As filed with the Securities and Exchange Commission on May 15,1998
Registration No. 333-51337
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Pre-effective Amendment NO. 1
to
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, other than securities
offered in connection with dividend or interest reinvestment plans,
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.[_]
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 MAY 15, 1998
PROSPECTUS
3,693,734
BAB Holdings, Inc.
Common Stock
This Prospectus relates to the offering of up to 3,693,734 shares of
Common Stock of BAB Holdings, Inc. (the "Company") for the account of certain
shareholders of the Company (collectively the "Selling Shareholders"),
comprising 2,223,419 shares issuable from time to time pursuant to the terms
of the Company's outstanding Series A Convertible Preferred Stock (the
"Preferred Stock"), 450,000 shares issuable under an option agreement, 4,500
shares issuable upon exercise of an outstanding warrant, and 1,015,815 shares
which are currently outstanding. 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."
Pursuant to Rule 429 under the Securities Act of 1933, as amended, (the
"Act"), this Prospectus amends the Prospectuses of the Company dated August 6,
1997, and August 27, 1997 (which incorporates by reference the information
contained in the Prospectus of the Company dated August 6, 1997), and the
Supplement to such Prospectuses dated October 17, 1997 to increase the number
of shares offered by the Selling Shareholders as a result of operation of the
anti-dilution provisions of the Series A Convertible Stock held by certain of
the Selling Shareholders, to reflect the sale of shares by some Selling Share-
holders (thus removing such shares from this offering), and to provide more
current financial and other information concerning the Company.
The Company's Common Stock is currently quoted on The Nasdaq Stock Market's
Small-Cap Market ("Nasdaq") under the symbol "BAGL." On May 12, 1998, the
last reported sale price of the Common Stock, as reported by Nasdaq, was
$1.31 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 ___________, 1998.
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, [Telephone 1-800-SEC-0330] 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.
In addition, pursuant to Rule 429 under the Act, this Prospectus, which is
contained in such Form S-3 Registration Statement, amends the prospectuses
contained in the Company's registration statements on Form SB-2, Commission
File No.'s 333-29465 and 333-34425. For further information with respect to
the Company and securities offered hereby, reference is hereby made to the
Registration Statements and the exhibits and schedules thereto. Statements
made in this Prospectus as to the contents of any contract or other document
are not necessarily complete, and in each instance reference is made to such
contract or other document as filed as an exhibit to any such Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statements, 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, 1997.
2. The Company's Quarterly report on Form 10-QSB for the three months ended
February 28, 1998.
3. The description of the Company's Common Stock contained in the 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 written or
oral 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. Such information is also available from the Commission. See
also "AVAILABLE INFORMATION."
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 February 28, 1998 had 265
units in operation in 30 states and two Canadian provinces. The Copany
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 3,693,734 shares of which
2,223,419 are issuable from time
to time pursuant to the terms of
the Company's outstanding Series A
Convertible Preferred Stock,
450,000 are issuable under an
option agreement, 4,500 are
issuable upon exercise of an
outstanding warrant, and 1,015,815
are currently outstanding. See
"Selling Shareholders" and
"Description of Securities."
Common Stock to be Outstanding
After this Offering....................10,771,487 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) 250,500 shares of Common
Stock issuable upon exercise of a warrant issued to the underwriter of
the Company's initial public offering; (iv) 206,000 shares of Common
Stock issuable upon exercise of options issued in connection with
acquisitions; (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; or (vii) up to 175,420 shares of Common Stock
issuable upon exercise of warrants issued 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 February 28. 1998, the
Company had 27 Company-owned stores and 238 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 $105,000 for the three months
ended February 28, 1998 and $3,406,000 and $621,000 for the years ended
November 30, 1997 and 1996, 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 MFM. 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. During 1997 and 1998, the Company closed the
stores acquired from JBI (see Note 4 to the unaudited interim financial
statements incorporated herein.)
Recoverability of Intangible Assets
The Company has recorded significant intangible assets in connection
with certain acquisitions. Applicable accounting standards require the
Company to review long-lived assets (such as goodwill and other identifiable
intangible assets) to be held and used by the Company for impairment whenever
events or changes in circumstances indicate that the carrying values of those
assets may not be recoverable. In the fourth quarter 1997, the Company
recorded a provision for impairment and store closures totaling $1,837,000.
