SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ]
File by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Paramark Enterprises, Inc.
--------------------------
(Name of Registrant as Specified In Its Charter)
Paramark Enterprises, Inc.
--------------------------
(Name of Person(s) Filing Proxy Statement)
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction: $2,550,250.00.
[X] Fee paid previously with preliminary proxy materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
Paramark Enterprises, Inc.
One Harmon Plaza
Secaucus, New Jersey 07094
November 15, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of Paramark Enterprises, Inc. (the "Company") which will
be held on December 15, 2000 at 9:00 am at the law offices of Blank Rome Comisky
& McCauley LLP, 10th Floor, One Logan Square, Philadelphia, Pennsylvania.
At the Annual Meeting you will be asked to consider and vote on (i) the
election of the Board of Directors, (ii) a proposal to sell substantially all of
the operating assets of the Company to Rich Products Manufacturing Corporation
("Rich Products") pursuant to the terms and conditions of the Asset Purchase
Agreement (the "Rich Products Transaction"), (iii) a proposal to sell the
remaining operating assets of the Company to Brooks Street Baking Companies,
Inc. pursuant to the terms and conditions of the Brooks Street Companies, Inc.
Asset Purchase and Sale Agreement (the "Brooks Street Transaction"), and (iv) a
proposal to liquidate the Company pursuant to the provisions of the Plan of
Liquidation approved by the Company's Board of Directors. The Rich Products
Transaction provides for cash payments to the Company, at or before closing,
aggregating $1,182,750, additional payments of $1,000,000 payable over a period
of 4 years and the assumption by Rich Products of approximately $285,000 in
Company debt. The Brooks Street Transaction provides for royalty payments to the
Company over a period of 4 years equal to 5% of net sales of pull-apart cakes to
existing customers of the Company and 1 1/2% of net sales of all pull-apart
cakes to new customers of Brooks Street. In addition, the Brooks Street
Transaction provides for the purchase of inventory from the Company in the
amount of $12,500 and assumption of approximately $70,000 of Company debt by
Brooks Street. Certain members of management will receive payments from Rich
Products in consideration for entering into consulting agreements with Rich
Products, will receive payments in consideration for the termination of
employment agreements with the Company, and will have indebtedness from the
Company repaid with a portion of the proceeds of the Rich Products Transaction.
Details of the proposed Rich Products Transaction, the Brook Street Transaction
and the proposed Plan of Liquidation are contained in the accompanying Proxy
Statement which you should review carefully.
The Board of Directors of the Company has approved the Rich Products
Transaction, the Brooks Street Transaction and the Plan of Liquidation, and
recommends that all stockholders vote for the approval of these proposals. The
Board of Directors believes that the proposed Rich Products Transaction, the
Brooks Street Transaction and the Plan of Liquidation are in the best interest
of the Company and its stockholders.
So your shares may be represented at the Annual Meeting, I urge you to
promptly complete, sign, date and return the accompanying Proxy in the enclosed
envelope, whether or not you plan to attend. If you attend the Annual Meeting in
person you may, if you wish, vote personally on all matters brought before the
Annual Meeting even if you have previously returned your Proxy.
Very Truly Yours;
Charles N. Loccisano
Chairman and CEO
Paramark Enterprises, Inc.
One Harmon Plaza
Secaucus, New Jersey 07094
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 15, 2000
To the Stockholders of Paramark Enterprises, Inc.:
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of
Paramark Enterprises, Inc. (the "Company") will be held at the law offices of
Blank Rome Comisky & McCauley LLP, 10th Floor, One Logan Square, Philadelphia,
Pennsylvania on December 15, 2000 at 9:00 am Eastern Standard Time, for the
following purposes:
1. To consider and vote on the election of the Board of Directors as
more fully described in the accompanying Proxy Statement ("Proposal
1").
2. To consider and vote on the proposed sale of substantially all of
the operating assets of the Company to Rich Products Manufacturing
Corporation pursuant to the terms and conditions of the Rich Products
Asset Purchase Agreement attached as Exhibit A to the Proxy Statement
accompanying this Notice (the "Rich Products Transaction" or "Proposal
2").
3. To consider and vote on the proposed sale of the remaining operating
assets of the Company to Brook Street Companies, Inc. pursuant to the
terms and conditions of the Brooks Street Asset Purchase and Sale
Agreement attached as Exhibit B to the Proxy Statement accompanying
this Notice (the "Brooks Street Transaction" or "Proposal 3").
4. To consider and vote on a plan to liquidate the Company pursuant to
the provisions of the Plan of Liquidation approved by the Company's
Board of Directors in the form attached as Exhibit C to the Proxy
Statement accompanying this Notice ("Proposal 4").
5. To transact such other business as may properly come before the
Annual Meeting or any postponements or adjournments thereof.
The close of business on November 10, 2000 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting or any adjournment thereof.
A complete list of stockholders entitled to vote at the Annual Meeting
will be available for inspection by any stockholder at the office of the
Company, One Harmon Plaza, Secaucus, NJ, during the ten days prior to the Annual
Meeting, during normal business hours of 9:00 a.m. to 5:00 p.m., as well as at
the Annual Meeting.
All stockholders are cordially invited to attend the meeting. Whether
or not you expect to attend, you are requested to sign, date and return the
enclosed proxy promptly. Stockholder who execute proxies retain the right to
revoke them at any time prior to the voting thereof. A return envelope which
requires no postage if mailed in the United States is enclosed for your
convenience.
By Order of the Board of Directors
Alan S. Gottlich, Secretary
Secaucus, New Jersey
November 15,2000
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY IN THE ACCOMPANYING POSTAGE PAID AND ADDRESSED ENVELOPE WHETHER OR NOT YOU
INTEND TO BE PRESENT AT THE ANNUAL MEETING. PROXIES ARE REVOCABLE AT ANY TIME
PRIOR TO THE TIME THEY ARE VOTED, AND STOCKHOLDERS WHO ARE PRESENT AT THE ANNUAL
MEETING MAY WITHDRAW THEIR PROXIES AND VOTE IN PERSON IF THEY SO DESIRE.
TABLE OF CONTENTS
Page
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS.......................................................6
SUMMARY .................................................................................................8
Annual Meeting of Stockholders..................................................................8
Securities entitled to Vote.....................................................................8
Votes Required..................................................................................8
The Company.....................................................................................8
Background of the Rich Products Transaction.....................................................8
Background of the Brooks Street Transaction.....................................................9
Businesses to be Sold ..........................................................................9
The Purchasers .................................................................................9
Purchase Price..................................................................................9
The Rich Products License Agreement.............................................................9
Continuing Businesses; Plan of Liquidation ....................................................10
Reasons for the Transactions and Recommendation of the Board of Directors......................10
Interests of Management in the Transactions ...................................................10
No Dissenters' Rights..........................................................................10
Application of Proceeds from the Transactions..................................................10
Tax Consequences to the Company................................................................11
BENEFICIAL OWNERSHIP....................................................................................12
PROPOSAL ONE - ELECTION OF DIRECTORS....................................................................13
Information about Directors ...................................................................13
Required Vote..................................................................................14
Recommendation of the Board of Directors.......................................................14
Directors Meetings.............................................................................14
Committees of the Board of Directors...........................................................14
Advanced Notice for Director Nominations ......................................................15
Executive Compensation.........................................................................15
PROPOSAL TWO - THE RICH PRODUCTS TRANSACTION ...........................................................17
Background of the Company......................................................................17
Background of the Rich Products Transaction....................................................18
The Rich Products Asset Purchase Agreement ....................................................19
License Agreement..............................................................................20
Interest of Management in the Rich Products Transaction .......................................20
Application of Sale Proceeds ..................................................................22
Tax Consequences to the Company ...............................................................22
Opinion of Capital Markets Group...............................................................23
Recommendation of the Board of Directors.......................................................24
PROPOSAL THREE - THE BROOKS STREET TRANSACTION .........................................................25
Background of the Brooks Street Transaction....................................................25
Brooks Street Asset Purchase and Sale Agreement ...............................................25
Application of Sale Proceeds ..................................................................25
Tax Consequences to the Company ...............................................................26
Required Vote..................................................................................26
Recommendation of the Board of Directors.......................................................26
TABLE OF CONTENTS
PROPOSAL FOUR - PLAN OF LIQUIDATION ....................................................................27
Introduction...................................................................................27
Description of the Plan .......................................................................27
Exchange of Stock Certificates for Liquidating Distributions...................................28
Federal Income Tax Consequences................................................................28
Continuing Business............................................................................28
Required Vote..................................................................................29
Abandonment and Amendment......................................................................29
Recommendation of the Board of Directors.......................................................29
SELECTED CONSOLIDATED FINANCIAL DATA ...................................................................30
CERTAIN TRANSACTIONS .................................................................................. 31
INDEPENDENT PUBLIC ACCOUNTANTS .........................................................................34
OTHER MATTERS ..........................................................................................34
EXPENSES OF SOLICITATION ..............................................................................34
STOCKHOLDERS' PROPOSALS.................................................................................34
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ................................................35
ANNUAL REPORT .........................................................................................35
APPENDIX A - Purchase Agreement between Paramark Enterprises, Inc.
and Rich Products Manufacturing Corporation dated October 9, 2000.
APPENDIX B - Assets Purchase and Sale Agreement between Paramark Enterprises, Inc.
and Brooks Street Companies, Inc. dated October 9, 2000.
APPENDIX C - Fairness Opinion of Capital Markets Group.
APPENDIX D - Plan of Complete Liquidation including the Paramark Liquidating
Trust Agreement.
Paramark Enterprises, Inc.
One Harmon Plaza
Secaucus, New Jersey 07094
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished to the holders of Common Stock $.01
per value, (the "Common Stock") of Paramark Enterprises, Inc. (the "Company") in
connection with the solicitation by the Board of Directors of the Company of
proxies in the form enclosed to be voted at an Annual Meeting of Stockholders of
the Company to be held at the law offices of Blank Rome Comisky & McCauley LLP,
10th Floor, One Logan Square, Philadelphia, Pennsylvania on December 15, 2000 at
9:00 am, Eastern Standard Time, and for any adjournment or adjournments thereof,
for the following purposes:
1. To consider and vote on the election of the Board of Directors as
more fully described in the accompanying Proxy Statement ("Proposal
1").
2. To consider and vote on the proposed sale of substantially all of
the operating assets of the Company to Rich Products Manufacturing
Corporation pursuant to the terms and conditions of the Rich Products
Asset Purchase Agreement attached as Exhibit A to the Proxy Statement
accompanying this Notice (the "Rich Products Transaction" or "Proposal
2").
3. To consider and vote on the proposed sale of the remaining operating
assets of the Company to Brook Street Companies, Inc. pursuant to the
terms and conditions of the Brooks Street Asset Purchase and Sale
Agreement attached as Exhibit B to the Proxy Statement accompanying
this Notice (the "Brooks Street Transaction" or "Proposal 3").
4. To consider and vote on a plan to liquidate the Company pursuant to
the provisions of the Plan of Liquidation approved by the Company's
Board of Directors in the form attached as Exhibit C to the Proxy
Statement accompanying this Notice ("Proposal 4").
5. To transact such other business as may properly come before the
Annual Meeting or any postponements or adjournments thereof.
The Board of Directors knows of no other business which will come
before this meeting.
All shares represented by each properly executed unrevoked proxy
received in time for the Annual Meeting will be voted as specified. If no
specified instructions are given with respect to the matters to be acted upon,
the shares represented by a signed and dated proxy will be voted in favor of the
Company's nominees for director and for approval of the Company's proposed sale
of certain of its assets and in the judgment of the Board of Directors on any
other matters which may properly come before the Annual Meeting. Any Stockholder
giving a proxy has the power to revoke the same at any time before it is voted
by among other methods, giving written notice to the Company's secretary or
delivering a later dated proxy.
Only Stockholders of record at the close of business on November 10,
2000 are entitled to notice and to vote at the Annual Meeting or any adjournment
thereof. On the record date, there were issued and outstanding 3,613,383 shares
of Common Stock. Each outstanding share of Common Stock is entitled to one vote
upon all matters to be acted upon at the Annual Meeting. In order for a quorum
to be present, a majority of the outstanding shares of the Company's common
stock as of the Record Date must be present in person or represented by proxy at
the Annual Meeting. All such shares that are present in person or represented by
proxy at the Annual Meeting will be counted in determining whether a quorum is
present, no matter how the shares are voted or whether they abstain from voting
or are broker non-votes. The election of directors will be determined by a
plurality vote. Abstentions and broker non-votes with respect to the election of
directors will not affect the outcome of the election of such directors. The
affirmative vote of holders of a majority of the shares of Common Stock
outstanding as of the Record Date is required to approve each of Proposals 2 and
3 related to the proposed sale of assets. The approval of Proposal 4, the plan
to liquidate the Company pursuant to the Plan of Liquidation, requires the
affirmative vote of holders of a majority of the outstanding stock of the
Company entitled to vote on this matter. An abstention or broker non-vote,
therefore will have the same effect as a vote "against" Proposals 2, 3 and 4.
The approximate date on which this Proxy Statement and the accompanying
form of proxy will be mailed to the Company's Stockholders is November 15, 2000.
The executive officers of the Company are located at One Harmon Plaza, Secaucus,
New Jersey 07094 and its telephone number is (201) 422-0910.
The costs of solicitation will be borne by the Company. In addition to
solicitations by mail, proxies may be solicited in person or by telephone,
telegraph or facsimile by directors, officers or employees of the Company,
without additional compensation. The Company will, on request, reimburse
shareholders of record who are brokers, dealers, banks or voting trustees, or
their nominees, for their reasonable expenses in sending proxy materials and
annual reports to the beneficial owners of the shares they hold of record.
The enclosed proxy confers discretionary authority to vote with respect
to any and all of the following matters that may come before the Annual Meeting:
(i) matters which the Company has not received notice less than 60 days nor more
than 90 days prior to the Annual Meeting provided that if less than 70 days
notice or no prior public disclosure of the Annual Meeting date is given, no
later than the tenth business day on which notice of the Annual Meeting was
mailed or public disclosure was made which ever occurs first; (ii) approval of
the minutes of a prior meeting of stockholders, if such approval does not amount
to ratification of the action taken at the Annual Meeting; (iii) the election of
any person to any office for which a bona fida nominee is unable to serve or for
good cause will not serve; (iv) any proposal omitted from this proxy statement
and form of proxy pursuant to Rules 14a-8 or 14 a-9 under the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"); and (v) matters incident
to the conduct of the Annual Meeting. In connection with such matters, the
persons named in the enclosed form of proxy will vote in accordance with their
best judgment.
SUMMARY
The following summary of certain information contained elsewhere in
this Proxy Statement does not purport to be complete and is qualified in its
entirety by reference to the full text, including the Appendices attached
hereto. As used in this Proxy Statement, Paramark Enterprises, Inc. is referred
to as the "Company", Rich Products Manufacturing Corporation d/b/a Jon Donaire
Desserts is referred to as "Rich Products", and Brooks Street Companies, Inc. is
referred to as "Brooks Street". Certain capitalized terms which are used but not
defined in this summary are defined elsewhere in this Proxy Statement or in the
appended agreements.
Annual Meeting of Stockholders. This Proxy Statement relates to the Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held on
December 15, 2000. As set forth in the Notice of the Annual Meeting, the
Stockholders of the Company will consider and vote upon (i) the election of the
Board of Directors, (ii) a proposal to approve and adopt the Rich Products Asset
Purchase Agreement pursuant to which the Company will sell to Rich Products the
majority of its wholesale bakery operations, as defined hereinafter, which could
be construed under the Delaware General Corporation Law (the "DGCL") to
constitute substantially all of the assets of the Company, (iii) a proposal to
approve and adopt the Brooks Street Asset Purchase and Sale Agreement pursuant
to which the Company will sell to Brooks Street the balance of its wholesale
bakery operations, as defined hereinafter, and (iv) the proposed liquidation of
the Company.
The Annual Meeting will be held on December 15, 2000 at the law offices of Blank
Rome Comisky & McCauley LLP, 10th Floor, One Logan Square, Philadelphia,
Pennsylvania at 9:00 am local time. The record date for stockholders of the
Company entitled to notice of and to vote at the Annual Meeting is as of the
close of business on November 10, 2000. Each outstanding share of Common Stock
is entitled to one vote upon all matters to be acted upon at the Annual Meeting.
As of October 30, 2000 there were 3,613,383 shares of Company's Common Stock
outstanding held by approximately 500 beneficial holders of record.
Securities Entitled to Vote. The Company had 3,613,383 shares of Common Stock
issued and outstanding as of the close of business on November 10, 2000, the
record date for determining shareholders entitled to vote at the meeting. Each
share of common stock entitles the holder to one vote on each matter presented
for consideration at the Annual Meeting. A quorum will be established if a
majority of the Common Stock shares issued, outstanding and entitled to vote at
the meeting, are present in person or represented by proxy. Abstentions and
broker non-votes will be counted as present in determining whether the quorum
requirement is satisfied.
Votes Required. The election of directors will be determined by a plurality
vote. Each of the Transactions described in Proposals 2 and 3 and the Plan of
Liquidation described in Proposal 4, require the approval of the majority of the
shares of Common Stock outstanding and entitled to vote on the record date.
Abstentions and broker non-votes will be counted as votes against Proposals 2,3
and 4 which are being presented for consideration by stockholders.
The Company. Paramark Enterprises, Inc., formerly T.J. Cinnamons, Inc. (the
"Company"), a Delaware corporation, is a wholesale manufacturer of gourmet
specialty bakery products distributed throughout the United States. The Company
leases a 36,000 square foot production facility in El Cajon, California
employing approximately 100 people. The Company's products are sold in
approximately 2,000 supermarkets, and its product line consists of sweet bakery
products including cinnamon rolls, pull-apart cakes, decorated layer cakes,
bundt cakes, brownies, torte cakes, crumb cakes, rugalach, corn breads, and
other specialty cakes. The Company's Common Stock and Class B Warrants are
publicly traded on the OTC Bulletin Board under the symbols "TJCI" and "TJCIZ".
Background of the Rich Products Transaction. Due to a history of continuing
operating losses and the negative working capital position of the Company,
beginning in the first quarter of Year 2000, the Company's management began
exploring strategic alternatives including a possible merger or sale
transaction. As a result of active networking within the baking industry, Rich
Products Manufacturing Corporation d/b/a/ Jon Donaire Desserts ("Rich
Products"), one of the Company's largest customers, indicated that it had an
interest in acquiring the Company's bakery operations arising from its desire to
expand its business into various specialty decorated cake products of the type
the Company has successfully developed. In July 2000, the Company announced that
it had entered into a non-binding letter of intent with Rich Products for the
sale of its bakery operations excluding all dough products. During the period
July 2000 to September 2000, the Company engaged in negotiations with Rich
Products, and on October 9, 2000, the Company executed a definitive asset
purchase agreement with Rich Products to sell the majority of its bakery
operations as more fully described herein (the "Rich Products Transaction").
Background of the Brooks Street Transaction. The Rich Products Transaction does
not include the sale of the Company's tangible and intangible assets relating to
dough products, which is primarily comprised of approximately $1 million of
annual sales of a proprietary product known as pull-apart cakes. Therefore the
Company further networked within the bakery industry to seek a buyer for these
assets. After active discussions with three bakery companies selling dough
products, on August 8, 2000 the Company entered into a non-binding letter of
intent with Brooks Street Companies, Inc. ("Brooks Street") for the sale of its
tangible and intangible assets relating to its pull-apart cakes, and on October
9, 2000, the Company executed a definitive asset purchase and sale agreement
with Brooks Street to sell the reminder of the its bakery operations as more
fully described herein (the "Brooks Street Transaction").
Businesses to be Sold. The Company will sell the majority of the assets
comprised of the El Cajon, California bakery facility and all inventory and
equipment therein (the "Property") pursuant to the terms and conditions of the
Rich Products Transaction, and the Company will sell the remaining assets of the
El Cajon, California bakery facility pursuant to the terms and conditions of the
Brooks Street Transaction. The Rich Products Transaction and the Brooks Street
Transaction are defined hereinafter as the "Transactions". The assets of the El
Cajon bakery facility could be construed under the DGCL to constitute
substantially all of the operating assets of the Company.
The discussion in this Proxy Statement of the Transactions, and the description
of each Transaction's principal terms are subject to and qualified in their
entirety by reference to the Rich Products Asset Purchase Agreement and the
Brooks Street Asset Purchase and Sale Agreement, copies of which are attached to
this Proxy Statement as Appendix A and Appendix B respectively, and which is
incorporated herein by reference.
The Purchasers. The purchaser in the Rich Products Transaction is Rich Products
Manufacturing Corporation, d/b/a Jon Donaire Desserts, a privately owned
Delaware corporation with its principal offices in Buffalo, New York. The
purchaser in the Brooks Street Transaction is Brooks Street Companies, Inc., a
privately owned Nevada corporation with principal offices in Montclair,
California.
Purchase Price. The Rich Products Transaction provides for a purchase price for
the Property in the amount of $2,182,750 to be paid as follows: (a) $182,750
paid on October 16, 2000, (b) $1,000,000 paid at Closing and (b) $1,000,000 paid
in eight equal semi-annual installments over a period of four (4) years. In
addition, the Rich Products Asset Purchase Agreement provides for the assumption
by Rich Products of approximately $285,000 of the Company's liabilities. The
Brooks Street Transaction provides for a purchase price in the form of royalty
payments to the Company over a period of four (4) years equal to 5% of the net
sales of all pull-apart cakes to existing customers of the Company and 1 1/2% of
the net sales of all pull-apart cakes sold to new customers of Brooks Street. In
addition, the Brook Street Purchase Agreement provides for the purchase of
inventory from the Company in the amount of $12,500 and the assumption of
approximately $70,000 of the Company's liabilities.
The Rich Products License Agreement. The Company and Rich Products entered into
a license agreement dated October 9, 2000 through which the Company granted Rich
Products a license to assume immediate operational control of the El Cajon
bakery facility as if a closing had occurred under the Rich Products Asset
Purchase Agreement. Rich Products has paid the Company a license fee equal to
$4,000 per month through December 31, 2000, and the license agreement will
terminate simultaneously with a closing of the Rich Products Asset Purchase
Agreement.
Continuing Business; Plan of Liquidation. Following completion of the
Transactions, the Company will seek to liquidate its assets. In order to
liquidate the Company's fixed assets, the executive management staff will be
retained at the Company's executive offices in New Jersey through January 31,
2000 in order to collect all accounts receivables, liquidate all inventory, pay
down all outstanding trade payables and sell all furniture, fixtures and
equipment maintained at the Company's headquarters in Secaucus, New Jersey. In
addition, the Company may explore other strategic options, including the
possible sale of its corporate shell if such a sale is feasible and financially
beneficial to the Company's shareholders. As a result, consistent with the
requirements of applicable Delaware law, the Company reserves the right to
abandon or amend the Plan of Liquidation following the approval of such plan by
stockholders.
Following the closing of the Transactions, the Company will establish a
liquidating trust to collect all contractual payments pursuant the Rich Products
Asset Purchase Agreement and the Brooks Street Asset Purchase and Sale
Agreement, and will make liquidating distributions to the holders of units in
the liquidating trust over a period of up to four (4) years from the date the
assets were first transferred to the liquidating trust.
Reasons for the Transactions and Recommendation of the Board of Directors. The
Company's Board of Directors has determined that the terms of the Transactions
are in the best interest of the Company and its stockholders, and recommends a
vote FOR approval and adoption of both the Rich Products Transaction and the
Brooks Street Transaction by the shareholders of the Company. In the course of
reaching its decision to approve the Transactions, the Board consulted with its
legal and financial advisors as well as the Company's management and considered
the following factors:
(1) The written presentation of Capital Markets Group that the
consideration to be received pursuant to the terms of the
Transactions is fair to the stockholders of the Company from a
financial point of view;
(2) The current negative working capital of the Company and
resulting lack of financial and operational resources
necessary for the continuation or expansion of the Company's
business strategies;
(3) The qualified going concern opinion issued by the
Company's outside accountants indicating that the Company may
not be able to continue as a going concern due to its negative
working capital and the unavailability of other sources of
funds; and
(4) The absence of any written or formal expression of
interest by any other third parties regarding a possible
acquisition, merger or other strategic transaction with the
Company.
Interests of Management in the Transactions. In considering the recommendations
of the Board of Directors of the Company with respect to the Transactions,
stockholders should be aware that certain members of the management staff of the
Company have certain interests in the Transactions that are in addition to the
interests of stockholders of the Company generally. In this regard, certain
members of management will receive payments from Rich Products pursuant to
consulting agreements, will receive payments from the Company in consideration
of the termination of employment agreements and will have indebtedness from the
Company repaid from the proceeds of the Transactions. See "The Rich Products
Transaction - Interests of Management and Certain Stockholders in the
Transaction".
No Dissenters' Rights. Under the DGCL, holders of Common Stock are not entitled
to dissenters' rights in connection with the Transactions.
Application of Proceeds from the Transactions. The Company currently intends to
use the net proceeds received from the Rich Products Transaction, aggregating
approximately $2,182,750, as follows: $1,432,750 towards the reduction of
outstanding indebtedness; $125,000 towards the expenses of the Transactions;
$125,000 towards the working capital necessary to complete the Plan of
Liquidation, and $500,000 towards liquidating distributions to the Company's
stockholders. Assuming the approval by shareholders of Proposal 4 and the
Board's decision to implement the Plan of Liquidation, the Company intends to
use all royalty payments received from the Brooks Street Transaction towards
liquidating distributions to the Company's shareholders. Following the
completion of the Transactions and prior to implementing the Plan of
Liquidation, the Company may explore various strategic options available to
enhance stockholders value, including the possible sale of the public shell. As
a result, the Company reserves the right to abandon the Plan of Liquidation
following the approval of stockholders without a further vote of stockholders.
Consequently, the Company may modify the uses of proceeds of the Transactions
without further approval of stockholders.
Tax Consequences to the Company. The sale of assets pursuant to the Rich
Products Transaction will be a taxable transaction to the Company. The Company
will recognize gain measured by the difference between the amount realized from
the sale of the assets and the Company's adjusted tax basis in such assets. The
sale of the dough assets pursuant to the Brooks Street Transaction will result
in taxable income to the Company in the period received. Due to the Company's
net operating loss carry forwards, the Company estimates that the Transactions
will result in minimal Federal or State tax liability.
BENEFICIAL OWNERSHIP
The following table sets forth information, as of September 30, 2000 as
to the beneficial ownership of Common Stock (including shares which may be
acquired within sixty days pursuant to stock options) of each director of the
Company and the executive officers of the Company listed in the Summary
Compensation Table below, all directors and executive officers as a group and
persons known by the Company to beneficially own more than 5% of the Common
Stock. Except as set forth below, no person beneficially owns more than 5% of
the Common Stock.
Number of Shares
Name and Address of of Common Stock Percent
Beneficial Owner (1) Beneficially Owned (2) Beneficially Owned
--------------------------------------------------------------------------------------------------
Charles Loccisano 1,745,049 (3)(4) 40.7%
Loccisano Trusts 368,389 (5) 8.6%
Alan Gottlich 375,589 (5)(6) 8.8%
Philip Friedman 112,109 (7) 2.6%
Paul Bergrin 67,500 (8) 1.6%
All Directors and Executive Officers
as of group (four persons) 2,300,247 (9) 53.6%
<FN>
(1) Unless otherwise indicated, the address of each beneficial owner is that of
the Company's principal executive offices.
(2) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they
may include securities owned by or for, among others, the wife and/or minor
children of the individual and any other relative who has the same home as
such individual, as well as other securities as to which the individual has
or shares voting or investment power or has the right to acquire under
outstanding stock options within 60 days after the date of this table.
Beneficial ownership may be disclaimed as to certain of the securities.
Certain of these shares are held in escrow ("Escrow Shares") and are
subject to release on the earlier of (a) the achievement by the Company of
certain minimum pre-tax earnings during specified periods, and (b) May 12,
2001. Such shares may be voted but may not be transferred prior to the
release from escrow.
