UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 21, 1996
BAB Holdings, Inc.
(Name of small business issuer in its charter)
Illinois 0-27068 36-3857339
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
8501 West Higgins Road, Suite 320, Chicago, Illinois 60631
(Address of principal executive offices) Zip Code)
Issuer's telephone number (312) 380-6100
(Former name, former address and former fiscal year, if changed since last
report.)
TABLE OF CONTENTS
Page
Item 1. Changes in Control of Registrant..................................... 1
Item 2. Acquisition or Disposition of Assets................................. 1
Item 3. Bankruptcy or Receivership........................................... 2
Item 4. Changes in Registrant's Certifying Accountant........................ 2
Item 5. Other Events......................................................... 2
Item 6. Resignations of Registrant's Directors............................... 2
Item 7. Financial Statements and Exhibits.................................... 3
Item 8. Change in Fiscal Year................................................ 4
SIGNATURE 4
INDEX TO EXHIBITS............................................................ 5
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Not applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 21, 1996, BAB Holdings, Inc. (Holdings or the Company), an
Illinois corporation, completed the acquisition of the assets of Strathmore
Bagels Franchise Corp. (Strathmore), a New York corporation. Strathmore is
engaged in the business of distributing bagels and related products, at
wholesale, and the collection of royalties on the related retail sale of those
products pursuant to a 10 year license agreement, dated November 30, 1995 with
Host International, Inc. (Host Marriott). (See Licensing Agreement filed as an
exhibit hereto.) At the time of the acquisition, Strathmore had licensing
contracts with 19 bagel-deli units and 15 bagel cart / display units in several
major airports and travel plazas in the United States. These bagel-deli and
display units are operated by Host Marriott.
The assets acquired by Holdings include the licensing contracts with
Host Marriott and the individual contracts for each facility, supply contracts,
equipment leases and other contractual arrangements with vendors. Additionally,
Holdings acquired the machinery, equipment and improvements owned by Strathmore
and located in the Host Marriott facilities.
The purchase of the assets was completed in exchange for the following
consideration: (a) $850,000 in cash paid at closing; (b) an option to purchase
625,000 shares of Holdings' common stock, no par value, exercisable during a
period commencing on May 21, 1997 and ending on May 21, 1999 (312,500 shares
exercisable from May 21, 1997 and all shares exercisable from May 21, 1998) at
an exercise price of $6.17 per share (see Stock Option Agreement filed as an
exhibit hereto); and (c) additional consideration based on the number of and
gross sales volumes of additional units opening, as follows:
(i) $5,000 for every bagel-deli unit operated under the Host Marriott
agreement opened during the two years following the closing of
this acquisition,
(ii) A percentage of annual gross sales of the units identified in (i)
above, which result in royalty payments to Holdings, at a rate of
5% of sales between $250,000 and $350,000, plus 3% of sales
greater than $350,000 to $450,000, plus 1% of sales greater than
$450,000 to $650,000, measured for a twelve month period,
(iii)3% of annual gross sales, which result in royalty payments to
Holdings, for each cart / display unit opened during the year
following the closing of this acquisition, measured for a
twelve-month period commencing 60 days after the unit is placed in
operation, and
(iv) Options to purchase 1,500 shares of Holdings common stock, no par
value, for each bagel / deli unit opened during the first two
years following the closing of this acquisition, at an exercise
price of $6.17 per share. Options earned during the first year
will be issued within 30 days following the end of that year and
will be exercisable for a period of one year beginning with the
date of issuance. Additionally, options earned during the second
year will be issued within 30 days following the end of that year
and will be exercisable for a period of one year beginning with
the date of issuance.
All shares issued pursuant to the options identified above have been
given certain rights to registration under the Securities Act of 1933 (see
Registration Rights Agreement filed as an exhibit hereto).
The Company financed this transaction using a portion of the net
proceeds from its November 27, 1995 initial public offering of securities.
The Company will be assigning the activities of the sale of bagels and
other products to the Host Marriott operated facilities and the collection of
royalty on the retail sales thereon, to its wholly owned subsidiary, BAB
Operations, Inc. (Operations). Operations will continue to maintain the units
currently in operation and develop additional units in facilities operated by
Host Marriott.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
None.
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS
Not applicable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The audited balance sheets of Strathmore as of December 31, 1995 and
1994 and the related consolidated statements of operations, retained earnings
and cash flows for the years then ended have been filed as exhibits hereto. (See
schedule 7A and 7B attached hereto.) Unaudited financial statements for the most
recent interim period are not readily available. The interim financial
statements and pro forma financial information will be filed as soon as
practicable under Form 8-K/A but not later than 60 days after the filing of this
report.
EXHIBITS
The following exhibits are filed herewith.
Exhibit
No. Description of Exhibit
10.21 Asset Purchase Agreement by and between BAB Holdings, Inc. and
Strathmore Bagels Franchise Corp. dated May 21, 1996 (without
schedules)
10.22 Stock Option Agreement dated May 21, 1996 between BAB Holdings, Inc.
and Strathmore Bagels Franchise Corp. dated May 21, 1996
10.23 Registration Rights Agreement dated May 21, 1996 between BAB
Holdings, Inc. and Strathmore Bagels Franchise Corp. dated May 21,
1996
10.24 Non-Competition Agreement dated May 21, 1996 between BAB Holdings,
Inc. and Strathmore Bagels Franchise Corp., Jack Freedman and Glen
Steuerman dated May 21, 1996
10.25 Memorandum of Understanding Regarding Form of License Agreement
effective November 30, 1995 between Strathmore Bagels Franchise Corp.
and Host International, Inc.
10.26 Consent to Assignment between Strathmore Bagels Franchise Corp. and
Host International, Inc. dated March 13, 1996 (as amended May 21,
1996)
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
SIGNATURE
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 hereunto duly authorized.
BAB HOLDINGS, INC.
Dated: June 5, 1996 By: /s/ SALLY A. SULLIVAN
---------------------
Sally A. Sullivan, Chief Financial Officer,
Treasurer and Secretary (Principal accounting
and financial officer)
Schedule 7A
BUONANNO & CONOLLY
CERTIFIED PUBLIC ACCOUNTANTS
5036 JERICHO TURNPIKE
COMMACK, NEW YORK 11725
---
TELEPHONE (516) 462-6066
May 6, 1996
Board of Directors
STRATHMORE BAGELS FRANCHISE CORP.
1879 LAKELAND AVENUE
RONKONKOMA, NY 11779
Dear Board of Directors:
We have audited the accompanying balance sheet of STRATHMORE BAGELS
FRANCHISE CORP. as of December 31, 1995, and the related statement of income,
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of STRATHMORE BAGELS
FRANCHISE CORP., as of December 31, 1995, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Respectfully submitted,
/s/ Buonanno & Conolly
Buonanno & Conolly
Certified Public Accountants
DB:jb
STRATHMORE BAGELS FRANCHISE CORP.
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1995
EXHIBIT A
ASSETS
CURRENT ASSETS
CASH IN BANKS $ 4,327
ACCOUNTS RECEIVABLE 93,575
DUE FROM OFFICERS 7,275
DEFERRED TAX ASSET (NOTE 4) 7,015
--------
TOTAL CURRENT ASSETS $112,192
PROPERTY AND EQUIPMENT (NOTES 1 AND 3)
MACHINERY AND EQUIPMENT $320,674
ACCUMULATED DEPRECIATION 36,585
--------
$284,089
--------
TOTAL PROPERTY AND EQUIPMENT 284,089
--------
OTHER ASSETS
SECURITY DEPOSITS 829
ORGANIZATION EXPENSES 2,977
ACCUMULATED AMORTIZATION 595
--------
2,382
--------
TOTAL OTHER ASSETS 3,211
--------
TOTAL ASSETS $399,492
========
THE ACCOMPANYING AUDIT REPORT AND FOOTNOTES TO THESE FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
BUONANNO & CONOLLY, CERTIFIED PUBLIC ACCOUNTANTS
STRATHMORE BAGELS FRANCHISE CORP.
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1995
EXHIBIT A
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 132,028
PAYROLL TAXES PAYABLE 3,172
OTHER TAXES PAYABLE 421
---------
TOTAL CURRENT LIABILITIES $ 135,621
LONG TERM LIABILITIES
DEFERRED TAX LIABILITY
(NOTE 4) 5,680
---------
TOTAL LONG TERM LIABILITIES 5,680
---------
TOTAL LIABILITIES $ 141,301
STOCKHOLDERS' EQUITY
COMMON STOCK $ 180,000
ADDITIONAL PAID-IN CAPITAL 80,000
RETAINED DEFICIT - ENDING (1,809)
---------
TOTAL STOCKHOLDERS' EQUITY 258,181
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 399,492
=========
THE ACCOMPANYING AUDIT REPORT AND FOOTNOTES TO THESE FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
BUONANNO & CONOLLY, CERTIFIED PUBLIC ACCOUNTANTS
STRATHMORE BAGELS FRANCHISE CORP.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
EXHIBIT B
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INCOME
SALES $ 440,944 85.5
STORE SET-UP COMMISSION 75,000 14.5
--------- -----
TOTAL INCOME $ 515,944 100.0
COST OF SALES
PURCHASES $ 232,557 45.1
--------- -----
TOTAL COST OF SALES 232,557
---------
GROSS PROFIT $ 283,387 54.9
EXPENSES
OPERATING EXPENSES
AS PER SCHEDULE ONE $ 41,882 8.1
SELLING EXPENSES
AS PER SCHEDULE TWO 36,821 7.1
GENERAL AND ADMIN. EXPENSES
AS PER SCHEDULE THREE 152,696 29.6
--------- -----
TOTAL EXPENSES 231,399 44.8
--------- -----
OPERATING INCOME/(LOSS) $ 51,988 10.1
OPERATING INCOME AND EXPENSES
LOSS ON LEASE CANCELLATION(NOTE 5) (30,920) (6.0)
--------- -----
TOTAL OTHER INCOME AND EXPENSE (30,920) (6.0)
--------- -----
INCOME/(LOSS) BEFORE TAXES $ 21,068 4.1
PROVISION FOR INCOME TAX EXPENSE/BENEFIT) (NOTE 4)
4,707 0.9
--------- -----
NET INCOME/(LOSS) $ 16,361 3.2
RETAINED EARNINGS - BEGINNING (18,170) (3.5)
--------- -----
RETAINED DEFICIT - ENDING $ (1,809) (0.4)
========= =====
</TABLE>
THE ACCOMPANYING AUDIT REPORT AND FOOTNOTES TO THESE FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
BUONANNO & CONOLLY, CERTIFIED PUBLIC ACCOUNTANTS
STRATHMORE BAGELS FRANCHISE CORP.
SUPPORTING SCHEDULES
FOR THE YEAR ENDED DECEMBER 31, 1995
OPERATING EXPENSES
SCHEDULE ONE
SUPPLIES $ 285 0.1
INSURANCE 6,784 1.3
REPAIRS AND MAINTENANCE 1,143 0.2
DEPRECIATION & AMORTIZATION 33,670 6.5
-------- ------
TOTAL OPERATING EXPENSES $ 41,882 8.1
======== ======
SELLING EXPENSES
SCHEDULE TWO
ADVERTISING 30,004 5.8
AUTO EXPENSES 6,817 1.3
-------- ------
TOTAL SELLING EXPENSES $ 36,821 7.1
======== ======
GENERAL AND ADMINISTRATIVE EXPENSES
SCHEDULE THREE
SALARIES - OFFICERS $ 37,000 7.2
BANK CHARGES 337 0.1
OFFICE EXPENSES 3,505 0.7
PAYROLL TAXES 3,131 0.6
PROFESSIONAL EXPENSES 75,068 14.5
TELEPHONE 5,157 1.0
TRAVEL AND ENTERTAINMENT 23,369 4.5
UNIFORM 5,129 1.0
-------- ------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES $152,696 29.6
======== ======
THE ACCOMPANYING AUDIT REPORT AND FOOTNOTES TO THESE FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
BUONANNO & CONOLLY, CERTIFIED PUBLIC ACCOUNTANTS
STRATHMORE BAGELS FRANCHISE CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES
CASH RECEIVED FROM CUSTOMERS $ 458,244
CASH PAID TO SUPPLIERS (309,308)
TAXES PAID (316)
---------
CASH PROVIDED BY OPERATING ACTIVITIES $ 148,620
CASH FLOWS FROM INVESTING ACTIVITIES
CASH PAID FOR MACHINERY AND EQUIPMENT $(219,353)
CASH PAID FOR SPRINGFIELD LOCATION (30,920)
EQUIPMENT DEPOSITS (829)
---------
CASH USED BY INVESTING ACTIVITIES (251,102)
CASH FLOWS FROM FINANCING ACTIVITIES
CASH RECEIVED FROM ISSUANCE OF
COMMON STOCK $ 30,000
ADDITIONAL PAID IN CAPITAL 80,000
LOANS TO SHAREHOLDER (7,275)
---------
CASH PROVIDED BY FINANCING ACTIVITIES 102,725
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 243
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,084
---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,327
=========
ACCOMPANYING AUDIT REPORT AND FOOTNOTES TO THESE FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
BUONANNO & CONOLLY, CERTIFIED PUBLIC ACCOUNTANTS
STRATHMORE BAGELS FRANCHISE CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
NET INCOME $ 16,361
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION $ 33,670
LOSS ON LEASE CANCELLATION 30,920
CHANGES IN ASSETS AND LIABILITIES
INCREASE IN ACCOUNTS RECEIVABLE (57,500)
INCREASE IN DEFERRED TAX ASSET (623)
INCREASE IN ACCOUNTS PAYABLE 117,807
INCREASE IN PAYROLL TAXES PAYABLE 3,172
INCREASE IN OTHER TAXES PAYABLE 104
INCREASE IN DEFERRED TAX LIABILITY 4,909
---------
TOTAL ADJUSTMENTS 132,259
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 148,620
=========
THE ACCOMPANYING AUDIT REPORT AND FOOTNOTES TO THESE FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
BUONANNO & CONOLLY, CERTIFIED PUBLIC ACCOUNTANTS
STRATHMORE BAGELS FRANCHISE CORP.
FOOTNOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
1) Significant Account Policies
A) Property
Fixed assets are capitalized at cost. Significant improvements
are capitalized, maintenance and repairs are charged to
income. When equipment is retired or otherwise disposed of,
the cost of the assets and the related accumulated
depreciation are eliminated from the accounts and any gain or
loss on disposition is credited or charged to income.
B) Organization History
The Corporation was formed under the Laws of New York State on
May 13, 1994 and commenced operations on the same date. The
Corporation is in the business of setting up and selling
Strathmore Bagel store franchises.
During 1994 Strathmore entered into a relationship with Host
Marriott in which Marriott opens bagel shops at airports and
highway rest stops on sites leased by them. Marriott will use
the name Strathmore Bagel and will purchase all of its bagel
products from Strathmore. The relationship was formalized in a
written agreement completed in 1995. In 1994 three shops were
opened at Kennedy Airport in New York, at which Strathmore
invested in equipment and placed it into service. In 1995
fifteen additional stores were opened.
The agreement with Marriott is a licensing of the use of the
name, Strathmore Bagels, and to date, no franchises have been
sold.
2) Related Party Transactions
Steuerman & Sons, Inc. (Steuerman, a wholesale bagel bakery) is owned
by Glenn Steuerman, who is also a 20% stockholder of Strathmore Bagels
Franchise Corp. (Strathmore). Strathmore purchases all of its products
for resale from Steuerman. Steuerman also sets up Strathmore Bagel
facilities and stores for individuals but has no direct agreements with
Host Marriott. Finally, Steuerman provided a commission in the amount
of $5,000 for each full store opened which is reflected in store
commission income.
