SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted
|X| Definitive Proxy Statement by Rule 14a-6(e)(2))
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
MANHATTAN BAGEL COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) 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 offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
MANHATTAN BAGEL COMPANY, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of
MANHATTAN BAGEL COMPANY, INC.
The Annual Meeting of Shareholders of Manhattan Bagel Company, Inc.
("Manhattan Bagel") will be held at the Sheraton Eatontown Hotel and Conference
Center, 6 Industrial Way East, Eatontown, New Jersey 07724, on Thursday, June
26, 1997, at 10:00 A.M., for the purpose of considering and acting upon the
following matters:
(1) Election of directors.
(2) To approve an amendment to the Manhattan Bagel 1996 Stock Option
Plan (the "1996 Plan") that provides that directors of Manhattan
Bagel be eligible to receive awards under the 1996 Plan.
(3) To ratify the previous grant to a certain non-employee director
of stock options ("Director's Options") to purchase an aggregate
of 30,000 shares of common stock, no par value, of Manhattan
Bagel.
(4) Such other business as may properly come before the meeting or
any adjournment thereof.
The Board of Directors has fixed the close of business on May 23, 1997
as the record date for the determination of shareholders entitled to notice of,
and to vote at, the meeting.
You are cordially invited to attend the meeting. Whether or not you
plan to attend the meeting, you are urged promptly to complete, date and sign
the enclosed proxy and to mail it to Manhattan Bagel in the enclosed envelope,
which requires no postage if mailed in the United States. Return of your proxy
does not deprive you of your rights to attend the meeting and to vote your
shares in person.
Dated: Eatontown, New Jersey
May 30, 1997
By Order of the Board of Directors,
Andrew Gennusa,
Secretary
<PAGE>
MANHATTAN BAGEL COMPANY, INC.
246 Industrial Way West
Eatontown, New Jersey 07724
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by and on behalf of the Board of Directors of Manhattan Bagel
Company, Inc. ("Manhattan Bagel" or the "Company") for use at the Annual Meeting
of Shareholders on June 26, 1996 and at any adjournment thereof. May 30, 1997 is
the approximate date on which this Proxy Statement and the accompanying form of
proxy are first being mailed to shareholders.
As of May 23, 1997, the record date for the meeting, Manhattan Bagel
had outstanding 7,474,822 shares of common stock, no par value ("Common Stock"),
each of which entitles the record holder thereof on such date to one vote on
each matter presented at the meeting. The proxy solicited by this Proxy
Statement is revocable at any time before it is voted.
The presence at the meeting in person or by proxy of shareholders
entitled to cast a majority of the votes at the meeting constitutes a quorum.
The election of directors is decided by a plurality of the votes cast. The
favorable vote of holders of shares entitling them to cast a majority of the
votes entitled to be cast by holders present or represented at the meeting is
required to approve the amendment to the Company's 1996 stock Option Plan (the
"1996 Plan") and to ratify the grant of options ("Director's Options") to a
certain non-employee director. Abstentions have the same legal effect as a vote
against the approval of the amendment to the 1996 Plan and the ratification of
the grant of the Director's Options. Broker non-votes have no effect on the
proposals being acted upon.
The proxies named in the enclosed form of proxy and their substitutes
will vote the shares represented by the enclosed form of proxy, if the proxy
appears to be valid on its face, and, where a choice is specified by means of
the ballot on the form of proxy, will vote in accordance with each specification
so made.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES OF THE BOARD OF DIRECTORS
The proxy will be voted as specified thereon and, in the absence of
contrary instruction, will be voted for the reelection of the six current
directors until the next annual meeting following the June 26, 1997 meeting, and
until their respective successors are elected and qualified. Information with
respect to each such nominee is set forth below:
NAME AGE POSITION WITH MANHATTAN BAGEL
- ---- --- -----------------------------
Jack Grumet 60 Chairman of the Board and Chief Executive Officer
David Goldsmith 57 Vice Chairman of the Board
Jason Gennusa 38 President and Chief Operating Officer and Director
Andrew Gennusa 31 Executive Vice President and Director
Julia S. Heckman 47 Director
Jack Levy 45 Director
JACK GRUMET became Chairman of the Board and Chief Executive Officer of
the Company in April 1991. He was Chairman and Chief Financial Officer of Banner
Financial Services, a wholesale mortgage broker, from April 1989 until April
1991. From 1984 to 1989, Mr. Grumet was involved as an executive officer in a
variety of business enterprises. Prior to 1984, he was the founder and Chief
Executive Officer of Jo-Ann's Nut House and Chez Chocolat, the nation's second
largest retail franchise chain of nut and candy stores. The chain operated 149
locations in nineteen states with five branch warehouses. The company was sold
in 1983 to Carrols Corporation.