(3) Includes 184,195 shares held by The Charles Loccisano Irrevocable Trust
f/b/o Marissa Loccisano all of which are Escrow Shares, and 184,195 shares
held by The Charles Loccisano Irrevocable Trust f/b/o Michael Loccisano
(jointly referred to as the "Loccisano Trusts") all of which are Escrow
Shares, with respect to which Mr. Loccisano is the settlor. Mr. Loccisano
disclaims beneficial ownership of these shares. Mr. Gottlich and Mr. Feiger
are the trustees of the Loccisano Trusts and posses shared voting and
dispositive power.
(4) Includes a maximum of 313,125 shares which may be acquired upon the
exercise of options exercisable within the next 60 days.
(5) Includes a maximum of 188,250 shares which may be acquired upon the
exercise of options exercisable within the next 60 days.
(6) Includes 155,874 shares held by Mr. Gottlich's spouse of which 64,765 are
Escrow Shares, as to which Mr. Gottlich disclaims beneficial ownership.
Excludes 368,389 shares held by the Loccisano Trusts over which Mr.
Gottlich has shared voting and dispositive power.
(7) Includes a maximum of 107,109 shares which may be acquired upon the
exercise of options exercisable within the next 60 days.
(8) Represents shares that are issuable upon the exercise of options
exercisable within the next 60 days.
(9) Includes a maximum of 675,984 shares which may be acquired upon the
exercise of options that are exercisable within the next 60 days.
</FN>
PROPOSAL ONE
ELECTION OF DIRECTORS
Under the Company's by-laws, the Company's Directors are elected for
one year terms until their respective successors are duly elected and qualified.
The Officers of the Company are appointed by the Board of Directors to hold
office until their successors are duly elected and qualified.
Under the Company's by-laws, the Company's Board of Directors shall
consist of not less than three and not more than fifteen directors, such numbers
to be set by the Board by resolution. The Board has set the number of directors
at four.
All nominees are currently serving as Directors of the Company. The
Company knows of no reason why any nominee would be unable to serve as a
director. Each nominee has consented to being named in this Proxy Statement as
to serve if elected. If any nominee should for any reason become unable to
serve, then all valid proxies will be voted for election of such substitute
nominee as the Board may designate.
Information about Directors
Certain information regarding the nominees for election as directors at
this year's Annual Meeting is set fourth below.
=================== ==== =================================== ================
Name Age Position with the Company Director Since
- ------------------- ---- ----------------------------------- ----------------
Charles Loccisano 52 Chairman, Chief Executive Officer 1992
and Director
- ------------------- ---- ----------------------------------- ----------------
Alan Gottlich 39 President, Chief Financial Officer, 1992
Treasurer and Director
- ------------------- ---- ----------------------------------- ----------------
Philip Friedman 53 Director 1993
- ------------------- ---- ----------------------------------- ----------------
Paul Bergrin 43 Director 1996
=================== ==== =================================== ================
Charles Loccisano has been the Chairman, Chief Executive Officer and
Director of the Company since its acquisition in June 1992. Since 1980, Mr.
Loccisano has primarily engaged in the acquisition, development and/or
management of real estate through his general partnership interest in various
real estate limited partnerships. Some of these partnerships were forced to file
for protection under the United States Bankruptcy Code after a turndown in the
real estate market in 1997. Some of these partnerships were successfully
reorganized and some lost their real properties in bankruptcy and/or to
foreclosure. In November 1999, Mr. Loccisano voluntarily pled guilty to one
count of a misdemeanor for making false statements to the United States
Department of Housing and Urban Development (HUD). This plea was the result of
his activities as a principal and officer of Harmon/Envicon Associates, a
national real estate syndication company, during the period of June 1991 through
December 1992. Mr. Loccisano was also a principal of a company that owned five
Roy Roger restaurants and three T.J. Cinnamons bakeries in New Jersey from 1989
through 1994. In addition, Mr. Loccisano was a general partner in a 200 room
hotel in Morristown New Jersey which was acquired in 1991 and was sold in 1998.
Alan Gottlich has been the Vice Chairman, Chief Financial Officer and
Director of the Company since its acquisition in June 1992, and the President
since October, 1996. Prior thereto, Mr. Gottlich was primarily engaged in the
acquisition, development and/or management of real estate through his general
partner interest in various real estate limited partnerships. In November 1999,
Mr. Gottlich voluntarily pled guilty to one count of a misdemeanor for making
false statements to HUD. This plea was the result of his activities as an
employee of Harmon/Envicon Associates, a national real estate syndication
company, during the period of June 1991 through December 1992. Mr. Gottlich was
also a principal of a company that owned five Roy Rogers restaurants and three
T.J. Cinnamons bakeries in New Jersey from 1989 through 1994. Prior to that, Mr.
Gottlich was a staff accountant at Touche Ross & Co.
Philip Friedman has been a Director of the Company since August 1993.
Mr. Friedman is the president of McAlister's Corporation, operator and
franchiser of the McAlister's Deli Restaurant chain. From 1984 through 1986, he
was he was Vice President of Finance and Administration for Cini-Little
International, Inc., the largest food service consulting firm in the United
States. While with P. Friedman & Associates, Mr. Friedman has taken interim
executive positions with certain clients. In 1996, Mr. Friedman was named
interim President of Panda Management Company, Inc. a national chain of
restaurants serving Chinese food. In 1998 he served as Chairman of the Board for
Rosti Restaurants and is the President and principal shareholder of P.Friedman &
Associates, Inc., a food management and consulting company based in Rockville,
Maryland. Mr. Friedman graduated from the University of Connecticut with
Bachelors and Masters degrees and received his MBA from the Wharton School of
Business at the University of Pennsylvania. Mr. Friedmn serves as a director of
Roadhouse Grill, Inc. and Eateries, Inc., both publicly traded companies.
Paul Bergrin has been a Director of the Company since November 1996.
Mr. Bergrin has been a partner in the law firm of Pope, Grossman, Bergrin
Toscano and Verdesco for more than the last five years specializing in criminal
and civil litigation.
Required Vote
The election of the four directors requires the affirmative vote of the
Common Stock holders of a plurality of the votes of the shares present in person
or represented by proxy and entitled to vote with respect to such directors at
the Annual Meeting. Accordingly, if a quorum exists, each person receiving a
plurality of the votes of the approximate holders with respect to the election
of the directors will be elected to serve for a term of one year each. A
majority of the votes entitled to be cast with respect to the election of
directors by the holders of Common Stock constitutes a quorum for action on such
proposal. Abstentions and broker non-votes with respect to the election of
directors in the ordinary course of election will not affect the outcome of the
election of directors.
Recommendation of the Paramark Board of Directors
The Board of Directors recommends that you vote FOR the election of
each of the nominees for director.
Directors' Meetings
The Board of Directors met twice during the fiscal year 1999. Each
Director attended all of the meetings of both the Board of Directors and of any
committees of the Board on which the Director served.
Committees of the Board of Directors
The Board of Directors has established compensation, audit and option
committees. The members of the Compensation Committee, the Audit Committee and
the Option Committee consists of Philip Friedman and Paul Bergrin. The Audit
Committee, the Compensation Committee and the Option Committee each held one
meeting in fiscal 1999.
The Audit Committee reviews and examines detailed reports of the
Company's independent public accountants; consults with the independent public
accountants regarding internal accounting controls, audits results and financial
reporting procedures; recommends the engagement and continuation of engagement
of the Company's independent public accountants; and meets with, and reviews and
considers recommendations of, the independent public accountants.
The Compensation Committee reviews the performance of senior management
and key employees whose compensation is the subject of review and approval by
the Committee; periodically reviews and recommends to the Board of Directors
compensation arrangements for senior management and key employees; and
periodically reviews the main elements of, and administers, the Company's
compensation and benefit programs, other than the 1993 Stock Option Plan and the
1996 Stock Option Plan.
The Option Committee administers the 1993 Stock Option Plan and the
1996 Stock Option Plan and, to the extent provided by such Plans, determines the
persons to whom options are granted, the exercise price, term and number of
shares covered by each option to be granted.
In June 2000, the Board of Directors established a Special Committee
for the purposes of reviewing and advising the Company in connection with the
Rich Products Transaction and the Brooks Street Transaction. The members of the
Special Committee consist of Philip Friedman and Paul Bergrin, the Company's
outside Directors.
Advance Notice For Director Nominations
The Company's By-laws provide that in order for a stockholder to
nominate a candidate for election as a director at an annual meeting of
stockholders or to propose business for consideration at such meeting, notice
must be delivered to the Secretary of the Company not less than 60 days nor more
than 90 days prior to the annual meeting. However, in the event that less than
70 days prior notice of the date of the meeting is given to stockholders, notice
by the stockholders must be received not later than 10 days after notice of the
meeting has been given. Based on the scheduled meeting date for this year's
annual meeting, in order for a stockholder to propose director nominations at
the 2001 Annual Meeting, the stockholder must deliver notice to the Secretary no
later than 10 days after notice of the meeting has been given. Any stockholder
desiring a copy of the Company's Certificate of Incorporation will be furnished
one without charge upon written request to the Secretary.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the total annual compensation paid or
accrued by the Company for services in all capacities for the Chief Executive
Officer and each other officer who made in excess of $100,000 (salary plus
bonuses) (the "Named Officers") for the fiscal years ended December 31, 1999,
1998 and 1997. No other executive officers of the Company who were serving as
such at the end of such fiscal years received salary and bonus in excess of
$100,000.
Long Term Compensation Awards
Annual Compensation Other
Name and Principal Annual Securities
Position Year Salary Bonus Comp.(1) Underlying Options
Charles Loccisano, 1999 $193,678 $0 $12,000 -0-
Chairman, and Chief 1998 189,935 (2) 105,984 12,000 312,125 (4)
Executive Officer 1997 134,615 68,805 12,000 225,000
Alan Gottlich, 1999 $138,342 $0 $ 9,000 -0-
President and Chief 1998 125,818 (3) 52,992 9,000 188,250 (4)
Financial Officer 1997 98,464 34,402 9,000 163,500
<FN>
(1) These amounts represent reimbursable automobile expenses.
(2) $17,500 of this amount represents salary accruals from 1997 paid during
1998.
(3) $11,250 of this amount represents salary accruals from 1997 paid during
1998.
(4) In January 1998, the Board of Directors approved a resolution by the Option
Committee whereby the Company canceled stock options previously granted to
Messrs. Loccisano and Gottlich to purchase shares of common stock in the
amount of 417,500 and 251,000 respectively, and granted new options to
purchase shares of common stock in the amount of 313,125 and 188,250,
respectively.
</FN>
Stock Option Grants in Last Fiscal Year
No options were granted under the Company's option plan during the year
ended December 31, 1999.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End
Option Values
The following table sets forth information regarding aggregate option
exercises and year end option values.
=============================== ======================== ================ ==================== =====================
Number of Value of
Unexercised Unexercised
Options at In-The-Money
12/31/99 (1) Options at 12/31/99
Shares Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise Unexercisable Unexercisable
- ------------------------------- ------------------------ ---------------- -------------------- ---------------------
Charles Loccisano, Chairman 0 0 313,125 / 15,000 0 / 0
and Chief Executive Officer
- ------------------------------- ------------------------ ---------------- -------------------- ---------------------
Alan Gottlich, President, and 0 0 188,250 / 15,000 0 / 0
Chief Financial Officer
=============================== ======================== ================ ==================== =====================
Director Compensation
The Company provides compensation to outside directors at the rate of
$300 per month, and provides reimbursement of travel and other expenses incurred
in attending meetings. Directors who are employees of the Company do not receive
fees for attendance at directors' meetings.
Each member of the Special Committee will receive compensation equal to
$12,500 upon consummation of the Transactions described herein.
PROPOSAL TWO
THE RICH PRODUCTS TRANSACTION
Background of the Company
Current management acquired the Company from its founders in June, 1992
for an aggregate purchase price of approximately $2.2 million representing the
purchase of stock and the assumption of the Company's liabilities. In June 1992,
the Company had approximately 100 franchised bakery locations and four
Company-owned bakery locations, and had not offered to sell new franchise units
since 1989. Simultaneously with the 1992 acquisition, the Company entered into a
strategic manufacturing and licensing agreement with Heinz Bakery Products, a
division of H.J. Heinz, Inc. ("Heinz") which provided the Company $1,425,000 in
advance royalty payments which was used towards the purchase price. The balance
of approximately $700,000 was funded by the capital contributions from the
shareholders of the Company.
The Company's business strategy with Heinz was twofold: (1) to convert
all the existing retail bakery locations from a scratch method of production to
a frozen dough "proof and bake" method of production yielding a multiple of
advantages including reduced labor, ease of operations, limited employee
training, cleaner bakeries, enhanced control systems, etc., and (2) to market a
T.J. Cinnamons branded product line targeted for sale to the in-store bakeries
of large supermarket chains. The Heinz agreement provided payments of
manufacturing and licensing royalties to the Company, with all royalties earned
by the Company to be first applied against the $1,425,000 advanced royalty until
fully repaid.
Based upon Heinz's sizable infrastructure and vast distribution
capabilities, the Company anticipated that Heinz would roll-out the bakery
conversion program and supermarket sales program in a short time frame resulting
in significant royalty revenues to the Company. Management anticipated that this
royalty income would allow it to obtain financing in order to fund the Company's
working capital necessary to build the infrastructure necessary to expand the
T.J. Cinnamons bakery system through franchise sales.
For a period of twelve months following the acquisition of the Company,
the new management worked together with Heinz to develop the frozen dough
cinnamon roll products. During this same period, Heinz marketed the "proof and
bake" frozen dough products in approximately 1,000 supermarket locations. Both
strategies did not reach the Company's original expectations which would have
funded the payback terms of the Heinz royalty advance. The Company believes that
there were a number of issues that Heinz did not anticipate regarding the frozen
dough rollout, such as: (i) continued research and development to replicate the
appearance, taste and texture of the cinnamon roll manufactured on a automated
production line; (ii) the sensitivity of distribution of a frozen yeast product;
(iii) the need for continued training of part-time employees regarding the
baking procedures and operating guidelines of frozen dough; and (iv) the
additional marketing costs needed to facilitate a national rollout. In order to
produce a product that was less difficult to prepare, Heinz developed a fully
baked and packaged product shipped through frozen distribution for "thaw and
serve" use by in-store bakeries in supermarkets. Although this product had broad
sales potential, Heinz did not have the facilities necessary to automate the
production of this product, and was forced to use a co-packer to produce the
product on a semi-automated line. This resulted in a significant reduction in
the profit margins and a lack of aggressive marketing support by Heinz.
By the end of 1992, the Company relocated its headquarters from Kansas
City, Missouri to Secaucus, New Jersey and hired a new management team. Given
the inability to successfully implement the Company's business plan as it
related to Heinz, the Company was not able to pursue its franchise expansion
plans and it began to actively explore financing options in early 1993. The
Company's business plan has centered on leveraging its brand equity to expand
distribution by implementing three interrelated strategies (i) expanding the
Company's franchise system; (ii) exploring opportunities to offer the Company's
products in non-traditional retailing environments including multi-branding
pursuant to strategic licensing relationships with other retailers that command
brand loyalty; and (iii) expanding opportunities to offer the Company's cinnamon
roll and related products in supermarkets and other grocery outlets.
After almost a year of pursuing financing alternatives, the Company
completed a bridge loan financing in December, 1993 in the amount of $675,000,
and on May 12, 1994 the Company completed an IPO of Common Stock, Class A
Warrants and Class B Warrants resulting in net proceeds to the Company of $3.9
million. With net proceeds from the initial public offering after expenses of
the offering and the repayment of indebtedness of approximately $2.3 million,
the Company successfully completed a re-imaging of the T.J Cinnamons logo and
product packaging, and a redesign of its bakeries, and began its franchise sales
effort after having completed and filed its Uniform Franchise Offering Circular
in all States that require registration.
The Company advertised for franchises in the Wall Street Journal and
the Nations Restaurant News, and received over 2,000 inquires for its franchise
program. By March 1995, the Company had sold two franchises to new franchisees,
and two franchises to existing franchisees. During this period, the Company
maintained an expanded staff necessary to support its franchise growth and show
its credibility to prospective franchisees. This increase in overhead resulted
in a decline in the Company's working capital, and a continuing net operating
loss and cash flow deficit. These deteriorating financial conditions were the
primary obstacle in the Company's ability to sell more franchises, and the
existing franchise system declined to 60 bakeries by June 30, 1995.
By June 1995, the Company had depleted its cash resources, and began
experiencing financial difficulties resulting from a negative working capital
balance. The Company was forced to implement a cost reduction program resulting
in a significant decline in operating expenses, and in an effort to obtain long
term financing to continue to develop the Company's business strategies, the
Company retained the Corporate Finance Group at Arthur Andersen LLP to act as
its financial advisor in connection with the exploration of strategic
alternatives available to the Company, including a possible equity or debt
financing, merger, sale of all or part of the Company, or other similar
transaction.
In August, 1996 the Company closed an agreement with Triarc Restaurant
Group for the sale of its intellectual property and a simultaneous license of
certain of the intellectual property back to the Company for the purposes of
continuing to operate one existing bakery location, continuing to act as
franchisor and licensor under the existing franchise and license agreements, and
continuing to distribute T.J. Cinnamons products through retail grocery outlets
pursuant to a 20 year license agreement. The Company received consideration of
$1,790,000 in cash and $1,750,000 in promissory notes. Following this
transaction, the Company established a bakery operation in Santa Ana, California
and began distribution to grocery accounts in Southern California. The proceeds
from the Triarc transaction were used to develop the Santa Ana bakery facility
and fund operating losses during the initial startup of this business. The
Company relocated the bakery to El Cajon, California in 1998 due to a
termination of its lease, and due to continuing operating losses, the Company
required additional capital to continue operations.
In June 1998, the Company closed an agreement with Triarc Restaurant
Group pursuant to which the Company terminated the 1996 Triarc Restaurant Group
purchase agreement and license agreement and sold its interests in the T.J.
Cinnamons franchise agreements in consideration for payments of $3 million in
cash and $1 million in the form of a promissory note. The proceeds from this
transaction were used to fund operating losses, automate the bakery operations
and complete an expansion of the bakery which was needed as a result of the
growth in wholesale sales exceeding the plants capacity.
Background of the Rich Products Transaction
The Company's sales increased rapidly during 1999 as a result of
broadening its product line to include a full line of decorated cakes, and the
expansion of its network of brokers and sales representatives in different areas
of the country. The Company began selling its products in the following new
regions: Northern California, Texas, Arizona and Oregon. In order to remain
competitively priced, the Company negotiated deals at low margins and further
invested in automated production equipment. In addition, the Company began
producing products as a co-packer for Rich Products Manufacturing Company d/b/a/
Jon Donaire Desserts and for Angel City Foods.
In March 2000, following completion of the plants expansion from a
16,800 square feet facility to a 36,000 square feet facility, the Company's
sales were increasing at a rate of 200% ahead of previous year levels and the
Company continued to experience capacity issues at the plant. In order to avoid
shorting orders and facing the possible loss of certain customers, the Company
invested in new ovens, pans and other equipment in order to provide additional
capacity. The Company financed the facility expansion by utilizing its working
capital as it did not have any credit line or other financing facilities
available. In May 2000, the Company's outside accountants issued the Company a
going concern opinion due to the Company's limited working capital and history
of continuing operating losses. In response to these liquidity issues, the
Company began exploring strategic alternatives including a possible merger of
merger transaction.
The Company placed advertisements in the Wall Street Journal and the
Los Angeles Times and entered into preliminary discussions with a number of
interested bakery operators, however the Company was unable to reach agreement
with any such bakery operators for a transaction beneficial to the Company. As a
result of further active networking within the baking industry, Rich Products,
one of the Company's largest customers, indicated that it had an interest in
acquiring the Company's bakery operations as it had an interest in expanding its
business into the specialty decorated cake lines that the Company had
successfully developed.
In July 2000, the Company announced that it had entered into a
non-binding letter of intent with Rich Products for the sale of its bakery
operations. During the period of July 2000 to September 2000, the Company
engaged in negotiations with Rich Products, and on September 9, 2000, the
Company executed a definitive purchase agreement with Rich Products as more
fully described herein.
The Rich Products Asset Purchase Agreement
Assets To Be Sold
The assets to be sold by the Company to Rich Products include
substantially all of the fixed and intangible assets of the El Cajon, California
bakery operation including all materials, packaging and finished goods
inventory. The Rich Products Transaction excludes all tangible and intangible
assets relating to dough products, which are primarily comprised of
approximately $1 million of annual net sales of a proprietary product known as
pull-apart cakes. In addition, Rich Products will assume all of the Company's
outstanding equipment leases except those leases secured by equipment used
exclusively for dough products which will be assumed by Brooks Street.
Subsequent to entry into the Rich Products agreements, the Company will collect
all outstanding accounts receivable and will pay all outstanding trade accounts
payable.
Required Vote
The approval of the Rich Products Transaction requires the affirmative
vote of a majority of the total outstanding stock of the Company entitled to
vote on the proposal.
Purchase Price
The aggregate purchase price of the Property is $2,182,750 plus the
assumption by Rich Products of equipment leases with an aggregate balance of
approximately $285,000 as of September 30, 2000. The Rich Products Asset
Purchase Agreement provides for payment of the purchase price as follows:
$182,750 paid on October 16, 2000, $1,000,000 to be paid at closing and
$1,000,000 to be paid in eight equal semi-annual installments over a period of
four (4) years. In addition, Rich Products will assume all the Company's
obligations under its lease for the bakery located in El Cajon, California which
lease terminates in May 2006. All payments due to the Company pursuant to the
Rich Products Asset Purchase Agreement have been guaranteed by Rich Products
Corporation, the corporate parent of Rich Product Manufacturing Corporation.
Certain Representations, Warranties and Covenants
The Company has made certain customary representations and warranties,
including among other things, as to its corporate status, its authority to enter
into the Rich Products Asset Purchase Agreement, its financial statements, the
absence of certain changes in its business, the absence of litigation, the
operation of its business, its assets, territorial restrictions, inventories,
product warranties, intellectual properties, leases, employees and labor
matters, employee benefit plans, confidentiality, records and disclosure.
The Company has also made certain covenants, including among other
things, the conduct of its business, no solicitation, access and information,
public announcements, further actions and further assurances.
Rich Products has also made certain covenants, including among other
things, public announcements, further actions, further assurances, subsequent
monthly financial statements, opinion of counsel, corporate proceedings,
transfer documents, consents and estoppel's, corporate proceedings and the
execution of a consulting agreement.
Indemnification
The Company is obligated to indemnify Rich Products and its affiliates
for, among other things, any losses resulting from or arising out of (a) any
inaccuracy of any representation or warranty, (b) any failure to perform any
covenant or fulfill any other obligation, (c) any liabilities arising from
events prior to the closing, (d) any excluded assets, (e) any taxes of the
Company, (f) any employee benefit liabilities, (g) operations of the business
prior to the closing date, and (h) any product liability claims for products
manufactured or sold prior to the closing date.
Rich Products is obligated to indemnify the Company and its affiliates
for, among other things, any losses resulting from or arising out of (a) any
inaccuracy of any representation or warranty, (b) any failure to perform any
covenant or fulfill any other obligation, (c) operations and liabilities of the
business following the closing date and (d) any product liability claims for
products manufactured or sold following the closing date.
Termination
The Asset Purchase Agreement may be terminated, and the transaction
abandoned at any time prior to the Closing, (a) by mutual written agreement
between the Company and Buyer, (b) by the Company or Buyer in the event
representations and warranties have not been true and correct in all material
respects, or (c) at any time after December 31, 2000 by the Company or Buyer if
a closing has not occurred by said date unless (i) such date is extended by
mutual written consent or (ii) the Company is actively engaged in soliciting the
approval for the Transactions from its shareholders.
License Agreement
The Company and Rich Products entered into a license agreement dated
October 9, 2000 through which the Company granted Rich Products a license to
assume immediate operational control of the El Cajon bakery facility as if a
closing had occurred under the Rich Products Asset Purchase Agreement. Rich
Products has paid the Company a license fee equal to $4,000 per month through
December 31, 2000, and the license agreement will terminate simultaneously with
a closing of the Rich Products Asset Purchase Agreement.
Interests of Management and Certain Stockholders in the Rich Products
Transaction
The Rich Products Asset Purchase Agreement also requires the Company to
deliver the following executed consulting agreements at the closing:
1. A Consulting Agreement between Rich Products and Charles N.
Loccisano, the Chairman, Chief Executive Officer and Director of the Company
requiring Mr. Loccisano to be available to render consulting services as needed
by Rich Products for a period of four (4) years following the Closing. The
compensation to Mr. Loccisano pursuant to this agreement is $50,000 per annum
for a period of four (4) years.
2. A Consulting Agreement between Rich Products and Alan S. Gottlich,
the President, Chief Financial Officer and Director of the Company requiring Mr.
Gottlich to be available to render consulting services as needed by Rich
Products for a period of four (4) years following the Closing. The compensation
to Mr. Gottlich pursuant to this agreement is $30,000 per annum for a period of
four (4) years.
3. A Consulting Agreement between Rich Products and Wayne Sorensen, the
General Manager of the Company's bakery in El Cajon California, requiring Mr.
Sorensen to be available to render consulting services as needed by Rich
Products for a period of four (4) years following the Closing. The compensation
to Mr. Sorensen pursuant to this agreement is $20,000 per annum for a period of
four (4) years.
Prior to, and unrelated to the Transactions, the Company entered into
an employment agreement with Charles Loccisano dated October 1, 1997, which
employment agreements current term expires on October 1, 2003, and requires
severance payments in the event of termination without cause equal to two times
Mr. Loccisano's base salary plus one-half of the aggregate bonuses paid over the
previous three fiscal years. Following closing of the Transactions, Mr.
Loccisano will continue to remain as the Company's Chairman, Chief Executive
Officer and Director through its liquidation or other action, however the
disinterested members of the Company's Board of Directors determined that it
would be economically beneficial to the Company to treat the Transactions as a
defacto termination of this employment agreement. Therefore, in September 2000,
the Board of Directors approved the termination of Mr. Loccisano's Employment
Agreement as of January 31, 2001 upon terms providing Mr. Loccisano compensation
equal to one-half the contractual obligations under the employment agreement, or
$276,622 (the contractual obligation in the employment agreement is $553,244) to
be paid in equal quarterly installments over a period of four years. As part of
this termination agreement, Mr. Loccisano has agreed to serve as a trustee of
the Paramark Liquidating Trust for a term of four (4) years without further
compensation. See "Certain Transactions".
Prior to, and unrelated to the Transactions, the Company also entered
into an employment agreement with Alan Gottlich dated October 1, 1997, which
employment agreements current term expires on October 1, 2003, and requires
severance payments in the event of termination without cause equal to two times
Mr. Gottlich's base salary plus one-half of the aggregate bonuses paid over the
previous three fiscal years. Following closing of the Transactions, Mr. Gottlich
will continue to remain as the Company's Chairman, Chief Financial Officer and
Director through its liquidation or other action, however the disinterested
members of the Company's Board of Directors determined that it would be
economically beneficial to the Company to treat the Transactions as a defacto
termination of this employment agreement. Therefore, in September 2000, the
Board of Directors approved the termination of Mr. Gottlich's Employment
Agreement as of January 31, 2001 upon terms providing Mr. Gottlich compensation
equal to one-half the contractual obligations under the employment agreement, or
$188,224 (the contractual obligation in the employment agreement is $376,447) to
be paid in equal quarterly installments over a period of four years. As part of
this termination agreement, Mr. Gottlich agreed to serve as a trustee of the
Paramark Liquidating Trust for a term of four (4) years without further
compensation. See "Certain Transactions".
