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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[___] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file no. 0-23936 (CA)
JAVA CENTRALE, INC.
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(Exact name of registrant as specified in its charter)
California 68-0268780
------------------ --------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1610 ARDEN WAY, SUITE 145
SACRAMENTO, CALIFORNIA 95815
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(Address of principal executive office) (Zip Code)
Issuer's telephone number: (916) 568-2310
-----------------------------------------
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_. No. ___.
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date. AS OF AUGUST 12, 1996, 10,778,003 SHARES OF COMMON STOCK
(NO PAR VALUE) WERE OUTSTANDING.
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JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, March 31,
1996 1996
----------- ---------
(Unaudited)
CURRENT ASSETS:
Cash $ 400,682 $ 1,182,078
Notes receivable - current 951,873 485,751
Accounts receivable 619,998 405,574
Inventories 361,687 417,780
Notes receivable-officer 232,619 235,201
Prepaid expenses and other 650,460 595,285
----------- -----------
Total current assets 3,217,319 3,321,669
NOTES RECEIVABLE 800,337 1,298,574
PROPERTY AND EQUIPMENT, NET 5,221,426 5,737,980
INTANGIBLE ASSETS 5,439,204 5,526,203
DEFERRED CHARGES AND OTHER 664,470 670,658
INVESTMENT IN JOINT VENTURE 176,983 176,983
----------- -----------
$15,519,739 $16,732,067
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,571,880 $ 1,807,136
Accrued liabilities 514,127 726,244
Due to related parties 64,129 22,637
Short term and current maturities
of long-term debt 1,642,074 746,785
Current capital lease obligations 72,379 96,267
----------- -----------
Total current liabilities 3,864,589 3,399,069
DEFERRED REVENUES 1,068,500 1,003,500
LONG-TERM DEBT 265,565 1,171,161
CONVERTIBLE DEBT 2,240,000 3,500,000
CAPITAL LEASES 202,228 129,054
OTHER LIABILITIES 190,600 148,376
STOCKHOLDERS' EQUITY:
Series B Redeemable Preferred Stock, $.01
per share per annum cumulative,
convertible, no par 25,000,000
shares authorized - -
Common stock, no par, 25,000,000 shares
authorized, issued and outstanding shares;
10,082,980 at June 30, 1996,
and 8,533,587 at March 31, 1996 16,564,137 15,493,137
Accumulated deficit (8,875,880) (8,112,230)
----------- -----------
7,688,257 7,380,907
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$15,519,739 $16,732,067
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----------- -----------
The accompanying notes are an integral part of these statements.
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JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
June 30,
1996 1995
---------- ----------
Revenue:
Company cafe sales $4,014,604 $1,006,423
Franchise operations 80,000 5,500
Royalties 297,276 56,867
Sales of equipment and supplies 97,947 27,092
---------- ----------
Total revenue 4,489,827 1,095,882
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Cost of company sales:
Food and beverage 1,421,894 326,711
Labor 1,486,062 316,605
Direct and occupancy 862,855 215,432
Cost of equipment and supplies 101,445 12,388
Depreciation 159,132 9,486
Other 48,763 13,568
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Total cost of company sales 4,080,151 894,190
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General and administrative expenses 1,103,190 844,715
Depreciation and amortization 159,465 69,465
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Operating loss (852,979) (712,489)
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Other income (expense):
Interest expense (87,941) (13,997)
Interest income 22,262 37,889
Gain on sale of assets 66,398 -
Other income 88,610 23,655
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Net loss $ (763,650) $ (664,942)
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---------- ----------
Net loss per weighted average equivalent
common share outstanding $ (.08) $ (0.13)
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---------- ----------
Equivalent common shares outstanding 8,994,033 5,317,052
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---------- ----------
The accompanying notes are an integral part of these statements.
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JAVA CENTRALE, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
June 30,
1996 1995
---------- ----------
Increase (decrease) in cash
Net cash flows from operating activities: $ (573,450) $ (417,650)
---------- ----------
Cash flows from investing activities:
Purchase of furniture and equipment (184,544) (27,772)
Increase (decrease) in other assets 48,412 -
---------- ----------
Net cash used in investing activities (136,132) (27,772)
---------- ----------
Cash flows from financing activities:
Proceeds from the sale of assets 325,100 -
Payment of notes payable (461,369) (5,800)
Proceeds from capital lease obligations 64,455 -
---------- ----------
Net cash provided by financing activities (71,814) (5,800)
---------- ----------
Net (decrease) in cash (781,396) (451,222)
Cash and cash equivalents, beginning of period 1,182,078 3,764,278
---------- ----------
Cash and cash equivalents, end of period $ 400,682 $3,313,056
---------- ----------
---------- ----------
Cash paid for:
Income taxes $ - $ -
Interest $ 114,224 $ 2,250
The accompanying notes are an integral part of these statements.
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JAVA CENTRALE, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
NON-CASH TRANSACTIONS:
During the quarters ended June 30, 1996, and 1995, the Company
increased its deferred revenue through accounts and notes
receivable totaling $20,000 and $155,000 respectively.
During the quarter ended June 30, 1995, the Company completed
the initial phase of a joint venture for the development of the
Florida market and issued 83,594 shares of common stock in
exchange for 18.3% of the joint venture's outstanding shares.
During the quarter ended June 30, 1996, holders of the
convertible debt converted $1,260,000 of the notes into
1,549,393 common shares pursuant to the terms of the note.
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Sale of certain assets of Java Centrale, Inc., and Subsidiary
for the quarter ended June 30, 1996.
Cash received $ 325,100
Note receivable 296,934
Net book value of assets sold (555,636)
---------
Gain on sale of assets $ 66,398
---------
---------
The accompanying notes are an integral part of these statements.
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JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared without audit and do
not include certain notes and certain financial presentations
normally required under generally accepted accounting principles
and, therefore, should be read in conjunction with the Company's
financial statements included with the Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the fiscal
year ended March 31, 1996. It should be understood that
accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The results of
operations for the three months ended June 30, 1996 are not
necessarily indicative of results that can be expected for the
full year.
The June 30, 1996 financial statements included herein are
unaudited. They contain, however, all adjustments which, in the
opinion of management are necessary to present fairly the
financial position of the Company at June 30, 1996 and March 31,
1996; and the results of its operations and its cash flows for the
three months ended June 30, 1996 and 1995, respectively.
Certain reclassifications have been made to the 1995 financial
statements to conform to the 1996 presentation.
NOTE 2 - STOCKHOLDERS' EQUITY
a. JOINT VENTURE FORMATION AGREEMENT
During the quarter ended June 30, 1995 the Company completed the
initial phase of the Joint Venture Formation Agreement for the
development of the Florida market and issued 83,594 shares of
common stock in exchange for 18.3% of the joint venture's
outstanding shares.
b. CONVERSION OF CONVERTIBLE DEBT
During the quarter ended June 30, 1996, holders of the
convertible debt converted $1,260,000 of the notes into 1,549,393
common shares pursuant to the terms of the note.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company began operations on March 5, 1992, and operated as a
development stage enterprise through the end of its fiscal year ended
March 31, 1993. As a development stage enterprise, the Company
focused its efforts on financial planning, raising capital, research
and development, establishing sources of supply, developing markets,
organizing the corporation, acquiring assets, and developing its
business plan. During this time, the Company completed the filing of
its Uniform Franchise Offering Circulars. The Company also completed
its training facility in Folsom, California, which is now being used
to provide training to franchisees and their key employees in the
operations of franchisee-owned Java Centrale cafes.
