UFOC
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Sample UFOC
FRANCHISE OFFERING CIRCULAR
CREATE DUPLICATE DELIVER
POSTNET INTERNATIONAL FRANCHISE CORPORATION 1819 Wazee Street Denver, Colorado 80202 (303)771-7100 Facsimile (303) 771-7133 E-mail Internet http://www.postnet.com
PostNet offers franchises for retail stores which provide business and consumer services and products under the trade name "POSTNET" ("Centers"). The initial franchise fee is $29,900, except for those who convert an existing similar type of business to a Center, in which event it ranges from $7,500 to $19,500. The estimated initial investment required to begin operation of a Center ranges from $175,875 to $197,600.
PostNet may, in some instances, offer to franchisees the right to become an area franchisee, for which a fee is negotiated on a case-by-case basis as further described in Item 5, and which is likely to range from $75,000 to $250,000. In addition to this fee, the initial investment required for becoming an area franchisee ranges from $1,950 to $17,475, as described in Item 7.
PostNet also may, in some instances, offer development rights to developers which enable them to open a certain number of Centers within a specified area under individual franchise agreements. The development fee is $15,000 for each Center to be established.
RISK FACTORS
1. THE FRANCHISE AGREEMENT, AREA FRANCHISE AGREEMENT, AND DEVELOPMENT AGREEMENT STATE THAT COLORADO LAW GOVERNS THE AGREEMENT UNLESS A PROVISION IS NOT ENFORCEABLE UNDER THE LAWS OF COLORADO AND YOUR CENTER OR TERRITORY IS LOCATED IN A STATE WHERE THE PROVISION IS ENFORCEABLE. THE LAWS OF COLORADO MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS. UNDER CALIFORNIA LAW, A PROVISION IN A FRANCHISE AGREEMENT REQUIRING THE APPLICATION F THE LAWS OF ANOTHER STATE IS VOID WITH RESPECT TO A CLAIM OTHERWISE ENFORCEABLE UNDER THE CALIFORNIA FRANCHISE INVESTMENT LAW.
2. THE FRANCHISE AGREEMENT, AREA FRANCHISE AGREEMENT, AND DEVELOPMENT AGREEMENT PERMIT YOU TO MEDIATE, ARBITRATE, AND SUE ONLY IN THE JUDICIAL DISTRICT IN WHICH WETIAVE OUR PRINCIPAL PLACE OF BUSINESS AT THE TIME THAT THE PROCEEDING
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BEGINS, AND WHICH, AS OF THE DATE OF THIS OFFERING CIRCULAR, IS DENVER, COLORADO. OUT-OF-STATE MEDIATION, ARBITRATION, AND LITIGATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST MORE TO MEDIATE, ARBITRATE, AND SUE US AT THE LOCATION WHERE WE HAVE OUR PRINCIPAL PLACE OF BUSINESS AT THE TIME THE PROCEEDING BEGINS THAN IN YOUR HOME STATE. UNDER CALIFORNIA LAW, A PROVISION IN A FRANCHISE AGREEMENT RESTRICTING JURISDICTION OR VENUE TO A FORUM OUTSIDE OF CALIFORNIA IS VOID WITH RESPECT TO A CLAIM OTHERWISE ENFORCEABLE UNDER THE CALIFORNIA INVESTMENT LAW.
3. THERE MAY BE OTHER RISKS CONCERNING THE FRANCHISE.
Information comparing franchises is available. Call the state administrators listed in Exhibit I or your public library for sources of information.
Registration of this franchise by a state does not mean that the state recommends it or has verified the information in this offering circular. If you learn anything in the offering circular is untrue, contact the Federal Trade Commission and applicable State authority listed in Exhibit I.
The effective date of this California offering circular is_________________, 2006.
