<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1999
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: 0-22834
SUCCESSORIES, INC.
(Exact name of registrant as specified in its charter)
ILLINOIS 36-3760230
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2520 DIEHL ROAD
AURORA, ILLINOIS 60504
(Address of principal executive offices) (Zip Code)
(630) 820-7200
(Registrant's telephone number, including area code)
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
--- ---
Registrant had 6,930,106 shares of common stock, $.01 par value,
outstanding as of September 3, 1999.
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<PAGE>
SUCCESSORIES, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
PAGE NUMBER
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets...................................... 3
Consolidated Statements of Operations............................ 4
Consolidated Statement of Stockholders' Equity................... 5
Consolidated Statements of Cash Flows............................ 6
Notes to Consolidated Financial Statements....................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk................................................ 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 23
Item 2. Changes in Securities............................................ 23
Item 4. Submission of Matters to a Vote of Security Holders.............. 24
Item 6. Exhibits and Reports on Form 8-K................................. 24
SIGNATURES ................................................................. 25
INDEX TO EXHIBITS ................................................................. 26
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
SUCCESSORIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
July 31, January 30,
1999 1999
--------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 940,000 $ 1,615,000
Accounts and notes receivable, net of allowance
of $693,000 and $660,000, respectively 3,110,000 3,706,000
Inventories, net 9,318,000 10,618,000
Prepaid catalog expenses 1,143,000 1,067,000
Other prepaid expenses 1,190,000 1,011,000
--------------- ------------
Total current assets 15,701,000 18,017,000
Property and equipment, net 9,226,000 9,899,000
Notes receivable 142,000 297,000
Deferred financing costs, net 348,000 400,000
Deferred income taxes 5,476,000 5,476,000
Intangibles and other assets, net 860,000 888,000
--------------- -------------
TOTAL ASSETS $ 31,753,000 $ 34,977,000
--------------- -------------
--------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,739,000 $ 6,035,000
Accounts payable 5,314,000 6,447,000
Accrued expenses 1,806,000 2,022,000
--------------- ------------
Total current liabilities 11,859,000 14,504,000
Long-term debt 3,989,000 5,049,000
--------------- ------------
Total liabilities 15,848,000 19,553,000
--------------- -----------
Minority interest in subsidiaries -- 51,000
--------------- --------------
Stockholders' equity:
Common stock, $.01 par value; 20,000,000 shares
authorized; 6,930,106 and 6,913,293 shares issued
and outstanding, respectively 69,000 69,000
Preferred stock, $.01 par value; 503,092 shares authorized;
503,092 shares issued and outstanding as of July 31, 1999 5,000 --
Common stock warrants 2,291,000 1,788,000
Notes receivable from stockholders (165,000) (273,000)
Additional paid-in capital 27,438,000 26,188,000
Accumulated deficit (13,669,000) (12,335,000)
Accumulated other comprehensive loss (64,000) (64,000)
--------------- -------------
Total stockholders' equity 15,905,000 15,373,000
--------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,753,000 $ 34,977,000
--------------- -------------
--------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
SUCCESSORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------- ------------------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
--------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net product sales $ 11,609,000 $11,506,000 $ 23,665,000 $ 23,767,000
Cost of goods sold 5,190,000 5,180,000 10,452,000 10,357,000
------------- ------------- ------------ ------------
Gross profit on product sales 6,419,000 6,326,000 13,213,000 13,410,000
Fees, royalties and other income 229,000 378,000 384,000 696,000
------------- -------------- ------------ ------------
Gross margin 6,648,000 6,704,000 13,597,000 14,106,000
Operating expenses 7,087,000 8,395,000 14,211,000 16,805,000
------------- ------------- ------------ ------------
Loss from operations (439,000) (1,691,000) (614,000) (2,699,000)
-------------- ------------- ------------- -------------
Other income (expense):
Interest expense (333,000) (330,000) (696,000) (671,000)
Minority interests in subsidiaries (34,000) 26,000 (64,000) (10,000)
Interest income 19,000 6,000 28,000 12,000
Other, net 18,000 30,000 20,000 34,000
-------------- ------------- ------------- -------------
Total other expense (330,000) (268,000) (712,000) (635,000)
-------------- ------------- ------------- -------------
Loss before income tax (769,000) (1,959,000) (1,326,000) (3,334,000)
Income tax -- -- -- --
-------------- ------------- ------------- -------------
Net loss $ (769,000) $(1,959,000) $ (1,326,000) $ (3,334,000)
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Foreign currency translation adjustment -- 4,000 -- 5,000
-------------- ------------- ------------- -------------
Comprehensive loss $ (769,000) $(1,955,000) $ (1,326,000) $ (3,329,000)
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
Loss per share:
Basic and diluted $ ( .11) $ ( .29) $ ( .19) $ ( .49)
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
SUCCESSORIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Notes
Common Stock Preferred Stock Common Receivable Additional
------------------ ----------------- Stock From Paid-In Accumulated
Shares Amount Shares Amount Warrants Stockholders Capital Deficit
-------- ------ ------ ------ ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 30, 1999 6,913,293 $69,000 -- -- $1,788,000 $(273,000) $26,188,000 $(12,335,000)
Net loss -- -- -- -- -- -- -- (1,326,000)
Stock warrants -- -- -- -- 503,000 -- -- --
Notes receivable payments
and write-off -- -- -- -- -- 108,000 -- --
Common stock transactions:
Sales of common shares 16,813 -- -- -- -- -- 35,000 --
Preferred stock transactions:
Sales of preferred shares -- -- 503,092 5,000 -- -- 1,215,000 --
Preferred stock dividends -- -- -- -- -- -- -- (8,000)
--------- -------- ---------- ------------ ------------ ----------- ------------ --------------
Balance at July 31, 1999 6,930,106 $69,000 503,092 $ 5,000 $2,291,000 $ (165,000) $ 27,438,000 $(13,669,000)
--------- -------- ---------- ------------ ------------ ------------ ------------ --------------
--------- -------- ---------- ------------ ------------ ------------ ------------ --------------
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders'
Loss Equity
------------- -------------
<S> <C> <C>
Balance at January 30, 1999 $ (64,000) $15,373,000
Net loss -- (1,326,000)
Stock warrants -- 503,000
Notes receivable payments
and write-offs -- 108,000
Common stock transactions:
Sales of common shares -- 35,000
Preferred stock transactions:
Sales of preferred shares -- 1,220,000
Preferred stock dividends -- (8,000)
------------ ------------
Balance at July 31, 1999 $ (64,000) $ 15,905,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
SUCCESSORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------
July 31, August 1,
1999 1998
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,326,000) $(3,334,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,241,000 1,369,000
Amortization of debt discount 114,000 59,000
------------- --------------
29,000 (1,906,000)
Changes in operating assets and liabilities:
Accounts and notes receivable 709,000 2,967,000
Inventories 1,300,000 (1,721,000)
Prepaid catalog expenses (76,000) 765,000
Other prepaid expenses (330,000) (342,000)
Deferred financing costs 52,000 38,000
Accounts payable (1,083,000) 541,000
Accrued expenses (216,000) 176,000
Minority interest (51,000) (253,000)
Other (18,000) 116,000
------------- --------------
Net cash provided by operating activities 316,000 381,000
------------- --------------
Cash flows from investing activities:
Proceeds from notes receivable issued in connection with
sale of property and equipment 42,000 --
Proceeds from sale of property and equipment 2,000 --
Purchases of property and equipment (373,000) (1,243,000)
------------- --------------
Net cash used in investing activities (329,000) (1,243,000)
------------- --------------
Cash flows from financing activities:
Proceeds from sales of common stock 35,000 28,000
Proceeds from sale of preferred stock 1,220,000 --
Proceeds from notes receivable issued to stockholders 58,000 --
Preferred stock dividends (8,000) --
Net repayments on revolving credit loan (602,000) 754,000
Repayments of long-term debt (1,365,000) (318,000)
------------- --------------
Net cash (used in) provided by financing activities (662,000) 464,000
------------- --------------
Net decrease in cash (675,000) (398,000)
Cash and cash equivalents, beginning of period 1,615,000 1,751,000
------------- --------------
Cash and cash equivalents, end of period $ 940,000 $ 1,353,000
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
SUCCESSORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. DESCRIPTION OF THE BUSINESS
Successories, Inc. and its subsidiaries (collectively the "Company") design,
manufacture, and market proprietary and licensed products for business, personal
motivation and for golf enthusiasts. The Company considers itself a single line
of business with products that are marketed primarily under the SUCCESSORIES,
WINNERS Collection, BRITISH LINKS and THE GOLF COMPANY FROM GOLF DIGEST trade
names through direct marketing (catalog, electronic commerce and telemarketing),
retail (Company-owned stores) and wholesale distribution (including sales to
franchisees) channels. The Company operates a chain of Successories retail
stores located primarily in the United States. The Company also operates a
franchising program whereby it sells franchises to market the Company's products
under the SUCCESSORIES trademark.
NOTE 2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared, without
audit, in accordance with generally accepted accounting principles for interim
financial information and in conjunction with the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring matters) considered necessary for a fair
presentation have been included. Certain prior year amounts have been
reclassified to conform with the current year presentation.
The Company's fiscal year ends on the Saturday closest to January 31. References
to the three and six months ended July 31, 1999 and August 1, 1998, refer to the
thirteen and twenty-six weeks ended on the dates indicated.
The results of operations for the six months ended July 31, 1999 are not
necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the Company's financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended January 30, 1999.
NOTE 3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
July 31, January 30,
1999 1999
------------- -------------
<S> <C> <C>
Finished goods $ 6,859,000 $ 8,199,000
Raw materials 2,678,000 2,638,000
------------- -------------
9,537,000 10,837,000
Less: reserve for obsolescence (219,000) (219,000)
-------------- -------------
$ 9,318,000 $ 10,618,000
------------- -------------
------------- -------------
</TABLE>
7
<PAGE>
NOTE 4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
July 31, January 30,
1999 1999
------------- -------------
<S> <C> <C>
Bank borrowings:
Term loan, net of debt discount of
$896,000 and $477,000 $ 4,068,000 $ 5,800,000
Revolving credit loan 4,273,000 4,874,000
Fixed rate loan, net of debt discount of
$230,000 and $260,000 269,000 240,000
Capital lease obligations 118,000 170,000
------------- -------------
8,728,000 11,084,000
Less: current portion (4,739,000) (6,035,000)
-------------- -------------
Long-term debt $ 3,989,000 $ 5,049,000
-------------- -------------
-------------- -------------
</TABLE>
On June 20, 1997, the Company entered into a credit facility agreement with The
Provident Bank (the "Bank"). Per the agreement, as amended most recently on
April 28, 1999, the facility is comprised of a $7.5 million term loan and a
revolving credit loan. The revolving credit loan provides for maximum borrowings
of $9 million through May 1, 2000 and for each succeeding July 1 through
December 31; the maximum borrowings at all other times is $6 million. Borrowings
under the revolving credit loan are limited to 85% of eligible receivables plus
50% of eligible inventory, as defined, provided that from February through April
eligible inventory is limited to $5 million through the year 2000 and $3 million
in years thereafter. A commitment fee of 0.5% is payable on the daily unused
amount of the maximum revolving credit commitment. The facility expires in June
2003, and borrowings under the facility are secured by substantially all the
assets of the Company. The interest rates on the term loan and revolving credit
loan borrowings generally fluctuate based on the margin ratio, as defined, from
a minimum of prime plus 0.50% to a maximum of prime plus 3.00% on the term loan,
and a minimum of prime to a maximum of prime plus 3.00% on the revolving credit
loan. Interest is payable monthly. The interest rates on the term loan and
revolving credit loan were 9.25% and 11.00%, respectively, at July 31, 1999. The
term loan is payable in quarterly installments of $125,000 through June 1, 1998,
$312,500 from September 1, 1998 through June 1, 2000, and $375,000 thereafter.
Prepayments on the loans are required in certain cases including, among others,
equity offerings and asset dispositions. Further, the Company must annually
prepay the loans in an amount equal to 60% of excess cash flow, as defined. As
of July 31, 1999, available borrowings on the revolving credit loan were
$802,000. On June 20, 1997, warrants to purchase 150,000 shares of the Company's
common stock were issued to the Bank as part of this agreement. Initially these
warrants had exercise prices ranging from $6.19 to $9.73 and expiration dates in
June 2001; however, the exercise prices were subsequently adjusted to $2.00 and
the expiration dates were extended to June 2005.
In July 1997, the agreement for the credit facility was amended to include an
additional $500,000 fixed rate loan. The loan bears interest at 12% and is due
in June 2003. Warrants to purchase an additional 72,464 shares were issued to
the Bank in connection with this amendment and initially had an exercise price
of $6.90 and an expiration date of July 2003; however, the exercise price was
subsequently adjusted to $2.00 and the expiration date was extended to July
2005.
On April 28, 1999, the agreement was amended to waive the earnings before
interest, taxes, depreciation and amortization ("EBITDA"), interest coverage
ratio, fixed charge coverage, debt to EBITDA ratio, and capital expenditure
limitation covenants for the year ended January 30, 1999, and adjust certain
other
8
<PAGE>
covenants prospectively. The amended agreement requires that (i) adjusted
EBITDA, as defined, which is based on a rolling four quarter period, may not
be less than a loss of $1,565,000 for the four quarters ended July 31, 1999,
and increases each subsequent quarter to $6,800,000 for the four quarters
ended November 4, 2000; and for each quarter thereafter; (ii) the interest
coverage ratio, as defined, may not be less than 0.75 to 1.0 at October 30,
1999, and increases each subsequent quarter to 5.0 to 1.0 for the quarter
ended April 29, 2000 and for each quarter thereafter; (iii) the fixed charge
coverage ratio, as defined, may not be less than 2.6 to 1.0 at January 29,
2000, and 1.5 to 1.0 thereafter; and (iv) the debt to EBITDA ratio, as
defined, may not be greater than 3.0 to 1.0 at January 29, 2000 and
thereafter. Also, in certain cases where prepayments on the loans are made in
connection with equity offerings, the amendment provides that certain
quarterly installments on the term loan will be deferred and the limits on
borrowings relating to eligible inventory under the revolving credit loan
will be increased.
As a result, pursuant to the terms of the Bank credit agreement, $1,000,000 of
proceeds from the sale of convertible preferred stock by the Company in May 1999
were used to make a prepayment on the next three quarterly installments through
December 1, 1999, on the term loan. Also, per the agreement the limitation on
borrowings against eligible inventory, as defined, under the Company's revolving
credit loan was increased from 50% to 54%. For further information on the sale
of convertible preferred stock by the Company, see Note 5.
In conjunction with the April 28, 1999 amendment, warrants to purchase an
additional 300,000 shares were issued to the Bank at an exercise price of $2.50
that expire in 2005, the expiration dates of the 150,000 warrants previously
issued to the bank on June 20, 1997 were extended an additional two years and
the Company paid the bank a fee equal to 0.5% of the aggregate commitments under
the facility. The bank fee of $69,000 is included in interest expense in the
accompanying financial statements for the six months ended July 31, 1999.
The credit facility also contains other provisions, including limits on capital
expenditures and additional indebtedness, and restrictions on the payment of
dividends. At July 31, 1999, the Company was in compliance with the debt
covenant requirements of the credit facility agreement.
On May 14, 1998, the agreement was amended to waive the earnings before
interest, taxes, depreciation and amortization ("EBITDA") and interest coverage
ratio covenants for the year ended January 31, 1998, and adjust certain other
covenants. The amended agreement required that (i) EBITDA, which is based on a
rolling four quarter period, may not be less than $4 million for the four
quarters ended May 2, 1998, and increases each subsequent quarter to $6.8
million for the four quarters ended February 3, 2001 and each quarter thereafter
and (ii) the interest coverage ratio, as defined, not be less than 3.0 to 1.0
from May 2, 1998 through October 31, 1998, 4.0 to 1.0 at January 30, 1999, 4.5
to 1.0 at May 1, 1999 and July 31, 1999, and 5.0 to 1.0 thereafter. In addition,
on September 1, 1998, the agreement was again amended to waive the EBITDA
covenant, the interest charge coverage ratio and other related covenants for the
second quarter of fiscal 1998 provided that EBITDA for the third quarter of
fiscal 1998 was not less than $1.6 million. On December 11, 1998, the Company
obtained a waiver from the bank for the EBITDA and interest coverage covenants
for the third quarter ended October 31, 1998.
In conjunction with the May 14, 1998 amendment, the exercise prices of the
warrants to purchase 222,464 shares of common stock previously issued to the
Bank were reduced to $5.85 and their expiration dates were extended for one
year. In conjunction with the September 1, 1998 amendment, the exercise prices
of these warrants were reduced to $3.00 and their expiration dates were extended
for another year. In conjunction with the waiver obtained on December 11, 1998,
the exercise prices of these warrants were reduced to $2.00.
9
<PAGE>
The stock warrants issued in conjunction with the credit facility and certain
other financing transactions were assigned a fair value using the
Black-Scholes option pricing model. The fair value of the warrants have been
reflected as a discount on the debt and are being amortized as interest
expense over the terms of the related debt. Interest expense related to these
warrants amounted to $114,000 and $59,000 for the six months ended July 31,
1999 and August 1, 1998, respectively.
The weighted average interest rates on borrowings outstanding as of July
31, 1999 and January 30, 1999 were 10.5% and 9.9%, respectively.
NOTE 5. PREFERRED STOCK
On May 28, 1999, the Company authorized and issued 503,092 shares of Series A
convertible preferred stock to a group of investors, pursuant to Regulation D of
the Securities Act of 1933. The Series A preferred stock has a par value of
$0.01 per share and a purchase price of $2.425 per share. Dividends on the
preferred stock accrue and are payable quarterly in either cash or common stock,
at the Company's discretion, at the rate of 8% per annum, commencing on the date
of issuance. Accrued and unpaid dividends shall be paid on (1) April 30, July
31, October 31, and January 31 of each year commencing on July 31, 2000, to the
holders of record as they appear on the books and records of the Company 10 days
preceding each payment date, and (2) the date certificates representing common
stock of the Company are required to be delivered following any conversion of
Series A convertible preferred stock. Holders of the preferred stock have the
right to convert their shares, in whole or in part, into the Company's common
stock. Initially, each share of preferred stock may be converted into one share
of common stock (the "conversion rate"). The conversion rate is subject to
adjustment. The above mentioned issuance of preferred stock also has certain
other rights including pre-emptive rights, voting rights, board representation,
registration rights, and liquidation preference. At any time commencing one year
after the date of issuance of the preferred stock, the holders of a majority of
the preferred stock may require the Company to file a registration statement
covering the conversion of preferred stock to common stock.
NOTE 6. INCOME TAXES
Management believes that it is more likely than not that the net deferred tax
asset will be realized. Realization of the net deferred tax asset is largely
dependent upon the Company generating sufficient taxable income prior to the
expiration of the net operating loss carryforwards. However, the amount of such
realization could be reduced in the near term if estimates of future taxable
income during the carryforward period are changed. To the extent the net
operating loss carryforwards and existing deductible temporary differences are
not offset by the existing taxable temporary differences reversing within the
carryforward period, the remaining loss carryforwards are expected to be
realized by achieving future profitable operations. See Note 10.
NOTE 7. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures to the statements of cash flows are as follows:
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
July 31, August 1,
1999 1998
-------------- --------------
<S> <C> <C>
Cash Paid during the period for:
Income taxes $ -- $ 19,000
Interest 568,000 595,000
</TABLE>
10
<PAGE>
NOTE 8. LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- -----------------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
-------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
Basic and diluted loss per share:
Net loss $ (769,000) $ (1,959,000) $ (1,326,000) $ (3,334,000)
Preferred stock dividend (8,000) -- (8,000) --
-------------- --------------- ---------------- --------------
Loss available to common
stockholders $ (777,000) $ (1,959,000) $ (1,334,000) $ (3,334,000)
-------------- --------------- ---------------- --------------
-------------- --------------- ---------------- --------------
Weighted-average shares 6,924,552 6,765,197 6,926,360 6,764,335
-------------- --------------- ---------------- --------------
-------------- --------------- ---------------- --------------
Basic and diluted loss per share $ ( .11) $ (.29) $ ( .19) $ (.49)
-------------- --------------- ---------------- --------------
-------------- --------------- ---------------- --------------
</TABLE>
The diluted computations did not assume the exercise of stock options and
warrants due to their antidilutive effect on the loss per share.
NOTE 9. SEGMENT AND RELATED INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" as of January 30, 1999. This Statement establishes
standards for the way public business enterprises report information about
operating segments in annual financial statements and in interim financial
reports issued to shareholders.
The Company's reportable segments are the various distribution channels used to
market its products. The Company's products have similar purposes and uses in
each channel of distribution, but profitability varies among the channels. The
Company considers itself a single line of business with products that are
marketed through direct marketing (catalog, electronic commerce and
telemarketing), retail (Company- owned stores), wholesale and franchise
channels. The Company has five reportable segments - Direct Marketing -
Successories, Direct Marketing - Golf, Retail Company-owned stores, Wholesale
and Sales to Franchisees.
The accounting policies of the reportable segments are the same as those
described in Note 2 of Notes to Consolidated Financial Statements in the
Company's 10-K. The Company evaluates the performance of its operating segments
based on income (loss) before other income (expense) and income taxes.
11
<PAGE>
Summarized financial information concerning the Company's reportable segments is
shown in the following table. The "Other" row includes corporate related items
not allocated to reportable segments.
<TABLE>
<CAPTION>
Net Segment Total Capital Depreciation
Sales Profit (Loss) Assets Expenditures and Amortization
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED JULY 31, 1999:
Direct Marketing Successories $ 6,608,000 $ 1,216,000 $ 1,603,000 $ -- $ 10,000
Direct Marketing Golf 453,000 40,000 790,000 -- --
Retail Company-owned stores 3,164,000 (142,000) 5,425,000 107,000 223,000
Wholesale 219,000 (32,000) 756,000 -- --
Sales to Franchisees 1,165,000 247,000 993,000 -- 5,000
Other -- (2,098,000) 22,186,000 160,000 516,000
----------- ----------- ----------- ----------- -----------
CONSOLIDATED $11,609,000 $ (769,000) $31,753,000 $ 267,000 $ 754,000
THREE MONTHS ENDED AUGUST 1, 1998:
Direct Marketing Successories $ 5,988,000 $ 658,000 $ 1,797,000 $ -- $ --
Direct Marketing Golf 713,000 (373,000) 2,289,000 -- 7,000
Retail Company-owned stores 3,451,000 (392,000) 6,162,000 184,000 203,000
Wholesale 459,000 71,000 740,000 -- --
Sales to Franchisees 895,000 216,000 789,000 -- 5,000
Other -- (2,139,000) 26,453,000 356,000 480,000
----------- ----------- ----------- ----------- -----------
CONSOLIDATED $11,506,000 $(1,959,000) $38,230,000 $ 540,000 $ 695,000
SIX MONTHS ENDED JULY 31, 1999:
Direct Marketing Successories $13,926,000 $ 2,208,000 $ 1,603,000 $ -- $ 10,000
Direct Marketing Golf 710,000 104,000 790,000 -- --
Retail Company-owned stores 6,168,000 (252,000) 5,425,000 115,000 386,000
Wholesale 592,000 (55,000) 756,000 -- --
Sales to Franchisees 2,269,000 509,000 993,000 -- 10,000
Other -- (3,840,000) 22,186,000 258,000 835,000
----------- ----------- ----------- ----------- -----------
CONSOLIDATED $23,665,000 $(1,326,000) $31,753,000 $ 373,000 $ 1,241,000
SIX MONTHS ENDED AUGUST 1, 1998:
Direct Marketing Successories $12,749,000 $ 1,749,000 $ 1,797,000 $ -- $ --
Direct Marketing Golf 1,387,000 (522,000) 2,289,000 -- 15,000
Retail Company-owned stores 6,735,000 (655,000) 6,162,000 802,000 467,000
Wholesale 1,104,000 204,000 740,000 -- --
Sales to Franchisees 1,792,000 453,000 789,000 -- 10,000
Other -- (4,563,000) 26,453,000 441,000 877,000
----------- ------------ ---------- ------------ ------------
CONSOLIDATED $23,767,000 $(3,334,000) $38,230,000 $ 1,243,000 $ 1,369,000
</TABLE>
The Company utilizes its facilities and the majority of its assets
interchangeably among each distribution channel. Assets that relate specifically
to a reportable segment have been included in the above table. Assets identified
to the reportable segments are primarily cash, receivables, inventory, prepaid
catalog expenses, property and equipment, and intangibles.
12
<PAGE>
The following table presents the details for "Other":
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- -----------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Corporate expenses $ 1,252,000 $ 1,391,000 $ 2,293,000 $ 3,051,000
Unallocated depreciation and
amortization expense 516,000 480,000 835,000 877,000
Other expenses 330,000 268,000 712,000 635,000
------------- ---------------- ------------ --------------
$ 2,098,000 $ 2,139,000 $ 3,840,000 $ 4,563,000
------------- ---------------- ------------ --------------
------------- ---------------- ------------ --------------
</TABLE>
Corporate expenses are primarily charges for those functions not specifically
attributable to any specific segment; these functions include the merchandising,
information systems, accounting, legal, human resource and executive
departments. Included in the expenses associated with these functions are
payroll and related costs, professional fees, information system maintenance
costs, office occupancy costs, and property and casualty insurance.
The Company's operations are principally in the United States. Operations
outside of the United States are primarily in United Kingdom, Australia and
Europe. No single foreign country or geographic area is significant to the
consolidated operations. Foreign operations' net sales were $113,000 and
$206,000, respectively, for the six months ended July 31, 1999 and August 1,
1998. Long-lived assets are all located in the United States.
The Company's products include distinctive lines of wall decor, desktop art,
books and greeting cards, computer and audio products, personalized gifts and
awards, and mugs. In addition, the Company sells other motivational products
supplied by third parties. At July 31, 1999 and August 1, 1998, sales by product
categories comprised of approximately 47% and 46% wall decor, 18% and 17%
desktop art, 17% and 15% books and greeting cards, 2% and 4% computer and audio
products, 9% and 5% personalized gifts and awards, and 7% and 13% other
products, respectively.
For the six months ended July 31, 1999 and August 1, 1998, no single customer or
group under common control represented 10% or more of the Company's sales.
NOTE 10: RISKS AND UNCERTAINTIES
ABSENCE OF OPERATING PROFITS
The Company has incurred a loss from operations in two of the past three years,
and has an accumulated deficit of $13,669,000 as of July 31, 1999. While
management does not expect to incur an operating loss in future years, its
ability to achieve profitability will depend on many factors including the
Company's ability to develop, manufacture, and introduce and market commercially
acceptable products while controlling operating costs.
