SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2 to the Annual Report on Form 10-K for the fiscal year ended June
30, 1998 (the"Report") to include Part III, Items 10, 11, 12 and 13 in the
Report.
BLIMPIE INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Commission File Number 0-21036
New Jersey 13-2908793
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
740 Broadway, New York, NY 10003
(Address and Zip Code of Principal Executive Offices)
Issuer's Telephone Number: (212) 673-5900
1
Part III
Item 10. Directors, Executive Officers
The following table sets forth certain information concerning all directors and
executive officers of the Company. All directors are elected at each Annual
Meeting of Shareholders and serve until the immediately succeeding Annual
Meeting and until their respective successors have been elected and qualified.
Executive officers are elected by the Board of Directors to serve at the
pleasure of the Board.
Name Age Position
Anthony P. Conza 58 Chairman of the Board, President and Chief
Executive Officer
David L. Siegel 54 Vice Chairman of the Board, Chief Operating
Officer and General Counsel
Patrick J. Pompeo 59 Director, Executive Vice President, Research
and Development
Charles G. Leaness 48 Director, Executive Vice President - Senior
Corporate Counsel and Secretary
Harry G. Chernoff 52 Director
Alvin Katz 68 Director
Joseph A. Conza 44 Senior Vice President, President - B I
Concept Systems, Inc.
Robert S. Sitkoff 45 Senior Vice President, President - Maui Tacos
International, Inc.
Joseph W. Morgan 36 Senior Vice President, President - Blimpie
Subs & Salads
Bruce A. Kolbinsky 37 Vice President - Franchise Development
Arthur L. Mancino 49 Vice President - New Business
Rebecca D. Killarney 41 Vice President - Marketing
Brian D. Lane 36 Vice President, Chief Financial Officer
Mr. Anthony P. Conza, together with two individuals who are not affiliated
with the Company, originally created the Blimpie concept in 1964. He is one of
the original founders of the Blimpie outlet chain, and is a co-founder of the
Company. He has been Chairman of the Board of Directors, President and Chief
Executive Officer of the Company since the Company commenced business operations
in 1977. In 1992, "the Entrepreneur of the Year" for New York, an award
sponsored by Ernst & Young, Merrill Lynch and Inc. Magazine, was presented to
Mr. Conza. In the same year, he was also named Chain Operator of the Year by the
New York State Restaurant Association. He is a member of the Board of the Jose
Limon Dance Company, a member of the Board of Governors of The Boys & Girls
Clubs of America and he serves on the Dean's Council at Harvard University's JFK
School of Government. Mr. Conza is the brother of Joseph A. Conza, the
brother-in-law of Patrick Pompeo and the father-in-law of Joseph Morgan. See
"Certain Relationships and Related Transactions."
Mr. Siegel, one of the co-founders of the Company, served as the Company's
Executive Vice President and General Counsel and as a member of its Board of
Directors since its formation in 1977. In September 1995, he was appointed as
the Company's Vice Chairman of the Board, Chief Operating Officer and General
Counsel. He also served as the Company's Treasurer from 1977 until January,
1991. He is also a practicing attorney in the City of New York. Mr. Siegel
received a Bachelor of Arts degree in
2
1965 from Marietta College, a Juris Doctor Degree in 1968 from New York
University School of Law and a Master of Laws Degree in 1970 from New York
University School of Law. During the past five years, Mr. Siegel has also served
as an officer of each of the Company's leasing subsidiaries.
Mr. Pompeo has served as a director and Senior Vice President in charge of
operations since the time of commencement of the Company's business operations
in 1977. In September 1995, he became Executive Vice President of Research
Development and Procurement. Mr. Pompeo was employed for 16 years as a floor
supervisor by E.F. Hutton & Co., the former New York Stock Exchange member firm.
Mr. Pompeo is also a principal shareholder, officer and director of Georgia
Enterprises, Inc., the Company's Subfranchisor for the State of Georgia. Mr.
Pompeo is the brother-in-law of Anthony Conza. See "Certain Relationships and
Related Transactions."
