SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
| Preliminary Proxy Statement |_| Confidential, for use of the Commission
|X| Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
BIG CITY BAGELS, INC.
_______________________________________________________________________________
(Name of Registrant as Specified in Its Charter)
_______________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:*
________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
(1) Amount previously paid:
________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
(3) Filing Party:
________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
- --------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
BIG CITY BAGELS, INC.
99 Woodbury Road
Hicksville, New York 11801
----------------------
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
----------------------
June 19, 1998
----------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders
("Annual Meeting") of Big City Bagels, Inc. ("Company") will be held at the
offices of Graubard Mollen & Miller at 600 Third Avenue, New York, New York
10016, on Friday, June 19, 1998, at 11:00 a.m., for the following purposes, all
as more fully described in the attached Proxy Statement:
1. To elect four directors to hold office until the next Annual Meeting
of Shareholders and until their respective successors have been duly
elected and qualified;
2. To approve the Company's 1998 Performance Equity Plan;
3. To authorize an amendment to the Company's Certificate of
Incorporation to implement a reverse stock split of the Company's
Common Stock of between one-for-two up to one-for-five, at any time
within one year after shareholder approval of this proposal is
obtained at the Annual Meeting, with the timing and exact ratio to be
determined in the sole discretion of the Board of Directors;
4. To authorize the issuance, in the discretion of the Board of
Directors, at any time or from time to time within one year after
shareholder approval of this proposal is obtained at the Annual
Meeting, of up to 5,000,000 shares of Common Stock on a pre-split
basis at a purchase price reflecting a discount of up to 50% of the
fair market value of the Common Stock on the date of issuance, with
the timing and exact terms of the issuance to be determined in the
sole discretion of the Board of Directors; and
5. To transact such other business as may properly come before the Annual
Meeting and any and all adjournments thereof.
The Board of Directors has fixed the close of business on May
8, 1998, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the meeting or any adjournment thereof.
You are earnestly requested to date, sign and return the
accompanying form of proxy in the envelope enclosed for that purpose (to which
no postage need be affixed if mailed in the United States) whether or not you
expect to attend the meeting in person. The proxy is revocable by you at any
time prior to its exercise and will not affect your right to vote in person in
the event you attend the meeting or any adjournment thereof. The prompt return
of the proxy will be of assistance in preparing for the meeting and your
cooperation in this respect will be appreciated.
By Order of the Board of Directors
Mark Weinreb, Secretary
Hicksville, New York
May 19, 1998
<PAGE>
BIG CITY BAGELS, INC.
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 19, 1998
----------------
This Proxy Statement and the accompanying form of proxy is furnished to
shareholders of Big City Bagels, Inc. ("Company") in connection with the
solicitation of proxies by the Board of Directors of the Company for use in
voting at the Annual Meeting of Shareholders to be held at the offices of
Graubard Mollen & Miller, 600 Third Avenue, New York, New York 10016, on Friday,
June 19, 1998, at 11:00 a.m., and at any and all adjournments thereof. Any proxy
given pursuant to this solicitation may be revoked by the shareholder at any
time before it is exercised by written notification delivered to the Secretary
of the Company, by voting in person at the Annual Meeting, or by delivering
another proxy bearing a later date. Attendance by a shareholder at the Annual
Meeting does not alone serve to revoke his or her proxy. Unless otherwise
specified in the form of proxy, shares represented by proxies will be voted
"FOR" the election of the nominees below under Proposal I, "FOR" the approval of
the Company's 1998 Performance Equity Plan ("1998 Plan") as described below
under Proposal II, "FOR" the approval of the amendment to the Company's
Certificate of Incorporation to implement a reverse stock split of Common Stock,
as described below under Proposal III ("Reverse Split"), "FOR" the approval of
the issuance of up to 5,000,000 shares of Common Stock on a pre-split basis at a
purchase price reflecting a discount of up to 50% of the fair market value of
the Common Stock on the date of issuance, as described below under Proposal IV
("Stock Issuance"), and, in the discretion of the proxies named on the proxy
card with respect to any other matters properly brought before the Annual
Meeting and any adjournments thereof. In such unanticipated event that any other
matters are properly presented at the Annual Meeting for action, the persons
named in the proxy will vote the proxies in accordance with their best judgment.
The Company's executive offices are located at 99 Woodbury Road,
Hicksville, New York 11801. On or about May 19 1998, this Proxy Statement and
the accompanying form of proxy, together with a copy of the Annual Report on
Form 10-KSB of the Company for the year ended December 31, 1997, as amended, are
to be mailed to each shareholder of record at the close of business on May 8,
1998.
VOTING SECURITIES
The Board of Directors has fixed the close of business on May 8, 1998,
as the record date for the determination of shareholders of the Company who are
entitled to receive notice of, and to vote at, the Annual Meeting. Only
shareholders of record at the close of business on that date will be entitled to
vote at the Annual Meeting or any and all adjournments thereof. As of May 8,
1998, the Company had issued and outstanding 6,744,768 shares of Common Stock,
the Company's only class of voting securities outstanding. Each shareholder of
the Company will be entitled to one vote for each share of Common Stock
registered in his or her name on the record date. The presence, in person or by
proxy, of a majority of all of the outstanding shares of Common Stock will
constitute a quorum at the Annual Meeting. Proxies that are marked "abstain" and
proxies relating to "street name" shares that are returned to the Company but
marked by brokers as "not voted" ("broker non-votes") will be treated as shares
present for purposes of determining the presence of a quorum on all matters
unless authority to vote is completely withheld on the proxy. The election of
directors requires a plurality of votes cast at the Annual Meeting with respect
to the election of directors. "Plurality" means that the four nominees who
receive the largest number of votes cast "FOR" will be elected as directors.
Accordingly, abstentions and broker non-votes will not affect the outcome of the
election of directors. The proposal to amend the Company's Certificate of
Incorporation to implement the Reverse Split requires the affirmative vote of a
majority of all of the outstanding shares of Common Stock. Accordingly,
abstentions and broker non-votes will have the same effect as a vote against the
proposal. All other matters to be voted on, including the adoption of the 1998
Plan and the Stock Issuance, will be decided by the affirmative vote of a
majority of the votes cast by the holders of shares entitled to vote thereon. On
any such matter, abstentions and broker non-votes will not be counted in
determining the number of votes required for a majority and will therefore have
no effect on the outcome.
<PAGE>
The following table sets forth certain information as of May 8, 1998,
with respect to (i) those persons or groups known to the Company to beneficially
own more than 5% of the Company's Common Stock, (ii) each director and nominee,
(iii) each executive officer whose compensation exceeded $100,000 in the year
ended December 31, 1997, and (iv) all directors and executive officers as a
group. The information is determined in accordance with Rule 13d-3 promulgated
under the Securities Exchange Act of 1934 ("Exchange Act") based upon
information furnished by the persons listed or contained in filings made by them
with the Securities and Exchange Commission ("Commission") . Except as indicated
below, the shareholders listed possess sole voting and investment power with
respect to their shares.
Amount and Nature of Percent
Name and Address of Beneficial Owner(1) Beneficial Ownership of Class
- --------------------------------------- -------------------- --------
Management Group (2)................... 2,935,456 43.0%
Mark Weinreb........................... 879,538(3)(4) 13.0%
Jerry Rosner........................... 810,154(3)(4) 12.0%
Stanley Weinreb........................ 625,851(3)(4) 9.3%
Stanley Raphael........................ 619,913(3)(4)(5) 9.2%
All executive officers and directors
as a group (five persons)............ 2,967,897(6) 43.4%
- ---------------------------------
(1) The address of each of the persons listed, other than Mr. Rosner, is c/o
Big City Bagels, Inc. 99 Woodbury Road, Hicksville, New York 11801. Mr.
Rosner's address is c/o Big City Bagels, Inc., 3101 West Coast Highway,
Suite 311, Newport Beach, California 92663.
(2) The Management Group consists of Messrs. Mark Weinreb, Jerry Rosner,
Stanley Weinreb and Stanley Raphael, each of whom is a party to, and has
agreed to vote their shares in accordance with, the Founders' Shareholder
Agreement described below. Each of the members of this group shares voting
power with respect to the shares of Common Stock held by each of the
members. The number of shares set forth in the table includes the shares
held by each member, including an aggregate of 80,000 shares of Common
Stock issuable upon exercise of currently exercisable options.
(3) Does not include shares held by other members of the Management Group (see
Note 2) with respect to which each member shares voting power with the
other members of such group.
(4) Includes 20,000 shares of Common Stock issuable upon exercise of currently
exercisable options.
(5) Includes 5,938 shares of Common Stock owned by Trade Consultants, Inc.
Pension Fund, of which Mr. Raphael is the trustee.
(6) Includes an aggregate of 80,000 shares of Common Stock issuable to the
directors of the Company upon exercise of currently exercisable options.
Also includes 24,941 shares of Common Stock owned by Howard Fein, part-time
Chief Financial Officer of the Company, and 7,500 shares of Common Stock
issuable to Mr. Fein upon exercise of currently exercisable options.
Founders' Shareholder Agreement
Messrs. Mark Weinreb, Jerry Rosner, Stanley Weinreb and Stanley Raphael
are parties to the Founders' Shareholder Agreement and the shares of Common
Stock beneficially owned by them are subject to the terms of the Founders'
Shareholder Agreement. Pursuant to the Founders' Shareholder Agreement, each of
these members has agreed to vote his shares for the election of each of the
other members of the group as a director of the Company as long as each such
other member owns at least 100,000 shares of Common Stock. In addition, the
members have granted a right of first refusal to the others with respect to any
sales of Common Stock held by them other than pursuant to a registration
statement under the Exchange Act or pursuant to Rule 144 promulgated thereunder.
2
<PAGE>
PROPOSAL I: ELECTION OF DIRECTORS
The Board of Directors consists of four members, including Mark
Weinreb, Chairman of the Board, Jerry Rosner, Stanley Weinreb and Stanley
Raphael. The term of the directors will expire on the date of this year's Annual
Meeting. Each director serves from the date of his election until the end of his
term and until his successor is elected and qualified.
Four persons will be elected at the Annual Meeting to serve as
directors for a term of one year and until their successors have been duly
elected and qualified. The Board of Directors has nominated Mark Weinreb, Jerry
Rosner, Stanley Weinreb and Stanley Raphael as the candidates for election.
Unless authority is withheld, the proxies solicited by the Board of Directors
will be voted FOR the election of these nominees. In case any of the nominees
become unavailable for election to the Board of Directors, an event which is not
anticipated, the persons named as proxies, or their substitutes, shall have full
discretion and authority to vote or refrain from voting for any other candidate
in accordance with their judgment.
Information About the Nominees
Mark Weinreb has been the Chairman of the Board and Chief Executive
Officer of the Company since its inception in December 1992 and Secretary of the
Company since January 1998. Mr. Weinreb is 45 years old. From 1975 to 1989, Mr.