3) Equipment
Equipment is stated at cost and at December 31, 1995, $319,025 of
equipment had been placed into service. Depreciation is computed on a
straight-line method for financial reporting and amounted to $33,202.
For federal income tax purposes, depreciation is computed under the
modified accelerated cash recovery system.
4) Income Taxes
The Company has loss carryforwards totaling $29,231 that may be offset
against future taxable income. If not used, the carryforwards will
expire as follows:
2009 $26,634
2010 2,597
The net deferred tax benefit in the accompanying balance sheet includes
the following amounts of deferred tax assets and liabilities:
Deferred tax liability $5,680
Deferred tax asset 7,015
------
Net deferred tax benefit $1,335
The deferred tax liability results from the use of accelerated methods of
depreciation of property and equipment. The deferred tax asset results from net
operating loss carryforward.
The components income tax expense (benefit) are as follows:
Current $ 421
Deferred 4,286
------
$4,707
5) Loss on Lease Cancellation
Loss on lease cancellation resulted from the corporation's decision to
attempt to open and operate company owned stores. A lease was entered
into and construction begun on a storefront operation in Springfield,
Virginia. After spending $30,920 on lease deposit and construction
costs, the corporation discovered problems in finding proper management
to operate the remote location. A decision not to pursue company owned
locations, but rather to concentrate solely on development of Host
Marriott business was made. As a result the lease was abandoned and all
payments forfeited.
Schedule 7B
BUONANNO & CONOLLY
CERTIFIED PUBLIC ACCOUNTANTS
5036 JERICHO TURNPIKE
COMMACK, NEW YORK 11725
-------
TELEPHONE (516) 462-6066
November 17, 1995
Board of Directors
STRATHMORE BAGELS FRANCHISE CORP.
1879 LAKELAND AVENUE
RONKONKOMA, NY 11779
Dear Board of Directors:
We have audited the accompanying balance sheet of STRATHMORE BAGELS FRANCHISE
CORP. as of December 31, 1994, and the related statement of income, retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accorance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above represent fairly, in
all material respects, the financial position of STRATHMORE BAGELS FRANCHISE
CORP., as of December 31, 1994, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Respectfully submitted,
Buonanno & Conolly
Certified Public Accounts
DB:jb
STRATHMORE BAGELS FRANCHISE CORP.
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1994
EXHIBIT A
ASSETS
CURRENT ASSETS
CASH IN BANKS $ 4,084
ACCOUNTS RECEIVABLE 35,875
DEFERRED TAX ASSET (NOTE 4) 6,392
--------
TOTAL CURRENT ASSETS $ 46,351
PROPERTY AND EQUIPMENT (NOTES 1 AND 3)
MACHINERY AND EQUIPMENT $101,322
ACCUMULATED DEPRECIATION 3,214
--------
$ 98,108
--------
TOTAL PROPERTY AND EQUIPMENT 98,108
--------
OTHER ASSETS
ORGANIZATION EXPENSES 2,977
ACCUMULATED AMORTIZATION 298
--------
2,679
--------
TOTAL OTHER ASSETS 2,679
TOTAL ASSETS $147,138
========
THE ACCOMPANYING AUDIT REPORT AND FOOTNOTES TO THESE FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
BUONANNO & CONOLLY, CERTIFIED PUBLIC ACCOUNTANTS
STRATHMORE BAGELS FRANCHISE CORP.
STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1994
EXHIBIT A
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 14,221
OTHER TAXES PAYABLE 316
---------
TOTAL CURRENT LIABILITIES $ 14,537
LONG TERM LIABILITIES
DEFERRED TAX LIABILITY
(NOTE 4) 771
---------
TOTAL LONG TERM LIABILITIES 771
---------
TOTAL LIABILITIES $ 15,308
STOCKHOLDERS' EQUITY
COMMON STOCK $ 150,000
RETAINED DEFICIT - ENDING (18,170)
---------
TOTAL STOCKHOLDERS' EQUITY 131,830
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 147,138
=========
THE ACCOMPANYING AUDIT REPORT AND FOOTNOTES TO THESE FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
BUONANNO & CONOLLY, CERTIFIED PUBLIC ACCOUNTANTS
STRATHMORE BAGELS FRANCHISE CORP.
SUPPORTING SCHEDULES
FOR THE YEAR ENDED DECEMBER 31, 1994
OPERATING EXPENSES
SCHEDULE ONE
SUPPLIES $ 4,104 4.7
INSURANCE 885 1.0
DEPRECIATION & AMORTIZATION 3,511 4.0
------- ----
TOTAL OPERATING EXPENSES $ 8,500 9.6
======= ====
SELLING EXPENSES
SCHEDULE TWO
ADVERTISING 23,396 26.6
AUTO EXPENSES 2,775 3.1
------- ----
TOTAL SELLING EXPENSES $26,171 29.7
======= ====
GENERAL AND ADMINISTRATIVE EXPENSES
SCHEDULE THREE
BANK CHARGES 136 0.2
LICENSES AND PERMITS 1,182 1.3
OFFICE EXPENSES 2,237 2.5
PROFESSIONAL EXPENSES 44,520 50.5
TRAVEL AND ENTERTAINMENT 238 0.3
UNIFORM 885 1.0
------- ----
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES $49,198 55.8
======= ====
THE ACCOMPANYING AUDIT REPORT AND FOOTNOTES TO THESE FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
BUONANNO & CONOLLY, CERTIFIED PUBLIC ACCOUNTANTS
STRATHMORE BAGELS FRANCHISE CORP.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
EXHIBIT B
INCOME SALES $ 88,105 100.0
-------- -----
TOTAL INCOME $ 88,105 100.0
COST OF SALES
PURCHASES $ 23,831 27.0
CONTRACT LABOR 880 1.0
SUPPLIES 3,000 3.4
-------- -----
TOTAL COST OF SALES 27,711 31.5
-------- -----
GROSS PROFIT $ 60,394 68.5
EXPENSES
OPERATING EXPENSES
AS PER SCHEDULE ONE $ 8,500 9.6
SELLING EXPENSES
AS PER SCHEDULE TWO 26,171 29.7
GENERAL AND ADMIN. EXPENSES
AS PER SCHEDULE THREE 49,198 55.8
-------- -----
TOTAL EXPENSES 83,869 95.2
-------- -----
OPERATING INCOME/(LOSS) $(23,475) (26.6)
OTHER INCOME AND EXPENSES
-------- -----
TOTAL OTHER INCOME
-------- -----
INCOME/(LOSS) BEFORE TAXES $(23,475) (26.6)
PROVISION FOR INCOME TAX
EXPENSE/(BENEFIT) (NOTE 4) (5,305) (6.0)
-------- -----
NET INCOME/(LOSS) $(18,170) (20.6)
-------- -----
RETAINED DEFICIT - ENDING $(18,170) (20.6)
======== =====
THE ACCOMPANYING AUDIT REPORT AND FOOTNOTES TO THESE FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
BUONANNO & CONOLLY, CERTIFIED PUBLIC ACCOUNTANTS
STRATHMORE BAGELS FRANCHISE CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
CASH FLOWS FROM OPERATING ACTIVITIES
CASH RECEIVED FROM CUSTOMERS $ 72,230
CASH PAID TO SUPPLIERS (113,848)
---------
CASH USED BY OPERATING ACTIVITIES $ (41,618)
CASH FLOWS FROM INVESTING ACTIVITIES
CASH PAID FOR MACHINERY AND EQUIPMENT $(101,322)
---------
CASH USED BY INVESTING ACTIVITIES (101,322)
CASH FLOWS FROM FINANCING ACTIVITIES
CASH RECEIVED FROM THE ISSUANCE OF
COMMON STOCK $ 150,000
CASH PAID FOR ORGANIZATION AND ISSUANCE OF
COMMON STOCK (2,977)
---------
CASH PROVIDED BY FINANCING ACTIVITIES 147,023
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 4,084
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 0
---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,084
=========
THE ACCOMPANYING AUDIT REPORT AND FOOTNOTES TO THESE FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
BUONANNO & CONOLLY, CERTIFIED PUBLIC ACCOUNTANTS
STRATHMORE BAGELS FRANCHISE CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
NET LOSS $(18,170)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION $ 3,511
CHANGES IN ASSETS AND LIABILITIES:
INCREASE IN ACCOUNTS RECEIVABLE (35,875)
INCREASE IN DEFERRED TAX ASSET (6,392)
INCREASE IN ACCOUNTS PAYABLE 41,221
INCREASE IN TAXES PAYABLE 316
INCREASE IN DEFERRED TAX LIABILITY 771
--------
TOTAL ADJUSTMENTS (23,448)
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES $(41,618)
========
THE ACCOMPANYING AUDIT REPORT AND FOOTNOTES TO THESE FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
BUONANNO & CONOLLY, CERTIFIED PUBLIC ACCOUNTANTS
STRATHMORE BAGELS FRANCHISE CORP.
FOOTNOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994
1) Significant Account Policies
A) Property
Fixed assets are capitalized at cost. Significant improvements
are capitalized, maintenance and repairs are charged to
income. When equipment is retired or otherwise disposed of,
the cost of the assets and the related accumulated
depreciation are eliminated from the accounts and any gain or
loss on disposition is credited or charged to income.
B) Organization History
The Corporation was formed under the Laws of New York State on
May 13, 1994 and commenced operations on the same date. The
Corporation is in the business of setting up and selling
Strathmore Bagel store franchises.
During 1994 Strathmore entered into a relationship with Host
Marriott in which Marriott opens bagel shops at airports and
highway rest stops on sites leased by them. Marriott will use
the name Strathmore Bagel and will purchase all of its bagel
products from Strathmore Bagel and will purchase all of its
bagel products from Strathmore. The relationship was
formalized in a written agreement completed in 1995. This
agreementis a test period agreement ot determine the
feasibility and profitability of the stores. A more expansive
final contract has been drafted and is anticipated to be
signed in 1995. In 1994 three shops were opened at Kennedy
Airport in New York, at which Strathmore invested in equipment
and placed it into service. In 1995 fifteen additional stores
were opened.
The agreement with Marriott is a licensing of the use of the
name, Strathmore Bagels, and to date, no franchises have been
sold.
2) Related Party Transactions
Steuerman & Sons, Inc. (Steuerman, a wholesale bagel bakery) is owned
by Glenn Steuerman, who is also a 25% stockholder of Strathmore Bagels
Franchise Corp. (Strathmore). Strathmore purchases all of its products
for resale from Steuerman. During the year Steuerman was paid $7,700
for construction costs of several new store locations. Steuerman also
sets up Strathmore Bagel facilities and stores for individuals but has
no direct agreements with Host Marriott. Finally, Steuerman provided
purchase rebates of $20,000 to Strathmore, which are reflected in
purchase rebates receivable at December 31, 1994.
3) Equipment
Equipment is stated at cost and at December 31, 1994, $89,988 of
equipment had been placed into service. Depreciation is computed on a
straight-line method for financial reporting and amounted to $3,214.
For federal income tax purposes, depreciation is computed under the
modified accelerated cash recovery system.
4) Income Taxes
The Company has loss carryforwards totaling $26,634 that may be offset
against future taxable income. If not used, the carryforwards will
expire in the year 2009.
The net deferred tax benefit in the accompanying balance sheet includes
the following amounts of deferred tax assets and liabilities:
Deferred tax liability $ 771
Deferred tax asset 6,392
------
Net deferred tax benefit $5,621
======
The deferred tax liability results from the use of accelerated methods of
depreciation of property and equipment. The deferred tax asset results from net
operating loss carryforward.
The components income tax expense (benefit) are as follows:
Current $ 316
Deferred 5,621
-------
$(5,305)
=======
INDEX
NUMBER DESCRIPTION PAGE #
10.21 Asset Purchase Agreement by and between BAB Holdings, Inc.
and Strathmore Bagels Franchise Corp. dated May 21, 1996
(without schedules)
10.22 Stock Option Agreement dated May 21, 1996 between BAB
Holdings, Inc. and Strathmore Bagels Franchise Corp. dated
May 21, 1996
10.23 Registration Rights Agreement dated May 21, 1996 between
BAB Holdings, Inc. and Strathmore Bagels Franchise Corp.
dated May 21, 1996
10.24 Non-Competition Agreement dated May 21, 1996 between BAB
Holdings, Inc. and Strathmore Bagels Franchise Corp., Jack
Freedman and Glen Steuerman dated May 21, 1996
10.25 Memorandum of Understanding Regarding Form of License
Agreement effective November 30, 1995 between Strathmore
Bagels Franchise Corp. and Host International, Inc.
10.26 Consent to Assignment between Strathmore Bagels Franchise
Corp. and Host International, Inc. dated March 13, 1996 (as
amended May 21, 1996)
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
BAB HOLDINGS, INC.
AND
STRATHMORE BAGELS FRANCHISE CORP.
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS............................................ 1
ARTICLE 2 PURCHASE OF CERTAIN ASSETS; LIMITED ASSUMPTION OF
LIABILITIES............................................ 1
2.1 Purchase and Sale of Assets............................ 1
2.2 Excluded Assets........................................ 3
2.3 Purchase Price; Payment for Purchased Assets........... 3
2.4 No Assumption of Liabilities........................... 4
2.5 Tax Reporting of Transaction........................... 4
ARTICLE 3 CLOSING................................................ 4
3.1 Closing Date........................................... 4
ARTICLE 4 ADDITIONAL COVENANTS................................... 5
4.1 Pre-Closing Covenants.................................. 5
4.2 Non-Competition Agreement.............................. 5
4.3 Supply Agreement....................................... 5
4.4 Employees and Employee Benefits........................ 5
4.5 Seller to Change Corporate Name........................ 6
4.6 Access to Records...................................... 6
4.7 Registration Rights.................................... 6
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLER............... 6
5.1 Organization and Good Standing of Seller............... 6
5.2 Authorization of Agreement and Enforceability.......... 7
5.3 Effect of Agreement.................................... 7
5.4 Government and Other Consents.......................... 7
5.5 Financial Statements and Financial Performance......... 7
5.6 Commitments............................................ 8
5.7 Tax Matters............................................ 8
5.8 Title to Purchased Assets; Absence of Liens and
Encumbrances, Etc...................................... 9
5.9 Condition of Purchased Assets.......................... 9
5.10 Intellectual Property.................................. 9
5.11 Environmental Matters.................................. 9
5.12 Product Integrity...................................... 10
5.13 Insurance.............................................. 10
5.14 Permits, Licenses, Compliance with Laws................ 10
5.15 Litigation............................................. 10
5.16 Books and Records...................................... 11
5.17 Labor Matters.......................................... 11
5.18 Employee Benefits...................................... 11
5.19 Employees.............................................. 11
5.20 Absence of Certain Changes or Events................... 11
5.21 Brokerage Fees......................................... 12
5.22 Other Information...................................... 12
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BUYER................ 12
6.1 Organization and Good Standing of Buyer................ 12
6.2 Authorization of Agreement and Enforceability.......... 12
6.3 Effect of Agreement.................................... 12
6.4 Litigation............................................. 13
6.5 Other Information...................................... 13
6.6 No Brokers............................................. 13
ARTICLE 7 CONDITIONS PRECEDENT TO CLOSING........................ 13
7.1 Conditions Precedent to the Obligations of Buyer to
Proceed with Closing................................... 13
7.2 Conditions Precedent to the Obligations of the Seller
to Proceed with Closing................................ 15
ARTICLE 8 SECURITIES DISCLOSURES REGARDING BUYER'S STOCK......... 16
8.1 Unregistered Shares; Restrictions On Transfer.......... 16
ARTICLE 9 TERMINATION............................................ 17
9.1 Termination Prior to Closing........................... 17
9.2 No Solicitation........................................ 17
ARTICLE 10 INDEMNIFICATION........................................ 18
10.1 Indemnification by Seller.............................. 18
10.2 Indemnification by Buyer............................... 18
10.3 Limitation of Liability................................ 18
10.4 Right of Set-off; No Waiver............................ 19
10.5 Third Party Claims..................................... 19
ARTICLE 11 ARBITRATION............................................ 19
11.1 In General............................................. 19
11.2 Discovery.............................................. 19
ARTICLE 12 GENERAL................................................ 20
12.1 Expenses............................................... 20
12.2 Survival of Representations and Warranties............. 20
12.3 No Third Party Beneficiaries........................... 20
12.4 Notices................................................ 20
12.5 Further Assurances..................................... 21
12.6 Entire Agreement....................................... 21
12.7 Headings............................................... 21
12.8 Counterparts........................................... 21
12.9 Governing Law.......................................... 21
12.10 Severability........................................... 21
12.11 Amendments............................................. 22
12.12 Assignment............................................. 22
12.13 Successors and Assigns................................. 22
12.14 No Joint Venture....................................... 22
12.15 Construction of Agreement.............................. 22
12.16 Confidential Information............................... 22
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("AGREEMENT") is entered into effective
as of April 24, 1996, by and among BAB Holdings, Inc., an Illinois corporation
("BUYER"), and Strathmore Bagels Franchise Corp., a New York corporation
("SELLER"). Buyer and Seller are referred to collectively as the "PARTIES."
