<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ________)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Commission file number 0-21205
NEW YORK BAGEL ENTERPRISES, INC.
(Name of Registrant as specified in its charter)
NONE
(Name of person(s) filing proxy statement if other than the Registrant)
Payment of filing fee:
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
Title of each class of securities to which transaction applies:
Aggregate number of securities to which transaction applies:
Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
Proposed maximum aggregate value of transaction:
Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously paid:
(2) Form, Schedule or Registration No.:
(3) Filing Party:
(4) Date filed:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1998
To the Stockholders of
New York Bagel Enterprises, Inc.
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
New York Bagel Enterprises, Inc. (the "Company") will be held at the Wichita
Art Museum, 619 Stackman Drive, Wichita, Kansas 67203-3296, on the 20th day
of May, 1998, at 1:00 p.m. (local time) for the following purposes:
1. To elect two (2) directors to hold office until the 2001 Annual
Meeting of Stockholders of the Company or until their respective
successors shall have been duly elected and shall have qualified;
2. To ratify the appointment of KPMG Peat Marwick LLP, certified public
accountants, as independent auditors for the Company for the fiscal
year ending December 27, 1998; and
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only common stockholders of record at the close of business on April 17,
1998, are entitled to notice of and to vote at the annual meeting.
All stockholders are cordially invited to attend the meeting in person.
However, if you are unable to attend in person and wish to have your shares
voted, PLEASE FILL IN, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE
ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. Your proxy may be revoked by
appropriate notice to the Secretary of New York Bagel Enterprises, Inc. at
any time prior to the voting thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ JON H. CRAMER
Jon H. Cramer,
CHIEF FINANCIAL OFFICER, SECRETARY AND TREASURER
Wichita, Kansas
March 31, 1998
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
(316) 267-7373
March 31, 1998
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1998
This Proxy Statement and the accompanying Proxy and Notice of Annual
Meeting of Stockholders are furnished to holders of common shares, par value
$0.01 per share (the "Common Shares"), of New York Bagel Enterprises, Inc.
(the "Company") in connection with the solicitation by its Board of Directors
(the "Board") of proxies to be used at the 1998 Annual Meeting of
Stockholders of the Company (the "Annual Meeting") to be held on May 20,
1998, at 1:00 p.m. at the Wichita Art Museum, 619 Stackman Drive, Wichita,
Kansas 67203-3296, and at any postponements or adjournments thereof. Only
those stockholders of record at the close of business on April 17, 1998, will
be entitled to receive notice of, and to vote at, the Annual Meeting. Copies
of this Proxy Statement and the accompanying Proxy and Notice of Annual
Meeting of Stockholders are first being mailed to stockholders on or about
April 20, 1998.
All Common Shares represented by each properly executed Proxy received
by the Board pursuant to this solicitation will be voted in accordance with
the stockholder's directions specified on the Proxy. If no directions have
been specified on a Proxy, the Common Shares represented by that Proxy will
be voted as follows:
"FOR" the election of directors of the nominees named on the
accompanying proxy; and
"FOR" the ratification of the appointment of KPMG Peat Marwick LLP,
certified public accountants, as independent auditors for the Company
for fiscal year 1998.
Management knows of no other matters that may properly be brought, or
which are likely to be brought, before the Annual Meeting. However, if any
other matters are properly brought before the Annual Meeting, the persons
named as proxies in the accompanying Proxy or their substitutes will vote in
accordance with their best judgment on such matters.
Without affecting any vote previously taken, a stockholder signing and
returning a Proxy has the power to revoke it at any time prior to its
exercise by giving notice to the Company in writing mailed to Jon H. Cramer,
Secretary of the Company, at the Company's executive offices at 300 I.M.A.
Plaza, 250 North Water Street, Wichita, Kansas 67202-1213, by executing a
subsequent Proxy, or by attending the Annual Meeting and declaring to the
Company such stockholder's intent to vote in person. Attendance at the
Annual Meeting will not, in and of itself, constitute revocation of a Proxy.
The presence, in person or by proxy, of the holders of a majority of the
Common Shares issued and outstanding on April 17, 1998, is necessary to
constitute a quorum at the Annual Meeting. As of March 1, 1998, the Company
had 4,661,500 Common Shares issued and outstanding.
Under Kansas law and the Company's Restated and Amended Bylaws, each
stockholder is entitled to one vote for each Common Share held. Common
Shares represented in person or by proxy but not voted with respect to a
proposal are counted as present. In votes other than for the election of
directors, the effect of abstention or a non-vote is the same as a "no" vote.
In the election of directors, Common Shares as to which the authority to vote
is withheld and the
<PAGE>
Common Shares represented in person or by proxy but not voted with respect to
the election of directors are not counted toward the election of directors or
toward the election of the individual nominees specified on the proxy.
All costs of solicitation of the proxies will be borne by the Company.
Solicitation will be made by mail. Proxies may be further solicited at no
additional compensation by officers, directors, or employees of the Company
by telephone, written communication or in person. Upon request, the Company
will reimburse banks, brokerage firms, and other custodians, nominees and
fiduciaries for expenses reasonably incurred by them in sending proxy
materials to the beneficial owners of Common Shares of the Company. No
solicitation will be made by specially engaged employees or other paid
solicitors.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
NUMBER AND TERM OF DIRECTORS
The Company's Articles of Incorporation divide the Board into three
categories of as equal size as possible, with the terms of each category
expiring in consecutive years so that only one category is elected in any
given year. Successors to directors whose terms have expired are required to
be elected by stockholder vote. Vacancies in unexpired terms and any
additional positions created by Board action are filled by action of the
existing Board. The terms of Messrs. Murfin and Sorrentino will expire at the
1998 annual meeting of stockholders of the Company; the terms of Messrs.
Geresi, Hoover and Clark will expire at the 1999 annual meeting of
stockholders; and the term of Mr. Walsh will expire at the 2000 annual
meeting of stockholders.
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The names of the directors, executive officers and significant employees
of the Company, their respective ages, positions and director's terms are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- -------------------------------------
<S> <C> <C>
Robert J. Geresi (1) . . . . . . . 35 Chairman of the Board, Chief
Executive Officer and President
Paul T. Sorrentino (2) . . . . . . 35 Vice President -- New Store
Development and Director
Paul R. Hoover (1) . . . . . . . . 37 Vice President -- Strategic Planning
and Director
Jon H. Cramer . . . . . . . . . . . 32 Chief Financial Officer, Secretary
and Treasurer
Vincent J. Vrana . . . . . . . . . 35 Vice President -- Training
Markus K. Scholler . . . . . . . . 43 Director of Franchise Operations
Stanley K. Clark(1)(4)(5) . . . . . 45 Director
David L. Murfin (2)(4) . . . . . . 48 Director
William J. Walsh, Jr.(3)(4)(5). . . 49 Director
</TABLE>
- --------------
(1) Category III Director (term expiring 1999).
