SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ X ]
File by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
T.J. Cinnamons, Inc.
(Name of Registrant as Specified In Its Charter)
T.J. Cinnamons, Inc.
(Name of Person(s) Filing Proxy Statement)
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3)
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction: $9,040,000.00.
[X] Fee paid previously with preliminary proxy materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
August 1, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of T.J. Cinnamons, Inc (the "Company") which will be held on
August 27, 1996 at 9:00 am at the law offices of Blank Rome Comisky & McCauley,
11th Floor, Four Penn Center Plaza, Philadelphia, Pennsylvania. We hope you will
be able to attend.
At the Annual Meeting you will be asked to consider and vote on the
election of the Board of Directors and a proposal to sell certain of the assets
of the Company, including the T.J. Cinnamons trademarks, trade names, logos,
recipes, and secret formula pursuant to the terms and conditions of the Purchase
Agreement, in the form attached as Exhibit A to the enclosed Proxy Statement
(the "Transaction"). The Transaction provides for a cash payment to the Company
of $1,790,000, promissory notes in the amount of $1,750,000 and possible
conditional payments of up to a maximum of $5,500,000 over time pursuant to the
terms of the Purchase Agreement. The terms of the Purchase Agreement further
provide that the Buyer will enter into a long term license agreement granting
the Company the right to engage in the wholesale sales and distribution of T.J.
Cinnamons branded products through retail grocery outlets as well as to continue
to operate and act as franchisor of T.J. Cinnamon bakeries. Certain members of
management will also receive payments in consideration of agreements restricting
the sale of Company Stock and non-competition agreements, will have indebtedness
from the Company repaid with a portion of the proceeds of the Transaction, and
will be released from personal guarantees of certain of the Company's
indebtedness as the result of the repayment of such indebtedness with a portion
of the proceeds of the Transaction. 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 unanimously approved the
Transaction and recommends that 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.
So your shares may be represented at the Annual Meeting, I urge you to
promptly complete, sign, date and return the accompanying Proxy in the enclosed
envelope, whether or not you plan to attend. If you attend the Annual Meeting in
person you may, if you wish, vote personally on all matters brought before the
Annual Meeting even if you have previously returned your Proxy.
Very Truly Yours;
/s/ Charles N. Locci
Charles N. Locci
Chairman and CEO
<PAGE>
T.J. CINNAMONS, INC.
135 Seaview Drive
Secaucus, New Jersey 07094
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 27, 1996
To the Stockholders of T.J. Cinnamons, Inc.:
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of T.J.
Cinnamons, Inc. (the "Company") will be held at the law offices of Blank Rome
Comisky & McCauley, 11th Floor, Four Penn Center Plaza, Philadelphia,
Pennsylvania on August 27, 1996 at 9:00 am Eastern Standard Time, for the
following purposes:
1. To consider and vote on the election of the Board of Directors as more
fully described in the accompanying Proxy Statement.
2. To consider and vote upon the proposed sale of certain of the assets of
the Company, including the T.J. Cinnamons trademarks, trade names, logos,
recipes and secret formulas for $1,790,000 in cash, $1,750,000 in
promissory notes, and possible conditional payments of up to a maximum of
$5,500,000 over time pursuant to the terms and conditions of the Purchase
Agreement in the form attached as Exhibit A to the Proxy Statement
accompanying this Notice. The terms of the Purchase Agreement further
provide that the Buyer will enter into a long term license agreement
granting the Company the right to engage in the wholesale sales and
distribution of T.J. Cinnamons branded products through retail grocery
outlets, as well as to continue to operate and act as franchisor of T.J.
Cinnamon bakeries. Certain members of management will also receive payments
in consideration of agreements restricting the sales of Company Stock and
non-competition agreements.
3. To transact such other business as may properly come before the Annual
Meeting or any postponements or adjournments thereof.
The close of business on July 31, 1996 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. The affirmative vote of holders of a
majority of the shares of Common Stock outstanding as of the record date is
required to approve the proposed transaction. Stockholders are not entitled to
dissenters' rights under Delaware General Corporate Law in connection with the
proposed transaction.
All Stockholders are cordially invited to attend the meeting. Whether or
not you expect to attend, you are requested to sign, date and return the
enclosed proxy promptly. Stockholder who execute proxies retain the right to
revoke them at any time prior to the voting thereof. A return envelope which
requires no postage if mailed in the United States is enclosed for your
convenience.
By Order of the Board of Directors
/s/ Alan S. Gottlich
Alan S. Gottlich, Secretary
Secaucus, New Jersey
August 1, 1996
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.
<PAGE>
TABLE OF CONTENTS
Page
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS . ................ 6
SUMMARY ............................................................. 8
Annual Meeting of Stockholders...................................... 8
Securities entitled to Vote; Votes Required......................... 8
The Company......................................................... 8
Background of the Transaction....................................... 8
Businesses to be Sold .............................................. 9
The Purchaser ...................................................... 9
Businesses to be Retained .......................................... 9
Purchase Price...................................................... 9
Continuing Businesses; Proposed Expansion .......................... 10
Reasons for the Transaction and Recommendation
of the Board of Directors ......................................... 10
Opinion of Financial Advisor ....................................... 10
Interests of Management in the Transaction ......................... 11
Certain Covenants................................................... 11
Certain Conditions.................................................. 11
Indemnification..................................................... 11
No Dissenters' Rights............................................... 11
Confidentiality and Non-Compete..................................... 11
Assignment of Interests and Franchise Agreements.................... 11
Application of Proceeds from the Transaction........................ 11
Tax Consequences to the Company..................................... 11
Closing Date and Termination........................................ 12
BENEFICIAL OWNERSHIP................................................. 13
PROPOSAL ONE - ELECTION OF DIRECTORS................................. 14
Information about Directors ........................................ 14
Meetings and Committees............................................. 15
Executive Compensation ............................................. 16
PROPOSAL TWO - THE TRANSACTION ...................................... 18
The Company......................................................... 18
Background of the Transaction....................................... 18
Assets to be Sold .................................................. 20
Purchase Price...................................................... 20
Continuing Business; Proposed Expansion............................. 20
Opinion of Berwind.................................................. 21
No Dividend Distributions........................................... 22
Interest of Management in the Transaction .......................... 22
Application of Sale Proceeds ....................................... 23
Tax Consequences to the Company .................................... 24
Recommendation of the Board of Directors............................ 24
THE PURCHASE AGREEMENT .............................................. 25
Assets to be Sold and Purchase Price................................ 25
Certain Covenants .................................................. 26
Certain Representations and Warranties ............................. 26
Conditions.......................................................... 26
Termination of the Heinz Bakery Products Agreement.................. 27
Indemnification..................................................... 27
Termination ........................................................ 27
Non-Compete and Stock Sale Agreements .............................. 27
License Agreement................................................... 28
Management Agreement................................................ 30
FINANCIAL STATEMENTS AND MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 31
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS .................. 38
<PAGE>
TABLE OF CONTENTS
Page
SELECTED CONSOLIDATED FINANCIAL DATA ................................ 43
PRICE RANGE OF COMMON STOCK ......................................... 46
LEGAL PROCEEDINGS ................................................... 47
CERTAIN TRANSACTIONS ................................................ 48
INDEPENDENT PUBLIC ACCOUNTANTS ...................................... 50
ANNUAL REPORT ...................................................... 50
OTHER MATTERS ....................................................... 51
DIVIDEND POLICY ..................................................... 51
EXPENSES OF SOLICITATION ........................................... 51
STOCKHOLDERS' PROPOSALS.............................................. 51
DOCUMENTS INCORPORATED BY REFERENCE ................................. 52
APPENDIX A - Purchase Agreement between T.J. Cinnamons,
Inc. and TJ Holding Company, Inc. dated June 3, 1996 53
APPENDIX B - Fairness Opinion of Berwind Financial Group, L.P........ 54
5
<PAGE>
T.J. CINNAMONS, INC.
135 Seaview Drive
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 T.J. Cinnamons, Inc. (the "Company") in
connection with the solicitation by the Board of Directors of the Company of
proxies in the form enclosed to be voted at an Annual Meeting of Stockholders of
the Company to be held at the law offices of Blank Rome Comisky & McCauley, 11th
Floor, Four Penn Center Plaza, Philadelphia, Pennsylvania on August 27, 1996 at
9:00 am Eastern Standard Time, and for any adjournment or adjournments thereof,
for the following purposes:
1. To consider and vote on the election of the Board of Directors.
2. To consider and vote upon the proposed sale (the "Transaction") of
certain of the assets of the Company including the T.J. Cinnamons
trademarks, trade names, logos, recipes and secret formulas for $1,790,000
in cash, $1,750,000 in promissory notes, and possible conditional payments
of up to a maximum of $5,500,000 over time. The terms of the sale also
provide that the Buyer will enter into a long term license agreement
granting the Company the right to engage in the wholesale sales and
distribution of T.J. Cinnamons branded products through retail grocery
outlets, as well as to continue to operate and act as franchisor of T.J.
Cinnamon bakeries pursuant to the terms and conditions of the Purchase
Agreement in the form attached as Exhibit A to the Proxy Statement. Certain
members of management will also receive payments in consideration of
agreements restricting the sales of Company Stock and non-competition
agreements, will have indebtedness from the Company repaid with a portion
of the proceeds of the Transaction, and will be released from personal
guarantees of certain of the Company's indebtedness as the result of the
repayment of such indebtedness with a portion of the proceeds of the
Transaction.
3. 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
this meeting. The Company has no present intent to pay a special dividend to
Stockholders, or to otherwise distribute to its Stockholders any proceeds
received from the proposed Transaction and the terms of the Purchase Agreement
prohibit such a payment for a period of 12 months.
All shares represented by each properly executed unrevoked proxy received
in time for the Annual Meeting will be voted as specified. If no specified
instructions are given with respect to the matters to be acted upon, the shares
represented by a signed and dated proxy will be voted in favor of the company's
nominees for director and for approval of the Company's proposed sale of certain
of its assets and in the judgment of the Board of Directors on any other matters
which may properly come before the Annual Meeting. Any Stockholder giving a
proxy has the power to revoke the same at any time before it is voted by giving
written notice to the Company or a later date proxy.
6
<PAGE>
Only Stockholders of record at the close of business on July 31, 1996 are
entitled to notice and to vote at the Annual Meeting or any adjournment thereof.
On the record date, there were issued and outstanding 2,925,833 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 holders of a majority of the shares of Common
Stock outstanding as of the Record Date is required to approve the proposed sale
of assets. An abstention or broker non-vote, therefore will have the same effect
as an "against" vote. Officers and directors owning 40.3% of the outstanding
Common Stock of the Company have indicated that they intend to vote in favor of
the proposed transaction.
The approximate date on which this Proxy Statement and the accompanying
form of proxy will be mailed to the Company's Stockholders is August 1, 1996.
The executive officers of the Company are located at 135 Seaview Drive,
Secaucus, New Jersey 07094 and its telephone number is (201) 422-0910.
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.
The costs of solicitation will be borne by the Company. In addition to
solicitations by mail, proxies may be solicited in person or by telephone,
telegraph or facsimile by directors, officers or employees of the Company,
without additional compensation. The Company will, on request, reimburse
shareholders of record who are brokers, dealers, banks or voting trustees, or
their nominees, for their reasonable expenses in sending proxy materials and
annual reports to the beneficial owners of the shares they hold of record.
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.
7
<PAGE>
SUMMARY
The following summary of certain information contained elsewhere in this
Proxy Statement does not purport to be complete and is qualified in its entirety
by reference to the full text, including the Appendices attached hereto. As used
in this Proxy Statement, T.J. Cinnamons, Inc. is referred to as the "Company",
and TJ Holding Company, Inc. is referred to as the "Buyer". Certain capitalized
terms which are used but not defined in this summary are defined elsewhere in
this Proxy Statement or in the appended agreements.
Annual Meeting of Stockholders. This Proxy Statement relates to the Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held on
August 27, 1996. As set forth in the Notice of the Annual Meeting, the
Stockholders of the Company will consider and vote upon the election of the
Board of Directors and a proposal to approve and adopt the Purchase Agreement
pursuant to which the Company will sell to Buyer the Intellectual Property, as
defined hereinafter, which could be construed under the Delaware General
Corporation Law (the "DGCL") to constitute substantially all of the assets of
the Company.
The Annual Meeting will be held on August 27, 1996 at the law offices of Blank
Rome Comisky & McCauley, 11th Floor, Four Penn Center Plaza, Philadelphia,
Pennsylvania at 9:00 am local time. The record date for Stockholders of the
Company entitled to notice of and to vote at the Annual Meeting is as of the
close of business on July 31, 1996. Each outstanding share of Common Stock is
entitled to one vote upon all matters to be acted upon at the Annual Meeting. As
of July 31, 1996 there were 2,925,833 shares of Company Common Stock outstanding
held by approximately 850 holders of record.
Securities Entitled to Vote; Votes Required. The election of directors will be
determined by a plurality vote. The affirmative vote of at least a majority of
the outstanding shares of the Company's Common Stock as of the Annual Meeting
record date is required to approve the Transaction. Members of the Company's
Board of Directors and its Executive Officers, representing approximately 40.3%
of the outstanding shares of the Company's Common Stock as of the Annual Meeting
record date have advised the Company that they intend to vote their shares in
favor of the Transaction.
The Company. The Company is one of the first operators and franchisors of retail
bakeries specializing in gourmet cinnamon rolls and related products, with 50
bakeries operating throughout the United States on March 31, 1996, 49 of which
are franchised and one of which is owned and operated by the Company. The
Company also has 35 limited concept bakeries operating under various license
agreements.
Background of the Transaction. Current management acquired the Company from its
founders in June, 1992. Simultaneously with the acquisition, the Company entered
into a strategic manufacturing and licensing agreement with Pro Bakers, Ltd.
d/b/a Heinz Bakery Products ("Heinz"), which provided the Company with
$1,425,000 in advance royalty payments used to finance the acquisition. The
Company did not achieve its expected results from its relationship with Heinz,
which resulted in the Company's inability to pursue its franchise expansion
plans due to its limited financial resources. The Company completed a bridge
loan financing in December, 1993 in the amount of $675,000, and in May, 1994,
the Company completed an initial public offering ("IPO") resulting in net
proceeds to the company of $3.9 million. Following the IPO, the Company
successfully completed a re-imaging of the T.J Cinnamons logo, system and
re-design of its bakeries, and began its franchise sales effort.
By March 1995, the Company had sold only a limited number of franchises, and
began experiencing financial difficulties resulting from a negative working
capital balance. The Company was forced to implement a cost reduction program,
and in an effort to obtain long term financing to continue to develop the
Company's business strategies, the Company retained the Corporate Finance Group
at Arthur Andersen LLP to act as its financial advisor in connection with the
exploration of strategic alternatives available to the Company. Arthur Andersen
LLP and the Company explored a wide variety of options and ultimately, the
Company with Arthur Andersen LLP's assistance, engaged in active discussions and
negotiations with five prospective companies. Arby's, Inc. d/b/a
8
<PAGE>
Triarc Restaurant Group was the largest of the five prospects, both in terms of
financial and operational resources as well as numbers of restaurant locations,
and was also the most co-branding oriented out of the prospects, and was the
only prospect to provide the Company with a written expression of interest. In
January, 1996 the Company announced that it had reached an agreement in
principle with Triarc Restaurant Group for the sale of its intellectual property
and a simultaneous license of certain of the intellectual property back to the
Company for the purposes of continuing to operate one existing bakery location,
continuing to act as franchisor and licensor under the existing franchise and
license agreements, and continuing to distribute T.J. Cinnamons products through
retail grocery outlets. On June 3, 1996, the Company executed a definitive
agreement for the Transaction as more fully described herein.
Businesses to be Sold. The Company will sell certain of its operating assets,
comprised of the name "T.J. Cinnamons" and other related tradenames, trademarks,
service marks, logos, signs, emblems, distinctive recipes, secret formulas and
technical information (collectively referred to as the "Intellectual Property"),
and will assign to TJ Holding Company, Inc. (a newly formed wholly owned
subsidiary of Triarc Restaurant Group) various manufacturer and distributer
agreements pursuant to the terms and conditions of a Purchase Agreement between
the Company and TJ Holding Company, Inc. (the "Transaction"). The Intellectual
Property could be construed under the DGCL to constitute substantially all of
the operating assets of the Company.
The discussion in this Proxy Statement of the Transaction and the description of
the Transaction's principal terms are subject to and qualified in their entirety
by reference to the Purchase Agreement, a copy of which is attached to this
Proxy Statement as Appendix A and which is incorporated herein by reference.
The Purchaser. The purchaser, TJ Holding Company, Inc., is a newly formed wholly
owned subsidiary of Arby's, Inc. d/b/a/ Triarc Restaurant Group. Triarc
Restaurant Group operates and franchises approximately 3,000 single and
multi-branded restaurant concepts under the names Arby's, ZuZu, p.t. Noodles and
Arby's Roast Town. Triarc Restaurant Group is an indirect wholly owned
subsidiary of Triarc Companies, Inc., a holding company traded on the New York
Stock Exchange which, through its subsidiaries, is engaged in four businesses:
a) Soft drink operations conducted through Royal Crown Company, Inc. and Mistic
Brands, Inc., b) Restaurant operations conducted through Triarc Restaurant
Group, c) Specialty dies and chemical operations conducted through C.H. Patrick
& Co., Inc., and d) Liquefied petroleum gas operations conducted through
National Propane Corporation. All promissory note obligations of TJ Holding
Company, Inc. pursuant to the Purchase Agreement will be guaranteed by Triarc
Companies, Inc.
Businesses To Be Retained. The terms of the Transaction further provide that the
Buyer will grant Triarc Restaurant Group a license to the Intellectual Property,
and Triarc Restaurant Group will in turn enter into a license agreement with the
Company for an initial term of 20 years, together with three 20 year renewal
options, and one 19 year renewal option ("License Agreement") granting the
Company the rights to use the Intellectual Property for the primary purpose of
expanding its sales of T.J. Cinnamons branded products through wholesale
channels of distribution. The Transaction also provides that the Company will
enter into a management agreement ("Management Agreement") with the Buyer
pursuant to which the Buyer will act as the Company's manager for the purposes
of fulfilling the Company's obligations under its existing franchise agreements.
The manager will receive, as a management fee, an amount equal to all royalty
fees collected. Accordingly, the Company will receive no further revenues from
franchise operations.
Purchase Price. The aggregate base purchase price of the Intellectual Property
is $3,540,000 to be paid as follows: (a) $25,000 paid at the execution of the
Purchase Agreement, (b) $1,165,000 paid at Closing, (c) $600,000 paid at Closing
by the Buyer, on behalf of the Company, directly to Heinz to reduction of
existing indebtedness, (d) $1,650,000 paid in the form of a promissory note
amortized over a period of a 15 months, and (e) the balance of $100,000 paid in
the form of a promissory note amortized over a period of a 24 months.
The Purchase Agreement further provides: (a) In the event that system wide gross
sales of T.J. Cinnamons branded
9
<PAGE>
products in Triarc Restaurant Group's restaurants exceed $26.3 million annually,
additional payments must be made to the Company in an amount equal to 2% of
gross sales of T.J. Cinnamon branded products in Triarc Restaurant Group's
retail outlets (as defined in the Purchase Agreement) over a period of 48
months, and 1% of gross sales for a period of 36 months thereafter, such
additional payments not to commence prior to 24 months after closing, and not to
exceed $5.5 million in the aggregate; and (b) Royalty payments to the Company
based on gross sales of 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 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.
Continuing Business; Proposed Expansion. Following the Transaction, the
following businesses will be retained by the Company: (1) the ownership and
operation of the Company owned bakery located in Poughkeepsie, New York; (2) the
ownership, operation and development of bakery units in Six Flag Great Adventure
theme park locations, (3) the expansion of wholesale distribution of T.J.
Cinnamons branded products to grocery outlets pursuant to the License Agreement,
and (4) to continue to act as franchisor and licensor under the existing
franchise and license agreements, although day-to-day management
responsibilities will be assumed by the Buyer pursuant to a management
agreement.
Reasons for the Transaction and Recommendation of the Board of Directors. The
Company's Board of Directors has unanimously determined that the terms of the
Transaction are in the best interest of the Company and its stockholders, and
recommends a vote FOR approval and adaptation of the Transaction by the
shareholders of the Company. 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 factors:
(1) The oral and written presentation of Berwind Financial Group, L.P.
that the consideration to be received pursuant to the terms of the
Transaction are fair to the shareholders of the Company from a
financial point of view.
(2) The current negative working capital of the Company and resulting lack
of financial and operational resources necessary for the continuation
or expansion of the Company's business strategies.
(3) As revealed by the discussions and negotiations with various companies
expressing an interest in the Company, Triarc Restaurant Group was the
largest, measured in terms of number of restaurant units and financial
resources, and demonstrated the most coherent business strategy based
on co- branding which retains the T.J. Cinnamons identity and further
expands the brand awareness.
(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.
(5) The lack of success by the Company in its franchising efforts.
(6) The highly competitive market for the quick service restaurant
industry.
Opinion of Financial Advisor. On July 25, 1996, Berwind Financial Group, L.P.
("Berwind"), an investment banking firm retained by the Company, rendered its
written opinion to the Company's Board of Directors to the effect that the
consideration to be received pursuant to the Purchase Agreement was fair to the
shareholders of the Company from a financial point of view. This does not
constitute a recommendation to any shareholder as to how to vote at the
Company's Annual Meeting. A copy of the full text of the written opinion is
attached hereto as Appendix B. Shareholders are urged to read the opinion in its
entirety for assumptions made, procedures followed, and other matters considered
and limits of the review by Berwind. See "Opinion of Berwind".
