As filed with the Securities and Exchange Commission on December 15, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-3
REGISTRATION STATEMENT
Under The Securities Act of 1933
--------------------------------
BAB Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
------------------------------------------------------
Illinois 5416 36-3857339
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification
Organization) Code Number)
8501 West Higgins Road,
Suite 320
Chicago, IL 60631
Telephone: (773) 380-6100 Telefax: (773) 380-6183
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive
Offices)
Michael W. Evans, Chief Executive Officer
BAB Holdings, Inc.
8501 West Higgins Road,
Suite 320
Chicago, IL 60631
Telephone: (773) 380-6100 Telefax: (773) 380-6183
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Janna R. Severance, Esq.
Moss & Barnett
A Professional Association
4800 Norwest Center
90 South 7th Street
Minneapolis, MN 55402
Telephone: (612) 347-0367
Telefax: (612) 339-6686
Approximate Date of Proposed Sale to the Public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are
being offered pursuant to dividend or interest reinvestment plans,
please check the following box. [ ]
If any of the securities being registered on this Form
are to be offered on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933, check the
following box. [X]
If this Form is filed to register additional securities
for an offering pursuant to Rule 462(b) under the Securities
Act, please check the following box and list the Securities
Act registration statement number of earlier effective
registration statement for the same offering. [_]__________
If this Form is a post-effective amendment filed pursuant
to Rule 462(c) under the Securities Act, check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. [_]__________
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box.[_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================
Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Share Price Fee
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 708,219 $1.22(1) $864,027 $ 255
no par value Shares
=================================================================
</TABLE>
(1)Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(c) under the
Securities Act of 1933, as amended. Equal to the
average of the high and low sale prices for the
Common Stock, as reported on the Nasdaq Small-Cap
Market, on December 9, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION
STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY
ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- --------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR +
+ AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE +
+ SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE +
+ COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS +
+ TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION +
+ STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT +
+ CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER +
+ TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN +
+ ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+ SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1997
PROSPECTUS
708,219 Shares
BAB Holdings, Inc.
Common Stock
This Prospectus relates to the offering of up to 708,219 shares
of Common Stock of BAB Holdings, Inc. (the "Company") for the
account of certain shareholders of the Company (collectively the
"Selling Shareholders"). See "Selling Shareholders." The
Selling Shareholders have acquired, or will acquire the Common
Stock from the Company in transactions exempt from registration
under the Securities Act of 1933 (the "Act") and such shares are
offered for resale to the public pursuant to this Prospectus and
the registration statement of which this Prospectus is a part.
The Company will not receive any proceeds from the sale of such
shares by the Selling Shareholders.
The Selling Shareholders have advised the Company that all or a
portion of the shares may be sold from time to time by the
Selling Shareholders, or by pledgees, donees, tranferees, or
other successors in interest. Such sales may be made in the
over-the-counter market or otherwise at prices and at terms then
prevailing or at prices related to the then-current market price
or in negotiated transactions. The shares may be sold directly
by the Selling Shareholders to or through brokers or dealers by
one or more of the following: (a) ordinary brokerage or
marketmaking transactions in which the broker or dealer solicits
purchasers; (b) a block trade in which the broker or dealer so
engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the
transaction; and (c) purchase by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to
this Prospectus. In effecting sales, the Selling Shareholders or
brokers or dealers engaged by the Selling Shareholders may
arrange for other brokers or dealers to participate. Brokers or
dealers will receive commissions or discounts from the Selling
Shareholders or the Company in amounts to be negotiated
immediately prior to the sale. The Selling Shareholders and such
brokers and dealers and any other participating brokers and
dealers may be deemed to be "underwriters" within the meaning of
the Securities Act of 1933 (the "Act") in connection with such
sales. In addition, any securities covered by this Prospectus
that qualify for sale pursuant to Rule 144 under the Act may be
sold under Rule 144 rather than pursuant to this Prospectus. See
"Plan of Distribution."
The Company's Common Stock is currently quoted on The Nasdaq
Stock Market's Small-Cap Market ("Nasdaq") under the symbol
"BAGL." On December 9, 1997, the last reported sale price of the
Common Stock, as reported by Nasdaq, was $ 1.1875 per Share.
See "Risk Factors" beginning on page 6 for discussion of certain
factors that should be considered by prospective purchasers of
the shares offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is December __, 1997
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL OR AN OFFERING OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR
SALE MADE HEREUNDER AT ANY TIME SHALL IMPLY THAT THE INFORMATION
PROVIDED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the
"Commission") relating to its business, financial position,
results of operations and other matters. Such reports and other
information can be inspected and copied at the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and its Regional Offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material also can be
obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a Web site that contains
reports, proxy and information statements and other materials
that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval system. This Web site can be
accessed at http://www.sec.gov.
The Company has filed with the Commission in Washington
D.C., a Registration Statement on Form S-3 under the Act with
respect to the securities offered hereby. As permitted by the
rules and regulations, this Prospectus omits certain information
contained in the Registration Statement. For further information
with respect to the Company and securities offered hereby,
reference is hereby made to the Registration Statement and the
exhibits and schedules thereto. Statements made in this
Prospectus as to the contents of any contract or other document
filed as an exhibit to such Registration Statement, or to such
other document, each such statement being qualified in all
respects by such reference. The Registration Statement,
including the exhibits and schedules thereto, may be inspected at
the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all
or any part thereof may be obtained from such office upon payment
of the prescribed fees.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the
Commission are incorporated by reference:
1. The Company's Annual Report on Form 10-KSB for the fiscal year
ended November 30, 1996.
2. The Company's Quarterly Report on Form 10-QSB for the three
month period ended February 28, 1997.
3. The Company's Quarterly Report on Form 10-QSB for the six
month period ended May 31, 1997.
4. The Company's Quarterly Report on Form 10-QSB for the nine
month period ended August 31, 1997.
5. The Company's Current Report on Form 8-K, dated May 28, 1997,
related to the acquisition of My Favorite Muffin, Too, Inc.
6. The Company's Current Report on Form 8-K/A, dated December
15, 1997, related to the acquisition of My Favorite Muffin,
Too, Inc.
7. The Company's Current Report on Form 8-K/A, dated November
19, 1996 related to the acquisition of Bagels Unlimited, Inc.
8. The Company's Current Report on Form 8-K/A, dated November
19, 1996 related to the acquisition of Strathmore Bagels
Franchise Corporation.
9. The Company's Current Report on Form 8-K/A, dated August 5,
1996, related to the acquisition of Strathmore Bagels
Franchise Corporation.
10. The Company's definitive proxy statement filed pursuant to
Section 14 of the Exchange Act in connection with the 1997
Annual Meeting of Shareholders.
11. The Company's registration statement on Form 8-A/A under
Section 12 of the Securities Exchange Act of 1934, dated
June 2, 1997.
All documents filed pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the
Shares shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in
any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of any and all documents that have been incorporated
by reference herein, other than exhibits to such documents, may
be obtained upon request without charge from the Company's
Corporate Secretary, BAB Holdings, Inc., 8501 W. Higgins Road,
Chicago, Illinois 60631, telephone number (773) 380-6100. Please
specify the information desired when making such request.
PROSPECTUS SUMMARY
The Company
BAB Holdings, Inc. (the "Company") operates, franchises and
licenses bagel, muffin and coffee concept retail units under the
Big Apple Bagels, My Favorite Muffin and Brewster's Coffee
tradenames and on November 30, 1997 had 263 units in operation in
28 states and two Canadian provinces. The Company additionally
derives income from the sale of its trademark bagels, muffins and
coffees through nontraditional channels of distribution including
under licensing agreements with Host Marriott Services
Corporation, Mrs. Fields Cookies, Choice Picks Food Courts, and
through direct home delivery of specialty muffin gift baskets and
coffee.
