SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________________
Commission file number 0-14821
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MAIL BOXES ETC.
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(Exact Name of Registrant as specified in its charter)
California 33-0010260
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6060 Cornerstone Court West, San Diego, California 92121-3795
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619)455-8800
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Securities registered pursuant to Section 12(b) of the Act: None
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Name of each exchange on which
Title of each class registered
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N/A N/A
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock: No par value
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(Title of class)
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock of the
Registrant held by nonaffiliates of the Registrant on July 3, 1995,
was approximately $61 million. The aggregate market value was
computed by reference to the closing sale price for shares of the
Common Stock of the Company on such date and excludes, for the
purpose of this calculation, shares held beneficially by officers,
directors, and ten percent shareholders.
The number of shares outstanding of the Registrant's Common
Stock, no par value, as of July 3, 1995 : 11,089,471 shares.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of Registrant's Annual Report to Shareholders for the
year ended April 30, 1994 are incorporated by reference into Parts
II and IV of this report. Portions of the Registrant's definitive
proxy statement for its Annual Meeting of Shareholders, to be held
August 26, 1994 are incorporated by reference into Part III of this
report.
PART I
ITEM 1 : BUSINESS
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Mail Boxes Etc. ("MBE" or "Company") is the nation's largest
franchisor of neighborhood postal, business, and communication
service centers ("MBE Centers"). The Company offers both individual
franchises and area franchises in the United States and master
licenses in foreign countries. A typical MBE Center offers mail
and parcel receiving, packaging, and shipping services through a
number of carriers and provides small businesses with a wide range
of products and services. These products and services generally
include telephone message service, word processing, copying and
printing, office supplies and communications services.
Communications services typically include fax, voice mail, pagers,
and wire transfers of funds. In addition, MBE Service Centers
usually offer convenience items such as stamps, packaging supplies,
stationery supplies, keys, passport photos, and film processing.
The Company provides its franchise owners and licensees with
a system of business training, including instruction at MBE
University, assistance in site selection, marketing, and
advertising programs. Area franchisees are granted the exclusive
right to sell individual franchises for the Company in their areas
and also provide start-up assistance and continuing support for
individual franchises within that area.
The Company sells Master Licenses in foreign countries under
which the Master Licensee obtains the exclusive right to develop
and operate MBE Centers in one or more foreign countries and the
right to sell franchises to others who, in turn, own and operate
individual MBE Service Centers. The Company also offers licenses
to own and operate individual MBE Service Centers in foreign
countries where no master license has yet been sold for that
country.
The Company was incorporated in California in November 1983.
By January 1, 1984, it had acquired all of the outstanding stock of
Mail Boxes Etc. USA, Inc. ("MBE-USA"). MBE-USA was incorporated in
May 1980, and has been developing and franchising the MBE Service
Center concept since that time. MBE Service Corp. ("MBESC") was
incorporated in August 1990 as a wholly owned subsidiary of the
Company to develop and provide new services to the MBE Network.
All such services to the MBE Network are currently being provided
through MBE-USA, and MBESC is presently inactive. Mail Boxes Etc.
is a holding company with no operations, except to the extent of
providing certain executive management services to MBE-USA. The
"Company" or "Mail Boxes Etc." refers to Mail Boxes Etc., together
with its wholly owned subsidiaries, MBE-USA and MBE Service Corp.,
unless the context otherwise indicates.
As of June 1, 1995, the Company employed approximately 170
full time regular and 15 contract employees.
Stock Acquisition by United Parcel Service
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On October 3, 1990, United Parcel Service of America, Inc.
("UPS") purchased 1,066,666 shares of Company stock for an all cash
price of $10.1 million or $9.47 per share and warrants, exercisable
over a three year period, to purchase an additional 1,066,667
shares of MBE common stock, for an all cash price of $1.168
million. On October 3, 1991, UPS exercised its first warrant to
acquire 355,555 shares for an all cash price of $3.6 million and
on October 3, 1992 UPS exercised its second warrant to acquire an
additional 355,555 shares for an all cash price of $4.3 million.
The third and last set of warrants to purchase an additional
355,555 shares of stock for an all cash price of $5.2 million was
not exercised and expired on October 3, 1993. UPS now has an
approximately 16.4% equity interest in MBE.
In accordance with the terms of the Stock and Warrant Purchase
Agreement, as amended ("Agreement"), UPS is restricted from
acquiring more than 35% of the Common Stock of MBE at any time
prior to October 3, 1995, except that upon the occurrence of
certain events, this 35% restriction may be lifted. All share
amounts and per share prices set forth above are adjusted to
reflect a 4 for 3 split of MBE's common stock which was paid on
April 12, 1991 and a 2 for 1 split of MBE's common stock which was
paid on April 13, 1992.
Under the Agreement, UPS is also permitted to name a designee
to MBE's Board of Directors. All of the funds received from UPS
for the purchase of stock and the exercise of warrants have been,
and are expected to be, used to finance the development of the MBE
system.
Products and Services Provided
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The typical MBE Center offers a broad range of services and
products for personal and business support, communications services
and convenience items and services. The use and importance of
particular services and products vary substantially at individual
Centers. Prices for services and products are set by the
individual franchise owners and depend on competitive conditions in
their respective franchise locations. Major services and products
offered at MBE Centers include the following:
PRIVATE MAIL AND PARCEL RECEIVING SERVICES. A typical MBE
Center can service a large number of mail service customers at
rates typically ranging from $10.00 to $30.00 per month. The mail
receiving service is accessible to the customer 24 hours a day. In
addition to the private mail receiving service, MBE Centers provide
certain value-added services, including "Telephone Mail-Check,"
which enables customers to check the status of their mail by phone,
and "Expedited Mail-Forwarding" which allows customers to request
by telephone that specific pieces of mail be immediately forwarded
to them at another location. MBE Centers act as receiving agents
for parcels shipped to their customers through the U.S. Postal
Service, United Parcel Service, and other express carriers.
SHIPPING. MBE Centers also offer shipping service through UPS
and other carriers, and can assist the customer in selecting the
most appropriate and effective method of sending parcels. MBE
Centers advise customers as to the packaging requirements of the
various carriers, provide packaging of items for shipment, and sell
packaging materials and postal supplies.
BUSINESS SUPPORT PRODUCTS AND SERVICES. Businesses of all
sizes and small office/home office workers are often major users of
an MBE Center. A small business typically cannot afford its own
mail room and shipping department nor can it afford to incur the
overhead expense associated with running a fully equipped office.
MBE Centers provide a small business with a variety of business
services and products such as telephone message service, notary
public, word processing, copying and printing services and office
supplies through a national vendor.
COMMUNICATIONS SERVICES. MBE Centers offer customers a wide
range of communications services such as fax, voice mail, pagers,
and wire transfer of funds. Facsimile machines are required in all
MBE Centers and provide both fax transmission and reception
services for customers.
CONVENIENCE ITEMS AND SERVICES. MBE Centers generally offer
convenience items such as postage stamps, envelopes, rubber stamps,
passport photos, film processing, and key duplication, as well as
office supplies, greeting cards, and other related gift items.
THE MBE CENTER FACILITY
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The typical MBE Service Center is an 800 to 1500 square foot
facility. MBE Centers are generally located in highly visible
locations in strip centers or in high foot traffic downtown areas.
The standardized design of new Centers is used to control and
improve Center appearance. The Company has a computerized design
department which utilizes custom computer aided drafting and design
(CAD) programs to improve the efficiency of MBE Center layouts.
Layout of Centers basically consists of a customer area in front
with 24 hour accessible mailboxes and copying area, and a secured
service/retail lobby adjacent. The rear area contains equipment,
package storage, and work areas. Actual construction of each Center
is arranged and paid for by the individual franchise owner. The
Company provides limited financing to qualifying franchisees
through its equipment leasing program to enable franchise owners to
construct and equip new MBE Centers. As of April 30, 1995, the
Company was providing financing to approximately 1,355 of its
individual franchise owners under its leasing program.
The Company has made arrangements with several national
vendors which manufacture display and cabinetry fixtures, making
them more readily available for timely distribution and
facilitating the uniform appearance of the Centers. Design
compliance is monitored by the Company, and research and
development efforts are being continued to improve efficiency,
productivity and profitability of the Centers.
To assist new franchise owners in the construction of their
MBE Centers, the Company has developed a prefabricated modular
design package, which includes walls, cabinets, display systems and
other fixtures. The modular design construction package, which can
be shipped directly to the site of the new Center, expedites
construction, helps control costs, and assists in maintaining a
standard appearance for all MBE Centers.
SOFTWARE DEVELOPMENT
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The Company has developed and continues to develop software
programs designed to assist franchisees in the operation of their
businesses and to reduce the volume of paper transactions. With
MBEnet, a wide area network that links each MBE Center with every
other MBE Center and the Company, each user is able to communicate
in a paperless environment. A customized manifesting system has
also been developed for use in each MBE Center to control the
package handling and shipping operations.
In FY95, the Company developed a customized accounting system
that automates the accounting functions of an MBE Center. The new
customized accounting system will be released during FY96 for use
in MBE Centers.
DOMESTIC FRANCHISE DEVELOPMENT
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In the United States, the Company offers both individual and
area franchises with protected franchise areas or territories. MBE
Centers are currently located in all 50 states, including the
District of Columbia and Puerto Rico. The typical franchise area
for an individual franchise generally contains a population of
approximately 15,000 to 30,000, while area franchises generally
encompass a minimum population of approximately 250,000. Area
Franchisees are granted exclusive rights to sell individual
franchises in their protected areas and provide start-up assistance
and continuing support to the individual franchise owners in those
areas. The Company locates franchise owner prospects through
advertising, referrals from existing franchise owners, and the
marketing efforts of the Company's Area Franchise owners and other
independent contractors.
The following table sets forth the number of individual
franchises sold for each of the years indicated by the Company and
by the Area Franchisees.
<TABLE>
INDIVIDUAL FRANCHISES SOLD BY:
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<CAPTION>
Fiscal Year Company Area Franchisees Total
----------- ------- ---------------- -----
<S> <C> <C> <C>
1990 93 194 287
1991 90 197 287
1992 75 232 307
1993 34 300 334
1994 24 246 270
1995 23 289 312
</TABLE>
The Company believes that there is still substantial
opportunity for expansion, and in FY95, 312 new individual
franchises were sold. The MBE Area Franchise Network in the United
States is essentially built out and the Company does not expect to
receive any additional material revenues from the sale of
additional Area Franchises in the United States. However, the
Company will continue to sell smaller additional territories to
existing Area Franchisees who wish to expand and increase the size
of their existing Area Franchise exclusive territories.
NEW FRANCHISE MARKETING PROGRAMS. Several new programs have
been designed and implemented to assist the Company to achieve its
goal of 5,000 MBE Centers worldwide by the year 2000. These
programs include the Conversion Store Program, which targets
potential independent operators in the industry to convert to an
MBE franchise; the Host Store concept which locates MBE Centers
within another retail environment; the Corporate Tour Program, in
which potential franchisees are invited to attend a tour of the
Corporate headquarters in San Diego and receive formal
presentations by key departments; and the National Business
Opportunity Month involving national advertising and local area
business opportunity seminars. The Company ended its VetFran
Program in FY95, but continues to provide special financing to
assist retired or discharged U.S military personnel in purchasing
an MBE Franchise. During FY95, the Company assisted 12 veterans in
purchasing MBE Franchises, easing the transition from the military
to the private sector. The Company also provides a PostFran
Program to assist displaced or retired postal workers in purchasing
an MBE Franchise. During FY95, the Company assisted one former
postal worker in purchasing an MBE Franchise.
INTERNATIONAL DEVELOPMENT. The Company's first international
Master License was sold in 1988 for the license rights to open MBE
Centers in Canada. There are currently 16 MBE area franchises in
Canada, and the Canadian MBE Master Licensee recently celebrated
the opening of the 140th MBE Center in Canada.
MBE now has Master Licensees in 47 countries and territories,
including Australia, Brazil, France, Italy, Mexico, Spain, the
United Kingdom, several countries in Asia, and most countries in
the Middle East and South America. A total of approximately 79
Area Franchises have been sold by the MBE Master Licensees. There
are now over 325 MBE Centers operating outside of the United States
under the direction of the MBE Master Licensees and the Network
remains in its early stages of international development.
Although the MBE concept has been proven in the United States,
the concept sometimes develops more slowly in other countries due
to a variety of market and operational factors. The MBE Master
License that was sold in Japan in 1989 was re-acquired by MBE 3
years later. The Company also reversed the sale of the MBE Master
License for Germany. Both of these situations were due to the
Master Licensees' failure to effectively implement MBE business
systems in the local markets. MBE Canada also experienced similar
difficulties in its early stages, but following a transfer of the
license, the MBE network in Canada is growing steadily under its
current master licensee, who took possession of the Canadian master
license in 1990. The Company remains confident of the viability of
the MBE concept internationally and is continuing its discussions
with interested parties in other countries concerning the purchase
of MBE master licenses.
FRANCHISE AGREEMENTS AND FEES. Each individual franchise
owner in the United States enters into a franchise agreement with
the Company. The individual franchise agreement requires payment
of an initial franchise fee, which is currently $24,950.
Individual franchise owners pay a monthly royalty of 5 percent of
gross revenues, with the exception of certain items having low
profit margins, such as stamps and monies held in trust (for
example, Western Union and American Express money orders) upon
which the 5 percent royalty relates only to gross profit margins.
In addition, under Franchise Agreements signed prior to
approximately June 1, 1994, individual franchise owners were
required to pay a common advertising fee of 2 percent of monthly
gross revenues. One half, or 1 percent, of those fees are used as
a marketing fund by the Company for the development of advertising
and marketing materials to increase sales at MBE Centers and to
promote the MBE Network, and the other half was held in trust by
the Company for the benefit of the franchise network and disbursed
to the local MBE advertising associations as matching funds for
specific common advertising programs. By early FY95, over 85% of
the MBE franchise owners had agreed to amend their franchise
agreements to increase their advertising marketing contributions by
an additional 1.5% for the duration of a national advertising test
program which was scheduled to end November 30, 1996. The Company
expects that a significant majority of Franchise Owners will elect
to continue support of the national advertising (National Media
Fund Program) thereafter. The total marketing/media fees now
total 3.5% of gross revenues (as contrasted to 2% previously) and
a portion of these funds amounting to 2.5% are contributed to the
National Media Fund, which is discussed in more detail below. All
new MBE individual franchisees sign franchise agreements providing
for marketing/media fees of 3.5% of gross revenues. By the end of
FY95, over 90% of the MBE Center Owners were participating in the
National Media Fund.
The franchise agreement has an initial term of ten years, and
currently provides the franchise owner with an option to renew for
additional ten year terms. With the approval of the Company, the
franchise owner has the right to sell the Center and to transfer
and assign the franchise agreement. The Company has a right of
first refusal to purchase the Center in the event of a proposed
sale.
The area franchise agreement requires an initial franchise fee
based upon several factors, including population and other
demographic factors in the designated geographic region. A
significant portion of the area franchise fee, up to 50%, is often
financed by the Company under a promissory note at market rates of
interest, with the note typically being paid over three to five
years.
In addition to payment of the area franchise fee, Area
Franchise owners are also required to own and operate an MBE Center
for which they pay the standard $24,950 individual franchise fee.
After receiving training from the Company, the Area Franchisee
assumes responsibility for individual franchise marketing, site
selection, facility construction, in-store training and continuing
local support of the individual franchise owners in the Area
Franchisee's exclusive area. The Company believes the terms of the
area franchise agreement provide the Area Franchisee with
guidelines and incentives to develop and maintain good
relationships with the individual franchise owners. By using the
area franchising concept, the Company believes that it has achieved
a more rapid growth rate than would have been possible if the
Company were required to perform all of its franchise marketing and
support services throughout the country.
Forty percent (40%) of individual franchise fees are paid as
commissions to the Area Franchisee and the remaining sixty percent
(60%) is retained by the Company. The individual franchise royalty
fee of five percent (5%) is divided equally between the Company and
the Area Franchisee. All franchise fees and royalties are paid
directly to the Company, and the appropriate portion is then
remitted to the Area Franchisee. For individual franchise centers
in locations which have not yet been sold to an Area Franchisee,
all fees and royalties are retained by the Company.
As of April 30, 1995, the Company was providing financing for
approximately 58 area franchisees who met MBE's qualifying
requirements. Generally, this financing is for approximately one-
half of the value of the Area Franchise. None of the Area
Franchisees are affiliates of the Company, although the Company has
in the past re-purchased several Area Franchises and may resell
them or operate them as Company-owned Area Franchises. In
connection with the sale of new Area Franchises, the Company
expects to continue its practice of financing a portion of the
franchise fee for qualified Area Franchisees. In FY95 the Company
purchased selected areas from existing Area Franchisees. These
purchases will provide the Company with the benefit of the full
amount of royalties and receipt of sales commissions from the sale
of new franchises in those areas.
