SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-23026
PARAMARK ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3261564
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 Seaview Drive
Secaucus, New Jersey 07094
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number including area code: (201) 422-0910
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock
(Title of Class)
Class A Warrants
(Title of Class)
Class B Warrants
(Title of Class)
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Check whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this Form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB. Yes X No
The issuer's revenues for the fiscal year ended December 31, 1996 were
$1,489,900.
As of December 31, 1996, there were 3,068,833 shares of Common Stock,
1,453,000 Class A Warrants, and 557,750 Class B Warrants outstanding. Based on
the average high and low bid prices of the Common Stock on February 28, 1997,
the approximate aggregate market value of Common Stock held by non-affiliates
was $4,432,200 (1).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Definitive Proxy Statement, which
statement will be filed not later that 120 days after the end of the fiscal year
covered by this Report, are incorporated by reference in Part III hereof.
Certain exhibits are incorporated by reference to the Registrant's
Registration Statement on Form SB-2 and the amendments thereto, and the
Registrant's Annual Reports on Form 10-KSB for the fiscal years ended December
31, 1994 and December 31, 1995 as listed in response to Item 13(a)(2).
Transitional Small Business Disclosure Format (check one): Yes No X
(1) The aggregate dollar value of the voting stock set forth equals the
number of shares of the Company's Common Stock outstanding, reduced by
the amount of Common Stock held by officers, directors and shareholders
owning in excess of 10% of the Company's Common Stock, multiplied by
the average of the high and low bid prices for the Company's Common
Stock on February 28, 1997. The information provided shall in no way be
construed as an admission that any officer, director or 10% stockholder
in the Company may or may not be deemed an affiliate of the Company, or
that he/it is the beneficial owner of the shares reported as being held
by him/it, and any such inference is hereby disclaimed. The information
provided herein is included solely for recordkeeping purposes of the
Securities and Exchange Commission.
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PART I
ITEM 1. BUSINESS
General
For a discussion of certain factors which should be considered in
evaluating the Company and its business, see "Investment Considerations".
Paramark Enterprises, Inc., formerly T.J. Cinnamons, Inc. (the
"Company") was one of the first operators and franchisors of retail bakeries
specializing in gourmet cinnamon rolls and related products in the United
States. The Company owns and operates one wholesale production facility and one
retail bakery. The Company, a Delaware corporation formed in August 1993, is
successor by merger to Signature Acquisition Corp., a New Jersey corporation
formed in October 1991 and Signature Foods, Inc., a Missouri corporation formed
in December 1985.
In June 1992, control of the Company was acquired by current management
with the intention of implementing a focused business plan designed to further
develop and capitalize on what management believed to be brand equity beyond the
scope of its current points of distribution. The Company's business plan has
centered on leveraging the T.J. Cinnamons brand equity to expand distribution by
implementing three interrelated strategies: (1) expand the Company's franchised
bakery system, (2) explore opportunities to offer the Company's products in
non-traditional retailing environments, and (3) expand opportunities to offer
the Company's cinnamon roll and related products in supermarkets and other
grocery outlets.
With insufficient capital to fully implement the foregoing business
plan, in June 1995 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. As a result of this
engagement, in June, 1996 the Company executed a definitive agreement with
Triarc Restaurant Group (formerly known as Arby's, Inc.) 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 distribute T.J.
Cinnamons products through retail grocery outlets, operate one existing retail
bakery, and continuing to act as franchisor under the existing franchise
agreements subject to a management agreement.
The Triarc Restaurant Group Transaction. On August 29, 1996 the Company
sold certain of its operating assets, comprised of the "T.J. Cinnamons" and
other related trade names, trademarks, service marks, logos, signs, emblems,
distinctive recipes, secret formulas and technical information ( the
"Intellectual Property") , and assigned to TJ Holding Company, Inc. (a newly
formed wholly owned subsidiary of Triarc Restaurant Group) various manufacturer
and distributor agreements. Triarc Restaurant Group ("Triarc") operates and
franchises approximately 3,000 single and multi-branded restaurant concepts
under the names Arby's, ZuZu's, p.t. Noodles and Arby's Roast Town.
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Under terms of the transaction, Triarc entered 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, 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 Company also entered into a management agreement pursuant to which TJ
Holding Company, Inc. is acting as the Company's manager for the purposes of
fulfilling the Company's obligations under its existing franchise agreements.
The aggregate base purchase price of the Intellectual Property was
$3,540,000, with $1,790,000 paid at the closing, $1,650,000 paid in the form of
a 15 month promissory note, and $100,000 paid in the form of a 24 month
promissory note. In addition, the transaction provides for additional
conditional payments of up to $5.5 million. Such additional payments commence on
August 29, 1998 based on 2% of gross sales of T.J. Cinnamons branded products in
Triarc retail outlets exceeding $26.3 million annually for a period of 48
months, and 1% of gross sales for a period of 36 months thereafter.
Under the terms of the purchase agreement (the "Purchase Agreement"),
the Company agreed to the following covenants: (a) that it will not declare a
dividend on any class of stock prior to August 29, 1997, (b) that it will pay
all outstanding liabilities as of August 29, 1996 prior to November 29, 1997,
and (c) that it terminate its Trademark and Technology License Agreement with
Heinz Bakery Products. Pursuant to the terms of the purchase agreement, the
Company changed its name from T.J. Cinnamons, Inc. to Paramark Enterprises, Inc.
With the completion of the Triarc agreement, the Company is no longer
pursuing the retail bakery and non-traditional bakery development strategies,
and is now poised to focus its energies on the wholesale manufacturing and
distribution of the T.J. Cinnamons branded products. The structure of the
transaction allows the Company to benefit from Triarc's extensive operational
and financial resources. As Triarc develops the T.J. Cinnamons brand in planned
Arby's/T.J. Cinnamons co-branded restaurant units, the Company will benefit from
a further consumer brand awareness which will complement its wholesale
distribution strategy.
As of the date of this report, Triarc has developed thirteen
Arby's/T.J. Cinnamons test locations in various markets in the U.S. The sales of
T.J. Cinnamons products in these units are exceeding the Company's original
expectations. Triarc is currently completing the registrations of the franchise
offering materials and expects to roll-out the dual branded units to their
franchise system later this year.
Subsequent to the closing of the Triarc transaction, the Company and
Orange Bakery, Inc. ("Orange") jointly developed a pre-proofed frozen cinnamon
roll utilizing the T.J. Cinnamons formulations. The pre-proofed frozen cinnamon
rolls are fully prepared, proofed and blast frozen cinnamon rolls. These
products are stored and shipped frozen, thawed at the retail stores, and baked
fresh daily. The advantages of the pre-proofed cinnamon rolls are (1) ease of
baking, (2) limited production space needed in retail outlets, (3) consistency
of quality, (4) reduced waste, and (5) improved efficiency and labor savings.
The Company introduced
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Orange and the pre-proofed products to Triarc, and Orange was successful in
selling the pre-proofed products to Triarc where they are currently being used
in all test locations.
The Company entered into an agreement with Orange whereby Orange will
provide the Company a fee equal to six and one-half percent (6.5%) of net sales
by Orange to Triarc or any of its affiliates in consideration for marketing,
brokerage and research and development services. The Company has also entered
into a brokerage agreement with a food broker on the west coast who introduced
the Company to Orange, providing a finders fee equal to one half percent (0.5%)
of net sales by Orange to Triarc of any of its affiliates.
Wholesale Distribution. In June, 1992 the Company entered into an
exclusive 20 year manufacturing and licensing agreement with Heinz Bakery
Products ("Heinz"). Pursuant to this agreement, Heinz provided the Company with
$1,425,000 in advanced royalties, and began to market the Company's cinnamon
roll products initially as a "proof and bake" frozen dough and later as a "thaw
and serve" program. The Company did not achieve its expected results from its
relationship with Heinz, and on August 29, 1996, the Company entered into an
agreement with Heinz to terminate the manufacturing and licensing agreement and
satisfy the balance due under promissory note (approximately $795,000
representing the balance of unearned advanced royalties) based on the following
terms: (1) a payment of $600,000 on August 29, 1996, and (2) the assignment of
the $100,000 24 month promissory note receivable from Triarc.
In December 1995 the Company began supplying two varieties of its fresh
baked cinnamon roll products delivered daily to an estimated 250 Ralphs
Supermarkets on the West Coast as a test. The Company utilized a West Coast
co-packer to manufacture and distribute these fresh-baked T.J. Cinnamons
products. These sales began in December, 1995, and the monthly sales averaged
$50,000, validating the Company's plan to directly engage in the manufacturing,
marketing and sales of T.J. Cinnamons branded products to retail grocery
outlets. With the termination of the Heinz agreement and the success of the
Ralphs Supermarket test, in October, 1996 the Company terminated its
relationship with its West Coast co-packer, and began to directly engage in the
manufacturing and sales of an expanded product line marketed to supermarket and
membership club stores.
Manufacturing Facility. In October, 1996, the Company leased a 22,000
square foot baking production facility in Santa Ana, California. This facility
has been a health approved baking facility for the past eight years, and the
lease includes use of certain existing equipment. The term of the lease is 14
months, with a right to negotiate a new lease in the event the adjacent tenant
does not execute its option to lease the facility. In October 1996 the Company
formed Interbake Brands, Inc., a Delaware corporation, as a wholly owned
subsidiary to conduct all wholesale bakery operations. The Company invested
$270,000 in Interbake Brands, Inc. to fund various start-up costs including
working capital. The Company acquired mostly reconditioned equipment all of
which is removable in the event the Company is not able to structure a permanent
lease agreement, and is forced to relocate to a new facility.
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Sales and Marketing. To develop its wholesale sales, the Company will
initially focus its selling efforts in three geographic areas through alliances
with the following three key food brokerage groups: (a) Le Grand Marketing,
representing retail grocery stores California; (b) American Sales and Marketing,
representing membership club stores nationwide and retail grocery stores in the
mid-west, and (c) Douglas Sales, representing retail grocery stores in the New
York Tri-State area. The Company is targeting its product line to in-store
bakeries and in-store deli areas of supermarket chains, focusing on large
multi-unit accounts. The Company is supporting all initial sales with a
marketing budget for in-store sampling and demonstrations and store circular
promotions. The Company is currently developing various marketing materials
including a company brochure, product specification sheets and merchandising
materials, and will be presenting its products at the Retail Bakers Association
convention in Chicago in April, 1997 and the International Dairy, Deli and
Bakery Association convention in Orlando in June, 1997.
The Company is focusing its initial marketing efforts on the following
core products: (a) T.J. Cinnamons Gourmet Cinnamon Rolls and Gourmet Sticky
Rolls; (b) T.J. Cinnamons CinnaChips; and (c) Gourmet Rugalach. The cinnamon
rolls are currently merchandised in 4-roll 16 ounce packages of both original
and sticky varieties, and 16-roll and 24-roll packages of one ounce mini
cinnamon rolls. The Company has developed a mass production process to produce
the CinnaChip products which are similar to bagel chips made from cinnamon rolls
utilizing a double bake process. The Cinnachips are currently sold in plastic
clam shell tub containers ranging in size from 8 ounces to 20 ounces. The
Company has also developed its own signature line of gourmet rugalach. These
rugalach are made utilizing the Company's own recipe in the following flavor
varieties: chocolate chip, cinnamon apple, raspberry walnut and apricot pecan.
The Company plans to market these rugalach under a new brand name sold in clear
plastic containers ranging from 7 ounces to 22 ounces.
The cinnamon roll products are baked fresh and distributed daily
through independent distributors or the supermarket chains internal distribution
systems. The cinnamon roll products have a 5 to 7 day shelf life, the CinnaChips
have a 90 day shelf life, and the rugalach have a 45 day shelf life. All
cinnamon roll products currently sold in southern California are baked fresh and
distributed daily to the supermarkets and membership club stores through an
outside distributor or through the supermarket chains in-house distribution
system. The Company intends to freeze all cinnamon roll and rugalach products
for distribution outside of southern California. These products will be fully
baked and packaged, and will be shipped and distributed frozen to be thawed at
the supermarket and sold as a fresh product in the in-store bakery section of
the supermarkets. All CinnaChip products are distributed through dry
distribution due to their extended shelf life.
The Company is currently selling products to the following accounts:
Ralphs Supermarkets, Price/Costco, Hughs Supermarkets, and FEDCO. In December,
1996, the Company sold nine full truck loads (64,800 units) of its 20 ounce
Cinnachip products to 71 Price/Costco warehouses in California. In addition, the
Company sold approximately 45,000 packages of its cinnamon roll products to
Price/Costco and Ralphs supermarkets. Recently the
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Company began selling its 10 ounce Cinnachips to the Ralphs Supermarkets, Hughs
Family Markets and FEDCO chains representing approximately 325 locations.
The Santa Ana manufacturing facility has a capacity estimated to be
approximately $10 million. The Company intends to develop a manufacturing
facility in the New York area at a point when the Santa Ana facility is nearing
its capacity and east coast sales have been sufficiently developed to warrant
the investment.
Quality Control. The Company's products are produced in accordance with
the Company's recipes, quality standards and proprietary formulations. In order
to maintain the high quality of its bakery products, the Company maintains
specifications for its ingredients. The Company is not dependent on any one
supplier for its ingredients and only those ingredients that meet specified
criteria are selected. Ingredients are carefully inspected by the Company before
they enter its plant. Product consistency is ensured by inspection at critical
flow points by quality assurance employees, although all workers are responsible
for monitoring the quality of the product and may stop the production process,
if necessary. Product sampling occurs on the production floor to ensure that
products are consistent with the Company's standards.
Provisions and Supplies. The Company's dry mix products are produced by
Williams Foods, Inc. in accordance with the T.J. Cinnamons proprietary secret
formulas and quality standards. The proprietary cinnamon spice formulation is
produced by McCormick & Company, Inc., various other proprietary blends are
produced by Dawn Foods, Inc., and proprietary paper products are purchased from
a number of manufactures. Although the Company's relationship with its suppliers
is generally on an order-by-order basis, the Company believes alternate sources
of supply for all essential food and paper products are available, or on short
notice can be made available, at comparable prices. The Company negotiates
directly with its suppliers for all primary food and paper ingredients, and
beverage products sold at its bakery, to ensure adequate supply and to obtain
competitive prices.
Government Regulations. The Company is subject to various federal,
state, and local laws affecting its business. The Company's bakeries are subject
to regulation by various governmental agencies, including state and local
licensing, zoning, land use, construction and environmental regulations and
various health, sanitation, safety and fire standards. The Company is also
subject to the Fair Labor Standards Act and various state laws governing such
matters as minimum wages, overtime and working conditions.
The Company has not made nor does it anticipate making any material
capital expenditures in order to comply with environmental regulations. There
can be no assurance, however, that new environmental regulations may be adopted
which will require the Company to make material capital expenditures to comply
therewith.
Employees. The Company has 7 full-time employees, approximately 5 of
whom are employed in general or administrative functions principally at or from
the Company's executive
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offices in Secaucus, New Jersey; and 2 of whom are employed in its retail bakery
in Poughkeepsie, New York. The Company also has 10 part time employees employed
in its retail bakery. Interbake Brands, Inc. has 4 full-time salaried employees
employed in general or administrative functions, and also has approximately 50
full time hourly employees employed in the Santa Ana manufacturing facility.
There are no collective bargaining agreements, and the Company considers its
labor relations to be satisfactory.
Trademarks. The Company is licensed by Triarc to use the following
trademarks: "T.J. Cinnamons," "The Original Gourmet Cinnamon Roll,"
"Mini-Cinni," "Put A Little Spice In Your Life," "Cinnacone," "Cinnastruedel,"
"Cinnaloaf," "Home of the Original Gourmet Cinnamon Roll", "T.J. Cinnamon Bakery
Home of the Original Gourmet Cinnamon Roll," "CinnaChip," and the T.J. Cinnamons
name and logo together.
Competition. The retail bakery industry and the restaurant industry,
particularly the quick-service segment, is highly competitive with respect to
price, service, food quality (including taste, freshness, healthfulness and
nutritional value) and location. There are numerous well-established competitors
possessing substantially greater financial, marketing, personnel and other
resources than the Company. These competitors include national and regional
bakeries, supermarkets with in-store bakeries and quick-service restaurants
chains, many of which specialize in or offer bakery products. Many quick-service
restaurant chains are expanding their menu to include products competitive with
the Company's cinnamon rolls. The Company can also be expected to face
competition from a broad range of other restaurants and food service
establishments.
Many of the Company's competitors have achieved significant national,
regional and local brand name and product recognition and engage in extensive
advertising and promotional programs, both generally and in response to efforts
by additional competitors to enter new markets or introduce new products.
The retail bakery industry and the quick-service restaurant industry
are characterized by the frequent introduction of new products, accomplished by
substantial promotional campaigns. In recent years, numerous companies in these
industries have introduced products positioned to capitalize on growing consumer
preference for food products that are or are perceived to be healthy,
nutritious, low in calories and low in fat content. It can be expected that the
Company will be subject to increasing competition from companies whose products
or marketing strategies address these consumer preferences. Furthermore, the
Company is aware of a significant competitor that offers cinnamon rolls directly
comparable to the Company's.
A substantial portion of the Company's revenue is derived from sales of
products to grocery retail outlets. The wholesale food distribution business is
highly competitive. The principal competitive factor include price, service,
extent of product offered, strength of brand offered and store financing
support.
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There can be no assurance that consumers will regard the products sold
under the Company's name by its bakeries and franchisees and by in-store
bakeries as sufficiently distinguishable from competitive products, that
substantially equivalent products will not be introduced by the Company's other
competitors or that the Company will be able to compete successfully.
Investment Considerations
In addition to the other information in this report, the following information
should be considered carefully by investors in evaluating the Company and its
business.
(a) History of Operating Losses; Operating Cash Flow Deficit;
Lack of Qualification to do Business as a Foreign Corporation. The Company has
had net operating losses since 1988. For the fiscal year ended December 31,
1996, the Company's net income was $219,864 which included a gain from the sale
of assets in the amount of $1,286,197. For the fiscal year ended December 31,
1995, the Company's net loss was $1,066,000.
The Company has been and is currently experiencing an
operating cash flow deficit primarily because its current expenses exceed its
current revenues. At December 31, 1996 the Company had a working capital balance
of approximately $836,000. There can be no assurance that the Company will
achieve profitable operations.
(b) Dietary Trends In recent years, numerous companies in the
retail bakery industry have introduced products positioned to capitalize on
growing consumer preference for bakery products that are, or are perceived to
be, healthful, nutritious, and low in calories, cholesterol and fat content. The
Company's primary products are relatively high in calories, cholesterol and fat
content. A decline in the sale of cinnamon rolls and related products, due to
industry trends, changing consumer preferences because of health related or
other dietary concerns or for other reasons, could have an adverse effect on the
Company.
(c) Competition The retail bakery industry is highly
competitive with respect to price and food quality including taste, freshness,
healthfulness and nutritional value. There are numerous well-established
competitors possessing substantially greater financial, marketing, personnel and
other resources than the Company. These competitors include national and
regional bakeries, supermarket with in-store bakeries and quick-service
restaurant chains, many of which specialize in or offer bakery products.
(d) Certain Factors Affecting the Wholesale and Retail Food
Industries. The Company will be required to respond to various factors affecting
the wholesale and retail food industries, including changes in consumer
preferences, tastes and eating habits; demographic trends; traffic patterns;
increases in food and labor costs; and national, regional and local economic
conditions.
(e) Dependence Upon Key and Other Personnel. The success of
the
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Company will be largely dependent on the efforts of certain key personnel of the
Company including Charles Loccisano, its Chairman and Chief Executive Officer,
and Alan Gottlich its President and Chief Financial Officer. The loss of the
service of any such persons would have a material adverse effect on the Company.
The Company will also be dependent upon its ability to retain
existing and hire additional qualified personnel. The competition for qualified
personnel in the food industry is intense and, accordingly, there can be no
assurance that the Company will be able to retain or hire other necessary
personnel.
(f) Government Regulations. The Company also is subject to
various other federal, state and local laws affecting its business. Both of the
Company's retail and wholesale bakeries are subject to regulation by various
governmental agencies, including state and local licensing, zoning, land use,
construction and environmental regulations and various health, sanitation,
safety and fire standard. In addition, suspension of certain licenses or
approvals, or failure to comply with applicable regulations or otherwise, could
interrupt the operations of the affected bakery or otherwise adversely affect
the bakery or the Company. The Company is also subject to federal and state laws
establishing minimum wages and regulating overtime and working conditions. Since
a substantial portion of bakery personnel are paid or expected to be paid at
rates based on the federal minimum wage, increases in such minimum wage will
increase the Company's labor costs.
(g) Trademarks and Service Marks. The Company believes that
the trademarks and services marks pursuant to the Triarc license agreement have
significant value and are important to the marketing of its products. There can
be no assurance, however, that these marks do not or will not violate the
proprietary rights of others, that the marks would be upheld if challenged or
that the Company would not be prevented from using these marks, any of which
could have an adverse effect on the Company.
(h) Insurance and Potential Liability. The Company maintains
insurance, including insurance relating to personal injury, in amounts that the
Company currently considers adequate. Nevertheless, a partially or completely
uninsured or underinsured claim against the Company, if successful and or
sufficient magnitude, could have a material adverse effect on the Company.
(i) No Assurance of Public Market; Volatility of Market Price
of Common Stock and Warrants. There can be no assurance that a regular trading
market for the Company's Common Stock and Warrants will be sustained. In the
absence of a trading market, an investor may be unable to liquidate its
investment. The market price for the Company's Common Stock and Warrants may
also be significantly affected by such factors as the introduction of new
products by the Company or its competitors, status of compliance with franchises
regulation and various factors affecting the quick-service restaurant industry
generally. Additionally, in recent years, the stock market has experienced a
high level of price and volume volatility, and market prices for many companies,
particularly small and emerging
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growth companies, the securities of which trade in the over-the-counter market,
have experienced wide price fluctuations not necessarily related to the
operating performance of such companies. The market price and liquidity of the
Company's Common Stock and Warrants may also be significantly affected by the
general business condition of the Company.
(j) No Dividends. To date, the Company has not paid any
dividends on its Common Stock and does not intend to declare any cash dividends
in the foreseeable future. Furthermore, under the terms of the Triarc agreement,
the Company is precluded from issuing a dividend until August 29, 1997. The
Company intends to retain earnings, if any, to finance the Company's growth.
(k) Control by Directors and Executive Officers. The
directors, executive officers and their affiliates own approximately 45% of the
Company's outstanding Common Stock and, therefore, are in a position to elect
all of the Company's directors who, in turn, elect all of the Company's
executive officers. Accordingly, such stockholders are able to, directly or
indirectly, control all of the affairs of the Company.
(l) Shares Eligible for Future Sale; Potential Costs to the
Company, Adverse Effects on Future Financing and Stock Price. The Shares of
Common Stock in the Company held by the Company's officers, directors, and
certain other stockholders, aggregating 1,846,084 shares of Common Stock, are
"restricted securities", as that term is defined under Rule 144 promulgated
under the Act. 938,084 of these shares of Common Stock became eligible for sale
under Rule 144 in May 1996, 158,000 of these shares of Common Stock will become
eligable for sale under Rule 144 commencing in 1998, with the balance of 750,000
shares of Common Stock subject to an escrow agreement which was established in
connection with the Initial Public Offering ("IPO") in May, 1994. These shares
will be released on the seventh anniversary following the IPO or earlier if the
Company's net income equals or exceeds specified amounts. No prediction can be
made as to the effect, if any, that sales of such shares of Common Stock or the
availability of such shares for sales will have on the market prices prevailing
from time to time. Nevertheless, the possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital through the sale of its equity securities.
(m) Broker-Dealer Sales of Securities of the Company. The
Common Stock and Warrants of the Company are presently traded on The Nasdaq
Small Cap Market, which requires that, in order to continue to be included in
The Nasdaq SmallCap Market, a company must maintain $2 million in total assets,
a $200,000 market value of the public float and $1 million in total capital and
surplus. In addition, continued inclusion requires two market-mak- ers and a
minimum bid price of $1.00 per share; provided, however, that if a company falls
below such minimum bid price, it will remain eligible for continued inclusion if
the market value of the public float is at least $1 million and the company has
$2 million in capital and surplus. The Company currently meets these criteria
but the failure to meet these maintenance criteria in the future may result in
the discontinuance of the inclusion of the Securities in The
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Nasdaq SmallCap Market. In such event, trading, if any, in the Common Stock and
Warrants may then continue to be conducted in the non-Nasdaq over-the-counter
market in what is commonly referred to as the "bulletin board". As a result, the
Purchaser may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Common Stocks.
In the event that securities issued by the Company cease to be
listed on The Nasdaq SmallCap Market sales of such securities will be within the
scope of a Securities and Exchange Commission rule that imposes additional sales
practice requirements on broker-dealers who sell such securities to person other
that their established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouses). For transactions covered by that rule, the
broker-dealer must make a special suitability determination for the purchases
and receive the purchaser's written agreement to the transaction prior to the
sale. Consequently, the rule may affect the ability of broker-dealer to sell the
Company's securities and also may affect the ability of the Purchase to sell its
securities.
(n) Effect of Stock Options and Possible Impact on Future
Financing; Possible Dilution. The holders of options and/or warrants to purchase
Common Stock that may be outstanding or issued in the future have the
opportunity to profit from any rise in the value of the Common Stock, without
assuming the risk of ownership. The Company may find it more difficult to raise
additional equity capital if it should be needed for the business of the Company
while options and/or warrants are outstanding. At any time when the holders
thereof may be expected to exercise them, the Company probably would be able to
obtain additional equity capital on terms more favorable than those provided by
the options and/or warrants. To the extent that any of the options and/or
warrants granted by the Company are exercised, the ownership interest of the
Company's stockholders may be diluted. Additionally, if any of the Company's
outstanding warrants are exercised the Company may not be able to fulfill its
obligations thereunder to the extent that at such time the Company's
registration statement with the Securities and Exchange Commission may not be
deemed current under the Act.
(o) Potential Adverse Effect of Redemption of Warrants. The
Company's Warrants are redeemable in whole or in part at the Company's option at
a price of $.25 per Warrant upon not less than 30 days notice, provided that the
closing bid price per share of Common Stock equals or exceeds 130% of the
exercise price per share of the Warrants, for 10 consecutive trading days
immediately preceding the date of such notice. Holders rights to exercise the
Warrants will terminate on the redemption date thereof, depriving holders of any
value except the right to receive the redemption price of the Warrants. Notice
of the redemption of the Warrants could force the holders to exercise the
Warrants and to pay the exercise price at a time when it may be disadvantageous
to do so, to sell the Warrants at the current market price when they might
otherwise wish to hold the Warrants, or to accept the redemption price, which is
likely to be substantially less than the market value of the Warrants at the
time of the redemption.
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(p) Possible Adverse Effect of Penny Stock Rules on Liquidity
for the Company's Securities. The Securities and Exchange Commission (the
Commission) regulations define a "penny stock" to be an equity security not
registered on a national securities exchange or for which quotation information
is disseminated on the Nasdaq SmallCap Market that has a market price (as
therein defined) of less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exemptions. For any transaction involving a
penny stock, unless exempt, the rules require delivery, prior to a transaction
in a penny stock, of a disclosure schedule prepared by the Commission relating
to the penny stock market. Disclosure is also required to be made about
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply
to the Company's securities if such securities are listed on the Nasdaq SmallCap
Market, and have certain price and volume information provided on a current and
continuing basis or meet certain minimum net tangible assets or average return
criteria. In any event, even if the Company's securities were exempt from such
restrictions, it would remain subject to Section 15(b)(6) of the Securities
Exchange Act of 1934, which gives the Commission the authority to prohibit any
person that is engaged in unlawful conduct while participating in a distribution
of a penny stock from associating with a broker-dealer or participating in a
distribution of a penny stock, if the Commission finds that such a restriction
would be in the public interest. If the Company's securities were subject to the
rules on penny stocks, the market liquidity for the Company's securities could
be severely adversely effected.
