FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: February 27, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission file number: 0-27068
BAB Holdings, Inc.
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(Name of small business issuer in its charter)
Illinois 36-3857339
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8501 West Higgins Road, Suite 320, Chicago, Illinois 60631
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (773) 380-6100
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(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,237,557 shares of Common
Stock, as of April 11, 2000.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements ...................................
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation ..................
PART II
Item 1. Legal Proceedings.......................................
Item 2. Changes in Securities...................................
Item 3. Defaults Upon Senior Securities.........................
Item 4. Submission of Matters to a Vote of Security Holders.....
Item 5. Other Information.......................................
Item 6. Exhibits and Reports on Form 8-K........................
SIGNATURE ........................................................
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BAB Holdings, Inc.
Condensed Consolidated Balance Sheet
February 27, 2000
(Unaudited)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents, including
restricted cash of $ 109,099 $ 214,411
Receivables
Accounts receivable, net of allowance for
doubtful accounts of $816,333 1,165,385
National Marketing Fund contributions receivable
from franchisees and stores 442,363
Notes receivable, net of allowance for
doubtful accounts of $181,529 465,847
Inventory 233,752
Assets held for sale 1,191,236
Prepaid and other current 305,290
Deferred income taxes 530,005
------------
Total current assets 4,548,289
Property and equipment, net of
accumulated depreciation of $1,514,695 1,904,984
Notes receivable 439,848
Patents, trademarks and copyrights, net of accumulated
amortization of $216,202 960,270
Goodwill, net of accumulated amortization of $250,031 2,493,233
Franchise contract rights, net of accumulated
amortization of $293,573 1,790,392
Other, net of accumulated amortization of $330,253 461,687
------------
$ 12,598,703
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 912,348
Accrued liabilities 903,704
Liability for store conversions 133,200
Accrued professional and other services 226,083
Unexpended National Marketing Fund contributions 586,083
Current portion of long-term debt 1,658,210
Deferred franchise fee revenue 152,410
------------
Total current liabilities 4,572,038
Noncurrent liabilities:
Deferred revenue 356,180
Deferred income taxes 350,005
Long-term debt, net of portion included
in current liabilities 1,204,338
-----------
Total noncurrent liabilities 1,910,523
-----------
Stockholders' equity:
Common stock 13,507,669
Additional paid-in capital 1,187,696
Treasury stock (43,963)
Accumulated deficit (8,535,260)
-----------
Total stockholders' equity 6,116,142
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$ 12,598,703
============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
BAB Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED
FEBRUARY 27 FEBRUARY 28
2000 1999
--------------------------
REVENUES
<S> <C> <C>
Net sales by Company-owned stores $ 2,265,392 $ 2,086,087
Royalty fees from franchised stores 752,096 815,080
Licensing fees and other income 245,737 237,273
Franchise and area development fees 239,400 130,500
-------------------------
3,502,626 3,268,940
OPERATING COSTS AND EXPENSES
Food, beverage, and paper costs 655,840 704,807
Store payroll and other operating expenses 1,560,043 1,196,353
Selling, general, and administrative expenses
Payroll-related 506,450 553,179
Occupancy 83,351 61,814
Advertising and promotion 52,817 77,714
Professional service fees 78,856 105,095
Franchise-related expenses 18,842 55,408
Depreciation and amortization 212,354 292,449
Travel 33,980 55,019
Other 212,763 232,586
--------------------------
Total Operating Costs and Expenses 3,415,295 3,334,423
--------------------------
Income (loss) before interest 87,330 ( 65,483)
Interest expense ( 82,556) ( 39,022)
Interest income 15,881 31,099
--------------------------
Net income (loss) 20,655 (73,406)
Preferred stock dividends accumulated - (45,699)
---------- -------
Net income (loss) attributable to
common shareholders $ 20,655 $ (119,105)
===========================
Basic and diluted loss
per common share $ 0.01 $ (0.09)
==========================
Average number of shares outstanding-
basic and diluted 2,237,557 1,394,210
===========================
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
BAB Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED
FEB 27 FEB 28
2000 1999
-------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 20,655 $ (73,406)
----------- ---------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 212,355 292,449
(Increase) decrease in
Trade accounts receivable (59,375) (206,674)
National Marketing Fund contributions
receivable (27,046) (40,810)
Inventories 60,086 (22,203)
Deferred franchise costs - 10,590
Notes receivable (125,000) 59,969
Prepaid expenses and other assets (28,574) (134,777)
Increase (decrease) in
Accounts payable (27,439) (14,466)
Accrued professional and other services ( 3,070) 1,413
Reserve for closed store expenses (35,520) -
Accrued liabilities 55,141 13,988
Unexpended National Marketing Fund
franchisee contributions 41,456 43,253
Jacobs Bros. non-compete agreement (27,000) -
Deferred franchise fee revenue (115,090) (125,500)
Other deferred revenue 46,392 ( 52,121)
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Total Adjustments (32,684) (174,889)
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Net Cash (Used in)
Operating Activities (12,029) (248,295)
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Cash Flows from Investing Activities
Purchases of property and equipment $ - $ (184,745)
Sale of property and equipment 143,522 -
Collection of notes receivable 131,327 4,647
Acquisition of Jacobs Bros. Bagels - (950,000)
Sale of Assets held for sale 132,500 450
Other ( 327) 34,453
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Net Cash Provided (Used in)
Investing Activities 407,022 (1,095,195)
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Cash Flows from Financing Activities
(Repayments)Borrowing on line of credit (159,876) (109,465)
Borrowings to finance Acquisition - 1,100,000
Debt repayments (51,524) (25,707)
----------- ----------
Net Cash (Used in) Provided
by Financing Activities (211,400) 964,828
----------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents 183,593 (378,662)
Cash and Cash Equivalents, Beginning of Year 30,818 700,162
----------- ---------
Cash and Cash Equivalents, End of Quarter $ 214,411 $ 321,500
=========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
BAB Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
BAB Holdings, Inc. (the Company) is an Illinois corporation incorporated on
November 25, 1992. The Company has four wholly owned subsidiaries: BAB
Operations, Inc. (Operations); BAB Systems, Inc. (Systems); Brewster's
Franchise Corporation (BFC); and My Favorite Muffin Too, Inc. (MFM). Systems
was incorporated on December 2, 1992, and was primarily established to
franchise "Big Apple Bagels" specialty bagel retail stores. Systems has a
wholly owned subsidiary, Systems Investments, Inc. (Investments), which was
created to operate the first Company-owned "Big Apple Bagels" store which,
until December 1995, also operated as the franchise training facility.
Investments also owned a 50% interest in a joint venture which operated a
franchise satellite store. During fiscal 1997, the stores operated by
Investments and by the joint venture were sold and are currently operating as
franchised stores. As of November 1998, Investments was dissolved and
merged into the parent company, Systems. Operations was formed on August 30,
1995, primarily to operate Company-owned stores, currently "Big Apple Bagels"
and "Brewster's Coffee" concept stores including one which currently serves as
the franchise training facility. BFC was established on February 15, 1996,
to franchise "Brewster's Coffee" concept coffee stores. MFM, a New Jersey
corporation, was acquired on May 13, 1997. MFM franchises and operates
Company-owned "My Favorite Muffin" concept muffin stores. The assets of
Jacobs Bros. Bagels (Jacobs Bros.) were acquired on February 1, 1999. See
Note 8. The Company continues to operate four stores with the Jacob Bros.
name.
The accompanying condensed consolidated financial statements are unaudited.
These financial statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. In the opinion of the
Company's management, the condensed consolidated financial statements for the
unaudited interim periods presented include all adjustments necessary to
fairly present the results of such interim periods and the financial position
as of the end of said period. These adjustments were of a normal recurring
nature and did not have a material impact on the financial statements
presented.