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POSTNET INTERNATIONAL FRANCHISE CORPORATION FRANCHISE OFFERING CIRCULAR
TABLE OF CONTENTS
Page
1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES................................1
The Franchisor..................................................................................................................1
Predecessors and Affiliates...............................................................................................1
The Franchise Offered......................................................................................................1
Competition......................................................................................................................2
Industry-Specific Laws and Regulations..........................................................................3
2 BUSINESS EXPERIENCE..............................................................................................3
3 LITIGATION...................................................................................................................5
4 BANKRUPTCY...............................................................................................................6
5 INITIAL FRANCHISE FEE............................................................................................7
Franchise Agreement........................................................................................................7
Area Franchise Agreement...............................................................................................8
Development Agreement..................................................................................................8
6 OTHER FEES...................................................................................................................9
7 INITIAL INVESTMENT.................................................................................................11
8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES...........................15
Standards and Specifications............................................................................................15
Purchases from Approved Suppliers................................................................................15
Approval of New Suppliers..............................................................................................16
9 FRANCHISEE'S OBLIGATIONS..................................................................................16
10 FINANCING ARRANGEMENTS..................................................................................19
11 FRANCHISOR'S OBLIGATIONS.................................................................................19
Pre-Opening Obligations..................................................................................................19
Continuing Obligations.....................................................................................................20
Training............................................................................................................................21
Site Selection....................................................................................................................28
Advertising.......................................................................................................................29
Advisory Council..............................................................................................................32
Computer System.............................................................................................................32
Franchisee Manual............................................................................................................35
12 TERRITORY....................................................................................................................36
Franchise Agreement........................................................................................................36
Area Franchise Agreement...............................................................................................37
Development Agreement..................................................................................................38
13 TRADEMARKS...............................................................................................................38
14 PATENTS, COPYXUGHTS AND PROPRIETARY INFORMATION...........................40
Confidential Operating Manual........................................................................................40
Confidential Information..................................................................................................40
15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF
THE CENTER..................................................................................................................41
Franchisees.......................................................................................................................41
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Area Franchisees...............................................................................................................41
16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL...................................41
17 RENEWAL, TERMINATION, TRANSFER AND DISPUTE
RESOLUTION.................................................................................................................42
18 PUBLIC FIGURES..........................................................................................................50
19 EARNINGS CLAIMS......................................................................................................50
20 LIST OF OUTLETS.........................................................................................................50
21 FINANCIAL STATEMENTS..........................................................................................55
22 CONTRACTS..................................................................................................................55
23 RECEIPT
EXHIBITS
A. FRANCHISE AGREEMENT AND ATTACHMENTS
B. AREA FRANCHISE AGREEMENT AND ATTACHMENTS
C. DEVELOPMENT AGREEMENT AND ATTACHMENTS
D. LISTS OF FRANCHISEES/AREA FRANCHISEES/DEVELOPERS
E. FINANCIAL STATEMENTS
F. TABLE OF CONTENTS - MANUAL
G. CONFIDENTIALITY AND NON-COMPETITION COVENANTS H. MUSIC SERVICE AGREEMENT
I. LIST OF STATE ADMINISTRATORS
J. AGENTS FOR SERVICE OF PROCESS
K. FRANNET FRANCHISE BROKERS
L. FRANCHOICE FRANCHISE BROKERS
M. COMPLIANCE CERTIFICATION
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POSTNET INTERNATIONAL FRANCHISE CORPORATION FRANCHISE OFFERING CIRCULAR
ITEM1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
The Franchisor
PostNet International Franchise Corporation ("we," "us," or "our") is the franchisor of the franchise program described in this offering circular. We were incorporated in Nevada on October 27, 1992. Our principal business address is 1819 Wazee Street, Denver, Colorado 80202. We do not conduct business under any other name. Since our incorporation in 1992, we have offered franchises for retail stores which offer business and consumer services and products, and do not engage in any other business. We do not operate any business of the type offered in this offering circular. Our agents for service of process are listed in Exhibit J to this offering circular.
Unless otherwise noted, we will refer to a prospective franchisee, area franchisee, or developer as "you," whether you are an individual, a partnership, a corporation or other entity, including the owner or owners of those entities. This offering circular is not applicable to the offer and sale of area franchises. PostNet has a separate California registration and franchise offering circular for use in offering and selling area franchises. If you are interested in considering the purchase of an area franchise, please request a copy of our area franchise offering.
Predecessors and Affiliates
PostNet International, Inc., our Predecessor, merged into us in October 1999, and thereafter dissolved. It was inactive from 1993 until its dissolution in 1999.
We have no affiliates.
The Franchise Offered
We offer franchises for a retail business which provides business and consumer services and products pursuant to a unique and distinctive marketing program ("System"). Among the services and products the businesses typically sell are black and white/color photocopying, digital photocopy and scanning, computer and Internet services, printing and finishing services, overnight air express and ground shipping (domestic and international), packaging services and supplies, private mailbox rentals, facsimile services, notary public services, and office supplies. We identify businesses by means of certain trade names, service marks, trademarks, logos, emblems, and indicia of origin owned by us, including the trade name "PostNet" (collectively, "Proprietary Marks"). Businesses operating under the System and Proprietary Marks are referred to in this offering circular as "Centers."
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The franchise agreement ("Franchise Agreement") (a copy of which is attached to this offering circular as Exhibit A) gives you the right to establish and operate a Center. Most Centers will be located in high traffic areas that provide ample parking, significant foot traffic, and exposure to a public thoroughfare. We also offer to existing independent businesses who provide postal, business, and/or communications goods and services to the public, the opportunity to convert their businesses to Centers. To be eligible to convert, you must have operated your business for at least six months at the time of conversion ("Conversion Owners"). Conversion Owners will sign, in addition to a Franchise Agreement, an Addendum for Conversion Owners, which is Attachment B to the Franchise Agreement. Conversion Owners must conform their business premises to our prototype plans and specifications, use our Proprietary Marks, and complete our training as described in Item 11 below.
We may, on occasion, offer to certain franchisees and Conversion Owners the right to become an Area Franchisee under an area franchise agreement ("Area Franchise Agreement"). Area Franchisees will have the right and obligation to service certain Centers operated by franchisees in an exclusive territory ("Territory") defined in the Area Franchise Agreement. Area Franchisees will also have the obligation to solicit franchisees for the Territory in accordance with a schedule set forth in the Area Franchise Agreement. Our Area Franchise Agreement is attached to the offering circular as Exhibit B. Our Area Franchise Agreement requires the Area Franchisee to simultaneously own and operate a PostNet Center, but we have occasionally waived that obligation under special circumstances. See Item 15 for details.