The Big Apple Bagels brand franchise and Company-owned
stores feature daily baked "from scratch" bagels, flavored cream
cheeses, premium coffees, gourmet bagel sandwiches and other
related products. Licensed Big Apple Bagels units under Host
Marriott, and future units under Choice Picks Food Courts, serve
the Company's par-baked frozen bagel products, freshly baked
daily, and related products. The My Favorite Muffin brand
consists of units operating as "My Favorite Muffin" featuring a
large variety of freshly baked muffins and bagels, cream cheeses,
coffees and related products, and units operating as "My Favorite
Muffin and Bagel Cafes" featuring these products as well as a
variety of specialty bagel sandwiches and related products. The
Company's Brewster's Coffee units are specialty coffee shops
featuring a variety of premium arabica bean coffees--freshly
brewed or in bulk--and related products. Big Apple Bagels units
are concentrated in the Midwest and Western United States while
My Favorite Muffin units are clustered in the Middle Atlantic
States and Florida. Brewster's Coffee Shops are currently
located in two states--Illinois and Ohio.
The Company has grown significantly since its initial public
offering in November 1995 through growth in franchise units,
Company-store development, acquisitions and the development of
alternative distribution channels for its branded products. The
Company intends on continuing its expansion through these means
in the future. With the acquisition of My Favorite Muffin Too,
Inc. ("MFM" or "My Favorite Muffin") on May 13, 1997, the Company
immediately added 60 franchise and five Company-operated units
and expects to leverage on the synergy of distributing muffin
products in existing Big Apple Bagels units and, alternatively,
bagel products and Brewster's Coffee in existing My Favorite
Muffin units.
Big Apple Bagels, Brewster's Coffee and My Favorite Muffin
and logos are registered marks of the Company.
The Company was incorporated under the laws of the State of
Illinois on November 25, 1992. Its corporate office is located
at 8501 West Higgins Road, Suite 320, Chicago, Illinois 60631,
and its telephone number is (773) 380-6100. Unless otherwise
indicated, the term "Company" as used herein refers to BAB
Holdings, Inc., its subsidiaries and subsidiaries of its
subsidiaries.
Special Note Regarding Forward-Looking Statements
Certain statements contained in this Prospectus, including
statements regarding the development of the Company's business,
the markets for the Company's products, anticipated capital
expenditures, and the effects of completed and proposed
acquisitions, and other statements contained herein regarding
matters that are not historical facts, are forward-looking
statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995). Because such statements include
risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking
statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly
release the results of any revision to these forward-looking
statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of
unanticipated events.
The Offering
Common Stock Offered.................. Up to 708,219 shares, of
which 200,000 are issuable
upon exercise of outstanding
options and 508,219 are
currently outstanding. See
"Selling Shareholders" and
"Description of Securities."
Common Stock to be Outstanding
After this Offering....................7,911,630 shares(1)
Use of Proceeds........................The Company will not receive
any of the proceeds from the
sale of the Shares by the
Selling Shareholders.
Nasdaq symbol..........................BAGL
(1) Does not include (i) 570,000 shares of Common Stock reserved
for issuance under the Company's 1995 Long-Term Incentive
and Stock Option Plan (the ``Incentive Plan''); (ii) 30,000
shares of Common Stock reserved for issuance under the
Company's 1995 Outside Directors Stock Option Plan (the
``Directors Plan''); (iii) 255,000 shares of Common Stock
issuable upon exercise of a warrant issued to the
underwriter of the Company's initial public offering; (iv)
456,000 shares of Common Stock issuable upon exercise of an
option issued in the Strathmore acquisition; (v) 2,000
shares of Common Stock issuable upon exercise of an option
issued to an independent developer; (vi) 13,315 shares
issuable upon exercise of a warrant issued to the placement
agent for the Preferred Stock; (vii) up to 1,149,015 shares
of Common Stock issuable upon conversion to Common Stock by
holders of the Company's Series A Preferred Stock or (viii)
up to 175,420 shares of Common Stock issuable upon exercise
of warrants in connection with the Company's Series A
Preferred Stock. See "RISK FACTORS - Recent Acquisitions"
and "Description of Securities."
RISK FACTORS
An investment in the Shares offered hereby is speculative and
involves a high degree of risk. Prior to making an investment
decision, prospective investors should carefully consider each of
the following risk factors, together with the other information
set forth elsewhere in this Prospectus, including the financial
statements and notes thereto incorporated by reference to this
Prospective.
Limited Operating History
The Company was formed in November 1992. As of October 31, 1997,
the Company had 37 Company-owned stores and 223 franchised and
licensed stores in operation. The Company has grown from only 2
Company-owned and 59 franchise units at the time of its initial
public offering in November 1995 primarily through acquisitions.
Consequently, the Company's operating results achieved to date
may not be indicative of the results that may be achieved in the
future by the Company.
Operating Losses
The Company reported an operating loss of $371,000 for the nine
months ended August 31, 1997, and reported operating losses of
$621,000 and $421,000 for the years ended November 30, 1996 and
1995, respectively. While the Company believes that the level of
its franchising and licensing operations and number of Company-
owned stores will generate revenues sufficient to exceed the
expenses necessary to support such operations, given its
historical losses, there can be no assurance that the Company
will operate profitably in the future.
Recent Acquisitions
The Company's strategic plan has included growth through business
acquisitions. Since the beginning of fiscal 1996, the Company
has completed the acquisitions of Brewster's Coffee
("Brewster's"), Strathmore Bagels Franchise Corp. ("Strathmore"),
Bagels Unlimited, Inc.("BUI"), Danville Bagels, Inc.
("Danville"), Just Bagels, Inc. ("JBI") and My Favorite Muffin.
No assurance can be given that these or other acquisitions will
be profitable or that the Company will successfully integrate,
convert, or operate any acquired businesses.
As a result of acquisitions, the Company has grown significantly
in size, has expanded the geographic area in which it operates
and has added product lines and distribution channels. Any
acquisition involves inherent uncertainties, such as the effect
on the acquired businesses of integration into a larger
organization and the availability of management resources to
oversee the operations of the acquired business. The Company's
ability to integrate the operations of acquired businesses is
essential to its future success. There can be no assurance as to
the Company's ability to integrate new businesses nor as to its
success in managing the significantly larger operations resulting
therefrom. Additionally, amortization of intangible assets
recorded as a result of the acquisitions will have a significant
impact on future operating results.
Rapid Growth
The Company has grown significantly during the past year, both
internally and through acquisitions, and expects to continue its
growth in franchising and licensed product distribution to
continue in the future. The opening and success of franchise Big
Apple Bagels, Brewster's Coffee and My Favorite Muffin stores
will depend on various factors, including customer acceptance of
these concepts in new markets, the availability of suitable
sites, the negotiation of acceptable lease or purchase terms for
new locations, permit and regulatory compliance, the ability to
meet construction schedules, the financial and other capabilities
of the Company and its franchisees, the ability of the Company
to successfully manage this anticipated expansion and to hire and
train personnel, and general economic and business conditions.
Not all of the foregoing factors are within the control of the
Company.
The Company's expansion will continue to require the
implementation of enhanced operational and financial systems and
additional management, operational, and financial resources.
Failure to implement these systems and add these resources could
have a material adverse effect on the Company's results of
operations and financial condition. There can be no assurance
that the Company will be able to manage its expanding operations
effectively or that it will be able to maintain or accelerate its
growth.
Capital Requirements
The Company believes that its current cash position, cash flows
from current operations and current financing arrangements will
provide sufficient working capital to enable the Company to meet
operating requirements for the foreseeable future. However,
there can be no assurance that the Company will be able to obtain
any required additional financing that may be required or that
such financing, if obtained, will be on terms favorable or
acceptable to the Company. Any future equity financing may
result in dilution to holders of the Common Stock and any future
debt financing may reduce earnings. If the Company is unable to
secure additional financing when needed, or at all, it could be
required to significantly reduce the scope of its existing
operations, or even to discontinue operations.