FRANCHISE SUPPORT. Although the Company's franchise
agreements contain provisions designed to assure quality of
operation, the Company has less control over franchise operations
and personnel than it would if it owned and operated each MBE
Center. The Company, therefore, attempts to continuously improve
and standardize the operating methods it recommends to its
franchisees. The Company's Training Department currently offers
individual franchise owner, Area franchisee, and international
training programs. MBE University opened in August 1989 at the
national training facility located at the Corporate offices in San
Diego. The University ("MBEU") curriculum focuses on small
business management skills. Basic retail, computer, sales,
telephone and customer service skills are taught in addition to
business planning. A series of both audio and videotapes have been
produced to help train new franchise owners and their employees.
The individual Franchise Owner training program is mandatory
for all new franchisees, purchasers of existing centers
(transferees), and conversions from independents to MBE Centers.
The individual Franchise Owner training program currently consists
of three days of observing operations in an MBE Center, two weeks
of classroom instruction, and one week of in-center hands-on
training. Upon successful completion of the intensive training
program, a "Masters in Business Excellence" (MBE) is awarded. The
Company currently owns three MBE Centers located in San Diego,
California, which are used to test market new products and
services. These Company Centers may also be utilized for in-store
work experience of new franchise owners who do not have an Area
Franchise owner.
PRODUCT MARKETING. The Company has developed a comprehensive
advertising kit, which consists of a series of advertising copy
artwork and similar promotional materials that can be combined by
the franchise owner to create a wide variety of newspaper and
magazine advertisements and flyers. In addition to the advertising
kit, the Company has created radio and television advertisements,
numerous pamphlets and flyers, and in-store posters for franchise
owners. Advertising generated by franchise owners is reviewed by
the Company to assure proper use of logos, trademarks and service
marks. The Company uses a system of pilot field testing of products
and marketing techniques to improve franchisee sales and margins.
NATIONAL MEDIA FUND. As of the end of FY95, over 90% of the
MBE Centers were signed up for a 30 month test program to fund a
national advertising program involving advertising on national
broadcast media. To finance the national advertising program, the
Company in FY94, with the consent and approval of over 85% of the
MBE Network, agreed to establish a National Media Fund. Under this
test program, each participating MBE franchisee agreed to increase
its aggregate marketing media contributions from 2% of revenues
subject to royalty to 3.5% of revenues subject to royalty. Of the
3.5%, 1% will continue to be used as a marketing fund, and 2.5%
will be contributed to the National Media Fund to be used for
national broadcast media advertising. This advertising is designed
to target consumers, as well as small and home-based business
operators, in order to increase MBE Center traffic and attract new
customers.
NATIONAL ACCOUNT CLIENTS. The Company has developed a "TOTAL
SERVICES PROGRAM" for National Accounts in which both the customers
and employees of national corporations can avail themselves of the
services and products of MBE Centers across the country to obtain
access to a large nationwide network of MBE Center locations. The
Company currently has national account agreements with a number of
major corporations, including Xerox, Hewlett-Packard, Canon U.S.A.,
Ricoh, Nintendo, Philips Consumer Electronics, Thomson Consumer
Electronics, Panasonic, Insurance Express, Toshiba, and Mita
Copystar. The services commonly offered are as follows:
PACKING AND SHIPPING - Designed to support the equipment
maintenance and repair service industry, the program offers
nationwide locations for customers and employees to drop off
products to be packed and shipped for maintenance/repair and
to receive the serviced products at MBE locations for pickup.
This service also supports the needs of field technicians and
sales representatives. The program adds significant value to
the national accounts as an extension of their service
organizations while supporting the need to consolidate
operations and improve cost-efficiency.
BUSINESS COMMUNICATIONS - Directed at financial institutions
such as insurance companies, major banks and credit card
companies, the program offers a nationwide network of
locations where customers and employees may receive, review,
sign and return documents at a conveniently located MBE
Center.
MERCHANDISE RECEIVING AND PRODUCT DISTRIBUTION - Directed at
the catalog and mail order industries, this program offers
nationwide locations for customers who want a local MBE Center
to receive parcels and hold for pickup.
MBE CORPORATE CARDS FOR OFF-SITE OFFICE NEEDS - Targeted at
companies with large field technical and/or sales
organizations, the program offers a logistics and off-site
office network and is also designed to support the office and
depot needs of the corporate employee operating out of a home
office. The MAIL BOXES ETC. "TSP" (Total Services Program)
corporate card authorizes national account employees to
purchase products and services at MBE Centers nationwide under
national contract pricing, standardized procedures and
centralized billing. Companies such as Hewlett-Packard have
signed up with the MBE TSP card, recognizing the value of
increased productivity and improved cost-efficiencies.
AIRLINE TICKET DISTRIBUTION. During FY93, the Company began
a test program for the distribution of airline tickets from local
MBE Centers. The Company entered into agreements with the Airline
Reporting Corporation, United Airlines, USAir, American Airlines
and various travel agencies, and began a test pilot program in Los
Angeles in the summer of 1993. The test program was expanded to
include San Francisco, Denver and Chicago. However, because of the
relatively low volume of tickets sold and the emergence of
"ticketless travel" by various airlines, the Company decided to
discontinue the program during FY95.
COPYRIGHT, TRADEMARKS, SERVICE MARDS. The Company is the
owner of federal and, where appropriate, state registered
trademarks and servicemarks, which include Mail Boxes Etc., Mail
Boxes Etc. USA, MBE, Minute Mail, MBE and World Globe Design, The
Post Office Alternative, MBE and Square Globe design, Money Back
Express, Minutemail, Big Or Small, We Ship It All, and TicketNet.
The Company has also developed various symbols or icons
representing MBE services and has obtained copyright registration
for those symbols. The Company filed for trademark registration
for the servicemarks America's Premier Service Distribution
Network; It's Not What WE Do, It's How We Do It, We're The Biggest
Because We Do It Right, and plans to file for trademark protection
for other marks as developed. The Company is aware of a few
limited geographic areas in which the use of the Mail Boxes Etc.
name by others apparently predates the Company's rights, but does
not consider such areas material to the future expansion of the
Company's business. The Company has also applied for registration
in foreign countries where it has expanded and plans to expand the
MBE Network. In Canada, the Canada Post Corporation is opposing
the Company's registration of its Marks and the Company has
instructed its Canadian trademark counsel to resist the opposition
and proceed with the registration efforts.
COMPETITION. The Company faces competition primarily from
independent service centers or smaller franchising chains offering
similar services. The elements of the Company's franchising
approach and the operations of an MBE Center are not unique or
patentable and can be imitated by others. In addition, the Company
believes that companies with substantially greater resources and
marketing capability could readily enter the market and eventually
provide substantial competition on a national basis.
The Company does not view the U.S. Postal Service or other
foreign postal services as direct competitors. Although the
Company offers similar services, such as private mail receiving
service and parcel handling, neither the U.S. Postal Service nor
foreign postal services generally offer ancillary business support,
communications and personal services offered by MBE Centers.
However, the Company cannot predict future programs, if any, that
the United States Government or foreign governments might add to
existing postal service operations. Canada Post Corporation, for
example, has announced plans to sell franchises similar to the
United States Postal Service contract stations. While the U.S.
Postal Service contract stations, in the past, have not been a
significant competitive threat to MBE Centers in the United States,
the U.S. Postal Service has begun to establish facilities which
have a similar appearance to MBE Centers and, in some cases,
provide similar services, including packaging and shipping.
GOVERNMENTAL REGULATION. The Federal Trade Commission has
adopted a rule that requires franchisors to make certain
disclosures to prospective franchise owners prior to the offer or
sale of franchises. This rule requires the disclosure of
information necessary for a franchise owner 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 in recent years adopted laws regulating
franchise operations and the franchisor - franchisee relationship,
and similar legislation is pending in the U.S. Congress and several
other states. Existing laws and pending proposals 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. These laws generally
apply to both area and individual franchises. Although the
foregoing matters may result in some modification in the Company's
franchising activities and some delays or failures in enforcing
certain of its rights and remedies under certain area or individual
franchise agreements, such modifications, delays or failures have
not had a material adverse effect on the Company's operations or
business. However, the law applicable to franchise operations and
relationships is still developing, and the Company is unable to
predict the effect, if any, on its operations of additional
requirements or restrictions that may be enacted or promulgated or
of court decisions that may be adverse to the franchise industry.
ITEM 2 : PROPERTIES
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Currently the Company's executive offices are located in a
60,000 square-foot three-story office building. Approximately
3,000 square feet of space is leased to other tenants. The
Company purchased the building during fiscal year 1992 for $3.2
million and built out the building at a cost of approximately $1.9
million. The Company believes the building will be adequate to
accommodate its current employees and any near term expansion.
The Company operates a warehouse and one storage facility
which provide approximately 10,000 square feet. The Company pays
a base rent of $3,975, subject to annual formula increases, for the
warehouse storage facilities.
ITEM 3 : LEGAL PROCEEDINGS
- --------------------------
In November 1988, a suit styled Kellert v. Mail Boxes Etc. USA
et al. was filed in New York State Supreme Court (trial court for
New York County), by one of the Company's franchisees against the
Company, an Area Franchisee, and several individual officers of the
Area Franchisee. Plaintiff seeks rescission of the franchise
agreement and damages in excess of $425,000, alleging that the
defendant Area Franchisee failed to provide plaintiff with an
offering prospectus in violation of New York State franchise law
and made false representations regarding revenues, earnings and
profits from both existing and new franchise centers.
In response to the Company's prior termination notice to the
plaintiff franchisee for non-payment of royalties, the plaintiff
franchisee also secured a temporary restraining order pending their
motion for a preliminary injunction to prevent the termination of
the franchise. In December 1988, the plaintiff dropped its request
for a preliminary injunction to prevent termination of the
franchise. Plaintiff thereafter abandoned its franchise center and
acknowledged the termination of the franchise agreement. The
franchise center has been sold to a new franchisee and the
defendants have dropped their counter claims against the Plaintiff
as part of the Agreement regarding the sale of the store and
disposition of the sales proceeds. Depositions have been taken,
but the case is still in the discovery stage. In January 1993,
the case was taken off the civil active list by the court. The
Plaintiff filed a motion to restore the case, and the Company has
opposed the motion. The defendants believe the suit is without
merit and will vigorously defend against it.
In October 1993, a suit entitled Helm et al. v. Mail Boxes
Etc. was filed in Superior Court in San Diego, California, by nine
individuals claiming to be current or former franchisees against
the Company. The plaintiffs alleged fraud in the inducement,
concealment, breach of contract, unfair business practices, breach
of fiduciary duty, and breach of the implied covenant of good faith
and fair dealing and sought general and punitive damages,
injunctive relief and restitution. By stipulation of the parties,
this action was consolidated for discovery with a prior action
entitled Mail Boxes Etc. U.S.A., Inc. v. B.J. Postal Services
Corporation, which was a suit by the Company against a franchisee
in South Carolina to collect royalties and other fees from the
franchisee. That suit was brought by the Company in Superior Court
in San Diego, California in April 1993. The defendant franchisee
in that case filed an Answer and Cross-Complaint against the
Company making the same general allegations as made in the above
case, Helm et al. v. Mail Boxes Etc.
The Company filed a demurrer to the defendant franchisee's
Cross-Complaint in B.J. Postal Services, and the Court dismissed
the defendant's causes of action for fraud, breach of contract, and
breach of the implied covenant of good faith and fair dealing, but
granted the defendant leave to amend their Cross-Complaint. The
Court dismissed the breach of fiduciary duty claim without leave to
amend but refused to dismiss the unfair business practice claim.
On November 29, 1993, the defendant franchisee in B.J. Postal
Services filed a second Amended Cross-Complaint, to which the
Company unsuccessfully demurred. The Company filed an answer and
discovery has commenced.
On November 30, 1993, the plaintiff franchisees in Helm, filed
an Amended Complaint, in which three additional franchisee
plaintiffs were added. Pursuant to an agreement between counsel,
on March 1, 1994, plaintiff franchisees in Helm filed a Second
Amended Complaint adding six additional franchisee plaintiffs. On
April 15, 1994, the Company filed an Answer and a Cross-Complaint
against a majority of the franchisee plaintiffs seeking relief for
breach of contracts, breach of equipment leases, indemnity,
inducing breach of contract, tortious interference with contractual
relations and common counts. The cross defendants have filed an
Answer. The Company has resolved the dispute with one of the
Franchisee plaintiffs who has since dismissed his claims against
the Company.
Preliminary discovery efforts have continued in the Helm and
B.J. Postal Services suits, which involve claims by approximately
18 individual franchise owners. In an effort to help resolve the
cases, the Court indicated that it will proceed with test trials
for four of the individual franchisees. Those cases are now
expected to go to trial in February 1996.
In August 1994, a suit entitled Conklin, et al. v. Mailboxes
Etc. USA, Inc. was filed in Superior Court of California, in San
Diego County, by a group of nine present and former franchisees.
The complaint alleges fraud in the inducement/concealment,
breach of contract, unfair business practices, and breach of the
implied covenant of good faith and fair dealing. Before filing an
answer, the Company filed a motion in this action asking the court
to dismiss certain claims and certain of the plaintiffs as
improper. Each of the plaintiffs is seeking compensatory damages
in an unspecified amount, punitive damages, and damages for
emotional distress.
The Company's motion in the Conklin suit requesting the Court
to dismiss certain claims and certain of the plaintiffs was granted
in part and denied in part. One franchisee plaintiff was dismissed
from the action and the claims of another franchisee plaintiff were
dismissed with an opportunity to amend. The remainder of the
franchisee plaintiffs were also granted an opportunity to replead
their fraud claims with greater specificity and to replead the
majority of their contract-based claims to state a cause of action.
The claims in Conklin are essentially the same as the claims
made in the Helm and B.J. Postal Services cases, all of which have
been brought on behalf of the franchisees by the same attorney.
All of those cases are before the same trial judge in San Diego
Superior Court. The pleadings by the Plaintiffs in Conklin have
not been finalized and the Company has not yet answered or filed a
Cross-Complaint.
The Company has also become subject to various other lawsuits
and claims from its franchisees and employees in the course of
conducting its business. An estimate of the possible loss or range
of loss from the adverse disposition of all of the lawsuits and
claims against the Company cannot be made, but any such loss could
have a material adverse effect on the Company's results of
operations. Management does not believe, however, that any such
loss would result in a material adverse effect on the Company's
financial position or liquidity.
ITEM 4 : SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during
the fourth quarter of fiscal year 1995.
ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------
<TABLE>
The executive officers of the Company are as follows:
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael Dooling 50 Chairman of the Board
of Directors
Anthony W. DeSio 65 Vice Chairman, President and
Chief Executive Officer.
Roger A. Peters 49 Assistant to the President
Robert J. DeSio 60 Vice President - Franchise
Services
Gary S. Grahn 51 Vice President - Finance and
Administration and
Chief Financial Officer
Fred L. Morache 52 Vice President - Business
Development
Bruce M. Rosenberg 48 Vice President, General Counsel
and Secretary
William Lange 48 Vice President - Marketing
Ralph R. Askar <F1> 50 Vice President - Franchise
Development
Kenneth C. Sully <F2> 45 Vice President - Franchise
Development
Anthony W. DeSio and Robert J. DeSio are brothers.
<FN>
<F1>
Assumed position June 19, 1995
</FN>
<FN>
<F2>
Resigned position effective April 30, 1995
</FN>
</TABLE>
Officers serve at the pleasure of the Board. Biographical
information concerning Messrs. Michael Dooling, Anthony W. DeSio,
and Robert J. DeSio is set forth under the caption "ITEM NO. 1 -
ELECTION OF DIRECTORS - BIOGRAPHICAL INFORMATION" in the Company's
definitive Proxy Statement for its Annual Meeting of Shareholders
to be held August 25, 1995, and is incorporated by reference
herein.
Roger A. Peters joined MBE as Assistant to the President in
January 1995. Prior to joining MBE, Mr. Peters served in a variety
of management functions with Health and Tennis Corporation of
America, the owner/operator of some 350 fitness centers located
throughout North America where he worked since 1990. From 1986 to
1990 Mr. Peters served as President of Developrise Incorporated, a
franchisee/sub-franchisor of two different nationally known
restaurant concepts and one national service concept. Before that,
Mr. Peters served as Director, Domestic and Foreign Development at
Burger King Corporation, an international restaurant chain. Mr.
Peters has over twenty-five years of retail and franchise system
management experience. Mr. Peters has a Bachelor of Arts Degree in
Business Administration from Cleary College and received a
postgraduate degree in Real Estate from the University of Michigan.
Gary S. Grahn joined the Company on July 1, 1992, as Vice
President, Finance and Administration and Chief Financial Officer.
Prior to joining the Company, Mr. Grahn was Vice President,
Director of Finance and Administration for Photon Research
Associates, Inc. in San Diego, California, where he had worked
since 1985. Mr. Grahn has twenty years experience in finance and
administrative positions and eleven years in financial management
positions. Mr. Grahn received a Bachelor of Business
Administration degree in Business and Economics and an MBA in
Finance and Marketing from California Western University, and a
Certificate in Information Systems from the University of
California in San Diego.
Fred L. Morache joined the Company as Vice President of
Marketing in September 1989. Prior to joining MBE, Mr. Morache had
his own advertising and marketing consulting firm. From 1985 to
1989 he was Vice President of Advertising for Coldwell Banker
Residential Real Estate, a national franchisor of real estate
offices. Mr. Morache also worked as an advertising executive for
McCann-Erickson and Grey Advertising, both national advertising
agencies. From 1973 to 1981, Mr. Morache worked for McDonald's
Corporation, an international restaurant chain, at various
positions in their marketing department. Mr. Morache has a
Bachelor of Arts degree from Illinois State University and a Master
of Arts degree in Journalism from the University of Missouri.
