U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1998
______ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to __________________
Commission File number 0-28058
BIG CITY BAGELS, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
New York 11-3137508
- ------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
99 Woodbury Road, Hicksville, NY 11801
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(Address of Principal Executive Offices)
(516) 932-5050
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(Issuer's Telephone Number Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At November 10, 1998, the issuer had
outstanding 1,431,712 shares of Common stock, par value $.001 per share.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BIG CITY BAGELS, INC. AND SUBSIDIARY
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 1,346,799 $ 4,118,031
Accounts receivable..................................................... 196,108 104,190
Inventory............................................................... 51,506 43,868
Prepaid expenses and other current assets............................... 109,870 41,133
------------------ -------------------
Total current assets............................................... 1,704,283 4,307,222
Fixed assets, net of accumulated depreciation........................... 769,325 611,095
Intangible assets, net of accumulated amortization...................... 154,777 23,267
Security deposits and other assets...................................... 109,917 220,380
------------------ -------------------
TOTAL.............................................................. $ 2,738,302 $ 5,161,964
================== ===================
LIABILITIES
Current liabilities:
Capital lease obligations............................................... $ 41,790 $ 38,862
Unearned franchise fee income........................................... 213,500 278,500
Accounts payable........................................................ 319,533 287,138
Accrued expenses........................................................ 56,796 74,206
------------------ -------------------
Total current liabilities.......................................... 631,619 678,706
Deferred rent payable................................................... 0 7,795
Capital lease obligations, noncurrent................................... 35,592 57,235
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Total liabilities.................................................. 667,211 743,736
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STOCKHOLDERS' EQUITY
Convertible (redeemable) preferred stock; $.001 par value; 1,000,000 shares
authorized; 247,940 and 265,000 shares issued and outstanding at September
30, 1998 and December 31, 1997, respectively (liquidation value $3,099,250
and $3,312,500, respectively).............................................. 248 265
Common stock; $.001 par value; 25,000,000 shares authorized;
1,495,092 and 1,268,694 shares issued at September 30, 1998
and December 31, 1997, respectively.................................... 1,495 1,269
Additional paid-in capital................................................. 10,124,484 9,682,264
Treasury stock (63,380 shares, at cost).................................... (64,134) 0
Accumulated deficit........................................................ (7,991,002) (5,258,070)
Unearned portion of compensatory stock.................................... 0 (7,500)
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Total stockholders' equity............................................ 2,071,091 4,418,228
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TOTAL................................................................. $ 2,738,302 $ 5,161,964
================== ===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
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BIG CITY BAGELS, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Product sales by company-owned stores $ 1,769,702 $ 1,279,682 $ 411,679 $ 398,267
Product sales to franchisees and others 550,773 506,901 190,813 172,775
Franchise fees 124,500 151,000 0 91,000
Royalty income 158,622 124,679 57,217 37,036
Interest and other income 121,373 37,804 37,225 6,815
-------------- ----------------- ------------------ -------------------
Total revenues 2,724,970 2,100,066 696,934 705,893
-------------- ----------------- ------------------ -------------------
COSTS AND EXPENSES:
Cost of sales 1,173,205 1,052,944 327,558 351,234
Selling, general and administrative
expenses 3,698,975 3,013,432 1,049,232 865,915
Interest expense 10,875 33,176 2,946 8,592
Write-off of intangible assets 572,195 0 0 0
-------------- ----------------- ------------------ -------------------
Total costs and expenses 5,455,250 4,099,552 1,379,736 1,225,741
-------------- ----------------- ------------------ -------------------
NET (LOSS) $ (2,730,280) $ (1,999,486) $ (682,802) $ (519,848)
=============== ================= ================== ===================
Basic and diluted net (loss) per common
share $ (2.00) $ (1.97) $ (0.47) $ (0.49)
=============== ================= ================== ===================
Weighted average common shares
outstanding 1,366,208 1,013,165 1,450,382 1,066,370
=============== ================= ================== ===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
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BIG CITY BAGELS, INC. AND SUBSIDIARY
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned Portion of
Preferred Stock Common Stock Compensatory Stock
--------------- --------------- -------------------
Additional
Shares Amount Shares Amount Paid-In Accumulated Treasury Shares Amount Total
Capital Deficit Stock
------- ----- --------- ------- ----------- ----------- -------- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998 265,000 $ 265 1,268,694 $ 1,269 $ 9,682,264 $(5,258,070) 3,000 $(7,500) $4,418,228
Issuance of common stock
for acquisition of assets 73,064 73 444,927 445,000
Purchase of treasury stock $(64,134) (64,134)
Shares issued as
compensation 4,988 5 26,495 26,500
Preferred stock converted
to common stock (17,060) (17) 143,335 143 (126)
Amortization of
compensatory stock 7,500 7,500
Registration costs - related
to December 1997 private
placement (31,723) (31,723)
Stock dividends 5,011 5 2,647 (2,652)
Net loss (2,730,280) (2,730,280)
------- ----- --------- ------- ----------- ----------- -------- ----- ------- -----------
BALANCE, September 30, 1998 247,940 $ 248 1,495,092 $ 1,495 $10,124,484 $(7,991,002) $(64,134) 3,000 $ 0 $ 2,071,091
======= ===== ========= ======= =========== =========== ======== ===== ======= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
BIG CITY BAGELS, INC. AND SUBSIDIARY
CASH FLOWS STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................. $ (2,730,280) $ (1,999,486)
-------------------- -------------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.......................................... 140,175 182,645
Write off of intangible assets......................................... 572,195 0
Issuance of common stock for compensation and
professional services............................................. 34,000 22,500
Gain on sale of equipment.............................................. (18,730) 0
(Increase) Decrease in:
Accounts receivable.................................................. (91,918) (65,906)
Inventory............................................................ (7,638) 14,521
Interest receivable on U.S. Treasury bills........................... 0 21,135
Prepaid expenses and other current assets............................ (68,737) 9,143
Increase (Decrease) in:
Unearned franchise fee income........................................ (65,000) 14,750
Deferred rent payable................................................ (7,795) (8,586)
Accounts payable..................................................... 32,395 11,249
Accrued expenses..................................................... (17,410) (13,243)
-------------------- -------------------
Total adjustments......................................................... 501,537 188,208
-------------------- -------------------
Net cash used in operating activities..................................... (2,228,743) (1,811,278)
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of franchise store......................................... 0 (75,000)
Purchases of fixed and intangible assets............................... (691,448) (32,244)
Sale of fixed assets................................................... 153,068 0
Decrease (Increase) in security deposits and other assets.............. 110,463 (13,459)
Purchase of United States Treasury bills............................... 0 (243,880)
Sales of United States Treasury bills.................................. 0 1,219,691
Purchase of treasury stock............................................. (64,134) 0
-------------------- -------------------
Net cash (used in) provided by investing activities....................... (492,051) 855,108
-------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of warrants................................. 0 1,691,402
Proceeds from exercise of unit purchase option......................... 0 540,000
Registration costs..................................................... (31,723) 0
Repayment of stockholder loans......................................... 0 (65,655)
Repayment of notes payable............................................. (18,715) (37,263)
-------------------- -------------------
Net cash (used in) provided by financing activities....................... (50,438) 2,128,484
-------------------- -------------------
NET (DECREASE) INCREASE IN CASH........................................... (2,771,232) 1,172,314
Cash, beginning of period................................................. $ 4,118,031 $ 654,856
==================== ===================
Cash, end of period....................................................... $ 1,346,799 $ 1,827,170
==================== ===================
</TABLE>
(Continued on next page)
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BIG CITY BAGELS, INC. AND SUBSIDIARY
CASH FLOWS STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
Supplemental disclosure of non-cash activities:
<TABLE>
<CAPTION>
<S> <C> <C>
Cash paid during the year for: 1998 1997
---- ----
Interest....................................................................... $ 7,920 $ 32,510
Income taxes.................................................................... 6,450 3,500
In February 1997, the Company acquired all of the assets of a franchise store
for the following:
Forgiveness of outstanding accounts receivable...................................................... $ 8,796
Issuance of 1,653 shares of common stock............................................................ 8,264
-------------
17,060
Cash paid........................................................................................... 75,000
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Total amount attributed to fixed assets................................................... $ 92,060
=============
Assets purchased by the issuance of 73,064
shares of common stock........................................................... $ 445,000
Cash paid........................................................................... 386,466
--------------
Total amount attributed to fixed and intangible assets.......................... $ 831,466
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
BIG CITY BAGELS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and Basis of Presentation:
The Company operates and franchises retail bagel stores and
sells its products wholesale to commercial accounts and food
service operators.