DAVID GOLDSMITH became director and Vice Chairman of the Board of the
Company in April 1996, after serving as consultant to the Company since December
1995. Prior to joining the Company, from 1973 to 1996, Mr. Goldsmith was
president and chief executive officer of Ventec Inc., a food manufacturing and
distribution concern.
JASON GENNUSA has been President, Chief Operating Officer and a
director of the Company since he co-founded the Company in 1987. From 1981 until
1991, Mr. Gennusa was Vice President
2
<PAGE>
and a principal owner/operator of five Chicken Holiday restaurants located
throughout New Jersey. Jason Gennusa and Andrew Gennusa are brothers.
ANDREW GENNUSA has been Executive Vice President since June 1996 and a
director (and Vice President) of the Company since 1987, and is the other
co-founder of the Company. From 1985 until 1991, Mr. Gennusa was President and a
principal owner/operator of five Chicken Holiday restaurants located throughout
New Jersey. Andrew Gennusa and Jason Gennusa are brothers.
JULIA S. HECKMAN became a director of the Company in November 1995. Ms.
Heckman has been a Managing Director with Rodman & Renshaw, Inc.'s Investment
Banking Group since April 1995 and had been a Managing Director with Mabon
Securities Corp.'s Investment Banking Group since 1991. Prior to joining Mabon
Securities Corp., Ms. Heckman was a Managing Director with Paine Webber Group
Inc.'s Corporate Finance Group. Ms. Heckman serves as a director of ATC
Environmental Inc., an environmental consulting and engineering firm.
JACK LEVY became a director of the Company in October 1995. Mr. Levy
has been engaged in the private practice of law in New York City since 1976.
Since April 1996, Mr. Levy has been a partner with the law firm of Morrison
Cohen Singer & Weinstein, LLP, counsel to the Company. From April 1995 to April
1996, he was a partner at Wise & Shepard, LLP and from April 1993 to April 1995,
he was a partner at Lane & Mittendorf. From 1978 to April 1993, he was an
attorney at Summit Solomon & Feldesman, first as an associate and from 1984 to
1993 as a partner.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
Manhattan Bagel has a standing audit committee and a compensation
committee and does not have a standing nominating committee of the Board of
Directors. Julia Heckman and Jack Levy are the members of both the audit
committee and compensation committee. The audit committee's duties include
consulting with the Company's independent auditors concerning the scope of the
audit and reviewing the results of their examination as well as the adequacy of
internal controls. The audit committee will also meet with appropriate corporate
personnel to review internal auditing programs. The audit committee is also
responsible for recommending to the Board of Directors, the accounting firm to
be employed by the Company as its independent auditors. The compensation
committee will review compensation arrangements with senior executives. The
audit committee held one meeting during 1996. The compensation committee did not
hold any meetings during 1996. Manhattan Bagel's Board of Directors held twelve
(12) meetings during 1996 (not including actions by unanimous written consent).
Each of the directors of the Company attended at least seventy-five percent
(75%) of the aggregate of (i) the total meetings of the Board of Directors (held
during the period for which such person was a director), plus (ii) the total
number of meetings held by all committees of the Board of Directors on which the
director served (during the period such person served).
3
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding shares of
Common Stock beneficially owned within the meaning of Securities and Exchange
Commission Rule 13d-3, as of May 23, 1997, by (i) each person known to Manhattan
Bagel who owns at least five percent of the Common Stock, (ii) each of Manhattan
Bagel's directors and nominees and executive officers, and (iii) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNERS OWNERSHIP (1) OF CLASS
- ------------------------------------- ------------- --------
<S> <C> <C>
Jack Grumet (2) (3) (4)....................................................... 596,900 8.0%
David Goldsmith (2) (5) ...................................................... 63,333 *
Jason Gennusa (2) (6)......................................................... 700,000 9.4%
Andrew Gennusa (2) (7)........................................................ 700,000 9.4%
James J. O'Connor (2)......................................................... -- --
Julia S. Heckman(8)........................................................... 30,000 *
2 World Financial Center, Tower B, 30th Floor
New York, New York 10281
Jack Levy (9)................................................................. 9,434 *
750 Lexington Avenue, 8th Floor
New York, New York 10022
Grumet Partners, L.P. (3)..................................................... 465,668 6.2%
19 Seven Oaks Drive
Holmdel, New Jersey 07733
All executive officers and directors as a group (7 persons) .................. 2,099,667 28.1%
- ----------------------------
* Less than 1%
(footnotes on next page)
</TABLE>
4
<PAGE>
(1) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and sole investment power with respect to all
shares of Common Stock beneficially owned by such person.