Weinreb was employed by Bio Health Laboratories, Inc. ("Bio Health"), a medical
testing laboratory, and from 1985 to 1989, he was an owner and vice president of
Bio Health, which was sold in 1989. During his tenure at Bio Health, Mr. Weinreb
was responsible for day-to-day operations, including overseeing the technical
aspects of the laboratory, negotiating property and equipment leases and
handling financing proposals, mergers and acquisitions. From 1989 to 1992, Mr.
Weinreb managed his private investments. Mark Weinreb is the son of Stanley
Weinreb.
Jerry Rosner has been President, Chief Operating Officer and a director
of the Company since inception and is 38 years old. From 1983 to August 1995,
Mr. Rosner was President and co-owner of Bagel Boss East, Inc. ("Bagel Boss"), a
company that owned and operated a bagel store in Bay Shore, New York. At Bagel
Boss, Mr. Rosner was responsible for all aspects of operations, including
production, recipe development, equipment purchases, lease negotiations, labor
relations and wholesale operations. Mr. Rosner has over 20 years of experience
in the bagel industry.
Stanley Weinreb has been a director of the Company since inception and
served as Vice President of the Company from inception to January 1998. Mr.
Weinreb is 70 years old. From 1952 to 1989, he was President and owner of Bio
Health, a company which he founded. During his tenure at Bio Health, Mr. Weinreb
was the medical director of the laboratory and was responsible for quality
control, obtaining state and federal licenses and regulatory compliance. Stanley
Weinreb is the father of Mark Weinreb.
Stanley Raphael has been a director of the Company since inception and
served as Secretary of the Company from inception to January 1998. Mr. Raphael
is 62 years old. Since 1984, he has served as President and a director of Trade
Consultants, Inc., a management consulting company. Prior to 1984, Mr. Raphael
was an international trader of oils, chemicals and petrochemicals. He currently
is a director of Edge Petroleum Corp.
The executive officers of the Company are elected annually by the Board
of Directors and serve at the discretion of the Board.
During the year ended December 31, 1997, the Company's Board of
Directors held eight meetings. The Company does not have a standing compensation
or nominating committee. The Board of Directors established an audit committee
on January 27, 1998, which members consist of Stanley Weinreb and Stanley
Raphael. The functions of the audit committee are: (i) to recommend annually to
the Board of Directors the appointment of the independent accountants of the
Company, (ii) to review with the independent accountants the accounting
practices and policies of the Company, (iii) to review with the internal and
independent accountants the overall accounting and financial controls of the
Company, (iv) to be available to independent accountants during the year for
consultation, and (v) to review related party transactions by the Company on an
ongoing basis and review potential conflict of interest situations where
appropriate.
3
<PAGE>
Executive Compensation
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to the Company's Chief
Executive Officer and each of the other most highly paid executive officers
whose compensation exceeded $100,000 in the year ended December 31, 1997:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
---------------------------
Annual Compensation
Other Annual
Salary Bonus Compensation
Name and Principal Position Year ($) ($) ($)
- --------------------------------------------------- ---- ------- ------ ------------
<S> <C> <C> <C> <C>
Mark Weinreb 1997 185,696 -- --
Chairman of the Board, Chief Executive Officer and 1996 149,000 -- --
Secretary 1995 17,138 -- --
Jerry Rosner 1997 185,696 -- --
President and Chief Operating Officer 1996 149,000 -- --
1995 17,138 -- --
- ------------------------------------------------------------- ------------ ----------------- --------------- --------------------
</TABLE>
The executive officers of the Company named above routinely receive
other benefits from the Company, the amounts of which are customary in the
industry. The Company has concluded, after reasonable inquiry, that the
aggregate amounts of such benefits during the year ended December 31, 1997 did
not exceed the lesser of $50,000 or 10% of the compensation set forth above as
to any named individual.
The following table summarizes the number of shares and the terms of
stock options granted to the Company's Chief Executive Officer and each of the
other most highly paid executive officers whose compensation exceeded $100,000
in the year ended December 31, 1997:
<TABLE>
<CAPTION>
OPTION/SHARE GRANTS DURING YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
Individual Grants
% of Total
Options/Shares Market
Options/ Granted to Exercise Price on
Name and Position Shares Employees in Price Date of Expiration
During Period Granted Fiscal Year ($/Share) Grant ($) Date
- --------------------------------------- ---------- -------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Mark Weinreb 10,000(1) 14.9% 5.375 5.375 3/30/2007
Chairman of the Board, Chief Executive
Officer and Secretary
Jerry Rosner 10,000(1) 14.9% 5.375 5.375 3/30/2007
President and Chief Operating Officer
- ---------------------------------------------- ------------- -------------------- ------------- ----------- ------------------
</TABLE>
(1) Represents immediately exercisable options to purchase 10,000 shares of
Common Stock granted pursuant to the terms of the Company's 1996
Performance Equity Plan ("1996 Plan"), which provides for stock option
grants of 10,000 shares to be made to each director of the Company on March
31st of each year. See "--1996 Performance Equity Plan."
Employment Agreements
The Company has entered into employment agreements with each of Mark
Weinreb, its Chairman of the Board, Chief Executive Officer and Secretary, and
Jerry Rosner, its President and Chief Operating Officer, providing for initial
terms expiring on December 31, 1998, and base annual salaries of $125,000 until
completion of the Company's initial public offering (which was completed in May
1996) and $165,000 thereafter, plus annual 10% increases. These agreements also
provide that the Company will continue to pay the base salary to the employee or
legal representative in the event of the employee's termination due to
4
<PAGE>
disability or death for a six-month period following termination. The agreements
contain provisions prohibiting the employee from competing with the Company
during the term of employment and for a period of two years thereafter.
1996 Performance Equity Plan
In March 1996, the Company adopted the 1996 Plan. The 1996 Plan
authorizes the granting of awards of up to 350,000 shares of Common Stock to the
Company's key employees, officers, directors and consultants. Awards consist of
stock options (both nonqualified options and options intended to qualify as
"Incentive" stock options under Section 422 of the Internal Revenue Code of
1986, as amended), restricted stock awards, deferred stock awards, stock
appreciation rights and other stock-based awards, as described in the 1996 Plan.
As of May 8, 1998, 39,941 shares of Common Stock and options to purchase 126,900
shares of Common Stock were outstanding under the 1996 Plan, with 183,159 shares
available for future grant.
On March 31st of each calendar year during the term of the 1996 Plan,
assuming there are enough shares then available for grant under the 1996 Plan,
each person who is then a director of the Company will be awarded stock options
to purchase 10,000 shares of Common Stock at the fair market value thereof (as
determined in accordance with the 1996 Plan), all of which options are
immediately exercisable as of the date of grant and have a term of ten years.
These are the only awards which may be granted to a director of the Company
under the 1996 Plan. The 1996 Plan is administered by the Board of Directors
which determines the persons (other than directors) to whom awards will be
granted, the number of awards to be granted and the specific terms of each
grant, including the exercisability thereof, subject to the provisions of the
1996 Plan.
In connection with qualified stock options, the exercise price of each
option may not be less than 100% of the fair market value of the Common Stock on
the date of grant (or 110% of the fair market value in the case of a grantee
holding more than 10% of the outstanding stock of the Company). The aggregate
fair market value of shares for which qualified stock options are exercisable
for the first time by such employee during any calendar year may not exceed
$100,000. Nonqualified stock options granted under the 1996 Plan are also
required to have exercise prices not less than the fair market value of the
Common Stock on the date of grant.
The 1996 Plan also contains certain change in control provisions which
could cause options and other awards to become immediately exercisable and
restrictions and deferral limitations applicable to other awards to lapse in the
event any "person," as such term is used in Sections 13(d) and 14(d) of the
Exchange Act, including a "group" as defined in Section 13(d), but excluding
certain shareholders of the Company, acquires beneficial ownership of more than
25% of the Company's outstanding shares of Common Stock.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act, as amended, requires the Company's
officers, directors and persons who beneficially own more than ten percent of
the Company's Common Stock to file reports of ownership and changes in ownership
with the Commission. These reporting persons also are required to furnish the
Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based solely on its review of the copies of such forms furnished to
it and representations that no other reports were required, the Company believes
that all Section 16(a) reporting requirements were complied with during the year
ended December 31, 1997.
Certain Relationships and Related Transactions
Since the Company's inception, its operations have been partially
funded from time to time by loans to the Company made directly by Messrs. Mark
Weinreb, Stanley Weinreb and Stanley Raphael, or indirectly through corporations
controlled by Messrs. Mark Weinreb and Stanley Weinreb (the "Shareholder
Loans"). At December 31, 1995, the principal amount of the Shareholder Loans,
which bear interest at 10% per annum, aggregated $462,468, of which an aggregate
of $375,000 was paid during the year ended December 31, 1996, and the remaining
balance was entirely repaid as of December 31, 1997.
Pumpernickel Partners, L.P. ("Pumpernickel Partners") was a Delaware
limited partnership formed in August 1993 that owned and operated two Big City
Bagels franchises in Costa Mesa and Laguna Niguel, California. Messrs. Mark
Weinreb, Stanley Weinreb and Stanley Raphael each owned 22.5%, and Jerry Rosner
owned 10%, of the general partner, Bagel Partners, Inc. ("Bagel Partners"),
which owned a 5% interest in Pumpernickel Partners. The remaining 22.5% interest
of Bagel Partners was owned by an individual responsible for the day-to-day
operations of the two stores operated by Pumpernickel Partners. Messrs. Mark
Weinreb, Stanley Weinreb and Stanley Raphael also owned a 6.9%, 6.9% and 3.45%
5
<PAGE>
limited partnership interest in Pumpernickel Partners, respectively. Immediately
prior to the closing of the Company's initial public offering, all of the
limited partners of Pumpernickel Partners contributed to the Company their
limited partnership interests in Pumpernickel Partners, and all of the
shareholders of Bagel Partners contributed to the Company all of the capital
stock of Bagel Partners in exchange for an aggregate of 181,250 shares of Common
Stock of the Company. As a result of their interests in Bagel Partners and
Pumpernickel Partners, Messrs. Mark Weinreb, Jerry Rosner, Stanley Weinreb and
Stanley Raphael received 13,913, 904, 13,913 and 7,975 shares of Common Stock,
respectively.
In May 1996, Monroe Parker Securities, Inc. ("Monroe Parker") acted as
the underwriter in connection with the Company's initial public offering, in
which the Company raised approximately $5,175,000 of gross proceeds. In
connection with the initial public offering, the Company paid to Monroe Parker
10% commissions and a 3% nonaccountable expense allowance. The Company also
agreed to sell to designees of Monroe Parker, for a nominal fee, Unit Purchase
Options to purchase up to an aggregate of 112,500 Units, each Unit consisting of
one share of Common Stock and one Class A Warrant. The Unit Purchase Options
were exercisable at $4.80 per Unit from May 1997 to May 2001 and were exercised
in July 1997. As a designee of Monroe Parker, Stephen Drescher, the Director of
Corporate Finance of Monroe Parker and a director of the Company from October
1996 to December 1997, received 11,250 Unit Purchase Options. Pursuant to the
Underwriting Agreement, the Company also engaged Monroe Parker as its financial
consultant until May 1998 for a monthly fee of $1,000. In order to induce the
exercise of the Company's Class A and Class B Warrants, during 1997 the Company
reduced the exercise price of these warrants to $2.50 per share during a 90-day
special exercise period and did not require two Class B Warrants to be exercised
in tandem to receive one share of Common Stock. In addition, for each warrant
exercised during the special exercise period, a new Class A Warrant was issued
to the exercising holder. During a subsequent special exercise period, the
Company further reduced the exercise price of the Class B Warrants to $1.00 per
share. In November 1997, all 500,000 Class B Warrants, which where then held by
Monroe Parker, were exercised at the reduced exercise price, from which the
Company received gross proceeds of $500,000.