(2) Category II Director (Nominee Director-term expiring at Annual Meeting).
(3) Category I Director (Term expiring 2000).
(4) Member of the Audit Committee.
(5) Member of the Compensation Committee.
ROBERT J. GERESI has served as Chairman of the Board, Chief Executive
Officer and President of the Company since December 1995. Mr. Geresi served as
an executive officer of each of the six separate restaurant operating entities
(the "Prior Entities") since their respective inceptions beginning in 1986,
whereby, through a series of transactions, the Company succeeded to the business
of the Prior Entities. From 1984 through 1986, Mr. Geresi served as a Senior
2
<PAGE>
Financial Analyst of Grumman Aerospace Corp., Bethpage, New York. Since
1995, Mr. Geresi has served as a director of Cowboy Land Development, Inc., a
real estate subsidiary of Karsten Creek Golf Course, Oklahoma State
University Foundation. Mr. Geresi received a Bachelor of Arts degree in
economics from Binghamton University, Binghamton, New York in 1984.
PAUL T. SORRENTINO has served as Vice President -- New Store
Development, as a Director of the Company since December 1995 and is a
nominee to the Board for the Annual Meeting. Mr. Sorrentino served as an
executive officer of each Prior Entity since their respective inceptions
beginning in 1986. From 1985 to 1986, Mr. Sorrentino was a telecommunications
consultant for Cameron Communications, Oklahoma City, Oklahoma. Mr.
Sorrentino received a Bachelor of Arts degree in advertising from Oklahoma
State University, Stillwater, Oklahoma in 1985.
PAUL R. HOOVER has served as Vice President -- Strategic Planning and as
a Director of the Company since December 1995. From June 1994 until December
1995, Mr. Hoover served as Vice President and as a Director of New York Bagel
Enterprises, Inc., the franchisor entity of the Prior Entities. Since 1984,
Mr. Hoover has been a Director and stockholder of West-Kan Foods, Inc., a
Wendy's restaurant franchisee. Since October 1997, Mr. Hoover has been a
Vice President, Director and stockholder of Commercial Equity, Inc., a
private real etate company. From 1986 to 1990, Mr. Hoover was President of
Midco Foods, Inc., a multi-concept restaurant franchisee. Mr. Hoover is the
owner of and has served as the President of Paul R. Hoover Real Estate
Company since 1990. Mr. Hoover received a Bachelor of Arts degree in geology
from Wichita State University, Wichita, Kansas in 1983.
JON H. CRAMER has served as Chief Financial Officer, Secretary and
Treasurer of the Company since December 1996. From July 1988 to December
1996, Mr. Cramer was with KPMG Peat Marwick LLP, certified public
accountants, most recently as a Senior Audit Manager. Mr. Cramer is a member
of the American Institute of Certified Public Accountants and the Emporia
State University Accounting Advisory Council. Mr. Cramer received a Bachelor
of Science degree in accounting from Emporia State University, Emporia,
Kansas in 1988. Mr. Cramer is a Certified Public Accountant.
VINCENT J. VRANA has served as Vice President -- Training of the Company
since December 1995. Mr. Vrana served as an executive officer of each Prior
Entity since their respective inceptions beginning in 1986. Mr. Vrana
received a Bachelor of Science degree in business administration from
Oklahoma State University, Stillwater, Oklahoma in 1986.
MARKUS K. SCHOLLER has served as Director of Franchise Operations of the
Company since October 1994. From 1990 to 1994, Mr. Scholler was Training
General Manager for J.S. Ventures, Inc., a multi-unit Applebee's Neighborhood
Grill & Bar franchisee. From 1986 to 1990, Mr. Scholler was General Manager
of Midco Foods, Inc., a multi-concept restaurant franchisee. Mr. Scholler is
a Director of the Kansas Restaurant and Hospitality Association.
STANLEY K. CLARK has served as a Director of the Company since December
1996. Mr. Clark is the owner of Stan Clark Cos., which owns and operates
Eskimo Joe's restaurant, two additional restaurants and Joe's Clothes, a
retail clothes operation. Mr. Clark serves as a Director of the Oklahoma
Restaurant Association and serves on the Oklahoma Tourism and Recreation
Commission. He received a Bachelor of Science degree in business
administration from Oklahoma State University, Stillwater, Oklahoma in 1975.
DAVID L. MURFIN has served as a Director of the Company since December
1995 and is a nominee to the Board for the Annual Meeting. From June 1994
until December 1995, Mr. Murfin served as a Director of New York Bagel
Enterprises, Inc., the franchisor entity of the Prior Entities. Since 1978,
Mr. Murfin has served in various capacities with, and since 1992 as President
of, Murfin Drilling Company, an oil and gas production, exploration and
drilling company. From 1975 to 1978, Mr. Murfin was a Production and
Reservoir Engineer with Amoco Production Company. Mr. Murfin also serves as
National Chairman of the Liaison Committee of Cooperating Oil and Gas
Associations, President of the Kansas Independent Oil and Gas Association, a
Director of the International Association of Drilling Contractors, Director
of the Quivira Council of the Boy Scouts of America, a member of the Economic
Analysis Panel of the Wichita Chamber of Commerce, and a Director of
Heartspring. Since October 1997, Mr. Murfin has been
3
<PAGE>
President, a Director and a stockholder of Commercial Equity, Inc., a private
real etate company. Mr. Murfin received Bachelor of Science degrees in
business administration and in mechanical engineering from the University of
Kansas, Lawrence, Kansas in 1975.
WILLIAM J. WALSH, JR. has served as a Director of the Company since
December 1996. Since 1978, Mr. Walsh has served as President and Chief
Operating Officer of Daland Corporation, a multi-unit, multi-state Pizza Hut
franchisee. Mr. Walsh is a stockholder in Krop Foods, Inc., a Red Hot & Blue
casual dining barbeque restaurant franchisee. From 1966 through 1978, Mr.
Walsh was with Pizza Hut, Inc., most recently as Vice President of
Franchising. During 1996, Mr. Walsh served as Chairman and is currently a
member of the Board of Directors of the International Pizza Hut Franchise
Holders' Association. Mr. Walsh is a member of the Young Presidents'
Organization. He received a Bachelor of Science degree in business
administration from Wichita State University, Wichita, Kansas in 1971.
There are no family relationships among any of the executive officers or
directors of the Company. Executive officers of the Company are elected or
appointed by the Board and hold office until their successors are elected or
until the earliest of their death, resignation or removal.
In January 1998, William S. Atherton resigned from the Board. The Board
subsequently decreased the number of directors from seven to six.