10
<PAGE>
Interests of Management in the Transaction. In considering the recommendations
of the Board of Directors of the Company with respect to the Transaction,
Stockholders should be aware that certain members of the management of the
Company have certain interests in the Transaction that are in addition to the
interests of Stockholders of the Company generally. In this regard, certain
members of management will receive payments in consideration of agreements
restricting the sale of Company stock and non-competition agreements, will have
indebtedness from the Company repaid, will be released from personal guarantees
of certain Company indebtedness, and will be released from pledge and limited
suretyship agreements in connection with certain Company loan agreements. See
"The Transaction - Interests of Management and Certain Stockholders in the
Transaction".
Certain Covenants. Among the covenants of the Company under the Purchase
Agreement are the following: (a) The Company has covenanted that it will not
declare or pay a dividend distribution for a period of 12 months after Closing;
(b) The Company has covenanted that it will pay all liabilities existing as of
the Closing within 15 months following the Closing; and (c) The Company has
covenanted that it will terminate its trademark and technology license agreement
with Heinz on or before the Closing.
Certain Conditions. Among the conditions to be satisfied or waived at or before
Closing are the following: (a) the Company obtains approval from its
Stockholders; (b) there are no adverse proceedings initiated or threatened that
may effect the Transaction; and (c) the Company obtains a fairness opinion with
respect to the fairness of the Transaction which condition has been complied
with.
Indemnification. The Company has agreed to certain indemnification provisions
for the benefit of Triarc Restaurant Group and its affiliates, and has agreed to
make an offer to all existing franchisees, prior to the Closing, to forgive all
royalties outstanding at the Closing in return for a general release to be
issued by each franchisee for the benefit of the Company.
No Dissenters' Rights. Under the DGCL, holders of Common Stock are not entitled
to dissenters' rights in connection with the Transaction.
Confidentiality and Non-Compete. In connection with the License Agreement, the
Company has agreed to certain confidentiality and non-compete provisions.
Assignment of Interests and Franchise Agreements. In connection with the License
Agreement, the Company has agreed to certain limitations regarding transfers of
its interest in the License Agreement, or transfers of more than a 10% ownership
interest in the Company. In addition, the Company has granted Triarc Restaurant
Group right of first refusal on any transfer of any interest in the License
Agreement. The Company has also granted Triarc Restaurant Group the right and
option to acquire the Company's interests in the existing T.J. Cinnamons
franchise agreements beginning on the third year following Closing and ending at
the end of the fifth year following Closing at no additional consideration to
the Company.
Application of Proceeds from the Transaction. The Company intends to use the net
proceeds from the base purchase price aggregating $3,540,000 as follows:
$1,510,000 towards the reduction of outstanding indebtedness; $335,000 towards
the expenses of the Transaction; and $1,695,000 towards working capital to
expand the business being retained by the Company. $1,650,000 of the net
proceeds will be paid in the form of a 15 month promissory note and $100,000 of
the net proceeds will be paid in the form of a 24 month promissory note both of
which may be reduced by conditional off-set rights in the Purchase Agreement.
Tax Consequences to the Company. The sale of assets by the Company will be a
taxable transaction to the Company. The Company will recognize gain measured by
the difference between the amount realized from the sale of the assets and the
Company's adjusted tax basis in such assets. Due to the Company's net operating
loss carry forwards, the Company estimates that the Transaction will not result
in any Federal or State tax liability.
11
<PAGE>
Closing Date and Termination. The closing date for the Transaction (the
"Closing") will be August 29, 1996 or such other date as mutually agreed between
the Company and the Buyer upon the receipt of the Shareholders approval and
satisfaction of other closing conditions.
12
<PAGE>
BENEFICIAL OWNERSHIP
The following table sets forth information, as of July 31, 1996 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,
each nominee for 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 Percent
Name and Address of of Common Stock Beneficially
Beneficial Owner (1) Beneficially Owned (2) Owned
Charles Loccisano 1,130,889 (3)(4) 34.0%
Alan Gottlich 255,874 (5)(6) 7.7%
Philip Friedman 42,812 (7) 1.3%
Dan Feldman 151,309 (8) 4.5%
All Directors and Executive
Officers as a group
(four persons) 1,580,884 (9) 47.5%
(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 444,195 shares held by The Charles Loccisano Irrevocable Trust
f/b/o Marissa Loccisano of which 213,747 are Escrow Shares, and 444,194
shares held by The Charles Loccisano Irrevocable Trust f/b/o Michael
Loccisano (jointly referred to as the "Loccisano Trusts") of which 213,747
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 242,500 shares which may be acquired upon the
exercise of options exercisable within the next 60 days.
(5) Includes a maximum of 100,000 shares which may be acquired upon the
exercise of options exercisable within the next 60 days.
(6) Includes 155,874 shares held by Mr. Gottlich's spouse of which 64,765 are
Escrow Shares, as to which Mr. Gottlich disclaims beneficial ownership.
(7) Represents shares that are issuable upon the exercise of options
exercisable within the next 60 days.
(8) Includes 11,309 Escrow Shares and a maximum of 15,000 shares which may be
acquired upon the exercise of options exercisable within the next 60 days.
(9) Includes a maximum of 400,312 shares which may be acquired upon the
exercise of options that are exercisable within the next 60 days.
13
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
Under the Company's by-laws, the Company's Directors are elected for one
year terms until their respective successors are duly elected and qualified. The
officers of the Company are appointed by the Board of Directors to hold office
until their successors are duly elected and qualified.
Under the Company's by-laws, the 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.
Information about Directors
Certain information regarding the nominees for election as directors at
this year's Annual Meeting is set forth below.
Name Age Position with the Company
Charles Loccisano 47 Chairman, President, Chief
Executive Officer and Director
Alan Gottlich 35 Vice Chairman, Chief Financial
Officer, Treasurer,
Secretary and Director
Philip Friedman 49 Director
Dan Feldman 43 Director
Charles Loccisano has been the Chairman and the Chief Executive Officer of
the Company since its acquisition in June 1992. Since 1980, Mr. Loccisano has
principally been engaged in the acquisition, development and/or management of
real estate through his ownership and management interest in various entities.
One general partnership of which Mr. Loccisano has been a stockholder of the
corporate co-general partner since 1990 and a general partner of the other
co-general partnership since 1983 is Harmon/Envicon Associates, an entity that
syndicated, or acquired general partnership interests in, approximately 90 real
estate limited partnerships. During the period commencing June 1987 and ending
December 1990, when control and management of Harmon/Envicon Associates rested
exclusively with another general partner, approximately 25 of these partnerships
either filed for protection under the United States Bankruptcy Code at the sole
direction of that general partner or were foreclosed upon. Thereafter, Mr.
Loccisano gained management control of Harmon/Envicon Associates and,
consequently, the remaining partnerships, 55 of which had not met their debt
service obligations under the prior general partner's control. Under Mr.
Loccisano's management, 38 of these partnerships filed for protection under the
United Bankruptcy Code, 11 of which have been reorganized and have emerged from
bankruptcy. Loan payment schedules were renegotiated with lenders with respect
to the remaining 17 properties. Thereafter, Mr. Loccisano relinquished
day-to-day control over these properties, although he maintains ownership
interest in them. Mr. Loccisano has also been the President of a co-general
partner of one of the Company's franchisees since 1987. That franchisee has
never operated at a profit and closed its bakery in October 1993. The co-general
partner of that franchisee, of
14
<PAGE>
which Mr. Loccisano is President, filed for protection under the Bankruptcy Code
in June 1993. In addition, Mr. Loccisano has been Vice President and director of
an entity that owned five Roy Roger restaurants in New Jersey from 1989 to 1994
that operated at a loss since prior to acquisition.
Alan Gottlich has been the Vice Chairman and Chief Financial Officer of the
Company since its acquisition in June 1992. Since 1987, Mr. Gottlich has
principally been engaged in the acquisition, development and/or management of
real estate through his ownership and management interest in various entities.
One such entity in which Mr. Gottlich was an executive officer of the corporate
general partner filed for protection under the United States Bankruptcy Code in
the first quarter of 1993. Mr Gottlich has also been the Executive Vice
President of a co-general partner of one of the Company's franchisees since
1987. That franchisee has never operated at a profit and closed its bakery in
October 1993. The co-general partner of that franchisee, of which Mr. Gottlich
is Vice President, filed for protection under the United States Bankruptcy Code
in June 1993. In addition, Mr. Gottlich has been Vice President of an entity
that owned five Roy Rogers restaurants in New Jersey from 1989 to 1994 that
operated at a loss since prior to their acquisition. Mr. Gottlich was a staff
accountant at Touche Ross & Co., Certified Public Accountants, from 1982 to
1984.
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.
While with P. Friedman & Associates Inc., Mr. Friedman has taken interim
executive positions with certain clients. He is currently serving as interim
President of Panda Management Company, Inc. In 1990, he became the Chief
Financial Officer of Service America Corporation during its financial and
organizational restructuring. Service America Corporation filed for protection
under the United States Bankruptcy Code approximately 18 months after Mr.
Friedman resigned as Chief Financial Officer. Mr. Friedman serves as a director
of Eateries, Inc., a company engaged in the development, operation and
franchising of full-service restaurants, and Home Town Buffet, Inc. , developers
and operators of buffet style restaurants.
Dan Feldman has been a Director of the Company since May 1994. Mr. Feldman
has also been the President and Chief Executive Officer of Churchill
Livingstone, Japan K.K. a medical communications company serving the healthcare
industry, for more than the last five years. Mr. Feldman has also been a
director of The Longman Group, an affiliate of Pearson, P.L.C., since January
1994.
Directors' Meetings
The Board of Directors met 4 times during the fiscal year 1995. Each
Director attended more than 75% of the combined number of meetings of both the
Board of Directors and of any committees of the Board on which the Director
served.
Committees of the Board of Directors
The Board of Directors has established compensation, audit and option
committees. The Compensation Committee consists of Philip Friedman and Charles
Loccisano. The Audit Committee and the Option Committee consist of Philip
Friedman. The Audit Committee, the Compensation Committee and the Option
Committee held no meetings in fiscal 1995.
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
15
<PAGE>
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.
The Option Committee administers the 1993 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 Plan's operations.
Advance Notice For Director Nominations
The Company's By-Laws provide that in order for a stockholder to nominate a
candidate for election as a director at an annual meeting of stockholders or to
propose business for consideration at such meeting, notice must be delivered to
the Secretary of the Company not less than 60 days nor more than 90 days prior
to the annual meeting. However, in the event that less than 70 days prior notice
of the date of the meeting is given to stockholders, notice by the stockholders
must be received not later than 10 days after notice of the meeting has been
given. Based on the scheduled meeting date for this year's annual meeting, in
order for a stockholder to propose director nominations at the 1997 Annual
Meeting, the stockholder must deliver notice to the Secretary between May 27,
1997 and June 27, 1997. Any stockholder desiring a copy of the Company's
Certificate of Incorporation will be furnished one without charge upon written
request to the Secretary.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the total annual compensation paid or
accrued by the Company for services in all capacities for the Chief Executive
Officer for the fiscal years ended December 31, 1995, 1994 and 1993. No other
executive officers of the Company who were serving as such at the end of such
fiscal years received salary and bonus in excess of $100,000.
Long Term Compensation
Annual Compensation Other Awards
Name and Principal Annual Securities
Position Year Salary Bonus Comp.* Underlying
Options
Charles Loccisano, 1995 101,682 7,000 $12,000 192,500
Chairman, President 1994 114,711 -0- 9,000 -0-
and Chief Executive 1993 84,125 -0- -0- 50,000
Officer
* These amounts represent reimbursable automobile expenses.
16
<PAGE>
Stock Option Grants in Last Fiscal Year
Number of % of Total Exercise Expiration
Securities Options or Base Date
Underlying Granted to Price
Options Employees in
Granted Fiscal 1995
Name
Charles Loccisano, 192,500 53.1% $1.73 May 31, 2000
President and
Chief Executive
Officer
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
Value of
Number of Unexercised
Unexercised In-The-Money
Options Options at
at 12/31/95 12/31/95
Shares
Acquired Value
on Realized Exercisable/ Exercisable/
Name Exercise Unexercisable Unexercisable
Charles Loccisano, 0 0 $242,500 / 0 $148,225 / 0
Chairman,
President and
Chief Executive
Officer
Director Compensation in Last Fiscal Year
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, non-employee directors are entitled
to stock options under the Company's 1993 Stock Option Plan.
During the last fiscal year, Alan Gottlich, Philip Friedman and Dan Feldman were
each granted 15,000 stock options with an exercise price of $1.57 per share of
Common Stock as compensation for their serving as directors, and Philip Friedman
was granted an additional 10,000 stock options with an exercise price of $1.57
per share of Common Stock as compensation for consulting services rendered to
the Company during 1995. No other compensation was paid to the directors during
1995.
All forms and reports with respect to directors and executive officers of the
Company have not been timely filed with the Securities and Exchange Commission
relating the grants of stock options and transfers of Common Stock by Dan
Feldman. The Company is in the process of preparing filings for the grants of
stock options.
17
<PAGE>
PROPOSAL TWO
THE TRANSACTION
The Company
The Company is one of the first operators and franchisors of retail
bakeries specializing in gourmet cinnamon rolls and related products, with 50
bakeries operating throughout the United States on March 31, 1996, 49 of which
are franchised and one of which is owned and operated by the Company.
The Company also has 35 limited concept bakeries operating under license
agreements. Thirty three of these locations are self serve modular units
operating in Texaco Starmart Convenience Stores under a license agreement with
Yogen Fruz World-Wide, Inc. (formerly Brice Foods, Inc.), the owners of I Can't
Believe Its Yogurt, one of these units is a limited menu bakery operating in the
Six Flags Great Adventure theme park in Jackson, New Jersey, and one of these
locations is a limited menu bakery operating in a United Petroleum Car Care
Center located in Tennessee.
Background of the Transaction
Current management acquired the Company from its founders in June, 1992 for
an aggregate purchase price of approximately $2.2 million representing the
purchase of stock and the assumption of the Company's liabilities. In June,
1992, the Company had approximately 100 franchised bakery locations and four
Company-owned bakery locations, and had not offered to sell new franchise units
since 1989. Simultaneously with the 1992 acquisition, the Company entered into a
strategic manufacturing and licensing agreement with Heinz which provided the
Company $1,425,000 in advance royalty payments which was used towards the
purchase price. The balance of approximately $700,000 was funded by the capital
contributions from the shareholders of the Company.
The Company's business strategy with Heinz was twofold: (1) to convert all
the existing retail bakery locations from a scratch method of production to a
frozen dough "proof and bake" method of production yielding a multiple of
advantages including reduced labor, ease of operations, limited employee
training, cleaner bakeries, enhanced control systems, etc., and (2) to market a
T.J. Cinnamons branded product line targeted for sale to the in-store bakeries
of large supermarket chains. The Heinz agreement provided payments of
manufacturing and licensing royalties to the Company, with all royalties earned
by the Company to be first applied against the $1,425,000 advanced royalty until
fully repaid.
Based upon Heinz's sizable infrastructure and vast distribution
capabilities, the Company anticipated that Heinz would roll-out the bakery
conversion program and supermarket sales program in a short time frame resulting
in significant royalty revenues to the Company. Management anticipated that this
royalty income would allow it to obtain financing in order to fund the Company's
working capital necessary to build the infrastructure necessary to expand the
T.J. Cinnamons bakery system through franchise sales.
For a period of twelve months following the acquisition of the Company, the
new management worked together with Heinz to develop the frozen dough cinnamon
roll products. During this same period, Heinz marketed the "proof and bake"
frozen dough products in approximately 1,000 supermarket locations. Both
strategies did not reach the Company's original expectations which would have
funded the payback terms of the Heinz royalty advance. The Company believes that
there were a number of issues that Heinz did not anticipate regarding the frozen
dough rollout, such as: (i) continued research and development to replicate the
appearance, taste and texture of the cinnamon roll manufactured on a automated
production line; (ii) the sensitivity of distribution of a frozen yeast product;
(iii) the need for continued training of part-time employees regarding the
baking procedures and operating guidelines of frozen dough; and (iv) the
additional marketing costs needed to facilitate a national rollout. In order to
produce a product that was less difficult to prepare, Heinz developed a fully
baked and packaged product shipped through frozen distribution for "thaw and
serve" use by in-store bakeries in supermarkets. Although this product had broad
sales potential, Heinz did not have the facilities necessary to automate the
production of this
18
<PAGE>
product, and was forced to use a co-packer to produce the product on a
semi-automated line. This resulted in a significant reduction in the profit
margins and a lack of aggressive marketing support by Heinz.
By the end of 1992, the Company relocated its headquarters from Kansas
City, Missouri to New Jersey and hired a new management team. Given the
inability to successfully implement the Company's business plan as it related to
Heinz, the Company was not able to pursue its franchise expansion plans and it
began to actively explore financing options in early 1993. The Company's
business plan has centered on leveraging its brand equity to expand distribution
by implementing three interrelated strategies (i) expanding the Company's
franchise system; (ii) exploring opportunities to offer the Company's products
in non-traditional retailing environments including multi- branding pursuant to
strategic licensing relationships with other retailers that command brand
loyalty; and (iii) expanding opportunities to offer the Company's cinnamon roll
and related products in supermarkets and other grocery outlets.
After almost a year of pursuing financing alternatives, the Company
completed a bridge loan financing in December, 1993 in the amount of $675,000,
and on May 12, 1994 the Company completed an IPO of Common Stock, Class A
Warrants and Class B Warrants resulting in net proceeds to the company of $3.9
million. With net proceeds from the initial public offering after expenses of
the offering and the repayment of indebtedness of approximately $2.3 million,
the Company successfully completed a re-imaging of the T.J Cinnamons logo and
product packaging, and a re-design of its bakeries, and began its franchise
sales effort after having completed and filed its Uniform Franchise Offering
Circular in all States that require registration.
The Company advertised for franchises in the Wall Street Journal and the
Nations Restaurant News, and received over 2,000 inquires for its franchise
program. By March 1995, the Company had sold two franchises to new franchisees,
and two franchises to existing franchisees. During this period, the Company
maintained an expanded staff necessary to support its franchise growth and show
its credibility to prospective franchisees. This increase in overhead resulted
in a decline in the Company's working capital, and a continuing net operating
loss and cash flow deficit. These deteriorating financial conditions were the
primary obstacle in the Company's ability to sell more franchises, and the
existing franchise system declined to 60 bakeries by June 30, 1995.
By June 1995, the Company had depleted its cash resources, and began
experiencing financial difficulties resulting from a negative working capital
balance. The Company was forced to implement a cost reduction program resulting
in a significant decline in operating expenses, and in an effort to obtain long
term financing to continue to develop the Company's business strategies, the
Company retained the Corporate Finance Group at Arthur Andersen LLP to act as
its financial advisor in connection with the exploration of strategic
alternatives available to the Company, including a possible equity or debt
financing, merger, sale of all or part of the Company, or other similar
transaction.
Arthur Andersen LLP assisted the Company in identifying approximately 250
corporations and individual investors who were believed to have a possible
strategic interest in the Company. Initial letters describing the Company were
mailed to all of these prospects, resulting in 43 respondents all of which
signed confidentiality agreements. Arthur Andersen LLP assisted the Company in
the preparation of a detailed information memorandum on the Company which was
mailed to the 43 respondents. The Company, with Arthur Andersen LLP's
assistance, engaged in active discussions and negotiations with five prospective
companies. Arby's, Inc. d/b/a Triarc Restaurant Group the only prospect to
provide the Company with a formal written offer, was the largest of the five
prospects, both in terms of financial and operational resources as well as
numbers of restaurant locations. Triarc Restaurant Group was also the most
co-branding oriented out of the prospects, sharing with the Company a coherent
business strategy to develop co-branded T.J. Cinnamons/Arby's locations, thus
maintaining the T.J. Cinnamons identity, and further expanding the T.J.
Cinnamons brand awareness.
In January, 1996 the Company announced that it had reached an agreement in
principle with Triarc Restaurant Group for the sale of its intellectual property
and a simultaneous license of certain of the intellectual property back to the
Company for the purposes of continuing to operate one existing bakery location,
continuing
19
<PAGE>
to expand distribution of T.J. Cinnamons products through retail grocery
outlets, and continuing to act as franchisor and licensor under the existing
franchise and license agreements, although day-to-day management
responsibilities will be assumed by the Buyer pursuant to a management
agreement. From January, 1996 to May, 1996 the Company engaged in negotiations
with the Buyer, and on June 3, 1996, the Company executed a definitive agreement
for the Transaction as more fully described herein. This transaction continues
the Company's overall strategy to leverage its brand equity by expanding
distribution of the T.J. Cinnamons product line.
Assets To Be Sold
The assets to be sold by the Company include a) all of the Intellectual
Property owned by the Company which includes 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;
and b) an assignment of certain manufacturer and distributor agreements.
Purchase Price
The aggregate base purchase price of the Intellectual Property is
$3,540,000, plus possible contingent payments of up to $5,500,000. See "The
Purchase Agreement - Assets to be Sold and Purchase Price".
Continuing Business; Proposed Expansion
Following the Transaction, the following businesses will be retained by the
Company: (1) the ownership and operation of the Company owned bakery located in
Poughkeepsie, New York; (2) the ownership and operation and development of
certain license agreements including bakery units in Six Flag Great Adventure
theme park locations, (3) the existing and future development of wholesale
distribution of T.J. Cinnamons branded products to grocery outlets pursuant to
the License Agreement, and (4) to continue to act as franchisor and licensor
under the existing franchise and license agreements, although day-to-day
management responsibilities will be assumed by the Buyer pursuant to a
management agreement.