In February 1998, the Company appointed Howard J. Fein to serve as
part-time Chief Financial Officer (and principal accounting officer) of the
Company at a salary of $50,000 for 1998. Mr. Fein is a principal of Fein & Fein,
P.C., a private accounting firm which has rendered accounting consulting
services to the Company since its inception in 1992. In March 1996, Mr. Fein was
granted options to purchase 7,500 shares of Common Stock pursuant to the 1996
Plan, at an exercise price of $4.00 per share, in consideration for rendering
consulting services to the Company. During the year ended December 31, 1997, in
consideration for accounting consulting services rendered by Fein & Fein and
Howard J. Fein, the Company paid Fein & Fein $100,201 in cash and granted an
award of Common Stock to Howard J. Fein with a value of $26,500 pursuant to the
1996 Plan (24,941 shares of Common Stock based on the last sale price of the
Common Stock on the date of grant).
6
<PAGE>
PROPOSAL II: APPROVAL OF THE 1998 PERFORMANCE EQUITY PLAN
On January 27, 1998, the Board of Directors adopted the 1998 Plan,
subject to shareholder approval at the Annual Meeting. The Board believes that
in order to continue to attract and retain employees and consultants of the
highest caliber, provide increased incentive for directors, officers and key
employees and to continue to promote the well-being of the Company, it is in the
best interests of the Company and its shareholders to provide directors,
officers, key employees and consultants of the Company and its subsidiaries an
opportunity to acquire a proprietary interest in the Company.
Summary of the 1998 Plan
The following summary of the 1998 Plan does not purport to be complete,
and is subject to and qualified in its entirety by reference to the 1998 Plan, a
copy of which is annexed to this Proxy Statement as Appendix A.
Administration
The 1998 Plan is administered by the Board or, at its discretion, by
the Company's Stock Option Committee or such other committee as may be
designated by the Board (the "Committee"). All references herein to "Committee"
shall mean the Committee or the Board. The Committee has full authority, subject
to the provisions of the 1998 Plan, to award (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards (collectively, "Awards").
Subject to the provisions of the 1998 Plan, the Committee determines, among
other things, the persons to whom from time to time Awards may be granted
("Holders" or "Participants"), the specific type of Awards to be granted (e.g.,
Stock Option, Restricted Stock), the number of shares subject to each Award,
share prices, any restrictions or limitations on such Awards (e.g., the
"Deferral Period" in the grant of Deferred Stock and the "Restriction Period"
when Restricted Stock is subject to forfeiture), and any vesting, exchange,
deferral, surrender, cancellation, acceleration, termination, exercise or
forfeiture provisions related to such Awards. The interpretation and
construction by the Committee of any provisions of, and the determination by the
Committee of any questions arising under, the 1998 Plan or any rule or
regulation established by the Committee pursuant to the 1998 Plan, shall be
final and binding on all persons interested in the 1998 Plan. Awards under the
1998 Plan are evidenced by agreements.
Stock Subject to the 1998 Plan
The 1998 Plan authorizes the granting of Awards whose exercise would
allow up to an aggregate of 2,000,000 shares of Common Stock on a pre-split
basis to be acquired by the Holders of such Awards. In order to prevent the
dilution or enlargement of the rights of Holders under the 1998 Plan, the number
of shares of Common Stock authorized by the 1998 Plan is subject to adjustment
by the Board in the event of any increase or decrease in the number of shares of
outstanding Common Stock resulting from a stock dividend, stock split, reverse
stock split, merger, reorganization, consolidation, recapitalization or other
change in corporate structure affecting the Company's stock. The shares of
Common Stock acquirable pursuant to the Awards will be made available, in whole
or in part, from authorized and unissued shares of Common Stock. If any Award
granted under the 1998 Plan is forfeited or terminated, the shares of Common
Stock that were available pursuant to such Award shall again be available for
distribution in connection with Awards subsequently granted under the 1998 Plan.
Eligibility
Subject to the provisions of the 1998 Plan, Awards may be granted to
key employees, officers, directors and consultants who are deemed to have
rendered or to be able to render significant services to the Company and who are
deemed to have contributed or to have the potential to contribute to the success
of the Company. Incentive Options, as hereinafter defined, may be awarded only
to persons who, at the time of grant of such awards, are employees of the
Company or its subsidiaries.
7
<PAGE>
Types of Awards
Options. The 1998 Plan provides both for "Incentive" stock options
("Incentive Options") as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and for options not qualifying as Incentive
Options ("Non-qualified Options"), both of which may be granted with any Other
Stock-Based Award, as hereinafter defined, under the 1998 Plan. The Committee
determines the exercise price per share of Common Stock purchasable under an
Incentive or Non-qualified Option (collectively, "Options"). The exercise price
of an Incentive Option may not be less than 100% of the fair market value on the
last trading day before the date of grant (or, in the case of an Incentive
Option granted to a person possessing more than 10% of the total combined voting
power of all classes of stock of the Company, not less than 110% of such fair
market value). The exercise price of a Non-qualified Option may be less than
100% of the fair market value on the last trading day before the date of the
grant. An Incentive Option may only be granted within a ten-year period from the
date the 1998 Plan is adopted and approved and may only be exercised within ten
years of the date of the grant (or within five years in the case of an Incentive
Option granted to a person who, at the time of the grant, owns stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company). Subject to any limitations or conditions the Committee may impose,
Options may be exercised, in whole or in part, at any time during the term of
the Option by giving written notice of exercise to the Company specifying the
number of shares of Common Stock to be purchased. Such notice must be
accompanied by payment in full of the purchase price, either in cash or in
securities of the Company, or in combination thereof.
Options granted under the 1998 Plan are exercisable only by the Holder
during his or her lifetime. The Options granted under the 1998 Plan may not be
transferred other than by will or by the laws of descent and distribution.
Generally, if the Holder is an employee, no Incentive Option, or any
portion thereof, granted under the 1998 Plan may be exercised by the Holder
unless he or she is employed by the Company or a subsidiary at the time of the
exercise and has been so employed continuously from the time the Incentive
Option was granted. However, in the event the Holder's employment with the
Company is terminated due to disability, the Holder may still exercise his or
her Incentive Option for a period of one year (or such other lesser period as
the Committee may specify at the time of grant) from the date of such
termination or until the expiration of the stated term of the Incentive Option,
whichever period is shorter. Similarly, should a Holder die while in the
employment of the Company or a Subsidiary, his or her legal representative or
legatee under his or her will may exercise the decedent Holder's Incentive
Option for a period of one year from death (or such other greater or lesser
period as the Committee specifies at the time of grant) or until the expiration
of the stated term of the Incentive Option, whichever period is shorter.
Further, if the Holder's employment is terminated without cause or due to normal
retirement (upon attaining the age of 65), then the portion of any Incentive
Option which has vested by the date of such retirement may be exercised for the
lesser of three months after retirement or the balance of the Incentive Option's
term. The Committee is afforded more flexibility with respect to the terms of
Non-qualified Options, since such options are not subject to Code requirements.
Stock Appreciation Rights. The Committee may grant Stock Appreciation
Rights ("SARs" or singularly "SAR") to Participants who have been, or are being
granted Options under the 1998 Plan as a means of allowing such Participants to
exercise their Options without the need to pay the exercise price in cash. In
conjunction with Nonqualified Options, SARs may be granted either at or after
the time of the grant of such Non-qualified Options. In conjunction with
Incentive Options, SARs may be granted only at the time of the grant of such
Incentive Options. An SAR entitles the Holder thereof to surrender to the
Company all or a portion of an Option in exchange for a number of shares Common
Stock determined by dividing (i) the excess of the market price per share of
Common Stock over the exercise price per share (as specified by the related
Option) by (ii) the exercise price per share of the Option.
Restricted Stock. The Committee may award shares of restricted stock
("Restricted Stock") either alone or in addition to other Awards granted under
the 1998 Plan. The Committee determines the persons to whom grants of Restricted
Stock are made, the number of shares to be awarded, the price (if any) to be
paid for the Restricted Stock by the person receiving such stock from the
Company, the time or times within which awards of Restricted Stock may be
8
<PAGE>
subject to forfeiture (the "Restriction Period"), the vesting schedule and
rights to acceleration thereof, and all other terms and conditions of the
Restricted Stock awards.
The Committee may condition the award of Restricted Stock upon the
attainment of specified performance goals or such other factors or criteria as
the Committee may determine.
Restricted Stock awarded under the 1998 Plan may not be sold,
exchanged, assigned, transferred, pledged, encumbered or otherwise disposed of
other than to the Company during the applicable Restriction Period. Except for
the foregoing restrictions, the Holder shall, even during the Restriction
Period, have all of the rights of a shareholder, including the right to receive
all dividends declared on, and the right to vote, such shares.
In order to enforce the foregoing restrictions, the 1998 Plan requires
that all shares of Restricted Stock awarded to the Holder remain in the physical
custody of the Company until the restrictions on such shares have terminated.
Deferred Stock. The Committee may award shares of deferred stock
("Deferred Stock") either alone or in addition to other Awards granted under the
1998 Plan. The Committee determines the eligible persons to whom, and the time
or times at which, Deferred Stock will be awarded, the number of shares of
Deferred Stock to be awarded to any person, the duration of the period (the
"Deferral Period") during which, and the conditions under which, receipt of the
stock will be deferred, and all the other terms and conditions of such Deferred
Stock Awards.
The Committee may condition the award of Deferred Stock upon the
attainment of specified performance goals or such other facts or criteria as the
Committee may determine.
Deferred Stock awards granted under the 1998 Plan may not be sold,
exchanged, assigned, transferred, pledged, encumbered or otherwise disposed of
other than to the Company during the applicable Deferral Period. The Holder, as
determined by the Committee, may be paid dividends declared currently or
deferred and deemed to be reinvested in additional Deferred Stock. The Holder
may request to defer the receipt of a Deferred Stock award for an additional
specified period.
If a Holder of Deferred Stock ceases to be an employee of the Company
prior to the expiration of the Deferral Period applicable to all or any part of
the shares awarded to such Holder, then all shares of stock theretofore awarded
to the Holder which are still subject to such Deferral Period shall, upon such
termination of employment, vest or be forfeited in accordance with the terms and
conditions established by the Committee at the time of the Deferred Stock award.