On September 3, 1998, the Company announced that it would focus its future
growth on its core motivational products business and its two most profitable
distribution channels: direct marketing of SUCCESSORIES products and franchised
retail stores. As a result, management developed plans, which are in progress as
of July 31, 1999, to divest its golf catalog business, to reduce the scope of
its wholesale business, and to convert its Company-owned retail stores to
franchise owner-operators. As of July 31, 1999, Company has not yet sold the
golf catalog business. The Company has hired a consultant with
13
<PAGE>
experience in marketing franchises to assist with the conversion of the
Company-owned retail stores. To-date, the Company has converted five of its
Company-owned retail stores to franchised stores. In addition, the Company
has reduced overhead expenses and management expects to continue cost
reductions.
The Company's operating results for the six months ended July 31, 1999 showed an
improvement compared to the six months ended August 1, 1998. The operating loss
of $614,000 for the six months ended July 31, 1999, was a 77% improvement over
the operating loss of $2,699,000 incurred for the six months ended August 1,
1998. The improvement in operating results can be attributed to a reduction in
selling, general and administrative expenses of 15% as compared to the same
period in the prior year. It should be noted that due to seasonality, the
projection for the full year indicates a net profit. However, there can be no
assurance that the Company will achieve a profitable level of operations in
fiscal 1999 or that once profitability is achieved, that it can be sustained.
FINANCING CONSIDERATIONS
Based on current projections, management believes that there will be sufficient
cash generated from operations and borrowings under its credit facility to
enable the Company to operate for the foreseeable future.
In addition, the Company is discussing possible equity infusions with various
parties. Any additional equity obtained would provide additional working
capital in the event the Company does not achieve its projection. In May
1999, the Company received $1,220,000 in proceeds from the sale of
convertible preferred stock. Pursuant to the terms of the bank credit
agreement, $1,000,000 of proceeds were used to make a prepayment on the term
loan. For further information on the sale of convertible preferred stock by
the Company, see Note 5.
NOTE 11. COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
In May 1998, Wascher Corporation ("Wascher"), a franchisee of the Company,
filed a Demand for Arbitration dated May 26, 1998 with the American
Arbitration Association (Case No. 51-114-00227-98). Wascher alleges the
following causes of action against the Company: breach of contract, breach of
good faith and fair dealing, common law fraud, unfair competition,
Robinson-Patman Act violation, tortious interference with contract and
violation of the Wisconsin Fair Dealership Act. In support thereof, Wascher
alleges that the Company has not followed its agreement with Wascher or
observed reasonable commercial standards and good business practices. Wascher
alleges and seeks an award in an amount in excess of $250,000 plus costs,
disbursements and attorney's fees, an award of both treble and punitive
damages, and such other relief deemed just and equitable.
14
<PAGE>
The hearing dates for Wascher were originally scheduled in January 1999. The
Company and Wascher have postponed the hearing and are involved in settlement
negotiations. If a settlement is not reached with Wascher, the Company intends
to vigorously defend itself against the claims. Given the phase of this
proceeding, the Company has determined that a reasonable assessment with respect
to the financial impact, if any, cannot be made at this point in time.
Except as noted above, there are no other material pending legal proceedings
against the Company. The Company is, however, involved in routine litigation
arising in the ordinary course of its business and, while the results of the
proceedings cannot be predicted with certainty, the Company believes that the
final outcome of such matters will not have a materially adverse effect on the
Company's consolidated financial position or results of operations.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified in
its entirety by, the Consolidated Financial Statements and Notes thereto
included elsewhere in this Report.
Successories, Inc. is a direct mail catalog company, specialty retailer and
wholesaler that designs, assembles and markets a diverse range of motivational
and self-improvement products, many of which are the Company's own proprietary
designs. The Company's products include distinctive lines of wall decor, desktop
art, books, audio tapes, personalized gifts and awards, greeting cards and mugs.
In addition, the Company sells other motivational products supplied by third
parties. In-house designers create proprietary art work and designs that can be
used in conjunction with a wide variety of products. The Company will also
customize its products to fulfill customers' special needs.
The Company's products are marketed primarily under its SUCCESSORIES and WINNERS
Collection trade names through direct marketing (catalog, electronic commerce
and telemarketing), retail (Company-owned stores) and wholesale distribution
(including sales to franchisees) channels. In October 1996, the Company acquired
the stock of British Links Golf Classics, Inc., a catalog company selling
golf-related gifts, art, wall decor and other collectibles. In November 1997,
the Company executed a license agreement with The New York Times Company
Magazine Group, Inc. to use the names GOLF DIGEST, THE GOLF COMPANY, and THE
GOLF COMPANY FROM GOLF DIGEST in connection with development of retail locations
and a direct mail catalog featuring golf-related wall decor, gifts and other
collectibles.
Although the Company utilizes multiple distribution channels for its products,
the Company's products have similar purposes and uses in each channel of
distribution and similar opportunities for growth. The profitability varies
among products and distribution channels. The Company utilizes its facilities
interchangeably for each distribution channel. Furthermore, the marketing
channels are directed at a single customer base located primarily in the United
States.
On September 3, 1998, the Company announced that it would focus its future
growth on its core motivational products business and its two most profitable
distribution channels: direct marketing of SUCCESSORIES products and franchised
retail stores. As a result, management developed plans, which are in progress as
of July 31, 1999, to divest its golf catalog business, to reduce the scope of
its wholesale business, and to convert its Company-owned retail stores to
franchise owner-operators. As of July 31, 1999, Company has not yet sold the
golf catalog business. The Company has hired a consultant with experience in
marketing franchises to assist with the conversion of the Company-owned retail
stores. To-date, the Company has converted five of its Company-owned retail
stores to franchised stores. In addition, the Company has reduced overhead
expenses and management expects to continue cost reductions.
16
<PAGE>
For the three and six months ended July 31, 1999 and August 1, 1998, net product
sales for the various distribution channels, as a percentage of total net
product sales, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- ---------------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Direct marketing - Successories 57% 52% 59% 54%
Direct marketing - Golf 4% 6% 3% 6%
Retail Company-owned stores 27% 30% 26% 28%
Wholesale distribution 2% 6% 2% 5%
Sales to franchisees 10% 6% 10% 7%
</TABLE>
The gross profit margins for Company-owned retail stores and direct marketing -
Successories are comparable. Direct marketing - golf has a lower gross profit
margin in comparison to direct marketing - Successories, due to a higher
percentage of non-proprietary products being sold in the direct marketing - golf
channel. The gross profit margin for wholesale distribution sales and sales to
franchisees is lower than the other channels since these sales are generally
made at a significant discount from retail price.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1999, COMPARED TO THREE MONTHS ENDED AUGUST 1, 1998
Net product sales were $11,609,000 for the three months ended July 31, 1999,
compared to $11,506,000 for the corresponding three months ended August 1, 1998.
The $103,000, or 1%, increase in sales was comprised of an increase in direct
marketing-Successories sales of $620,000 or 10.4%, and franchise sales of
$270,000 or 30.2%, offset by a decrease in direct marketing-golf sales of
$260,000, or 36.5%, retail Company-owned store sales of $287,000, or 8.3%, and
wholesale sales of $240,000, or 52.3%.
The 10.4% increase in direct marketing-Successories sales was attributable to
planned increases in circulation of SUCCESSORIES CATALOGS. The 30.2% increase in
franchise sales was due to new products and higher sales volume. The 36.5%
decrease in direct marketing-golf sales was due to planned reductions in
circulation of the Company's golf catalogs. Retail Company-owned store sales
decreased by 8.3% due to fewer stores in operation in the current year, offset
by an increase in same-store sales of 4.8% as compared to the same quarter in
the prior year. There were 32 Company-owned and operated retail stores at July
31, 1999 as compared to 39 stores at August 1, 1998.
Gross margin, as a percent of net product sales, was 57.2% for the three months
ended July 31, 1999, compared to 58.2% for the corresponding three months ended
August 1, 1998. The decrease in gross margin is primarily due to a decrease in
royalty income. Royalty income decreased from the prior year primarily as a
result of a decrease in wholesale sales.
Operating expenses decreased for the three months ended July 31, 1999 to
$7,087,000 from $8,395,000 for the three months ended August 1, 1998. The 15.5%
decrease in current year operating expenses can be attributed to a decrease in
the Company's investment in its golf catalog business, exiting its European
expansion, and reduction in corporate and administrative expenses as a result of
focusing on the two core channels; direct marketing of SUCCESSORIES products and
sales to franchise owner-operators.
17
<PAGE>
Interest expense was $333,000 for the three months ended July 31, 1999, compared
to $330,000 for the three months ended August 1, 1998. Included in interest
expense is the amortization of the debt discount which is a non-cash expense.
This non-cash interest amounted to $72,000 and $28,000 for the three months
ended July 31, 1999 and August 1, 1998, respectively.
The net loss of $769,000 for the three months ended July 31, 1999 was less than
the net loss of $1,959,000 for the three months ended August 1, 1998, primarily
due to a decrease in operating expenses. As a percentage of net product sales,
the net loss decreased to 6.6% for the three months ended July 31, 1999, as
compared to a net loss of 17.0% for the three months ended August 1, 1998.
SIX MONTHS ENDED JULY 31, 1999, COMPARED TO SIX MONTHS ENDED AUGUST 1, 1998
Net product sales were $23,665,000 for the six months ended July 31, 1999,
compared to $23,767,000 for the corresponding six months ended August 1, 1998.
The $102,000, or 0.4%, decrease in sales is comprised of a decrease in direct
marketing - golf sales of $677,000 or 48.8%, retail Company-owned store sales of
$567,000 or 8.4%, and wholesale sales of $512,000 or 46.3%, offset by an
increase in direct marketing - Successories sales of $1,177,000 or 9.2%, and
franchise sales of $477,000 or 26.6%.
The 9.2% increase in direct marketing - Successories sales was attributable to
planned increases in circulation of SUCCESSORIES catalogs. The 26.6% increase in
franchise sales was due to new products and higher sales volume. The 48.8%
decrease in direct marketing - golf sales was due to planned reductions in
circulation of the Company's golf catalogs. Retail Company-owned store sales
decreased by 8.4% due to fewer stores in operation in the current year, offset
by an increase in same-store sales of 3.6% as compared to the same prior year
six months ended August 1, 1998. There were 32 Company-owned and operated retail
stores at July 31, 1999 as compared to 39 stores at August 1, 1998.
Gross margin, as a percent of net product sales, was 57.4% for the six months
ended July 31, 1999, compared to 59.4% for the corresponding six months ended
August 1, 1998. The decrease in gross margin is due to lower gross profit on
product sales and a decrease in royalty income. The decrease in gross profit on
product sales was due to planned product promotions in the direct marketing and
retail distribution channels. Royalty income decreased from the prior year
primarily as a result of a decrease in wholesale sales.
Operating expenses decreased for the six months ended July 31, 1999 to
$14,211,000 from $16,805,000 for the six months ended August 1, 1998. The 15.4%
decrease in current year operating expenses can be attributed to a decrease in
the Company's investment in its golf catalog business, exiting the European
expansion, and reduction in corporate and administrative expenses as a result of
focusing on the two core channels; direct marketing of SUCCESSORIES products and
sales to franchise owner-operators.
Interest expense was $696,000 for the six months ended July 31, 1999, compared
to $671,000 for the six months ended August 1, 1998. The current year interest
expense includes a bank amendment fee of $69,000. Included in interest expense
is the amortization of the debt discount which is a non-cash expense. This
non-cash interest amounted to $114,000 and $59,000 for the six months ended July
31, 1999 and August 1, 1998, respectively.
The net loss of $1,326,000 for the six months ended July 31, 1999 was less than
the net loss of $3,334,000 for the six months ended August 1, 1998, primarily
due to a decrease in operating expenses and offset by a decrease in net sales
and gross margin. As a percentage of net product sales, the net loss decreased
to
18
<PAGE>
5.6% for the six months ended July 31, 1999, as compared to a net loss of
14.0% for the six months ended August 1, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ongoing cash requirements are for working capital, capital
expenditures and debt service. The Company expects to rely on cash generated
from its operations, supplemented by borrowings available on the revolving
credit loan, to fund its cash requirements.
Operating activities provided cash of $374,000 for the six months ended July 31,
1999, compared to $381,000 for the six months ended August 1, 1998. The change
in cash flows from operating activities can be primarily attributable to a
decrease in the net loss and inventory, offset by a decrease in depreciation and
amortization, an increase in prepaid catalog expenses, and the change in
accounts receivable and payable. The decrease in inventory and accounts payable
can be attributed to management's planned efforts to reduce inventory. The
decrease in accounts receivable can be attributed to improved collections.
Investing activities used cash of $329,000 for the six months ended July 31,
1999, compared to $1,243,000 for the six months ended August 1, 1998. Capital
expenditures were the principal use of cash. During the six months ended July
31, 1999, the Company expended funds primarily for computer equipment related to
addressing Year 2000 compliance. In the prior year six months ended August 1,
1998, the Company expended funds primarily for the new point-of-sale computer
systems, and furniture and fixtures for its Company-owned retail stores. The
Company's current credit facility limits capital expenditures to $1 million for
each fiscal year. The Company expects to incur approximately $300,000 or less in
related capital expenditures to address Year 2000 computer systems compliance in
fiscal 1999.
Financing activities used cash of $720,000 for the six months ended July 31,
1999, compared to cash provided of $464,000 for the six months ended August 1,
1998. Scheduled debt repayments on term notes and capital leases, and net
repayments on the revolving credit loan were the principal uses of cash. In the
current year, the Company received $1,220,000 in proceeds from the sale of
convertible preferred stock. Pursuant to the terms of the bank credit agreement,
$1,000,000 of proceeds were used to make a prepayment on the term loan.
On June 20, 1997, the Company entered into a credit facility agreement with the
Provident Bank (the "Bank"). Per the agreement, as amended most recently on
April 28, 1999, the facility is comprised of a $7.5 million term loan and a
revolving credit loan. The revolving credit loan provides for maximum borrowings
of $9 million through May 1, 2000 and for each succeeding July 1 through
December 31; the maximum borrowings at all other times is $6 million. Borrowings
under the revolving credit loan are limited to 85% of eligible receivables plus
50% of eligible inventory, as defined, provided that from February through April
eligible inventory is limited to $5 million through the year 2000 and $3 million
in years thereafter. A commitment fee of 0.5% is payable on the daily unused
amount of the maximum revolving credit commitment. The facility expires in June
2003, and borrowings under the facility are secured by substantially all the
assets of the Company. The interest rates on the term loan and revolving credit
loan borrowings generally fluctuate based on the margin ratio, as defined, from
a minimum of prime plus 0.50% to a maximum of prime plus 3.00% on the term loan,
and a minimum of prime to a maximum of prime plus 3.00% on the revolving credit
loan. Interest is payable monthly. The interest rates on the term loan and
revolving credit loan were 9.25% and 11.00%, respectively, at July 31, 1999. The
term loan is payable in quarterly installments of $125,000 through June 1, 1998,
$312,500 from September 1, 1998 through June 1, 2000, and $375,000 thereafter.
Prepayments on the loans are required
19
<PAGE>
in certain cases including, among others, equity offerings and asset
dispositions. Further, the Company must annually prepay the loans in an
amount equal to 60% of excess cash flow, as defined. On June 20, 1997,
warrants to purchase 150,000 shares of the Company's common stock were issued
to the Bank as part of this agreement. Initially these warrants had exercise
prices ranging from $6.19 to $9.73 and expiration dates in June 2001;
however, the exercise prices were subsequently adjusted to $2.00 and the
expiration dates were extended to June 2005.
In July 1997, the agreement for the credit facility was amended to include an
additional $500,000 fixed rate loan. The loan bears interest at 12% and is
due in June 2003. Warrants to purchase an additional 72,464 shares were
issued to the Bank in connection with this amendment and initially had an
exercise price of $6.90 and an expiration date of July 2003; however, the
exercise price was subsequently adjusted to $2.00 and the expiration date was
extended to July 2005.
On April 28, 1999, the agreement was amended to waive the earnings before
interest, taxes, depreciation and amortization ("EBITDA"), interest coverage
ratio, fixed charge coverage, debt to EBITDA ratio, and capital expenditure
limitation covenants for the year ended January 30, 1999, and adjust certain
other covenants prospectively. The amended agreement requires that (i) adjusted
EBITDA, as defined, which is based on a rolling four quarter period, may not be
less than a loss of $1,565,000 for the four quarters ended May 1, 1999, and
increases each subsequent quarter to $6,800,000 for the four quarters ended
November 4, 2000 and for each quarter thereafter; (ii) the interest coverage
ratio, as defined, may not be less than 0.75 to 1.0 at October 30, 1999, and
increases each subsequent quarter to 5.0 to 1.0 for the quarter ended April 29,
2000 and for each quarter thereafter; (iii) the fixed charge coverage ratio, as
defined, may not be less than 2.6 to 1.0 at January 29, 2000, and 1.5 to 1.0
thereafter; and (iv) the debt to EBITDA ratio, as defined, may not be greater
than 3.0 to 1.0 at January 29, 2000 and thereafter. Also, in certain cases where
prepayments on the loans are made in connection with equity offerings, the
amendment provides that certain quarterly installments on the term loan will be
deferred and the limits on borrowings relating to eligible inventory under the
revolving credit loan will be increased.
In conjunction with the April 28, 1999 amendment, warrants to purchase an
additional 300,000 shares were issued to the Bank at an exercise price of $2.50
that expire in 2005, the expiration dates of the 150,000 warrants previously
issued to the Bank on June 20, 1997 were extended an additional two years to
June 2005, and the Company paid the bank a fee equal to 0.5% of the aggregate
commitments under the facility. The bank fee of $69,000 is included in interest
expense in the accompanying financial statements for the six months ended July
31, 1999.
The credit facility also contains other provisions, including limits on capital
expenditures and additional indebtedness, and restrictions on the payment of
dividends. At July 31, 1999, the Company was in compliance with the debt
covenant requirements of the credit facility agreement.
As of July 31, 1999, available borrowings on the revolving credit loan were
$802,000. The Company believes that internally generated funds and the credit
facility will be sufficient to meet its current operating needs and fund debt
service and anticipated capital expenditures.
In addition, the Company is discussing possible equity infusions with various
parties. Any additional equity obtained would provide additional working capital
in the event the Company does not achieve its projection.
20
<PAGE>
YEAR 2000 COMPLIANCE
Many computer systems in use today were designed and developed using two digits,
rather than four, to specify years. As a result, such systems will recognize the
year 2000 as "00." This could cause many computer applications to fail
completely or to create erroneous results unless corrective measures are taken.
The Company has conducted a review of its information technology ("IT") to
identify those areas that could be affected by the Year 2000 issue. The Company
has developed a comprehensive risk-based plan. The plan addresses IT and non-IT
systems and products, as well as dependencies on those with whom the Company
does significant business.
The following table reflects the methodology and the completion status of each
phase as it applies to the key IT and non-IT systems and products:
<TABLE>
<CAPTION>
PREPARATION SURVEYING PLANNING IMPLEMENTATION
----------- --------- -------- --------------
<S> <C> <C> <C> <C>
FINANCIAL AND INVENTORY
SYSTEMS Complete Complete Complete Complete
ORDER ENTRY AND
FULFILLMENT Complete Complete Complete Complete
TELECOMMUNICATIONS Complete Complete Complete Complete
LAN/WAN Complete Complete Complete Est. Q3 - 1999
ANCILLARY SOFTWARE Complete Complete Complete Est. Q3 - 1999
PC SOFTWARE
(NON-FINANCIAL) Complete Complete Complete Est. Q3 - 1999
MANUFACTURING
EQUIPMENT Complete Complete Complete Est. Q3 - 1999
THIRD PARTY VENDORS Complete Complete Complete Est. Q3 - 1999
</TABLE>
The new order entry, inventory control, manufacturing, fulfillment, financial
and point-of-sale systems are all Year 2000 compatible. The majority of the work
to be completed relates to vendor compliance issues. The Company is currently in
the process of communicating with the vendors and other third parties to obtain
written assurances, and performing testing to determine Year 2000 readiness. The
Company expects to be completed by end of October 1999.
The Company presently believes, with the modifications made to existing
software, the Year 2000 problem will not pose significant operational risk. The
Company presently is unable to assess the likelihood that it will experience
operational problems due to unresolved Year 2000 problems of third parties with
whom it does business. The Company cannot assure that other entities will
achieve timely Year 2000 compliance; and if they do not, Year 2000 problems
could have an adverse effect on the operations. Where commercially reasonable to
do so, the Company intends to assess risks with respect to failure by third
parties to be Year 2000 compliant and to seek to mitigate those risks. While the
Company cannot accurately predict a "worst case scenario" with regard to its
Year 2000 issues, the failure by the Company and/or vendors to complete Year
2000 compliance work in a timely manner could have a materially adverse effect
on the Company's operations.
The Company believes that the most reasonably likely worst-case scenarios that
it might confront with respect to Year 2000 issues have to do with third parties
not being Year 2000 compliant. The Company is in the process of assessing these
risks and uncertainties and finalizing appropriate contingency plans and
procedures in an attempt to minimize the effects of such a scenario, and expects
to complete it by end of October 1999. The cost of addressing potential Year
2000 problems are not currently expected to have a
21
<PAGE>
material impact on the Company's consolidated financial position or results
of operations. As of July 31, 1999, the Company has expensed approximately
$150,000 related to Year 2000 compliance. The Company expects to incur
approximately $300,000 in total.
SEASONALITY
The Company generally experiences peak sales in the fourth quarter of its fiscal
year (November through January) due to the holiday season. The effects of
seasonality are greater in the Company's retail operations than in its direct
marketing operations. Most operating expenses are incurred evenly throughout the
year, although some selling and administrative expenses are variable with sales,
and direct marketing catalog advertising expenses as a percentage of sales are
higher in the first calendar quarter. The Company's quarterly operating results
may also vary depending upon such factors as the opening of new stores,
converting Company-owned to franchise stores, new catalog mailings, the timing
of new product introductions and promotions by the Company. The Company's cash
requirements generally reach a seasonal peak in the fall to finance increased
inventory levels needed to meet third and fourth quarter sales demand.
INFLATION
The Company does not believe that inflation has had a material impact on its
operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements which the Company believes
are within the meaning of Section 27A of the Securities Act and Section 21E
of the Exchange Act. Such forward-looking statements may be deemed to
include, among other things, statements relating to anticipated financial
performance, the management team, management's long-term performance goals,
plans to divest the Company's golf catalog business and convert retail
locations to franchised stores, programs to reduce the Company's costs and
enhance asset utilization, efficiencies realized from new systems, the
Company's generation of funds sufficient to meet its current operating needs
and to fund anticipated capital expenditures, realization of deferred tax
assets, costs associated with potential year 2000 problems, as well as
statements relating to the Company's operational and growth strategies.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be accurate, and actual results could differ
materially from those addressed in forward-looking statements contained in
this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk associated with adverse changes in
interest rate and foreign currency exchange rates, but does not hold any market
risk sensitive instruments for trading purposes. The Company uses both fixed and
variable rate debt, as described in Note 4 of the Notes to Consolidated
Financial Statements. Principal exposed to interest rate risk is limited to
$9,237,000 in variable rate debt. The Company's exposure to foreign currency
exchange rate risk relates primarily to the financial position and results of
operations in Canada and United Kingdom. The Company's exposure to foreign
currency exchange rate risk is difficult to estimate due to factors such as
balance sheet accounts, and the existing economic uncertainty and future
economic conditions in the international marketplace.
22
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1998, Wascher Corporation ("Wascher"), a franchisee of the Company,
filed a Demand for Arbitration dated May 26, 1998 with the American
Arbitration Association (Case No. 51-114-00227-98). Wascher alleges the
following causes of action against the Company: breach of contract, breach of
good faith and fair dealing, common law fraud, unfair competition,
Robinson-Patman Act violation, tortious interference with contract and
violation of the Wisconsin Fair Dealership Act. In support thereof, Wascher
alleges that the Company has not followed its agreement with Wascher or
observed reasonable commercial standards and good business practices. Wascher
alleges and seeks an award in an amount in excess of $250,000 plus costs,
disbursements and attorney's fees, an award of both treble and punitive
damages, and such other relief deemed just and equitable.
The hearing dates for Wascher were originally scheduled in January 1999. The
Company and Wascher have postponed the hearing and are involved in settlement
negotiations. If a settlement is not reached with Wascher, the Company intends
to vigorously defend itself against the claims. Given the phase of this
proceeding, the Company has determined that a reasonable assessment with respect
to the financial impact, if any, cannot be made at this point in time.
Except as noted above, there are no other material pending legal proceedings
against the Company. The Company is, however, involved in routine litigation
arising in the ordinary course of its business and, while the results of the
proceedings cannot be predicted with certainty, the Company believes that the
final outcome of such matters will not have a materially adverse effect on the
Company's consolidated financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES
On May 28, 1999, the Company authorized and issued 503,092 shares of Series A
convertible preferred stock, at an aggregate offering price of $1,220,000, to a
group of accredited investors. The Series A preferred stock has a par value of
$0.01 per share and a purchase price of $2.425 per share. The Company received
$1,220,000 in cash proceeds from the sale of preferred stock. Exemption from
registration of the securities was claimed under Regulation D of the Securities
Act of 1933, as amended, based on who the investors were, the number of
investors and the aggregate offering price. Holders of the preferred stock have
the right to convert their shares, in whole or in part, into the Company's
common stock (the "conversion rate") at an initial conversion price of $2.425
per share. The conversion rate is subject to adjustment.
23
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on July 21, 1999, and the
following matters were voted on at the meeting:
1. The election of the following directors, who will serve for the terms
indicated or until their successors are elected and qualified:
Class I - Term Expiring in Year 2002
Director For Abstain
Seamas T. Coyle 6,223,664 208,450
Steven B. Larrick 6,202,726 229,388
Guy E. Snyder 6,223,801 208,313
Class II - Term Expiring in Year 2000
Director For Abstain
R. Scott Morrison, Jr. 6,253,571 178,543
Class III - Term Expiring in Year 2001
Director For Abstain
Gary J. Rovansek 6,223,696 208,418
2. The ratification of the appointment of Arthur Andersen LLP as
independent accountants for the fiscal year ending January 29, 2000,
was approved by the following vote: For, 6,216,424; Against, 192,301;
and Abstain 23,389.