BOARD MEETINGS
The Board held five meetings during the fiscal year ended December 28,
1997. All directors attended at least 75% of the meetings of the Board.
Other than Mr. Clark's absence from the sole Audit Committee meeting, all
directors attended at least 75% of the meetings of the Board committees of
which they are members.
BOARD COMMITTEES
The Company's Board has two standing committees: the Audit Committee
and the Compensation Committee. The functions of the Audit Committee, of
which Messrs. Clark, Murfin and Walsh are members, are to make
recommendations to the Board regarding the engagement of the Company's
independent accountants and to review with management and the independent
accountants the Company's financial statements, basic accounting and
financial policies and practices, audit scope and competency of accounting
personnel. The Audit Committee held one meeting during fiscal 1997. The
functions of the Compensation Committee, of which Messrs. Clark and Walsh are
members, are to review and recommend to the Board the compensation, stock
options and employment benefits of all officers of the Company, to administer
the New York Bagel Enterprises, Inc. 1996 Incentive Plan (the "Incentive
Plan") to fix the terms of certain other employee benefit arrangements and to
make awards under such arrangements. The Compensation Committee held three
meetings during fiscal 1997. None of the individuals serving on the
Compensation Committee has ever been an officer or employee of the Company.
No executive officer of the Company has served as a member of the board of
directors or the compensation committee of any company one of whose executive
officers include a member of the Board or the Compensation Committee of the
Company, other than Mr. Hoover. Mr. Hoover is Vice President, director and
stockholder of Commercial Equity, Inc., a privately held real estate company.
Members of the committees are appointed annually by the Board and serve at
the discretion of the Board until their successors are appointed or their
earlier resignation or removal. The Board does not have a Nominating
Committee.
COMPENSATION OF DIRECTORS
Directors who are not also employees of the Company ("Nonemployee
Directors") receive $250 per Board meeting attended and $125 per Board
committee meeting attended and are reimbursed for out-of-pocket expenses
incurred for attendance at meetings. During fiscal 1997 total Nonemployee
Directors' fees of $4,000 were paid in cash. Management directors received
no fees for their services as a director on the Board. The Company granted
on June 4,
4
<PAGE>
1996, nonqualified stock options under the Incentive Plan to purchase 17,500
Common Shares to Mr. Murfin, who is a Nonemployee Director, at an exercise
price equal to 110% of the price to public of the Company's initial public
offering. The Company also granted on December 20, 1996, nonqualified stock
options outside of the Incentive Plan to purchase 17,500 Common Shares to
each of Messrs. Clark and Walsh, who are Nonemployee Directors, at an
exercise price equal to $6.125 per Common Share which was 100% of the then
close price of the Common Shares. The nonqualified stock options vest over a
period of four years with the initial 20% becoming exercisable on the
six-month anniversary of the grant date and an additional 20% becoming
exercisable on each of the first four anniversaries of the grant date. In
October 1997, the Company canceled and reissued the aforementioned
nonqualified stock options outside of the Incentive Plan with an exercise
price of $5.50 per Common Share. While the Company does not have a formal
policy concerning the granting of nonqualified stock options to Nonemployee
Directors, the Company may grant such options to Nonemployee Directors in the
future. See "Executive Compensation - Non-Plan Options."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires each director and officer of the Company, each
person who beneficially owns more than 10% of a registered class of the
Company's equity securities and any other person subject to Section 16 of the
Exchange Act with respect to the Company to file by specific dates with the
United States Securities and Exchange Commission (the "SEC") initial reports
of ownership and reports of changes in ownership of Common Shares and other
equity securities of the Company. Officers, directors and 10% stockholders
are required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file. The Company is required to report in this
Proxy Statement any failure of its directors and officers, beneficial owners
of more than 10% of the Company's Common Shares and any other person subject
to Section 16 of the Exchange Act with respect to the Company to file by the
relevant due date any of these reports during the Company's fiscal year.
To the Company's knowledge, all of the Company's officers, directors and
10% stockholders complied with applicable Section 16(a) filing requirements
during fiscal 1997.
STOCKHOLDERS' AGREEMENT
The stockholders prior to the Company's initial public offering and the
Company are parties to a certain stockholders' agreement which sets forth
certain agreements regarding the management of the Company (the
"Stockholders' Agreement"). The Stockholders' Agreement provides that
Messrs. Geresi, Vrana and Sorrentino and certain other stockholders shall
designate three persons to stand for election as directors of the Company and
that Messrs. Hoover and Murfin and certain other stockholders shall designate
three persons to stand for election as directors of the Company. All
stockholders who are parties to the Stockholders' Agreement have agreed to
vote their shares in favor of the election of such designees. The
Stockholders' Agreement will automatically terminate during August 1999. As
of March 1, 1998, the stockholders prior to the Company's initial public
offering have voting control over 53.2% of the outstanding Common Shares.
Accordingly, such stockholders will be able to elect the entire Board and
otherwise direct the affairs of the Company.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Messrs. Sorrentino and Murfin are the Board's nominees for election as
directors, to serve as Category II directors until the 2001 annual meeting of
stockholders or until their successors are elected and qualified.
Information concerning the nominees is set forth above. Messrs. Sorrentino
and Murfin were previously elected to the Board by the Company's stockholders
before the Company's initial public offering of its Common Shares.
The Board currently consists of six members. The Board has determined
to nominate two persons for election. The proxies cannot be voted for a
greater number of persons than the number of nominees named.
5
<PAGE>
If, for any reason, either of the nominees shall become unavailable for
election, the individuals named in the enclosed Proxy may exercise their
discretion to vote for any substitutes proposed by the Board, unless the
Board should decide to reduce the number of directors to be elected at the
Annual Meeting. The affirmative vote of a majority of the votes cast is
required for the election of each nominee for director.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES
LISTED HEREIN.
EXECUTIVE COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE EXCHANGE ACT THAT MIGHT INCORPORATE FUTURE FILINGS
BY REFERENCE, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE
FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND THE PERFORMANCE GRAPH
SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS, AND SHALL NOT
BE DEEMED SOLICITING MATERIAL AS FILED UNDER THE SECURITIES ACT OR THE
EXCHANGE ACT.
REPORT OF THE COMPENSATION COMMITTEE
THE COMPENSATION COMMITTEE
The Compensation Committee's stated purpose is to review and recommend
to the Board of Directors (the "Board") the compensation, stock options and
employment benefits of all officers of the Company, administer the New York
Bagel Enterprises, Inc. 1996 Incentive Plan (the "Incentive Plan"), fix the
terms of other employee benefit arrangements and make awards under such
arrangements. The Compensation Committee is composed of directors who have
never served as officers of the Company. During January 1998, the Company's
Board of Directors appointed Stanley K. Clark to serve as a member of the
Compensation Committee and William S. Atherton and David L. Murfin resigned
from the Compensation Committee. The following is a summary of certain
policies of the Compensation Committee that affect the compensation paid to
officers, as reflected in the tables and text set forth elsewhere in this
Proxy Statement.
