U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
THE SECURITIES EXCHANGE ACT OF 1934
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______
Commission file number 0-21423
CHICAGO PIZZA & BREWERY, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0485615
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
26131 Marguerite Parkway
Suite A
Mission Viejo, California 92692
(949) 367-8616
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of Each Class Name of each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, No Par Value NASDAQ
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
---
The aggregate market value of the common stock of the Registrant ("Common
Stock") held by non-affiliates as of December 31, 1999 based on the market price
at April 19, 2000 was $9,474,911. As of April 19, 2000, there were 7,658,321
shares of Common Stock of the Registrant outstanding and 7,964,584 Redeemable
Warrants of the Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS
<TABLE>
<CAPTION>
The following table sets forth certain information concerning the members of the Company's
present Board of Directors:
Nominee Principal Occupation Age
- --------------------- ---------------------------------------------------- ---
<S> <C>
Paul A. Motenko Co-Chairman of the Board, Co-Chief Executive Officer,
Vice President and Secretary of the Company 45
Jeremiah J. Hennessy Co-Chairman of the Board, Co-Chief Executive Officer
and Chief Operating Officer of the Company 41
Ernest T. Klinger Co-Chairman of the Board, President
and Chief Financial Officer of the Company 64
Barry J. Grumman Senior Partner in the Law Offices of Grumman
& Rockett 49
Stanley B. Schneider Managing Partner of Gursey, Schneider & Co. 64
Allyn R. Burroughs Chief Executive Officer and Chairman of the Board
of Directors of American Convenience Corporation 67
Mark James Partner in the Law Offices of James, Driggs, Walch,
Santoro, Kearney, Johnston & Thompson 40
</TABLE>
PAUL A. MOTENKO has been Co-Chairman of the Board, Co-Chief Executive
Officer, Vice President and Secretary of the Company since June 1999.
Previously, since its inception in 1991, he was the Chief Executive Officer,
Chairman of the Board, Vice President and Secretary of the Company. He is also
Chairman of the Board and Secretary of Chicago Pizza Northwest, Inc., a
Washington corporation and wholly owned subsidiary of the Company ("CPNI"). He
is a certified public accountant and was a founding partner in the firm
Motenko, Bachtelle & Hennessy from 1980 to 1991. In this capacity, Mr. Motenko
provided accounting and consulting services to several restaurant companies,
including BJ's Chicago Pizzeria. From 1976 to 1980, Mr. Motenko was employed as
an accountant and consultant for several accounting firms, including Kenneth
Leventhal and Company and Peat, Marwick, Main. Mr. Motenko graduated with
high honors from the University of Illinois in 1976 with a Bachelor of Science
in accounting.
1
<PAGE>
JEREMIAH J. HENNESSY has been Co-Chairman of the Board, Co-Chief Executive
Officer and Chief Operating Officer of the Company since June 1999. Previously,
since its inception in 1991, he was the President, Chief Operating Officer and a
Director of the Company. During 1997 he was appointed the Chief Financial
Officer of the Company. He is also Chief Executive Officer and a Director of
CPNI. Mr. Hennessy is a certified public accountant and was a partner in the
firm Motenko, Bachtelle & Hennessy from 1988 to 1991. His public accounting
practice involved extensive work for food service and restaurant clientele. He
served as a controller for a large Southern California construction company and
has extensive background in construction and development. Mr. Hennessy has
also worked in various aspects of the restaurant industry for Marie Callendar's
and Knott's Berry Farm. Mr. Hennessy graduated Magna Cum Laude from National
University in 1983 with a Bachelor of Science in accounting.
ERNEST T. KLINGER was appointed President, Chief Financial Officer and
Co-Chairman of the Board on June 21, 1999. He has been a Director of the
Company since April 1997. Mr. Klinger is a certified public accountant and
previously served as Chief Financial Officer and Vice President-Finance and
Administration of Arden Group, Inc., which consists of thirteen
supermarkets, including Gelson's and Mayfair. Mr. Klinger received a Bachelor
of Laws from LaSalle University, Chicago, Illinois and a Bachelor of Business
Administration from the University of Minnesota, Minneapolis. Mr. Klinger serves
as a director of HomeBase, Inc.