The information herein is unaudited. However, in the opinion
of management, such information reflects all adjustments
(consisting only of normal recurring accruals) necessary to
make the financial statements not misleading. Additionally, it
should be noted that the accompanying financial statements do
not purport to contain complete disclosures in conformity with
generally accepted accounting principles.
The results of operations for the three and nine months ended
September 30, 1998 are not necessarily indicative of the
results of operations for the full year ending December 31,
1998. These statements should be read in conjunction with the
Company's financial statements for the year ended December 31,
1997 appearing in the Company's Annual Report on Form 10- KSB.
On June 23, 1998, the Company effected a one-for-five reverse
stock split of the Company's Common Stock (the "Reverse
Split"). All per-share data and references to number of shares
have been retroactively restated in these financial
statements. The Reverse Split affected the holders of each
class of warrants and options outstanding insofar as the
exercise price of each warrant was adjusted upward by a factor
of five and the number of shares of common stock issuable upon
exercise of each warrant were reduced by a factor of five.
(NOTE B) - Acquisitions and Sales:
In January 1998, BCNY, Inc., a wholly-owned subsidiary of the
Company, acquired all the assets of an unaffiliated bagel
store located in New York City. The purchase price was
$700,000 for which the Company paid the seller $275,000 in
cash and $425,000 by the issuance of 69,299 shares of the
Company's common stock at fair value ($425,000).
In February 1998, BCNY, Inc. acquired certain equipment and
was assigned a lease of an unaffiliated restaurant located in
New York City. The purchase price was $80,000 for which
approximately $50,000 is attributable to the equipment
purchased. The Company paid $60,000 in cash and the remaining
$20,000 was paid by the issuance of 3,765 shares of the
Company's common stock at fair value ($20,000).
In February 1998, the Company sold the franchise store
repurchased during 1997 for $50,000 in cash, representing the
carrying value of the franchise, plus $5,147 for inventory
located in the store.
In June 1998, the Company sold one of its retail stores in
Costa Mesa, California for $75,000 in cash to a new
franchisee.
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<PAGE>
BIG CITY BAGELS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - Conversion of Preferred Stock
Through September 30, 1998, 17,060 shares of preferred stock
have been converted into 143,335 shares of common stock at
conversion rates ranging from $.2585 to $.50625 per share.
Upon conversion, the preferred stockholders received an
aggregate of $2,652 of dividends, which the Company paid with
5,011 shares of common stock.
(NOTE D) - Common Stock Options:
Pursuant to the Company's 1996 Performance Equity Plan ("1996
Plan"), 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 2,000 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. On March 31, 1998, the directors of the Company
were granted options to purchase an aggregate of 8,000 shares
of common stock at an exercise price of $4.6875 per share.
(NOTE E) - Employment Agreements:
On August 21, 1998, the Company entered into an Amended and
Restated Employment Agreement with Mark Weinreb, the
Company's Chairman and Chief Executive Officer. The
amendment extended Mr. Weinreb's employment term for one
year until December 31, 1999 and provides for a salary at
the rate of $200,000 per annum. The amendment also provides
that if (i) the Company terminates Mr. Weinreb's employment
without cause, (ii) the Company fails to renew his
employment agreement for one additional year or (iii) Mr.
Weinreb elects to terminate his employment for "good reason"
(as defined in the agreement), then Mr. Weinreb will receive
a lump sum cash payment of $200,000. In addition, the
Company granted to Mr. Weinreb an option under the Company's
1998 Performance Equity Plan to purchase 100,000 shares of
Common Stock at an exercise price of $1.00 per share. The
option is immediately exercisable and will remain
exercisable until August 2008.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's financial statements and the notes thereto. The discussion of
results, causes and trends should not be construed to imply any conclusion that
such results or trends will necessarily continue in the future.
Forward-Looking Statements
When used in the Form 10-QSB and in future filings by the Company with
the Securities and Exchange Commission, the words or phrases "will likely
result," "management expects" or "the Company expects," "will continue,"
"estimated" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Readers are cautioned not to place undue reliance on any such
forward-looking statements, each of which speak only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Company has no obligation to publicly release the
results of any revisions which may be made to any forward-looking statements to
reflect anticipated or unanticipated events or circumstances occurring after the
date of such statements.
Results of Operations
Revenues for the three and nine months ended September 30, 1998 were
$696,934 and $2,724,970, respectively, a 1% decrease and 30% increase from
revenues of $705,893 and $2,100,066 for the three and nine months ended
September 30, 1997. The decrease in revenue for the quarter was attributable to
the temporary closing of a Company-owned store for renovation and the Company
not recognizing any franchise fees. The increase for the nine months ended
September 30, 1998 was attributable to gains in the following areas: store and
commissary product sales, royalty income and interest and other income. Store
and commissary product sales increased by $31,450 and $533,892, respectively, a
6% and 30% increase, to $602,492 and $2,320,475 for the three and nine months
ended September 30, 1998 from $571,042 and $1,786,583 for the three and nine
months ended September 30, 1997. This increase was primarily due to the
acquisition of one new store in January 1998 and the growth of the wholesale
business. Franchise fee revenues for the three and nine months ended September
30, 1998 were $0 and $124,500, respectively, as compared with $91,000 and
$151,000 of franchise fee revenues for the three and nine months ended September
30, 1997, due to the fact that more stores opened during the three and nine
months ended September 30, 1997. Revenue under franchise agreements generally is
recognized when the franchise stores are opened. The Company has unearned
franchise fee income of $213,500 at September 30, 1998, compared to $278,500 at
September 30, 1997 due to related franchise store openings and no new franchise
sales. Unearned franchise fee income represents non-refundable franchise fees
which will be recognized as revenue as the related franchise stores are opened.
Royalty income increased by $20,181 and $33,943, or 54% and 27%, to $57,217 and
$158,622 for the three and nine months ended September 30, 1998, from $37,036
and $124,679 for the three and nine months ended September 30, 1997. This was
due to the maturing of operations of existing franchise stores and the
commencement of operations of new franchise stores that opened in 1998. Interest
income for the three and nine months ended September 30, 1998 was $19,925 and
$88,909, respectively, a 192% increase and 135% increase from the interest
income for the three and nine months ended September 30, 1997. Interest income
resulted from the cash proceeds of the Company's private placement of preferred
stock in December 1997, and the exercise of the Company's Class A Redeemable
Common Stock Purchase Warrants ("Class A Warrants"), Class B Redeemable Common
Stock Purchased Warrants ("Class B Warrants") and the Unit Purchase Option in
1997, which were deposited into interest bearing accounts.
During the nine months ended September 30, 1998, the Company entered
into one new franchise agreement as compared to two franchise agreements and two
franchise area development agreements (one three-store agreement and one
seven-store agreement) for the nine months ended September 30, 1997.
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Cost of sales were $327,558 and $1,173,205, representing 54% and 51%
of net sales for the three and nine months ended September 30, 1998, compared to
$351,234 and $1,052,944 or 62% and 59% of net sales for the three and nine
months ended September 30, 1997. The decrease in cost of sales as a percentage
of sales was primarily attributable to an increase in the mix between sales from
the Company-owned stores and sales from the commissary to franchisees, which
generally represents a higher gross profit percentage and increased efficiency
at the recently renovated commissary. The increase in cost of sales of $120,261
for the nine months ended September 30, 1998 was primarily due to increased
product sales resulting from the additional Company-owned store acquired,
increased wholesale business and increased sales from the commissary to
franchisees.