As of June 30, 1996, the Company had operating 36 Company-owned
locations and 65 franchisee-owned locations, as compared to 17
Company-owned locations and 22 franchisee-owned locations as of June
30, 1995.
The Company entered into agreements with franchisees to open three
cafes during the quarter ended June 30, 1996, as compared to entering
into agreements with franchisees to open two cafes during the quarter
ended June 30, 1995.
The Company actually opened one franchisee-owned cafes during the
quarter ended June 30, 1996, as compared to opening zero franchisee-
owned cafes during the quarter ended June 30, 1995. The Company
closed one Company-owned cafe, sold three Company-owned cafes to
franchisees and sold three Company-owned carts to a licensee during
the quarter ended June 30, 1996, as compared to none in 1995.
On November 14, 1994 the Company entered into a Joint Venture
Formation Agreement with Banyan Capital, Limited Partnership for the
development of fifty cafes in the State of Florida over a five-year
period, and for rights to other markets on the Eastern Seaboard. The
Joint Venture Formation Agreement and related transactions was
completed in July, 1995 and as of June 30, 1996, there were three
cafes operating under this agreement.
On March 30, 1995, with bankruptcy court approval, the Company
acquired substantially all the operating assets of Oh-La-La!, Inc.
held at the locations being purchased and certain other operating
assets. The tangible assets and liabilities acquired consist mainly
of tenant improvements, equipment, and loans payable. The purchased
locations represented a significant portion of the Company's revenues
and operations during the quarter ended June 30, 1995.
On December 31, 1995, the Company acquired 100% of the outstanding
stock of Paradise Bakery, Inc. At the time of the acquisition,
Paradise Baker had seven Company-owned and 44 franchisee-owned
bakery/cafes operating in nine states. On January 1, 1996, the
Company acquired through a merger with Founders Venture, Inc., seven
franchisee-owned bakery/cafes operating in Texas. On January 1,
1996, the Company acquired through an asset purchase agreement three
franchisee-owned bakery/cafes operating in Northern California.
Immediately following these three acquisitions, the Company was
operating 17 Company-owned and 34 franchisee-owned bakery/cafes. The
Company opened one Company-owned bakery/cafe in the year ended March
31, 1996. These acquisitions of Paradise bakery/cafe locations will
represent a significant portion of the Company's revenues and
operations.
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RESULTS OF OPERATIONS
The Company's revenues are currently derived primarily from Company-
owned locations, initial franchise fees, resulting from cafe openings,
franchise royalties, equipment sales, and product overrides on sales
to its franchisees. Franchise fees range from $15,000 to $25,000 per
cafe. The Company is entitled to 4%-6% of the gross receipts from each
franchised cafe, and 2%-10% of the gross receipts from each franchised
cart. Product overrides range from 3% to 10% of the total purchase of
coffee from the Company's contract roaster.
QUARTER 1996 AS COMPARED TO QUARTER 1995
Total Company revenues for the quarter ended June 30, 1996 totaled
$4,490,000, as compared to $1,096,000 for the quarter ended June 30,
1995, an increase of $3,394,000, or 310%. The principal component
was increased revenues amounting to $2,795,000 from the acquisition
of the Paradise Bakery operations as of December 31, 1995.
The Company's revenues from Company-owned retail operations
increased by $3,009,000, to $4,015,000 for the quarter ended June 30,
1996, from $1,006,000 for the quarter ended June 30, 1995. This
increase resulted primarily from $2,555,000 in revenues recognized
from the operations of the Paradise Bakery Company-owned locations.
Additionally an increase of $454,000, or 45%, in revenues at the
Company-owned Java Centrale and Oh La La! Locations primarily from
the addition of five Company-owned cafes during the 1996 fiscal year
as compared to 1995.
Revenues from the Company's franchising operations increased to
$80,000 for the quarter ended June 30, 1996, from $6,000 for the
quarter ended June 30, 1995, resulting from franchise fees of $40,000
recognized from the sale of two Company-owned Paradise Bakery's to a
franchisee and the recognition of $40,000 in fees associated with the
opening of one Java Centrale cafe and the sale of one Company-owned
cafe to a franchisee.
Revenues from the Company's royalties increased $240,000, or 421%,
to $297,000 for the quarter ended June 30, 1996, from $57,000 for the
quarter ended June 30, 1995. This increase resulted primarily from
the royalties associated with the acquisition of the Paradise Bakery
franchise operations amounting to $191,000 and the opening of 15 new
Java Centrale franchisee-owned locations during the 1996 fiscal year
as compared to 1995.
Revenues from the Company's equipment sales increased $71,000, or
263%, to $98,000 for the quarter ended June 30, 1996 from $27,000 for
the quarter ended June 30, 1995. This increase resulted primarily
from an increase of one franchisee-owned cafe location opened during
the quarter ended June 30, 1996, as compared to zero franchisee-owned
cafe locations opened during the quarter ended June 30, 1995. The
Company sold the equipment required for the cafe to substantially
all of its franchisee-owned locations up until May, 1996, at which
time the Company discontinued selling equipment directly to the
franchisees.
Total expenses for the quarter ended June 30, 1996 were $5,343,000,
an increase of $3,535,000, or 196%, over expenses of $1,808,000 for
the quarter ended June 30, 1995. The principal components of the
increase in expenses resulted from $2,749,000 in expenses associated
with operating the acquired Paradise Bakery locations. Additionally,
there was an increase in the cost of equipment, selling, general and
administrative expenses, depreciation and amortization and other
operating costs from the addition of Paradise Bakery and the addition
of five Company-owned cafes during the 1996 fiscal year.
The cost of food and beverage, labor, and operating costs for the
Company's retail operations increased $3,097,000, for the quarter
ended June 30, 1996, to $3,979,000 as compared to $882,000 for the
quarter ended June 30, 1995. The increase resulted primarily from
$2,388,000 in operating costs associated with the acquisition of the
Paradise Bakery locations. Additionally, an increase of $652,000 in
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operating costs associated with the addition of five Company-owned
Java Centrale cafes during the 1996 fiscal year.
The Company's cost of equipment increased by $89,000 in the quarter
ended June 30, 1996, to $101,000, as compared to $12,000 for the
quarter ended June 30, 1995. This increase resulted primarily from
the Company's opening one additional franchisee-owned locations
during the quarter.
Selling, general, and administrative expenses increased $258,000,
or 31%, during the quarter ended June 30, 1996, to $1,103,000 from
$845,000 during the quarter ended June 30, 1995, primarily because of
expenses associated with the administration support to Paradise
Bakery.
For the quarter ended June 30, 1996, the Company had an operating
loss of $853,000, a net loss of $764,000, and a loss per share of
$.08, as compared to an operating loss of $712,000, a net loss of
$665,000, and a loss per share of $.13 for the quarter ended June 30,
1995. The increased operating loss and net loss primarily resulted
from higher expenses associated with operating and developing the
Java Centrale Company-owned cafes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's initial capitalization was obtained through the
issuance of 2,500,000 shares of no par common stock for $10,000 on
March 5, 1992. In addition, the Company issued 2,950,000 shares of
Series A cumulative preferred stock, in exchange for 2,950,000 shares
of no par cumulative preferred stock, which were subscribed for on
March 5, 1992 for proceeds of $590,000, on March 12, 1993. On
March 30, 1993, the Company sold 5,000,000 shares of no par value
redeemable Series B cumulative preferred stock for $1,000,000. The
proceeds from the issuance of all such stock were used for capital
acquisitions and operating costs of the Company during its
development stage. On May 19, 1994, the Company raised $7,288,000 in
net proceeds from an initial public offering of 1,500,000 shares of
common stock. Of the 4,291,820 shares outstanding after the
offering, 855,300 were placed in escrow and are subject to an Escrow
Agreement which provides for the release of such shares on or before
March 31, 1999, with earlier release based upon the financial
performance of the Company.