GENERAL COMPENSATION POLICY. The Compensation Committee's overall
policies with respect to executive officers is to offer competitive
compensation opportunities for such persons based upon their personal
performance, the financial performance of the Company and their contribution
to that performance. Each officer's compensation package is comprised of two
elements: (i) base salary that reflects individual performance and (ii)
stock-based incentive awards designed to strengthen the mutuality of
interests between the officers and the Company's stockholders.
FACTORS. Several important factors considered in establishing the
components of each officer's compensation package for the 1997 fiscal year
are summarized below. Additional factors were taken into account to a lesser
degree. The Compensation Committee may, in its sole discretion, apply
entirely different factors, such as different measures of financial
performance, for future fiscal years. However, it is presently contemplated
that all compensation decisions will be designed to further the overall
compensation policy described above.
BASE SALARY. The base salary for each officer is set on the basis of
personal performance and internal comparability considerations. However, the
Compensation Committee did not conduct a formal survey of executive officer
salaries at such companies. The Compensation Committee believes that the
Company's most direct competitors for executive talent are not limited to the
companies that the Company would use in a comparison for stockholder returns.
Therefore, the compensation comparison group is not the same as the industry
group index used in the "Performance Graph" section below.
6
<PAGE>
STOCK-BASED INCENTIVE COMPENSATION. The Company adopted the Incentive
Plan in January 1996. The Incentive Plan authorizes the Company to award
incentive stock options and nonqualified stock options to purchase Common
Shares and restricted stock to officers, employees and directors of and
consultants and advisors to the Company. The purpose of the Incentive Plan
is to attract, retain and motivate officers, employees, directors,
consultants and advisors. The Incentive Plan authorizes the award of 500,000
Common Shares to be used for incentive stock options, nonqualified options or
restricted stock. Under the Incentive Plan and at the discretion of the
Board as recommended by the Compensation Committee, awards may be granted to
officers, employees and directors of and consultants and advisors to the
Company in the form of incentive stock options, nonqualified stock options
and restricted stock. Stock options may be exercised at a purchase price as
recommended by the Compensation Committee and determined by the Board,
provided that the exercise price per share of incentive stock options under
the Incentive Plan shall be an amount not less than 100% of the fair market
value on the date the option is granted or 110% of fair market value for
beneficial owners of 10% or more of the Company's outstanding Common Shares.
Vesting requirements are also recommended by the Compensation Committee and
determined by the Board. Thus, the optionee of incentive stock options
receives a return only if the market price of the shares appreciates over the
option term. The grants are designed to align the interests of the optionees
with those of the stockholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an
equity stake in the business, even though certain officers of the Company are
already significant stockholders of the Company (see "Security Ownership of
Certain Beneficial Owners and Management"). Moreover, the long-term vesting
schedules encourage a long-term commitment to the Company by its officers and
other optionees. The size of the option grant to each optionee is set at a
level that the Compensation Committee deems appropriate in order to create a
meaningful opportunity for stock ownership based upon the individual's
current position with the Company, but also takes into account the
individual's potential for future responsibility and promotion over the
option vesting period, and the individual's performance in recent periods.
The Compensation Committee periodically reviews the number of shares owned
by, or subject to options held by, each officer, and additional awards are
considered upon past performance of the officer.
STOCK OPTION REPRICING. During October 1997, the Compensation Committee
recommended to the Board the repricing and replacement of all of the
outstanding incentive stock option grants due to the exercise prices in
excess of the current fair market value of the Company's Common Shares. The
Compensation Committee determined that the objectives of the Incentive Plan
and the objectives of the Compensation Committee are to promote the interests
of the Company by providing employees an incentive to acquire a proprietary
interest in the Company and to render or continue to render services to the
Company. The Compensation Committee determined that the stock options
outstanding at the time with exercise prices above the current fair market
value of the Company's Common Shares did not provide sufficient equity
incentive to the optionees. The Compensation Committee concluded that such
option grants failed to further the objectives of the Incentive Plan. In the
opinion of the Compensation Committee, the long-term interests of the Company
and all of its stockholders are clearly served by the retention and
motivation of the optionees who remain with the Company. The Compensation
Committee recommended to the Board, and the Board so approved, that the
option grants from the Incentive Plan be repriced by canceling and reissuing
on a one-for-one basis at an exercise price of $5.50 per share which was
greater than 100% of the market price of the Common Shares of the Company,
with Messrs. Geresi, Sorrentino and Vrana's exercise price being $6.05 per
share, which was greater than 110% of the market price of the Common Shares
of the Company, such options vested as originally granted such that the new
vesting periods were modified to give credit for the prior holding periods
and the vesting periods did not start over. Executive officers of the
Company which had stock options repriced include the following:
7
<PAGE>
<TABLE>
<CAPTION>
TEN-YEAR OPTION REPRICINGS
Length of
Number of Market Price Original Option
Securities of Stock at Exercise Price Term
Underlying Time of at Time of Remaining
Options Repricing or Repricing or New at Date of
Repriced or Amendment Amendment Exercise Repricing or
Name Date Amended (#) ($) ($) Price ($) Amendment
---- ---- ----------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Geresi 10/6/97 20,000 $3.69 $9.90 $6.05 43 months
Paul R. Hoover 10/6/97 20,000 $3.69 $9.00 $5.50 103 months
Paul T. Sorrentino 10/6/97 20,000 $3.69 $9.90 $6.05 43 months
Jon H. Cramer 10/6/97 20,000 $3.69 $6.75 $5.50 109 months
</TABLE>
CHIEF EXECUTIVE OFFICER
In fiscal 1997, Mr. Robert J. Geresi, Chairman, Chief Executive Officer
and President of the Company, received total cash payments of $65,000 in
salary. In fiscal 1997, Mr. Geresi was also granted options under the
Incentive Plan to purchase 20,000 Common Shares. These options are
exercisable at a price of $4.06 per share (110% of the fair market value at
the date of grant), and vest as of the date of grant. The Compensation
Committee notes that the Company under the strong leadership of Mr. Geresi
produced significant growth in sales during the period. The Compensation
Committee considers this level of compensation appropriate in light of Mr.
Geresi's leadership of a growth oriented restaurant company which has been
involved in significant development and acquisition activities during fiscal
1997 and has experienced significant increase in fiscal 1997 revenues, in
spite of the performance of the Company's stock price. Mr. Geresi does not
have an employment agreement with the Company.