Mr. Leaness has been a member of the Company's Board of Directors since
the Company commenced business operations, and served as the Company's Senior
Vice President-Corporate Counsel for more than the past five years. In
September,1995, he became an Executive Vice President. Mr. Leaness is also a
principal shareholder, officer and director of Llewellyn Distributors, Inc., the
Company's Subfranchisor for a part of New Jersey. Mr. Leaness received a
Bachelor of Arts degree from Tulane University in 1972 and a Juris Doctor degree
from New York Law School in 1982. Mr. Leaness is a practicing attorney in New
York State. He currently serves as Director of the New York State Restaurant
Association and is President of the New York City Chapter. Mr. Leaness received
the 1997 Restaurateur of the Year award from the New York State Restaurant
Association. Mr. Leaness also serves on the Board of Directors of the
International Franchise Association (IFA) and the National Restaurant
Association (NRA). See "Certain Relationships and Related Transactions."
Mr. Katz was appointed to the Board of Directors of the Company on
November 23, 1993. Mr. Katz has been a member since September 1993 of the Board
of Directors of Nastech Pharmaceutical Company, Inc., a company engaged in the
development of pharmaceuticals. Since 1981, he has served as an adjunct
professor of business management at Florida Atlantic University. In 1991, Mr.
Katz was appointed Chief Executive Officer of Odessa Engineering Corp., a
company engaged in the manufacturing of pollution monitoring equipment. He held
this position until that company was sold in September 1992. Mr. Katz also
serves on the Board of Directors of Amtech Systems Inc. which is engaged in the
manufacture of capital equipment in the chip manufacturing business; BCT
International, Inc., a franchisor of thermo graphic printing plants; Mikron
Instruments, Inc. a manufacturer of infrared temperature measuring instruments;
and serves as Chairman of the Board of Ozo Diversified Automation, Inc., a
manufacturer of driller and depaneling machines for circuit board manufacturers.
Mr. Katz holds a B.S. in Business Administration degree from New York University
and has done graduate work at C.U.N.Y.-Baruch School.
Dr. Chernoff was appointed to the Board of Directors of the Company on
November 23, 1993. For more than the past five years, Dr. Chernoff has been a
principal of HMS Properties, Inc., a real estate investment, development and
management firm. Dr. Chernoff has an active financial and operational consulting
practice with major financial institutions, and food and hospitality firms as
his clients. Dr. Chernoff received a Ph.D. in Operations Management from the New
York University Leonard N. Stern School of Business in 1985, and has been a
member of the faculty of New York University for 20 years. He also received a
B.S. degree from New York University in 1968 and an M.S. degree from that
institution in 1975.
Mr. Joseph A. Conza held the position of Vice President - Construction and
Design from February 1, 1991 through August 1995. In September 1995, he was
appointed Senior Vice President - Equipment and Design Services. In November
1997, he was appointed President of B I Concept Systems, Inc., the Company's
wholly-owned equipment and design subsidiary. From 1986 through his appointment
as one of the Company's Vice Presidents, Mr. Conza was employed as President of
Lone Star Blimpie, Inc. He has also served as President of International
Southwest Blimpie, Inc. since 1990. Mr. Conza is also a principal shareholder,
officer and director of International Southwest Blimpie, Inc., the Company's
Subfranchisor for the Harris County (Houston), Texas market. Mr. Conza also owns
45% of Georgia
3
Enterprises, Inc., the Company's Subfranchisor for the State of Georgia. Mr.
Conza is the brother of Anthony P. Conza.
Mr. Sitkoff served as a Vice President, Treasurer and Chief Financial
Officer of the Company from January 1991 through August 1995. In September 1995,
he was appointed Senior Vice President, Treasurer and Chief Financial Officer.
In September 1997, he was appointed President of Maui Tacos International, Inc.
Between 1980 and 1985, he was self-employed as a distributor for Pepperidge
Farms' Biscuit Division. Between 1986 and 1988, he was a principal shareholder
and President of Blimpie of Central Florida, Inc., the Company's Subfranchisor
for the Orlando, Florida market. From 1989 through 1990 he was employed as
Controller of the Company. Mr. Sitkoff received a B.S. degree in Industrial
Management from Georgia Institute of Technology in 1974.