Stock Reload Options. The Committee may grant Stock Reload Options in
conjunction with any Option granted under the 1998 Plan. In conjunction with
Incentive Options, Stock Reload Options may be granted only at the time of the
grant of such Incentive Option. In conjunction with Non-qualified Options, Stock
Reload Options may be granted either at or after the time of the grant of such
Non-qualified Options. A Stock Reload Option permits a Holder who exercises an
Option, by delivering already owned stock (i.e., the stock-for-stock method), to
receive back from the Company a new Option (at the current market price) for the
same number of shares delivered to exercise the Option.
Other Stock-Based Awards. The Committee may grant Other Stock-Based
Awards, subject to limitations under applicable law, that are denominated or
payable in, valued in whole or in part by reference to, or otherwise based on,
or related to, shares of Common Stock, as deemed by Committee to be consistent
with the purposes of the 1998 Plan, including purchase rights, shares of Common
Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified subsidiaries. Subject to the terms of the 1998
Plan, the Committee has complete discretion to determine the terms and
conditions applicable to Other Stock-Based Awards. Other Stock-Based Awards may
be awarded either alone or in tandem with any other awards under the 1998 Plan.
9
<PAGE>
Shares of stock subject to Other Stock-Based Awards may not be sold,
assigned, transferred, pledged or otherwise encumbered, prior to the date the
shares are issued.
Withholding Taxes
Upon the exercise of any Award granted under the 1998 Plan, the Holder
may be required to remit to the Company an amount sufficient to satisfy all
federal, state and local withholding tax requirements prior to delivery of any
certificate or certificates for shares of Common Stock. Subject to certain
stringent limitations under the 1998 Plan and at the discretion of the Company,
the Holder may satisfy these requirements by electing to have the Company
withhold a portion of the shares to be received upon the exercise of the Award
having a value equal to the amount of the withholding tax due under applicable
federal, state and local laws.
Agreements; Transferability
Options, Restricted Stock, Deferred Stock, Stock Reload Options, Other
Stock-Based Awards and SARs granted under the 1998 Plan will be evidenced by
agreements consistent with the 1998 Plan in such form as the Committee may
prescribe. Neither the 1998 Plan nor agreements thereunder confer any right to
continued employment upon any Holder of an Option, Restricted Stock, Deferred
Stock, Stock Reload Options, Other Stock-Based Award or SAR. Further, all
agreements will provide that the right to exercise Options, receive Restricted
Stock after the expiration of the Restriction Period or Deferred Stock after the
expiration of the Deferral Period, receive payment under Other Stock-Based
Awards, or exercise an SAR cannot be transferred except by will or the laws of
descent and distribution.
Term and Amendments
Unless terminated by the Board, the 1998 Plan shall continue to remain
effective until such time as no further Awards may be granted and all Awards
granted under the 1998 Plan are no longer outstanding. The Board may at any
time, and from time to time, amend the 1998 Plan, provided that no amendment
shall be made which would impair the rights of a Holder under any agreement
entered into pursuant to the 1998 Plan without the Holder's consent.
Change in Control
The 1998 Plan also contains certain change in control provisions which
could cause Stock Options and other Awards to become immediately exercisable and
restrictions and deferral limitations applicable to other awards to lapse in the
event any "person," as such term is used in Sections 13(d) and 14(d) of the
Exchange Act, including a "group" as defined in Section 13(d), but excluding
certain shareholders of the Company, acquires beneficial ownership of more than
25% of the Company's outstanding shares of Common Stock.
Federal Income Tax Consequences
The following discussion of the federal income tax consequences of
participation in the 1998 Plan is only a summary of the general rules applicable
to the grant and exercise of Options and other Awards and does not give specific
details or cover, among other things, state, local and foreign tax treatment of
participation in the 1998 Plan. The information contained in this section is
based on present law and regulations, which are subject to being changed
prospectively or retroactively.
Incentive Options
The Participant will recognize no taxable income upon the grant or
exercise of an Incentive Option. The Company will not qualify for any deduction
in connection with the grant or exercise of Incentive Options. Upon a
disposition of the shares after the later of two years from the date of grant or
one year after the transfer of the shares to the Participant, the Participant
will recognize the difference, if any, between the amount realized and the
exercise price
10
<PAGE>
as long-term capital gain or long-term capital loss (as the case may be) if the
shares are capital assets. The excess, if any, of the fair market value of the
shares on the date of exercise of an Incentive Option over the exercise price
will be treated as an item of adjustment for a Participant's taxable year in
which the exercise occurs and may result in an alternative minimum tax liability
for the Participant.
If Common Stock acquired upon the exercise of an Incentive Option is
disposed of prior to the expiration of the holding periods described above, (i)
the Participant will recognize ordinary compensation income in the taxable year
of disposition in an amount equal to the excess, if any, of the lesser of the
fair market value of the shares on the date of exercise or the amount realized
on the disposition of the shares, over the exercise price paid for such shares
and (ii) the Company will qualify for a deduction equal to any such amount
recognized, subject to the limitation that the compensation be reasonable. In
the case of a disposition of shares earlier than two years from the date of the
grant or in the same taxable year as the exercise, where the amount realized on
the disposition is less than the fair market value of the shares on the date of
exercise, there will be no adjustment since the amount treated as an item of
adjustment, for alternative minimum tax purposes, is limited to the excess of
the amount realized on such disposition over the exercise price, which is the
same amount included in regular taxable income.
Non-qualified Options
With respect to Non-qualified Options (i) upon grant of the Option, the
Participant will recognize no income, (ii) upon exercise of the Option (if the
shares of Common Stock are not subject to a substantial risk of forfeiture), the
Participant will recognize ordinary compensation income in an amount equal to
the excess, if any, of the fair market value of the shares on the date of
exercise over the exercise price, and the Company will qualify for a deduction
in the same amount, subject to the requirement that the compensation be
reasonable and (iii) the Company will be required to comply with applicable
federal income tax withholding requirements with respect to the amount of
ordinary compensation income recognized by the Participant. On a disposition of
the shares, the Participant will recognize gain or loss equal to the difference
between the amount realized and the sum of the exercise price and the ordinary
compensation income recognized. Such gain or loss will be treated as capital
gain or loss if the shares are capital assets and as short-term or long-term
capital gain or loss, depending upon the length of time that the Participant
held the shares.
If the shares acquired upon exercise of a Non-qualified Option are
subject to a substantial risk of forfeiture, the Participant will recognize
ordinary income at the time when the substantial risk of forfeiture is removed,
unless such Participant timely files under Code Section 83(b) to elect to be
taxed on the receipt of shares, and the Company will qualify for a corresponding
deduction at such time. The amount of ordinary income will be equal to the
excess of the fair market value of the shares at the time the income is
recognized over the amount (if any) paid for the shares.
Stock Appreciation Rights
Upon the grant of a SAR, the Participant recognizes no taxable income
and the Company receives no deduction. The Participant recognizes ordinary
income and the Company receives a deduction at the time of exercise equal to the
cash and fair market value of Common Stock payable upon such exercise.
Restricted Stock
A Participant who receives Restricted Stock will recognize no income on
the grant of the Restricted Stock and the Company will not qualify for any
deduction. At the time the Restricted Stock is no longer subject to a
substantial risk of forfeiture, a Participant will recognize ordinary
compensation income in an amount equal to the excess, if any, of the fair market
value of the Restricted Stock at the time the restriction lapses over the
consideration paid for the Restricted Stock. A Participant's shares are treated
as being subject to a substantial risk of forfeiture so long as his or her sale
of the shares at a profit could subject him or her to a suit under Section 16
(b) of the Exchange Act. The holding period to determine whether the Participant
has long-term or short-term capital gain or loss begins when the Restriction
Period expires, and the tax basis for the shares will generally be the fair
market value of the shares on such date.
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<PAGE>
A Participant may elect, under Section 83(b) of the Code, within 30
days of the transfer of the Restricted Stock, to recognize ordinary compensation
income on the date of transfer in an amount equal to the excess, if any, of the
fair market value on the date of such transfer of the shares of Restricted Stock
(determined without regard to the restrictions) over the consideration paid for
the Restricted Stock. If a Participant makes such election and thereafter
forfeits the shares, no ordinary loss deduction will be allowed. Such forfeiture
will be treated as a sale or exchange upon which there is realized loss equal to
the excess, if any, of the consideration paid for the shares over the amount
realized on such forfeiture. Such loss will be a capital loss if the shares are
capital assets. If a Participant makes an election under Section 83(b), the
holding period will commence on the day after the date of transfer and the tax
basis will equal the fair market value of shares (determined without regard to
the restrictions) on the date of transfer.
On a disposition of the shares, a Participant will recognize gain or
loss equal to the difference between the amount realized and the tax basis for
the shares.
Whether or not the Participant makes an election under Section 83(b),
the Company generally will qualify for a deduction (subject to the
reasonableness of compensation limitation) equal to the amount that is taxable
as ordinary income to the Participant, in its taxable year in which such income
is included in the Participant's gross income. The income recognized by the
Participant will be subject to applicable withholding tax requirements.
Dividends paid on Restricted Stock which is subject to a substantial
risk of forfeiture generally will be treated as compensation that is taxable as
ordinary compensation income to the Participant and will be deductible by the
Company subject to the reasonableness limitation. If, however, the Participant
makes a Section 83(b) election, the dividends will be treated as dividends and
taxable as ordinary income to the Participant, but will not be deductible by the
Company.
Deferred Stock
A Participant who receives an award of Deferred Stock will recognize no
income on the grant of such award. However, he or she will recognize ordinary
compensation income on the transfer of the Deferred Stock (or the later lapse of
a substantial risk of forfeiture to which the Deferred Stock is subject, if the
Participant does not make a Section 83(b) election), in accordance with the same
rules as discussed above under the caption "Restricted Stock."
Other Stock-Based Awards
The federal income tax treatment of Other Stock-Based Awards will
depend on the nature of any such award and the restrictions applicable to such
award.
PROPOSAL III: AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
IMPLEMENT A REVERSE STOCK SPLIT OF BETWEEN ONE-FOR-TWO UP TO ONE-FOR-FIVE
General
The Board of Directors has unanimously approved a proposal to amend the
Company's Certificate of Incorporation to implement a reverse stock split of the
Company's Common Stock of between one-for-two and up to one-for-five, at any
time within one year after shareholder approval of this proposal is obtained at
the Annual Meeting, with the timing and exact ratio to be determined in the sole
discretion of the Board of Directors. This means that as few as two shares or as
many as five shares of Common Stock would be combined into one New Share
(defined below). The Board of Directors also may choose not to implement the
Reverse Split at all in its sole discretion.