2. Stores Open and Under Development
Stores which have been opened at February 27, 2000 are as follows:
Stores opened:
Company-owned 20
Franchisee-owned 179
Licensed 60
---
259
3. Special Charge
During the fourth quarter of 1999, the Company made the decision to refranchise
certain Company-owned stores, in order to concentrate on franchising and
marketing and building equity in the branding of its trademarked names and
products. The Company-owned stores, which were to be converted to franchised
units were written down to fair value based upon actual selling prices or, if
not sold prior to year-end, upon management's judgment based upon the
previous sale of such assets. Management's judgment is inherent in the
estimated fair value determinations and, accordingly, actual results could
vary significantly from such estimates. The estimated fair value of the
remaining assets to be sold totaled $1,191,236 and was recorded as a current
asset as of February 27, 2000.
The actual and planned conversions resulted in a pre-tax loss of $1,600,406
during the fourth quarter of 1999. As of February 27, 2000, $133,200 of the
charge, primarily for severance and lease termination costs, remains as a
liability for store conversions.
4. Preferred Stock - Series A Convertible Preferred Stock
On October 21, 1999 the remaining 60,000 shares of the Company's Series
A convertible preferred stock plus accumulated dividends were converted
in accordance with the terms of the preferred stock to an aggregate of
818,491 shares of common stock by the holder of the preferred stock,
Holdings Investments, LLC an Illinois limited liability company
(the "LLC"). (See Schedule 13D filed on behalf of the LLC on October
29, 1999.) No cash or other consideration was required or paid in
connection with the conversion. The Common Stock was issued to one
investor (the LLC) in a non-public offering in reliance on Section 4(2)
of the Securities Act of 1933.
5. Line of Credit Agreement
The Company had a secured $1.75 million line-of-credit facility (Line) with a
bank which expired December 31, 1999. Maximum borrowing under the Line was
limited to 80% of accounts receivable under 90 days and 40% or original cost
of equipment, furniture and fixtures. Interest was payable monthly at prime
plus 1% with principal due upon maturity on December 31, 1999.
In December 1999, the Company entered into a new bank credit facility for $1.5
million. This new credit line is secured by substantially all of the assets of
the Company excluding those acquired through the Jacobs Bros. acquisition and
requires, among other things, that the Company maintain minimum net worth of
$6 million. Maximum borrowing terms under the Line are identical to the
previously expired agreement. See Exhibit 10.17 that is attached to this
filing. The interest rate on this new line of credit is prime plus 4%
(12.75% at February 27, 2000). As of February 27, 2000, the Company had
borrowed $1,497,617 on the Line. The new Line expires on April 29, 2000,
however, it is management's expectation that this agreement will be renewed
by the bank or that a similar arrangement with another lender will be
concluded.
6. Notes Payable
In June 1999, the Company obtained an amortizing loan in the amount of
$170,000 from a finance company. Proceeds were used to purchase two stores
from a franchisee in Wisconsin.
In February 1999, the Company obtained a series of amortizing loans in the
amount of $1,350,000 from a finance company. Loan proceeds were used to
purchase certain assets of Jacobs Bros. Bagels, equipment and fund remodeling
required on the units acquired in the purchase.
7. Earnings (Loss) per Share
The following tables sets forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEB 27 FEB 28
2000 1999
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<S> <C> <C>
Numerator:
Net income (loss) $ 20,655 $ (73,406)
Preferred stock dividend accumulated - (45,699)
---------- ----------
Numerator for basic and diluted loss
per share- loss attributable to common
shareholders $ 20,655 $(119,105)
========== ==========
Denominator:
Denominator for basic and diluted
loss per share--weighted
average shares 2,237,557 1,394,210
========== ==========
Basic and diluted loss per share $ 0.01 $ (0.09)
========= ==========
</TABLE>
Options to purchase 81,310 shares of common stock at varying prices are
outstanding at February 27, 2000 under the Company's 1995 Long-Term Incentive
and Stock Option Plan (the Incentive Plan) and the 1995 Outside Directors
Stock Option Plan (the Directors' Plan). Also outstanding during the period
ended February 27, 2000 was a warrant sold in connection with the Company's
initial public offering to the underwriter to purchase 42,498 shares of
common stock at $19.20 per share. Additionally, in connection with various
acquisitions, the Company issued options to purchase 83,333 shares of
common stock issuable at varying exercise prices ranging from $7.50 per share
to $9.00 per share. Further, a warrant issued to the placement agent of the
Preferred Stock to purchase 2,219 shares of common stock at $19.74 per share
was outstanding.
The exercise of options and warrants outstanding during the quarters ended
February 27, 2000 and February 28, 1999 and the conversion of convertible
securities outstanding during the quarter ended February 28, 1999 is not
assumed as the result is antidilutive to the reported loss per share.
8. Acquisitions and Dispositions
During the first quarter of fiscal 2000, the Company sold three stores
identified as part of the restructuring. The stores were sold at or near
their estimated fair market value as determined in the fourth quarter of
1999. Consequently, the sale of the stores had no material impact on
earnings. The Company-owned stores were converted to franchised units.
During the fourth quarter of 1999, the Company acquired a store from a
franchisee as consideration for forgiveness of a note receivable. The Company
operated the store until it was sold during the first quarter of fiscal 2000.
In addition, the Company accepted a prepayment at a discount on a note
receivable during the first quarter of 2000. The notes receivable were
adequately reserved for and, consequently, the transactions had no impact on
earnings.
On February 1, 1999, the Company purchased certain assets of a related group
of entities doing business as Jacobs Bros. Bagels (Jacobs Bros.), a chain
operating retail bagel stores in the Chicago, Illinois area. The assets
acquired include eight retail locations and a central commissary facility in
exchange for $950,000 in cash and warrants to acquire 83,333 shares of the
Company's common stock. The warrants provide for the purchase of 45,833
shares and 37,500 shares of common stock at an exercise price of $7.50 and
$9.00 per share, respectively. The warrants are first exercisable on
February 1, 2000 and expire on January 31, 2006. None of the warrants were
exercised as of February 27, 2000. Further, the Company entered into
noncompetition agreements with two principals of Jacobs Bros. totaling
$210,000 to be paid over varying periods. Finally, the Company issued 26,666
shares of the Company's common stock to the investment banker for services in
connection with the acquisition, valued at $140,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations, 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. Certain risks
and uncertainties are wholly or partially outside the control of the
Company and its management, including its ability to attract new
franchisees; the continued success of current franchisees; the effects
of competition on franchisee and Company-owned store results; consumer
acceptance of the Company's products in new and existing markets;
fluctuation in development and operating costs; brand awareness;
availability and terms of capital; adverse publicity; acceptance of new
product offerings; availability of locations and terms of sites for
store development; food, labor and employee benefit costs; changes in
government regulation (including increases in the minimum wage; regional
economic and weather conditions; the hiring, training, and retention of
skilled corporate and restaurant management; and the integration and
assimilation of acquired concepts. Accordingly, readers are cautioned
not to place undue reliance on these 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.
GENERAL
Since its inception in November 1992, the Company has grown to 20
Company-owned stores and 239 franchised and licensed units at
February 27, 2000. Units in operation at February 28, 1999 included 27
Company owned stores and 266 franchised and licensed units. System-wide
revenues in the first quarter 2000 reached $18.8 million compared to $19.9
million in the year ago period.
The Company's revenues are derived primarily from the operation of
Company-owned stores, initial franchise fees and ongoing royalties paid
to the Company by its franchisees. Additionally, the Company derives revenue
from the sale of licensed products as a result of purchasing trademarks (My
Favorite Muffin and Brewster's) and licensing contracts (licenses with Host
Marriott), and by directly entering into licensing agreements (Mrs. Fields
Cookies). The increase in overall revenues has reduced the dependence on the
initial franchise fees as a source of income.
During the fourth quarter of fiscal 1999, management identified thirteen
under-performing stores which were operating at a loss and which, based
on the estimated future cash flows, were considered to be impaired.
In accordance with the Financial Accounting Standards Board Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and the Emerging Issues Task Force Issue No.
