Moto Photo (MOTQE) 10-K/A 2000 FY Annual report (amended)

AMENDED MANAGEMENT AGREEMENT

THIS AGREEMENT is made as of the first day of October, 1986 by and between MOTO PHOTO, INC., a Delaware corporation ("Moto"), and NATIONAL PHOTO LABS II, INC., a Texas corporation ("NPL"), under the following circumstances:

A. NPL previously entered into a Management Agreement with Foto Fair International, Inc., an Ohio corporation ("FFI").

B. FFI later merged into Moto.

C. By operation of law, Moto succeeded to and assumed all of FFI's rights and obligations under the Management Agreement.

D. The parties now desire to amend the terms of the Management Agreement.

Appointment.
NPL hereby acknowledges and agrees that Moto shall continue as

manager of the Properties (as defined in the Management Agreement) until December 31, 1993 unless extended as herein provided, upon the terms and conditions hereinafter set forth. 1.2 NPL acknowledges that Moto is in the business of franchising and retailing photofinishing services and related products. It is hereby expressly agreed that Moto and its affiliates may continue to engage in such activities; may manage facilities other than those presently managed by it (whether or not such other facilities may be in direct or indirect competition with NPL); and may in the future engage in other businesses which may compete directly or indirectly with activities of NPL. 1.3 In the performance of its duties under this Agreement, Moto shall occupy the position of an independent contractor with respect to NPL. Nothing contained herein shall be construed as making the parties hereto partners or joint venturers, nor, except as expressly otherwise provided for herein, construed as making Moto Photo Inc.

an agent of NPL.

2.

Duties and Authority of of Moto.

2.1

General Duties and Authority.

Subject only to the restrictions and

limitations provided in paragraphs 2.14 and 2.15,

Moto shall have the sole and

exclusive authority to fully and completely supervise and direct the business and

affairs associated or related to the daily operation thereof, and to that end to cause

or direct NPLto execute such documents or instruments, hire or discharge employees,

and take other appropriate actions, as, in the sole judgment of Moto may be deemed

necessary or advisable.

Such duties and authority shall include but not be limited

to those set forth as follows, which are not in limitation of the foregoing.

2.2

Marketing.

Moto shall establish policies and procedures for directing the

marketing activities of personnel engaged by or on behalf ofNPL.

Such activities

shall include,

but not be limited to, determining the services offered, establishing

prices, producing advertising, conducting promotions, running sales contests, etc.

Moto shall have the sole discretion, which discretion shall be exercised in good

faith, to establish the terms, conditions and locations of occupancy of the Properties

and Moto is hereby authorized to direct and control employees in entering into

leases on behalf, in the name, and for the account of NPL with Lessors.

2.3

Repair, Maintenance and Improvements.

Moto shall make and execute, or

supervise and have control over the making and executing, of all decisions concerning

the acquisition of equipment, fixtures and supplies for the Properties, and the

purchase lease or other acquisition of the same on behalf, in the name, and for the

account of NPL.

Moto shall make and execute or supervise and have control over

the making and executing,

of all decisions concerning the maintenance of the

properties; all cost incurred in connection therewith shall be on behalf, in the name

and for the account of NPL.

2.4

Personnel and Suppliers.

Moto, or personnel engaged on behalf of Moto

acting pursuant to Moto direction, shall select all vendors, suppliers, contractors

subcontractors and employees with respect to the Properties and shall hire, discharge

and supervise all labor and employees required for the operation and maintenance

of the Properties, including attorneys, accountants and consultants.

All such acts

shall be on behalf, in the name of, and for the account of NPL and any employees

so hired shall be carried on the payroll of either NPL or a corporation organized

to employ such personnel and shall not be deemed to be employees of Moto. Employees

of NPL will include but will not be limited to, on-site managers, on-site assistant

managers, and other lab personnel.

Where appropriate, Moto may hire or use

employees of Moto or an affiliate to perform necessary work for the account and

expense of NPL.

Moto and its employees shall be responsible for the disbursement of NPL's

funds in payment of all expenses incurred in connection with the operation of the

Properties and NPL shall not be required to employ personnel to assist in such

disbursement.

Moto shall not be separately reimbursed for the cost of furnishing

such service and shall not be reimbursed for the time of its executive officers

devoted to NPL affairs or for other overhead expenses.