After the filing of an amendment to the Certificate of Incorporation
("Amendment") with the New York Secretary of State, the Reverse Split will be
effective ("Effective Date"), and each certificate representing shares of
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<PAGE>
Common Stock outstanding immediately prior to the Reverse Split ("Old Shares")
will be deemed automatically without any action on the part of the shareholders
to represent a fraction of the number of shares of Common Stock after the
Reverse Split ("New Shares"); provided, however, that no fractional New Shares
will be issued as a result of a Reverse Split. In lieu thereof, each shareholder
whose Old Shares are not evenly divisible will receive one additional New Share
for the fractional New Share that such shareholder would otherwise be entitled
to receive as a result of a Reverse Split. After the Reverse Split becomes
effective, shareholders will be asked to surrender certificates representing Old
Shares in accordance with the procedures set forth in a letter of transmittal to
be sent by the Company. Upon such surrender, a certificate representing the New
Shares will be issued and forwarded to the shareholders; however, each
certificate representing Old Shares will continue to be valid and represent New
Shares equal to a fraction of the number of Old Shares (plus one additional New
Share where such Old Shares are not evenly divisible).
The number of shares of capital stock authorized by the Certificate of
Incorporation will not change as a result of the proposed Reverse Split. The
Common Stock issued pursuant to the Reverse Split will be fully paid and
nonassessable. The voting and other rights that presently characterize the
Common Stock will not be altered by the Reverse Split.
Purposes of a Reverse Split
The Board of Directors believes that the Reverse Split is desirable for
several reasons. A Reverse Split should enhance the acceptability of the Common
Stock by the financial community and investing public. The reduction in the
number of issued and outstanding shares of Common Stock caused by the Reverse
Split is expected to increase the market price of the Common Stock. A variety of
brokerage house policies and practices tend to discourage individual brokers
within those firms from dealing with lower priced stocks. Some of those policies
and practices pertain to time-consuming procedures that function to make the
handling of lower priced stocks economically unattractive to brokers. In
addition, the structure of trading commissions also tends to have an adverse
impact upon holders of lower priced stock because the brokerage commission on a
sale of lower priced stock generally represents a higher percentage of the sales
price than the commission on a relatively higher priced issue. A Reverse Split
should result in a price level for the Common Stock that will reduce, to some
extent, the effect of the above-referenced policies and practices of brokerage
firms and diminish the adverse impact of trading commissions on the market for
the Common Stock. The expected increased price level also may encourage interest
and trading in the Common Stock and possibly promote greater liquidity for the
Company's shareholders, although such liquidity could be adversely affected by
the reduced number of shares of Common Stock outstanding after the Effective
Date. Finally, the Board of Directors expects a Reverse Split to help the
Company satisfy the maintenance requirements established by the Nasdaq Stock
Market ("Nasdaq") necessary for continued Nasdaq SmallCap Market listing, which
among other things, requires that the Company's Common Stock maintain a bid
price of at least $1.00 per share. A range for the Reverse Split is being
proposed instead of a specific ratio since the price at which the Common Stock
trades may fluctuate between now and the time the Reverse Split is implemented.
However, there can be no assurance that any or all of these results
will occur. If, for example, a one-for-five Reverse Split is implemented, there
can be no assurance that the market price per New Share after the Reverse Split
will be five times the market price per Old Share before the Reverse Split, or
that such price will either exceed or remain in excess of the current market
price. Further, there can be no assurance that the market for the Common Stock
will improve. Shareholders should note that the Board of Directors cannot
predict what effect a Reverse Split will have on the market price of the Common
Stock.
The Board of Directors will determine the exact ratio for the Reverse
Split based upon the market price of the Common Stock at the time of
implementation. It can be anticipated that management will select a ratio that
will result in a new market price that is sufficiently in excess of the $1.00
minimum bid price required by Nasdaq, so that a decrease in the bid price for
the Common Stock would not cause the Common Stock to be delisted from the Nasdaq
SmallCap Market. On the other hand, if the bid price of the Common Stock is
maintained above $1.00 without the Reverse Split, the Board of Directors may
determine not to implement the Reverse Split at all.
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<PAGE>
Effect of a Reverse Split
A Reverse Split will be effected by means of filing the Amendment with
the New York Secretary of State. The Company is authorized to issue 25,000,000
shares of Common Stock. The authorized capital stock will not be changed by
reason of the Reverse Split. As of May 8, 1998, there were 6,733,728 Old Shares
issued and outstanding. The following table illustrates the principal effect of
the proposed Reverse Split and decrease in outstanding shares of Common Stock
assuming no additional shares of Common Stock are issued prior to the Effective
Date as a result of the exercise of any options or warrants under all possible
scenarios:
<TABLE>
<CAPTION>
Shares of Prior to After
Reverse Split Common Stock Reverse Split Reverse Split
- --------------- ------------ ------------- --------------
<S> <C> <C> <C>
One-for-two Authorized 25,000,000 25,000,000
Outstanding 6,744,768 3,372,384(1)
One-for-three Authorized 25,000,000 25,000,000
Outstanding 6,744,768 2,248,256(1)
One-for-four Authorized 25,000,000 25,000,000
Outstanding 6,744,768 1,686,192(1)
One-for-five Authorized 25,000,000 25,000,000
Outstanding 6,744,768 1,348,954(1)
</TABLE>
- --------------------------------
(1) Does not include New Shares to be issued in lieu of fractional shares.
The Common Stock currently is registered under Section 12(g) of the
Exchange Act and, as a result, the Company is subject to the periodic reporting
and other requirements of the Exchange Act. The Reverse Split will not effect
the registration of the Common Stock under the Exchange Act.
Effect on Market for Common Stock. On May 8, 1998, the closing sale
price of the Common Stock on the Nasdaq SmallCap Market was $.50 per share. By
decreasing the number of shares of Common Stock outstanding without altering the
aggregate economic interest in the Company represented by such shares, the Board
of Directors believes that the trading price will be increased to a price more
appropriate for a publicly-traded security.
Effect on Outstanding Options, Warrants and Preferred Stock. As of
December 31, 1997, the Company had outstanding options to purchase 84,500 shares
of Common Stock with per-share exercise prices ranging from $2.00 to $8.50. In
addition, as of December 31, 1997, the Company had outstanding 2,406,250 Class A
Warrants with an exercise price of $2.50 per share and 200,000 other warrants
("Other Warrants") with per-share exercise prices ranging from $1.3125 to $5.00
per share. The Company also has outstanding 265,000 shares of Class A Preferred
Stock ("Preferred Stock") that are convertible at a conversion price per share
equal to the greater of (i) 75% of the average closing bid price of the Common
Stock for the five consecutive trading days immediately prior to the date of
conversion or (ii) $0.2585. Upon the effectiveness of a Reverse Split, the 1996
Plan, the 1998 Plan, the Class A Warrants and the Other Warrants provide for a
proportional downward adjustment to the number of shares subject to outstanding
options and warrants and a corresponding upward adjustment in the per-share
exercise prices to reflect the Reverse Split. In addition, under the 1996 Plan
and 1998 Plan, the number of shares reserved for issuance under future awards
will be proportionally decreased. The number of shares of Preferred Stock and
the per-share conversion price will remain the same upon the effectiveness of
the Reverse Split.
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<PAGE>
Effect on Legal Ability to Pay Dividends. The Reverse Split will have
no material impact on the legal ability of the Company to pay dividends.
Exchange of Stock Certificates
As soon as practicable after the Effective Date of a Reverse Split, the
Company will send a letter of transmittal to each holder of record of Old Shares
outstanding on the Effective Date. The letter of transmittal will contain
instructions for the surrender of certificate(s) representing such Old Shares to
Continental Stock Transfer & Trust Company, the Company's exchange agent
("Exchange Agent"). Upon proper completion and execution of the letter of
transmittal and return thereof to the Exchange Agent, together with the
certificate(s) representing Old Shares, a shareholder will be entitled to
receive a certificate representing the number of New Shares into which his Old
Shares have been reclassified and changed as a result of the Reverse Split.
Shareholders should not submit any certificates until requested to do
so. No new certificate will be issued to a shareholder until he has surrendered
his outstanding certificate(s) together with the properly completed and executed
letter of transmittal to the Exchange Agent.
Federal Income Tax Consequences
The following summary of the federal income tax consequences of a
Reverse Split is not, and should not be relied on as, a comprehensive analysis
of the tax issues arising from or relating to the proposed Reverse Split.
ACCORDINGLY, SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS FOR AN
ANALYSIS OF THE EFFECT OF THE TRANSACTION CONTEMPLATED BY THE PROPOSED AMENDMENT
ON THEIR RESPECTIVE TAX SITUATIONS.
The transactions contemplated by the Amendment constitute a
"recapitalization" to the Company and its shareholders to the extent that issued
shares of Common Stock are exchanged for a reduced number of shares of Common
Stock. Therefore, neither the Company nor its shareholders will recognize any
gain or loss for federal income tax purposes as a result thereof.
The shares of Common Stock to be issued to each shareholder will have
an aggregate basis, for computing gain or loss, equal to the aggregate basis of
the shares of Common Stock held by such shareholder immediately prior to the
Effective Date. A shareholder's holding period for the shares of Common Stock to
be issued will include the holding period for the shares of Common Stock held
thereby immediately prior to the Effective Date provided that such shares of
Common Stock were held by the shareholder as capital assets on the Effective
Date.
PROPOSAL IV: APPROVAL OF AN ISSUANCE OF UP TO 5,000,000 SHARES OF COMMON STOCK
ON A PRE-SPLIT BASIS AT A PURCHASE PRICE REFLECTING A DISCOUNT OF UP TO 50% OF
THE FAIR MARKET VALUE OF THE COMMON STOCK ON THE DATE OF ISSUANCE
The Board of Directors has unanimously approved and recommends that the
shareholders consider and approve the issuance, in the discretion of the Board
of Directors, of up to 5,000,000 shares of Common Stock on a pre-split basis, at
any time or from time to time within one year after shareholder approval of this
proposal is obtained at the Annual Meeting, at a discount of up to 50% of the
fair market value ("Market Value") of the Common Stock on the date of issuance.
This issuance can be: (i) a direct issuance of Common Stock, (ii) upon exercise
of warrants that may be issued, (iii) upon conversion of convertible preferred
stock, (iv) upon conversion of convertible debt, or (v) any combination of the
foregoing. The issuance may occur as a result of one or more transactions.
The Market Value is equal to the average closing bid price of the
Common Stock for the five consecutive trading days immediately prior to the date
of issuance of Common Stock. If the Common Stock is not listed on the Nasdaq
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<PAGE>
SmallCap Market, but is traded in the over-the-counter market, the Market Value
shall mean the closing bid price for the Common Stock, as reported by the OTC
Bulletin Board or the National Quotation Bureau, Incorporated, or similar
publisher of such quotations. If the Market Value cannot be determined pursuant
to the above, it will be such price as the Board of Directors determines in good
faith.
It is the policy of Nasdaq, which lists the Company's outstanding
Common Stock, to require shareholder approval of the issuance by a company,
other than in a public offering, of common stock or securities convertible into
common stock if such common stock has, or would have upon issuance, voting power
equal to or in excess of 20% of the voting power outstanding before such
issuance and the issuance is at a price less than the market value. The
Company's shareholders are being asked to approve this proposal in response to
this policy. Approval by a majority of the votes cast by the holders of shares
entitled to vote thereon will be required to approve the proposal.