In September 2000, Charles Loccisano, the Company's Chairman, Chief
Executive Officer and Director provided the Company with a credit line loan in
the amount of $150,000 in order to continue its operations. This loan will be
repaid in full from the proceeds of the Rich Products Transaction. The credit
line loan transaction with Mr. Loccisano was based on terms which were
unanimously approved by the Company's Board of Directors including interest at
the rate of 5.39% and the grant of 150,000 unregistered shares of the Company's
Common Stock. The Company intends to repay the outstanding balance of this loan
($75,000 as of October 31, 2000) out of the proceeds of the Rich Products
Transaction.
Application of Sale Proceeds
Net proceeds to the Company in connection with the Rich Products
Transaction will be $2,182,750 inclusive of payments for inventory. The Company
currently intends to utilize the net proceeds from the purchase price as
follows, however, the Company may modify the uses of the proceeds from the Rich
Products Transaction without further approval of Stockholders:
Following
At Closing Closing Total
------------------------------------------------
Reduction of outstanding indebtedness (1) $ 882,750 $ 550,000 $1,432,750
Expenses of the Transactions (2) 125,000 0 125,000
Working capital (3) 0 125,000 125,000
Possible liquidating distributions to stockholders(4) 175,000 325,000 500,000
-------------- ---------- ----------
Total net proceeds (5) $1,182,750 $ 1,000,000 $2,182,750
<FN>
(1) Represents payments of (i) approximately $642,904 to certain current and
past due trade payables, (ii) $250,000 for a loan provided by Gelt
Financial Corporation, (iii) $75,000 for a credit line loan provided by
Charles Loccisano, the Company's Chairman, Chief Executive Officer and
Director, (iv) $276,622 for the termination of an employment agreement with
Charles Loccisano, the Company's Chairman, Chief Executive Officer and
Director, and (v) and $188,224 for the termination of an employment
agreement with Alan Gottlich, the Company's President, Chief Financial
Officer and Director.
(2) Represents $90,000 for various legal and accounting fees incurred in
connection with the Transactions, $10,000 for fees in connection with
obtaining a fairness opinion, and $25,000 in fees paid to the special
committee of the Board of Directors in connection with the review and
assistance with negotiating the Transactions.
(3) The Company plans to utilize the working capital to provide for the costs
of maintaining the Company's executive offices for approximately two months
following a closing of the Transactions, and to provide for all costs
associated with the Paramark Liquidating Trust over a period of four years.
(4) Represents the net proceeds from the Rich Products transaction which the
Company currently intends will be distributed to the Company's stockholders
as liquidating distributions over a period not to exceed four (4) years
following the transfer of assets to the Paramark Liquidating Trust.
Following the completion of the Transactions and prior to implementing the
Plan of Liquidation, the Company intends to explore various strategic
options available to enhance stockholders value, including the possible
sale of the public shell. As a result, the Company reserves the right to
abandon the Plan of Liquidation following the approval of stockholders
without a further vote of stockholders.
</FN>
Tax Consequences to the Company
The sale of assets pursuant to the Rich Products Transaction will
result in a taxable transaction to the Company. The Company will recognize gain
measured by the difference between the amount realized from the sale of the
assets and the Company's adjusted tax basis in such assets. Due to the Company's
net operating loss carry forwards, the Company estimates that the Rich Products
Transaction will result in minimal Federal and State tax liability.
Opinion of Capital Markets Group
In connection with its consideration received from the Rich Products
Transaction and the Brooks Street Transaction, the Board of Directors of the
Company has retained Capital Markets Group ("CMG") to render an opinion as to
the fairness to the stockholders of the Company, from a financial point of view,
of the consideration to be received by the Company pursuant to the Transactions.
In arriving at its opinion, CMG reviewed and analyzed the Rich Products
Asset Purchase Agreement, the Brooks Street Asset Purchase and Sale Agreement
and certain available financial information, internal financial analysis,
projections, and other information concerning the Company, held discussions with
members of senior management of the Company regarding the business and prospects
of the Company, and also performed certain analysis on internally prepared
projections for the Company based on various assumptions, including that (i) the
proposed Transactions do not occur, (ii) the proposed Transaction occur and the
Company liquidates thereafter. In addition, CMG received the preliminary proxy
statement dated October 20, 2000, the auditors report dated February 8, 2000,
and information regarding other factors affecting the future prospects for the
Company absent the proposed Jon Donaire Transaction.
In rendering its opinion, CMG relied upon and assumed, without
independent verification, the accuracy, completeness and fairness of all
financial and other information that was available to it from public sources and
that was provided to it by the Company or its representatives or that was
otherwise reviewed by it. With respect to the financial forecasts and other
information relating to prospects of the Company, CMG assumed that such
information reflected the best currently available estimates and judgments of
the management of the Company as to the likely future financial performance of
the Company. CMG did not make any independent valuation or appraisal of the
assets of the Company, nor was it furnished with any evaluation or appraisal.
CMG's opinion was based solely upon the information available to it and provided
by the Company, and upon the prevailing economic, financial market and other
conditions as they existed as of the date its opinion was rendered. The Company
did not place any limitations on the nature or scope of CMG's investigation for
purposes of rendering this opinion.
For services rendered by CMG in connection with the Transactions, the
Company agreed to pay CMG a total fee of $10,000. In addition, the Company has
agreed to reimburse CMG for reasonable out-of-pocket expenses (not to exceed
$1,000). The Board of Directors selected CMG based on its experience and
expertise. CMG is an investment banking firm whose principal officers have
combined over 30 years of mergers, acquisitions and valuation experience. These
are no relationships between the Company, CMG or any of its officers.
The CMG opinion, prepared for the Company's Board of Directors, is
directed only to the fairness to the Company's stockholders, as of the date of
the opinion letter, from a financial point of view, of the consideration to be
received by the Company pursuant to the Transactions, and does not constitute a
recommendation to any stockholder as to how to vote at the Company's Annual
Meeting.
A copy of the CMG opinion is attached hereto as Appendix C.
Stockholders are urged to read this opinion in its entirety for assumptions
made, procedures followed, other matters considered and limits of the review by
CMG.
Recommendation of the Board of Directors.
The Company's disinterested Board of Directors has determined that the
terms of the Rich Products Transaction are in the best interest of the Company
and its stockholders, and recommends a vote in favor of the Rich Products
Transaction. In the course of reaching its decision to approve the Rich Products
Transaction, the Board consulted with its legal and financial advisors as well
as the Company's management and considered the following factors:
(1) The written presentation of CMG Capital Corporation that
the consideration to be received pursuant to the terms of the
Rich Products Transaction is fair to the stockholders of the
Company from a financial point of view;
(2) The current negative working capital of the Company and
resulting lack of financial and operational resources
necessary for the continuation or expansion of the Company's
business strategies;
(3) The qualified going concern opinion issued by the
Company's outside accountants indicating that the Company may
not be able to continue as a going concern due to its negative
working capital and the unavailability of other sources of
funds; and
(4) The absence of any written or formal expression of
interest by any other third parties regarding a possible
acquisition, merger or other strategic transaction with the
Company.
Considering the above factors, the Board concluded that it was unlikely
that any purchaser other than Rich Products would be willing to pay a price
higher than that to be received in the Rich Products Transaction.
PROPOSAL THREE
THE BROOKS STREET TRANSACTION
Background of the Brooks Street Transaction
The Rich Products Transaction excludes the Company's tangible and
intangible assets relating to dough products. As a result, the Company networked
within the bakery industry to seek a buyer for these assets which are primarily
comprised of approximately $1 million of annual net sales of a proprietary
product known as pull-apart cakes. After active discussions with three bakery
companies selling similar dough products, on August 8, 2000 the Company reached
a non-binding letter of intent with Brooks Street for the sale of its tangible
and intangible assets relating to its dough products, and on October 9, 2000,
the Company executed and closed a definitive Asset Purchase and Sale Agreement
with Brooks Street as more fully described herein.
Brooks Street Asset Purchase and Sale Agreement
Assets To Be Sold
The assets sold by the Company to Brooks Street include substantially
all of the Company's tangible and intangible assets relating to dough products
which are primarily comprised of approximately $1 million of annual net sales of
a proprietary product known as pull-apart cakes. In addition, Brooks Street
purchased inventory from the Company in the amount of $12,500 and assumed two
outstanding equipment leases with a principal balance of approximately $70,000
as of September 30, 2000.
Purchase Price
The Brooks Street Asset Purchase and Sale Agreement provides for a
purchase price in the form of royalty payments over a period of four (4) years
equal to 5% of the net sales of pull-apart cakes to all existing customers of
the Company plus 1 1/2% of the net sales of all pull-apart cakes sold to new
customers of Brooks Street. In addition, Brooks Street has purchased inventory
from the Company in the amount of $12,500 and has assumed the aforementioned
equipment lease liabilities of approximately $70,000. The Company reserves the
right to modify the terms of the royalty payments to, among other things,
shorten the period payments will be made and increase the payment percentage
without further approval of stockholders provided there is no substantial
difference in royalties received.
Contingency Provision
The Brooks Street transaction is contingent upon (i) the approval of
the Company's stockholders, and (ii) the closing of the Rich Products
Transaction. In the event the Company does not receive stockholder approval or
the Rich Products Transaction does not close, then all right, title and interest
in the assets sold pursuant to the Brooks Street Transaction will be
automatically reconveyed to the Company.
Application of Sale Proceeds
Net proceeds to the Company in connection with the Brooks Street
Transaction will be in the form of royalty payments over a period of 4 years
equal to 5% of the net sales of pull-apart cakes to all existing customers of
the Company plus 1 1/2% of the net sales of all pull-apart cakes sold to new
customers of Brooks Street. It is currently anticipated that all such proceeds
will be deposited into interest bearing accounts and will be set aside for a
liquidating distribution to the Company's shareholders pursuant to the Plan of
Liquidation. Following the completion of the Transactions, and prior to
implementing the Plan of Liquidation, the Company intends to explore various
strategic options available to enhance stockholders value, including the
possible sale of the public shell. As a result, the Company reserves the right
to abandon the Plan of Liquidation following the approval of stockholders
without a further vote of stockholders.
Tax Consequences to the Company
The sale of the dough assets by the Company will result in taxable
income in the period received. Due to the Company's net operating loss carry
forwards, the Company estimates that the Brooks Street Transaction will result
in minimal Federal and State tax liability.
Required Vote
The approval of the Brooks Street Transaction requires the affirmative
vote of a majority of the outstanding stock of the Company entitled to vote on
the proposal.
Recommendation of the Board of Directors.
The Company's Board of Directors has unanimously determined that the
terms of the Brooks Street Transaction is in the best interest of the Company
and its stockholders, and recommends a vote in favor of the Brooks Street
Transaction. In the course of reaching its decision to approve the Brooks Street
Transaction, the Board consulted with its legal and financial advisors as well
as the Company's management and considered the following factors:
(1) The minimal value of the assets of the Company following
completion of the Rich Products Transaction; and
(2) The absence of any written or formal expression of
interest by any other third parties regarding the purchase of
the assets of the Company following completion of the Rich
Products Transaction.
Considering the above factors, the Board concluded that it was unlikely
that any purchaser other than Brooks Street would be willing to pay a price
higher than that to be received in the Brooks Street Transaction.
PROPOSAL FOUR
THE PLAN OF LIQUIDATION
Introduction
The voluntary liquidation will take place in accordance with the Plan
of Liquidation (the "Plan"), attached as Exhibit D to this Proxy Statement. If
the Plan is approved by the stockholders, following the completion of the Rich
Products Transaction and the Brooks Street Transaction, all remaining liquid
assets of the Company will be sold, creditors will be paid or reserves for such
payments established, and the remaining net proceeds of such sales would be
transferred to a liquidating trust (the "Paramark Liquidating Trust") for
distribution to the stockholders in cash, pro rata, in accordance with their
ownership interest in the Company. Stockholders of the Company will be the
beneficiaries of the Paramark Liquidating Trust and will receive one unit which
represents a beneficial ownership interest in the Paramark Liquidating Trust for
each share of Paramark common stock held on the record date established by the
Board of Directors. The record date for determining stockholders who will
receive an interest in the Paramark Liquidating Trust will be the date assets
are transferred to the Paramark Liquidating Trust. The Trustees of the Paramark
Liquidating Trust, in accordance with the Plan, will distribute the remaining
assets of the Paramark Liquidating Trust to the beneficiaries over a period of
up to four (4) years from the date assets are initially transferred to the
Paramark Liquidating Trust.
There may be material federal income tax consequences to stockholders
as well as possible state and local tax consequences. Certain tax consequences
are discussed below (see "Federal Income Tax Consequences"). Stockholders are
urged to consult their own tax advisors to determine the extent of the federal
income tax liability they may incur as a result of receiving a liquidating
distribution, as well as any tax consequences under applicable state or local
laws or proposed changes to the tax laws.
In connection with the implementation of the Plan of Liquidation, the
Company intends to deregister the Company's Common Stock from the registration
requirements of the Securities Exchange Act of 1934, as amended. This means that
the Company will no longer file annual reports and quarterly reports with the
Securities and Exchange Commission, and will not distribute to its stockholders
proxy materials or annual reports to stockholders which contain audited
financial statements.
Description of the Plan
If the Plan is approved by the Company's stockholders, the Company will
voluntarily completely liquidate in accordance with the requirements of the
Internal Revenue Code of 1986 (the "Code"). There are no federal or state
regulations to be complied with and the approval of federal or state authorities
is not required for the Company to voluntarily completely liquidate. The
effective date (the "Effective Date") of the Plan will be the date on which the
Plan is approved by the stockholders. The period from the Effective Date until
the completion of the sales and final distribution of the Company's assets is
referred to herein as the "Liquidation Period".
After the Effective Date, the Company will promptly seek to convert all
of its assets into cash. This will include all fixed assets and net proceeds
from the Transactions remaining following the repayments of outstanding debts,
liabilities and other obligations of the Company. The Company anticipates that
stockholders will receive an initial liquidating distribution shortly after
approval of the Plan by the Company's shareholders. The amount of the initial
distribution will be determined after appropriate valuations and reserves are
established.
All unsold assets and the rights to receive funds under the Rich
Products Transaction and the Brooks Street Transaction will be donated to the
Paramark Liquidating Trust. The Company anticipates further distributions will
be made as the Paramark Liquidating Trust collects payments from the Rich
Products Transaction and the Brooks Street Transaction over a four (4) year
period. The expenses of the Paramark Liquidating Trust will be charged against
the liquidating distributions held therein.
Any liabilities of the Company and any claims made against the Company
must be paid or provided for by the Company prior to making liquidating
distributions to the stockholders. The exact date of the liquidating
distributions will depend on (a) the timing of the liquidation of the Company's
assets, and the timing of receipt of funds under the Brooks Street Transaction,
and (b) the extent to which the Company may need to hold back sufficient assets
to provide for any disputed claims or other contingent liabilities which may
then exist against the Company. Liquidating distributions will be made over a
period of up to four years on a pro rata basis to the former stockholders of the
Company who are beneficiaries of the Paramark Liquidating Trust.
The Paramark Liquidating Trust will be administered by Charles
Loccisano, the Company's Chairman and Chief Executive Officer and Alan Gottlich,
the Company's President and Chief Financial Officer, as co-trustees. Each
trustee will not receive a fee in consideration for their services rendered in
administering the Paramark Liquidating Trust including the administration of
collections and disbursements, completion of the annual financial statements and
the filing of all applicable annual tax returns, but will be reimbursed for
expenses incurred.
The trustees will provide the former stockholders of the Company who
are beneficiaries of the Paramark Liquidating Trust with an annual report at the
end of each year and after the trusts termination showing: (i) the assets and
liabilities of the trust at the end of the year, prepared in accordance with
generally accepted accounting principles, (ii) any changes in trusts assets not
previously reported, and (iii) any action taken by the trustees that was not
previously reported which materially affects the trusts assets. The trustees may
also send to beneficiaries copies of any interim reports they deem advisable or
as may be required by the Securities and Exchange Commission.
Exchange of Stock Certificates for Liquidation Distributions
Prior to completion of the liquidation, Paramark will send or cause to
be sent to its stockholders, on the record date related to the liquidation
established by the Board, a letter of transmittal form for the purpose of
exchanging shares of Paramark for units in the Paramark Liquidating Trust. Each
stockholder will receive one unit for each share of Paramark common stock held
on the record date related to the liquidation. Stockholders whose shares are
held in the name of their broker or other financial institution will receive
their distributions through their nominee firms. No amount will be distributed
by the Company to a stockholder unless and until such stockholder delivers to
the Company a signed letter of transmittal form and the certificates
representing the stockholders' shares.
Federal Income Tax Consequences
PAYMENT BY THE COMPANY OF LIQUIDATING DISTRIBUTIONS TO STOCKHOLDERS
WILL BE A TAXABLE SALE OR EXCHANGE. BECAUSE THE INCOME TAX CONSEQUENCES FOR A
PARTICULAR STOCKHOLDER MAY VARY DEPENDING ON INDIVIDUAL CIRCUMSTANCES, EACH
STOCKHOLDER IS URGED TO CONSULT HIS OR HER TAX ADVISOR CONCERNING THE FEDERAL,
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE RECEIPT OF A LIQUIDATING
DISTRIBUTION.
Continuing Business
As stated above, following completion of the Transactions, the Company
will seek to liquidate its assets. In order to liquidate the Company's fixed
assets, the executive management staff will be retained at the Company's
executive offices in New Jersey for a period of several months following the
closing of the Transactions in order to collect all accounts receivables,
liquidate all inventory, pay down all outstanding trade payables and sell all
furniture, fixtures and equipment maintained at the Company's headquarters in
Secaucus, New Jersey. Following completion of the Transactions and prior to
implementing the Plan of Liquidation, the Company intends to explore various
options available to the Company, including the possible sale of the public
shell. No assurance can be given as to whether the sale of the public shell or
another strategic option will be available or a financially feasible option for
the Company. Consistent with the requirements of Delaware law, the Company
reserves the right to abandon or amend the Plan of Liquidation following the
approval of the stockholders without a further vote of stockholders.
Required Vote
The approval of the Plan of Liquidation requires the affirmative vote
of a majority of the outstanding stock of the Company entitled to vote on the
proposal.
Abandonment and Amendment
The Board of Directors may abandon or amend the Plan of Liquidation,
following stockholder approval, without any further vote of stockholders as
permitted by Delaware General Corporation Law.
Recommendation of the Paramark Board of Directors
The Board of Directors recommends that you vote FOR the Plan of
Liquidation.
SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of selected consolidated financial data relating to
the Company.
Six Months
Year ended December 31 Ended
1995 1996 1997 1998 1999 June 30, 2000
------------------------------------------------------------------------------
(in thousands, except per share data)
Statement of Operations Data:
Revenues 1,039 1,490 3,878 4,576 4,393 3,512
Expenses 2,105 2,719 5,335 5,802 5,459 4,131
Income (loss) from operations (1,066) (1,229) (1,457) (1,226) (1,066) (619)
Other income 0 1,449 80 3,038 50 6
Net income (loss) (1,066) 220 (1,377) 1,812 (1,017) (613)
Net income (loss) per share (.37) .08 (.45) .57 (.30) (.18)
Weighted average number
common shares outstanding 2,910 2,926 3,070 3,287 3,391 3,393
Balance Sheet Data:
Total assets 2,780 2,651 1,652 2,722 2,215 2,254
Working capital (1,226) 836 (679) 1,214 362 (277)
Total liabilities 1,499 1,095 1,470 671 1,211 1,864
Stockholders equity 1,282 1,556 181 2,050 1,042 390
Book value per share .44 .53 .06 .62 .31 .11
CERTAIN TRANSACTIONS
Policy for Related Party Transactions
The Company believes that all transactions with officers, directors, or
affiliates to date are on terms no less favorable than those available from
unaffiliated third parties. It is the Company's policy that all future
transactions with officers, directors, or affiliates will be approved by the
independent members of the Company's Board of Directors not having an interest
in the transaction and will be on terms no less favorable than could be obtained
from unaffiliated third parties.
Heinz Bakery Products License Agreement
In June 1992, the Company entered into an exclusive 20 year license
agreement with Heinz Bakery Products ("Heinz"), pursuant to which, among other
things, Heinz paid an aggregate of $1.425 million in advance royalties to be
offset by actual royalties earned. The advance royalties owed to Heinz were
guaranteed by Charles Loccisano, the Chairman and Chief Executive Officer of the
Company. In August 1996, the Company entered into an agreement with Heinz to
terminate the license agreement and satisfy the balance due under the promissory
note in the amount of approximately $795,000 based on a payment of $600,000 made
in August 1996, the assignment of a $100,000 promissory note receivable from
Triarc, and the forgiveness of the balance of $95,000. At December 31, 1999, the
Heinz note was paid in full.
Loans and Investments from Affiliates
In November 1997, Charles Loccisano, the Company's Chairman, Chief
Executive Officer, and Director, and Alan Gottlich, the Company's President,
Chief Financial Officer and Director purchased an aggregate of 20,000 shares of
convertible Series B Preferred Stock at a price of $5.00 per share. The Series B
Preferred Stock carried a dividend equal to 8% per annum payable semi annually,
were convertible into common stock at the holders option and were redeemable by
the Company at its option. The purchase price for the Series B Preferred Stock
was paid for in a combination of cash and promissory notes payable to the
Company. In January 1998, the Company redeemed the 20,000 Series B Preferred
Stock at a price of $5.00 per share.
In January 1998, Charles Loccisano, the Company's Chairman and Chief
Executive Officer, and Alan Gottlich, the Company's President and Chief
Financial Officer provided the Company with loans aggregating $282,500. In March
1998, based on the need for additional funding resulting from the receipt of
large purchase orders from Walmart Super Centers, the previous loans provided by
Loccisano and Gottlich were repaid in full, and Messrs. Loccisano and Gottlich
agreed to provide the Company with a credit line for up to $500,000, with
interest payable quarterly at the applicable federal rate of 5.39% per annum.
The line of credit is secured by payments due to the Company under its purchase
agreement with Triarc. In consideration for providing this credit line, the
Company granted Messrs. Loccisano and Gottlich an aggregate of 300,000
unregistered shares of common stock. This credit line was repaid in full in
August 1998 out of the proceeds of the Triarc transaction.
In August 1998, Charles Loccisano, the Company's Chairman and Chief
Executive Officer, and Alan Gottlich, the Company's President and Chief
Financial Officer, provided the Company with short term bridge loans aggregating
$100,000. These loans provided for a loan fee of 5% representing the initial
loan fees and interest on the loan. These loans were repaid in full in August
1998 out of the proceeds of the Triarc transaction.
In August 2000, Charles Loccisano, the Company's Chairman and Chief
Executive Officer, provided the Company with a loan of $150,000. The loan
provided for a term of one year and provided for interest in the amount of 5%
per annum. The Company granted Mr. Loccisano 50,000 unregistered shares of
common stock as additional consideration for providing this loan. This loan was
repaid in full out of the proceeds of a loan with Gelt Financial Corporation in
September 2000.
In September 2000, Charles Loccisano, the Company's Chairman and Chief
Executive Officer, provided the Company with a credit line in the amount of
$150,000. The credit line provided for a term of one year and provided for
interest in the amount of 5% per annum. The Company granted Mr. Loccisano
150,000 unregistered shares of common stock as additional consideration for
providing this loan. The terms of this credit line provide that the balance of
this loan ($75,000 as of September 31, 2000) will be repaid in full out of the
proceeds of the Rich Products Transaction.
Consulting Agreement s Arising out of the Rich Products Transaction
Pursuant to the terms of the Rich Products Asset Purchase Agreement,
Charles N. Loccisano, the Chairman, Chief Executive Officer and Director of the
Company, entered into a consulting agreement with Rich Products requiring Mr.
Loccisano to be available to render consulting services as needed by Rich
Products for a period of four (4) years following the Closing. The compensation
to Mr. Loccisano pursuant to this agreement is $50,000 per annum for a period of
four (4) years.
Pursuant to the terms of the Rich Products Asset Purchase Agreement,
Alan S. Gottlich, the President, Chief Financial Officer and Director of the
Company, entered into a consulting agreement with Rich Products requiring Mr.
Gottlich to be available to render consulting services as needed by Rich
Products for a period of four (4) years following the Closing. The compensation
to Mr. Gottlich pursuant to this agreement is $30,000 per annum for a period of
four (4) years.
Pursuant to the terms of the Rich Products Asset Purchase Agreement,
Wayne Sorensen, the General Manager of the Company's baking facility in El
Cajon, California, entered into a consulting agreement with Rich Products
requiring Mr. Sorensen to be available to render consulting services as needed
by Rich Products for a period of four (4) years following the Closing. The
compensation to Mr. Sorensen pursuant to this agreement is $20,000 per annum for
a period of four (4) years.
Termination of Employment Agreements
Prior to, and unrelated to the Transactions, the Company entered into
an employment agreement with Charles Loccisano, the Company's Chairman, Chief
Executive Officer and Director dated October 1, 1997, which employment
agreements current term expires on October 1, 2003, and requires severance
payments in the event of termination without cause equal to two times Mr.
Loccisano's base salary plus one-half of the aggregate bonuses paid over the
previous three fiscal years. Following closing of the Transactions, Mr.
Loccisano will continue to remain as the Company's Chairman, Chief Executive
Officer and Director through the sale of the Company's shell or its dissolution,
however disinterested members of the Company's Board of Directors determined
that it would be economically beneficial to the Company to treat the
Transactions as a defacto termination of this employment agreement. Therefore,
in September 2000, the Board of Directors approved the termination of Mr.
Loccisano's Employment Agreement as of January 31, 2001 upon terms providing Mr.
Loccisano compensation equal to one-half the contractual obligations under the
employment agreement, or $276,622 (the contractual obligation in the employment
agreement is $553,244) to be paid in equal quarterly installments over a period
of four years. It is currently anticipated that these payments will be paid out
of the proceeds received from the Rich Products Transaction.
Prior to, and unrelated to the Transactions, the Company also entered
into an employment agreement with Alan Gottlich , the Company's President, Chief
Financial Officer and Director dated October 1, 1997, which employment
agreements current term expires on October 1, 2003, and requires severance
payments in the event of termination without cause equal to two times Mr.
Gottlich's base salary plus one-half of the aggregate bonuses paid over the
previous three fiscal years. Following closing of the Transactions, Mr. Gottlich
will continue to remain as the Company's Chairman, Chief Financial Officer and
Director through the sale of the Company's shell or its dissolution, however
disinterested members of the Company's Board of Directors determined that it
would be economically beneficial to the Company to treat the Transactions as a
defacto termination of this employment agreement. Therefore, in September 2000,
the Board of Directors approved the termination of Mr. Gottlich's Employment
Agreement as of January 31, 2001 upon terms providing Mr. Gottlich compensation
equal to one-half the contractual obligations under the employment agreement, or
$188,224 (the contractual obligation in the employment agreement is $376,447) to
be paid in equal quarterly installments over a period of four years. It is
currently anticipated that these payments will be paid out of the proceeds
received from the Rich Products Transaction.
The Paramark Liquidating Trust
Charles Loccisano, the Company's Chairman, Chief Executive Officer and
Director, and Alan Gottlich, the Company's President, Chief Financial Officer
and Director, will both serve as co-trustees of the Paramark Liquidating Trust
for a period of four (4) years. Messrs. Loccisano and Gottlich will not receive
any compensation for their services which will include, amongst other things,
administration of the Paramark Liquidating Trust, enforcing the Company's rights
under the Rich Products Transaction and the Brooks Street Transaction, and
managing the completion of the annual financial statements and tax returns.
INDEPENDENT PUBLIC ACCOUNTANTS
Amper, Politziner & Mattia P.C. ("AP&M") has served as the Company's
independent public accountants since 1997. The Board of Directors has selected
AP&M to serve as independent public accountants of the Company for Company's
fiscal year ending December 31, 2000. Representatives of AP&M are expected to be
available during the Annual Meeting via telephone. They will have the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
OTHER MATTERS
Management is not aware of any matters to come before the meeting which
will require the vote of stockholders other than those matters indicated in the
Notice of Meeting and this Proxy Statement. However, if any other matter calling
for stockholder action should properly come before the meeting or any
adjournments thereof, those persons named as proxies in the enclosed proxy form
will vote thereon according to their best judgment.
