U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1997
OR
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 0-21036
BLIMPIE INTERNATIONAL, INC.
(Exact name of issuer as specified in its charter)
New Jersey
(State or Other Jurisdiction of Incorporation or Organization)
13-2908793
(IRS Employer Identification No.)
740 Broadway, New York, NY 10003
(Address and Zip Code of Principal Executive Offices)
(212) 673-5900
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
There were 9,545,676 shares of the registrant's common stock outstanding as of
November 12, 1997.
1
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Table of Contents
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets........... 3
Condensed Consolidated Statements of Operations. 4
Condensed Consolidated Statements of Cash Flows. 4
Notes to Financial Statements................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .. 6
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K................ 11
Signatures...................................... 12
2
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Item 1. Financial Statements
Blimpie International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 June 30
Assets 1997 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Current
Cash and cash equivalents $ 3,640,388 $ 3,532,339
Investments 3,533,860 4,462,253
Accounts receivable, less allowance for doubtful accounts 2,468,092 2,084,825
Prepaid expenses and other current assets 839,754 701,504
Current portion of notes receivable 857,596 985,772
----------- -----------
Total Current Assets 11,339,690 11,766,693
----------- -----------
Property, Plant and Equipment - at cost
less accumulated depreciation 1,251,089 1,253,003
----------- -----------
Other Assets
Notes receivable less allowance for doubtful
accounts and current portion 1,671,217 1,518,721
Investments 4,876,805 3,877,827
Trademarks - at cost, less accumulated amortization 8,659,121 8,704,472
Other 622,369 583,633
Total Other Assets 15,829,512 14,684,653
----------- -----------
$28,420,291 $27,704,349
=========== ===========
Liabilities and Shareholders' Equity
Current
Accounts payable $ 3,179,804 $ 3,518,657
Current portion of long-term debt 3,786 5,202
Income taxes payable 434,639 7,676
Dividends payable 333,967 --
Other current liabilities 363,143 473,951
----------- -----------
Total Current Liabilities 4,315,339 4,005,486
----------- -----------
Deferred Revenue 1,185,708 1,325,146
----------- -----------
Trademark Obligations 3,508,594 3,508,594
----------- -----------
Commitments and Contingencies -- --
Shareholders' Equity
Common stock, par value $.01 - authorized 20,000,000 shares;
issued and outstanding 9,541,926 and
9,525,226 shares, respectively 95,419 95,262
Additional paid-in capital 8,295,859 8,209,666
Retained earnings 11,213,479 10,744,290
Net unrealized gain on marketable securities 15,893 25,905
----------- -----------
19,620,650 19,075,123
Less: Subscriptions receivable 210,000 210,000
----------- -----------
Total Shareholders' Equity 19,410,650 18,865,123
----------- -----------
$28,420,291 $27,704,349
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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Item 1. Financial Statements
Blimpie International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30
1997 1996
---- ----
Revenues
<S> <C> <C>
Continuing fees $ 4,230,469 $ 3,655,429
Subfranchisor fees, master license fees and sale of franchises 1,234,084 1,910,395
Store equipment sales 4,274,235 4,200,534
Management fees and other income 294,341 250,704
------------ ------------
10,033,129 10,017,062
------------ ------------
Expenses
Subfranchisors' share of franchise and continuing fees 2,568,334 2,278,357
Store equipment cost of sales 3,562,385 3,815,246
Selling, general and administrative expenses 2,782,693 2,630,783
Interest expense 209 2,713
------------ ------------
8,913,621 8,727,099
------------ ------------
Operating Income 1,119,508 1,289,963
Interest income 182,648 236,760
------------ ------------
Income before income taxes 1,302,156 1,526,723
Income taxes 499,000 586,000
------------ ------------
Net Income $ 803,156 $ 940,723
============ ============
Earnings per share $ 0.08 $ 0.10
============ ============
<CAPTION>
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended September 30,
1997 1996
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net cash provided by operating activities $ 277,948 $ 310,845
Cash Flows From Investing Activities
Reinvested dividends of available-for-sale securities (1,401) (1,357)
Purchase of available-for-sale securities (1,633,172) --
Proceeds from maturities of available-for-sale securities 1,553,976 --
Purchase of held-to-maturity securities -- (2,053,391)
Proceeds from maturities of held-to-maturity securities -- 2,059,050
Disposal of property, plant and equipment -- 10,232
Acquisition of property, plant and equipment (87,886) (82,169)
------------ ------------
Net cash used in investing activities (168,483) (67,635)
------------ ------------
Cash Flows From Financing Activities
Proceeds from stock warrants/options exercised -- 7,250
Collections on officer notes receivable for stock purchase -- 922
Cash dividends paid -- (332,369)
Repayment of long-term debt (1,416) (1,357)
------------ ------------
Net cash used in financing activities (1,416) (325,554)
------------ ------------
Net increase (decrease) in Cash and Cash Equivalents 108,049 (82,344)
Cash and Cash Equivalents, at beginning of year 3,532,339 4,328,468
------------ ------------
Cash and Cash Equivalents, at end of period $ 3,640,388 $ 4,246,124
============ ============
Supplemental Disclosure of Cash flow Information
Noncash investing and financing activities
o Dividends declared $ 333,967 $ --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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Item 1. Financial Statements
Blimpie International, Inc. and Subsidiaries
Notes To Consolidated Financial Statements
For the Three Months Ended September 30, 1997 (Unaudited)
The unaudited interim financial statements should be read in conjunction with
the Company's June 30, 1997 Annual Report.
The unaudited financial statements include all adjustments consisting of only
normal recurring accruals which are, in the opinion of management, necessary
to present a fair statement of financial position as of September 30, 1997 and
the results of operations, changes in shareholders' equity, and cash flows for
the three months then ended. Results of operations for the period are not
necessarily indicative of the results to be expected for the full year.
No significant events have occurred subsequent to the end of fiscal year 1997,
and no material contingencies exist which would require disclosure in this
interim report.
Common Stock
The weighted average number of common shares outstanding used in the
calculation of the earnings per share for the three months ended September 30,
1997 and 1996 were 9,577,241, and 9,841, 647, respectively, as adjusted for
the assumed conversion of dilutive common stock equivalents, principally stock
options.
5
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three Months Ended September 30, 1997 Compared with Three Months Ended September
30, 1996
Results of Operations
The Company's net income decreased 15% to $803,156 for the three months ended
September 30, 1997 from $940,723 for the three months ended September 30, 1996.
The Company's earnings per share decreased 20% to $.08 per share for the three
months ended September 30, 1997 from $.10 per share for the three months ended
September 30, 1996. Such decreases are attributable to the decreases in
subfranchise and master license fees which are discussed below.
The Company's continuing fees derived from domestic franchises increased 16% to
$4,208,959 for the three months ended September 30, 1997 from $3,641,340 for the
three months ended September 30, 1996. During these same periods continuing fees
derived from international franchises increased to $21,510 from $14,089. These
increases are directly attributable to the greater number of total open outlets
as compared to the same period ended 1996.
Revenue from subfranchise, master license and franchise fees for the three
months ended September 30, 1997 decreased 35% to $1,234,084 from $1,910,395 for
the same period ended 1996. The following table sets forth an analysis of the
components of such fees.
