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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
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Chock Full O'Nuts Corporation
(Name of Subject Company)
Chock Full O'Nuts Corporation
(Name of Person(s) Filing Statement)
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8% Convertible Subordinated
Debentures due September 15, 2006
7% Convertible Senior Subordinated
Debentures due April 1, 2012
Common Stock, Par Value $0.25 Per Share
(including associated common stock purchase rights)
(Title of Class of Securities)
170268AC0
170268AB2
170268 10 6
(CUSIP Number of Classes of Securities)
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Howard Leitner
Chock Full O'Nuts Corporation
370 Lexington Avenue
New York, New York 10017
(212) 532-0300
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on behalf of
the Person Filing Statement)
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With copies to:
W. Leslie Duffy, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3000
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Item 1. Security and Subject Company
The name of the subject company is Chock Full O'Nuts Corporation, a New York
corporation (the "Company"). The principal executive offices of the Company
are located at 370 Lexington Avenue, New York, New York 10017. The classes of
securities to which this Statement relates are (i) the Company's Common Stock,
par value $0.25 per share (the "Common Stock"), including the associated
Common Stock purchase rights (the "Rights" and, together with the Common
Stock, the "Shares") issued pursuant to the Amended and Restated Rights
Agreement dated as of December 30, 1997 (the "Rights Agreement") between the
Company and American Stock Transfer & Trust Company, (ii) the Company's 8%
Convertible Subordinated Debentures due September 15, 2006, issued under an
Indenture dated as of September 15, 1986 between the Company and Bank One
Corporation, as successor to Manufacturers Hanover Trust Company (the "8%
Convertible Debentures"), and (iii) the Company's 7% Convertible Senior
Subordinated Debentures due April 1, 2012, issued under an Indenture dated as
of April 1, 1987 between the Company and IBJ Whitehall Bank & Trust Company
(the "7% Convertible Debentures" and, together with the 8% Convertible
Debentures and the Shares, the "Securities").
Item 2. Tender Offer of the Bidder
This Statement relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1 dated May 7, 1999 (the "Schedule 14D-1") filed by
Sara Lee Corporation, a Delaware corporation ("Sara Lee"), and its wholly-
owned subsidiary CFN Acquisition Corporation, a Delaware corporation (the
"Purchaser" and, together with Sara Lee, the "Bidder"), to purchase (i) all of
the outstanding Shares at a price of $10.50 per Share, (ii) all of the
outstanding 8% Convertible Debentures at a price of $1,275.82 per $1,000
debenture and (iii) all of the outstanding 7% Convertible Debentures at a
price of $1,344.43 per $1,000 debenture, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated May 7, 1999 (the "Offer to
Purchase") and the related Letters of Transmittal (which, as amended from time
to time, together with any amendments and supplements thereto, collectively
constitute the "Offer"). The Offer to Purchase states that the principal
executive office of each of Sara Lee and the Purchaser is Three First National
Plaza, Chicago, Illinois 60602.
Item 3. Identity and Background
(a) The name and business address of the Company, which is the person filing
this Schedule 14D-9, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
the Company and its executive officers, directors or affiliates are described
in the sections entitled "Executive Compensation and Transactions with
Directors, Officers and Principal Holders", "Option/SAR Grants in Last Fiscal
Year", "Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year
End Option/SAR Values", "Report of the Compensation Committee on Executive
Compensation", "Pension Plan", "401(k) Cash or Deferred Com-pensation Plan",
"Deferred Compensation Plan", "Employee Stock Ownership Plan", "Unfunded
Directors Retirement Plan" and "Security Ownership of Certain Beneficial
Owners and Management" in the Company's Proxy Statement for the 1998 Annual
Meeting of Shareholders held on December 18, 1998 (the "Proxy Statement"). A
copy of the pertinent portions of the Proxy Statement is filed as Exhibit 1
hereto, and such portions are incorporated herein by reference.
Effective as of October 27, 1998, the employment agreement between the
Company and Marvin Haas, the President and Chief Executive Officer of the
Company, was amended and restated. The amended and restated employment
agreement is substantially the same as his employment agreement previously in
effect (as described in the Proxy Statement) except that benefits are payable
in the event of his voluntary resignation for any reason following a Change in
Control (as defined) and not just for certain specified reasons constituting
"Good Reason" (as was provided in the prior employment agreement) and his base
salary continued for the balance of the term after a termination of employment
following a Change in Control is increased by $75,000 per year.
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On April 30, 1999, in view of the need to minimize management distraction
and to retain management's loyalty and dedication to the Company and to assure
their attention to the Company's performance pending resolution of the
Bidder's proposal, the Board of Directors of the Company (the "Board")
approved the amendment of the annual incentive cash bonus plan covering nine
individuals to provide for the payment of (1) a minimum bonus with respect to
the fiscal year ending July 31, 1999 and (2) the maximum bonus with respect to
a fiscal year if a Change in Control (as defined) of the Company occurs in
such fiscal year. The minimum bonus for each individual is 1/3 of such
individual's maximum bonus opportunity. Mr. Marvin Haas, the President and
Chief Executive Officer of the Company, chose not to accept such amendment as
it relates to the minimum bonus. In the event of a Change in Control of the
Company, the maximum bonus would be payable within 30 days following a Change
in Control. As six executive officers of the Company (including the two
individuals named in the Proxy Statement) are covered by employment agreements
which upon certain terminations of employment following a Change in Control
provide for the payment of this maximum bonus for the fiscal year in which the
Change in Control of the Company occurs, this amendment as approved by the
Board of Directors does not require the Company to make material additional
payments. See "Executive Compensation and Transactions with Directors,
Officers and Principal Holders" in the Proxy Statement (the pertinent section
of which is filed as Exhibit 1 hereto).
To the knowledge of the Company, except as described above, as of the date
hereof, there are no material contracts, agreements, arrangements or
undertakings, or any actual or potential conflicts of interest between the
Company or its affiliates and (1) the Company, its executive officers,
directors or affiliates or (2) the Bidder or its executive officers, directors
or affiliates except as described herein or incorporated by reference.
Item 4. The Solicitation or Recommendation
(a) Recommendation of the Board of Directors. In a letter dated August 15,
1997, the Bidder formally invited the Company to negotiate a business
combination acceptable to both companies and their respective shareholders. On
August 20, 1997 the Company indicated in a letter to the Bidder that it was
not interested in pursuing such negotiations.
On July 8, 1998, the Bidder submitted a written proposal to the Board of the
Company proposing that the Bidder acquire the Company at a purchase price of
$9.50 per Share in cash or shares of the Bidder's common stock ("Bidder Common
Stock"). The Bidder, in a letter to the Board, reiterated its offer on July
29, 1998. On August 12, 1998, the Board responded, in a letter to the Bidder,
that it was, with the assistance of Credit Suisse First Boston Corporation
("CSFB"), the Company's financial advisor, reviewing and evaluating the
proposal.
On September 15, 1998, representatives of the Company, the Bidder and their
respective financial advisors met. At this meeting, the proposal and related
matters were discussed. On October 2, 1998, the Company and the Bidder
exchanged certain financial information. On October 16, 1998, the Bidder
increased its proposal to $10.50 per Share in cash or shares of Bidder Common
Stock. The Bidder, through a representative, subsequently indicated the
possibility of a transaction at a price of $11.00 per Share in some
combination of cash and Bidder Common Stock. On October 29, 1998, the Board,
through CSFB, communicated to the Bidder's financial advisor that it was
rejecting the Bidder's proposal, but that it would be willing to discuss a
transaction at a higher price. On October 29, 1998, CSFB relayed to the
Board that the Bidder had indicated it was not interested in increasing its
offer and thereafter, the Bidder broke off all negotiations with the Company.
