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, 1997.
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 issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ____ No____
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained 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. [ ]
The issuer's revenues for the fiscal year ended December 31, 1997 were
$3,878,381.
As of March 25, 1998, there were 3,373,883 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, 1998,
the approximate aggregate market value of Common Stock held by non-affiliates
was $593,000 (1).
DOCUMENTS INCORPORATED BY REFERENCE
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, 1995 and December 31, 1996 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 March 25,
1998. 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 "Risk Factors".
Paramark Enterprises, Inc., formerly T.J. Cinnamons, Inc. (the "Company"),
a Delaware corporation was originally formed in December 1985. 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
currently owns and operates a production facility and distributes its products
through wholesale channels of distribution throughout the United States. The
Company's Common Stock, Class A Warrants and Class B Warrants are publicly
traded on the OTC Bulletin Board under the symbols "TJCI", "TJCIW", and "TJCIZ"
In June 1992, current management acquired the Company 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 then
current points of distribution. The Company's business plan had 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 T.J. Holding
Company, Inc., a wholly owned subsidiary of Arby's, Inc. d/b/a/ Triarc
Restaurant Group (the "Triarc Purchase Agreement") for the sale of its
intellectual property and a simultaneous license by Triarc back to the Company
certain of the intellectual property for the purposes of continuing to
distribute T.J. Cinnamons products through retail grocery outlets and
supermarkets. Under the terms of the Triarc Purchase Agreement, the Company
retained rights to own and operate one existing retail bakery. See "The Triarc
Transaction."
Following the completion of the Triarc Transaction, the Company
discontinued its franchise and non-traditional bakery development strategies
outlined above, and began to emphasize its strategy of expanding its wholesale
manufacturing and distribution of the T.J. Cinnamons branded products for
distribution to retail grocery outlets and supermarkets.
In November 1996, the Company developed a bakery manufacturing facility
in Santa Ana, California, and is currently selling its line of products in
approximately 1,500 supermarket and wholesale club stores including Ralphs
Supermarkets, Walmart Super Centers, Lucky's Supermarkets,
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H.E. Butt Supermarkets, ShopRite Supermarkets, Sams Wholesale Club's and Costco
Wholesale Club's. During the fiscal year ended December 31, 1997, approximately
77% of the Company's sales were to Ralph's Supermarkets and Sam's Wholesale
Clubs. See "Risk Factors - Dependence on Major Customers".
The Company's products include: (a) "T.J. Cinnamons" branded cinnamon rolls
and cinnachips, and (b) a full line of specialty gourmet bakery products
including rugalach sold in four flavor varieties, bundt cakes sold in four
flavor varieties, upside down pineapple cakes, pull-apart cakes, chocolate
brownies branded under the Hershey's label, 7" chocolate and white iced layer
cakes, 4" mini 7" chocolate and white iced layer cakes, 1/4" chocolate and white
iced sheet cakes, and other specialty bakery products. The Company is currently
negotiating the sale of its rights to the "T.J. Cinnamons" name brand. See
"Business - Proposed Sale of rights under Triarc Agreements." If this
transaction is consummated, the Company will continue to manufacture and sell
its line of specialty gourmet bakery products, and will endeavor to expand its
line of products to include biscotti's, puff pastries and other specialty items.
Management believes that the Company is favorably positioned to participate
in a growing trend among supermarket chain's in-store bakeries to discontinue
on-premises baking, and to purchase products that are made off premises and
delivered to them frozen. After delivery, such products are thawed, date coded,
and placed on the shelves for sale to customers. This "thaw and sell" strategy
eliminates the need to employ experienced bakers, cost control systems and
extensive operating systems to ensure quality and consistency of bakery
products, all of which are extremely costly.
Triarc Transaction. On August 29, 1996 the Company sold to TJ Holding
Company, Inc. (a wholly owned subsidiary of Arby's, Inc. d/b/a/ Triarc
Restaurant Group) 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 also assigned to it various manufacturer and
distributor agreements.
In consideration for the sale of the Intellectual Property, the Company
received (i) a 99 year royalty free license to produce and sell T.J. Cinnamons
branded products through wholesale channels of distribution (see below), and
(ii) a base purchase price of $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 provided
for contingent additional payments of up to $5.5 million. These contingent
additional payments (i) will commence only if in any consecutive 12 month period
aggregate system wide sales of T.J. Cinnamons products in Triarc retail outlets
exceed $26.3 million; and (ii) are based on a royalty equal to 2% of system wide
sales of T.J. Cinnamons products for the next 48 months, and thereafter 1% of
system wide sales of T.J. Cinnamons products for an additional 36 months. See
"Risk Factors - Contingent Additional Payments under the Triarc Agreement".
Under the terms of the Triarc License Agreement, Triarc granted the Company
the rights to use the Intellectual Property for (a) the sale of T.J. Cinnamons
branded products through wholesale channels of distribution, and (b) to continue
to operate the T.J. Cinnamons bakery located in Poughkeepsie, New York. The
Company also continues to act as franchisor under the existing T.J.
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Cinnamons franchise agreements, although day-to-day management responsibilities
were assumed by Triarc pursuant to a management agreement. The wholesale
licensing rights provided under the Triarc License Agreement are for the United
States and any foreign country if the Company pays for the costs and expenses of
securing trademark registrations and necessary government approvals in such
foreign country. The term of the license agreement aggregates 99 years,
consisting of an initial term of 20 years, together with three 20 year renewal
options, and one 19 year renewal option. Each renewal option is subject to the
Company's compliance with the terms of the license agreement and executing a
general release in favor of Triarc.
Under the Triarc License Agreement, the Company has the right to distribute
approved wholesale products to supermarket chains approved by Triarc.
Supermarket chains include grocery stores, warehouse stores, combination stores
and wholesale club stores with annual sales exceeding $2 million, but do not
include convenience stores. A list of wholesale products were pre-approved and
included as an exhibit to the license agreement, including seven sizes of
cinnamon rolls, seven flavor varieties of cinnamon rolls, three flavor varieties
of CinnaChip's, and three flavor varieties of CinnaLoaf breads. The cinnamon
roll products can be sold in 4-pack, 6-pack and 12-pack containers or other
containers approved by Triarc. The Triarc License Agreement provides that for
the period ending May 29, 2000, Triarc may not sell any approved T.J. Cinnamons
products under the license agreement to any supermarket chain unless Triarc pays
the Company a 2% royalty based on the wholesale sales to these supermarket
accounts. Triarc may not sell such products to any supermarket chain to which
the Company has been, and continues selling such products as of May 29, 2000.
See "Risk Factors - Non-Exclusivity of Triarc License Agreement."
The Company is obligated to comply with Triarc's standards and
specifications for the preparation, manufacture, packaging, distribution,
advertising and promotion of the approved wholesale products, and to use the
Intellectual Property only to the extent provided for in the Triarc License
Agreement.
Need for Additional Capital. In an effort to secure financing to fund
operating deficits and provide the Company with sufficient capital for its
expansion plans, in October 1997, the Company offered for sale units in a
convertible preferred stock private placement with Commonwealth Associates
acting as the placement agent. This offering was held open to investors through
January 1998, and was not consummated as orders for the minimum number of shares
were not obtained. Without alternative sources of financing to fund the
Company's operating deficits, the Company initiated discussions with a third
party regarding securing capital through the sale of the Company's rights under
the Triarc agreements.
Proposed Sale of Rights Under Triarc Agreements. The Company is currently
negotiating with an unaffiliated third party purchaser (the "Third Party")
regarding the sale of (a) all of the Company's rights under the Triarc Purchase
Agreement and License Agreement and (b) the Company's rights and obligations as
franchisor under the T.J. Cinnamons franchise system (collectively the "TJC
Transaction"). Consummation of the proposed TJC Transaction is subject to
negotiation of the final terms of the transaction and execution of a definitive
agreement, completion by Third Party of its due diligence of the Company, and
the receipt of shareholder approval for the TJC Transaction. No assurance can be
given that the Company and the Third Party will be successful in negotiating a
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definitive agreement following completion of the due diligence, or even if such
agreement is reached, that the Company's shareholders would approve the TJC
Transaction. See "Risk Factors - Failure to Close the TJC Transaction."
If the TJC Transaction is consummated, then following the closing of the
proposed TJC Transaction, the Company will continue to manufacture and
distribute gourmet specialty bakery products, however, the Company would no
longer manufacture and sell T.J. Cinnamons branded products which include
cinnamon rolls and cinnachips. For the fiscal year ending December 31, 1997,
sales of T.J. Cinnamons branded products accounted for 75% of the Company's
total wholesale sales. See "Risk Factors - Potential Loss of Wholesale Sales
Resulting from the TJC Transaction." In addition, if the TJC Transaction is
consummated, then following the closing of the TJC Transaction, the Company will
no longer be entitled to receive any payments under the previously described
Triarc purchase agreement and license agreement. See "Business - Triarc
Transaction."
Industry Overview. Supermarket in-store bakery sales have grown from $10.72
billion to $11.43 billion in the twelve months from 1995 to 1996. This growth is
attributed to actual sales increases per store and is not the result of
additional bakeries developed. According to Progressive Grocer's Bakery Update
1997 report, average bakery sales in 1996 grew by 8.5%, a significant increase
over the sales increase of 6.6% in 1995. In-store bakeries outperform all other
supermarket departments by contributing a substantial 52.3% gross margin on all
bakery sales. There are now more than 23,000 supermarket in-store bakeries
representing 76.3% of all supermarkets.
The "sweet goods" and "cookie" categories each represent 7.9% of the
industry-wide bakery sales and combined represent 15.8% of such sales. As this
industry grows and as the need for high quality value-added products increases,
the Company believes that manufacturers who position themselves as leaders in
the upscale, gourmet bakery market will be capturing more of the total sales.
Management believes that the shift from full time to part time labor in the
in-store bakery departments of supermarkets and wholesale club stores has
created a shortage of skilled bakers and is fostering a climate that is ripe for
"new" products the preparation of which requires little or no expertise.
Management further believes that all of the trends and barometers point toward
new product development in "fully baked", "thaw and sell", and "prepackaged"
product lines that meet the quality profile of today's in-store bakery products.
The Company's goal is to capitalize on these trends and market dynamics in order
to become a leader in the off premises manufacture of bakery products for sale
to supermarket and grocery store customers. The Company believes that this trend
is very likely to continue into the next decade, resulting in the Company's
ideal positioning of its "thaw and sell" line of gourmet bakery products. There
can, however, be no assurance that the Company can achieve its sales and
earnings goals. See "Risk Factors - Competition".
Business Strategy. To develop its wholesale sales, the Company has focused
its selling efforts in specific geographic areas through alliances with the
following key food brokerage groups: (a) Le Grand Marketing, representing retail
grocery stores in California; (b) Food Scene, representing retail grocery stores
in the New York tri-state area, (c) J & J Brokers, representing retail grocery
stores in New England, (d) Priority Food Brokers, representing retail grocery
stores in Maryland and Virginia, and (e)
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American Sales and Marketing, representing membership club stores nationwide and
retail grocery stores in the Midwest. 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 has focused its marketing efforts on the following core
products: (a) T.J. Cinnamons gourmet cinnamon rolls and gourmet sticky rolls;
(b) T.J. Cinnamons cinnachips; (c) private label rugalach; (d) private label
bundt cakes, (e) gourmet brownies sold under the Hershey's label, and (d) other
private label specialty cakes. The private label rugalach are made utilizing the
Company's own recipe in the following flavor varieties: chocolate chip, cinnamon
apple, raspberry walnut and apricot pecan. The gourmet bundt cakes in four
flavor varieties, and the specialty cakes include upside down pineapple cakes,
pull-apart cakes, 7" chocolate and white iced layer cakes, 4" mini 7" chocolate
and white iced layer cakes, and 1/4" chocolate and white iced sheet cakes. All
of these products are sold in various packaging and sizes, and are shipped
through both fresh and frozen distribution.
If the TJC Transaction is completed, the Company will no longer manufacture
and sell "T.J. Cinnamons" branded products including cinnamon rolls and
cinnachips, however the Company will continue to manufacture and sell all other
specialty bakery products outlined above. For the fiscal year ending December
31, 1997, sales of T.J. Cinnamons branded products accounted for 75% of the
Company's total wholesale sales, of which approximately 47% represents the sale
of cinnachips. Management believes that it will be able to replace these sales
with other private label and branded products. However, no assurance can be
given that the Company will be successful in replacing the sales generated by
the T.J. Cinnamons branded products, or that the proposed TJC Transaction will
be completed. See "Risk Factors - Potential Loss of Wholesale Sales Resulting
from the TJC Transaction."
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 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 tub containers ranging in size from
8 ounces to 20 ounces, and a paper bag targeted to the in-store deli departments
of supermarkets. Sales of cinnachips accounted for 47% of the Company's
wholesale sales in fiscal 1997. If the proposed TJC Transaction is consummated,
following completion of the TJC Transaction, the Company will no longer
manufacture and sell T.J. Cinnamons cinnachips. See "Risk Factors - Failure to
Close the TJC Transaction."
The Company is currently selling its products in approximately 2,000
locations including the following accounts: Ralph's Supermarkets, Food-4-Less
Supermarkets, Walmart Super Centers, Luckys Supermarkets, ShopRite Supermarkets,
H.E. Butt Supermarkets, Kings Supermarkets, D'Agostinos Supermarkets, Costco
Wholesale Clubs and Sam's Wholesale Clubs. During the fiscal year ended December
31, 1997, approximately 77% of the Company's sales were to Ralph's Supermarkets
and Sam's Wholesale Clubs. See "Risk Factors - Dependence on Major Customers".
Management believes that the continuous development and introduction of new
gourmet bakery products at attractive pricing will further develop the Company's
sale of its "private label" specialty bakery products to both the retail grocery
and food service trade. However, there can be no assurance that the Company will
be able to implement its business strategy, or if implemented, that the business
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strategy will permit the Company to accomplish its sales and earnings goals. See
"Risk Factors Management of Growth."
The Company plans, as an integral part of its competitive posture, to
introduce new products rapidly and continuously. The Company believes that a key
to its success is its ability to develop innovative new products and
merchandising programs reacting to demand of its customers and trends in the
in-store baking industry. Some of the new products under development are
biscotti, mandel toast, puff pastries, and sweet and savory bagel crisps. See
"Risk Factors - Competition; New Product Development."
Plan of Operation. The Company's plan of operations for fiscal year 1998
calls for the implementation of the Company's overall strategy to build
substantial sales of new and existing gourmet bakery products sold as private
label products to major supermarket chains, wholesale club stores, convenience
stores, specialty stores, vending outlets and food service accounts.
The Company anticipates further automation of its manufacturing facility in
California during 1998. Furthermore, the Company intends to explore the
possibility of entering into a co-packing agreement with a manufacturer in the
Northeast and also intends to explore the possible acquisition of an existing
bakery business to meet projected demand for its products in fiscal 1998. The
most likely acquisition candidate will be a company that manufactures and
distributes specialty bakery products, and whose manufacturing, marketing,
sales, distribution and administrative operations complement those of the
Company, although no specific acquisitions are currently contemplated. The
Company intends to relocate to new office space in Secaucus, New Jersey in May
1998. Management believes that this office space and forecasted administrative
staff will be sufficient to meet the Company's needs at the sales volume
anticipated for fiscal year 1998. See "Properties." The Company expects to lease
or purchase accounting software and computers in fiscal 1998. However, the
Company will continue to explore opportunities to improve its product design and
production capability.
The Company believes that the net proceeds from the TJC Transaction, if
consummated, together with its anticipated lines of credit, and the Company's
anticipated cash from operations, should be sufficient to satisfy the Company's
cash needs through June 30, 1999. Should demand for the Company's products be
greater than anticipated, the Company might find it necessary to seek additional
financing or to reduce planned expenditures on marketing and product expansion
if efficient financing cannot be obtained or obtained timely on terms acceptable
to the Company. See "Risk Factors - Possible Need for Additional Financing."
Manufacturing and Distribution. The Company's existing production facility
is located in Santa Ana, California. The lease for this facility expires on June
30, 1998. The Company has executed a three year lease for a 15,000 square foot
bakery in El Cajon, California, and anticipates relocating its production to the
new facility in May, 1998. The facility has a capacity estimated to be
approximately $10 million. The facility has blast freezers, freezers,
refrigerators, proofers, ovens, mixers, depositors and other equipment necessary
for the production of the Company's products. The Company recently acquired an
automated bakery production line which sheets, forms, fills, rolls and cuts the
various bakery products, as well as an automated packaging line which cools and
packages the fully baked
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products. Management anticipates that these automated processes will result in a
substantial reduction in labor costs thereby increasing the Company's gross
margins.
The Company intends to explore the possibility of entering into a
co-packing relationship with a manufacturer in the Northeast and/or acquiring an
existing bakery business when the California facility is nearing its capacity
and sales in the northeastern United States have been sufficiently developed.
All products sold in the northeastern United States are currently shipped frozen
and warehoused at a distribution facility in New Jersey. The Company has a
minimum half truck load order requirement for all products shipped to areas of
the country other than California and the northeastern United States.
The cinnamon roll products are baked fresh and distributed daily through
independent distributors or through the internal distribution systems of
supermarket chains. The cinnamon roll products have a 5 to 7 day shelf life, the
cinnachips have a 120 day shelf life, and the rugalach have a 45 day shelf life
based on the current packaging. All cinnamon roll products currently sold in
southern California are distributed daily to supermarkets and membership club
stores through an outside distributor or through supermarket chains' in-house
distribution systems. The Company freezes all cinnamon rolls, cakes and rugalach
products for distribution outside of southern California. These products are to
be fully baked and packaged, and are to 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 fresh at
room temperature due to their extended shelf life.
Quality Control. The Company's products, other than the T.J. Cinnamons
branded 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
and periodically reviews the standards of its purchased ingredients against
these specifications. 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 T.J. Cinnamon proprietary cinnamon spice
formulation is produced by McCormick & Company, Inc. and various other T.J.
Cinnamons proprietary blends are produced by Dawn Foods, Inc. 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.
Governmental 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
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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.
See "Risk Factors - Governmental Regulations; Minimum Wages."
Employees. The Company has 12 full-time employees, 4 of whom are employed
in general or administrative functions principally at the Company's executive
offices in Secaucus, New Jersey; and 7 of whom are employed in its wholesale
bakery in Santa Ana, California. The Company also has approximately 100 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.
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 menus 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 healthful,
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 two significant competitors (Cinnabon and La Francaise
Bakery) that offer cinnamon rolls directly comparable to T.J. Cinnamons products
sold and distributed by the Company.
A majority 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 factors include price, service, extent of
product offered, strength of brand offered and store promotional support. These
intense competitive factors may result in a reduction in the Company's gross
margins which could have a materially adverse effect on the Company's financial
condition and results of operations.
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There can be no assurance that consumers will regard the products sold
under the Company's name 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. See "Risk Factors - Competition."
Forward Looking Statements
When used in this Annual Report, the words or phrases "will likely result",
"are expected to", "will continue", "is anticipated", "estimate", "projected",
"intends to" or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including but not limited to the Company's history of losses and cash flow
deficit; independent auditor's report regarding the Company's ability to
continue as a going concern; failure to close the TJC Transaction; possible loss
of wholesale sales resulting from the TJC Transaction; possible need for
additional financing; dietary trends; competition; management of growth;
non-exclusivity of Triarc License Agreement; contingent additional payments
under the Triarc Purchase Agreement; trademarks and service marks; limited
manufacturing and warehouse facilities; dependence on major customers;
termination of the management agreement on the Poughkeepsie Galleria Bakery;
dependence upon key and other personnel; government regulations; insurance and
potential liability; lack of liquidity; possible adverse effect of penny stock
rules and liquidity of the Company's Common Stock; dividend policy; control by
directors and executive officers, that could cause the Company's actual results
to differ materially from historical earnings and those presently anticipated or
projected. Such factors, which are discussed in "Risk Factors", "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the notes to consolidated financial statements, could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods expressed in the Annual Report. As a result,
potential investors are cautioned not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. See "Risk
Factors" "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Risk Factors
In addition to the other information in this report, the following information
should be considered carefully in evaluating the Company and its business.
(a) History of Operating Losses; Operating Cash Flow Deficit. The Company
has had net operating losses since 1988. For the fiscal year ended December 31,
1997, the Company's net loss was $1,376,657. 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, 1997 the Company
had a working capital deficit of approximately $679,200. There can be no
assurance that the Company will achieve profitable operations and a positive
cash flow. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
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(b) Independent Auditor's Report. The Independent Auditor's report on the
Company's financial statements for the fiscal year ending December 31, 1997
includes an explanatory paragraph that describes the uncertainty as to the
ability of the Company to continue as a going concern. In the event the Company
is unable to continue as a going concern, stockholders may lose all of their
investment in the Company. See Note 2 of the Notes to Consolidated Financial
Statements.
(c) Failure to Close the TJC Transaction. The Company is currently
negotiating with an unaffiliated Third Party regarding the sale of (a) acquire
all of the Company's rights under the Triarc Purchase Agreement and License
Agreement and (b) the Company's rights and obligations as franchisor under the
T.J. Cinnamons franchise system (collectively the "TJC Transaction").
Consummation of the proposed TJC Transaction is subject to negotiation of final
terms, execution of a definitive agreement, completion by Third Party of its due
diligence of the Company, and the receipt of shareholder approval for the TJC
Transaction under Delaware Law and other customary closing conditions. Based
upon currently proposed plans and assumptions relating to its operations,
Management believes that it will have sufficient working capital available from
operating revenues and the net proceeds of the TJC Transaction, if consummated,
to finance its activities through June 30, 1999. There can be no assurance that
the Company will be able to reach a definitive agreement with the Third Party on
the TJC Transaction, or even if such agreement is reached, that the Company's
stockholders will approve the TJC Transaction. The failure of the Company to
close the TJC Transaction could have a material adverse effect on the Company's
business, financial condition and results of operations as the Company will not
have sufficient financial resources to continue its current business operations.
(d) Potential Loss of Wholesale Sales Resulting from the TJC Transaction.
Following consummation of the TJC Transaction, the Company will continue to
manufacture and distribute gourmet specialty bakery products, however, the
Company would no longer manufacture and sell T.J. Cinnamons branded products.
T.J. Cinnamons branded products accounted for 75% of wholesale sales for the
fiscal year ending December 31, 1997. The failure of the Company to replace such
sales with other products could have a material adverse effect on the Company's
business, financial condition and results of operations.
(e) Possible Need for Additional Financing. In the future, the Company will
require additional capital in connection with the manufacture, marketing and
sale of its products. In order to develop new products, manufacture,
merchandise, market, and sell its new and existing product line, and otherwise
implement its plan of operations, the Company will be required, among other
things, to raise additional capital. While the Company has existing lines of
credit, there can be no assurance that such debt financing will be available to
the Company in the future or that such debt financing will be available in the
amounts required by the Company or on terms acceptable to the Company. The
failure of the Company to obtain financing in adequate amounts and on acceptable
terms could have an adverse effect on the Company's business, financial
condition and results of operations.
(f) Dietary Trends; Consumer Preferences. 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
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preferences including taste, eating habits, demographic trends and traffic
patterns, or because of health related or other dietary concerns or other
reasons, could have an adverse effect on the Company's business, financial
condition and results of operations.
(g) Competition; New Product Development. The retail bakery industry is
highly competitive with respect to price and food quality including taste,
freshness, healthfulness and nutritional value. A number of established
companies with significant brand name recognition currently compete with the
Company in the various markets for market share. Many of these companies have
far more available capital, broader product lines, and greater marketing and
sales resources than does the Company, and many devote significantly more
resources to the development of new products than does the Company. The Company
will seek to compete on the basis of the Company's innovation and speed of
execution in expanding its existing product line and launching new products.
However, there can be no assurance that such competitors will not develop direct
competing brands with more market acceptance, or which can be sold at lower
prices than products that have been, or may be, developed by the Company. These
intense competitive factors may result in a reduction in the Company's gross
margins which could have a materially adverse effect on the Company's business,
financial condition and results of operations.
(h) Management of Growth. The Company's ability to manage growth
effectively and expand its operations will be dependent on its ability to expand
and improve its operational, technical, financial and sales systems, and to
develop the skills of its managers and supervisors, and to hire, motivate and
manage its employees. Expansion of the Company's manufacturing, sales and
distribution operations will be dependent upon, amongst other things, continued
growth in the bakery industry, the Company's ability to withstand intense price
competition, its ability to obtain new customers, and retain sales and other
personnel. There can be no assurance that the Company will be successful in
managing its growth and expanding its business. The Company's failure to manage
its growth or expand its business could have a material adverse effect on its
business, financial condition and results of operations.
(i) Non-Exclusivity of Triarc License Agreement. The Company manufactures
and sells selected T.J. Cinnamons products (the "TJC Products") pursuant to a
license agreement with Triarc. The license for the wholesaling of TJC Products
to supermarket chains is exclusive to the Company through May 29, 2000, although
there is an explicit prohibition for the manufacture and sale only by Triarc
through such date, and not by other entities to whom Triarc may grant licenses.
After the expiration of such exclusive period, both Triarc and any other
licensee of Triarc, may sell the TJC Products through wholesale channels of
distribution except to those supermarket chains in which the Company was selling
TJC Products prior to the expiration of such exclusivity period and to which the
Company continues to sell the TJC Products on a continuous basis. To the extent
that the license agreement is not and will not be exclusive, the Company will be
forced to compete against Triarc and/or Triarc's other licensees for new
supermarket sales. Triarc's resources greatly exceed the Company's resources,
and it is anticipated that Triarc's resources will continue to exceed the
Company's resources following the expiration of the exclusivity period. If
Triarc chooses to enter, either directly or indirectly, into the wholesaling of
TJC Products at the end of the exclusivity period (or if Triarc should attempt
to enter into licensing agreements with other entities during such period, and
the Company is unsuccessful in restraining such licenses), the Company may be
unable to compete effectively for new accounts, which may severely
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limit the Company's growth. If the proposed TJC Transaction is consummated as
currently structured, the Company will no longer have any rights to sell TJC
Products under the Triarc license agreement. See "Risk Factors - Failure to
Close the TJC Transaction."
(j) Contingent Additional Payments under the Triarc Purchase Agreement. In
August 1996, the Company completed a transaction with Triarc whereby Triarc
acquired the T.J. Cinnamons intellectual property in consideration for (a) a
royalty free license agreement for a period of 99 years including renewal
options, (b) a base purchase price of $3.54 million, and (c) contingent
additional future payments of up to $5.5 million. These contingent additional
payments will commence only if in any consecutive 12 month period the aggregate
system wide sales of T.J. Cinnamons products by Triarc exceeds $26.3 million,
and are based on a percentage of Triarc system wide sales equal to 2% for the
next 48 months and 1% for a further 36 months. These contingent additional
payments will be recorded as revenues when and if received, and have no
corresponding expenses associated with them. As a result, these additional
payments could be of significant value to the Company. However, they are
contingent on Triarc's development efforts and success in promoting the T.J.
Cinnamons concept into a number of the Arby's franchised restaurant locations,
over which the Company has no control. Furthermore, the Triarc franchisees are
under no obligation to develop the T.J. Cinnamons concept. If Triarc's system
wide sales never reach the $26.3 million, this could have an adverse effect on
the Company's business, financial condition and results of operations. If the
proposed TJC Transaction is consummated as currently structured, the Company
will not be entitled to receive any further payments under the Triarc purchase
agreement. See "Risk Factors - Failure to Close the TJC Transaction."
(k) Trademarks and Service Marks. The Company's business is dependent upon
its license of the trademarks, services marks and other Intellectual Property
pursuant to the Triarc license agreement . The Company believes these trademarks
and service marks have significant value and are important to the marketing of
its products. However, in addition to the non-exclusivity of the Triarc License
Agreement, there can be no assurance that the Company will be able to retain
these rights pursuant to its license agreement, 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.
The occurrence of any of the aforementioned events could have an adverse effect
on the Company's business, financial condition and results of operations. If the
proposed TJC Transaction is consummated as currently structured, the Company
will no longer have any rights to the T.J. Cinnamons trademarks and service
marks pursuant to the Triarc License Agreement. See "Risk Factors Failure to
Close the TJC Transaction." No assurance can be given that the TJC Transaction
will be consummated.
(l) Limited Manufacturing and Warehouse Facilities. The Company has only
one manufacturing and warehouse facility located in Santa Ana, California, with
limited production capacity. The Company plans to improve its production
capability by implementing automation of its production processes through new
equipment purchases, and developing a second manufacturing facility in the
Northeast. There can be no assurance that the Company, will, in the future, be
able to manufacture and warehouse products in adequate quantities to meet future
demand. Accordingly, the Company may have to seek additional manufacturing
capacity, warehouse facilities, and/or subcontractors to service its future
needs. There can be no assurance that such capacity, facilities, or
subcontractors will either be available in the future or available on terms
acceptable to the Company.
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(m) Dependence on Major Customers. The Company's current revenues consist
primarily of sales to a limited number of large supermarket and wholesale club
chains. During the fiscal year ended December 31, 1997, approximately 77% of the
Company's sales were to Ralph's Supermarkets and Sam's Wholesale Clubs. The
Company's success will depend upon a continuous stream of orders for its various
products from existing customers and an increasing number of new customers.
