<PAGE>
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1996
[ ] 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 0-18707
------------------------------
SPECIALTY RETAIL GROUP, INC.
(Name of small business issuer in its charter)
Florida 59-2824411
- -------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1720 Post Road East, Suite 112
Westport, Connecticut 06880
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (203) 256-4380
Securities registered
pursuant to Section 12(b) of the Act:
None
Securities registered
pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [X].
<PAGE>
The Issuer's revenues for the year ended June 30, 1996 were
$7,126,444.
The aggregate market value of the Issuer's common stock held by
non-affiliates of the Issuer (assuming for this purpose that all officers,
directors and holders of more than 10% of the Company's outstanding voting stock
are affiliates), computed by reference to the average bid and asked prices of
such stock as of September 24, 1996, was $2,088,089.
As of September 24, 1996 there were 9,538,071 shares of common stock
outstanding, including 213,333 shares held by an escrow agent.
Transitional Small Business Disclosure Format (check one:)
Yes No X .
--- ---
- 2 -
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
Specialty Retail Group, Inc. (the "Company") was organized under the
laws of Florida in 1987. The Company originally operated a clinical
laboratory which it sold as of December 31, 1991 to Cardinal Testing
Laboratories, Inc. ("Cardinal Transaction"). As a result of the Cardinal
Transaction, the Company received approximately $6 million. On April 13,
1993, the Company acquired all of the issued and outstanding capital stock of
Building Blocks, Inc. ("Building Blocks") for shares of the Company's Common
Stock.
Building Blocks
RECENT DEVELOPMENTS
Building Blocks is operating a specialty educational and
developmental toy store chain presently consisting of 10 stores. The stores
are located in Connecticut, New York and Massachusetts. In early 1996 the
Company determined to pursue expansion of the Building Blocks chain through
franchising. The Company established Building Blocks Franchise Corp.
("BBFC") in July 1996 as a wholly-owned subsidiary and BBFC began actively
marketing franchises under an agreement between BBFC and Building Blocks. At
September 20, 1996 BBFC had sold franchises for two stores to be located in
Dallas, Texas and Chicago, Illinois.
In order to reduce its negative cash flow, Building Blocks closed
three stores between June and September and adopted a business plan which
contemplated that it would (i) not open any new company-owned stores; (ii)
reduce the number of such stores currently in operation by not renewing
leases as they expired or by transfers of such leases to certain franchisees,
as purchasers of such stores; and (iii) in the future, rely primarily upon
the franchising program to generate revenue and profit. The Company
anticipated completing transfers of at least two store locations and their
leases, fixtures and inventories by the end of September 1996. These
transactions did not occur and Building Blocks will be unable to fund normal
build-ups of holiday season inventories. Building Blocks currently intends
to close certain of its mall stores and consolidate their inventories at its
other stores prior to the 1996 holiday season; to continue to aggressively
pursue, together with BBFC, sales of Building Blocks-operated stores to
franchisees and, in any event, to phase out the operation of Building
Blocks-operated stores by Spring 1997. BBFC will continue to market
franchises both for existing Building Blocks stores and for new locations.
See "Management's Discussion and Analysis."
- 3 -
<PAGE>
The Company is also seeking opportunities for a business combination
with an operating company.
STORE OPERATIONS
Building Blocks' merchandising has focused on high quality educational
and developmental toys. Its specialty toy mix consists of children's toys and
accessories that the Company deems to be distinctive and top quality items. A
substantial portion of Building Blocks' merchandise is comprised of toys
typically found in the specialty toy segment rather than in the mass marketed
toy segment.
Building Blocks' stores offer a friendly environment for both children
and parents. A customer entering a store is surrounded with bright colors and
prominently audible children's music. Also, many toys are displayed for the
parent and child to investigate and use. Stores regularly schedule special
attractions in the stores, including craft classes, musicians, children's
authors, storytellers, animated characters, seasonal parties and others. In
addition, unlike the mass merchandising toy chains, Building Blocks stores offer
free gift wrapping, delivery service and over-the-phone ordering.
The Company believes that the fixtures used in Building Blocks stores
promote the children's "hands-on" environment. Large wooden blocks filled with
merchandise are the main theme used in store fixtures. All departments are
clearly signed and floor layouts are designed to achieve an easy customer flow
throughout the store. Building Blocks has received industry awards for store
design and merchandising.
Marketing is conducted primarily through direct mail, a "Kids Club"
program, and print and radio advertising. Management believes that Building
Blocks' advertising conveys a message to the customer that Building Blocks sells
quality and durable developmental toys and offers superior customer service.
Management believes that the stores project themselves to the community as a
resource for expert advice on age-appropriate toys and children's activities.
Building Blocks stores' business is highly seasonal with approximately
40% of its sales occurring in the last calendar quarter of each year.
It is expected that BBFC franchisees will operate their stores using
substantially the same merchandise and marketing approaches.
SUPPLIERS
No supplier to Building Blocks accounted for more than 10% of its
purchases of inventory in the year ended June 30, 1996. In view of Building
Blocks' present business plan, management believes that
- 4 -
<PAGE>
the loss of any supplier would not have a material adverse impact on the
operations of Building Blocks.
COMPETITION
The toy market is an intensely competitive market. However, the
specialty toy market is a fragmented market with various regional stores.
Building Blocks' competitors generally have substantially greater resources than
Building Blocks. Although Building Blocks stores compete for consumer
expenditures with large mass merchandisers, such as Toys 'R Us, as well as the
toy departments of discount stores, where pricing policies typically involve
selling toys at discounted prices, management believes that Building Blocks'
merchandising, customer service and store format strategies differentiate its
stores from such larger competitors. Building Blocks stores compete more
directly with smaller "mom and pop" stores and regional chains such as "Learning
Express," "Noodle Kidoodle" and "Zainy Brainy," which offer similar product
selection and pricing in a larger store layout.
FRANCHISING PROGRAM
BBFC has been actively marketing Building Blocks franchises for new
locations. As of September 1, 1996, two franchises had been sold for stores to
be located in Dallas, Texas and Chicago, Illinois, each of which is expected to
open in the fall of 1996. Each of the two franchises sold by BBFC provides for
an initial franchise fee of $25,000, an ongoing royalty of 5% of net sales, and
ongoing contributions to an advertising fund. In addition to marketing
franchises to new locations, BBFC is also marketing franchises for Building
Blocks-operated stores.
TRADEMARKS
The Company and Building Blocks do not have any patents. The Building
Blocks logo is registered as a service mark with the United States Patent and
Trademark Office and United States trademark applications are pending for the
Building Blocks name for retail toy store services and for certain marketing
slogans and product line names.
EMPLOYEES
As of September 15, 1996, the Company and Building Blocks had an
aggregate of 69 employees, 32 of whom were full-time. Neither the Company nor
Building Blocks is a party to any collective bargaining agreement and both the
Company and Building Blocks believe that their relationship with their employees
are satisfactory.
- 5 -
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases approximately 2,500 square feet of executive office
space in Westport, Connecticut. This lease expires on November 30, 1996, and
payments thereunder are approximately $3,400 per month.
As of September 25, 1996, Building Blocks operated 10 store locations.
These stores average approximately 1,750 square feet. The store locations are
as follows:
Connecticut--
Stamford
Westport
Ridgefield
Greenwich
New York--
Third Ave., NYC
Lexington Ave., NYC
Nanuet
White Plains
Queens, NYC
Massachusetts--
Burlington
The store leases expire at various dates between July 1997 and January
2006. Most of the leases require Building Blocks to pay taxes, insurance and
maintenance charges, in addition to a base rent. Lease expenses for each of the
10 stores in operation currently average approximately $6,300 per month.
During fiscal 1996, the Company began negotiating for the termination
or revision of its leases at six mall locations. As of September 1, 1996, the
Company had closed three of these locations and renegotiated the lease terms for
the stores in the Nanuet and Burlington locations. The Company is in arrears in
its rent for the three closed locations and for one other location. The Company
is presently attempting to negotiate settlements of its rent arrearages and the
termination of its leases for the three closed locations and a modification of
its lease for the fourth location. In addition, the Company intends to close
three stores in October 1996. See "Item 3 -- Legal Proceedings" and "Item 6 --
Management's Discussion and Analysis or Plan of Operation."
- 6 -
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On August 22, 1996, the Company, entered into a definitive Agreement
of Settlement and Compromise (the "Settlement Agreement"), with respect to a
lawsuit commenced by Peter Sayet entitled SAYET V. INSTITUTE FOR LABORATORY
MEDICINE, INC., ET AL., in which Mr. Sayet claimed damages of approximately
$1,400,000 arising from events occurring at the time his employment with the
Company terminated in 1992, when it operated under the name Institute for
Laboratory Medicine, Inc. Pursuant to the requirements of the Settlement
Agreement, the Company also entered into a Registration Rights Agreement
dated August 22, 1996 (the "Registration Rights Agreement") with Mr. Sayet
and a designee of Mr. Sayet (the "Selling Stockholders") pursuant to which
the Company has filed a Registration Statement covering the shares of common
stock, $.001 par value, of the Company (the "Shares") issued to the Selling
Stockholders. Pursuant to the Registration Rights Agreement, the Company
agreed to use its best efforts to prepare and file with the Commission a
registration statement to permit the transfer or resale of the Shares and
agreed to maintain the effectiveness of the registration statement until the
earlier of the disposition of the Shares or the expiration of the applicable
Rule 144 holding period.
Pursuant to the terms of the Settlement Agreement, in the event that
the Selling Stockholders sell any Shares for more than $1.00 per Share, the
Company shall receive 67% of such excess (the "Company Proceeds"). The
Settlement Agreement also provides for a "Price Protection Pool" which shall
be equal to the sum of: (i) $160,000 and (ii) 25% of the Company Proceeds.
If, after the sale of all of the 650,000 Shares by the Selling Stockholders,
in bona fide open market transactions, the Selling Stockholders realize gross
proceeds of less than $650,000 (the "Shortfall") the Company will be required
to either pay the Shortfall, up to the amount of the Price Protection Pool,
to the Selling Stockholders or suffer the transfer to the Selling
Stockholders of Shares having a market value equal to the shortfall, up to a
maximum of 213,333 Shares. The aforesaid 213,333 Shares have been issued to
and registered in the name of an escrow agent. The transfer of the required
number of escrowed Shares would be in complete satisfaction of the Company's
payment obligation under the Settlement Agreement.
OTHER LEGAL PROCEEDINGS
At September 15, 1996, landlords at three mall stores which were closed
between June and September 1996 had instituted legal proceedings against
Building Blocks for rent arrearages in the aggregate amount of approximately
$200,000 and additional damages of approximately $400,000 for breaches of the
underlying leases (Westland Garden State Plaza Limited Partnership v. Building
Blocks, Inc., Superior Court of New Jersey, Bergen County, commenced June 4,
1996; General Growth Properties - Natick Limited Partnership v. Building Blocks,
Inc., District Court,
- 7 -
<PAGE>
Middlesex, Massachusetts, commenced August 12, 1996; and Westland Properties,
Inc. v. Building Blocks, Inc., Superior Court - Fairfield, Connecticut,
commenced June 24, 1996). Building Blocks is actively defending these damage
claims and believes that such claims are subject to substantial reduction.
Management is engaged in settlement discussions with the landlords of these
three malls and believes, although there can be no assurance, that it can reach
settlements which will be within Building Blocks' anticipated use of its
expected cash resources as set forth in "Management's Discussion and Analysis-
Liquidity and Capital Resources." Building Blocks has also been attempting to
renegotiate the terms of a lease on a fourth mall store. Building Blocks has
received a notice of petition from the landlord of this store seeking
approximately $130,000 of rent it has withheld and possession (FASHION MALL
PARTNERS, L.P. V. BUILDING BLOCKS, INC., City Court - Westchester, New York,
commenced September 26, 1996).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock has been quoted on the NASDAQ SmallCap System since
July 1, 1994 and has traded under the symbol "SRGC". The following table sets
forth the high and low bid prices on the NASDAQ SmallCap System as reported by
NASDAQ for the periods indicated:
Period High Low
------ ---- ---
July 4, 1994 - October 2, 1994 1 5/16 1 3/16
October 3, 1994 - January 1, 1995 1 3/8 3/4
January 2, 1995 - April 2, 1995 1 5/8
April 3, 1995 - July 2, 1995 7/16 1/4
July 3, 1995 - October 1, 1995 7/8 1/4
October 2, 1995 - January 1, 1996 5/8 1/4
January 2, 1996 - March 31, 1996 31/32 5/16
April 1, 1996 - June 30, 1996 1 1/4 5/8
On September 1, 1996, there were 240 holders of record of the
Company's Common Stock and one holder of record of the Company's Series A-1
Preferred Stock.
The Company has never paid dividends on the Common Stock or on the
Series A-1 Preferred Stock and does not anticipate paying any dividends in the
foreseeable future.
- 8 -
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Set forth below is a summary of the significant factors affecting the
operating results, financial condition and liquidity/cash flows of Specialty
Retail Group, Inc. (the "Company") for the 53 weeks ended July 2, 1995 ("fiscal
1995") and the 52 weeks ended June 30, 1996 ("fiscal 1996"). This discussion
should be read in conjunction with the financial statements and notes thereto.
The operating subsidiary of the Company is Building Blocks, Inc.
("Building Blocks"), which the Company acquired on April 13, 1993 and which
operates a chain of specialty retail toy stores. Building Blocks Franchise
Corp. ("BBFC"), formed subsequent to June 30, 1996, has been marketing
franchises for Building Blocks stores. Due to the seasonal nature of the toy
industry and the effects of store openings and closings in comparable year
periods, comparisons between results of operations for such periods may not
be meaningful or possible. In addition, the Company's results for fiscal
1996 reflect a liability for a non-cash obligation of $570,000 incurred in
connection with the Settlement Agreement and charges of approximately
$660,000 to reflect actual and estimated costs associated with Building
Blocks' decision to close certain of its stores.
Results of operations for the year ended June 30, 1996 are not
indicative of future results because of the Company's current business plans as
described under "Liquidity and Capital Resources," below.
LIQUIDITY AND CAPITAL RESOURCES
The matters discussed under this caption that are forward looking
statements involve risks and uncertainties. Such risks and uncertainties
include, without limitation, the impact which the economy, competition, or
unusual weather could have on Building Blocks' operating results for the 1996
holiday season; the timing, extent and terms of BBFC's franchise sales,
including the possible sales of existing Building Blocks-operated stores to
franchisees; the outcome of certain negotiations currently ongoing with respect
to the settlement of rent arrearages and disputed additional claims arising from
the closing of three indoor regional mall stores between June and September
1996; and the results of Building Blocks' program to phase out of the operation
of Building Blocks-operated stores described below.
In the Company's quarterly report for the period ended March 31, 1996,
management projected that the Company would require between $500,000 and
$1,250,000 of additional working capital to fund operations through March of
1997. Between June and September 1996, three Building Blocks-operated stores
which were operating in indoor regional malls in Massachusetts, Connecticut and
New Jersey were closed and Building Blocks has
- 9 -
<PAGE>
been negotiating with the landlords of such premises for the settlement of
approximately $200,000 of rent arrearages and of $400,000 of additional
claims which the Company is actively disputing. In July 1996 the Company
received $224,150 under an agreement which provided that the Company would
either repay such amount or transfer to the lender all of its rights and
interests in stock and warrants to purchase stock of CM Franchise Corp. On
September 30, 1996, the Company will transfer the stock and warrants to the
lender. BBFC and Building Blocks had anticipated the completion at the end of
September 1996 of at least two transfers to franchisees of the leases, and
the sale for cash of the fixtures and inventories, for Building
Blocks-operated stores. These transactions, together with the above-described
transactions, would have provided substantially all of the working capital
required to finance planned holiday season inventory build-ups, and,
management believes, would have enabled Building Blocks to arrange for any
needed additional holiday season working capital. These franchise
transactions did not occur, and Building Blocks does not have adequate
working capital to finance additional inventories.
Management intends to close certain of Building Blocks' stores
before the 1996 holiday season and to consolidate inventories from these
stores at its other stores. BBFC and Building Blocks are also actively
seeking other potential franchisees to acquire Building Blocks-operated
stores and their leases, fixtures and inventories. BBFC is, simultaneously,
pursuing the sale of franchises for new locations.
The Company's present plan contemplates that any Building Blocks-
operated stores in operation after January 1997 will be transferred to
franchisees, and, in any event, will be phased out by the Spring of 1997 and
that the Company will thereafter limit its retail toy activities to franchising
by BBFC. The Company's ability to generate adequate cash flow to sustain its
planned activities beyond December 31, 1996, is therefore dependent upon the
success Building Blocks achieves in its plans to transfer Building Blocks-
operated stores to franchisees and upon BBFC's ability to sell additional
franchises, which, in turn, may be affected by Building Blocks' financial
condition and the closing or franchising of Building Blocks-operated stores. It
is expected that cash generated by Building Blocks will be applied to reduce its
accounts payable and other obligations and will not be available to fund BBFC's
operations. BBFC will rely upon cash currently held by the Company and
franchise revenues.
There can be no assurance as to the ultimate outcome of any of the
foregoing matters, and the Company may require additional working capital, in
amounts which could be substantial. There can be no assurance that any working
capital will be available on acceptable terms or at all.
The Company is also seeking opportunities for a business combination
with an operating company (a "Business Combination"). The Company intends to
attempt to negotiate a Business Combination for stock of the Company. There are
no agreements or understandings with respect to any Business Combination.
Management believes that the Company's status as a publicly traded company and
its net operating loss carryforward
- 10 -
<PAGE>
("NOL") will be attractive to a privately held operating company. However,
there can be no assurance that the Company will be able to locate a potential
party to a Business Combination or negotiate a Business Combination on terms
satisfactory to the Company or at all. In addition, the use of the Company's
NOL to offset profits after a business combination is subject to a number of
highly technical rules.
As a result of these matters, the report of the Company's auditors on the
Company's June 30, 1996 financial statements contains a "going concern"
explanatory paragraph.
RESULTS OF OPERATIONS FISCAL 1996 COMPARED TO FISCAL 1995
RESULTS OF OPERATIONS
In addition to the Building Blocks acquisition on April 13, 1993,
the Company established, in May 1993, a real estate consulting division (the
"Real Estate Division") which it discontinued in fiscal 1995. The revenues
and operating costs associated with the Real Estate Division are included in
fiscal 1995 operations. Also included in fiscal 1996 and 1995 operations,
are the general and administrative costs and other expenses associated with
the Company's corporate overhead, and interest income from cash and cash
equivalent balances. As described in Note 4 to the Consolidated Financial
Statements ("Equity Investment"), the Company acquired 25% of the common
stock of CM Franchise Corp. on December 14, 1995. The Company's proportion
of the operating results in CM Franchise Corp. is included in the results of
operations.
OPERATIONS
Net sales, substantially all of which were generated by Building
Blocks, were $7,126,444 in fiscal 1996, an increase of 26.6% versus $5,629,643
in fiscal 1995. This increase in net sales is due principally to the increase
in the number of stores operated by the Company. Thirteen stores were in
operation at June 30, 1996. Six of these stores were fully comparable. That
is, they were fully operational during the entire two fiscal years. Sales for
these six stores increased 5.7% or $196,351 from fiscal year-end July 2, 1995 to
fiscal year-end June 30, 1996.
Cost of sales as a percentage of net sales remained virtually
unchanged from 58.4% in fiscal 1995 to 58.0% in fiscal 1996. Cost of sales in
dollars increased from $3,286,273 in fiscal 1995 to $4,136,490 in fiscal 1996 to
support higher sales due to a net increase in the number of stores.
Selling expenses consist primarily of payroll, occupancy and
advertising expenses associated with the Building Blocks stores. Selling
expenses were $3,159,280 (44.3% of
- 11 -
<PAGE>
net sales) and $2,438,024 (43.3% of net sales) in fiscal years 1996 and 1995,
respectively. This 29.6% increase in dollars is due to the net increase in the
number of stores operated by the Company. As stores mature, selling costs as a
percentage of sales typically decrease. Conversely, the opening of new stores
results in selling costs as a percentage of net sales increasing due to high
initial advertising and promotional expenses. Additionally, occupancy costs
increase when new stores are open.
General and administrative expenses represent salaries and related
expenses associated with the corporate staff, as well as the expenses
associated with Building Blocks' corporate operations and the Real Estate
Division. General and administrative expenses were $2,143,541 (30.1% of net
sales) in fiscal 1996, representing a decrease of $782,016 or 26.7% when
compared with $2,925,557 (52.0% of net sales) for fiscal 1995. This decrease
is attributable to various cost reduction measures undertaken by the Company.
These reductions include the elimination of the Real Estate Division and the
reduction of administrative payroll and consulting fees. These reductions,
combined with the increase in sales, resulted in a strong improvement in
these expenses measured as a percentage of net sales.
ONE-TIME AND RESTRUCTURING ITEMS
Effective June 29, 1995 the Company acquired Healthcare Venture
Management Corp. ("HVM") for 2,685,071 shares of Common Stock valued at
$1,398,385 and $80,000 in cash. HVM and the Company were parties to an
advisory agreement under which HVM was entitled to receive a fee of 3.5% of
the Company's net sales through June 2011. These fees will now be retained
in the Company's consolidated results. The transaction was treated as a
tax-free merger, and the Company took a one-time charge of $1.5 million
related to the transaction.
During the fourth quarter of fiscal 1995 the Company implemented or
developed plans for several programs designed to restructure its operations.
The Company recorded approximately $653,000 in charges in fiscal 1995 related to
the expected costs of restructuring. These charges include the estimated costs
of closing certain stores, severance and other personnel-related costs and
related professional fees. In addition the Company recorded pretax charges of
approximately $256,000 for costs associated with a restructuring of the
management organization.
