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
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[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)
Not Applicable
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
N/A
2) Aggregate number of securities to which transaction applies:
N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction: $5,000,000.00.
5) Total fee paid:
$1,475
[X] Fee paid previously with preliminary 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
July 13, 1998
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 August 11, 1998 at 9:00 am at the law offices of Blank Rome Comisky &
McCauley LLP, One Logan Square, Philadelphia, Pennsylvania. We hope you will be
able to attend.
At the Annual Meeting you will be asked to consider and vote on: (a)
the election of the Board of Directors, (b) a proposal to amend the Company's
1996 Stock Option Plan, and (c) a proposal to sell certain of the assets of the
Company, including the T.J. Cinnamons franchise agreements, and terminate the
purchase agreement, license agreement and management agreement entered into with
Triarc Restaurant Group and affiliates on August 29, 1996, pursuant to the terms
and conditions described in the agreement dated June 30, 1998 between the
Company and TJ Holding Company. Inc., a subsidiary of Triarc Restaurant Group,
attached as Exhibit A to the enclosed Proxy Statement (the "Transaction"). The
Transaction provides for a cash payment of $3,000,000, a non-interest bearing
promissory note in the amount of $1,000,000 and contingent additional
consideration of up to $1,000,000. Details of the proposed Transaction are set
forth in the accompanying Proxy Statement which you should review carefully.
The Board of Directors of the Company has approved the Transaction and
recommends all stockholders vote for its approval. The Board of Directors
believes that the proposed Transaction is in the best interest of the Company
and its stockholders.
In order to ensure 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,
/s/ Charles N. Loccisano
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 AUGUST 11, 1998
To the Stockholders of Paramark Enterprises, Inc.:
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders (the
"Annual Meeting") of Paramark Enterprises, Inc. (the "Company") will be held at
the law offices of Blank Rome Comisky & McCauley LLP, One Logan Square,
Philadelphia, Pennsylvania on August 11, 1998 at 9:00 am local 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.
2. To (a) approve amendments to the Company's 1996 Amended and Restated
Stock Option Plan ("1996 Stock Option Plan") which increase the number
of shares issuable under the 1996 Stock Option Plan by 500,000 shares
to 1,000,000 shares and (b) ratify the class of employees which may
receive shares pursuant to the 1996 Stock Option Plan ("Proposal II");
3. To consider and vote upon the proposed sale of certain of the assets
of the Company, including the T.J. Cinnamons franchise agreements, and
the termination of the purchase agreement dated June 3, 1996, and the
license agreement and management agreement entered into with Triarc
Restaurant Group and affiliates dated August 29, 1996 in consideration
of $3,000,000 in cash, $1,000,000 in the form of a non-interest bearing
promissory note and contingent additional consideration of up to
$1,000,000 pursuant to the terms and conditions of the Agreement
between and among Paramark Enterprises, Inc., TJ Holding Company, Inc.,
a subsidiary of Triarc Restaurant Group, and Arby's, Inc. dated June
30, 1998 ( the "1998 Triarc Agreement) in the form attached as Exhibit
A to the Proxy Statement accompanying this Notice ("Proposal III" or
the "Transaction"); and
4. To transact such other business as may properly come before the
Annual Meeting or any postponements or adjournments thereof.
The close of business on June 22, 1998 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.
All Stockholders are cordially invited to attend the Annual Meeting.
Whether or not you expect to attend, you are requested to sign, date and return
the enclosed proxy promptly. Stockholders 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
/s/ Alan S. Gottlich
Alan S. Gottlich, Secretary
Secaucus, New Jersey
July 13, 1998
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
AVAILABLE INFORMATION....................................................................................7
BENEFICIAL OWNERSHIP.....................................................................................8
PROPOSAL I - ELECTION OF DIRECTORS.......................................................................9
Information about Directors ....................................................................9
Directors Meetings and Committees of the Board of Directors....................................10
Advanced Notice for Director Nominations and New Business......................................10
Executive Compensation ........................................................................11
PROPOSAL II - AMENDMENTS TO THE 1996 STOCK OPTION PLAN .................................................14
General........................................................................................14
Increase in Authorized Shares..................................................................14
Limitation on Maximum Number of Options Awarded................................................14
Eligibility....................................................................................14
Types of Awards................................................................................15
Administration.................................................................................15
Common Stock Subject to the 1996 Stock Option Plan.............................................15
Exercise Price of Options/Payment of Exercise Price.....................................................15
Special Provisions for Incentive Stock Options.................................................15
Non-transferability of Options.................................................................16
Exercisability of Options......................................................................16
Expiration of Options..........................................................................16
Expiration of the 1996 Stock Option Plan.......................................................16
Adjustments....................................................................................16
Amendments.....................................................................................17
Awards under the 1996 Stock Option Plan........................................................17
Federal Income Tax Consequences of the 1996 Stock Option Plan...........................................18
PROPOSAL III - THE TRANSACTION .........................................................................20
Background of the Transaction..................................................................20
Parties to the Transaction ....................................................................21
The 1998 Triarc Agreement......................................................................21
Continuing Business; Proposed Expansion........................................................25
Opinion of Texada Capital Corporation..........................................................26
Interest of Management in the Transaction .....................................................27
Application of Sale Proceeds ..................................................................27
Tax Consequences to the Company ...............................................................28
Recommendation of the Board of Directors.......................................................28
Dividend Policy................................................................................29
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997..................................................30
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1997................................................35
UNAUDITED PRO FORMA FINANCIAL STATEMENTS ...............................................................38
SELECTED CONSOLIDATED FINANCIAL DATA ...................................................................43
PRICE RANGE OF COMMON STOCK ............................................................................46
DIVIDEND POLICY ........................................................................................46
CERTAIN TRANSACTIONS .................................................................................. 47
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ...................................................48
INDEPENDENT PUBLIC ACCOUNTANTS .........................................................................48
ANNUAL REPORT .........................................................................................49
OTHER MATTERS ..........................................................................................49
EXPENSES OF SOLICITATION ..............................................................................49
STOCKHOLDER PROPOSALS...................................................................................50
DOCUMENTS INCORPORATED BY REFERENCE.....................................................................51
APPENDIX A - 1996 Amended and Restated Stock Option Plan
APPENDIX B - Agreement between Paramark Enterprises, Inc., TJ Holding Company,
Inc. and Arby's, Inc. dated June 30, 1998 and Form of Wholesale License
Agreement between Arby's, Inc. and Paramark Enterprises, Inc.
APPENDIX C - Fairness Opinion of Texada Capital Corporation
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
(the "Annual Meeting") of the Company to be held at the law offices of Blank
Rome Comisky & McCauley LLP, One Logan Square, Philadelphia, Pennsylvania on
August 11, 1998 at 9:00 am local time, and for any adjournment or adjournments
thereof, for the following purposes:
I. To consider and vote on the election of the Board of Directors;
II. To (a) approve amendments to the Company's 1996 Amended and
Restated Stock Option Plan ("1996 Stock Option Plan") which increase
the number of shares issuable under the 1996 Stock Option Plan by
500,000 shares to 1,000,000 shares and (b) ratify the class of
employees which may receive shares pursuant to the 1996 Stock Option
Plan ("Proposal II");
III. To consider and vote upon the proposed sale of certain of the
assets of the Company, including the T.J. Cinnamons franchise
agreements, and the termination of the purchase agreement dated June 3,
1996, and the license agreement and management agreement entered into
with Triarc Restaurant Group and affiliates dated August 29, 1996 in
consideration of $3,000,000 in cash, $1,000,000 in the form of a
non-interest bearing promissory note and contingent additional
consideration of up to $1,000,000 pursuant to the terms and conditions
of the Agreement between and among Paramark Enterprises, Inc., TJ
Holding Company, Inc., a subsidiary of Triarc Restaurant Group, and
Arby's, Inc. dated June 30, 1998 ( the "1998 Triarc Agreement) in the
form attached as Exhibit A to the Proxy Statement accompanying this
Notice ("Proposal III" or the "Transaction"); and
IV. To consider and vote upon such other matters as may properly come
before the Annual Meeting or any adjournments thereof.
The Board of Directors knows of no other business which will come
before the Annual meeting.
All shares represented by each properly executed unrevoked proxy
received in time for the Annual Meeting will be voted as specified therein. 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, for approval of amendment to the 1996
Stock Option Plan, for approval of the Company's proposed sale of certain of its
operating assets to TJ Holding Company, Inc. 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 giving written notice to the Company or a later date
proxy.
Only stockholders of record at the close of business on June 22, 1998
are entitled to notice and to vote at the Annual Meeting or any adjournment
thereof. On the record date there were issued and outstanding 3,373,833 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 meeting. All such shares that are present in person or represented by proxy
at the 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. The affirmative vote of a majority of the shares present or represented by
proxy is required to approve Proposal II. The affirmative vote of holders of a
majority of the shares of Common Stock outstanding as of the Record Date is
required to approve Proposal III. An abstention or broker non-vote, therefore
will have the same effect as voting against any proposal, other than the
election of directors.
-6-
Charles Loccisano, the Company's Chairman, Chief Executive Officer and
Director and Alan Gottlich, the Company's President, Chief Financial Officer and
Director, together with their affiliates own 42% of the outstanding Common Stock
of the Company, and have indicated that they intend to vote in favor of the
nominees for directors and the amendments to the 1996 Stock Option Plan, and
have agreed to vote in favor for the Transaction.
As of June 22, 1998 there were 3,373,883 shares of Company Common Stock
outstanding held by approximately 65 holders of record, not including beneficial
owners whose shares are held by banks, brokers and other nominees. The Company
believes that it has in excess of 600 beneficial owners of its securities.
The approximate date on which this Proxy Statement and the accompanying
form of proxy will be mailed to the Company's Stockholders is July 13, 1998. The
executive officers of the Company are located at One Harmon Plaza, Secaucus, New
Jersey 07094 and its telephone number is (201) 422-0910.
At this Annual Meeting, stockholders of record will vote on the
election of the Board of Directors, certain amendments to the Company's 1996
Amended Stock Option Plan which increases the number of shares issuable under
the plan by 500,000 to 1,000,000 and the Transaction. Under the terms of the
Transaction, the Company will sell to TJ Holding Company, Inc., a subsidiary of
Triarc Restaurant Group, all of its rights and interests under the T.J.
Cinnamons franchise agreements and will terminate the purchase agreement entered
into with Triarc Restaurant Group and affiliates dated June 3, 1996 and the
license agreement and management agreement dated August 29, 1996 in
consideration for a price of $4,000,000 to be paid $3,000,000 in cash and
$1,000,000 in the form of a non-interest bearing promissory note payable over 24
months, plus payments of up to $1,000,000 contingent on certain sales targets of
T.J. Cinnamons products for the twelve months ended December 31, 1998.
Furthermore, the Company and Triarc Restaurant Group will enter into a wholesale
license agreement granting the Company the rights to manufacture and sell
certain T.J. Cinnamons branded products to specified wholesale accounts up to
December 31, 1998.
THE TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION"), NOR HAS THE COMMISSION PASSED ON THE
FAIRNESS OR MERITS OF SUCH A TRANSACTION, NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
No persons have been authorized to give any information or to make any
representations other than those contained in this Proxy Statement in connection
with the solicitation of proxies and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any other person. This Proxy Statement does not constitute the solicitation
of a proxy in any jurisdiction to any person to whom it is not lawful to make
any such solicitation in such jurisdiction. The delivery of this Proxy Statement
does not, under any circumstances, create an implication that there has been no
change in the affairs of the Company since the date hereof or that the
information herein is correct as of any time subsequent to its date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
of the subject information may also be obtained, at prescribed rates, from the
public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of such Web
site is (http://www.see.gov.).
-7-
BENEFICIAL OWNERSHIP
The following table sets forth information, as of June 22, 1998 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 Beneficial of Common Stock Percent
Owner (1) Beneficially Owned (2) Beneficially Owned
Charles Loccisano 1,500,049 (3)(4) 44.5%
Alan Gottlich 330,589 (5)(6) 9.8%
Philip Friedman 67,109 (7) 2.0%
Paul Bergrin 22,500 (8) 0.7%
All Directors and Executive Officers
as of group (four persons) 1,920,247 (9) 56.9%
(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 of 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.
(4) Includes a maximum of 268,125 shares which may be acquired upon the
exercise of options exercisable within the next 60 days. Excludes 45,000
shares subject to options not exercisable within the next 60 days.
(5) Includes a maximum of 143,250 shares which may be acquired upon the
exercise of options exercisable within the next 60 days. Excludes 45,000
shares subject to options not exercisable within the next 60 days, and
368,390 shares held by the Loccisano Trusts with respect to which Mr.
Gottlich is a co-trustee with voting and dispositive powers.
(6) Includes 150,874 shares held by Mr. Gottlich's spouse of which 64,765 are
Escrow Shares, as to which Mr. Gottlich disclaims beneficial ownership.
(7) Includes a maximum of 62,109 shares which may be acquired upon the exercise
of options exercisable within the next 60 days . Excludes 45,000 shares
subject to options not exercisable within the next 60 days.
(8) Represents 22,500 shares which may be acquired upon the exercise of options
exercisable within the next 60 days.
(9) Includes a maximum of 495,984 shares which may be acquired upon the
exercise of options that are exercisable within the next 60 days.
-8-
PROPOSAL I -
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 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 the 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 and
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. The Company's Board of Directors recommends
voting "FOR" the four nominees listed below.
Information about Directors
Certain information regarding the nominees for election as directors at
this year's Annual Meeting is set forth below. There are no family relationships
among any directors or executive officers of the Company.
Name Age Position with the Company Term to Expire
Charles Loccisano 49 Chairman, Chief Executive Officer 1999
and Director
Alan Gottlich 37 Vice Chairman, President, Chief 1999
Financial Officer, and Director
Philip Friedman 52 Director 1999
Paul Bergrin 41 Director 1999
Charles Loccisano has been the Chairman, Chief Executive Officer and a
Director of the Company since June 1992. Since 1980, Mr. Loccisano has primarily
engaged in the acquisition, development and/or management of real estate through
his general partnership interests 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 1987 and
after the temporary loss by Mr. Loccisano, and his partner, of control of these
limited partnerships. Subsequently, Mr. Loccisano and his partner regained
control, and some of these partnerships were successfully reorganized and some
lost their real properties in bankruptcy and/or in foreclosure sales. Mr.
Loccisano, through a separate entity and with partners, was also a franchisee of
the Company until 1993, and was a principal of a company that owned five Roy
Roger restaurants in New Jersey from 1989 through 1994. Mr. Loccisano was also a
co-general partner in a partnership which owned and operated the Governor Morris
Inn, a 200 room hotel and banquet facility, from 1987 through 1997.
Alan Gottlich has been the Vice Chairman, Chief Financial Officer and a
Director of the Company since 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. One of these entities was
forced to file for protection under the United States Bankruptcy Code in 1993
-9-
and subsequently lost its real property. Mr. Gottlich, through a separate entity
and together with partners, was also a franchisee of the Company until 1993, and
was a principal of a company that owned five Roy Rogers restaurants 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 and principal stockholder of P. Friedman &
Associates, Inc. a food management and consulting company based in Rockville,
Maryland and is the Chairman of Rostie Restaurants, an owner and operator of
eight full service restaurants. Mr. Friedman serves as a director of Panda
Management Company, Inc. (an owner and operator fast food Chinese restaurants),
Eateries, Inc. (an operator and franchisor of full service restaurants), and
Roadhouse Grill, Inc. (an operator and franchisor of full service steak houses).
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 and
Verdesco for more than the last five years specializing in criminal and civil
litigation.
Directors' Meetings and Committees of the Board of Directors
The Board of Directors met 8 times during the fiscal year 1997. Each
Director attended more than 75% of the meetings of the Board of Directors and
any committees of the Board of Directors on which the Director served.
The Board of Directors has established compensation, audit and option
committees. The Compensation Committee consists of Philip Friedman, Paul Bergrin
and Charles Loccisano. The Audit Committee and the Option Committee consist of
Philip Friedman and Paul Bergrin. The Audit Committee held no meetings in fiscal
1997, and the Compensation Committee and Option Committee held one meeting in
fiscal 1997.
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
1996 Stock Option Plan.
The Option Committee administers the 1993 Stock Option Plan and 1996
Stock Option Plan and, to the extent provided by such Plan, determines the
persons to whom options are granted, the exercise price, term and number of
shares covered by each option to be granted. In addition, the Option Committee
exercises all discretionary power regarding the operations of these plans.
Advance Notice For Director Nominations and New Business
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 1998 Annual Meeting, the stockholder must deliver notice to the Secretary
between July 13 and July 23, 1998. All nominations and new business proposed for
consideration at an annual meeting of stockholders must comply with applicable
SEC Regulations.
-10-
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 for the fiscal years ended December 31, 1997, 1996 and 1995, and each
other officer who made in excess of $100,000 (salary and bonus) during fiscal
1997 (the "Named Officers").
Long Term Compensation
Annual Compensation Other Awards
Name and Principal Annual Securities
Position Year Salary Bonus Comp. (1) Underlying Options (2)
Charles Loccisano, 1997 $134,615 $68,805 $12,000 225,000
Chairman, and Chief 1996 130,000 31,500 12,000 -0-
Executive Officer 1995 101,682 8,625 12,000 192,500
Alan Gottlich, 1997 $98,464 $34,402 $12,000 163,500
President and Chief 1996 95,000 14,000 9,000 -0-
Financial Officer 1995 87,500 4,625 9,000 87,500
(1) These amounts represent reimbursable automobile expenses.
(2) In March 1998, the Board of Directors approved a cancellation of stock
options held by Messrs. Loccisano and Gottlich in the amount of 417,500 and
251,000, respectively, and a grant of new options in the amount of 313,125
and 188,250, respectively. The new options are exercisable at $.50 per
share and 268,125 and 143,250 are vested to Messrs. Loccisano and Gottlich,
respectively. The balance will vest over three years.
The following table sets forth information regarding options to
purchase shares of Common Stock granted to the Named Officers during fiscal
1997.
Stock Option Grants in Last Fiscal Year
Number of % of Total Options Exercise or Base Expiration Date
Securities Granted to Price
Underlying Options Employees in
Granted Fiscal 1997
Name
Charles Loccisano, Chairman, 225,000 29.9% $1.55 July 15, 2002
and Chief Executive Officer
Alan Gottlich, President, and 163,500 21.7% $1.57 July 15, 2007
Chief Financial Officer
In March 1998, the Board of Directors approved a cancellation of stock
options held by Messrs. Loccisano and Gottlich in the amount of 417,500 and
251,000, respectively, and a grant of new options in the amount of 313,125 and
188,250, respectively. The new options are exercisable at $.50 per share and
268,125 and 143,250 are vested to Messrs. Loccisano and Gottlich, respectively.
The balance will vest over three years.
-11-
The following table sets forth information regarding options exercised
by the Named Officers during fiscal 1997 under the 1996 Stock Option Plan and
the option values of options held by such individuals at fiscal year end.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
Number of Value of
Unexercised Unexercised
Options at In-The-Money
12/31/97 (1) Options at 12/31/97 (2)
Shares Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise Unexercisable Unexercisable
Charles Loccisano, Chairman, 0 0 352,500 / 65,000 0 / 0
President and Chief Executive
Officer
Alan Gottlich, President, and 0 0 186,000 / 65,000 0 / 0
Chief Financial Officer
(1) In March 1998, the Board of Directors approved a cancellation of
stock options held by Messrs. Loccisano and Gottlich in the amount of 417,500
and 251,000, respectively, and a grant of new options in the amount of 313,125
and 188,250, respectively. The new options are exercisable at $.50 per share and
268,125 and 143,250 are vested to Messrs. Loccisano and Gottlich, respectively.
The balance will vest over three years.
(2) Represents the aggregate market value (market price of the Common
Stock less the exercise price) of the options granted based upon the closing
sales price per share of $1 1/16 on December 31, 1997.
Director Compensation in Fiscal 1997
The Company provides compensation to non-employee directors at the rate of $500
per day for meetings attended, and reimbursement of travel and other expenses
incurred in attending meetings. In addition, all directors are entitled to stock
options under the Company's 1996 Stock Option Plan.
During the last fiscal year, directors received the following stock option
grants under the Company's 1996 Stock Option Plan in consideration for their
serving as directors: (a) In March 1997, options were granted to directors of
the Company to purchase shares of Common Stock, at the price of $1.75 per share
of Common Stock, in the following amounts: 45,000 to Charles Loccisano,
Director; 45,000 to Alan Gottlich, Director; 45,000 to Phil Friedman, Director;
and 45,000 to Paul Bergrin, Director. These options vest over a three year
period; and (b) In July 1997, options were granted to directors of the Company
to purchase shares of Common Stock, at the price of $1.50 per share of Common
Stock, in the following amounts: 45,000 to Charles Loccisano, Director; 45,000
to Alan Gottlich, Director; 45,000 to Phil Friedman, Director; and 45,000 to
Paul Bergrin, Director. These options vest over a three year period. In March
1998, the Board of Directors approved a cancellation of stock options in the
following amounts: 417,500 to Charles Loccisano, Director; 251,000 to Alan
Gottlich, Director; 142,812 to Phil Friedman, Director; and 90,000 to Paul
Bergrin, Director, and approved a grant of new options in the following amounts:
313,125 to Charles Loccisano, Director; 188,250 to Alan Gottlich, Director;
107,109 to Phil Friedman, Director; and 67,500 to Paul Bergrin, Director. The
new options are exercisable at $.50 per share with the following amounts vested
to date: 268,125 to Charles Loccisano, Director; 143,250 to Alan Gottlich,
Director; 62,109 to Phil Friedman, Director; and 22,500 to Paul Bergrin,
Director. The balance will vest over three years.
All Loccisano and Gottlich options described above are reported in the Summary
Compensation Table.
Employment Contracts and Change of Control Agreements
On October 1, 1997, the Company entered into an employment agreement with
Charles Loccisano, the Company's Chairman and Chief Executive Officer, providing
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for an annual base salary of $175,000 of which $25,000 will be accrued. Such
accrual will be paid upon the closing of the Transaction, or when the Company
achieves a positive cash flow from operations. The base salary will be increased
by 10% per annum on each anniversary, and a bonus will be payable at the
discretion of the Board of Directors.
On October 1, 1997, the Company entered into an employment agreement with Alan
Gottlich, the Company's President and Chief Financial Officer, providing for an
annual base salary of $125,000 of which $15,000 will be accrued. Such accrual
will be paid upon the closing of the Transaction, or when the Company achieves a
positive cash flow from operations. The base salary will be increased by 10% per
annum on each anniversary, and a bonus will be payable at the discretion of the
Board of Directors.
Both of these employment agreements include change of control provisions
providing for a payment equal to two years base salary plus one half of
aggregate bonuses paid during the three years prior to termination. Both of
these employment agreements have a number or provisions relating to term,
duties, termination and other contractual rights.
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PROPOSAL II -
APPROVAL OF AMENDMENTS TO THE 1996 AMENDED AND RESTATED STOCK OPTION PLAN
General
During fiscal 1997, the Board of Directors approved certain amendments
to the 1996 Stock Option Plan which increase the number of shares issuable
pursuant to options granted under the 1996 Stock Option Plan by 500,000 shares
to 1,000,000 shares subject to approval by the stockholders of the Company.
Approval of Proposal II also constitutes ratification of the material terms of
the 1996 Stock Option Plan, including but not limited to, the class of employees
which may receive awards pursuant to the 1996 Stock Option Plan.
The reason for seeking stockholder approval of Proposal II is to
satisfy requirements of the Code which require stockholder approval of Proposal
II in order for options granted for the additional shares issuable under the
1996 Stock Option Plan to qualify as incentive stock options under Section 422
of the Code ("Incentive Stock Options") to the extent so designated and for the
1996 Stock Option Plan to satisfy one of the conditions of Section 162(m) of the
Code applicable to performance-based compensation.
Attached as "Appendix A" to this Proxy Statement is the complete text
of the 1996 Stock Option Plan, as amended. The principal features of the 1996
Stock Option Plan are summarized below.
Increase in Authorized Shares
Under the terms of the 1996 Stock Option Plan, 500,000 shares of Common
Stock were authorized for issuance prior to the increase. In August 1997, the
Board of Directors approved an increase in the number of shares available for
issuance under the plan by 500,000 in order to fund awards to the Company's
officers, directors, consultants and other employees. One of the purposes of the
proposed increase in shares available for issuance under the 1996 Stock Option
Plan is to provide sufficient shares for stock option grants to officers and key
employees of the Company.
The Board of Directors believes that the Company and its stockholders
benefit significantly from having the Company's key personnel receive options to
purchase the Company's Common Stock, and that the opportunity thus afforded such
persons to acquire Common Stock is an essential element of an effective
management incentive program. The Board of Directors also believes that options,
particularly Incentive Stock Options, are valuable in attracting and retaining
highly qualified personnel and providing additional motivation to such personnel
to use their best efforts on behalf of the Company and its stockholders.
However, because awards under the 1996 Stock Option Plan may be made to officers
and key employees of the Company, the award of additional shares under the 1996
Stock Option Plan would have the effect of further increasing management's
ownership of the Company which may make it more difficult for a third party to
acquire control of the Company.
Limitation on Maximum Number of Options Awarded
The 1996 Stock Option Plan provides that the maximum number of options
which may be awarded to any person under the 1996 Stock Option Plan shall be no
more than is equal to 90% of the shares reserved for issuance under this 1996
Stock Option Plan. The purpose of this limitation is to enable awards made
pursuant to the 1996 Stock Option Plan to comply with one of the conditions of
Section 162(m) of the Code which limits the deductibility of compensation paid
to the Company's named officers unless it is performance based.
Eligibility
Officers, key employees, directors and important consultants of the
Company are eligible to receive options under the 1996 Stock Option Plan.
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Types of Awards
Options granted under the 1996 Stock Option Plan may be Incentive Stock
Options, or options not intended to so qualify ("Non-Qualified Stock Options").
Unless the context otherwise requires, the term "option" as used herein includes
both Incentive Stock Options and Non-Qualified Stock Options.
Administration
The 1996 Stock Option Plan is administered by the compensation
committee (the "Committee") which is comprised of at least two members of the
Board of Directors of the Company, each of whom meet the definition of a
"non-employee" director within the meaning of Rule 16b-3 of the Exchange Act and
an "outside director" as defined under Section 162(m) of the Code. The Committee
has the discretion to interpret the provisions of the 1996 Stock Option Plan; to
determine the persons to receive options under the 1996 Stock Option Plan; to
determine the type of awards to be made and the amount, size and terms of each
such award, to determine the time when awards shall granted; and to make all
other determinations necessary or advisable for the administration of the 1996
Stock Option Plan. In addition, the determinations, and the interpretations and
construction of any provision of the 1996 Stock Option Plan by the Committee
shall be final.
Common Stock Subject to the 1996 Stock Option Plan
Pursuant to the terms of the 1996 Stock Option Plan, 500,000 shares of
Common Stock were reserved for issuance upon the exercise of options granted
under the 1996 Stock Option Plan. If Proposal II is approved by the
stockholders, 500,000 additional shares of Common Stock (subject to adjustment
as discussed below) will be available for issuance under the 1996 Stock Option
Plan. Since such shares would be issued from the Company's authorized but
unissued shares; the issuance of an additional 500,000 shares would have the
effect of diluting the interests of existing stockholders by approximately
13.0%, assuming all 500,000 shares were awarded and all options related to such
shares were exercised.
Exercise Price of Options/Payment of Exercise Price
Incentive Stock Options may not be granted with an exercise price per
share that is less than the fair market value of a share of Common Stock on the
date of grant. Non-Qualified Stock Options may be granted at an exercise price
per share that is less than the fair market value of a share of Common Stock on
the date of grant. Pursuant to the terms of the 1996 Stock Option Plan, no
optionee may be granted options for more than 90% of the shares of Common Stock
reserved for issuance under the Plan.
The exercise price of an option may be paid in cash, the delivery of
already owned shares of Common Stock of the Company having a fair market value
equal to the exercise price, or a combination thereof.
The Board has interpreted the provision of the 1996 Stock Option Plan
which allows payment of the option price in Common Stock of the Company to
permit the "pyramiding" of shares in successive exercises. Thus, an optionee
could initially exercise an option in part, acquiring a small number of shares
of Common Stock, and immediately thereafter effect further exercises of the
option, using the Common Stock acquired upon earlier exercises to pay for an
increasingly greater number of shares received on each successive exercise. This
procedure could permit an optionee to pay the option price by using a single
share of Common Stock or small number of shares of Common Stock and to acquire a
number of shares of Common Stock having an aggregate fair market value equal to
the excess of (a) the fair market value of all shares to which the option
relates over (b) the aggregate exercise price under the option. A vote in favor
of Proposal II is also a vote in favor of this interpretation.