There can be no assurance, however, that the Company's prior sales to existing
accounts will result in any new and/or repeat orders from these or other similar
accounts. The failure of such accounts to carry the Company's products or to
place repeat orders for the Company's products would have a material adverse
effect on the Company's business, financial condition and results of operations.
If the proposed TJC Transaction is consummated as currently structured, the
Company will no longer have any rights to manufacture and sell T.J. Cinnamons
branded products which accounted for 75% of the Company's total wholesale sales
in fiscal 1997. No assurance can be given that the TJC Transaction will be
consummated.
(n) Termination of the Management Agreement on the Poughkeepsie Galleria
Bakery. In the event the current independent managers of the Poughkeepsie
Galleria Bakery are unable or unwilling to meet their continuing financial
obligations to the Company under their management agreement, the Company may
have to reassume the operation of the Poughkeepsie Galleria Bakery and the
payments due under its lease agreement which expires on June 1, 2000. If the
Company reassumes operation of said bakery, there can be no assurance that the
bakery will generate sufficient revenue to meet the payment obligations under
the bakery lease, which may result in a drain on the Company's financial
resources.
(o) Dependence Upon Key and Other Personnel. The success of the 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 maintains "key-man" insurance on Charles Loccisano and Alan Gottlich in
the amount of $1,000,000 and $500,000, respectively. The Company has entered
into three year employment agreements with each of Messrs. Loccisano and
Gottlich. 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. If the
Company is required to provide its employees higher wages or more extensive or
costly benefits as a result of competitive reasons or changes in governmental
regulations, the expenses associated with the Company's operations could be
substantially increased without an offsetting increase in the Company's
revenues.
(p) Government Regulations; Minimum Wages. The Company also is subject to
various 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 laws and regulations. In addition, suspension of
certain licenses or approvals, or failure to comply with applicable regulations
or otherwise, could interrupt the operations of the Company's manufacturing
facility or otherwise adversely affect the manufacturing facility of the
Company. Any such interruption could have a material adverse effect on the
Company's revenues and results of
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operations. The Company is also subject to federal and state laws establishing
minimum wages and regulating overtime and working conditions. Since a
substantial portion of the Company's manufacturing facility 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. If the Company is
required to pay higher wages to its employees, the expenses associated with the
Company's operations could be increased without a corresponding increase in
revenues.
(q) 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 of sufficient
magnitude, could have a material adverse effect on the Company's business,
financial condition and results of operations.
(r) Lack of Liquidity; Volatility of Market Price of Common Stock and
Warrants. The Common Stock and Warrants of the Company were delisted from the
Nasdaq SmallCap Market on January 7, 1998 and are presently quoted and traded on
the OTC 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 Stock and Warrants. Consequently, there can be no assurance that an
active and liquid market for the Common Stock or the uniform quotation of prices
for the Common Stock can be sustained. 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. 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 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.
As a result of the delisting of the Company's securities from the Nasdaq
SmallCap Market, sales of the Company's securities are within the scope of
Securities and Exchange Commission rules that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons 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 with respect to each purchaser,
and receive the purchaser's written agreement to the transaction prior to the
sale. Consequently, the rule may affect the ability of broker-dealers to sell
the Company's securities and also may affect the ability of current shareholders
to sell their securities in the secondary market. There can be no assurance that
trading of the Company's securities will not be adversely affected by the
Company's failure to comply with these or other regulations that could adversely
effect the market for such securities.
(s) 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
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$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 apply to the Company's
securities if such securities continue to be listed on the OTC Bulletin Board,
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, the Company would remain subject to Section 15(b)(6) of the
Securities Exchange Act of 1934, as amended, 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 materially and adversely
affected. Any disruption in the liquid market of the Company's Common Stock
could limit the Company's access to the equity markets in the future, and could
have a materially adverse effect on the Company's business, financial conditions
and results of operations.
(t) Dividend Policy. To date, the Company has not paid any dividends on its
Common Stock. In the event the Company is not able to consummate the TJC
Transaction, the Board of Directors does not anticipate declaring any cash
dividends on its Common Stock in the foreseeable future. Future dividends, if
any, will be dependent upon the results of operations and financial condition of
the Company, tax considerations, industry standards, economic conditions,
general business practices and other factors.
(u) Control by Directors and Executive Officers. The directors, executive
officers and their affiliates own approximately 44% of the Company's outstanding
Common Stock (excluding currently exercisable stock options) 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.
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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 provided 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 is
currently leasing its office space on a month-to-month basis, and is currently
negotiating a lease with its current landlord to relocate to a new office space
owned by the landlord. The new office space is approximately 2,200 square feet,
and is located at One Harmon Plaza, Secaucus, New Jersey. The lease with respect
to these new premises provides for a one year term and base rent of
approximately $46,600 per year, payable monthly.
The Company leases its retail bakery located in the Poughkeepsie Galleria
Mall, in Poughkeepsie, New York, with the lease term expiring June 2, 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. In
April 1997, the Company entered into a management agreement pursuant to which
the manager collects all receipts, assumes responsibility for all bakery
expenses including rent and related charges, and retains all positive cash flow
as a management fee. See "Risk Factors - Termination of Management Agreement on
the Poughkeepsie Galleria Bakery."
The Company leases its wholesale bakery production facility located in
Santa Ana, California with the lease term expiring June 30, 1998. The lease has
a minimum base occupancy charge of $12,437 per month, plus charges for a
proportionate share of building operating expenses and real estate taxes. The
Company has entered into a three year lease for a bakery production facility
located in El Cajon, California. This Company anticipates relocating the Santa
Ana bakery to the El Cajon facility in June 1998. The lease for the new facility
has a minimum base occupancy charge of $7,967 per month plus charges for a
proportionate share of building operating expenses and real estate taxes. with
an increase of 4% per annum, plus charges for a proportionate share of building
operating expenses and real estate taxes. The Company anticipates moving to this
new facility in May, 1998.
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ITEM 3. LEGAL PROCEEDINGS
Presently the Company is not involved in any litigation. However, the
Company from time to time has been involved in routine litigation, including
litigation with various vendors and creditors. None of these litigation matters
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
1997.
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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
currently traded on the OTC Bulletin Board ("OTC") under the symbols "TJCI",
"TJCIW", and "TJCIZ". Prior to January 7, 1998, the Company's Common Stock,
Class A Warrants and class B Warrants were traded on the Nasdaq SmallCap Market
under the same symbols.
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 twelve
months ended December 31, 1996 and December 31, 1997. 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
Quarters Ending:
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
Quarters Ending:
March 31, 1997 ...................... $3 1/8 $1 9/16
June 30, 1997 ....................... 2 7/16 1 3/8
September 30, 1997 .................. 2 3/16 1 5/16
December 31, 1997 ................... 1 11/16 7/16
As of February 28, 1998, the high bid and low bid prices were $0.40625 and
$0.375 respectively.
Sales of Unregistered Securities
The following sales of unregistered securities occurred during the
Company's fiscal year ended December 31, 1997:
1. In 1997, the Company authorized the issuance of 1,250 shares of the Company's
Common Stock to Kaya Yurtkuran. These shares were issued without an underwriter
or placement agent in consideration for consulting services rendered. The
exemption from registration for the issuance 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 1997, in order to bring the Company into compliance with
requirements necessary for continued listing on the Nasdaq SmallCap Market,
Charles Loccisano, the Company's Chairman and
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Chief Executive Officer, and Alan Gottlich, the Company's President and Chief
Financial Officer purchased an aggregate of 20,000 shares of redeemable Series B
preferred stock at a price of $5.00 per share. In January 1998, following
delisting of the Company's securities from the Nasdaq SmallCap Market and as a
result of additional funds loaned to the Company by Messers. Loccisano and
Gottlich, these shares of Series B preferred stock were redeemed by the Company
at a price of $5.00 per share.
The approximate number of stockholders of the Common Stock of record at
December 31, 1997 was approximately 65, not including beneficial owners whose
shares are held by banks, brokers and other nominees.
Dividend Policy
The Company has not paid any dividends in the past. Declaration of
dividends in the future will remain within the discretion of the Company's Board
of Directors. Future dividends, if any, will be dependent upon the results of
operations and financial condition of the Company, tax considerations, industry
standards, economic conditions, general business practices and other factors. As
a Delaware corporation, the Company may not declare and pay dividends on its
capital stock if the amount if the amount paid exceeds an amount equal to the
excess of the Company's net assets over paid-in-capital, or, if there is no
excess, its net profits for the current and/or immediately preceding fiscal
year.
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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, 1997 compared
to the fiscal year ended December 31, 1996).
The following tables set forth the components of the Company's revenue:
Fiscal Year Ended December 31,
1996 1997
Wholesale sales $861,900 $3,475,400
Company-owned bakery sales 256,000 203,000
Royalties and licensing fees 311,100 200,000
Initial franchise fees 17,500 0
Product rebates 43,300 0
---------- ----------
Total Revenue $1,489,800 $3,878,400
Wholesale sales were $3,475,400 for the fiscal year ended December 31, 1997
as compared to $861,900 for the fiscal year ended December 31, 1996. This
increase in wholesale sales was due to the change in the Company's strategic
focus described below.
In 1996, the Company changed its strategic focus from franchise and retail
bakery development to wholesale manufacturing and distribution of its products.
In connection therewith, in August, 1996, the Company completed a transaction
with Triarc whereby Triarc acquired the T.J. Cinnamons intellectual property,
took over management of the existing 50 unit franchise system, and provided the
Company with a wholesale license agreement to sell T.J. Cinnamons branded
products to retail grocery outlets. See "Business - 1996 Triarc Transaction."
The 1996 Triarc transaction provided the Company with a 99 year license
agreement to use the T.J. Cinnamons trade name, recipes and formulations to
manufacture and sell certain T.J. Cinnamons products to wholesale channels of
distribution. Consistent with the Company's change in business strategy to focus
on the wholesale distribution of its products, the Company developed a 22,000
square foot manufacturing facility in California and began manufacturing and
distributing its products in December 1996. As a result, wholesale sales
increased to $3,475,400 for the fiscal year ended December 31, 1997 as compared
to $861,900 for the fiscal year ended December 31, 1996. These sales increases
are primarily the result of the successful launching of a variety of new bakery
products (both T.J. Cinnamons branded and non-branded products) and penetration
into approximately 1,500 grocery store and wholesale club accounts. T.J.
Cinnamons branded products accounted for 75% of wholesale
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sales for the fiscal year ended December 31, 1997. See "Risk Factors -
Non-Exclusivity of Triarc Transaction."
Company-owned bakery sales decreased by 21% to $203,000 for the fiscal year
ended December 31, 1997 from $256,000 for the fiscal year ended December 31,
1996. This decrease resulted primarily from a decline in mall traffic due to a
number of vacancies in the Poughkeepsie Galleria mall. In April 1997, the
Company entered into a management agreement whereby the Poughkeepsie Galleria
mall bakery will be operated with all cash deficits funded by the manager of the
Poughkeepsie Galleria and all positive cash flow retained by the manager as a
management fee.
Royalty and licensing fee revenues decreased to $200,000 for the fiscal
year ended December 31, 1997 from $311,100 for the fiscal year ended December
31, 1996. This decrease in royalty fees resulted primarily from declines in
sales and closings of T.J. Cinnamons retail franchisee locations, and decreases
in product rebates and license fees.
Initial franchise fees decreased to $0 for the fiscal year ended December
31, 1997 from $17,500 for the fiscal year ended December 31, 1996. This decrease
reflects the discontinuation of the Company's marketing and sales of new
franchise agreements following completion of the Triarc transaction in 1996.
Product rebates of $43,300 for the fiscal year ended December 31, 1996 were
from various supplier rebates and commitment fees. The Company received no
product rebates during fiscal 1997.
Cost of goods sold increased to $3,043,984 for the fiscal year ended
December 31, 1997 from $925,228 for the fiscal year ended December 31, 1996.
These increases were primarily the result of the increased cost of goods sold
associated with increased wholesale sales to supermarkets chains and membership
club chains.
Selling, general and administrative expenses increased to $2,283,036 for
the fiscal year ended December 31, 1997 from $1,697,009 for the fiscal year
ended December 31, 1996. These increases were primarily the result of increases
in selling, general and administrative costs associated with the Company's
manufacturing plant in Santa Ana, California and the increases in selling and
marketing expenses associated with the launch of the Company's product line to
wholesale channels of distribution.
Net interest expenses for the fiscal year ended December 31, 1997 was
$8,106 as compared to net interest expense for the fiscal year ended December
31, 1996 of $96,841, resulting primarily from the interest expenses associated
with the Company's short-term loans and accounts receivable financing from Gelt
Financial Corporation, offset by the interest earned on the notes receivable
from Triarc Restaurant Group (see Liquidity and Capital Resources herein).
Other income decreased to $80,088 for the fiscal year ended December 31,
1997 from $162,729 for the fiscal year ended December 31, 1996. The other income
in both periods was due to reductions in accounts payable and accrued
liabilities resulting from discounted settlements and write-offs of certain
accounts payable.
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<PAGE>
Gain from sale of assets was $0 for fiscal year ended December 31, 1997 as
compared to $1,286,197 for the fiscal year ending December 31, 1996. The gain
from sale of assets in fiscal 1996 resulted from the sale of assets to Triarc in
August 1996 pursuant to the terms of a purchase agreement. See "Business -
Triarc Transaction."
The Company had a net loss of $1,376,657 for the fiscal year ended December
31, 1997 as compared to a net income of $219,864 for the fiscal year ended
December 31, 1996.
Liquidity and Capital Resources
At December 31, 1997, the Company had a working capital deficit of
approximately $679,200. During the twelve months ended December 31, 1997, the
Company experienced cash flow deficits from its operating activities primarily
because its operating expenses exceeded its operating revenues. These operating
deficits have been funded primarily by the Triarc notes receivable payments in
an amount of approximately $116,000 per month. The last payment under the Triarc
note receivable was December 1, 1997.
The Company used net cash in operating activities in the amount of
$1,076,277 for the fiscal year ended December 31, 1997, as compared to
$1,027,064 for the fiscal year ended December 31, 1996. The Company received net
cash from investing activities in the amount of $1,113,156 for the fiscal year
ended December 31, 1997, as compared to net cash received from investing
activities in the amount of $1,595,639 for the fiscal year ended December 31,
1996. The Company received net cash provided by financing activities in the
amount of $36,015 for the fiscal year ended December 31, 1997 as compared to net
cash used in financing activities in the amount of $570,585 for the fiscal year
ended December 31, 1996.
In June 1997, the Company entered into a loan agreement with Gelt Financial
Corporation for a credit line in the amount of $200,000 which was subsequently
increased to $300,000 secured by Wal-Mart accounts receivable. The terms of this
loan agreement provide for a service fee of 1.5% of each advance together with
interest at a rate of 675 basis points above the prime rate. In addition, the
Company granted Gelt 3,000 shares of the Company's Common Stock as a loan
origination fee. This credit line balance was ($65,000) on December 31, 1997 as
a result of various credits taken by Walmart for in-store demo fees. The credit
line balance of ($65,000) was fully repaid in March 1998.
In October 1997, the Company offered for sale units in a convertible
preferred stock private placement with Commonwealth Associates acting as the
placement agent. This offering was held open to investors through January 1998,
and was not consummated as orders for the minimum number of shares were not
obtained. Without alternative sources of financing to fund the Company's
operating deficits, in January 1998, Charles Loccisano, the Company's Chairman
and Chief Executive Officer, and Alan Gottlich, the Company's President and
Chief Financial Officer provided the Company with loans aggregating $282,500. In
March 1998, based on the need for additional funding resulting from the receipt
of large purchase orders from Walmart Super Centers, the previous Loccisano and
Gottlich loans were repaid in full and Messrs. Loccisano and Gottlich agreed to
provide the Company with a credit line
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<PAGE>
for up to $500,000 with interest payable quarterly at the applicable federal
rate of 5.39% per annum. The credit line is required to be repaid within one
year or such shorter period if the Company obtains alternative sources of funds
to fund its operations. The line of credit is secured by payments due to the
Company under its purchase agreement with Triarc. In consideration for providing
this credit line facility, the Company granted Messrs. Loccisano and Gottlich an
aggregate of 300,000 unregistered shares of Common Stock.
In November 1997, in order to bring the Company into compliance with
requirements necessary for continued listing on the Nasdaq SmallCap Market,
Messers. Loccisano and Gottlich purchased an aggregate of 20,000 shares of
redeemable Series B preferred stock at a price of $5.00 per share. In January
1998, following delisting of the Company's securities from the Nasdaq SmallCap
Market and as a result of additional funds loaned to the Company by Messers.
Loccisano and Gottlich, these shares of Series B preferred stock were redeemed
by the Company at a price of $5.00 per share.
The Company is currently negotiating with an unaffiliated third party
purchaser (the "Third Party") regarding the sale of (a) all of the Company's
rights under the Triarc Purchase Agreement and License Agreement and (b) the
Company's rights and obligations as franchisor under the T.J. Cinnamons
franchise system (collectively the "TJC Transaction"). Consummation of the
proposed TJC Transaction is subject to negotiation of the final terms of the
transaction, execution of a definitive agreement, completion by Third Party of
its due diligence of the Company, and the receipt of shareholder approval for
the TJC Transaction. No assurance can be given that the Company and the Third
Party will be successful in negotiating a definitive agreement following
completion of the due diligence, or even if such agreement is reached, that the
Company's shareholders would approve the TJC Transaction. See "Risk Factors -
Failure to Close the TJC Transaction."
The Company anticipates that the net proceeds from the proposed TJC
Transaction, together with its anticipated lines of credit, and the Company's
anticipated cash from operations, should be sufficient to satisfy the Company's
cash needs through June 30, 1999. Should demand for the Company's products be
greater than anticipated, the Company might find it necessary to seek additional
financing or to reduce planned expenditures on marketing and product expansion
if efficient financing cannot be obtained or obtained timely or on terms
acceptable to the Company. See "Risk Factors Failure to Close the TJC
Transaction" and " Need for Additional Financing."
The Company's independent auditors report of its financial statements for
the fiscal year ending December 31, 1997 raises substantial doubts about the
Company's ability to continue as a going concern. The failure to consummate the
TJC Transaction could have a material adverse effect on the Company's ability to
continue as a going concern. In the event that the TJC Transaction is not
consummated, the Company will reevaluate available alternatives including debt
or equity financing, or a possible merger or sale of all or part of the Company.
If alternative sources of financing are not available in the near term, the
Company will be unable to pursue its business plan and may be unable to continue
its existing business operations. See "Risk Factors - Failure to Close the TJC
Transaction."
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<PAGE>
If the Company is able to consummate the TJC Transaction, the Company will
continue to manufacture and distribute gourmet bakery products to the retail
grocery and food service trade. However, the Company would no longer manufacture
and sell T.J. Cinnamons branded products, which represent 75% of wholesale sales
for the fiscal year ended December 31, 1997, and the Company will no longer be
entitled to any further payments under the Triarc Purchase Agreement and the
Triarc License Agreement.
Even if the TJC Transaction is consummated, in order to implement its plan
of operations, the Company will be required, among other things, to raise
additional capital beyond June 30, 1999. While the Company has existing lines of
credit, there can be no assurance that such debt financing will be available to
the Company in the future or that such debt financing will be available in the
amounts required by the Company or on terms acceptable to the Company. There can
be no assurance that such financing will be available or available on attractive
terms, or that such financing would not result in a substantial dilution of
shareholders' interest. See "Risk Factors - Failure to Close the TJC
Transaction" and "Possible Need for Additional Financing."
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<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 13(a)(1) in Part IV.
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<PAGE>
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 year ended December 31, 1995 did not contain an
adverse opinion or a disclaimer of opinion, nor was such report qualified or
modified as to audit scope or accounting principles. The report was prepared
assuming that the Company will continue as a going concern. During the Company's
fiscal years ended December 31, 1995 and to the date of GGK's dismissal (the
"Interim Period"): (i) there were no disagreements (of nature contemplated by
Item 304 (a) (1) (iv) of Regulation S-K) between the Company and GGK; and (ii)
there were no reportable events of nature contemplated by Item 304 (a) (1) (iv)
(B) of Regulation S-B.
On January 31, 1997 the Company engaged Arthur Andersen LLP ("AA") as its
independent public accountants for the Company's fiscal year ended December 31,
1996. During the Company's fiscal year ended December 31, 1995 and the Interim
Period, the Company did not consult with AA with respect to any of the matters
contemplated by Item 304 (a) (2) (i)-(ii) of Regulation S-B.
On February 14, 1997 AA resigned its position as the Company's independent
auditors. Such resignation was necessitated because AA concluded that it had a
conflict of interest in reporting on the Company's financial statements for the
fiscal year ended December 31, 1996 due to the fact that during 1996 AA had
rendered financial advisory services to the Company for which it received a fee.
During the Company's engagement of AA through the date of AA's withdrawal (the
"Second Interim Period"): (i) there were no disagreements (of nature
contemplated by Item 304 (a) (1) (iv) (A) of Regulation S-B) between the Company
and GGK; and (ii) there were no reportable events of nature contemplated by Item
304 (a) (1) (iv) (B) of Regulation S-B.
On February 21, 1997 the Company 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 fiscal year 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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<PAGE>
Part III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth certain information with respect to the
executive officers and directors of the Company. There are no family
relationships among any directors or executive officers of the Company. Each
director has been elected for a term of one year or until his successor is
elected and shall qualify. The term of each director expires at the next annual
meeting of shareholders to occur in fiscal 1998.
Name Age Position with the Company
Charles Loccisano 49 Chairman, Chief Executive Officer and
Director
Alan Gottlich 37 President, Chief Financial Officer,
Treasurer and Director
Philip Friedman 50 Director
Paul Bergrin 41 Director
Charles Loccisano has been the Chairman, Chief Executive Officer and
Director of the Company since its acquisition in June 1992. Since 1980, Mr.
Loccisano has primarily engaged in the acquisition, development and/or
management of real estate through his general partnership interest in various
real estate limited partnerships. Some of these partnerships were forced to file
for protection under the United States Bankruptcy Code after a turndown in the
real estate market in 1987 and after the temporary loss by Mr. Loccisano, and
his partner, of control of these limited partnerships. Subsequently, Mr.
Loccisano and his partner regained control, and some of these partnerships were
successfully reorganized and some lost their real properties in bankruptcy
and/or to foreclosure. Mr. Loccisano, through a separate entity and with
partners, was also a franchisee of the Company until 1993, and was a principal
of a company that owned five Roy Roger restaurants in New Jersey from 1989
through 1994.
Alan Gottlich has been the Vice Chairman, Chief Financial Officer and
Director of the Company since its acquisition in June 1992, and the President
since October, 1996. Prior thereto, Mr. Gottlich was primarily engaged in the
acquisition, development and/or management of real estate through his general
partner interest in various real estate limited partnerships. One of these
entities was forced to file for protection under the United States Bankruptcy
Code in 1993 and subsequently lost its real property. Mr. Gottlich, through a
separate entity and together with partners, was also a franchisee of the Company
until 1993, and was a principal of a company that owned five Roy Rogers
restaurants in New Jersey from 1989 through 1994. Prior to that, Mr. Gottlich
was a staff accountant at Touche Ross & Co.
Philip Friedman has been a Director of the Company since August 1993. Mr.
Friedman is the President and principal stockholder of P.Friedman & Associates,
Inc. a food management and consulting company based in Rockville, Maryland. Mr.
Friedman is also the President of Panda Management Company, Inc. (an owner and
operator fast food Chinese restaurants), serves as a director of Eateries,
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<PAGE>
Inc. (an operator and franchisor of full service restaurants), and Roadhouse
Grill, Inc. (an operator and franchisor of full service steak houses).
Paul Bergrin has been a Director of the Company since November 1996. Mr.
Bergrin has been a partner in the law firm of Pope, Grossman, Bergrin Toscano
and Verdesco for more than the last five years specializing in criminal and
civil litigation.
Section 16 Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
directors, executive officers and persons who own more than 10% of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of common stock and other
equity securities of the Company. Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the company and written representations that no other
reports were required, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with except that certain
reports disclosing the grant of stock options to Charles Loccisano, Alan
Gottlich, Philip Friedman and Paul Bergrin were not filed on a timely basis. The
grant of such options were subsequently reported on Form 5.
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<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the total annual compensation paid or
accrued by the Company for services in all capacities for the Chief Executive
Officer and each other officer who made in excess of $100,000 (salary plus
bonuses) (the "Named Officers") for the fiscal years ended December 31, 1997,
1996 and 1995. No other executive officers of the Company who were serving as
such at the end of such fiscal years received salary and bonus in excess of
$100,000.
<TABLE>
<CAPTION>
Long Term Compensation
Awards
Annual Compensation Other
Name and Principal Annual Securities
Position Year Salary Bonus Comp.* Underlying Options
<S> <C> <C> <C> <C> <C>
Charles Loccisano, 1997 $134,615 $68,805 $12,000 225,000
Chairman, and Chief 1996 130,000 31,500 12,000 -0-
Executive Officer 1995 101,682 8,625 12,000 192,500
Alan Gottlich, 1997 $98,464 $34,402 $ 9,000 163,500
President and Chief 1996 95,000 14,000 9,000 -0-
Financial Officer 1995 87,500 4,625 9,000 87,500
<FN>
* These amounts represent reimbursable automobile expenses.
</FN>
</TABLE>
In March 1998, the Board of Directors approved a cancellation of stock
options held by Messrs.. Loccisano and Gottlich in the amount of 417,500 and
251,000 respectively, and a grant of new options in the amount of 313,125 and
188,250 respectively. The new options are exercisable at $.50 per share and have
the same vesting provisions as the canceled options.
Stock Option Grants in Last Fiscal Year
The following table sets forth information regarding options granted to the
Named Officers during fiscal 1997.
<TABLE>
<CAPTION>
Weighted
Number of % of Total Average
Securities Options Granted Exercise
Underlying to Employees in or Base
Name Options Granted Fiscal 1997 Price Expiration Date
<S> <C> <C> <C> <C>
Charles Loccisano,
Chairman, and Chief
Executive Officer 225,000 29.9% $1.55 July 15, 2002
Alan Gottlich, President,
and Chief Financial
Officer 163,500 21.7% $1.57 July 15, 2007
</TABLE>
In March 1998, the Board of Directors approved a cancellation of stock
options held by Messrs.. Loccisano and Gottlich in the amount of 417,500 and
251,000 respectively, and a grant of new options in the amount of 313,125 and
188,250 respectively. The new options are exercisable at $.50 per share and have
the same vesting provisions as the canceled options.
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<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
The following table sets forth information regarding aggregate option
exercises and year end option values.
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised
Options at In-The-Money
12/31/97(1) Options at
Shares 12/31/97
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Charles Loccisano,
Chairman and Chief
Executive Officer 0 0 352,500 / 65,000 0 / 0
Alan Gottlich, President,
and Chief Financial Officer 0 0 186,000 / 65,000 0 / 0
<FN>
(1) In March 1998, the Board of Directors approved a cancellation of stock
options held by Messrs.. Loccisano and Gottlich in the amount of 417,500 and
251,000 respectively, and a grant of new options in the amount of 313,125 and
188,250 respectively. The new options are exercisable at $.50 per share and have
the same vesting provisions as the canceled options.
</FN>
</TABLE>
Director Compensation
The Company provides compensation to directors at the rate of $500 per day for
meetings attended, and reimbursement of travel and other expenses incurred in
attending meetings.
During the last fiscal year, directors received the following stock option
grants under the Company's 1996 Stock Option Plan in consideration for their
serving as directors: (a) In March 1997, options were granted to directors of
the Company to purchase shares of Common Stock, at an exercise price of $1.75
per share of Common Stock, in the following amounts: 45,000 to Charles
Loccisano, Director; 45,000 to Alan Gottlich, Director; 45,000 to Philip
Friedman, Director; and 45,000 to Paul Bergrin, Director. These options vest
over a period of three years with 5,000 options vested to each member of the
Company's Board of Directors for each of three meetings annually attended in
person. To date, 15,000 options have vested to each of Charles Loccisano, Alan
Gottlich, Philip Friedman and Paul Bergrin; and (b) In July 1997, options were
granted to directors of the Company to purchase shares of Common Stock, at an
exercise price of $1.50 per share of Common Stock, in the following amounts:
45,000 to Charles Loccisano, Director; 45,000 to Alan Gottlich, Director; 45,000
to Philip Friedman, Director; and 45,000 to Paul Bergrin, Director. These
options vest over a period of three years with 5,000 options vested to each
member of the Company's Board of Directors for each of three meetings annually
attended in person. To date, 10,000 options have vested to each of Charles
Loccisano, Alan Gottlich, Philip Friedman and Paul Bergrin. All Loccisano and
Gottlich options described above are reported in the Summary Compensation Table.
No other compensation was paid to the directors during the last fiscal year.
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<PAGE>
Employment Contracts
On October 1, 1997, the Company entered into a three year employment agreement
with Charles Loccisano, the Company's Chairman and Chief Executive Officer,
providing for an annual base salary of $175,000 of which $25,000 will be
accrued. Such accrual will be paid upon the closing of the TJC Transaction, or
when the Company achieves a positive cash flow from operations. The base salary
will be increased by 10% per annum on each anniversary, and a bonus will be
payable at the discretion of the Board of Directors.