Dependence on Franchisees
The Company has historically received a significant portion of
its revenues from initial franchise fees and continuing royalty
payments from franchisees. Although the Company uses established
criteria to evaluate franchisees, there can be no assurance that
franchisees will have the business ability or access to financial
resources necessary to successfully develop or operate stores in
a manner consistent with the Company's concepts and standards.
Additionally, no assurance can be given that desirable locations
and acceptable leases can be obtained by franchisees. Should the
Company's franchisees encounter business or operational
difficulties, the Company's revenues will be adversely affected.
The poor performance of any franchisee may also negatively impact
the Company's ability to sell new franchises. Consequently, at
present, the Company's financial prospects are substantially
related to the success of the franchise stores, over which the
Company has limited control. There can be no assurance that the
Company will be able to successfully attract new franchisees or
that the Company's franchisees will be able to successfully
develop and operate stores.
Although the Company monitors franchisees' compliance with
ongoing obligations on the basis of weekly revenue, and the
Company's standard franchise agreement also grants the Company
the right to audit the books and records of franchisees at any
time, no assurance can be given that all franchisees will operate
their stores in accordance with the Company's operating
guidelines and in compliance with all material provisions of the
franchise agreement, and the failure of franchisees to so operate
their stores could have a material adverse impact on the
Company's business. The franchise agreement gives the Company
the choice of seeking legal remedies, which could be time-
consuming and expensive, and terminating the franchisee, which
would diminish the Company's revenue until such time, if ever, as
a new franchisee replaces the terminated franchisee.
Competition
The food service industry, in general, and the fast food/take-out
sector in particular, are highly competitive, and competition is
likely to increase. The Company believes that specialty bagel,
muffin and coffee retail businesses are growing rapidly and are
likely to become increasingly competitive. The Company competes
against well-established food service companies with greater
product and name recognition and with larger financial,
marketing, and distribution capabilities than those of the
Company, as well as innumerable local food service establishments
that offer products competitive with those offered by the
Company. The Company's principal competitors include Bruegger's
Bagel Bakery ("Bruegger's"), Chesapeake Bagel Bakery
("Chesapeake") and Einstein/Noah Bagel Corp. ("Einstein"). In
addition, other fast-food service providers, such as Dunkin'
Donuts, have recently added bagels to their product offerings.
Any increase in the number of food service establishments in
areas where the Company's or its franchisees' sites are located
could have a material adverse effect on the Company's sales and
revenues. The Company competes for qualified franchisees with a
wide variety of investment opportunities both in the food service
business and in other industries. Investment opportunities in
the bagel store business include competing franchises offered by
Bruegger's, Chesapeake and Einstein as well as operators of
individual stores and multi-store chains.
Food Service Industry
Food service businesses are often affected by changes in consumer
tastes, national, regional, and local economic conditions,
demographic trends, traffic patterns, and the type, number, and
location of competing restaurants. Multi-unit food service
chains, such as the Company's, can also be substantially
adversely affected by publicity resulting from problems with food
quality, illness, injury, or other health concerns or operating
issues stemming from one store or a limited number of stores.
Such businesses are also subject to the risk that shortages or
interruptions in supply caused by adverse weather or other
conditions could negatively affect the availability, quality, and
cost of ingredients and other food products. In addition,
factors such as inflation, increased food and labor costs,
regional weather conditions, availability and cost of suitable
sites and the availability of experienced management and hourly
employees may also adversely affect the food service industry in
general and the Company's results of operations and financial
condition in particular.
Government Regulation
The Company is subject to the Trade Regulation Rule of the
Federal Trade Commission (the "FTC") entitled ``Disclosure
Requirements and Prohibitions Concerning Franchising and Business
Opportunity Ventures'' (the "FTC Franchise Rule") and state and
local laws and regulations that govern the offer, sale and
termination of franchises and the refusal to renew franchises.
Continued compliance with this broad federal, state and local
regulatory network is essential and costly, and the failure to
comply with such regulations may have a material adverse effect
on the Company and its franchisees. Violations of franchising
laws and/or state laws and regulations regulating substantive
aspects of doing business in a particular state could limit the
Company's ability to sell franchises or subject the Company and
its affiliates to rescission offers, monetary damages, penalties,
imprisonment and/or injunctive proceedings. In addition, under
court decisions in certain states, absolute vicarious liability
may be imposed upon franchisors based upon claims made against
franchisees. Even if the Company is able to obtain insurance
coverage for such claims, there can be no assurance that such
insurance will be sufficient to cover potential claims against
the Company.
Dependence on Key Personnel
The success of the Company is highly dependent on the continuing
services of Michael W. Evans, its President and Chief Executive
Officer, and Michael K. Murtaugh, its Vice President and General
Counsel. The loss of the services of Mr. Evans or Mr. Murtaugh
could have a material adverse effect on the Company's business.
The Company has no employment agreement with either of these
officers. In November 1997, the Chief Financial Officer resigned
from the Company. The Company is in the process of hiring a
qualified replacement. In addition, the Company's ability to
develop and market its products and to achieve and maintain a
competitive market position depends, in large part, on its
ability to attract and retain qualified food marketing personnel
and franchisees. Competition for such personnel is intense, and
there can be no assurance that the Company will be able to
attract and retain such personnel.
Trademarks/Service Marks
The trademarks and service marks used by the Company contain
common descriptive English words and thus may be subject to
challenge by users of these words, alone or in combination with
other words, to describe other services or products. Some
persons or entities may have prior rights to those names or marks
in their respective localities. Accordingly, there is no
assurance that such marks are available in all locations. Any
challenge, if successful, in whole or in part, could restrict the
Company's use of the marks in areas in which the challenger is
found to have used the name prior to the Company's use. Any such
restriction could limit the expansion of the Company's use of the
marks into that region, and the Company and its franchisees may
be materially and adversely affected.
Conflicts of Interest
Michael K. Murtaugh, Vice President, General Counsel and
director, owns interests in entities that are franchisees of the
Company. In the event of a default under the franchise agreement,
the interests of the Company with respect to the franchisee could
potentially differ from the interests of the Mr. Murtaugh. The
Company intends to protect its interests in these circumstances
by strictly adhering to the terms of the respective written
agreements with the franchisee and by assigning decision-making
responsibilities in regard to such matters to directors of the
Company who are not financially interested in that matter. Any
preferential treatment could constitute a breach of fiduciary
duty by the Board of Directors and the interested officer.
Potential Effects of Antitakeover Provisions
The Company is authorized to issue up to 4,000,000 shares of
preferred stock, 87,710 of which have been issued. The remaining
authorized preferred stock may be issued in one or more series,
the terms of which may be determined at the time of issuance by
the Board of Directors, without further action by shareholders.
The issuance of any preferred stock could adversely affect the
rights of the holders of Common Stock, and specific rights
granted to holders of preferred stock could restrict the
Company's ability to merge with or sell its assets to a third
party, thereby preserving control of the Company by its then
owners.
Certain provisions of the Illinois Business Corporation Act (the
"Illinois Act") restrict a publicly-held corporation from
engaging in a "business combination" with an "interested
shareholder" or its affiliates, unless the business combination
is approved by the Board of Directors or by a supermajority vote
of the shareholders. These provisions of the Illinois Act could
delay and make more difficult a business combination even if the
business combination could be beneficial to the interests of the
Company's shareholders.
Possible Depressive Effect on Price of Common Stock from Future
Sales of Common Stock
As of the date of this Prospectus, 1,337,750 shares of Common
Stock are issuable from time to time pursuant to the terms of the
Company's outstanding Series A Convertible Preferred Stock and
related warrants issued to the holders of the Company's Series A
Convertible Preferred Stock and to the placement agent for such
stock.. Upon issuance, the shares will be freely tradeable. In
addition, the Company intends to file a registration statement
covering the shares of Common Stock issuable under its Incentive
Plan and Directors Plan, pursuant to which such shares, when
issued, will be freely tradeable, except to the extent held by
officers and directors who are limited to resale by Rule 144.