For the year ended June 30, 1996, the Company recorded restructuring
and other expense charges of $660,767 for the disposition of fixed assets and
other costs related to the closing or expected closings of certain mall
stores.
The Company had been a defendant in a lawsuit with a former officer
who was suing the Company for various alleged claims (see "Item 3 - Legal
Proceedings"). In fiscal 1995, the Company had taken a reserve of $250,000
related to estimated legal fees as a result of its defense in this matter.
As a result of the settlement of this lawsuit, the Company recorded a noncash
expense of $570,000, which appears as "Legal Settlement-noncash" in the
accompanying consolidated statement of operations for the year ended June 30,
1996.
- 12 -
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Located
at Page
--------
Report of Independent Certified Public Accountants..........................F-1
Consolidated Balance Sheet at June 30, 1996................................ F-2
Consolidated Statements of Operations for the years
ended June 30, 1996 and July 2, 1995......................................F-3
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 1996 and July 2, 1995............................F-4
Consolidated Statements of Cash Flows for the years
ended June 30, 1996 and July 2, 1995......................................F-5
Notes to Consolidated Financial Statements..................................F-6
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- 13 -
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of September 25,
1996 concerning the directors and executive officers of the Company.
Name Age Position
---- --- --------
Arnold B. Becker 61 Director
Tony Coelho(2)(3) 54 Director
Daniel Glass(1) 39 Director
Kevin R. Greene(2)(3) 37 Chairman of the Board
C. Anthony
Wainwright(1) 63 Director
Seymour W. Zises(2)(3) 43 Director
Steven E. Glass 35 President and Chief Executive Officer of
Building Blocks ("BB") and Building Blocks
Franchise Corp. ("BBFC"); Secretary of the
Company
Helen M. Trent 49 Vice President of Franchise Development of
BBFC and Secretary of BBFC
Directors are elected annually for a one-year term. Nonemployee and
non-affiliated Directors receive an annual fee of $2,500 per year plus $500 for
each meeting attended.
ARNOLD B. BECKER has been a director of the Company since March 7,
1994. Since January 1996, Mr. Becker has been Chairman of Arnold B. Becker
Group, Inc., a management consulting firm specializing in services to retailers.
From 1980 until February 1996, Mr. Becker was the President of Vendamerica,
Inc., the U.S. investment arm of Vendex International, N.V., a large Dutch
multi-divisional retailing and services company. In that capacity Mr. Becker
was responsible for implementing Vendex's strategy of taking large minority
equity positions in well-managed, fast-growing retailers in the United States
for investment purposes. He is a Director of Western Beef, Inc.
TONY COELHO has been a director of the Company since June 1991. Since
July, 1995, Mr. Coelho has been Chairman
- --------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee which also administers the Company's Stock
Option Plans.
(3) Member of Executive Committee.
- 14 -
<PAGE>
and Chief Executive Officer of Coelho Associates, LLC, a New York investment
consulting and brokerage firm. From 1989 through June, 1995, he was a Managing
Director of Wertheim Schroder & Co., Incorporated, a New York-based
international investment banking and securities firm. He also served as
President and CEO of Wertheim Schroder Investment Services. He is a director of
Circus Circus Enterprises, Inc., a lodging and gaming company; Crop Growers
Corporation, an insurance company; ICF Kaiser International Inc., an engineering
and consulting firm; Service Corporation International, a company which owns and
operates funeral homes and cemeteries; Tanknology Environmental, Inc., a company
which provides underground storage tank testing services; and
Tele-Communications, Inc., a company which provides cable television and other
communications services. Mr. Coelho serves as chairman and CEO of ETC, a
Washington-based education training and communication subsidiary of
Tele-Communications, Inc. Mr. Coelho is a former U.S. Representative from
California and Majority Whip of the U.S. House of Representatives. He received
his Bachelor of Arts degree in 1964 from Loyola Marymount University in Los
Angeles.
DANIEL GLASS has been a director of the Company since March, 1993.
Mr. Glass is President of Universal Records, a division of MCA Music
Entertainment Group, with which he has been associated since August 1995. From
April 1993 to September 1994, he was President and Chief Executive Officer of
EMI Records Group. From April 1989 to April 1993, Mr. Glass was Senior Vice
President and General Manager of SBK Records. From 1983 to April 1989, Mr.
Glass was Senior Vice President of Promotion of Chrysalis Records. Mr. Glass is
the brother of Steven E. Glass.
KEVIN R. GREENE has been the Chairman of the Board of Specialty Retail
Group, Inc. since June 1995. He is the Chairman and Chief Executive Officer of
Value Investing Partners, Inc., which he founded in 1991. From 1986 to 1991 Mr.
Greene was a Senior Manager of McKinsey & Company, a firm of international
management consultants. From 1982 through 1984, Mr. Greene was in institutional
sales and commodities research at E.F. Hutton & Co., a U.S.-based investment
bank. Mr. Greene holds a B.A. in Economics from Georgetown University, an
M.P.P. in International Trade and Finance from Harvard University, and an M.B.A.
in Finance from New York University. Mr. Greene is a director of New World
Coffee, Inc., which operates a chain of gourmet coffee restaurants.
C. ANTHONY WAINWRIGHT has been a director of the Company since March
1993. Since June, 1995 Mr. Wainwright has been Chairman of Harris, Drury,
Cohen, an advertising agency. From 1989 to May 1995, Mr. Wainwright was
Chairman of CME*KHBB, an international advertising agency. From 1980 to 1989,
Mr. Wainwright was President and Chief Operating Officer of The Bloom Companies,
a Dallas, Texas based advertising agency. Mr. Wainwright is also a director of
American Woodmark Corporation, Del Webb Corporation and Gibson Greeting Cards,
Inc.
- 15 -
<PAGE>
Mr. Wainwright received his B.A. in journalism from the University of Colorado
in 1955.
SEYMOUR W. ZISES has been a director of the Company since June 1991,
and is currently President and Chief Executive Officer of Family Management
Corporation, a registered investment advisory firm in New York City which he
established in September 1989. Mr. Zises also serves as President and Chief
Executive Officer of Forest Hill Capital Corporation, a merchant banking
concern. Mr. Zises is also an officer and director of RCL Capital Corp., Inc.,
a merchant banking concern, and Disc Graphics, Inc., a product packaging design
company. Prior to his founding Family Management, he was an independent
financial service representative licensed with Integrated Resources Equity
Corporation. Mr. Zises was one of several individual general partners or an
officer or shareholder of a corporate general partner of six real estate limited
partnerships which filed petitions for bankruptcy under Chapter 11 of the United
States Bankruptcy Code between 1990 and February 1993. Mr. Zises serves on the
Board of Trustees of Beth Israel Medical Center in New York City. Mr. Zises is
a graduate of New York University.
STEVEN E. GLASS has been associated with the Company as an employee or
consultant since September, 1995 and has been President and Chief Executive
Officer of Building Blocks since April, 1996. From June 1993 until March 1995,
Mr. Glass was Director of Special Projects for EMI Records where he supervised
strategic sales and marketing projects for television, film and children's
music, including the implementation and direction of EMI's "Barney Music"
division. Prior to joining EMI Mr. Glass spent 13 years in municipal
government, including his last position as Special Assistant to the Borough
President of Brooklyn, with responsibility for various business and commercial
development projects. Mr. Glass is the brother of Daniel Glass.
HELEN M. TRENT has been Vice President of BBFC since June 1996. Ms.
Trent has over 20 years of experience in national and regional franchising.
From November, 1993 until joining BBFC she was Vice President, Franchise
Development for Huntington Learning Centers, Inc. From 1990 until she joined
Huntington Learning Centers, Inc., Ms. Trent was a franchising consultant,
providing sales and marketing advice to, and developing brochures, advertising
and other materials for, national and regional franchisors. Ms. Trent's prior
experience includes service as a franchising executive for Mr. Sign Franchising
Corp., Burger King and Jack-in-the-Box Restaurants.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE
ACT OF 1939
Based solely on a review of Forms 3 and 4 (and amendments thereto)
furnished to the Company during its fiscal year ended June 30, 1996, and certain
written representations
- 16 -
<PAGE>
received by it, the Company is not aware of any person who, during the prior
fiscal year, was an officer or director of the Company or the beneficial owner
of more than 10% of its outstanding Preferred Stock or Common Stock, and who,
during the prior or previous fiscal years, failed to file on a timely basis
reports as required by Section 16(a) of the Securities Exchange Act of 1934.
ITEM 10. EXECUTIVE COMPENSATION
Except for Jonathon Heller, no person who was an operating officer of
the Company at June 30, 1996 received annual salary and bonus which, in the
aggregate, exceeded $100,000 for the fiscal year ended June 30, 1996. In June
1995, Kevin R. Greene became Chairman of the Board of Directors of the Company.
Through June 30, 1996, Mr. Greene received no cash or other compensation other
than the $2,500 per year and $500 per meeting paid to directors who are not
employees or beneficial owners of 10% or more of the outstanding capital stock
of the Company.
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Awards Payouts
------ -------
Securities
Underlying All Other
Annual Compensation Options/SARS Compensation
------------------- ------------ ------------
Name and Fiscal Year Other Annual
Principal Position Ended Salary $ Compensation # $
- ------------------ ----------- --------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Jonathon Heller, June 30, 1996 $108,401 -- -- --
Co-President of
Building Blocks
July 2, 1995 $ 95,692 -- -- --
July 3, 1994 $ 30,288 -- -- --
</TABLE>
Aggregated Option/SAR Exercises in
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The Company has no SAR's outstanding. No stock options were
exercised by any executive officer during the fiscal year ended June 30, 1996.
The following table sets forth certain information as to the number
and value of unexercised stock options held by the named officer at
June 30, 1996.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-The-Money Options
Options at June 30, 1996 at June 30, 1996
------------------------ ---------------------------
Name Exercisable Unexercisable Exercisable* Unexercisable*
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jonathon Heller 43,333 66,667 -- --
</TABLE>
_______________________
* None of the foregoing options were in-the-money at June 30, 1996.
- 17 -
<PAGE>
Steven E. Glass, the President and Chief Executive Officer of Building
Blocks, is employed pursuant to an employment agreement which became effective
April 1, 1996 and expires in February 1998. The agreement provides for a
signing bonus of $10,000 and an annual salary of $112,500 the first year and
$135,000 thereafter, a bonus of 5% of pre-tax profits before certain
extraordinary items, an expenditure by the Company of up to $1,000 a month to
provide a leased vehicle and certain related automobile expenses for Mr. Glass,
and reimbursement of all business-related expenses.
Mr. Glass has also been granted options to acquire 110,000 shares of
Common Stock at $.75 per share and 20,000 shares of Common Stock at $1.00 per
share.
- 18 -
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of September 1,
1996, regarding the beneficial ownership of the Company's Common Stock by (i)
all persons known by the Company to own beneficially more than 5% of its
outstanding Common Stock or its outstanding Series A-1 Preferred Stock, (ii)
each director and officer of the Company and (iii) all directors and officers of
the Company as a group. Unless otherwise stated, the Company believes that the
beneficial owners of the shares listed below have sole investment and voting
power with respect to such shares.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percent of
Title of Class of Beneficial Owner Ownership Class(1)
- ------------- ------------------- ---------- --------
<S> <C> <C> <C>
Common Stock Arnold B. Becker 50,000(2) *
Common Stock Tony Coelho 50,000(2) *
Common Stock Daniel Glass 50,000(2) *
Common Stock Kevin R. Greene(3) 247,000(3) 2.5%
Common Stock C. Anthony Wainwright 50,000(2) *
Common Stock Cathy Zises(4) 944,377 10.1%
477 Madison Avenue
New York, New York 10022
Common Stock Lynn Zises 796,317 8.5%
477 Madison Avenue
New York, New York 10022
Common Stock Nancy Zises
477 Madison Avenue
New York, New York 10022 833,332 8.9%
Common Stock Seymour W. Zises(4) 944,377 10.1%
Common Stock Steven E. Glass 56,667(2) *
Series A-1 ILM Acquisition L.P.(4)
Preferred Stock 477 Madison Avenue
New York, New York 10022 2,394,130 100%
Common Stock All directors and officers as a group 1,448,044(2)(3)(4) 14.8
(7 persons)
</TABLE>
_______________________
* Less than 1%.
(1) Based upon 9,324,738 shares of Common Stock outstanding, which does not
include 213,333 shares held by an Escrow Agent or shares of Common Stock
issuable upon the exercise of the options described below in footnote (2).
However, in computing the respective percentages of the Common Stock
beneficially owned by the holders described in footnote (2), and in
calculating the percentage of the Common Stock owned by all officers and
directors as a group, the shares of Common Stock subject to options
described in footnote (2) were deemed outstanding.
(2) The total for each of Arnold Becker, Tony Coelho, Daniel Glass, Steven E.
Glass, and C. Anthony Wainwright represents the number of shares of Common
Stock purchasable pursuant to currently exercisable options held by him.
- 19 -
<PAGE>
All such options were granted pursuant to the Company's Amended and
Restated 1991 Non-Qualified Stock Option Plan or the Company's 1994 Stock
Option Plan, except an option for 110,000 shares granted to Steven E. Glass
(of which 36,667 shares are currently exercisable).
(3) The shares reported for Mr. Greene include 243,250 shares of Common Stock
issuable upon exercise of a warrant held by Value Investing Partners, Inc.
of which Mr. Greene is the principal stockholder.
(4) The Shares reported for Cathy Zises include 148,060 shares held by her as
custodian for her minor children. Cathy Zises is the wife of Seymour W.
Zises. The shares reported for Seymour W. Zises are the shares held
directly or as custodian by Cathy Zises. Mr. Zises may be deemed the
beneficial owner of such shares. Mr. Zises disclaims such beneficial
ownership. Shares of Series A-1 Preferred Stock owned by ILM Acquisition,
L.P. ("IALP") represent all of the Company's issued and outstanding Series
A-l Preferred Stock. Selig A. Zises, a brother of Seymour W. Zises, is the
beneficial owner of all of the shares of Series A-1 Preferred Stock held by
IALP as a result of his ownership of all of the voting securities of the
general partner of the general partner of IALP. Family members of Seymour
W. Zises are indirect beneficial owners of limited partnership interests in
IALP. Seymour W. Zises disclaims any beneficial ownership of any of the
Preferred Stock of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective June 1991, the Company retained the services of Healthcare
Venture Management Corp. (the "Adviser"), an affiliate of ILM Acquisition, L.P.
("IALP"), as an adviser in connection with certain financial consulting services
pursuant to a 20-year advisory agreement approved by the Company's shareholders
(the "Advisory Agreement"). The Advisory Agreement originally provided that,
for its services as adviser, the Company would pay the Adviser a monthly
advisory fee in an amount equal to 3.5% of the Company's revenues from its
billings for its products and services during such month.
As a result of the Cardinal Transaction, from December 31, 1991 and
until April 13, 1993, the Company did not have any revenues from billings for
products and services, and, accordingly, the Adviser did not receive an advisory
fee. In June 1992, the Board of Directors amended the advisory agreement to
provide that until June 30, 1995, the monthly advisory fee payable pursuant to
the June 20, 1991 Advisory Agreement would be an amount equal to 3.5% of the
net revenues from the Company's billings for its products and services during
the immediately preceding calendar month, less $20,834 per month. Because of
this amendment to the Advisory Agreement, no advisory fees were paid through
June 30, 1995.
Effective June 29, 1995 the Company acquired the Adviser for 2,685,071
shares of Common Stock valued at $1,398,385 and $80,000 in cash. As a result of
the acquisition the fees payable under the Advisory Agreement will be retained
in the Company's consolidated results. The transaction was treated as a tax-
free merger, and, in fiscal 1995, the Company took a one-time charge of $1.5
million related to the transaction.
- 20 -
<PAGE>
In connection with IALP's acquisition of a controlling interest in the
Company in June 1991, the Company received from IALP $1,000,000 in cash and a
$1,000,000 five year promissory note, accruing interest at 10% per annum, which
was secured by the Common Stock and Preferred stock of the Company acquired by
IALP. On June 29, 1995 the Company purchased the 2,817,581 shares of Common
Stock held by IALP at a price of $.52 per share. The purchase was paid for
through the cancellation by the Company of the $1,000,000 promissory note from
IALP and of interest accrued thereon of $467,407. IALP retained ownership of
2,394,130 shares of the Registrant's Series A-1 Preferred Stock.
As a result of the acquisition of the Advisor, (i) Lynn Zises acquired
an aggregate of 9.7% of the Company's then outstanding common stock and 7.4% of
the Company's then outstanding voting stock, (ii) Nancy Zises acquired directly
and as custodian for her minor child an aggregate of 9.9% of the Company's then
outstanding common stock and 7.6% of the Company's then outstanding voting
stock, and (iii) Cathy Zises acquired directly and as custodian for her minor
children an aggregate of 11.2% of the Company's then outstanding common stock
and 8.7% of the Company's then outstanding voting stock.
By virtue of its ownership of all of the outstanding shares of Series
A-1 Preferred Stock, IALP controls approximately 20.4% of the voting power of
the Company. Selig A. Zises, a brother of Seymour W. Zises, is the beneficial
owner of all of the shares of Series A-1 Preferred Stock held by IALP as a
result of his ownership of all of the voting securities of the general partner
of IALP. Family members of Seymour W. Zises are indirect beneficial owners of
limited partnership interests in IALP. Seymour W. Zises disclaims any
beneficial ownership of any Preferred Stock of the Company.
Each of Selig A. Zises, Cathy Zises, Lynn Zises and Nancy Zises
disclaims being a control person of the Company and disclaim that any two or
more of them constitute a group. Seymour W. Zises is the husband of Cathy
Zises, the brother of Selig Zises, the uncle of Lynn Zises and the
brother-in-law of Nancy Zises. Selig A. Zises is the father of Lynn Zises.
Effective January 1, 1994, the Company entered into a consulting
agreement with Seymour W. Zises, a director of the Company, under which Mr.
Zises rendered consulting services to the Company in connection with its pursuit
and evaluation of opportunities to expand its specialty retail operations. Mr.
Zises received a fee of $5,000 per month and reimbursement of expenses. The
agreement was terminated as of January 31, 1995.
On November 17, 1995, the Company invested in a series of promissory
notes (the "Notes") for an aggregate of $1,000,000. The Maker of the Notes was
a corporation engaged in the finance industry. The Notes were automatically
renewed for 90-day maturities unless the Company determined not to renew.
$400,000
- 21 -
<PAGE>
of the original Notes were repaid during the quarter ended March 31, 1996. The
remaining Notes, each for $300,000, matured, and were paid in April 1996 and
June 1996. The Notes bore interest at a rate of 15% compounded annually and
payable monthly. The Notes were guaranteed by Selig A. Zises, who is a
significant investor in the Maker of the Notes.
In July 1996, pursuant to an agreement negotiated between Selig A.
Zises and Kevin R. Greene, Chairman of the Board of the Company, the Company
received $224,150 from Mr. Zises to cover a working capital shortfall. Under
the agreement with Mr. Zises the Company has the right to either repay the
advance without interest or to transfer to him all of the Company's rights and
interests in the common stock of CM Franchise Corp. and in warrants to purchase
additional shares of such Common Stock it acquired in December 1995 for a total
of $224,150. Payment of the advance or transfer of the aforesaid interests is
due on September 30, 1996 and the Company will transfer the rights and interests
on that date.
Reference is made to "Executive Compensation" for information as to
certain compensation arrangements with, and options granted to, present and
former officers and directors of the Company.
- 22 -
<PAGE>
ITEM 13. EXHIBITS AND
REPORTS ON FORM 8-K
(a) Exhibits
See "Index to Exhibits".
Executive Compensation Plans and Arrangements
Exhibit 10.1 - 1991 Non-Qualified Stock Option Plan
Exhibit 10.2 - 1994 Stock Option Plan
Exhibit 10.7 - Employment Agreement dated as of April 1, 1996
between Building Blocks and Steven E. Glass
Exhibit 10.8 - Option Agreement dated April 12, 1996 between
Registrant and Steven E. Glass
Exhibit 10.9 - Option Agreement dated October 2, 1995 between
Registrant and Steven E. Glass
Exhibit 10.13 - Option Agreement dated March 7, 1994 between
Registrant and Jonathon Heller
Exhibit 10.14 - Option Agreement dated November 1, 1994 between
Registrant and Jonathon Heller
(b) Reports on Form 8-K
None.
- 23 -
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: September 27, 1996 SPECIALTY RETAIL GROUP, INC.
By:KEVIN R. GREENE
---------------------------------
Chairman of the Board,
Chief Executive and
Financial Officer
In accordance with the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Arnold B. Becker September 27, 1996
-------------------------
Arnold B. Becker
Director
September , 1996
-------------------------
Tony Coelho
Director
September , 1996
-------------------------
Daniel Glass
Director
Kevin R. Greene September 27, 1996
-------------------------
Kevin R. Greene,
Director
C. Anthony Wainwright September 27, 1996
-------------------------
C. Anthony Wainwright
Director
Seymour W. Zises September 27, 1996
-------------------------
Seymour W. Zises
Director
- 24 -
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of
Specialty Retail Group, Inc.
We have audited the consolidated balance sheet of Specialty Retail Group, Inc.
and subsidiary as of June 30, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the 52 weeks ended
June 30, 1996 and the 53 weeks ended July 2, 1995. 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 audits.