94-3, "Liability Recognition of Costs to Exit an Activity," management
recorded a provision for impairment of assets and store closures which
totaled approximately $1,600,000. Approximately $1,236,000 represents a
noncash write-down of property and equipment, $113,000 is related to the
write down of intangible assets and the remainder represents a reserve for
severance and other costs. One store was closed and one store was sold during
fiscal 1999 with the remaining eleven stores expected to be sold during fiscal
year 2000. In addition the Company wrote down and reserved $1,044,000 of
franchise-related receivables pertaining to closed stores.
Despite the increase in both franchise and licensed operations and the
acquisition of Jacobs Bros., the Company has controlled expenses in payroll,
occupancy and overhead costs in the corporate offices. At February 27,
2000, the Company had 32 employees at the corporate level who oversee
operations of the franchise, licensed and Company-owned store
operations, down from 43 at February 28, 1999. Selling, general and
administrative expenses, net of depreciation and amortization, are
significantly below the first quarter 1999 both as a percentage of revenue and
also in absolute dollars. Efficiencies have resulted in selling, general and
administrative expenses, net of depreciation and amortization, decreasing
to 28.2% in 2000 compared to 34.9% in 1999 which was achieved with a 7.2%
increase in revenue. On an absolute basis, selling, general and administrative
expenses were $154,000 lower in 2000 than in 1999. Management expects that
these costs, as a percentage of revenue, will continue to decline as
additional franchise and non-traditional sources of revenue are added. The
Company believes it is in a position to continue to leverage selling, general
and administrative expenses against increased revenues anticipated in fiscal
2000.
Results of Operations
Three Months Ended February 27, 2000 versus Three Months Ended February 28,
1999.
Total revenues increased 7% to $3,503,000 in the first quarter 2000 from
$3,269,000 in the prior year quarter. The number of Company stores in
operation in the three months ended February 27, 2000 were 20 stores in
operation for the full three months and 3 additional stores open for varying
portions of the three month period. For the three months ended February 28,
1999 there were 18 stores owned and operated for 2 months and 27 stores owned
and operated for one month. In addition, severe weather in the Midwest
during the month of January 1999 greatly decreased Company owned store sales
which resulted in lower company store sales revenue than would have been
expected during the first quarter of fiscal 1999.
There was an 8% decrease in royalty revenues, which were $63,000 lower than
that generated in the year-ago quarter. This decrease is attributed to the
overall decrease in the number of franchised units open during the current
year period. Licensing fees and other income in total increased $8,000 to
$246,000 from the year-ago period. Finally, franchise and area development fee
revenue increased 83% to $239,000 from the year-ago period because of the
number of store openings and one international deal.
Costs associated with Company-owned store operations as a percentage of sales
increased 7% in the first quarter 2000 versus 1999. However, stores that have
been identified as part of the restructuring program contributed a combined
loss of $62,000 for the most recent quarter ended.
Selling, general and administrative expenses, net of depreciation and
amortization, are significantly below the first quarter 1999 both as a
percentage of revenue and also in absolute dollars. Efficiencies have
resulted in selling, general and administrative expenses, net of depreciation
and amortization, decreasing to 28.2% of revenue in 2000 compared to 34.9% in
1999 which was achieved with a 7.2% increase in revenue. On an absolute
basis, selling, general and administrative expenses were $154,000 lower in 2000
than in 1999.
Income from operations was $87,00 in the first quarter of fiscal 2000 versus
a loss of ($65,000) generated in the prior year period. Interest expense
increased to $83,000 in the three months ended February 27, 2000.
This was due to additional debt relating to the Jacobs Bros. acquisition.
Net income was $21,000 in the quarter ended February 27, 2000 versus a loss of
($119,000) in the year-ago quarter. Dividends on the Preferred Stock of
$46,000 were accumulated during the year ago period.
Net income per share for the quarter ended February 27, 2000 was $0.01 versus a
loss per share for the year-ago quarter of ($0.09) on both a basic and diluted
basis. Average shares outstanding increased by 843,000 shares due to the
conversion of 60,000 shares of Preferred Stock to 818,000 shares of Common
Stock on October 21, 1999.
Liquidity and Capital Resources
The net cash used by operating activities totaled $12,000 during the first
quarter of fiscal 2000. Cash used represents the net income, adjusted for
depreciation and amortization of $212,000, and is offset principally by an
increase in notes receivable of $125,000, an increase in accounts receivable of
$59,000 and a decrease in deferred franchise fee revenue of $115,000.
Inventories were reduced by $60,000 versus the year ago period. The net cash
used in operating activities in the year-ago quarter totaled $248,000.
Investing activities provided $407,000 during the three months ended February
27, 2000, and consisted of sales of Company stores and collection of notes
receivable. In the year ago period, investing activities used $1,095,000
because of the Jacobs Bros. acquisition.
Cash used in financing activities was $211,000 during the three months
ended February 27, 2000 and relates to repayments under the Company's Line of
Credit and other borrowings. During the quarter ended February 28, 1999, cash
provided by financing activities of $965,000 relates primarily to the
borrowings received to finance the Jacobs Bros. acquisition.
The net increase in cash and equivalents was $184,000 in fiscal 2000 versus a
decrease in cash and equivalents of $379,000 in the quarter ended February
28, 1999.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs written to
identify the applicable year with two digits rather than four. As
written, these programs may identify the year "00" as 1900 rather than
2000, which could result in system miscalculations or systems failure
leading to potentially substantial business disruptions. The Company
had no material problems with the Year 2000 issue subsequent to year end.
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
On February 1, 1999 the Company issued warrants for purchase of an
aggregate of 83,333 shares of the Company's Common Stock in connection
with the acquisition of certain assets of Jacobs Bros. These warrants
are exercisable at an exercise price of $7.50 per share as to 45,833
shares and $9.00 per share as to 37,500 shares commencing February 1,
2000 and ending on January 31, 2006. The warrants were offered and sold
without registration under the Act in reliance upon Section 4(2) of the
Act.
On February 26, 1999 the Company issued a total of 26,666 shares of
Common Stock in connection with services rendered in the Jacobs Bros.
acquisition, including 10,833 shares which may be deemed to be
beneficially owned by David Epstein, a member of the Board of Directors
of the Company. Such securities were offered and sold without
registration under the Act in reliance upon Section 4(2) of the Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were voted upon at the registrant's special meeting
Of shareholders held on December 8, 1999. Each of the proposals passed.
1. Amendment of the Articles of Incorporation to effect a Common Stock
Combination of both the authorized and outstanding Common Stock in a
ratio not to exceed 6:1 (each six shares will become one share.)
For 11,520,349 Against 1,403,182 Abstain 14,995 Non-vote 0
2. Amendment of the Articles of Incorporation to increase the authorized
Capital stock to its pre-combination level.
For 11,310,685 Against 1,588,246 Abstain 18,251 Non-vote 21,344
Broker non votes were not counted as "present and entitled to vote."
The Common Stock combination of 6:1 was effected on December 10, 1999.
ITEM 5. OTHER INFORMATION
On April 10, 2000 the Company announced that it executed a letter of intent to
merge with a leading New York-based Internet incubator. See press release
attached as Exhibit 99.1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
EXHIBITS
The following exhibits are filed herewith.
Exhibit No. Description of Exhibit
- ----------- -------------------------------------------------------------
[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
[vii] 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.
[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 Program Agreement dated February 10, 1997 between
BAB Systems, Inc. a wholly owned subsidiary of
the Company, and Franchise Mortgage Acceptance
Company LLC
[iv] 10.16 Employment agreement between the Company and Owen
Stern dated May 8, 1997
[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-KSB for
the fiscal year ended November 30, 1996
[vii] Incorporated by reference to the Company's Report on Form 10-QSB
for the quarter ended February 28, 1997
INDEX TO EXHIBITS
INDEX NUMBER DESCRIPTION
10.17 Loan document- CIB Line of Credit dated 12/31/99.
99.1 Letter of intent press release dated 04/10/00.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BAB HOLDINGS, INC.