In a March 10, 1999 letter to the Board, the Bidder indicated its renewed
interest in acquiring the Company at a price of $9.50 per Share (a lower price
than the Bidder had previously offered). On March 22, 1999, the Board rejected
the Bidder's March 10th proposal as inadequate. The Board viewed the Bidder's
proposal as an attempt by the Bidder to acquire a competitor at a bargain
price, by taking advantage of commodity price fluctuations and depressed
values for microcap stocks.
On April 12, 1999, representatives of the Bidder informed CSFB that, as of
that day, the Bidder had acquired (directly and through the ownership of
convertible debentures) beneficial ownership of more than 5% of the Shares and
that the Bidder would like to engage in discussions regarding a possible
acquisition during the ten day period prior to filing its Schedule 13D with
the Securities and Exchange Commission (the "SEC"). On April 19, 1999, the
Bidder indicated it was willing to increase its proposal above $10.00 per
Share in connection with such negotiations.
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On April 20, 1999, the Bidder increased its proposal to $10.50 per Share in
cash. Thereafter, CSFB, at the direction of the Company, told the Bidder that
the Board would consider a transaction at $12.50 per Share, payable in the
Bidder's Common Stock. Later that day the Bidder proposed to acquire the
Company at a price of $10.50 per Share payable in the Bidder's Common Stock.
In further discussions the Bidder indicated its willingness to enter into a
stock transaction with a collar that would provide some protection against
declines in the price of the Bidder's Common Stock, but give the Company's
stockholders the benefit of increases, if any, in the value of the Bidder's
Common Stock between the date of signing a definitive agreement and the
closing. Additionally, the Bidder indicated that it was not willing to
increase its offer to above $11.00 per Share.
At this time the Executive Committee of the Board directed CSFB to make
preliminary confidential inquiries to several other companies to determine if
they would be interested in a transaction with the Company.
On April 22, 1999, the Bidder filed a Schedule 13D with the SEC which
indicated that between November 12, 1998 and April 16, 1999, the Bidder had
purchased 111,200 shares of the Common Stock, $2,639,225.00 aggregate
principal amount of 7% Convertible Debentures and a total (net of redemptions)
of $1,272,764.00 aggregate principal amount of 8% Convertible Debentures. On
May 4, 1999, the Bidder issued a press release announcing its intent to
commence a tender offer to purchase all of the Company's outstanding
Securities. On May 7, 1999, the Bidder filed its Schedule 14D-1 with the SEC.
At a meeting held on May 14, 1999, the Board recommended that its
Securityholders reject the Offer, based upon the Board's determination that
the Offer is inadequate and not in the best interests of the Company and its
Securityholders. After consideration of all relevant factors, including those
discussed below, the Board determined that the $10.50 per Share amount of the
Offer does not adequately reflect the potential value of the Company
achievable for its Securityholders. ACCORDINGLY, THE BOARD RECOMMENDS THAT THE
COMPANY'S SECURITYHOLDER'S REJECT THE OFFER AND NOT TENDER ANY SECURITIES TO
THE BIDDER.
The letter from the Chairman of the Board and the Chief Executive Officer of
the Company to the Securityholders communicating the Board's recommendation
and a press release announcing such recommendation are filed as Exhibits 2 and
3 hereto, respectively, and are incorporated by reference herein.
(b) Reasons for the Recommendation. In reaching the determination and
recommendation discussed in paragraph (a) above, the principal factors,
considered by the Board were:
(i) the Board's familiarity with the business, assets, financial
condition, results of operations, business plans and current business
strategy and future prospects of the Company, the nature of the industry in
which the Company operates and the Company's competitive position in such
industry;
(ii) a presentation by CSFB, indicating that, based upon discounted cash
flow analyses (using various operating assumptions for the Company and
management's estimates of synergies achievable by an acquiror), the per
Share value of the Company is higher than the Bidder's Offer of $10.50
per Share;
(iii) the Board's belief that the Offer is an attempt by the Bidder to
acquire a competitor at bargain price, which belief is based, in part, upon
the fact that the Bidder has, more than once, indicated the possibility of
a transaction at a price of $11.00 per Share;
(iv) the Board's and management's perception that the long-term prospects
for the coffee industry as a whole are generally positive, despite the
industry's recent weakness;
(v) the Board's belief, based in part on the factors referred to in
paragraphs (i) through (iv), that the per Share price of the Offer does not
adequately reflect the potential value of the Company achievable for its
Securityholders;
(vi) the Board's belief that it is in the best interest of the
Securityholders at this time to evaluate, with the assistance of CSFB,
alternatives to the Offer, including pursuing current discussions with
other potential purchasers; and
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(vii) the Board's commitment to protecting the best interests of the
Company and enhancing the value of the Company for the benefit of the
Securityholders.
In view of the variety of factors considered in connection with its
evaluation, the Board did not find it practicable and did not quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination and recommendation. In addition, individual members
of the Board may have given different weight to different factors.
Item 5. Persons Retained, Employed or to Be Compensated
The Company has retained CSFB as its financial advisor in connection with
the Offer and the evaluation of strategic alternatives. Pursuant to the terms
of CSFB's engagement, the Company has agreed to pay CSFB the following fees:
(i) a financial advisory fee of $250,000 (the "Initial Financial Advisory
fee"), (ii) a transaction fee (the "Transaction Fee") equal to the sum of (a)
1.5% of the total fair market value (at the time of closing) of the aggregate
consideration paid or payable to the Company or the Company's stockholders in
connection with an acquisition transaction or other extraordinary corporate
transaction involving the Company, up to and including the aggregate
consideration implied in a transaction valued at $11.00 per Share and (b) 5.0%
of the incremental amount of the aggregate consideration implied in a
transaction valued in excess of $11.00 per share and (iii) in the event of an
unsolicited tender offer for the Company's securities, (a) a fee of $500,000
(the "Opinion Fee"), payable upon the rendering of an opinion by CSFB as to
the fairness, from a financial point of view, of the consideration to be
received in such unsolicited tender offer, (b) a fee of $500,000 (the
"Additional Advisory Fee"), payable within 180 days from the date of the
unsolicited tender offer if the Company is independent at such time and (c)
if, during the term of CSFB's engagement or within two years after termination
of CSFB's engagement, another transaction for the Company is consummated, a
customary transaction fee as mutually agreed upon by the Company and CSFB. The
Initial Financial Advisory Fee, to the extent previously paid, will be
credited against the Opinion Fee and the Additional Advisory Fee, and the
Initial Financial Advisory Fee, the Opinion Fee and the Additional Advisory
Fee, to the extent previously paid, will be credited against the Transaction
Fee or such other transaction fee paid to CSFB pursuant to clause (iii)(c)
above.
The Company has also agreed to reimburse CSFB for reasonable out-of-pocket
expenses, including the fees and expenses of legal counsel and any other
advisor retained by CSFB (with the Company's prior approval), and to indemnify
CSFB and certain related parties against certain liabilities, including
liabilities under the federal securities laws, arising out of CSFB's
engagement. In addition, the Company has agreed to engage CSFB in connection
with any external financing in connection with CSFB's engagement and any
public offering or private placement of the Company's securities during the
term of CSFB's engagement. CSFB has in the past provided financial services to
the Company unrelated to the Offer.
In the ordinary course of business, CSFB and its affiliates may actively
trade or hold the securities of the Company and the Bidder for their own
account or for the account of customers and, accordingly, may at any time hold
a long or short position in such securities.
The Company has retained Kekst & Co. ("Kekst") as its public relations
advisor in connection with the Offer and related matters. The Company has also
retained The Altman Group ("Altman") to assist the Company in connection with
its communications with Securityholders and to provide other services in
connection with the Offer and related matters. The Company will pay Kekst and
Altman reasonable and customary compensation for their services plus
reimbursement for reasonable out-of-pocket expenses. The Company has also
agreed to indemnify each of Kekst and Altman against certain liabilities and
expenses, including certain liabilities under the federal securities laws.