Special Provisions for Incentive Stock Options
The maximum aggregate fair market value of the shares of Common Stock
(determined when the Incentive Stock Option is granted) with respect to which
Incentive Stock Options are first exercisable by an employee in any calendar
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year cannot exceed $100,000. In addition, no Incentive Stock Option may be
granted to an employee owning directly or indirectly stock possessing more than
10% of the total combined voting power of all classes of stock of the Company,
unless the exercise price is set at not less than 110% of the fair market value
of the shares subject to such Incentive Stock Option on the date of the grant
and such Incentive Stock Option expires not later than five years from the date
of the grant. Awards of Non-Qualified Stock Options are not subject to these
special limitations.
Non-transferability of Options
No option granted under the 1996 Stock Option Plan is assignable or
transferable, otherwise than by will or by the laws of descent and distribution.
Except in the event of death or disability, all options granted under the 1996
Stock Option Plan are exercisable only by such optionee.
Exercisability of Options
All options granted pursuant to the 1996 Stock Option Plan are
exercisable in accordance with a vesting schedule (if any) which is set by the
Committee at the time of grant. In the event of a change in control of the
Company, any options to the extent not vested shall become vested in full. A
"change in control" shall be deemed to have occurred upon the happening of any
of the following events: (i) a change within a twelve-month period in a majority
of the members of the board of directors of the Company; (ii) a change within a
twelve-month period in the holders of more than 50% of the outstanding voting
stock of the Company; or (iii) any other event deemed to constitute a "change in
control" by the Committee.
All unexercised options terminate three months following the date on
which an optionee's employment with the Company terminates, other than by reason
of disability or death. An exercisable option held by an optionee who dies or
who ceases to be employed by the Company because of disability may be exercised
by the employee or his representative within one year after the employee dies or
becomes disabled (but not later than the scheduled option termination date).
The Committee may in its sole discretion, provide in an option
agreement the circumstances under which the option shall become immediately
exercisable and may accelerate the date on which all or any portion of an option
may be exercised.
Expiration of Options
The expiration date of an option will be determined by the Committee at
the time of the grant, but in no event will an option be exercisable after the
expiration of ten years from the date of grant of the option.
Expiration of the 1996 Stock Option Plan
The 1996 Stock Option Plan will remain in effect until all awards
granted under 1996 Stock Option Plan have been satisfied by the issuance of
shares provided that no new awards may be granted under such 1996 Stock Option
Plan more than ten years from the earlier of the date the 1996 Stock Option Plan
was adopted by the Company or initially approved by the Company's stockholders.
Adjustments
The 1996 Stock Option Plan provides for adjustments to the number of
shares subject to outstanding options and to the exercise price of such
outstanding options in the discretion of the Committee in the event of a
declaration of a stock dividend, distribution or other offering of shares,
merger, consolidation, split up, combination, exchange, or recapitalization.
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Amendments
The Committee may amend or terminate the 1996 Stock Option Plan at any
time except that the Committee may not amend the 1996 Stock Option Plan without
stockholder approval to: (i) increase the number of shares which may be issued
under the 1996 Stock Option Plan (other than pursuant to Section 2 of the Stock
Option Plan); (ii) change the minimum option price (other than pursuant to
Section 2 of the Stock Option Plan); (iii) extend the term of the 1996 Stock
Option Plan, or (iv) extend the period during which an option may be exercised.
In addition, no amendment or modification to the 1996 Stock Option Plan shall
impair the rights of any optionee under any previously granted award without the
consent of such optionee.
Awards Under the 1996 Stock Option Plan
The following table sets forth information regarding the options
granted during fiscal 1997.
NEW PLAN BENEFITS
STOCK OPTION PLAN
Name and Position Dollar Value ($) (1) Number of Units
Charles Loccisano, Chairman, Chief Executive
Officer and Director....................................... $0 225,000 (2)
Alan Gottlich, President, Chief Financial
Officer and Director....................................... $0 163,500 (3)
Phil Friedman, Director................................... $0 90,000 (4)
Paul Bergrin, Director..................................... $0 90,000 (4)
Executive Officer Group (4 persons) ....................... $0 568,500
Non-Executive Officer Employee Group (5 persons) $0 38,500
(1) Represents the aggregate market value (market price of the Common Stock less
the exercise price) of the options granted based upon the closing sales price
per share of $.56 on June 22, 1998.
(2) Represents Non-Qualified Stock Options to purchase 45,000 and 180,000 shares
of Common Stock at an exercise price of $1.75 and $1.50 per share, respectively.
Options to purchase 90,000 shares vest over a three year period.
(3) Represents Incentive Stock Options to purchase 45,000 and 118,500 shares of
Common Stock at an exercise price of $1.75 and $1.50 per share, respectively.
Options to purchase 90,000 shares vest over a three year period.
(4) Represents Non-Qualified Stock Options to purchase 45,000 and 45,000 shares
of Common Stock at an exercise price of $1.75 and $1.50 per share, respectively.
These options vest over a three year period.
In March 1998, the Board of Directors approved a cancellation of stock
options to purchase 417,500, 251,000, 142,812 and 90,000 shares, respectively,
held by Messrs. Loccisano, Gottlich, Friedman and Bergrin, and a grant of new
options to purchase 313,125, 188,250, 107,109 and 67,500 shares, respectively.
The new options are exercisable at $.50 per share and have the same vesting
provisions as the canceled options. On June 22, 1998, the last sale price of the
Common Stock was $.56 as reported on the NASDAQ Bulletin Board.
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For additional information concerning grants of options to executive
officers of the Company prior to fiscal 1997, see "Executive Compensation."
Approval of Proposal II will also constitute ratification of the grant of the
options to executive officers name in the table above.
Federal Income Tax Consequences of the 1996 Stock Option Plan
THE FOLLOWING INFORMATION IS NOT INTENDED TO BE A COMPLETE DISCUSSION
OF THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE 1996 STOCK OPTION
PLAN AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, AND THE REGULATIONS ADOPTED PURSUANT THERETO. THE
PROVISIONS OF THE CODE DESCRIBED IN THIS SECTION INCLUDE CURRENT TAX LAW ONLY
AND DO NOT REFLECT ANY PROPOSALS TO REVISE CURRENT TAX LAW.
Incentive Stock Options. Generally, under the Code, an optionee will
not realize taxable income by reason of the grant of the exercise of an
Incentive Stock Option (see, however, discussion of Alternative Minimum Tax
below) granted pursuant to the 1996 Stock Option Plan. If an Optionee exercises
an Incentive Stock Option and does not dispose of the shares until the later of
(i) two years from the date the option was granted and (ii) one year from the
date of exercise, the entire gain, if any, realized upon disposition of such
shares will be taxable to the optionee as long-term capital gain, and the
company will not be entitled to any deduction. The reduced rate of tax (20%) on
certain net capital gains added to the Code by the Taxpayer Relief Act of 1997
requires a holding period of more than 18 months. If an optionee disposes of the
shares within the period of two years from the date of grant or one year from
the date of exercise (a "disqualifying disposition"), the optionee generally
will realize ordinary income in the year of disposition and the Company will
receive a corresponding deduction, in an amount equal to the excess of (1) the
lesser of (a) the amount, if any, realized on the disposition and (b) the fair
market value of the shares on the date the option was exercised over (2) the
option price. Any additional gain realized on the disposition will be long-term,
mid-term or short-term capital gain and any loss will be long-term, mid-term or
short-term capital loss. The optionee will be considered to have disposed of a
share if he sells, exchanges, makes a gift of or transfers legal title to the
share (except transfers, among others, by pledge, on death or to a spouse). If
the disposition is by sale or exchange, the optionee's tax basis will equal the
amount paid for the share plus any ordinary income realized as a result of the
disqualifying disposition.
The exercise of an Incentive Stock may subject the optionee to the
alternative minimum tax. The amount by which the fair market value of the shares
purchased at the time of the exercise exceeds the option exercise price is an
adjustment for purposes of computing the so-called alternative minimum tax. In
the event of a disqualifying disposition of the shares in the same taxable year
as exercise of the Incentive Stock Option, no adjustment is then required for
purposes of the alternative minimum, but regular income tax, as described above,
may result from such disqualifying disposition.
An optionee who surrenders shares as payment of the exercise price of
his Incentive Stock Option generally will not recognize gain or loss on his
surrender of such shares. The surrender of shares previously acquired upon
exercise of an Incentive Stock Option in payment of the exercise price of
another Incentive Stock Option, is however, a "disposition" of such stock. If
the incentive stock option holding period requirements described above have not
been satisfied with respect to such stock, such disposition will be a
disqualifying disposition that may cause the optionee to recognize ordinary
income as discussed above.
Under the Code, all of the shares received by an optionee upon exercise
of an Incentive Stock Option by surrendering shares will be subject to the
incentive stock option holding period requirements. Of those shares, a number of
shares (the "Exchange Shares") equal to the number of shares surrendered by the
optionee will have the same tax basis for capital gains purposes (increased by
any ordinary income recognized as a result of a disqualifying disposition of the
surrendered shares if they were incentive stock option shares) and the same
capital gains holding period as the shares surrendered. For purposes of
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determining ordinary income upon a subsequent disqualifying disposition of the
Exchange Shares, the amount paid for such shares will be deemed to be fair
market value of the shares surrendered. The balance of the shares received by
the optionee will have a tax basis (and a deemed purchase price) of zero and a
capital gains holding period beginning on the date of exercise. The Incentive
Stock Option holding period for all shares will be the same as if the option had
been exercised for cash.
Non-Qualified Stock Options. Generally, there will be no federal income
tax consequences to either the optionee or the Company on the grant of
Non-Qualified Stock Options pursuant to the 1996 Stock Option Plan. On the
exercise of a Non-Qualified Stock Option, the optionee has taxable ordinary
income equal to the excess of the fair market value of the shares acquired on
the exercise date over the option price of the shares. The Company will be
entitled to a federal income tax deduction (subject to the limitations contained
in Section 162 (m)) in an amount equal to such excess, provided that the Company
complies with any applicable reporting rules.
Upon the sale of stock acquired by exercise of a Non-Qualified Stock
Option, optionees will realize long-term, mid-term or short-term capital gain or
loss depending upon their holding period for such stock. The reduced rate (20%)
of tax on certain capital gains added to the Code by the Taxpayer Relief Act of
1997 requires a holding period of more than 18 months. Capital losses are
deductible only to the extent of capital gains for the year plus $3,000 for
individuals.
An optionee who surrenders shares in payment of the exercise price of a
Non-Qualified Stock Option will not recognize gain or loss with respect to the
shares so delivered unless such shares were acquired pursuant to the exercise of
an Incentive Stock Option and the delivery of such shares is a disqualifying
disposition. See "-Incentive Stock Options." The optionee will recognize
ordinary income on the exercise of the Non-Qualified Stock Option as described
above. Of the shares received in such exchange, that number of shares equal to
the number of shares surrendered have the same tax basis and capital gains
holding period as the shares surrendered. The balance of shares received will
have a tax basis equal to their fair market value on the date of exercise and
the capital gains holding period will begin on the date of exercise.
Limitation on the Company's Deduction. Section 162 (m) of the Code will
generally limit to $1,000,000 the Company's federal income tax deduction for
compensation paid in any year to its chief executive officer and its four
highest paid executive officers, to the extent that such compensation is not
"performance based." Under U.S. Department of Treasury regulations, a stock
option will, in general, qualify as "performance based" compensation if it (i)
has an exercise price of not less than the fair market value of the underlying
stock on the date of grant, (ii) is granted under a plan that limits the number
of shares for which options may be granted to an employee during a specified
period, which plan is approved by a majority of the stockholders entitled to
vote thereon, and (iii) is granted and administered by a compensation committee
consisting solely of at least two outside directors (as defined in Section 162
(m). If a stock option granted to an executive referred to above is not
"performance based", the amount that would otherwise be deductible by the
Company with respect to such stock option will be disallowed to the extent that
the executive's aggregate non-performance based compensation paid in the
relevant year exceeds $1,000,000.
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PROPOSAL III -
THE TRANSACTION
Background of the Transaction
In August 1996, the Company consummated a purchase agreement with TJ
Holding Company, Inc., a subsidiary of Arby's, Inc. d/b/a Triarc Restaurant
Group (the "1996 Triarc Purchase Agreement") for (1) the sale of its
intellectual property including the name "T.J. Cinnamons" and other related
trade names, trademarks, service marks, logo's, signs, emblems, distinctive
recipes, secret formulas and other confidential technical information and trade
secrets relating to the T.J. Cinnamons operating system (the "Intellectual
Property"), and (2) a simultaneous license from Arby's, Inc. 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 under
existing franchise agreements and distributing T.J. Cinnamons products through
retail grocery outlets (the "1996 Triarc License Agreement"). In August 1996,
the Company entered into a management agreement with Triarc Restaurant Group
whereby Triarc assumed all day-to-day management responsibilities for the T.J.
Cinnamons franchise system (the "1996 Triarc Management Agreement").
The base purchase price under the 1996 Triarc Purchase Agreement was
$3,540,000, of which $1,790,000 was paid to the Company at the closing of the
1996 Triarc Purchase Agreement, and $1,750,000 was paid to the Company in the
form of two separate interest bearing promissory notes. The 1996 Purchase
Agreement further provided for additional payments as follows: (a) In the event
that system wide gross sales of T.J. Cinnamons branded products in Triarc
Restaurant Group's restaurants exceed $26.3 million annually, additional
payments ("Additional Payments") would be made to the Company based on 2% of
gross sales of T.J. Cinnamons branded products in Triarc Restaurant Group's
retail outlets (as defined in the 1996 Triarc Purchase Agreement) over a period
of 48 months, and 1% of gross sales for a period of 36 months thereafter (the
Additional Payments could not commence prior to August 1998, and could not
exceed $5.5 million in the aggregate); and (b) royalty payments for new full
concept bakeries that might be developed by Triarc Restaurant Group in enclosed
mall locations modeled on the T.J. Cinnamons system in an amount equal to one
half of one percent (1/2%) of the gross sales of T.J. Cinnamons products sold in
such bakeries for a period of 20 years following the closing of the 1996 Triarc
Purchase Agreement.
Following the closing of the 1996 Triarc Purchase Agreement, the
Company began to expand its wholesale manufacturing and distribution of both
T.J. Cinnamons branded and private label products for distribution to retail
grocery outlets and supermarkets. For the fiscal year ended December 31, 1997,
the Company's gross sales were $3,700,000, consisting of $3,000,000 of T.J.
Cinnamons branded products and $700,000 of private label products. The Company
utilized all of its working capital towards equipment, inventory, and the
funding of operating losses, and in September 1997, the Company had insufficient
capital to fully implement the further expansion of its business plan.
In September 1997, the Company retained Commonwealth Associates to act
as its financial advisor and placement agent in connection with a proposed
private placement of convertible preferred stock. The proceeds from this
transaction were earmarked for the working capital needs of the Company, and
would have provided the Company with a sufficient net tangible assets to remain
listed on the Nasdaq SmallCap Market under the new guidelines established by the
Nasdaq Stock Market ("Nasdaq"). In January 1998, following continued delays in
the offering process, Nasdaq delisted the Company's securities from the Nasdaq
SmallCap Market, and the Commonwealth Associates private placement transaction
was terminated. With insufficient capital to continue its operations, the
Company began discussions with Triarc Restaurant Group.
As a result of these discussions, on June 30, 1998, the Company entered
into a definitive agreement with TJ Holding Company, Inc., a wholly owned
subsidiary of Arby's, Inc. d/b/a Triarc Restaurant Group, and Arby's, Inc. d/b/a
Triarc Restaurant Group (the "1998 Triarc Agreement") pursuant to which the
Company intends to sell all of its rights and interests under the T.J. Cinnamons
franchise agreements and terminate the 1996 Triarc Purchase Agreement, the 1996
Triarc License Agreement and the 1996 Triarc Management Agreement in
consideration for a price of $4,000,000. The price will be paid as follows:
$3,000,000 in cash and $1,000,000 in the form of a non-interest bearing
promissory note payable over 24 months. The 1998 Triarc Agreement further
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provides for a contingent additional payment of up to $1,000,000 conditioned on
the Company's attainment of certain specified sales targets of T.J. Cinnamons
products for the fiscal year ended December 31, 1998. See "Price." The Company
will retain all liabilities relating to all aspects of its business for all
periods prior to the closing.
Parties to the Transaction
The Company was one of the first operators and franchisors of retail
bakeries specializing in gourmet cinnamon rolls and related products. The
Company currently owns and operates a production facility in California, and
distributes its products through wholesale channels of distribution throughout
the United States. The Company's product line includes T.J. Cinnamons branded
cinnamon rolls and Cinnachips, and a full line of specialty cakes, rugalach and
brownies. The Company's products are currently being sold in over 1,500
supermarket and club stores including Walmart Super Centers, SAMS Wholesale
Clubs, Costco Wholesale Clubs, Ralphs supermarkets, Lucky's Supermarkets, and
H.E. Butt Supermarkets. The Company is also the franchisor of approximately 24
retail bakeries which are managed by Triarc Restaurant Group under the 1996
Triarc Management Agreement, and is the owner of one retail bakery. For fiscal
1997, the Company's total revenue and net loss were $3,878,381 and $1,376,657,
respectively. The Company's executive offices are located at One Harmon Plaza,
Secaucus, New Jersey 07094.
The parties to the 1998 Triarc Agreement are TJ Holding Company, Inc.,
a wholly owned subsidiary of Arby's, Inc. d/b/a Triarc Restaurant Group and
Arby's, Inc. d/b/a Triarc Restaurant Group (collectively, the "Buyer"). Triarc
Restaurant Group franchises approximately 3,000 single and multi-branded
restaurant concepts under the names Arby's, Pasta Connection and T.J. Cinnamons.
Triarc Restaurant Group is a wholly owned subsidiary of Triarc Companies, Inc.,
a holding company traded on the New York Stock Exchange which, through its
subsidiaries, is engaged in beverage operations conducted through Snapple
Beverage Corp., Mistic Brands, Inc., Cable Car Beverage Corporation and Royal
Crown Company, Inc., and restaurant operations conducted through Arby's , Inc.
d/b/a Triarc Restaurant Group. In addition, Triarc Companies, Inc. has an equity
interest in the liquefied petroleum gas business through National Propane
Partners, L.P. The promissory note obligation of TJ Holding Company, Inc.
pursuant to the 1998 Triarc Agreement will be guaranteed by Triarc Companies,
Inc. Triarc Restaurant Group's executive offices are located at 1000 Corporate
Drive, Fort Lauderdale, Florida 33334.
The 1998 Triarc Agreement
Assets to be Sold/Transferred/Terminated. The assets to be sold,
transferred or terminated by the Company under the 1998 Triarc Agreement
include: a) all of the rights and interests as franchisor under the existing
T.J. Cinnamons franchise agreements; b) all rights under the 1996 Triarc
Purchase Agreement including the right to receive certain contingent Additional
Payments and royalty payments; and c) all rights under the 1996 Triarc License
Agreement which primarily include the rights to manufacture and sell certain
"T.J. Cinnamons" branded products to approved retail grocery outlets.
The Company currently derives no financial benefit from its franchisor
rights and interests under the existing T.J. Cinnamons franchise agreements as
the franchise system is being managed by Triarc Restaurant Group pursuant to the
1996 Triarc Management Agreement whereby Triarc Restaurant Group retains all
royalty collections in consideration for its duties as manager.
The rights under the 1996 Triarc Purchase Agreement primarily include:
(a) Additional Payments (which would commence if system wide gross sales of T.J.
Cinnamons branded products in Triarc Restaurant Group's restaurants exceed $26.3
million annually), to be made to the Company based on 2% of gross sales of T.J.
Cinnamon branded products in Triarc Restaurant Group's retail outlets (as
defined in the 1996 Triarc Purchase Agreement) over a period of 48 months, and
1% of gross sales for a period of 36 months thereafter (the Additional Payments
cannot commence prior to September 1, 1998 (irrespective of system wide sales),
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and cannot exceed $5.5 million in the aggregate); and (b) royalty payments, for
new full concept bakeries developed by the Buyer in enclosed mall locations
modeled on the T.J. Cinnamons system in an amount equal to one half of one
percent (1/2%) of the gross sales of T.J. Cinnamon products sold in such
bakeries for a period of 20 years ending August 28, 2016. During fiscal 1997 and
the three months ended March 31, 1998, the Company did not receive any
Additional Payments or royalty payments., and the Company does not anticipate
receiving any Additional Payments or royalty payments for the quarter ended June
30, 1998.
The rights under the 1996 Triarc License Agreement primarily include
the right to manufacture and sell certain "T.J. Cinnamons" branded products to
approved retail grocery outlets for a period of up to 99 years consisting of an
initial term of 20 years, three 20 year renewal options and one 19 year renewal
option. Under the 1996 Triarc License Agreement, after May 2000, Triarc
Restaurant Group may sell T.J. Cinnamons branded products to any retail grocery
outlets to which the Company is not selling T.J. Cinnamons branded products as
of said date. The Company's sales of T.J. Cinnamons branded products accounted
for 75% of the Company's total wholesale sales for the fiscal year ended
December 31, 1997, and 70% of the Company's total wholesale sales for the three
months ended March 31, 1998.
Price. The consideration to be paid under the 1998 Triarc Agreement is
as follows: (a) $3,000,000 to be paid at the closing of the Transaction (the
"Closing"), (b) $1,000,000 will be paid in the form of a non-interest bearing
promissory note payable in equal monthly installments over a period of 24 months
following the Closing, and (c) up to $1,000,000 of contingent additional
consideration ("Additional Consideration") payable if the Company attains
certain specified sales targets of T.J. Cinnamons products during the year
ending December 31, 1998 ("Fiscal 1998") as described below. Such Additional
Consideration, if paid to the extent due, will be paid at 15 business days after
the delivery of the later of (i) the Company's audited financial statements for
the Fiscal 1998, or (ii) the Company's final sales report for Fiscal 1998,
provided that the information is reasonably verified by and acceptable to Buyer.
The Additional Consideration, if any, will be based on the Company
achieving certain gross sales targets of T.J. Cinnamons branded products for
Fiscal 1998. Therefore, the 1998 Triarc Agreement provides that the Company will
enter into a wholesale license agreement with Triarc Restaurant Group (the
"Wholesale License Agreement") on or prior to the Closing, whereby the Company
will have the right to continue producing and distributing certain T.J.
Cinnamons branded products through December 31, 1998 to the same supermarket and
wholesale club accounts as such products are being distributed to currently by
the Company. The Wholesale License Agreement will be renewable at the sole
discretion of Triarc Restaurant Group for a period not to exceed six months. The
terms for earning the Additional Consideration are as follows:
(a) If the Company's gross sales of T.J. Cinnamons branded products in
Fiscal 1998 less returns ("Net Sales") exceed $2,250,000, but do not exceed
$2,700,000, the Additional Consideration shall be $250,000.
(b) If Net Sales exceed $2,700,000, but do not exceed $3,150,000, the
Additional Consideration shall be $500,000.
(c) If Net Sales exceed $3,150,000, but do not exceed $3,600,000, the
Additional Consideration shall be $750,000.
(d) If Net Sales exceed $3,600,000, the Additional Consideration shall
be $1,000,000.
The Company has agreed to provide the Buyer with the Company's monthly
sales reports and reports filed with the Commission in order to verify
compliance with these requirements. Sales of T.J. Cinnamons branded products for
the twelve months ended December 31, 1997 and the three months ended March 31,
1998 were approximately $2,733,000 and $800,000 respectively.
-22-
Closure of the Poughkeepsie Bakery. On or before the Closing, the
Company shall cease operating its retail T.J. Cinnamons bakery located in the
Poughkeepsie Galleria Mall. The Buyer shall pay the Company an amount not to
exceed one half of the actual buyout costs that the Company pays the landlord
upon termination of the lease for said bakery, as specified and calculated in
the 1998 Triarc Agreement.
Certain Representations and Warranties. The Company has made certain
customary representations and warranties to Buyer, including among other things,
as to its organization and authority to enter into the 1998 Triarc Agreement and
transactions contemplated thereby, the absence of any conflicts with any
applicable law, rule, regulation, judgment, decree, order or agreement, its
ownership of the T.J. Cinnamons franchise agreements, the absence of litigation
or threatened litigation, lack of products liability claims, lack of change in
its financial condition since the audited financial statements for the year
ended December 31, 1997, the absence of undisclosed liabilities or material
adverse changes, its compliance with certain government regulations and other
laws, its contracts and commitments, its disclosures in the 1998 Triarc
Agreement, the receipt of required regulatory approvals and the solvency of the
Company on the closing date of the 1998 Triarc Agreement.
The Buyer has also made certain customary representations and
warranties, including among other things, its organization and authority to
enter into the 1998 Triarc Agreement and transactions contemplated thereby, and
its disclosures in the 1998 Triarc Agreement. All representations and warranties
made by the Company and the Buyer in connection with the 1998 Triarc Agreement
will survive for a period of 36 months following the Closing.
Covenants. After the date of the 1998 Triarc Agreement and until the
Closing, unless expressly approved in writing by the Buyer, the Company has
covenanted and agreed that: (a) the business of the Company will be conducted
only in the ordinary course of business consistent with past practices, (b) the
Company shall not modify, terminate or amend existing T.J. Cinnamons franchise
agreements, or waive, release or assign any material rights or claims, (c) the
Company will not adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization, or other material
reorganization, or any agreement relating to the sale of all or substantially
all of the assets of the Company, (d) the Company shall not engage in a
transaction covered under Item 404 of Regulation S-K under the Securities Act of
1933, as amended, (e) the Company shall provide the Buyer with access to certain
information regarding the Company, (f) the Company will take all reasonable
actions necessary to comply promptly with all legal requirements which may be
imposed on it with respect to the Transaction, (g) the Company agrees to use its
best efforts to consummate and make effective the Transaction, (h) the Company
shall give prompt notice to the Buyer of matters affecting the Company's
representations, warranties and covenants, if any, (i) the Company shall prepare
and file with the Commission the proxy statement, notice of shareholders meeting
and other information or materials required under the Securities Act of 1933, as
amended, or the Securities and Exchange Act of 1934, as amended, and shall not
amend such materials without the approval of Buyer, (j) for a period of three
years following the closing of the Transaction, the Company shall use
commercially reasonable efforts to carry on its business, maintain its corporate
existence and maintain adequate insurance, and (k) Charles Loccisano and Alan
Gottlich, as shareholders of the Company, shall vote all of the shares of the
Company owned or controlled by each of them in favor of the Transaction.
Conditions to Closing. The Buyer's obligation to consummate the
Transaction is conditioned upon satisfaction or waiver of the following
conditions at or before the Closing: (a) each of the representations, warranties
and covenants of the Company shall be true and correct as of the Closing, (b)
the Company shall have delivered all documents required by the Buyer in
connection with the Closing, (c) the Company shall have performed or complied
with all terms, conditions, covenants, obligations, agreements and restrictions
in the Transaction prior to the Closing, (d) all corporate and other proceedings
required to be taken by the Company to authorize the Transaction are completed,
(e) the Company shall have received all governmental approvals required, if any,
to complete the Transaction, (f) all third party consents, if any, required by
the Company to authorize the Transaction are received, (g) the Company shall
have complied with the bulk sales law of the State of New Jersey, if applicable,
(h) no adverse proceedings shall have been initiated or threatened which seek to
restrain, prohibit or invalidate the Transaction or the rights of the Buyer with
-23-
respect to the 1998 Triarc Agreement or the T.J. Cinnamons franchise system, (i)
since the date of the financial statements delivered in connection with the
execution of the 1998 Triarc Agreement, there has been no change, development or
event which individually or in the aggregate could reasonably be expected to
have a material adverse effect on the condition (financial or otherwise),
results of operations, business, assets, or sale of products by the Company or
the prospects of the T.J. Cinnamons franchisees, and (j) the Company shall have
furnished the Buyer copies of notices of termination of contracts with certain
brokers which will be delivered at least 30 days prior to the expiration of the
Wholesale License Agreement.