Three Months Ended September 30,
1997 1996
SUBFRANCHISE FEES - DOMESTIC:
Existing Subfranchise Expansions $ 1,869 $ 175,292
Principal Payments Recognized on Deferred
Subfranchise Notes 11,791 14,183
Annual Renewal Term Payments Recognized 116,548 58,948
Deferred Subfranchise Fees Recognized 63,275 258,749
---------- ----------
TOTAL SUBFRANCHISE FEES $ 193,483 $ 507,172
---------- ----------
MASTER LICENSE FEES - INTERNATIONAL:
New Master License Grants $ 82,000 $ 361,950
Lump Sum Payments Recognized in Current Fiscal Year 120,293 317,500
---------- ----------
TOTAL MASTER LICENSE FEES $ 202,293 $ 679,450
---------- ----------
FRANCHISE FEES RECOGNIZED:
Domestic $ 823,309 $ 723,773
International 15,000 -0-
---------- ----------
TOTAL FRANCHISE FEES $ 838,309 $ 723,773
---------- ----------
TOTAL SUBFRANCHISE, MASTER LICENSE
& FRANCHISE FEES $1,234,085 $1,910,395
---------- ----------
6
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Total revenue from subfranchise fees decreased 62% to $193,483 for the three
months ended September 30, 1997 from $507,172 for the three months ended
September 30, 1996. During the three months ended September 30, 1997 and
September 30, 1996, the Company neither granted nor derived any revenue from any
new domestic subfranchises. In addition, during the three months ended September
30, 1997, the Company recognized $11,791 in principal payments received on
deferred subfranchise notes due from existing subfranchisors and recognized
$116,548 in annual renewal term options exercised by nine subfranchisors, as
compared to $14,183 recognized in principal payments received on deferred
subfranchise notes and $58,948 recognized in annual renewal term options
exercised by six subfranchisors during the three months ended September 30,
1996. The decrease in recognition of principal payments received on deferred
subfranchise notes and the increase in recognition of annual renewal term
options are directly related to the previously reported change in policy during
fiscal 1995 of issuing annual renewable subfranchise agreements rather than long
term agreements. During the three months ended September 30, 1997, the Company
recognized $63,275 of deferred subfranchise fees, with respect to two
subfranchises operating under the prior agreements discussed above, that had
sufficiently matured, while during the same period in 1996, the Company was able
to recognize $258,749 in deferred subfranchise fees with respect to four
subfranchises.
As in the previous fiscal year, the Company is continuing to place substantial
emphasis on the international market. During the three months ended September
30, 1997, the Company granted development rights for Panama and the Canadian
province of Manitoba and received fees with respect to these agreements totaling
$82,000. During this same period ended 1996, the Company granted development
rights for Argentina, Uruguay, Saudi Arabia, United Arab Emirates, Bahrain,
Oman, Qatar and Kuwait, and received fees with respect to these agreements
totaling $361,950. The Company will continue to place substantial emphasis on
the international market, although the international market has not developed as
rapidly as expected with regard to master license fees and outlet openings.
Total franchise fees recognized increased 14% to $823,309 for the three months
ended September 30, 1997 from $723,773 for the three months ended September 30,
1996. This increase is attributable to the increase to 113 outlets (36
traditional and 77 new-concept) opened during the three months ended September
30, 1997, from 104 outlets (40 traditional and 64 new-concept) opened during the
comparable period ended 1996.
During the three months ended September 30, 1997, store equipment sales
increased slightly to $4,274,235 from $4,200,534 for the same period ended 1996.
This increase is attributable to price increases implemented by the Company's
equipment sales department in July 1997, rather than an increase in volume. Due
to the success and experience acquired from selling equipment to Blimpie
franchisees, the Company has expanded its equipment sales department in Houston
in order to sell equipment to franchisees of other chains. This expansion is
being undertaken through BI Concept Systems, Inc., a wholly owned subsidiary.
Increases in the compensation received for providing operational, marketing and
staff support to various subfranchisors, master licensors and franchisees
resulted in an increase in the Company's management fees and other income by 17%
to $294,341 for the period ended September 30, 1997 from $250,704 for the same
period ended 1996.
Subfranchisors' share of continuing and franchise fees increased 13% to
$2,568,334 for the three months ended September 30, 1997 from $2,278,357 for the
same period ended 1996. The following table sets forth an analysis of the
components of such fees.
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Three Months Ended September 30,
1997 1996
SUBFRANCHISORS'/MASTER LICENSORS' SHARE
OF CONTINUING FEES:
Domestic $2,118,454 $1,756,301
International 7,442 6,127
---------- ----------
TOTAL SUBFRANCHISORS'/MASTER
LICENSORS' SHARE OF CONTINUING FEES $2,125,896 $1,762,428
---------- ----------
SUBFRANCHISORS'/MASTER LICENSORS' SHARE
OF FRANCHISE FEES:
Domestic $ 241,413 $ 214,389
International 1,880 -0-
---------- ----------
TOTAL SUBFRANCHISORS' SHARE OF
FRANCHISE FEES $ 243,293 $ 214,389
---------- ----------
TRADEMARK LICENSE FEES ON CONTINUING,
FRANCHISE, MASTER LICENSE &
SUBFRANCHISE FEES:
Domestic $ 154,389 $ 179,671
International 44,756 121,869
---------- ----------
TOTAL TRADEMARK LICENSE FEES ON
CONTINUING, FRANCHISE, MASTER
LICENSE & SUBFRANCHISE FEES $ 199,145 $ 301,540
---------- ----------
TOTAL SUBFRANCHISORS'/MASTER
LICENSORS' SHARE OF CONTINUING &
FRANCHISE FEES AND TRADEMARK
LICENSE FEES ON CONTINUING,
FRANCHISE, MASTER LICENSE &
SUBFRANCHISE FEES $2,568,334 $2,278,357
---------- ----------
Total subfranchisors' share of domestic continuing fees increased 21% to
$2,118,454 for the three months ended September 30, 1997 from $1,756,301 for the
same period ended 1996. This increase is directly related to the increase in the
revenue derived from continuing fees discussed above.
By reason of the above-mentioned increase in domestic franchise fees, the
subfranchisors' share thereof also increased 13% to $241,413 for the period
ended September 30, 1997 from $214,389 for the same period ended 1996.
Trademark license fee obligations owed to Metropolitan Blimpie, Inc. ("MBI"), an
unaffiliated corporation, on certain domestic and international continuing,
franchise, master license and subfranchise fees decreased 34% to $199,145 for
the three months ended September 30, 1997 from $301,540 for the same period
ended 1996. This decrease is the direct result of the decreases in revenue
derived from subfranchise and master license fees.
As a result of a decrease in the volume of equipment sales processed during the
three months ended
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September 30, 1997, as compared to the same period ended 1996, s tore equipment
cost of sales decreased slightly to $3,562,385 from $3,815,246 for the same
period ended 1996.
Selling, general and administrative expenses rose slightly to $2,782,693 during
the three months ended September 30, 1997 as compared to $2,630,783 for the same
period ended 1996.
Interest income for the three months ended September 30, 1997 decreased 23% to
$182,648 from $236,760 for the same period ended 1996. This decrease was the
result of the selling of a portion of the U.S. Treasury notes owned by the
Company to purchase a portion of the international trademarks and service marks
in February 1997.