Mr. Morgan joined the Company in 1992 in the capacity as a corporate
counsel. From 1994 through August 1995, he served as the Company's director of
strategic planning. In September 1995, he was appointed as Vice President of
Strategic Planning and in December 1996 he was appointed to Senior Vice
President of Strategic Planning. In September 1997 he was appointed President of
the Blimpie Subs & Salads division of the Company. During the three year period
prior to joining the Company, Mr. Morgan attended the University of Miami School
of Law, and received a J.D. degree from said institution in June 1992.
Mr. Kolbinsky has been Vice President-Operations since July 1994. Since
joining the Company in October, 1990, Mr. Kolbinsky has held the positions of
National Training Director and National Director of Operations. After graduating
from The University of North Carolina Chapel Hill in 1983 with a Bachelor of
Arts in Business Administration, Mr. Kolbinsky became a supervisor for Domino's
Pizza. Over the next six years he rose through the corporate ranks to the
position of South Eastern Operations Director in 1988, a position he held until
1989. During 1989 and 1990, Mr. Kolbinsky operated several Subway( submarine
sandwich franchise outlets.
Mr. Mancino was elected Vice President of New Business in August 1995
after serving as Blimpie's Director of New Concepts since August 1993. In this
capacity he oversees development of new business opportunities in the various
new-concept areas such as petroleum, education, healthcare, and the like. Mr.
Mancino joined Blimpie as a salesperson in April 1992. From April 1990 to March
1992, Mr. Mancino was the Director of Franchising for EBC Franchise Group, Inc.
and from July 1988 to May 1990, Mr. Mancino was Vice President of Integrated
Concepts Corporation, a Burger King Franchisee.
Ms. Killarney was appointed Vice President of Marketing in December of
1995. Upon joining the Company in June of 1991 she served as Director of
Marketing. Prior to joining Blimpie Ms. Killarney worked for Hardee's Food
Systems, Inc. in a Field Marketing capacity. Ms. Killarney works with the Boys &
Girls Clubs of America on their National Marketing Committee.
Mr. Lane joined the Company in 1998 in the capacity of Vice President,
Chief Financial Officer. After graduating from the University of Georgia in 1984
with a Bachelor of Business Administration in Accounting, Mr. Lane joined Ernst
& Young LLP as a staff accountant. He progressed to the position of Audit Senior
Manager before leaving the firm in 1995. Mr. Lane then joined Checkmate
Electronics, Inc., an electronics manufacturer in Roswell, Georgia, as Director
of Finance. He was promoted to Vice President of Finance before leaving the
company to join Blimpie International, Inc.
Item 11. Executive Compensation
The following table sets forth compensation awarded to, earned by or paid
to the Chief Executive Officer and the four highest-paid executive officers of
the Company who served as such at June 30, 1998 and whose annual compensation
and bonus was $100,000 or more (collectively, the "Named Executive Officers").
Information with respect to salary, bonus, other annual compensation, restricted
stock and options is included for the fiscal years ended June 30, 1998, 1997 and
1996. The Company has not paid any compensation that would qualify as "All Other
Compensation," nor has the Company made payments
4
to any named Executive Officer which may be categorized as "LTIP" payments in
any of the three years in the period ended June 30, 1998.