The Company's obligation to consummate the Transaction is conditioned
upon the satisfaction or waiver of the following conditions prior to Closing:
(a) each of the representations and warranties of the Buyer shall be true as of
the closing of the Transaction, (b) the Buyer shall have received all
governmental approvals required to complete the Transaction, (c) all corporate
and other proceedings required to be taken by the Buyer to authorize the
Transaction have been completed, (d) no adverse proceedings shall have been
initiated or threatened which seek to restrain, prohibit or invalidate the
Transaction or the Company's rights to assign its rights as franchisor under the
T.J. Cinnamons franchise system, and (e) the Company shall have received an
opinion with respect to the fairness of the Transaction to its shareholders and
creditors.
Indemnification. The Company is obligated to indemnify and hold
harmless the Buyer for, among other things, all claims, damages, losses,
liabilities costs and expenses (including, settlement costs and any legal,
accounting and other expenses arising out of the investigation or defense of any
actions or threatened actions) related to the Transaction, misrepresentation,
breach of warranty or non-fulfillment of or failure to perform any covenant,
condition or agreement in the 1998 Triarc Agreement or any statement,
certificate, schedule or document furnished by it in connection with such
agreement or the transactions contemplated thereby.
The Company has further agreed to indemnify and hold harmless the Buyer
and its officers, directors, shareholders and affiliates from all claims,
damages, losses, liabilities, costs and expenses (including, settlement costs
and any legal, accounting and other expenses arising out of the investigation or
defense of any actions or threatened actions) incurred by the indemnified
parties related to, resulting from or in connection with any action or failure
to act by the Company or its directors, officers, shareholders or affiliates.
In the event any damages are claimed by Buyer pursuant to any of the
foregoing indemnifications, then Buyer shall be entitled to reduce any amounts
which remain unpaid under the 1998 Triarc Agreement by an amount equal to the
amount claimed as damages by the Buyer as a result of any breach of the 1998
Triarc Agreement by the Company. Buyer shall then be entitled to satisfy any
final non-appealable judgment on same from the amounts so withheld from Buyer
pursuant to the 1998 Triarc Agreement.
The Buyer is obligated to indemnify and hold harmless the Company for,
among other things, all claims, damages, losses, liabilities costs and expenses
(including, settlement costs and any legal, accounting and other expenses
arising out of the investigation or defense of any actions or threatened
actions) related to the Transaction, misrepresentation, breach of warranty or
non-fulfillment of or failure to perform any covenant, condition or agreement in
the 1998 Triarc Agreement or any statement, certificate, schedule or document
furnished by it in connection with such agreement or the transactions
contemplated thereby.
The Buyer has further agreed to indemnify and hold harmless the Company
and its officers, directors, shareholders and affiliates from all claims,
damages, losses, liabilities, costs and expenses (including, settlement costs
and any legal, accounting and other expenses arising out of the investigation or
defense of any actions or threatened actions) reasonably incurred by the
indemnified parties in connection with any claims against such indemnified
parties based upon the actions or failure to act by the Buyer.
In addition, the indemnifications of the Company and the Buyer, each to
the other, contained in the 1996 Triarc Purchase Agreement, shall survive the
termination of the 1996 Triarc Purchase Agreement.
Termination. The 1998 Triarc 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) if the satisfaction of any
condition of either party's obligations under the 1998 Triarc Agreement has
-24-
become impossible to satisfy, illegal, or subject to a non-appealable order
enjoining or restraining the closing of the Transaction, or (c) at any time
after September 30, 1998 by the Company or Buyer if a closing has not occurred
by said date.
Confidentiality and Non-Competition Agreement. As part of the Wholesale
License Agreement, the Company has agreed to protect the confidentiality of the
Intellectual Property, including trade secrets and confidential and proprietary
information and know-how, after the closing of the Transaction. The Company has
also covenanted and agreed that for a term of 30 months from the date of the
expiration of the Wholesale License Agreement it will not either directly or
indirectly own, maintain, operate, directly engage in, or have any interest in
any business which is engaged in the manufacture, baking, distribution or sale
of (a) bakery products whose predominant flavor is cinnamon, which use cinnamon
as a principal or significant flavor ingredient, are advertised or promoted as
cinnamon or cinnamon flavored products, or are otherwise recognized generally as
cinnamon products, (b) bakery products that are similar to those bakery products
that utilize or incorporate one or more aspects of the Intellectual Property,
and (c) bakery products that use, bear or are displayed in close association to
T.J. Cinnamons proprietary trademarks, or marks confusingly similar to the T.J.
Cinnamons proprietary trademarks, or any deviation or abbreviation thereof.
Charles Loccisano, the Company's Chairman and Chief Executive Officer
and Alan Gottlich, the Company's President and Chief Financial Officer will, at
the closing of the Transaction, enter into Confidentiality and Non-Competition
Agreements that have similar terms as described above.
The Wholesale License Agreement. Simultaneously with the closing of the
1998 Triarc Agreement, Triarc Restaurant Group will enter into a Wholesale
License Agreement with the Company granting the Company the right to use the
Intellectual Property to continue to sell certain approved T.J. Cinnamons
branded products to existing wholesale accounts through December 31, 1998.
Thereafter, Triarc Restaurant Group may in its sole discretion extend the term
of the Wholesale License Agreement for a period not to exceed six months upon 30
days notice to the Company. Triarc Restaurant Group may modify the list of
approved products and approved wholesale accounts in its reasonable discretion.
In consideration for the rights granted to the Company under the
Wholesale License Agreement, the Company will pay Triarc Restaurant Group a
royalty equal to 5% of the Company's net sales of T.J. Cinnamons branded
products on a monthly basis. In the event that aggregate sales of T.J. Cinnamons
branded products in Fiscal 1998 to Ralphs Supermarkets, Costco Wholesale Clubs,
Lucky's Supermarkets, SAMS Wholesale Clubs and Walmart Stores exceed $3,600,000,
the royalty will be reduced to 2% of the Company's net sales of T.J.
Cinnamons branded products that exceed $3,600,000.
Continuing Business; Proposed Expansion
Following the closing of the 1998 Triarc Agreement, the following
businesses will be retained by the Company: (1) the manufacturing and
distribution of specialty gourmet bakery products, other than non-T.J. Cinnamons
products that violate the Non-Competition Agreement described above (the
"Excluded Bakery Products), to grocery outlets, food service outlets,
convenience store outlets and vending outlets, and (2) the wholesale
distribution of certain T.J. Cinnamons branded products to specific existing
wholesale accounts pursuant to the Wholesale License Agreement which will expire
on December 31, 1998. Sales of T.J. Cinnamons branded products accounted for 75%
of the Company's total wholesale sales for the fiscal year ended December 31,
1997, and 70% of the Company's total wholesale sales for the three months ended
March 31, 1998.
To further develop its wholesale sales, the Company will continue to
focus its selling efforts (other than for the Excluded Bakery Products) in
specific geographic areas through alliances with the following key food
brokerage groups: (a) Le Grand Sales and Marketing, representing retail grocery
stores in California; (b) Food Scene, representing retail grocery stores in the
New York tri-state area, (c) J & J Brokers, representing retail grocery stores
in New England, (d) Priority Food Brokers, representing retail grocery stores in
Maryland and Virginia, and (e) American Sales and Marketing, representing
membership club stores nationwide and retail grocery stores in the Midwest. The
Company will be targeting its product line to in-store bakeries and in-store
deli areas of supermarket chains, convenience store chains and food service
-25-
accounts. The Company will focus its initial marketing efforts on the following
core products: (a) Gourmet Rugalach, (b) Gourmet Biscotti, (c) Gourmet Bundt
Cakes, (d) Gourmet Brownies sold under the Hersheys' label, (e) Layer Cakes, and
(f) other gourmet specialty bakery and snack products. All of these products are
sold in various packaging and sizes, and are shipped through both fresh and
frozen distribution channels.
The Company will also explore possible expansion through strategic
acquisitions or alliances in order to take advantage of any synergies that it
could develop in partnering with a company in the manufacturing, sales,
distribution or retailing of bakery products. At this time, no particular
acquisition or alliance candidate has been identified.
There can be no assurances that any of the foregoing expansion plans
can be successfully implemented, or will be profitable to the Company. Initially
the Company will be a smaller and more specialized entity, and its viability
will be dependent on its ability to replace the sales of T.J. Cinnamons branded
products with other specialty bakery products following the expiration of the
Wholesale License Agreement and its ability to implement its business strategy.
Opinion of Texada Capital Corporation
In connection with its consideration of the Transaction, the Board of
Directors of the Company has retained Texada Capital Corporation ("Texada") 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 Transaction.
In arriving at its opinion, Texada reviewed and analyzed the 1998
Triarc Agreement and certain available financial information, internal financial
analyses, 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 Transaction does not occur, (ii) the proposed
Transaction occurs and the Company expands the sale of its specialty gourmet
products, through growth or acquisition, to break-even and beyond, and (iii) the
proposed Transaction occurs, but the Company is not able to expand the sale of
its specialty gourmet bakery products or, alternatively, is not able to reduce
its overhead, to achieve break-even or better. In addition, Texada received the
preliminary proxy statement dated June 30, 1998, the auditors' report dated
March 6, 1998, and information regarding other factors affecting the future
prospects for the Company absent the proposed Transaction.
In rendering its opinion, Texada 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, Texada 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. Texada did not make any independent evaluation or appraisal of the
assets of the Company, nor was it furnished with any evaluation or appraisal.
Texada'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 Texada'a
investigation for purposes of rendering this opinion.
For services rendered by Texada in connection with the Transaction, the
Company agreed to pay Texada a total fee of $25,000. The fee was determined in
an arms length negotiation among the parties and is not based on the purchase
price in the Transaction. In addition, the Company has agreed to reimburse
Texada for reasonable out-of-pocket expenses, including the costs of its
counsel, and to indemnify Texada and certain related persons against certain
liabilities in connection with its engagement, including liabilities under the
federal securities laws. The Board of Directors selected Texada based on its
-26-
experience and expertise. Texada is an investment banking firm whose principals
have over 15 years of valuation experience. There are no relationships between
the Company, Texada or any of their officers.
The Texada 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 1998 Triarc Agreement, and does not
constitute a recommendation to any stockholder as to how to vote at the
Company's 1998 Annual Meeting.
A copy of the Texada 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
Texada.
Interest of Management in the Transaction
In March 1998, Charles Loccisano, the Company's Chairman and Chief
Executive Officer, and Alan Gottlich, the Company's President and Chief
Financial Officer, agreed to provide the Company with a credit line for up to
$500,000 with interest payable quarterly on any draw down by the Company at the
applicable federal rate of 5.39% per annum. The credit line, to the extent drawn
upon, is to be repaid within one year or such shorter period when and if the
Company obtains alternative sources of funds to fund its operations. In
consideration for providing this line of credit facility, the Company granted
Messrs. Loccisano and Gottlich 300,000 unregistered shares of Common Stock. The
current outstanding balance of the draw downs on the credit line is
approximately $450,000 which balance plus accrued interest will be paid in full
out of the proceeds of the Transaction. In addition, $200,000 of the proceeds of
the Transaction will be used to pay accrued but unpaid salaries of Charles
Loccisano, the Company's Chairman and Chief Executive Officer, and Alan
Gottlich, the Company's President and Chief Financial Officer.
Charles Loccisano, the Company's Chairman and Chief Executive Officer,
and Alan Gottlich, the Company's President and Chief Financial Officer, together
with their affiliates, own 42% of the outstanding Common Stock of the Company.
Application of Sale Proceeds
Net proceeds to the Company in connection with the Transaction will be
$4,000,000 excluding the Additional Payments of up to $1,000,000. The Company
currently intends to utilize the net proceeds from the base purchase price as
follows:
Following
At Closing Closing
Reduction of outstanding indebtedness (1) $1,300,000 $0
Expenses of the Transaction (2) 150,000 0
Working capital (3) 1,550,000 1,000,000
----------- -----------
Total net proceeds (4)(5) $3,000,000 $1,000,000
(1) Represents payments of (i) approximately $500,000 to certain past due
trade payables, (ii) approximately $200,000 of accrued but unpaid
salary of Charles Loccisano, the Company's Chairman and Chief Executive
Officer, and Alan Gottlich, the Company's President and Chief Financial
Officer, (iii) approximately $450,000 towards the repayment of loans to
Charles Loccisano, the Company's Chairman and Chief Executive Officer,
and Alan Gottlich, the Company's President and Chief Financial Officer
which loans were made pursuant to the credit line facility extended to
the Company, and (iv) $150,000 to Gelt Financial Corporation as
repayment of a short term loan. See "Certain Transactions."
-27-
(2) Represents (i) $125,000 for various legal and accounting fees incurred
in connection with the Transaction, and (ii) $25,000 for the fees in
connection with obtaining a fairness opinion as required under the
terms of the 1998 Triarc Agreement.
(3) The Company plans to utilize the working capital to expand the business
being retained by the Company and to enter into strategic acquisitions
or alliances with operating businesses in the bakery industry, both of
which the Company anticipates will enhance the value of the Company.
Subject to the limitations of the non-compete provisions of the 1998
Triarc Agreement, the Company intends to explore any and all
appropriate business opportunities. No particular acquisition or
alliance candidate has been identified by the Company, nor has the
Company explored any such potential acquisitions. The Company intends
to invest all unused working capital in secure short term liquid
obligations such as certificates of deposit, obligations of the United
States Government, etc.
(4) $1,000,000 of the net proceeds from the Transaction will be paid in the
form a promissory note and may be reduced by conditional rights of
offset in the 1998 Triarc Agreement. See "1998 Triarc Agreement -
Indemnification."
(5) Excludes Additional Payments of up to $1,000,000 which are conditional
and based on the Company achieving certain sales levels of T.J.
Cinnamons products for the fiscal year ending December 31, 1998. Any
such Additional Payments received will be used towards working capital
needs.
Tax Consequences to the Company
The sale of certain assets and the surrender or release by the Company
of its rights under the 1996 Triarc Agreement in connection with the Transaction
would result in a taxable gain and/or income to the Company. Due to the
Company's net operating loss carry forwards, the Company estimates that the
Transaction will result in minimal federal tax liability.
Recommendation of the Board of Directors
The Company's Board of Directors has determined that the terms of the
Transaction are fair and in the best interest of the Company and its
stockholders. Accordingly, the Company's Board of Directors has unanimously
approved the 1998 Triarc Agreement and unanimously recommends that the
stockholders a vote for approval of the Transaction. Charles Loccisano and Alan
Gottlich, each a member of the Company's four member Board of Directors own,
together with their affiliates, approximately 42% of the Company's outstanding
Common Stock, and have agreed to vote "FOR" the Transaction.
In the course of reaching its decision to approve the Transaction, the
Board consulted with its legal and financial advisors as well as the Company's
management and considered the following material factors:
(1) The written presentation of Texada Capital Corporation that the
consideration to be received pursuant to the terms of the Transaction
is fair to the stockholders of the Company from a financial point of
view.
(2) The lack of success by the Company in its recent financing efforts.
(3) 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 existing business strategies.
(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.
-28-
(5) Following a closing of the Transaction, the Company will have working
capital of $2,550,000 which it plans to utilize to expand the business
being retained by the Company and to enter into strategic acquisitions
or alliances with operating businesses in the bakery industry, both of
which the Company anticipates will enhance the value of the Company.
Considering the above factors, the Board concluded that it was unlikely
that any purchaser, other than the Buyer, would be willing to pay a price higher
than that to be received in the Transaction. The Company's Board of Directors
unanimously recommends that the Company's stockholders vote "FOR" approval of
the Transaction.
Dividend Policy
The Company has not paid any dividends in the past. Declaration of
dividends in the future will remain within the discretion of the Company's Board
of Directors. Future dividends, if any, will be dependent upon the results of
operations and financial condition of the Company, tax considerations, industry
standards, economic conditions, general business practices and other factors. As
a Delaware corporation, the Company may not declare and pay dividends on its
capital stock if the amount paid exceeds an amount equal to the excess of the
Company's net assets over paid-in-capital, or, if there is no excess, its net
profits for the current and/or immediately preceding fiscal year.
-29-
PARAMARK ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1997 1998
(Audited) (Unaudited)
ASSETS
Current Assets:
Cash $122,561 $7,050
Accounts receivable, less allowance for doubtful accounts 259,271 687,103
Notes receivable - current maturities 69,837 126,957
Inventory 234,822 195,265
Prepaid expenses and other current assets, net 35,291 71,204
----------- -----------
Total current assets 721,782 1,087,580
Property and equipment 453,296 458,515
Excess of cost over fair value of net assets acquired 476,667 462,917
----------- -----------
Total Assets $1,651,745 $2,009,011
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $1,142,415 $1,276,934
Current maturities of long-term debt 258,545 802,397
----------- -----------
Total current liabilities 1,400,960 2,079,331
Long-term debt, net of current maturities 69,460 0
----------- -----------
Total liabilities 1,470,420 2,079,331
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock 0 0
Common Stock 30,702 33,740
Additional paid-in capital 6,759,352 6,813,705
Accumulated deficit (6,608,729) (6,917,765)
----------- -----------
Total stockholders' equity 181,325 (70,320)
----------- -----------
Total Liabilities and Stockholders' Equity $1,651,745 $2,009,011
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
-30-
PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months
Ended March 31,
1997 1998
Revenue:
Wholesale sales $422,539 $1,223,996
Sales from Company-owned stores 51,383 35,530
Royalties, licensing fees and other 21,796 30,000
----------- -----------
Total revenue 495,718 1,289,526
Operating expenses:
Cost of goods sold 355,210 985,298
Selling, general and administrative 385,678 606,936
----------- -----------
Total operating expenses 740,888 1,592,234
----------- -----------
Loss from operations (245,170) (302,707)
----------- -----------
Other income (expense):
Interest income (expense), net 22,761 (6,329)
Other income 55,716 0
----------- -----------
Total other income (expense) 78,477 (6,329)
----------- -----------
Net loss ($166,693) ($309,036)
=========== ===========
Net loss per common share ($0.05) ($0.10)
=========== ===========
Weighted average number of
common shares outstanding 3,068,833 3,145,907
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
-31-
PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months
Ended March 31,
1997 1998
Cash flow from operating activities:
Net loss ($166,693) ($309,036)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization 22,492 35,864
Noncash interest expense 0 56,250
Noncash consulting fee 0 1,140
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 109,908 (427,832)
(Increase) decrease in notes receivable 0 (57,120)
(Increase) decrease in inventories (22,150) 39,557
(Increase) decrease in prepaid expenses and other assets (18,807) (35,912)
Increase (decrease) in accounts payable and accrued expenses (359,482) 139,519
--------- ---------
Net cash used in operating activities (434,733) (557,570)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (28,021) (27,332)
--------- ---------
Net cash used in investing activities (28,021) (27,332)
--------- ---------
Cash flows from financing activities:
Proceeds from financing 158,257 469,391
Proceeds from notes receivable 322,448 0
Net repayments of notes payable (32,049) 0
--------- ---------
Net cash provided by financing activities 448,656 469,391
--------- ---------
Net decrease in cash (14,098) (115,511)
Cash at beginning of period 49,677 122,561
--------- ---------
Cash at end of period $35,569 $7,050
========= =========
SEE NOTES TO FINANCIAL STATEMENTS
-32-
Paramark Enterprises, Inc.
Notes to Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying financial statements have been prepared by the Company, in
accordance with generally accepted accounting principles and pursuant to the
Rules and Regulations of the Securities and Exchange Commission, and except
for the Balance Sheet at December 31, 1997, all statements are unaudited. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim period are not necessarily indicative of
financial results for the full year.
Additionally, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principals have been omitted. It is suggested that these
unaudited financial statements be read in connection with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1997. There have been no
significant changes of accounting policies since December 31, 1997.
Note 2 - Net Income (Loss) Per Common Share
Net loss per common share is calculated by dividing net loss by the weighted
average number of shares of common stock outstanding for each period
presented. For purposes of these computations, shares issuable upon the
exercise of all common stock purchase options and warrants outstanding have
been excluded from the computation of weighted average shares outstanding
since their effect is antidilutive.
Note 3 - Income Taxes
No provision for income taxes has been made for the three months ended March
31, 1998 as the Company has net operating losses. These net operating losses
have resulted in a deferred tax asset at March 31, 1998. Due to the
uncertainty regarding the ultimate amount of income tax benefits to be
derived from the Company's net operating losses, the Company has recorded a
valuation allowance for the entire amount of the deferred tax asset at March
31, 1998.
Note 4 - Sale of Assets
In August 1996, the Company closed a purchase agreement with TJ Holding
Company, Inc., a wholly owned subsidiary of Arby's, Inc. d/b/a Triarc
Restaurant Group ("Triarc") through which (a) Triarc purchased the
trademarks, service marks, recipes and secret formulas of the Company, (b)
Triarc licensed back to the Company the rights to operate existing
franchised bakery locations and to distribute T.J. Cinnamons products
through retail grocery outlets, and (c) the Company entered into a
management agreement with Triarc to manage the franchise system.
The Company received payments of $1,790,000 at the closing, a promissory
note in the amount of $1,650,000 which is being paid in fifteen (15) equal
monthly installments beginning October 1, 1996, a promissory note in the
amount of $100,000 which is being paid in twenty four (24) equal monthly
installments beginning October 1, 1996. In addition, the purchase agreement
provides for the contingent payments of up to a maximum of an additional
$5,500,000 over time dependent upon the amount of T.J. Cinnamons product
sales by Triarc exceeding a minimum base system wide sales of $26.3 million.
Pursuant to the terms of the Transaction, T.J. Cinnamons, Inc. changed its
name to Paramark Enterprises, Inc.
-33-
Simultaneous with the closing of the Transaction in August 1996, the Company
entered into an agreement with Heinz Bakery Products to terminate the 1992
manufacturing and license agreement. Under the terms of the agreement, the
Company paid Heinz Bakery Products $600,000 at closing, and assigned to
Heinz the Triarc promissory note in the amount of $100,000 payable with
interest in equal installments over a two year period.
Note 5 - Short Term Financing
In June 1997 the Company entered into a loan agreement with Gelt Financial
Corporation for a credit line in the amount of $200,000 which was
subsequently increased to $400,000 secured by Wal-Mart accounts receivable.
The terms of this loan agreement provide for a service fee of 1.5% of each
advance together with interest at a rate of 675 basis points above the
prime rate.
In March 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 a credit line in the amount of
$500,000. The credit line is required to be repaid within one year, with
interest payable quarterly at the rate of 5.39% per annum. In consideration
for the loan, Messrs. Loccisano and Gottlich were granted an aggregate of
300,000 shares of the Company's common stock.
-34-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
When used in this Quarterly Report, the words or phrases "will likely result",
"are expected to", "will continue", "is anticipated", "estimate", "projected",
"intends to" or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties that
could cause the company's actual results to differ materially from historical
earnings and those presently anticipated or projected. As a result, potential
investors are cautioned not to place undue reliance on any such forward-looking
statements, which speak only as of the date made.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS (for the three month period ended March 31, 1998
compared to the three month period ended March 31, 1997).
The following tables set forth the components of the Company's revenue:
Three Months Ended March 31,
1997 1998
Wholesale sales $422,539 $1,223,996
Company-owned bakery sales 51,383 35,530
Royalties and licensing fees 21,796 30,000
---------- ----------
Total Revenue $495,718 $1,289,526
Wholesale sales increased 190% to $1,223,996 for the three months ended
March 31, 1998 from $422,539 for the three months ended March 31, 1998 due to a
continued expansion of the Company's distribution of its products to grocery
stores, wholesale club stores and mass merchandisers. To further develop its
wholesale sales, the Company is focusing its selling efforts in specific
geographic areas through alliances with the following key food brokerage groups:
(a) Le Grand Marketing, representing retail grocery stores California; (b) Food
Scene, representing retail grocery stores in the New York tri-state area, (c) J
& J Brokers, representing retail grocery stores in New England, (d) Priority
Food Brokers, representing retail grocery stores in Maryland and Virginia, and
(e) American Sales and Marketing, representing membership club stores nationwide
and retail grocery stores in the mid-west. The Company is targeting its product
line to in-store bakeries and in-store deli areas of supermarket chains,
focusing on large multi-unit accounts. The Company is focusing its initial
marketing efforts on the following core products: (a) T.J. Cinnamons Gourmet
Cinnamon Rolls and Gourmet Sticky Rolls; (b) T.J. Cinnamons CinnaChips; (c)
Gourmet Rugalach and (d) Gourmet Brownies. The Company has also developed its
own signature line of gourmet rugalach made in four flavor varieties. In
addition, the Company is manufacturing gourmet brownies sold under the Hershey's
label, gourmet bundt cakes in five flavor varieties, layer cakes, and mini
cakes. All of these products are sold in various packaging and sizes, and are
shipped through both fresh and frozen distribution
The Company is currently selling products to the following accounts:
Ralphs Supermarkets, Food-4-Less Supermarkets, Luckys Supermarkets, ShopRite
Supermarkets, H.E. Butt Supermarkets, Hughs Supermarkets, Kings Supermarkets,
D'Agostinos Supermarkets, Walmart Super Centers, Costco Wholesale Clubs and Sams
Wholesale Clubs.
Company-owned bakery sales decreased by 31% to $35,530 for the three
months ended March 31, 1998 from $51,383 for the three months ended March 31,
1997. This sales decrease resulted from a decline in mall traffic due to a
number of vacancies in the Poughkeepsie Galleria mall. In April 1997, the
-35-
Company entered into a management agreement whereby the Poughkeepsie Galleria
mall bakery will be operated with all cash deficits funded by the manager and
all positive cash flow retained by the manager as a management fee.
Royalty and licensing fee revenues increased to $30,000 for the three
months ended March 31 ,1998 from $21,796 for the three months ended March 31,
1997. This increase in royalties and licensing fees resulted primarily from
increased franchise royalty collections. In August 1996, based on the terms of
the Triarc Transaction, the Company provided franchisees an offer to forgive all
franchise royalties for the period August, 1996 through February, 1997 in
exchange for a general release against the Company. Franchisees representing
approximately 80% of the franchised bakery units entered into these general
release agreements, resulting in reduced franchise royalty collections for the
quarter ended March 31, 1997.
Cost of goods sold increased to $985,298 for the three months ended
March 31, 1998 from $355,210 for the three months ended March 31, 1997. These
increases were primarily the result of the increased sales of products to
supermarkets chains and membership club chains.
Selling, general and administrative expenses increased to $606,936 for
the three months ended March 31, 1998 from $385,678 for the three months ended
March 31, 1997. These increases were primarily the result of increases in
selling, general and administrative costs associated with the Company's
manufacturing plant in Santa Ana, California and the selling and marketing
expenses associated with the launch of the Company's product line to wholesale
channels of distribution.
Net interest expense for the three months ended March 31, 1998 was
($6,329) as compared to net interest expense for the three months ended March
31, 1997 of $22,761. This change in net interest expense resulted primarily from
the interest earned during the three months ended March 31, 1997 on the notes
receivable from Triarc Restaurant Group which were paid in full in December
1997.
Other income decreased to $0 for the three months ended March 31, 1998
from $55,716 for the three months ended March 31, 1997. This other income is
comprised of reductions in accounts payable and accrued liabilities resulting
from discounted settlements and write-offs of accounts payable based on their
being no recent contact with the Company by the creditors being owed such
amounts.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had a working capital deficit of
approximately $991,750. During the three months ended March 31, 1998, the
Company experienced cash flow deficits from its operating activities primarily
because its operating expenses exceeded its operating revenues. These operating
deficits experienced during the three months ended March 31, 1998 have been
funded by a credit line provided to the Company by officers of the Company.
The Company used net cash in operating activities in the amount of
$557,570 for the three months ended March 31, 1998, as compared to $434,733 for
the three months ended March 31, 1997. The Company used net cash in investing
activities in the amount of $27,332 for the three months ended March 31, 1998,
as compared to net cash received from investing activities in the amount of
$28,021 for the three months ended March 31, 1997. The Company used net cash in
financing activities in the amount of $469,391 for the three months ended March
31, 1998 as compared to net cash used in financing activities in the amount of
$448,656 for the three months ended March 31, 1997.
In June 1997, the Company entered into a loan agreement with Gelt
Financial Corporation for a credit line in the amount of $200,000 which was
subsequently increased to $400,000 secured by the Wal-Mart accounts receivable.
The terms of this loan agreement provide for a service fee of 1.5% of each
advance together with interest at a rate of 675 basis points above the prime
rate. The credit line balance was approximately $279,000 on March 31, 1998.
-36-
In October 1997, the Company offered for sale units in a convertible
preferred private placement with Commonwealth Associates acting as placement
agent. This offering was to be held open to investors through January 1998, and
was not consummated as orders for the minimum number of shares were not
obtained. Without alternative sources of financing to fund the Company's
operating deficit, 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
Loccisano and Gottlich loans 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 credit line is required to be repaid within one year or such shorter
period if the Company closes the Triarc Transaction. In consideration for
providing this credit line facility, the Company granted Messrs. Loccisano and
Gottlich an aggregate of 300,000 unregistered shares of Common Stock.