Bruce M. Rosenberg has been Vice President and General Counsel
since August 1989 and Corporate Secretary since February 1989.
Prior to joining MBE as Corporate Counsel in July 1988, Mr.
Rosenberg was an attorney for the San Diego Gas & Electric Company
and prior to that, he was employed as an attorney with Combustion
Engineering, Inc. and with the Tennessee Valley Authority. Mr.
Rosenberg received a Bachelor of Engineering Degree from The Copper
Union, a Master of Science Degree from the University of Illinois,
and a Juris Doctorate Degree from Catholic University of America.
Kenneth C. Sully joined the Company as Vice President of
Franchise Development in January 1990. From 1985 to 1989, Mr.
Sully was Director and Vice President of Franchising for CelluLand,
a cellular telephone retail sales and service company. During the
period 1984 to 1985, Mr. Sully was employed as Sales Manager for
Entre Computer franchisees, and from 1982 to 1984 he was employed
by Creative Systems and Barrett Fox Company in the microcomputer
industry. Mr. Sully has written and produced corporate training
and marketing films and held the position of Division Training
Manager for the Southland Corporation, franchisor of 7-Eleven food
stores Mr. Sully has a Bachelor of Arts degree in Business
Administration from the University of Akron. Mr. Sully resigned
his position at Mail Boxes Etc. effective April 30, 1995.
Ralph R. Askar joined the Company as Vice President -
Franchise Development in June 1995. Before that time, he was an
MBE Area Franchisee for the Colorado, Wyoming and Montana Areas
beginning in 1987. As an Area Franchisee, Mr. Askar received the
MBE "Franchisee of the Year" award in 1994 and the Highest Sales
Award in 1992, 1993 and 1994. He also acted as an MBE Approved
Consultant for Oklahoma, Oregon, Washington State, France and
Italy. Mr. Askar received his Bachelor of Science Degree in 1969
from Chicago Technical College and worked as a civil engineer/
consultant/project manager from 1969-1977. Mr. Askar was a Civil
Engineer and Consultant for Ellis-Murphy, Inc. and Schumacher &
Bowman, Inc. in Arizona.
William Lange joined the Company as Vice President--General
Manager of MBE Service Corp. in August 1990. Prior to joining MBE,
Mr. Lange was Vice President of Marketing for a San Diego based
firm engaged in the business of electronic filing of income tax
returns with the federal government. Mr. Lange worked as Vice
President, General Manager of Schey Advertising from 1987-1988 and
was President of Augusta Advertising in Houston, Texas from 1981-
1987, both national advertising agencies. From 1975-1981, Mr.
Lange was Director of Advertising and Public Relations for Porta-
Kamp MFG. Co., an international oil field supply company. From
1970 to 1975, Mr. Lange was a United States Naval Aviator. Mr.
Lange has a Bachelor of Arts in Humanities from Saint Lawrence
University (N.Y.).
PART II
-------
Certain information in Part II is included in the
Company's Annual Report to Shareholders for the year
ended April 30, 1995, included herein as Exhibit 13.1,
which information is hereby incorporated by reference.
ITEM 5 : MARKET FOR THE REGISTRANT'S COMMON EQUITY
--------------------------------------------------
AND RELATED SHAREHOLDER MATTERS
-------------------------------
There is hereby incorporated by reference the information
appearing under the caption "Common Stock Data" in the Company's
Annual Report to Shareholders for the year ended April 30, 1995,
included herein as Exhibit 13.1. As of July 3, 1995 there were
approximately 992 holders of record of the Company's Common Stock.
ITEM 6 : SELECTED FINANCIAL INFORMATION
---------------------------------------
This information is located in the Annual Report to
Shareholders under the caption "Five Year Summary of Selected
Financial Data".
ITEM 7 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF
------------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
This information is located in the Annual Report to
Shareholders under the caption "Management's Discussion and
Analysis."
ITEM 8 : FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
This information is located in the Annual Report to
Shareholders on pages 10 to 24.
ITEM 9 : CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
------------------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
Not Applicable
PART III
--------
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------
There is hereby incorporated by reference the information
appearing in the Company's definitive Proxy Statement (filed or to
be filed with the Securities and Exchange Commission within 120
days after April 30, 1995), for its Annual Meeting of Shareholders
to be held August 25, 1995. Information concerning executive
officers who are not members of the Company's Board of Directors is
provided as an Additional Item in Part I of this report on Form
10-K under the subcaption "Executive Officers of the Registrant".
ITEM 11 : EXECUTIVE COMPENSATION
--------------------------------
There is hereby incorporated by reference the information
appearing in the Company's definitive Proxy Statement (filed or to
be filed with the Securities and Exchange Commission within 120
days after April 30, 1995), for its Annual Meeting of Shareholders
to be held August 25, 1995.
ITEM 12 : SECURITY OWNERSHIP OF CERTAIN
---------------------------------------
BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------
There is hereby incorporated by reference the information
appearing in the Company's definitive Proxy Statement (filed or to
be filed with the Securities and Exchange Commission within 120
days after April 30, 1995), for its Annual Meeting of Shareholders
to be held August 25, 1995.
ITEM 13 : CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The Company is currently involved in two transactions with
Ralph R. Askar, who assumed the position of Vice President -
Franchise Development for the Company in June 1995.
Before assuming that position, Mr. Askar had owned the MBE
Area Franchise for the state of Colorado for over seven years. In
January 1995, the Company repurchased the Colorado Area Franchise
from Mr. Askar for the sum of $1.7 million. Mr. Askar received an
$800,000 initial payment, with the balance of $900,000 to be paid
over ten years at an interest rate of 8%.
In May 1995, in connection with Mr. Askar's acceptance of his
position as Vice President of Franchise Development, the Company
loaned Mr. Askar $200,000 to assist him in the purchase of his
primary residence in San Diego. That loan, made under a note which
bears interest at 9%, is due and payable in six months.
PART IV
-------
ITEM 14 : EXHIBITS, FINANCIAL STATEMENT SCHEDULE
------------------------------------------------
AND REPORTS ON FORM 8-K
-----------------------
(a) (1) Financial Statements.
The following financial statements are included in and incorporated
by reference from the Company's Annual Report to Shareholders for
the year ended April 30, 1995, as provided in Item 8 of this report
on Form 10-K:
1. Mail Boxes Etc. Consolidated Balance Sheets
at April 30, 1995 and 1994.
2. Mail Boxes Etc. Consolidated Statements of
Income for the fiscal years ended April 30,
1995, 1994 and 1993.
3. Mail Boxes Etc. Consolidated Statements of
Shareholders' Equity for fiscal years ended
April 30, 1995, 1994 and 1993.
4. Mail Boxes Etc. Consolidated Statements of
Cash Flows for the fiscal years ended April
30, 1995, 1994 and 1993.
5. Notes to Consolidated Financial Statements.
(a) (2) Financial Statement Schedule.
The following financial statement schedule is filed in response to
this item:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted as the required information is
inapplicable, not material, or the information is presented in the
financial statements or related notes thereto.
(a) (3) EXHIBITS
The following exhibits are filed with or incorporated by reference
into this report (except as otherwise indicated). The exhibits
which are denominated by an asterisk (*) were previously filed as
a part of, and are hereby incorporated by reference to, the same
numbered exhibits (except as otherwise indicated) in the documents
as identified herein.
Exhibit No. Description
3.1* Restated Articles of Incorporation (Filed
with Form 10-K for the fiscal year ending
April 30, 1992).
3.2 Bylaws, as amended.
10.1* Form of Area Franchise Agreement (Filed
with Registration Statement filed pursuant
to the Securities Act of 1933 (the "1933
Act") on Form S-l, Registration Statement
No. 33-4349 filed March 27, 1986, as
amended by Amendment No. 1, filed May 14,
1986, and Amendment No. 2, filed June 10,
1986 ("S-1 Registration Statement")).
10.2* Form of Individual Franchise Agreement
(Filed with S-1 Registration Statement).
10.5* Restated 1985 Stock Option Plan (Filed
with S-1 Registration Statement as Exhibit
No. 10.7).
10.6* Amended and Restated Stock Purchase and
Salary Savings Plan (Incorporated by
reference to the Company's Information
Statement filed with the Securities and
Exchange Commission on November 3, 1988).
10.8* Form of Master Franchise Agreement.
(Filed with Form 10-K for the year ended
April 30, 1990).
10.9* Sales contract for purchase of new office
facilities. (Filed with Form 10-K for the
year ended April 30, 1991).
10.10* UPS Purchase Agreement for stock and
warrants. (Filed with Form 8-K filed
October 10, 1990).
10.12* Construction contract with Koll
Construction (Filed with the Form 10-K for
the fiscal year ending April 30, 1992.)
10.13* A.W. DeSio Employment Contract (Filed with
the Form 10-K for fiscal year ending April
30, 1992)
10.14* Split Dollar Agreement for A.W. DeSio
(Filed with the Form 10-K for fiscal year
ending April 30, 1992)
10.15* Mail Boxes Etc. 1995 Employee Stock Option
Plan (Filed with the Company's Proxy
Statement dated July 14, 1995 for Annual
Shareholder's Meeting of August 25, 1995)
10.16* Mail Boxes Etc. 1995 Stock Option Plan for
Non-Employee ("Outside") Directors (Filed
with the Company's Proxy Statement dated
July 14, 1995 for Annual Shareholder's
Meeting of August 25, 1995)
13.1 Pages 10 to 24 of the Registrant's Annual
Report to Shareholders for the year ended
April 30, 1995.
23.1 Consent of Ernst & Young LLP, independent
auditors
(b) REPORTS ON FORM 8-K.
None filed during the quarter ended April 30, 1995.
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
MAIL BOXES ETC. AND SUBSIDIARIES
<CAPTION>
COL. A COL. B COL. C COL D. COL. E
Balance at Balance at
DESCRIPTION Beginning ADDITIONS Deductions- End
of Period Describe of Period
(1) (2)
Charged to Costs Charged to Other
and Expenses Accounts-Describe
<S> <C> <C> <C> <C> <C>
Year Ended April 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts
and notes receivable: $1,391,000 $ 759,981 $ 726,984 $ 250,981 $2,626,984
Year ended April 30, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts
and notes receivable: $ 733,000 $1,129,770 $ 471,770 <F3> $1,391,000
Year ended April 30, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts
and notes receivable: $ 695,000 $ 457,420 $ 419,240 <F4> $ 733,000
<FN>
<F3>
Uncollected accounts written off net of recoveries
</FN>
<FN>
<F4>
Uncollected accounts written off net of recoveries
</FN>
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MAIL BOXES ETC.
July 14 , 1995:
by: Anthony W. DeSio
------------------------------------------
Anthony W. DeSio, Vice Chairman,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated:
Signature Title Date
- --------- ----- ----
Michael Dooling Chairman of July 14 , 1995
- ----------------------- the Board, Director ----
Michael Dooling
Anthony W. DeSio Vice Chairman of July 14 , 1995
- ----------------------- the Board, President, ----
Anthony W. DeSio and Chief Executive Officer
Robert J. DeSio Vice-President- July 14 , 1995
- ----------------------- Franchise Services ----
Robert J. DeSio and Director
James F. Kelly Director July 14 , 1995
- ----------------------- ----
James F. Kelly
Daniel L. La March Director July 14 , 1995
- ----------------------- ----
Daniel L. La Marche
Richard J. Greene Director July 14 , 1995
- ----------------------- ----
Richard J. Greene
Gary S. Grahn Chief Financial July 14 , 1995
- ----------------------- Officer, Vice President - ----
Gary S. Grahn Finance & Administration
(Principal Financial and
Accounting Officer)
LIST OF EXHIBITS
----------------
EXHIBIT NO. PAGE
3.2 Mail Boxes Etc. Bylaws, as amended 27-55
13.1 Mail Boxes Etc. 1995 Annual Report to
Shareholders 57-83
23.1 Consent of Independent Auditors
(Ernst & Young LLP) 84
EXHIBIT 3.2
BYLAWS OF
MAIL BOXES ETC.
RESTATED AND ADOPTED AS OF
OCTOBER 1, 1988
(REVISED MAY 23, 1995)
BYLAWS OF
MAIL BOXES ETC.
TABLE OF CONTENTS
Article Section Page
- ------- ------- ----
1. Offices................................................1
1.1 Principal Executive Office........................1
1.2 Other Offices.....................................1
2. Meetings of Shareholders...............................1
2.1 Place of Meeting..................................1
2.2 Special Meetings..................................2
2.3 Notice of Meetings................................2
2.4 Quorum............................................3
2.5 Adjourned Meeting and Notice Thereof..............4
2.6 Record Date.......................................4
2.7 Voting Rights; Cumulative Voting..................5
2.8 Validation of Defectively Called or
Noticed Meetings..................................6
2.9 Action Without a Meeting..........................6
2.10 Proxies...........................................7
2.11 Inspectors of Election............................8
3. Directors..............................................9
3.1 Powers............................................9
3.2 Number and Qualification of Directors............10
3.3 Election and Term of Office......................10
3.4 Vacancies........................................11
3.5 Removal of Directors Without Cause...............12
3.6 Place of Meeting.................................12
3.7 Organizational Meeting...........................12
3.8 Other Regular Meetings...........................12
3.9 Special Meetings.................................13
3.10 Action Without Meeting...........................13
3.11 Action at a Meeting: Quorum and Required
Vote.............................................13
3.12 Validation of Defectively Called or Noticed
Meetings.........................................14
3.13 Adjournment......................................14
3.14 Fees and Compensation............................14
3.15 Indemnification of Agents of the Corporation;
Purchase of Liability Insurance..................15
4. Executive and Other Committees........................17
5. Officers..............................................18
5.1 Officers.........................................18
5.2 Appointment of Officers..........................18
5.3 Subordinate Officers, Etc. ......................18
5.4 Removal and Resignation..........................18
5.5 Vacancies........................................19
5.6 Chairman of the Board............................19
5.7 President........................................19
5.8 Vice President...................................19
5.9 Secretary........................................20
5.10 Chief Financial Officer..........................20
6. Miscellaneous.........................................21
6.1 Inspection of Corporate Records..................21
6.2 Checks, Drafts, Etc. ............................22
6.3 Annual Report....................................22
6.4 Contracts, Etc., How Executed....................22
6.5 Certificate for Shares...........................22
6.6 Representation of Shares of Other
Corporations.....................................24
6.7 Inspection of Bylaws.............................24
6.8 Construction and Definitions.....................24
7. Amendments............................................24
7.1 Power of Shareholders............................24
7.2 Power of Directors...............................24
7.3 Records of Amendments............................25
BYLAWS OF
MAIL BOXES ETC.
ARTICLE 1 - Offices
-------------------
1.1 Principal Executive Office
--------------------------
1.1.1 The principal executive office of the Corporation
shall be located at such place or places as may be designated by
the Board of Directors.
1.2 Other Offices
-------------
1.2.1 Other business offices may at any time be
established by the Board of Directors at any place or places where
the Corporation is qualified to do business.
ARTICLE 2 - Meetings of Shareholders
------------------------------------
2.1 Place of Meeting
----------------
2.1.1 All meetings of shareholders shall be held at the
principal executive office of the Corporation, or at any other
place within or without the State of California which may be
designated by either the Board of Directors or in a written consent
of all persons entitled to vote thereat and not present at the
meeting, given either before or after the meeting, and filed with
the secretary of the Corporation.
2.1.2 The annual meeting of shareholders shall be held,
each year, at the time and on the day set forth below or as
otherwise set by resolution of the Board of Directors:
Time of Meeting: 10:00 a.m. or such other time
as the directors shall
designate by resolution
Date of Meeting: Fourth Friday of August
If this day shall be a legal holiday, then the meeting shall be
held on the next succeeding business day, at the same hour. At
the annual meeting, the shareholders shall elect a Board of
Directors, consider reports of the affairs of the Company and
transact such other business as may properly be brought before the
meeting.
2.2 Special Meetings
----------------
2.2.1 Special meetings of the shareholders for the
purpose of taking any action permitted by the shareholders under
the California General Corporation Law and the Articles
of Incorporation of the Corporation, may be called at any time by
the chairman of the board, president, Board of Directors or by one
or more shareholders entitled to cast not less than 10 percent of
the votes of such meeting. Upon request in writing that a special
meeting of shareholders be called for any proper purpose, directed
to the chairman of the board, president, vice president or
secretary by any person (other than the Board of Directors)
entitled to call a special meeting of shareholders, the officer
forthwith shall cause notice to be given to shareholders entitled
to vote that a meeting will be held (not less than 35 nor more than
60 days after receipt of the request) at a time requested by the
person or persons calling the meeting.