Annual Compensation
Fiscal Securities
Year Underlying
Name and Ended Other Annual Options/
Principal Position June 30 Salary($) Bonus ($) Compensation SARs(#)
------------------ ------- --------- --------- ------------- -------
Anthony P. Conza, CEO 1998 $217,375 $41,006 $1,172(1) --
1997 214,326 117,450 3,093(1) 40,000(2)
1996 206,718 46,500 3,267(1) --
David L. Siegel, COO 1998 156,748 21,558 1,172(1) --
1997 149,418 58,725 3,093(1) 40,000(2)
1996 148,839 23,250 3,267(1) --
Charles G. Leaness, Exec. V.P. 1998 124,028 14,521 4,397(1) --
1997 114,654 39,233 10,982(1) 20,000(3)
1996 105,324 15,500 12,250(1) --
Patrick J. Pompeo, Exec. V.P. 1998 115,615 14,521 1,172(1) --
1997 102,181 39,233 3,093(1) 20,000(3)
1996 87,245 15,500 3,267(1) --
Dennis G. Fuller, Sr. V.P.(4) 1998 44,654 14,401 93,070(1,5) --
1997 42,793 19,616 155,716(1,5) 20,000(3)
1996 42,134 7,800 170,486(1,5) --
Joseph W. Morgan, Sr. V.P. 1998 114,654 10,451 6,033(1,6) --
1997 92,413 14,166 10,827(1,6) 25,000(7)
1996 65,708 5,400 9,656(1,6) --
- -------------------------
(1) Represents commissions paid with respect to franchise, subfranchise and/or
master license sales consummated.
(2) In April 1997, each of Messrs. A. Conza and Siegel received a five year
option under the Plan to purchase 40,000 shares of Common Stock vesting at
the rate of 8,000 shares per year.
(3) In April 1997, each of Messrs. Leaness, Pompeo and Fuller received a five
year option under the Plan to purchase 20,000 shares of Common Stock
vesting at the rate of 4,000 shares per year.
(4) Mr. Fuller's employment by the Company ended on May 8, 1998.
(5) Includes the fair market value on the date of issuance of awards of common
stock to Mr. Fuller. On July 1, 1993, Mr. Fuller was granted a stock bonus
of 7,500 shares of Common Stock (as adjusted to account for a three for
two stock split implemented in March 1994) to be vested and issued at a
rate of 1,500 shares per year beginning July 1, 1993 and ending July 1,
1997. The amount included in Other Annual Compensation was $8,250 in 1998,
$22,125 in 1997 and $11,160 in 1996.
(6) Includes the fair market value on the date of issuance of awards of common
stock to Mr. Morgan. On December 24, 1993, Mr. Morgan was granted a stock
bonus of 3,750 shares of Common Stock (as adjusted to account for a three
for two stock split implemented in March 1994) to be vested and
5
issued at a rate of 1,500 shares per year beginning December 24, 1993 and
ending December 24, 1997. The amount included in Other Annual Compensation
was $2,766 in 1998, $7,734 in 1997 and $8,484 in 1996.
(7) In April 1997, Mr. Morgan received a five year option under the Plan to
purchase 25,000 shares of Common Stock vesting at the rate of 5,000 shares
per year.
Options/SAR Grants In Last Fiscal Year
There were no options awarded to the Named Executive Officers during the
fiscal year ended June 30, 1998.
Fiscal Year End Option Values
The following table sets forth the number of unexercised options held by
the Named Executive Officers during the fiscal year ended June 30, 1998. No
options were exercised during such period.
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End(#) at FY-End($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable
---- -------------- ----------- ------------- -------------
Anthony P. Conza -- -- 16,000/24,000 $ -- / --
David L. Siegel -- -- 16,000/24,000 -- / --
Charles G. Leaness -- -- 8,000/12,000 -- / --
Patrick J. Pompeo -- -- 8,000/12,000 -- / --
Dennis G. Fuller -- -- -- / -- -- / --
Joseph W. Morgan -- -- 20,750/43,000 -- / --
Omnibus Stock Incentive Plan
The Company has adopted the Omnibus Stock Incentive Plan (the "Plan") to
permit the grant of awards to employees of the Company (including officers and
directors who are employees of the Company or a subsidiary of the Company) of
restricted shares of the Company's Common Stock, performance shares of the
Company's Common Stock, stock appreciation rights relative to the Company's
Common Stock and both incentive stock options and non-qualified options to
purchase shares of the Company's Common Stock. A maximum of 950,000 shares maybe
issued under the Plan. Through June 30, 1998, the Company granted to certain
employees, pursuant to its incentive plan: (a) options to acquire a total of
380,400 shares of Common Stock, net of amounts canceled or exercised; and (b)
stock grants of 95,800 shares of Common Stock. The options are exercisable at
the fair market value on the date of grant, with prices ranging from $3.25 to
$14.75 per share. The options and stock grants provide for vesting at the rate
of 20% per annum and expire five years after the date of the grant. As of June
30, 1998, 7,850 options had been exercised, 212,600 options had been vested and
not exercised, and 83,100 shares of stock had been issued under the stock grant
program. The aggregate value of the shares issuable pursuant to vested options
under the Plan was $438,594 based on the closing price of the Common Stock on
October 15, 1998 of $2.063 per share. The Plan was adopted in order that the
participants in the Plan will have financial incentives to contribute to the
Company's growth and profitability, and to enhance the ability of the Company to
attract and retain in its employ individuals of outstanding ability.
