
F. Edward Gustafson 2,925,578(2)(4) 75.5%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
John E. Kelly 30,000 (7)
3033 S. Parker Road, Suite 1200
Aurora, Colorado 80014
William F. White Estate 2,000 (7)
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
P. Evan Lasky 22,000 (7)
3033 S. Parker Road, Suite 1200
Aurora, Colorado 80014
All directors and executive officers 2,932,878(2)(4) 75.7%
as a group (9 persons)
D.P. Kelly and Associates, L.P. 492,814 12.7%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
Donald P. Kelly 2,966,184(2)(4) 76.6%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
Pak Mail Investment Partnership L.P. 2,404,264 62.1%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
- -------------------
(1) The beneficial owners listed have sole voting and investment power
with respect to the shares shown unless otherwise indicated.
(2) Includes 2,404,264 shares of common stock owned by Pak Mail Investment
Partners, L.P. ("PMIP"). Messrs. Corcoran, Gustafson and Donald Kelly
are officers, directors and shareholders of Norcross Corporation, 701
Harger Road, Suite 190, Oak Brook, Illinois 60523, which exercises
17
<PAGE>
control over PMIP, and may be deemed to have the ability to vote or
dispose of securities owned by PMIP. Therefore, they may be deemed to
be the beneficial owners of such shares of common stock for the
purposes of this table. However, for purposes of Rule 16a-1 adopted
under the Securities Exchange Act of 1934, as amended, Messrs.
Corcoran, Gustafson and Donald Kelly disclaim beneficial ownership of
the shares of common stock owned by PMIP, except to the extent of each
of their respective pecuniary interests in PMIP.
(3) Shares owned jointly by Mr. Grant and his wife.
(4) Includes 492,814 shares of common stock owned by D.P. Kelly and
Associates, L.P. ("D.P. Kelly"). Messrs. Gustafson and Donald Kelly
are principals and executive officers of D.P. Kelly and may be deemed
to have the ability to vote or dispose of securities owned by D.P.
Kelly. Therefore, they may be deemed to be the beneficial owners of
such shares of common stock for the purposes of this table. However,
for purposes of Rule 16a-1 adopted under the Securities Exchange Act
of 1934, as amended, Messrs. Gustafson and Donald Kelly disclaim
beneficial ownership of the shares of common stock owned by D.P.
Kelly, except to the extent of each of their respective pecuniary
interest in D.P. Kelly.
(5) Consists of 30,000 shares underlying stock options that are
exercisable at $0.75 per share, which vest as follows: 10,000 shares
on January 1, 2000, 10,000 shares on January 1, 2001, and 10,000
shares on January 1, 2002.
(6) Consists of 22,000 shares underlying stock options that are
exercisable at $0.75 per share, which vest as follows: 7,333 shares on
January 1, 2000, 7,333 shares on January 1, 2001, and 7,333 shares on
January 1, 2002.
(7) Less than 1%.
(c) Changes in Control. Not Applicable.
--------------------
18
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a)(b) Transactions With Management and Others and Certain Business
Relationships.
- --------------------------------------------------------------------------------
In December 1997, the Company paid in full two outstanding promissory notes
with an original principal balance of $50,000 each to D.P. Kelly, an affiliate
and limited partner of PMIP. The promissory notes were made on February 14,
1996. In February 1998, D.P. Kelly became the beneficial owner of more than 5%
of the Company's outstanding shares of Common Stock.
In February 1998, effective November 30, 1997, PMIP and D.P. Kelly
relinquished any rights to dividends in the respective amounts of $604,264 and
$280,000 on the shares of Series A Preferred Stock and Series B Preferred Stock
they owned in the Company in exchange for shares of Series C Preferred Stock
with the same aggregate liquidation preferences as the Series A Preferred Stock
and Series B Preferred Stock they previously owned. In addition, as a part of
the exchange, PMIP and D.P. Kelly received warrants to purchase 604,264 shares
of the Company's Common Stock and warrants to purchase 280,000 shares of the
Company's Common Stock, respectively, that were exercisable until November 30,
2007 at an exercise price of $0.10 per share. Both PMIP and D. P. Kelly
exercised all of their outstanding warrants on April 6, 1999.
The Series A Preferred Stock and Series B Preferred Stock had cumulative
dividends of $80 per year on each share of Series A Preferred Stock; provided
that, no dividends were payable on the Series A Preferred Stock or Series B
Preferred Stock until the Company's net income from and after December 1, 1993,
exceeded the product of $200,000 multiplied by the number of years elapsed from
December 1, 1993, through the last day of the fiscal year next proceeding the
dividend due date with respect to such year. The Series C Preferred Stock has
cumulative dividends at the rate of $60 per twelve month period commencing
December 1, 1997, on each share of Series C Preferred Stock. Cash dividends on
the outstanding shares of Series C Preferred Stock are payable on each March 31,
commencing March 31, 1999.
Due to the restrictions on paying dividends on the Series A Preferred Stock
and Series B Preferred Stock as described in the preceding paragraph, the
accumulated dividends on the Series A Preferred Stock and Series B Preferred
Stock would continue to increase from year to year. As a result, the Board of
Directors of the Company believed that the continual accumulation of unpaid
dividends would possibly diminish the value of the outstanding Common Stock of
the Company. Further, the Board of Directors believed that the holders of the
Series A Preferred Stock and Series B Preferred Stock were entitled to receive a
return on their investment. The exchange of the Series A Preferred Stock and
Series B Preferred Stock for Series C Preferred Stock eliminated the increase in
obligations created by the accumulation of dividends on the Series A Preferred
Stock and Series B Preferred Stock and provided a potential return for the
holders thereof.
(c) Parent Companies. PMIP owns a controlling interest in the Company
through its ownership of 2,404,264 shares of common stock, representing
approximately 62.1% of the outstanding common stock.
(d) Transactions With Promoters. Not Applicable.
19
<PAGE>
<TABLE>
<CAPTION>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
---------
<S> <C>
(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 incorporated by reference to Exhibit (3)(b) of the Company's Annual
Report on Form 10-KSB for the fiscal year ended November 30, 1997.
(3)(c) Articles of Amendment to the Articles of Incorporation filed with the Colorado Secretary of
State on July 13, 1998, incorporated by reference to Exhibit 3(a) of the Company's Quarterly
Report on Form 10-QSB for the quarter ended May 31, 1998.
(3)(d) Bylaws incorporated by reference to Exhibit 3(b) of the Company's Quarterly Report on Form
10-QSB for the quarter ended May 31, 1998.
(4)(a) Letter of Exchange of Series A Preferred Stock for Series C Preferred Stock incorporated by
reference to Exhibit (4)(a) of the Company's Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1997.
(4)(b) Letter of Exchange of Series B Preferred Stock for Series C Preferred Stock incorporated by
reference to Exhibit (4)(b) of the Company's Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1997.
(4)(c) Warrant to Purchase Shares of Common Stock granted in connection with exchange of Series A
Preferred Stock for Series C Preferred Stock incorporated by reference to Exhibit (4)(c) of the
Company's Annual Report on Form 10-KSB for the fiscal year ended November 30, 1997.
(4)(d) Warrant to Purchase Shares of Common Stock granted in connection with exchange of Series B
Preferred Stock for Series C Preferred Stock incorporated by reference to Exhibit (4)(d) of the
Company's Annual Report on Form 10-KSB for the fiscal year ended November 30, 1997.
(10)(a)* Individual Franchise Agreement.
(10)(b)* Area Marketing Agreement.
(10)(c)* International Master License Agreement.
(10)(d) Pak Mail Centers of America, Inc. Management Incentive Plan for Fiscal Year 1998 incorporated by
reference to Exhibit (10)(f) of the Company's Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1998.
20
<PAGE>
(10)(e) Pak Mail Centers of America, Inc. Management Incentive Plan for Fiscal Year 1999 incorporated by
reference to Exhibit (10)(g) of the Company's Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1998.
(10)(f) Pak Mail Centers of America, Inc. 1999 Incentive and Nonstatutory Employee Stock Option Plan
incorporated by reference to Exhibit (10)(h) of the Company's Annual Report on Form 10-KSB for
the fiscal year ended November 30, 1998.
</TABLE>
(21)* Subsidiaries of the Registrant.
(27)* Financial Data Schedule.
* Filed herewith.
(b) 8-K Reports. None.
------------
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly 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: /s/ John E. Kelly
-----------------------------------
John E. Kelly, President and
Chief Executive Officer
By: /s/ James Q. Race
-----------------------------------
James Q. Race, Controller,
Treasurer and Secretary
Dated: February 25, 2000.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, 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 /s/ J.S. Corcoran February 25, 2000
--------------------------
Director
John W. Grant /s/ John W. Grant February 25, 2000
--------------------------
Director
F. Edward Gustafson /s/ F. Edward Gustafson February 25, 2000
--------------------------
Director
John E. Kelly /s/ John E. Kelly February 25, 2000
--------------------------
Director
22
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC.
AND SUBSIDIARY
Financial Statements and
Independent Auditors' Report
November 30, 1999 and 1998
<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, 1999 and 1998.........F - 2
Consolidated Statements of Income - For the Years Ended
November 30, 1999 ,1998 and 1997................................F - 3
Consolidated Statement of Stockholders' Equity - For the
Years Ended November 30, 1999, 1998 and 1997....................F - 4
Consolidated Statements of Cash Flows - For the Years Ended
November 30, 1999, 1998 and 1997................................F - 5
Notes to Consolidated Financial Statements...............................F - 6
<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, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended November 30, 1999, 1998 and 1997. These consolidated
financial statements are the responsibility of the Company's 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, 1999 and 1998, and the results
of their operations and their cash flows for the years ended November 30, 1999,
1998 and 1997 in conformity with generally accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
January 11, 2000
Denver, Colorado
F-1
<PAGE>
<TABLE>
<CAPTION>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Balance Sheets
November 30,
------------------------------------
1999 1998
----------- -----------
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 44,536 $ 230,964
Restricted cash (Note 8) 1,880 3,880
Accounts receivable, net of allowance
of $135,716 (1999) and $69,981 (1998) 567,945 365,277
Inventories 101,357 56,237
Prepaid expenses and other current assets 29,274 37,500
Deferred income tax benefit - current (Note 9) 347,500 275,000
----------- -----------
Total current assets 1,092,492 968,858
----------- -----------
Furniture and equipment, net of accumulate
depreciation (Note 2) 179,768 110,169
----------- -----------
Other assets
Notes receivable, net (Note 3) 587,368 666,408
Deposits and other 145,902 95,253
Deferred franchise costs, net of
accumulated amortization of $73,062
(1999) and $54,711 (1998) 95,191 197,732
Capitalized software costs 850,854 351,207
----------- -----------
Total other assets 1,679,315 1,310,600
----------- -----------
$ 2,951,575 $ 2,389,627
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 315,375 $ 189,754
Accrued bonuses and commissions 157,168 152,021
Other accrued expenses 147,073 32,394
Deferred rent 55,960 --
Due to advertising fund (Note 7) 1,880 3,880
Preferred stock dividends payable 133,000 133,000
Notes payable (Note 4) 120,000 --
----------- -----------
Total current liabilities 930,456 511,049
----------- -----------
Deferred revenue 663,189 704,135
----------- -----------
Commitments (Notes 11 and 12)
Stockholders' equity (Note 5)
Series C redeemable preferred stock,
$1,000 par value; 6% cumulative;
2,500 shares authorized 2,216 shares issued
and outstanding (liquidation preference $2,349,668) 2,216,668 2,216,668
Common stock, $.001 par value; 200,000,000
shares authorized, 3,873,747 (1999)
and 2,989,483 (1998) shares issued and outstanding
3,874 2,990
Additional paid-in capital 5,113,995 5,026,453
Accumulated deficit (5,976,607) (6,071,668)
----------- -----------
Total stockholders' equity 1,357,930 1,174,443
----------- -----------
$ 2,951,575 $ 2,389,627
=========== ===========
See notes to consolidated financial statements.
F-2
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the Years Ended
November 30,
----------------------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenue
Royalties from franchisees $ 2,455,552 $ 2,225,581 $ 1,947,464
Individual franchise fees 1,067,130 860,800 1,152,990
Sales of equipment, supplies, and services 1,106,313 749,071 748,148
Area franchise fees 301,174 683,633 231,194
Interest income 9,516 19,378 16,723
Other 145,975 77,004 67,811
----------- ----------- -----------
5,085,660 4,615,467 4,164,330
----------- ----------- -----------
Costs and expenses
Selling, general and administrative 2,061,493 1,859,272 1,765,735
Cost of sales of equipment, supplies and services 906,693 672,451 675,685
Royalties paid to area franchisees 975,510 828,848 677,555
Commissions on franchise sales 539,532 589,357 614,449
Advertising 143,429 166,698 178,783
Depreciation and amortization 85,446 66,463 57,810
Interest 4,768 1,692 2,493
----------- ----------- -----------
4,716,871 4,184,781 3,972,510
----------- ----------- -----------
Income from operations (Note 10) 368,789 430,686 191,820
Income tax benefit (Note 9) -- 138,900 136,100
----------- ----------- -----------
Net income before preferred dividends and
cumulative effect of change in
accounting principle 368,789 569,586 327,920
Preferred stock dividend (Note 5) 133,000 133,000 --
----------- ----------- -----------
Net income before cumulative effect of
change in accounting principle 235,789 436,586 327,920
Cumulative effect of change in accounting
principle, net of income tax
benefit of $72,500 (140,728) -- --
----------- ----------- -----------
Net income attributed to common shares $ 95,061 $ 436,586 $ 327,920
=========== =========== ===========
Net income per share - basic
Net income per share before cumulative
effect of change in accounting principle .07 .15 .11
Cumulative effect of changes in accounting principle (.04) -- --
----------- ----------- -----------
Basic net income per share of common stock $ .03 $ .15 $ .11
=========== =========== ===========
Net income per share - diluted
Net income per share before cumulative
effect of change in accounting principle .07 .12 .11
Cumulative effect of change in accounting principle (.04) -- --
----------- ----------- -----------
Diluted net income per share of common stock $ .03 $ .12 $ .11
=========== =========== ===========
Weighted average common shares outstanding (Note 6)
Weighted average common shares outstanding - basic 3,568,494 2,989,483 2,989,483
=========== =========== ===========
Weighted average common shares outstanding - diluted 3,568,494 3,716,489 2,989,483
=========== =========== ===========
See notes to consolidated financial statements.
F-3
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the Years Ended November 30, 1999, 1998 and 1997
Preferred Stock Preferred Stock Preferred Stock
Series A Series B Series C
-------------------------- -------------------------- -----------------------------
Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- ------------
Balance, November 30, 1996 1,216 $ 1,216,668 1,000 $ 1,000,000 -- $ --
Exchange of Series A and B
for Series C preferred
stock (Note 5) .......... (1,216) (1,216,668) (1,000) (1,000,000) 2,216 2,216,668
Net income ................ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, November 30, 1997 -- -- -- -- 2,216 2,216,668
Net income ................ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, November 30, 1998 -- -- -- -- 2,216 2,216,668
Warrants exercised (Note 5) -- -- -- -- -- --
Net income ................ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, November 30, 1999 -- $ -- -- $ -- 2,216 $ 2,216,668
=========== =========== =========== =========== =========== ===========
F-4
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity (Continued)
For the Years Ended November 30, 1999, 1998 and 1997
Common Stock Additional Total
------------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
----------- ----------- ----------- ----------- -----------
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
Net income ................ -- -- -- 436,586 436,586
----------- ----------- ----------- ----------- -----------
Balance, November 30, 1998 2,989,483 2,990 5,026,453 (6,071,668) 1,174,443
Warrants exercised (Note 5) 884,264 884 87,542 -- 88,426
Net income ................ -- -- -- 95,061 95,061
----------- ----------- ----------- ----------- -----------
Balance, November 30, 1999 3,873,747 $ 3,874 $ 5,113,995 $(5,976,607) $ 1,357,930
=========== =========== =========== =========== ===========
F-4a
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended
November 30,
-----------------------------------------------
1999 1998 1997
--------- --------- ---------
Cash flows from operating activities
Net income $ 95,061 $ 436,586 $ 327,920
--------- --------- ---------
Adjustments to reconcile net income
cash provided by operating activities -
Depreciation and amortization 85,446 66,463 55,114
Provision for loss on accounts receivable 65,735 (31,058) (14,533)
Provision for loss on notes receivable -- (8,039) 36
Deferred franchise costs 84,190 (40,140) (51,981)
Franchise fee revenue financed
through notes receivable (48,786) (39,257) (95,816)
Deferred income taxes (72,500) (138,900) (136,100)
Changes in operating assets and liabilities -
Accounts receivable (268,403) (71,428) 16,621
Inventories (45,120) (21,723) (745)
Prepaid expenses and other current assets 8,226 (5,695) 6,643
Deposits and other (50,649) (5,123) (37,945)
Trade accounts payable 125,621 (1,811) 34,632
Accrued expenses 175,786 20,095 4,005
Due to advertising fund (2,000) (19,900) (36,563)
Deferred revenue (140,946) 66,642 (102,849)
--------- --------- ---------
(83,400) (229,874) (359,481)
--------- --------- ---------
Net cash provided by
(used in) operating activities 11,661 206,712 (31,561)
--------- --------- ---------
Cash flows from investing activities
Capital expenditures (136,694) (96,389) (58,321)
Capitalized software costs (499,647) (227,005) (124,202)
Payments on notes receivable 227,826 207,341 168,073
Proceeds from sale of assets held for sale -- -- 20,000
--------- --------- ---------
Net cash (used in) provided
by investing activities (408,515) (116,053) 5,550
--------- --------- ---------
Cash flows from financing activities
Payments on notes payable -- (100,000) (15,276)
Advances on notes payable 120,000 -- --
Preferred stock dividends accrued 133,000 133,000 --
Preferred stock dividends paid (133,000) -- --
Proceeds from sale of stock 88,426 -- --
Decrease in restricted cash 2,000 19,900 56,513
--------- --------- ---------
Net cash provided by
financing activities 210,426 52,900 41,237
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (186,428) 143,559 15,226
Cash and cash equivalents, beginning of year 230,964 87,405 72,179
--------- --------- ---------
Cash and cash equivalents, end of year $ 44,536 $ 230,964 $ 87,405
========= ========= =========
</TABLE>
Supplemental disclosure of cash flow information -
Cash paid during the year for interest was approximately $4,768 (1999),
$1,700 (1998) and $2,500 (1997).
Supplemental schedule of non-cash investing and financing activities:
At November 30, 1999, 1998 and 1997 $100,000, $103,975 and $176,000of
notes receivable additions are included in deferred revenue, respectively.
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 three fiscal years:
November 30,
----------------------------
1999 1998 1997
------ ------ ------
Franchises:
Franchise centers in operation:
Domestic 328 315 299
International 33 17 12
Rights to franchise centers sold
and not in operation 37 27 5
----- ----- -----
398 359 316
===== ===== =====
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, 1999, as a result of the relatively short maturity of these
instruments.
The fair value of the notes receivable approximate the carrying value as both
the stated rate and discount rate on the notes approximate the estimated current
market rate.
F-6
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
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 to seven years.
Long-Lived Assets
- -----------------
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recovered. The Company looks primarily to the undiscounted future cash flows
in its assessment of whether or not long-lived assets have been impaired. At
November 30, 1999, the Company determined no impairment was appropriate.
Deferred Rent
- -------------
The Company was granted free rent periods on its office facility. The
accompanying financial statements reflect rent expense on a straight-line basis
over the term of the lease.
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 developer 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 area developer 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. Although the Company currently has several franchises
operating under this agreement, during fiscal year 1994, the Company
changed the terms of this agreement as specified in the area marketing
agreement below.
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)
- ---------------------------------------------
* Area marketing agreement - Right to market franchises within a specified
geographic region. The area marketing fee is payable in cash and notes upon
execution of the area marketing agreement. Upon selling of individual
franchises within the area, the Company typically receives 60% of the
individual franchise fee and the area marketer receives 40%. The area
marketer receives 50% of the royalties from individual franchisees within
the area.
* International area franchise agreement - Right to market franchises within
a designated country or specified geographic region. The international
franchise fee is payable in cash and notes upon execution of the franchise
agreement. The Company's participation in franchise fees and royalties for
individual franchises sold within the international area are negotiated on
a case by case basis. Additionally, the Company agrees to train all new
individual franchisees for a flat fee.
Individual franchise fees outside a marketing or development 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 developer 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 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.
Prior to December 1, 1998, area marketing fees were recognized as income upon
completion of the initial training by the area marketer and collection of the
marketing fee. Effective December 1, 1998, the Company changed its accounting
policy based on an SEC directive related to the recognition of area marketing
agreement fees to one that recognizes such fees on a straight-line basis over
the effective term of the agreement, which is five years. The effect of the
change in fiscal 1999 resulted in the deferral of $213,228 of net revenue
previously recognized in prior years. Fiscal 1999 income before the cumulative
effect of changes in accounting principle included $114,628 of amortized
deferred net revenue related to area marketing agreement fees. This change was
reported as a cumulative effect of change in accounting principle of $140,728
(net of $72,500 in income tax benefits) and is included in the net income in
fiscal 1999.
International area franchise fees are deferred and recognized as revenue until
training provided to the international area marketer is completed and once
collection of notes receivable is reasonably assured.
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)
- --------------------------------------------------------------------------------
Royalties From Franchisees
- --------------------------
Royalties from individual 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 software 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. Revenue on annual license fees will be
recognized over the related 12 month period.
Sales Equipment, Supplies and Services
- --------------------------------------
Revenue is recognized as product is shipped or services rendered.
Net Income Per Common Share
- ---------------------------
Basic net income per share is computed based on the weighted average number of
common shares outstanding. Diluted net income per share is computed based on the
weighted average number of common shares outstanding plus potential dilutive
shares of common shares outstanding plus potential dilutive shares of common
stock including common stock warrants granted to preferred shareholders.
Recently Issued Accounting Pronouncements
- -----------------------------------------
During April 1998, Statement of Position 98-5, "Reporting in the Costs of
Start-Up Activities" was issued. SOP 98-5 requires costs of start-up activities
and organization costs to be expensed as incurred. SOP 98-5 was required to be
adopted by the first quarter of 1999. The company had no effect on operations
upon adoption of SOP 98-5.
Income Taxes
- ------------
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statements
and tax basis of assets and liabilities using the enacted tax rates in effect
for the year in which the differences are expected to reverse. The measurement
of deferred tax assets is reduced, if necessary, by the amount of any tax
benefits that, based on available evidence, are not expected to be realized.
F-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)
- --------------------------------------------------------------------------------
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
developed for sale to franchisees. 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 are provided
on a product-by-product basis using 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. The software will be placed in service by the majority of the franchises
in February 2000. As such, no amortization has been recorded during fiscal year
1999.
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 which at times may exceed federally insured limits. To reduce
credit risk, the Company reserves the right to terminate franchise agreements
for non-payment of amounts owed. Additionally, at November 30, 1999,
approximately $195,890 of notes receivable are offset by comparable amounts in
deferred revenue.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-10
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
Use of Estimates (continued)
- ----------------------------
The Company has recorded an allowance for doubtful collection on accounts
receivable and notes receivable of approximately $136,000 and $45,000,
respectively, (Note 3). These allowances are continually reviewed based upon
changes in the nature of the amounts outstanding. Accordingly, the allowances
are subject to changes due to circumstances not presently known.
The Company has recorded a valuation allowance for potentially unrealizable
deferred tax assets of approximately $1,559,500 (Note 9). This allowance is
reviewed based upon historical and projected financial results of the Company.
Accordingly, the allowance is subject to changes due to circumstances not
presently known.
Advertising Costs
- -----------------
Advertising costs are expensed in the period incurred.
Reclassifications
- -----------------
Certain amounts in the 1997 and 1998 financial statements have been reclassified
to conform to the 1999 presentation.
Note 2 - Furniture and Equipment
- --------------------------------
Furniture and equipment consists of the following:
November 30,
----------------------------------
1999 1998
-------------- --------------
Office equipment $ 483,853 $ 393,610
Furniture and fixtures 197,960 151,509
-------------- --------------
681,813 545,119
Less accumulated depreciation (502,045) (434,950)
-------------- --------------
$ 179,768 $ 110,169
============== ==============
F-11
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3 - Notes Receivable
- -------------------------
Notes receivable consist of franchise fees and area marketer 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 centers. Most of the notes are personally guaranteed by the owners
of each franchise.
Notes receivable consist of the following:
November 30,
-------------------------
1999 1998
--------- ---------
Non-interest-bearing notes; interest
imputed at 8%, net of unamortized
discounts of $3,039 and $6,513 in
1999 and 1998, respectively. $ 342,244 $ 401,403
Interest-bearing notes; interest
rates from 6% to 8% 290,218 310,099
--------- ---------
632,462 711,502
Less allowance for doubtful collections (45,094) (45,094)
--------- ---------
$ 587,368 $ 666,408
========= =========
It is the Company's policy not to impute interest on the notes which are
included in deferred revenue. Included in these notes are financed area marketer
fees, the maturities of which are based upon the expected opening of franchises
within the area.
Future minimum principal payments to be received pursuant to the notes are as
follows:
Year Ending November 30,
2000 $ 500,303
2001 70,882
2002 25,549
2003 17,504
2004 17,027
Thereafter 4,236
--------------
635,501
Less unamortized discount (3,039)
--------------
632,462
Less allowance for doubtful collections
(45,094)
--------------
$ 587,368
==============
F-12
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3 - Notes Receivable (continued)
- -------------------------------------
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
- -----------------------
The Company has a short-term, $100,000 note payable to a significant shareholder
requiring the balance plus interest at 2% above the reference rate to be paid
upon demand. The balance was paid in full subsequent to year-end.
The Company has a $125,000 line-of-credit agreement requiring monthly interest
payments at 9.25% and maturing January 2000. The balance outstanding at November
30, 1999 was $20,000.
Note 5 - Stockholders' Equity
- -----------------------------
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. All warrants were exercised during fiscal year
1999.
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.
F-13
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 6 - Stock Option Plan
- --------------------------
The 1999 Incentive and Nonstatutory Stock Option Plan (the Plan) authorizes the
issuance of up to 400,000 shares of the Company's Common Stock. The Plan will
remain in effect until December 31, 2008 unless terminated earlier by action of
the Board. All employees of the Company are eligible to receive options under
the Plan at the discretion of the Board. Options issued under the Plan vest
one-third per year upon each of the first three anniversaries of the issue date
and have a term of ten years from the date of issue.
The following is a summary of options granted:
<TABLE>
<CAPTION>
Weighted Average
Incentive Stock W eighted Average Exercise Price -
Options and Exercise Curently Currently
Warrants Price Exercisable Exercisable
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Outstanding November 30, 1997 884,264 $ .10 884,264 .10
---------------- ---------------- ---------------- -----------------
Outstanding November 30, 1998 884,264 .10 884,264 .10
---------------- ---------------- ---------------- -----------------
Options and warrants exercised (884,264) .10 - -
Options and warrants granted 157,277 .75 - -
---------------- ---------------- ---------------- -----------------
Outstanding November 30, 1999 157,227 $ .75 - $ -
================ ================ ================ =================
</TABLE>
The weighted average fair value of all warrants granted during 1999 was $.45.
November 30, 1999
Options and Warrants Outstanding
---------------------------------------------------
Weighted Average
Weighted Average Remaining
Number Exercise Contractual
Range of Exercise Price Outstanding Price Life
----------- ---------------- ----------------
$.75 157,227 .75 9.08
F-14
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 6 - Stock Option Plan (continued)
- --------------------------------------
The Company accounts for stock based compensation in accordance with Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock Based
Compensation," ("FAS 123") which encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees. FAS 123 requires the recognition of expense for
such grants, described above, to acquire goods and services from all
nonemployees. Additionally, although expense recognition is not mandatory for
issuances to employees, FAS 123 requires companies that choose not to adopt the
new fair value accounting rules to disclose pro forma net income and earnings
per share information using the new method.
F-15
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 6 - Stock Option Plan (continued)
- --------------------------------------
The Company has adopted the disclosure-only provisions of FAS 123. Accordingly,
no compensation cost has been recognized for the issuances of stock options to
employees. For the year ended November 30, 1999, employees of the Company were
issued options to purchase a total of 157,227 shares of the Company's common
stock at $.75 per share expiring in December 2009. There were no options issued
during the year ended November 30, 1998.
Had compensation cost for the Company's issuances of stock options during the
year ended November 30, 1999 been determined based on the fair value at the date
of grant consistent with the provisions of FAS 123, the Company's 1999 net loss
and loss per share would have been decreased to the pro forma amounts indicated
below:
November 30,
1999
-------------
Net income - as reported $ 95,061
Net income - pro forma $ 19,496
Net income per share, basic and diluted - as reported $ .03
Net income per share, basic and diluted - pro forma $ .01
The Company utilizes the Black-Scholes options-pricing model to calculate the
fair value of each individual issuance of options or warrants with the following
assumptions used for grants during the year ended November 30, 1999; dividends
yield of 0.0%; expected average annual volatility of 102.5%; average annual
risk-free interest rate of 5.25%; and expected terms averaging 10 years.
The following is an illustration of the reconciliation of the numerators and
denominators of the basic and diluted Earnings Per Share (EPS) computations:
<TABLE>
<CAPTION>
For the Year Ended November 30, 1998
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- ------------- -----------
<S> <C> <C> <C>
Net income $ 569,586
Less preferred stock dividends (133,000)
--------------
Basic EPS
Income available to common stockholders 436,586 2,989,483 $ .15
-------------- ===========
Effect of dilutive securities
Warrants - 727,006
-------------- ------------
Diluted EPS
Income available to common
stockholders plus assumed conversions 436,586 3,716,489 $ .12
============== ============ ===========
</TABLE>
F-16
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 6 - Stock Option Plan (continued)
- --------------------------------------
For November 30, 1999, the options to acquire 157,227 shares of common stock are
excluded as their effect would be antidilutive.
Note 7 - 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 8 - Restricted Cash
- ------------------------
At November 30, 1999 and 1998, the amounts due the advertising trust of $1,880
and $3,880, respectively, are included in restricted cash.
Note 9 - Income Taxes
- ---------------------
During 1999, 1998 and 1997 the Company utilized approximately $80,000, $58,000
and $80,000 in net operating loss carryforwards to offset current taxable
income. This resulted in tax savings of approximately $27,000, $20,000 and
$27,000, respectively. The Company's valuation allowance on its remaining net
operating loss carryforward is an estimate based on the Company's four
consecutive years of taxable income and the taxable income projected in future
years.