As of the date hereof, the Company knows of no other business that will
be presented for consideration at the annual Meeting. However, the enclosed
proxy confers discretionary authority to vote with respect to any and all of the
following matters that may come before the meeting: (i) matters that the
Company's Board of Directors does not know, a reasonable time before proxy
solicitation, are to be presented for approval at the meeting; (ii) approval of
the minutes of a prior meeting of shareholders, if such approval does not
constitute ratification of the action at the meeting; (iii) the election of any
person to any office for which a bona fide nominee is unable to serve or for
good cause will not serve; (iv) any proposal omitted from this Proxy Statement
and the form of proxy pursuant to Rule 14a-8 under the Exchange Act, as amended;
and (v) matters incidental to the conduct of the meeting. If any such matters
come before the meeting, the proxy agents named in the accompanying proxy card
will vote in accordance with their judgment.
EXPENSES OF SOLICITATION
All expenses incurred in connection with the solicitation of proxies
will be borne by the Company. The Company will reimburse brokerage firms,
nominees, fiduciaries and other custodians for their costs in forwarding proxy
materials to beneficial owners of Common Stock held in their families.
Solicitation may be undertaken by mail, telephone, telegram or personal contract
by directors, officers and employees of the Company without additional
compensation, except for reimbursement of reasonable out-of-pocket expenses
incurred in connection with such solicitation.
ADP Proxy Services will assist in the solicitation of proxies by the
Company for a fee of approximately $2,500.
STOCKHOLDERS PROPOSALS
The deadline for providing the Company timely notice of any stockholder
proposal to be submitted outside of the Rule 14a-8 process for consideration at
the Company's Annual Meeting will be not less than 60 days nor more than 90 days
prior to the Annual Meeting, provided that if less than 70 days notice or prior
public disclosures of the Annual Meeting date is given, notice by stockholders
must be received not later than the close of business on the 10th day following
the day on which notice of the Annual Meeting was mailed or public disclosure
thereof made, which ever occurs first. As to all such matters which the Company
does not have notice on or prior to the applicable time frame set forth above,
shall not be considered or voted upon at the Annual Meeting. With respect to
Rule 14a-8 requirements applicable to inclusion of stockholder proposals in the
Company's proxy materials related to the Annual Meeting to be held in 2001,
stockholder proposals regarding the 2001 Annual Meeting must be submitted to the
Company at its office located at One Harmon Plaza, Secaucus, New Jersey, 07094
120 days prior to the prior years mail date, (or if the Annual Meeting date is
changed by more than 30 days from the 2000 Annual Meeting date, a reasonable
time prior to the Company's 2001 proxy materials). Any such proposals must also
comply with the proxy rules under the Exchange Act.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16(a)") requires the
Company's directors, executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
10% stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.
ANNUAL REPORT
This Proxy Statement is accompanied by the Annual Report to
Stockholders for the year ended December 31, 1999 (the "Annual Report"). The
Annual Report contains the Company's audited financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Also included with this Proxy Statement is the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2000.
EACH PERSON SOLICITED HEREUNDER CAN OBTAIN A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 2000 REQUIRED TO
BE FILED WITH THE SEC WITHOUT CHARGE, EXCEPT FOR EXHIBITS TO THE REPORT, BY
SENDING A WRITTEN REQUEST THEREFOR TO:
Alan S. Gottlich
President
Paramark Enterprises, Inc.
One Harmon Plaza
Secaucus, NJ 07094
APPENDIX A
Asset Purchase Agreement between Paramark Enterprises, Inc.
and Rich Products Manufacturing Corporation
dated October 9, 2000
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of October 9,
2000, between Rich Products Manufacturing Corporation, a Delaware corporation
d/b/a Jon Donaire Desserts, with its principal office located at 1150 Niagara
Street, Buffalo, New York ( "Buyer"), Rich Products Corporation, a Delaware
corporation with its principal office located at 1150 Niagara Street, Buffalo,
New York ( "RPC") and Starbake, Inc., a Delaware corporation, with its principal
office located at 1919 Friendship Drive, El Cajon, California, ("Starbake"), a
wholly owned subsidiary of Paramark Enterprises, Inc., a Delaware corporation
with its principal office located at One Harmon Plaza, Secaucus, New Jersey
07094 ("Paramark"). Paramark and Starbake are hereinafter collectively referred
to as "Seller"
W I T N E S S E T H :
WHEREAS, Seller is engaged in the business of manufacturing and selling
certain bakery goods and other food products, including cinnamon rolls,
cinnachips, bundt cakes, brownies, sheet cakes, iced cakes, decorated cakes,
torte cakes, rugulach and cobblers (collectively, the "Business");
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller, certain assets of the Business, all on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the representations and warranties
made herein, and of the mutual benefits to be derived hereby, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE ASSETS
1.1 Assets. Subject to and upon the terms and conditions set forth in
this Agreement, at the Closing, Seller will sell, transfer, convey, assign and
deliver to Buyer good and marketable title, free and clear of all liens,
liabilities, encumbrances, security interests, claims, and other restrictions,
and Buyer will purchase or acquire from Seller, all right, title and interest of
Seller in and to (i) the assets listed in Schedule 1.1 hereto (the "Specified
Assets") and (ii) the properties, assets and rights of every nature, kind and
description, tangible and intangible (including goodwill), whether real,
personal or mixed, whether accrued, contingent or otherwise and whether now
existing or hereinafter acquired (other than the Excluded Assets, as such term
is defined below) primarily relating to or used or held for use in connection
with the Business as the same may exist on the Closing Date and all in their AS
IS condition without any representation and warranty whatsoever except as may be
specifically set forth in this Agreement (collectively, the "Assets"). Buyer
will agree to buy certain items of finished goods inventory, ingredients and
packaging inventory as will be mutually agreed upon by Buyer and Seller (the
"Inventory"). Buyer and Seller will agree on the Inventory to be purchased, and
the price for same (the "Inventory Price"), no later than October 12, 2000.
1.2 Excluded Assets. Seller will retain and not transfer to Buyer in
connection with this Agreement (a) cash and cash equivalents, (b) accounts
receivable, and (c) Seller's corporate records, minute books, stock books and
tax returns, (except to the extent that such records are necessary for Buyer to
operate the Business after the Closing, Buyer shall be entitled to make one copy
of such necessary documentation in accordance with Section 4.1.3 hereto).
1.3 Parties to Act as Collection Agents for Other Parties Accounts
Receivable. To the extent that either party to this Agreement receives payment,
after the Closing, on an account receivable that was actually due and owing to
the other party, the receiving party shall hold such accounts receivable payment
in trust for the other party and shall turn same over to the other party as soon
as practicable after the receipt thereof.
1.4 Allocation of Accounts Receivable Payments from Shared Customers.
In furtherance of the intent of Section 1.4 hereinabove, if either party
receives a payment on an accounts receivable after the Closing and such payment
is (i) from a customer of the Business that purchased bakery products from the
Business both before and after the Closing and (ii) the payment received is not
designated as a payment on a specific invoice or invoices submitted by either
Seller or Buyer, then each of such payments shall be applied by the receiving
party thereof as follows:
(a) First to any amounts due and owing from said customer to
the receiving party pursuant to invoices that are outstanding for more than
thirty (30) days and that relate solely to the Business; and
(b) Thereafter, to amounts due and owing to the non-receiving
party by the same customer on accounts receivable relating solely to the
Business.
ARTICLE II
CLOSING
2.1 Place and Date. The closing (the "Closing") of the sale and
purchase of the Assets shall take place at 10:00 a.m. p.d.t. within seven (7)
business days of Seller having obtained the consent of its shareholders to this
transaction, as more specifically set forth below. If personal appearances are
required, the Closing will occur at 1150 Niagara Street, Buffalo, New York, or,
if such appearances are not required, such other time and place upon which the
parties may mutually agree in writing.
2.2 Purchase Price. On the terms and subject to the conditions set
forth in this Agreement, Buyer agrees to pay or cause to be paid to Seller, an
aggregate of One Million Nine Hundred United States Dollars (U.S. $1,900,000),
payable by wire transfer to accounts designated by Seller as follows:
a. $900,000.00 at the Closing;
d. $125,000.00 on or before each of June 1st and December 1st of each
of 2001, 2002, 2003 and 2004.
2.2A Inventory Price. The Inventory Price, less $100,000, will be paid
to Seller by Buyer no later October 13, 2000 by wire transfer to accounts
designated by Seller. The balance of the Inventory Price, in the amount of
$100,000 will be paid by Buyer to Seller at the Closing by wire transfer to
accounts designated by Seller
2.2B RPC Guarantee. Subject to Section 4.1.8 below, RPC hereby
guarantees (the "RPC Guarantee"):
a. All payments owing to Seller from Buyer under this Agreement and the
License Agreement;
b. All payments due and owing pursuant to the Consulting Agreements
described hereinbelow in Section 4.3.6;
c. The obligation of Buyer to proceed to Closing pursuant to this
Agreement.
The RPC Guarantee is unconditional, except as it may be limited by the
potential offsets arising out of Section 4.1.8 of this Agreement, and Seller may
seek performance under the RPC Guarantee simultaneously with seeking to enforce
the obligation of Buyer subject to the RPC Guarantee
2.3 Meaning of Closing. Closing, as used in this Agreement, shall mean,
as the context requires, either (a) the date of Closing on this Agreement or (b)
the date of entry into the License Agreement between Seller and Buyer as
described in Section 4.3.7 below.
2.4 Assumption of Liabilities. Buyer will assume the liabilities of
Seller specifically set forth and identified on Schedule 2.4 and Schedule 2.4.1
hereto (collectively, the "Assumed Liabilities"). Except for the Assumed
Liabilities, Buyer will not assume, be liable for, or become responsible for any
liability of Seller of any nature, whether accrued, absolute, contingent or
otherwise.
2.5 Equipment and Other Lease Security Deposits. Certain of the Assumed
Liabilities consist of Seller's liabilities under equipment leases, and/or car
leases and or the lease for the premises in La Jolla, California, where the
Business is maintained by Seller (collectively the "Assumed Leases), all as more
particularly set forth on Schedule 2.4. To the extent that Seller has delivered
to the respective lessors under any or all of the Assumed Leases, the security
deposits and/or prepaid rent deposits set forth on Schedule 2.4 hereto
(collectively the "Security Deposits"), and such Security Deposits continue to
be held by the respective lessors as of the Closing, then Buyer shall reimburse
Seller at the Closing for the full amount of said Security Deposits.
2.6 Adjustment for Assumed Liabilities. Seller shall be responsible for
all payments under the Assumed Liabilities through the day prior to the Closing
Date, Buyer shall be responsible for all payments under the Assumed Liabilities
commencing on the Closing Date and Seller shall make a cash adjustment for same
accordingly at the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller. Seller represents and
warrants to Buyer as follows:
3.1.1 General Representations.
(a) Corporate Status. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with full corporate power and authority to carry on its business and to own or
lease and to operate its properties as and in the places where such business is
conducted and such properties are owned, leased or operated.
(b) Authority Relative to Agreement. The execution, delivery
and performance of this Agreement and all other agreements, certificates and
instruments contemplated hereby (collectively, the "Ancillary Agreements") by
Seller and consummation by Seller of the transactions contemplated hereby and
thereby have been duly and effectively authorized by all necessary action, and
this Agreement constitutes, and each Ancillary Agreement when executed will
constitute, a legal, valid and binding obligation of Seller enforceable against
it in accordance with its respective terms.
3.1.2 Financial Statements. The balance sheet of Seller as at
July 31, 2000 (the "Interim Balance Sheet") and the related statement of income
for the seven month period then ended (including the notes thereto) (the
"Interim Statements") and the audited balance sheet of Seller as of December 31,
1999 (the "Audited Balance Sheet") and the related statements of income for the
calendar year then ended (the "Audited Statements") heretofore delivered by
Seller to Buyer, are accurate and complete in all respects and present fairly
the financial position of Seller as of such dates and the results of its
operations and changes in its financial position for such periods, and have been
prepared in conformity with generally accepted accounting principles. December
31, 1999 is sometimes hereinafter referred to as the "Audited Balance Sheet
Date".
3.1.3 Absence of Changes. Since the Audited Balance Sheet
Date, Seller has conducted the Business only in the ordinary course consistent
with prior practice and has not, on behalf of, in connection with or relating to
the Business or the Assets:
(a) to the best knowledge of Seller, suffered any event which
has or may have a material adverse effect on the Business or the Assets (a
"Material Adverse Affect");
(b) incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except current
liabilities for trade or business obligations incurred in connection with the
purchase of goods or services in the ordinary course of business consistent with
prior practice, none of which liabilities, in any case or in the aggregate,
could have a Material Adverse Effect;
(c) discharged or satisfied any lien other than those then
required to be discharged or satisfied, or paid any obligation or liability,
absolute, accrued, contingent or otherwise, whether due or to become due, other
than current liabilities shown on the Audited Balance Sheet and current
liabilities incurred since the Audited Balance Sheet Date in the ordinary course
of business, consistent with prior practice;
(d) mortgaged, pledged or subjected to lien, any property,
business or assets, tangible or intangible, held in connection with the
Business;
(e) sold, transferred, leased to others or otherwise disposed
of any of the Assets, except for inventory sold in the ordinary course of
business, or canceled or compromised any debt or claim, or waived or released
any right of substantial value;
(f) received any notice of termination of any contracts, lease
or other agreement or suffered any damage, destruction or loss (whether or not
covered by insurance) which, in any case or in the aggregate, has had a Material
Adverse Effect;
(g) transferred or granted any rights under, or entered into
any settlement regarding the breach or infringement of, any Intellectual
Property, or modified any existing rights with respect thereto;
(h) made any change in the rate of compensation, commission,
bonus or other direct or indirect remuneration payable, or paid or agreed or
orally promised to pay, conditionally or otherwise, any bonus, incentive,
retention or other compensation, retirement, welfare, fringe or severance
benefit or vacation pay, to or in respect of any shareholder, director, officer,
employee, distributor or agent of Seller relating to the Business;
(i) encountered any labor union organizing activity, had any
actual or threatened employee strikes, work stoppages, slowdowns or lockouts, or
had any material change in its relations with its employees, agents, customers
or suppliers;
(j) failed to replenish inventories and supplies in a normal
and customary manner consistent with its prior practice and prudent business
practices prevailing in the industry, or made any purchase commitment in excess
of the normal, ordinary and usual requirements of its business or at any price
in excess of the then current market price or upon terms and conditions more
onerous than those usual and customary in the industry;
(k) instituted, settled or agreed to settle any litigation,
action or proceeding before any court or governmental body relating to the
Business or the Assets other than in the ordinary course of business consistent
with past practices but not in any case involving amounts in excess of $10,000;
(l) entered into any transaction, contract or commitment other
than in the ordinary course of business.
3.1.4 Litigation. There is no action, claim, demand, suit,
proceeding, arbitration, grievance, citation, summons, subpoena, inquiry or
investigation of any nature, civil, criminal, regulatory or otherwise, in law or
in equity, pending or to the best knowledge of Seller threatened against or
relating to Seller in connection with the Assets or the Business or against or
relating to the transactions contemplated by this Agreement, and Seller does not
know or have reason to be aware of any basis for the same. No fines or penalties
have been asserted against Seller with respect to the Business under any
environmental law or any foreign, federal, state or local law relating to
occupational health or safety.
3.1.5 Operation of the Business. (a) Seller has conducted the
Business only through Seller and not through any other divisions or any direct
or indirect Affiliate of Seller and (b) no part of the Business is operated by
Seller through any entity other than Seller. An "Affiliate" of an entity is any
person or entity (a "Person") that controls, is under common control with, or is
controlled by such entity.
3.1.6 Assets. Seller has good and marketable title to all of
the Assets free and clear of any and all liens, except as set forth on Schedule
3.1.6 hereto. The Assets comprise all assets and services required for the
continued procedural conduct of the Business by Buyer in materially the same
manner as currently being conducted by Seller. The Assets, taken as a whole,
constitute all the properties and assets relating to or used or held for use in
connection with the Business during the past twelve months (except inventory
sold, cash disposed of, accounts receivable collected, prepaid expenses
realized, contracts fully performed, properties or assets replaced by equivalent
or superior properties or assets, in each case in the ordinary course of
business, employees not hired by Buyer, and the Excluded Assets).
3.1.7 Inventories. To the best knowledge of Seller, (a) all
items included in the Inventory are of good, usable and merchantable quality in
all material respects and do not include obsolete or discontinued items and
(b)all such items of Inventory are of such quality as to meet the quality
control standards of Buyer and any applicable governmental quality control
standards. All items included in the Inventory that are finished goods are
saleable as current inventories at the current prices thereof in the ordinary
course of business. All items included in the Inventory are recorded on the
books of the Business at the lower of cost or market value on a consistent
basis.
3.1.8 Product Warranties. Except for warranties under
applicable law,(a) there are no warranties express or implied, written or oral,
with respect to the products of the Business and (b) there are no pending or, to
the best knowledge of Seller, threatened claims with respect to any such
warranty, and to the best knowledge of Seller, Seller has no liability with
respect to any such warranty, whether known or unknown, absolute, accrued,
contingent or otherwise and whether due or to become due.
3.1.9 Intellectual Property.
(a) Title. To the best knowledge of Seller, none of the items
of intellectual property comprising part of the Assets as listed in Schedule
3.1.9 hereto (collectively, the "Intellectual Property") are subject to any
outstanding licenses, liens, encumbrances, claims or other restrictions or
rights of others, and there are no pending or, to the best knowledge of Seller,
threatened challenges to any of the Intellectual Property. To the best knowledge
of Seller, the Business as heretofore conducted does not infringe or constitute,
and has not infringed or constituted, an unlawful invasion of any rights of any
Person and no notice of any such infringement or invasion has been received by
Seller. Seller has the right to use, free and clear of the claims or rights of
others, all Intellectual Property. To the best knowledge of Seller, the
Intellectual Property constitutes all such property necessary to conduct the
Business as heretofore conducted.
(b) Transfer. Immediately after the Closing, Buyer will own
all of the Intellectual Property, free from any liens, claims and encumbrances
and on the same terms and conditions as in effect prior to the Closing.
(c) No Infringement. To the best knowledge of Seller, The
conduct of the Business does not infringe or otherwise conflict with any rights
of any Person in respect of any Intellectual Property. To the best knowledge of
Seller, None of the Intellectual Property is being infringed or otherwise used
or available for use, by any other Person.
(d) No Intellectual Property Litigation. No claim or demand of
any Person has been made nor is there any proceeding that is pending, or to the
knowledge of Seller after due inquiry, threatened, nor is there a reasonable
basis therefor, which (i) challenges the rights of Seller in respect of any
Intellectual Property, (ii) asserts that Seller is infringing or otherwise in
conflict with, or is, required to pay any royalty, license fee, charge or other
amount with regard to, any Intellectual Property, or (iii) claims that any
default exists under any agreement related to any of the Intellectual Property.
The Intellectual Property is not subject to any outstanding order, ruling,
decree, judgment or stipulation by or with any court, arbitrator, or
administrative agency, or has been the subject of any litigation within the last
five years, whether or not resolved in favor of Seller.
3.1.10 Insurance. Seller has delivered to Buyer a complete and
correct list and summary description of all insurance policies maintained by
Seller for the benefit of or in connection with the Assets or the Business
together with all riders and amendments thereto. Such policies are in full force
and effect, and all premiums due thereon have been paid. Seller has complied in
all material respects with the terms and provisions of such policies.
3.1.11 Leases.
(a) Seller has delivered to Buyer a correct and complete copy
of the Lease Agreement concerning Seller's commercial bakery facility located at
1919 Friendship Drive, El Cajon, California, including without limitation, any
amendments or addendum's thereto (the "Lease").
(b) The Lease is legal, valid, binding, enforceable, and in
full force and effect. Neither Seller nor, to the best of Seller's knowledge,
any other party is in default, violation or breach in any respect under the
Lease, and, to the best of Seller's knowledge, no event has occurred and is
continuing that constitutes or, with notice or the passage of time or both,
would constitute a default, violation or breach in any respect under the Lease.
3.1.12 Employees, Labor Matters, Etc. Seller is not a party to
or bound by any collective bargaining agreement and there are no labor unions or
other organizations representing, purporting to represent or, to the best of
Seller's knowledge, attempting to represent any employees employed in the
operation of the Business. There has not occurred or, to the best of Seller's
knowledge, been threatened any material strike, slowdown, picketing, work
stoppage, concerted refusal to work overtime or other similar labor activity
with respect to any employees employed in the operation of the Business. There
are no labor disputes currently subject to any grievance procedure, arbitration
or litigation and there is no representation petition pending or, to the best
knowledge of Seller, threatened with respect to any employee employed in the
operation of the Business. Seller has complied with all provisions of applicable
law pertaining to the employment of employees, including, without limitation,
all such laws relating to labor relations, equal employment, fair employment
practices, entitlements, prohibited discrimination or other similar employment
practices or acts, except for any failure so to comply that, individually or
together with all such other failures, has not and will not result in a material
liability or obligation on the part of Buyer or the Business.
3.1.13 Employment by Buyer. Upon the Closing, Buyer may, but
shall have no obligation to, offer employment to any employee of Seller.
3.1.14 Liability. Regardless of whether Buyer offers
employment to any employee of Seller, Seller shall retain and pay all
obligations and liabilities arising out of Seller's employment of its employees
and the termination thereof, including, but not limited to obligations and
liabilities for all claims with respect to wages, benefits, workers
compensation, disability, unemployment insurance and related matters, regardless
of when any such claims are made.
3.1.15 Employment of Seller's Employees.
(a) For a period of two (2) years from the Closing Date,
Seller will not, and will not permit any of its Affiliates to, solicit, offer to
employ or retain the services of or otherwise interfere with the relationship of
Buyer with any Person employed by or otherwise engaged to perform services for
Buyer in connection with the operation of the Business.
(b) Neither Buyer nor any of its Affiliates shall have any
liability with respect to any employee of Seller or benefit plan of Seller or
any of its Affiliates or any claim thereof or related thereto. From and after
the Closing, Seller and its Affiliates shall, jointly and severally, remain
solely responsible for any and all benefit liabilities in respect of such
employees, and their beneficiaries and dependents, relating to or arising in
connection with or as a result of: (i) the employment or the actual or
constructive termination of employment of any such employee by Seller; (ii) the
participation in or accrual of benefits or compensation under, or the failure to
participate in or to accrue compensation or benefits under, any benefit plan or
other employee or retiree benefit or compensation plan, program, practice,
policy, agreement or arrangement of Seller or any of its Affiliates ; or (iii)
accrued but unpaid salaries, wages, bonuses, incentive compensation, vacation or
sick pay or other compensation or payroll items (including, without limitation,
deferred compensation), except, in any such case, to the extent any such
liability is (x) specifically assumed by Buyer pursuant to this Agreement or (y)
reflected on the Audited Balance Sheet or relates to services rendered and arose
after the Audited Balance Sheet Date in the ordinary course of business,
consistent with the prior practice of Seller and in accordance with this
Agreement (applied as if the provisions of Section 4.1 had been in effect from
the close of business on the Audited Balance Sheet Date through the Closing
Date).
3.1.16 Employee Benefit Plans and Related Matters.
(a) Employee Benefit Plans. Schedule 3.1.16 sets forth a true
and complete list of each "employee benefit plan", as such term is defined in
section 3(3) of the Employee Income Retirement Security Act ("ERISA"), whether
or not subject to ERISA, and each bonus, incentive or deferred compensation,
severance, termination, retention, change of control, stock option, stock
appreciation, stock purchase, phantom stock or other equity-based, performance
or other employee or retiree benefit or compensation plan, program, arrangement,
agreement, policy or understanding, whether written or unwritten, that provides
or may provide benefits or compensation in respect of any employee or former
employee employed or formerly employed in the operation of the Business or the
beneficiaries or dependents of any such employee or former employee (such
employees, former employees, beneficiaries and dependents collectively, the
"Employees") or under which any of the Employees is or may become eligible to
participate or derive a benefit and that is or has been maintained or
established by Seller or any other trade or business, whether or not
incorporated, which, together with Seller is or would have been at any date of
determination occurring within the preceding six years treated as a single
employer under section 414 of the Internal Revenue Code (the "Code") (such other
trades and businesses collectively, the "Related Persons"), or to which Seller
or any Related Person contributes or is or has been obligated or required to
contribute or with respect to which Seller or the Business may have any
liability or obligation (collectively, the "Plans"). With respect to each such
Plan, Seller has provided Buyer complete and correct copies of: all written
Plans; descriptions of all unwritten Plans; all trust agreements, insurance
contracts or other funding arrangements; the two most recent actuarial and trust
reports; the two most recent Forms 5500 and all schedules thereto; the most
recent IRS determination letter; current summary plan descriptions; all material
communications received from or sent to the Internal Revenue Service (the
"IRS"), the Pension Benefit Guaranty Corporation or the Department of Labor
(including a written description of any oral communication); an actuarial study
of any post-employment life or medical benefits provided under any such Plan, if
any; statements or other communications regarding withdrawal or other multi
employer plan liabilities, if any; and all amendments and modifications to any
such document Seller has not communicated to any Employee of any intention or
commitment to modify any Plan or to establish or implement any other employee or
retiree benefit or compensation arrangement.
(b) Qualification. Each Plan (including all amendments
thereto) intended to be qualified under section 401(a) of the Code, and the
trust (if any) forming a part thereof, has received a favorable determination
letter from the IRS as to its qualification under the Code and to the effect
that each such trust is exempt from taxation under section 501(a) of the Code,
and nothing has occurred since the date of such determination letter that could
adversely affect such qualification or tax-exempt status.
(c) Compliance; Liability.
(i) No Plan is subject to section 412 of the Code or
section 302 or Title IV of ERISA.
(ii) No liability has been or is expected to be incurred by
Seller, any of its Affiliates or the Business (either
directly or indirectly, including as a result of an
indemnification obligation) under or pursuant to Title
I or IV of ERISA or the penalty, excise tax or joint
and several liability provisions of the Code relating
to employee benefit plans that could, following the
Closing, become or remain a liability of the Business
or become a liability of Buyer or of any employee
benefit plan established or contributed to by Buyer
and, to the best knowledge of Seller and its Affiliates
after due inquiry, no event, transaction or condition
has occurred or exists that could result in any such
liability to the Business or, following the Closing,
Buyer.
(iii)Each of the Plans has been operated and administered
in all respects in compliance with all applicable laws,
except for any failure so to comply that, individually
or together with all other such failures, has not and
will not result in a material liability or obligation
on the part of the Business, or, following the Closing,
Buyer, and has not had or resulted in, and will not
have or result in, a Material Adverse Effect. There are
no material pending or, to the best knowledge of Seller
after due inquiry, threatened claims by or on behalf of
any of the Plans, by any Employee or otherwise
involving any such Plan or the assets of any Plan
(other than routine claims for benefits).
(iv) No Plan is a "multiemployer plan" as defined in Section
414(f) of the Code or Sections 3(37) or 4001(a)(3) of
ERISA or is a "multiple employer plan" within the
meaning of Section 413(c) of the Code or Sections 4063,
4064 or 4066 of ERISA.
(v) All contributions required to have been made by Seller
and each Related Person to any Plan under the terms of
any such Plan or pursuant to any applicable collective
bargaining agreement or applicable law have been made
within the earliest time prescribed by any such Plan,
agreement or applicable law.