RECITALS:
A. Seller is engaged in the business of distributing bagels and related
products, at wholesale and the collection of royalties on the related retail
sale of those products pursuant to a license agreement (the "BUSINESS").
B. Buyer desires to purchase and Seller desires to sell certain assets
related to the Business upon the terms and conditions set forth in this
Agreement.
AGREEMENTS:
NOW THEREFORE, in consideration of the foregoing Recitals and the
mutual agreements, covenants, representations, and warranties contained in this
Agreement, the receipt and sufficiency of which are acknowledged, the Parties
agree as follows:
ARTICLE 1
DEFINITIONS
Unless otherwise defined in this Agreement, capitalized terms used
herein shall have the meaning set forth in the attached Schedule 1 which is
incorporated by reference in this Agreement.
ARTICLE 2
PURCHASE OF CERTAIN ASSETS; LIMITED ASSUMPTION OF LIABILITIES
2.1 PURCHASE AND SALE OF ASSETS. On the terms and subject to the
conditions of this Agreement, Buyer shall purchase from Seller, and Seller shall
sell, assign, transfer, convey and deliver to Buyer, at Closing, all of the
properties and assets of Seller related to, derived from, or used in the
operation of the Business, wherever located, excepting only the Excluded Assets
(the "PURCHASED ASSETS"). The Purchased Assets specifically include, without
limitation, the following:
(a) all furniture, fixtures, equipment, shelving, displays,
signs, computer equipment and accessories, supplies, packaging
materials, tools and other tangible personal property of Seller,
whether now owned or acquired between the date of this Agreement and
the Closing Date, including, without limitation, the tangible assets
identified on the attached Schedule 2.1(a);
(b) all good and saleable inventory of frozen bagels and other
products sold at wholesale (the "INVENTORY");
(c) all of Seller's right, title and interest under the
license agreements, supply contracts, utility contracts, equipment
leases and other arrangements with vendors relating to, derived from or
used in the operation of the Business, including, without limitation,
the contents and arrangements identified on the attached Schedule
2.1(c) (the "ASSIGNED CONTRACTS");
(d) all intellectual property related to, derived from or used
in the operation of the Business (the "INTELLECTUAL PROPERTY"),
including, without limitation, (i) any and all trade names, trademarks,
service names, service marks, copyrights, private labels, logos or
designs, whether registered or not, related to, derived from or used in
connection with the Business, including, without limitation, the names
and marks set forth in the attached Schedule 2.1(d) (but specifically
excluding the name "Strathmore," which is licensed to Seller); and (ii)
all other knowledge, information, know-how, patents, processes,
procedures, devices, techniques, programs, software, creations,
methods, formulas, recipes, designs, drawings, and technical
information related to, derived from or used in the operation of the
Business;
(e) all books, records and documents of Seller related to,
derived from or used in the operation of the Business, including,
without limitation, all customer lists, supplier lists, price lists,
telephone numbers and listings, advertising materials and marketing
plans, business files, regulatory files and approvals, business plans,
financial data, operations manuals, repair or service manuals, fire,
safety or environmental reports and all data related to inventory,
sales and accounts receivable and similar books and records related to
the Business;
(f) all permits, licenses, orders, consents and approvals of
any governmental or regulatory authority related to the operation of
the Business, to the extent assignable as set forth in Schedule 2.1(f)
(the "LICENSES AND PERMITS");
(g) all prepaid fees as set forth in Schedule 2.1(g);
(h) all other assets, properties, claims and rights of Seller,
not part of the Excluded Assets that are related to, derived from or
used in the operation of the Business; and
(i) all existing and prospective business relationships
(including without limitation existing and prospective franchises and
offers of franchises of Seller), reputation, and other intangibles
which may be characterized as "'good will" or "going concern value" of
Seller's business.
2.2 EXCLUDED ASSETS. The following assets of Seller (the "EXCLUDED
ASSETS") shall not be transferred to Buyer under this Agreement:
(a) all cash on hand and in bank accounts and the
consideration to be paid to Seller pursuant to this Agreement;
(b) Seller's corporate charter, taxpayer and other
identification numbers, tax returns, corporate seals, corporate minute
books, stock ledgers and other documents of Seller relating to the
organization and existence of Seller as corporations; and
(c) all trade receivables, royalty receivable or notes
receivable.
2.3 PURCHASE PRICE; PAYMENT FOR PURCHASED ASSETS. The aggregate
Purchase Price to be paid by Buyer to Seller in consideration for the Purchased
Assets (the "PURCHASE PRICE") shall be the sum of (i) Eight Hundred Fifty
Thousand Dollars ($850,000), to be paid in cash at Closing; (ii) an option in
the form set forth in Exhibit 2.3 (the "STRATHMORE OPTION") to be issued to
Seller at Closing whereby Seller may purchase 625,000 shares of Buyer's Common
Stock during a period commencing on the one year anniversary of the Closing Date
and ending on the three year anniversary of the Closing Date (312,500 shares
exercisable during year one and all shares exercisable during year two) at a
price per share equal to the mean of the closing bid and asked prices of Buyer's
Common Stock reported on the Nasdaq SmallCap Market on the Execution Date (as
defined in Schedule 1); and (iii) additional earnout consideration consisting
of:
A. $5,000 for every unit operated under the Host International
License Agreement serving bagels, cream cheese, bagel spreads,
and bagel deli sandwiches (a "Bagel/Deli Unit") opened during
the two years following the Closing Date (payable at end of
each three month period within said two years).
B. A percentage of annual gross sales, net of sales taxes,
commissions and promotions, which result in royalty payments
under the Host International License Agreement ("ANNUAL
ADJUSTED GROSS SALES SUBJECT TO HOST ROYALTY") of each
Bagel/Deli Unit placed in operation after the Closing Date,
measured for a period of 12 months commencing sixty (60) days
after said unit is placed in operation, as follows:
Annual Adjusted Gross Sales
Percentage Subject to Host Royalty
5% $250,000 - $350,000
3% $350,000.01 - $450,000
1% $450,000.01 - $650,000
C. 3% of Annual Adjusted Gross Sales Subject to Host Royalty of
each cart/display unit (as opposed to a Bagel/Deli Unit)
placed in operation after the Closing Date measured for a
period of 12 months commencing 60 days after the unit is
placed in operation.
D. Options (the "EARNED OPTIONS") to purchase 1,500 shares of
Buyer's Common Stock for each Bagel/Deli Unit opened during
each of the first two years following the Closing Date,
exercisable at the same price per share as the Strathmore
Option. Earned Options for Bagel/Deli Units opened during the
first year following the Closing Date will be issued within 30
days following the end of that first year and will be
exercisable for a period of one year beginning with the date
of issuance. Options earned for the Bagel/Deli Units opened
during the second year following the Closing Date will be
issued within 30 days following the end of that second year
and will be exercisable for a period of one year beginning
with the date of issuance.
E. All shares issued pursuant to the exercise of the Strathmore
Option and the Earned Options will have certain rights to
registration under the Securities Act of 1933 as provided in
the Registration Rights Agreement attached hereto as Exhibit
4.7.
F. Seller shall have the right to inspect, and at Seller's
expense to audit, the Annual Adjusted Gross Sales Subject to
Host Royalty for the purpose of confirming the additional
earnout consideration due under this Section 2.3.
2.4 NO ASSUMPTION OF LIABILITIES. Except for assumption of Seller's
obligations under the Host International License Agreement, Buyer shall not
assume any liabilities or obligations of Seller and Seller shall be solely
liable for and shall indemnify and hold Buyer harmless against all liabilities
and obligations arising from the ownership, use and operation of the Business
and the Purchased Assets prior to the Closing Date, contingent or fixed, whether
or not reflected on the books and records of Seller.
2.5 TAX REPORTING OF TRANSACTION. The Parties agree to report this
transaction for tax purposes on IRS Form 8594 as described on the attached
Schedule 2.5.
ARTICLE 3
CLOSING
3.1 CLOSING DATE. Subject to the conditions contained in this
Agreement, the closing of the transactions to be effected hereunder (the
"CLOSING") shall be held at the offices of Buyer on or before May 21, 1996 or at
such other time and place or on such other date as shall be mutually agreed upon
in writing by Buyer and Seller (the actual date of such Closing is herein called
the "CLOSING DATE").
ARTICLE 4
ADDITIONAL COVENANTS
4.1 PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between execution of this Agreement and the Closing:
(a) General. Each of the Parties will use all reasonable best
efforts to take all actions, to do all things necessary, proper, or
advisable to consummate and make effective the transactions
contemplated by this Agreement (including, without limitation,
satisfying the conditions precedent to Closing).
(b) Due Diligence Matters. Seller shall make available to
Buyer and its advisors all such due diligence information, books and
records as Buyer may reasonably request in connection with Buyer's due
diligence investigation of the Business and the Purchased Assets, and
Seller shall provide Buyer with access to the Stores for purposes of
inspection and due diligence review.
(c) Continued Operations and Maintenance of Purchased Assets.
Seller shall continue to operate the Business to the best of its
abilities in a manner consistent with the operations of the Business
prior to the date of this Agreement. Seller shall maintain the books
and records of the Business in the usual, regular and ordinary manner
on the basis consistent with prior periods. Seller shall maintain the
Purchased Assets in good repair, order and condition, reasonable wear
and use excepted.
(d) Notice of Developments/Risk of Loss. Seller will give
prompt written notice to Buyer of any material developments affecting
the Business. Seller shall bear the risk of loss as to any or all of
the Purchased Assets prior to Closing.
4.2 NON-COMPETITION AGREEMENT. At Closing, Seller, Freedman and Glen
Steuerman shall execute and deliver a non-competition agreement in favor of
Buyer in the form set forth as Exhibit 4.2 (the "NON-COMPETITION AGREEMENT").
4.3 SUPPLY AGREEMENT. At Closing, if requested by Buyer, Seller shall
cause Steuerman & Sons, Inc. to execute and deliver a supply agreement in favor
of Buyer. Such agreement (the "SUPPLY AGREEMENT"), which shall be satisfactory
to Buyer in both form and content, shall be in substantially the form set forth
as Exhibit 4.3 and shall provide for supply of par-baked bagels made to Buyer's
specifications to Buyer at a price not greater than $1.35 per dozen. The Supply
Agreement shall also contain such other terms as may be required by Buyer,
including without limitation, terms satisfactory to Buyer as to duration,
product quality, and product packaging and delivery.
4.4 EMPLOYEES AND EMPLOYEE BENEFITS. Except for Freedman, who will be
employed by Buyer effective as of the Closing, Buyer may, but shall have no
obligation to, offer positions of employment to any of the employees or former
employees of Seller any such offers of employment shall be on terms and
conditions established by Buyer. Any particular offer of employment will be made
solely at the Buyer's discretion. On the Closing Date, Seller shall terminate
the employment of all then current employees and Seller shall be solely
responsible for, and shall indemnify Buyer against any contractual,
unemployment, workers' compensation, sick pay, vacation pay, severance pay,
collective bargaining agreement, 401(k) or pension obligations or other
employment-related benefits, costs or claims of any kind whatsoever which exist
as of or prior to the Closing Date. Upon the request of Buyer, Seller shall
provide full and fair disclosure and access to and copies of all personnel
files, payroll and related employment records and to provide full and fair
disclosure of information related to individual employee performance and conduct
consistent with the Americans with Disabilities Act and other applicable laws.
4.5 SELLER TO CHANGE CORPORATE NAME. On the Closing Date, Seller shall
file amendments to its articles of incorporation to change its name to a name
that is dissimilar to its present name and which does not contain the word
"Strathmore" or any derivative thereof. Following the Closing, Seller shall not
use the word "Strathmore" in any assumed names, trade names or service marks.
4.6 ACCESS TO RECORDS. Following the Closing, Buyer shall have access
to and rights to make copies of all of Seller's books and records that are part
of the Excluded Assets to the extent reasonably necessary for the operation of
the Business or the preparation of tax returns and financial statements of Buyer
following the Closing Date. Seller shall retain such excluded books and records
as required by all applicable laws. After the Closing, Seller shall have access
to any records transferred to Buyer at Closing to the extent reasonably
necessary for the preparation of income tax returns.
4.7 REGISTRATION RIGHTS. At Closing, all of the Parties shall execute
and deliver a registration rights agreement in the form attached hereto as
Exhibit 4.7 (the "REGISTRATION RIGHTS AGREEMENT") whereby Seller shall be
granted the right to include in certain registration statements which may be
filed by Buyer under the Securities Act of 1933, as amended, the shares of
Common Stock of Buyer which may be issued to them pursuant to exercise of the
Strathmore Option and the Earned Options.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents, warrants, covenants and agrees with Buyer that the
following representations and warranties are true, correct and complete as of
the date this Agreement:
5.1 ORGANIZATION AND GOOD STANDING OF SELLER. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York. Seller has all requisite corporate power and authority,
licenses, permits and franchises to own, lease and operate its properties and
assets and to carry on the Business as currently conducted. Seller is qualified
and in good standing to do business as a foreign corporation in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification necessary, except where
the failure to so qualify will not have a material adverse effect on the
Business or the Purchased Assets.
5.2 AUTHORIZATION OF AGREEMENT AND ENFORCEABILITY. Seller has full
corporate power and authority to execute and deliver this Agreement and the
Ancillary Documents and to perform its obligations under this Agreement and the
Ancillary Documents. This Agreement and the Ancillary Documents have been duly
and validly authorized, executed and delivered by Seller, and constitute legal,
valid and binding obligations of Seller, enforceable against Seller in
accordance with their respective terms.
5.3 EFFECT OF AGREEMENT. Neither the execution, delivery, and
performance of this Agreement or the Ancillary Documents by the Seller, nor the
consummation by the Seller of the transactions contemplated hereby will (a)
conflict with or result in a breach of any provision of the articles of
incorporation or bylaws of Seller, (b) constitute or result in the breach of,
conflict with or give rise to a right of forfeiture, termination, cancellation
or acceleration with respect to, any term, condition or provision of, any note,
bond, mortgage, indenture, license or other contract or obligation to which
Seller or Freedman is a party or by which it or any of the Purchased Assets may
be bound, except for such conflicts, breaches or defaults as to which written
waivers or consents shall have been obtained on or prior to the Closing Date, or
which would not have a material adverse effect on the Business, or (c) violate
in any material respect any law, statute, regulation, judgment, order, writ,
injunction, or decree applicable to Seller, the Principal, the Business or any
of the Purchased Assets.