The Company intends to focus its attention to assist, if necessary, Triarc
Restaurant Group in its development and expansion of the T.J. Cinnamons/Arby's
co-branded restaurant units, and to set up a program for the expansion of the
wholesale distribution of the T.J. Cinnamons branded products. The Company also
intends to continue to own and operate the Poughkeepsie bakery and expand the
Six Flags Great Adventure theme park program to all Six Flags Great Adventure
locations in the country. Following the Transaction, the Company will evaluate
the feasibility of remodelling the Company owned bakery in order to upgrade to
the new image. The Company intends to use this bakery as a base for conducting
product testing, sales presentations, and consumer marketing studies.
The Company will provide assistance, if necessary, to Triarc Restaurant
Group to ensure a successful roll- out of its expansion plans. Towards this
goal, the Company also would seek to locate viable sources of product that could
be used for the Triarc Restaurant Group co-branded restaurant locations.
The Company and Heinz have reached an agreement in principle to terminate
the Trademark and Technology License and Manufacturing Agreement (the "Heinz
Agreement") to be effective upon the Closing of the Transaction, which will
allow the Company the flexibility it needs to directly engage in manufacturing,
sales and distribution of T.J. Cinnamons branded products. Termination of the
Heinz Agreement is a condition to Closing of the Transaction.
In an attempt to test market the sales of freshly baked from scratch
cinnamon roll products delivered daily to supermarket chains, during the past
six months, the Company has developed a co-packing and distribution relationship
for the purposes of manufacturing and distributing its cinnamon roll products to
approximately 250 supermarkets on the West Coast. These products are made daily
by a West Coast co-packer from the Company's
20
<PAGE>
scratch blend based on the same recipe used in the retail bakery locations, and
are delivered daily to the supermarkets. This relationship has resulted in
monthly sales by the Company to date of approximately $50,000 with a net profit
of approximately $5,000 per month. Based on these relationships, the Company has
not incurred any additional overhead or investment costs to produce these sales.
The Company will seek to expand its wholesale distribution of branded T.J.
Cinnamon products by establishing relationships with co-packers and
distributors, similar to the relationships it has established on the West Coast,
in different regions of the country. The terms of the License Agreement sets
forth certain limitations on the Company's ability to engage in wholesale
activities. See "License Agreement - Wholesale Distribution".
The Company further intends to focus its wholesale activities on the
CinnaChip products. The Company believes that this product is suited for
wholesale distribution because of its extended shelf life, enabling it to be
placed through mass production, warehousing and distribution. The Company
believes that the CinnaChip product can be prepared in a variety of flavors and,
to the Company's knowledge, there is no direct competing product in the
marketplace. Limited preliminary testing and presentation of the CinnaChip
product in a newly developed packaging has resulted in expressions of interest
from various food brokers.
The Company will also explore possible expansion through strategic
acquisition or alliance 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 implement its growth strategies in its remaining
businesses.
Opinion of Berwind
The Board of Directors of the Company has retained Berwind Financial Group,
L.P. ("Berwind") to render an opinion as to the fairness to the shareholders 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, Berwind reviewed and analyzed the Purchase
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 Berwind performed certain analysis on
internally prepared projections for the Company based on various assumptions,
including (i) the proposed Transaction does not occur, (ii) the proposed
Transaction occurs and the Company expands its wholesale activities, and (iii)
the proposed Transaction occurs, but there is no expansion of the Company's
wholesale activities. In addition, Berwind reviewed the preliminary proxy
statement dated June 24, 1996, the auditors report dated February 23, 1996, the
Company's obligations to certain creditors as of May 31, 1996 and other factors
affecting the future prospects for the Company absent the proposed Transaction.
In rendering its opinion, Berwind 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 their representatives or that was
otherwise reviewed by it. With respect to the financial forecasts and other
information relating to prospects of the Company, Berwind 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. Berwind did not make any independent evaluation or appraisal of the
assets of the Company, nor was it furnished with any evaluation or appraisal.
Berwind'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.
21
<PAGE>
For services rendered by Berwind in connection with the Transaction, the
Company agreed to pay Berwind a total fee of $35,000. In addition, the Company
has agreed to reimburse Berwind for reasonable out-of-pocket expenses and to
indemnify Berwind and certain related persons against certain liabilities in
connection with its engagement, including liabilities under the federal
securities laws.
The Berwind opinion, prepared for the Company's Board of Directors, is
directed only to the fairness to the Company's shareholders 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 Purchase Agreement, and does not
constitute a recommendation to any shareholder as to how to vote at the
Company's 1996 Annual Meeting.
A copy of the Berwind opinion is attached hereto as Appendix B.
Shareholders are urged to read this opinion in its entirety for assumptions
made, procedures followed, other matters considered and limits of the review by
Berwind.
No Dividend Distributions
The terms of the Purchase Agreement provide that the Company may not
declare or pay a dividend on any class of stock for a period of 12 months
following the Closing. The Company has no present intent to pay a special
dividend to Stockholders or to otherwise distribute to its Stockholders any
proceeds received from the Transaction following the 12 month restriction.
Interests of Management and Certain Stockholders in the Transaction
Among the conditions to the obligations of the Company under the Purchase
Agreement are the delivery of the following executed agreements:
a) A Confidentiality and Non-Competition Agreement between Buyer and
Charles N. Loccisano, the Chairman, Chief Executive Officer, President and
Director of the Company ("Loccisano Non-Compete Agreement") requiring Mr.
Loccisano to agree to confidentiality and non-compete provisions, which
include non-compete provisions that will expire two years following the
earlier of the termination of the License Agreement or termination of Mr.
Loccisano's association with the Company. The compensation to Mr. Loccisano
pursuant to this agreement is $240,000 paid over a 24 month period
following the Closing.
b) A Confidentiality and Non-Competition Agreement between Buyer and Alan
S. Gottlich, the Vice Chairman, Chief Financial Officer, Secretary and
Director of the Company, ("Gottlich Non-Compete Agreement") requiring Mr.
Gottlich to agree to confidentiality and non-compete provisions, which
include non-compete provisions that will expire two years following the
earlier of the termination of the License Agreement or termination of Mr.
Gottlich's association with the Company. The compensation to Mr. Gottlich
pursuant to this agreement is $110,000 paid over a 24 month period
following the Closing.
c) A Stock Sale Restriction Agreement between Buyer and the Charles N.
Loccisano Irrevocable Trust F/B/O Michael Loccisano, ("Michael Loccisano
Trust"), the assets of which are beneficially owned by Charles Loccisano,
the Chairman, Chief Executive Officer, President and Director of the
Company, pursuant to which the Michael Loccisano Trust will agree to
various restrictions and limitations on sale of its shares of Common Stock.
The compensation paid to said trust pursuant to this agreement is $125,000
paid over a 24 month period following the Closing.
d) A Stock Sale Restriction Agreement between Buyer and the Charles N.
Loccisano Irrevocable Trust F/B/O Marissa Loccisano, ("Marissa Loccisano
Trust"), the assets of which are beneficially owned by Charles Loccisano,
the Chairman, Chief Executive Officer, President and Director of the
Company, pursuant to which the Marissa Loccisano Trust will agree to
various restrictions and limitations on the sale
22
<PAGE>
of its shares of Common Stock. The compensation paid to said trust pursuant
to this agreement is $125,000 paid over a 24 month period following the
Closing.
During the period November 1995 through June 1996, the Company has borrowed
approximately $125,000 from an affiliates of Charles Loccisano, the Company's
Chairman, Chief Executive Officer, President and Director, and Alan Gottlich,
the Company's Vice Chairman, Chief Financial Officer and Director in order to
continue its operations. These loans will be repaid at Closing out of the
proceeds of the Transaction based on terms which were unanimously approved by
the Company's Board of Directors, including initial loan fees of 25% and
interest at a rate of five points above the Wall Street Journal Prime Rate.
The Company is currently indebted to Heinz in the amount of approximately
$800,000. Based on the agreement in principle to terminate the Heinz Agreement,
the Company intends to pay $700,000 out of the proceeds of the Transaction
towards a reduction of this indebtedness which will result in the release of the
personal guarantee of $750,000 of such indebtedness of Charles Loccisano, the
Company's Chairman, President, Chief Executive Officer and Director.
In July, 1996 the Company entered into a loan agreement with Gelt Financial
Corporation providing for a loan to the Company in the amount of $125,000. See
"Certain Transactions - Formation and financing of the Company". As additional
collateral provided to Gelt, an aggregate of 250,000 shares of the Company's
Common Stock held by affiliates of Charles Loccisano, the Chairman and Chief
Executive Officer of the Company and Alan Gottlich, the Vice Chairman and Chief
Financial Officer of the Company, were pledged to Gelt and limited suretyship
agreements were entered into by such affiliates. The Company intends to repay
the outstanding balance of this loan out of the proceeds of the Transaction,
resulting in the release of the pledged shares of Common Stock and the
cancellation of the limited suretyship agreements.
Application of Sale Proceeds
Net proceeds to the Company in connection with the Transaction will be
$3,540,000 plus possible additional payments of up to $5.5 million contingent on
the gross sales of T.J. Cinnamons branded products in Triarc Restaurant Group's
restaurants and a royalty for new full concept bakeries developed by Buyer equal
to 1/2% of gross sales.
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) $885,000 $625,000
Expenses of the Transaction (2) 295,000 40,000
Working capital (3) 0 1,695,000
---------- ----------
Total net proceeds (4) $1,180,000 $2,360,000
(1) Represents payments of (i) approximately $525,000 to certain past due trade
payables, approximately $55,000 of which have been reduced to judgement,
within 15 months following Closing, (ii) $700,000 to Heinz Bakery Products
pursuant to the terms of the termination of the Trademark and Technology
License and Manufacturing Agreement as required under the terms of the
Purchase Agreement $600,000 of which will be payable at Closing by direct
payment of the Buyer to Heinz, and $100,000 of which will be paid over a
period of 24 months following Closing by assignment to Heinz of the
$100,000 TJ Holding Company, Inc. promissory note, (iii) $125,000 to Gelt
Financial Corporation as a repayment of a short
23
<PAGE>
term loan secured by an assignment of franchise royalty income and the
pledge of an aggregate of 250,000 shares on the Company's Common Stock held
by affiliates of Charles Loccisano, Chairman and Chief Executive Officer of
the Company and Alan Gottlich, Vice Chairman and Chief Financial Officer of
the Company, and (iv) $160,000 of short-term loans from affiliates of
Charles Loccisano, Chairman and Chief Executive Officer of the Company and
Alan Gottlich, Vice Chairman and Chief Financial Officer of the Company,
which amount will be paid at Closing. The Company has covenanted in the
Purchase Agreement that it will pay all outstanding liabilities existing as
of Closing within 15 months following the Closing except for liabilities
whose creditor/holders release the Buyer.
(2) Represents (i) $200,000 to Arthur Andersen LLP for the fees pursuant to the
financial advisory agreement, $160,000 of which will be payable at Closing
with the balance of $40,000 paid over a period of 15 months following
Closing, (ii) $100,000 for various legal and accounting fees incurred in
connection with the Transaction, and (iii) $35,000 to Berwind Financial
Group, L.P. for the fees in connection with obtaining the fairness opinion
as required under the terms of the Purchase Agreement. In addition, Arthur
Andersen LLP will be entitled to receive a fee equal to approximately one
(1%) percent of any additional payments received by the Company pursuant to
the Transaction.
(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 hopes will enhance the value of the Company. Subject to the
limitations of the non-compete provisions of the Purchase 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) $1,750,000 of the net proceeds from the Transaction will be paid in the
form of two promissory notes and may be reduced by conditional rights of
off-set in the Purchase Agreement. See "Purchase Agreement -
Indemnification".
After payments at closing of indebtedness and expenses of the Transaction,
the Company will have limited working capital remaining of the initial Closing
proceeds for the continuation of its business, estimated to be approximately
$610,000. Such remaining proceeds will be used in part to pay certain past due
payables aggregating approximately $525,000. The Company will rely upon monthly
payments of the promissory notes to provide working capital for its continuing
operations. Further, as required under the Purchase Agreement, the Company has
agreed to offer forgiveness of outstanding franchise royalties receivable, in an
amount of up to approximately $150,000, in return for general releases.
Tax Consequences to the Company
The sale of assets by the Company will be a taxable transaction to the
Company. The Company will recognize gain measured by the difference between the
amount realized from the sale of the assets and the Company's adjusted tax basis
in such assets. Due to the Company's net operating loss carry forwards, the
Company estimates that the Transaction will not result in any Federal or State
tax liability.
Recommendation of the Board of Directors.
The Company's Board of Directors has unanimously determined that the terms
of the Transaction are in the best interest of the Company and its stockholders,
and recommends a vote in favor of 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 factors:
24
<PAGE>
(1) The oral and written presentation of Berwind that the consideration to
be received pursuant to the terms of the Transaction are fair to the
shareholders of the Company from a financial point of view.
(2) The current negative working capital of the Company and resulting lack
of financial and operational resources necessary for the continuation
or expansion of the Company's business strategies.
(3) As revealed by the discussions and negotiations with various companies
expressing an interest in the Company, Triarc Restaurant Group was the
largest, measured in terms of number of restaurant units and financial
resources, and demonstrated the most coherent business strategy based
on co- branding which retains the T.J. Cinnamons identity and further
expands the brand awareness.
(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.
(5) The lack of success by the Company in its franchising efforts.
(6) The highly competitive market for the quick service restaurant
industry.
Considering the above factors, the Board concluded that it was unlikely
that any purchaser other than Buyer would be willing to pay a price higher than
that to be received in the Transaction.
THE PURCHASE AGREEMENT
Assets to be Sold and Purchase Price
The assets to be sold by the Company include a) all of the Intellectual
Property owned by the Company which includes 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;
and b) an assignment of certain manufacturer and distributor agreements.
The aggregate base purchase price of the Intellectual Property is
$3,540,000 paid as follows:
a) $25,000 was paid at the execution of the Purchase Agreement,
b) $1,165,000 will be paid at Closing,
c) $600,000 will be paid at Closing directly to Heinz towards reduction
of outstanding indebtedness,
d) $1,650,000 will be paid in the form of an interest bearing promissory
note amortized over a period of 15 months, and
e) the balance of $100,000 will be paid in the form of an interest
bearing promissory note amortized over a period of 24 months.
The Purchase Agreement further provides:
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") will 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 Purchase Agreement) over a period of 48 months, and 1% of gross
sales for a period of 36 months thereafter. The Additional Payments
will not commence prior to 24 months after closing, and the Additional
Payments cannot exceed $5.5 million in the aggregate.
25
<PAGE>
b) Royalty payments to be made by the Buyer to the Company 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 following the Closing.
Certain Covenants
The Company has agreed (a) that it will not declare or pay a dividend on
any class of stock for a period of 12 months following the Closing, (b) that it
will pay all outstanding liabilities existing as of Closing within 15 months
following the Closing unless the Company obtains a general release in favor of
the Buyer from any creditor relating to a specific liability with the Buyer
having the right to offset amounts with respect to such liabilities not paid as
set forth above against Additional Payments due the Company, and (c) that it
will terminate its Trademark and Technology License and Manufacturing Agreement
with Pro Bakers, Ltd. d/b/a/ Heinz Bakery Products.
Certain Representations and Warranties
The Company has made certain customary representations and warranties,
including among other things, its organization and authority, its authorization
to enter into the Purchase Agreement, its ownership and the distinctiveness of
the Intellectual Property, its financial condition, the absence of certain
changes in its business, its franchises, its compliance with certain government
regulations and other laws, the adequacy of the T.J. Cinnamons system, its
contracts and commitments, and its disclosures in the Purchase Agreement.
The Buyer has also made certain customary representations and warranties,
including among other things, its organization and authority, its authorization
to enter into the Purchase Agreement, and its disclosures in the Purchase
Agreement.
Conditions
The Buyers 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 and warranties of the Company shall be true in all
material respects as of the Closing, (b) the Company shall have performed and
complied with all conditions, covenants and obligations of the Purchase
Agreement, (c) all corporate and other proceedings required to be taken by the
Company to authorize Transaction as contemplated by the Purchase Agreement are
completed, (d) all third party consents required by the Company to authorize the
Purchase Agreement are received, (d) the Company shall have complied with the
bulk sales law of the State of New Jersey, (e) no adverse proceedings shall have
been initiated or threatened which may effect the Transaction or Buyer, (f) the
Heinz Agreement shall have been irrevocably terminated in writing on terms and
conditions agreeable to the Buyer, (g) the Company shall have obtained certain
estoppel letters acknowledging that there are no agreements of understandings
which would affect the Buyer or the Intellectual Property from its wholesale
licensees, co-packers, distributors and other agents, (h) the delivery to Buyer
of the executed Loccisano Non-Compete Agreement and the Gottlich Non-Compete
Agreement, (i) the delivery to Buyer of the executed Michael Loccisano Trust and
Marissa Loccisano Trust Stock Sale Restriction Agreements, and (j) the delivery
to the Board of Directors of the Company, with a copy to the Buyer, of an
opinion with respect to the fairness to the Transaction to the Company and its
shareholders.
The Purchase Agreement provides that the Buyer is obligated to satisfy or
obtain waiver of the following conditions at or before the closing: (a) each of
the representations and warranties of the Buyer shall be true as of the Closing,
(b) the Buyer shall have performed and complied with all conditions, covenants
and obligations of the Purchase Agreement, (c) all corporate and other
proceedings required to be taken by the Buyer to authorize the Purchase
Agreement are completed, and (d) no adverse proceedings shall have been
initiated or threatened which may affect the Transaction or Seller.
26
<PAGE>
Termination of the Heinz Bakery Products Agreement
The terms of the Purchase Agreement provide that the Company will terminate
the Heinz Agreement. The Company currently owes Heinz approximately $800,000
pursuant to a promissory note dated August 1, 1994. The Company is currently in
default under the terms of such promissory note, and has entered into an
agreement in principle with Heinz to terminate the Trademark and Technology
License and Manufacturing Agreement and satisfy the balance due under the
promissory note based on the following terms: (1) Heinz will be paid $600,000 at
closing from the proceeds of the Transaction, and (2) Heinz will be issued a
promissory note in the amount of $100,000, $50,000 of which is payable and
amortized over 24 months with a balloon payment of $50,000 at maturity. The
promissory note will be guaranteed by Charles Loccisano, the Company's Chairman,
Chief Executive Officer, President and Director.
Indemnification
The Company is obligated to indemnify the Buyer and its affiliates for,
among other things, (a) any misrepresentation made in connection with the
Purchase Agreement, (b) all representations and warranties made in connection
with the Purchase Agreement for a period of 36 months following the Closing, (c)
any claims against the validity, distinctiveness and enforceability of the
Intellectual Property, (d) any claims relating to supplier agreements, the
liabilities or obligations of the Company, or any claims arising out of any act
or omission by the Company in relation to the business operation of the Company
either prior to or after the Closing, and (e) any claims by T.J. Cinnamons
franchisees against the Company or Buyer for acts or omissions which started
prior to Closing and may or may not have continued thereafter.
The Buyer is obligated to indemnify the Company and its affiliates for,
among other things, (a) any misrepresentation made in connection with the
Purchase Agreement, (b) all representations and warranties made in connection
with the Purchase Agreement for a period of 36 months following the Closing, and
(c) any claims arising out of any act or omission by the Buyer in relation to
the business operation of the Buyer either prior to or after the Closing.
The Purchase Agreement provides for an offer to all existing T.J. Cinnamons
franchisees to forgive all royalties outstanding and owed to the Company at the
Closing (estimated to be approximately $200,000) and for a period of six months
following the Closing, in exchange for a general release against the Company for
all liabilities from all past acts or omissions up to and including the Closing.
The Purchase Agreement further provides that Buyer shall be entitled to a
right of offset against the promissory note payments and additional payments
equal in a monthly amount, per claim, of 10% of any indemnified claim or
$20,000, whichever is less. The offset amounts will be held in escrow until a
final determination of liability at which time such offset amounts will be paid
to the claimant if there is a liability, or to the Company if there is not.
Termination
The Purchase Agreement may be terminated, and the Transaction abandoned at
any time prior to the Closing, (a) by mutual written agreement between the
Company and Buyer, (b) by the Company or Buyer in the event of an uncured
material breach, (c) if satisfaction of any condition of either the Company or
Buyer becomes impossible, or (d) at any time after October 31, 1996 by the
Company or Buyer if a closing has not occurred by said date.
Non-Compete and Stock Sale Agreements
Pursuant to the terms of the Purchase Agreement, the Buyer has required as
a condition of Closing, the
27
<PAGE>
delivery of the following executed agreements:
a) A Confidentiality and Non-Competition Agreement between Buyer and Charles
N. Loccisano, the Chairman, Chief Executive Officer, President and Director
of the Company, requiring Mr. Loccisano to agree to confidentiality and
non-compete provisions, which include non-compete provisions that will
expire two years following the earlier of the termination of the License
Agreement or termination of Mr. Loccisano's association with the Company.
The compensation to Mr. Loccisano pursuant to this agreement is $240,000
paid over a 24 month period following the Closing.
b) A Confidentiality and Non-Competition Agreement between Buyer and Alan S.