3. The amendment to the Company's Articles of Incorporation to provide for
the exculpation of the personal liability of the Directors was approved
by the following vote: For, 5,790,256; Against, 617,265; and Abstain,
24,593.
4. The transaction of other business that may have properly come before
the annual shareholders meeting was approved by the following vote:
For, 5,448,663; Against, 789,667; and Abstain, 193,784.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Index to Exhibits immediately following the Signatures page.
(b) On June 10, 1999 a Form 8-K reporting on the completion of a $1,220,000
private placement by the Company of preferred stock to a group of
investors was filed during the three months ended July 31, 1999.
24
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
SUCCESSORIES, INC.
(Registrant)
Date: September 13, 1999 By: /s/ Arnold M. Anderson
----------------------
Arnold M. Anderson
Chief Executive Officer, Chairman
of the Board and Director
(Principal Executive Officer)
Date: September 13, 1999 By: /s/ Gary J. Rovansek
--------------------
Gary J. Rovansek
President, Chief Operating Officer
and Director
Date: September 13, 1999 By: /s/ Steven D. Kuptsis
---------------------
Steven D. Kuptsis
Senior Vice President,
Administration and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
25
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Articles of Incorporation of Registrant (1)
3.2 Articles of Amendment to the Company's Articles of
Incorporation changing the Company's name to Successories,
Inc. (2)
3.3 Certificate of Designation creating the Company's Series A
Cumulative Convertible Preferred Stock (2)
3.4 Certificate of Designation creating the Company's Series B
Cumulative Convertible Preferred Stock (2)
3.5 By-laws of Registrant (filed herewith)
4.1 Specimen Common Stock Certificate (filed herewith)
4.2 Specimen Series A Cumulative Convertible Preferred Stock
Certificate (2)
4.3 Specimen Series B Cumulative Convertible Preferred Stock
Certificate (2)
10.1 Form of Franchising Agreement (filed herewith)
10.4 Credit Agreement and Guaranty between the Company and NBD
Bank (5)
10.5 First Forbearance Agreement between the Company and NBD Bank (6)
10.6 Amended and Restated Credit Agreement between the Company and
NBD Bank dated as of July 31, 1995 (7)
10.7 Lease Agreements between LaSalle National Trust Bank as Trustee
under Trust No. 107739 and Celebrating Excellence (4)
10.8 Stock Option Instrument for Arnold M. Anderson dated November
19, 1991 (1)
10.9 Celex Group, Inc. Stock Option Plan (1)
10.10 Joint Venture Agreement with Morrison DFW, Inc. and related
documents (4)
10.11 Indemnification Agreement dated April 7, 1999 between the
Company and Arnold M. Anderson (17)
Indemnification Agreements in the form filed were also entered
into by the Messrs, Seamas T. Coyle, Timothy C. Dillon, C.
Joseph LaBonte, Steven B. Larrick, Michael H. McKee, Mervyn C.
Phillips, Jr., Guy E. Snyder, Gary Rovansek, Scott R. Morrison,
Jr., and Jack Miller
26
<PAGE>
10.12 First Amendment to the Credit Agreement between the Company and
NBD Bank dated as of September 25, 1995 (8)
10.13 Second Amendment to the Credit Agreement between the Company
and NBD Bank dated as of February 7, 1996 (9)
10.14 Form of Subordinated Note, Common Stock Purchase Warrant and
Subordination Agreement relating to issuance of $1,500,000
Subordinated Notes and Warrants to purchase 120,000 shares of
the Company's Common Stock (9)
10.15 Common Stock Option Agreement granted to Arnold M. Anderson and
Incentive Stock Option Agreement granted to Arnold M. Anderson (9)
10.16 Common Stock Option Agreement granted to James M. Beltrame and
Incentive Stock Option Agreement granted to James M. Beltrame
(9)
10.17 Third Amendment to the Credit Agreement between the Company and
NBD Bank dated as of May 2, 1996 (9)
10.18 Employment Agreement with Arnold M. Anderson dated March 1,
1996 (10)
10.19 Employment Agreement with James M. Beltrame dated June 1,
1996 (10)
10.20 Employment Agreement with Michael H. McKee dated June 1, 1999
(filed herewith)
10.21 Common Stock Option Agreement granted to James M. Beltrame
dated June 17, 1996 (10)
10.22 Agreement and Plan of Merger among Successories, Inc., British
Links Acquisition Corp., British Links Golf Classics, Inc.,
David J. Houston and Michael McArthur dated October 1, 1996 (11)
10.23 Regulations S Securities Subscription Agreement between
Successories, Inc. and Seacrest Capital Limited and Farring
Capital Limited dated September 16, 1996 (2)
10.24 Registration Rights Agreement dated as of December 17, 1996, by
and among Successories, Inc., Infinity Investors Limited and
Seacrest Capital Limited (2)
10.25 Form of Subordinated Note Extensions, Stock Options and
Subordination Agreement relating to the extension of $1,250,000
of Subordinated Notes, and options to purchase 125,000 shares
of the Company's Common Stock (2)
10.26 Fourth Amendment to the Credit Agreement between the Company
and American National Bank & Trust Company of Chicago dated as
of December 16, 1996 (12)
10.27 Fifth Amendment to the Credit Agreement between the Company and
American National Bank & Trust Company of Chicago dated as of
December 17, 1996 (12)
27
<PAGE>
10.28 Sixth Amendment to the Credit Agreement between the Company and
American National Bank & Trust Company of Chicago dated as of
January 30, 1997 (12)
10.29 Credit Agreement between the Company and The Provident Bank
dated as of June 20, 1997 (13)
10.30 First Amendment to Credit Agreement between the Company and
The Provident Bank dated as of July 16, 1997 (13)
10.31 Lease Agreement between LaSalle National Trust, N.A. as
Trustee under Trust No. 120358 and Celex, Group, Inc. (14)
10.32 Second Amendment to Credit Agreement between the Company and
the Provident Bank dated as of May 14, 1998 (14)
10.33 Third Amendment to Credit Agreement between the Company and the
Provident Bank dated as of September 1, 1998 (15)
10.34 Employment Agreement with Gary Rovansek dated October 29,
1998 (15)
10.35 Fourth Amendment to Credit Agreement between the Company and
the Provident Bank dated as of April 28, 1999 (17)
10.36 Warrants to Purchase Common Stock of the Company granted to
Provident Bank and dated as of April 29, 1999 (17)
10.37 Preferred Stock Purchase Agreement dated as of May 28, 1999 by
and among the Company and the investors (16)
21.1 Subsidiaries (4)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
- -----------------------------
(1) Previously filed with Registration Statement on Form SB-2, No.
33-76530C filed on August 17, 1993, and incorporated herein by
reference.
(2) Previously filed with Registration Statement of Form S-3,
No. 333-19313, and incorporated herein by reference.
(3) Previously filed with Post-effective Amendment Number 1 to the
Registration Statement of Form SB-2, No. 33-67530C filed on January 19,
1994, and incorporated herein by reference.
(4) Previously filed with the Annual Report on Form 10-K for the year
ended April 30, 1994 and incorporated herein by reference.
(5) Previously filed with the Company's Form 10-Q/A-1 for the quarter
ended July 31, 1995 and incorporated herein by reference.
28
<PAGE>
(6) Previously filed with the Company's Form 8-K on June 7, 1995, reporting
Date of Event May 26, 1995, and incorporated herein by reference.
(7) Previously filed with the Annual Report on Form 10-K for the year ended
April 30, 1995, and incorporated herein by reference.
(8) Previously filed with the Company's Form 10-Q for the quarter ended
October 28, 1995, and incorporated herein by reference.
(9) Previously filed with the Company's Annual Report on Form 10-K for the
year ended February 3, 1996, and incorporated herein by reference.
(10) Previously filed with the Company's Form 10-Q for the quarter ended
August 3, 1996 and incorporated herein by reference.
(11) Previously filed with the Company's Form 10-Q for the quarter ended
November 2, 1996 and incorporated herein by reference.
(12) Previously filed with the Company's Annual Report on Form 10-K for the
year ended February 1, 1997, and incorporated herein by reference.
(13) Previously filed with the Company's Form 10-Q for the quarter ended
August 2, 1997, and incorporated herein by reference.
(14) Previously filed with the Company's Form 10-Q for the quarter ended
May 2, 1998, and incorporated herein by reference.
(15) Previously filed with the Company's Form 10-Q for the quarter ended
October 31, 1998, and incorporated herein by reference.
(16) Filed with the Company's Form 8-K on June 10, 1999, and incorporated
herein by reference.
(17) Previously filed with the Company's Form 10-Q for the quarter ended
May 1, 1999, and incorporated herein by reference.
29
<PAGE>
Current as of
12/31/98
(Last amended 5/20/97)
BY-LAWS
OF
SUCCESSORIES, INC.
ARTICLE I
OFFICES
The corporation shall continuously maintain in the State of Illinois a
registered office and a registered agent whose business office is identical with
such registered office, and may have other offices within or without the state.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the shareholders shall
be held on the 2nd Tuesday in January of each year or at such time as the board
of directors may designate for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday, such meeting shall be
held on the next succeeding business day.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may
be called either by the president, by the board of directors or by the holders
of not less than one-fifth of all the outstanding shares of the corporation
entitled to vote, for the purpose or purposes stated in the call of the meeting.
SECTION 3. PLACE OF MEETING. The board of directors may designate any
place, as the place of meeting for any annual meeting or for any special meeting
called by the board of directors. If no designation is made, or if a special
meeting be otherwise called, the place of meeting shall be at the offices of the
corporation.
SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, date,
and hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than 10
nor more than 60 days before the date of the meeting, or in the case of a
merger, consolidation, share exchange, dissolution or sale, lease or exchange of
assets not less than 20 nor more than 60 days before the date of the meeting,
either personally or by mail, by or at the direction of the president, or the
secretary, or the officer or
1
<PAGE>
persons calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the shareholder at his or her
address as it appears on the records of the corporation, with postage thereon
prepaid. When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken.
SECTION 5. FIXING OF RECORD DATE. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders, or
shareholders entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the board of
directors of the corporation may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than 60 days and for a meeting of shareholders, not less than 10 days, or in the
case of a merger, consolidation, share exchange, dissolution or sale, lease or
exchange of assets, not less than 20 days before the date of such meeting. If no
record date is fixed for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders, or shareholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the board of directors declaring such dividend
is adopted, as the case may be, shall be the record date for such determination
of shareholders. A determination of shareholders shall apply to any adjournment
of the meeting.
SECTION 6. VOTING LISTS. The officer or agent having charge of the
transfer book for shares of the corporation shall make, within 20 days after the
record date for a meeting of shareholders or 10 days before such meeting,
whichever is earlier, a complete list of the shareholders entitled to vote at
such meeting, arranged in alphabetical order, with the address of and the number
of shares held by each, which list, for a period of 10 days prior to such
meeting, shall be kept on file at the registered office of the corporation and
shall be subject to inspection by any shareholder, and to copying at the
shareholder's expense, at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original share ledger or transfer book, or a duplicate thereof kept
in this State, shall be prima facie evidence as to who are the shareholders
entitled to examine such list or share ledger or transfer book or to vote at any
meeting of shareholders.
SECTION 7. QUORUM. The holders of a majority of the outstanding shares
of the corporation entitled to vote on a matter, represented in person or by
proxy, shall constitute a quorum for consideration of such matter at any meeting
of shareholders, but in no event shall a quorum consist of less than one-third
of the outstanding shares entitled so to vote; provided that if less than a
majority of the outstanding shares are represented at said meeting, a majority
of the shares so represented may adjourn the meeting at any time without further
notice. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting shall be the act of the shareholders, unless
the vote of a greater number or voting by classes is required by the Business
Corporation Act, the articles of incorporation or these by-laws. At any
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have
2
<PAGE>
been transacted at the original meeting. Withdrawal of shareholders from any
meeting shall not cause failure of a duly constituted quorum at that meeting.
SECTION 8. PROXIES. Each shareholder may appoint a proxy to vote or
otherwise act for him or her by signing an appointment form and delivering it to
the person so appointed, but not such proxy shall be valid after 11 months from
the date of its execution, unless otherwise provided in the proxy.
SECTION 9. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote in each matter submitted to vote at a
meeting of shareholders, and in all elections for directors, every shareholder
shall have the right to vote the number of shares owned by such shareholder for
as many persons as there are directors multiplied by the number of such shares
or to distribute such cumulative votes in any proportion among any number of
candidates. Each shareholder may vote either in person or by proxy as provided
in SECTION 8 hereof.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares held by the
corporation in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares entitled to vote at any given
time.
Shares registered in the name of another corporation, domestic or
foreign, may be voted by any officer, agent, proxy or other legal representative
authorized to vote such shares under the law of incorporation of such
corporation.
Shares registered in the name of a deceased person, a minor ward or a
person under legal disability, may be voted by his or her administrator,
executor or court appointed guardian, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor or court
appointed guardian. Shares registered in the name of a trustee may be voted by
him or her, either in person or by proxy.
Shares registered in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his or her name if authority to
do so is contained in an appropriate order of the court by which such receiver
was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Any number of shareholders may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote or otherwise represent
their shares, for a period not to exceed 10 years, by entering into a written
voting trust agreement specifying the terms and conditions of the voting trust,
and by transferring their shares to such trustee or trustees for the purpose of
the agreement. Any such trust agreement shall not become effective until a
counterpart of the agreement is deposited with the corporation at its registered
office. The counterpart of the voting
3
<PAGE>
trust agreement so deposited with the corporation shall be subject to the same
right of examination by a shareholder of the corporation, in person or by agent
or attorney, as are the books and records of the corporation, and shall be
subject to examination by any holder of a beneficial interest in the voting
trust, either in person or by agent or attorney, at any reasonable time for any
proper purpose.
Shares of its own stock belonging to this corporation shall not be
voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time, but shares
of its own stock held by it in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The articles of incorporation may be amended to limit or eliminate
cumulative voting rights in all or specified circumstances, or to limit or deny
voting rights or to provide special voting rights as to any class or classes or
series of shares of the corporation.
SECTION 12. INSPECTORS. At any meeting of shareholders, the presiding
officer may, or upon the request of any shareholder, shall appoint one or more
persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the validity and
effect of proxies; count all votes and report the results; and do such other
acts as are proper to conduct the election and voting with impartiality and
fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or
her or by a majority of them if there be more than one inspector acting at such
meeting. If there is more than one inspector, the report of majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
SECTION 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting and without a
vote, if a consent in writing, setting forth the action so taken shall be signed
(a) if 5 days prior notice of the proposed action is given in writing to all of
the shareholders entitled to vote with respect to the subject matter hereof, 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 voting or (b) by all
of the shareholders entitled to vote with respect to the subject matter thereof.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given in writing to those
shareholders who have not consented in writing. In the event that the action
which is consented to is such as would have
4
<PAGE>
required the filing of a certificate under any section of the Business
Corporation Act if such action had been voted on by the shareholders at a
meeting thereof, the certificate filed under such section shall state, in lieu
of any statement required by such section concerning any vote of shareholders,
that written consent has been given in accordance with the provisions of SECTION
7.10 of the Business Corporation Act and that written notice has been given as
provided in such SECTION 7.10.
SECTION 14. VOTING BY BALLOT. Voting on any question or in any
election may be by voice unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business of the corporation shall be
managed by or under the direction of its board of directors. A majority of the
board of directors may establish reasonable compensation for their services and
the services of other officers, irrespective of any personal interest.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
of the corporation shall be not less than seven (7) and not more than twelve
(12). The Board of Directors shall establish by resolution the number of
directors at any time, provided that there shall be nine directors in the
absence of a determination by the Board to the contrary. Each director shall
hold office until the next annual meeting of shareholders; or until his
successor shall have been elected and qualified. Directors need not be residents
of Illinois or shareholders of the corporation. No decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of
directors shall be held without other notice than this by-law, immediately after
the annual meeting of shareholders. The board of directors may provide, by
resolution, the time and place for holding of additional regular meetings
without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the president or any two directors. The
person or persons authorized to call special meetings of the board of directors
may fix any place as the place for holding any special meeting of the board of
directors called by them.
SECTION 5. NOTICE. Notice of any special meeting shall be given at
least 1 days previous thereto by written notice to each director at his business
address. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail so addressed, with postage thereon prepaid. If notice
be given by telegram, such notice shall be deemed to be
5
<PAGE>
delivered when the telegram is delivered to the telegram company. The attendance
of a director at any meeting shall constitute a waiver of notice of such
meeting, except where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the board of directors need be specified
in the notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the number of directors fixed by these
by-laws shall constitute a quorum for transaction of business at any meeting of
the board of directors, provided that if less than a majority of such number of
directors are present at said meeting, a majority of the directors present may
adjourn the meeting at any time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless the act of a greater number is require by statute, these
by-laws, or the articles of incorporation.
SECTION 8. VACANCIES. Any vacancy on the board of directors may be
filled by election at the next annual or special meeting of shareholders. A
majority of the board of directors may fill any vacancy prior to such annual or
special meeting of shareholders.
SECTION 9. RESIGNATION AND REMOVAL OF DIRECTORS. A director may resign
at any time upon written notice to the board of directors. A director may be
removed with or without cause, by a majority of shareholders if the notice of
the meeting names the director or directors to be removed at said meeting.
SECTION 10. INFORMAL ACTION BY DIRECTORS. The authority of the board of
directors may be exercised without a meeting if a consent in writing, setting
forth the action taken, is signed by all of the directors entitled to vote.
SECTION 11. COMPENSATION. The board of directors, by the affirmative
vote of majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers or otherwise notwithstanding any director conflict of interest. By
resolution of the board of directors, the directors may be paid their expenses,
if any, of attendance at each meeting of the board. No such payment previously
mentioned in this section shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 12. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his or her dissent shall be entered in the minutes of the meeting
or unless he or she shall file his or her written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered or certified mail to the secretary
of the corporation
6
<PAGE>
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
SECTION 13. COMMITTEES. A majority of the board of directors may create
one or more committees of two or more members to exercise appropriate authority
of the board of directors. A majority of such committee shall constitute a
quorum for transaction of business. A committee may transact business without a
meeting by unanimous written consent.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a
president, one or more vice-presidents, a treasurer, a secretary, and such other
officers as may be elected or appointed by the board of directors. Any two or
more offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Vacancies may be filled or new
offices created and filled at any meeting of the board of directors. Each
officer shall hold office until his successor shall have been duly elected and
shall have qualified or until his death or until he shall resign or shall have
been removed in the manner hereinafter provided. Election of an officer shall
not of itself create contract rights.
SECTION 3. REMOVAL. Any officer elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the corporation would be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at meetings of shareholders and directors and shall have such other
functions, authority and duties as may be prescribed by the Board of Directors.
SECTION 5. PRESIDENT. The president shall be the chief executive
officer of the corporation and as such shall have general supervision, direction
and control of the business and affairs of the Corporation, subject to the
control of the Board of Directors.
SECTION 6. THE VICE-PRESIDENTS. The vice-president (or in the event
there be more than one vice-president, each of the vice-presidents) shall assist
the president in the discharge of his/her duties as the president may direct and
shall perform such other duties as from time to time may be assigned to him/her
by the president or by the board of directors. In the absence of the president
or in the event of his/her inability or refusal to act, the vice-president
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(or in the event there be more than one vice-president, the vice-presidents in
the order designated by the board of directors, or by the president if the board
of directors has not made such a designation, or in the absence of any
designation, then in the order of seniority of tenure as vice president) shall
perform the duties of the president, and when so acting, shall have the powers
of and be subject to all the restrictions upon the president. Except in those
instances in which the authority to execute is expressly delegated to another
officer or agent of the corporation or a different mode of execution is
expressly prescribed by the board of directors or these by-laws, the vice
president (or each of them if there are more than one) may execute for the
corporation certificates for its shares and any contracts, deeds, mortgages,
bonds or other instruments which the board of directors has authorized to be
executed, and he/she may accomplish such execution either under or without the
seal of the corporation and either individually or with the secretary, any
assistant secretary, or any other officer thereunto authorized by the board of
directors, according to the requirements of the form of the instrument.
SECTION 7. THE TREASURER. The treasurer shall be the principal
accounting and financial officer of the corporation. He shall: (a) have charge
of and be responsible for the maintenance of adequate books of account for the
corporation; (b) have charge and custody of all funds and securities of the
corporation, and be responsible therefor and for the receipt and disbursement
thereof; and (c) perform all the duties incident to the office of treasurer and
such other duties as from time to time may be assigned to him by the president
or by the board of directors. If required by the board of directors, the
treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the board of directors may determine.
SECTION 8. THE SECRETARY. The secretary shall: (a) record the minutes
of the shareholders' and of the board of directors' meetings in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation; (d) keep
a register of the post-office address of each shareholder which shall be
furnished to the secretary by such shareholder; (e) sign with the president, or
a vice-president, or any other officer thereunto authorized by the board of
directors, certificates for shares of the corporation, the issue of which shall
have been authorized by the board of directors, and any contracts, deeds,
mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the board of directors or these by-laws; (f) have general charge of the stock
transfer books of the corporation; (g) have authority to certify the by-laws,
resolutions of the shareholders and board of directors and committees thereof,
and other documents of the corporation as true and correct copies thereof, and
(h) perform all duties incident to the office of secretary and such other duties
as from time to time may be assigned to him/her by the president or by the board
of directors.
SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
assistant treasurers and assistant secretaries shall perform such duties as
shall be assigned to them by the treasurer or the secretary, respectively, or by
the president or the board of directors. The
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assistant secretaries may sign with the president, or a vice-president, or any
other officer thereunto authorized by the board of directors, certificates for
shares of the corporation, the issue of which shall have been authorized by the
board of directors, and any contracts, deeds, mortgages, bonds, or other
instruments which the board of directors has authorized to be executed,
according to the requirements of the form of the instrument, except when a
different mode of execution is expressly prescribed by the board of directors or
these by-laws. The assistant treasurers shall respectively, if required by the
board of directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the board of directors shall determine.
SECTION 10. SALARIES. The salaries of the officers shall be fixed from
time to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The board of directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness if issued in the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositaries as the board of directors
may select.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 1. SHARES REPRESENTED BY CERTIFICATES AND UNCERTIFICATED
SHARES. Shares either shall be represented by certificates or shall be
uncertificated shares.
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Certificates representing shares of the corporation shall be signed by
the appropriate officers and may be sealed with the seal or a facsimile of the
seal of the corporation. If a certificate is countersigned by a transfer agent
or registrar, other than the corporation or its employee, any other signatures
may be facsimile. Each certificate representing shares shall be consecutively
numbered or otherwise identified, and shall also state the name of the person to
whom issued, the number and class of shares (with designation of series, if
any), the date of issue, and that the corporation is organized under Illinois
law. If the corporation is authorized to issue shares of more than one class or
of series within a class, the certificate shall also contain such information or
statement as may be required by law.
Unless prohibited by the articles of incorporation, the board of
directors may provide by resolution that some or all of any class or series of
shares shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until the certificate has been surrendered
to the corporation. Within a reasonable time after the issuance or transfer of
uncertificated shares, the corporation shall send the registered owner thereof a
written notice of all information that would appear on a certificate. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of uncertificated shares shall be identical to those of the holders of
certificates representing shares of the same class and series.
The name and address of each shareholder, the number and class of
shares held and the date on which the shares were issued shall be entered on the
books of the corporation. The person in whose name shares stand on the books of
the corporation shall be deemed the owner thereof for all purposes as regards
the corporation.
SECTION 2. LOST CERTIFICATES. If a certificate representing shares has
allegedly been lost or destroyed the board of directors may in its discretion,
except as may be required by law, direct that a new certificate be issued upon
such indemnification and other reasonable requirements as it may impose.
SECTION 3. TRANSFERS OF SHARES. Transfer of shares of the corporation
shall be recorded on the books of the corporation. Transfer of shares
represented by a certificate, except in the case of a lost or destroyed
certificate, shall be made on surrender for cancellation of the certificate for
such shares. A certificate presented for transfer must be duly endorsed and
accompanied by proper guaranty of signature and other appropriate assurances
that the endorsement is effective. Transfer of an uncertificated share shall be
made on receipt by the corporation of an instruction from the registered owner
or other appropriate person. The instruction shall be in writing or a
communication in such form as may be agreed upon in writing by the corporation.
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors.
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ARTICLE VIII
DISTRIBUTIONS
The board of directors may authorize, and the corporation may make,
distributions to its shareholders, subject to any restrictions in its articles
of incorporation or provided by law.
ARTICLE IX
SEAL
The corporate seal shall have inscribed thereon the name of the
corporation and the words "Corporate Seal, Illinois." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced, provided that the affixing of the corporate seal to an
instrument shall not give the instrument additional force or effect, or change
the construction thereof, and the use of the corporate seal is not mandatory.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of
these by-laws or under the provisions of the articles of incorporation or under
the provisions of The Business Corporation Act of the State of Illinois, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance at any meeting shall
constitute waiver of notice thereof unless the person at the meeting objects to
the holding of the meeting because proper notice was not given.
ARTICLE XI
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION (a) The Corporation shall indemnify
and hold harmless each person who was or is a party or is threatened to be made
a party to or is involved or is threatened to be involved in (as a witness or
otherwise) or otherwise requires representation by counsel now or at any time
hereafter in connection with any threatened, pending or completed action, suit
or proceeding, or any inquiry that such person in good faith believes might lead
to the institution of any such action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was or has agreed to become a director,
officer, employee or agent of the Corporation or is or was serving or has agreed
to serve at the request of the Corporation as a director, officer, trustee,
partner, employee or agent of another corporation or of a partnership, joint
venture, trust
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or other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action or inaction in an
official capacity as a director, officer, trustee, partner, employee or agent or
in any other capacity while serving or having agreed to serve as such a
director, officer, trustee, partner, employee or agent, such indemnification to
be given, made and provided to the fullest extent authorized by the Illinois
Business Corporation Act of 1983 (the "Illinois BCA"), as now in effect or as it
may hereafter be amended (but, in the case of any such amendment with reference
to events occurring prior to the effective date thereof, only to the extent that
such amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
against all costs, charges, expenses, liabilities and losses (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) actually and reasonably incurred or suffered
by such person in connection therewith and such indemnification shall continue
as to a person who has ceased to serve in the capacity which initially entitled
such person to indemnity hereunder and such indemnity shall also inure to the
benefit of such person's heirs, personal representatives and estate; provided,
however, that, except as provided in paragraph (b) hereof, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person against the Corporation
only if such proceeding (or part thereof) was authorized prior to its initiation
by a majority of the disinterested members of the Board of Directors of the
Corporation.