(q) Authorization of Preferred Stock and Other Anti-Takeover
Devices. The Board of Directors is authorized to issue shares of preferred stock
and to fix the relative voting, dividend, liquidation, conversion, redemption
and other rights, preferences and limitations thereof without any further vote
or action of the stockholders. The issuance of preferred stock could adversely
affect the voting power or other rights of the holders of Common Stock. In the
event of the issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change of
control of the Company. Although the Company has no present intention to issue
any preferred stock, there can be no assurance that the Company will not do so
in the future. The Company has agreed not to issue preferred stock within five
years of the effective date being May 12, 1994, of its initial Registration
Statement without the consent of Paragon Capital Corporation. The Company's
restated certificate of incorporation and by-laws contain other provisions that
may discourage, delay or prevent a change of control on the Company that a
stockholder might consider to be in such stockholder's best interest, including
those attempts that might result in a premium over the market price for the
Company's securities.
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ITEM 2. PROPERTIES
The Company leases its executive offices at 135 Seaview Drive,
Secaucus, New Jersey. The offices occupy approximately 2,900 square feet. The
lease with respect to these premises commenced on December 31, 1994 and provides
for a three year term and base rent of approximately $29,000 per year, payable
monthly, and requires the Company to pay its proportionate share of real estate
taxes, common area maintenance fees and insurance premiums. The Company
currently sub leases 50% of its leased premises to an entity related to Charles
Loccisano, the Company's Chairman and Chief Executive Officer. This sub lease is
based on an oral month to month agreement, with 50% of the rental and related
charges being paid by the sub tenant.
The Company leases its retail bakery located in the Poughkeepsie
Galleria Mall, in Poughkeepsie, New York, with the lease term expiring June 7,
2000. The lease has a minimum base occupancy charge of $35,000 per annum,
charges for a proportionate share of building operating expenses and real estate
taxes and contingent percentage rent based on sales above a stipulated sales
level. The bakery is in good operating condition.
The Company leases its wholesale bakery production facility located in
Santa Ana, with the lease term expiring January 31, 1998. The lease has a
minimum base occupancy charge of $6,500 per month, plus charges for a
proportionate share of building operating expenses and real estate taxes. The
terms of the lease provide for the lessees right to terminate with a sixty (60)
day notice. An adjacent tenant has an option to lease the space which must be
exercised on or before August 31, 1997. In the event this option is not
exercised, the Company will have a first right to negotiate a permanent lease.
The bakery is in good operating condition.
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ITEM 3. LEGAL PROCEEDINGS
In 1994, the Company terminated the franchise of 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 the 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") in Kansas City, Missouri
demanding (a) recovery of approximately $10,000 in monies delivered by Sams
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 at that time,
chose not to retain Missouri counsel to respond to Mr. Hall's 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 judgment on May 31, 1996 on
behalf of Mr. Hall 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. Hall's claims for damages for termination
of his franchise and loss of territorial rights, aggregating $70,000 are without
foundation, and the Company's written responses to the Court set forth
meritorious defenses to same. Therefore, the Company retained local Missouri
counsel to file an appeal to set aside the default judgment based on the
meritorious defenses that the Court failed to consider. The Company's Missouri
counsel has accordingly filed an appellate brief with the United States Court of
Appeals for the Eighth Circuit (the "Appellate Court") and the Company is
awaiting the decision of said Appellate Court.
In addition, the Company from time to time has been involved in routine
litigation, including litigation with various vendors and creditors. None of
these litigations in which the Company has been involved is material to its
financial condition or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to vote of its stockholders,
through the solicitation of proxies or otherwise during the fourth quarter of
fiscal 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
The Company's Common Stock, Class A Warrants and Class B Warrants are
traded on the Nasdaq Small Cap Market ("NASDAQ") under the symbols "TJCI",
"TJCIW", and "TJCIZ".
The following table sets forth, for the periods indicated, the range of
high and low bid prices of the Common Stock as reported by NASDAQ for the fiscal
years ended December 31, 1995 and December 31, 1996. These prices reflect
interdealer prices and do not include retail mark-ups, mark-downs or
commissions, and do not necessarily represent actual transactions.
High Low
Fiscal Year ended December 31, 1995
March 31, 1995........................ 2 1/16 1 1/32
June 30, 1995 ........................ 2 3/8 1
September 30, 1995 ................... 2 7/8 2
December 31, 1995 .................... 3 1/4 2 7/16
Fiscal Year ended December 31, 1996
March 31, 1996........................ 4 3/8 1 3/4
June 30, 1996 ........................ 2 15/16 1 11/16
September 30, 1996 ................... 2 3/4 2 3/16
December 31, 1996 .................... 2 7/16 1 5/16
The following table sets forth, for the periods indicated, the range of
high and low bid prices of the Class A Warrants as reported by NASDAQ for the
fiscal years ended December 31, 1995 and December 31, 1996. These prices reflect
interdealer prices and do not include retail mark-ups, mark-downs or
commissions, and do not necessarily represent actual transactions.
High Low
Fiscal Year ended December 31, 1995
March 31, 1995........................ 15/16 7/16
June 30, 1995 ........................ 3/4 3/8
September 30, 1995 ................... 7/8 1/2
December 31, 1995 .................... 13/16 1/2
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Fiscal Year ended December 31, 1996
March 31, 1996........................ 23/32 13/32
June 30, 1996 ........................ 15/32 9/32
September 30, 1996 ................... 17/32 1/4
December 31, 1996 .................... 5/8 3/16
The following table sets forth, for the periods indicated, the range of
high and low bid prices of the Class B Warrants as reported by NASDAQ for the
fiscal years ended December 31, 1995 and December 31, 1996. These prices reflect
interdealer prices and do not include retail mark-ups, mark-downs or
commissions, and do not necessarily represent actual transactions.
High Low
Fiscal Year ended December 31, 1995
March 31, 1995........................ 11/16 9/32
June 30, 1995 ........................ 3/4 9/32
September 30, 1995 ................... 5/8 3/8
December 31, 1995 .................... 5/8 11/32
Fiscal Year ended December 31, 1996
March 31, 1996........................ 1/2 5/32
June 30, 1996 ........................ 9/32 5/32
September 30, 1996 ................... 7/32 5/32
December 31, 1996 .................... 7/32 5/32
The approximate number of stockholders of the Common Stock on record at
December 31, 1996 was 700.
The Company has not paid any dividends. The Company does not expect to
pay cash dividends on its Common Stock in the foreseeable future as any earnings
are expected to be retained to finance the Company's operations. Furthermore,
under the terms of the Triarc Purchase Agreement, the Company is precluded from
issuing a dividend until August 29, 1997. Declaration of dividends in the future
will remain within the discretion of the Company's Board of Directors.
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Sales of Unregistered Securities
The following sales of unregistered securities occurred during the
Company's fourth quarter of its fiscal year ended December 31, 1996:
1. In November 1996, the Company authorized the issuance of 5,000 shares of the
Company's Common Stock to Philip Friedman, a member of the Company's Board of
Directors. These shares were issued without an underwriter or placement agent in
consideration for consulting services rendered during the period June 1995
through September 1996. The exemption from registration for the grant was
claimed pursuant to Section 4(2) of the Securities Act of 1933, as amended, in
reliance upon the fact that such sale did not involve a public offering.
2. In November 1996, the Company authorized the issuance of 12,000 shares of the
Company's Common Stock to Harry Goldberg. These shares were issued without an
underwriter or placement agent in consideration for consulting services rendered
during the period June 1994 through September 1996. The exemption from
registration for the grant was claimed pursuant to Section 4(2) of the
Securities Act of 1933, as amended, in reliance upon the fact that such sale did
not involve a public offering.
3. In November 1996, the Company authorized the issuance of 1,000 shares of the
Company's Common Stock to Alan Weingarden. These shares were issued without an
underwriter or placement agent in consideration for consulting services rendered
during the period January 1996 through September 1996. The exemption from
registration for the grant was claimed pursuant to Section 4(2) of the
Securities Act of 1933, as amended, in reliance upon the fact that such sale did
not involve a public offering.
4. In November 1996, the Company authorized the issuance of 62,500 shares of the
Company's Common Stock to the Charles N. Loccisano Irrevocable Trust f/b/o
Michael Loccisano. These shares were issued without an underwriter or placement
agent in consideration for shares previously conveyed by the Trust, on behalf of
the Company, to Dan Feldman, a member of the Company's Board of Directors, in
exchange for his agreement to serve as a Director. The exemption from
registration for the grant was claimed pursuant to Section 4(2) of the
Securities Act of 1933, as amended, in reliance upon the fact that such sale did
not involve a public offering.
5. In November 1996, the Company authorized the issuance of 62,500 shares of the
Company's Common Stock to the Charles N. Loccisano Irrevocable Trust f/b/o
Marissa Loccisano. These shares were issued without an underwriter or placement
agent in consideration for shares previously conveyed by the Trust, on behalf of
the Company, to Dan Feldman, a member of the Company's Board of Directors, in
exchange for his agreement to serve as a Director. The exemption from
registration for the grant was claimed pursuant to Section 4(2) of the
Securities Act of 1933, as amended, in reliance upon the fact that such sale did
not involve a public offering.
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ITEM 6. 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 fiscal year ended December 31, 1996 compared
to the fiscal year ended December 31, 1995).
The following tables set forth the components of the Company's revenue:
Fiscal Year Ended December 31,
1995 1996
Company-owned bakery sales $381,700 $256,000
Wholesale sales 52,400 861,900
Royalties and licensing fees 560,000 311,100
Initial franchise fees 25,500 17,500
Product rebates 0 43,300
Other Income 19,500 0
---------- --------
Total Revenue $1,039,100 $1,489,800
Company-owned bakery sales decreased by 33% to $256,000 for the fiscal year
ended December 31, 1996 from $381,700 for the fiscal year ended December 31,
1995. This sales decrease resulted from the closing of two Company-owned
bakeries in February, 1995 and May, 1995 respectively, and a decline in mall
traffic due to a number of vacancies in the Poughkeepsie Galleria mall.
Wholesale sales were $861,900 for the fiscal year ended December 31, 1996
as compared to $52,400 for the fiscal year ended December 31, 1995. In the
fourth quarter of 1995, the Company began supplying fresh baked 4-pack cinnamon
rolls delivered daily to approximately 250 Ralphs Supermarkets on the West
Coast. From inception through November 30, 1996, the Company utilized a West
Coast co-packer to manufacture and distribute these fresh-baked T.J. Cinnamons
products. In November, 1996, the Company began production in its own bakery
manufacturing facility in Santa Ana, California. For the months of November and
December, 1996, the Company produced and shipped sales of $381,700 out of the
Santa Ana facility. These sales included nine full truck loads representing
$256,400 of the 20 ounce CinnaChips sold to approximately 71 Price/Costco stores
in California, and $85,000 of the 24-pack MiniCinni Rolls sold to approximately
31 Price/Costco stores in Southern California. In addition, on December 1, 1996
the Company terminated its relationship with the West coast co-packer, and began
daily production and shipping of the 4-pack cinnamon rolls for distribution to
approximately 250 Ralphs supermarkets on the West Coast.
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To develop its wholesale sales, the Company is focusing its selling efforts
in three geographic areas through alliances with the following three key food
brokerage groups: (a) Le Grand Marketing, representing retail grocery stores
California; (b) American Sales and Marketing, representing the membership club
stores nationwide and retail grocery stores in the mid-west, and (c) Douglas
Sales, representing retail grocery stores in the New York Tri-State area. The
Company is currently selling products to the following accounts: Ralphs
Supermarkets, Price/Costco, Hughs Supermarkets, and FEDCO. Recently the Company
began selling its 10 ounce Cinnachips to the Ralphs Supermarkets, Hughs Family
Markets and FEDCO chains representing approximately 325 locations.
Royalty and licensing fee revenue decreased by 44% to $311,100 for the
fiscal year ended December 31, 1996 from $560,000 for the fiscal year ended
December 31, 1995. This decrease in franchise royalties resulted primarily from
the closings of franchised bakeries and the terms of the Triarc Purchase
Agreement requiring the Company to provide franchisees an offer to forgive all
royalties for the period August, 1996 through January, 1997 in exchange for a
general release against the Company. Franchisees representing approximately 80%
of the franchised bakery units entered into these general release agreements.
There were 42 franchised bakeries operating on December 31, 1996 as compared
with 49 franchised bakeries operating on December 31, 1995. The decreases in
license fees are primarily from a decreases in the sales of "proof and bake"
cinnamon rolls utilized in various locations under licensing agreements. In
August, 1996, the Company terminated its trademark and technology license
agreement with Heinz Bakery Products which was a condition for the closing of
the Triarc Restaurant Group transaction.
Initial franchise fee revenue decreased by 31% to $17,500 for the fiscal
year ended December 31, 1996 from $25,500 for the fiscal year ended December 31,
1995. This decrease reflects the Company discontinuing its marketing and sales
of new franchise agreements in early 1996 primarily as a result of the Triarc
transaction.
Product rebates of $43,300 for the fiscal year ended December 31, 1996 are
from various supplier rebates and commitment fees.
Other revenue of $19,500 for the fiscal year ending December 31, 1995 are
from reductions in account payable and accrued liabilities resulting from
discounted settlements and write-offs of accounts payable based on their being
no recent contact with the Company by the creditors being owed such amounts
Cost of goods sold increased to $925,228 for the fiscal year ended December
31, 1996 from $301,552 for the fiscal year ended December 31, 1995. This
increase is primarily the result of the cost of the wholesale sales to
supermarkets and membership club chains.
The cost of goods sold of the Company-owned retail bakery sales expressed
as a percentage of bakery sales were 63% during the fiscal year ended December
31, 1996 as compared to 65% for the same period last year. These decreases
resulted primarily from
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management's focused efforts to manage costs at the Company-owned retail bakery
level.
Selling, general and administrative expenses decreased by 2% to $1,696,830
for the fiscal year ended December 31, 1996 from $1,738,401 for the fiscal year
ended December 31, 1995. These decreases are primarily the result of decreases
in corporate payroll and related costs, and corporate office
costs.
Net interest expense increased to $96,841 for the fiscal year ended
December 31, 1996 from $65,425 for the fiscal year ended December 31, 1995. This
increase in net interest expense resulted from an initial loan fees and interest
incurred on the two separate loans provided by Gelt Financial Corporation, and
loans from affiliates of two of the principal stockholders of the Company.
Other income - gain on the sale of assets of $1,286,197 for the fiscal year
ended December 31, 1996 results from the sale of certain assets to Triarc
pursuant to the terms of a purchase agreement.
Extraordinary item - forgiveness of debt in the amount of $162,729 for the
fiscal year ending December 31, 1996 is from reductions in account payable and
accrued liabilities resulting from discounted settlements and write-offs of
accounts payable based on their being no recent contact with the Company by the
creditors being owed such amounts. Included in this amount is a forgiveness of
indebtedness of $93,409 pursuant to the terms of the Heinz Bakery Products
termination agreement dated August 29, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had a working capital surplus of
approximately $838,700.
The Company owed approximately $833,319 to various trade and other
creditors at December 31, 1996, of which approximately $214,500 was more than 90
days past due. The Company expects to negotiate discounts and payment plans with
a majority of the past due accounts. The Company is currently experiencing cash
flow deficits from its operating activities primarily because its current
expenses exceed its current revenues. These deficits are currently being funded
by the Triarc notes receivable payments. The Company will continue to incur cash
flow deficits from its operating activities until such time that the Company is
able to attain sales levels sufficient to support its operations.
The Company used net cash in operating activities in the amount of
$1,027,064 for the fiscal year ended December 31, 1996 as compared to $579,122
for the fiscal year ended December 31, 1995. The Company generated net cash from
investing activities in the amount of $1,595,639 for the fiscal year ended
December 31, 1996 resulting from net proceeds from the sale of assets and cash
received from notes receivable, as compared to net cash used in investing
activities in the amount of $24,724 for the fiscal year ended December 31, 1995.
The Company used net cash in financing activities in the amount of
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$570,585 for the fiscal year ended December 31, 1996 resulting from repayments
of notes payable, as compared net cash used in financing activities in the
amount of $69,523 for the fiscal year ended December 31, 1995.
In July 1996, the Company consummated a short term bridge loan with Gelt
Financial Corporation in the amount of $125,000. The terms of the Gelt loan
provided for interest at a rate of prime plus five percent, and a placement fee
of $15,625 together with 15,000 shares of the Company's common stock.
This issuance of common stock resulted in a $26,100 finance charge representing
the market value of the Company's common stock at date of issue. As additional
security for the loan, 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 President and Chief Financial
Officer of the Company were pledged to Gelt. The Gelt loan was fully repaid from
the proceeds of the Triarc Restaurant Group transaction.
In August 1996, the Company closed a purchase agreement with Triarc
Restaurant Group d/b/a/ Arby's, Inc. ("Triarc") through which (a) Triarc
purchased the trademarks, service marks, recipes and secret formulas of the
Company, (b) Triarc licensed back to the Company the rights to operate existing
franchised bakery locations and to distribute T.J. Cinnamons products through
retail grocery outlets, and (c) the Company entered into a management agreement
with Triarc to manage the franchise system.
The Company received payments of $25,000 at the execution of the agreement,
$1,765,000 at the closing, a promissory note in the amount of $1,650,000 which
is being paid in fifteen (15) equal monthly installments which began on October
1, 1996, and a promissory note in the amount of $100,000 which is being paid in
twenty four (24) equal monthly installments which began on October 1, 1996 with
a $50,000 balloon payment on September 1, 1998. In addition, the purchase
agreement provides for contingent payments of up to a maximum of an additional
$5,500,000 over time dependent upon the amount of T.J. Cinnamons product sales
by Triarc exceeding a minimum base system wide sales of $26.3 million.
Simultaneous with the closing of the Triarc transaction, the Company
entered into an agreement with Heinz Bakery Products to terminate the 1992
manufacturing and license agreement. Under the terms of the agreement, the
Company paid Heinz Bakery Products $600,000 at closing, and assigned to Heinz
the Triarc promissory note in the amount of $100,000 payable with interest in
equal installments over a twenty four (24) month period with a $50,000 balloon
payment.
In December, 1996 the Company consummated a short term loan with Gelt in
the amount of $100,000, and in March, 1997 the Company increased the loan with
Gelt by an additional $175,000. The terms of these Gelt loans provided for
interest at a rate of prime plus three and one half percent, and a placement fee
of 5.5%. These loan have been
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secured by a security interest in the 15 month note receivable from Triarc in
the original principal amount of $1,650,000, and will be fully amortized and
paid in full by December 1, 1997. The proceeds of these loans were used to pay
outstanding indebtedness and fund working capital.
Following the closing of the Triarc transaction, the Company's operations
have been concentrated exclusively on its wholesale development activities.
Accordingly, the Company is entirely dependent on its wholesale operations as
its primary source of revenues in addition to the additional revenues generated
from the Triarc transaction. The Company has applied the proceeds from the
Triarc transaction towards a reduction of its existing indebtedness, to develop
its wholesale bakery production facility, and to provide working capital for its
operations. Management believes that funds generated from the Triarc transaction
will provide sufficient working capital for its planned product manufacturing
and distribution expansion plans at least through December, 1997.
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ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 13(a)(1) in Part IV.
25
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ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On January 31, 1997 the Company dismissed Goldstein, Golub, Kessler & Co.
P.C. ("GGK") as its independent auditors. Such dismissal was approved by the
Company's Board of Directors. GGK's report upon the Company's financial
statements for its fiscal years ended December 31, 1995 and 1994 did not contain
an adverse opinion or a disclaimer of opinion, nor was such report qualified or
modified as to audit scope or accounting principles. The report was prepared
assuming that the Company will continue as a going concern. During the Company's
fiscal years ended December 31, 1995 and 1994 to the date of GGK's dismissal
(the "Interim Period"): (i) there were no disagreements (of the nature
contemplated by Item 304 (a) (1) (iv) of Regulation S-K ("Disagreements"))
between the Company and GGK; and (ii) there were no reportable events of the
nature contemplated by Item 304(a) (2) (i) - (ii) of Regulation S-K.
On January 31, 1997 the Company engaged Arthur Andersen LLP ("AA") as its
independent public accountants for the Company's fiscal year ended December 31,
1996. During the Company's two fiscal years ended December 31, 1995 and the
Interim Period, the Company did not consult with AA with respect to any of the
matters contemplated by Item 304 (a) (2) (i) - (ii) of Regulation S-K.
On February 14, 1997 AA resigned its position as the Registrant's
independent auditors. Such resignation was necessitated because AA concluded
that it had a conflict of interest in reporting on the Registrant's financial
statements for the fiscal year ended December 31, 1996 due to the fact that
during 1996 AA had rendered financial advisory services to the Registrant for
which it received a fee. During the Company's engagement of AA through the date
of AA's withdrawal (the "Second Interim Period"): (i) there were no
disagreements (of the nature contemplated by Item 304 (a) (1) (iv) of Regulation
S-K ("Disagreements")) between the Company and AA; and (ii) there were no
reportable events of the nature contemplated by Item 304(a) (2) (i) - (ii) of
Regulation S-K.
On February 21, 1997 the Company engaged Amper, Politziner & Mattia
("AP&M") as its independent public accountants for the Company's fiscal year
ended December 31, 1996. During the Company's two fiscal years ended December
31, 1995, the Interim Period and the Second Interim Period, the Company did not
consult with AP&M with respect to any of the matters contemplated by Item 304
(a) (2) (i) - (ii) of Regulation S-K.
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Part III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required for this item is incorporated by reference to the
Company's 1996 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission no later than 120 days subsequent to December
31, 1996.
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ITEM 10. EXECUTIVE COMPENSATION
The information required for this item is incorporated by reference to the
Company's 1996 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission no later than 120 days subsequent to December
31, 1996.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required for this item is incorporated by reference to the
Company's 1996 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission no later than 120 days subsequent to December
31, 1996.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required for this item is incorporated by reference to the
Company's 1996 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission no later than 120 days subsequent to December
31, 1996.
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PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K PAGE
(a) Documents filed as part of this report.
1. Financial Statements
Independent Auditor's Report F-2
Independent Auditor's Report F-3
Consolidated Balance Sheet F-4
Consolidated Statements of Operations F-5
Consolidated Statement of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-18
2. Exhibits
1.1 * ...... Underwriters Agreement with Paragon Capital Cor-
poration
2.1 * ...... Certificate of Ownership and Merger regarding the
merger of Signature Acquisition Corp. with and
into T.J. Cinnamons, Inc.
2.2 * ...... Certificate of Ownership and Merger regarding the
merger of Signature Foods, Inc. with and into T.J.
Cinnamons, Inc.
2.3 *** ...... Purchase Agreement between the Registrant and
Triarc Restaurant Group
3.1 * ...... Restated Certificate of Incorporation of the
Registrant
3.2 * ...... By-Laws of the Registrant
9.1 * ...... Modification Agreement (the "Modification Agree-
ment") among Signature Foods, Inc., The Charles N.
<PAGE>
Loccisano Irrevocable Trust f/b/o Michael Loccis-
ano, The Charles N. Loccisano Irrevocable Trust
f/b/o Marissa Loccisano, The Ted H. Rice and Joyce
Rice Family Trust, U/T/I dated August 8, 1986, The
Roger L. Cohen Trust U/T/D/ dated January 26,
1984 and the Kenneth D. Hill Revocable Trust U/T/I
dated march 29, 1989, Signature Acquisition Corp.,
the Registrant, Charles N. Loccisano and Alan S.
Gottlich relating to a Stock Purchase Agreement
(the "Stock Purchase Agreement") among them
9.2 * ...... Waiver of Default under the Modification Agree-
ment, as amended
9.3 * ...... Amendment to Stock Purchase Agreement
9.4 * ...... Stock Purchase Agreement
10.1 * ...... Trademark and Technology License and Manufac-
turing Agreement ("License Agreement") by and
between Signature Acquisition Corp. and Pro Bakers
Ltd.
10.1(a) *...... Amendment to License Agreement
10.1(b) *...... Second Amendment to License Agreement
10.1(c) ...... Termination of the License Agreement
10.2 * ...... 1993 Stock Option Plan
10.9 * ...... Lease regarding the Company's principal executive
offices
10.13 ...... License agreement with Triarc Restaurant Group
10.14 ...... Management Agreement with TJ Holding Company,
Inc.
10.15 ...... Lease regarding the Santa Ana bakery facility
16.1 ...... Letter from Goldstein Golub and Kessler, the
Registrant's former independent accountant
16.2 ...... Letter from Arthur Andersen LLP
<PAGE>
21.1 ...... Certificate of Incorporation of Interbake Brands,
Inc.
24.1 ...... Powers of Attorney to sign Form 10-KSB (set forth
on page 31)
- ---------------------
* Incorporated by reference to the Company's Registration Statement on
Form SB-2 and the amendments thereto.
** Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995.
*** Incorporated by reference to the Company's Current Report on Form 8-K
dated June 18, 1996.
(b) The Company filed one Current Report on Form 8-K during the fiscal
year ended December 31, 1996 regarding the Triarc transaction. Such
Current Report on Form 8-K included unaudited pro forma financial
statements at June 30, 1996 and a copy of the Purchase Agreement
between TJ Holding Company, Inc. and T.J. Cinnamons, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Secaucus, New Jersey, on , 1997.
PARAMARK ENTERPRISES, INC.
By:
Charles N. Loccisano, Chairman
POWER OF ATTORNEY
Each of the undersigned hereby appoints Charles N. Loccisano and Alan S.
Gottlich as his attorney-in-fact to sign his or her name, in any and all
capacities, to any amendments to this form 10-KSB and any other documents filed
in connection therewith to be filed with the Securities and Exchange Commission.
Each of such attorneys has the power to act with or without the others.
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following person on behalf of the Registrant
and in the capacities and on the dates stated.
Signature Title(s) Date
_________________________ Chairman (principal , 1997
Charles N. Loccisano executive officer)
and Director
_________________________ President, Chief , 1997
Alan S. Gottlich Financial Officer (principal
financial and accounting officer)
and Director
_________________________ Director , 1997
Philip Friedman
_________________________ Director ,1997
Dan Feldman
_________________________ Director ,1997
Paul Bergrin
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
Paramark Enterprises, Inc.
Dated: By:
Charles N. Loccisano, Chairman
and Chief Executive Officer
By:
Alan S. Gottlich, President
and Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
PARAMARK ENTERPRISES, INC.
(Formerly T.J. Cinnamons, Inc.) and SUBSIDIARY
For the Year Ended December 31, 1996
Page
Independent Auditors' Report F-2
Independent Auditors' Report F-3
Consolidated Balance Sheet F-4
Consolidated Statements of Operations F-5
Consolidated Statement of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-18
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
Paramark Enterprises, Inc.
(formerly T. J. Cinnamons, Inc.) and Subsidiary
We have audited the accompanying balance sheet of Paramark Enterprises, Inc.
(formerly T. J. Cinnamons, Inc.) and Subsidiary at December 31, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Paramark Enterprises, Inc.
(formerly T. J. Cinnamons, Inc.) and Subsidiary as of December 31, 1996 and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
AMPER, POLITZINER & MATTIA
March 10, 1997
Edison, New Jersey
F-2
<PAGE>
Independent Auditors Report
The Board of Directors
Paramark Enterprises, Inc.
We have audited the accompanying statements of operations, stockholders' equity,
and cash flows of Paramark Enterprises, Inc. (formerly T. J. Cinnamons, Inc.)
for the year December 31, 1995. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Paramark
Enterprises, Inc. for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations, has a working capital deficiency, a net capital
deficiency and is not in compliance with the terms of a note payable to a
licensee that raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outsome of this uncertainty.
/S/ GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
February 23, 1996
New York, New York
F-3
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Consolidated Balance Sheet
December 31, 1996
Assets
<TABLE>
<CAPTION>
<S> <C>
Current assets
Cash $49,667
Accounts receivable, less allowance for
doubtful accounts of $64,000 335,322
Notes receivable - current maturities 1,383,836
Inventory 82,201
Prepaid expenses and other current assets, net 40,380
-----------
Total current assets 1,891,406
Property and equipment 188,547
Excess of cost over fair value of net assets acquired 531,666
Notes receivable, net of current maturities 39,675
-----------
$2,651,294
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expense $833,319
Current maturities of long-term debt 168,809
Other current liabilities 53,383
-----------
Total current liabilities 1,055,511
Long-term debt, net of current maturities 39,675
-----------
Total liabilities 1,095,186
Commitment and contingencies
Stockholders' equity
Preferred stock - $.01 par value; authorized 1,000,000 shares,
none issued --
Common stock - $.01 par value; authorized 10,000,000 shares,
issued and outstanding 3,068,833 shares 30,689
Additional paid-in capital 6,757,491
Accumulated deficit (5,232,072)
-----------
Total stockholders' equity 1,556,108
$2,651,294
</TABLE>
See independent auditors' report and notes
to consolidated financial statements.