In November 1997, in order to bring the Company into compliance with
requirements necessary for continued listing on the Nasdaq SmallCap Market,
Messrs. Loccisano and Gottlich purchased an aggregate of 20,000 shares of
redeemable Series B preferred stock at a price of $5.00 per share. In January
1998, following a delisting of the Company's securities from the Nasdaq SmallCap
Market and as a result of additional funds loaned to the Company by Messrs.
Loccisano and Gottlich, these shares of Series B preferred stock were redeemed
by the Company at a price of $5.00 per share.
On June 30, 1998, the Company entered into the 1998 Triarc Agreement
regarding (a) the sale of Company's rights and obligations as franchisor under
the T.J. Cinnamons franchise system, and (b) the termination of the 1996 Triarc
Purchase Agreement, the 1996 Triarc License Agreement and the 1996 Triarc
Management Agreement. The 1998 Triarc Agreement is more fully described in
Proposal III herein.
In July 1998, the Company borrowed $150,000 from Gelt Financial
Corporation ("Gelt"). Such loan bears interest at a rate of 5% above the prime
rate and will be repaid on the earlier of one year or the closing of the
Transaction. The loan is secured by all the payments due the Company under the
1996 Triarc Purchase Agreement. In order to induce Gelt to enter into this loan,
the Company paid Gelt a placement fee in the amount of $15,625, and issued Gelt
15,000 shares of the Company's unregistered common stock.
-37-
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On June 30 , 1998, the Company executed the 1998 Triarc Agreement with TJ
Holding Company, Inc. to sell the existing T.J. Cinnamons franchise agreements
and to terminate the 1996 Triarc Purchase Agreement, the 1996 Triarc License
Agreement and the 1996 Triarc Management Agreement. The 1998 Triarc Agreement
provides for the sale to close after approval by the Company's stockholders.
The following Unaudited Pro Forma Financial Statements are based upon the
historical statements of the Company adjusted to give effect to the Transaction.
The Unaudited Pro Forma Balance Sheet as of March 31, 1998 gives effect to the
elimination the disposed assets assuming that the disposition had taken place on
March 31, 1998 and the cash proceeds had been received at that time.
The Unaudited Pro Forma Statements of Operations for the year ended December 31,
1997 and the three months ended March 31, 1998 give effect to the elimination of
the disposed assets assuming the disposition of the assets had taken place at
the beginning of the period presented.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The Unaudited Pro Forma
Financial Statements may not be indicative of the results of operations or
financial position that actually would have been achieved or which may be
obtained in the future.
-38-
PARAMARK ENTERPRISES, INC.
UNAUDITED PRO FORMA BALANCE SHEET AT MARCH 31, 1998
Historical Adjustment Pro Forma
ASSETS
Current Assets:
Cash and cash equivalent $7,050 $3,000,000 (1) $ 3,007,050
Accounts receivable, less allowance for doubtful accounts 687,103 (28,345) (1) 658,758
Notes receivable 126,957 1,000,000 (1) 1,126,957
Inventory 195,265 -- 195,265
Prepaid expenses and other current assets 71,204 -- 71,204
---------- ----------- ----------
Total current assets 1,087,579 3,971,655 5,059,234
========== =========== ==========
Property and Equipment, less accumulated
depreciation and amortization 458,515 -- 458,515
Excess of Cost over Fair Value of Net Assets Acquired 462,917 (462,917) (1) 0
Deferred Income Tax Asset, net of valuation allowance 0 -- 0
---------- ----------- ----------
Total Assets $2,009,011 $3,508,738 $5,517,749
========== =========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts payable and accrued expenses 1,276,934 -- $ 1,276,934
Current maturities of long-term debt 802,397 -- 802,397
---------- ----------- ----------
Total current liabilities 2,079,331 -- 2,079,331
Long Term Debt, net of current maturities 0 -- 0
---------- ----------- ----------
Total liabilities 2,079,331 -- 2,079,331
---------- ----------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock -- -- --
Common Stock 33,740 -- 33,740
Additional paid-in capital 6,813,705 -- 6,813,705
Accumulated deficit (6,917,765) 3,508,738 (1) (3,409,027)
---------- ----------- ----------
Stockholders' equity (70,320) 3,508,738 3,438,418
---------- ----------- ----------
Total Liabilities and Stockholders' Equity $2,009,011 $ 3,508,738 $5,517,749
========== =========== ==========
Book Value per Share $(0.02) $1.09
See Notes to Unaudited Pro Forma Financial Statements
-39-
PARAMARK ENTERPRISES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
Minus Pro
Forma
Historical Adjustments Pro Forma
(2 & 3)
Revenue:
Wholesale sales $1,223,996 -- $1,223,996
Sales from Company-owned stores 35,530 -- 35,530
Royalties, licensing fees and other 30,000 (30,000) 0
----------- ----------- -----------
Total revenue 1,289,526 (30,000) 1,259,526
Operating expenses:
Cost of goods sold 985,298 -- 985,298
Selling, general and administrative 606,935 (43,750) 563,185
Interest expense, net of interest income 6,329 -- 6,329
----------- ----------- -----------
Total operating expenses 1,598,562 (43,750) 1,554,812
----------- ----------- -----------
Operating loss (309,036) 13,750 (295,286)
Other income - gain from sale of assets 0 3,658,738 3,658,738
----------- ----------- -----------
Net loss ($309,036) $3,672,488 $3,363,452
=========== =========== ===========
Net loss per common share ($0.10) $1.07
=========== ===========
Weighted average number of
common shares outstanding 3,145,907 3,145,907
=========== ===========
See Notes to Unaudited Pro Forma Financial Statements
-40-
PARAMARK ENTERPRISES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Minus Pro
Forma
Historical Adjustments Pro Forma
(2 & 3)
Revenue:
Wholesale sales $3,475,463 -- $3,475,463
Sales from Company-owned stores 202,998 -- 202,998
Royalties, licensing fees and other 199,920 (145,000) 54,920
----------- ----------- -----------
Total revenue 3,878,381 (145,000) 3,733,381
Operating expenses:
Cost of goods sold 3,043,984 -- 3,043,984
Selling, general and administrative 2,283,036 (200,000) 2,083,036
Interest expense, net of interest income 8,106 -- 8,106
----------- ----------- -----------
Total operating expenses 5,335,126 (200,000) 5,135,126
----------- ----------- -----------
Loss before extraordinary item (1,456,745) 55,000 (1,401,745)
Other income - gain from sale of assets 0 3,658,738 3,658,738
Extraordinary item - forgiveness of debt 80,088 0 80,088
----------- ----------- -----------
Net loss ($1,376,657) $3,713,738 $2,337,081
=========== =========== ===========
Net loss per common share ($0.45) $0.76
=========== ===========
Weighted average number of
common shares outstanding 3,069,775 3,069,775
=========== ===========
See Notes to Unaudited Pro Forma Financial Statements
-41-
NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET AT MARCH 31, 1998 AND TO THE
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1997 AND THE THREE MONTHS ENDED MARCH 31, 1998
Balance Sheet
(1) Reflects receipt of the estimated net proceeds and related gain (net of
expenses) from the Transaction excluding the Additional Payments, and the
elimination of the assets sold.
Statement of Operations
(2) Reflects the elimination of revenue and operating expenses of the disposed
assets for the year ended December 31, 1997 and the three months ended March 31,
1998. Such expenses have been limited to direct operating expenses attributable
to such disposed assets, and do not include any allocation of corporate or
administrative costs.
(3) The Company has not recorded any estimated income from the investment of the
estimated proceeds from the Transaction. In addition, no tax liability has been
recorded resulting from the tax benefit available to the Company from the
available carry forward of operating losses.
-42-
SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of selected consolidated financial data relating to
the Company.
Three Months
Year ended December 31 Ended
1993 1994 1995 1996 1997 March 31, 1998
(In thousands, except per share data)
Statement of Operations Data:
Revenues $1,402 $1,764 $1,039 $1,490 $3,787 $1,289
Expenses 2,838 4,271(1) 2,105 1,270 5,255 1,592
Net income (loss) from
operations (1,319) (2,507) (1,066) (1,229) (1,457) (303)
Net income (loss) (1,436) (2,507) (1,066) 220(2) (1,377) (309)
Net income (loss) per share (.80) (.99) (.37) .08 (.45) (.10)
Weighted average number
common shares outstanding 1,804 2,531 2,910 2,926 3,070 3,146
Balance Sheet Data:
Total assets $3,310 $3,717 $2,780 $2,651 $1,652 $2,009
Working capital (3,758) 352 (1,226) 836 (679) (992)
Total liabilities 4,004 1,369 1,499 1,095 1,470 2,079
Stockholders' equity (693) 2,348 1,282 1,556 181 (70)
Book value per share (.38) .93 .44 .53 .06 (.02)
(1) Includes a one-time non-cash compensation expense of $1,220,000 in the
fiscal year ended December 31, 1994 resulting from the grant of an option by
affiliates of the Company's Chairman to Dan Feldman, a former member of the
Board of Directors.
(2) Includes a gain from sale of assets of $1,286,197 in the fiscal year ended
December 31, 1996 resulting from the sale of certain assets under the 1996
Triarc Purchase Agreement.
-43-
The following summary financial information was extracted from the consolidated
financial statements is derived from the Triarc Companies, Inc. Annual Report on
Form 10K for the year ended December 31, 1997.
FISCAL EIGHT MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
APRIL 30, DECEMBER 31,
1993 1993 (3) 1994 1995 1996 1997
(IN THOUSANDS EXCEPT PER SHARE)
Revenues ............................ $1,023,249 $676,908 $1,022,671 $1,142,011 $928,185 $861,321
Operating Profit (loss) ............. 24,581(5) 21,038 (6) 54,446 (7) 23,145 (17,853) 26,962
Loss from continuing
operations ................... (50,690(5) (35,935)(6) (10,612)(7) (39,433) (13,698) (20,533)
Income (loss) from
discontinued operations ..... 3,711 (3,095) 4,619 2,439 5,213 20,718
Extraordinary items ................. (6,611) (448) (2,116) -- (5,416) (3,781)
Cumulative effect of changes in
accounting principles, net (6,388) -- -- -- -- --
Net loss ............................ (59,978)(5) (39,478)(6) (8,109) (36,994) (13,901) (3,616)
Preferred stock dividend
requirements (2).......... (121) (3,889) (5,833) -- -- --
Net loss applicable to common
stockholders ............ (60,099) (43,367) (13,942) (36,994) (13,901) (3,616)
Loss per share (4)................... :
Continuing operations .. (1.97) (1.87) (.71) (1.32) (.46) (.68)
Discontinued operations .15 (.15) (.20) .08 .18 .69
Extraordinary items ................. (.26) (.02) (.09) -- (.18) (.13)
Cumulative effect of changes in
accounting principles (.25) -- -- -- -- --
Net loss per share .................. (2.33) (2.04) (.60) (1.24) (.46) (.12)
Total assets ........................ 907,333 887,380 911,236 1,077,173 831,785 1,004,873
Long-term debt ...................... 488,654 571,350 606,374 758,292 469,154 604,830
Redeemable preferred stock .......... 71,794 71,794 71,794 -- -- --
Stockholders equity (deficit) ....... (35,387) (75,981) (31,783) 20,650 6,765 43,988
Weighted-average common
shares outstanding .... 25,808 21,260 23,282 29,764 27,984 29,551
(1) Selected Financial Data for the periods prior to the fiscal year ended
December 28, 1997 have been retroactively restated to reflect the
discontinuance of the Company's dyes and specialty chemicals business sold
in December 1997.
(2) The Company has not paid any dividends on its common shares during any
of the periods presented.
(3) The Company changed its fiscal year from a fiscal year ending April 30
to a calendar year ending December 31 effective for the eight-month
transition period ended December 31, 1993 ("Transition 1993"). The Company
changed its fiscal year to a calendar year consisting of 52 or 53 weeks
ending on the Sunday closest to December 31 effective for the 1997 fiscal
year which commenced January 1, 1997 and ended on December 28, 1997.
(4) Basic and diluted loss per share are the same for all periods presented
since all potentially dilutive securities would have had an antidilutive
effect for all such periods.
(5) Reflects certain significant charges recorded during the fiscal year
ended April 30, 1993 as follows: $51,689,000 charged to operating profit
representing $43,000,000 of facilities relocation and corporate
restructuring relating to a change in control of the Company and $8,689,000
of other net charges; $48,698,000 charged to loss from continuing the
aforementioned $51,689,000 charged to operating profit, $8,503,000 of other
net charges, less $19,391,000 of income tax benefit and minority interest
effect relating to the aggregate of the above charges, and plus $7,897,000
of provision for income tax contingencies; and $67,060,000 charged to net
loss representing the aforementioned $48,698,000 charged to operating
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profit, a $5,363,000 write-down relating to the impairment of certain
unprofitable operations and accruals for environmental remediation and
losses on certain contracts in progress, net of income tax benefit and
minority interests, a $6,611,000 extraordinary charge from the early
extinguishment of debt and $6,388,000 cumulative effect of changes in
accounting principles.
(6) Reflects certain significant charges recorded during Transition 1993 as
follows: $12,306,000 charged to operating profit principally representing
$10,006,000 of increased insured reserves; $25,617,000 charged to loss from
continuing operations representing the aforementioned $12,306,000 charged
to operating profit, $5,050,000 of certain litigation settlement costs,
$3,292,000 of reduction to net realizable value of certain assets held for
sale other than discontinued operations, less $2,231,000 of income tax
benefit and minority interest effect relating to the aggregate of the above
charges, and plus a $7,200,000 provision for income tax contingencies; and
$34,437,000 charged to net loss representing the aforementioned $25,617,000
charged to loss from continuing operations and an $8,820,000 loss on
disposal of discontinued operations.
(7) Reflects certain significant charges recorded during 1994 as follows:
$9,972,000 charged to operating profit representing $8,800,000 of
facilities relocation and corporate restructuring and $1,172,000 of
advertising production costs that in prior periods were deferred;
$4,782,000 charged to loss from continuing operations representing the
aforementioned $9,972,000 charged to operating profit, $7,000,000 of costs
of a proposed acquisition not consummated less $6,043,000 of gain on sale
of natural gas and oil business, less income tax benefit relating to the
aggregate of the above charges of $6,147,000; and $10,798,000 charged to
net loss representing the aforementioned $4,782,000 charged to loss from
continuing operations, $3,900,000 loss on disposal of discontinued
operations and a $2,116,000 extraordinary charge from the early
extinguishment of debt.
(8) Reflects certain significant charges recorded during 1995 as follows:
$19,331,000 charged to operating profit representing a $14,647,000 charge
for a reduction in the carrying value of long-lived assets impaired or to
be disposed of, $2,700,000 of facilities relocation and corporate
restructuring and $3,331,000 of accelerated vesting of restricted stock,
less $1,347,000 of other net credits, and $11,004,000 charged to loss from
continuing operations representing the aforementioned $19,331,000 charged
to operating profit, $1,000,000 of equity in losses of an investee, less
$15,088,000 of net gains consisting of $11,945,000 of gain on sale of
excess timberland and $3,143,000 of other net gains, less $339,000 of
income tax benefit relating to the aggregate of the above charges and plus
a $6,100,000 provision for income tax contingencies; and $15,199,000
charged to net loss representing the aforementioned $11,004,000 charged to
loss from continuing operations and $6,794,000 of equity in losses and
write-down of an investment in an investee included in discontinued
operations less $2,599,000 of income tax benefit relating thereto.
(9) In 1995 all of the redeemable preferred stock was converted into class
B common stock and an additional 1,011,900 class B common shares were
issued resulting in an $83,811,000 improvement in stockholders' equity
(deficit).
(10)Reflects certain significant charges and credits recorded during 1996
as follows: $73,100,000 charged to operating loss representing a
$64,300,000 charge for a reduction in the carrying value of long-lived
assets impaired or to be disposed of and $8,800,000 of facilities
relocation and corporate restructuring; $1,279,000 charged to loss from
continuing operations representing the aforementioned $73,100,000 charged
to operating loss, $77,000,000 of gains on sale of business, net and plus
$5,179,000 of income tax provision relating to the aggregate of the above
net credits; and $6,695,000 charged to net loss representing the
aforementioned $1,279,000 charged to loss from continuing operations and a
$5,416,000 extraordinary charge from the early extinguishment of debt.
11) Reflects certain significant charges and credits recorded during 1997
as follows: $38,890,000 charged to operating profit representing a
$31,815,000 charge for acquisition related costs and $7,075,000 of
facilities relocation and corporate restructuring; $20,444,000 charged to
loss from continuing operations representing the aforementioned $38,890,000
charged to operating profit, $4,955,000 of gain on sale of businesses, net
and less $13,491,000 of income tax benefit relating to the aggregate of the
above net charges; and $4,716,000 charged to net loss representing the
aforementioned $20,444,000 charged to loss from continuing operations,
$19,509,000 of gain on disposal of discontinued operations and a $3,781,000
extraordinary charge from the early extinguishment of debt.
12) In 1997, in connection with the Stewart's acquisition, the Company
issued 1,566,858 shares of its common stock with a value of $37,409,000 for
all of the outstanding stock of Cable Car and 154,931 stock options with a
value of $2,788,000 in exchange for all of the outstanding stock options of
Cable Car resulting in an increase in stockholders' equity of $40,197,000.
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PRICE RANGE OF COMMON STOCK
As of July 7, 1998, the date before the announcement that the Company,
Arby's, Inc. and TJ Holding Company, Inc. reached a definitive agreement, the
closing bid price per share for the Company's Common Stock, as reported by the
NASDAQ Bulletin Board, was $.71. As of July 9, 1998, the date after the
announcement that the Company, Arby's, Inc. and TJ Holding Company, Inc. reached
a definitive agreement, the closing bid price per share for the Company's Common
Stock, as reported by the NASDAQ Bulletin Board, was $.75.
As of June 22, 1998, the Company had approximately 65 stockholders of
record and approximately 600 beneficial holders.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common
Stock. It has been the policy of the Company's Board of Directors to retain all
available funds to finance the development and growth of the Company's business.
The payment of cash dividends in the future will be dependent upon the earnings
and financial requirements of the Company and other factors deemed relevant by
the Board of Directors.
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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 N. 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, 1997, the
outstanding balance due Heinz under said note was $69,800 and all payments were
current.
Gelt Financial Group Loan
In connection with a loan in the amount of $125,000 from Gelt Financial
Group in July 1996, 250,000 shares of the Company's Common Stock (held by
affiliates of Charles Loccisano, the Company's Chairman, Chief Executive
Officer, President and Director, and Alan Gottlich, the Company's President,
Chief Financial Officer and Director) were pledged to Gelt Financial Group, and
limited guarantee agreements were entered into by such affiliates. In August
1996, this loan was repaid in full.
Option Grant by Affiliate
In April 1994, the Loccisano Trusts granted an option to purchase
250,000 shares of their Common Stock to Dan Feldman, then a consultant to the
Company, in exchange for his agreement to serve as a Director. In January 1995,
Dan Feldman acquired 125,000 shares of Company Common Stock from the Loccisano
Trusts for no cash consideration, and the balance of the option was terminated.
In November 1996, the Company issued 125,000 shares of its Common Stock to the
Loccisano Trusts in consideration for the shares previously conveyed by the
Loccisano Trusts to Dan Feldman on behalf of the Company. Mr. Feldman resigned
his position as a director of the Company in September 1997.
Stock and Option Grants in connection Consulting Arrangements
In November 1996, the Company granted Philip Friedman, a Director of
the Company, 5,000 shares of Common Stock and 10,000 options to purchase shares
of Common Stock at an exercise price of $1.94 per share of Common Stock in
consideration for consulting services rendered to the Company. All the
aforementioned options are fully vested.
Loans and Investments from Affiliates
During the period November 1995 through June 1996, the Company borrowed
approximately $184,500 from an affiliate of Charles Loccisano, the Company's
Chairman and Chief Executive Officer, and Alan Gottlich, the Company's President
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and Chief Financial Officer. These loans were repaid in August 1996 based on
terms which include loan origination fees of 25% and interest at a rate of five
points above the Wall Street Journal Prime Rate. In August 1996, this loan was
repaid in full.
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 credit line is required to be repaid within one year or such shorter period
if the Company obtains alternative sources of funds to fund its operations. 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.
SECTION 16 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, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with except that certain
reports disclosing the grant of stock options to Charles Loccisano, Alan
Gottlich, Philip Friedman and Paul Bergrin were not filed on a timely basis. The
grant of such options were subsequently reported on Form 5.
INDEPENDENT PUBLIC ACCOUNTANTS
On January 31, 1997 the Company dismissed Goldstein, Golub Kessler &
Co. P.C. ("GGK") as its independent auditors. Such dismissal was approved by the
company's Board of Directors. GGK's report upon the Company's financial
statements for its fiscal year ended December 31, 1995 did not contain an
adverse opinion or a disclaimer of opinion, nor was such report qualified or
modified as to audit scope or accounting principles. The report was prepared
assuming that the Company will continue as a going concern. During the Company's
fiscal year ended December 31, 1995 and to the date of GGK's dismissal (the
"Interim Period"): (i) there were no disagreements (of nature contemplated by
Item 304 (a) (1) (iv) of Regulation S-K) between the Company and GGK; and (ii)
there were no reportable events of nature contemplated by Item 304 (a) (1) (iv)
(B) of Regulation S-B.
On January 31, 1997 the Company engaged Arthur Andersen LLP ("AA) as
its independent auditors for the Company's fiscal year ended December 31, 1996.
During the Company's fiscal year ended December 31, 1995 and the Interim Period,
the Company did not consult with AA with respect to any of the matters
contemplated by Item 304 (a) (2) (i)-(ii) of Regulation S-B.
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On February 14, 1997 AA resigned its position as the Company's
independent auditors. Such resignation was necessitated because AA concluded
that it had a conflict of interest in reporting on the Company's financial
statements for the fiscal year ended December 31, 1996 due to the fact that AA
had rendered financial advisory services to the company for which it received a
fee. During the Company's engagement of AA through the date of AA's withdrawal
(the "Second Interim Period"): (i) there were no disagreements (of nature
contemplated by Item 304 (a) (1) (iv) (A) of Regulation S-B) between the Company
and GGK; and (ii) there were no reportable events of nature contemplated by Item
304 (a) (1) (iv) (B) of Regulation S-B.
On February 21, 1997 the Company retained Amper, Politziner & Mattia
("AP&M") as its independent accountants for the Company's fiscal year ended
December 31, 1996. during the Company's fiscal year ended December 31, 1995, the
Interm Period and the Second Interm Period, the Company did not consult with
AP&M with respect to any of the matters contemplated by Item 304 (a) (2)
(i)-(ii) of Regulation S-K. AP&M has served as the Company's independent public
accountants since 1996. 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, 1997. A representative of AP&M is expected to attend the Annual
Meeting. 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.
ANNUAL REPORT
The Company's Annual Report on Form 10-KSB (including financial
statements) for the fiscal year ended December 31, 1997 is mailed herewith to
all stockholders and is intended by the Company to serve as its Annual Report to
Stockholders.
OTHER MATTERS
Management is not aware of any matters to come before the Annual
Meeting which will require the vote of stockholders other than those matters
indicated in the Notice of Annual 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 Annual 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 stockholders, 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.
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STOCKHOLDER PROPOSALS
Any proposal intended to be presented by any Stockholder for action at
the 1998 Annual Meeting of Stockholder must be received by the Secretary of the
Company not later than June 11, 1998 in order for the proposal to be included in
the proxy statement and proxy relating to such Annual Meeting.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company (File No. 0-23026) or
Triarc Companies, Inc. (File No. I-2207) with the Commission pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act") are incorporated by
reference in this Proxy Statement:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997.
2. Triarc Companies, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 and Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998.
In addition, all documents filed pursuant to Section 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
prior to the date of the Annual Meeting shall be deemed to be incorporated by
reference in this Proxy Statement and to be a part hereof from the dates of
filing of such documents or reports. Any statement contained herein or in a
document all or a portion of which is incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as modified or superseded, to
constitute a part of this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO PARAMARK
ENTERPRISES, INC., ONE HARMON PLAZA, SECAUCUS, NEW JERSEY 07094-3618, (201)
422-0910, ATTENTION: ALAN GOTTLICH, PRESIDENT. IN ORDER TO ENSURE DELIVERY OF
THE DOCUMENTS PRIOR TO THE ANNUAL MEETING OF THE COMPANY, REQUESTS SHOULD BE
RECEIVED BY JULY 31, 1998.
A copy of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 is delivered together with the Proxy Statement.
By Order of the Board of Directors
/s/ Alan S. Gottlich
Alan S. Gottlich, Secretary
Secaucus, New Jersey
July 13, 1998.
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APPENDIX A
1996 Amended and Restated Stock Option Plan
PARAMARK ENTERPRISES, INC.
1996 AMENDED AND RESTATED STOCK OPTION PLAN
1. Purpose of Plan
The purpose of this 1996 Amended and Restated Stock Option Plan (the
"Plan") is to provide additional incentive to officers, key employees, directors
of, and important consultants to, Paramark Enterprises, Inc., a Delaware
corporation (the "Company"), and each present or future parent or subsidiary
corporation, by encouraging them to invest in shares of the Company's common
stock, no par value ("Common Stock"), and thereby acquire a proprietary interest
in the Company and an increased personal interest in the Company's continued
success and progress.
2. Aggregate Number of Shares
1,000,000 shares of the Company's Common Stock shall be the aggregate
number of shares which may be issued under this Plan. Notwithstanding the
foregoing, in the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee (defined in Section 4(a)),
deems in its sole discretion to be similar circumstances, the aggregate number
and kind of shares which may be issued under this Plan shall be appropriately
adjusted in a manner determined in the sole discretion of the Committee.
Reacquired shares of the Company's Common Stock, as well as unissued shares, may
be used for the purpose of this Plan. Common Stock of the Company subject to
options which have terminated unexercised, either in whole or in part, shall be
available for future options granted under this Plan.
3. Class of Persons Eligible to Receive Options
All officers, key employees and directors of, and important consultants
to, the Company and any present or future Company parent or subsidiary
corporation are eligible to receive an option or options under this Plan,
provided, however, that Incentive Stock Options (defined in Section 5(a)) may be
issued only to persons who are employees of the Company or any subsidiary
corporation. The individuals who shall, in fact, receive an option or options
shall be selected by the Committee, in its sole discretion, except as otherwise
specified in Section 4 hereof. No individual may receive options under this Plan
for more than 90% of the total number of shares of the Company's Common Stock
authorized for issuance under this Plan.
4. Administration of Plan
(a) This Plan shall be administered by the Option Committee
("Committee") appointed by the Company's Board of Directors provided, however,
that at the option of the Board of Directors, the Plan may be administered by
the Board of Directors of the Corporation at any time and from time to time. The
Committee shall consist of a minimum of two members of the Board of Directors,
each of whom shall be a "Non-Employee Director" within the meaning of Rule
16b-3(b)(3) under the Securities Exchange Act of 1934, as amended, or any future
corresponding rule, except that the failure of the Committee or of the Board of
Directors for any reason to be composed solely of Non-Employee Directors shall
not prevent an option from being considered granted under this Plan. The
Committee shall, in addition to its other authority and subject to the
provisions of this Plan, determine which individuals shall in fact be granted an
option or options, whether the option shall be an Incentive Stock Option or a
Non-Qualified Stock Option (as such terms are defined in Section 5(a)), the
number of shares to be subject to each of the options, the time or times at
which the options shall be granted, the rate of option exercisability, and,
subject to Section 5 hereof, the price at which each of the options is
exercisable and the duration of the option. The term "Committee", as used in
this Plan and the options granted hereunder, refers to the Committee or to the
Board of Directors, if the Board elects to administer the Plan as provided
above.
(b) The Committee shall adopt such rules for the conduct of its
business and administration of this Plan as it considers desirable. A majority
of the members of the Committee shall constitute a quorum for all purposes. The
vote or written consent of a majority of the members of the Committee on a
particular matter shall constitute the act of the Committee on such matter. The
Committee shall have the right to construe the Plan and the options issued
pursuant to it, to correct defects and omissions and to reconcile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee or the Board of Directors
shall be liable for any act or omission (whether or not negligent) taken or
omitted in good faith, or for the exercise of an authority or discretion granted
in connection with the Plan to a Committee or the Board of Directors, or for the
acts or omissions of any other members of a Committee or the Board of Directors.