(2) The address of each of Jack Grumet, David Goldsmith, Jason Gennusa,
Andrew Gennusa, and James J. O'Connor is c/o Manhattan Bagel Company, Inc.,
246 Industrial Way West, Eatontown, New Jersey 07724.
(3) Includes 465,668 shares held by Grumet Partners, L.P., a limited
partnership of which Mr. Grumet and his sister, Linda Philips, are the
general partners, and of which trusts for the benefit of Mr. Grumet's
children are the limited partners. Linda Philips' address is 621 Terra
Peralta Hills, Anaheim, California 92807.
(4) Includes 100,000 shares owned by the estate of Mr. Grumet's wife.
(5) Includes 63,333 shares issuable upon exercise of currently exercisable
options. Does not include 66,667 shares of Common Stock issuable upon the
exercise of options vesting in equal annual installments on January 29,
1998 and 1999.
(6) Includes 39,000 shares held in trust for the benefit of members of Mr.
Gennusa's family.
(7) Includes 23,000 shares held in trust for the benefit of members of Mr.
Gennusa's family.
(8) Includes 30,000 shares of Common Stock issuable upon the exercise of
the Director's Options. The grant of the Director's Options is subject to
the ratification by the shareholders of the Company.
(9) Includes 9,334 shares of Common Stock issuable upon exercise of
currently exercisable options and 100 shares owned under the Uniform Gift
to Minors Act for the benefit of Mr. Levy's daughter. Does not include
3,000 shares of Common Stock issuable upon the exercise of options vesting
on January 3, 1998 and 6,666 shares of Common Stock issuable upon options
vesting in equal annual installment on January 29, 1998 and 1999.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual
compensation paid by Manhattan Bagel for the fiscal years ended December 31,
1994, 1995 and 1996, respectively, to the Chief Executive Officer and executive
officers whose compensation exceeded $100,000 in 1996 (collectively, the "Named
Executives").
5
<PAGE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND
PRINCIPAL POSITION YEAR SALARY (1)
------------------ ---- ------
Jack Grumet 1996 $131,506
Chairman and Chief 1995 $121,880
Executive Officer 1994 $152,404
David Goldsmith 1996 $101,614
Vice Chairman of
the Board
Jason Gennusa 1996 $131,506
President and Chief 1995 $120,358
Operating Officer 1994 $147,840
Andrew Gennusa 1996 $131,506
Vice President 1995 $122,084
1994 $147,608
- -------------------
(1) Excluding perquisites and other personal benefits, securities and
properties otherwise categorized as salary or bonuses which in the
aggregate as for each named person did not exceed the lesser of either
$50,000 or ten percent of the total of annual salary reported for such
person.
Manhattan Bagel entered into five (5) year employment agreements with
each of Messrs. Jack Grumet, Jason Gennusa and Andrew Gennusa extending through
December 31, 1998. Each such agreement provides for base annual compensation
equal to $125,000, plus in the second, third, fourth and fifth years, increases
based on increases in the consumer price index capped at 10% per annum. In
addition, each agreement provides for bonus compensation equal to two percent of
the Company's net income before taxes. Each of Messrs. Grumet, Gennusa and
Gennusa waived such bonus compensation for 1995. The agreements contain
customary provisions regarding benefits and restrictions on compensation.
Mr. Goldsmith is employed under an arrangement which became effective
April 23, 1996 and extends until December 31, 1998 under which he will receive
compensation at the rate of $132,000 during 1996 and $150,000 in 1997 and 1998,
plus in each year increases based on increases in the consumer price index
capped at 10% per annum. In addition, Mr. Goldsmith is entitled to bonus
compensation equal to two percent of the Company's net income before taxes,
6
<PAGE>
provided the net income of Manhattan Bagel meets stated amounts. Under the terms
of the arrangement, if Mr. Goldsmith's employment is terminated by Manhattan
Bagel without cause, he will be entitled to receive one year's salary. In
addition, if Mr. Goldsmith's employment is terminated after a change of control
of the Company, Mr. Goldsmith will be entitled to receive eighteen month's base
salary, plus the bonus earned to date of termination. Mr. Goldsmith's also
receives customary benefits and is restricted in competing with the Company
after his employment is terminated. Mr. Goldsmith also has been granted 10 year
options expiring 2006 to purchase 130,000 of common stock at an exercise price
of $16.25, which was subsequently reduced to $5.50 per share. Of such options,
30,000 were vested on issuance, and the balance vests in three equal annual
installments, on January, 29, 1997, 1998, and 1999, and unvested amounts will
terminate in the event Mr. Goldsmith's employment is terminated without cause.