LIMITATIONS ON DEDUCTIBILITY
The Compensation Committee has reviewed the Company's informal
compensation policies in light of amendments to the Internal Revenue Code
enacted during 1993 that generally limit deductions for compensation paid to
certain executive officers to $1,000,000 per annum (certain performance based
compensation is not subject to that limit). At present levels of
compensation, these amendments do not limit the deductions to which the
Company is entitled and the Compensation Committee has therefore concluded
that no changes in the Company's compensation policies as a result of these
amendments are appropriate.
SUMMARY
The Compensation Committee believes that the compensation programs of
the Company and the administration of those programs well serve the interests
of the Company's stockholders. These programs allow the Company to attract,
retain and motivate exceptional management talent and to compensate officers
in a manner that reflects their contribution to both the short-term and
long-term performance of the Company. The Compensation Committee intends to
continue to emphasize programs that it believes positively affect stockholder
value.
NEW YORK BAGEL ENTERPRISES, INC., COMPENSATION COMMITTEE
1998 Members
Stanley K. Clark and William J. Walsh, Jr.
8
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of January 1998, the Compensation Committee of the Company is
composed entirely of the two Nonemployee Directors named as signatories to
the above Report of the Compensation Committee. Mr. David L. Murfin, a
director of the Company, served on the Compensation Committee during fiscal
year 1997. The Company leases certain office space from a company which is
owned 7.1% by Mr. Murfin. The Company made aggregate rent payments under
such sublease of $29,863 during fiscal 1997. Also, the Company entered into
certain sale-leaseback transactions with a company owned principally by Mr.
Murfin. The sale-leaseback transactions include five owned restaurant
locations in which the Company sold such properties to such entity for
approximately $2.0 million and leased them back for a 15-year period.
Minimum lease commitments pursuant to these five leases are as follows: years
1 through 5 - $1,227,000; years 6 through 10 - $1,349,700; and years 11
through 15 - $1,484,670. In addition, each of the five leases contain an
option to renew for another ten years. Minimum lease commitments pursuant to
these five leases, assuming all renewal options are exercised, are as
follows: years 16 through 20 - $1,633,137; and years 21 through 25 -
$1,796,449. The Company's original cost of the five restaurant locations was
approximately $2.6 million. Independent appraisals related to the locations
as well as current market lease rates were utilized in determining the
Company's sale price. The sale price for all of the locations was reviewed
and approved by the Company's Board. The Company believes that the above
arrangements are fair and reasonable. The sale-leaseback transactions are
required to be reported under Item 404 of Regulation S-K. See also "Certain
Relationships and Related Transactions." During fiscal 1997, no other member
of the Compensation Committee (nor any of their respective family members)
was a party to any transaction with the Company exceeding $60,000.
SUMMARY COMPENSATION TABLE
The following table sets forth the salary and other annual compensation
paid during the fiscal years ended December 28, 1997 and December 29, 1996,
to the Company's Chief Executive Officer (the "Named Executive Officer"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ ---------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR ENDED SALARY COMPENSATION(1) OPTIONS(#)(2)
- --------------------------- ----------------- ------ --------------- ---------------------
<S> <C> <C> <C> <C>
Robert J. Geresi, Chief Executive 1997 $65,000 $ -0- 20,000
Officer and President 1996 $65,000(3) $34,909 20,000(4)
</TABLE>
- -------------------
(1) Consists of amount reimbursed for payment of 1996 taxes while the Company
operated as an S corporation. Mr. Geresi receives personal benefits in
addition to salary; however, the Company has concluded that the aggregate
amounts of such personal benefits did not exceed the lesser of $50,000 or
10% of annual salary reported for Mr. Geresi and, therefore, such benefits
have not been included herein.
(2) The outstanding options granted pursuant to the Company's Incentive Plan.
(3) During April 1996, Mr. Geresi's salary was increased to $65,000 from
$48,000.
(4) All 1996 options were originally granted on June 4, 1996, for the number of
shares indicated. All such options were canceled and repriced on October
6, 1997. The options are exercisable according to the original vesting
schedule in five increments of 20% each.
9
<PAGE>
STOCK OPTION GRANT TABLE
The following table sets forth certain information concerning options
granted to the Named Executive Officer during the Company's fiscal year ended
December 28, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grant(1) Option Term(3)
----------------------------------------------------- -----------------------
Number of
Securities
Underlying % Total
Options Options Granted Exercise
Granted to Employees in Price Expiration 5% (10)
Name (#)(2) Fiscal 1997 ($/Share) Date ($) ($)
---- --------- --------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Geresi 20,000 12.8% $4.06 10/6/2002 $12,968 $37,800
</TABLE>
- ----------------
(1) During 1997 the Company canceled and reissued certain options originally
granted to Mr. Geresi during 1996 as further discussed in Note 4 to the
Summary Compensation Table.
(2) The shares granted to Mr. Geresi are exercisable at an exercise price equal
to 110% of the quoted market value as of the date of grant. All of these
options are exercisable as such options were vested as of the date of
grant.
(3) As required by the rules of the SEC, potential values are based on the
assumption that the Company's Common Shares will appreciate in value from
the grant date to the end of the option term (five years from the grant
date) at annualized rates of five percent and ten percent (total
appreciation of approximately 27.6% and 61.16%, respectively), and,
therefore, are not intended to forecast possible future appreciation, if
any, in the price of the Common Shares.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
TABLE
The following table sets forth information concerning shares acquired on
exercise of stock options during fiscal 1997, any value realized thereon, the
number of unexercised options at the end of fiscal 1997 (exercisable and
unexercisable) and the value of stock options held at the end of fiscal 1997 by
the Named Executive Officer:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END (#) AT FISCAL YEAR END ($)
ACQUIRED VALUE ----------------------------- --------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Geresi 0 0 28,000 12,000 0 0
</TABLE>
EMPLOYMENT ARRANGEMENTS
The Company has entered into a standard form of employment agreement
with four restaurant management employees (the "Employment Agreements")
concerning the acquisition of its Austin, Texas franchisee. Each of the
Employment Agreements expires on August 31, 1998. The Company may terminate
the employee if such termination is for "cause" as defined therein. The
Company does not have an employment agreement with Mr. Geresi, the Named
Executive Officer, or any other employee.
INCENTIVE PLAN
SCOPE. The Board and stockholders of the Company have approved the New
York Bagel Enterprises, Inc. 1996 Incentive Plan (the "Incentive Plan"). The
Incentive Plan authorizes the Company to award incentive stock options and
10
<PAGE>
nonqualified stock options to purchase Common Shares and restricted stock to
officers, employees and directors of, and consultants and advisors to, the
Company. The purpose of the Incentive Plan is to attract, retain and
motivate such persons.