Gottlich, the Vice Chairman, Chief Financial Officer, and Director of the
Company, requiring Mr. Gottlich to agree to confidentiality and non-compete
provisions, which include non-compete provisions that will expire two years
following the earlier of the termination of the License Agreement or
termination of Mr. Gottlich's association with the Company. The
compensation to Mr. Gottlich pursuant to this agreement is $110,000 paid
over a 24 month period following the Closing.
c) A Stock Sale Restriction Agreement between Buyer and the Michael Loccisano
Trust, the assets of which are beneficially owned by Charles Loccisano, the
Chairman, Chief Executive Officer, President and Director of the Company,
pursuant to which the Michael Loccisano Trust will agree to various
restrictions and limitations on the sale of its shares of Common Stock. The
compensation paid to said trust pursuant to this agreement is $125,000 paid
over a 24 month period following the Closing.
d) A Stock Sale Restriction Agreement between Buyer and the Marissa Loccisano
Trust, the assets of which are beneficially owned by Charles Loccisano, the
Chairman, Chief Executive Officer, President and Director of the Company,
pursuant to which the Marissa Loccisano Trust will agree to various
restrictions and limitations on the sale of its shares of Common Stock. The
compensation paid to said trust pursuant to this agreement is $125,000 paid
over a 24 month period following the Closing.
LICENSE AGREEMENT
Grant. Simultaneously with the Closing, the Buyer will grant Triarc
Restaurant Group a license to use and license others to use the
Intellectual Property, and Triarc Restaurant Group will in turn enter into
a License Agreement with the Company granting the Company the right to use
the Intellectual Property for (a) the sale of T.J. Cinnamons branded
products through wholesale channels of distribution, (b) to continue to
operate the company-owned T.J. Cinnamons bakery located in Poughkeepsie,
New York, (c) to continue to operate and develop bakery units in Six Flags
Great Adventure theme parks, and (d) to continue to act as franchisor and
licensor under the existing T.J. Cinnamons franchise and license agreements
(although day-to-day management responsibilities will be assumed by Buyer
pursuant to a Management Agreement as more fully described herein). The
wholesale licensing rights are for the United States and any foreign
country if the Company pays for the costs and expenses of securing
trademark registrations and necessary government approvals in such foreign
country.
Term. The term of the License Agreement will be for an initial term of 20
years, together with three 20 year renewal options, and one 19 year renewal
option which renewal options are subject, in each instance, to the
Company's compliance with the terms of the License Agreement and executing
a general release against the Licensor.
Wholesale Distribution. The Company will have the right to distribute
approved wholesale products to supermarket chains approved by Triarc
Restaurant Group. Supermarket chains include grocery stores, warehouse
stores, combination stores and wholesale club stores with annual sales
exceeding $2 million, but do not include convenience stores. A list of
wholesale products have been pre-approved and included
28
<PAGE>
as an exhibit to the License Agreement ("Approved TJC Wholesale Products").
The Approved TJC Wholesale Products include seven sizes of cinnamon rolls,
seven flavor varieties of cinnamon rolls, three flavor varieties of
CinnaChip's, and three flavor varieties of CinnaLoaf breads. The cinnamon
roll products can be sold in 4-pack, 6-pack and 12-pack containers or other
containers approved by Triarc Restaurant Group. The Company may request
that other packaged, not fresh baked, T.J. Cinnamons products be approved
by Triarc Restaurant Group as Approved TJC Wholesale Products. Triarc
Restaurant Group may modify the list of Approved TJC Wholesale Products at
their reasonable discretion, however, Triarc Restaurant Group may not
eliminate or disapprove a previously Approved TJC Wholesale Product if such
product represents a "significant percentage" of the Company's wholesale
business as defined in the License Agreement. The Company and Triarc
Restaurant Group have agreed to include a list of pre-approved supermarket
chains as an exhibit to the License Agreement, which will be finalized
prior to Closing. Thereafter, the Company may request that other
supermarket chains be approved, which approval shall not be unreasonably
withheld.
The License Agreement provides that for a period of 45 months following the
Closing, Triarc Restaurant Group may not sell any Approved TJC Wholesale
Products to any supermarket chain to which the Company has been, and
continues selling. Triarc Restaurant Group may sell other products to
wholesale accounts during this period provided Triarc Restaurant Group pays
the Company a 2% royalty based on the wholesale sales to these supermarket
accounts.
Compliance with Standards and Specifications. The Company is obligated to
comply with Triarc Restaurant Group's standards and specifications for the
preparation, manufacture, packaging, distribution, advertising and
promotion of the approved wholesale products, and to use the Intellectual
Property only to the extent provided for in the License Agreement.
Termination. The License Agreement may be terminated by Triarc Restaurant
Group, but only after prior notice has been given to the Company and the
Company has had an opportunity to cure, if (a) the Company fails to comply
with any of the standards and specifications prescribed by Triarc
Restaurant Group, (b) the Company fails to pay royalties when due, (c) the
Company materially breaches any covenant, promise or obligation in the
License Agreement, or (d) if either party to the License Agreement becomes
insolvent, makes an assignment for the benefit of creditors, or files a
voluntary or involuntary petition in bankruptcy.
New Products Developed by Purchaser. If Triarc Restaurant Group develops
new products, and such products are offered to the Company and the Company
uses such products for wholesale distribution, then the Company will pay
Triarc Restaurant Group a new product royalty fee, equal to 2% for the
first two years and 3% thereafter, of the gross sales of the new products
sold by the Company.
Use of Proprietary Marks. The Company shall use the all T.J. Cinnamon
proprietary marks only to the extent permitted in the License Agreement.
Immediately following Closing, the Company will not use the T.J. Cinnamons
proprietary marks as part of its corporate name, and will execute and file
with all appropriate state and local agencies, a change of name notice.
Confidentiality, Non-Disclosure and Non-Compete. In the License Agreement,
the Company has agreed to protect the confidentiality of the Intellectual
Property. The Company has also covenanted and agreed that for the term of
the License Agreement and for a period of two years following the
termination of the License Agreement, it will not either directly or
indirectly own, maintain, operate, directly engage in, or have any interest
in (a) any business which is engaged in the manufacture, baking,
distribution of predominantly cinnamon bakery products, (b) any retail
business with more than 20% of its gross sales derived from bakery
products, and (c) any wholesale business that distributes bakery products
to competitors of Triarc Restaurant Group being defined as the top 100
chain restaurants listed by Nations Restaurant News excluding hotels. The
Loccisano Non-Compete Agreement and the Gottlich Non-Compete
29
<PAGE>
Agreement have similar terms as described herein.
Indemnification. The Company is obligated to indemnify Triarc Restaurant
Group and its affiliates for (a) any material breach of any covenant,
representation, or warranty under the License Agreement, (b) any third
party claims arising out of the Company's manufacture, production,
marketing, sale, purchase, or distribution activities, and (c) any
occurrence at any T.J. Cinnamons bakery operated by the Company.
Assignment of Interests. The Company may not transfer, assign, convey, give
away, pledge, or encumber any rights in the License Agreement (collectively
referred to as "Transfer"), nor shall the Company permit a Transfer of more
than a 10% ownership interest in the Company, without Triarc Restaurant
Group's prior written consent which will not be unreasonably withheld. In
addition, the Company has granted Triarc Restaurant Group a right of first
refusal on any Transfer of any interest in the License Agreement.
Assignment of Franchise Agreements. The Company has granted Triarc
Restaurant Group the right and option to acquire all of the Company's
rights, title and interest in and to the existing T.J. Cinnamons franchise
agreements beginning on the third year after the Closing and ending at the
end of the fifth year following the Closing at no additional consideration
to the Company.
MANAGEMENT AGREEMENT
Term. The Management Agreement, pursuant to which the Buyer shall become
the manager of the T.J. Cinnamons franchise and license system, shall
commence on the Closing, and shall expire as of the date of expiration or
termination of the last franchise or license agreement remaining in effect
from the list of franchise agreements at Closing.
Compensation. In consideration of its duties as manager, Buyer will paid an
amount equal to retain all of the royalty fees paid by franchisees under
each of the existing franchise agreements.
30
<PAGE>
T.J. CINNAMONS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
Dec. 31, Mar. 31,
1995 1996
(Audited) (Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 51,677 $ 31,851
Accounts receivable, less allowance for doubtful accounts 179,066 194,731
Prepaid expenses and other current assets,net 28,065 57,285
----------- -----------
Total current assets 258,808 283,867
Property and Equipment, less accumulated
depreciation and amortization 49,644 46,597
Excess of Cost over Fair Value of Net Assets Acquired 2,348,374 2,312,794
Organization Costs and Trademarks, at cost, less
accumulated amortization 15,973 13,739
Franchise Offering Costs, less accumulated amortization 106,126 93,766
Deferred Income Tax Asset, net of valuation allowance -- --
Other Assets 1,230 1,230
----------- -----------
Total Assets $ 2,780,155 $ 2,751,993
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 590,505 $ 587,146
Current maturities of long-term debt 802,708 809,780
Notes payable from affiliate of stockholder 23,848 74,209
Other current liabilities 67,500 97,538
----------- -----------
Total current liabilities 1,484,561 1,568,673
Long-Term Debt, net of current maturities 14,000 14,000
----------- -----------
Total liabilities 1,498,561 1,582,673
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock -- --
Common Stock 29,109 29,109
Additional paid-in capital 6,704,421 6,704,421
Accumulated deficit (5,451,936) (5,564,210)
----------- -----------
Stockholders' equity 1,281,594 1,169,320
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,780,155 $ 2,751,993
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
T.J. CINNAMONS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1995 1996
<S> <C> <C>
Revenue:
Sales from Company-owned stores and wholesale sales $ 138,300 $ 230,003
Royalties and licensing fees 144,120 144,067
Other 0 16,679
----------- -----------
Total revenue 282,420 390,749
Operating expenses:
Cost of goods sold 109,720 192,638
Selling, general and administrative 524,825 294,107
----------- -----------
Total operating expenses 634,545 486,745
----------- -----------
Loss from operations (352,125) (95,996)
----------- -----------
Other income (expense):
Interest expense, net (13,784) (17,125)
Loss from equipment disposal (14,762) 0
Other income 0 668
----------- -----------
Total other income (expense) (28,546) (16,457)
----------- -----------
Net loss ($ 380,671) ($ 112,453)
=========== ===========
Net loss per common share ($ 0.13) ($ 0.04)
=========== ===========
Weighted average number of
common shares outstanding 2,918,635 2,910,833
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
T.J. CINNAMONS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1995 1996
Cash flow from operating activities:
<S> <C> <C>
Net loss ($380,671) ($112,453)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 47,716 53,400
Licensing revenue (14,575) (7,500)
Provision for doubtful accounts 12,199 10,315
Loss from disposal of equipment 14,762 0
Noncash interest expense 16,024 14,572
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 26,119 (25,980)
(Increase) decrease in prepaid expenses and other current assets 4,010 (29,220)
(Increase) decrease if franchise offering costs (56,492) 0
(Increase) decrease in other assets 740 0
Increase (decrease) in accounts payable and accrued expenses (100,947) (3,359)
Increase (decrease) in other current liabilities 17,500 30,038
--------- ---------
Net cash used in operating activities (407,158) (70,186)
--------- ---------
Cash flows from investing activities:
Proceeds from the sale of equipment 4,560 0
Purchases of equipment (27,644) 0
--------- ---------
Net cash used in investing activities (22,994) 0
--------- ---------
Cash flows from financing activities:
Increase in notes payable 0 50,361
Payment of long term debt (35,233) 0
--------- ---------
Net cash provided by (used in) financing activities (35,233) 50,360
--------- ---------
Net decrease in cash (465,384) (19,826)
Cash at beginning of period 725,046 51,677
--------- ---------
Cash at end of period $ 259,662 $ 31,851
========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
T.J. Cinnamons, 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 except for the
Balance Sheet at December 31, 1995, 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.
Additionally, certain information and footnote disclosures normally
included in the Company's audited financial statements prepared in
accordance with generally accepted accounting principals have been omitted.
It is suggested that these 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, 1995. There
have been no significant changes of accounting policies since December 31,
1995.
For comparability, certain 1995 amounts have been reclassified, where
appropriate, to conform to the 1996 presentation.
Note 2 - Net 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. Common stock equivalents have been excluded from the
computation of weighted average shares outstanding since their effect would
be antidilutive.
Note 3 - Income Taxes
No provision (credit) for income taxes has been made for the three months
ended March 31, 1996 and 1995 as the Company has net operating losses.
These net operating losses have resulted in a deferred tax asset at March
31, 1996. 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, 1996.
Note 4 - Grants of Stock Options
On May 31, 1995, options to purchase an aggregate of 362,500 shares of
common stock were granted to various employees, officers and directors of
the Company under the 1993 Stock Option Plan.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
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, 1996
compared to the three month period ended March 31, 1995).
The following tables set forth the components of the Company's revenue:
Three Months Ended March 31,
1995 1996
Company-owned bakery sales $138,300 $60,167
Product sales 0 169,836
Franchise royalties 125,510 121,508
Licensing fees 18,610 22,559
Product rebates 0 16,679
------------- -------------
$282,420 $390,749
============= =============
Company-owned bakery sales decreased by 56% to $60,167 for the three months
ended March 31, 1996 from $138,300 for the three months ended March 31,
1995. This sales decrease resulted from the closing of one Company-owned
bakery in May 1995. The bakery was closed because it was not profitable as
a result of a severe decline in sales due to mall renovations, and
management was unable to negotiate favorable lease restructuring terms.
Product sales of $169,836 for the quarter ended March 31, 1996 are from
sales of fresh baked products which are delivered daily to approximately
256 Ralphs Supermarkets on the West Coast. The Company is currently
utilizing a West Coast co-packer to manufacture and distribute these
fresh-baked T.J. Cinnamons products.
Franchise royalty revenue decreased by 3% to $121,508 for the three months
ended March 31, 1996 from $125,510 for the three months ended March 31,
1995. This decrease in franchise royalties resulted primarily from a
decline in the number of franchised bakeries in the system which was
partially offset by an improved monitoring of bakeries in the first
quarter. There were 51 bakeries on March 31, 1996 as compared with 62
bakeries on March 31, 1995. The majority of these closings have resulted
from expirations of lease terms and defaults in royalty obligations in
below average volume bakeries. Although the Company has taken a number of
measures to prevent future closings of franchised bakeries, there can be no
assurance that these declines will not continue in the future.
Licensing fees increased by 21% to $22,559 for the three months ended March
31, 1996, from $18,610 for the three months ended March 31, 1995. These
increases in license fees are primarily from an increase in the sales of
"proof and bake" cinnamon rolls utilized in approximately 33 bakery kiosk
units in Texaco Starmart locations under a license agreement with the Brice
Group.
Product rebates of $16,679 for the quarter ended March 31, 1996 are from
various supplier rebates and commitment fees.
Cost of goods sold increased by 76% to $192,638 for the three months ended
March 31, 1996 from $109,720 for the three months ended March 31, 1995.
This increase is primarily the result of the cost of the product sales to a
West coast Supermarket chain. The cost of goods sold of Company-owned
bakery sales expressed as a percentage
35
<PAGE>
of bakery sales were 61% during the three months ended March 31, 1996 as
compared to 80% for the same period last year. This decrease resulted
primarily from managements focused efforts to manage costs at the
Company-owned bakery level.
Selling, general and administrative expenses decreased by 44% to $294,107
for the three months ended March 31, 1996 from $524,825 for the three
months ended March 31, 1995. This decrease is primarily the result of
managements implementation of a cost reduction plan which has resulted in
significant decreases in corporate payroll and related costs, legal and
consulting costs, and corporate office costs.
Net interest expense increased to $17,125 for the three months ended March
31, 1996 from $13,784 for the three months ended March 31, 1995. This
increase in net interest expense results from a increase in borrowing
levels.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had a working capital deficiency of
approximately $1,300,000. Included in this working capital deficiency is a
note payment due to Heinz Bakery Products on July 31, 1996 in an amount
equal to approximately $790,000. In order to finance cash flow deficits, an
affiliate of one of the principal stockholders of the Company has provided
the Company with a loan which balance was $70,000 at March 31, 1996. As of
March 31, 1996, the Company had no other line of credit available to it.
The Company owed approximately $473,800 to various trade and other
creditors at March 31, 1996, of which approximately $391,600 was more than
90 days past due. The Company also expects to continue to experience
operating cash flow deficits primarily because its current expenses exceed
its current revenues. These deficits are currently being funded by loans
from an affiliate of one of the principal stockholders and through an
increase of short-term liabilities. Although the Company has successfully
been able to extend terms with its primary creditors, there can be no
assurance that the Company will be able to continue to obtain such
favorable terms from its creditors. At March 31, 1996, the Company had
accounts receivable net of allowance for doubtful accounts in the amount of
$194,700. As a result of the financial difficulties of the Company, it is
reasonably possible that the estimate of collectability of the accounts
receivable will decrease materially in the near term.
The Company used net cash in operating activities in the amount of $70,185
for the quarter ended March 31, 1996 as compared to $407,158 for quarter
ended March 31, 1995. The Company used no cash in investing activities for
the quarter ended March 31, 1996 as compared to $22,994 for quarter ended
March 31, 1995. The Company generated net cash in financing activities in
the amount of $50,360 for the quarter ended March 31, 1996 resulting from a
loan from an affiliate of one of the principal stockholders of the Company
as discussed above, as compared net cash used in financing activities in
the amount of $35,233 for quarter ended March 31, 1995.
Since June 1992, Heinz Bakery Products has provided an aggregate of
$1,425,000 in advanced royalties to be offset by actual royalties earned,
which was used to finance the acquisition of the Company and for working
capital. On August 1, 1994, the Company entered into an agreement with
Heinz Bakery Products to extend the terms of the advanced royalties
repayment schedule. This agreement provides for a repayment of $400,000 of
advanced royalties, which has been paid, and extended the repayment of the
remaining advanced royalties over 30 months, with interest at the prime
rate and minimum payments, including earned royalties, of $130,000 due by
April 28, 1995, which amount has not been paid to date, and an additional
$395,000 due by July 31, 1996 with the remaining balance due on January 31,
1997. In consideration for this extended payment schedule, royalties
payable to the Company from Heinz Bakery Products for sales in excess of $5
million were reduced from 4% to 3%. The balance owed to Heinz Bakery
Products as of March 31, 1996 including accrued interest is approximately
$789,000. Repayment of $750,000 of the advanced royalties is guaranteed by
Charles N. Loccisano, Chairman of the Company and his wife.
In order to meet its short term cash requirements, the Company has
negotiated commitment fees and marketing rebates from a number of its
suppliers. In the forth quarter of 1995, the Company sought a private
placement
36
<PAGE>
financing transaction to meet its short term capital needs, but was unable
to successfully consummate such transaction. In July, 1996, the Company
borrowed $125,000 from Gelt Financial Corporation ("Gelt") pursuant to the
Terms of a Secured Term Loan Note. The loan bears interest at a rate of
five percentage points above the prime rate as published in The Wall Street
Journal, and has a term which will expire on the earlier of 120 days or the
Closing of the Transaction. In order to induce Gelt to provide the loan,
the Company paid Gelt a placement fee in the amount of $15,625 and issued
Gelt 15,000 shares of the Company's Common Stock. The loan is secured by a
UCC-1 Financing Statement granting Gelt an assignment of franchise rents,
contract rights and royalty fees, and the pledge of an aggregate of 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 Vice Chairman, Chief Financial
Officer and Director pursuant to pledge agreements and limited suretyship
agreements. This loan represents a bridge loan providing the Company with
financial resources to continue its existing operations through the
expected Closing of the Transaction.
In an effort to obtain the long term resources necessary to fully develop
the Company's business strategies, the Company retained the Corporate
Finance Group at Arthur Andersen LLP in June, 1995 to act as its financial
advisor to assist the company in connection with the exploration of
strategic alternatives available to the Company including a possible merger
or sale of all or part of the Company. As a result of this engagement, in
January 1996, the Company reached a non-binding agreement in principle with
Triarc Restaurant Group resulting in the Transaction as set forth in
Proposal Two more fully described herein.
37
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On June 3, 1996, the Company entered into a Purchase Agreement with TJ Holding
Company, Inc. to sell the intellectual property representing substantially all
of the operating assets of the Company. The Agreement provides for the sale to
close after approval by the Company's Stockholders. In July, 1996, the Company
closed on a bridge loan with Gelt Financial Corporation in the amount of
$125,000.
The following Unaudited Pro Forma Financial Statements are based upon the
historical statements of the Company adjusted to give effect to the Transaction
and the bridge loan.
The Unaudited Pro Forma Balance Sheet as of March 31, 1996 gives effect to the
elimination of the disposed assets assuming that the disposition had taken place
on March 31, 1996 and the cash proceeds had been received at that time.
The Unaudited Pro Forma Statements of Operations for the year ended December 31,
1995 and the three months ended March 31, 1996 give effect to the elimination of
the disposed business assuming the disposition of the assets had taken place at
the beginning of the periods 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
<PAGE>
T.J. CINNAMONS, INC.