STANLEY B. SCHNEIDER has been a Director of the Company since August 7,
1996. Mr. Schneider is a certified public accountant and founding member and
the managing partner of Gursey, Schneider & Co. LLP, an independent public
accounting firm founded in 1964 that specializes in general accounting
services, litigation support, audits, tax consulting and compliance as well as
business management and management advisory services. Mr. Schneider serves as
a director of Perceptronics, Inc., a Woodland Hills, California based high-tech
defense firm; Jerry's Famous Deli, Inc., a Los Angeles-based restaurant
company and The Autry Museum of Western Heritage and P.A.T.H., an organization
dedicated to helping the homeless in Los Angeles. Mr. Schneider obtained a
Bachelor of Science in accounting from the University of California at Los
Angeles in 1958.
BARRY J. GRUMMAN was named a Director of the Company in November 1994.
Mr. Grumman has been the Senior Partner in the Law Offices of Grumman &
Rockett, a Newport Beach, California law firm specializing in civil
litigation, since 1977. Mr. Grumman also has extensive experience as an
investor in private companies and has invested in companies that have gone
public. Mr. Grumman is very active in various charities and is a past recipient
of the prestigious "Breath of Life" award from the Cystic Fibrosis Foundation.
Mr. Grumman received a Bachelor of Arts in political science from the University
of California at Los Angeles in 1972 and a JD from USF College of Law in 1975.
2
<PAGE>
ALLYN R. BURROUGHS is Chief Executive Officer and Chairman of the Board of
American Convenience Corp. For the past 15 years, Mr. Burroughs has served as
an executive officer of various real estate and hotel development and management
companies. He has participated in the investment, acquisition, development,
sale and management of multi-family residential properties, shopping centers and
office buildings in the western region of the United States. Most recently, Mr.
Burroughs was Executive Vice President of NCA Management, Inc., a hotel
management company where his responsibilities were senior hotel staffing,
management information systems, sales, monitoring daily operations and cash
management.
MARK JAMES and several partners joined to create the law firm of James,
Driggs & Walch, which has now become the law firm of James, Driggs, Walch,
Santoro, Kearney, Johnson & Thompson. Mr. James has an extensive practice in
the areas of business litigation, water law and natural resources and
environmental law. Previously, he was with the law firm of Baker & Botts and
the Las Vegas firm of Jolley, Urga, Wirth & Woodbury. In 1992, Mr. James was
elected to the Nevada State Senate. He was selected to chair the Senate
Judiciary Committee, the only freshman selected for the post since 1935. In
1994, he was re-elected and continues to serve as Senate Judiciary Committee
chairman. Mr. James received a B.S. in Political Science from Lewis & Clark
College and earned a JD with High Distinction from the University of Arizona
College of Law.
The terms of all directors will expire at the next annual meeting of
shareholders or when their successors are elected and qualified. The Company
has an agreement with ASSI, Inc. to use its best efforts to have two designees
of ASSI, Inc. elected to the Board of Directors of the Company. Mr. Burroughs
and Mr. James are the current directors designated by ASSI, Inc. The Board of
Directors may fill interim vacancies of directors. Each officer is elected by
and serves at the discretion of, the Board of Directors, subject to the terms of
any employment agreement.
SIGNIFICANT EMPLOYEES
<TABLE>
<CAPTION>
The following table sets forth certain information concerning certain
significant
employees of the Company.
NAME AGE POSITION
- -------------------- --- ------------------------------------------
<S> <C>
Alexander M. Puchner 39 Senior Vice President Brewing Operations
R. Dean Gerrie 48 Senior Vice President Design & Marketing
Salvador A. Navarro 45 Vice President of Food and Beverage
Ramon David 50 President of Chicago Pizza Northwest, Inc.