Dated: April 12, 2000 By: /s/ MARK E. MAJEWSKI
--------------------
Mark E. Majewski
Chief Financial Officer
(Principal financial and
accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF BAB HOLDINGS, INC. FOR THE
THREE MONTH PERIOD ENDED FEBRUARY 28, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-26-2000
<PERIOD-END> FEB-27-2000
<CASH> 214,411
<SECURITIES> 0
<RECEIVABLES> 1,981,718
<ALLOWANCES> (816,333)
<INVENTORY> 233,752
<CURRENT-ASSETS> 4,548,289
<PP&E> 3,419,679
<DEPRECIATION> (1,514,695)
<TOTAL-ASSETS> 12,598,703
<CURRENT-LIABILITIES> 4,572,038
<BONDS> 2,862,548
0
0
<COMMON> 13,507,669
<OTHER-SE> (7,391,527)
<TOTAL-LIABILITY-AND-EQUITY> 12,598,703
<SALES> 2,265,392
<TOTAL-REVENUES> 3,502,626
<CGS> 655,840
<TOTAL-COSTS> 3,415,295
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,556
<INCOME-PRETAX> 20,655
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,655
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
LOAN AGREEMENT
Borrower: BAB Holdings, Inc.
8501 W. Higgins Road, Suite 320
Chicago, Illinois 60631
Lender: CIB Bank
101 N. Wolf Road
Hillside, IL 60162
THIS LOAN AGREEMENT between BAB Holdings, Inc. ("Borrower") and CIB BANK
("Lender") is made and executed on the following terms and conditions.
Borrower has received prior commercial loans from Lender or has applied to
Lender for a commercial loan or loans and other financial accommodations,
including those which may be described on any exhibit or schedule attached to
this Agreement. All such loans and financial accommodations, together with
all future loans and financial accommodations from Lender to Borrower, are
referred to in the Agreement individually as the "Loan" and collectively as
the "Loans." Borrower understands and agrees that: (a) in granting, renewing,
or extending any Loan, Lender is relying upon Borrower's representations,
warranties, and agreements, as set forth in this Agreement; (b) the granting,
renewing, or extending of any Loan by Lender at all times shall be subject to
Lender's sole judgment and discretion; and (c) all such Loans shall be and
shall remain subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of December 31, 1999, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms In the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time together with all
exhibits and schedules attached to this Loan Agreement from time to time.
Account. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to Borrower
(or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity
obligated upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds under this
Agreement.
Borrower. The word "Borrower" means BAB Holdings, Inc. The word "Borrower"
also Includes, as applicable, all subsidiaries and affiliates of Borrower as
provided below in the paragraph titled "Subsidiaries and Affiliates."
Borrowing Base. The words "Borrowing Base" mean, as determined by Lender
from time to time, the lesser of (a) $1,500,000.00; or (b) the sum of (i)
75.000% of the aggregate amount of Eligible Accounts, plus (ii) 40.000% of
the aggregate amount of Eligible Equipment.
Business Day. The words "Business Day" mean a day on which commercial banks
are open for business in the State of Illinois.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive
of extraordinary gains and income, plus depreciation an amortization.
Collateral. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether granted
now or in the future, and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt lien, charge,
lien or title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever whether created by
law, contract, or otherwise. The word "Collateral" Includes without
limitation all collateral described below in the section titled "COLLATERAL."
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and condition acceptable to
Lender. The net amount of any Eligible Account against which Borrower may
borrow shall exclude all returns, discounts, credit and offsets of any
nature. Unless otherwise agreed to by Lender in writing, Eligible Accounts do
not include:
(a) Accounts with respect to which the Account Debtor Is an officer, an
employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary of, or
affiliated with or related to Borrower or its shareholders, officers or
directors.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by the Account
Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a resident of
the United States, except to the extent such Accounts are supported by
insurance, bonds or other assurances satisfactory to Lender.
(e) Accounts with respect to which Borrower is or may become liable to the
Account Debtor for goods sold or services rendered by the Account Debtor to
Borrower.
(f) Accounts which are subject to dispute, counterclaim, or setoff.
(g) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account Debtor.
(h) Accounts with respect to which Lender, in its sole discretion, deems the
creditworthiness or financial condition of the Account Debtor be
unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed against it
a petition in bankruptcy or an application for relief under any provision of
any state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who
has had appointed a trustee, custodian, or receiver for the assets of such
Account Debtor; or who has made an assignment for the benefit of creditors or
has become insolvent or fails general to pay its debts (including its
payrolls) as such debts become due.
(j) Accounts with respect to which the Account Debtor is the United States
government or any department or agency of the United States.
(k) Accounts which have not been paid in full within 90 days from the invoice
date.
Eligible Equipment. The words "Eligible Equipment" mean, at any time, all of
Borrower's Equipment as defined below except:
(a) Equipment which is not owned by Borrower free and clear of all security
interests, liens, encumbrances, and claims of third parties.
(b) Equipment which Lender, in its sole discretion, deems to be obsolete,
unsalable, damaged, defective, or unfit for operation.
(c) Any equipment financed by others.
Equipment. The word "Equipment" means all of Borrower's goods used or bought
for use primarily in Borrower's business and which are not included in
inventory, whether now or hereafter existing.
ERISA. The word 'ERISA" means the Employee Retirement income Security Act of
1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"EVENTS OF DEFAULT."
Expiration Date. The words "Expiration Date" mean the date of termination of
Lender's commitment to lend under this Agreement.
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security interest in any Collateral
for the indebtedness, including without limitation all Borrowers granting
such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in connection
with any indebtedness.
Indebtedness. The word "indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or hereafter
existing, voluntary or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a guarantor,
surety, or otherwise; whether recovery upon such indebtedness may be or
hereafter may become barred by any statute of limitations; and whether such
indebtedness may be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means CIB BANK, its successors and assigns.
Line of Credit. The words "Line of Credit" mean the credit facility
described in the section titled "LINE OF CREDIT" below.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced, including
without limitation those loans and financial accommodations described herein
or described on any exhibit or schedule attached to this Agreement from time
to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being contested
in good faith; (c) liens of material men, mechanics, warehousemen, or
carriers, or other like liens arising in the ordinary course of business and
securing obligations which are not yet delinquent; (d) purchase money liens
or purchase money security interests upon or in any property acquired or held
by Borrower in the ordinary course of business to secure indebtedness
outstanding on the date of this Agreement or permitted to be incurred under
the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens and
security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of Borrower's
assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the indebtedness.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements understandings
or other agreements, whether created by law, contract, or otherwise,
evidencing, governing, representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt lien or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act
of 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
Net Worth. The words "Net Worth" mean Borrower's total assets excluding all
intangible assets (i.e., goodwill, trademarks, patents, copyrights,
organizational expenses, and similar intangible items, but including
leaseholds and leasehold improvements) less total Debt.
Working Capital. The words "Working Capital" mean Borrower's current assets,
excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the
aggregate amount of such Advances outstanding at any time does not exceed the
Borrowing Base. Within the foregoing limits, Borrower may borrow, partially
or wholly prepay, and reborrow under this Agreement as follows.
Conditions Precedent to Each Advance. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject to
the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all Related
Documents have been duly authorized, executed, and delivered by Borrower to
Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly authorized,
created, and perfected with first lien priority and shall be in full force
and effect.
(d) All guaranties required by Lender for the Line of Credit shall have been
executed by each Guarantor, delivered to Lender, and be in full force and
effect.
(e) Lender, at its option and for its sole benefit, shall have conducted an
audit of Borrower's Accounts, Equipment, books, records, and operations, and
Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due and
payable.
(g) There shall not exist at the time of any Advance a condition which would
constitute an Event of Default under this Agreement, and Borrower shall have
delivered to Lender the compliance certificate called for in the paragraph
below titled "Compliance Certificate."