Item 6. Recent Transactions and Intent with Respect to Securities
(a) Except as set forth below, there have been no transactions in the
Securities during the past 60 days by the Company or, to the best of the
Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company.
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Between April 1, 1999 and April 9, 1999, Howard M. Leitner, the Senior Vice
President and Chief Financial Officer and director of the Company, sold a
total of 8,884 Shares for aggregate gross proceeds of $49,330. Mr. Leitner
consummated the sale of such Shares in compliance with the requirements of a
Qualified Domestic Relations Order to which he is subject.
(b) To the best of the Company's knowledge, none of its executive officers,
directors, affiliates or subsidiaries presently intend to tender to the Bidder
pursuant to the Offer any Securities which are held of record or beneficially
owned by such persons or to otherwise sell any such Securities.
Item 7. Certain Negotiations and Transactions by the Subject Company
(a) For the reasons discussed in Item 4 above, the Board has concluded that
the Bidder's Offer is inadequate and not in the best interests of the Company
and its Securityholders. At the May 14, 1999 meeting of the Board, the Board
further concluded that it was in the best interest of the Company and its
Securityholders that management, with the assistance the Company's legal and
financial advisors, continue to develop and evaluate alternatives to the
Bidder's Offer in order to maximize the value of the Company to its
Shareholders, including pursuing current discussions with other potential
purchasers.
Accordingly, the Company has undertaken preliminary exploratory discussions
and negotiations which relate to or would result in: (i) an extraordinary
transaction such as a merger or reorganization involving the Company or any of
its subsidiaries, (ii) a purchase, sale or transfer of a material amount of
assets by the Company or any of its subsidiaries, or (iii) a material change
in the present capitalization of the Company. In this regard, the Company has
had preliminary discussions with other parties regarding their potential
interest in a possible transaction involving the Company of the types
described above, and the Company has furnished confidential information to
certain parties indicating an interest in such a transaction and has responded
to due diligence inquiries from such parties. Although the Board has made no
decision to sell the Company, the Board will give careful consideration to any
acquisition proposal that appropriately reflects the Company's value. There
can be no assurance that the aforementioned activity will result in any
transaction being recommended by the Board or that any transaction which is
recommended will be authorized or consummated.
The Board has determined that disclosure at this time with respect to the
parties to, and the possible terms of, any transactions or proposals of the
type referred to in this Item 7 might jeopardize the institution or
continuation of any discussions that the Company has conducted or may conduct.
Accordingly, the Board adopted a resolution at its May 14, 1999 meeting
instructing management not to disclose the possible terms of any such
transactions or proposals, or the parties thereto, unless and until an
agreement in principle relating thereto has been reached or, upon the advice
of counsel, as may otherwise be required by law.
(b) Except as described in Item 3(b) and Item 4 above, there are no
transactions, board resolutions, agreements in principle or signed contracts
in response to the Offer which relate to or would result in one or more of the
matters referred to in paragraph (a) of this item.
Item 8. Additional Information to Be Furnished
The Rights Agreement.
As of December 30, 1997, the Company entered into the Rights Agreement which
amended the Rights Agreement, dated as of December 30, 1987, between the
Company and IBJ Schroder Bank and Trust Company, as rights agent, to, among
other things, (i) extend the expiration date thereof to December 30, 2007,
(ii) establish an exercise price of $28 per Right (as hereinafter defined),
subject to adjustment, (iii) reduce the redemption price to $.01 per Right,
(iv) add an exchange provision which permits the Board, at its option, in
certain circumstances after the Rights become exercisable to exchange one
share of the Company's Common Stock for each Right, (v) provide certain
exclusions from the operation of the Rights Agreement for certain inadvertent
acquisitions, (vi) name American Stock Transfer & Trust Company as successor
Rights Agent and (vii) make certain other technical modifications.
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On December 30, 1987, the Board authorized and declared a dividend
distribution of one Right (as defined below) for each outstanding share of
Common Stock of the Company to shareholders of record at the close of business
on January 22, 1988 (the "Record Date"). Except as set forth below, each
Right, when exercisable, entitles the registered holder to purchase from the
Company one share of Common Stock at a price of $28 per share (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are
set forth in the Rights Agreement.
The Rights are initially attached to all certificates representing shares of
Common Stock outstanding, and no separate Right certificates have been
distributed. Until the earlier to occur of (i) a public announcement that,
without the prior consent of the Company, (A) a person or group of affiliated
or associated persons has acquired, or obtained the right to acquire, after
December 30, 1987, beneficial ownership of securities having 20% or more of
the voting power of all outstanding voting securities of the Company, or (B) a
person or group of affiliated or associated persons that, on December 30,
1987, beneficially owned securities having 20% or more of the Company's voting
power, has acquired, or obtained the right to acquire, after December 30,
1987, beneficial ownership of securities representing an additional 2% or more
of the Company's voting power (any such person or group referred to in clauses
(A) or (B) being an "Acquiring Person" and such date being the "Stock
Acquisition Date") or (ii) the tenth business day following the commencement
of (or a public announcement of an intention to make) a tender offer or
exchange offer which would result in any person or group of related persons
becoming an Acquiring Person without the prior consent of the Company, or such
later date as may be fixed by the Board of Directors of the Company (the
earlier of such dates being called the "Distribution Date"), the Rights will
be evidenced, with respect to any of the Common Stock certificates outstanding
as of the Record Date, by such Common Stock certificate. The Rights Agreement
provides that, until the Distribution Date, the Rights will be transferred
only in conjunction with the corresponding transfer of the Common Stock
certificates. From as soon as practicable after the Record Date and until the
later of the Stock Acquisition Date or the Distribution Date (or earlier
redemption, exchange or expiration of the Rights), new Common Stock
certificates issued after the Record Date (including Common Stock certificates
issued at any time after the Record Date upon conversion of the Company's
outstanding 8% Convertible Debentures and 7% Convertible Debentures (together,
the "Convertible Debentures")) upon transfer or new issuance of the Common
Stock will contain a notation incorporating the Rights Agreement by reference.
Until the later of the Stock Acquisition Date or the Distribution Date (or
earlier redemption, exchange or expiration of the Rights), the surrender for
transfer of any certificates for Common Stock outstanding (with or without the
Summary of Rights to Purchase Common Shares attached) will also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date, and the separate Rights Certificates alone will evidence
the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on the earliest of (i) December 30, 2007, (ii) consummation of a merger
transaction with a person or group who acquired Common Stock pursuant to a
Permitted Offer (as defined below) and who is offering the same price per
share and form of consideration paid in the Permitted Offer, or (iii)
redemption or exchange by the Company as described below.
The Purchase Price payable, and the number of shares of Common Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a
stock dividend on, or a subdivision, combination or reclassification of, the
Common Stock, (ii) upon the grant to holders of the Common Stock of certain
rights or warrants to subscribe for Common Stock, certain convertible
securities or securities having the same or more favorable rights, privileges
and preferences as the Common Stock at less than the current market price of
the Common Stock or (iii) upon the distribution to holders of the Common Stock
of evidences of indebtedness or assets (excluding regular cash dividends out
of earned surplus and dividends payable in Common Stock) or of subscription
rights or warrants (other than those referred to above).
In the event that a person becomes an Acquiring Person (unless pursuant to a
tender or exchange offer for all outstanding shares of Common Stock at a price
and on terms determined by at least a majority of the members
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of the Board of Directors of the Company, who are not an Acquiring Person or
an affiliate or associate of an Acquiring Person, to be both adequate and
otherwise in the best interests of the Company and its various constituents,
including, without limitation, both the long term and short term interests of
the Company and its shareholders (a "Permitted Offer")), proper provision
shall be made so that each holder of a Right will for a 60-day period
thereafter have the right to receive upon exercise thereof that number of
shares of Common Stock having a market value of two times the then current
exercise price of the Right, subject to the availability of a sufficient
number of authorized but unissued shares (such right being called the
"Subscription Right").