Such options were granted while Mr. Goldsmith was engaged as a consultant to the
Company.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996
(INDIVIDUAL GRANTS)
NUMBER OF
SECURITIES PERCENT OF TOTAL EXERCISE
UNDERLYING OPTIONS GRANTED PRICE PER
NAME OPTIONS TO EMPLOYEES IN SHARE EXPIRATION DATE
1996
<S> <C> <C> <C> <C>
Jack Grumet...................... 0 0 0
David Goldsmith.................. 130,000(1) 23.7% $16.25(2) January 29, 2006
Jason Gennusa.................... 0 0 0
Andrew Gennusa................... 0 0 0
- -------------------
</TABLE>
(1) Options in the amount of 30,000 were vested upon issuance on
January 29, 1996 and the balance becomes exercisable in three equal
annual installments on January 29, 1997, 1998 and 1999.
(2) On April 1, 1997, the exercise price per share was reduced to $5.50
from $16.25.
7
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
ACQUIRED OPTIONS AT, THE-MONEY OPTIONS AT
ON VALUE DECEMBER 31, 1996 DECEMBER 31, 1996
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Jack Grumet .............. 0 0 0 0
David Goldsmith .......... 0 0 30,000/100,000 0/0(1)
Jason Gennusa ............ 0 0 0 0
Andrew Gennusa ........... 0 0 0 0
- --------------------
</TABLE>
(1) At December 31, 1996, the exercise price of the options was $16.25
and the closing price of the Company's Common Stock on the Nasdaq
National Market was $7.25. On April 1, 1997, the exercise price of the
options was reduced to $5.50.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Manhattan Bagel's executive officers and directors are required under
the Securities Exchange Act of 1934 to file reports of ownership and changes in
beneficial ownership of Manhattan Bagel's common stock. Based solely on a review
of the copies of reports furnished to Manhattan Bagel and written
representations that no Forms 5 were required, Manhattan Bagel believes that
during 1995 all filing requirements applicable to executive officers and
directors were complied with, except as follows: Julia Heckman filed one late
report (Form 4) in regard to 1 transaction; Eugene Cerrotti filed a Form 5 late
for one late report (Form 4) in regard to 1 transaction; Leonard R. Johnson, the
former Chief Financial Officer of the Company, filed two late reports (Form 3
and a Form 5 in regard to a late report on Form 4) in regard to 1 transaction;
David Goldsmith filed two late reports (Form 3 and a Form 5 in regard to a late
report on Form 4) in regard to 1 transaction; Jack Levy filed a Form 5 for one
late report (Form 4) in regard to 1 transaction; and Walter Cruickshank filed
two late reports (Form 3 and a Form 5 in regard to a late report on Form 4) in
regard to 1 transaction.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Jack Grumet and Jason Gennusa and members of their families are
investors in Manda Associates, which was founded in 1991 to provide equipment
lease financing to Manhattan Bagel and Manhattan Bagel's franchisees. Manda
Associates formed separate partnerships to
8
<PAGE>
finance individual franchisees. To date, a total of approximately $542,000 has
been invested in 17 separate partnerships. Additionally, amounts owed by
Manhattan Bagel to Manda Associates for notes payable aggregated approximately
$13,000. Although Manhattan Bagel does not expect that the financing from the
principal shareholders and their families will continue in the future,
circumstances may arise when other conventional financing may not be available
to franchisees, in which event Manda Associates may assist in financing
arrangements with such franchisees.
Two of Manhattan Bagel's franchises are owned by Mr. Grumet's son. The
terms of the franchises are the same as in other franchised stores. Mr. Grumet
also owns a satellite store which sells bagels baked by another franchised
store.
Main Street Bagel, Inc. ("Main Street"), a company owned by Messrs.
Jason Gennusa and Andrew Gennusa, owes Manhattan Bagel $81,400, pursuant to a
note bearing interest at 9% per annum due July 2002 with interest only through
October 1995, and monthly installments of various amounts, including principal
and interest, from November 1995 through June 2002. This loan was made for bona
fide business purposes. Main Street was a franchisee of Manhattan Bagel and
previously operated a Manhattan Bagel Company store. Manhattan Bagel had
provided financing to Main Street to fund the construction and start-up costs of
the store at the time Main Street was two-thirds owned by Messrs. Gennusa and
Gennusa. The franchise and store were sold to an unrelated third party in May
1993, for a purchase price of $150,000, payable $40,000 in cash at the closing
and the balance of $110,000 in monthly installments over a period of eight years
with interest at 9% per annum. Main Street is expected to pay the outstanding
loan to Manhattan Bagel from the proceeds of the monthly installments it
receives from the third party franchisee.