The sale, or availability for sale, of substantial amounts of
Common Stock in the public market subsequent to this offering,
plus the offerings described above, could materially adversely
affect the market price of the Common Stock and could impair the
Company's ability to raise additional capital through the sale of
its equity securities or debt financing. See "Description of
Securities".
Effects of Delisting From Nasdaq SmallCap Market
If the Company fails to maintain the qualification for its Common
Stock to trade on the Nasdaq SmallCap Market, its Common Stock
could be delisted from Nasdaq. In such event, trading, if any,
in such securities would be thereafter be conducted in the over-
the-counter markets in the so-called "pink sheets" or the
National Association of Securities Dealer's "Electronic Bulletin
Board." Consequently, the liquidity of the Company's securities
would likely be impaired, not only in the number of shares which
could be bought and sold, but also through delays in the timing
of the transactions, reduction in security analysts' and the news
media coverage, if any, of the Company, and the lower prices for
the Company's securities than might otherwise prevail.
Penny Stock Regulation
In the event the Company's securities are delisted from the
Nasdaq SmallCap Market, as described above, the Company's
securities could become subject to the rules and regulations
under the Securities Exchange Act of 1934 relating to "penny
stocks" (the "Penny Stock Rule"), which impose additional sales
practice requirements on broker-dealers who sell such securities
to persons other than established customers and certain
institutional investors. Penny stocks generally are equity
securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or authorized
for quotation on the Nasdaq system, provided that current price
and volume information with respect to transactions in that
security is provided by the exchange or system). For
transactions covered by the Penny Stock Rule, a broker-dealer
must, among other things, make a special suitability
determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently,
the Penny Stock Rule may reduce the level of trading activity in
the secondary market for the Company's securities, may adversely
effect the ability of broker-dealers to sell the Company's
securities and may adversely affect the ability of purchasers in
this offering to sell any of the securities acquired hereby in
the secondary market.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the offering
and sale of any of the shares of the Common Stock offered
hereby.
SELLING SHAREHOLDERS
Set forth below are the names of the Selling Shareholders, the
number of shares of Common Stock of the Company beneficially
owned by each of them at November 30, 1997, the number of shares
offered hereby, and the number of shares to be owned if all
offered shares are sold.
<TABLE>
<CAPTION>
Number of Shares Owned
Number of Shares Following Sale
Shares Offered of Shares
Name Owned Hereby Offered Hereby
- ----------------------------- --------- -------- -----------------
<S> <C> <C> <C>
Heartland Bagels, Inc.(1) 25,611 25,611 --
Bagels Unlimited, Inc.(2) 50,000 50,000 --
Bagels Unlimited, Inc.(3) 100,000 100,000 --
Pierce W. Hance(4) 18,625 18,625 --
Perkins Capital, Inc.(3) 100,000 100,000 --
Ilona Stern(4) 136,614 136,614 --
Owen Stern(4) 140,755 140,755 --
Ruth Stern(4) 136,614 136,614 --
</TABLE>
(1) Represents shares issued in connection with the acquisition of
a franchised Big Apple Bagels store.
(2) Represents shares issued in connection with the acquisition of
Bagels Unlimited, Inc.
(3) Represents a Selling Shareholder of shares issuable upon
exercise of options to purchase the Company's Common Stock.
See "Description of Securities--Outstanding Options and Warrants."
(4) Represents shares issued in connection with the acquisition of
My Favorite Muffin, Too, Inc.
DESCRIPTION OF SECURITIES
General
The Company's authorized capital stock consists of 20,000,000
shares of Common Stock, no par value, and 4,000,000 shares of
preferred stock, $.01 par value. As of the date of this
Prospectus, there are outstanding 7,711,630 shares of the
Company's Common Stock and 78,710 shares of Preferred Stock, (the
"Preferred Shares"). Of the 120,000 preferred shares designated
as Series A Preferred Shares, there remains 32,290 shares which
have not been issued. No other shares of preferred stock are
currently outstanding.
Common Stock
There are no preemptive, subscription, conversion or redemption
rights pertaining to the Common Stock. The absence of preemptive
rights could result in a dilution of the interest of existing
shareholders should additional shares of Common Stock be issued.
Holders of the Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of
assets legally available therefor and to share ratably in the
assets of the Company available upon liquidation, subject to
rights of holders of the preferred stock, including the Preferred
Shares. The shares currently outstanding are, and the Shares
offered hereby will be, fully paid and nonassessable.
Each share of Common Stock is entitled to one vote for all
purposes and cumulative voting is not permitted in the election
of directors. Accordingly, the holders of more than 50% of all of
the outstanding shares of Common Stock can elect all of the
directors. Significant corporate transactions such as amendments
to the Articles of Incorporation, mergers, sales of assets and
dissolution or liquidation require approval by the affirmative
vote of the majority of the outstanding shares of Common Stock.
Other matters to be voted upon by the holders of Common Stock
normally require an affirmative vote of a majority of the shares
present at the particular shareholders meeting. As of the date of
this Prospectus, the Company's directors and officers own
approximately 15.5% of the outstanding shares of the Company's
Common Stock. Accordingly, the Company's directors and executive
officers have and will continue to have significant voting
influence in connection with election of the directors of the
Company and control of the Company's business and affairs.
Preferred Stock - General
The Board of Directors of the Company may, without further action
by the shareholders, from time to time, issue the remaining
authorized preferred stock, consisting of 3,880,000 shares, in
one or more series and determine the rights, preferences,
privileges, and restrictions, including voting rights, dividend
rights, dividend rate, liquidation preference, conversion or
exchange rights, redemption and sinking fund provisions, and the
number of shares constituting and the designation of any such
series. The holders of such shares of preferred stock, if issued,
would likely have rights, preferences, and privileges in addition
to those afforded the holders of shares of Common Stock. The
Board of Directors currently has no plans to issue any additional
shares of preferred stock.
The issuance of preferred stock in certain circumstances may have
the effect of delaying, deferring, or preventing a change in
control of the Company without further action by the
shareholders, may discourage bids for the Common Stock at a
premium over the market price of the Common Stock, and may
adversely affect the market price of, and the voting and other
rights of the holders of, the Common Stock.
Preferred Stock - Series A Convertible Preferred Stock
As of the date of this Prospectus, there are outstanding 78,710
shares of Series A Convertible Preferred Stock (the "Preferred
Shares"), which may be converted from time to time into shares of
Common Stock at the then applicable Conversion Rate, as defined
in the Certificate of Designation establishing the Preferred
Shares. The shares of Common Stock issuable upon conversion
comprise the Shares which may be offered and sold from time to
time pursuant to this Prospectus and the Registration Statement
of which it is a part. Upon conversion, the Preferred Shares
will be retired and canceled and cannot be reissued.
The principal terms of the Preferred Shares are as follows:
Dividends. From and after the date of issuance until the
Expiration Date (defined below), the holders of the Preferred
Shares are entitled to an annual dividend prior to the payment of
any cash dividends on the Common Stock, equal to eight percent
(8%) of $25.00 (the "Original Purchase Price"), or $2.00 per
share; provided that during a Conversion Suspension Period
(defined below), dividends will accrue at the rate of 15% per
annum, or $3.75 per share. Such dividends are payable only when
the Preferred Shares are converted to shares of Common Stock.
Payment may be in cash or, at the option of the Company, in
shares of Common Stock at the Conversion Rate (as defined below).
Liquidation, Dissolution or Winding Up. The holders of the
Preferred Shares are entitled to be paid an amount per share
equal to the Original Purchase Price of $25.00, plus accrued
dividends, out of the assets of the Company available for
distribution to its shareholders before any payment is made to
the holders of Common Stock. After the payment of all
preferential amounts, the holders of the Preferred Shares are not
entitled to share in or receive any remaining assets or funds
available for distribution to shareholders.