The Company used a portion of the proceeds from the initial public
offering to repay long term debt, purchase equipment and furniture,
support the operating losses in developing the Company's operating
system, and pay $500,000 as part of the purchase price to acquire the
operating assets of Oh-La-La!, Inc.
On July 15, 1994, the Company paid a 25% stock dividend on its
Common Stock to shareholders of records on June 30, 1994. Prior to
the issuance of the dividend, employees and officers of the Company
holding securities, including warrants and options, waived their
rights to receive the stock dividend and also waived the impact such
stock dividend would have on any options or warrants held by the
security holders, including, but not limited to, any anti-dilution
provisions relating to such options and warrants.
In the 1996 fiscal year the Company issued 1,604,692 common shares
for $3,540,722 in proceeds in a series of private placements. The
Company also issued convertible debt in three separate private
transactions totaling $3,500,000. As of June 30, 1996, $1,260,000 of
the convertible debt has been converted into 1,549,393 shares of the
Company's common stock.
The Company used $5,375,000 of the cash raised through the private
transactions to acquire 100% of the common stock in Paradise Bakery,
Inc., on December 31, 1995. Additionally, as part of the acquisition
of Paradise Bakery, Inc., the Company issued notes to the seller in
the amount of $1,350,000. The Company also issued notes in the
amount of $46,071 to the sellers and assumed $97,950 in debt
obligation associated with the asset purchase of the three Paradise
Bakery locations. The Company
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assumed bank debt in the amount of $1,085,000 and $24,535 in lease
obligations associated with the merger of Founders Venture, Inc.,
into Paradise Bakery, Inc.
During the quarter ended June 30, 1996, the Company sold three
Company-owned operations to franchisees and three Company-owned carts
to a licensee for $325,000 in cash and $296,934 in notes receivable.
As of June 30, 1996, the Company had received $213,000 in funding
of leases associated with Company-owned cafes and received a $400,000
loan pursuant to a short term note payable
As part of the purchase price for the assets of Oh La La! acquired
by the Company on March 31, 1995, the Company issued to Oh La La!,
Inc. a note payable of $745,874, and assumed liabilities for tenant
improvement loans related to the properties acquired of $113,306. In
January of 1996, the Company converted a note payable of $745,874
into 234,000 shares of common stock pursuant to the terms of the note
associated with the acquisition of Oh La La!.
As of June 30, 1996, the Company had no line of credit available to
it.
The Company incurred a net loss of $764,000 and used net cash of
$573,000 in operating activities for the quarter ended June 30, 1996.
The Company has developed a specific operating plan to meet the
ongoing liquidity needs of the Company's operations both for the year
ended March 31, 1997, and thereafter.
During the quarter ended June 30, 1996, the Company reduced
administrative salaries, certain employee benefit costs and marketing
expenses. The Company has sold six Company-owned cafes and carts and
is actively pursuing the sale of assets associated with the Company's
cafe operations. In February of 1996, the Company completed the
expansion and remodeling of key Oh La La! locations which management
believes will increase the operating margins of this division. As of
July 11, 1996, the Company has obtained three separate lines of
credit amounting to $925,000, of which senior management has
committed to $175,000. As of August 12, 1996, the Company has
borrowed $350,000 under one line of credit. These lines secure all
the Company's assets. In addition to the operating plan, the Company
will benefit from 12 months of Paradise Bakery operating income
during the year ended March 31, 1997, as compared to three months in
the year ended March 31, 1996.
Management believes that this plan, which is currently being
implemented, is sufficient to meet the Company's liquidity needs for
the year ended March 31, 1997, and thereafter.
Part II
ITEM 1. LEGAL PROCEEDINGS
Item 3 of Part I of the Company's Annual Report or Form 10-K for the
fiscal year ended March 31, 1996, is hereby incorporated by
reference.
ITEM 2. CHANGES IN SECURITIES
NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
ITEM 5. OTHER INFORMATION
NONE.
ITEM 6. EXHIBITS; REPORTS ON FORM 8-K
(a) EXHIBITS
The Company is filing herewith the Exhibits listed on Schedule I
attached hereto.
(b) REPORTS ON FORM 8-K
NONE.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JAVA CENTRALE, INC.
(Registrant)
Date: August 13, 1996
By: /s/
-------------------------------------
Gary C. Nelson
President and Chief Executive Officer
By: /s/
-------------------------------------
Steven J. Orlando
Vice President and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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INDEX TO EXHIBITS
Exhibits marked with an asterisk (*) represent management contracts
or compensatory plans or arrangements.
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
10.18 Asset Sale Agreement, dated May 20, 1996, between
Registrant's subsidiary (Paradise Bakery, Inc.)
and Skyline Bakery, Inc.
10.19* Amendment to Employment Agreement, dated May 15, 1996,
between Registrant and Gary C. Nelson.
10.20* Amendment to Employment Agreement, dated May 15, 1996,
between Registrant and Richard Shannon, Steven Orlando,
Bradley Landin (salary reduced 20%), and Thomas Craig
(salary reduced 20%) are omitted as they are identical
in form to Exhibit #10.19 filed herein.
11 Statements of Computation of Earnings per share included
herein as Exhibit 11.
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EXHIBIT 10.18
PURCHASE AGREEMENT
This Agreement is made and entered into by and between PARADISE BAKERY,
INC., a Delaware corporation ("Paradise Bakery" or "Seller"), and
SKYLINE BAKERY, INC. a Texas Corporation ("Skyline" or "Buyer").
RECITAL
Effective as of May 20, 1996, Paradise Bakery wishes to sell, and
Skyline wishes to purchase, all of the assets owned by Paradise Bakery which
are used in the operation of Paradise Bakery's stores (collectively the
"Stores") located at 777 Walker, Suite M-130, Houston, Texas ("Store
#1"), and 800 W. Belt (Town & Country), Houston, Texas ("Store #2"), which
are more particularly described in this Agreement, in accordance with the
terms of this Agreement.
THEREFORE, in consideration of the mutual covenants and conditions set
forth herein, the parties to this Agreement hereby agree as follows:
AGREEMENTS
ARTICLE 1. GENERAL
1.01. ASSETS; LEASES; ACCOUNTS RECEIVABLE/WORK IN PROCESS; AND INVENTORY.
A. Paradise Bakery is the owner of certain equipment,
materials, machinery, supplies, furniture, furnishings, tools and other
tangible personal property and tenant improvements (the "Assets")
which are currently located at 777 Walker, Suite M-130, Houston, Texas
(the "Store #1 Premises"), and 800 W. Belt (Town & Country), Houston,
Texas (the "Store #2. Premises"). Subject to the terms and conditions
of this Agreement, at the Closing (as hereinafter defined) Seller shall
sell and Buyer shall buy the Assets. (The Store #1 Premises and the
Store #2 Premises are sometimes collectively referred to herein as the
"Store Premises"). The Assets are more particularly described in
Exhibit 1.01A attached hereto.