Finally, we may, on occasion, offer you the right to become a Developer under a development agreement ("Development Agreement") which grants the right to establish and operate a certain number of Centers in a specified area ("Development Area"). A Developer will sign a separate Franchise Agreement for each Center in accordance with the Development Schedule set forth in the Development Agreement. Each Center must be established and operated by the Developer or by an entity controlling, controlled by, or under common control with, the Developer. Our Development Agreement is attached to this offering circular as Exhibit C.
Competition
The market for the goods and services offered by a Center is well established and very competitive. Most Centers will be located in high traffic areas that provide ample parking, significant foot traffic, and exposure to a public thoroughfare. You will compete with other businesses which offer postal, shipping, business and/or communications goods or services. In addition, we have established and franchised 16 businesses in supermarkets in Nevada and Pennsylvania which (i) provide some of the services and products that are provided by a Center and (ii) use the name "PostNet Express." These businesses are typically appreciably smaller and offer significantly fewer products than Centers. We reserve the right to open additional PostNet Express businesses in supermarkets, regional malls, airports, and other host retail locations, and may do so in 2006.
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Industry-Specific Laws and Regulations
Our Centers operate as a Commercial Mail Receiving Agency which is described in the U.S. Postal Service Domestic Mail Manual. You will also have to comply with government and state shipping regulations regarding interstate shipping of certain materials or items (alcohol, tobacco, hazardous materials, etc.). You will also be required to comply with your state's regulations and application procedures for becoming a notary public. You may also be required to be bonded for other services, most notably money order and money wire transfer services. You also should investigate whether there are state or local regulations and/or requirements that may apply in the geographic area in which you intend to operate your Center, and consider both the effect and cost of compliance.
ITEM 2 BUSINESS EXPERIENCE
Director, President and CEO: Steven J. Greenbaum, CFE_______________________________
Mr. Greenbaum has been our President, Chief Executive Officer and a Director since we were organized in October 1992. In March 1997, Mr. Greenbaum was elected to the Board of Directors of the International Franchise Association ("IFA") and in February 2003, Mr. Greenbaum was awarded IFA's 2003 Entrepreneur of the Year Award. Mr. Greenbaum also earned his Certified Franchise Executive designation from the IFA's educational foundation.
Director. Executive Vice President. Secretary/Treasurer and COO: Brian E. Spindel. CFE______
Mr. Spindel has been our Executive Vice President, Chief Operating Officer and a Director since we were organized in October 1992. He became our Secretary/Treasurer in September 1999. In March 1997, Mr. Spindel earned his Certified Franchise Executive designation from IFA's Educational Foundation.
Franchise Brokers
As indicated in Item 1, an Area Franchisee solicits prospective franchisees within the Area Franchisee's Territory. In performing this obligation, the Area Franchisee may be deemed to be a "franchise broker." Exhibit D to this offering circular contains a list of our current Area Franchisees as well as their employment histories during the past five years.
We utilize the services of two groups of franchise brokers: "FranNet" and "FranChoice." Both brokers, through their nationwide network of independent contractors, solicit prospective franchisees for franchise companies, and assist us in identifying prospective PostNet franchisees, area franchisees and developers. Once a prospect is referred to us, we conduct all further sales activities. No FranNet or FranChoice independent contractor has the authority to negotiate the sale of, or sell, PostNet franchises, area franchises or development rights. We will pay a fee to a franchise broker in the event that a prospect refereed by it to us signs a PostNet franchise, area franchise, or development agreement.
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FranNet
Because FranNet is an association of independent brokers, rather than an incorporated entity, there are no officers and directors to be listed. Attached to this Offering Circular as Exhibit K is a list of the current FranNet independent contractors and their employment histories.
FranChoice
FranChoice, Inc. is a corporation organized in March 2000 under the laws of the State of Minnesota. Its principal place of business is 7500 Flying Cloud Drive, Suite 600, Eden Prairie Minnesota 55344. A list of their officers and directors, and their employment histories, is set forth below. Attached as Exhibit L is a list of current FranChoice independent contractors and their employment histories.
Stephen K, Hockett: President
Mr. Hockett has been the President of FranChoice since January 2003. From January 2002 through January 2003, he was an independent franchise consultant working with FranChoice. From January 1993 to February 2002, he was a Vice President of Great Clips, Inc., located in Minneapolis, Minnesota.
Lori L. Kiser-Block: Vice President
Ms. Kiser-Block joined FranChoice as a Consultant Development Manager in April 2003 and became Vice President of FranChoice in November 2003. Ms. Kiser-Block was Vice President of eFrame Technology in Omaha, Nebraska from March 2002 to December 2002. From February 1993 to December 2001, Ms. Kiser-Block worked in various positions for Carlson Leisure Group in Minnetonka, Minnesota, including Franchise Sales Manager, Director of Franchise Sales, and Senior Director of Franchise Services.
Tony Verbeten: Director
Mr. Verbeten joined FranChoice in December 2002 as Chief Financial Officer, and became a Director in November 2005. He also is currently Chief Financial Officer of Capistar Franchise Holdings, parent company of FranChoice and also based in Eden Prairie, Minnesota. Mr. Verbeten was Controller for Digital River in Eden Prairie from August 2001 to November 2002; an independent financial planner from June through August 2001; and Vice President of Finance and Controller for Dantis in Minnetonka, Minnesota from January 2000 to May 2001.