On October 1, 1997, the Company entered into a three year employment agreement
with Alan Gottlich, the Company's President and Chief Financial Officer,
providing for an annual base salary of $125,000 of which $15,000 will be
accrued. Such accrual will be paid upon the closing of the TJC Transaction, or
when the Company achieves a positive cash flow from operations. The base salary
will be increased by 10% per annum on each anniversary, and a bonus will be
payable at the discretion of the Board of Directors.
Both of these employment agreements include change of control provisions
providing for a payment equal to two years base salary plus one half of
aggregate bonuses paid during the three years prior to termination. Both
employment agreements also include a number of other provisions relating to
term, duties, termination, and other contractual rights.
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<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 31, 1998 as to the
beneficial ownership of Common Stock (including shares which may be acquired
within sixty days pursuant to stock options) of each director of the Company and
the executive officers of the Company listed in the Summary Compensation Table
below, all directors and executive officers as a group and persons known by the
Company to beneficially own more than 5% of the Common Stock. Except as set
forth below, no person beneficially owns more than 5% of the Common Stock.
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Beneficial of Common Stock Percent
Owner (1) Beneficially Owned (2) Beneficially Owned
<S> <C> <C>
Charles Loccisano 1,541,229 (3)(4) 45.7%
Alan Gottlich 331,839 (5)(6) 9.8%
Philip Friedman 63,359 (7) 1.9%
Paul Bergrin 18,750 (8) 0.6%
All Directors and Executive
Officers as of group
(four persons) 1,955,247 (9) 58.0%
<FN>
(1) Unless otherwise indicated, the address of each beneficial owner is that of
the Company's principal executive offices.
(2) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they
may include securities owned by of for, among others, the wife and/or minor
children of the individual and any other relative who has the same home as
such individual, as well as other securities as to which the individual has
or shares voting or investment power or has the right to acquire under
outstanding stock options within 60 days after the date of this table.
Beneficial ownership may be disclaimed as to certain of the securities.
Certain of these shares are held in escrow ("Escrow Shares") and are
subject to release on the earlier of (a) the achievement by the Company of
certain minimum pre-tax earnings during specified periods, and (b) May 12,
2001. Such shares may be voted but may not be transferred prior to the
release from escrow.
(3) Includes 506,695 shares held by The Charles Loccisano Irrevocable Trust
f/b/o Marissa Loccisano of which 213,747 are Escrow Shares, and 506,695
shares held by The Charles Loccisano Irrevocable Trust f/b/o Michael
Loccisano (jointly referred to as the "Loccisano Trusts") of which 213,746
are escrow shares, with respect to which Mr. Loccisano is the settlor. Mr.
Loccisano disclaims beneficial ownership of these shares.
(4) Includes a maximum of 264,325 shares which may be acquired upon the
exercise of options exercisable within the next 60 days. Excludes 48,750
shares subject to options not exercisable within the next 60 days.
(5) Includes a maximum of 139,500 shares which may be acquired upon the
exercise of options exercisable within the next 60 days. Excludes 48,750
shares subject to options not exercisable within the next 60 days.
(6) Includes 155,874 shares held by Mr. Gottlich's spouse of which 64,765 are
Escrow Shares, as to which Mr. Gottlich disclaims beneficial ownership.
(7) Includes a maximum of 58,359 shares which may be acquired upon the exercise
of options exercisable within the next 60 days . Excludes 48,750 shares
subject to options not exercisable within the next 60 days.
(8) Represents 18,750 shares which may be acquired upon the exercise of options
exercisable within the next 60 days.
(9) Includes a maximum of 480,984 shares which may be acquired upon the
exercise of options that are exercisable within the next 60 days.
</FN>
</TABLE>
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<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Policy for Related Party Transactions
The Company believes that all transactions with officers, directors, or
affiliates to date are on terms no less favorable than those available from
unaffiliated third parties. It is the Company's policy that all future
transactions with officers, directors, or affiliates will be approved by the
independent members of the Company's Board of Directors not having an interest
in the transaction and will be on terms no less favorable than could be obtained
from unaffiliated third parties.
Heinz Bakery Products License Agreement
In June 1992, the Company entered into an exclusive 20 year license
agreement with Heinz Bakery Products ("Heinz"), pursuant to which, among other
things, Heinz paid an aggregate of $1.425 million in advance royalties to be
offset by actual royalties earned. The advance royalties owed to Heinz were
guaranteed by Charles N. Loccisano, the Chairman and Chief Executive Officer of
the Company. In August 1996, the Company entered into an agreement with Heinz to
terminate the license agreement and satisfy the balance due under the promissory
note in the amount of approximately $795,000 based on a payment of $600,000 made
in August 1996, the assignment of a $100,000 promissory note receivable from
Triarc, and the forgiveness of the balance of $95,000. At December 31, 1997, the
outstanding balance due Heinz was $69,800.
Gelt Financial Group Loan
In connection a loan in the amount of $125,000 from Gelt Financial Group in
July 1996, 250,000 shares of the Company's Common Stock (held by affiliates of
Charles Loccisano, the Company's Chairman, Chief Executive Officer, President
and Director, and Alan Gottlich, the Company's President, Chief Financial
Officer and Director) were pledged to Gelt Financial Group, and limited
guarantee agreements were entered into by such affiliates. In August 1996, this
loan was repaid in full.
Option Grant by Affiliate
In April 1994, the Loccisano Trusts granted an option to purchase 250,000
shares of their Common Stock to Dan Feldman, then a consultant to the Company
and now a Director of the Company, in exchange for his agreement to serve as a
Director. In January 1995, Dan Feldman acquired 125,000 shares of Company Common
Stock from the Loccisano Trusts for no cash consideration, and the balance of
the option was terminated. In November 1996, the Company issued 125,000 shares
of its Common Stock to the Loccisano Trusts in consideration for the shares
previously conveyed by the Loccisano Trusts to Dan Feldman on behalf of the
Company. Stock and Option Grants in connection Consulting Arrangements
In November 1996, the Company granted Philip Friedman, a Director of the
Company, 5,000 shares of Common Stock and 10,000 options to purchase shares of
Common Stock at an exercise price of $1.94
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<PAGE>
per share of Common Stock in consideration for consulting services rendered to
the Company. All the aforementioned options are fully vested.
Loans and Investments from Affiliates
During the period November 1995 through June 1996, the Company borrowed
approximately $184,500 from an affiliate of Charles Loccisano, the Company's
Chairman and Chief Executive Officer, and Alan Gottlich, the Company's President
and Chief Financial Officer. These loans were repaid in August 1996 based on
terms which include loan origination fees of 25% and interest at a rate of five
points above the Wall Street Journal Prime Rate. In August 1996, this loan was
repaid in full.
In November 1997, Charles Loccisano, the Company's Chairman, Chief
Executive Officer, and Director, and Alan Gottlich, the Company's President,
Chief Financial Officer and Director purchased an aggregate of 20,000 shares of
convertible Series B Preferred Stock at a price of $5.00 per share. The Series B
Preferred Stock carried a dividend equal to 8% per annum payable semi annually,
were convertible into common stock at the holders option and were redeemable by
the Company at its option. The purchase price for the Series B Preferred Stock
was paid for in a combination of cash and promissory notes payable to the
Company. In January 1998, the Company redeemed the 20,000 Series B Preferred
Stock at a price of $5.00 per share.
In January 1998, Charles Loccisano, the Company's Chairman and Chief
Executive Officer, and Alan Gottlich, the Company's President and Chief
Financial Officer provided the Company with loans aggregating $282,500. In March
1998, based on the need for additional funding resulting from the receipt of
large purchase orders from Walmart Super Centers, the previous loans provided by
Loccisano and Gottlich were repaid in full, and Messrs. Loccisano and Gottlich
agreed to provide the Company with a credit line for up to $500,000, with
interest payable quarterly at the applicable federal rate of 5.39% per annum.
The credit line is required to be repaid within one year or such shorter period
if the Company obtains alternative sources of funds to fund its operations. The
line of credit is secured by payments due to the Company under its purchase
agreement with Triarc. In consideration for providing this credit line, the
Company granted Messrs. Loccisano and Gottlich an aggregate of 300,000
unregistered shares of common stock.
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<PAGE>
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
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-15
2. Exhibits
1.1 * ................ Underwriting Agreement with Paragon Capital
Corporation
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
Agreement") among Signature Foods, Inc., The
Charles N.
-38-
<PAGE>
Loccisano Irrevocable Trust f/b/o Michael
Loccisano, 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
Agreement, as amended
9.3 * ................ Amendment to Stock Purchase Agreement
9.4 * ................ Stock Purchase Agreement
10.1 * ................ Trademark and Technology License and
Manufacturing 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
10.3 ................ 1996 Amended and Restated Stock Option Plan
10.4 ................ Employment Agreement with Charles Loccisano
10.5 ................ Employment Agreement with Alan Gottlich
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
10.16 ................ Lease regarding the El Cajon bakery facility
-39-
<PAGE>
16.1 ** ................ Letter from Goldstein Golub and Kessler, the
Registrant's former independent accountant
16.2 ** ................ Letter from Arthur Andersen LLP
21.1 ** ................ Certificate of Incorporation of Interbake
Brands, Inc.
27 ................ Financial Data Schedule
- ---------------------
* 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 years ended December 31, 1996 and 1995.
*** Incorporated by reference to the Company's Current Report on Form 8-K dated
June 18, 1996.
(b) On November 12, 1997, the Company filed one Current Report on Form 8-K
regarding the sale of 20,000 shares of Class B preferred stock.
-40-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PARAMARK ENTERPRISES, INC.
By: /s/ Charles N. Loccisano
Charles N. Loccisano, Chairman
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates stated.
Signature Title(s) Date
Chairman, Chief , 1998
- ------------------------- Executive Officer
Charles N. Loccisano and Director
- ------------------------- President, Chief , 1998
Alan S. Gottlich Financial Officer
and Director
- ------------------------- Director , 1998
Philip Friedman
- ------------------------- Director , 1998
Paul Bergrin
-41-
<PAGE>
PARAMARK ENTERPRISES, INC.
(Formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
For the Year Ended December 31, 1997
Page
Independent Auditors' Report F-2
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-15
F-1
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of
Paramark Enterprises, Inc.
(formerly T. J. Cinnamons, Inc.) and Subsidiary
We have audited the accompanying consolidated balance sheet of Paramark
Enterprises, Inc. (formerly T. J. Cinnamons, Inc.) and Subsidiary at December
31, 1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 1996 and 1997. 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 consolidated 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, 1997 and the results of their operations and their cash flows for the years
ended December 31, 1996 and 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has an accumulated deficit, which raise substantial doubt about its ability
to continue as a going concern. Management's plans regarding those matters also
are described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Amper, Politziner & Mattia P.A.
AMPER, POLITZINER & MATTIA P.A.
March 6, 1998
Edison, New Jersey
F-2
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Consolidated Balance Sheet
December 31, 1997
Assets
<TABLE>
<S> <C>
Current assets
Cash $ 122,561
Accounts receivable, less allowance for
doubtful accounts of $64,000 259,271
Notes receivable 69,837
Inventory 234,822
Prepaid expenses and other current assets, net 35,291
-----------
721,782
Property and equipment, net 453,296
Excess of cost over fair value of net assets acquired 476,667
$ 1,651,745
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expense $ 1,142,415
Current maturities of long-term debt 258,545
-----------
1,400,960
Long-term debt, net of current maturities 69,460
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 3,070,083 shares 30,702
Additional paid-in capital 6,759,352
Accumulated deficit (6,608,729)
-----------
Total stockholders' equity 181,325
$ 1,651,745
===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended December 31,
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Revenue
Wholesale sales $ 861,894 $ 3,475,463
Sales from Company-owned stores 256,023 202,998
Royalties, licensing fees and other 311,087 199,920
Initial franchise fees 17,500 --
Other 43,333 --
----------- -----------
Total revenue 1,489,837 3,878,381
----------- -----------
Expenses
Cost of goods sold 925,228 3,043,984
Selling, general and administrative 1,696,830 2,283,036
Interest expense, net of interest income of
$6,790 and $76,008, respectively 96,841 8,106
----------- -----------
Total expenses 2,718,899 5,335,126
----------- -----------
Loss from operations (1,229,062) (1,456,745)
Other income - Gain on sale of assets 1,286,197 --
----------- -----------
Income (loss) before extraordinary item 57,135 (1,456,745)
Extraordinary item - forgiveness of debt 162,729 80,088
----------- -----------
Net income (loss) $ 219,864 $(1,376,657)
=========== ===========
Basic and diluted income (loss) per common share:
Income (loss) before extraordinary item $ .02 $ (.48)
Extraordinary item .06 .03
----------- -----------
Net income (loss) per common share $ .08 $ (.45)
=========== ===========
Weighted average number of common shares outstanding 2,926,417 3,069,775
</TABLE>
See notes to consolidated financial statements.
F-4
<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 Stockholders'
Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
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
Issuance of common stock for
services 1,250 13 1,861 -- 1,874
Net loss -- -- -- (1,376,657) (1,376,657)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 3,070,083 $ 30,702 $ 6,759,352 $(6,608,729) $ 181,325
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31,
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 219,864 $(1,376,657)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash from operating activities
Depreciation and amortization 151,471 114,273
Licensing revenue (12,500) --
Provision for doubtful accounts 138,139 1,760
Noncash interest expense 70,822 --
(Gain) loss on sale of assets (1,286,197) --
Gain from forgiveness of debt (162,729) (80,088)
Noncash consulting fees 28,250 1,875
(Increase) decrease in
Accounts receivable (378,841) 74,291
Inventories (82,201) (152,621)
Prepaid expenses and other current assets (12,316) 5,089
Other assets 1,155 --
Increase (decrease) in
Accounts payable and accrued expenses 312,135 389,184
Other current liabilities (14,116) (53,383)
----------- -----------
Total adjustments (1,246,928) 300,380
----------- -----------
(1,027,064) (1,076,277)
----------- -----------
Cash flows from investing activities
Purchases of property and equipment (154,893) (240,518)
Proceeds from sale of assets 1,424,043 --
Principal payments received on notes receivable 326,489 1,353,674
----------- -----------
1,595,639 1,113,156
----------- -----------
Cash flows from financing activities
Principal payments on long-term debt (748,237) (830,215)
Proceeds from long-term debt 201,500 866,230
Principal payments on notes payable (23,848) --
----------- -----------
(570,585) 36,015
----------- -----------
Net change in cash (2,010) 72,894
Cash - beginning 51,677 49,667
----------- -----------
Cash - ending $ 49,667 $ 122,561
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<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 has received payments of $3,470,000 through December 31,
1997 from the Transaction. 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 dependent upon the amount of T.J.
Cinnamons product sales by Triarc exceeding a minimum base system wide
sales of $26.3 million. Pursuant to the terms of the purchase
agreement, T.J. Cinnamons, Inc. changed its name to Paramark
Enterprises, Inc.
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, 1997, 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%.
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. Under the terms of this
agreement, the Company paid Heinz Bakery Products $600,000 at closing.
Following the closing of the Transaction, the Company's operations
have been concentrated exclusively on its wholesale development
activities.
F-7
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 2 - Operating Plans
The Company has incurred significant operating losses resulting in
working capital and accumulated deficits as of December 31, 1997,
which raise substantial doubts about its ability to continue as a
going concern. The financial statements do not include any adjustments
that may result from the outcome of this uncertainty.
The Company is currently negotiating with a third party to sell, among
other things, the Company's rights under the Transaction. The closing
of this transaction is subject to completion of due diligence,
negotiation of final terms, execution of a definitive agreement, and
the receipt of shareholder approval. Management believes that the
consummation of this transaction will provide sufficient working
capital to finance its activities through at least June 30, 1999, as
well as recover the remaining cost of intangible assets.
The failure to consummate this transaction could have a material
adverse effect on the Company's ability to continue as a going
concern.
Note 3 - 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. 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.
Inventory
Inventory is stated at the lower of cost (first-in, first-out basis)
or market, and consists principally of raw materials.
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.
F-8
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 3 - Summary of Significant Accounting Policies - (continued)
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 $73,333 on December 31, 1997.
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 (see Note 2).
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.
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
The Company has adopted Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), "Earnings Per Share". In accordance with SFAS
128, primary earnings per share have been replaced with basic earnings
per share, and fully diluted earnings per share have been replaced
with diluted earnings per share which includes potentially dilutive
securities such as outstanding options and convertible securities.
Prior periods have been presented to conform with SFAS 128.
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.
F-9
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 4 - Notes Receivable
Note receivable from a corporation is due in monthly installments of
$2,289, including interest at 9.25%, maturing in September 1998 with a
final payment of $50,000. Payments on the note are restricted to
satisfy the note payable to a former licensee (Note 7).
Note 5 - Property and Equipment
At December 31, 1997, property and equipment, at cost, consists of the
following:
<TABLE>
<CAPTION>
Depreciation and
Amortization Period
<S> <C> <C>
Furniture and fixtures $ 24,149 5 years
Equipment 454,624 5 - 10 years
Leasehold improvements 61,068 5 years
---------------
539,841
Less accumulated depreciation and
amortization 86,545
---------------
$ 453,296
===============
</TABLE>
Depreciation and amortization expense for property and equipment was
$15,989 and $59,274 for 1996 and 1997, respectively.
Note 6 - Accounts Payable and Accrued Expenses
Trade accounts payable and other $ 791,732
Accrued professional fees 67,950
Accrued payroll 244,242
Accrued other 38,491
---------------
$ 1,142,415
===============
Note 7 - 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). $ 69,837
Note payable to a financing institution, monthly
payments of $2,184, including interest at 19.4%,
due September 2002, collateralized by production
equipment. 80,960
Note payable to a shareholder with no specified
repayment terms, quarterly interest payments at 10%. 112,000
F-10
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 7 - Long-term Debt - (continued)
Loan payable to a financing institution, interest
at prime plus 6.75%, due on demand. Maximum
borrowings up to $300,000, collateralized by
accounts receivable of a major customer. 65,208
-----------
328,005
Less current maturities 258,545
-----------
Long-term debt, net of current maturities $ 69,460
============
The prime rate at December 31, 1997 was 8.5%.
Note 8 - Related Party Transactions
Included in prepaid expenses and other current assets is a loan
receivable from an officer, in the amount of $6,365, 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 amounts due to
officers aggregating $188,000, to be paid in the ordinary course of
business.
Interest expense and fees, related to loans from affiliates, charged
to operations for the year ended December 31, 1996 amounted to
$53,900.
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.
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 $6,000 during 1996
and 1997 to a Company owned by a member of the Company's Board of
Directors.
In January 1998, officers of the Company loaned an aggregate of
$500,000 to the Company. This amount is required to be repaid within
one year, with interest payable quarterly at 5.39% per annum. In
consideration for the loan, the officers were granted 300,000 shares
of the Company's common stock.
Note 9 - Forgiveness of Debt
Forgiveness of debt of $162,729 and $80,088 for the years ended
December 31, 1996 and 1997, respectively, resulted from negotiations
with vendors. There is no income tax effect.
F-11
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 10 - Income Taxes
Deferred tax assets at December 31, 1997 consist of the following:
Loss carryforwards $ 1,100,000
Installment gain on sale of assets 675,000
--------------
Gross deferred tax asset 1,775,000
Valuation allowance (1,775,000)
--------------
Net deferred tax asset $ --
==============
The provision for income taxes for the year ended December 31, 1996
was reduced $90,000 by the benefit of net operating loss
carryforwards.
At December 31, 1997, the Company has net operating loss carryforwards
for financial reporting purposes of approximately $2,700,000 available
to offset future taxable income. These carryforwards expire in the
years 2009 through 2012 for federal income tax purposes, and 2001
through 2004 for state income tax purposes. Utilization of the net
operating loss carryforwards may be significantly limited based on
changes in the Company's ownership.
Note 11 - 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.
The Company's 1996 Stock Option Plan has authorized the grant of
options to directors, management and consultants for up to 500,000
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
.7%; and a weighted-average expected life of the option of five years
for 1996 and three years for 1997.
F-12
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 11 - 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:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Pro forma net income (loss) $ 151,864 $ (1,566,657)
Pro forma basic and diluted income (loss)
per common share $ .05 $ (.51)
</TABLE>
There was no compensation expense arising from stock options for the
years ended December 31, 1996 and 1997.
A summary of the Company's stock option activity, and related
information for the years ended December 31, follows:
<TABLE>
<CAPTION>
1996 1997
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C>
Outstanding -
beginning of year 457,812 $ 2.38 405,312 $ 1.68
Granted 55,000 1.94 752,500 1.59
Exercised -- -- -- --
Forfeited (107,500) 4.77 (10,000) 1.94
---------- ----------
Outstanding -
end of year 405,312 $ 1.68 1,147,812 $ 1.62
========== ==========
</TABLE>
F-13
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 11 - Stock Option Plan - (continued)
1997
Options
Outstanding Exercise Expiration Exercisable at
End of Year Price Date December 31, 1997
17,812 $ 2.81 December 1998 17,812
192,500 1.58 June 2000 192,500
140,000 1.58 June 2005 140,000
45,000 1.94 November 2006 45,000
27,500 1.94 July 2007 27,500
45,000 1.75 March 2002 15,000
230,000 1.75 March 2007 60,000
180,000 1.50 July 2002 145,000
270,000 1.50 July 2007 130,000
---------- ---------
1,147,812 772,812
========== =========
The weighted average fair value of options granted during 1996 and
1997 was $1.24 and $.38, respectively.
In connection with the IPO, the Company has outstanding, 1,453,000
redeemable Class A warrants, each to purchase one share of common
stock and one Class B warrant for $4; and 557,750 redeemable Class B
warrants, each to purchase one share of common stock for $5. No
warrants have been redeemed through December 31, 1997. The Class A
warrants expire May 1999, and the Class B warrants expire May 2001.
Note 12 - 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 year ended December 31, 1997, the Company purchased
equipment for $84,000 by assuming long-term debt.
During the years ended December 31, 1996 and 1997, the Company paid
interest of $110,345 and $84,114, respectively.
Note 13- Major Customers
The Company had two major customers that accounted for substantially
all of the Company's wholesale sales for 1996 and 77% of wholesale
sales for 1997. These same customers accounted for substantially all
of the Company's accounts receivable as of December 31, 1996 and 1997.
F-14
<PAGE>
PARAMARK ENTERPRISES, INC.
(formerly T. J. Cinnamons, Inc.) and SUBSIDIARY
Notes to Consolidated Financial Statements
Note 14 - Commitments and Contingencies
Rent
The Company leases space for its main offices, retail bakery, and
wholesale bakery operation under noncancelable operating leases. The
lease retail bakery provides for additional rents based upon sales
volume, and the Company is required to pay all real estate taxes.
Aggregate minimum annual payments due under this lease are as follows:
Year Ending
December 31,
1998 $ 45,000
1999 38,000
2000 20,000
------------
$ 103,000
============
Rent expense charged to operations for the years ended December 31,
1996 and 1997 amounted to $115,000 and $168,000, respectively.
Litigation
The Company is presently and from time to time involved in routine
litigation, including litigation with vendors, suppliers and
franchisees. In management's opinion, none of the litigation in which
the Company is currently involved is material to its financial
condition or results of operations.
F-15
PARAMARK ENTERPRISES, INC.
1996 AMENDED AND RESTATED STOCK OPTION PLAN
1. Purpose of Plan
The purpose of this 1996 Amended and Restated Stock Option Plan (the
"Plan") is to provide additional incentive to officers, key employees, directors
of, and important consultants to, Paramark Enterprises, Inc., a Delaware
corporation (the "Company"), and each present or future parent or subsidiary
corporation, by encouraging them to invest in shares of the Company's common
stock, no par value ("Common Stock"), and thereby acquire a proprietary interest
in the Company and an increased personal interest in the Company's continued
success and progress.
2. Aggregate Number of Shares
1,000,000 shares of the Company's Common Stock shall be the aggregate
number of shares which may be issued under this Plan. Notwithstanding the
foregoing, in the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee (defined in Section 4(a)),
deems in its sole discretion to be similar circumstances, the aggregate number
and kind of shares which may be issued under this Plan shall be appropriately
adjusted in a manner determined in the sole discretion of the Committee.
Reacquired shares of the Company's Common Stock, as well as unissued shares, may
be used for the purpose of this Plan. Common Stock of the Company subject to
options which have terminated unexercised, either in whole or in part, shall be
available for future options granted under this Plan.
3. Class of Persons Eligible to Receive Options
All officers, key employees and directors of, and important consultants to,
the Company and any present or future Company parent or subsidiary corporation
are eligible to receive an option or options under this Plan, provided, however,
that Incentive Stock Options (defined in Section 5(a)) may be issued only to
persons who are employees of the Company or any subsidiary corporation. The
individuals who shall, in fact, receive an option or options shall be selected
by the Committee, in its sole discretion, except as otherwise specified in
Section 4 hereof No individual may receive options under this Plan for more than
90% of the total number of shares of the Company's Common Stock authorized for
issuance under this Plan.
4. Administration of Plan
(a) This Plan shall be administered by the Option Committee
("Committee") appointed by the Company's Board of Directors provided, however,
that at the option of the Board of Directors, the Plan may be administered by
the Board of Directors of the Corporation at any time and from time to time. The
Committee shall consist of a minimum of two members of the Board of Directors,
each of whom shall be a "Non-Employee Director" within the meaning of Rule 16b-
3(b)(3) under the
<PAGE>
Securities Exchange Act of 1934, as amended, or any future corresponding rule,
except that the failure of the Committee or of the Board of Directors for any
reason to be composed solely of Non-Employee Directors shall not prevent an
option from being considered granted under this Plan. The Committee shall, in
addition to its other authority and subject to the provisions of this Plan,
determine which individuals shall in fact be granted an option or options,
whether the option shall be an Incentive Stock Option or a Non-Qualified Stock
Option (as such terms are defined in Section 5(a)), the number of shares to be
subject to each of the options, the time or times at which the options shall be
granted, the rate of option exercisability, and, subject to Section 5 hereof,
the price at which each of the options is exercisable and the duration of the
option. The term "Committee", as used in this Plan and the options granted
hereunder, refers to the Committee or to the Board of Directors, if the Board
elects to administer the Plan as provided above.
(b) The Committee shall adopt such rules for the conduct of its
business and administration of this Plan as it considers desirable. A majority
of the members of the Committee shall constitute a quorum for all purposes. The
vote or written consent of a majority of the members of the Committee on a
particular matter shall constitute the act of the Committee on such matter. The
Committee shall have the night to construe the Plan and the options issued
pursuant to it, to correct defects and omissions and to reconcile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee or the Board of Directors
shall be liable for any act or omission (whether or not negligent) taken or
omitted in good faith, or for the exercise of an authority or discretion granted
in connection with the Plan to a Committee or the Board of Directors, or for the
acts or omissions of any other members of a Committee or the Board of Directors.
Subject to the numerical limitations on Committee membership set forth in
Section 4(a) hereof, the Board of Directors may at any time appoint additional
members of the Committee and may at any time remove any member of the Committee
with or without cause. Vacancies in the Committee, however caused, may be filled
by the Board of Directors.
5. Incentive Stock Options and Non-Qualified Stock Options
(a) Options issued pursuant to this Plan may be either Incentive Stock
Options granted pursuant to Section 5(b) hereof or Non-Qualified Stock Options
granted pursuant to Section 5(c) hereof, as determined by the Committee. An
"Incentive Stock Option" is an option which satisfies all of the requirements of
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code") and
the regulations thereunder, and a "Non-Qualified Stock Option" is an option
which either does not satisfy all of those requirements or the terms of the
option provide that it will not be treated as an Incentive Stock Option. The
Committee may grant both an Incentive Stock Option and a Non-Qualified Stock
Option to the same person, or more than one of each type of option to the same
person.
The option price for Incentive Stock Options issued under this Plan
shall be equal at least to the fair market value (as defined below) of the
Company's Common Stock on the date of the grant of the option, provided,
however, that if an Incentive Stock Option is granted to an
2
<PAGE>
individual who, at the time the option is granted, is deemed to own more than 10
percent of the total combined voting power of all classes of stock of the
Company or any subsidiary corporation of the Company as more fully set forth in
Section 422(b)(6) of the Code (after giving effect to the ownership attribution
rules of 422(c)(5) of the Code) (a "10% Shareholder"), such option shall comply
with the provisions of Section 422(c)(5) of the Code, including without
limitation, requirements that the option price shall not be less than 110
percent of the fair market value, as determined by the Committee in accordance
with its interpretation of the requirements of Section 422 of the Code and the
regulations thereunder, of the Company's Common Stock on the date of grant of
the option, and such option shall not be exercisable after the expiration of
five years from the date the option is granted.
The option price for Non-Qualified Stock Options issued under this
Plan may, in the sole discretion of the Committee, be less than the fair market
value of the Common Stock on the date of the grant of the option.