B. Paradise Bakery has previously entered into that certain
real property lease (the "Store #1 Lease") covering the Store #1
Premises, The Store #1 Lease is attached hereto as Exhibit 1.01B and
is incorporated herein by this reference. The Store #1 Lease was
originally entered into by and between SWH Management, Inc. (the
"Store #1 Landlord"), and Paradise Bakery, Inc. on or about October
1, 1990. Upon the close of the purchase of the Assets by Skyline, as
described in this Agreement, Paradise Bakery shall, with the consent
of the Store #1 Landlord, assign the Store #1 Lease to Skyline and
Skyline shall assume all of Paradise Bakery's obligations under the
Store #1 Lease. Skyline agrees to execute such assignment and
assumption documents and to pay such assignment charges as the Store
#1 Landlord may require. Skyline agrees to indemnify, defend and hold
harmless Paradise Bakery with respect to all liabilities, obligations,
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claims and expenses in connection with the Store #1 Lease after it is
assumed by Skyline.
C. Paradise Bakery has previously entered into that certain real
property lease (the "Store #2 Lease") covering the Store #2 Premises.
The Store #2 Lease is attached hereto as Exhibit 1.0IC and is
incorporated herein by this reference. The Store #2 Lease was
originally entered into by and between HEM Associates Ltd.-Houston
(the "Store #2 Landlord"), and Paradise Bakery, a California
corporation, on or about November 10, 1983. Upon the close of the
purchase of the Assets by Skyline as described in this Agreement,
Paradise Bakery shall, with the consent of the Store #2 Landlord,
assign the Store #2 Lease to Skyline and Skyline shall assume all of
Paradise Bakery's obligations under the Store #2 Lease. Skyline agrees
to execute such assignment and assumption documents and to pay such
assignment charges as the Store #2 Landlord may require. Skyline
agrees to indemnify, defend and hold harmless Paradise Bakery with
respect to all liabilities, obligations, claims and expenses in
connection with the store #2 Lease after it is assumed by Skyline. The
Store #1 lease and the Store #2 Lease are sometimes collectively
referred to herein as the "Store Leases." The Store #1 Landlord and
the Store #2 Landlord are sometimes collectively referred to herein as
the "Store Landlords."
D. Seller shall sell and Buyer shall buy, at Closing, all of the
Seller's rights, title and interest in and to the accounts receivable
related to the two Store Premises, with separate consideration for the
accounts receivable provided in Article 2.05.
E. Seller shall sell and Buyer shall buy, at Closing, all of the
Seller's right, title and interest in and to the inventory related to
the two Store Premises, with the separate consideration for the
inventory provided in Article 2.06 herein.
1.02. PURPOSE. The purpose of this Agreement is to set forth the
terms under which Paradise Bakery shall sell the Assets to Skyline.
ARTICLE 2. PURCHASE TERMS.
2.01. PURCHASE PRICE. The purchase price for the Assets shall be
equal to the sum of (i) THREE HUNDRED SIXTY THOUSAND AND NO/100THS
DOLLARS ($360,000.00) (ii) the "Unamortized Cost" of any new assets or
tenant improvements in connection with the Stores, which are not part
of the Assets, but which are paid by Paradise Bakery, with the consent
of Skyline, on or before the Closing Date; (iii) the value of the
accounts receivable as of the Closing Date as described in Section
2.05; (iv) the value of the inventory as of the Closing Date, as
described in Section 2.06; and, (v) the amount of cash on hand at the
Stores as of the Closing which is transferred from Seller to Buyer.
The "Unamortized Cost" shall be equal to the original cost of such new
assets or tenant improvements, less depreciation calculated in
accordance with federal income tax principles. The purchase price
shall be decreased by the Unamortized Cost of any of the Assets sold
by Paradise Bakery, with the consent of Skyline, after the date of
this Agreement, but before the Closing Date. The total purchase price
shall be paid by Skyline to Paradise Bakery as described in Section
3.04. Skyline shall execute and
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deliver assumption documents, as described in Sections 1.01 and 3.05.
2.02. REIMBURSEMENT OF PARADISE BAKERY. At the Closing, Skyline shall
reimburse Paradise Bakery for the sum of (i) the deposits held by the Store
Landlords in favor of Paradise Bakery under the terms of the Store Leases, in
the approximate amount of ___(None)___ DOLLARS ($___-0-___), and (ii) all
deposits which Paradise Bakery has made with utilities or other third parties
in connection with the Stores in the approximate amount of ___(None)___ DOLLARS
($___-0-___).
2.03. PURCHASE PRICE ALLOCATION. The purchase price for the Assets shall
be allocated among the Assets in the manner specified on Exhibit 2.03
attached hereto (the "Allocation Schedule"). Each of the parties shall report
this transaction for federal and state tax purposes in accordance with the
allocation of the purchase price set forth in the Allocation Schedule.
2.04. BULK SALES LAW: INDEMNIFICATION. In view of the repeal of the bulk
transfer law in Texas, Skyline waives compliance with the provisions of the
laws relating to bulk transfers in connection with the sale of the Assets. As
a further condition to Paradise Bakery's obligation to close, Skyline and
Skyline's shareholders shall execute and deliver that certain Indemnification
and Guaranty Agreement ("Indemnification and Guaranty Agreement")
indemnifying, defending and holding harmless Paradise Bakery with respect to
any third party claims against Skyline arising after the Closing (e.g.,
claims of Skyline's trade creditors, sales or payroll taxes owed by Skyline
which relate to either of the Stores at such times as Skyline owns, operates
or subleases either of the Stores). The Indemnification and Guaranty
Agreement shall be in the form attached hereto as Exhibit 2.04.
2.05. ACCOUNTS RECEIVABLE. Buyer shall purchase the accounts receivable
relating to the Stores as of the Closing from Seller. As of the close of
business on the day prior to the Closing, representatives of Seller and Buyer
shall make a list of the accounts receivable (the "Accounts Receivable"). The
value of the Accounts Receivable shall be added to the purchase price, as
described in Section 2.01. The value of the Accounts Receivable shall be the
total of unpaid invoices per the books and records of Seller or as mutually
agreed by the parties.
2.06. INVENTORY. Buyer shall purchase the inventory located at the Stores
as of the Closing from Seller. As of the close of business on the day prior
to the Closing, representatives of Seller and Buyer shall take a physical
inventory at the Stores (the "Inventory"). The value of the Inventory shall be
added to the purchase price, as described in Section 2.01. The value of the
Inventory shall be as agreed by the parties. If the parties are unable to
agree, the value of the Inventory shall be calculated at Seller's cost,
using the LIFO method of inventory valuation.
2.07. DISCLAIMER OF ANY ASSUMPTION OF LIABILITIES. Other than the
liabilities specifically assumed by Buyer herein, the Buyer does not agree
to pay, assume or discharge any liabilities or obligations of the Seller.
ARTICLE 3. ESCROW.
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3.01. CLOSING. The closing of the purchase of the Assets, as described
in this Agreement (the "Closing"), shall take place at 455 Capitol Mall,
Suite 300, Sacramento, California 95814 or, at Paradise Bakery's option, at
the then corporate offices of Paradise Bakery, or in such other manner as
Paradise Bakery reasonably determines. The Closing shall occur on or before
May 17, 1996.