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ITEM 3 LITIGATION
Concluded Against PostNet:
Merna Fremstad and Michael Fremstad v. PostNet International Franchise Corporation, PostNet International, Inc., Coserco Corporation. Steven J. Greenbaum. Brian E. Spindel and Dale Harelik, U.S. District Court for the Western District of Wisconsin (Case No. 97C0331C). In April 1997, plaintiffs, a former franchisee which was terminated by us for various breaches of the Franchise Agreement, commenced this action which alleged violation of the Wisconsin Franchise Investment Law, fraud, negligence, and other alleged wrongful conduct, and sought rescission and compensatory, punitive, special, and statutory multiple damages of an unspecified amount. In November 1997, the Court granted our motion to dismiss the Complaint based upon the Franchise Agreement provisions which required franchisees to mediate and arbitrate disputes of this nature in Nevada. Plaintiffs filed a notice of appeal in February 1998, and while the appeal was pending, we settled the action. Our decision to settle was motivated by a desire to avoid the litigation costs associated with the pending legal appeal and anticipated subsequent legal proceedings, as well as the anticipated drain on management resources. Under the terms of the settlement, we paid the plaintiffs $62,500 as partial reimbursement for a portion of their investment in their franchised business, and exchanged general releases.
Litigation Involving Franchise Brokers:
Taylor, et al. v. Buchanan & Ingersoll, Jeffrey Shafritz, et al. (Superior Court of the State of California, Case No. B C222649). Mr. Shafritz is an independent contractor associated with FranChoice. He was employed in several franchise sales positions by The Athlete's Foot Group, Inc., from March 1993 until January 2001, his most recent position being Director of Franchise Sales for Athlete's Foot Marketing Associates, Inc. ("AFMAI"). Plaintiffs' Complaint alleged that the AFMAI offering circular received by the plaintiffs contained untrue statements. The Complaint further alleged that AFMAI's former employees, including Mr. Shafritz, violated the California Franchise Investment Law by participating in the sale of an unregistered franchise and delivering a disclosure document that did not comply with the law, and that these alleged acts violated the California Unfair Trade Practices Act. The Complaint sought injunctive relief and compensatory, exemplary and punitive damages in an undisclosed amount. In 2000, this action was transferred to the U.S. District Court for the Northern District of Georgia, and consolidated with Athlete's Foot Marketing Associates. Inc. v. Inner Reach Corporation, C.O.I. Corp. and Blair H. Tavlor (U.S. District Court for the Northern District of Georgia File No. 1:99CV-2928). In that action, the complaint, as amended, alleged that AFMAI had been fraudulently induced by the defendants, Inner Reach Corporation, C.O.I. Corporation, and one of the principals of the corporate franchisees, BlairJL Taylor, to enter into certain franchise agreements at various dates during the period of April 1996 to June 1998 and for breach of the franchise agreements, actions on account for merchandise ordered and delivered but not paid for and claims against Mr. Taylor personally on his guaranty of the obligations of the two corporations under the franchise agreements. The allegations were based upon certain alleged misrepresentations made to AFMAI by the defendants prior to the signing of the franchise agreements. AFMAI contended in its complaint that if accurate representations had been made, it would not have entered into the franchise agreements. AFMAI sought damages. On February 13, 2001, the Court entered an
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Order covering all pending motions made by the parties. In summary, the rulings by the Court had the effect of dividing the entire litigation into an arbitration proceeding in Pittsburgh, Pennsylvania, with respect to certain claims of the parties relating solely to an Area Development Agreement and proceedings before the Court in Atlanta, Georgia, with respect to the remainder of the claims of the parties. On March 14, 2002, the arbitrator in the arbitration proceeding issued an award in favor of AFMAI on all but the breach of contract claim. On that claim, the arbitrator granted the request of C.O.I. Corporation and Blair H. Taylor for rescission of the Area Development Agreement and awarded the amount of $1,591,513.31 plus interest at the rate of 6% per annum beginning on May 16, 1997 to the date of the arbitration award, for a total of $2,124,906.06. Execution on the arbitration award was stayed pending trial in the proceedings before the Court. On August 19, 2002, the Court vacated the arbitration award. On the same date, C.O.I. Corporation, Inner Reach Corporation, Blair H. Taylor and AFMAI reached a global settlement of all claims. Pursuant to the settlement agreement, AFMAI agreed to pay to C.O.I. Corporation, Inner Reach Corporation and Blair H. Taylor the sum of $985,000, ending all litigation among the parties, including Mr. Shafritz.
Michael Larrimore v. The Franchise Group. Inc. and Terry Rost (Oregon Circuit Court, Case No. C0214556CV, filed May 2002). Mr. Rost is an individual contractor associated with FranNet. The plaintiff alleged that defendants, a franchise broker and its president, engaged in negligent misrepresentation and fraud while serving as a franchise broker in connection with plaintiffs purchase of a Red Brick Pizza master franchise, and sought, as damages, disgorgement of defendants' brokerage fees. That master franchise purchase transaction was subject to a separate legal proceeding brought by plaintiff against the franchisor. Defendants denied all wrongdoing and filed a third-party complaint against the franchisor and its president, seeking indemnification, costs, and attorneys' fees relating to plaintiffs claims. The action was settled in July 2003, with defendants agreeing to make a nominal $2,500 refund to plaintiffs in return for the dismissal of all claims.