The fair market value of the Company's Common Stock on any particular
date shall mean the last reported sale price of a share of the Company's Common
Stock on any stock exchange on which such stock is then listed or admitted to
trading, or on the Nasdaq National Market or Nasdaq SmallCap Market, on such
date, or if no sale took place on such day, the last such date on which a sale
took place, or if the Common Stock is not then quoted on the Nasdaq National
Market or the Nasdaq SmallCap Market, or listed or admitted to trading on any
stock exchange, the average of the bid and asked prices in the over-the-counter
market on such date, or if none of the foregoing, a price determined in good
faith by the Committee to equal the fair market value per share of the Common
Stock.
(b) Subject to the authority of the Committee set forth in Section
4(a) hereof, Incentive Stock Options issued to officers and key employees
pursuant to this Plan shall be issued substantially in the form set forth in
Appendix I hereof, which form is hereby incorporated by reference and made a
part hereof, and shall contain substantially the terms and conditions set forth
therein. Incentive Stock Options shall not be exercisable after the expiration
of ten years (five years in the case of 10% Shareholders) from the date such
options are granted, unless terminated earlier under the terms of the option. At
the time of the grant of an Incentive Stock Option hereunder, the Committee may,
in its discretion, amend or supplement any of the option terms contained in
Appendix I for any particular optionee, provided that the option as amended or
supplemented satisfies the requirements of Section 422(b) of the Code and the
regulations thereunder. Each of the options granted pursuant to this Section
5(b) is intended, if possible, to be an "Incentive Stock Option" as that term is
defined in Section 422(b) of the Code and the regulations thereunder. In the
event this Plan or any option granted pursuant to this Section 5(b) is in any
way inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an Incentive Stock Option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment.
3
<PAGE>
(c) Subject to the authority of the Committee set forth in Section
4(a) hereof, Non-Qualified Stock Options issued to officers and other key
employees pursuant to this Plan shall be issued substantially in the form set
forth in Appendix II hereof, which form is hereby incorporated by reference and
made a part hereof, and shall contain substantially the terms and conditions set
forth therein. Subject to the authority of the Committee set forth in Section
4(a) hereof, Non-Qualified Stock Options issued to directors and important
consultants pursuant to this Plan shall be issued substantially in the form set
forth in Appendix III hereof, which form is hereby incorporated by reference and
made a part hereof, and shall contain substantially the terms and conditions set
forth therein. Non-Qualified Stock Options shall expire ten years after the date
they are granted, unless terminated earlier under the option terms. At the time
of granting a Non-Qualified Stock Option hereunder, the Committee may, in its
discretion, amend or supplement any of the option terms contained in Appendix II
or Appendix III for any particular optionee.
(d) Neither the Company nor any of its current or future parent,
subsidiaries or affiliates, nor their officers, directors, shareholders, stock
option plan committees, employees or agents shall have any liability to any
optionee in the event (i) an option granted pursuant to Section 5(b) hereof does
not qualify as an "Incentive Stock Option" as that term is used in Section
422(b) of the Code and the regulations thereunder; (ii) any optionee does not
obtain the tax treatment pertaining to an Incentive Stock Option; or (iii) any
option granted pursuant to Section 5(c) hereof is an "Incentive Stock Option."
6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the expiration of
ten years from the date the Plan is adopted by the Board of Directors of the
Company. The Board of Directors reserves the right at any time, and from time to
time, to amend or supplement this Plan and outstanding options granted under the
Plan in any way, or to suspend or terminate the Plan, effective as of such date,
which date may be either before or after the taking of such action, as may be
specified by the Board of Directors; provided, however, that such action shall
not adversely affect holders of options granted under the Plan prior to the
actual date on which such action occurred. If an amendment or supplement of this
Plan is required by the Code or the regulations thereunder to be approved by the
shareholders of the Company in order to permit the granting of "Incentive Stock
Options" (as that term is defined in Section 422(b) of the Code and regulations
thereunder) pursuant to the amended or supplemented Plan, such amendment or
supplement shall also be approved by the shareholders of the Company in such
manner as is prescribed by the Code and the regulations thereunder. If the Board
of Directors voluntarily submits a proposed amendment, supplement, suspension or
termination for shareholder approval, such submission shall not require any
future amendments, supplements, suspensions or terminations (whether or not
relating to the same provision or subject matter) to be similarly submitted for
shareholder approval.
4
<PAGE>
7. Effectiveness of Plan
This Plan shall become effective on the date of its adoption by the
Company's Board of Directors, subject however to approval by the holders of the
Company's Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
until shareholder approval is obtained.
8. General Conditions
(a) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any employee the right to continue in the employ of
the Company or any affiliated or subsidiary corporation or interfere in any way
with the rights of the Company or any affiliated or subsidiary corporation to
terminate his employment in any way.
(b) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any director or consultant the right to continue as
a director of, or consultant to, the Company or any affiliated or subsidiary
corporation or interfere in any way with the rights of the Company or any
affiliated or subsidiary corporation, or their respective shareholders, to
terminate the directorship of any such director or the consultancy relationship
of any such consultant.
(c) Corporate action constituting an offer of stock for sale to any
person under the terms of the options to be granted hereunder shall be deemed
complete as of the date when the Committee authorizes the grant of the option to
the such person, regardless of when the option is actually delivered to such
person or acknowledged or agreed to by him.
(d) The terms "parent corporation" and "subsidiary corporation" as
used throughout this Plan, and the options granted pursuant to this Plan, shall
(except as otherwise provided in the option form) have the meaning that is
ascribed to that term when contained in Section 422(b) of the Code and the
regulations thereunder, and the Company shall be deemed to be the grantor
corporation for purposes of applying such meaning.
(e) References in this Plan to the Code shall be deemed to also refer
to the corresponding provisions of any future United States revenue law.
(f) The use of the masculine pronoun shall include the feminine gender
whenever appropriate.
5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of October 1 1997, by and between Paramark
Enterprises, Inc. a Delaware corporation (the "Company") and Charles N.
Loccisano ("Loccisano").
BACKGROUND
Loccisano is currently employed by the Company in the position of Chairman
and Chief Executive Officer. In that position, the Loccisano has provided
valuable services to the Company and its affiliated companies (hereinafter, the
Company ).
The Company considers it essential and in its best interest to foster the
continued employment of Loccisano. In this connection, the Board of Directors of
the Company, (the "Board") has determined that Loccisano has served diligently,
capably and faithfully for many years, is an indispensable executive of the
Company and has determined that the future services of Loccisano in such
capacity will be of value to the Company. Therefore, in order to induce
Loccisano to remain in the employ of the Company, the Company and Loccisano
desire to enter this agreement to provide for the continued employment of
Loccisano by the Company.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. Employment. Company hereby employs Loccisano, and Loccisano hereby
accepts such employment, for the period stated in Section 3 and upon the other
terms and conditions herein provided.
2. Position and Duties. During the Term (as defined in Section 3),
Loccisano agrees to serve as Chairman and Chief Executive Officer of the
Company. In his capacity as Chairman and Chief Executive Officer of the Company,
Loccisano shall have supervision and control over and responsibility for the
general management and operations of Company, shall have final authority on all
Company matters and shall report directly to the Board. Loccisano will perform
such other duties as may from time to time be assigned to him by the Board,
provided such duties are consistent with and do not interfere with the
performance of the duties described herein and are of a type customarily
performed by persons of similar titles with similar corporations. Loccisano's
duties shall not be altered except upon the agreement of the parties. Throughout
the Term, and except for illness, vacation periods and any leaves of absence
granted by Company, Loccisano shall devote the principal amount of his business
time, attention, skill and efforts to the faithful performance of his duties
hereunder, and shall accept such offices or directorships to which he may be
elected by the Board of the Company or its affiliates. Loccisano's duties under
this Agreement will be performed primarily in and from the Company's principal
location in Secaucus, New Jersey.
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<PAGE>
3. Term.
(a) Period of Employment. - The period of Loccisano's employment under
this Agreement shall commence as of the date hereof and shall, unless sooner
terminated pursuant to Section 5, continue for a period of three years therefrom
(such period being herein referred to as the "Term"), provided that, subject to
Section 3(b), and if the Term has not been terminated pursuant to Section 5, as
of each October I (the Anniversary Date") during the term the term shall be
extended for one year, so that at all times the Term on each Anniversary Date
during the term of this Agreement shall be an unexpired period of three years.
(b) Termination of Automatic Extension by Notice. The Company or
Loccisano may elect to terminate the automatic extension of the Term set forth
in Section 3(a) bv giving written notice of such election. Any notice given
hereunder shall be effective with respect to the automatic extension scheduled
to occur on the next succeeding Anniversary Date following the date on which
notice is given, provided that such notice must precede such Anniversary Date by
a period of not less than 30 days.
4. Compensation.
(a) Salary and Incentive Compensation. For all services rendered bv
Loccisano in any capacity during the Term, Loccisano shall be paid as
compensation a base annual salary of $175,000 per annum (of which an amount of
$25,000 annually will accrue and will be paid on the earlier of the completion
of a new capital financing transaction by the Company which shall yield gross
proceeds of not less than $750,000, or such time when the Company achieves a
positive cash flow from operations), or such higher salary as may be agreed upon
from time to time by Company and Loccisano, provided that, after the first year
of this Agreement, at a minimum, Loccisano's salary shall be increased by ten
(10%) per annum for each year thereafter. In addition, Loccisano shall receive
such incentive compensation and bonus as may be awarded to Loccisano from time
to time by the Board. Such salary shall be payable in accordance with the
standard pay schedule established for Company executives and any such Incentive
compensation or bonus shall be payable in the manner and at the time specified
by the Board.
(b) Reimbursement of Expenses. Company shall pay or reimburse
Loccisano in accordance with Company's policies and requirements, for all travel
and other expenses incurred by Loccisano in performing his duties under this
Agreement. In addition, the Company agrees to provide Loccisano with an
automobile allowance equal to $ 1,000 per month.
(c) Participation in Benefit Plans. In addition to the payments
provided under this Agreement, Loccisano shall be entitled to benefits under any
and all executive or contingent compensation plans, stock options, restricted
stock or stock purchase plans, retirement income or pension plans, supplemental,
or excess benefit plans, group hospitalization disability, health care, or sick
leave plans, life or other insurance or death benefit plans, travel and accident
insurance
-2-
<PAGE>
vacation plans, or other present or future group employee benefit plans or
programs of for which executive employees of the Company are eligible, and
Loccisano may be eligible to receive all benefits for which he is eligible under
any such benefit plan or program of the Company in accordance with the
provisions and requirements (including discretionary authority where applicable)
or my such plan or program.
(d) Vacation and Sick Leave. Loccisano shall be entitled to be
compensated for annual vacation, personal and sick leave in accordance with
established Company policy for executive employees.
5. Termination of Employment. The Executive's employment may be terminated
only under the following circumstances:
(a) Death. Loccisano's employment shall terminate upon his death.
After Loccisano's employment is terminated by his death, the Company shall pay
to Loccisano's spouse, or if he leaves no spouse, to his estate, commencing on
the next succeeding day which is the 15th day or last day of the month, as the
case may be, and semimonthly thereafter on the 15th and last days of each month,
until a total of forty eight (48) payments have been made, an amount on each
payment date equal to the semimonthly salary payment payable to Loccisano
pursuant to Section 4 (a) at the time of his death.
(b) Disability. If, as a result of Loccisano's incapacity due to
physical or mental illness, Loccisano shall have been absent from his duties
with the Company on a full-time basis for six consecutive months and, within 30
days after written notice of termination is thereafter given by the Company,
Loccisano shall not have returned to the full-time performance of Loccisano's
duties, the Company may terminate Loccisano's employment for "Disability".
(c) Retirement. The term "Retirement" as used in this Agreement shall
mean termination by the Company or Loccisano of Loccisano's employment based on
Loccisano's having reached age 65 or such other age as shall have been fixed in
any arrangement established with Loccisano's consent with respect to Loccisano.
(d) Cause. The Company may terminate Loccisano's employment for Cause.
For purposes of this Agreement, termination by the Company for "Cause" shall
mean termination upon (i) the willful and continued failure by Loccisano to
substantially perform his duties with the Company (other than (x) any such
failure resulting from Loccisano's incapacity due to Disability or (y) any such
actual or anticipated failure resulting from the Loccisano's termination for
Good Reason), after a demand for substantial performance is delivered to
Loccisano by the Board which specifically identifies the manner in which the
Board believes that Loccisano has not substantially performed his duties, or
(ii) the willful engaging by Loccisano in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise. For purposes of
this Section 5 (d), no act or failure to act, on Loccisano's part shall be
considered "willful" unless done, or omitted to be done, by Loccisano not in
good faith and best interest of the Company. Notwithstanding the foregoing,
Loccisano shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Loccisano a copy of
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<PAGE>
a resolution duty adopted by the affirmative vote of not less than two-thirds of
the entire membership of the Board at a meeting of the Board called and held for
the purpose (after reasonable notice to Loccisano and an opportunity for
Loccisano together with Loccisano's counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Loccisano was guilty of
conduct set forth in the second sentence of this Section 5 (d) and specifying
the particulars thereof in detail. If Loccisano's employment shall be terminated
for Cause, the Company shall pay Loccisano his full base salary through the Date
of Termination (as defined in Section 5 (g)) at the rate in effect at the time
Notice of Termination (as defined in Section 5 (f)) is given and the Company
shall have no further obligations to Loccisano under this Agreement. If
Loccisano disputes the validity of the termination pursuant to this section
5(d), then the burden of proof as to said issue shall be borne by the Company.
During the pendency of such dispute, all payments owed by the Company to
Loccisano, as if this agreement had not been terminated, shall be deposited into
an independent third party escrow account until a final resolution of the
dispute, at which time said funds will be delivered to the party that is
entitled to same.
(e) Good Reason. Loccisano may terminate Loccisano's employment for
Good Reason at any time during the term of this Agreement. For purposes of this
Agreement, "Good Reason" shall mean any of the following (without Loccisano's
express written consent):
(i) the assignment to Loccisano by the Company of any duties
inconsistent with Loccisano's status with the Company or a substantial
alteration in the nature of status of Loccisano's responsibilities
from those in effect immediately prior to the date hereof, or a
reduction in Loccisano's titles or offices as in effect immediately
prior to the date hereof, or any removal of Loccisano's from., or any
failure to reelect Loccisano to, any of such positions, except in
connection with the termination of his employment for Disability,
Retirement of Cause or as a result of Loccisano's death or by
Loccisano other than for Good Reason,
(ii) a reduction by the Company in Loccisano's base salary
as in effect on the date hereof or as the same may be increased from
time to time during the term of this Agreement;
(ii) Any failure by the Company to continue in effect any
incentive, compensation or benefit plan or arrangement (including,
without limitation. any of the Company's pension and profit sharing
plans, life insurance, medical, dental, accident and disability plans,
bonus plans and stock option plans) in which Loccisano is
participating at the date hereof (or any other plans providing
Loccisano with substantially similar benefits) (hereinafter
collectively referred to as "Benefits Plans"), the taking of any
action by the Company which would directly or indirectly materially
reduce Loccisano of any material fringe benefit enjoyed by Loccisano
at the date hereof, or the failure by the Company to provide Loccisano
with the number of paid vacation days to which Loccisano is entitled
at the date hereof,
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<PAGE>
(iv) a relocation of the Company's principal executive
offices to a location outside the New York metropolitan area, or the
Company's requiring principal executive offices, except for required
travel by Loccisano on the Company's business to an extent
substantially consistent with Loccisano's business travel obligations
at the date hereof
(v) any "Change in Control", which for purposes of this
Agreement, shall mean a change in control of a nature that would be
required to be reported in response to Item 6 (e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934.
as amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirement, provided that, without
limitation, such a change in control shall be deemed to have occurred
if (x) any person (as such term is used in Sections 13 (d) and 14
(d)(2) of the Exchange Act), other than those persons in control of
the company on the date hereof, shall acquire the power, directly or
indirectly, to direct the management or policies of the Company or
shall become the beneficial owner (within the meaning of Rule 13d-3)
under the Exchange Act). directly or indirectly, of 25% or more of the
combined voting power of then outstanding securities, or (y) during
any period of two consecutive years, individuals who at the beginning
of such period constitute the entire Board of Directors of the Company
shall cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election by the Company's
shareholders of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at
the beginning of the period.
(vi) any material breach by the Company of any provisions of
this Agreement; or
(vii) any purported termination of Loccisano's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirement of Section 5(t), and for purposes of this Agreement,
no such purported termination shall be effective.
(f) Notice of Termination. Any termination pursuant to Sections 5(b),
5(c) or 5(e) shall be communicated by a Notice of Termination. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate those specific termination provisions in this Agreement relied
upon and which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Loccisano's employment under the
provision so indicated.
(g) Date of Termination. "Date of Termination" shall mean (i) if this
Agreement is terminated by the Company for Disability, 30 days after Notice of
Termination is given to Loccisano (provided that Loccisano shall not have
returned to the performance of Loccisano's duties on a full-time basis during
such 30-day period), or (ii) if Loccisano"s
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<PAGE>
employment is terminated for any other reason, the date specified in the Notice
of Termination (which shall not be less than 30 nor more than 60 days from the
date such Notice of Termination is given); provided that if within 30 days after
any Notice of Termination is given, the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination if the Company prevails in such dispute or
the date the dispute is finally determined, whether by mutual agreement by the
parties or upon a binding arbitration award, or a final judgment, order or
decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected), if Loccisano prevails in
such dispute. Any party giving notice of a dispute shall pursue the resolution
of such dispute with reasonable diligence.
6. Compensation upon Termination of Employment. If, either the Company
shall terminate Loccisano's employment without Cause or for Disability or
Loccisano shall terminate his employment for Good Reason, then Loccisano shall
be entitled to the compensation and benefits provided below:
(a) The Company shall pay Loccisano his full base salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given.
(b) Except in a Termination for Disability where the Company has a
disability insurance policy in favor of Loccisano, in lieu of any further salary
payments to Loccisano for periods subsequent to the Date of Termination, the
Company shall pay to Loccisano as severance pay in a lump sum, in cash, an
amount equal to the sum of (i) an amount equal to two (2) times Loccisano's full
base annual salary in effect immediately prior to the occurrence of the
circumstance giving rise to the Notice of Termination given in respect thereof,
and (ii) an amount equal to one-half of the aggregate bonuses paid to Loccisano
during the three full fiscal years preceding the Notice of Termination.
(c) In a Termination for Disability where the Company has a disability
insurance policy in favor of Loccisano, in lieu of any further salary payments
to Loccisano for periods subsequent to the Date of Termination. the Company
shall pay to Loccisano as severance Pay in a lump sum, in cash, an amount equal
to the sum of (i) an amount equal to Loccisano's full base annual salary in
effect immediately prior to the occurrence of the circumstance giving rise to
the Notice of Termination given in respect thereof, and (ii) an amount equal to
one-third of the aggregate bonuses paid to Loccisano during the three full
fiscal years preceding the Notice of Termination.
(d) At the sole option of Loccisano, and in lieu of ordinary shares of
the Company ("Shares") issuable upon exercise of outstanding options
("Options"), if any, granted to Loccisano under the 1993 Stock option Plan or
the 1996 Stock Option Plan or any other stock option plan entered into during
the term of this agreement (which Options shall be canceled upon the making of
the payment referred to below), Loccisano shall receive an amount in cash equal
to the product of (1) the difference (to the extent that such difference is a
positive number) obtained by subtracting the per share exercise price of each
Option held by Loccisano, whether or not then fully exercisable, from the higher
of (x) the closing price of the Shares on the date of
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Termination (or if not traded on the Date of Termination, the closing price on
the next preceding business day on which they were traded), or (y) the highest
price per Share actually paid in connection with any Change in Control of the
company and (ii) the number of Shares covered by each such Option. Loccisano may
exercise his right to have the options redeemed by the Company at any time after
the termination of his employment, but if he does not exercise said right, the
options shall remain in full force and effect.
(e) The Company shall also pay to Loccisano an amount in cash equal to
all unvested Company contributions credited to Loccisano's account under the
Company's pension and profit sharing plan(s) as of the Date of Termination.
(f) For a 12 months period after the Date of Termination, the Company
shall provide Loccisano with life, disability, accident and health insurance
benefits substantially similar to those which Loccisano is receiving immediately
prior to the Notice of Termination. Benefits otherwise receivable by Loccisano
pursuant to this Section 6(e) shall be reduced to the extent comparable benefits
are actually received by Loccisano during the 12 month period following
Loccisano's termination, and any such benefits actually received by Loccisano
shall be reported to the Company.
(g) In the event Loccisano becomes entitled to any payment ("Severance
Payments") from the Company under this Agreement or otherwise which are subject
to the tax (the "Exercise Tax") imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended, Company shall pay to Loccisano an amount (the
"Gross-up Payment") within 60 days after the end of the calendar year during
which any Severance Payments are subject to the Excise Tax, such that the net
amount retained by Loccisano, after deduction of any Excise Tax on the Severance
Payments and any Excise Tax and any federal, state and local income tax upon the
Gross-up Payment, shall be equal to the Severance Payments before the imposition
of the Excise Tax.
(h) The payments provided for in subsections (a), (b), (c) and (d)
above shall be made not later than the 15th day following the Date of
Termination: provided that if the amount of such payments cannot be finally
determined on or before such day, the Company shall pay to Loccisano on such day
an estimate, as determined in good faith by the Company, of the minimum amount
of such payments and shall pay the remainder of such payments as soon as the
amount thereof can be determined but in no event later than the 30th day after
the Date of Termination. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such excess shall
be repaid to the Company by Loccisano no later than the 5th day after demand by
the Company.
7. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights; Attachment.
(a) Loccisano shall not be required to mitigate damages or the amount
of any payment provided for under this Agreement by seeking other employment or
other wise, nor shall the amount of payment provided for under this Agreement be
reduced by any compensation
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earned by Loccisano as the result of employment by another employer after the
Date of Termination, or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish Loccisano's existing rights, or rights which would accrue solely as a
result of the passage of time, under any Benefit Plan, employment agreement or
other contract, plan or arrangement.
(c) Except as required by law, the right to receive payments under
this Agreement shall not be subject to anticipation, sale, encumbrance, charge,
levy, or similar process or assignment by operation of law.
8. Successors; Binding Agreements.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume and
agree to perform this Company would be required to perform it if no such
succession had take place. Any failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a material breach of
this Agreement and shall entitle Loccisano to terminate Loccisano's employment
for Good Reason. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and /or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of , and be enforceable
by, the parties hereto and their respective successor, assigns, personal and
legal representatives, executors, administrators, successors, heirs,
distributes, devisees and legatees. If Loccisano should die while any amounts
are still payable to him hereunder, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to
Loccisano's devisee, legatee, or other designee or, if there be no such
designee, to Loccisano's estate.
9. Notice. For purposes of this Agreement, all notices and other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid, as
follows:
If to the Company:
Paramark Enterprises, Inc.
135 Seaview Drive
Secaucus, New Jersey 07094
Attn.: Alan Gottlich, CFO
If to the Executive:
Charles Loccisano
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18 Leonard Drive
Morgansville, New Jersey 07070
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
10. Miscellaneous. No provisions of this Agreement may be modified,
amended, waived or discharged unless such modification, waiver, amendment or
discharge is agreed to in writing signed by Loccisano and the Company. No waiver
by either party hereto at any time of any breach by the other party hereto or,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement sets forth the entire understanding
between the parties with respect to the subject matter hereof. This Agreement
shall be governed by, and construed in accordance with, the laws of the State of
New Jersey applicable to contracts made and to be performed entirely within such
State with giving effect to conflicts of law principles.
11. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not effect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Headings. The headings are included solely for convenience of reference
and shall not control the meaning or interpretation of any of the provisions of
this Agreement.
14. Interpretation. If any provision of this Agreement shall be the subject
of a dispute between Company and Loccisano and a court or arbitrator to which
such dispute has been brought shall be unable to resolve which of two reasonable
interpretations of such provisions is the proper interpretation thereof, then
the interpretation most favorable to Loccisano shall control.
15. Reimbursement of Expenses. Company shall reimburse Loccisano for any
costs and expenses including, without limitation, legal fees and costs, incurred
by Loccisano in connection with this Agreement including, with limitation, in
seeking to obtain or enforce any right or benefit provided by this Agreement or
to defend its validity.
16. Arbitration. Any dispute or controversy arising under or in connection
with this /Agreement shall be settled exclusively by arbitration in New Jersey
in accordance with rules of
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the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST: PARAMARK ENTERPRISES, INC.
By: By:/s/ Alan S. Gottlich
WITNESS: CHARLES N. LOCCISANO:
By:/s/ Charles N. Loccisano
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of October 1 1997, by and between Paramark
Enterprises, Inc. a Delaware corporation (the "Company") and Alan S. Gottlich
("Gottlich").
BACKGROUND
Gottlich is currently employed by the Company in the position of President
and Chief Financial Officer. In that position, the Gottlich has provided
valuable services to the Company and its affiliated companies (hereinafter, the
Company ).
The Company considers it essential and in its best interest to foster the
continued employment of Gottlich. In this connection, the Board of Directors of
the Company, (the "Board") has determined that Gottlich has served diligently.
capably and faithfully for many years, is an indispensable executive of the
Company and has determined that the future services of Gottlich in such capacity
will be of value to the Company. Therefore, in order to induce Gottlich to
remain in the employ of the Company, the Company and Gottlich desire to enter
this agreement to provide for the continued employment of Gottlich by the
Company.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. Employment. Company hereby employs Gottlich, and Gottlich hereby accepts
such employment, for the period stated in Section 3 and upon the other terms and
conditions herein provided.
2. Position and Duties. During the Term (as defined in Section 3), Gottlich
agrees to serve as President and Chief Financial Officer of the Company. In his
capacity as President and Chief Financial Officer of the Company, Gottlich shall
have supervision and control over and responsibility for the general management
and operations of Company, shall have final authority on all Company matters and
shall report directly to the Chairman and the Board. Gottlich will perform such
other duties as may from time to time be assigned to him by the Chairman and the
Board, provided such duties are consistent with and do not interfere with the
performance of the duties described herein and are of a type customarily
performed by persons of similar titles with similar corporations. Gottlich's
duties shall not be altered except upon the agreement of the parties. Throughout
the Term, and except for illness, vacation periods and any leaves of absence
granted by Company, Gottlich shall devote the principal amount of his business
time, attention, skill and efforts to the faithful performance of his duties
hereunder, and shall accept such offices or directorships to which he may be
elected by the Board of the Company or its affiliates. Gottlich's duties under
this Agreement will be performed primarily in and from the Company's principal
location in Secaucus, New Jersey.
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3. Term.
(a) Period of Employment. The period of Gottlich's employment under
this Agreement shall commence as of the date hereof and shall, unless sooner
terminated pursuant to Section 5, continue for a period of three years therefrom
(such period being herein referred to as the "Term"), provided that, subject to
Section 3(b), and if the Term has not been terminated pursuant to Section 5, as
of each October 1 (the Anniversary Date") during the term , the term shall be
extended for one year, so that at all times the Term on each Anniversary Date
during the term of this Agreement shall be an unexpired period of three years.
(b) Termination of Automatic Extension by Notice. The Company or
Gottlich may elect to terminate the automatic extension of the Term set forth in
Section 3 (a) by giving written notice of such election. Any notice given
hereunder shall be effective with respect to the automatic extension scheduled
to occur on the next succeeding Anniversary Date following the date on which
notice is given, provided that such notice must precede such Anniversary Date by
a period of not less than 30 days.
4. Compensation.
(a) Salary and Incentive Compensation. For all services rendered by
Gottlich in any capacity during the Term, Gottlich shall be paid as compensation
a base annual salary of $125,000 per annum (of which an amount of $15,000
annually will accrue and will be paid on the earlier of the completion of a new
capital financing transaction by the Company which shall yield gross proceeds of
not less than $750,000, or such time when the Company achieves a positive cash
flow from operations), or such higher salary as may be agreed upon from time to
time by Company and Gottlich, provided that, after the first year of this
Agreement, at a minimum, Gottlich's salary shall be increased by ten (10%) per
annum for each year thereafter. In addition, Gottlich shall receive such
incentive compensation and bonus as may be awarded to Gottlich from time to time
by the Board. Such salary shall be payable in accordance with the standard pay
schedule established for Company executives and any such incentive compensation
or bonus shall be payable in the manner and at the time specified by the Board.
(b) Reimbursement of Expenses. Company shall pay or reimburse Gottlich
in accordance with Company's policies and requirements, for all travel and other
expenses incurred by Gottlich in performing his duties under this Agreement. In
addition, the Company agrees to provide Gottlich with an automobile allowance
equal to $750 per month.
(c) Participation in Benefit Plans. In addition to the payments
provided under this Agreement. Gottlich shall be entitled to benefits under any
and all executive or contingent compensation plans, stock options, restricted
stock or stock purchase plans, retirement income or pension plans, supplemental
or excess benefit plans, group hospitalization disability, health care, or sick
leave plans, life or other insurance or death benefit plans, travel and accident
insurance vacation plans, or other present or future group employee benefit
plans or programs of for which executive employees of the Company are eligible,
and Gottlich may be eligible to receive all
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<PAGE>
benefits for which he is eligible under any such benefit plan or program of the
Company in accordance with the provisions and requirements (including
discretionary authority where applicable) or any such plan or program.