3.02. TRANSFER COSTS. Skyline agrees to pay all costs of transferring
the Assets to Skyline, including, but not limited to, all sales and use taxes
and all transfer taxes. However, Buyer shall not be responsible for any state
or federal income taxes imposed on Seller relating to the purchase and sale
of these Assets. Skyline shall pay all taxes, expenses or costs associated
with the assignment and assumption of the Store Leases. However, these
provisions do not obligate Buyer to pay any legal cost incurred by Seller.
3.03. PRORATIONS. Personal property taxes, utility charges and all other
expenses involving the operation of the Stores, including the Store Leases,
shall be prorated as of the Close of Escrow. Seller shall pay when due all
property, sales and use taxes and all federal and state payroll taxes related
to the Stores to the extent such sales and use taxes and payroll taxes relate
to the operation of the Stores prior to Buyer taking possession of the
Stores. Skyline shall pay when due all property, sales and use taxes and all
federal and state payroll taxes related to the Stores to the extent such
sales and use taxes and payroll taxes related to the operation of the Stores
after Skyline takes possession of the Stores.
3.04. PAYMENT OF PURCHASE PRICE AND INITIAL FRANCHISE FEE; FINANCING.
The purchase price and the initial franchise fee shall be paid by Skyline, at
the Closing, as follows:
A. CASH PAYMENT. Skyline shall deliver a cashier's check in the
amount of THREE HUNDRED TWENTY THOUSAND AND 00/100THS DOLLARS ($320,000.00)
payable to Paradise Bakery at the Closing. Forty Thousand Dollars of such
payment shall be applied to and shall satisfy Buyer's obligation to pay an
initial franchise fee of $40,000.00 to Paradise Bakery.
B. DEFERRED PORTION OF PURCHASE PRICE. The balance of the purchase
price for the Assets (e.g., the total purchase as calculated in Section
2.01 less the cash down payment of $280,000.00 described in Section 3.04A)
shall be evidenced by a promissory note (the "Purchase Note"), to be
delivered to Paradise Bakery at the Closing. The principal amount of the
Purchase Note shall bear interest at a rate equal to "prime" plus one
percent. The "prime" rate shall be the prime commercial lending rate of
interest from time to time announced by Chase Manhattan Bank for short term
unsecured loans to corporate borrowers of the highest credit rating. Any
change in the rate at which the Purchase Note bears interest resulting from
a change in the prime rate shall become effective on the same date on which
such change in the prime rate becomes effective, If Chase Manhattan Bank
shall cease to announce a prime rate, then for the purposes of the Purchase
Note, the prime rate shall be deemed to be the average prime interest rate
determined as set forth above by the three (3) largest (measured by total
assets) banking
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institutions in the State of California then announcing a prime interest
rate, but not to exceed the maximum rate then permitted by law. Commencing
one month from the earlier of (1) the payment of that certain promissory
note, dated on or about the date of the Purchase Note, to Bank of America, or
(2) five (5) years after Closing, an amount equal to the then unpaid
principal balance of the Purchase Note plus accrued interest from the date of
the Purchase Note shall be paid in thirty-six (36) equal monthly installments
of principal and interest. The Purchase Note shall be in the form attached
hereto as Exhibit 3.04B, which Purchase Note shall contain the terms of
payment contained in this Agreement and the Purchase Note shall provide for
prepayment of any amount or amounts without penalty and shall provide for
written notice and opportunity to cure before default. Seller is leasing
certain equipment from AT&T Capital Leasing Services, Inc. ("AT&T") as
reflected in the lease attached hereto as Exhibit 3.04B-2. Buyer agrees to
assume Seller's obligations under such lease. All remaining scheduled
payments under such lease which are paid by Buyer shall be deemed to
constitute payments under the terms of the Purchase Note when delivered to
AT&T.
C. GUARANTY. Payment of the Purchase Note shall be personally guaranteed
by Roy R. Frederick in the form attached hereto as Exhibit 3.04C.
D. SECURITY AGREEMENT. The Purchase Note shall be secured by
subordinated security agreements ("Security Agreements") covering all of the
assets and rights being sold by Seller to Buyer under the terms of this
Agreement. Seller's security interests shall be junior and subordinate to the
trust deed(s) and/or security agreement(s) to be provided to Buyer's purchase
money lender(s).
E. ACCELERATION. After the Closing , Skyline shall not, without the
prior written consent of Paradise Bakery, sell, convey, alienate or otherwise
transfer, or permit the transfer of (i) any interest in the Assets, (ii) any
direct or indirect interest in the business conducted by Skyline at either of
the Stores, or (iii) agree to do any of the foregoing without the prior
written consent of Paradise Bakery so long as the Purchase Note has not yet
been paid in full. Without the prior written consent of Paradise Bakery, upon
(i) the sale, conveyance, alienation or transfer, whether voluntary,
involuntary or by operation of law, of all or any part of the Assets, or any
interest therein, (ii) the sale, conveyance, alienation or transfer, of
substantially all of the assets and/or business of Skyline conducted at
either of the Stores outside of the ordinary course of business, (iii) the
dissolution and/or liquidation of Skyline, or (iv) entering into an agreement
to do anything described in clauses (i), (ii) or (iii) (each of such acts or
events being hereinafter referred to as a "Transfer"), then at the Paradise
Bakery's sole option, Paradise Bakery may declare, by written notice to
Skyline, all obligations under the Purchase Note immediately due and payable.
Skyline shall notify Paradise Bakery promptly in writing of any transaction
or event which may give rise to a right of acceleration.
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3.05. DELIVERY OF DOCUMENTS AND CASH IN CONNECTION WITH CLOSING.
A. PARADISE BAKERY'S CLOSING OBLIGATIONS. In order to close the
transactions described herein, Paradise Bakery is obligated to deliver the
following:
(1) An assignment and assumption of each of the Store
Leases, properly executed by Paradise Bakery, and accompanied by the
consent of each of the Store Landlords, in such form as the Store
Landlords may reasonably require, as more fully described in Article I
(collectively, the "Lease Assignments");
(2) A Bill of Sale and Assignment of the Assets, executed by
Paradise Bakery, substantially in the form attached hereto as Exhibit
3.05A-(2); and
(3) Such other documents and items that Paradise Bakery is
obligated to deliver under the terms of this Agreement.
B. SKYLINE'S CLOSING OBLIGATIONS. In order to close the transactions
described herein, Skyline is obligated to deliver the following:
(1) Original copies of the Lease Assignments, properly
executed by Skyline, in such forms as the Store Landlords may
reasonably require;
(2) such additional documents as Paradise Bakery may require
to evidence the assumption by Skyline of all of the Obligations of
Paradise Bakery under the terms of the Store Leases;
(3) The cash or cashier's check described in Section 3.04;
(4) Reimbursement by cashier's check of the amounts
described in Section 2.02;
(5) The Purchase Note, duly executed by Skyline;
(6) The Guaranty described in Section 3.04C, duly executed;
and,
(7) such other documents and items that Skyline is obligated
to deliver under the terms of this Agreement.
3.06. CONDITIONS PRECEDENT TO PARADISE BAKERY'S OBLIGATION TO CLOSE.
The obligation of Paradise Bakery to close the sale of the Assets, as
described in this Agreement, is subject to the satisfaction, at or
before the Closing, of all of the conditions set forth below in this
Section 3.06. Paradise Bakery may waive any or all of these
conditions, in whole or in part, without prior notice; provided,
however, that no such waiver of a condition shall constitute a waiver
by Paradise Bakery of any of its other rights or remedies, at law or
in equity, if Skyline shall be in default of any of its
representations, warranties or covenants under this Agreement.