F-4
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Revenue
Wholesale sales $ -- $861,894
Sales from Company-owned stores 434,063 256,023
Royalties, licensing fees and other 559,983 311,087
Initial franchise fees 25,510 17,500
Other 19,533 43,333
----------- -----------
Total revenue 1,039,089 1,489,837
----------- -----------
Expenses
Cost of goods sold 301,552 925,228
Selling, general and administrative 1,738,401 1,696,830
Interest expense, net of interest income of
$6,790 and $39,904, respectively 65,425 96,841
----------- -----------
Total expenses 2,105,378 2,718,899
----------- -----------
Loss from operations (1,066,289) (1,229,062)
Other income - Gain on sale of assets (Note 1) -- 1,286,197
----------- -----------
Income (loss) before extraordinary item (1,066,289) 57,135
Extraordinary item - forgiveness of debt (Note 10) -- 162,729
----------- -----------
Net income (loss) $(1,066,289) $219,864
=========== ===========
Income (loss) per common share:
Income (loss) before extraordinary item $(.37) $.02
Extraordinary item -- .06
----------- -----------
Net income (loss) per common share $(.37) $.08
=========== ===========
Weighted average number of common shares outstanding 2,910,833 2,926,417
</TABLE>
See independent auditors' report and notes
to consolidated financial statements.
F-5
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the Years Ended December 31,
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 2,910,833 $ 29,109 $ 6,704,421 $ (4,385,647) $ 2,347,883
Net loss - - - (1,066,289) (1,066,289)
-------------- --------- -------------- ------------- --------------
Balance at December 31, 1995 2,910,833 29,109 6,704,421 (5,451,936) 1,281,594
Issuance of common stock for
services 158,000 1,580 53,070 - 54,650
Net income - - - 219,864 219,864
-------------- --------- -------------- ------------- -------------
Balance at December 31, 1996 3,068,833 $ 30,689 $ 6,757,491 $ (5,232,072) $ 1,556,108
============== ========= ============== ============= =============
</TABLE>
See independent auditors' report and notes
to consolidated financial statements.
F-6
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31,
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(1,066,289) $219,864
----------- -----------
Adjustments to reconcile net income (loss) to net
cash from operating activities
Depreciation and amortization 207,901 151,471
Licensing revenue (41,051) (12,500)
Provision for doubtful accounts (28,527) 138,139
Noncash interest expense 74,360 70,822
(Gain) loss on sale of assets 28,281 (1,286,197)
Gain from forgiveness of debt -- (162,729)
Noncash consulting fees -- 28,250
(Increase) decrease in
Accounts receivable 51,624 (378,841)
Inventories -- (82,201)
Prepaid expenses and other current assets 84,465 (12,316)
Franchise offering costs (65,672) --
Other assets 9,664 1,155
Increase (decrease) in
Accounts payable and accrued expenses 84,774 312,135
Other current liabilities 81,348 (14,116)
----------- -----------
Total adjustments 487,167 (1,246,928)
----------- -----------
(579,122) (1,027,064)
----------- -----------
Cash flows from investing activities
Purchases of property and equipment (32,574) (154,893)
Proceeds from sale of assets 7,850 1,424,043
Cash collected on notes receivable -- 326,489
----------- -----------
(24,724) 1,595,639
Cash flows from financing activities
Principal payments on long-term debt (69,523) (748,237)
Proceeds from long-term debt -- 201,500
Principal payments on notes payable -- (23,848)
----------- -----------
(69,523) (570,585)
----------- -----------
Net decrease in cash (673,369) (2,010)
Cash - beginning 725,046 51,677
----------- -----------
Cash - ending $51,677 $49,667
=========== ===========
</TABLE>
See independent auditors' report and notes
to consolidated financial statements.
F-7
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Principal Business Activity and Sale of Assets
Operations
Paramark Enterprises, Inc. (formerly T.J. Cinnamons, Inc.) and Subsidiary
(the "Company"), a Delaware corporation, was incorporated on August 23,
1993 as a wholly owned subsidiary of Signature Acquisition Corp. ("SAC").
In October 1993, SAC and its wholly owned subsidiary, Signature Foods, Inc.
("Signature"), were merged with and into the Company. In October 1996, the
Company formed Interbake Brands, Inc., a Delaware corporation, as a wholly
owned subsidiary to conduct all wholesale bakery operations.
Sale of Assets
In August 1996, the Company closed a purchase agreement ("the Transaction")
with Triarc Restaurant Group d/b/a Arby's, Inc. ("Triarc") through which
(a) Triarc purchased the trademarks, service marks, recipes and secret
formulas of the Company, (b) Triarc licensed back to the Company the rights
to operate existing franchised bakery locations and to distribute T.J.
Cinnamons products through retail grocery outlets, and (c) the Company
entered into a management agreement with Triarc to manage the franchise
system.
The Company received payments of $25,000 at the execution of the
Transaction, $1,765,000 at the closing, a promissory note in the amount of
$1,650,000 which is being paid in fifteen (15) equal monthly installments
beginning October 1, 1996, and a promissory note in the amount of $100,000
which is being paid in twenty four (24) equal monthly installments
beginning October 1, 1996. In addition, the Transaction provides the
potential for contingent payments to the Company of up to a maximum of an
additional $5,500,000 over time dependant upon the amount of T.J. Cinnamons
product sales by Triarc exceeding a minimum base system wide sales of $26.3
million. Pursuant to the terms of the purchase agreement, T.J. Cinnamons,
Inc. changed its name to Paramark Enterprises, Inc.
In connection with the Transaction, the Company has agreed not to declare a
dividend prior to September 1997. Additionally, major stockholders of the
Company, related to an officer of the Company, with holdings of 1,013,390
shares of the Company's common stock as of December 31, 1996, signed a
stock sale restriction agreement. Under the terms of this agreement, these
stockholders are prohibited, through August 1998, without prior written
consent of Triarc, to sell more than 2.5% of the total issued and
outstanding shares of the Company. Subsequent to August 1998, and during
the existence of the license agreement with Triarc, the threshold will be
increased from 2.5% to 10%.
F-8
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Principal Business Activity and Sale of Assets - (continued)
Sale of Assets - (continued)
Simultaneous with the closing of the Transaction, the Company entered into
an agreement with Heinz Bakery Products to terminate a 1992 manufacturing
and license agreement (see Note 7). Under the terms of this agreement, the
Company paid Heinz Bakery Products $600,000 at closing, and assigned to
Heinz the Triarc promissory note in the amount of $100,000 payable with
interest in equal installments over a two year period.
Liquidity
Following the closing of the Transaction, the Company's operations have
been concentrated exclusively on its wholesale development activities.
Accordingly, the Company is entirely dependent on its wholesale operations
as its sole source of future revenues in addition to any additional
revenues generated from the Transaction. The Company applied the proceeds
from the Transaction towards a reduction of its indebtedness and to provide
working capital for its operations. The Company is currently experiencing
cash flow deficits from its operating activities primarily because its
current expenses exceed its current revenues. These deficits are currently
being funded by the Triarc notes receivable payments. The Company will
continue to incur cash flow deficits from its operating activities until
such time that the Company is able to attain sales levels sufficient to
support its operations. Management believes that funds generated from the
Transaction will provide sufficient working capital for its wholesale
grocery product manufacturing and distribution expansion plans at least
through December 1997.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Paramark
Enterprises, Inc. (formerly T.J. Cinnamons, Inc.) and its wholly owned
subsidiary Interbake Brands, Inc., after elimination of all significant
intercompany balances and transactions.
Revenue Recognition
Royalty revenue is based upon a percentage of sales of the Company's
franchisees. Royalty revenue is recognized by the Company when sales are
made by the franchisee. Initial franchise fees are recognized as revenue by
the Company upon commencement of operations by the franchisee. Licensing
fees are based on a percentage of sales using the Company's trademark
and/or trade name. License fees are recognized when the sale is made by the
licensor.
In conjunction with the Transaction, the Company entered into a management
agreement with Triarc for the management of the franchise system. Under
this agreement, royalty fees collected are recorded as revenue, and paid to
Triarc via a management fee.
F-9
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies - (continued)
Inventory
Inventory is stated at the lower of cost (first-in, first-out basis) or
market, and consists principally of raw materials at December 31, 1996.
Property and Equipment
Depreciation of furniture and equipment is being provided for by the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the term of the lease.
Income Taxes
The Company recognizes deferred income tax liabilities and assets for the
expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
Intangibles
The excess of cost over fair value of net assets acquired ("goodwill") is
being amortized using the straight-line method through 2006. Accumulated
amortization was $168,333 on December 31, 1996.
At each balance sheet date the Company determines whether an impairment
exists with respect to the Company's goodwill. In determining whether an
impairment exists, the Company compares the projected future cash flows
attributable to the goodwill with its carrying value.
In connection with the Transaction, the unamortized goodwill was reduced
$1.7 million, and the amortization period decreased from twenty to ten
years. This reduction represents the portion of goodwill attributable to
the assets sold and is reflected in the gain on sale of assets for the year
ended December 31, 1996.
Organization costs, trademarks and franchise offering costs were being
amortized by the straight-line method over five, ten and three years,
respectively, through the date of the Transaction.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to
record compensation costs for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of the grant over the amount an employee
must pay to acquire the stock.
F-10
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies - (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Earnings Per Share
Net income (loss) per common share is calculated by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
for each period presented. Stock options and warrants have been excluded
from the computation of weighted average shares outstanding since their
effect is antidilutive.
Note 3 - Initial Public Offering and Other Financing Activities
On May 12, 1994, the effective date of the Company's Registration Statement
on Form SB-2 under the Securities Act of 1933, the Company completed an
initial public offering of 970,000 shares of common stock at an offering
price of $5.00 per share; 970,000 redeemable Class A warrants at an
offering price of $.10 per warrant, each to purchase one share of common
stock and one Class B warrant for $4.00; and 485,000 redeemable Class B
warrants at an offering price of $.10 per warrant, each to purchase one
share of common stock for $5.00. The net proceeds to the Company, after
giving effect to previously paid offering expenses of $135,000 and after
deducting underwriting commissions and expenses of the offering of
approximately $1,224,200, were approximately $3,906,300.
In connection with the IPO certain existing stockholders of the Company
have agreed to place into escrow an aggregate of 750,000 shares of common
stock ("Escrow Shares"). Approximately 80% of the Escrow Shares are held by
the Company's management either directly or indirectly. The Escrow Shares
will be released from escrow and delivered to such stockholders if the
Company's income before provision for income taxes equals or exceeds the
amounts below. Otherwise, all of the Escrow Shares will be released from
escrow and delivered to such stockholders on the seventh anniversary of the
consummation of the IPO. The releases of these shares are not considered to
be compensatory.
Year Ending Minimum Escrow Shares
December 31, Pretax Earnings to be Released
1997 $1,800,000 150,000
1998 2,700,000 150,000
Minimum pretax earnings in 1995 and 1996 were not sufficient to cause the
release of 300,000 and 150,000 shares eligible for release in 1995 and
1996, respectively; however, such shares shall nevertheless be released if
there are minimum pretax earnings of $800,000 in fiscal years 1997 or 1998.
For financial reporting purposes these shares have been considered
outstanding for all periods presented.
F-11
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3 - Initial Public Offering and Other Financing Activities - (continued)
In November and December 1993, the Company completed private placements of
26 units and 1 unit, respectively, at an offering price of $25,000 per
unit. Each unit consisted of a $25,000 note convertible into 6,250 shares
of common stock and an option to acquire, for no consideration, Class A
warrants to purchase 12,500 shares of common stock. These notes were
converted into an aggregate of 168,750 shares of common stock and 337,500
Class A warrants following completion of the IPO.
Additionally, in connection with the IPO, the Company's underwriters
acquired an additional 145,500 Class A warrants and 72,750 Class B warrants
with the same terms as described above.
Note 4 - Notes Receivable
Note receivable from a Corporation, due in
monthly installments of $116,905, including
interest at 9.25%, maturing December 1997 $1,335,027
Note receivable from a Corporation, due in monthly installments of
$4,580, including interest at 9.25% maturing September 1998
Payments on the note are restricted to satisfy
the note payable to a former licensee (Note 8) 88,484
----------
1,423,511
Less current maturities 1,383,836
$39,675
==========
Note 5 - Property and Equipment
At December 31, 1996, property and equipment, at cost, consists of the
following:
Depreciation and
Amortization Period
Furniture and fixtures $ 22,212 5 years
Equipment 134,713 5 - 10 years
Leasehold improvements 58,894 5 years
----------
215,819
Less accumulated depreciation and
amortization 27,272
$ 188,547
Depreciation and amortization expense for property and equipment was
$14,452 and $15,989 for 1995 and 1996, respectively.
F-12
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 6 - Accounts Payable and Accrued Expenses
Trade accounts payable and other $411,455
Accrued professional fees 216,618
Accrued payroll 162,326
Accrued other 42,920
--------
$833,319
Note 7 - Agreement with Licensee
In June 1992, the Company entered into a licensing agreement for the
manufacturing, production, packaging and distribution of certain products
under a trade name and trademarks held by the Company. Under the terms of
the agreement, the Company was entitled to receive licensing fees for all
products sold based upon various percentages of non-franchisee sales and
amounts specified in the agreement for sales to Company franchisees. The
term of the agreement was twenty years unless sooner terminated (see
below). In connection with the licensing agreement the Company entered into
an agreement providing for royalties of 4% of the licensing fees earned by
the Company under the licensing agreement to be paid to an unaffiliated
entity. In addition, the Company issued to this entity 45,662 shares of its
common stock, which the Company valued at $40,000.
The agreement provided for the Company to receive $1,425,000 of the
licensing fees in advance, which the Company had received through 1993.
In August 1994, an agreement with the licensee was reached whereby the
Company paid $400,000 to the licensee and the $770,000 balance of the
unearned licensing fees was converted to a note payable. In consideration
for this extended payment schedule, royalties payable to the Company from
the licensee for sales in excess of $5,000,000 were reduced from 4% to 3%.
This license agreement was terminated and the balance of the note payable
was paid in August 1996 pursuant to the Triarc Transaction (Note 1).
Note 8 - Long-term Debt
Note payable to former licensee, monthly payments of $4,580,
including interest at 9.25%, due September 1998. The note is being
satisfied directly from payment on a note
receivable (Note 4) $88,484
Note payable to former lessor, monthly payments of
$2,000, noninterest bearing, due July 1997 20,000
F-13
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 8 - Long-term Debt - (continued)
Note payable to a financing institution, monthly
payments of $8,873, including interest at prime plus
3.5%, due December 1997. Collateralized by the
promissory note from Triarc (Note 4) 100,000
--------
208,484
Less current maturities 168,809
$39,675
The prime rate at December 31, 1996 was 8.25%
Note 9 - Related Party Transactions
Included in prepaid expenses and other current assets is a loan receivable
from an officer, in the amount of $13,600, which consists of advances made,
prior to the IPO, to an officer of the Company and a partnership affiliated
with officers of the Company.
Included in accounts payable and accrued expenses, are bonuses due to
officers aggregating $107,000, to be paid in the ordinary course of
business.
During the period November 1995 through June 1996, the Company borrowed
approximately $184,500 from affiliates of Charles Loccisano, the Company's
Chairman, Chief Executive Officer and Director, and Alan Gottlich, the
Company's President, Chief Financial Officer and Director in order to fund
its operating cash deficit. These loans were repaid out of the proceeds of
the Triarc 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 prime rate. Interest expense
and fees, related to these loans, charged to operations for the year ended
December 31, 1996 amounted to $53,900.
In July 1996, the Company entered into a loan agreement with Gelt Financial
Corporation ("Gelt") providing for a loan to the Company in the amount of
$125,000. 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 Company's Chairman, Chief Executive Officer and Director,
and Alan Gottlich, the Company's President, Chief Financial Officer and
Director, were pledged to Gelt and limited suretyship agreements were
entered into by such affiliates. This loan was fully repaid out of the
proceeds of the Triarc Transaction, resulting in the release of the pledged
shares of common stock and the cancellation of the limited suretyship
agreements.
In November 1996, the Company granted 5,000 shares of the Company's common
stock to Philip Friedman, a member of the Company's Board of Directors.
These shares were issued in consideration for consulting services rendered
in the amount of $7,500, the fair market value of the shares on the date of
issuance.
F-14
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 9 - Related Party Transactions - (continued)
In November 1996, the Company granted 125,000 shares of the Company's
common stock to the Loccisano Irrevocable Trusts, affiliates of Charles
Loccisano, the Company's Chairman and CEO. These shares were issued in
consideration for shares previously conveyed by the Trusts on behalf of the
Company to Dan Feldman, a member of the Company's Board of Directors, in
exchange for an agreement to serve as a Director.
The Company paid consulting fees in the amount of $6,212 during 1996 and
$10,600 during 1995 to a Company owned by a member of the Company's Board
of Directors.
Note 10 - Forgiveness of Debt
Forgiveness of debt resulted from the termination of the manufacturing and
license agreement with Heinz Bakery Products for $93,409 and $69,320 from
negotiations with vendors.
Note 11 - Income Taxes
Deferred tax assets at December 31, 1996 consist of the following:
Loss carryforwards $1,000,000
Expenses not currently deductible 26,000
-----------
Gross deferred tax asset 1,026,000
Valuation allowance (1,026,000)
-----------
Net deferred tax asset $ --
===========
The provisions for income taxes for the year ended December 31, 1996 have
been reduced $90,000 by the benefits of net operating loss carryforwards.
At December 31, 1996, the Company has net operating loss carryforwards for
financial reporting purposes of approximately $2,500,000 available to
offset future taxable income. These carryforwards expire in the years 2008
through 2011. Utilization of the net operating loss carryforwards may be
significantly limited based on changes in the Company's ownership.
Note 12 - Stock Option Plan
The Company's 1993 Incentive Stock Option Plan has authorized the grant of
options to management personnel for up to 450,000 shares of the Company's
common stock. All options granted have ten year terms, other than 10%
shareholders that have five year terms, and vest and become fully
exercisable upon grant.
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," and has been determined as if
the Company had accounted for its employee stock options under the fair
value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions: risk-free interest rates
of 6.0%, dividend yields of 0%; volatility factors of the expected market
price of the Company's common stock of .72%; and a weighted-average
expected life of the option of five years.
F-15
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 12 - Stock Option Plan - (continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
1995 1996
Pro forma net income (loss) $(1,396,289) $151,864
Pro forma earnings (loss) per common share $(.48) $.05
There was no compensation expense arising from stock options for the years
ended December 31, 1995 and 1996, respectively.
A summary of the Company's stock option activity, and related information
for the years ended December 31, follows:
<TABLE>
<CAPTION>
1995 1996
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C>
Outstanding -
beginning of year 95,312 $5.40 457,812 $2.38
Granted 362,500 1.58 55,000 1.94
Exercised -- -- -- --
Forfeited -- -- (107,500) 4.77
------- ----- ------- -----
Outstanding -
end of year 457,812 $2.38 405,312 $1.68
======= ===== ======= =====
</TABLE>
F-16
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 12 - Stock Option Plan - (continued)
1996
Options
Outstanding Exercise Expiration
End of Year Price Date
17,812 $ 2.81 December 1998
192,500 1.58 June 2000
140,000 1.58 June 2005
55,000 1.94 November 2006
-------------
405,312
=============
All options outstanding at December 31, 1996 are exercisable.
In November 1996, the Company established and approved the 1996 Stock
Option Plan for grants of options (each option carries the right to
purchase one share of the Company's common stock) to directors, management
and consultants for up to 500,000 shares of the Company's common stock. As
of December 31, 1996, no options were granted under this plan.
Note 13 - Other Transactions
On April 12, 1994, the Company's principal stockholders granted an option
to a stockholder, who was a holder of a note, to purchase from them 250,000
shares of common stock for $.12 per share, commencing on the effective date
of the IPO and expiring on April 12, 1998. This option was granted as
consideration for the holder to agree to be named as a nominee for director
of the Company for a period of four years and to serve as such if duly
elected. For financial reporting purposes, the grant of this option is
deemed to be compensatory. The difference between the IPO price of $5.00
per share and the exercise price of $.12 per share resulted in a charge to
the Company's operations of $1,220,000 in 1994.
In 1995, the stockholder agreed to terminate the option agreement to
purchase 250,000 shares of common stock at $.12 per share in exchange for
125,000 shares of common stock from the principal stockholder.
Note 14 - Supplemental Cash Flow Information
During the year ended December 31, 1996, the Company issued 33,000 shares
of its common stock as payment for consulting services rendered and
interest expense on certain debt obligations in the amount of $28,250 and
$26,400, respectively, the fair market value of the shares on the date(s)
of issuance.
During the years ended December 31, 1995 and 1996, the Company paid
interest of $9,895 and $110,345 respectively.
F-17
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 15- Major Customers
The Company had two major customers that accounted for substantially all of
the Company's wholesale sales during the year ended December 31, 1996, and
substantially all of the Company's accounts receivable as of December 31,
1996.
Note 16 - Commitments and Contingencies
Rent
The Company leases space for its main offices, retail bakery, and wholesale
bakery operation under noncancelable operating leases. The retail bakery
lease provides for additional rents based upon sales volume. The Company is
required to pay all real estate taxes in connection with the retail bakery
lease.
At December 31, 1996, aggregate minimum annual payments due under the
leases are as follows:
Year Ending
December 31,
1997 $113,000
1998 44,500
1999 38,000
2000 20,000
--------
$215,500
========
Rent expense charged to operations for the years ended December 31, 1995
and 1996 amounted to approximately $91,000 and $115,000, respectively. In
June 1996, the Company began sub leasing 50% of its main offices to a
related party. This sub lease is based on an oral month to month agreement,
with 50% of the rental and related charges being paid by the sub tenant.
Amounts charged to the sub tenant during 1996 were $14,000.
Litigation
The Company is presently and from time to time involved in routine
litigation, including litigation with vendors, suppliers and franchisees.
None of those litigations in which the Company is currently involved are
material to its financial condition or results of operations.
In May 1996, a default judgment of $80,120 was entered against the Company
on behalf of a claim filed by a former franchisee. The Company believes the
plaintiff 's claims for damages are without foundation and has filed an
appeal. As of December 31, 1996, management has accrued $10,000 for its
estimate of possible losses. It is reasonably possible that a change in
this estimate will occur in the near term.
F-18
Exhibit 10.1(c)
TERMINATION OF TRADEMARK AND TECHNOLOGY
LICENSE AND MANUFACTURING AGREEMENT
THIS TERMINATION AGREEMENT entered into this 22nd day of July 1996 between
T.J. CINNAMONS, INC., a Delaware corporation, with an address at 135 Seaview
Drive, Secaucus, New Jersey 07094 ("Licensor") and HEINZ BAKERY PRODUCTS, INC.,
a Delaware corporation, with an address at 150 Bud-Mil Drive, Buffalo, New York
14206 ("Developer")
RECITALS
A. On June 2, 1992 Signature Foods, Inc., Signature Acquisition Corp. and
Pro Bakers Ltd. entered into a Trademark and Technology License and
Manufacturing Agreement (the "License Agreement");
B. Licensor is the successor in interest to Signature Foods, Inc. and
Signature Acquisition Corp. and Developer is the successor in interest to Pro
Bakers Ltd.;
C. On August 1, 1994 Licensor and Developer entered into an Amendment to
the License Agreement (the foregoing Amendment and the License Agreement are
hereinafter collectively referred to as the "License Agreement");
D. Pursuant to the Amendment Licensor delivered a $770,000 Promissory Note
(the "Licensor Note") to Developer;
E. In accordance with Section 10(a) of the License Agreement Developer has
delivered Product ) sale and accrued Royalty reports (as defined in the License
Agreement to Licensor pursuant to which there is due and owing on the Licensor
Note, as of July 28, 1996, the amount of $801,050.99;
F. Licensor and Developer have mutually agreed to terminate the License
Agreement upon the terms and conditions set forth hereinbelow.
NOW, THEREFORE, the parties hereto agree as follows:
1. INCORPORATION OF RECITALS. The Recitals set forth hereinabove are fully
incorporated herein.
2. TERMINATION OF LICENSE AGREEMENT. The License Agreement shall be deemed
terminated and of no further force and effect simultaneously with the Closing as
described and defined hereinbelow.
3. TERMINATION OF ANCILLARY RIGHTS AND OBLIGATIONS, LICENSOR NOTE, ETC.
Simultaneously with the termination of the License
1
<PAGE>
Agreement any and all rights, obligations, liens, guarantees, security
agreements and any and all other obligations or instruments arising from the
License Agreement, including but not limited to the Licensor Note, shall be
deemed terminated and of no further force and effect. In furtherance of the
foregoing Developer shall return and deliver to Licensor the original of the
Licensor Note at the Closing.
4. CONSIDERATION FOR TERMINATION. At the Closing Developer shall receive
from Licensor the following consideration for the entry into this Termination
Agreement:
a. $600,000 in cash consideration payable by wire transfer for the
immediate credit of Developer;
b. $100,000 by Licensor assigning, endorsing and delivering to Developer
a promissory note (the "Termination Note") in said amount, the
Termination Note being in the substantive form of EXHIBIT A annexed
hereto.
5. TERMINATION NOTE TERMS. The Termination Note shall bear annual interest
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 plus one percent (1%); one half of the principal of the Termination
Note, in the amount of $50,000, plus all accrued interest thereupon, shall be
amortized and paid over a period of twenty four (24) consecutive months after
the Closing;, the balance of the principal of the Termination Note, in the
amount of $50,000, plus all accrued interest thereupon, shall be payable two
years after the Closing.
The Termination Note shall have been made and delivered at the Closing by
TJ Holding Company, Inc. to Licensor and Licensor shall have assigned and
endorsed same to Developer. The obligations of said maker of the Termination
Note shall have been guaranteed at the Closing by Triarc Companies, Inc., in the
substantive form annexed hereto as EXHIBIT B.
6. FINAL ACCOUNTING BY DEVELOPER. In accordance with Section 10(a) of the
License Agreement Developer shall deliver to Licensor, no later than thirty (30)
days after the Closing, a final accounting (the "Final Accounting") of all
Product sales by Developer through the Closing. Delivery of the Final Accounting
to Developer shall be for informational purposes only and shall not be deemed to
revive any aspect of the License Agreement or to in any way limit the generality
of the Releases being delivered pursuant to Section 7 hereinbelow.
7. MUTUAL RELEASE. Simultaneously with the Closing Licensor and Developer
shall be deemed to have mutually released each other, and their respective
affiliates, subsidiaries, directors, officers and employees, from any and all
claims and liabilities in any way arising from or relating to the License
Agreement, all
2
<PAGE>
in accordance with the respective Releases annexed hereto as EXHIBITS C-1 and
C-2. In the event of any conflict between the terms of the Releases and the
terms of this Termination Agreement, the terms of the Termination Agreement
shall be controlling.
8. INDEMNIFICATION AS TO CO-PACKER. Developer acknowledges that, prior
hereto, it entered into an agreement with ________________________ (the
"Co-Packer") for the manufacturing of the Products 'Under the License Agreement
and Developer acknowledges that Licensor had or has no contractual obligations
or privity with the Co-Packer. In acknowledgement of the foregoing, Developer
hereby agrees to indemnify and hold Licensor harmless from any and all claims by
Co-Packer arising out of Co-Packers activities with Developer or claims by
Co-Packer related to this Termination Agreement.
9. CLOSING. The Closing shall be' defined and shall occur simultaneously
with the closing under a Purchase Agreement executed between Licensor, as
seller, and TJ Holding Company, Inc., as buyer, pursuant to which Purchase
Agreement said buyer is acquiring certain intellectual property, et al. of
Licensor. The Closing shall occur no later than October 31, 1996.
10. REMEDIES. If the Closing shall not have occurred by October 31, 1996
then this Termination Agreement shall be deemed null and void and the License
Agreement shall remain in effect as between the parties hereto.
11. FURTHER ASSURANCES. Developer and Licensor agree to promptly deliver
such further instruments as may be necessary to effectuate the intent of this
Termination Agreement.