Alan S. Rodomsky 52 Director of Northwest Operations
</TABLE>
ALEXANDER M. PUCHNER is Senior Vice President of Brewing Operations for the
Company, having been appointed to such position in March 1999 and was Vice
President of Brewing Operations since January 1996. From 1994 to 1995, Mr.
Puchner served as brewmaster for Laguna Beach Brewing Co. and from 1993 to 1994
as brewmaster for the Huntington Beach Beer Co. From 1988 to 1993, Mr. Puchner
3
<PAGE>
served as Product Manager for Aviva Sports/Mattel Inc. and Marketing Research
Manager for Mattel Inc. Mr. Puchner was awarded a silver medal in the strong
ale category at the 1996 Great American Beer Festival for BJ's Jeremiah Red Ale.
That was followed by a bronze medal in The American Pale Ale category in 1998
for BJ's Piranha Pale Ale. Other awards for BJ's beers include: a silver medal
at the 1998 World Beer Cup and First Place awards at the California State Fair
in both 1997 and 1998. Mr. Puchner has also earned over 40 awards as a
homebrewer, including in 1991 and 1992 at the National Homebrew Competition.
Mr. Puchner has been a nationally certified beer judge since 1990. Mr. Puchner
received a Bachelor of Arts from Cornell University in 1983 and a Master of
Business Administration degree from the University of Chicago in June 1986.
R. DEAN GERRIE has served as Senior Vice President of Marketing and Design
since March 1999 and served as its Vice President of Marketing and Design since
January 1997. Previously, Mr. Gerrie served as President/Creative Director
with Guzman Gerrie Advertising from 1980 to 1989 and as principal of Dean
Gerrie Design, a corporate identity and marketing consultancy, from 1989 to
1997. Mr. Gerrie studied economics/business administration at the University of
California, Berkeley and design at California State University, Long Beach. He
taught as an adjunct professor at the Southern California Institute of the Arts
from 1994 to 1997.
SALVADOR A. NAVARRO has served as the Vice President of Food and Beverage
for the Company since June 1998 and as its Director of Food and Beverage since
1995. He brings to his position more than 20 years of experience in the food and
beverage industry. Before joining Chicago Pizza & Brewery, Mr. Navarro was
Central Operations Manager for Knott's Berry Farm in Buena Park, CA. Prior to
that, he spent 14 years as Director of Food and Beverage for Southwest Foods,
Inc.'s Claim Jumper Restaurants. Mr. Navarro was instrumental in the expansion
of BJ's menu.
RAMON DAVID came to Chicago Pizza & Brewery, Inc. after 30 years of service
with Pietro's Corporation, former owner and operator of Pietro's restaurants.
Chicago Pizza bought the Pietro's chain in 1995. Mr. David is the current
President of Chicago Pizza Northwest, Inc., a Washington corporation and wholly
owned subsidiary of Chicago Pizza & Brewery, Inc. He also serves as Chicago
Pizza's Director of Human Resources, the same post he held with Pietro's. Mr.
David has a Bachelor's Degree from the University of Oregon and is certified as
a senior professional in human resources.
ALAN S. RODOMSKY , Director of Operations, came to Chicago Pizza &
Brewery, Inc. in 1998 with more than 21 years of experience in the restaurant
industry. Before joining Chicago Pizza, Mr. Rodomsky was general manager for
the 10,000 square food Champps Americana restaurant and sports bar in Irvine,
CA. There he oversaw a staff of 175 employees and 10 managers producing annual
sales of more than $5.5 million. Mr. Rodomsky also has supervised 75
restaurants and 3 district managers as a Regional Manager for Subway
restaurants, was a district manager for the casual dining Olga's Kitchen chain
and began his career with Marriott's Roy Rogers concept. Mr. Rodomsky holds a
Bachelor of Arts Degree from Northland College and has completed graduate work
at the University of Miami.