2.5Agreements.

Moto shall negotiate and execute on behalf and in the name

of NPL such agreements which Moto deems necessary or advisable for the furnishing

of utilities, services, concessions and suppliers, for the maintenance, repair and

operation of the Properties and such other agreements which may benefit the

Properties or be incidental to the matters for which Moto is responsible hereunder.

2.6

Other Decisions.

Moto shall make all policy decisions and shall have

control over the making of all of the more routine decisions in connection with the

daily operation of the Properties.

2.7

Regulations and Permits.

Moto shall use its best efforts to cause all

things to be done on behalf, in the name, and for the account of NPL on the

Properties necessary to comply with any statute, ordinance, law, rule, regulation or

order of any governmental or regulatory body, having jurisdiction over the Properties,

respecting the use of the Properties or the construction, maintenance, or operation

thereof, and with all orders and requirements of the local Board of Fire Underwriters

Moto shall cause

or any other body which may hereafter exercise similar functions.

NPL to applyforand attempt to obtain and maintain, on behalf, in the name, and

for the account of NPL, all licenses and permits required or advisable (in Moto's

sole judgment) in connection with the management and operation of the Properties.

2.8

Accounting.

Moto shall establish, supervise, direct and maintain the

operation of an accounting system and shall cause to be prepared and delivered to

NPL, at Moto expense, financial statements as follows:

(i) On or before thirty (30) days after the close of each month a statement of operations showing the results of operation of the Properties for the next preceding month and of the fiscal year to date having annexed thereto a

computation of the Management Fee, as such fee is defined in this Agreement, for such month.

         (ii) On or before seventy-five (75) days after the close of the fiscal year, a balance sheet and related statement of operations showing the results of the operations of the Properties during said fiscal year (if desired, NPL may have both examined and reported on by an independent certified public accounting firm retained on behalf, in the name and for the account of NPL) and having annexed thereto a computation of the Management, Annual Incentive and Additional Management Fees for such fiscal year.

2.9Deposits and Disbursements.

Moto shall cause the establishment of bank

accounts in the name of NPL and shall deposit or cause personnel engaged by or

on behalf of NPL to deposit therein all receipts and monies arising from the operation

of the Properties or otherwise received for and on behalf of NPL.

Moto shall

disburse NPLfunds from said accounts on behalf and in the name of NPLin such

amounts and at such times as disbursement of such revenues for payment of payroll

and other obligations of NPL as required.

Moto shall establish and be responsible

for administering a policy for specifying the identity of signatories to the NPL bank

accounts and establishing the number of signatories required for checks of various

amounts.

Moto shall have discretion over making temporary investment of NPL

funds, for the account and benefit of NPL.

Moto shall advance funds,

if needed ,

to NPL for temporary working capital needs as may be required by NPL, but in no

event shall the outstanding advances exceed $50,000 and such advances shall be

repaid from the first sums available, and Moto shall have the discretion to make

repayments.

NPL will pay Moto interest on the amounts outstanding from time to

time at the prime rate of the First National Bank of Dayton, Ohio.

2.10

Collection.

Moto shall supervise and direct personnel engaged by or on

behalf of NPL in the collection and billing of all accounts receivable due to NPL

with respect to the Properties and shall be responsible for establishing policies and

procedures to minimize the amount of bad debts.

2.11

Legal Actions.

Moto shall cause to be instituted, on behalf and in the

name of NPL any and all legal actions or proceedings Moto deems necessary or

advisable to collect charges or other income due NPL with respect to the Properties.

The costs of all such legal actions or proceeding shall be borne by NPL.

2.12Insurance. Moto shall use its best efforts to assure that there is obtained

and kept in force, at the expense of NPL, fire, comprehensive, liability and other

insurance policies in amounts generally carried with respect to similar facilities.

2.13

Taxes.

Moto shall disburse from NPL funds all taxes and assessments

properly levied on NPL with respect to its business and Properties, on behalf, in

the name and for the account of NPL.

2.14Restrictions.