Subject to the numerical limitations on Committee membership set forth in
Section 4(a) hereof, the Board of Directors may at any time appoint additional
members of the Committee and may at any time remove any member of the Committee
with or without cause. Vacancies in the Committee, however caused, may be filled
by the Board of Directors.
5. Incentive Stock Options and Non-Qualified Stock Options
(a) Options issued pursuant to this Plan may be either Incentive Stock
Options granted pursuant to Section 5(b) hereof or Non-Qualified Stock Options
granted pursuant to Section 5(c) hereof, as determined by the Committee. An
"Incentive Stock Option" is an option which satisfies all of the requirements of
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code") and
the regulations thereunder, and a "Non-Qualified Stock Option" is an option
which either does not satisfy all of those requirements or the terms of the
option provide that it will not be treated as an Incentive Stock Option. The
Committee may grant both an Incentive Stock Option and a Non-Qualified Stock
Option to the same person, or more than one of each type of option to the same
person.
The option price for Incentive Stock Options issued under this Plan
shall be equal at least to the fair market value (as defined below) of the
Company's Common Stock on the date of the grant of the option, provided,
however, that if an Incentive Stock Option is granted to an individual who, at
the time the option is granted, is deemed to own more than 10 percent of the
total combined voting power of all classes of stock of the Company or any
subsidiary corporation of the Company as more fully set forth in Section
422(b)(6) of the Code (after giving effect to the ownership attribution rules of
422(c)(5) of the Code) (a "10% Shareholder"), such option shall comply with the
provisions of Section 422(c)(5) of the Code, including without limitation,
requirements that the option price shall not be less than 110 percent of the
fair market value, as determined by the Committee in accordance with its
interpretation of the requirements of Section 422 of the Code and the
regulations thereunder, of the Company's Common Stock on the date of grant of
the option, and such option shall not be exercisable after the expiration of
five years from the date the option is granted.
The option price for Non-Qualified Stock Options issued under this Plan
may, in the sole discretion of the Committee, be less than the fair market value
of the Common Stock on the date of the grant of the option.
The fair market value of the Company's Common Stock on any particular
date shall mean the last reported sale price of a share of the Company's Common
Stock on any stock exchange on which such stock is then listed or admitted to
trading, or on the Nasdaq National Market or Nasdaq SmallCap Market, on such
date, or if no sale took place on such day, the last such date on which a sale
took place, or if the Common Stock is not then quoted on the Nasdaq National
Market or the Nasdaq SmallCap Market, or listed or admitted to trading on any
stock exchange, the average of the bid and asked prices in the over-the-counter
market on such date, or if none of the foregoing, a price determined in good
faith by the Committee to equal the fair market value per share of the Common
Stock.
(b) Subject to the authority of the Committee set forth in Section 4(a)
hereof, Incentive Stock Options issued to officers and key employees pursuant to
this Plan shall be issued substantially in the form set forth in Appendix I
hereof, which form is hereby incorporated by reference and made a part hereof,
and shall contain substantially the terms and conditions set forth therein.
Incentive Stock Options shall not be exercisable after the expiration of ten
years (five years in the case of 10% Shareholders) from the date such options
are granted, unless terminated earlier under the terms of the option. At the
time of the grant of an Incentive Stock Option hereunder, the Committee may, in
its discretion, amend or supplement any of the option terms contained in
Appendix I for any particular optionee, provided that the option as amended or
supplemented satisfies the requirements of Section 422(b) of the Code and the
regulations thereunder. Each of the options granted pursuant to this Section
5(b) is intended, if possible, to be an "Incentive Stock Option" as that term is
defined in Section 422(b) of the Code and the regulations thereunder. In the
event this Plan or any option granted pursuant to this Section 5(b) is in any
way inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an Incentive Stock Option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment.
(c) Subject to the authority of the Committee set forth in Section 4(a)
hereof, Non-Qualified Stock Options issued to officers and other key employees
pursuant to this Plan shall be issued substantially in the form set forth in
Appendix II hereof, which form is hereby incorporated by reference and made a
part hereof, and shall contain substantially the terms and conditions set forth
therein. Subject to the authority of the Committee set forth in Section 4(a)
hereof, Non-Qualified Stock Options issued to directors and important
consultants pursuant to this Plan shall be issued substantially in the form set
forth in Appendix III hereof, which form is hereby incorporated by reference and
made a part hereof, and shall contain substantially the terms and conditions set
forth therein. Non-Qualified Stock Options shall expire ten years after the date
they are granted, unless terminated earlier under the option terms. At the time
of granting a Non-Qualified Stock Option hereunder, the Committee may, in its
discretion, amend or supplement any of the option terms contained in Appendix II
or Appendix III for any particular optionee.
(d) Neither the Company nor any of its current or future parent,
subsidiaries or affiliates, nor their officers, directors, shareholders, stock
option plan committees, employees or agents shall have any liability to any
optionee in the event (i) an option granted pursuant to Section 5(b) hereof does
not qualify as an "Incentive Stock Option" as that term is used in Section
422(b) of the Code and the regulations thereunder; (ii) any optionee does not
obtain the tax treatment pertaining to an Incentive Stock Option; or (iii) any
option granted pursuant to Section 5(c) hereof is an "Incentive Stock Option."
6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the expiration
of ten years from the date the Plan is adopted by the Board of Directors of the
Company. The Board of Directors reserves the right at any time, and from time to
time, to amend or supplement this Plan and outstanding options granted under the
Plan in any way, or to suspend or terminate the Plan, effective as of such date,
which date may be either before or after the taking of such action, as may be
specified by the Board of Directors; provided, however, that such action shall
not adversely affect holders of options granted under the Plan prior to the
actual date on which such action occurred. If an amendment or supplement of this
Plan is required by the Code or the regulations thereunder to be approved by the
shareholders of the Company in order to permit the granting of "Incentive Stock
Options" (as that term is defined in Section 422(b) of the Code and regulations
thereunder) pursuant to the amended or supplemented Plan, such amendment or
supplement shall also be approved by the shareholders of the Company in such
manner as is prescribed by the Code and the regulations thereunder. If the Board
of Directors voluntarily submits a proposed amendment, supplement, suspension or
termination for shareholder approval, such submission shall not require any
future amendments, supplements, suspensions or terminations (whether or not
relating to the same provision or subject matter) to be similarly submitted for
shareholder approval.
7. Effectiveness of Plan
This Plan shall become effective on the date of its adoption by the
Company's Board of Directors, subject however to approval by the holders of the
Company's Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
until shareholder approval is obtained.
8. General Conditions
(a) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any employee the right to continue in the employ of
the Company or any affiliated or subsidiary corporation or interfere in any way
with the rights of the Company or any affiliated or subsidiary corporation to
terminate his employment in any way.
(b) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any director or consultant the right to continue as
a director of, or consultant to, the Company or any affiliated or subsidiary
corporation or interfere in any way with the rights of the Company or any
affiliated or subsidiary corporation, or their respective shareholders, to
terminate the directorship of any such director or the consultancy relationship
of any such consultant.
(c) Corporate action constituting an offer of stock for sale to any
person under the terms of the options to be granted hereunder shall be deemed
complete as of the date when the Committee authorizes the grant of the option to
the such person, regardless of when the option is actually delivered to such
person or acknowledged or agreed to by him.
(d) The terms "parent corporation" and "subsidiary corporation" as used
throughout this Plan, and the options granted pursuant to this Plan, shall
(except as otherwise provided in the option form) have the meaning that is
ascribed to that term when contained in Section 422(b) of the Code and the
regulations thereunder, and the Company shall be deemed to be the grantor
corporation for purposes of applying such meaning.
(e) References in this Plan to the Code shall be deemed to also refer
to the corresponding provisions of any future United States revenue law.
(f) The use of the masculine pronoun shall include the feminine gender
whenever appropriate.
APPENDIX B
Agreement between and among Paramark Enterprises, Inc.,
TJ Holding Company, Inc. and Arby's, Inc.
dated June 30, 1998 and
Form of Wholesale License Agreement
between Arby's, Inc. and
Paramark Enterprises, Inc.
TABLE OF CONTENTS
Page
ARTICLE 1 ASSIGNMENT OF THE TJC LICENSE AGREEMENTS; PAYMENT; CLOSING 2
Section 1.1 Assignment of the TJC License
Agreements 2
Section 1.2 Closure of Poughkeepsie Bakery 3
Section 1.3 Consideration 3
Section 1.4 Additional Consideration 3
Section 1.5 Off-Set of Deferred Payments 5
Section 1.6 The Closing 5
Section 1.7 No Assumption of Liabilities 5
ARTICLE 2 DISCHARGE AND RELEASE; ACCOUNTING; CONTINUING RESTRICTIONS 6
Section 2.1 Discharge and Release 6
Section 2.2 Termination of Agreements 6
Section 2.3 Accounting 6
Section 2.4 Continuing Restrictions and
Obligations 6
ARTICLE 3 REPRESENTATIONS OF PARAMARK 6
Section 3.1 Organization and Authority 6
Section 3.2 Authorization; No Conflicts 7
Section 3.3 Ownership of the TJC License
Agreements 7
Section 3.4 Litigation 8
Section 3.5 Financial Statements 8
Section 3.6 Franchises 8
Section 3.7 Approvals 9
Section 3.8 Contracts and Commitments 9
Section 3.9 Compliance with Laws 9
Section 3.10 Disclosure 9
Section 3.11 Absence of Certain Changes 9
Section 3.12 Product Liability 10
Section 3.13 Finders 10
Section 3.14 Undisclosed Liabilities 10
Section 3.15 Financial Condition 10
Section 3.16 The Purchase Agreement 11
ARTICLE 4 REPRESENTATIONS OF TJHC 11
Section 4.1 Organization and Authority 11
Section 4.2 Authorization; No Conflicts 11
Section 4.3 Regulatory Approvals 12
Section 4.4 Finders 12
Section 4.5 The Purchase Agreement 12
Section 4.6 Disclosure 12
ARTICLE 5 REPRESENTATIONS OF ARBY'S 12
Section 5.1 Organization and Authority 12
Section 5.2 Authorization; No Conflicts 12
Section 5.3 Regulatory Approvals 13
Section 5.4 Finders 13
Section 5.5 The Purchase Agreement 13
Section 5.6 Disclosure 13
ARTICLE 6 COVENANTS OF PARAMARK 14
Section 6.1 Interim Operations of Paramark 14
Section 6.2 Access to Information 14
Section 6.3 Consents and Approvals 15
Section 6.4 Additional Agreements 15
Section 6.5 Notification of Certain Matters 15
Section 6.6 SEC Filings 16
Section 6.7 Continuation of Business. 16
Section 6.8 Shareholder Approval 16
ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF TJHC AND ARBY'S 17
Section 7.1 Truth of Representations and
Warranties of Paramark; Compliance
with Covenants and Obligations 17
Section 7.2 Closing Deliveries 17
Section 7.3 Corporate Proceedings 17
Section 7.4 Government Approvals 17
Section 7.5 Third Party Consents 17
Section 7.6 Bulk Sales Law Compliance 18
Section 7.7 Adverse Proceedings 18
Section 7.8 Financial Condition 18
Section 7.9 Termination of Broker Contracts 18
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF PARAMARK 18
Section 8.1 Truth of Representations and
Warranties of TJHC and Arby's;
Compliance with Covenants and
Obligations 18
Section 8.2 Government Approvals 19
Section 8.3 Corporate Proceedings 19
Section 8.4 Adverse Proceedings 19
Section 8.5 Fairness Opinion 19
ARTICLE 9 INDEMNIFICATION 19
Section 9.1 Indemnification of TJHC and
Paramark for Misrepresentations 19
Section 9.2 Indemnification of Arby's and
Paramark for Misrepresentations 20
Section 9.3 Survival of Representations 20
Section 9.4 Paramark's Indemnity 20
Section 9.5 TJHC's and Arby's Indemnity 20
Section 9.6 Notice for Claims of
Indemnification 20
Section 9.7 Defense by Indemnifying Party 21
Section 9.8 Indemnification Under the
Purchase Agreement 21
ARTICLE 10 GENERAL PROVISIONS 22
Section 10.1 Termination 22
Section 10.2 Effect of Termination 22
Section 10.3 Notices 22
Section 10.4 Successors and Assigns 23
Section 10.5 Amendments 23
Section 10.6 Waivers 23
Section 10.7 Expenses 24
Section 10.8 Construction 24
Section 10.9 Interpretation 24
Section 10.10 Governing Law 24
Section 10.11 No Third Party Beneficiaries 24
Section 10.12 Waiver of Jury Trial 24
Section 10.13 Entire Agreement 24
EXHIBITS
EXHIBIT A FORM OF THE NEW PROMISSORY NOTE
EXHIBIT B GUARANTY
EXHIBIT C WHOLESALE LICENSE AGREEMENT
EXHIBIT D TRANSACTIONS AT CLOSING
EXHIBIT E ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT F RELEASE AND DISCHARGE (PARAMARK) (TJHC/ARBY'S)
EXHIBIT G PARAMARK CONFIDENTIALITY AND NON-COMPETE AGREEMENT
EXHIBIT H LOCCISANO CONFIDENTIALITY AND NON-COMPETE AGREEMENT
EXHIBIT I GOTTLICH CONFIDENTIALITY AND NON-COMPETE AGREEMENT
EXHIBIT J OPINION OF COUNSEL FOR PARAMARK
SCHEDULES
SCHEDULE 1.1 TJC LICENSE AGREEMENTS
SCHEDULE 1.7 ASSUMED LIABILITIES
SCHEDULE 3.5 FINANCIAL STATEMENTS
SCHEDULE 3.6 LOCATIONS OF TJC BAKERIES
SCHEDULE 3.7 APPROVAL AND FILINGS (of Paramark)
SCHEDULE 3.8 CONTRACTS AND COMMITMENTS
SCHEDULE 3.11 ADVERSE CHANGES
SCHEDULE 3.12 PRODUCT LIABILITY
SCHEDULE 4.3 REGULATORY APPROVALS AND FILINGS (of TJHC)
SCHEDULE 5.3 REGULATORY APPROVALS (of Arby's)
AGREEMENT
This Agreement (the "Agreement"), dated June 30, 1998, is by and among
Paramark Enterprises, Inc., a Delaware corporation ("Paramark"), TJ Holding
Company, Inc., a Delaware corporation ("TJHC"), and Arby's, Inc., d/b/a Triarc
Restaurant Group, a Delaware corporation ("Arby's"). Paramark, TJHC, and Arby's
are collectively referred to in this Agreement as the "Parties" and,
individually, as a "Party."
PRELIMINARY STATEMENT
A. Pursuant to a purchase agreement (the "Purchase Agreement") dated June 3,
1996, TJHC acquired certain proprietary marks (the "Proprietary Marks"), secret
recipes, and technical information (the Proprietary Marks, secret recipes, and
technical information are collectively referred to as "Intellectual Property")
related to a system (the "TJC System") owned by Paramark, formerly known as T.J.
Cinnamons, Inc., for developing and operating food service units offering
gourmet cinnamon rolls and other bakery items ("TJC Products"). TJHC
subsequently licensed its affiliate Arby's to use and license others to use the
Intellectual Property. Pursuant to the Purchase Agreement, T.J. Cinnamons, Inc.
changed its name to Paramark Enterprises, Inc.
B. Paramark owns and operates, and franchises others ("Franchisees") to operate,
retail locations ("TJC Bakeries") using the Intellectual Property pursuant to
franchise agreements ("Franchise Agreements"); licenses or permits others
("Retail Licensees") to use the Intellectual Property to prepare and sell TJC
Products at or from certain retail locations other than TJC Bakeries ("TJC
Retail Locations"), prepares and sells at wholesale ("Wholesale Accounts"), for
resale through retail food stores, certain TJC Products, and markets and sells
certain TJC Products for sale to Wholesale Accounts through independent food
brokers ("Brokers"). The Franchisees, Retail Licensees, Wholesale Accounts, and
Brokers are referred to herein as the "TJC Licensees". The agreements between
Paramark and the Franchisees, Retail Licensees, Wholesale Accounts, and Brokers
are referred to herein, in the aggregate, as the "TJC License Agreements".
C. Arby's and Paramark entered into a License Agreement dated August 29, 1996,
whereby Paramark was authorized to use the Intellectual Property to prepare and
sell TJC Products at one specified retail location (the "Poughkeepsie Bakery");
distribute and authorize TJC Wholesale Licensees to distribute TJC Products,
subject to certain conditions; and to fulfill the obligations under the TJC
License Agreements, including the continuity of rights of Franchisees and Retail
Licensees to prepare and sell TJC Products, and to use the Intellectual Property
in connection therewith.
D. On August 29, 1996, TJHC and Paramark entered into a management agreement
(the "Management Agreement"), and on August 29, 1996, TJHC assigned the
Management Agreement to Arby's, whereby Arby's agreed to manage and operate the
business of Paramark related to the TJC Bakeries, the Franchise Agreements, the
Poughkeepsie Bakery, and the Retail Locations. The Purchase Agreement, License
Agreement, and Management Agreement are referred to in the aggregate herein as
the "TJC Agreements."
E. Pursuant to the License Agreement:
(a) Charles N. Loccisano and Alan Gottlich entered into
Confidentiality and Non- Competition Agreements with TJHC and
Arby's, dated August 29, 1996.
(b) Joseph Mammarella and Vincent Loccisano entered into
Confidentiality Agreements with TJHC and Arby's, dated August
29, 1996; and
(c) Saul Feiger and Alan Gottlich, as trustees of the Charles
N. Loccisano Irrevocable Trust F/B/O Michael Loccisano and the
Charles N. Loccisano Irrevocable Trust F/B/O Marissa
Loccisano, entered into a Stock Restriction Agreement with
TJHC and Arby's.
F. The Parties wish to terminate the TJC Agreements, except with respect to
certain indemnification obligations and survival of representations and
warranties, as provided in this Agreement.
G. Subject to and upon the terms and conditions set forth in this Agreement,
Paramark wishes to assign to TJHC all of its rights and obligations under
certain TJC License Agreements, and TJHC wishes to assume all of the rights and
obligations of Paramark under certain TJC License Agreements. All TJC License
Agreements not assigned to TJHC will be terminated.
Therefore, in consideration of the mutual covenants and conditions
contained in this Agreement, Paramark, TJHC, and Arby's agree as follows:
ARTICLE 1
ASSIGNMENT OF THE TJC LICENSE AGREEMENTS; PAYMENT; CLOSING
Section 1.1 Assignment of the TJC License Agreements. Subject to and upon
the terms and conditions of this Agreement, on the Closing
Date (as defined in Section 1.6), Paramark shall transfer,
convey, assign, and deliver to TJHC, and TJHC shall assume
from Paramark, free and clear of any and all pledges, liens,
security interests, restrictions, prior assignments,
encumbrances, or claims of any kind or nature (collectively,
"Liens," and each a "Lien") (a) all of Paramark's rights,
obligations, title, and interest in, under, and to the TJC
License Agreements identified in Schedule 1.1 to this
Agreement; and (b) upon the expiration or termination of the
Wholesale License Agreement referred to in Section 1.4.1, such
inventory, product ingredients, and materials used in
producing the TJC Products that use or include the
Intellectual Property, and other assets identified in Schedule
1.1 that are owned or controlled by Paramark and used by
Paramark in conjunction with Paramark's operations under the
TJC License Agreements or the Wholesale License Agreement.
2
Section 1.2 Closure of Poughkeepsie Bakery. On or before the Closing Date,
Paramark shall cease operating the Poughkeepsie Bakery, and
cease using the Proprietary Marks or any of the Intellectual
Property at the site of the Poughkeepsie Bakery, and Paramark
shall terminate the lease for such site. TJHC shall pay to
Paramark an amount not to exceed one half (1/2) of Paramark's
"buy-out costs" that Paramark actually pays to the landlord of
the site upon termination of the lease for the site. "Buy-out
costs" shall mean the net present value of the remaining rent
payments that would be due under the lease from the date of
termination until the end of the lease, which Paramark
represents is not later than June 30, 1999. Buy-out costs
shall include only the per square foot rental charges, and
shall exclude common area maintenance charges, taxes, or other
charges and expenses under the lease. TJHC shall pay Paramark
the amount specified under this Section 1.2 thirty (30) days
following TJHC's receipt of a statement from the landlord
specifying Paramark's buy-out costs actually paid to the
landlord.
Section 1.3 Consideration. The consideration to be paid by TJHC for the
assignment of the TJC License Agreements by Paramark and the
performance of all of its obligation pursuant to this
Agreement (the "Price"), shall be Four Million Dollars
($4,000,000), which shall be paid as follows:
1.3.1 Cash at the Closing in the amount of Three Million Dollars
($3,000,000).
1.3.2 Delivery at the Closing of a promissory note (the "New
Promissory Note"), substantially in the form of Exhibit A to
this Agreement, in the principal amount of One Million Dollars
($1,000,000), without interest, payable in twenty-four equal
monthly installments of Forty-One Thousand Six Hundred
Sixty-Six Dollars and sixty-seven cents ($41,666.67) on the
first (1st) day of each month following the month of the
Closing Date, provided, however, that such payments shall be
subject to the provisions of Section 1.5. All payments of
principal on the New Promissory Note will be guaranteed by
Triarc Companies, Inc. (the "Guaranty"). The Guaranty shall be
substantially in the form attached here to as Exhibit B.
Section 1.4 Additional Consideration. In addition to the consideration
specified in Section 1.3 above, TJHC shall pay to Paramark the
following amounts ("Additional Consideration") in accordance
with the following terms and conditions:
3
1.4.1 Upon execution of this Agreement, Paramark shall execute an
agreement with Arby's attached hereto as Exhibit C (the
"Wholesale License Agreement") whereby Paramark will have the
right to produce and distribute certain TJC Products, as
specifically set forth in the Wholesale License Agreement, for
a limited period of time.
1.4.2 Provided that Paramark is operating in compliance with the
Wholesale License Agreement, Arby's shall be obligated to pay
to Paramark the following amounts if, for the period January
1, 1998 through December 31, 1998 ("Fiscal 1998"), the total
Net Sales (as defined in the Wholesale License Agreement) of
TJC Products sold by Paramark to the Wholesale Accounts
assigned to TJHC hereunder and specified in the Wholesale
License Agreement meet or exceed the following Net Sales
targets:
1.4.2.1 If the total Net Sales for Fiscal 1998 exceed Two Million Two
Hundred Fifty Thousand Dollars ($2,250,000), but do not exceed
Two Million Seven Hundred Thousand Dollars ($2,700,000), the
Additional Consideration shall be Two Hundred Fifty Thousand
Dollars ($250,000);
1.4.2.2 If the total Net Sales for Fiscal 1998 exceed Two Million
Seven Hundred Thousand Dollars ($2,700,000), but do not exceed
Three Million One Hundred Fifty Thousand Dollars ($3,150,000),
the Additional Consideration shall be Five Hundred Thousand
Dollars ($500,000);
1.4.2.3 If the total Net Sales for Fiscal 1998 exceed Three Million
One Hundred Fifty Thousand Dollars ($3,150,000), but do not
exceed Three Million Six Hundred Thousand Dollars
($3,600,000), the Additional Consideration shall be Seven
Hundred Fifty Thousand Dollars ($750,000);
1.4.2.4 If the total Net Sales for Fiscal 1998 exceed Three Million
Six Hundred Thousand Dollars ($3,600,000), the Additional
Consideration will be One Million Dollars ($1,000,000).
1.4.3 Paramark shall provide to TJHC and Arby's monthly reports
concerning Net Sales, within fifteen (15) days following the
end of each month, and shall provide TJHC and Arby's with
copies of all of Paramark's quarterly filings with the
Securities and Exchange Commission, within ten (10) days
following such filings. All Net Sales shall be subject to
verification and/or audit by TJHC at any time. The Additional
Consideration, if any, shall not be paid unless Paramark has
provided (a) a final Net Sales report; and (b) either (i) an
audited financial statement for Fiscal 1998, or (ii) an audit
of the final Net Sales report. Any payment of Additional
Consideration shall be subject to offset as provided for in
Section 1.5. The audited financial statement or unaudited
final Net Sales report shall segregate clearly Net Sales (as
defined in the Wholesale License Agreement) as separate line
items, and shall include data by SKUs (Stockkeeping units) and
by vendor. Any Additional Consideration shall be paid fifteen
(15) business days following delivery of the later of (a)
Paramark's audited financial statements for Fiscal 1998, or
(b) the audited final Net Sales report, provided that such
information is acceptable to TJHC, based on TJHC's reasonable
discretion or reasonable verification.
4
Section 1.5 Off-Set of Deferred Payments. All payments owed by Arby's or
TJHC to Paramark under Section 1.3.2 or Section 1.4 shall be
reduced by any amount claimed as damages by TJHC or Arby's
under Section 9.1 or Section 9.4 of this Agreement in
connection with any misrepresentation, breach of warranty, or
non- fulfillment of or failure to perform any covenant,
condition, or agreement of Paramark set forth in, or attached
to, this Agreement, any transactions contemplated by this
Agreement, or any statement, certificate, schedule, or
document furnished pursuant to this Agreement, or any other
claim against Paramark subject to the provisions of Section
9.1 or 9.4 hereof. Any amount not paid by TJHC or Arby's
pursuant to Section 1.3.2 or Section 1.4 shall be credited to
satisfy any final and unappealable judgment awarded to TJHC or
Arby's in any proceedings to the extent of such award, and the
remainder, if any, shall be paid to Paramark. In the event
Paramark shall ultimately not be found liable for any damages
to or costs of TJHC or Arby's in a final and unappealable
judgment, the full amount shall be paid by TJHC or Arby's to
Paramark.
Section 1.6 The Closing. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices of
Rudnick, Wolfe, Epstien & Zeidman, located at 1201 New York
Avenue, N.W., Penthouse, Washington, D.C. (a) on July 31,
1998, at 10:00 a.m.; or (b) as soon as practical after
Paramark receives shareholder approval of the transaction; or
(c) at such other place, time, or date as may be mutually
agreed upon in writing by the Parties (the "Closing Date"),
upon satisfaction of the conditions as set forth in Article 7
and Article 8 of this Agreement. The transactions to take
place at the Closing are set forth in Exhibit D to this
Agreement.
Section 1.7 No Assumption of Liabilities. Except as set forth in Schedule
1.7, neither TJHC nor Arby's has assumed and shall not assume,
any liabilities or obligations of any nature, known or
unknown, existing or contingent of Paramark, except TJHC shall
assume all obligations of Paramark to TJC Licensees under the
TJC License Agreements existing on or after the Closing Date
arising out of TJHC's conduct on or after the Closing Date
pursuant to an Assignment and Assumption Agreement
substantially in the form attached hereto as Exhibit E.
Without limiting the foregoing, neither TJHC nor Arby's shall
assume any contract, or any liability or obligation under any
contract, between Paramark and a food broker, wholesaler, or
retail account.
5
ARTICLE 2
DISCHARGE AND RELEASE; ACCOUNTING; CONTINUING RESTRICTIONS
Section 2.1 Discharge and Release. At the Closing Date, Paramark shall
release and discharge TJHC and Arby's and TJHC and Arby's
shall each release and discharge Paramark, with respect to all
obligations of TJHC or Arby's to Paramark or Paramark to TJHC
or Arby's after the Closing Date pursuant to any of the TJC
Agreements, and such other liabilities and obligations as are
set forth in the release and discharge. The release and
discharge shall be substantially in the form of Exhibit F.
Section 2.2 Termination of Agreements. At the Closing Date, TJHC and/or
Arby's will terminate the Confidentiality and Non-Competition
Agreements executed by Charles N. Loccisano, and Alan
Gottlich, and TJHC or Arby's shall pay to Loccisano and
Gottlich any payments due under the Confidentiality and
Non-Competition Agreements
Section 2.3 Accounting. Paramark shall conduct an inventory of all
products, ingredients, and materials used by Paramark under
the License Agreement, as of midnight the day preceding the
Closing Date, and shall provide such inventory list to TJHC or
Arby's on the Closing Date.
Section 2.4 Continuing Restrictions and Obligations. In order to ensure a
smooth transition and assignment of Wholesale Accounts and
agreements with Brokers, if any, Arby's and Paramark will
enter into the Wholesale License Agreement. Further, and
notwithstanding the execution of the Wholesale License
Agreement, Paramark, Paramark's affiliates, including
Interbake Brands, Inc., Loccisano and Gottlich each shall
execute a confidentiality and non-competition agreement, each
substantially in the form of Exhibit G, Exhibit H, and Exhibit
I, to the Agreement, respectively.