(d) Vacation and Sick Leave. Gottlich shall be entitled to be
compensated for annual vacation, personal and sick leave in accordance with
established Company policy for executive employees.
5. Termination of Employment. The Executive's employment may be terminated
only under the following circumstances:
(a) Death. Gottlich's employment shall terminate upon his death. After
Gottlich's employment is terminated by his death, the Company shall pay to
Gottlich's spouse, or if he leaves no spouse, to his estate, commencing on the
next succeeding day which is the 15th day or last day of the month, as the case
may be, and semimonthly thereafter on the 15th and last days of each month,
until a total of forty eight (48) payments have been made, an amount on each
payment date equal to the semimonthly salary payment payable to Gottlich
pursuant to Section 4 (a) at the time of his death.
(b) Disability. If, as a result of Gottlich's incapacity due to
physical or mental illness, Gottlich shall have been absent from his duties with
the Company on a full-time basis for six consecutive months and, within 30 days
after written notice of termination is thereafter given by the Company, Gottlich
shall not have returned to the full-time performance of Gottlich's duties, the
Company may terminate Gottlich's employment for "Disability".
(c) Retirement. The term '"Retirement" as used in this Agreement shall
mean termination by the Company or Gottlich of Gottlich's employment based on
Gottlich having reached age 65 or such other age as shall have been fixed in any
arrangement established with Gottlich's consent with respect to Gottlich.
(d) Cause. The Company may terminate Gottlich's employment for Cause.
For purposes of this Agreement, termination by the Company for "Cause" shall
mean termination upon (i) the willful and continued failure by Gottlich to
substantially perform his duties with the Company (other than (x) any such
failure resulting from Gottlich's incapacity due to Disability or (y) any such
actual or anticipated failure resulting from the Gottlich's termination for Good
Reason), after a demand for substantial performance is delivered to Gottlich by
the Board which specifically identifies the manner in which the Board believes
that Gottlich has not substantially performed his duties, or (ii) the willful
engaging by Gottlich in conduct which is demonstrably and materially injurious
to the Company, monetarily or otherwise. For purposes of this Section 5 (d), no
act or failure to act, on Gottlich's part shall be considered "willful" unless
done, or omitted to be done, by Gottlich not in good faith and best interest of
the Company. Notwithstanding the foregoing, Gottlich shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
Gottlich a copy of a resolution duly adopted by the affirmative vote of not less
than two-thirds of the entire membership of the Board at a meeting of the Board
called and held for the purpose (after reasonable notice to Gottlich and an
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opportunity for Gottlich together with Gottlich's counsel. to be heard before
the Board), finding that in the good faith opinion of the Board, Gottlich was
guilty of conduct set forth in the second sentence of this Section 5 (d) and
specifying the particulars thereof in detail. If Gottlich's employment shall be
terminated for Cause, the Company shall pay Gottlich his full base salary
through the Date of Termination (as defined in Section 5 (g)) at the rate in
effect at the time Notice of Termination (as defined in Section 5 (f)) is given
and the Company shall have no further obligations to Gottlich under this
Agreement. If Gottlich disputes the validity of the termination pursuant to this
section 5(d), then the burden of proof as to said issue shall be borne by the
Company. During the pendency of such dispute, all payments owed by the Company
to Gottlich, as if this agreement had not been terminated, shall be deposited
into an independent third party escrow account until a final resolution of the
dispute, at which time said funds will be delivered to the party that is
entitled to same.
(e) Good Reason. Gottlich may terminate Gottlich's employment for Good
Reason at any time during the term of this Agreement. For purposes of this
Agreement, "Good Reason" shall mean any of the following (without Gottlich's
express written consent):
(i) the assignment to Gottlich by the Company of any duties
inconsistent with Gottlich's status with the Company or a substantial
alteration in the nature of status of Gottlich's responsibilities from
those in effect immediately prior to the date hereof, or a reduction
in Gottlich's titles or offices as in effect immediately prior to the
date hereof, or any removal of Gottlich's from, or any failure to
reelect Gottlich to, any of such positions, except in connection with
the termination of his employment for Disability, Retirement of Cause
or as a result of Gottlich's death or by Gottlich other than for Good
Reason:
(ii) a reduction by the Company in Gottlich's base salary as
in effect on the date hereof or as the same may be increased from time
to time during the term of this Agreement:
(iii) Any failure by the Company to continue in effect any
incentive, compensation or benefit plan or arrangement (including,
without limitation, any of the Company's pension and profit sharing
plans, life insurance, medical, dental, accident and disability plans,
bonus plans and stock option plans) in which Gottlich is participating
at the date hereof (or any other plans providing Gottlich with
substantially similar benefits) (hereinafter collectively referred to
as "Benefits Plans"), the taking of any action by the Company which
would directly or indirectly materially reduce Gottlich of any
material fringe benefit enjoyed by Gottlich at the date hereof, or the
failure by the Company to provide Gottlich with the number of paid
vacation days to which Gottlich is entitled at the date hereof;
(iv) a relocation of the Company's principal executive
offices to a location outside the New York metropolitan area, or the
Company's requiring principal executive offices, except for required
travel by Gottlich on the
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Company's business to an extent substantially consistent with Gottlich's
business travel obligations at the date hereof,
(v) any "Change in Control", which for purposes of this
Agreement, shall mean a change in control of a nature that would be
required to be reported in response to Item 6 (e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirement, provided that, without
limitation, such a change in control shall be deemed to have occurred
if (x) any person (as such term is used in Sections 13 (d) and 14
(d)(2) of the Exchange Act), other than those persons in control of
the company on the date hereof, shall acquire the power, directly or
indirectly , to direct the management or policies of the Company or
shall become the beneficial owner (within the meaning of Rule l3d-3)
under the Exchange Act), directly or indirectly, of 25% or more of the
combined voting power of then outstanding securities, or (y) during
any period of two consecutive years, individuals who at the beginning
of such period constitute the entire Board of Directors of the Company
shall cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election by the Company's
shareholders of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at
the beginning of the period.
(vi) any material breach by the Company of any provisions of
this Agreement; or
(vii) any purported termination of Gottlich's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirement of Section 5(f), and for purposes of this Agreement,
no such purported termination shall be effective.
(f) Notice of Termination. Any termination pursuant to Sections 5(b),
5(c) or 5(e) shall be communicated by a Notice of Termination. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate those specific termination provisions in this Agreement relied
upon and which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Gottlich's employment under the
provision so indicated.
(g) Date of Termination. "Date of Termination" shall mean (i) if this
Agreement is terminated by the Company for Disability, 30 days after Notice of
Termination is given to Gottlich (provided that Gottlich shall not have returned
to the performance of Gottlich's duties on a full-time basis during such 30-day
period), or (ii) if Gottlich's employment is terminated for any other reason,
the date specified in the Notice of Termination (which shall not be less than 30
nor more than 60 days from the date such Notice of Termination is given);
provided that if within 30 days after any Notice of Termination is given, the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination.
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the Date of Termination if the Company prevails in such dispute or the date the
dispute is finally determined, whether by mutual agreement by the parties or
upon a binding arbitration award, or a final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected), if Gottlich prevails in such dispute. Any
party giving notice of a dispute shall pursue the resolution of such dispute
with reasonable diligence.
6. Compensation upon Termination of Employment. If, either the Company
shall terminate Gottlich's employment without Cause or for Disability or
Gottlich shall terminate his employment for Good Reason, then Gottlich shall be
entitled to the compensation and benefits provided below:
(a) The Company shall pay Gottlich his full base salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given.
(b) Except in a Termination for Disability where the Company has a
disability insurance policy in favor of Gottlich) in lieu of any further salary
payments to Gottlich for periods subsequent to the Date of Termination, the
Company shall pay to Gottlich as severance pay in a lump sum, in cash, an amount
equal to the sum of (i) an amount equal to two (2) times Gottlich's full base
annual salary in effect immediately prior to the occurrence of the circumstance
giving rise to the Notice of Termination given in respect thereof, and (ii) an
amount equal to one-half of the aggregate bonuses paid to Gottlich during the
three full fiscal years preceding the Notice of Termination.
(c) In a Termination for Disability where the Company has a disability
insurance policy in favor of Gottlich, in lieu of any further salary payments to
Gottlich for periods subsequent to the Date of Termination, the Company shall
pay to Gottlich as severance pay in a lump sum, in cash, an amount equal to the
sum of (i) an amount equal to Gottlich's full base annual salary in effect
immediately prior to the occurrence of the circumstance giving rise to the
Notice of Termination given in respect thereof, and (ii) an amount equal to
one-third of the aggregate bonuses paid to Gottlich during the three full fiscal
years preceding the Notice of Termination.
(d) At the sole option of Gottlich, and in lieu of ordinary shares of
the Company ("Shares") issuable upon exercise of outstanding options
("Options"), if any, granted to Gottlich under the 1993 Stock option Plan or the
1996 Stock Option Plan or any other stock option plan entered during the term of
this agreement (which Options shall be canceled upon the making of the payment
referred to below), Gottlich shall receive an amount in cash equal to the
product of (i) the difference (to the extent that such difference is a positive
number) obtained by subtracting the per share exercise price of each Option held
by Gottlich, whether or not then fully exercisable, from the higher of (x) the
closing price of the Shares on the date of Termination (or if not traded on the
Date of Termination, the closing price on the next preceding business day on
which they were traded), or (y) the highest price per Share actually paid in
connection with any Change in Control of the company and (ii) the number of
Shares covered by each such Option. Gottlich may exercise his right to have the
options redeemed by the Company at any time after
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the termination of his employment, but if he does not exercise said right, the
options shall remain in full force and effect.
(e) The Company shall also pay to Gottlich an amount in cash equal to
all unvested Company contributions credited to Gottlich's account under the
Company's pension and profit sharing plan(s) as of the Date of Termination.
(f) For a 12 months period after the Date of Termination, the Company
shall provide Gottlich with life, disability, accident and health insurance
benefits substantially similar to those which Gottlich is receiving immediately
prior to the Notice of Termination. Benefits otherwise receivable by Gottlich
pursuant to this Section 6(e) shall be reduced to the extent comparable benefits
are actually received by Gottlich during the 12 month period following
Gottlich's termination, and any such benefits actually received by Gottlich
shall be reported to the Company.
(g) In the event Gottlich becomes entitled to any payment ("Severance
Payments") from the Company under this Agreement or otherwise which are subject
to the tax (the "Exercise Tax") imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended. Company shall pay to Gottlich an amount (the "Gross-up
Payment") within 60 days after the end of the calendar year during which any
Severance Payments are subject to the Excise Tax, such that the net amount
retained by Gottlich, after deduction of any Excise Tax on the Severance
Payments and any Excise Tax and any federal, state and local income tax upon the
Gross-up Payment, shall be equal to the Severance Payments before the imposition
of the Excise Tax.
(h) The payments provided for in subsections (a), (b), (c) and (d)
above shall be made not later than the 15th day following the Date of
Termination: provided that if the amount of such payments cannot be finally
determined on or before such day, the Company shall pay to Gottlich on such day
an estimate, as determined in good faith by the Company, of the minimum amount
of such payments and shall pay the remainder of such payments as soon as the
amount thereof can be determined but in no event later than the 30th day after
the Date of Termination. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such excess shall
be repaid to the Company by Gottlich no later than the 5th day after demand by
the Company.
7. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights; Attachment.
(a) Gottlich shall not be required to mitigate damages or the amount
of any payment provided for under this Agreement by seeking other employment or
other wise, nor shall the amount of payment provided for under this Agreement be
reduced by any compensation earned by Gottlich as the result of employment by
another employer after the Date of Termination, or otherwise.
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(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish Gottlich's existing rights, or rights which would accrue solely as a
result of the passage of time, under any Benefit Plan, employment agreement or
other contract, plan or arrangement.
(c) Except as required by law, the right to receive payments under
this Agreement shall not be subject to anticipation, sale, encumbrance, charge,
levy, or similar process or assignment by operation of law.
8. Successors; Binding Agreements.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume and
agree to perform this Company would be required to perform it if no such
succession had take place. Any failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a material breach of
this Agreement and shall entitle Gottlich to terminate Gottlich's employment for
Good Reason. As used in this Agreement, "Company" shall mean the Company as
herein before defined and any successor to its business and /or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of, and be enforceable
by, the parties hereto and their respective successor, assigns, personal and
legal representatives, executors, administrators, successors, heirs.
distributes, devisees and legatees. If Gottlich should die while any amounts are
still payable to him hereunder, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to
Gottlich's devisee, legatee, or other designee or, if there be no such designee,
to Gottlich's estate.
9. Notice. For purposes of this Agreement, all notices and other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid, as
follows:
If to the Company:
Paramark Enterprises, Inc.
135 Seaview Drive
Secaucus, New Jersey 07094
Attn.: Charles Loccisano, CEO
If to the Executive:
Alan Gottlich
8 Edward Court
Tenafly, New Jersey 07670
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or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
10. Miscellaneous. No provisions of this Agreement may be modified,
amended, waived or discharged unless such modification. waiver, amendment or
discharge is agreed to in writing signed by Gottlich and the Company. No waiver
by either party hereto at any time of any breach by the other party hereto or,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement sets forth the entire understanding
between the parties with respect to the subject matter hereof. This Agreement
shall be governed by, and construed in accordance with, the laws of the State of
New Jersey applicable to contracts made and to be performed entirely within such
State with giving effect to conflicts of law principles.
11. Validity, The invalidity or unenforceablility of any provision of this
Agreement shall not effect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
13. Headings. The headings are included solely for convenience of reference
and shall not control the meaning or interpretation of any of the provisions of
this Agreement.
14. Interpretation. If any provision of this Agreement shall be the subject
of a dispute between Company and Gottlich and a court or arbitrator to which
such dispute has been brought shall be unable to resolve which of two reasonable
interpretations of such provisions is the proper interpretation thereof, then
the interpretation most favorable to Gottlich shall control.
15. Reimbursement of Expenses. Company shall reimburse Gottlich for any
costs and expenses including, without limitation, legal fees and costs, incurred
by Gottlich in connection with this Agreement including, with limitation, in
seeking to obtain or enforce any right or benefit provided by this Agreement or
to defend its validity.
16. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in New Jersey in
accordance with rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST: PARAMARK ENTERPRISES, INC.
By: By:
WITNESS: ALAN S. GOTTLICH:
By: By:/s/ Alan S. Gottlich
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FIRST RIDER TO LEASE
THIS IS A FIRST RIDER TO A LEASE (the "Lease") entered into simultaneously
herewith between HELF INVESTMENTS, a California partnership ("Landlord") and
PARAMARK ENTERPRISES, INC., a Delaware corporation.
This Rider amends and supplements the Lease, more particularly as follows:
1. COMMENCEMENT DATE AND POSSESSION DATE. Section 2.3 of the Lease is
modified to provide that the Commencement Date shall be May 1, 1998 (meaning
that this shall be the date on which Tenant's obligation to pay rent shall
commence) but the Tenant shall be given possession of the Premises on or before
April 1, 1998. If Tenant is given possession of the Premises after April 1, 1998
then the Commencement Date and the Initial Expiration Date shall be postponed by
the number of days that Tenant's possession of the Premises was delayed beyond
April 1, 1998.
2. INITIAL EXPIRATION DATE. The Initial Expiration Date will be April 30,
2001.
3. COMPLIANCE WITH LAWS. Section 10.2 of the Lease is modified to provide
that if the "Compliance with Laws" as described therein requires structural work
to the shell of the Premises, then such compliance shall be at Landlord's sole
cost and expense.
4. TENANT'S MAINTENANCE DUTIES. Section 13.1 is modified to provide that
Tenant shall not be responsible for the maintenance of the exterior of the
Premises, other than maintenance which is required due to Tenant's (or its
employees or invitee's ) negligence or misconduct.
5. HAZARDOUS SUBSTANCES. Section 33 is modified to provide that Landlord
indemnifies Tenant against all Environmental Claims arising out of matters
occurring prior to Tenant's taking possession of the Premises.
6. EARLY TERMINATION. Tenant shall have a one time right to terminate the
Lease, effective March 31, 1999 (the "Early Termination"). Such Early
Termination right may only be exercised by Tenant providing Landlord with no
less than sixty (60) days prior irrevocable written notice, which notice will
only be valid if accompanied by a cashier's check drawn on a local bank (or
other immediately available funds) in an amount equal to six (6) months of Base
Monthly Rent (the "Termination Fee"), which Termination Fee will be deemed
earned upon receipt by Landlord and non-refundable. If Tenant does not timely
and properly exercise its right to Early Termination as provided in this
Paragraph, then such right will lapse and thereafter not be
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capable of being exercised--time expressly being of the essence hereof. If
Tenant timely and properly exercises its right to Early Termination then the
Early Termination Date shall be deemed to be the Expiration Date pursuant to the
Lease.
7. CAPITALIZED TERMS. All capitalized terms used but not defined in this
Rider shall have the same meaning as ascribed to them in the Lease.
8. CONFLICT. In the event of any conflict between the terms of this Rider
and the terms of the Lease then this Rider shall be controlling.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Rider to Lease
effective as of the date of the execution of the Lease.
PARAMARK ENTERPRISES, INC.
By: /s/ Alan S. Gottlich
Alan S. Gottlich
President
HELF INVESTMENTS
By:
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LEASE
This Lease is executed on February _, 1998 between HELF INVESTMENTS, A
CALIFORNIA PARTNERSHIP ("Landlord"), having an address for notices at 7917
Ivanhoe Ave., Suite 200, La Jolla, CA 92937 and PARAMARK ENTERPRISES, A
CORPORATION ("Tenant"), who agree as follows:
1. Agreement to Let. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, upon all of the terms, provisions, and conditions
contained in this Agreement, those certain premises described in Paragraph 2.18,
below (the "Premises"), along with the non-exclusive right to use, in common
with Landlord, Landlord's invitees and licensees, and the other users of space
within the Project (as defined below), those portions of the Project intended
for use by the tenants of the Project in common including, without limitation,
the landscaped areas, passageways, walkways, hallways, parking areas, and
driveways of the Project (collectively, the "Common Area"). This Lease confers
no rights, however, to the interior of any space other than the Premises, or to
the roof, exterior walls, or utility raceways of the building in which the
Premises are located, nor rights to any other building (if any) in the Project,
nor with regard to either the subsurface of the land below the ground level of
the Project or with regard to the air space above the ceiling of the Premises.
2. Definitions. For purposes of this Lease, the following definitions shall
apply:
2.1. "Alterations" will mean and refer to any alterations,
improvements, additions, installations, or changes of any nature in or to the
Premises.
2.2. "Base Monthly Rent" will mean and refer to $7,967.22 per month,
as adjusted pursuant to the provisions of this Lease.
2.3. "Commencement Date" will mean and refer to MARCH 1, 1998.
2.4. "Default Rate" will mean and refer to the lesser of TEN (10)
percent per annum or the maximum rate permitted by applicable law.
2.5. "Expiration Date" will mean and refer to the Initial Expiration
Date (as defined below), unless this Lease is extended pursuant to Paragraph 4
of this Lease entitled "Extension Term," in which event the term "Expiration
Date" will mean and refer to the Extension Expiration Date (as defined below)
for the final Extension Term (as defined below) relative to which Tenant
exercises its option pursuant to Paragraph 4, below, or such earlier date upon
which this Lease is terminated by Landlord pursuant hereto.
2.6. "Extension Expiration Date" will mean and refer to the final day
of any Extension Term.
2.7. "Extension Term" will mean and refer to any period of time during
which the Term is extended beyond the Initial Expiration Date pursuant to
Paragraph 4, below, entitled "Extension Term".
2.8. "Good Condition" will mean and refer to first-class, neat, and
clean, and in good, fully operational order.
2.9. "Index" will mean and refer to the Consumer Price Index for All
Urban Consumers (base year 1982-84=100) for Los Angeles-Anaheim-Riverside,
California, published by the United States Department of Labor, Bureau of Labor
Statistics. If the Index is changed so that the base year is not 1982-84 and
statistics using the base year of 1982-84 are no longer published, then the
Index shall be converted in accordance with the conversion factor published by
the United States Department of Labor, Bureau of Labor Statistics. If the Index
is discontinued or revised during the Term, such other government index or
computation with which it is replaced (or if there is no replacement, then such
index or computation as Landlord reasonably selects) shall be used in order to
obtain substantially the same result as would be obtained if the Index had not
been discontinued or revised.
2.10. "Initial Expiration Date" will mean and refer to FEBRUARY
28,2001.
2.11. "Initial Payment" will mean and refer to the sum of $21,324.03
which shall be payable by Tenant to Landlord in payment of $7,967.22 1st MONTH
BASE RENT, $1,405.98 1st MONTH CAM CHARGE, and $11,950.83 SECURITY DEPOSIT.
2.12. "Land" will mean and refer to the land described on attached
Exhibit "A" entitled "Description of Land".
2.13. "Landlord's Representatives" will mean and refer to any agent,
employee, officer, or independent contractor of or retained by Landlord.
2.14. "Lease Expenses" will mean and refer to the sum of (i) Real
Property Taxes (as defined below), (ii) Landlord's direct cost of furnishing any
utilities and services to the Real Property, (iii) Insurance Expenses (as
defined in Paragraph 28 of this Lease entitled "Landlord's Insurance"), and (iv)
all costs and expenses, of any kind or nature, which are paid or incurred by
Landlord, or on Landlord's behalf, with respect to the management, repair,
maintenance, restoration, replacement, and/or operation of the Real Property,
including, without limitation, costs and expenses which belong within any one or
more of the categories set forth on attached Exhibit "D" entitled "Expenses".
(But not including "overhead", legal or accounting expenses).
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2.15. "Lender" will mean and refer to the beneficiary, mortgagee,
secured party, or other holder of any Mortgage (as defined below).
2.16. "Mortgage" will mean and refer to any deed of trust, mortgage or
other written security instrument or agreement executed by a fee owner of the
Real Property affecting the Real Property, that constitutes security for the
payment of a debt or performance of an obligation.
2.17. "Permitted Use" will mean and refer to the manufacturing and
distribution of baked goods and related products.
2.18. "Premises" will mean and refer to that portion of the real
property located in the Project, substantially as shown as the Premises on
attached Exhibit "B" entitled "Description of Premises", and commonly referred
to as 1919 FRIENDSHIP DRIVE, SUITE B., EL CAJON, CALIFORNIA 92020.
2.19. "Real Property" will mean and refer to the Premises, the
Project, the Land, and any other improvements that are part of the Project or
the Land.
2.20. "Real Property Taxes" will mean and refer to all real property
or real estate taxes, and general and special assessments, levied or assessed
against the Real Property (or any portion thereof), including, without
limitation, any tax, fee or excise on (i) the square footage of the Premises, or
(ii) the occupancy of Tenant, or any other similar tax, fee or excise, however
described, including, without limitation, a value added tax, levied or assessed
against the Real Property (or any portion thereof), by the United States, the
State in which the Premises are located or any political subdivision of such
state, including, without limitation, any county, city, city and county, public
corporation, district, or any other political entity or public corporation, as a
direct substitution in whole or in part for, or in addition to, any real
property or real estate taxes or general or special assessments, whether
foreseen or unforeseen. Notwithstanding anything to the contrary in the
preceding sentence, "Real Property Taxes" shall not mean any municipal, county,
state, or federal income, franchise, estate, succession, inheritance or transfer
taxes of Landlord. If the Real Property is assessed in combination with other
property owned by Landlord, then Landlord shall, in a reasonable manner,
allocate the Real Property Taxes between the Real Property and such other
property included in the tax bill. If any Real Property Taxes are assessed or
collected on the basis of a fiscal period, a portion of which occurs during the
Term and the remainder of which occurs before or after the Term, then the Real
Property Taxes payable for such fiscal period shall be apportioned between such
periods based upon the number of days during such fiscal period that occur
during the Term and the number of days that occur before or after the Term.
2.21. "Rental" will mean and refer to and include any and all Base
Monthly Rent, additional rent, prepaid rent, security deposit, Real Property
Taxes, Personal Property Taxes (as defined below), Insurance Expenses (as
defined below), late charges, default interest, reimbursements, utilities,
Tenant's Monthly Payment (as defined below), and other sums payable by Tenant to
Landlord under this Lease.
2.22. "Security Deposit Sum" will mean and refer to $11,950.83.
2.23. "Tenant's Invitees" will mean and refer to any agent, employee,
officer, independent contractor, licensee, invitee, visitor, or customer of or
retained by Tenant.
2.24. "Tenant's Personal Property" will mean and refer to all of
Tenant's personal property installed or located in or on the Premises including,
without limitation, trade fixtures, furnishings, equipment, and inventory.
2.25. "Tenant's Pro Rata Share" will mean and refer to 25 percent.
3. Term. The term of this Lease ("Term") shall commence on the Commencement
Date and shall expire on the Expiration Date.
4. Extension Term. Tenant is hereby granted the right to extend the Term
for up to one period of 24 months each (each an Extension Term pursuant to
Paragraph 2.7, above, on all of the terms, provisions, and conditions of this
Lease, provided that (i) Tenant must notify Landlord in writing (the "Tenant
Election Notice"), at least six months prior to the Initial Expiration Date or
the then applicable Extension Expiration Date (whichever is applicable), of
Tenant's election to extend, and (ii) at the time Landlord receives such Tenant
Election Notice, and upon the day immediately preceding the first day of such
Extension Term, Tenant shall not be in default under this Lease nor shall any
event have occurred which by the giving of notice or the lapse of time, or both,
would constitute a default under this Lease (unless Landlord elects in writing
to waive such default, which waiver shall be in Landlord's sole discretion). If
the Term is so extended, then on the first day of each such Extension Term, and
for the period until the next increase in the Base Monthly Rent pursuant to this
Lease, the Base Monthly Rent shall be increased to an amount equal to the
greater of (a) the initial Base Monthly Rent under this Lease multiplied by a
fraction whose numerator is the latest Index available as of the day immediately
preceding such Extension Term and whose denominator is the latest Index
available as of the Commencement Date, (b) the Base Monthly Rent increased in
accordance with Paragraph 8 of this Lease entitled "Rent" as if such Initial
Expiration Date or Extension Expiration Date is an Adjustment Date, or (c) the
then-current fair market rent for the Premises, based upon the prevailing fair
market rent for shopping Projects similar in type and size to the Project (the
"Fair Market Rent"), as determined by agreement between Landlord and Tenant, or
if Landlord and Tenant are unable to agree on the Fair Market Rent within 30
days after Landlord's receipt of the Tenant Election Notice, then the Fair
Market Rent shall be determined in accordance with the following appraisal
procedure: Within 40 days after Landlord's receipt of the Tenant Election
Notice, Landlord and Tenant shall each appoint a qualified M.A.I. real estate
appraiser with at least five years full-time commercial real estate appraisal
experience in the area in which the Premises are located. If either Landlord or
Tenant does not appoint such an appraiser within such period, then the sole
appraiser appointed shall determine the Fair Market Rent. Such two appraisers
appointed shall meet promptly and attempt to determine the Fair Market Rent. If
such two appraisers are unable to agree on the Fair Market Rent within 30 days
after the second such appraiser was appointed, then such two appraisers shall
appoint a third appraiser within ten days after the expiration of such 30-day
period. If the two appraisers are unable to agree within such ten-day period on
the appointment of a third appraiser, then such two appraisers shall request
that such third appraiser be appointed by the American Arbitration Association,
or its successor, or if such association is not then in existence and has no
successor, then by a similar entity selected by Landlord. Such third appraiser
must meet the qualifications set forth above for the first two appraisers and
shall be a person who has not previously acted in any capacity for either
Landlord or Tenant. Within 30 days after the
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9. Condition During Periods of Non-Use. During any period of time in which
Tenant is not continuously using and occupying the Premises, Tenant shall take
such measures as may be necessary or desirable, in Landlord's reasonable
opinion, to secure the Premises from break-ins and use by unauthorized persons,
to minimize the appearance of non-use, and to otherwise maintain the interior
and exterior portions of Tenant's Premises, including all windows and doors, in
first class condition and consistent with the manner in which the Premises were
to be maintained during Tenant's occupancy.
10. Use of Premises and Common Area.
10.1. Permitted Use of Premises. Tenant may use the Premises for the
Permitted Use and for no other use without Landlord's consent. Any change in the
Permitted Use shall require Landlord's prior written consent, which consent will
not unreasonably be withheld.
10.2. Compliance With Laws. Tenant shall comply with all laws
concerning the Premises and/or Tenant's use of the Premises, including, without
limitation, the obligation, at Tenant's sole cost, to alter, maintain, and
restore the Premises in compliance with all applicable laws, even if such laws
are enacted after the date of this Lease, even if compliance entails costs to
Tenant of a substantial nature. Such obligation to comply with laws shall
include without limitation compliance with Title III of the Americans With
Disabilities Act of 1990 (42 U.S.C. 12181 et seq.) (the "ADA"). If Tenant's use
of the Premises results in the need for modifications or alterations to any
portion of the Common Area or the Project in order to comply with the ADA, then
Tenant shall additionally be responsible for the cost of such modifications and
alterations. Any work performed by Tenant pursuant to this Paragraph 10.2 will
be subject to the provisions of Paragraph 37, below, entitled "Alterations".