6
Warrants Issued To Non-Employee Directors
On November 24, 1993, the Company issued to each of Harry Chernoff and
Alvin Katz, two non-employee directors of the Company, warrants to purchase up
to 7,500 shares of the Company's Common Stock at the purchase price of $6.00 per
share at any time prior to November 24, 1998. On September 1, 1995, the Company
issued to each of Messrs. Chernoff and Katz warrants to purchase up to 4,000
shares of the Company's Common Stock at the purchase price of $8.875 per share
at any time prior to September 1, 2000. On September 11, 1998, the Company
issued to Messrs. Chernoff and Katz Plan options entitling each of them to
purchase up to 17,000 shares of the Company's Common Stock at the purchase price
of $2.56 per share at any time prior to September 11, 2003. Such options entitle
each of Messrs. Chernoff and Katz to purchase 9,000 shares of Common Stock at
any time during the term thereof. The 8,000 share remainder purchasable under
such options shall vest at the rate of 2,000 shares per annum during the four
year period commencing on September 11, 1999.
Directors' Compensation
The Board has adopted a compensation policy to help the Company to attract
and maintain the services of qualified outside directors. Such compensation
consists of (a) payment of a directors fee of $9,000 per annum and $500 per
meeting; (b) issuance of five year warrants or options to purchase 5,000 shares
of the Company's Common Stock at an exercise price equal to the average of the
highest and lowest sales prices of such stock on the date of his or her
appointment or election to the Board; (c) issuance of additional warrants or
options, at the discretion of the Board, periodically during the tenure of an
outside director; and (d) reimbursement of the reasonable travel and lodging
expenses incurred by each outside director in attending Board meetings which are
not held within a 75 mile radius of his or her residence or principal place of
business.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the holdings of the Common Stock of the
Company as of October 12, 1998 by (1) each person or entity known to the Company
to be the beneficial owner of more than five percent (5%) of the outstanding
shares of Common Stock of the Company; (2) each director and executive officer;
and (3) all directors and executive officers as a group. All of the holders of
the Company's Common Stock are entitled to one vote per share. Except as
otherwise noted, the address of each of the persons listed below is 740
Broadway, New York, New York 10003.
Number Attributable to
Number of Shares Options or Warrants
Name and Address of Beneficially Exercisable Within 60 Percent
Beneficial Owner Owned(1)(2) Days of June 30, 1998 Owned(3)
- ------------------- ----------- --------------------- --------
Anthony P. Conza 2,953,985(4) 21,000 30.6%
David L. Siegel 1,518,830 21,000 15.8%
Charles G. Leaness 444,908 13,000 4.6%
Patrick J. Pompeo 411,637(5) 13,000 4.3%
Alvin L. Katz 11,500(6) 11,500 *
Dr. Harry G. Chernoff 13,768(7) 11,500 *
Dennis G. Fuller 800 0 *
Joseph W. Morgan 155,050(8) 20,750 1.6%
All Directors and
Executive Officers
as a Group (15 Persons) 5,632,191 163,750 58.4%
- ------------------
* Represents less than 1%.
7
(1) Includes shares actually and beneficially owned.
(2) Includes all shares which may be acquired within 60 days after June 30,
1998 by the exercise of stock options under the Company's stock option
plan or under warrants issued to outside directors.