Although the Board of Directors does not have a specific plan to issue
Common Stock at this time, the Board of Directors believes that the Company will
need to raise additional capital during 1998 to fund its plans for growth and to
support its operations beyond 1998, including for potential acquisitions. No
further authorization for the specific issuance or issuances will be required if
this proposal is approved by the shareholders and such issuance occurs within
one year after shareholder approval of this proposal is obtained at the Annual
Meeting. The terms of the securities to be authorized, including dividend or
interest rates, conversion prices, voting rights, redemption prices, maturity
dates and similar matters, including the timing of such issuance, will be
determined in the sole discretion of the Board of Directors.
An issuance of Common Stock at a price below the book value per share
would have a dilutive effect on the book value of outstanding shares of Common
Stock. Such issuances also may have a dilutive effect on earnings per share and
the relative voting power of current shareholders. The issuance of a significant
number of shares could have the effect of causing a change in control of the
Company.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-KSB, as amended, for the year ended
December 31, 1997, filed with the Commission pursuant to Section 13(a) of the
Exchange Act and being mailed to shareholders with the Proxy Statement is hereby
incorporated by reference into this Proxy Statement and made a part hereof.
INDEPENDENT ACCOUNTANTS
The Board of Directors has selected the independent accounting firm of
Richard A. Eisner & Company, LLP as the auditors of the Company for the year
ending December 31, 1998. A representative of Richard A. Eisner & Company, LLP,
the auditors of the Company for the year ended December 31, 1997, is expected to
be present at the Annual Meeting. The representative will have the opportunity
to make a statement and will be available to respond to appropriate questions
from shareholders.
1999 SHAREHOLDER PROPOSALS
In order for shareholder proposals for the 1999 Annual Meeting of
Shareholders to be eligible for inclusion in the Company's Proxy Statement, they
must be received by the Company at its principal office in Hicksville, New York
not later than January 19, 1999.
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SOLICITATION OF PROXIES
The solicitation of proxies in the enclosed form is made on behalf of the
Company and the cost of this solicitation is being paid by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone or telephone using the services of directors, officers and regular
employees of the Company at nominal cost. Banks, brokerage firms and other
custodians, nominees and fiduciaries will be reimbursed by the Company for
expenses incurred in sending proxy material to beneficial owners of the
Company's stock.
OTHER MATTERS
The Board of Directors knows of no matter which will be presented for
consideration at the Annual Meeting other than the matters referred to in this
Proxy Statement. Should any other matter properly come before the Annual
Meeting, it is the intention of the persons named in the accompanying proxy to
vote such proxy in accordance with their best judgment.
Mark Weinreb, Secretary
Hicksville, New York
May 19, 1998
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APPENDIX A
BIG CITY BAGELS, INC.
1998 Performance Equity Plan
Section 1. Purpose; Definitions.
1.1. Purpose. The purpose of the Big City Bagels, Inc. (the "Company") 1998
Performance Equity Plan (the "Plan") is to enable the Company to offer to its
directors, officers, key employees and consultants whose past, present and/or
potential contributions to the Company and its Subsidiaries have been, are or
will be important to the success of the Company, an opportunity to acquire a
proprietary interest in the Company. The various types of long-term incentive
awards which may be provided under the Plan will enable the Company to respond
to changes in compensation practices, tax laws, accounting regulations and the
size and diversity of its businesses.
1.2 Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "Agreement" means the agreement between the Company and the Holder
setting forth the terms and conditions of an award under the Plan.
(b)"Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto and the regulations promulgated
thereunder.
(d) "Committee" means the Stock Option Committee of the Board or any
other committee of the Board, which the Board may designate to administer
the Plan or any portion thereof. If no Committee is so designated, then all
references in this Plan to "Committee" shall mean the Board.
(e)"Common Stock" means the Common Stock of the Company, par value
$.001 per share.
(f) "Company" means Big City Bagels, Inc., a corporation organized
under the laws of the State of New York.
(g) "Deferred Stock" means Stock to be received, under an award made
pursuant to Section 9, below, at the end of a specified deferral period.
(h) "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan.
(i) "Effective Date" means the date set forth in Section 13.1, below.
(j) "Fair Market Value", unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, means, as of
any given date: (i) if the Common Stock is listed on a national securities
exchange or quoted on the Nasdaq National Market or Nasdaq SmallCap Market,
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the last sale price of the Common Stock in the principal trading market for
the Common Stock on the last trading day preceding the date of grant of an
award hereunder, as reported by the exchange or Nasdaq, as the case may be;
(ii) if the Common Stock is not listed on a national securities exchange or
quoted on the Nasdaq National Market or Nasdaq SmallCap Market, but is
traded in the over-the-counter market, the closing bid price for the Common
Stock on the last trading day preceding the date of grant of an award
hereunder for which such quotations are reported by the OTC Bulletin Board
or the National Quotation Bureau, Incorporated or similar publisher of such
quotations; and (iii) if the fair market value of the Common Stock cannot
be determined pursuant to clause (i) or (ii) above, such price as the
Committee shall determine, in good faith.
(k) "Holder" means a person who has received an award under the Plan.
(l) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422
of the Code.
(m) "Nonqualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(n) "Normal Retirement" means retirement from active employment with
the Company or any Subsidiary on or after age 65.
(o) "Other Stock-Based Award" means an award under Section 10, below,
that is valued in whole or in part by reference to, or is otherwise based
upon, Stock.
(p) "Parent" means any present or future parent corporation of the
Company, as such term is defined in Section 424(e) of the Code.
(q) "Plan" means the Big City Bagels, Inc. 1998 Performance Equity
Plan, as hereinafter amended from time to time.
(r) "Restricted Stock" means Stock, received under an award made
pursuant to Section 8, below, that is subject to restrictions under said
Section 8.
(s) "SAR Value" means the excess of the Fair Market Value (on the
exercise date) of the number of shares for which the Stock Appreciation
Right is exercised over the exercise price that the participant would have
otherwise had to pay to exercise the related Stock Option and purchase the
relevant shares.
(t) "Stock" means the Common Stock of the Company, par value $.001 per
share.
(u) "Stock Appreciation Right" means the right to receive from the
Company, on surrender of all or part of the related Stock Option, without a
cash payment to the Company, a number of shares of Common Stock equal to
the SAR Value divided by the exercise price of the Stock Option.
(v) "Stock Option" or "Option" means any option to purchase shares of
Stock which is granted pursuant to the Plan.
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(w) "Stock Reload Option" means any option granted under Section 6.3,
below, as a result of the payment of the exercise price of a Stock Option
and/or the withholding tax related thereto in the form of Stock owned by
the Holder or the withholding of Stock by the Company.
(x) "Subsidiary" means any present or future subsidiary corporation of
the Company, as such term is defined in Section 424(f) of the Code.
Section 2. Administration.
2.1 Committee Membership. The Plan shall be administered by the Board or a
Committee. Committee members shall serve for such term as the Board may in each
case determine, and shall be subject to removal at any time by the Board.
2.2 Powers of Committee. The Committee shall have full authority to award,
pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock Appreciation
Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock Reload Options
and/or (vi) Other Stock-Based Awards. For purposes of illustration and not of
limitation, the Committee shall have the authority (subject to the express
provisions of this Plan):
(a) to select the directors, officers, key employees and consultants
of the Company or any Subsidiary to whom Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock, Reload Stock Options and/or Other
Stock-Based Awards may from time to time be awarded hereunder.
(b) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not
limited to, number of shares, share price, any restrictions or limitations,
and any vesting, exchange, surrender, cancellation, acceleration,
termination, exercise or forfeiture provisions, as the Committee shall
determine);
(c) to determine any specified performance goals or such other factors
or criteria which need to be attained for the vesting of an award granted
hereunder;
(d) to determine the terms and conditions under which awards granted
hereunder are to operate on a tandem basis and/or in conjunction with or
apart from other equity awarded under this Plan and cash awards made by the
Company or any Subsidiary outside of this Plan;
(e) to permit a Holder to elect to defer a payment under the Plan
under such rules and procedures as the Committee may establish, including
the crediting of interest on deferred amounts denominated in cash and of
dividend equivalents on deferred amounts denominated in Stock;
(f) to determine the extent and circumstances under which Stock and
other amounts payable with respect to an award hereunder shall be deferred
which may be either automatic or at the election of the Holder; and
(g) to substitute (i) new Stock Options for previously granted Stock
Options, which previously granted Stock Options have higher option exercise
prices and/or contain other less favorable terms, and (ii) new awards of
any other type for previously granted awards of the same type, which
previously granted awards are upon less favorable terms.
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2.3 Interpretation of Plan.
(a) Committee Authority. Subject to Section 12, below, the Committee
shall have the authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing the Plan as it shall, from time
to time, deem advisable, to interpret the terms and provisions of the Plan
and any award issued under the Plan (and to determine the form and
substance of all Agreements relating thereto), and to otherwise supervise
the administration of the Plan. Subject to Section 12, below, all decisions
made by the Committee pursuant to the provisions of the Plan shall be made
in the Committee's sole discretion and shall be final and binding upon all
persons, including the Company, its Subsidiaries and Holders.
(b) Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options (including but limited to Stock Reload Options or Stock
Appreciation rights granted in conjunction with an Incentive Stock Option)
or any Agreement providing for Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan under
Section 422 of the Code, or, without the consent of the Holder(s) affected,
to disqualify any Incentive Stock Option under such Section 422.
Section 3. Stock Subject to Plan.
3.1 Number of Shares. The total number of shares of Common Stock reserved
and available for distribution under the Plan shall be 2,000,000 shares. Shares
of Stock under the Plan may consist, in whole or in part, of authorized and
unissued shares or treasury shares. If any shares of Stock that have been
granted pursuant to a Stock Option cease to be subject to a Stock Option, or if
any shares of Stock that are subject to any Stock Appreciation Right, Restricted
Stock, Deferred Stock award, Reload Stock Option or Other Stock-Based Award
granted hereunder are forfeited or any such award otherwise terminates without a
payment being made to the Holder in the form of Stock, such shares shall again
be available for distribution in connection with future grants and awards under
the Plan. Only net shares issued upon a stock-for-stock exercise (including
stock used for withholding taxes) shall be counted against the number of shares
available under the Plan.
3.2 Adjustment Upon Changes in Capitalization, Etc. In the event of any
merger, reorganization, consolidation, recapitalization, dividend (other than a
cash dividend), stock split, reverse stock split, or other change in corporate
structure affecting the Stock, such substitution or adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan, in the
number and exercise price of shares subject to outstanding Options, in the
number of shares and Stock Appreciation Right price relating to Stock
Appreciation Rights, and in the number of shares subject to, and in the related
terms of, other outstanding awards (including but not limited to awards of
Restricted Stock, Deferred Stock, Reload Stock Options and Other Stock-Based
Awards) granted under the Plan as may be determined to be appropriate by the
Committee in order to prevent dilution or enlargement of rights, provided that
the number of shares subject to any award shall always be a whole number.
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Section 4. Eligibility.
4.1 General. Awards may be made or granted to directors, officers, key
employees and consultants who are deemed to have rendered or to be able to
render significant services to the Company or its Subsidiaries and who are
deemed to have contributed or to have the potential to contribute to the success
of the Company. No Incentive Stock Option shall be granted to any person who is
not an employee of the Company or a Subsidiary at the time of grant.