Manhattan Bagel was founded in October 1987 by Messrs. Jason Gennusa
and Andrew Gennusa, each of whom acquired 50% of the then outstanding shares for
nominal consideration. Mr. Jack Grumet joined Manhattan Bagel in April 1991 and
acquired his portion of the outstanding shares for nominal consideration.
Pursuant to an agreement with the Underwriter, immediately prior to the
effectiveness of the registration statement relating to Manhattan Bagel's June
1994 public offering, each of Messrs. Jack Grumet, Jason Gennusa and Andrew
Gennusa contributed, for no consideration, 150,000 shares of Common Stock.
Julia S. Heckman, a director of the Company, is a Managing Director
with Rodman & Renshaw, Inc.'s Investment Banking Group. Rodman & Renshaw, Inc.
acted as co-managing underwriter of Manhattan Bagel's November 1995 public
offering in which the Company sold 1,618,000 shares, including shares sold
pursuant to the underwriters overallotment option. The underwriting discounts on
such shares aggregated $1,909,240. Ms. Heckman was elected to the board in
November 1995 pursuant to the underwriting agreement under which Rodman &
Renshaw, Inc. had the right to appoint a member to the Board of Directors to
serve until the 1996 Annual Meeting. Rodman & Renshaw, Inc. also acted as one of
the underwriters of an underwritten public offering of shares owned by a selling
shareholder pursuant to which Manhattan Bagel sold 90,000 upon exercise of the
underwriters' overallotment option. The aggregate underwriting discount relating
to these overallotment shares was $113,850.
9
<PAGE>
Law firms of which Jack Levy is or has been a partner have acted as
counsel for Manhattan Bagel since 1993. Jack Levy has been a Director of
Manhattan Bagel since October 1995.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION TO
THE BOARD OF DIRECTORS OF ALL THE NOMINEES.
PROPOSAL 2
AMENDMENT TO THE COMPANY'S 1996 STOCK OPTION PLAN
GENERAL
The Company's 1996 Stock Option Plan (the "1996 Plan") was adopted by
the Board of Directors in January 1996. The shareholders of the Company approved
the 1996 Plan on June 26, 1996 at the annual meeting of shareholders. In May,
1997, the Board of Directors amended the 1996 Plan to (i) provide that directors
of Manhattan Bagel be eligible to receive awards under the 1996 Plan and (ii)
delete the requirement that the 1996 Plan be administered by "disinterested
directors". Pursuant to the provisions of the 1996 Plan, only the amendment to
make directors eligible to receive awards requires shareholder approval. The
material features of the 1996 Plan as currently in effect are described in
"Description of the 1996 Plan as Currently in Effect" below.
REASONS AND PRINCIPAL EFFECTS OF THE PROPOSAL
In 1996, the Securities and Exchange Commission amended the so-called
"short swing profit rules" issued pursuant to Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As a result of those
amendments, Rule 16b-3 now provides an exemption from liability under Section
16(b) of the Exchange Act for options granted to any and all directors. The
amendments to the Section 16 rules also removed the requirement that options be
granted by a committee consists of at least two "disinterested directors".
Accordingly, the Board of Directors has adopted an amendment to the 1996 Plan to
allow directors to be granted options under the 1996 Plan. However, no such
grants can be made unless the proposal is adopted by the shareholders. The Board
of Directors believes that the ability to grant options to directors under the
1996 Plan will help attract and retain the best qualified persons as directors
and will strengthen the desire of directors to remain with the Company by giving
them the opportunity to acquire an equity investment in the Company.
NEW PLAN BENEFITS
The committee that administers the 1996 Plan has the discretion to
determine the awards, if any, to be granted to any eligible person under the
1996 Plan. Accordingly, the awards that will be granted to any individual is not
determinable.
10
<PAGE>
The following table sets forth, as of May 23, 1997, (a) the options
granted under the 1996 Plan to each of the Named Executives, all current
executive officers as a group, all current non- executive-officer directors as a
group and all non-executive-officer employees as a group; and (b) the dollar
value of such options:
<TABLE>
<CAPTION>
Securities
Underlying
NAME OF INDIVIDUAL OR GROUP Options Granted Dollar Value (1)
- --------------------------- --------------- ----------------
<S> <C> <C>
Jack Grumet............................................................ -- --
Chairman and Chief Executive Officer
David Goldsmith........................................................ 130,000 $73,125(2)
Vice Chairman of the Board
Jason Gennusa.......................................................... -- --
President and Chief Operating Officer
Andrew Gennusa......................................................... -- --
Vice President
All current executive officers as a group (5 persons).................. 230,000(3) $104,375(2)(3)
All current non-executive-officer directors as a group (2 persons)..... 10,000 $0(4)
All non-executive-officer employees as a group (514 persons)........... 429,863 $0(5)
</TABLE>
- ----------------
(1) Based on the difference between (a) the closing price of the Common
Stock of the Company, as listed on the Nasdaq National Market, on May
21, 1997 of $6.0625 and (b) the exercise price of the options.