The effective income tax rate (income taxes expressed as a percentage of pre-tax
income) was 38.3% and 38.4% for the three months ended September 30, 1997 and
1996, respectively.
Investments under current assets decreased 21% to $3,533,860 at September 30,
1997 from $4,462,253 at June 30, 1997. Investments under other assets increased
26% to $4,876,805 at September 30, 1997 from $3,877,827 at June 30, 1997. Such
decrease and increase, respectively, are the result of the maturation and two
year renewal of a U.S. Treasury note in July 1997. As a result thereof, the
Treasury note was reclassified from current assets to long-term assets.
Current accounts receivable, less allowance for doubtful accounts, increased 18%
to $2,468,092 at September 30, 1997 from $2,084,825 at June 30, 1997. The
Company's current portion of notes receivable decreased 13% to $857,596 at
September 30, 1997 from $985,772 at June 30, 1997. During these same periods,
deferred revenue decreased 11% to $1,185,708 from $1,325,146. Said increase and
decrease, respectively were the direct result of the previously reported policy
adopted during fiscal 1995 of issuing annual renewable subfranchise agreements
in lieu of long term agreements.
The Company's prepaid expenses and other current assets increased 20% to
$839,754 at September 30, 1997 from $701,504 at June 30, 1996. This increase was
the result of an increase in the Company's store equipment inventory, for
subsequent resale.
Notes receivable less allowance for doubtful accounts and current portion
increased 10% to $1,671,217 at September 30, 1997 from $1,518,721 at June 30,
1997. This increase was the result of the increase in the participation in
equipment leases to its franchisees.
The Company's accounts payable decreased 10% to $3,179,804 at September 30, 1997
from $3,518,657 at June 30, 1997. This decrease resulted from the Company's
utilization of cash received to pay equipment vendors on a current basis.
Dividends payable increased to $333,967 at September 30, 1997 from $0 at June
30, 1997. This was the result of recording the cash dividend to be paid on
October 15, 1997 to shareholders of record on October 1, 1997 which was declared
on September 15, 1997.
Income taxes payable at September 30, 1997 increased to $434,639 from $7,676 at
June 30, 1997. This increase was the result of the accrual for income taxes
payable based on the net income for the three months ended September 30, 1997.
Liquidity and Capital Resources
During the three months ended September 30, 1997, the Company did not incur any
material capital commitments. The Company's current ratio (aggregate current
assets compared to aggregate current
9
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liabilities) at September 30, 1997 was in excess of 2.6:1.
The Company generated cash flows from operating activities of $277,948 and
$310,845 for the three months ended September 30, 1997 and 1996, respectively.
The decrease of $32,897 was the result of increases in accounts receivable and
prepaid expenses and other current assets and decreases in accounts payable,
which were partially offset by an increase in income taxes payable.
Net cash flows used in investing activities during the three months ended
September 30, 1997 and 1996 totaled $168,483 and $67,635, respectively. The
increase of $100,848 was the result of a U.S. Treasury note which matured in
July 1997, being renewed for two years.
During the three months ended September 30, 1997 and 1996 the Company used
$1,416 and $325,554, respectively in net cash flows from financing activities.
This decrease of $324,138 was the result of the fact that the first cash
dividend payment for fiscal year ending June 30, 1998 occurred on October 15,
1997 as opposed to the first cash dividend payment for fiscal year ended June
30, 1997 occurred on September 17, 1996.
The Company's primary liquidity needs arise from expansion, research and
development, capital expenditures and trademark obligations. These needs are
primarily met by the cash flows from operations and from the Company's cash and
investments. The Company believes that the cash flows from operations and the
Company's cash and investments will be sufficient to fund its future liquidity
needs for the foreseeable future.
With the constant modernization of the Company's computer systems, and
significant upgrades during fiscal 1997 and 1996, the Company does not expect
the Impact of Year 2000 to have a material effect on existing systems.
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PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The exhibits listed below are filed as part of this report.
Exhibit 10.44 Agreement made as of the 29th day of October 1997 by and
between Maui Tacos International. Inc., Blimpie International.,
Inc., Lumi Kuke Partnership, Lau, Lau, Inc., Mark Eliman, Shep
Gordon, No Lava, Inc., Robert Sitkoff and Yvonne Downes.
Exhibit 27 Financial Data Schedule (filed only with the Commission)
b. Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter for
which this report has been filed.
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Signature
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BLIMPIE International, Inc.
Dated: November 14, 1997 By: /s/ Joanne Guarnieri
-------------------------------------
Joanne Guarnieri, Vice President and
Chief (Accounting) Financial Officer
12
Exhibit 10.44
AGREEMENT
AGREEMENT made as of the 29th day of October, 1997 by and between Maui
Tacos International, Inc., a Georgia corporation to be formed located at 1775
The Exchange, Atlanta, Georgia 30339 (hereinafter referred to as "MTII") and
Blimpie International, Inc. located at 740 Broadway, New York, New York 10003
(hereinafter referred to as "Blimpie"), Lumi Kuke Partnership, a Hawaii limited
partnership located at c/o David H. Nakamura, Esq., 38 South Market Street,
Wailuku, Maui, Hawaii, 96793 (hereinafter referred to as "Lumi Kuke"); Lau Lau,
Inc. (corporate general partner of Lumi Kuke) located at c/o Mark Ellman at Maui
Tacos, 844 Front Street, Lahaina, Maui, Hawaii, 96761 and Mark Ellman located at
c/o David H. Nakamura, Esq., P. O. Box 1431, Wailuku, Maui, Hawaii, 96793
(hereinafter referred to as "Ellman") and Shep Gordon located at c/o Jeffrey M.
Smith, Esq., Katz, Smith & Cohen, Ivy Place, 3423 Piedmont Road, N.E., Second
Floor, Atlanta, Georgia 30305 (hereinafter referred to as "Gordon"); No Lava,
Inc. a Hawaii corporation located at c/o David H. Nakamura, Esq., 38 South
Market Street, Wailuku, Maui, Hawaii, 96793 (hereinafter referred to as "No
Lava"); Robert Sitkoff located at 1775 The Exchange, Atlanta, Georgia 30339
(hereinafter referred to as "Sitkoff"); and Yvonne Downes located at c/o Charles
G. Leaness, Esq., 740 Broadway, New York, New York 10003.
PREAMBLE
Lau Lau, Inc. is the General Partner of Lumi Kuke and Ellman and Gordon
are limited partners of Lumi Kuke. Lumi Kuke is the current owner of the
trademark "Maui Tacos" and of certain intellectual property and trade secrets
regarding the Maui Tacos business operation and format and an owner of four Maui
Tacos restaurants in Maui, Hawaii. Ellman is also the sole stockholders,
officers and directors of No Lava owning 100% of the outstanding and issued
shares of said corporation. No Lava is the former owner of a U.S.A. trademark
application for the trademark "Maui Tacos" Serial Number 74/664,190, Class 25
and 42 which is currently subject to a trademark office action having assigned
all right, title and interest in and to the Maui Tacos trademark, any and all
intellectual properties and trade secrets to Lumi Kuke on October 21, 1997. If
for whatever reason the Maui Tacos trademark cannot be obtained, then the
parties will create another trademark incorporating "Maui Tacos" therein. Lumi
Kuke has previously authorized those corporations identified on the annexed
Exhibit A by a cancelable license to utilize the trademark Maui Tacos in
conjunction with their Hawaiian/Mexican restaurant operations. Collectively,
Lumi Kuke and No Lava are the owners of six Maui Tacos restaurants whose
locations are identified on Exhibit A.