2.3 Notice of Meetings
------------------
2.3.1 Written notice of shareholders meetings, annual or
special, shall be given to each shareholder entitled to vote,
either personally or by mail or other means of written
communication, charges prepaid, addressed to such shareholder at
his address appearing on the books of the Corporation or given by
him to the Corporation for the purpose of such notice. If any
notice or report addressed to the shareholder at the address of
such shareholder appearing on the books of the Corporation is
returned to the Corporation by the United States Postal Service
marked to indicate that the United States Postal Service is unable
to deliver such notice or report to the shareholder at such
address, all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available
for the shareholder upon written demand of the shareholder at the
principal executive office of the Corporation for a period of one
year from the date of the giving of such notice or report to all
other shareholders. If a shareholder gives no address, notice
shall be deemed to have been given him if sent by mail or other
means of written communication addressed to the place where the
principal executive office of the Corporation is situated, or if
published at least once in a newspaper of general circulation in
the county in which said principal executive office is located.
2.3.2 All such notices shall be given to each shareholder
entitled thereto not less than 10 nor more than 60 days before each
meeting of shareholders. Any such notice shall be deemed to have
been given at the time when delivered personally or deposited in
the mail or sent by other means of written communication. An
affidavit of mailing of any such notice in accordance with the
foregoing provisions, executed by the secretary, assistant
secretary or any transfer agent of the Corporation shall be prima
facie evidence of the giving of the notice.
2.3.3 A notice of meeting of shareholders shall specify:
(a) The place, date and hour of such meeting;
(b) Those matters which the Board of Directors, at
the time of the mailing of the notice, intends to present for
action by the shareholders;
(c) If directors are to be elected, the names
of nominees intended at the time of the notice to be presented by
management for election;
(d) The general nature of a proposal, if any, to take
action with respect to approval of (i) a contract or other
transaction between the Corporation and one or more directors, or
any corporation, firm or association in which one or more
directors has a material financial interest, (ii) amendment of the
Articles of Incorporation, (iii) a reorganization of the
Corporation, as defined in the California General Corporation Law,
(iv) the voluntary winding up and dissolution of the
Corporation or (v) a plan of distribution in dissolution other than
in accordance with the rights of outstanding preferred shares,
if the Corporation has both preferred and common stock outstanding;
(e) If a special meeting of shareholders, in addition
to (a) and (c) above, the general nature of the business to be
transacted; and
(f) Such other matters, if any, as may be expressly
required by statute.
2.4 Quorum
------
2.4.1 The presence in person or by proxy of the persons
entitled to vote a majority of the voting shares of the Corporation
at any meeting shall constitute a quorum for the transaction of
business. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken
(other than adjournment) is approved by at least a majority of the
shares required to constitute a quorum.
2.5 Adjourned Meeting and Notice Thereof
------------------------------------
2.5.1 Any shareholders meeting, annual or special,
whether or not a quorum is present, may be adjourned from time to
time by the vote of a majority of the shares, the holders of which
are either present in person or represented by proxy, but in the
absence of a quorum no other business may be transacted at such
meeting, except as provided in Paragraph 2.4.1 above.
2.5.2 When any shareholders meeting, either annual or
special, is adjourned for 45 days or more, or if after adjournment
a new record date is fixed for the adjourned meeting, notice of the
adjourned meeting shall be given as in the case of an original
meeting. Except as provided above, it shall not be necessary to
give any notice of the time and place of the adjourned
meeting or of the business to be transacted thereat, other than by
announcement or the time and place thereof at the meeting at which
such adjournment is taken.
2.6 Record Date
-----------
2.6.1 The Board of Directors shall determine and fix a
time in the future as a record date for the determination of the
shareholders entitled to notice of, and to vote at, any meeting of
shareholders or entitled to give consent to corporate action in
writing without a meeting, to receive any report, dividend or
distribution or allotment of rights, or to exercise rights in
respect to any change, conversion or exchange of shares or to
exercise rights in respect of any other lawful action. The record
date so fixed shall not be more than 60 nor less than 10 days prior
to the date of any meeting nor more than 60 days prior to any other
event for the purposes of which it is fixed.
2.6.2 If no record date is fixed by the Board of
Directors:
(a) The record date for determining shareholders
entitled to notice of, or to vote at, a meeting of shareholders
shall be at the close of business on the business day next
preceding the day on which notice of the meeting is given, or if
such notice is waived, at the close of business on the business day
next preceding the day on which the meeting of shareholders is
held.
(b) The record date for determining shareholders
entitled to give consent to corporate action in writing without a
meeting shall be the day on which the first written consent is
given.
(c) The record date for determining shareholders for
any other purpose shall be at the close of the business on the day
on which the Board of Directors adopts the resolution relating
thereto, or the 60th day prior to the date of such other action,
whichever is later.
2.6.3 Only shareholders of record on the record date are
entitled to notice of, and to vote at, any such meeting, to give
consent without a meeting, to receive any report, dividend,
distribution or allotment of rights, or to exercise the rights, as
the case may be, notwithstanding any transfer of any shares on the
books of the Corporation after the record date, except as otherwise
provided in the Articles of Incorporation of the Corporation or
these Bylaws.
2.7 Voting Rights; Cumulative Voting
--------------------------------
2.7.1 Except as otherwise provided in the California
General Corporation Law or in the Articles of Incorporation of the
Corporation, each shareholder of record on the record date shall be
entitled to one vote for each share on each matter submitted to a
vote of the shareholders. Such vote may be viva voce or by ballot;
provided, however, that all elections for directors must be by
ballot upon demand made by a shareholder at any election and before
the voting begins. Except with respect to election of directors,
the affirmative vote of the majority of the shares represented at
the meeting and entitled to vote on any matter shall be the act of
the shareholders, unless the vote of a greater number of voting by
classes is required by the California General Corporation Law or
the Articles of Incorporation of the Corporation.
2.7.2 Every shareholder complying with the requirements
of this Section 2.7 and entitled to vote at any election for
directors shall have the right to cumulate such shareholder's votes
and give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of votes to which
such shareholder's shares are entitled, or to distribute such
shareholder's votes on the same principle among as many candidates
as such shareholder shall think fit. No shareholder shall be
entitled to cumulate votes unless the name of the candidate or
candidates for whom such votes would be cast has been placed in
nomination prior to the voting and unless a shareholder has given
notice at the meeting, prior to the voting, of intention to
cumulate votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for candidates in nomination.
The candidates receiving the highest number of votes of shares
entitled to be voted for them, up to the number of directors to be
elected, shall be elected.
2.8 Validation of Defectively Called or Noticed Meetings
----------------------------------------------------
2.8.1 The transactions of any meeting of shareholders,
either annual or special, however called and noticed, shall be as
valid as though taken at a meeting duly held after regular call and
notice, if a quorum is present, either in person or by proxy, and
if, either before or after the meeting, each of the persons
entitled to vote, not present in person or by proxy, signs a
written waiver of notice, a consent to the holding of such meeting
or an approval of the minutes thereof. All such waivers, consents
or approvals shall be filed with the corporate records or made a
part of the minutes of the meeting, as appropriate.
2.8.2 Attendance of a shareholder at a meeting of
shareholders shall constitute a waiver of notice of such meeting,
except when such shareholder objects, at the beginning of the
meeting, to the transaction of any business because the meeting was
not lawfully called or convened; except that, attendance at a
meeting is not a waiver of any right to object to the consideration
of matters required to be included in the notice of the meeting but
not so included if such objection is expressly made at the meeting.
2.9 Action Without a Meeting
------------------------
2.9.1 Directors may be elected without a meeting by a
consent in writing, setting forth the action so taken, signed by
all of the shareholders who would be entitled to vote for the
election of said directors; provided that, except as hereinafter
set forth, a director may be elected at any time to fill a vacancy
not created by the removal of a director which is not filled by the
directors, by the written consent of shareholders holding a
majority of the outstanding shares entitled to vote for the
election of directors.
2.9.2 Any other action which, under any provision of the
California General Corporation Law, may be taken at a meeting of
shareholders, may be taken without a meeting and without notice,
except as hereinafter set forth, if a consent in writing, setting
forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
2.9.3 Unless the consent of all shareholders entitled to
vote has been solicited in writing: (a) notice of any proposed
shareholder approval of (i) a contract or other transaction between
the Corporation and one or more directors, or any corporation, firm
or association in which one or more directors has a material
financial interest, (ii) indemnification of an agent of the
Corporation, as authorized by these Bylaws, (iii) a
reorganization of the Corporation, as defined in the California
General Corporation Law, or (iv) a distribution in dissolution,
other than in accordance with the rights of outstanding preferred
shares, if the Corporation has both preferred and common stock
outstanding, without a meeting by less than unanimous written
consent, shall be given at least ten days before the consummation
of the action authorized by such approval; and (b) prompt notice
shall be given of any other corporate action taken and approved by
shareholders without a meeting by less than unanimous written
consent, to those shareholders entitled to vote who have not
consented in writing. Such notices shall be given in the manner
and shall be deemed to have been given as provided in Section 2.3
of these Bylaws.
2.9.4 Any shareholder giving a written consent, or the
shareholder's proxyholder, a transferee of the shares or a personal
representative of the shareholder or their respective proxyholders,
may revoke the consent by a writing received by the Corporation
prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the
secretary of the Corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the secretary of the
Corporation.
2.10 Proxies
-------
2.10.1 Every person entitled to vote or execute written
consents shall have the right to do so either in person or by one
or more agents authorized by a written proxy executed by such
person or his duly authorized agent and filed with the secretary of
the Corporation. Any proxy duly executed is not revoked and
continues in full force and effect until (i) an instrument revoking
it or a duly executed proxy bearing a later date is filed with the
secretary of the Corporation prior to the vote pursuant thereto,
(ii) the person executing the proxy attends the meeting and votes
in person or (iii) written notice of the death or incapacity of the
maker of such proxy is received by the Corporation before the vote
pursuant thereto is counted; provided that no such proxy shall be
valid after the expiration of 11 months from the date of its
execution, unless the person executing it specifies therein the
length of time for which such proxy is to continue in force.
Nothing contained herein shall prohibit a person from granting an
irrevocable proxy consistent with the provisions of the California
Corporations Code.
2.11 Inspectors of Election
----------------------
2.11.1 In advance of any meeting of shareholders, the
Board of Directors may appoint any persons, other than nominees for
office, as inspectors of election to act at such meeting or any
adjournment thereof. If inspectors of election are not so
appointed, the chairman of any such meeting may, and on the request
of any shareholder or his proxy shall, make such appointment at the
meeting. The number of inspectors of election shall be either one
or three. If appointed at a meeting on the request of one or more
shareholders or proxies, the majority of shares represented in
person or by proxy shall determine whether one or three inspectors
are to be appointed. In case any person appointed as an inspector
of election fails to appear or fails or refuses to act, the vacancy
may, and on the request of any shareholder or a shareholders proxy
shall, be filled by appointment by the Board of Directors prior to
the meeting, or at the meeting by the chairman of the meeting.
2.11.2 The duties of such inspectors of election shall
be as prescribed by the California General Corporation Law and
shall include: determining the number of shares outstanding and
the voting power of each, the shares represented at the meeting,
the existence of a quorum, the authenticity, validity and effect of
proxies; receiving votes, ballots or consents; hearing and
determining all challenges and questions in any way arising in
connection with any-right to vote; counting and tabulating all
votes or consents; determining when the polls shall close;
determining the results; and such other acts as may be proper to
conduct the election or vote with fairness to all shareholders. In
the determination of the validity and effect of proxies, the dates
contained on the forms of proxy shall presumptively determine the
order of execution of the proxies, regardless of the postmark dates
on the envelopes in which they are mailed.
2.11.3 The inspectors of election shall perform their
duties impartially, in good faith, to the best of their ability and
as expeditiously as is practical. If there are three inspectors of
election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of
all. Any report or certificate made by the inspectors of election
is prima facie evidence of the facts stated therein.
ARTICLE 3 - Directors
---------------------
3.1 Powers
------
3.1.1 Subject to limitations set forth in the Articles of
Incorporation and the Bylaws of the Corporation and in the
California General Corporation Law as to action to be authorized or
approved by the shareholders or by the outstanding shares, and
subject to the duties of directors as prescribed by these Bylaws,
the business and affairs of the Corporation shall be managed and
all corporate powers shall be exercised by or under the direction
of the Board of Directors. Without prejudice to such general
powers, but subject to the same limitations, it is hereby expressly
declared that the directors shall have the following powers:
(a) To select and remove all officers, agents and employees
of the Corporation, prescribe such powers and duties for them as
may not be inconsistent with law, with the Articles of
Incorporation or the Bylaws, fix their compensation and require
from them security for faithful service;
(b) To conduct, manage and control the affairs and business
of the Corporation, and to make such rules and regulations therefor
not inconsistent with law, the Articles of Incorporation or the
Bylaws, as they may deem best;
(c) To change the principal office for the transaction of the
business of the Corporation from one location to another within or
without the State of California, as provided in Article 1, Section
1.1.1 hereof; to fix and locate from time to time one or more
other offices of the Corporation within or without the State of
California, as provided in Article 1, Section 1.2.1 hereof; to
designate any place within or without the State of California for
the holding of ny shareholders meetings; and to adopt, make and
use a corporate seal, to prescribe the form of certificates of
stock, and to alter the form of such seal and of such stock
certificates from time to time as in their judgment they deem best,
provided such seal and such certificates shall at all times comply
with the provisions of law;
(d) To authorize the issue of stock of the Corporation from
time to time, upon such terms as may be lawful, in consideration
of money paid, labor done, services actually rendered to the
Corporation or for its benefit or in its formation or
reorganization, debts or securities canceled, tangible or
intangible property actually received either by the Corporation or
by a wholly owned subsidiary, or as a share dividend, or upon a
stock split, reverse stock split, reclassification or conversion of
outstanding shares into shares of another class, exchange of
outstanding shares for shares of another class, or other change
affecting outstanding shares;
(e) To borrow money and incur indebtedness for the purposes
of the Corporation and to cause to be executed and delivered
therefor, in the corporate name, promissory notes, bonds,
debentures, deeds of trust, mortgages, pledges, hypothecations or
other evidences of debt and securities therefor; and
(f) To delegate the management of the day-to-day operations
of the business of the Corporation to a management company or other
person, provided that the business and affairs of the Corporation
shall be managed and all corporate powers shall be exercised under
the ultimate direction of the Board of Directors.
3.2 Number and Qualification of Directors
-------------------------------------
3.2.1 The number of Directors of the Corporation shall
not be less than five nor more than nine until changed by amendment
of the Articles of Incorporation or by a bylaw amending the
section, duly adopted by the vote or written consent of holders of
a majority of the outstanding shares entitled to vote; provided
that a proposal to reduce the authorized minimum number of
directors below five cannot be adopted if the votes cast against
its adoption at a meeting or the shares not consenting in the case
of action by written consent, are equal to more than 162/3 percent
of the outstanding shares entitled to vote. The exact number of
directors shall be set from time to time, within the limits
specified in the Articles of Incorporation or in this section by a
bylaw or amendment thereof, duly adopted by the shareholders or by
the Board of Directors; and
3.2.2 Subject to the foregoing provisions for changing
the number of directors, the exact number of directors of this
Corporation shall be seven.
3.3 Election and Term of Office
---------------------------
3.3.1 The directors shall be elected at each annual
meeting of shareholders but, if any such annual meeting is not held
or the directors are not elected thereat, the directors may be
elected at any special meeting of shareholders held for that
purpose. Each director, including a director elected to fill a
vacancy, shall hold office until the expiration of the term for
which elected and until a successor has been elected and qualified,
subject to the provisions of the California General Corporation Law
and these Bylaws with respect to vacancies on the Board.
3.4 Vacancies
---------
3.4.1 A vacancy in the Board of Directors shall be
deemed to exist in any of the following instances:
(a) The death, resignation or removal of any director.
(b) If a director shall have been declared of unsound
mind by order of court or convicted of a felony.
(c) If the authorized number of directors shall have
been increased.
(d) If the shareholders shall fail to elect the full
authorized number of directors.
3.4.2 Vacancies in the Board of Directors, except for a
vacancy created by the removal of a director, may be filled by a
majority of the remaining directors, though less than a quorum, or
by a sole remaining director. Each director so elected shall hold
office until his successor is elected at an annual or a special
meeting of the shareholders. A vacancy in the Board of Directors
created by the removal of a director may only be filled by the vote
of a majority of the shares entitled to vote represented at a duly
held meeting at which a quorum is present, or by the unanimous
written consent of the shareholders.
3.4.3 The shareholders may elect a director or directors
at any time to fill any vacancy or vacancies not filled by the
directors. Any such election by written consent (other than a
vacancy created by the removal of a director) shall require the
consent of holders of a majority of the outstanding shares entitled
to vote.
3.4.4 Any director may resign effective upon giving
written notice to the chairman of the board, the president, the
secretary or the Board of Directors of the Corporation, unless the
notice specifies a later time for the effectiveness of such
resignation; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective. If the resignation is effective at a future time, the
Board or shareholders shall have the power to elect a successor to
take office when the resignation becomes effective.
3.4.5 A reduction of the authorized number of directors
shall not have the effect of removing any director prior to the
expiration of his term of office.