4
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than
10% of a registered class of the Company's equity securities to file various
reports with the Securities and Exchange Commission concerning their holdings
of, and transactions in, securities of the Company. Copies of these filings are
required to be furnished to the Company. During the year ended December 31,
1999, three Form-5's and two Form-3's were not filed on a timely basis by either
a Company director or executive officer. The five reports not made by the
required dates related to six grants of incentive stock options. Subsequent to
the respective required reporting dates, the Form-5's and Form-3's were filed,
and the Company has no knowledge of any failures to file a required form.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning compensation of the
Chief Executive Officer and each executive officer of the Company whose salary
and bonus compensation was at least $100,000 in the fiscal year ended December
31, 1999:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
----------------------- Other Annual Stock option
Name and Principal Position (1) Year Salary Bonus Compensation Grants
- ----------------------------------------------- ---- -------- ------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Paul A. Motenko 1999 $145,715 $25,000 $10,148(3) -0-
Co-Chief Executive Officer, Vice-President, 1998 $141,900 $25,000 $10,955(4) -0-
Secretary and Co-Chairman of the Board 1997 $137,975 $ -0- $ 8,188(5) -0-
Jeremiah J. Hennessy 1999 $145,715 $25,000 $10,092(6) -0-
Co-Chief Executive Officer and 1998 $141,900 $25,000 $11,569(7) -0-
Co-Chairman of the Board 1997 $137,975 $ -0- $ 7,877(8) -0-
Ernest T. Klinger (2) 1999 $ 73,447 $13,288 $14,963(9) 400,000
President, Chief Financial Officer and 1998 $ -0- $ -0- $ -0- 10,000
Co-Chairman of the Board 1997 $ -0- $ -0- $ -0- 25,000
R. Dean Gerrie 1999 $132,069 $10,000 $11,552(10) -0-
Senior Vice President 1998 $125,000 $ -0- $13,056(11) -0-
1997 $125,000 $ -0- $ 4,716(12) -0-
<FN>
(1) No other executive officer received salary and bonuses in excess of $100,000 in 1999.
(2) Mr. Klinger was first employed by the Company on June 21, 1999 in the capacities shown.
(3) The amount shown above is the estimated value of perquisites and other personal benefits,
including health insurance (approximately $5,424) and life insurance/disability insurance
(approximately $4,724).
5
<PAGE>
(4) The amount shown above is the estimated value of perquisites and other personal benefits,
including health insurance (approximately $7,056) and life insurance/disability insurance
(approximately $3,899).
(5) The amount shown above is the estimated value of perquisites and other personal benefits,
including health insurance (approximately $6,805) and life insurance (approximately $1,383).
(6) The amount shown above is the estimated value of perquisites and other personal benefits,
including health insurance (approximately $5,424) and life/disability insurance (approximately
$4,668).
(7) The amount shown above is the estimated value of perquisites and other personal benefits,
including health insurance (approximately $7,056) and life insurance/disability insurance
(approximately $4,513).
(8) The amount shown above is the estimated value of perquisites and other personal benefits,
including health insurance (approximately $6,494) and life insurance (approximately $1,383).
(9) The amount shown above is the estimated value of perquisites and other personal benefits,
including health insurance (approximately $5,540), life insurance (approximately $3,423) and
auto allowance (approximately $6,000).
(10) The amount shown above is the estimated value of perquisites and other personal benefits
including health insurance (approximately $5,552) and auto allowance (approximately $6,000).
(11) The amount shown above is the estimated value of perquisites and other personal benefits,
including health insurance (approximately $7,056) and auto allowance (approximately $6,000).
(12) The amount shown above is the estimated value of perquisites and other personal benefits
including health insurance (approximately $4,716).
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN 1999
The following table sets forth information concerning stock options that were granted in 1999
to the officers named in the Summary Compensation Table:
% of Total
Options
Granted to Black-Scholes
Options Employees Exercise Valuation on
Name Granted(1) In 1999(2) Price(3) Date of Grant(4) Expiration Date
- -------------------- ---------- ----------- ---------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Paul A. Motenko -0- 0.00% --- ---
Jeremiah J. Hennessy -0- 0.00% --- ---
Ernest T. Klinger 400,000 82.82% $ 1.875 $ 508,000.00 June 21, 2009
R. Dean Gerrie -0- 0.00% --- ---
<FN>
(1) The amounts in the table represent shares of the Company's common stock covered by stock
options granted to the named individual under the Company's Stock Option Plan.