UNAUDITED PRO FORMA BALANCE SHEET AT MARCH 31, 1996
<TABLE>
<CAPTION>
Historical Adjustment Pro Forma
ASSETS (1)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalent $ 31,851 $ 1,455,000 (1) $ 711,226
(885,000)(2)
109,375 (3)
Accounts receivable, less allowance for doubtful accounts 194,731 (127,475)(1) 67,256
Current portion of notes receivable 0 1,400,000 (1) 1,400,000
Prepaid expenses and other current assets 57,285 57,285
----------- ----------- ----------
Total current assets 283,867 1,951,900 2,235,767
Long-term portion of notes receivable 0 350,000 (1) 350,000
Property and Equipment, less accumulated
depreciation and amortization 46,597 46,597
Excess of Cost over Fair Value of Net Assets Acquired 2,312,794 (1,750,000)(1) 562,794
Organization Costs and Trademarks, at cost, less
accumulated amortization 13,739 (11,918)(1) 1,821
Deferred Income Tax Asset, net of valuation allowance -- 0
Franchise Offering Costs 93,766 (93,766)(1) 0
Other Assets 1,230 1,230
----------- ----------- ----------
Total Assets $ 2,751,993 $ 446,216 $ 3,198,209
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 587,146 $ 587,146
Current maturities of long-term debt 809,780 (746,000)(2) 63,780
Notes Payable 74,209 (125,000)(2) 74,209
125,000 (3)
Other current liabilities 97,538 97,538
----------- ----------- ----------
Total current liabilities 1,568,673 (746,000) 822,673
Long Term Debt, net of current maturities 14,000 (14,000)(2) 0
----------- ----------- ----------
Total liabilities 1,582,673 (760,000) 822,673
----------- ----------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock --
Common Stock 29,109 150 (3) 29,259
Additional paid-in capital 6,704,421 26,100 (3) 6,730,521
Accumulated deficit (5,564,210) 1,221,841 (1) (4,384,244)
(41,875)(3)
----------- ----------- ----------
Stockholders' equity 1,169,320 1,206,216 2,375,536
----------- ----------- ----------
Total Liabilities and Stockholders' Equity $ 2,751,993 $ 446,216 $ 3,198,209
=========== =========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
39
<PAGE>
T.J. CINNAMONS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Minus Pro
Forma of
Disposed
Historical Assets Pro Forma
(5)
<S> <C> <C> <C>
Revenue:
Sales $ 230,003 $ 230,003
Royalties, licensing fees and other 144,067 (144,067)(4) 0
Supplier Rebates 16,679 (16,679)(4) 0
----------- ----------- -----------
Total revenue 390,749 (160,746) 230,003
Operating expenses:
Cost of goods sold 192,638 192,638
Selling, general and administrative 294,107 (16,281)(4) 293,451
15,625 (3)
Total operating expenses 486,745 (656) 486,089
----------- ----------- -----------
Loss from operations (95,996) (160,090) (256,086)
----------- ----------- -----------
Other income (expense):
Interest expense, net (17,125) (26,250)(3) (43,375)
Other income 668 668
----------- ----------- -----------
Total other income (expense) (16,457) (26,250) (42,707)
----------- ----------- -----------
Net loss ($ 112,453) ($ 186,340) ($ 298,793)
=========== =========== ===========
Net loss per common share ($ 0.04) ($ 0.10)
=========== =========== ===========
Weighted average number of
common shares outstanding 2,910,833 2,925,833
=========== =========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
40
<PAGE>
T.J. CINNAMONS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Minus Pro
Forma of
Disposed
Historical Assets Pro Forma
(5)
<S> <C> <C> <C>
Revenue:
Sales from Company-owned stores $ 434,063 $ 434,063
Royalties, licensing fees and other 559,983 (559,983)(4) 0
Initial franchise fees 25,510 (25,510)(4) 0
Other 19,533 19,533
----------- ----------- -----------
Total revenue 1,039,089 (585,493) 453,596
Operating expenses:
Cost of goods sold 301,552 301,552
Selling, general and administrative 1,738,401 (264,945)(4) 1,489,081
15,625 (3)
Interest expense, net of interest income 65,425 26,250 (3) 91,675
----------- ----------- -----------
Total operating expenses 2,105,378 (223,070) 1,882,308
----------- ----------- -----------
Net loss ($1,066,289) ($ 362,423) ($1,428,712)
=========== =========== ===========
Net loss per common share ($ 0.37) ($ 0.49)
=========== ===========
Weighted average number of
common shares outstanding 2,910,833 2,925,833
=========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
41
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET AT MARCH 31, 1996 AND FOR THE
UNAUDITED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
THREE MONTHS ENDED MARCH 31, 1996
Balance Sheet
(1) Reflects receipt of the estimated net proceeds and related gain (net of
expenses) from the Transaction, the elimination of the assets sold, a reduction
of certain indebtedness paid at Closing, and the forgiveness of royalties owed
by franchisees.
(2) Reflects repayments of certain debts as required under the Purchase
Agreement.
(3) Reflects receipt of the bridge loan net proceeds (after placement fees) and
related charge to earnings resulting from the issuance of 15,000 shares of the
Company's common stock.
Statement of Operations
(4) Reflects the charge to earnings resulting from the placement fee and the
issuance of 15,000 shares of the Company's common stock in connection with the
bridge loan.
(5) Reflects the elimination of revenue and operating expenses of the disposed
assets for the year ended December 31, 1995 and the three months ended March 31,
1996. Such expenses have been limited to direct operating expenses attributable
to such businesses, and do not include any allocation of corporate or
administrative costs. The remaining excess of cost over fair value of net assets
acquired is being amortized over a 10 year period.
(6) 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
<PAGE>
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
1992 1993 1994 1995 March 31, 1996
(In thousands, except per share data)
Statement of Operations Data:
Revenues 1,367 1,402 1,764 1,039 391
Expenses 1,810 2,838 4,271(1) 2,105 503
Net income (loss) (443) (1,436) (2,507) (1,066) (112)
Net income (loss) per share (.25) (.80) (.99) (.37) (.04)
Weighted average number
common shares outstanding 1,804 1,804 2,531 2,910 2,910
Balance Sheet Data:
Total assets 3,389 3,310 3,717 2,780 2,752
Working capital (1,090) (3,758) 352 (1,226) (1,285)
Total liabilities 2,816 4,004 1,369 1,499 1,583
Stockholders equity 573 (693) 2,348 1,282 1,169
- ---------------
(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 member of the Board of
Directors.
43
<PAGE>
The following is a summary of selected consolidated financial data relating to
Triarc Companies, Inc. which is derived from Item 6 of the Triarc Companies,
Inc. Annual Report on Form 10K.
<TABLE>
<CAPTION>
Eight Months
Ended
Fiscal Year Ended April 30, December 31, Year Ended December 31,
1991 1992 1993 1993(3) 1994 1995
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,027,162 $ 1,074,703 $ 1,058,274 $ 703,541 $ 1,062,521 $ 1,184,221
Operating profit 23,304 58,552 34,459 (4) 29,969 (5) 68,933 (6) 33,989 (7)
Loss from continuing
operations (17,501) (10,207) (44,549)(4) (30,439)(5) (2,093)(6) (36,994)(7)
Income (loss)from
discontinued operations, net (55) 2,705 (2,430) (8,591) (3,900) --
Extraordinary items 703 -- (6,611) (448) (2,116) --
Cumulative effect of changes
in accounting principles, net -- -- (6,388) -- -- --
Net loss (16,853) (7,502) (59,978)(4) (39,478)(5) (8,109)(6) (36,994)(7)
Preferred stock dividend
requirements (2) (11) (11) (121) (3,889) (5,833) --
Net loss applicable to
common stockholders (16,864) (7,513) (60,099) (43,367) (13,942) (36,994)
Loss per share:
Continuing operations (.68) (.39) (1.73) (1.62) (.34) (1.24)
Discontinued operations -- .10 (.09) (.40) (.17) --
Extraordinary items .03 -- (.26) (.02) (.09) --
Cumulative effect of
changes in accounting
principles -- -- (.25) -- -- --
Net loss per share (.65) (.29) (2.33) (2.04) (.60) (1.24)
Total assets 851,912 821,170 910,662 897,246 922,167 1,085,966
Long-term debt 345,860 289,758 488,654 575,161 612,118 763,346
Redeemable preferred stock -- -- 71,794 71,794 71,794 -- (8)
Stockholders' equity(deficit) 92,529 86,482 (35,387) (75,981) (31,783) 20,650(8)
Weighted-average common
shares outstanding 25,853 25,867 25,808 21,260 23,282 29,764
- -----------
</TABLE>
(1) Selected Financial Data for the fiscal years ended April 30, 1991 and 1992
have been retroactively restated to reflect the discontinuance of the
Triarc's utility and municipal services and refrigeration operations in
1993.
(2) Triarc has not paid any dividends on its common shares during any of the
periods presented.
(3) Triarc 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").
(4) Reflects certain significant charges recorded in the fourth quarter of
Fiscal 1993 as follows: $51,689,000 charged to operating profit;
$48,698,000 charged to loss from continuing operations; and $67,060,000
charged to net loss.
(5) Reflects certain significant charges recorded during transition 1993 as
follow: $12,306,000 charged to operating profit; $25,617,000 charged to
loss from continuing operations; and $34,437,000 charged to net loss.
(6) Reflects certain significant 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, net of tax benefit of $6,147,000; and $10,798,000 charged to net
loss representing the aforementioned $4,782,000 loss from continuing
operations, $3,3900,000 loss from discontinued operations and a $2,116,000
extraordinary charge.
(7) Reflects certain significant charges recorded during 1995 as follows:
$19,331,000 charged to operating profit and $15,199,000 charged to loss
from continuing operations and net loss.
(8) In 1995 all of the redeemable preferred stock was converted into common
stock and an additional 1,011,900 common shares were issued resulting in an
$83,811,000 improvement in stockholders' equity (deficit).
44
<PAGE>
The following is a summary of selected consolidated financial data relating to
Triarc Companies, Inc. which is derived from the Triarc Companies, Inc.
Quarterly Report on Form 10Q.
Three Months Ended March 31, 1996
(In thousands except for per share amounts)
Revenues $328,893
Operating Profit 25,420
Extraordinary Charge (1,387)
Net Income 398
Net Income per Share $0.01
Total Assets 1,037,192
Long-Term Debt 757,387
Stockholders' Equity 20,798
Weighted average common
shares outstanding 30,284
45
<PAGE>
PRICE RANGE OF COMMON STOCK
As of January 24, 1996, the date before the announcement that the Company
and Triarc Restaurant Group reached an agreement in principle, the closing bid
prices per share for the Company's Common Stock, Class A Warrants and Class B
Warrants, as reported by NASDAQ, were $2 1/2, $1/2 and $5/16 respectively. As of
January 25, 1996, the date after the announcement that the Company and Triarc
Restaurant Group reached an agreement in principle, the closing bid prices per
share for the Company's Common Stock, Class A Warrants and Class B Warrants, as
reported by NASDAQ, were $2 7/16, $1/2 and $5/16 respectively.
As of June 17, 1996, the date before the announcement that the Company and
Triarc Restaurant Group executed a Purchase Agreement, the closing bid prices
per share for the Company's Common Stock, Class A Warrants and Class B Warrants,
as reported by NASDAQ, were $1 15/16, $5/16 and $5/32 respectively. As of June
19, 1996, the date after the announcement that the Company and Triarc Restaurant
Group executed a Purchase Agreement, the closing bid prices per share for the
Company's Common Stock, Class A Warrants and Class B Warrants, as reported by
NASDAQ, were $2, $5/16 and $5/32 respectively.
As of July 31, 1996, the Company had approximately 850 Stockholders of
record.
46
<PAGE>
LEGAL PROCEEDINGS
In 1994 the Company terminated the franchise of one Gary Hall for having moved
the location of his bakery without authorization and for failing to maintain a
retail bakery operation in accordance with the requirements of his Franchise
Agreement. Mr. Hall's Franchise Agreement was for operation of a T.J. Cinnamons
bakery at North Park Mall, Joplin, Missouri. Mr. Hall was given an opportunity
to cure said defaults prior to termination but did not avail himself of same.
Subsequent to his termination, Mr. Hall commenced legal action against the
Company in the federal district Court (the "Court") at Kansas City, Missouri
demanding (a) recovery of approximately $10,000 in monies delivered by Sam's
Wholesale Club to the Company allegedly in payment for sales made by Mr. Hall to
Sam's Wholesale Club pursuant to his Franchise Agreement, (b) $50,000 in damages
for wrongful termination of his Franchise Agreement, and (c) $20,000 in damages
for breach by the Company of Mr. Hall's contractual territorial rights.
The Company, because of its limited financial resources, chose not to retain
Missouri counsel to respond to Mr. Hall's legal action but instead instructed
its corporate counsel to make a written response, in lieu of an appearance, to
the court hearing the matter. The Court chose not to consider the Company's
written response and entered a default judgement on May 31, 1996 on behalf of
Mr. Hall and as to all of Mr. Hall's claims. The judgment was in the amount of
$80,120 plus interest on a portion of same.
The Company believes that Mr. Halls claims for damages for termination of his
franchise and loss of territorial rights, aggregating $70,000 are without
foundation and the Company's written response to the Court set forth meritorious
defenses to same (the Company has conceded that approximately $10,000 in Sam's
Wholesale Club payments belonged to Mr. Hall and the Company offered to make
payment of same to Mr. Hall). Therefore, the Company has retained local Missouri
counsel to (a) file an appeal against the default judgement and (b) enter a
motion to set aside the default judgement based on the meritorious defenses that
the Court failed to consider. The Company believes that there is a reasonable
opportunity for it to prevail either on its appeal and/or its motion.
In addition, the Company is presently and from time to time is involved in
routine litigation including litigation with vendors, suppliers, landlords and
franchisees. None of these litigations in which the company is currently
involved is material to its financial condition or results of operation.
47
<PAGE>
CERTAIN TRANSACTIONS
Formation and Financing of the Company
Signature Acquisition Corp. ("SAC") was formed in October 1991, for the
purpose of acquiring Signature Foods, Inc. ("SFI"), the predecessor to the
Company, from prior management on behalf of affiliates of current management and
other investors. Charles Loccisano, Chairman, Chief Executive Officer, President
and a Director of the Company, and Alan Gottlich, Vice Chairman, Chief Financial
Officer, and a Director of the Company, are founders of SAC. Affiliates of
Messrs. Loccisano and Gottlich purchased SAC shares that were exchanged for
1,013,389 shares and 155,874 shares of Common Stock, respectively, in connection
with the merger exchange described below, for $.77 per share, and $.10 per
share, respectively. In addition, Saul Feiger, a former director of the Company,
purchased SAC shares that were exchanged for 33,429 shares of Common Stock for
$.29 per share.
Contemporaneously with the acquisition of SFI in 1992, the Company entered
into a license agreement with Heinz Bakery Products, pursuant to which, among
other things, Heinz Bakery Products paid an aggregate of $1.425 million in
advanced royalties to be offset by actual royalties earned. These advanced
royalties were used to finance the acquisition of the Company and for working
capital. The License Agreement provided that if royalties earned through June
1994 were insufficient to offset royalties advanced, then half of the remaining
balance would be due in June 1994 with the remainder due in December 1994,
although Heinz Bakery Products granted the Company the option to extend the
final due date to June 1995 for a payment of five percent of the balance due in
December 1994. On August 3, 1994, the Company entered into an agreement with
Heinz Bakery Products to extend the terms of the advanced royalties repayment
schedule. The new agreement provided for an initial repayment of advanced
royalties of $400,000 which has been paid with a portion of the IPO proceeds and
extended the repayment of the remaining advanced royalties over 30 months, with
interest at the prime rate and minimum payments, including earned royalties of
$130,000 due by April 28, 1995, which amount has not been paid to date, and an
additional $395,000 due by July 31, 1996 with the remaining balance due on
January 31, 1997. In consideration for this extended payment schedule, royalties
payable to the Company from Heinz Bakery Products for sales in excess of $5
million were reduced from 4% to 3%. The balance of the advanced royalties owed
to Heinz Bakery Products as of March 31, 1996 including accrued interest is
approximately $790,000, all of which is guaranteed by Charles N. Loccisano, the
Chairman and Chief Executive Officer of the Company.
In October 1993, SAC and SFI were merged into the Company. SAC stockholders
received 35.625 shares of Common Stock in exchange for each share of SAC common
stock then owned. SFI was a wholly-owned subsidiary of the Company at the time
of its merger into the Company and in connection therewith the Company retired
all of the SFI common stock.
In June 1993, another investor, LMD Enterprises, Inc., that purchased
96,756 shares for $12,500, entered into a consulting agreement pursuant to which
it was entitled to annual payments of $60,000 for two years, and Dan Feldman who
assumed the position of Director of the Company upon completion of the IPO,
purchased 28,477 shares of the Company's Common Stock for $12,500 and was
granted an additional 21,596 shares to induce him to enter into a consulting
agreement. Another investor, Windsor, L.P. loaned the Company $50,000 and was
issued 28,477 shares for nominal consideration, Windsor, L.P. and LMD
Enterprises, Inc. are under common control and the wife of Marvin Rostholder, a
former director of the Company, is a general partner of, and an affiliate of a
limited partner of , Windsor, L.P. and a principal of the Company's transfer
agent.
In the November 1993 Bridge Financing and the December 1993 Bridge
Financing, the Company sold 26 Bridge Units and one Bridge Unit, respectively,
for $25,000 each. Each Bridge Unit consisted of a $25,000 promissory note
convertible into 6,250 shares of Common Stock and an option ("Option") to
acquire a warrant to purchase 12,500 shares of Common Stock. The promissory
notes paid interest at the rate of 10% per annum and became due and payable on
the closing of the IPO. The notes were converted into Common Stock at a rate of
$4.00 principal amount per share simultaneously with the effective date of the
registration statement relating to the IPO. Windsor, L.P. purchased two Units
for $50,000. In February 1994 the Company borrowed an additional $100,000 from
third parties including $30,000 from Windsor, L.P. The remaining $40,000 was
loaned by an affiliate of one of the Company's principle suppliers. The notes
evidencing these loans were paid from the proceeds of the IPO. The notes paid
interest at a rate of 15%.
In July, 1996, the Company borrowed $125,000 from Gelt Financial
Corporation ("Gelt") pursuant to the Terms of a Secured Term Loan Note. The loan
bears interest at a rate of five percentage points above the prime
48
<PAGE>
rate as published in the Wall Street Journal, and has a term which will expire
on the earlier of 120 days or the Closing of the Transaction. In order to induce
Gelt to provide the loan, the Company paid Gelt a placement fee in the amount of
$15,625 and issued Gelt 15,000 shares of the Company's Common Stock. The loan is
secured by a UCC-1 Financing Statement granting Gelt an assignment of franchise
rents, contract rights and royalty fees, and a pledge of an aggregate of 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 Vice Chairman, Chief Financial Officer and Director
pursuant to pledge agreements and limited suretyship agreements.
Option Grant by Affiliate
On April 12, 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 and bridge note holder and now, a Director of the Company. Such shares
were included in the registration statement relating to IPO. In January 1995,
Dan Feldman acquired 125,000 shares of Company Common Stock from the Loccisano
Trusts for no cash consideration and the aforementioned option agreement was
terminated.
For accounting purposes, the grant of this option by affiliates of the
Company was deemed to be a grant by the Company, and accordingly, the Company
incurred a non-cash charge to earnings as a result of such grant equal to the
value of the share underlying the option based upon the initial public offering
price less the exercise price of the option, or $1,220,000.
Stock and Option Grants in connection with Employment and Consulting
Arrangements
In October 1993, the Company granted options to purchase an aggregate
62,500 shares of Common Stock to Charles Loccisano and Alan Gottlich, the
Chairman and the Chief Executive Officer, and the Vice Chairman and the Chief
Financial Officer, respectively, of the Company. In March 1993, options to
purchase 17,812 shares of Common Stock were granted to Philip Friedman, a
Director of the Company, to induce him to enter into a consulting agreement with
the Company to provide business and strategic planning advisory services. The
option is exercisable for $2.81 per share. Pursuant to this consulting
agreement, Mr. Friedman also received payments aggregating $40,000 in 1993 and
$25,000 in 1994 for services provided thereunder. In June 1993, Dan Feldman, who
assumed the position of Director upon consummation of the IPO was granted 21,596
shares of Common Stock to induce him to enter into an 18 month consulting
agreement with the Company to provide general financial advisory services.
In May 1995, options were granted to executive officers and directors of
the Company to purchase shares of Common Stock in the following amounts: 192,500
to Charles Loccisano, Chairman, President, Chief Executive Officer and Director;
87,500 to Alan Gottlich, Vice Chairman, Chief Financial Officer and Director;
25,000 to Philip Friedman, Director; and 15,000 to Dan Feldman, Director.
Additional stock option grants have been made to other employees of the Company.
Loans from Affiliates
In November 1993, the Company borrowed $20,000 from an affiliate of Messrs.
Loccisano and Gottlich. The note evidencing this loan payable on demand and
bears interest at an annual rate of eight percent and was paid from a portion of
the proceeds of the IPO during 1994.
During the period November 1995 through June 1996, the Company has borrowed
approximately $125,000 from an affiliate of Charles Loccisano, the Company's
Chairman, Chief Executive Officer, President and Director, and Alan Gottlich,
the Company's Vice Chairman, Chief Financial Officer and Director. These loans
will be repaid at Closing out of the proceeds of the Transaction, based on
initial loan fees of 25% and interest at a rate of five points above the Wall
Street Journal Prime Rate.
Rent from Affiliates
From June 15, 1992 to June 15, 1993 the Company rented its executive
offices from and shared them with an entity owned by Messrs. Loccisano and
Gottlich. The Company accrued rent expense in connection therewith of $93,750.
That indebtedness was evidenced by a three year promissory note dated May 1994,
payable monthly,
49
<PAGE>
bearing interest at an annual rate of six and one-half percent. Such promissory
note was prepaid in 1995 with a discount of approximately $22,500.
Professional Fees
Saul Feiger, a former Director of the Company, has acted as counsel for SAC
since 1991 and for the Company since June 1992. In connection therewith, Mr.