10.3. Use of Common Area. Tenant's use of the Common Area shall at all
times comply with the provisions of all rules and regulations regarding such use
as Landlord may from time to time adopt including those set forth on attached
Exhibit "E" entitled "Rules". In no event shall the rights granted to Tenant to
use the Common Area include the right to store any property in the Common Area,
whether temporarily or permanently. Any property stored (whether temporarily or
permanently) in the Common Area may be removed by Landlord and disposed of, and
the cost of such removal and disposal shall be payable by Tenant upon demand.
Additionally, in no event shall Tenant use any portion of the Common Area for
loading, unloading, or parking, except in those areas specifically designated by
Landlord for such purposes, nor for any sidewalk sale or similar commercial
purpose.
10.4. General Covenants and Limitations on Use. Tenant shall not do,
bring, or keep anything in or about the Premises that will cause a cancellation
of any insurance covering the Premises. If the rate of any insurance carried by
Landlord is increased as a result of Tenant's use, Tenant shall pay to Landlord,
within ten days after Landlord delivers to Tenant a notice of such increase, the
amount of such increase. Furthermore, Tenant covenants and agrees that no
noxious or offensive activity shall be carried on, in or upon the Premises nor
shall anything be done or kept in the Premises which may be or become a public
nuisance or which may cause embarrassment, disturbance, or annoyance to others
in the Project, or on adjacent or nearby property. To that end, Tenant
additionally covenants and agrees that no light shall be emitted from the
Premises which is unreasonably bright or causes unreasonable glare; no sounds
shall be emitted from the Premises which are unreasonably loud or annoying; and
no odor shall be emitted from the Premises which is or might be noxious or
offensive to others in the Project or on adjacent or near-by property. Without
limiting the generality of the foregoing, all unsightly equipment, objects, and
conditions shall be kept enclosed within the Premises and screened from view; no
refuse, scraps, debris, garbage, trash, bulk materials, or waste shall be kept,
stored, or allowed to accumulate except as may be properly enclosed within the
Premises; the Premises shall not be used for sleeping or washing clothes, nor
for the preparation, manufacture, or mixing of anything that might emit any odor
or objectionable noises or lights onto the Project or nearby properties
(however, baking odors will not be deemed objectionable); and all pipes, wires,
poles, antennas, and other facilities for utilities or the transmission or
reception of audio or visual signals shall be kept and maintained enclosed
within the Premises. Tenant shall be solely responsible for the timely removal
of all refuse, scraps, debris, garbage, trash, bulk materials, or waste from the
Premises and the deposit thereof in the trash containers or dumpsters located
adjacent to the Premises. Further, Tenant shall not keep or permit to be kept
any bicycle, motorcycle, or other vehicle, nor any animal (excluding seeing-eye
dogs), bird, reptile, or other exotic creature in the Premises unless Tenant
operates a bona fide pet store, pet grooming facility, or other veterinary
medicine clinic, hospital, and/or related animal care facility under direct
operation and supervision of a State Licensed Veterinarian, and such use has
been specifically approved in writing by Landlord, which consent may be withheld
in Landlord's sole discretion. Neither Tenant nor Tenant's Invitees shall do
anything that will cause damage or waste to the Project. Neither the floor nor
any other portion of the Premises shall be overloaded. No machinery, apparatus,
or other appliance shall be used or operated in or on the Premises that will in
any manner injure, vibrate, or shake all or any part of the Project. In the
event of any breach of this Paragraph 10 by Tenant or Tenant's Invitees,
Landlord, at its election, may pay the cost of correcting such breach and Tenant
shall immediately, upon demand, reimburse Landlord for the cost thereof, plus a
supervisory fee in the amount of 15 percent of such cost.
11. Lease Expenses. Landlord intends to deliver to Tenant, on or about the
Commencement Date and prior to the commencement of each calendar year during the
Term, a written statement ("Estimated Statement") setting forth Landlord's
estimate of the Lease Expenses allocable to the calendar year during which the
Commencement Date occurs or such ensuing calendar year, whichever is applicable,
and "Tenant's Pro Rata Share" of such Lease Expenses. Landlord may, at its
option, during any calendar year, deliver to Tenant a revised Estimated
Statement, revising Landlord's estimate of the Lease Expenses, in accordance
with Landlord's most current estimate. Tenant shall pay to Landlord, on the
Commencement Date and on the first day of each month during the Term, as
Additional Rent, an amount ("Tenant's Monthly Payment") equal to one-twelfth
(or, during the first calendar year following the Commencement Date, a fraction,
the numerator of which is one and the denominator of which is the number of
calendar months during such calendar year following the Commencement Date) of
Tenant's Pro Rata Share of the Lease Expenses, as estimated by Landlord in the
most recently delivered Estimated Statement. Within approximately 90 days after
the end of each calendar year during the Term, Landlord intends to deliver to
Tenant a written statement ("Actual Statement") setting forth the actual Lease
Expenses allocable to the preceding calendar year and back-up invoices if
requested by Tenant. Tenant's failure to object to Landlord regarding the
contents of an Actual Statement, in writing, within 30 days after delivery to
Tenant of such Actual Statement, shall constitute Tenant's absolute and final
acceptance and approval of the Actual Statement. If the sum of Tenant's Monthly
Payments actually paid by Tenant during any calendar year exceeds Tenant's Pro
Rata Share of the actual Lease Expenses allocable to such calendar year, then
such excess will be credited against future Tenant's Monthly Payments, unless
such calendar year was the calendar year during which the Expiration Date occurs
(the "Last Calendar Year"), in which event either (i) such excess shall be
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credited against any monetary default of Tenant under this Lease, or (ii) if
Tenant is not in default under this Lease, then Landlord shall pay to Tenant
such excess. If the sum of Tenant's Monthly Payments actually paid by Tenant
during any calendar year is less than Tenant's Pro Rata Share of the actual
Lease Expenses allocable to such calendar year, then Tenant shall, within 30
days of delivery of the Actual Statement, pay to Landlord the amount of such
deficiency. Landlord's delay in delivering any Estimated Statement or Actual
Statement will not release Tenant of its obligation to pay any Tenant's Monthly
Payment or any such excess upon receipt of the Estimated Statement or the Actual
Statement, as the case may be. For purposes of this Lease, the term "Tenant's
Pro Rata Share" will mean and refer to the portion of the Lease Expenses payable
by Tenant. Tenant's Pro Rata Share will be originally calculated as of the
Commencement Date and will be re-calculated as of each January 1 during the Term
as the fractional portion of the total Lease Expenses determined by multiplying
such Lease Expenses by a fraction, the numerator of which is the rentable square
footage of the Premises, and the denominator of which is the total aggregate
rentable square footage of the Project. In the event the rentable square footage
in the Project changes from time to time due to the addition or removal of
buildings, such change will not result in a recalculation of Tenant's Pro Rata
Share until the January 1 next following such occurrence, as if such change had
not taken place until such following January 1. The references in this paragraph
to the actual Lease Expenses allocable to a calendar year, shall include (i) if
such calendar year is the calendar year during which the Commencement Date
occurs, the actual Lease Expenses allocable to the portion of such calendar year
following the Commencement Date, and (ii) if such calendar year is the Last
Calendar Year, the actual Lease Expenses allocable to the portion of the Last
Calendar Year prior to the Expiration Date.
12. Utilities and Services. Tenant shall make all arrangements for and pay
the cost of all utilities and services (including, without limitation, their
connection charges and taxes thereon) furnished to the Premises or used by
Tenant, including, without limitation, electricity, water, heating, ventilating,
air-conditioning, oil, steam for heating, sewer, gas, telephone, communication
services, trash collection and removal, janitorial, cleaning, and window
washing, if applicable. Landlord may, at its election, furnish to the Premises
any of the utilities and services set forth in the preceding sentence, in which
event Tenant shall reimburse Landlord for Landlord's cost of furnishing such
utilities and services. Landlord shall not be liable for failure to furnish any
utilities or services to the Premises when such failure results from causes
beyond Landlord's reasonable control. If Landlord constructs new or additional
utility facilities, including, without limitation, wiring, plumbing, conduits,
and/or mains, resulting from Tenant's changed or increased utility requirements,
Tenant shall on demand promptly pay to Landlord the total cost of such items.
The discontinuance of any utilities or services, including, without limitation,
Landlord's discontinuance or failure to provide any of the utilities or services
furnished by Landlord to the Premises, shall neither be deemed an actual or
constructive eviction, nor release Tenant from its obligations under this Lease
including, without limitation, Tenant's obligation to pay Rental. If any
governmental authority having jurisdiction over the Project imposes mandatory
controls, or suggests voluntary guidelines applicable to the Project, relating
to the use or conservation of water, gas, electricity, power, or the reduction
of automobile emissions, Landlord, at its sole discretion, may comply with such
mandatory controls or voluntary guidelines and, accordingly, require Tenant to
so comply. Landlord shall not be liable for damages to persons or property for
any such reduction, nor shall such reduction in any way be construed as a
partial eviction of Tenant, cause an abatement of rent (unless such reduction is
occasioned by Landlord's gross negligence or willful misconduct), or operate to
release Tenant from any of Tenant's obligations under this Lease.
13. General Maintenance Obligations.
13.1. Tenant's Duties. Tenant shall at its sole cost (i) maintain,
repair, replace, and repaint, all in first class condition, all portions of the
Premises (except those portions of the Premises to be maintained by Landlord as
expressly set forth below), (ii) arrange for the removal of trash from the
Premises, (iii) furnish reasonable janitorial services within the Premises, (iv)
maintain and repair any plate-glass windows appurtenant to the Premises and all
interior and exterior doors, including roll-up doors, (v) maintain and repair
all telephone lines and wiring and all wiring, fixtures, lamps, and tubes
serving the interior lighting within the Premises, and (vi) maintain all grease
traps serving the Premises, using a professional cleaning company on a schedule
acceptable to Landlord. Tenant shall provide Landlord with current copies of
such cleaning contracts throughout the Term. Notwithstanding anything to the
contrary in Paragraph 13.2, below, entitled "Landlord's Duties", Tenant shall
additionally repair, replace, and be liable for any damage to the Project
resulting from the acts or omissions of Tenant or Tenant's Invitees, including,
without limitation, any damage to the roof or damage relating to a roof
penetration caused by Tenant or Tenant's Invitees. If Tenant fails to maintain,
repair, replace, or repaint any portion of the Premises as provided above, or if
Tenant or Tenant's Invitees damage any portion of the Project, then Landlord
may, at its election, maintain, repair, replace, or repaint any such portion of
the Premises or the Project and Tenant shall promptly reimburse Landlord for
Landlord's actual cost thereof, plus a supervisory fee in the amount of 15
percent of such actual cost. Landlord, at Landlord's sole discretion, may
require Tenant to use specific contractors or construction/repair techniques for
the purpose of maintaining warranties or the integrity of the Premises or the
Project.
13.2. Landlord's Duties. Landlord shall maintain and repair only the
Common Area and the structural parts of the buildings within the Project, which
are only the foundations, exterior walls (excluding glass and doors), and the
structural and waterproofing membranes portions of the roof (excluding
skylights) along with those portions of any utility lines, pipes, and conduits
serving the Project as a whole (as opposed to those lines, pipes, and conduits
exclusively serving the Premises, which will be Tenant's responsibility pursuant
to Paragraph 13.1, above). Landlord's failure to perform its obligations set
forth in the preceding sentence will not release Tenant of its obligations under
this Lease, including, without limitation, Tenant's obligation to pay Rental.
Tenant waives the provisions of California Civil Code Section 1942 (or any
successor statute), and any similar principals of law with respect to Landlord's
obligations for tenantability of the Premises and Tenant's right to make repairs
and deduct the expense of such repairs from rent.
14. Pest Control. Tenant shall, at its sole cost, maintain a pest and
termite control contract with a reputable company with respect to the Premises,
which contract shall provide for inspection and treatment, if necessary, of not
less than four times per year. Upon request by Landlord, Tenant shall furnish
Landlord with a copy of such pest and termite control contract.
15. HVAC. Tenant shall, at Tenant's sole cost, (i) operate, maintain,
repair, and replace the heating, air-conditioning and ventilation system and
machinery that serve the Premises, and (ii) maintain a service agreement with
respect to such heating, air-conditioning and ventilation system and machinery,
reasonably acceptable to Landlord (a copy of which Tenant shall furnish to
Landlord promptly upon the execution of this Lease). Notwithstanding the
foregoing, in the event such systems and machinery cannot be repaired and
require replacement, then the cost of such replacement will be split between
Landlord and Tenant, with Tenant paying the fractional portion thereof
(including installation) where the numerator of such fraction is the remaining
Term of this Lease (including extensions), and the denominator is the estimated
useful life of such equipment (determined in accordance with generally-accepted
accounting principles). Tenant shall make all
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arrangements for and pay the cost of all utilities and services with respect to
the heating and air-conditioning unit that serves the Premises, including,
without limitation, electricity to operate such heating and air-conditioning
unit.
16. Personal Property Taxes. Tenant shall pay before delinquency all taxes,
assessments, license fees, and other charges that are levied or assessed
against, or based upon the value of, Tenant's Personal Property ("Personal
Property Taxes"). On demand by Landlord, Tenant shall furnish Landlord with
satisfactory evidence of such payments. If any such Personal Property Taxes are
levied against Landlord or Landlord's property, or if the assessed value of the
Premises is increased by the inclusion of a value placed on Tenant's Personal
Property, and if Landlord pays such Personal Property Taxes or any taxes based
on the increased assessments caused by Tenant's Personal Property, then Tenant,
on demand, shall immediately reimburse Landlord for the sum of such Personal
Property Taxes so levied against Landlord, or the proportion of taxes resulting
from such increase in Landlord's assessment. Landlord may, at its election, pay
such Personal Property Taxes or such proportion, and receive such reimbursement,
regardless of the validity of the levy.
17. Net Lease. This Lease is intended to be a completely "net lease" and,
except as otherwise expressly provided in this Lease, Tenant shall have sole
responsibility for the care, maintenance, and management of the Premises as
though Tenant were the owner of the Premises. Tenant shall be liable for and
bear all of the costs of the Premises, except as expressly provided to the
contrary in this Lease.
18. Common Area. Tenant shall have the non-exclusive right to use the
Common Area. Landlord shall manage, repair, operate, and maintain the Common
Area; however, Landlord's failure to perform its obligations set forth in the
preceding sentence shall not release Tenant of its obligations under this Lease,
including, without limitation, Tenant's obligation to pay Rental. Landlord may,
at its election, (i) close any of the Common Area to the minimum extent required
in the opinion of Landlord's legal counsel to prevent a dedication of any of the
Common Area or the accrual of any rights of any person or of the public to the
Common Area, (ii) close temporarily any of the Common Area for maintenance
purposes, (iii) designate other property outside the boundaries of the Real
Property to become part of the Common Area, and/or (iv) make any changes to the
Common Area, or any part of the Real Property, including, without limitation,
changes to projects or other improvements, the addition of new projects or other
improvements, and changes in the location of driveways, entrances, exits,
vehicular parking spaces, or the direction of the flow of traffic.
19. Security Measures. Tenant acknowledges (i) that the Base Monthly Rent
does not include the cost of any security measures for any portion of the Real
Property, (ii) that Landlord shall have no obligation to provide any such
security measures, and (iii) that Landlord has made no representation to Tenant
regarding the safety or security of the Real Property. If Landlord provides any
security measures at any time, then Landlord shall not be obligated to continue
providing such security measures and Landlord shall not be obligated to provide
such security measures with any particular standard of care. Tenant assumes all
responsibility for the security and safety of Tenant and/or Tenant's Invitees.
Tenant releases Landlord from all claims for damage, loss or injury to Tenant,
Tenant's Invitees, and/or to the personal property of Tenant and/or of Tenant's
Invitees, even if such damage, loss or injury is caused by or results from the
criminal or negligent acts of third parties. Landlord shall have no duty to warn
Tenant of any criminal acts or dangerous conduct that has occurred in or near
the Premises, regardless of Landlord's knowledge of such crimes or conduct.
20. Signs. Tenant shall not place, construct, or maintain any sign,
advertisement, awning, banner or other exterior decoration in the Premises or on
the Project without Landlord's prior written consent, which consent will not be
unreasonably withheld. Any sign that Tenant is permitted by Landlord to place,
construct, or maintain shall comply with Landlord's sign criteria applicable to
Landlord's other tenants in the Project, including, without limitation, criteria
relating to size, color, shape, graphics and location (collectively, the "Sign
Criteria"), and shall comply with any applicable laws, ordinances, rules or
regulations, and Tenant shall obtain any approval required by such laws.
Landlord makes no representation with respect to Tenant's ability to obtain such
approval. Tenant shall, at Tenant's sole cost, make any changes to any sign,
advertisement, awning, banner or other exterior decoration in the Premises or on
the Project as required by any new or revised applicable laws, ordinances, rules
or regulations, or any changes in the Sign Criteria.
21. Parking. Subject to the remaining provisions of this paragraph, as long
as Tenant is not in default under this Lease, Landlord grants to Tenant the
right to the non-exclusive use of the parking area adjacent to and serving the
Project (the "Parking Area"). Tenant's use of the Parking Area shall be subject
to such rules as Landlord may, in its sole discretion, adopt from time to time
with respect to the Parking Area, including, without limitation, (i) rules
providing for the payment of charges or fees by users of the Parking Area
(including, without limitation, Tenant) in order to reimburse Landlord for the
expense of a parking attendant and/or an automated parking system, (ii) rules
designed to maintain the availability of accessible parking spaces for clients,
guests, and invitees of tenants of the Project, (iii) rules limiting tenants of
the Project (including, without limitation, Tenant) to the use of certain
parking spaces or certain portions of the Parking Area (the "Restricted Parking
Area"), (iv) rules limiting each tenant of the Project (including, without
limitation, Tenant) to the use of a restricted number of parking spaces such
that the parking spaces in the Restricted Parking Area shall be allocated fairly
to all the tenants of the Project (including, without limitation, Tenant), and
(v) rules designating a particular area as the "employee parking area", in which
event Tenant shall cause its employees to exclusively park in such employee
parking area. Notwithstanding anything to the contrary in this paragraph,
Landlord may, at its election, construct upon or otherwise alter in any manner
the Parking Area provided that Landlord makes available to Tenant elsewhere on
the Land, or within a reasonable distance from the Land, legally required
amounts of parking.
22. Rules. Tenant and Tenant's Invitees shall observe faithfully and comply
strictly with the rules that are set forth on attached Exhibit "E" entitled
"Rules" and such other reasonable rules as Landlord may from time to time adopt
for the Premises. Landlord shall have no duty or obligation to enforce any rule
against any other tenant, and Landlord shall not be liable to Tenant for
violation of any rule by any other tenant, or any other tenant's agents,
employees, officers, independent contractors, customers, invitees, visitors, or
licensees.
23. Early Access Insurance. At any time prior to the Commencement Date that
Tenant is making any Alterations to the Premises, (i) Tenant shall, at Tenant's
sole cost, maintain (a) "Builder's Risk" insurance with respect to the Premises,
reasonably satisfactory to Landlord, and (b) all of the insurance to be
maintained by Tenant during the Term, including, without limitation, public
liability and property damage insurance, fire and extended coverage insurance,
boiler and machinery insurance and workers' compensation insurance, (ii) the
provisions of Paragraph 30 of this Lease entitled "Indemnity and Exemption of
Landlord from Liability" shall be applicable, and (iii) the provisions of
Paragraph 12 of this Lease entitled "Utilities and Services" shall be
applicable. Any Alterations pursuant to this paragraph
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shall be subject to all the provisions of Paragraph 37 of this Lease entitled
"Alterations". Nothing in this paragraph shall be construed to permit Tenant to
enter the Premises, or to make any Alterations, prior to the Commencement Date.
24. Plate-Glass Insurance. if any plate-glass windows are located on the
Premises, Tenant shall, at its sole cost, maintain full coverage plate-glass
insurance on the Premises, under which Landlord and any Lender shall be named as
an additional insured.
25. Public Liability and Property Damage Insurance. Tenant shall, at
Tenant's sole cost, maintain public liability and property damage insurance (i)
with a single combined single limit of not less than $2,000,000.00, (ii)
insuring (a) against all liability of Tenant and Tenant's Invitees arising out
of or in connection with Tenant's use or occupancy of the Premises, and (b)
performance by Tenant of the indemnity provisions set forth in this Lease, (iii)
naming Landlord and any Lender as additional named insureds, (iv) containing
cross-liability endorsements, and (v) which includes products liability
insurance (if Tenant is to sell merchandise or other products derived from the
Premises). Not more frequently than once every two years, if, in the opinion of
Landlord, the amount of such insurance at that time is not adequate, then Tenant
shall increase such insurance as reasonably required by Landlord.
26. Fire and Extended Coverage Insurance. Tenant at its sole cost shall
maintain on Tenant's Alterations and Personal Property a policy of standard fire
and extended coverage insurance, with vandalism and malicious mischief
endorsements, coverage with respect to increased costs due to Project
ordinances, demolition coverage, boiler and machinery insurance, sprinkler
leakage coverage, and business interruption insurance, in each case to the
extent of at least 100 percent of full replacement value, issued in the names of
Landlord, Tenant and Landlord's Lender, as their interests may appear. Such
"full replacement value" shall be determined by the company issuing such policy
at the time the policy is initially obtained. Not more frequently than once
every two years, either Landlord or Tenant may notify the other that it elects
to have such replacement value redetermined by an insurance company. Such
redetermination shall be made promptly and in accordance with the rules and
practices of the Board of Fire Underwriters, or a like board recognized and
generally accepted by the insurance company, and Landlord and Tenant shall be
promptly notified of the results by the company. Such policy shall be promptly
adjusted according to such redetermination.
27. Insurance Generally. If Tenant fails during the Term to maintain any
insurance required to be maintained by Tenant under this Lease, then Landlord
may, at its election, arrange for any such insurance, and Tenant shall reimburse
Landlord for any premiums for any such insurance within five days after Tenant
receives a copy of the premium notice. If any such premiums are allocable to a
period, a portion of which occurs during the Term and the remainder of which
occurs before or after the Term, then such premiums shall be apportioned between
Landlord and Tenant based upon the number of days during such period that occur
during the Term and the number of days that occur before or after the Term, such
that Tenant pays for the premiums that are allocable to the period during the
Term. Insurance required to be maintained by Tenant under this Lease (i) shall
be issued as a primary policy by insurance companies authorized to do business
in the state in which the Premises are located with a Best's Rating of at least
"A" and a Best's Financial Size Category rating of at least "X," as set forth in
the most current edition of "Best's Insurance Reports," or such higher rating as
may be required by any Lender, (ii) shall name Landlord and any Lender as
additional named insureds, (iii) shall constitute "occurrence" based coverage,
without provision for subsequent conversion to "claims" based coverage, and (iv)
shall not be cancelable or subject to reduction of coverage or other
modification except after 30-days' prior written notice to Landlord and any
Lender. Tenant shall, at least 30 days prior to the expiration of each such
policy, furnish Landlord with a renewal or "binder" of such policy. Tenant shall
promptly deliver to Landlord copies of such policy or policies or certificates
evidencing the existence and amounts of such insurance together with evidence of
payment of premiums.
28. Landlord's Insurance. Landlord may, at its election, maintain any of
the following insurance, in such amounts and with such limits as Landlord shall
determine in its reasonable discretion: (i) Public liability and property damage
insurance, and products liability insurance; (ii) Fire and extended coverage
insurance, with vandalism and malicious mischief endorsements, coverage with
respect to increased costs due to Project ordinances, demolition coverage,
boiler and machinery insurance, sprinkler leakage coverage and business
interruption insurance; (iv) Boiler and Machinery Insurance; (v) Fidelity
insurance, (vi) Flood and/or Earthquake insurance; (vii) Plate-glass insurance;
and (viii) Rental interruption and/or business interruption insurance. Landlord
shall notify Tenant of Landlord's arranging any such insurance. The premiums,
costs, expenses, and deductibles (or similar costs or charges) of and/or with
respect to any such insurance (all of the preceding, collectively, "Insurance
Expenses") shall be included in Lease Expenses.
29. Waiver of Subrogation. Landlord and Tenant release each other, Tenant's
Invitees, Landlord's Representatives, and Landlord's guests, invitees, customers
and licensees from all claims for damage, loss, or injury to the Real Property,
to Tenant's Personal Property and to the fixtures and Alterations of either
Landlord or Tenant in or on the Real Property to the extent such damage, loss,
or injury is covered by any insurance policies carried by Landlord or Tenant and
in force at the time of such damage. Subject to the remaining provisions of this
paragraph, Landlord and Tenant shall cause each insurance policy obtained by it
pursuant to this Lease to provide that the insurance company waives all right of
recovery by way of subrogation against Landlord or Tenant in connection with any
damage, loss, or injury covered by such policy. If any such policy cannot be
obtained with a waiver of subrogation, or is obtainable only by the payment of
an additional premium charge above that charged by insurance companies issuing
policies without waiver of subrogation, the party undertaking to obtain such
policy (the "Undertaking Party") shall so notify the other party (the "Notified
Party"). The Notified Party shall, within ten days after the giving of such
notice, either obtain such policy from a company that is reasonably satisfactory
to the Undertaking Party and that will issue such policy with a waiver of
subrogation, or agree to pay the additional premium if such policy is obtainable
at additional cost. If such policy cannot be obtained with a waiver of
subrogation or the Notified Party refuses to pay such additional premium, then
the Undertaking Party shall not be required to obtain a waiver of subrogation
with respect to such policy.
30. Indemnity and Exemption of Landlord from Liability. Tenant hereby
indemnifies Landlord against all Claims (as defined below) and all costs,
expenses and attorneys' fees incurred in the defense of any such Claims or any
action or proceeding brought on any of such Claims. For purposes of this Lease,
"Claims" will mean and refer to all liabilities, damages, losses, costs,
expenses, attorneys' fees and claims (except to the extent they result from
Landlord's grossly negligent acts or willful misconduct) arising from or which
seek to impose liability under or because of (i) Tenant's or Tenant's Invitees'
use of the Premises or the Project, (ii) the conduct of Tenant's business, (iii)
any activity, work or things done, permitted, or suffered by Tenant or any of
Tenant's Invitees in or about the Premises or elsewhere, (iv) any breach or
default in the timely performance of any obligation to be performed by Tenant
under this Lease, and/or (v) any negligence or intentional misconduct of Tenant
or any of Tenant's Invitees. If any action or proceeding is brought against
Landlord by reason of any such Claims,
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Tenant upon notice from Landlord shall defend such action or proceeding at
Tenant's sole cost by legal counsel satisfactory to Landlord. Except to the
extent caused by Landlord's grossly negligent acts or willful misconduct, Tenant
assumes all risk of, Tenant waives all claims against Landlord in respect of,
and Landlord shall not be liable for, any of the matters set forth above in this
paragraph or any of the following: injury to Tenant's business, loss of income
from such business, or damage or injury to the goods, wares, merchandise, or
other property or the person of Tenant, Tenant's Invitees or any other persons
in, upon, or about the Premises, whether such damage, loss or injury is caused
by or results from criminal acts, fire, steam, electricity, gas, water, rain,
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air-conditioning or lighting fixtures, or any other cause,
conditions arising upon the Premises, or other sources or places, and regardless
of whether the cause of such damage, loss, or injury or the means of repairing
such damage, loss, or injury is inaccessible to Tenant. This Lease shall not be
affected or impaired by any change to any part of the Real Property or any
sidewalks, streets, or improvements nearby the Real Property.
31. Destruction. If the Real Property is totally or partially destroyed
during the Term, rendering the Premises totally or partially inaccessible or
unusable, then, subject to the remainder of this paragraph, (i) Landlord shall
restore the Real Property to substantially the same condition as it was in
immediately before such destruction, (ii) Landlord shall not be required to
restore Tenant's Alterations, or Tenant's Personal Property, unless they are an
integral part of the Premises and specifically covered by insurance proceeds
received by Landlord, such excluded items being the sole responsibility of
Tenant to restore, (iii) such destruction shall not terminate this Lease, and
(iv) all obligations of Tenant under this Lease shall remain in effect, except
that all Rent shall be abated or reduced, between the date of such destruction
and the date of substantial completion of restoration, by the ratio of (a) the
area of the Premises rendered unusable or inaccessible by the destruction to (b)
the usable area of the Premises prior to such destruction. Notwithstanding
anything to the contrary in this Lease, Landlord may, at its election, terminate
this Lease by so notifying Tenant in writing on or before the later of 60 days
after such destruction or 60 days after Landlord's receipt of the proceeds from
insurance maintained by Landlord, if (1) then-existing laws do not permit such
restoration, (2) such destruction occurred during the last year of the Term, (3)
such destruction exceeded 25 percent of the then-replacement value of the
Premises or the Real Property, or (4) Landlord determines that the cost of such
restoration exceeds the amount of insurance proceeds relating to such
destruction actually received by Landlord from insurance maintained by Landlord.