(2) The number of shares of Company common stock covered by the options granted to the named
individual during the last completed fiscal year of the Company equals the percentage set forth
below of the total number of shares of the Company's common stock covered by all options granted
by the Company to employees of the Company during such year.
(3) The exercise price is the market price of the common stock of the Company on the date of
grant.
(4) The present value of the stock options on the date of grant was calculated using the
Black-Scholes option pricing model.
</TABLE>
7
<PAGE>
OPTION EXERCISES IN FISCAL 1999 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
The following table sets forth information concerning stock options which were exercised
during, or held at the end of, 1999 by the officers named in the Summary Compensation Table:
OPTION EXERCISES AND YEAR-END VALUE TABLE
Number of Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired at Fiscal Year End at Fiscal Year End(1)
on Value -------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------- -------- -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Motenko -0- -0- -0- -0- -0- -0-
Jeremiah J. Hennessy -0- -0- -0- -0- -0- -0-
Ernest T. Klinger -0- -0- 270,000 160,000 $ 12,500 -0-
R. Dean Gerrie -0- -0- 25,000 50,000 -0- -0-
<FN>
(1) Common Stock valued at $1.50 per share, the last reported sales price of the Company's
Common Stock on April 19, 2000.
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into identical eight-year term employment agreements
with Paul Motenko and Jeremiah J. Hennessy, effective as of March 25, 1996. The
Company entered into a five year employment agreement with Ernest T. Klinger
effective June 21, 1999. The terms of the employment agreements with Messrs.
Motenko, Hennessy and Klinger (collectively the "Executives") are substantially
similar as described below. Pursuant to such agreements, each Executive receives
an annual base salary which is currently $145,000 for each Executive, and is
subject to escalation annually in accordance with the Consumer Price Index (the
"CPI"). In addition, each Executive is entitled to receive two annual bonuses
based on the Company's financial performance, one for attainment of specified
earnings before interest, amortization, depreciation and income taxes
("EBITDA"), and one for attainment of specified pre-tax income.
The EBITDA bonus entitles each Executive to receive the following amounts
if the following EBITDA amounts are attained for each fiscal year during the
term of their respective employment agreements:
EBITDA Cumulative Cash Bonus
------ ---------------------
$2,000,000 $ 25,000
$3,000,000 $ 35,000
$6,000,000 $ 80,000
$9,000,000 $150,000
8
<PAGE>
For the year ended December 31, 1999, Messrs. Motenko and Hennessy earned a
cash bonus of $25,000 based on the Company's EBITDA for the fiscal year of
approximately $2,290,000. Mr. Klinger earned a bonus of $13,288 for 1999 due to
a provision in his agreement which prorated the bonus amount based on the number
of days he was employed for 1999.
The pre-tax income bonus would entitle each Executive to receive the
following amounts if specified pre-tax income amounts (as determined by the
Company's independent public accountants in accordance with GAAP), which
increase by 2 percent each, year are attained for each fiscal year. The
following pre-tax income levels were required for this bonus:
Pre-Tax
Income Cumulative Cash Bonus
- ------ ---------------------
$2,880,000 $25,000
$5,760,000 $75,000
$11,520,000 $150,000
For the year ended December 31, 1999, none of the Executives earned a
pre-tax income bonus.
Pursuant to their respective employment agreements, the Executives are each
entitled to certain other fringe benefits including use of a Company automobile
or automobile allowance, life insurance coverage, disability insurance, family
health insurance and the right to participate in the Company's customary
executive benefit plans. Each of the Executive's employment agreements further
provide that following the voluntary or involuntary termination of their
employment by the Company, each of them is entitled to two demand registration
rights with respect to the Common Stock held by or issuable to him. Upon the
occurrence of any Termination Event (as hereinafter defined), the Company has
the right to terminate the Executive. Upon any such termination, the Executive
will be entitled to receive all amounts payable by the Company under his
respective employment agreement to the date of termination. If the Company
terminates the employment agreement for a reason other than the occurrence of a
Termination Event or if the Executive terminates the employment agreement
because of a breach by the Company of its obligations thereunder or for Good
Reason (as hereinafter defined), the executive will be entitled to receive any
and all payments and benefits which would have been due to him by the Company up
to and including March 24, 2004 or any extension thereof had he not been
terminated and any and all damages resulting therefrom.