(b) The rights to indemnification conferred in this Article shall
include the right to be paid by the Corporation any expenses incurred in
defending any such proceeding in advance of its final disposition provided,
however, that, if and to the extent that the Illinois BCA so requires, the
payment of such expenses incurred in advance of the final disposition of a
proceeding shall be made to or on behalf of a person only upon delivery to the
Corporation of an undertaking, by or on behalf of such person, to repay all
amounts so advanced if it shall ultimately be determined that such person is not
entitled to be indemnified under this Article or otherwise. The rights to
indemnification conferred in this Article shall be deemed to be contract rights
between the Corporation and each person who serves in the capacities described
above at any time while this Article is in effect. Any repeal or modification of
this Article shall not in any way diminish any rights to indemnification of such
person or the obligations of the Corporation arising hereunder.
SECTION 2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim made under
section 1 above shall not have been paid in full by the Corporation within sixty
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim, and if successful in whole or in part, the claimant
shall be entitled to be paid, in addition, the expense of prosecuting such
claim. In any action brought by the claimant to enforce a right to
indemnification hereunder or by the Corporation to recover payments by the
Corporation of expenses incurred by a claimant in a proceeding in advance of its
final disposition, the burden of proving that the claimant is not entitled to be
indemnified under this Article or otherwise shall be on the Corporation. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper under
the circumstances because he or she has met the
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applicable standard of conduct set forth in the Illinois BCA, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard of conduct, shall create a presumption that the
claimant has not met the applicable standard of conduct, or, in the case of
such an action brought by the claimant, be a defense to this action.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any law (common or
statutory), the Corporation's Articles of Incorporation, any By-Law, any
agreement, a vote of Corporation stockholders or of disinterested Corporation
directors or otherwise, both as to action in that person's official capacity and
as to action in any other capacity by holding such office, and shall continue
after the person ceases to serve in the capacity which initially entitled such
person to indemnity hereunder.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any person who is or was serving as a director or
officer of the Corporation or is or was serving as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Illinois BCA.
SECTION 5. INDEMNITY AGREEMENT. The Corporation may from time to time
enter into indemnity agreements with the persons who are members of its Board of
Directors and with such officers or other persons as the Board may designate,
such indemnity agreements to provide in substance that the Corporation will
indemnify such persons to the fullest extent permitted by law. Those agreements
may take any form thought reasonable by the majority of the Corporation's Board
of Directors. Such forms of indemnification may include, among other things, a
letter of credit back-up arrangements.
SECTION 6. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.
The Corporation may, under procedures authorized from time to time by the Board
of Directors, grant rights to indemnification, and the rights to be paid by the
Corporation the expenses incurred in defending, to any employee or agent of the
Corporation to the fullest extent permitted by law.
SECTION 7. SAVINGS CLAUSE. If this Article of these By-Laws or any
portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify and hold
harmless each director or officer of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated and to
the full extent permitted by applicable law.
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ARTICLE XII
AMENDMENTS
Unless the power to make, alter, amend or repeal the by-laws is
reserved to the shareholders by the articles of incorporation, the by-laws of
the corporation may be made, altered, amended or repealed by the shareholders or
the board of directors, but no by-law adopted by the shareholders may be
altered, amended or repealed by the board of directors if the by-laws so
provide. The by-laws may contain any provisions for the regulation and
management of the affairs of the corporation not inconsistent with the law or
the articles of incorporation.
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SUCCESSORIES
Successories, Inc.
SI 759 INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS
CUSIP 864591 10 2
THIS CERTIFIES THAT
NAME
ADDRESS
CITY, STATE
IS THE OWNER OF No. of shares
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, OF THE
PAR VALUE OF $.01 PER SHARE, OF
SUCCESSORIES, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by attorney upon surrender of this certificate properly endorsed. This
certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the said Corporation has caused this certificate to
be signed by facsimile signatures of its duly authorized officers.
Dated:
---------------------- ---------------------
SECRETARY PRESIDENT
<PAGE>
Exhibit 10-1
SUCCESSORIES, INC.
FRANCHISE AGREEMENT
EXHIBIT C TO THE OFFERING CIRCULAR
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
APPOINTMENT AND FRANCHISE FEE................................................3
TERM AND RENEWAL.............................................................5
FACILITY LOCATION............................................................6
TRAINING AND ASSISTANCE......................................................9
PROPRIETARY MARKS...........................................................11
CONFIDENTIAL OPERATIONS MANUAL..............................................12
CONFIDENTIAL INFORMATION....................................................13
MODIFICATION OF THE SYSTEM..................................................14
ADVERTISING.................................................................14
CONTINUING SERVICES AND ROYALTY FEE.........................................17
ACCOUNTING AND RECORDS......................................................19
STANDARDS OF QUALITY AND PERFORMANCE........................................20
FRANCHISOR'S OPERATIONS ASSISTANCE..........................................24
INSURANCE...................................................................26
COVENANTS...................................................................28
DEFAULT AND TERMINATION.....................................................30
RIGHTS AND DUTIES OF PARTIES UPON EXPIRATION OR TERMINATION.................32
TRANSFERABILITY OF INTEREST.................................................34
DEATH OR INCAPACITY OF FRANCHISEE...........................................38
RIGHT OF FIRST REFUSAL......................................................39
OPERATION IN THE EVENT OF ABSENCE, DISABILITY OR DEATH......................39
INDEPENDENT CONTRACTOR......................................................40
NON-WAIVER..................................................................41
<PAGE>
NOTICE .....................................................................41
COST OF ENFORCEMENT OR DEFENSE..............................................43
ENTIRE AGREEMENT............................................................43
SEVERABILITY AND CONSTRUCTION...............................................43
APPLICABLE LAW..............................................................44
ARBITRATION.................................................................45
"FRANCHISEE" DEFINED AND GUARANTY...........................................45
FORCE MAJEURE...............................................................46
CAVEAT .....................................................................46
ACKNOWLEDGEMENTS............................................................46
</TABLE>
EXHIBITS
A. Guaranty and Assumption of Obligations
B. Refunds and Cancellation
3
<PAGE>
SUCCESSORIES, INC.
FRANCHISE AGREEMENT
This Franchise Agreement ("this Agreement"), made this _____day of
____________, 19__ , by and between SUCCESSORIES, INC., a corporation formed
and operating under the laws of the State of Illinois and having its
principal place of business at 2520 Diehl Road, Aurora, Illinois 60504
("Franchisor"), and
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________("Franchisee").
WITNESSETH:
WHEREAS, Franchisor and its subsidiaries, over a period of time and as
the result of the expenditure of time, skill, effort and money, (a) have
developed and own a unique system (the "System"), identified by the mark
"SUCCESSORIES", relating to the establishment, development and operation of
businesses for the sale of products through a retail facility, direct sales and
catalog sales with a self-improvement/success theme offering the following
categories of products and such other products as Franchisor may incorporate as
part of the System: (i) the SUCCESSORIES gift and wall decor line for individual
and corporate use such as conventions, sales meetings, customer gifts and
corporate promotions; (ii) self help books, audio tapes and video tapes and
(iii) personalized gifts and awards; and (b) has developed specifications and
standards and marketing and advertising techniques for such products and
merchandise, all of which may be changed, improved or further developed by
Franchisor from time to time; and
WHEREAS, the distinguishing characteristics of the System include,
without limitation, distinctive exterior and interior design, decor, layout and
color scheme; exclusively designed signage, decorations, furnishings and
materials; specialized retail store operating procedures and sales methods;
unique techniques and methods for merchandising activities; the SUCCESSORIES
Confidential Operations Manual; the SUCCESSORIES Proprietary or Trademarked
Product Lines, distinct procedures for purchasing inventory and merchandise; the
SUCCESSORIES catalog; other confidential operations procedures; and methods and
techniques for inventory and cost controls, record keeping and reporting,
personnel management, purchasing, sales promotion, marketing and advertising;
all of which may be changed, improved and further developed by Franchisor from
time to time; and
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WHEREAS, Franchisor is the owner of the right, title and interest
together with all the goodwill connected thereto in and to the trade name,
trademarks and service marks "SUCCESSORIES" and "SUCCESSORIES, plus the design",
the slogan, "SUCCESSORIES", associated logos and commercial symbols, and such
other trade names, trademarks and service marks, logos, commercial symbols as
are now and may in the future be designated by Franchisor as an integral part of
the System (the "Mark(s)"); and
WHEREAS, Franchisor grants to qualified persons franchises to own and
operate SUCCESSORIES retail facilities selling and distributing self-help books,
audio tapes, video-tapes and personalized gifts and awards, the SUCCESSORIES
gift and wall decor line, the SUCCESSORIES Proprietary or Trademarked Product
Lines, other merchandise and products and providing services authorized and
approved by Franchisor and utilizing the System and Marks. Franchisee desires to
operate a SUCCESSORIES retail facility under Franchisor's System and using the
Marks and has applied for a franchise and such application has been approved by
Franchisor in reliance upon all of the representations made therein; and
WHEREAS, Franchisee understands and acknowledges the importance of
Franchisor's high and uniform standards of quality, operations, and service and
the necessity of operating the SUCCESSORIES retail facility in strict conformity
with Franchisor's standards and specifications; and
WHEREAS, Franchisor expressly disclaims the making of and Franchisee
acknowledges that it has not received nor relied upon any warranty or guaranty,
express or implied, as to the revenues, profits or success of the business
venture contemplated by this Agreement. Franchisee acknowledges that it has read
this Agreement and Franchisor's Uniform Franchise Offering Circular and that it
has no knowledge of any representations by Franchisor, or its officers,
directors, shareholders, employees or agents that are contrary to the statements
made in Franchisor's Uniform Franchise Offering Circular or to the terms herein.
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other set forth in this Agreement hereby agree
as follows:
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I. APPOINTMENT AND FRANCHISE FEE
A. Franchisor hereby grants to Franchisee, upon the terms and
conditions herein contained, the right, license and privilege to use the Marks,
and Franchisee undertakes the obligation to operate a SUCCESSORIES retail
facility for the sale and distribution of self-help books, audio tapes,
video-tapes and personalized gifts and awards, the SUCCESSORIES gift and wall
decor line and related merchandise and products ("Franchised Retail Business")
and to use solely in connection therewith Franchisor's System, as it may be
changed, improved and further developed from time to time, at one location only,
such location to be:
1). ___________________________________________________________________________
_______________________________________________________________________________
__________________________________________
or
2). At a location to be designated, as provided in Paragraph III hereof within
the following area: ___________________________________________________________
_______________________________________________________________________________
_______________________________________.
Provided, however, that when a location has been designated and approved by
the parties, said location shall become Paragraph I.A.1., as if originally
incorporated therein. Franchisee shall not relocate its facility without the
prior written approval of Franchisor.
B. All rights of Franchisee to operate a Franchised Retail Business are
specifically limited to the location of said Franchised Retail Business.
Franchisee acknowledges and agrees that no territorial exclusivity is granted
pursuant to this or any other agreement and that Franchisee is specifically
prohibited from distributing products in any manner other than through retail
store sales.
C. Franchisor and its subsidiaries retain the following rights for all
areas outside of the location of Franchisee's Franchised Retail Business:
(i) to sell the System products through various channels of
distribution including, without limitation, through SUCCESSORIES retail
locations, wholesale sales, direct mail, catalogs, bookstores, office
supply stores, department stores, and telemarketing and other types of
direct sales solicitation;
(ii) to sell System products to customers who contact Franchisor or
its subsidiaries as the result of advertisements in magazines or other
publications;
(iii) to sell to customers who phone in orders to the SUCCESSORIES
toll free number;
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(iv) to acquire mailing lists and send catalogs and promotional
materials to potential customers on such lists, some or all of whom
may also be customers of Franchisee's Franchised Retail Business;
(v) to allow third parties to sell product and fulfill orders
through catalogs distinct from catalogs published by Franchisor or
its subsidiaries without incurring any obligation to advise Franchisee
as discussed below;
(vi) to allow ad specialty houses to sell System products embossed
with the customer's name, logo or message; and
(vii) to allow the sale of System products, under the same of
different trademarks, through wholesale channels of distribution
and/or direct sales groups.
If a sales effort of Franchisor or its subsidiaries results in
the establishment of a customer located in close proximity to Franchisee's
Franchised Retail Business, Franchisor will attempt to advise such customer of
the existence and location of the retail facility operated by Franchisee.
Franchisor retains the right to grant such other franchises as
Franchisor, in its sole and exclusive discretion, deems appropriate. Further,
Franchisor reserves the right to offer and sell at wholesale or retail (or any
other species of retail vendor whatsoever) products and services which do not
comprise a part of the System. Those products and services which comprise a part
of the System are delineated and set forth in detail in the SUCCESSORIES
Confidential Operations Manual ("Confidential Operations Manual"), which
Confidential Operations Manual may be amended from time to time to reflect
additions to, deletions from and modifications to the specification of those
services and products which comprise a part of the System.
D. In consideration of the Franchise granted herein, Franchisee shall
pay to Franchisor the sum of $35,000 upon execution of the Agreement. In the
event Franchisee wishes to open additional Franchised Retail Businesses pursuant
to separate, subsequent, individual franchise agreements, Franchisee shall pay
franchise fees to Franchisor in an amount equal to $25,000 for each additional
Franchised Retail Business. All such fees shall be deemed fully earned and
non-refundable upon execution of this Agreement as consideration for expenses
incurred by Franchisor in furnishing assistance and services to Franchisee and
for Franchisor's lost or deferred opportunity to franchise others, except as may
be specifically provided in this Agreement or any Exhibit attached hereto.
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<PAGE>
E. Franchisee acknowledges that because complete and detailed
uniformity under many varying conditions may not be possible or practical,
Franchisor specifically reserves the right and privilege, at its sole discretion
and as it may deem in the best interests of all concerned in any specific
instance, to vary standards for any System franchisee based upon the
peculiarities of the particular site or circumstance, density of population,
business potential, population of trade area, existing business practices or any
other condition which Franchisor deems to be of importance to the successful
operation of such franchisee's business. Franchisee shall not be entitled to
require Franchisor to disclose or grant to franchisee a like or similar
variation hereunder.
II. TERM AND RENEWAL
A. This Agreement shall be effective and binding from the date of its
execution for an initial term of 5 years.
B. Franchisee shall have the right to renew this franchise before the
expiration of the initial term of the Franchise for 3 additional successive
terms of 5 years each, providing all of the conditions hereinafter set forth
have been fulfilled:
1. Franchisee has, during the entire term of this Agreement,
complied with all its provisions;
2. Franchisee maintains possession of the premises of the
Franchised Retail Business and by the expiration date of this Agreement has
brought the Franchised Retail Business into full compliance with the
specifications and standards then applicable for new or renewing SUCCESSORIES
facilities and presents evidence satisfactory to Franchisor that it has the
right to remain in possession of the premises of the Franchised Retail
Business for the duration of any renewal term; or, in the event Franchisee is
unable to maintain possession of the premises, or if in the judgment of
Franchisor, the Franchised Retail Business should be relocated, Franchisee
secures substitute premises approved by Franchisor and has furnished, stocked
and equipped such premises to bring the Franchised Retail Business at its
substitute premises into full compliance with the then-current specifications
and standards by the expiration date of this Agreement;
3. Franchisee has given notice of renewal to Franchisor as
provided below;
4. Franchisee has satisfied all monetary obligations owed by
Franchisee to Franchisee's suppliers, Franchisor and its subsidiaries and
affiliates, if any, and has timely met these obligations throughout the term of
this Agreement;
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5. Franchisee has executed upon renewal Franchisor's
then-current form of Franchise Agreement (with appropriate modifications to
reflect the fact that the agreement relates to the grant of a renewal
Franchise), which agreement shall supersede in all respects this Agreement, and
the terms of which may differ from the terms of this Agreement, including,
without limitation, a different percentage Continuing Services and Royalty Fee,
advertising contribution and/or a different territory; provided, however,
Franchisee shall not be required to pay the then-current initial franchise fee
or its equivalent;
6. Franchisee has complied with Franchisor's then-current
qualification and training requirements; and
7. Franchisee has executed a general release, in a form
prescribed by Franchisor, of any and all claims against Franchisor and its
subsidiaries and affiliates, if any, and their respective officers, directors,
agents and employees.
C. If Franchisee desires to renew this franchise at the expiration of
this Agreement or any renewal period, Franchisee shall give Franchisor written
notice of its desire to renew at least 6 months, but not more than 12 months,
prior to the expiration of the initial term of this Agreement. Within 90 days
after its receipt of such timely notice, Franchisor shall furnish Franchisee
with written notice of: (i) reasons which could cause Franchisor not to grant a
renewal to Franchisee, including any deficiencies which require correction and a
schedule for correction thereof by Franchisee; and (ii) Franchisor's
then-current requirements relating to the image, appearance, decoration,
furnishing, equipping and stocking of SUCCESSORIES facilities, and a schedule
for effecting such upgrading or modifications in order to bring the Franchised
Retail Business in compliance therewith, as a condition of renewal. Renewal of
the franchise shall be conditioned upon Franchisee's compliance with such
requirements and continued compliance with all the terms and conditions of this
Agreement up to the date of termination of the initial term, provided, however,
that in the event Franchisee is curing any deficiencies as required by
Franchisor, the term of this Agreement shall be extended for a period of time
equal to the number of days required to cure such deficiency, not to exceed the
initial term of this Agreement.
D. Franchisor shall give Franchisee written notice of its election to
renew the franchise 2 months prior to the expiration of the initial term of this
Agreement.
III. FACILITY LOCATION
A. Franchisee may operate the Franchised Retail Business only at the
location specified in Paragraph I hereof. If the lease for the site of the
Franchised Retail Business expires or terminates without fault of Franchisee, or
if the site is destroyed, condemned or otherwise rendered unusable, as otherwise
may
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be agreed upon in writing by Franchisor and Franchisee, Franchisor will
grant permission for relocation of the Franchised Retail Business at a location
and site acceptable to Franchisor. Any such relocation shall be at Franchisee's
sole expense and Franchisor shall have the right to charge Franchisee for any
costs incurred by Franchisor, and a reasonable fee for its services, in
connection with any such relocation of the Franchised Retail Business.
B. Concurrently with the execution of the Franchise Agreement,
Franchisee may enter into a lease or sublease identified with Franchisor if an
acceptable site has been identified and Franchisor is or will be the owner or
master lessee of such site. However, unless Franchisor has agreed in a separate
written agreement to purchase or acquire by leasing the property in which the
Franchised Retail Business is to be located, Franchisor shall have no obligation
to enter into a lease or sublease with Franchisee and shall only be obligated to
act in an advisory capacity to assist Franchisee in acquiring a location.
Franchisor shall provide, in its sole discretion, reasonable assistance to
Franchisee to enable Franchisee to obtain any required financing. Any real
estate and improvement costs associated with the development of the location of
the Franchised Retail Business shall be the responsibility of Franchisee and may
be included in determining the lease or sublease rental payments.
C. Except as provided for in Paragraph III.B. above, Franchisee will be
responsible for purchasing or leasing a suitable site for the Franchised Retail
Business. Prior to the acquisition by lease or purchase of any site for the
premises of the Franchised Retail Business, Franchisee shall submit a
description of the proposed site to Franchisor, together with a letter of intent
or other evidence satisfactory to Franchisor which confirms Franchisee's
favorable prospects for obtaining the proposed site. Franchisor shall provide
Franchisee written notice of approval or disapproval of the proposed site within
30 days after receiving Franchisee's written proposal.
D. After receiving Franchisor's written approval of the location of the
Franchised Retail Business as provided in Paragraph III.C. hereof, Franchisee
shall execute a lease (if the premises are to be leased) or a binding agreement
to purchase the site, the terms of which have been previously approved by
Franchisor. Franchisor's approval of the lease shall be conditioned upon
inclusion in the lease of terms acceptable to Franchisor and, at Franchisor's
option, the lease shall contain such provisions as Franchisor may reasonably
require, including, but not limited to:
1. A provision reserving to Franchisor the right, at
Franchisor's election, to receive an assignment of the leasehold interest upon
termination or expiration of the franchise grant;
2. A provision which expressly permits the lessor of the
premises to provide Franchisor all sales and other information it may have
related to the operation of the Franchised Retail Business, as Franchisor may
request;
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3. A provision which requires the lessor concurrently to
provide Franchisor with a copy of any written notice of deficiency under the
lease sent to Franchisee and which grants to Franchisor, in its sole discretion
and sole option, the right (but no obligation) to cure any deficiency under the
lease should Franchisee fail to do so within 15 days after the expiration of the
period in which Franchisee may cure the default;
4. A provision which evidences the right of Franchisee to
display the Marks in accordance with the specifications required by the
Confidential Operations Manual, subject only to the provisions of applicable
law;
5. A provision that the premises shall be used only for the
operation of the Franchised Retail Business;
6. A provision which expressly states that any default under
the lease shall constitute a default under this Agreement, and any default under
this Agreement shall constitute a default under the lease; and
7. A provision which states that upon default of this
Agreement and in accordance with this Agreement, Franchisor can take possession
of the franchised premises and operate the Franchised Retail Business.
E. If the location is not designated above, Franchisor shall use
reasonable efforts to help analyze Franchisee's market area, to help determine
site feasibility, and to assist in the designation of the location, which must
be approved by Franchisor; provided however, that Franchisor will not conduct
site selection activities on Franchisee's behalf. While Franchisor shall utilize
its experience and expertise in a designation of location, nothing contained
herein shall be interpreted as a guarantee of success for said location nor
shall any site recommendation or approval made by Franchisor be deemed a
representation that any particular site is available for use as a SUCCESSORIES
facility. It shall be the sole responsibility of Franchisee to undertake site
selection activities and otherwise secure premises for Franchisee's Franchised
Retail Business.
F. In the event no acceptable site is found and approved by the parties
within 6 months from the date of this Agreement, then and in that event, upon
written application from either party, this contract shall be terminated and
deposits received by Franchisor shall be returned to Franchisee. Provided,
however, that in the event Franchisor has within the aforesaid time submitted in
writing to Franchisee 2 or more sites which are acceptable to Franchisor, and
Franchisee has refused to accept same, then Franchisee, upon termination, shall
forfeit to Franchisor the sum of $10,000 as liquidated damages in payment for
Franchisor's
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expenses in its site evaluation and selection activities. Franchisee and
Franchisor agree that the amount set forth to wit, $10,000 as liquidated damages
is a reasonable amount and that due to the nature of the subject matter, it will
be impossible to ascertain the exact amount of damages sustained by the
recipient therefore.
G. Franchisor may require Franchisee to provide all of the following
promptly upon obtaining possession of the site for the Franchised Retail
Business: (i) cause to be prepared and submit for approval by Franchisor a site
survey and any modifications to Franchisor's basic architectural requirements
and specifications (not for construction) for a SUCCESSORIES facility (including
requirements for dimensions, exterior design, materials, and work area design
and layout, equipment, fixtures, furniture, signs and decorating) required for
the development of a SUCCESSORIES facility at the site leased or purchased
therefor, provided that Franchisee may modify Franchisor's basic plans and
specifications only to the extent required to comply with all applicable
ordinances, building codes and permit requirements and with prior notification
to and approval by Franchisor; (ii) obtain all required zoning changes; all
required building, utility, health, sanitation, and sign permits and licenses
and any other required permits and licenses; (iii) purchase or lease equipment,
fixtures, furniture and signs as provided herein; (iv) complete the construction
and/or remodeling, equipment, fixture, furniture and sign installation and
decorating of the Franchised Retail Business in full and strict compliance with
plans and specifications previously approved by Franchisor and all applicable
ordinances, building codes and permit requirements; (v) obtain all customary
contractors' sworn statements and partial and final waivers of lien for
construction, remodeling, decorating and installation services; and (vi)
otherwise complete development of and have the Franchised Retail Business ready
to open and commence the conduct of its business in accordance with Paragraph
XII hereof.
H. Franchisee shall be required to periodically make reasonable capital
expenditures to remodel, modernize and redecorate the premises of the Franchised
Retail Business so that the Franchised Retail Business will reflect the
then-current image intended to be portrayed by SUCCESSORIES facilities. All
remodeling, modernization, or redecoration of the Franchised Retail Business and
its premises must be done in accordance with the standards and specifications as
prescribed by Franchisor from time to time and with the prior written approval
of Franchisor. All replacements must conform to Franchisor's then-current
quality standards and specifications and must be approved by Franchisor in
writing. Franchisee shall not be required to remodel, modernize and redecorate
the Franchised Retail Business and its premises more than once during the
initial term of this Agreement requiring expenditures in excess of $15,000 each
instance, however, maintenance of the premises of the Franchised Retail Business
may exceed this amount, and maintenance costs may not be credited to remodeling,
modernization, or redecoration expenditures. If the lease for the premises of
the Franchised Retail Business requires expenditures for remodeling,
modernization and redecoration, such an amount shall be credited to amounts
required by Franchisor.
IV. TRAINING AND ASSISTANCE
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A. Franchisor shall make training available to Franchisee and
Franchisee's designated manager. Franchisee and Franchisee's designated manager
shall attend and successfully complete the initial training program which shall
last a minimum of 7 days (and a maximum of 10 days) to be conducted at
Franchisor's headquarters, a SUCCESSORIES unit or at such other place as
Franchisor shall designate. There are two phases to the initial training program
which may or may not be held together. Phase one involves sales and product
knowledge and phase two involves store operation. The initial training program
shall cover all material aspects of the operation of a SUCCESSORIES franchise,
including: an understanding of SUCCESSORIES conceptual plans; financial
controls; promotion and merchandising, methods, techniques and procedures;
buying procedures; other retail facility management and operational techniques;
marketing and advertising techniques; deployment of labor; and maintenance of
quality standards. All expenses incurred by Franchisee and its employees in
attending such program, including, without limitation, travel costs, room and
board expenses, and employees' salaries shall be the sole responsibility of
Franchisee.
B. For a minimum of 5 (and a maximum of 10 days) prior to the
commencement of operation or during the first month of operation of Franchisee's
Franchised Retail Business, Franchisor will furnish to Franchisee, at
Franchisee's premises and at Franchisor's expense, 1 of Franchisor's
representatives for the purpose of facilitating the opening of Franchisee's
Franchised Retail Business. During this period, such representative will also
assist Franchisee in establishing and standardizing procedures and techniques
essential to the operation of a SUCCESSORIES facility and shall assist in
training personnel. Should Franchisee request additional assistance from
Franchisor in order to facilitate the opening of the Franchised Retail Business,
and should Franchisor deem it necessary and appropriate, Franchisee shall
reimburse Franchisor for the expense of Franchisor providing such additional
assistance.