Additionally, Tenant shall have the right to terminate this Lease unless
Landlord promptly notifies Tenant of its intention to restore the Premises and
such restoration can reasonably be completed within 120 days of the date of the
destruction. If Landlord so terminates this Lease, then (A) Landlord shall have
no obligation to restore the Real Property, (B) Landlord shall retain all
insurance proceeds relating to such destruction, and (C) this Lease shall
terminate as of 30 days after such notice of termination from Landlord to
Tenant. If Landlord restores the Premises as provided above, then Tenant waives
the provisions of California Civil Code Sections 1932(2) and 1933(4) or any
successor statute with respect to any destruction of the Premises.
32. Condemnation. If during the Term, or during the period of time between
the execution of this Lease and the Commencement Date, there is any taking of
all or any part of the Premises or any interest in this Lease by the exercise of
any governmental power, whether by legal proceedings or otherwise, by any public
or quasi-public authority, or private corporation, or individual, having the
power of condemnation (any of the preceding a "Condemnor"), or a voluntary sale
or transfer by Landlord to any Condemnor, either under threat of condemnation or
while legal proceedings for condemnation are pending (any of the preceding, a
"Condemnation"), the rights and obligations of Landlord and Tenant shall be
determined pursuant to this paragraph. If such Condemnation is of the entire
Premises, then this Lease shall terminate on the date the Condemnor has a right
to possession of the Premises (the "Date of Condemnation"). A temporary
Condemnation of the Premises, or any part of the Premises, for less than 180
days, shall not constitute a Condemnation under this paragraph, but Tenant shall
be entitled to abatement of Rent during the period of such temporary
Condemnation. If such Condemnation is of any portion, but not all, of the
Premises, then this Lease shall remain in effect, except that, if the remaining
portion of the Premises is rendered unsuitable for Tenant's continued use of the
Premises, then Tenant may elect to terminate this Lease, by so notifying
Landlord in writing (the "Termination Notice") within 30 days after the date
that the nature and extent of the Condemnation have been determined. Such
termination shall be effective on the earlier of (i) the date that is 30 days
after the giving of the Termination Notice, and (ii) the Date of Condemnation.
If Tenant does not give to Landlord the Termination Notice within such 30-day
period, then all obligations of Tenant under this Lease shall remain in effect,
except that (unless the Premises are restored as set forth below) all Rent shall
be reduced by the ratio of (a) the area of the Premises taken to (b) the area of
the Premises immediately prior to the Date of Condemnation. Notwithstanding
anything to the contrary in this paragraph, if, within 20 days after Landlord's
receipt of the Termination Notice, Landlord notifies Tenant that Landlord at its
cost will add to the remaining Premises (or substitute for the Premises other
comparable space in the Project) so that the area of the Premises will be
substantially the same after the Condemnation as they were before the
Condemnation, and Landlord commences the restoration promptly and completes it
within 150 days after Landlord so notifies Tenant, then all obligations of
Tenant under this Lease shall remain in effect, except that all Rent shall be
abated or reduced as provided in the preceding sentence during the period from
the Date of Condemnation until the completion of such restoration. Unless
Landlord restores the Premises pursuant to the preceding sentence, or unless
Tenant gives to Landlord the Termination Notice within the relevant 30-day
period, Tenant at its sole cost shall accomplish any restoration required by
Tenant to use the Premises. All compensation, sums, or anything of value
awarded, paid, or received on a total or partial Condemnation (the "Award")
shall belong to and be paid to Landlord. Tenant shall have no right to any part
of the Award, and Tenant hereby assigns to Landlord all of Tenant's right, title
and interest in and to any part of the Award, except that Tenant shall receive
from the Award any sum paid expressly to Tenant from the Condemnor expressly for
loss of good will of Tenant's business and Tenant's furniture, fixtures, and
equipment. Landlord and Tenant waive the provisions of any statute (including,
without limitation, California Code of Civil Procedure Section 1265.130 or any
successor statute) that allows Landlord or Tenant to petition the superior court
(or any other local court) to terminate this Lease in the event of a partial
taking of the Premises.
33. Hazardous Substances. Landlord hereby notifies Tenant, and Tenant
hereby acknowledges that prior to the leasing of the Premises pursuant to this
Lease, Tenant has been notified, pursuant to California Health and Safety Code
Section 25359.7 (or any successor statute), that Landlord knows, or has
reasonable cause to believe, that certain hazardous substances (as such term is
used in such Section 25359.7), including, without limitation, common cleaning
supplies, office supplies and consumer products, may have come to be located on
or beneath the Premises. Tenant hereby indemnifies Landlord against all
Environmental Claims (as defined below) and all costs, expenses and attorneys'
fees incurred in the defense of any such Environmental Claims or any action or
proceeding brought on any of such Environmental Claims. For purposes of this
paragraph, "Environmental Claims" will mean and refer to all liabilities,
damages, losses, costs, expenses, attorneys' fees and claims (except to the
extent they result from Landlord's grossly negligent acts or willful
misconduct), arising from or which seek to impose liability under or because of
any environmental law (which will mean and refer to any federal, state or local
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law, statute, regulation, ordinance, guideline or common law principle relating
to public health or safety or the use or control of the environment, including,
without limitation, the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Carpenter-Presley-Tanner Hazardous
Substance Account Act, the California Hazardous Waste Control Law, the Federal
Clean Air Act, the California Air Resources Act, the Federal Clean Water Act,
the California Porter-Cologne Water Quality Control Act, the Federal Resource
Conservation and Recovery Act, the California Nejedly-Z'berg-Dills Solid Waste
Management and Recovery Act, and California Health and Safety Code Section
25359.7) for, discharges, releases or threatened releases of noise, pollutants,
contaminants, herbicides, pesticides, insecticides or hazardous or toxic wastes,
substances or materials (any of the preceding a "Hazardous Material") arising
out of Tenant's tenancy or the acts of Tenant or Tenant's Invitees, into ambient
air, water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants or hazardous or toxic wastes, substances or materials
from, on, under or above the Premises. Neither Tenant nor any of Tenant's
Invitees shall use, manufacture, store or dispose of any hazardous wastes, toxic
substances and other pollutants, contaminants and environmental conditions which
are or could (i) be detrimental to the Real Property, human health or the
environment, (ii) be in violation of any governmental laws or regulations, or
(iii) adversely affect the value of the Premises. If the Premises are
contaminated by any Hazardous Material during the Term, then Tenant shall
promptly (iv) notify Landlord in writing of such contamination, and (v) perform
all remediation required by Landlord (to Landlord's satisfaction), at Tenant's
sole cost, necessary to return the Premises to at least as good a condition as
the Premise are in as of the date of this Lease. If Tenant does not promptly
commence and diligently pursue such remediation, then Landlord may, at
Landlord's election, but at Tenant's sole cost, perform such remediation or
cause such remediation to be performed. Tenant shall not be liable for any such
matters arising prior to the date possession of the Premises is delivered to
Tenant unless caused by Tenant.
34. Prohibition Against Asbestos-Containing Materials. Tenant may not allow
or permit any materials which contain asbestos in any form or concentration
("Asbestos-Containing Materials") to be used or stored in the Premises or used
in the construction of any improvements or alterations to the Premises,
including, without limitation, construction materials and supplies. Such
prohibition against Asbestos-Containing Materials shall apply regardless of
whether the Asbestos-Containing Materials may be considered safe or approved for
use by a manufacturer, supplier, or governmental authority, or by common use or
practice. Landlord shall have the right, upon reasonable notice, to enter upon
and conduct inspections of the Premises to determine Tenant's compliance with
this paragraph. If Tenant allows or permits Asbestos- Containing Materials to be
used or stored in the Premises or used in the construction of any improvements
or alterations to the Premises, (i) Tenant shall, upon notice from Landlord,
immediately remove such Asbestos-Containing Materials at Tenant's sole cost,
(ii) such removal shall comply with all applicable laws, regulations, and
requirements concerning asbestos and the removal and disposal of
Asbestos-Containing Materials, (iii) Tenant shall reimburse Landlord for all
expenses incurred in connection with any inspection of the Premises conducted by
Landlord, and (iv) unless Tenant completes such removal within 30 days after
notice from Landlord, Landlord may, at its election, do either or both of the
following: (a) declare Tenant in breach of this Lease and terminate this Lease
upon ten days' prior written notice to Tenant, and (b) remove and dispose of the
Asbestos-Containing Materials and obtain reimbursement from Tenant for the cost
of such removal and disposal. Tenant shall indemnify Landlord and Landlord's
directors, officers, employees, and agents against all costs, liability,
expenses, penalties, and claims for damages, including, without limitation,
litigation costs and attorneys' fees, arising from (1) the presence of
Asbestos-Containing Materials upon the Premises, to the extent that such
Asbestos-Containing Materials are used or stored in the Premises or used in the
construction of any improvements or alterations to the Premises by Tenant or
Tenant's agents, employees, representatives, or independent contractors, (2) any
lawsuit, settlement, governmental order, or decree relating to the presence,
handling, removal, or disposal of Asbestos-Containing Materials upon or from the
Premises, to the extent that such Asbestos-Containing Materials are used or
stored in the Premises or used in the construction of any improvements or
alterations to the Premises by Tenant or Tenant's agents, employees,
representatives or independent contractors, or (3) Tenant's failure to perform
its obligations to remove such Asbestos-Containing Materials under this
paragraph.
35. [INTENTIONALLY DELETED]
36. Access by Landlord. Landlord and any of Landlord's Representatives
shall have the right to enter the Premises at all reasonable times, during
normal business hours if feasible under the circumstances, and upon reasonable
notice, if feasible under the circumstances, (i) to determine whether the
Premises are in Good Condition or whether Tenant is complying with its
obligations under this Lease, (ii) to do any necessary maintenance or make any
restoration to the Premises that Landlord has the right or obligation to
perform, (iii) to serve, post, or keep posted any notices required or allowed
under this Lease, (iv) to post "for sale" signs and, during the final year of
the Term, "for rent", or "for lease" signs, (v) to show the Premises to brokers,
agents, buyers, tenants, or other persons interested in a listing of, financing,
purchasing, or occupying the Premises or any portion of the Premises, and (vi)
to shore the foundations, footings, and walls of the Real Property and to erect
scaffolding and protective barricades around and about the Premises, but not so
as to prevent entry to the Premises and to do any other act or thing necessary
for the safety or preservation of the Premises if any excavation or other
construction is undertaken or is about to be undertaken on any adjacent property
or nearby street. Landlord's rights under this paragraph extend with Landlord's
consent to the owner of adjacent property on which excavation or construction is
to take place and the adjacent property owner's agents, employees, officers and
contractors. Landlord shall not be liable for any inconvenience, disturbance,
loss of business, nuisance, or other damage arising out of any entry on the
Premises as provided in this paragraph except damage resulting directly from the
grossly negligent acts of Landlord or Landlord's Representatives. Tenant shall
not be entitled to abatement or reduction of Base Monthly Rent or Rental because
of the exercise by Landlord of any rights under this paragraph unless such
exercise by Landlord prevents Tenant from reasonable access to and use of the
Premises.
37. Alterations. Tenant shall not make any alterations, improvements,
additions, installations, or changes of any nature in or to the Premises (any of
the preceding, "Alterations") without Landlord's prior written consent which
consent shall not be unreasonably withheld. At least 15 days prior to making any
Alterations, Tenant shall submit to Landlord, in written form, proposed detailed
plans of such Alterations. Tenant shall, prior to the commencement of any
Alterations, at Tenant's sole cost, (i) acquire (and deliver to Landlord a copy
of) a permit from appropriate governmental agencies to make such Alterations
(any conditions of which permit Tenant shall comply with, at Tenant's sole cost,
in a prompt and expeditious manner), (ii) provide Landlord with ten days' prior
written notice of the date the installation of the Alterations is to commence,
so that Landlord can post and record an appropriate notice of
non-responsibility, and (iii) obtain (and deliver to Landlord proof of)
reasonably adequate workers' compensation insurance with respect to any of
Tenant's employees installing or involved with such Alterations (which insurance
Tenant shall maintain in force until completion of the Alterations). All
Alterations shall upon installation become the property of Landlord and shall
remain on and be surrendered with the Premises on the Expiration Date, except
that Landlord may, at its election, require Tenant to remove any or all of the
Alterations, by so notifying Tenant in writing on or before the
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Expiration Date, in which event, Tenant shall, at its sole cost, on or before
the Expiration Date, repair and restore the Premises to the condition of the
Premises prior to the installation of such Alterations to be removed. Tenant
shall pay all costs for Alterations and other construction done or caused to be
done by Tenant. Tenant shall keep the Premises free and clear of all mechanics'
liens resulting from Alterations or other construction. Tenant may, at its
election, contest the correctness or validity of any such lien provided that (a)
immediately on demand by Landlord, Tenant procures and records a lien release
bond, issued by a corporation satisfactory to Landlord and authorized to issue
surety bonds in the state in which the Premises are located, in an amount equal
to 150 percent of the amount of the claim of lien, which bond meets the
requirements of California Civil Code Section 3143 or any successor statute, and
(b) Landlord may, at its election, require Tenant to pay Landlord's attorneys'
fees and costs in participating in such an action.
38. Surrender of Premises and Holding Over. On the Expiration Date, (i)
Tenant shall surrender to Landlord the Premises and all Alterations in Good
Condition except for Alterations that Tenant is obligated to remove as expressly
set forth in Paragraph 37, above, entitled "Alterations", (ii) Tenant shall
remove all of Tenant's Personal Property and perform all repairs and restoration
required by the removal of any Alterations or Tenant's Personal Property, and
(iii) Tenant shall surrender to Landlord all keys, entry devices, and security
codes relating to the Premises (including, without limitation, any keys to any
exterior or interior doors). Landlord may elect to retain or dispose of in any
manner any Alterations or Tenant's Personal Property that Tenant does not remove
from the Premises on the Expiration Date as required by this Lease by giving
written notice to Tenant. Any such Alterations or Tenant's Personal Property
that Landlord elects to retain or dispose of shall vest in Landlord. Tenant
waives all claims against Landlord for any damage to Tenant resulting from
Landlord's retention or disposition of any such Alterations or Tenant's Personal
Property. Tenant shall be liable to Landlord for Landlord's costs for storing,
removing, or disposing of any such Alterations or Tenant's Personal Property. If
Tenant fails to surrender the Premises to Landlord on the Expiration Date,
Tenant shall indemnify and defend Landlord against all liabilities, damages,
losses, costs, expenses, attorneys' fees, and claims resulting from such
failure, including, without limitation, any claim for damages made by a
succeeding tenant. If Tenant, with Landlord's consent, remains in possession of
the Premises after the Expiration Date, such possession by Tenant shall be
deemed to be a month-to-month tenancy terminable on 30-days' written notice
given at any time by Landlord or Tenant. During any such month-to-month tenancy,
Tenant shall pay, as minimum Base Monthly Rent, 100 percent of the Base Monthly
Rent in effect immediately prior to the Expiration Date. All provisions of this
Lease except for those pertaining to Term shall apply to such month-to-month
tenancy.
39. Assignment and Other Transfers. Without Landlord's prior written
consent, which shall not be unreasonably withheld, none of the following shall
occur, voluntarily, involuntarily, by operation of law, or otherwise (any of the
following, a "Transfer"): any assignment, sublease, disposition, sale,
concession, license, mortgage, encumbrance, hypothecation, pledge, collateral
assignment, or other transfer, by Tenant of this Lease, any interest in this
Lease, or all or any portion of the Premises; or Landlord shall not be liable in
damages (to Tenant or to any proposed subtenant, assignee or other transferee
(any of the preceding a "Proposed Transferee")) if such consent is adjudicated
to have been unreasonably withheld, and, in such event, Tenant's sole remedy
shall be to have the proposed Transfer declared as valid as if Landlord's
consent had been given, although Tenant shall be entitled to reasonable
attorney's fees if Tenant is the prevailing party in such litigation. At least
60 days prior to entering into any Transfer, Tenant shall submit to Landlord the
sum of $400.00 (as payment toward Landlord's and Landlord's attorneys' costs of
reviewing, consenting to, rejecting, and/or consummating any proposed Transfer),
and a written notice ("Tenant's Notice") which includes or sets forth in
reasonable detail (a) the form of the proposed Transfer, including, without
limitation, all related agreements, documents, instruments, exhibits, and escrow
instructions, (b) the name and address of the Proposed Transferee, (c) the terms
and conditions of the proposed Transfer, including, without limitation, the
commencement or effective date of the proposed Transfer, which shall be at least
60 days after Tenant's Notice is given, and (d) the nature, character, and
current banking, financial, and other credit information and references with
respect to the Proposed Transferee and the business of the Proposed Transferee
(including, without limitation, tax returns for the most-recent five years, a
business plan with cash-flow projections and financial projections with
assumptions and competitive market analysis), in reasonably sufficient detail to
enable Landlord to determine the Proposed Transferee's financial responsibility.
Within 15 business days after Landlord's receipt from Tenant of such sum and
Tenant's Notice, Landlord shall notify Tenant whether Landlord has consented to
the proposed Transfer. Any consent by Landlord to any proposed Transfer shall
not constitute a consent with respect to any other Transfer. If Landlord
consents to any proposed Transfer, and Tenant fails to consummate such Transfer
within 30 days of the commencement or effective date of the proposed Transfer
(as set forth in Tenant's Notice), then such consent shall be deemed withdrawn
and Tenant shall be required again to comply with this paragraph before making a
Transfer. Landlord shall not have unreasonably withheld its consent with respect
to any Transfer if Landlord shall not have received such sum or Tenant's Notice,
if the nature or character of the Proposed Transferee, or the proposed use and
occupancy of the Premises by the Proposed Transferee, is not in keeping with the
dignity and character of the Project and the surrounding area, if the proposed
Transfer will result in the diminution of the value or marketability of the
Premises, if Landlord is not satisfied that the Proposed Transferee is
creditworthy, or if the proposed Transfer will conflict with or result in a
breach of any of the provisions of, or constitute a default under, any
agreement, instrument, or document to which Landlord is a party or by which the
Real Property may be bound. No Transfer shall release or discharge Tenant from
any liability, whether past, present, or future, under this Lease and Tenant
shall continue to remain primarily liable under this Lease. Tenant irrevocably
assigns to Landlord, as security for Tenant's obligations under this Lease, all
rent and other amounts from any Transfer, and Landlord, as assignee and as
special attorney-in-fact for Tenant, or a receiver for Tenant appointed on
Landlord's application, may collect such rent and other amounts and apply them
toward Tenant's obligations under this Lease; except that, unless Tenant
defaults under this Lease, Tenant shall have the right to collect such rent and
other amounts. Any Transfer documents must contain the following provisions,
which provisions whether contained in such Transfer documents or not, shall
apply to such Transfer: (1) Such Transfer shall be subject and subordinate to
all provisions of this Lease; (2) No Proposed Transferee shall be permitted to
enter into any Transfer without Landlord's prior written consent; and (3) At
Landlord's option, in the event of cancellation or termination of this Lease for
any reason or the surrender of this Lease, whether voluntarily, involuntarily,
by operation of law, or otherwise, prior to the expiration of such Transfer, the
Proposed Transferee shall make full and complete attornment to Landlord for the
balance of the term of such Transfer. Such attornment shall be evidenced by an
agreement in form and substance satisfactory to Landlord which the Proposed
Transferee shall execute and deliver to Landlord within five days after request
by Landlord. Tenant shall promptly reimburse Landlord for Landlord's reasonable
cost (less any payment made by Tenant with Landlord as set forth above) of
reviewing, consenting to, rejecting and/or consummating any proposed Transfer,
including, without limitation, reasonable attorneys' fees. Tenant shall promptly
pay to Landlord 50 percent of all rents and other consideration, of whatever
nature, payable by the Proposed Transferee (or receivable by Tenant) pursuant to
any Transfer, which exceed (A) if a sublease of a portion of the Premises, the
portion of the Base Monthly Rent that is allocable to the portion of the
Premises subleased (such allocation based on the area of the portion subleased),
or (B) if any other Transfer, the Base Monthly Rent. Landlord may, at its
election, by giving written notice (the "Recapture Notice") to Tenant within 15
days after receipt of Tenant's Notice, notify Tenant that Landlord intends
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to recapture the Premises and terminate this Lease. If Tenant notifies Landlord
in writing, within ten days after the giving of the Recapture Notice, that
Tenant withdraws Tenant's Notice, then Tenant shall be deemed to have withdrawn
Tenant's request for Landlord's consent to the proposed Transfer and Landlord
shall have no right to recapture the Premises and/or terminate this Lease
pursuant to this paragraph. If Tenant fails to notify Landlord in writing,
within 15 days after the giving of the Recapture Notice, that Tenant withdraws
Tenant's Notice (or if Tenant notifies Landlord in writing, within 15 days after
the giving of the Recapture Notice, that Tenant does not withdraw Tenant's
Notice), then (if and to the extent permitted by applicable law) this Lease
shall automatically be deemed terminated as of the commencement or effective
date stated in Tenant's Notice for the proposed Transfer, and Tenant shall
surrender possession of the Premises as of such date. Landlord's giving of a
Recapture Notice shall not constitute Landlord's consent to Tenant's proposed
Transfer.
40. Default. The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant:
40. 1. The vacating or abandoning of the Premises by Tenant.
40.2. Tenant's failure to make any payment of Rental as and when due,
where such failure shall continue for a period of three days after written
notice of such failure from Landlord to Tenant; provided, however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
applicable unlawful detainer statutes.
40.3. Tenant's failure to observe or perform any of the provisions of
this Lease to be observed or performed by Tenant, other than described in the
preceding two paragraphs where such failure shall continue for a period of 30
days after written notice of such failure from Landlord to Tenant; provided,
however, that any such notice shall be in lieu of, and not in addition to, any
notice required under applicable unlawful detainer statutes; and provided
further, however, that if the nature of Tenant's default is such that more than
30 days are required for its cure, then Tenant shall not be deemed to be in
default if Tenant commenced such cure within such 30-day period and thereafter
diligently prosecutes such cure to completion within 75 days after Landlord's
written notice.
40.4. Tenant's failure to deliver to Landlord, within 20 days after
Landlord's written request, any financial statement of Tenant (including,
without limitation, a current annual balance sheet of Tenant) reasonably
requested by Landlord, or if any financial statement given to Landlord by
Tenant, or by any assignee, subtenant, or guarantor of Tenant, is materially
false or evidences that Tenant's net worth is negative, and Tenant fails to
furnish to Landlord, within ten days after written notice from Landlord to
Tenant, with cash as an additional security deposit in an amount equal to the
aggregate Rental payable under this Lease for the six full calendar months
immediately preceding such notice.
40.5. The making by Tenant of any general arrangement or assignment
for the benefit of creditors; Tenant's becoming bankrupt, insolvent or a
"debtor" as defined in 11 U.S.C. Section 101, or any successor statute (unless,
in the case of a petition filed against Tenant, such petition is dismissed
within 30 days after its original filing); the institution of proceedings under
the bankruptcy or similar laws in which Tenant is the debtor or bankrupt; the
appointing of a trustee or receiver to take possession of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease
(unless possession is restored to Tenant within 30 days after such taking); the
attachment, execution or 'Judicial seizure of substantially all of Tenant's
assets located at the Premises or Tenant's interest in this Lease (unless such
attachment, execution or judicial seizure is discharged within 30 days after
such attachment, execution or judicial seizure); or, if Tenant is a partnership
or consists of more than one person or entity, any partners of the partnership
or any such other person or entity becoming bankrupt or insolvent or making a
general arrangement or assignment for the benefit of creditors.
41. Landlord's Remedies. Landlord shall have the following remedies if
Tenant commits a default or breach under this Lease; these remedies are not
exclusive, but are cumulative in addition to any remedies provided elsewhere in
this Lease, or now or later allowed by law or in equity.
41.1. Continuation of Lease. No act by Landlord (including, without
limitation, the acts set forth in the succeeding sentence) shall terminate
Tenant's right to possession unless Landlord notifies Tenant in writing that
Landlord elects to terminate Tenant's right to possession. As long as Landlord
does not terminate Tenant's right to possession, Landlord may (i) continue this
Lease in effect, (ii) continue to collect Rental when due and enforce all the
other provisions of this Lease, (iii) enter the Premises and relet them, or any
part of them, to third parties for Tenant's account, for a period shorter or
longer than the remaining term of this Lease, and (iv) have a receiver appointed
to collect Rental and conduct Tenant's business. Tenant shall immediately pay to
Landlord all costs Landlord incurs in such reletting, including, without
limitation, brokers' commissions, attorneys' fees, advertising costs and
expenses of remodeling the Premises for such reletting. Landlord has the remedy
described in California Civil Code Section 1951.4 (which provides that Landlord
may continue the Lease in effect after Tenant's breach and abandonment and
recover rent as it becomes due, if Tenant has the right to sublet or assign,
subject only to reasonable limitations).
41.2. Rent from Reletting . If Landlord elects to relet all or any
portion of the Premises as permitted above, rent that Landlord receives from
such reletting shall be applied to the payment of, in the following order and
priority, (i) any indebtedness from Tenant to Landlord other than Base Monthly
Rent due from Tenant, (ii) all costs incurred by Landlord in such reletting, and
(iii) Base Monthly Rent due and unpaid under this Lease. After applying such
payments as referred to above, any sum remaining from the rent Landlord receives
from such reletting shall be held by Landlord and applied in payment of future
Base Monthly Rent as it becomes due under this Lease. In no event shall Tenant
be entitled to any excess rent received by Landlord.
41.3. Termination of Tenant's Right to Possession. Landlord may
terminate Tenant's right to possession of the Premises at any time, by notifying
Tenant in writing that Landlord elects to terminate Tenant's right to
possession. On termination of this Lease, Landlord has the right to recover from
Tenant (i) the worth at the time of the award of the unpaid Base Monthly Rent
which had been earned at the time of such termination, (ii) the worth at the
time of the award of the amount by which the unpaid Base Monthly Rent which
would have been earned after such termination until the time of award exceeds
the amount of such loss of Base Monthly Rent that Tenant proves could have been
reasonably avoided, (iii) the worth at the time of the award of the amount by
which the unpaid Base Monthly Rent for the balance of the Term after the time of
award (had there been no such termination) exceeds the amount of such loss of
Base Monthly Rent that Tenant proves could be reasonably avoided, and (iv) any
other amount necessary to compensate Landlord for all detriment proximately
caused by
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Tenant's failure to perform Tenant's obligations under this Lease or in the
ordinary course of things would be likely to result therefrom. The ..Worth at
the time of the award" of the amounts referred to in Clauses (i) and (ii) above
is to be computed by allowing interest at the Default Rate, as set forth above,
or if no Default Rate is set forth above, then at the maximum rate permitted by
applicable law. The "worth at the time of the award" of the amount referred to
in Clause (iii) above is to 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.
41.4. Landlord's Right to Cure Default. Landlord, at any time after
Tenant fails to perform any obligation or duty of Tenant under this Lease, may
cure such failure at Tenant's sole cost. If Landlord at any time, by reason of
Tenant's failure to perform, pays any sum or does any act that requires the
payment of any sum (plus a supervisory fee of 15 percent of such sum), such sum
shall be due immediately from Tenant to Landlord at the time such sum is paid,
and shall be deemed additional rent under this Lease.
41.5. Enforcement Costs. All costs and expenses incurred by Landlord
in connection with collecting any amounts and damages owing by Tenant pursuant
to the provisions of this Lease, or to enforce any provision of this Lease,
including reasonable attorneys' fees, whether or not any action is commenced by
Landlord, shall be paid by Tenant to Landlord upon demand. If Tenant fails to
timely pay any amount due under this paragraph, then (without curing such
default) interest at the Default Rate shall accrue (and be immediately payable)
on such overdue amounts until it is paid.
41.6. Interest and Late Charges. Late payment by Tenant to Landlord of
Rental will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which would be impracticable or extremely difficult to fix. Such
costs include, without limitation, processing, collection and accounting
charges, and late charges that may be imposed on Landlord by the terms of any
deed of trust covering the Premises. Therefore, if any Rental is not received by
Landlord within five days of its due date, then, without any requirement for
notice to Tenant, Tenant shall pay to Landlord an additional sum of ten percent
of such overdue amount as a late charge. Such late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of any late
payment by Tenant, and therefore this paragraph is reasonable under the
circumstances existing at the time this Lease is made. Acceptance of such late
charge by Landlord shall not constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of the
other rights and remedies available to Landlord under this Lease. In addition to
the late charge payable by Tenant, as provided above, if any such Rental is not
paid within 30 days of the date such Rental was due, then Tenant shall pay to
Landlord interest on such overdue Rental at the Default Rate. Such interest
shall additionally accrue and be payable by Tenant relative to any other amounts
payable by Tenant to Landlord under the provisions of this Lease which are not
paid when due.