The components of long-term deferred tax assets are as follows:
<TABLE>
<CAPTION>
November 30,
---------------------------------------------------------------
1999 1998 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 2,034,000 $ 2,061,600 $ 2,058,700
Reserves and other deferrals 174,000 41,300 54,600
Depreciation and amortization (301,000) (111,000) (26,500)
-------------- -------------- --------------
Total deferred tax assets 1,907,000 1,991,900 2,086,800
Valuation allowance (1,559,500) (1,716,900) (1,950,700)
-------------- -------------- --------------
$ 347,500 $ 275,000 $ 136,100
=============== ============== ==============
</TABLE>
At November 30, 1999, the Company has net operating loss carryforwards for tax
purposes of approximately $5,980,000. If not used, these carryforwards will
expire in varying amounts during the years 2000 to 2009.
F-17
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 9 - Income Taxes (continued)
- ---------------------------------
For the year ended November 30, 1999, the net deferred tax benefit of $72,500
relates to the cumulative effect of change in accounting principle which is
shown net of this tax benefit on the consolidated statement of net income.
Note 10 - Pro Forma Results of Operations
- -----------------------------------------
The following table compares the operations for fiscal year 1998 to the pro
forma operations for fiscal year 1999. The pro forma presentation for 1999
excludes the effect of the change in accounting principle related to the
recognition of area marketing agreement fees.
<TABLE>
<CAPTION>
For the Years Ended
November 30,
-----------------------------------------------------
1999 1998 1997
---------------- -------------- --------------
<S> <C> <C> <C>
Area franchise fees $ 538,926 $ 683,633 $ 231,194
-------------- -------------- --------------
Total revenue 5,323,412 4,615,467 4,164,330
Total costs 4,754,771 4,184,781 3,972,510
-------------- -------------- --------------
Net income from operations 568,641 430,686 191,820
Income tax benefit - 138,900 136,100
-------------- -------------- --------------
Net income before preferred stock dividends $ 568,641 $ 569,586 $ 327,920
============== ============== ==============
Net income $ 435,641 $ 436,586 $ 327,920
============== ============== ==============
</TABLE>
Note 11 - 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. Contributions made by the Company in connection with the Plan were
approximately $14,900 (1999), $9,910 (1998) and $6,794 (1997).
F-18
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 12 - 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, 1999 are as follows:
Year Ending November 30,
------------------------
2000 $ 274,919
2001 205,126
2002 196,591
2003 187,888
2004 184,336
Thereafter 314,504
---------------
$ 1,363,364
===============
Rental expense for 1999, 1998 and 1997 was approximately $287,000, $198,000 and
$210,000, respectively.
F-19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C>
(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 incorporated by reference to Exhibit (3)(b) of the Company's Annual
Report on Form 10-KSB for the fiscal year ended November 30, 1997.
(3)(c) Articles of Amendment to the Articles of Incorporation filed with the Colorado Secretary of
State on July 13, 1998, incorporated by reference to Exhibit 3(a) of the Company's Quarterly
Report on Form 10-QSB for the quarter ended May 31, 1998.
(3)(d) Bylaws incorporated by reference to Exhibit 3(b) of the Company's Quarterly Report on Form
10-QSB for the quarter ended May 31, 1998.
(4)(a) Letter of Exchange of Series A Preferred Stock for Series C Preferred Stock incorporated by
reference to Exhibit (4)(a) of the Company's Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1997.
(4)(b) Letter of Exchange of Series B Preferred Stock for Series C Preferred Stock incorporated by
reference to Exhibit (4)(b) of the Company's Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1997.
(4)(c) Warrant to Purchase Shares of Common Stock granted in connection with exchange of Series A
Preferred Stock for Series C Preferred Stock incorporated by reference to Exhibit (4)(c) of the
Company's Annual Report on Form 10-KSB for the fiscal year ended November 30, 1997.
(4)(d) Warrant to Purchase Shares of Common Stock granted in connection with exchange of Series B
Preferred Stock for Series C Preferred Stock incorporated by reference to Exhibit (4)(d) of the
Company's Annual Report on Form 10-KSB for the fiscal year ended November 30, 1997.
(10)(a)* Individual Franchise Agreement.
(10)(b)* Area Marketing Agreement.
(10)(c)* International Master License Agreement.
(10)(d) Pak Mail Centers of America, Inc. Management Incentive Plan for Fiscal Year 1998 incorporated by
reference to Exhibit (10)(f) of the Company's Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1998.
<PAGE>
(10)(e) Pak Mail Centers of America, Inc. Management Incentive Plan for Fiscal Year 1999 incorporated by
reference to Exhibit (10)(g) of the Company's Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1998.
(10)(f) Pak Mail Centers of America, Inc. 1999 Incentive and Nonstatutory Employee Stock Option Plan
incorporated by reference to Exhibit (10)(h) of the Company's Annual Report on Form 10-KSB for
the fiscal year ended November 30, 1998.
(21)* Subsidiaries of the Registrant.
(27)* Financial Data Schedule.
* Filed herewith.
</TABLE>
Exhibit 10(a)
PAK MAIL CENTERS OF AMERICA, INC.
FRANCHISE AGREEMENT
Franchisee:
-------------------------
Date:
-------------------------------
Franchised Location:
---------------
------------------------------------
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC.
FRANCHISE AGREEMENT
TABLE OF CONTENTS
EXHIBITS
--------
1. PURPOSE.............................................................1
2. GRANT OF FRANCHISE..................................................1
2.1. Grant of Franchise.........................................1
2.2. Scope of Franchise Operation...............................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......................................3
5.4. Signs......................................................4
5.5. Equipment..................................................4
5.6. Permits and Licenses.......................................4
5.7. Commencement of Operations.................................4
6. TRAINING............................................................5
6.1. Initial Training Program...................................5
6.2. Length of Training.........................................5
6.3. Additional Training........................................5
7. DEVELOPMENT ASSISTANCE..............................................5
7.1. Franchisor's Development Assistance........................5
8. OPERATIONS MANUAL...................................................6
8.1. Operations Manual..........................................6
8.2. Confidentiality of Operations Manual Contents..............7
8.3. Changes to Operations Manual...............................7
9. OPERATING ASSISTANCE................................................7
9.1. Franchisor's Services......................................7
9.2. Additional Franchisor Services.............................8
10. FRANCHISEE'S OPERATIONAL COVENANTS..................................8
10.1 Business Operations........................................8
11. ROYALTIES...........................................................9
11.1 Monthly Royalty............................................9
11.2 Royalty Based Revenues....................................10
11.3 Royalty Payments..........................................10
11.4 Application of Payments...................................10
<PAGE>
12. ADVERTISING........................................................11
12.1 Approval of Advertising...................................11
12.2 Marketing Material Beginning Inventory....................11
12.3 Advertising Contribution..................................11
12.4 Regional Advertising Programs.............................12
13. QUALITY CONTROL....................................................13
13.1 Compliance with Operations Manual.........................13
13.2 Standards and Specifications..............................13
13.3 Inspections...............................................13
13.4 Restrictions on Services and Products.....................13
13.5 Approved Suppliers........................................14
13.6 Request to Approve Supplier...............................14
13.7 Shopping Service..........................................14
14. MARKS, TRADE NAMES AND PROPRIETARY INTERESTS.......................14
14.1 Marks.....................................................14
14.2 No Use of Other Marks.....................................15
14.3 System....................................................15
14.4 Mark Infringement.........................................15
14.5 Franchisee's Business Name................................15
14.6 Change of Marks...........................................16
15. REPORTS, RECORDS AND FINANCIAL STATEMENTS..........................16
15.1 Franchisee Reports........................................16
15.2 Verification..............................................16
15.3 Books and Records.........................................17
15.4 Audit of Books and Records................................17
16. TRANSFER...........................................................17
16.1 Transfer by Franchisee....................................17
16.2 Pre-Conditions to Franchisee's Transfer...................17
16.3 Franchisor's Approval of Transfer.........................18
16.4 Right of First Refusal....................................18
16.5 Specific Types of Transfers...............................19
16.6 Assignment by the Franchisor..............................19
16.7 Franchisee's Death or Disability..........................20
17. TERM AND EXPIRATION................................................20
17.1 Term......................................................20
17.2 Rights Upon Expiration....................................20
17.3 Exercise of Option for Successor Franchise................21
17.4 Conditions of Refusal.....................................21
18. DEFAULT AND TERMINATION............................................21
18.1 Termination by Franchisee.................................21
18.2 Termination by Franchisor - Effective Upon Notice.........21
18.3 Termination by Franchisor - Thirty Days Notice............22
18.4 Right to Purchase.........................................23
18.5 Obligations of Franchisee Upon Termination or Expiration..24
18.6 Acknowledgement...........................................25
18.7 State and Federal Law.....................................25
<PAGE>
19. BUSINESS RELATIONSHIP..............................................25
19.1 Independent Businesspersons...............................25
19.2 Payment of Third Party Obligations........................25
19.3 Indemnification...........................................25
20. RESTRICTIVE COVENANTS..............................................26
20.1 Non-Competition During Term...............................26
20.2 Post-Termination Covenant Not to Compete..................26
20.3 Confidentiality of Proprietary Information................27
20.4 Confidentiality Agreement.................................27
21. INSURANCE..........................................................27
21.1 Insurance Coverage........................................27
21.2 Proof of Insurance Coverage...............................27
22. MISCELLANEOUS PROVISIO.............................................28
22.1 Governing Law/Consent to Venue and Jurisdiction...........28
22.2 Modification..............................................28
22.3 Entire Agreement..........................................28
22.4 Delegation by the Franchisor..............................29
22.5 Effective Date............................................29
22.6 Review of Agreement.......................................29
22.7 Attorneys' Fees...........................................29
22.8 Injunctive Relief.........................................29
22.9 No Waiver.................................................29
22.10 No Right to Set Off.......................................29
22.11 Invalidity................................................29
22.12 Notices...................................................30
22.13 Acknowledgement...........................................30
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
V. Build-Out Program Addendum
<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 7173 South Havana Street, Suite 600, Englewood, Colorado 80112 (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 Operation.
-----------------------------
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 services and products other than
those which the Franchisee sells, promotional and marketing efforts or related
items, or to identify services and 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.
2
<PAGE>
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
$26,950 as of the date of execution of this Agreement. The Franchisee
acknowledges and agrees that the initial franchise fee represents payment for
the initial grant of the rights to use the Marks and System, that the Franchisor
has earned the initial franchise fee upon receipt thereof and that the fee is
under no circumstances refundable to the Franchisee after it is paid, unless
otherwise specifically set forth in this Agreement.
5. DEVELOPMENT OF FRANCHISED LOCATION
5.1. Approval of Franchised Location.
--------------------------------
The Franchisee shall follow the Franchisor's site selection procedures in
locating a Franchised Location for the PAK MAIL Center. The Franchisee shall
seek the Franchisor's approval of any site proposed as a Franchised Location, by
submitting a complete site submittal package, including demographics and other
materials requested by the Franchisor, containing all information reasonably
required by the Franchisor to assess a proposed Franchised Location. The
Franchisor will not unreasonably withhold approval of a proposed site that meets
all of the Franchisor's site selection criteria.
5.2. Approval of Lease.
------------------
The Franchisee shall obtain the Franchisor's prior written approval before
executing any lease or purchase agreement for the Franchised Location. Any lease
for the Franchised Location shall, at the option of the Franchisor, contain a
provision: (1) allowing for assignment of the lease to the Franchisor in the
event that this Agreement is terminated or not renewed for any reason; (2)
giving the Franchisor the right to cure any default by the Franchisee under such
lease; and (3) providing the Franchisor with the right, exercisable upon and as
a condition of the approval of the Franchised Location, to execute the lease
agreement or other document providing entitlement to the use of the Franchised
Location in its own name or jointly with the Franchisee as lessee and, upon the
exercise of such option, the Franchisor shall provide the Franchisee with the
right to use the premises as its sublessee, assignee, or other similar capacity
upon the same terms and conditions as obtained by the Franchisor. The lease
shall be collaterally assigned to the Franchisor as security for the
Franchisee's timely performance of all obligations under this Agreement; the
Franchisee shall obtain the lessor's consent to such collateral assignment. The
Franchisee shall deliver a copy of the signed lease for the Franchised Location
to the Franchisor within 15 days of its execution. The Franchisee acknowledges
that approval of a lease for the Franchised Location by the Franchisor does not
constitute a recommendation, endorsement or guarantee by the Franchisor of the
suitability or profitability of the location or the lease and the Franchisee
should take all steps necessary to ascertain whether such location and lease are
acceptable to the Franchisee.
5.3. Conversion and Design.
----------------------
The Franchisee acknowledges that the layout, design, decoration and color
scheme of PAK MAIL Centers are an integral part of the Franchisor's proprietary
System and accordingly, the Franchisee shall convert, design and decorate the
Franchised Location in accordance with the Franchisor's plans and specifications
and with the assistance of contractors and suppliers designated by or otherwise
approved by the Franchisor. The Franchisee shall obtain the Franchisor's written
consent to any conversion, design or decoration of the premises before
remodeling or decorating begins, recognizing that any related costs are the
Franchisee's sole responsibility. It shall be the Franchisee's responsibility to
3
<PAGE>
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.
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
4
<PAGE>
operations for a reasonable period of time in the event factors beyond the
Franchisee's reasonable control prevent the Franchisee from meeting this
development schedule, so long as the Franchisee has made reasonable and
continuing efforts to comply with such development obligations and the
Franchisee requests, in writing, an extension of time in which to have its PAK
MAIL Center established before such development period lapses. The Franchisee
shall obtain the Franchisor's approval prior to opening the Center for business.
6. TRAINING
6.1. Initial Training Program.
-------------------------
The Franchisee or, if the Franchisee is not an individual, the person
designated by the Franchisee to assume primary responsibility for the management
of the PAK MAIL Center ("Principal Operator"), is required to attend and
successfully complete the initial training program which is offered by the
Franchisor at one of the Franchisor's designated training facilities. Up to two
individuals are eligible to participate in the Franchisor's initial training
program without charge of a tuition or fee. The Franchisee shall be responsible
for any and all traveling and living expenses incurred in connection with
attendance at the training program. At least one individual must successfully
complete the initial training program prior to the Franchisee's commencement of
operation of its PAK MAIL Center.
6.2. Length of Training.
-------------------
The initial training program shall consist of a total of 12 days, nine of
which shall be classroom instruction at a location designated by the Franchisor
and three of which shall be on-site at the Franchised Location at or around the
time the Center opens for business. The Franchisee, and if applicable, the
Principal Operator, shall attend the on-site training at the Franchised
Location. The Franchisor reserves the right to waive a portion of the training
program or alter the training schedule, if in the Franchisor's sole discretion,
the Franchisee or Principal Operator has sufficient prior experience or
training.
6.3. Additional Training.
--------------------
From time to time, the Franchisor may present seminars, conventions or
continuing development programs or conduct meetings for the benefit of the
Franchisee. The Franchisee or its Principal Operator shall be required to attend
any ongoing mandatory seminars, conventions, programs or meetings as may be
offered by the Franchisor. The Franchisor shall give the Franchisee at least 30
days prior written notice of any ongoing seminar, convention or program which is
deemed mandatory. The Franchisor shall not require that the Franchisee attend
any ongoing training more often than once a year. All mandatory training will be
offered without charge of a tuition or fee; provided, however, the Franchisee
will be responsible for all traveling and living expenses which are associated
with attendance at the same.
7. DEVELOPMENT ASSISTANCE
7.1. Franchisor's Development Assistance.
------------------------------------
The Franchisor shall provide the Franchisee with assistance in the initial
establishment of the PAK MAIL Center as follows:
a. Provision of the initial training program to be conducted at the
Franchisor's designated training facilities or at another location
designated by the Franchisor, as described in Article 6 above.
5
<PAGE>
b. Provision of written specifications for a Franchised Location which
shall include, without limitation, specifications for space requirements,
build out and the demographics and character of the surrounding market
area. The Franchisee acknowledges that the Franchisor shall have no other
obligation to provide assistance in the selection and approval of a
Franchised Location other than the provision of such written specifications
and approval or disapproval of a proposed Franchised Location, which
approval or disapproval shall be based on information submitted to the
Franchisor in a form sufficient to assess the proposed location as may be
reasonably required by the Franchisor.
c. Directives regarding the required conversion, design and decoration
of the PAK MAIL Center premises, plus specifications concerning signs,
decor, color, equipment, machines, uniforms and equipment.
d. Information regarding the selection of suppliers of equipment,
items and materials used and inventory and services offered for sale in
connection with the PAK MAIL Center. After execution of this Agreement, the
Franchisor will provide the Franchisee with a list of approved suppliers,
if any, of such equipment, items, materials, inventory and services and, if
available, a description of any national or central purchase and supply
agreements offered by such approved suppliers for the benefit of PAK MAIL
franchisees.
e. Provision of an operations manual in accordance with Section 8.1
below.
f. The Franchisor will make available to the Franchisee at or around
the commencement of operations of the Franchisee's PAK MAIL Center a
representative to be present for three days during the initial operation of
the Franchisee's PAK MAIL Center. The representative will assist the
Franchisee's employees in the initial operation of the Center at a time
scheduled by the Franchisor, unless in the Franchisor's determination, the
Franchisee or the Principal Operator have had sufficient prior training or
experience.
g. The Franchisor will grant the Franchisee a 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 then current
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.
6
<PAGE>
8.2. Confidentiality of Operations Manual Contents.
----------------------------------------------
The Franchisee agrees to use the Marks and System only as specified in the
Operations Manual. The Operations Manual is the sole property of the Franchisor
and shall be used by the Franchisee only during the term of this Agreement and
in strict accordance with the terms and conditions hereof. The Franchisee shall
not duplicate the Operations Manual nor disclose its contents to persons other
than its employees or officers who have signed a confidentiality and
noncompetition agreement in a form approved by the Franchisor. The Franchisee
shall return the Operations Manual to the Franchisor upon the expiration,
termination or assignment of this Agreement.
8.3. Changes to Operations Manual.
-----------------------------
The Franchisor reserves the right to revise the Operations Manual from time
to time as it deems necessary to update or change operating and marketing
techniques or standards and specifications. The Franchisee, upon receipt of any
updated information, shall update its copy of the Operations Manual as
instructed by the Franchisor and shall conform its operations with the updated
provisions within a reasonable time thereafter. The Franchisee acknowledges that
a master copy of the Operations Manual maintained by the Franchisor at its
principal office shall be controlling in the event of a dispute relative to the
content of any Operations Manual.
9. OPERATING ASSISTANCE
9.1. Franchisor's Services.
----------------------
The Franchisor agrees that, during the Franchisee's operation of the PAK
MAIL Center, the Franchisor shall make available to the Franchisee the following
services:
a. Upon the reasonable request of the Franchisee, consultation by
telephone, facsimile or electronic mail, regarding the continued operation
and management of a PAK MAIL Center and advice regarding the packaging and
shipping services, quality control, inventory issues, customer and supplier
relations issues and similar advice.
b. Access to advertising and promotional materials as may be developed
by the Franchisor, the cost of which may be passed on to the Franchisee, at
the Franchisor's option.
c. On-going updates of information and programs regarding the
packaging and shipping industry, the competition, the PAK MAIL concept and
the System, including, without limitation, information about special or new
products which may be developed and made available to PAK MAIL franchisees
as a part of the System
d. The Franchisor shall make the initial training program available to
replacement or additional Principal Operators during the term of this
Agreement. The Franchisee shall be responsible for all travel and living
expenses incurred by its personnel during the training program. The
availability of the training programs shall be subject to space
considerations and prior commitments to new PAK MAIL franchisees.
7
<PAGE>
9.2. Additional Franchisor Services.
-------------------------------
Although not obligated to do so, the Franchisor may make its employees or
designated agents available to the Franchisee for on-site advice and assistance
in connection with the on-going operation of the PAK MAIL Center governed by
this Agreement.
10. FRANCHISEE'S OPERATIONAL COVENANTS
10.1. Business Operations.
--------------------
The Franchisee acknowledges that it is solely responsible for the
successful operation of its PAK MAIL Center and that the continued successful
operation thereof is, in part, dependent upon the Franchisee's compliance with
this Agreement and the Operations Manual. In addition to all other obligations
contained in this Agreement and in the Operations Manual, the Franchisee
covenants that:
a. The Franchisee shall maintain clean, efficient and high quality PAK
MAIL Center operations and shall operate the business in accordance with
the Operations Manual and in such a manner as not to detract from or
adversely reflect upon the name and reputation of the Franchisor and the
goodwill associated with the PAK MAIL name and Marks.
b. The Franchisee will conduct itself and operate its PAK MAIL Center
in compliance with all applicable laws, health department regulations and
other ordinances and in such a manner so as to promote a good public image
in the business community. In connection therewith, the Franchisee will be
solely and fully responsible for obtaining any and all licenses to carry on
business at the PAK MAIL Center.
c. The Franchisee acknowledges that proper management of the PAK MAIL
Center is important and shall insure that the Franchisee or a designated
Principal Operator who has completed the Franchisor's initial training
program be responsible for the management of the PAK MAIL Center.
d. The Franchisee shall offer only products and services through its
Center which meet or exceed the minimum standards and specifications
established by the Franchisor more fully described in the Operations
Manual. The Franchisee shall offer all types of products and services as
from time to time may be prescribed by the Franchisor and shall refrain
from offering any other types of products or services, or operating or
engaging in any other type of business or profession, from or through the
PAK MAIL Center.
e. The Franchisee will pay on a timely basis all amounts due and owing
to the Franchisor pursuant to any separate agreements between the
Franchisee and the Franchisor and all amounts due and owing by the
Franchisee to all third parties, including national vendors and taxing
authorities, with whom the Franchisee does business at or through the
Center. In connection with any amounts due and owing by the Franchisee to
third parties, the Franchisee expressly acknowledges that a default by the
Franchisee with respect to such indebtedness may be considered a default
hereunder and the Franchisor may avail itself of all remedies provided for
herein in the event of default.
f. The Franchisee shall comply with all agreements with third parties
related to the PAK MAIL Center including, in particular, all provisions of
any premises lease and the Software License Agreement.
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g. The Franchisee and all employees of the Franchisee shall present a
professional appearance, as described in the Operations Manual, and shall
render competent and courteous service to customers of the PAK MAIL Center
while working at the Franchised Location. The Franchisee is required, at
the Franchisee's expense, to purchase specified wearing apparel from
suppliers approved by the Franchisor. All Principal Operators, employees of
the Franchisee, the Franchisee and its owners, shall wear the specified
uniform at all times while working at the Franchised Location. The
Franchisor has the right, in its sole and absolute discretion, to change or
modify such dress code guidelines.
h. The Franchisee agrees to renovate, refurbish, remodel or replace,
at its own expense, the real and personal property and equipment used in
the operation of the PAK MAIL Center, when reasonably required by the
Franchisor in order to comply with the image, standards of operation and
performance capability established by the Franchisor from time to time. If
the Franchisor changes its image or standards of operation, it shall give
the Franchisee a reasonable period of time within which to comply with such
changes.
i. The Franchisee shall be responsible for training all of its
employees who work in any capacity in the PAK MAIL Center and shall be
fully responsible for all employees' compliance with the operational
standards which are part of the System. The Franchisee must conduct its
employee training in the manner and according to the standards as
prescribed in the Operations Manual. Any employee who does not
satisfactorily complete the training shall not work in any capacity in the
Franchisee's PAK MAIL Center.
j. The Franchisee shall at all times during the term of this Agreement
own and control the PAK MAIL Center authorized hereunder. Upon request of
the Franchisor, the Franchisee shall promptly provide satisfactory proof of
such ownership to the Franchisor. The Franchisee represents that the
Statement of Ownership, attached hereto as Exhibit III and by this
reference incorporated herein, is true, complete, accurate and not
misleading, and, in accordance with the information contained in the
Statement of Ownership, the controlling ownership of the PAK MAIL Center is
held by the Franchisee. The Franchisee shall promptly provide the
Franchisor with a written notification if the information contained in the
Statement of Ownership changes at any time during the term of this
Agreement and shall comply with the applicable transfer provisions
contained in Article 16 herein. In addition, if the Franchisee is an
entity, all of the owners of the Franchisee shall sign the Personal
Guaranty attached hereto as Exhibit II.
k. The Franchisee shall at all times during the term of this Agreement
keep its PAK MAIL Center open during the business hours as may be
designated by the Franchisor from time to time in the Operations Manual and
shall maintain sufficient supplies of products and employ adequate
personnel at all times so as to operate the Center at its maximum capacity
and efficiency.
11. ROYALTIES
11.1. Monthly Royalty.
----------------
The Franchisee agrees to pay to the Franchisor a monthly royalty
("Royalty") equal to 5% of the total amount of its "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.
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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 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.
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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 $580 and $900
for Franchisor's provision of a beginning inventory of marketing material for
the Franchisee's PAK MAIL Center. The exact amount payable for the Marketing
Material Beginning Inventory fee shall be determined by the Franchisee. All or a
part of that amount will be due and payable to the Franchisor and other
suppliers by the Franchisee on or before the Franchisee's commencement of the
initial training program. The Marketing Material Beginning Inventory will be
provided by the Franchisor and other suppliers at or around the opening of the
Franchisee's Center.
12.3. Advertising Contribution.
-------------------------
The Franchisee shall contribute to an advertising fund established by the
Franchisor ("Advertising Fund") a fee 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
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media placement and allocation, and the administration thereof. The
Franchisee agrees that the Advertising Fund may be used to pay the costs of
preparing and producing video and audio and written advertising materials;
administering multi-regional advertising programs, including, without
limitation, purchasing direct mail and other media advertising and
employing advertising agencies and staff to assist therewith; and
supporting public relations, market research and other advertising and
marketing activities.
e. The Advertising Fund shall be accounted for separately from the
Franchisor's other funds and shall not be used to defray any of the
Franchisor's general operating expenses, except for such reasonable
administrative costs, salaries and overhead as the Franchisor may incur in
activities related to the administration of the Advertising Fund and its
marketing programs, including, without limitation, conducting market
research, preparing material, incurring related accounting and legal
expenses, collecting and accounting for Advertising Fund contributions and
all costs and expenses related to the Franchise System Advisory Council.
The Franchisor may spend in any fiscal year an amount greater or less than
the aggregate contribution of all PAK MAIL Centers to the Advertising Fund
in that year and the Advertising Fund may borrow from the Franchisor or
other lenders to cover deficits or cause the Advertising Fund to invest any
surplus for future use. All interest earned on monies contributed to the
Advertising Fund will be first used to pay costs. The Advertising Fund may
be incorporated or operated through an entity separate from the Franchisor
at such time as the Franchisor deems appropriate, and such successor entity
shall have all rights and duties of the Franchisor pursuant to this Section
12.3.
f. The Franchisee understands and acknowledges that the Advertising
Fund is intended to maximize recognition of the Marks and patronage of PAK
MAIL Centers. Although the Franchisor will endeavor to utilize the
Advertising Fund to develop advertising and marketing materials and
programs and to place advertising that will benefit all PAK MAIL Centers,
the Franchisor undertakes no obligation to ensure that expenditures by the
Advertising Fund in or affecting any geographic area are proportionate or
equivalent to the contributions by PAK MAIL Centers operating in that
geographic area or that any PAK MAIL Center will benefit directly or in
proportion to its contribution from the development of advertising and
marketing materials or the placement of advertising. Except as expressly
provided in this Section 12.3, the Franchisor assumes no direct or indirect
liability or obligation to the Franchisee with respect to the maintenance,
direction or administration of the Advertising Fund.
g. The Franchisor reserves the right to terminate the Advertising
Fund, upon 30 days' written notice to the Franchisee. All unspent monies on
the date of termination shall be distributed to the Franchisor's
franchisees in proportion to their respective contributions to the
Advertising Fund during the preceding 12 month period. The Franchisor shall
have the right to reinstate the Advertising Fund upon the same terms and
conditions set forth herein upon 30 days' prior written notice to the
Franchisee.
12.4. Regional Advertising Programs.
------------------------------
The Franchisor reserves the right, upon 30 days prior written notice to the
Franchisee, to create a regional advertising association ("Association") for the
benefit of PAK MAIL franchisees located within a particular geographic area. If
an Association is established for the area where the Franchisee is located, the
Franchisee will be required to participate in the Association for the purpose of
selecting and participating in regional marketing and promotion programs for PAK
MAIL Centers. The Franchisor, in its sole discretion, 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
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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.
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
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make such determination, the Franchisor may require submission of
specifications, information, or samples of such products, services, materials,
forms, items or supplies. The Franchisor will advise the Franchisee within a
reasonable time whether such products, services, materials, forms, items or
supplies meet its specifications.
13.5. Approved Suppliers.
-------------------
The Franchisee shall purchase all products, services, supplies and
materials required for the operation of the PAK MAIL Center from suppliers
designated or approved by the Franchisor or, if there is no designated or
approved supplier for a particular product, service, supply or material, from
such other suppliers who meet all of the Franchisor's specifications and
standards as to quality, composition, finish, appearance and service, and who
shall adequately demonstrate their capacity and facilities to supply the
Franchisee's needs in the quantities, at the times, and with the reliability
requisite to an efficient operation of the PAK MAIL Center.
13.6. Request to Approve Supplier.
----------------------------
In the event the Franchisee desires to purchase or use products, services,
supplies or materials from suppliers other than those previously approved by the
Franchisor, the Franchisee shall, prior to purchasing from or otherwise
utilizing any supplier give the Franchisor a written request to approve the
supplier. In the event the Franchisor rejects the Franchisee's requested new
supplier, the Franchisor must, within 60 days of the receipt of the Franchisee's
request to approve the supplier notify the Franchisee in writing of its
rejection. The Franchisor may continue from time to time to inspect any
suppliers' facilities and products to assure compliance with the Franchisor's
standards and specifications. Permission for such inspection shall be a
condition of the continued approval of such supplier. The Franchisor may at its
sole discretion, for any reason whatsoever, elect to withhold approval of the
supplier; however, in order to make such determination, the Franchisor may
require that samples from a proposed new supplier be delivered to the Franchisor
for testing prior to approval and use. A charge not to exceed the actual cost of
the test may be made by the Franchisor and shall be paid by the Franchisee.
13.7. Shopping Service.
-----------------
The Franchisor reserves the right to use third party shopping services from
time to time to evaluate the conduct of the Franchisee's PAK MAIL Center,
including such things as customer service, cleanliness, merchandising and proper
use of registers. Franchisor may use such shopping services to inspect the
Franchisee's PAK MAIL Center at any time at the Franchisor's expense, without
prior notification to the Franchisee. The Franchisor may make the results of any
such service evaluation available to the Franchisee, in the Franchisor's sole
discretion.
14. MARKS, TRADE NAMES AND PROPRIETARY INTERESTS
14.1. Marks.
------
The Franchisee acknowledges that the Franchisor has the sole right to own,
license and control the Franchisee's use of the PAK MAIL service mark and other
of the Marks, and that such Marks shall remain under the sole and exclusive
ownership and control of the Franchisor. The Franchisee acknowledges that it has
not acquired any right, title or interest in such Marks except for the right to
use such marks in the operation of its PAK MAIL Center as it is governed by this
Agreement. 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.