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Mark Ellman is a food service expert and chef noted for his expertise in
cooking and product development particularly of Hawaiian/Mexican food products
and fruit type drinks including "Smoothies". Gordon is a businessman and
promoter/developer of concepts with special skills in public relations,
marketing, private labeling and promotion of Hawaiian/Mexican restaurants and
food products.
Blimpie is a New Jersey public corporation and the licensee of the Blimpie
trademarks (Blimpie has received a 99 year license to sublicense the Blimpie
trademarks from Anthony P. Conza and David L. Siegel, Esq.) and franchisor of
approximately 1,700 open Blimpie Restaurants and approximately 100
subfranchises. Blimpie has been in the franchise and subfranchise business since
1977 and is desirous of associating with Lumi Kuke, Ellman and Gordon on behalf
of themselves and as representatives of Lumi Kuke in connection with the
development of a franchise system specializing in Hawaiian/Mexican cuisine under
the name "Maui Tacos" and a fruit type drink operation which will also sell
"Smoothie's" whose names have yet to be developed.
Lumi Kuke, Ellman and Gordon have reviewed the current 1997 NYS/FTC and
Hawaii/FTC Blimpie Restaurant Franchise and Subfranchise Disclosure Documents of
Blimpie including the franchise agreement, subfranchise agreement, information
regarding officers, directors, control persons, financial statements, and such
other information as is available prior to the execution of this Agreement.
Gordon and Ellman have visited Blimpie's executive offices in New York, New York
as well as a number of Blimpie Restaurants and have reviewed materials regarding
Blimpie and its executive staff. Blimpie has visited a number of the Maui Tacos
locations set forth on the annexed Exhibit A and its executives have met with
Gordon in New York, New York and Ellman and Gordon in Hawaii.
Under discussion, and subject to a decision of the Board of Directors of
MTII, is the development of one or more pilot locations which may be independent
stand alone Maui Tacos outlets or co-branded Maui Tacos outlets in order to
develop the operating system, establish all of the needed procedures and
know-how required by MTII to effectively operate its business.
WHEREAS, Blimpie and Lumi Kuke each desire to associate with the other in
the development of a franchise system which will be owned by MTII as hereinafter
described; and
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<PAGE>
WHEREAS, Ellman is the sole stockholder of No Lava; Lau Lau, Inc. is the
general partner and Ellman and Gordon are the limited partners of Lumi Kuke; and
WHEREAS, Yvonne Downes is the individual who has introduced Gordon to
Blimpie and is entitled to a finders fee for such introduction.
NOW, THEREFORE, in consideration of the foregoing and the mutual terms,
covenants and conditions herein below set forth, it is agreed as follows:
1. Corporation Formation. Blimpie has formed a Georgia corporation with
the name of "Maui Tacos International, Inc." The corporation shall be authorized
to issue 15,000,000 shares of common stock (no par value).
2. Shareholder Identification. For the subscription prices set forth in
Article 3.1 herein, the applicable parties (for the purpose of this Agreement,
applicable parties shall be defined to be Lumi Kuke and Blimpie, not Sitkoff,
Downes or any of the Celebrities or other entities that receive shares from
MTII) to this Agreement agree that they will perform all acts and execute all
documents and instruments necessary to reflect ownership of MTII's stock in the
following manner:
Shareholder Number of Shares Owned
----------- ----------------------
Lumi Kuke 1,600,000
Blimpie 6,000,000
Celebrities or Other Entities
To Be mutually
agreed upon 800,000
Yvonne Downes 100,000
Robert Sitkoff 200,000
The certificate or certificates representing the shares issued by MTII to all
current and future shareholders shall have endorsed upon the face thereof the
following legend: "This share certificate is held subject to the terms of an
agreement dated October 29, 1997 made by the Corporation with Lau Lau, Lumi
Kuke, No Lava, Blimpie, Mark and Judy Ellman, Gordon, Downes and Sitkoff, a copy
of which is on file at the office of this corporation." At such time that MTII
is involved in a public registration wherein its shares are sold to the public
in accordance with applicable laws, rules and regulations, said shares shall not
15
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bear an inscription nor shall said public shareholders be obligated under this
Agreement.
With respect to shares to be issued to Celebrities or other entities, such
decision shall be made by Lumi Kuke and Blimpie unanimously. Currently it is
intended that 100,000 shares shall be sold for nominal consideration to Sharon
Stone, Michael Douglas and Alice Cooper. Under discussion are plans to issue
shares over time to outside entities such as music promoters or other businesses
which will result in a benefit to MTII whether via marketing, advertising,
networking or some constructive benefit to MTII. Any additional sale or grant of
the shares of MTII after the projected 800,000 shares to be sold for nominal
consideration to Celebrities or other entities, shall be subject to a decision
of the Board of Directors of MTII and its shareholders as may be appropriate in
accordance with all applicable laws, rules and regulations. Any additional sale
or grant of the shares of MTII shall only be for a proper corporate purpose, for
fair and reasonable consideration in the event of a private placement sale of
any of the shares of MTII or in the event of a grant of shares for nominal
consideration to an entity that will provide reasonable services or benefits to
MTII to merit such a grant for nominal consideration or in conjunction with an
authorized employee stock option or benefit plan for the employees of MTII. The
grant for nominal consideration of any of the shares of MTII to any relative of
any member of the Board of Directors of MTII (excluding Ellman or Gordon) or
Blimpie shall require the consent of Lumi Kuke prior to such transaction.
3. Subscription Price.
3.1 Blimpie shall pay the following subscription price for its shares:
Blimpie shall invest as a capital contribution the sum of $10,000 and shall
within 30 days from the execution date of all parties loan MTII the sum of
$240,000 to be repaid five (5) years from the date of receipt plus interest
equal to the average of the prime rate of Citibank, N.A. over said five (5) year
term. Annexed to this Agreement is the form of the promissory note to be
executed by MTII. Thereafter Blimpie may in its sole discretion without any
obligation to do so, loan to MTII such other sums as needed by MTII in an amount
not to exceed $1,250,000 on the same terms as the initial loan but payable five
(5) years after receipt of said funds plus interest compounded annually equal to
the average of the prime rate of Citibank, N.A. over said five (5) year as said
funds are needed by MTII. However Blimpie shall have the right to cease loaning
MTII any funds after the first loan of $240,000 at any time in its sole
discretion.
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3.2 Lumi Kuke shall pay the following subscription price for its shares:
Lumi Kuke shall pay MTII the sum of $100.00 for its shares in MTII.
3.2.1 Upon the execution of this Agreement, Lau Lau, Ellman and Gordon
shall cause Lumi Kuke for the consideration of $100 paid to Lumi Kuke by MTII to
assign, convey and transfer all right, title and interest they may have in (i)
the Maui Tacos trade name; (ii) the Maui Tacos trademark and (iii) all trade
secrets and intellectual property regarding the Maui Tacos system of operation,
to MTII. It is acknowledged by MTII that any right, title and interest it may
receive from Lumi Kuke in the Maui Tacos trademark is subject to the obtaining
of said trademark and there are no representations or warranties that said
trademark may be obtained from the U.S. Patent office or when said trademark may
be obtained. MTII shall continue seeking to have the Maui Tacos name registered
but may also file a second trademark using the Maui Tacos name in part as well
as seek to file state trademarks whenever and wherever MTII commences business
activities. At the request of MTII, the parties hereto shall jointly cooperate
in an attempt to sell MTII branded products as currently developed by Lumi Kuke
and/or Ellman and Gordon in appropriate states in order to facilitate state
trademark filings.