Notwithstanding anything to the contrary set forth in this

Section 2, Moto shall not be required to do, or cause to be done, anything for the

account of NPL (i) which may make Moto liable to third parties, (ii) which may not

be commenced, undertaken or completed because of insufficient funds available in

the accounts established pursuant to this Section, or (iii) which may, under applicable

law, constitute an impermissible delegation of NPL's duties and responsibilities,

including, but not limited to, the purchase or construction of capital improvement,

the sale or disposition of all or substantially all of the corporation's assets, and any

action which may result in a change in NPL's primary business.

2.15Limitations on Motors Authority. Notwithstanding anything to the contrary

be commenced, undertaken or completed because of insufficient funds available in

set forth in this Section 2, Moto shall not, without obtaining the prior written

consent of NPL, make any capital expenditure in excess of $5,000 per location per

calendar year.

However, permission is expressly granted for Moto to make all

expenditures necessary to construct, install and make operational each mini-lab,

including making all necessary improvements.

Moto shall not make any agreement

on NPL's behalf which exceeds one year except for leases.

2.16

General.

NPL acknowledges and agrees that the Properties will be

operated as any other franchise of Moto in accordance with the standard franchise

rules and regulations, except that compensation payable to Moto shall be as provided

for in Section 4.

3.

Duties of NPL.

NPL hereby agrees to cooperate with Moto in the performance of its duties

under this Agreement and to that end, upon the request of Moto, to execute all

documents or instruments and hire and discharge such employees as Moto in its sole

judgment deems necessary or advisable to enable it to fulfill its duties under this

Agreement.

Such employees shall include, but not necessarily be limited to on-site

personnel.

It is understood and acknowledged that some or all of such employees

may be employed by Moto and loaned to NPL, in which case NPL will bear the

hourly cost, including fringes, of such employees.

4.

Compensation to Moto.

4.1

Monthly Management Fee.

NPL shall pay to Moto for the services herein

provided a Management Fee equal to five percent (5%) of the net sales of NPL, as

defined by generally accepted accounting principles, derived from or connected with

each Property. The Management Fee for each month shall be paid promptly at the

end of such month and shall be calculated on the basis of the net sales for such

month.

Notwithstanding the foregoing, in no event will the fee for each Property

be less than $1,000 per month.

4.2

Annual Incentive Fee.

Within 60 days after the end of each fiscal year

of NPL, NPL shall pay Moto an Annual Incentive Fee which shall be an amount equal

to 33-1/3% of Cash Generated.

For purposes of the Annual Incentive Fee, "Cash

Generated" means, and is calculated for each fiscal year of NPL, as follows:

Net Revenues, less all operating expenses exclusive of depreciation, less principal and interest payments, whether paid or accrued.

4.3

Additional Management Fee.

As an additional inducement to Moto and

as compensation for services rendered by Moto in the refinancing of the Properties,

NPL shall pay Moto an Additional Management Fee in the amount of $50,000.00,

payable as follows:

         4.3.1 Interest shall accrue on the unpaid Fee at the rate of 9% per annum and shall be payable monthly on the first day of each calendar month.

         4.3.2 The Additional Management Fee shall be payable in 84 equal monthly installments of principal and interest in the amount of $804.45 each, due and payable monthly on the first day of each calendar month until paid in full.

5.Use of Trademarks, Service Marks and Related Items.

It is understood and agreed that the name, trademark and service mark, "Moto"

and related marks, slogans, caricatures, designs and other trade or service items

shall be utilized for the non-exclusive benefit of NPL on the Properties, and in

comparable operations elsewhere.

It is further understood and agreed that this name

and all such marks, slogans, caricatures, designs and other trade or service items

shall remain and be at all times the property of Moto and its affiliates, and that,

except during the term hereof, NPL shall have no right whatsoever therein.

Upon

termination of this Agreement at any time for any reason, all such use by and for

the benefit of NPL of any such name, mark, slogan, caricature, design or other trade

or service item in connection with the Properties shall, in any event, be terminated

and any signs bearing any of the foregoing shall be removed from view and no longer

used by NPL. It is understood and agreed that Moto will use and shall be unrestricted

in its use of such name, mark, slogan, caricature, design or other trade or service

items in the management and operation of other facilities both during and after the

expiration or termination of the term of this Agreement.

6.

Indemnification.