"Termination Event" means any of the following: (i) the willful and
continued failure by the Executive to substantially perform his duties under the
Employment Agreement (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness) after demand for substantial
performance is delivered by the Company specifically identifying the manner in
which the Company believes the Executive has not substantially performed his
duties; (ii) the Executive being convicted of a crime constituting a felony;
(iii) the Executive intentionally committing acts or failing to act, either of
which involves willful malfeasance with the intent to maliciously harm the
business of the Company; (iv) the Executive's willful violation of the
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<PAGE>
confidentiality provisions under the Employment Agreement; or (v) death or
physical or mental disability which results in the inability of the Executive
to perform the required services for an aggregate of 180 calendar days during
any period of 12 consecutive months. No act, or failure to act, on the
Executive's part shall be considered "willful" unless intentionally done, or
intentionally omitted to be done, by him not in good faith and without
reasonable belief that his action or omission was in the best interest of the
Company. Notwithstanding the foregoing, a Termination Event shall not have
been deemed to have occurred unless and until there shall have been delivered
to the Executive a copy of a resolution, duly adopted by the affirmative vote
of not less than a majority of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice to the
Executive and an opportunity for him, together with his counsel, to be heard
before the Board), finding that, in the good faith opinion of the Board, the
Executive conducted, or failed to conduct, himself in a manner set forth above
in clauses (i)-(iv), and specifying the particulars thereof in detail.
For purposes of the Employment Agreement, "Good Reason" shall mean (i) any
removal of the Executive from, or any failure to re-elect the Executive to his
current office except in connection with termination of the Executive's
employment for disability; provided, however, that any removal of the
Executive from, or any failure to re-elect the Executive to his current office
(except in connection with termination of the Executive's employment for
disability) shall not diminish or reduce the obligations of the Company to the
Executive under the employment agreement; (ii) a reduction of ten percent (10%)
or more in the Executive's then current base salary; (iii) any failure by the
Company to comply with any of its obligations to the Executive under the
employment agreement; (iv) for any reason within 120 days following a Change of
Control (as defined in the employment agreement); or (v) the failure of the
Company to obtain the assumption of the employment agreement by any successor
to the Company, as provided in the employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1999, the Board of Directors of the
Company determined the compensation for the executive officers of the Company.
Messrs. Paul A. Motenko and Jeremiah J. Hennessy were executive officers and and
were on the Board of Directors in 1996 when the Employment Agreements between
the Company and each of them were approved. Mr. Klinger was on the Board of
Directors in 1999 when the Employment Agreement between the Company and Mr.
Klinger was approved. The Board of Directors serves the function of a
Compensation Committee for the Company.
COMPENSATION OF DIRECTORS
The Company pays each non-employee director an annual fee of $1,000, plus
$750 per board meeting attended in person, $400 per telephonic board meeting
over 30 minutes, $200 per telephonic board meeting under 30 minutes, $500 per
committee meeting in person, $300 per telephonic committee meeting over 30
minutes, and $100 per telephonic committee meeting under 30 minutes. In
addition, the Company grants annual stock options to its non-employee directors
for each year of service, exercisable for 10,000 shares of common stock.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 2000 by (a) each
director of the Company, (b) each executive officer identified in the Summary
Compensation Table, (c) all executive officers and directors of the Company as a
group and (d) each person known by the Company to be the beneficial owner of 5%
or more of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)
----------------------------
Number of Percentage
Name and Address (2) Shares(3) Of Class(3)