Voting. The holders of the Preferred Shares have no rights to
vote, except as may be required by law.
Optional Conversion. The holders of the Preferred Shares may
convert such Preferred Shares to shares of Common Stock on or
after August 1, 1997 (the "Initial Conversion Date") until the
close of business on July 31, 1999 (the "Expiration Date"),
subject to extension by a number of days equal to the number of
trading days in any Conversion Suspension Period (defined below)
during the period prior to the Expiration Date. Each Preferred
Share is convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing
the Original Purchase Price by the lesser of $5.64 or 85% of the
average closing bid price of the Common Stock for the 30 trading
days immediately preceding the Conversion Date (as so determined,
the "Conversion Rate"). In addition, if the Company engages in
an underwritten public offering, for any holder who has given
notice of participation in such offering, the Conversion Rate
shall be 85% of the public offering price, if less than the
amount calculated in the immediately preceding sentence.
Conversion Suspension. A Conversion Suspension Period takes
effect if, at any time on or after the later of (i) September 15,
1997, or (ii) the date which is 30 trading days following the
date that the Registration Statement of which this Prospectus is
a part is declared effective by the Securities and Exchange
Commission, the closing bid price of the Common Stock is less
than $2.325 for 30 consecutive trading days. The Conversion
Suspension Period continues until the first trading day
thereafter that the closing bid price for the Common Stock has
exceeded $2.325 for 30 consecutive trading days; provided,
however, that a Conversion Suspension Period shall not continue
for more than sixty (60) days in any period of 365 days. The
Company is not required to recognize or accept any conversion of
Preferred Shares during a Conversion Suspension Period. During
any Conversion Suspension Period, the Company, at its option, may
redeem any or all of the Preferred Shares by payment to the
holders of $28.75 per share, plus all accrued and unpaid
dividends.
Antitakeover Effect of Illinois Law
The Company is subject to certain provisions of the Illinois
Business Corporation Act of 1983, as amended (the "Illinois Act")
that govern business combinations between corporations and
''interested shareholders'' or their ''affiliates.'' The Illinois
Act generally provides that if a person or entity acquires 15% or
more of the voting stock of an Illinois corporation (an
"Interested Shareholder"), the corporation and the Interested
Shareholder, or any affiliated entity of the Interested
Shareholder, may not engage in certain business combination
transactions for three years following the date the person became
an Interested Shareholder unless (1) prior to the date that the
Interested Shareholder became an Interested Shareholder the board
of directors approved either the business combination or the
transaction which resulted in the shareholder's becoming an
Interested Shareholder, or (2) upon consummation of the
transaction which resulted in the shareholder becoming an
Interested Shareholder, the Interested Shareholder owned at least
85% of the voting shares of the corporation outstanding at the
time the transaction commenced (excluding for purposes of
determining the number of shares outstanding those shares owned
by persons who are directors and also officers and by employee
stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer), or (3) on
or subsequent to the date that the Interested Shareholder became
an Interested Shareholder the business combination is approved by
the board of directors and authorized at an annual or special
meeting of shareholders (not by written consent) by the
affirmative vote of at least 66-2/3% of the outstanding voting
shares that are not owned by the Interested Shareholder. An
''affiliate'' is a person who directly or indirectly controls, is
controlled by, or is under common control with a specified person
(an ''Affiliate''). Business combination transactions for this
purpose include (a) any merger, consolidation or share exchange,
(b) any sale, lease, transfer or other disposition of ten percent
(10%) or more of the assets of the corporation, (c) certain
transactions that result in the issuance of any equity securities
of the corporation to the Interested Shareholder, (d) any
transaction which has the effect, directly or indirectly, of
increasing the proportionate amount of any class of equity
securities of the corporation or any subsidiary owned directly or
indirectly by any Interested Shareholder or an Affiliate thereof,
and (e) any receipt by the Interested Shareholder of the benefit,
directly or indirectly of any loans, advances, guarantees,
pledges, or other financial benefits provided by or through the
corporation or any direct or indirect majority owned subsidiary.
The Company's Board of Directors and shareholders may amend the
Company's Articles of Incorporation and Bylaws to provide that
the provisions of the Illinois Act will not apply to any business
combination after the date of the amendment.
Limitation of Director Liability and Indemnification
The Company's Articles of Incorporation limit personal liability
for breach of fiduciary duty by its directors to the fullest
extent permitted by the Illinois Act. Such Articles eliminate the
personal liability of directors to the Company and its
shareholders for damages occasioned by breach of fiduciary duty,
except for liability based on breach of the director's duty of
loyalty to the Company, liability for acts or omissions not made
in good faith, liability for acts or omissions involving
intentional misconduct, liability based on payments of improper
dividends, liability based on violations of state securities
laws, and liability for acts occurring prior to the date such
provision was added. Any amendment to or repeal of such
provisions in the Company's Articles of Incorporation will not
adversely affect any right or protection of a director of the
Company for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
In addition to the Illinois Act, the Company's Bylaws provide
that officers and directors of the Company have the right to
indemnification from the Company for liability arising out of
certain actions to the fullest extent permissible by law. This
indemnification may be available for liabilities arising in
connection with the registration of such shares. Insofar as
indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers or
persons controlling the Company pursuant to such indemnification
provisions, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable.
Transfer Placement Agent and Registrar
LaSalle National Bank, Chicago, Illinois, serves as the transfer
agent and registrar for the Company's Common Stock. The Company
currently serves as its own transfer agent and registrar with
respect to the Preferred Shares.
Outstanding Warrants and Options
The underwriter of the Company's initial public offering was
issued a warrant to purchase 255,000 shares of Common Stock at
$3.20 per share commencing November 27, 1996. In April 1997, the
underwriter transferred ownership of this warrant to several of
the underwriter's employees individually. These warrants expire
on November 27, 2000.
The consideration in the Bagels Unlimited, Inc. acquisition
included an option to purchase 100,000 shares of Common Stock at
$4.00 per share exercisable from May 1, 1996 through April 30,
2001. The shares issuable upon the exercise of these options are
included in this Prospectus. See "Selling Shareholder."
The consideration in the Strathmore acquisition included an
option to acquire 625,000 shares of Common Stock at $6.17 per
share, which becomes exercisable in two equal cumulative
installments on May 22, 1997 and 1998, and expires on May 21,
1999. Of these options, 75,000 were sold to a third party in a
private transaction and have been subsequently acquired by the
Company as partial consideration on a master franchise agreement.
In a separate private transaction, Strathmore sold the rights to
acquire 100,000 shares of Common Stock to a third party. The
shares issuable upon the exercise of this option are included in
this Prospectus. In addition, Strathmore may earn a one-year
option to purchase 1,500 shares exercisable at $6.17 per share
for each store opened between May 21, 1996 and May 22, 1998. As
of the date of this Prospectus, an option has been issued to
Strathmore to purchase 6,000 shares of Common Stock related to
unit openings and the Company estimates that up to 50,000 shares
could be subject to the earned options. See "Selling
Shareholder."
In June 1997, pursuant to a development agreement, the Company
issued an option to a third party to purchase 2,000 shares of
Common Stock at a price of $8.00, exercisable for a period of one
year from the date of issuance.
In connection with the issuance of the Preferred Stock and
subsequent registration of conversion shares of Common Stock, on
August 1, 1997 the Company issued 175,420 warrants to holders of
the Preferred Stock to purchase the Company's Common stock at a
price of $2.35, exercisable for a period of two years from the
date of issuance. Additionally, as a portion of compensation in
the placement of the Series A Preferred Shares, the Company has
issued to the placement agent, Merrill Weber & Company, warrants
to purchase 13,315 shares of Common Stock at $3.29. Such are
warrants are exercisable from April 1997 through March 1999 .
