<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
X Quarterly report Section 13 or 15 (d) of the Securities Exchange Act of
- --- 1934 for the quarterly period ended June 30, 1999
-------------
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.
---------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
New York 11-3137508
---------------------------- ----------
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
99 Woodbury Road, Hicksville, New York 11801
--------------------------------------------
(Address of Principal Executive Offices)
(516) 932-5050
--------------
(Issuer's Telephone Number Including Area Code)
----------------------------------------------------
(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 class of
common equity, as of the latest practicable date: At August 12 , 1999, the
issuer had outstanding 16,643,691 shares of Common stock, par value $.001
per share.
<PAGE> 2
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BIG CITY BAGELS, INC. AND SUBSIDIARY
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 69,754 $ 902,122
Accounts receivable 70,994 177,396
Inventory 29,848 49,403
Prepaid expenses and other current assets 142,119 50,753
------------ ------------
Total current assets 312,715 1,179,674
Fixed assets, net of accumulated depreciation 397,867 537,392
Intangible assets, net of accumulated amortization 4,956 35,784
Security deposits and other assets 81,891 179,557
------------ ------------
TOTAL $ 797,429 $ 1,932,407
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligations $ 77,383 $ 65,089
Unearned franchise fee income 111,000 201,000
Accounts payable 249,812 348,761
Accrued expenses 49,275 50,394
Obligation on abandon lease 0 28,586
Store purchase deposit 105,000 55,000
------------ ------------
Total current liabilities 592,470 748,830
Obligation on abandon lease, noncurrent 0 215,876
Capital lease obligations, noncurrent 0 12,294
------------ ------------
Total liabilities 592,470 977,000
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Stockholders' equity:
Convertible (redeemable) preferred stock; $.001 par value;
1,000,000 shares authorized; 0 and 247,504 shares issued and
outstanding at June 30, 1999 and December 31, 1998, respectively
(liquidation value $0 and $3,093,800, respectively) 0 247
Common stock; $.001 par value; 25,000,000 shares authorized;
7,964,504 and 1,511,107 shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively 7,964 1,511
Additional paid in capital 10,325,651 10,127,706
Accumulated deficit (10,064,032) (9,094,711)
Treasury stock (65,279 and 132,579 shares at cost, respectively) (64,624) (79,346)
------------ ------------
Total stockholders' equity 204,959 955,407
------------ ------------
TOTAL $ 797,429 $ 1,932,407
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 3
BIG CITY BAGELS, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Product sales by company owned stores $ 307,209 $ 1,358,023 $ 103,149 $ 661,183
Product sales to franchisees and others 365,575 359,960 132,574 186,230
Franchise fees 90,000 124,500 30,000 64,000
Royalty income 109,292 101,405 56,806 56,836
Gain on settlement of abandoned lease 212,846 212,846
Interest and other income 12,441 84,148 4,361 44,461
----------- ------------ ----------- -----------
Total revenues 1,097,363 2,028,036 539,736 1,012,710
----------- ------------ ----------- -----------
COSTS AND EXPENSES:
Cost of sales 411,680 845,647 149,135 418,117
Selling, general and administrative 1,427,176 2,649,745 698,321 1,400,811
Interest expense 6,452 7,929 2,946 4,527
Loss on sale of assets 2,503 -
Write-off of intangible assets - 572,195 - 572,195
----------- ------------ ----------- -----------
Total costs and expenses 1,847,811 4,075,516 850,402 2,395,650
----------- ------------ ----------- -----------
NET (LOSS) $ (750,448) $ (2,047,480) $ (310,666) $(1,382,940)
=========== ============ =========== ===========
Basic and diluted net (loss) per common share $ (0.11) $ (1.51) $ (0.04) $ (0.98)
=========== ============ =========== ===========
Weighted average common shares outstanding 6,615,191 1,360,308 7,899,225 1,414,979
=========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
BIG CITY BAGELS, INC. AND SUBSIDIARY
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Treasury Stock
--------------- ------------ Paid-In --------------
Shares Amount Shares Amount Capital Shares Amount
------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1999 247,504 $ 247 1,511,107 $ 1,511 $ 10,127,706 (132,579) $(79,346)
Cancellation of treasury stock (67,300) (67) (14,655) 67,300 14,722
Preferred stock converted to
common stock (247,504) (247) 5,994,336 5,994 (5,747)
Stock dividends 526,361 526 218,347
Net loss - - - - - - -
-------- ----- --------- ------- ------------ ------- --------
Balance June 30, 1999 - $ - 7,964,504 $ 7,964 $ 10,325,651 (65,279) $(64,624)
======== ===== ========= ======= ============ ======= ========
<CAPTION>
Accumulated
Deficit Total
------- -----
<S> <C> <C>
BALANCE, January 1, 1999 $ (9,094,711) $ 955,407
Cancellation of treasury stock 0
Preferred stock converted to
common stock 0
Stock dividends (218,873) 0
Net loss (750,448) (750,448)
------------ ---------
Balance June 30, 1999 $(10,064,032) $ 204,959
============ =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
BIG CITY BAGELS, INC. AND SUBSIDIARY
CASH FLOWS STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (750,448) $(2,047,480)
----------- -----------
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 37,075 99,887
Gain on settlement of abandoned lease (212,846) -
Write off of intangible assets - 572,195
Loss(gain) on sale of assets 2,503 (11,981)
Issuance of common stock for compensation and
professional services - 34,000
Provision for bad debt 70,000 -
(Increase) Decrease in:
Accounts receivable 36,402 (103,181)
Inventory 19,555 (16,889)
Prepaid expenses and other current assets (91,366) (55,452)
Increase (Decrease) in:
Unearned franchise fee income (90,000) (65,000)
Deferred rent payable - (5,724)
Accounts payable (114,911) 12,148
Accrued expenses (1,119) 116,417
----------- -----------
Total adjustments (344,707) 576,420
----------- -----------
Net cash used in operating activities (1,095,155) (1,471,060)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed and intangible assets (34,663) (634,515)
Proceeds from sale of stores 271,000 136,818
Proceeds from store purchase deposit 50,000 -
Decrease in security deposits 5,450 83,448
----------- -----------
Net cash provided (used) in investing activities 291,787 (414,249)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Registration costs - (31,723)
Repayment of capital lease obligation (29,000) -
Repayment of notes payable - (18,715)
----------- -----------
Net cash used by financing activities (29,000) (50,438)
----------- -----------
NET DECREASE IN CASH (832,368) (1,935,747)
Cash, beginning of period 902,122 4,118,031
----------- -----------
Cash, end of period $ 69,754 $ 2,182,284
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
(Continued on next page)
<PAGE> 6
BIG CITY BAGELS, INC. AND SUBSIDIARY
CASH FLOWS STATEMENTS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30,
Supplemental disclosures of non cash activities:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash paid during the year for:
Interest $ 559 $ 7,929
Income taxes 4,946 5,650
In January and March 1999, the Company sold all of the assets of three retail stores for the following:
Net sales price $ 278,938
Less: liabilities assumed (7,938)
---------
Proceeds from sale $ 271,000
=========
Assets purchased by the issuance of 73,064
shares of common stock $ 445,000
Cash paid 386,466
-----------
Total amount attributable to fixed assets $ 831,466
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 7
BIG CITY BAGELS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(NOTE A)- MERGER
On July 1, 1999, the Company completed its merger with
VillageNet, Inc. ("VillageNet") and Intelligent Computer
Solutions, Inc. ("ICS"), for 8.6 million shares of Common
Stock and 508,152 shares of Class B Preferred Stock.
The transaction will be accounted for as an acquisition of the
Company and ICS by VillageNet as the former shareholders of
VillageNet own a majority of the shares of the combined
companies as of the completion of the transaction. In addition,
as the Company is discontinuing its bagel business, (see Note
B) the reverse acquisition of the Company will be treated as a
purchase with the issuance of common stock and options to
purchase common stock to the pre-merger shareholders and
option holders of Big City in exchange for the net assets of
Big City, valued at fair value of the net assets acquired and
to be sold. The acquisition of ICS will be accounted for as a
purchase with the securities issued as consideration for ICS
valued at $2,577,524 based on the opinion of an independent
appraiser. Subsequent to this report on Form 10-Q, the
historical financial statements of the Company will be those
of VillageNet and will include the operations of ICS and Big
City from July 1, 1999. The accompanying financial statements
of the Company herein are those of Big City Bagels, Inc.
(NOTE B)- 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 Company has experienced recurring losses from operations
since inception. The Company is implementing plans to reduce
its operating losses and negative cash flows. Those plans
include selling the remaining company-owned stores and
evaluating the desirability of discontinuing its
commissary/wholesale operations that require the use of the
Company's resources. There is no assurance, however, that the
Company's efforts will ultimately be successful. The
consolidated financial statements have been prepared assuming
that the company will continue as a going concern. The
financial statements do not include any adjustments based on
the realizability of the Company's assets or the amounts and
classification of liabilities that might result from the
outcome of this uncertainty.