41.7. Waiver. No delay or omission in the exercise of any right or
remedy of Landlord in the event of any default by Tenant shall impair such right
or remedy or be construed as a waiver. The receipt and acceptance by Landlord of
delinquent Rental shall not constitute a waiver of any default other than the
particular Rental payment accepted. Landlord's receipt and acceptance from
Tenant, on any date (the "Receipt Date"), of an amount less than Rental due on
such Receipt Date, or to become due at a later date but applicable to a period
prior to such Receipt Date, shall not release Tenant of its obligation (i) to
pay the full amount of such Rental due on such Receipt Date or (ii) to pay when
due the full amount of such Rental to become due at a later date but applicable
to a period prior to such Receipt Date. No act or conduct of Landlord,
including, without limitation,, the acceptance of the keys to the Premises,
shall constitute an acceptance by Landlord of the surrender of the Premises by
Tenant before the Expiration Date. Only a written notice from Landlord to Tenant
stating Landlord's election to terminate Tenant's right to possession of the
Premises shall constitute acceptance of the surrender of the Premises and
accomplish a termination of this Lease. Landlord's consent to or approval of any
act by Tenant requiring Landlord's consent or approval shall not be deemed to
waive or render unnecessary Landlord's consent to or approval of any other or
subsequent act by Tenant. Any waiver by Landlord of any default must be in
writing and shall not be a waiver of any other default concerning the same or
any other provision of this Lease. Tenant hereby waives any rights granted to
Tenant under California Code of Civil Procedure Section 1179, California Civil
Code Section 3275, and/or any successor statute(s). Tenant represents and
warrants that if Tenant breaches this Lease and, as a result, this Lease is
terminated, Tenant will not suffer any undue hardship as a result of such
termination and, during the Term, will make such alternative or other
contingency plans to provide for its vacation of the Premises and relocation in
the event of such termination. Tenant acknowledges that Tenant's waivers set
forth in this paragraph are a material part of the consideration for Landlord's
entering into this Lease and that Landlord would not have entered into this
Lease in the absence of such waivers.
42, Subordination and Attornment. This Lease and Tenant's rights under this
Lease are subject and subordinate to any Mortgage, ground lease " or underlying
lease, and to all renewals, modifications, consolidations, replacements, or
extensions thereof, now or hereafter e affecting the Premises. The provisions of
this paragraph shall be self-operative, and no further instrument of
subordination shall be required. In confirmation of such subordination, however,
Tenant shall promptly execute and deliver any instruments that Landlord, any
Lender, or the lessor of any ground or underlying lease, may request to evidence
such subordination. Tenant hereby irrevocably constitutes and appoints Landlord
as Tenant's special attorney-in-fact to execute and deliver such instruments.
Notwithstanding the preceding provisions of this paragraph, if any ground lessor
or Lender elects to have this Lease prior to the lien of its ground lease or
Mortgage, and gives written notice thereof to Tenant that this Lease shall be
deemed prior to such ground lease or Mortgage, whether this Lease is dated prior
or subsequent to the date of such ground lease or Mortgage, then this Lease
shall be deemed to be prior to the lien of such ground lease or Mortgage and
such ground lease or Mortgage shall be deemed to be subordinate to this Lease.
If any Lender, or the lessor of any ground or underlying lease affecting the
Premises, shall hereafter succeed to the rights of Landlord under this Lease,
whether by foreclosure, deed in lieu of foreclosure, or other-wise, then (i)
such successor landlord shall not be subject to any offsets or defenses which
Tenant might have against Landlord, (ii) such successor landlord shall not be
bound by any prepayment by Tenant of more than one month's installment of Base
Monthly Rent or any other Rental, (iii) such successor landlord shall not be
subject to any liability or obligation of Landlord except those arising after
such succession, (iv) Tenant shall attorn to and recognize such successor
landlord as Tenant's landlord under this Lease, (V) Tenant shall promptly
execute and deliver any instruments that may be necessary to evidence such
attornment, (vi) Tenant hereby irrevocably appoints Landlord (and such successor
landlord) as Tenant's special attorney-in-fact to execute and deliver such
instruments on behalf of Tenant, and (vii) upon such attornment, this Lease
shall continue in effect as a direct lease between such successor landlord and
Tenant upon and subject to A of the provisions of this Lease. If any Lender
requests reasonable amendment(s) to this Lease at any time during the Term, then
Tenant shall not unreasonably withhold or delay its written consent to such
amendment(s).
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43. Estoppel Certificates.
43. 1. Within ten days after notice from Landlord, Tenant shall
execute and deliver to Landlord, in recordable form, an estoppel certificate
stating (i) that this Lease is unmodified and in full force and effect, or in
full force and effect as modified, and stating A modifications, (11) the
then-current Base Monthly Rent, (iii) the dates to which Base Monthly Rent has
been paid in advance, (iv) the amount of any security deposit, prepaid rent or
other payment constituting Rental which has been paid, (v) whether or not Tenant
or Landlord is in default under this Lease, and (vi) such other matters as
Landlord shall reasonably request. Tenant's failure to deliver such certificate
within such ten-day period shall be conclusive upon Tenant for the benefit of
Landlord, and any successor in interest to Landlord, that, except as may be
represented by Landlord, this Lease is unmodified and in full force and effect,
no Rental has been paid more than 30 days in advance, and neither Tenant nor
Landlord is in default under this Lease. Tenant irrevocably constitutes and
appoints Landlord as its special attorney-in-fact to execute and deliver such
certificate to any third party if Tenant fails to deliver such certificate
within such ten-day period.
43.2. In addition to Tenant's obligation to provide Landlord with an
estoppel certificate as set forth in Paragraph 43.1, above, Landlord agrees to
execute and deliver to Tenant, upon written request, an estoppel certificate
indicating that this Lease is unmodified and 'in full force and effect, or in
full force and effect as modified, stating all modifications, as well as the
then-current Base Monthly Rent (and the dates to which Base Monthly Rent has
been paid), and whether or not, to the best of Landlord's knowledge, Tenant is
in default under this Lease.
44. Brokers. Tenant represents that, except for CAL-WEST REAL ESTATE, no
real estate broker, agent, finder, or other person is responsible bringing about
or negotiating this Lease and Tenant has not dealt with any real estate broker,
agent, finder, or other person, relative to this Lease in any manner. Tenant
hereby indemnifies Landlord against all liabilities, damages, losses, costs,
expenses, attorneys' fees and claims arising from any claims that may be made
against Landlord by any real estate broker, agent, finder, or other person
(other than as set forth above), alleging to have acted on behalf of or to have
dealt with Tenant.
45. Easements. Landlord may, at its election, from time to time, grant such
casements, rights and dedications, and cause the recordation of parcel maps and
restrictions, provided such easements, rights, dedications, parcel maps, and
restrictions do not unreasonably interfere with the use of the Premises by
Tenant. Tenant shall promptly sign any documents or instruments to accomplish
the foregoing upon request by Landlord. Tenant irrevocably appoints Landlord as
Tenant's special attorney-in-fact to execute and deliver such documents or
instruments on behalf of Tenant if Tenant refuses or fails to do so.
46. Limitations on Landlord's Liability. If Landlord is in default of this
Lease, and as a consequence Tenant recovers a money judgment against Landlord,
such judgment shall be satisfied only out of the proceeds of sale received upon
execution of such judgment and levy against the right, title, and interest of
Landlord in the Real Property, and out of rent or other income from the Real
Property receivable by Landlord or out of the consideration received by Landlord
from the sale or other disposition of all or any part of Landlord's right,
title, and interest in the Real Property. Neither Landlord nor the partners
comprising Landlord (if any) shall be personally liable for any deficiency.
47. Sale or Transfer of Premises. If Landlord sells or transfers any
portion of the Premises, Landlord, on consummation of the sale or transfer,
shall be released from any liability thereafter accruing under this Lease. If
any security deposit or prepaid rent has been paid by Tenant, Landlord may
transfer the security deposit and/or prepaid rent to Landlord's
successor-in-interest and on such transfer Landlord shall be discharged from any
further liability arising from the security deposit or prepaid rent.
48. Quitclaim Dee . Tenant shall execute and deliver to Landlord, promptly
on Landlord's request on or after the Expiration Date, a quitclaim deed to the
Premises, in recordable form, designating Landlord as transferee.
49. No Merger. The voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation of this Lease, or a termination by Landlord, shall not
work a merger, and shall, at the option of Landlord, terminate any existing
subleases or may, at the option of Landlord, operate as an assignment to
Landlord of any such subleases.
50. Attorneys' Fees. In the event any litigation, arbitration, mediation,
or other proceeding ("Proceeding") is initiated by any party against any r party
to enforce, interpret or otherwise obtain judicial or quasi-judicial relief in
connection with this Lease, the prevailing party in such Proceeding shall be
entitled to recover from the unsuccessful party all costs, expenses, and actual
attorneys' fees relating to or arising out of such Proceeding (whether or not
such Proceeding proceeds to judgment), and any post-judgment or post-award
proceeding including, without limitation, one to enforce any judgment or award
resulting from any such Proceeding. Any such judgment or award shall contain a
specific provision for the recovery of all such subsequently incurred costs,
expenses, and actual attorneys' fees.
51. Miscellaneous. This Lease shall be governed by and construed in
accordance with the laws of the state in which the Premises are located. If the
Premises are located outside of California, then the references in this Lease to
California statutes (such as California Civil Code Sections 1932(2), 1933(4),
1941, 1942, 3143, 3262, and 3275, California Code of Civil Procedure Sections
1179 and 1265.130, and California Health and Safety Code Section 25359.7) shall
be deemed to include any relevant statute of the jurisdiction in which the
Premises are located that is comparable to such California statutes. For
purposes of venue and jurisdiction, this Lease shall be deemed made and to be
performed in the City of San Diego, California (whether or not the Premises are
located in San Diego, California). This Lease may be executed in counterparts,
each of which shall be deemed an original and all of which together shall
constitute one document. Whenever the context so requires, all words used in the
singular shall be construed to have been used in the plural (and vice versa),
each gender shall be construed to include any other genders, and the word
"person" shall be construed to include a natural person, a corporation, a firm,
a partnership, a joint venture, a trust, an estate or any other entity. Each
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law. If any provision of this Lease or the application of such
provision to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such provision
to persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected by such invalidity or unenforceability,
unless such provision or such application of such provision is essential to this
Lease. This Lease shall become effective when it has been executed by each of
Landlord and Tenant. Subject to any restriction on transferability contained in
this Lease, this Lease shall be binding upon and shall inure to the benefit of
the
13
<PAGE>
successors-in-interest and assigns of each party to this Lease. Nothing in this
paragraph shall create any rights enforceable by any person not a party to this
Lease, except for the rights of the successors-in-interest and assigns of each
party to this Lease, unless such rights are expressly granted in this Lease to
other specifically identified persons. The headings of the paragraphs of this
Lease have been included only for convenience, and shall not be deemed in any
manner to modify or limit any of the provisions of this Lease, or be used in any
manner in the interpretation of this Lease. Time and strict and punctual
performance are of the essence with respect to each provision of this Lease.
This Lease contains the entire agreement between Landlord and Tenant with
respect to the subject matter of this Lease, is a complete and exclusive
statement of the terms of such agreement, and supersedes all prior
understandings, agreements, representations and warranties, if any, with respect
to such subject matter. All notices or other communications required or
permitted to be given to Tenant or Landlord shall be in writing and shall be
personally delivered, sent by certified mail, postage prepaid, return receipt
requested, or sent by an overnight express courier service that provides written
confirmation of delivery, to Tenant at the Premises and to Landlord at its
address as set forth in the introductory paragraph of this Lease. Each such
notice or other communication shall be deemed given, delivered and received upon
its actual receipt, except that if it is sent by mail in accordance with this
paragraph, then it shall be deemed given, delivered and received three days
after the date such notice or other communication is deposited with the United
States Postal Service in accordance with this paragraph. Landlord or Tenant may
give a notice of a change of its address to the other. If more than one person
is Tenant, then the obligations of Tenant under this Lease shall be the joint
and several obligations of each of such persons; provided, however, that any act
or signature of one or more of any of such persons and any notice or refund
given to or served on any one of such persons shall be fully binding on each of
such persons. All provisions, whether covenants or conditions, to be performed
or observed by Tenant shall be deemed to be both covenants and conditions. All
payments to be made by Tenant to Landlord under this Lease shall be in United
States currency.
52. Additional Provisions. Attached Paragraph(s) Exhibits A-I are
incorporated in this Lease by this reference.
LANDLORD: HELF INVESTMENTS, A CALIFORNIA PARTNERSHIP
By:
Its:
TENANT: PARAMARK ENTERPRISES, INC.,
a DELAWARE CORPORATION
By:/s/ Alan S. Gottlich
Its: President and CFO
14
<PAGE>
Exhibit "A"
Description of Land
ALL LAND LOCATED UNDER 1919 FRIENDSHIP DRIVES, EL CAJON, CALIFORNIA.
<PAGE>
Exhibit "B"
Description of Premises
1919 FRIENDSHIP DRIVE, SUITE B. EL CAJON, CALIFORNIA 92020
<PAGE>
Exhibit "C"
Landlord's Work
"NONE" TENANT TAKES PREMISES IN ITS NOW "AS-IS" CONDITION.
<PAGE>
Exhibit "D"
Expenses
1. Salaries, wages, medical benefits, insurance (including, without
limitation, group life and disability insurance), union and general welfare
benefits, pension payments, payroll taxes, workers' compensation, uniforms and
related expenses for all personnel involved in the operation, repair,
replacement, maintenance, and management of the Project (including a pro rata
share of such expenses for employees of Landlord who do not work exclusively at
the Project).
2. All cost and expenses relating to general maintenance and repair of the
Project, including, without limitation, and, among other things, the driveways,
asphalt, and concrete surfaces, the structural components of the improvements
located within the Project, including the roof, painting, landscaping (including
irrigational sprinkler systems), window cleaning, janitorial and other cleaning
services, pest and termite control and removal, landscape services, and security
services, if any. Supplies (including, without limitation, cleaning supplies),
and tools and other materials, and sales and other taxes on such items.
3. The cost of keeping the parking area in Good Condition and free from
litter, dirt, debris, and other obstructions, and keeping all lighting and
signage serving the Project in Good Condition and fully operating.
4. The cost of all gas, oil, electricity, heat, ventilation,
air-conditioning, water, sewage disposal, refuse collection and disposal, steam
for heating, and other services and utilities serving the Project (but not
individual tenants), together with any taxes on such utilities, refuse
collection and disposal, and water and sewer charges, and the maintenance of all
components, systems, and apparatus by which such utilities and services are
provided.
5. All Insurance Expenses including, without limitation, premiums, costs,
expenses and deductibles (or similar costs or charges) of and/or with respect to
insurance Landlord maintains, including, without limitation, public liability
and property damage insurance, fire and extended coverage insurance, boiler and
machinery insurance, flood insurance, earthquake insurance, business
interruption insurance, rent insurance, fidelity insurance, and/or plate-glass
insurance.
6. Whether or not capitalized under generally accepted accounting
principles, the cost of operation, maintenance, repairs, and replacements of
electrical fixtures, lighting, wiring and electrical systems, meters, heating,
ventilating and air-conditioning equipment and systems, pipes and plumbing
systems, structural items, walls, roofs, elevators, parking lots, driveways, and
other paved areas, life and/or property protection (including, without
limitation, sprinklers) systems, window washing equipment, and/or any other
portions of the Real Property.
7. The cost of, and/or the cost of the rental of, together with the cost of
the installation of, any security or other system used in connection with life
or property protection (including, without limitation, all machinery, electronic
systems, and other equipment comprising any part of such systems).
8. Whether or not capitalized under generally accepted accounting
principles, costs for alterations and improvements made by reason of the laws
and requirements of any public authorities and/or the requirements of insurance
bodies or Landlord's insurer, and costs of capital improvements, equipment, or
machinery installed for the purpose of reducing energy consumption or reducing
other Lease Expenses set forth in this Exhibit or set forth elsewhere in this
Lease (including, without limitation, Insurance Expenses, if applicable), which
costs shall be amortized over five years.
9. Reasonable legal, accounting, and other professional fees.
10. Reserves, as reasonably determined by Landlord, for any of the items
set forth above to be incurred in a subsequent year and/or for any Lease
Expenses set forth elsewhere in this Lease to be incurred in a subsequent year,
including, without limitation, reserves for maintenance and replacement expenses
to be incurred in subsequent years for roofs, parking lots and other paved
surfaces, HVAC, and other portions of the Real Property, which reserves in each
case shall be based upon the projected cost of such maintenance and replacement
expense divided by the number of years until such maintenance and replacement
expense is projected to occur, as reasonably determined by Landlord.
11. To the extent not exceeding the greater of five percent of the gross
rental income of the Real Property or ten percent of the sum of the Lease
Expenses (including, without limitation, Real Property Taxes, and Insurance
Expenses), an amount for management fees or, if no managing agent is employed by
Landlord, a sum in lieu of management fees which is not in excess of the
then-prevailing rates for management fees of comparable projects in the area or
region in which the Premises are located.
12. All other charges properly allocable in accordance with real estate
accounting practices customarily used in the area or region in which the
Premises are located.
<PAGE>
Exhibit "E"
Rules
1. Tenant, and Tenant's Invitees, shall neither loiter in the entrances or
corridors of the Project, nor in any way obstruct the sidewalks, entries,
passages, halls, stairways (if any) and elevators (if any) of the Project, and
shall use the same only as passageways and means of passage to and from their
respective offices.
2. Elevators of the Project, if any, shall not be used during normal
business hours for the moving or transporting of freight, furniture, business
equipment, merchandise and/or bulky matter. Such moving and transporting shall
be performed only upon Landlord's prior written consent.
3. All trash, refuse, and waste materials shall be stored in adequate
containers and regularly removed from the Premises. These containers shall not
be visible to the general public and shall not constitute a health or fire
hazard or nuisance to any tenant.
4. Tenant and Tenant's Invitees shall not use any Parking Area for anything
but parking motor vehicles. All motor vehicles shall be parked in an orderly
manner within the painted lines defining the individual parking spaces. During
peak periods of business activity, Landlord may, at its election, impose
limitations in all or parts of any Parking Area as to the length of time for
parking use. Tenant and Tenant's Invitees shall not use any area for motor
vehicle parking except the areas specifically designated for employee parking
for the particular period of time the use is to be made. Tenant shall not
designate an area for employee parking except any area designated in writing by
Landlord.
5. No person shall use any utility area, truck loading area, or other area
reserved for use in conducting business, except for the specific purpose for
which permission to use such area has been given.
6. Without the prior written consent of Landlord, no person shall use any
of the Common Area for any of the following:
6. 1. Vending, peddling, soliciting orders for sale or distributing of
any merchandise, device, service, periodical, book, pamphlet, or other matter.
6.2. Exhibiting or distributing any sign, placard, banner, notice,
circular, booklet, handbill, or other material.
6.3. Soliciting membership in any organization, group, or association
or soliciting contributions for any purpose.
6.4. Parading, patrolling, picketing, demonstrating, or engaging in
conduct that might interfere with the use of the Common Area or be detrimental
to any of the business establishments in the Project.
6.5. Using the Common Area for any purpose when none of the business
establishments in the Project is open for business.
6.6. Discarding any paper, glass, or extraneous matter of any kind,
except in designated receptacles.
7. Landlord shall prescribe the weight, size and position of all equipment
or objects weighing more than 500 pounds brought into the Project, and also the
times of moving in and out of the Project; and all such moving must be done
under the supervision of Landlord. Landlord will not be responsible for any loss
of or damage to any such equipment or objects from any cause; but all damage
done to the Project by moving or maintaining any such equipment or objects shall
be repaired at the expense of Tenant.
8. Two keys will be furnished by Landlord for every store and any
additional key required must be obtained from Landlord. Tenant shall deposit
with Landlord $25.00 for each key furnished by Landlord. All keys shall be
surrendered to Landlord on the Expiration Date. Tenant will not change any locks
without Landlord's prior written consent.
9. Landlord's employees shall not perform any work nor do anything outside
their regular duties unless under special instructions from Landlord or
Landlord's designated agent, and no such employee shall admit any person (Tenant
or otherwise) to any store without instructions from Landlord or Landlord's
agent.
10. Landlord may prohibit any supplier from making deliveries to the
Project because of undesirable conduct of deliverymen, such as the parking of
delivery vehicles contrary to Landlord's instructions.
11. At any time while a watchman is in charge of the Project, persons
entering or leaving the Project may be questioned by the watchman as to their
business in the Project; and anyone not satisfying the watchman of his or her
right to enter the Project may be excluded by the watchman.
12. Tenant shall not use, or connect with the electrical system of the
Project, any more lights than are provided for in each room on the Commencement
Date, or any electric lights or fixtures of higher candle power than are
provided for in each room on the Commencement Date, or any fan, motor or other
apparatus, without Landlord's prior written consent.
13. Tenants, and Tenant's Invitees, shall observe faithfully and comply
strictly with these rules and such other rules as Landlord may from time to time
adopt for the Premises or the Common Area in Landlord's absolute discretion.
Tenant shall cause its Tenants' Representatives to observe faithfully and comply
strictly with all of such rules.
<PAGE>
EXHIBIT F
ARTICLE 13: SUBJECT TO MASTER LEASE
Section 13.01 Master Lease and Sublease. This Lease is a Sublease
under and shall be subject and subordinate to (1) a master Lease (the "Master
Lease") dated October 18, 1983 between the County of San Diego, as lessor, and
HELF PROPERTIES, INC., a California corporation, as lessee, which Master Lease
is also known as County or San Diego Contract No. 7052R and (ii) a Sublease
dated January 1, 1984 between HELF PROPERTIES, INC., a California corporation,
as sublessor, and HELF Investments, as Sublessee.
Section 13.02 Definitions. For purposes or sections 13.03 through
13.06 only, the following definitions shall apply:
(a) "Sublease" shall mean this Lease;
(b) "Sublessee" shall mean Tenant;
(C) "Sublessor" shall mean Landlord
(d) "Subleased Premises" shall mean the Premises;
(e) "County" shall mean the County of San Diego; and
(f) all other Undefined capitalized terms shall have the
meanings assigned to them in the Master Lease.
Section 13.03 Indemnification. Sublessee shall indemnify and save
harmless County, of San Diego, its officers, agents, and employees from and
against any and all claims, demand, liabilities, or loss of any kind or nature
which the County, its officers, agents, or employees may sustain or incur, or
which may be imposed upon them or any of them for injury to, or death of,
persons or damage to property, as a result of, arising out of, or in any manner
connected with this Sublease or with occupancy and use of the subleased premises
by Sublessee, its officers, agents, employees, licensees, patrons, or visitors
Sublessee agrees to pay any and all costs and expenses, including but not
limited to, court costs and reasonable attorneys fees incurred by County of any
such claims, demands, or liabilities.
Section 13.04 Insurance. Sublessee agrees to provide County with a
Certificate of Public Liability and Property Damage insurance in an amount
satisfactory to the Lease Administrator, but in no event less than:
(a) $500,000 bodily injury each person,
(b) $ 1,000,000 bodily injury each occurrence, and
(c) $100,000 property damage or
$1,000,000 combined single limit in lieu of above,
(d) Worker's compensation to statutory limits.
Section 13.05 Provisions Constituting' Sublease. The Sublease is
subject to all of the terms and conditions of the Master Lease including
Gillespie Field Development Standards and Performance Standards. Sublessee shall
assume and perform the obligations of sublessor and lessee in said Master Lease,
to the extent said terms and conditions are applicable to the premises subleased
pursuant to this Sublease. Sublessee shall not commit or permit to be committed
on the Premises any act or omission which shall violate any term or condition of
the Master Lease. In the event of the termination of Sublessor's interest as
Lessee under the Master Lease for any reason, then this Sublease shall terminate
coincidently therewith without any liability or Sublessor and County to
SUblessee.
Section 13.06 Federal Aviation Administration Requirements.
(a) Sublessee for itself, its personal representatives, Successors in
interest, and assigns, as a part of the consideration hereof, does hereby
covenant and , agree that (1) no person on the grounds of race, color, or
national origin shall be exclude from participation, denied the benefits of, or
be otherwise subjected to discrimination in the use of said facilities; (2) that
in the
<PAGE>
construction of any improvements on, over, or under such land, and the
furnishing of services thereon, no person on the grounds of race, color, or
national origin shall be excluded from participation in, denied the benefits of,
or otherwise be subjected to discrimination; and (3) that Sublessee shall use
the premises in compliance with all other requirements imposed by or pursuant to
Title 49, Code of Federal Regulations, Department of Transportation, Subtitle A,
Office of the Secretary, Part 21, Nondiscrimination in Federally-assisted
programs of the Department of Transportation-Effectuation of Title VI of the
Civil Rights Act of 1964, and as said Regulations may be amended.
(b) That in the event of breach of any of the above nondiscrimination
covenants, County shall have the right to terminate the Lease and to reenter and
repossess said land and the facilities thereon, and hold the same as if said
Lease had never been made or issued.
(c) Sublessee shall furnish its accommodations and/or services on a fair,
equal and not unjustly discriminatory basis to all users thereof and is shall
charge fair, reasonable and not unjustly discriminatory prices for each unit or
service, PROVIDED THAT Sublessee may be allowed to make reasonable and
nondiscriminatory discounts, rebates or other similar type of price reductions
to volume purchasers.
(d) Non-compliance with Provision (c) above shall constitute a material
breach thereof and in the event of such non-compliance County shall have the
right to terminate this Lease and the estate hereby created without liability
therefore or at the election of County or the United States either or both said
Governments shall have the right to judicially enforce Provisions (a), (b) and
(c).
(e) Sublessee assures that it will undertake an affirmative action program
as required by 14 CFR Part 152, Subpart E, to insure that no person shall on the
grounds of race, creed, color, national origin, or sex be excluded from
participating in any employment activities covered in 14 CFR Part 152, Subpart
E. Sublessee assures that no person shall be excluded on these grounds from
participating in or receiving the services or benefits of any program or
activity covered by this subpart. Sublessee assures that it will require that
its covered suborganizations provide assurances to Sublessee that they similarly
will undertake affirmative action programs and that they will require assurance
form their suborganizations, as required by 14 CFR Part 152, Subpart E to the
same effect.
<PAGE>
Exhibit "G"
Prohibition Against Asbestos-Containing Materials
Tenant shall not allow or permit any materials which contain asbestos in
any form or concentration ("Asbestos-Containing Materials") to be used or stored
in the Premises or used in the construction of any improvements or alterations
to the Premises, including without limitation building or construction materials
and supplies. Such prohibition against Asbestos-Containing Materials may be
considered safe or approved for use by a manufacturer, supplier, or governmental
authority, or by common use or practice. Landlord shall have the right, upon
reasonable notice, to enter upon and conduct inspections of the Premises to
determine Tenant's compliance with this paragraph. If Tenant allows or permits
Asbestos-Containing Materials to be used or stored in the Premises or used in
the construction of any improvements or alterations to the Premises, (a) Tenant
shall, upon notice from Landlord, immediately remove such Asbestos-Containing
Materials at Tenant's sole cost, (b) such removal shall comply with all
applicable laws, regulations, and requirements concerning asbestos and the
removal and disposal of Asbestos-Containing Materials, (c) Tenant shall
reimburse Landlord for all expenses incurred in connection with any inspection
of the Premises conducted by Landlord, and (d) unless Tenant completes such
removal within 30 days after notice from Landlord, Landlord may, at its
election, do either or both of the following: (i) declare Tenant in breach of
this Lease and terminate this Lease upon 10 days prior written notice to Tenant,
and (ii) remove and dispose of the Asbestos-Containing Materials and obtain
reimbursement from Tenant for the cost of such removal and disposal.
Tenant shall indemnify Landlord and Landlord's directors, officers,
employees and agents, against all costs, liability, expenses, penalties, and
claims for damages, including without limitation litigation costs and attorneys'
fees, arising from (A) the presence of Asbestos-Containing Materials upon the
Premises, to the extent that such Asbestos-Containing Materials are used or
stored in the Premises or used in the construction of any improvements or
alterations to the Premises by Tenant or Tenant's agents, employees,
representatives, or independent contractors, (B) any lawsuit, settlement,
governmental order, or decree relating to the presence, handling, removal, or
disposal of Asbestos-Containing Materials upon or from the Premises, to the
extent that such Asbestos-Containing Materials are used or stored in the
Premises or used in the construction of any improvements or alterations to the
Premises by Tenant or Tenant's agents, (c) Tenant's failure to perform its
obligations to remove such Asbestos-Containing Materials under this paragraph.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000915661
<NAME> PARAMARK ENTERPRISES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 122,561
<SECURITIES> 0
<RECEIVABLES> 393,108
<ALLOWANCES> 64,000
<INVENTORY> 234,822
<CURRENT-ASSETS> 721,782
<PP&E> 539,841
<DEPRECIATION> 86,545
<TOTAL-ASSETS> 1,651,745
<CURRENT-LIABILITIES> 1,400,960
<BONDS> 0
0
0
<COMMON> 30,702
<OTHER-SE> 150,623
<TOTAL-LIABILITY-AND-EQUITY> 1,651,745
<SALES> 3,678,461
<TOTAL-REVENUES> 3,878,381
<CGS> 3,043,984
<TOTAL-COSTS> 5,327,020
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,760
<INTEREST-EXPENSE> 8,106
<INCOME-PRETAX> (1,456,745)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,456,745)
<DISCONTINUED> 0
<EXTRAORDINARY> 80,088
<CHANGES> 0
<NET-INCOME> (1,376,657)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