We conducted our audits 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 audits provide 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 Specialty Retail
Group, Inc. and subsidiary at June 30, 1996, and the results of their operations
and their cash flows for the 52 weeks ended June 30, 1996 and the 53 weeks
ended July 2, 1995 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations which raises substantial doubt about its ability to continue as
a going concern. Management's plans in regard to those matters also are
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BDO Seidman, LLP
New York, NY
September 20, 1996
F-1
<PAGE>
SPECIALTY RETAIL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1996
- -------------
<S> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 387,006
Inventory 1,281,777
Other current assets 129,538
----------
TOTAL CURRENT ASSETS 1,798,321
PROPERTY AND EQUIPMENT, NET (NOTE 3) 778,326
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF $223,925 143,032
EQUITY INVESTMENT (NOTES 4 AND 12) 179,744
OTHER ASSETS, PRIMARILY SECURITY DEPOSITS 103,255
----------
$ 3,002,678
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 1,252,432
Accrued liabilities 856,024
----------
TOTAL CURRENT LIABILITIES 2,108,456
----------
LEGAL SETTLEMENT - EQUITY TO BE ISSUED (NOTE 5) 570,000
----------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY (NOTES 6 AND 7)
Series A-1 preferred stock, $.001 par value - shares authorized
10,000,000; issued and outstanding 2,394,130 2,394
Common stock, $.001 par value - shares authorized 100,000,000; issued
and outstanding 8,674,738 8,675
Additional paid-in capital 11,004,220
Accumulated deficit (10,515,403)
Treasury stock, 240,500 shares (175,664)
----------
TOTAL STOCKHOLDERS' EQUITY 324,222
----------
$ 3,002,678
==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
SPECIALTY RETAIL GROUP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
52 WEEKS ENDED 53 weeks ended
JUNE 30, 1996 July 2, 1995
-------------- --------------
<S> <C> <C>
NET SALES $7,126,444 $5,629,643
COST OF SALES 4,136,490 3,286,273
--------- ---------
GROSS PROFIT 2,989,954 2,343,370
OPERATING COSTS:
Selling 3,159,280 2,438,024
General and administrative 2,143,541 2,925,557
Restructuring and other expenses (Note 10) 660,767 2,788,626
--------- ---------
LOSS FROM OPERATIONS (2,973,634) (5,808,837)
OTHER INCOME (EXPENSE:)
Interest income, net of interest expense of $-0- and $28,316 110,437 338,498
Loss on equity investment (Note 4) (44,406) -
Legal settlement - noncash (Note 5) (570,000) -
Other income 124,955 -
--------- ---------
LOSS BEFORE INCOME TAX EXPENSE (3,352,648) (5,470,339)
INCOME TAX EXPENSE (NOTE 8) 26,020 29,000
--------- ---------
LOSS FROM OPERATIONS $(3,378,668) $(5,499,339)
========= =========
PER SHARE AMOUNTS:
Net loss $(.39) $(.63)
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 8,674,738 8,660,063
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
SPECIALTY RETAIL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
52 WEEKS ENDED JUNE 30, 1996 AND 53 WEEKS ENDED JULY 2, 1995
- ------------------------------------------------------------
Preferred stock Common stock
--------------- ------------ Additional
Number of Number of paid-in
shares Amount shares Amount capital
-------- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 3, 1994 2,394,130 $2,394 8,807,248 $8,807 $10,940,903
Interest on subscription
note receivable (Note 6) - - - - 132,647
Note redemption (Note 6) - - (2,817,581) (2,817) (1,465,030)
Shares repurchased - - - - -
HVM acquisition - - 2,685,071 2,685 1,395,700
Net loss - - - - -
--------- ----- --------- ----- ----------
BALANCE, JULY 2, 1995 2,394,130 2,394 8,674,738 8,675 11,004,220
Net loss - - - - -
--------- ----- --------- ----- ----------
BALANCE, JUNE 30, 1996 2,394,130 $2,394 8,674,738 $8,675 $11,004,220
--------- ----- --------- ----- ----------
--------- ----- --------- ----- ----------
Stock
subscription Retained
note and earnings Total
interest (accumulated Treasury equity
receivable deficit) stock stockholders'
---------- --------- -------- ------------
BALANCE, JULY 3, 1994 $(1,335,203) $ (1,637,396) $ - $ 7,979,505
Interest on subscription
note receivable (Note 6) (132,644) - - 3
Note redemption (Note 6) 1,467,847 - - -
Shares repurchased - - (175,664) (175,664)
HVM acquisition - - - 1,398,385
Net loss - (5,499,339) - (5,499,339)
---------- ---------- ------- ---------
BALANCE, JULY 2, 1995 - (7,136,735) (175,664) 3,702,890
Net loss - (3,378,668) - (3,378,668)
---------- ---------- ------- ---------
BALANCE, JUNE 30, 1996 $ - $(10,515,403) $(175,664) $ 324,222
---------- ---------- ------- ---------
---------- ---------- ------- ---------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-4
<PAGE>
SPECIALTY RETAIL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 9)
======
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 weeks ended
JUNE 30, 1996 July 2, 1995
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,378,668) $(5,499,339)
--------- ---------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 307,248 492,962
Loss on disposal of equipment 699,674 575,782
Loss on investment in equity acquisition 44,406 -
Legal settlement - stock to be issued 570,000 -
(Increase) decrease in:
Inventory 120,099 (777,776)
Other current assets (11,213) 179,419
Other assets (45,116) (1,124)
(Increase) decrease in:
Accounts payable and accrued liabilities (496,330) 1,346,279
--------- ---------
TOTAL ADJUSTMENTS 1,188,768 1,815,542
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (2,189,900) (3,683,797)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (112,132) (1,944,527)
Equity investment (Note 4) (224,150) -
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (336,282) (1,944,527)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
HVM acquisition (Note 10) - 1,398,388
Repurchase of treasury stock - (175,664)
Repayment of notes payable - (317,632)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 905,092
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,526,182) (4,723,232)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,913,188 7,636,420
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $387,006 $2,913,188
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
SPECIALTY RETAIL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND GENERAL
SUMMARY OF
SIGNIFICANT
ACCOUNTING POLICIES Specialty Retail Group, Inc. (the "Company") is a
holding company engaged in the operation and
franchising of retail speciality toy stores. The
Company is also exploring opportunities for
business combinations.
Building Blocks, Inc. ("Building Blocks" or the
"Subsidiary") operates a specialty educational and
developmental toy store chain which, at June 30,
1996, consisted of ten stores located in
Connecticut, New York, and Massachusetts.
Subsequent to June 30, 1996, the Company formed a
wholly-owned subsidiary, Building Blocks Holdings,
Inc., which formed Building Blocks Franchise Corp.
("Building Blocks Franchise"). Building Blocks
Franchise grants franchises to qualified
candidates for the operation of Building Blocks
retail stores.
FISCAL YEAR
The Company has elected its fiscal year to be
based on a 52/53-week fiscal year ending on the
Sunday closest to June 30. Fiscal 1996 and 1995
consisted of 52 and 53 weeks, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the
accounts of the Company and the Subsidiary. All
significant intercompany balances and transactions
have been eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents consist principally of treasury
securities and highly liquid money market
accounts purchased with an original maturity of
three months or less. Such accounts are carried at
cost plus accrued interest, which approximates
market.
INVENTORIES
Inventories are principally stated at the lower of
cost, determined by the retail inventory method on
the first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost.
Depreciation is provided on the straight-line
method over the estimated useful lives of
approximately 3 to 7 years for furniture, fixtures
and equipment. Leasehold improvements are
amortized over 10 years or the related lease term,
whichever is shorter.
REVENUE RECOGNITION
Revenue from sales of the Company's products is
recognized at the time of sale.
F-6
<PAGE>
GOODWILL
The excess of purchase price over the fair value
of net assets acquired is being amortized on the
straight-line method over 15 years. The Company's
policy is to evaluate goodwill for potential
impairment of value at each balance sheet date,
by analyzing operating results and related cash
flows, trends and prospects as well as
competitive and economic factors.
STORE OPENING AND CLOSING COSTS
The Company follows the practice of deferring
store pre-opening costs, expensing such amounts
over a 12-month period. The costs associated with
store closings are accrued when the decision is
made to close the location.
DEFERRED RENT
Cash payments for rent obligations were $1,093,000
and $843,000, respectively, for the 52 weeks ended
June 30, 1996 and the 53 weeks ended July 2, 1995.
Accounting principles require that future rental
increments be accrued on a straight-line basis
over the term of the lease. The noncash additional
rental accruals reflected in the consolidated
financial statements amount to $116,000 and
$176,000 for the 52 weeks ended June 30, 1996 and
the 53 weeks ended July 2, 1995, respectively.
F-7
<PAGE>
INCOME TAXES
The Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes," which calls for the
liability method of accounting for income taxes.
Under the liability method, deferred income taxes
are recognized for the tax consequences of
"temporary differences" by applying enacted
statutory tax rates applicable to future years to
differences between the financial statement
carrying amounts and tax bases of existing assets
and liabilities. Deferred income tax (benefit)
expense is measured by the change in deferred
income tax assets or liabilities during the year.
Under SFAS No. 109, the effect on deferred taxes
of a change in tax rates is recognized in income
in the period that includes the enactment date.
PER SHARE DATA
Per share data is calculated based on the weighted
average number of shares of common stock
outstanding during the period. The Company's
outstanding stock options are excluded from the
fiscal 1996 and 1995 computations as their effect
would be antidilutive or immaterial during these
periods.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash
equivalents, other current assets, accounts
payable and accrued liabilities
approximate fair value because of the short
maturity of these items.
F-8
<PAGE>
LONG-LIVED ASSETS
During 1995, Statement of Financial Accounting
Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS
121"), was issued. SFAS 121 requires the
Company to review long-lived assets and certain
identifiable assets related to those assets for
impairment whenever circumstances and
situations change such that there is an
indication that the carrying amounts may not
be recoverable. If the undiscounted future
cash flows of the enterprise are less than
their carrying amounts, their carrying amounts
are reduced to fair value and an impairment loss
is recognized. The adoption of this
pronouncement in fiscal 1997 is not expected to
have a significant impact on the Company's
financial statements.
STOCK OPTIONS
The Company accounts for all transactions under
which employees receive shares of stock or
other equity instruments in the Company or the
Company incurs liabilities to employees
in amounts based on the price of its stock in
accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company
does not anticipate adopting the fair value
method encouraged by Statement of Financial
Accounting Standards No. 123, "Accounting for
Stock-Based Compensation."
PRESENTATION OF PRIOR YEAR DATA
Certain reclassifications have been made to
conform prior year data with the current
presentation.
2. GOING CONCERN The accompanying financial statements have been
prepared assuming that the Company will continue
as a going concern; they do not include
adjustments relating to the recoverability of
recorded asset amounts and classification of
recorded assets and liabilities. The Company has
incurred losses of approximately $10,515,000
from inception through June 30, 1996, including
significant losses in the last two fiscal years.
This condition raises substantial doubt about the
Company's ability to continue as a going concern.
Management intends to close certain of Building
Blocks' stores before the 1996 holiday season and
to consolidate inventories from these stores at
its other stores. Building Blocks Franchise and
Building Blocks are also actively seeking other
potential franchisees to acquire Building
Blocks-operated stores and their leases, fixtures
and inventories. Building Blocks Franchise is,
simultaneously, pursuing the sale of franchises
for new locations. At September 20, 1996,
franchises had been sold for Dallas, Texas and
Chicago, Illinois.
The Company's present plan contemplates that any
Building Blocks-operated stores in operation after
January 1997 will be transferred to franchisees
or will otherwise be phased out by the Spring of
1997 and that the Company will thereafter limit
its retail toy activities to franchising by
Building Blocks Franchise. The Company's ability
to generate adequate cash flow to sustain its
to sustain its planned activities beyond
December 31, 1996 is therefore dependent upon the
success Building Blocks achieves in its plans to
transfer Building Blocks-operated stores to
franchisees and upon Building Blocks Franchise's
ability to sell additional franchises which, in
turn, may be affected by Building Blocks'
financial condition and the closing or franchising
of Building Blocks-operated stores. It is expected
that cash generated by Building Blocks will be
applied to reduce its accounts payable and other
obligations and will not be available to fund
Building Blocks Franchise's operations. Building
Blocks Franchise will rely upon cash currently
held by the Company and franchise revenues.
F-9
<PAGE>
There can be no assurance as to the ultimate
outcome of any of the foregoing matters, and the
Company may require additional working capital, in
amounts which could be substantial. There can be
no assurances that any working capital will be
available on acceptable terms or at all.
The Company is also seeking opportunities for a
business combination with an operating company (a
"Business Combination"). The Company intends to
attempt to negotiate a Business Combination for
stock of the Company. There are no agreements or
understandings with respect to any Business
Combination. Management believes that the
Company's status as a publicly-traded company and
its net operating loss carryforward ("NOL") will
be attractive to a privately-held operating
company. However, there can be no assurance that
the Company will be able to locate a potential
party to a Business Combination or negotiate a
Business Combination on terms satisfactory to the
Company or at all.
3. PROPERTY AND JUNE 30, 1996
EQUIPMENT
Leasehold improvements $656,892
Equipment 231,608
Furniture and fixtures 393,035
---------
1,281,535
Less: Accumulated depreciation
and amortization (503,209)
---------
$778,326
=========
F-10
<PAGE>
4. EQUITY INVESTMENT On December 14, 1995, the Company acquired 25% of
the common stock of CM Franchise Corp. ("CM"), a
franchisor of specialty carpet retailers operating
under the registered trademark of "Carpet Master"
for a total consideration of $224,150. In
addition, as part of the transaction, the Company
also obtained an option to purchase an additional
12.5% of CM's common stock. The Company has
accounted for this transaction using the equity
method. Following is a summary of the Company's
investment in CM for the year ended June 30, 1996:
Purchase of 25% interest in CM $224,150
Less: 25% share in net loss of
investee (44,406)
--------
Balance in equity investment at
June 30, 1996 $179,744
========
This investment has been pledged as collateral
(see Note 12).
5. COMMITMENTS, LEGAL SETTLEMENT - NONCASH
CONTINGENCIES AND
OTHER The Company was a party defendant in a lawsuit
with an individual (the "Plaintiff") who was an
officer and director of the Company when it
operated a medical laboratory business which it
sold in 1991. The Plaintiff alleged, among other
things, breach of contract, fraud, defamation,
interference with stock transfer rights, breach of
fiduciary duties by certain former officers of the
Company, conspiracy to defraud and interference
with respect to the inspection of corporate
records. The Plaintiff claimed he was entitled to
a termination payment of approximately $1,400,000
pursuant to an employment agreement with the
Company. The Company vigorously defended itself
against the Plaintiff's allegations and vigorously
prosecuted its counterclaims. During the fourth
quarter of fiscal 1995, the Company recorded a
liability of $250,000 related to legal fees for
this matter.
F-11
<PAGE>
During August 1996, the Company settled this
litigation, without admitting liability, by
issuing an aggregate of 650,000 shares of the
Company's common stock to the plaintiff and his
designee. The Company also agreed to guarantee up
to $160,000 for any shortfall from $650,000
realized upon the sale by the holders of all of
the 650,000 shares. The Company may satisfy the
guarantee by a cash payment or by the release to
the holders of an additional 213,333 shares of
common stock being held by an escrow agent.
As a result of this settlement, the Company
recorded a noncash expense of $570,000 which
appears as "Legal Settlement - noncash" in the
accompanying consolidated statement of operations
for the year ended June 30, 1996. The $570,000
noncash expense is based on the market value of
the Company's common stock when the parties
reached an agreement to settle.
OTHER LEGAL PROCEEDINGS
At September 20, 1996, landlords at three mall
stores which were closed between June and
September 1996 had instituted legal proceedings
against Building Blocks for rent arrearages in the
aggregate amount of approximately $200,000 and
additional damages of approximately $470,000 for
breaches of the underlying leases. Building Blocks
is actively defending these damages claims and
believes that such claims are subject to
substantial reduction. Management is engaged in
settlement discussions with the landlords of these
three malls and believes, although there can be no
assurance, that it can reach settlements which
will be within Building Blocks' anticipated use
of its expected cash resources after completion
of the plan described in Note 2. The Company
has accrued substantially all rent in arrears
through June 30, 1996. No amount has been accrued
for damages pending the outcome of the settlement
negotiations. Building Blocks is also attempting
to renegotiate the terms of a lease on a fourth
mall store. Building Blocks has received a notice
of default from the landlord of this store with
respect to approximately $114,000 of rent it has
withheld.
LEASE COMMITMENTS
The Company leases office space and retail stores
under various noncancellable long-term operating
lease agreements for periods ranging from
approximately three to ten years. Most leases
require the payment of taxes, insurance, common
area charges and/or maintenance.
F-12
<PAGE>
As of June 30, 1996, the Company is committed for
aggregate future rentals (exclusive of taxes,
insurance, common area charges and maintenance)
for the next five fiscal years and thereafter
under noncancellable operating leases for various
facilities as follows:
FISCAL
------
1997 $1,067,347
1998 746,380
1999 693,729
2000 615,854
2001 527,984
Thereafter 1,888,661
---------
$5,539,955
=========
The above table excludes the commitments
related to the leases for the three mall stores
which were closed during the period June through
September 1996. As noted above, the Company is
engaged in settlement discussions with the
landlords of these three stores.
Rent expense, excluding executory costs, for all
operating leases approximated $1,214,000 and
$1,020,000 for the fiscal years ended June 30,
1996 and July 2, 1995, respectively.
The Company's real estate advisory and consulting
division results of operations for fiscal 1996 and
1995 were not material.
6. STOCK TRANSACTIONS Effective June 29, 1995, the Company acquired
Healthcare Venture Management Corp. ("HVM"), an
affiliate of ILM Acquisition, L.P. ("IALP"), for
2,685,071 shares of common stock. As a result of
the acquisition, the Company will consolidate
payment to HVM of a 3.5% consulting fee on
revenues through 2011. The cost of the acquisition
has been charged to other expenses in fiscal 1995
(see Note 10).
F-13
<PAGE>
In connection with IALP's acquisition of a
controlling interest in the Company in June 1991,
the Company received from IALP $1,000,000 in cash
and a $1,000,000 five-year promissory note,
accruing interest at 10% per annum, which was
secured by the common stock and preferred stock of
the Company acquired by IALP. On June 29, 1995,
the Company purchased the 2,817,581 shares of
common stock held by IALP at a price of $.52 per
share. The purchase was paid for through the
cancellation by the Company of the $1,000,000
promissory note from IALP and interest accrued
thereon of $467,407. IALP retained ownership of
2,394,130 shares of the Registrant's Series A-1
preferred stock.
7. STOCK OPTION PLANS In December 1991 and October 1994, the Company
established the 1991 Nonqualified Stock Option
Plan and the 1994 Stock Option Plan (the "Plans")
under which a total of 700,000 and 500,000 shares,
respectively, of the Company's common stock could
be issued to officers, directors, employees and
independent contractors of the Company. The Plans
are administered by a committee appointed by the
Board of Directors (the "Committee"). The
Committee has authority, subject to the terms of
the Plans, to determine the individuals to whom
options may be granted, the exercise price and the
number of shares of common stock subject to each
option, the time or times during which all or a
portion of each option may be exercised and
certain other provisions of each option. As of
June 30, 1996, an aggregate of 610,000 shares
remain available for future grant of options under
the Plans.
F-14
<PAGE>
Nonqualified stock option activity has been as
follows:
<TABLE>
<CAPTION>
Number of Exercise price
shares per share
--------- --------------
<S> <C>
Outstanding at July 3, 1994 510,000 $1.50 to $2.3125
Granted 300,000 $1.00 to $1.50
Expired/cancelled (250,000) $1.50 to $2.00
Exercised - -
-------- ---------------
Outstanding at July 2, 1995 560,000 $1.00 to $2.3125
Granted 130,000 $.75 to $1.00
Expired/cancelled (100,000) $1.00 to $1.50
Exercised - -
-------- ---------------
Outstanding at June 30, 1996 590,000 $.75 to $2.3125
======== ===============
</TABLE>
Pursuant to the Plan, the exercise price of shares
is determined by the Committee at the time of
grant but may not be less than the lesser of
(i) the book value per share of common stock as of
the end of the fiscal year of the Company
immediately preceding the date of grant or (ii)
50% of the fair market value per share of common
stock at the date of grant. All options granted to
date have approximated the then current fair
market value. The term of an option may not exceed
10 years from the date of the grant. Unless
otherwise determined by the Committee, options
granted vest and become exercisable at a rate of
at least 33-1/3% per year from the date of the
grant. Of the outstanding options to purchase
590,000 shares, 466,667 were fully vested at
June 30, 1996.
F-15
<PAGE>
8. INCOME TAXES The components of the income tax provision are
as follows:
YEAR ENDED JUNE 30, 1996 JULY 2, 1995
------------- ------------
Current income taxes:
Federal $- $-
State 26,020 29,000
------ ------
26,020 29,000
------ ------
Deferred income taxes:
Federal (3,542,000) (2,362,000)
State (1,041,000) (705,000)
--------- ---------
(4,583,000) (3,067,000)
--------- ---------
Valuation allowance 4,583,000 3,067,000
--------- ---------
Total $26,020 $29,000
========= =========
F-16
<PAGE>
Temporary differences and carryforwards which give
rise to deferred tax assets are as follows:
52 weeks 53 weeks
ended June 30, ended July 2,
1996 1995
---------- ------------
Deferred tax assets:
Depreciation $43,000 $44,000
Straight-line rent 119,000 78,000
Federal and state
income tax operating
loss carryforwards 4,583,000 2,945,000
--------- ---------
4,745,000 3,067,000
Valuation allowances 4,745,000 3,067,000
--------- ---------
$ - $ -
========= =========
At June 30, 1996, there were net operating loss
carryforwards of approximately $10,049,000
available for Federal and state income tax
purposes expiring over the next five to fifteen
years, depending on the jurisdiction, which may
provide future benefit for income taxes.
9. SUPPLEMENTAL The Company paid approximately $35,000 and
DISCLOSURES OF CASH $23,000 for income taxes during the 52 weeks
FLOW INFORMATION ended June 30, 1996 and the 53 weeks ended July 2,
1995, respectively, and $28,000 for interest
during the 53 weeks ended July 2, 1995.