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 six months ended
June 30, 1999 are not necessarily indicative of the results of
operations for the full year ending December 31, 1999. These
statements should be read in conjunction with the Company's
Annual Report on Form 10-KSB.
One 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 holder of each
class of warrants and options outstanding insofar as the
exercise price of each warrant was
<PAGE> 8
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 C)- SALES
In January and March 1999, the Company sold all the assets of
three of its company-owned stores for net proceeds of
$181,000, $80,000 and $7,938 respectively, net of selling
costs.
(NOTE D)- CONVERSION OF PREFERRED STOCK
During the quarter ended March 31, 1999, all 247,504 shares of
preferred stock outstanding as of December 31, 1998 were
converted into 6,520,697 shares of the Company's common stock
including 526,361 shares for cumulative stock dividends
aggregating $218,347.
(NOTE E)- 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, 1999, the directors of the Company
received this automatic grant of options to purchase an
aggregate of 10,000 shares of common stock at an exercise
price of $0.9375 per share.
<PAGE> 9
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 "the Company expects," "will continue," "is
anticipated," "estimated" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Section 21E of the
Securities Exchange Act of 1934, as amended. Readers are cautioned 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 result 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.
MERGER
On July 1, 1999, the Company completed its merger with VillageNet, Inc.
("VillageNet") and Intelligent Computer Solutions, Inc. ("ICS"). For accounting
purposes, the transaction will be accounted for as a reverse acquisition where
the Company and ICS will be treated as the acquired companies and VillageNet as
the acquiring company. While the combined company will continue to be named Big
City Bagels, Inc., the combined company will treat VillageNet`s historical
financial statements as the historical financial statements of the combined
companies. Big City Bagels businesses will be consolidated into the combined
company's financial statements beginning on the date of the merger. The
following discussions, however, relate only to the historical financial results
of Big City Bagels since the merger took place subsequent to the end of the
second quarter.
RESULTS OF OPERATIONS
Revenues for the three and six months ended June 30,1999, were $539,736 and
$1,097,363, respectively, a 47% and 46% decrease from revenues of $1,012,710 and
$2,028,036 for the three and six months ended June 30, 1998. This net decrease
was primarily attributable to reduction in store revenues and interest income as
a result of the Company selling and closing unprofitable Company-owned retail
stores; however, the Company had other income of $212,846 related to the gain on
the settlement of an abandoned lease. Store sales decreased by $558,034 and
$1,050,814, or approximately 84% and 77%, to $103,149 and $307,209 for the three
and six months ended June 30, 1999 from $661,183 and $1,358,023 for the three
and six months ended June 30, 1998. This decrease was primarily due to the
Company selling and closing unprofitable Company-owned retail stores. Commissary
product sales decreased to $132,574 and increased to $365,575 for the three and
six months ended June 30, 1999, a decrease of $53,656 and an increase of $5,615
or approximately 29% and 2% from $186,230 and $359,960 for the three and six
months ended June 30, 1998. This decrease was primarily attributable to
decreased sales to franchise stores and wholesale clients. However, on June 7,
1999, one of the Company's wholesale clients, Northwest Airlines, Inc.
("Northwest"), terminated the agreement between Northwest and the Company.
During the year ended December 31, 1998 and the six months ended June 30, 1999,
approximately $300,000 and $165,000 of the Company's revenues, respectively,
were generated by Northwest.
There were $30,000 and $90,000 of franchise/license fee revenues for the three
and six months ended June 30, 1999, as compared with $64,000 and $124,500 of
franchise fee revenues for the three and six months ended June 30, 1998. The
Company recognized $30,000 of a non-refundable license fee for the three months
ended June 30, 1999, when the licensee failed to open additional stores as
required in the license agreement. Two new franchise stores opened during the
first quarter of 1999. Revenue under franchise agreements is generally
recognized when the franchise stores are opened. The Company has unearned
franchise fee income of $111,000 at June 30, 1999,
<PAGE> 10
compared to $213,500 at June 30, 1998. Unearned franchise fee income represents
non-refundable franchise fees which will be recognized as revenue as the related
franchise stores are opened. During the six months ended June 30, 1999, the
Company entered into no new franchise agreements. There was royalty income of
$109,292 for the six months ended June 30, 1999, as compared with $101,405 for
the six months ended June 30, 1998. This increase of $7,887 was primarily due to
the commencement of operations of new franchise stores.
Interest income for the three and six months ended June 30, 1999 was $4,361 and
$12,441, respectively, a 85% and 82% decrease from the interest income for the
three and six months ended June 30, 1998. This decrease in interest income
resulted from reductions in the Company's cash balances due to the Company's
need to fund its operations.
The Company had previously recorded a charge of $244,462 as a loss on an
abandoned lease and when the Company settled the lease and a related lawsuit
$212,846 of such amount was reversed and recovered as income in the three months
ended June 30, 1999.
Cost of sales were $149,134 and $411,679, representing 63% and 61% of net
product sales for the three and six months ended June 30, 1999, compared to
$418,117 and $845,647 or 49% and 49% of net product sales for the three and six
months ended June 30, 1998. The increase in cost of sales as a percentage of
sales was primarily attributable to an increase in the percentage of sales from
the commissary/wholesale business, which generally represents a lower gross
profit percentage. The decrease in cost of sales of $268,983 and $433,968, for
the three and six months ended June 30, 1999 was primarily due to the Company
selling and closing four of its Company-owned retail stores.
Selling, general and administrative expenses (SG&A) were $698,321 and $1,427,176
for the three and six months ended June 30, 1999, a 50% and 46% decrease from
$1,400,811 and $2,649,745 for the three and six months ended June 30, 1998. This
reduction was primarily a result of a $490,401 and $802,049 decrease in salaries
and wages, a $135,000 and $171,741 decrease in rent and a $60,674 and $137,396
decrease in advertising for the three and six months ended June 30,1999, due to
the Company selling and closing some of its retail stores, reducing corporate
personnel and discontinuing advertising expenses relating to franchising.
However, there was an increase of $132,436 and $206,016 in professional fees for
the three and six months ended June 30,1999, primarily attributable to the
expenses related to the acquisition merger with VillageNet, Inc. and Intelligent
Computer Solutions, Inc. There was an increase in bad debt of $70,000 for the
three months ended June 30, 1999.
The net loss for the three and six months ended June 30, 1999 were $310,666 and
$750,448 compared to a net loss of $1,382,940 and $2,047,480 for the three and
six months ended June 30, 1998. The primary reason for the decrease in the
current period loss was due to the Company selling or closing unprofitable
Company-owned stores, reducing personnel and recovery of prior write-off of
lease abandonment.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 30, 1999 were $69,754, compared to $902,122 at
December 13, 1998. This decrease was primarily attributable to the Company
funding its operating losses and acquisition merger costs for the six months
ended June 30, 1999.
Accounts receivable decreased to $70,994 at June 30, 1999, from $177,396 at
December 31, 1998. This decrease was primarily due to an increase in the
allowance for doubtful account.
Inventory decreased to $29,848 at June 30, 1999 from $49,403 at December 31,
1998, primarily due to the sales of Company-owned retail stores.
Prepaid expenses and other current assets increased to $142,119 at June 30, 1999
from $50,753 at December 31, 1998, due to primarily an increase in prepaid
insurance.
<PAGE> 11
Fixed assets, net of accumulated depreciation, decreased to $397,867 at June 30,
1999 from $537,392 at December 31, 1998, as a result of the sale of
Company-owned stores and the normal depreciation of Company assets during the
six months ended June 30, 1999.
Intangible assets, net of accumulated amortization, decreased to $4,956 at June
30, 1999 from $35,784 at December 31, 1998, resulting from the sale of the
Company-owned New York City store.
Security deposits and other assets decreased to $81,891 at June 30, 1999 from
$179,557 at December 31, 1998, primarily from the sale of the Company-owned New
York City store and the sale of a lease at another New York City location.
The combination of accounts payable and accrued expenses decreased to $299,087
at June 30, 1999 from $399,155 at December 31, 1998. This decrease was primarily
due to the payment of acquisition related fees and suppliers.
At June 30, 1999, the Company had $(279,755) of negative working capital and a
current ratio of 0.5 to 1.
The Company's operating activities used net cash of $1,095,155 during the six
months ended June 30, 1999, as compared to net cash used in operations of
$1,471,060 for the corresponding period of the prior year. This decrease was
primarily due to the reduction of the Company's net loss.
During the quarter ended March 31, 1999, all 247,504 shares of the Company's
convertible preferred stock still outstanding were converted into 6,520,697
shares of common stock, including 526,361 shares issued in payment of cumulative
stock dividends aggregating $218,347.