A. OPINION LETTER. Paradise Bakery must receive from Counsel for
Skyline an opinion dated on or about the Closing Date, in form and
substance satisfactory to Paradise Bakery and its Counsel, that:
(1) Skyline is a corporation duly organized and validly
existing and in good standing under the laws of the State of Texas,
and has all necessary power to own its properties as now owned and
operate its business as now operated.
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(2) This Agreement has been duly and validly authorized and, when
executed and delivered by Skyline, will be valid and
binding on Skyline and enforceable in accordance with its terms, except as
limited by bankruptcy and insolvency laws and by others laws affecting the
rights of creditors generally.
B. CLOSING OBLIGATIONS. Skyline shall have satisfied or be ready,
willing and able to satisfy all of Skyline's obligations on or before the
Closing Date, including the obligations described in Section 3.05.
C. EXECUTION OF FRANCHISE AGREEMENTS. Skyline shall have entered into
Franchise Agreements with Paradise Bakery on or before the Closing Date
covering both Stores and shall, at the Closing, pay the initial franchise fee
described in Section 3.04. Paradise Bakery may terminate this Agreement if
it has rightfully terminated any Franchise Agreement with Skyline.
D. CONSENTS. The necessary consents to consummate the sale, as described
herein, have been obtained.
3.07 CONDITION PRECEDENT TO SKYLINE'S OBLIGATION TO CLOSE. The
obligations of Skyline to close the purchase of Assets, as described in this
Agreement, is subject to the satisfaction, at or before the Closing, of all
of the conditions set forth below in this Section 3.07A. Skyline may waive
any or all of these conditions, in whole or in part, without prior notice,
provided, however, that no such waiver of a condition shall constitute a
waiver by Skyline of any of its other rights or remedies, at law or in
equity, if Paradise Bakery be in default of any of its representations,
warranties or covenants under this Agreement.
A. SECRETARY'S CERTIFICATE. Skyline must receive a Secretary's
Certificate from Paradise regarding the Paradise directors' resolution
approving this Purchase Agreement and the transaction set forth herein.
B. CLOSING OBLIGATIONS. Paradise Bakery shall have satisfied or be
ready, willing and able to satisfy all of Paradise Bakery's obligations on or
before the Closing Date, including the obligations described in Section 3.05.
C. EXECUTION OF FRANCHISE AGREEMENTS. Paradise Bakery shall have entered
into Franchise Agreements with Skyline on or before the Closing Date covering
both Stores and shall, at the Closing, pay the initial francise fee described
in Section 3.04. Skyline may terminate this Agreement if it has rightfully
terminated any Franchise Agreement with Paradise Bakery.
D. CONSENTS. The necessary consents to consummate the sale, as described
herein, have been obtained.
3.08 CONDITIONS PRECEDENT TO EITHER PARTY'S OBLIGATIONS TO CLOSE. The
obligations of either party to close the Purchase and Sale of Assets, as
described in this Agreement is subject to the parties' mutual agreement with
the terms and conditions of the following documents:
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(i) the lease agreements and assumption agreements
(ii) the purchase price-allocation schedule
(iii) the Franchise Agreement
(iv) the Purchase Note
(v) the Guaranty Agreement
(vi) the Bill of Sale and Assignment for the Assets
(vii) the legal opinion letters
(viii) the Indemnifiying and Guaranty Agreement
ARTICLE 4. OTHER TERMS; REPRESENTATIONS AND WARRANTIES.
4.01. ASSETS SOLD "AS IS". AS A RESULT OF THE ABILITY OF SKYLINE TO
EXAMINE ALL OF THE ASSETS PRIOR TO THE CLOSING DESCRIBED ABOVE, THE PARTIES
AGREE THAT THE ASSETS SHALL BE SOLD TO SKYLINE ON AN "AS IS" BASIS, WITH NO
EXPRESS OR IMPLIED WARRANTIES INCLUDING THE IMPLIED WARRANTY OF
MERCHANTABILITY AND THE IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE,
EXCEPT AS SET FORTH IN SECTION 4.02.
4.02. REPRESENTATIONS AND WARRANTIES OF PARADISE BAKERY. Paradise Bakery
hereby makes the following representations and warranties:
A. GOOD STANDING, ETC. Paradise Bakery is a corporation duly
organized, validly existing and in good standing under the laws of
California and has all necessary powers to own its properties and to
operate its business as now owned and operated by it.
B. TAX RETURNS. Within the times and in the manner prescribed by law,
Paradise Bakery has filed all federal, state and local tax returns
required by law and has paid all taxes, assessments and penalties due
and payable which relate to the Stores. There are no present disputes
as to taxes of any nature payable by Paradise Bakery which relate to the
Stores.
C. EQUIPMENT AND OTHER TANGIBLE PERSONAL PROPERTY. The list of Assets
set forth on Exhibit 1.01A is a complete and accurate schedule
describing all machinery, equipment, furniture, supplies, tools and all
other tangible personal property owned by Paradise Bakery and used by
Paradise Bakery in connection with the operation of the Stores, as of
the execution of this Agreement.
D. TITLE TO ASSETS. Paradise Bakery has good and marketable title to
all of the Assets, and as of the Closing, all of the Assets will be free
and clear of restrictions on or conditions to transfer or assignment, and
free and clear of mortgages, liens, pledges, charges, encumbrances,
equities claims, easements, rights of way, covenants, conditions or
restrictions, except for (i) the lien of current taxes not yet due and
payable, and (ii) possible minor matters that, in the aggregate, are not
substantial in amount and do not
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materially detract from or interfere with the present or intended use of
any of the Assets. No one except Paradise Bakery owns, or has any
interest, directly or indirectly, in any of the Assets, except as
provided herein.
E. AUTHORITY AND CONSENTS. Paradise Bakery has the right, power,
legal capacity and authority to enter into and perform its respective
obligations under this Agreement, and no approval, or consents of any
persons other than the persons signing this Agreement on behalf of Paradise
Bakery are necessary in connection with it, other than the store Landlords
under the Store Leases.
F. STORE LEASES. Paradise Bakery has fully complied with all
obligations of the tenant under the Stores Leases and shall have so
complied at the Closing, including the payment of all amounts and expenses
payable under the Store Leases. The parties shall equitably prorate all
rent and other payments owed under such agreements as of the Closing
(e.g., Cost pass-throughs, percentage rents (if any), etc.) so that
Paradise Bakery bears its share of all obligations under the Store Leases
reasonably allocable to the period prior to the Closing.
G. COMPLIANCE WITH APPLICABLE LAWS. The Seller has not received any
notice of any violation of any law (including environmental laws),
regulation, ordinance, decree, judgment, order or requirement relating to
the Assets or operation of its business at these two Stores, and to the
extent of Seller's knowledge, the Seller has not committed a violation. For
purposes of this Agreement, "Seller's knowledge" shall mean the current
actual knowledge without any investigation or inquiry having been
conducted, of the current officers of Seller. Buyer acknowledges that
Buyer's shareholder is currently an employee of Paradise Bakery, Inc. and
manages the Stores.
H. LITIGATION. There is no litigation, suit, claim, or governmental
investigations pending or threatened against Seller, which could result in
a material adverse effect on these Assets at these Stores, or which would
prevent the consummation of the transactions contemplated hereby.