3.3 Sitkoff and Downes shall each pay $100 to MTII.
3.4 Celebrities. By execution hereof, the signators to this Agreement
hereby acknowledge that in order to obtain publicity and public awareness, it is
contemplated that agreed upon Celebrities and other entities will be granted
shares in MTII for nominal consideration in anticipation that their association
with MTII will facilitate franchise and subfranchise sales.
4. The initial by-laws of MTII are annexed.
4.1 The initial first Board of Directors of MTII shall consist of 3
members for the first month of operations and then five directors elected by the
existing shareholders as of the date of the first Board of Director election.
Said shareholders shall elect Robert Sitkoff as Chairman, Anthony P. Conza as
Vice Chairman and David L. Siegel, Esq. and, at the written request of Mark
Ellman and Gordon, at any time within 6 months from the date hereof the
shareholders shall elect Mark Ellman and Gordon to serve as members of the Board
of Directors for a one-year term. The Board of Directors members shall serve for
a one year period until election of the successor Board of Directors pursuant to
the by-laws
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of MTII.
4.2 The Board of Directors of MTII shall elect the following persons to
the corporate offices listed below:
President: Robert Sitkoff
Vice President: Anthony P. Conza
Secretary: Charles G. Leaness
Treasurer: David L. Siegel, Esq.
Chairman of the Board of Directors shall be Anthony P. Conza and Vice Chairman
David L. Siegel, Esq.
4.3 All checks shall require the signature of Robert Sitkoff, Anthony P.
Conza or David L. Siegel, Esq.
4.4 MTII shall bank at NationsBank of Georgia, N.A. or a branch thereof.
4.5 The officers and other employees of MTII shall be paid salaries and
other compensation as determined by the Board of Directors in its sole
discretion. In order to protect Lumi Kuke it is agreed that all compensation
paid to officers and other employees shall be reasonable and consistent with
industry standards. In the event that Lumi Kuke contends that any compensation
payable to any officer or employee is unreasonable and inconsistent with
industry standards, Lumi Kuke may commence an arbitration with the American
Arbitration Association to declare that the compensation is unreasonable and
inconsistent with industry standards and seeking to establish appropriate
compensation. The arbitrator's decision shall be final.
4.6 Annexed to this Agreement are the by-laws of MTII which are hereby
approved by the undersigned parties.
5. Option To Purchase. Lumi Kuke, Downes, Sitkoff and their respective
successors and assigns hereby grants to Blimpie a 15 year option, expiring on
the 15th anniversary date of this Agreement, 2012 at 5:00 p.m. New York time, to
purchase all or any part of their respective holdings of MTII common stock at an
exercise price of $5.00 per share.
6. Blimpie Stock Conversion Rights. After MTII has completed two fiscal
years
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of operation, all of MTII's shareholders except Blimpie shall have the right,
from the end of the second fiscal year through the end of the ninetieth day
after the public issuance of Blimpie's audited financials for the second such
year, by written notice of election to Blimpie and the other MTII shareholders,
to convert all or a portion of their respective shares of MTII common stock into
Blimpie common $.01 par value stock (hereinafter the "Converting Shareholders")
pursuant to the following formula (hereinafter the "Conversion Election"):
6.1 Said electing shareholders shall establish a ratio equal to the ratio
of (i) MTII earnings based on the average of two years of MTII earnings or the
second year's earnings if less than the first year's earnings to (ii) Blimpie
consolidated earnings (including MTII earnings for the same period). The highest
ratio can be one to one but there cannot be a ratio where there are more than
one Blimpie share for one MTII share.
6.2 Converting shareholders shall specify in writing the number of their
MTII shares they elect to convert (hereinafter the "Conversion Shares").
6.3 Each converting shareholders, subject to the Aggregate Conversion
Limitation (defined below in Article 6.43), shall be entitled to receive the
number of Blimpie shares (hereinafter the "Converted Shares") which are equal
to:
6.3.1 The number of Conversion Shares for each converting shareholder;
6.3.2 Multiplied by a fraction which shall:
6.3.2.1 Be deemed to never be greater than one (1);
6.3.2.2 Have a numerator which is the lesser of the earnings per share
of MTII for:
6.3.2.2.1 The last twelve (12) months; or
6.3.2.2.2 The last twenty-four (24) months; and
6.3.2.3 Have a denominator which is the earnings per share for Blimpie for
the applicable period of time in subsection 6.3.2.2.1 or 6.3.2.2.2, including
the consolidated MTII earnings of Blimpie but excluding the earnings of any
other shareholder of MTII.
For example, if MTII earns $.50 for the fiscal year and Blimpie consolidated
earnings (assuming Blimpie owns 70% of the outstanding shares of MTII) which
includes 70% MTII, earnings was $1.00, MTII can convert two MTII shares to one
Blimpie share. MTII
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accounting procedures such as GAAP and GAAS shall be the same procedures as
applied by Blimpie to its own earnings. Notwithstanding the foregoing, the right
of conversion by MTII shareholders shall be conditioned upon the following:
6.4 In no event may the electing shareholders of MTII exercise the
Conversion Election in the aggregate in any point in time, to own more than ten
(10) percent of the outstanding and issued shares of Blimpie (hereinafter the
"Aggregate Conversion Limitation").
6.5 Subject to the limitations set forth in Article 6.4 herein, each
shareholder can only elect to convert in relationship to the percentage of their
shares as compared to the other shareholders entitled to convert. For example,
if Lumi Kuke owns 44% of the shares of the non-Blimpie shareholders, Lumi Kuke
can convert up to 44% of 10% of the outstanding and issued shares of Blimpie
International, Inc. or 4.4% of Blimpie International, Inc. stock.
6.6 If less than all of the shareholders of MTII notify Blimpie of their
intent to convert their shares, all of the other non-electing shareholders shall
receive a notice from Blimpie of its receipt of such conversion election notice
by the electing shareholder(s). The non-electing shareholders of MTII shall then
be afforded the opportunity to also elect to convert their shares to Blimpie
shares within the next forty five (45) day period after receipt of notice.
6.7 If such conversion results in the issuance of ten percent of the
outstanding and authorized shares of Blimpie, but does not result in the
purchase of all MTII shares not held by Blimpie, then in such an event, Blimpie
shall have the option of purchasing the remaining shares held by the electing
shareholders at five dollars per share pursuant to Article 4 herein and if said
shares are not purchased pursuant to said option, then the option granted to
Blimpie shall be deemed null and void and of no further force and effect.