5.4 GOVERNMENT AND OTHER CONSENTS. No consent, order, authorization,
qualification, or approval of, or exemption by, or filing with any governmental,
public, or regulatory body or authority is required in connection with the
execution, delivery and performance by Seller of this Agreement or any Ancillary
Document, to the best knowledge of Seller.
5.5 FINANCIAL STATEMENTS AND FINANCIAL PERFORMANCE. Schedule 5.5
contains copies of the audited balance sheets and statements of earnings and
cash flows for Seller as of and for the years ended December 31, 1995 and 1994
(the "Audited Seller Financial Statements") and an unaudited balance sheet as of
March 31, 1996 and an unaudited statement of net sales for the period of January
1, 1996 through March 31, 1996 (the "SELLER FINANCIAL STATEMENTS"). Except as
set forth on Schedule 5.5, the Seller Financial Statements and the Audited
Seller Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"), are materially correct and complete,
and fairly present the financial position and results of operations of Seller as
of the dates and for the periods indicated. No event has occurred since March
31, 1996, which materially adversely affects the information presented in the
Seller Financial Statements or the Audited Seller Financial Statements. Seller
has, as of the date hereof, no liabilities or obligations (absolute or
contingent) of a nature required or customarily reflected in financial
statements or notes thereto prepared in accordance with GAAP, except as set
forth in the Seller Audited Financial Statements.
5.6 COMMITMENTS. Except as set forth in attached Schedule 5.6, and
except for transactions and commitments in the ordinary course of business which
are cancelable without penalty in 30 days' notice or less, the Purchased Assets
are not bound or affected by, any (a) lease or sublease agreement relating to
real or personal property, (b) contract or assignment relating to the
Intellectual Property, (c) agreement or commitment for the purchase or sale of
equipment or other capital assets, goods, products, services, raw materials or
supplies in excess of Five Thousand and No/100 Dollars ($5,000.00), (d)
employment agreement, collective bargaining agreement or agreement with any
labor union, (e) agreement with any distributor, dealer, sales agent or sales
representative, (f) agreement guaranteeing, indemnifying or otherwise becoming
liable for the obligations or liabilities of another, (g) agreement for the
borrowing or lending of money or any agreement with any financial institution,
including letters of credit and performance bonds, (h) agreement granting any
Person a lien, security interest or mortgage on any of Seller' properties or
assets, (i) joint venture or partnership agreement with any other Person, (j)
noncompetition, nondisclosure or other agreement which restricts Seller or any
of the Principal in the conduct of the Business, or (k) other material agreement
affecting the Purchased Assets or the Business.
Correct and complete copies (or, where such arrangements are oral, true
and complete written summaries) of all such agreements and arrangements listed
on attached Schedule 5.6 (collectively referred to herein as the "COMMITMENTS"),
have been or will be delivered to Buyer for review prior to the Closing. Each of
the Commitments is now valid, binding and in full force and effect, enforceable
in accordance with its terms. Seller have fulfilled, or have taken all action
reasonably necessary to enable it to fulfill when due, all of their obligations
under the Commitments. There has not occurred any default by Seller or any event
which (with the lapse of time or the election of any Person other than Seller,
or both) will become a default, nor, to the knowledge of Seller, have there
occurred any default by any third party or any event which (with the lapse of
time or the election of Seller, or both) will become a default under any of the
Commitments. No waiver or indulgence has been granted by Seller or, to the
knowledge of Seller, by any of the other parties thereto related to the
Commitments.
5.7 TAX MATTERS. Seller has timely filed all federal, state, local and
other tax and information returns as required by law with regard to any income,
sales, use, gross receipts, property, employment and any other taxes, charges,
levies or other assessments related to the Business or the Purchased Assets
(collectively, "TAXES"), and has paid all Taxes shown as due on such returns.
Each such return is true, correct and complete, and Seller do not have or will
not have any additional liability for Taxes. Seller and Principal shall
indemnify Buyer and hold it harmless against any loss suffered with respect to
the matter described in Schedule 5.7.
5.8 TITLE TO PURCHASED ASSETS; ABSENCE OF LIENS AND ENCUMBRANCES, ETC.
Seller has good and marketable title to the Purchased Assets, except as to the
leased assets set forth in Schedule 5.6. At Closing, the Purchased Assets shall
be transferred to Buyer free and clear of all security interests, claims, liens,
mortgages, charges and encumbrances, subject to the leases as described on
Schedule 5.6.
5.9 CONDITION OF PURCHASED ASSETS. All Purchased Assets have been
properly maintained in accordance with customary and prudent business practices
and are in good operating condition and repair, reasonable wear and tear
excepted. To the knowledge of Seller, the Purchased Assets as currently used in
the operation of the Business, meet, in all material respects, all applicable
requirements of building codes, health and safety laws and the Americans with
Disabilities Act.
5.10 INTELLECTUAL PROPERTY. Schedule 5.10 contains a list of all
Intellectual Property of the Seller. Seller has full ownership right, title and
interest in and to the Intellectual Property (except as described on Schedule
5.10 with respect to any Intellectual Property licensed to Seller) and to the
best knowledge of Seller, the Intellectual Property constitutes valid and
enforceable rights of Seller. Seller has not received any notice and has no
reason to believe that the validity of the Intellectual Property or Seller's
interest therein can be or is being challenged by any third party. Seller has
not heretofore granted any licenses or conveyed any other rights or interests to
any of the Intellectual Property. To the best knowledge of Seller, the operation
of the Business as currently conducted does not infringe upon any patents or
other intellectual property rights of any third party.
5.11 ENVIRONMENTAL MATTERS.
(a) Seller has not received any notice from any governmental
agency or private or public entity advising that it is potentially
responsible for response costs or other costs with respect to a release
or threatened release of any Hazardous Substance and neither it nor to
Seller's knowledge its predecessors in interest with respect to the
Business have conducted activities which could reasonably be expected
to result in such a notice. No administrative, civil or criminal
actions, including without limitation third-party actions for personal
injury or property damage, are pending or threatened with respect to
Environmental Laws related to the Business. No judgments, consent
orders, consent decrees, stipulations, or other restrictions have been
entered or applied with respect to Environmental Laws or related to the
Business. Seller has not received, nor is it aware of any governmental
orders, notifications, notices of violation, or requests for
information relating to environmental or health and safety conditions
at or related to the Business, or is aware of any past or current
violations of any Environmental Law related to the Business or of
environmental conditions related to the Business. Neither the operation
of the Business, either as currently conducted or conducted in the past
at any office space or other facility or real property owned, leased,
used or occupied by Seller, whether currently or at any time in the
past, violate nor have violated any Environmental Laws.
(b) For purposes of this Agreement, (i) "ENVIRONMENTAL LAWS"
shall mean statute, law, ordinance or regulation of any federal, state,
county, local or foreign governmental authority relating to the
environment, including air, water or noise pollution, emissions or
discharges, the environment, public health, employee health, safety or
welfare, land use or the production, processing, distribution, use,
storage, labeling, handling, transportation, treatment or disposition
of any Hazardous Substance; and (ii) "HAZARDOUS SUBSTANCE" shall mean
asbestos, paints, solvents, ureaformaldehyde, polychlorinated
biphenyls, nuclear fuel or material, chemical waste, hazardous waste,
radioactive material, explosives, known carcinogens, petroleum products
and by-products and other dangerous, toxic, infectious or hazardous
pollutants, contaminants, chemicals, materials, wastes or substances
listed or identified in, or regulated by, any Environmental Laws.
5.12 PRODUCT INTEGRITY. No administrative, civil or criminal actions,
including without limitation third-party actions for personal injury or property
damage, are pending or threatened with respect to the Business or its products.
No judgments, stipulations, or other restrictions have been entered or applied
with respect to the products of Seller or related to its Business. Seller has
not received nor is it aware of any governmental orders, notifications, notices
of violations, or requests for information relating to health and safety
conditions at or related to the Business or its products.
5.13 INSURANCE. Seller carries worker's compensation insurance in at
least the amount required by law. The Seller has been covered during the three
year period ending on the Closing Date by insurance in scope, amount and
coverage customary and reasonable for the businesses in which it has engaged
during said three year period. Seller has not been refused any insurance nor has
its coverage been limited by any insurance carrier to which it has applied for
insurance during the last three years.
5.14 PERMITS, LICENSES, COMPLIANCE WITH LAWS. Seller has all permits,
licenses, orders, consents and approvals of federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit Seller to
carry on the Business as currently conducted. Schedule 5.14 sets forth a correct
and complete list of all such permits, licenses, orders and approvals, all of
which are in full force and effect, and no suspension or cancellation of any of
them is threatened, and to Seller's knowledge, no cause exists for such
suspension or cancellation. The Business has been and is being conducted in
accordance and in compliance with all applicable federal, state, local or
foreign laws, codes, ordinances, rules and regulations, except for minor
violations which do not have a material adverse effect on the Business or the
Purchased Assets.
5.15 LITIGATION. Except as set forth on Schedule 5.15 attached hereto,
there is no claim, action, suit, proceeding, arbitration, investigation or
inquiry pending before any federal, state, local, or other court or
governmental, administrative, or self-regulatory body or agency, or any private
arbitration tribunal, or to the knowledge of Seller or Freedman threatened
against, Seller or Freedman relating to any of the Purchased Assets or the
transactions contemplated by this Agreement or the Ancillary Documents; nor, to
the best of Seller's knowledge, is there any basis for any such claim, action,
suit, proceeding, arbitration, investigation or inquiry. Neither of the Seller
is in default under any order, license, regulation or demand of any federal,
state or local, or other court or governmental, administrative or
self-regulatory body or agency.
5.16 BOOKS AND RECORDS. All of the books of account and other financial
and corporate records of Seller have been made available to Buyer and its
representatives.
5.17 LABOR MATTERS. The Business is being operated in compliance with
all applicable domestic (federal, state, and local) and foreign laws respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and the Seller has not engaged in any unfair labor practices,
and has not discriminated on the basis of age or sex in its employment
conditions or practices. There is no unfair labor practice or age or sex
discrimination complaint against the Seller pending before or threatened before
the National Labor Relations Board or any other domestic (federal, state, or
local) or foreign board, department, commission, or agency. The Seller is not a
party to any collective bargaining agreements.
5.18 EMPLOYEE BENEFITS. Seller has withheld all material amounts
required by law or agreement to be withheld from the wages or salaries of its
employees and is not liable for any arrears of wages or any taxes or penalties
for failure to comply with any of the foregoing. All accrued obligations of
Seller, whether arising by operation of law, by contract or by past custom, for
payments to trusts or other funds or to any governmental agency, with respect to
unemployment compensation, social security, pension or any other benefits for
employees of Seller, have been paid, or will have been paid prior to Closing,
and none of the foregoing has been rendered not due by reason of any extension,
whether at the request of Seller or otherwise. All reasonably anticipated
obligations of Seller (whether arising by operation of law, by contract, by past
custom or otherwise) for salaries, vacation and holiday pay, bonuses and other
forms of compensation which were payable to the employees of Seller will be paid
or payment will be adequately provided for prior to Closing. All of Seller's
employee benefit plans are in full compliance with the Employee Retirement
Income Security Act of 1974 ("ERISA") and other applicable laws. Seller has no
pension, profit sharing, savings, stock bonus and other deferred compensation
plan established which is subject to the requirements of ERISA, or any employer
pension benefit plan to which Seller is required to make or has made
contributions.
5.19 EMPLOYEES. No employee of Seller is subject to any employment,
confidentiality, or noncompetition agreement or any agreement or restriction of
any kind that would impede in any way the ability of such employee to carry out
fully all activities of such employee in the furtherance of the Business.
5.20 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as otherwise
indicated on Schedule 5.20, since December 31, 1995:
(a) There has not been any material adverse change, and Seller
knows of no fact, circumstance, event, occurrence, contingency or
condition which might reasonably be expected to result in any material
adverse change, whether or not in the ordinary course of business and
whether or not covered by insurance, in the Purchased Assets or the
Business of the Seller; and
(b) In general, the Business has been operated in all respects
only in the ordinary course of business.
5.21 BROKERAGE FEES. Seller shall be responsible for any of its
obligations under any contract, arrangement or understanding with any person or
firm which may result in the obligation of Buyer to make payment of any finder's
fees, brokerage or agent's commissions or other like payments incurred in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
5.22 OTHER INFORMATION. None of the information and documents which
have been or may be furnished by or on behalf of the Seller to Buyer, or to any
of its representatives, in connection with the transactions contemplated by this
Agreement, is or will be materially false or misleading or contains or will
contain any material misstatements of fact or omits or will omit any material
fact necessary to be stated in order to make the statements therein not
misleading, nor has Seller withheld from Buyer any material facts relating to
the assets, property or business of Seller.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents, warrants, covenants and agrees with Seller and the
Principal that the following representations and warranties are true, correct
and complete as of the date hereof:
6.1 ORGANIZATION AND GOOD STANDING OF BUYER. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois, and has all requisite corporate power and authority make the
representations, warranties and agreements made hereunder, to own, lease and
operate its properties and asset and to carry on its business as currently
conducted, to execute and deliver this Agreement, to issue the Strathmore Option
and Freedman Option and the Common Stock which may be issued upon exercise of
said options and to perform its obligations under this Agreement.
6.2 AUTHORIZATION OF AGREEMENT AND ENFORCEABILITY. This Agreement and
the Ancillary Documents have been duly and validly authorized, executed and
delivered by Buyer and constitute the valid and legally binding obligations of
Buyer enforceable against Buyer in accordance with their respective terms.
6.3 EFFECT OF AGREEMENT. Neither the execution, delivery, and
performance of this Agreement or the Ancillary Documents nor the consummation of
the transactions contemplated hereby by Buyer will (a) conflict with or result
in a breach of any provision of the articles of incorporation or bylaws of
Buyer; or (b) constitute or result in the breach of, conflict with or give rise
to a right of termination, cancellation or acceleration with respect to, any
term, condition or provision of, any note, bond, mortgage, indenture, license or
other contract or obligation to which Buyer is a party of by which Buyer or any
of its properties or assets may be bound, except for such conflicts, breaches or
defaults as to which written waivers or consents shall have been obtained on or
prior to the Closing Date, or (c) violate any law, statute, regulation,
judgment, order, writ, injunction, or decree applicable to Buyer or any of its
properties or assets.
6.4 LITIGATION. Except as set forth on Schedule 6.4 attached hereto,
there is no claim, action, suit, proceeding, arbitration, investigation or
inquiry pending before any federal, state, local, or other court or
governmental, administrative, or self-regulatory body or agency, or any private
arbitration tribunal, or to the knowledge of Buyer threatened against, the
Buyer, it business, or the transactions contemplated by this Agreement or the
Ancillary Documents; nor is there any basis for any such claim, action, suit,
proceeding, arbitration, investigation or inquiry. The Buyer is not in default
under any order, license, regulation or demand of any federal, state or local,
or other court or governmental, administrative or self-regulatory body or
agency.
6.5 OTHER INFORMATION. Buyer represents and warrants that it has made a
thorough investigation of its affairs and to the best of its knowledge and
belief, none of the information and documents which have been or may be
furnished by or on behalf of the Buyer, to the Seller or the Principal, or to
any of their representatives, in connection with the transactions contemplated
by this Agreement, is or will be materially false or misleading or contains or
will contain any material misstatements of fact or omits or will omit any
material fact necessary to be stated in order to make the statements therein not
misleading.