10. RESTRUCTURING AND As discussed in Note 1, the Company's policy is to
OTHER EXPENSES accrue store-closing expenses when the decision is
made to close a location. Accordingly, for the
year ended June 30, 1996, the Company recorded
restructuring and other expense charges of
$660,767 for the disposition of fixed assets and
other costs related to the closing or expected
closings of certain mall stores.
F-17
<PAGE>
Effective June 29, 1995, the Company acquired
Healthcare Venture Management Corp. ("HVM") for
2,685,071 shares of common stock and, as a
result of the acquisition, the consulting
agreement with HVM, whereby HVM is entitled to
receive 3.5% of the Company's revenues through
2011, is consolidated in the Company's results.
HVM's only asset was its consulting agreement
with the Company. Other expenses during the year
ended July 2, 1995 include a charge of
approximately $1.5 million in connection with
the issuance of these shares and the cancellation
of the consulting agreement. In addition, other
expenses include approximately $1.2 million of
costs pertaining to the writedown of goodwill,
severance pay, litigation and the closing of
certain stores.
11. RELATED PARTY Effective January 1, 1994, the Company entered
TRANSACTIONS into a consulting agreement with Seymour W. Zises,
a director of the Company, under which Mr. Zises
rendered consulting services to the Company in
connection with its pursuit and evaluation of
opportunities to expand its specialty retail
operations. Mr. Zises received a fee of $5,000 per
month and reimbursement of expenses. The agreement
was terminated as of January 31, 1995.
On November 17, 1995, the Company invested in a
series of promissory notes (the "Notes") for an
aggregate of $1,000,000. The maker of the Notes
was a corporation engaged in the finance industry.
The Notes were automatically renewed for 90-day
maturities unless the Company determined not to
renew. $400,000 of the original Notes were repaid
during the quarter ended March 31, 1996. The
remaining Notes, each for $300,000, matured and
were paid in April 1996 and June 1996. The Notes
bore interest at a rate of 15% compounded annually
and payable monthly. The Notes were guaranteed by
Selig A. Zises, who is a significant investor in
the maker of the Notes and may be deemed to be
the beneficial owner of the Company's
outstanding Series A-1 Preferred Stock.
F-18
<PAGE>
12. SUBSEQUENT EVENT In July 1996, pursuant to an agreement negotiated
between Selig A. Zises and Kevin R. Greene,
Chairman of the Board of the Company, the Company
received $224,150 from Mr. Zises to cover a
working capital shortfall. Under the agreement
with Mr. Zises, the Company has the right to
either repay the advance without interest or to
transfer to him all of the Company's rights and
interests in the common stock of CM Franchise
Corp. and warrants to purchase additional
shares of such common stock it acquired in
December 1995 for a total of $224,150. Payment
of the advance or transfer of the aforesaid
interests is due on September 30, 1996.
The Company intends to transfer the rights and
interests in satisfaction of the debt on that
date.
F-19
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
3.1 Articles of Incorporation (incorporated by reference to the
Company's Current Report in Form 8-K dated July 2, 1991)
3.2 Amended and Restated By-Laws (incorporated by reference to the
Exhibit 3.2 to Form 10-KSB for the year ended July 2, 1995)
10.1 1991 Non-Qualified Stock Option Plan (incorporated by reference to
the Exhibit 10.23 to Form 10-KSB for the year ended June 30, 1992)
10.2 1994 Stock Option Plan (incorporated by reference to the Form 10-KSB
for the year ended July 2, 1995)
10.3 Agreement of Settlement and Compromise dated August 22, 1996 by and
between Peter Sayet and Registrant
10.4 Registration Rights Agreement dated as of August 22, 1996 by and
among Peter Sayet, a selling stockholder and Registrant
10.5 Escrow Agreement dated August 22, 1996 by and among Peter Sayet, a
selling stockholder, Registrant and the Escrow Agent
10.6 Escrow Agreement dated August 22, 1996 by and among Peter Sayet, a
selling stockholder, Registrant and the Escrow Agent
10.7 Employment Agreement dated as of April 1, 1996 between Building
Blocks and Steven E. Glass
10.8 Option Agreement dated April 12, 1996 between Registrant and Steven
E. Glass
10.9 Option Agreement dated October 2, 1995 between Registrant and Steven
E. Glass
10.10 Agreement dated as of July 29, 1996 between Registrant and Selig A.
Zises
10.11 Agreement dated June 29, 1995 between Registrant and ILMA
(incorporated by reference to Exhibit 2.1 to Form 8-K dated June 29,
1995)
10.12 Agreement and Plan of Merger dated June 30, 1995 between Registrant
and HVMC (incorporated by reference to Exhibit 2.2 to Form 8-K dated
June 29, 1995)
10.13 Option Agreement dated March 7, 1994 between Registrant and Jonathon
Heller (incorporated by reference to Exhibit 10.11 to Form 10-KSB
for the year ended July 2, 1995)
<PAGE>
10.14 Option Agreement dated March 1, 1995 between Registrant and Jonathon
Heller (incorporated by reference to Exhibit 10.10 to Form 10-KSB
for the year ended July 2, 1995)
21. Subsidiaries of Registrant
23. Consent of BDO Seidman, LLP
<PAGE>
EXHIBIT 10.3
AGREEMENT OF SETTLEMENT AND COMPROMISE
Agreement of Settlement and Compromise (the "Agreement") dated as of
August __, 1996 by and between Peter Sayet ("Sayet"), on the one hand, and ILM
Acquisition L.P., M.P. Partners L.P., ILM Acquisition Corporation, LSJM
Partners, L.P., ILM N Corporation, Healthcare Venture Management Corporation,
Selig Zises, Glenn Meyers, Laurence Lurie and Institute for Laboratory Medicine,
Inc. n/k/a Specialty Retail Group, Inc. ("SRG") (collectively referred to herein
as the "Defendants"), on the other hand (Sayet and the Defendants are
collectively referred to herein as the "Parties").
WHEREAS, the Parties desire to enter into this Agreement to avoid the
expenses and distraction of litigation, and in order to provide for certain
payments in full settlement and discharge of any and all claims which might have
been the subject of any pleadings in a matter entitled PETER SAYET V. INSTITUTE
FOR LABORATORY MEDICINE, INC., ILM ACQUISITION L.P., M.P. PARTNERS L.P., ILM
ACQUISITION CORPORATION, LSJM PARTNERS, L.P., ILM N CORPORATION, HEALTHCARE
VENTURE MANAGEMENT CORPORATION, SELIG ZISES, GLENN MEYERS AND LAURENCE LURIE,
Case Number 92-03746(10), pending before the Circuit Court of the Eleventh
Judicial District in and for Dade County, Florida, or in any separate action
(the "Action"), upon the terms and conditions set forth herein;
<PAGE>
NOW, THEREFORE, it is hereby agreed to, by and between the Parties
that:
1. (a) Sayet and his heirs, executors, administrators, agents,
successors or assigns, covenants not to sue and will not raise, support or make
any claim in any court or otherwise against any of the Defendants, its current
or former officers, directors, employees, shareholders, affiliates, parents,
subsidiaries, agents, attorneys, successors and assigns or otherwise related
entities he has or may have, including any such claims arising out of any facts
or transactions that were raised or could have been raised in the Action or
arising from any act, action, inaction, occurrence or dealing between Sayet and
any of the Defendants, from the beginning of the world to the date of this
Agreement.
b. Sayet shall execute and deliver, contemporaneous with the
execution and delivery of this Agreement, a release in favor of each of the
Defendants in the form annexed hereto as Exhibit A.
2. (a) Each of the Defendants, and their heirs, agents, successors
or assigns, covenants not to sue and will not raise, support or make any claim
in any court or otherwise against Sayet, his agents, successors or assigns or
otherwise related entities they have or may have, including any such claims
arising out of any facts or transactions that were raised or could have been
raised in
- 2 -
<PAGE>
the Action or arising from any act, action, inaction, occurrence or dealing
between Sayet and any of the Defendants, from the beginning of the world to the
date of this Agreement.
(b) Each of the Defendants shall execute and deliver, contemporaneous
with the execution and delivery of this Agreement, a release in favor of Sayet
in the form annexed hereto as Exhibit B.
3. Contemporaneous with the execution of this Agreement, the Parties
shall execute a Stipulation of Dismissal with Prejudice (the "Stipulation")
directed to the Action in the form annexed hereto as Exhibits C. Upon receipt
of the executed Stipulation, counsel for Defendants will file the Stipulation
before the Circuit Court of the Eleventh Judicial District in and for Dade
County, Florida.
4. Contemporaneous with the execution of this Agreement, SRG shall
issue an aggregate of 650,000 shares of restricted SRG common stock (the
"Shares") to Sayet and his designee, Howard Green, Esq. (collectively the
"Holders") (the "Settlement Payment"). Said compensation to Sayet shall be for
defamation damages.
5. a. Promptly after the execution of this Agreement, Sayet and SRG
shall execute a Registration Rights Agreement, pursuant to which SRG is agreeing
to include the Shares in a Registration Statement which it will file with the
Securities and Exchange Commission (the "Registration
- 3 -
<PAGE>
Statement") following the date of this Agreement. A copy of the Registration
Rights Agreement is annexed hereto as Exhibit "D." The Shares shall be
maintained in the Holders' own names and not in "street name" or any other
nominee account. Upon issuance the certificates for the Shares shall contain
the usual and customary legend for unregistered shares which SRG shall remove
upon the effectiveness of the Registration Statement. The certificates for the
Shares shall also contain the following legend:
"The shares evidenced by this certificate are subject to an Agreement
of Settlement and Compromise dated as of ____________, 1996 and may
not be (i) encumbered or transferred except in a bona fide sale; or
(ii) registered in nominee or street name, except as a result of a
permitted sale under the Agreement. A copy of said agreement is on
file at the registered office of Specialty Retail Group, Inc."
b. Following the declaration of effectiveness of the Registration
Statement, with respect to each and every sale of Shares, each Holder (or his
representative) shall, within seven (7) business days of receipt of knowledge of
such sale but in no event greater than ten (10) business days following such
sale, notify SRG in writing (the "Sale Notice") setting forth the date of sale
and the
- 4 -
<PAGE>
gross sale price per share and shall, immediately upon receipt of any statement
confirming the effectuation of such sale from a broker or other intermediary
(the "Confirmation"), send a copy of same to SRG. The failure of any Holder to
deliver a timely Sale Notice or Confirmation to SRG in the manner hereinafter
provided shall entitle SRG to immediately reduce the Price Protection Pool (as
hereinafter defined) in an amount equal to twenty five cents for each unreported
Share sold as of the date of sale. By way of example, if a Holder fails to give
SRG a Sales Notice with respect to a sale of 100,000 Shares, the Price
Protection Pool would be reduced by $25,000 (100,000 x $.25 = $25,000).
c. Additionally, with respect to each and every sale of Shares,
each Holder (or his representative) shall, within seven (7) business days of
such sale, forward to SRG, the Company Proceeds (as hereinafter defined), in
immediately available funds. In the event any Company Proceeds are not paid to
SRG within said time period (a "Company Proceeds Breach"), SRG shall have the
right to take all appropriate action to (i) amend its Registration Statement or
take such other available steps to de-register such number of the breaching
Holder's Shares equal to the number of Shares which were the subject of the
Company Proceeds Breach (the "Breach Matching Shares"); (ii) redeem such Breach
Matching Shares from the breaching Holder for a
- 5 -
<PAGE>
redemption price equal to the aggregate par value of the Breach Matching Shares;
(iii) instruct its transfer agent to place a stop transfer order on the Breach
Matching Shares; and (iv) take all such further action as SRG may from time to
time in its sole discretion deem necessary to effectuate the intent of the
foregoing provisions. Each of the Holders agree to promptly execute and deliver
to SRG such further instruments and documents and take such further action as
SRG may request upon the occurrence of a Company Proceeds Breach, including,
without limitation, execution and delivery to SRG of stock powers and original
stock certificates to effectuate the redemption of the Breach Matching Shares.
Any failure of a breaching Holder to cooperate with SRG upon the occurrence of a
Company Proceeds Breach shall be deemed a material breach hereunder. Any
obligations of SRG in favor of the non-breaching Holder and of the non-breaching
Holder in favor of SRG shall not be affected, modified or impaired by any state
of facts or by the happening from time to time of any event including, without
limitation, a breach by the other Holder of his respective obligations
hereunder.
d. Any and all notices required to be given under this paragraph
shall be in writing and shall be sent by telecopier to SRG at: (i) (203) 256-
4375, c/o Building Blocks Inc., 1720 Post Road East, Westport, CT 06880; (ii)
with a copy to (212) 391-0399, Littman Krooks & Roth, P.C.,
- 6 -
<PAGE>
120 West 45th Street, New York, New York 10036 (Attn: Richard A. Roth, Esq.)
and to the Holders at (305) 371-6400, c/o Howard Green & Associates, 825 South
Bayshore Road, Suite 1846, Miami, FL 33131. Notice shall be deemed given upon
it being sent.
6. In the event the Holders sell any Shares for $1.00 or more per
Share, the parties agree that the Holders shall cause SRG to receive 67% of the
proceeds for all amounts in excess of $1.00 per Share from said sales (the
"Company Proceeds") and the Holders shall retain 33% of the proceeds for all
such amounts. SRG shall deposit 25% of the Company Proceeds in an interest
bearing escrow account administered by its attorneys Littman, Krooks & Roth,
P.C. pursuant to an escrow agreement annexed hereto as Exhibit "E". The
escrowed Company Proceeds shall be released back to SRG upon the earlier to
occur of (i) the sale of all Shares or (ii) the second anniversary of the date
of this agreement. For purposes of this Agreement, "Price Protection Pool"
shall be equal to the sum of: (i) $160,000 and (ii) 25% of any of the Company
Proceeds.
7. Upon, but only upon, the sale of ALL of the Shares by the
Holders, in bona fide open market or market related transactions which results
in gross proceeds to the Holders upon the sale of all such Shares of less than
$650,000, SRG shall pay to Sayet the shortfall between: (x) $650,000 and (y) the
aggregate sales proceeds, such amount
- 7 -
<PAGE>
not to exceed the Price Protection Pool. Notwithstanding the foregoing, in the
event any Shares are redeemed as provided in Section 5(c) (the "Redeemed
Shares"), then, in lieu of the payment set forth in the previous sentence, SRG
shall pay Sayet the shortfall between (x) an amount equal to $1.00 times the
Shares (other than the Redeemed Shares) sold ("Net Shares") and (y) the
aggregate proceeds from the Net Shares, such amount not to exceed a percentage
of the Price Protection Pool determined by the formula x/Price Protection Pool =
Net Shares/650,000. Such payments shall be made within seven days after the
final sale of the Shares. Any such payment which may be due and owing shall be
made by check payable to "Peter Sayet and Howard Green" and shall be forwarded
to Howard Green & Associates, 825 South Bayshore Road, Suite 1846, Miami, FL
33131.
8. Contemporaneous with the execution of the Registration Rights
Agreement, SRG and Sayet shall execute an Escrow Agreement which will provide
that SRG shall escrow 213,333 shares of restricted common stock, which will be
included in the Registration Statement referred to in paragraph 5, which shall
be held by a mutually acceptable escrow agent to be released only upon breach of
SRG to make payment contemplated by Paragraph 7 hereof. A form of Escrow
Agreement is annexed hereto as Exhibit "F".
9. In the event SRG files for bankruptcy under Chapter 7 of the US
Bankruptcy Code, or Chapter 11
- 8 -
<PAGE>
thereunder, if, but only if, Sayet's rights hereunder are materially impacted,
the parties agree that the entire transaction contemplated herein shall be
terminated and the General Releases be deemed null and void and the parties may
proceed with the litigation settled herein, but (i) any amounts realized by
prior sales of the Shares by the Holders shall be acknowledged by the parties in
any future settlement or litigation regarding these matters and (ii) the terms
of this Paragraph 9 shall expire after the earlier of two years or after the
Holders sell the Shares.
10. The parties hereto specifically agree that, at any trial or in
any other action or proceeding (except for claims relating directly to the
enforcement and performance of this Agreement), the entry into or performance of
this Agreement, the terms hereof, and any negotiations in pursuance hereof,
shall not be cited, referred to relied upon, offered or received in evidence by
them, nor shall they be admissible in evidence.
11. The Parties acknowledge that they have been represented by
independent legal counsel of their own choice throughout all of the negotiations
preceding the execution of this Agreement and that they have executed this
Agreement with the consent of, and after consultation with, such independent
legal counsel. The Parties further acknowledge that they have read this
Agreement in its entirety, that they have had all of its provisions explained to
them by
- 9 -
<PAGE>
their own counsel, who has answered any and all questions which they have asked
with regard to the meaning of any of the provisions thereof, and that he fully
understands all the terms and conditions contained herein. Defendants further
acknowledges that they have signed this Agreement voluntarily and of their own
free will.
12. This Agreement shall be governed by and construed in accord with
the laws of the State of Florida. Each of the Parties to this Agreement hereby
consents to the jurisdiction of the Circuit Court of the Eleventh Judicial
District in and for Dade County, Florida, for the purposes of commencing any
litigation or proceeding to enforce or interpret any provision of this
Agreement.
13. Except as set forth herein, there are no other agreements or
understandings with respect to the subject matter of this Agreement. Any and
all prior discussions, agreements or understandings, whether oral or in writing,
are merged into and subsumed by this Agreement. Each Exhibit in this Agreement
shall be construed to be a part hereof, as if fully set forth herein. This
Agreement may not be modified in any manner, except in a writing signed by both
parties hereto.
14. This Agreement shall be binding upon and inure to the benefit of
the Parties, and to the employees, officers, directors, heirs, successors,
assigns and legal representatives of each party. The Holders may not assign
- 10 -
<PAGE>
their rights or obligations provided for under this Agreement without the
express written consent of SRG.
15. This Agreement may be executed in any number of identical
counterparts, each of which, when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute but one and the
same instrument.
Accepted and agreed to by the following:
/s/ PETER SAYET Institute for Laboratory
- ------------------------- Medicine, Inc. n/k/a
Peter Sayet Specialty Reality Group, Inc.
/s/ HOWARD GREEN
- -------------------------
Howard Green By:/s/ KEVIN GREEN
--------------------------------
Kevin Greene, Chairman of the
Board of Directors
/s/ GLENN MEYERS /s/ LAURENCE LURIE
- ------------------------- -----------------------------------
Glenn Meyers Laurence Lurie
- 11 -
<PAGE>
ILM Acquisition L.P. MP Partners, L.P.
By: MP Partners, L.P., By: ILM Acquisition Corp.,
General Partner General Partner
By: ILM Acquisition Corp.,
General Partner By: /s/ SELIG ZISES
-----------------------------
Selig Zises, President
By: /s/ SELIG ZISES
------------------------
Selig Zises, President
ILM Acquisition Corporation
By: /s/ SELIG ZISES /s/ SELIG ZISES
-------------------------- -----------------------------------
Selig Zises, President Selig Zises
LSJM Partners, L.P. ILM N Corporation
By: ILM N Corporation,
General Partner
By: /s/ NANCY ZISES By: /s/ NANCY ZISES
-------------------------- -------------------------------
Nancy Zises, President Nancy Zises, President
Healthcare Venture Management
Corporation
By: /s/ KEVIN GREENE
--------------------------
Kevin Greene, an
Authorized Representative
- 12 -
<PAGE>
EXHIBIT A
TO ALL TO WHOM THESE PRESENTS SHALL COME OR MAY CONCERN, KNOW THAT
PETER SAYET
as RELEASOR, in consideration of the Settlement Amount as described in
paragraph __ of the Settlement Agreement and other good and valuable
consideration received from [Specialty Realty Group, Inc., Institute for
Laboratory Medicine, Inc., ILM Acquisition L.P., M.P. Partners L.P., ILM
Acquisition Corporation, LSJM Partners, L.P., ILM N Corporation, Healthcare
Venture Management Corporation, Selig Zises, Glenn Meyers and Laurence Lurie]
as RELEASEE, receipt whereof is hereby acknowledged, covenants not to sue and
releases and discharges the RELEASEE, RELEASEE'S heirs, executors,
administrators, successors and assigns from all actions, causes of action,
suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims and
demands whatsoever in law, admiralty or equity, which the RELEASOR,
RELEASOR's heirs, executors, administrators, successors and assigns ever had,
now have or hereafter can, shall or may have from the beginning of the world
to the date of this Release, including but not limited to any claim,
counterclaim or cause of action which was or could have been asserted in, or
which arise from any of the facts or transactions that form the basis for any
claim or counterclaim,
<PAGE>
set forth in any pleading filed in an action which was pending in: PETER SAYET
V. INSTITUTE FOR LABORATORY MEDICINE, INC., ILM ACQUISITION L.P., M.P. PARTNERS
L.P., ILM ACQUISITION CORPORATION, LSJM PARTNERS, L.P., ILM N CORPORATION,
HEALTHCARE VENTURE MANAGEMENT CORPORATION, SELIG ZISES, GLENN MEYERS, AND
LAURENCE LURIE, case number 92-03746(10), pending before the Circuit Court of
the Eleventh Judicial District in and for Dade County, Florida or in any
separate action excluding, however, any obligations of RELEASEE to RELEASOR set
forth in the Agreement of Settlement and Compromise entered into as of the ___
day of August, 1996.
Whenever the text hereof requires, the use of singular number shall
include the appropriate plural number.
This RELEASE may not be changed orally.
IN WITNESS WHEREOF, the RELEASOR has hereunto set its hand and seal on
the ___ day of August, 1996.
-----------------------------------
Peter Sayet
STATE OF FLORIDA )
ss.:
COUNTY OF DADE )
On this ___ day of August, 1996 before me personally came Peter Sayet
to me personally known, and known to me to be the same person described in and
who executed the foregoing Release, and he duly acknowledged to me that he
executed the same.