PLAN OF DISTRIBUTION
The Selling Shareholders may sell the Common Stock being offered
hereby directly to other purchasers or to or through
underwriters, dealers, or agents. To the extent required, a
Prospectus supplement with respect to the Common Stock will set
forth the terms of the offering of the Common Stock, including
the names of any underwriters, dealers or agents, the names of
the Selling Shareholders, the number of shares of Common Stock to
be sold, the price of the offered Common Stock, any underwriting
discounts or other items constituting underwriters' compensation,
and any discounts or concessions allowed or reallowed or paid to
dealers.
The Common Stock offered hereby may be sold from time to time
directly by the Selling Shareholders or, alternatively, through
underwriters, broker-dealers, or agents. Such Common Stock may
be sold in one or more transactions at fixed prices, at market
prices prevailing at the time of sale, at varying prices
determined at the time of sale, or at negotiated prices. Such
sales may be effected in transactions (which may involve crosses
or block transactions) (i) on any national securities exchange or
quotation service on which the Common Stock may be listed or
quoted at the time of sale, (ii) in the over-the-counter market,
or (iii) in transactions otherwise then on such exchanges or
services or in the over-the-counter market. In connection with
sales of the Common Stock offered hereby or otherwise, the
Selling Shareholders may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of such
Common Stock in the course of hedging the positions they assume.
The Selling Shareholders may also sell the Common Stock offered
hereby short and deliver such Common Stock to close out such
short positions or loan or pledge such Common Stock to broker-
dealers that in turn may sell such securities. The Common Stock
offered hereby also may be sold pursuant to Rule 144 of the
Securities Act. Other than Ilona Stern, Owen Stern and Ruth Stern
(the "Sterns"), none of the Selling Shareholders has advised the
Company of any particular plan or intention as to timing, amount
or manner of distribution of shares. The Sterns have advised the
Company that they intend on transferring ownership of certain of
their shares to a third party in settlement of an outstanding
arbitration action against My Favorite Muffin, Too, Inc. for
which the Company was indemnified by the Sterns in the MFM
acquisition agreement. Pursuant to the MFM acquisition
agreement, the Sterns are precluded from selling shares of Common
Stock, other than pursuant to the indemnification noted above,
prior to January 1, 1999.
Any Selling Shareholder and any such underwriters, brokers,
dealers or agents, upon effecting the sale of the Common Stock,
may be deemed "underwriters" as that term is defined in the
Securities Act.
The underwriter or underwriters with respect to a particular
underwritten offering of Common Stock will be named in the
Prospectus supplement relating to such offering, and if an
underwriting syndicate is used, the managing underwriter or
underwriters will be set forth on the cover of such Prospectus
supplement. Unless otherwise set forth in the Prospectus
supplement, the obligations of the underwriters to purchase the
Common Stock will be subject to certain conditions precedent and
the underwriters will be obligated to purchase all the Common
Stock if any is purchased. Any initial public offering price and
any discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time.
If a dealer is utilized in the sale of any Common Stock in
respect of which this Prospectus is delivered, the Selling
Shareholders may sell such Common Stock to the dealer, as
principal. The dealer may then resell such Common Stock to the
public at varying prices to be determined by such dealer at the
time of resale. To the extent required, the name of the dealer
and the terms of the transaction will be set forth in the
Prospectus supplement relating thereto.
In connection with the sale of Common Stock offered hereby,
underwriters or agents may receive compensation from the Company,
the Selling Shareholders, or from purchasers of such Common Stock
for whom they may act as agents in the form of discounts,
concessions, or commissions. Underwriters, agents, and dealers
participating in the distribution of the Common Stock may be
deemed to be underwriters, and any such compensation received by
them and any profit on the resale of Common Stock by them may be
deemed to be underwriting discounts or commissions under the
Securities Act.
The Common Stock is quoted on the Nasdaq Small-Cap Market. Any
underwriters to whom Common Stock is sold by the Selling
Shareholders for public offering and sale may make a market in
such Common Stock, but such underwriters will not be obligated to
do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of the
trading market for any Common Stock.
The Selling Shareholders, agents, dealers, and underwriters may
be entitled under agreements entered into with the Company to
indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act, or to
contribution with respect to payments that the Selling
Shareholders, agents, dealers, or underwriters may be required to
make with respect thereto. Underwriters, dealers, or agents and
their associates may be customers of, engage in transactions
with, and perform services for the Company in the ordinary course
of business.
The Company has agreed to pay all expenses in connection with the
offering contemplated hereby, including (i) registration and
filing fees, (ii) fees and expenses of providing certain
information to the Selling Shareholders, (iii) fees and expenses
of compliance with securities and blue sky laws, and (iv) fees
and expenses of preparing and delivering certificates
representing the Common Stock. The Selling Shareholders will be
responsible for fees and expenses of their own counsel and for
payment of underwriting discounts and commissions and transfer
taxes. Any Selling Shareholder may agree to indemnify any agent,
dealer, or broker-dealer that participates in transactions
involving sales of the Common Stock against certain liabilities,
including liabilities arising under the Securities Act. The
Company and the Selling Shareholders have agreed to indemnify
each other and certain other persons against certain liabilities
in connection with the offering of the Common Stock, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has
been passed upon for the Company by Moss & Barnett, A
Professional Association, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of BAB Holdings, Inc.
appearing in the Company's Annual Report (Form 10-KSB) for the
year ended November 30, 1996 and the financial statements of
Bagels Unlimited, Inc. as of February 29, 1996 and for the year
then ended appearing in the Company's Current Report (Form 8-K/A)
dated November 19, 1996 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports therein, and
incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting
and auditing.
The Financial Statements of Bagels Unlimited, Inc. as of
February 28, 1995, and for each of the two years ended February
28, 1995, incorporated by reference to the Company's current
report on Form 8-K/A dated November 19, 1996, incorporated by
reference herein, have been audited by Muehl, Steffes & Krueger,
S.C., independent auditors as set forth in their report thereon,
and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The Financial Statements of Strathmore Bagels Franchise
Corporation as of December 31, 1994 and 1995 and for each of the
two years in the period ended December 31, 1995, included in the
Company's current report on Form 8-K/A dated August 5, 1996,
incorporated by reference herein, have been audited by Buonanno &
Conolly, independent auditors, as set forth in their reports, and
are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The Combined Financial Statements of My Favorite Muffin Too, Inc.
and My Favorite Muffin, Inc. as of December 31, 1996 and for the
year then ended included in the Company's current report on Form
8-K/A dated December 15, 1997, incorporated by reference herein,
have been audited by BDO Seidman, L.L.P., independent auditors,
as set forth in their report thereon, and are included in
reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with the issuance and
distribution of the Common Stock registered hereby, other than
underwriting discounts and fees, are set forth in the following
table:
<TABLE>
<S> <C>
SEC registration fee $ 255
Legal fees and expenses 5,000
Accounting fees and expenses 5,000
Blue sky fees and expenses 3,000
Printing and engraving expenses 3,000
Miscellaneous 2,000
--------
Total $ 18,255
========
</TABLE>
All such expenses will be paid by the Company pursuant to the
written agreements with the Selling Shareholders.
Item 15. Indemnification of Directors and Officers.
The Company is governed by Illinois Business Corporation Act of
1983, as amended, which provides that a corporation may indemnify
any person who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or who
is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including
employee benefit plans), against expenses (including attorneys'
fees), judgments, fines (including excise taxes), and amounts
paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding, if such person acted in
good faith and in a manner he or she reasonably believed to be
in, or not opposed to, the best interests of the corporation and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In
addition, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation; provided that no indemnification shall be made with
respect to any claim, issue, or matter as to which such person
has been adjudged to have been liable to the corporation, unless,
and only to the extent that the court in which such action or
suit was brought shall determine that, despite the adjudication
of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity. Any
indemnification shall be made by the corporation only upon a
determination by disinterested directors or independent counsel
that indemnification is proper in the circumstances because the
indemnified person met the applicable standard of conduct. The
Company's amended Articles of Incorporation and Bylaws provide
for indemnification to the full extent permitted under Illinois
law.