7. Existing Maui Tacos Locations. At such time that MTII is approved by
the State of Hawaii to award franchise agreements, Lumi Kuke and No Lava shall
jointly and individually cause the corporations listed on Exhibit A to enter
into franchise agreements with MTII which will provide for franchise fees of 6%
of gross sales and 4% for advertising. However, so long as Lumi Kuke and/or No
Lava are the controlling shareholders or if Ellman or Gordon are the controlling
shareholders of the corporations listed on Exhibit A,
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said franchise and advertising fees shall be waived. At such time that any or
all of the corporations or their assets are sold to third parties, then the
waiver of franchise and advertising fees shall be deemed null and void and of no
further force and effect so that said transferee shall then be obligated to pay
to MTII said franchise and advertising fees. All new Maui Tacos locations
whether owned directly or indirectly by Lumi Kuke or No Lava shall be
franchisees of MTII paying all franchise and advertising fees without any waiver
or cessation of same whatsoever.
8. Option to Purchase. Subject to the rights of Blimpie as is set forth in
Article 5 herein and the Conversion rights in Article 6.7 herein, the shares of
all MTII shareholders shall be subject to an option by MTII and the remaining
shareholders as set forth herein. Said shares or any right, title or interest
therein whether now owned or hereafter acquired, shall not be sold, assigned,
transferred, pledged, or otherwise disposed of or encumbered, except in
accordance with the provisions of this Agreement. Any disposition or encumbrance
of shares contrary to the provisions hereof shall be void. In the event that any
shareholder desires to sell all of its, his or her shares (no shareholder may
sell a part of its/his/her shares except pursuant to the Conversion rights set
forth in Article 6 hereof) to an offeree, the selling shareholder shall give at
least thirty (30) days' notice in writing by certified mail with return receipt
requested to the other shareholders and MTII, setting forth the number of shares
for sale and the terms and conditions of the said offer. Within the thirty day
(30) period, a special meeting of the shareholders shall be called by MTII to
which the directors shall be invited, upon not less than five (5) days' nor more
than ten (10) days' written notice to all directors and shareholders. Such
meeting shall be held at the principal office of MTII or such other place as may
be designated in the notice. At such meeting, the shares that the offering
shareholder desires to sell shall be offered for sale and shall be subject to an
option to purchase by MTII, which option shall be exercised, if at all, at the
time of such meeting or any adjourned date thereof not to exceed ten days.
8.1 If MTII does not purchase all shares of the selling shareholder, the
shares not so purchased shall be subject to an option in favor of the
non-selling shareholder(s) to each purchase a proportionate share of such
shares. Such option shall be exercised, if at all, at the time of the meeting of
shareholders or any adjourned date thereof not to exceed ten (10) days.
8.2 Within five (5) days after the meeting of shareholders, the Secretary
of MTII shall notify the shareholder who desires to sell its, his or her or its
shares of the action taken at the meeting. Such notice shall state how many
shares, if any, MTII has elected to purchase and, if MTII has not elected to
purchase all shares, the number of shares, if any,
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that each of the other shareholders has elected to purchase.
8.3 The Option to Purchase set forth above in Article 8 shall be deemed
null and void in the event of a public sale of any of the shares of MTII and the
remaining shareholders and MTII shall execute any and all documents required by
securities counsel to waive any and all options or modify this Agreement as is
necessary to effectuate the intent of this Article.
8.4 The parties to this Agreement agree and acknowledge that the
infrastructure of Blimpie will be providing support services to MTII for fair
and reasonable compensation and it shall not be deemed a violation of this
Agreement or self dealing for such services to be provided. Nothing contained
herein shall be deemed to limit or in any way to directly or indirectly limit or
modify Blimpie's right to authorize any type of menu change or expansion of the
product line of all or some of the Blimpie Restaurant system controlled by
Blimpie or of any other operation or system now owned or hereinafter acquired or
developed by Blimpie except at MTII's units which menu changes shall be
determined by the Board of Directors of MTII. It is acknowledged that Blimpie
formerly owned five full service Tex-Mex Bar/Restaurants which included a full
line of Mexican-type products. Moreover, Blimpie recently has authorized a
Chicken Fajita sandwich for the Blimpie system and it is possible that other
ethnic/Mexican products may be authorized in addition to the core menu of
Blimpie Restaurants. Blimpie agrees, however, that it will not duplicate any of
the recipes of Lumi Kuke or Ellman except to the extent of duplicated recipes
currently in Blimpie's possession from its Border Cafe' operations. Blimpie
shall provide copies of its recipes to Lumi Kuke or Ellman at their request with
a copy to their attorney for their records.
9. Representations and Warranties. By execution hereof, the signators to
this Agreement hereby acknowledge that there have been no other agreements or
promises or understandings nor have their been any other representations,
warranties, forecasts, estimates, inducements or projections of any type or
nature with respect to success, projected sales volume, net profits, gross
profits, loans committed, capital investment promised, or any other information
made by any of the signators to this Agreement or any of their officers,
directors or others, or any other person or entity or others in connection with
this transaction other than those set forth herein, if any.
10. Arbitration. In the event of a dispute or conflict between any of the
shareholders, whether current or future, including but not limited to,
Celebrities and other entities that receive shares pursuant to this Agreement,
the dispute or conflict shall be
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submitted to the American Arbitration Association in New York, New York before a
single arbitrator whose decision shall be final. In no event shall the terms and
conditions of this Agreement be modified or changed. At the arbitration, the
Federal Rules of Evidence and Procedure shall be applied and irrelevant
information shall not be subject to review by the arbitrator and any
arbitrator's decision whether final or preliminary that violates any applicable
law, rule or regulation shall be subject to review by a Federal Court and said
judge shall be empowered and directed to vacate or modify any such decision or
award. It is the intention of the parties to enable the judiciary to modify or
prevent improper decisions by an arbitrator. Nothing contained herein shall
limit or prevent any party to this Agreement from requesting from any court of
competent jurisdiction for judicial assistance in restraining and enjoining
violations of this Agreement.
11. Term of Agreement. This Agreement shall remain in force until
terminated in writing by all of the shareholders then holding shares in MTII.
12. Notices. All notices, offers, acceptances, waivers and other
communications by any party to any party under this Agreement shall be in
writing and shall be sufficiently given if delivered to and acknowledged in
writing by the addressee in person or if mailed postage pre-paid and by
certified mail, return receipt requested or sent by nationally recognized
overnight carrier service (for example Federal Express), to such addressee at
its/his/her respective address set forth below, or to such other address as such
addressee, by notice to all other parties given in accordance with this
paragraph, may designate from time to time. Lumi Kuke, Lau Lau, MTII, Ellman,
Gordon, Sitkoff, Downes and Blimpie and all other future shareholders shall
provide the name and address of an attorney who shall be deemed to be authorized
to accept notices, civil process and all other legal communications for each
party if said party cannot be notified or served. Facsimile or e-mail notices
shall not be valid notice under this agreement.
12.1 Such notices shall be addressed to the parties as follows:
If to MTII or Blimpie:
Anthony P. Conza, President
740 Broadway, 12th Floor
New York, New York 10003
AND
David L. Siegel, Esq.
740 Broadway, 12th Floor
New York, New York 10003
AND
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Steven D. Dreyer, Esq.
Hall Dickler Kent Friedman & Wood LLP
909 Third Avenue - 27th floor
New York, New York 10022-9998
If to Gordon, Lumi Kuke or Lau Lau:
Shep Gordon
c/o Alive Enterprises
3264 South Kihei Road
Kihei, Maui, HI 96753
AND
c/o Jeffrey M. Smith, Esq.