(2) The exercise price of the options when granted on January 29, 1996
was $16.25. On April 1, 1997, the exercise price was reduced to $5.50.
Only 63,333 shares are issuable upon exercise of currently exercisable
options. The remaining 66,667 shares are issuable upon the exercise of
options that vest in equal annual installments on January 29, 1998 and
1999.
(3) Includes 130,000 shares issuable upon the exercise of options
granted to David Goldsmith and 100,000 shares issuable upon the
exercise of options granted to James O'Connor, the Chief Financial
Officer of the Company. See note 2 above for information on Mr.
Goldsmith's options. The exercise price of Mr. O'Connor's options is
$5.75, and such options vest in three (3) equal annual installments on
March 5, 1998, 1999 and 2000.
(4) The exercise price of options granted on January 29, 1996,
exercisable to purchase an aggregate of 10,000 shares, is $16.25.
(5) $18.34 represents the weighted-average exercise price of such
options.
11
<PAGE>
DESCRIPTION OF THE 1996 PLAN AS CURRENTLY IN EFFECT
Under the 1996 Plan, options to purchase an aggregate of 750,000 shares
of Manhattan Bagel's Common Stock may be granted from time to time to employees,
including officers and directors who are employees of, and consultants to
Manhattan Bagel or of any subsidiary of Manhattan Bagel. Approximately 520
current employees, including five executive officers, are eligible to
participate in the 1996 Plan.
The 1996 Plan is to be administered by a committee (the "Committee"),
appointed by the Board of Directors. The members of the Committee are currently
Messrs. Jack Grumet, Jason Gennusa and Andrew Gennusa. Prior to the Board of
Directors amending the 1996 Plan to remove the "disinterested director"
requirement, each of Messrs. Jack Grumet, Jason Gennusa and Andrew Gennusa had
agreed that he would not be eligible for awards of options under the 1996 Plan
or any other plan of the Company. The Committee is generally empowered to
interpret the 1996 Plan, to prescribe rules and regulations, relating thereto,
to determine the terms of option agreements, to amend them with the consent of
the optionee, to determine the employees to whom options are to be granted and
to determine the number of shares subject to each option granted.
The per share exercise price of each option is established by the
Committee and in each instance will not be less than the fair market value of a
share of Common Stock on the date the option is granted (110% of fair market
value on the date of grant of an ISO, as defined below, if the optionee owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of Manhattan Bagel or any of its subsidiary corporations (a "10%
Holder")). Upon exercise of an option, the optionee may pay the purchase price
with securities of Manhattan Bagel previously acquired by him, if so permitted
by the Committee or by the related option agreement.
Options will be exercisable for a term determined by the Committee,
which term will not be greater than ten years from the date of grant (five years
for ISOs granted to a 10% Holder). Except in the event of certain terminations
of employment or death or permanent and total disability, no option may be
exercised unless the holder thereof is then an employee of Manhattan Bagel or
any subsidiary corporation. Options will not be transferable other than by will
or the laws of descent and distribution and may be exercised during the
optionee's lifetime only by the optionee or his guardian or legal
representative.
Options granted pursuant to the 1996 Plan may be designated as
incentive stock options ("ISOs") with the attendant tax benefits provided under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The
1996 Plan provides that the aggregate fair market value (determined at the time
an ISO is granted) of the Common Stock subject to ISOs exercisable for the first
time by an employee during any calendar year (under all plans of Manhattan Bagel
and any subsidiary corporation) may not exceed $100,000.
12
<PAGE>
TAX CONSEQUENCES
Manhattan Bagel has been advised as follows regarding the federal
income tax consequences with respect to stock options, ISOs and payment in stock
of the exercise price of options under the 1996 Plan.
Optionees will not be taxed upon the grant of an option. Except as
noted below, the time of exercise of an option other than an ISO, the optionee
generally will recognize ordinary income in an amount equal to the excess of the
then fair market value of the shares over the option price, and Manhattan Bagel
generally will be entitled to a deduction in the same amount. The shares
acquired pursuant to the exercise for an option other than an ISO will have a
basis to the optionee equal to their fair market value on, and a holding period
commencing on, the date of exercise.
At the time of exercise of an ISO, the optionee will recognize no
income, and Manhattan Bagel will not be entitled to any deduction; the optionee
generally will have an item of tax preference equal to the excess of fair market
value of the shares at such time over the option price.