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14.2. No Use of Other Marks.
----------------------
The Franchisee agrees that no service mark other than "PAK MAIL" or such
other Marks as may be specified by the Franchisor shall be used in the
identification, marketing, promotion or operation of the PAK MAIL Center.
14.3. System.
-------
The Franchisee acknowledges that the Franchisor owns and controls the
distinctive plan for the establishment, operation and promotion of the PAK MAIL
Center and all related licensed methods of doing business, previously defined as
the "System", which include, but are not limited to, methods for shipping,
crating, freight forwarding, mailing, communications, inventory type and
control, technical equipment standards, customer relations, marketing
techniques, written promotional materials, advertising, and accounting systems,
all of which constitute confidential trade secrets of the Franchisor, and the
Franchisee acknowledges that the Franchisor has valuable rights in and to such
trade secrets. The Franchisee further acknowledges that it has not acquired any
right, title or interest in the System except for the right to use the System in
the operation of the PAK MAIL Center as it is governed by this Agreement and
that it is obligated to maintain the confidentiality of the System in accordance
with Section 20.3 below.
14.4. Mark Infringement.
------------------
The Franchisee agrees to notify the Franchisor in writing of any possible
infringement or illegal use by others of a trademark the same as or confusingly
similar to the Marks which may come to its attention. The Franchisee
acknowledges that the Franchisor shall have the right, in its sole discretion,
to determine whether any action will be taken on account of any possible
infringement or illegal use. The Franchisor may commence or prosecute such
action in the Franchisor's own name and may join the Franchisee as a party to
the action if the Franchisor determines it to be reasonably necessary for the
continued protection and quality control of the Marks and System. The Franchisor
shall bear the reasonable cost of any such action, including attorneys' fees.
The Franchisee agrees to fully cooperate with the Franchisor in any such
litigation.
14.5. Franchisee's Business Name.
---------------------------
The Franchisee acknowledges that the Franchisor has a prior and superior
claim to the "PAK MAIL" trade name. The Franchisee shall not use the words "PAK
MAIL" in the legal name of its corporation, partnership or any other business
entity used in conducting the business provided for in this Agreement. The
Franchisee also agrees not to register or attempt to register a trade name using
the word "PAK MAIL" in the Franchisee's name or that of any other person or
business entity, without prior written consent of the Franchisor. The Franchisee
shall not identify itself as being "Pak Mail Centers of America, Inc." or as
being associated with the Franchisor in any manner other than as a franchisee or
licensee. The Franchisee further agrees that in all advertising and promotion
and promotional materials it will display its business name only in obvious
conjunction with the phrase "PAK MAIL Licensee" or "PAK MAIL Franchisee" or with
such other words and in such other phrases to identify itself as an independent
owner of the PAK MAIL Center, as may from time to time be prescribed in the
Operations Manual.
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14.6. Change of Marks.
----------------
In the event that the Franchisor, in its sole discretion, shall determine
it necessary to modify or discontinue use of any proprietary Marks, or to
develop additional or substitute marks, the Franchisee shall, within a
reasonable time after receipt of written notice of such a modification or
discontinuation from the Franchisor, take such action, at the Franchisee's sole
expense, as may be necessary to comply with such modification, discontinuation,
addition or substitution.
15. REPORTS, RECORDS AND FINANCIAL STATEMENTS
15.1. Franchisee Reports.
-------------------
The Franchisee shall establish and maintain, at its own expense,
bookkeeping, accounting and data processing systems which conform to the
specifications which the Franchisor may prescribe from time to time (including,
without limitation, requirements for timely entry of information into data bases
of the Program, periodic printouts of reports generated by the Program and the
Franchisor's access to all Program data by modem). Each transaction of the
Center shall be processed on the Program in the manner prescribed by the
Franchisor. The Franchisor shall have the right of access to the Program and all
data processed thereon with respect to the Center. The Franchisee shall provide
access to the Franchisor at any time by installing a modem which meets the
Company's standards and specifications. The Franchisee shall supply to the
Franchisor such types of reports in a manner and form as the Franchisor may from
time to time reasonably require, including:
a. within 10 days after the end of each calendar month (or weekly if
the Franchisor requires the Franchisee to pay the Royalty described in
Section 5.B. hereof on a weekly basis), a report on the Center's 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.
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15.3. Books and Records.
------------------
The Franchisee shall maintain all books and records for its PAK MAIL Center
in accordance with generally accepted accounting principles, consistently
applied, and in a manner as reasonably prescribed by the Franchisor, and shall
preserve these records for at least five years after the fiscal year to which
they relate.
15.4. Audit of Books and Records.
---------------------------
The Franchisee shall permit the Franchisor to inspect and audit the books
and records of the PAK MAIL Center at any reasonable time, at the Franchisor's
expense. If any audit discloses a deficiency in amounts for payments owed to the
Franchisor pursuant to this Agreement, then such amounts shall become
immediately payable to the Franchisor by the Franchisee, with interest from the
date such payments were due at the lesser of 1 1/2% per month or the maximum
rate allowed by law. In the event such inspection or audit is made necessary by
the Franchisee's failure to furnish required reports, supporting records or
other 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. Transfer shall include an assignment, sale, gift or other disposition
resulting from a divorce, insolvency, corporate or partnership dissolution
proceeding or otherwise by operation of law or, in the event of the death of the
Franchisee, or an owner of the Franchisee, by will, declaration of or transfer
in trust or under the laws of intestate succession.
16.2. Pre-Conditions to Franchisee's Transfer.
----------------------------------------
The Franchisee shall not transfer its rights under this Agreement or any
interest in it, or any part or portion of any business entity that owns it or
all or a substantial portion of the assets of the PAK MAIL Center, unless the
Franchisee obtains the Franchisor's written consent and complies with the
following requirements:
a. Payment of all amounts due and owing pursuant to this Agreement by
the Franchisee to the Franchisor or its affiliates or to third parties
holding a security interest in any asset of the franchised business;
b. Agreement by the proposed transferee to satisfactorily complete the
initial training program described in this Agreement, which training may be
completed by the transferee either prior to or immediately after transfer
of rights under this Agreement;
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c. Execution of a Franchise Agreement in a form then currently offered
by the Franchisor, which shall supersede this Agreement in all respects. If
a new Franchise Agreement is signed, the terms thereof may differ from the
terms of this Agreement; provided, however, the transferee will not be
required to pay any additional initial franchise fee;
d. Provision by the Franchisee of written notice to the Franchisor 30
days' prior to the proposed effective date of the transfer, such notice to
contain information reasonably detailed to enable the Franchisor to
evaluate the terms and conditions of the proposed transfer;
e. The proposed transferee shall have provided information to the
Franchisor sufficient for the Franchisor to assess the proposed
transferee's business experience, aptitude and financial qualification, and
the Franchisor shall have ascertained that the proposed transferee meets
such qualifications;
f. Execution by Franchisee of a general release, in a form
satisfactory to the Franchisor, of any and all claims against the
Franchisor, its affiliates and their respective officers, directors,
employees and agents;
g. Payment by the Franchisee or the proposed transferee of $2,500; and
h. Agreement by the Franchisee to abide by the post- termination
covenant not to compete set forth in Section 20.2 below.
16.3. Franchisor's Approval of Transfer.
----------------------------------
The Franchisor has 30 days from the date of the written notice of the
proposed transfer to approve or disapprove in writing, of the Franchisee's
proposed transfer. The Franchisee acknowledges that the proposed transferee
shall be evaluated for approval by the Franchisor based on the same criteria as
is currently being used to assess new franchisees of the Franchisor and that
such proposed transferee shall be provided, if appropriate, with such
disclosures as may be required by state or federal law. The Franchisor shall
have the right to approve the material terms and conditions of the transfer,
including, without limitation, the right to confirm that the price and terms of
payment are not so burdensome as to affect adversely the transferee's operation
of the Center. If the Franchisee (and/or the transferring owners) finance any
part of the sale price of the transferred interest, if any, unless waived in
writing by the Franchisor, the Franchisee and/or its owners must agree that all
obligations of the transferee under or pursuant to any promissory notes,
agreements or security interests reserved by the Franchisee or its owners in the
assets of the Center or the Franchised Location shall be subordinate to the
transferee's obligations to pay royalty fees, Advertising Contributions and
other amounts due to the Franchisor and its affiliates and to otherwise comply
with this Agreement. If the Franchisee and the proposed transferee comply with
all conditions for assignment set forth herein and the Franchisor has not given
the Franchisee notice of its approval or disapproval within the 30 day period,
approval is deemed granted.
16.4. Right of First Refusal.
-----------------------
In the event the Franchisee wishes to transfer its rights under this
Agreement or any interest in it, or any part or portion of any business entity
that owns it, or all or a substantial portion of the assets of the PAK MAIL
Center, the Franchisee agrees to grant to the Franchisor a 30 day right of first
refusal to purchase such rights, interest or assets on the same terms and
conditions as are contained in the written offer to purchase submitted to the
Franchisee by the proposed purchaser; provided, however, the following
additional terms and conditions shall apply:
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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 transfer, and all other requirements and rights related
to such proposed transfer, as provided for above, shall apply (1) if the
Franchisee is a partnership or other business association, to the addition or
deletion of a partner or members of the association or the transfer of any
partnership or membership among existing partners or members; (2) if the
Franchisee is a corporation, to any proposed transfer 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.
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16.7. Franchisee's Death or Disability.
---------------------------------
Upon the death or permanent disability of the Franchisee (or the
Franchisee's individual controlling the Franchisee entity), the executor,
administrator, conservator, guardian or other personal representative of such
person shall transfer the Franchisee's interest in this Agreement or such
interest in the Franchisee entity to an approved third party. Such disposition
of this Agreement or such interest (including, without limitation, transfer by
bequest or inheritance) shall be completed within a reasonable time, not to
exceed 120 days from the date of death or permanent disability, and shall be
subject to all terms and conditions applicable to transfers contained in this
Article 16. Provided, however, that for purposes of this Section 16.7, there
shall be no fee charged by the Franchisor for the initial training program
offered to the transferee. Failure to transfer the interest in this Agreement or
such interest in the Franchisee entity within said period of time shall
constitute a breach of this Agreement. For the purposes hereof, the term
"permanent disability" shall mean a mental or physical disability, impairment or
condition that is reasonably expected to prevent or actually does prevent the
Franchisee or the owner of a controlling interest in the Franchisee entity from
supervising the management and operation of the PAK MAIL Center for a period of
120 days from the onset of such disability, impairment or condition.
17. TERM AND EXPIRATION
17.1. Term.
-----
The term of this Agreement is for a period of 10 years from the date of
this Agreement, unless sooner terminated as provided herein.
17.2. Rights Upon Expiration.
-----------------------
At the end of the initial term hereof the Franchisee shall have the option
to renew its franchise rights for an additional term, by acquiring successor
franchise rights, if the Franchisor does not exercise its right not to offer a
successor franchise in accordance with Section 17.4 below and if the Franchisee:
a. At least 30 days prior to expiration of the term, executes the form
of Franchise Agreement then in use by the Franchisor;
b. Has complied with all provisions of this Agreement during the
current term, including the payment on a timely basis of all Royalties and
other fees due hereunder. "Compliance" shall mean, at a minimum, that the
Franchisee has not received any written notification from the Franchisor of
breach hereunder more than four times during the term hereof;
c. Upgrades and/or remodels the PAK MAIL Center and its operations at
the Franchisee's sole expense (the necessity of which shall be in the sole
discretion of the Franchisor) to conform with the then current Operations
Manual;
d. Executes a general release, in a form satisfactory to the
Franchisor, of any and all claims against the Franchisor and its
affiliates, and their respective officers, directors, employees and agents
arising out of or relating to this Agreement; and
e. Pays a successor franchise fee of $2,500.
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17.3. Exercise of Option for Successor Franchise.
-------------------------------------------
The Franchisee may exercise its option for a successor franchise by giving
written notice of such exercise to the Franchisor not later than 180 days prior
to the scheduled expiration of this Agreement. The Franchisee's successor
franchise rights shall become effective by signing the Franchise Agreement then
currently being offered to new franchisees of the Franchisor.
17.4. Conditions of Refusal.
----------------------
The Franchisor shall not be obligated to offer the Franchisee a successor
franchise upon the expiration of this Agreement if the Franchisee fails to
comply with any of the above conditions of renewal. In such event (except for
failure to execute the then current Franchise Agreement or pay the successor
franchise fee) the Franchisor shall give notice of expiration at least 180 days
prior to the expiration of the term, and such notice shall set forth the reasons
for such refusal to offer successor franchise rights. Upon the expiration of
this Agreement, the Franchisee shall comply with the provisions of Section 18.5
below.
18. DEFAULT AND TERMINATION
18.1. Termination by Franchisee.
--------------------------
If the Franchisee and its owners are in compliance with this Agreement and
the Franchisor fails to comply with this Agreement and fails to correct such
failure within 30 days after written notice of failure to comply is delivered to
the Franchisor, the Franchisee may terminate this Agreement effective 10 days
after delivery to the Franchisor of notice of termination. A termination of this
Agreement by the Franchisee for any other reason, or without notice and right to
cure, shall be deemed a termination by the Franchisee without cause and in no
way shall release the Franchisee from the terms and conditions of this
Agreement.
18.2. Termination by Franchisor - Effective Upon Notice.
--------------------------------------------------
The Franchisor shall have the right, at its option, to terminate this
Agreement and all rights granted the Franchisee hereunder, without affording the
Franchisee any opportunity to cure any default (subject to any state laws to the
contrary, where state law shall prevail), effective upon receipt of notice by
the Franchisee, addressed as provided in Section 22.12, upon the occurrence of
any of the following events:
a. Abandonment. If the Franchisee ceases to operate the PAK MAIL
Center or otherwise abandons the PAK MAIL Center for a period of three
consecutive days, or any shorter period that indicates an intent by the
Franchisee to discontinue operation of the PAK MAIL Center, unless and only
to the extent that full operation of the PAK MAIL Center is suspended or
terminated due to fire, flood, earthquake or other similar causes beyond
the Franchisee's control and not related to the availability of funds to
the Franchisee;
b. Insolvency; Assignments. If the Franchisee becomes insolvent or is
adjudicated a bankrupt; or any action is taken by the Franchisee, or by
others against the Franchisee under any insolvency, bankruptcy or
reorganization act, (this provision may not be enforceable under federal
bankruptcy law, 11 U.S.C. ss.ss. 101 et seq.), or if the Franchisee makes
an assignment for the benefit of creditors, or a receiver is appointed by
the Franchisee;
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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, marshal or
constable;
d. Criminal Conviction. If the Franchisee is convicted of a felony, a
crime involving moral turpitude, or any crime or offense that is reasonably
likely, in the sole opinion of the Franchisor, to materially and
unfavorably affect the System, Marks, goodwill or reputation thereof;
e. Failure to Make Payments. If the Franchisee fails to pay any
amounts due the Franchisor or affiliates, including any amounts which may
be due as a result of any subleases or lease assignments between the
Franchisee and the Franchisor, within 10 days after receiving notice that
such fees or amounts are overdue;
f. Misuse of Marks. If the Franchisee misuses or fails to follow the
Franchisor's directions and guidelines concerning use of the Franchisor's
Marks and fails to correct the misuse or failure within ten days after
notification from the Franchisor;
g. Unauthorized Disclosure. If the Franchisee intentionally or
negligently discloses to any unauthorized person the contents of or any
part of the Franchisor's Operations Manual or any other trade secrets or
confidential information of the Franchisor;
h. Repeated Noncompliance. If the Franchisee has received two previous
notices of default from the Franchisor and is again in default of this
Agreement within a 12 month period, regardless of whether the previous
defaults were cured by the Franchisee; or
i. Unauthorized Transfer. If the Franchisee sells, transfers or
otherwise assigns the Franchise, an interest in the Franchise or the
Franchisee entity, this Agreement, the PAK MAIL Center or a substantial
portion of the assets of the PAK MAIL Center owned by the Franchisee
without complying with the provisions of Article 16 above.
18.3. Termination by Franchisor - Thirty Days Notice.
-----------------------------------------------
The Franchisor shall have the right to terminate this Agreement (subject to
any state laws to the contrary, where state law shall prevail), effective upon
30 days written notice to the Franchisee, if the Franchisee breaches any other
provision of this Agreement and fails to cure the default during such 30 day
period. In that event, this Agreement will terminate without further notice to
the Franchisee, effective upon expiration of the 30 day period. Defaults shall
include, but not be limited to, the following:
a. Failure to Maintain Standards. The Franchisee fails to maintain the
then current operating procedures and adhere to the specifications and
standards established by the Franchisor as set forth herein or in the
Operations Manual or otherwise communicated to the Franchisee;
b. Deceptive Practices. The Franchisee engages in any unauthorized
business or practice or sells any unauthorized product or service under the
Franchisor's Marks or under a name or mark which is confusingly similar to
the Franchisor's Marks;
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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 purchase contract, lease, sublease or lease assignment for the
Franchised Location, any other agreement material to the PAK MAIL Center,
any other Franchise Agreement between the Franchisor and the Franchisee or
any other agreement between the Franchisor and the Franchisee and such
default is not cured within the time specified in such purchase contract,
lease, sublease, other agreement or other Franchise Agreement. Provided,
however, so long as financing from the United States Small Business
Administration remains outstanding, the Franchisee will be given the same
opportunity to cure defaults under any agreement between the Franchisor or
its affiliates and the Franchisee, as the Franchisee is given under this
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.
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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 the Franchisor requests
that such an appraisal be obtained, the Franchisor and the Franchisee shall
each select an appraiser who, in turn, shall select a third appraiser,
whose appraisal shall be binding on both parties. The obligation of the
Franchisor to close shall be contingent on the appraisal being acceptable
to the Franchisor.
In the event that the Franchisor does not exercise the Franchisor's right to
purchase the Franchisee's PAK MAIL Center as set forth above, the Franchisee
will be free to keep or to sell, after such termination or expiration, to any
third party, all of the physical assets of its PAK MAIL Center; provided,
however, that all appearances of the Marks are first removed in a manner
approved in writing by the Franchisor.
18.5. Obligations of Franchisee Upon Termination or Expiration.
---------------------------------------------------------
The Franchisee is obligated upon termination or expiration of this
Agreement to immediately:
a. Pay to the Franchisor all Royalties, Advertising Contributions,
other fees, and any and all amounts or accounts payable then owed the
Franchisor or its affiliates pursuant to this Agreement, or pursuant to any
other agreement, whether written or oral, including subleases and lease
assignments, between the parties;
b. Cease to identify itself as a PAK MAIL franchisee or publicly
identify itself as a former Franchisee or use any of the Franchisor's trade
secrets, signs, symbols, devices, trade names, trademarks, or other
materials.
c. Immediately cease to identify the Franchised Location as being, or
having been, associated with the Franchisor and, if deemed necessary by the
Franchisor, paint or otherwise change the interior and exterior of the
Center to distinguish it from a PAK MAIL Center and immediately cease using
any proprietary mark of the Franchisor or any mark in any way associated
with the PAK MAIL Marks and System;
d. Deliver to the Franchisor all items which bear the PAK MAIL Mark,
signs, sign-faces, advertising materials, forms and other materials bearing
any of the Marks or otherwise identified with the Franchisor and obtained
by and in connection with this Agreement;
e. Immediately deliver to the Franchisor the Operations Manual and all
other information, documents and copies thereof which are proprietary to
the Franchisor;
f. Promptly take such action as may be required to cancel all
fictitious or assumed names or equivalent registrations relating to its use
of any Marks which are under the exclusive control of the Franchisor or, at
the option of the Franchisor, assign the same to the Franchisor; g. Notify
the telephone company and all telephone directory publishers of the
termination or expiration of the Franchisee's right to use any telephone
number and any regular, classified or other telephone directory listings
associated with any Mark and to authorize transfer thereof to the
Franchisor or its designee. The Franchisee acknowledges that, as between
the Franchisee and the Franchisor, the Franchisor has the sole rights to
and interest in all telephone, telecopy or facsimile machine numbers and
directory listings associated with any Mark. The Franchisee authorizes the
Franchisor, and hereby appoints the Franchisor and any of its officers as
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the Franchisee's attorney-in-fact, to direct the telephone company and all
telephone directory publishers to transfer any telephone, telecopy or
facsimile machine numbers and directory listings relating to the PAK MAIL
Center to the Franchisor or its designee, should the Franchisee fail or
refuse to do so, and the telephone company and all telephone directory
publishers may accept such direction or this Agreement as conclusive of the
Franchisor's exclusive rights in such telephone numbers and directory
listings and the Franchisor's authority to direct their transfer;
h. Comply with all applicable provisions of the Software License
Agreement; and
i. Abide by all restrictive covenants set forth in Article 20 of this
Agreement.
18.6. Acknowledgement.
----------------
In the event this Agreement is terminated by the Franchisor prior to its
expiration as set forth in Sections 18.2 and 18.3 above, the Franchisee
acknowledges and agrees that, in addition to all other available remedies, the
Franchisor shall have the right to recover lost future royalties during any
period in which the Franchisee fails to pay such royalties through and including
the remainder of the then current term of this Agreement.
18.7. State and Federal Law.
----------------------
THE PARTIES ACKNOWLEDGE THAT IN THE EVENT THAT THE TERMS OF THIS AGREEMENT
REGARDING TERMINATION OR EXPIRATION ARE INCONSISTENT WITH APPLICABLE STATE OR
FEDERAL LAW, SUCH LAW SHALL GOVERN THE FRANCHISEE'S RIGHTS REGARDING TERMINATION
OR EXPIRATION OF THIS AGREEMENT.
19. BUSINESS RELATIONSHIP
19.1. Independent Businesspersons.
----------------------------
The parties agree that each of them are independent businesspersons, their
only relationship is by virtue of this Agreement and that no fiduciary
relationship is created hereunder. Neither party is liable or responsible for
the other's debts or obligations, nor shall either party be obligated for any
damages to any person or property directly or indirectly arising out of the
operation of the other party's business authorized by or conducted pursuant to
this Agreement. The Franchisor and the Franchisee agree that neither of them
will hold themselves out to be the agent, employer or partner of the other and
that neither of them has the authority to bind or incur liability on behalf of
the other.
19.2. Payment of Third Party Obligations.
-----------------------------------
The Franchisor shall have no liability for the Franchisee's obligations to
pay any third parties, including without limitation, any product vendors, or any
sales, use, service, occupation, excise, gross receipts, income, property or
other tax levied upon the Franchisee, the Franchisee's property, the PAK MAIL
Center or upon the Franchisor in connection with the sales made or business
conducted by the Franchisee (except any taxes the Franchisor is required by law
to collect from the Franchisee with respect to purchases from the Franchisor).
19.3. Indemnification.
----------------
The Franchisee agrees to indemnify, defend and hold harmless the
Franchisor, its subsidiaries and affiliates, and their respective shareholders,
directors, officers, employees, agents, successors and assignees, (the
"Indemnified Parties") against, and to reimburse them for all claims,
obligations and damages described in this Section 19.3, any and all third party
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obligations described in Section 19.2 and any and all claims and liabilities
directly or indirectly arising out of the operation of the PAK MAIL Center or
arising out of the use of the Marks and System in any manner not in accordance
with this Agreement. For purposes of this indemnification, claims shall mean and
include all obligations, actual and consequential damages and costs reasonably
incurred in the defense of any claim against the Indemnified Parties, including,
without limitation, reasonable accountants', attorneys' and expert witness fees,
costs of investigation and proof of facts, court costs, other litigation
expenses and travel and living expenses. The Franchisor shall have the right to
defend any such claim against it. This indemnity shall continue in full force
and effect subsequent to and notwithstanding the expiration or termination of
this Agreement.
20. RESTRICTIVE COVENANTS
20.1. Non-Competition During Term.
----------------------------
The Franchisee acknowledges that, in addition to the license of the Marks
hereunder, the Franchisor has also licensed commercially valuable information
which comprises and is a part of the System, including without limitation,
operations, marketing, advertising and related information and materials and
that the value of this information derives not only from the time, effort and
money which went into its compilation, but from the usage of the same by all the
franchisees of the Franchisor using the Marks and System. The Franchisee
therefore agrees that other than the PAK MAIL Center licensed herein or
authorized by separate agreement with the Franchisor, neither the Franchisee nor
any of the Franchisee's officers, directors, shareholders or partners, nor any
member of his or their immediate families, shall during the term of this
Agreement:
a. have any direct or indirect controlling interest as a disclosed or
beneficial owner in a "Competitive Business" as defined below;
b. perform services as a director, officer, manager, employee,
consultant, representative, agent or otherwise for a Competitive Business;
or
c. divert or attempt to divert any business related to, or any
customer or account of the PAK MAIL Center, the Franchisor's business or
any other PAK MAIL franchisee's business, by direct inducement or
otherwise, or divert or attempt to divert the employment of any employee of
the Franchisor or another franchisee licensed by the Franchisor to use the
Marks and System, to any Competitive Business by any direct inducement or
otherwise.
The term "Competitive Business" as used in this Agreement shall mean any
business operating, or granting franchises or licenses to others to operate, a
packaging, crating, freight forwarding and/or mailing business or any similar
business (excluding operating or granting franchises or licenses to others for
PAK MAIL Centers operated under franchise agreements with the Franchisor).
Notwithstanding the foregoing, the Franchisee shall not be prohibited from
owning securities in a Competitive Business if such securities are listed on a
stock exchange or traded on the over-the-counter market and represent 5% or less
of that class of securities issued and outstanding.
20.2. Post-Termination Covenant Not to Compete.
-----------------------------------------
Upon termination or expiration of this Agreement for any reason, the
Franchisee and its officers, directors, shareholders, and/or partners agree
that, for a period of two years commencing on the effective date of termination
or expiration, or the date on which the Franchisee ceases to conduct business,
whichever is later, neither Franchisee nor its officers, directors,
shareholders, and/or partners shall have any direct or indirect interest
26
<PAGE>
(through a member of any immediate family of the Franchisee or its Owners or
otherwise) as a disclosed or beneficial owner, investor, partner, director,
officer, employee, consultant, representative or agent or in any other capacity
in any Competitive Business, defined in Section 20.1 above, located or operating
within a 25 mile radius of the Franchised Location or within 25 miles of any
other franchised or company-owned PAK MAIL Center. The restrictions of this
Section shall not be applicable to the ownership of shares of a class of
securities listed on a stock exchange or traded on the over-the-counter market
that represent 5% or less of the number of shares of that class of securities
issued and outstanding. The Franchisee and its officers, directors,
shareholders, and/or partners expressly acknowledge that they possess skills and
abilities of a general nature and have other opportunities for exploiting such
skills. Consequently, enforcement of the covenants made in this Section will not
deprive them of their personal goodwill or ability to earn a living.
20.3. Confidentiality of Proprietary Information.
-------------------------------------------
The Franchisee shall treat all information it receives which comprises or
is a part of the System licensed hereunder as proprietary and confidential and
will not use such information in an unauthorized manner or disclose the same to
any unauthorized person without first obtaining the Franchisor's written
consent. The Franchisee acknowledges that the Marks and the System have valuable
goodwill attached to them, that the protection and maintenance thereof is
essential to the Franchisor and that any unauthorized use or disclosure of the
Marks and System will result in irreparable harm to the Franchisor.
20.4. Confidentiality Agreement.
--------------------------
The Franchisor reserves the right to require that the Franchisee cause each
of its officers, directors, partners, shareholders, and Principal Operator, and,
if the Franchisee is an individual, immediate family members, to execute a
Nondisclosure and Noncompetition Agreement containing the above restrictions, in
a form approved by the Franchisor.
21. INSURANCE
21.1. Insurance Coverage.
-------------------
The Franchisee shall procure, maintain and provide evidence of (i)
comprehensive general liability insurance for the Franchised Location and its
operations with a limit of not less than $1,000,000 combined single limit, or
such greater limit as may be required as part of any lease agreement for the
Franchised Location; (ii) automobile liability insurance covering all employees
of the PAK MAIL Center with authority to operate a motor vehicle in an amount
not less than $1,000,000 or, with the prior written consent of the Franchisor,
such lesser amount as may be available at a commercially reasonable rate, but in
no event less than any statutorily imposed minimum coverage; (iii) unemployment
and worker's compensation insurance with a broad form all-states endorsement
coverage sufficient to meet the requirements of the law; and (iv) all-risk
personal property insurance in an amount equal to at least 100% of the
replacement costs of the contents and tenant improvements located at the PAK
MAIL Center. All of the required policies of insurance shall name the Franchisor
as an additional named insured and shall provide for a 30 day advance written
notice to the Franchisor of cancellation.
21.2. Proof of Insurance Coverage.
----------------------------
The Franchisee will provide proof of insurance to the Franchisor prior to
commencement of operations at its PAK MAIL Center. This proof will show that the
insurer has been authorized to inform the Franchisor in the event any policies
lapse or are cancelled. The Franchisor has the right to change the minimum
amount of insurance the Franchisee is required to maintain by giving the
Franchisee prior reasonable notice, giving due consideration to what is
27
<PAGE>
reasonable and customary in the similar business. Noncompliance with the
insurance provisions set forth herein shall be deemed a material breach of this
Agreement; in the event of any lapse in insurance coverage, in addition to all
other remedies, the Franchisor shall have the right to demand that the
Franchisee cease operations of the PAK MAIL Centers until coverage is
reinstated, or, in the alternative, pay any delinquencies in premium payments
and charge the same back to the Franchisee.
22. MISCELLANEOUS PROVISIONS
22.1. Governing Law/Consent to Venue and Jurisdiction.
------------------------------------------------
Except to the extent governed by the United States Trademark Act of 1946
(Lanham Act, 15 U.S.C. Sections 1051 et seq.) or other federal law, this
Agreement shall be interpreted under the laws of the state of Colorado and any
dispute between the parties shall be governed by and determined in accordance
with the substantive laws of the state of Colorado, which laws shall prevail in
the event of any conflict of law. The Franchisee and the Franchisor have
negotiated regarding a forum in which to resolve any disputes which may arise
between them and have agreed to select a forum in order to promote stability in
their relationship. Therefore, if a claim is asserted in any legal proceeding
involving the Franchisee, its officers or directors (collectively, "Franchisee
Affiliates") and the Franchisor, its officers, directors or sales employees
(collectively, "Franchisor Affiliates") both parties agree that the exclusive
venue for disputes between them shall be in the state and federal courts of
Colorado and each waive any objection either may have to the personal
jurisdiction of or venue in the state and federal courts of Colorado. The
Franchisor, the Franchisor Affiliates, the Franchisee and the Franchisee
Affiliates each waive their rights to a trial by jury.
22.2. Modification.
-------------
The Franchisor and/or the Franchisee may modify this Agreement only upon
execution of a written agreement between the two parties. The Franchisee
acknowledges that the Franchisor may modify its standards and specifications and
operating and marketing techniques set forth in the Operations Manual
unilaterally under any conditions and to the extent in which the Franchisor, in
its sole discretion, deems necessary to protect, promote, or improve the Marks
and the quality of the System, but under no circumstances will such
modifications be made arbitrarily without such determination.