3.5 Removal of Directors Without Cause
----------------------------------
3.5.1 The entire Board of Directors, or any individual
director, may be removed from office by a vote of shareholders
holding a majority of the outstanding shares entitled to vote at an
election of directors; provided, however, unless the entire Board
is removed, an individual director shall not be removed, unless (i)
the number of shares voted against removal or not consenting to
such removal, in the case of a written consent, would be
insufficient to elect such director if voted cumulatively at an
election at which the same total number of votes were cast and the
entire number of directors authorized at the time of such
director's most-recent election were then being elected or (ii)
holders of the shares of any class or series entitled to elect one
or more directors shall vote to remove a director so elected by
said class or series.
3.6 Place of Meeting
----------------
3.6.1 Regular meetings of the Board of Directors shall
be held at any place within or without the State of California
which has been designated in the notice of the meeting or, if not
stated in the notice, or if there is no notice, from time to time
by resolution of the Board of Directors or by written consent of
all members of the Board. In the absence of such designation,
regular meetings shall be held at the principal executive office of
the Corporation. Special meetings of the Board may be held either
at a place so designated or at the principal executive office of
the Corporation.
3.7 Organizational Meeting
----------------------
3.7.1 Immediately following each annual meeting of
shareholders, the Board of Directors shall hold an organizational
meeting at the place of said annual meeting, or at such other place
as shall be fixed by the Board of Directors, for the purposes of
organization, election of officers and the transaction of other
business. Call and notice of such meetings are hereby dispensed
with.
3.8 Other Regular Meetings
----------------------
3.8.1 Other regular meetings of the Board of Directors
shall be held at such time and place as may be determined from time
to time by the Board of Directors. If such date should fall upon
a legal holiday, then the meeting shall be held at the same time on
the next succeeding business day thereafter. Notice of all such
regular meetings of the Board of Directors is hereby dispensed
with.
3.9 Special Meetings
----------------
3.9.1 Special meetings of the Board of Directors for any
purposes may be called at any time by the chairman of if there be
such an officer, the president, any vice the secretary or by any
two directors.
3.9.2 Written notice of the time and place of special
meetings shall be delivered personally to each director or
communicated to each director by telephone, telegraph or mail,
charges prepaid, addressed to him at his address as it is shown
upon the records of the Corporation or, if it is not so shown on
the records or is not readily ascertainable, at the place at which
meetings of the directors are regularly held. In case such notice
is mailed, it shall be deposited in the United States mail or, if
telegraphed, delivered to the telegraph company in the city in
which the principal executive office of the Corporation is located
at least-four days prior to the time of the holding of the meeting.
In case such notice is delivered personally or by telephone, as
above provided, it shall be so delivered at least 48 hours prior to
the time of the holding of the meeting. Such mailing, telegraphing
or delivery, personally or by telephone, as above provided, shall
be due, legal and personal notice to such director.
3.9.3 Any notice shall state the date, place and hour of
the meeting and the general nature of the business to be
transacted, and no other business may be transacted at the meeting.
3.10 Action Without Meeting
----------------------
3.10.1 Any action by the Board of Directors may be taken
without a meeting if all members of the Board shall individually or
collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the
proceedings of the Board and shall be of the same force and effect
as a unanimous vote of such directors.
3.11 Action at a Meeting: Quorum and Required Vote
----------------------------------------------
3.11.1 The presence of a majority of the authorized
number of directors at a meeting of the Board of Directors
constitutes a quorum for the transaction of business, except as
hereinafter provided. Members of the Board may participate in a
meeting through use of conference telephone or similar
communications equipment, so long as all members participating in
such meeting can hear one another. Participation in a meeting as
permitted in the preceding sentence constitutes presence in person
at such meeting. Every act or decision done or made by a majority
of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Directors,
unless a greater number, or the same number after disqualifying one
or more directors from voting, as required by law, the Articles of
Incorporation of the Corporation or these Bylaws.
3.11.2 A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of
a director provided that any action taken is approved by at least
a majority of the required quorum for such meeting.
3.12 Validation of Defectively Called or Noticed Meetings
----------------------------------------------------
3.12.1 The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as
valid as though taken at a meeting duly held after regular call and
notice if a quorum is present and if, either before or after the
meeting, each of the directors not present or who has, though
present, prior to the meeting or at its commencement, protested the
lack of proper notice to him, signs a written waiver of notice or
a consent to holding such meeting or an approval of the minutes
thereof. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of such
meeting.
3.13 Adjournment
-----------
3.13.1 A quorum of the Board of Directors may adjourn
any directors meeting to meet again at a stated day and hour;
provided, however, that in the absence of a quorum, a majority of
the directors present at any directors meeting, either regular or
special, may adjourn from time to time until the time fixed for the
next regular meeting of the Board.
3.13.2 If a meeting is adjourned for more than 24 hours,
notice of any adjournment to another time or place shall be given
prior to the time of the adjourned meeting to the directors who
were not present at the time of adjournment. Otherwise, notice of
the time and place of holding an adjourned meeting need not be
given to absent directors if the time and place is so fixed at the
adjourned meeting.
3.14 Fees and Compensation
----------------------
3.14.1 Directors and members of committees appointed by
the Board may receive such compensation for their services and
reimbursement for expenses, if any, as may be fixed or determined
by resolution of the Board.
3.15 Indemnification of Agents of the
--------------------------------
Corporation; Purchase of Liability Insurance
--------------------------------------------
3.15.1 For the purposes of this Section 3.15, "agent"
means any person who (i) is or was a director, officer, employee or
other agent of the Corporation, (ii) is or was serving at the
request of the Corporation as a director, officer, employee or
agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise or (iii) was a director,
officer, employee or agent of a foreign or domestic corporation
which was a predecessor corporation of the Corporation or of
another enterprise at the request of such predecessor corporation;
"proceeding means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to
indemnification under Paragraph 3.15.4 or 3.15.5(c) of this Section
3.15.
3.15.2 The Corporation shall indemnify any person who
was or is a party, or is threatened to be made a party, to any
proceeding (other than an action by or in the right of the
Corporation to procure a judgment in its favor) by reason of the
fact that such person is or was an agent of the Corporation against
expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred in connection with such proceeding if such
person acted in good faith and in a manner such person reasonably
believed to be in the best interests of the Corporation and, in the
case of a criminal proceeding, had no reasonable cause to believe
the conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent shall not, of itself,
create a presumption that the person did not act in good faith and
in a manner which the person reasonably believed to be in the best
interests of the Corporation or that the person had reasonable
cause to believe that the person's conduct was unlawful.
3.15.3 The Corporation shall indemnify any person who
was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that such person is or was an agent of the Corporation against
expenses actually and reasonably incurred by such person in
connection with the defense or settlement of such action if such
person acted in good faith, in a manner such person believed to be
in the best interests of the Corporation and with such care,
including reasonable inquiry, as an ordinarily prudent person in a
like position would use under similar circumstances. No
indemnification shall be made under this Paragraph 3.15.3:
(a) In respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the
Corporation in the performance of such person's duty to the
Corporation and its shareholders, unless and only to the extent
that the court in which such proceeding is or was pending shall
determine upon application that, in view of all the circumstances
of the case, such person is fairly and reasonably entitled to
indemnity for expenses and then only to the extent that the court
shall determine; or
(b) Of amounts paid in settling or otherwise disposing
of a threatened or pending action without court approval; or
(c) Of expenses incurred in defending a threatened or
pending action which is settled or otherwise disposed of without
court approval.
3.15.4 To the extent that an agent of the Corporation
has been successful on the merits in defense of any proceeding
referred to in Paragraph 3.15.2 or 3.15.3 above, or in defense of
any claim, issue or matter therein, said agent shall be indemnified
against expenses actually and reasonably incurred by said agent in
connection therewith.
3.15.5 Except as provided in Paragraph 3.15.4 above,
any indemnification under this section shall be made by the
Corporation only if authorized in the specific case upon a
determination that indemnification of the agent is proper in the
circumstances because the agent has met the applicable standard of
conduct set forth in Paragraph 3. of the following:
(a) A majority vote of a quorum consisting of directors
who are not parties to such proceeding;
(b) If such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion;
(c) Approval or ratification by the affirmative vote of
a majority of the shares of this Corporation entitled to vote
represented at a duly held meeting at which a quorum is present or
by the written consent of holders of a majority of the outstanding
shares which would be entitled to vote at such meeting. For such
purpose, the shares owned by the person to be indemnified shall not
be considered outstanding or entitled to vote thereon; or
(d) The court in which such proceeding is or was
pending, upon application made by the Corporation, the agent or the
attorney or other person rendering services in connection with the
defense, whether or not such application by said agent, attorney or
other person is opposed by the Corporation.
3.15.6 Expenses incurred in defending any proceeding may
be advanced by the Corporation prior to the final disposition of
such proceeding upon receipt of an undertaking by or on behalf of
the agent to repay such amount if it shall be determined ultimately
that the agent is not entitled to be indemnified as authorized in
this Section 3.15.
3.15.7 The indemnification provided in this Section 3.15
is not exclusive of any other rights which the agents of the
Corporation may be entitled under any other provision of these
bylaws, agreement, vote of shareholders or disinterested directors
or otherwise, or pursuant to the laws of California. Such
indemnification shall continue as to a person who has ceased to be
an agent and shall inure to the benefits of the heirs, executors
and administrators of the person. Nothing contained in this
Section 3.15 shall affect any right to indemnification to which
persons other than directors and officers of the Corporation, or
any subsidiary thereof, may be entitled by contract or otherwise.
3.15.8 No indemnification or advance shall be made under
this section, except as provided in Paragraph 3.15.4 or 3.15.5(c)
above, in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the
Articles of Incorporation of the Corporation, a resolution of the
shareholders or an agreement in effect at the time of the accrual
of the alleged cause of action asserted in the proceeding in which
the expenses were incurred or other amounts were paid which
prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
3.15.9 The Corporation may, to the full extent permitted
by law, purchase and maintain insurance on behalf of any agent
against any liability which may be asserted against such agent in
such capacity or arising out of the agent's status as such whether
or not the Corporation would have the power to indemnify the agent
against such liability under the provisions of California and
federal law.
ARTICLE 4 - Executive and Other Committees
------------------------------------------
4.1 Executive and Other Committees
------------------------------
4.1.1 The Board of Directors may appoint an executive
committee, and such other committees as may be necessary from time
to time, consisting of two or more of its members with such powers
as it may designate, consistent with the Articles of Incorporation
of the Corporation, these Bylaws and the California General
Corporation Law. Such committees shall hold office at the
pleasure of the Board.
ARTICLE 5 - Officers
--------------------
5.1 Officers
--------
5.1.1 The officers of the Corporation shall be a
president, vice president, secretary and chief financial officer.
The Corporation may also have, at the election of the Board of
Directors, a chairman of the board, one or more additional vice
presidents, one or more assistant secretaries, one or more
assistant chief financial officers and such other officers as may
be appointed in accordance with the provisions of Section 5.3 of
this article. Any number of offices may be held by the same person
unless the Articles of Incorporation of the Corporation or these
Bylaws provide otherwise.
5.2 Appointment of Officers
-----------------------
5.2.1 The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of
Section 5.3 or 5.5 below, shall be chosen annually by the Board of
Directors and shall hold office until their respective successors
shall be qualified and appointed or until such officers shall
resign, be removed or otherwise disqualified.
5.3 Subordinate Officers. Etc.
--------------------------
5.3.1 The Board of Directors may at any time appoint, and
may empower the president to appoint, such other officers as the
business of the Corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties
as are provided in these Bylaws or as the Board of Directors may
from time to time determine.
5.4 Removal and Resignation
-----------------------
5.4.1 Any officer may be removed, either with or without
cause, by the Board of Directors at any regular or special meeting
thereof or, except in t} the Board of Directors, by any officer
upon whom such power of removal may be conferred by the Board of
Directors (subject, in each case, to the rights, if any, of an
officer under any contract of employment).
5.4.2 Any officer may resign at any time by giving
written notice to the Board of Directors or to the president or
secretary of the Corporation, without prejudice, however, to the
rights, if any, of the Corporation under any contract to which such
officer is a party. Any such resignation shall take effect as of
the date of receipt of such notice or at any later time specified
therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
5.5 Vacancies
---------
5.5.1 A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in these Bylaws for regular
appointments to such office.
5.6 Chairman of the Board
---------------------
5.6.1 The chairman of the board, if there shall be such
an officer, shall, if present, preside at all meetings of the Board
of Directors and exercise and perform such other powers and duties
as may be from time to time assigned to him by the Board of
Directors or prescribed by these Bylaws.
5.7 President
---------
5.7.1 Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the chairman of the board, if
there be such an officer, the president shall be the general
manager and chief executive officer of the Corporation and shall,
subject to the control of the Board of Directors, have general
supervision, direction and control of the business and affairs of
the Corporation. The president shall preside at all meetings of
shareholders and, in the absence of the chairman of the board, or
if there be none, at all meetings of the Board of Directors. The
president shall be ex officio a member of all the standing
committees of the Board of Directors, including the executive
committee, if any, and shall have the general powers and duties of
management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be
prescribed by the Board of Directors or these Bylaws.
5.8 Vice President
--------------
5.8.1 In the absence or disability of the president, the
vice presidents, in order of their rank as fixed by the Board of
Directors, or, if not ranked, the vice president designated by the
Board of Directors, shall perform all the duties of the president
and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board
of Directors or these Bylaws.
5.9 Secretary
---------
5.9.1 The secretary shall record, or cause to be recorded,
and keep, or cause to be kept, at the principal executive office of
the Corporation and such other place as the Board of Directors may
order, a book of the minutes of actions taken at all meetings of
directors and shareholders, with the time and place of holding,
whether regular or special and, if special, how authorized, the
notice thereof given, the names of those present at directors
meetings, the number of shares present or represented by proxy at
shareholders meetings and the proceedings thereof.
5.9.2 The secretary shall keep, or cause to be kept, at
the principal executive office of the Corporation or at the office
of the Corporation's transfer agent, a share register, or a
duplicate share register, showing the names of the shareholders
and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same and the
number and date of cancellation of every certificate surrendered
for cancellation.
5.9.3 The secretary shall give, or cause to be given,
notice of all meetings of shareholders and the Board of Directors
required by these Bylaws or by law to be given, shall keep the
corporate seal of the Corporation in safe custody, and shall have
such other powers and perform such other duties as may be
prescribed by the Board of Directors or these Bylaws.
5.9.4 The assistant secretary, if there shall be such an
officer, or, if there be more than one, the assistant secretaries
in the order determined by the Board of Directors (or if there be
no such determination, then in the order of their election), shall,
in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
5.10 Chief Financial Officer
-----------------------
5.10.1 The chief financial officer shall be the chief
financial officer of the Corporation and shall keep and maintain,
or cause to be kept and maintained, adequate and correct accounts
of the properties and business transactions of the Corporation,
including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, surplus and shares. The
books of account shall at all reasonable times be open to
inspection by any director.
5.10.2 The chief financial officer shall deposit all
moneys and other valuables in the name and to the credit of the
Corporation with such depositories as may be designated by the
Board of Directors. The chief financial officer shall disburse the
funds of the Corporation as may be ordered by the Board, render to
the president and directors, whenever they request it, an account
of all of his transactions as chief financial officer and of the
financial condition of the Corporation and have such other powers
and perform such other duties as may be prescribed by the Board of
Directors or these Bylaws.
5.10.3 The assistant chief financial officer, if there
shall be such an officer, or, if there shall be more than one, the
assistant chief financial officers in the order determined by the
Board of Directors (or, if there be no such determination, then in
the order of their election), shall, in the absence of the chief
financial officer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the chief
financial officer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time
prescribe.
ARTICLE 6 - Miscellaneous
-------------------------
6.1 Inspection of Corporate Records
-------------------------------
6.1.1 The accounting books and records, the record of
shareholders and minutes of proceedings of the shareholders and the
Board of Directors and committees of the Board and any subsidiary
of this Corporation shall be open to inspection upon the written
demand on the Corporation of any shareholder or holder of a voting
trust certificate at any reasonable time during usual business
hours for a purpose reasonably related to such holder's interests
as a shareholder or as the holder of such voting trust certificate.
Such inspection by a shareholder or holder of a voting trust
certificate may be made in person or by agent or attorney and the
right of inspection includes the right to copy and make extracts.
Demand of inspection shall be made in writing upon the president,
secretary or assistant secretary of the Corporation.
6.1.2 A shareholder or shareholders holding at least
five percent, in the aggregate of the outstanding voting shares of
the Corporation or who hold(s) at least one percent of such voting
shares and have filed a Schedule 14B with the United States
Securities and Exchange Commission relating to the election of
directors of the Corporation shall have (in person, or by agent or
attorney) the right to do either or both of the following: (i)
inspect and copy the record of shareholders' names and addresses
and shareholdings during usual business hours upon five business
days' prior written demand upon the Corporation, or (ii) to obtain
from the transfer agent for the Corporation, upon written demand
and upon the tender of the transfer agent's usual charges, a list
of the shareholders' names and addresses who are entitled to vote
for the election of directors and their shareholdings, as of the
most recent record date for which it has been compiled or as of a
date specified by the shareholder subsequent to the date of demand.
Said list shall be made available on or before the later of five
business days after the demand is received or the date specified
therein as the date as of which the list is to be compiled.
6.1.3 Every director shall have the absolute right, at
any reasonable time, to inspect and copy all books, records and
documents of every kind and to inspect the physical properties of
the Corporation. Such inspection by a director may be made in
person or by agent or attorney and the right of inspection includes
the right to copy and make extracts.