In June 1998, management determined that the Company's business of operating
Company-owned retail stores no longer provided the opportunity for growth or
profitability. Accordingly, to reduce costs and losses and to replenish capital
needed for operations, the Company decided to sell Company-owned stores,
preferably to new or existing franchisees, or to close stores that could not be
timely sold. To date, the Company has sold or closed all of its Company-owned
stores except for two in California. The Company expects to sell or close its
remaining stores by the end of August 1999. To further reduce costs, in March
1999, the Company relocated its commissary to a facility in Santa Ana,
California that it shares with an existing baked goods manufacturing business.
Although the Company may maintain its core business as a franchiser and operator
of a commissary that supplies retail stores and wholesale accounts with bagel
products, the Company recognized that this remaining core business would not
generate sufficient revenues to achieve profitability. On May 21, 1999, the
Company entered into an Agreement and Plan of Reorganization and Merger, with
Intelligent Computer Solutions, Inc. (ICS) and VillageNet, Inc. (VillageNet).
VillageNet, founded in June 1995, is a community-oriented Internet service
provider specializing in educational and family-based Internet services with a
local emphasis on business advertising and shopping, chat rooms and
parent/student/teacher interaction.
ICS, founded in October 1994, is a systems-integration firm specializing in
network design, implementation and maintenance and providing Internet/intranet
messaging and security products.
As a result of the business combination with VillageNet and ICS, the Company
will require additional working capital. The Company intends to obtain
additional working capital through the issuance of convertible debt and through
the private placement of equity securities. However, there can be no assurance
that the Company will be able to do so, that the terms available to the Company
in such a financing will be favorable to the Company or that the proceeds of
such financing will provide sufficient working capital for more than a limited
period of time. The Company has completed a bridge financing to which it issued
an aggregate of $400,000 principal amount of promissory notes, which bear
interest at the rate of 8% per annum.
<PAGE> 12
OTHER MATTERS
General
On July 1, 1999, Big City Bagels, Inc. ("Company"), BCB Acquisition Corp. I
("BCB I") and BCB Acquisition Corp. II ("BCB II" and, together with the Company
and BCB I, the "Big City Parties") consummated the transactions contemplated by
the Agreement and Plan of Reorganization and Merger with Intelligent Computer
Solutions, Inc. ("ICS"), VillageNet, Inc. ("VillageNet") and each of the
shareholders of ICS and VillageNet (collectively, the "Shareholders" and,
together with ICS and VillageNet, the "Target Corporation Parties"), dated May
21, 1999 and as amended on June 28, 1999 (the "Merger Agreement"). The Merger
Agreement provided for the merger (the "Merger") of BCB I and BCB II with and
into ICS and VillageNet, respectively, for the separate corporate existence of
BCB I and BCB II to cease and for ICS and VillageNet to be the surviving
corporations of the Merger, continuing after the Merger as wholly-owned
subsidiaries of the Company.
YEAR 2000 COMPLIANCE
Many computer systems currently in use were design 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 be 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 to the
twenty-first century.
The Company is also in the process of assessing its vendors, utilizes, 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 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 makings its third-party
Year 2000 compliance assessment is not expected to be material.
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 24, 1997, in the Arizona Superior Court, County of Maricopa, Earl
and Linda Fraley (dba "Xtremely Xpresso"), owners of a store in a shopping mall
in which a Big City Bagels store, formerly franchised and subsequently
Company-owned, was located, commenced a lawsuit against the landlord (the owners
of the mall), the former franchisee and the Company, seeking an unspecified
amount of damages. Plaintiff's claim that their lease prohibits the owner from
leasing space to other tenants who sell substantial amounts of coffee products,
and therefore, prohibited the owner from leasing space for the Big City Bagels
store. On December 1, 1998, the court granted the Company's motion for summary
judgment and found that the claims against the Company were without merit. On
May 4, 1999 the plaintiff filed an appeal to have the summary motion reversed.
The Company intends to vigorously defend the appeal and believes that it has no
liability in this matter.
On June 25, 1999 the Company reached a settlement agreement with Mercado Del
Lago LLC, owners of a shopping center in which a Big City store , formally
franchised and subsequently Company-owned , was located. Pursuant to the
settlement the Company agreed to pay Mercado Del Lago $29,000.
On June 30,1999, in the Colorado District Court, County of Arapahoe, USA Capital
LLC, lessors of equipment, commenced a lawsuit against the Company, Girardi-Riva
Enterprises, Inc., Richard V. Riva and Thomas V. Girardi (a former franchisee)
seeking damages in the amount of $82,806 plus attorney's fees and court costs.
The Company had assumed the leases from the former franchisee with Girardi-Riva
Enterprises, Inc. as guarantors. Plaintiff claims that the Company is in default
of its lease by not making the required lease payments. The Company intends to
vigorously defend the claim asserted by the plaintiff.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 5. OTHER INFORMATION
On July 7, 1999 Big City Bagels, Inc. changed ticker symbol from BIGC to VILN.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Certificate of Incorporation, as amended through July 1, 1999.
27 Financial Data Schedule (6/30/99)
(b) REPORTS ON FORM 8-K
Form 8-K filed July 1, 1999, relating to the acquisition by the Company
of Intelligent Computer Solutions, Inc. and VillageNet, Inc.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this export to be signed on its behalf by the
undersigned thereunto duly authorized.
Big City Bagels, Inc.
---------------------
(Registrant)
Dated: August 20, 1999 By: /s/ Peter Keenan
--------------- ------------
Peter Keenan, President
By: /s/ Edilberto Enriquez
------------------
Edilberto Enriquez, Treasurer and Chief Financial
Officer
<PAGE> 15
Index to Exhibits
3.1 Certificate of Incorporation, as amended through July 1, 1999
27 Financial Data Schedule
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF
BIG CITY BAGELS, INC.
Pursuant to Section 805 of the
New York Business Corporation Law
We, the undersigned, being, respectively, the Chairman of the Board and
Secretary of Big City Bagels, Inc. ("Corporation"), a corporation organized and
exiting under the Business Corporation Law of the State of New York hereby
certify:
1. The name of the Corporation is Big City Bagels, Inc.
2. The Certificate of Incorporation of the Corporation was filed with the
Department of State of the State of New York on December 14, 1992.
3. Article FOURTH of the Certificate of Incorporation of the Corporation
relating to the number of shares the Corporation is authorized to issue is
hereby amended by the addition of a provision stating the number, designation,
relative rights, preferences and limitations of a series of Preferred Stock,
par value $.001 per share, to be designated Class B Preferred Stock.
Accordingly, Article FOURTH is hereby amended by the addition of a new
subsection, subsection (d), to read as follows:
(d) Class B Preferred Stock
(i) Designations and Amount. 564,562 shares of the Preferred Stock
of the Corporation, par value $.001 per share, shall constitute a
class of Preferred Stock designated as "Class B Preferred Stock"
("Class B Preferred Stock").
(ii) Liquidation Rights. If the Corporation shall be voluntarily or
involuntarily liquidated, dissolved or wound up at any time when any
of the Class B Preferred Stock shall be outstanding, the assets of
the Corporation legally available for distribution shall be distributed
ratably to the holders of Class B Preferred Stock (on the basis of the
number of full shares of Common Stock into which such shares are then
convertible pursuant to Section (d)(v)(B) hereof) and the holders of
Common Stock.
(iii) Dividends. No dividend or distribution in cash or other property
on the Corporation's Common Stock shall be declared or paid or set
apart for payment, unless, at the same time, an equivalent dividend or
distribution is declared or paid or set apart, as the case may be, on
the Class B Preferred Stock and payable on the same date, at the rate
per share of Class B Preferred Stock based upon the shares of Common
Stock that a holder of such Class B Preferred Stock would be entitled
to receive if such holder had converted such Class B Preferred Stock
into Common
<PAGE> 2
Stock as provided in Section (d)(v) hereof immediately prior to the
record date for such dividend or distribution on the Common Stock.
(iv) Voting Rights. Except as otherwise provided herein or by law, the
holders of Class B Preferred Stock shall, by virtue of their ownership
thereof, be entitled to cast the number of votes per share thereof on
each matter submitted to the Corporation's shareholders for voting as
is equal to the number of full shares of Common Stock into which such
share is then convertible pursuant to Section (d)(v)(B) hereof assuming
for this purpose that the Corporation is then authorized to issue a
sufficient number of shares of Common Stock to effect a conversion of
all outstanding Class B Preferred Stock. Such votes shall be cast
together with those cast by the holders of Common Stock as one class
except as otherwise provided herein or by law. The Class B Preferred
Stock shall not have cumulative voting rights.
(v) Conversion of Class B Preferred Stock.