Making Loan Advances. Advances under the Line of Credit may be requested
orally by authorized persons. Lender may, but need not, require that all oral
requests be confirmed in writing. Each Advance shall be conclusively deemed
to have been made at the request of and for the benefit of Borrower (a) when
credited to any deposit account of Borrower maintained with Lender or (b)
when advanced in accordance with the instructions of an authorized person.
Lender, at its option, may set a cutoff time, after which all requests for
Advances will be treated as having been requested on the next succeeding
Business Day.
Mandatory Loan Repayments. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay to
Lender an amount equal to the difference between the outstanding principal
balance of the Advances and the Borrowing Base. On the Expiration Date,
Borrower shall pay to Lender in full the aggregate unpaid principal amount of
all Advances then outstanding and all accrued unpaid interest, together with
all other applicable fees, costs and charges, if any, not yet paid.
Loan Account. Lender shall maintain on its books a record of account in which
Lender shall make entries for each Advance and such other debits and credits
as shall be appropriate in connection with the credit facility. Lender shall
provide Borrower with periodic statements of Borrower's account, which
statements shall be considered to be correct and conclusively binding on
Borrower unless Borrower notifies Lender to the contrary within thirty (30)
days after Borrower's receipt of any such statement which Borrower deems to
be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such
property and assets as Lender may require (the "Collateral"). Lender's
Security interests in the Collateral shall be continuing liens and shall
include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:
Perfection of Security Interests. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's interest upon any and all chattel paper if not delivered the Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and any
similar statements as may be required by applicable law, and will file such
financing statements and all such similar statements in the appropriate
location or locations. Borrower hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue any Security Interest. Lender may at any time, and
without further authorization from Borrower, file a carbon, photograph,
facsimile, or other reproduction of any financing statement for use as a
financing statement Borrower will reimburse Lender for all expenses for the
perfection, termination, and the continuation of the perfection of Lender's
Security Interest in the Collateral Borrower promptly will notify Lender of
any change in Borrower's name including any change to the assumed business
names of Borrower. Borrower also promptly will notify Lender of any change in
Borrower's Social Security Number or Employer identification Number. Borrower
further agrees to notify Lender in writing prior to any change in address or
location of Borrower's principal governance office or should Borrower merge
or consolidate with any other entity.
Collateral Records. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which record
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the Accounts,
Borrower agrees to keep and maintain such records as Lender may require,
including without limitation information concerning Eligibility Accounts and
Account balances and agings. With respect to the Equipment, Borrower agrees
to keep and maintain such records as Lender may require, including without
limitation information concerning Eligible Equipment and records itemizing
and describing the kind, type, quality, and quantity of Equipment, Borrower's
Equipment costs, and the daily withdrawals and additions to Equipment.
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of Accounts
and Equipment and schedules of Eligible Accounts and Eligible Equipment, in
form and substance satisfactory to the Lender. Thereafter Supplemental
schedules shall be delivered according to the following schedule: With each
advance request when borrowing, but no later than twenty (20) days from the
end of the month, when there is a balance outstanding.
Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; and (c) Lender, its
assigns, or agents shall have the right at any time and at Borrower's expense
to inspect, examine, and audit Borrower's records and to confirm with Account
Debtors the accuracy of such Accounts.
Representations and Warranties Concerning Equipment. With respect to the
Equipment, Borrower represents and warrants to Lender: (a) All Equipment
represented by Borrower to be Eligible Equipment for purposes of this
Agreement conforms to the requirements of the definition Eligible Equipment;
(b) All Equipment values listed on schedules delivered to Lender will be true
and correct, subject to immaterial variance; (c) The value of the Equipment
will be determined on a consistent accounting basis; (d) Except as agreed to
the contrary by Lender in writing, all Eligible Equipment is now and at all
times hereafter will be in Borrower's physical possession; (e) Except as
reflected in the Equipment schedule delivered to Lender, all Eligible
Equipment is now and at all times hereafter will be of good and merchantable
quality, free from defects; (f) Eligible Equipment is not now and will not at
any time hereafter be stored with a bailee, warehouseman, or similar party
without Lender's prior written consent, and, in such event, Borrower will
concurrently at the time of bailment cause any such bailee, warehouseman, or
similar party to issue and deliver to Lender, in form acceptable to Lender,
warehouse receipts in Lender's name evidencing the storage of Equipment; and
(g) Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect and examine the Equipment and to check and test
the same as to quality, quantity, value, and condition.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all times any indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Illinois and is
validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged or
presently proposes to engage. Borrower also is duly qualified as foreign
corporation and is in good standing in all states in which the failure to so
quality would have a material adverse effect on its businesses financial
condition.
Authorization. The execution, delivery, and performance of this Agreement and
all Related Documents by Borrower, to the extent to be executed, delivered or
performed by Borrower, have been duly authorized by all necessary action by
Borrower; do not require the consent or approval of any other person,
regulatory authority or governmental body; and do not conflict with, result
in a violation of, or constitute a default under (a) any provision of its
articles of incorporation or organization, or bylaws, or any agreement or
other instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower. Financial
Information. Each financial statement of Borrower supplied to Lender truly
and completely disclosed Borrower's financial condition as of the date of the
statement, and there has been no material adverse change in Borrower's
financial condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent obligations
except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against Borrower
in accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and has good title to
all of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or
other applicable state or Federal laws, rules, or regulations adopted
pursuant to any of the foregoing. Except as disclosed to and acknowledged by
Lender in writing, Borrower represents and warrants that: (a) During the
period of Borrower's ownership of the properties, there has been no use,
generation, manufacture, storage, treatment, disposal, release or threatened
release of any hazardous waste or substance by any person on, under, about or
from any of the properties. (b) Borrower has no knowledge of, or reason to
believe that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste or
substance on, under, about or from the properties by any prior owners or
occupants of any of the properties, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such matters. (c)
Neither Borrower nor any tenant, contractor, agent or other authorized user
of any of the properties shall use, generate, manufacture, store, treat,
dispose of, or release any hazardous waste or substance on, under, about or
from any of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws, regulations,
and ordinances, including without limitation those laws, regulations and
ordinances described above. Borrower authorizes Lender and its agents to
enter upon the properties to make such inspections and tests as Lender may
deem appropriate to determine compliance of the properties with this section
of the Agreement any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be construed
to create any responsibility or liability on the part of Lender to Borrower
or to any other person. The representations and warranties contained herein
are based on Borrower's due diligence in investigating the properties for
hazardous waste and hazardous substances. Borrower hereby (a) releases and
waives any future claims against Lender for indemnity or contribution in the
event Borrower becomes liable for cleanup or other costs under any such laws,
and (b) agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which Lender
may directly or indirectly sustain or suffer resulting from a breach of this
section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release of a hazardous
waste or substance on the properties. The provisions of this section of the
Agreement, including the obligation to Indemnify, shall survive the payment
of the indebtedness and the termination or expiration of this Agreement and
shall not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which may
materially adversely affect Borrower's financial condition or properties,
other than litigation, claims, or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith in
the ordinary course of business and for which adequate reserves have been
provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or affecting
any of the Collateral directly or indirectly securing repayment of Borrower's
Loan and Note, that would be prior or that may in any way be superior to
Lender's Security interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly or
indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors,' representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to any
such plan, (ii) Borrower has not withdrawn from any such plan or Initiated
steps to do so, (iii) no steps have been taken to terminate any such plan,
and (iv) there are no unfunded liabilities other than those previously
disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business, or
Borrower's chief executive office, if Borrower has more than one place of
business, is located at 8501 West Higgins Road, Suite 320, Chicago, IL 60631.
Unless Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the Collateral
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all information
hereafter furnished by or on behalf of Borrower to Lender will be, true and
accurate in every material respect on the date as of which such information
is dated or certified; and none of such information is or will be incomplete
by omitting to state any material fact necessary to make such information not
misleading.