Katz, Smith & Cohen
Ivy Place
3423 Piedmont Road, N.E.
Second Floor
Atlanta, Georgia 30305
If to Ellman, No Lava, Lumi Kuke or Lau Lau:
Mark and Judy Ellman
c/o Alive Enterprises
3264 South Kihei Road
Kihei, Maui, HI 96753
AND
David H. Nakamura, Esq.
P. O. Box 1431
Wailuku, Maui, Hawaii, 96793
If to Sitkoff:
Robert Sitkoff
c/o Philip H. Weener, Esq.
Weener & Mason LLP
1200 Ashwood Parkway, Suite 506
Atlanta, Georgia 30338
If to Downes:
Yvonne Downes
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c/o Charles G. Leaness, Esq.
740 Broadway, Suite 1201
New York, New York 10003
MTII, Blimpie, Ellman, Gordon, Sitkoff, Lumi Kuke, Lau Lau and Downes hereby
appoint the attorneys set forth above in this Article to receive notice and
process for them pursuant to Article 12 above.
12.2 Notices shall be deemed given seven (7) business days after receipt
when sent in accordance with the foregoing.
12.3 Benefit. This Agreement shall be binding upon and shall operate for
the benefit of MTII, Blimpie, Lumi Kuke, No Lava, Ellman, Gordon, Sitkoff,
Downes and Celebrities and other entities who of which receive shares pursuant
to this Agreement and all other future shareholders and their respective heirs,
permitted assignees and transferees and legal representatives. It shall also be
binding upon any transferee who has received any shares in accordance with the
provisions of Article 8 hereof and the heirs and legal representatives of such
transferee, and upon any person to whom any of the shares are transferred in
violation of the provisions of this Agreement and its/his/her heirs or legal
representatives. Each of the shareholders shall include in his or her last will
and testament an appropriate provision referring to the Agreement and authorize
and direct his or her individual executors to carry out the terms thereof.
Failure to execute such a will however, shall not affect the rights or
obligations of any party to this Agreement.
13. Support Services. Ellman shall provide any and all necessary advisory
and consulting services required by MTII in order to develop an appropriate
system of operation which will convert the existing Maui Tacos restaurant
concept into a noncooking system which shall include recipes, recommended
equipment, systems of service, controls, portions, employee requirements and any
other matter needed to create the business system which will then be part of the
MTII franchise program. Ellman shall be available as is needed by MTII for such
consulting services, it being understood however, that Ellman's responsibilities
to MTII shall be solely limited to the provision of information regarding the
above items and MTII is responsible for developing the new Maui Tacos business
system after receipt of such information.
13.1 Ellman and Gordon shall each reasonably assist BI Concept Services,
Inc. ("BI Concepts") soon to be the wholly owned subsidiary of Blimpie that
coordinates all
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construction, equipment and design for Blimpie Restaurants in order to develop
the required equipment, decor, specifications, CAD systems, etc. for use by
MTII. Such assistance shall be deemed to only include the provision of
information as to the current equipment being utilized by Maui Tacos and their
advice and recommendations regarding any equipment that may vary or replace
existing types of equipment in use. If the Board of Directors of MTII decides to
utilize BI Concepts' services to supply equipment, it is acknowledged that BI
Concepts includes profit mark-ups for its services consistent with the same
mark-up formula utilized by Blimpie in the sale of equipment to franchisees of
Blimpie.
13.2 Ellman shall also provide any and all necessary advisory and
consulting services required by MTII in order to develop a juice/Smoothie's
system of operation which will be used with the new Maui Tacos restaurant
concept or independently as a stand-alone business or co-brand with other
concepts to be utilized as determined by the Board of Directors of MTII. Such
services shall include recipes, recommended equipment, systems of service,
controls, portions, employee requirements and any other matter needed to create
the business system which will then be part of the MTII franchise program.
Ellman shall be available as is needed by MTII.
13.3 With respect to any services provided by Ellman or Gordon, such
services are intended to be commercially reasonable and are nonexclusive. Such
services are subject to a prior reasonable notice as to when the respective
services are needed.
13.4 Gordon shall provide consultation services to MTII with respect to
marketing, private labeling, promotions and public relations in order to
facilitate the commencement of MTII's business. Gordon shall negotiate on behalf
of MTII its relationship with the Celebrities and outside entities who will be
sold shares of MTII for nominal consideration. Gordon shall receive no
compensation for such consultation or negotiation services except MTII shall pay
Gordon's approved expenses in connection with such matters.
14. Miscellaneous Provisions. This Agreement may not be changed or
modified nor may any provision hereof be waived, except by a written instrument
signed by the respective parties to this Agreement as may be appropriate under
applicable law or their assignees.
14.1 This Agreement shall be construed in accordance with the laws of the
State of New York.
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14.2 This Agreement shall bind and benefit the heirs, executors,
administrators, successors and assigns of the parties hereto.
14.3 This entire Agreement shall survive closing.
14.4 Ellman and Gordon warrant and represent that: (i) Lumi Kuke and Lau
Lau have the power and authority to execute this Agreement and grant to MTII the
rights set forth herein; and (ii) such transaction as contemplated herein does
not, with respect to the agreements by Lumi Kuke or No Lava, violate any
applicable laws, rules and regulations nor the rights of any creditors or third
parties and that said transaction is valid and binding.
14.5 This Agreement may be executed in counterparts, each of which shall
be considered an original agreement.
15. Broker. The signators to this Agreement acknowledge and warrant and
represent to the others that there is no broker or any other party entitled to a
commission or other compensation arising from this Agreement involved in this
transaction except Downes.
16. Ellman Consulting. MTII intends to retain Mark Ellman for the first
year of operations for compensation to be negotiated between MTII and Mark
Ellman. Currently the negotiated compensation for Mark Ellman is $300 per day
plus a reasonable travel expenses. With respect to air travel, Ellman shall
receive coach seats for all U.S.A. travel and, if international air travel is
required, business class.
17. Abandonment and Business Failure. In the event that the business of
MTII is unsuccessful to the extent that Blimpie and Lumi Kuke are unwilling to
devote any material further time, effort or funds or any developmental
activities, then in such an event the parties shall execute an agreement
agreeing to abandon their efforts to operate the business of MTII. In such an
event in any geographic area not exploited, MTII hereby grants to Lumi Kuke an
option to purchase a royalty-free license for the Maui Tacos trade name and
trademark for the consideration of $100 for use in such unexploited areas. With
respect to any and all then existing agreements made by MTII as of the date of
such transfer, MTII shall continue to provide all the servicing and support of
existing MTII franchisees and subfranchisors. Lumi Kuke and any entity that
receives a royalty-free license of the MTII trademarks shall execute a written
agreement establishing a reasonable protected territory
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around each existing franchisee and/or subfranchisor.
18. Cessation of Business Activities. In the event MTII fails to operate
its business in a profitable manner, however, if either MTII or Blimpie
continues to seek to develop franchises and/or subfranchises and to continue to
run the business, then in such an event business activities shall not be deemed
to have ceased. In the event of a cessation of business activities, i.e., the
failure of either MTII or Blimpie to continue to seek to develop franchises
and/or subfranchises, then such cessation of business for a one hundred twenty
(120) day period shall be deemed to be abandonment and subject to the provisions
of Article 17 herein.