(A) For the purposes of conversion, the Class B Preferred Stock
shall be valued at $138.00 per share ("Value"), and, if converted,
the Class B Preferred Stock, together with the accrued and unpaid
cash dividends thereon to the date of conversion, shall be
converted into Common Stock (the "Conversion Stock") at the
conversion price ("Conversion Price") of $1.00 per share of
Conversion Stock, subject to adjustment pursuant to the provisions
of this Section (d)(v).
(B) The holders of Class B Preferred Stock shall have the right,
at their option, to convert such shares into Conversion Stock at
any time that the Corporation has authorized but unissued a
sufficient number of shares of Common Stock. Each holder of Class
B Preferred Stock who desires to convert its Class B Preferred
Stock into shares of Common Stock shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the
Corporation and shall give written notice to the Corporation at
such office that such holder elects to convert the same. Such
notice shall state the number of shares of Class B Preferred Stock
being converted. Thereupon, the Corporation shall promptly issue
and deliver at such office to such holder a certificate or
certificates for that number of whole shares of Common Stock as
shall be computed by dividing (1) the product of the aggregate
number of Class B Preferred Stock so surrendered and the sum of
the Value and the accrued and unpaid cash dividends with respect
to such Class B Preferred Stock by (2) the Conversion Price for
such shares of Class B Preferred Stock in effect at the date of
such surrender. In the event of any exercise of the conversion
right of the Class B Preferred Stock granted herein (i) stock
certificates for the shares of Common Stock purchased by virtue
of such exercise shall be delivered to such holder forthwith, and
unless the Class B Preferred Stock has been fully converted, a new
Class B Preferred Stock certificate, representing the Class B
Preferred Stock not so converted, shall also be delivered to such
holder forthwith, and (ii) stock certificates for the shares of
Common Stock so purchased shall be dated the date of surrender of
the Class B Preferred Stock certificate converted into such
shares, and the holder making such surrender shall be deemed for
all purposes to be the
-2-
<PAGE> 3
holder of the shares of Common Stock so purchased as of the date
of such surrender.
(C) Subject to the adjustment provided in Section (d)(v)(D) below,
all shares of Common Stock which may be issued upon conversion of
Class B Preferred Stock will, upon issuance, be duly issued, fully
paid and non-assessable and free from all taxes, liens, and charges
with respect to the issue thereof.
(D) In the event the Corporation shall, at any time or from time to
time while any of the shares of Class B Preferred Stock are
outstanding, (i) pay a dividend or make a distribution with respect
to Common Stock in shares of Common Stock, (ii) subdivide or split
its outstanding shares of Common Stock into a larger number of
shares, or (iii) combine its outstanding shares of Common Stock into
a smaller number of shares, in each case whether by reclassification
of shares, recapitalization of the corporation or otherwise, the
Conversion Price shall be adjusted by multiplying the Conversion
Price by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately before such event, and the
denominator of which is the number of shares of Common Stock
outstanding immediately after such event. Such adjustment shall
become effective at the opening of business on the business day next
following the record date for determination of shareholders entitled
to receive such dividend or distribution in the case of a dividend or
distribution, and shall become effective immediately after the
effective date in case of a subdivision, split, combination or
reclassification; and any shares of Common Stock issuable in payment
of a dividend shall be deemed to have been issued immediately prior
to the close of business on the record date for such dividend.
(E) Any notice required by the provisions of this Section (v) shall
be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by
confirmed telex or facsimile, (iii) seven (7) days after having been
sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) two (2) business days after deposit with a
nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All notices shall be
addressed to the Corporation at its principle office and to each
holder of record at the address of such holder appearing on the books
of the Corporation.
(F) The Corporation shall not be required to issue fractions of
shares of Common Stock upon conversion of the Class B Preferred Stock
or payment of any dividends. If any fractions of a share would, but
for this section (vi)(F), be issuable upon any conversion of Class B
Preferred Stock or payment of the Class B Preferred Stock, in lieu of
such fractional share the Company shall round up or down to the
nearest whole number of shares.
(G) In order that the Corporation may issue shares of Common Stock
upon conversion of shares of the Class B Preferred Stock and payment
of any preferred dividends, the Corporation will endeavor to comply
with all
-3-
<PAGE> 4
applicable Federal and state securities laws and will endeavor to
list such shares of Common Stock to be issued upon conversion on each
securities exchange on which Common Stock is listed at the time of
conversion and endeavor to maintain such listing for such period of
time as either the Class B Preferred Stock or Common Stock underlying
such Class B Preferred Stock remains outstanding.
(H) If any of the following shall occur; (i) any reclassification,
subdivision combination or change of outstanding shares of Common
Stock issuable upon conversion of shares of the Class B Preferred
Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a
subdivision or combination), or (ii) any consolidation or merger of
the Corporation with or into another corporation which does not
constitute a liquidation under Section (d)(ii), then in addition to
all of the rights granted to the holders of the Class B Preferred
Stock as designated herein, the Corporation, or such successor or
purchasing corporation, as the case may be, shall, as a condition
precedent to such reclassification, change, consolidation or merger
("Corporate Change"), provide in its certificate of incorporation or
other charter document that each share of the Class B Preferred Stock
shall be convertible into the kind and amount of shares of capital
stock and other securities and property (including cash) receivable
upon such Corporate Change by a holder of the number of shares of
Common Stock deliverable upon conversion of such share of the Class B
Preferred Stock and the payment of the Preferred Dividend thereon
immediately prior to the Corporate Change. If, in the case of any
such Corporate Change, the stock or other securities and property
(including cash) receivable thereupon by a holder of Common Stock
includes shares of capital stock or other securities and property of
a corporation other than the corporation which is the successor of
the Corporation in such Corporate Change, then the certificate of
incorporation or other charter document of such other corporation
shall contain such additional provisions to protect the interests of
the holders of shares of the Class B Preferred Stock as the Board of
Directors shall reasonably consider necessary by reason of the
foregoing. The provision of this section (vi)(H) shall similarly
apply to successive reclassifications, changes, consolidations or
mergers.
(I) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder
by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this section (v)(I) and in the
taking of all such action as may be necessary or appropriate in order
to protect the conversion rights of the holders of the Class B
Preferred Stock against impairment.
4. This Amendment has been adopted by the Board of Directors of the
Corporation pursuant to authority conferred upon the Board of Directors by
Article FOURTH of the Certificate of Incorporation of the Corporation and
Section 502 of the New York Business Corporation Law.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
13th day of June, 1999, and affirm the statements contained herein are true
under penalties of perjury.
BIG CITY BAGELS, INC.
By: /s/ Mark Weinreb
---------------------------------------
Name: Mark Weinreb
Title: Chairman and Chief Executive Officer
By:
----------------------------------------
Name:
Title: Secretary
-5-
<PAGE> 6
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
BIG CITY BAGELS, INC.
------------------------
UNDER SECTION 805 OF THE
BUSINESS CORPORATION LAW
------------------------
Big City Bagels, Inc. (the "Corporation"), by its Chairman of the Board and
Secretary, hereby certifies as follows:
1. The name of the Corporation is Big City Bagels, Inc.
2. The Corporation's original Certificate of Incorporation was filed with
the Department of State of the State of New York on December 14, 1992, and the
Corporation's Restated Certificate of Incorporation was filed with the
Department of State of the State of New York on February 2, 1996.
3. The text of the Certificate of Incorporation is hereby amended to
include a provision to implement a one-for-five reverse stock split of the
outstanding shares of Common Stock.
4. In order to effect the change set forth in paragraph 3 above, the text
of paragraph (a) to Article Fourth of the Certificate of Incorporation of the
Corporation is hereby amended to read in full as follows:
"FOURTH": (a) The aggregate number of shares of stock which the
Corporation shall have authority to issue is 26,000,000 shares, consisting of
25,000,000 shares, with a par value of $.001 per share, classified as common
shares (the "Common Stock"), and 1,000,000 shares, with a par value of $.001
per share, classified as preferred shares (the "Preferred Stock").
<PAGE> 7
Each five shares of Common Stock, par value $.001 per share, issued and
outstanding immediately prior to the effective date of this Certificate of
Amendment shall without any action on the part of the holder thereof, be
reclassified and changed into one fully paid and nonassessable share of Common
Stock, par value $.001 per share, and each holder of record of a certificate
for shares of Common Stock as of the close of business on the effective date of
the Certificate of Amendment shall be entitled to receive, as soon as
practicable, and upon surrender of such certificate, a certificate or
certificates representing one share of Common Stock for each five shares of
Common Stock represented by the certificate of such holder, with the next
higher number of whole shares being issued in lieu of fractional shares.
The number, par value and class of the issued shares changed and issued
shares resulting from the change (plus such greater number of shares which will
result from rounding) are as follows:
SHARES NUMBER PAR VALUE CLASS
- ------ ------ --------- -----
Issued shares changed 7,218,208 $.001 per share Common
Issued shares resulting from change 1,443,642 $.001 per share Common
The number, par value and class of the unissued shares of Common Stock,
$.001 par value, shall be unchanged, except that the number of unissued shares
shall increase as a result of the reduction in the number of issued shares
resulting from the change in issued shares effected by this Certificate of
Amendment.