(vi) No Employee is or may become entitled to
post-employment benefits of any kind by reason of
employment in the Business, including, without
limitation, death or medical benefits (whether or not
insured), other than (a) coverage provided pursuant to
the terms of any Plan specifically identified as
providing such coverage in Schedule 3.1.16 or mandated
by section 4980B of the Code (b) retirement benefits
payable under any Plan qualified under section 401(a)
of the Code or (c) deferred compensation accrued as a
liability on the Audited Balance Sheet or incurred
after the Audited Balance Sheet Date in the ordinary
course of business consistent with the prior practice
of Seller, pursuant to the terms of a Plan. The
consummation of the transactions contemplated by this
Agreement, will not result in an increase in the amount
of compensation or benefits or the acceleration of the
vesting or timing of payment of any compensation or
benefits payable to or in respect of any Employee.
3.1.17 Records. The minute books of Seller insofar as they
relate to or affect the Business and the Assets are substantially complete and
correct in all material respects. The books of account of Seller, insofar as
they relate to or affect the Business and the Assets, are true, complete and
correct in all material respects.
3.1.18 Disclosure. No representation or warranty by Seller
contained in this Agreement nor any statement or certificate furnished or to be
furnished by or on behalf of Seller to Buyer or its representatives in
connection herewith or pursuant hereto contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
required to make the statements contained herein or therein not misleading.
ARTICLE IV
COVENANTS
4.1 Covenants of Seller.
4.1.1 Conduct of Business. From the date hereof to the Closing
Date, except as expressly permitted or required by this Agreement or as
otherwise consented to by Buyer in writing, Seller will:
(a) carry on the Business in, and only in, the ordinary
course, in substantially the same manner as heretofore conducted, and use all
reasonable efforts to preserve intact its present business organization,
maintain its properties in good operating condition and repair, keep available
the services of its present officers and significant employees, and preserve its
relationship with customers, suppliers and others having business dealings with
it, to the end that its goodwill and going business shall be in all material
respects unimpaired following the Closing;
(b) pay accounts payable and other obligations of the Business
when they become due and payable in the ordinary course of business consistent
with prior practice;
(c) perform in all material respects all of its obligations
under all contracts and other agreements and instruments relating to or
affecting the Business or the Assets, and comply in all material respects with
all applicable laws applicable to it, the Assets or the Business;
(d) not enter into or assume any material agreement, contract
or instrument relating to the Business, or enter into or permit any material
amendment, supplement, waiver or other modification in respect thereof;
(e) not grant (or commit to grant) any increase in the
compensation (including incentive or bonus compensation) of any employee
employed in the operation of the Business or institute, adopt or amend (or
commit to institute, adopt or amend) any compensation or benefit plan, policy,
program or arrangement or collective bargaining agreement applicable to any such
employee; and
(f) not take any action or omit to take any action, which
action or omission would result in a breach of any of the representations and
warranties set forth in Section 3.1.3.
4.1.2 No Solicitation. During the term of this Agreement,
Seller, any of its Affiliates or any Person acting on its behalf shall not (i)
solicit or encourage any inquiries or proposals for, or enter into any
discussions with respect to, the acquisition of any properties and assets held
for use in connection with, necessary for the conduct of, or otherwise material
to, the Business or (ii) furnish or cause to be furnished any non-public
information concerning the Business to any Person (other than Buyer and its
agents and representatives), other than in the ordinary course of business or
pursuant to applicable law and after prior written notice to Buyer. Seller shall
not sell, transfer or otherwise dispose of, grant any option or proxy to any
Person with respect to, create any lien, claim or encumbrance upon, or transfer
any interest in, any Asset, other than in the ordinary course of business and
consistent with this Agreement.
4.1.3 Access and Information.
(a) So long as this Agreement remains in effect, Seller will
(and will cause its Affiliates, respective accountants, counsel, consultants,
employees and agents to) give Buyer, Buyer's prospective lenders and investors,
and their respective accountants, counsel, consultants, employees and agents,
full access during normal business hours to, and furnish them with all
documents, records, work papers and information with respect to, all of such
Person's properties, assets, books, contracts, commitments, reports and records
relating to the Business, as Buyer shall from time to time reasonably request.
In addition, Seller will permit Buyer, Buyer's prospective lenders and
investors, and their respective accountants, counsel, consultants, employees and
agents, reasonable access to such personnel of Seller during normal business
hours as may be necessary or useful to Buyer in its review of the properties,
assets and business affairs of the Business and the above-mentioned documents,
records and information. Seller will keep Buyer generally informed as to the
affairs of the Business.
(b) Seller will retain all books and records relating to the
Business in accordance with Seller's record retention policies as presently in
effect. During the four-year period beginning on the Closing Date, Seller shall
not dispose of or permit the disposal of any such books and records not required
to be retained under such policies without first giving sixty (60) days' prior
written notice to Buyer offering to surrender the same to Buyer at Buyer's
expense.
4.1.4 Public Announcements. Except for the filing of an
accurate registration statement with the Securities and Exchange Commission (the
"SEC") and as required by Applicable Law, Seller shall not, and it shall not
permit any Affiliate to, make any public announcement in respect of this
Agreement or the transactions contemplated hereby without the prior written
consent of Buyer, which consent shall not be unreasonably withheld or delayed.
4.1.5 Further Actions.
(a) Seller agrees to use all reasonable good faith efforts to
take all actions and to do all things necessary, proper or advisable to
consummate the transactions contemplated hereby.
(b) Seller will, as promptly as practicable, file or supply,
or cause to be filed or supplied, all applications, notifications and
information required to be filed or supplied by Seller pursuant to applicable
law in connection with this Agreement.
(c) Seller, as promptly as practicable, will use all
reasonable efforts to obtain, or cause to be obtained, all consents necessary
for the parties to consummate the transactions contemplated by this Agreement.
Buyer agrees to use reasonable commercial efforts to assist Seller in obtaining
such consents.
(d) Seller will coordinate and cooperate with Buyer in
exchanging such information and supplying such reasonable assistance as may be
reasonably requested by Buyer in connection with this Agreement.
4.1.6 Further Assurances. Following the Closing, Seller shall,
and shall cause its Affiliates to, from time to time, execute and deliver such
additional instruments, documents, conveyances or assurances and take such other
actions as shall be necessary, or otherwise reasonably requested by Buyer, to
confirm and assure the rights and obligations provided for in this Agreement,
and render effective the consummation of the transactions contemplated thereby.
4.1.7 Bulk Sales. In lieu of complying with the provisions of
the California Commercial Code relating to Bulk Sales, Seller covenants and
agrees to defend, hold harmless and indemnify Buyer from and against any and all
loss, liability, damage or claim whatsoever arising out of the failure or
alleged failure to comply with said provisions of the California Commercial Code
(including, but without limitation, claims, actions or suits by Creditors of
Seller) and all reasonable costs and expenses including, but without limitation,
reasonable attorneys' fees incident thereto.
4.1.8 Setoff. Seller further agrees in the event that in
addition to the remedies set forth in this Agreement, and without limiting any
other remedy Buyer and/or RPC may have as a result of a breach by Seller of the
foregoing covenants, Buyer and/or RPC may set off the costs, expenses, losses,
liabilities and damages incurred by Buyer and/or RPC (but only to the extent
such costs, expenses, losses, liabilities and damages represent actual out of
pocket costs paid by Buyer and/or RPC to unaffiliated third parties) as a result
of any breach or failure to pay by Seller relating to the payment of any amounts
owing to Buyer and/or RPC, whether under this Agreement or otherwise.
4.2 Covenants of Buyer.
4.2.1 Public Announcements. Prior to the Closing, except as
required by Applicable Law, Buyer shall not, and shall not permit its Affiliates
to, make any public announcement in respect of this Agreement or the
transactions contemplated hereby without the prior written consent of Seller,
which consent shall not be unreasonably withheld.
4.2.2 Further Actions.
(a) Buyer agrees to use all reasonable good faith efforts to
take all actions and to do all things necessary, proper or advisable to
consummate the transactions contemplated hereby.
(b) Buyer will, as promptly as practicable, file or supply, or
cause to be filed or supplied, all applications, notifications and information
required to be filed or supplied by Buyer pursuant to applicable law in
connection with this Agreement.
(c) Buyer will coordinate and cooperate with Seller in
exchanging such information and supplying such reasonable assistance as may be
reasonably requested by Seller in connection with this Agreement.
4.2.3 Further Assurances. Following the Closing, Buyer shall,
and shall cause its Affiliates to, from time to time, execute and deliver such
additional instruments, documents, conveyances or assurances and take such other
actions as shall be necessary, or otherwise reasonably requested by Seller, to
confirm and assure the rights and obligations provided for in this Agreement,
and render effective the consummation of the transactions contemplated thereby.
4.3 Other Covenants and Conditions of Closing.
4.3.1 Subsequent Monthly Financial Statements. Seller's
monthly financial statements for each month after July 31, 2000 shall have been
provided to Buyer and shall (a) contain no liabilities different in kind or in
scope from the liabilities set forth in the Audited Balance Sheet, and (b)
confirm and be consistent with the information concerning the Business
(including the projected results of operations) previously provided to Buyer by
Seller prior to the date hereof.
4.3.2 Corporate Proceedings. Buyer shall have received a
certificate of the Secretary of Seller certifying that Seller has adopted
necessary resolutions on a director and shareholder level authorizing the
transaction contemplated herein.
4.3.3 Transfer Documents. Seller shall have delivered to Buyer
at the Closing all documents, certificates and agreements necessary to transfer
to Buyer good and marketable title to the Assets, free and clear of any and all
liens, claims and encumbrances thereon, including without limitation:
(a) a bill of sale, assignment and general conveyance, in form
and substance reasonably satisfactory to Buyer, dated the Closing Date, with
respect to the Assets; and
(b) assignments of all assumed contracts that are a part of
the Assumed Liabilities, including the Lease in the form attached as Exhibit
4.3.3(b), and assignments of the Intellectual Property and any other agreements
and instruments constituting Assets, dated the Closing Date, assigning to Buyer
all of Seller's right, title and interest therein and thereto, with any required
consents included.
4.3.4 Consents and Estoppel. Buyer shall have received
consents to the assignment of the Lease to Buyer from the lessor of the Lease.
Buyer shall also have received estoppel certificates addressed to Buyer and from
the lessor of the Lease, dated within 45 days of the Closing Date, identifying
the Lease documents and any amendments thereto, stating that the Lease is in
full force and effect and, to the best knowledge of the lessor, that Seller is
not in default under the Lease and no event has occurred that, with notice or
lapse of time or both, would constitute a default by Seller under the Lease and
containing any other information reasonably requested by Buyer.
4.3.5 Corporate Proceedings. All corporate proceedings shall
be reasonably satisfactory in substance and form to both parties, and their
respective counsel, and each such party shall have received all such documents
and instruments, or copies thereof, certified if requested, as may be reasonably
requested.
4.3.6 Consulting Agreements. Seller and Buyer shall have
entered into the four (4) year consulting agreements in substantially the same
form as the forms of Consulting Agreements attached as Exhibit 4.3.6.
4.3.7 License Agreement. Simultaneous with the execution of
this Agreement, Seller and Buyer shall have entered into the License Agreement
attached as Exhibit 4.3.7 hereto.
ARTICLE V
TERMINATION
5.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by the written agreement of Buyer and Seller;
(b) by either Seller or Buyer by written notice to the other
party if the transactions contemplated hereby shall not have been consummated
pursuant hereto by December 31, 2000, unless (i) such date shall be extended by
the mutual written consent of Seller and Buyer (ii) Seller shall, at such time,
be actively engaged in soliciting the approval of the shareholder's of its
parent company to the transaction contemplated by this Agreement in which event
the Agreement may not be terminated unless the said shareholders refuse to grant
said approval within a reasonable time after December 31, 2000;
(c) by Buyer by written notice to Seller if the
representations and warranties of Seller shall not have been true and correct in
all respects (in the case of any representation or warranty containing any
materiality qualification) or in all material respects (in the case of any
representation or warranty without any materiality qualification) as of the date
when made; or
(d) by Seller by written notice to Buyer if the
representations and warranties of Buyer shall not have been true and correct in
all respects (in the case of any representation or warranty containing any
materiality qualification) or in all material respects (in the case of any
representation or warranty without any materiality qualification) as of the date
when made.
5.2 Effect of Termination. In the event of the termination of this
Agreement, this Agreement shall become void and have no effect, without any
liability to any Person in respect hereof or of the transactions contemplated
hereby on the part of any party hereto, or any of its directors, officers,
employees, agents, consultants, representatives, advisers, stockholders or
Affiliates, except for any liability resulting from such party's breach of this
Agreement.
ARTICLE VI
NON-COMPETITION AGREEMENT
6.1 Non-competition and Non-disclosure. Following the Closing Date,
Seller agrees not to:
a. engage or become interested, directly or indirectly, as
owner, employee, partner, through stock ownership (except ownership of less than
one percent (1%) of the number of shares outstanding of any securities which are
listed for trading on any securities exchange), investment of capital, lending
of money or property, rendering of services, or otherwise, whether alone or in
association with others, in the operation of any business engaged in the
manufacturing of bakery products materially the same as the bakery products that
are a part of the Business as of the date of Closing anywhere in the United
States of America (the "Territory");
b. solicit or accept orders for services competitive to those
heretofore provided or sold by the Seller as a part of the Business anywhere in
the Territory from any then or previous customer of the Seller or otherwise
induce or attempt to induce any such customer to reduce such customer's
patronage of the Business; or
c. divulge, communicate, or utilize for the benefit of anyone
other than the Buyer, any confidential information of or pertaining to the
Business or any of its customers.
6.2 Equitable Remedies. Seller specifically acknowledges and agrees
that the remedy at law for any breach of any provision of this Article VI will
be inadequate and that Buyer, as applicable, in addition to any other relief
available to it, shall be entitled to the issuance of a restraining order or any
other similar equitable relief by any court of proper jurisdiction.
ARTICLE VII
MISCELLANEOUS
7.1 Indemnification.
(a) By Seller. Seller covenants and agrees to defend,
indemnify and hold harmless Buyer, its officers, directors, employees, agents,
advisers, representatives and Affiliates (collectively, the "Buyer Indemnities")
from and against, and pay or reimburse Buyer Indemnities for, any and all
claims, liabilities, obligations, losses, fines, costs, royalties, proceedings,
deficiencies or damages (whether absolute, accrued, conditional or otherwise and
whether or not resulting from third party claims) including out-of-pocket
expenses and reasonable attorneys' and accountants' fees incurred in the
investigation or defense of any of the same or in asserting any of their
respective rights hereunder (collectively, "Losses"), resulting from or arising
out of, but not limited to:
(i) any inaccuracy of any representation or warranty made
by Seller herein;
(ii) any failure of Seller to perform any covenant or
agreement hereunder or fulfill any other obligation in
respect hereof;
(iii) any liabilities (other than the Assumed Liabilities);
(iv) any of the Excluded Assets;
(iv) any and all Taxes of Seller;
(vi) any and all Benefit Liabilities in respect of
Employees;
(vii)all liabilities and costs arising out of the
operations of the Business prior to the Closing Date or
relating to the Excluded Assets; and
(viii) any product liability claim with respect to products
manufactured or sold or events occurring prior to the
Closing.
(b) By Buyer. Buyer covenants and agrees to defend, indemnify
and hold harmless Seller and its officers, directors, employees, agents,
advisers, representatives and Affiliates (collectively, the "Seller
Indemnities") from and against any and all Losses resulting from or arising out
of:
(i) any inaccuracy in any representation or warranty by
Buyer made herein;
(ii) any failure of Buyer to perform any covenant or
agreement hereunder or fulfill any other obligation in
respect hereof;
(iii)the operation of the Business by Buyer or Buyer's
ownership, operation or use of the Assets or
performance under the Assumed Liabilities or employment
of any Employees employed by Buyer or product liability
claim with respect to products manufactured or sold by
Buyer, provided such activities and or liabilities
follow or arise out of Buyer's actions after the
Closing Date, and except to the extent such Losses
result from or arise out of any liabilities of Seller.
(c) Indemnification Procedures. In the case of any claim
asserted by a third party against a party entitled to indemnification under this
Agreement (the "Indemnified Party"), notice shall be given by the Indemnified
Party to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and the Indemnified Party shall permit the
Indemnifying Party (at the expense of such Indemnifying Party) to assume the
defense of any claim or any litigation resulting therefrom, provided that (i)
the counsel for the Indemnifying Party who shall conduct the defense of such
claim or litigation shall be reasonably satisfactory to the Indemnified Party,
(ii) the Indemnified Party may participate in such defense at such Indemnified
Party's expense, and (iii) the omission by any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
indemnification obligation under this Agreement except to the extent that such
omission results in a failure of actual notice to the Indemnifying Party and
such Indemnifying Party is materially damaged as a result of such failure to
give notice. Except with the prior written consent of the Indemnified Party, no
Indemnifying Party, in the defense of any such claim or litigation, shall
consent to entry of any judgment or enter into any settlement 'that provides for
injunctive or other non-monetary relief affecting the Indemnified Party or that
does not include as an unconditional term thereof the giving by each claimant or
plaintiff to such Indemnified Party of a release from all liability with respect
to such claim or litigation. In the event that the Indemnified Party shall in
good faith determine that the conduct of the defense of any claim subject to
indemnification hereunder or any proposed settlement of any such claim by the
Indemnifying Party might be expected to affect adversely the Indemnified Party's
Tax liability or the ability of Buyer to conduct the Business, or that the
Indemnified Party may have available to it one or more defenses or counterclaims
that are inconsistent with one or more of those that may be available to the
Indemnifying Party in respect of such claim or any litigation relating thereto,
the Indemnified Party shall have the right at all times to take over and assume
control over the defense, settlement, negotiations or litigation relating to any
such claim at the sole cost of the Indemnifying Party, provided that if the
Indemnified Party does so take over and assume control, the Indemnified Party
shall not settle such claim or litigation without the written consent of the
Indemnifying Party, such consent not to be unreasonably withheld. In the event
that the Indemnifying Party does not accept the defense of any matter as above
provided, the Indemnified Party shall have the full right to defend against any
such claim or demand and shall be entitled to settle or agree to pay in full
such claim or demand. In any event, the Indemnifying Party and the Indemnified
Party shall cooperate in the defense of any claim or litigation and the records
of each shall be available to the other with respect to such defense.
7.2 Survival of Representations and Warranties, Etc. The
representations and warranties contained in Article III of this Agreement shall
survive the execution and delivery of this Agreement for a period of two (2)
years after the Closing Date.
7.3 Expenses. Seller, on the one hand, and Buyer, on the other hand,
shall bear their respective expenses, costs and fees (including attorneys',
auditors' and financial commitment fees) in connection with the transactions
contemplated hereby, including the preparation, execution and delivery of this
Agreement and compliance herewith (the "Transaction Expenses"), whether or not
the transactions contemplated hereby shall be consummated.
7.4 Severability. If any provision of this Agreement, including any
phrase, sentence, clause, section or subsection is inoperative or unenforceable
for any reason, such circumstances shall not have the effect of rendering the
provision in question inoperative or unenforceable in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatsoever.
7.5 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram.
(i) if to Buyer to,
Rich Products Manufacturing Corporation
1150 Niagara Street
Buffalo, New York 14213
Attn: William E. Grieshober, Jr.
(ii) if to Seller to,
Starbake, Inc.
c/o Paramark Enterprises, Inc.
One Harmon Plaza
Secaucus, New Jersey 07094
Attention: Alan S. Gottlich, President
With a copy to:
Saul Feiger, Esq.
152-18 Union Turnpike
Kew Garden Hills, New York 11367
or, in each case, at such other address as may be specified in writing to the
other parties hereto. All such notices, requests, demands, waivers and other
communications shall be deemed to have been received (w)if by personal delivery
on the day after such delivery, (x) if by certified or registered mail, on the
seventh business day after the mailing thereof, (y) if by next-day or overnight
mail or delivery, on the day delivered, (z) if by telecopy or telegram, on the
next day following the day on which such telecopy or telegram was sent, provided
that a copy is also sent by certified or registered mail.
7.7 Headings. The headings contained in this Agreement are for purposes
of convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.7 Entire Agreement. This Agreement constitutes the entire agreement
and supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
7.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
7.9 Governing Law, Etc. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the law of the
State of California, without giving effect to the conflict of laws rules
thereof.
7.10 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
7.11 Assignment. This Agreement shall not be assignable or otherwise
transferable by any party hereto without the prior written consent of the other
party hereto, provided that Buyer may assign this Agreement effective on the
Closing Date to any Affiliate of Buyer, provided, that no assignment shall in
any way affect Buyer's obligations or liabilities under this Agreement.
7.12 No Third Party Beneficiaries. Except as provided in Section 8.2
with respect to indemnification of Indemnified Parties hereunder, nothing in
this Agreement shall confer any rights upon any Person other than the parties
hereto and their respective heirs, successors and permitted assigns.
7.13 Amendment; Waivers, Etc. No amendment, modification or discharge
of this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time. Neither the waiver by any of the
parties hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder. The rights and remedies herein provided are cumulative and
are not exclusive of any rights or remedies that any party may otherwise have at
law or in equity. The rights and remedies of any party based upon, arising out
of or otherwise in respect of any inaccuracy or breach of any representation,
warranty, covenant or agreement or failure to fulfill any condition shall in no
way be limited by the fact that the act, omission, occurrence or other state of
facts upon which any claim of any such inaccuracy or breach is based may also be
the subject matter of any other representation, warranty, covenant or agreement
as to which there is no inaccuracy or breach. The representations and warranties
of Seller shall not be affected or deemed waived by reason of any investigation
made by or on behalf of Buyer (including but not limited to by any of its
advisors, consultants or representatives) or by reason of the fact that Buyer or
any of such advisors, consultants or representatives knew or should have known
that any such representation or warranty is or might be inaccurate.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
RICH PRODUCTS MANUFACTURING CORP. STARBAKE, INC.
By_______________________________ By___________________________
Title______________________________ Title__________________________
RICH PRODUCTS CORPORATION PARAMARK ENTERPRISES, INC.
By_______________________________ By___________________________
Title______________________________ Title__________________________
SCHEDULE 1.1
Specified Assets.
SCHEDULE 1.2
Inventory.
SCHEDULE 2.4
Assumed Liabilities.
SCHEDULE 3.1.6
Liens on Assets.
SCHEDULE 3.1.9
Intellectual Property
STARBAKE TM
SCHEDULE 3.1.16
Employee Benefit Plans
None.
EXHIBIT 4.3.3(b)
Assignment and Assumption Agreement
EXHIBIT 4.3.6
Consulting Agreements
See Attached.
EXHIBIT 4.3.7
License Agreement
LICENSE AGREEMENT
LICENSE AGREEMENT (the "Agreement"), dated as of October 9, 2000,
between RICH PRODUCTS MANUFACTURING CORPORATION, a Delaware corporation d/b/a
Jon Donaire Desserts, with its principal office located at 1150 Niagara Street,
Buffalo, New York ("Licensee"), and STARBAKE, INC., a Delaware corporation, with
an office located at One Harmon Plaza, Secaucus, NJ 07094, ("Starbake") a wholly
owned subsidiary of Paramark Enterprises, Inc., a Delaware corporation with its
principal office located at One Harmon Plaza, Secaucus, New Jersey 07094
("Paramark"). Paramark and Starbake are hereinafter collectively referred to as
"Licensor".
R E C I T A L S
A. Simultaneously herewith, Licensor and Licensee have entered into an
Asset Purchase Agreement (the "Purchase Agreement"), a copy of which Purchase
Agreement is annexed hereto and incorporated by reference as EXHIBIT A;
B. Pursuant to the Purchase Agreement, Licensor, as Seller, is selling
and conveying, and Licensee, as Buyer, is purchasing and accepting conveyance
of, certain Assets related to the operation of a commercial bakery Business by
Licensor at 1919 Friendship Drive, La Jolla, California;
C. The Purchase Agreement contemplates a Closing on the Assets
subsequent hereto, however Licensee desires to assume operational control of the
Assets simultaneously herewith, and Licensor is willing to grant such control,
all subject to the terms of this Agreement and the Purchase Agreement;
NOW, THEREFORE, in consideration of the representations and warranties
made herein, and of the mutual benefits to be derived hereby, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. INCORPORATION OF RECITALS. The Recitals set forth hereinabove are
incorporated into and made a part of this Agreement.
2. CAPITALIZED TERMS. All capitalized terms used but not defined in this
Agreement shall have the same meaning as respectively ascribed to them in the
Purchase Agreement.
3. CONFLICT. In the event of any conflict between the terms of this Agreement
and the terms of the Purchase Agreement, the terms of this Agreement shall be
deemed controlling as if same had amended the Purchase Agreement.
4. LICENSE. Licensor hereby grants Licensee an exclusive license (the "License")
pursuant to which Licensee will, simultaneously with the execution herewith:
a. Assume control of the Assets and the Business as if a Closing had occurred
under the Purchase Agreement;
b. Accept all indicia of beneficial, but not legal, title in all of the
Assets;
c. Have sole control and responsibility for all income and expenses related to
the Assets and the Business for transactions arising in respect to the
Assets and the Business after the date of this Agreement;
d. Assume full legal liability for the Assumed Liabilities as of the date of
this Agreement and make payments therefor to Licensor not less than ten
(10) days before the respective due dates for such payments unless Licensor
directs Licensee in writing to make any such payments directly to the
respective lessors and/or vendors;
e. Promptly take such action as is necessary to insure the Business in
compliance with the requirements set forth in the Lease and name on said
insurance the lessor on the Lease and the Licensor as additional insureds.
An insurance certificate evidencing the foregoing must be delivered to
Licensor within forty eight (48) hours of the execution of this License
Agreement.
5. LICENSE FEE. Licensee shall pay Licensor a monthly license fee of Four
Thousand Dollars ($4,000.00)(representing a per diem of $133.34) for the period
from the date of this Agreement until the Closing, or the termination of this
License as more specifically set forth hereinbelow. Licensee shall prepay the
license fee through December 31, 2000 simultaneously herewith. To the extent
that a Closing occurs prior to December 31, 2000, or this Agreement is
terminated, then any unearned license fee shall be, as the case may be, either
(a) credited against the cash portion of the Purchase Price at Closing or (b) if
the Agreement is terminated, then refunded to Licensee by certified check or
wire transfer to accounts designated by Licensee within five (5) days of the
date of such termination. To the extent that the Closing may occur after
December 31, 2000, the Licensee shall continue to pay the monthly license fee on
January 1, 2001 and the first of each and every month thereafter up to the date
of the Closing or the termination of this Agreement.
6. REPRESENTATIONS AND WARRANTIES. All of Licensor's representations and
warranties set forth in the Purchase Agreement, except as to those relating to
corporate status and authority, shall be deemed to have been made simultaneously
herewith and, subject to Section 7.2 of the Purchase Agreement shall have no
applicability for any periods subsequent to the date of this Agreement.
7. COVENANTS OF SELLER. None of Seller's covenants set forth in Article IV of
the Purchase Agreement shall be effective after the date hereof except as to
those covenants set forth in Sections 4.1.2 through 4.1.8 and 4.3.2 through
4.3.6.
8. INDEMNIFICATION. Licensor's and Licensee's respective indemnity obligations
set forth in Article VI of the Purchase Agreement are modified so that the words
"Closing" and "Closing Date" therein is replaced by the words "the date of the
License Agreement".
9. LICENSE AGREEMENT TERMINATION. The License Agreement shall terminate upon the
earlier of the following:
a. Closing under the Purchase Agreement;
b. Termination of the Purchase Agreement pursuant to the respective rights to
terminate granted therein, including without limitation, termination by
Licensor in the event Paramark is unable to obtain the consent of its
shareholders to the transaction contemplated by the Purchase Agreement as
required by applicable law and the rules and regulations of the Securities
and Exchange Commission.
In such event, this Agreement shall be terminated and Buyer shall be obligated
to re-convey the Assets to Seller, all as more particularly set forth
hereinbelow.