Selling, general and administrative expenses (SG&A) were $1,049,232
and $3,698,975, respectively, for the three and nine months ended September 30,
1998, a 21% and 23% increase from $865,915 and $3,013,432 for the three and nine
months ended September 30, 1997. This increase was primarily a result of: (i) an
increase in salaries of $42,348 and $370,839 from $325,179 and $1,159,232 for
the three and nine months ended September 30, 1997 to $367,527 and $1,530,071
for the three and nine months ended September 30, 1998, due to the hiring of a
part-time chief financial officer, a one time officer's severance contract
termination payment and the opening of additional Company-owned stores and (ii)
increases of $61,277 and $160,388 in rent due to the opening of a new
Company-owned store, and $76,240 and $105,971 in consulting and professional
fees, for the three and nine months ended September 30, 1998, respectively,
primarily due to the Company exploring new business opportunities and the
potential sale of certain assets.
Interest expense decreased by $5,646 and $22,301, respectively, for
the three and nine months ended September 30, 1998, primarily due to the Company
retiring its debt obligations to its shareholders.
The net losses of the three and nine months ended September 30, 1998
were $682,802 and $2,730,280, respectively, compared to net losses of $519,848
and $ 1,999,486 for the three and nine months ended September 30, 1997. The
reasons for the increase in the loss for the nine month period were primarily
due to the severance payment of approximately $150,000 resulting from the
termination of an officer's contract, a write down of goodwill in the amount of
$572,195, losses attributable to Company-owned store operations in New York, and
increases in SG&A expenses.
Liquidity and Capital Resources
Cash and cash equivalents at September 30, 1998 were $1,346,799,
compared to $4,118,031 at December 31, 1997. This decrease was primarily
attributable to funding the Company's operating losses for the nine months ended
September 30, 1998, purchasing two stores in New York City, opening a Company-
owned store and relocating the Company's commissary in California.
Accounts receivable increased to $196,108 at September 30, 1998, from
$104,190 at December 31, 1997. This increase was primarily due to increases in
royalty fees, commissary sales to franchisees and the Company's wholesale
business.
Inventory increased to $51,506 at September 30, 1998, from $43,868 at
December 31, 1997, due to the opening of two Company-owned stores, increased
commissary sales to franchisees and the Company's wholesale business.
Prepaid expenses and other current assets increased to $109,870 at
September 30, 1998 from $41,133 at December 31, 1997, primarily due to the
purchase and renovation of the Company's two New York City stores.
Fixed assets, net of accumulated depreciation, increased to $769,325
at September 30, 1998 from $611,095 at December 31, 1997, resulting from the
opening of the Company's new commissary, the purchase of stores in New York City
and the opening of a Company-owned store in California.
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Intangible assets, net of accumulated amortization, increased to
$154,777 at September 30, 1998 from $23,267 at December 31, 1997, resulting from
the net goodwill realized on the acquisition and the subsequent write down of a
bagel store in New York City.
Security deposits and other assets decreased to $109,917 at September
30, 1998 from $220,380 at December 31, 1997, due to the opening of the new
commissary (which costs were capitalized until operations began in 1998), the
closing of the Company's original commissary and the sale of a Company-owned
store.
The current and non-current portion of capital lease obligations
decreased to $77,382 at September 30, 1998 from $96,097 at December 31, 1997, as
a result of the Company making the required lease payments during this period.
The combination of accounts payable and accrued expenses increased to
$376,329 at September 30, 1998 from $361,344 at December 31, 1997.
At September 30, 1998, the Company had $1,072,664 of working capital
and a current ratio of 2.7 to 1.
The Company's operating activities used net cash of $2,228,743 during
the nine months ended September 30, 1998, as compared to net cash used in
operations of $1,811,278 for the corresponding period of the prior year. This
increase was primarily due to the increased net loss and a decrease in unearned
franchise fees received.
The Company's Board of Directors has determined that the Company's
current business of operating retail bagel stores no longer provides the
opportunity for growth or profitability. Accordingly, in order to reduce costs
and losses and to replenish capital needed for operations, the Company has
decided to sell unprofitable Company-owned stores to new or existing franchisees
(or to unaffiliated parties). There can be no assurance that the Company will be
able to sell these stores or raise additional capital from such sales. As a way
of attracting potential franchisees and operating more cost effectively, in
August 1998, the Company began operating its Internet web site
(www.big-citybagels.com). The Company has received many online inquiries and
confidential qualification forms from interested potential franchisees. The
Company expects that the portion of the web site designed to retail the
Company's products over the Internet will be operating by the end of 1998.
Even by taking the steps outlined above, the Company anticipates that
it will not have sufficient capital for its operations through the end of 1999.
Accordingly, the Company has been actively engaged in exploring possible
acquisitions or mergers with profitable companies, which may include companies
outside of the food industry. While the Company has not yet reached any
definitive agreements, management anticipates that the current market price of
the Company's common stock and market overhang effect of its outstanding
preferred stock will require the Company to accept an offer that will be
dilutive to holders of its common stock.
Other Information
Year 2000 Compliance
Many computer systems currently in use were designed to use only two
digits in the date field and thus may experience difficulty processing dates
beyond the Year 1999. Consequently, some computer hardware and software will
need to modified prior to the Year 2000 to remain functional. The Company's own
systems are Year 2000 compliant (which means that the systems will accurately
process date/time date regardless of whether the date is in the twentieth
century or the twenty-first century).
The Company is also in the process of assessing its vendors,
utilities, banks and others with whom it does business to determine whether the
failure of any of the foregoing to be Year 2000 compliant would have a material
adverse effect on the Company. Management believes that the likelihood of such
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adverse effect is immaterial. The Company's operations utilize relatively little
electronic data interchange with vendors and other third parties. However, to
the extent that such third parties, particularly utilities and banks, may not be
Year 2000 compliant, the Company may be adversely affected, although the
magnitude of such effect cannot be estimated. The cost to the Company of making
its third-party Year 2000 compliance assessment is not expected to be material.
Amended Employment Agreement for Mark Weinreb
On August 21, 1998, the Company entered into an Amended and Restated
Employment Agreement with Mark Weinreb, the Company's Chairman and Chief
Executive Officer. The amendment extended Mr. Weinreb's employment term for one
year until December 31, 1999 and provides for a salary at the rate of $200,000
per annum. The amendment also provides that if (i) the Company terminates Mr.
Weinreb's employment without cause, (ii) the Company fails to renew his
employment agreement for one additional year or (iii) Mr. Weinreb elects to
terminate his employment for "good reason" (as defined in the agreement), then
Mr. Weinreb will receive a lump sum cash payment of $200,000. In addition, the
Company granted to Mr. Weinreb an option under the Company's 1998 Performance
Equity Plan to purchase 100,000 shares of Common Stock at an exercise price of
$1.00 per share. The option is immediately exercisable and will remain
exercisable until August 2008.
Board of Directors Authorizes Repurchases of Common Stock
On July 10, 1998, the Board of Directors authorized the Company to
repurchase from time to time up to 100,000 shares of the Company's common stock
in the public market. The Company believes that the share price at the time was
below value. As of November 10, 1998, the Company had repurchased approximately
65,280 shares of common stock.