4.2 [Omitted]
Section 5. [Omitted]
Section 6. Stock Options.
6.1 Grant and Exercise. Stock Options granted under the Plan may be of two
types: (i) Incentive Stock Options and (ii) Nonqualified Stock Options. Any
Stock Option granted under the Plan shall contain such terms, not inconsistent
with this Plan, or with respect to Incentive Stock Options, not inconsistent
with the Code, as the Committee may from time to time approve. The Committee
shall have the authority to grant Incentive Stock Options, Non-Qualified Stock
Options, or both types of Stock Options and which may be granted alone or in
addition to other awards granted under the Plan. To the extent that any Stock
Option intended to qualify as an Incentive Stock Option does not so qualify, it
shall constitute a separate Nonqualified Stock Option. An Incentive Stock Option
may be granted only within the ten-year period commencing from the Effective
Date and may only be exercised within ten years of the date of grant (or five
years in the case of an Incentive Stock Option granted to an optionee ("10%
Shareholder") who, at the time of grant, owns Stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company.
6.2 Terms and Conditions. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of
grant and may not be less than 100% of the Fair Market Value of the Stock
as defined above; provided, however, that the exercise price of an
Incentive Stock Option granted to a 10% Shareholder shall not be less than
110% of the Fair Market Value of the Stock.
(b) Option Term. Subject to the limitations in Section 6.1, above, the
term of each Stock Option shall be fixed by the Committee.
(c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by
the Committee and as set forth in Section 11, below. If the Committee
provides, in its discretion, that any Stock Option is exercisable only in
installments, i.e., that it vests over time, the Committee may waive such
installment exercise provisions at any time at or after the time of grant
in whole or in part, based upon such factors as the Committee shall
determine.
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(d) Method of Exercise. Subject to whatever installment, exercise and
waiting period provisions are applicable in a particular case, Stock
Options may be exercised in whole or in part at any time during the term of
the Option, by giving written notice of exercise to the Company specifying
the number of shares of Stock to be purchased. Such notice shall be
accompanied by payment in full of the purchase price, which shall be in
cash or, unless otherwise provided in the Agreement, in shares of Stock
(including Restricted Stock and other contingent awards under this Plan)
or, partly in cash and partly in such Stock, or such other means which the
Committee determines are consistent with the Plan's purpose and applicable
law. Cash payments shall be made by wire transfer, certified or bank check
or personal check, in each case payable to the order of the Company;
provided, however, that the Company shall not be required to deliver
certificates for shares of Stock with respect to which an Option is
exercised until the Company has confirmed the receipt of good and available
funds in payment of the purchase price thereof. Payments in the form of
Stock shall be valued at the Fair Market Value of a share of Stock on the
date prior to the date of exercise. Such payments shall be made by delivery
of stock certificates in negotiable form which are effective to transfer
good and valid title thereto to the Company, free of any liens or
encumbrances. Subject to the terms of the Agreement, the Committee may, in
its sole discretion, at the request of the Holder, deliver upon the
exercise of a Nonqualified Stock Option a combination of shares of Deferred
Stock and Common Stock; provided that, notwithstanding the provisions of
Section 9 of the Plan, such Deferred Stock shall be fully vested and not
subject to forfeiture. A Holder shall have none of the rights of a
shareholder with respect to the shares subject to the Option until such
shares shall be transferred to the Holder upon the exercise of the Option.
(e) Transferability. No Stock Option shall be transferable by the
Holder other than by will or by the laws of descent and distribution, and
all Stock Options shall be exercisable, during the Holder's lifetime, only
by the Holder.
(f) Termination by Reason of Death. If a Holder's employment by the
Company or a Subsidiary terminates by reason of death, any Stock Option
held by such Holder, unless otherwise determined by the Committee at the
time of grant and set forth in the Agreement, shall be fully vested and may
thereafter be exercised by the legal representative of the estate or by the
legatee of the Holder under the will of the Holder, for a period of one
year (or such other greater or lesser period as the Committee may specify
at grant) from the date of such death or until the expiration of the stated
term of such Stock Option, whichever period is the shorter.
(g) Termination by Reason of Disability. If a Holder's employment by
the Company or any Subsidiary terminates by reason of Disability, any Stock
Option held by such Holder, unless otherwise determined by the Committee at
the time of grant and set forth in the Agreement, shall be fully vested and
may thereafter be exercised by the Holder for a period of one year (or such
other greater or lesser period as the Committee may specify at the time of
grant) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(h) Other Termination. Subject to the provisions of Section 14.3,
below, and unless otherwise determined by the Committee at the time of
grant and set forth in the Agreement, if a Holder is an employee of the
Company or a Subsidiary at the time of grant and if such Holder's
employment by the Company or any Subsidiary terminates for any reason other
than death or Disability, the Stock Option shall thereupon automatically
terminate, except that if the Holder's employment is terminated by the
Company or a Subsidiary without cause or due to Normal Retirement, then the
portion of such Stock Option which has vested on the date of termination of
employment may be exercised for the lesser of three months after
termination of employment or the balance of such Stock Option's term.
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(i) Additional Incentive Stock Option Limitation. In the case of an
Incentive Stock Option, the aggregate Fair Market Value of Stock
(determined at the time of grant of the Option) with respect to which
Incentive Stock Options become exercisable by a Holder during any calendar
year (under all such plans of the Company and its Parent and Subsidiary)
shall not exceed $100,000.
(j) Buyout and Settlement Provisions. The Committee may at any time,
in its sole discretion, offer to buy out a Stock Option previously granted,
based upon such terms and conditions as the Committee shall establish and
communicate to the Holder at the time that such offer is made.
(k) Stock Option Agreement. Each grant of a Stock Option shall be
confirmed by, and shall be subject to the terms of, the Agreement executed
by the Company and the Holder.
6.3 Stock Reload Option. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after the
time of grant in the case of a Nonqualified Stock Option) a Stock Reload Option
up to the amount of shares of Stock held by the Holder for at least six months
and used to pay all or part of the exercise price of an Option and, if any,
withheld by the Company as payment for withholding taxes. Such Stock Reload
Option shall have an exercise price equal to the Fair Market Value as of the
date of the Stock Reload Option grant. Unless the Committee determines
otherwise, a Stock Reload Option may be exercised commencing one year after it
is granted and shall expire on the date of expiration of the Option to which the
Reload Option is related.
Section 7. Stock Appreciation Rights.
7.1 Grant and Exercise. The Committee may grant Stock Appreciation Rights
to participants who have been, or are being granted, Options under the Plan as a
means of allowing such participants to exercise their Options without the need
to pay the exercise price in cash. In the case of a Nonqualified Stock Option, a
Stock Appreciation Right may be granted either at or after the time of the grant
of such Nonqualified Stock Option. In the case of an Incentive Stock Option, a
Stock Appreciation Right may be granted only at the time of the grant of such
Incentive Stock Option.
7.2 Terms and Conditions. Stock Appreciation Rights shall be subject to the
following terms and conditions:
(a) Exercisability. Stock Appreciation Rights shall be exercisable as
determined by the Committee and set forth in the Agreement, subject to the
limitations, if any, imposed by the Code, with respect to related Incentive
Stock Options.
(b) Termination. A Stock Appreciation Right shall terminate and shall
no longer be exercisable upon the termination or exercise of the related
Stock Option.
(c) Method of Exercise. Stock Appreciation Rights shall be exercisable
upon such terms and conditions as shall be determined by the Committee and
set forth in the Agreement and by surrendering the applicable portion of
the related Stock Option. Upon such exercise and surrender, the Holder
shall be entitled to receive a number of Option Shares equal to the SAR
Value divided by the exercise price of the Option.
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(d) Shares Affected Under Plan. The granting of a Stock Appreciation
Rights shall not affect the number of shares of Stock available for awards
under the Plan. The number of shares available for awards under the Plan
will, however, be reduced by the number of shares of Stock acquirable upon
exercise of the Stock Option to which such Stock Appreciation Right
relates.
Section 8. Restricted Stock.
8.1 Grant. Shares of Restricted Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be awarded, the number of shares to be awarded, the price
(if any) to be paid by the Holder, the time or times within which such awards
may be subject to forfeiture (the "Restriction Period"), the vesting schedule
and rights to acceleration thereof, and all other terms and conditions of the
awards.
8.2 Terms and Conditions. Each Restricted Stock award shall be subject to
the following terms and conditions:
(a) Certificates. Restricted Stock, when issued, will be represented
by a stock certificate or certificates registered in the name of the Holder
to whom such Restricted Stock shall have been awarded. During the
Restriction Period, certificates representing the Restricted Stock and any
securities constituting Retained Distributions (as defined below) shall
bear a legend to the effect that ownership of the Restricted Stock (and
such Retained Distributions), and the enjoyment of all rights appurtenant
thereto, are subject to the restrictions, terms and conditions provided in
the Plan and the Agreement. Such certificates shall be deposited by the
Holder with the Company, together with stock powers or other instruments of
assignment, each endorsed in blank, which will permit transfer to the
Company of all or any portion of the Restricted Stock and any securities
constituting Retained Distributions that shall be forfeited or that shall
not become vested in accordance with the Plan and the Agreement.
(b) Rights of Holder. Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. The Holder
will have the right to vote such Restricted Stock, to receive and retain
all regular cash dividends and other cash equivalent distributions as the
Board may in its sole discretion designate, pay or distribute on such
Restricted Stock and to exercise all other rights, powers and privileges of
a holder of Common Stock with respect to such Restricted Stock, with the
exceptions that (i) the Holder will not be entitled to delivery of the
stock certificate or certificates representing such Restricted Stock until
the Restriction Period shall have expired and unless all other vesting
requirements with respect thereto shall have been fulfilled; (ii) the
Company will retain custody of the stock certificate or certificates
representing the Restricted Stock during the Restriction Period; (iii)
other than regular cash dividends and other cash equivalent distributions
as the Board may in its sole discretion designate, pay or distribute, the
Company will retain custody of all distributions ("Retained Distributions")
made or declared with respect to the Restricted Stock (and such Retained
Distributions will be subject to the same restrictions, terms and
conditions as are applicable to the Restricted Stock) until such time, if
ever, as the Restricted Stock with respect to which such Retained
Distributions shall have been made, paid or declared shall have become
vested and with respect to which the Restriction Period shall have expired;
(iv) a breach of any of the restrictions, terms or conditions contained in
this Plan or the Agreement or otherwise established by the Committee with
respect to any Restricted Stock or Retained Distributions will cause a
forfeiture of such Restricted Stock and any Retained Distributions with
respect thereto.
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(c) Vesting; Forfeiture. Upon the expiration of the Restriction Period
with respect to each award of Restricted Stock and the satisfaction of any
other applicable restrictions, terms and conditions (i) all or part of such
Restricted Stock shall become vested in accordance with the terms of the
Agreement, subject to Section 11, below, and (ii) any Retained
Distributions with respect to such Restricted Stock shall become vested to
the extent that the Restricted Stock related thereto shall have become
vested, subject to Section 11, below. Any such Restricted Stock and
Retained Distributions that do not vest shall be forfeited to the Company
and the Holder shall not thereafter have any rights with respect to such
Restricted Stock and Retained Distributions that shall have been so
forfeited.