NPL hereby agrees to indemnify and hold Moto, all companies affiliated with

Moto, all officers, directors and employees of Moto and any affiliated companies

harmless from any and all costs, expenses, attorney's fees, suits, liabilities, judgments,

damages and claims in connection with the management of the Properties (including

the loss of use thereof following any damage, injury or destruction), arising from

any cause except for the willful misconduct, negligence, or negligent omissions on

Moto, all persons affiliated

with Moto, all officers, directors and employees of Moto, and any affiliated persons

also shall not be liable for any error of judgment or for any mistake of fact or law

or for anything which it may do or refrain from doing hereinafter, except in cases

of wilful misconduct or negligence.

Moto hereby agrees to indemnify and hold NPL

harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments,

damages and claims in connection with the management of the Properties arising

from the willful misconduct or negligence of Moto or any of its affiliates.

7. Extension.

This Agreement may only be extended upon the written agreement of Moto

and NPL.

8.

Termination.

Upon termination of this Agreement or any extension thereof, all funds advanced

by Moto to or for the benefit of NPL, whether due or not, shall become immediately

due and payable by NPL to Moto.

9.Assignment.

A

Neither this Agreement nor any right hereunder shall be assigned by NPL and

any attempt to do so shall be void ab initio. Moto shall have the right to assign

this Agreement to an affiliate or a wholly or majority owned subsidiary; provided,

however, any such assignee must assume all obligations of Moto hereunder.

NPL's

rights hereunder will be enforceable against any such assignee and Moto shall not

be released from its liabilities hereunder unless NPL shall expressly agree thereto

in writing.

10.

Headings.

The headings contained are for convenience of reference only and are not

intended to define, limit or describe the scope or intent of any provision of his Agreement.

11. Governing Law. The

validity of this Agreement,

the construction of

its terms and the

interpretation of the rights and duties of the parties shall be governed by the laws

of the State of Ohio.

12.

Notices.

Any notice required or permitted to be given shall be given in writing and shall be

personally delivered or mailed, first class postage prepaid, to the respective addresses of the parties set forth below their signatures on the signature page

hereof, or to such other address as any party may give to the other in writing.

13.

Severability.

Should any term or provision hereof be deemed invalid, void or unenforceable

either in its entirety or in a particular application, the remainder of this Agreement

shall nonetheless remain in full force and effect and, if the subject term or provision

is deemed to be invalid, void or unenforceable only with respect to a particular

application, such term or provision shall remain in full force and effect with respect

to all other applicat ions.

The parties recognize that broad discretionary authority

has been granted by NPL to Moto in the management and direction of NPL's business

and financial affairs and it is their intent that such authority be fully exercisable

by Moto within the limitations imposed by applicable law.

If, however, any court

of competent jurisdiction should render a final judgment that the authority granted

to Moto herein exceeds the bounds of permissible delegation under applicable law,

the parties agree that this Agreement shall be deemed amended, modified and reformed

to the extent necessary to reduce the scope of authority delegated by NPL to Moto

so as to limit such authority to that permissible under applicable law as evidenced

by the written legal opinion of counsel to Moto.

The parties agree that in no event

shall any determination that the discretion and authority granted to Moto hereunder

exceeds permissible bounds result in this Agreement being declared or adjudged

invalid, void or unenforceable in its entirety; rather, the parties request that any

court examining such issue employ great latitude in reforming this Agreement so as

to make the same, as reformed, valid and unenforceable.

14.Successors.

This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their permitted assigns and successors in interest.

15.Attorneys' Fees.

If it shall become necessary for either party hereto to engage attorneys to

institute legal action for the purpose of enforcing its rights hereunder or for the

purpose of defending legal action brought by the other party hereto, the party or

parties prevailing in such litigation shall be entitled to receive all costs, expenses

and fees (including reasonable attorney's fees) incurred by it in such litigation

( including appeals ).

16.

Arbitration.

Any claim or controversy arising out of, or relating to this Agreement or any

modification or extension thereof, between the parties shall be settled by final and

binding arbitration in Dayton, Ohio in accordance with the rules then obtaining of

the American Arbitration Association.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as

of the date first above written.

NATIONAL PHOTO LABS II, INC.

By _______________________________

David A. Mason, President

   

MOTO PHOTO, INC.

   

By _______________________________

Michael F. Adler, President