C. If Franchisor determines, in its sole discretion, that Franchisee is
unable to satisfactorily complete the initial training program, Franchisor shall
have the right to terminate this Agreement in the manner herein provided. If
this Agreement is terminated pursuant to this Paragraph, Franchisor shall return
to Franchisee the franchise fees paid by Franchisee to Franchisor minus the
expenses incurred by Franchisor as of such date for providing training to
Franchisee and other expenses incurred by Franchisor. The amount retained by
Franchisor shall not exceed $10,000. Upon return of said amount, Franchisor
shall be fully and forever released from any claims or causes of action
Franchisee may have under or pursuant to this Agreement and Franchisee shall
have no further right, title or interest in the Marks and the System.
D. If Franchisee designates new or additional managers after the
initial training program, Franchisor shall provide training to such managers to
the extent that Franchisor can reasonably accommodate such managers in
Franchisor's regularly scheduled training course. Franchisor shall provide such
training at the then-current published rates. In no event will Franchisor be
under any obligation to provide individual training to Franchisee's managers.
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E. Franchisor from time to time may provide and may require that
previously-trained and experienced franchisees or their managers or employees
attend and successfully complete refresher training programs or seminars to be
conducted within Franchisor's Metropolitan Statistical Area ("MSA") as that term
is defined by the United States Census Bureau, at such location as may be
designated by Franchisor. Attendance at such refresher training programs or
seminars shall be at Franchisee's sole expense; provided, however, that
attendance will not be required at more than 2 such programs in any calendar
year and shall not collectively exceed 4 business days in duration.
V. PROPRIETARY MARKS
A. Franchisee acknowledges that Franchisor is the owner of all right,
title and interest together with all the goodwill of the Marks. Franchisee's
right to use the Marks is derived solely from this Agreement and is limited to
the conduct of business by Franchisee pursuant to and in compliance with this
Agreement and all applicable standards, specifications, and operating procedures
prescribed by Franchisor from time to time during the term of the franchise. Any
unauthorized use of the Marks by Franchisee is a breach of this Agreement and an
infringement of the rights of Franchisor in and to the Marks. Franchisee
acknowledges that all usage of the Marks by Franchisee and any goodwill
established by Franchisee's use of the Marks shall inure to the exclusive
benefit of Franchisor and that this Agreement does not confer any goodwill or
other interests in the Marks upon Franchisee. Franchisee shall not, at any time
during the term of this Agreement or after its termination or expiration,
contest the validity or ownership of any of the Marks or assist any other person
in contesting the validity or ownership of any of the Marks. All provisions of
this Agreement applicable to the Marks apply to any additional trademarks,
service marks, and commercial symbols authorized for use by and franchised to
Franchisee by Franchisor after the date of this Agreement.
B. Franchisee shall not use any Mark or portion of any of the Marks as
part of any corporate or trade name, or with any prefix, suffix, or other
modifying words, terms, designs, or symbols, or in any modified form. Franchisee
shall not use any Marks in connection with the sale of any unauthorized product
or service or in any other manner not expressly authorized in writing by
Franchisor. Franchisee shall give such notices of trademark and service mark
registrations as Franchisor specifies and obtain such fictitious or assumed name
registrations as may be required under applicable law.
C. Any licenses or rights to use the Marks granted herein are
specifically limited to use of the Marks in connection with the operation of a
retail location only. All licenses, rights and interests in and to the Marks and
their elements and parts not specifically granted to Franchisee hereunder shall
be, and are specifically and entirely, reserved to Franchisor and may be fully
exploited without regard to the extent to which such rights may be competitive
with this Agreement or the rights granted hereunder. Such reserved
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rights include, but are not limited to, all rights of Franchisor to use the
Marks in connection with InterNet and other types of computer marketing and
information services.
D. Franchisee shall promptly notify Franchisor of any claim, demand, or
cause of action based upon or arising from any attempt by any other person, firm
or corporation to use the Marks or any colorable imitation thereof. Franchisee
shall also notify Franchisor of any action, claim or demand against Franchisee
relating to the Marks within 10 days after Franchisee receives notice of said
action, claim or demand. Upon receipt of timely notice of an action, claim or
demand against Franchisee relating to the Marks, Franchisor shall have the sole
right to defend any such action. Franchisor shall have the exclusive right to
contest or bring action against any third party regarding the third party's use
of any of the Marks and shall exercise such right in its sole discretion. In any
defense or prosecution of any litigation relating to the Marks or components of
the System undertaken by Franchisor, Franchisee shall cooperate with Franchisor
and execute any and all documents and take all actions as may be desirable or
necessary in the opinion of Franchisor's counsel, to carry out such defense or
prosecution. Both parties will make every effort consistent with the foregoing
to protect, maintain, and promote the Marks as identifying the System and only
the System. FRANCHISOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
AS TO THE USE, EXCLUSIVE OWNERSHIP, VALIDITY OR ENFORCEABILITY OF THE MARKS.
E. If it becomes advisable at any time in Franchisor's sole discretion,
for Franchisor and/or Franchisee to modify or discontinue use of any of the
Marks, and/or use one or more additional or substitute trade names, trademarks,
service marks, or other commercial symbols, Franchisee shall comply with
Franchisor's directions within a reasonable time after notice to Franchisee by
Franchisor, and Franchisor shall have no liability or obligation whatsoever with
respect to Franchisee's modification or discontinuance of any Mark.
F. In order to preserve the validity and integrity of the Marks and
copyrighted materials franchised herein and to assure that Franchisee is
properly employing the same in the operation of its Franchised Retail Business,
Franchisor or its agents shall have the right of entry and inspection of
Franchisee's premises at all reasonable times and, additionally, shall have the
right to observe the manner in which Franchisee is rendering its SUCCESSORIES
services and conducting its operations, to confer with Franchisee's employees
and customers, and to select and inspect the products and merchandise sold
through the Franchised Retail Business for test and content and evaluation
purposes to make certain that the products and merchandise are satisfactory and
meet the quality control provisions and performance standards established by
Franchisor.
VI. CONFIDENTIAL OPERATIONS MANUAL
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A. Franchisor will loan to Franchisee during the term of the franchise
1 or more copies of a Confidential Operations Manual containing reasonable,
mandatory and suggested specifications, standards, operating procedures and
rules prescribed from time to time by Franchisor for SUCCESSORIES facilities and
information relative to other obligations of Franchisee hereunder and the
operation of its Franchised Retail Business. Franchisor shall have the right to
add to and otherwise modify the Confidential Operations Manual from time to time
to reflect changes in the specifications, standards, operating procedures and
rules prescribed by Franchisor for SUCCESSORIES facilities, provided that no
such addition or modification shall alter Franchisee's fundamental status and
rights under this Agreement.
B. The Confidential Operations Manual shall at all times remain the
sole property of Franchisor and shall promptly be returned upon the expiration
or other termination of this Agreement. Franchisee shall not make any
disclosure, duplication or other unauthorized use of any portion of the
Confidential Operations Manual.
C. The Confidential Operations Manual contains proprietary information
of Franchisor and shall be kept confidential by Franchisee both during the term
of the franchise and subsequent to the expiration or termination of the
franchise. Franchisee shall at all times insure that its copy of the
Confidential Operations Manual be available at the Franchised Retail Business
premises in a current and up-to-date manner. At all times that the Confidential
Operations Manual is not in use by authorized personnel, Franchisee shall
maintain the Confidential Operations Manual in a locked receptacle at the
premises of the Franchised Retail Business, and shall only grant authorized
personnel, as defined in the Confidential Operations Manual, access to the key
or lock combination of such receptacle. In the event of any dispute as to the
contents of the Confidential Operations Manual, the terms of the master copy of
the Confidential Operations Manual maintained by Franchisor at Franchisor's home
office shall be controlling.
VII. CONFIDENTIAL INFORMATION
A. Franchisee acknowledges that its entire knowledge of the operation
of a SUCCESSORIES facility including the knowledge or know-how regarding the
specifications, standards and operating procedures of a SUCCESSORIES facility,
is derived from information disclosed to Franchisee by Franchisor and that
certain of such information is proprietary, confidential and a trade secret of
Franchisor. Franchisee shall maintain the absolute confidentiality of all such
proprietary information during and after the term of the franchise and shall not
use any such information in any other business or in any manner not specifically
authorized or approved in writing by Franchisor.
B. Franchisee shall divulge such confidential information only to the
extent and only to such of its employees as must have access to it in order to
operate the Franchised Retail Business. Any and all
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information, knowledge and know-how, including, without limitation, drawings,
materials, equipment, retail facility systems and methods, direct sales
techniques, telemarketing techniques, merchandising techniques and procedures
and other data, which Franchisor designates as confidential shall be deemed
confidential for purposes of this Agreement, except information which Franchisee
can demonstrate lawfully came to its attention prior to disclosure thereof by
Franchisor; or which, at the time of disclosure by Franchisor to Franchisee, had
lawfully become a part of the public domain, through publication or
communication by others; or which, after disclosure to Franchisee by Franchisor,
lawfully becomes a part of the public domain, through publication or
communication by others.
C. Due to the special and unique nature of the confidential
information, Marks, and Confidential Operations Manual of Franchisor, Franchisee
acknowledges that Franchisor shall be entitled to immediate equitable remedies,
including but not limited to, restraining orders and injunctive relief in order
to safeguard such proprietary, confidential, unique, and special information of
Franchisor and that money damages alone would be an insufficient remedy with
which to compensate Franchisor for any breach of the terms of Paragraphs V, VI,
and VII of this Agreement. Furthermore, all employees of Franchisee having
access to the confidential and proprietary information of Franchisor shall be
required to execute confidential information agreements in a form acceptable to
Franchisor.
VIII. MODIFICATION OF THE SYSTEM
Franchisee recognizes that from time to time hereafter Franchisor may
change or modify the System presently identified by the Marks including, without
limitation, the adoption and use of new or modified trade names, trademarks,
service marks or copyrighted materials, new computer programs and systems, new
types or brands of merchandise and products, new inventory requirements, new
equipment or new techniques and that Franchisee will accept, use and display for
the purpose of this Agreement any such changes in the System, as if they were
part of this Agreement at the time of execution hereof. Franchisee will make
such expenditures as such changes or modifications in the System may reasonably
require. Franchisee shall not change, modify or alter in any way the System.
IX. ADVERTISING
Recognizing the value of advertising and the importance of the
standardization of advertising and promotion to the furtherance of the goodwill
and the public image of SUCCESSORIES facilities, Franchisee agrees as follows:
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A. Franchisee will submit to Franchisor or its designated agency, for
its prior approval, all promotional materials and advertising to be used by
Franchisee, including, but not limited to, newspapers, radio and television
advertising, other electronic media whether now known or developed in the
future, specialty and novelty items, signs, containers and boxes. In the event
written disapproval of said advertising and promotional material is not given by
Franchisor to Franchisee within 30 days from the date such material is received
by Franchisor, said materials shall be deemed approved. Failure by Franchisee to
conform with the provisions herein and subsequent nonaction by Franchisor to
require Franchisee to cure or remedy this failure and default shall not be
deemed a waiver of future or additional failures and defaults of any other
provision of this Agreement. The submission of advertising to Franchisor for
approval shall not affect Franchisee's right to determine the prices at which
Franchisee sells its products or services.
B. At such time as Franchisor develops it, Franchisee shall contribute
to the SUCCESSORIES Advertising and Development Fund ("Fund") an amount equal to
1% of Franchisee's Gross Sales, as defined in Paragraph X. Franchisee's required
payments to the Fund shall be made at the same time and in the same manner as,
and in addition to, the Continuing Services and Royalty Fee provided in
Paragraph X herein. Such payment shall be made in addition to and exclusive of
any sums that Franchisee may be required to spend on local advertising and
promotion. The fund shall be maintained and administered by Franchisor or its
designee, as follows:
1. Franchisor shall direct all Fund expenditures. Generally,
the Fund will be used to cover production of marketing materials, promotional
expenses, mass media, public relations activities and other related marketing
expenses. Fund expenditures will be made for the benefit of all franchisees.
However, Franchisor cannot and does not ensure any particular franchisee
benefits directly pro rata from the placement of advertising or other
expenditures of Fund contributions. In addition, Franchisor retains the right to
use Fund contributions to place advertisements for catalogs in regional or
national publications. Any sales generated through such catalog sales shall be
treated as set forth in Paragraph I.C.
2. Franchisor shall, for each of its company-owned
SUCCESSORIES businesses offering products and services similar to the Franchised
Retail Business, make contributions to the Fund equivalent to the contributions
required of Franchised Retail Businesses within the System.
3. The funds may be used to meet any and all costs of
maintaining, administering, directing and preparing advertising and related
marketing materials. All sums paid by Franchisee to the Fund shall be maintained
in a separate account from the other funds of Franchisor and shall not be used
to defray any of Franchisor's general operating expenses, except for such
reasonable administrative costs and overhead, if any, as Franchisor may incur in
activities reasonably related to the administration or direction of the Fund and
advertising programs including, without limitation, conducting market research,
preparing marketing and advertising materials, and collecting and accounting for
assessments for the Fund.
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4. It is anticipated that all contributions to the Fund shall
be expended for advertising and promotional purposes during Franchisor's fiscal
year within which contributions are made. If, however, excess amounts remain in
the Fund at the end of such fiscal year, all expenditures in the following
fiscal year(s) shall be made first out of any current interest or other earnings
of the Fund, next out of any accumulated earnings, and finally from principal.
5. Although Franchisor intends the Fund to be of perpetual
duration, Franchisor maintains the right to terminate the Fund. The Fund shall
not be terminated, however, until all monies in the Fund have been expended for
advertising and promotional purposes.
6. An accounting of the operation of the Fund shall be
prepared annually and shall be made available to Franchisee upon request.
Franchisor reserves the right, at its option, to require that such annual
accounting include an audit of the operation of the Fund prepared by an
independent certified public accountant selected by Franchisor and prepared at
the expense of the Fund.
7. If at any time, 50% or more of the existing SUCCESSORIES
franchisees elect to raise the percentage advertising contribution level to the
Fund, participation will be required of all franchisees, but in no event will
Franchisee's contribution (for combined Fund and local advertising) exceed 5% of
Franchisee's Gross Sales.
C. Franchisee shall be required to spend a minimum of $2,000 and a
maximum of $3,000 on newspaper, direct mail, advertising or promotional items
through other media during Franchisee's initial 4 months of operation of the
Franchised Retail Business depending on the market area where the Franchised
Retail Business is located. Such advertising and promotional items are to be
designated as "Grand Opening" advertising and promotion and shall be conducted
in accordance with Franchisor's standards and specifications. Guidelines for
Grand Opening promotions will be provided to Franchisee prior to or during the
initial training program.
D. Franchisee shall spend each calendar month 3% of Franchisee's Gross
Sales for the preceding calendar month on local advertising and promotion. This
requirement takes effect after Franchisee has been in operation 4 months. Such
expenditures shall be made directly by Franchisee. Franchisor shall provide
guidelines for local advertising and any deviation from such guidelines must be
approved in advance by Franchisor or Franchisor's designated advertising agency.
Within 30 days of the end of each month, Franchisee shall furnish to Franchisor,
in a manner approved by Franchisor, an accurate accounting of Franchisee's
expenditures on local advertising and promotion for the preceding month just
ended.
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E. From time to time Franchisor may designate a local, regional or
national advertising coverage area in which Franchisee's business and at least 1
other SUCCESSORIES franchise is located for purposes of developing a cooperative
advertising or promotional program. Franchisee agrees to participate in and
contribute its share to such cooperative advertising and promotional programs in
Franchisee's advertising coverage areas. The cost of the program shall be
allocated among locations in such area and each Franchisee's share shall be in
proportion to its sales during the preceding 12 month period, or portion of said
period, but the aggregate of such additional contribution by Franchisee during
any 3 month period shall not exceed the amounts required pursuant to Paragraph
IX.D. of this Agreement. Said contributions to cooperative advertising
promotional programs will be credited toward the local advertising and
promotional expenditure required by Paragraph IX.D. "Advertising coverage area"
shall be defined as the area covered by the particular advertising medium
(television, radio, or other medium) as recognized in the industry. At the time
a program is submitted, Franchisor shall submit a list to Franchisee of all
operating SUCCESSORIES facilities within the advertising coverage area.
F. Franchisor may, from time to time, develop and market special
catalogs, brochures and other promotional items which will be made available to
Franchisee at the then current price established by Franchisor for such items.
Franchisor agrees that the prices charged to Franchisee for such items will be
consistent with the most favorable pricing charged to other similarly situated
franchisees for the same items and will be based upon Franchisor's fully
absorbed cost for such items plus a mark up of 10%. Franchisee agrees to
maintain a representative inventory of such promotional items to meet public
demand. For purposes of this Agreement, franchisees will be considered
"similarly situated" based upon sales, product purchases, shipping distances and
other factors reasonably communicated to Franchisee from time to time and "fully
absorbed cost" shall include all fixed and variable manufacturing costs, as well
as all direct and indirect costs incurred in the factory or production process.
Franchisee acknowledges that all such purchases from Franchisor may inclucde a
profit to Franchisor. This is in addition to the catalog requirement of
Paragraph XII.Q. Further, Franchisor agrees that with regard to Franchisee
developing local marketing pieces, Franchisee may purchase digitized files and
other graphic pieces from Franchisor at the same cost structure identified
immediately above in this section F. The purchase and use of said materials
shall be subject to any limitations, conditions or covenants provided for in any
existing agreements Franchisor may have with third parties. Franchisee
acknowledges and agrees that all such local marketing pieces shall be subject to
review and final approval of Franchisor, which approval shall not be
unreasonably withheld.
G. Franchisee shall not advertise or use in advertising or any other
form of promotion, the trademarks, service marks or commercial symbols of
Franchisor without appropriate -C- or -Registered Trademark- copyright
and registration marks or the designation TM or SM where applicable.
X. CONTINUING SERVICES AND ROYALTY FEE
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A. Franchisee shall pay without offset, credit or deduction of any
nature, to Franchisor, so long as this Agreement shall be in effect, a monthly
Continuing Services and Royalty Fee equal to 2% of the Gross Sales derived from
the Franchised Retail Business. Said Continuing Services and Royalty Fee shall
be paid monthly in the manner specified below or as otherwise prescribed in the
Confidential Operations Manual.
1. On the 15th day of each month, Franchisee will submit via
facsimile to Franchisor on a form approved by Franchisor, a correct statement,
signed by Franchisee, of Franchisee's Gross Sales for the preceding month just
ended. The Continuing Services and Royalty Fee payment shall be mailed to
Franchisor at such time or Franchisor may require Franchisee to submit proof
that such payment was made via electronic funds transfer. Franchisee will make
available to Franchisor for reasonable inspection at reasonable times by
Franchisor, all original books and records that Franchisor may deem necessary to
ascertain Franchisee's Gross Sales.
2. The term "Gross Sales", as used herein and throughout this
Agreement, shall mean and include the total of all sales of all merchandise,
products or services to customers of Franchisee, (including deposits or interim
deposits) whether or not sold or performed at or from the SUCCESSORIES
Franchised Retail Business, less sales, use or service taxes collected and paid
to the appropriate taxing authority and customer refunds and adjustments.
B. All Continuing Services and Royalty Fees, advertising contributions,
amounts due for purchases by Franchisee from Franchisor, or its subsidiaries,
shall bear interest after due date at the lower of 18% per annum or the highest
applicable legal rate for open account business credit. Franchisee acknowledges
that this Paragraph shall not constitute agreement by Franchisor or its
subsidiaries to accept such payments after same are due or a commitment by
Franchisor to extend credit to, or otherwise finance Franchisee's operation of,
the Franchised Retail Business. Further, Franchisee acknowledges that its
failure to pay all amounts when due shall constitute grounds for termination of
this Agreement, as provided in Paragraph XVI hereof, notwithstanding the
provisions of this Paragraph.
C. Notwithstanding any designation by Franchisee, Franchisor shall have
the sole discretion to apply any payments by Franchisee to any past due
indebtedness of Franchisee for Continuing Services and Royalty Fees, advertising
contributions, purchases from Franchisor, interest or any other indebtedness.
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XI. ACCOUNTING AND RECORDS
A. Franchisee shall establish and maintain a bookkeeping, accounting
and record keeping system conforming to the requirements prescribed by
Franchisor, including, without limitation, the use and retention of sales
tickets, purchase orders, invoices, payroll records, check stubs, sales tax
records and returns, cash receipts and disbursements, journals and general
ledgers. Franchisee shall preserve for a period of not less than 3 years, during
the term of this Agreement and for not less than 3 years following the term of
this Agreement, all accounting records and supporting documentation relating to
the Franchised Retail Business.
B. Franchisee will supply to Franchisor on or before the 20th day after
the term of each calendar quarter, in the form approved by Franchisor, a profit
and loss statement and balance sheet for the last preceding calendar quarter.
Additionally, Franchisee shall, at its expense, submit to Franchisor within 90
days of the end of each fiscal year during the term of this Agreement, an income
statement for such fiscal year and a balance sheet for the last date of such
year. Such annual statements shall be prepared in accordance with generally
accepted accounting principles applied on a consistent basis. Franchisor
reserves the right to require Franchisee to submit financial statements which
are either audited or reviewed by a Certified Public Accountant.
C. Franchisee shall submit to Franchisor such other periodic reports,
forms and records as specified, and in the manner and at the time as specified
in the Confidential Operations Manual or otherwise in writing.
D. Franchisor or its designated agents shall have the right at all
reasonable times to examine and copy, at its expense, the books, records, and
tax returns of Franchisee. Franchisor shall also have the right, at any time, to
have an independent audit made of the books of Franchisee. If an inspection
should reveal that any payments to Franchisor have been understated in any
report to Franchisor, then Franchisee shall immediately pay to Franchisor the
amount understated upon demand, in addition to interest from the date such
amount was due until paid, at the lower of 18% per annum or the maximum rate
permitted by law. If an inspection discloses an understatement in any report of
2% or more, Franchisee shall, in addition, reimburse Franchisor for any and all
costs and expenses connected with the inspection (including, without limitation,
reasonable accounting and attorneys' fees). The foregoing remedies shall be in
addition to any other remedies Franchisor may have.
E. Franchisee acknowledges that nothing contained herein constitutes
Franchisor's agreement to accept any payments after same are due or a commitment
by Franchisor to extend credit to or otherwise finance Franchisee's operation of
the Franchised Retail Business. Further, Franchisee acknowledges that its
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failure to pay all amounts when due shall constitute grounds for termination of
this Agreement, as herein provided.
XII. STANDARDS OF QUALITY AND PERFORMANCE
Franchisee shall comply with all requirements set forth in this
Agreement, the Confidential Operations Manual and other written policies
supplied to Franchisee by Franchisor. Mandatory specifications, standards,
operating procedures and rules prescribed from time to time by Franchisor in
the Confidential Operations Manual or otherwise communicated to Franchisee in
writing, shall constitute provisions of this Agreement as if fully set forth
herein and shall be reasonably and uniformly applied to all franchisees. All
references herein to this Agreement shall include all such mandatory
specifications, standards and operating procedures and rules. Franchisee
shall comply with the entire System including, but not limited to:
A. Franchisee shall commence operation of the retail store of the
Franchised Retail Business not later than nine (9) months after the execution of
this Agreement or as otherwise approved by Franchisor. Prior to such opening,
Franchisee shall have complied with all Franchisor's pre-opening standards and
specifications. If Franchisee for any reason fails to commence operation as
herein provided, such failure shall be considered a default and Franchisor may
terminate this Agreement as herein provided.
B. Franchisee shall maintain the condition and appearance of the
premises of the Franchised Retail Business consistent with Franchisor's
standards. Franchisee shall maintain the premises of the Franchised Retail
Business as is from time to time required to maintain or improve the appearance
and efficient operation of the Franchised Retail Business, including, but not
limited to, replacement of worn out or obsolete fixtures and signs, and repair
of the exterior and interior of the Franchised Retail Business. If at any time
in Franchisor's judgment the general state of repair or the appearance of the
premises of the Franchised Retail Business or its equipment, fixtures, signs or
decor does not meet Franchisor's standards therefor, Franchisor shall so notify
Franchisee, specifying the action to be taken by Franchisee to correct such
deficiency. If Franchisee fails or refuses to initiate within 30 days after
receipt of such notice, and thereafter continue, a bona fide program to complete
any required maintenance, Franchisor shall have the right, in addition to all
other remedies, to enter upon the premises of the Franchised Retail Business and
effect such maintenance on behalf of Franchisee and Franchisee shall pay the
entire costs thereof on demand.
C. Franchisee shall make no material alterations to the premises of the
Franchised Retail Business nor shall Franchisee make material replacements of or
alterations to the equipment, fixtures or signs of the Franchised Retail
Business without the prior written approval by Franchisor.
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D. Franchisee shall offer for sale at the Franchised Retail Business
all types and mix of corporate gifts, wall decor, self-help books, audio tapes,
video tapes, personalized gifts and awards that Franchisor from time to time
authorizes and will not offer for sale at the Franchised Retail Business or the
premises which it occupies any other category of merchandise or products or use
such premises for any purpose other than the operation of a Franchised Retail
Business in full compliance with this Agreement.
E. From time to time, Franchisor shall provide to Franchisee a list of
approved manufacturers, suppliers, and distributors authorized for the
Franchised Retail Business ("Approved Suppliers List") and a list of approved
inventory products, fixtures, furniture, equipment, signs, stationery,
suppliers, and other items or services necessary to operate the Franchised
Retail Business ("Approved Supplies List"). Franchisor may revise the Approved
Supplies List and Approved Suppliers List from time to time in its sole
discretion. If Franchisee proposes to offer for sale or use at the Franchised
Retail Business any brand of product, or other material or supply which is not
on the Approved Supplies List or to purchase any product from a supplier that is
not on the Approved Suppliers List, Franchisee shall first notify Franchisor and
shall upon request by Franchisor submit samples and such other information as
Franchisor requires for examination and/or testing or to otherwise determine
whether such product, material or supply, or such proposed supplier meets its
specifications and quality standards. A charge not to exceed the reasonable cost
of the inspection and evaluation and the actual cost of the test shall be paid
by Franchisee or the supplier. Franchisor reserves the right to re-inspect the
facilities and products of any supplier of an approved item and to revoke its
approval of any item or supplier which fails to continue to meet any of
Franchisor's criteria.