In the event that after a Stock Acquisition Date the Company is acquired in
a merger or other business combination transaction involving the Company or
50% or more of its assets or earning power are sold (in one transaction or a
series of transactions), proper provision shall be made so that each holder of
a Right shall thereafter have the right to receive, upon the exercise thereof
at the then current exercise price of the Right, that number of shares of
common stock of the acquiring company (or, in the event there is more than one
acquiring company, the acquiring company receiving the greatest portion of the
assets or earning power transferred) which at the time of such transaction
would have a market value of two times the exercise price of the Right (such
right being called the "Merger Right").
The holder of a Right will continue to have the Merger Right whether or not
such holder exercises the Subscription Right. Upon the occurrence of any of
the events giving rise to the exercisability of the Subscription Right or the
Merger Right, any Rights that are or were at any time owned by an Acquiring
Person engaging in any of such transactions or receiving the benefits thereof
on or after the time the Acquiring Person becomes such shall become void
insofar as they relate to the Subscription Right or the Merger Right.
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractions of shares will be issued and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Common Stock on the last trading date prior to the date of exercise.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, the Company may redeem
the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"), which redemption shall be effective upon the action of
the Board. Additionally, the Company may thereafter redeem the then
outstanding Rights in whole, but not in part, at the Redemption Price provided
that such redemption is incidental to a merger or other business combination
transaction or series of transactions involving the Company but not involving
an Acquiring Person or any person who was an Acquiring Person or following an
event giving rise to, and the expiration of the exercise period for, the
Subscription Right if and for as long as no person beneficially owns
securities representing 20% or more of the voting power of the Company's
voting securities. The redemption of Rights described in the preceding
sentence shall be effective only as of such time when the Subscription Right
is not exercisable, and in any event, only after 10 business days prior
notice. Upon the effective date of the redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the Company's
voting power and prior to the acquisition by any such person or group of 50%
or more of the Company's voting power, the Board of Directors, at its option,
may exchange all or part of the then outstanding and existing Rights (other
than Rights owned by such person or group which shall become void), for Common
Stock, at an exchange ratio of one share of Common Stock per Right (subject to
adjustment).
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stock-holder of the Company, including, without limitation, the right to
vote or to receive dividends.
The foregoing description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement.
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Section 912 of the New York Business Corporation Law.
The Offer is conditioned upon, among other things, the Bidder being
satisfied that the restrictions on business combinations contained in Section
912 of the New York Business Corporation Law ("Section 912") are inapplicable
to the proposed merger set forth in the Offer to Purchase.
Section 912 regulates certain business combinations, including mergers, of a
New York corporation, such as the Company, with a person that has,
individually or with or through its affiliates or associates, acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding voting stock of such corporation (an "Interested Shareholder").
Section 912 provides that no New York corporation may engage in any business
combination with any Interested Shareholder of such corporation for a period
of five years following the date on which such Interested Shareholder becomes
an Interested Shareholder (a "Stock Acquisition Date") unless such business
combination or the purchase of stock made by such Interested Shareholder on
such Interested Shareholder's Stock Acquisition Date is approved by the board
of directors of such corporation prior to such Interested Shareholder's Stock
Acquisition Date.
Unless the Bidder satisfies the requirements of Section 912, the Bidder
would be unable to effect the proposed merger with the Company as contemplated
by the Offer to Purchase for a period of five years.
The foregoing summary of Section 912 does not purport to be complete and is
qualified in its entirety to references to the provisions of Section 912.
Litigation.
Between April 26, 1999 and April 27, 1999, two putative class action
lawsuits were filed by alleged Shareholders of the Company against certain
officers and directors of the Company and the Company, in the Supreme Court of
the State of New York, styled LAURA BENJAMIN V. CHOCK FULL O'NUTS CORP., ET
AL., C.A. No. 9108759 and SANDRA KAFENBAUM ET AL. V. MARK A. ALEXANDER ET AL.,
C.A. No. 99602054. In addition, on April 26, 1999 a shareholder's derivative
complaint was filed by alleged Shareholders of the Company against certain
officers and directors of the Company and the Company, in the Supreme Court of
the State of New York, styled HARBOR FINANCE PARTNERS AND ALAN FREBURG V.
MARVIN I. HAAS ET AL., No. 99-602013. Each of the class action suits and the
shareholder's derivative suit set forth substantially similar allegations of
purported misconduct and breach of fiduciary duties by certain officers and
directors of the Company and the Board related to their conduct and
consideration of certain business combinations. The shareholder plaintiffs
seek, in each case unspecified damages, attorneys' fees and equitable relief,
including, among other things, orders requiring the individual defendants to
carry out their fiduciary duties, enjoining them from proceeding with alleged
violations complained of in the complaints, and requiring them to disgorge all
profits allegedly earned from purported insider stock transactions during the
relevant time period. The Board has received a letter from another shareholder
threatening a shareholder's derivative suit similar to that set forth above.
In addition, the Company has been informed that several additional lawsuits
have been filed which the Company believes contain allegations substantially
similar to those set forth above, however, the Company has not been served
with complaints in such matters. The descriptions of the litigation contained
in this section are qualified in their entirety by the complaints filed as
Exhibits 4, 5 and 6 hereto.
9
<PAGE>
Item 9. Material to Be Filed as Exhibits
<TABLE>
<CAPTION>
Exhibit No.
-----------
<C> <S>
Exhibit 1 Excerpts from Proxy Statement Chock Full O'Nuts Corporation, dated
October 26, 1998.+
Exhibit 2 Letter to Shareholders, dated May 20, 1999.+
Exhibit 3 Press Release of Chock Full O'Nuts Corporation, dated May 20,
1999.+
Exhibit 4 Complaint filed in the Supreme Court of the State of New York,
Laura Benjamin v. Chock Full O'Nuts Corp., et al. (C.A. No.
9108759).+
Exhibit 5 Complaint filed in the Supreme Court of the State of New York,
Sandra Kafenbaum et al. v. Mark A. Alexander et al. (C.A. No.
99602054).+
Exhibit 6 Complaint filed in the Supreme Court of the State of New York,
Harbor Finance Partners and Alan Freburg v. Marvin I. Haas et al.
(No. 99-602013).+
</TABLE>
- --------
+ Filed herewith.
10
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Chock Full O'Nuts Corporation
/s/ Howard M. Leitner
By: _________________________________
Name:Howard M. Leitner
Title:Senior Vice President and
Chief Financial Officer
Dated: May 20, 1999
<PAGE>
Exhibit Index
Exhibit 1 Excerpts from Proxy Statement Chock Full O'Nuts Corporation, dated
October 26, 1998.+
Exhibit 2 Letter to Shareholders, dated May 20, 1999.+
Exhibit 3 Press Release of Chock Full O'Nuts Corporation, dated May 20,
1999.+
Exhibit 4 Complaint filed in the Supreme Court of the State of New York,
Laura Benjamin v. Chock Full O'Nuts Corp., et al. (C.A. No.
9108759).+
Exhibit 5 Complaint filed in the Supreme Court of the State of New York,
Sandra Kafenbaum et al. v. Mark A. Alexander et al. (C.Al. No.
99602054).+
Exhibit 6 Complaint filed in the Supreme Court of the State of New York,
Harbor Finance Partners and Alan Freburg v. Marvin I. Haas et al.
(No. 99-602013).+
- --------
+ Filed herewith.