22.3. Entire Agreement.
-----------------
This Agreement, including all exhibits and addenda, contains the entire
agreement between the parties and supersedes any and all prior agreements
concerning the subject matter hereof. The Franchisee agrees and understands that
the Franchisor shall not be liable or obligated for any oral representations or
commitments made prior to the execution hereof or for claims of negligent or
fraudulent misrepresentation and that no modifications of this Agreement shall
be effective except those in writing and signed by both parties. The Franchisor
does not authorize and will not be bound by any representation of any nature
other than those expressed in this Agreement. The Franchisee further
acknowledges and agrees that no representations have been made to it by the
Franchisor regarding projected sales volumes, market potential, revenues,
profits of the Franchisee's PAK MAIL Center, or operational assistance other
than as stated in this Agreement or in any disclosure document provided by the
Franchisor or its representatives.
28
<PAGE>
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 or bonds 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.
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.
29
<PAGE>
22.12. Notices.
--------
All notices required to be given under this Agreement shall be given in
writing, by certified mail, return receipt requested, or by an overnight
delivery service providing documentation of receipt, at the address set forth in
the first Section of this Agreement or at such other addresses as the Franchisor
or the Franchisee may designate from time to time, and shall be effectively
given when deposited in the United States mails, postage prepaid, or when
received via overnight delivery, as may be applicable.
22.13. Acknowledgement.
BEFORE SIGNING THIS AGREEMENT, THE FRANCHISEE SHOULD READ IT CAREFULLY WITH
THE ASSISTANCE OF LEGAL COUNSEL. THE FRANCHISEE ACKNOWLEDGES THAT:
(A) THE SUCCESS OF THE BUSINESS VENTURE CONTEMPLATED HEREIN INVOLVES
SUBSTANTIAL RISKS AND DEPENDS UPON THE FRANCHISEE'S ABILITY AS AN
INDEPENDENT BUSINESS PERSON AND ITS ACTIVE PARTICIPATION IN THE DAILY
AFFAIRS OF THE BUSINESS, AND
(B) NO ASSURANCE OR WARRANTY, EXPRESS OR IMPLIED, HAS BEEN GIVEN AS TO
THE POTENTIAL SUCCESS OF SUCH BUSINESS VENTURE OR THE EARNINGS LIKELY TO BE
ACHIEVED, AND
(C) NO STATEMENT, REPRESENTATION OR OTHER ACT, EVENT OR COMMUNICATION,
EXCEPT AS SET FORTH IN THIS DOCUMENT, AND IN ANY OFFERING CIRCULAR SUPPLIED
TO THE FRANCHISEE IS BINDING ON THE FRANCHISOR IN CONNECTION WITH THE
SUBJECT MATTER OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above set forth.
PAK MAIL CENTERS OF FRANCHISEE
AMERICA, INC.,
a Colorado corporation
-----------------------------------
(Print Name)
By:
---------------------------------- -----------------------------------
Individually
Name: Title:
-------------------------------- -----------------------------
Address:
---------------------------
City:
-----------------------------
State: Zip:
--------------- ----------
30
<PAGE>
OR:
(if a corporation or partnership)
----------------------------------
Company Name
By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------
Address:
---------------------------
City:
-----------------------------
State: Zip:
--------------- ----------
31
<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 nonperformance of any obligations hereby
guaranteed;
4. Any right he or she may have to require that any action be
brought against Franchisee or any other person as a condition
of liability; and
5. Any and all other notices and legal or equitable defenses to
which he or she may be entitled.
Each of the undersigned consents and agrees that:
1. His or her direct and immediate liability under this
guaranty shall be joint and several;
2. He or she shall render any payment or performance required
under the Agreement upon demand if Franchisee fails or refuses
punctually to do so;
3. Such liability shall not be contingent or conditioned upon
pursuit by the Franchisor of any remedies against Franchisee
or any other person; and
4. Such liability shall not be diminished, relieved or
otherwise affected by any extension of time, credit or
other indulgence which the Franchisor may from time to
time grant to Franchisee or to any other person,
including without limitation the acceptance of any
partial payment or performance, or the compromise or
release of any claims, none of which shall in any way
modify or amend this guaranty, which shall be continuing
and irrevocable during the term of the Agreement,
including renewals thereof.
IN WITNESS WHEREOF, each of the undersigned has affixed his or her
signature effective on the same day and year as the Agreement was executed.
WITNESS GUARANTOR(S)
- ------------------------------ ----------------------------------------
- ------------------------------ ----------------------------------------
- ------------------------------ ----------------------------------------
- ------------------------------ ----------------------------------------
<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:
------------------------- ----------------------------
<PAGE>
EXHIBIT V
TO FRANCHISE AGREEMENT
ADDENDUM TO FRANCHISE AGREEMENT --
BUILD-OUT PROGRAM
THIS ADDENDUM ("Addendum") to the Franchise Agreement dated , 1999 is made
effective as of the same date, by and ____________________________ between PAK
MAIL CENTERS OF AMERICA, INC. ("Franchisor") and _______________________
("Franchisee"), to supplement and amend certain terms of the Agreement. To the
extent not defined herein, all initial- capitalized references in this Agreement
shall have the same meaning as defined in the Agreement.
PURPOSE
A. The Agreement grants the Franchisee a franchise for the establishment
and operation of a PAK MAIL Center in a retail location ("Center").
B. The Franchisor provides or makes available construction, development and
build-out services ("Build-Out Services") to assist qualified franchisees in
constructing, developing and equipping a Center.
C. The Franchisee desires to obtain the Build-Out Services and the
Franchisor desires to provide or make available the Build- Out Services to the
Franchisee under the terms and conditions which are contained in this Addendum.
The Franchisor and the Franchisee therefore agree as follows:
1. Build-Out Services. The Franchisor shall provide or make available,
itself or through arrangements with independent contractors, the following
Build-Out Services to the Franchisee, for the development and construction of
the Center:
a. Procurement of suitable plans and specifications conforming to the
Franchisor's requirements for dimensions, exterior design, materials,
interior design, layout, signs, counters, equipment and decorating for the
Center, in compliance with applicable ordinances, building codes, permit
requirements and lease requirements and restrictions.
b. Obtaining of required construction-related permits and licenses.
c. Procurement of fixtures, materials, equipment, modular furniture,
counters and other such materials required for the construction of the
Center.
d. Securing of all contractors and/or subcontractors to construct
improvements and install equipment and fixtures in the Center.
e. Completion of the construction of required improvements to the
Center premises and decorate the premises in compliance with the plans and
specifications, and delivery of the completed Center.
f. Furnish and install the required signage for the Center, if agreed
to by the parties and listed on the Build- Out Schedule, attached to this
Addendum as Exhibit V-I.
<PAGE>
g. Furnish and install certain optional equipment, if listed on the
Build-Out Schedule, attached to this Addendum as Exhibit V-I.
2. Commencement of Build-Out Services. The Franchisor shall not be
obligated to commence the Build-Out Services until the Franchisee submits an
executed lease or other authority ("Lease") to occupy the location for the
Center, which Lease has been previously approved by the Franchisor, and pays the
first installment of the costs for build-out, as prescribed in Section 4.a below
("Start Date").
3. Completion of Build-Out Obligations. Conditional upon the timely payment
of the costs for build-out, an estimate of which have been acknowledged and
agreed to by the parties and which are set forth in the Build-Out Schedule
("Build-Out Costs") and submission of an executed Lease for the location of the
Center, the Franchisor agrees to use its best efforts to complete development of
and have the Center ready to open and commence the operation of business within
a reasonable time after the Franchisor obtains possession of the premises, as
may be necessary, and to obtain all required construction permits.
4. Build-Out Costs and Additional Expenses. The Build-Out Costs shall be
calculated in the Build-Out Schedule and executed by the Franchisor and the
Franchisee no later than the Start Date. The Franchisee acknowledges that the
Build-Out Costs do not include other charges, costs and expenses for which the
Franchisee is responsible and liable, such as construction extras, landlord
chargebacks and additional costs and expenses as may be incurred due to the
Franchisee's failure to tender the Build-Out Costs as required by this
Agreement. The Franchisee acknowledges that the Build-Out Costs include a fee to
the Franchisor, denoted herein as the Development Fee. In addition:
a. The Build-Out Costs shall be paid in two installments, one-half
prior to the commencement of the Build-Out Services and one-half upon
completion of the Build-Out Services. The Franchisee acknowledges and
understands that construction of the Center by the Franchisor will not
begin until one-half of the Build-Out Costs have been paid to the
Franchisor; provided, however, upon receipt by the Franchisor of evidence
of a binding finance commitment from a third party to the Franchisee, the
Franchisor may elect, in its sole discretion, to commence construction of
the Center without receiving one-half of the Build-Out Costs and/or to
otherwise vary the payment schedule for the Build-Out Costs.
b. The Franchisee is solely and exclusively responsible and liable for
and shall pay when due all sales, use, property or other taxes (including
any penalties and interest) owed due to the construction of the Center, the
improvement of the premises where the Center is located and the purchase of
all materials, equipment, fixtures, furniture, labor, or other items
utilized in the development and/or construction of the Center.
c. To the extent not covered by the Build-Out Costs, the Franchisee
shall be responsible for and shall pay when due all other costs and
expenses incurred in the development of the Center.
d. Franchisee grants to Franchisor a Security Interest in all
equipment, supplies, furniture and inventory located at the Center until
such time as full payment is received by Franchisor and all third parties
for the Build-Out Services provided.
2
<PAGE>
e. The Franchisee acknowledges and agrees that the actual cost of the
build-out shall be computed upon completion of the Build-Out Services and
the Development Fee and the second installment of the Build-Out Costs
estimated in the Build-Out Schedule shall be adjusted to reflect the actual
cost of the build-out of the Center.
5. Control of Build-Out. The Franchisee acknowledges that the development
of the Center, all design changes, modifications to the Center design, all
construction issues, trade fixture and equipment changes, and all other matters
related to the development of the Center and the construction thereof, shall be
within the sole discretion of the Franchisor. The Center shall be turned over to
Franchisee ready to open for business, subject to a punch list of items to be
corrected within 60 days of the turnover to the Franchisee. Franchisee shall be
responsible and liable for obtaining all business licenses, permits and the like
not related to construction, required by state or local authorities for the
operation of the Center.
6. Conversion and Design, Signs, Equipment and Permits and Licenses.
Sections 5.3, 5.4, 5.5 and 5.6 of the Agreement are amended by adding the
following to the end of each section:
Notwithstanding the foregoing, the Franchisor acknowledges the necessary
conversion and design of the location, if any, meets the Franchisor's plans
and specifications; any signs meet the standards and specifications of the
Franchisor and comply with applicable mall regulations, local ordinances,
building codes and zoning regulations; the equipment and software meet the
Franchisor's standards and specifications; and the necessary permits and
licenses relating to the construction of the Center have been obtained. To
the extent applicable, however, all of the Franchisee's covenants set forth
in this Section apply to the Franchisee's operation of the Center.
7. Improvements and Warranties. Within 30 days after completion of the
Center, the Franchisor shall provide the Franchisee a schedule listing all
leasehold improvements, equipment, furniture and fixtures installed in the
Center, and any and all equipment warranties provided by third parties, if not
already forwarded to the Franchisee.
8. Excuse of Performance. Notwithstanding anything in this Addendum to the
contrary, the obligations of the Franchisor to pursue and complete the Build-Out
Services shall be excused from such delay of performance as may be caused by any
legal directive; intervention of any governmental order, regulation, direction,
request or contingency; acts of God; or any cause beyond the reasonable control
of the Franchisor; provided, however, that such excuse of performance shall be
limited to the period of delay directly related to such cause.
9. Conflict. In the event of a conflict between the terms of the Agreement
and the terms of this Addendum, the terms of this Addendum shall control.
10. Effective Date. This Addendum shall not become effective until accepted
by the Franchisor as evidenced by dating and signing by an officer of the
Franchisor.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
PAK MAIL CENTERS OF AMERICA, INC.
By:
---------------------------------------
Its:
--------------------------------------
FRANCHISEE:
By:
---------------------------------------
Its:
--------------------------------------
4
<PAGE>
EXHIBIT V-I
BUILD-OUT SCHEDULE
PAK MAIL CENTERS OF AMERICA, INC.
By:
---------------------------------------
Its:
--------------------------------------
FRANCHISEE:
By:
---------------------------------------
Its:
--------------------------------------
Exhibit 10(b)
EXHIBIT B
(TO AREA MARKETER FRANCHISE OFFERING CIRCULAR)
PAK MAIL CENTERS OF AMERICA, INC.
AREA MARKETING AGREEMENT
(2/23/99)
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC.
AREA MARKETING AGREEMENT
---------------------------
Territory
---------------------------
Date
---------------------------
Area Marketer
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC.
AREA MARKETING AGREEMENT
TABLE OF CONTENTS
Section Number Page Number
1. BACKGROUND AND PURPOSE.............................................1
2. DEFINITIONS........................................................1
2.1. Territory.................................................1
2.2. Sales Year................................................1
2.3. Franchise Agreement.......................................1
2.4. A.M. P.M. MOVERS Program..................................2
2.5. Franchisee................................................2
2.6. System Manual.............................................2
3. SCOPE OF APPOINTMENT...............................................2
3.1. Appointment of Marketer/Scope of Operations...............2
3.2. Rights and Limitations to Territory.......................2
3.3. Franchisor's Reservation of Rights........................3
4. FRANCHISE SALES PROCEDURES.........................................3
4.1. Sales Goals...............................................3
4.2. Franchise Registration and Disclosure.....................3
4.3. Advertising, Recruiting and Screening.....................4
4.4. Franchisor's Approval of Prospective Franchisees..........4
5. PAYMENTS TO THE FRANCHISOR.........................................4
5.1. Initial Area Marketing Fee................................4
6. PAYMENTS TO THE AREA MARKETER......................................5
6.1. Commissions on Sales Services.............................5
6.2. Commissions on Transfers of Franchises....................5
6.3. Service Fees..............................................5
6.4. Application of Payments...................................6
6.5. Setoffs...................................................6
7. TRAINING ASSISTANCE................................................6
7.1. Area Marketer Training....................................6
7.2. Length of Training........................................7
7.3. Additional Training.......................................7
7.4. Seminars and Ongoing Training.............................7
8. FRANCHISOR'S OPERATING ASSISTANCE..................................7
8.1. System Manual.............................................7
8.2. Operating Assistance......................................8
9. AREA MARKETER'S OBLIGATIONS........................................8
9.1. Hiring and Training of Employees of Area Marketer.........8
9.2. Commencement of Business..................................8
9.3. Sales Services............................................8
9.4. Pre-Opening Support Services..............................8
9.5. Ongoing Support Services..................................9
<PAGE>
9.6. Compliance with Franchise Agreement.......................9
9.7. Area Marketer's Inspections..............................10
10. MARKS.............................................................10
10.1 Ownership and Goodwill of Marks .........................10
10.2 Limitations on Use ......................................10
10.3 Discontinuance of Use of Marks...........................11
10.4 Notification of Infringements and Claims.................11
10.5 Indemnification..........................................11
11. CONFIDENTIAL INFORMATION..........................................11
11.1 Confidential Information.................................11
11.2 Confidentiality and Noncompetition Agreement.............12
12. EXCLUSIVE RELATIONSHIP............................................12
12.1 Exclusive Relationship.................................. 12
13. OPERATING STANDARDS...............................................13
13.1 Standards of Service.....................................13
13.2 Compliance with Laws and Good Business Practices........ 13
13.3 Accuracy of Information..................................13
13.4 Notification of Litigation...............................13
13.5 Ownership and Management of Business.....................14
13.6 Conflicting Interests....................................14
13.7 Insurance................................................14
13.8 Proof of Insurance Coverage..............................14
13.9 Advertising in Territory.................................15
13.10 Approval of Advertising..................................15
13.11 Accounting, Bookkeeping and Records......................15
13.12 Reports..................................................15
13.13 Late Charges.............................................16
13.14 Compliance with Third Party Agreements...................16
14. INSPECTIONS AND AUDITS............................................16
14.1 Inspections and Audits...................................16
15. TRANSFERS.........................................................16
15.1 Transfers by the Franchisor..............................16
15.2 Transfers by the Marketer................................16
15.3 Conditions for Approval of Transfer......................17
15.4 Transfer to an Entity....................................18
15.5 Franchisor's Approval of Transfer........................18
15.6 Death or Disability of Area Marketer.....................18
16. TERM AND EXPIRATION...............................................18
16.1 Term.....................................................18
16.2 Rights Upon Expiration...................................18
16.3 Exercise of Option for Successor Area Marketer Rights....19
16.4 Conditions of Refusal....................................19
17. TERMINATION.......................................................19
17.1 By the Marketer..........................................19
17.2 By the Franchisor........................................19
17.3 Rights and Obligations of the Area Marketer Upon
Termination or Expiration...............................20
17.4 Confidential Information.................................21
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17.5 Covenant Not to Compete..................................21
17. No Further Right to Payment..............................22
17.7 Continuing Obligations...................................22
17.8 State and Federal Law....................................22
18. RELATIONSHIP OF THE PARTIES.......................................22
18.1 Relationship of the Parties..............................22
18.2 Payment of Third Party Obligations.......................22
18.3 Independent Contractors..................................23
18.4 Indemnification..........................................23
19. MISCELLANEOUS PROVISIONS..........................................23
19.1 Governing Law/Consent to Venue and Jurisdiction..........23
19.2 Severability.............................................23
19.3 Modification.............................................24
19.4 Attorneys' Fees..........................................24
19.5 Injunctive Relief........................................24
19.6 No Waiver................................................24
19.7 No Right to Set Off......................................24
19.8 Effective Date...........................................24
19.9 Review of Agreement......................................24
19.10 Entire Agreement.........................................25
19.11 Notices..................................................25
19.12 Acknowledgment...........................................25
EXHIBITS
Exhibit I Rider to Area Marketing Agreement
Exhibit II Franchise Agreement
Exhibit III Amendment to Franchise Agreement (A.M. P.M. MOVERS Program)
Exhibit IV Guaranty and Assumption of Area Marketer's Obligations
Exhibit V Statement of Ownership
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC.
AREA MARKETING AGREEMENT
THIS AGREEMENT is made this ___ day of ________________, 199____, between
PAK MAIL CENTERS OF AMERICA, INC., a Colorado corporation, with its principal
offices at 3033 South Parker Road, Suite 1200, Aurora, Colorado, 80014
("Franchisor") and _______________________________
_____________________________________________ whose principal address is
__________________ _______________________________________________________
("Marketer"), who on the basis of the following understandings and in
consideration of the following promises, agree as follows:
1. BACKGROUND AND 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"). These methods feature the use and license of the service mark
"PAK MAIL" and related service marks and trademarks (all referred to in this
Agreement as the "Marks") and the Franchisor's distinctive plans for the
establishment, operation and promotion of PAK MAIL Centers and related licensed
methods of doing business (the "Licensed Methods").
1.2. The Franchisor grants to qualified individuals, or to entities with which
such individuals are affiliated, the right and license to develop and operate
Centers using the Marks and Licensed Methods.
1.3. The Marketer desires to act as a special agent to the Franchisor within a
certain geographic area, enabling the Marketer to sell franchises for PAK MAIL
Centers and to develop, support and provide services to PAK MAIL Centers within
such geographical area, under the terms and conditions which are contained in
this Agreement ("Marketer Business" or "Business").
1.4. The Franchisor is willing to grant the right to Marketer to serve as an
area marketer, enabling the Marketer to sell franchises for PAK MAIL Centers and
to provide site selection and support services to PAK MAIL Centers within a
certain geographical area, under terms and conditions which are contained in
this Agreement.
2. DEFINITIONS
2.1. Territory.
----------
"Territory" shall mean the geographical area described in Exhibit I
attached hereto and incorporated herein by reference.
2.2. Sales Year.
-----------
"Sales Year" shall mean each period of time defined as a Sales Year in the
attached Exhibit I.
2.3. Franchise Agreement.
--------------------
"Franchise Agreement" shall mean the forms of agreements (including,
without limitation, franchise agreement and any exhibits, riders, collateral
assignments of lease or sublease, and personal guarantees used in connection
<PAGE>
therewith) used by the Franchisor from time to time in the granting of
franchises for the ownership and operation of PAK MAIL Centers. Attached to this
Agreement as Exhibit II and incorporated herein by reference, is the
Franchisor's current form of Franchise Agreement. The Marketer acknowledges that
the Marketer will use the Franchisor's then current form of franchise agreement
and that the Franchisor, in its sole discretion, may from time to time modify or
amend in any respect the form of franchise agreement and related agreements,
including but not limited to, modifying fees customarily charged in granting PAK
MAIL Center franchises.
2.4. A.M. P.M. MOVERS Program.
-------------------------
"A.M. P.M. MOVERS Program" shall mean the program that the Franchisor may
offer to Franchisees of the Franchisor 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. Those Franchisees approved to participate in the A.M. P.M. MOVERS Program
must execute the Amendment to Franchise Agreement (A.M. P.M. MOVERS Program),
the current form of which is attached to this Agreement as Exhibit III and
incorporated herein by reference ("A.M. P.M. MOVERS Amendment"). The Marketer
acknowledges that the Marketer will use the Franchisor's then current form of
A.M. P.M. MOVERS Amendment and that the Franchisor, in its sole discretion, may
from time to time, modify or amend in any respect the form of A.M. P.M. MOVERS
Amendment.
2.5. Franchisee.
-----------
"Franchisee" shall mean any person, corporation, partnership or other
entity who has entered into a Franchise Agreement with the Franchisor.
2.6. System Manual.
--------------
"System Manual" means the manuals, technical bulletins or other written
materials covering the proper operating and marketing techniques of a Marketer
Business and standards and specifications for implementing the Licensed Methods.
3. SCOPE OF APPOINTMENT
3.1. Appointment of Marketer/Scope of Operations.
--------------------------------------------
The Franchisor appoints the Marketer, and the Marketer agrees to perform
its obligations, as a special agent of the Franchisor in accordance with the
terms and conditions of this Agreement, and only within the Territory, to
solicit prospective Franchisees for PAK MAIL Centers to be located in the
Territory ("Sales Services") as described in Section 9.3 below, to perform
certain site acquisition services and to render support and other services
("Support Services") to Centers located within the Territory as those services
are described in Sections 9.4 and 9.5 below.
3.2. Rights and Limitations to Territory.
------------------------------------
The Franchisor will not establish and license any other area marketers to
act as special agents to perform Sales Services or to thereafter render Support
Services to Franchisees within the Territory; provided, however, that the
Franchisor shall retain such rights in the Territory as described in Section 3.3
below.
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3.3. Franchisor's Reservation of Rights.
-----------------------------------
The Marketer acknowledges that its franchise rights granted hereunder are
nonexclusive and the Franchisor (on behalf of itself, its affiliates and
designees), retains the rights, among others:
a. to use, and to license others to use, the Marks and Licensed Methods for
the operation of other area marketer businesses at any location outside of the
Territory;
b. to solicit prospective Franchisees and to grant other persons franchises
to operate PAK MAIL Centers at such locations within and outside of the
Territory and on such terms and conditions as the Franchisor deems appropriate
and to itself own and operate such PAK MAIL Centers within the Territory;
c. 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
Franchisees who operate PAK MAIL Centers sell, whether in alternative channels
of distribution or in connection with the operation of packaging and mailing
businesses which are the same as, or similar to, or different from PAK MAIL
Centers, at any location, within and outside of the Territory, on any terms and
conditions as the Franchisor deems advisable; an
d. to use the Marks to identify services and products other than those sold
by Franchisees who operate PAK MAIL Centers, promotional and marketing efforts
or related items, or to identify services and products similar to those offered
by Franchisees who operate PAK MAIL Centers, made available through alternative
channels of distribution, at any location, within and outside of the Territory.
4. FRANCHISE SALES PROCEDURES
4.1. Sales Goals.
------------
The Marketer agrees that during the term of this Agreement, the Marketer
will meet and maintain the franchise sales goals ("Sales Goals") set forth in
Exhibit I to this Agreement.
4.2. Franchise Registration and Disclosure.
--------------------------------------
Neither the Marketer nor any employee or representative of the Marketer
shall solicit prospective Franchisees of PAK MAIL Centers until the Franchisor
has registered in the applicable jurisdiction and has provided the Marketer with
the requisite documents, or at any time when the Franchisor notifies the
Marketer that its registration is not then in effect or its documents are not
then in compliance with applicable law. If the Marketer's activities pursuant to
this Agreement require the preparation, amendment, registration or filing of
information or any disclosure or other documents, all requisite offering
circulars, ancillary documents and registration applications shall be prepared
and filed by the Franchisor or its designee, and registration secured before the
Marketer may solicit prospective Franchisees of PAK MAIL Centers. Costs of such
registration applicable to the Marketer shall be borne by the Marketer. In
particular, the Marketer shall:
a. prepare and forward to the Franchisor verified financial statements of
the Marketer in such form and for such periods as shall be designated by the
Franchisor, including audited financial statements if necessary and appropriate
to comply with applicable legal disclosure, filing or other legal requirements;
b. promptly provide all information reasonably required by the Franchisor
to prepare all requisite offering circulars and ancillary documents for the
offering of franchises throughout the Territory;
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c. execute all documents required by the Franchisor for the purpose of
registering the Marketer and the Franchisor to offer franchises throughout the
Territory; and
d. pay to the Franchisor, or its designee, upon demand, the costs of
registering and preparing those portions of all such offering circulars and
ancillary documents which are applicable to the Marketer.
The Marketer agrees to review all information pertaining to the Marketer
prepared to comply with legal requirements for selling franchises in the
Territory and verify its accuracy if so requested by the Franchisor. The
Marketer acknowledges that the Franchisor, its affiliates or its designees,
shall not be liable to the Marketer for any errors, omissions or delays which
may occur in the preparation of such materials.
4.3. Advertising, Recruiting and Screening.
--------------------------------------
The Marketer shall be responsible for advertising for, recruiting,
screening and interviewing prospects for PAK MAIL Centers franchises within the
Territory. The Marketer shall provide prospective Franchisees with written
information regarding a PAK MAIL Center franchise approved by the Franchisor, or
via the telephone, face-to-face meetings or by visiting other PAK MAIL Centers
within the Territory. The Marketer shall submit each qualified applicant
("Applicant") for a PAK MAIL Center franchise to the Franchisor for approval.
The Marketer further agrees that all Applicants submitted to the Franchisor by
the Marketer, if an individual, or the Principal Owner of the Applicant, if the
Applicant is not an individual, shall be individuals who are of good character,
have adequate financial resources and meet the Franchisor's criteria for
Franchisees or Principal Owners of Franchisees. A "Principal Owner" is defined
in Section 7.1 below. Each application for a franchise received by the Marketer
shall be submitted to the Franchisor with all information respecting the
Applicant, the Principal Owner of the Applicant, if applicable, the Applicant's
proposed franchise location, if known, and all other information then
customarily required by the Franchisor concerning Applicants, including such
financial statements and other information as the Franchisor may reasonably
require. The Marketer shall assist the Applicant in the preparation of financial
and other required information.
4.4. Franchisor's Approval of Prospective Franchisees.
-------------------------------------------------
By delivery of written notice to the Marketer, the Franchisor shall approve
or disapprove Applicants to become PAK MAIL Center Franchisees. The Franchisor
agrees to exert its best efforts to deliver such notification to the Marketer
within 30 days after the later of: (a) receipt by the Franchisor of a complete
application, financial statement and other materials regarding the Applicant
requested by the Franchisor; or (b) the personal interview of Applicant by the
Franchisor, if any. If the Franchisor, in its sole discretion, determines that
the Applicant possesses sufficient financial and managerial capability and meets
the other criteria then utilized by the Franchisor in the grant of franchises,
the Franchisor shall offer to the Applicant a franchise for the operation of a
PAK MAIL Center. The grant of the franchise shall be effected only upon and
after the full execution of the then current Franchise Agreement by the
Franchisor and the Applicant.
5. PAYMENTS TO THE FRANCHISOR d
5.1. Initial Area Marketing Fee.
---------------------------
The initial area marketing fee ("Marketing Fee") payable to the Franchisor
by the Marketer in consideration for the Marketer's appointment as exclusive
Marketer within the Territory shall be calculated and set forth in the attached
Exhibit I. Unless otherwise agreed, the Marketing Fee is payable in full upon
execution of this Agreement. The Marketing Fee is fully earned by the Franchisor
upon receipt and is nonrefundable once paid. The Marketer acknowledges that the
Marketing Fee does not include payment of any initial franchise fees for
individual PAK MAIL Centers.
4
<PAGE>
6. PAYMENTS TO THE AREA MARKETER d
6.1. Commissions on Sales Services.
------------------------------
During the term of this Agreement, the Marketer shall be paid a commission
based on a percentage of initial franchise fees paid by Franchisees for the
purchase of a franchise for a PAK MAIL Center to be located within the
Territory, upon fulfillment of the following conditions ("Franchise Sales
Conditions"):
a. The Franchisee shall have executed a Franchise Agreement with the
Franchisor and an initial franchise fee shall have been paid and actually
received by the Franchisor (the Franchisor shall not be deemed to have received
any fees paid into escrow, if applicable, until such fees have actually been
remitted to the Franchisor);
b. The sale for which the initial franchise fee has been paid is not a
resale of any existing PAK MAIL Center, or any interest therein;
c. The Franchisee shall have successfully completed the Franchisor's
initial training program; and
d. The Marketer has complied with all other of its obligations under this
Agreement with respect to such sale and has verified the same to the Franchisor,
in writing in a form prescribed by the Franchisor.
Commissions on Sales Services shall be paid to the Marketer in the amount
of 40% of the total initial franchise fees paid to the Franchisor, payable to
the Marketer within 45 days after the Franchise Sale Conditions have been
fulfilled. The Marketer shall not receive any commission on Sales Services for
PAK MAIL Centers owned and operated by the Franchisor, its affiliates or
designees ("Company Owned Centers") in the Territory.
6.2. Commissions on Transfers of Franchises.
---------------------------------------
If, during the term of this Agreement, a PAK MAIL Center located within the
Territory or an interest therein is resold to a different Franchisee and the
sale results in the execution of a Franchise Agreement and the payment of a
transfer fee, then the Marketer will not be paid a commission on any transfer
fee paid to the Franchisor, but the Marketer will be paid Service Fees in
accordance with Section 6.3 below.