12. NOTICES. Any notice, request or other communication ("Notice") given or
made hereunder shall be in writing and either (a) sent by any of the parties
hereto or their respective attorneys, by registered or certified mail, return
receipt requested, postage prepaid together with a facsimile copy, or (b)
delivered in person or by overnight courier or (c) delivered by facsimile
transmission by the parties or their respective counsel. Each Notice mailed
shall be deemed given on the date of receipt and each Notice delivered in
person, by overnight courier or by facsimile transmission shall be deemed given
when delivered.
All Notices shall be sent to the parties respective counsel as follows:
Licensor's Counsel:
Saul Feiger, Esq.
152-18 Union Turnpike
Kew Garden Hills, New York 11367
Phone 718/380-2460 Fax 718/380-3092
3
<PAGE>
Developer Counsel:
Dan Shaw, Esq.
Senior Attorney
H.J. Heinz Company
USX Tower
Pittsburgh, Pennsylvania 15219
Phone 412/456-6010 Fax 412/456-6102
IN WITNESS WHEREOF, the parties hereto have executed this Termination of
Trademark and Technology License and Manufacturing Agreement as of the date
first above given.
HEINZ BAKERY PRODUCTS, INC.
By: ___________________________
Name: ___________________
Title: __________________
T.J. CINNAMONS, INC.
By: ___________________________
Alan S. Gottlich
Vice President
4
Exhibit 10.13
LICENSE AGREEMENT
by and between
ARBY'S, INC. d/b/a TRIARC RESTAURANT GROUP
Licensor
and
T.J. CINNAMONS, INC.
Licensee
Dated as of August 29, 1996
<PAGE>
LICENSE AGREEMENT
TABLE OF CONTENTS
PAGE
----
RECITALS OF FACT .............................................................1
1. GRANT ....................................................................2
2. TERM .....................................................................3
3. RETAIL SALES OF TJC PRODUCTS; TJC BAKERIES ...............................3
4. WHOLESALE DISTRIBUTION ...................................................5
5. LICENSING BY LICENSEE; ENFORCEMENT OF TJC LICENSE AGREEMENTS .............9
6. PREPARATION OF TJC PRODUCTS .............................................12
7. PROPRIETARY MARKS .......................................................13
8. PROPRIETARY INFORMATION .................................................16
9. TERMINATION .............................................................17
10. ADVERTISING AND PROMOTION ..............................................18
11. TECHNICAL ASSISTANCE ...................................................19
12. NEW PRODUCTS ...........................................................19
13. REPORTS AND RECORD KEEPING .............................................21
14. CONFIDENTIALITY, NON-DISCLOSURE, AND NON-COMPETE .......................22
15. INDEMNIFICATION ........................................................23
16. INSURANCE ..............................................................24
17. ASSIGNMENT OF INTERESTS ................................................24
18. ASSIGNMENT OF TJC FRANCHISE AGREEMENTS .................................25
19. MISCELLANEOUS ..........................................................25
EXHIBIT A - INTELLECTUAL PROPERTY
EXHIBIT B - EXISTING TJC LICENSE AGREEMENTS AND TJC LICENSEES
EXHIBIT C - TJC PRODUCTS
EXHIBIT D - WHOLESALE DISTRIBUTION
EXHIBIT E - FORM OF TJC FRANCHISE AGREEMENT
EXHIBIT F - MODIFICATIONS TO THE TJC LICENSE AGREEMENTS
EXHIBIT G - STANDARDS AND SPECIFICATIONS
EXHIBIT H - OFFICERS, DIRECTORS AND EXECUTIVES OF TJC
EXHIBIT I - SUPERMARKET CHAINS
EXHIBIT J - APPROVED TJC WHOLESALE PRODUCTS
EXHIBIT K - INSURANCE REQUIREMENTS
EXHIBIT L - ASSIGNMENT OF TJC FRANCHISE AGREEMENT
<PAGE>
LICENSE AGREEMENT
This License Agreement ("Agreement") is made this 29th day of August, 1996,
by and between Arby's, Inc., d/b/a Triarc Restaurant Group, a Delaware
corporation ("Licensor"), and T.J. Cinnamons, Inc., a Delaware corporation
("Licensee").
RECITALS OF FACT
A. Licensor's affiliate, TJ Holding Company, Inc., pursuant to a Purchase
Agreement between TJ Holding Company, Inc. and Licensee, dated of even date
herewith (the "Purchase Agreement"), is the owner of (i) certain secret recipes
and secret formulae (the "Secret Recipes") for baking gourmet cinnamon rolls and
other bakery products; (ii) secret and proprietary plans ("Technical
Information") relating to the preparation, baking, and merchandising of the
gourmet cinnamon rolls utilizing the Secret Recipes (the Secret Recipes and
Technical Information are referred to herein as the "Proprietary Information"
and are more particularly identified in Exhibit A hereto); and, (iii) certain
trade names, trademarks, service marks, logos, signs, and emblems, including,
without limitation the mark "T.J. CINNAMONS," relating to the products prepared
using the Proprietary Information, and other goods and services offered at
retail stores, bakeries, and other locations, that offer the products made
utilizing the Proprietary Information (the "Proprietary Marks"). The Proprietary
Information and Proprietary Marks are collectively referred to as "Intellectual
Property." All bakery products made with the Proprietary Information are
referred to as "TJC Products."
B. Licensor, pursuant to a license agreement with TJ Holding Company, Inc.,
dated of even date herewith, has the right to use, and license others to use,
the Intellectual Property.
C. TJ Holding Company, Inc. and/or Licensor own and develop, use, and
control the Intellectual Property in order to identify for the public the source
of the TJC Products and to represent the high standards of quality associated
with the TJC Products and the standards of quality, appearance, and service
associated with TJC Bakeries (defined below) and other locations from which TJC
Products are or may be sold.
D. Licensee owns and operates, and franchises others ("Franchisees")
pursuant to Franchise agreements ("TJC Franchise Agreements") to operate, retail
locations identified by one or more of the Proprietary Marks (and using the
Proprietary Information) that prepare and fell all or variety of TJC Products,
and other bakery products and beverages ("TJC Bakeries"). The location of each
TJC Bakery and the date on which each TJC Franchise Agreement for any TJC Bakery
was executed are set forth in Exhibit B hereto. The type and number of varieties
of TJC Products and other products sold at TJC Bakeries have been specified by
Licensee prior to the date of this Agreement, and will, hereafter, be specified
by Licensor. Licensee has also licensed or permitted 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 (referred
to herein as "TJC Retail Locations"), which are identified by one or more
<PAGE>
of the Proprietary Marks, and licenses other third parties ("Wholesale
Licensees") to prepare and sell at wholesale, for resale through retail food
stores, selected TJC Products. (These licenses are referred to herein as
"Wholesale Licenses.") The names of each Retail Licensee and Wholesale License
and the location of each Retail Location are set forth in Exhibit B to this
Agreement. 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).
E. TJ Holding Company, Inc. and Licensee have executed a management
agreement of even date herewith (the "Management Agreement"), under which TJ
Holding Company, Inc. will act as Licensee's agent to undertake Licensee's
rights, duties, and responsibilities under the TJC Franchise Agreements and the
agreements with the Retail Licensees.
F. Licensee desires a license from Licensor to use the Intellectual
Property (i) to operate one TJC Bakery; (ii) to continue to fulfill its existing
obligations with respect to Franchisees and Retail Licensees; and (iii) to
prepare and sell TJC Products at wholesale, and to license Wholesale Licensees
to prepare and sell TJC Products, in the manner specified in this Agreement.
With reference to the above-stated Recitals of Fact, and in consideration
of the mutual covenants and conditions contained in this Agreement, the parties
hereby agree as follows:
1. GRANT
1.1 Licensor hereby grants to Licensee the right to use, and Licensee
undertakes the obligation to use, the Intellectual Property, within the
Territory as defined in Section 1.2 below, solely for the following purposes:
1.1.1 To prepare and sell TJC Products (a) from one (1) TJC Bakery
identified Exhibit B, or (b) at wholesale (as specified in Section 4); and
1.1.2 To fulfill Licensee's obligations under TJC License Agreements,
and to continue to permit TJC Licensees to prepare and sell TJC Products,
and to use the Intellectual Property in connection therewith.
1.2 Except as described in Section 4.6, the rights granted herein are
solely for use by Licensee and the TJC Licensees in the United States (the
"Territory"), and Licensee shall have right to use, or license others to use,
any of the Intellectual Property outside of the Territory.
1.3 The rights granted to Licensee are limited to the specific purposes
described in this Agreement. Licensee shall have no right to grant new TJC
License Agreements, except for RJC Retail Locations at Six Flags Great Adventure
Parks pursuant to Section 3.6, the renewal or extension of TJC Franchise
Agreements as set forth in Section 5, or Wholesale Licenses, as set forth in
Section 4. Except as set forth in Section 4.5 and Section 12, Licensor retains
the
2
<PAGE>
right to produce TJC Products or other products using the Proprietary
Information, for sale through any channels of distribution, and Licensor may
produce, offer, or sell, and authorize others to produce, offer, or sell, any
such products under the Proprietary Marks or any other mark or name.
2. TERM
2.1 The term of this Agreement shall begin on the date first written above,
and, unless sooner terminated in accordance with the terms herein, shall expire
twenty (20) years from the date of this Agreement.
2.2 Licensee may renew this Agreement four (4) times; for three (3)
additional nods of twenty (20) years each upon the expiration of the initial
term or the preceding renewal term, and for one (1) additional period of
nineteen (19) years upon the expiration of the third renewal term; provided that
Licensee has complied with the following conditions prior to the expiration of
the initial term, or the applicable renewal term;
2.2.1 Licensee has notified Licensor in writing of Licensee's intent
to renew this Agreement not less than six (6) months prior to the end of
the initial, or applicable renewal term;
2.2.2 Licensee has complied with all of the terms and conditions of
this Agreement throughout the applicable initial term or renewal term,
including compliance with all written guidelines, specifications, and
standards prescribed by Licensor; and
2.2.3 Licensee has executed a general release in the form specified by
Licensor, of any and all claims against Licensor and its affiliates and
their respective officers, directors, employees, and agents.
2.3 If Licensee is in compliance with the teens and conditions of this
Agreement at all times during the fourth renewal term specified in Section 2.2
above, and if, not more than six (6) months prior to the end of the fourth
renewal term, Licensee sends written notice to censor of Licensee's desire to
further extend this Agreement, Licensor and Licensee shall negotiate in good
faith the terms of an extension and/or modification of this Agreement; provided,
however, that this provision shall not obligate or bind Licensor to extend this
Agreement. If a mutually agreed upon extension is not reached by the expiration
of the fourth renewal term, this Agreement shall expire.
3. RETAIL SALES OF TJC PRODUCTS; TJC BAKERIES
3.1 Licensee acknowledges and agrees that Licensee's right to prepare and
sell TJC Products, and license others to prepare and sell TJC Products, is
limited to the specific rights granted by Licensor in this Agreement.
3
<PAGE>
3.2 Attached to this Agreement as Exhibit C is a list of TJC Products
currently approved for sale at TJC Bakeries (the current "TJC Product List")
including TJC Products which must be sold at all TJC Bakeries ("Required TJC
Products"), and TJC Products approved by Licensor for sale at TJC Bakeries, but
which Licensee and Franchisees are not required to sell at the TJC Bakeries
("Permitted TJC Products"). Licensor may add to, delete from, or otherwise
modify the TJC Product List, including the Required TJC Products and the
Permitted TJC Products, in its sole discretion upon 30 days written notice.
Licensee shall comply with, and shall require that all Franchisees comply with,
all such changes to the TJC Product List to the extent consistent with, and
permitted under, the TJC Franchise Agreements. To the extent permitted under,
and consistent with, the TJC Franchise Agreements, from and after the date of
this Agreement, each TJC Bakery shall sell (i) all of the Required TJC Products;
(ii) at least 2 varieties of Permitted TJC Products; (iii) such complementary
bakery products as may be specified by Licensor, such as muffins, bagels,
pastries, cookies, and related products; and, (d) such beverages as may be
specified by Licensor, such as specialty coffees and teas.
3.3 Licensee and Franchisees may operate TJC Bakeries only at the locations
specified in Exhibit B. In the event a Franchisee is entitled to relocate its
TJC Bakery under a TJC Franchise Agreement, Licensee shall not approve of such
relocation except to a site that is in enclosed retail shopping mall, consisting
of at least one hundred thousand (100,000) rentable square feet of retail
shopping space, and the relocated TJC Bakery shall be no smaller in size than
four hundred (400) square feet and no greater in size than one thousand (1000)
square feet; provided that Licensee shall not relocate its TJC Bakery, or permit
the relocation of a Franchisee's TJC Bakery, to any retail shopping mall, if a
restaurant owned or operated by Licensor or an affiliate of Licensor's, or
operated under a franchise agreement with Licensor or an affiliate of
Licensor's, is located in such mall.
3.4 Licensee shall operate the TJC Bakery specified in Exhibit B in a
manner consistent with the provisions of this Agreement and with the terms and
conditions required of a "franchisee" under the form of TJC Franchise Agreement
specified in Section 4.2 hereof and attached as Exhibit E hereto; provided,
however, that Licensee shall not be obligated to pay royalties under such TJC
Franchise Agreement. Licensor shall provide instructions to Licensee regarding
the operation of the TJC Bakery in a manner consistent with that of "franchisor"
under the TJC Franchise Agreement.
3.5 Except as specifically set forth in Exhibit D, Licensee represents and
warrants that the date of this Agreement, TJC Bakeries do not sell, and are not
approved by Licensee to sell, any TJC Products "at wholesale," as that term is
defined in, or construed under, the TJC Franchise Agreements, and that all TJC
Products sold from the TJC Bakeries are sold at the premises of the TJC Bakeries
to retail consumers and not for the purpose of resale or other distribution.
Licensee shall not approve the wholesale distribution or sale of TJC Products
from any TJC Bakery, except for the continuation of the wholesale distribution
described in Exhibit D. Licensee represents and warrants that attached to
Exhibit D are all copies of written agreements, and written description of oral
agreements, with TJC Licensees that permit the sale
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of TJC Products at Wholesale, and a copy or a written description of Licensee's
policy regarding wholesaling by TJC Licensees, as that policy existed as of the
date of the Purchase Agreement, and as of the date of this Agreement.
3.6 From the date of this Agreement, Licensee may not open or operate, nor
grant new or additional licenses to others to open or operate, any additional
TJC Retail Locations. Notwithstanding the foregoing, Licensee may, upon written
request by TJC, and only with Licensor's consent, which consent shall not be
unreasonably withheld, open, or grant additional licenses for, additional TJC
Retail Locations at the Six Flags Great Adventure amusement parks in Jackson,
New Jersey, and other locations within the Territory, pursuant to an agreement
to be executed in accordance with the letter agreement dated April 1, 1996, that
is attached to Exhibit B; provided Licensee shall pay to Licensor a royalty fee
equal to twenty percent (20%) of the revenue and other compensation that
Licensee receives from the sale of TJC Products at or from TJC Retail Locations
at all Six Flags Great Adventure amusement parks other than the TJC Retail
Locations in the amusement park in Jackson, New Jersey.
3.7 Notwithstanding the restrictions on the sale of TJC Products contained
in Sections 3.2 and 3.3, the operation of TJC Retail Locations designated on
Exhibit B shall be deemed approved by Licensor.
4. WHOLESALE DISTRIBUTION
4.1 From the date of this Agreement, Licensee and Wholesale Licensees may
prepare and sell to Supermarket Chains (defined below) for resale to retail
customers, selected Approved TJC Wholesale Products (defined below) as
determined by Licensor; only in accordance with the terms and conditions of this
Section 4; and unless otherwise specified by Licensor, neither Licensee nor
Wholesale Licensees may sell or distribute TJC Products to any retail location
except to Supermarket Chains approved by Licensor. Supermarket shall mean any
full-size, self-service grocery store with a sales volume of $2,000,000 or more
annually. A "grocery store" shall mean a retail store selling a line of dry
grocery, canned goods, or non-food items, and some perishable items. Supermarket
shall not include "convenience stores," but shall include "warehouse stores,"
"combination stores," and "wholesale clubs," as defined in Exhibit I. Chain
shall mean an operation of eleven or more retail stores. Licensee represents and
warrants that except as set forth in Exhibit D, no current Wholesale Licensee
and no operations pursuant to a Wholesale License is in violation of this
provision, and all future Wholesale Licensees shall comply with this provision.
Notwithstanding the restrictions on the sale of TJC Products contained in this
Section 4, the Wholesale Licenses designated on Exhibit B shall be deemed
approved by Licensor. Licensor shall have the right to review and approve all
Wholesale Licenses executed pursuant to this Agreement.
4.2 Licensee and Wholesale Licensees shall sell only Approved TJC Wholesale
Products. Approved TJC Wholesale Products are those pre-packaged, not
fresh-baked, TJC Products that Licensor has designated for sale through
wholesale distribution by Licensee or Wholesale Licensees, and the list shall
consist of no more than three (3) categories of such
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products at any time. The current list of Approved TJC Wholesale Products are
set forth in Exhibit J. Licensee may request that other TJC Products be approved
by Licensor as Approved TJC Wholesale Products in accordance with the procedures
set forth in Section 4.7 below. Licensor may modify the list of Approved TJC
Wholesale Products in its reasonable discretion, upon one hundred twenty (120)
days prior written notice to Licensee. Licensor shall not eliminate or
disapprove a previously approved TJC Wholesale Product if such product
represents a "significant percentage" of Licensee's wholesale business. The
parties hereto agree that "significant percentage" shall mean a specified
percentage of gross revenues received by Licensee from the sale of such product
in the twelve-month period prior to Licensor's notice of a change, or in the
event such notice occurs prior to the end of the first twelve (12) months, the
number of months that Licensee has been operating under this Agreement, prior to
such notice by Licensor, and that if such notification by Licensor is provided:
(a) during the first twelve (12) months following the execution of this
Agreement, that percentage shall be five percent (5%) or more; (b) during the
second twelve (12) months following execution of this Agreement that percentage
shall be ten percent (10%) or more; and (c) at any time following the
twenty-fourth (24th) month after execution of this Agreement, that percentage
shall be twenty percent (20%) or more. Licensee and Wholesale Licensees may sell
additional TJC Products as Approved TJC Wholesale Products only with the prior
written consent of Licensor; provided that Licensee agrees to pay a royalty or
similar payment to Licensor based on sales of the additional products, with such
amount to be mutually agreed upon prior to approval by Licensor.
4.3 Licensee and Wholesale Licensees may sell Approved TJC Wholesale
Products only to Supermarket Chains that are approved by Licensor, which
approval shall not be unreasonably withheld. Further, the Supermarket Chains
listed on Exhibit I are currently approved by Licensor, and Licensee may request
that other chains be included on the approved list. Licensor may, in its
reasonable discretion, disapprove of a proposed, or previously approved,
Supermarket Chain, or may require that Licensee or other Wholesale Licensees
cease supplying a Supermarket Chain. Licensee and Licensor shall comply with the
procedures set forth in Section 4.7 when seeking approval of, or acting on a
request for approval of, a Supermarket Chain. It shall be reasonable for
Licensor to consider the following factors, among others, when considering
approving or disapproving of a particular Supermarket Chain: (a) whether the
Supermarket Chain operates in a manner that complies with the standards of one
or more trade associations that represent such chains; (b) whether the
Supermarket Chain is a member in good standing of the Retail Bakers Association;
(c) whether the Supermarket Chain ever been cited for, or suspected of, selling
products (of any kind) after the expiration of "freshness date" of the product;
and (d) whether the Supermarket Chain acts, or fails to act, in any manner, that
Licensor believes may adversely affect, or reflect negatively upon, Licensor,
the Proprietary Marks, or the TJC Products.
4.4 In addition to the requirements of Sections 5.4 and 5.5, Licensor shall
have the right to review and approve all agreements between Licensee and
Wholesale Licensees, and all agreements with manufacturers, suppliers,
co-packers, and others concerning the Approved TJC Wholesale Products. Licensor
and Licensee shall comply with the procedures in Section 4.7 concerning approval
of agreements with third parties.
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4.5 During the three-year-and-nine-month period commencing on the date of
this Agreement (the "Wholesale Rights Period"), Licensor shall not sell any
Approved TJC Wholesale Products at wholesale; provided, however, that during the
Wholesale Rights Period, Licensor or any affiliate or licensee of Licensor may
sell TJC Products (other than Approved TJC Wholesale Products), at wholesale to
Supermarket Chains, including Supermarket Chains that purchase Approved TJC
Wholesale Products from Licensee or Wholesale Licensees; and provided further,
that Licensor pays to Licensee, on a quarterly basis, a commission equal to: (i)
two percent (2%) of the revenues received by Licensor for wholesale sales of the
Approved TJC Products sold to the Supermarket Chains; or (ii) twenty percent
(20%) of the royalties received by Licensor if Licensor licenses others to
manufacture and sell Approved TJC Wholesale Products, and receives a royalty
from such third party or parties. Such payments shall be made on the twentieth
(20th) day of April, July, October, and January, for the wholesale sales made
the previous quarter. After the Wholesale Rights Period, Licensor may sell any
TJC Products at wholesale, including Approved TJC Wholesale Products, and shall
pay no commission or other fee to Licensee; provided however, that for as long
as Licensee and Wholesale Licensees continue to sell or distribute to a
Supermarket Chain after the Wholesale Rights Period that it or they were selling
or distributing to as of the end of the Wholesale Rights Period (and any lapse
in sales of three hundred sixty-five (365) consecutive days or less shall not be
considered a failure to continue sales to a Supermarket Chain), Licensor may not
sell such products to such Supermarket Chain. In addition to Licensor's rights
to sell TJC Products at wholesale, Licensor shall have the right to operate or
license others to operate, kiosks, carts, limited service counters, and similar
areas or facilities (collectively "Kiosks") at any Supermarket Chain, provided
that such Kiosks offer only fresh-baked, and not pre-packaged TJC Products. The
quarterly commission described in this Section 4.5 above shall not apply to
sales from Kiosks.
4.6 Licensee's right to sell, and to permit Wholesale Licensees to sell,
Approved TJC Wholesale Products shall be limited to the Territory and to such
foreign countries in which Licensor has secured trademark registration for the
Proprietary Marks and secured other government approvals necessary for the
wholesale and retail distribution and sale of TJC Products. Except as set forth
in this Section 4.6, Licensor shall have no obligation to register any mark in
any foreign country. If Licensee seeks to sell or license others to sell
Approved TJC Wholesale Products in a foreign country in which Licensor has not
secured trademark registration, Licensee may request, in writing, that Licensor
proceed with trademark registration and other governmental approvals in such
country. Upon such request, and unless Licensor notifies Licensee in writing
with reasons why Licensor cannot or should not register the Proprietary Marks in
such foreign country, Licensor shall proceed in accordance with Licensee's
request, and Licensee shall pay Licensor all of Licensor's costs and expenses,
including attorney's fees, application and filing fees, and search fees, in
securing trademark registrations, obtaining all government approvals, and
maintain trademark registrations, in the foreign country.
4.7 Licensee shall comply with Licensor's standards and specifications for
the manufacture, packaging, distribution, and sale of Approved TJC Wholesale
Products, the advertising and promotion of Approved TJC Wholesale Products, and
Licensor's guidelines
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regarding the Supermarket Chains that may purchase, receive, and resell Approved
TJC Wholesale Products. Without limiting the requirements of Section 6 of this
Agreement, Licensee may request modifications to the standards and
specifications for the Approved TJC Wholesale Products and/or approval of
Supermarket Chains. All requests for modifications or consents under this
Section 4 shall be in writing. Licensor shall have an initial response period
from receipt of the written request ("Initial Response Period") within which
Licensor shall respond to Licensee. If Licensor fails to respond, such request
shall not be deemed approved; provided, however, that Licensee shall have
fifteen (15) days following the end of the Initial Response Period to request
that Licensor respond to the initial request. Licensor shall have a secondary
response period ("Secondary Response Period") following receipt of Licensee's
second request to respond to Licensee. The Initial Response Period and the
Secondary Response Period shall vary depending upon the nature and subject of
Licensee's request, and shall be the response periods set forth in the chart
below.
<TABLE>
<CAPTION>
Request Initial Response Period Secondary Response Period
- ------- ----------------------- -------------------------
<S> <C> <C>
Product specifications, 30 days 15 days
recipes (section 4.2)
Supermarket Chains; 15 days 15 days
other customers (section 4.3)
Packaging or Proprietary 30 days 15 days
Marks (section 4.7)
Advertising (section 4.7; section 10.1) 15 days 15 days
Contracts (section 4.4) 30 days 15 days
</TABLE>
If Licensor fails to respond to the second written request within the
Secondary Response Period, Licensee's request for a modification or consent
shall be deemed approved. Licensor may respond to any request by Licensee in
writing, and such response may include an approval, a disapproval, a request for
submission of additional information, and/or a request for a reasonable amount
of additional time to respond to the request. Licensor shall not be required to
provide reasons for its decisions, but shall use good faith efforts to provide a
written reason for its action within one of several broad categories of reasons.
If, within the first twenty-four (24) months following execution of this
Agreement, Licensor denies Licensee's request for one or more of the subjects
above, and Licensor fails to provide any reason for the denial or disapproval,
the Wholesale Rights Period shall be extended for a period of three (3) months
in each such instance. Licensee acknowledges and agrees that it shall not make
repeated requests for approval if there is a reasonable likelihood that Licensor
will deny these requests without a reason. Licensor's decision in response to
Licensee's requests shall be final; provided however, that Licensee may request
a reconsideration of a decision, through a non-binding mediation process.
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Licensee shall not request mediation of any one or more disapproved or
denied consents more frequently than once every six (6) months; the mediation
shall be governed according to the rules specified by Licensor, which are set
forth in Exhibit M; and Licensee shall pay all costs and expenses of such
mediation, including the mediator's costs, and the out-of-pocket costs of
Licensor, its employees, and agents (including, without limitation, travel
expenses, but excluding professional fees of Licensor's attorneys and
accountants).
4.8 Licensor shall designate and identify to Licensee one person in
Licensor's organization who shall be the principal liaison, and one person who
shall be a secondary liaison, between Licensor and Licensee with respect to
Licensor's development of TJC Products and Licensee's operations under Section 4
hereof. Licensor may change or replace either or both persons at any time, in
its sole discretion, and Licensor shall promptly notify Licensee of any such
change.
5. LICENSING BY LICENSEE; ENFORCEMENT OF TJC LICENSE AGREEMENTS
5.1 Except as set forth in Section 3.6 and Section 4, Licensee shall not
enter into new TJC License Agreements nor shall Licensee grant renewals or
extensions of TJC License Agreements for terms exceeding the renewal or
extension terms currently permitted under such agreements. Licensor shall have
the sole and exclusive right to grant new franchises for TJC Bakeries or new
licenses for TJC Retail Locations, but shall have no obligation to do so.
5.2 Licensee represents and warrants that Exhibit B, attached hereto,
contains a true and accurate list of all TJC Licensees that, as of the date of
this Agreement, were operating under enforceable TJC License Agreements.
Licensee covenants to advise Licensor within ten (10) days of any change in such
list. Licensee shall not alter or amend any TJC License Agreement without
receiving Licensor's prior written approval, unless Licensee's failure to do so
would be a material breach of the TJC License Agreement or would be a violation
of law.
5.3 Licensor shall have the right to review all forms of franchise and
license agreements proposed by Licensee, including TJC Franchise Agreements
utilized in the renewal or transfer of the TJC Franchise Agreements listed in
Exhibit B, and Licensor may, in its sole discretion, disapprove of any such form
or may require, from time-to-time, changes to any such agreement. With respect
to TJC Bakeries, as of the date hereof, Licensor has approved the form of TJC
Franchise Agreement attached hereto as Exhibit E, which Licensee acknowledges
contains provisions which conform the TJC Franchise Agreement to the provisions
of this Agreement, which are described in further detail in Section 5.4 below.