-----------------------------------
Notary Public
- 2 -
<PAGE>
EXHIBIT B
TO ALL TO WHOM THESE PRESENTS SHALL COME OR MAY CONCERN, KNOW THAT
[SPECIALTY RETAIL GROUP, INC.]
as RELEASOR, in consideration of the sum of ten ($10) dollars and other good and
valuable consideration received from Peter Sayet as RELEASEE, receipt whereof is
hereby acknowledged, covenants not to sue and releases and discharges the
RELEASEE, RELEASEE'S heirs, executors, administrators, successors and assigns
from all actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims and demands whatsoever in law, admiralty or equity, which the
RELEASOR, RELEASOR's heirs, agents, successors and assigns ever had, now have or
hereafter can, shall or may have from the beginning of the world to the date of
this Release, including but not limited to any claim, counterclaim or cause of
action which was or could have been asserted in, or which arise from any of the
facts or transactions that form the basis for any claim or counterclaim, set
forth in any pleading filed in an action which was pending in: PETER SAYET V.
INSTITUTE FOR LABORATORY MEDICINE, INC., ILM ACQUISITION L.P., M.P. PARTNERS
L.P., ILM ACQUISITION CORPORATION, LSJM PARTNERS, L.P., ILM N CORPORATION,
HEALTHCARE VENTURE MANAGEMENT CORPORATION, SELIG ZISES, GLENN MEYERS, AND
LAURENCE LURIE, case number 92-03746(10), pending before the
<PAGE>
Circuit Court of the Eleventh Judicial District in and for Dade County, Florida
or in any separate action excluding, however, any obligations of RELEASEE to
RELEASOR set forth in the Agreement of Settlement and Compromise entered into as
of the ___ day of August, 1996.
Whenever the text hereof requires, the use of singular number shall
include the appropriate plural number.
This RELEASE may not be changed orally.
IN WITNESS WHEREOF, the RELEASOR has hereunto set its hand and seal on
the ___ day of August, 1996.
[Specialty Retail Group, Inc.]
By:
------------------------------------
An Authorized Officer
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On this ___ day of ______, 1996, before me personally came
to me personally known, and known to me and stated that he is the
of [Specialty Retail Group, Inc.], the RELEASOR described in the foregoing
Release, and that he was duly authorized to, and pursuant to such authorization
did, execute the foregoing Release on behalf of such RELEASOR.
-----------------------------------
Notary Public
<PAGE>
EXHIBIT C
IN THE CIRCUIT COURT OF THE
11TH JUDICIAL CIRCUIT IN AND
FOR DADE COUNTY, FLORIDA
GENERAL JURISDICTION DIVISION
CASE NO. 92-03746
PETER SAYET,
Plaintiff,
vs.
INSTITUTE FOR LABORATORY MEDICINE,
INC., ILM ACQUISITION L.P., M.P.
PARTNERS L.P., ILM ACQUISITION
CORPORATION, LSJM PARTNERS, L.P.,
ILM N CORPORATION, HEALTHCARE
VENTURE MANAGEMENT CORPORATION,
SELIG ZISES, GLENN MEYERS, and
LAURENCE LURIE,
Defendants.
/
- -----------------------------------
STIPULATION AND NOTICE OF
VOLUNTARY DISMISSAL WITH PREJUDICE
IT IS HEREBY STIPULATED AND AGREED, by and between the parties to the
above-captioned action, that whereas no party hereto is an infant or an
incompetent person for whom a committee has been appointed and no person not a
party has an interest in the subject matter of the action, the above-captioned
action, including all claims and counterclaims, be, and the same hereby is
dismissed with prejudice, without costs to either party as against the other.
This stipulation and notice may be filed without further notice with the Circuit
Court of the Eleventh
<PAGE>
Judicial District in and for Dade County, Florida and such Court retains
jurisdiction to enforce the terms of the settlement.
Dated: New York, New York
August , 1996
Howard W. Green & Associates
Attorneys for Plaintiff
Peter Sayet
825 S. Bayshore Drive
Suite 1846
Miami, Florida 33131
By:
--------------------------
Howard W. Green, Esq.
LITTMAN KROOKS & ROTH, P.C.
Attorneys for Defendants
120 West 45th Street
New York, NY 10036
Telephone: (212) 768-4646
By:
--------------------------
Richard A. Roth,
admitted pro se
- 2 -
<PAGE>
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered
into this _____ day of August, 1996, between (i) SPECIALTY RETAIL GROUP, INC., a
Florida corporation (the "Company") and (ii) PETER SAYET and HOWARD GREEN (each
a "Holder" and collectively the "Holders").
RECITALS
A. The Company is contemporaneously issuing and delivering to Holders an
aggregate of 650,000 shares of the Company's common stock, par value $.001 per
share (the "Common Stock") as part of the settlement of Case No. 82-03746
heretofore pending in the 11th Judicial Circuit Court in and for Dade County,
Florida (the "Settlement").
B. The Company has agreed to provide to Holder certain registration
rights with respect to the 650,000 shares of Common Stock issued to Holder (such
650,000 shares of Common Stock being referred to herein as the "Restricted
Shares").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and covenants set
forth herein as well as in that certain Agreement of Settlement and Compromise,
dated as of August ___, 1996, between Peter Sayet, the Company and the other
"Defendants" named therein, the parties agree as follows:
<PAGE>
1. REGISTRATION RIGHTS.
(a) INCIDENTAL (PIGGYBACK) REGISTRATION. Subject to the
limitations set forth in this Agreement, if the Company at any time within two
(2) years of the date hereof proposes to file on its behalf and/or on behalf of
any of its security holders ("the demanding security holders") a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act") on
any form (other than a Registration Statement on Form S-4 or S-8 or any
successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of the Company
pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to its common Stock
or any other class of equity security (as defined in Section 3(a)(11) of the
Securities Exchange Act of 1934) of the Company, it will give written notice to
the Holders at least 15 days before the initial filing with the Commission of
such Registration Statement, which notice shall set forth the intended method of
disposition of the securities proposed to be registered by the Company. The
notice shall offer to include in such filing the aggregate number of shares of
Restricted Shares as Holder may request.
If either Holder desires to have Restricted Shares registered under
this Section 1, he shall advise the Company in writing within 10 days after the
date of receipt of such offer from the Company, setting forth the amount of such
Restricted
- 2 -
<PAGE>
Shares for which registration is requested. The Company shall thereupon include
in such filing the number of shares of Restricted Shares for which registration
is so requested, subject of the following. In the event that the proposed
registration by the Company is, in whole or in part, an underwritten public
offering of securities of the Company, the Company shall not be required to
include any of the Restricted Shares in such underwriting unless the Holder(s)
agree(s) to accept the offering on the same terms and conditions as the shares
of Common Stock, if any, otherwise being sold through underwriters under such
registration; provided, however, that: (i) if the managing underwriter
determines the advises the Company in writing that the inclusion of all
Restricted Shares proposed to be included by the Holders in the underwritten
public offering and other issued and outstanding shares of Common Stock proposed
to be included therein by the persons other than the Holders, the Company and
any demanding security holder (the "Other Shares") would jeopardize the success
of the Company's offering, then the Company shall be required to include in the
offering (in addition to the number of shares to be sold by the Company and any
demanding security holder) only that number of Restricted Shares that the
managing underwriter believes will not jeopardize the success of the Company's
offering and the number of Restricted Shares and Other Shares not included in
such underwritten public offering shall be reduced pro rata based upon the
number of shares of Restricted Shares and Other Shares requested by the
- 3 -
<PAGE>
holders thereof to be registered in such underwritten public offering; and (ii)
in each case all shares of Common Stock owned by the Holders which are not
included in the underwritten public offering shall be withheld from the market
by the Holder for a period, not to exceed ninety (90) calendar days, which the
managing underwriter reasonably determines as necessary in order to effect the
underwritten public offering. In the event the Company chooses a registration
form which limits the size offering either in terms of the number of shares of
dollar amount, the Company shall not be required to include in the offering (in
addition to the number of shares to be sold by the Company) Restricted Shares
which would exceed such limits.
(b) SHELF REGISTRATION. Subject to the limitations set forth in
this Agreement, the Company will file as promptly as possible (and in no event
later than September 6, 1996) a registration statement (the "Shelf Registration
Statement") on Form S-3 or other applicable form covering the Holders' resale of
up to all of the Restricted Shares, from time to time in market transactions or
otherwise, and thereafter shall use its best efforts to cause the Shelf
Registration Statement to be declared effective as soon as practicable following
such filing and to maintain such effectiveness for a period of two years from
the date hereof (or such shorter period after which the appropriate holding
period for the Restricted Shares under Rule 144(d) shall have expired);
PROVIDED, HOWEVER, that the Company shall not be obligated to maintain the
effectiveness of
- 4 -
<PAGE>
the Shelf Registration Statement pursuant to this Section 1(b) or to deliver any
prospectus under the Shelf Registration Statement after the Holders have sold,
whether pursuant to any of the provisions contemplated by this Agreement or
otherwise, all of the Restricted Shares.
2. REGISTRATION PROCEDURES. If the Company is required by the
provisions of Section 1 to use its best efforts to effect the registration of
any of its securities under the Securities Act, the Company will, expeditiously
as possible:
(a) prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to cause such
Registration Statement to become and remain effective for the time period
specified in 1(b);
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such Registration Statement;
(c) furnish to the Holders such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as Holders may reasonably request;
- 5 -
<PAGE>
(d) use its best efforts to register or qualify the securities
covered by such Registration Statement under such securities or blue sky laws of
such jurisdictions within the United States and Puerto Rico as Holder shall
reasonably request (provided, however, the Company shall not be obligated to
qualify as a foreign corporation to do business under the laws of any
jurisdiction (x) in which it is not then qualified or to file any general
consent to service of process, or (y) if such qualification would subject the
Company to taxation in such jurisdiction), and do such other reasonable acts and
thing as may be required of it to enable Holder to consummate the disposition in
such jurisdiction of the securities covered by such Registration Statement; and
(e) promptly notify in writing the Holders of the happening of
any event, during the period of distribution, as a result of which the
Registration Statement includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing (in which case, the Company shall promptly provide the Holders with
revised or supplemental prospectuses and if so requested by the Company in
writing, the Holders shall promptly take action to cease making any offers of
the Restricted Shares until the earlier of (x) ten business days after receipt
of such notice, and (y) receipt and distribution of such revised or supplemental
prospectuses).
- 6 -
<PAGE>
3. EXPENSES. All expenses incurred in complying with this
Agreement, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), printing expenses,
fees and disbursements of counsel for the Company, expenses of any special
audits incident to or required by any such registration and expenses (including
attorneys' fees) of complying with the securities or blue sky laws of any
jurisdictions pursuant to Section 2(d), shall be paid by the Company, except
that the Company shall not be liable for any fees, discounts or commissions to
any underwriter or broker in respect of the Restricted Shares or any fees or
disbursements of counsel for either Holder.
4. INDEMNIFICATION. In the event of any registration of any
Restricted Shares under the Securities Act pursuant to this Agreement, the
Company shall indemnify and hold harmless the seller of such shares, each
underwriter of such shares, if any, each such broker or any other person, if
any, who controls any of the foregoing persons, within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which any of the foregoing persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement of a material fact contained in any registration statement
under which such Restricted Shares were registered under the Securities Act, any
final prospectus contained therein, or any amendment or
- 7 -
<PAGE>
supplement thereto, or any document prepared and/or furnished by the Company
incident to the registration or qualification of any Restricted Shares, or arise
out of or are based upon the omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
or, with respect to any final prospectus, necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading, or any violations by the Company of the Securities Act or state
securities or "blue sky" laws applicable to the Company relating to action or
inaction required of the Company in connection with such registration or
qualification under such state securities or blue sky laws; and shall reimburse
such seller, such underwriter, broker or other person acting on behalf of such
seller and each such controlling person for any legal or any other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability or action. Each of the Holders
severally agrees to indemnify and hold harmless (in the same manner and to the
same extent as set forth in this Section 4 for the indemnification of such
prospective seller and underwriter by the Company) the Company, each director of
the Company, each officer of the Company who shall sign such registration
statement and any person who controls the Company within the meaning of the
Securities Act, with respect to any untrue statement or omission from such
registration statement or final prospectus contained therein or any amendment or
supplement thereto, if such untrue
- 8 -
<PAGE>
statement or omission was made in reliance upon and in conformity with
information furnished to the Company in writing by such Holder for use in the
preparation of such registration statement, final prospectus or amendment or
supplement. Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in this Section 4, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party, give written notice to the latter of such claim and/or the
commencement of such action. In case any such action is brought against an
indemnified party, the indemnifying party will be entitled to participate in and
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party shall be responsible for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof,
provided that if any indemnified party shall have reasonably concluded that
there may be one or more legal defenses available to such indemnified party
which conflict in any material respect with those available to the indemnifying
party, or that such claim or litigation involves or could have an effect upon
matters beyond the scope of the indemnity agreement provided in this Section 4,
such indemnifying party shall reimburse such indemnified party and shall not
have the right to
- 9 -
<PAGE>
assume the defense of such action on behalf of such indemnified party and such
indemnifying party shall reimburse such indemnified party and any person
controlling such indemnified party for that portion of the fees and expenses of
any counsel retained by the indemnified party which are reasonably related to
the matters covered by the indemnity agreement provided in this Section 4. The
indemnifying party shall not make any settlement of any claims indemnified
against thereunder without the written consent of the indemnified party or
parties, which consent shall not be unreasonably withheld.
5. CERTAIN LIMITATIONS ON REGISTRATION RIGHTS. The Company's
obligations under Section 1 are expressly conditioned upon Holders furnishing to
the Company in writing such information concerning the Holders and the terms of
such Holders' proposed offering of Restricted Shares as the Company shall
reasonably request for inclusion in the Registration Statement.
6. MISCELLANEOUS.
(a) NOTICE GENERALLY. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Agreement shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged,
delivered by reputable overnight courier, telecopied and confirmed separately in
writing by a copy mailed as follows or sent by registered mail or certified
mail, return receipt requested, postage prepaid, addressed as follows:
- 10 -
<PAGE>
IF TO THE COMPANY: Specialty Retail Group, Inc.
1720 Post Road East, Suite 112
Westport, Connecticut 06880
WITH A COPY TO:
Richard A. Roth
Littman Krooks & Roth, P.C.
120 West 45th Street
New York, New York 10036
IF TO HOLDER: c/o Howard Green
825 South Bayshore Drive,
Suite 1846 - Tower III
Miami, Florida 33131
(b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto; provided, however, that Holder's rights hereunder may not be transferred
to any person without the written consent of the Company.
(c) GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Florida, without regard to the provisions thereof relating to
conflict of laws.
(d) SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(e) ENTIRE AGREEMENT. This Agreement is intended by the parties
as a final expression of their agreement and
- 11 -
<PAGE>
intended to be a complete exclusive statement of the agreement and understanding
of the parties hereto in respect of the subject matter contained herein and
therein. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to the subject matter hereof.
(f) COUNTERPARTS. This Agreement may be executed in any number
of separate counterparts, each of which shall collectively and separately,
constitute one agreement.
(g) PURCHASE FOR INVESTMENT AND PROSPECTUS DELIVERY. Each of
the Holders hereby severally represents that (x) he is acquiring the Restricted
Shares for investment and, except as contemplated hereby, not with a view toward
distribution within the meaning of applicable Federal and state securities laws,
and (y) he will timely deliver (or cause to be delivered) to any purchaser of
the Restricted Shares a copy of the final Prospectus included in the Shelf
Registration Statement and theretofore made available to Holder by the Company.
IN WITNESS WHEREOF, the Company and Holders have executed this
Agreement as of the date first above written.
SPECIALTY RETAIL GROUP, INC.
By: /s/ KEVIN R. GREEN
-----------------------------------
/s/ PETER SAYET
----------------------------------------
Peter Sayet
/s/ HOWARD GREEN
----------------------------------------
Howard Green
- 12 -
<PAGE>
EXHIBIT 10.5
ESCROW AGREEMENT
AGREEMENT dated as of August __, 1996 by and among Institute of
Laboratory Medicine, Inc. n/k/a Specialty Retail Group, Inc., a Delaware
corporation ("SRG"), Peter Sayet, an individual having an address at c/o Howard
Green & Associates, 825 South Bayshore Drive, Miami, FL 33131, Attn.: Howard W.
Green, Esq. ("Sayet"), Howard Green, Esq., an individual having an address at
c/o Howard Green & Associates, 825 South Bayshore Drive, Miami, FL 33131,
("Sayet" and "Green" are referred to as the "Holders") and Littman Krooks &
Roth, P.C., a New York professional corporation (the "Escrow Agent") (SRG, the
Holders and the Escrow Agent are collectively referred to herein as the
"Parties").
W I T N E S S E T H
WHEREAS, SRG, the Holders and certain other parties have entered into an
Agreement of Settlement and Compromise dated as of August __, 1996 (the
"Settlement Agreement") in order to provide for certain payments in full
settlement and discharge of any and all claims arising from a matter entitled
PETER SAYET V. INSTITUTE FOR LABORATORY MEDICINE, INC., ILM ACQUISITION L.P.,
M.P. PARTNERS L.P., ILM ACQUISITION CORPORATION, LSJM PARTNERS, L.P., ILM N
CORPORATION, HEALTHCARE VENTURE MANAGEMENT CORPORATION, SELIG ZISES, GLENN
MEYERS AND LAURENCE LURIE, Case Number 92-03746(10) pending before the Circuit
Court of the Eleventh Judicial District in and for Dade County, Florida (the
"Litigation").
WHEREAS, pursuant to the Settlement Agreement, SRG has agreed to deliver
twenty five percent (25%) of the Company Proceeds (as defined in the Settlement
Agreement) (the "Escrow Proceeds") to the Escrow Agent.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set
forth, the Parties hereto, intending to be legally bound, hereby agree as
follows:
1. APPOINTMENT OF ESCROW AGENT. SRG and Sayet hereby appoint the
Escrow Agent as their agent to hold and to release the Escrow Proceeds on the
terms and conditions hereinafter set forth, and the Escrow Agent hereby accepts
such appointment. The Parties hereto acknowledge that the Escrow Agent has
acted as, and is, legal counsel to SRG in connection with the Litigation.
2. DELIVERY OF THE ESCROW PROCEEDS. Pursuant to the Settlement
Agreement, Sayet or Green will from time to time deliver to the Escrow Agent,
and the Escrow Agent agrees to accept, the Escrow Proceeds. The Escrow Agent
shall deposit such Escrow Proceeds in an interest bearing bank account of its
own choosing and any interest earned thereon shall be paid to the party entitled
to the Escrow Proceeds hereunder and the party receiving such interest shall pay
any income taxes thereon.
<PAGE>
3. RELEASE AND TERMINATION.
(a) Upon either (i) the sale of all Shares (as defined in the
Settlement Agreement) or (ii) the passing of the second anniversary of the
Settlement Agreement, SRG shall give written notice (the "Release Notice") to
Escrow Agent, with a copy to Sayet, to release the Escrow Proceeds to SRG. In
the event and only in the event that SRG notifies the Escrow Agent that it has
paid the $160,000, pursuant to paragraphs 6 and 7 of the Settlement Agreement,
then the Escrow Agent shall deliver the Escrow Proceeds to the Holders. In the
event the Escrow Agent delivers to the Holders the Shares of SRG common stock
being held by it under a separate Escrow Agreement of even date herewith, then
the Escrow Agent shall deliver the Escrow Proceeds to SRG.
(b) When the Escrow Proceeds have been released in accordance with
this Section 3, this Agreement shall terminate and the Escrow Agent shall be
relieved and discharged of all further obligations and responsibilities
hereunder, PROVIDED, HOWEVER, that the indemnification obligations contained in
Section 6 hereof shall survive any such termination.
4. DUTIES AND OBLIGATIONS. It is agreed that the duties and
obligations of Escrow Agent are those herein specifically provided and no other.
Escrow Agent shall not have any liability under, or duty to inquire into, the
terms and provisions of any agreement, other than this Agreement. The duties of
the Escrow Agent are ministerial in nature and Escrow Agent shall not incur any
liability whatsoever so long as it has acted in good faith except for willful
misconduct or gross negligence.
Escrow Agent may consult with counsel of its choice and shall not be
liable for any action taken, suffered or omitted by it in accordance with the
advice of such counsel. Escrow Agent shall not be bound by any modification,
amendment, termination, cancellation, rescission or supersession of this
Agreement unless the same shall be in writing and signed by all of the other
Parties hereto and, if its duties as Escrow Agent hereunder are affected
thereby, unless it shall have given its prior written consent thereto.
In the event that the Escrow Agent shall be uncertain as to its duties
or rights hereunder or shall receive instructions, claims or demands from any
party hereto which, in its opinion, conflict with any of the provisions of this
Agreement, it shall be entitled to refrain from taking any action and its sole
obligation shall be to keep safely all property held in escrow until it shall be
directed otherwise in writing by the Parties hereto or by a final judgment or
order of a court of competent jurisdiction.
Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for, or written instructions
given by the Parties hereto.
Escrow Agent shall not have any responsibility for the genuineness or
validity of any document or other item deposited with it or any liability for
action in
2
<PAGE>
accordance with any written instructions or certificates given to it hereunder
and believed by it to be signed by the proper parties.
Escrow Agent shall not be required to institute legal proceedings of
any kind and shall not be required to initiate or defend any legal proceedings
which may be instituted against it in respect of the subject matter of these
instructions. If it does elect to act, it will do so only if it is indemnified
to its satisfaction against the cost and expense of such defense or initiation.