Feiger has been paid $25,000 for service rendered in fiscal 1992 and 1993 and
earned $175,000 for services rendered during these years. The Company upon
consummation of the IPO (i) paid Mr. Feiger $97,500 from the proceeds thereof,
and (ii) issued 6,667 shares of Common Stock to Mr. Feiger in complete
satisfaction of the foregoing.
Employment Agreements and Severance Arrangements
The Company entered into one-year employment contracts with Charles
Loccisano, Eugene Cerrotti, the former President and Chief Operating Officer of
the Company and a former Director of the Company, and Alan Gottlich effective
May 12, 1994, pursuant to which, during the first year of the contracts, they
would receive annual base salaries of $100,000, $120,000 and $87,500
respectively. No bonuses were granted in 1994 and bonuses of $7,000 and $3,000
were granted in 1995 to Charles Loccisano and Alan Gottlich respectively. The
employment agreements prohibit competition with the Company during the term of
the agreements and, generally, for two years thereafter.
In addition, Mr. Cerrotti was granted 30,834 shares of Common Stock for
$.01 per share, in consideration of his agreement to enter into an employment
agreement, of which 24,382 shares of Common Stock have been placed in escrow. In
addition, Mr. Cerrotti was granted under the 1993 Stock Option Plan, Options to
purchase 100,000 shares of Common Stock vesting in equal quarterly installments
commencing September 1995 through September 1997 and expiring in September 2000
at an exercise price of $5.00 per share. Mr. Cerrotti's employment agreement was
terminable by the Company at any time for any reason. In the event of such a
termination during the (i) first six months of the agreement, Mr. Cerrotti would
be entitled to a lump sum payment of $31,250 and may require the Company to
purchase his shares for $50,000, (ii) period commencing six month from the
effective date of the employment agreement up to 18 months therefrom, Mr.
Cerrotti would be entitled to a lump sum payment of $41,667 and may require the
Company to purchase his shares at the higher of market value or $37,500, or
(iii) after 18 months following the effective date of the employment agreement,
a lump sum payment of $62,500. On October 10, 1994, Mr. Cerrotti resigned as
President and Chief Operating Officer and Director of the Company and in
accordance with the Employment Agreement, Mr. Cerrotti received a lump sum
payment of $31,250 and the Company repurchased all of Mr. Cerrotti's Common
Stock for $50,000.
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. Although no other transactions are contemplated, 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.
INDEPENDENT PUBLIC ACCOUNTANTS
Goldstein Golub Kessler & Co., P.C. has served as the Company's independent
public accountants since 1989. The Board of Directors has selected Goldstein
Golub Kessler & Co., P.C. to serve as independent public accountants of the
Company for Company's fiscal year ending December 31, 1995. Representatives of
Goldstein Golub Kessler & Co., P.C. are 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, 1995 is mailed herewith to all
stockholders and is intended by the Company to serve as its Annual Report to
Stockholders.
50
<PAGE>
OTHER MATTERS
Management is not aware of any matters to come before the meeting which
will require the vote of stockholders other than those matters indicated in the
Notice of Meeting and this Proxy Statement. However, if any other matter calling
for stockholder action should properly come before the meeting or any
adjournments thereof, those persons named as proxies in the enclosed proxy form
will vote thereon according to their best judgement.
As of the date hereof, the Company knows of no other business that will be
presented for consideration at the annual Meeting. However, the enclosed proxy
confers discretionary authority to vote with respect to any and all of the
following matters that may come before the meeting: (i) matters that the
Company's Board of Directors does not know, a reasonable time before proxy
solicitation, are to be presented for approval at the meeting; (ii) approval of
the minutes of a prior meeting of shareholders, if such approval does not
constitute ratification of the action at the meeting; (iii) the election of any
person to any office for which a bona fide nominee is unable to serve or for
good cause will not serve; (iv) any proposal omitted from this Proxy Statement
and the form of proxy pursuant to Rule 14a-8 under the Exchange Act, as amended;
and (v) matters incidental to the conduct of the meeting. If any such matters
come before the meeting, the proxy agents named in the accompanying proxy card
will vote in accordance with their judgement.
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. The Board of Directors intends to retain the net
proceeds, if any, from the Transaction to finance acquisitions and other growth
opportunities.
EXPENSES OF SOLICITATION
All expenses incurred in connection with the solicitation of proxies will
be borne by the Company. The Company will reimburse brokerage firms, nominees,
fiduciaries and other custodians for their costs in forwarding proxy materials
to beneficial owners of Common Stock held in their families. Solicitation may be
undertaken by mail, telephone, telegram or personal contract by directors,
officers and employees of the Company without additional compensation, except
for reimbursement of reasonable out-of-pocket expenses incurred in connection
with such solicitation.
ADP Proxy Services will assist in the solicitation of proxies by the
Company for a fee of approximately $2,500.
STOCKHOLDERS PROPOSALS
Any proposal intended to be presented by any Stockholder for action at the
1997 Annual Meeting of Stockholder must be received by the Secretary of the
Company not later than June 27,1997 in order for the proposal to be included in
the proxy statement and proxy relating to such Annual Meeting.
51
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following periodic reports filed by the Company (File No. 0-23026) and
the Commission pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act") are incorporated by reference in this Proxy Statement:
1. Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995.
2. Triarc Companies, Inc. Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995.
3. Triarc Companies, Inc. Quarterly Report on Form 10-QSB for the three
months ended March 31, 1996.
Document 1 is being provided with this Proxy Statement.
The Company will provide without charge to each person being solicited by
this Proxy Statement, upon the written request of any such person, a copy of the
any of the Company's reports (other then exhibits to such reports unless such
exhibits are specifically incorporated by reference) upon written request to
Alan Gottlich, Secretary, T.J. Cinnamons, Inc., 135 Seaview Drive Secaucus, N.J.
07094.
All documents filed by the Company with the Commission pursuant to Section
13(a) 13(b), 14 and 15(d) of the Exchange Act after the date hereof and before
the date of the Annual Meeting shall be deemed to be incorporated by reference
herein and shall be a part hereof from the date of filing of such documents. Any
statements contained in a document incorporated by reference herein or contained
in this proxy statements shall be deemed to be modified or superseded for
purpose hereof to the extent that a statement contained herein (or in any other
subsequently filed document which also is incorporated by reference herein)
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed to constitute a part hereof except as so modified or
superseded.
By Order of the Board of Directors
/s/ Alan S. Gottlich
Alan S. Gottlich, Secretary
Secaucus, New Jersey
August 1, 1996
52
<PAGE>
APPENDIX A
Purchase Agreement between T.J. Cinnamons, Inc.
and TJ Holding Company, Inc.
dated June 3, 1996
53
<PAGE>
PURCHASE AGREEMENT
By and Between The Buyer
TJ HOLDING COMPANY, INC., A DELAWARE CORPORATION,
and The Seller
T.J. CINNAMONS, INC., A DELAWARE CORPORATION
JUNE 3, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
SALE: PURCHASE PRICE: CLOSING .............................................3
Section 1.1 Sale and Delivery of the Intellectual Property ...........3
Section 1.2 Assignment of Supplier Agreements ........................3
Section 1.3 Purchase Price ...........................................3
Section 1.4 Base Purchase Price ......................................3
Section 1.5 Additional Payments ......................................4
Section 1.6 Royalty for New Bakeries .................................5
Section 1.7 Quarterly Reports ........................................5
Section 1.8 Additional Agreements ....................................6
Section 1.9 The Closing ..............................................6
Section 1.10 Liabilities of the Seller ...............................6
ARTICLE 2 .................................................................6
COVENANTS OF THE SELLER ...................................................6
Section 2.1 No Divided Distributions .................................6
Section 2.2 Payment of Seller's Liabilities ..........................7
Section 2.3 Heinz Agreement ..........................................7
ARTICLE 3 .................................................................7
REPRESENTATIONS OF THE SELLER .............................................7
Section 3.1 Organization and Authority ...............................7
Section 3.2 Authorization; No Conflicts ..............................7
Section 3.3 Ownership and Distinctiveness of Intellectual Property ...8
Section 3.4 Litigation ...............................................9
Section 3.5 No Other Ownership of the Intellectual Property ..........9
Section 3.6 Financial Statements .....................................9
Section 3.7 Franchises ...............................................10
Section 3.8 Regulatory Approvals .....................................10
Section 3.9 Trade Secrets ............................................10
Section 3.10 Adequacy of TJC System ..................................10
Section 3.11 Contracts and Commitments ...............................10
Section 3.12 Compliance with Laws ....................................11
Section 3.13 Disclosure ..............................................11
-i-
<PAGE>
ARTICLE 4 .................................................................11
REPRESENTATIONS OF THE BUYER ..............................................11
Section 4.1 Organization and Authority ...............................11
Section 4.2 Authorization ............................................11
Section 4.3 Disclosure ...............................................11
ARTICLE 5 .................................................................12
CONDITIONS TO THE OBLIGATIONS OF THE BUYER ................................12
Section 5.1 Truth of Representations and Warranties of the Seller;
Compliance with Covenants and Obligations ...............12
Section 5.2 Corporate Proceedings ...................................12
Section 5.3 Governmental Approvals ..................................12
Section 5.4 Third Party Consents ....................................12
Section 5.5 Bulk Sales Law Compliance ...............................12
Section 5.6 Adverse Proceedings .....................................13
Section 5.7 Supplier Agreement Termination and Estoppel Letters .....13
Section 5.8 Closing Deliveries ......................................13
Section 5.9 Closing Deliveries From Seller's Officers ...............14
Section 5.10 Completion of Exhibits ..................................14
ARTICLE 6 .................................................................14
CONDITIONS TO THE OBLIGATIONS OF THE SELLER ...............................14
Section 6.1 Truth of Representations and Warranties of the Buyer;
Compliance with Covenants and Obligations ................14
Section 6.2 Corporate Proceedings ....................................14
Section 6.3 Adverse Proceedings ......................................14
Section 6.4 Fairness Opinion .........................................14
Section 6.5 Closing Deliveries .......................................15
ARTICLE 7 .................................................................15
INDEMNIFICATION ...........................................................15
Section 7.1 Indemnification for Misrepresentations ..................15
Section 7.2 Survival of Representations .............................15
Section 7.3 Seller's Indemnity for Intellectual Property ............16
Section 7.4 Seller's Indemnity for Seller's Business Operations .....16
Section 7.5 Buyer's Indemnity for Buyer's Business Operations .......16
Section 7.6 Franchisee General Release Forms ........................17
-ii-
<PAGE>
Section 7.7 Claims by Franchisees Against Buyer and Seller for Actions
Prior to and After the Closing ..........................17
Section 7.8 Buyer's Right of Offset .................................17
Section 7.9 Notice for Claims of Indemnification ....................18
Section 7.10 Defense by Indemnifying Party ...........................18
ARTICLE 8
GENERAL PROVISIONS ........................................................19
Section 8.1 Termination ..............................................19
Section 8.2 Effect of Termination ....................................19
Section 8.3 Broker's and Financial Advisers ..........................19
Section 8.4 Notices ..................................................20
Section 8.5 Successors and Assigns ...................................20
Section 8.6 Amendments ...............................................21
Section 8.7 Waivers ..................................................21
Section 8.8 Expenses .................................................21
Section 8.9 Severability .............................................21
Section 8.10 Specific Performance ....................................21
Section 8.11 Governing Law ...........................................21
Section 8.12 Counterparts ............................................22
Section 8.13 No Third Party Beneficiaries ............................22
Section 8.14 Entire Agreement ........................................22
EXHIBITS
Exhibit A: Intellectual Property
Exhibit B: License Agreement
Exhibit C: Management Agreement
Exhibit D: Form of Consulting Agreement for Charles Loccsiano
Exhibit E: Form of Consulting Agreement for Alan Gottlich
Exhibit F: Assignment of Supplier Agreements
Exhibit G: First Note, and Guarantee
Exhibit H: Second Note, and Guarantee
Exhibit I: Bill of Sale and Assignment of Intellectual Property
Exhibit J: Form of Legal Opinion of Counsel to the Seller
Exhibit K: Form of Legal Opinion of Counsel to the Buyer
Exhibit L: Form of Certificate of the Secretary of T.J. Cinnamon's Inc.
Exhibit M: Form of Certificate of the President of T.J. Cinnamon's Inc.
Exhibit N: Form of Certificate of the Assistant Secretary of TJ Holding
Company Inc.
Exhibit O: Form of Certificate of the President of TJ Holding Company Inc.
Exhibit P: Form of Escrow Agreement
-iii-
<PAGE>
PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement" or "Purchase Agreement") is
entered into as of the 3rd day of June, 1996, by and between TJ Holding Company,
Inc., a Delaware Corporation (the "Buyer"), a wholly owned subsidiary of Arby's
Inc., a Delaware Corporation, ("Arby's") and T.J. Cinnamons, Inc., a Delaware
Corporation, (the "Seller") with respect to the acquisition and sale of the
intellectual property developed and owned by the Seller and certain related
assets of the Seller. The Buyer and Seller are collectively referred to in this
Agreement as the "Parties" or individually as a "Party".
RECITALS OF FACT
A. The Seller is the owner of a unique system of developing and operating
food service units offering gourmet cinnamon rolls and other bakery items and
beverages ("TJC System"). The distinguishing features of the TJC System include
the name "T.J. Cinnamon's" and other related trade names, trademarks, service
marks, logos, signs, and emblems (the "Proprietary Marks"); distinctive recipes
and secret formulas for baking gourmet cinnamon rolls and other bakery products
(the "Secret Recipes"); secret and proprietary plans relating to the
preparation, baking, and merchandising of gourmet cinnamon rolls utilizing the
Secret Recipes, including instructional materials, operating manuals, and
training courses for preparing gourmet cinnamon rolls and other bakery items,
and any and all copyrights claimed in connection with such materials ("Technical
Information"); specially designed fixtures, equipment, containers, and other
items used in preparing, serving, and dispensing the gourmet cinnamon rolls and
other bakery items; distinctive production and delivery systems; and,
distinctive exterior and interior designs, decor, color schemes, and
furnishings. The Secret Recipes and Technical Information are all confidential
trade secrets of the Seller and are collectively referred to herein as the
"Proprietary Information". The Proprietary Marks and the Proprietary Information
are collectively referred to in this Agreement as the "Intellectual Property". A
list of the Intellectual Property is attached hereto as Exhibit A.
B. The gourmet cinnamon rolls and all other baking products prepared using
the Proprietary Information are referred to in this Agreement as "TJC Products".
The TJC Products and all other products sold under the Proprietary Marks,
including such modified or substituted marks that Buyer may utilize with respect
to the sale of TJC Products, are referred to as the "TJC Branded Products".
C. The Seller owns and operates, and franchises others ("TJC Franchisees")
pursuant to franchise agreements ("TJC Franchise Agreements") to operate, retail
locations ("TJC Bakeries") identified by one or more of the Proprietary Marks
(and using the Proprietary Information) that prepare and sell all or a variety
of TJC Products, and other bakery products
-1-
<PAGE>
and beverages. The Seller has also licensed others ("Retail Licensees") to use
the Proprietary Information to prepare and sell a limited variety of TJC
Products at or from certain retail locations other than TJC Bakeries ("TJC
Retail Locations"), which are identified by one or more of the Proprietary
Marks, and licenses other third parties ("Wholesale Licensees") to prepare and
sell on a wholesale basis certain selected TJC Products for resale through
retail food stores. (These licenses are referred to herein as "Wholesale
Licenses.") The TJC Franchisees, Retail Licensees, and Wholesale Licensees are
referred to in the aggregate as "TJC Licensees" and agreements with TJC
Licensees are referred to collectively as "TJC License Agreements" (which
includes TJC Franchise Agreements).
D. Arby's owns, operates, and franchises single and multi-brand restaurants
under the names Arby's, ZuZu, P.T. Noodles, and Arby's Roast Town, which
collectively sell breakfast, lunch, dinner, and snack food products using unique
systems ("Arby's Systems"), and which, along with other restaurants using
concepts which Arby's, the Buyer, or their successors or assigns may develop in
the future, including full-concept TJC Bakeries offering the complete line of
Required TJC Products and required Permitted TJC Products (as defined in the
License Agreement) and operating in a manner consistent with the definition of a
TJC Bakery under the License Agreement, but not including any full-concept TJC
Bakeries operating in enclosed shopping malls, are collectively referred to
herein as "Arby's Restaurants". Arby's and the Buyer wish to offer, and to
license franchisees of Arby's and the Buyer and Buyer's affiliates to offer the
TJC Branded Products, improvements to the TJC Products, other bakery items and
beverages in Arby's Restaurants.
E. The Seller desires to sell the Intellectual Property and the
accompanying goodwill to the Buyer, and the Buyer is willing to license to the
Seller, or license to Arby's to license to the Seller, such of the Intellectual
Property as is necessary for the operation of the existing TJC Bakeries, and,
with certain limitations, the sale of TJC Products by TJC Licensees in
accordance with the terms of this Agreement and the license agreement attached
hereto as Exhibit B (the "License Agreement").
F. The Seller desires to assign certain of its supplier agreements, and the
Buyer is willing to assume certain supplier agreements.
G. The Seller desires to obtain the assistance and expertise of the Buyer
in performing the Buyer's obligations and enforcing the Buyer's rights under the
TJC License Agreements. The Seller also desires to obtain the assistance of the
Buyer in operating and franchising other operating food service units pursuant
to the terms of the Management Agreement. The Buyer is willing to undertake such
management responsibilities pursuant to a management agreement in the form
attached hereto as Exhibit C (the "Management Agreement").
-2-
<PAGE>
H. This Agreement, the License Agreement, the Management Agreement, and
such other agreements as are contemplated by this Agreement, the License
Agreement, and the Management Agreement, are collectively referred to herein as
the "Agreements."
I. The Buyer desires to obtain agreements from certain principals of the
Seller, not to engage in competitive activities, and to obtain agreements from
certain stockholders of Seller regarding the transfer or assignment of ownership
interests in Seller. Such covenants and agreements are specified in the
agreements (the "Non-competition Agreement" and "Stock Sale Restriction
Agreement") attached hereto as Exhibits D and E.
With reference to the above stated Recitals of Fact and in consideration of
the mutual covenants and conditions contained in the Agreements, the Parties
hereby agree as follows:
ARTICLE I
SALE: PURCHASE PRICE; CLOSING
Section 1.1 Sale and Delivery of the Intellectual Property. Subject to and
upon the terms and conditions of the Agreements, on the Closing Date (as defined
in Section 1.8), the Seller shall sell, transfer, convey, assign, and deliver to
the Buyer, and the Buyer shall purchase from the Seller, free and clear of all
liens, all of Seller's rights, title, and interest in, under, and to the
Intellectual Property and all goodwill relating to or associated therewith.
Section 1.2 Assignment of Supplier Agreements. The Seller has entered into
agreements with certain manufacturers and distributors of TJC Products and
ingredients used in TJC Products (the "Suppliers"), each of which is identified
in Schedule 1.2 (the "Supplier Agreements"). At the Closing, for the
consideration provided herein, the Seller shall assign to the Buyer and the
Buyer shall assume from the Seller the Supplier Agreements with William Foods,
Inc., Multifoods Specialty Distributors, Inc., Ryckoff-Sexton Corporation,
Nevarro Pecan Co., Inc., McCormick & Company, Incorporated, and Coca Cola
Fountain, pursuant to the delivery of a general assignment ("Assignment of
Suppliers Agreements") substantially in the form of Exhibit F. However, the
Buyer is not assuming any amounts payable to any Suppliers as of the Closing
Date, but rather is only assuming the obligations of the Supplier Agreements
after the Closing Date.
Section 1.3 Purchase Price. The aggregate purchase price for the Supplier
Agreements and the Intellectual Property and the accompanying goodwill, to be
acquired by the Buyer (the "Purchase Price") shall be Three Million Five Hundred
Forty Thousand Dollars ($3,540,000) ("Base Purchase Price") and further payments
(the "Additional Payments") by the Buyer, described below in Section 1.5. The
Purchase Price shall be paid as provided in Sections 1.4 and 1.5 below and shall
be allocated for Federal tax purposes among the assets as provided on Schedule
1.3 attached hereto.
-3-
<PAGE>
Section 1.4 Base Purchase Price. The Base Purchase Price shall be paid to
the Seller as follows:
(a) Cash upon execution of this Agreement in the amount of Twenty-Five
Thousand Dollars ($25,000);
(b) Cash at the Closing in the amount of One Million Seven Hundred
Sixty-Five Thousand Dollars ($1,765,000), less the amount paid to Heinz as
provided in Section 1 .4(c) (the "Closing Date Payment");
(c) Payment to Pro Bakers, Ltd. d/b/a Heinz Bakery Products ("Heinz")
of cash in the amount of not less that Four Hundred Thousand Dollars ($400,000),
and not more than Seven Hundred Ninety Thousand Dollars ($790,000) at the
Closing (the "Heinz Payment"), with the precise amount to be specified by Seller
not less than thirty (30) days prior to Closing.
(d) Delivery at the Closing of a promissory note ("First Note")
substantially in the form attached hereto as Exhibit G in the principal amount
of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000) less the amount
of the Second Note as provided in Section 1.4(e), bearing an annual interest
rate on the outstanding principal amount at the rate equal to the prime rate as
published in the Wall Street Journal on the fifth (5th) day of business prior to
the Closing Date, plus one percent (1 %) (the "Interest Rate"), amortized from
the Closing Date to the date which is fifteen (15) consecutive months after the
Closing Date, payable in fifteen (15) equal monthly installments of principal
and interest; and
(e) Delivery at the Closing of a promissory note (" Second Note")
substantially in the form attached hereto as Exhibit H in a principal amount to
be specified by the Seller not less than thirty (30) days prior to Closing, but
in any event not more than One Million Seven Hundred Fifty Thousand Dollars
($1,750,000), bearing an annual interest rate at the Interest Rate, amortized
from the Closing Date to the date which is twenty-four (24) consecutive months
after the Closing Date, payable in twenty-four (24) equal monthly installments
of principal and interest.