F. Franchisee acknowledges that an essential element of the System is
the line of proprietary products developed by Franchisor and Franchisor's
subsidiaries (the "Proprietary or Trademarked Product Lines"). At all times
during the term of this Agreement, Franchisee shall carry an adequate supply and
maintain a representative inventory, as may be defined by Franchisor in the
Confidential Operations Manual, of such Proprietary or Trademarked Product
Lines, and Franchisee shall maintain, carry and promote such Proprietary or
Trademarked Product Lines for the sale to the general public in order to meet
customer demand as designated by Franchisor. Franchisee shall be required to
purchase the Proprietary or Trademarked Product Lines from Franchisor,
Franchisor's subsidiaries or designated supplier of Franchisor at the then
current price established by Franchisor for such products. Franchisee
acknowledges that all such purchases from Franchisor or its affiliates may
include a profit to Franchisor or its affiliates.
G. All inventory, products and materials, and other items and supplies
used in the operation of the Franchised Retail Business which are not
specifically required to be purchased in accordance with Franchisor's Approved
Supplies List and Approved Suppliers List shall conform to the specifications
and quality standards established by Franchisor from time to time.
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H. Franchisee shall secure and maintain in force all required licenses,
permits and certificates relating to the operation of the Franchised Retail
Business and shall operate the Franchised Retail Business in full compliance
with all applicable laws, ordinances and regulations, including without
limitation all government regulations relating to occupational hazards and
health, consumer protection, trade regulation, worker's compensation,
unemployment insurance and withholding and payment of Federal and State income
taxes and social security taxes and sales, use and property taxes. Franchisee
shall refrain from any merchandising, advertising or promotional practice which
is unethical or may be injurious to the business of Franchisor and/or other
franchised businesses or to the goodwill associated with the Marks.
I. Franchisee shall in the operation of the Franchised Retail Business
use only displays, labels, forms and other products and documentation imprinted
with the Marks and colors as prescribed from time to time by Franchisor.
J. Prior to commencement of operation of the Franchised Retail
Business, Franchisee shall adequately supply the Franchised Retail Business with
a representative inventory as prescribed by Franchisor of an assortment of
corporate gifts, wall decor, self-help books, audio tapes, video tapes,
personalized gifts and awards, products and merchandise of the type, quantity
and quality as specified by Franchisor. Franchisee shall maintain levels of
inventory that will permit operation of the Franchised Retail Business at
maximum capacity.
K. The Franchised Retail Business shall at all times be under the
direct, on-premises supervision of Franchisee (or a trained and competent
employee acting as full-time manager). In the event Franchisee operates more
than 1 franchise, or in the event Franchisee does not devote its full time to
conducting the Franchised Retail Business, at least 1 trained and competent
employee referred to above shall act as full-time manager. Franchisee shall keep
Franchisor informed at all times of the identity of any employee(s) acting as
manager(s) of the Franchised Retail Business. Franchisor shall make training
available, as is reasonable and necessary, for all managers designated by
Franchisee. Franchisor shall provide such training at the then-current published
rates. Franchisee shall, at all times, faithfully, honestly and diligently
perform its obligations hereunder and shall not engage in any business or other
activities that will conflict with its obligations hereunder.
L. Franchisee shall not install or maintain on the premises of the
Franchised Retail Business any telephone booths, newspaper racks, video games,
juke boxes, gum machines, games, rides, vending machines or other similar
devices without the written approval of Franchisor.
M. Franchisee shall notify Franchisor in writing within 5 days of the
commencement of any action, suit, or proceeding, and of the issuance of any
order, writ, injunction, award, or decree of any court,
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agency, or other governmental instrumentality, which may adversely affect the
operation or financial condition of the Franchised Retail Business.
N. Franchisee shall maintain a current listing of the names and
addresses of all customers of the Franchised Retail Business. Franchisee must
provide Franchisor a quarterly update of the lists. Said customer list shall be
the sole property of Franchisor.
O. Franchisee shall comply with all Franchisor's standards and
specifications regarding the use of computer systems as an integral part of the
System, including the purchasing/leasing of computer hardware and software and
updates. Franchisor has approved a computer system which provides accounting,
inventory and point-of-sale functions. Franchisor will provide training to
Franchisee on such computer system. If Franchisee wishes to utilize an
alternative computer system such system must meet Franchisor's standards and
specifications, be approved by Franchisor in accordance with Paragraph XII.E.;
be compatible with the computer system(s) in use throughout the network of
SUCCESSORIES businesses and allow Franchisor direct access by telephone modem.
P. Franchisee shall participate actively in a SUCCESSORIES Regional
Advisory Franchisee Council ("Council") and participate in all Council programs
approved by Franchisor for Franchisee's particular Council. The purposes of the
Council(s) include, but are not limited to, exchanging ideas and problem solving
methods, advising Franchisor on expenditures for regional advertising, providing
back-up support and staffing for political influence, and coordinating System
franchisee efforts. Franchisee shall pay all Council assessments levied by the
Council, and Franchisor has the right to enforce this obligation. Amounts and
expenditures may vary from time to time and due to variations in Council
participation and costs as determined by a particular Council and as approved by
Franchisor. Although Franchisee shall pay such Council assessments, such
assessments shall in no way diminish Franchisee's rights and the benefit of the
bargain under this Agreement. Such Council(s) may be formed by Franchisor at
such time that more than 1 franchisee conducts a SUCCESSORIES Franchised Retail
Business in any given region, the boundaries of such region to be determined in
the sole and unfettered discretion of Franchisor.
Q. Franchisee shall be required to purchase from Franchisor or its
designee and distribute through the Franchised Retail Business a representative
inventory of the SUCCESSORIES catalogs. Franchisor agrees that the prices
charged to Franchisee for such catalogs will be consistent with the most
favorable pricing charged to other similarly situated franchisees for the same
catalogs and will be based upon Franchisor's fully absorbed cost for such
catalogs plus a mark-up of 10%. Franchisee acknowledges that all such purchases
from Franchisor may include a profit to Franchisor.
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XIII. FRANCHISOR'S OPERATIONS ASSISTANCE
A. Franchisor may from time to time advise or offer guidance to
Franchisee relative to prices for corporate gifts, wall decor, self-help books,
audio tapes, video tapes, personalized gifts and awards and related products and
merchandise offered for sale by the Franchised Retail Business that in
Franchisor's judgment constitute good business practice. Such guidance will be
based on the experience of Franchisor and/or its franchisees in operating
franchised businesses and an analysis of the costs of such services, activities,
merchandise, supplies and products and prices charged for competitive inventory
and products. Franchisee shall not be obligated to accept any such advice or
guidance and shall have the sole right to determine the prices to be charged
from time to time by the Franchised Retail Business and no such advice or
guidance shall be deemed or construed to impose upon Franchisee any obligation
to charge any fixed, minimum or maximum prices for any product offered for sale
by the Franchised Retail Business.
B. Upon commencement and during operation of the Franchised Retail
Business, Franchisor shall do the following:
1. Provide to Franchisee a comprehensive list of established
sources of suppliers of corporate gifts, wall decor, self-help books, audio
tapes, video tapes, personalized gifts and awards and other merchandise and
products, equipment, fixtures and supplies necessary for the operation of the
Franchised Retail Business and provide specifications for such products.
However, Franchisor makes no representation or warranty that any particular
approved supplier will be willing or able to sell to all franchisees;
2. As Franchisor deems necessary, negotiate supply contracts
to maximize cost savings;
3. As Franchisor deems necessary, attempt to coordinate
equipment, product and supplies distribution for local, regional and national
suppliers;
4. Regulate quality standards and products in conformance with
the System specifications throughout the network of franchised businesses;
5. Provide ongoing training and support in operating store
design, merchandising, product knowledge and customer service; and
6. Coordinate System-wide advertising.
C. Franchisor shall advise Franchisee of problems arising out of the
operation of the Franchised Retail Business as disclosed by reports submitted to
Franchisor by Franchisee or by inspections conducted
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by Franchisor of the Franchised Retail Business. Franchisor may furnish
Franchisee with such assistance in connection with the operation of the
Franchised Retail Business as is reasonably determined to be necessary by
Franchisor from time to time. Operations assistance may consist of advice and
guidance with respect to:
1. Proper utilization of procedures developed for a
SUCCESSORIES facility with respect to products and related business services as
approved by Franchisor;
2. Additional equipment, merchandise, products and services
authorized for SUCCESSORIES facilities;
3. Procedures and methods concerning the use of an approved
computer system in the operation of the Franchised Retail Business;
4. The institution of proper administrative, bookkeeping,
accounting, inventory control, supervisory and general operating procedures for
the effective operation of a SUCCESSORIES facility; and
5. Advertising, displays and other promotional programs.
D. Franchisor or Franchisor's representative shall make periodic visits
to the Franchised Retail Business for the purposes of consultation, assistance,
and guidance of Franchisee in all aspects of the operation and management of the
Franchised Retail Business. Franchisor, and Franchisor's representatives, who
attend at the Franchised Retail Business will prepare, for the benefit of both
Franchisor and Franchisee, written reports in respect to such visits outlining
any suggested changes or improvements in the operations of the Franchised Retail
Business and detailing any defaults in such operations which become evident as a
result of any such visit, and a copy of each such written report shall be
provided to both Franchisor and Franchisee. Franchisor shall advise Franchisee
of problems arising out of the operation of the Franchised Retail Business as
disclosed by reports submitted to Franchisor by Franchisee or by inspections
conducted by Franchisor of the Franchised Retail Business.
E. All of the specifications, Approved Suppliers Lists, Approved
Supplies Lists, training and operations manuals to be provided by Franchisor to
Franchisee pursuant to this Agreement shall be delivered at the initial training
program.
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XIV. INSURANCE
A. Franchisee shall procure at its expense and maintain in full force
and effect during the term of this Agreement, an insurance policy or policies
protecting Franchisee and Franchisor, and their officers, directors and
employees against any loss, liability, personal injury, death, or property
damage or expense whatsoever arising or occurring upon or in connection with the
Franchised Retail Business, as Franchisor may reasonably require for its own
protection. Franchisor shall be named an additional insured in such policy or
policies.
B. Such policy or policies shall be written by an insurance company
licensed in the state in which Franchisee operates and having at least an "A"
Rating Classification as indicated in Best's Key Rating Guide (or comparable
industry designation) in accordance with standards and specifications set forth
in the Confidential Operations Manual or otherwise in writing, and shall
include, at a minimum (except as different coverages and policy limits may
reasonably be specified for all franchisees from time to time by Franchisor in
the Confidential Operations Manual or otherwise in writing) the following:
1. All risks coverage insurance on the Franchised Retail
Business and all fixtures, equipment, supplies, products and other property used
in the operation of the Franchised Retail Business (which coverage may include
flood and/or earthquake coverage where applicable, and theft insurance) for full
repair and replacement value without any applicable co-insurance clause, except
that an appropriate deductible clause shall be permitted.
2. Worker's compensation and employer's liability insurance as
well as such other insurance as may be required by statute or rule of the state
in which the Franchised Retail Business is located and operated.
3. Commercial general liability insurance and product
liability insurance including a per premises aggregate with the following
coverages: broad form contractual liability, personal injury; products/completed
operation; insuring Franchisor and Franchisee against all claims, suits,
obligations, liabilities and damages, including attorneys' fees, based upon or
arising out of actual or alleged personal injuries or property damage resulting
from, or occurring in the course of, or on or about or otherwise relating to the
Franchised Retail Business including General Aggregate coverage in the following
limits:
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<TABLE>
<CAPTION>
Type of Insurance Limits of Liability
----------------- -------------------
<S> <C>
Workmen's Compensation.........................................................Statutory
General Liability for bodily injury
and property damage including
products and non-owned automobiles..........................................$1,000,000 all inclusive
Motor vehicle insurance (business coverage)
for all liability theft, vehicles
including fire, property damage and
public lability and collisions..............................................$1,000,000 public
liability
Business interruption..........................................................As determined by the
Franchisor from time to
time
Franchisee's Legal Liability...................................................Replacement value of
contents of Authorized
Location
Fire and extended coverage for Authorized
Location, equipment furnishings,
fixtures, plate glass, inventory and
including burglary, holdup and vandalism....................................Full replacement value
</TABLE>
The amounts required herein may be modified from time to time by
Franchisor to reflect inflation or future experience with claims.
C. The insurance afforded by the policy or policies respecting
liability shall not be limited in any way by reason of any insurance which may
be maintained by Franchisor. Within 90 days of the signing of this Agreement,
but in no event later than the date on which Franchisee acquires an interest in
the real property from which it will operate the Franchised Retail Business, a
Certificate of Insurance showing compliance with the foregoing requirements
shall be furnished by Franchisee to Franchisor for approval. Such certificate
shall state that said policy or policies will not be canceled or altered without
at least 20 days prior written notice to Franchisor and shall reflect proof of
payment of premiums. Maintenance of such insurance and the performance by
Franchisee of the obligations under this Paragraph shall not relieve Franchisee
of liability under the indemnity provision set forth in this Agreement. Minimum
limits as required above may be modified from time to time, as conditions
require, by written notice to Franchisee.
D. Should Franchisee, for any reason, not procure and maintain such
insurance coverage as required by this Agreement, Franchisor shall have the
right and authority (without, however, any obligation
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to do so) immediately to procure such insurance coverage and to charge same to
Franchisee, which charges, together with a reasonable fee for expenses incurred
by Franchisor in connection with such procurement, shall be payable by
Franchisee immediately upon notice.
XV. COVENANTS
A. Unless otherwise specified, the term "Franchisee" as used in this
Paragraph XV shall include, collectively and individually, all officers,
directors, and holders of a beneficial interest of 5% or more of the securities
of Franchisee, and of any corporation directly or indirectly controlling
Franchisee, if Franchisee is a corporation; and the general partners and any
limited partner (including any corporation and the officers, directors, and
holders of a beneficial interest of 5% or more of securities, of a corporation
which controls, directly or indirectly, any general or limited partner), if
Franchisee is a partnership.
B. Franchisee covenants that during the term of this Agreement and any
renewals thereof, except as otherwise approved in writing by Franchisor,
Franchisee (if Franchisee is an individual), a shareholder of a beneficial
interest of 10% or more of the securities of Franchisee (if Franchisee is a
corporation), a general partner of Franchisee (if Franchisee is a partnership),
or Franchisee's full-time manager (approved by Franchisor) shall devote full
time, energy, and best efforts, to the management and operation of the
Franchised Retail Business.
C. Franchisee covenants that during the term of this Agreement and any
renewal thereof, except as otherwise approved in writing by Franchisor,
Franchisee shall not, either directly or indirectly, for himself, or through, on
behalf of, or in conjunction with any person, persons, partnership, or
corporation:
1. Divert or attempt to divert any business or customer of the
Franchised Retail Business to any competitor, by direct or indirect inducement
or otherwise, or do or perform, directly or indirectly, any other act injurious
or prejudicial to the goodwill associated with Franchisor's Marks and the
System.
2. Employ or seek to employ any person who is at that time
employed by Franchisor or by any other Franchisee of Franchisor, or otherwise
directly or indirectly induce or seek to induce such person to leave his or her
employment thereat.
3. Own, maintain, engage in, or have any interest in any
business (including any business operated by Franchisee prior to entry into this
Agreement) specializing, in whole or in part, in the wholesale or retail sale or
distribution of corporate gifts, wall decor, self-help books, audio tapes, video
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tapes, personalized gifts and awards, or offering, selling or providing
merchandise or services the same as or similar to that offered, sold or provided
through the System.
D. Franchisee specifically acknowledges that, pursuant to this
Agreement, Franchisee will receive valuable training and confidential
information, including, without limitation, information regarding the
promotional, operational, sales, and marketing methods and techniques of
Franchisor and the System. Accordingly, Franchisee covenants that, except as
otherwise approved in writing by Franchisor, Franchisee shall not, for a period
of 2 years after the expiration or termination of this Agreement, regardless of
the cause of termination, either directly or indirectly, for himself, or
through, on behalf of, or in conjunction with any person, persons, partnership,
or corporation, own, maintain, engage in, or have any interest in any business
specializing, in whole or in part, in the wholesale or retail sale or
distribution of corporate gifts, wall decor, self-help books, audio tapes, video
tapes, personalized gifts and awards, or offering or providing any other
services or selling any merchandise or product the same as or similar to those
provided or sold through the SUCCESSORIES System:
1. Within the Metropolitan Statistical Area, as that term is
defined the U.S. Census Bureau (MSA) in which the Franchised Retail Business is
located; or
2. Within a radius of 10 miles of the Franchised Retail
Business; or
3. Within a radius of 10 miles of the location of any other
business using the System, whether franchised or owned by Franchisor.
E. The parties agree that each of the foregoing covenants shall be
construed as independent of any other covenant or provision of this Agreement.
The parties have reviewed and acknowledged that the foregoing covenants are
reasonable including but not limited to geographical and time limitations. If
all or any portion of a covenant in this Paragraph XV is held unreasonable or
unenforceable by a court or agency having valid jurisdiction in an unappealed
final decision to which Franchisor is a party, Franchisee shall be bound by any
lesser covenant subsumed within the terms of such covenant that imposes the
maximum duty permitted by law, as if the resulting covenant were separately
stated in and made a part of this Paragraph XV.
F. Franchisee understands and acknowledges that Franchisor shall have
the right, in its sole discretion, to reduce the scope of any covenant set forth
in Paragraphs XV.C. and XV.D. in this Agreement, or any portion thereof, without
Franchisee's consent, effective immediately upon receipt by Franchisee of
written notice thereof, and Franchisee shall comply forthwith with any covenant
as so modified, which shall be fully enforceable notwithstanding the provisions
of Paragraph XXVI.
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G. Franchisor shall have the right to require all of Franchisee's
personnel performing managerial or supervisory functions and all personnel
receiving special training from Franchisor to execute similar covenants in a
form satisfactory to Franchisor.
XVI. DEFAULT AND TERMINATION
A. If Franchisee is in substantial compliance with this Agreement and
Franchisor materially breaches this Agreement and fails to cure such breach
within a reasonable time after written notice thereof is delivered to
Franchisor, Franchisee may terminate this Agreement. Such termination shall be
effective 30 days after delivery to Franchisor of notice that such breach has
not been cured and Franchisee elects to terminate this Agreement. A termination
of this Agreement by Franchisee for any reason other than breach of this
Agreement by Franchisor and Franchisor's failure to cure such breach within a
reasonable time after receipt of written notice thereof shall be deemed a
termination by Franchisee without cause.
B. This Agreement shall terminate automatically upon delivery of notice
of termination to Franchisee, if Franchisee or its owner(s), officer(s), or
manager(s):
1. Fails to satisfactorily complete the training program as
provided in Paragraph IV of this Agreement;
2. Has made any material misrepresentation or omission in its
application for the franchise;
3. Is convicted of or pleads no contest to a felony or other
crime or offense that is likely to adversely affect the reputation of Franchisee
or the SUCCESSORIES Franchised Retail Business;
4. Makes any unauthorized use, disclosure or duplication of
any portion of the Confidential Operations Manual or duplicates or discloses or
makes any unauthorized use of any trade secret or confidential information
provided to Franchisee by Franchisor;
5. Abandons or fails or refuses to actively operate the
Franchised Retail Business for two (2) business days in any 12 month period,
unless the Franchised Retail Business has been closed for a purpose approved by
Franchisor, or fails to relocate to an approved premises within an approved
period of time following expiration or termination of the lease for the premises
of the Franchised Retail Business;
6. Surrenders or transfers control of the operation of the
SUCCESSORIES Franchised Retail Business, makes an unauthorized direct or
indirect assignment of the franchise or an ownership
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interest in Franchisee or fails or refuses to assign the franchise or the
interest in Franchisee of a deceased or disabled controlling owner thereof as
herein required;
7. Submits to Franchisor on 3 or more separate occasions at
any time during the term of the franchise any reports or other data, information
or supporting records which understate by more than 3% the Continuing Services
and Royalty Fees owed to Franchisor for any period of, or periods aggregating, 3
or more weeks, and Franchisee is unable to demonstrate that such understatements
resulted from inadvertent error;
8. If Franchisee shall become insolvent or make a general
assignment for the benefit of creditors, or if a petition in bankruptcy is filed
by Franchisee or such a petition is filed against and consented to by
Franchisee, or if Franchisee is adjudicated a bankrupt, or if a bill in equity
or other proceeding for the appointment of a receiver of Franchisee or other
custodian by Franchisee, or if a receiver or other custodian (permanent or
temporary) of Franchisee's assets or property, or any part thereof, is appointed
by any court of competent jurisdiction, or if proceedings for a composition with
creditors under any state or federal law should be instituted by or against
Franchisee, or if a final judgment remains unsatisfied or of record for 30 days
or longer (unless supersedeas bond is filed), or if execution is levied against
Franchisee's Franchised Retail Business or property, or suit to foreclose any
lien or mortgage against the premises or equipment is instituted against
Franchisee and not dismissed within 30 days , or if the real or personal
property of Franchisee's Franchised Retail Business shall be sold after levy
thereupon by any sheriff, marshall, or constable.
9. Materially misuses or makes an unauthorized use of the
Marks or commits any act which can reasonably be expected to materially impair
the goodwill associated with any Marks;
10. Fails on 2 or more separate occasions within any period of
12 consecutive months to submit when due reports or other information or
supporting records, to pay when due the Continuing Services and Royalty Fees,
advertising contributions, amounts due for purchases from Franchisor or other
payments due to Franchisor, or otherwise fails to comply with this Agreement,
whether or not such failures to comply are corrected after notice thereof is
delivered to Franchisee; or
C. This Agreement shall terminate without further action by Franchisor
or notice to Franchisee if Franchisee or Franchisee's owner:
1. Fails or refuses to make payments of any amounts due
Franchisor for Continuing Services and Royalty Fees, advertising contributions,
purchases from Franchisor or any other amounts due to Franchisor, and does not
correct such failure or refusal within 10 days after written notice of such
failure is delivered to Franchisee;
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2. Fails or refuses to comply with any other provision of this
Agreement, or any mandatory specification, standard or operating procedure
prescribed in the Confidential Operations Manual or otherwise in writing, and
does not correct such failure within 30 days (or provide proof acceptable to
Franchisor that it has made all reasonable efforts to correct such failure and
will continue to make all reasonable efforts to cure until a cure is effected if
such failure cannot reasonably be corrected within 30 days) after written notice
of such failure to comply is delivered to Franchisee.
D. To the extent that the provisions of this Agreement provide for
periods of notice less than those required by applicable law, or provide for
termination, cancellation, non-renewal or the like other than in accordance with
applicable law, such provisions shall, to the extent such are not in accordance
with applicable law, not be effective, and Franchisor shall comply with
applicable law in connection with each of these matters.
E. In addition to Franchisor's right to terminate this Agreement, and
not in lieu of such right or any other rights against Franchisee, Franchisor, in
the event that Franchisee shall not have cured a default under this Agreement
within the 20 days after receipt of the written "Notice to Cure" from
Franchisor, may, at its option, enter upon the premises of the SUCCESSORIES
Franchised Retail Business and exercise complete authority with respect to the
operation of said business until such time as Franchisor determines that the
default of Franchisee has been cured and that there is compliance with the
requirements of this Agreement. Franchisee acknowledges that a designated
representative of Franchisor may take over, control, and operate said business,
and that Franchisee shall pay Franchisor a service fee of not less than $500 per
day plus all travel expenses, room and board and other expenses reasonably
incurred by such representative so long as it shall be required by the
representative to enforce compliance herewith. Franchisee further acknowledges
that if, as herein provided, Franchisor temporarily operates for Franchisee the
business franchised herein, Franchisee shall indemnify and hold harmless
Franchisor and any representative of Franchisor who may act hereunder,
respecting any and all acts and omissions which Franchisor may perform, or fail
to perform as regards the interests of Franchisee or third parties.
XVII. RIGHTS AND DUTIES OF PARTIES UPON EXPIRATION OR TERMINATION
Upon termination or expiration, this Agreement and all rights granted
hereunder to Franchisee shall forthwith terminate, and:
A. Franchisee shall immediately cease to operate the Franchised Retail
Business under this Agreement, and shall not thereafter, directly or indirectly,
represent to the public or hold itself out as a present or former Franchisee of
Franchisor.
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B. Upon demand by Franchisor, Franchisee shall assign to Franchisor
Franchisee's interest in any lease then in effect for the Franchised Retail
Business premises, and Franchisee shall furnish Franchisor with evidence
satisfactory to Franchisor of compliance with this obligation within 30 days
after termination or expiration of this Agreement.
C. Franchisee shall immediately and permanently cease to use, by
advertising or in any other manner whatsoever, any confidential methods,
procedures and techniques associated with the System; the Marks; and any
distinctive form, signs, symbols, logos or devices associated with the System.
In particular, Franchisee shall cease to use, without limitation, all signs,
advertising materials, stationery, forms, and any other articles which display
the Marks associated with the System.
D. Franchisee shall take such action as may be necessary to cancel or
assign to Franchisor or Franchisor's designee, at Franchisor's option, any
assumed name or equivalent registration which contains the name "SUCCESSORIES"
or any Mark of Franchisor, and Franchisee shall furnish Franchisor with evidence
satisfactory to Franchisor of compliance with this obligation within 30 days
after termination or expiration of this Agreement.
E. Franchisee shall, in the event it continues to operate or
subsequently begins to operate any other business, not use any reproduction,
counterfeit, copy or colorable imitation of the Marks either in connection with
such other business or the promotion thereof, which is likely to cause
confusion, mistake or deception, or which is likely to dilute Franchisor's
exclusive rights in and to the Marks. Franchisee shall not utilize any
designation of origin or description or representation which falsely suggests or
represents an association or connection with Franchisor so as to constitute
unfair competition. Franchisee shall make such modifications or alterations to
the premises of the Franchised Retail Business (including, without limitation,
the changing of the telephone number) immediately upon termination or expiration
of this Agreement as may be necessary to prevent any association between
Franchisor or the System and any business thereon subsequently operated by
Franchisee or others, and shall make such specific additional changes thereto as
Franchisor may reasonably request for that purpose, including, without
limitation, removal of all distinctive physical and structural features
identifying the System. In the event Franchisee fails or refuses to comply with
the requirements of this Paragraph XVII, Franchisor shall have the right to
enter upon the premises where Franchisee's Franchised Retail Business was
conducted, without being guilty of trespass or any other tort, for the purpose
of making or causing to be made such changes as may be required at the expense
of Franchisee, which expense Franchisee shall pay upon demand.
F. Franchisee shall promptly pay all sums owing to Franchisor. In the
event of termination for any default of Franchisee, such sums shall include all
damages, costs, and expenses, including reasonable attorneys' fees, incurred by
Franchisor as a result of the default.