The Statement of Designation establishing the Series A
Convertible Preferred Stock and various agreements providing
registration rights to security holders contain provisions under
which the Company, on the one hand, and the holders of such
securities, on the other hand, have agreed to indemnify each
other (including officers and directors of the Company or such
holders, and any person who may be deemed to control the Company
or such holders) against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- --------------------------------------------------------
<S> <C>
[i] 2.1 Asset Purchase Agreement dated February 2, 1996
between the Company, Brewster's Coffee Company, Inc.
and Peter D. Grumhaus
[ii] 2.2a Asset Purchase Agreement by and among BAB Systems,
Inc., Bagels Unlimited, Inc. ("BUI"), and
Donald Nelson and Mary Ann Varichak dated May 1, 1996
[ii] 2.2b Non-Competition Agreement by and among the Company
and Donald Nelson and Mary Ann Varichak dated May 1, 1996
[ii] 2.2c Stock Option Agreement between the Company and BUI
dated May 1, 1996
[ii] 2.2d Registration Rights Agreement between the Company
and BUI dated May 1, 1996
[iii] 2.3a Asset Purchase Agreement by and between the Company
and Strathmore Bagels Franchise Corp. ("Strathmore")
dated May 21, 1996
[iii] 2.3b Stock Option Agreement dated May 21, 1996 between
the Company and Strathmore
[iii] 2.3c Registration Rights Agreement dated May 21, 1996
between the Company and Strathmore
[iii] 2.3d Non-Competition Agreement dated May 21, 1996 among
the Company, Strathmore, Jack Freedman and Glen Steuerman
[iii] 2.3e Memorandum of Understanding Regarding Form of
License Agreement effective November 30, 1995,
between Strathmore and Host International, Inc.
[iii] 2.3f Consent to Assignment between Strathmore and Host
International, Inc., dated March 13, 1996,
as amended May 21, 1996
[iv] 2.4a Acquisition Agreement dated May 1, 1997 by and among
BAB Holdings, Inc., BAB Acquisition Corp., My
Favorite Muffin, Too, Inc., Muffin Holdings of
Pennsylvania, a limited partnership, Ruth Stern,
Owen Stern, and Ilona Stern
[iv] 2.4b Registration Rights Agreement dated as of May 1,
1997 between BAB Holdings, Inc., and Owen Stern,
Ruth Stern, Ilona Stern and Pierce W. Hance.
[v] 3.1a Amended Articles of Incorporation of the Company
[vi] 3.1b Amended and Restated Statement of Designation,
Number, Voting Powers, Preferences and Rights of
Series A Convertible Preferred Stock as filed with
the Secretary of State of Illinois on March 26, 1997
[v] 3.2 Bylaws of the Company, as amended
[v] 4.1 Form of Stock Certificate evidencing Common Stock,
no par value
[v] 4.2 Subscription Agreement with Aladdin International, Inc.
dated August 31, 1995
[v] 4.3 Amended Form of Warrant Issued to Aladdin International, Inc.
5.1 Opinion of Moss & Barnett, A Professional
Association, Counsel to the Company
[v] 10.1 Form of Franchise Agreement
[v] 10.2 Form of Franchise Agreement-Satellite
[v] 10.3 Form of Franchise Agreement-Wholesale
[v] 10.4 Form of Area Development Agreement
[v] 10.5 Confidentiality and Non-Competition Agreement with
Franchisees
[v] 10.6 Form of Confidentiality Agreement with Employees
[v] 10.7 Licensing Agreement dated November 20, 1992 between
the Company and Big Apple
Bagels, Inc.
[v] 10.8 Assignment of Royalty Mark & Trademark to the
Company by Big Apple Bagels, Inc. dated November 20, 1992
[v] 10.9 Agreement dated September 14, 1995 among the
Company, Big Apple Bagels, Inc. and Paul C. Stolzer
[i] 10.10 Consulting agreement dated February 16, 1996 between
Paul C. Stolzer and BAB Holdings, Inc.
[v] 10.11 Leases dated November 2, 1994 and February 14, 1995
for principal executive office
[v] 10.12 1995 Long-Term Incentive and Stock Option Plan
[v] 10.13 1995 Outside Directors Stock Option Plan
[v] 10.14 Settlement Agreement with Timothy Williams d/b/a Big
Apple Deli and Stipulated Dismissal with Prejudice
[i] 10.15 $550,000 Revolving line of credit loan dated January
31, 1996 (executed February 12,
1996) by BAB Systems, Inc. to Bagels Unlimited, Inc.
[iv]10.16 Employment agreement between the Company and
Owen Stern dated May 8, 1997
21.1 List of Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Muehl, Steffes & Krueger, S.C.,
independent auditors
23.3 Consent of Buonanno & Conolly, independent auditors
23.4 Consent of Counsel to the Company (filed as part of
Exhibit 5.1)
23.5 Consent of BDO Seidman, L.L.P., independent auditors
</TABLE>
- ----------------------------
[i] Incorporated by reference to the Company's Report on Form
10-KSB for the fiscal year ended November 30, 1995
[ii] Incorporated by reference to the Company's Report on Form 8-
K dated May 1, 1996
[iii] Incorporated by reference to the Company's Report on
Form 8-K dated May 21, 1996
[iv] Incorporated by reference to the Company's Report on Form 8-
K dated May 13, 1997
[v] Incorporated by reference to the Company's Registration
Statement on Form SB-2, effective November 27, 1995
(Commission File No. 33-98060C)
[vi] Incorporated by reference to the Company's Report on Form
10-QSB for the quarter ended February 28, 1997
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the ''Act'') may be permitted to
directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions or otherwise, the
small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection
with the securities being registered, the small business issuer
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the
small business issuer under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement and the offering of the
securities at that time as the initial bona fide offering of
those securities.
(3) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement to include any additional or changed material
information on the plan of distribution;
(4) For the purpose of determining any liability under the
Securities Act of 1933, treat each post-effective amendment as
a new registration statement of the securities offered, and
the offering of the securities at that time to be the initial
bona fide offering thereof.
(5) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the
end of the offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City
of Chicago, State of Illinois, on December 15, 1997.
BAB HOLDINGS, INC.
/s/ MICHAEL W. EVANS
-------------------------
By: Michael W. Evans,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
Signature Title Date
/s/MICHAEL W. EVANS President and Chief Executive December 15, 1997
- --------------------- Officer (Principal executive -----------------
Michael W. Evans officer and principal financial
and accounting officer)
and Director
/s/MICHAEL K. MURTAUGH Vice President, General Counsel December 15, 1997
- ----------------------- and Director -----------------
Michael K. Murtaugh
/s/DAVID L. EPSTEIN Director December 15, 1997
- ----------------------- -----------------
David L. Epstein
Director
- ------------------------ -----------------
Cynthia A. Vahlkamp
Director
- ------------------------ -----------------
Robert B. Nagle
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page No.
- ----------- ----------------------------------------------------- ---------
<S> <C> <C>
[i] 2.1 Asset Purchase Agreement dated February 2, 1996
between the Company, Brewster's Coffee Company, Inc.
and Peter D. Grumhaus
[ii] 2.2a Asset Purchase Agreement by and among BAB Systems,
Inc., Bagels Unlimited, Inc.("BUI"),
and Donald Nelson and Mary Ann Varichak dated May 1, 1996
[ii] 2.2b Non-Competition Agreement by and among the Company
and Donald Nelson and Mary Ann Varichak dated May 1, 1996
[ii] 2.2c Stock Option Agreement between the Company and BUI
dated May 1, 1996
[ii] 2.2d Registration Rights Agreement between the Company
and BUI dated May 1, 1996
[iii] 2.3a Asset Purchase Agreement by and between the Company
and Strathmore Bagels Franchise Corp. ("Strathmore")
dated May 21, 1996
[iii] 2.3b Stock Option Agreement dated May 21, 1996 between
the Company and Strathmore
[iii] 2.3c Registration Rights Agreement dated May 21, 1996
between the Company and Strathmore
[iii] 2.3d Non-Competition Agreement dated May 21, 1996 among
the Company, Strathmore, Jack Freedman and Glen Steuerman
[iii] 2.3e Memorandum of Understanding Regarding Form of
License Agreement effective November 30, 1995,
between Strathmore and Host International, Inc.