Upon the sale of a share acquired pursuant to the exercise of an option
other than an ISO, any gain or loss will result in a capital gain or loss
measured by the difference between the optionee's basis and the amount realized
on such sale, provided the share sold is a capital asset in the hands of the
holder. Upon the sale of a share acquired pursuant to the exercise of an ISO,
any gain or loss will be measured by the difference between the amount realized
on such sale and the exercise price, provided the share sold is a capital asset
in the hands of the holder, any such gain will be long term capital gain if at
the time of sale the optionee held the share at least one year after its
issuance to him following exercise and at least two years since the grant of the
ISO. In the case of a disposition of an ISO share having a shorter holding
period (a "Premature Disposition"), a portion (or all) of such gain will be
ordinary income to the extent of the lesser of (a) the excess of the fair market
value of the share at the time of exercise over the option price and (b) the
gain on the sale, and Manhattan Bagel will be entitled to a deduction in the
same amount.
If the optionee uses previously acquired shares of Common Stock to pay
the exercise price of a stock option, the optionee ordinarily will not recognize
taxable income to the extent that the number of new shares of Common Stock
received does not exceed the number of previously acquired shares so used. If
non-recognition treatment applies to the payment for option shares with
previously acquired shares, the tax basis and holding period of the shares
received without recognition of taxable income will be determined by reference
to the basis and holding period of the shares surrendered as payment. If a
greater number of shares of Common Stock is received upon exercise than the
number of shares surrendered in payment of the option price, where an ISO is
being exercised, such excess shares will have a zero basis in the hands of the
holder; when an option other than an ISO is being exercised, the option holder
will be required to include in gross income (and Manhattan Bagel will be
entitled to deduct) an amount equal to the fair market value of the additional
shares on the date the option is exercised less any cash paid for the shares,
and the holding period will commence on the exercise date.
13
<PAGE>
Moreover, if stock previously acquired by exercise of an ISO is
transferred in connection with the exercise of another ISO, and if, at the time
of such transfer, the stock so transferred has not been held for the holding
period required in order to receive favorable treatment under the statutory
stock option rules, then such transfer would be treated as a Premature
Disposition. Accordingly, with respect to the shares so transferred, an option
holder would recognize ordinary income under the rules governing a Premature
Disposition discussed earlier in this section. However, the shares so acquired
upon exercise of and ISO can still qualify for ISO treatment, if all of the
other ISO requirements are fulfilled.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT TO
THE COMPANY'S 1996 STOCK OPTION PLAN.
PROPOSAL 3
GRANT OF DIRECTOR'S OPTIONS
GENERAL
On May 16, 1997, the Board of Directors granted options (the
"Director's Options") to Julia S. Heckman (the "Director"), a non-employee
director of the Company. A portion of the Director's Options reflect an
adjustment to the exercise price and vesting of an option to purchase an
aggregate of 10,000 shares previously granted to the Director in October 1996.
The material features of the Director's Options are described in "Description of
Director's Option Agreement" below.
REASONS AND PRINCIPAL EFFECTS OF THE PROPOSAL
The Director's Options were granted to the Director in consideration of
her services rendered to the Company as a non-employee director, and as an
incentive for the continuation of her services as a director of the Company. The
grant of the Director's Options to the Director are being submitted for
shareholder ratification pursuant to the regulations of the Nasdaq Stock Market,
Inc.
DESCRIPTION OF THE DIRECTOR'S OPTION AGREEMENT
EXERCISE PRICE, VESTING AND EXPIRATION. The exercise price of the
Director's Options is $5.00 per share. The Director's Options vested in full on
the date of grant. The Director's Options may be exercised as to all or a
portion of the shares at any time until the close of business on October 4,
2006.
NON-TRANSFERABILITY. The Director's Options are not transferable by the
Director other than by will or the laws of descent and distribution.
14
<PAGE>
ADJUSTMENT OF SHARES. In the event of any change in the Company's
Common Stock subject to the Director's Options, by reason of any stock dividend,
split-up, recapitalization, merger, consolidation, combination or exchange of
shares, spin-off, reorganization, liquidation or the like, such adjustment shall
be made in the number of shares subject to the Director's Options and the price
per share to give proper effect to such event.
UNITED STATES FEDERAL INCOME TAX ASPECTS OF THE DIRECTOR'S OPTIONS
The Director's Options have the same tax consequences as non-ISO
options granted under the 1996 Plan, as discussed in the "Tax Consequences"
section of "Description of the 1996 Plan as Currently in Effect" above.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION
OF THE GRANT OF THE OPTIONS TO THE DIRECTOR.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Ernst & Young, LLP has been selected to serve as independent auditors
of Manhattan Bagel for its fiscal year ending December 31, 1997. Representatives
of Ernst & Young, LLP are expected to be present at the meeting and will have an
opportunity to make a statement if they desire to do so and be available to
respond to appropriate questions. Ernst & Young, LLP served as the independent
auditors of Manhattan Bagel for its fiscal year ended December 31, 1996.