Survival of Representations and Warranties. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect until
such time as Borrower's indebtedness shall be paid in full, or until this
Agreement shall be terminated in the manner provided above, whichever is the
last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor. Borrower will notify Lender within 30 days of any lawsuits, liens
Or encumbrances which could materially affect Borrower or Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis, and
permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender and, as soon
as available, but in no event later than thirty (30) days after the end of
each month, Borrower's balance sheet and profit and loss, statement for the
period ended, prepared and certified as correct to the best knowledge and
belief by Borrower's chief financial officer or other officer or person
acceptable to Lender. All financial reports required to be provided under
this Agreement shall be prepared in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by
Borrower as being true and correct.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports with
respect to Borrower's financial condition and business operations Lender may
request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Net Worth. Maintain a minimum Net Worth of not less than $6,000,000.00 with a
Tangible Net Worth of $2,500,000. Except as provided above, all computations
made to determine compliance with the requirements contained in this
paragraph shall be made in accordance with generally accepted accounting
principles, applied on a consistent basis, and certified by Borrower as being
true and correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
Borrower's properties and operations, in form, amounts, coverages and with
Insurance companies reasonably acceptable to Lender Borrower, upon request of
Lender, will deliver to Lender from time to time the policies or certificates
of insurance in form satisfactory Lender, including stipulations that
coverages will not be canceled or diminished without at least ten (10) days
prior written notice to Lender each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be Impaired
in any way by an act, omission or default of Borrower or any other person. in
connection with all policies covering assets in which Lender holds or is
offered security interest for the Loans, Borrower will provide Lender with
such loss payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing Insurance policy showing such information as Lender may reasonably
request, Including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy (d) the
properties insured; (e) the then current property values on the basis of
which Insurance has been obtained, and the manner determining those values;
and (f) the expiration date of the policy. In addition, upon request of
Lender (however not more often than annual) Borrower will have an independent
appraiser satisfactory to Lender determine, as applicable, the actual cash
value or replacement cost of any Collateral. The cost of such appraisal shall
be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantors named
below, on Lender's forms, and in the amounts and under the conditions spelled
out in those guaranties.
Guarantors Amounts
Brewster's Franchise Corporation Unlimited
My Favorite Muffin, Too, Inc. Unlimited
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other
party and notify Lender immediately in writing of any default in connection
with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessment taxes,
governmental charges, levies and liens, of every kind and nature, Imposed
upon Borrower or its properties, income, or profits, prior to the date on
which penalties would attach, and all lawful claims that, if unpaid, might
become a lien or charge upon any of Borrower's properties income, or profits.
Provided however, Borrower will not be required to pay and discharge any such
assessment, tax, charge, levy, lien or claim so long as (a) the legality of
the same shall be contested in good faith by appropriate proceedings, and (b)
Borrower shall have established on its books adequate reserves with respect to
such contested assessment, tax, charge, levy, lien, or claim in accordance
with generally accepted accounting practices. Borrower, upon demand of
Lender, will furnish to Lender evidence of payment of the assessments, taxes,
charges, levies liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written statement of
any assessment taxes, charges, levies, liens and claims against Borrower's
properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely manner,
and promptly notify Lender if Borrower learns of the occurrence of any event
which constitutes an Event of Default under this Agreement or under any of
the Related Documents.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations respecting Its
properties, charters, businesses and operations, Including without
limitation, compliance with the Americans With Disabilities Act and with all
minimum funding standards and other requirements of ERISA and other laws
applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all collateral for the Loan or Loans and Borrower other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's book accounts, and records. If
Borrower now or at any time hereafter maintains any records (including
without limitation computer generated records and computer software programs
for the generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to permit Lender
free access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender at
least annually and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other officer
or person acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of the date of
the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects
with all environmental protection federal, state and local law statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or of the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions
of a permit issued by the appropriate federal state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien,
citation, directive, letter or other communication from any governmental
agency or instrumentality concerning any intentional or unintentional action
or omission on Borrower's part in connection with any environmental activity
whether or not there is damage to the environment and/or other natural
resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
Instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loan and to perfect all
Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while
this Agreement is in effect, Borrower shall not, without the prior written
consent of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this Agreement,
create, incur or assume indebtedness for borrowed money, including capital
leases, (b) except as allowed as a Permitted Lien, sell transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber any of
Borrower's assets, or (c) sell with recourse any Borrower's accounts, except
to Lender.
Continuity of Operations. (a) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (b) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock provided, however
that notwithstanding the foregoing, but only so long as no Event of Default
has occurred and is continuing or would result from the payment of dividends,
if Borrower is a "Subchapter S Corporation" (as defined In the Internal
Revenue Code of 1986, as amended), borrower may pay cash dividends on its
stock to its shareholders from time to time in amounts necessary to enable the
shareholders to pay income taxes and make estimated Income tax payments to
satisfy their liabilities under federal and state law which arise solely from
their status as Shareholder of a Subchapter S Corporation because of their
ownership of shares of stock of Borrower, or (d) purchase or retire any of
Borrower's outstanding shares or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest In any other enterprise
or entity, or (c) incur any obligation as surety or guarantor other than in
the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds
if: (a) Borrower or any Guarantor is in default under the terms of this
Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (b) Borrower of any Guarantor
becomes insolvent, files a petition in bankruptcy or similar proceedings, or
is adjudged a bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any Guarantor,
or in the value of any Collateral securing any Loan; (d) any Guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such Guarantor's
guaranty of the Loan or any other loan with Lender; or (e) Lender in good
faith deems itself insecure, even though no Event of Default shall have
occurred.
ADDITIONAL REPORTING REQUIREMENTS. Accounts Receivable Aging Report is due
within 20 days after month end.
ADDITIONAL AFFIRMATIVE COVENANTS PROVISION. The word "promptly" under the
"Litigation" covenant described in section titled "AFFIRMATIVE COVENANTS"
shall be defined as within 30 days of such actions occurring which could
materially affect the financial condition of Borrower or the financial
condition of any Guaranty as detailed in the "Litigation" covenant.
ADDITIONAL FINANCIAL REQUIREMENTS. Furnish Lender with copies of annual tax
returns within 30 days of filing as well as other financial and credit
information, in a form acceptable to Lender, as may be required form time to
time.
ADDITIONAL NEGATIVE COVENANT. Borrower is prohibited from paying dividends,
however, Borrower is authorized to meet existing preferred dividend payment
requirements provided Borrower is not in default under the lean documents at
the time of dividend payment.
PRIOR LOAN AGREEMENT. Loan Agreement dated December 31, 1999 supersedes Loan
Agreement dated December 31, 1998.
EQUIPMENT BORROWING BASE. Reductions on the borrowing base from equipment
cost will be made as follows:
1) January 1, 1999 Reduction of $10,000.00 for total of $10,0000.00
2) February 1, 1999 Reduction of $10,000.00 for total of $20,000.00
3) March 1, 1999 Reduction of $10,000.00 for total of $30,000.00
4) April 1, 1999 Reduction of $20,000.00 for total of $50,000.00
5) May 3, 1999 Reduction of $20,000.00 for total of $70,000.00
6) June 1, 1999 Reduction of $20,000.00 for total of $90,000.00
7) July 1, 1999 Reduction of $20,000.00 for a total of $110,000.00
8) August 2, 1999 Reduction of $20,000.00 for a total of $130,000.00
9) September 1, 1999 Reduction of $20,000.00 for a total of $150,000.00
10) October 1, 1999 Reduction of $20,000.00 for a total of $170,000.00
11) November 1, 1999 Reduction of $20,000.00 for a total of $190,000.00
12) December 1,1999 Reduction of $20,000.00 for a total of $210,000.00.
COMPENSATING BALANCES. During each calendar quarter, the Borrower will
maintain minimum compensating available balances with the Lender in the
amount of $250,000.00. This is calculated by taking closing available
balances from information provided by Lender for a calendar quarter period and
dividing by the number of days in the calendar quarter. On a quarterly basis,
Lender reserves the right to charge an additional amount of interest to
Borrower at an annual rate of Wall Street Journal Prime plus four (4) percent
on the insufficient balance for the duration of the default period. The
payment of this additional interest computation will constitute a cure for
the default of not maintaining the required average of $250,000.00 minimum
compensating available balance calculated on a quarterly basis.