The Incentive Plan, as amended, authorizes the award of 500,000 Common
Shares to be used for incentive stock options, nonqualified stock options or
restricted stock grants, of which options to purchase 156,500 Common Shares
were granted during fiscal 1997, none of which have been exercised, and 7,000
of which have terminated. Additionally, in October 1997, the Company
canceled and reissued 206,000 incentive stock options that were originally
granted in 1996 and 8,500 incentive stock options that were originally
granted in January 1997. The reissuance consisted of reducing the original
exercise price of such options which ranged from $6.13 to $9.90, to $5.50 for
154,500 options, and to $6.05 for 60,000 options. Vesting periods were not
modified and are calculated from the original grant date. The exercise
prices for such options were greater than the market price of the Common
Shares on the modification date. As of December 28, 1997, 355,500 options
were outstanding, net of terminated options. Certain nonqualified options
originally granted under the Incentive Plan were canceled, repriced and
reissued as nonqualified options outside of the Incentive Plan. If an award
made under the Incentive Plan expires, is canceled or is otherwise
terminated, those shares will be available for future awards under the
Incentive Plan. The Incentive Plan will terminate during January 2006.
ADMINISTRATION. The Incentive Plan is administered by the Company's
Compensation Committee which is comprised of directors who are disinterested
within the meaning of Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act. Subject to the provisions of the Incentive Plan, the
Compensation Committee has authority to select those officers and employees
of, and advisors and consultants to the Company to receive awards, to
determine the time or times of receipt, to determine the types of awards and
the number of shares covered by the awards, and to establish the terms,
conditions and provisions of such awards. In making such award
determinations, the Compensation Committee may take into account the nature
of services rendered by the recipient, his or her present and potential
contribution to the Company's growth and success, and such other factors as
the Compensation Committee deems relevant. The Compensation Committee is
authorized to interpret the Incentive Plan, to establish, amend, and revoke
any rules and regulations relating to the Incentive Plan, to determine the
terms and provisions of any agreements made pursuant to the Incentive Plan,
and to make all other determinations that may be necessary or advisable for
the administration of the Incentive Plan.
STOCK OPTIONS. Both incentive stock options and nonqualified stock
options (collectively referred to as "Stock Options") may be granted pursuant
to the Incentive Plan. All Stock Options granted under the Incentive Plan
will have an exercise price per share to be determined by the Compensation
Committee; provided that the exercise price per share under each incentive
stock option shall not be less than the fair market value of a share of
Common Shares at the time the incentive stock option is granted (110% of such
fair market value in the case of incentive stock options granted to a
stockholder who owns 10% or more of the Company's Common Shares). The
maximum term for all Stock Options granted under the Incentive Plan is ten
years (five years in the case of an incentive stock option granted to a
stockholder who owns 10% or more of the Company's Common Shares). Moreover,
no Stock Options may be granted under the Incentive Plan more than ten years
after the date of its adoption. All Stock Options are non-transferable other
than by will or the laws of descent and distribution or a qualified domestic
relations order, and during an optionee's lifetime may be exercised only by
the optionee or the optionee's guardian or legal representative. Stock
Options are exercisable at such time and in such installments as the
Compensation Committee may provide at the time the Stock Option is granted.
The Compensation Committee may accelerate the exercisability of any Stock
Option at any time. The purchase price for shares acquired pursuant to the
exercise of a Stock Option must be paid in the manner determined by the
Compensation Committee. The terms and conditions of Stock Options relating
to their treatment upon termination of the optionee's employment or
association with the Company will be determined at the time the Stock Options
are granted. An optionee is not deemed to be the owner of any Common Shares
subject to any Stock Option until the Stock Option has been exercised, the
Company has issued and delivered the shares to the optionee and the
optionee's name has been entered as a stockholder of record on the books of
the Company. The Stock Options generally vest over a period of four years
with the initial 20% becoming exercisable on the six-month anniversary of the
grant date and an additional 20% becoming exercisable on each of the first
four anniversaries of the grant date, except for certain options to purchase
90,000 Common Shares granted in 1997 which vested as of the date of grant.
In the event of a change in control of the Company, as defined, awards under
the Incentive Plan become exercisable within 60 days of the change in control.
11
<PAGE>
RESTRICTED STOCK. Restricted stock awards are grants of Common Shares
made to officers and employees, subject to conditions established by the
Compensation Committee. The terms of a restricted stock award, including the
restrictions placed on such shares and the time or times at which such
restrictions will lapse, shall be determined by the Compensation Committee at
the time the award is made. Unless the Compensation Committee determines
otherwise, holders of restricted stock shall have the right to vote the
shares of restricted stock and to receive all dividends thereon. The
Compensation Committee may determine at the time of an award of restricted
stock that dividends paid on such shares may be paid to the grantee or
deferred. Deferred dividends (together with any interest accrued thereon)
will be paid upon the lapsing of the restrictions on the shares of restricted
stock or forfeited upon the forfeiture of the shares of restricted stock. The
agreements evidencing awards of restricted stock shall set forth the terms
and conditions of such awards and the effect of a grantee's termination of
employment.
ADJUSTMENTS. In the event of any change in the outstanding Common
Shares by reason of any reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, split-up, issuance of warrants or
rights or debentures, stock dividend, stock split or reverse stock split,
cash dividend, property dividend or similar change in the corporate
structure, the aggregate number of Common Shares with respect to which awards
may be made under the Incentive Plan, and the terms and the number of shares
of restricted stock, or the number of Common Shares underlying any
outstanding Stock Options may be equitably adjusted by the Compensation
Committee in its sole discretion.
TERMINATION AND AMENDMENT. The Incentive Plan may be terminated or
amended by the Board, provided that, in the absence of stockholder approval,
no amendment of the Incentive Plan may materially increase the total number
of Common Shares with respect to which awards may be made under the Incentive
Plan (except as discussed in "--Adjustments" above), change the exercise
price of a Stock Option, materially modify the requirements as to eligibility
for participation in the Incentive Plan or materially increase the benefits
accruing to participants under the Incentive Plan. No amendment of the
Incentive Plan may adversely alter or impair any Stock Option or share of
restricted stock awarded under the Incentive Plan prior to such amendment
without the consent of the holder thereof.
NON-PLAN OPTIONS
In addition to Stock Options granted pursuant to the Incentive Plan, the
Company granted in December 1996, nonqualified options outside of the
Incentive Plan to purchase 17,500 Common Shares (the "Non-Plan Options") to
each of Messrs. Clark and Walsh. The Non-Plan Options were granted at an
exercise price of $6.125 per share, 100% of the close price of the Common
Shares on the grant date. The nonqualified options originally vested over a
period of four years with the initial 20% becoming exercisable on the
six-month anniversary of the grant date and an additional 20% becoming
exercisable on each of the first four anniversaries of the grant date. As
described above, the Company canceled and reissued all Non-Plan Options out
of the Incentive Plan. The repricing reissuance consisted of reducing the
original per Common Share exercise price of such options which originally
ranged from $6.13 to $9.90, to $5.50 per Common Share. The vesting periods
of the reissued options retained the original vesting period. As of December
28, 1997, 70,000 Non-Plan Options were outstanding.