5.4 With respect to the TJC License Agreements, Licensee shall seek to
amend or modify the TJC License Agreements to include, and the form of all new
TJC License Agreements that may be permitted hereunder (including agreements
with Wholesale Licensees and other agreements referred to in Section 4.4) shall
include, such provisions as requested by Licensor to control the use of the
Intellectual Property by TJC Licensees, and to maintain uniform and consistent
operations of, and the uniformity of TJC Products prepared by, TJC
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<PAGE>
Licensees. Such provisions may include, without limitation, provisions that (a)
concern (i) the use and protection of the Proprietary Marks, (ii) the
preparation and sale of TJC Products and the operation of TJC Bakeries in
conformity with the Proprietary Information, and (iii) the maintenance of the
confidentiality of the Proprietary Information; (b) conform the TJC License
Agreements to the provisions of this Agreement to permit Licensee to fulfill its
obligations under this Agreement and to enforce the rights granted in and to the
Intellectual Property; and (c) designate Licensor as an agent of Licensee to
inspect the operations of the TJC Licensees. The form of modifications and
addenda to the form of the TJC License Agreements, currently approved by
Licensor, are set forth in Exhibit F hereto. Licensee shall, to the fullest
extent possible under TJC License Agreements (as they may be amended, if at all,
as provided herein), enforce the standards and specifications concerning and
related to the use of the Intellectual Property by TJC Licensees, the operation
of the TJC Bakeries and other businesses that prepare and sell TJC Products, and
such other matters as Licensor may specify, in the manner prescribed by
Licensor. With respect to new TJC License Agreements, Licensee shall enforce the
standards and specifications concerning and related to the use of the
Intellectual Property by TJC Licensees, the operation of the TJC Bakeries, and
other businesses that prepare and sell TJC Products, and such other matters as
Licensor may specify. The enforcement of the TJC License Agreements may include
terminating an agreement with a TJC Licensee if any such TJC Licensee fails to
comply with the required standards and specifications. Failure by Licensee to
enforce the provisions of the TJC License Agreements or new TJC License
Agreements as required by this Agreement shall be a material breach of this
Agreement for which Licensor may terminate this Agreement; provided, however,
that if TJ Holding Company, Inc., pursuant to the Management Agreement, fails to
enforce the provisions of the TJC License Agreements, or takes actions that
could be deemed to be a default of Licensee under a TJC License Agreement, such
failure to enforce the agreements on behalf of Licensee, or such actions, shall
not be grounds to terminate this Agreement.
5.5 In addition to Licensor's right to review and approve all TJC License
Agreements, all such agreements (including TJC License Agreements to the extent
modified as required by this Section 5) shall contain a provision which grants
Licensor the right to enforce any provision of such agreement to the fullest
extent necessary to protect Licensor's rights in and to the Intellectual
Property, and to maintain uniformity and consistency in the TJC Products that
are prepared, distributed, or sold pursuant to this Agreement or under a
sublicense executed pursuant to this Agreement.
5.6 Licensee acknowledges that the operation of TJC Bakeries by Licensee
and Franchisees reflects on the goodwill and reputation of Licensor and the
Proprietary Marks. Accordingly, Licensee shall operate, and shall cause its
Franchisees to operate, the TJC Bakeries in strict conformity with the standards
and specifications prescribed by Licensor, to the extent permissible under the
TJC Franchise Agreements. Such standards, specifications, and operational
requirements shall include, without limitation, the following:
5.6.1 Licensor shall have the right, in its sole discretion, in addition to
designating the Required TJC Products and the Permitted TJC Products to be sold
at a TJC
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bakery, to designate and approve of all other products sold at or from any TJC
Bakery, and Licensor may specify the brand, quality, and specification of any
products sold at or from any TJC Bakery. Licensee shall comply, and shall cause
Franchisees to comply, with Licensor's standards and specifications concerning
all products and services offered at a TJC Bakery.
5.6.2 The TJC Bakeries shall display the Proprietary Marks and other decor
items in a manner that adheres to Licensor's standards and specifications
concerning trade dress, decor, and use and presentation of the Proprietary
Marks.
5.6.3 Licensee's operation of the TJC Bakery referred to in Exhibit B shall
be subject to, and all TJC Franchise Agreements executed upon renewal or
transfer shall be subject to, a protected territory or area of exclusivity that
is not larger than the boundaries of the physical building of the shopping mall
in which the TJC Bakery is located. The protected territory or area of
exclusivity granted in any TJC Franchise Agreement shall restrict only the
establishment of new TJC Bakeries, and shall not be inconsistent with the
provisions and restrictions described in this Section 5.6.3. Licensor shall not
establish, nor grant licenses to establish, TJC Bakeries in an enclosed shopping
mall or at any location within the boundaries the physical building of the
shopping mall, in which a TJC Bakery is operated by Licensee a Franchisee;
provided however, that Licensor may sell, and may license others to sell, TJC
Products from any location, even within a protected territory or area of
exclusivity of a TJC Bakery, including without limitation, from limited service
bakeries, kiosks, convenience stores, other restaurants or food service outlets,
and dual-brand and multiple-brand restaurants, provided that the location from
which the TJC Products are sold does not sell all Required TJC Products, the
minimum varieties of Permitted TJC Products, and such other products and
beverages that Licensor typically requires of full-service TJC Bakeries
described in Section 3.3 hereof. Notwithstanding the foregoing, Licensor shall
not establish nor license a TJC Bakery, nor sell license others to sell, TJC
Products, if such TJC Bakery or sale of TJC Products would violate any provision
of any TJC License Agreement.
5.7 With respect to the sale of TJC Products at TJC Retail Locations or at
wholesale, Licensee shall not have, Retail Licensees shall not have, and
Licensee shall not grant to any Wholesale Licensee, any protected territory or
area of exclusivity concerning the sale of TJC Products from any other location
or by any other person or entity. Notwithstanding the foregoing, Licensor shall
not sell, nor franchise or license others to sell, TJC Products in any area, or
in any manner, that would violate any valid and enforceable provision of any TJC
License Agreement.
5.8 Licensee shall comply with all laws, rules, and regulations in offering
and selling licenses and franchises, and executing TJC License Agreements,
including the Federal Trade Commission's trade regulation rule concerning the
offer and sale of franchises and business opportunities, all state franchise
investment laws, business opportunity laws, and seller-assisted marketing plan
laws, and all laws governing relationships with franchisees, licensees, and
dealers. Licensor shall have the right to review and approve all forms of
franchise offering circulars utilized by Licensee, and Licensee shall provide
Licensor with copies of all documents
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<PAGE>
reasonably required by Licensor for that purpose. Licensor reserves the right to
utilize its own form of franchise offering circular in connection with the
offer, sale, or grant of new, renewed, or transferred TJC Franchise Agreements
or other TJC License Agreements.
6. PREPARATION OF TJC PRODUCTS
6.1 Licensee shall use the Proprietary Information in accordance with the
standards and specifications prescribed by Licensor. All TJC Products prepared,
distributed, or sold by Licensee and/or TJC Licensees, pursuant to this
Agreement, shall be identified, distributed, or sold only under the Proprietary
Marks in the form and manner specified and approved by Licensor. Licensee and
its TJC Licensees may distribute and sell TJC Products only through the channels
of distribution specified in Section 3 and Section 4 hereof.
6.2 Licensee shall prepare the TJC Products in accordance with the
Proprietary Information, and shall conform the operation of its business to the
methods, standards, and specifications prescribed in the Proprietary
Information. Licensee shall not sell or otherwise dispose of products under the
Proprietary Marks unless such products are TJC Products produced in accordance
with the Proprietary Information. Licensee shall submit samples of TJC Products
to Licensor at such times and such places as Licensor may reasonably specify for
the purposes of determining that the TJC Products conform to the Proprietary
Information. Licensee shall make appropriate periodic tests for controlling the
quality of the ingredients and baking procedures utilized in the production of
TJC Products by Licensee, in accordance with Licensor's requests and
instructions. Licensee shall permit representatives of Licensor, upon reasonable
notice, to inspect any and all of Licensee's production and/or distribution
facilities, and to examine and test the ingredients, supplies, containers, and
accessories used by Licensee. Licensor shall not conduct more than three (3)
inspections in any twelve (12) month period, unless Licensor reasonably believes
that there is a reason to do so. Licensor shall pay for its own costs in
conducting such inspections. Licensee shall make available to such
representatives all information necessary to render full and effective
assistance. If any such facility, or any sample of TJC Products, does not
substantially comply with the standards prescribed by Licensor, Licensee shall,
at its own expense, remedy the facilities, manufacturing processes, ingredients,
or final TJC Products so that they comply with the Technical Information and
other standards specified by Licensor.
6.3 All TJC Products produced or prepared pursuant to this Agreement shall
be made with only such materials and ingredients as are of the quality that has
been specified by Licensor, and supplied by a source that has been approved by
Licensor. Licensee shall obtain and use ingredients made with the Secret Recipes
only from a manufacturer approved, and if required by Licensor, licensed, by
Licensor. All standards and specifications, and sources of supply, currently
approved by Licensor are set forth in Exhibit G; provided that Licensor may
modify or revoke such approvals in its sole discretion. If Licensee desires to
purchase any of the items specified in this Section 6, or items otherwise
required by Licensor for the operation of the businesses contemplated under this
Agreement (other than ingredients utilizing the Secret Recipes that must be
purchased from sources designated by Licensor), from a supplier who has
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<PAGE>
not been approved by Licensor, Licensee may request in writing approval by
Licensor of such suppler. Licensor may approve such proposed supplier if in
Licensor's sole judgement and discretion the proposed supplier can meet and
maintain Licensor's specifications, standards, and requirements. In making any
such request, Licensee, at its expense, shall furnish Licensor with adequate
samples of the items for which approval is being requested or, if that is not
feasible, with copies of descriptions, specifications, and pictures of such
items. Licensee shall not sell, dispense or use any such items unless and until
Licensor has given written notice of approval Licensee. Nothing contained herein
shall be construed to require Licensor to approve an unreasonable number of
suppliers for any particular item or service. Licensee shall enforce the TJC
License Agreements in a manner that is consistent with the provisions of this
Section 6.3.
6.4 Licensee shall not use, nor permit any person or entity to use, the
Proprietary Information or any part of the Secret Recipes or Technical
Information for the manufacture of anything other than TJC Products. Upon
termination of this Agreement for any reason, Licensee shall immediately cease
to manufacture and distribute the TJC Products and shall deliver to Licensor all
Proprietary Information under its control.
6.5 Licensee may utilize the Proprietary Information to make new or to
modify existing TJC Products, provided that Licensee complies with the
provisions of Section 13.5. In addition, Licensee may produce, prepare, and sell
products other than the TJC Products, provided that the production of such
products does not involve the use of any of the Proprietary Information, that
such products are not identified, in any manner, with the Proprietary Marks, and
that such activities do not violate the provisions of Section 15.
6.6 Licensee acknowledges and agrees that the preparation and sale of TJC
Products and the operation of TJC Bakeries in a uniform manner by Licensor's
franchisees and licensees, Licensee, TJC Licensees, and others permitted by
Licensor to prepare and sell TJC Products, enhances the goodwill associated with
the Proprietary Marks, and the goodwill and reputation of Licensor. Licensor
hereby appoints Licensee as its non-exclusive designee, and Licensee undertakes
the obligations, to inspect the operations of Franchisees and other TJC
Licensees on behalf of Licensor, and to report to Licensor concerning, and
enforce the quality control standards set forth in this Agreement regarding, the
preparation and sale of TJC Products by TJC Licensees.
7. PROPRIETARY MARKS
7.1 Licensee shall use the Proprietary Marks only to the extent permitted
in this Agreement, and only in the manner specified by, and in accordance with
the standards and specifications of, Licensor, as set forth in this Agreement,
or otherwise in writing.
7.2 Licensee agrees that it shall not manufacture, produce, bake, sell, or
distribute products that bear the Proprietary Marks, or license or permit,
subject to the TJC License Agreements, anyone else to do so, except in
accordance with this Agreement, and shall not use
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<PAGE>
names and marks confusingly similar to the Proprietary Marks in the sale or
distribution of any products, or in the operation, franchising, or licensing of
wholesale or retail businesses.
7.3 In order to protect and maintain the Proprietary Marks, Licensee shall
execute any documents deemed necessary by Licensor to obtain protection for the
Proprietary Marks or to maintain their continued validity and enforceability.
7.4 Licensee shall promptly notify Licensor of any known or suspected
infringement of the Proprietary Marks involving the businesses and activities
contemplated hereunder, any known challenge to the validity of the Proprietary
Marks, or any known challenge to Licensor's ownership of, or Licensee's right to
use, the Proprietary Marks licensed hereunder, or any unauthorized use of the
Proprietary Marks; of any acts, events, or conduct amounting to a passing-off of
any goods as TJC Products or retail outlets as TJC Bakeries; and any application
or filing for registration of any trademark, service mark, name, design,
copyright, or similar matter which may conflict with or be deceptively similar
to any of the Proprietary Marks. Licensee acknowledges that Licensor shall have
the sole right to direct and control any administrative proceeding or litigation
involving the Proprietary Marks, including any matter in which any TJC Licensee
is a defendant, including any settlement thereof. Licensor shall also have the
sole right, but not the obligation, to take action against uses by others that
may constitute infringement of the Proprietary Marks. Licensee shall implement
this right to the fullest extent possible under the TJC License Agreements.
7.4.1 If Licensee has used the Proprietary Marks in accordance with
this Agreement, Licensor shall defend, indemnify, and hold Licensee, its
affiliates, directors, agents, and employees harmless, at Licensor's sole
expense, from and against any third party claim, suit, or demand involving
the Proprietary Marks arising out of Licensee's use thereof, except for
claims, suits, or demands arising out of Licensee's use of the Proprietary
Marks prior to the date of this License Agreement. If Licensee has not used
the Proprietary Marks in accordance with this Agreement and such
non-conforming use has resulted in any such third party claim, suit, or
demand, Licensor will direct and control the defense of such claim, suit,
and/or demand, at Licensee's expense, and Licensee shall indemnify and hold
Licensor, its affiliates, directors, agents, and employees harmless, at
Licensee's sole expense, from and against any such third party claims,
suits, or demands (including without limitation legal fees).
7.4.2 If Licensor undertakes the defense or prosecution of any
litigation relating to the Proprietary Marks, Licensee shall execute any
and all documents and do such acts and things as may, in the opinion of
counsel for Licensor, be necessary to carry out such defense or
prosecution, including, but not limited to, becoming a nominal party to any
legal action if Licensee is not already a party to such action. Except to
the extent that such litigation is the result of Licensee's use of the
Proprietary Marks in a manner inconsistent with the terms of this
Agreement, or is the result of Licensee's use of the Proprietary Marks
prior to the date of this Agreement, Licensor agrees that it shall
reimburse Licensee for its out of pocket costs in doing such acts and
things, except that Licensee shall bear the salary costs of its employees,
and Licensor shall bear the costs of any judgment or settlement. To the
extent such claim or
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litigation is the result of Licensee's use of the Proprietary Marks in a manner
inconsistent with be terms of this Agreement or use prior to the date of this
Agreement, Licensee shall reimburse Licensor for Licensor's costs in defending
such litigation; except, that Licensor shall bear the salary costs of its
employees, and Licensee shall bear the costs, of any judgment or settlement.
7.4.3 When requested by Licensor, Licensee shall cooperate with
Licensor in any action to restrain and prevent any such unauthorized use or
passing-off or to oppose or cancel any such application, filing, or
registration. Licensee shall take no legal or other action against such
uses without the prior written approval of Licensor.
7.5 Licensee shall not use, nor permit TJC Licensees who execute agreements
with Licensee after the date of this Agreement to use, the Proprietary Marks as
part of its/their corporate or other legal name. Immediately upon execution of
this Agreement, Licensee shall execute and file with all appropriate state and
local agencies, a change of name notice and such other applicable documents
necessary to comply with this provision. Licensee shall use best efforts,
without the requirement of making any payments to such TJC Licensees, to require
that TJC Licensees who executed agreements with Licensee prior to the date of
this Agreement who use the Proprietary Marks as part of their corporate or other
legal name to change such name so as to not use the Proprietary Marks.
7.6 Licensee shall not directly or indirectly contest the validity of
Licensor's ownership of the Proprietary Marks.
7.7 Licensee expressly understands and acknowledges that:
7.7.1 Licensee's, and the TJC Licensees', use of the Proprietary Marks
pursuant to this Agreement do not give it or any TJC Licensee any ownership
interest or other interest in or to the Proprietary Marks, except the
license granted by this Agreement; and
7.7.2 Any and all goodwill arising out of Licensee's use and the TJC
Licensees' use of the Proprietary Marks under this Agreement shall inure
solely and exclusively to Licensor benefit.
7.8 Licensee shall not register or attempt to register any Proprietary
Mark, or any mark or name which incorporates all or part of any Proprietary
Mark, in any country in the world.
7.9 Licensor has the right to modify and/or to discontinue the use of any
or all of the Proprietary Marks, or to use other names or marks to identify the
TJC Products and the products and services offered at TJC Bakeries; provided,
however, that if Licensor discontinues a Proprietary Mark that is used with or
on a product that represents a "significant percentage" of Licensee's wholesale
business, Licensor will provide a substitute Proprietary Mark for that product
or products. The parties hereto agree that "significant percentage" shall mean a
percentage of gross revenues received by Licensee from the sale of such product
in the twelve-
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month period prior to Licensor's notice of discontinuance of a mark, or in the
event such notice occurs prior to the end of the first twelve (12) months, the
number of months that Licensee has been operating under this Agreement prior to
such notice by Licensor, and that if such notification by Licensor is provided:
(a) during first twelve months following execution of this Agreement, that
percentage is five percent (5%) or more; (b) during second twelve months
following execution of this Agreement, the percentage shall be ten percent (10%)
or more; and (c) at any time following the twenty-fourth (24th) month after
execution of this Agreement, that percentage shall be twenty percent (20%) or
more. Upon one hundred twenty (120) days prior written notice from Licensor,
Licensee shall comply with Licensor's standards and specifications with respect
to the use, and the licensing of others to use, any modified Proprietary Marks
or the new names and marks; provided that Licensee may continue to utilize
existing inventory or supplies that bear the old or discontinued Proprietary
Marks after the 120-day period, if such inventory or supplies were purchased
prior to Licensor's notice of such modification or discontinuance. Licensee
shall be responsible for all costs associated with any such change, and Licensor
shall have no liability to Licensee therefor.
7.10 Licensor is the owner of all rights, title and interest in the
Proprietary Marks, and Licensor agrees to use best efforts to maintain the
validity of, and the registrations for, Proprietary Marks licensed hereunder.
8. PROPRIETARY INFORMATION
8.1 Licensee acknowledges that the Proprietary Information, including the
Secret Recipes, the Technical Information, the techniques, know-how, trade
secrets, formulas, specifications, and all other information relating to the TJC
Products are trade secrets of Licensor. Licensee acknowledges that Licensee does
not and shall not acquire any right or interest therein beyond the rights
expressly granted to it under this Agreement. Licensee shall maintain adequate
security in the control, use, and handling of the Proprietary Information in
accordance with the guidelines and instructions prescribed by Licensor from time
to time.
8.2 Licensor has the right to modify any aspect of the Proprietary
Information, and upon one hundred twenty (120) days prior written notice from
Licensor, Licensee shall comply with Licensor's standards and specifications
with respect to the use, and the licensing of others to use, the modified
Proprietary Information.
8.3 Licensee shall not knowingly engage, or assist others to engage, in any
activity which constitutes an infringement, appropriation, copying, unauthorized
use, or imitation of any the Proprietary Information or other features of the
Intellectual Property, or which otherwise threaten any interest of Licensor.
8.4 Except as specifically provided in this Agreement, Licensee shall not
at anytime, during the term of this Agreement or thereafter, use or permit
others to use any of the Intellectual Property to manufacture or identify
cinnamon rolls or other bakery products.
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8.5 Licensee shall promptly notify Licensor in writing of any unauthorized
use of the Proprietary Information. Licensor shall have the sole right to direct
and control any administrative proceeding or litigation involving the
Proprietary Information, including any settlement thereof. Licensee shall
cooperate with Licensor in all matters concerning the Proprietary Information.
9. TERMINATION
9.1 If Licensee is in default under this Agreement and fails to cure such
default within the time period specified below after notice from Licensor, to
the extent such default is susceptible to cure, this Agreement, and all rights
granted to Licensee herein shall terminate upon the expiration of the applicable
cure period. The events of default and the applicable cure periods are as
follows:
9.1.1 If Licensee fails to comply with, or fails to cause any TJC
Licensee to comply with, any of the standards or specifications prescribed
by Licensor regarding the use or licensing of the Intellectual Property, or
the production, distribution, or sale of the TJC Products or New TJC
Products (defined in Section 12), and fails to cure such default within
thirty (30) days following Licensor's notice; provided, however, that if
Licensor reasonably believes that the default adversely affects Licensor,
the Proprietary Marks, or the goodwill associated with Licensor, the
Proprietary Marks or the TJC Products, Licensee shall, notwithstanding the
thirty (30) day cure period, immediately cease such action, and Licensor
may seek injunctive relief to prevent further defaults which Licensee
agrees that it shall not oppose. Within fifteen (15) days following
Licensor's notice, Licensee may provide information and materials to
Licensor in an attempt to demonstrate that Licensee's default will not
adversely affect Licensor, the Proprietary Marks or the goodwill.
9.1.2 If Licensee breaches any covenant, promise or obligation in this
Agreement, except those specified in Sections 9.1.1 and 9.1.3, Section 9.3
or Section 9.4 hereof, and fails to cure such breach within thirty (30)
days following Licensor's notice of default.
9.1.3 If Licensee fails to pay all royalties and other payments when
due, and fails to cure such breach within ten (10) days after receipt of
notice from Licensor.
9.2 Upon notice of default from Licensor for a default specified in Section
9.1, Licensee shall diligently commence actions to cure such default. If a
default is not susceptible to cure within the period specified in Section 9.1,
Licensee may avoid termination if Licensee diligently commences actions to cure
such default, actively pursues all available remedies and actions, cures such
default within a reasonable time, and provides Licensor with regular reports
concerning the progress to cure such default.
9.3 Notwithstanding the provisions of Section 9.1, 9.2, or 9.4, after the
first twelve (12) months of this Agreement, if Licensee commits a breach of this
Agreement and has
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received a notice of default provided for in this Section 9, four (4) times for
substantially the same default, whether or not such defaults have been cured
after notice, this Agreement shall terminate immediately upon notice to Licensee
of the fourth (4th) default; provided however that this provision shall apply
only to repeated breaches of Section 9.1.1 and Section 9.1.2.
9.4 Either party shall have the right to terminate this Agreement
forthwith, without notice, if the other party becomes "insolvent" (as defined
below) or makes an assignment for the benefit of creditors, or if a voluntary or
involuntary petition in bankruptcy is filed by or against the other party, or if
a receiver or trustee of the business of the other party is appointed or an
attachment levied against the property of the other party used in its business
hereunder and such receivership, trusteeship, or attachment is not dissolved
within fifteen (15) days from the date of filing thereof, or in the event of the
issuance of a court order or writ for the sale or transfer of other party's
property used in its business hereunder. "Insolvent" shall mean, as applied to
Licensee, liabilities exceeding assets by a ratio of at least 1.5 to 1, and such
ratio has not been less than 1.5 to 1 within the ninety (90) days following
notice of a default for insolvency.
9.5 In the event of expiration, assignment by Licensee, or termination of
this Agreement, regardless of the cause of termination, Licensee shall forthwith
cease to use, for any purpose, any and all of the Intellectual Property.
Licensee shall promptly return to Licensor all signs, packaging, supplies,
lists, forms, and other materials containing any of the Proprietary Marks, and
any and all copies of the Proprietary Information. Upon expiration or
termination of this Agreement by Licensor, Licensee shall transfer and assign to
Licensor, and Licensor shall assume, all of Licensee's rights and obligations as
"franchisor" or "licensor" in all TJC License Agreements for the remaining
period of the term of such agreements. Licensee shall utilize and execute the
forms of agreements prescribed by Licensor governing the transfer, assignment
of, and subsequent post-transfer operations under, the TJC License Agreements.
10. ADVERTISING AND PROMOTION
10.1 All advertising and promotional material prepared by or to be used by
Licensee or TJC Licensees in connection with the manufacture, sale or
distribution of the TJC Products, including product packaging and wrappings,
shall be subject to the prior written approval of Licensor. For all advertising,
promotional plans, packaging, containers, and/or labels for the TJC Products not
prescribed by Licensor, Licensee shall submit samples of such materials to
Licensor for Licensor's prior written approval (except with respect to
advertised or suggested retail prices). Except with respect to approval of
advertising and promotion by Licensee of Approved TJC Wholesale Products, the
procedures for which are set forth in Section 4.7, Licensor shall review and
respond to such submission within thirty (30) days after receipt of the
materials required under the prior sentence. Failure to respond within such time
period shall not be deemed approved by Licensor. Licensee shall not use such
proposed advertising, promotiona1 plans, packaging, containers, and/or labels
without Licensor's prior written approval. All rights in and to such
advertising, promotional plans, packaging, containers, and/or labels, including
without limitation copyrights, shall become the exclusive property of Licensor
without separate charge to Licensee); and this Agreement constitutes a license
from Licensor
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to Licensee to use such rights for the term of this Agreement. Licensee agrees
that it shall sign such documents (and cause any contractors, agencies, and
persons other than its employees who work on such advertising, promotional
plans, packaging, containers, and/or labels to sign such documents) as Licensor
may reasonably require in order to implement the terms of this provision.
10.2 Licensor shall have the right to disapprove the subsequent use of any
previously approved advertising; and Licensee shall promptly discontinue, and
shall cause its TJC Licensees to discontinue, use of advertising or promotional
programs or materials upon notice from Licensor.
10.3 Licensor shall not be liable to Licensee as a result of any review,
approval, or disapproval of any advertising; and Licensee acknowledges that
Licensor review of advertising is to enforce the proper use of the Proprietary
Marks in advertising. Licensee shall indemnify and hold harmless Licensor and
its affiliates against and from any and all claims, demands, suits, costs, or
expenses resulting from Licensee's use of advertising.
10.4 In the event Licensee develops its business to include business
activities not [subject to this Agreement, and if Licensee develops advertising
or promotional material that does not relate to, in any way or mention, nor
depict, any TJC Product, or Licensee's rights under this Agreement, such
advertising or promotional material shall be owned by Licensee and not by
Licensor.
11. TECHNICAL ASSISTANCE
Licensor will disclose or make available to Licensee the Secret Recipes and
Technical Information in such detail as to enable Licensee to produce the TJC
Products in the Territory, and to license the TJC Licensees to produce the TJC
Products in the Territory, in accordance with Licensor's standards and
specifications. From time-to-time during the term of this Agreement, Licensor
shall disclose and make available to Licensee additional Technical Information
concerning modifications, alterations, additions, or amendments to the
Proprietary Information to permit Licensee and the TJC Licenses to produce the
TJC Products at all times in accordance with Licensor's then-current procedures,
specifications, and standards.
12. NEW PRODUCTS
12.1 Licensor shall have no obligation to Licensee or any TJC Licensee to
produce or develop new products utilizing the Proprietary Information or to
modify existing TJC Products.
12.2 In the event Licensor develops a new product that utilizes or
incorporates all or a material part of the Proprietary Information ("New TJC
Product"), Licensor may offer Licensee the right to sell at retail, and license
or franchise others to sell at retail, such New TJC Product under the same terms
and conditions specified herein for TJC Products; provided that any such
production, distribution, or sales of New TJC Products shall be limited to the
specific
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activities set forth in Section 1.1, Section 3, and Section 5 with respect to
TJC Products, and such activities shall be in compliance with all other terms
and conditions of this Agreement. licensee shall not be required to produce,
distribute, or sell, or to license to TJC Licensees the right to produce,
distribute, or sell, any New TJC Product. In connection with Licensor's offer of
any New TJC Products to Licensee, Licensor shall make available to Licensee, for
its review, copies of the Proprietary Information, the specifications and
standards, and any other guidelines related to the New TJC Product; provided,
and upon the express condition, that such information shall remain confidential
in accordance with the terms and provisions of Section 14. Further, Licensee
hereby agrees that if a New TJC Product is a Permitted TJC Product, Licensee
shall not declare or authorize such product as a "Required Product" (as defined
in the TJC Franchise Agreements) under the TJC Franchise Agreements even if such
a designation is permissible under one or more of the TJC Franchise Agreements.