Of this amount, approximately $323,000 related to goodwill and other
intangible assets related to acquired stores which have been closed (see Note
4 to the unaudited interim financial statements incorporated herein.) While
management believes goodwill and other identifiable intangible assets recorded
as of February 28, 1998 to be fairly stated, there is no assurance that an
additional charge to write down assets will not be required in the future.
Any such charge could have a material effect on the Company's financial
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 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.
Terms of Credit Facility and Availability of Capital
In April 1997, the Company entered into a secured $2 million line of
credit facility with a bank which expires December 31, 1998. The line is
secured by substantially all of the assets of the Company and requires, among
other things, that the Company maintain minimum net worth of $8 million and a
compensating cash balance of $250,000. In February 1998, the Company fell
below the compensating cash balance requirement and obtained a waiver from the
bank to lower the requirement to $150,000 for 60 days which expired on April
25, 1998. While the Company is currently in compliance of the $250,000
compensating cash balance requirement, there can be no assurance that the
Company will remain within compliance. Additionally, at February 28, 1998,
the Company had borrowed $1,995,000 on the line of credit and the balance is
classified as a current liability. The Company is currently in the process of
renewing the line of credit with the bank and transferring a portion of the
borrowings to a secured line of credit. There can be no assurance that the
Company will be able to refinance the borrowings on terms favorable to the
Company. See Note 6 of the unaudited interim financial statements
incorporated herein.
Although the Company believes that its cash flows from current operations
and current financing arrangements will provide sufficient working capital
to enable the Company to meet operating requirements and compensating cash
balance requirements for the foreseeable future, there can be no assurance
that no additional financing will be required, 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 and Chesapeake 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 Personnel
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.
In November 1997, the Chief Financial Officer resigned from the Company. The
Company is in the process of hiring a qualified replacement.
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.
Potential Effects of Antitakeover Provisions
The Company is authorized to issue up to 4,000,000 shares of preferred
stock, 69,306 shares are issued and outstanding as of May 12, 1998. 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
The Shares offered by this Prospectus include an aggregate of 2,677,919
shares of Common Stock which are not currently outstanding, including
2,223,419 shares which are issuable pursuant to the terms of the Company's
outstanding Series A Convertible Preferred Stock, 450,000 shares which are
issuable under an option agreement, and 4,500 shares which are issuable upon
exercise of an outstanding warrant. Additionally, 647,235 shares of Common
Stock are issuable upon exercise of outstanding options and warrants issued in
various transactions. Upon issuance, these shares will be freely tradeable.
Further, 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 pursuant to 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 "The Offering" and "DESCRIPTION
OF SECURITIES."
Possible Delisting From Nasdaq SmallCap Market
If the Company fails to maintain 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
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. See also "RISK FACTORS - Penny Stock Regulation."
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
May 12, 1998, the number of shares offered hereby, and the number of shares
to be owned if all offered shares are sold. Shares "beneficially owned" by
a person include issued and outstanding shares which the person owns or
controls, plus shares which that person may acquire currently or within the
next 60 days pursuant to existing options, warrants, conversion rights or
other agreements.
<TABLE>
<CAPTION>
Number of Shares Owned
Number of Shares Following Sale
Shares Offered of Shares
Name Owned Hereby Offered Hereby
- ----------------------------- --------- -------- -----------------
<S> <C> <C> <C>
Aladdin International, Inc. 1,015,481 882,010 133,471
Cranshire Capital 24,927 24,927 --
E.P. Opportunity
Fund, L.L.C(1)(2) 379,177 378,177 --
Wolfgang and Barbara
Garbelmann 29,249 29,249 --
Dennis Hanish(3) 4,500 4,500 --
Keyway Investments Limited(2) 1,924,871 1,924,871 --
Strathmore Bagels
Franchising, Inc.(5) 450,000 450,000 --
</TABLE>
_____________________________
(1) Includes 79,629 Shares issued pursuant to conversion of a portion of
the Preferred Stock owned by the Selling Shareholder.
(2) The number of shares offered assumes conversion of all Preferred Stock
owned by the Selling Shareholder. Because the conversion price is subject
to change in relation to the market price of the Company's Common Stock
(see "Description of Securities - Preferred Stock"), the number of Shares
actually received upon conversion and, accordingly, the number of Shares
to be sold pursuant to this Prospectus may change.