6.3. Service Fees.
-------------
The Franchisor shall pay to the Marketer, within 45 days after the end of
each month, a service fee ("Service Fee") consisting of 50% of the royalty fees
(which excludes advertising fees) which each Franchisee located in the Territory
paid to the Franchisor during the applicable month pursuant to their Franchise
Agreement ("Royalty Fees"). Notwithstanding the foregoing:
a. If the Marketer has failed to conduct the quarterly inspections
described in Section 9.5 below and file a written report or failed to perform in
any material respect the other services to be provided to Franchisees located in
5
<PAGE>
the Territory described in Article 9 below during any applicable month with
respect to one or more Franchisees located in the Territory, the Marketer shall
not be entitled to receive Service Fees with respect to such Franchisees for the
period during which reports or services were not provided.
b. The Marketer shall not be entitled to share or receive any Service Fees
from any fees paid to the Franchisor by Franchisees in the Territory prior to
the time the Marketer completes the initial Marketer training program and
commences full performance of the services set forth in Article 9 of this
Agreement.
c. If there are franchised Centers operating in the Territory at the time
the Marketer signs this Agreement, then the Marketer shall receive Service Fees
from those Centers during the term of this Agreement.
d. The Marketer shall not receive any Service Fees with respect to any PAK
MAIL Centers in the Territory owned and operated by the Franchisor or its
affiliates, unless those Centers are operating under Franchise Agreements and
pay Royalty Fees to the Franchisor.
6.4. Application of Payments.
------------------------
The Franchisor's payments to the Marketer shall be based on amounts
actually collected from Franchisees, not on payments accrued, due or owing. In
the event of termination of a Franchise Agreement for a PAK MAIL Center within
the Territory under circumstances entitling the Franchisee to the return of all
or part of the initial franchise fee or Royalty Fees (or in the event that the
Franchisor becomes legally obligated or decides in its sole discretion, to
return part or all of the initial franchise fee or Royalty Fees), the Franchisor
may deduct the portion of the amount to be returned to Franchisee in the same
proportion as the Marketer shared in the initial franchise fee or Royalty Fees
from any future amounts owed the Marketer. The Franchisor shall apply any
payments received from a Franchisee to any past due indebtedness of that
Franchisee for Royalty Fees, advertising contributions, purchases from the
Franchisor or its affiliates, interest or any other indebtedness of that
Franchisee to the Franchisor or its affiliates. To the extent that such payments
are applied to a Franchisee's overdue Royalty Fee payments, the Marketer shall
be entitled to its pro rata share of such payments, less its pro rata share of
the costs of collection paid to third parties.
6.5. Setoffs.
--------
The Marketer shall not be allowed to set off amounts owed to the Franchisor
for fees or other amounts due hereunder, against any monies owed to the Marketer
by the Franchisor, which right of set off is hereby expressly waived by the
Marketer. The Franchisor shall be allowed to set off amounts owed to the
Marketer for commissions, Service Fees or other amounts due hereunder, against
any monies owed to the Franchisor by the Marketer, including, setting off
amounts owed to the Marketer for commissions or Service Fees against monies owed
to the Franchisor for commissions on Sales Services which were paid to the
Marketer before the Franchisee failed to successfully complete the Franchisor's
initial training program.
7. TRAINING ASSISTANCE
7.1. Area Marketer Training.
-----------------------
Within 90 days after the date of execution of this Agreement, the
Franchisor shall furnish, and the Marketer (or if the Marketer is a partnership,
corporation, or other entity, an individual designated by the Marketer who owns
at least 25% of the ownership interest in the Marketer and who has been approved
by the Franchisor, who shall be designated as the "Principal Owner") shall
attend, at the Marketer's sole cost and expense, an initial training program, to
consist of the training program applicable to the Franchisor's Franchisees and
such further training which may include topics such as marketing, franchise
sales, franchise law compliance, site selection and store opening procedures, as
the Franchisor in its sole discretion deems advisable, furnished at such place
and time as the Franchisor may designate.
6
<PAGE>
7.2. Length of Training.
-------------------
The first portion of the initial Marketer training program will last up to
10 days and will consist of the initial training program applicable to the
Franchisor's Franchisees. The second portion of the initial Marketer training
consists of up to 3 days of on the job instruction at the Marketer's Business
location. Other than the Marketing Fee, no tuition or fee shall be charged for
the initial training. However, the Marketer shall be responsible for all travel
and living expenses which are incurred in connection with attendance at the
initial training program.
7.3. Additional Training.
--------------------
The initial training program will be made available to replacement or
additional Principal Owners and other management personnel during the term of
this Agreement. The Franchisor reserves the right to charge a tuition or fee in
an amount payable in advance, commensurate with the then current published
prices of the Franchisor for such training. The Marketer will be responsible for
all travel and living expenses incurred by its personnel in connection with
attendance at the training program. Further, the availability of the training
programs will be subject to space considerations and prior commitments to new
PAK MAIL Franchisees and Marketers.
7.4. Seminars and Ongoing Training.
------------------------------
From time to time, the Franchisor may present seminars, conventions or
continuing development programs for the benefit of the Marketer. The Marketer or
its Principal Owner shall be required to attend any ongoing mandatory seminars,
industry conventions or programs as may be offered by the Franchisor. The
Franchisor shall give the Marketer at least 30 days prior written notice of any
seminar, convention or program which is deemed mandatory. The Franchisor will
not require that the Marketer attend any ongoing training more often than a
total of five working days each calendar year. The Marketer will be responsible
for all travel and living expenses which are associated with attendance at any
ongoing training program.
8. FRANCHISOR'S OPERATING ASSISTANCE
8.1. System Manual.
--------------
The Franchisor shall, in addition to the Marketer training program, loan to
the Marketer during the term hereof one copy of its System Manual to assist the
Marketer and its employees in the conduct of the business contemplated by this
Agreement. The Franchisor may prescribe mandatory and suggested standards and
operating procedures for the Marketer in the System Manual, which may be
modified from time to time by the Franchisor. The Marketer shall keep its copy
of the System Manual current. In the event of a dispute relating to the System
Manual, the master copy that the Franchisor maintains at its principal office
shall be controlling. The Marketer may not at any time copy any part of the
System Manual, unless approved in writing by the Franchisor. In the event the
Marketer's copy of the System Manual is lost, destroyed or damaged, the Marketer
shall be obligated to obtain from the Franchisor, at the Franchisor's then
applicable charge, a replacement copy of the System Manual. The System Manual
and other writings communicated to the Marketer shall constitute material
provisions of this Agreement as if fully set forth herein.
7
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8.2. Operating Assistance.
---------------------
The Franchisor will make available the following services during the term
of this Agreement:
a. Upon the reasonable request of the Marketer, consultation by telephone
regarding advice related to franchise sales, Franchisee support and assistance;
and
b. Access to franchise sales advertising and promotional materials as may
be developed by the Franchisor, which reasonable cost may be passed on to the
Marketer at the Franchisor's option.
9. AREA MARKETER'S OBLIGATIONS
9.1. Hiring and Training of Employees of Area Marketer.
--------------------------------------------------
The Marketer shall hire all of the Marketer's employees, shall be
exclusively responsible for the terms of their employment and compensation and
shall implement a training program for employees to ensure their compliance with
the Franchisor's requirements; provided that the Marketer shall not employ any
person whom the Franchisor, in its sole discretion, has determined to be unfit
to represent the Franchisor in the marketing of PAK MAIL Center franchises or in
furnishing services to Franchisees.
9.2. Commencement of Business.
-------------------------
Unless otherwise agreed to in writing by the Franchisor and the Marketer,
the Marketer has 120 days from the date of this Agreement within which to
complete its initial training and commence operation of its PAK MAIL Marketer
Business. The Franchisor will extend the time within which the Marketer has to
commence operations for a reasonable period of time, in the event that factors
beyond the Marketer's reasonable control prevent the Marketer from meeting this
development schedule, so long as the Marketer has made reasonable and continuing
efforts to comply and the Marketer requests in writing, an extension of time in
which to have its Business established before the development period lapses. The
obligations of the Marketer, including Sales Services, shall commence at the
earlier of the date the Marketer or its Principal Owner has satisfactorily
completed the Franchisor's initial training program or 120 days from the date of
this Agreement.
9.3. Sales Services.
---------------
The Marketer shall solicit and identify prospective franchisees for PAK
MAIL Centers to be located within the Territory.-
9.4. Pre-Opening Support Services.
-----------------------------
The Marketer shall perform the following pre-opening Support Services on
behalf of the Franchisor with respect to Franchisees of PAK MAIL Centers located
in the Territory:
a. Assist with Center location selection for each Franchisee, which shall
consist of providing each Franchisee with criteria for a satisfactory site and
assisting each Franchisee in completing a site report (containing such
demographic, commercial and other information and photographs as the Franchisor
may reasonably require) for each location at which the Franchisee proposes to
establish and operate a PAK MAIL Center and which Marketer reasonably believes
conform to the Franchisor's site selection criteria;
8
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b. Provide information about required, recommended or acceptable terms and
conditions to be included in the Franchisee's lease for the Center premises;
c. To the extent required by the Franchisor, assist a Franchisee in
securing financing;
d. Provide standards and specifications for the build out, interior design,
layout, floor plan, signs, designs, color and decor of the Center as prescribed
from time to time by the Franchisor;
e. Provide on-site assistance for not less than 24 hours in the opening of
PAK MAIL Centers located in the Territory; and
f. Provide guidance in implementing advertising and marketing programs,
operating and sales procedures and bookkeeping and accounting programs.
9.5. Ongoing Support Services.
-------------------------
With respect to Franchisees of PAK MAIL Centers located in the
Territory, the Marketer shall perform the following ongoing Support Services on
behalf of the Franchisor:
a. Initiate not fewer than two consultations by telephone with each
Franchisee each month regarding the continuing operation and management of the
Center and advice regarding services offered and related issues;
b. Conduct seminars for Franchisees to provide on-going updates of
information regarding new services and products, the shipping business in
general, marketing and business techniques and updated Licensed Methods,
including without limitation, information about special programs or new services
of the Franchisor, such as the A.M. P.M. MOVERS Program;
c. Provide advice and assistance to the Franchisee in connection with the
development of and improvements to the Franchisee's Center;
d. Conduct at least one field inspection of each PAK MAIL Center in the
Territory every calendar quarter in the manner as required by the Franchisor
from time to time, said inspections to be verified by written reports;
e. Provide access to advertising and promotional materials as may be
developed by the Franchisor from time to time and assist Franchisees in
implementing advertising and promotional campaigns;
f. At the Franchisor's written request, establish a toll-free telephone
number for all PAK MAIL Centers located in the Territory to consult with
Franchisees during regular business hours;
g. Submit monthly reports to the Franchisor on activities in the Territory,
using procedures and forms prescribed and supplied by the Franchisor; and
h. Use best efforts to cause Franchisees in the Territory to timely pay all
amounts due to the Franchisor and collect past due amounts from Franchisees.
9.6. Compliance with Franchise Agreement.
------------------------------------
The Marketer acknowledges that it is being delegated certain
responsibilities of the Franchisor under the Franchise Agreement to Franchisees
in the Territory. The responsibilities to Franchisees are to be performed by the
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Marketer as described herein or as may in the future be set forth in the System
Manual or other reasonable standards and specifications as may be provided by
the Franchisor from time to time, and the Marketer's responsibilities to
Franchisees will not materially change during the term of this Agreement. In the
performance of services to Franchisees of PAK MAIL Centers located in the
Territory, the Marketer shall in all respects comply with the terms and
conditions of any Franchise Agreement or other agreement in effect between the
Franchisee and the Franchisor. The Marketer understands, however, that its
rights as an area marketer are only by virtue of this Agreement and that it is
not in any manner a party, third party beneficiary or holder of any other right,
title or interest in or to any Franchise Agreement, unless it is a Franchise
Agreement in which the Marketer is the Franchisee.
9.7. Area Marketer's Inspections.
----------------------------
The Marketer shall ascertain through field audits, reviews and inspections,
that each Franchisee in the Territory has complied satisfactorily with all of
the terms and conditions of the Franchise Agreement, specifications, standards,
operating procedures, and the Franchisee Operations Manual, and shall promptly
notify the Franchisee in writing, with a copy and evaluation report to the
Franchisor, of any deficiencies; provided, however, the Marketer understands and
acknowledges that its inspections and reports are advisory only and that the
Franchisor shall have: (a) all of the rights to inspect and ascertain compliance
of all Franchisees as if this Agreement were not in effect; (b) the sole right
to send notices of default to the Franchisee; (c) the sole right to terminate a
Franchise Agreement for failure to cure such defaults (if an opportunity to cure
is granted); and (d) the sole right to take any legal action with respect to any
default or any violation of a Franchise Agreement. If the Marketer believes that
any Franchisee in the Territory has breached a Franchise Agreement with the
Franchisor, the Marketer shall document in writing all facts related to the
alleged breach and shall request in writing that the Franchisor investigate such
alleged breach. If, as a result of the Franchisor's investigation, the
Franchisor determines that there is a breach by the Franchisee of its Franchise
Agreement with the Franchisor, the Franchisor shall, in its sole discretion,
take such action as it deems appropriate.
10. MARKS
10.1. Ownership and Goodwill of Marks.
--------------------------------
The Marketer acknowledges that its rights to use the Marks are derived
solely from this Agreement, unless such rights are granted under a separate
written agreement with the Franchisor, and are limited to operating as an
Marketer pursuant to and in compliance with this Agreement. Any unauthorized use
of the Marks by the Marketer shall constitute a breach hereof and an
infringement of the Franchisor's rights in and to the Marks. The Marketer
acknowledges and agrees that its usage of the Marks and any goodwill established
thereby shall inure to the Franchisor's exclusive benefit and that this
Agreement does not confer any goodwill or other interest in the Marks upon the
Marketer.
10.2. Limitations on Use.
-------------------
The Marketer shall not use any Mark as part of any corporate or trade name
or with any prefix, suffix or other modifying words, terms, designs or symbols
(other than logos licensed to the Marketer hereunder), or in any modified form,
nor may the Marketer use any Mark in connection with unauthorized services or
products or in any other manner not expressly authorized in writing by the
Franchisor. The Marketer agrees to give such notices of trademark and service
mark registration as the Franchisor specifies and to use and obtain such
fictitious or assumed name registrations as may be required by the Franchisor or
under applicable law. The Marketer further 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 marketing, promotion or operation of the Marketer's Business.
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Except as may be permitted in the System Manual, the Marketer agrees not to use
any of the Marks as part of an electronic mail address or on any sites on the
Internet or on the World Wide Web and the Marketer agrees not to use or register
any of the Marks as a domain name on the Internet.
10.3. Discontinuance of Use of Marks.
-------------------------------
If it becomes advisable at any time, in the Franchisor's sole discretion,
for the Franchisor and/or the Marketer to modify or discontinue use of any Mark
and/or use one or more additional or substitute trade or service marks, the
Marketer agrees, at its own expense, to comply with the Franchisor's directions
to do so within a reasonable time after notice thereof.
10.4. Notification of Infringements and Claims.
-----------------------------------------
The Marketer shall immediately notify the Franchisor of any apparent
infringement of or challenge to the Marketer's use of any Mark, or claim by any
person of any rights in any Mark, and the Marketer shall not communicate with
any person other than the Franchisor or its counsel in connection with any such
matter. The Marketer may not settle any claim without the Franchisor's written
consent. The Franchisor shall have sole discretion to take such action as it
deems appropriate and the right to control exclusively any litigation, U.S.
Patent and Trademark Office proceeding or any other administrative proceeding
arising out of any such infringement, challenge or claim or otherwise relating
to any Mark. The Marketer agrees to execute any and all instruments and
documents, render such assistance and perform such acts as, in the opinion of
the Franchisor's counsel, may be necessary or advisable to protect and maintain
the Franchisor's interest in the Marks.
10.5. Indemnification.
----------------
The Franchisor agrees to indemnify the Marketer against and to reimburse
the Marketer for all damages for which the Marketer is held liable in any
proceeding arising out of its authorized use of any Mark pursuant to and in
compliance with this Agreement and for all costs reasonably incurred by the
Marketer in defending any such claim or any proceeding in which the Marketer is
named as a party, provided that the Marketer has timely notified the Franchisor
of such claim or proceeding and has otherwise complied with this Agreement. The
Franchisor, at its option, shall be entitled to defend and control the defense
of any proceeding arising out of the Marketer's use of any Mark pursuant to and
in compliance with this Agreement.
11. CONFIDENTIAL INFORMATION
11.1. Confidential Information.
-------------------------
The Franchisor possesses certain proprietary confidential information
consisting of the methods, techniques, formats, specifications, procedures,
information, systems, methods of business management, sales and promotion
techniques and knowledge of and experience in the operation and franchising of
PAK MAIL Centers (the "Confidential Information"). The Franchisor shall disclose
the Confidential Information to the Marketer in the training program, the System
Manual and in guidance furnished to the AD during the term hereof. The Marketer
will not acquire any interest in the Confidential Information, other than the
right to utilize it in the Territory in the execution of the Marketer's duties
hereunder during the term of this Agreement, and the Marketer acknowledges that
the use or duplication of the Confidential Information in any other business
venture would constitute an unfair method of competition. The Marketer
acknowledges and agrees that the Confidential Information is proprietary,
includes trade secrets of the Franchisor and is disclosed to the Marketer solely
on the condition that the Marketer agrees, and the Marketer (and its
shareholders, officers, directors, partners, members, managers and equivalents
if the Marketer is an entity) does hereby agree that the Marketer: (a) shall not
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use the Confidential Information in any other business or capacity; (b) shall
maintain the absolute confidentiality of the Confidential Information during and
for two years after the term of this Agreement; (c) shall not make unauthorized
copies of any portion of the Confidential Information disclosed in written or
other tangible form; and (d) shall adopt and implement all reasonable procedures
prescribed from time to time by the Franchisor to prevent unauthorized use or
disclosure of the Confidential Information. The Marketer agrees that the
Franchisor shall have the perpetual right to use and authorize other PAK MAIL
Center Franchisees and area marketers to use, and the Marketer shall fully and
promptly disclose to the Franchisor, all ideas, concepts, methods and techniques
relating to the development and/or operation of a PAK MAIL Center or the
Marketer's activities howsoever conceived or developed by the Marketer and/or
its employees and/or the franchised PAK MAIL Centers serviced by the Marketer
during the term of this Agreement. The Marketer acknowledges that any such
ideas, concepts, methods and techniques shall be the property of the Franchisor
and the Franchisor may utilize or disclose such information to Franchisees or
other agents as it determines to be appropriate.
11.2. Confidentiality and Noncompetition Agreement.
---------------------------------------------
The Franchisor reserves the right to require that the Marketer cause each
of its shareholders, officers, directors, partners, employees, members, managers
and equivalents, or if the Marketer is an individual, the Marketer's spouse, to
execute a Confidentiality and Noncompetition Agreement in a form approved by the
Franchisor.
12. EXCLUSIVE RELATIONSHIP
12.1. Exclusive Relationship.
-----------------------
The Franchisor is entering into this Agreement with the Marketer on the
condition that the Marketer will deal exclusively with the Franchisor. The
Marketer acknowledges and agrees that the Franchisor would be unable to protect
its Confidential Information and would be unable to encourage a free exchange of
ideas and information among area marketers and the Franchisor if area marketers
were permitted to hold interests in any Competitive Business, as defined below.
The Marketer therefore agrees that, during the term hereof, neither the
Marketer, the Marketer's officers, directors, shareholders, members, managers,
partners and equivalents who participate in the management of the Marketer, nor
the Marketer's spouse, and, if applicable, the Principal Owner, shall:
a. have any direct or indirect interest as a disclosed or beneficial owner
in a "Competitive Business," which shall be defined as a business operating or
granting franchises or licenses to others to operate, a packaging, crating,
freight forwarding and/or mailing business or any similar business deriving more
than 10% of its gross receipts (excluding PAK MAIL Centers operated under
franchise agreements with the Franchisor) from the sale of packaging and mailing
products or services;
b. have any direct or indirect controlling interest as a disclosed or
beneficial owner in a Competitive Business;
c. perform services as a director, officer, manager, employee, consultant,
representative, agent or the equivalent for a Competitive Business; or
d. divert or attempt to divert any business related to, or any customer or
account of, the Marketer Business, the Franchisor's business or any other PAK
MAIL area marketer's or Franchisee's business, by direct inducement or
otherwise, or divert or attempt to divert the employment of any employee of the
Franchisor or another area marketer or Franchisee licensed by the Franchisor to
any Competitive Business by any direct inducement or otherwise.
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Notwithstanding the foregoing, the Marketer 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 2% or less of
that class of securities issued and outstanding.
13. OPERATING STANDARDS
13.1. Standards of Service.
---------------------
The Marketer shall at all times give prompt, courteous and efficient
service to PAK MAIL Center Franchisees in the Territory. The Marketer shall, in
all dealings with Franchisees, prospective franchisees and the public, adhere to
the highest standards of honesty, integrity, fair dealing and ethical conduct.
13.2. Compliance with Laws and Good Business Practices.
-------------------------------------------------
The Marketer shall secure and maintain in force all required licenses,
permits and certificates relating to the Marketer's activities hereunder and
shall operate in full compliance with all applicable laws, ordinances and
regulations. The Marketer acknowledges being advised that many jurisdictions
have enacted laws concerning the advertising, sale, renewal, termination and
continuing relationship between parties to a franchise agreement, including
without limitation, laws concerning disclosure requirements. The Marketer agrees
promptly to become aware of, and to comply with, all such laws and legal
requirements in force in the Territory and to utilize only offering circulars
that the Franchisor has approved for use in the applicable jurisdiction.
13.3. Accuracy of Information.
------------------------
Before it offers or sells any franchise, the Marketer shall each time take
reasonable steps to confirm that the information contained in any written
materials, agreements and other documents related to the offer or sale of
franchises is true, correct and not misleading at the time of such offer or
sale, and the offer or sale of such franchise will not at that time be contrary
to or in violation of any applicable state law related to the registration of
the franchise offering. The Franchisor shall provide the Marketer with any
changes to its disclosure documents and other agreements on a timely basis, and
shall, upon request, provide the Marketer with confirmation that the information
contained in any written materials, agreements or documents being used by the
Marketer is true, correct and not misleading, except for information
specifically relating to disclosures regarding the Marketer. If the Marketer
notifies the Franchisor of an error in any information in the Franchisor's
documents, the Franchisor shall have a reasonable period of time to attempt to
correct any deficiencies, misrepresentations or omissions in such information.
13.4. Notification of Litigation.
---------------------------
The Marketer shall notify the Franchisor in writing within five days of the
commencement of any action, suit, proceeding or investigation, and of the
issuance of any order, writ, injunction, award or decree, by any court, agency
or other governmental body which concerns the operation or financial condition
of the Marketer, the Marketer's Business or any Franchisee in the Territory.
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13.5. Ownership and Management of Business.
-------------------------------------
The Marketer's Business shall at all times be under the direct, day-to-day,
full-time supervision of the Marketer (or, if the Marketer is a partnership,
corporation, limited liability company or other entity, the Principal Owner who
shall have been approved by the Franchisor and who shall have satisfactorily
completed the Franchisor's training program). The Marketer shall at all times
during the term of this Agreement own and control the Business authorized
hereunder. Upon the request of the Franchisor, the Marketer shall promptly
provide satisfactory proof of such ownership. The Marketer represents that the
Statement of Ownership, attached to this Agreement as Exhibit V and incorporated
herein by reference, is true, complete, accurate and not misleading. The
Marketer shall promptly provide the Franchisor with 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
provision contained in Article 15 of this Agreement. If the Marketer is not an
individual, an individual or individuals designated by the Franchisor shall
execute the Guaranty and Assumption of Marketer's Obligations attached hereto as
Exhibit IV and incorporated herein by reference.
13.6. Conflicting Interests.
----------------------
The Marketer shall at all times faithfully, honestly and diligently perform
its obligations hereunder and continuously exert its best efforts to promote,
enhance and service PAK MAIL Centers in the Territory. The Marketer shall not
engage in any other business or other activity, directly or indirectly, that
requires any significant management responsibility, time commitments, or
otherwise may conflict with the Marketer's obligations hereunder, without the
prior written approval of the Franchisor
13.7. Insurance.
----------
The Marketer shall at all times during the term of this Agreement maintain
in force, at the Marketer's sole expense, comprehensive, public and motor
vehicle liability insurance against claims for bodily and personal injury, death
and property damage caused by or occurring in conjunction with the operation of
the Marketer's Business under this Agreement. Such insurance coverage shall be
maintained under one or more policies of insurance containing minimum liability
protection of $1,000,000 per occurrence for bodily and personal injury and death
and $500,000 per occurrence for property damage. All such insurance policies
shall be issued by insurance carriers acceptable to the Franchisor. All of the
required insurance policies shall name the Franchisor as an additional insured,
contain a waiver of the insurance company's right of subrogation against the
Franchisor and provide that the Franchisor will receive 30 days' prior written
notice of termination, expiration or cancellation of any such policy. The
Franchisor has the right to change the minimum amount of insurance the Marketer
is required to maintain by giving the Marketer prior reasonable notice, giving
due consideration to what is reasonable and customary in similar businesses.
13.8. Proof of Insurance Coverage.
----------------------------
The Marketer will provide proof of insurance to the Franchisor prior to
commencement of operations of its Marketer Business. This proof will show that
the insurer has been authorized to inform the Franchisor in the event any
policies lapse or are cancelled. The Marketer shall submit to the Franchisor
annually a copy of the certificates or other evidence of the renewal or
extension of each required insurance policy. Noncompliance with the insurance
provisions set forth herein shall be deemed a material breach of this Agreement;
and 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 Marketer cease
operations of the Marketer Business until coverage is reinstated, or, in the
alternative, pay any delinquencies in premium payments and charge the same back
to the Marketer. The Marketer's obligation to obtain and maintain required
insurance policies shall not be limited in any way by reason of any insurance
maintained by the Franchisor, nor shall the Marketer's compliance with the
insurance provisions in this Agreement relieve the Marketer of its obligations
under Section 18.4 of this Agreement.
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13.9. Advertising in Territory.
-------------------------
The Marketer is required to spend during each calendar quarter a certain
specified amount ("Advertising Expenditure") to advertise and promote the offer
and sale of franchises for PAK MAIL Centers in the Territory. The amount of the
Advertising Expenditure shall be designated in Exhibit I attached hereto. The
Marketer shall submit to the Franchisor an accounting of its Advertising
Expenditures within 20 days following the end of each calendar quarter during
the term of this Agreement. The Franchisor reserves the right to withhold the
payment of Service Fees due to the Marketer for any calendar quarter until such
time as the Franchisor receives the Marketer's Advertising Expenditure report
for all previous quarters. All advertising and promotion by the Marketer shall
be completely factual and conform to the highest standards of ethical
advertising. The Marketer agrees to refrain from any business or advertising
practice that may be injurious to the Franchisor, the goodwill associated with
the Marks or PAK MAIL Centers.
13.10. Approval of Advertising.
------------------------
Prior to their use by the Marketer, samples of all advertising and
promotional materials not prepared or previously approved by the Franchisor,
including, without limitation, Internet advertising on the World Wide Web or
other similar network, shall be submitted to the Franchisor for approval, which
approval shall not be unreasonably withheld. If written disapproval is not
received by the Marketer within 15 business days from the Franchisor's receipt
of proposed advertising materials, the Franchisor shall be deemed to have given
its approval. The Marketer shall not use any advertising or promotional
materials that the Franchisor has disapproved. The Marketer acknowledges and
understands that certain states require the filing of franchise sales
advertising materials with the appropriate state agency prior to dissemination.
The Marketer agrees to fully and timely comply with such filing requirements at
the Marketer's own expense unless such advertising has been previously filed
with the state by the Franchisor.
13.11. Accounting, Bookkeeping and Records.
------------------------------------
The Marketer shall maintain at its Business premises in the Territory all
original invoices, receipts, checks, contracts, licenses, acknowledgement of
receipt forms and bookkeeping and business records as the Franchisor may require
from time to time. The Marketer shall furnish to the Franchisor, within 90 days
after the end of the Marketer's fiscal year, a balance sheet and profit and loss
statement for the Marketer's Business for such year (or monthly or quarterly
statements if required by the Franchisor, in which case such statements shall
also reflect year-to-date information). In addition, 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 regarding
the Marketer's Business shall be furnished to the Franchisor. The Marketer shall
maintain all records and reports of the Business conducted pursuant to this
Agreement for at least two years after the date of termination or expiration of
this Agreement.
13.12. Reports.
--------
The Marketer shall, as often as required by the Franchisor, deliver to the
Franchisor a written report of its Business activities during such periods as
required in Sections 9.4, 9.5 and 9.7 above, in such form and in such detail as
the Franchisor may from time to time specify, including information about
efforts to solicit prospective Franchisees, the status of pending real estate
transactions and the status of the Centers in the Territory. The Marketer shall,
as often as required by the Franchisor, during the term of this Agreement,
deliver to the Franchisor the field inspection reports required in Section 9.5
above, for each Franchisee in the Territory, in such form and in such detail as
the Franchisor may from time to time specify.
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13.13. Late Charges.
-------------
The Franchisor reserves the right to automatically assess a $50 late charge
for any report or financial statement required under the terms of this Agreement
which is not timely filed by the Marketer. Such late charge shall continue to
accrue each month that the late report or financial statement remains unfiled
and shall be due and payable in full upon demand by the Franchisor. In the event
any late charge is not paid upon demand, the Franchisor may elect to pursue all
of its available remedies
13.14. Compliance with Third Party Agreements.
---------------------------------------
The Marketer shall comply with all agreements with third parties related to
the Marketer Business including, in particular, all provisions of any premises
lease.
14. INSPECTIONS AND AUDITS
14.1. Inspections and Audits.
-----------------------
To determine whether the Marketer is complying with this Agreement, the
Franchisor or its designee shall have the right at any time during normal
business hours, and without prior notice to the Marketer, to enter onto the
premises in which the Marketer is then keeping its business records and inspect,
and conduct an audit of, the business records, bookkeeping and accounting
records, invoices, payroll records, time cards, check stubs, bank deposits,
receipts, sales tax records and returns and other business records and documents
of the Marketer's Business. The Marketer and its employees shall fully cooperate
with representatives of the Franchisor making, conducting, supervising or
observing any such inspection or audit. The Franchisor may require the Marketer
to purchase a computer and modem and to join and pay for an electronic network
connection to facilitate the Franchisor's communication with the Marketer and
among all Marketers and Franchisees and to allow the Franchisor unlimited
electronic access to the Marketer's Business records.
15. TRANSFERS
15.1. Transfers by the Franchisor.
----------------------------
This Agreement is fully transferable by the Franchisor and shall inure to
the benefit of any transferee or other legal successor to the Franchisor's
interests herein.
15.2. Transfers by the Marketer.
--------------------------
The Marketer agrees that the rights and duties created by this
Agreement are personal to the Marketer (or its officers, directors,
shareholders, managers, members, partners or equivalents if the Marketer is an
entity) and that the Franchisor has entered into this Agreement in reliance upon
the Franchisor's perceptions of the individual or collective character, skill,
aptitude, attitude, business ability and financial capacity of the Marketer (or
its officers, directors, shareholders, members, managers or partners).