Preferred Stock
On December 31, 1997, the Company completed a private placement in
which it received net proceeds of $2,334,158 through the sale of 265,000 shares
of Class A Preferred Stock ("Preferred Stock"). The Preferred Stock accrues
dividends at the rate of 8% per annum, payable in cash or in shares of common
stock at the election of the Company. The dividend is paid on the date the
Preferred Stock is converted into shares of common stock. As of November 10,
1998, 17,060 shares of Preferred Stock have been converted into 143,335 shares
of common stock and dividends of $2,652 have been paid through the issuance of
5,011 shares of common stock.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 29, 1997, in the Superior Court of California, Los Angeles
County, a lawsuit was commenced by Michael Schweid, et al, against Victor Saab
and George Saab, et al, former franchisees of the Company, and the Company. On
August 25, 1998, the court granted the Company's motion for summary judgment and
found that the claims against the Company were without merit. On November 2,
1998, the court denied plaintiffs' motion for reconsideration and to vacate the
judgment of dismissal and, accordingly, upheld its grant of summary judgment.
On October 5, 1998, in the Arizona Superior Court, County of Maricopa,
a lawsuit was commenced by Mercado del Lago L.L.C., owners of a shopping center
in which a Big City Bagels store, formally franchised and subsequently
Company-owned, was located, against the former franchisee and the Company,
seeking an unspecified amount of damages. Plaintiff's claim is based upon the
allegation that the Company is in default of its lease by not making required
rent payments. The Company was unable to economically operate the store and it
was closed on July 31, 1998. The Company believes that it has no liability in
this matter and intends to vigorously defend the claims asserted by the
plaintiff.
-12-
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
During the three months ended September 30, 1998, the Company made the
following sales of unregistered securities:
<TABLE>
<CAPTION>
Consideration Received
and Description of If Option, Warrant
Underwriting or Other or Convertible
Discounts to Market Exemption from Security, Terms of
Price Afforded to Registration Exercise or
Date of Sale Title of Security Number Sold Purchasers Claimed Conversion
- ------------ ----------------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
7/15/98 Common Stock 51,450 Conversion of Preferred 4(2) Convertible at a
Stock conversion rate of
$.50625 per share
8/13/98 Option to purchase 100,000 Option granted - no 4(2) Exercisable for ten
common stock granted consideration received by years from date of
to CEO Company until exercise grant at an exercise
price of $1.00 per
share
- ------------------ ---------------------- ----------------- ----------------------- ------------------ --------------------
</TABLE>
Item 5. Other Information
On October 14, 1998, the Company received correspondence from the
Nasdaq Stock Market regarding the continued listing of the Company's common
stock on the Nasdaq SmallCap Market. The Company was notified that it has failed
to maintain a closing bid price greater than or equal to $1.00. The Company has
been given ninety (90) calendar days in which to regain compliance with the
minimum bid price requirement. If the Company is unable to demonstrate
compliance with this requirement for ten consecutive trading days during the
ninety day period, then the common stock will be subject to delisting effective
with the close of business on January 14, 1999. Although the Company's efforts
to strategically refocus its business may result in the Company maintaining
compliance with Nasdaq, there can be no assurance that delisting will be
avoided.
On October 15, 1998, the Company received correspondence from the
Nasdaq Stock Market regarding the continued listing of the Company's warrants on
the Nasdaq SmallCap Market. The Company has failed to maintain a minimum of two
active market makers necessary for continued listing of the warrants. The
Company has been given thirty (30) calendar days in which to regain compliance.
The Company expects the warrants to remain subject to delisting effective with
the close of business on November 16, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.12 Amended and Restated Employment Agreement between the
Company and Mark Weinreb
10.13 Stock Option Agreement between the Company and Mark
Weinreb
27.1 Financial Data Schedule (9/30/98)
27.2 Restated Financial Data Schedule (9/30/97)
(b) Reports on Form 8-K
None
-13-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 12, 1998
Big City Bagels, Inc.
______________________________________
(Registrant)
/s/ Mark Weinreb
By:____________________________________
Mark Weinreb, Chairman
and Chief Executive Officer
/s/ Howard J. Fein
By:_____________________________________
Howard J. Fein, Chief Financial Officer
(and principal accounting officer)
-14-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
10.12 Amended and Restated Employment Agreement
between the Company and Mark Weinreb
10.13 Stock Option Agreement between the Company and Mark Weinreb
27.1 Financial Data Schedule (9/30/98)
27.2 Restated Financial Data Schedule (9/30/97)
-15-
<PAGE>
EXHIBIT 10.12
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT dated as of August 21, 1998 between BIG CITY BAGELS, INC., a New
York corporation with offices at 99 Woodbury Road, Hicksville, New York 11801
("Employer"), and MARK WEINREB, 151 Bristol Drive, Woodbury, New York 11797
("Executive").
WHEREAS, Employer and Executive entered into a three-year employment
agreement on January 1, 1996, which will terminate on December 31, 1998 (the
"1996 Agreement"); and
WHEREAS, Employer believes that Executive provides unique management
services for Employer and wishes to retain the continued services of Executive
as its Chairman of the Board and Chief Executive Officer; and
WHEREAS, Employer and Executive have reached an understanding with respect
to the extension of Executive's employment with the Company for an additional
one-year period from the present December 31, 1998 date of termination of the
1996 Agreement; and
WHEREAS, Employer and Executive desire to evidence their agreement in
writing and to provide for the continued employment of Executive by Employer on
the terms set forth herein.
IT IS AGREED:
1. The 1996 Agreement is hereby amended and restated as set forth herein
effective as of August 1, 1998 ("Effective Date").
<PAGE>
2. Employment and Duties. Employer hereby agrees to the continued
employment of Executive in an executive capacity as Chairman of the Board and
Chief Executive Officer of Employer and its subsidiaries, with such duties and
authority as appertain to such office and such additional duties and authority
as may be reasonably be assigned to Executive by the Board of Directors of
Employer from time to time, provided that the nature of such duties and
authority shall be consistent with the duties, authority and executive position
of Executive hereunder. Executive hereby accepts such employment and shall use
Executive's best efforts to promote the interests of Employer and devote
Executive's full business time to the performance of Executive's duties
hereunder during the Term set forth in paragraph 3 of this Agreement.
3. Term of Employment. The term of this Agreement ("Term") commenced as of
the Effective Date and shall continue until December 31, 1999 unless terminated
earlier as provided in paragraph 6 of this Agreement.
4. Compensation and Benefits.
(a) Salary. As compensation for Executive's services hereunder
and subject to the power of the Board of Directors to increase Executive's
compensation and award Executive bonuses in its absolute discretion, during the
Term, Employer shall pay Executive a salary at the rate of $200,000 per annum.
All salary to Executive shall be paid in appropriate installments to conform
with the regular payroll dates for salaried personnel of Employer, but not less
than monthly.
(b) Expenses. Employer shall reimburse Executive for all
reasonable expenses incurred by Executive in the performance of Executive's
duties hereunder and necessary business expenses incurred by Executive including
Executive's use of a cellular phone, upon Executive's submission to Employer of
appropriate receipts and reports evidencing such expenses in accordance with
Employer's normal practice and policy.
2
<PAGE>
(c) Vacation. Executive shall be entitled to three weeks of
paid vacation during the period commencing on the Effective Date and ending
December 31, 1998, and six weeks of paid vacation during the following calendar
year.
(d) Insurance. Executive shall be entitled to such medical,
dental, pension and other benefits and perquisites no less favorable than such
as are afforded to any other senior executive of Employer, subject to applicable
waiting periods and other conditions. Employer also shall reimburse Executive,
or pay directly upon presentation of bills for same by Executive (i) long-term
disability insurance and (ii) life insurance insuring the life of Executive in
the amount of $1,000,000; provided, however, that the premiums paid by Employer
for the insurance policies set forth in (i) and (ii), above, shall not exceed
$7,000 per annum (prorated for the partial year August 1, 1998 through December
31, 1998). These policies shall be owned by Executive and the beneficiary(ies)
of these insurance policies shall be designated by Executive.
(e) Car Allowance. Employer also shall provide Executive with
a suitable automobile for the exclusive use of Executive and shall pay the
insurance, maintenance and other costs associated with the use and operation of
such automobile.