Other than the 1 action involving PostNet and the 2 actions involving franchise brokers, no litigation or arbitration proceedings are required to be disclosed in this offering circular.
Neither we, nor any person or franchise broker in Item 2 above, is subject to any currently effective order of any national securities association or national securities exchange, as defined in the Securities Exchange Act of 1934, 15 U.S.C.A. 78a et seq., suspending or expelling such person from membership in such association or exchange.
ITEM 4 BANKRUPTCY
No person identified in Item 1 or officer identified in Item 2 has been involved as a debtor in proceedings under the U.S. Bankruptcy Code required to be disclosed in this Item 4.
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ITEM 5 INITIAL FRANCHISE FEE
Franchise Agreement
When you sign the Franchise Agreement, you must pay us an initial franchise fee. Generally, the initial franchise fee is $29,900. You will pay an initial installment of $15,000 when you sign the Franchise Agreement and will pay the remaining $14,900 when you sign the lease for the Center premises or, if the premises will not be leased, when we approve the location for the Center premises.
You will pay a lower initial franchise fee under the following circumstances:
(1) If you are a Conversion Owner, you will pay a non-refundable initial franchise fee ranging from $7,500 to $19,500 when the Franchise Agreement is signed. We may, on a case-by-case basis, permit existing franchisees who acquire existing businesses which they then convert to a PostNet franchise to also take advantage of this reduced initial franchise fee. In either circumstance, the fee will be based on the size of the unit, your experience, the length of time in business, sales volume, growth and future potential.
(2) If you exercise your right under Section 1.5 of your Franchise Agreement to sign additional franchise agreements, you will receive a discount of $10,000 from the initial franchise fee that we are charging under the then-current Franchise Agreement. You must refund this discount to us if you transfer the Center within the first year that you operate the Center.
Your initial franchise fee of $29,900 is fully earned and non-refundable when paid. If you were referred to us by a franchise broker to whom we paid a referral fee at the time you signed the Franchise Agreement, we will not refund any portion of your initial franchise fee under any circumstances; in other circumstances, we will refund $10,000 of the initial $15,000 payment if we or you terminate the Franchise Agreement before the remaining payment of $14,900 is due, because (a) we have not offered a location to you for the Center premises which meets our then-current site-selection criteria, or your own efforts to find a location have which we have approved ("Approved Location") have been unsuccessful or (b) you have not been offered a lease for the Center premises that contains terms (including terms required under the Franchise Agreement) which are commercially reasonable for the market area in which your proposed Center is located. In addition, and although we are not required to do so, we also may (but are not obligated to) refund $10,000 of the initial franchise fee if you are unable to secure financing, provided that you diligently seek financing for the Center and submit to us written letters of rejection from three credible lending institutions. You must sign a mutual general release before we will make any refund to you.
You also must pay us a Center Development Fee of $95,900. This Fee covers the pre-opening construction and installation of leasehold improvements, computer system, certain equipment, fixtures and supplies for your Center, and an inventory package ("Center Development Package"). Please refer to Attachment B to the Franchise Agreement for a
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complete description of the items and services included in the Center Development Package. The Center Development Fee is not refundable, and is payable when you sign the lease for your Center's premises, or 90 days before the projected opening date of the Center, whichever date is later. Conversion Owners must conform their Centers to our Center standards but are not required to pay a Center Development Fee. To the extent that Conversion Owners' Centers require any components of the Center Development Package, they may use any contractor; if they wish to use us, our fee will be determined on a case-by-case basis, depending on the specific Center's needs.
You also must deposit $7,500 with us to cover the cost of your Center's grand opening promotional program, as well as certain marketing and promotional activities which we will provide and/or secure on behalf of your Center during the first 12 months of Center operations. Your deposit is due at the same time that you pay your Center Development Fee. We will refund any unspent monies after the end of the year. Please refer to Item 11 for further details.
We participate in the VetFran program. Under this program, qualified veterans of the United States armed forces receive a 15% discount on our initial franchise fee. If you qualify, your initial franchise fee will be $25,415, a savings of $4,485.
Area Franchise Agreement
If you sign an Area Franchise Agreement, you must pay us a non-refundable fee when you sign it. This fee will vary among Area Franchisees and will be based on factors such as the size of the Territory (as described in Item 12), the market for customers of Centers, the number of Centers potentially to be franchised in the Territory, income levels, availability of locations, competition from businesses similar to Centers, and related factors. We estimate that Area Franchise Fees are likely to range from $75,000 to $250,000.
Development Agreement
If you sign a Development Agreement, you must pay a development fee of $15,000 for each Center to be developed. The development fee is payable in full when the Development Agreement is signed, and is not refundable. The initial franchise fee for franchise agreements signed under the Development Agreement will be the then-current initial franchise fee at the time the franchise agreement is signed, less $15,000 for each franchise agreement plus an additional deduction, if any, that may then be available to existing PostNet Store Owners who sign additional franchise agreements, but only if the additional deduction is set forth in the then-current form of franchise agreement then being signed by the Developer under the Development Schedule. The number of Centers to be developed will be set forth in the Development Schedule which is a part of the Development Agreement.