- ------------------------------------- ------------ -----------
<S> <C> <C>
ASSI, Inc. 2,206,500(4) 28.81%
5075 Spyglass Hill Dr.
Las Vegas, NV 89122
Norton Herrick 700,000(5) 8.56%
2295 Corporate Blvd., Northwest
Boca Raton, FL 33431
Paul A. Motenko 680,357 8.88%
Jeremiah J. Hennessy 661,357 8.64%
Ernest T. Klinger 270,000(6) 3.41%
Barry J. Grumman 45,000(8) .58%
Stanley B. Schneider 40,000(9) .52%
R.Dean Gerrie 50,000(10) .65%
All directors and executive officers
as a group (7 persons) 1,746,714 21.66%
<FN>
(1) The persons named in the table, to the Company's knowledge, have sole
voting and sole investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and the information contained in the footnotes hereunder.
The share ownership information contained in this table is based upon
information supplied by directors and executive officers of ASSI, Inc.,
upon public filings with the Securities and Exchange Commission and
information provided by the Company's transfer agent.
(2) The address of the officers and directors of the Company is at the
Company's principal executive offices at 26131 Marguerite Parkway, Suite A,
Mission Viejo, California 92692.
(3) Shares of Common Stock which a person had the right to acquire within
60 days are deemed outstanding in calculating the percentage ownership of the
person, but not deemed outstanding as to any other person. Does not include
shares issuable upon exercise of any warrants or options issued by the Company
which are not exercisabl within 60 days from the date hereof. Percentage of
beneficial ownership is based on 7,658,321 shares of Common Stock outstanding
as of April 19, 2000.
11
<PAGE>
(4) Consists of 2,206,500 shares held of record by ASSI, Inc., a Nevada
corporation that is owned and controlled by Louis Habash whose address is the
same as that of ASSI, Inc.
(5) Consists of 185,000 shares of Common Stock and 515,000 Special Warrants held
by Norton Herrick, exercisable for $5.50 per share and expiring on April 8, 2002.
See "Certain Relationships and Related Transactions."
(6) Consists of 270,000 shares of Common Stock purchasable upon exercise of
options.
(7) Consists of 91,666 shares of Common Stock purchasable upon exercise of
options.
(8) Consists of 5,000 shares of Common Stock which are held in a Professional
Corporation Money Purchase Plan of which Mr. Grumman is the beneficiary and 40,000
shares of Common Stock purchasable upon exercise of options.
(9) Consists of 40,000 shares of Common Stock purchasable upon exercise of
options.
(10) Consists of 270,000 shares of Common Stock purchasable upon exercise of
options.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PIETRO'S ACQUISITION AND RELATED TRANSACTIONS
On March 29, 1996, the Company acquired 26 restaurants, eight of which
were subsequently sold, located in Washington and Oregon by providing the
funding for a plan of reorganization filed with the U.S. Bankruptcy Court by
Pietro's Corporation, a Washington state corporation (the "Pietro's
Acquisition.") In order to finance the Pietro's Acquisition, on February 20,
1996, the Company sold to ASSI, Inc. and to Mr. Norton Herrick for $2,000,000
and $1,000,000, respectively, certain convertible notes (the "Convertible
Notes") pursuant to certain note purchase agreements (the "Note Purchase
Agreements") with substantially similar terms. Under the Note Purchase
Agreements, the Company issued to each of ASSI, Inc. and to Mr. Herrick,
Convertible Notes in the principal amounts of $2,000,000 and $1,000,000,
respectively, which Convertible Notes, plus accrued interest thereon, both
converted simultaneously with the closing of the Offering. The Convertible
Note, plus accrued interest thereon, issued to ASSI, Inc. converted into 500,000
shares of Common Stock and into warrants to purchase 3,000,000 shares of Common
Stock (together with the 200,000 warrants granted to ASSI, Inc. pursuant to the
consulting agreements described below, the "ASSI Warrants"). The Convertible
Note, plus accrued interest thereon, issued to Mr. Herrick converted into
250,000 shares of Common Stock and into warrants (the "Herrick Warrants") to
purchase 1,500,000 shares of Common Stock (the ASSI Warrants and the Herrick
Warrants are collectively referred to herein as the "Special Warrants"). The
outstanding Special Warrants are each exercisable for $5.50 per share and expire
on April 8, 2002. In addition, in connection with the above financing, the
Company agreed subject to the terms of the Note Purchase Agreements, to use its
best reasonable efforts to cause one individual designated by each of ASSI,
Inc.and Mr. Norton Herrick to be elected to the Board of Directors of the
Company or to have such selected individuals attend all meetings of the Board
of Directors as non-voting advisors. ASSI, Inc.'s nominee to the Board of
12
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Directors of the Company was Mr. Ernest T. Klinger in 1997. During 1997 ASSI,
Inc. relinquished it's right to nominate a board member or advisor. Mr.