6.6 NO BROKERS. Buyer has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of the
Seller or Principal to pay, or is aware of any claim or basis for any claim for
payment, of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
ARTICLE 7
CONDITIONS PRECEDENT TO CLOSING
7.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER TO PROCEED WITH
CLOSING. The obligations of Buyer are subject to the fulfillment at Closing of
each of the following conditions to the reasonable satisfaction of Buyer;
provided that Buyer, in its discretion, may waive any one or more of such
conditions in writing and proceed with Closing without waiving any other
remedies available to Buyer:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Seller and Principal contained in
this Agreement and in any Ancillary Document shall be true in all
material respects on and as of the Closing Date.
(b) Performance of Agreements. Seller and Principal shall each
have performed all obligations and agreements and complied with all
covenants and conditions contained in this Agreement on their part to
be performed or complied with at or prior to the Closing and all
conditions set forth in Article 4 of this Agreement required to be
completed prior to Closing shall have been completed.
(c) Required Consents. Seller shall have obtained all consents
in writing required for the assignment to Buyer of all Licenses and
Permits and Assigned Contracts.
(d) Completion of Due Diligence Investigation. Buyer's due
diligence investigation of Seller, the Purchased Assets and the
Business shall have been completed to Buyer's reasonable satisfaction.
Buyer has heretofore conducted, but not completed, its due diligence
investigation of Seller, the Purchased Assets and the Business.
Promptly following execution of this Agreement, Buyer shall continue
its due diligence investigation with respect to Seller's corporate
records, updated financial records and continued viability of the Host
International airport and toll plaza business (collectively, the
"Remaining Due Diligence Investigation"). The obligations of Buyer are
subject to Buyer's completion of the Remaining Due Diligence
Investigation to Buyer's reasonable satisfaction.
(e) No Adverse Conditions. No adverse conditions shall have
been revealed in the course of Buyer's due diligence investigation and
no event shall have occurred which has a material adverse effect on the
Business or the Purchased Assets.
(f) Approval of Buyer's Board of Directors. This Agreement
shall have been approved by Buyer's Board of Directors.
(g) Deliveries. Seller shall have delivered or caused to be
delivered to Buyer at or prior to Closing all of the following executed
documents:
(i) a certificate of the chief executive officer and
chief financial officer of Seller dated the Closing Date,
certifying as to the fulfillment of the matters set forth in
Sections 7.1(a) and 7.1(b);
(ii) all consents required by Section 7.1(c);
(iii) a certificate, dated the Closing Date, of the
Secretary or Assistant Secretary of Seller certifying the
resolutions adopted by the shareholders and Board of Directors
of Seller approving the execution and delivery of this
Agreement and the consummation of the transactions
contemplated under this Agreement;
(iv) a bill of sale in substantially the form
attached hereto as Exhibit 7.1 and one or more other
instruments of transfer as may be reasonably required by Buyer
conveying good and marketable title to the Purchased Assets to
Buyer, free and clear of all security interests, claims,
liens, mortgages, charges and encumbrances in form and
substance satisfactory to Buyer, including an assignment of
all Intellectual Property;
(v) a certificate of good standing issued by the New
York Secretary of State and dated within five (5) days of the
Closing Date;
(vi) Non-Competition Agreement executed by Seller,
Freedman and Steuerman;
(vii) a current tax letter issued by the New York
Department of Taxation and Finance;
(viii) the Registration Rights Agreement executed by
Seller and the Principal;
(ix) a Supply Agreement;
(x) the Strathmore Option executed by Seller;
(xi) assignment of the Host International License
Agreement by Seller and consent of Host International; and
(xii) such other documents, opinions and certificates
as may be required under this Agreement or reasonably
requested by Buyer.
7.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLER TO PROCEED
WITH CLOSING. The obligations of Seller are subject to the fulfillment at the
Closing of each of the following conditions to the reasonable satisfaction of
Seller; provided that Seller, in their discretion, may waive any one or more of
such conditions in writing and proceed with Closing without waiving any other
remedies available to Seller:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Buyer contained in this Agreement or
in any Ancillary Document shall be true in all material respects on and
as of the Closing.
(b) Performance of Agreement. Buyer shall have performed all
obligations and agreements and complied with all covenants and
conditions contained in this Agreement to be performed or complied with
by it at or prior to the Closing Date.
(c) Deliveries by Buyer. Buyer shall have delivered to Seller
at or prior to the Closing all of the following executed documents:
(i) a certificate of an executive officer of Buyer,
dated the Closing Date, certifying as to the fulfillment of
the matters set forth in Sections 7.2(a) and 7.2(b);
(ii) a certificate, dated the Closing Date, of the
Secretary or Assistant Secretary of Buyer certifying the
resolutions adopted by the Board of Directors of Buyer
approving the execution and delivery of this Agreement and the
transactions contemplated under this Agreement;
(iii) the Registration Rights Agreement executed by
Buyer; and
(iv) the Strathmore Option executed by Buyer.
ARTICLE 8
SECURITIES DISCLOSURES REGARDING BUYER'S STOCK
8.1 UNREGISTERED SHARES; RESTRICTIONS ON TRANSFER. Seller understands,
acknowledges, represents and agrees with the following with respect to the
Strathmore Option, the Earned Options (if any) and the shares of Common Stock of
Buyer which may be acquired upon exercise of said options (collectively, the
"SECURITIES"):
(a) The Securities have not been registered under the
Securities Act of 1933 or any state securities law and Buyer is relying
upon exemptions from such registration in connection with the issuance
of the Securities.
(b) Seller is acquiring the Securities for their own accounts
for investment and has no present intention of distributing, reselling,
pledging or otherwise disposing of its interest in the Securities.
(c) Seller has been provided with access to all information
with respect to the Buyer and its business (including the opportunity
to meet with the Buyer's officers, to request additional information
regarding Buyer's financial condition, properties, management and
material contracts, and ask questions of them), and Seller has utilized
such access to make an informed decision to acquire the Securities.
(d) Seller may not sell any of the Securities unless they are
registered under the Securities Act of 1933, as amended, and applicable
state securities laws or pursuant to an applicable exemption from such
registration requirements. Even if such Securities are so registered or
if exemption from registration is available, there can be no assurance
that there will be a market for the Securities.
(e) Any certificate representing the Securities will bear
legends in substantially the following form:
"The securities evidenced by this certificate have not been
registered either under applicable federal law and rules or
applicable state law and rules. No sale, offer to sell, or
transfer of these securities may be made unless a registration
statement under the Securities Act of 1933, as amended, and
any applicable state law with respect to such securities is
then in effect or an exemption from the registration
requirements of such laws is then, in fact, applicable to such
securities."
(g) Seller shall be entitled to include the Common Stock of
Buyer which may be issued upon exercise of the Strathmore Option and
the Earned Options (if any) in certain registration statements which
may be filed by Buyer under the Securities Act of 1933 and to request
registration pursuant to the terms of the Registration Rights Agreement
attached hereto as Exhibit 4.7.
ARTICLE 9
TERMINATION
9.1 TERMINATION PRIOR TO CLOSING. This Agreement may be terminated
prior to Closing as follows:
(a) By mutual written consent of Buyer and Seller;
(b) By Buyer if any of the conditions set forth in Section 7.1
of this Agreement have not been met and have not been waived in writing
by Buyer. If Buyer terminates this Agreement under this Section 9.1(c),
Buyer shall not be deemed to waive any other rights or remedies
available to Buyer for a breach of this Agreement by Seller or the
Principal; or
(c) By Seller if any of the conditions set forth in Section
7.2 of this Agreement have not been met and have not been waived in
writing by Seller. If Seller terminates this Agreement under this
Section 9.1(b), Seller shall not be deemed to waive any other rights or
remedies available to Seller for a breach of this Agreement by Buyer.
9.2 NO SOLICITATION. In the event that this Agreement is terminated
prior to Closing, except for termination pursuant to breach of this Agreement by
Seller or Freedman or Seller's failure to satisfy the conditions for Closing,
then Buyer agrees that for the one- year period following the date of such
termination, it will not solicit the business of Host International for tollways
and airports in competition with the Business of Seller.
ARTICLE 10
INDEMNIFICATION
10.1 INDEMNIFICATION BY SELLER. Subject to the limitations expressly
set forth in Section 10.3, Seller shall indemnify and hold harmless Buyer from,
against and in respect of, any and all costs, losses, claims, liabilities,
fines, penalties, damages and expenses net of any insurance or other recoveries
(including without limitation interest which may be imposed, and court costs and
reasonable fees and disbursements of counsel) resulting from, arising out of or
incurred by Buyer in connection with any of the following:
(a) any breach of any of the representations or warranties
made by Seller or Freedman in this Agreement or any of the Ancillary
Documents, or failure or default by Seller or Freedman in the
performance of any of the covenants or agreements made by Seller or
Freedman in this Agreement or any of the Ancillary Documents; or
(b) any debts, obligations, liabilities, claims, penalties,
fines or damages pertaining to Seller, the Purchased Assets, or the
Business arising on or before Closing or related to incidents and
occurrences prior to Closing, whether or not known to Seller or
disclosed to Buyer or included in the Schedules, other portions of this
Agreement or the Ancillary Documents, and any liabilities of Seller
arising after the Closing.
10.2 INDEMNIFICATION BY BUYER. Subject to the limitations expressly set
forth in Section 10.3, Buyer shall indemnify and hold harmless Seller from,
against and in respect of, any and all costs, losses, claims, liabilities,
fines, penalties, damages and expenses net of any insurance or other recoveries
(including without limitation interest which may be imposed in connection
therewith, and court costs and reasonable fees and disbursements of counsel)
resulting from, arising out of or incurred by Seller in connection with any
breach of any of the representations or warranties made by Buyer in this
Agreement or any of the Ancillary Documents, or material failure or material
default by Buyer in the performance of any of the covenants or agreements made
by Buyer in this Agreement or any of the Ancillary Documents.
10.3 LIMITATION OF LIABILITY. None of the Parties shall assert any
claim for indemnification under Sections 10.1 or 10.2 unless the aggregate
amount of all claims of such party against the other party under this Agreement,
on a cumulative basis, exceeds Ten Thousand and No/100 Dollars ($10,000.00);
provided, however, that once claims exceed such Ten Thousand Dollars
($10,000.00) threshold, the indemnifying party shall be liable for all valid
claims, including the initial claims aggregating $10,000.
10.4 RIGHT OF SET-OFF; NO WAIVER. In addition to any remedies available
to Buyer, Buyer shall have a right to set-off any obligations of Seller or
Freedman to Buyer under this Agreement or any of the Ancillary Documents against
any obligation of Buyer to Seller or Freedman under this Agreement or under any
Ancillary Document, including without limitation any payment due after the
Closing Date pursuant to Section 2.3 hereof, but only after the obligation of
Seller or Freedman which is to be set-off has been adjudicated or arbitrated as
provided herein, and reduced to a judgment or an award (even though subject to
appeal or review). Any disputes over Buyer's entitlement to set-off shall be
resolved pursuant to the arbitration provisions of Article 11. No failure or
delay on the part of Buyer in exercising any right, power or remedy under the
Agreement or under any of the Ancillary Documents, or available to Buyer at law
or in equity shall operate as a waiver of such right, power or remedy, nor shall
any single or partial exercise of any such right, power or remedy preclude any
or further exercise thereof or the exercise of any other right, power or remedy
available to Buyer. Subject to the limitations of Section 10.3, the remedies
provided in this Agreement and in the Ancillary Documents are cumulative and not
exclusive of any remedies available to any Party at law or equity.
10.5 THIRD PARTY CLAIMS. If a claim by a third party is made against
Buyer or Seller (the "INDEMNIFIED PARTY"), and the Indemnified Party intends to
seek indemnity against the other party (the "INDEMNIFYING PARTY") under this
Article 10, the Indemnified Party shall timely notify the Indemnifying Party of
such claim. The Indemnifying Party shall reasonably cooperate with the
Indemnified Party in connection with the efforts of the Indemnified Party or its
insurer with respect to the settlement or defense of the claim. The Indemnified
Party shall permit the Indemnifying Party to participate in such settlement or
defense through counsel chosen by the Indemnifying Party, provided that the fees
and expenses of such counsel shall be borne by the Indemnifying Party. The
Indemnified Party shall not settle or compromise any such claim unless it shall
have given the Indemnifying Party not less than twenty (20) days' prior written
notice of the proposed settlement or compromise and afforded the Indemnifying
Party an opportunity to consult with the Indemnified Party regarding the
proposed settlement or compromise.
ARTICLE 11
ARBITRATION
11.1 IN GENERAL. Except for an action for injunctive relief, any
dispute or claim arising out of or relating to this Agreement or the validity,
interpretation, enforceability of breach of this Agreement, which is not settled
by agreement between the parties, will be settled by binding arbitration in
Chicago, Illinois, in accordance with the rules of the American Arbitration
Association then in effect, and judgment upon any award rendered in such
arbitration may be entered in any court having competent jurisdiction.
11.2 DISCOVERY. The rules of discovery pertaining to the Illinois
courts under the Illinois Rules of Civil Procedure shall apply to any such
arbitration proceeding, provided discovery shall be accelerated and completed
within no more than ninety (90) days. The prevailing party in such arbitration,
in addition to all other relief provided, shall be entitled to an award against
the losing party of its costs and expenses, including reasonable attorney's
fees, incurred in such arbitration, and the losing party shall also bear all
fees and expenses of arbitration. In the event that there is no party that has
prevailed on substantially all issues, such legal expenses and expenses of
arbitration shall be allocated between the Parties as the arbitrator deems
appropriate.
ARTICLE 12
GENERAL
12.1 EXPENSES. Buyer and Seller shall pay their own respective counsel,
accountants and other advisors' fees and expenses arising in connection with the
negotiation and preparation of this Agreement and the Ancillary Documents and
the consummation of the transactions contemplated. Seller shall pay any Person
entitled to receive a finder's fee or any type of brokerage commission in
connection with the transactions contemplated by this Agreement or the Ancillary
Documents. Buyer represents that it has not made any commitment to pay a
finder's fee or any brokerage commission in connection with this Agreement.
12.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the Parties
covenants and agrees that all of the representations, warranties, covenants, and
agreements set forth in this Agreement and in any Ancillary Document shall
survive the Closing until December 31, 1998, or if later, until the expiration
of the statute of limitations period applicable to claims which may be asserted
for matters covered thereby, and shall not be merged into any instruments of
transfer or other Ancillary Documents delivered by any of the Parties at Closing
or at any other time.
12.3 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, expressed
or implied, is intended to confer on any person other than the Parties or their
respective heirs, successors and assigns any rights, remedies, obligations, or
other liabilities under or by reason of this Agreement.
12.4 NOTICES. All notices permitted or required under this Agreement
shall be in writing and shall be (a) delivered by personal service, (b)
delivered by courier service, (c) telecopied and confirmed immediately in
writing by a copy mailed by registered or certified mail, postage prepaid,
return receipt requested, or (d) sent by certified or registered mail, postage
prepaid, return receipt requested, to the parties hereto at their addresses set
forth below or at such other addresses which may be designated in writing by the
parties:
If to Seller or Harold Kestenbaum, P.C.
Freedman, to: 170 Old Country Road
Minneola, NY 11501-4307
Telecopier No.: (516) 873-6163
If to Buyer, to: BAB Holdings, Inc.
8501 West Higgins Road, Suite 320
Chicago, IL 60631
Attn: Michael K. Murtaugh
Telecopier No.: (312) 380-6183
with a copy to: Popham, Haik, Schnobrich & Kaufman, Ltd.