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ITEM 6 OTHER FEES
|
Name of Fee |
Amount |
Due Date |
Remarks |
|
Royalty Fee |
5% of gross sales |
On or before Wednesday for the week ending on the preceding Sunday |
Gross sales includes all revenue from the Center minus sales and other taxes collected by you, and revenues from money orders and money-wire transfers. |
|
National Advertising Fund Contribution |
2% of gross sales |
On or before Wednesday for the week ending on the preceding Sunday |
Franchisees may choose to increase this contribution. Please see Item 11 for details. |
|
Interest on Late Payments |
Lesser of 18% per annum, calculated daily, or highest legal rate |
Upon demand |
Payable on overdue royalty payments and advertising contributions. |
|
Transfer |
$3,500 to $22,475 |
Upon demand |
See Note 4 |
|
Audit |
Amount of underpayment, interest, and cost of audit |
Upon demand |
Cost of audit is payable only if the understatement exceeds 5%. Audit costs could range from $1,500 to $5,000. |
|
Music Service Fee for the Center |
$38 |
Monthly |
See Note 5 |
|
Additional Training |
$325 per day plus reimbursement of the trainer's expenses, which are estimated to be between $75 to $150 per day |
Upon demand |
This expense is optional. Please see Item 11 for details. |
|
Franchise Renewal Fee |
15% of the then-current Initial Franchise Fee |
When you sign a renewal agreement |
Payable if you sign a renewal Franchise Agreement. |
|
Area Franchisee Renewal Fee (applies to Area Franchisees only) |
15% of the Area Franchise Fee originally paid by you |
When you sign a renewal agreement |
Payable if you sign a renewal Area Franchise Agreement. |
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|
Name of Fee |
Amount |
Due Date |
Remarks |
|
Indemnification (applies to Franchisees, Area Franchisees and Developers) |
Will vary under circumstances |
As incurred |
You must indemnify us against claims resulting from your operation of the Center and our costs of defending against them. |
|
Local Advertising |
Varies each year |
Annually |
You must purchase telephone directory listings, the estimated annual cost of which will likely range from $3,600 to $6,000. Please see Item 11 for details. |
|
National Franchisee Convention Fee (applies to Franchisees, Area Franchisees and Developers) |
Varies each year |
Annually |
This fee covers some of the convention expenses. In 2006, the fee is $349 per attendee. |
|
Reimbursement ofmoniespaidby us on your behalf |
Varies |
Upon request |
Covers payments you fail to make and that we make on your behalf. |
NOTES
1. The fees are imposed by and payable to us, except for the Music Services Fee described in Note 5. All fees paid to us are non-refundable.
2. A Conversion Owner is obligated to pay royalties and advertising fees beginning 30 days from the date the Franchise Agreement is signed.
3. All fees apply only to Franchisees unless otherwise noted.
4. Except for transfers (i) to a corporation you control where the percentage of ownership remains the same; or (ii) necessitated by the death of incapacity of you or certain employees, you must reimburse us for our reasonable legal, accounting, management, training, and incidental expenses associated with transfer, subject to a minimum fee of $3,500 and a maximum of 25% of the then-current initial franchise fee. In addition, if, prior to commencing serious negotiations with you or one of your principals, a transferee (or any individual associated with any transferee entity) had contacted us, one of our Area Franchisees or Developers, or a third-party franchise broker with whom we have a referral fee arrangement, then you also must pay us an additional transfer fee of (i) $15,000 if we must pay a third-party broker, or (ii) $10,000 in all other circumstances.
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5. Centers are required to enter into a Music Service Agreement with Muzak LLC, in the form attached to this offering circular as Exhibit H. The agreement enables Centers to provide subscription music programming in the Center. We will assume the cost of installing the leased equipment needed to provide the music at your Center. You must pay the monthly fee. Centers established under Franchise Agreements signed after February 1, 2004 must sign the Music Service Agreement with Muzak LLC; all other Centers are not obligated, but are strongly encouraged, to do so.
ITEM 7 INITIAL INVESTMENT
FRANCHISE AGREEMENT
|
Item |
Estimated Cost |
When Due |
To Whom Paid |
|
Initial Franchise Fee1 |
$29,900 |
$15,000 upon signing the Franchise Agreement; the remainder upon signing lease or, if no lease will be signed, at site approval |
Us |
|
Center Development Fee2 |
$95,900 |
When you sign your lease for the Center premises or 90 days before our projected opening date for your Center, whichever date is later |
Us |
|
Lease of Center Premises3 |
$1,375 to $6,000 |
Monthly |
Landlord |
|
Equipment Lease Payments4 |
$800 |
Monthly |
Equipment lessors |
|
Security Deposit Fees5 |
$3,000 to $8,000 |
Prior to opening |
Landlord, utilities |
|
Insurance6 |
$900 to $2,000 |
Annually |
Insurers |
|
Classroom Training7 |
$1,000 to $2,000 |
As incurred |
Providers of transportation, food and lodging |
|
Deposit for Center Opening Promotional Activities and Local Promotional Activities During First Year of Center Operations8 |
$7,500 |
Prior to opening |
Us |
|
Miscellaneous Pre-Opening Expenses9 |
$5,500 |
As incurred |
Government agencies, craftsmen, etc. |
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|
Item |
Estimated Cost |
When Due |
To Whom Paid |
|
Additional Funds10 (during the first 8-12 months) |
$30,000 to $40,000 |
As required during the first 8-12 months |
- Various |
|
TOTAL: |
$175,875 to $197,600 |
NOTES:
Except as described below, all fees are non-refundable.