(f) Stock Options. On August 13, 1998, the Board of Directors
granted to Executive options ("Options") to purchase 100,000 shares of Common
Stock under Employer's 1998 Performance Equity Plan at a price equal to the last
sale price of the Common Stock on the trading date immediately preceding the
date of grant. These Options shall be evidenced by a Stock Option Agreement of
even date herewith between Employer and Executive.
5. Place of Employment. The duties of Executive provided for herein shall
require performance primarily at the principal executive office of Employer in
Hicksville, New York, or such other location in the counties of Nassau and
Suffolk to which the principal executive offices of Employer may be relocated
from time to time, although Executive shall undertake such occasional travel,
3
<PAGE>
within or without the United States, as is or may be reasonably necessary in the
interests of Employer.
6. Protection of Confidential Information and Non-Competition.
(a) Executive agrees that Executive's services hereunder are
of a special, unique and extraordinary character, and that Executive's position
with Employer places him in a position of confidence and trust with franchisees,
investors in franchisees and employees of Employer. Executive acknowledges that
the business of Employer is carried on throughout several states of the United
States and that it is the intention of Employer to continue to expand the
geographic area in which Employer engages in its business and marketing efforts.
Executive further acknowledges that in the course of rendering services to
Employer, Executive has obtained and will obtain knowledge of confidential
information and trade secrets of Employer (such as, without limitation,
business, marketing and advertising plans and strategies for Employer and its
franchisees, budgets, information regarding recipes, menus, proprietary
products, vendors, wholesale accounts and potential investors in Employer and
franchises).
(b) Executive agrees that during the Term and at any other
time thereafter, Executive shall not divulge to anyone (other than Employer or
any persons designated by Employer) any knowledge or information of any type
whatsoever of a confidential nature relating to the business of Employer,
including, without limitation, all types of financial and tax information, trade
secrets, business strategies or marketing, advertising and promotional plans,
information regarding recipes, menus and potential investors. Executive further
agrees that during the Term and at any other time thereafter, Executive shall
not make use of, nor permit to be used, any notes, memoranda, specifications,
programs, data, information or other materials of any nature whether oral or
written relating to any matter within the scope of the business of Employer or
concerning any of its dealings or affairs otherwise than for the benefit of
Employer, it being agreed that any of the foregoing shall be and remain the sole
and exclusive property of Employer.
4
<PAGE>
(c) Executive agrees that while Executive is employed by
Employer and for a two-year period after the termination of Executive's
employment with Employer for any reason other than a breach of Employer's
obligations hereunder, Executive shall not, directly or indirectly, (i) employ
or seek to employ any persons employed by Employer or by any franchisee, or
otherwise directly or indirectly induce or seek to induce such person to leave
his or her employment thereat, or (ii) establish, engage in or become
economically interested in, as an employee, consultant, agent, owner, partner,
co-venturer, principal, stockholder or otherwise (hereinafter referred to as
"Involvement"), any business specializing in whole or in part in operating any
food service business, store or facility which is principally engaged in the
sale of the same or similar food and/or similar proprietary products sold by
Employer or franchisees of Employer unless such Involvement is limited to a
business which operates not more than three retail stores, none of which are
located within fifteen miles of a retail store operated by Employer or its
franchisees. Mere passive ownership of stock representing 5% or less of the
capital stock of a publicly-held company shall not be deemed a violation of this
paragraph.
(d) If Executive commits or is about to commit a breach of any
of the provisions of paragraphs 6(b) or (c) above, Employer shall have the right
to have the provisions of this Agreement specifically enforced by any court
having equity jurisdiction without being required to post bond or other security
and without having to prove the inadequacy of the available remedies at law, it
being acknowledged and agreed that any such breach will cause irreparable injury
to Employer.
7. Termination.
(a) The duties, obligations, limitations and restrictions
imposed upon Executive or assumed by him hereunder are subject to the
performance by Employer of all its material obligations hereunder.
5
<PAGE>
(b) Employer agrees that Executive shall not be in default
with respect to the performance of Executive's obligations hereunder and
Employer may not terminate this Agreement as a result of such default unless:
(i) there has been a material breach thereof (defined as "cause" for purposes of
the Stock Option Agreement referred to in paragraph 4(f)), (ii) Employer shall
have given written notice thereof to Executive specifying such material breach
with reasonable particularity, and (iii) within thirty days after Executive
shall have received such notice, Executive shall not have cured such material
breach or, within such time, shall not have taken reasonable steps to cure such
breach and shall not have diligently proceeded thereafter to eliminate it.
The following matters, and only the following matters, shall be deemed a
material breach for purposes of this paragraph 7(b):
(i) The conviction of Executive, by a court of
competent jurisdiction and after all appeal procedures have been
exhausted or have expired, or entry of a guilty or nolo contendere plea
of a crime which constitutes a felony in the jurisdiction involved;
(ii) Executive's willful failure or refusal to
perform Executive's duties and responsibilities hereunder in accordance
with the reasonable directions of the Board of Directors of Employer;
(iii) Executive's commission of an act of
embezzlement, fraud or dishonesty which results in a loss, damage or
injury to Employer or which adversely affects the business of Employer;
or
(iv) Executive's willful failure to comply with
Executive's obligations under paragraphs 6(a) or (b) of this Agreement.
(c) In the event that the Board of Directors of Employer, in
good faith, determines that Executive is totally incapacitated from performing
6
<PAGE>
his duties, by reason of illness, accident or any physical or mental incapacity,
and such total incapacity continues for a period of one hundred eighty (180)
consecutive days, Employer may terminate Executive's employment upon giving
Executive thirty days notice thereof. Employer shall continue to pay Executive
or his guardian or conservator, as the case may be, the full amount of the
annual salary that Executive was then receiving pursuant to paragraph 4 hereof
through the end of the sixth complete calendar month following the month in
which employment is terminated pursuant to this paragraph 7(c), and shall
continue to cover Executive, his spouse and dependents during such period under
all medical and other benefit plans (including the insurance specified in
paragraph 4(d)) which were in effect at the time of Executive's death. The
aggregate of any and all salary payable pursuant to this paragraph shall be
reduced by an amount equal to the aggregate of payments received by Executive by
reason of any (i) compulsory disability law; (ii) worker's compensation law;
(iii) any disability income insurance policy, the premiums for which have been
paid by Employer; or (iv) any disability plan maintained by Employer for its
employees, the premiums for which have been paid (in whole or in part) by
Employer.
(d) In the event of the death of Executive, Executive's
employment shall terminate and thereupon Employer shall be obligated to pay to
Executive's surviving spouse Executive's annual salary through the end of the
sixth complete calendar month following the month in which said death occurred
and shall continue to cover Executive's surviving spouse and dependents during
such period under all medical and other benefit plans which were in effect at
the time of Executive's death. Such payment shall be made monthly to Executive's
surviving spouse at any address designated by such surviving spouse. If
Executive has no surviving spouse, then such installments shall be paid to any
other person theretofore designated by Executive in writing to Employer or,
failing such designation, to Executive's estate.