6.2 Checks Drafts, Etc.
-------------------
6.2.1 All checks, drafts or other orders for payment of
money, notes or other evidences of indebtedness issued in the name
of, or payable to, the Corporation shall be signed or endorsed by
such person or persons and in such manner as from time to time
shall be determined by resolution of the Board of Directors.
6.3 Annual Report
-------------
6.3.1 So long as there are fewer than 100 holders of
record of the Corporation's shares, the annual report to
shareholders referred to in section 1501 of the California
Corporations Code is expressly dispensed with, but nothing herein
shall be interpreted as prohibiting the Board of Directors from
issuing such reports or as affecting the rights of shareholders to
obtain special financial statements as provided by the California
General Corporation Law.
6.4 Contracts Etc., How Executed
----------------------------
6.4.1 The Board of Directors, except as otherwise
provided in these Bylaws, may authorize any officer or officers,
agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances;
however, unless so authorized by the Board of Directors, no
officer, agent or employee shall have any power or authority to
bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or to any amount.
6.5 Certificate for Shares
----------------------
6.5.1 Every holder of shares of the Corporation shall be
entitled to have a certificate signed in the name of the
Corporation by the chairman or vice chairman of the Board of
Directors or the president or a vice president and by the chief
financial officer or an assistant treasurer or the secretary or any
assistant secretary, certifying the number of shares and the class
or series of shares owned by said shareholder. Any signature on
the certificate may be a facsimile, provided that in such event, at
least one signature, including that of either officer or the
Corporation's registrar or transfer agent, if any, shall be
manually signed. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by
the Corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
6.5.2 Any such certificate shall also contain such
legend or other statement as may be required by the California
General Corporation Law, the Corporate Securities Law of 1968, the
federal securities laws and any agreement between the Corporation
and the shareholders thereof.
6.5.3 Certificates for shares may be issued prior to
full payment under such restrictions and for such purposes as the
Board of Directors or these Bylaws may provide; provided, however,
that any such certificate so issued prior to full payment shall
state on the face thereof the amount of the consideration remaining
unpaid and the terms of payment thereof.
6.5.4 No new certificate for shares shall be issued in
lieu of an old certificate unless the latter is surrendered and
canceled at the same time; provided, however, that a new
certificate will be issued without the surrender and cancellation
of the old certificate if (i) the old certificate is lost,
apparently destroyed or wrongfully taken, (ii) the request for the
issuance of the new certificate is made within a reasonable time
after the owner of the old certificate has notice of its loss,
destruction or theft, (iii) the request for the issuance of a new
certificate is made prior to the receipt of notice by the
Corporation that the old certificate has been acquired by a bona
fide purchaser, (iv) the owner of the old certificate files a
sufficient indemnity bond with, or provides other adequate security
to, the Corporation and (v) the owner satisfies any other
reasonable requirements imposed by the Corporation. In the event
of the issuance of a new certificate, the rights and liabilities of
the Corporation, and of the holders of the old and new
certificates, shall be governed by the provisions of the California
Uniform Commercial Code.
6.6 Representation of Shares of Other Corporations
----------------------------------------------
6.6.1 The president or any vice president and the
secretary or any assistant secretary of the Corporation are
authorized to vote, represent and exercise on behalf of the
Corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of the
Corporation. The authority herein granted to said officers to vote
or represent on behalf of the Corporation any and all shares held
by the Corporation in any other corporation or corporations may be
exercised either by such officers in person or by any other person
authorized to do so by proxy or power of attorney duly executed by
said officers.
6.7 Inspection of Bylaws
--------------------
6.7.1 The Corporation shall keep at its principal
executive office in California or, if its principal executive
office is not in California, then at its principal business office
in California (or otherwise provide upon written request of any
shareholder) the original or a copy of these Bylaws as amended or
otherwise altered to date, certified by the secretary, which shall
be open to inspection by the shareholders at all reasonable times
during regular business hours.
6.8 Construction and Definitions
----------------------------
6.8.1 Unless the context otherwise requires, the general
provisions, rules of construction and definitions contained in the
California General Corporation Law shall govern the construction of
these Bylaws. Without limiting the generality of the foregoing,
the masculine gender includes the feminine and neuter, the singular
number includes the plural and the plural number includes the
singular, and the term "person" includes a corporation as well as
a natural person.
ARTICLE 7 -_Amendments
----------------------
7.1 Power of Shareholders
---------------------
7.1.1 New bylaws may be adopted or these Bylaws may be
amended or repealed by the affirmative vote of a majority of the
outstanding shares entitled to vote, or by the written consent of
shareholders entitled to vote such shares, except as otherwise
provided by law or by the Articles of Incorporation of the
Corporation.
7.2 Power of Directors
------------------
7.2.1 Subject to the right of shareholders as provided
in Section 7.1 above to adopt, amend or repeal bylaws, bylaws other
than a bylaw or amendment thereof changing the authorized number of
directors may be adopted, amended or repealed by the Board of
Directors, except as specifically set forth in the Articles of
Incorporation or these Bylaws to the contrary.
7.3 Records of Amendments
---------------------
7.3.1 Whenever an amendment or new bylaw is adopted, it
shall be filed in the appropriate place in the minute book of the
Corporation with the original Bylaws. If any bylaw is repealed,
the fact of repeal with the date of the meeting at which the repeal
was enacted or written consent was filed shall be stated in said
book.
Mail Boxes Etc.
Amendment to Bylaws
Article 3.2 of the Bylaws is amended to read as follows:
"3.2 Number and Qualifications of Directors
a. The number of Directors of the Corporation shall not
be less than five nor more than nine until changed by amendment of
the Articles of Incorporation or by a bylaw amending the section,
duly adopted by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided that
a proposal to reduce the authorized minimum number of directors
below five cannot be adopted if the votes cast against its adoption
at a meeting or the shares not consenting in the case of action by
written consent, are equal to more than 16-2/3 percent of the
outstanding shares entitled to vote. The exact number of directors
shall be set from time to time, within the limits specified in the
Articles of Incorporation or in this section by a bylaw or
amendment thereof, duly adopted by the shareholders or by the board
of directors; and
b. Subject to the foregoing provisions for changing the
number of directors, the exact number of directors of this
Corporation shall be seven."
-----------------------------
The undersigned, Bruce M. Rosenberg, Secretary of Mail Boxes
Etc., a Corporation duly created, organized and existing under
and by virtue of the laws of the State of California, does
hereby certify that the foregoing is a true and correct copy
of a resolution duly adopted by the Board of Directors of said
Corporation, at a meeting of said Board duly held on May 23,
1995, and does hereby further certify that said resolution is
now in full force and effect and has not been rescinded,
vacated or modified in any way.
IN WITNESS WHEREOF, the undersigned has set his
hand and affixed the Corporate Seal of said Corporation on
this 23rd day of May, 1995.
Bruce M. Rosenberg
________________________________
Bruce M. Rosenberg
Secretary of Mail Boxes Etc.
EXHIBIT 13.1
ANNUAL REPORT
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
Selected Financial Data
-- Amounts in thousands except per share data
<CAPTION>
Fiscal Years Ended April 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
REVENUE:
Royalty and marketing fees $24,674 $19,972 $15,935 $12,796 $10,082
Franchise fees 8,670 7,837 9,790 9,198 7,198
Sales of supplies and equipment 10,020 10,820 9,416 9,203 9,088
Interest income on leases and other 5,424 3,972 4,063 4,441 3,523
Company centers 1,564 1,059 1,051 1,019 765
------- -------- ------- ------- -------
TOTAL REVENUES 50,352 43,660 40,255 36,657 30,656
COST AND EXPENSES:
Franchise operations 12,506 10,480 8,484 7,158 5,791
Franchise development 5,090 3,896 4,077 4,085 3,536
Cost of supplies and equipment 7,915 8,914 7,697 7,778 7,695
Marketing 4,630 3,713 3,112 3,260 3,683
Administration 7,878 6,105 4,776 4,664 3,342
Company centers 1,598 1,026 1,019 1,000 746
------- ------- ------- ------- -------
TOTAL COST AND EXPENSES 39,617 34,134 29,165 27,945 24,793
Interest on investments and other 447 642 509 418 355
Insurance recovery --- --- --- --- 400
------- ------- ------- ------- -------
Income before taxes 11,182 10,168 11,599 9,130 6,618
Provision for income taxes 4,412 4,136 4,716 3,670 2,598
NET INCOME $ 6,770 $ 6,032 $ 6,883 $ 5,460 $ 4,020
======= ======= ======= ======= =======
NET INCOME PER SHARE $ 0.60 $ 0.49 $ 0.56 $ 0.46 $ 0.36
======= ======= ======= ======= =======
Balance sheet data at April 30:
Total assets $64,293 $55,211 $56,178 $44,148 $32,049
Long-term debt 1,337 --- --- --- ---
Shareholders' equity 52,145 50,115 49,508 38,097 28,489
Working capital 22,564 24,102 26,674 19,520 17,114
</TABLE>
To date, the company has not declared or paid any cash dividends on its
common stock.
<TABLE>
Domestic Centers Fiscal Years Ended April 30,
<CAPTION>
OPERATING DATA 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
MBE Centers opened 264 305 333 270 280
Left system 25 17 16 7 6
MBE Centers closed 26 20 25 29 22
MBE Centers operating 2,378 2,165 1,897 1,605 1,371
INTERNATIONAL CENTERS FISCAL YEARS ENDED APRIL 30,
MBE Centers opened 114 113 70 24 4
MBE Centers closed 2 6 1 0 1
MBE Centers operating <F5> 327 215 108 39 15
<FN>
<F5>
These centers are under different arrangements than the domestic
centers for the payment of franchise fees and royalties to the master
licensees and MBE.
</FN>
</TABLE>
Management's Discussion and Analysis
FOR FISCAL YEARS ENDED APRIL 30, 1995, 1994 AND 1993
Overview
Mail Boxes Etc. ("MBE" or the "company") worked aggressively during FY95
to build a strong foundation for future growth. The financial results for
FY95 reflect these positive developments. Revenues increased to an all
time high of $50.4 million, an increase of 15% over FY94, and earnings per
share climbed to a record of $0.60 per share, an increase of 22%.
The network grew to a total of 2,705 centers worldwide (2,378 in the U.S.
and 327 internationally). This helped propel the strong royalty and
marketing fee growth of 24% achieved during FY95. Recurring revenues, of
which royalties and marketing fees are the primary component, increased
to over 61% of total revenues, up from 57% in FY94.
During FY95 MBE also experienced a turnaround for individual center sales
in the U.S. After a slow start during the first quarter of FY95, sales of
individual domestic franchises have returned to historical growth
patterns. Management continues to make increasing domestic franchise
sales a top priority and has instituted organizational changes in an effort
to improve those results even further.
REVENUES
Total revenues increased 15% for FY95 and 8% for FY94. As more fully
described below, the FY95 revenue growth resulted primarily from an
increase in royalty and marketing fees which resulted from an increase in
same-store sales and an increase in the number of centers in the system.
Revenues from royalty and marketing fees increased by 24% during FY95
and 25% during FY94. These increases are the result of growth of the
network through the opening of 264 individual centers and a 20 percent
increases in same-store sales.
MBE believes that the growth in same-store sales during FY95 was due in
part to the national television advertising program launched at the
beginning of the fiscal year. Without this program, management believes
that this increase would have been about 15%. While management believes
the effect of the national television advertising program will continue to
be beneficial, there is no assurance that the rate of last year's sales
growth will continue.
<TABLE>
The increase in royalty and marketing fees attributable to these two
factors for each fiscal year is:
<CAPTION>
FY95 FY94 FY93
(amounts in thousands)
<S> <C> <C> <C>
Centers open less than 1 year $1,450 $1,418 $1,285
Centers open more than 1 year $3,252 $2,619 $1,854
</TABLE>
The increase in these revenues amounted to $4.7 million in FY95 and $4.0
million in FY94. New centers opened (264 in FY95, 305 in FY94 and 333 in
FY93) also contributed to the strong royalty growth rates shown above.
<TABLE>
Total franchise fees - individual, area, resale, renewal and master
licenses - increased by 11% during FY95 and decreased by 20% in FY94. The
following table shows the number of sales for the primary categories
during each of the last three years:
<CAPTION>
FY95 FY94 FY93
<S> <C> <C> <C>
Individual sales 312 270 334
Foreign countries sold 17 19 4
Area franchise sales (U.S. only) 0 1 8
</TABLE>
Individual center franchise fees were up by 7% during FY95 compared to a
decrease of 6% in FY94. The increase during FY95 resulted from 42 more
franchises being sold while the decrease in FY94 was due to 64 fewer
franchises being sold. Master license sales continued strong during FY95.
MBE believes however, that master license sales may not be a significant
source of revenue during FY96 and beyond and that the timing of these
sales will not be predictable.
Sales of supplies and equipment decreased by 7% in FY95 and increased by
15% in FY94. The sales margin was 21% in FY95 and 18% in FY94 and FY93.
The sales margin increased due to a more favorable sales mix in FY95
compared to FY94 and FY93.
Interest income on equipment leases and other income increased by 37%
during FY95 and decreased by 2% during FY94. The components of this
revenue category include interest income earned on leases and notes,
finance charges, late fees, and various administrative fees. The FY95
increase resulted from additional financing programs made available to
franchisees, the sale of MBEnet software to the network and other added
service revenues. In addition, the administrative fees on national vendor
contracts increased as the transaction volumes increased.
MBE added two new company centers during FY95. One of these centers is
about twice the size of a typical MBE center and the other is located in a
downtown highrise office building. Consequently, company centers'
revenues grew by 48% in FY95 compared to 1% in FY94. The company
centers' combined operating margin was negative in FY95 compared to
positive margins in FY94 and FY93. These centers serve as test sites for
new products and ideas and to train company employees and new
franchisees. As such, their primary objective is to develop and test new
products and services and, as a result, their operating expenses are higher
than might be experienced by a typical owner-operated franchise.
COSTS AND EXPENSES
Total costs and expenses increased by 16% during FY95 and 17% during
FY94. Costs and expenses were 79% of revenues during FY95 and 78%
during FY94 and 72% in FY93.
Franchise operations expenses, which are incurred to provide operational
support to the network, increased by 19% in FY95 and 24% in FY94. These
expenses include royalties paid to area franchisees to support the
network. These costs will generally increase as the network's royalty
revenues increase.
Franchise development expenses increased by 31% during FY95 and
decreased by 4% during FY94. The increase during FY95 reflects increased
domestic and international sales efforts and the resultant higher
commissions paid. The reduction in expenses during FY94 was the
result of having to pay fewer sales commissions.
Marketing expenses increased by 25% during FY95 and 19% in FY94. These
expenses will continue to grow as the network grows.
General and administrative expenses increased by 29% during FY95 and
28% during FY94. The increase in FY95 was primarily due to increases in
bad debt reserves and in litigation expenses as the company vigorously
defends itself against lawsuits. The increase in FY94 was primarily due
to greater bad debt reserves for notes receivable. Overall, these expenses
will continue to increase as the domestic and international network grows.
The company's effective tax rates were 39.5% in FY95 and 40.7% in FY94
and in FY93. The provision for income taxes is computed in accordance
with the Statement of Financial Accounting Standards No. 109, which
became effective for the company's fiscal year 1994.
NET INCOME AND INCOME PER SHARE
Net income increased by 12% in FY95 and decreased by 12% in FY94.
Earnings per share increased by 22% during FY95 and decreased by 13%
during FY94. The increase in EPS during FY95 was partially due to the
repurchase of 564,000 shares of the company's stock in FY95 and 765,000
shares during the fourth quarter of FY94.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
The company believes that it has adequate financial resources for its
present and projected operating requirements. The following table
summarizes MBE's cash and working capital position at the end of the last
three years:
<CAPTION>
FY95 FY94 FY93
(amounts in thousands)
<S> <C> <C> <C>
Cash and short-term investments $10,428 $10,691 $17,470
Working capital $22,564 $24,102 $26,674
</TABLE>
The decline in the amount of cash and short-term investments and working
capital during FY95 and FY94 was the result of management's decision to
use a portion of these funds to repurchase shares of MBE's common stock.
During FY95 MBE repurchased 564,000 shares of stock at a cost of about
$4.8 million. During FY94 MBE repurchased 765,000 shares of stock at a
cost of about $6.3 million and during FY93 MBE repurchased 50,000 shares
of stock at a cost of about $600,000. In May 1995, the company announced
that its board of directors granted management the authority to
repurchase an additional 1,000,000 shares. This brings the total remaining
shares that management is authorized to repurchase to 1,121,000 shares.
During the second quarter of FY95, the company obtained a $7,000,000 line
of credit from a bank. At year end, MBE was using approximately $1,600,000
of the line of credit to advance funds to the franchisees' National Media
Fund for advanced media purchases. Interest on this advance is paid by the
National Media Fund.
The company has become subject to various lawsuits and claims from its
franchisees and employees in the course of conducting its business. The
company intends to vigorously defend these actions, and believes that the
ultimate resolution will not have a material adverse effect on the
company's financial condition or liquidity. However, there can be no
assurance that an unfavorable result would not have a material adverse
effect on the company's operating results.