1. The initial franchise fee is described in Item 5 and, as described in Item 5, is partially refundable only under certain circumstances. The initial franchise fee for Conversion Owners and, in some circumstances, for existing franchisees who acquire an existing business and convert it to a PostNet franchise, ranges from $7,500 to $19,500 and is also described in Item 5. Neither we nor any affiliate provides financing for the initial franchise fee.
2. Please refer to Item 5 for details, and Attachment B to the Franchise Agreement, for a complete description of the items and services provided by our Center Development Package. All new Store Owners must pay this fee except for Conversion Owners, who may not need the complete Center Development Package and, therefore, have the option to obtain needed items and services from other sources.
3. We anticipate that you will lease retail space. We estimate that the Center will require approximately 1,000 to 1,600 square feet of retail space, and that the cost should range between $16.50 to $45 per annum per square foot, depending on a variety of factors, the most important being location and market conditions. This estimate does not include security deposits or prepaid rent which the landlord may require. In a few states (e.g., Hawaii, Texas, California and, possibly, a few others), if you wish to locate your Center in newly constructed retail space, local construction practices may result in a "gray shell" for the first tenant to occupy the space, thus requiring significantly greater additional expenditures to cover necessary leasehold improvements such as for ceiling, walls, flooring, etc. No franchisee is required to lease newly constructed space in any state.
4. You will need to lease the following equipment which is not furnished as part of our Center Development Package: two copiers (one for black and white and the other for color), and a postal scale/meter.
5. Security deposits generally are required by utilities, the landlord, and the equipment lessors. Amounts will vary depending on the provisions of various leases, utilities' policies, and your credit rating. The estimated cost includes a one-month deposit to the
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landlord.
deposits.
It is not likely that Conversion Owners will incur any expense for security
6. The estimated cost covers the first year's insurance premium for required coverages for equipment and business liability insurance.
7. The cost will vary depending upon the distance traveled, the mode of transportation, the cost of meals and accommodations. The estimate is for one person. Training is described in Item 11.
8. Grand opening and first-year promotional activities are described in Item 11. We will refund any unspent monies from your deposit.
9. You will incur expenses in connection with any leasehold improvements to your Center which are not included in our Center Development Package, such as local requirements for architectural plans, taxes on leasehold improvements, miscellaneous electrical and other expenses, as well as various licenses and permits to operate your business.
10. During the initial phase of your operation, which we estimate to be 8 to 12 months, you will need capital to support on-going expenses, such as payroll (excluding your salary or draws), supplies, rent, royalties, advertising and utilities, to the extent that these costs are not covered by Gross Sales. Your working capital needs may vary widely from working capital needs of other franchisees. Your costs will depend on factors such as: how well you follow our methods and procedures; your management skill, experience and business acumen; local economic conditions; the local market for our products and services; the prevailing wage rate; competition; and the sales level reached during the initial period. It is expected that new businesses usually will generate a negative cash flow. The amount we show is the minimum we recommend at the opening of the Center. There is no assurance that you will not need additional working capital. These amounts do not include sums necessary for living or personal expenses, nor payments for debt service. This estimate is based on the reported experiences of existing franchisees.
AREA FRANCHISE AGREEMENT
|
Item |
Estimated Cost |
When Due |
To Whom Paid |
|
Area Franchise Fee1 |
$75,000 to $250,000 |
Upon signing the Area Franchise Agreement |
Us |
|
Travel and Living Expenses for Initial Area Franchisee Training2 |
$1,450 to $2,475 |
As Arranged |
Vendors |
|
Local Advertising and Promotion3 |
$500 to $3,000 |
Monthly |
Various |
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|
Item |
Estimated Cost |
When Due |
To Whom Paid |
|
State Franchise Registration Expenses4 |
$12,000 |
As Arranged |
California Department of Corporations, Accountants, and Attorneys |
|
TOTAL: |
$76,950 to $267,475 |
NOTES:
Except as described below, all fees are non-refundable.
1. This fee varies among Area Franchisees, depending on a variety of factors, as described in Item 5. Neither we nor any affiliate provides financing for the Area Franchise Fee.
2. The cost range varies greatly depending upon the distance traveled, the mode of transportation, the cost of meals and accommodations selected, and the duration of the training course. This estimate is for one person. Area Franchisee training is described in Item 11.
3. See Item 11, "Advertising for Area Franchisees," for details.
4. This estimate includes a $675.00 filing fee to the State of California and an estimate of legal fees to be incurred in preparing the required franchise offering materials, assuming our offering circular is used as a basis for you offering materials and you use the same law firm. You also will need a current audited financial statement, if you don't already have it. Audit costs, which are not included in this estimate, vary widely, based on the number and type of financial transactions covered by the audit.