5. This Amendment to the Certificate of Incorporation was authorized by all
of the members of the Board of Directors of the Corporation at a meeting held on
June 19, 1998.
6. Subsequent to the authorization by the Board of Directors, the amendment
to the Certificate of Incorporation was approved and authorized by the
affirmative vote of the holders of a majority of all of the outstanding shares
of Common
2
<PAGE> 8
Stock of the Corporation, entitled to vote at the Annual Meeting of
Shareholders held on June 19, 1998.
IN WITNESS WHEREOF, this Certificate of Amendment has been signed by Mark
Weinreb, its Chairman of the Board, and Howard J. Fein, its Assistant
Secretary, this 19th day of June, 1998, and they affirm the statements
contained herein are true under penalties of perjury.
/s/ Mark Weinreb
-----------------------------------
Mark Weinreb, Chairman of the Board
and Chief Executive Officer
/s/ Howard J. Fein
-----------------------------------
Howard J. Fein, Assistant Secretary
3
<PAGE> 9
=============================================================================
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF
BIG CITY BAGELS, INC.
---------------------------------
PURSUANT TO SECTION 105 OF THE
NEW YORK BUSINESS CORPORATION LAW
---------------------------------
We, the undersigned, being, respectively, the Chairman of the Board and
Assistant Secretary of Big City Bagels, Inc. ("Corporation"), a corporation
organized and existing under the Business Corporation Law of the State of New
York hereby certify:
1. The name of the Corporation is Big City Bagels, Inc.
2. The date the Certificate of Amendment of the Certificate of
Incorporation to be corrected was filed with the Department of State of the
State of New York is December 24, 1997.
3. This Certificate of Correction is being filed to correct a typographical
error which caused the amount "$0.2585" to appear as "$0.35" in new subsection
(c) added to Article Fourth of the Certificate of Incorporation by the
Certificate of Amendment.
4. The provision of the Certificate of Amendment of the Certificate of
Incorporation which added a new subsection (c) to Article FOURTH is corrected to
read as follows:
"Article FOURTH of the Certificate of Incorporation of the Corporation
relating to the number of shares the Corporation is authorized to issue is
hereby amended by the addition of a provision stating the number,
designation, relative rights, preferences and limitations of a series of
Preferred Stock, par value $.001 per share, to be designated Class A
Preferred Stock. Accordingly, Article FOURTH is hereby amended by the
addition of a new subsection, subsection (c), to read as follows:
1
<PAGE> 10
"(c) Class A Preferred Stock
(i) Designations and Amount. 350,000 shares of the Preferred Stock of the
Corporation, par value $.001 per share, shall constitute a class of Preferred
Stock designated as "Class A Preferred Stock" ("Class A Preferred Stock"). The
Class A Preferred Stock shall have a stated value of $10.00 per share ("Stated
Value").
"(ii) Redemption Rights. The Class A Preferred Stock shall be subject to
redemption, in whole as a class and not in part, by the Corporation, at the
Corporation's election, at any time, subject to the last sentence of this
section (c)(ii), upon 30 days' prior written notice being mailed, by first class
mail postage prepaid, to the addresses of the holders as recorded in the
Corporation's records, at a redemption price ("Redemption Price") payable in
cash equal to the sum of (z) 125% of the Stated Value of the shares being
redeemed, plus (y) the Preferred Dividend (as defined below) accrued and unpaid
thereon through the Redemption Date (as defined below). Payment of the
Redemption Price, calculated on a per share basis, must be tendered to the
holders of the Preferred Stock within 10 business days of the date fixed for
redemption by the Corporation ("Redemption Date"). After 3:00 p.m. Eastern Time
on the Redemption Date, the Class A Preferred Stock shall be deemed cancelled
and the holders thereof shall have no further rights as shareholders of the
Corporation, their sole right being the payment to them of the Redemption Price
upon their surrender to the Corporation of the certificates representing the
Class A Preferred Stock. The Corporation may redeem the outstanding Class A
Preferred Stock only at such time as the registration statement ("Registration
Statement") covering the resale by the holders thereof of the shares of Common
Stock issuable upon conversion and the shares of Common Stock issuable in lieu
of cash payment of the Preferred Dividend, has been declared effective by the
Securities and Exchange Commission ("SEC") and the offering contemplated by the
Registration Statement has been approved by the Corporate Financing Department
of NASD Regulation, Inc. ("NASD CFD Approval") at the time notice of redemption
is given by the Corporation to the holders and remains effective until the
Redemption date.
"(iii) Dividends. The holders of shares of Class A Preferred Stock shall
be entitled to receive dividends at the rate of 8% per annum of Stated Value
(or $0.80 per share) of the Class A Preferred Stock ("Preferred Dividend") from
the date of issuance through the earlier of the Redemption Date or the
Conversion Date (as defined below), payable, at the election of the Company,
either in cash or in shares of Common Stock of the Company, on the next
business day after the Conversion Date, or as part of the Redemption Price, as
set forth above, such number of shares of Common Stock to be calculated in
accordance with section (vi)(B) hereof. No dividends, other than dividends
payable solely in shares of Common Stock of the Corporation, shall be declared
or paid with respect to the Common Stock of the Corporation while the Class A
Preferred Stock is outstanding.
"(iv) Rights on Liquidation, Dissolution or Winding Up, Etc. In the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, as a result of which the assets of the Corporation, whether from
capital, surplus or earnings, shall be distributed to the stockholders of the
Company, such assets shall
2
<PAGE> 11
be distributed simultaneously to both the holders of the Common Stock and the
holders of the Class A Preferred Stock, calculated as if the Class A Preferred
Stock (together with Preferred Dividends through the record date for such
distribution) was fully converted immediately prior to such distribution.
"(v) Voting Rights. The holders of Class A Preferred Stock shall not be
entitled to vote on any matter, except as may be required by law.
"(vi) Conversion of Class A Preferred Stock.
"(A) The holders of Class A Preferred Stock shall have the right, at
such holders' option, at any time or from time to time, to convert each share
of Class A Preferred Stock, together with the accrued Preferred Dividends
thereon through the Conversion Date, into the number of shares of Common Stock
calculated in accordance with section (vi)(B).
"(B) The number of shares of Common Stock to be issued upon
conversion of the Class A Preferred Stock and payment of the Preferred Dividend
will be determined by dividing the Stated Value of the Class A Preferred Stock
being converted, plus the Preferred Dividend accrued and unpaid thereon through
the Conversion Date, by the greater of (i) 75% of the average Closing Bid Price
(as hereinafter defined) of the Common Stock for the five consecutive trading
days ending immediately prior to the date of the Written Notice (as hereinafter
defined) or (ii) $0.2585. Notwithstanding the foregoing, if the Registration
Statement has not been declared effective by the SEC and NASD CFD Approval has
not been obtained on or before the close of business on the 120th day following
the Closing (as defined in the last sentence of this section (vi)(B)), the
aforementioned rate of 75% shall be reduced by 1% to 74% and by 1% per 30-day
period thereafter (with no proration for partial periods; said 1% reduction, if
any shall take effect at 12:01 a.m. on the 121st day following the Closing and
each of the following four successive 1% reductions, if any, shall take effect
on the 151st day following the Closing, the 181st day following the Closing,
the 211th day following the Closing and on the 241st day following the Closing,
respectively, up to an aggregate reduction of 5%, as long as the Registration
Statement has not been declared effective and NASD CFD Approval has not been
obtained. The "Closing Bid Price" shall mean the closing bid price for the
Corporation's Common Stock, as reported by The Nasdaq Stock Market if the
Common Stock is quoted on the Nasdaq National Market or Nasdaq SmallCap Market,
or the last sales price of the Common Stock if the Common Stock is listed on a
national securities exchange, whichever is the principal trading market for the
Common Stock. 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 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 Closing Bid Price cannot be determined pursuant to the
above, the Closing Bid Price shall be such price as the Board of Directors of
the Company shall determine in good faith. For purposes of subsection (c) of
Article Fourth, the term "Closing Data" shall mean December 31, 1997.
3
<PAGE> 12
"(C) Before any holder of Class A Preferred Stock shall be entitled to
convert the same into shares of Common Stock, such holder shall give written
notice ("Written Notice") to the Corporation at its principal corporate office,
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. The Written Notice must be delivered via telecopier prior to 3:00 p.m.