ARTICLE 3
REPRESENTATIONS OF PARAMARK
Paramark represents and warrants to each of TJHC and Arby's as follows:
Section 3.1 Organization and Authority. Paramark is a corporation duly
organized, validly existing, and in good standing under the
laws of the state of Delaware; and has all requisite power and
authority (corporate and other) to own its properties, to
carry on its business as now being conducted, to perform its
obligations under the TJC License Agreements, to execute and
deliver this Agreement and all other agreements contemplated
hereby, to perform its obligations hereunder and thereunder,
and to consummate the transactions contemplated hereby.
6
Section 3.2 Authorization; No Conflicts. The execution and delivery by
Paramark of this Agreement and the performance by Paramark of
its obligations hereunder have been duly and validly
authorized by all requisite corporate action. All requisite
corporate actions, including, without limitation, obtaining
shareholders' approval of this Agreement and the contemplated
transactions, shall be completed prior to the Closing. This
Agreement constitutes, and each of the other agreements
referred to herein, when executed, will constitute, the valid
and legally binding obligations of Paramark, enforceable
against Paramark in accordance with their respective terms.
The execution, delivery, and performance of this Agreement,
and the consummation by Paramark of the transactions
contemplated hereby, do not and will not, (a) conflict with,
violate or breach the provisions of any law, rule, or
regulation applicable to Paramark; (b) conflict with, violate,
or breach any provision of Paramark's Certificate of
Incorporation or Bylaws; (c) conflict with, violate, or breach
any judgment, decree, order, or award of any court, arbitral
tribunal, administrative agency or commission, or other
government entity or regulatory authority or agency; (d)
constitute a fraudulent conveyance under any state law or
federal bankruptcy law; or (e) conflict with or result in the
breach or termination of any term or provision of any
agreement or instrument to which Paramark is a party or by
which Paramark is or may be bound.
Section 3.3 Ownership of the TJC License Agreements. Paramark has all
exclusive rights, title, and interest in and to the TJC
License Agreements; and will transfer, convey, and assign the
TJC License Agreements to TJHC at the Closing, free and clear
of any Liens. Each of the TJC License Agreements is binding
upon the parties thereto, is in full force and effect, and is
not subject to the payment of any taxes of any kind or the
taking of any other actions by Paramark to maintain its
validity or effectiveness; and (i) there are no restrictions
on the direct or indirect transfer and assignment of the TJC
License Agreements, or any interest therein, held by Paramark
in respect of the TJC Licenses Agreement; and (ii) Paramark is
not, nor has it received any notice that it is, in default (or
with the giving of any notice or lapse or time or both, would
be in default) under any TJC License Agreement or any
contract, agreement, or understanding with respect thereto.
The delivery to TJHC of the Assignment and Assumption
Agreement contemplated by this Agreement will exclusively vest
all of Paramark's rights, title, and interest in and to each
TJC License Agreements and the goodwill relating to or
associated with each TJC License Agreement, in TJHC, free and
clear of any Liens.
7
Section 3.4 Litigation. There is no litigation, suit, claim, action,
investigation, dispute, proceeding, or controversy, pending or
threatened, before any court, administrative agency, or other
governmental authority or arbitrator relating to or affecting
the rights and obligations of Paramark under any TJC License
Agreement or any other agreement or contract used or
previously used in connection with Paramark's operation of a
franchise system that used the Proprietary Marks. Paramark is
not aware of any facts or circumstances that could reasonably
be interpreted to give rise to any such litigation, suit,
claim, action, investigation, dispute, proceeding, or
controversy with respect thereto. Paramark is not in violation
of or in default with respect to any judgement, order, writ,
injunction, decree, or rule of any court, administrative
agency, governmental authority, or arbitrator, or any
regulation of any administrative agency or governmental
authority which would adversely affect Paramark's rights and
obligations pursuant to this Agreement or any TJC License
Agreement. There is no unsatisfied judgement, order, decree,
stipulation, or injunction against Paramark relating to the
obligations of Paramark under any TJC License Agreement nor
any claim, dispute, complaint, action, suit, proceeding,
hearing, or investigation of, in any court or governmental
entity or before any arbitrator, to which Paramark is a party
or is threatened to be made a party.
Section 3.5 Financial Statements. Attached as Schedule 3.5 are complete
copies of Paramark's financial statements (balance sheets,
statements of operation, and statements of cash flow;
collectively the "Financial Statements") audited as of, and
for the fiscal year ended, December 31, 1997. The Financial
Statements fairly present the financial condition of Paramark
as of the date indicated, the results of operations, the sales
of TJC Products, and the revenues from Retail Licensees and
Wholesale Accounts for the respective period specified, and
have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis. Since the
date of the Financial Statements, there has not been any
change or any event or development which, individually or
together with other such events or developments, could
reasonably be expected to have a material adverse effect on,
the condition (financial or otherwise), results of operations,
business, or assets of, or the sale of TJC Products by,
Paramark, or the prospects of the TJC Licensees.
Section 3.6 Franchises. Attached as Schedule 3.6 is a complete list of all
of the locations of TJC Bakeries, and Paramark has delivered
to TJHC and Arby's, on or prior to the date hereof, a copy of
the Franchise Agreements currently in effect, as of the date
hereof, with respect to each of the TJC Bakeries (excluding
the Poughkeepsie Bakery owned and operated by Paramark) and
all amendments thereto. Other than as provided in the
Franchise Agreements, there are no outstanding commitments,
promises, agreements, or understandings, either written or
verbal, which have been made by Paramark with respect to the
rights and obligations of any of the Franchisees.
8
Section 3.7 Approvals. All consents, approvals, authorizations, and other
requirements required by any TJC Agreements, or prescribed by
any law, rule, or regulation which must be obtained or
satisfied by Paramark, which are necessary for the execution
and delivery of this Agreement and the other documents to be
executed and delivered by Paramark in connection with this
Agreement are set forth in Schedule 3.7 attached hereto, and
have been, or will be, obtained and satisfied prior to the
Closing. Paramark is not required to submit any notice,
report, or other filing with or to any third party or
governmental entity in connection with the execution,
delivery, or performance of this Agreement by Paramark, except
as shown in Schedule 3.7.
Section 3.8 Contracts and Commitments. There are no contractual
commitments, whether written or oral of Paramark, with respect
to the TJC License Agreements other than those contained in
the TJC License Agreements. Paramark has not breached,
received any written claim or threat that it has breached, or
received any material oral claim or threat that it has
materially breached, any of the terms or conditions of the TJC
License Agreements. Except as set forth in Schedule 3.8,
Paramark is not aware of any breach of any of the terms and
conditions of the TJC License Agreements or any other
agreements, contracts, or commitments used or previously used
in connection with the TJC System, by any party to such
agreements, contracts, or commitments or any of their
successors or assigns.
Section 3.9 Compliance with Laws. Paramark is not, nor has it at any time
within the last five (5) years been, nor has it received any
notice that it is or has at any time within the last five (5)
years been, in violation of or in default under, in any
material respect, any law or order applicable to Paramark, the
TJC Products, or the TJC System, including any franchise sales
or relationship laws.
Section 3.10 Disclosure. No representation or warranty by Paramark in this
Agreement or in any exhibit, list, statement, document, or
information set forth in or attached to any schedule delivered
or to be delivered pursuant to this Agreement, contains or
will contain any untrue statement of a material fact or omits
or will omit any material fact necessary in order to make the
statements contained in this Agreement not misleading.
Paramark has disclosed to TJHC all material facts pertaining
to the transactions contemplated by this Agreement.
Section 3.11 Absence of Certain Changes. Since December 31, 1997, and
except as set forth in Schedule 3.11, there has been no event
or occurrence, nor sale, lease, license, or purchase of any
tangible or intangible asset, or occurrence, that has had or
could reasonably be expected to have a material adverse effect
on Paramark, its financial condition or business operations.
9
Section 3.12 Product Liability. Except as set forth in Schedule 3.12,
Paramark does not have any liability (and there is no basis
for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against
Paramark giving rise to any liability) arising out of any
injury to persons or property as a result of the ownership,
possession, or use of any product manufactured, sold, or
delivered by Paramark or any TJC Licensee from or with respect
to the TJC Products, prior to the date hereof.
Section 3.13 Finders. No broker's, finder's, or any similar fee have been
incurred by or on behalf of Paramark in connection with the
origin, negotiation, execution, or performance of this
Agreement or the transactions contemplated hereby for which
TJHC or Arby's shall have any liability.
Section 3.14 Undisclosed Liabilities. Paramark does not have any liability
related to its business (and there is no basis for any present
or future charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand against it giving
rise to any liability), except for (a) liabilities set forth
on the face of the Financial Statements and (b) liabilities
which have arisen after the date of the Financial Statements
in the ordinary course of business, none of which relates to
any breach of contract, breach of warranty, tort,
infringement, or violation of law or arose out of any charge,
complaint, action, suit, proceeding, hearing, investigation,
claim, or demand.
Section 3.15 Financial Condition. Paramark is not entering into the
transactions contemplated by this Agreement with the actual
intent to hinder, delay, or defraud either present or future
creditors. On and as of the Closing:
3.15.1 the present fair salable value of the assets of Paramark (on a
going concern basis) will exceed the probable liability of
Paramark on its debts (including its contingent obligations);
3.15.2 Paramark has not incurred, nor does it intend to or believe
that it will incur, debts (including contingent obligations)
beyond its ability to pay such debts as such debts mature
(taking into account the timing and amounts of cash to be
received from any source, and of amounts to be payable on or
in respect of debts), and the amount of cash available to
Paramark after taking into account all other anticipated uses
of funds is anticipated to be sufficient to pay all such
amounts on or in respect to debts, when such amounts are
required to be paid; and
3.15.3 Paramark will have sufficient capital with which to conduct
its present and proposed business, and the property of
Paramark does not and will not constitute an unreasonably
small amount of capital with which to conduct its present or
proposed business.
In addition, Paramark will be solvent as of the Closing Date,
as measured by its short term assets exceeding its short term
liabilities, its total assets exceeding its total liabilities,
and that Paramark has paid, and will continue to pay, its
debts as they come due. Paramark shall furnish to TJHC and
Arby's at Closing a certificate, signed by Alan Gottlich,
attesting to the truth and accuracy of this representation.
10
Section 3.16 The Purchase Agreement. The representations and warranties of
Paramark in the Purchase Agreement are true and correct as of
the date of this Agreement, and shall survive the termination
of the Purchase Agreement.
ARTICLE 4
REPRESENTATIONS OF TJHC
TJHC represents and warrants to Paramark as follows:
Section 4.1 Organization and Authority. TJHC is a corporation duly
organized, validly existing, and in good standing under the
laws of the state Delaware; and has all requisite power and
authority (corporate and other) to own its properties, and has
full power to execute and deliver this Agreement and all other
agreements contemplated hereby, to perform its obligations
hereunder and thereunder, and to consummate the transactions
contemplated thereby.
Section 4.2 Authorization; No Conflicts. The execution and delivery of
this Agreement and the performance of TJHC of its obligations
hereunder by TJHC has been duly and validly authorized by all
requisite corporate action. Without limiting the generality of
the foregoing, the Board of Directors of TJHC has duly
authorized the transactions contemplated by the Agreement.
This Agreement and each of the other agreements referred to
herein, when executed will constitute the valid and legally
binding obligations of TJHC, enforceable against TJHC in
accordance with their respective terms, except that (i) such
enforcement may be subject to applicable bankruptcy,
insolvency, or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding
therefore may be brought. The execution, delivery, and
performance of this Agreement, and the consummation by TJHC of
the transactions contemplated hereby, will not, (a) violate
the provisions of any law, rule, or regulation applicable to
TJHC; (b) conflict with, violate, or breach a provision of
TJHC's Certificate of Incorporation or Bylaws; (c) conflict
with, violate any judgment, decree, order, or award of any
court, arbitral tribunal, administrative agency or commission,
or other governmental entity or regulatory authority or
agency; or (d) conflict with or result in the breach or
termination of any term or provision of any agreement or
instrument to which TJHC is a party or by which TJHC is or may
be bound.
11
Section 4.3 Regulatory Approvals. All consents, approvals, authorizations,
and other requirements prescribed by any law, rule, or
regulation which must be obtained or satisfied by TJHC, which
are necessary for the execution and delivery of this Agreement
and the other documents to be executed and delivered by TJHC
in connection with this Agreement are set forth on Schedule
4.3 attached hereto, and have been, or will be, obtained and
satisfied prior to the Closing. TJHC is not required to submit
any notice, report, or other filing with or to any
governmental entity in connection with the execution,
delivery, or performance of this Agreement by TJHC, except as
shown in Schedule 4.3.
Section 4.4 Finders. No broker's, finder's, or any similar fee have been
incurred by or on behalf of TJHC in connection with the
origin, negotiation, execution, or performance of this
Agreement or the transactions contemplated hereby for which
Paramark shall have any liability.
Section 4.5 The Purchase Agreement. The representations and warranties of
TJHC in the Purchase Agreement are true and correct as of the
date of this Agreement, and shall survive the termination of
the Purchase Agreement.
Section 4.6 Disclosure. No representation or warranty by TJHC in this
Agreement contains any untrue statement of a material fact or
omits any material fact necessary in order to make the
statements contained in this Agreement not misleading.
ARTICLE 5
REPRESENTATIONS OF ARBY'S
Arby's represents and warrants to Paramark as follows:
Section 5.1 Organization and Authority. Arby's is a corporation duly
organized, validly existing, and in good standing under the
laws of the state Delaware; and has all requisite power and
authority (corporate and other) to own its properties and has
full power to execute and deliver this Agreement and to
consummate the transactions contemplated thereby.
Section 5.2 Authorization; No Conflicts. The execution and delivery of
this Agreement and the performance of Arby's of its
obligations hereunder has been duly and validly authorized by
all requisite corporate action. Without limiting the
generality of the foregoing, the Board of Directors of Arby's
has duly authorized the transactions contemplated by the
Agreement. This Agreement and each of the other agreements
referred to herein, when executed will constitute the valid
and legally binding obligations of Arby's, enforceable against
Arby's in accordance with their respective terms, except that
(i) such enforcement may be subject to applicable bankruptcy,
insolvency, or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding
therefore may be brought. The execution, delivery, and
performance of this Agreement, and the consummation by Arby's
of the transactions contemplated hereby, will not, (a) violate
the provisions of any law, rule, or regulation applicable to
Arby's; (b) conflict with, violate or breach a provision of
Arby's Certificate of Incorporation or Bylaws; (c) conflict
with, violate any judgment, decree, order, or award of any
court, arbitral tribunal, administrative agency or commission,
or other governmental entity or regulatory authority or
agency; or (d) conflict with or result in the breach or
termination of any term or provision of any agreement or
instrument to which Arby's is a party or by which Arby's is or
may be bound.
12
Section 5.3 Regulatory Approvals. All consents, approvals, authorizations,
and other requirements prescribed by any law, rule, or
regulation which must be obtained or satisfied by Arby's,
which are necessary for the execution and delivery of this
Agreement and the other documents to be executed and delivered
by Arby's in connection with this Agreement are set forth on
Schedule 5.3 attached hereto, and have been, or will be,
obtained and satisfied prior to the Closing. Arby's is not
required to submit any notice, report, or other filing with or
to any governmental entity in connection with the execution,
delivery, or performance of this Agreement by Arby's, except
as shown in Schedule 5.3.
Section 5.4 Finders. No broker's, finder's, or any similar fee have been
incurred by or on behalf of Arby's in connection with the
origin, negotiation, execution, or performance of this
Agreement or the transactions contemplated hereby for which
Paramark shall have any liability.
Section 5.5 The Purchase Agreement. The representations and warranties of
Arby's in the Purchase Agreement are true and correct as of
the date of this Agreement, and shall survive the termination
of the Purchase Agreement.
Section 5.6 Disclosure. No representation or warranty by Arby's in this
Agreement contains any untrue statement of a material fact or
omits any material fact necessary in order to make the
statements contained in this Agreement not misleading. Arby's
has disclosed to Paramark all material facts pertaining to the
transactions contemplated by this Agreement.
13
ARTICLE 6
COVENANTS OF PARAMARK
Section 6.1 Interim Operations of Paramark. Paramark covenants and agrees
that, except (i) as expressly provided in this Agreement, or
(ii) with the prior written consent of TJHC and Arby's, after
the date of this Agreement and prior to the Closing Date:
(a) the business of Paramark shall be conducted only in the
ordinary course of business consistent with past practice, and
Paramark shall use all reasonable efforts to preserve its
business organization intact and maintain its existing
relations with material customers, distributors, suppliers,
employees, creditors, and business partners;
(b) Paramark shall not modify, amend, or terminate any of the
TJC License Agreements or waive, release, or assign any
material rights or claims, except in the ordinary course of
business consistent with past practice and any existing
agreements;
(c) Paramark will not adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation,
restructuring, recapitalization, or other material
reorganization or any agreement relating to the sale of all or
substantially all of the assets (other than this Agreement);
(d) Paramark will not engage in any transaction with, or enter
into any agreement, arrangement, or understanding with,
directly or indirectly, any of its affiliates, including,
without limitation, any transactions, agreements,
arrangements, or understandings with any affiliate or other
person covered under Item 404 of Regulation S-K under the
Securities Act of 1933 that would be required to be disclosed
under such Item 404, other than such transactions of the same
general nature, scope, and magnitude as are disclosed in
Paramark's documents filed with the Securities and Exchange
Commission ("SEC"), or required under any law, rule, or
regulation governing the offer, sale, or registration of
securities.
Section 6.2 Access to Information. Paramark shall (and shall cause each of
its affiliates to) afford to the officers, employees,
accountants, counsel, financing sources, and other
representatives of TJHC and/or Arby's, reasonable access,
during normal business hours, during the period prior to the
Closing Date, to all of its and its affiliates' properties,
books, contracts, commitments, and records (including any tax
returns or other tax related information pertaining to
Paramark and its affiliates) and, during such period, Paramark
shall (and shall cause each of its affiliates to) furnish
promptly to TJHC and/or Arby's (a) a copy of each report,
schedule, registration statement, and other document filed or
received by it during such period pursuant to the requirements
of the federal securities laws or any insurance regulatory
laws and (b) all other information concerning its business,
properties, and personnel as TJHC and/or Arby's may reasonably
request (including any tax returns or other tax related
information pertaining to Paramark and its affiliates). TJHC
and/or Arby's will hold any such information which is
nonpublic in confidence.
14
Section 6.3 Consents and Approvals. Paramark will take all reasonable
actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to this
Agreement, which actions shall include, without limitation,
furnishing all information in connection with approvals of or
filings with any governmental authority, including, without
limitation, any schedule or reports required to be filed with
the SEC, and will promptly cooperate with and furnish
information to TJHC and Arby's in connection with any such
requirements imposed upon it or any of its affiliates in
connection with this Agreement and the transactions
contemplated hereby. Paramark will, and will cause its
affiliates to, take all reasonable actions necessary to obtain
any consent, authorization, order, or approval of, or any
exemption by, any governmental authority or other public or
private third party, required to be obtained or made by
Paramark, or any of its affiliates in connection with any
action contemplated by this Agreement.
Section 6.4 Additional Agreements. Subject to the terms and conditions
herein provided, Paramark agrees to use its best efforts to
take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable, whether
under applicable laws and regulations or otherwise, or to
remove any injunctions or other impediments or delays, legal
or otherwise, to consummate and make effective the
transactions contemplated by this Agreement. In case at any
time after the Closing Date any further action is necessary or
desirable to carry out the purposes of this Agreement, the
proper officers and directors of Paramark shall use their best
efforts to take, or cause to be taken, all such necessary
actions.
Section 6.5 Notification of Certain Matters. Paramark shall give prompt
notice to TJHC and/or Arby's of (a) the occurrence, or
non-occurrence of any event the occurrence or non-occurrence
of which would cause any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material
respect at or prior to the Closing Date and (b) any material
failure of Paramark to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice
pursuant to this Section 6.5 shall not limit or otherwise
affect the remedies available hereunder to the party receiving
such notice.
15
Section 6.6 SEC Filings
(a) As soon as practicable after the date hereof, Paramark
shall prepare and file with the SEC the proxy statement,
notice of shareholders meeting, and such other information and
materials as may be required under the Securities Act of 1933
or the Securities Exchange Act of 1934. Paramark shall prepare
and provide TJHC and Arby's with information concerning
Paramark, this Agreement, and the transactions contemplated
hereby required to be included in the proxy statement. Such
information prepared and provided by Paramark shall comply in
all material respects with all applicable requirements of law.
(b) Paramark shall use its reasonable best efforts to (i)
respond to any comments of the SEC and (ii) cause the proxy
statement to be mailed to the shareholders of Paramark as
promptly as practicable after receiving necessary approvals
from the SEC. Paramark shall notify TJHC and Arby's of the
receipt of any comments from the SEC and of any request by the
SEC for amendments or supplements to the proxy statement or
for additional information, and will supply TJHC and Arby's
with copies of all correspondence between Paramark or any of
its representatives and the SEC, with respect to the proxy
statement. The proxy statement shall comply in all material
respects with all applicable requirements of law. Paramark
shall take any action required to be taken under state blue
sky or securities laws in connection with the transactions
contemplated by this Agreement.
(c) No amendment or supplement to the proxy statement will be
made without the approval of TJHC and Arby's, which approval
will not be unreasonably withheld or delayed.
Section 6.7 Continuation of Business. From the date hereof, through and
after the Closing Date, and for at least three (3) years
following the Closing Date, Paramark shall use commercially
reasonable efforts to (a) preserve substantially its
relationships with suppliers, customers, and employees; (b)
carry on its business in the ordinary course and consistent
with past practice; (c) maintain its corporate existence; and
(d) maintain adequate insurance to cover potential and/or
unknown liabilities and losses that arise prior to Closing,
and potential liabilities and losses that arise as a result of
operations following Closing.
Section 6.8 Shareholder Approval. Charles Loccisano and Alan Gottlich,
as shareholders of Paramark, shall vote all of the shares of
Paramark owned or controlled by each of them in favor of the
transactions contemplated by this Agreement.
16
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF TJHC AND ARBY'S
The obligations of TJHC and Arby's hereunder are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any which may be waived in whole or in part by TJHC or Arby's in their sole
discretion):
Section 7.1 Truth of Representations and Warranties of Paramark;
Compliance with Covenants and Obligations. Each of the
representations and warranties of Paramark in this Agreement
shall be true and correct on and as of the Closing Date as
though such representations and warranties were made on and as
of such date, with the same force and effect as if made on and
as of the Closing Date, except for any changes consented to in
writing by TJHC and Arby's, and except (a) as a result of (x)
the taking by any person of any action contemplated by the
Agreement or (y) events or changes occurring or arising after
the date hereof in the ordinary course of Paramark's business;
or (b) insofar as any representation or warranty relates to
any specified earlier date. Paramark shall have performed and
complied with all terms, conditions, covenants, obligations,
agreements, and restrictions required by this Agreement to be
performed or complied with by Paramark prior to or at the
Closing Date.
Section 7.2 Closing Deliveries. TJHC and Arby's shall have received from
Paramark the documents and other materials specified in
Exhibit D.
Section 7.3 Corporate Proceedings. All corporate and other proceedings
required to be taken on the part of Paramark to authorize or
carry out this Agreement and to transfer, convey, assign, and
deliver the TJC License Agreements and execute and deliver
such other documents as are set out in Schedule 5.2 shall have
been taken.
Section 7.4 Government Approvals. All government agencies, departments,
bureaus, commissions, and similar bodies, the consent,
authorization, or approval of which is necessary under any
applicable law, rule, order, or regulation for the
consummation by Paramark of the transactions contemplated by
the Agreements shall have been received, and the documents
shall be in form and substance reasonably satisfactory to TJHC
and Arby's.
Section 7.5 Third Party Consents. All third party consents necessary under
any contract, agreement, or law for the consummation by
Paramark of the transactions contemplated by this Agreement
shall have been received, and the documents soliciting and
evidencing the consents shall be in form and substance
reasonably satisfactory to TJHC and Arby's.
17
Section 7.6 Bulk Sales Law Compliance. Paramark shall have complied with
the bulk sales law of the State of New Jersey or obtained an
opinion of counsel satisfactory to TJHC and Arby's that the
bulk sales law of the State of New Jersey does not apply to
the transactions contemplated by this Agreement.
Section 7.7 Adverse Proceedings. No action or proceeding by any third
party or any governmental entity shall have been instituted or
threatened which seeks to restrain, prohibit, enjoin, make
illegal, or invalidate the transactions contemplated by this
Agreement or which might affect any right of TJHC and Arby's
with respect to the TJC License Agreements or under this
Agreement.
Section 7.8 Financial Condition. From the date of the Financial Statements
until the Closing, there shall not have been any change or any
event or development which, individually or together with
other such events or developments, could reasonably be
expected to have a material adverse effect on, the condition
(financial or otherwise), results of operations, business, or
assets of, or the sale of TJC Products by, Paramark, or the
prospects of the TJC Licensees.
Section 7.9 Termination of Broker Contracts. Paramark shall have furnished
to TJHC and Arby's copies of notices of termination of
contracts with Brokers that Paramark hereby covenants to
deliver to each Broker identified in Schedule 3.8. Such
notices shall include Paramark's written notice of termination
of its contractual commitments with each such Broker as of the
termination or expiration of the Wholesale License Agreement,
to the extent such contract and commitment relates to the sale
or distribution of TJC Products. The written termination
notices to the Brokers shall be provided at least thirty (30)
days prior to the expiration or expected termination of the
Wholesale License Agreement, or, such longer period of time as
may be required or contemplated under the written or oral
contract with the Broker, such that no contractual commitment
with any such Broker may extend beyond the expiration or
termination of the Wholesale License Agreement.
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF PARAMARK
The obligations of Paramark hereunder are subject to the fulfillment,
at or before the Closing, of each of the following conditions (all or any of
which may be waived in whole or in part by Paramark in its sole discretion):
Section 8.1 Truth of Representations and Warranties of TJHC and Arby's;
Compliance with Covenants and Obligations. The representations
and warranties of TJHC and Arby's in this Agreement shall be
true on and as of the Closing Date as though such
representations and warranties were made on and as of such
date with the same force and effect as if made on and as of
the Closing Date, except (a) as a result of (x) the taking by
any person of any action contemplated by this Agreement, or
(y) events or changes occurring or arising after the date
hereof in the ordinary course of TJHC's or Arby's business; or
(b) insofar as any representation or warranty relates to any
specified earlier date. TJHC and/or Arby's shall have
performed and complied in all respects with all terms,
conditions, obligations, agreements, and restrictions required
by this Agreement to be performed or complied with by TJHC
and/or Arby's prior to or at the Closing Date.
18
Section 8.2 Government Approvals. All government agencies, departments,
bureaus, commissions, and similar bodies, the consent,
authorization, or approval of which is necessary under any
applicable law, rule, order, or regulation for the
consummation by TJHC or Arby's of the transactions
contemplated by the Agreements shall have been received, and
the documents shall be in form and substance reasonably
satisfactory to Paramark.
Section 8.3 Corporate Proceedings. All corporate and other proceedings
required to be taken on the part of TJHC and Arby's to
authorize or carry out this Agreement shall have been taken.
Section 8.4 Adverse Proceedings. No action or proceeding by any third
party shall have been instituted or threatened which seeks to
restrain, prohibit, or invalidate the transactions
contemplated by this Agreement or which might affect the
rights of Paramark to assign the TJC License Agreements.
Section 8.5 Fairness Opinion. Paramark shall have received an opinion,
with respect to the fairness to the shareholders and creditors
of Paramark of the transactions contemplated by this
Agreement. The opinion shall be prepared by a certified public
accountant or investment adviser, and the content of the
opinion shall be satisfactory to TJHC and Arby's prior to and
at the Closing.
ARTICLE 9
INDEMNIFICATION
Section 9.1 Indemnification of TJHC and Paramark for Misrepresentations.
TJHC and Paramark each hereby indemnifies and holds the other
harmless against all claims, damages, losses, liabilities,
costs, and expenses (including, without limitation, settlement
costs and any legal, accounting or other expenses for
investigating or defending any actions or threatened actions)
incurred by TJHC or Paramark in connection with any
misrepresentation, breach of warranty, or non-fulfillment of
or failure to perform any covenant, condition, or agreement
set forth in, or attached to, this Agreement, any transactions
contemplated by this Agreement, or any statement, certificate,
schedule, or document furnished by such Party pursuant to this
Agreement or in connection with the transactions contemplated
hereby.
