Form 51-102F3
Material Change Report
PART 1 CONTENT OF MATERIAL CHANGE REPORT
Item 1 Name and Address of Company
CoolBrands International Inc. ("CoolBrands")
8300 Woodbine Avenue
5th Floor
Markham, Ontario
L3R 9Y7
Item 2 Date of Material Change
December 23, 2005
Item 3 News Release
A press release was issued by Canada Newswire on December 22, 2005 and
on December 28, 2005 in Toronto.
Item 4 Summary of Material Change
On December 23, 2005, CoolBrands sold substantially all of its
franchising division to International Franchise Corp. for cash consideration of
US$8 million.
Item 5 Full Description of Material Change
On December 23, 2005, CoolBrands sold substantially all of its
franchising division to International Franchise Corp. for cash consideration of
US$8 million.
The portion of the franchise division sold operates by franchising and
licensing retail outlets serving primarily frozen yogurt and ice cream under the
Bresler's, I Can't Believe It's Yogurt, Ice Cream Churn, Swensen's, and Yogen
Fruz trademarks. CoolBrands continues to operate as franchisor of retail outlets
under the Jerry Tucci's Pizza Pasta and Tropicana Smoothies trademarks.
The sale of the franchising division will allow CoolBrands to focus its
resources in its pre-packaged consumer products division, yogurt division,
foodservice division and dairy components division. A portion of the proceeds
from the sale has been used to repay short term borrowings and the balance will
be used for general working capital requirements of CoolBrands.
International Franchise Corp. is a company controlled by Mr. Aaron
Serruya, a director of CoolBrands and the senior executive responsible for the
franchising division at CoolBrands. The sale transaction was reviewed and
unanimously recommended to the board of directors of CoolBrands by a committee
of independent directors of CoolBrands, consisting of Robert E. Baker, Romeo De
Gasperis and Arthur Waldbaum, and was
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unanimously approved by the board of directors of CoolBrands. As part of their
review of the transaction, the independent committee and the board of directors
received a fairness opinion from Duff & Phelps, LLC who acted as exclusive
financial advisor to CoolBrands and who assisted CoolBrands in marketing the
division to potential buyers.
Under the terms of the transaction, CoolBrands, directly and through
certain wholly-owned subsidiaries, sold to International Franchise Corp. all of
the issued and outstanding equity interests of Swensen's Inc., Yogen Fruz
Acquisitions Inc., Yogen Fruz Canada Inc. and YF Franchise LLC (formerly
CoolBrands Franchise LLC).
In connection with the transaction, CoolBrands and/or certain of its
subsidiaries also entered into certain agreements with International Franchise
Corp. including the following:
o pursuant to a transition services agreement, CoolBrands agreed to have
certain of its employees provide certain accounting and other
franchisee related services to International Franchise Corp. for a
period of up to one year from the closing of the transaction at
CoolBrands' allocated cost for such employees in order to facilitate an
orderly transition of the business of the franchise division to the
purchaser;
o pursuant to a mutual non-competition and non-solicitation agreement,
each of CoolBrands and International Franchise Corp. agreed on certain
restrictions with respect to the sale of certain products to certain of
their customers for a period of five years;
o pursuant to a supply agreement, International Franchise Corp. retained
a wholly-owned subsidiary of CoolBrands as its exclusive supplier in
the United States of all ice cream, frozen yogurt, ice cream and yogurt
mixes and other frozen confection products and mixes using the
trademarks sold to International Franchise Corp. The initial term of
the agreement ends on December 31, 2006, subject to automatic renewal
of successive terms of one year until termination of the agreement. The
agreement may be terminated by mutual consent of the parties or by
either party upon providing not less than 90 days prior notice to the
other party if the other party is in default of any material obligation
under the agreement. The supply is subject to annual adjustments on
pricing terms based upon a rolling 12-month forecast delivered by
International Franchise Corp. and terminates if in connection with any
annual renewal, International Franchise Corp. is able to obtain more
favourable pricing terms from a third party and CoolBrands is unwilling
to match such pricing; and
o under a trademark license agreement, International Franchise Corp.
granted to a wholly-owned subsidiary of CoolBrands a perpetual,
non-exclusive, royalty-free and fully paid up license and a right to
grant sub-licenses to certain franchisees with respect to the
Bresler's, I Can't Believe It's Yogurt and Swensen's trademarks.
Mr. Aaron Serruya remains on the board of directors of CoolBrands, but
as a result of the transaction is no longer an executive officer of CoolBrands.
The transaction is a "related party transaction" pursuant to Ontario Securities
Commission Rule 61-501 - Insider Bids, Issuer Bids, Going Private Transactions
and Related Party Transactions, and is exempt
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from the formal valuation and minority approval requirements of that rule since
the subject matter of the transaction is less than 25% of the market
capitalization of CoolBrands.
Item 6 Reliance on subsection 7.1(2) or (3) of National Instrument 51-102
Not Applicable.
Item 7 Omitted Information
Not Applicable.
Item 8 Executive Officer
For further information, please contact David J. Stein, Chief Executive
Officer, CoolBrands at (631) 737-9700.
Item 9 Date of Report
December 28, 2005