Eastern Time on any day and shall be deemed to be received by the Corporation
upon receipt by it or by its general counsel. If Written Notice is delivered
after 3:00 p.m. Eastern Time on any day, it shall be deemed to be received the
next following business day. The Corporation shall, as soon as practicable, but
not later than one business day after the date of receipt of the Written Notice,
issue and deliver to a location in New York City designated by such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Simultaneously with such delivery,
such holder shall surrender the certificate or certificates for the Class A
Preferred Stock duly endorsed for transfer. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date which the
Written Notice is received by the Corporation in accordance herewith
("Conversion Date"), and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such
Conversion Date.
"(D) The Corporation shall not be required to issue fractions of shares
of Common Stock upon conversion of the Class A Preferred Stock or payment of
the Preferred Dividend. If any fractions of a share would, but for this
section (vi)(D), be issuable upon any conversion of Class A Preferred Stock or
payment of the Preferred Stock, in lieu of such fractional share the Company
shall round up or down to the nearest whole number of shares.
"(E) The Corporation shall reserve and shall at all times have reserved
out of its authorized but unissued shares of Common Stock sufficient shares of
Common Stock to permit the conversion of the then outstanding shares of the
Class A Preferred Stock and payment of the Preferred Dividend pursuant to this
section (vi). All shares of Common Stock which may be issued upon conversion
of shares of the Class A Preferred Stock and payment of the Preferred Dividend
pursuant to this section (vi) shall be validly issued, fully paid and
nonassessable. In order that the Corporation may issue shares of Common Stock
upon conversion of shares of the Class A Preferred Stock and payment of the
Preferred Dividend, the Corporation will endeavor to comply with all applicable
Federal and state securities laws and will endeavor to list such shares of
Common Stock to be issued upon conversion on each securities exchange on which
Common Stock is listed and endeavor to maintain such listing for such period of
time as either the Class A Preferred Stock or Common Stock underlying such
Class A Preferred Stock remains outstanding.
"(F) If any of the following shall occur: (i) any reclassification or
change of outstanding shares of Common Stock issuable upon conversion of shares
of the Class A Preferred Stock (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or (ii) any consolidation or merger to which the
Corporation is a party other than a merger in which the Corporation is the
continuing corporation and which
4
<PAGE> 13
does not result in any reclassification of, or change in, outstanding shares of
Common Stock, then in addition to all of the rights granted to the holders of
the Class A Preferred Stock as designated herein, the Corporation, or such
successor or purchasing corporation, as the case may be, shall, as a condition
precedent to such reclassification, change, consolidation or merger ("Corporate
Change"), provide in its certificate of incorporation or other charter document
that each share of the Class A Preferred Stock shall be convertible into the
kind and amount of shares of capital stock and other securities and property
(including cash) receivable upon such Corporate Change by a holder of the number
of shares of Common Stock deliverable upon conversion of such share of the Class
A Preferred Stock and the payment of the Preferred Dividend thereon immediately
prior to the Corporate Change. If, in the case of any such Corporate Change,
the stock or other securities and property (including cash) receivable thereupon
by a holder of Common Stock includes shares of capital stock or other securities
and property of a corporation other than the corporation which is the successor
of the Corporation in such Corporate Change, then the certificate of
incorporation or other charter document of such other corporation shall contain
such additional provisions to protect the interests of the holders of shares of
the Class A Preferred Stock as the Board of Directors shall reasonably consider
necessary by reason of the foregoing. The provision of this section (vi)(F)
shall similarly apply to successive reclassifications, changes, consolidations
or mergers.
"(G) If any Class A Preferred Stock is issued and outstanding on the
third anniversary of the Closing Date, such Class A Preferred Stock and the
Preferred Dividend thereon shall, without any action on the part of the holder
thereof, be automatically converted into Common Stock on that date on the above
terms.
"(H) In the event any shares of Class A Preferred Stock shall be
converted pursuant to section (vi) hereof, the shares of Class A Preferred
Stock so converted shall be canceled.
"(I) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this section
(vi) and in the taking of all such action as may be necessary or appropriate in
order to protect the conversion rights of the holders of the Class A Preferred
Stock against impairment."
5
<PAGE> 14
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
16th day of January, 1998, and affirm the statements contained herein are true
under penalties of perjury.
BIG CITY BAGELS, INC.
By: /s/ Mark Weinreb
-------------------------------------
Mark Weinreb, Chairman and Chief
Executive Officer
By: /s/ Peter M. Ziemba
-------------------------------------
Peter M. Ziemba, Assistant Secretary
6
<PAGE> 15
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF
BIG CITY BAGELS, INC.
------------------------------------
Pursuant to Section 805 of the
New York Business Corporation Law
------------------------------------
We, the undersigned, being, respectively, the Chairman of the Board and
Assistant Secretary of Big City Bagels, Inc. ("Corporation"), a corporation
organized and existing under the Business Corporation Law of the State of New
York hereby certify:
1. The name of the Corporation is Big City Bagels, Inc.
2. The Certificate of Incorporation of the Corporation was filed with
the Department of State of the State of New York on December 14, 1992.
3. Article FOURTH of the Certificate of Incorporation of the Corporation
relating to the number of shares the Corporation is authorized to issue is
hereby amended by the addition of a provision stating the number, designation,
relative rights, preferences and limitations of a series of Preferred Stock,
par value $.001 per share, to the designated Class A Preferred Stock.
Accordingly, Article FOURTH is hereby amended by the addition of a new
subsection, subsection (c), to read as follows:
(c) Class A Preferred Stock
(i) Designations and Amount. 350,000 shares of the Preferred Stock of the
Corporation, par value $.001 per share, shall constitute a class of Preferred
Stock designated as "Class A Preferred Stock" ("Class A Preferred Stock"). The
Class A Preferred Stock shall have a stated value of $10.00 per share ("Stated
Value").
(ii) Redemption Rights. The Class A Preferred Stock shall be subject to
redemption, in whole as a class and not in part, by the Corporation, at the
Corporation's election, at any time, subject to the last sentence of this
section (c)(ii), upon 30 days' prior written notice being mailed, by first class
mail postage prepaid, to the addresses of the holders as recorded in the
Corporation's records, at a redemption price ("Redemption Price") payable in
cash equal to the sum of (z) 125% of the Stated Value of the shares being
redeemed, plus (y) the Preferred Dividend (as defined below) accrued and unpaid
thereon through the Redemption Date (as defined below). Payment of the
Redemption Price, calculated on a per share basis, must be tendered to the
holders of the Preferred Stock within 10 business days of the date fixed for
redemption by the Corporation ("Redemption Date"). After 3:00 p.m. Eastern Time
on the Redemption Date, the Class A Preferred Stock shall be deemed cancelled
and the holders thereof shall have no further rights as shareholders of the
Corporation, their sole right being the payment to them of the Redemption Price
upon their surrender to the Corporation of the certificates representing the
Class A Preferred Stock. The Corporation may redeem the outstanding Class A
Preferred Stock only at such time
<PAGE> 16
as the registration statement ("Registration Statement") covering the resale by
the holders thereof of the shares of Common Stock issuable upon conversion and
the shares of Common Stock issuable in lieu of cash payment of the Preferred
Dividend, has been declared effective by the Securities and Exchange Commission
("SEC") and the offering contemplated by the Registration Statement has been
approved by the Corporate Financing Department of NASD Regulation, Inc. ("NASD
CFD Approval") at the time notice of redemption is given by the Corporation to
the holders and remains effective until the Redemption date.
(iii) Dividends. The holders of shares of Class A Preferred Stock shall
be entitled to receive dividends at the rate of 8% per annum of Stated Value (or
$0.80 per share) of the Class A Preferred Stock ("Preferred Dividend") from the
date of issuance through the earlier of the Redemption Date or the Conversion
Date (as defined below), payable, at the election of the Company, either in
cash or in shares of Common Stock of the Company, on the next business day
after the Conversion Date, or as part of the Redemption Price, as set forth
above, such number of shares of Common Stock to be calculated in accordance
with section (vi)(B) hereof. No dividends, other than dividends payable solely
in shares of Common Stock of the Corporation, shall be declared or paid with
respect to the Common Stock of the Corporation while the Class A Preferred
Stock is outstanding.
(iv) Rights on Liquidation, Dissolution or Winding Up, Etc. In the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, as a result of which the assets of the Corporation, whether
from capital, surplus or earnings, shall be distributed to the stockholders of
the Company, such assets shall be distributed simultaneously to both the
holders of the Common Stock and the holders of the Class A Preferred Stock,
calculated as if the Class A Preferred Stock (together with Preferred Dividends
through the record date for such distribution) was fully converted immediately
prior to such distribution.
(v) Voting Rights. The holders of Class A Preferred Stock shall not be
entitled to vote on any matter, except as may be required by law.
(vi) Conversion of Class A Preferred Stock.
(A) The holders of Class A Preferred Stock shall have the right,
at such holders' option, at any time or from time to time, to convert each
share of Class A Preferred Stock, together with the accrued Preferred Dividends
thereon through the Conversion Date, into the number of shares of Common Stock
calculated in accordance with section (vi)(B).