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G. Franchisee shall pay to Franchisor all damages, costs and expenses,
including reasonable attorneys' fees, incurred by Franchisor subsequent to the
termination or expiration of the franchise herein granted in obtaining
injunctive or other relief for the enforcement of any provisions of this
Paragraph XVII or Paragraph XV.
H. Franchisee shall immediately turn over to Franchisor all manuals,
including the Confidential Operations Manual, customer lists, records, files,
instructions, brochures, agreements and any and all other materials provided by
Franchisor to Franchisee relating to the operation of the Franchised Retail
Business (all of which are acknowledged to be Franchisor's property).
I. Franchisor shall acquire right, title and interest to any sign or
sign faces bearing Franchisor's Marks. Franchisee hereby acknowledges
Franchisor's right to access the premises of the Franchised Retail Business
should Franchisor elect to take possession of any said sign or sign faces
bearing Franchisor's Marks.
J. Franchisor shall have the right (but not the duty), to be exercised
by notice of intent to do so within 30 days after termination or expiration, to
purchase for cash, except as provided in Paragraph XVII.I, any or all equipment,
supplies, and other inventory, advertising materials, and all items bearing
Franchisor's Marks, at Franchisee's cost or fair market value, whichever is
less. If the parties cannot agree on fair market value within a reasonable time,
the determination of fair market value shall be submitted to arbitration in
accordance with Paragraph XXIX. If Franchisor elects to exercise any option to
purchase herein provided, it shall have the right to set off all amounts due
from Franchisee under this Agreement against any payment therefor.
K. Franchisee shall comply with the covenants contained in Paragraph XV
of this Agreement, and shall refrain from soliciting any customers.
L. All obligations of Franchisor and Franchisee which expressly or by
their nature survive the expiration or termination of this Agreement shall
continue in full force and effect subsequent to and notwithstanding its
expiration or termination and until they are satisfied or by their nature
expire.
XVIII. TRANSFERABILITY OF INTEREST
A. This Agreement and all rights hereunder may be assigned and
transferred by Franchisor and, if so, shall be binding upon and inure to the
benefit of Franchisor's successors and assigns.
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B. This Agreement and all rights hereunder may be assigned and
transferred by Franchisee and, if so, shall be binding upon and inure to the
benefit of Franchisee's successors and assigns, subject to the following
conditions and requirements, and Franchisor's right of first refusal as set
forth herein:
1. No Franchisee, partner of Franchisee, (if Franchisee is a
partnership), or shareholder of Franchisee (if Franchisee is a corporation),
without Franchisor's prior written consent, by operation of law or otherwise
shall sell, assign, transfer, convey, give away, or encumber to any person,
firm, or corporation, all or any part of its interest in this Agreement or its
interest in the franchise granted hereby or its interest in any proprietorship,
partnership or corporation which owns any interest in the franchise, nor offer,
permit, or suffer the same to be sold, assigned, transferred, conveyed, given
away, or encumbered in any way to any person, firm, or corporation. Franchisee
may not, without the prior written consent of Franchisor, fractionalize any of
the rights of Franchisee granted pursuant to this Agreement. Any purported
assignment of any of Franchisee's rights herein not having the aforesaid consent
shall be null and void and shall constitute a material default hereunder.
2. Franchisor shall not unreasonably withhold its consent to any
transfer referenced in Paragraph XVIII.B.1. of this Agreement when requested;
provided, however, that the following conditions and requirements shall first be
met to the full satisfaction of Franchisor.
a. If Franchisee is an individual or partnership and desires
to assign and transfer its rights to a corporation:
(1) Said transferee corporation shall be newly organized
and its charter shall provide that its activities are confined exclusively to
acting as a SUCCESSORIES Franchisee as franchised under this Agreement;
(2) Franchisee shall be and shall remain the owner of the
majority stock interest of the transferee corporation;
(3) The individual Franchisee (or, if Franchisee is a
partnership, one of the partners) shall be and shall remain the principal
executive officer of the corporation;
(4) The transferee corporation shall enter into a written
assignment (in a form satisfactory to Franchisor), in which the transferee
corporation assumes all of Franchisee's obligations hereunder;
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(5) All shareholders of the transferee corporation shall
enter into a written agreement, in a form satisfactory to Franchisor, jointly
and severally guaranteeing the full payment and performance of the transferee
corporation's obligations to Franchisor under this Agreement;
(6) Each stock certificate of the transferee corporation
shall have conspicuously endorsed upon it a statement that it is held subject
to, and that further assignment or transfer thereof is subject to, all
restrictions imposed upon assignments by this Agreement;
(7) No new shares of common or preferred voting stock in
the transferee corporation shall be issued to any person, partnership, trust,
foundation, or corporation without obtaining Franchisor's prior written consent
and then only upon disclosure of the terms and conditions contained herein being
made to the prospective new holders of the stock;
(8) All accrued money obligations of Franchisee to
Franchisee's suppliers, Franchisor, its subsidiaries or assignees, shall be
satisfied prior to assignment or transfer.
b. If the transfer, other than such transfer as is authorized
under Paragraph XVIII.B.2.a. of this Agreement, if consummated alone or together
with other related previous, simultaneous, or proposed transfers, would have the
effect of transferring control of the franchise licensed herein to someone other
than an original signatory of this Agreement:
(1) The transferee(s) shall be of good moral character and
reputation and shall have a good credit rating and competent business
qualifications reasonably acceptable to Franchisor. Franchisee shall provide
Franchisor with such information as Franchisor may require to make such
determination concerning each such proposed transferee(s).
(2) The transferee(s) or such other individual(s) as shall
be the actual manager of the franchise shall have successfully completed and
passed the training course then in effect for franchisees, or otherwise
demonstrated to Franchisor's satisfaction, sufficient ability to operate the
unit being transferred.
(3) The transferee(s), including all shareholders,
officers, directors and partners of the transferee(s), shall jointly and
severally execute any or all of the following, at Franchisor's sole discretion
and as Franchisor shall direct:
aa. A Franchise Agreement and other standard ancillary
agreements with Franchisor on the current standard forms being used by
Franchisor, except that an additional franchise fee shall not be charged; and/or
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bb. A written assignment from Franchisee in a form
satisfactory to Franchisor, wherein transferee shall assume all of Franchisee's
obligations hereunder.
(4) Approval by Franchisor of any transfer by Franchisee of
the franchise herein granted or any of Franchisee's rights under this Agreement
shall in no way be deemed a release by Franchisor of Franchisee's obligations
pursuant to this Agreement. Consent by Franchisor to a transfer of the franchise
shall not constitute or be interpreted as consent for any future transfer
thereof.
(5) The term of said agreements required pursuant to
Paragraph XVIII.B.2.b.(3) shall be for the unexpired term of this Agreement and
for any extensions or renewals as provided herein.
(6) If transferee is a corporation:
aa. Each stock certificate of the transferee
corporation shall have conspicuously endorsed upon it a statement that it is
held subject to, and that further assignment or transfer thereof is subject to,
all restrictions imposed upon assignments by this Agreement; and
bb. No new shares of common or preferred voting stock
in the transferee corporation shall be issued to any person, partnership, trust,
foundation, or corporation without obtaining Franchisor's prior written consent,
and then only upon disclosure of the terms and conditions contained herein being
made to the prospective new holders of the stock; and
cc. All shareholders of the transferee corporation
shall enter into a written agreement, in a form satisfactory to Franchisor,
jointly and severally guaranteeing full payment and the performance of the
transferee corporation of all obligations under this Agreement.
(7) All accrued money obligations of Franchisee to
Franchisor, its subsidiaries, affiliates or assignees, shall be satisfied prior
to assignment or transfer, and Franchisee shall not be in default under the
terms of this Agreement.
(8) Franchisee, prior to the transfer, shall execute a general
release, in a form prescribed by Franchisor, of any and all existing claims
against Franchisor and its subsidiaries and affiliates, if any, and their
respective officers, directors, agents and employees, except such claims as are
not permitted to be waived under applicable law.
3. Franchisee shall have fully paid and satisfied all of
Franchisee's obligations to Franchisor, and the transferee or Franchisee
shall have fully paid to Franchisor a transfer fee equal to one-
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half (1/2) of the then-current initial franchise fees charged by Franchisor for
the training, supervision, administrative costs, overhead, counsel fees,
accounting and other Franchisor expenses in connection with the transfer. This
transfer fee does not apply to an assignment of interest to a corporation under
Paragraph XVIII.B.2.a. of this Agreement.
4. No sale, assignment, transfer, conveyance, encumbrance, or
gift of any interest in this Agreement or in the franchise granted thereby,
shall relieve Franchisee and the shareholders or partners participating in any
transfer, of the obligations of the covenants contained in Paragraph XV, except
where Franchisor shall expressly authorize in writing.
C. Franchisee must give Franchisor 90 days written notice prior to any
sale or assignment by Franchisee. The purpose of this Paragraph is to enable
Franchisor to comply with any applicable state or federal franchise disclosure
laws. Franchisee shall indemnify and hold harmless Franchisor for Franchisee's
failure to comply with this Paragraph.
D. Franchisee must promptly ("promptly" herein defined as within 15
days of receipt of an offer to buy) give Franchisor written notice whenever
Franchisee has received an offer to buy Franchisee's franchise. Franchisee must
also give Franchisor written notice simultaneously with any offer to sell the
franchise made by, for, or on behalf of Franchisee. The purpose of this
Paragraph is to enable Franchisor to comply with any applicable state or federal
franchise disclosure laws or rules. Franchisee shall indemnify and hold harmless
Franchisor for Franchisee's failure to comply with this Paragraph.
E. Franchisee shall not, without prior written consent of Franchisor,
place in, on or upon the location of the Franchised Retail Business, or in any
communication media, any form of advertising relating to the sale of the
Franchised Retail Business or the rights granted hereunder.
XIX. DEATH OR INCAPACITY OF FRANCHISEE
A. In the event of the death or incapacity of an individual Franchisee,
or any partner of a Franchisee which is a partnership or any shareholder owning
50% or more of the capital stock of a franchise which is a corporation, the
heirs, beneficiaries, devisees, or legal representatives of said individual,
partner or shareholders shall, within 180 days of such event:
1. Apply to Franchisor for the right to continue to operate
the franchise for the duration of the term of this Agreement and any renewals
hereof, which right shall be granted upon the fulfillment of all of the
conditions set forth in Paragraph XVIII.B.2.b. of this Agreement (except that no
transfer fee shall be required); or
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2. Sell, assign, transfer, or convey Franchisee's interest in
compliance with the provisions of Paragraphs XVIII.B. and XX of this Agreement;
provided, however, in the event a proper and timely application for the right to
continue to operate has been made and rejected, the 180 days to sell, assign,
transfer or convey shall be computed from the date of said rejection. For
purposes of this Paragraph, Franchisor's silence on an application through the
180 days following the event of death or incapacity shall be deemed a rejection
made on the last day of such period.
B. In the event of the death or incapacity of an individual Franchisee,
or any partner or shareholder of a Franchisee which is a partnership or
corporation, where the aforesaid provisions of Paragraph XVIII have not been
fulfilled within the time provided, all rights franchised to Franchisee under
this Agreement shall, at the option of Franchisor, terminate forthwith and
Franchisor shall have the option to purchase the Franchised Retail Business in
accordance with Paragraph XVII.J. of this Agreement.
XX. RIGHT OF FIRST REFUSAL
If Franchisee or its owners propose to sell the Franchised Retail
Business (or its assets) or part or all of the ownership of Franchisee,
Franchisee or its owners shall obtain and deliver a bona fide, executed written
offer to purchase same to Franchisor, which shall, for a period of 15 days from
the date of delivery of such offer, have the right, exercisable by written
notice to Franchisee or its owners, to purchase the Franchised Retail Business
(or its assets) or such ownership for the price and on the terms and conditions
contained in such offer, provided that Franchisor may substitute cash for any
form of payment proposed in such offer. If Franchisor does not exercise this
right of first refusal, the offer may be accepted by Franchisee or its owners,
subject to the prior written approval of Franchisor, as provided in Paragraph
XVIII hereof, provided that if such offer is not so accepted within 6 months of
the date thereof, Franchisor shall again have the right of first refusal herein
described. Should a transfer Franchisee assume the rights and obligations under
this Agreement, such transferee Franchisee shall likewise be subject to
Franchisor's right of first refusal under terms and conditions as set forth
herein.
XXI. OPERATION IN THE EVENT OF ABSENCE, DISABILITY OR DEATH
In order to prevent any interruption of the Franchised Retail Business
which would cause harm to said business and thereby depreciate the value
thereof, Franchisee authorizes Franchisor, in the event that Franchisee is
absent or incapacitated by reason of illness or death and is not, therefore, in
the sole judgment of Franchisor, able to operate the Franchised Retail Business,
to operate said business for so long as Franchisor deems necessary and
practical, and without waiver of any other rights or remedies Franchisor may
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have under this Agreement. Nothing contained herein shall create an obligation
on the part of Franchisor, nor shall Franchisor's operation of the Franchised
Retail Business create an obligation on the part of Franchisor to so operate the
Franchised Retail Business. All monies from the operation of the business during
such period of operation by Franchisor shall be kept in a separate account and
the expenses of the business, including reasonable compensation and expenses for
Franchisor's representative, shall be charged to said account. If, as herein
provided, Franchisor temporarily operates for Franchisee the Franchised Retail
Business, Franchisee shall indemnify and hold harmless Franchisor and any
representative of Franchisor who may act hereunder, from any and all claims
arising from the acts and omissions of Franchisor and its representative.
XXII. INDEPENDENT CONTRACTOR
A. This Agreement does not create a fiduciary relationship between the
parties, nor does it constitute Franchisee as an agent, legal representative,
joint venturer, partner, employee, or servant of Franchisor for any purpose
whatsoever; and it is understood between the parties hereto that Franchisee
shall be an independent contractor and is in no way authorized to make any
contract, agreement, warranty or representation on behalf of Franchisor, or to
create any obligation, express or implied, on behalf of Franchisor.
B. During the term of this Agreement and any extension hereof,
Franchisee shall hold itself out to the public as an independent contractor
operating the business pursuant to a franchise from Franchisor. Franchisee shall
take such affirmative action as may be necessary to do so, including, without
limitation, exhibiting a notice of that fact in a conspicuous place on the
premises of the Franchised Retail Business, the content of which Franchisor
reserves the right to specify.
C. Franchisee shall defend at his own cost and indemnify and hold
harmless Franchisor, its shareholders, directors, officers, employees and
agents, from and against any and all loss, costs, expenses (including, without
limitation, reasonable accountants', attorneys', and expert witness fees, costs
of investigation and proof of facts, court costs, other litigation expenses and
travel and living expenses), damages and liabilities, however caused, resulting
directly or indirectly from or pertaining to the use, condition, or
construction, equipping, decorating, maintenance or operation of the Franchised
Retail Business, including the sale of any products, service or merchandise sold
from the Franchised Retail Business. Such loss, claims, costs, expenses, damages
and liabilities shall include, without limitation, those arising from latent or
other defects in the Franchised Retail Business, whether or not discoverable by
Franchisor, and those arising from the death or injury to any person or arising
from damage to the property of Franchisee or Franchisor, their agents or
employees, or any third person, firm or corporation, whether or not such losses,
claims, costs, expenses, damages, or liabilities were actually or allegedly
caused wholly or
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in part through the active or passive negligence of Franchisor or any of its
agents or employees or resulted from any strict liability imposed on Franchisor
or any of its agents or employees. All such indemnification shall survive the
termination of this Agreement.
D. Franchisor shall not, by virtue of any approvals, advice or services
provide to Franchisee, assume responsibility or liability to Franchisee or any
third parties to which Franchisor would not otherwise be subject.
XXIII. NON-WAIVER
No failure of Franchisor to exercise any power reserved to it
hereunder, or to insist upon strict compliance by Franchisee with any obligation
or condition hereunder, and no custom or practice of the parties in variance
with the terms hereof, shall constitute a waiver of Franchisor's right to demand
exact compliance with the terms hereof. Waiver by Franchisor of any particular
default by Franchisee shall not be binding unless in writing and executed by the
party sought to be charged and shall not affect or impair Franchisor's right
with respect to any subsequent default of the same or of a different nature; nor
shall any delay, waiver, forbearance, or omission of Franchisor to exercise any
power or rights arising out of any breach or default by Franchisee of any of the
terms, provisions, or covenants hereof, affect or impair Franchisor's rights nor
shall such constitute a waiver by Franchisor of any right hereunder or of the
right to declare any subsequent breach or default. Subsequent acceptance by
Franchisor of any payment(s) due to it hereunder shall not be deemed to be a
waiver by Franchisor of any preceding breach by Franchisee of any terms,
covenants or conditions of this Agreement.
XXIV. NOTICE
Any and all notices required or permitted under this Agreement shall be
in writing and shall be personally delivered or mailed by certified mail, return
receipt requested, to the respective parties at the following addresses unless
and until a different address has been designated by written notice to the other
party:
Notices to Franchisor: Successories, Inc.
2520 Diehl Road
Aurora, Illinois 60504
Copy to: _____________________________________________
_____________________________________________
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Notices to Franchisee: At the address specified on Page 1 of this Agreement.
Copy to: ____________________________________________________
____________________________________________________
____________________________________________________
Any notice by certified mail shall be deemed to have been given at the date and
time of mailing.
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XXV. COST OF ENFORCEMENT OR DEFENSE
In the event that either party to this Agreement is required to employ
legal counsel or to incur other expenses to enforce any obligation of the second
party hereunder, or to defend against any claim, demand, action, or proceeding
by reason of the second party's failure to perform any obligation imposed upon
the second party by this Agreement, and provided that legal action is filed and
such action or the settlement thereof establishes the second party's default
hereunder, then the first party shall be entitled to recover from the second
party the amount of all reasonable attorney's fees of such counsel and all other
expenses incurred in enforcing such obligation or in defending against such
claim, demand, action, or proceeding, whether incurred prior to, or in
preparation for, or in contemplation of the filing of such action or thereafter.
Nothing contained in this Paragraph shall relate to arbitration proceedings
pursuant to this Agreement.
XXVI. ENTIRE AGREEMENT
This Agreement, any Exhibit attached hereto, and the documents referred
to herein, shall be construed together and constitute the entire, full and
complete agreement between Franchisor and Franchisee concerning the subject
matter hereof, and supersede all prior agreements. No other representation has
induced Franchisee to execute this Agreement, and there are no representations,
inducements, promises, or agreements, oral or otherwise, between the parties not
embodied herein, which are of any force or effect with reference to this
Agreement or otherwise. No amendment, change or variance from this Agreement
shall be binding on either party unless executed in writing by both parties.
XXVII. SEVERABILITY AND CONSTRUCTION
A. Each Paragraph, part, term and/or provision of this Agreement shall
be considered severable, and if, for any reason, any Paragraph, part, term
and/or provision herein is determined to be invalid and contrary to, or in
conflict with, any existing or future law or regulation, such shall not impair
the operation of or affect the remaining portions, sections, parts, terms and/or
provisions of this Agreement, and the latter will continue to be given full
force and effect and bind the parties hereto; and said invalid sections, parts,
terms and/or provisions shall be deemed not part of this Agreement.
B. Anything to the contrary herein notwithstanding, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than Franchisor or Franchisee and such of their respective
successors and assigns as may be contemplated by this Agreement, any rights or
remedies under or by reason of this Agreement.
C. Franchisee shall be bound by any promise or covenant imposing the
maximum duty permitted by law which is contained within the terms of any
provision hereof, as though it were separately
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stated in and made a part of this Agreement, that may result from striking from
any of the provisions hereof any portion or portions which a court may hold to
be unreasonable and unenforceable in a final decision to which Franchisor is a
party, or from reducing the scope of any promise or covenant to the extent
required to comply with such a court order.
D. All captions herein are intended solely for the convenience of the
parties, and none shall be deemed to affect the meaning or construction of any
provision hereof.
E. This Agreement may be executed in triplicate, and each copy so
executed shall be deemed an original.
F. The recitals set forth in this Agreement are specifically
incorporated into the terms of this Agreement and hereby constitute a part
thereof.
XXVIII. APPLICABLE LAW
A. THIS AGREEMENT TAKES EFFECT UPON ITS ACCEPTANCE AND EXECUTION BY
FRANCHISOR IN ILLINOIS; AND SHALL BE INTERPRETED AND CONSTRUED UNDER THE LAWS
THEREOF, WHICH LAWS SHALL PREVAIL IN THE EVENT OF ANY CONFLICT OF LAW, EXCEPT TO
THE EXTENT GOVERNED BY THE UNITED STATES TRADEMARK ACT OF 1946 (LANHAM ACT, 15,
U.S.C. SECTIONS 1051 ET SEQ).
B. FRANCHISEE ACKNOWLEDGES THAT THIS AGREEMENT IS ENTERED INTO IN
DUPAGE COUNTY, ILLINOIS AND THAT ANY ACTION SOUGHT TO BE BROUGHT BY EITHER
PARTY, EXCEPT THOSE CLAIMS REQUIRED TO BE SUBMITTED TO ARBITRATION SHALL BE
BROUGHT IN THE APPROPRIATE STATE OR FEDERAL COURT IN DUPAGE COUNTY, ILLINOIS,
AND THE PARTIES DO HEREBY WAIVE ALL QUESTIONS OF PERSONAL JURISDICTION OR VENUE
FOR THE PURPOSES OF CARRYING OUT THIS PROVISION.
C. NO RIGHT OR REMEDY CONFERRED UPON OR RESERVED TO FRANCHISOR OR
FRANCHISEE BY THIS AGREEMENT IS INTENDED TO BE, NOR SHALL BE DEEMED, EXCLUSIVE
OF ANY OTHER RIGHT OR REMEDY HEREIN OR BY LAW OR EQUITY PROVIDED OR PERMITTED,
BUT EACH SHALL BE CUMULATIVE OF EVERY OTHER RIGHT OR REMEDY.
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D. NOTHING HEREIN CONTAINED SHALL BAR FRANCHISOR'S RIGHT TO OBTAIN
INJUNCTIVE RELIEF AGAINST THREATENED CONDUCT THAT WILL CAUSE IT LOSS OR DAMAGES,
UNDER THE USUAL EQUITY RULES, INCLUDING THE APPLICABLE RULES FOR OBTAINING
RESTRAINING ORDERS AND PRELIMINARY INJUNCTIONS.
XXIX. ARBITRATION
A. Any monetary claim arising out of or relating to this Agreement, or
any breach thereof, and any controversy regarding the establishment of the fair
market value of leasehold improvements and other Franchised Retail Business
assets pursuant to Paragraph XVII.J. hereof, shall be submitted to arbitration
in DuPage County, Illinois, in accordance with the rules of the American
Arbitration Association and judgment upon the award may be entered in any court
having jurisdiction thereof. Nothing contained herein shall, however, be
construed to limit or to preclude Franchisor from bringing any action in any
court of competent jurisdiction for injunctive or other provisional relief as
Franchisor deems to be necessary or appropriate to compel Franchisee to comply
with his obligations hereunder or to protect the Marks or other property rights
of Franchisor. In addition, nothing contained herein shall be construed to limit
or to preclude Franchisor from joining with any action for injunctive or
provisional relief all monetary claims that Franchisor may have against
Franchisee which arise out of the acts or omissions to act giving rise to the
action for injunctive or provisional relief. This arbitration provision shall be
deemed to be self-executing and in the event that Franchisee fails to appear at
any properly noticed arbitration proceeding, award may be entered against
Franchisee notwithstanding his failure to appear.
B. Nothing herein contained shall bar the right of either party to seek
and obtain temporary injunctive relief from a court of competent jurisdiction in
accordance with applicable law against threatened conduct that will cause loss
or damage, pending completion of the arbitration.
C. It is the intent of the parties that any arbitration between
Franchisor and Franchisee shall be of Franchisee's individual claim and that the
claim subject to arbitration shall not be arbitrated on a classwide basis.
XXX. "FRANCHISEE" DEFINED AND GUARANTY
As used in this Agreement, the term "Franchisee" shall include all
persons who succeed to the interest of the original Franchisee by permitted
transfer or operation of law and shall be deemed to include not only the
individual or entity defined as "Franchisee" in the introductory paragraph of
this Agreement but shall also include all partners of the entity that executes
this Agreement, in the event said entity is a
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partnership, and all shareholders, officers and directors of the entity that
executes this Agreement, in the event said entity is a corporation. By this
signatures hereto, all partners, shareholders, officers and directors of the
entity that signs this Agreement as Franchisee acknowledges and accepts the
duties and obligations imposed upon each of them, individually, by the terms of
this Agreement. All partners of the entity that executes this Agreement, in the
event said entity is a partnership and all shareholders, officers and directors
of the entity that executes this Agreement, in the event said entity is a
corporation, shall execute the Guaranty and Assumption of Obligations attached
hereto as Exhibit C and made a part hereof.
XXXI. FORCE MAJEURE
Whenever a period of time is provided in this Agreement for either
party to do or perform any act or thing, except the payment of monies, neither
party shall be liable or responsible for any delays due to strikes, lockouts,
casualties, acts of God, war, governmental regulation or control or other causes
beyond the reasonable control of the parties, and in any event said time period
for the performance of an obligation hereunder shall be extended for the amount
of time of the delay. This clause shall not apply or not result in an extension
of the term of this Agreement.
XXXII. CAVEAT
The success of the business venture contemplated to be undertaken by
Franchisee by virtue of this Agreement is speculative and depends, to a large
extent, upon the ability of Franchisee as an independent businessman, and his
active participation in the daily affairs of the business as well as other
factors. Franchisor does not make any representation or warranty express or
implied as to the potential success of the business venture contemplated hereby.
XXXIII. ACKNOWLEDGEMENTS
A. Franchisee represents and acknowledges that it has received, read
and understood this Agreement and Franchisor's Uniform Franchise Offering
Circular; and that Franchisor has fully and adequately explained the provisions
of each to Franchisee's satisfaction; and that Franchisor has accorded
Franchisee ample time and opportunity to consult with advisors of its own
choosing about the potential benefits and risks of entering into this Agreement.
B. Franchisee acknowledges that it has received a copy of this
Agreement and the attachments thereto, at least five (5) business days prior to
the date on which this Agreement was executed. Franchisee further acknowledges
that Franchisee has received the disclosure document required by the Trade
Regulation Rule of the Federal Trade Commission entitled Disclosure Requirements
and Prohibitions Concerning
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Franchising and Business Opportunity Ventures, at least 10 business days prior
to the date on which this Agreement was executed.