Accordingly, without the prior written consent of the Franchisor, which consent
will not be unreasonably withheld, neither this Agreement (or any interest
therein), nor any of the assets of the Business, nor any part or all of the
ownership of the Marketer may be transferred. Any unauthorized transfer shall
constitute a breach hereof and be void and of no effect. As used in this
Agreement, the term "transfer" shall mean and include the voluntary,
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involuntary, direct or indirect assignment, sale, subfranchise, gift or other
disposition by the Marketer (or any of its owners) of any interest in: (1) this
Agreement; (2) 30% or more of the ownership interests in the Marketer; or (3)
the assets of the Business.
15.3. Conditions for Approval of Transfer.
------------------------------------
If the Marketer (and its officers, directors, managers, owners and
equivalents if the Marketer is an entity) are in full compliance with this
Agreement, the Franchisor shall not unreasonably withhold its approval of a
transfer that meets all the applicable requirements of this Section. The
proposed transferee and its officers, directors, managers and owners must be
individuals of good moral character and otherwise meet the Franchisor's then
applicable standards for area marketers. If the transfer is of this Agreement, a
30% or more ("Controlling Interest") interest in the Marketer, or all or a
substantial portion of the assets of the Business, or is one of a series of
transfers which in the aggregate constitute the transfer of this Agreement, a
Controlling Interest in the Marketer or all or a substantial portion of the
assets of the Business, all of the following conditions must be met prior to or
concurrently with the effective date of the transfer:
a. The transferee shall have sufficient business experience, aptitude and
financial resources to act as a Marketer, agree to be bound by all of the terms
and conditions of this Agreement and the transferee and/or its Principal Owner
must have completed the Franchisor's training program to the Franchisor's
satisfaction;
b. The Marketer shall have paid all fees due hereunder, all amounts owed
for purchases from the Franchisor and all other amounts owed to the Franchisor
or its affiliates and third party creditors and submit to the Franchisor all
required reports and statements;
c. The Marketer or the transferee shall have paid the Franchisor a transfer
fee in the amount of $2,500 to defray expenses the Franchisor incurs in
connection with the transfer;
d. The Marketer (and/or its transferring owners) executes a general
release, in form satisfactory to the Franchisor, of any and all claims against
the Franchisor and its affiliates and their respective officers, directors,
employees and agents;
e. The transferee shall execute an Area Marketing Agreement in the form
then currently offered by the Franchisor, the term of which will end on the
expiration date of this Agreement, and which shall supersede this Agreement in
all respects. The Marketer acknowledges that the terms of a new Area Marketing
Agreement may differ from the terms of this Agreement;
f. The Franchisor shall have approved the material terms and conditions of
such transfer, including, without limitation, that the price and terms of
payment are not so burdensome as to affect adversely the transferee's business
as a Marketer of the Franchisor;
g. If the Marketer (and/or the transferring owners) finances any part of
the sale price of the transferred interest, the Marketer and/or its owners shall
have agreed that all obligations of the transferee under any promissory notes,
agreements or security interests shall be subordinate to the transferee's
obligations to pay fees, and other amounts due to the Franchisor, its affiliates
and designees and otherwise to comply with this Agreement; and
h. The Marketer (and/or its transferring owners) shall have executed a
noncompetition covenant in favor of the Franchisor and the transferee with terms
the same as those set forth in Section 17.5 below.
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15.4. Transfer to an Entity.
----------------------
If the Marketer is in full compliance with this Agreement, the Marketer may
transfer this Agreement to a corporation or other entity in which the Marketer
owns all of the ownership interest with the Franchisor's prior written approval,
which approval shall not be unreasonably withheld. The transfer fee described in
Section 15.3(c) above will be waived by the Franchisor and all owners of such
entity shall sign a Guaranty and Assumption of the Marketer's Obligations,
attached hereto as Exhibit IV.
15.5. Franchisor's Approval of Transfer.
----------------------------------
The Franchisor has 30 days from the date of the written notice to approve
or disapprove in writing, of the Marketer's proposed transfer. Written notice
shall mean and include all documentation necessary to evaluate the transferee.
The Marketer 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 marketers of the Franchisor and that the proposed transferee shall
be provided, if appropriate, with such disclosures as may be required by state
or federal law.
15.6. Death or Disability of Area Marketer.
-------------------------------------
Upon the death or permanent disability of the Marketer (or a Principal
Owner of or the owner of a Controlling Interest in the Marketer), the executor,
administrator, conservator, guardian or other personal representative of such
person shall transfer his or her interest in this Agreement or such interest in
the Marketer 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 six
months from the date of death or permanent disability, and shall be subject to
all the terms and conditions applicable to transfers contained in this Article.
Failure to transfer the interest in this Agreement or such interest in the
Marketer within said period of time shall constitute a breach of this Agreement.
For purposes hereof, the term "permanent disability" shall mean a mental or
physical disability, impairment or condition that prevents the Marketer, a
Principal Owner or an owner of a Controlling Interest in the Marketer from
performing the essential functions of the Marketer.
16. TERM AND EXPIRATION
16.1. Term.
-----
The term of this Agreement is for a period of 5 years from the date of this
Agreement, unless sooner terminated as provided herein.
16.2. Rights Upon Expiration.
-----------------------
At the end of the initial term, the Marketer shall have the option to renew
its area marketer rights for an additional term as set forth in the then current
form of Area Marketing Agreement, by acquiring successor area marketer rights,
if the Franchisor authorizes a successor area marketer franchise in accordance
with Section 16.3 below, and if the Marketer:
a. At least 60 days prior to expiration of the term, executes the form of
Area Marketing Agreement then in use by the Franchisor. The Marketer
acknowledges that such agreement may contain terms which are materially
different from those in this Agreement, including commission percentages and
territories;
18
<PAGE>
b. Has complied with all provisions of this Agreement during the current
term, including the payment on a timely basis of all fees due hereunder.
"Compliance" shall mean, at a minimum, that the Marketer has not received
written notification from the Franchisor of breach hereunder more than three
times during the term hereof;
c. 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, successors, assigns and agents
arising out of or relating to this Agreement; and
d. Has agreed with the Franchisor on new Sales Goals for the additional
term at least 60 days prior to expiration of the term.
16.3. Exercise of Option for Successor Area Marketer Rights.
------------------------------------------------------
The Marketer may exercise its option for successor area marketer rights by
giving written notice of such exercise to the Franchisor not less than 120 days
nor more 180 days prior to the scheduled expiration of this Agreement. The
Marketer's successor area marketer rights shall become effective by signing the
Area Marketing Agreement then currently being offered by the Franchisor;
however, if the Marketer fails to sign the general release and the Area
Marketing Agreement within 60 days after delivery thereof to the Marketer,
Marketer shall be deemed to have elected not to acquire a successor area
marketing franchise.
16.4. Conditions of Refusal.
----------------------
The Franchisor shall not be obligated to offer the Marketer successor area
marketer rights upon the expiration of this Agreement if the Marketer fails to
comply with any of the above conditions of renewal. In such event, except for
failure to execute the then current Area Marketing Agreement, the Franchisor
shall give the Marketer notice of expiration not more than 90 days after the
Franchisor receives the Marketer's notice, and such notice shall set forth the
reasons for such refusal to offer successor area marketer rights. Upon the
expiration of this Agreement, the Marketer shall comply with the provisions of
Section 17.3 below.
17. TERMINATION
17.1. By the Marketer.
----------------
The Marketer may terminate this Agreement at any time during the term
hereof with 90 days advance written notice to the Franchisor.
17.2. By the Franchisor.
------------------
The Franchisor shall have the right to terminate this Agreement effective
upon delivery of written notice of termination to the Marketer, unless otherwise
noted below (subject to any state laws to the contrary, where state law shall
prevail) if the Marketer (and/or any of its shareholders, members, managers,
Principal Owners, partners or the equivalent):
a. Fails to satisfactorily complete the training program as provided in
Section 7.1 of this Agreement;
b. Has made any material misrepresentation or omission in its application
to be a Marketer;
c. Fails to meet the Sales Goals set forth in Exhibit I;
19
<PAGE>
d. Fails to comply with any other provision of this Agreement or any
mandatory specification, standard or operating procedure prescribed by the
Franchisor and does not correct such failure within 30 days after written notice
of such failure to comply is delivered to the Marketer;
e. Surrenders, transfers control of or makes an unauthorized transfer of
this Agreement or an ownership interest in the Marketer;
f. Is convicted by a trial court of or pleads no contest to a felony, or to
any other crime or offense that is, in the opinion of the Franchisor, likely to
adversely affect the goodwill associated with the Marks, or engages in any
conduct which may adversely affect the reputation of PAK MAIL Centers or the
goodwill associated with the Marks;
g. Is declared bankrupt or insolvent or voluntarily institutes a bankruptcy
proceeding under the Bankruptcy Code or is adjudicated bankrupt as a result of
an involuntary petition in bankruptcy being filed against it. (This provision
may not be enforceable under federal bankruptcy law, 11 U.S.C.ss.ss. 101 et
seq.);
h. Abandons or ceases to operate the Marketer Business for a period of 15
consecutive days or any shorter period that indicates an intent by the Marketer
to discontinue operation of the Marketer Business unless precluded from doing so
by an event beyond the Marketer's reasonable control, other than for financial
reasons;
i. Has received three notices of default from the Franchisor within a 12
month period, regardless of whether the defaults were cured by the Marketer;
j. Makes any unauthorized use of the Marks or unauthorized use or
disclosure of the Confidential Information, or uses, duplicates or discloses any
part of the System Manual; or
k. Has terminated a franchise agreement between the Franchisor and the
Marketer, or if the Franchisor has terminated such a franchise agreement.
17.3. Rights and Obligations of the Area Marketer Upon Termination or
Expiration.
----------------------------------------------------------------
Upon termination of this Agreement, whether pursuant to Section 17.1, 17.2
or upon expiration of this Agreement pursuant to Article 16 above, the Marketer
agrees:
a. To pay the Franchisor within 15 days after the effective date of
termination or expiration of this Agreement, or such later date that the amounts
due to the Franchisor are determined, such fees, amounts owed for purchases by
the Marketer from the Franchisor, its affiliates or designees, interest due on
any of the foregoing and all other amounts owed to the Franchisor, its
affiliates or designees which are then unpaid;
b. To refrain from, directly or indirectly at any time or in any manner
(except with respect to PAK MAIL Center franchises owned and operated by the
Marketer) identifying itself or any business as a current or former PAK MAIL
Marketer or authorized agent of the Franchisor or its affiliates, use any Mark,
any colorable imitation thereof or other indicia of a PAK MAIL Center in any
manner or for any purpose or utilize for any purpose any trade name, trademark
or service mark or other commercial symbol that suggests or indicates a
connection or association with the Franchisor or its affiliates;
c. To immediately deliver to the Franchisor all past and present franchise
sales leads and records and all contracts, acknowledgements of receipt, and
other information and records related to Franchisees of the Franchisor in the
Territory;
20
<PAGE>
d. To immediately deliver to the Franchisor all advertising materials, the
System Manual, all other manuals, forms, offering circulars, franchise sales
brochures and other materials containing any Mark or otherwise identifying or
relating to the sale or service of PAK MAIL Centers;
e. To refrain from communicating, in any manner, with Franchisees, except
as expressly authorized by the Franchisor;
f. To take such action as may be required to cancel all fictitious or
assumed names or equivalent registrations relating to the Marketer's use of any
Mark;
g. To notify the telephone company and all telephone directory publishers
of the termination or expiration of the Marketer'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 Marketer acknowledges that, as between it 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
Marketer authorizes the Franchisor, and hereby appoints the Franchisor and any
of its officers as the Marketer'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
Marketer's Business to the Franchisor at its direction, should the Marketer fail
or refuse to do so, and the telephone company and all telephone directory
publishers may accept such direction or this Agreement as conclusive evidence of
the Franchisor's exclusive rights in such telephone numbers and directory
listings and the Franchisor's authority to direct their transfer; and
h. Furnish the Franchisor, within 30 days after the effective date of
termination or expiration, with evidence satisfactory to the Franchisor of the
Marketer's compliance with the foregoing obligations.
17.4. Confidential Information.
-------------------------
Marketer agrees that, upon termination or expiration of this Agreement, the
Marketer shall immediately cease to use any Confidential Information of the
Franchisor pursuant to this Agreement in any business or otherwise (except in
connection with the operation of a PAK MAIL Center pursuant to a Franchise
Agreement with the Franchisor) and return to the Franchisor all copies of the
System Manual and any other confidential materials which have been loaned to the
Marketer by the Franchisor.
17.5. Covenant Not to Compete.
------------------------
Upon termination or expiration of this Agreement for any reason, the
Marketer (and its shareholders, officers, directors, members, managers and/or
partners if the Marketer is a corporation, partnership, or limited liability
company) agrees that for a period of two years commencing on the effective date
of termination or expiration, or the date on which the Marketer ceases to
conduct business, whichever is later, the Marketer (and its shareholders,
officers, directors, members, managers, partners and/or equivalents if the
Marketer is an entity) shall not have any direct or indirect interest (through a
member of any immediate family of the Marketer or its affiliates, shareholders,
officers, directors, partners, members, managers, equivalents or otherwise) as a
disclosed or beneficial owner, investor, partner, director, officer, employee,
consultant, representative or agent or in any other capacity in any Competitive
Business located or operating within the Territory. 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 2% or less of the number of shares of that class of securities
issued and outstanding. The Marketer (and its shareholders, officers, directors,
members, managers, partners and/or equivalents) 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.
21
<PAGE>
17.6. No Further Right to Payment.
----------------------------
Upon termination or expiration of this Agreement, the Marketer forfeits all
fees paid to the Franchisor and remains liable to the Franchisor for all amounts
due to the Franchisor on the date of termination or expiration. The Marketer
shall have no further right to receive payment of commissions or Service Fees
from the Franchisor, except for those commissions or Service Fees which have
been fully earned by the Marketer up through the date of such termination or
expiration. For purposes of this Agreement, "fully earned" commissions shall
mean commissions due on franchise sales for which all conditions described in
Section 6.1 of this Agreement have been met or fulfilled for the purchase of a
franchise for a PAK MAIL Center to be located within the Territory by the
Marketer. "Fully earned" Service Fees shall mean those Service Fees which accrue
up through the date of termination which are otherwise owed to the Marketer. The
Franchisor shall have the right to immediately assume control of and manage all
franchise sales in the Territory and to receive all Service Fees from
Franchisees in the Territory. Any fully earned commissions or Service Fees which
are due to the Marketer will be paid by the Franchisor in accordance with the
provisions of Article 6 of this Agreement.
17.7. Continuing Obligations.
-----------------------
All obligations of the Franchisor and the Marketer which expressly or by
their nature survive the expiration or termination of this Agreement shall
continue in full force and effect subsequent to and notwithstanding its
expiration or termination and until they are satisfied or by their nature
expire.
17.8. 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 MARKETER'S RIGHTS REGARDING TERMINATION
OR EXPIRATION OF THIS AGREEMENT.
18. RELATIONSHIP OF THE PARTIES
18.1. Relationship of the Parties.
----------------------------
It is understood and agreed by the parties hereto that this Agreement does
not create a fiduciary relationship between them, that the parties are
independent contractors and that the Franchisor appoints the Marketer as its
special agent for a particular purpose and that nothing in this Agreement is
intended to make either party a general agent, subsidiary, joint venturer,
partner, employee or servant of the other for any purpose. The Marketer shall
conspicuously identify itself in all dealings with Franchisees, prospective
Franchisees, lessors, contractors, suppliers, public officials and others as the
owner of its own Business under an Area Marketing Agreement with the Franchisor,
and shall place such other notices of independent ownership on signs, forms,
stationery, advertising and other materials as the Franchisor may require from
time to time.
18.2. Payment of Third Party Obligations.
-----------------------------------
Neither the Franchisor nor the Marketer shall make any express or implied
agreements, guaranties or representations, or incur any debt, in the name of or
on behalf of the other or represent that their relationship is other than
franchisor and special agent, and neither the Franchisor nor the Marketer shall
be obligated by or have any liability under any agreements or representations
22
<PAGE>
made by the other that are not expressly authorized hereunder, nor shall the
Franchisor be obligated for any damages to any person or property directly or
indirectly arising out of the operation of the Marketer's Business, whether or
not caused by the Marketer's negligent or willful action or failure to act.
18.3. Independent Contractors.
------------------------
The Marketer may delegate its duties hereunder to independent contractors
provided that the Marketer receives written approval from the Franchisor prior
to any such delegation of duties and complies with all state laws which require
broker registration for such persons. The Franchisor reserves the right to
withdraw the approval of any independent contractor engaged by the Marketer to
fulfill its duties and obligations under this Agreement, at any time.
18.4. Indemnification.
----------------
The Marketer agrees to indemnify and hold the Franchisor and its
subsidiaries, affiliates, stockholders, directors, officers, employees, agents
and assignees harmless against, and to reimburse them for, any loss, liability,
taxes or damages (actual or consequential) and all reasonable costs and expenses
of defending any claim brought against any of them or any action in which any of
them is named as a party (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) which any of them may suffer, sustain or incur by reason of, arising
from or in connection with any acts, omissions or activities of the Marketer or
any employee of or independent contractor engaged by the Marketer whether such
acts, omissions or activities are authorized by or are not in accordance with
this Agreement. 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.
19. MISCELLANEOUS PROVISIONS
19.1. 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 Marketer 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 Marketer, its officers or directors (collectively, "Marketer
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 Marketer and the Marketer Affiliates
each waive their rights to a trial by jury.
19.2. Severability.
-------------
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.
23
<PAGE>
19.3. Modification.
-------------
The Franchisor and/or the Marketer may modify this Agreement only upon
execution of a written agreement between the two parties. The Marketer
acknowledges that the Franchisor may modify its standards and specifications and
operating and marketing techniques set forth in the System Manual unilaterally
under any conditions and to the extent that the Franchisor, in its sole
discretion, deems necessary to protect, promote, or improve the Marks and the
quality of the Licensed Methods, but under no circumstances will such
modifications be made arbitrarily without such determination.
19.4. 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 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.
19.5. Injunctive Relief.
------------------
Nothing herein shall prevent the Franchisor or the Marketer 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.
19.6. No Waiver.
----------
No waiver of any condition or covenant contained in this Agreement or
failure to exercise a right or remedy by the Marketer or the Franchisor shall be
considered to imply or constitute a further waiver by the Franchisor or the
Marketer of the same or any other condition, covenant, right, or remedy.
19.7. No Right to Set Off.
--------------------
The Marketer shall not be allowed to set off amounts owed to the Franchisor
for fees or other amounts due hereunder, against any monies owed to the
Marketer, nor will the Marketer in any event withhold any amounts due to any
alleged nonperformance by the Franchisor hereunder, which right of set off is
hereby expressly waived by the Marketer.
19.8. Effective Date.
---------------
Regardless of the date first written above, this Agreement shall not be
effective until accepted by the Franchisor as evidenced by dating and signing by
an officer of the Franchisor.
19.9. Review of Agreement.
--------------------
The Marketer acknowledges that it had a copy of the Franchisor's Uniform
Franchise Offering Circular in its possession for a period of time not less than
10 full business days, and this Agreement in its possession for a period of time
not less than 5 full business days, during which time the Marketer has had the
opportunity to submit the same for review and advice by a professional of the
Marketer's choosing prior to freely executing this Agreement.
24
<PAGE>
19.10. 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 Marketer agrees and understands that
the Franchisor shall not be liable or obligated for any oral representations or
commitments made prior to the execution hereof or for claims of negligent or
fraudulent misrepresentation and that no modifications of this Agreement shall
be effective except those in writing and signed by both parties. The Franchisor
does not authorize and will not be bound by any representation of any nature
other than those expressed in this Agreement. The Marketer 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
Marketer's Business, or operational assistance other than as stated in this
Agreement or in any disclosure document provided by the Franchisor or its
representatives.
19.11. 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, to the addresses set forth
in the first paragraph of this Agreement, or, with respect to notices to the
Marketer, to the address of the Area Marketer Business, or at such other
addresses as the Franchisor or the Marketer 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.
19.12. Acknowledgment.
---------------
BEFORE SIGNING THIS AGREEMENT, THE MARKETER SHOULD READ IT CAREFULLY WITH
THE ASSISTANCE OF LEGAL COUNSEL. THE MARKETER ACKNOWLEDGES THAT:
(A) THE SUCCESS OF THE BUSINESS VENTURE CONTEMPLATED HEREIN INVOLVES
SUBSTANTIAL RISKS AND DEPENDS UPON THE MARKETER'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 MARKETER IS BINDING ON THE FRANCHISOR IN CONNECTION WITH THE SUBJECT MATTER
OF THIS AGREEMENT.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement in counterparts on the last date written below.
PAK MAIL CENTERS OF AMERICA, INC. AREA MARKETER:
a Colorado corporation
-------------------------------
(Print Name)
By: By:
------------------------------ ---------------------------
Title: Title:
---------------------------- -------------------------
Date: Date:
---------------------------- -------------------------
26
<PAGE>
EXHIBIT I
RIDER
TO AREA MARKETING AGREEMENT
BETWEEN PAK MAIL CENTERS OF AMERICA, INC.
AND
-----------------------------------------------
DATED _______________, 19 ________
1. Territory. The Territory referred to in Section 2.1 of the Agreement
shall be the following geographic area:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. Marketing Fee. The Marketing Fee payable to the Franchisor by the
Marketer under Section 5.1 of the Agreement shall be an amount equal to the
product of the estimated population within the Territory and the price per
person within the Territory, which shall be no less than $0.06, and adjusted as
follows:
________________________________________________________________________________
and calculated as follows:
A. 1990 Bureau of Census Population Estimate = _________
B. Adjustment to Population Estimate = _________
C. Current Population Within Territory (A+B =) _________
- =========
D. Adjusted Price Per Person = _________
MARKETING FEE (DxC =)
=========
Unless otherwise agreed, the Marketing Fee is payable in cash, certified funds
or by wire transfer. The Franchisor and the Marketer agree that the Marketing
Fee will not be subject to change for any reason, including subsequent revisions
of the Bureau of Census population estimates.
3. Advertising Expenditure. During the term of the Agreement, Marketer
shall be required during each calendar quarter to spend a minimum of $_________
("Advertising Expenditure") to advertise and promote the offer and sale of
franchises for PAK MAIL Centers in the Territory, in accordance with Section
13.9 of the Agreement, based on the following calculation:
A. 1990 Bureau of Census Population Estimate = _________
B. Adjustment to Population Estimate = _________
C. Current Population Within Territory (A+B =) _________
D. Price Per Person = $.001
=========
ADVERTISING EXPENDITURE (D x C =)
=========
The Franchisor and the Marketer agree that the Advertising Expenditure will
not be subject to change for any reason, including subsequent revisions of the
Bureau of Census population estimates.
4. Sales Goals. The Marketer shall meet the following cumulative Sales
Goals by the last day of each twelve-month period ("Sales Year") during the term
of the Agreement:
<PAGE>
Cumulative Minimum Number
of New Pak Mail Centers Sold
in the Territory Last Day of Sales
Sales Year Year
First
----------------------------- ----------------,
Second
----------------------------- ----------------,
Third
----------------------------- ----------------,
Fourth
----------------------------- ----------------,
Fifth
----------------------------- ----------------,
TOTAL SALES GOALS
=============================
The first Sales Year commences on the date of the Agreement and expires on the
date shown above. Each subsequent Sales Year commences on the date succeeding
the last day of the preceding Sales Year and expires on the respective date
shown above. The sales made during the term of the Agreement are cumulative.
Therefore, if the Marketer meets its total Sales Goals prior to the end of the
fifth Sales Year, the Marketer's Sales Goals will be satisfied.
PAK MAIL Centers located in the Territory and owned by the Franchisor do not
count toward fulfillment of the Marketer's cumulative Sales Goals.
PAK MAIL CENTERS OF AMERICA, INC. AREA MARKETER
a Colorado corporation
--------------------------------
(Print Name)
By: By:
------------------------------ ---------------------------
Title: Title:
---------------------------- -------------------------
Date: Date:
---------------------------- -------------------------
2
<PAGE>
EXHIBIT II
----------
CURRENT FORM OF FRANCHISE AGREEMENT
<PAGE>
EXHIBIT III
-----------
CURRENT FORM OF AMENDMENT TO FRANCHISE AGREEMENT
(A.M. P.M. MOVERS PROGRAM)
<PAGE>
EXHIBIT IV
----------
GUARANTY AND ASSUMPTION OF
AREA MARKETER'S OBLIGATIONS
In consideration of, and as an inducement to, the execution of the above
Area Marketing Agreement (the "Agreement") by PAK MAIL CENTERS OF AMERICA, INC.
("Franchisor"), each of the undersigned ("Guarantors") personally and
unconditionally (1) guarantees to the Franchisor and its affiliates and their
successors and assigns, for the term of the Agreement and thereafter as provided
in the Agreement, that the Area Marketer defined in the Agreement (the
"Marketer") shall punctually pay and perform each and every undertaking,
agreement and covenant set forth in the Agreement and (2) agrees personally to
be bound by, and personally liable for the breach of, each and every provision
in the Agreement.
1. Waiver. Each of the undersigned waives:
a. acceptance and notice of acceptance by the Franchisor and its
affiliates of the foregoing undertakings;
b. notice of demand for payment of any indebtedness or nonperformance
of any obligations hereby guaranteed;
c. protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby guaranteed;
d. any right he or she may have to require that an action be brought
against the Marketer or any other person as a condition of liability; and
e. any and all other notices and legal or equitable defenses to which
he or she may be entitled.
2. Consents. Each of the undersigned consents and agrees that:
a. his or her direct and immediate liability under this guaranty shall
be joint and several;
b. he or she shall render any payment or performance required under
the Agreement upon demand if the Marketer fails or refuses punctually to do
so;
c. such liability shall not be contingent or conditioned upon pursuit
by the Franchisor or its affiliates of any remedies against the Marketer or
any other person;
d. such liability shall not be diminished, relieved or otherwise
affected by any extension of time, credit or other indulgence which the
Franchisor or its affiliates may from time to time grant to the Marketer 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; and
e. he or she shall be bound by the restrictive covenants and
confidentiality provisions contained in Articles 11 and 12 and Sections
17.4 and 17.5 of the Agreement, and the indemnification provisions
contained in Section 18.4 of the Agreement; and
<PAGE>
f. the governing law, consent to jurisdiction and related provisions
contained in Article 19 and the costs and attorneys fees provision
contained in Section 19.4 of the Agreement shall govern this Guaranty and
such provisions are incorporated into this Guaranty by this reference.
IN WITNESS WHEREOF, each of the undersigned has affixed his or her
signature, effective as of the ____ day of ____________________, 199___.
PERCENTAGE OF OWNERSHIP GUARANTOR(S)
INTERESTS IN AREA MARKETER
- ---------------------------- ------------------------------------
(Print Name)
------------------------------------
Signature
------------------------------------
------------------------------------
------------------------------------
Address
------------------------------------
Telephone Number
- ---------------------------- ------------------------------------
(Print Name)
------------------------------------
Signature
------------------------------------
------------------------------------
------------------------------------
Address
------------------------------------
Telephone Number
2
<PAGE>
- ---------------------------- ------------------------------------
(Print Name)
------------------------------------
Signature
------------------------------------
------------------------------------
------------------------------------
Address
------------------------------------
Telephone Number
3
<PAGE>
EXHIBIT V
---------
STATEMENT OF OWNERSHIP
Area Marketer:
-----------------------------------------------------------------
- --------------------------------------------------------------------------------
Trade name (if different from above):
-------------------------------------------
- --------------------------------------------------------------------------------
Form of Ownership
(Check One)
_____ Individual _____ Partnership _____ Corporation _____ Limited Liability
Co.
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 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.
If a Limited Liability Company, give the state and date of formation, the
name and address of the manager, list the names and addresses of every member
and the percentage of membership interest held by each member.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Marketer acknowledges that this Statement of Ownership applies to the PAK
MAIL Marketer Business authorized under the Area Marketing Agreement. Use
additional sheets if necessary. Any and all changes to the above information
must be reported to the Franchisor in writing.
- ------------------------------ ----------------------------------
Date Name
Exhibit 10(c)
PAK MAIL CENTERS OF AMERICA, INC.
MASTER LICENSE AGREEMENT
FOR
Country:
------------------------------------
Master Licensee:
----------------------------
Office:
--------------------------------------
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC.