12.3 If Licensee desires to sell a New TJC Product, or to license or
franchise others to do so, Licensee agrees:
12.3.1 to notify Licensor in writing of its intent to sell, or permit
TJC Licensees to sell, the New TJC Product, and to identify the specific
retail or wholesale locations or operations, and TJC Licensees, if any,
that offer the New TJC Products, and to provide periodic updates to such
information as requested by Licensor;
12.3.2 to follow all rules, guidelines, instructions, and
specifications regarding the production, storage, distribution, retail
display, and sale of the New TJC Products;
12.3.3 to pay Licensor a New Product Royalty Fee equal to two percent
(2%) of gross sales of the New TJC Products by Licensee and all TJC
Licensees for two (2) years following Licensee's notice to Licensor of
Licensee's agreement to sell the New TJC products, and three percent (3%)
of gross sales of the New TJC Products by Licensee and all TJC Licensees
for the remaining term of this Agreement.
12.4 For the purposes of this Agreement, "gross sales" shall include
all revenue from the sale of New TJC Products, whether for cash or credit,
received by Licensee or the applicable TJC Licensees; and shall not include
(i) any sales tax or other taxes collected from customers and paid directly
to the appropriate tax authorities, (ii) the retail value of employee
purchases of New TJC Products, or (iii) the coupon value of New TJC
Products distributed with promotional coupons.
12.5 Payments of the New Product Royalty Fee shall be paid to Licensor
on the twentieth (20th) day of January, April, July, and October, based on
the gross sales of New TJC Products by Licensee and TJC Licensees, for the
preceding calendar quarter, regardless of payment by the TJC Licensee or
collection by Licensee.
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12.6 If Licensee elects to produce, distribute, or sell the New TJC Product
as permitted in Section 12.3, all references to TJC Products in this Agreement
shall be deemed to include New TJC Products.
12.7 In the event Licensee or any TJC Licensee develops any new product, or
modifies an existing TJC Product, and utilizes any part of the Proprietary
Information in that process, or discovers or is informed of any alteration,
addition, or improvement in or to the Proprietary Information, Licensee shall
immediately notify Licensor of such new or modified product, and shal1 provide
Licensor with all specifications, recipes, or other information related to such
product. Licensee may not, and will not permit TJC Licensees to, produce for
resale, or sell, any such product without receiving Licensor's prior written
approval, and may do so only if Licensee and TJC Licensees complies with
Licensor's standards and specifications regarding the production, distribution,
packaging, retail presentation, and sale of such product. Licensee agrees that
any and all alterations, additions, or improvements to the Proprietary
Information, or new products, concepts, ideas, or recipes, developed in whole or
in part by Licensee or its TJC Licensees that use all or part of the Proprietary
Information shall be the property of Licensor, and Licensee shall execute all
other documents required by Licensor to effectuate this provision.
13. REPORTS AND RECORD KEEPING
13.1 Licensee shall prepare and maintain full, complete, and accurate
records of its business operations pursuant to this Agreement in such manner,
and with such information, as Licensor may specify, including (a) information
concerning each agreement with a TJC Licensee, including addresses, new
licenses, terminations, lawsuits filed by or against the TJC Licensee, and such
other information as Licensor may specify; (b) quarterly sales and revenue
reports for all TJC Bakeries, and quarterly sales and revenue reports concerning
sales of TJC Products from TJC Retail Locations; (c) information concerning the
operation of each TJC Licensee as it pertains to the preparation and sale of TJC
Products; and (e) such other reports as may be specified by Licensor. Licensor
reserves the right to require more frequent reports as Licensor may determine in
its reasonable discretion. In particular, Licensee shall maintain and shall
cause its TJC Licensees to maintain and provide to Licensee, sales and revenue
reports in a form specified by Licensor to accurately report gross sales
necessary to determine the royalty fees owed under Section 12 above.
13.2 Licensor reserves the right to review, at Licensor's sole cost and
expense, and inspect all books, records, and accounts of Licensee, and to
conduct an audit of Licensee's books, records, and accounts. Licensor shall not
conduct more than three (3) inspections or audits within any year unless
Licensor reasonably believes that there is a reason to do so. Further, Licensee
shall appoint Licensor, upon Licensor's reasonable request, as Licensee's
designee to inspect the books, records, and accounts of the TJC Licensees to the
extent permitted under the TJC License Agreements.
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14. CONFIDENTIALITY, NON-DISCLOSURE, AND NON-COMPETE
14.1 Licensee acknowledges and agrees that Licensor owns all of the
Intellectual Property. Licensee further acknowledges and agrees that the
Intellectual Property includes of trade secrets and confidential and proprietary
information and know-how that gives Licensor a competitive advantage; that all
measures necessary to protect the trade secrets, the confidentiality of the
Proprietary Information, and know-how comprising the Intellectual Property have
been taken; that all material or other information now or hereafter provided or
disclosed to Licensee regarding the Intellectual Property is and will be
disclosed in confidence; that Licensee has no right to disclose any part of it
to anyone who is not a TJC Licensee or an employee or professional
representative of Licensee; and that Licensee will disclose to its employees and
the TJC Licensees only those parts of the Intellectual Property that an employee
or a TJC Licensee needs to know. Licensor and Licensee agree that confidential
information shall exclude information that (a) has been or is obtained by a
third party from a source independent of Licensor, Licensee, their affiliates,
or their respective officers, directors, employees or agents, and such third
party is not desiring such information; (b) is or becomes generally available to
the public other than as a result of an unauthorized disclosure by Licensee or
its affiliates or their personnel; or (c) is independently developed by Licensee
without reliance in any way or the Intellectual Property.
14.2 Licensee will protect as confidential and proprietary the Proprietary
Information, including the Secret Recipes, Technical Information, the
techniques, know-how, trade secrets, formulas, specifications, and all other
information relating to the TJC Products, whether or not patentable. Licensee
will not disclose, in whole or in part, any Proprietary Information to any
person, firm, or corporation, except to those employees of Licensee whose
knowledge of such information is required for the performance of Licensee's
obligations under this Agreement, and to TJC Licensees.
14.3 Licensee shall have no rights in the Proprietary Information and shall
use the Proprietary Information solely for the purpose contemplated by this
Agreement. Any and all goodwill arising from the use of the Proprietary
Information by Licensee shall inure exclusively to the benefit of Licensor. The
provisions of this Section 14 shall survive the termination or expiration of
this Agreement.
14.4 Licensee specifically acknowledges that, pursuant to this Agreement,
and as a result of Licensee's relationship with Licensor, Licensee will receive
valuable and confidential information, including, without limitation,
information regarding operational, sales, promotional, and marketing methods,
related to the sale of TJC Products at TJC Bakeries, through other retail
channels, at wholesale, and at dual- or multi-brand restaurants owned, operated
or franchised by Licensor. Licensee covenants that during the term of this
Agreement, and for a period of two (2) years following the termination or
expiration of this Agreement, except as otherwise approved in writing by
Licensor in its sole discretion, Licensee shall not, either directly or
indirectly, for itself, or through, or on behalf of, or in conjunction with any
person, persons,
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or legal entities, own, maintain, operate, be employed by, or have an interest
in, or directly engage in, any business which:
(a) involves or is engaged in the manufacturing, baking, distribution,
or sale of bakery products whose predominant flavor is cinnamon, or is
otherwise recognized generally as a cinnamon product; or
(b) is (i) a retail business that is the same as or similar to, or
offers products which are the same as or similar to products offered at or
by, Licensee or TJC Licensees, and (ii) the principal products of such
business, representing at least twenty percent (20%) of gross sales, are
bakery products; or
(c) is a wholesale business that sells or distributes bakery products
to competitors" of TJC Bakeries or "Arby's Restaurants" (as defined in the
Purchase Agreement), and "competitors" shall include restaurants, food
service outlets, kiosks, shops, and other retail outlets that (i) sell
products similar to those sold at TJC Bakeries or Arby's Restaurants, or
(ii) are listed on Nation's Restaurant News annual top 100 chains ranked by
total number of units, excluding from such list hotels and hotel chains, or
such similar or successor report or listing in the event Nation's
Restaurant News no longer publishes such a list. The current Nation's
Restaurant News list is the list published on April 29, 1996.
For the two (2) year period following the termination or expiration of this
Agreement, however, the restrictions set forth in this Section 14.4 shall be
limited to businesses that are, or are intended to be, located (x) within the
protected territory or area of exclusivity of any TJC bakery that operates or
was operated during the term of this Agreement, or (y) within (3) miles of (i)
the principal office of any wholesale customer of Licensee or wholesale
Licensee, or (ii) the retail outlet of any retailer that purchased TJC Products
from such wholesale customer.
14.5 Licensor may require that the individual officers, directors, and
executives of Licensee designated in Exhibit H, and all successors or other
individuals reasonably designated by Licensor at a later date, execute covenants
agreeing to be personally bound by the provisions of this Section 14; provided,
however, that the non-competition covenant of Section 14.4 shall apply only
during the individuals' tenure with Licensee, and for two (2) years following
the termination of their franchise, employment, or affiliation with Licensee.
15. INDEMNIFICATION
Licensee shall indemnify and hold harmless Licensor, its affiliates, and
their respective officers, directors, shareholders, agents, and employees
against and from any and all out-of-pocket loss, cost, damage and expense
(including reasonable attorneys' fees) resulting from: (i) any material breach
of any covenant, representation, or warranty of Licensee contained in this
Agreement; and/or (ii) any claim by a third party, including any governmental
authority, arising
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out of or relating to the manufacture, production, marketing, sale, purchase,
distribution, use or consumption of TJC Products produced, distributed, or sold
by Licensee or a TJC Licensee; and/or (iii) any occurrence at any TJC Bakery
owned or operated by Licensee or a Franchisee; except to the extent that any
such claim arises out of: (a) any material breach of this Agreement by Licensor;
or (b) Licensor's gross negligence.
16. INSURANCE
During the term of this Agreement, Licensee shall maintain comprehensive
general liability insurance and products liability insurance, in such amounts as
may be specified by Licensor, and such other insurance as Licensor reasonably
may specify, consistent with industry standards. The currently approved type and
amounts of insurance coverage are specified in Exhibit K. Licensee shall provide
Licensor, upon written request of Licensor, with certificates evidencing such
insurance and certificates of renewal of such insurance, when applicable.
Licensor shall be named an additional insured under such coverage, at no cost to
Licensor.
17. ASSIGNMENT OF INTERESTS
17.1 Licensee shall not transfer, assign, convey, give away, pledge, or
encumber collectively "Transfer") any rights in this Agreement or the license
granted herein, in all or substantially all of the assets of Licensee, or in any
supply, license, sublicense, or franchise agreement; nor shall Licensee permit
any Transfer of more than a ten percent (10%) direct or indirect ownership
interest in Licensee by any individual shareholder of Licensee specified in
Exhibit H, without Licensor's prior written consent, which consent may not be
unreasonably withheld. As of the date of this Agreement, there exist only two
such restricted stockholders, and said stockholders have executed, of equal date
herewith, stock sale restriction agreements attached to the Purchase Agreement.
Further, prior to any Transfer of this Agreement or the rights to this
Agreement, Licensee shall comply with the procedures set forth in Section 17.2.
17.2 In the event Licensee desires to accept any bona fide offer from a
third party to directly or indirectly purchase any interest in this Agreement,
Licensee shall notify Licensor in writing of each such offer, and shall provide
to Licensor such information and documentation relating to the offer and the
prospective purchaser as Licensor may require. Licensor shall have the right and
option, exercisable within thirty (30) days after receipt by Licensor of all
such written notification and all other information required by Licensor, to
send written notice to Licensee that Licensor intends to purchase Licensee's
interest on the same terms and conditions as those offered by the prospective
purchaser. The information to be supplied by the Licensee and required by
Licensor shall be accompanied by (i) a written representation and warranty from
Licensee that Licensee has provided Licensor with all of the information
required under this Section 17.2, and that such information is true, accurate,
and complete; and (ii) an appropriate resolution of the seller's board of
directors approving the proposed sale, or other evidence satisfactory to
Licensor of Licensee's intent to consummate the transaction. Further, if
Licensor elects to exercise its option hereunder, notwithstanding anything in
the offer, Licensor shall be entitled to conduct due-diligence of the scope
customary for transactions of the type proposed
24
<PAGE>
in the offer for a period of not less than thirty (30) days, commencing upon the
date of Licensor's notice to the seller of Licensor's election to purchase
pursuant to this Section. In the event that Licensor elects to exercise its
option hereunder, closing on such purchase must occur within the later of: (i)
sixty (60) days from the date of notice to Licensee of the election to purchase
by Licensor, (ii) such period as may have been provided in the offer, or (iii)
such period as may be necessary to conduct due diligence as provided herein.
This provision shall not prevent or restrict Licensee from allowing the third
party to conduct due diligence during such time that Licensor is conducting its
due diligence provided for hereunder. Any material change in the terms of any
offer shall constitute a new offer subject to the same rights of first refusal
by Licensor as in the case of the initial offer, and notice of any such material
change shall be provided in writing by Licensee promptly to Licensor. Failure of
Licensor to exercise the option afforded by this Section 17.2 shall not
constitute a waiver of any other provision of this Agreement, including all of
the requirements of this Section 17, with respect to a proposed transfer.
Licensee shall not execute any contract or accept any offer to purchase any
interest, unless the provisions of this Section 17.4 have been satisfied.
17.3 Licensor may Transfer any or all rights in this Agreement, in the
Intellectual Property, or in any assets of Licensor to any person or entity, on
any terms or conditions, and at any time, in its sole discretion. Licensor shall
notify Licensee prior to any Transfer by Licensor.
18. ASSIGNMENT OF TJC FRANCHISE AGREEMENTS
Licensor shall have the right and option, exercisable upon sixty (60) days
prior written notice ("Assignment Notice") to Licensee, to acquire all of
Licensee's rights, title and interest in and to the TJC Franchise Agreements
then in effect as of the date of assignment specified in the Assignment Notice.
Licensor may not exercise its option hereunder prior to the third (3rd)
anniversary of the date of this Agreement, nor later than the fifth (5th)
anniversary of the date of this Agreement. Licensee shall assign and transfer to
Licensor the TJC Franchise Agreements, shall execute the form of assignment
attached as Exhibit K, and shall act and perform such duties as Licensor or its
counsel may reasonably require to effectuate the assignment specified in this
Section 18. Licensor and Licensee shall be responsible for their own costs and
expenses incurred in the assignment, and Licensor shall not be obligated to pay
Licensee any consideration or other compensation for such assignment.
19. MISCELLANEOUS
19.1 If any of the provisions of this Agreement may be construed in more
than one way, one of which would render the provision illegal or otherwise
voidable or unenforceable, such provision shall have the meaning which renders
it valid and enforceable. The language of all provisions of this Agreement shall
be construed according to its fair meaning and not strictly against any party.
In the event any court or other government authority shall determine any
provision in this Agreement is not enforceable as written, the parties agree
that the provision shall be amended so that it is enforceable to the fullest
extent permissible under the laws and
25
<PAGE>
public policies of the jurisdiction in which enforcement is sought and affords
the parties the same basic rights and obligations and has the same economic
effect. If any provision in this Agreement is held invalid or otherwise
unenforceable by any court or other government authority or in any arbitration
proceeding, such findings shall not invalidate the remainder of the agreement
unless in the reasonable opinion of Licensor the effect of such determination
has the effect of frustrating the purpose of this Agreement, whereupon Licensor
shall have the right by notice in writing to the other party to immediately
terminate this Agreement.
19.2 The entering into, performance, and interpretation of this Agreement
shall be governed, construed, and interpreted by the laws of the state of
Florida without regard to the law of conflicts (and without giving effect to the
application of Florida choice-of-law rules). Licensor and Licensee hereby agree
that to the extent that any disputes arise that cannot be resolved directly
between the parties, the parties shall file any necessary suit only in the
federal or state court having jurisdiction where Licensor's principal office is
then located. The parties irrevocably submit to the jurisdiction of any such
court and waive any objection they may have to either the jurisdiction or venue
of any such court. This Section 19.2 shall not be interpreted to apply any
franchise law or business opportunity law to the relationship between Licensor
and Licensee or the subject matter of this Agreement, which would not otherwise
be applicable. The parties acknowledge and agree that this Section 19.2 was
specifically negotiated by the parties, and that the selection of Florida law as
the governing law was included in this Agreement in exchange for other changes
in the Agreement requested by, and concessions provided to, Licensee.
19.3 Recognizing that remedies at law may be inadequate for the enforcement
of certain breaches of this Agreement, in the event Licensee breaches any
provision of this Agreement by reason of which the validity or ownership of, or
goodwill in, the Proprietary Marks or the Proprietary Information may be
impaired, or breaches the covenants to protect the confidentiality of the
Proprietary Information, Licensor may be entitled to injunctive relief to
enforce the provision of this Agreement, in addition to its other rights
hereunder.
19.4 Neither party shall be responsible to the other for non-performance or
delay in performance occasioned by any causes beyond its control and for causes
other than its own fault (other than lack of funds) including, without
limitation, acts of civil or military authority, failure of civil or military
authorities to act, strikes, lockouts, embargoes, insurrections, or Acts of God.
If any such delay occurs, any applicable time period hereunder shall be
automatically extended for a period equal to the time lost; provided that the
party affected shall make reasonable efforts to correct the reason for such
delay and give the other party prompt written notice of any such delay.
19.5 Licensee is an independent contractor and shall not assume any
obligation or liability, express or implied, on behalf of Licensor. Nothing
contained herein or done hereunder shall be construed as creating a joint
venture or partnership, or as creating a franchise; and, except for Licensee's
obligations to monitor, report on, and enforce the quality control standards
26
<PAGE>
of the TJC Products as required under Section 6, this Agreement should not be
construed as constituting either party hereto as the agent of the other.
19.6 Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than Licensee, Licensor, and Licensor's affiliates and their
respective officers, directors, and employees, and such of Licensee's and
Licensor's respective successors and assigns (as may be permitted under this
Agreement) any rights or remedies under or by reason of this Agreement.
19.7 Except for such actions, approvals, or withholding of approvals that
Licensor may raise in its sole discretion, or in accordance with standards
specified in this Agreement, Licensor and Licensee agree that both parties shall
act in a reasonable manner when exercising their respective rights under this
Agreement.
19.8 Licensor and Licensee represent and warrant to each other that there
are no other Agreements, obligations, or other requirements that prevent such
party from entering into and delivering this Agreement or carrying out such
party's obligations hereunder.
19.9 Any and all notices required or permitted under this Agreement shall
be in writing, and shall be personally delivered, sent by registered mail,
reputable overnight delivery service, or by other means which affords the sender
evidence of delivery or rejected delivery, to the respective parties at the
addresses designated below, unless and until a different address has been
designated by written notice to the other party.
If to Licensor: Arby's, Inc., d/b/a Triarc Restaurant Group
1000 Corporate Drive
Ft. Lauderdale, FL 33334-3651
Attn: John Vanderslice, Vice President
with a copy to: Rudnick, Wolfe, Epstien & Zeidman
1201 New York Avenue, N.W.
Penthouse
Washington, D.C. 20005-3919
Attn: Mark A. Kirsch, Esq.
If to Licensee: T.J. Cinnamons, Inc. or such new name of company as
required in Section 7.5
135 Seaview Drive
Secaucus, New Jersey 07094
Attn: Alan S. Gottlich, Vice Chairman/CFO
27
<PAGE>
with a copy to: Saul Feiger, Esq.
152-18 Union Turnpike
Kew Garden Hills, New York 11367
Any notice by a means which affords the sender evidence of delivery, or rejected
delivery, shall be deemed to have been given at the date and time of receipt or
rejected delivery.
19.10 This Agreement constitutes the entire, full, and complete agreement
between Licensor and Licensee concerning the subject matter hereof, and
supersedes all prior agreements, no other representations having induced
Licensee to execute this Agreement. Except for those permitted to be made
unilaterally by Licensor hereunder, no amendment, change, or variance from this
Agreement shall be binding on either party unless mutually agreed to by the
parties and executed by their authorized officers or agents in writing.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, having duly executed, sealed, and delivered this Agreement the day and
year first written above.
T.J. CINNAMONS, INC. ARBY'S, INC., d/b/a TRIARC RESTAURANT GROUP
Licensee Licensor
By:___________________________ By:________________________________________
Name: /s/ ____________________ Name: /s/ _________________________________
Title: _______________________ Title: ____________________________________
28
Exhibit 10.14
MANAGEMENT AGREEMENT
By and Between
TJ HOLDING COMPANY, INC.
and
T.J. CINNAMONS, INC.
Dated as of August 29, 1996
<PAGE>
MANAGEMENT AGREEMENT
TABLE OF CONTENTS
Page
----
Recitals of Fact........................................................... 1
1. Appointment of Manager ................................................. 2
2. Term ................................................................... 2
3. Compensation to Manager ................................................ 3
4. Certain Duties of TJC .................................................. 3
5. Certain Duties of Manager .............................................. 4
6. Advertising ............................................................ 4
7. Proprietary Marks ...................................................... 9
8. TJC Franchise Agreements ............................................... 5
9. Accounts and Records ................................................... 5
10. Insurance ............................................................. 6
11. Management Authority .................................................. 6
12. Indemnification ....................................................... 6
13. General Provisions .................................................... 7
EXHIBIT A - TJC Bakeries and TJC Retail Locations
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement") is made as of the 29th day of
August, 1996, by and between TJ HOLDING COMPANY, INC., a Delaware corporation
("Manager"), and T.J. CINNAMONS, INC., a Delaware corporation ("TJC").
RECITALS OF FACT
A. TJC owns and operates, and franchises others ("Franchisees") pursuant to
Franchise Agreements ("Franchise Agreements") to operate, retail locations that
offer and sell gourmet cinnamon rolls, other bakery products, and beverages, and
are identified by certain trade names, trademarks, service marks, logos, signs,
and emblems, including, without limitation the mark "T.J. CINNAMONS" (the
"Proprietary Marks"). The retail locations are referred to as "TJC Bakeries."
TJC has also licensed or permitted others ("Retail Licensees") to use the
Proprietary Information (defined below) to prepare and sell a limited variety of
TJC products (defined under the License Agreement defined below) at or from
certain retail locations other than TJC Bakeries (referred to herein as "TJC
Retail Locations"). The TJC Bakeries and the The Retail Locations are identified
in Exhibit A. For the purposes of this Management Agreement, the TJC Bakeries,
along with the Franchise Agreements, the New York Bakery (defined below), and
the TJC Retail Locations, along with the agreements governing those locations,
are referred to collectively as "the TJC Franchise System."
B. Manager has acquired from TJC pursuant to a purchase agreement of even
date herewith, and is the owner of, the Proprietary Marks, secret recipes, and
technical information (collectively, "Proprietary Information") related to the
baking of gourmet cinnamon rolls and related bakery products; and Arby's, Inc.,
an affiliate of Manager, and TJC have entered into a license agreement of even
date herewith (the "License Agreement") for the use by TJC of the Proprietary
Marks and the Proprietary Information to continue to service its existing
Franchisees and Retail Licensees, and to operate its TJC Bakery in Poughkeepsie,
New York (the "New York Bakery").
C. In accordance with the License Agreement, TJC has agreed to operate the
New York Bakery in accordance with the terms and conditions of a Franchise
Agreement, and to perform the duties and obligations of "franchisee" under the
Franchise Agreement.
D. Manager or Arby's, Inc. owns and operates, and franchises others to
operate, various retail restaurant concepts, and has experience as a franchisor,
operator, and manager of restaurants.
E. TJC desires to engage Manager to manage and operate the TJC Franchise
System TJC's behalf, including exercising the rights of TJC as TJC's agent, and
discharging the obligations of TJC under the terms of the Franchise Agreements
and the agreements with the
<PAGE>
Retail Licensees. For the purposes of this Management Agreement only, the term
Franchise Agreement shall be deemed to include the agreements with the Retail
Licensees.
F. Any capitalized term not defined herein will have the meaning ascribed
to it under the Franchise Agreements.
With reference to the above-stated Recitals of Fact, and in consideration
of the mutual covenants contained herein and other good valuable consideration,
the receipt of which is hereby acknowledged, TJC and Manager agree as follows:
1. Appointment of Manager
1.1 Appointment of Manager. TJC hereby appoints and engages Manager, and
Manager hereby accepts sole and exclusive appointment, on the terms and
conditions hereinafter provided, to maintain, operate, manage, and supervise the
TJC Franchise System on behalf of TJC.
1.2 Delegation of Authority. Except as otherwise provided herein, the
duties and responsibilities of TJC under each Franchise Agreement shall be
undertaken and exercised by Manager, and the operations of the TJC Bakeries and
Retail Locations shall be supervised, directed, and controlled by Manager in
accordance with, but only to the extent permitted under, the Franchise
Agreements. Consistent with the provisions of this Agreement, Manager shall be
responsible for, and have full power, authority, discretion, and control (free
from unreasonable interference, interruption, or disturbance from TJC) in all
matters relating to the operation, management, and maintenance of the Franchise
System, including, without limitation, assistance to and supervision of
Franchisees and Retail Licensees; enforcement of quality control standards;
collection of royalties and other payments; administration of the advertising
program; and, generally, all activities that Manager may determine to be
necessary or appropriate for the operation, management, and maintenance of the
Franchise System. In addition, Manager shall comply with the specific duties and
obligations set forth in Section 5 and Section 6 hereto. TJC appoints Manager as
its attorney-in-fact, and delegates to Manager full responsibility and authority
to carry out its obligations and exercise all of its rights, including the right
to receive royalty fees and enforce their collection, in compliance with the
terms of the Franchise Agreements and all agreements ancillary to the Franchise
Agreements, under which the TJC Bakeries and Retail Locations operate.
2. Term
2.1 Term. The Term of this Agreement shall commence on the date hereof, and
unless sooner terminated in accordance with the terms herein, shall expire as of
the date of the expiration or termination of the last Franchise Agreement
remaining in effect. TJC acknowledges and agrees that it has no right to grant
new or additional franchises, and that it may grant only renewals, extensions,
or transfers of existing Franchise Agreements, subject to the restrictions in
the License Agreement.
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<PAGE>
2.2 Early Termination. This Agreement and the obligations of the parties
hereunder shall cease prior to expiration of the Term hereof upon the occurrence
of any of the following circumstances:
2.2.1 In the event that TJC or Manager materially violates any of
their respective covenants and agreements herein, or defaults in the
performance of or is grossly negligent in carrying out any of their
respective obligations hereunder, and shall not commence to cure such
failure within thirty (30) days after written notice from the other party
hereto, then such other party may terminate this Agreement upon prior
written notice to the defaulting party; or
2.2.2 In the event TJC is dissolved, or transfers all of its rights
and obligations under all of the Franchise Agreements and all of its
rights, title and interest to the New York Bakery, the Manager may
terminate this Agreement at the time of such dissolution or transfer;
2.2.3 In the event Manager acquires all of TJC's rights, title, and
interest in and to the Franchise Agreements, excluding the agreements with
Retail Licensees, as provided for under the License Agreement.
3. Compensation to Manager
In consideration of Manager's duties hereunder, Manager shall retain all of
the royalty fees collected by Manager under each Franchise Agreement. In the
event a Franchisee fails to pay Manager the royalty fee required under the
Franchise Agreement, and if TJC fails to terminate said Franchisee as permitted
under the TJC Franchise Agreements, TJC hereby authorizes Manager to undertake
in its sole discretion, such actions against Franchisee that Manager determines
to recover the monies owed, which may include filing suit against a Franchisee
jointly with, or on behalf of, TJC, and Manager may cease providing services to
Franchisee pursuant to this Agreement.
4. Certain Duties of TJC
4.1 Franchise System Information. TJC shall provide to Manager all
information concerning the TJC Franchise System which it has or which may come
into its possession which Manager needs to supervise the TJC Franchise System.
Such information shall include, without limitation, copies of the Franchise
Agreements, including all addenda and amendments; names, addresses and telephone
and facsimile numbers of all Franchisees and their managers; reports on prior
defaults by franchisees, sales and revenue reports; royalty payments and
delinquency reports; copies of bulletins and notices to the Franchise System,
and such other information as Manager may reasonably request.
4.2 TJC Actions. TJC shall take all such actions that are reasonably
necessary for Manager to exercise its rights and perform its duties under the
Franchise Agreements.
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<PAGE>
4.3 Marketing. In response to Manager's Annual Marketing Plan (defined in
Section 6.1) submitted to TJC as required in Section 6.1, TJC shall, within ten
(10) days of receipt of such Annual Marketing Plan, advise Manager of any
objections to such Annual Marketing Plan, and shall work with Manager to resolve
any differences.