[iii] 2.3f Consent to Assignment between Strathmore and Host
International, Inc., dated March 13, 1996,
as amended May 21, 1996
[iv] 2.4a Acquisition Agreement dated May 1, 1997 by and among
BAB Holdings, Inc., BAB Acquisition Corp., My
Favorite Muffin, Too, Inc., Muffin Holdings of
Pennsylvania, a limited partnership, Ruth Stern,
Owen Stern, and Ilona Stern
[iv] 2.4b Registration Rights Agreement dated as of May 1,
1997 between BAB Holdings, Inc., and Owen Stern,
Ruth Stern, Ilona Stern and Pierce W. Hance.
[v] 3.1a Amended Articles of Incorporation of the Company
[vi] 3.1b Amended and Restated Statement of Designation,
Number, Voting Powers, Preferences and Rights of
Series A Convertible Preferred Stock as filed with
the Secretary of State of Illinois on March 26, 1997
[v] 3.2 Bylaws of the Company, as amended
[v] 4.1 Form of Stock Certificate evidencing Common Stock,
no par value
[v] 4.2 Subscription Agreement with the Aladdin International, Inc.
dated August 31, 1995
[v] 4.3 Amended Form of Warrant Issued to Aladdin International, Inc.
5.1 Opinion of Moss & Barnett, A Professional
Association, Counsel to the Company
[v] 10.1 Form of Franchise Agreement
[v] 10.2 Form of Franchise Agreement-Satellite
[v] 10.3 Form of Franchise Agreement-Wholesale
[v] 10.4 Form of Area Development Agreement
[v] 10.5 Confidentiality and Non-Competition Agreement with
Franchisees
[v] 10.6 Form of Confidentiality Agreement with Employees
[v] 10.7 Licensing Agreement dated November 20, 1992 between
the Company and Big Apple Bagels, Inc.
[v] 10.8 Assignment of Royalty Mark & Trademark to the
Company by Big Apple Bagels, Inc.
dated November 20, 1992
[v] 10.9 Agreement dated September 14, 1995 among the
Company, Big Apple Bagels, Inc. and Paul C. Stolzer
[i] 10.10 Consulting agreement dated February 16, 1996 between
Paul C. Stolzer and BAB Holdings, Inc.
[v] 10.11 Leases dated November 2, 1994 and February 14, 1995
for principal executive office
[v] 10.12 1995 Long-Term Incentive and Stock Option Plan
[v] 10.13 1995 Outside Directors Stock Option Plan
[v] 10.14 Settlement Agreement with Timothy Williams d/b/a Big
Apple Deli and Stipulated Dismissal with Prejudice
[i] 10.15 $550,000 Revolving line of credit loan dated January
31, 1996 (executed February 12,
1996) by BAB Systems, Inc. to Bagels Unlimited, Inc.
[iv]10.16 Employement agreement between the Company and Owen
Stern dated May 8, 1997
21.1 List of Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Muehl, Steffes & Krueger, S.C.,
independent auditors
23.3 Consent of Buonanno & Conolly, independent auditors
23.4 Consent of Counsel to the Company (filed as part of
Exhibit 5.1)
23.5 Consent of BDO Seidman, L.L.P., independent auditors
</TABLE>
- ----------------------------
[i] Incorporated by reference to the Company's Report on Form
10-KSB for the fiscal year ended November 30, 1995
[ii] Incorporated by reference to the Company's Report on Form 8-
K dated May 1, 1996
[iii] Incorporated by reference to the Company's Report on
Form 8-K dated May 21, 1996
[iv] Incorporated by reference to the Company's Report on Form 8-
K dated May 13, 1997
[v] Incorporated by reference to the Company's Registration
Statement on Form SB-2, effective November 27, 1995
(Commission File No. 33-98060C)
[vi] Incorporated by reference to the Company's Report on Form
10-QSB for the quarter ended February 28, 1997
Exhibit 5.1 Opinion of Moss & Barnett, A Professional Association,
Counsel to the Company
December 15, 1997
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
RE: BAB Holdings, Inc.
Registration Statement on Form S-3
Our File No. 54388.2
Dear Sir / Madam:
We are counsel for BAB Holdings, Inc. (the "Company") in
connection with the filing with the Commission of a Registration
Statement on Form S-3 (the "Registration Statement") for
registration of 708,219 shares of common stock of the Company, no
par value (the "Common Stock") offered solely by the shareholders
of the Company, who are named therein.
We have examined and are familiar with such documents and
corporate records of the Company as we have deemed necessary and
appropriate for the purpose of rendering the following opinion.
Based on the foregoing, we are of the opinion that:
The Shares of Common Stock offered pursuant to the Registration
Statement are validly issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the
caption "Legal Matters" in the Registration Statement and the Prospectus.
Very truly yours,
MOSS & BARNETT
A Professional Association
Janna R. Severance
Exhibit 21.1 List of Subsidiaries of BAB Holdings, Inc.
BAB Systems, Inc., an Illinois corporation
BAB Operations, Inc., an Illinois corporation
Brewster's Franchise Corporation, an Illinois corporation
Systems Investments, Inc., an Illinois corporation (a wholly-
owned subsidiary of BAB Systems, Inc., which is a subsidiary of
BAB Holdings, Inc.)
My Favorite Muffin Too, Inc., a New Jersey corporation
Exhibit 23.1 - Consent of Ernst & Young LLP, independent auditors
We consent to the reference to our firm under the caption
"Experts" in the Registration Statement (Form S-3) and the
related Prospectus of BAB Holdings, Inc. for the registration of
708,219 shares of its common stock and to the incorporation by
reference therein of our reports dated February 7, 1997 with
respect to the consolidated financial statements of the Company
included in its annual report (Form 10-KSB) for the year ended
November 30, 1996 and dated October 30, 1996 with respect to the
financial statements of Bagels Unlimited, Inc. included in the
Company's Current Report (Form 8-K/A) dated November 19, 1996
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Chicago, Illinois
December 15, 1997
Exhibit 23.2 - Consent of Muehl, Steffes & Krueger, S.C.,
independent auditors
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated June 13, 1996 for
Bagels Unlimited, Inc., in Amendment No. 2 to the Registration
Statement and the related Prospectus of BAB Holdings, Inc. for
the registration of 708,219 shares of its common stock.
MUEHL, STEFFES & KRUEGER, S.C.
December 15, 1997
Exhibit 23.3 - Consent of Buonanno & Connolly, CPA's,
independent auditors
We consent to the reference to our firm under the caption
"Experts" and to the use of our reports dated May 6, 1996 and
November 17, 1995 for Strathmore Bagels Franchise Corporation, in
the Registration Statement and the related Prospectus of BAB
Holdings, Inc. for the registration of 708,219 shares of its
common stock.
BUONANNO & CONOLLY, CPA'S
December 15, 1997
Exhibit 23.5 - Consent of BDO Seidman, L.L.P., independent auditors
We consent to the incorporation by reference in the Prospectus constituting
a part of this Registration Statement of our report dated May 19, 1997,
relating to the combined financial statements of My Favorite Muffin Too, Inc.
and My Favorite Muffin, Inc. appearing in the Company's Report on Form 8-K/A
dated December 15, 1997.
We also consent to the reference to us under the "Experts" in the Prospectus.
BDO SEIDMAN, L.L.P.
Philadelphia, Pennsylvania
December 15, 1997