10. PROCEDURE IN THE EVENT OF TERMINATION OF THE LICENSE AGREEMENT. If Licensee
shall receive written notice (the "Termination Notice") from Licensor, or
Licensor's counsel, that the Purchase Agreement is being terminated pursuant to
Section 9(b) hereinabove then each and all of the following shall occur or shall
be deemed to have occurred:
a. All right, title and interest to the Assets shall be deemed to have been
automatically re-conveyed to Licensor simultaneously with the Termination
Notice and Licensor shall immediately reassume possession of the Assets and
the Business;
b. Licensor and Licensee shall make immediate arrangements for the Licensor's
repurchase from Licensee of any applicable inventory related to the
Business, as then existing, as mutually agreed; and
c. Licensee shall fully cooperate with Licensor in effectuating the intent of
this Section 10 so that Licensor may reassume control of the Assets and the
Business as same was held by Licensor prior to the License Agreement
subject to transactions entered into by Licensee in the ordinary course of
business after the date of this Agreement.
11. SEVERABILITY. If any provision of this Agreement, including any phrase,
sentence, clause, section or subsection is inoperative or unenforceable for any
reason, such circumstances shall not have the effect of rendering the provision
in question inoperative or unenforceable in any other case or circumstance, or
of rendering any other provision or provisions herein contained invalid,
inoperative, or unenforceable to any extent whatsoever.
12. NOTICES. All notices, and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
duly given if (a) delivered personally, (b) mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or (c) sent by
next-day or overnight mail or delivery or (d) sent by telecopy.
(i) If to Licensee:
Rich Products Manufacturing Corporation
1150 Niagara Street
Buffalo, New York 14213
Attn: William E. Grieshober, Jr.
(ii) If to Licensor:
Starbake, Inc.
c/o Paramark Enterprises, Inc.
One Harmon Plaza
Secaucus, New Jersey 07094
Attention: Alan S. Gottlich, President
With a copy to:
Saul Feiger, Esq.
152-18 Union Turnpike
Kew Garden Hills, New York 11367
or, in each case, at such other address as may be specified in writing to the
other parties hereto. All such notices and other communications shall be deemed
to have been received (w)if by personal delivery on the day after such delivery,
(x) if by certified or registered mail, on the seventh business day after the
mailing thereof, (y) if by next-day or overnight mail or delivery, on the day
delivered, (z) if by telecopy, on the next day following the day on which such
telecopy was sent.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
14. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed an original and all of which shall together constitute
one and the same instrument.
15. GOVERNING LAW, ETC. This Agreement shall be governed in all respects,
including as to validity, interpretation and effect, by the law of the State of
California, all as more specifically set forth in the Purchase Agreement.
16. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
17. ASSIGNMENT. This Agreement shall not be assignable or otherwise transferable
by any party hereto without the prior written consent of the other party hereto.
18. AMENDMENT; WAIVERS, ETC. No amendment, modification or discharge of this
Agreement, and no waiver hereunder, shall be valid or binding unless set forth
in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
LICENSEE:
RICH PRODUCTS MANUFACTURING CORP.
By_______________________________
Title______________________________
LICENSOR:
STARBAKE, INC.
By: __________________
LICENSOR:
PARAMARK ENTERPRISES, INC.
By: __________________
APPENDIX B
Asset Purchase and Sale Agreement between Paramark Enterprises, Inc.
and Brooks Street Companies, Inc.
dated October 9, 2000
Appendix B
ASSETS PURCHASE AND SALE AND SECURITY AGREEMENT
This Assets Purchase and Sale Agreement and Bill of Sale (the "Agreement") is
made and entered into on the _____ day of October 2000 by and among PARAMARK
ENTERPRISES, INC., a Delaware corporation ("Seller") with an address at One
Harmon Plaza, Secaucus, New Jersey 07094 and BROOKS STREET COMPANIES, INC, a
Nevada corporation ("Purchaser") with an address at 5560 Brooks Street,
Montclair, California 91765 and NV COMMERCIAL LLC, a Nevada limited liability
company ("NVC LLC") with an address at 5300 W. Sahara, Suite, 101, Las Vegas,
Nevada 89126
R E C I T A L S
A. Seller, through a wholly owned subsidiary Starbake, Inc., manufactures and
sells at wholesale, at and from its commercial bakery facility located at 1919
Friendship Drive, La Jolla, California (the "Bakery") a certain bakery product
known as "Pull-Apart Cakes";
B. Seller desires to sell, and Purchaser desires to Purchase, all right, title
and interest to the "Pull-Apart Cakes" including any and all know how, equipment
and customer lists related thereto (collectively the "Assets"), all as more
particularly set forth hereinbelow.
NOW, THEREFORE, in consideration of the recitals and of the representations,
warranties, covenants and agreements contained, and intending to be legally
bound, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE; ROYALTIES
1.1 AGREEMENT TO SELL. Subject to the terms and conditions of this Agreement,
Seller hereby grants, sells, conveys, assigns, transfers and delivers to
Purchaser (the "Transfer"), and Purchaser accepts the Transfer and assumes all
liabilities arising therefrom, all of Seller's right, title and interest in and
to:
(a) the recipe, ingredient list and manufacturing instructions utilized by
Seller in the manufacture of "Pull-Apart Cakes";
(b) the equipment utilized by Seller at the Bakery to manufacture the
Pull-Apart Cakes, namely a Rondo Make-Up Line, a Rondo Compass 3000 Sheeter
and a Rondo PG 101 Climator (the "Equipment");
(c) Seller's rights and obligations under the leases for the Equipment, copies
of which are annexed hereto as EXHIBIT A (the "Equipment Leases");
(d) Seller's obligation to purchase a certain existing inventory of private
labeled master cases for the Pull-Apart Cakes manufactured prior hereto by
Sayco Container Corporation and Matco United, Inc. (collectively the
"Packaging Manufacturers") until the entire existing inventory of the
Master Cases held by the Packaging Manufacturers shall have been exhausted
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(e) all of Seller's rights, title and interest in and to the Broker Agreements
pursuant to which the Pull-Apart Cakes are marketed to Seller's customers,
copies of which agreements are annexed hereto as EXHIBIT B;
(f) all raw materials, packaging or finished goods (the "Inventory") related
solely to the Pull-Apart Cakes and on hand at the Bakery on the Closing
Date, as hereinafter defined;
All of the foregoing are hereinafter collectively referred to as the "Assets."
1.2 PURCHASE PRICE; PAYMENT
a. Assets other than Inventory The purchase price for all of the Assets
(excluding Inventory) shall be payment by the Purchaser to the Seller of
the Royalties, as described and defined in Section 1.3 hereinbelow.
b. Inventory. At the Closing Seller and Purchaser shall determine the amount
of the Inventory being turned over to Purchaser and Purchaser shall pay to
Seller at the Closing, in addition to the sums set forth in Section 1.2(a)
hereinabove, for all of the Inventory an amount equal to the cost of
acquisition of the Inventory by Seller.
c. Equipment Lease Adjustments; Assignment Fees. Seller shall be responsible
for all payments under the Equipment Leases through the day prior to the
Closing Date, Purchaser shall be responsible for all payments under the
Equipment Leases commencing on the Closing Date and Seller and Purchaser
shall make a cash adjustment for same accordingly at the Closing. Purchaser
shall also pay any fees assessed by the lessors under the Equipment Leases
in connection with said lessors granting their consent to the assumption of
the Equipment Leases by Purchaser.
d. Equipment Lease Security Deposits. To the extent that Seller has delivered,
to the respective lessors under the Equipment Leases, security deposits
and/or prepaid rent deposits (collectively the "Security Deposits"), and
such Security Deposits continue to be held by the respective lessors as of
the Closing then Purchaser shall reimburse Seller at the Closing for the
full amount of said Security Deposits.
e. Contingent Equipment Lease License. If, as of the Closing Date, Seller
shall not have obtained the consent of the lessors under the Equipment
Leases (the "Lessor Consent") for the assignment of the Equipment Leases to
Purchaser then, until such consent is obtained (i) Purchaser shall take
possession of the Equipment at the Closing pursuant to a temporary license
granted by Seller by its execution of this Agreement and (ii) Purchase
shall make all payments required under the Equipment Leases to Seller at
least ten (10) days before their respective due dates. If the Lessor
Consent is not obtained by Seller then this Agreement shall terminate and
the same termination procedure shall be utilized as set forth in Section
6.2 hereinbelow.
1.3 EQUIPMENT LEASE FOR CERTAIN EQUIPMENT SOLD BY RONDO, INC.
a. License for Rondo Equipment Lease. Purchaser acknowledges that the Lessor
pursuant to the Equipment Lease for certain Equipment (the "Rondo Equipment")
whose named vendor is Rondo, Inc. (the "Rondo Equipment Lease") will not allow
assignment of same to Purchaser without a personal guarantee by Purchaser, which
personal guarantee Purchaser is unwilling to render. Therefore purchaser shall
assume the liabilities for the Rondo Equipment Lease, and will take possession
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of the Equipment thereunder, pursuant to a license from Seller and will make the
required monthly lease payments to Seller, in the amount of $2,183.77, at least
ten days before such lease payments become due under the Rondo Equipment Lease.
b. Buy-Out of Rondo Equipment Lease. Seller hereby unconditionally undertakes to
buy-out the obligations under the Rondo Equipment Lease no later than April 1,
2001 so that all obligations of Seller under the Rondo Equipment Lease shall be
terminated no later than April 1, 2001.
c. Seller's Security Interest in Rondo Equipment. In furtherance of the
foregoing, Purchaser hereby grants to Seller a security interest in the Rondo
Equipment subject only to the security interest of the lessor under the Rondo
Equipment Lease and Purchaser will execute and pay for the filing of a UCC-1
Financing Statement evidencing such security interest.
d. GUARANTEE BY NVC LLC. NVC LLC hereby guarantees (the "NVC LLC Guarantee") to
Seller, and is executing this Agreement solely in its capacity as such
guarantor, all obligations of Purchaser related to or arising out of the Rondo
Equipment and the Rondo Equipment Lease. The NVC LLC Guarantee is unconditional
and Seller may seek performance under the NVC LLC Guarantee simultaneously with
seeking to enforce the obligation of Purchaser subject to such guarantee
1.4. ROYALTIES.
a. Payment of Royalties. In consideration of the Transfer of the Assets to
Purchaser by Seller, Purchaser shall pay to Seller a royalty fee (the "Royalty
Fee"), in the amounts and for the period more specifically set forth below, of
Licensee's Net Sales (defined below) of Pull Apart Cakes.
b. Amount and Duration of Royalty Fee. The Royalty Fee shall be payable for the
period commencing on the Closing Date and through and including November 30,
2004. The Royalty Fee shall be equal to (i) five percent (5%) of all Net Sales
made to existing customers (and their respective affiliates and subsidiaries) of
Seller, which existing customers are set forth on EXHIBIT C annexed hereto and
(ii) one and a half percent (1.5%) of all Net Sales made to all other customers
c. Net Sales Defined. Net Sales shall mean the gross sales price charged by
Purchaser for the Pull Apart Cakes, regardless of collection of revenue, less
returns and rebates, if any.
d. When Payment Made. Purchaser shall pay to Seller all royalties due on a
monthly basis. The monthly royalty for any given month (or for the first partial
month if the Closing takes place in the middle of a month) shall be paid on the
tenth (10th) day of each month for the Net Sales of the preceding month.
e. Sales Report, Audits, etc.. Purchaser shall submit to Seller on the tenth
(10th) day of each month a sales report detailing the sales of Pull-Apart Cakes
during the preceding month. The sales report shall be in the form specified by
Seller, and shall include, at a minimum, the gross revenues, net sales, and the
3
unit counts of all sales during the prior month and sales figures by customer.
Purchaser shall preserve all books and records regarding the business operations
under this Agreement for four (4) years from the date of their preparation.
Seller reserves the right to audit or inspect the books and records of Purchaser
at any time. If any such audit reveals an underpayment of the Royalty Fee by
more than two percent (2%) then Purchaser shall be responsible for all costs and
expenses associated with the audit.
ARTICLE 2
CLOSING, ITEMS TO BE DELIVERED
2.1 CLOSING. The closing (the "Closing") of the sale and purchase of the Assets
shall take place simultaneously with the execution of this Agreement and shall
be deemed to have occurred upon the completion of each and all of the following:
a. Receipt by both Seller and Purchaser of counterpart fully executed copies of
this Agreement;
b. Receipt by Seller of the payments and adjustments required pursuant to
Sections 1.2(b) through 1.2(d) of this Agreement; and
c. Delivery of control of the Assets to Purchaser at the Bakery
The date of the Closing is sometimes referred to as the "Closing Date."
2.2 ITEMS TO BE DELIVERED AT CLOSING. At the Closing and subject to the terms
and conditions contained in this Agreement:
(a) Seller Deliveries. Seller will deliver to the Purchaser the Assets at the
Bakery (Purchaser shall be solely responsible for any costs associated with
transferring the Assets from the Bakery to Purchaser's business premises);
(b) Purchaser Deliveries. The Purchaser will deliver to Seller payment for the
Inventory by certified check or wire transfer:
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller warrants and represents to
Purchaser, all to its knowledge and without making any independent inquiries in
connection with this Agreement, that as of the date hereof and as of the Closing
Date::
(a) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
(b) Seller has the corporate power, authority and legal right to execute,
deliver and perform this Agreement and the execution, delivery and performance
of this Agreement by Seller have been duly authorized by all necessary corporate
4
action. This Agreement has been duly executed and delivered by a duly authorized
officer of Seller, and this Agreement constitutes, and such instruments when
executed and delivered will constitute, legal, valid and binding obligations of
Seller enforceable against Seller in accordance with their respective terms.
(c) Seller has good, valid and marketable title to the Assets, all in the form
described hereinabove.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser represents and
warrants to Seller, jointly and severally, as of the date of this Agreement as
follows:
(a) Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. Seller has qualified to do
business as a foreign corporation in the State of California.
(b) Purchaser has the corporate power, authority and legal right to execute,
deliver and perform this Agreement and the execution, delivery and performance
of this Agreement by Purchaser have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by a duly
authorized officer of Purchaser, and this Agreement constitutes, and such
instruments when executed and delivered will constitute, legal, valid and
binding obligations of Purchaser enforceable against Purchaser in accordance
with their respective terms.
(c) Purchaser has been given full disclosure, by Seller or Seller's
representatives, with regard to the Business and the Assets sufficient in order
for Seller to enter into this Agreement and acquire the Assets.
(d) Purchaser acknowledges that it is acquiring all of the tangible and
intangible Assets in their AS IS physical and legal condition without any
representation or warranty by Seller whatsoever except as may be specifically
set forth in this Agreement.
(e) Purchaser acknowledges that Seller has made no representations with regard
to the nature or success of the Pull-Apart Cakes or income to be derived from
the sale thereof and Purchaser is acquiring same with the sole intent of relying
on its own efforts and abilities in maintaining and continuing the sale of
Pull-Apart Cakes.
3.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations, warranties,
covenants and agreements made by the parties in this Agreement shall survive the
Closing.
ARTICLE 4
INDEMNIFICATION
4.1 INDEMNIFICATION BY SELLER. From and after the Closing, Seller will indemnify
and hold harmless Purchaser against and in respect of (a) any and all
liabilities and obligations of any nature whatsoever relating to the Assets
prior to the Closing; (b) any and all actions, suits, claims, or legal,
administrative, arbitration, governmental or other proceedings or investigations
against Seller and relating to the Assets and which result from or arise out of
any event, occurrence, action, inaction or transaction occurring prior to the
Closing Date; (c) any and all actions, suits, claims, proceedings,
5
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses (including, without limitation, reasonable legal fees and expenses)
incident to any of the foregoing or to the enforcement of this Section 4. l.
4.2 INDEMNIFICATION BY THE PURCHASER. From and after the Closing, the Purchaser
will indemnify and hold harmless Seller against and in respect of (a) any and
all liabilities and obligations of any nature whatsoever relating to the
Purchaser or the Purchaser's business, prior to the Closing; (b) any and all
actions, suits, claims, or legal, administrative, arbitration, governmental or
other proceedings or investigations against any to Purchaser, the Purchaser's
business or the Assets and which result from or arise out of any event,
occurrence, action, inaction or transaction occurring after the Closing Date;
(c) any and all actions, suits, claims, proceedings, investigations, demands,
assessments, audits, fines, judgments, costs and other expenses (including,
without limitation, reasonable legal fees and expenses) incident to any of the
foregoing or to the enforcement of this Section 4.2.
4.3 PROCEDURE. Notice must be given within a reasonable time after discovery of
any fact or circumstance on which a party could claim indemnification ("Claim"
or "Claims"). If the party, in order to fulfill its obligations to the other
party must take legal action or if the party is involved in legal action, the
outcome of which could give rise to its seeking indemnification, one party shall
consult with the other party with respect to such legal action and allow it to
participate therein.
No Claim for which indemnification is asserted shall be settled or compromised
without the written consent of Seller and the Purchaser; provided, however, if a
party does not consent to a bona fide settlement proposed by the other, the
other party shall be liable for indemnification only to the lesser of the final
judgment or the amount to be paid in settlement.
Subject to the provisions of the Section, neither party shall have recourse for
indemnification until the Claims are fully and finally resolved. For a period of
thirty (30) days following the giving of the notice of such Claim, the Purchaser
and Seller shall attempt to resolve any differences they may have with respect
to such Claim. If a resolution is not reached within the thirty (30) day period
(unless the parties agree to extend the period), the matter may be submitted to
a court of competent jurisdiction.
A Claim shall be deemed finally resolved in the event a matter is submitted to a
court, upon the entry of judgment by a court of final authority.
ARTICLE 5
NON-COMPETITION AGREEMENT
5.1 NON-COMPETITION AND NON-DISCLOSURE. Following the Closing Date, Seller
agrees, that for a period of four (4) - years after the Closing Date, it will
not:
a. Engage or become interested, directly or indirectly, in the manufacturing
or sale of bakery products materially identical to the Pull-Apart Cakes
anywhere in the United States if such engagement would result in the sale
of Competing Products in United States Territory that is located west of
the Mississippi;
6
b. Divulge, communicate, or utilize for the benefit of anyone other than the
Purchaser, any confidential information of or pertaining to the Assets.
5.2 EQUITABLE REMEDIES. Seller specifically acknowledges and agrees that the
remedy at law for any breach of any provision of this Article 5 by Seller will
be inadequate and that Purchaser, in addition to any other relief available to
it, shall be entitled to the issuance of a restraining order or any other
similar equitable relief by any court of proper jurisdiction with regard to such
breach.
ARTICLE 6
TRANSACTION SUBJECT AND CONTINGENT ON TRANSACTION WITH RICH PRODUCTS
6.1 TRANSACTION CONTINGENT ON RICH PRODUCTS TRANSACTION. Purchaser acknowledges
and understands that this Agreement is contingent on Seller closing on an Asset
Purchase Agreement being entered into approximately simultaneously herewith
between Seller and Rich Products Manufacturing Corporation (the "Rich Products
Transaction").
Pursuant to the Rich Products Transaction Seller is conveying its remaining
interests in the Bakery to Rich Products Manufacturing Corporation ("Rich
Products"). In the event the Rich Products Transaction does not close by
February 28, 2001, for any reason whatsoever including a willful default
thereunder by Seller, then this Agreement shall be terminated and Purchaser
shall be obligated to reconvey the Assets to Seller, all as more particularly
set forth hereinbelow.
6.2 PROCEDURE IN THE EVENT OF TERMINATION OF THE RICH PRODUCTS TRANSACTION. If
Purchaser shall receive written notice (the "Termination Notice") from Seller,
or Seller's counsel, at any time up to February 28, 2001, that the Rich Products
Transaction has been terminated then each and all of the following shall occur
or shall be deemed to have occurred:
a. All right, title and interest to the Assets shall be deemed to have been
automatically reconveyed to Seller simultaneously with the Termination
Notice.
b. Seller and Purchaser shall make immediate arrangements for the Seller's
repurchase from Purchaser of the Inventory, at cost, as then existing,
c. Purchaser shall have no obligation to make any further payments of Royalty
Fees after the date of its receipt of the Termination Notice even if such
Royalty Fees would otherwise have been due and payable to Seller. However
Seller shall have no obligation to refund any Royalty Fees forwarded by
Purchaser to Seller prior to Purchaser's receipt of the Termination Notice.
d. Purchaser shall fully cooperate with Seller in effectuating the intent of
this Article VI so that Seller may reassume control of the Assets as same
was held by Seller prior to the Closing.
ARTICLE 7
MISCELLANEOUS
7
7.1 BROKERS' AND FINDERS' FEES. Seller represents and warrant to the Purchaser,
and Purchaser represents and warrants to Seller that all negotiations relative
to this Agreement have been carried on by the parties directly without the
intervention of any person who may be entitled to any brokerage or finder's fee
or other commission in respect of this Agreement or the consummation of the
transactions contemplated hereby. Seller agrees to indemnify and hold harmless
Purchaser, and Purchaser agrees to indemnify and hold harmless Seller, as the
case may be, against any and all claims, losses, liabilities and expenses which
may be asserted against or incurred by them as a result of either party's
dealings, arrangements or agreements with any such person or entity.
7.2 SALES, TRANSFER AND DOCUMENTARY TAXES, ETC. Neither Seller nor the Purchaser
shall be responsible for the other's sales, transfer or documentary taxes, if
any, due as a result of the transfer of the Assets to the Purchaser.
7.3 EXPENSES. The parties shall pay their own expenses incidental to the
preparation of this Agreement, the carrying out of the provisions of this
Agreement and the consummation of the transactions contemplated hereby.
7.4 CONTENTS OF AGREEMENT; PARTIES IN INTEREST; ETC. This Agreement sets forth
the entire understanding of the parties with respect to the transactions
contemplated hereby. It shall not be amended or modified except by written
instrument duly executed by each of the parties hereto. Any and all previous
agreements and understanding between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement.
7.5 ASSIGNMENT AND BINDING EFFECT. Neither Seller nor Purchaser shall assign
this Agreement nor any part of it, nor delegate any obligation imposed by this
Agreement without the prior written consent of the other. All of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the successors and assigns of Seller and Purchaser.
7.6 WAIVER. Any term or provision of this Agreement may be waived at any time by
the party or parties entitled to the benefit thereof by a written instrument
duly executed by such party or parties.
7.7 NOTICES. Any notice, request, demand, waiver, consent, approval or other
communication which is required or permitted hereunder shall be in writing and
shall be deemed given only if delivered personally, by guaranteed overnight
courier or sent by fax or by registered or certified mail, postage prepaid, to
Seller's and Purchaser's respective address set forth hereinabove or to such
other address as the addressee may have specified in a notice duly given to the
sender as provided herein. Such notice, request, demand, waiver, consent,
approval or other communication will be deemed to have been given as of the date
so delivered or faxed.
7.8 GOVERNING LAW. This Agreement shall be governed by and interpreted and
enforced in accordance with the laws, and in the courts, of the State of New
Jersey with regard to any and all matters, issues, claims and controversies
relating to, or arising out of, payments due to Seller hereunder, control of the
Assets by the party entitled to same as the case may be pursuant to this
Agreement and indemnification of Seller by Purchaser pursuant to Section 4.2
hereinabove. This Agreement shall be governed by and interpreted and enforced in
8
accordance with the laws, and in the courts, of the State of California with
regard to all other matters hereunder.
7.9 NO BENEFIT TO OTHERS. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto and their heirs, administrators, legal representatives, successors and
assigns, and they shall not be construed as conferring any rights on any other
persons.
7.10 SEVERABILITY. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
7.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts
and any parties hereto may execute any such counterpart, each of which when
executed and delivered shall be deemed to be an original and all of which
counterparts taken together shall constitute but one and the same instrument.
This Agreement shall become binding when one or more counterparts taken together
shall have been executed and delivered by the parties. It shall not be necessary
in making proof of this Agreement or any counterpart hereof to produce or
account for any of the other counterparts.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date
first written.
SELLER:
PARAMARK ENTERPRISES, INC..
By:_________________________
Alan S. Gottlich, President
PURCHASER:
BROOKS STREET BAKING COMPANY
By:_________________________
Fred Scalzo, President
GUARANTOR:
NV COMMERCIAL LLC
By:_________________________
9
EXHIBIT C
PARAMARK ENTERPRISES, INC. EXISTING CUSTOMER LIST FOR PULL-APART CAKES
1. Ralph_s Grocery Company
P.O. Box 54143
Los Angeles, CA 90054
2. Fred Mayers
P.O. Box 42500
Portland, OR 97242-0121
3. Raley_s Supermarkets
P.O. Box 15618
Sacramento, CA 95852
4. Tony_s Fine Foods
3575 Reed Avenue
West Sacramento, CA 95605-1501
5. Dairy Fresh
601 S. Rockerfeller Ave.
Ontario, Ca 91761
6. Flemming Foods, Inc.
P.O. Box 24840
Oklahoma City, OK 73124
7. Hawaiian Express
14952 Valley View Ave.
La Mirada, CA 90638
8. Unified Western Grocers
P.O. Box 513396
Los Angeles, CA 90051-9817
9. Certified Grocers
P.O. Box 60753
Terminal Annex
Los Angeles, CA 90060
10. Brookshire Brothers, Ltd.
P.O. Box 1688
Lufkin, TX 75902-1688
11. Giant Eagle
690 Perry Hwy.
Harmony, PA 16037
12. Basha's Markets
200 S. 56th. Street
Chandler, AZ 85226
APPENDIX C
Capital Markets Group Fairness Opinion
CAPITAL MARKETS GROUP
- --------------------------------------------------------
SUITE TWO TEL. 973.364.1299
32 SMULL AVENUE FAX. 973.364.7585
CALDWELL, NEW JERSEY 07006
November 1, 2000
Board of Directors
Paramark Enterprises, Inc.
One Harmon Plaza
Secaucus, New Jersey 07094
Dear Board Members:
You have requested the opinion of Capital Markets Group ("CMG") as to
the fairness, from a financial point of view, as of the date hereof, to the
shareholders of Paramark Enterprises, Inc. ("Paramark" or the "Company") of the
consideration to be received by the Company pursuant to the terms of the Asset
Purchase Agreement between and among Rich Products Manufacturing Corporation.
("RPMC") (herein the "Rich Agreement") dated October 9, 2000 and the Asset
Purchase and Sale Agreement and Security Agreement (herein the "Brooks
Agreement") between and among Brooks Street Companies, Inc. ("BSC") and
Paramark, dated October 12, 2000, the terms of which are more fully described in
a proxy statement to be furnished to the stockholders of the Company. The
Company is selling substantially all of the operating assets of the Company as
set forth in the two Agreements. The above is collectively referred to as the
"Proposed Transaction".
The sale under the Rich Agreement provides for the Company to receive a
total of $2,182,750 payable as follows: (i) $182,750 paid on October 16, 2000
(ii) $1,000,000 in cash at closing and (iii) a $125,000 on or before each of
June 1st and December 1st of each of 2001, 2002, 2003 and 2004. (the
"Payments"), guaranteed by RPMC. In addition, the Rich Agreement provides for
the assumption of approximately $285,000 in Company debt.
The sale under the Brooks Agreement provides for the Company to sell
all rights, title and interests to the "Pull-Apart Cakes" segment of the
Company's business to BSC as follows: (i) payment of certain Royalties through
November, 2004 (ii) purchase of existing inventory (iii) assumption of certain
equipment lease obligations as used in the operation of the business.
Board of Directors
Paramark Enterprises, Inc.
November 1, 2000
Page Two
Capital Markets Group, as part of its investment banking business, is
engaged regularly in evaluating business transactions, assets, and companies in
connection with mergers, acquisitions and private placements on behalf of
corporations.
In arriving at our opinion, we have, among other things: (i) reviewed
the historical financial performance, current financial position and general
prospects of the Company, including its working capital position, current
financing options and current market conditions; (ii) Securities and Exchange
Commission (SEC) filings, including the quarterly report for the period ended
June 30, 2000, (iii) reviewed current publicly available financial information
concerning similar transactions within the marketplace; (iv) reviewed the stock
market performance and trading activity of the Company's stock; (v) studied and
analyzed the consolidated financial and operating data of the Company; (vi)
considered the terms and conditions of the Proposed Transaction; (vii) and
communicated with certain members of the Company's senior management to discuss
the Company's operations and future prospects; and (vii) conducted such other
analyses as we deemed appropriate.