5. RESIGNATION. Escrow Agent may at any time resign hereunder by
giving written notice of its resignation to the Parties hereto at their address
set forth below, at least 10 days prior to the date specified for such
resignation to take effect, and, upon the effective date of such resignation,
all property then held by Escrow Agent hereunder shall be delivered by it to
such person as may be designated in writing by the Parties hereto, whereupon all
of Escrow Agent's obligations hereunder shall cease and terminate. If no such
person shall have been designated by such date, all obligations of Escrow Agent
hereunder shall nevertheless cease and terminate. Escrow Agent's sole
responsibility thereafter shall be to keep safely all property then held by it
and to deliver the same to a person designated by the Parties hereto or in
accordance with the directions of a final order or judgment of a court of
competent jurisdiction.
6. INDEMNIFICATION. SRG and Sayet agree (jointly and severally) to
indemnify, defend and hold Escrow Agent harmless from and against any and all
loss, damage, tax, liability and expense that may be incurred by Escrow Agent
arising out of or in connection with the acceptance of its appointment as Escrow
Agent hereunder, except as caused by its gross negligence or willful misconduct,
including the legal costs and expenses of defending itself against any claim or
liability in connection with its performance hereunder.
7. NOTICES. Any notices and other communications required or
permitted to be sent hereunder shall be in writing and delivered personally,
sent by facsimile, mailed via certified mail, return receipt requested, or
delivered by overnight courier service, and shall be deemed to have been given
upon delivery if delivered personally, by overnight courier or by facsimile, or
three business days after mailing, if mailed by certified mail to the following
address or to such other address as a party may designate to the other in
writing:
3
<PAGE>
IF TO SRG TO:
c/o Building Blocks Inc.
1720 Post Road East
Westport, CT 06880
Attn: Steven Glass
with a copy to:
Littman Krooks & Roth, P.C.
120 West 45th Street
New York, NY 10036
Attn: Richard A. Roth, Esq.
IF TO PETER SAYET:
c/o Howard Green & Associates
825 South Bayshore Drive
Miami, FL 33131
Attn.: Howard W. Green, Esq.
IF TO THE ESCROW AGENT:
120 West 45th Street
New York, New York 10036
Attn: Richard A. Roth, Esq.
or to such other address as any party shall have specified by notice in writing
to the other in compliance with this Section 7.
8. BINDING NATURE. This Agreement shall be binding upon and inure to
the benefit of the Parties hereto and their respective successors, heirs,
executors, administrators and assigns.
9. GOVERNING LAW. This Agreement shall be governed by and
interpreted under the laws of the State of Florida applicable to contracts made
and performed therein without giving effect to the principles of conflict of
laws thereof.
10. AMENDMENT. Any amendment or waiver of the provisions hereof
shall be in writing and shall be signed by the parties against whom such
amendment or waiver is sought to be enforced.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but collectively
all of such counterparts shall constitute one and the same agreement.
4
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Escrow
Agreement on the date first above written.
INSTITUTE OF LABORATORY MEDICINE, INC.
(n/k/a Specialty Retail Group, Inc.)
By: /s/ KEVIN R. GREENE
------------------------------------
Authorized Officer
/s/ PETER SAYET
----------------------------------------
Peter Sayet
/s/ HOWARD GREEN
----------------------------------------
Howard Green, Esq.
LITTMAN KROOKS & ROTH, P.C., Escrow Agent
By: /s/ RICHARD A. ROTH
-----------------------------------
Richard A. Roth, Esq.
5
<PAGE>
EXHIBIT 10.6
ESCROW AGREEMENT
AGREEMENT dated as of August , 1996 by and among Institute of
Laboratory Medicine, Inc. n/k/a Specialty Retail Group, Inc., a Delaware
corporation ("SRG"), Peter Sayet, an individual having an address at c/o Howard
Green & Associates, 825 South Bayshore Drive, Miami, FL 33131, Attn.: Howard W.
Green, Esq. ("Sayet"), Howard Green, Esq., an individual having an address at
c/o Howard Green & Associates, 825 South Bayshore Drive, Miami, FL 33131
("Sayet" and "Green" are referred to herein as the "Holders") and Littman Krooks
& Roth, P.C., a New York professional corporation (the "Escrow Agent") (SRG, the
Holders and the Escrow Agent are collectively referred to herein as the
"Parties").
W I T N E S S E T H
WHEREAS, SRG, the Holders and certain other parties have entered into an
Agreement of Settlement and Compromise dated as of August , 1996 (the
"Settlement Agreement") in order to provide for certain payments in full
settlement and discharge of any and all claims arising from a matter entitled
PETER SAYET V. INSTITUTE FOR LABORATORY MEDICINE, INC., ILM ACQUISITION L.P.,
M.P. PARTNERS L.P., ILM ACQUISITION CORPORATION, LSJM PARTNERS, L.P., ILM N
CORPORATION, HEALTHCARE VENTURE MANAGEMENT CORPORATION, SELIG ZISES, GLENN
MEYERS AND LAURENCE LURIE, Case Number 92-03746(10) pending before the Circuit
Court of the Eleventh Judicial District in and for Dade County, Florida (the
"Litigation").
WHEREAS, pursuant to the Settlement Agreement, SRG has agreed to deliver
certain stock certificates representing a certain number of shares of restricted
common stock of SRG (the "Escrow Shares") to the Escrow Agent in order to secure
its obligation under Paragraph 7 of the Settlement Agreement (the "Obligation").
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, the Parties hereto, intending to be legally bound, hereby agree as
follows:
1. APPOINTMENT OF ESCROW AGENT. SRG and Sayet hereby appoint the
Escrow Agent as their agent to hold and to release the Escrow Shares on the
terms and conditions hereinafter set forth, and the Escrow Agent hereby accepts
such appointment. The Parties hereto acknowledge that the Escrow Agent has
acted as, and is, legal counsel to SRG in connection with the Litigation.
2. DELIVERY OF THE ESCROW SHARES. Pursuant to the Settlement
Agreement, SRG hereby delivers to the Escrow Agent, and the Escrow Agent hereby
acknowledges receipt of, the Escrow Shares. The Escrow Agent shall hold and
release the Escrow Shares in accordance with the terms and conditions of this
Agreement.
<PAGE>
3. RELEASE AND TERMINATION.
(a) Upon failure by SRG to meet its Obligation, Sayet may give written
notice ("Claim") to the Escrow Agent, with a copy to SRG, of demand that the
amount then due ("Requested Amount") be released from escrow hereby created and
delivered to Sayet in full satisfaction of the Obligation. Such Claim shall
include (i) the date of breach of the Obligation and (ii) an explanation of the
manner in which the Requested Amount was determined. Unless the Escrow Agent
receives a notice of objection from SRG (the "Objection") to such release within
twenty business days from the date of receipt of a copy of the Claim by SRG and
the Escrow Agent, the Escrow Agent shall release such number of the Escrow
Shares, as determined by the Fair Market Value of the Escrow Shares,
representing the Requested Amount to Sayet, and shall release and deliver the
balance of the Escrow Shares, if any, to SRG. In the event the Escrow Agent
receives the Objection within the time specified, the Escrow Agent shall
continue to hold, in escrow, the Requested Amount, until receiving joint
instruction executed by each of SRG and Sayet or until otherwise directed by a
court of competent jurisdiction. For purposes hereof, the Fair Market Value of
the Escrow Share shall be determined by the closing sale price of SRG's common
shares on the date of Sayet's final sale transaction.
(b) When the Escrow Shares have been released in accordance with this
Section 3, this Agreement shall terminate and the Escrow Agent shall be relieved
and discharged of all further obligations and responsibilities hereunder,
PROVIDED, HOWEVER, that the indemnification obligations contained in Section 6
hereof shall survive any such termination.
4. DUTIES AND OBLIGATIONS. It is agreed that the duties and
obligations of Escrow Agent are those herein specifically provided and no other.
Escrow Agent shall not have any liability under, or duty to inquire into, the
terms and provisions of any agreement, other than this Agreement. The duties of
the Escrow Agent are ministerial in nature and Escrow Agent shall not incur any
liability whatsoever so long as it has acted in good faith except for willful
misconduct or gross negligence.
Escrow Agent may consult with counsel of its choice and shall not be
liable for any action taken, suffered or omitted by it in accordance with the
advice of such counsel. Escrow Agent shall not be bound by any modification,
amendment, termination, cancellation, rescission or supersession of this
Agreement unless the same shall be in writing and signed by all of the other
Parties hereto and, if its duties as Escrow Agent hereunder are affected
thereby, unless it shall have given its prior written consent thereto.
In the event that the Escrow Agent shall be uncertain as to its duties
or rights hereunder or shall receive instructions, claims or demands from any
party hereto which, in its opinion, conflict with any of the provisions of this
Agreement, it shall be entitled to refrain from taking any action and its sole
obligation shall be to keep safely all property held in escrow until it shall be
directed otherwise in writing by the Parties hereto or by a final judgment or
order of a court of competent jurisdiction.
2
<PAGE>
Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for, or written instructions
given by the Parties hereto.
Escrow Agent shall not have any responsibility for the genuineness or
validity of any document or other item deposited with it or any liability for
action in accordance with any written instructions or certificates given to it
hereunder and believed by it to be signed by the proper parties.
Escrow Agent shall not be required to institute legal proceedings of
any kind and shall not be required to initiate or defend any legal proceedings
which may be instituted against it in respect of the subject matter of these
instructions. If it does elect to act, it will do so only if it is indemnified
to its satisfaction against the cost and expense of such defense or initiation.
5. RESIGNATION. Escrow Agent may at any time resign hereunder by
giving written notice of its resignation to the Parties hereto at their address
set forth below, at least 10 days prior to the date specified for such
resignation to take effect, and, upon the effective date of such resignation,
all property then held by Escrow Agent hereunder shall be delivered by it to
such person as may be designated in writing by the Parties hereto, whereupon all
of Escrow Agent's obligations hereunder shall cease and terminate. If no such
person shall have been designated by such date, all obligations of Escrow Agent
hereunder shall nevertheless cease and terminate. Escrow Agent's sole
responsibility thereafter shall be to keep safely all property then held by it
and to deliver the same to a person designated by the Parties hereto or in
accordance with the directions of a final order or judgment of a court of
competent jurisdiction.
6. INDEMNIFICATION. SRG and Sayet agree (jointly and severally) to
indemnify, defend and hold Escrow Agent harmless from and against any and all
loss, damage, tax, liability and expense that may be incurred by Escrow Agent
arising out of or in connection with the acceptance of its appointment as Escrow
Agent hereunder, except as caused by its gross negligence or willful misconduct,
including the legal costs and expenses of defending itself against any claim or
liability in connection with its performance hereunder.
7. NOTICES. Any notice or communication in connection with this
Agreement shall be in writing and shall be deemed given to any party under this
agreement on the earlier of the date (i) actually received or (ii) sent by a
facility which provides for next day delivery:
IF TO SRG TO:
c/o Building Blocks Inc.
1720 Post Road East
Westport, CT 06880
Attn: Steven Glass
3
<PAGE>
with a copy to:
Littman Krooks & Roth, P.C.
120 West 45th Street
New York, NY 10036
Attn: Richard A. Roth, Esq.
IF TO PETER SAYET:
c/o Howard Green & Associates
825 South Bayshore Drive
Miami, FL 33131
Attn.: Howard W. Green, Esq.
with a copy to:
Howard Green & Associates
825 South Bayshore Drive
Miami, FL 33131
Attn.: Howard W. Green, Esq.
IF TO THE ESCROW AGENT:
120 West 45th Street
New York, New York 10036
Attn: Richard A. Roth, Esq.
or to such other address as any party shall have specified by notice in writing
to the other in compliance with this Section 7.
8. BINDING NATURE. This Agreement shall be binding upon and inure to
the benefit of the Parties hereto and their respective successors, heirs,
executors, administrators and assigns.
9. GOVERNING LAW. This Agreement shall be governed by and
interpreted under the laws of the State of Florida applicable to contracts made
and performed therein without giving effect to the principles of conflict of
laws thereof.
10. AMENDMENT. Any amendment or waiver of the provisions hereof
shall be in writing and shall be signed by the parties against whom such
amendment or waiver is sought to be enforced.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but collectively
all of such counterparts shall constitute one and the same agreement.
4
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Escrow
Agreement on the date first above written.
INSTITUTE OF LABORATORY MEDICINE, INC.
(n/k/a Specialty Retail Group, Inc.)
By: /s/ KEVIN R. GREENE
------------------------------------
Authorized Officer
/s/ PETER SAYET
----------------------------------------
Peter Sayet
/s/ HOWARD GREEN
----------------------------------------
Howard Green, Esq.
LITTMAN KROOKS & ROTH, P.C., Escrow Agent
By: /s/ RICHARD A. ROTH
-----------------------------------
Richard A. Roth, Esq.
5
<PAGE>
EXHIBIT 10.7
BUILDING BLOCKS, INC.
1720 Post Road East
Westport CT 06880
As of April 1, 1996
Mr. Steven E. Glass
1360 Ocean Parkway
Brooklyn, NY 11230
Dear Steven:
This letter, when signed by you, shall constitute our agreement with
respect to your employment with us ("Company").
1. POSITION: Co-President and Co-Chief Executive Officer of the
Company.
2. TERM: The term of your employment with Company shall be two (2)
years, commencing April 1, 1996 and ending February 28, 1998 (the "Term").
3. COMPENSATION:
(a) SALARY. Company shall pay to you a salary at the rate of
One Hundred Twelve Thousand Five Hundred ($112,500) Dollars per annum with
respect to the first year and a salary at the rate of One Hundred Thirty five
Thousand ($135,000) Dollars per annum with respect to the second year. Salary
accruing to you during the Term shall be payable in accordance with the regular
payroll practices of Company for employees at your level.
(b) SIGNING BONUS. In consideration of your entering into this
agreement, Company shall pay you simultaneous with the execution of this
Agreement a onetime signing bonus of Ten Thousand ($10,000) Dollars.
<PAGE>
(c) ANNUAL INCENTIVE BONUS. You shall be entitled to an annual
incentive bonus equal to 5% of the pre-tax profits before "extraordinary items"
for the fiscal year of the Company and its Franchising Affiliate to be paid to
you within three (3) months of such fiscal year.
As used herein extraordinary items shall mean items of income or expense which
in accordance with generally accepted accounting principles, as currently in
effect, would be reported in a statement of operations on a separate line
setting forth a gain or loss from extraordinary items, which line would appear
after a line reporting net income or loss before extraordinary items. The annual
incentive bonus shall be pro-rated for the fiscal year of your employment ending
June 30,1996 and each year of the term thereafter.
4. STOCK OPTIONS: As a separate and added inducement to your
entering into this agreement and in consideration of your acting as a full time
consultant for the Company since January 1, 1996, Specialty Retail Group, Inc.
("SRG") of which Company is a wholly owned subsidiary, has granted you options
to purchase 110,000 shares of the Common Stock of SRG (the "Options")
exercisable for a period of six (6) years from the date of vesting to be valued
at seventy-five ($.75) cents per share, which Options shall vest as follows;
(a) 33 1/3% of the Options shall vest upon the date of grant;
(b) 33 1/3% of the Options shall vest on April 1, 1997; and
2
<PAGE>
(c) 33 1/3% of the Options shall vest on March 15, 1998.
Notwithstanding the foregoing the said options will expire six months
after termination of your employment by the Company for cause or your voluntary
withdrawal from your employment with the Company prior to April 1, 1997.
The said option will be evidenced by an option agreement containing
the foregoing terms and such other terms as are customary for options granted by
SRG.
5. REPORTING: You shall report directly to the Chairman of the
Board of Company, Kevin Greene, and you shall perform such duties (consistent
with your position) as you shall reasonably be directed to perform by him. If
Kevin Greene's position as Chairman of the Board of Company is terminated for
any reason you shall have the right to terminate your employment by giving
notice to the Company of your desire to do so within 90 days after the
termination of his employment. Your employment shall be terminated 60 days after
receipt of said notice by the Company.
6. PLACE OF EMPLOYMENT: You shall render services primarily at the
offices established by Company in New York City. If the Company fails to
establish such offices in New York or once established closes such of offices
you shall perform your services at the Company's headquarters. The Company
recognizes that you reside in New York City and shall reimburse you for the cost
for overnight lodging you incur in proximity to the Company's headquarters as
necessary during the term of the
3
<PAGE>
Agreement. You will be provided with a full-time assistant chosen by mutual
agreement between you and the Chairman of the Board and with an appropriate
office. You also agree to travel on temporary trips to such other place or
places as may be required from time to time to perform your duties hereunder.
7. TRAVEL AND ENTERTAINMENT EXPENSES: Company shall pay or
reimburse you for reasonable expenses actually incurred or paid by you during
the Term in the performance of your services hereunder in accordance with
Company's policy for employees at your level upon presentation of expense
statements or vouchers or such other supporting information as Company may
customarily require.
8. BENEFITS: During the Term, you shall be entitled to all fringe
benefits generally accorded to employees of Company at your level from time to
time, including, but not limited to, pension, medical health and accident, group
insurance and similar benefits, provided that you are eligible under the general
provisions of any applicable plan or program and Company continues to maintain
such plan or program during the Term. Company shall lease and insure a vehicle
for your exclusive use during the term, and shall provide an allowance for
parking and maintenance of said vehicle. Total expenditure for lease, insurance,
parking, and maintenance shall not exceed $1,000 per month. In addition, you
shall be entitled to annual vacations in accordance with Company's policy for
executives at your level (but not less than three weeks in any calendar year).
4
<PAGE>
9. TERMINATION BY COMPANY FOR CAUSE: Company may at any time during
the Term, by written notice, terminate your employment for any of the following
causes: (a) any willful or intentional act which materially injures the
reputation, business or business relationships of Company or its affiliates; (b)
conviction of, or plea of nolo contendere to, a misdemeanor involving moral
turpitude or a felony; (c) material breach of material covenants contained in
this agreement; or (d) repeated or continuous failure, neglect or refusal to
perform your material duties hereunder. The written notice shall set forth in
detail the specific cause for termination. In the case where cause for
termination shall be susceptible of cure, you shall have a period of fifteen
(15) business days from the date of the termination notice in which to cure such
cause, and if you fail to cure such cause within the aforementioned fifteen
business day period, termination shall be effective upon the expiration of such
fifteen-day period; in all other cases, notice of termination shall be effective
on the date thereof. If Company terminates your employment pursuant to this
paragraph, Company shall pay to you the accrued but unpaid salary to the date of
termination and a pro-rated portion of the annual incentive bonus (if any). Upon
payment to you (or on your behalf) of the amounts set forth in this paragraph
Company shall have no further obligation or liability to you under this
agreement with respect to a termination.
10. DISABILITY/DEATH: If you shall die or become physically or
mentally incapacitated from performing your duties
5
<PAGE>
hereunder during the Term and such incapacity shall continue for a period of
four (4) consecutive months or more or for shorter periods aggregating five (5)
months or more in any twelve-month period, Company shall have the right (before
the termination of such incapacity), at its option, to terminate your employment
hereunder and Company shall pay to you, up to the date of such termination, any
accrued but unpaid salary and a pro-rated portion of the annual incentive bonus
(if any). Your right to exercise the Options shall be exercisable by yourself or
by your estate in accordance with the terms and during the vesting period as set
forth in paragraph 4 above.
11. CONFIDENTIAL MATTER: You acknowledge that your employment with
Company will, throughout the Term, bring you into close contact with many
confidential affairs of Company, including information about costs, profits,
markets, sales, products, key personnel, pricing policies, operational methods,
technical processes and other business affairs and method and other information
not otherwise publicly available, and plans for future developments. In
recognition of the foregoing, you covenant and agree as follows:
(a) you shall keep secret all confidential matters of Company
and shall not disclose them to anyone outside of Company, either during or after
your employment with Company, except with Company's written consent; and
(b) you shall deliver promptly to Company upon termination of
your employment, or at any time Company may request, all confidential memoranda,
notes, records, reports and
6
<PAGE>
other documents (and all copies thereof) relating to the business of Company
which you may then possess or have under your control.
12. NOTICES: All notices, requests, consents and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given if delivered personally or sent by
prepaid telegram, courier, or mailed first-class, postage prepaid, by registered
or certified mail, return receipt requested, as follows:
TO YOU: TO COMPANY:
Mr. Steven E. Glass Building Blocks, Inc.
1360 Ocean Parkway 1720 Post Road East
Brooklyn, NY 11230 Westport, CT 06880
With a copy to: With a copy to:
Glinert & Chidekel Goodkind, Labaton Rudoff
100 Park Avenue & Sucharow LLP
12th Floor 100 Park Avenue
New York NY 10017 12th Floor
Att: David J. Glinert, Esq. New York, NY 10017
Att: Edmond M. Coller, Esq.
Either you or Company may change the address to which notices are to be sent by
giving written notice of such change of address to the other in the manner
herein provided for giving notices.
13. MISCELLANEOUS:
(a) You represent and warrant to Company that you are free to
enter into this agreement and, as of the commencement of the Term hereof, are
not subject to any conflicting obligation or any disability which will prevent
you from or interfere with your executing and performing your obligations
hereunder.
7
<PAGE>
(b) You acknowledge that during the Term you will comply with
Company's corporate polices, as in effect from time to time, of which you are
made aware.
(c) You acknowledge that services to be rendered by you
underthis agreement are of a special, unique and intellectual character which
gives them peculiar value, and that a breach or threatened breach of any
provision of this agreement (particularly, but not limited to, the provision of
paragraph 11 hereof), will cause Company immediate irreparable injury and damage
which cannot be reasonably or adequately compensated in damages in an action at
law. Accordingly, without limiting any right or remedy which Company may have in
the premises, you specifically agree that Company shall be entitled to
injunctive relief to enforce and protect its rights under this agreement. The
provisions of this paragraph 13(c) shall not be construed as a waiver by Company
of any rights which Company may have to damages or another remedy.