PERFORMANCE GRAPH
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S PREVIOUS FILINGS UNDER THE SECURITIES ACT OR THE EXCHANGE ACT THAT
MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR
IN PART, THIS SECTION ENTITLED "PERFORMANCE GRAPH" SHALL NOT BE INCORPORATED
BY REFERENCED INTO ANY FILINGS OR INTO ANY FUTURE FILINGS, AND SHALL NOT BE
DEEMED SOLICITING MATERIAL OR FILED UNDER THE SECURITIES ACT OR THE EXCHANGE
ACT.
12
<PAGE>
The following graph compares the cumulative total stockholder return on
the Company's Common Shares from August 27, 1996 (the date the Company became
a public company) through December 28, 1997, with the cumulative total return
of the Nasdaq Stock Market Total Return Index and the Peer Group Index, as
defined below. The graph assumes the investment of $100 in the Company's
Common Shares and in each of the indexes on August 27, 1996 and reinvestment
of all dividends. The initial public offering price of the Company's Common
Shares was $9.00 per share.
COMPARISON OF CUMULATIVE TOTAL RETURN*
FOR THE PERIOD ENDED DECEMBER 28, 1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN 12/29/96 12/28/97
----------------------- -------- --------
<S> <C> <C>
New York Bagel Enterprises, Inc. . . . . . . . . . $ 69.44 $ 21.53
Nasdaq Stock Market Total Return Index . . . . . . $112.94 $138.66
Peer Group Index . . . . . . . . . . . . . . . . . $ 80.72 $ 48.58
</TABLE>
- ---------------------
* Cumulative Total Return assumes reinvestment of dividends. There were no
dividends paid by the Company during the period presented. Cumulative
Total Return assumes an initial investment of $100 on August 27, 1996.
** Peer Group Index is composed of restaurant companies with similar product
offering and/or market capitalization. These companies are Au Bon Pain
Co., Inc., BAB Holdings, Inc., Blimpie International, Inc., Einstein/Noah
Bagel Corp., Landry's Seafood Restaurants, Inc., Logan's Roadhouse, Inc.,
Manhattan Bagel Company, Inc., Quality Dining, Inc., Quizno's Corp. and
Schlotzky's, Inc.
13
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table presents certain information as of March 1, 1998,
regarding the beneficial ownership of Common Shares by (i) all persons known
by the Company to be beneficial owners of 5% of more of the Common Shares,
(ii) each of the directors and the Named Executive Officer of the Company
individually, and (iii) all directors, the executive officers and the Named
Executive Officer of the Company as a group. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
the Company believes that the persons listed below have sole voting and
investment power and record and beneficial ownership with respect to such
shares.
<TABLE>
SHARES BENEFICIALLY OWNED
NAME OF BENEFICIAL OWNER NUMBER(1) PERCENTAGE
------------------------ --------- ----------
<S> <C> <C>
Robert J. Geresi(2)(3) 577,718 12.39%
Paul T. Sorrentino(2) 566,918 12.16%
Paul R. Hoover(4) 81,973 1.76%
Stanley K. Clark 17,000 *
David L. Murfin(5)(6) 398,871 8.56%
William J. Walsh, Jr. 7,000 *
Directors and executive officers as a
group (seven persons)(7) 1,667,480 35.77%
Vincent J. Vrana(2) 528,939 11.35%
</TABLE>
- ------------------
* Less than one percent.
(1) The number of Common Shares beneficially owned by Messrs. Geresi,
Sorrentino, Hoover, Clark, Murfin, Walsh and Vrana include 28,000, 18,000,
18,000, 7,000, 7,000, 7,000 and 18,000 shares, respectively, or 103,000
shares in the aggregate, which such persons have a right to acquire
pursuant to stock options that are vested or vest within 60 days.
(2) The address for Messrs. Geresi, Sorrentino and Vrana is 115 East 8th,
Stillwater, Oklahoma 74074-4601.
(3) Includes 5,000 shares owned by Mr. Geresi's minor children.
(4) Includes 5,000 shares owned by Mr. Hoover's minor children.
(5) The address for Mr. Murfin is 300 I.M.A. Plaza, 250 North Water Street,
Wichita, Kansas 67202-1213.
(6) Includes 45,000 shares owned by Mr. Murfin's minor children.
(7) Includes 18,000 shares which Mr. Cramer has a right to acquire pursuant to
stock options that are vested.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEASES
The Company currently leases space for a Company-owned New York Bagel
restaurant located in Norman, Oklahoma from Bagel Land, Inc., an Oklahoma
corporation, owned one-third each by Messrs. Geresi, Sorrentino and Vrana.
The Company made aggregate rent payments under such lease of $28,200 during
fiscal 1997. The lease is for a term of five years commencing June 1994 at a
rent of $2,350 per month for 30 months and $2,500 per month for the remaining
30 months with an option to renew for five years at $2,650 for the first 30
months and $2,800 per month for the last 30 months.
The Company leases space for a Company-owned New York Bagel restaurant
located in Tulsa, Oklahoma from Cherry Street Land, Inc., an Oklahoma
corporation, owned one-fourth each by Messrs. Geresi, Sorrentino, Vrana and
an employee of the Company. The Company made aggregate rent payments under
such lease of $27,600 during fiscal
14
<PAGE>
1997. The lease is for a term of five years beginning January 1995 with an
option to renew for five years and rent for the first 24 months of $2,300 per
month, $2,500 per month for the next 36 months, $2,700 per month for the next
30 months and $2,900 per month for the last 30 months.
The Company leases space for a Company-owned New York Bagel restaurant
located in Oklahoma City, Oklahoma from L.P.V. Properties, L.L.C. which is
owned one-third each by Messrs. Sorrentino, Vrana and an unrelated party.
Rent payments begin in March 1998. The lease is for a term of ten years
commencing March 1998 at a rent of $3,615 per month for 36 months, $3,775 per
month for 36 months, $3,943 per month for 36 months and $4,118 per month for
12 months. The lease contains an option to renew by the Company for ten
years with monthly rent payments at $4,303 for 24 months, $4,497 for 36
months, $4,700 for 36 months and $4,911 for 24 months.
The Company subleases space for its corporate offices located in
Wichita, Kansas from Murfin Drilling Company, Inc., a wholly owned subsidiary
of Murfin, Inc. which is owned 7.1% by Mr. Murfin. The Company made aggregate
rent payments under such sublease of $29,863 during fiscal 1997. The current
sublease is on a month to month basis and is terminable on 30 days' notice by
the Company.