Section 1.5 Additional Payments. The Additional Payments shall be computed
and paid as follows:
(a) The Buyer will pay to the Seller an amount (the "Arby's Royalty")
equal to the sum of (i) two percent (2%) of the Gross Sales (as defined in
Section 1.5(b)) of the TJC Branded Products sold in or from Arby's Restaurants
during the Initial Period (as defined below) and (ii) one percent (1 %) of the
Gross Sales of the TJC Branded Products sold in or from Arby's Restaurants
during the thirty-six (36) month period commencing on the day immediately
succeeding the last day of the Initial Period. For purposes of this Agreement,
the "Initial Period" shall be a period commencing on the later to occur of (i)
the first day of the twenty-fifth
-4-
<PAGE>
(25th) month following the Closing Date or (ii) the first day of the calendar
quarter (January 1, April 1, July 1, and October 1) immediately following the
date as of which the Gross Sales of the TJC Branded Products sold in or from
Arby's Restaurants for the immediately preceding four (4) calendar quarters
exceeds Twenty Six Million and Three Hundred Thousand Dollars ($26,300,000), and
terminating on the last day of the forty-eight (48th) month following the
Initial Period. If, in any calendar quarter, Buyer's, Arby's, or any successor's
Gross Sales of TJC Branded Products from sources other than Arby's Restaurants
exceeds Gross Sales of TJC Branded Products from Arby's Restaurants by a ratio
greater than 2:1, the Arby's Royalties shall be measured by the Gross Sales from
all sources selling TJC Branded Products (including Arby's Restaurants), rather
than just from Arby's Restaurants for each calendar quarter thereafter.
(b) For purposes of this Agreement, the term "Gross Sales" shall mean
all revenue actually received by Arby's Restaurants from the sale of TJC Branded
Products (pro rated if any period falls within a time period less than a full
calendar year), but shall not include (i) any sales taxes or other taxes
collected during such period from customers and paid directly to the appropriate
tax authorities, (ii) the retail value of employee purchases made during such
period, or, (iii) the coupon value of products distributed during such period
with promotional coupons with respect to TJC Branded Products.
(c) The Additional Payments shall be calculated at the end of each
calendar quarter following the commencement of the Initial Period, and paid with
respect to the Gross Sales of the calendar quarter on or before the last day of
the following calendar quarter, accompanied by such reports as the Seller may
reasonably request.
(d) Notwithstanding anything herein to the contrary, total payments
constituting Additional Payments from the Buyer to Seller shall not exceed Five
Million Five Hundred Thousand Dollars ($5,500,000) in the aggregate.
Section 1.6 Royalty for New Bakeries. In addition to the Arby's Royalty,
the Buyer shall also pay to the Seller an amount equal to one-half of one
percent (1/2 %) of the Gross Sales of TJC Branded Products sold during the New
Bakeries Period (as defined below) in or from new full concept bakeries modeled
on or after the TJC System established by Arby's after the Closing in enclosed
shopping malls ("Arby's Bakeries"). For purposes of this Agreement, the "New
Bakeries Period" shall commence on the Closing Date and shall terminate on the
last day of the two hundred and fortieth (240) month period following the
Closing Date. The amounts paid pursuant to this Section 1.6 are not subject to
the maximum amount provided in Section l.5(d).
Section 1.7 Quarterly Reports. The Buyer shall provide to Seller quarterly
reports concerning the Gross Sales of TJC Branded products sold in or from
Arby's Restaurants and from Arby's Bakeries, within thirty (30) days following
the end of each quarter. Each report shall contain a statement from the Buyer's
accounting firm or chief accounting officer, or his/her
-5-
<PAGE>
designee, attesting to the accuracy of the report. The Seller shall have the
right, upon reasonable notice, and at the Seller's sole cost and expense, to
audit the records of the Buyer that the Buyer utilized in preparing the
quarterly reports. The Buyer shall provide the Seller, on an annual basis, with
the Buyer's Uniform Franchise Offering Circular or such other material which
provides a list of Arby's Restaurants.
Section 1.8 Additional Agreements. At the Closing, the Buyer, and the
principals and stockholders of Seller designated in the License Agreement, shall
enter into the Non-competition Agreements and Stock Sale Restriction Agreements,
providing for the payment by the Buyer of the aggregate amount of Six Hundred
Thousand Dollars ($600,000) over two (2) years, in the amounts specified in, and
subject to the other terms and conditions as further provided in, the
Non-competition Agreements and Stock Sale Restriction Agreements.
Section 1.9 The Closing. The closing of the purchase and sale of the
Intellectual Property and the goodwill relating to or associated therewith and
the other agreements contemplated hereby (the "Closing") shall take place at the
offices of Rudnick, Wolfe, Epstien & Zeidman, located at 1401 New York Avenue,
N.W., Suite 900, Washington D.C. at 10:00 a.m., on August 30, 1996, or 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 Articles 5 and 6. At the Closing, the Buyer will pay the Purchase Price by
wire transfer of immediately available funds to such account as the Seller may
reasonably direct by written notice delivered to the Buyer by the Seller at
least one (1) business day before the Closing Date. Simultaneously, the Seller
will assign and transfer to the Buyer good and valid title in and to the
Intellectual Property (free and clear of all liens) by delivery of a Bill of
Sale and Assignment of Intellectual Property duly executed by the Seller
substantially in the form of Exhibit I. At the Closing, there shall also be
delivered to the Seller and the Buyer the assignments, opinions, certificates,
and other contracts, documents, and instruments required to be delivered under
Articles 5 and 6.
Section 1.10 Liabilities of the Seller. The Buyer shall not assume any
liabilities of the Seller whatsoever as a part of the transactions completed by
this Agreement.
ARTICLE 2
COVENANTS OF THE SELLER
Section 2.1 No Divided Distributions. The Seller shall not declare or pay a
dividend on any class of stock for twelve (12) consecutive calendar months after
the Closing. For purposes of this Agreement, "Dividend Payment" shall mean
dividends (in cash or property) on, or other payments or distributions on
account of, or the setting apart of money for a sinking or other analogous fund
for, or the purchase, redemption, retirement, or other acquisition of, any
-6-
<PAGE>
shares of any class of stock of the Seller or of any warrants, options, or other
rights to acquire the same.
Section 2.2 Payment of Seller's Liabilities. Within fifteen (15) months
after the Closing, the Seller shall have paid all aggregate outstanding
liabilities existing as of the Closing Date (the "Closing Date Liabilities").
Compliance with this covenant shall be evidenced by delivery of a Certificate of
the President of the Seller to the Buyer in a form satisfactory to the Buyer,
not later than sixteen (16) months after the Closing. The Seller is expressly
permitted to incur new liabilities in the normal course of its business
operations after the Closing, provided all outstanding liabilities existing as
of the Closing Date are paid in full within fifteen (15) months after Closing.
To the extent that any Closing Date Liabilities exist on such date, and are not
released, the Buyer shall have the right to off-set such amount against the
Additional Payments due to the Seller; provided, however, that any creditor as
of the Closing Date that specifically releases Seller from all of its claims
shall not have to be paid pursuant to this Section.
Section 2.3 Heinz Agreement. The Seller shall terminate its Supplier
Agreement with Heinz (the "Heinz Agreement"). Both Parties acknowledge that the
Seller will assign its rights in, under, and to the Second Note to Heinz (the
"Heinz Assignment") on the Closing Date as part of the agreement between Heinz
and the Seller to terminate the Heinz Agreement.
ARTICLE 3
REPRESENTATIONS OF THE SELLER
The Seller represents and warrants to Arby's and the Buyer as follows:
Section 3.1 Organization and Authority. The Seller 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 own and use
the Intellectual Property, to execute and deliver the Agreements, to perform its
obligations thereunder, and to consummate the transactions contemplated thereby.
Section 3.2 Authorization: No Conflicts. The execution and delivery by the
Seller of the Agreements and the performance by the Seller of its obligations
thereunder have been duly and validly authorized by all requisite corporate
action. Without limiting the generality of the foregoing at the Closing, the
shareholders and Board of Directors of the Seller have duly authorized the
transactions contemplated by the Agreements. This Agreement constitutes, and
each of the other Agreements when executed will constitute, the valid and
legally binding obligations of the Seller, enforceable against the Seller in
accordance with their respective terms. The execution, delivery, and performance
of the Agreements, and the consummation by the
-7-
<PAGE>
Seller of the transactions contemplated thereby, do not and will not, (a)
conflict with, violate or breach the provisions of any law, rule, or regulation
applicable to the Seller; (b) conflict with, violate, or breach a provision of
the Seller'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 governmental 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 the
Seller is a party or by which the Seller is or may be bound. Schedule 3.2
attached hereto sets forth a true, correct, and complete list of all consents
and approvals of third parties (including any governmental authorities) that are
required in connection with the execution, delivery, and consummation by the
Seller of the transactions contemplated by the Agreements.
Section 3.3 Ownership and Distinctiveness of Intellectual Property. The
Seller has an ownership interest in and/or uses the Intellectual Property in
connection with the conduct of the TJC System. No other intellectual or
intangible property is used or necessary in the conduct of the TJC System.
Except for the trademark applications which are still pending and identified on
Schedule 3.3, the Seller is the true, lawful, and sole owner of the Intellectual
Property; and, except as set forth in Schedule 3.3, the Seller has all exclusive
rights, title, and interest in and to the Intellectual Property, and will sell,
transfer, convey, and assign the Intellectual Property to Buyer, free and clear
of any pledges, liens, security interests, restrictions, prior assignments,
encumbrances, or claims of any kind or nature. Except as set forth in Schedule
3.3, (i) all registrations with and applications to governmental or regulatory
authorities in respect of such Intellectual Property are valid and in full force
and effect and are not subject to the payment of any taxes of any kind or
maintenance fees or the taking of any other actions by Seller to maintain their
validity or effectiveness; (ii) there are no restrictions on the direct or
indirect transfer of any contract, agreement, understanding, or any interest
therein, held by Seller in respect of such Intellectual Property; (iii) the
Seller has delivered to the Buyer prior to the execution of this Agreement
documentation with respect to any process, design, know-how, or trade secret
included in such Intellectual Property, which documentation is accurate in all
material respects and reasonably sufficient in detail and content to identify
and explain such process, design, know-how, or trade secret and to facilitate
its full and proper use without reliance on the special knowledge or memory of
any person; (iv) the Seller has taken reasonable security measures to protect
the secrecy, confidentiality, and value of its trade secrets in respect of the
TJC System; (v) the Seller is not, nor has it received any notice that it is, in
default (or with the giving of notice or lapse of time or both, would be in
default) under any contract, agreement, or understanding with respect to the
Intellectual Property; and, (vi) none of the Intellectual Property is being
infringed by any other person. The Seller has not received notice that it is
infringing upon any Intellectual Property of any other person or entity in
connection with the conduct of the TJC System, no claim is pending or has been
made to such effect (that has not been completely resolved), and the Seller is
not infringing upon any Intellectual Property rights of any other person or
entity in connection with the conduct of the TJC System. The
-8-
<PAGE>
delivery to the Buyer of the instruments of transfer of ownership contemplated
by the Agreements will exclusively vest all of the Seller's rights, title, and
interest in and to the Intellectual Property and the goodwill relating to or
associated with the Intellectual Property in the Buyer, free and clear of any
pledges, liens, security interests, restrictions, prior assignments,
encumbrances, and claims of any kind or nature except as contemplated by the
Agreements. The Seller represents and warrants the validity, distinctiveness,
and enforceability of the Proprietary Marks and the copyrights associated with
all written materials.
Section 3.4 Litigation. The Seller has not received any written notice of
and is not aware of any infringement by any third party of any of the
Intellectual Property. Except as set forth on Schedule 3.4 attached hereto, none
of the Intellectual Property is subject to, any litigation, suit, claim, action,
investigation, dispute, proceeding, or controversy before any court,
administrative agency, or other governmental authority, or arbitrator relating
to or affecting the ownership or use of the Intellectual Property by the Seller.
The Seller 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. The Seller is not in
violation of or in default with respect to any judgment, 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 effect the Intellectual Property
being conveyed pursuant to this Agreement. Schedule 3.4 identifies and contains
a brief description of any unsatisfied judgment, order, decree, stipulation, or
injunction against the Seller relating to the Intellectual Property and any
claim, dispute, complaint, action, suit, proceeding, hearing, or investigation
of, or in, any court, governmental entity, or before any arbitrator, to which
the Seller is a party or is threatened to be made a party. None of the claims,
disputes, complaints, actions, suits, proceedings, hearings, and investigations
set forth in Schedule 3.4 could have a material adverse affect on the
Intellectual Property or the ownership of the Intellectual Property by the
Seller.
Section 3.5 No Other Ownership of the Intellectual Property. Except as
disclosed in Schedule 3.5, there are no other owners of an interest in the
Intellectual Property, and there are no persons or entities with rights or
options, vested or non-vested, to acquire any interest in any of the
Intellectual Property.
Section 3.6 Financial Statements. Attached as Schedule 3.6 are complete
copies of the Seller'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, 1995. The Financial
Statements fairly present the financial condition of the Seller as of the date
indicated, the results of operations, and the sales of TJC Products 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 material adverse change or any
event or development which, individually or together with other such events or
developments, could reasonably be expected to result in
-9-
<PAGE>
a material adverse change, in the business condition (financial or otherwise),
results of operations, sales of TJC Products, or the prospects of the TJC
System.
Section 3.7 Franchises. Attached as Schedule 3.7 is a complete list of all
of the locations of TJC Bakeries, and the Seller has delivered to the Buyer, on
or prior to the date hereof, a copy of the forms of the Franchise Agreements
currently in effect as of the date hereof with respect to each of the TJC
Bakeries (excluding the TJC Bakery owned and operated by the Seller) and all
amendments thereto with respect to each. Other than as provided in the TJC
Franchise Agreements, there are no outstanding commitments, promises,
agreements, or understandings, either written or verbal, which have been made
with respect to the Intellectual Property to any of the TJC Franchisees.
Section 3.8 Regulatory Approvals. AD consents, approvals, authorizations,
and other requirements prescribed by any law, rule, or regulation which must be
obtained or satisfied by the Seller, which are necessary for the execution and
delivery of the Agreements by the Seller and the documents to be executed and
delivered by the Seller in connection with the Agreements, are set forth on
Schedule 3.8 attached hereto, and have been, or will be obtained and satisfied
prior to the Closing. The Seller 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 the Agreements by the Seller.
Section 3.9 Trade Secrets. The Secret Recipes and Technical Information
constitute trade secrets as that term is defined under the laws of the State of
New Jersey.
Section 3.10 Adequacy of TJC System. The TJC System is sufficient to permit
the Buyer to produce TJC Products of a quality currently customarily produced
and sold in TJC Bakeries.
Section 3.11 Contracts and Commitments. All contractual commitments,
whether written or oral, with respect to the Intellectual Property or the TJC
System, not disclosed in Section 3.7, have been disclosed to the Buyer on
Schedule 3.11 attached hereto, including the agreements for which the Seller is
required to provide Estoppel Letters under Section 5.7 below, and a copy of each
such contract or commitment has been provided to the Buyer. The Seller has not
breached, or received any claim or threat, oral or written, that it has
materially breached, any of the terms and conditions of the Supplier Agreements,
or any other agreements, contracts, or commitments used in connection with the
TJC System other than the Franchise Agreements. Except as provided on Schedule
3.11, the Seller 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 Franchise Agreements.
The Seller is not aware of any breach of any of the terms and conditions of the
Supplier Agreements, Franchise Agreements, or any other agreements, contracts,
or commitments used in connection with the TJC System by any party to such
agreements, contracts, or commitments. Each
-10-
<PAGE>
agreement, contract, or commitment listed or identified, or required to be
listed or identified in Schedule 3.11, is in full force and effect, and is a
legal, binding, and enforceable obligation of the parties thereto, subject to no
set-off against the Seller.
Section 3.12 Compliance with Laws. The Seller 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 the
Seller, the TJC Products, or the TJC System.
Section 3.13 Disclosure. No representation or warranty by the Seller 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 the Agreements not misleading. The Seller has disclosed
to the Buyer all material facts pertaining to the transactions contemplated by
the Agreements.
ARTICLE 4
REPRESENTATIONS OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
Section 4.1 Organization and Authority. The Buyer 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 the Agreements and to
consummate the transactions contemplated thereby.
Section 4.2 Authorization. The execution and delivery of the Agreements by
the Buyer have been duly authorized by all requisite corporate action. Without
limiting the generality of the foregoing, the Board of Directors of the Buyer
has duly authorized the transactions contemplated by the Agreements. This
Agreement constitutes, and each of the other Agreements when executed will
constitute, the valid and legally binding obligations of the Buyer, enforceable
against the Buyer in accordance with their respective terms. The execution,
delivery, and performance of the Agreements, and the consummation by the Buyer
of the transactions contemplated thereby, will not, (a) violate the provisions
of any law, rule, or regulation applicable to the Buyer; (b) violate a provision
of the Buyer's Certificate of Incorporation or Bylaws; (c) 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 the Buyer is a party or by
which the Buyer is or may be bound.
-11-
<PAGE>
Section 4.3 Disclosure. No representation or warranty by the Buyer in this
Agreement or in any exhibit, list, statement, document, or information set forth
in or attached to any schedule delivered or prepared by Buyer 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 the Agreements not misleading.
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS OF THE BUYER
The obligations of the Buyer 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 the Buyer in its sole discretion):
Section 5.1 Truth of Representations and Warranties of the Seller:
Compliance with Covenants and Obligations. Each of the representations and
warranties of the Seller in the Agreements 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, except for any changes consented to in writing by the
Buyer. The Seller 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 the Seller prior to or at the Closing Date.
Nothing contained herein shall prevent the Seller prior to the Closing Date from
closing TJC Bakeries or terminating TJC Franchisees, provided that Schedule 3.7
is amended to reflect such action.
Section 5.2 Corporate Proceedings. All corporate and other proceedings
required to be taken on the part of the Seller to authorize or carry out the
Agreements and to sell, transfer, convey, assign, and deliver the Intellectual
Property shall have been taken.
Section 5.3 Governmental Approvals. All governmental 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 the Seller of the transactions contemplated
by the Agreements shall have been received, and shall be in form and substance
reasonably satisfactory to the Buyer.
Section 5.4 Third Party Consents. All third party consents necessary under
any contract, agreement, or law for the consummation by the Seller of the
transactions contemplated by the Agreements shall have been received, and shall
be in form and substance reasonably satisfactory to the Buyer.
Section 5.5 Bulk Sales Law Compliance. The Seller shall have complied with
the bulk sales law of the State of New Jersey or obtained an opinion of counsel
satisfactory to the Buyer
-12-
<PAGE>
that the bulk sales law of the State of New Jersey does not apply to the
transactions contemplated by the Agreements.
Section 5.6 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 the Agreements or which might affect any right of the Buyer with
respect to the Intellectual Property or under the Agreements.
Section 5.7 Supplier Agreement Termination and Estoppel Letters. The Heinz
Agreement between the Seller and Heinz shall have been irrevocably terminated,
in writing, on such terms and conditions as are satisfactory to the Buyer. In
addition, the Seller shall have received from each Wholesale Licensee,
co-packer, distributor (other than as disclosed in Exhibit F), broker, and other
agents or parties to agreements identified on Schedule 3.11, a letter ("Estoppel
Letters") acknowledging there is no written or oral contract, agreement or
understanding of any kind which is binding or enforceable between them or which
would affect the Buyer, the TJC System, or the Intellectual Property in any way.
Section 5.8 Closing Deliveries from Seller. The Buyer shall have received
from the Seller at or prior to the Closing each of the following documents:
(a) the License Agreement executed by the Parties substantially in the
form of Exhibit B;
(b) the Management Agreement executed by the Parties substantially in
the form of Exhibit C;
(c) the Assignment of Supplier Agreements executed by the Seller
substantially in the form of Exhibit F and any consents so required shall have
been obtained;
(d) the Bill of Sale and Assignment of the Intellectual Property
executed by the Seller substantially in the form of Exhibit I;
(e) a signed opinion of counsel for the Seller substantially in the
form of Exhibit J;
(f) a signed Certificate of the Secretary of the Seller attesting to
the charter documents of the Seller and the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement in the form of
Exhibit L;
-13-
<PAGE>
(g) a signed Certificate of the President of the Seller verifying that
all of the representations and warranties are true and correct and that the
covenant of the Seller with respect to the Closing Date Liabilities has been
satisfied substantially in the form of Exhibit M;
(h) a termination of the Heinz Agreement in a form satisfactory to the
Buyer, including the Heinz Assignment;
(i) a copy of the Estoppel Letters from the Suppliers in a form
satisfactory to the Buyer; and,
(j) a copy of a tax clearance certificate issued to the Seller from
the Tax Assessment Department of the State of New Jersey.
Section 5.9 Closing Deliveries From Seller's Officers. The Buyer shall have
received from the officers of the Seller at or prior to the Closing, each of the
following documents:
(a) the executed Consulting Agreement entered into by and between the
Buyer and Charles Loccsiano substantially in the form of Exhibit D; and
(b) the executed Consulting Agreement entered into by and between the
Buyer and Alan Gottlich substantially in the form of Exhibit E.