Herrick's right to designate a board member or advisor expired in March of 1999.
The Company has adopted a policy not to engage in transactions with
officers, directors, principal shareholders or affiliates of any of them unless
such actions have been approved by a majority of the disinterested directors
and are upon terms no less favorable to the Company than could be obtained
from an unaffiliated third party in an arms length transaction.
1999 PRIVATE PLACEMENT WITH ASSI, INC.
In March 1999, the Company sold, through a private placement, 1,250,000
shares of its Common Stock to ASSI, Inc. (the "ASSI Transaction") in exchange
for a cash payment of $1,000,000, the termination of each of the Pietro's
Consulting Agreement and the Vegas Consulting Agreement, a release of any claims
that ASSI and its affiliates may have had against the Company or its affiliates
relating to the consulting agreements and prior investments by ASSI, Inc. and
its affiliates in the Company. In addition, ASSI, Inc. agreed to the
cancellation of the 3.2 million Special Warrants owned by it. The shares sold by
the Company to ASSI are subject to restrictions on resale including a right of
first refusal in favor of the Company or its designees. As an additional part of
the consideration for the common stock, ASSI, Inc. and Louis Habash, the
controlling shareholder of ASSI, Inc. agreed to finance or guarantee financing
of potential future development projects of the company, subject to project
pre-commitment approval, and agreed to cooperate in connection with any gaming
or licensing applications or proceedings involving the Company. In connection
with its investment, ASSI, Inc. received certain demand and piggyback
registration rights as well as a commitment from the Company to use its best
efforts to have two of the Company's directors be persons designated by ASSI,
Inc. and to cause each of such designees to be included in the slate of director
nominees for election at each annual meeting of shareholders occurring prior to
March 2002. ASSI, Inc. also received a commitment from Paul Motenko and Jeremiah
Hennessy, the Company's principal executive officers, to vote their shares of
common stock in favor of ASSI, Inc's board nominees in certain circumstances.
Such rights terminate at such time as ASSI, Inc. and its affiliates no longer
own at least 5 percent of the company's outstanding common stock. Mr. Burroughs
and Mr. James are the two directors designated by ASSI, Inc.
Management believes that the transactions with the officers and/or
shareholders of the Company and their affiliates were made in terms no less
favorable than would have occurred with unaffiliated third parties. The Company
has adopted a policy not to engage in transactions with officers, directors,
principal shareholders or affiliates of any of them unless such actions have
been approved by a majority of the disinterested directors and are upon terms
no less favorable to the Company than could be obtained from an unaffiliated
third party in an arms length transaction.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHICAGO PIZZA & BREWERY, INC.
By: /s/PAUL A. MOTENKO Paul A. Motenko, Co-Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/PAUL A. MOTENKO Co-Chief Executive Officer, April 28, 2000
------------------ Co-Chairman of the Board and
Paul A. Motenko Vice-President and Secretary
By: /s/JEREMIAH J. HENNESSY Co-Chief Executive Officer April 28, 2000
----------------------- Co-Chairman of the Board
Jeremiah J. Hennessy of Directors
By: /s/ERNEST T. KLINGER President, Chief Financial April 28, 2000
-------------------- Officer and Co-Chairman of
Ernest T. Klinger the Board of Directors
By: /s/BARRY J. GRUMMAN Director April 28, 2000
-------------------
Barry J. Grumman