Suite 3300, 222 South Ninth Street
Minneapolis, MN 55402
Attn: Janna R. Severance, Esq.
Telecopier No.: (612) 334-8888
Such notices shall be effective upon receipt in the case of personal or courier
service or telecopier delivery and on the third (3rd) day after posting in the
U.S. mail.
12.5 FURTHER ASSURANCES. After the Closing, Seller and the Principal
shall, at Buyer's request, execute and deliver to Buyer without further
consideration, all such further assignments, conveyances, endorsements, deeds,
special powers of attorney, consents and other documents, and take such other
action, as Buyer may reasonably request (a) to transfer to, vest and protect in
Buyer and its right, title and interest in the Purchased Assets, and (b)
otherwise to consummate or effectuate the transactions contemplated by this
Agreement.
12.6 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) supersedes all prior agreements and understandings, oral and written,
between the parties with respect to the subject matter, and this Agreement,
together with the Ancillary Documents, constitutes the entire agreement of the
parties.
12.7 HEADINGS. The article, section and other headings contained in
this Agreement are for reference purposes only and shall not be deemed to be a
part of this Agreement or to affect the meaning or interpretation of this
Agreement.
12.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original,
and all of which together shall be deemed to be one and the same instrument.
12.9 GOVERNING LAW. This Agreement shall be construed as to both
validity and performance and governed by and enforced in accordance with the
laws of the State of Illinois, without giving effect to the choice of law
principles.
12.10 SEVERABILITY. If any term, covenant, condition, or provision of
this Agreement or the application thereof to any circumstance shall be invalid
or unenforceable to any extent, the remaining terms, covenants, conditions, and
provisions of this Agreement shall not be affected and each remaining term,
covenant, condition, and provision of this Agreement shall be valid and shall be
enforceable to the fullest extent permitted by law. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only as broad as is enforceable.
12.11 AMENDMENTS. This Agreement may not be modified or changed except
by an instrument or instruments in writing signed by all Parties.
12.12 ASSIGNMENT. None of the Parties shall assign its rights or
obligations under this Agreement without the prior written consent of the other
Parties, except that Buyer may assign this Agreement to any Affiliate of Buyer
without the consent of Seller.
12.13 SUCCESSORS AND ASSIGNS. The covenants, agreements, and conditions
contained or granted shall be binding upon and shall inure to the benefit of
Buyer and Seller and their respective heirs, successors and permitted assigns.
12.14 NO JOINT VENTURE. The Parties, by entering this Agreement and
consummating the transactions contemplated in this Agreement, shall not be and
shall not be considered a partner or joint venturer of one another.
12.15 CONSTRUCTION OF AGREEMENT. This Agreement and the Ancillary
Documents are documents negotiated at arm's-length by the Parties and their
respective counsel. Neither this Agreement or any of the Ancillary Documents
shall be construed as having been "drafted" by any one Party and shall not be
construed against any Party as a drafting party.
12.16 CONFIDENTIAL INFORMATION. From and after the Execution Date of
this Agreement, Buyer and Seller hereby agree that, except: (i) as may be
required by law, rule or regulation; or (ii) required to comply with the
conditions contained in this Agreement; or (iii) as to their respective counsel,
financial advisors, consultants, employees or agents, they shall not without the
prior written consent of the other Party, at any time reveal, divulge or make
known to any person, any information that relates to this Agreement, the
transactions contemplated hereby, the existing businesses of Buyer or Seller or
the reasonably foreseeable businesses of Buyer or Seller or any of their
affiliates, including, but not limited to, customer lists or other customer
information, trade secrets, marketing plans or proposals, financial information,
or any observations, data, written material, records or documents used by or
relating to the businesses of Buyer or Seller which are of a confidential nature
(collectively, the "Confidential Information"). Confidential Information
includes any such information whether or not such information was developed,
devised or otherwise created in whole or in part by the efforts of the Buyer or
Seller, and whether or not such information is a matter of public knowledge
unless as a result of authorized disclosure to the general public. This covenant
shall survive the Closing (but after Closing as to Buyer shall apply only to
Confidential Information concerning operations of Seller not acquired by Buyer)
or termination of this Agreement without Closing. Seller and Buyer shall be
responsible for compliance with the terms of this covenant by their respective
officers, directors, shareholders, employees, and agents who have been given
access to Confidential Information.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
as of the date first above written.
BUYER:
BAB HOLDINGS, INC.
By: MICHAEL K. MURTAUGH
Its: VICE PRESIDENT/GENERAL COUNSEL
SELLER:
STRATHMORE BAGELS FRANCHISE CORP.
By: GLEN STEUERMAN
Its: PRESIDENT
INDEX OF SCHEDULES AND EXHIBITS
Schedules
Schedule 1 Definitions
Schedule 2.1(a) Tangible Personal Property
Schedule 2.1(c) Assigned Contracts
Schedule 2.1(d) Trade Names and Trademarks
Schedule 2.1(f) Licenses and Permits
Schedule 2.5 Tax Reporting
Schedule 5.5 Seller Financial Statements
Schedule 5.6 Commitments
Schedule 5.7 Tax Matters
Schedule 5.10 Intellectual Property
Schedule 5.14 Permits and Licenses
Schedule 5.15 Litigation Affecting Seller
Schedule 5.20 Absence of Certain Changes or Events
Schedule 6.4 Litigation Affecting Buyer
Exhibits
Exhibit 2.3 Form of Strathmore Option
Exhibits 4.2 Form of Non-Competition Agreement
Exhibit 4.3 Form of Supply Agreement
Exhibit 4.7 Registration Rights Agreement
Exhibit 7.1 Form of Bill of Sale
SCHEDULE 1
DEFINITIONS
1. "AFFILIATE," when used in reference to a specified Person, shall
mean any Person directly or indirectly (a) controlled by, (b) controlling, or
(c) under common control with, said specified Person.
2. "AGREEMENT" shall mean the Asset Purchase Agreement to which this
Schedule 1 is attached and all other schedules and exhibits attached thereto and
referred to therein.
3. "ANCILLARY DOCUMENT" shall mean any agreement, instrument, or other
document to which Buyer, Seller, or the Principal is a party that is to be
delivered at Closing or otherwise relates to the transactions contemplated
hereby, including without limitations those items attached as Exhibits and
Schedules to the Agreement.
4. "ASSIGNED CONTRACTS" shall have the meaning given such term in
Section 2.1(b).
5. "BUSINESS" shall have the meaning given such term in Recital A.
6. "BUYER" shall mean BAB Holdings, Inc.
7. "CLOSING" shall have the meaning given such term in Article 3.
8. "CLOSING DATE" shall have the meaning given such term in Article 3.
9. "COMMITMENTS" shall have the meaning given such term in Section 5.6.
10. "ERISA" shall have the meaning given such term in Section 5.18.
11. "EXCLUDED ASSETS" shall have the meaning given such term in Section
2.2 hereof.
12. "EXECUTION DATE" shall mean May 21, 1996, which is the date of
execution of the Asset Purchase Agreement.
13. "FREEDMAN" means Jack Freedman.
14. "GAAP" shall mean United States generally accepted accounting
principles.
15. "INDEMNIFIED PARTY" shall have the meaning given such term in
Section 10.5.
16. "INDEMNIFYING PARTY" shall have the meaning given such term in
Section 10.5.
17. "INTELLECTUAL PROPERTY" shall have the meaning given such term in
Section 2.1(c).
18. "LICENSES AND PERMITS" shall have the meaning given such term in
Section 2.1(e).
19. "NON-COMPETITION AGREEMENT" shall have the meaning given such term
in Section 4.2.
20. "PARTIES" shall mean Buyer and Seller, collectively.
21. "PERSON" shall mean any individual, corporation, company, limited
or general partnership, trust or estate, joint venture, association, or other
entity.
22. "PURCHASE PRICE" shall have the meaning given such term in Section
2.3.
23. "PURCHASED ASSETS" shall have the meaning given such term in
Section 2.1.
24. "SELLER" shall mean Strathmore Bagels Franchise Corp.
25. "SUPPLY AGREEMENT" shall have the meaning given such term in
Section 4.3.
STOCK OPTION AGREEMENT
THIS AGREEMENT is dated this 21 day of May, 1996, between BAB Holdings,
Inc., an Illinois corporation (the "Company") and Strathmore Bagels Franchise
Corp. ("Optionee").
WITNESSETH, THAT:
WHEREAS, the Company has agreed to grant this stock option to Optionee
pursuant to that certain Asset Purchase Agreement dated April 24, 1996 by and
between the Company and Strathmore Bagels Franchise Corp.;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Grant of Option. The Company hereby grants to Optionee an option to
purchase from the Company all or any part of an aggregate amount of 625,000
shares of the common stock of the Company at an option price of $6.17 per share,
subject to adjustment pursuant to the provisions set forth on Appendix A
attached hereto.
2. Exercise Period. This option shall be exercisable on and after the
dates and for the numbers of shares indicated below, subject to adjustment
pursuant to the provisions set forth on Appendix A attached hereto, until May
21, 1999, at which time this option shall expire:
Shares Exercisable
Date (Cumulative)
May 21, 1997 312,500
May 21, 1998 625,000
3. Exercise of Option. This option may be exercised only by submitting
written notice of intent to exercise to the Company at its office at 8501 W.
Higgins Road, Suite 320, Chicago, IL. Such notice shall state the number of
shares in respect of which the option is being exercised and shall be
accompanied by payment for such shares in cash, certified or cashier's check or
by personal check, or other form of payment acceptable to the Company.
4. Exercise Upon Death or Termination of Service. In the event that
Optionee shall die (if Optionee is a natural person), or be legally dissolved
(if Optionee is a legal entity) during the term of this Agreement, this option
may be exercised to the extent that the Optionee was entitled to do so at the
date of death or dissolution, as applicable, by the person or persons to whom
Optionee's rights under this option pass by will or applicable law, until the
earlier of: (i) the expiration of ninety (90) days from the date of Optionee's
death or dissolution, as applicable; or (ii) the expiration date specified in
Section 2 above.
5. No Right to Continued Compensation. Nothing contained in this
Agreement shall obligate the Company to continue to accept and pay for any
products or services of Optionee, nor shall anything contained in this Agreement
interfere with the right of the Company to terminate any contract or
relationship with Optionee.
6. No Shareholder Rights. Optionee shall have no rights as a
shareholder with respect to any shares of common stock subject to this option
prior to the date of issuance of a certificate or certificates for such shares.
7. Investment Representation. Notice of the exercise of this option
shall include a representation that any option shares purchased shall be
acquired as an investment and not with a view to, or for sale in connection
with, any subsequent distribution. The Company and Optionee acknowledge that the
shares which may be acquired upon exercise hereof are the subject of a
Registration Rights Agreement dated May 21, 1996 by and between the Company and
Strathmore Bagel Franchise Corporation, whereby said shares may be included for
resale by Optionee in certain registrations of securities under the Securities
Act of 1933, as amended, which may be undertaken by the Company.
8. Compliance with Law and Regulations. The Optionee acknowledges that
this option may not be exercised until the Company has taken all actions then
required to comply with all applicable federal and state laws, rules and
regulations and any exchange on which the stock may then be listed. The
certificates representing the shares purchased upon the exercise of this option
shall bear a legend in substantially the following form:
These shares have not been registered pursuant to the Securities Act of
1933, as amended, or any regulations promulgated thereunder or any
applicable state securities laws or regulations. No sale, offer to
sell, or transfer of these shares shall be made unless a registration
statement under the Securities Act of 1933, as amended, with respect to
such shares is then in effect or an exemption from the registration
requirements thereof is available.
9. Non-Transferability. This option shall be exercisable only by the
Optionee and shall not be transferable except as set forth in Section 4 hereof;
except that this Option may be transferred to one or more of the six
shareholders of Optionee as of the date hereof.
10. Dispute or Disagreement. As a condition of the granting of this
option, the Optionee agrees that any dispute or disagreement which may arise
under or as a result of or pursuant to this Agreement shall be settled by the
Board of Directors of the Company in its sole discretion, and that any
interpretation by the Board of Directors of the Company of the terms of this
Agreement shall be final, binding and conclusive.
11. Other Assistance. Upon the exercise of this option the Optionee or
other person exercising the option agrees to execute any document or make any
representation or give any commitment which the Board of Directors, in its
discretion, deems necessary or advisable by reason of the securities laws of the
United States or any state, and execute any document for the purpose of
restricting the transfer of stock to third parties, or pay any sum of money in
respect of taxes or undertake to pay or have paid any such sum which the Board
of Directors, in its discretion, deems necessary by reason of the Internal
Revenue Code or any rule or regulation promulgated thereunder, or by reason of
the tax laws of any state or any contracts or agreements in effect at such time.
12. Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of the legal representatives, executors, administrators,
successors and assigns of each parties to this Agreement.
13. Complete Agreement. This Agreement sets forth the entire
understanding of the parties hereto and shall not be amended, changed or
terminated except by an instrument in writing signed by the parties to this
Agreement.
14. Counterparts and Governing Law. This Agreement may be executed in
counterparts, and its validity, construction and performance, shall be governed
by the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
first above written.
BAB HOLDINGS, INC.
By: MICHAEL K. MURTAUGH
Its: VICE PRESIDENT/GENERAL COUNSEL
ACCEPTED:
STRATHMORE BAGELS FRANCHISE CORP.
By: GLEN STEUERMAN
Its: PRESIDENT
REGISTRATION RIGHTS AGREEMENT
DATED AS OF MAY 21, 1996
BETWEEN
BAB HOLDINGS, INC.,
AND
STRATHMORE BAGELS FRANCHISE CORP.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made as of May 21,
1996 between BAB Holdings, Inc., an Illinois corporation (the "Company"), and
Strathmore Bagels Franchise Corp., a New York corporation (the "Holder").