Our financial analysis was based upon, but not limited to, a review of
the following documents and information examined during the course of our
analysis: (i) the Rich Agreement with accompanying exhibits, (ii) the Brooks
Agreement with accompanying exhibits; (iii) the Preliminary Proxy Statement
dated October 31, 2000 (iv) other Company financial information, including
internally prepared financial statements for the period ended September 30, 2000
(v) internally prepared projections for the Company based on various
assumptions, including that the Proposed Transaction does not occur.
Our opinion is given in reliance upon information and representations
made or given by the Company and its officers, directors, counsel and other
agents, and on filings and other information provided by the Company including
financial statements, financial projections, and stock data, as well as certain
industry and other information from independent sources. We have not
independently verified the information concerning the Company nor other data,
which we have considered in our review and, for the purposes of the opinion set
forth below, we have assumed and relied upon the accuracy and completeness of
all such information and data. Additionally, we assume that the Proposed
Transaction is, in all respects, lawful under applicable law.
Board of Directors
Paramark Enterprises, Inc.
November 1, 2000
Page Three
Of special significance to our opinion is the independent auditor's
report dated March 31, 2000, which indicated that the Company had suffered
significant and recurring losses from operations resulting in working capital
and accumulated deficits raising substantial doubts about the Company's ability
to continue as a going concern. The Company's Form 10-QSB filed with the SEC for
the quarter ended March 31, 2000, indicated that the Company continued to have a
working capital deficit, was in need of immediate financing, and that failure to
consummate a financing or sale transaction could have a material adverse effect
on the Company's ability to continue as a going concern.
With regard to financial and other information relating to the general
prospects of the Company, we have assumed that such information has been
reasonably prepared and reflects the best currently available estimates and
judgments of the management of the Company with respect to its most likely
future performance. In rendering our opinion, we have assumed that in the course
of obtaining the necessary approvals for the Proposed Transaction and in
preparation of the Proxy Statement, the terms of the Proposed Transaction will
not change in any way that will have a material adverse effect on the
contemplated benefits of the Proposed Transaction to the Company.
Our opinion is necessarily based upon economic, financial and other
conditions as they exist, and on the information made available to us, as of the
date of this letter. It should be understood that although subsequent events may
affect this opinion, we do not have any obligation to revise, update, or
reaffirm this opinion. We are expressing no opinion on (i) the Company's
solvency, (ii) the Company's ability to continue as a going concern should the
Proposed Transaction not be consummated, or (iii) the Company's prospects for
future financings, cost reductions or other possible transactions.
We are expressing no opinion on the Company's ability to achieve
certain results in its operations, nor are we expressing an opinion as to the
price at which the common shares of the Company will actually trade at any time.
Our opinion does not constitute a recommendation to the Board of Directors of
the Company and does not constitute a recommendation to any stockholder as to
how such stockholder should vote on the Proposed Transaction.
Board of Directors
Paramark Enterprises, Inc.
November 1 2000
Page Four
This letter is for the information of the Company's Board of Directors
only in their evaluation of the Proposed Transaction and may not be relied upon
by any other person. This letter is not to be quoted or referred to, in whole or
in part, in any registration statement, prospectus, or in any other document
used in connection with the offering or sale of securities, nor shall this
letter be used for any other purposes without our prior written consent, except
that this opinion may be included in its entirety as an appendix to the
Company's Proxy Statement furnished to the Company's stockholders in connection
with the Proposed Transaction.
Based on this foregoing, it is our opinion that, as of the date hereof,
the consideration to be received by the Company pursuant to the Proposed
Transaction is fair, from a financial point of view, to the stockholders of the
Company.
Sincerely,
CAPITAL MARKETS GROUP
APPENDIX D
Plan of Complete Liquidation including the
Paramark Liquidating Trust
PLAN OF COMPLETE LIQUIDATION
OF PARAMARK ENTERPRISES, INC.
This Plan of Complete Liquidation (the "Plan") of Paramark Enterprises,
Inc., a Delaware corporation (the "Company"), and the transactions contemplated
thereby have been approved by the Board of Directors for the Company (the
"Board") as being advisable and in the best interests of the Company and its
stockholders. The Board has directed that this Plan be submitted to the holders
of the outstanding shares of the Company's common stock (the "stockholders") for
their approval at an annual meeting of stockholders and has authorized the
distribution of a proxy statement (the "Proxy Statement") in connection with the
solicitation of proxies for such meeting. Upon such adoption, the Company shall
voluntarily dissolve and completely liquidate in accordance with the
requirements of the Delaware General Corporation Law (the "DGCL") and the
Internal Revenue Code of 1986, as amended (the "Code"), as follows:
1. Adoption of Plan. The effective date of the Plan (the "Effective
Date") shall be the date on which the Plan is adopted by the stockholders. Such
approval of the Plan shall constitute approval by the Company's stockholders of
the sale of substantially all of the assets of the Company in accordance with
Section 271 of the DGCL and approval of each of the other actions contemplated
by the Plan. The period commencing on the Effective Date and continuing until
March 31, 2000 is referred to herein as the Liquidation Period.
2. Disposition of Assets. Prior to and after the Effective Date, the
Company shall use all commercially reasonable efforts to dispose of all of its
investment securities and other assets (other than the Claims referred to in
Section 3 below) as promptly as practicable consistent with realizing full value
thereon and shall hold or reinvest the proceeds thereof in cash and such
short-term fixed income securities as the Company may lawfully hold or invest
in. To the extent the Company cannot dispose of any such asset or assets prior
to expiration of the Liquidation Period, the Company shall contribute such asset
or assets to the Liquidating Trust referred to in Section 7 below.
3. Disposition of Claims. Prior to and after the Effective Date, the
Company shall use all commercially reasonable efforts to assert, prosecute,
reduce to judgment, settle and collect all claims (the "Claims") of the Company
against persons other than the Company. To the extent the Company cannot resolve
any Claim prior to expiration of the Liquidation Period, then not later than the
last day of such period the Company shall contribute all such unresolved Claims
to the Liquidating Trust, referred to in Section 7, along with such amounts of
cash and other assets as the Company shall determine might reasonably be
required to resolve such unresolved claims.
4. Transactions. Within the Liquidation Period, the Company shall have
the authority to engage in such other transactions as may be appropriate to its
complete liquidation and dissolution, including without limitation, the
authority to mortgage, pledge, sell, lease, exchange or otherwise dispose of all
or any part of its other assets for cash and/or shares, bonds, or other
securities or property upon such terms and conditions as the Company shall
determine, with no further approvals by the stockholders except as required by
law.
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5. Provisions for Liabilities. Within the Liquidation Period, the
Company shall pay or discharge or otherwise provide for the payment or discharge
of, any liabilities and obligations, including, without limitation, contingent
or unascertained liabilities and obligations determined or otherwise reasonably
estimated to be due either by the Company or a court of competent jurisdiction
(the "Liabilities"). The foregoing may be accomplished by use of one or more
trusts (including a liquidating trust), escrows, reserve funds, plans or other
arrangements as determined by the Company or required by law, and the
stockholders by adoption of this Plan do constitute and appoint any agent or
trustee under the arrangements provided by the Company pursuant to this Section
5 as the agent or trustee for the limited purposes provided in the agreement in
which such purposes are set forth.
6. Distributions to Stockholders. Promptly after the Effective Time and
from time to time thereafter, the Company shall distribute to stockholders of
record as of the Effective Date, cash or other assets and all other properties
held by it, by way of pro rata liquidating distributions to such stockholders of
the Company. Cash and other assets held in the Liquidating Trust, referred to in
Section 7, in excess of the amounts required for the payment or discharge of the
Company's liabilities and obligations shall be distributed to the stockholders
at the time and under the conditions set forth in the instruments establishing
the Liquidating Trust referred to in Section 7.
7. Liquidating Trust. The Company, as promptly as practicable, but in
any event within the Liquidation Period, shall (i) create and execute with one
or more trustees ("Trustees") selected by the Company, a liquidating trust
agreement substantially in the form annexed hereto as Exhibit A, as the same may
be amended from time to time (the "Liquidating Trust Agreement") to establish a
liquidating trust (the "Paramark Liquidating Trust"), (ii) grant, assign, and
convey to the Trustees of the Paramark Liquidating Trust all rights of ownership
of any assets not yet distributed to the Company's stockholders, subject to all
of the Liabilities and (iii) distribute interests in the Paramark Liquidating
Trust to its stockholders (the transactions contemplated by this Section 7,
together with the Initial Distribution, shall be referred to as the
"Liquidation").
(a) No distributions of any of the assets held by the Trustees
of the Paramark Liquidating Trust shall be made by the Trustees other than as
provided by the express terms and provisions of the Liquidating Trust Agreement,
and no assets held by the Trustees shall ever revert or be distributed to the
Company or to any stockholder, as such, other than a former stockholder entitled
thereto as provided in the Liquidating Trust Agreement. Assets held in the
Paramark Liquidating Trust shall be distributed to the beneficiaries of the
Paramark Liquidating Trust at the time and under the conditions set forth in the
express terms and provisions of the Liquidating Trust Agreement.
(b) It is intended that the assignment of the assets to the
Trustees of the Paramark Liquidating Trust shall, subject to the terms and
provisions of the Liquidating Trust Agreement, constitute a final liquidating
distribution by the Company to its stockholders of their pro rata
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interests in such assets, and the Company's stockholders shall be the owners of
the Paramark Liquidating Trust within the meaning of Sections 671 through 679 of
the Code.
8. Notice of Liquidation. As soon as practicable after the Effective
Date but in no event later than 20 days prior to the filing of Certificate of
Dissolution as provided in Section 9 below, the Company shall mail notice to all
its creditors and employees that this Plan has been approved by the Board and
the stockholders as provided in the DGCL.
9. Certificate of Dissolution. As promptly as practicable within the
Liquidation Period and pursuant to the DGCL, the Company shall prepare and file
a Certificate of Dissolution (the "Certificate") with and for acceptance by the
Delaware Secretary of State. Thereafter, the Company shall conduct no business
except as permitted by the DGCL.
10. Amendment or Abandonment of Plan. The Company may modify or amend
this Plan at any time without stockholder approval if it determines that such
action would be advisable and in the best interests of the Company and its
stockholders. If any amendment or modification appears necessary and in the
judgment of the Company will materially and adversely affect the interests of
the stockholders or delay the time at which distributions of the Company's net
assets will be made, such an amendment or modification will be submitted to the
stockholders for approval. In addition, the Company may abandon this Plan at any
time prior to the filing of the Certificate of Dissolution if the Board of
Directors determines that abandonment would be advisable and in the best
interests of the Company and its stockholders without further action by the
stockholders.
11. Powers of Committee and Officers. Except as required by applicable
law or the terms of this Plan, all of the rights and duties of the Company
relating to the Plan and completion of the transactions contemplated thereby,
including modification, amendment or abandonment of the Plan, shall be made
solely by or under the direction of a Committee of the Board of Directors of the
Company. Any rights and duties of the Company relating to the Plan and
completion of the transactions contemplated thereby that are reserved by law or
this Plan exclusively to the stockholders or the Board of Directors of the
Company as a whole shall be exercised by the Board of Directors or the
stockholders, as the case may be. In addition to exercising the specific powers
granted to the Company by the Plan, such Committee is authorized to approve such
changes to the terms of any of the transactions referred to herein, to interpret
any of the provisions of this Plan, to delegate the exercise of its rights and
duties to Officers or agents of the Company and to make, execute and deliver or
authorize the Officers or agents of the Company to make, execute and deliver
such other agreements, conveyances, assignments, transfers, certificates and
other documents and take such other action as the Committee deems necessary or
desirable in order to carry out the provisions of this Plan and effect as
promptly as practicable the complete liquidation and dissolution of the Company
in accordance with the Plan, the Code and the DGCL.
-3-
EXHIBIT A
LIQUIDATING TRUST AGREEMENT
By and Between
PARAMARK ENTERPRISES, INC.
as the Grantor,
and
Charles N. Loccisano and Alan Gottlich,
as Trustees
Dated as of ______________, 2000
LIQUIDATING TRUST AGREEMENT
AGREEMENT AND DECLARATION OF TRUST, dated as of ____________, 2000 by
and between Paramark Enterprises, Inc., a Delaware corporation ("Paramark"), and
Charles N. Loccisano and Alan Gottlich, as trustees (the "Trustees").
WHEREAS, Paramark has entered into an agreement to sell substantially
all of the operating assets of Paramark to Rich Products Manufacturing
Corporation d/b/a Jon Donaire Desserts for (1) $1,182,750 by closing, (2)
$1,000,000 paid in equal annual installments over a period of four (4) years,
and (3) the assumption of $285,000 of debt (the "Jon Donaire Transaction");
WHEREAS, Paramark has entered into an agreement to sell (i) the
remaining operating assets of Paramark to Brooks Street Baking Company for
royalty payments to Paramark equal to 5 percent (5%) of net sales of "Pull-Apart
Cakes" to existing customers and 1 1/2 percent (1.5%) of net sales of all
Pull-Apart Cakes to new customers over a period of four (4) years and the
assumption of $70,000 of debt, and (ii) some inventory of Paramark for $12,500
(collectively, the "Brooks Street Transaction");
WHEREAS, Paramark's Board of Directors have adopted and its
Stockholders approved a Plan of Liquidation (the "Plan") subject to the approval
of its stockholders;
WHEREAS, as part of the Plan, Paramark's Board of Directors intends to
sell all the retained assets of Paramark including all furniture, fixtures and
equipment (the "Retained Assets");
WHEREAS, Paramark's Board of Directors anticipates that
Paramark may not be able to fully wind up all of its affairs prior to the date
by which Paramark must dissolve, and therefore have made specific arrangements
for such contingency in the Plan;
EXHIBIT A
WHEREAS, the Plan, among other things, (i) provides for the
establishment of a liquidating trust pursuant to the terms and conditions hereof
(the "Trust"), (ii) provides the methods by which the Trustees were selected to
serve as agent of the Beneficiaries (as defined below) and Trustees of the
Trust, (iii) authorizes and directs Paramark to transfer to the Trust the
remaining proceeds from the Jon Donaire Transaction and the Brooks Street
Transaction following the payment of all liabilities and various expenses of
Paramark (the "Sale Proceeds"), (iv) authorizes and directs Paramark to transfer
any proceeds from the sale of the Retained Assets (the "Retained Asset
Proceeds") to the Trustees as agents for the Beneficiaries, (v) authorizes and
directs the Trustees to apply the proceeds from the Sale Proceeds and Retained
Asset Proceeds to the payment of actual, anticipated, unforseen or contingent
liabilities of Paramark, with no objective or authority to engage in the conduct
of a trade or business and (vi) authorizes and directs the Trustees to make
liquidating distributions to the holder of Units (as defined below) in the Trust
during the four years (4) following the transactions.
NOW, THEREFORE, in consideration of the premises, and subject
to the terms and provisions herein, effective as of the close of business on the
Record Date (as defined herein), Paramark hereby grants, releases, assigns,
conveys and delivers unto the Trustees for the benefit of the beneficiaries of
the Trust (the "Beneficiaries"), all of Paramark's right, title and interest in
and to the Sale Proceeds and Retained Asset Proceeds not distributed to
Stockholders as of the Record Date for the uses and purposes stated herein, and
the Trustees hereby accept such assets and such Trust:
ARTICLE I
NAME AND DEFINITIONS
1.1 Name. This trust shall be known as the Paramark Liquidating Trust.
1.2 Certain Terms Defined. For all purposes of this instrument, unless
the context otherwise requires:
(a) "Agreement" shall mean this instrument as originally
executed or as it may from time to time be amended pursuant to the terms hereof.
(b) "Beneficial Interest" shall mean each Beneficiary's
proportionate share of the Trust Assets initially determined by the ratio of the
number of Shares held by the Initial Beneficiary (as defined below) on the close
of business on the Record Date over the total number of Shares issued and
outstanding on such Record Date and thereafter each Beneficiaries' proportional
beneficial interest in the Trust.
(c) "Initial Beneficiary" shall mean each of the Stockholders.
(d) "Person" shall mean an individual, a corporation, a
partnership, an association, a joint stock company, a limited liability company,
a trust, a joint venture, any unincorporated organization, or a government or
political subdivision thereof.
-2-
(e) "Record Date" shall mean the date elected by the Board of
Directors of Paramark for determination of the Stockholders of Paramark entitled
to become Beneficiaries, which shall also be the date on which Paramark conveys
to the Trust all of the assets of Paramark.
(f) "Shares" shall mean the shares of Common Stock, par value
$.01 per share, of Paramark.
(g) "Stockholders" shall mean the holders of record of the
outstanding Shares of Paramark at the close of business on the Record Date.
(h) "Trust" shall mean the Trust created by this Agreement.
(i) "Trust Assets" shall mean all the property held from time
to time by the Trustees under this Agreement, which initially shall consist of
the Sale Proceeds and retained Asset Proceeds conveyed to the Trustees by
Paramark pursuant to the Plan, and, in addition, shall thereafter include all
dividends, rents, royalties, income, proceeds and other receipts of, from, or
attributable to any assets held by the Trust, less any of the foregoing utilized
by the Trustees to pay expenses of the Trust, satisfy liabilities of Paramark or
the Trust or make distributions to the Beneficiaries.
(j) "Trustees" shall mean the original Trustees, any Trustees
appointed hereunder after the date hereof, and their successors.
ARTICLE II
NATURE OF TRANSFER
2.1 Transfer of Property to the Trust. The Board of Directors of
Paramark shall forthwith assign, or cause Paramark to assign, to the Trustees,
by written instrument in proper form for record, the Sale Proceeds and Retained
Asset Proceeds, to be held by the Trustees as herein provided.
2.2 Purpose of Trust.
(a) The Trust is organized for the sole purpose of liquidating
and distributing the assets held by the Trust with no objective to continue or
engage in the conduct of a trade or business.
(b) As Paramark is required to liquidate and dissolve prior to
fully winding up its
-3-
affairs, including, but not limited to, its payment of any unsatisfied debts,
claims, liabilities, commitments, suits and other obligations, whether
contingent or fixed, arising from any source whatsoever (the "Liabilities"),
without any established procedure to satisfy such Liabilities, Paramark's Board
of Directors and Stockholders each approved the Plan, which calls for the
establishment of the Trust, and sets forth the manner in which the Trustees are
selected, for the purpose of providing a procedure that will enable Paramark to
dissolve in a timely manner, and wind up its affairs, by assigning and conveying
to the Trustees pursuant to the terms contained herein all assets of Paramark
not previously distributed to Stockholders or used to pay outstanding
liabilities. The assets granted, assigned and conveyed to the Trustees will be
held in the Trust, and the Trustees will: (i) further liquidate the Trust Assets
if necessary to carry out the purpose of the Trust and facilitate distribution
of the Trust Assets; (ii) allocate, protect, conserve and manage the Trust
Assets in accordance with the terms and conditions hereof; (iii) complete the
winding up of Paramark's affairs; (iv) act on behalf of the Beneficiaries and in
the capacity of Paramark in connection with any matters and (v) distribute the
Trust Assets in accordance with the terms and conditions hereof.
(c) It is intended that the granting, assignment and
conveyance of the initial Trust Assets by Paramark to the Trustees pursuant
hereto shall be treated for federal and state income tax purposes as if Paramark
made such distributions directly to the Stockholders. It is further intended
that for federal, state and local income tax purposes the Trust shall be treated
as a liquidating trust under Treasury Regulation Section 301.7701-4(d) and any
analogous provision of state or local law, and the Beneficiaries shall be
treated as the owners of their respective share of the Trust pursuant to
Sections 671 through 679 of the Internal Revenue Code of 1986, as amended (the
"Code") and any analogous provision of state or local law and shall be taxed on
their respective share of the Trust's taxable income (including both ordinary
income and capital gains) pursuant to Section 671 of the Code and any analogous
provision of state or local law. The Trustees shall file all tax returns
required to be filed with any governmental agency consistent with this position,
including, but not limited to, any returns required of grantor trusts pursuant
to Section 1.671-4(a) of the income tax regulations under the Code (the "Income
Tax Regulations").
2.3 Prohibited Activities. The Trust shall not continue or engage in
the conduct of any trade or business, and the Trustees are expressly prohibited
from, and shall have no power or authority to, continue or engage in the conduct
of any trade or business on behalf of the Trust or the Beneficiaries, and all of
the terms and conditions hereof shall be construed accordingly.
2.4 No Reversion to Paramark. In no event shall any part of the Trust
Assets revert to or be distributed to Paramark.
2.5 Instruments of Further Assurance. After the dissolution of
Paramark, such persons as shall have the right and power to so act, will, upon
reasonable request of the Trustees, execute, acknowledge, and deliver such
further instruments and do such further acts as may be
-4-
necessary or proper to carry out effectively the purposes of this Agreement, to
confirm or effectuate the transfer to the Trustees of any property intended to
be covered hereby, and to vest in the Trustees, their successors and assigns,
the estate, powers, instruments or Paramark in trust hereunder.
2.6 Payment of Liabilities. The Trust hereby assumes all Liabilities.
Should any Liability be asserted against the Trust or the Trustees as the
transferees of the Trust Assets or as a result of the assumption made in this
paragraph, the Trustees may use such part of the Trust Assets as may be
necessary in contesting any such Liability or in payment thereof, but in no
event shall the Trustees, Beneficiaries or employees or agents of the Trust be
personally liable, nor shall resort be had to the private property of such
Persons, in the event the Trust Assets are not sufficient to satisfy the
Liabilities of the Trust.
2.7 Incidents of Ownership. The Stockholders shall be the Initial
Beneficiaries of the Trust created by this Agreement and the Trustees shall
retain only such incidents of legal ownership as are necessary to undertake the
actions and transactions authorized herein.
2.8 Notice to Unlocated Stockholders. If the Trust holds Trust Assets
for unlocated Stockholders, due notice shall be given to such Stockholders in
accordance with local law.
ARTICLE III
BENEFICIARIES
3.1 Beneficial Interests.
(a) The Initial Beneficial Interest of each former Stockholder
as a Beneficiary hereof shall be determined by the Trustees in accordance with a
certified copy of Paramark's Stockholder list as of the Record Date.
(b) Paramark will deliver such a certified copy of its
Stockholder list to the Trustees within a reasonable time after such date. For
ease of administration, the Trustees shall express the Beneficial Interest of
each Beneficiary in terms of units ("Units"). Each record owner of shares of
Common Stock of Paramark at the Record Date shall be entitled to receive one
Unit in cancellation of each such share. The certificates representing shares
will be deemed to evidence the number of Units in the Trust owned by each
Beneficiary, provided, however, that upon exchange or transfer of such
certificates, the certificates shall be marked with an appropriate legend, or
new certificates in a form approved by the Trustees shall be issued and shall
evidence the number of Units owned. Such certificates will be legended to
restrict transfer.
(c) If any conflicting claims or demands are made or asserted
with respect to the ownership of any Units, or if there should be any
disagreement between the transferees, assignees, heirs, representatives or
legatees succeeding to all or part of the interest of any Beneficiary resulting
in adverse claims or demands being made in connection with such Units, then, in
any of such events, the Trustees shall be entitled, at their sole election, to
refuse to comply with any such conflicting claims or demands. In so refusing,
the Trustees may elect to make no payment or distribution with respect to such
Units, or to make such payment to a court of competent jurisdiction or an escrow
agent, and in so doing the Trustees shall not be or become liable to any of such
parties for their failure or refusal to comply with any of such conflicting
claims or demands, nor shall the Trustees be liable for interest on any
Paramarks which it may so withhold. The Trustees shall be entitled to refrain
and refuse to act until either (i) the rights of the adverse claimants have been
adjudicated by a final judgment of a court of competent jurisdiction, (ii) all
differences have been adjusted by valid written agreement between all of such
parties, and the Trustees shall have been furnished with an executed counterpart
of such agreement, or (iii) there is furnished to the Trustees a surety bond or
other security satisfactory to the Trustees, as they shall deem appropriate, to
fully indemnify them as between all conflicting claims or demands.
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3.2 Rights of Beneficiaries. Each Beneficiary shall be entitled to
participate in the rights and benefits due to a Beneficiary hereunder according
to his Beneficial Interest. Each Beneficiary shall take and hold the same
subject to all the terms and provisions of this Agreement. The interest of the
Beneficiary hereby is declared and shall be in all respects personal property
and upon the death of an individual Beneficiary, his Beneficial Interest shall
pass as personal property to his legal representative and such death shall in no
way terminate or affect the validity of this Agreement. A Beneficiary shall have
no title to, right to, possession of, management of, or control of, the Trust
Assets except as herein expressly provided. No widower, widow, heir, or devisee
of any person who may be a Beneficiary shall have any right of dower, homestead,
or inheritance, or of partition, or of any other right, statutory or otherwise,
in any property forming a part of the Trust Assets but the whole title to all
the Trust Assets shall be vested in the Trustees and the sole interest of the
Beneficiaries shall be the rights and benefits given to such Persons under the
Agreement.
3.3 Transfer of Interests of Beneficiaries. The Beneficial Interest of
a Beneficiary may not be transferred either by the Beneficiary in person or by a
duly authorized agent or attorney, or by the properly appointed legal
representatives of the Beneficiary, nor may a Beneficiary have authority or
power to sell, assign, transfer, encumber, or in any other manner dispose of his
Beneficial Interest; provided, however, that the Beneficial Interest shall be
assignable or transferable by will, intestate succession, or operation of law.
The Beneficial Interests of the Beneficiaries hereunder shall not be subject to
attachment, execution, sequestration or any order of a court, nor shall such
interests be subject to the contracts, debts, obligations, engagements or
liabilities of any Beneficiary, but the interest of a Beneficiary shall be paid
by the Trustees to the Beneficiary free and clear of all assignments,
attachments, anticipations, levies, executions, decrees and sequestrations and
shall become the property of the Beneficiary only when actually received by such
Beneficiary.
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3.4 Trustees as Beneficiaries. Each Trustee, either individually or in
a representative or fiduciary capacity may be a Beneficiary to the same extent
as if he were not a Trustee hereunder and have all the rights of a Beneficiary,
including, without limitation, the right to vote and to receive distributions,
to the same extent as if he were not a Trustee hereunder.
ARTICLE IV
DURATION AND TERMINATION OF TRUST
4.1 Duration. The existence of this Trust shall terminate upon the
earliest of (i) a termination required by the applicable laws of the State of
Delaware, (ii) the termination due to the distribution of all the Trust Assets
as provided in Section 5.5, or (iii) the expiration of a period of four (4)
years from the date assets were first transferred to the Trust; provided,
however, the Trustees, in their discretion, may extend the existence of this
Trust to such later date as they may designate, if they determine that an
extension is reasonably necessary to pay or make provision for then known
liabilities, actual or contingent, and provided further, however, that the Trust
shall not in any event terminate pursuant to this clause (iii) prior to the date
the Trustees are permitted to make a final distribution in accordance with
Section 5.5.
4.2 Other Obligations of Trustees upon Termination. Upon distribution
of all the Trust Assets, the Trustees shall provide for the retention of the
books, records, lists of holders of Units, certificates for Shares and Units and
files which shall have been delivered to or created by the Trustees. At the
Trustees' discretion, all of such records and documents may be destroyed at any
time after seven years from the distribution of all the Trust Assets. Except as
otherwise specifically provided herein, upon the distribution of all the Trust
Assets, the Trustees shall have no further duties or obligations hereunder.