(e) If (i) Employer shall (A) terminate Executive's employment
hereunder in any manner or for any reason other than as provided in paragraphs
7(b), (c) or (d) or (B) fail to renew Executive's employment for at least one
successive year upon scheduled expiration of this Agreement upon the same terms
7
<PAGE>
and conditions with the exception of clause (i)(B) of this sentence, or (ii)
Executive shall elect to terminate his employment with Employer for "Good
Reason" (defined below), then Executive shall be paid upon such termination or
scheduled expiration, as the case may be, a lump sum cash payment of $200,000
("Cash Payment"). In addition, if Employer has terminated Executive's employment
hereunder in any manner or for any reason other than as provided in paragraphs
7(b), (c) or (d), Employer shall maintain, at its cost, through the end of the
Term, medical and dental benefits comparable to that which Executive was
receiving prior to termination and all additional insurance provided to
Executive in paragraph 4(d) plus the car allowance provided to Executive in
paragraph 4(e) ("Non-Cash Payment" and, together with Cash Payment, the
"Termination Payment"). Executive shall be under no duty to mitigate damages. As
used herein, "Good Reason" shall mean: (i) Executive's authority, duties, job
title or position of responsibility, or the nature of Executive's duties or the
scope of his responsibilities, is materially diminished, and that diminution is
not corrected by the Company within 15 days after written notice from Executive
describing the diminution alleged to constitute Good Reason; (ii) the nature and
conditions of Executive's employment are materially changed so as not to be
those normally associated with an officer holding the title of Chairman and
Chief Executive Officer of a company, and that change is not corrected by
Employer within 15 days after written notice from Executive describing the
change alleged to constitute Good Reason; (iii) the material breach by Employer
of any other provision of this Agreement, including but not limited to, the
taking of any action by Employer which would deprive Executive of any benefit
set forth in paragraph 4, if Employer fails to remedy that breach within 15 days
after written notice from the Employee describing the acts alleged to constitute
that breach; (iv) failure of Executive to be nominated for election to the Board
at any time when his term of office as a director expires during the Term of the
Agreement; or (v) relocation of Executive's place of employment to a location
outside of the County of Nassau or Suffolk. Notwithstanding the foregoing, it
shall not be considered Good Reason if Executive himself causes any of the
situations described in clauses (i) through (v) to occur.
(f) In the event that Executive becomes entitled to the
Termination Payment, if any portion of the Termination Payment will be subject
to the tax ("Excise Tax") imposed by Section 4999 of the Internal Revenue Code
8
<PAGE>
of 1986, as amended ("Code"), Employer shall pay Executive at the time specified
in paragraph 7(e), an additional amount ("Gross-Up Payment") such that the net
amount retained by Executive, after deduction of any Excise Tax on the
Termination Payment and any federal, state and local income tax and Excise Tax
upon the payment provided for by this paragraph, shall be equal to the
Termination Payment. For purposes of determining whether the Termination Payment
will be subject to the Excise Tax and the amount of such Excise Tax, (i) any
other payments or benefits received or to be received by Executive in connection
with Executive's termination of employment (whether pursuant to the terms of
this Agreement, the Stock Option Agreement or any other plan, arrangement or
agreement with Employer, any person whose actions result in a change in control
or any person affiliated with Employer or such person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the Code, and
all "excess parachute payments" within the meaning of Section 280G(b)(1) shall
be treated as subject to the Excise Tax, unless in the opinion of tax counsel
selected by Employer's independent auditors and acceptable to Executive such
other payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code, (ii) the amount of the Termination Payment which
shall be treated as subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Termination Payment or (B) the amount of excess
parachute payments within the meaning of Sections 280G(b)(1) and (4) (after
applying clause (i), above, and after deducting any excess parachute payments in
respect of which payments have been made under paragraph 7(e)), and (iii) the
value of any non-cash benefits or any deferred payment or benefit shall be
determined by Employer's independent auditors in accordance with the principles
of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the
amount of the Gross-Up Payment, Executive shall be deemed to pay federal income
taxes at the highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation in the state and locality of
Executive's residence on the date of termination, net of the maximum reduction
in federal income taxes which could be obtained from deduction of such state and
local taxes. In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of termination of
Executive's employment, Executive shall repay to Employer at the time that the
9
<PAGE>
amount of such reduction in Excise Tax is finally determined the portion of the
Gross-Up Payment attributable to such reduction plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of Executive's employment (including by
reason of any payment, the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), Employer shall make an additional gross-up
payment in respect of such excess (plus any interest payable with respect to
such excess) at the time that the amount of such excess is finally determined.
(g) Upon termination of his employment, Executive shall
promptly return all of Employer's property to Employer.
(h) Notwithstanding any termination of his employment,
Executive's obligations to Employer pursuant to paragraph 6 of this Agreement
shall survive such termination.
8. Life Insurance. Executive agrees that Employer shall have the right to
continue to maintain key-person life insurance on Executive's life, at
Employer's sole expense and with Employer as the sole beneficiary thereof.
Executive shall cooperate fully with Employer in obtaining such life insurance,
sign any necessary consents, applications and other related forms or documents
and take any required medical examinations. Employer agrees that upon
termination of Executive's employment for any reason whatsoever, Employer shall
transfer ownership of any such insurance policies to Executive upon Executive's
payment to Employer of the accumulated cash value of such policies, if any, and
a pro rata portion of any prepaid premiums.
9. Indemnification. Employer agrees to indemnify Executive and hold him
harmless for the consequences of all acts and decisions made by him in good
faith while performing services for Employer. Employer shall use Employer's best
efforts to obtain coverage for Executive under any insurance policy now in force
or hereafter obtained during the Term of this Agreement, covering the officers
and directors of Employer against lawsuits. Employer agrees to pay all expenses,
10
<PAGE>
including attorneys' fees and disbursements, actually and necessarily incurred
by Executive in connection with the defense of any such action, suit or
proceeding, and in connection with any related appeals, and also shall pay the
cost of any resulting judgments or settlements.
10. Reimbursement of Expenses. In the event of any claims, litigation or
other legal proceedings that Executive institutes to enforce his rights under,
or to recover damages for breach of this Agreement, or Executive is involved in
any litigation or other legal proceeding to defend the validity of this
Agreement, Executive shall be reimbursed by Employer within thirty (30) days
after delivery to Employer of statements for the costs incurred by Executive in
connection with the analysis, defense and prosecution thereof, including
reasonable attorneys' fees and expenses; provided, however, that Executive shall
reimburse Employer for all such costs if it is determined by a non-appealable
final decision of a court of law that Executive shall have acted in bad faith
with the intent to cause material damage to Employer in connection with any such
claim, litigation or proceeding.
11. Assignment. This Agreement is a personal contract and Executive may not
sell, transfer or assign his rights, interests and obligations hereunder. Any
assignment contrary to this paragraph shall be null and void of no force and
effect. The rights and obligations of Employer hereunder shall be binding upon
and run in favor of the successors and assigns of Employer. In the event of any
attempted assignment or transfer of rights hereunder contrary to the provisions
hereof, Employer shall have no further liability for payments hereunder.
12. Entire Understanding; Governing Law. This Agreement and the Stock
Option Agreement executed simultaneously herewith represent the entire agreement
and understanding between the parties with respect to the subject matter hereof
and supersedes all prior agreements and understandings. This Agreement shall be
governed by, and construed in accordance with, the internal laws of New York
(without regard to principles of conflicts of law).
11
<PAGE>
13. Modification. This Agreement may not be amended, modified, canceled,
discharged, extended or changed except by an agreement in writing signed by the
party against whom enforcement of any such amendment, modification,
cancellation, discharge, extension or change is sought.
14. Headings. Paragraph headings contained in this Agreement are for
convenience of reference only and shall not be considered a part of this
Agreement.
15. Severability. If any provision or if any part of any provision of this
Agreement is found to be unenforceable, illegal or contrary to public policy by
a court of competent jurisdiction, the parties agree that this Agreement shall
remain in full force and effect except for such provision or part of any such
provision held to be unenforceable.
16. Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed effective when delivered in
person, by overnight courier (e.g., FedEx), or by registered or certified mail,
return receipt requested, in all cases the notice shall be deemed effective on
the date of receipt, addressed to Executive at Executive's then current home
address and, in the case of Employer, addressed to Employer at its offices, 99
Woodbury Road, Hicksville, New York 11801. Either party may change the address
to which notices are to be addressed by notice in writing given to the other in
accordance with the terms hereof.
17. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, and all of which, taken
together, shall constitute one instrument.
12
<PAGE>
IN WITNESS WHEREOF, Employer has by its appropriate officer signed this
Agreement and Executive has signed this Agreement as of the day and year first
above written.
/s/ Mark Weinreb
__________________________________
MARK WEINREB
BIG CITY BAGELS, INC.