<PAGE>
Exhibit 1
---------
Excerpts from October 26, 1998 Proxy
Statement of Chock Full O'Nuts Corporation
EXECUTIVE COMPENSATION AND TRANSACTIONS WITH
DIRECTORS, OFFICERS AND PRINCIPAL HOLDERS
The following information is furnished with respect to each of the
five highest compensated executive officers of the Company who were executive
officers of the Company at any time during the fiscal year ended July 31, 1998:
COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
(a)
Marvin I. Haas 1998 $268 $20
President and 1997 269 $205
Chief Executive Officer 1996 269
Howard M. Leitner 1998 222 20
Senior Vice President and 1997 221 84
Chief Financial Officer 1996 222
Thomas Donnell 1998 170 34 5
Officer of Cain's Coffee Company 1997 163 65
President and Chief Executive 1996 167 52
Martin J. Cullen 1998 184 20
Vice President, Secretary 1997 183 45
and Treasurer 1996 186
Anthony Fazzari 1998 172 8 11
Senior Vice President - Retail 1997 170 50
Sales and Marketing 1996 175 28 ----
</TABLE>
(a) Perquisites include use of corporate automobiles (ranging from $1,000 and
$10,000) and life insurance (ranging between $2,000 and $10,000).
On August 5, 1998, the Company entered into employment agreements with
Marvin I. Haas, Howard M. Leitner and four other officers. The agreements are
effective in the event of a change in control (as defined) and provide, among
other matters, for a term of three years beginning immediately after the change
in control and for base salary, bonus and other employee benefits at amounts
existing immediately prior to the change in control.
<PAGE>
-2-
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning
options/SARs granted during fiscal 1998 to the named executives:
Individual Grants
<TABLE>
Number of % of Total
Securities Options/SARs Exercise Grant Date
Underlying Granted to or Base Present
Options/SARs Employees in Price Expiration Value
Name Granted Fiscal Year ($/Share) Date (1)(2)
<S> <C> <C> <C> <C> <C>
Howard M. Leitner 8,000 15.1% $6.94 12/11/02 $16,080
Thomas Donnell 7,500 14.2% 6.94 12/11/02 $15,075
Anthony Fazarri 7,500 14.2% 6.94 12/11/02 $15,075
</TABLE>
(1) Options are exercisable in three equal annual installments commencing one
year after the date of grant.
(2) Grant date present value is determined using the Black-Scholes Model. The
Black-Scholes Model is a complicated mathematical formula widely used to
value exchange traded options. However, stock options granted by the
Company to its executives differ from exchange traded options in three key
respects; options granted by the Company to its executives are long-term,
non-transferable and subject to vesting restrictions while exchange traded
options are short-term and can be exercised or sold immediately in a liquid
market. In this presentation, the Black-Scholes Model has been adapted to
estimate the present value of the options set forth in the table, taking
into consideration a number of factors, including the volatility of the
Common Stock, its dividend rate, the term of the option and interest rates.
Consequently, because the Black-Scholes Model is adapted to value the
options set forth in the table and is assumption-based, it may not
accurately determine present value. The actual value, if any, an optionee
will realize will depend on the excess of the market value of the Common
Stock over the exercise price on the date the option is exercised.
<PAGE>
-3-
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR END OPTION/SAR VALUES
The following table summarizes options and SARs exercised during
fiscal 1998 and presents the value of the unexercised options and SARs held by
the named executives at fiscal year end:
<TABLE>
<CAPTION>
Value of
Unexercised
In-the-Money
Number of Options/SARs
Unexercised at Fiscal
Shares Options/SARs at Year-End
Acquired Fiscal Year-End Exercisable (E)
on Valued Exercisable (E) Unexercisable
Name Exercise Realized Unexercisable (U) (U)
<S> <C> <C> <C> <C>
Marvin I. Haas 0 0 166,667 E $93,750E
83,333 U $46,875U
Howard M. Leitner 0 0 10,667 E
13,333 U
Thomas Donnell 0 0 6,667 E
10,833 U
Martin J. Cullen 0 0 6,667 E
3,333 U
Anthony Fazzari 0 0 6,667 E
10,833 U
</TABLE>
Restricted stock share holdings at July 31, 1998 from Mr. Leitner and
Mr. Cullen amounted to 35,778 shares ($225,800) and 3,577 ($22,580),
respectively. These shares are to vest ratably through 2001. The unvested
portion of the shares are subject to forfeiture in the event the Company
terminates employment for Cause (as defined) or the employee terminates
employment for a reason (as defined) other than death, disability, retirement at
or after normal retirement date or Good Reason and to accelerated vesting in the
event of termination of employment by the employee for Good Reason, death,
disability or retirement, or after a Change in Control (as defined).
The Company has established a Benefits Protection Trust with State
Street Bank and Trust Company (the "Trust Fund") and has contributed $700,000
thereto. The Trust Fund is to be used for litigation expenses incurred by
Company employees, including all executive officers of the Company, in the event
that after a change in control (as defined) the new management of the Company
refuses to pay benefits under any employment contract or any employee benefit
plan maintained by the Company. At the present time, the Company has no
intention of making additional contributions to the Trust Fund.
<PAGE>
-4-
As compensation for their services, each independent director (i.e., a
---
director who is not also an officer or employee of the Company) is paid $16,000
annually in cash. Each independent director who is a member of the Audit
Committee or the Compensation Committee is paid $1,000 for attendance at a
meeting of the Committee on which he serves. The Company does not pay director
fees to directors who are employees of the Company.
Annual pension payments as of July 31, 1998 under the Company's
defined benefit plan which would be payable for Messrs. Haas, Leitner, Donnell,
Cullen and Fazzari (assuming normal retirement date) amount to approximately
$30,000, $48,000, $17,000, $109,000 and $39,000, respectively.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee's responsibilities include establishing the
Company's policies governing compensation of officers and other key executives
of the Company. The Committee's principal objective in setting such policies is
to develop a program designed to attract and retain officers and other key
executives critical to the success of the Company and to reward and motivate
those executives for performance which enhances the profitability of the Company
and creates value for its shareholders.
To achieve these objectives, the Compensation Committee has developed
a competitive, market-driven base salary program coupled with an annual
incentive cash bonus plan geared toward performance. Base salaries, prior to
bonus awards, for officers and key executives have been fixed at levels believed
to be within a competitive range for comparable positions in comparable
companies. The President and Chief Executive Officer can receive a bonus of
from 25% to 90% of base pay dependent upon the achievement of certain targeted
levels of earnings per share and a return on net assets at an agreed upon
percent. The President and Chief Executive Officer of Cain's Coffee Company can
receive a bonus of from 25% to 45% of base pay dependent upon a return on net
assets at an agreed upon percentage of such company. The Senior Vice President
and Chief Financial Officer can receive a bonus from 12.5% to 45% of base pay
dependent upon the achievement of certain targeted levels of earnings per share
and a return on net assets at an agreed upon percent. The Vice-President,
Secretary/Treasurer can receive a bonus of from 8% to 30% of base pay dependent
upon the achievement of certain targeted levels of earnings per share and a
return on net assets at an agreed upon percent. The Senior Vice
<PAGE>
-5-
President of Retail Sales and Marketing can receive a bonus of from 18% to 45%
of base pay dependent upon sales volume, a return on net assets and operating
profit at an agreed upon percent and levels. In addition, certain other officers
and key executives can receive a bonus up to 45% of base pay based on specified
levels of sales volume, margins, purchasing efficiencies, manufacturing plan
expenditures, operating results, a return on net assets at an agreed upon
percent and the achievement of certain targeted levels of earnings per share.
Tying a significant portion of overall executive compensation to the achievement
of performance objectives and thus making such bonus "at risk" is believed to
align the financial interests of the participating executives with those of the
Company and its shareholders. The bonus is only paid if the executive is
employed as at the last day of the fiscal year. In addition, non-qualified stock
options are also granted, from time to time, based upon long-term corporate
objectives and individual circumstances. In determining long-term incentive
grants, the Compensation Committee has set shareholder value creation as a
priority. During fiscal 198, 23,000 non-qualified stock options were granted to
the named executives. The incentive cash bonus program for fiscal 1998 is
substantially the same as fiscal 1997 which was reviewed for the Compensation
Committee by a senior external compensation consulting specialist and found to
utilize accepted incentive compensation techniques, including quantifiable
operating objectives that must be met to receive an incentive award and
structures that tie awards directly to performance through sliding scale payout
schedules that include performance thresholds and payout caps.