19. Sale of Blimpie International, Inc. In the event of a merger or
acquisition of Blimpie whereby management control is transferred from either
Conza and/or Siegel or the current executives of Blimpie to third parties
(excluding individual sales of stock in Blimpie by said individuals pursuant to
either public registrations or sale of SEC Rule 144 shares), such sale, merger
or acquisition shall also include the interests of Lumi Kuke. In the event,
however, if Lumi Kuke is unable to negotiate an acceptable purchase price based
upon its sole discretion for its shares from the merged entity or transferee,
then a shareholders agreement shall be executed by the merged entity or
transferee with Lumi Kuke reasonably protecting its interests with respect to
dividends, voting, transfer of the business and such other protections as may be
reasonably expected to protect minority shareholders in such a situation. The
intent of this article is to provide a mechanism to establish reasonable
minority shareholder protections but enable the continuation of competent
management with the ability to function in a reasonable manner as is consistent
with other businesses of similar nature. If the parties cannot agree, the issue
shall be submitted to arbitration pursuant to Article 10 herein and the decision
of the arbitrator shall be final.
20. Attorneys. Blimpie has been represented by Steven Dreyer, Esq. of Hall
Dickler Kent Friedman & Wood LLP and David L. Siegel, Esq., Gordon has been
represented by Jeffrey M. Smith, Esq., Katz, Smith & Cohen, Mr. and Mrs. Ellman,
No Lava and Lumi Kuke have been represented by David H. Nakamura, Esq., Downes
has been represented by Charles G. Leaness, Esq. and Sitkoff has been
represented by Philip H. Weener, Esq. of Weener & Mason LLP.
21. Blimpie Warrants. Blimpie hereby agrees to issue to Lumi Kuke one or
more warrants (the "Warrants") entitling Lumi Kuke to purchase, in the
aggregate, up to
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50,000 shares of the common stock, $.01 par value. of Blimpie International,
Inc. (the "Common Stock") at an exercise price equal to the mean of the high and
low prices of the Common Stock quoted on the NASDAQ National Stock Market on the
date of this Agreement. Blimpie shall direct its securities counsel to provide
the appropriate documentation for the Warrants. Lumi Kuke shall jointly execute
and deliver to Blimpie, within ten (10) days of the date hereof a written notice
specifying the identities of the holder or holders of, and the number of shares
of Common Stock issuable pursuant to, each of the Warrants. None of the Warrants
shall be issued until such notice has been received by Blimpie. Lumi Kuke (a
"Holder") hereby warrants and represents to Blimpie as follows:
21.1 Neither the Warrants nor the Common Stock issuable upon exercise of
the Warrants (the "Warrant Shares") has been registered pursuant to a
registration statement (a "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"). Until such time as a Registration
Statement pertaining to the Warrant Shares shall be declared effective by the
Securities and Exchange Commission (the "Commission"), Blimpie shall not be
required to issue any certificate for shares of Common Stock purchased upon the
exercise of the Warrants unless, in connection with such exercise.
21.2 The exercising Holder makes and delivers the following
representations to Blimpie in writing:
21.2.1 The Holder is purchasing the Warrant Shares solely for his or her
own account.
21.2.2 The Holder is an "accredited investor" (as that term is defined in
rule 501 of Regulation D under the Act). The Holder has received and read, or
the person who exercises full investment discretion to act in the Holder's
behalf, has received and read Blimpie's Annual Report on Forms 10-KSB or 10K for
its most recent fiscal year, Blimpie's quarterly reports on Form 1O-QSB or 1O-Q
for all periods between the end of Blimpie's most recently completed fiscal year
and the date of exercise of the Warrant, Blimpie's most recent annual report to
shareholders, Blimpie's most recent proxy statement delivered to shareholders in
connection with the election of directors, and all such other information and
documentation as the Holder, or the person who exercises full investment
discretion to act in the Holder's behalf, has requested from Blimpie. The Holder
has relied on nothing other than said information and documentation in deciding
whether to exercise the Warrants. The Holder acknowledges that it has been
given, or the person who exercises full investment discretion to act on the
Holder's behalf has been given, the opportunity to ask questions and receive
29
<PAGE>
satisfactory answers concerning the purchase of Warrant Shares upon exercise of
the Warrants, the operations and financial condition of Blimpie, and the
accuracy of the information provided by Blimpie to the Holder or the person who
exercises full investment discretion to act in the Holder's behalf.
21.2.3 The Holder has no intention of distributing or reselling the
Warrant Shares or any part thereof, or interest therein, in any transaction
which would be in violation of the securities laws of the United States of
America or any state securities laws, without prejudice, however, to the
Holder's right at all times to sell or otherwise dispose of all or any part of
the Warrant Shares pursuant to the above-mentioned registration thereof under
the Securities Act and, if applicable, qualification under such state securities
laws or under an exemption from such registration available under the Securities
Act.
21.2.4 If the Holder desires to sell or otherwise dispose of all or any
part of the Warrant Shares (other than pursuant to an effective Registration
Statement under the Securities Act or a sale or other disposition made pursuant
to the Commission's Rule 144), if requested by Blimpie, the Holder will deliver
to Blimpie, an opinion of counsel, reasonably satisfactory in form and substance
to Blimpie and its counsel, that such exemption is available.
21.2.5 Upon original issuance thereof, and until such time as the same is
no longer required under the applicable requirements of the Securities Act, the
certificates evidencing the Holder's ownership of the Warrant Shares (and all
certificates for securities issued in exchange therefor or substitution thereof)
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS.
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OP REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT OR SUCH LAWS."
22. This Agreement is intended to be executed in original and by fax. The
parties plan to disseminate faxed copies of the Agreement and originals in
anticipation that when all parties have signed one or more agreements, whether
by fax or original, this Agreement shall be deemed valid and effective. All
parties hereof agree to execute as many duplicate originals as may be requested
by Blimpie.
30
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Maui Tacos International, Inc.
By:_________________________
President
Blimpie International, Inc.
By:_________________________
President
No Lava, Inc.
By:________________________
President
By:________________________
Mark Ellman
By:________________________
Shep Gordon
By:________________________
Robert Sitkoff
By:________________________
Yvonne Downes
Signatures Continued On Following Page
31
<PAGE>
Lumi Kuke Limited Partnership
By:_________________________
President of Lau Lau, Inc.
Lau Lau, Inc.
By:_________________________
President
32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated Balance Sheet at September 30, 1997 (Unaudited) and the
Consolidated Statement of Operations for the three months ended September 30,
1997 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,640,388
<SECURITIES> 3,533,860
<RECEIVABLES> 2,550,842
<ALLOWANCES> 82,750
<INVENTORY> 452,115
<CURRENT-ASSETS> 11,339,690
<PP&E> 2,209,508
<DEPRECIATION> 958,419
<TOTAL-ASSETS> 28,420,291
<CURRENT-LIABILITIES> 4,315,339
<BONDS> 0
0
0
<COMMON> 95,419
<OTHER-SE> 19,410,650
<TOTAL-LIABILITY-AND-EQUITY> 28,420,291
<SALES> 9,738,788
<TOTAL-REVENUES> 10,033,129
<CGS> 6,130,719
<TOTAL-COSTS> 6,130,719
<OTHER-EXPENSES> 2,782,693
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 209
<INCOME-PRETAX> 1,302,156
<INCOME-TAX> 499,000
<INCOME-CONTINUING> 803,156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 803,156
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