On September 13, 1995, Manhattan Bagel dismissed Amper, Politziner &
Mattia ("AP&M") as its independent accountants. Their report on Manhattan
Bagel's financial statements for the past two years did not contain an adverse
opinion or disclaimer of opinion, nor was such report modified as to
uncertainty, audit scope or accounting principles. There were no disagreements
between Manhattan Bagel and AP&M on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or proceeding, which
if not resolved to AP&M's satisfaction would have caused AP&M to make reference
to the subject matter of its disagreements in connection with their report. The
dismissal of AP&M was approved by Manhattan Bagel's Board of Directors.
On September 14, 1995, Manhattan Bagel engaged Ernst & Young, LLP as
its independent accountants.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals intended for inclusion in the proxy statement for
the next annual meeting must be received by Manhattan Bagel at its principal
executive offices by January 28, 1998.
15
<PAGE>
GENERAL
The Board of Directors did not know, a reasonable time before the
commencement of the solicitation, of any business constituting a proper subject
for action by the shareholders to be presented to the meeting other than as set
forth in this Proxy Statement. However, if any other matter should properly come
before the meeting, the persons named in the enclosed form of proxy intend to
vote such proxy in accordance with their best judgment.
MANHATTAN BAGEL'S FORM 10-KSB ANNUAL REPORT TO THE SECURITIES AND
EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1996, EXCLUSIVE OF EXHIBITS,
WILL BE MAILED WITHOUT CHARGE TO ANY SHAREHOLDER ENTITLED TO VOTE AT THE
MEETING, UPON WRITTEN REQUEST TO MANHATTAN BAGEL COMPANY, INC., 246 INDUSTRIAL
WAY WEST, EATONTOWN, NEW JERSEY 07724,
ATTENTION: INVESTOR RELATIONS DEPARTMENT.
Manhattan Bagel will bear the entire cost of preparing, assembling,
printing and mailing this Proxy Statement, the accompanying proxy and any
additional material which may be furnished to stockholders. Solicitation
material will be furnished to brokers, fiduciaries and other custodians to
forward to beneficial owners of stock held in their names, and Manhattan Bagel
will reimburse these organizations in accordance with the New York Stock
Exchange schedule of charges for the cost of forwarding proxy material to such
beneficial owners. The solicitation of proxies will also be made by the use of
the mails and through direct communication with certain stockholders or their
representatives by officers, directors or employees of Manhattan Bagel, who will
receive no additional compensation therefor.
By Order of the Board of Directors,
Andrew Gennusa,
Secretary
16
<PAGE>
FRONT OF PROXY CARD
MANHATTAN BAGEL COMPANY, INC.
P R O X Y
ANNUAL MEETING OF SHAREHOLDERS - JUNE 26, 1997
This proxy is solicited on behalf of the Board of Directors. Unless otherwise
properly marked, this proxy will be voted FOR the nominees for directors and for
Proposals 2 and 3.
The undersigned hereby appoints Jack Grumet, Jason Gennusa, Andrew
Gennusa and James J. O'Connor, and each of them, each with full power to act
without the other and with full power of substitution, the attorneys and proxies
of the undersigned and hereby authorizes them to represent and to vote, all of
the shares of Common Stock of Manhattan Bagel Company, Inc. that the undersigned
would be entitled to vote, if personally present, at the Annual Meeting of
Shareholders to be held on Thursday, June 26, 1997, at 10:00 A.M., local time,
and at any adjournment thereof, upon such business as may properly come before
the meeting, including the items set forth below:
(1) Election of
Directors |_| FOR ALL NOMINEES |_| AUTHORITY WITHHELD
(except as marked to the contrary) as to all nominees
NOMINEES: Jack Grumet, David Goldsmith, Jason Gennusa, Andrew Gennusa, Julia S.
Heckman, Jack Levy
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:
- --------------------------------------------------------------------------------
(2) Approval of the amendment to |_| FOR |_| AGAINST |_| ABSTAIN
the 1996 Stock Option Plan
(3) Ratification of the grant |_| FOR |_| AGAINST |_| ABSTAIN
to a certain non-employee
director of stock options
to purchase an aggregate
of 30,000 shares of
common stock, no par
value
(4) Upon all such other matters as may properly come before the meeting or any
adjournments thereof, as the proxies, in their discretion may determine.
17
<PAGE>
BACK OF PROXY CARD
(continued from Reverse Side)
Please sign exactly as name appears below. 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.
Dated:____________________, 1997
------------------------------
Signature
------------------------------
Signature if held jointly
- --------------------------------------------------------------------------------
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
18