C. FRANCHISEE UNDERSTANDS AND ACKNOWLEDGES THAT ALL REPRESENTATIONS OF
FACT CONTAINED HEREIN ARE MADE SOLELY BY FRANCHISOR. ALL DOCUMENTS, INCLUDING
FRANCHISOR'S FRANCHISE AGREEMENT AND UNIFORM FRANCHISE OFFERING CIRCULAR AND ALL
EXHIBITS THERETO, HAVE BEEN PREPARED SOLELY IN RELIANCE UPON REPRESENTATIONS
MADE AND INFORMATION PROVIDED BY FRANCHISOR, ITS OFFICERS AND ITS DIRECTORS.
FRANCHISEE FURTHER AGREES TO RELEASE FROM LIABILITY AND INDEMNIFY AND HOLD
HARMLESS THE PREPARER OF ANY AND ALL SUCH FRANCHISE AGREEMENTS, OFFERING
CIRCULARS AND EXHIBITS THERETO FROM ANY AND ALL LOSS, COSTS, EXPENSES,
(INCLUDING ATTORNEYS' FEES), DAMAGES AND LIABILITIES RESULTING FROM ANY
REPRESENTATION AND/OR CLAIMS MADE BY FRANCHISOR IN SUCH DOCUMENTS.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed, sealed and delivered this Agreement in triplicate
the day and year first above written.
SUCCESSORIES, INC.
By:
-------------------------------------
Its:
-------------------------------------
------------------------------------------
Franchisee
------------------------------------------
Franchisee
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EXHIBIT A TO THE FRANCHISE AGREEMENT
GUARANTY AND ASSUMPTION OF OBLIGATIONS
THIS GUARANTY AND ASSUMPTION OF OBLIGATIONS is given this ____ day
of _________________, 19__, by________________________________________________
_________________________________________.
In consideration of, and as an inducement to, the execution of that
certain Franchise Agreement of even date herewith (the "Agreement") by
SUCCESSORIES, INC. ("Franchisor"), each of the undersigned hereby personally and
unconditionally (1) guarantees to Franchisor, and its successors and assigns,
for the term of the Agreement and thereafter as provided in the Agreement, that
_______________________________________________________________________________
("Franchisee") shall punctually pay and perform each and every undertaking,
agreement and covenant set forth in the Agreement; and (2) shall personally be
bound by, and personally liable for the breach of each and every provision in
the Agreement, both monetary obligations and obligations to take or refrain from
taking specific actions or to engage or refrain from engaging in specific
activities. Each of the undersigned waives: (1) acceptance and notice of
acceptance by Franchisor of the foregoing undertakings; (2) notice of demand for
payment of any indebtedness or non-performance of any obligations hereby
guaranteed; (3) protest and notice of default to any party with respect to the
indebtedness or non-performance of any obligations hereby guaranteed; (4) any
right he may have to require that an action be brought against Franchisee or any
other person as a condition of liability; and (5) any and all other notices and
legal or equitable defenses to which he may be entitled.
Each of the undersigned consents and agrees that: (1) his direct and immediate
liability under this guaranty shall be joint and several; (2) he shall render
any payment or performance required under the Agreement upon demand if
Franchisee fails or refuses punctually to do so; (3) such liability shall not be
contingent or conditioned upon pursuit by Franchisor of any remedies against
Franchisee or any other person; and (4) such liability shall not be diminished,
relieved or otherwise affected by any extension of time, credit or other
indulgence which Franchisor may from time to time grant to Franchisee or to any
other person, including without limitation the acceptance of any partial payment
or performance, or the compromise or release of any claims, none of which shall
in any way modify or amend this guaranty, which shall be continuing and
irrevocable during the term of the Agreement.
IN WITNESS WHEREOF, each of the undersigned has hereunto affixed his signature
on the same day and year as the Agreement was executed.
GUARANTOR(S) PERCENTAGE OF OWNERSHIP IN FRANCHISEE
%
- ---------------------------------------- ------------------------
%
- ---------------------------------------- ------------------------
%
- ---------------------------------------- ------------------------
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EXHIBIT B TO THE FRANCHISE AGREEMENT
REFUNDS AND CANCELLATION
This entire contract is further conditioned upon Franchisor's
evaluation of the personal abilities, aptitudes and financial qualifications of
Franchisee, and Franchisee's manager, if applicable. In accordance therewith,
Franchisee, and, Franchisee's manager, if applicable, shall submit all data
requested and Franchisor shall have a reasonable time, not to exceed 15 business
days after submission of all data, to prepare its evaluations. If, for any
reason, Franchisor elects to cancel this Agreement after the aforesaid
evaluations, he shall notify Franchisee in writing of the cancellation within 15
days of Franchisor's receipt of the above data. Said notice shall be accompanied
by a refund to Franchisee of monies paid to Franchisor under the terms of this
Agreement less the amount stated below, and the notice and refund shall cause an
automatic cancellation of this Agreement without further notice.
In the event of a cancellation of this Agreement as set forth above,
Franchisor shall be entitled to a reasonable fee for its evaluation of
Franchisee and related preparatory work performed and expenses actually
incurred, but not to exceed the sum of $2,500. If Franchisee has paid franchise
fees in excess of the amount owed to Franchisor for Franchisor's evaluation,
Franchisor shall return such excess amount to Franchisee and Franchisor shall be
fully and forever released from any claims or causes of action the Franchisee
may have under or pursuant to the Franchise Agreement.
SUCCESSORIES, INC.
By:
--------------------------------
Its:
-------------------------------
------------------------------------
Franchisee
------------------------------------
Franchisee
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of the 1st day of
June, 1999 BETWEEN:
(1) Successories, Inc., an Illinois corporation ("the Company"); and,
(2) Michael H. McKee, a resident of Illinois ("the Employee").
THE COMPANY AND THE EMPLOYEE HEREBY AGREE, in consideration of the
mutual obligations and covenants set forth below, to the following terms and
conditions:
1. EMPLOYMENT
1.1 The Company shall continue to employ the Employee as a Senior Vice
President/Creative Director subject to the terms and conditions specified in
this Employment Agreement ("the Employment").
1.2 The Employment pursuant to this Employment Agreement shall continue
until June 1, 2002 ("the Term of Employment").
1.3 Unless either party to this Employment Agreement, at least one year
prior to the conclusion of the Term of Employment, provides written notice to
the other party that it wishes not to renew this Employment Agreement, then the
Term of Employment will be automatically extended for one additional year. There
is no limit on the number of extensions of the Term of Employment that may occur
pursuant to this section.
2. COMMENCEMENT AND PLACE OF EMPLOYMENT
The Company hereby continues to employ the Employee as a Senior Vice
President/Creative Director effective on the date specified above, and the
Employee hereby accepts such continued employment on the terms and conditions
set forth in this Employment Agreement. The Employment shall be in Aurora,
Illinois.
3. DUTIES
The Employee shall faithfully and diligently perform the duties and
responsibilities assigned to him by the Company, provided that such duties are
commensurate with the Employee's title.
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4. EXCLUSIVITY OF SERVICE
While employed by the Company, the Employee shall devote all of his time,
attention, and energies to the Company's business; provided that it shall not be
a violation of this Agreement for the Employee to (i) serve on corporate, civic
or charitable boards or committees, (ii) deliver lectures and fulfill speaking
engagements, (iii) manage personal investments, or (iv) engage in the sale of
personal paintings and drawings to individuals for noncommercial use (excluding
original artworks created for Successories' product), so long as such activities
under clauses (i), (ii), (iii) or (iv) do not interfere, in any material
respect, with the Employee's responsibilities hereunder.
5. COMPENSATION AND BENEFITS
5.1 Effective as of June 1, 1999, the Company shall pay the Employee a
minimum base salary of ONE HUNDRED FIFTY THOUSAND ($150,000) per year, payable
in arrears on a monthly basis. The Company may make deductions or withholdings
as required by applicable State and Federal law, or as may be or has been
consented to by the Employee. The minimum base salary shall be adjusted on an
annual basis (but not reduced below the minimum base salary set forth above in
this paragraph) by the Company for purposes of the second, third, and, if
applicable, any succeeding year of the Employment due to its extension.
Notwithstanding anything in the foregoing to the contrary, it is the current
intent of the Company to grant to the Employee an increase in his base salary as
of February 1, 2000, based on the Company's performance as attached hereto on
Exhibit A.
5.2 The Employee shall be eligible to participate in the bonus plan(s) made
available generally to the CEO, COO and senior executives of the Company.
5.3 The Company shall also reimburse the Employee, against receipts or
other satisfactory evidence, all reasonable business expenses properly incurred
by him in the course of the Employment and in accordance with the Company's
rules relating to reimbursement of expenses.
5.4 The Company shall also provide the Employee with paid vacation in
accordance with the Company's policies, but in no event less than twenty (20)
days per annum, to be taken at such time as is mutually agreed between the
Employee and the Company. The Employee will not forfeit any paid vacation days
that are not taken in any year.
5.5 The Company shall also afford the Employee certain fringe benefits and
perquisites at least equal to those made available by the Company to its other
senior executive employees, and in accordance with the terms of such plans and
policies, including but not limited to entitlement to holidays, personal leave,
sick leave, family leave, medical insurance, disability insurance, dental
insurance, and life insurance.
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5.6 The Employee shall also be entitled to receive options to be granted
under the Company's stock option plan as determined by the Compensation
Committee of the Board of Directors.
5.7 Upon execution of this contract, the Company shall grant to the
Employee an option to purchase 75,000 shares of Company stock with a grant price
equal to $2.875 per share, which grant shall be reflected in a Stock Option
Agreement attached hereto as Exhibit B.
6. REASONABLENESS OF RESTRICTIONS
The Employee acknowledges that, during the term of Employment, the
Company will provide the Employee with the use of and access to trade secrets
and confidential information. In turn, the Employee recognizes that, while
performing his duties hereunder he will have access to and come into contact
with trade secrets and confidential information belonging to the Company and
will obtain personal knowledge of and influence over its customers and/or
employees. The Employee therefore agrees that the restrictions contained in
Sections 7, 8, and 9 are reasonable and necessary to protect the legitimate
business interests of the Company both during and after the termination of the
Employment.
7. CONFIDENTIALITY
7.1 The Employee shall neither during the Employment (except in the proper
performance of his duties) nor at any time (without limit) after the termination
thereof directly or indirectly:
7.1.1 use for his own purposes or those of any other person, company,
business entity, or other organization whatsoever, or
7.1.2 disclose to any person, company, business entity, or other
organization whatsoever,
any trade secrets or confidential information relating or belonging to the
Company, including but not limited to any such information relating to clients
or customers, client or customer lists or requirements, market information,
business plans or dealings, financial information and plans, trading models,
market access information, research activities, any document marked
Confidential, or any information which the Employee has been told is
Confidential, or any information which has been given the Company in confidence
by customers, suppliers, or other persons.
8. TRADE SECRETS
8.1 During the term of this Employment Agreement, the Employee acknowledges
that he will be afforded access to and become familiar with various trade
secrets of the Company, including, but not necessarily be limited to the
following: the Company's business plans, financial
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information, marketing strategies, customer or client lists, software and
research and proprietary technology information. The Employee acknowledges
that these trade secrets are owned and shall continue to be owned solely by
the Company and that they contain specialized and confidential information
not generally known in the industry and which constitute the Company's trade
secrets. The Employee recognizes and acknowledges that it is essential to the
Company to protect this trade secret information.
8.2 The Employee further represents to the Company that, as an inducement
for his continued employment, the Employee will hold this information in trust
and confidence for the Company's sole benefit and use during the Employment and
after the Employment terminates the Employee agrees not to use this information
for any purpose whatsoever or to divulge this information to any person other
than the Company without express written authorization unless such information
shall no longer constitute trade secret information other than as a result of
conduct of the Employee in violation of this Section 8.2.
9. POST-TERMINATION OBLIGATIONS
9.1 Non-Competition. The Employee hereby agrees that, during his employment
by the Company pursuant to this Employment Agreement and for a period of one (1)
year or for a period of time which corresponds to the total severance payment
made to Employee hereunder, whichever is greater, following the termination of
the Employment under this Employment Agreement, he will not, directly or
indirectly and in any way, whether as principal or as director, officer,
employee, consultant, agent, partner or stockholder to another entity (other
than by the ownership of a passive investment interest of not more than 2.5% in
a company with publicly traded equity securities):
9.1.1 own, manage, operate, control, be employed by, participate in, or
be connected in any manner with the ownership, management, operation, or control
of any business competing with any business of the Company in the one (1) year
immediately preceding such termination;
9.1.2 contact, interfere with, solicit on behalf of another, or attempt
to entice away from the Company (or any affiliate or subsidiary of the Company):
(1) any client or customer of the Company (or any affiliate or
subsidiary of the Company); or
(2) any contract, agreement or arrangement that the Company (or
any affiliate or subsidiary of the Company) is actively negotiating
with any other party; or
(3) any prospective business opportunity that the Company (or any
affiliate or Subsidiary of the Company) has identified, unless the
Company has declined to pursue such opportunity.
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9.2 NON-SOLICITATION OF EMPLOYEES. The Employee hereby agrees that he will
not, for a period of one (1) year or for a period of time which corresponds to
the total severance payment made to Employee hereunder, whichever is greater,
immediately following the termination of his employment, howsoever arising,
either on his own account or in conjunction with or on behalf of any other
person, company, business entity, or other organization whatsoever directly or
indirectly:
9.2.1 induce, solicit, entice or procure any person who is an employee
of the Company to leave such employment, where that person is:
(i) is a Company Employee on the Termination Date; or
(ii) had been a Company Employee in any part of the one (1) year
period immediately preceding the Termination Date; or
9.2.2 accept into employment or otherwise engage or use the services
of any person who:
(i) is a Company Employee on the Termination Date; or
(ii) had been a Company Employee in any part of the one (1) year
period immediately preceding the Termination Date.
10. TERMINATION
10.1 The Company and the Employee agree that this employment relationship
is for a term of three (3) years commencing on the date specified in paragraph
1.3 of this Employment Agreement.
10.2 On termination of the Employment for whatever reason, the Employee
shall return to the Company in accordance with its instructions all of the
Company's proprietary technology and trading models, records, software, models,
reports, and other documents and any copies thereof and any other property
belonging to the Company which are in the Employee's possession or under his
control. The Employee shall, if so required by the Company, confirm in writing
his compliance with his obligations under this paragraph.
10.3 The termination of the Employment shall be without prejudice to any
right the Employee or the Company may have in respect of any breach by the other
of any provisions of this Employment Agreement which may have occurred prior to
such termination.
10.4 In the event of termination of the Employment hereunder however
arising, the Employee agrees that he will not at any time after such termination
represent himself as still having any connection with the Company, except as a
former employee for the purpose of communicating with prospective employers or
complying with any applicable statutory requirements.
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10.5 Notwithstanding anything to the contrary in this Employment Agreement,
the Company may terminate this Employment Agreement for "just cause" by
providing to the Employee written notice of the termination on account of just
cause and the specific grounds thereof. Upon termination of the Employment for
just cause, the Employment will immediately end and the Employee will not be
entitled to receive any further compensation after that date except as may be
required by law. The term "just cause" means (a) an act of fraud or dishonesty
by the Employee that results directly or indirectly in gain or personal
enrichment of the Employee at the Company's expense, (b) an act by the Employee
that the Company's Board of Directors reasonably believes constitutes a felony,
or (c) any material breach by the Employee of any provision of this Employment
Agreement that has not been cured by the Employee within 30 days of written
notice of such a breach from the Company.
10.6 Notwithstanding anything to the contrary in this Employment Agreement,
the Company's obligations under this Employment Agreement shall cease or
terminate upon the death of the Employee or upon the determination that the
Employee has a disability. Upon the death of the Employee, the Company shall pay
the surviving spouse (if any) of the Employee six (6) months of the then current
base salary of the Employee and any other compensation or pro rata bonus due the
Employee; if there is no surviving spouse, the Company shall pay those sums to
the estate of the Employee. For purposes of this paragraph only, the Employee
will be deemed to have a "disability" only where the Employee has suffered a
physical or mental illness, injury, or infirmity that prevents the Employee from
fulfilling all of his material duties under this Employment Agreement for at
least ninety (90) consecutive days and the Company's Board of Directors has
determined in good faith and with the advice of the Employee's physician (or
other relevant medical professional), that the Employee's illness, injury, or
infirmity is more than likely to continue indefinitely. In these circumstances,
after a determination has been made in good faith by the Company's Board of
Directors that the Employee has a disability, the Company shall pay to the
Employee, the Employee's guardian or administrator, or the Employee's estate,
the then current base salary provided under this Employment Agreement commencing
with the first month after the determination of the existence of a disability
and until the expiration of the Employment Agreement or for a period of six (6)
months, whichever is lesser.
10.7 Notwithstanding anything to the contrary in this Employment Agreement,
the Company may, in connection with the notice of non-renewal delivered to the
Employee pursuant to paragraph 1.4, elect not to utilize the Employee's services
during the remainder of the Term of Employment and relieve the Employee of any
further obligation to perform his duties under this Employment Agreement. If the
Company so elects, then the Employee shall cease to occupy his office or
otherwise have access to the Company and the Company shall pay and will remain
obligated to pay the Employee the remainder of his base salary and all other
benefits for the lesser of (1) 24 months or (2) the remainder of the Term of
Employment, and the Company shall pay the Employee his bonus for the year of
termination (which shall be determined in a comparable manner to how bonuses are
determined for other senior executives of the Company for that year). In such
event, the Employee will not be required to mitigate his damages by seeking
other alternative
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employment during the remainder of the Term of Employment under this Employment
Agreement.
10.8 Notwithstanding anything to the contrary in this Employment Agreement,
the Employee may terminate the Employment under this Employment Agreement for
good reason in which event the Company shall still have the same obligations to
the Employee as provided in paragraph 5. For purposes of this paragraph, "good
reason" shall mean: (a) without the Employee's express written consent, the
assignment to the Employee of any duties inconsistent with his title, position,
duties, responsibilities, and status with the Company prior to a Change in
Control as hereinafter defined, or a change in his reporting responsibilities,
title, or duties as in effect after a Change in Control, or any removal of the
Employee from or any failure to reelect him to any such positions, except in
connection with the termination of the Employment for just cause, disability, or
as a result of his death; provided, however, that removal from or failure to
reelect the Employee as a member of the Board of Directors shall not constitute
"good reason"; (b) (i) a reduction in the Employee's minimum base salary or (ii)
a material reduction in the Employee's benefits or material breach of the
Company's obligations undertaken in this Employment Agreement; (c) subsequent to
a Change in Control of the Company, the failure by the Company to obtain the
assumption of the obligation to perform this Employment Agreement by any
successor; or (d) subsequent to a Change in Control of the Company, any
purported termination of the Employee's Employment which is not effected
pursuant to a notice of termination satisfying the requirements of paragraphs
1.4 or 10 hereof. For purposes of this Section 10.8, the term "Change in
Control" means the occurrence of one or more of the following: (i) without prior
approval of the Board of Directors, a single entity or group of affiliated
entities acquires more than 50% of the Company's outstanding stock, (ii) the
Company is involved in a merger or a sale of all or substantially all of its
assets so that its shareholders before the merger or sale own less than 50% of
the voting power of the surviving or acquiring corporation, (iii) a liquidation
or dissolution of the Company occurs, (iv) a change in the majority of the Board
of Directors occurs during any twenty-four (24) month period without the
approval of a majority of the directors in office at the beginning of such
period. In the event that the Employee determines to terminate his Employment
for good reason, and the reason for termination is an alleged violation of
subsections (a) and/or (b)(ii) above, the Employee shall be obligated to give
notice of termination of thirty (30) days to the Company, which notice shall
identify the reason for such termination, and the Company shall have a
reasonable opportunity to cure any such alleged defects. In the event of any
termination by the Employee for "good reason," the Employee shall be entitled to
the remainder of the base salary due for the lesser of (1) 24 months or (2) the
remaining Term of Employment.
11. SEVERABILITY
The various provisions and sub-provisions of this Employment Agreement
are severable, and if any provision or sub-provision or identifiable part
thereof is held to be invalid or unenforceable by any court of competent
jurisdiction, then such invalidity or unenforceability shall not affect the
validity or enforceability of the remaining provisions or sub-provisions or
identifiable parts in this Employment Agreement.
7
<PAGE>
12. WARRANTY
The Employee represents and warrants that he is not prevented by any
other employment agreement, arrangement, contract, understanding, Court Order or
otherwise, which in any way directly or indirectly conflicts, is inconsistent
with, or restricts or prohibits him from fully performing the duties of the
Employment, in accordance with the terms and conditions of this Employment
Agreement.
13. NOTICES
Any notice to be given hereunder may be delivered (a) in the case of
the Company by first class mail addressed to its Registered Office and (b) in
the case of the Employee, either to him personally or by first class mail to his
last known residence address. Notices served by mail shall be deemed given 3
days after the date on which they are mailed.
14. WAIVERS AND AMENDMENTS
No act, delay, omission, or course of dealing on the part of any party
hereto in exercising any right, power, or remedy hereunder shall operate as, or
be construed as, a waiver thereof or otherwise prejudice such party's rights,
powers, and remedies under this Employment Agreement. This Employment Agreement
may be amended only by a written instrument signed by the Employee and a duly
authorized officer of the Company or the Board of Directors.
15. PRIOR AGREEMENTS
This Employment Agreement cancels and is in substitution for all
previous letters of engagement, offer letters, agreements (including the
employment agreement by and between Celex Group, Inc. and Michael H. McKee,
dated June 1, 1996), and arrangements (whether oral or in writing) relating to
the subject-matter hereof between the Company and the Employee, all of which
shall he deemed to have been terminated by mutual consent, with the exception of
any rights the Employee may have under any stock option plan or bonus plan
previously in existence. This Employment Agreement constitutes the entire terms
and conditions of the Employee's employment and no waiver or modification
thereof shall be valid unless in writing, signed by the parties, and only to the
extent therein set forth.
16. ARBITRATION JURISDICTION AND GOVERNING LAW
Except for disputes arising under or in connection with Sections 7, 8,
and 9, all disputes arising under or in connection with this Employment
Agreement or concerning in any way the Employee's employment shall be submitted
exclusively to arbitration in Chicago, Illinois under the Rules of the American
Arbitration Association then in effect, and the decision of the arbitrator shall
be final and binding upon the parties. Judgment upon the award rendered may be
entered and enforced in any court having jurisdiction. The Employee and the
Company consent to personal
8
<PAGE>
jurisdiction of any state or federal court sitting in Du Page County, Illinois,
in order to enforce any arbitration judgment or the rights of the Employee or of
the Company under Sections 7, 8, and 9 and waive any objection that such forum
is inconvenient. The Employee and the Company hereby consent to service of
process in any such action by U.S. mail or other commercially reasonable means
of receipted delivery. The parties also agree that the party found to be at
fault shall reimburse the other party for all reasonable attorneys' fees that
the other party incurs in pursing their remedies in good faith under this
Employment Agreement.
17. GOVERNING LAW
This Employment Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
18. ASSIGNABILITY
The rights and obligations contained herein shall be binding on and
inure to the benefit of the successors and assigns of the Company. The Employee
may not assign his rights or obligations hereunder without the express written
consent of the Company.
19. HEADINGS; CONSTRUCTION
The headings contained in this Employment Agreement are inserted for
reference and convenience only and in no way define, limit, extend, or describe
the scope of this Employment Agreement or the meaning or construction of any of
the provisions hereof. As used herein, unless the context otherwise requires,
the single shall include the plural and vice versa, words of any gender shall
include words of any other gender, and "or" is used in the inclusive sense.
20. SURVIVAL OF TERMS
If this Employment Agreement is terminated for any reason, the
provisions of Sections 7, 8, and 9 shall survive and the Employee and the
Company, as the case may be, shall continue to be bound by the terms thereof to
the extent provided therein.
21. EMPLOYEE ACKNOWLEDGMENT AND ADVICE OF COUNSEL
THE EMPLOYEE REPRESENTS THAT HE HAS HAD AMPLE OPPORTUNITY TO REVIEW
THIS AGREEMENT AND THE EMPLOYEE ACKNOWLEDGES THAT HE UNDERSTANDS THAT IT
CONTAINS IMPORTANT CONDITIONS OF THE EMPLOYMENT AND THAT IT EXPLAINS POSSIBLE
CONSEQUENCES, BOTH FINANCIAL AND LEGAL, IF THE EMPLOYEE BREACHES THE AGREEMENT.
9
<PAGE>
AS WITNESS the hands of a duly authorized officer of the Company and of
the Employee the day and year first before written.
SIGNED by Gary J. Rovansek ) /s/ Gary J. Rovansek
For and on behalf of Successories, Inc. ) ----------------------------------
----------------------------------
Date
SIGNED by Michael H. McKee ) /s/ Michael H. McKee
) ----------------------------------
----------------------------------
Date
10
<PAGE>
EXHIBIT A
FEBRUARY 1, 2000 BASE SALARY INCREASE
-------------------------------------
<TABLE>
<CAPTION>
Successories, Inc.
Fiscal Year 1999 Increase in
Audited Operating Profit Base Salary*
------------------------ ------------
<S> <C>
$1.5 million $20,000
$2.0 million $30,000
$2.5 million $40,000
$3.0 million and above $50,000
</TABLE>
* In the event that the audited operating profit of Successories, Inc. for
fiscal year 1999 is between any of the above thresholds (e.g. between $2.0
million and $2.5 million), it is the Company's current intent to increase the
Employee's base salary on a prorated basis to reflect the difference between
actual profit and the applicable thresholds (e.g., $2.2 million would result in
a $34,000 increase in the Employee's base salary). If there is a material change
in the plan outside of management's control that prohibits the attainment of the
minimum increase in the above schedule, as determined in the sole discretion of
the Compensation Committee of the Board of Directors, the Employee shall receive
an increase in his base salary of $30,000 as of February 1, 2000.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 940,000
<SECURITIES> 0
<RECEIVABLES> 3,803,000
<ALLOWANCES> 693,000
<INVENTORY> 9,318,000
<CURRENT-ASSETS> 15,701,000
<PP&E> 19,418,000
<DEPRECIATION> 10,192,000
<TOTAL-ASSETS> 31,753,000
<CURRENT-LIABILITIES> 11,859,000
<BONDS> 0
0
5,000
<COMMON> 69,000
<OTHER-SE> 15,831,000
<TOTAL-LIABILITY-AND-EQUITY> 31,753,000
<SALES> 23,665,000
<TOTAL-REVENUES> 24,049,000
<CGS> 10,452,000
<TOTAL-COSTS> 14,211,000
<OTHER-EXPENSES> 16,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 696,000
<INCOME-PRETAX> (1,326,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,326,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,326,000)
<EPS-BASIC> (.19)
<EPS-DILUTED> (.19)
</TABLE>