The base salary levels for the President and Chief Executive Officer
and all other officers and key executives are reviewed and approved by the
Compensation Committee based upon competitive salary data developed for the
Committee in consultation with a compensation specialist from a major New York
law firm. This data includes salaries paid to the executives at comparable
corporations and is affected by overall salary movement in the workplace,
generally, and the food industry in which the Company operates. Salary changes
are recommended to the Compensation Committee based upon a comparison between
each executive's base pay and those of other companies of similar size in the
food industry, the length of service of each executive and how well each
executive has performed in relation to predetermined goals and other operational
issues which may have arisen during the preceding year.
Compensation for the Chief Executive Officer for 1998 was determined
in accordance with the preceding factors. Mr.
<PAGE>
-6-
Haas' compensation also reflected his inclusion in the incentive bonus program
which can provide a substantial part of his overall potential compensation
dependent upon the performance of the Company.
COMPENSATION COMMITTEE
JERRY COLUMBUS
HENRY SALZHAUER
R. SCOTT SCHAFLER
DAVID S. WEIL
PENSION PLAN
The Chock Full O'Nuts Corporation Pension Plan ("Plan") is a
noncontributory defined benefit plan covering all non-union employees of the
Company. Employees become eligible for membership in the Plan on the
anniversary dates coinciding with or next following the date of attainment of
age 20 1/2 and completion of six months of services. Participants become fully
vested after 5 years of service. Prior thereto there are no benefits payable
under the Plan.
The Plan provides normal retirement benefits, reduced early retirement
benefits and increased post-retirement benefits which are available at the
employee's option. Benefits are payable in the form of a straight life annuity
or a 50% joint and survivor annuity. At Normal Retirement (age 65) or Postponed
Retirement (age 70), a participant receives an annual pension payable in equal
monthly installments equal to 2% of his final 5 year average compensation times
credited service to a maximum of 50% of the final 5 year average compensation.
Credited service includes years of service rendered after reaching age 22. The
years of credited service under the Plan at July 31, 1998 of Messrs. Haas,
Leitner, Donnell, Cullen, and Fazzari are 8, 18, 4, 25, and 10, respectively.
Marvin I. Haas and Howard M. Leitner are the Trustees of the Plan.
The Company maintains a non-qualified, unfunded Supplemental Employee
Retirement Plan ("SERP"), which covers those participants of the Plan whose
benefits would otherwise be denied by reason of certain Internal Revenue Code
limitations on qualified plan benefits. A participant in the SERP is entitled
to a benefit equaling the difference between the amount of benefits the
participant is entitled to without reduction
<PAGE>
-7-
(limited to $130,000 at normal retirement) and the amount of benefits the
participant is entitled to after the reduction (those payable under the Plan).
The SERP provides for immediate funding in the event of a change in control (as
defined) of the Company.
The table below shows the estimated annual pension benefits at normal
retirement age to an employee upon retirement under the Plan, taking into
account the Company's SERP.
<TABLE>
<CAPTION>
Final
Average
Earnings 15 Years 20 Years 25 Years 30 Years 35 Years
- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$300,000
and higher $78,000 $104,000 $130,000 $130,000 $130,000
$250,000 75,000 100,000 125,000 125,000 125,000
$200,000 60,000 80,000 100,000 100,000 100,000
$150,000 45,000 60,000 75,000 75,000 75,000
$100,000 30,000 40,000 50,000 50,000 50,000
</TABLE>
401(k) CASH OR DEFERRED COMPENSATION PLAN
The Company maintains a tax-qualified 401(k) cash or deferred
compensation plan that covers certain employees who have completed one year of
service and attained age 20. Participants are permitted, within the limitations
imposed by the Internal Revenue Code, to make pre-tax contributions to the plan
pursuant to salary reduction agreements. The contributions of the participants
are held in separate accounts which are always fully vested.
DEFERRED COMPENSATION PLAN
The Chock Full O'Nuts Deferred Compensation plan for certain key
executives (the "Deferred Compensation Plan") became effective August 1, 1987.
The purpose of the Deferred Compensation Plan is to supplement the pension
benefits available to certain officers and key employees of the Company under
the Chock Full O'Nuts Corporation Pension Plan and to further the growth in the
earnings of the Company by offering long-term incentives to such officers and
key employees who will be largely responsible for such growth. While the
arrangement is considered unfunded for tax purposes, the Company and Wachovia
Bank & Trust Company have entered into a grantor trust agreement establishing a
trust fund to aid the Company in accumulating the amounts necessary to satisfy
its liability for deferred compensation benefits. The assets of the trust will
at all times be subject to the claims of the Company's creditors. The
<PAGE>
-8-
Company will make contributions annually in an amount which will fully fund each
covered executive's benefit as of his expected retirement, and will make
payments of deferred compensation benefits to the extent the trust does not.
Pursuant to the provisions of the Deferred Compensation Plan, the
Compensation Committee of the Board shall determine those employees who shall be
entitled to participate in the Deferred Compensation Plan and the amount of the
supplemental benefits to be paid to any such participant. Upon such
determination, such employee and the Company shall enter into a deferred
compensation agreement which specifies the amount and rights of such participant
to receive supplemental pension benefits.
As of the date hereof there are no deferred compensation agreements
outstanding under the Deferred Compensation Plan.
EMPLOYEE STOCK OWNERSHIP PLAN
In November 1988, the Company's Board of Directors approved the Chock
Full O'Nuts Corporation Employee Stock Ownership Plan ("ESOP") which is a
noncontributory plan established to acquire shares of the Company's common stock
for the benefit of all eligible employees. In January 1991, April 1991, May
1995, September 1995 and August 1997 the Company loaned the ESOP $325,000,
$675,000, $500,000, $500,000 and $1,000,000, respectively, to be repaid in equal
annual installments over eight years from the date of the loan with interest
primarily at 9% and 10%. Each full-time employee of the Company who is not
represented by a labor union is eligible to participate in the ESOP on the date
which is one year after the date of his employment by the Company. All such
participating employees are vested in those shares allocated to their specific
accounts after a period of five years or in the event of a change in control (as
defined). Shares are allocated to participant's accounts annually based upon
the annual compensation (up to $160,000) earned by each participant. As the
Company makes annual contributions to the ESOP, these contributions are used to
repay the loans to the Company, together with accrued interest. Deferred
compensation equal to the loans has been recorded as a reduction of
stockholders' equity representing the Company's prepayment of future
compensation expense. As contributions are made, common stock is allocated to
ESOP participants and deferred compensation is reduced by the amount of the
principal payment on the loans. Marvin I. Haas and Howard M. Leitner are the
administrators of the ESOP.
<PAGE>
-9-
As of the date of this proxy statement a total of 4,740 shares, 4,608
shares, 1,831 shares, 6,236 shares and 5,667 shares of common stock were
allocated to each of the accounts of Messrs. Haas, Leitner, Donnell, Cullen and
Fazzari, respectively.