The company's international position has improved during FY95 but the
master licensee and individual franchisees in Mexico did suffer as a result
of the devaluation of the peso. Other countries also suffered because of
economic conditions, but their impact was less. MBE did, however,
continue to grow its international network with the sale of four master
licenses adding 17 additional countries and with the current master
licensees selling 114 additional franchises.
While it is difficult to assess potential effects of federal and state
legislation in the U.S. that may impact the industry, the company does not
anticipate any material, adverse effects from such legislation at this
time.
The company experiences competition from several sources. Direct
competition comes from other national chains and independents and from
specialty service providers, such as copy centers, quick print centers and
office supply companies. There is growing competition from the United
States Postal Service, as it attempts to compete with the MBE concept
with its Postal Service Centers that are located in shopping centers. To
meet these competitive threats, MBE is responding on several fronts. The
company is continuing to explore ways of adding additional prot centers,
such as color copying, "no-limit" shipping, and continued expansion of the
national accounts programs. MBE is also attempting to strengthen its
already strong customer service image by encouraging centers to extend
their hours to meet growing customer demands. Finally, MBE has ongoing
training and educational programs for its franchisees that cover topics
ranging from customer service to marketing products to new and
existing customers. MBE believes that these programs, combined with the
national television advertising program, will enable it to compete
successfully in a competitive world market.
UPS packing and shipping revenues are significant to the company, as
described in footnote 13. Because of this, a prolonged strike against UPS
by its union could have an adverse effect on the company's royalty and
marketing fee revenues.
CHANGES IN FINANCIAL CONDITION
At year-end, the company had $390,841 in cash and cash equivalents and
$10.0 million in short-term investments. The company's operating
activities generated a cash flow of $1.1 million in FY95. The primary use
of cash in operations is to finance the growth and expansion of the
network, both domestically and internationally. The company has elected
to finance this expansion internally because it receives a higher return
than can be achieved through short-term investments. In the past, the
company has obtained external financing for the network, and management
believes that it could be obtained in the future, if desired.
The company's investing activities provided $2.2 million in FY95. Principal
re-payments on leases were the primary source of these funds.
Financing activities used $3.2 million in FY95 primarily to repurchase
stock. The borrowings by MBE were used to purchase up-front advertising
for the National Media Fund.
The company does not plan to fundamentally change its operating
practices with regard to cash management in the foreseeable future. It
believes that the practice of primarily financing its growth and expansion
internally is appropriate for both the company and the network.
Management will, however, continue to enter into external financing
arrangements if appropriate. Management further believes that its
existing capital resources, combined with the cash expected to be
generated from its operating activities, will be adequate to fund the
company's cash needs for the foreseeable future unless substantial
adverse judgements are received in any of the lawsuits in which the
company is involved.
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Assets April 30,
1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 390,841 $ 251,055
Restricted cash - franchisee deposits 1,613,569 1,361,125
Short-term investments 10,036,718 10,439,792
Accounts receivable, net of allowance for
doubtful accounts of$1,212,000 and $720,000,
at April 30, 1995 and 1994,respectively 6,723,128 5,864,072
Receivable from National Media Fund 1,600,000 ---
Inventories 983,095 1,026,946
Current portion of notes receivable 6,065,275 4,046,767
Current portion of net investment in sales-type
and direct financing leases 2,488,654 2,423,514
Deferred income taxes 1,453,583 822,178
Re-acquired area and center rights held for resale 1,015,744 1,536,316
Other 1,005,482 1,426,237
----------- -----------
TOTAL CURRENT ASSETS 33,376,089 29,198,002
Notes receivable, net 11,429,381 8,625,731
Net investment in sales-type and direct
financing leases 8,839,949 9,403,611
Property and equipment:
Land 1,200,000 1,200,000
Building and improvements 4,178,290 4,187,678
Office furniture and equipment 3,486,148 3,385,531
Vehicles 194,697 133,950
Total property and equipment 9,059,135 8,907,159
Less accumulated depreciation and amortization 3,444,075 2,758,634
----------- -----------
NET PROPERTY AND EQUIPMENT 5,615,060 6,148,525
Excess of cost over assets acquired, net of
accumulated amortization of $492,139 and $434,743
at April 30, 1995 and 1994, respectively 498,078 422,912
Re-acquired area rights, net of accumulated
amortization of $79,000 3,030,670 ---
Deferred income taxes 651,322 254,006
Other assets 852,555 1,158,551
----------- -----------
TOTAL ASSETS $64,293,104 $55,211,338
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,151,375 $ 732,462
Franchisee deposits 2,152,904 1,405,606
Royalties, referrals and commissions payable 2,448,624 1,838,654
Accrued employee expenses and related taxes 1,462,933 766,283
Other accrued expenses 1,173,580 353,092
Income taxes payable 717,381 ---
Current maturities of debt and notes payable 1,704,848 ---
----------- -----------
TOTAL CURRENT LIABILITIES 10,811,645 5,096,097
Long-term debt, net of current maturities 1,336,627 ---
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares
authorized, with none issued and outstanding --- ---
Common stock, no par value, 40,000,000 shares
authorized, with 11,058,387 and 11,569,146
shares issued outstanding at April 30, 1995
and 1994, respectively 14,454,524 19,194,693
Retained earnings 37,690,308 30,920,548
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 52,144,832 50,115,241
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $64,293,104 $55,211,338
=========== ===========
See accompanying notes
</TABLE>
<TABLE>
Consolidated Statements of Income
<CAPTION>
Fiscal Years Ended April 30,
1995 1994 1993
<S> <C> <C> <C>
REVENUE:
Royalty and marketing fees $24,673,334 $19,971,701 $15,935,029
Franchise fees 8,670,247 7,836,691 9,790,641
Sales of supplies and equipment 10,020,084 10,820,267 9,415,793
Interest income on leases and other 5,423,814 3,971,659 4,062,784
Company centers 1,564,185 1,059,436 1,051,398
----------- ----------- -----------
TOTAL REVENUES 50,351,664 43,659,754 40,255,645
COST AND EXPENSES:
Franchise operations 12,505,890 10,479,805 8,483,716
Franchise development 5,089,674 3,896,280 4,077,553
Cost of supplies and equipment sold 7,915,479 8,914,279 7,697,111
Marketing 4,630,485 3,712,932 3,111,974
General and administrative 7,878,042 6,104,340 4,776,235
Company centers 1,597,518 1,025,932 1,018,954
----------- ----------- -----------
TOTAL COST AND EXPENSES 39,617,088 34,133,568 29,165,543
Operating Income 10,734,576 9,526,186 11,090,102
Interest on investments and other 447,093 642,078 508,753
Income before provision for income taxes 11,181,669 10,168,264 11,598,855
Provision for income taxes 4,411,909 4,136,022 4,715,411
NET INCOME $ 6,769,760 $ 6,032,242 $ 6,883,444
=========== =========== ===========
NET INCOME PER COMMON SHARE: $ 0.60 $ 0.49 $ 0.56
=========== =========== ===========
Weighted average common and common
equivalent shares outstanding 11,356,645 12,433,264 12,380,795
=========== =========== ===========
See accompanying notes
</TABLE>
<TABLE>
Consolidated Statements of Shareholders' Equity
<CAPTION>
Common Stock Retained
Shares Amount Earnings Total
<S> <C> <C> <C> <C>
BALANCE, APRIL 30,1992 11,843,218 $20,091,746 $18,004,862 $38,096,608
Exercise of employee stock options 100,616 569,100 569,100
Common stock repurchased (58,267) (733,515) (733,515)
Issuance of common stock to UPS 381,279 4,692,222 4,692,222
Net income 6,883,444 6,883,444
---------- ----------- ----------- -----------
BALANCE, APRIL 30,1993 12,266,846 24,619,553 24,888,306 49,507,859
Exercise of employee stock options 72,193 428,682 428,682
Common stock repurchased (769,893) (6,316,542) (6,316,542)
Income tax benefit from stock option
activity 463,000 463,000
Net income 6,032,242 6,032,242
---------- ----------- ----------- -----------
BALANCE, APRIL 30,1994 11,569,146 19,194,693 30,920,548 50,115,241
Exercise of employee stock options
and other 146,171 927,601 927,601
Common stock repurchased (656,930) (5,680,720) (5,680,720)
Income tax benefit from stock option
activity 12,950 12,950
Net income 6,769,760 6,769,760
---------- ----------- ----------- -----------
BALANCE, APRIL 30, 1995 11,058,387 $14,454,524 $37,690,308 $52,144,832
========== =========== =========== ===========
See accompanying notes
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
Fiscal Years Ended April 30,
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $6,769,760 $6,032,242 $6,883,444
Adjustments to reconcile net income to net cash provided from
(used in) operating activities:
Depreciation and amortization 1,024,365 1,053,871 847,681
Gain on sale of equipment under sales type lease agreements (681,063) (965,201) (892,530)
Increase in allowance for bad debts 1,235,971 657,928 38,084
Loss on retirement of fixed assets 122,345 22,486 2,158
Deferred income taxes (1,022,766) (843,157) (220,836)
Changes in assets and liabilities:
Restricted cash (252,444) 624,403 (226,581)
Accounts and notes receivable (7,385,527) (4,772,011) (3,153,196)
Receivable from National Media Fund (1,600,000) --- ---
Assets leased to franchisees and inventories (1,999,340) (3,688,989) (4,015,360)
Re-acquired area and center rights held for resale 260,572 (426,763) (1,109,553)
Other current assets 420,755 (724,394) 759,834
Other assets 173,434 (206,326) (468,527)
Accounts payable 418,913 (295,223) 76,208
Franchisee deposits 747,298 (630,312) 276,971
Royalties, referrals and commissions payable 609,970 159,672 184,668
Accrued employee expenses and related taxes 696,650 (172,427) 61,854
Other accrued expenses 820,488 16,586 89,212
Income taxes payable 730,331 (188,953) (82,249)
---------- ---------- ----------
NET CASH FLOWS PROVIDED FROM (USED IN)
OPERATING ACTIVITIES 1,089,712 (4,346,568) (948,718)
INVESTING ACTIVITIES:
Net changes in short-term investments 388,074 5,685,219 (8,201,065)
Additions to property and equipment (476,559) (438,070) (1,072,602)
Principal payments received on sales-type leases 3,222,776 3,893,448 4,184,342
Re-acquired area rights (886,618) --- ---
---------- ---------- ----------
NET CASH FLOWS PROVIDED FROM (USED IN)
INVESTING ACTIVITIES 2,247,673 9,140,597 (5,089,325)
FINANCING ACTIVITIES:
Borrowing under revolving loan 3,800,000 --- ---
Repayments under revolving loan (2,200,000) --- ---
Repayments on notes payable (53,525) --- ---
Repurchase of common shares (5,680,720) (6,316,542) (733,515)
Proceeds from the issuance of common stock 936,646 428,682 5,261,322
---------- ---------- ----------
NET CASH FLOWS PROVIDED FROM (USED IN)
FINANCING ACTIVITIES (3,197,599) (5,887,860) 4,527,807
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 139,786 (1,093,831) (1,510,236)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 251,055 1,344,886 2,855,122
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 390,841 $ 251,055 $1,344,886
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for income taxes $5,479,348 $5,965,372 $5,129,830
Interest expense 98,495 32,210 ---
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Equipment sold under sales-type leases $ 2,724,254 $4,596,193 $4,697,528
Cost of equipment sold under sales-type leases 2,043,191 3,630,992 3,804,998
Notes payable issued in connection with re-acquired area rights 1,495,000 --- ---
Accounts and notes forgiven in connection with re-acquired area rights 468,342 --- ---
Exchange of area rights 260,000 --- ---
See accompanying notes
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies Selected Organization
Mail Boxes Etc. (the company) was incorporated in November, 1983, as a
California corporation. It operates through one wholly-owned subsidiary,
Mail Boxes Etc. USA, Inc. This subsidiary grants territorial franchise
rights for the operation or sale of service centers specializing in postal,
packaging, business, and communications services. The purchase price paid
by the company to acquire this subsidiary exceeded the subsidiary's net
assets by $857,655; the excess is being amortized on the straight-line
method over 20 years.
The company provides franchisees with a system of business training,
advice regarding site location, marketing, advertising programs and
management support designed to assist the franchisee in opening and
operating MBE Centers.
Principles of Consolidation
The consolidated financial statements include the accounts of the
company and its subsidiary. All significant intercompany transactions and
balances have been eliminated in consolidation.
Revenue Recognition
The company enters into area and individual franchise agreements in the
United States and master license agreements in other countries. Area
franchise agreements grant the area franchisee the exclusive right to
market individual franchise centers for the company in the area
franchisee's territory. The area franchisee generally receives a
commission on individual franchises sold as well as a share of future
royalties earned by the company from centers in the area franchisee's
territory. Individual franchise agreements grant the individual franchisee
the exclusive right to open and operate a franchise center in the individual
franchisee's territory.
Franchise fee revenue is recognized upon completion of all significant
initial services provided to the franchisee, area franchisee or master
licensee and upon satisfaction of all material conditions of the franchise
agreement, area franchise agreement or master license.
For individual franchise sales, the significant initial obligations that
must be completed before any revenue is recognized are: the site is
located, a store lease is in place, the franchise agreement has been
signed, the store design and layout is complete, all manuals and systems
have been provided, and training at MBE is completed.
For area franchise sales, the significant initial obligations that must be
completed before any revenue is recognized are: all operating manuals are
provided, training is completed and a pilot center is opened.
For master license agreements, the significant initial obligations that
must be completed before any revenue is recognized are: all operating
manuals are provided and training is completed.
Revenue is recognized using the installment method when the revenue is
collectable over an extended period and no reasonable basis exists for
estimating collectibility.
On a monthly basis, all individual franchisees are required to pay royalty
and marketing fees to the company based upon a percentage of each
franchisee's sales (as defined). Such fees are recognized as revenue based
upon reported or estimated sales activity by the franchisees. Revenue
from sales of supplies and equipment is recognized when orders are
shipped.
Prior to FY95 the company acted as trustee for certain advertising fees
received from the franchisees. The funds were refunded to the franchisees
as cost reimbursement associated with local advertising programs. Such
fees, amounting to $1,426,473 at April 30, 1994, are not included in the
accompanying financial statements. In FY95, the National Media Fund was
created to administer national advertising programs. The National Media
Fund is managed by a committee of area franchisees, franchisees and MBE.
Certain advertising fees, based on franchisees' sales (as defined), are
collected by the company for the National Media Fund. Such advertising
fees are not included in the accompanying financial statements. As of
April 30, 1995, the company had advanced $1,600,000 to the National
Media Fund to fund certain national advertising programs. These advances,
including interest, are to be repaid to the company during FY96 based on
the collection of the advertising fees and availability of funds.
Cash, Cash Equivalents and Short-Term Investments
The company considers cash equivalents to be those instruments which
have original maturities of three months or less.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," effective for fiscal years
beginning after December 15, 1993. The company adopted the new standard
beginning May 1, 1994. The cumulative effect of the adoption of Statement
No. 115 was immaterial. Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates
such designation as of each balance sheet date. Debt securities for which
the company does not have the intent or the ability to hold to maturity are
classified as available for sale along with the company's investments in
equity securities.
Securities classified as available for sale are carried at fair value, with
unrealized gains and losses, net of tax, reported in a separate component
of stockholders' equity. At April 30, 1995, the company had no investments
that were classified as trading or held to maturity as defined by
Statement No. 115.
Realized gains and losses are included in interest income. The cost of
securities sold is based on the specific identification method. Interest on
securities classified as available for sale is included in interest income.
The following is a summary of cash and the estimated fair value of
available for sale securities by balance sheet classification at April 30,
1995:
Cash and cash equivalents:
Cash $ 160,872
Money market fund 229,969
Short-term investments:
Mutual fund preferred equity securities 10,036,718
Total cash, cash equivalents and short-term investments $10,427,559
The estimated fair value of each investment approximates the amortized
cost, and therefore, there are no unrealized gains or losses as of April 30,
1995.
"Restricted cash-franchisee deposits" is the amount that prospective
franchisees have deposited into a separate escrow account managed by
MBE. When all of the requirements for recognizing revenue for an
individual, area or master license sale are completed (see the "Revenue
Recognition" section of Note 1), then the deposit amount is transferred
from this separate account into MBE's regular account and the revenue
from the sale is recognized. If MBE's obligations are not completed then
these deposits are usually refundable. The account, "Franchisee deposits",
in the liability section of the balance sheet includes the restricted cash
deposit amount plus any other monies deposited with MBE by its
franchisees. These amounts are either not refundable or they are not
related to a sale.
Concentration of Credit Risk
The company invests its excess cash in debt and equity instruments of
financial institutions and corporations with strong credit ratings. The
company has established guidelines relative to diversification and
maturities that attempt to maintain safety and liquidity. These guidelines
are periodically reviewed and modified to take advantage of trends in
yields and interest rates. The company has not experienced any significant
losses on its cash equivalents or short-term investments.
Receivables from franchisees include trade receivables, lease receivables
and notes receivable. Credit is extended based on an evaluation of the
franchisees' financial condition. Sales-type and direct financing leases
are collateralized by the leased equipment and fixtures. Trade receivables
are not collateralized. However, the center ownership transfer process
requires that amounts owed be paid when a center is transferred. Notes
receivable from area franchisees and master licensees are collateralized
by the area rights or master license rights, respectively. Credit losses are
provided for in the financial statements.