CORPORATE ACCOUNTS. Borrower will maintain all corporate accounts with CIB
Bank with the exception of store depository accounts which are swept five days
a week.
ADDITIONAL ELIGIIBLE ACCOUNTS. Eligible Receivables do not include account
receivables to any obligor which also obligated to BAB Holdings, Inc. under a
Note Receivable (or similar obligation that was created by the conversion of
a trade account receivable) a prompt payment record under the Note Receivable
(or similar obligation) has not been established. Prompt payment shall be
defined, for this purpose only, as a minimum of six (6) monthly payments made
with no payment being made later than 30 days from due date.
BUSINESS LOAN AGREEMENT ADDENDUM. An exhibit, titled "BUSINESS LOAN
AGREEMENT ADDENDUM," is attached to this Agreement and by this reference is
made a part of this Agreement just as if all the provisions, terms and
conditions of the Exhibit had been fully set forth in this Agreement.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender
all Borrower's right, title and interest in and to, Borrower's accounts with
Lender (whether checking, savings, or some other account), including, without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts. and, at Lender's option,
administratively freeze all such accounts to allow Lender to protect Lender's
charge and setoff rights provided on this paragraph.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due on
the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition contained
in this Agreement or in any of the Related Documents, or failure of Borrower
to comply with or to perform any other term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.
Default In Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property Borrower's or any
Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the related Documents.
False Statements. Any warranty, representation or statement made or furnished
to Lender by or on behalf of Borrower or any Grantor under the Agreement or
the Related Documents is false or misleading in any material respect at the
time made or furnished, or becomes false or misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and
for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver for
any part of Borrower's property, any assignment for the benefit of creditors,
any type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help repossession
or any other method, by any creditor of Borrower, any creditor of any Grantor
against any collateral securing the indebtedness, or to any governmental
agency. This includes a garnishment, attachment, or levy on or of any of
Borrower's accounts, including deposit accounts, with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the indebtedness.
Change in Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment performance of the
indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all indebtedness immediately will become due and payable, all without notice
of any kind to Borrower, except that in the case of an Event of Default of the
type described in the "insolvency" subsection above, such acceleration shall
be automatic and not optional. In addition, Lender shall have all the rights
and remedies provided in the Related Documents or available at law, in equity,
or otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies should be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to take
action to perform an obligation of Borrower or of any Grantor shall not
affect Lender's right declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or parties
sought to be charged or bound by the alteration or amendment.
Applicable Law. this Agreement has been delivered to Lender and accepted by
Lender in the State of Illinois. If there is a lawsuit Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of Cook County,
the State of Illinois. Lender and Borrower hereby waive the right to any jury
trial in any action, proceeding, or counterclaim brought by either Lender or
Borrower against the other. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement Multiple Parties; Corporate Authority. All obligations of
Borrower under this Agreement shall be joint and several, and all references
to Borrow shall mean each and every Borrower. This means that each of the
persons signing below is responsible for all obligations in this Agreement
Consent to Loan Participation. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests in
the Loans to one or more purchasers, whether related or unrelated to Lender.
Lender may provide, without any limitation whatsoever to any one or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect to such
matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners of such
interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests. Borrower further waives rights of offset or
counterclaim that it may have now or later against Lender or against any
purchaser of such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loans Irrespective of the failure Insolvency of any holder of any interest in
the Loans. Borrower further agrees that the purchaser of any such
participation interests may enforce Interests irrespective of any personal
claims or defenses that Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred connection
with the preparation, execution, enforcement, modification and collection of
this Agreement or in connection with the Loans made pursuant to this
Agreement Lender may pay someone else to help collect the Loans and to
enforce this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses, whether or not there is lawsuit, including
attorneys' fees for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, or any anticipated post-
judgment collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall be given
in writing, may be sent by telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the United States
mail, first class, postage prepaid, addressed to the party to whom the notice
is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose of
the notice to change the party's address. To the extent permitted by
applicable law, if there is more than one Borrower, notice to any Borrower
will constitute notice to all Borrowers. For notice purposes, Borrower will
keep Lender informed at all times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person circumstance,
such finding shall not render that provision invalid or unenforceable as to
any other persons or circumstances. if feasible, any such offending provision
shall be deemed to be modified to be within the limits of enforceability or
validity; however, if the offending provision cannot be so modified, it shall
be stricken and all other provisions of this Agreement in all other respects
shall remain valid and enforceable. Subsidiaries and Affiliates of Borrower.
To the extent the context of any provisions of this Agreement makes it
appropriate, including without limitation any representation, warranty or
covenant, the word "Borrower" as used herein shall include all subsidiaries
and affiliates of Borrower notwithstanding the foregoing however, under no
circumstances shall this Agreement be construed to require Lender to make any
Loan or other financial accommodation to any subsidiary or affiliate of
Borrower.
Successors and Assigns. All covenants and agreements contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the
benefit of Lender, its successors and assigns. Borrower shall not, however,
have the right to assign its rights under this Agreement any interest
therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by Borrower
to Lender under this Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any investigation made by Lender or on
Lender's behalf.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the granting
of such consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required, and in all
cases such consent may be granted withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT,
AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF DECEMBER
31,1999.
BORROWER:
BAB Holdings, Inc.
By:
Mark Majewski, Chief Financial Officer
LENDER:
CIB BANK
By:
Authorized Officer
BUSINESS LOAN AGREEMENT ADDENDUM
Borrower: BAB Holdings, Inc.
8501 West Higgins Road, Suite 320
Chicago, IL 60631
Lender: CIB Bank
101 North Wolf Road
Hillside, IL 60162
Date of Addendum: 12-31-99
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this (Note/Loan Agreement), as of the date of each
disbursement of Loan proceeds, as of the date of any renewal, extension or
modification of any Loan, and at all times any indebtedness exists:
Borrower's Business is Year 2000 Compliant. All the computers, hardware,
microchips, software, and additional software applications utilized by
Borrower in the conduct of Borrower's business records, stores, processes,
and presents calendar dates falling on or after January 1, 2000, and all
information pertaining to such calendar dates, in the same manner and with
the same functionality as the Software does respecting calendar dates falling
on or before December 31, 1999. Borrower further represents and warrants that
the computers, hardware, microchips, software, and additional software
applications shall have all appropriate capabilities and compatibility for
operation and for handling century-aware or Year 2000 compliant data.
Borrower also represents and warrants that the data-related user interface
functions, data-fields, and data-related program instructions and functions
of the computers, hardware, microchips, software, and additional software
applications include the correct indication or calculation of the century and
are Year 2000 Compliant.
Borrower's Key Suppliers, Vendors, and Customers are Year 2000 Compliant. The
key suppliers, vendors and customers which are material to Borrower's business
operations are Year 2000 Compliant.
Borrower's Goods and Services. Any computers, hardware, microchips, software
and additional software applications good and services which will be sold or
leased by Borrower's business to Borrower's customers are Year 2000 Compliant.
Required Notices. Borrower has and will provide Lender any communication,
written or oral, from any individual, entity or consultant, indicating that
Borrower's business key suppliers, vendors or customers have newly discovered
Year 2000 problems or compliance issues and warrants that Borrower has not
received any communication, written or oral, from any material suppliers,
vendors or customers with Year 2000 problems or compliance issues which affect
Borrower's business.
BORROWER:
BAB Holdings, Inc.
By:
Mark Majewski, Chief Financial Officer
PROMISSORY NOTE
Borrower: BAB Holdings, Inc.