RECITALS
WHEREAS, the Holder may acquire shares (collectively, the "Shares") of
Common Stock, no par value per share (the "Common Stock") of the Company
pursuant to exercise of options issued to Holder pursuant to an acquisition
agreement dated as of April 24, 1996 by and between Holder and the Company; and
WHEREAS, the Company has agreed to register the Shares on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein set forth, it is hereby agreed between the
Company and the Holder as follows:
ARTICLE I
REGISTRATION RIGHTS
SECTION 1.1. PARTICIPATION IN REGISTRATION. (a) If, at any time or from
time to time after the date hereof, the Company shall determine to register any
of its securities, either for its own account or the account of a security
holder or holders exercising their respective demand registration rights, other
than (i) a registration relating solely to employee benefit plans on Form S-1 or
S-8 or similar forms which may be promulgated in the future, or (ii) a
registration on Form S-4 or similar form which may be promulgated in the future
relating to a Securities and Exchange Commission Rule 145 transaction, the
Company will:
(i) promptly give to the Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends
to attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all Registrable Securities specified in
a written request or requests, made within 30 days after receipt of
such written notice from the Company, by the Holder.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holder as a part of the written notice given pursuant to Section
1.1(a)(i). In such event, the right of the Holder to registration pursuant to
Section 1.1 shall be conditioned upon the Holder's agreeing to participate in
such underwriting and in the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. The Holder proposing to
distribute its securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company or by
other holders exercising their demand registration rights. Notwithstanding any
other provision of this Section 1.1, if the underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may limit the number of Registrable Securities to
be included in the registration and underwritten public offering on a pro rata
basis based on the respective amounts of Registrable Securities owned by the
Holder and securities of the Company owned by each other holder seeking to
distribute his securities through the public offering; provided, however, that
the Company shall not exclude more than that number of shares which, in the
reasonable opinion of such underwriter, must reasonably be excluded in light of
such marketing factors. The Company shall so advise the Holder and the other
holders distributing its securities through such underwriting, and the number of
Registrable Securities and other securities that may be included in the
registration shall be allocated among all holders thereof (other than holders
who are exercising demand registration rights) on the basis that the Holder
shall be cut back before any cut-back of holders exercising demand registration
rights and, as among those holders suffering such cut-back, the cut-back shall
be in proportion, as nearly as practicable, to the respective amounts of
securities entitled to inclusion in such registration held by such holders at
the time of filing the registration statement. If the Holder disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom by written
notice to the Company and the underwriter, which notice, to be effective, must
be received by the Company at least two business days before the anticipated
effective date of the registration statement. The Company may at any time
withdraw or abandon any registration statement which triggers the provisions of
this Section 1.1 without any liability to the Holder. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
SECTION 1.2. FORM S-3 AND FORM S-1 REGISTRATION RIGHTS. On an after
January 1, 1997, until August 31, 1998, the Holder, by written notice signed by
Holder (or by permitted assignees who hold not less than 50% of the Registrable
Securities) may demand that the Company file a registration statement on Form
S-3 to permit resale of the Registrable Securities of the Holder during the
period of effectiveness of such Form S-3 registration statement; provided,
however, that in the event that at the time of such demand the Company is not
eligible for use of Form S-3, and such ineligibility will continue for a period
in excess of six months, then the Company shall file a registration statement on
Form S-1 rather than Form S-3. Any such registration on Form S-3 or Form S-1
shall be subject to the following limitations:
(a) The Company shall not be required to maintain and keep any such
registration on Form S-3 or Form S-1 effective for a period exceeding ninety
(90) days from the effective date thereof;
(b) The Company shall not be required to effect more than two (2)
registrations on Form S-3 or more than one (1) registration on Form S-1 pursuant
to this Section 1.2;
(c) The Company shall not be required to prepare or effect any
registration pursuant to this Section 1.2 unless the Registrable Securities to
be sold by the Holder represent not less than 50% of the total Registrable
Securities;
(d) If the Company shall furnish to the Holder a certificate, signed by
the Company's president, stating that (i) the Company is conducting or is about
to conduct an offering of its securities and is advised by its managing
underwriter that such offering might be affected adversely by the registration
on behalf of the Holder or (ii) in the good faith judgment of the Board of
Directors of the Company the Form S-3 or Form S-1 offering would (A) interfere
with a pending or contemplated financing, merger, sale of assets,
recapitalization or other similar corporate action of the Company or (B) be
seriously detrimental to the Company and its shareholders if such registration
statement would be filed on or before the date filing would be required and it
is therefore essential to defer the filing of such registration statement, the
Company shall have the right, exercisable only once during any period of twelve
consecutive months, to deter commencement of preparation of the registration
statement for a period of not more than 120 days;
(e) The Company may include in such Form S-3 or Form S-1 registration
statements securities of other selling security holders, without limitation, and
securities offered for its own account; and
(f) The Company hereby undertakes to use its best effort to meet the
criteria for use of Form S-3 at the earliest possible date and to continue to
qualify for such use until August 31, 1998.
SECTION 1.3. EXPENSE OF REGISTRATION. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to Article I shall be borne by the Company. All Selling Expenses
relating to securities registered by the Holder or other holders shall be borne
by the holders of such securities pro rata on the basis of the number of shares
so registered and to be sold by each.
SECTION 1.4. REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Article I,
the Company will keep the Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. At
its expense the Company will:
(a) Keep such registration, qualification or compliance effective for a
period of ninety (90) days or until the Holder has completed the distribution
described in the registration statement relating thereto, whichever first
occurs.
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request, but only during
the period that the Company would be required to keep the registration
effective.
(c) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(d) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holder, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. The Holder participating
in such underwriting shall also enter into and perform its obligations under
such agreement.
(f) Notify the Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
SECTION 1.5. INDEMNIFICATION. (a) The Company will indemnify the Holder
with respect to which registration, qualification or compliance has been
effected pursuant to this Article I, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will pay to such
Holder, each such underwriter and each person who controls any such underwriter,
as incurred, any legal and any other expenses reasonably incurred in connection
with investigating, preparing or defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder or underwriter and stated to be specifically for use therein.
(b) The Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such holder, each of its officers, directors or partners and each person
controlling such holder within the meaning of Section 15 of the Securities Act,
against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof) including any of the foregoing incurred in settlement of any
litigation commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances in which they were
made, not misleading, or any violation by the Holder of any rule or regulation
promulgated under the Securities Act applicable solely to the Holder (which is
not otherwise applicable to or violated by the Company) and relating to action
or inaction required solely of the Holder (and not relating to or required of
the Company) in connection with such registration, qualification or compliance,
and will pay to the Company, such holders, such directors, officers, partners,
persons, underwriters or control persons, as incurred, any legal or any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document or any amendment or
supplement thereto in reliance upon and in conformity with written information
relating to such Holder which shall have been furnished to the Company by an
instrument duly executed by such Holder and stated to be specifically for use
therein; provided, however, that the obligations of such Holder hereunder shall
be limited to an amount equal to the net proceeds to such Holder of Registrable
Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 1.4 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at its own
expense, and provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Article I unless such failure resulted in actual
detriment to the Indemnifying Party. Notwithstanding the above, however, if
representation of one or more Indemnified Parties by the counsel retained by the
Indemnifying Party would be inappropriate due to actual conflicting interests
between such Indemnified Parties (the "Conflicting Indemnified Parties") and any
other party represented by such counsel in such proceeding, then such
Conflicting Indemnified Parties shall have the right to retain one separate
counsel, chosen by the holders of a majority of the Registrable Securities
included in the registration, at the expense of the Indemnifying Party. No
Indemnifying Party, (i) in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation, or (ii)
shall be liable for amounts paid in any settlement if such settlement is
effected without the consent of the Indemnifying Party.
SECTION 1.6. INFORMATION BY HOLDER. The Holder of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Article I.
SECTION 1.7. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, the Company agrees to:
(a) Use its best efforts to make and keep public information available,
as those terms are understood and defined in Rule 144 under the Securities Act
at all times after the date hereof.
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Securities Exchange Act of 1934, as amended (at any time it is subject
to such reporting requirements).
(c) So long as the Holder own any Restricted Securities, to furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
90 days after the effective date of the first registration statement filed by
the Company for an offering of its securities to the general public) and of the
Securities Act and the Securities Exchange Act of 1934 (at any time after it has
become subject to such reporting requirements) and a copy of the most recent
annual or quarterly report of the Company.
SECTION 1.8. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted under Article I may not be assigned
without the prior written consent of the Company in each instance, except
pursuant to will or the laws of descent and distribution. No transferee,
assignee or other person purporting to exercise rights under this Article I who
is not a signatory to this Agreement shall be entitled to do so unless and until
such person agrees to be bound by the terms of this Article I.
SECTION 1.9. "MARKET STAND OFF" AGREEMENT. The Holder hereby agrees
that it shall not, to the extent required by the Company and an underwriter of
Common Stock (or other securities) of the Company, sell or otherwise transfer or
dispose (other than to donees who agree to be similarly bound) of any
Registrable Securities during the ninety (90) day period following the effective
date of a registration statement of the Company filed under the Securities Act;
provided, however, that such agreement shall not apply to Registrable Securities
being registered and sold pursuant to such registration statement.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of the
Holder until the end of such ninety (90) day period.
SECTION 1.10. PLAN OF DISTRIBUTION. To preserve an orderly market in
any publicly owned securities of the Company, in the event that the aggregate
number of shares of Registrable Securities to be registered pursuant to a
Registration Statement under this Article I exceeds 5% of the outstanding
securities to be registered, the Company shall have the right to recommend two
or more investment banking firms to manage the distribution on behalf of the
Holder and to approve all pertinent marketing arrangements with respect thereto,
which approval shall not be unreasonably withheld.
ARTICLE II
MISCELLANEOUS
SECTION 2.1. GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of Illinois.
SECTION 2.2. SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors and permitted assigns of the parties hereto. No assignment
of this Agreement may be made by either party at any time, without the other
party's prior written consent.
SECTION 2.3. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes
the full and entire understanding and agreement between the parties with regard
to the subjects hereof.
Except as expressly provided herein, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
SECTION 2.4. NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand or
by messenger addressed (a) if to the Company, at 8501 West Higgins Road, Suite
320, Chicago, IL 60631, Attention: General Counsel, or at such other address as
the Company shall have furnished to the Holder in writing and (b) if to the
Holder, at such address as is set forth on the signature page hereto, or at such
other address as the Holder shall have furnished to the Company in writing. Each
such notice or other communication shall for all purposes of this Agreement be
treated as effective or having been given when delivered if delivered
personally, or, if sent by mail, at the earlier of its receipt or 72 hours after
the same has been deposited in a regularly maintained receptacle for the deposit
of the United States mail, addressed and postage prepaid as aforesaid.
SECTION 2.5. DELAYS OR OMISSIONS. Except as expressly provided herein,
no delay or omission to exercise any right, power or remedy accruing to the
Company or the Holder upon any breach or default of any party under this
Agreement, shall impair any such right, power or remedy of the Company or such
Holder nor shall it be construed to be a waiver of any such breach or default,
or any acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of the Company or any Holder of any breach or default under this
Agreement, or any waiver on the part of any such party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to the Company or the Holder,
shall be cumulative and not alternative.
SECTION 2.6. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which may be executed by only one of the parties
hereto, each of which shall be enforceable against the party actually executing
such counterpart, and all of which together shall constitute one instrument.
SECTION 2.7. SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provisions; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
SECTION 2.8. TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
SECTION 2.9. DEFINITIONS. As used in this Agreement, the following
terms have the meanings specified or referred to in this Section 2.9:
"Agreement" has the meaning specified in the first paragraph of this
Agreement.
"Commission" or "SEC" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Company" has the meaning specified in the first paragraph of this
Agreement.
"Form S-1 and Form S-3" shall mean such forms, as currently identified,
for registration of securities under the Securities Act, or any substantially
similar, equivalent or successor forms under the Securities Act.
"Holders" shall mean the persons named on the signature page hereof and
any permitted transferee of registration rights.
"Registrable Securities" means Shares which have not been sold to the
public, and shares of the Company's Common Stock issued with respect to the
Shares upon any stock split, stock dividend, recapitalization, or similar event,
which have not been sold to the public, which, in each case, are not eligible
for resale in reliance upon Rule 144 under the Securities Act.
"Registration Expenses" shall mean all expenses incurred by the Company
in complying with Article I hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Restricted Securities" shall mean any share certificate representing
Registrable Securities bearing a legend restricting further public distribution
thereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale and all fees and disbursements of counsel for
any holder.
IN WITNESS WHEREOF, each of the undersigned has caused the foregoing
Agreement to be executed by one of its duly authorized officers as of the date
first above written.
BAB HOLDINGS, INC.
By: MICHAEL K. MURTAUGH
Its: VICE PRESIDENT/GENERAL COUNSEL
STRATHMORE BAGELS FRANCHISE
CORP.
By: GLEN STEUERMAN
Its: PRESIDENT
NON-COMPETITION AGREEMENT
This Agreement is made and entered into this 21 day of May, 1996, by
and between BAB Holdings, Inc. ("Buyer") and Strathmore Bagels Franchise Corp.,
Jack Freedman and Glen Steuerman ("Strathmore," "Freedman," and "Steuerman,"
respectively).
W I T N E S S E T H :
WHEREAS, Buyer has entered into a purchase agreement of even date
herewith with Strathmore (the "Agreement") providing for the purchase by Buyer
of certain assets of Strathmore.
WHEREAS, in order to consummate the transactions provided for in the
Agreement, Buyer has required that Strathmore, Freedman and Steuerman assure
that for a reasonable period following consummation of the transactions provided
for in the Agreement, that they will not engage in certain business in
competition with Buyer as provided herein;
NOW, THEREFORE, in consideration of the foregoing recited facts, the
terms and conditions hereinafter contained and contained in the Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
I.
RESTRICTIVE COVENANT
SECTION 1.1 NONCOMPETE. (a) In consideration of the Agreement and other
good and valuable consideration, receipt of which is hereby acknowledged,
Strathmore, Freedman and Steuerman agree that for a period of two (2) years from
and after the date hereof, none of them shall, directly or indirectly, either as
principal, agent, employee, employer, shareholder, partner, consultant or in any
other individual or representative capacity whatsoever or as a partnership,
corporation or any other entity whatsoever, participate, engage in or have any
financial or other interest in any entity, business or activity which derives
thirty percent (30%) or more of its revenues from a Business (as that term is
hereinafter defined) within the Trade Territory (as that term is hereinafter
defined).
(b) For purposes of this Agreement the following terms shall have the
following meanings:
(i) "Business" shall mean the production and/or sale of
bagels (retail and wholesale, alone or in combination
with other products) and the franchising of any
business engaged in such production and/or sales.
(ii) "Trade Territory" shall mean (A) with respect to
Business which directly or indirectly involves Host
International, anyplace throughout the world where
Host International has a presence in an airport or
tollway concession, and (B) with respect to all other
Business, the United States.
(c) Notwithstanding the foregoing, Steuerman shall not be restricted as
to any Business which does not, directly or indirectly, involve the sale of
bagels (baked or parbaked, fresh or frozen) to or through Host International or
any of its affiliates or successors in interest.
(d) Notwithstanding the foregoing, Strathmore, Freedman, and Steuerman
shall not be restricted from passive equity investment of not more than five
percent (5%) in any entity engaged in a Business. "Passive investment" means
that the investor shall have no management authority beyond that afforded to
holders of common stock or limited partnership interests, as examples.
II.
BREACH
SECTION 2.1 ENFORCEMENT. The parties understand and agree that the
remedy at law for any breach of the terms of Article I of this Agreement would
be inadequate. In the event of a breach or threatened breached of Article I of
this Agreement, Buyer shall be entitled to petition for injunctive relief
restraining the breaching party, or any of its directors, officers, employees or
agents, from breaching or acting in any manner inconsistent with the conduct or
performance required by Article I of this Agreement. Strathmore, Freedman and
Steuerman hereby consent to the personal jurisdiction of the courts of the State
of Illinois, County of Cook, with respect to any matter arising out of or in
connection with this Agreement.
SECTION 2.2 SCOPE. In the event it becomes necessary for Buyer to make
application to a court of competent jurisdiction for enforcement of the
provisions of Article I of this Agreement and such court shall determine that
any portion of Article I of this Agreement is unreasonably broad or
unenforceable, such court is hereby authorized and empowered to narrow the
provisions of Article I of this Agreement to such reasonable parameters and
limits as such court shall determine to be necessary to accomplish the intent of
the parties and to protect Buyer. The parties agree that the breaching party
shall pay all reasonable attorneys' fees incurred by Buyer in enforcing the
provisions of Article I of this Agreement. In determining what are reasonable
attorneys' fees, a court shall give primary consideration to the actual
attorneys' fees incurred and shall, unless unreasonable, award the actual
attorneys' fees incurred.
III.
MISCELLANEOUS
SECTION 3.1 WAIVER. The waiver by a party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
SECTION 3.2 CONSTRUCTION. This Agreement contains the entire agreement
of the parties with respect to the subject matter hereof and shall not be
amended except by an agreement in writing, signed by all of the parties hereto.
The rights of Buyer under this Agreement shall inure to the benefit of its
successors and assigns. If any provisions of this Agreement is at any time
adjudged invalid to any extent by any court of competent jurisdiction, such
provisions shall be deemed modified to the extent necessary to render it
enforceable, and such invalidity shall not affect any other provision of this
Agreement.