5. Certain Duties of Manager
Manager's obligation to manage and supervise the Franchise System in
accordance with the Franchise Agreements shall include the following duties:
5.1 Inspections of TJC Bakeries. Manager shall conduct inspections of the
TJC Bakeries and each Franchisee's operation under the Franchise Agreement, and
shall enforce the quality control standards established by TJC, which shall be
in conformance with the License Agreement with Manager. Manager shall take such
actions as Manager deems reasonably necessary to enforce the quality control
standards of the Franchise System and the other requirements of the Franchise
Agreements, including, without limitation, issuing notices of default and
termination under the Franchise Agreements, subject to the provisions of Section
8.2 hereof.
5.2 Reports of Manager's Activities. Manager shall provide periodic reports
to TJC regarding Manager's actions under the Franchise Agreements, including,
without limitation, reports and information concerning (a) notices and
communications sent to Franchisees regarding (i) the "Required Products" and
"Permitted Products" under the Franchise Agreement, and (ii) updates and
revisions to the standards and specifications for the operation of TJC Bakeries
under the Franchise System; (b) the training and assistance provided by Manager
to TJC Franchisees; and (c) Manager's review and approval of products and
supplies, and the introduction of any new product or supply. TJC shall have no
right to prohibit the introduction by Manager of any new product or supply,
unless such action by Manager would be a violation of a Franchise Agreement or
the License Agreement.
5.3 Revenue Reports. Manager shall provide to TJC, on the twentieth (20th)
day of April, July, October, and January, quarterly reports containing the
Franchisees' sales, royalty fees, advertising fees, and accounts receivable data
for the preceding calendar quarter; to the extent Manager has received such
information from the Franchisees.
6. Advertising
6.1 Annual Marketing Plan. By no later than September 30 each year, Manager
shall provide TJC with a proposed plan for system-wide, regional, cooperative,
local, and in-store advertising, marketing and promotional materials and
programs (the "Annual Marketing Plan") for the next calendar year. TJC shall
provide Manager with any specific objections or changes to the Annual Marketing
Plan. Following Manager's and TJC's discussion and resolution of any
differences, Manager shall implement the Annual Marketing Plan (as it may be
revised pursuant to any discussions with TJC).
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<PAGE>
6.2 National Advertising Fund. Manager shall deposit into the National
Advertising Fund all advertising fees collected from Franchisees in accordance
with the requirements of the Franchise Agreement. Manager shall manage the
National Advertising Fund for the benefit of the System, in accordance with the
terms and conditions in the Franchise Agreements. Manager shall utilize the
National Advertising Fund in a manner consistent with the Annual Marketing Plan.
6.3 Advertising Materials. Manager shall prepare such advertising and
marketing material for the Franchise System as Manager deems necessary, and in
accordance with TJC's obligations under the Franchise Agreements.
7. Proprietary Marks
TJC hereby delegates and assigns to Manager, TJC's rights to control
Franchisees' use of the Proprietary Marks, and TJC's rights to direct, control,
and supervise all actions, administrative proceedings, or litigation involving
the Proprietary Marks, including the settlement thereof.
8. TLJ Franchise Agreements
8.1 Renewals and Transfers. Manager shall not have the right to grant
renewals, extensions, or transfers of a Franchise Agreement or ownership
interests in a Franchisee or Retail Licensee, except as specifically directed by
TJC, on behalf of TJC.
8.2 Termination. Manager shall not have the right to terminate any TJC
Franchise Agreement. In the event Manager believes that a Franchisee is in
default of the Franchise Agreement, Manager shall recommend to TJC an
appropriate course of action. If TJC decides to terminate a Franchise Agreement,
TJC shall provide copies of all notices of termination to Manager prior to
delivery to Franchisee. If instructed by TJC, Manager shall send a notice of
default or termination on behalf of and as agent for, TJC, as may be permitted
under the Franchise Agreement and applicable law.
9. Accounts and Records
9.1 Books and Records. In addition to the reports specified in Section 5.2,
Manager shall maintain such books and records as Manager deems necessary to
provide quarterly reports to TJC regarding the status and activities of the
Franchise System. TJC shall have the right, at all times, to inspect all books
and records with respect to the TJC Bakeries, and the books and records created
by Manager that pertain solely to Manager's activities pursuant to this
Agreement.
9.2 Tax Returns. TJC and Manager each shall be responsible for the
preparation of their respective income tax forms, reports, and returns required
by any federal, state, county, municipal authority.
- -5-
<PAGE>
10. Insurance
Manager shall not be required to maintain any insurance policies in
addition to its current policies maintained by it with respect to its
franchising activities of other restaurant systems. TJC shall maintain insurance
policies of the type and amount TJC carried as of May 31, 1996, as specified in
the License Agreement.
11. Management Authority
11.1 Contracts. Except as prohibited by TJC, Manager is authorized to make
and enter to all such contracts and agreements as are required, in Manager's
reasonable business judgment, for the operation, maintenance, and service of the
Franchise System.
11.2 Employment of Personnel. Manager shall utilize its employees to
perform the services required hereunder. Except for the compensation specified
in Section 3, Manager shall not be entitled to payment or reimbursement from
TJC, for any reasonable travel related expenses, including air and ground
transportation, lodging, and needs incurred in connection with visits to the TJC
Bakeries by Manager's employees. If TJC specifically requests Manager's
employees to incur out-of-pocket expenses to manage the Franchise System, TJC
shall reimburse Manager for such expenses.
11.3 Extraordinary Services. Except as otherwise provided for under the
terms of this Agreement, Manager shall not be obligated under the Management
Agreement to provide any services of its legal, accounting, or similar staff, or
any other service of a professional, technical, extraordinary, or non-routine
nature, to or on behalf of TJC. Any such services as may be requested by TJC and
provided by Manager shall be upon such terms and provisions as may be agreed
upon by Manager and TJC at the time of such services.
12. Indemnification
12.1 Indemnification by TJC. TJC shall indemnify and hold Manager, its
affiliates, and their respective officers, directors, shareholders, agents and
employees harmless against and from any and all out-of-pocket loss, claims,
demands, liabilities, damages, costs and expenses (including reasonable
attorneys' fees) resulting from: (a) any material breach of any covenant,
representation, or warranty of TJC contained in this Agreement; and/or (b) any
claim by a Franchisee for a breach of a TJC Franchise Agreement or the violation
of any law regarding the offer, sale, renewal, transfer, or termination of the
TJC Franchise Agreement; except for claims arising out of Manager's gross
negligence under this Agreement; and/or (c) any claim by a third party,
including any governmental authority, arising out of or relating to (i) the
operation of the Franchise System, (ii) the sale, transfer or termination of any
TJC Franchise Agreement, (iii) the manufacture, production, marketing, sale,
purchase, distribution, use or consumption of its products produced,
distributed, or sold at or from a TJC Bakery; except for claims arising out of
Manager's gross negligence or intentional actions under this Agreement.
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<PAGE>
12.2 Indemnification by Manager. Manager shall indemnify and hold harmless
TJC and its affiliates, and their respective officers, directors, shareholders,
agents and employees against and from any and all out-of-pocket loss, claims,
demands, liabilities, damages, costs, and expenses (including reasonable
attorneys' fees) resulting from: (i) any material breach of any covenant,
representation, or warranty of Manager contained in this Agreement; and/or (ii)
any claims by a Franchisee for breach of a TJC Franchise Agreement; except for
claims arising out of TJC's gross negligence, or the implementation of TJC's
instructions to Manager that were inconsistent with the terms and conditions of
the Franchise Agreements.
13. General Provisions
13.1 Relationship. It is the intent of the parties hereto to create an
independent contract between TJC and Manager hereby, and Manager shall not have
the power to bind or obligate TJC, except as specifically set forth in this
Agreement or as otherwise approved by TJC in writing.
13.2 Benefits and Obligations. The covenants and agreements herein
contained shall inure to the benefit of, and be binding upon, the parties
hereto, and their respective successors permitted assigns.
13.3 Notices. Any and all notices required or permitted under this
Agreement shall be in writing, and shall be personally delivered, sent by
registered mail, reputable overnight delivery service, facsimile, or by other
means which affords the sender evidence of delivery or rejected delivery, to the
respective parties at the addresses designated below, unless and until a
different address has been designated by written notice to the other party.
If to Manager: TJ Holding Company, Inc.
1000 Corporate Drive
Ft. Lauderdale, FL 33334-3651
Fax: (305) 351-5619
Attn: John Vanderslice, Vice President
If to TJC: T.J. Cinnamons, Inc.
135 Seaview Drive
Secaucus, New Jersey 07094
Fax: (201) 422-0858
Attn: Alan S. Gottlich, Vice Chairman/CFO
Any notice by a means which affords the sender evidence of delivery, or rejected
delivery, shall be deemed to have been given at the date and time of receipt or
rejected delivery.
13.4 Entire Agreement. This Agreement is the entire agreement between the
parties with respect to the subject matter hereof and no alteration,
modification, or interpretation hereof shall be binding unless in writing and
signed by the parties hereto.
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<PAGE>
13.5 Severability. The parties agree that if any provisions of this
Agreement may be construed in two ways, one of which would render the provision
illegal or otherwise void or unenforceable, and the other of which would render
the provision valid and enforceable, such provision shall have the meaning which
renders it valid and enforceable. The language of each provision of this
Agreement shall be construed according to its fair meaning and not strictly
against any party. It is the intent of the parties that the provisions of this
Agreement be enforced to the fullest extent, and should any court or other
public agency determine that any provision herein is not enforceable as written
in this Agreement, the provision shall be amended so that is enforceable to the
fullest extent permissible under the laws and public policies of the
jurisdiction in which the enforcement is sought. The provisions of this
Agreement are severable, and this Agreement shall be interpreted and enforced as
if all completely invalid or unenforceable provisions were not contained in the
Agreement, and partially valid and enforceable provisions shall be enforced to
the extent that they are valid and enforceable.
13.6 Conflict with License Agreement. In the event of any conflict or
inconsistency between the terms of this Agreement and the terms of the License
Agreement, the terms of the License Agreement shall be controlling.
13.7 Applicable Law. The entering into, performance, and interpretation of
this Agreement shall be governed, construed, and interpreted by the laws of the
state of Florida without regard to the law of conflicts (and without giving
effect to the application of Florida choice-of-law rules). Manager and TJC
hereby agree that to the extent that any disputes arise that cannot be resolved
directly between the parties, the parties shall file any necessary suit only in
the federal or state court having jurisdiction where Manager's principal office
is then located. The parties irrevocably submit to the jurisdiction of any such
court and waive any objection they may have to either the jurisdiction or venue
of any such court. This Section 13.7 shall not be interpreted to apply any
franchise law or business opportunity law to the relationship between Manager
and TJC or the subject matter of this Agreement, which would not otherwise be
applicable.
13.8 Assignment. Manager shall have the right to transfer any of its rights
or delegate any of its duties under this Agreement to any affiliate of Manager,
or to any entity to whom Manager transfers or assigns its rights in and to the
License Agreement. The term "affiliate" shall include any person or entity (or
combination thereof) controlling, controlled by or under common control with
Manager. TJC shall not transfer any of its rights or interests in this Agreement
or in the Franchise Agreements except in accordance with the provisions of the
License Agreement.
13.9 No Third Party Rights. Except as expressly provided to the contrary
herein, nothing in this Agreement is intended, nor shall be deemed, to confer
upon any person or legal entity other than TJC, Manager, and Manager's
affiliates and their respective officers, directors, and employees, and such of
TJC's and Manager's respective successors and assigns (as may be permitted under
this Agreement) any rights or remedies under or by reason of this Agreement.
- -8-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
T.J. Cinnamons. Inc. TJ Holding Company. Inc.
TJC Manager
By: _______________________ By: _______________________
Name: ______________________ Name: _______________________
Title: _______________________ Title: _______________________
- -9-
<PAGE>
EXHIBIT A
to
Management Agreement
TJC Bakeries
- ------------
Franchisee Name Location
--------------- --------
See attached list (Schedule A-1)
T.J. Cinnamons, Inc. Poughkeepsie Gallerie Mall, #129
790 South Road
Poughkeepsie, NY 126.01
TJC Retail Locations
- --------------------
Retail Licensee Location
--------------- --------
See attached list (Schedule A-2)
- -10-
<PAGE>
Schedule A-1 to Management Agreement
SCHEDULE 3.7
LISTING OF THE LOCATIONS OF T.J CINNAMONS BAKERIES
<TABLE>
<CAPTION>
Form of
Bakery Franchise
Franchisee Bakery # Bakery Street Address Town State Zip Phone # Agreement
---------- -------- --------------------- ---- ----- ----- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
AJAM, ROBERT 216-01 3613 F. AMBASSADOR CAFFREY PKWY. LAFAYETTE LA 70503 318-988-2800 STD/87/FA
ALLEN, EDWARD 041-01 WINDY HILLS, 2359 WINDY HILLS ROAD
SUITE 340 MARIETTA GA 30067 404-953-1997 STD/86/FA
ALLEN, EDWARD 041-02 PARK AIRE LANDING 640 JOHNSON FERRY RD. MARIETTA GA 30067 404-977-3685 STD/88/FA
ALLEN, EDWARD 041-03 MACY'S CELLAR, 180 PEACHTREE ST. N.W. ATLANTA GA 30303 404-221-7932 STD/87/FA
ALLEN, EDWARD 041-05 MACY'S LENOX SQ.,
3393 PEACHTREE ST. N.E ATLANTA GA 30326 404-231-8928 STD/87/FA
ALLEN, EDWARD 041-06 NORTHLAKE MALL, 4400 BRIAR CLIFF ROAD DECATUR GA 30345 404-231-8928
BAKKER, RICK 160-01 BALDWIN HILLS CRENSHAW PLAZA MLKBLVD LOS ANGELES CA 90008 213-291-5313 STD/87/FA
BONANNO, FRANK 190-09 EMERALD SQ. MALL,
999 S. WASHINGTON AVE. N. ATTELBOROUGH CA 02760 508-695-3799 STD/1988
BONOMO, VINCENT 190-01 2700 POTOMAC MILLS MALL CIRCLE #808 WOODBRIDGE VA 22192 703-821-3080 STD/87/FA
BONOMO, VINCENT 190-00 TYSON GALLERIA,
1790 U INTERNATIONAL DR.#3502 MCCLEAN VA 22102 703-821-7944 STD187/FA
BONOMO, VINCENT 190-08 ST CHARLES TOWN CTR.
5000 ROUTE 301 SOUTH WALDORF MD 20603 301-870-0811 STD/87/FA
BUCHANAN, LARRY 209-01 FANEUL HALL, SPACE #5 BOSTON MA 02109 617-387-8282 STD/87/FA
BURNETT, GARY/J UDY 234-01 SUGAR CREEK VILLAGE,
13881 U.S. HIGHWAY 59 SUGARLAND TX 77478 713-242-7655 STD/87/FA
BUTTS, JEFF/SHIRLEY 015-02 ENCANTADA SO. 2665 LOUISIANNA N.E. ALBUQUERQUE NM 87110 505-884-1115 STD/87/FA
CLEMENTS, STEVE 030-01 VICTORIA SQUARE SHOPS 401 W. MAIN LEXINGTON KY 40507 306-255-8824 STD/86/FA
DOHERTY, EDWARD 031-01 DANBURY FAIR MALL,
7 BACKUS AVE. BOX 394 DANBURY CT 06810 203-794-9866 STD/86/FA
FRAZZETTA,
STEVEN/VIRGINIA 185-01 UNVERSITY COMMONS, 343 S. COLLEGE ROAD WILMNGTON NC 28409 910-395-5240 STD/87/FA
GLOYNA, SCOTT 072-01 319 E. 82ND STREET LUBBOCK TX 79404 806-745-3409 STD/87/FA
HEFFERNAN, THOMAS 244-01 CRANBERRY MALL, 400 N. CENTER ST. WESTMINSTER MD 21157 410-876-6837 STD/87/FA
HEIN, RONALD 266-01 CTR. AT SALISBURY,
2300 N. SALISBURY BLVD - B104 SALISBURY MD 21801 410-860-9361 STD/10002511
JEFFREY, BRUCE 213-01 11121 RODNEY PARHAM LITTLE ROCK AR 72212 501-223-2048 STD/87/FA
KYLE, CAROL 235-01 205 SOUTH BURLINGTON HASTINGS NE 68901 402-463-1727 STD/87/FA
LUZZI, MlIKE 238-01 PRINCETON MARKET FAIR,
3535 U.S. ROUTE 1 PRINCETON NJ
08540 609-520-8392 STD/1988
MAHMOOD, IRFAN 223-01 30 STATE HOUSE SQUARE PAVILION HARTFORD CT 06103 203-524-8022 STD/87/FA
MAYHEW, DICK 214-01 UNIVERSITY MALL, 155 DORSET STREET SOUTH BURLINGTON VT 05403 802-865-9287 STD/1988
McCLAY, KAREN 267-01 202 FRANKLIN MILLS CIRCLE PHLADELPHIA PA 19154 215-281-2691 STD/10002511
MCGRATH, MICHAEL 270-01 1001 BARNES CROSSING SPACE 115
MALL AT BARNES CROSSING TUPELO MS 38801 601-840-3420 2/95
MENDENHALL, EDWARD 178-01 BAREFOOT LANDING,
4860 HIGHWAY 17 SOUTH N. MYRTLE BEACH SC 29592 803-272-1935 STD/87/FA
MEYER, ROBERT 249-01 16720 REDMOND WAY, SUITE A REDMOND WA 98052 206-882-3636 STD/1989
MEYER, ROBERT 249-02 FIRST INTERSTATE CENTER
999 3RD AVE. -- PLAZA LEVEL SEATTLE WA 98104 206-223-8930 NEW
MILLER, CONNIE 210-01 HONEY CREEK SQ. MALL,
#D/5B HIGHWAY 41 SOUTH & I-70 TERREHAUTE IN 47802 612-232-2606 10002729/
INDIANA
MORAN, LINDA 224-01 GOLD COAST MALL,
11503-05 COASTAL HIGHWAY OCEAN CITY MD 21642 410-723-2932 STD/87/FA
NATCHIONNE, STEVE 257-01 ELECTRIC CO MALL,
2526 HILLSBOROUGH STREET RALEIGH NC 27607 319-846-6070 STD/1988
NATCHIONNE, STEVE 257-02 CELEBRATION AT SIX FORKS,
7321 SIX FORKS ROAD RALEIGH NC 27615 919-846-9004 STD/1988
NATCHIONNE, STEVE 257-03 CRABTREE VALLEY MALL 4325 GLENWOOD AVE RALEIGH NC 27615 919-782-3070
PATEL, UDAY 188-01 CASTLETON POINT, 5499 E. 82ND STREET INDIANAPOLIS IN 46250 317-842-6597 STD/197/FA
POWELL, JOHN 264-01 LINCOLN VILLAGE,
6406 NORTH INTERSTATE HWY. 35 AUSTIN TX 78752 512-452-7655 STD/10002511
QUAGLIATA, TERRY 211-02 12 CORNERS SHOPPING PLAZA,
1890 MONROE AVE. ROCHESTER NY 14618 716-473-1310 STD/87/FA
ROELKER, RICHARD 198-01 BROADWAY/PANTANO CTR
7865 E. BROADWAY BLVD #175 TUCSON AZ 85710 602-298-2253 STD/87/FA
RYKACESKI, MIKE 209-01 #245 PARKWAY CENTER MALL PITTSBURGH PA 15220 412-921-8511 STD/87/FA
BROWN, RON 206-01 VENTURE PARK, 306 N ROCK ROAD SUITE 20 WICHITA KS 67206 316-686-7777 STD/87/FA
SPRAYBERRY, DAN 268-01 #154 UNIVERSITY MALL,
1701 MCFARLAND BLVD. EAST TUSCALOOSA AL 35405 205-556-1122 STD/87/FA
ROSE, DAN 219-01 GILRICH MALL, 1016 W. 41 ST. STREET SIOUX FALLS SD 57105 305-336-1948 STD/87/FA
WARD, GREG 001-01 WOODLAND HILLS MALL,
7021 S. MEMORIAL DRIVE TULSA OK 74133 916-250-9228 --
WARFIELD, ROBERT 226-01 WONDER MARKET PLAZA, 221-223 PARK AVE WORCESTER MA 01609 506-753-0724 STD/87/FA
WRIGHT, TUCKER 216-01 226 COUNTY ROAD BARRINGTON RI 02806 401-245-0460 STD/1988
</TABLE>
<PAGE>
Schedule A-2 (to Management Agreement)
TJC Retail Locations
1. Texaco StarMart Locations (and one Exxon location) identified on the
attached list
2. Petro stations, owned by the entities designated in the letter agreement
dated November 21, 1995, proposed to be located at:
a. Petro 2
2125 N. 9th
Salinas, Kansas 67401
b. 9787 U.S. Route 40 West
New Paris, Ohio 45347
c. Petro of York
4700 S. Lincoln
York, Nebraska 68467
3. United Petroleum location at:
United Petroleum
1133 Kingston Pike
Knoxville, Tennessee 37922
<PAGE>
T.J. Cinnamons, Inc
Schedule of Texaco Starmart Locations
Pursuant to the Brice Foods License Agreement
Date
Locations Installed
--------- ---------
Exxon Texarkana 05/25/95
Texaco - Jackson City MO 12/26/94
Texaco - Platte, MO 12/26/94
Texaco - Olathe KS 12/26/94
Texaco - Overland Park KS 12/26/96
Texaco - Johnson City KS 01/26/95
Texaco - Tulsa Yale St 05/04/95
Texaco - San Diego 08/15/95
Texaco - Santa Clarita 08/25/95
Texaco - Burbank 08/25/95
Texaco - Merriam KS 10/15/95
Texaco - S. Peoria Tulsa 09/25/95
Texaco - White Oak/Fayetteville AR 10/20/95
Texaco - Westminister CO Jan-96
Texaco - Thornton CO 01/06/96
Texaco - Denver CO 01/06/96
Texaco - Tuelafin OR 04/01/96
Texaco - Sherwood AR 11/14/95
Texaco - Blue Springs MO 10/15/95
Texaco - Sarasota FL 01/23/96
Texaco - Anaheim CA 10/01/95
Texaco - E. Kansas City MO 02/01/96
Texaco - Mt Shasta CA 04/01/96
Texaco - Azuza CA 02/01/96
Texaco - Pomona CA 02/01/96
Texaco - Victorville CA 02/01/96
Texaco - Overland Park, KS 02/01/96
Texaco - Independence MO 04/01/96
Texaco - Belton MO 02/01/96
Texaco - Kansas City MO 02/01/96
Texaco - Oklahoma City OK 04/30/96
Texaco - Fayetteville AR 04/22/96
Texaco - Pleasant Valley MO 04/01/96
Exhibit 10.15
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- GROSS
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
September 5 ,1996 is made by and between The Guardian Life Insurance Company of
America ("Lessor") and Paramark Enterprises Inc., f/k/a T.J. Cinnamons Inc.
("Lessee"), (collectively the "Parties" or individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 3030 W. Warner Avenue, Santa Ana located in the
County of Orange, State of California and generally described as (describe
briefly the nature of the property) an industrial building of approximately
22.613 square feet (please see 2.1 "Letting" below) ("Premises"). (See Paragraph
2 for further provisions.)
1.3 Term: one (1) years and two (2) months ("Original Term") commencing
December 1, 1996 ("Commencement Date") and ending January 31, ("Expiration
Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: October 1, 1996 ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $6,500.00 per month ("Base Rent"), payable on the first day
of each month commencing December 1, 1996 (See Paragraph 4 for further
provisions.)
[ ] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 Base Rent Paid Upon Execution: $6,500.00 as Case Rent for the period
December 1, 1996 through December 31, 1996
1.7 Security Deposit: $6,500.00 ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 Permitted Use: Baking and distribution and matters related thereto.
(See Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party." $_________ is the "Base
Premium." (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes): Lee & Associates Realty
Group Newport Beach. Inc. represents [ X ] Lessor exclusively ("Lessor's
Broker"); [ ] both Lessor and Lessee, and represents [ ] Lessee exclusively
("Lessee's Broker"); [ ] both Lessee and Lessor. (See Paragraph 15 for further
provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 Addenda. Attached hereto Is an Addendum or Addenda consisting of
Paragraphs 49 through 5 and Exhibits Uniform Disclaimer Form all of which
constitute a part of this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square 100tage Is more or less. Early
Possession Date
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Early Possession Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems. security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
shall be in effect during such period. Any such early possession shall not alter
nor advance the Expiration Date of the Original Term.
Initials __/s/__
__/s/__
PAGE 1
Form 105G-R-12-91
<PAGE>
*To the best of Lessor's knowledge, Lessor warrants that it has not used, nor
has any knowledge of previous use, of any hazardous substances at the premises.
3.3 Delay In Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date it one
is specified in Paragraph 1.4, or, it no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case. Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, it possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period tree of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent Increases during the
term of this Lease, Lessee shall; upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep al or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, it
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
be paid by Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. It Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 Hazardous Substances.*
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as used
in this Lease shall mean any product, substance, chemical, material or waste
whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spilt, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude off or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. It Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such tact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved In any
Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnity, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's tees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
7.1 Lessee's Obligations. -- See addendum paragraph 52 for modification to
this provision.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants,
etc.),
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), ceilings, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about, or
adjacent to the Premises, but excluding foundations, the exterior roof and the
structural aspects of the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessees expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or Involving any Hazardous Substance and/or storage tank brought
onto the Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any
located on the Premises: {i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire
sprinkler and/or standpipe and hose or other automatic fire extinguishing
systems, including fire alarm and/or smoke detection, (iv) landscaping and
irrigation systems, (v) root covering and drain maintenance and (vi)
asphalt and parking lot maintenance.
7.2 Lessor's Obligations. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, condition and repair, Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor receives
written notice of the need for such repairs. It is the intention of the Parties
that the terms of this Lease govern the respective obligations of the Parties as
to maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises.
The term "Trade Fixtures" shall mean Lessee's machinery and equipment that
can be removed without doing material damage to the Premises. The term
"Alterations" shall mean any modification of the improvements on the
Premises from that which are provided by Lessor under the terms of this
Lease, other than Utility Installations or Trade Fixtures, whether by
addition or deletion. "Lessee Owned Alterations and/or Utility
Installations" are defined as Alterations and/or Utility Installations made
by lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a).
Lessee shall not make any Alterations or Utility Installations in, on,
under or about the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of
the Premises (excluding the roof), as long as they are not visible from the
outside, do not involve puncturing, relocating or removing the roof or any
existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All
consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by
subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's
acquiring all applicable permits required by governmental authorities. (ii)
the furnishing of copies of such permits together with a copy of the plans
and specifications for the Alteration or Utility Installation to Lessor
prior to commencement of the work thereon, and (iii) the compliance by
Lessee with all conditions of said permits in a prompt and expeditious
manner. Any Alterations or Utility Installations by Lessee during the term
of this Lease shall be done in a good and workmanlike manner, with good and
sufficient materials, and in compliance with all Applicable Law. Lessee
shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation
that costs $10,000 or more upon Lessee's providing Lessor with a lien and
completion bond in an amount equal to one and one-half times the estimated
cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36
hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanics" or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises.
If Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the
amount of such contested lien claim or demand, Indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to p8y Lessor's attorney's fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be
the property of and owned by Lessee, but considered a part of the Premises.
Lessor may, at any time and at its option, elect in writing to Lessee to be
the owner of all or any specified part of the Lessee Owned Alterations and
Utility Installations. Unless otherwise instructed per subparagraph 7.4(b)
hereof, all Lessee Owned Alterations and Utility Installations shall, at
the expiration or earlier termination of this Lease, become the property of
Lessor and remain upon and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease,
notwithstanding their installation may have been consented to by Lessor.
Lessor may require the removal at any time of all or any part of any Lessee
Owned Alterations or utility Installations made without the required
consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of
debris and in good operating order, condition and state of repair, ordinary
wear and tear excepted. "Ordinary wear and tear" shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease.