ARTICLE V
ADMINISTRATION OF TRUST ASSETS
5.1 Transactions with Related Persons. Notwithstanding any other
provisions of this Agreement, but only to the extent that such transactions have
not been previously approved by the Stockholders as part of the Plan, the
Trustees shall not knowingly, directly or indirectly, sell or otherwise transfer
all or any part of the Trust Assets to, or contract with, (i) any Trustee,
employee or agent (acting in their individual capacities) of this Trust or (ii)
any Person of which any Trustee, employee or agent of this Trust is an affiliate
by reason of being a Trustee, director, officer, partner or direct or indirect
beneficial owner of 5 percent (5%) or more of the outstanding capital stock,
shares or other equity interest of such Persons; unless, in each such case,
after disclosure of such interest or affiliation, such transaction is approved
by a majority of the Trustees who are not interested in the transaction and such
Trustees determine that such transaction is on its terms fair and reasonable to
the Trust and is in the best interests of the Beneficiaries, and in no event
less favorable to this Trust than terms available for a comparable transaction
with unrelated Persons. The Trustees are entitled to rely in good faith on
certificates
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of the Trustees, employees and agents of the Trust with respect to their
interests in any transaction.
5.2 Restriction on Trust Assets. The Trust shall not receive transfers
of any assets prohibited by Revenue Procedure 82-58, as the same may be amended,
supplemented or modified including, but not limited to, any listed stocks or
securities, any readily-marketable assets, any operating assets of a going
business, any unlisted stock of a single issuer that represents 80 percent (80%)
or more of the stock of such issuer or any general or limited partnership
interests.
5.3 Payment of Claims, Expenses and Liabilities. The Trustees shall pay
from the Trust Assets all claims, expenses, charges, liabilities, and
obligations of the Trust and all Liabilities and obligations which the Trustees
specifically assume and agree to pay pursuant to this Agreement and such
transferee liabilities which the Trustees may be obligated to pay as transferees
of the Trust Assets, including among the foregoing, and without limiting the
generality of the foregoing, interest, penalties, taxes, assessments, and public
charges of every kind and nature and the costs, charges, and expenses connected
with or growing out of the execution or administration of this Trust and such
other payments and disbursements as are provided in this Agreement or which may
be determined to be a proper charge against the Trust Assets by the Trustees.
5.4 Interim Distributions. At such times as may be determined by them,
the Trustees shall distribute, or cause to be distributed, to the Beneficiaries,
in proportion to the number of Units held by each Beneficiary, such cash or
other property comprising a portion of the Trust Assets as the Trustees may in
their sole discretion determine may be distributed without detriment to the
conservation and protection of the Trust Assets; provided, however, that the
Trustees shall distribute, or cause to be distributed, at least annually to the
Beneficiaries any proceeds from the sale of Trust Assets in excess of a
reasonable amount (as determined by the Trustees) to satisfy the claims,
expenses and liabilities described in Section 5.4.
5.5 Final Distribution. If the Trustees determine that the Liabilities
and all other claims, expenses, charges, liabilities and obligations of the
Trust have been paid or discharged, or if the existence of the Trust shall
terminate pursuant to Section 4.1, the Trustees shall, as expeditiously as is
consistent with the conservation and protection of the Trust Assets, distribute
the Trust Assets to the Beneficiaries in proportion to the number of Units held
by each Beneficiary.
5.6 Reports to Beneficiaries and Others. As soon as practicable after
the end of each
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taxable year of the Trust and after termination of the Trust, the Trustees shall
submit a written report and account to the Beneficiaries showing (i) the assets
and liabilities of the Trust at the end of such taxable year or upon termination
and the receipts and disbursements of the Trustees for such taxable year or
period, prepared in accordance with generally accepted accounting principles,
(ii) any changes in the Trust Assets that they have not previously reported, and
(iii) any action taken by the Trustees in the performance of their duties under
this Agreement that they have not previously reported and which, in their
opinion, materially affects the Trust Assets. The Trustees may submit similar
reports for such interim periods during the taxable year as they deem advisable
or as may be required by the Securities and Exchange Commission. The taxable
year of the Trust shall end on December 31 of each year unless the Trustees deem
it advisable to establish some other date as the date on which the taxable year
of the Trust shall end. The Trustees shall file with the Securities and Exchange
Commission such reports as are required under applicable Securities and Exchange
Commission requirements including (i) the filing of the annual report sent to
Beneficiaries with the Securities and Exchange Commission under the cover of a
Form 10-K and (ii) the filing of a Form 8-K with the Securities and Exchange
Commission whenever an event occurs for which Form 8-K is required to be filed
for the Trust or, in the opinion of the Trustees, a material event relating to
the trust assets has occurred. The Trustees shall provide a copy of any Form 8-K
to the Beneficiaries.
5.7 Federal Income Tax Information. As soon as practicable
after the close of each taxable year, the Trustees shall mail to each Person who
was a Beneficiary at the close of the year, a statement showing on a unit basis
the dates and amounts of all distributions made by the Trustees, the Trust
Assets disposed of by the Trust, if any, income earned on Trust Assets, if any,
and such other information as is reasonably available to the Trustees which may
be helpful in determining the amount of gross income attributable to the Trust
that such Beneficiary should include in such Person's Federal income tax return
for the preceding year. In addition, after receipt of a request in good faith,
or in their discretion without such request or if required by applicable law,
the Trustees shall furnish to any Person who has been a Beneficiary at any time
during the preceding year a statement containing such further information as is
reasonably available to the Trustees that shall be helpful in determining the
amount of taxable income that such Person should include in such Person's
Federal income tax return.
ARTICLE VI
POWERS OF AND LIMITATIONS ON THE TRUSTEES
6.1 Limitations on Trustees.
(a) The Trustees shall not at any time, on behalf of the Trust
or Beneficiaries,
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enter into or engage in any trade or business, and no part of the Trust Assets
shall be used or disposed of by the Trustees in furtherance of any trade or
business. The Trustees shall be restricted to the holding and collection of the
Trust Assets and the payment and distribution thereof for the purposes set forth
in this Agreement and to the conservation and protection of the Trust Assets and
the administration thereof in accordance with the provisions of this Agreement.
In no event shall the Trustees take any action which would jeopardize the status
of the Trust as a "liquidating trust" for federal income tax purposes within the
meaning of Treasury Regulation Section 301.7701-4(d). This limitation shall
apply regardless of whether the conduct of any such trade or business is deemed
by the Trustees to be necessary or proper for the conservation and protection of
the Trust Assets. The Trustees shall not invest any of the funds held as Trust
Assets, except that the Trustees may invest any portion of the Trust Assets in
(i) direct obligations of the United States of America or obligations of any
agency or instrumentality thereof which mature not later than one year from the
date of acquisition thereof; (ii) money market deposit accounts, checking
accounts, savings accounts, or certificates of deposit, or other time deposit
accounts which mature not later than one year from the date of acquisition
thereof which are issued by a commercial bank or savings institution organized
under the laws of the United States of America or any state thereof; or (iii)
any other investments which may be determined by the Trustees to be permissible
under Revenue Procedure 82-58, as the same may be amended, supplemented or
modified.
6.2 Specific Powers of Trustees.
(a) Subject to the provisions of Section 6.1, the Trustees
shall have the following specific powers in addition to any powers conferred
upon them by any other Section or provision of this Agreement or any statutory
laws of the State of New Jersey; provided, however, that the enumeration of the
following powers shall not be considered in any way to limit or control the
power of the Trustees to act as specifically authorized by any other Section or
provision of this Agreement and to act in such a manner as the Trustees may deem
necessary or appropriate to conserve and protect the Trust Assets or to confer
on the Beneficiaries the benefits intended to be conferred upon them by this
Agreement:
(b) To determine the nature and amount of the consideration to
be received with respect to the sale or other disposition of, or the grant of
interests in, the Trust Assets.
(c) To collect, liquidate or otherwise convert into cash, or
such other property as they deem appropriate, all property, assets and rights in
the Trust Assets, and to pay, discharge and satisfy all other claims, expenses,
charges, Liabilities, and obligations existing with respect to the Trust Assets,
the Trust or the Trustees.
(d) To elect, appoint, engage, retain or employ any Persons as
agents, representatives, employees, or independent contractors (including
without limitation, investment advisors, accountants, transfer agents,
attorneys-at-law, managers, appraisers, brokers, or otherwise) in one or more
capacities, and to pay compensation from the Trust Assets for services in as
many capacities as such Person may be so elected, appointed, engaged, retained
or employed, to prescribe the titles, powers and duties, terms of service and
other terms and conditions of the election, appointment, engagement, retention
or employment of such Persons and, except as prohibited by law, to delegate any
of the powers and duties of the Trustees to any one or more Trustees, agents,
representatives, employers, independent contractors or other Persons.
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(e) To retain and set aside such funds out of the Trust Assets
as the Trustees shall deem necessary or expedient to pay, or provide for the
payment of (i) unpaid claims, expenses, charges, Liabilities, and obligations of
the Trust or Paramark, (ii) contingencies, and (iii) the expenses of
administering the Trust Assets.
(f) To do and perform any and all acts necessary or
appropriate for the conservation and protection of the Trust Assets, including
acts or things necessary or appropriate to maintain assets held by the Trustees
pending sale or other disposition thereof or distribution thereof to the
Beneficiaries.
(g) To hold legal title to property of the Trust in the name
of the Trust, or in the name of one or more of the Trustees, or of any other
Person, without disclosure of the interest of the Trust therein.
(h) To cause any investments of any part of the Trust Assets
to be registered and held in the name of any one or more of their names or in
the names of a nominee or nominees without increase or decrease of liability
with respect thereto.
(i) To institute or defend actions or declaratory judgments or
other actions, arbitrations or mediations and to take such other action, in the
name of the Trust or Paramark or as otherwise required, as the Trustees may deem
necessary or desirable to enforce any instruments, contracts, agreements, causes
of action or rights relating to or forming a part of the Trust Assets.
(j) To determine conclusively from time to time the value of
and to revalue the securities and other property of the Trust, in accordance
with independent appraisals or other information as they deem satisfactory.
(k) To cancel, terminate, or amend any instruments, contracts,
agreements, obligations or causes of action relating to or forming a part of the
Trust Assets and to execute new instruments, contracts, agreements, obligations
or causes of action notwithstanding that the terms of any such instruments,
contracts, agreements, obligations or causes of action may extend beyond the
terms of this Trust, provided that no such new instrument, contract, agreement,
obligation or cause of action shall permit the Trustees to engage in any
activity prohibited by Section 6.1.
(l) To vote by proxy or otherwise on behalf of the
Beneficiaries and with full power of substitution all shares of stock and all
securities held by the Trustees hereunder and to exercise every power, election,
discretion, option and subscription right and give every notice, make every
demand, and to do every act or thing in respect to any shares of stock or any
securities held by the Trustees which the Trustees might or could do if they
were the absolute owners thereof.
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(m) To undertake or join in any merger, plan of
reorganization, consolidation, liquidation, dissolution, readjustment or other
transaction of any corporation, any of whose shares of stock or other
securities, obligations, or properties may at any time constitute a part of the
Trust Assets, and to accept the substituted shares of stock, bonds, securities,
obligations and properties and to hold the same in trust in accordance with the
provisions hereof.
(n) In connection with the sale or other disposition or
distribution of any securities held by the Trustees, to comply with the
applicable Federal and state securities laws, and to enter into agreements
relating to sale or other disposition or distribution thereof.
(o) To authorize transactions between corporations or other
entities whose securities, or other interests therein (either in the nature of
debt or equity) are held by the Trustees as part of the Trust Assets.
(p) To perform any act authorized, permitted, or required
under any instrument, contract, agreement, right, obligation or cause of action
relating to or forming a part of the Trust Assets whether in the nature of an
approval, consent, demand or notice thereunder or otherwise, unless such act
would require the consent of the Beneficiaries in accordance with the express
provisions of this Agreement.
ARTICLE VII
CONCERNING THE TRUSTEES,
BENEFICIARIES, EMPLOYEES AND AGENTS
7.1 Generally. The Trustees accept and undertake to discharge the trust
created by this Agreement, upon the terms and conditions thereof on behalf of
the Beneficiaries. The Trustees shall exercise such of the rights and powers
vested in them by this Agreement, and use the same degree of care and skill in
their exercise as a prudent man would exercise or use under the circumstances in
the conduct of his own affairs. No provision of this Agreement shall be
construed to relieve the Trustees from liability for their own negligent action,
their own negligent failure to act, or their own willful misconduct, except
that:
(a) No Trustee shall be responsible for the acts or omissions
of any other Trustee if done or omitted without his knowledge or consent unless
it shall be proved that such Trustee was negligent in ascertaining the pertinent
facts, and no successor Trustee shall be in any way responsible for the acts or
omissions of any Trustee in office prior to the date on which he becomes a
Trustee.
(b) No Trustee shall be liable except for the performance of
such duties and obligations as are specifically set forth in this Agreement, and
no implied covenants or obligations shall be read into this Agreement against
any Trustee.
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(c) In the absence of bad faith on the part of the Trustees,
the Trustees may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or opinions
furnished to the Trustees and conforming to the requirements of this Agreement;
but in the case of any such certificates or opinions that are specifically
required to be furnished to the Trustees by any provision hereof, the Trustees
shall be under a duty to examine the same to determine whether or not they
conform to the requirements of this Agreement.
(d) No Trustee shall be liable for any error of judgment made
in good faith.
(e) No Trustee shall be liable with respect to any action
taken or omitted to be taken by him in good faith in accordance with the
direction of Beneficiaries having an aggregate Beneficial Interest of more than
50 percent (50%) relating to the time, method, and place of conducting any
proceeding for any remedy available to the Trustees, or exercising any trust or
power conferred upon the Trustees under this Agreement.
7.2 Except as otherwise provided in Section 7.1:
(a) The Trustees may rely and shall be protected in acting
upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, or other paper or document believed by them to
be genuine and to have been signed or presented by the proper party or parties.
(b) The Trustees may consult with legal counsel, auditors or
other experts to be selected by them, including firms of which a Trustee may be
a member, and the advice or opinion of such counsel, auditors or other experts
shall be full and complete personal protection to all Trustees, employees and
agents of the Trust in respect of any action taken or suffered by them in good
faith and in reliance on, or in accordance with, such advice or opinion.
(c) Persons dealing with the Trustees shall look only to the
Trust Assets to satisfy any liability incurred by the Trustees to such Person in
carrying out the terms of this Trust, and the Trustees shall have no personal or
individual obligation to satisfy any such liability.
(d) As far as practicable, the Trustees shall cause any
written instrument creating an obligation of the Trust to include a reference to
this Agreement and to provide that neither the Beneficiaries, the Trustees nor
their agents shall be liable thereunder and that the other parties to such
instrument shall look solely to the Trust Assets for the payment of any claim
thereunder or the performance thereof; provided, however, that the omission of
such provision from any such instrument shall not render the Beneficiaries,
Trustees, or their agents liable nor shall the Trustees be liable to anyone for
such omission.
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7.3 Liability to Third Persons. No Beneficiary shall be subject to any
personal liability whatsoever, in tort, contract or otherwise, to any Person in
connection with the Trust Assets or the affairs of this Trust; and no Trustee,
employee or agent of this Trust shall be subject to any personal liability
whatsoever, in tort, contract or otherwise, to any Person in connection with the
Trust Assets or the affairs of this Trust, except for his own willful
misconduct, knowingly and intentionally committed in bad faith; and all such
other Persons shall look solely to the Trust Assets for satisfaction of claims
of any nature arising in connection with the affairs of this Trust. The Trustees
shall, at all times, maintain insurance for the protection of the Trust Assets,
its Beneficiaries, Trustees, employees and agents in such amount as the Trustees
shall deem adequate to cover all foreseeable liability to the extent available
at reasonable rates.
7.4 Recitals. Any written instrument creating an obligation of this
Trust shall be conclusively taken to have been executed or done by a Trustee,
employee or agent of this Trust only in his capacity as a Trustee under this
Agreement or in his capacity as an employee or agent of the Trust.
7.5 Indemnification. Each Trustee and employee of the Trust and each
agent of the Trust and the directors, officers, partners, employees, equity
owners and agents of such agent (each an "Indemnified Person" and collectively,
the "Indemnified Persons") shall be indemnified out of the Trust Assets against
all liabilities and expenses, including amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees, reasonably
incurred by the Indemnified Persons in connection with the defense or
disposition of any action, suit or other proceeding by the Trust or any other
Person, whether civil or criminal, in which the Indemnified Person may be
involved or with which the Indemnified Person may be threatened (i) in the case
of any Trustee or any employee or agent of the Trust, while in office or
thereafter, by reason of his being or having been such a Trustee, employee or
agent, and (ii) in the case of any director, officer, partner, employee, equity
owner or agent of any agent of the Trust by reason of any such Person exercising
or failing to exercise any right hereunder; provided, however, that the
Indemnified Person shall not be entitled to such indemnification in respect of
any matter as to which the Indemnified Person shall have been adjudicated to
have acted in bad faith or with willful misfeasance, negligence, or in reckless
disregard of the Indemnified Person's duties; and provided, further, however,
that, as to any matter disposed of by a compromise payment by such Indemnified
Person pursuant to a consent decree or otherwise, no indemnification either for
said payment or for any other expenses shall be provided unless the Trustee
shall have received a written opinion from independent counsel approved by the
Trustee to the effect that if the foregoing matters had been adjudicated, such
Indemnified Person would not have been found to have acted in bad faith or with
willful misfeasance, negligence, or in reckless disregard of the Indemnified
Person's duties. The rights accruing to any Indemnified Person under these
provisions shall not exclude any other right to which the Indemnified Person may
be lawfully entitled; provided, however, that no Indemnified Person may satisfy
any right of indemnity or reimbursement granted herein or to which the
Indemnified Person may be otherwise entitled except out of the Trust Assets, and
no Beneficiary shall be personally liable to any person with
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respect to any claim for indemnity or reimbursement or otherwise. The Trustees
may make advance payments in connection with indemnification under this Section,
provided that the Indemnified Person shall have given a written undertaking to
repay any amount advanced to the Indemnified Person and to reimburse the Trust
in the event it is subsequently determined that the Indemnified Person is not
entitled to such indemnification. The Trustees may purchase such insurance as
they feel, in the exercise of their discretion, adequately insures that each
Indemnified Person shall be indemnified against any such loss, liability or
damage pursuant to this Section. The rights accruing to any Indemnified Person
by reason of the foregoing shall not be deemed to exclude any other right to
which he may legally be entitled nor shall anything else contained herein
restrict the right of the Trustees to indemnify or reimburse such Indemnified
Person in any proper case even though not specifically provided for herein, nor
shall anything contained herein restrict the right of any such Indemnified
Person to contribution under applicable law.
7.6 Rights of Trustees, Employees, Independent Contractors and Agents
To Own Units or Other Property and To Engage in Other Business. Any Trustee,
employee, independent contractor or agent may acquire, own, hold and dispose of
Units for his individual account, and may exercise all rights thereof and
thereunder to the same extent and in the same manner as if he were not a
Trustees, employee, independent contractor or agent. Any Trustee, employee,
independent contractor or agent may, in his personal capacity or in a capacity
of Trustees, officer, director, Stockholder, partner, member, advisor, employee
of any Person or otherwise, have business interests and holdings similar to or
in addition to those relating to the Trust. Subject to the provisions of Article
V hereof, any Trustee, employee, independent contractor or agent of the Trust
may be a Trustee, officer, director, Stockholder, partner, member, advisor,
employee or independent contractor of, or otherwise have a direct or indirect
interest in, any Person who may be engaged to render advice or services to the
Trust, and may receive compensation from such Person. None of these activities
shall be deemed to conflict with his duties as Trustees, employee, independent
contractor or agent.
ARTICLE VIII
COMPENSATION OF TRUSTEES
8.1 Compensation. The Trustee shall not be entitled to receive
compensation in consideration for services rendered in administering the Trust.
8.2 Expenses. Each Trustee shall be reimbursed from the Trust Assets
for all expenses reasonably incurred by him in the performance of his duties in
accordance with this Agreement.
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ARTICLE IX
TRUSTEES AND SUCCESSOR TRUSTEES
9.1 Number and Qualification of Trustees. Subject to the provisions of
Section 9.3 relating to the period pending the appointment of a successor
Trustee, there shall be no fewer than one nor more than three Trustees of this
Trust, each of whom shall be a resident of the United States. Within the limits
set forth in this Section 9.1, the number of Trustees may be increased or
decreased from time to time by the Trustees.
9.2 Resignation and Removal. Any Trustee may resign and be discharged
from the Trust hereby created by giving written notice thereof to the remaining
Trustee or Trustees and by mailing such notice to the Beneficiaries at their
respective addresses as they appear in the records of the Trustees. Such
resignation shall become effective on the day specified in such notice or upon
the appointment of such Trustee's successor and such successor's acceptance of
such appointment, whichever is earlier. Any Trustee may be removed at any time,
with or without cause, by Beneficiaries having an aggregate Beneficial Interest
of at least 50 percent (50%) of the total Beneficial Interest.
9.3 Appointment of Successor. Should at any time a Trustee resign or be
removed, die, become mentally incompetent or incapable of action (as determined
by a majority of the remaining Trustees in their sole discretion), or be
adjudged a bankrupt or insolvent, a vacancy shall be deemed to exist and a
successor shall be appointed by the remaining Trustees.
9.4 Acceptance of Appointment by Successor Trustees. Any successor
Trustee appointed hereunder shall execute an instrument accepting such
appointment hereunder and shall deliver one counterpart thereof to each of the
other Trustees and, in case of a resignation, to the retiring Trustee. Thereupon
such successor Trustee shall, without any further act, become vested with all
the estates, properties, rights, powers, trusts and duties of his or its
predecessor in the Trust hereunder with like effect as if originally named
therein; but the retiring Trustee shall nevertheless, when requested in writing
by the successor Trustee or by the remaining Trustees, execute and deliver an
instrument or instruments conveying and transferring to such successor Trustee
upon the trust herein expressed, all the estates, properties, rights, powers and
trusts of such retiring Trustee, and shall duly assign, transfer and deliver to
such successor Trustee all property and money held by him hereunder.
9.5 Bonds. No bond shall be required of any original Trustee or any
successor Trustees hereunder.
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ARTICLE X
CONCERNING THE BENEFICIARIES
10.1 Limitation on Suits by Beneficiaries. No Beneficiary shall have
any right by virtue of any provision of this Agreement to institute any action
or proceeding at law or in equity against any party other than the Trustees upon
or under or with respect to the Trust Assets or the agreements relating to or
forming part of the Trust Assets, and the Beneficiaries do hereby waive any such
right, unless Beneficiaries having an aggregate Beneficial Interest of at least
25 percent (25%) shall have made written request upon the Trustees to institute
such action or proceeding in their own names as Trustees hereunder and shall
have offered to the Trustees reasonable indemnity against the costs and expenses
to be incurred therein or thereby, and the Trustees for 30 days after their
receipt of such notice, request, and offer of indemnity shall have failed to
institute any such action or proceeding.
10.2 Requirement of Undertaking. The Trustees may request any court to
require, and any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Agreement, or in any suit against
the Trustees for any action taken or omitted by them as Trustees, the filing by
any party litigant in such suit of an undertaking to pay the costs of such suit,
and such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; provided, however, that the provisions of this Section shall not apply
to any suit or other proceeding by the Trustees.
10.3 Meetings. At the direction of the Trustees or with the consent of
Beneficiaries having aggregate Beneficial Interest of at least a majority or
greater percentage may call a meeting of Beneficiaries for any lawful purposes.
ARTICLE XI
AMENDMENTS
11.1 Consent of Beneficiaries. At the direction or with the consent of
Beneficiaries having an aggregate Beneficial Interest of at least a majority, or
such greater percentage as shall be specified in this Agreement for the taking
of an action by the Beneficiaries under the affected provision of this
Agreement, of the total Beneficial Interest, the Trustees shall promptly make
and execute a declaration amending this Agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or amendments thereto; provided, however, that no such amendment
shall permit the Trustees to engage in any activity prohibited by Section 6.1
hereof or affect the Beneficiaries' rights to receive their pro rata shares of
the Trust Assets at the time of distribution; and provided further, however,
that no consent of the Beneficiaries shall be required with respect to any
amendment made solely for the purpose of facilitating the transferability by
Beneficiaries of Units so long as such amendment has been approved by all the
Trustees or making any other addition, change or deletion to resolve
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any ambiguity or inconsistency herein or that does not materially and adversely
affect any Beneficiary's Beneficial Interest.
11.2 Notice and Effect of Amendment. Promptly after the execution by
the Trustees of any such declaration of amendment, the Trustees shall give
notice of the substance of such amendment to the Beneficiaries or, in lieu
thereof, the Trustees may send a copy of the amendment to each Beneficiary. Upon
the execution of any such declaration of amendment by the Trustees, this
Agreement shall be deemed to be modified and amended in accordance therewith and
the respective rights, limitations of rights, obligations, duties, and
immunities of the Trustees and the Beneficiaries under this Agreement shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modification and amendments, and all the terms and conditions
of any such amendment shall be thereby deemed to be part of the terms and
conditions of this Agreement for any and all purposes.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Filing Documents. This Agreement shall be filed or recorded in
such office or offices as the Trustees may determine to be necessary or
desirable. A copy of this Agreement and all amendments thereof shall be
maintained in the office of each Trustee and shall be available at all times
during regular business hours for inspection by any Beneficiary or his duly
authorized representative. The Trustees shall file or record any amendment of
this Agreement in the same places where the original Agreement is filed or
recorded. The Trustees shall file or record any instrument which relates to any
change in the office of Trustee in the same places where the original Agreement
is filed or recorded.
12.2 Intention of Parties to Establish Trust. This Agreement is not
intended to create and shall not be interpreted as creating a corporation,
association, partnership, or joint venture of any kind for purposes of Federal
income taxation or for any other purpose.
12.3 Beneficiaries Have No Rights or Privileges as Stockholders of
Paramark. Except as expressly provided in this Agreement or under applicable
law, the Beneficiaries shall have no rights or privileges attributable to their
former status as Stockholders of Paramark.
12.4 Laws as to Construction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware. The Trustees,
and the Beneficiaries (by their vote with respect to the Plan and/or their
acceptance of any distributions made to them pursuant to this Agreement),
consent and agree that this Agreement shall be governed by and construed in
accordance with such laws.
12.5 Severability. In the event any provision of this Agreement or the
application thereof to any Person or circumstances shall be finally determined
by a court of proper
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jurisdiction to be invalid or unenforceable to any extent, the remainder of this
Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
12.6 Notices. Any notice or other communication by the Trustees to any
Beneficiary shall be deemed to have been sufficiently given, for all purposes,
if deposited, postage prepaid, in a post office or letter box addressed to such
Person at his address as shown in the records of the Trust.
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
cable, telegram, telecopier or telex to the parties at the following addresses
or at such other addresses as shall be specified by the parties by like notice:
(a) If to the Trustees:
Charles Loccisano and Alan Gottlich
Facsimile: _____________________
(b) if to Paramark:
Paramark Enterprises, Inc.
One Harmon Plaza
Secaucus, New Jersey 07094
Attention: Alan Gottlich, President
Facsimile: __________________
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with a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attention: Jane K. Storero, Esquire
Facsimile: (215) 569-5555
12.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.
12.8 Binding.
(a) The obligations of Paramark are not personally binding
upon, nor shall resort be had to the private property of, any of the directors,
Stockholders, officers, employees or agents of Paramark, but only the property
of Paramark shall be bound.
(b) The obligations of the Trust are not personally binding
upon, nor shall resort be had to the private property of, any of the Trustees,
Beneficiaries, employees or agents of the Trust, but only the Trust Assets shall
be bound.
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IN WITNESS WHEREOF, Paramark has caused this Agreement to be executed
by its President and Chief Executive Officer, and the initial Trustees herein
has executed this Agreement, as Trustees and not as an individual, this ___ day
of ________, 2000.
PARAMARK ENTERPRISES, INC.
By: ______________________
Charles Loccisano
Chairman of the Board
and Chief Executive Officer
--------------------------
Charles Loccisano
Trustee
--------------------------
Alan Gottlich
Trustees
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