/s/ Howard J. Fein
By:_____________________________________
Howard J. Fein
Chief Financial Officer and
Assistant Secretary
13
<PAGE>
EXHIBIT 10.13
STOCK OPTION AGREEMENT
AGREEMENT, made as of the 21st day of August, 1998, between BIG CITY
BAGELS, INC., a New York corporation ("Employer"), and MARK WEINREB
("Executive").
WHEREAS, Executive and Employer have entered into an Amended and Restated
Employment Agreement dated as of the date hereof ("Employment Agreement"); and
WHEREAS, on August 13, 1998, the Board of Directors authorized the grant to
Executive, pursuant to Employer's 1998 Performance Equity Plan ("Plan"), of an
option (the "Option") to purchase an aggregate of 100,000 of the authorized but
unissued or treasury shares of the common stock of Employer, $.001 par value
("Common Stock"), on the terms and conditions set forth in this Agreement and
subject to the provisions of the Plan; and
WHEREAS, Executive desires to acquire said Option on the terms and
conditions set forth in this Agreement:
IT IS AGREED:
1. Grant of Stock Option. Employer hereby grants Executive the Option to
purchase all or any part of an aggregate of 100,000 shares of Common Stock (the
"Option Shares") on the terms and conditions set forth herein and subject to the
provisions of the Plan.
2. Non-Qualified Stock Option. The Option represented hereby is not
intended to be an Option which qualifies as an "Incentive Stock Option" under
Section 422 of the Internal Revenue Code of 1986, as amended.
3. Exercise Price. The exercise price of the Option shall be $1.00 per
share, subject to adjustment as hereinafter provided ("Exercise Price").
4. Exercisability. This Option is exercisable, subject to the terms and
conditions of the Plan and this Agreement, at any time from and after the date
hereof, and it shall remain exercisable until the close of business on August
20, 2008 (the "Exercise Period").
5. Effect of Termination of Employment. Notwithstanding any provision set
forth in the Plan:
<PAGE>
5.1 Termination Due to Death. If Executive's employment by Employer
terminates by reason of death, the Option shall remain exercisable and may
thereafter be exercised by the legal representative of the estate or by the
legatee of Executive under the will of Executive until the expiration of the
Exercise Period.
5.2 Termination Due to Disability. If Executive's employment by
Employer terminates by reason of "Disability" as defined in Section 7(c) of the
Employment Agreement, the Option shall remain exercisable and may thereafter be
exercised by Executive or legal representative until the expiration of the
Exercise Period.
5.3 Termination by Executive for Good Reason. If Executive terminates
his employment for "Good Reason" as such term is defined in Section 7(e) the
Employment Agreement, then the Option may be exercised until the expiration of
the Exercise Period.
5.4 Termination by Employer For Cause. If Executive's employment is
terminated by Employer for "Cause" as defined in Section 7(b) of the Employment
Agreement, then the Option shall expire on the date of termination of
employment.
5.5 Other Termination. If Executive's employment is terminated for any
reason other than as set forth in Sections 5.1, 5.2, 5.3 or 5.4, then the Option
may be exercised until the expiration of the Exercise Period.
6. Withholding Tax. Not later than the date as of which an amount first
must be included in the gross income of Executive for federal income tax
purposes with respect to the Option, Executive may be required to pay to
Employer, or make arrangements satisfactory to Employer 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. The obligations of Employer under
the Plan and pursuant to this Agreement shall be conditional upon such payments
or arrangements with Employer, if such payments or arrangements are required,
and Employer shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to Executive from
Employer.
2
<PAGE>
7. Adjustments.
7.1 In the event of a stock split, stock dividend, combination of
shares, or any other similar change in the Common Stock of Employer as a whole,
the Board of Directors of Employer shall make equitable, proportionate
adjustments in the number and kind of shares covered by the Option and in the
Exercise Price hereunder.
7.2 In the event of any reclassification or reorganization of the
outstanding shares of Common Stock other than a change covered by Section 7.1
hereof or which solely affects the par value of such shares of Common Stock, or
in the case of any merger or consolidation of Employer with or into another
corporation (other than a consolidation or merger in which Employer is the
continuing corporation and which does not result in any reclassification or
reorganization of the outstanding shares of Common Stock), Executive shall have
the right thereafter (until the expiration of the right of exercise of this
Option) to receive upon the exercise hereof after such event, for the same
aggregate Exercise Price payable hereunder immediately prior to such event, the
kind and amount of shares of stock or other securities or property (including
cash) receivable upon such reclassification, reorganization, merger or
consolidation by a holder of the number of shares of Common Stock of Employer
obtainable upon exercise of this Option immediately prior to such event. The
provisions of this Section 7.2 shall similarly apply to successive
reclassifications, reorganizations, mergers or consolidations, sales or other
transfers.
8. Method of Exercise.
8.1 Notice to Employer. The Option shall be exercised in whole or in
part by written notice in the form attached hereto as Exhibit A directed to
Employer at its principal place of business accompanied by full payment as
hereinafter provided of the Exercise Price for the number of Option Shares
specified in the notice.
8.2 Delivery of Option Shares. Employer shall deliver a certificate
for the Option Shares to Executive as soon as practicable after payment
therefor, but in any event not more than ten business days thereafter.
8.3 Payment of Purchase Price.
8.3.1 Cash Payment. Executive shall make cash payments by wire
transfer, certified or bank check or personal check, in each case payable to the
3
<PAGE>
order of Employer, Employer shall not be required to deliver certificates for
Option Shares until Employer has confirmed the receipt of good and available
funds in payment of the purchase price thereof.
8.3.2 Stock Payment. At Executive's election, Executive shall be
permitted to use Common Stock of Employer owned by him to pay the purchase price
for the Option Shares (and any required withholding taxes) by delivery of stock
certificates in negotiable form which are effective to transfer good and valid
title thereto to Employer, free of any liens or encumbrances. Shares of Common
Stock used for this purpose shall be valued at the Fair Market Value, as defined
below, on the second trading day immediately preceding the date notice is
delivered by Executive pursuant to Section 8.1.
8.3.3 Fair Market Value. "Fair Market Value", unless otherwise
required by any applicable provision of the Internal Revenue Code of 1986, as
amended, 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, 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 exercise in accordance with Section 8.3.2,
above, 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 exercise in accordance with Section 8.3.2,
above, as 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 Employer shall determine, in good faith.
8.3.4 Cashless Exercise. At Executive's election, Executive shall
be permitted to convert this Option, in whole or part, into Common Stock
("Conversion Right") as follows: Upon exercise of the Conversion Right, Employer
shall deliver to Executive (without payment by Executive of any of the Exercise
Price) that number of shares of Common Stock equal to the quotient obtained by
dividing (i) the "Value" (as defined below) of the portion of the Option being
converted on the second trading day immediately preceding the date notice is
delivered by Executive pursuant to Section 8.1 ("Valuation Date") by (ii) the
"Market Price" (as defined above) on the Valuation Date. The "Value" of the
portion of the Option being converted shall equal the remainder derived from
subtracting (a) the Exercise Price multiplied by the number of shares of Common
Stock underlying the portion of the Option being converted from (b) the Market
Price of the Common Stock multiplied by the number of shares of Common Stock
underlying the portion of the Option being converted.
4
<PAGE>
9. Nonassignability. The Option shall not be assignable or transferable,
without the consent of Employer, except by will or by the laws of descent and
distribution in the event of the death of Executive. No transfer of the Option
by Executive by will or by the laws of descent and distribution shall be
effective to bind Employer unless Employer shall have been furnished with
written notice thereof and a copy of the will and/or such other evidence as
Employer may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions of the
Option.