(d) This agreement sets forth the entire agreement and
understanding of the parties hereto. No representation, promise or inducement
has been made by either party that is not embodied in this agreement, and
neither party shall be bound by or liable for any alleged representation,
promise or inducement not herein set forth. (I) The provisions
of this agreement shall inure to the benefit of the parties hereto, their heirs,
legal representatives, successors and permitted assigns. This agreement, and
your rights and obligations hereunder, may not be assigned by you. Company may
8
<PAGE>
assign its rights, together with its obligations, hereunder in connection with a
reorganization of Company, or in connection with any sale, transfer or other
disposition of all or a substantial portion of the stock or assets of Company.
(e) This agreement may be amended, modified, superseded,
canceled, renewed or extended, and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by either
party of the breach of any term or covenant contained in this agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this agreement.
(f) This agreement shall be governed by and construed according
to the laws of the State of New York as applicable to agreements to be wholly
performed therein.
9
<PAGE>
If the foregoing correctly sets forth our understanding, please sign
and return the duplicate copy of the letter enclosed herewith.
Very truly yours,
BUILDING BLOCKS, INC.
By: /s/ KEVIN R. GREENE
----------------------------------------
Accepted and Agreed:
/s/ STEVEN E. GLASS
- -------------------------
Steven E. Glass
10
<PAGE>
Guarantee
Specialty Retail Group, Inc. (the "Guarantor") unconditionally
guarantees to you the full and punctual performance and observance, by the
Company, of all the terms, covenants and conditions in the foregoing agreement
on Company's part to be kept, performed or observed. The Guarantor waives notice
of any breach or default by Company.
The obligations of Guarantor hereunder shall not be released by any
modification of the agreement, but in case of any such modification the
liability of Guarantor, shall be deemed modified in accordance with the terms of
any such modification of the agreement.
This guaranty shall apply to the said agreement, any extension or
renewal thereof and this instrument may not be changed, modified, discharged or
terminated orally in any manner other than by an agreement in writing signed by
Guarantor and you.
IN WITNESS WHEREOF, Guarantor has hereunto set his hands and seals the
12 day of April , 1996.
SPECIALTY RETAIL GROUP, INC.
By: /s/ KEVIN R. GREENE
----------------------------------------
(ACKNOWLEDGEMENT)
11
<PAGE>
EXHIBIT 10.8
Specialty Retail Group, Inc.
STOCK OPTION AGREEMENT
Optionee: Steven E. Glass
Address: 1360 Ocean Parkway, 12-C
Brooklyn, New York 11230
Total Number of Shares Subject to Option: 110,000
Exercise Price Per Share: $.75
Date of Grant: April 12, 1996 ("Grant Date")
1. GRANT OF OPTION. Specialty Retail Group,
Inc., a Florida corporation ("SRG" or the "Company"), hereby grants, as of the
Grant Date, to (the "Optionee") an option ("Option") to purchase all or any part
of 110,000 shares of common stock, $.001 par value, of the Company (the
"Shares") at the exercise price of $0.75 per Share, subject to all of the terms
and conditions of: (i) this Stock Option Agreement ("Agreement"); and (ii) the
Exercise Notice and Agreement attached hereto as Exhibit A (the "Notice"). This
Option is not intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended.
2. VESTING: EXERCISE PERIOD OF OPTION. The Shares subject to this
Option shall vest, and this Option may be exercised, as to 36,667 of the Shares
on the date hereof, as to an additional 36,667 of the Shares on and after April
1, 1997 and as to 36,666 of the Shares on and after March 15, 1998, and, subject
to Sections 5 and 6 hereof, the foregoing rights may be exercised up to and
including the date which is six (6) years from the Grant Date.
3. PARTIAL EXERCISE. Subject to Section 2 hereof, exercise of this
Option may be made in part at any time and from time to time, except that this
option may not be exercised as to fewer than one hundred (100) Shares unless
such exercise is made with respect to all of the Shares as to which this Option
is then exercisable.
4. MANNER OF EXERCISE.
(a) This Option shall be exercisable by delivery to the Company
of a Notice, which has been duly executed and completed by the Optionee.
(b) The Notice shall be accompanied by payment of the purchase
price of the Shares being purchased as specified therein. Payment for the
Shares shall be made in cash. In
<PAGE>
addition, the Company, in its sole and absolute discretion, may, by written
notice to the Optionee, permit payment for Shares purchased hereunder in any
other form of legal consideration consistent with applicable law and any rules
and regulations relating thereto, including, but not limited to, the execution
and delivery of a full recourse promissory note by the Optionee to the Company.
(c) Subject to Section 9 hereof and provided that the Notice
and payment are in form and substance satisfactory to the Company and adequate
provision has been made for the payment of any federal, state, local or foreign
withholding obligations of the Company or any Subsidiary associated with such
exercise, the Company shall issue the full number of Shares set forth in such
Notice in the name of the Optionee or, if the Option was exercised by the
Optionee's guardian or legal representative as a result of the legal
incompetence of the Optionee, Optionee's guardian or legal representative, as
the case may be.
5. TERMINATION FOR CAUSE. In the event the Optionee is
terminated from his employment and/or office with the Company or one of its
Subsidiaries, as the case may be, for Cause as defined in any employment
agreement then in effect (or, if no such definition is then in effect, by the
Board of Directors), the unexercised portion of this option (whether or not
vested), if any, held by the optionee on the date of such removal or
termination, shall expire immediately.
6. TERMINATION OTHER THAN FOR CAUSE. In the event the Optionee
is no longer an officer or employee other than for the reasons set forth in
Section 5 hereof, then the unvested portion of this Option shall thereupon
expire immediately and the vested but unexercised portion of this option shall
expire one hundred eighty (180) days thereafter unless this Option by its terms
expires sooner.
7. NONTRANSFERABILITY OF OPTION. During the lifetime of the
Optionee, this Option may be exercised only by the Optionee or, in the event of
the legal incompetence of the Optionee, by his guardian or legal representative.
This Option may not be transferred by the Optionee otherwise than by will or by
the laws of descent and distribution. This Option may not be assigned, pledged
or hypothecated by the Optionee whether by operation of law or otherwise, or be
made subject to execution, attachment or similar process. Any attempted
transfer, assignment, pledge or hypothecation contrary to the provisions hereof,
and the levy of any execution, attachment or similar process upon this Option,
shall be null and void and without effect.
8. NO OBLIGATION TO EXERCISE OPTION. The grant of this Option
imposes no obligation on the Optionee to exercise it.
2
<PAGE>
9. SECURITIES LAW REQUIREMENTS. No Shares shall be issued
hereunder unless and until: (i) the Company and the Optionee have taken all
action required to register the Shares under the Securities Act of 1933, as
amended, or to perfect an exemption from the registration requirements thereof;
(ii) any applicable listing requirement of any stock exchange on which the
Common Stock is listed has been satisfied; and (iii) any other applicable
provision of state or federal law has been satisfied. The Company shall be
under no obligation to register the Shares with the Securities and Exchange
Commission or to effect compliance with the registration or qualification
requirements of any state securities laws or stock exchange.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of
any change in capitalization affecting the Shares subject to this Option, such
as a stock dividend, stock split or recapitalization, the Board of Directors has
the right, but not the obligation, to make proportionate adjustments with
respect to: (i) the number of Shares which are subject to this Agreement and
exercise price(s) associated therewith; and (ii) such other matters as shall be
appropriate in light of the circumstances. If the Board of Directors elects to
so change the terms and provisions of this Agreement, the Board of Directors
shall notify the Optionee in writing and the terms and provisions contained
therein, to the extent inconsistent with those contained herein, shall govern in
all respects.
11. ADJUSTMENT. (a) Upon the effective date of the dissolution
or liquidation of the Company, or of a reorganization, merger or consolidation
of the Company with one or more corporations in which the Company will not
survive as an independent, publicly owned corporation, or of a transfer of
substantially all the property or more than eighty percent (80%) of the then
outstanding shares of Stock of the Company to another corporation, this Option
shall terminate unless provision be made in writing in connection with such
transaction for the continuance of the Plan and for the assumption of this
Option, or the substitution for this Option of new options covering the shares
of a successor employer corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to number and kind of stock and prices in which event
the Plan and this Option, or the new options substituted therefor, shall
continue in the manner and under the terms so provided. In the event of such
dissolution, liquidation, reorganization, merger, consolidation, transfer of
assets or transfer of Stock, and if provision is not made in such transaction
for the continuance of the Plan and for the assumption of this Option or the
substitution for this Option of new options covering the capital stock of a
successor employer corporation or a parent or subsidiary thereof, then the
Optionee shall be entitled, prior to the effective date of any such transaction,
to purchase the full number of shares of Stock under this Option that the
Optionee would otherwise have been entitled to purchase during the remaining
term of the Option. Upon the first purchase of shares of Stock pursuant to a
tender offer or
3
<PAGE>
exchange offer, other than by the Company, for all or any part of the Stock, or
upon the change of control of the Company other than pursuant to a tender offer,
the Optionee shall be entitled, prior to the termination date of any such tender
offer or at any time prior to and within two (2) weeks following such change of
control to purchase the full number of shares of Stock under this Option that
the Optionee otherwise would have been entitled to purchase during the remaining
term of the Option.
(b) Adjustments under this paragraph shall be made by the Board
of Directors, whose determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive. No fractional shares of
Stock shall be issued pursuant to the Option or any such adjustment. No such
adjustment under this Section shall be made so as to constitute a modification,
extension or renewal of this Option within the meaning of such terms as set
forth in Section 425(h) of the Internal Revenue Code of 1986, as amended (the
"Code"), or so as to prevent the Company or any other corporation or subsidiary
thereof, if the Optionee shall become employed by such corporation by reason of
the transaction in respect of which such adjustment is made, from being a
corporation issuing or assuming this Option in a transaction to which
Section 425(a) of the Code applies.
12. INTERPRETATION. Any dispute regarding the interpretation of
this Agreement shall be submitted by the Optionee or the Company forthwith to
the Compensation Committee of the Board of Directors, which shall review such
dispute at its next regular meeting. The resolution of such a dispute by such
Committee shall be final and binding on the Company and Optionee.
13. ENTIRE AGREEMENT. The Notice is incorporated herein by
reference. This Agreement and the Notice constitute the entire agreement of the
parties and supersede all prior undertakings, agreements, representations,
warranties and understandings with respect to the subject matter hereof.
14. SHAREHOLDERS' RIGHTS. Neither the Optionee nor any
beneficiary or other person claiming under or through the Optionee shall acquire
any rights as a shareholder of the Company by virtue of the Optionee having been
granted the Option hereunder. Neither the Optionee nor any beneficiary or other
person claiming under or through the Optionee will have any right, title or
interest in or to any Shares subject to this Option except as to Shares, if any,
that have been issued or transferred to the Optionee. No adjustment shall be
made to the Option for dividends or distributions or other rights for which the
record date is prior to the date of the exercise of this Option.
15. NO RIGHT TO CONTINUE SERVICES OR EMPLOYMENT. Nothing
contained in this Agreement or the Notice shall be deemed to confer upon the
Optionee any right to continue to render
4
<PAGE>
services to the Company, a subsidiary or affiliate, or affect the right of the
Company, a subsidiary, an affiliate, the Board of Directors, the board of
directors of a subsidiary or an affiliate, the shareholders of the Company or a
subsidiary, or the holders of interests in an affiliate, as applicable, to
terminate any consulting or employment relationship as the case may be, of the
Optionee at any time with or without cause, reason or justification.
16. HEADINGS. The headings contained in this Agreement are for
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
17. GOVERNING LAW. This Agreement and all actions taken
hereunder shall be enforced, governed and construed by and interpreted under the
laws of the State of Florida applicable to contracts made and to be performed
wholly within such State without giving effect to the principles of conflict of
laws thereof.
18. ACKNOWLEDGEMENT. The Optionee hereby accepts this Option
subject to all the terms and provisions of this Agreement, including the Notice.
The Optionee acknowledges that there may be tax consequences upon exercise of
this Option or upon disposition of the Shares received on exercise of this
Option and will rely on his own tax adviser with respect thereto.
OPTIONEE:
/s/ STEVEN E. GLASS
-----------------------------------
Steven E. Glass
SPECIALTY RETAIL GROUP, INC.
By: /s/ KEVIN R. GREENE
-------------------------------
Kevin R. Greene,
Chairman of the Board
5
<PAGE>
EXHIBIT 10.9
Specialty Retail Group, Inc.
STOCK OPTION AGREEMENT
Optionee: Steven E. Glass
Address: 1360 Ocean Parkway
Brooklyn, New York 11230
Total Number of Shares Subject to Option: 20,000
Exercise Price Per Share: $1.00
Date of Grant: October 2, 1995 ("Grant Date")
1. GRANT OF OPTION. Specialty Retail Group, Inc., a Florida
corporation ("SRG" or the "Company"), formerly known as Institute For Laboratory
Medicine, Inc., hereby grants, as of the Grant Date, to Steven E. Glass (the
"Optionee") an option ("Option") to purchase all or any part of 20,000 shares of
common stock, $.001 par value, of the Company (the "Shares") at the exercise
price of $1.00 per Share, subject to all of the terms and conditions of: (i)
this Stock Option Agreement ("Agreement"); (ii) the Company's 1994 Stock Option
Plan attached hereto as Exhibit A (the "Plan"); and (iii) the Exercise Notice
and Agreement attached hereto as Exhibit B (the "Notice"). All capitalized
terms not otherwise defined herein shall have the meanings set forth in the
Plan. This Option is not intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended.
2. VESTING; EXERCISE PERIOD OF OPTION. The Shares subject to this
Option shall vest, and this Option may be exercised, as to all of the Shares on
and after January 1, 1996, and the foregoing rights may be exercised up to and
including the date which is five (5) years from the Grant Date.
3. PARTIAL EXERCISE. Subject to Section 2 hereof, exercise of this
Option may be made in part at any time and from time to time, except that this
option may not be exercised as to fewer than one hundred (100) Shares unless
such exercise is made with respect to all of the Shares as to which this Option
is then exercisable.
4. MANNER OF EXERCISE.
(a) This Option shall be exercisable by delivery to the
Company of a Notice in the form attached hereto as Exhibit B which has been duly
executed and completed by the Optionee.
(b) The Notice shall be accompanied by payment of the
purchase price of the Shares being purchased as specified therein. Payment for
the Shares shall be made in cash. In addition, the Committee, in its sole and
absolute discretion, may, by written notice to the Optionee, permit payment for
Shares
<PAGE>
purchased hereunder in any other form of legal consideration consistent with
applicable law and any rules and regulations relating thereto, including, but
not limited to, the execution and delivery of a full recourse promissory note by
the Optionee to the Company.
(c) Subject to Section 7 hereof and provided that the Notice
and payment are in form and substance satisfactory to the Committee and adequate
provision has been made for the payment of any federal, state, local or foreign
withholding obligations of the Company or any Subsidiary associated with such
exercise, the Company shall issue the full number of Shares set forth in such
Notice in the name of the Optionee or, if the Option was exercised by the
Optionee's guardian or legal representative as a result of the legal
incompetence of the Optionee, Optionee's guardian or legal representative, as
the case may be.
5. NONTRANSFERABILITY OF OPTION. During the lifetime of the
Optionee, this Option may be exercised only by the Optionee or, in the event of
the legal incompetence of the Optionee, by his guardian or legal representative.
This Option may not be transferred by the Optionee otherwise than by will or by
the laws of descent and distribution. This Option may not be assigned, pledged
or hypothecated by the Optionee whether by operation of law or otherwise, or be
made subject to execution, attachment or similar process. Any attempted
transfer, assignment, pledge or hypothecation contrary to the provisions hereof,
and the levy of any execution, attachment or similar process upon this option,
shall be null and void and without effect.
6. NO OBLIGATION TO EXERCISE OPTION. The grant of this Option
imposes no obligation on the Optionee to exercise it.
7. SECURITIES LAW REQUIREMENTS. No Shares shall be issued
hereunder unless and until: (i) the Company and the Optionee have taken all
action required to register the Shares under the Securities Act of 1933, as
amended, or to perfect an exemption from the registration requirements thereof;
(ii) any applicable listing requirement of any stock exchange on which the
Common Stock is listed has been satisfied; and (iii) any other applicable
provision of state or federal law has been satisfied. The Company shall be
under no obligation to register the Shares with the Securities and Exchange
Commission or to effect compliance with the registration or qualification
requirements of any state securities laws or stock exchange.
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of
any change in capitalization affecting the Shares subject to this Option, such
as a stock dividend, stock split or
2
<PAGE>
recapitalization the Committee has the right, but not the obligation, to make
proportionate adjustments with respect to: (i) the number of Shares which are
subject to this Agreement and exercise price(s) associated therewith; and (ii)
such other matters as shall be appropriate in light of the circumstances. If
the Committee elects to so change the terms and provisions of this Agreement,
the Committee shall notify the Optionee in writing and the terms and provisions
contained therein, to the extant inconsistent with those contained herein, shall
govern in all respects.
9. INTERPRETATION. Any dispute regarding the interpretation of
this Agreement shall be submitted by the Optionee or the Company forthwith to
the Committee, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Committee shall be final and binding on the
Company and Optionee.
10. ENTIRE AGREEMENT. The Plan and the Notice are incorporated
herein by reference. This Agreement, the Plan and the Notice constitute the
entire agreement of the parties and supersede all prior undertakings,
agreements, representations, warranties and understandings with respect to the
subject matter hereof.
11. SHAREHOLDERS' RIGHTS. Neither the nor any beneficiary or
other person claiming under or through the Optionee shall acquire any rights as
a shareholder of the Company by virtue of the Optionee having been granted the
Option hereunder. Neither the Optionee nor any beneficiary or other person
claiming under or through the Optionee will have any right, title or interest in
or to any Shares, allocated or reserved under the Plan or subject to this Option
except as to Shares, if any, that have been issued or transferred to the
Optionee. No adjustment shall be made to the Option for dividends or
distributions or other rights for which the record date is prior to the date of
the exercise of this Option;
12. NO RIGHT TO CONTINUE SERVICES OR EMPLOYMENT. Nothing
contained in this Agreement, the Plan or the Notice shall be deemed to confer
upon the Optionee any right to continue to render services to the Company, a
Subsidiary or Affiliate, or affect the right of the Company, a Subsidiary, an
Affiliate, the Board, the board of directors of a Subsidiary or an Affiliate,
the shareholders of the Company or a Subsidiary, or the holders of interests in
an Affiliate, as applicable, to terminate any consulting or employment
relationship as the case may be, of the Optionee at any time with or without
cause, reason or justification.
3
<PAGE>
13. HEADINGS. The headings contained in this agreement are for
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
14. GOVERNING LAW. This Agreement and all actions taken
hereunder shall be enforced, governed and construed by and interpreted under the
laws of the State of Florida applicable to contracts made and to be performed
wholly within such State without giving effect to the principles of conflict of
laws thereof.
15. ACKNOWLEDGEMENT. The Optionee hereby acknowledges receipt
of a copy of the Plan, represents that he has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
provisions of the Plan and this Agreement including the Notice. The Optionee
further acknowledges that there may be tax consequences upon exercise of this
Option or upon disposition of the Shares received on exercise of this Option and
will rely on his own tax adviser with respect thereto.
OPTIONEE:
/s/ STEVEN E. GLASS
------------------------------
Steven E. Glass
SPECIALTY RETAIL GROUP, INC.
By: /s/ KEVIN R. GREENE
-------------------------
Kevin R.Greene,
Chairman of the Board and
Chief Executive Officer
4
<PAGE>
EXHIBIT A
1994 STOCK OPTION PLAN
OF SPECIALTY RETAIL GROUP, INC.
1. Purpose
Specialty Retail Group, Inc. (the "Corporation") desires to attract
and retain the best available talent and encourage the highest level of
performance in order to continue to serve the best interests of the Corporation
and its shareholders. By affording key personnel, directors and consultants the
opportunity to acquire proprietary interests in the Corporation and by providing
them incentives to put forth maximum efforts for the success of the business,
the 1994 Stock Option Plan of Specialty Retail Group, Inc. (the "1994 Plan") is
expected to contribute to the attainment of those objectives.
2. Scope and Duration
Options under the 1994 Plan may be granted in the form of incentive
stock options ("Incentive Options") as provided in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or in the form of nonqualified
stock options ("Nonqualified Options"). (Unless otherwise indicated, references
in the 1994 Plan to "options" include Incentive Options and Nonqualified
Options.) The maximum aggregate number of shares as to which options may be
granted from time to time under the 1994 Plan is 300,000 shares of the Common
Stock of the Corporation ("Common Stock"), which shares may be, in whole or in
part, authorized but unissued shares or shares reacquired by the Corporation.
If an option shall expire, terminate or be surrendered for cancellation for any
reason without having been exercised in full, the shares represented by the
option or any portion thereof not so exercised shall (unless the 1994 Plan shall
have been terminated) become available for subsequent option grants under the
1994 Plan. As provided in paragraph 13, the 1994 Plan shall become effective on
October 26, 1994, and unless terminated sooner pursuant to paragraph 14, the
1994 Plan shall terminate on October 25, 2004, and no option shall be granted
hereunder after that date.
3. Administration
The 1994 Plan shall be administered by the Board of Directors, or by a
committee which is appointed by the Board of Directors to perform such function
(the "Committee"). The Committee shall consist of not less than two members of
the Board of Directors.