19
Section 9.2 Indemnification of Arby's and Paramark for Misrepresentations.
Arby's and Paramark each hereby indemnifies and holds the
other harmless against all claims, damages, losses,
liabilities, costs, and expenses (including, without
limitation, settlement costs and any legal, accounting or
other expenses for investigating or defending any actions or
threatened actions) incurred by Arby's or Paramark in
connection with any misrepresentation, breach of warranty, or
non-fulfillment of or failure to perform any covenant,
condition, or agreement set forth in, or attached to, this
Agreement, or any statement, certificate, schedule, or
document furnished by such Party pursuant to this Agreement or
in connection with the transactions contemplated hereby.
Section 9.3 Survival of Representations. All representations and
warranties made by the Parties herein or in any instrument or
document furnished in connection with this Agreement shall
survive the Closing and any investigation at any time made by,
or on behalf of, the Parties to this Agreement. All such
representations and warranties shall expire on the third (3rd)
anniversary of the Closing Date.
Section 9.4 Paramark's Indemnity. Paramark hereby agrees to indemnify and
hold TJHC and Arby's, and their officers, directors,
shareholders, and affiliates (the "TJHC/Arby's Indemnitees")
harmless from any and all claims, damages, losses,
liabilities, costs, and expenses (including, without
limitation, settlement costs and any legal, accounting, or
other expenses for investigating or defending any actions or
threatened actions) incurred by the TJHC/Arby's Indemnitees,
in connection with any claims against the TJHC/Arby's
Indemnitees based upon, relating to, resulting from, or in
connection with actions or failure to act of Paramark or its
officers, directors, shareholders or affiliates.
Section 9.5 TJHC's and Arby's Indemnity. TJHC and Arby's hereby agree to
indemnify and hold Paramark, and its officers, directors,
shareholders, and affiliates (the "Paramark Indemnitees")
harmless from any and all claims, damages, losses,
liabilities, costs, and expenses (including, without
limitation, settlement costs and any legal, accounting, or
other expenses for investigating or defending any actions or
threatened actions) reasonably incurred by the Paramark
Indemnitees, in connection with any claims against the
Paramark Indemnitees based upon actions or failure to act of
TJHC or Arby's.
Section 9.6 Notice for Claims of Indemnification. Whenever any claim shall
arise for indemnification pursuant to this Article 9, the
Party seeking indemnification (the "Indemnified Party"), shall
promptly notify the Party from whom indemnification is sought
(the"Indemnifying Party") of the claim and, when known, the
facts constituting the basis for such claim provided that no
delay on the part of the Indemnified Party in giving such
notice shall relieve the Indemnifying Party of any
indemnification obligation hereunder except to the extent the
Indemnifying Party is materially prejudiced by such delay. In
the event of any such claim for indemnification hereunder
resulting from or in connection with any claim or legal
proceedings by a third-party, the notice to the Indemnifying
Party shall specify, the amount if known, or an estimate of
the amount of the liability arising therefrom. The Indemnified
Party shall not settle or compromise any claim by a third
party for which it is entitled to indemnification without the
prior written consent of the Indemnifying Party, which shall
not be unreasonably withheld, unless suit shall have been
instituted against it and the Indemnifying Party shall not
have taken control of such suit after notification thereof.
20
Section 9.7 Defense by Indemnifying Party. With respect to any claim
giving rise to indemnity resulting from or arising out of any
claim or legal proceeding by a person who is not a party to
this Agreement, the Indemnifying Party, at its sole cost and
expense, may, upon written notice to the Indemnified Party,
assume the defense of any such claim or legal proceeding if it
acknowledges, to the Indemnified Party, in writing, its
obligations to indemnify the Indemnified Party with respect to
all elements of such claim. The Indemnified Party shall be
entitled to participate in (but not control) the defense of
any such action, with its counsel and at its own expense. If
the Indemnifying Party does not assume the defense of any such
claim or litigation resulting therefrom within thirty (30)
days after the date such claim is made, the Indemnified Party
may defend against such claim or litigation, in such manner as
it may deem appropriate, including, but not limited to,
settling such claim or litigation, after giving notice of the
same to the Indemnifying Party, on such terms as the
Indemnified Party may deem appropriate, and the Indemnifying
Party shall be entitled to participate in (but not control)
the defense of such action, with its counsel and at its own
expense. If the Indemnifying Party thereafter seeks to
question the manner in which the Indemnified Party defended
such third party claim or the amount or nature of any such
settlement, the Indemnifying Party shall have the burden to
prove by a preponderance of the evidence that the Indemnified
Party did not defend or settle such third party claim in a
reasonably prudent manner.
Section 9.8 Indemnification Under the Purchase Agreement. The
indemnification of Paramark and TJHC, each to the other,
contained in the Purchase Agreement shall survive the
termination of the Purchase Agreement.
21
ARTICLE 10
GENERAL PROVISIONS
Section 10.1 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by mutual written
agreement among the Parties;
(b) upon notification to the non-terminating parties by the
terminating party that the satisfaction of any condition to
the terminating party's obligations under this Agreement has
become impossible to satisfy, illegal, or subject to a
non-appealable order enjoining or restraining the Closing; or
(c) at any time after September 30, 1998, by Paramark, TJHC,
or Arby's, upon notification to the non-terminating parties by
the terminating party, if the Closing shall not have occurred
on or before such date and such failure to consummate is not
caused by a breach of this Agreement by the terminating party.
Section 10.2 Effect of Termination. If this Agreement is validly terminated
pursuant to Section 10.1, this Agreement will immediately
become null and void, and there will be no liability or
obligation on the part of Paramark, TJHC, or Arby's (or any of
their respective officers, directors, employees, agents,
representatives, or affiliates) except as provided in the next
succeeding sentence and except that the provisions with
respect to expenses in Section 10.7 will continue to apply
following any such termination. Notwithstanding any other
provision in this Agreement to the contrary, upon termination
of this Agreement pursuant to Section 10.1(b), each Party will
remain liable to the other Parties for any breach of this
Agreement by such Party existing at the time of such
termination, and each Party may seek such remedies, including
damages and attorney's fees, against the others, with respect
to any such breach as is provided in this Agreement or as may
otherwise be available at law or in equity.
Section 10.3 Notices. Any notices or other communications required or
permitted by this Agreement shall be sufficiently given if
delivered personally or sent by telex, facsimile, overnight
courier, registered or certified mail postage prepaid,
addressed as follows or to such other address of which the
parties may have given notice:
To Paramark: Paramark Enterprises, Inc.
Attn: Alan S. Gottlich, President
One Harmon Plaza
Secaucus, New Jersey 07094-3618
Fax: (201) 422-0858
With copies to: Saul Feiger, Esq.
152-18 Union Turnpike
Kew Garden Hills, New York 11367
Fax: (718) 380-3092
To TJHC and
Arby's: Triarc Restaurant Group
Attn: Jonathan P. May, Vice President
1000 Corporate Drive
Fort Lauderdale, Florida 33334
Fax: (954) 351-5619
With copies to: Triarc Restaurant Group
Attn: General Counsel
1000 Corporate Drive
Fort Lauderdale, Florida 33334
Fax: (954) 351-5619
Rudnick, Wolfe, Epstien & Zeidman
Attn: Mark A. Kirsch, Esq.
1201 New York Avenue, N.W.
Penthouse
Washington, D.C. 20005
Fax: (202) 712-7222
All notices or other communications shall be deemed received on the date
delivered if delivered personally, by facsimile, by telex, or by overnight
courier, or three (3) business days after being sent, if sent by registered or
certified mail.
22
Section 10.4 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of each of the Parties and their
respective successors and assigns. No assignment shall release
a Party from any obligation or liability under this Agreement.
Section 10.5 Amendments. The Parties, by the consent of their respective
Boards of Directors or officers authorized by such Boards, may
amend or modify this Agreement and the exhibits and schedules
hereto, in such manner as may be agreed upon, by a written
instrument executed by each Party.
Section 10.6 Waivers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation,
or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent
such occurrence.
23
Section 10.7 Expenses. Each of the Parties shall bear its own costs and
expenses (including legal fees and expenses) incurred in
connection with this Agreement.
Section 10.8 Construction. If any of the provisions of this Agreement may
be construed in more than one way, one of which would render
the provision illegal or otherwise voidable or unenforceable,
such provision shall have the meaning which renders it valid
and enforceable. The language of all of the provisions of this
Agreement shall be construed according to its fair meaning and
not strictly construed against any Party.
Section 10.9 Interpretation. This Agreement has been negotiated at arm's
length. In the event of any ambiguity in any of the terms and
provisions, this Agreement shall not be interpreted against or
in favor of any party nor shall there be any presumption
against or in favor of any party, but this Agreement shall be
interpreted in accordance with the intent of the parties and
the function of its terms and provisions.
Section 10.10 Governing Law. Any dispute with respect to the entering into,
performance, or interpretation of this Agreement shall be
governed by the laws of the State of Florida, without regard
to the Florida law of conflicts. The Parties hereby agree that
to the extent any disputes arise that cannot be resolved
directly between the Parties, the Parties shall file any
necessary suit only in the federal or state court having
jurisdiction where Arby's principal office is then located.
The Parties irrevocably submit to the jurisdiction of any such
court and waive any objection they may have to either the
jurisdiction or venue of any such court.
Section 10.11 No Third Party Beneficiaries. Nothing in this Agreement is
intended, nor shall be deemed, to confer upon any person or
entity, other than the Parties and their successors and
assigns, any rights or remedies under or by reason of this
Agreement.
Section 10.12 Waiver of Jury Trial. THE PARTIES IRREVOCABLY WAIVE TRIAL BY
JURY OF ANY ACTION, PROCEEDING, OR COUNTERCLAIM, WHETHER AT
LAW OR IN EQUITY, BROUGHT BY EITHER OF THEM AGAINST THE OTHER
AND WHETHER OR NOT THERE ARE OTHER PARTIES TO SUCH ACTION,
PROCEEDING, OR COUNTERCLAIM.
Section 10.13 Entire Agreement. This Agreement and all schedules and
exhibits hereto, and all agreements and instruments to be
delivered by the Parties pursuant to this Agreement, represent
the entire understanding and agreement between the Parties
with respect to the subject matter hereof and supersede all
prior oral and written and all contemporaneous oral
negotiations, commitments, and understandings between such
Parties.
24
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Parties as of and on the date first above written.
(Corporate Seal) PARAMARK ENTERPRISES, INC.,
a Delaware corporation
ATTEST:
By: /s/ Paramark Enterprises, Inc.
Name:
Title:
Secretary
(Corporate Seal) TJ HOLDING COMPANY, INC.,
a Delaware corporation
ATTEST:
By: /s/ T.J. Holding Company, Inc.
Name:
Title:
Secretary
(Corporate Seal) ARBY'S, INC., d/b/a TRIARC RESTAURANT GROUP, a
Delaware corporation
ATTEST:
By: /s/ Arby's, Inc.
Name:
Title:
Secretary
with respect to the provisions of Section 6.8:
/s/ Charles Loccisano
Charles N. Loccisano
Witness
/s/ Alan Gottlich
Alan S. Gottlich
Witness
WHOLESALE LICENSE AGREEMENT
by and between
ARBY'S, INC. d/b/a TRIARC RESTAURANT GROUP
Licensor
and
PARAMARK ENTERPRISES, INC.
Licensee
Dated as of __________, 1998
WHOLESALE LICENSE AGREEMENT
TABLE OF CONTENTS
PAGE
RECITALS OF FACT - 1 -
1. GRANT - 1 -
2. TERM - 2 -
3. WHOLESALE DISTRIBUTION - 2 -
4. ROYALTIES - 4 -
5. PREPARATION OF APPROVED TJC WHOLESALE PRODUCTS - 5 -
6. PROPRIETARY MARKS - 6 -
7. PROPRIETARY INFORMATION - 7 -
8. EXPIRATION; TERMINATION; POST-EXPIRATION ASSISTANCE - 8 -
9. ADVERTISING AND PROMOTION - 8 -
10. TECHNICAL ASSISTANCE - 9 -
11. CONFIDENTIALITY, NON-DISCLOSURE, AND NON-COMPETE - 9 -
12. INDEMNIFICATION - 11 -
13. INSURANCE - 11 -
14. ASSIGNMENT OF INTERESTS - 12 -
15. MISCELLANEOUS - 12 -
EXHIBIT A - INTELLECTUAL PROPERTY
EXHIBIT B - WHOLESALE CONTRACTS
EXHIBIT C - APPROVED TJC WHOLESALE PRODUCTS
EXHIBIT D - STANDARDS AND SPECIFICATIONS
EXHIBIT E - APPROVED ADVERTISING
EXHIBIT F - OFFICERS, DIRECTORS AND EXECUTIVES OF TJC
EXHIBIT G - INSURANCE REQUIREMENTS
WHOLESALE LICENSE AGREEMENT
This Wholesale License Agreement ("Agreement") is made this day of ,
1998, by and between Arby's, Inc., d/b/a Triarc Restaurant Group, a Delaware
corporation ("Licensor"), and Paramark Enterprises, Inc., a Delaware corporation
("Licensee").
RECITALS OF FACT
A. Licensor's affiliate, TJ Holding Company, Inc., is the owner of (i)
certain secret recipes and secret formulae (the "Secret Recipes") for baking
gourmet cinnamon rolls and other bakery products; (ii) secret and proprietary
plans ("Technical Information") relating to the preparation, baking, and
merchandising of the gourmet cinnamon rolls utilizing the Secret Recipes (the
Secret Recipes and Technical Information are referred to herein as the
"Proprietary Information"); and, (iii) certain trade names, trademarks, service
marks, logos, signs, and emblems, including, without limitation the mark "T.J.
CINNAMONS," relating to the products prepared using the Proprietary Information,
and other goods and services offered at retail stores, bakeries, and other
locations, that offer the products made utilizing the Proprietary Information
(the "Proprietary Marks"). The Proprietary Information and Proprietary Marks are
collectively referred to as "Intellectual Property" (and are more particularly
identified in Exhibit A hereto). All bakery products made with the Proprietary
Information are referred to as "TJC Products."
B. Licensor, pursuant to a license agreement with TJ Holding Company,
Inc., dated August 29, 1996, has the right to use, and license others to use,
the Intellectual Property.
C. Licensee has, pursuant to the License Agreement with Licensor dated
August 29, 1996, entered into agreements with independent food brokers
("Brokers") whereby the Brokers will arrange for the sale by Licensee of
Approved TJC Wholesale Products (defined below in Section 3.3) to certain retail
accounts (referred to as "Supermarket Chains").
D. Licensor and Licensee have agreed to terminate the August 29, 1996
License Agreement, but Licensor has agreed to permit Licensee to continue to
prepare, sell, and distribute Approved TJC Wholesale Products at wholesale
through Brokers on the terms and conditions set forth in this Agreement.
With reference to the above-stated Recitals of Fact, and in
consideration of the mutual covenants and conditions contained in this
Agreement, the parties hereby agree as follows:
1. GRANT
1.1 Until the termination or expiration of this Agreement, Licensee
shall have the right to use the Intellectual Property solely to prepare and sell
Approved TJC Wholesale Products through Brokers to Supermarket Chains.
1.2 The rights granted to Licensee are limited to the specific purposes
described in this Agreement. Licensee shall not manufacture, sell, or distribute
any product, other than the Approved TJC Wholesale Products, using the
Intellectual Property. Licensee has no right to license, sublicense, or
franchise others to use any of the Intellectual Property.
1.3 Except as set forth in Section 3.6, Licensor retains the right to
produce TJC Products or other products using the Proprietary Information, for
sale through any channels of distribution; and Licensor may produce, offer, or
sell, and authorize others to produce, offer, or sell, any such products under
the Proprietary Marks or any other mark or name.
-1-
2. TERM
2.1 The term of this Agreement shall begin on the date first written
above, and, unless sooner terminated or renewed in accordance with the terms
herein, shall expire on December 31, 1998.
2.2 Licensee has no rights to, nor expects to, extend or renew this
Agreement. This Agreement may be renewed, at Licensor's sole discretion, for one
or more thirty (30) day periods, not to exceed a total of one hundred eighty
(180) days upon thirty (30) days prior written notice to Licensee. Licensee
shall have no rights under this Agreement after December 31, 1998, unless this
Agreement is renewed by Licensor.
3. WHOLESALE DISTRIBUTION
3.1 The agreements between Licensee and Brokers for the sale and
distribution of the Approved TJC Wholesale Products ("Wholesale Contracts"), the
description of the Wholesale Contracts, the identity of the Supermarket Chains
to which the Approved TJC Wholesale Products are sold, and the nature, type, and
amount of Approved TJC Wholesale Products sold under each Wholesale Contract,
are set forth in Exhibit B. To the extent that the Wholesale Contracts are in
writing, a copy of the current contract is attached to Exhibit B. The list of
Approved TJC Wholesale Products approved for sale by Licensee is set forth in
Exhibit C. Licensee represents and warrants that as of the date hereof, Licensee
does not manufacture, sell, or distribute, at retail or wholesale, any bakery
products that use any of the Proprietary Information to any person, broker,
wholesale account, retail store, or otherwise, except for sales of Approved TJC
Wholesale Products identified on Exhibit C made pursuant to the Wholesale
Contracts described in and/or attached to Exhibit B.
3.2 During the term of this Agreement, Licensee may prepare and sell,
for resale to retail customers, the Approved TJC Wholesale Products as specified
by Licensor, only to the Supermarket Chains identified in Exhibit B, and only in
accordance with the terms and conditions of this Section 3.
-2-
3.3 Licensee shall sell only the Approved TJC Wholesale Products set
forth in Exhibit C. Approved TJC Wholesale Products are those pre-packaged, not
fresh-baked, TJC Products that Licensor has designated for sale through
wholesale distribution by Licensee. Licensee shall not request that other TJC
Products be approved by Licensor as Approved TJC Wholesale Products. Licensor
may modify the list of Approved TJC Wholesale Products in its reasonable
discretion, upon one hundred twenty (120) days prior written notice to Licensee.
Licensor shall not eliminate or disapprove a previously approved Approved TJC
Wholesale Product if such product represents a "significant percentage" of
Licensee's wholesale business. The parties hereto agree that "significant
percentage" shall mean that twenty percent (20%) or more of the gross revenues
received by Licensee in the twelve-month period prior to Licensor's notice of a
change is derived from the sale of such product.
3.4 Licensee shall not request that other retail accounts, Supermarket
Chains, or Brokers be included on the approved list in Exhibit B. Licensor has
no obligation to consider or approve any Supermarket Chain or Broker not
currently identified on Exhibit B. Licensor may, however, in its reasonable
discretion, disapprove of a previously approved Supermarket Chain, or may
require that Licensee or Broker cease supplying a Supermarket Chain.
3.5 Licensor shall have the right to review and approve all agreements
between Licensee and Brokers, and all agreements with manufacturers, suppliers,
co-packers, and others concerning the Approved TJC Wholesale Products. Licensee
shall comply with Licensor's procedures concerning approval of agreements with
third parties.
3.6 During the term of this Agreement, Licensor shall not sell any
Approved TJC Wholesale Products at wholesale to any Supermarket Chain approved
in Exhibit B; provided, however, that Licensor or any affiliate or licensee of
Licensor (i) may sell TJC Products at, from, to, or through any retail location,
store, restaurant, person, or entity, and (ii) may sell TJC Products (other than
Approved TJC Wholesale Products) at wholesale to any retail account or
Supermarket Chain, including Supermarket Chains that purchase Approved TJC
Wholesale Products from Licensee through Brokers. In addition to Licensor's
rights to sell TJC Products at wholesale or retail, Licensor shall have the
right to operate or license others to operate, kiosks, carts, limited service
counters, and similar areas or facilities (collectively "Kiosks") at any
Supermarket Chain, provided that such Kiosks shall not sell Approved TJC
Wholesale Products.
3.7 Licensee shall comply with Licensor's standards and specifications
for the manufacture, packaging, distribution, and sale of Approved TJC Wholesale
Products; the advertising and promotion of Approved TJC Wholesale Products; and
Licensor's guidelines regarding the Supermarket Chains that may purchase,
receive, and resell Approved TJC Wholesale Products. Without limiting the
requirements of Section 5 of this Agreement, Licensee may request modifications
to the standards and specifications for the Approved TJC Wholesale Products
and/or approval of Supermarket Chains. All requests for modifications or
consents under this Section 3 shall be in writing. Licensor may approve or
disapprove any request in Licensor's sole discretion, but Licensor is not
obligated to respond to a request from Licensee.
-3-
4. ROYALTIES
4.1 In consideration of the rights granted to Licensee hereunder,
Licensee shall pay to Licensor a royalty fee equal to five percent (5%) of
Licensee's Net Sales (defined below) of Approved TJC Wholesale Products sold by
Licensee on a monthly basis. Net Sales shall mean the gross sales price charged
by Licensee, regardless of collection of revenue in the case of credit or
installment sales of the Approved TJC Wholesale Products, less returns.
4.2 Licensee shall pay to Licensor the monthly royalty on the fifteenth
(15th) day of each month for the Net Sales of the preceding month; provided,
however, that the royalty payments for the Net Sales made during the first three
(3) full or partial months under this Agreement (July, August, and September
1998) shall be paid on the fifteenth (15th) day of October 1998.
4.3 Licensee shall submit to Licensor on the fifteenth (15th) day of
each month a sales report detailing the sales of Approved TJC Wholesale Products
during the preceding month. The sales report shall be in the form specified by
Licensor, and shall include, at a minimum, the gross revenues, net sales, and
the unit counts of all sales during the prior month, and shall include such data
required by Licensor and organized by Broker, by account, and by product.
Licensee shall provide a final Net Sales report within thirty (30) days
following the last month that Licensee sells Approved TJC Wholesale Products
pursuant to this Agreement, and such final Net Sales report may be, but is not
required to be, audited.
4.4 Licensee shall preserve all books and records regarding the
business operations under this Agreement for three (3) years from the date of
their preparation. Licensor reserves the right to audit or inspect the books and
records of Licensee at any time. Licensee shall prepare, and furnish to Licensor
not later than ninety (90) days after the close of Licensee's fiscal year,
audited financial statements for the prior fiscal year. The audited financial
statements, or the audited final Net Sales report, shall segregate clearly Net
Sales as separate line items, and shall include data by SKUs (Stockkeeping
Units) and by vendor.
4.5 In the event that Licensee's Net Sales of Approved TJC Wholesale
Products during the period January 1, 1998 through December 31, 1998 (as
verified by Licensor) to the five (5) Supermarket Chains designated with an
asterisk in Exhibit B exceed Three Million Six Hundred Thousand Dollars
($3,600,000), the royalty rate specified in Section 4.1 shall be revised,
retroactively to the date of this Agreement, to two percent (2%) of the Net
Sales that exceed $3,600,000 from those five (5) Supermarket Chains. Any
adjustments or refunds in royalty payments shall be made fifteen (15) business
days following Licensor's receipt of (a) Licensee's audited financial statement
for fiscal year 1998, or (b) Licensee's audited final Net Sales report, if
furnished pursuant to Section 4.3 hereof, provided that such information is
acceptable to Arby's, based on Arby's reasonable discretion and reasonable
verification.
-4-
5. PREPARATION OF APPROVED TJC WHOLESALE PRODUCTS
5.1 Licensee shall use the Proprietary Information in accordance with
the standards and specifications prescribed by Licensor. All Approved TJC
Wholesale Products prepared, distributed, or sold by Licensee, pursuant to this
Agreement, shall be identified, distributed, or sold only under the Proprietary
Marks in the form and manner specified and approved by Licensor. Licensee may
distribute and sell Approved TJC Wholesale Products only through the channels of
distribution specified in Section 3 hereof.
5.2 Licensee shall prepare the Approved TJC Wholesale Products in
accordance with the Proprietary Information, and shall conform the operation of
its business to the methods, standards, and specifications prescribed in the
Proprietary Information. Licensee shall not sell or otherwise dispose of
products under the Proprietary Marks unless such products are Approved TJC
Wholesale Products produced in accordance with the Proprietary Information.
Licensee shall submit samples of Approved TJC Wholesale Products to Licensor at
such times and such places as Licensor may reasonably specify for the purposes
of determining that the Approved TJC Wholesale Products conform to the
Proprietary Information. Licensee shall make appropriate periodic tests for
controlling the quality of the ingredients and baking procedures utilized in the
production of Approved TJC Wholesale Products by Licensee, in accordance with
Licensor's requests and instructions. Licensee shall permit representatives of
Licensor, upon reasonable notice, to inspect any and all of Licensee's
production and/or distribution facilities, and to examine and test the
ingredients, supplies, containers, and accessories used by Licensee. Licensor
shall pay for its own costs in conducting such inspections. Licensee shall make
available to such representatives all information necessary to render full and
effective assistance. If any such facility, or any sample of Approved TJC
Wholesale Products, does not comply substantially with the standards prescribed
by Licensor, Licensee shall, at its own expense, remedy the facilities,
manufacturing processes, ingredients, or subsequently produced Approved TJC
Wholesale Products so that they comply with the Technical Information and other
standards specified by Licensor.
5.3 All Approved TJC Wholesale Products produced or prepared pursuant
to this Agreement shall be made with only such materials and ingredients as are
of the quality that has been specified by Licensor and supplied by a source that
has been approved by Licensor. Licensee shall obtain and use ingredients made
with the Secret Recipes only from a manufacturer approved, and if required by
Licensor, licensed, by Licensor. All standards and specifications and sources of
supply currently approved by Licensor are set forth in Exhibit D; provided that
Licensor may modify or revoke such approvals in its sole discretion. If Licensee
desires to purchase any of the items specified in this Section 5, or items
otherwise required by Licensor for the operation of the business contemplated
under this Agreement (other than ingredients utilizing the Secret Recipes that
must be purchased from sources designated by Licensor), from a supplier who has
not been approved by Licensor, Licensee may request, in writing, approval by
Licensor of such supplier. Licensor may approve such proposed supplier if in
Licensor's sole judgement and discretion the proposed supplier can meet and
maintain Licensor's specifications, standards, and requirements. In making any
such request, Licensee, at its expense, shall furnish Licensor with adequate
samples of the items for which approval is being requested or, if that is not
feasible, with copies of descriptions, specifications, and pictures of such
items. Licensee shall not sell, dispense, or use any such items unless and until
Licensor has given written notice of approval to Licensee. Nothing contained
herein shall be construed to require Licensor to approve an unreasonable number
of suppliers for any particular item or service.
5.4 Licensee shall not use, nor permit any person or entity to use, the
Proprietary Information or any part of the Secret Recipes or Technical
Information. Upon termination of this Agreement for any reason or expiration of
this Agreement, Licensee shall immediately cease to manufacture and distribute
the Approved TJC Wholesale Products and shall deliver to Licensor all
Proprietary Information under its control.
5.5 Licensee may produce, prepare, and sell products other than the
Approved TJC Wholesale Products, provided that the production of such products
does not involve the use of any of the Proprietary Information, and that such
products are not identified, in any manner, with the Proprietary Marks.
-5-
6. PROPRIETARY MARKS
6.1 Licensee shall use the Proprietary Marks only to the extent
permitted in this Agreement, and only in the manner specified by, and in
accordance with, the standards and specifications of Licensor, as set forth in
this Agreement or otherwise in writing.
6.2 Licensee agrees that it shall not manufacture, produce, bake, sell,
or distribute products that bear the Proprietary Marks or any derivation or
abbreviation thereof, except in accordance with this Agreement, or license or
permit anyone else to do so, and shall not use names and marks confusingly
similar to the Proprietary Marks in the sale or distribution of any products, or
in the operation, franchising, or licensing of wholesale or retail businesses.
6.3 Licensee shall not use the Proprietary Marks or any derivation or
abbreviation thereof as part of its/their corporate or other legal name.
6.4 Licensee shall not directly or indirectly contest the validity of
Licensor's ownership of the Proprietary Marks.
6.5 Licensee expressly understands and acknowledges that:
6.5.1 Licensee's use of the Proprietary Marks pursuant to this
Agreement does not give it any ownership interest or other interest in or to the
Proprietary Marks, except the license granted by this Agreement; and
6.5.2 Any and all goodwill arising out of Licensee's use of
the Proprietary Marks under this Agreement shall inure solely and exclusively to
Licensor's benefit.
6.6 Licensee shall not register or attempt to register any Proprietary
Mark, or any mark or name which incorporates all or part of any Proprietary
Mark, in any country in the world.