Section 9. Deferred Stock.
9.1 Grant. Shares of Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock shall be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period (the "Deferral Period") during which, and
the conditions under which, receipt of the shares will be deferred, and all the
other terms and conditions of the awards.
9.2 Terms and Conditions. Each Deferred Stock award shall be subject to the
following terms and conditions:
(a) Certificates. At the expiration of the Deferral Period (or the
Additional Deferral Period referred to in Section 9.2 (d) below, where
applicable), share certificates shall be issued and delivered to the
Holder, or his legal representative, representing the number equal to the
shares covered by the Deferred Stock award.
(b) Rights of Holder. A person entitled to receive Deferred Stock
shall not have any rights of a shareholder by virtue of such award until
the expiration of the applicable Deferral Period and the issuance and
delivery of the certificates representing such Stock. The shares of Stock
issuable upon expiration of the Deferral Period shall not be deemed
outstanding by the Company until the expiration of such Deferral Period and
the issuance and delivery of such Stock to the Holder.
(c) Vesting; Forfeiture. Upon the expiration of the Deferral Period
with respect to each award of Deferred Stock and the satisfaction of any
other applicable restrictions, terms and conditions all or part of such
Deferred Stock shall become vested in accordance with the terms of the
Agreement, subject to Section 11, below. Any such Deferred Stock that does
not vest shall be forfeited to the Company and the Holder shall not
thereafter have any rights with respect to such Deferred Stock.
(d) Additional Deferral Period. A Holder may request to, and the
Committee may at any time, defer the receipt of an award (or an installment
of an award) for an additional specified period or until a specified event
(the "Additional Deferral Period"). Subject to any exceptions adopted by
the Committee, such request must generally be made at least one year prior
to expiration of the Deferral Period for such Deferred Stock award (or such
installment).
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Section 10. Other Stock-Based Awards.
10.1 Grant and Exercise. Other Stock-Based Awards may be awarded, subject
to limitations under applicable law, that are denominated or payable in, valued
in whole or in part by reference to, or otherwise based on, or related to,
shares of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares of
Common Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and awards valued by reference to the value of securities of or
the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other awards under
this Plan or any other plan of the Company.
10.2 Eligibility for Other Stock-Based Awards. The Committee shall
determine the eligible persons to whom and the time or times at which grants of
such other stock-based awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such awards, and all other terms and conditions
of the awards.
10.3 Terms and Conditions. Each Other Stock-Based Award shall be subject to
such terms and conditions as may be determined by the Committee and to Section
11, below.
Section 11. Accelerated Vesting and Exercisability.
If (i) any person or entity other than the Company and/or any
shareholders of the Company as of the Effective Date acquire securities of the
Company (in one or more transactions) having 25% or more of the total voting
power of all the Company's securities then outstanding and (ii) the Board of
Directors of the Company does not authorize or otherwise approve such
acquisition, then, the vesting periods of any and all Options and other awards
granted and outstanding under the Plan shall be accelerated and all such Options
and awards will immediately and entirely vest, and the respective holders
thereof will have the immediate right to purchase and/or receive any and all
Stock subject to such Options and awards on the terms set forth in this Plan and
the respective agreements respecting such Options and awards.
Section 12. Amendment and Termination.
The Board may at any time, and from time to time, amend, alter, suspend
or discontinue any of the provisions of the Plan, but no amendment, alteration,
suspension or discontinuance shall be made which would impair the rights of a
Holder under any Agreement theretofore entered into hereunder, without the
Holder's consent.
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Section 13. Term of Plan.
13.1 Effective Date. The Plan shall be effective as of January 27, 1998
("Effective Date"), subject to adoption of the Plan by the Company's
shareholders within one year of the Effective Date.
13.2 Termination Date. Unless terminated by the Board, this Plan shall
continue to remain effective until such time no further awards may be granted
and all awards granted under the Plan are no longer outstanding. Notwithstanding
the foregoing, grants of Incentive Stock Options may only be made during the
ten-year period following the Effective Date.
Section 14. General Provisions.
14.1 Written Agreements. Each award granted under the Plan shall be
confirmed by, and shall be subject to the terms of the Agreement executed by the
Company and the Holder. The Committee may terminate any award made under the
Plan if the Agreement relating thereto is not executed and returned to the
Company within ten days after the Agreement has been delivered to the Holder for
his or her execution.
14.2 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such Holder any rights that are greater than those of a general
creditor of the Company.
14.3 Employees.
(a) Engaging in Competition With the Company. In the event a Holder's
employment with the Company or a Subsidiary is terminated for any reason
whatsoever, and within one year after the date thereof such Holder accepts
employment with any competitor of, or otherwise engages in competition
with, the Company, the Committee, in its sole discretion, may require such
Holder to return to the Company the economic value of any award which was
realized or obtained by such Holder at any time during the period beginning
on that date which is six months prior to the date of such Holder's
termination of employment with the Company.
(b) Termination for Cause. The Committee may, in the event a Holder's
employment with the Company or a Subsidiary is terminated for cause, annul
any award granted under this Plan to such employee and, in such event, the
Committee, in its sole discretion, may require such Holder to return to the
Company the economic value of any award which was realized or obtained by
such Holder at any time during the period beginning on that date which is
six months prior to the date of such Holder's termination of employment
with the Company.
(c) No Right of Employment. Nothing contained in the Plan or in any
award hereunder shall be deemed to confer upon any Holder who is an
employee of the Company or any Subsidiary any right to continued employment
with the Company or any Subsidiary, nor shall it interfere in any way with
the right of the Company or any Subsidiary to terminate the employment of
any Holder who is an employee at any time.
14.4 Investment Representations. The Committee may require each person
acquiring shares of Stock pursuant to a Stock Option or other award under the
Plan to represent to and agree with the Company in writing that the Holder is
acquiring the shares for investment without a view to distribution thereof.
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14.5 Additional Incentive Arrangements. Nothing contained in the Plan shall
prevent the Board from adopting such other or additional incentive arrangements
as it may deem desirable, including, but not limited to, the granting of Stock
Options and the awarding of stock and cash otherwise than under the Plan; and
such arrangements may be either generally applicable or applicable only in
specific cases.
14.6 Withholding Taxes. Not later than the date as of which an amount must
first be included in the gross income of the Holder for federal income tax
purposes with respect to any option or other award under the Plan, the Holder
shall pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any federal, state and local taxes of any kind
required by law to be withheld or paid with respect to such amount. If permitted
by the Committee, tax withholding or payment obligations may be settled with
Common Stock, including Common Stock that is part of the award that gives rise
to the withholding requirement. The obligations of the Company under the Plan
shall be conditioned upon such payment or arrangements and the Company or the
Holder's employer (if not the Company) shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the Holder from the Company or any Subsidiary.
14.7 Governing Law. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of New York (without regard to choice of law provisions).
14.8 Other Benefit Plans. Any award granted under the Plan shall not be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary and shall not affect any benefits under any
other benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation (unless required by
specific reference in any such other plan to awards under this Plan).
14.9 Non-Transferability. Except as otherwise expressly provided in the
Plan, no right or benefit under the Plan may be alienated, sold, assigned,
hypothecated, pledged, exchanged, transferred, encumbranced or charged, and any
attempt to alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or charge the same shall be void.
14.10 Applicable Laws. The obligations of the Company with respect to all
Stock Options and awards under the Plan shall be subject to (i) all applicable
laws, rules and regulations and such approvals by any governmental agencies as
may be required, including, without limitation, the Securities Act of 1933, as
amended, and (ii) the rules and regulations of any securities exchange on which
the Stock may be listed.
14.11 Conflicts. If any of the terms or provisions of the Plan or an
Agreement (with respect to Incentive Stock Options) conflict with the
requirements of Section 422 of the Code, then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of said
Section 422 of the Code. Additionally, if this Plan or any Agreement does not
contain any provision required to be included herein under Section 422 of the
Code, such provision shall be deemed to be incorporated herein and therein with
the same force and effect as if such provision had been set out at length herein
and therein. If any of the terms or provisions of any Agreement conflict with
any terms or provision of the Plan, then such terms or provisions shall be
12
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deemed inoperative to the extent they so conflict with the requirements of the
Plan. Additionally, if any Agreement does not contain any provision required to
be included therein under the Plan, such provision shall be deemed to be
incorporated therein with the same force and effect as if such provision had
been set out at length therein.
14.12 Non-Registered Stock. The shares of Stock to be distributed under
this Plan have not been, as of the Effective Date, registered under the
Securities Act of 1933, as amended, or any applicable state or foreign
securities laws and the Company has no obligation to any Holder to register the
Stock or to assist the Holder in obtaining an exemption from the various
registration requirements, or to list the Stock on a national securities
exchange.
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BIG CITY BAGELS, INC. - PROXY
Solicited By The Board Of Directors
for Annual Meeting To Be Held on June 19, 1998
P The undersigned shareholder(s) of BIG CITY BAGELS, INC., a New York
corporation ("Company"), hereby appoints Mark Weinreb and Jerry Rosner, or
any of them, with full power of substitution and to act without the others,
as the agents, attorneys and proxies of the undersigned, to vote the shares
standing in the name of the undersigned at the Annual Meeting of
Shareholders of the Company to be held on June 19, 1998 and at all
R adjournments thereof. This proxy will be voted in accordance with the
instructions given below. If no instructions are given, this proxy will be
voted FOR all of the following proposals:
O 1. Election of the following Directors:
X FOR all nominees listed below except WITHHOLD AUTHORITY to vote
as marked to the contrary below |_| for all nominees listed below |_|
Y Mark Weinreb Jerry Rosner Stanley Weinreb Stanley Raphael
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name in the space below.
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2. Approval of the Company's 1998 Performance Equity Plan:
FOR |_| AGAINST |_| ABSTAIN |_|
3. Authorization of an amendment to the Company's Certificate of
Incorporation to implement a reverse stock split of the Company's
Common Stock of between one-for-two up to one-for- five, at any time
within one year after shareholder approval of this proposal is
obtained at the Annual Meeting, with the timing and exact ratio to be
determined in the sole discretion of the Board of Directors:
FOR |_| AGAINST |_| ABSTAIN |_|
4. Authorization of the issuance, in the discretion of the Board of
Directors, at any time or from time to time within one year after
shareholder approval of this proposal is obtained at the Annual
Meeting of up to 5,000,000 shares of Common Stock on a pre-split basis
at a purchase price reflecting a discount of up to 50% of the fair
market value of the Common Stock on the date of issuance:
FOR |_| AGAINST |_| ABSTAIN |_|
5. In their discretion, the proxies are authorized to vote upon such
other business as may come before the meeting or any adjournment
thereof.
Dated ____________________________, 1998
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Signature
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Signature if held jointly
Please sign exactly as name appears above. When shares are
held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name
by authorized person.