10. Form S-8 Registration. If upon termination of Executive's employment
for any reason other than for "Cause" as defined in Section 6(b) of the
Employment Agreement, (i) the Option Shares have been registered under the
Securities Act of 1933, as amended ("Act") pursuant to a registration statement
on Form S-8 (or other available Form) and Employer has made available to
Executive a current prospectus relating thereto, then Employer shall take such
action as is necessary to maintain the effectiveness of such registration
statement and a current prospectus relating thereto as long as any portion of
the Option remains exercisable, or (ii) the Option Shares have not been so
registered or a current prospectus relating thereto not maintained, then, upon
written demand of Executive or his legal representative delivered at any time
while any portion of the Option remains exercisable, Employer, within forty-five
days after such demand has been given, shall register the Option Shares under
the Act on Form S-8 and make available to Executive a current prospectus
relating thereto, and Employer shall maintain the effectiveness of such
registration statement and a current prospectus relating thereto as long as any
portion of the Option remains exercisable.
11. Employer Representations. Employer hereby represents and warrants to
Executive that:
(i) Employer, by appropriate and all required action, is duly
authorized to enter into this Agreement and consummate all of the
transactions contemplated hereunder; and
(ii) the Option Shares, when issued and delivered by Employer to
Executive in accordance with the terms and conditions hereof, will be duly
and validly issued and fully paid and non-assessable.
12. Executive Representations. Executive hereby represents and warrants to
Employer that:
(i) he is acquiring the Option and, unless the Option Shares have been
registered under the Act, he shall acquire the Option Shares, for his own
account and not with a view towards the distribution thereof;
5
<PAGE>
(ii) he has received a copy of the Plan as in effect as of the date of
this Agreement;
(iii) he has received a copy of all reports and documents required to
be filed by Employer with the Commission pursuant to the Exchange Act
within the last 12 months and all reports issued by Employer to its
shareholders;
(iv) he understands that he must bear the economic risk of the
investment in the Option Shares, which cannot be sold by him unless they
are registered under the Act or an exemption therefrom is available
thereunder;
(v) in his position with Employer, he has had both the opportunity to
ask questions and receive answers from the officers and directors of
Employer and all persons acting on its behalf concerning the terms and
conditions of the offer made hereunder and to obtain any additional
information to the extent Employer possesses or may possess such
information or can acquire it without unreasonable effort or expense
necessary to verify the accuracy of the information obtained pursuant to
clause (iii) above; and
(vi) he is aware that, in the absence of registration under the Act or
his ability to sell the Option Shares pursuant to Rule 144(k) promulgated
under the Act, Employer shall place stop transfer orders with its transfer
agent against the transfer of the Option Shares and the certificates
evidencing the Option Shares shall bear the following legend:
"The shares represented by this certificate have been acquired
for investment and have not been registered under the Securities
Act of 1933. The shares may not be sold or transferred in the
absence of such registration or an exemption therefrom under said
Act."
13. Restriction on Transfer of Option Shares. Anything in this Agreement to
the contrary notwithstanding, Executive hereby agrees that he shall not sell,
transfer by any means or otherwise dispose of the Option Shares acquired by him
unless (i) they have been registered under the Act or (ii) an exemption from the
registration requirements of the Act is available thereunder and Executive has
furnished Employer with notice of such proposed transfer and an opinion of legal
counsel that such proposed transfer is so exempt.
6
<PAGE>
14. Miscellaneous.
14.1 Notices. All notices, requests, deliveries, payments, demands and
other communications which are required or permitted to be given under this
Agreement shall be in writing and shall be either delivered personally or sent
by registered or certified mail, or by private courier to the parties at their
respective addresses set forth herein, or to such other address as either shall
have specified by notice in writing to the other. Notice shall be deemed duly
given hereunder when delivered or mailed as provided herein.
14.2 Conflicts with Plan. In the event of a conflict between the
provisions of the Plan and the provisions of this Agreement, the provisions of
this Agreement shall in all respects be controlling.
14.3 Executive and Shareholder Rights. Executive shall not have any of
the rights of a shareholder with respect to the Option Shares until such shares
have been issued after the due exercise of the Option. Nothing contained in this
Agreement shall be deemed to confer upon Executive any right to continued
employment with Employer or any subsidiary thereof, nor shall it interfere in
any way with the right of Employer to terminate such employment in accordance
with the provisions regarding such termination set forth in Executive's written
employment agreement with Employer, or if there exists no such agreement, to
terminate Executive at will.
14.4 Waiver. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
other or subsequent breach.
14.5 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. This Agreement
may not be amended except by writing executed by Executive and Employer.
14.6 Binding Effect; Successors. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and, to the extent not
prohibited herein, their respective heirs, successors, assigns and
representatives. Nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto and as provided above, their
respective heirs, successors, assigns and representatives any rights, remedies,
obligations or liabilities.
14.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York (without regard to choice
of law provisions).
7
<PAGE>
14.8 Headings. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
day and year first above written.
BIG CITY BAGELS, INC. Address: 99 Woodbury Road
Hicksville, New York 11801
/s/ Howard J. Fein
By:__________________________
Name: Howard J. Fein
Title: Chief Financial Officer and
Assistant Secretary
EXECUTIVE Address: 151 Bristol Drive
Woodbury, New York 11797
/s/ Mark Weinreb
______________________________
MARK WEINREB
8
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION
____________________
DATE
Big City Bagels, Inc.
99 Woodbury Road
Hicksville, New York 11801
Attention: The Board of Directors
Re: Purchase of Option Shares
Gentlemen:
In accordance with my Stock Option Agreement dated as of August ___, 1998
with Big City Bagels, Inc. ("Employer"), I hereby irrevocably elect to exercise
the right to purchase _________ shares of Employer's common stock, par value
$.001 per share ("Common Stock").
As payment for my shares, enclosed is (check and complete applicable
box[es]):
|_| a [personal check] [certified check] [bank check] payable to the order
of "Big City Bagels, Inc." in the sum of $_________;
|_| confirmation of wire transfer in the amount of $_____________; and/or
|_| a certificate for ___________ shares of Employer's Common Stock, free
and clear of any encumbrances, duly endorsed, having a Fair Market
Value (as such term is defined in Section 8.3.3 of the Stock Option
Agreement) of $_________; and/or
|_| in lieu of payment of the purchase price, I elect to convert my Option
into shares of Common Stock pursuant to Section 8.3.4 of the
above-mentioned agreement.
I hereby represent and warrant to, and agree with, Employer that:
(i) I have received a copy of the Plan and all reports and documents
required to be filed by Employer with the Commission pursuant to the Exchange
Act within the last 12 months and all reports issued by Employer to its
shareholders;
(ii) I understand that I must bear the economic risk of the investment
in the Option Shares, which cannot be sold by me unless they are registered
under the Securities Act of 1933 (the "Act") or an exemption therefrom is
available thereunder;
(iii) in my position with Employer, I have had both the opportunity to
ask questions and receive answers from the officers and directors of Employer
and all persons acting on its behalf concerning the terms and conditions of the
offer made hereunder and to obtain any additional information to the extent
Employer possesses or may possess such information or can acquire it without
unreasonable effort or expense necessary to verify the accuracy of the
information obtained pursuant to clause (i) above; and
(iv) if the Option Shares have not been registered under the Act, (a)
I am acquiring the Option and shall acquire the Option Shares for my own
account, for investment, and not with a view towards the distribution thereof,
(b) I am aware that Employer shall place stop transfer orders with its transfer
<PAGE>
agent against the transfer of the Option Shares unless they may be transferred
pursuant to Rule 144(k) and (c) the certificates evidencing the Option Shares
shall bear the following legend:
"The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
1933. The shares may not be sold or transferred in the absence of such
registration or an exemption therefrom under said Act."
Kindly forward to me my certificate at your earliest convenience.
Very truly yours,
_______________________________ _________________________________
(Signature) (Address)
_______________________________ _________________________________
(Print Name)
__________________________________
(Social Security Number)
2
<PAGE>
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<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-1-1998
<PERIOD-END> Sep-30-1998
<CASH> 1,346,799
<SECURITIES> 0
<RECEIVABLES> 231,108
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<PAGE>
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<TABLE> <S> <C>
<ARTICLE> 5
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Sep-30-1997
<CASH> 1,827,170
<SECURITIES> 0
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