UNFUNDED DIRECTORS RETIREMENT PLAN
The Board of Directors has adopted an Unfunded Directors Retirement
Plan (the "Directors Plan") for directors who are not and never have been
employees of the Company (the "Outside Directors"). Each Outside Director who
retires from the Board with at least five full years of service as a director of
the Company shall, at the latter of age 65 or on the date on which such director
retires from the Board (the "Payment Date") receive for a period of 10 years
from the Payment Date an annual cash benefit payment (the "Retired Director's
Fee") equal to the regular annual director's fee in effect upon such director's
retirement; provided, however, that if such director is terminated as a director
following a change in control (as defined) the balance of such director's then
current term shall be credited toward his five-year service requirement and in
addition, the surviving spouse of any director who dies (in office or after
retirement) after meeting the foregoing age and service requirements shall
receive or continue to receive such director's benefits of the balance of the 10
year period during which the deceased director was entitled thereto, and payment
of such Retired Director's Fee shall terminate upon the death of any such
director and such director's surviving spouse. Benefits are currently being
paid to the surviving spouses of two deceased directors. As of the date hereof,
three Outside Directors meet the age and service requirements for the receipt of
benefits in the event of their retirement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1998, the shares
of the Company's Common Stock owned beneficially by the present directors and
nominees of the Company individually and by all present directors, nominees and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
Name of Beneficial
Owner Common Stock Beneficially Owned Percent of Class
- -------------------- ------------------------------- ----------------
<S> <C> <C>
Marvin I. Haas 746,591(1)(7) 6.8%(1)(7)
Howard M. Leitner 447,958(1)(7) 4.1%(1))(7)
</TABLE>
<PAGE>
-10-
<TABLE>
<CAPTION>
Name of Beneficial
Owner Common Stock Beneficially Owned Percent of Class
- -------------------- ------------------------------- ----------------
<S> <C> <C>
Mark A. Alexander 3,020(3) *
Norman E. Alexander 46,179(4) *
Martin J. Cullen 23,446(7) *
Stuart Z. Krinsly 1,280(5) *
Henry Salzhauer 127,175(6) 1.2%
R. Scott Schafler 3,182 *
David S. Weil 6,796 *
</TABLE>
All Directors and executive officers as
a group (17 persons), including the
above named persons 1,838,451(1)(2)(7) 16.7%(1)(2)(7)
* Less than 1% of class.
(1) Includes 389,100 shares owned by the Chock Full O'Nuts Corporation Pension
Trust of which Marvin I. Haas and Howard M. Leitner are the Trustees. See
"Pension Plan."
(2) Includes 800,078 shares owned by the Chock Full O'Nuts Corporation Employee
Stock Ownership Plan of which Marvin I. Haas and Howard M. Leitner are the
administrators. See "Employee Stock Ownership Plan".
(3) Includes 1,920 shares which would be received upon conversion of $15,000 of
the Company's 5% Convertible Subordinated Debentures.
(4) Includes 44,884 shares owned by Galleon Syndication Corporation of which
Norman E. Alexander owns 100% of the issued and outstanding capital stock.
(5) Represents shares which would be received upon the conversion of $10,000 of
the Company's 8% Convertible Subordinated Debentures.
(6) Includes 6,075 shares which would be received upon the conversion of
$50,000 of the Company's 7% Convertible Senior Subordinated Debentures.
(7) Includes for Messrs. Haas, Leitner and Cullen, respectively, 166,667, 10667
and 6,667 shares granted under stock option agreements which are currently
exercisable.
<PAGE>
-11-
The following tables set forth, as of October 6, 1998, the shares of
the Company's Common Stock owned beneficially by persons known to the Company to
own more than five percent of the outstanding shares of Common Stock of the
Company:
<TABLE>
<CAPTION>
Name and Address of Beneficial Common Stock Beneficially Percent
Owner Owned of Class
- ------------------------------ ------------------------- --------
<S> <C> <C>
Chock Full O'Nuts
Corporation
Employee Stock
Ownership Plan
Chock Full O'Nuts
Corporation
370 Lexington Avenue
New York, New York 10017 800,078(1) 7.4%(1)
Gabelli Funds, Inc.
One Corporate Center
Rye, New York 10580 1,753,315(2) 15.3%(2)
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
735,576(3) 6.8%(3)
The TCW Group, Inc.
865 South Figueroa Street
Los Angeles, California 90017
823,588(6) 7.6%(4)
</TABLE>
(1) See "Employee Stock Ownership Plan".
(2) Includes 369,744 shares which would be received upon conversion of
$3,043,000 of the Company's 7% Convertible Senior Subordinated Debentures
and 222,919 shares which would be received on conversion of $1,741,000 of
the Company's 8% Convertible Subordinated Debentures. This information has
been confirmed to the Company by Gabelli Funds, Inc. on October 2, 1998.
<PAGE>
-12-
(3) This information as of June 30, 1998 has been confirmed to the Company by
Dimensional Fund Advisors, Inc. on October 6, 1998.
(4) The information has been confirmed to the Company by The TCW Group, Inc. on
October 5, 1998.
<PAGE>
EXHIBIT 2
[LOGO of Chock full o'Nuts]
370 LEXINGTON AVE.
NEW YORK, NY 10017
TEL:(212) 532-0300
FAX:(212) 679-9737
May 20, 1999
Dear Fellow Securityholder:
We want to report to you on your Board's review of the offer by Sara Lee
Corporation to acquire Chock Full O'Nuts. After careful consideration, the
Board has unanimously concluded that the $10.50 per share offer does not
adequately reflect the potential value of the Company achievable for its
securityholders. Accordingly, the Board recommends that Chock Full O'Nuts
securityholders reject the Sara Lee offer and not tender any securities to the
bidder.
In reaching its conclusion, the Board considered, among other things:
. discounted cash flow analyses (including management's estimates of
synergies achievable by an acquiror) indicating that the per share value
of Chock Full O'Nuts is higher than Sara Lee's offer of $10.50 per
share;
. the long-term prospects of the coffee industry, which the Board
perceives to be generally positive, despite the industry's recent
weakness; and
. its belief that the $10.50 per share offer is an attempt by Sara Lee to
acquire a competitor at a bargain price, a belief that is based in part
upon the fact that Sara Lee has more than once indicated the possibility
of a transaction at a price of $11.00 per share.
The Board also determined that it is in the best interests of its
securityholders at this time for the Company to evaluate alternatives to the
Sara Lee offer, including pursuing current discussions with other potential
purchasers. Accordingly we have asked our independent financial advisor, Credit
Suisse First Boston Corporation, to assist in this process.
We are committed to protecting the best interests of the Chock Full O'Nuts
securityholders and are determined to proceed with a careful exploration of
alternatives to the Sara Lee offer that would serve the best interests of our
securityholders. We will keep you informed of our progress. In the meantime, we
urge you not to tender any securities to the bidder.
Sincerely,
/s/ Norman E. Alexander /s/ Marvin I. Haas
Chairman of the Board President and Chief Executive
Officer
<PAGE>
EXHIBIT 3
AT THE COMPANY: KEKST AND COMPANY
Howard Leitner Fredric J. Spar/Jessica Barist
Chief Financial Officer (212) 521-4800
(212) 532-0300
CHOCK FULL O'NUTS BOARD URGES SHAREHOLDERS TO REJECT SARA LEE OFFER
NEW YORK, NY, MAY 20, 1999--Chock Full O'Nuts Corporation (NYSE:CHF) said
today that its Board of Directors has unanimously concluded that the $10.50
per share offer from Sara Lee Corporation does not adequately reflect the
potential value of the company achievable for its securityholders.
Accordingly, the Board recommends that Chock Full O'Nuts securityholders
reject the Sara Lee offer and not tender any securities to the bidder.
In reaching its conclusion, the Board, considered, among other things:
. discounted cash flow analyses (including management's estimates of
synergies achievable by an acquiror) indicating that the per share value
of Chock Full O'Nuts is higher than Sara Lee's offer of $10.50 per
share;
. the long-term prospects of the coffee industry, which the Board
perceives to be generally positive, despite the industry's recent
weakness; and
. its belief that the $10.50 per share offer is an attempt by Sara Lee to
acquire a competitor at a bargain price, a belief that is based in part
upon the fact that Sara Lee has more than once indicated the possibility
of a transaction at a price of $11.00 per share.
The Board also said that it believes that it is in the best interests of its
securityholders at this time for the company to evaluate alternatives to the
Sara Lee offer, including pursuing current discussions with other potential
purchasers. Accordingly, it has asked its independent financial advisor,
Credit Suisse First Boston Corporation, to assist it in this process.