(3) Based on 9,640,976 shares of the Company's Common Stock, consisting of
9,577,226 shares outstanding on October 12, 1998, increased by 163,750
shares under options which the holders thereof have the right to acquire
within 60 days from June 30, 1998, and decreased by 100,000 shares held in
treasury stock.
(4) Does not include (a) 37,050 shares owned by Mr. Conza's daughter, (b)
8,550 shares owned by Mr. Morgan (Mr. Conza's son-in-law), (c) 125,000
shares owned jointly by Mr. Conza's daughter and Mr. Morgan over which Mr.
Morgan has sole voting power, (d) 4,150 shares owned by Mr. Conza's
parents, (e) 40,913 shares owned by Joseph Conza, the brother of Mr.
Conza, (f) 44,000 shares held by Mr. Conza's daughter as Trustee for the
Anthony P. Conza Charitable Remainder Trust, and (g) 1,400 shares owned by
Mr. Conza's wife, as to all of which Mr. Conza disclaims beneficial
ownership.
(5) Does not include 6,300 shares held by Mr. Pompeo's sister and
brother-in-law, as to which Mr. Pompeo disclaims beneficial ownership.
(6) The address of Mr. Katz is 301 N. Birch Road, Ft. Lauderdale, Florida
33304.
(7) The address of Mr. Chernoff is 286 Spring Street, Suite 401, New York, New
York 10013.
(8) Does not include (a) 37,050 shares held by Mr. Morgan's wife (Mr. A.
Conza's daughter), (b) 4,800 shares held by Mr. Morgan's children, (c) 700
shares held by Mr. Morgan's wife as custodian for his son under the
Transfers to Minors Act, and (d) 44,000 shares held by Mr. Morgan's wife
as Trustee for the Anthony P. Conza Charitable Remainder Trust, as to all
of which Mr. Morgan disclaims beneficial ownership.
Item 13. Certain Relationships and Related Transactions
During the fiscal years ended June 30, 1998, 1997 and 1996, the Company
paid $990,000, $984,000 and $894,000, respectively, to Georgia Enterprises,
Inc., a corporation partially owned by Patrick Pompeo, an Executive Vice
President and Director of the Company, and Joseph Conza, a Senior Vice President
of the Company and President of B I Concept Systems, Inc., in payment of said
corporation's share of the fees that it earned as the Subfranchisor for the
Georgia market. During the same three fiscal years, the Company paid $254,000,
$289,000 and $339,000, respectively, to Llewellyn Distributors, Inc.
('Llewellyn'), a corporation partially owned by Charles G. Leaness, a Director
and Executive Vice President of the Company, in payment of said corporation's
share of the fees that it earned as the Subfranchisor for the northern New
Jersey market. The Company also paid $143,000, $150,000 and $165,000,
respectively, to International Southwest Blimpie, Inc. ('Southwest'), a
corporation principally owned and controlled by Joseph Conza, in payment of said
corporation's share of the fees that it earned as the Subfranchisor for the
Houston, Texas market.
Each of the aforementioned transactions was effected pursuant to written
agreements between the Company and the parties thereto. Such agreements are
substantially identical to the standard form of Subfranchise agreement that the
Company enters into with unaffiliated Subfranchisors. In the opinion of the
Company's management, each such agreement is on terms as favorable to the
Company as would be available from an unrelated third party.
During the fiscal years ended June 30, 1998, 1997 and 1996, the Company
received $4,000, $168,000 and $245,000 respectively, in management fees from
Georgia Enterprises, Inc. Such fees were received pursuant to a written
agreement which provides that, in consideration of the Company's provision of
operational and administrative support functions to Georgia Enterprises, Inc.,
the Company shall be reimbursed with respect to the expenses incurred by the
Company in connection therewith
8
pursuant to a payment scale set forth in the agreement. The agreement also
provides that in the event the costs of such support services shall rise, then
the fees paid pursuant to the agreement shall rise accordingly. In the opinion
of the Company's management, the agreement is on terms as favorable to the
Company as would be available from an unrelated third party.