MASTER LICENSE AGREEMENT
TABLE OF CONTENTS
Page Number
-----------
1. PURPOSE..................................................... 1
2. GRANT OF LICENSE; ASSIGNMENT................................ 1
2.1. Grant.............................................. 1
2.2. Franchise and Marketer Agreements.................. 2
2.3. Rights Reserved to Licensor........................ 2
3. FEES PAID TO LICENSOR....................................... 2
3.1. License Fee........................................ 2
3.2. No Refundability................................... 3
3.3. Initial Franchise Fees and Marketer Fees........... 3
3.4. Royalties.......................................... 3
3.5. Levies and Taxes................................... 3
3.6. Manner of Payment.................................. 4
4. LICENSOR'S OBLIGATIONS...................................... 4
4.1. Licensor's Duties.................................. 4
5. MASTER LICENSEE'S COVENANTS................................. 5
5.1. Development of Licensed Territory.................. 5
5.2. Development Schedule............................... 5
5.3. Master License Office.............................. 5
5.4. Initial Training Program........................... 6
5.5. Compliance with Policy and Procedures Manual....... 6
5.6. Protection and Promotion of Marks and System....... 6
5.7. Compliance with Laws............................... 6
5.8. Payment of Taxes and Other Obligations............. 6
5.9. Control of Franchisees and Marketers............... 7
5.10. Attendance at Licensor Conferences................. 7
5.11. Written Materials.................................. 7
6. TRADE AND INDUSTRIAL SECRETS................................ 7
6.1. Trade and Industrial Secrets....................... 7
6.2. Use and Limitation on Use.......................... 8
6.3. Licensor's Rights to New Ideas..................... 8
6.4. Updated Information................................ 8
<PAGE>
7. REPRESENTATIONS OF MASTER LICENSEE.......................... 8
7.1. Representations of Master Licensee................. 8
8. ADVERTISING................................................. 10
8.1. Standards.......................................... 10
8.2. Master Licensee's Advertising Account.............. 10
9. SYSTEM STANDARDS............................................ 10
9.1. System Standards................................... 10
9.2. Incorporation of System Standards.................. 10
9.3. Restriction on Services and Products............... 10
10. MARKS AND PROPRIETARY RIGHTS................................ 11
10.1. Ownership and Goodwill of Marks.................... 11
10.2. Trade Secrets...................................... 11
10.3. No Other Mark...................................... 11
10.4. Cessation of Use at Termination.................... 11
10.5. Protection of the Marks............................ 12
10.6. Master Licensee's Trade Name....................... 12
10.7. Change of Marks.................................... 12
10.8. Registration in Licensed Territory................. 12
11. REPORTS AND RECORDS......................................... 13
11.1. Periodic Reports................................... 13
11.2. Annual Reports..................................... 13
11.3. Maintenance of Records............................. 13
11.4. Inspection and Audit............................... 13
12. ASSIGNMENT OF RIGHTS........................................ 13
12.1. Assignment by Master Licensee...................... 13
12.2. Licensor's Approval of Transfer.................... 15
12.3. Right of First Refusal............................. 15
12.4. Types of Assignment................................ 15
12.5. Assignment by Licensor............................. 16
12.6. Master Licensee's Death or Incapacity.............. 16
13. TERM AND EXPIRATION......................................... 16
13.1. Term............................................... 16
13.2. Rights Upon Expiration............................. 16
13.3. Exercise of Option for Successor Franchise......... 17
13.4. Conditions of Refusal.............................. 17
<PAGE>
14. DEFAULT AND TERMINATION..................................... 17
14.1. Termination by Licensor - Prior Notice and Cure.... 17
14.2. Post-Termination Obligations of Master Licensee.... 17
14.3. Licensor's Assumption of Agreements................ 18
15. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION................. 19
15.1. Independent Businesspersons........................ 19
15.2. Indemnification.................................... 19
16. RESTRICTIVE COVENANTS....................................... 20
16.1. Non-Competition During Term........................ 20
16.2. Post-Termination Covenant Not to Compete........... 20
16.3. No Interference.................................... 20
16.4. Nondisclosure and Noncompetition Agreement......... 20
17. INSURANCE................................................... 21
17.1. Insurance Coverage................................. 21
17.2. Proof of Insurance................................. 21
18. ENFORCEMENT................................................. 21
18.1. Arbitration........................................ 21
19. MISCELLANEOUS PROVISIONS.................................... 21
19.1. Modification....................................... 21
19.2. Delegation......................................... 22
19.3. Entire Agreement................................... 22
19.4. No Right to Set-Off................................ 22
19.5. Fees and Costs..................................... 22
19.6. Severability....................................... 22
19.7. Notices............................................ 22
19.8. Excuse of Performance.............................. 23
19.9. Approval Within Licensed Territory................. 23
19.10. Applicable Law..................................... 23
19.11. Translation of Agreement........................... 23
EXHIBITS
A Addendum to Master License Agreement
B Nondisclosure and Noncompetition Agreement
C Mark Registrations in the Licensed Territory
<PAGE>
PAK MAIL CENTERS OF AMERICA, INC.
---------------------------------
MASTER LICENSE AGREEMENT
------------------------
THIS AGREEMENT (the "Agreement") is made this_______ day of __________,
00___, by and between PAK MAIL CENTERS OF AMERICA, INC., a Colorado corporation,
with its principal place of business located at 7173 S. Havana Street, Suite
600, Englewood, Colorado 80112 (the "Licensor") and _________________ , with its
principal place of business located at _____________ (the "Master Licensee")
who, on the basis of the mutual covenants promises and agreements contained
herein, agree as follows:
1. PURPOSE
-------
1.1. The Licensor has developed a concept for stores offering a variety of
packaging, mailing and communication services known as "Pak Mail Centers" which
operate under distinctive business formats, systems, methods, procedures,
designs, layouts and specifications (the "System"), which the Licensor may
improve, further develop, or otherwise modify from time to time. The Licensor
owns, uses, promotes and licenses certain trade names, trademarks, service marks
and other commercial symbols, including the trade and service mark "PAK MAIL"
and associated logos, which have public acceptance and goodwill, and may
hereafter create, use and license additional trademarks, service marks and
commercial symbols (collectively referred to as the "Marks") in conjunction with
the operation of Pak Mail Centers.
1.2. The Licensor grants franchises to use the Marks and System to: (1)
individuals and entities who develop and operate Pak Mail Centers
("Franchisees") and (2) individuals and entities who market franchises to others
to operate Pak Mail Centers within a certain geographic area ("Marketers").
1.3. The Master Licensee desires to license others to act as Franchisees
and Marketers of Pak Mail Centers within the Countries referenced in Exhibit A
attached to this Agreement ("Licensed Territory"), under the terms and
conditions which are contained in this Agreement.
2. GRANT OF LICENSE; ASSIGNMENT
----------------------------
2.1. Grant. The Licensor grants to the Master Licensee, and the Master
Licensee accepts from the Licensor, the right to use the Marks and the System in
connection with the licensing of Franchisees and Marketers of Pak Mail Centers
within the Licensed Territory. The rights that are hereby granted to the Master
Licensee are for the specific Licensed Territory and cannot be transferred from
or used outside of such Licensed Territory, nor can the boundaries thereof be
altered or modified, without the prior written approval of the Licensor. The
Master Licensee acknowledges that its continued exclusivity with respect to the
licensing of Pak Mail Centers in the Licensed Territory is dependent upon the
Master's continued compliance with all terms and conditions of this Agreement.
The license granted pursuant to this Agreement shall sometimes be referred to as
the "Master License".
<PAGE>
2.2. Franchise and Marketer Agreements. For each Pak Mail Center and each
Area Marketer franchise developed in the Licensed Territory, a separate
franchise agreement ("Franchise Agreement") or area marketer agreement
("Marketer Agreement") will be executed between the Master Licensee and each
Franchisee or Marketer, as applicable. The separate Franchise Agreements and
Marketer Agreements to be executed hereunder shall include provisions which
shall obligate each Franchisee or Marketer, as applicable, to protect and defend
Licensor's rights in and to the Marks and the System and to protect and enhance
the quality of and goodwill associated with the Marks and the System by
including provisions reflecting the comparable obligations as those of the
Master Licensee hereunder, as are set forth in: Section 2.3 (reservation of
rights by the Licensor); Section 5.3 (Policy and Procedures Manual), Sections
5.4 and 5.5 (quality control compliance), Article 6 in its entirety (Trade and
Industrial Secrets), Article 9 in its entirety (System Standards), and Article
10 in its entirety (Marks and Proprietary Rights). In addition, each Franchise
Agreement and Marketer Agreement shall contain a provision to enable the
Licensor to exercise its rights to acquire the rights of the Master Licensee
under each Franchise Agreement and Marketer Agreement as set forth in Section
14.3 of this Agreement. The Master Licensee shall be responsible for revising
the provisions of Franchise Agreements and Marketer Agreements for Franchisees
and Marketers, as applicable, if necessary to comply and be consistent with the
laws and regulations applicable in the Licensed Territory.
2.3. Rights Reserved to Licensor. Notwithstanding anything herein to the
contrary, the Licensor and its affiliates reserve the right to: (i) use and/or
license others to use the Marks and the System for the operation of Pak Mail
Centers at any location outside of the Licensed Territory; (ii) use the Marks
and the System in alternative channels of distribution other than Pak Mail
Centers at any location; and (iii) use, and/or license others to use proprietary
marks which are not confusingly similar to the Marks, in connection with the
operation of packaging, mailing and shipping businesses or services, at any
location, and on any terms as the Licensor deems advisable without granting the
Master Licensee any rights therein. Any right not expressly granted is to be
deemed expressly reserved.
3. FEES PAID TO LICENSOR
---------------------
3.1. License Fee. The Master Licensee acknowledges and agrees that in
developing the System, the Licensor has made and continues to make substantial
investments of time, capital, and technical and commercial research. In
consideration of the license of the System, Marks, confidential information and
trade secrets to be provided by the Licensor, the Master Licensee agrees to pay
to the Licensor the initial fees ("License Fee") described in Exhibit A,
attached to this Agreement.
3.2. No Refundability. The Master Licensee acknowledges and agrees that the
License Fee represents payment for the initial grant of the rights to use the
Marks and System, for the Licensor's foregone opportunity to use or license
those rights and benefits granted to the Master Licensee hereunder, that the
Licensor has earned the License Fee upon receipt thereof and that the License
Fee is under no circumstances refundable to the Master Licensee after it is paid
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to the Licensor, regardless of whether the Master Licensee ever receives payment
of the full amount of any initial franchise fee from a Franchisee or Marketer or
whether the franchise agreement between a Franchisee and the Master Licensee is
terminated for any reason.
3.3. Initial Franchise Fees and Marketer Fees. After Master Licensee has
paid the License Fee in accordance with Section 3.1, the Master Licensee shall
pay Licensor U.S.$2,000.00 for every new center developed during the term of
this Agreement.
3.4. Royalties. The Master Licensee shall pay the Licensor a continuing
monthly royalty ("Royalty"), payable by the tenth day of the month, for every
operating Pak Mail Center located in the Licensed Territory during the term of
this Agreement. For the first two years of a Pak Mail Center's operation,
starting with the date of its opening for business, the Master Licensee shall
pay U.S.$100.00 per month in Royalties; for the third through fifth years of the
Center's operation, the Master Licensee shall pay U.S.$150.00 per month in
Royalties, and; for each year thereafter the Center is in operation, including
operation during any renewal terms of the individual Franchise Agreement, the
Master Licensee shall pay U.S.$200.00 per month in Royalties.
3.5. Levies and Taxes. All levies or taxes imposed on imported services,
foreign currency purchase levies, and other levies imposed by quasi-governmental
authorities in Licensed Territory shall be borne exclusively by Master Licensee,
and payments of any fees, or other consideration which is paid by the Master
Licensee to the Licensor hereunder shall not, in any way, be reduced or affected
by any such levies or taxes.
3.6. Manner of Payment. The fee payments made under this Agreement shall be
"net" of any withholding taxes or tariffs imposed by governmental or
quasigovernmental authorities in the Licensed Territory or the United States.
All payments made to the Licensor hereunder, unless otherwise noted, shall be
paid in United States Dollars. The Licensor may designate and change payment
instructions at any time upon prior written notice to the Master Licensee. The
Master Licensee shall be solely responsible for the payment of any costs and
charges incurred in connection with the transfer and exchange of currency over
and above any fees paid hereunder.
4. LICENSOR'S OBLIGATIONS
----------------------
4.1. Licensor's Duties. The duties to be performed by the Licensor in
connection with the Master License Program will include the following:
a. The Licensor will use reasonable and diligent efforts to register
the service mark "PAK MAIL" in the Licensed Territory.
b. The Licensor will provide newsletters, ad slicks and other
advertising materials, as they may be available from time to time;
provided, however, that they shall be in the English language and the
Master Licensee will be required to have them accurately translated for use
in the Licensed Territory at the Master Licensee's own expense.
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<PAGE>
c. The Licensor will make available, in the English language, one or
more manuals, technical bulletins, or other written materials, covering the
proper operating and marketing techniques of the Pak Mail Center and
standards and specifications for implementing the System, and manuals or
other written materials covering the Master License operations, which may
include advertising, marketing, franchise sales, franchisee selection,
franchisee support, budgeting and forecasting, systems and controls,
management of the advertising fund, development schedule issues, public
relations, and related business systems and methods. The manuals and other
written information described herein shall collectively be referred to as
the "Policy and Procedures Manual." The Master Licensee understands that
the Licensor shall accept no responsibility for insuring that the Policy
and Procedures Manual, and any information contained therein apply or are
consistent with the laws, regulations and customs prevailing within the
Licensed Territory. The Licensor reserves the right to revise the Policy
and Procedures Manual from time to time as it deems necessary to update
operating and marketing techniques or standards and specifications.
d. Licensor will provide the Master Licensee with two weeks of
training at Licensor's National Support Center in Aurora CO.
e. Licensor will plan three support mission(s) to territory in the
first year of this agreement. These missions will address such issues as
site selection, center build-out, carrier and vendor negotiations, and
sales efforts. Every additional year, Licensor will visit said territory as
long as the Master Licensee is in accordance with this agreement.
5. MASTER LICENSEE'S COVENANTS.
----------------------------
5.1. Development of Licensed Territory The Master Licensee shall offer and
sell licenses in a manner consistent with the Licensor's standards and
specifications as may be established by the Licensor from time to time and in
compliance with any applicable laws and regulations directly or indirectly
affecting or relating to the offer and sale of licenses or franchises. The
Master Licensee shall uphold the Licensor's qualification standards in
soliciting, screening, offering and selling licenses or franchises to
Franchisees and Marketers. Each party shall be solely and fully responsible for
insuring compliance with all applicable laws and regulations by their own
employees, agents and/or other representatives under their control.
5.2. Development Schedule. The Master Licensee agrees that during the term
of this Agreement, the Master Licensee will meet and maintain the sales and
opening goals ("Sales and Opening Goals") set forth in Exhibit A to this
Agreement. The Licensor and the Master Licensee must agree to the Sales and
Opening Goals for any renewal of the Master License as set forth in Article 13
of this Agreement.
4
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5.3. Master License Office. The Master Licensee agrees to obtain and at all
times during the term of this Agreement maintain office facilities in the
Licensed Territory for operation of the Master License ("Master Office"). The
Licensor shall approve the Master Office location by its designation in Exhibit
A to this Agreement or by later executing a Rider to Exhibit A if the Master
Office location is not chosen as of the date of execution of this Agreement. The
Master Office shall have a dedicated phone line which shall be answered in the
name of PAK MAIL and shall otherwise be equipped and furnished and have signage
in a manner consistent with the image and minimum standards of the Licensor.
5.4. Initial Training Program. The Master Licensee agrees that its
responsibilities to Franchisees and Marketers in the Licensed Territory include
the provision of an initial Pak Mail training program for each Franchisee and
Marketer, to be conducted at the Master Office, for two individuals representing
each Pak Mail Franchisee and Marketer.
5.5. Compliance with Policy and Procedures Manual. The Master Licensee
shall use the Marks and System only as specified in the Policy and Procedures
Manual. The Master Licensee agrees that it shall comply with the Policy and
Procedures Manual as an essential aspect of its obligations under this Agreement
and failure to substantially comply with the Policy and Procedures Manual may be
considered a breach of this Agreement. The Policy and Procedures Manual is the
sole property of the Licensor and shall be used by the Master Licensee only
during the term of this Agreement and in strict accordance with the terms and
conditions hereof, except as the same may be revised or waived to comply or be
consistent with law, regulation, or custom prevailing in the Licensed Territory.
The Master Licensee shall not duplicate the Policy and Procedures Manual or
disclose its contents to persons other than the Marketers or Franchisees in the
Licensed Territory, or employees or officers who have signed a Nondisclosure and
Noncompetition Agreement substantially similar to that attached as Exhibit B
hereto and only to the extent that the disclosure of said information is
required under this Agreement and the Policy and Procedures Manual for the
operation of the Master License business. The Master Licensee shall return the
Policy and Procedures Manual to the Licensor upon the expiration, termination or
assignment of this Agreement.
5.6. Protection and Promotion of Marks and System. The Master Licensee
shall operate the Master License business in accordance with the System
standards set by the Licensor and in such a manner as not to detract from or
adversely reflect upon the name and reputation of the Licensor and the goodwill
associated with the PAK MAIL name and Marks. The Master Licensee shall make
every effort to protect, maintain and promote the Marks and the System, and to
prevent imitations and infringements upon the Marks and System, within the
Licensed Territory.
5.7. Compliance with Laws. The Master Licensee shall conduct itself and
operate its Master License business in compliance with all applicable laws and
ordinances in the Licensed Territory. In connection therewith, the Master
Licensee shall be solely and fully responsible for obtaining and maintaining any
and all government permits, registrations, licenses or similar approvals to
carry on the Master License business.
5
<PAGE>
5.8. Payment of Taxes and Other Obligations. The Master Licensee shall
promptly pay when due all taxes and other obligations incurred with third
parties in the operation of the Master License business, including, without
limitation, value-added, import/export, national insurance contributions,
turnover taxes, sales and withholding taxes, and any and all accounts or other
indebtedness of every kind incurred by the Master Licensee in the conduct of the
Master License. In the event of a bona fide dispute as to the liability for
taxes assessed or other indebtedness, the Master Licensee shall follow the
procedures of the appropriate governmental authority in the Licensed Territory.
The Master Licensee shall comply with all agreements with third parties related
to the business including, in particular, all provisions of any Franchise
Agreements with Franchisees and any Marketer Agreements with Marketers.
5.9. Control of Franchisees and Marketers. The Master Licensee shall assure
that the standards and specifications as set forth in any and all Franchise
Agreements, Marketer Agreements and the Policy and Procedures Manual and any and
all other standards and specifications which are part of the System established
by the Licensor are, in turn, established and maintained by the Master Licensee
and the Marketers and Franchisees with respect to all Pak Mail Centers in the
Licensed Territory.
5.10. Attendance at Licensor Conferences. The Master Licensee shall attend
on-going conferences, conventions and seminars offered by the Licensor to PAK
MAIL Franchisees which are offered on a national basis in the United States, and
those offered on an international basis.
5.11. Written Materials. The Master Licensee agrees to develop and use in
connection with its Master License business only such written materials,
training manuals and supplies which comply with the Licensor's standards and
specifications. Unless provided to the Master Licensee in the language in
dominant use in the Licensed Territory, the Master Licensee shall pay all costs
of translation for such written materials and training manuals as may be
necessary for use in the Licensed Territory.
6. TRADE AND INDUSTRIAL SECRETS
----------------------------
6.1. Trade and Industrial Secrets. The Master Licensee warrants and
represents that the Licensor possesses certain trade and industrial secrets (the
"Trade and Industrial Secrets") relating to the operation of Pak Mail Centers,
which include: (1) site selection criteria; (2) methods, processes, formats,
specifications, systems, procedures, sales and marketing techniques and
knowledge of and experience in the development and operation of Pak Mail Centers
including any and all contents of the Policy and Procedures Manual; (3)
marketing programs; (4) research and development relating to new businesses and
services; (5) knowledge of specifications for and suppliers of certain products,
services, materials, supplies, equipment and fixtures; (6) the proprietary
6
<PAGE>
computer software program and designated equipment; and (7) knowledge of
operating results and financial performance of Pak Mail Centers. The Licensor's
Trade and Industrial Secrets shall be disclosed by the Licensor to the Master
Licensee through documents, electronic or magnetic means, optical disks,
microfilm, film or other similar instruments. In view of the foregoing, any
unauthorized disclosure by the Master Licensee of the Trade and Industrial
Secrets provided by the Licensor pursuant to this Agreement, shall be construed
as disclosure of the Trade and Industrial Secrets of the Licensor and shall,
therefore, entitle the Licensor to exercise all of the legal actions derived
from any applicable law and/or regulations the Licensor may deem convenient.
6.2. Use and Limitation on Use. The Master Licensee acknowledges and agrees
it will not acquire any interest in Trade and Industrial Secrets, other than the
right to utilize disclosed Trade and Industrial Secrets in operating the Master
License business during the term hereof and that use or duplication of any Trade
and Industrial Secrets in any other business would constitute an unfair method
of competition. The Master Licensee further acknowledges and agrees that the
Trade and Industrial Secrets are proprietary, include trade secrets of the
Licensor and are disclosed to the Master Licensee solely on the condition that
the Master Licensee agrees, and the Master Licensee does hereby agree, that the
Master Licensee: (1) will not use Trade and Industrial Secrets in any other
business or capacity; (2) will maintain the absolute confidentiality of Trade
and Industrial Secrets during and after the term of this Agreement; (3) will not
make unauthorized copies of any portion of Trade and Industrial Secrets
disclosed in written or other tangible forms; and (4) will adopt and implement
all reasonable procedures that Licensor prescribes to prevent unauthorized use
or disclosure of Trade and Industrial Secrets.
6.3. Licensor's Rights to New Ideas. The Master Licensee acknowledges that
the Licensor owns all aspects of the System, whether now or hereafter developed
either by the Licensor or the Master Licensee, and all know-how, formulas,
concepts, methods of doing business, software and other technology related to
the System. All changes and improvements related to the System shall inure to
the benefit of and be owned by the Licensor. The Master Licensee shall fully and
promptly disclose to the Licensor, all ideas, concepts, methods and procedures
relating to the development and/or operations of a packaging and mailing
business conceived or developed by the Master Licensee and/or its employees and
subfranchisees during the term of this Agreement.
6.4. Updated Information. The Master Licensee, within 30 days of receiving
any updated information regarding the Policy and Procedures Manual, shall in
turn update its copy of the Policy and Procedures Manual as instructed by the
Licensor and shall conform its operations with the updated provisions within a
reasonable time thereafter. The Master Licensee shall also be responsible for
ensuring that each of the Franchisees and Marketers in the Licensed Territory
shall, in turn, update their copy of the Policy and Procedures Manual as
instructed by the Licensor, and shall conform their operations with the updated
provisions within a reasonable period of time thereafter. The Master Licensee
acknowledges that a master copy of the Policy and Procedures Manual maintained
by the Licensor at its principal office shall be controlling in the event of a
dispute relative to the content of any Policy and Procedures Manual.
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7. REPRESENTATIONS OF MASTER LICENSEE
----------------------------------
7.1. Representations of Master Licensee. The Master Licensee represents and
warrants that it has induced the Licensor to enter into this Agreement based on
the following representations and warranties made to Licensor. The following
representations and warranties shall survive termination of this Agreement.
a. The Master Licensee understands and acknowledges that the Licensor
has made no promise or guarantee, express or implied, that the Master
Licensee will be able to comply with any applicable laws and regulations
concerning the sale of franchises in the Licensed Territory throughout the
entire term hereof, but the Master Licensee agrees to use best efforts to
comply with the same.
b. The Master Licensee has no in no manner relied upon any
representations or statements of actual, average, projected or forecasted
sales, profits or earnings made by the Licensor with respect to the Master
License business in the Master Licensee's decision to execute this
Agreement. The Master Licensee understands and acknowledges that the
Licensor has no experience in developing or operating PAK MAIL Centers in
the Licensed Territory, so that the Master Licensee has conducted its own
independent investigation of what operating results may be achieved by
conducting the Master License business in the Licensed Territory.
c. The Master Licensee understands and acknowledges that the Policy
and Procedures Manual provided by the Licensor contains information which
may not be applicable in the Licensed Territory and the Master Licensee
will be required to revise those sections which are in turn provided to
Franchisees and Marketers.
d. The Master Licensee acknowledges that it has read this Agreement
and understands and accepts the terms contained in this Agreement as being
reasonably necessary to maintain the Licensor's high standards of quality
and service and the uniformity of those standards and thereby to protect
and preserve the goodwill of the Marks and the integrity of the System. The
Master Licensee acknowledges that it has conducted an independent
investigation of the business venture contemplated by this Agreement and
recognizes that, like any other business, the nature of this business may
evolve and change over time, that the investment involves business risks
and that the success of the venture is largely dependent upon the Master
Licensee's business abilities and efforts. The Master Licensee further
represents to the Licensor, as an inducement to its entry into this
Agreement, that the Master Licensee had made no misrepresentations in
obtaining the license granted pursuant to this Agreement.
8
<PAGE>
e. The Master Licensee represents that it is familiar with and has the
necessary managerial and financial ability to operate, develop and maintain
the Master License business and that it has sufficient staff and offices to
attempt to sell, train and support prospective and future Franchisees and
Marketers pursuant to the Licensor's minimum standards of quality and in
accordance with the Policy and Procedures Manual.
8. ADVERTISING
-----------
8.1. Standards. The Master Licensee acknowledges that the advertising and
promotion of the Master License business in accordance with the Licensor's
standards and specifications regarding advertising is an essential aspect of the
System, and the Master Licensee agrees to comply with all advertising standards
and specifications.
8.2. Master Licensee's Advertising Account. Any advertising fees collected
by the Master Licensee from Franchisees pursuant to the Franchise Agreements, or
from Marketers pursuant to the Marketer Agreements, and retained by the Master
Licensee, shall be deposited by the Master Licensee in separate bank accounts,
commercial accounts or savings accounts ("Advertising Account"). The Master
Licensee will make available to the Licensor and to the Franchisees and
Marketers in the Licensed Territory, no later than 120 days after the end of
each calendar year, an annual financial statement for the Advertising Account
which indicates how deposits to the Advertising Account have been spent. The
Advertising Account will be administered by the Master Licensee, in its sole
discretion, and shall be used by the Master Licensee on behalf of Franchisees
and Marketers in the Licensed Territory for production and placement of media
advertising, direct response literature, direct mailings, brochures, collateral
material advertising, surveys of advertising effectiveness, or other advertising
or public relations expenditures relating to advertising.
9. SYSTEM STANDARDS
----------------
9.1. System Standards. The Master Licensee acknowledges and agrees that the
development and operation of the Pak Mail Centers in accordance with the
specifications, standards, operating procedures and rules the Licensor
prescribes for the operation of Pak Mail Centers as periodically modified and
supplemented by Licensor in its discretion during the term (the "System
Standards") is the essence of this Agreement and essential to preserve the
goodwill of the Marks. Therefore, the Master Licensee agrees, at all times
during the term hereof, to maintain and operate, and to require Marketers and
Franchisees to maintain and operate, the Pak Mail Centers in accordance with
each and every System Standard. The Master Licensee will obtain PAK MAIL's
written approval prior to implementing any change to any System Standard.
9.2. Incorporation of System Standards. The Master Licensee hereby agrees
that System Standards prescribed from time to time in the Policy and Procedures
Manual, or otherwise communicated to the Master Licensee in writing, shall
constitute provisions of this Agreement as if fully set forth herein. All
references to this Agreement shall include all System Standards as periodically
modified.
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9.3. Restriction on Services and Products. The Master Licensee is
prohibited from offering or selling any services or products not authorized by
the Licensor. However, if the Master Licensee proposes to offer, conduct or
utilize any services, products, materials, forms, items or supplies for use in
connection with or sale through the Master License business which are not
previously approved by the Licensor as meeting its specifications, the Master
Licensee shall first notify the Licensor in writing requesting approval. The
Licensor may, in its sole discretion for any reason whatsoever, elect to
withhold such approval; however, in order to make such determination, the
Licensor may require submission of specifications, information, or samples of
such services, products, materials, forms, items or supplies. The Licensor will
advise the Master Licensee within a reasonable time whether such services,
products or other items meet its specifications.
10. MARKS AND PROPRIETARY RIGHTS
----------------------------
10.1. Ownership and Goodwill of Marks. The Master Licensee hereby
acknowledges that the Licensor is the sole owner of the Marks and any goodwill
established thereby and the Licensor has the sole right to license and control
the Master Licensee's use of the PAK MAIL service mark and other of the Marks,
and that the use of the Marks shall remain under the sole and exclusive control
of the Licensor. The Master Licensee acknowledges that it has not acquired any
right, title or interest in the Marks except for the right to use the Marks in
the operation of the Master License Franchise in the Licensed Territory pursuant
to this Agreement.
10.2. Trade Secrets. The Master Licensee hereby acknowledges that the
Licensor owns and controls the distinctive plan for the establishment, operation
and promotion of Pak Mail Centers and all related licensed methods of doing
business, previously defined as the "System", which may include, but are not
limited to, distinctive layout, design and decoration for the Pak Mail Center
structure, other commercial symbols, written promotional materials, advertising,
and accounting systems, all of which constitute trade secrets of the Licensor,
and the Master Licensee acknowledges that the Licensor has valuable rights in
and to such trade secrets. The Master Licensee 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 Master License business as it relates to
this Agreement or as may be granted by separate agreement with the Licensor. If,
in the course of operating its Master License Franchise, the Master Licensee
develops or improves any aspect of the System, any and all plans, methods, ideas
and systems related to such development or improvement shall inure to the
benefit of the Licensor and shall be owned by the Licensor as a part of the
System.
10.3. No Other Mark. The Master Licensee further agrees that no Mark other
than "PAK MAIL" or such other Marks as may be specified by the Licensor, shall
be used in the operation of the Master License business.
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10.4. Cessation of Use at Termination. In the event this Agreement is
terminated for any reason, the Master Licensee shall immediately cease using any
of the PAK MAIL System, Marks, trade names, trade dress, trade secrets,
copyrights or any other symbols used to identify the Master License business,
and all rights the Master Licensee had to the same shall automatically
terminate. The Master Licensee agrees to execute any documents of assignment as
may be necessary to transfer any rights the Master Licensee may possess in and
to the Marks to the Licensor. Nothing herein shall affect the Master Licensee's
rights as a franchisee under any existing franchise agreement.
10.5. Protection of the Marks. The Licensor shall have the affirmative
obligation to protect and defend its use of the Marks and the Licensor's
proprietary interests therein, which affirmative obligations shall include,
without limitation, ascertaining on a periodic basis whether there is any
infringing or illegal use of the Marks by any unauthorized parties within the
Licensed Territory. The Master Licensee shall notify the Licensor in writing of
any possible infringement or illegal use by others of the Marks, or trademarks
the same as or substantially similar to the Marks which may come to its
attention. The Master Licensee acknowledges that the Licensor shall have the
right to determine whether action will be taken on account of any possible
infringement or illegal use. If such action is deemed to be necessary, the
Licensor will notify the Master Licensee who will be responsible for the
commencement or prosecution of such action if the Licensor determines it to be
reasonably necessary for the continued protection and quality control of the
Marks and System. The Licensor shall bear the cost of any such action, including
reasonable lawyer's fees. The Master Licensee agrees to cooperate with the
Licensor in any such litigation. The Master Licensee agrees not to institute any
action on account of any possible infringement or illegal use without first
obtaining the Licensor's prior written consent.
10.6. Master Licensee's Trade Name. The Master Licensee acknowledges that
the Licensor has a prior and superior claim to the Marks and PAK MAIL trade
name. The Master Licensee shall not license or use any of the PAK MAIL Marks or
trade names in the legal name of its company, partnership or any other business
entity used in conducting the business provided for in this Agreement. The
Master Licensee also agrees not to register or attempt to register any trade
name using the word "PAK MAIL" in the Master Licensee's name or in any other
person or business entity name without the prior written consent of the
Licensor. When this Agreement is terminated, the Master Licensee shall execute
any assignment or other document the Licensor requires to transfer to the
Licensor any rights the Master Licensee may possess in a trade name utilizing
the mark PAK MAIL or any other Mark owned by the Licensor.
10.7. Change of Marks. In the event that the Licensor, in its sole
discretion, shall determine it necessary to modify or discontinue the use of any
proprietary Marks, or to develop additional or substitute marks, the Master
Licensee shall, within a reasonable time after receipt of written notice of such
a modification or discontinuation from the Licensor, take such action, at the
Master Licensee's sole expense, as may be necessary to comply with such
modification, discontinuation, addition or substitution.
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10.8. Registration in Licensed Territory. The Licensor has either applied
for or received trademark registration in the countries comprising the Licensed
Territory for the service mark "PAK MAIL" as described in Exhibit C. attached
hereto and by this reference incorporated herein. If the trademark registration
has not been obtained as of the date of this Agreement, the Master Licensee
acknowledges and understands that the Licensor shall use best efforts to obtain
such registration, but there is no assurance that the Licensor will succeed in
obtaining such registration.