SALE-LEASEBACK TRANSACTIONS
During October 1997 and February 1998, the Company entered into
agreements to sell and lease back five restaurant sites with an entity owned
by Messrs. Hoover and Murfin. The sale-leaseback transactions include five
owned restaurant locations in which the Company sold such properties to such
entity for approximately $2.0 million and leased them back for a 15-year
period. Minimum lease commitments pursuant to these five leases are as
follows: years 1 through 5 - $1,227,000; years 6 through 10 - $1,349,700;
and years 11 through 15 - $1,484,670. In addition, each of the five leases
contain an option to renew for another ten years. Minimum lease commitments
pursuant to these five leases, assuming all renewal options are exercised,
are as follows: years 16 through 20 - $1,633,137, and years 21-25 -
$1,796,449. The Company's original cost of the five restaurant locations was
approximately $2.6 million. Independent appraisals related to the locations
as well as current market lease rates were utilized in determining the
Company's sale price. The sale price for all of the locations were reviewed
and approved by the Company's Board.
DISTRIBUTIONS
The Company made a $156,000 distribution on March 4, 1997 to the
stockholders that existed prior to the Company's initial public offering in
connection with their estimated federal and state income tax obligations
attributable to the Company's 1996 S corporation earnings. In connection
with such distribution, Messrs. Geresi, Sorrentino, Hoover, Vrana, Scholler
and Murfin received $34,909, $34,937, $3,900, $32,562, $797 and $19,743,
respectively.
FRANCHISEE
During August 1995, the Company entered into a Development Agreement
with Mr. Vrana's brother and his partner concerning the development of three
New York Bagel restaurants in Columbia, South Carolina on terms and
conditions comparable to all other franchisees of the Company. Pursuant
thereto, Mr. Vrana's brother and his partner have developed two restaurants
and entered into franchise agreements with the Company in connection
therewith.
SALE OF PROPERTY AND EQUIPMENT
During October 1997, the Company entered into an asset sale and purchase
agreement (the "Agreement") with Il Vicino International, L.L.C. ("IL
Vicino"), a company in which Messrs. Hoover and Murfin have an ownership
interest of up to fifty percent. The Agreement relates to certain equipment
and leasehold improvements which the Company is selling to IL Vicino for
$135,000 and the assumption by IL Vicino of the related real property lease
liability. The
15
<PAGE>
Company's sale price was based on the Company's original purchase price of
approximately $85,000 and the estimated fair value of the assets as
determined by the Company. The transaction was approved by the Company's
Board. The Agreement includes certain contingencies, whereby either the
Company or IL Vicino can rescind the Agreement. Hence, the transaction has
not yet been consummated and may not consummate.
FUTURE TRANSACTIONS
Although each of the foregoing transactions were among affiliated
parties and necessarily involved conflicts of interest, the Company believes
that they were on terms that were no less favorable than reasonably available
from unaffiliated third parties. It is the Company's policy that all
transactions between the Company and its affiliated entities, executive
officers or directors will be subject to the review and approval of the
majority of the Company's directors that do not have an interest in the
transaction and will be on terms which will be no less favorable to the
Company than the Company could obtain from non-affiliated parties.
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP has served as the Company's independent
accountants since its appointment for fiscal 1994. The Board on the
unanimous recommendation of the Audit Committee, has selected KPMG Peat
Marwick LLP as the Company's independent accountants for the fiscal year
ending December 27, 1998, subject to ratification by the stockholders at the
Annual Meeting. Representatives of KPMG Peat Marwick LLP are expected to be
present at the meeting to respond to appropriate questions and will have an
opportunity to make a statement if they desire to do so.
All services provided to the Company by KPMG Peat Marwick LLP were
approved by the Audit Committee, which also considered the possible effect on
the independence of KPMG Peat Marwick LLP by rendering such services. Audit
services of KPMG Peat Marwick LLP for fiscal 1997 included the examination of
the consolidated financial statements and services related to filings with
the SEC.
The affirmative vote of a majority of the votes cast on this proposal
will constitute ratification of the appointment of KPMG Peat Marwick LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF
THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
FOR FISCAL YEAR 1998.
OTHER MATTERS
As of the date of this Proxy Statement, the Board knows of no other
business that will be presented by management for consideration at the Annual
Meeting. If any other business properly comes before the Annual Meeting, the
proxy holders intend to vote the proxies as recommended by the Board.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1999 Annual
Meeting of the stockholders must be received by the Company in writing no
later than December 21, 1998. Proposals must be mailed to New York Bagel
Enterprises, Inc., 300 I.M.A. Plaza, 250 North Water Street, Wichita, Kansas
67202-1213, ATTN: Jon H. Cramer, Secretary.
16
<PAGE>
ANNUAL REPORT (FORM 10-K)
The Company undertakes, on written or oral request and without charge,
to provide by first class mail or other equally prompt means within one
business day of receipt of such request each person from whom the
accompanying Proxy is solicited with a copy of the Company's Annual Report on
Form 10-K for the fiscal year ended December 28, 1997, as filed with the SEC,
including the financial statements. Requests should be addressed to New York
Bagel Enterprises, Inc., 300 I.M.A. Plaza, 250 North Water Street, Wichita,
Kansas 67202-1213, ATTN: Jon H. Cramer, Secretary.
By Order of the Board of Directors
/s/ JON H. CRAMER
Jon H. Cramer
CHIEF FINANCIAL OFFICER, SECRETARY AND TREASURER
March 31, 1998
17
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
300 I.M.A. PLAZA
250 NORTH WATER STREET
WICHITA, KANSAS 67202-1213
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert J. Geresi as Proxy with the power
to appoint his substitute, and hereby authorizes him to represent and to vote,
as designated on the reverse side, all of the shares of common stock of New
York Bagel Enterprises, Inc. (the "Company") held of record by the undersigned
on April 17, 1998, at the Annual Meeting of Stockholders to be held on May 20,
1998 or any adjournment thereof.
(Continued, and to be marked, dated and signed, on the other side)
<PAGE>
<TABLE>
A /X/ Please mark your
votes as in this
example using
dark ink only.
FOR all nominees WITHHOLD
listed at right AUTHORITY to
(except as marked to vote all nominees
the contrary below) listed at right
<S><C> <C> <C> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
2. Proposal to ratify the / / / / / /
1. Election of / / / / NOMINEES: David L. Murfin appointment of KPMG Peat
Directors Paul T. Sorrentino Marwick LLP, certified
public accountants, as the
independent auditors for the
Company for the fiscal year
ending December 27, 1998.
(Instructions: to withhold authority to vote for any 3. In their discretion, the proxies are
individual nominee, strike a line through that authorized to vote upon such other
nominee's name in the list at right). business as may properly come before the
__________________________________________ meeting or any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE
VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 AND 2.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Signature_____________________________________________ Signature_________________________________________ Dated:__________________
SIGNATURE IF HELD JOINTLY
Note: Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by
authorized person.
</TABLE>