6.7 Licensor has the right to modify and/or to discontinue the use of
any or all of the Proprietary Marks, or to use other names or marks to identify
the TJC Products; provided, however, that if Licensor discontinues a Proprietary
Mark that is used with or on an Approved TJC Wholesale Product that represents a
"significant percentage" of Licensee's wholesale business, Licensor will provide
a substitute Proprietary Mark for that product or products. The parties hereto
agree that "significant percentage" shall mean twenty percent (20%) of gross
revenues received by Licensee from the sale of such product in the twelve-month
period prior to Licensor's notice of discontinuance of a mark. Upon one hundred
twenty (120) days prior written notice from Licensor, Licensee shall comply with
Licensor's standards and specifications with respect to the use any modified
Proprietary Marks or the new names and marks; provided that Licensee may
continue to utilize existing inventory or supplies that bear the old or
discontinued Proprietary Marks after the 120-day period, if such inventory or
supplies were purchased prior to Licensor's notice of such modification or
discontinuance. Licensee shall be responsible for all costs associated with any
such change, and Licensor shall have no liability to Licensee therefor.
6.8 Licensor is the owner of all rights, title and interest in the
Proprietary Marks, and Licensor agrees to use best efforts to maintain the
validity of, and the registrations for, Proprietary Marks licensed hereunder.
-6-
7. PROPRIETARY INFORMATION
7.1 Licensee acknowledges that the Proprietary Information, including
the Secret Recipes, the Technical Information, the techniques, know-how, trade
secrets, formulas, specifications, and all other information relating to the TJC
Products are trade secrets of Licensor. Licensee acknowledges that Licensee does
not and shall not acquire any right or interest therein beyond the rights
expressly granted to it under this Agreement. Licensee shall maintain adequate
security in the control, use, and handling of the Proprietary Information in
accordance with the guidelines and instructions prescribed by Licensor from time
to time.
7.2 Licensor has the right to modify any aspect of the Proprietary
Information, and upon one hundred twenty (120) days prior written notice from
Licensor, Licensee shall comply with Licensor's standards and specifications
with respect to the use of the modified Proprietary Information.
7.3 Licensee shall not engage, or assist others to engage, in any
activity which constitutes an infringement, appropriation, copying, unauthorized
use, or imitation of any of the Proprietary Information or other features of the
Intellectual Property, or which otherwise threaten any interest of Licensor
therein.
7.4 Except as specifically provided in this Agreement, Licensee shall
not at anytime, during the term of this Agreement or thereafter, use or permit
others to use any of the Intellectual Property to manufacture or identify
cinnamon rolls or other bakery products.
7.5 Licensee shall promptly notify Licensor in writing of any
unauthorized use of the Proprietary Information. Licensor shall have the sole
right to direct and control any administrative proceeding or litigation
involving the Proprietary Information, including any settlement thereof.
Licensee shall cooperate with Licensor in all matters concerning the Proprietary
Information.
-7-
8. EXPIRATION; TERMINATION; POST-EXPIRATION ASSISTANCE
8.1 Upon expiration or termination of this Agreement, Licensee shall
forthwith cease to use, for any purpose, any and all of the Intellectual
Property. Licensee shall promptly return to Licensor all signs, packaging,
supplies, lists, forms, and other materials containing any of the Proprietary
Marks, and any and all copies of the Proprietary Information.
8.2 Licensor and Licensee understand and acknowledge that one of the
purposes of this Agreement is to provide for a smooth transition from Licensee
to Licensor of Licensee's business related to the wholesale sale and
distribution of Approved TJC Wholesale Products. Licensee shall, therefore, upon
request of Licensor, provide assistance to Licensor with respect to an orderly
transition of accounts and contracts from Brokers to food brokers selected by
Licensor and such other transition assistance as may be reasonable. Such desired
assistance shall be specified by Licensor, and shall be provided for a period
beginning thirty (30) days prior to expiration of this Agreement, and continuing
for a period not to exceed one hundred eighty (180) days following the date of
expiration.
9. ADVERTISING AND PROMOTION
9.1 All advertising and promotional material prepared by or to be used
by Licensee in connection with the manufacture, sale, or distribution of the
Approved TJC Wholesale Products, including product packaging and wrappings,
shall be subject to the prior written approval of Licensor. Any advertising,
promotional material, and packaging that is identified on Exhibit E as having
received the prior written approval of Licensor shall not require any further
approval by Licensor prior to its use. For all advertising, promotional plans,
packaging, containers, and/or labels for the Approved TJC Wholesale Products not
prescribed or previously approved by Licensor, Licensee shall submit samples of
such materials to Licensor for Licensor's prior written approval (except with
respect to advertised or suggested retail prices), and shall comply with the
procedures set forth in writing by Licensor. Licensee shall not use such
proposed advertising, promotional plans, packaging, containers, and/or labels
without Licensor's prior written approval. All rights in and to advertising,
promotional plans, packaging, containers, and/or labels, including without
limitation copyrights, shall become the exclusive property of Licensor (without
separate charge to Licensor); and this Agreement constitutes a license from
Licensor to Licensee to use such rights for the term of this Agreement. Licensee
agrees that it shall sign such documents (and cause any contractors, agencies,
and persons other than its employees who work on such advertising, promotional
plans, packaging, containers, and/or labels to sign such documents) as Licensor
may reasonably require in order to implement the terms of this provision.
9.2 Licensor shall have the right to disapprove the subsequent use of
any previously approved advertising; and Licensee shall promptly discontinue use
of advertising or promotional programs or materials upon notice from Licensor.
9.3 Licensor shall not be liable to Licensee as a result of any review,
approval, or disapproval of any advertising; and Licensee acknowledges that
Licensor's review of advertising is to enforce the proper use of the Proprietary
Marks in advertising. Licensee shall indemnify and hold harmless Licensor and
its affiliates against and from any and all claims, demands, suits, costs, or
expenses resulting from Licensee's use of advertising.
9.4 In the event Licensee further develops its business to include
business activities not subject to this Agreement, and if Licensee develops
advertising or promotional material that does not relate to, in any way or
mention, nor depict, any TJC Product, any Proprietary Mark, or Licensee's rights
under this Agreement, such advertising or promotional material shall be owned by
Licensee and not by Licensor.
-8-
10. TECHNICAL ASSISTANCE
Licensor will disclose or make available to Licensee the Secret Recipes
and Technical Information in such detail as to enable Licensee to produce the
Approved TJC Wholesale Products in the Territory in accordance with Licensor's
standards and specifications. From time-to-time during the term of this
Agreement, Licensor shall disclose and make available to Licensee additional
Technical Information concerning modifications, alterations, additions, or
amendments to the Proprietary Information to permit Licensee to produce the
Approved TJC Wholesale Products at all times in accordance with Licensor's
then-current procedures, specifications, and standards.
11. CONFIDENTIALITY, NON-DISCLOSURE, AND NON-COMPETE
11.1 Licensee acknowledges and agrees that Licensor owns all of the
Intellectual Property. Licensee further acknowledges and agrees that the
Intellectual Property includes trade secrets and confidential and proprietary
information and know-how that gives Licensor a competitive advantage; that all
measures necessary to protect the trade secrets, the confidentiality of the
Proprietary Information, and know-how comprising the Intellectual Property have
been taken; that all material or other information now or hereafter provided or
disclosed to Licensee regarding the Intellectual Property is and will be
disclosed in confidence; that Licensee has no right to disclose any part of it
to anyone who is not an employee or professional representative of Licensee; and
that Licensee will disclose to its employees only those parts of the
Intellectual Property that an employee needs to know. Licensor and Licensee
agree that confidential information shall exclude information that (a) has been
or is obtained by a third party from a source independent of Licensor, Licensee,
their affiliates, or their respective officers, directors, employees or agents,
and such third party is not desiring such information; (b) is or becomes
generally available to the public other than as a result of an unauthorized
disclosure by Licensee or its affiliates or their personnel; or (c) is
independently developed by Licensee without reliance in any way on the
Intellectual Property.
-9-
11.2 Licensee will protect as confidential and proprietary the
Proprietary Information, including the Secret Recipes, Technical Information,
the techniques, know-how, trade secrets, formulas, specifications, and all other
information relating to the Approved TJC Wholesale Products, whether or not
patentable. Licensee will not disclose, in whole or in part, any Proprietary
Information to any person, firm, or corporation, except to those employees of
Licensee whose knowledge of such information is required for the performance of
Licensee's obligations under this Agreement.
11.3 Licensee shall have no rights in the Proprietary Information and
shall use the Proprietary Information solely for the purpose contemplated by
this Agreement. Any and all goodwill arising from the use of the Proprietary
Information by Licensee shall inure exclusively to the benefit of Licensor. The
provisions of this Section 11.3 shall survive the termination or expiration of
this Agreement.
11.4 Licensee specifically acknowledges that, pursuant to this
Agreement, the August 29, 1996 License Agreement, and as a result of Licensee's
relationship with Licensor, Licensee will receive valuable and confidential
information, including, without limitation, information regarding operational,
sales, promotional, and marketing methods, related to the sale of Approved TJC
Wholesale Products, and other TJC Products through other retail channels, at
wholesale, and at dual- or multi-brand restaurants owned, operated or franchised
by Licensor. Licensee covenants that, except for the limited activities
specifically authorized under this Agreement during the term hereof, for a
period of thirty (30) months from the date of this Agreement, except as
otherwise approved in writing by Licensor in its sole discretion, neither
Licensee nor any affiliate of Licensee, including without limitation, Interbake
Brands, Inc., shall, either directly or indirectly, for itself, or through, or
on behalf of, or in conjunction with any person, persons, or legal entities,
own, maintain, operate, be employed by, or have an interest in, or directly
engage in, any business which involves or is engaged in the manufacturing,
baking, distribution, or sale of:
a. bakery products whose predominant flavor is cinnamon,
which use cinnamon as a principal or significant flavor
ingredient, are advertised or promoted as cinnamon- or
cinnamon-flavored products, or are otherwise recognized
generally as cinnamon products; or
b. bakery products that are similar to those bakery
products that utilize or incorporate one or more aspects of
the Intellectual Property and are sold, as of the date of this
Agreement, at T.J. Cinnamons Bakeries, or T.J. Cinnamons
Classic Bakeries; or
c. bakery products that use, bear, or are displayed in
close association with, (i) the Proprietary Marks, or (ii)
marks confusingly similar to the Proprietary Marks, or any
derivation or abbreviation thereof.
-10-
11.5 Licensor may require that the individual officers, directors, and
executives of Licensee designated in Exhibit F, and all successors or other
individuals reasonably designated by Licensor at a later date, execute covenants
agreeing to be personally bound by the provisions of this Section 11; provided,
however, that the non-competition covenant of Section 11.4 shall apply for a
period of thirty (30) months from the date of this Agreement.
12. INDEMNIFICATION
In addition to any other rights or remedies under law or otherwise
available to Licensor, Licensee shall indemnify and hold harmless Licensor, its
affiliates, and their respective officers, directors, shareholders, agents, and
employees against and from any and all out-of-pocket loss, cost, damage and
expense (including reasonable attorneys' fees) resulting from: (i) any material
breach of any covenant, representation, or warranty of Licensee contained in
this Agreement; and/or (ii) any claim by a third party, including any
governmental authority, arising out of or relating to the manufacture,
production, marketing, sale, purchase, distribution, use or consumption of
Approved TJC Wholesale Products produced, distributed, or sold by Licensee.
13. INSURANCE
During the term of this Agreement, Licensee shall maintain
comprehensive general liability insurance and products liability insurance, in
such amounts as may be specified by Licensor, and such other insurance as
Licensor reasonably may specify, consistent with industry standards. The
currently approved type and amounts of insurance coverage are specified in
Exhibit G. Licensee shall provide Licensor, upon written request of Licensor,
with certificates evidencing such insurance and certificates of renewal of such
insurance, when applicable. Licensor shall be named an additional insured under
such coverage, at no cost to Licensor.
-11-
14. ASSIGNMENT OF INTERESTS
14.1 Licensee shall not transfer, assign, convey, give away, pledge, or
encumber (collectively, "Transfer") any rights in this Agreement or the license
granted herein, in all or substantially all of the assets of Licensee, or in any
agreement related to any aspect of Licensee's business operated pursuant to this
Agreement, without Licensor's prior written consent, which consent may be
withheld in Licensor's sole discretion.
14.2 Licensor may Transfer any or all rights in this Agreement, in the
Intellectual Property, or in any assets of Licensor to any person or entity, on
any terms or conditions, and at any time, in its sole discretion.
15. MISCELLANEOUS
15.1 If any of the provisions of this Agreement may be construed in
more than one way, one of which would render the provision illegal or otherwise
voidable or unenforceable, such provision shall have the meaning which renders
it valid and enforceable. The language of all provisions of this Agreement shall
be construed according to its fair meaning and not strictly against any party.
In the event any court or other government authority shall determine any
provision in this Agreement is not enforceable as written, the parties agree
that the provision shall be amended so that it is enforceable to the fullest
extent permissible under the laws and public policies of the jurisdiction in
which enforcement is sought and affords the parties the same basic rights and
obligations and has the same economic effect. If any provision in this Agreement
is held invalid or otherwise unenforceable by any court or other government
authority or in any arbitration proceeding, such findings shall not invalidate
the remainder of the agreement unless in the reasonable opinion of Licensor the
effect of such determination has the effect of frustrating the purpose of this
Agreement, whereupon Licensor shall have the right by notice in writing to the
other party to immediately terminate this Agreement.
15.2 The entering into, performance, and interpretation of this
Agreement shall be governed, construed, and interpreted by the laws of the state
of Florida without regard to the law of conflicts (and without giving effect to
the application of Florida choice-of-law rules). Licensor and Licensee hereby
agree that to the extent that any disputes arise that cannot be resolved
directly between the parties, the parties shall file any necessary suit only in
the federal or state court having jurisdiction where Licensor's principal office
is then located. The parties irrevocably submit to the jurisdiction of any such
court and waive any objection they may have to either the jurisdiction or venue
of any such court. This Section 15.2 shall not be interpreted to apply any
franchise law or business opportunity law to the relationship between Licensor
and Licensee or the subject matter of this Agreement, which would not otherwise
be applicable. The parties acknowledge and agree that this Section 15.2 was
specifically negotiated by the parties, and that the selection of Florida law as
the governing law was included in this Agreement in exchange for other changes
in the Agreement requested by, and concessions provided to, Licensee.
15.3 Recognizing that remedies at law may be inadequate for the
enforcement of certain breaches of this Agreement, in the event Licensee
breaches any provision of this Agreement by reason of which the validity or
ownership of, or goodwill in, the Proprietary Marks or the Proprietary
Information may be impaired, or breaches the covenants to protect the
confidentiality of the Proprietary Information, Licensor may be entitled to
injunctive relief to enforce the provision of this Agreement, in addition to its
other rights hereunder. Notwithstanding the foregoing, Licensor and Licensee
agree that injunctive relief is not Licensor's sole remedy for a breach by
Licensee, and Licensor is entitled to pursue all remedies at law or in equity to
enforce the provisions of this Agreement and/or to obtain compensation for
damages caused by any breach of this Agreement.
15.4 Neither party shall be responsible to the other for
non-performance or delay in performance occasioned by any causes beyond its
control and for causes other than its own fault (other than lack of funds)
including, without limitation, acts of civil or military authority, failure of
civil or military authorities to act, strikes, lockouts, embargoes,
insurrections, or Acts of God. If any such delay occurs, any applicable time
period hereunder shall be automatically extended for a period equal to the time
lost; provided that the party affected shall make reasonable efforts to correct
the reason for such delay and give the other party prompt written notice of any
such delay.
15.5 Licensee is an independent contractor and shall not assume any
obligation or liability, express or implied, on behalf of Licensor. Nothing
contained herein or done hereunder shall be construed as creating a joint
venture or partnership, or as creating a franchise; and, except for Licensee's
obligations to monitor, report on, and enforce the quality control standards of
the Approved TJC Wholesale Products as required under Section 5, this Agreement
should not be construed as constituting either party hereto as the agent of the
other.
-12-
15.6 Except as expressly provided to the contrary herein, nothing in
this Agreement is intended, nor shall be deemed, to confer upon any person or
legal entity other than Licensee, Licensor, and Licensor's affiliates and their
respective officers, directors, and employees, and such of Licensee's and
Licensor's respective successors and assigns (as may be permitted under this
Agreement) any rights or remedies under or by reason of this Agreement.
15.7 Except for such actions, approvals, or withholding of approvals
that Licensor may exercise in its sole discretion, or in accordance with
standards specified in this Agreement, Licensor and Licensee agree that both
parties shall act in a reasonable manner when exercising their respective rights
under this Agreement.
15.8 Any and all notices required or permitted under this Agreement
shall be in writing, and shall be personally delivered, sent by registered mail,
reputable overnight delivery service, or by other means which affords the sender
evidence of delivery or rejected delivery, to the respective parties at the
addresses designated below, unless and until a different address has been
designated by written notice to the other party.
If to Licensor: Arby's, Inc., d/b/a Triarc Restaurant Group
1000 Corporate Drive
Ft. Lauderdale, FL 33334-3651
Attn: John Vanderslice, Sr., Vice President
with a copy to: Rudnick, Wolfe, Epstien & Zeidman
1201 New York Avenue, N.W.
Penthouse
Washington, D.C. 20005-3919
Attn: Mark A. Kirsch, Esq.
If to Licensee: Paramark Enterprises, Inc.
One Harmon Plaza
Secaucus, New Jersey 07094
Attn: Alan S. Gottlich, President
with a copy to: Saul Feiger, Esq.
152-18 Union Turnpike
Kew Garden Hills, New York 11367
Any notice by a means which affords the sender evidence of delivery, or rejected
delivery, shall be deemed to have been given at the date and time of receipt or
rejected delivery.
15.9 This Agreement constitutes the entire, full, and complete
agreement between Licensor and Licensee concerning the subject matter hereof,
and supersedes all prior agreements, no other representations having induced
Licensee to execute this Agreement. Except for those permitted to be made
unilaterally by Licensor hereunder, no amendment, change, or variance from this
Agreement shall be binding on either party unless mutually agreed to by the
parties and executed by their authorized officers or agents in writing.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, having duly executed, sealed, and delivered this Agreement the day and
year first written above.
PARAMARK ENTERPRISES, INC. ARBY'S, INC., d/b/a TRIARC
RESTAURANT GROUP
Licensee Licensor
By: By:
Name: Name:
Title: Title:
APPENDIX C
Fairness Opinion of Texada Capital Corporation
Texada Capital Corp.
================================================================================
Four Glenhardie Corporate Center
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1565
Telephone: (610) 527-7170
Facsimile: (610) 526-0647
July 13, 1998
Board of Directors
Paramark Enterprises, Inc.
One Harmon Plaza
Secaucus, NJ 07094
Dear Board Members:
You have requested the opinion of Texada Capital Corporation ("TCC") 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
Agreement between and among TJ Holding Company, Inc. ("TJHC"), Arby's Inc. d/b/a
Triarc Restaurant Group ("Arby's") and Paramark, dated June 30, 1998 (the "1998
Triarc Agreement"). Pursuant to the 1998 Triarc Agreement, 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, transferring, or
terminating (i) all rights under the 1996 Triarc Purchase Agreement, dated June
3, 1996, between TJHC and Paramark (the "1996 Purchase Agreement"), including
the right to receive certain contingent additional payments and royalty
payments, (ii) all rights under the 1996 Triarc License Agreement between Arby's
and Paramark, dated August 29, 1996 (the "1996 License Agreement"), which
includes the rights to manufacture and sell certain "T.J. Cinnamons" branded
products to approved retail grocery outlets, and (iii) all of the Company's
rights and interests as franchisor under the existing T.J. Cinnamons franchise
agreements. Simultaneously with the closing of the 1998 Triarc Agreement, the
Company will be granted certain rights under a Wholesale License Agreement with
Arby's pursuant to which the Company will have the right to continue to sell
certain approved T.J. Cinnamons branded products to existing wholesale accounts
through December 31, 1998 (the "1998 License Agreement"). Thereafter, in its
sole discretion, Arby's may extend the term of the 1998 License Agreement for a
period not to exceed six months. The above is collectively referred to as the
"Proposed Transaction".
Board of Directors
Paramark Enterprises, Inc.
July 13, 1998
Page Two
The purchase price under the 1998 Triarc Agreement provides for the
Company to receive (i) $3,000,000 at closing, (ii) a $1,000,000 non-interest
bearing promissory note (the "Note"), guaranteed by Triarc Companies, Inc.
("Triarc"), and paid equally over a 24 month period following the closing, and
(iii) up to $1,000,000 of contingent additional consideration ("Additional
Consideration"), if any, to be paid at the later of 15 business days following
the delivery of the Company's audited financial statements for fiscal 1998 or
the audited final Net Sales report for fiscal 1998. Payment of all or any
portion of the Additional Consideration is conditioned upon the Company's total
sales of T.J. Cinnamons' branded products for fiscal 1998 less returns ("Net
Sales") exceeding certain thresholds. To receive the full amount of the
Additional Consideration, $1,000,000, the Company's Net Sales must exceed
$3,600,000. To receive the minimum amount of Additional Consideration, $250,000,
Net Sales must exceed $2,250,000. TJHC is under no obligation to pay any
Additional Consideration unless it is earned. Both the Note and the Additional
Consideration are subject to offset as set forth in the 1998 Triarc Agreement.
Texada Capital Corporation, as part of its investment banking business,
is engaged regularly in the valuation of assets, companies and securities in
connection with mergers, acquisitions, private placements, ESOPs and estate
planning on behalf of shareholders, corporations, and estates.
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 cost of capital; (ii) reviewed current publicly available
financial information concerning Triarc Companies, Inc.; (iii) reviewed the
stock market performance and trading activity of the Company's stock; (iv)
studied and analyzed the consolidated financial and operating data of the
Company; (v) considered the terms and conditions of the 1998 Triarc Agreement;
(vi) met and/or communicated with certain members of the Company's senior
management to discuss the Company's operations, historical financial statements
and future prospects; and (vii) conducted such other financial analyses and
investigations 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 1998 Triarc Agreement with accompanying exhibits including the
Wholesale License Agreement; (ii) the Preliminary Proxy Statement dated June 30,
1998; (iii) other Company SEC filings, including 10-KSBs, 1O-QSBs; (iv)
internally prepared financial statements for the periods ended April 30, 1998
and May 31, 1998; (v) internally prepared projections for the Company based on
various assumptions, including (a) the Proposed Transaction does not occur; (b)
the Proposed Transaction occurs and the Company expands the sale of its
specialty gourmet products, through
Board of Directors
Paramark Enterprises, Inc.
July 13, 1998
Page Three
growth or acquisition, to breakeven and beyond; and (c) the Proposed Transaction
occurs, but the Company is not able to expand the sales of its specialty gourmet
bakery products, or, alternatively, is not able to reduce its overheard, to
achieve breakeven or better; (vi) internally prepared unaudited pro forma
financial statements for the three months ended March 31, 1998 to reflect the
Proposed Transaction; (vii) Interbake Brands, Inc.'s accounts receivable aging
schedule at May 27, 1998 and June 26, 1998, (viii) the Company's and Interbake
Brands, Inc.'s accounts payable aging schedules at May 27, 1998, and June 26,
1998; (ix) the Company's Confidential Private Placement Memorandum prepared by
the Company with the assistance of Commonwealth Associates; (x) the trading
activity of the Company's stock; and (xi) liquidity and working capital
financing documents.
Our opinion is given in reliance upon information and representations
made or given by the Company and its officers, directors, auditors, counsel and
other agents, and on filings and other information provided by the Company
including financial statements, financial projections, and stock price data, as
well as certain industry and other information from recognized independent
sources. We have not independently verified the information concerning the
Company nor other data which we have considered in our review and, for 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.
Of special relevance to our opinion is the independent auditor's report
dated March 6, 1998 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 1O-QSB filed on May 14, 1998
with the SEC for the quarter ended March 31, 1998 indicated that the Company
continued to have a working capital deficit, was in need of immediate financing,
had made an unsuccessful attempt to raise capital through a placement agent, had
raised limited capital from its officers and third party sources, and that
failure to consummate the Proposed Transaction could have a material adverse
effect on the Company's ability to continue as a going concern. It further
indicated that, even if the Proposed Transaction is consummated, the Company, in
order to implement its plan of operation, will be required to raise additional
capital beyond June 30, 1999.
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
Board of Directors
Paramark Enterprises, Inc.
July 13, 1998
Page Four
the amendment to 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 update, revise, 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, (iii) the
Company's prospects for future financings, cost reductions or other possible
transactions, or (iv) provisions of the bankruptcy laws in the event of the
insolvency of any of the Company, Triarc or TJHC. We are expressing no opinion
on the Company's ability to achieve breakeven or better in its operations, nor
are we expressing an opinion as to the prices 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.
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 the 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,
TEXADA CAPITAL CORPORATION
/s/ TEXADA CAPITAL CORPORATION
PARAMARK ENTERPRISES, INC.
ANNUAL MEETING OF STOCKHOLDERS ON AUGUST 11, 1998
This Proxy is solicited by the Board of Directors
The undersigned hereby constitutes and appoints Charles N. Loccisano
and Alan S. Gottlich and each of them, with full power of substitution, the
attorneys in fact and proxies of the undersigned with full power of substitution
for and in the name of the undersigned to attend the Annual Meeting of
Stockholders (the "Annual Meeting") of Paramark Enterprises, Inc. (the
"Company") to be held on August 11, 1998 at 9:00 am Eastern Standard Time, and
any adjournment or adjournments thereof, hereby revoking any proxies heretofore
given, to vote all shares of stock of Paramark Enterprises, Inc. to which the
undersigned is entitled to vote as indicated on the proposals as more fully set
forth in the Proxy Statement and in their discretion upon such other matters as
may come before the meeting. The undersigned directs that this proxy be voted as
follows:
I Election of Directors
Nominees for terms of one year: CHARLES N. LOCCISANO, ALAN S. GOTTLICH,
PHILIP FRIEDMAN, and PAUL BERGRIN (mark only one of the following
boxes)
[ ] VOTE FOR all nominees listed above, except vote withhold as to the
following nominees (if any):
[ ] VOTE WITHHELD for all nominees
II To (a) approve amendments to the Company's 1996 Amended and Restated
Stock Option Plan which increase the number of shares issuable under
the 1996 Stock Option Plan by 500,000 shares to 1,000,000 shares, and
(b) ratify the class of employees which may receive shares pursuant to
the 1996 Stock Option Plan.
For Against Abstain
[ ] [ ] [ ]
III To consider and vote upon the proposed sale of certain of the assets of
the Company, including the T.J. Cinnamons franchise agreements, and the
termination of the purchase agreement dated June 3, 1996 and the
license agreement and management agreement entered into with Triarc
Restaurant Group and affiliates on August 29, 1996 in consideration of
$3,000,000 in cash, $1,000,000 in the form of a non-interest bearing
promissory note and additional contingent payments of up to $1,000,000
pursuant to the terms and conditions of the Agreement between and among
Paramark Enterprises, Inc., TJ Holding Company, Inc., a subsidiary of
Triarc Restaurant Group and Arby's, Inc. dated June 30, 1998 in the
form attached as Exhibit A to the Proxy Statement.
For Against Abstain
[ ] [ ] [ ]
IV To transact such other business as may properly come before the Annual
Meeting or ant postponement or adjournment thereof.
This proxy will, when properly executed, be voted as directed. If no
directions to the contrary are indicated, the persons named herein intend to
vote FOR the election of the named nominees for director, and for Proposals II
and III. If any other business is presented at the meeting, this proxy will be
voted by those named in this proxy in their best judgment. At the present time,
the Board of Directors knows of no other business to be presented at the
meeting.
The Board of Directors recommends a vote for all nominees for director
and for Proposals II and III.
The proxy agents present and acting in person or by their substitutes
(or if only one is present and acting, them that one) may exercise all the
powers conferred by this Proxy. Discretionary authority is conferred by this
Proxy as to certain matters described in the Company's Proxy Statement.
The undersigned hereby acknowledges receipt of the
Company's 1997 Annual Report to Stockholders and the
Notice of Annual Meeting and Proxy Statement for the
aforesaid Annual Meeting.
(Date)
Signature of Stockholder
Signature of Stockholder
DATE AND SIGN EXACTLY AS NAME APPEARS HEREON EACH
JOINT TENANT MUST SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, TRUSTEE, ETC. GIVE FULL TITLE. IF SIGNER IS
A CORPORATION, SIGN IN FULL CORPORATE NAME BY
AUTHORIZED OFFICER.
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.