DEVELOPMENT AGREEMENT
|
Estimated |
|||
|
Item |
Cost |
When Due |
To Whom Paid |
|
Development Fee |
$15,000 for each |
When Development |
Us; non-refundable, |
|
Center to be |
Agreement is signed |
but see Item 5 for |
|
|
opened |
further details |
||
|
TOTAL: |
$15,000 multiplied by the number of Centers to be opened |
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ITEM 8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES
Standards and Specifications
To insure that the highest degree of quality and service is maintained, you must operate the Center in strict conformity with the methods, standards, and specifications that we set forth in the Operating Manual ("Manual") or otherwise in writing. You must not (i) deviate from these standards, specifications, and procedures without our prior written consent, or (ii) otherwise operate in any manner which reflects adversely on our Proprietary Marks or the System.
You must purchase and install at your expense, maintain in sufficient supply, and use at all times, only fixtures, furnishings, equipment, signs, and supplies that conform to the standards and specifications described in the Manual or otherwise in writing; you must not use nonconforming items. In addition, you must sell or offer for sale only products and services that we have expressly approved for sale in the Manual or otherwise in writing and discontinue selling any products or services that we, in our discretion, determine may adversely affect the System. You must not offer any unapproved products or services.
Purchases from Approved Suppliers
Except for the Center Development Package that we provide, as described in Items 5 and 7 of this offering circular, the grand opening and local advertising and promotional activities we provide or secure on your behalf during the first year of your Center's operations, as described in Items 5 and 11 of this offering circular, and the Muzak subscription music programming described in Notes 5 of Item 6 and in Exhibit H, you are not required, either by the Franchise Agreement or by any other device or practice, to purchase or lease from us or our designees, any goods, services, supplies, fixtures, equipment, inventory, or real estate for the establishment or operation of the Center. You must, however, purchase all products, equipment, supplies, and materials used or sold by the Center, solely from suppliers (including manufacturers, wholesalers, and distributors) (i) who demonstrate, to our continuing reasonable satisfaction, the ability to meet our reasonable standards and specifications for these items; (ii) who possess adequate quality controls and capacity to supply your needs promptly and reliably; (iii) whose approval would enable the System, in our opinion, to take advantage of marketplace efficiencies; and (iv) who have been approved by us in the Manual or otherwise in writing and not later disapproved. The items you are required to purchase or lease from approved suppliers include business equipment such as postage meter, copier, facsimile machine, mailboxes, computers and manifest software; inventory such as corrugated cartons, stationery and greeting cards; and fixed assets such as counters, cabinets and signs.
We estimate that approximately 90% of purchases required to open your Center and 75% of purchases required to operate your Center will be from approved suppliers or, at your option, from us.
Except as described above, as of the date of this-offering circular, we are not an approved supplier of goods and services to you. According to our audited financial statements, in our 2005 fiscal year we had total revenues of $10,767,654, of which amount $4,838,713 (approximately
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45%) consisted of revenues from new franchisees for our Center Development Package for their Centers. We also received $264,683 (approximately 2% of our revenues of $10,767,654) in gross sales to our franchisees of other equipment and supplies.
We have negotiated purchase arrangements with suppliers under which our franchisees obtain discounts of 5% to 55% from standard prices for items such as shipping costs, inventory, equipment, insurance and credit card processing. We have not negotiated any agreements with suppliers which gives us a better price than the price the supplier charges to franchisees. Some suppliers pay directly into our national advertising fund a percentage of their gross sales to franchisees. These percentages range from 1% to 5% of the suppliers' sales to franchisees.
Approval of New Suppliers
Periodically, we will update the list of approved suppliers in the Manual and provide you with the updated list. If you desire to use a supplier that has not been approved by us, that supplier may become an approved supplier if that supplier's products meet our specifications and requirements. To secure approval, you must submit a written request to us to approve the supplier, together with evidence of conformity with our specifications as we may reasonably require. We do not charge a fee for the evaluation of the proposed supplier. We generally respond to a request for an additional approved supplier within 7 days. Our written approval must be received before you use products that were not purchased from an approved supplier. We may revoke our approval at any time if we determine, in our discretion, that the supplier no longer meets our standards. When you receive written notice of a revocation, you must stop selling any disapproved products, and stop purchasing from any disapproved supplier.
We consider a variety of factors when determining whether to renew or grant additional franchises. Among the factors we consider is compliance with the requirements described above. We do not provide any material benefits to any franchisees (for example, additional franchise rights or renewal rights) based on their use of designated or approved suppliers.
ITEM 9 FRANCHISEE'S OBLIGATIONS
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE, AREA FRANCHISE, AND DEVELOPMENT AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR OBLIGATIONS IN THESE AGREEMENTS AND IN ITEMS OF THIS OFFERING CIRCULAR.
Note: If an Agreement section is not listed for the obligation, then the Agreement does not contain a specific provision related to the obligation.
Item in Offering Obligation Section in Agreement Circular
a. Site selection and Franchise Agreement §§ 1,5; Items 7 and 11
acquisition/lease Development Agreement § 1 and
Attachment B
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The original documents were scanned as an image. The original file can be downloaded at the link above.