8501 West Higgins Road, Suite 320
Chicago, IL 60631
Lender: CIB BANK
101 North Wolf Road
Hillside, IL 60162
Principal Amount: $1,500,000.00 Initial Rate: 12.50% Date of
Note: December 31,1999
PROMISE TO PAY. BAB Holdings, Inc. ("Borrower"') promises to pay to CIB BANK
("Lender"), or order, in lawful money of the United States of America, the
principal amount of One Million Five Hundred Thousand & 00/100 Dollars
($1,500,000.00) or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on April 29, 2000. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest
beginning January 31, 2000, and all subsequent interest. Payments are due on
the same day of each month after that. The annual interest rate for this Note
is computed on a 365/360 basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed
or required by applicable law, payments will be applied first to accrued
unpaid interest, then to principal, and any remaining amount to any unpaid
collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent Index which is the prime
rate as published in the Wall Street Journal. When a range of rates has been
published, the higher of the rates will be used. (the "Index"). The Index is
not necessarily the lowest rate charged by Lender on its loans. If the Index
becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each day. The index currently is 8.50% per annum. The
Interest rate to be applied to the unpaid principal balance of this Note will
be at a rate of 4.000 percentage point over the Index, resulting in an initial
rate of 12.50% per annum. NOTICE: Under no circumstances will the interest
rate on this Note be more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default),
except as otherwise required by law. Except for the foregoing, Borrower may
pay without penalty all or a portion of the amount owed earlier than it is
due. Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued
unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d)
Any representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts,
including deposit accounts, with Lender. (g) Any guarantor dies or any of the
other even described In this default section occurs with respect to any
guarantor of this Note. (h) A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or performance
of the indebtedness is impaired. (i) Lender in good faith deems itself
insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediate due, without
notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, permitted
under applicable law, increase the variable interest rate on this Note to
7.000 percentage points over the Index. The interest rate will not exceed the
maximum rate permitted by applicable law. Lender may hire or pay someone else
to help collect this Note if Borrower does not pay. Borrower also will pay
Lender that amount. This includes, subject to any limits under applicable
law, Lender's attorneys' fees and Lender's legal expenses whether or not there
is a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
If not prohibited by applicable law, Borrower also will pay any court costs,
in addition to all other sums provided by law. This Note has been delivered
to Lender and accepted by Lender in the State of Illinois. if there is a
lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction
of the courts of Cook County, the State of Illinois. Lender and Borrower
hereby waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either Lender or Borrower against the other. This
Note shall be governed by and construed in accordance with the laws of the
State of Illinois.
CONFESSION OF JUDGMENT. Borrower hereby irrevocably authorizes and empowers
any attorney-at-law to appear in any court of record and to confess judgment
against Borrower for the unpaid amount of this Note as evidenced by an
affidavit signed by an officer of Lender setting forth the amount then due,
plus attorneys' fees as provided in this Note, plus costs of suit, and to
release all errors, and waive all rights of appeal. If a copy this Note,
verified by an affidavit, shall have been filed in the proceeding, it will not
be necessary to file the original as a warrant of attorney. Borrower waives
the right to any stay of execution and the benefit of all exemption laws now
or hereafter in effect. No single exercise of the foregoing warrant and power
to confess judgment will be deemed to exhaust the power, whether or not any
such exercise shall be held by any court to be invalid, voidable, or void; but
the power will continue undiminished and may be exercised from time to time as
Lender may elect until all amounts owing on the Note have been paid in full.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender
all Borrower's right, title and interest in and to, Borrower's accounts with
Lender (whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts, and, at Lender's option, to
administratively freeze all such accounts to allow Lender to protect Lender's
charge and setoff rights provided on this paragraph.
COLLATERAL. This Note is secured by all prior Security Agreements, including
but not limited to three (3) Security Agreements dated December 3,1998
covering all business assets for BAB Holdings, Inc., My Favorite Muffin Too,
Inc. and Brewster's Franchise Corporation.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested orally by Borrower or by an authorize person.
Lender may, but need not, require that all oral requests be confirmed in
writing. All communications, instructions, or directions by telephone
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: Mark Majewski, Chief
Financial Officer; Michael K. Murtaugh, Vice President and Michael W. Evans,
President. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to
any of Borrower's accounts with Lender. The unpaid principal balance owing on
this Note at any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer printouts. Lender will
have no obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor
ceases doing business or is insolvent; (c) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such guarantor's guarantee of
this Note or any other loan with Lender; (d) Borrower has applied funds
provided pursuant to this Note for purposes other than those authorized by
Lender; or (e) Lender in good faith deems itself insecure under this Note or
any other agreement between Lender and Borrower.
PRIOR NOTE. A Promissory Note from BAB Holdings, Inc. to Lender, dated December
31, 1998 in the principal amount of $1,750,000.00.
GENERAL PROVISIONS. Lender may delay or forego enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive presentment, demand for payment, protest and dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing,
no party who signs this Note, whether as make guarantor, accommodation maker
or endorser, shall be released from liability. All such parties agree that
Lender may renew or extend (repeatedly and for any length of time) this loan,
or release any party or guarantor or collateral; or impair, fail to realize
upon or perfect Lender's security interest in the collateral; and take any
other action deemed necessary by Lender without the consent of or notice to
anyone. All such parties also agree that Lender may modify this loan without
the consent of or notice to anyone other than the party with whom the
modification is made.
ILLINOIS INSURANCE NOTICE. Unless Borrower provides Lender with evidence of
the insurance coverage required by Borrower's agreement with Lender, Lender
may purchase insurance at Borrower's expense to protect Lender's interests in
the collateral. This insurance may, but need not, protect Borrower's
interests. The coverage that Lender purchases may not pay any claim that
Borrower makes or any claim that is made against Borrower in connection with
the collateral. Borrower may later cancel any insurance purchased by Lender,
but only after providing Lender with evidence that Borrower has obtained
insurance as required by their agreement. If Lender purchases insurance for
the collateral, Borrower will be responsible for the costs of that insurance,
including interest and any other charges Lender may impose in connection with
the placement of the insurance, until the effective date of the cancellation
or expiration of the insurance. The costs of the insurance may be added to
Borrower's total outstanding balance or obligation. The costs of the insurance
may be more than the cost of insurance Borrower may be able to obtain on
Borrower's own.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES
TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
BAB Holdings, Inc.
By:
Mark Majewski, Chief Financial Officer
Contact: Michael Murtaugh, VP and General Counsel
BAB Holdings, Inc.
8501 West Higgins Road, Suite 320
Chicago, Illinois 60631
773.380.6100/Fax: 773.380.6183
FOR IMMEDIATE RELEASE
NY BASED INTERNET INCUBATOR SIGNS LETTER OF INTENT TO MERGE WITH BAB HOLDINGS
Chicago, Illinois - April 10, 2000 - BAB Holdings, Inc. (Nasdaq : BAGL) today
announced that it has executed a letter of intent to merge with a leading New
York based Internet Incubator. Full details of the merger and of the Internet
Incubator will be forthcoming within the next two weeks.
Upon completion of the merger, BAB's current business would be assigned to a
subsidiary, which would be operated by current BAB management. The agreement
anticipates the subsidiary to be spun off in the future to current BAB
shareholders. The existing shareholders would continue to own the same number
of shares, which would represent ten percent of the equity in the merged
company. Thus, the parent company will become a pure play in the development
of internet businesses. In addition, existing shareholders would continue to
own 100% of the current assets.
Furthermore, in a related agreement, an affilate of the New York Internet
Incubator would provide substitute long term financing for the current bank
debt obligation of the Company.
"We are going to be merging with a group of talented individuals who have an
excellent 7-year history of successfully incubating small, development-stage
companies. This merger represents a transformation of BAB which we believe
will be very beneficial to our shareholders," stated BAB President and CEO
Michael W. Evans.
"Our current shareholders will maintain their ownership interest in the
existing business, both before and after the merger. Additionally, they will
receive a 10% ownership interest in the Internet Incubator and internet related
businesses. We believe that this is a significant enhancement to our
shareholder value and, coupled with the attractive financing provided by our
merger partner, greatly improves BAB's appeal in the financial marketplace."
The transaction is subject to completion and execution of the final merger
documents and shareholder approval.