Section 5.10 Completion of Exhibits. The parties acknowledge and agree
that, as of the date of this Agreement, certain exhibits and schedules to this
Agreement, and certain exhibits to be attached to other exhibits, will not be
completed or attached hereto. The parties shall prepare, finalize and attach all
required exhibits and schedules at least thirty (30) days prior to the Closing
Date.
ARTICLE 6
CONDITIONS TO THE OBLIGATIONS OF THE SELLER
The obligations of the Seller 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 the Seller in its sole discretion):
Section 6.1 Truth of Representations and Warranties of the Buyer:
Compliance with Covenants and Obligations. The representations and warranties of
the Buyer 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. The
Buyer 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 the Buyer prior to or at the Closing Date.
-14-
<PAGE>
Section 6.2 Corporate Proceedings. All corporate and other proceedings
required to be taken on the part of the Buyer to authorize or carry out the
Agreements shall have been taken.
Section 6.3 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 the Agreements or which might affect
the rights of the Seller to transfer the Intellectual Property.
Section 6.4 Fairness Opinion. The Seller shall have received an opinion,
with respect to the fairness to the shareholders and creditors of the Seller of
the transactions contemplated by the Agreements.
Section 6.5 Closing Deliveries. The Seller shall have received from the
Buyer at or prior to the Closing each of the following documents:
(a) payment of the Closing Date Payment;
(b) evidence of payment of the Heinz Payment satisfactory to the
Seller;
(c) the Note executed by the Buyer;
(d) the Purchase Agreement executed by the Parties;
(e) the License Agreement executed by the Parties substantially in the
form of Exhibit B;
(f) the Management Agreement executed by the Parties substantially in
the form of Exhibit C;
(g) a signed opinion of counsel for the Buyer substantially in the
form of Exhibit K;
(h) a signed Certificate of the Assistant Secretary of the Buyer
attesting to the charter documents of the Buyer and the authenticity of the
resolutions authorizing the transactions contemplated by this Agreement
substantially in the form of Exhibit M; and
(i) a signed Certificate of the President of the Buyer verifying that
all of the representations and warranties are true and correct, substantially in
the form of Exhibit N.
-15-
<PAGE>
ARTICLE 7
INDEMNIFICATION
Section 7.1 Indemnification for Misrepresentations. The Buyer and the
Seller 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) reasonably
incurred by the Buyer or Seller in connection with any misrepresentation
contained in any statement, certificate, or schedule furnished by such Party
pursuant to the Agreements or in connection with the transactions contemplated
by the Agreements.
Section 7.2 Survival of Representations. All representations and warranties
made by the Parties herein or in any instrument or document furnished in
connection with the Agreements shall survive the Closing and any investigation
at any time made by, or on behalf of, the Parties to the Agreements. All such
representations and warranties shall expire on the third (3rd) anniversary of
the Closing Date.
Section 7.3 Seller's Indemnity for Intellectual Property. The Seller hereby
agrees to indemnify and hold the Buyer, its officers, directors, shareholders,
and affiliates (the "Buyer'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) reasonably
incurred by the Buyer's Indemnitees, in connection with any claims against the
validity, distinctiveness, and/or enforceability of the Intellectual Property.
With respect to claims against the use, validity, distinctiveness, and/or
enforceability of the Intellectual Property, as such Intellectual Property
existed in the United States and Canada as of Closing, the Seller agrees to pay
for the defense of any claims (including, without limitation, settlement costs
and any legal, accounting, or other expenses for investigating or defending any
actions or threatened actions), that the Buyer's use of the Intellectual
Property infringes upon the rights of others. The Buyer shall have the right to
control the defense of claims relating to or involving the Intellectual Property
(including selecting the attorney to represent the Buyer in such a dispute). The
Buyer agrees to consult with the Seller on the progress, strategy, and status of
any such suits and Buyer agrees it will not refuse to settle or settle such
action without the prior written consent of the Seller.
Section 7.4 Seller's Indemnity for Seller's Business Operations. The Seller
hereby agrees to indemnify and hold the Buyer'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)
reasonably incurred by the Buyer's Indemnitees in connection with any claims
relating to the Supplier Agreements, the liabilities or obligations of the
Seller, and/or any liabilities or claims arising out of any act or omission by
the Seller in relation to the business operations of the Seller, either prior to
or after the Closing. With respect to claims involving
-16-
<PAGE>
the business operations of the Seller, the Seller shall have the right to
control the defense of such claims, the Seller shall pay for the defense of any
such claims, and the Seller shall indemnify and hold the Buyer's Indemnitees
harmless.
Section 7.5 Buyer's Indemnity for Buyer's Business Operations. The Buyer
hereby agrees to indemnify and hold the Seller, its officers, directors,
shareholders, and affiliates (the "Seller'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)
reasonably incurred by the Seller's Indemnitees, in connection with any
liabilities or claims arising out of any act or omission by the Buyer in
relation to the business operations of the Buyer arising either prior to or
after Closing. The business operations of the Buyer, however, shall not include
acts or omissions of the Buyer under the Management Agreement which occur at the
direction of the Seller, and which involve or relate to the business operations
of the Seller, which is addressed in Section 7.6 below. With respect to claims
involving the business operations of the Buyer, the Buyer shall have the right
to control the defense of such claims, the Buyer shall pay for the defense of
such claims, and the Buyer shall indemnify and hold the Seller's Indemnitees
harmless.
Section 7.6 Franchisee General Release Forms. At least twenty-five (25)
days prior to the Closing, the Seller shall send a letter to each TJC Franchisee
offering to release each TJC Franchisee from all royalties owed the Seller and
all royalties that would be owed to the Seller (and paid to the Buyer under the
Management Agreement) for six (6) months following the Closing, in exchange for
a general release ("Franchisee General Release") from all liabilities for all
past actions or omissions up to and including the Closing and for all potential
claims or causes of action relating to the transactions contemplated by the
Closing. The form of the Franchisee General Release and the content of any
communication concerning it shall be satisfactory to both Parties, and shall not
be sent to any TJC Franchisee until the form and content is approved by the
Buyer. Both the Buyer and Seller shall receive a copy of each letter sent, all
communications received in response to the Franchise General Release form, and
of each Franchisee General Release which is signed and returned by a TJC
Franchisee.
Section 7.7 Claims by Franchisees Against Buyer and Seller for Actions
Prior to and After the Closing. With respect to claims against both the Seller
and the Buyer by TJC Franchisees for acts or omissions which allegedly started
prior to the Closing and continued after the Closing, the Seller agrees to
indemnify the Buyer and hold the Buyer, its officers, directors, shareholders,
and affiliates, 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 Buyer. The Seller and the
Buyer agree to each pay for fifty percent (50%) of the costs of the defense of
any such claims, (including, without limitation, settlement costs and any legal
accounting, or other expenses for investigating or defending any actions or
threatened actions),
-17-
<PAGE>
but the Buyer shall have the right to control the defense of such claims. The
Buyer agrees to consult with the Seller on the progress, strategy, and status of
any such suits and agrees it will not refuse to enter into settlement or enter
into settlement of any such action without the prior written consent of the
Seller.
Section 7.8 Buyer's Right of Offset. For any amount to which the Buyer
shall be entitled to indemnification pursuant to this Agreement prior to
settlement or judgment, the Buyer shall have the right to credit such amount
against the First Note and the Additional Payments provided for in Article I
equal to an amount of ten percent (10%) of the claim or Twenty Thousand Dollars
($20,000), whichever is less, per month, per claim, after the claim is settled
or a judgement is rendered then the Buyer's right of offset shall extend to the
full amount of the settlement or judgement, without limitation. The Buyer shall
also have the right to offset money it owes to Seller, pursuant to the terms of
the License Agreement or the Management Agreement, subject to the above monthly
and per claim limits until settlement of a claim or a judgement is rendered, as
provided above. All amounts that are offset as provided for in this Section 7.8
shall be deposited in an escrow account ("Escrow") maintained by Rudnick, Wolfe,
Epstien & Zeidman ("Escrow Agent"), in accordance with the terms and conditions
of the escrow agreement attached hereto as Exhibit P. The Escrow Agent shall
disburse the funds from the Escrow in accordance with the escrow agreement.
Section 7.9 Notice for Claims of Indemnification. Whenever any claim shall
arise for indemnification pursuant to this Article 7, 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. 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, if known, the amount 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.
Section 7.10 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 the Agreements, 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
-18-
<PAGE>
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.
ARTICLE 8
GENERAL PROVISIONS
Section 8.1 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 of the
Seller and Buyer;
(b) at any time before the Closing, by the Seller or Buyer, in the
event of a material breach by the non-terminating party if such non-terminating
party fails to cure such breach within thirty (30) business days following
notification thereof by the terminating party;
(c) upon notification to the non-terminating party by the terminating
party that the satisfaction of any condition to the terminating party's
obligations under this Agreement has become impossible to satisfy; or
(d) at any time after October 31, 1996, by the Seller or Buyer, upon
notification to the non-terminating party 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 8.2 Effect of Termination. If this Agreement is validly terminated
pursuant to Section 8.1, this Agreement will immediately become null and void,
and there will be no liability or obligation on the part of the Seller or Buyer
(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 8.8
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 8.1 (b) or (c), each Party will remain liable to the other
Party for any breach of this Agreement by such Party existing at the time of
such termination, and each Party may seek such remedies, including
-19-
<PAGE>
damages and attorney fees, against the other, with respect to any such breach as
is provided in this Agreement or as may be otherwise available at law or in
equity.
Section 8.3 Broker's and Financial Advisers. The Seller has engaged Arthur
Andersen, LLP as a financial adviser in connection with the transactions
contemplated by the Agreements. All amounts due to Arthur Andersen, LLP are
solely the responsibility of the Seller and the Seller will hold the Buyer
harmless from any such claim for payment by Arthur Andersen, LLP. The Seller
represents and warrants that it has not engaged any other financial adviser,
broker, or finder, nor has Seller incurred any other liability for brokerage
fees, commissions, or finder's fees in connection with the transactions
contemplated by the Agreements. The Buyer represents and warrants that it has
not engaged any broker or finder or incurred any liability for brokerage fees,
commissions, or finder's fees in connection with the transactions contemplated
by the Agreements. Each Party agrees to indemnify and hold the other harmless
against any claims or liabilities asserted against them by any person acting or
claiming to act as a financial adviser, broker or finder on behalf of such
Party.
Section 8.4 Notices. Any notices or other communications required or
permitted by the Agreements 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 the Seller: T. J. Cinnamons, Inc.
Attn: Alan S. Gottlich, Chief Financial Officer
135 Seaview Drive
Secaucus, New Jersey 07094
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 the Buyer: TJ Holding Company, Inc.
Attn: Jonathan P. May, Vice President
1000 Corporate Drive
Fort Lauderdale, Florida 33334
Fax: (954) 351-5619
-20-
<PAGE>
With copies to: Rudnick, Wolfe, Epstien & Zeidman
Attn: Mark A. Kirsch, Esq.
1401 New York Avenue, N.W.
Suite 900
Washington, D.C. 20005
Fax: (202) 879-5773
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.
Section 8.5 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 8.6 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 8.7 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.
Section 8.8 Expenses. Each of the Parties shall bear its own costs and
expenses (including legal fees and expenses) incurred in connection with the
Agreements.
Section 8.9 Severability. If any of the provisions of the Agreements 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
the Agreements shall be construed according to their fair meaning and not
strictly construed against either Party. If any court or other governmental
authority shall determine any provision of the Agreements unenforceable or void,
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 of the
provisions of the Agreements are held invalid or unenforceable by any court or
other governmental authority or in any arbitration proceeding, such a finding
shall not invalidate the remainder of the Agreements.
-21-
<PAGE>
Section 8.10 Specific Performance. The Seller and Buyer each acknowledge
that they would be irreparably damaged if any of the provisions of the
Agreements are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, the Parties agree that either Party shall
be entitled to an injunction to prevent a breach or anticipatory breach of the
provisions of the Agreements and to specifically enforce the Agreements and the
terms and provisions of the Agreements in any action instituted in any court of
the United States or any state thereof or any foreign country having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which it may be entitled, at law or in equity.
Section 8.11 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 the Buyer'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 8.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 8.13 No Third Party Beneficiaries. Except as expressly provided to
the contrary herein, 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 8.14 Entire Agreement. This Agreement and all schedules and
exhibits 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.
-22-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Parties as
of and on the date first above written.
(Corporate Seal) SELLER: T.J. CINNAMONS, INC., a Delaware
corporation
Attest: By: /s/ Charles N. Loccisano
Secretary Title: President & CEO
(Corporate Seal) BUYER: TJ HOLDING COMPANY, INC., a
Delaware corporation
Attest: By: /s/ David L. Dorff
Secretary Title: Senior Vice President & CFO
-23-
<PAGE>
APPENDIX B
Fairness Opinion of
Berwind Financial Group, L.P.
54
<PAGE>
BERWIND
FINANCIAL GROUP, L.P.
Investment Banking
Merchant Banking
July 25, 1996
Board of Directors
T.J. Cinnamons, Inc.
135 Seaview Drive
Secaucus, NJ 07094-3618
Dear Board Members:
You have requested the opinion of Berwind Financial Group, L.P. as to the
fairness, from a financial point of view, as of the date hereof, to the
shareholders of T.J. Cinnamons, Inc. ("Cinnamons" or the "Company") of the
consideration to be received by the Company pursuant to the terms of the
Purchase Agreement dated as of June 3, 1996 between Cinnamons and TJ Holding
Company, Inc. ("Acquiror"), a wholly owned subsidiary of Arby's, Inc. d/b/a/
Triarc Restaurant Group, an indirect wholly owned subsidiary of Triarc
Companies, Inc. (the "Purchase Agreement"). We understand that pursuant to the
Purchase Agreement, the terms of which are more fully described in a proxy
statement to be furnished to the shareholders of the Company, the Company has
agreed to sell the name "T.J. Cinnamons" and other related tradenames,
trademarks, service marks, logos, signs and emblems, and distinctive recipes,
secret formulas and technical information of Cinnamons and will assign to
Acquiror various manufacturer and distributor agreements. Triarc Restaurant
Group will enter into a license agreement with Cinnamons, granting the Company
the rights to use the intellectual property in connection with the sale of T.J.
Cinnamons branded products through wholesale channels of distribution.
Additionally, the Company will enter into a management contract ("Management
Agreement") with Acquiror for purposes of fulfilling the Company's obligations
under its existing franchise agreements. The terms of the proposed transaction
between Cinnamons, Acquiror, and Triarc Restaurant Group (the "Proposed
Transaction") are set forth in the Purchase Agreement.
The Purchase Agreement provides for Cinnamons to receive an aggregate base
purchase price of $3,540,000; $1,790,000 of which will be paid in cash as
follows: (a) $25,000 paid at the execution of the Purchase Agreement, (b)
$1,165,000 paid at Closing, and (c) $600,000 paid at Closing directly to a
creditor to reduce existing indebtedness; and $1,750,000 of which will be paid
in promissory notes. The Purchase Agreement further provides for Cinnamons to
receive possible additional payments (the "Additional Payments") of up to a
maximum of $5,500,000 in the aggregate over time, conditioned upon system wide
gross sales of T.J. Cinnamons branded products in Triarc Restaurant Group's
restaurants, and royalty payments based on gross sales of new full concept
bakeries developed
3000 CENTRE SQUARE WEST, 1500 MARKET STREET, PHILADELPHIA, PENNSYLVANIA 19102
PHONE (215) 575-2395, FAX: (215) 564-5402
<PAGE>
Board of Directors
T.J. Cinnamons, Inc.
July 25, 1996
Page 2
by Acquiror in enclosed mall locations. However, the Acquiror is under no
obligation to pay any such Additional Payments unless they are earned, and is
under no obligation to pursue such sales.
Berwind Financial Group, L.P. ("Berwind"), as part of its investment
banking business, regularly is engaged in the valuation of assets, securities
and companies in connection with various types of asset and security
transactions, including mergers, acquisitions, private placements and valuations
for various other purposes, and in the determination of adequate consideration
in such transactions.
In arriving at our opinion, we have, among other things: (i) reviewed the
historical financial performance, current financial position and general
prospects of Cinnamons; (ii) reviewed current publicly available financial
information concerning Triarc Companies, Inc.; (iii) reviewed and analyzed the
stock market performance and trading activity of Cinnamons; (iv) studied and
analyzed the consolidated financial and operating data of Cinnamons; (v)
considered the terms and conditions of the Proposed Transaction between
Cinnamons and Acquiror; (vi) met and/or communicated with certain members of
Cinnamons' senior management to discuss the Company's operations, historical
financial statements and future prospects; and (vii) conducted such other
financial analyses, studies 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.
Such documentation and information examined and analyzed included: (i) Purchase
Agreement dated June 3, 1996 by and between Acquiror and Cinnamons, including
Management and License Agreements; (ii) Preliminary Proxy Statement dated June
24, 1996; (iii) other Cinnamons SEC filings, including 10-KSBs, 10-KSB/A-1s, and
10QSBs for the years ended December 31, 1994 and 1995 and the quarters ended
March, June and September 1994 through March 1996; (iv) internally-prepared
financial statements for the periods ended December 31, 1995, March 31, 1996,
April 30, 1996, and May 31, 1996; (v) internally-prepared projections for
Cinnamons based on various assumptions, including if (a) the Proposed
Transaction does not occur; (b) the Proposed Transaction occurs and Cinnamons
expands its wholesale activities; and (c) the Proposed Transaction occurs, but
there is no expansion of Cinnamons' wholesale activities; (vi) internally-
prepared unaudited pro forma financial statements for the three months ended
March 31, 1996, to reflect the Proposed Transaction; (vii) Cinnamons' accounts
receivable aging schedule at May 31, 1996 and accounts payable aging schedules
at December 31, 1995, January 31, 1996, March 31, 1996, April 30, 1996, and May
31, 1996; (viii) NASDAQ trading reports from Cinnamons' IPO through April 1996;
and (ix) Cinnamons Confidential Information Memorandum prepared by the Company
with the assistance of Arthur Andersen LLP, as well as draft status summary
sheets regarding potential strategic partners for Cinnamons.
<PAGE>
Board of Directors
T.J. Cinnamons, Inc.
July 25, 1996
Page 3
Our opinion is given in reliance on information and representations made or
given by Cinnamons, and its officers, directors, auditors, counsel and other
agents, and on filings, releases and other information issued by the Company
including financial statements, financial projections, and stock price data, as
well as certain information from recognized independent sources. We have not
independently verified the information concerning Cinnamons 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.
Especially relevant to our opinion is the independent auditor's report
dated February 23, 1996 which indicated the Company had suffered recurring
losses from operations, had a working capital deficiency, a net capital
deficiency and was not in compliance with the terms of a note payable to a
licensee that raised substantial doubt about the Company's ability to continue
as a going concern. The Company's Form 10-QSB filed on May 14, 1996 with the
Securities and Exchange Commission for the quarterly period ended March 31, 1996
indicated the Company was in need of immediate financing to continue its
operations and pursue its business plan and that without such financing the
Company may not be able to continue its existing business operations.
Additionally, the Company made protracted, but generally unsuccessful attempts
to pursue other prospective domestic strategic partners, which included merging
or selling all or a portion of the assets of the Company either through its own
efforts or its professional agent.
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 Cinnamons as to its most likely future
performance. In rendering our opinion, we have assumed that in the course of
obtaining the necessary regulatory approvals for the Proposed Transaction and in
preparation of the amendment to the proxy statement, no conditions will be
imposed that will have a material adverse effect on the contemplated benefits of
the Proposed Transaction to the shareholders of the Company.
Our opinion is necessarily based on economic, market, 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
developments may affect this opinion, we do not have any obligation to update,
revise, or reaffirm this opinion. We are expressing no opinion herein 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 Cinnamons
and does not constitute a recommendation to any shareholder as to how such
shareholder should vote on the Proposed Transaction.
<PAGE>
Board of Directors
T.J. Cinnamons, Inc.
July 25, 1996
Page 4
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 shareholders in connection with the
Proposed Transaction.
Based on the foregoing and such other factors as we deem relevant, 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 shareholders of the Company.
Sincerely
/s/ BERWIND FINANCIAL GROUP, L.P.
BERWIND FINANCIAL GROUP, L.P.
<PAGE>
T.J. CINNAMONS, INC.
135 Seaviw Drive
Secaucus, New Jersey 07094
This Proxy solicited by the Board of Directors
for Annual Meeting of Stockholders on August 27, 1996
The undersigned hereby constitutes and appoints Charles Loccisano and Alan
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 of T.J.
Cinnamons, Inc. (the "Company") to be held on August 27, 1996 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 T.J. Cinnamons, 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:
(1) Election of Directors
Nominees: CHARLES LOCCISANO, ALAN GOTTLICH, PHILIP FRIEDMAN, and DAN
FELDMAN (mark only one of the following lines)
|_| VOTE FOR all nominees listed above, except vote withhold
as to the following nominees (if any):
_______________________________________________
|_| VOTE WITHHELD for all nominees
The Board of Directors recommends a vote for all nominees.
(2) Proposal to approve the sale of certain assets of the Company,
comprised of all of the T.J. Cinnamons trademarks, trade names, logos,
recipes and secret formulas as more fully set forth in the Notice of
Meeting and Proxy Statement with respect to such Meeting.
For Against Abstain
|_| |_| |_|
The Board of Directors recommends a vote FOR this proposal.
(3) To transact such other business as may properly come before the
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 Proposal 2.
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
1995 Annual Report to Stockholders and the Notice of 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.
55