(B) The number of shares of Common Stock to be issued upon
conversion of the Class A Preferred Stock and payment of the Preferred Dividend
will be determined by dividing the Stated Value of the Class A Preferred Stock
being converted, plus the Preferred Dividend accrued and unpaid thereon through
the Conversion Date, by the greater of (i) 75% of the average Closing Bid Price
(as hereinafter defined) of the Common Stock for the five consecutive trading
days ending immediately prior to the date of the Written Notice (as hereinafter
defined) or (ii) $0.35. Notwithstanding the foregoing, if the Registration
Statement has not been declared effective by the SEC and NASD CFD Approval has
not been obtained on or before the close of business on the 120th day following
the Closing (as defined in the last sentence of this section (vi)(B)), the
aforementioned rate of 75% shall be reduced by 1% to 74% and by 1% per 30-day
period thereafter (with no proration for partial periods, said 1% reduction, if
any, shall take effect at 12:01 a.m. on the 121st day following the Closing and
each of the following four successive 1% reductions, if any, shall take effect
on the 151st day following the Closing, the 181st day following
2
<PAGE> 17
the Closing, the 211th day following the Closing and on the 241st day following
the Closing, respectively, up to an aggregate reduction of 5%, as long as the
Registration Statement has not been declared effective and NASD CFD Approval has
not been obtained. The "Closing Bid Price" shall mean the closing bid price for
the Corporation's Common Stock, as reported by The Nasdaq Stock Market if the
Common Stock is quoted on the Nasdaq National Market or Nasdaq SmallCap Market,
or the last sales price of the Common Stock if the Common Stock is listed on a
national securities exchange, whichever is the principal trading market for the
Common Stock. 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 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 Closing Bid Price cannot be determined pursuant to the
above, the Closing Bid Price shall be such price as the Board of Directors of
the Company shall determine in good faith. For purposes of subsection (c) of
Article Fourth, the term "Closing Date" shall mean December 31, 1997.
(C) Before any holder of Class A Preferred Stock shall be entitled
to convert the same into shares of Common Stock, such holder shall give written
notice ("Written Notice") to the Corporation at its principal corporate office,
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. The Written Notice must be delivered via telecopier prior to 3:00 p.m.
Eastern Time on any day and shall be deemed to be received by the Corporation
upon receipt by it or by its general counsel. If Written Notice is delivered
after 3:00 p.m. Eastern Time on any day, it shall be deemed to be received the
next following business day. The Corporation shall, as soon as practicable, but
not later than one business day after the date of receipt of the Written Notice,
issue and deliver to a location in New York City designated by such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Simultaneously with such delivery,
such holder shall surrender the certificate or certificates for the Class A
Preferred Stock duly endorsed for transfer. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date which the
Written Notice is received by the Corporation in accordance herewith
("Conversion Date"), and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such
Conversion Date.
(D) The Corporation shall not be required to issue fractions of
shares of Common Stock upon conversion of the Class A Preferred Stock or payment
of the Preferred Dividend. If any fractions of a share would, but for this
section (vi)(D), be issuable upon any conversion of Class A Preferred Stock or
payment of the Preferred Stock, in lieu of such fractional share the Company
shall round up or down to the nearest whole number of shares.
(E) The Corporation shall reserve and shall at all times have
reserved out of its authorized but unissued shares of Common Stock sufficient
shares of Common Stock to permit the conversion of the then outstanding shares
of the Class A Preferred Stock and payment of the Preferred Dividend pursuant to
this section (vi). All shares of Common Stock which may be issued upon
conversion of shares of the Class A Preferred Stock and payment of the Preferred
Dividend pursuant to this section (vi) shall be validly issued, fully paid and
nonassessable. In order that the Corporation may issue shares of Common Stock
upon conversion of shares of the Class A Preferred Stock and payment of the
Preferred Dividend, the Corporation will endeavor to comply with all applicable
Federal and state securities laws and will endeavor to list such shares of
Common Stock to be issued upon conversion on each securities exchange on which
Common
3
<PAGE> 18
Stock is listed and endeavor to maintain such listing for such period of time as
either the Class A Preferred Stock or Common Stock underlying such Class A
Preferred Stock remains outstanding.
(F) If any of the following shall occur: (i) any reclassification
or change of outstanding shares of Common Stock issuable upon conversion of
shares of the Class A Preferred Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), or (ii) any consolidation or merger to which the
Corporation is a party other than a merger in which the Corporation is the
continuing corporation and which does not result in any reclassification of, or
change in, outstanding shares of Common Stock, then in addition to all of the
rights granted to the holders of the Class A Preferred Stock as designated
herein, the Corporation, or such successor or purchasing corporation, as the
case may be, shall, as a condition precedent to such reclassification, change,
consolidation or merger ("Corporate Change"), provide in its certificate of
incorporation or other charter document that each share of the Class A Preferred
Stock shall be convertible into the kind and amount of shares of capital stock
and other securities and property (including cash) receivable upon such
Corporate Change by a holder of the number of shares of Common Stock deliverable
upon conversion of such share of the Class A Preferred Stock and the payment of
the Preferred Dividend thereon immediately prior to the Corporate Change. If,
in the case of any such Corporate Change, the stock or other securities and
property (including cash) receivable thereupon by a holder of Common Stock
includes shares of capital stock or other securities and property of a
corporation other than the corporation which is the successor of the Corporation
in such Corporate Change, then the certificate of incorporation or other charter
document of such other corporation shall contain such additional provisions to
protect the interests of the holders of shares of the Class A Preferred Stock as
the Board of Directors shall reasonably consider necessary by reason of the
foregoing. The provision of this section (vi)(F) shall similarly apply to
successive reclassifications, changes, consolidations or mergers.
(G) If any Class A Preferred Stock is issued and outstanding on the
third anniversary of the Closing Date, such Class A Preferred Stock and the
Preferred Dividend thereon shall, without any action on the part of the holder
thereof, be automatically converted into Common Stock on that date on the above
terms.
(H) In the event any shares of Class A Preferred Stock shall be
converted pursuant to section (vi) hereof, the shares of Class A Preferred Stock
so converted shall be canceled.
(I) The Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this section (vi)
and in the taking of all such action as may be necessary or appropriate in order
to protect the conversion rights of the holders of the Class A Preferred Stock
against impairment.
4. This Amendment has been adopted by the Board of Directors of the
Corporation pursuant to authority conferred upon the Board of Directors by
Article FOURTH of the Certificate of Incorporation of the Corporation and
Section 502 of the New York Business Corporation Law.
4
<PAGE> 19
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
23rd day of December, 1997, and affirm the statements contained herein are true
under penalties of perjury.
BIG CITY BAGELS, INC.
By: /s/ Mark Weinreb
-------------------------------------
Mark Weinreb, Chairman and Chief
Executive Officer
By: /s/ Peter M. Ziemba
-------------------------------------
Peter M. Ziemba, Assistant Secretary
5
<PAGE> 20
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF
BIG CITY BAGELS, INC.
------------------------
UNDER SECTION 805 OF THE
BUSINESS CORPORATION LAW
------------------------
Big City Bagels, Inc. (the "Corporation"), by its Chairman of the Board
and Secretary, hereby certifies as follows:
1. The name of the Corporation is Big City Bagels, Inc.
2. The Corporation's original Certificate of Incorporation was filed
with the Department of State of the State of New York on December 14, 1992, and
the Corporation's Restated Certificate of Incorporation was filed with the
Department of State of the State of New York on February 2, 1996.
3. The text of the Certificate of Incorporation is hereby amended
to change the aggregate number of shares which the Corporation shall have the
authority to issue from 11,000,000 shares, consisting of 10,000,000 shares, with
a par value of $.001 per share, classified as common shares, and 1,000,000
shares, with a par value of $.001 per share, classified as preferred shares, to
26,000,000 shares, consisting of 25,000,000 shares, with a par value of $.001
per share, classified as common shares, and 1,000,000 shares, with a par value
of $.001 per share, classified as preferred shares.
4. In order to effect the change set forth in paragraph 3 above, the
text of paragraph (a) to Article Fourth of the Certificate of
Incorporation of the Corporation is hereby amended to read in full as follows:
<PAGE> 21
"FOURTH: (a) The aggregate number of shares of stock which the
Corporation shall have authority to issue is 26,000,000 shares, consisting of
25,000,000 shares, with a par value of $.001 per share, classified as common
shares (the "Common Stock"), and 1,000,000 shares, with a par value of $.001
per share, classified as preferred shares (the "Preferred Stock").
5. This Amendment to the Certificate of Incorporation was
authorized by the unanimous written consent of all of the members of the Board
of Directors of the Corporation dated May 13, 1997.