During the years ended June 30, 1998, 1997 and 1996, the Company paid
$11,030, $8,243 and $7,182, respectively, to Joseph Conza as compensation for
the use of his apartment in New York City by employees of the Company's Atlanta
and Houston offices during business trips. In the Company's estimation, this
practice reduced the Company's lodging expense inasmuch as the per diem amounts
paid to Mr. Conza were below the market rates for hotel accommodations which the
Company would have been required to pay in order to house such employees during
such trips to New York.
During the fiscal years ended June 30, 1998, 1997 and 1996, the Company
received $119,000, $101,000 and $85,000, respectively, in management fees from
Llewellyn. Such fees were paid pursuant to a written agreement which provides
that the Company shall be reimbursed by Llewellyn for costs incurred by the
Company in providing operational support services to Llewellyn. The agreement
also provides that in the event the costs of such support services shall rise,
then the fees paid pursuant to the agreement shall rise accordingly. In the
opinion of the Company's management, the agreement is on terms as favorable to
the Company as would be available from an unrelated third party.
During the fiscal years ended June 30, 1998, 1997 and 1996, the Company
received $8,000, $49,000 and $61,000, respectively, in management fees from
Southwest. The management fees were paid pursuant to a written agreement which
provides that the Company shall be reimbursed by Southwest for costs incurred by
the Company in providing operational support services to Southwest. The
agreement also provides that in the event the costs of such support services
shall rise, then the fees paid pursuant to the agreement shall rise accordingly.
In the opinion of the Company's management, the agreement is on terms as
favorable to the Company as would be available from an unrelated third party.
In April 1994, Mr. Leaness borrowed the sum of $20,000 from the Company,
and collateralized the payment thereof with the same 120,000 shares of Common
Stock which he pledged in connection with a $60,000 option exercise and loan
transaction consummated in December 1991. Said $20,000 loan is payable upon
demand and bears interest at the rate of 5% per annum.
In March 1995, Joseph Conza borrowed the principal amount of $55,500 from
the Company. Said indebtedness is payable in constant bi-monthly payments of
principal and interest computed at the rate of 8% per annum on the basis of a 20
year amortization schedule, and the unpaid balance of principal and accrued but
unpaid interest shall become due and payable on April 16, 2000, provided,
however, that, Mr. Conza may extend the term of the loan through April 15, 2015
as long as no default exists with regard to said loan when it originally
matures. Mr. Conza pledged 10,000 unregistered shares of the Company's Common
Stock as collateral security for the payment of all sums due under said loan. As
of the end of the fiscal year, Mr. Conza was current with respect to his payment
obligations and the outstanding principal balance had been reduced to $51,325.
In 1995, the Company acquired the rights possessed by Anthony P. Conza and
David L. Siegel regarding the licensing of the Blimpie Trademarks and the
Blimpie Marketing System for all non-U.S. territories, pursuant to a 99 year
license Agreement. Said agreement provided for payment of certain income-based
fees to Messrs. Conza and Siegel, and further provided for cancellation by
Messrs. Conza and Siegel if the Company fails to pay them a minimum annual fee
aggregating $350,000 during the first five years of the term, and a minimum
aggregate fee of $150,000 per year (subject to an annual cost of living
adjustment) during the balance of such term. The payments made to Messrs. Conza
and Siegel under this agreement were $137,029 and $230,713 during the fiscal
years ended June 30, 1997 and 1996, respectively. In February 1997, the Company
acquired, pursuant to a written agreement which it executed with Messrs. Anthony
P. Conza and David L. Siegel, ownership of the undivided 60% interest in the
international rights to the Blimpie trademarks and Blimpie marketing system
owned by such individuals. In accordance with such agreement, the Company paid
these individuals $4.5 million ($3
9
million to Mr. Conza and $1.5 million to Mr. Siegel), and it must pay certain
income-based fees to them which take effect after international revenues exceed
$5 million.
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized.
BLIMPIE INTERNATIONAL, INC.
Dated: October 29, 1998 By: /s/ Brian Lane
----------------------------------
Brian Lane, Vice President and
Chief Financial Officer (Principal
Accounting Officer)
10