Inventories
Inventories consist of supplies and equipment held for resale to
franchisees and equipment held for lease. Inventories are recorded at the
lower of cost (first-in, first-out method) or market.
Re-Acquired Individual and Area Franchise Rights
The company repurchases franchise rights for two primary reasons. The
company may repurchase area rights with the intention of developing a
better support system and then re-selling the area(s) within a short
period of time. The company may acquire individual center rights to
upgrade the center and then re-sell it within a short period of time. The
company had an investment of approximately $1,015,744 and $1,536,316
in such individual and area rights at April 30, 1995 and 1994,
respectively. The company may also repurchase the area rights with the
primary intention of retaining the royalties normally shared with the
former area franchisees and maintaining such rights as long-term
investments. The company had an investment of $3,030,670 in such area
rights at April 30, 1995. Area franchise rights held as long-term
investments are amortized over a period of 20 years.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization is
computed using the straight-line method over the following estimated
useful lives:
Building 31.5 years
Building improvements 12.5-31.5 years
Office furniture and equipment 3-5 years
Vehicles 3 years
Net Income Per Common Share
Earnings per share are based on the weighted average number of common
shares and common share equivalents outstanding during the period.
Reclassifications
Certain amounts in the FY94 and FY93 consolidated financial statements
have been reclassified to conform to the FY95 presentation.
Income Taxes
Effective May 1, 1993, the company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under
Statement 109, the liability method is used to account for income taxes.
Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Prior to the adoption of Statement 109, the company accounted for income
taxes under the deferred method. Under the deferred method, deferred tax
expense was based on items of income and expense that were reported in
different years in the financial statements and tax returns and were
measured at the rate in effect in the year the difference originated.
As permitted by Statement 109, the company has elected not to restate
the financial statements of any prior years. The effect of the change on
income taxes for the year ended April 30, 1994, and the cumulative effect
of the change were not material (see Note 6).
2. Notes Receivable
<TABLE>
<CAPTION>
Notes receivable consist of the following at April 30:
1995 1994
<S> <C> <C>
Notes with interest rates ranging from 8%-14%,
from individual franchisees, due at varying
dates through 2003. $10,219,872 $4,993,646
Notes with interest rates ranging from 8%-14%,
from area franchisees due at varying dates
through 2003. 6,220,281 5,642,996
Notes with interest rates ranging from 8.5% -
11.75% from master licensees due at varying
dates through 2000. 2,469,503 2,706,869
18,909,656 13,343,511
Less portion due within one year (6,065,275) (4,046,767)
Less allowance for uncollectible notes (1,415,000) (671,013)
$11,429,381 $ 8,625,731
Interest earned for the fiscal year ended
April 30: $ 1,537,161 $ 944,370
</TABLE>
Scheduled principal maturities for notes receivable as of April 30, 1995,
are as follows: 1996 - $6,065,275; 1997 - $3,246,742;
1998 - $3,007,360; 1999 - $2,823,326; 2000 - $1,945,077; and
thereafter - $1,821,876.
At April 30, 1995, the company is obligated to fund approximately
$700,000 under certain financing programs offered to franchisees.
3. Net Investment Sales _ Type and Direct Financing Leases
The company leases various types of office and computer equipment to
franchisees under three-through eight-year lease agreements. The
following summarizes the components of the net investment in sales-type
and direct financing leases at April, 30:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Total minimum lease payments to be received $15,429,281 $16,529,882
Less unearned income (4,100,678) (4,702,757)
Net investment in sales-type and direct
financing leases 11,328,603 11,827,125
Less portion due within one year (2,488,654) (2,423,514)
$8,839,949 $9,403,611
Interest earned during the year ended
April 30: $1,525,308 $1,565,630
</TABLE>
Annual minimum lease payments subsequent to April 30, 1995, are as
follows: 1996 - $3,866,391; 1997 - $3,385,097; 1998 - $2,879,165;
1999 - $2,191,989; 2000 - $1,509,875; and thereafter - $1,596,764.
4. Debt
The company has a line of credit with a bank which allows maximum
borrowings of $7,000,000. As of April 30, 1995, $5,400,000 is available
for borrowing under the line of credit.
The line of credit, which is collateralized by substantially all assets of
the company, bears interest at a rate based on LIBOR plus certain basis
points (7.245% at April 30, 1995). The agreement expires on September 1,
1996, at which time all outstanding borrowing can be converted to a three
year term loan, which would be payable in equal monthly installments.
The line of credit agreement contains various covenants, including
limitations on additional indebtedness and maintaining certain financial
ratios. The company was not in compliance with one of the notice
requirements of the loan agreement during FY95, but received a waiver
from the bank for this item.
5. Notes Payable
Long-term debt consists of notes payable to former area franchisees in
connection with the repurchase of area franchise rights. Payments are
made in monthly installments of $18,138, including interest at 8% per
annum. Included in notes payable is $878,702 payable to a former area
franchisee who, subsequent to April 30, 1995, accepted a position as an
officer of the company.
Aggregate principal maturities on notes payable at April 30, 1995 are as
follows: 1996 - $104,848; 1997 - $113,550; 1998 - $122,974;
1999 - $133,181; 2000 - $144,235; and thereafter - $822,687.
6. Income Taxes
The provision for income taxes consists of the following for each of the
years ended April 30:
<TABLE>
<CAPTION>
Liability Method Deferred Method
1995 1994 1993
<S>
Current: <C> <C> <C>
Federal $4,352,630 $3,841,013 $3,854,547
State 1,088,000 1,138,009 1,081,700
5,440,630 4,979,022 4,936,247
Deferred:
Federal (889,491) (732,000) (228,483)
State (139,230) (111,000) 7,647
(1,028,721) (843,000) (220,836)
$4,411,909 $4,136,022 $4,715,411
</TABLE>
The company has derived tax deductions measured by the excess of the
market value over the option price at the date employee stock options
were exercised. The cumulative related tax benefit of approximately
$476,000 has been credited to common stock.
Significant components of the company's deferred tax assets for federal
and state income taxes as of April 30 are:
<TABLE>
<CAPTION>
Deferred tax assets: Liability Method
1995 1994
<S> <C> <C>
Valuation reserves $1,678,689 $ 627,400
State taxes 294,818 352,384
Deferred compensation 131,398 96,400
Total deferred tax assets $2,104,905 $1,076,184
</TABLE>
Deferred taxes result from timing differences in the recognition of
revenue and expense for tax and financial reporting purposes. The sources
of these differences and the related tax effects were as follows:
<TABLE>
<CAPTION>
Deferred Method
1993
<S> <C>
Installment sales method of recognizing income $(208,836)
Franchise repurchase 203,114
Valuation reserves 41,644
State franchise taxes (271,900)
Other 15,142
$(220,836)
</TABLE>
A reconciliation between the amount of tax computed by multiplying
income before taxes by the applicable statutory rates and the amount of
reported taxes is as follows:
<TABLE>
<CAPTION>
Liability Method Deferred Method
1995 1994 1993
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State tax net of federal tax benefit 5.6% 6.5% 6.2%
Other (0.1%) 0.2% 0.5%
39.5% 40.7% 40.7%
</TABLE>
7. Stock Options
The company has granted options to officers and key employees under a
stock option plan to purchase shares of the company's common stock.
Options are generally granted at prices equal to the fair market value of
the shares at the date of grant and are generally exercisable in cumulative
annual increments of 25% each year, commencing one year after the date
of grant. At April 30, 1995, 407,619 options were exercisable and the
company had 853,503 shares available for future grant under the stock
option plan. Transactions under the stock option plan during FY95 and
FY94 are summarized as follows:
<TABLE>
<CAPTION>
Number of Shares Price Per Share
<S> <C> <C>
Outstanding at April 30, 1992 638,152 $2.91-20.50
Granted 242,469 13.75-17.00
Exercised (100,616) 3.23-12.13
Cancelled (12,286) 4.13-13.75
Outstanding at April 30, 1993 767,719 2.91-20.50
Granted 227,593 10.50-12.75
Exercised (72,193) 2.91-9.43
Cancelled (76,304) 7.03-13.75
Outstanding at April 30, 1994 846,815 4.13-20.50
Granted 257,930 6.81-9.88
Exercised (146,171) 4.13-7.74
Canceled (44,359) 6.81-13.75
Outstanding at April 30, 1995 914,215 4.13-20.50
</TABLE>
8. Shareholders Equity
On October 3, 1990, United Parcel Service (UPS) purchased 1,066,666
shares of common stock at $9.47 per share and warrants to purchase an
additional 1,066,667 shares over the next three years. The total price paid
by UPS for the stock and warrants was $11,268,000; related expenses
were $596,161.The warrants entitled UPS to purchase 355,555 shares
each October 3 from 1991 through 1993, at prices ranging from $10.13 to
$14.58. UPS exercised its first and second group of warrants and
purchased 355,555 shares on October 3, 1991, and 355,555 shares on
October 3, 1992. UPS declined to exercise its null group of warrants in
October 1993, and allowed them to expire because the exercise price was
above the then current market price.
9. Franchise Fees
Franchise fees consist of the following for each of the years ended
April 30:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Individual franchises $6,774,530 $6,310,116 $6,730,236
Area franchises 57,700 217,560 1,258,620
Master licenses &
international fees 1,170,274 1,142,034 1,713,246
Transfer and renewal fees 667,743 166,981 88,539
$8,670,247 $7,836,691 $9,790,641
</TABLE>
10. Royalty Expenses
Royalties shared with area franchisees are included in franchise
operations in the accompanying consolidated statements of income and are
as follows: 1995 - $9,689,162; 1994 - $8,126,020; and 1993 - $6,402,906.
11. Employee Benefit Plans
In November 1988, the company adopted an amended and restated Stock
Purchase and Salary Savings Plan (Plan) covering substantially all
employees that have been employed for at least six months and meet other
age and eligibility requirements. Employees may contribute up to ten
percent of compensation per year (subject to a maximum limit by federal
tax law) into various funds.
Profit-sharing contributions by the company to the Plan are made at the
discretion of the Board of Directors and were $420,000, $120,000, and
$163,000 for the years ended April 30, 1995, 1994 and 1993,
respectively. At the discretion of the Board of Directors, the company may
also make annual matching contributions to the Plan. Matching
contributions for 1995, 1994 and 1993 were equal to 50% of the
employee's contributions.
The company has entered into an employment agreement with its president
and chief executive officer, under which the company agreed to obtain a
split dollar life insurance policy for his benefit. The company contributed
$100,000 in both FY95 and FY94, towards the funding of this policy. The
company has retained an equity interest in this policy equal to the extent
of its contributions. Consequently, there is no effect on the company's
earnings as a result of these contributions. Contributions after FY95 will
be determined annually by the Board of Directors.
12. Litigation
The company has become subject to various lawsuits and claims from its
franchisees and employees in the course of conducting its business. The
company intends to vigorously defend these actions and believes that the
ultimate resolution will not have a material adverse effect on the
company's financial condition or liquidity. However, there can be no
assurance that an unfavorable result would not have a material adverse
effect on the company's results of operations.
13. Related Party Transactions
A significant portion of the franchisees' revenues is generated by UPS
services. The company receives royalty revenue based on revenues earned
by the franchisees. The company recognized royalty and marketing fee
revenues generated from UPS services of $7,410,000, $5,912,000, and
$4,747,000 for the years ended April 30, 1995, 1994, and 1993,
respectively.
14. Quarterly Information (Unaudited)
The following quarterly information includes all adjustments which
management considers necessary for a fair statement of such information.
For interim quarterly financial statements, the provision for income taxes
is estimated using the best available information for projected results
for the entire year (in thousands, except for per share data).
<TABLE>
<CAPTION>
FY95 First Second Third Fourth
<S> <C> <C> <C> <C>
Total revenues $ 9,726 $12,828 $14,715 $13,083
Total cost and expenses 7,963 10,225 11,087 10,342
Provision for income taxes 768 1,088 1,434 1,122
Net income 1,114 1,587 2,316 1,753
Earnings per share .10 .14 .20 .16
</TABLE>
<TABLE>
<CAPTION>
FY94 First Second Third Fourth
<S> <C> <C> <C> <C>
Total revenues $10,384 $11,958 $12,369 $8,949
Total cost and expenses 7,262 9,046 8,846 8,980
Provision for income taxes 1,324 1,254 1,504 54
Net income 1,933 1,832 2,199 68
Earnings per share .16 .15 .18 .01
</TABLE>
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Mail Boxes Etc.
We have audited the accompanying consolidated balance sheets of Mail
Boxes Etc. as of April 30, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the
three years in the period ended April 30, 1995. These financial statements
are the responsibility of the company's management. Our responsibility is
to express an opinion on these 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 financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Mail Boxes
Etc. at April 30, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period
ended April 30, 1995, in conformity with generally accepted accounting
principles.
June 8, 1995
San Diego, California
Shareholder Information
Communications
Mail Boxes Etc. shareholder publications (annual report, proxy statement
and mid-year report) are mailed to all shareholders.
Investor Relations and Franchise Opportunities.
General questions about the company should be directed to Mail Boxes Etc.,
Investor Relations, 6060 Cornerstone Court West, San Diego, CA 92121-
3795 or Internet: [email protected]. If you would like to receive the most
recent MBE company information via fax, please call (800) 356-8065. For
information on MBE franchise opportunities, call (800) 456-0414.
Annual Report on Form 10-K
To receive a copy of MBE's most recent annual report or Form 10-K, as
led with the Securities and Exchange Commission, write to: Investor
Relations, Mail Boxes Etc., 6060 Cornerstone Court West, San Diego, CA
92121-3795.
Common Stock Information
The shares of the company's common stock are traded in the Over-The-
Counter market as reported by the NASDAQ National Market System under
the symbol "MAIL". Options on MBE's common stock are traded on the New
York Stock Exchange under the symbol "MAQ."
Independent Auditors
Ernst & Young LLP, 501 West Broadway, Ste. 1100, San Diego, CA 92101
Stock Transfer Agent and Registrar
First Interstate Bank, 707 Wilshire Blvd., Los Angeles, CA 90017
Annual Meeting
Mail Boxes Etc. annual shareholders' meeting will take place on Friday,
August 25, 1995, at 10:30 a.m. (PDT) at the Wyndham Hotel, 5975 Lusk
Blvd., San Diego, CA 92121.
On July 10, 1995 the closing stock price was $11.00. The approximate
number of stockholders of record was 1,000 as of July 10, 1995.
Common Stock Data
<TABLE>
<CAPTION>
NASDAQ price range of common stock.
FY Ended April 30, FY95 FY94
Quarter High Low High Low
<S> <C> <C> <C> <C>
First $ 9.31 $6.63 $14.25 $10.50
Second 10.50 6.75 14.25 12.63
Third 11.25 9.50 13.38 10.75
Fourth 10.38 9.38 11.00 7.75
</TABLE>
To date, the company has not declared or paid any cash dividends on its
common stock and does not expect to pay any dividends in the foreseeable
future.
Board of Directors
Michael Dooling, Chairman of the Board
General Partner, Jacaranda Partners (investment partnership)
Anthony W. (Tony) DeSio, President, Chief Executive Officer
and Vice Chairman of the Board
Robert J. DeSio, Vice President, Franchise Services
Richard J. Greene, Vice President, United Parcel Service
James F. Kelly, Chairman, Chief Executive Officer,
Kelly, Anderson, Pethick & Associates, Inc. (management
consulting rm)
Daniel L. LaMarche, Consultant to Integrated Marketing
and Insurance Services
Committees of the Board
Executive Committee and Nominating Committee:
Michael Dooling, Chairman; Anthony W. (Tony) DeSio and
James F. Kelly
Audit Committee: James F. Kelly, Chairman; Michael Dooling,
and Richard J. Greene
Compensation Committee: James F. Kelly, Chairman;
Michael Dooling and Richard J. Greene
Company Officers
Anthony W. (Tony) DeSio
President, Chief Executive Ofcer and Vice Chairman of the Board
Roger A. Peters
Assistant to the President
Gary S. Grahn
Vice President, Finance and Administration, Chief Financial Ofcer
Bruce M. Rosenberg
Vice President, General Counsel and Secretary
Fred L. Morache
Vice President, Business Development
Ralph Askar
Vice President, Franchise Development
Robert J. DeSio
Vice President, Franchise Services
William Lange
Vice President, Marketing
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Mail Boxes Etc. of our report dated June 8, 1995,
included in the 1995 Annual Report to Shareholders of Mail Boxes
Etc.
Our audit also included the financial statement schedule of Mail
Boxes Etc. listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is
to express an opinion based on our audit. In our opinion, the
financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the
Registration Statements (Form S-8, Nos. 33-37921, 33-19726, and 33
56486) pertaining to the Restated 1985 Stock Option Plan, and the
Stock Purchase and Salary Savings Plan of Mail Boxes Etc. and in
the related Prospectuses, respectively, of our report dated June 8,
1995 with respect to the consolidated financial statements and
schedule of Mail Boxes Etc., included or incorporated by reference
in this Annual Report (Form 10-K) for the year ended April 30,
1995.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Diego, California
July 20, 1995