I. PERMITS & LICENSES. To the extent of Seller's knowledge, the
Seller holds all material licenses and permits which are required to allow
it to operate at these Stores and has not received any notice of
termination of any permit or license.
4.03. REPRESENTATIONS AND WARRANTIES OF SKYLINE. Skyline hereby makes the
following representations and warranties:
A. GOOD STANDING. Skyline is a corporation duly organized, validly
existing and in good standing under the laws of Texas and has all
necessary powers to own its properties and to operate its business as
now owned and operated by it.
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B. AUTHORITY AND CONSENTS. Skyline has the right, power, legal
capacity and authority to enter into and perform its respective
obligations under this Agreement, and no approvals or consents of any
persons other than the persons signing this Agreement on behalf of
Skyline are necessary in connection with it.
C. GOVERNMENT CONSENT. No consent, approval or authorization of, or
declaration, filing, or registration with, any United States federal or
state governmental or regulatory authority is required to be made or
obtained by Skyline in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement.
ARTICLE 5. OBLIGATIONS AFTER CLOSING.
5.01 PARADISE BAKERY'S INDEMNIFICATION OBLIGATION. Paradise Bakery shall
indemnify, defend and hold harmless Skyline against and in respect of any and
all claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries and deficiencies, including interest, penalties and
reasonable attorneys' fees, that Skyline shall incur or suffer, that arise,
result from or relate to (i) any breach of, or failure by Paradise Bakery to
perform, any of its representations, warranties, covenants or agreements in
this Agreement or in any schedule, certificate, exhibit or other instrument
furnished or to be furnished by Paradise Bakery under this Agreement and (ii)
operations of the Stores before Closing.
5.02 CONFIDENTIAL INFORMATION. Skyline agrees that, unless and until the
Closing has been consummated, Skyline and its officers, directors and other
representatives will hold in strict confidence, and will not use to the
detriment of Paradise Bakery, any data and information with respect to the
Assets, the Stores or otherwise in connection with Paradise Bakery obtained
in connection with the transaction described in this Agreement. It is agreed
that upon termination of this Agreement or any other agreements for any
reason, Skyline shall not, on and after the day of such termination, use to
Skyline's own advantage, or to the advantage of any other person, party or
corporation, any information gained for, or from the association and business
of Paradise Bakery. Any written, printed, graphic or electronically or
magnetically recorded information furnished by Paradise Bakery for Skyline's
use in connection with the Stores are the sole property of Paradise Bakery.
This proprietary information includes, but is not limited to, operation
methods, manuals, marketing information and information concerning Paradise
Bakery's employees, products, services, prices and operations. Skyline will
keep this confidential information in the strictest confidence, and will not
disclose it by any means to any person, except with Paradise Bakery's
approval, and only to the extent necessary to perform the services under this
Agreement. This prohibition also applies to Skyline's employees, agents and
subcontractors. Skyline will return any confidential information in Skyline's
possession to Paradise Bakery.
5.03 SKYLINE'S INDEMNIFICATION OBLIGATION. Skyline shall indemnify,
defend and hold harmless Paradise Bakery against, and in respect of, any and
all claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries and deficiencies, including interest,
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penalties and reasonable attorneys' fees, that Paradise Bakery shall incur or
suffer, that arise from, result from or relate to (i) any breach of or
failure by Skyline to perform any of its representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or to be furnished by Skyline under
this Agreement and (ii) operations of the Stores after Closing.
5.04. PUBLICITY. All notices to third parties and all other publicity
concerning the transactions contemplated by this Agreement shall be jointly
planned and coordinated by and between Paradise Bakery and Skyline; provided,
however, that Paradise Bakery shall be entitled to make all filings and to
take all appropriate actions to satisfy all federal and/or State securities
laws and regulations, including Paradise Bakery's disclosure obligations.
Except as provided in the preceding sentences no party shall act unilaterally
in this regard without the prior written approval of the other; however, this
approval shall not be unreasonably withheld.
5.05. AT&T LEASE. Paradise Bakery covenants to make a good faith effort
to get the AT&T Lease on the security equipment assigned to Skyline, to
protect title for the benefit of Skyline, and at the end of the lease term to
get whatever title Paradise has into Skyline.
ARTICLE 6. MISCELLANEOUS.
6.01. NO BROKER/FINDER. Each party represents and warrants that it has
dealt with no broker or finder in connection with any transaction
contemplated by this Agreement, and, as far as it knows, no broker or other
person is entitled to any commission or finder's fee in connection with any of
these transactions. Each party shall indemnify and hold harmless the other
against any loss, liability, damage, cost, claim or expense incurred by
reason of any brokerage, commission or finder's fee alleged to be payable
because of any act, omission or statement of the indemnifying party.
6.02. EXPENSES. Each party shall pay all costs and expenses incurred or
to be incurred by it in negotiating and preparing this Agreement and in
closing and carrying out the transactions contemplated by this Agreement.
6.03. FORM OF AGREEMENT. The subject headings of the paragraphs and
subparagraphs of this Agreement are included for convenience only and shall
not affect the construction or interpretation of any of its provisions.
6.04. MODIFICATION: WAIVER. The Exhibits and Recitals are incorporated
into this Agreement. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by all the parties. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
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6.05. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same fully executed instrument
when each party has executed and delivered a counterpart to the other party.
6.06. PARTIES IN INTEREST. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of
this Agreement on any persons other than the parties to it and their
respective successors and assigns, nor is anything in this Agreement intended
to relieve or discharge the obligation or liability of any third persons to
any party to this Agreement, nor shall any provision give any third persons
any right of subrogation or action over against any party to this Agreement.
6.07. ASSIGNMENT. This Agreement shall be binding on, and shall inure to
the benefit of, the parties to it and their respective heirs, legal
representatives, successors and assigns; provided, however, that Skyline may
not assign any of its rights or obligations under this Agreement.
6.08. ARBITRATION PROCEDURE.
A. ARBITRATION. In the event any dispute arising out of or in
connection with this Agreement or the transactions contemplated hereby
cannot be settled by the parties or their representatives, such dispute,
at the option of any party, shall be finally, solely and exclusively
settled by arbitration pursuant to the procedures described in this
paragraph 6.08; provided, however, that any equitable remedy for which
an arbitration award would be unenforceable may be sought in any court
of competent jurisdiction, subject to Paragraph 6.12.
B. ARBITRATION PROCEDURE.
(1) Within fifteen (15) days after notice requesting arbitration
by any party to the other parties to the dispute, the parties to the dispute
shall attempt to mutually agree upon one person to act as the arbitrator. If
no such agreement has occurred within such fifteen (15) day period, upon the
request of any party to the dispute, the presiding judge of the Sacramento
County Superior Court, acting in his or her individual capacity, shall select
a panel of three (3) independent arbitrators who shall act as arbitrators of
the dispute. If such judge refuses to select such arbitrators, each party
shall select an arbitrator and the two arbitrators selected by the parties
shall select a third arbitrator.
(2) Except as provided herein to the contrary, the arbitration
shall be in conformity with and subject to Sections 1280 through 1294.2 of
the California Code of Civil Procedure. The discovery allowed under Section
1283.05 thereof shall apply to any arbitration under this Agreement.