6. Subsequent to the authorization by the Board of Directors, the
amendment to the Certificate of Incorporation was approved and
authorized by the affirmative vote of the holders of a majority of all of the
outstanding shares of Common Stock of the Corporation entitled to vote at the
Annual Meeting of Shareholders held on July 1, 1997.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed by Mark Weinreb, its Chairman of the Board, and Stanley Raphael, its
Secretary, this 1st day of July, 1997, and they affirm the statements contained
herein are true under penalties of perjury.
/s/ Mark Weinreb
---------------------------------------
Mark Weinreb, Chairman of the Board
/s/ Stanley Raphael
---------------------------------------
Stanley Raphael, Secretary
<PAGE> 22
RESTATED
CERTIFICATE OF INCORPORATION
OF
BIG CITY BAGELS, INC.
------------------------
UNDER SECTION 807 OF THE
BUSINESS CORPORATION LAW
------------------------
Big City Bagels, Inc. (the "Corporation"), by its Chairman of the Board
and Secretary, hereby certifies as follows:
1. The name of the Corporation is Big City Bagels, Inc.
2. The Corporation's original Certificate of Incorporation was filed
with the Department of State of the State of New York on December 14, 1992.
3. The text of the Certificate of Incorporation is hereby restated and
amended to: (a) change the description of the purposes for which the
Corporation is formed; (b) change the aggregate number of shares which the
Corporation shall have the authority to issue from 200 shares, no par value per
share, to 11,000,000 shares, consisting of 10,000,000 shares, with a par value
of $.001 per share, classified as common shares, and 1,000,000 shares, with a
par value of $.001 per share, classified as preferred shares; (c) change the
post office address to which the Secretary of State shall mail a copy of any
process against the Corporation served upon him; (d) change the provision
eliminating the personal liability of directors of the Corporation; (e) add a
provision requiring the Corporation to indemnify its directors and officers to
the fullest extent permitted by the Business Corporation Law of New York; and
(f) add a provision eliminating preemptive rights of shareholders
(collectively, the "Amendments").
4. In order to effect clauses (a), (b), (c) and (d) reflected in Section
3 above, Article Second, with respect to the purposes of the Corporation,
Article Fourth, with respect to capitalization, Article Fifth, with respect to
the address for service of process, and Article Sixth (now re-numbered Article
Eighth), with respect to the elimination of personal
<PAGE> 23
liability of directors, are hereby amended. In order to effect clauses (e) and
(f) reflected in Section 3 above, a new Article Sixth, with respect to the
indemnification of directors and officers, and a new Article Seventh, with
respect to the elimination of preemptive rights of shareholders, have been
added to the Certificate of Incorporation. The text of the Certificate of
Incorporation of the Corporation is hereby amended and restated to read in full
as follows:
"FIRST: The name of the corporation is Big City Bagels, Inc. (hereinafter
sometimes called "the Corporation").
SECOND: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Business Corporation
Law of New York. The Corporation shall not engage in any act or activity
requiring the consent or approval of any state official, department, board,
agency or other body without such consent of approval first being obtained.
THIRD: The office of the Corporation in the State of New York is to be
located in the County of Nassau.
FOURTH: (a) The aggregate number of shares of stock which the Corporation
shall have authority to issue is 11,000,000 shares, consisting of 10,000,000
shares, with a par value of $.001 per share, classified as common shares (the
"Common Stock"), and 1,000,000 shares, with a par value of $.001 per share,
classified as preferred shares (the "Preferred Stock").
(b) The relative rights, preferences and limitations of the said
classes of stock are as follows:
(i) Issuance in Series. The shares of the Preferred Stock
may be issued from time to time in one or more series. The Board of Directors
of the Corporation is hereby authorized, to the fullest extent permitted by the
Business Corporation Law, including but not limited to Section 502 thereof, as
the same may be
2
<PAGE> 24
amended and supplemented, to establish and designate one or more series of
Preferred Stock and to fix and determine the number of shares which shall
constitute each such series and the relative rights, preferences and
limitations of each such series so established.
(ii) Voting. Except as otherwise required by law, the holders of the
Preferred Stock of any series shall have such voting rights in the Corporation
as the Board of Directors of the Corporation shall fix and determine upon the
establishment of such series. Except as otherwise required by law and except to
the extent the holders of a series of Preferred Stock may be granted voting
rights by the Board of Directors of the Corporation upon the establishment of
such series, all voting rights of shareholders in the Corporation shall be
vested exclusively in the holders of the Common Stock, who shall be entitled to
one vote for each share of Common Stock.
(iii) Dividends. So long as any shares of any series of Preferred Stock
for which a preferred dividend may have been fixed and determined by the Board
of Directors upon the establishment of such series remains outstanding, no
dividend shall be paid or declared, and no distribution made, in respect of the
Common Stock, other than a dividend payable in Common Stock, unless, at the
date of such declaration, payment or distribution, all accumulated dividends,
if any, on the then outstanding shares of such Preferred Stock for all past
dividend periods and the then current dividend period shall have been paid or
declared and a sum sufficient for the payment thereof set apart for payment.
(iv) Dissolution, Liquidation or Winding Up. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation, the
holders of the Preferred Stock of any series then outstanding shall be entitled
to receive out of the assets of the Corporation, before any distribution or
payment shall be made to the holders of the Common Stock, the amount or amounts
therefore as may have been fixed and determined for such series by the Board of
Directors of the Corporation upon the establishment of such series, together
with all dividends, if any, accrued thereon to the date fixed for distribution
or payment and not theretofore paid or declared and set apart for payment.
3
<PAGE> 25
FIFTH: The Secretary of State is designated as the agent of the
Corporation upon whom process against the Corporation may be served, and the
address to which the Secretary of State shall mail a copy of any process
against Corporation served upon him is c/o Graubard Mollert & Miller, 600 Third
Avenue, New York, New York 10016; Attention Docket Clerk.
SIXTH: The Corporation shall, to the fullest extent permitted by the
Business Corporation Law of New York, as the same may be amended and
supplemented, indemnify its officers and directors from and against any and all
of the expenses, liabilities or other matters referred to in or covered by the
Business Corporation Law of New York, and the Indemnification provided for
herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any by law, agreement, vote of shareholders
or disinterested directors or otherwise, and shall continue as to a person who
has ceased to be a director or officer and shall inure to the benefit of the
heirs, executors and administrators of such a person.
SEVENTH: No holder of shares of stock of the Corporation, because of his
ownership of such shares, shall have a preemptive or other right to purchase,
subscribe for, receive or take any part of any shares of the Corporation of any
class, or any securities convertible into, exchangeable for, or carrying a
right or option to purchase its shares of any class, whether now or hereafter
authorized, and whether issued, optioned, sold or offered for sale by the
Corporation for cash or other consideration.
EIGHTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the provisions of
paragraph (b) of Section 402 of the Business Corporation Law of New York, as
the same may be amended and supplemented. Neither the amendment nor repeal of
this Article EIGHTH, nor the adoption of any provision of the Certificate of
Incorporation inconsistent with this Article EIGHTH, shall eliminate or reduce
the effect of this Article EIGHTH in respect of any matter occurring, or any
cause of action, suit or claims that, but for this Article EIGHTH, would accrue
or arise, prior to such amendment or repeal, or adoption of an inconsistent
provision."
4
<PAGE> 26
5. Each of the Corporation's shares of Common Stock, without par value,
issued as of the date hereof ("Old Issued Common Shares"), is hereby changed
into one newly-authorized share of Common Stock, par value $.001 per share
("New Issued Common Shares"). As a result of this change, 100 Old Issued Common
Shares, in the aggregate, have been changed into 100 New Issued Common Shares
in the aggregate. Each of the Corporation's shares of Common Stock, without par
value, not issued as of the date hereof ("Old Unissued Common Shares"), is
hereby changed into 99,999 newly-authorized shares of Common Stock, par value
$.001 per share ("New Unissued Common Shares") and 10,000 newly-authorized
shares of Preferred Stock, par value $.001 per share ("New Issued Preferred
Shares"). As a result of this change, 100 Old Unissued Common Shares, in the
aggregate, have been changed into 9,999,900 New Unissued Common Shares and
1,000,000 New Unissued Preferred Shares.
6. This Restatement of the Certificate of Incorporation, including the
Amendments, was authorized by the unanimous written consent of all of the
members of the Board of Directors of the Corporation dated January 9, 1996.
7. Subsequent to the authorization by the Board of Directors, the
Amendments were approved and authorized by unanimous written consent of the
holders of all outstanding shares entitled to vote thereon dated January 9,
1996.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed by Mark Weinreb, its Chairman of the Board, and Stanley Raphael, its
Secretary, this 23rd day of January, 1996, and they affirm the statements
contained herein are true under penalties of perjury.
/s/ Mark Weinreb
-----------------------------------
Mark Weinreb, Chairman of the Board
/s/ Stanley Raphael,
-----------------------------------
Stanley Raphael, Secretary
5
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