11. REPORTS AND RECORDS
-------------------
11.1. Periodic Reports. The Master Licensee shall supply to the Licensor
such reports in a manner and form as the Licensor may, from time to time,
reasonably require, including, but not limited to, monthly sales reports,
submitted to the Licensor no later than the tenth day of each month for all
sales information from the previous month, which sales reports will include
information on sales of franchises and revenues of each of the PAK MAIL Centers
in the Licensed Territory, identified by Franchisee and by location.
11.2. Annual Reports. The Master Licensee shall, within 90 days after the
end of its fiscal year, provide to the Licensor, in English, annual audited
financial statements, tax returns relating to the Master License business, and a
certification from an independent certified public accountant that all sums due
and owing hereunder have been paid. If the certification shows an underpayment
of any amounts owed to the Licensor, these amounts shall be paid to the Licensor
concurrently with the submission of the statements. In addition, the Master
Licensee shall, within 45 days from the end of each calendar quarter, provide
the Licensor with copies of quarterly value added tax returns or other
assessments. In addition, the Master Licensee shall, by January 1st of each
calendar year, submit to the Licensor its business and marketing plan for the
Licensed Territory for the upcoming year, together with a copy of its current
Policy and Procedures Manual used in the Licensed Territory within the preceding
year, together with every Franchise Agreement and Marketer Agreement executed
within the preceding year.
11.3. Maintenance of Records. The Master Licensee shall maintain all books
and records for the Master License business in accordance with generally
accepted accounting principles, consistently applied, and preserve these records
for at least six years after the fiscal year to which they relate.
11.4. Inspection and Audit. The Master Licensee shall permit the Licensor
to inspect and audit the books and records of the Master License business at any
reasonable time, at the Licensor's expense.
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12. ASSIGNMENT OF RIGHTS
--------------------
12.1. Assignment by Master Licensee. The Master License business granted
herein is personal to the Master Licensee and except as stated below, the
Licensor shall not allow or permit any transfer, assignment, sublicense or
conveyance of this Agreement or any interest hereunder. The Master Licensee
shall not sell, transfer or assign its rights under this Agreement or any
interest in it, or any part or portion of the entity that owns it, or a
substantial portion of the assets used in carrying out this Agreement
(including, without limitation, its right, title and interest to any Franchise
Agreement to which it is a party), unless the Master Licensee obtains the
Licensor's prior written consent and the Master Licensee and/or the proposed
transferee comply with the following requirements:
a. Payment of all amounts due and owing pursuant to this Agreement by
the Master Licensee to the Licensor or to third parties whose debts or
obligations the Licensor has guaranteed on behalf of the Master Licensee,
if any;
b. Agreement by the proposed transferee to satisfactorily complete the
initial training program conducted by the Licensor, which training may be
completed by the transferee either prior to or immediately after assignment
of this Agreement;
c. An express written assumption by the proposed transferee of the
Master Licensee's obligations pursuant to this Agreement and all Franchise
Agreements executed with Franchisees and Marketer Agreements executed with
Marketers in the Licensed Territory;
d. Provision by the Master Licensee of 30 days' written notice prior
to the proposed effective date of the transfer, such notice to contain the
material terms and conditions of the transfer, including without
limitation, the price and terms of payment;
e. Execution by the Master Licensee of a general release of all claims
against the Licensor and an acknowledgement of the termination of all of
its rights in connection with this Agreement;
f. Payment by the Master Licensee or the proposed transferee of a
transfer fee in an amount 10% of the total purchase price to be paid by the
transferee, whether to be paid in lump sum or financed; this amount,
however, shall not exceed U.S.$25,000.00;
g. The proposed transferee shall have provided information to the
Licensor sufficient for the Licensor to assess the proposed transferee's
business experience, aptitude, creditworthiness and financial resources to
operate the Master License business and the Licensor shall have ascertained
that the proposed transferee meets such qualifications; and
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h. The proposed transferee shall have visited the corporate
headquarters of the Licensor and shall have been evaluated and approved by
the Licensor.
12.2. Licensor's Approval of Transfer. The Licensor has 30 days from the
date of notice from the Master Licensee to approve or disapprove of the Master
Licensee's proposed assignment. The Master Licensee acknowledges that the
Licensor may withhold approval of a proposed assignment or proposed transferee
for any justifiable business reason, including without limitation, the
transferee's financial capability or its suitability to act as the Licensor's
special agent in the Licensed Territory, irrespective of how such financial
capability or suitability compares to that of the Master Licensee. If the Master
Licensee and its proposed transferee comply with all conditions for assignment
set forth herein and the Licensor has not given the Master Licensee notice of
its approval or disapproval within such period, approval is deemed granted.
12.3. Right of First Refusal. In the event the Master Licensee wishes to
sell, transfer or assign its rights under this Agreement or any interest in it,
or any substantial portion of the assets used in carrying out this Agreement to
a third party, the Master Licensee agrees to grant to the Licensor a 30 day
right of first refusal to purchase such rights or assets on the same terms and
conditions as are contained in the written offer to purchase submitted to the
Master Licensee by the proposed purchaser. The Master Licensee shall immediately
notify the Licensor of such offer by sending a written notice via courier,
telegram or telefax to the Licensor enclosing a copy of the written offer from
the proposed purchaser and receipt of such notice must be confirmed in writing
upon receipt by Licensor. Such right of first refusal is effective for each
proposed assignment. Absence of a reply to the Master Licensee's notice of a
proposed assignment within the 30 day period is deemed a waiver of such right of
first refusal. The right of first refusal period will run concurrently with the
period in which the Licensor has to approve or disapprove the proposed
transferee. If the Licensor chooses not to exercise its right of first refusal,
the Master Licensee shall be free to complete the sale, transfer or assignment,
subject to compliance with all other pre-conditions for assignment set forth
herein.
12.4. Types of Assignment. The Master Licensee acknowledges that the
Licensor's right to approve or disapprove of a proposed sale or transfer
provided for herein shall apply (1) if the Master Licensee is a partnership or
other business association, to the addition or deletion of a partner or members
of the association or the transfer of any partnership or membership among
existing partners or members; (2) if the Master Licensee is a company, to any
proposed transfer or assignment of 25% or more of the stock or other ownership
interest in the Master Licensee, whether such transfer occurs in a single
transaction or several transactions; and (3) if the Master Licensee is an
individual, to the transfer from such individual or individuals to a company
controlled by them, in which case the Licensor's approval will be conditioned
upon the continuing personal guarantee of the individual (or individuals) for
the performance of obligations under this Agreement, and other reasonable
conditions.
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With respect to a proposed transfer as described in subsection (3) of this
paragraph, the Licensor's right of first refusal to purchase, as set forth
above, shall not apply and the Licensor will waive any transfer fee chargeable
to the Master Licensee for a transfer under these circumstances.
12.5. Assignment by Licensor. This Agreement is fully assignable by the
Licensor and shall inure to the benefit of any assignee or other legal successor
in interest. The Licensor shall also have the right to delegate the performance
of any portion or all of its obligations hereunder to third parties, whether the
same are agents of the Licensor or independent contractors with whom the
Licensor has contracted to provide such services. The Master Licensee agrees in
advance to any such delegation by the Licensor of any part or portion of its
obligations and duties hereunder.
12.6. Master Licensee's Death or Incapacity. Upon the death or permanent
disability of the Master Licensee (or the individual controlling the Master
Licensee entity), the executor, administrator, conservator, guardian or other
personal representative of such person shall transfer the Master Licensee's
interest in this Agreement or such interest in the Master Licensee 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 12, including the granting of
a right of first refusal to the Licensor. Provided, however, that for the
purposes of this Article 12, there shall be no fee charged by the Licensor for
the initial training program offered to the transferee. Failure to transfer the
interest in this Agreement or such interest in the Master Licensee 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 Master Licensee or the owner of a controlling interest
in the Master Licensee entity from supervising the management and operation of
the Master License business for a period of 120 days from the onset of such
disability, impairment or condition.
13. TERM AND EXPIRATION
-------------------
13.1. 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.
13.2. Rights Upon Expiration. At the end of the initial term hereof the
Master Licensee may renew the franchise rights granted hereunder for consecutive
terms of 10 years each if the Master Licensee:
a. At least 30 days prior to expiration of the term, executes the then
current form of Master License Agreement;
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b. Has complied with all provisions of this Agreement during the
initial term. "Compliance" shall mean, at a minimum, that the Master
Licensee has not received written notification from the Licensor of a
material breach hereunder more than five times during the term hereof; and
c. Executes a general release covering all claims the Master Licensee
may have against the Licensor in connection with the completion of the
initial term of this Agreement.
13.3. Exercise of Option for Successor Franchise. The Master Licensee may
exercise its renewal option by giving notice of such exercise to the Licensor at
least 120 days prior to the scheduled expiration of this Agreement and
thereafter comply with other conditions of renewal within 90 days after such
notice.
13.4. Conditions of Refusal. The Licensor shall not be obligated to renew
this Agreement if the Master Licensee fails to comply with any of the above
conditions of renewal. In such event, the Licensor shall give notice of
nonrenewal at least 180 days prior to the expiration of the term (unless
nonrenewal is due to a default of Section 13.2 (a) above), and such notice shall
set forth the reasons for such refusal to renew.
14. DEFAULT AND TERMINATION
-----------------------
14.1. Termination by Licensor - Prior Notice and Cure. The Licensor shall
have the right to terminate this Agreement, upon 30 days prior written notice,
if the Master Licensee breaches any provision of this Agreement. Under
circumstances where the breach is of the nature that it may be remedied through
the actions of the Master Licensee, the Licensor shall permit the Master
Licensee the same 30 day period to remedy any such breach or default, after
which time, if the breach or default has not been remedied, the Licensor may
terminate this Agreement immediately. Notwithstanding the foregoing, if the
breach is remediable, but is of a nature which cannot be reasonably remedied
within such 30 day period and the Master Licensee has commenced and is
continuing to make good faith efforts to remedy the breach during such 30 day
period, then the Master Licensee shall be given an additional reasonable period
of time to remedy the same and this Agreement shall not terminate. Under no
circumstances will the Licensor terminate the Agreement without good cause.
14.2. Post-Termination Obligations of Master Licensee. The Master Licensee
is obligated upon termination or nonrenewal of this Agreement to:
a. Pay to the Licensor all fees, and any and all amounts or accounts
payable then owed the Licensor or its affiliates pursuant to this
Agreement, or pursuant to any other agreement, whether written or oral,
between the parties, within 15 days of the effective date of such
termination;
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b. Immediately cease to identify the Master License business as being,
or having been, associated with the Licensor, and immediately cease using
any of the Marks, or any mark in any way associated with the System for any
purpose, except pursuant to any other effective agreement with the
Licensor;
c. Deliver to the Licensor all signs, sign-faces, advertising
materials, stationery, videotapes, forms and other materials bearing any of
the Marks or otherwise identified with the Licensor;
d. Immediately deliver to the Licensor the Policy and Procedures
Manuals in its possession and all other information, documents and copies
thereof which are proprietary to the Licensor;
e. Promptly take such action as may be required to cancel all trade
names or equivalent registrations relating to its use of any Marks of the
Licensor or, at the option of the Licensor, assign the same to the
Licensor;
f. Abide by the provisions related to transfer of any and all of the
Master Licensee's interest under any Franchise Agreements and Marketer
Agreements, as set forth below and offer to the Licensor the option to take
assignment of the Franchise Agreements then in effect with Franchisees, and
all Marketer Agreements then in effect with Marketers in the Licensed
Territory;
g. Deliver to the Licensor the names, addresses, telephone numbers and
any other information in the Master Licensee's possession, regarding all
sales leads of prospective Franchisees and Marketers within the Licensed
Territory; and
h. Abide by all restrictive covenants as set forth in Article 16
below.
14.3. Licensor's Assumption of Agreements. If this Agreement expires
according to its terms, or is terminated or not renewed by the Licensor due to
any material breach in this Agreement by the Master Licensee, or is terminated
by the Master Licensee contrary to the terms of this Agreement, then the
Licensor shall have the option, but not the obligation, to take assignment of
any and all of the Master Licensee's interest as Master Licensee (but not as
Franchisee or Marketer) under any Franchise Agreements or Marketer Agreements
then in effect with Franchisees or Marketers in the Licensed Territory, on its
own or its designee's behalf. In the event the Licensor assumes the Master
Licensee's interest in such agreements, the Master Licensee shall have no
further entitlement to any fees accruing after the effective date of the
assignment, and the Master Licensee shall also transfer all funds in the
Advertising Account to the Licensor or its designee.
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15. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION
-------------------------------------------
15.1. Independent Businesspersons. During the term of this Agreement, the
Master Licensee shall be an independent businessperson and shall in no way be
considered as a general agent, partner or employee of the Licensor. It is
understood and agreed that no general agency or partnership is created by this
Agreement. As such, the Master Licensee has no authority of any nature
whatsoever to bind the Licensor or incur any liability for or on behalf of the
Licensor or to represent itself as anything other than an independent
contractor.
15.2. Indemnification. The Master Licensee shall indemnify and hold
harmless the Licensor and its officers, directors, employees, agents and
representatives from all fines, suits, proceedings, claims, demands or actions
("Claims") of any kind or nature, including reasonable lawyers' fees, from any
third party whomsoever, arising or growing out of, or otherwise connected with
the Master Licensee's operation of the Master License business, or the Franchise
Agreements or Marketer Agreements as may now or hereafter be executed with
Franchisees or Marketers in the Licensed Territory, except and unless any such
Claim arises out of the authorized use of, or defense or protection of, the
Marks in the Licensed Territory.
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a. If the Licensor seeks indemnification hereunder with respect to the
assertion of a Claim, it shall give notice to the Master Licensee within 30
days of the Licensor's becoming aware of any such Claim. The notice shall
set forth such information with respect to the Claim as is then reasonably
available to the Licensor. The Master Licensee will thereafter be entitled,
at any time during the defense of the Claim, if it so elects, by written
notice delivered to the Licensor within 30 days after receiving the
Licensor's notice, to assume the defense of the Claim with counsel
satisfactory to the Licensor. Notwithstanding the foregoing, (i) the
Licensor shall have the right to employ its own counsel in any such case
(but the fees and expenses of such counsel shall be at the expense of the
Licensor as long as the Master Licensee continues to defend such matter),
to defend such Claim, or to compromise or settle such Claim insofar as such
compromise or settlement does not involve monetary damage or payment of
money; (ii) the Licensor shall not have any obligation to give any notice
of a Claim by a third party unless such Claim is in writing; and (iii) the
rights of the Licensor to be indemnified herein shall not be deemed
forfeited by its failure to give notice unless the Master Licensee is
prejudiced by such failure.
After receipt of the aforesaid notice of a Claim, if the Master Licensee
fails to assume the defense of the Licensor against such Claim, the Licensor
shall have the right to undertake the defense and to compromise or settle such
Claim on behalf of and for the account and risk of the Master Licensee, and at
the Master Licensee's expense, payable to the Licensor upon written demand.
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16. RESTRICTIVE COVENANTS
---------------------
16.1. Non-Competition During Term. While this Agreement is in effect, the
Master Licensee and its officers, partners, directors, agents or employees who
have completed the Licensor's initial training program or had access to the
Policy and Procedures Manual, including without limitation, the beneficial
owners of a 5% or greater interest in the Master Licensee, where the Master
Licensee is a company, shall not, directly or indirectly, engage in or
participate, as an owner, officer, partner, director, agent, franchise sales
agent, employee or otherwise in any other business which engages in, or licenses
or franchises others to engage in, a business which is the same or substantially
similar to a Pak Mail Center including, without limitation, any packaging,
mailing or shipping business without having first obtained the Licensor's
written consent.
16.2. Post-Termination Covenant Not to Compete. The Master Licensee has
acquired from the Licensor confidential information regarding Licensor's trade
secrets and System which, in the event of a termination of this Agreement, could
be used by the Master Licensee to injure the Licensor. As a result, the Master
Licensee and its officers, partners, directors, agents or employees who have
completed the Licensor's initial training program or had access to the Policy
and Procedures Manual, including without limitation, the beneficial owners of 5%
or more of the ownership interest in a Master Licensee which is a company, shall
not for a period of two years from the date of termination, transfer, or
expiration of this Agreement, or for a period of two years after termination or
cessation of such person's relationship with the Master Licensee in such
capacity, whichever first occurs, without first having obtained the Licensor's
consent, engage in, or participate as, an owner, officer, partner, director,
franchise sales agent, agent or employee in any other business which engages in,
or licenses or franchises others to engage in, a business which is the same or
substantially similar to a Pak Mail Center including, without limitation, any
mailing, packaging or shipping business, and which is operating, as of the date
of such termination, transfer or expiration, anywhere within 50 kilometers of
any Pak Mail Center which is operating as of the date of such termination,
transfer or expiration, unless such right is granted pursuant to a separate
agreement with the Licensor.
16.3. No Interference. The Master Licensee agrees that during the term of
this Agreement and for a period of one year thereafter, it shall in no way
solicit or attempt to solicit the employees of or the business or customers of,
or interfere with the business relationship established with employees or
customers of, the Licensor or other Pak Mail Centers.
16.4. Nondisclosure and Noncompetition Agreement. The Master Licensee shall
require that any officer, partner, director, employee, or agent of the Master
Licensee, execute a Nondisclosure and Noncompetition Agreement (in the form
substantially similar to Exhibit B) containing the provisions as set forth
herein, and further, the Master Licensee shall notify the Licensor of the
identity of each and every above-described person and provide the Licensor with
an originally executed copy of each such Nondisclosure and Noncompetition
Agreement.
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17. INSURANCE
---------
17.1. Insurance Coverage. The Master Licensee shall procure, maintain and
provide evidence of insurance coverage in the amount and types which are deemed
necessary by the Licensor for the Master License business operations. All of the
required policies of insurance shall name the Licensor as an additional named
insured and shall provide for a 30 day advance written notice to the Licensor of
cancellation.
17.2. Proof of Insurance. The Master Licensee will provide proof of
insurance to the Licensor prior to commencement of the Master License business
operations. This proof will show that the insurer has been authorized to inform
the Licensor in the event any policies lapse or are canceled. The Licensor has
the right to change the minimum amount of insurance the Master Licensee is
required to maintain by giving the Master Licensee prior reasonable notice,
giving due consideration to what is reasonable and customary in a similar
business in the Licensed Territory. 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
Licensor shall have the right to demand that the Master Licensee cease
operations until coverage is reinstated, or, in the alternative, pay any
delinquencies in premium payments and charge the same back to the Master
Licensee.
18. ENFORCEMENT
-----------
18.1. Arbitration. If any dispute shall arise between the parties hereto
concerning the construction, interpretation or application of any of the
provisions of this Agreement whether during the continuance of this Agreement or
after the termination hereof by whatever cause, such dispute shall be determined
in accordance with rules of the American Arbitration Association referred to a
single arbitrator to be appointed by the American Arbitration Association,
provided that this Section shall have no application to terms of this Agreement
concerning restrictions against competition and nondisclosure, and the parties
hereto agree to be bound by the terms of such arbitration and to bear the costs
of such arbitration in equal shares. In the discretion of the Licensor, the
arbitration shall be conducted in the city in which the Licensor's United States
headquarters are then located.
19. MISCELLANEOUS PROVISIONS
------------------------
19.1. Modification. The parties may modify this Agreement only upon
execution of a written agreement between the parties; provided, however, that
the Master Licensee acknowledges that this Agreement may be amended by the
Licensor in its sole discretion, after it has been reviewed by legal counsel in
the Licensed Territory in order to bring the Agreement into conformity with
applicable laws and regulations. The Master Licensee acknowledges that the
Licensor may modify its standards and specifications and operating and marketing
techniques set forth in the Policy and Procedures Manual unilaterally under any
conditions and to the extent to which the Licensor, 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.
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19.2. Delegation. The Master Licensee may not delegate any of its duties
under this Agreement, unless it has received the prior written consent of the
Licensor.
19.3. Entire Agreement. This Agreement contains the entire agreement
between the parties and supersedes any and all prior agreements concerning the
subject matter hereof. The Master Licensee agrees and understands that the
Licensor shall not be liable or obligated for any oral representations or
commitments made prior to the execution hereof and that no modifications of this
Agreement shall be effective except those in writing and signed by both parties.
The Licensor does not authorize and will not be bound by any representation of
any nature other than those expressed in this Agreement. The Master Licensee
further acknowledges and agrees that no representations have been made to it by
the Licensor regarding projected sales volumes, market potential, revenues,
profits, or operational assistance other than as stated in this Agreement or in
any disclosure document provided in connection herewith. This Agreement shall
not be effective until it is signed by an officer of the Licensor.
19.4. No Right to Set-Off. The Master Licensee shall not be allowed to set
off amounts owed to the Licensor in respect of any amounts due hereunder,
against any monies owed to the Master Licensee, which right of set off is hereby
expressly waived by the Master Licensee.
19.5. Fees and Costs. 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 and translation costs, incurred
by the aggrieved party in any legal action, arbitration or other proceeding as a
result of such default, plus interest at the lesser of 20% annually or the
highest rate allowable by law, accruing from the date of such default.
19.6. Severability. If any provision of this Agreement is held invalid 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.
19.7. Notices. All notices required to be given under this Agreement shall
be given in writing, by certified air mail, or by hand, or by an overnight
delivery service providing documentation of receipt, at the addresses set forth
in the first paragraph of this Agreement or at such other addresses as the
Licensor or the Master Licensee may designate from time to time, and shall be
deemed to be received seven days from the date of mailing registered air mail,
or when received via overnight delivery, or immediately if delivered by hand, as
may be applicable.
22
<PAGE>
19.8. Excuse of Performance. Notwithstanding anything contained in this
Agreement to the contrary, the obligations of the parties hereto shall be
subject to all the laws, both present and future, of any requests of any such
government or any department, agency or corporation thereof, and to war, acts of
God, or any cause of like or different kind beyond the control of the parties,
and the parties shall be excused from performance of any obligation hereunder to
the extent such failure is caused by any law, order, regulation, direction,
request or contingency; provided, however, that such excuse of performance shall
be limited to the period during which such excuse of performance exists and
shall not affect the running of the term of this Agreement.
19.9. Approval Within Licensed Territory. Any approval of this Agreement by
the appropriate authorities in the Licensed Territory which is required to
enable the Master Licensee to enter into this Agreement, perform under the terms
of this Agreement, do business with the Licensor, or to make payments to the
Licensor hereunder in United States dollars in the United States of America
shall be the sole responsibility of the Master Licensee, except as otherwise set
forth herein.
19.10. Applicable Law. This Agreement shall be interpreted in accordance
with the laws of the State of Colorado.
19.11. Translation of Agreement. The English language shall be regarded as
the authoritative and official text of this Agreement. However, the Agreement
will be translated into the language in dominant use in the Licensed Territory,
at the Master Licensee's expense, in the event that translation is necessary for
the purpose of registration of the Agreement with the applicable government
authorities. Nevertheless, in the event that discrepancies exist between the
English text and the texts in an alternative language, the English text shall be
considered the official text of the Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the day and year first above written.
PAK MAIL CENTERS OF AMERICA, INC:
By:
--------------------------------------
Its:
-------------------------------------
Date:
-------------------------------------
MASTER LICENSEE:
By:
--------------------------------------
Its:
-------------------------------------
Date:
------------------------------------
23
<PAGE>
EXHIBIT A
TO MASTER LICENSE AGREEMENT
ADDENDUM TO
PAK MAIL CENTERS OF AMERICA, INC.
MASTER LICENSE AGREEMENT
THIS ADDENDUM to the Pak Mail Centers of America, Inc. Master License
Agreement dated __________ , 19____ ("Agreement"), is made and entered into as
of the same date by and between Pak Mail Centers of America, Inc. ("Licensor")
and ___________ ("Master Licensee"). This Addendum modifies certain terms and
conditions of the Agreement and, in the event of a conflict in terms between the
Agreement and this Addendum, the terms of this Addendum shall be controlling. To
the extent not otherwise defined in this Addendum, all initial-capitalized
references shall have the same definition as set forth in the Agreement.
a. Licensed Territory. The Licensed Territory, referenced in Section 1.3 of
the Agreement, is described as:________________________________________________.
b. License Fee. The Master Licensee shall pay the Licensor a License Fee,
as referenced in Section 3.1 of the Agreement, in the amount of
U.S.$______________. which it is acknowledged that U.S.$___________ is payable
upon execution of a letter of intent between the parties and U.S.$__________ is
payable upon execution of the Agreement.
c. Development and Pay Schedule. The Development Schedule ("Development and
Pay Schedule"), as referenced in Section 5.2 of the Agreement, is set forth in
the following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Development Period - based on number of Center Opening Goals during Cumulative (Total)
months from date Development Period Centers Open
of Agreement)
- ----------------------------------------- -------------------------------- --------------------------------
<S> <C>
#1 - Months
- ----------------------------------------- -------------------------------- --------------------------------
#2 - Months
- ----------------------------------------- -------------------------------- --------------------------------
#3 - Months
- ----------------------------------------- -------------------------------- --------------------------------
#4 - Months
- ----------------------------------------- -------------------------------- --------------------------------
#5 - Months
- ----------------------------------------- -------------------------------- --------------------------------
#6 - Months __ ___
- ----------------------------------------- -------------------------------- --------------------------------
#7 - Months
- ----------------------------------------- -------------------------------- --------------------------------
Total
- ----------------------------------------- -------------------------------- --------------------------------
</TABLE>
<PAGE>
For Centers developed in the Licensed Territory, the Master Licensee shall pay
to the Licensor a License Fee of U.S.$ due and payable upon a Franchisee's
execution of a Franchise Agreement for such Center.
d. Master License Office. The Master Office, as referenced in Section 5.3
of the Agreement, shall be located at: _____________ ; telephone number:
_____________ ; facsimile number ___________ ; e-mail ___________________ .
e. Effectiveness of Agreement. To the extent not amended herein, all other
terms and conditions of the Agreement shall remain in full force and effect.
PAK MAIL CENTERS OF AMERICA, INC.
By:
--------------------------------------
Its:
-------------------------------------
MASTER LICENSEE:
By:
--------------------------------------
Its:
-------------------------------------
2
<PAGE>
EXHIBIT B
TO MASTER LICENSE AGREEMENT
NONDISCLOSURE AND NONCOMPETITION AGREEMENT
AGREEMENT, dated , 19___, by and between Pak Mail Centers of America, Inc.
("Licensor") and , a(n) [directors, officer, partner, principal, employee, agent
or stockholder of (the "Master Licensee").
The Licensor has granted to the Master Licensee, pursuant to that certain
Master License Agreement dated , 19___, (the "Master License Agreement"), the
right to subfranchise PAK MAIL Center franchises and Area Marketer franchises in
the countries of . The undersigned, in consideration of the receipt and/or use
of the Policy and Procedures Manual and other information proprietary to the
Licensor, including but not limited to methods, strategies and techniques
developed by the Licensor relating to operations, marketing, training,
advertising, trade secrets, and other confidential data (collectively referred
to as "Proprietary Information"), agrees with the Licensor as follows:
(1) The undersigned acknowledges that the Policy and Procedures Manual
and other Proprietary Information now or hereafter provided to Master Licensee
by the Licensor is proprietary to the Licensor and must be held in the utmost
and strictest confidence.
(2) The undersigned represents and agrees that the undersigned will not,
without the prior written consent of the Licensor either:
(i) Duplicate or otherwise reproduce the Policy and Procedures Manual
or other Proprietary Information;
(ii) Deliver or make available the Policy and Procedures Manual or
other Proprietary Information to any person other than an authorized
representative of the Licensor;
(iii) Discuss or otherwise disclose the contents of the Policy and
Procedures Manual or other Proprietary Information to any person other than
an authorized representative of the Licensor; or
(iv) Use the Policy and Procedures Manual or other Proprietary
Information to his, her or its commercial advantage other than in
connection with the operation of the franchise created and granted by the
Master License Agreement.
<PAGE>
(3) While the Master License Agreement is in effect, neither the
undersigned, nor any member of his or her immediate family, shall directly or
indirectly engage in, participate as an owner, officer, partner, director,
agent, franchise sales agent, employee, shareholder or otherwise in any other
business which engages in or licenses or franchises others to engage in, a
business which is the same or substantially similar to a Pak Mail Center,
including, but not limited to, any packaging, mailing, or shipping business
("Competitive Business") without having first obtained the Licensor's written
consent.
(4) The undersigned has acquired from the Licensor confidential information
regarding Licensor's trade secrets and franchised methods which, in the event of
a termination of the Master License Agreement, could be used to injure the
Licensor. As a result, neither the undersigned, nor any member of his or her
immediate family, shall, for a period of two years from the date of termination,
transfer or expiration of the Master License Agreement, without having first
obtained the Licensor's written consent, engage in or participate as an owner,
officer, partner, director, franchise sales agent, agent, employee, shareholder
or otherwise in any Competitive Business which is operating, as of the date of
such termination, transfer or expiration, anywhere within 50 kilometers of any
Pak Mail Center which is operating as of the date of such termination, transfer
or expiration, unless such right is granted pursuant to a separate agreement
with the Licensor.
(5) The undersigned agrees that during the term of the Master License
Agreement, and for a period of two years thereafter, it shall in no way divert
or attempt to divert the business of actual packaging or mailing customers, or
interfere with the business relationship established with customers of the
Master Licensee's business or of any other Pak Mail Center.
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned as
of the date set forth above.
AGREED TO BY:
By:
----------------------------------------
Its:
---------------------------------------
PAK MAIL CENTERS OF AMERICA, INC.
By:
----------------------------------------
Its:
---------------------------------------
2
<PAGE>
EXHIBIT C
TO MASTER LICENSE AGREEMENT
MARK REGISTRATIONS IN THE LICENSED TERRITORY
Exhibit (21)
SUBSIDIARIES OF THE REGISTRANT
- ------------------------------
Subsidiary Jurisdiction of Incorporation
---------- -----------------------------
Pak Mail Crating & Freight Service, Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> NOV-30-1999
<CASH> 44,536
<SECURITIES> 0
<RECEIVABLES> 703,661
<ALLOWANCES> 135,716
<INVENTORY> 101,357
<CURRENT-ASSETS> 1,092,492
<PP&E> 681,813
<DEPRECIATION> 502,045
<TOTAL-ASSETS> 2,951,575
<CURRENT-LIABILITIES> 930,456
<BONDS> 0
0
2,216,668
<COMMON> 3,874
<OTHER-SE> (862,612)
<TOTAL-LIABILITY-AND-EQUITY> 2,951,575
<SALES> 1,106,313
<TOTAL-REVENUES> 5,085,660
<CGS> 906,693
<TOTAL-COSTS> 2,565,164
<OTHER-EXPENSES> 2,151,707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,768
<INCOME-PRETAX> 368,789
<INCOME-TAX> 72,500
<INCOME-CONTINUING> 368,789
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 273,728
<NET-INCOME> 95,061
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