<PAGE>
The Board of Directors or the Committee, as the case may be, shall
have plenary authority in its discretion, subject to and not inconsistent with
the express provisions of the 1994 Plan, to grant options, to determine the
purchase price of the Common Stock covered by each option, the term of each
option, the persons to whom, and the time or times at which, options shall be
granted and the number of shares to be covered by each option; to designate
options as Incentive Options or Nonqualified Options; to interpret the 1994
Plan; to prescribe, amend and rescind rules and regulations relating to the 1994
Plan; to determine the terms and provisions of the option agreements (which need
not be identical) entered into in connection with options under the 1994 Plan;
and to make all other determinations deemed necessary or advisable for the
administration of the 1994 Plan. The Board of Directors or the Committee, as
the case may be, may delegate to one or more of its members or to one or more
agents such administrative duties as it may deem advisable, and the Board of
Directors or the Committee, as the case may be, or any person to whom it has
delegated duties as aforesaid may employ one or more persons to render advice
with respect to any responsibility the Board of Directors or the Committee, as
the case may be, or such person may have under the 1994 Plan.
4. Eligibility; Factors to be Considered in Granting Options
Incentive Options shall be limited to persons who are employees of the
Corporation or its present and future subsidiaries and at the grant of any
option are in the employ of the Corporation or its present or future
subsidiaries. In determining the employees to whom Incentive Options shall be
granted and the number of shares to be covered by each Incentive Option, the
Board of Directors or the Committee, as the case may be, shall take into account
the nature of employees' duties, their present and potential contributions to
the success of the Corporation and such other factors as it shall deem relevant
in connection with accomplishing the purposes of the 1994 Plan. An option
holder who has been granted an option or options under the 1994 Plan may be
granted an additional option or options, subject, in the case of Incentive
Options, to such limitations as may be imposed by the Code on such options.
Except as provided below, Nonqualified Options may be granted to any person,
including, but not limited to, employees, independent agents, consultants,
attorneys and non-employee directors who the Board of Directors or the
Committee, as the case may be, believes has contributed, or will contribute, to
the success of the Corporation.
5. Option Price
The purchase price of the Common Stock covered by each option shall be
determined by the Board of Directors or the
2
<PAGE>
Committee, as the case may be, and in the case of Incentive Options shall not be
less than 100% of the Fair Market Value (as defined in paragraph 15 below) of a
share of the Common Stock on the date on which the option is granted. In the
case of Nonqualified Options, the purchase price under the option shall be the
Fair Market Value. Such price shall be subject to adjustment as provided in
paragraph 12 below. The Board of Directors or the Committee, as the case may
be, shall determine the date on which an option is granted; in the absence of
such determination, the date on which the Board of Directors or the Committee,
as the case may be, adopts a resolution granting an option shall be considered
the date on which such option is granted.
6. Term of Options
The term of each option shall be not more than ten years from the date
of grant, as the Board of Directors or the Committee, as the case may be, shall
determine, subject to earlier termination as provided in paragraphs 10 and 11
below.
7. Exercise of Options
(a) The Board of Directors or the Committee, as the case may be, may,
in any case or cases, prescribe that the option will only be exercisable in
specified cumulative or noncumulative installments or provide for acceleration
of the rights of exercise provided in the option under such circumstances as it
deems appropriate.
(b) An option may be exercised, at any time or from time to time
(subject, in the case of Incentive Options, to such restrictions as may be
imposed by the Code), as to any or all full shares as to which the option has
become exercisable until the expiration of the period set forth in paragraph 6
hereof, by the delivery to the Corporation, at its principal place of business
in the Bronx, New York, of (i) written notice of exercise in the form specified
by the Board of Directors or the Committee, as the case may be, specifying the
number of shares of Common Stock with respect to which the option is being
exercised and signed by the person exercising the option as provided herein;
(ii) payment of the purchase price; and (iii) in the case of Nonqualified
Options, payment in cash of all withholding tax obligations imposed on the
Corporation by reason of the exercise of the option. Upon acceptance of such
notice, receipt of payment in full, and receipt of payment of all withholding
tax obligations, the Corporation shall cause to be issued a certificate
representing the shares of Common Stock purchased. In the event the person
exercising the option delivers the items specified in (i) and (ii) of this
subparagraph (b), but not the item specified in (iii) hereof, if applicable, the
option shall
3
<PAGE>
still be considered exercised upon acceptance by the Corporation for the full
number of shares of Common Stock specified in the notice of exercise but the
actual number of shares issued shall be reduced by the smallest number of whole
shares of Common Stock which, when multiplied by the Fair Market Value of the
Common Stock as of the date the option is exercised, is sufficient to satisfy
the required amount of withholding tax.
(c) The purchase price of the shares as to which an option is
exercised shall be paid in full at the time of exercise. Payment shall be made
(i) in cash, which may be paid by check or other instrument acceptable to the
Corporation; (ii) subject to compliance with applicable laws and regulations and
such conditions as the Board of Directors or the Committee, as the case may be,
may impose, in its sole discretion, on a case-by-case basis, by delivery of
shares of Common Stock of the Corporation owned either (x) by the option holder
prior to exercise of the option or (y) by the option holder as a result of the
exercise of the option, as is equal in value (as determined by its Fair Market
Value, as defined in paragraph 15 below, at the close of business on the last
business day before the date of delivery) to the purchase price or (iii) by
delivery of any combination of cash and such shares of the Company's Common
Stock (valued as set forth above) which, in the aggregate, is equal in value to
the purchase price; provided, however, that with respect to Incentive Options,
no such discretion may be exercised unless the option agreement permits the
payment of the purchase price in that manner.
8. Incentive Options
(a) With respect to Incentive Options granted, the aggregate Fair
Market Value (determined in accordance with the provisions of paragraph 15 at
the time the Incentive Option is granted) of the Common Stock or any other stock
of the Corporation or its current or future subsidiary corporations with respect
to which incentive stock options, as defined in Section 422A of the Code, are
exercisable for the first time by any employee during any calendar year (under
all incentive stock option plans of the Corporation and its parent and
subsidiary corporations, as those terms are defined in Section 425 of the Code)
shall not exceed $100,000.
(b) No Incentive Option may be awarded to any employee who
immediately prior to the date of the granting of such Incentive Option owns more
than 10% of the combined voting power of all classes of stock of the Corporation
or any of its subsidiaries unless the exercise price under the Incentive Option
is at least 110% of the Fair Market Value and the Option expires within 5 years
from the date of grant.
4
<PAGE>
(c) In the event of amendments to the Code or applicable regulations
relating to Incentive Options subsequent to the date hereof, the Corporation may
amend the provisions of the 1994 Plan, and the Corporation and the employees
holding options may agree to amend outstanding option agreements, to conform to
such amendments.
9. Non-Transferability of Options
Incentive Options granted under the 1994 Plan shall not be
transferable otherwise than by will or the laws of descent and distribution, and
Incentive Options may be exercised during the lifetime of the employee only by
the employee.
10. Termination of Employment
In the event that the employment of an employee to whom an option has
been granted under the 1994 Plan shall be terminated (except as set forth in
paragraph 11 below), such option may be, subject to the provisions of the 1994
Plan, exercised (to the extent that the employee was entitled to do so at the
termination of his employment) at any time within 30 days after such
termination, but not later than the date on which the option terminates;
provided, however, that any option which is held by an employee whose employment
is terminated for cause shall, to the extent not theretofore exercised,
automatically terminate as of the date of termination of employment. As used
herein, "cause" shall mean conduct amounting to fraud, dishonesty, negligence,
or engaging in competition or solicitations in competition with the Corporation,
or any of its current or future subsidiaries, and breaches of any applicable
employment agreement between the Corporation, or any of its current or future
subsidiaries, and such employee. Options granted to employees under the 1994
Plan shall not be affected by any change of duties or position as long as the
holder continues to be a regular employee of the Corporation or any of its
current or future subsidiaries. Any option agreement or any rules and
regulations relating to the 1994 Plan may contain such provisions as the Board
of Directors or the Committee, as the case may be, shall approve with reference
to the determination of the date employment terminates and the effect of leaves
of absence. Nothing in the 1994 Plan or in any option granted pursuant to the
1994 Plan shall confer upon any employee any right to continue in the employ of
the corporation or any of its subsidiaries or interfere in any way with the
right of the Corporation or any such subsidiary to terminate such employment at
any time.
11. Death of Employee
If an employee to whom an option has been granted under the 1994 Plan
shall die while employed by the Corporation or a
5
<PAGE>
subsidiary or within 30 days after the termination of such employment (other
than termination for cause), such option may be exercised, to the extent
exercisable by the employee on the date of death, by a legatee or legatees of
the employee under the employee's last will, or by the employee's personal
representatives or distributees, at any time within six months after the date of
the employee's death, but not later than the date on which the option
terminates.
12. Adjustments Upon Changes in Capitalization, Etc.
Notwithstanding any other provision of the 1994 Plan, the Board of
Directors or the Committee, as the case may be, may, at any time, make or
provide for such adjustments to the 1994 Plan, to the number and class of shares
issuable thereunder or to any outstanding options as it shall deem appropriate
to prevent dilution or enlargement of rights, including adjustments in the event
of changes in the outstanding Common Stock by reason of stock dividends, split-
ups, recapitalization, mergers, consolidations, combinations or exchanges of
shares, separations, reorganizations, liquidations and the like. In the event
of any offer to holders of Common Stock generally relating to the acquisition of
their shares, the Board of Directors or the Committee, as the case may be, may
make such adjustment as it deems equitable in respect of outstanding options and
rights, including in its discretion revision of outstanding options and rights
so that they may be exercisable for the consideration payable in the acquisition
transaction. Any such determination by the Board of Directors or the Committee,
as the case may be, shall be conclusive. Any fractional shares resulting from
such adjustments shall be eliminated.
13. Effective Date
The 1994 Plan shall become effective on October 26, 1994, provided
that the shareholders of the Corporation shall have, on or before October 25,
1995, approved the 1994 Plan. Options may be granted under the 1994 Plan prior
to such approval, but each such option shall be subject to such approval of the
1994 Plan by the shareholders of the Corporation. If the 1994 Plan shall not be
so approved, all options granted thereunder shall be of no effect. The date of
grant of any option granted prior to such approval by the shareholders shall be
determined for all purposes as if the option had not been subject to such
approval; provided, however, no option granted under the 1994 Plan may be
exercised prior to the approval of the 1994 Plan by the shareholders of the
Corporation.
14. Termination and Amendment
6
<PAGE>
The Board of Directors of the Corporation may suspend, terminate,
modify or amend the 1994 Plan, provided that any amendment that would increase
the aggregate number of shares which may be issued under the 1994 Plan,
materially increase the benefits accruing to participants under the 1994 Plan,
or materially modify the requirements as to eligibility, for participation in
the 1994 Plan, shall be subject to the approval of the Corporation's
shareholders, except that any such increase or modification that may result from
adjustments authorized by paragraph 12 does not require such approval. No
suspension, termination, modification or amendment of the 1994 Plan may, without
the consent of the option holder to whom an option shall theretofore have been
granted, affect the rights of such option holder under such option.
15. Miscellaneous
As said term is used in the 1994 Plan, the "Fair Market Value" of a
share of Common Stock on any day means: (a) if the principal market for the
Common Stock is a national securities exchange or the NASDAQ National Market
System, the closing sales price of the Common Stock on such day as reported by
such exchange or market system, or on a consolidated tape reflecting
transactions on such exchange or market system, or (b) if the principal market
for the Common Stock is not a national securities exchange or the NASDAQ
National Market System and the Common Stock is quoted on the National
Association of Securities Dealers Automated Quotations System, the mean between
the closing bid and the closing asked prices for the Common Stock on such day as
quoted on such System, or (c) if the principal market for the Common Stock is
not a national securities exchange or the NASDAQ National Market System and the
Common Stock is not quoted on the National Association of Securities Dealers
Automated Quotations System, the mean between the highest bid and lowest asked
prices for the Common Stock on such day as reported by the National Quotation
Bureau, Inc.; provided that if clauses (a), (b) and (c) of this paragraph are
all inapplicable, or if no trades have been made or no quotes are available for
such day, the Fair Market Value of Common Stock shall be determined by the Board
of Directors or the Committee, as the case may be, and such determination shall
be conclusive as to the Fair Market Value of the Common Stock.
The Board of Directors or the Committee, as the case may be, may
require, as a condition to the exercise of any options granted under the 1994
Plan, that to the extent required at the time of exercise (i) the shares of
Common Stock reserved for purposes of the 1994 Plan shall be duly listed, upon
official notice of issuance, upon stock exchange(s) on which the Common Stock is
listed, (ii) a Registration Statement under the Securities Act of 1933, as
amended, with respect to such shares
7
<PAGE>
shall be effective, and/or (iii) the person exercising such option deliver to
the Corporation such documents, agreements and investment and other
representations as the Board of Directors or the Committee, as the case may be,
shall determine to be in the best interests of the Corporation.
During the term of the 1994 Plan, the Board of Directors or the
Committee, as the case may be, in its discretion, may offer one or more option
holders the opportunity to surrender any or all unexpired options for
cancellation or replacement. If any options are so surrendered, the Board of
Directors or the Committee, as the case may be, may then grant new Nonqualified
or Incentive Options to such holders for the same or different numbers of shares
at higher or lower exercise prices than the surrendered options. Such new
options may have a different term and shall be subject to the provisions of the
1994 Plan the same as any other option.
8
<PAGE>
EXHIBIT B
OPTION EXERCISE NOTICE AND AGREEMENT
Specialty Retail Group, Inc.
Attention: Corporate Secretary
1. EXERCISE OF OPTION. The undersigned ("Purchaser") hereby elects
to purchase _____ shares (the "Shares") of common stock, $.001 par value, of
Specialty Retail Group, Inc. (the "Company"), pursuant to the stock option
agreement dated as of October 2, 1995, by and between Purchaser and the Company
(the "Option"). All capitalized terms not otherwise defied herein shall have
the meanings set forth in the Plan.
2. REPRESENTATIONS OF PURCHASER. Purchaser represents and warrants
to the Company that:
(a) Purchaser has received, read and understands: (i) the
Option; and (ii) this Option Exercise Notice and Agreement ("Agreement") and
agrees to be bound by the terms and conditions thereof.
(b) Purchaser has access to all information regarding the
Company and its present and prospective business, assets, liabilities and
financial condition which have been filed with the Securities and Exchange
Commission pursuant to Section 13 of the Securities Act of 1934, as amended (the
"Exchange Act"), and Purchaser has had the opportunity to ask questions of the
Company's representatives concerning such matters and this investment.
(c) Purchaser is fully aware that investment in the Shares
involves risk and that no assurances can be given as to the future performance
of the Shares.
(d) If Purchaser is "directly or indirectly the beneficial owner
of more than 10 per centum" of the Shares, or an "officer" or "director" of the
Company, within the meaning of Section 16 of the Exchange Act, Purchaser
recognizes that the Shares purchased hereby may give rise to liability to the
Company for short swing profits under Section 16 of the Exchange Act.
<PAGE>
(e) Purchaser is acquiring the Shares for Purchaser's own
account and for investment and not with a view to distribution. The Purchaser
understands that such Shares may not have been registered under the Securities
Act of 1933, as amended, and, accordingly, such Shares may not be sold or
transferred in the absence of such registration or exemption therefrom under
said Act,
(f) Purchaser is not purchasing the Shares on the basis of
material information which has not been publicly disclosed.
(g) If Purchaser effects a transfer of any of the Shares
purchased hereby which does not comply with applicable law or any of the
provisions of this Agreement, Purchaser agrees to indemnify and hold the Company
harmless from any loss, liability, claim, damage or expense occasioned thereby,
including, without limitation, reasonable attorney's fees and costs of suit.
(h) Purchaser acknowledges and understands that no United States
federal or state agency has passed upon or made any recommendation or
endorsement of the Shares purchased hereby.
(i) Purchaser is fully aware of the tax consequences associated
with the exercise of the Option and the disposition of the Shares acquired
thereby.
3. RESTRICTIVE LEGEND AND STOP TRANSFER ORDERS.
(a) LEGEND. Purchaser understands and agrees that the Company
may, in its discretion, cause the legend set forth below, or a legend
substantially equivalent thereto, to be placed upon any certificate(s)
evidencing ownership of the Shares purchased hereby, together with any other
legends that may be required by state or federal securities laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT.
(b) STOP TRANSFER INSTRUCTIONS. Purchaser agrees that, in order
to ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent with
respect to the Shares purchased hereby.
(c) REFUSAL TO TRANSFER. The Company shall not be required:
(i) to transfer on its books any Shares that have
10
<PAGE>
been sold or otherwise transferred in violation of applicable law or any of the
provisions of this Agreement; or (ii) to treat as owner of such Shares or to
accord the right to vote or pay dividends to any purchaser or other transferee
to whom such Shares shall have been so transferred.
4. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Purchaser or by the Company forthwith to the
Compensation Committee of the Board of Directors, which shall review such
dispute at its next regular meeting. The resolution of such a dispute by such
Committee shall be final and binding on the Company and Purchaser.
5. NOTICE. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States mail by certified or registered mail, return
receipt requested, with postage and fees prepaid, addressed to the other party
at its address as shown below beneath its signature, or to such other address as
such party may designate in writing from time to time to the other party.
6. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
7. ENTIRE DOCUMENT. The Option is incorporated herein by reference.
This Agreement and the Option constitute the entire agreement of the parties and
supersede all prior undertakings, agreements, representations, warranties and
understandings with respect to the subject matter hereof.
8. HEADINGS. The headings contained in this Agreement are for
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
9. GOVERNING LAW. This Agreement and all action taken hereunder
shall be enforced, governed and construed by and interpreted under the laws of
the State of Florida applicable to contracts made and to be performed wholly
within such State without giving effect to the principles of conflict of laws
thereof.
10. PURCHASE PRICE; DELIVERY OF PAYMENT; WITHHOLDING. The purchase
price of the Shares purchased hereunder is $_____, being equal to the number of
Shares to be purchased hereunder pursuant to the exercise of the Option
described in Paragraph 1 hereof, multiplied by the exercise price as set forth
in the
11
<PAGE>
Option. Purchaser hereby pays the purchase price of $_____ in full by delivery
of $_____ in cash.
In addition, Purchaser hereby delivers to the Company the amount of
$__________, representing the amount required to be withheld by the Company in
respect of withholding taxes in connection with the exercise of the Option
hereby.
IN WITNESS WHEREOF, Purchaser has executed this Agreement this _____
day of ________, 199__.
-----------------------------------
Name:
-----------------------------------
Address:
-----------------------------------
-----------------------------------
12
<PAGE>
RECEIPT
Receipt of this Agreement together with payment in the amount of
$______ for ________ Shares in connection with the exercise of all or part of an
option granted to Steven E. Glass, together with the amount of $________
representing the payment in respect of withholding taxes as set forth in Section
10 of the Option Exercise Notice and Agreement, is hereby acknowledged.
SPECIALTY RETAIL GROUP, INC.
By:
------------------------------------
Corporate Secretary
Date:
---------------
13
<PAGE>
EXHIBIT 10.10
AGREEMENT dated as of July 29, 1996 between SPECIALTY RETAIL GROUP,
INC. ("SRG"), with an office at 1720 Post Road East Westport, Connecticut
06880, and SELIG ZISES ("Zises"), with an office at 477 Madison Avenue, 14th
Floor, New York, New York 10017 (Facsimile No. (212) 758-4334:
1. Zises has agreed to advance to SRG the sum of $224,150 (the
"Advance") and SRG has agreed to accept the Advance subject to and upon the
conditions of this Agreement.
2. The parties agree that if the Advance is not repaid in full by
September 30, 1996, SRG shall transfer to Zises in consideration of $224,150
(payable by forgiveness of the Advance) all of its rights and interests under
the Letter Agreement dated December 11, 1995, between SRG and CM Franchise Corp.
with respect to the Common Stock and Warrants referred to therein and all its
right, title and interest in such Common Stock and Warrants.
3. SRG will execute an Assignment and Notice of Assignment and will
deliver same, together with the certificates for the stock, to Edmond M. Coller,
as Escrow Agent. If by September 30, 1996, the Escrow Agent receives notice
from SRG that the Advance has been repaid ("Payment Notice"), the Escrow Agent
will deliver a copy of such notice to Zises by hand delivery or facsimile, sent
to the address or number set forth above, within three (3) business days. If
within five (5) business days after Zises' receipt of said notice Zises has not
provided the Escrow Agent with notice, by hand delivery or facsimile to the
address or number set forth below, that he disputes such Payment Notice, the
Escrow Agent will deliver the certificate for the stock, the Assignment and
Notice of Assignment to SRG. If no Payment Notice is received by the Escrow
Agent prior to September 30, 1996, the Escrow Agent will deliver the Assignment
and Notice of Assignment to Zises. If the Escrow Agent receives a Payment
Notice from SRG and notice of dispute from Zises as described above, the Escrow
Agent will hold the Assignment and Notice of Assignment until receipt by him of
(i) joint instructions from Zises and SRG or (ii) a final order of court
directing the disposition thereof. Zises agrees to notify the Escrow Agent
immediately if the Advance is repaid, in which case the Escrow Agent will
destroy the Assignment and Notice of Assignment and redeliver the stock to SRG.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
SPECIALTY RETAIL GROUP, INC.
By: /s/ KEVIN R. GREENE
-----------------------------------
Kevin R. Greene
Accepted and Agreed:
By: /s/ SELIG ZISES
-----------------------------------
Selig Zises
/s/ EDMOND M. COLLER
- -------------------------
Escrow Agent
Address 100 Park Avenue, New York, NY 10017
Facsimile Number (212) 818-0477
15
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Name State of Incorporation
- ---- ----------------------
Building Blocks, Inc. Connecticut
Building Blocks Franchise Corp. Delaware
Building Blocks Holdings, Inc. Delaware
HVM Corp. Delaware
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Specialty Retail Group, Inc.
Westport, Connecticut
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of Registration Statements 33-63068 and 33-88424 on Form
S-8 of our report dated September 20, 1996, relating to the consolidated
financial statements of Specialty Retail Group, Inc. and subsidiary appearing
in the Company's Annual Report on Form 10-KSB, for the years ended June 30,
1996 and July 2, 1995.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
September 30, 1996