SECTION 3.3 APPLICABLE LAW. The validity, construction and
interpretation of this Agreement shall be governed exclusively by and according
to the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
IN THE PRESENCE OF: BAB HOLDINGS, INC.
MICHAEL W. EVANS By: MICHAEL K. MURTAUGH
Its: VICE PRESIDENT/GENERAL COUNSEL
MICHAEL W. EVANS JACK FREEDMAN
Jack Freedman
NONE GLEN STEUERMAN
Glen Steuerman
STRATHMORE BAGELS FRANCHISE CORP.
NONE By: GLEN STEUERMAN
Its: PRESIDENT
MEMORANDUM OF UNDERSTANDING REGARDING
FORM OF LICENSE AGREEMENT
This Memorandum of Understanding ("MOU") is made and entered into
effective the 30 day of November, 1995 by and between Strathmore Bagels
Franchise Corp. ("Licensor") and Host International, Inc. ("Operator").
RECITALS:
WHEREAS, Licensor represents that it has the right and authority to
license the use of the name STRATHMORE BAGELS AND DELI, and other trademarks,
service marks, copyrights, interior and exterior building designs and
specifications ("Marks"); and
WHEREAS, Operator is in the business of conducting food and beverage
and merchandise concessions at domestic and international airports, tollroads,
stadiums & arenas, and off-airport locations (the "Locations"); and
WHEREAS, Licensor has authorized Operator to develop a number of retail
stores ("Stores") operating under the Marks; and
WHEREAS, Licensor and Operator now desire to enter into individual
Strathmore Bagel and Deli license agreements (the "License Agreements") for
existing and prospective Locations (the term "Location" referring to the entire
airport or travel plaza or stadium or hotel, while the term "Store refers to the
individual site at the Location where the Operator conducts the licensed
"Strathmore Bagel and Deli" facility); and
WHEREAS, Licensor and Operator further desire to enter into this MOU
regarding the licensing of the Marks to Operator pursuant to the form of license
agreement attached hereto as TAB I, and by this reference incorporated herein
(the "Form Agreement").
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth in this Form Agreement and for other good and valuable consideration,
the parties hereby contract as follows:
1. Form Agreement. Licensor and Operator hereby agree that the Form
Agreement, attached hereto as TAB I shall be entered into between Licensor and
Operator applicable to all existing Stores (including, but not limited to Stores
at John F. Kennedy International Airport, Newark International Airport, and one
location at Resorts Internatioal Hotel, Atlantic City, New Jersey), as well as
any future Stores developed by Operator at any Location during the term of this
MOU. Notwithstanding the foregoing, the parties acknowledge that the Form
Agreement shall be modified for the Atlantic City Resorts Location.
2. Exclusivity.
a. Operator and Licensor hereby agree that Licensor is an
authorized member of Operator's portfolio of approved branded products
for use in its concession operations, including but not limited to
existing and prospective Locations. Each Store will be approved by
Operator individually, and shall be documented by a License Agreement
as shown in the Form Agreement in TAB I. In the event that Licensor
ceases to meet Operator's on-going review, Operator will notify
Licensor in writing that Operator is no longer included within
Operator's portfolio of brands. The inclusion of Licensor in Operator's
portfolio of brands shall permit Operator to list Licensor in any of
Operator's proposals for food and beverage concessions at any Location
in domestic and international airports, tollroads, stadiums or arena;
Licensor's consent shall be required for Operator to list Licensor in
its portfolio of brands for use at any other Location.
b. The parties hereby further agree and acknolwedge that:
(i) there shall be no exclusive rights granted to
Operator by Licensor, except as provided in Subsection 2(c);
and
(ii) there shall be no exclusive rights granted to
Licensor by Operator, except as provided in Subsection 2(d).
c. Licensor hereby agrees to the following limited exclusivity
granted to Operator:
(i) Licensor hereby agrees that Licensor shall not
itself develop, or allow any party other than Operator (or, at
Operator's sole discretion, a subsidiary or affiliate of
Operator), to develop, a licensed or franchised or
company-owned bagel operation in the Atlantic City area.
(ii) Licensor shall not itself develop, or allow any
party other than Operator (or, at Operator's sole discretion,
a subsidiary or affiliate of Operator), to develop a licensed
or franchised or company-owned bagel operation at any Location
where Licensor has a current license agreement with Operator;
and
(iii) Licensor shall not itself or through any third
party bid for any lease, concession agreement or permit rights
at any Location where Licensor has agreed to become part of
Operator's bid or proposal for such lease, concession
agreement or permit rights.
d. Operator hereby agrees that in return for the exclusive
rights granted to Operator pursuant to Subsection 2(b)(i), Operator
agrees that it shall not operate a nationally or regionally franchised
branded bagel concept at any Location in Atlantic City, unless (i) such
franchised location is acquired by Operator through merger or
acquisition of the assets or stock of a third party, where such
Atlantic City branded concept represents less than ten percent (10%) of
the assets or stock so acquired; or (ii) Licensor has failed to execute
a Form Agreement for such Atlantic City Location; or (iii) Licensor is
otherwise incapable of permitting Operator to be licensed a Store in
Atlantic City; or (iv) all of Operator's licensed Locations in Atlantic
City are closed.
3. Term. The term of this MOU shall commence effective as of the date
first above written and shall terminate on November 30, 2005. The Form
Agreements shall continue in full force and effect for their individual terms
notwithstanding any termination of this MOU.
4. Other Terms. Notwithstanding any other provision of this MOU, or any
provision of the Form Agreement, the parties agree that:
a. Operator and its subsidiaries and affiliates are
experienced operators of food and beverage concessions, and Operator is
the holder of numerous competing franchises (e.g. Pizza Hut and
Sbarro's). Licensor acknowledges and agrees that Operator shall not be
prohibited from developing its own bagel or deli concept or from having
an interest in, or acquiring an interest in a bagel or deli concept;
b. Nothing contained in this MOU or the Form Agreement shall
be construed as prohibiting Operator from operating branded bagel or
deli concepts of third parties; or from producing or operating its own
branded or unbranded bagel and/or deli concepts. Licensor expressly
agrees that Operator shall not be prohibited from developing its own
bagel or deli concept or from acquiring an interest in, subcontracting,
or managing a bagel or deli concept.
c. At Operator's option, Operator may designate a minority
business enterprise ("MBE") to operate a location, and in such event,
Licensor shall take all steps necessary to assure that such MBE is
provided a form Strathmore Bagel License Agreement, as attached hereto.
In the alternative, Operator any such License Agreement to any of
Operators MBE subtenants.
d. Notwithstanding any other provision of this MOU or the Form
S Agreement attached hereto as TAB I, Host shall be entitled to control
the menu offerings and hour of operation at any location.
e. The Form Agreement shall provide that Operator's cost of
purchasing product shall be $2.05 per dozed bagels, with a royalty of
three percent (3%) on certain products.
f. Licensor shall continue to maintain standards at least as
high as those in effect as of the date this MOU is executed.
g. There shall be no press releases without the mutual
agreement of the parties.
5. Entire Agreement. This MOU, and the Form Agreement attached hereto
as TAB I, constitute the entire agreement between the parties, superseding the
Test Agreement and all written and oral agreements between the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Form
Agreement the day and year first above written.
STRATHMORE BAGELS FRANCHISE CORP.
Attest: /s/ Harold L. Kestenbaum By: /s/ Jack Freedman
Title: VP
HOST INTERNATIONAL, INC.
Attest: /s/ Douglas B. Warren By: /s/ C. D. Sharpe
Title: V.P.
EXHIBIT B-1
LIST OF PROPRIETARY ITEMS ON WHICH HOST PAY ROYALTY
[FOR STORES OPENED PRIOR TO 12/1/95]
Following is the list of proprietary products on which Operator must pay royalty
for existing units as of December 1, 1995 [i.e. Kennedy (5), Newark (2), Joyce
Kilmer (1), Hartford (2), Raleigh Durham (2), Detroit (1), New Jersey Turnpike
Display Cases Only (9), Atlantic City (1)]:
I. Prior to 12/1/95:
Royality of 2% to be paid on the following menu items for all
existing Strathmore units -
Bagel, Plain
Bagel, Butter
Bagel, Cream Cheese (any variety)
Bagel, Dozen
Bagel Sandwich (any combination of deli meats,
cheese, wet salads, condiments produced on a bagel)
NOTE: No royalty on sandwiches which are not made from a
bagel; no royalty on other items.
II. Effective 12/1/95:
Royalty of 3% to be paid on the following menu items for all
existing Strathmore units -
Bagel, Plain
Bagel, Butter
Bagel, Cream Cheese (any variety)
Bagel, Dozen
Bagel Sandwich (any combination of deli meats,
cheese, wet salads, condiments produced on a bagel)
NOTE: No royalty on sandwiches which are not made from a
bagel; nor royalty on other items.
EXHIBIT B-2
LIST OF PROPRIETARY ITEMS ON WHICH HOST PAY ROYALTY
[FOR STORES OPENED AFTER 12/1/95]
Following is the list of proprietary products on which Operator must pay royalty
for units other than existing units as of December 1, 1995 [i.e. other than
Kennedy (5), Newark (2), Joyce Kilmer (1), Hartford (2), Raleigh Durham (2),
Detroit (1), New Jersey Turnpike Display Cases Only (9), Atlantic City (1)]:
Royalty of 3% to be paid on the following menu items for all units
developed after 12/1/95.
Bagel, Plain
Bagel, Butter
Bagel, Cream Cheese (any variety)
Bagel, Dozen
Bagel Sandwich (any combination of deli meats,
cheese, wet salads, condiments produced on a bagel)
Sandwich (any combination of deli meats, cheese, wet
salads, condiments produced on any combination of
bread varieties)
Wet Salads (any combination of wet salads served
either on a bread or atop a salad)
NOTE 1: No royalty paid on other items
NOTE 2: The term "WET SALAD" includes items such as tuna salad, chicken
salad; however, it excludes items such as garden greens, spinach salad,
etc....
EXHIBIT C
STRATHMORE BAGELS & DELI EQUIPMENT & SIGNAGE LIST
ITEM DESCRIPTION COST
EQUIPMENT
4 ft. Artica - Deli case (or) $5,000.00
6 ft. Artica - Deli case $7,000.00
Bain Marie - single unit (or) $ 900.00
Bain Marie - double unit $1,500.00
Refrigerator - single door reach-in (or) $1,400.00
Refrigerator - double door reach-in $2,000.00
Freezer - single door reach-in $1,400.00
Freezer - double door reach-in $2,000.00
Microwave $ 300.00
* Ice Machine $1,500.00
Convection oven - 1/2 size (or) $1,800.00
Convection oven - full size $3,500.00
Coffee Brewer/grinder $ 800.00
4 ft. Bagel case (or) $ 500.00
6 ft. Bagel case $ 800.00
Slicer $ 800.00
Toaster $ 800.00
Smallwares (total) $1,700.00
Signage - P.O.P.
Menu Board $2,000.00
Sign - Individually lite channel letters $6,000.00
Neon - Strathmore logo $1,500.00
Sign - back lite (Strathmore logo) $1,000.00
Stanchions $12.00 ea.
Duratrans $20.00 ea.
* Not included in locations that have an existing ice machine.
CONSENT TO ASSIGNMENT
This Consent to Assignment (the "Consent") is made and entered into
effective the 13th day of March, 1996 by and between STRATHMORE BAGELS FRANCHISE
CORP. (hereinafter referred to as "Licensor") and HOST INTERNATIONAL, INC., a
Delaware corporation (hereinafter referred to as "Operator").
RECITALS:
WHEREAS, Licensor and Operator have heretofore entered into a
"MEMORANDUM OF UNDERSTANDING REGARDING FORM OF LICENSE AGREEMENT" dated November
30, 1995, as amended (the "MOU"), pursuant to which Licensor and Operator have
set forth their mutual understanding of the procedures for Operator to develop
licensed locations using the "Strathmore Bagels and Deli" trade name, concept
and logos; and
WHEREAS, attached to the MOU is an exhibit which provides the form of
license agreement (the "Form Agreement") which Licensor and Operator agreed to
execute for all licensed locations under the terms of the MOU; and
WHEREAS, Licensor has requested Operator's consent to assign both the
MOU and each Form Agreement to Big Apple Holding, Inc., a publicly traded
company ("BAB"), pursuant to which BAB will assume all of Licensor's obligations
under the MOU and Form Agreements; and
WHEREAS, Operator is prepared to provide its consent to the assignment
of the MOU and Form Agreements, subject to the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein and for other good and valuable consideration, the parties
hereby contract as follows:
1. Operator hereby provides its consent to the assignment of the MOU
and the Form Agreements from Licensor to BAB, subject to the conditions
precedent set forth in Section 2 of this Consent.
2. This Consent is conditioned upon the satisfaction of the following
on or before the proposed closing of a transaction between Licensor and Big
Apple Holding, Inc. (the "Closing"), which Closing is scheduled to take place on
or before April 1, 1996;
a. BAB shall assume all obligations of Licensor under the MOU
and the Form Agreements, as though BAB had been the original party
thereto.
b. BAB shall use good faith efforts to convert all the
licensed locations prior to Operator's peak 1996 summer season,
provided however, that Operator shall have the sole right to determine
the timing for such conversion. Operator shall be entitled to continue
to use the Strathmore trade name, concept, logos and system as it is
currently operated.
c. All costs of conversion of the licensed locations under the
MOU or the Form Agreements, including but not limited to change of
equipment, signage, menu boards, point of sale materials, advertising
and promotional materials, shall be at no expense to Operator, and
Operator shall be promptly reimbursed for any of its expenses
associated with such conversion. Additionally, the conversion shall not
result in a change in the method of operations, specifications for
products or the cost of product.
d. BAB agrees to provide products to Operator at a royalty and
price no less favorable than that provided to other third parties.
3. Operator and BAB have heretofore agreed to the conditions set forth
in Section 2 of this Consent, and such language will be contained in the
acquisition agreement between Licensor and BAB.
4. Licensor represents that BAB has the economic resources necessary to
conduct the Licensed Business and to that effect BAB has agreed to pay all of
the costs and expenses involved in the reconcepting of the existing STRATHMORE
BAGELS locations.
5. This Consent shall become null and void in the event that the
Closing does not take place within sixty days following the date of this
Consent.
IN WITNESS WHEREOF, the parties hereto have executed this Consent the
day and year first written above.
Licensor:
STRATHMORE BAGELS FRANCHISE CORP.
By: Jack Freedman
Attest: Harold L. Kestenbaum Title: Vice President
Operator:
HOST INTERNATIONAL, INC.
By: /s/ Douglas B. Warren
Attest: /s/ John W. Stentz Title: Vice President
AMENDMENT
Amendment, dated this 21st day of May, 1996, by Host International,
Inc. ("Operator") in favor of Strathmore Bagels Franchise Corp. ("Licensor").
RECITALS:
WHEREAS, Licensor and Operator have entered into a Consent to
Assignment, dated as of March 13, 1996 ("Consent"); and
WHEREAS, pursuant to Paragraph Five of the Consent, said Consent shall
become null and void in the event that the Closing does not take place within
sixty days following the date of the Consent; and
WHEREAS, Operator desires to extend the period within which the Closing
must take place;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, it is agreed as follows:
1. Paragraph Five of the Consent is hereby amended to read in its
entirety as follows:
5. This Consent shall become null and void in the event that
the Closing does not take place on or before May 22, 1996.
2. Except as hereinabove specifically amended, the Consent shall remain
in full force and effect.
Operator:
HOST INTERNATIONAL, INC.
By: Douglas B. Warren
Title: Vice President