(3) A Selling Shareholder offering Shares issuable upon exercise of warrants
to purchase the Company's Common Stock. See "Description of Securities--
Outstanding Options and Warrants."
(4) A Selling Shareholder offering Shares issuable upon exercise of an option
to purchase the Company's Common Stock. See "Description of Securities--
Outstanding Options and Warrants."
All of the Selling Shareholders, except Aladdin International, Inc.
("Aladdin"), Strathmore and Mr. Hanish, hold Shares issued or are issuable
pursuant to the conversion features of the Company's Preferred Stock. Aladdin
currently holds all Common Stock in an amount equal to approximately 12.5% of
the outstanding Common Stock of the Company. Mr. Hanish is a registered
representative of the investment banking firm that served as the underwriter
of the Company's initial public offering and is selling shares of Common Stock
issuable upon exercise of a portion of the warrant granted to the underwriter
in connection with such offering. Other than as noted above, none of these
Selling Shareholders has had any position, office or other material
relationship with the Company.
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, including 120,000 shares which have been designated as Series A
Convertible Preferred Stock (the "Preferred Stock.") As of the date of this
Prospectus, there are outstanding 8,093,568 shares of the Company's Common
Stock and 69,306 shares of Preferred Stock; 32,290 shares of Preferred Stock
remain authorized but unissued.
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 Stock. 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 16% 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 32,290 shares of
Preferred Stock and the remaining authorized 3,880,000 undesignated shares of
preferred stock. The currently undesignated shares may be issued 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, as may be determined by the Board of Directors, without
shareholder approval. 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.
Series A Convertible Preferred Stock
As of the date of this Prospectus, there are outstanding 69,306 shares
of Series A Convertible Preferred Stock, 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 Stock.
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
Stock will be retired and canceled and cannot be reissued.
The principal terms of the Preferred Stock are as follows:
Dividends. From and after the date of issuance until the Expiration
Date (defined below), the holders of the Preferred Stock 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 shares of the Preferred Stock
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
Stock 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 Stock are not entitled to share in or
receive any remaining assets or funds available for distribution to
shareholders.
Voting. The holders of the Preferred Stock have no rights to vote,
except as may be required by law.
Optional Conversion. The holders of the Preferred Stock may convert
such Preferred Stock 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 share of Preferred Stock
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 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 Stock during a Conversion Suspension
Period. During any Conversion Suspension Period, the Company, at its option,
may redeem any or all of the Preferred Stock 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 the 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 Stock.
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. These
warrants expire on November 27, 2000. Included in this Prospectus are 4,500
shares issuable to one of the underwriter's employees. See "Selling
Shareholders."
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 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 remaining 450,000 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 Shareholders."
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 Preferred Stock, the Company 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, who 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 who in
turn may sell such securities. The Common Stock offered hereby also may be
sold pursuant to Rule 144 of the Securities Act.
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.
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.
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 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.
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.
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, 1997
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein, and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference 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 $ 630
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 $ 18,630
========
</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.
[vii] 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
[vi] 21.1 List of Subsidiaries of the Company
[vii]23.1 Consent of Ernst & Young LLP, 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
[vii] Filed as an exhibit to this Registration Statement on Form S-3
(Commission File No. 333-51337) on April 29, 1998
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 May
15, 1998.
BAB HOLDINGS, INC.
By: /s/ MICHAEL W. EVANS
Michael W. Evans,
President and Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the 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 May 15, 1998
- --------------------- Officer (Principal executive
Michael W. Evans officer) and Director
/s/ MICHAEL K. MURTAUGH Vice President, General May 15, 1998
- ----------------------- Counsel and Director
Michael K. Murtaugh
/s/ TOM J. FLETCHER Chief Operating Officer May 15, 1998
- ------------------- (Principal financial and
Tom J. Fletcher accounting officer)
* Director May 15, 1998
- --------------------
David L. Epstein
* Director May 15, 1998
- -------------------
Robert B. Nagel
- ------------------- Director
Cynthia A. Vahlkamp
* - Executed by the undersigned as
attorney-in-fact for the named signatory.
By: /s/ MICHAEL W. EVANS
--------------------
Michael W. Evans