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(3) The arbitrator(s) shall conduct hearings in Sacramento,
California. The arbitrator(s) shall proceed with due dispatch and
shall make a decision resolving the dispute as soon as reasonably
possible after appointment. In the case of a three (3)-person panel,
the decision of any two (2) of the three (3) arbitrators shall be
binding, final and conclusive on the parties to the dispute.
(4) The arbitrator(s)' decision may, in the absolute
discretion of the arbitrator(s), provide for recovery of all or any
portion of the costs, fees and expenses of the arbitration procedure
by any party(ies), consistent with Section 6.09.
(5) The decision of the arbitrator(s) shall be in writing
and delivered to the parties in such form that a judgment may be
entered in any Superior Court of the State of California having
jurisdiction.
6.09 RECOVERY OF LITIGATION COSTS. If any legal action or any
arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party or parties (including a
successful defendant or defendants) shall be entitled to recover
reasonable attorneys fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be
entitled.
6.10 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties, covenants and agreements of the parties
contained in this Agreement, or in any instrument, certificate,
opinion or other writing provided for in it, shall survive the Closing.
6.11 NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be
deemed to have been duly given on the date of service if served
personally on the party to whom notice is to be given, or on the
second (2nd) day after mailing if mailed to the party to whom notice
is to be given, by first class mail, registered or certified, postage
prepaid, and properly addressed as follows:
To Skyline at: Randy Frederick
777 Walker, Suite M-130
Houston, Texas 77002
with copy to: Shelton Jones
JONES & GILLASPIA, L.L.P.
1100 Louisiana, Suite 650
Houston, Texas 77002
To Paradise Bakery at: Paradise Bakery, Inc.
1610 Arden Way, Suite 144
Sacramento, California 95815
13
<PAGE>
Any party may change its address for purposes of this paragraph by
giving the other parties written notice of the new address in the
manner set forth above.
6.12. GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of California
as applied to contracts that are executed and performed entirely in
California, to the greatest extent possible (without regard to the
conflicts of law rules of that state) except that this Agreement shall
not be construed to make the California Franchise Investment Law or
California Franchise Relations Act applicable. The parties agree that
any action brought by either party in any court, whether federal or
state, shall be brought in Sacramento, California and do hereby waive
all questions of personal jurisdiction or venue for the purposes of
carrying out this provision.
6.13. SEVERABILITY. If any provision of this Agreement is held
invalid Or unenforceable by any court of final jurisdiction, it is the
intent of the parties that all other provisions of this Agreement be
construed to remain fully valid, enforceable and binding on the
parties.
IN WITNESS WHEREOF, the parties to this Agreement have duly
executed it on the day and year first above written.
---------------------------------------
SKYLINE BAKERY, INC.
By: /s/ Randy R. Frederick
-----------------------------------
RANDY FREDERICK
Its PRESIDENT
Paradise Bakery:
PARADISE BAKERY, INC., a Delaware
corporation
By /s/ Steven Orlando
------------------------------------
/s/ Steven Orlando
---------------------------------------
Its CHIEF FINANCIAL OFFICER
14
<PAGE>
EXHIBITS
1.01a Assets
1.01B Store #1 Lease
1.01C Store #2 Lease
2.03 Allocation Schedule
2.04 Indemnification and Guaranty Agreement
3.04B Purchase Note
3.04B-2 AT&T Lease
3.04C Guaranty Agreement
3.05A-(2) Bill of Sale and Assignment
15
<PAGE>
Exhibit 10.19
AMENDMENT TO
EMPLOYMENT AGREEMENT
EFFECTIVE MAY 15, 1996
The salary pursuant to Gary Nelson's current employee agreement is reduced by
30%. This reduction will be reinstated upon the earlier of the company
completing one quarter of profitability or a significant improvement to the
company's working capital condition as approved by the compensation committee.
Agreed to by:
- --------------------------------------- ------------------------
Steven Orlando, Chief Financial Officer Dated
- --------------------------------------- ------------------------
Gary Nelson Dated
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
COMPUTATION OF NET LOSS PER COMMON SHARE
EXHIBIT 11
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
1996 1995
-------------- --------------
<S> <C> <C>
Weighted average number of common shares
outstanding 8,988,946 5,317,052
-------------- --------------
-------------- --------------
Net Loss ($763,650) ($664,942)
-------------- --------------
-------------- --------------
Net loss per weighted average equivalent common
shares outstanding ($0.08) ($0.13)
-------------- --------------
-------------- --------------
Share Months Outstanding
----------------------------------
1996 1995
-------------- --------------
Calculation of weighted average shares
outstanding (2)
Balance at beginning of period
April 1, 1995 - 5,316,820 shares 15,950,460
June 30, 1995 - 83,594 shares 696
April 1, 1996 - 8,533,587 shares 25,600,761
April 24, 1996 - 83,723 shares 184,191
May 20, 1996 - 442,142 shares 604,261
May 28, 1996 - 124,378 shares 136,816
May 31, 1996 - 2,105 shares 2,105
June 5, 1996 - 271,001 shares 225,834
June 7, 1996 - 68,376 shares 52,422
June 14, 1996 - 67,919 shares 36,223
June 18, 1996 - 133,200 shares 53,280
June 19, 1996 - 132,334 shares 48,522
June 27, 1996 - 224,215 shares 22,422
Options outstanding (1) (1)
Warrants outstanding (1) (1)
-------------- --------------
Total 26,966,837 15,951,156
-------------- --------------
-------------- --------------
Weighted average number
of common shares outstanding 8,988,946 5,317,052
-------------- --------------
-------------- --------------
</TABLE>
(1) Not calculated as anti-dilutive
(2) All share and per share data have been retroactively restated to reflect the
2.5 to 1 stock split.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 400,682
<SECURITIES> 0
<RECEIVABLES> 1,804,490
<ALLOWANCES> 0
<INVENTORY> 361,687
<CURRENT-ASSETS> 3,217,319
<PP&E> 6,063,393
<DEPRECIATION> 841,967
<TOTAL-ASSETS> 15,519,731
<CURRENT-LIABILITIES> 3,864,589
<BONDS> 2,898,393
0
0
<COMMON> 16,564,137<F1>
<OTHER-SE> (8,875,880)
<TOTAL-LIABILITY-AND-EQUITY> 15,519,739
<SALES> 4,112,551
<TOTAL-REVENUES> 4,489,827
<CGS> 4,080,151
<TOTAL-COSTS> 5,342,806
<OTHER-EXPENSES> (155,008)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,679
<INCOME-PRETAX> (763,650)
<INCOME-TAX> 0
<INCOME-CONTINUING> (763,650)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (763,650)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
<FN>
<F1>NOTE 2 - STOCKHOLDERS' EQUITY
A. JOINT VENTURE FORMATION AGREEMENT
DURING THE QUARTER ENDED JUNE 30, 1995 THE COMPANY COMPLETED THE INITIAL
PHASE OF THE JOINT VENTURE FORMATION AGREEMENT FOR THE DEVELOPMENT OF THE
FLORIDA MARKET AND ISSUED 83,594 SHARES OF COMMON STOCK IN EXCHANGE FOR 18.3%
OF THE JOINT VENTURE'S OUTSTANDING SHARES.
B. CONVERSION OF CONVERTIBLE DEBT
DURING THE QUARTER ENDED JUNE 30, 1996, HOLDERS OF THE CONVERTIBLE DEBT
CONVERTED $1,260,000 OF THE NOTES INTO 1,549,393 COMMON SHARES PURSUANT TO THE
TERMS OF THE NOTE.
</FN>
</TABLE>