Except as otherwise agreed or specified in writing by Lessor, the Premises,
as surrendered. shall include the Utility Installations. The obligation of
Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures,
furnishings, equipment, and Alterations and/or Utility Installations, as
well as the removal of any storage tank installed by or for Lessee, and the
removal, replacement, or remediation of any soil, material or ground water
contaminated by Lessee, all as may then be required by Applicable Law
and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation
to repair and restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) Lessee shall pay to Lessor any insurance cost increase ("Insurance
Cost Increase") occurring during the term of this Lease. "Insurance Cost
Increases" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("Required
Insurance"), over and above the Base Premium, as hereinafter defined,
calculated on an annual basis. "Insurance Cost Increase" shall include, but
not be limited to, increases resulting from the nature of Lessee's
occupancy, any act or omission of Lessee, requirements of the holder of a
mortgage or deed of trust covering the Premises, increased valuation of the
Premises and/or a premium rate increase. If the parties insert a dollar
amount in Paragraph 1.9, such amount shall be considered the "Base
Premium." In lieu thereof if the Premises have been previously occupied,
the "Base Premium" shall be the annual premium applicable to the most
recent occupancy. If the Premises have never been occupied, the "Base
Premium" shall be the lowest annual premium reasonably obtainable for the
Required Insurance as of the commencement of the Original Term, assuming
the most nominal use possible of the Premises. In no event, however, shall
Lessee be responsible for any portion of the premium cost attributable to
liability insurance coverage in excess of $1,000,000 procured under
Paragraph 8.2(b) (Liability Insurance Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement
or other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor
shall also deliver to Lessee a statement of the amount of such Insurance
Cost Increase attributable only to the Premises showing in reasonable
detail the manner in which such amount was computed. Premiums for policy
periods commencing prior to, or extending beyond, the term of this Lease
shall be prorated to coincide with the corresponding Commencement or
Expiration of the Lease term.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $1,000,000
per occurrence with an "Additional Insured--Managers or Lessors of
Premises"
Initials ____
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<PAGE>
Endorsement and contain the "Amendment of the Pollution Exclusion" for
damage caused by heat, smoke or fumes from a hostile fire. The policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of
Lessee nor relieve Lessee of any obligation hereunder. All insurance to be
carried by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) Carried By Lessor. In the event Lessor is the Insuring Party.
Lessor shall also maintain liability insurance described in Paragraph
8.2(a), above. in addition to, and not in lieu of, the insurance required
to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.
8.3 Property Insurance--Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the
name of Lessor, with loss payable to Lessor and to the holders of any
mortgages, deeds of trust or around leases on the Premises ("Lender(s)'),
insuring loss or damage to the Premises. The amount of such insurance shall
be equal to the full replacement cost of the Premises, as the same shall
exist from time to time, or the amount required by Lenders, hut in no event
more than the commercially reasonable and available insurable value thereof
if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under
Paragraph 8.4. If the coverage is available and commercially appropriate,
such policy or policies shall insure against all risks of direct physical
loss or damage (except the perils of flood and/or earthquake unless
required by a Lender). including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or
replacement of any undamaged sections of the Premises required to be
demolished or removed by reason of the enforcement of any building, zoning,
safety or land use laws as the result of a covered cause of loss, but not
including plate glass insurance. Said policy or policies shall also contain
an agreed valuation provision in lieu of any coinsurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban
Consumers for the city nearest to where the Premises are located.
(b) Rental Value. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for
one (1) year (including all real estate taxes, insurance costs, and any
scheduled rental increases). Said insurance shall provide that in the event
the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the
completion of repairs or replacement of the Premises, to provide for one
full year's loss of rental revenues from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any
coinsurance clause, and the amount of coverage shall be adjusted annually
to reflect the projected rental income, property taxes, insurance premium
costs and other expenses, if any, otherwise payable by Lessee, for the next
twelve (12) month period.
(c) Adjacent Premises. If the Premises are part of a larger building.
or if the Premises are part of a group of buildings owned by Lessor, which
are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the properly insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) Tenant's Improvements. Since Lessor is the Insuring Party. the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph e
5, Lessee at its cost shall either by separate policy or, at Lessor's option, by
endorsement to a policy already carried, maintain insurance coverage on all of
Lessee's personal property, Lessee Owned Alterations and Utility Installations
in, on, or about the Premises similar in coverage to that carried by the
Insuring Party under Paragraph 8.3. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property or the restoration of Lessee Owned Alterations and Utility
Installations. Lessee shall be the Insuring Party with respect to the insurance
required by this Paragraph 8.4 and shall provide Lessor with written evidence
that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of. or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds.
required under Paragraph 8.2(a) and 8.4. No such policy shelf be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies.
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor. partners and
Lenders, from and against any and all claims loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors. employees or invitees,
and out of any Default or f3reach by Lessee in the performance in a timely
manner of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not Be liable for injury
or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part. or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach Or
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
In the event a casualty cannot be restored in thirty (30) days, Lessee will
have the option to terminate the Lease at the end of thirty (30) days by * *
written notice. The Base Rent shall be abated during the period of time Lessee
cannot use the premises.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is
less than 50% of the then Replacement Cost of the Premises immediately
prior to such damage or destruction, excluding from such calculation the
value of the land and Lessee Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations
the repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises Immediately prior to such damage or
destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible
amounts or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building
codes, ordinances or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of. or a contamination by,
a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair
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any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs it made by either
Party.
9.3 Partial Damage--Uninsured Loss. It a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. It Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, it a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. It at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, it Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. It Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue In full force and effect. It Lessee tails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, it any, payable by Lessee hereunder for the period during which
such damage, its repair or the restoration continues (not to exceed the
period for which rental value insurance is required under Paragraph
8.3(b)), shall be abated in proportion to the degree to which Lessee's use
of the Premises is impaired. Except for abatement of Base Rent, Real
Property Taxes, insurance premiums, and other charges, it any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage
suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at
any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any Lenders of which Lessee has actual
notice of Lessee's election to terminate this Lease on a date not less than
sixty (60) days following the giving of such police. If Lessee gives such
notice to Lessor and such Lenders and such repair or restoration is not
commenced within thirty (30) days after receipt of such notice, this Lease
shall terminate as of the date specified in said notice. If Lessor or a
Lender commences the repair or restoration of the Premises within thirty
(30) days after receipt of such notice, this Lease shall continue in full
force and effect. "Commence" as used in this Paragraph shall mean either
the unconditional authorization of the preparation of the required plans,
or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 Hazardous Substance Conditions. It a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject b Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) it the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
Investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue In full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. It Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. It a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 Termination--Advance Payment. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
Lessee's obligation to pay the "Tax Increase" set forth herein will be
capped at two percent (2%) per annum.
10.1 (a) Payment of Taxes. Lessor shall pay the Real Property Taxes,
as defined in Paragraph 10.2, applicable to the Premises; provided,
however, that Lessee shall pay, in addition to rent, the amount, it any, by
which Real Property Taxes applicable to the Premises increase over the
fiscal tax year during which the Commencement Date occurs ("Tax Increase").
Subject to Paragraph 10.1 (b), payment of any such Tax Increase shall be
made by Lessee within thirty (30) days after receipt of Lessor's written
statement setting forth the amount due and the computation thereof. Lessee
shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. It any such taxes to be paid by Lessee shall cover any
period of time prior to or after the expiration or earlier termination of
the term hereof, Lessee's share of such taxes shall be equitably prorated
to cover only the period of time within the tax fiscal year this Lease is
in effect, and Lessor shall reimburse Lessee for any overpayment after such
proration.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right,
at Lessor's option, to estimate the current Real Property Taxes applicable
to the Premises, and to require such current year's Tax Increase to be paid
in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to
the amount due, at least twenty (20) days prior to the applicable
delinquency date, or (ii) monthly in advance with the payment of the Base
Rent. It Lessor elects to require payment monthly in advance, the monthly
payment shall be that equal monthly amount whichever the number of months
remaining before the month in which the applicable tax installment would
become delinquent (and without interest thereon), would provide a tuna
large enough to fully discharge before delinquency the estimated Tax
Increase to be paid. When the actual amount of the applicable Tax Increase
is known, the amount of such equal monthly advance payment shall be
adjusted as required to provide the fund needed to pay the applicable Tax
Increase before delinquency if the amounts paid to Lessor by Lessee under
the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Tax Increase as the same becomes due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as
are necessary to pay such obligation. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not
bear interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance d funds paid to
Lessor under the provisions of this Paragraph may, subject to proration as
provided in Paragraph 10.1(a), at the option of Lessor, be treated as an
additional Security Deposit under Paragraph 5.
(c) Additional Improvements Notwithstanding Paragraph 10.1 (a) hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any
Increase in Real Property Taxes assessed by reason of Alterations or
Utility Installations placed upon the Premises by Lessee or at Lessee's
request.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment, general
special, ordinary or extraordinary, and any license tee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, tire, street, drainage or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Premises or in the real property of which the Premises are a part, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "Real Property Taxes" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in applicable law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Premises or
in the improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
Initials: ________
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10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for an of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease
or in the Premises without Lessor's prior written consent given under and
subject to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a
formal assignment or hypothecation of this Lease or Lessee's assets occurs,
which results or will result in a reduction of the Net Worth of Lessee, as
hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor
at the time of the execution by Lessor of this Lease or at the time of the
most recent assignment to which Lessor has consented, or as it exists
immediately prior to said transaction or transactions constituting such
reduction, at whichever time said Net Worth of Lessee was or is greater,
shall be considered an assignment of this Lease by Lessee to which Lessor
may reasonably withhold its consent. "Net Worth of Lessee" for purposes of
this Lease shall be the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles consistently
applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1(c), or a noncurable
Breach without the necessity of any notice and grace period. If Lessor
elects to treat such unconsented to assignment or subletting as a
noncurable Breach, Lessor shall have the right to either: (i) terminate
this Lease, or (ii) upon thirty (30) days written notice ("Lessor's
Notice"), increase the monthly Base Rent to fad' market rental value or one
hundred ten percent (110%) of the Base Rent then in effect, whichever is
greater. Pending determination, of the new fair market rental value, if
disputed by Lessee, Lessee shall pay the amount set forth in Lessor's
Notice, with any overpayment credited against the next installment(s) of
Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon
the determination thereof. Further, in the event of such Breach and market
value adjustment, (i) the purchase price of any option to purchase the
Premises held by Lessee shall be subject to similar adjustment to the then
fair market value (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at
its highest and best use and in good condition), or one hundred ten percent
(110%) of the price previously in effect, whichever is greater, (ii) any
index-oriented rental or price adjustment formulas contained in this Lease
shall be adjusted to require that the base index be determined with
reference to the index applicable to the time of such adjustment, and (iii)
any fixed rental adjustments scheduled during the remainder of the Lease
term shall be increased in the same ratio as the new market rental bears to
the Base Rent in effect immediately prior to the market value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
Liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed
by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rant or performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the
Default or Breach by Lessee of any of the terms, covenants or conditions of
this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee
or to any subsequent or successive assignment or subletting by the
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto
without notifying Lessee or anyone else liable on the Lease or sublease and
without obtaining their consent, and such action shall not relieve such
persons from liability under this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or any one else responsible for the performance of the Lessee's
obligations under this Lease, including the sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination
as to the financial and operational responsibility and appropriateness of
the proposed assignee or sublessee, including but not limited to the
intended use and/or required modification of the Premises, if any, together
with a non-refundable deposit of $1,000 or ten percent (10%) of the current
monthly Base Rent, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees
to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for
the benefit of Lessor, to have assumed and agreed to conform and comply
with each and every term, covenant, condition and obligation herein to be
observed or performed by Lessee during the term of said assignment or
sublease, other than such obligations as are contrary to or inconsistent
with provisions of an assignment or sublease to which Lessor has
specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting. may require that the amount and adjustment structure of the
rent payable under this Lease be adjusted to what is then the market value
and/or adjustment structure for property similar to the Premises as then
constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations
under this Lease, Lessee may, except as otherwise provided in this Lease.
receive, collect and enjoy the rents accruing under such sublease. Lessor
shall not, by reason of this or any other assignment of such sublease to
Lessor, nor by reason of the collection of tl1e rents from a sublessee, be
deemed liable to the sublessee for any failure of Lessee to perform and
comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a
Breach exists in the performance of Lessee's obligations under this Lease,
to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary.
Lessee shall have no right or claim against said sublessee, or, until the
Breach has been cured, against Lessor, for any such rents and other charges
so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorney to Lessor, in
which event Lessor shall undertake the obligations of the sublessor under
such sublease from the time of the exercise of said option to the
expiration of such sublease; provided, however, Lessor shall not be liable
for any prepaid rents or security deposit paid by such sublessee to such
sublessor or for any other prior Defaults or Breaches of such sublessor
under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default,
Initials _______
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<PAGE>
and that Lessor may include the cost of such services and costs in said notice
as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein the failure by
Lessee to cure such Default poor to me expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third
party, as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease,
or the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of five (5) days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with applicable
law per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the recission of an
unauthorized assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or
non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the
performance of Lessee's obligations under this Lease it required under
Paragraphs 1.11 and 37, (vii) the execution of any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information
which Lessor may reasonably require of Lessee under the terms of this
Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40
hereof, that are to be observed, complied with or performed by Lessee,
other than those described in subparagraphs (a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written
notice thereof by or on behalf of Lessor to Lessee, provided, however, that
if the nature of Lessee's Default is such that more than thirty (30) days
are reasonably required for its cure, then it shall not be deemed to be a
Breach of this Lease by Lessee if Lessee commences such cure within said
thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
(e) The occurrence of any of the following events (i) The making by
lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C.
section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest In this Lease, where possession is not restored to Lessee within
thirty (30) days; or (iv) the attachment, execution or other Judicial
seizure of substantially all of Lessee's assets located at the Premises or
of Lessee's interest in this Lease, where such seizure is not discharged
within thirty (30) days; provided, however, in the event that any provision
of this subparagraph (e) is contrary to any applicable law, such provision
shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than In accordance
with the terms of such guaranty, (iii) a guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurance or security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the guarantors that
existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon Invoice therefor, if any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to
Lessor. In such event Lessor shall be entitled to recover from Lessee. (I)
the worth at the time of the award of the unpaid rent which had been earned
at the time of termination; (ii) the worth at the time of award of the
amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that the Lessee proves could have been reasonably avoided, (iii) the worth
at the time of award of the amount by which the unpaid rent for the balance
of the term after the time of award exceeds the amount of such rental kiss
that the Lessee proves could be reasonably avoided; and (iv) any other
amount necessary to compensate Lessor for all the detriment proximately
caused by the Lessee's failure to perform Its obligations under this Lease
or which in the ordinary course of things would be likely to result
therefrom including but not limited to the cost of recovering possession of
the Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and that portion of
the leasing commission paid by Lessor applicable to the unexpired term of
this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at
the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Default or Breach of this Lease shall not waive
Lessor's right to recover damages under this Paragraph. If termination of
this Lease is obtained through the provisional remedy of unlawful detainer,
Lessor shall have the right to recover in such proceeding the unpaid rent
and damages as are recoverable therein, or Lessor may reserve therein the
right to recover all or any part thereof in a separate suit for such rent
and/or damages. If a notice and grace period required under subparagraphs
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit,
or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall
also constitute the applicable notice for grace period purposes required by
subparagraphs 13.1 (b), (c) or (d). In such case, the applicable grace
period under subparagraphs 13.1 (b), (c) or (d) and under the unlawful
detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of
the two such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided
Lessee has the right to sublet or assign, subject only to reasonable
limitations. See Paragraphs 12 and 36 for the limitations on assignment and
subletting which limitations Lessee and Lessor agree are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under the Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability
under any Indemnity provisions of this Lease as to matters occurring' or
accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
Inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessees during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to Incur costs
not contemplated by this Lease, the exact amount of which wilt be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any Installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall In no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be h breach of this Lease if
performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
Initials _____
PAGE 7
<PAGE>
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rant or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser Interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 1 2.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph,5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated In writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of First refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee
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PAGE 9
<PAGE>
is in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, H any, herein granted to Lessee
are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease in
any manner, by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee throe
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee tails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as welt as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessees. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement right, dedication. map or restrictions.
43. Performance Under Protest. It at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants mat he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
Notices to Lessee will include:
Mr. Saul Feiger, Attorney at Law
152-18 Union Turnpike
Kew Garden Hills, New York 11367
Phone: (718) 380-2460 FAX: (718) 380-3092
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN. AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lessee at the place on the dates
specified above to their respective signatures.
Executed at Executed at
on October 17, 1996 on October 17, 1996
by LESSOR: by LESSEE:
The Guardian Paramark Enterprises Inc.
f/k/a T.J. Cinnamons Inc.
By /s/ By /s/
Name Printed: Mr. Michael Noulas Name Printed: Mr. Alan Gottlich
Title: 2nd Vice President Title: CFO
By By
Name Printed: Name Printed:
Title: Title:
Address: 201 Park Avenue South Address: 135 Seaview Drive
New York, NY 10003 Seacaucus, New Jersey 07094-3618
Tel. No. (212) 598-82l9 Tel. No. (201) 422-0910
Fax No. (212) 677-1008 Fax No. (201) 422-0858
GROSS
PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
Industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 700 South
Flower Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777. Fax No.
(213) 687-8616.
<PAGE>
Addendum to Standard Industrial/Commercial Single-Tenant
Lease-Gross dated September 5, 1996
by and between
The Guardian Life Insurance Company of America (Lessor)
and
Paramark Enterprises Inc. (Lessee)
49. Lessee's Right to Terminate Lease:
Notwithstanding any provisions in this Lease to the contrary, Lessee shall
have the right to terminate the Lease after December 31,1996 provided Lessee
gives Lessor sixty (60) day prior written notice of Lessee's election to
terminate the Lease. Lessee will be required to vacate no later than sixty (60)
days from the date notice is given.
50. Equipment Maintenance:
Lessee understands and agrees that Lessee is leasing the Premises from
Lessor on an "as is" basis. Lessee is responsible for the maintenance and repair
of all the equipment serving to the Premises as defined in Paragraph 7 of the
Lease. However, Lessor and Lessee agree to modify Lessee's responsibility to
maintain or repair the equipment and/or improvements specified below (a-g). All
of the equipment referenced herein (a-g) is Lessor's property and is to remain
in place throughout the term of the Lease and shall remain as Lessor's property
upon the expiration of the Lease and/or surrender of the Premises.
a) Two (2) walk-in chillers, 20' x 50', and 12'x 20' located on the
northwest side of building. Neither Lessee or Lessor is responsible
for maintenance or repair of this item.
b) Three (3) walk-in Chillers, each approximately 14' x 40', located on
the west side of building. Neither Lessee or Lessor is responsible for
maintenance or repair of this item.
c) Two (2) hot water heaters. Lessor will provide Lessee with one (1)
operable water heater. Lessee will maintain the operable water heater.
d) One (1) built-in Hotsy Cleaning system with three (3) stations. This
unit is not operational, neither Lessee or Lessor is responsible for
maintenance or repair of this item.
e) Two (2) air conditioners located on roof.
The units serving the office area are operational. Lessee is
responsible for maintenance and repair of the units.
f) Conveyor, 22", located in the warehouse area conveyor is not
operational. Neither Lessee or Lessor is responsible for maintenance
or repair of this item.
g) Stainless steel sinks (3), are operational and Lessee is responsible
for maintenance and repair.
51. First Right to Negotiate:
Lessee has been advised and Understands that Quality Care Pharmaceuticals
Inc. (Q.C.P.) has an option to Lease 3030 W. Warner Avenue, Santa Ana, CA.
Quality Care Pharmaceuticals Inc. is required to exercise said option on or
before August 31,1997. In the event Q.C.P. does exercise their option to lease,
Q.C.P. will enter a new Lease with The Guardian with a commencement date of
March 1, 1998. In the event Q.C.P. does not exercise their option to lease,
Lessee (T.J. Cinnamons Inc.) will have the First Right to Negotiate from the
period September 1,1997 through October 31, 1997. The base lease rate will be
not less than $9,497.00 per month with an annual increase of four percent (4%)
for a term of not less than four (4) years.
In the event Lessor and Lessee cannot mutually agree on specific terms and
execute a Lease Agreement on or before October 31,1997, the First Right to
Negotiate will terminate and be of no force or effect with Lessor being free to
Lease the property to another party.
52. Modification to Paragraph 7 and 50 of the Lessee:
Lessee's maintenance and repair obligations, as set forth in paragraph 7,
will be modified as follows: Lessee will not be obligated to make capital
replacements of equipment serving the facility but will be obligated to maintain
said equipment. In addition, Lessee's maintenance and repair obligation will be
capped at $1,500.00 per "breakdown" except if caused by Lessee's negligence.
Initials _____
<PAGE>
LEE & ASSOCIATES
[logo]
COMMERCIAL REAL ESTATE SERVICES
UNIFORM DISCLAIMER FORM
LEASE FORM
1. LEGAL EFFECT. Landlord and Tenant acknowledge that the Proposal to Lease
contained herein is not a lease, and that It is Intended solely to
establish deal points which will be used as the basis for the preparation
of a lease by Landlord. The lease shall be subject to Landlord's and
Tenant's approval, and only a fully executed and delivered lease shall
constitute a legally binding lease for the Premises. Broker makes no
warranty or representation to Landlord or Tenant that acceptance of this
Proposal to Lease will guaranty the execution of a lease for the Premises.
Landlord and Tenant acknowledge that Broker is not qualified to practice
law, nor authorized to give legal advice or counsel you as to any legal
matters affecting this document. Broker hereby advises Landlord and Tenant
to consult with their respective attorneys in connection with any questions
each may have as to legal ramifications or effects of this document, prior
to its execution.
2. FORM OF LEASE. This proposed document Is a standard form document, and
Broker makes no representations or warranties with respect to the adequacy
of this document for either Landlord's or Seller's particular purposes.
Broker has, at the direction of Landlord and/or Tenant, 'filled in the
blanks" from information provided to Broker based on prior correspondence,
discussions of the parties with respect to the Proposal to Lease, and
subsequent counteroffers between the parties hereto. By initialing this
paragraph, Landlord and Tenant acknowledge and agree that this document is
delivered to each subject to the express condition that Broker has merely
followed the instructions of the parties In preparing this document, and
does not assume any responsibility for its accuracy, completeness or form.
Landlord and Tenant acknowledge and agree that In providing this document,
Broker has acted to expedite this transaction on behalf of Landlord and
Tenant, and has functioned within the scope of professional ethics by doing
so.
Landlord's Initials: ________________ Tenant's Initials: _______________
3. NO INDEPENDENT INVESTIGATION. Landlord and Tenant acknowledge and
understand that any financial statements, information, reports, or written
materials of any nature whatsoever, as provided by the parties to Broker,
and thereafter submitted by Broker to either Landlord and/or Tenant, are so
provided without any independent investigation by Broker, and as such
Broker assumes no responsibility or liability for the accuracy or validity
of the same. Any verification of such submitted documents is solely and
completely the responsibility of the party to whom such documents have been
submitted.
4. NO WARRANTY. Landlord and Tenant acknowledge and agree that no warranties,
recommendations, or representations are made by the broker as to the
accuracy, the legal sufficiency, the legal effect of the tax consequences
of any of the documents submitted by Broker to Landlord and/or Tenant
referenced in Paragraph 3 above, nor of the legal sufficiency, legal
effect, or tax consequences of the transactions contemplated thereby.
Furthermore, Landlord and Tenant acknowledge and agree that Broker has made
no representations concerning the ability of the Tenant to use the Premises
as intended, nor of the sufficiency or adequacy of the Premises for their
Intended use, and Tenant is relying solely on Its own investigation of the
Premises in accepting this Proposal to Lease.
5. NOTICE REGARDING HAZARDOUS WASTES OR SUBSTANCES AND UNDERGROUND STORAGE
TANKS. Although Broker will disclose any knowledge it actually possesses
with respect to the existence of any hazardous wastes, substances, or
underground storage tanks at the Premises, Broker has not made any
independent investigations or obtained reports with respect thereto, except
as may be described in a separate written document signed by Broker. All
parties hereto acknowledge and understand that Broker makes no
representations regarding the existence or nonexistence of hazardous
wastes, substances, or underground storage tanks at the Premises. Each
party should contact a professional, such as a civil engineer, geologist,
Industrial hygienist or other persons with experience in these matters to
advise you concerning the property.
6. DISCLOSURE RESPECTING AMERICANS WITH DISABILITIES ACT. The United State
Congress has recently enacted the Americans With Disabilities Act. Among
other things, this act is intended to make many business establishments
equally accessible to persons with a variety of disabilities; modifications
to real property may be required. State and local laws also may mandate
changes. Broker Is not qualified to advise you as to what, if any, changes
may be required now or in the future. Broker recommends that you consult
the attorneys and qualified design professionals of your choice for
information regarding these matters.
7. ATTORNEYS' FEES. In any action, proceeding or arbitration arising out of
this Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees and costs.
8. ENTIRE AGREEMENT. This document constitutes the entire agreement between
parties with respect to the subject matter contained herein and supersedes
all prior or contemporaneous agreements, representations, negotiations and
understandings of the parties, other than such writings as may be executed
and/or delivered by the parties pursuant hereto. There are no oral
agreements or implied covenants by the Seller or Buyer, or by their
respective employees, or other representatives.
Date: October 17, 1996 Date: October 4, 1996
Landlord: /s/ Tenant: Paramark Enterprises, Inc.
The Guardian Life Insurance a/k/a T.J. Cinnamons Inc.
Company of America
Exhibit 16.1
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
Certified Public Accountants and Consultants
[logo]
February 3, 1997
Securities and Exchange Commission
4501 Fifth Strect, N.W.
Washington, DC 20549
Gentlemen:
We have read Item 4 of Part 8-K dated January 31, 1997 of Paramark
Enterprises, Inc. and are in agreement with the statements contained therein.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
Exhibit 16.2
ARTHUR ANDERSEN
________________________
Arthur Andersen LLP
________________________
101 Eisenhower Parkway
Roseland NJ 07068-1099
201 403 6100
February 17, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20349
We have read Item 4 in the attached Form 8-K dated February 14, 1997 of
Paramark Enterprises, Inc. to be filed with the Securities and Exchange
Commission and are in agreement with the statements contained therein.
Very truly yours,
Arthur Andersen LLP
Exhibit 21.1
CERTIFICATE OF INCORPORATION
OF
INTERBAKE INC.
1. The name of the corporation is Interbake Brands, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City Wilmington, County of
New Castle. The name of its registered agent as such address is The Corporation
Trust Company.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may or
organized under the General Corporation Law of Delaware.
In general, to possess and exercise all the powers and privileges granted
by the General Corporation on Law of Delaware or by any other law of Delaware or
by this Certificate of Incorporation together with any powers incidental
thereto, so far as such powers and privileges are necessary or convenient to the
conduct, promotion or attainment of the business or purposes of the corporation.
4. The total number of share of stock which the corporation shall have the
authority to issue is Ten Thousand (10,000); all of such shares shall be without
par value.
5. The name and mailing address of the sole incorporator is as follows:
Saul Feiger, Esq., 152-18 Union Turnpike, Kew Garden Hills, New York 11367.
6. The corporation is to have perpetual existence.
7. Elections of directors need not be by written ballot unless under the
by-laws of the corporation shall so provide. Meetings of stockholders may be
held within or without the State of Delaware, as the by-laws may provide. The
books of the corporation may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the board of directors or in the by-laws of the
corporation.
8. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
9. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
1
<PAGE>
10. The corporation shall indemnify its officers, directors. employees and
agents to the extent permitted by the General Corporation Law of the State of
Delaware.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 1lth day of September, 1996.
________________________
SAUL FLIGER
<PAGE>
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "INTERBAKE BRANDS, INC.", FILED IN THIS OFFICE OF THE SIXTEENTH
DAY OF SEPTEMBER, A.D. 1996, AT 4:30 P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
___________________________________
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION: 8110526
DATE: 09-19-96
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000915661
<NAME> PARAMARK ENTERPRISES, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 49,667
<SECURITIES> 0
<RECEIVABLES> 1,783,158
<ALLOWANCES> 64,000
<INVENTORY> 82,201
<CURRENT-ASSETS> 1,891,406
<PP&E> 215,819
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0
0
<COMMON> 30,689
<OTHER-SE> 1,525,419
<TOTAL-LIABILITY-AND-EQUITY> 2,651,294
<SALES> 1,117,917
<TOTAL-REVENUES> 1,489,837
<CGS> 925,228
<TOTAL-COSTS> 2,483,920
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 138,138
<INTEREST-EXPENSE> 96,841
<INCOME-PRETAX> 57,135
<INCOME-TAX> 0
<INCOME-CONTINUING> 57,135
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<EXTRAORDINARY> 162,729
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