"The Board is committed to protecting the best interests of the Company's
securityholders and has unanimously concluded that the Sara Lee offer does not
meet this objective," said Marvin Haas, president and chief executive officer.
"We are determined to proceed with a careful exploration of alternatives to
the Sara Lee offer that would serve the best interests of all
securityholders."
Chock Full O'Nuts roasts, packs and markets regular, instant and
decaffeinated coffees under the Chock Full O'Nuts label. Its best known coffee
product is its premium, vacuum-packed, all method grind coffee. The Company is
also one of the largest marketers of food service and private label coffee,
tea and related products. Chock is also franchising Quikava, a 600-square-foot
drive-through and fresh-baked-goods concept, in its core markets in the
Northeast and Mid-Atlantic states.
To receive additional information on Chock Full O'Nuts, via fax, at no charge,
dial 1-800-PRO-INFO and enter code CHF.
# # #
<PAGE>
Exhibit 4
---------
SUPREME COURT OF NEW YORK
COUNTY OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - x
:
LAURA BENJAMIN, individually and
on behalf of all others :
similarly situated,
: C.A No. 9108759/99
Plaintiff,
:
v.
: CLASS ACTION COMPLAINT
CHOCK FULL O' NUTS CORP., NORMAN
E. ALEXANDER, MARTIN J. CULLEN, :
MARVIN I. HAAS, HOWARD M. LEITNER,
MARK A. ALEXANDER, JERRY COLUMBUS, :
STUART Z. KRINSLY, HENRY SALZHAUER,
R. SCOTT SCHAFLER, and DAVID S. WEIL, :
Defendants. :
- - - - - - - - - - - - - - - - - - - - - x
Plaintiff, by her attorneys, alleges upon information and belief,
except as to paragraph 1 which Plaintiff alleges upon knowledge, as follows:
PARTIES
-------
1. Plaintiff Laura Benjamin is a stockholder of defendant Chock Full O'
Nuts Corp. ("Chock" or "the Company"), and has been at all times relevant
hereto.
2. Defendant Chock is a corporation duly organized and existing under
the laws of the State of New York, with its principal executive offices located
at 370 Lexington Avenue,
<PAGE>
-2-
New York, NY. Chock roasts, packs and markets regular, instant and decaffeinated
coffees, regular and decaffeinated teas and other related food products to
foodservice customers and conducts real estate operations. As of October 8,
1998, there were approximately 10,831,000 shares of Chock common stock issued
and outstanding, which are listed and trade on the New York Stock Exchange.
Chock has approximately 1,430 shareholders of record. Most of these record
holders hold as nominees for a much larger group of beneficial owners.
3. Defendant Norman E. Alexander ("Alexander") was Chock's Chairman of
the Board at all times relevant hereto.
4. Defendant Martin J. Cullen ("Cullen") was Chock's Vice President,
Treasurer, Secretary, and a Director at all times relevant hereto.
5. Defendant Marvin I. Haas ("Haas") was Chock's President, Chief
Executive Officer, and a Director at all times relevant hereto.
6. Defendant Howard M. Leitner ("Leitner") was Chock's Senior Vice
President, Chief Financial Officer, and a Director at all times relevant hereto.
7. Defendants Mark A. Alexander ("Alexander"), Jerry Columbus
("Columbus"), Stuart Z. Krinsly ("Krinsly") ,
<PAGE>
-3-
Henry Salzhauer ("Salzhauer"), R. Scott Schafler ("Schafler"), and David S. Weil
("Weil") were outside directors of Chock at all times relevant hereto.
8. The individual defendants named above (sometimes collectively
referred to herein as the "Individual Defendants"), as officers and/or directors
of Chock, have a fiduciary relationship and responsibility to Plaintiff and the
other common public stockholders of Chock, and owe to Plaintiff and the other
class members the highest obligations of good faith, loyalty, fair dealing, due
care and candor.
CLASS ACTION ALLEGATIONS
------------------------
9. Plaintiff brings this action on his own behalf and as a class action,
pursuant to CPLR (S) 908, on behalf of all common stockholders of Chock, or
their successors in interest, who are being and will be harmed by defendants'
actions described below (the "Class"). Excluded from the Class are defendants
herein and any person, firm, trust, corporation, or other entity related to or
affiliated with any of defendants.
10. This action is properly maintainable as a class action because:
<PAGE>
-4-
a. The Class is so numerous that joinder of all members is
impracticable. There are hundreds of Chock stockholders who are located
throughout the United States;
b. There are question of law and fact which are common to the Class,
including: whether the defendants have engaged or are continuing to act in a
manner calculated to benefit themselves at the expense of Chock stockholders;
and whether Plaintiff and the other members of the Class would be irreparably
damaged if the defendants are not enjoined in the manner described below;
c. The defendants have acted or refused to act on grounds generally
applicable to the Class, thereby making appropriate final injunctive relief with
respect to the Class as a whole.
d. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
Plaintiff are typical of the claims of the other members of the Class and
Plaintiff has the same interests as the other members of the Class. Accordingly,
Plaintiff is an adequate representative of the Class and will fairly and
adequately protect the interests of the Class; and
<PAGE>
-5-
e. Plaintiff anticipates that there will be no difficulty in the
management of this litigation.
11. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this controversy
and the requirements of CPLR (S) 908 of the Chancery Court Rules are satisfied.
CLAIM FOR RELIEF
----------------
12. Between August and October 1998, Sara Lee Corp. ("Sara Lee") held
discussions with Chock regarding a possible merger transaction at a price of
$11.00 per Chock share. The information regarding a potential transaction was
not disclosed to the investing public.
13. Acting on information regarding the potential merger transaction,
certain defendant directors purchased stock during and/or after the merger
discussions held with Sara Lee:
<PAGE>
-6-
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Purchase Price
Date Shares per share Total Price
------ -------- --------- -----------
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alexander 2/14/99 266,550 5.00 $1,332,750.00
- --------------------------------------------------------------------------------------------------
Columbus 1/12/99 3,000 5.50 16,500.00
- --------------------------------------------------------------------------------------------------
Salzhauzer 2/25/99 5,000 5.28 26,400.00
1,000 5.28 5,280.00
1/12/99 1,000 5.78 5,780.00
1/11/99 1,500 5.47 8,250.00
8/26/98 4,200 5.08 21,336.00
8/21/98 4,200 5.25 22,050.0O
- --------------------------------------------------------------------------------------------------
TOTAL 286,450 $1,432,566.00
- --------------------------------------------------------------------------------------------------
</TABLE>
14. On April 22, 1999, Bloomberg News reported that Sara Lee acquired a
5.3% stake in Chock and is seeking to buy the rest of the Company for at least
$10.50 per share. Financial advisors to Chock made a counter offer of $12.50 a
share in Sara Lee stock. Sara Lee then made another bid of $10.50 a share but
offered to pay investors in Sara Lee stock.
15. Under such circumstances, the loyalties of Chock's board members
are, at best, divided and the board members cannot be expected to act in the
best interest of Chock's stockholders.
16. The Individual Defendants, who dominate and control the Company
through their directorial and management positions, are obligated to explore all
alternatives to maximize shareholder value. The Individual Defendants have or
will breach their fiduciary duties owed to plaintiff and other Chock
<PAGE>
-7-
public shareholders by failing to fully explore any potential bona fide offers
for the purchase of the Company and by failing to respond reasonably and on an
informed basis to potential offers for the Company.
17. By reason of the foregoing acts, practices and course of conduct,
the defendants have failed to exercise ordinary care and diligence in the
exercise of their fiduciary obligations towards plaintiff and the other Chock
public shareholders.
18. The Individual Defendants' fiduciary obligations require them to:
a) undertake an appropriate evaluation of any bona fide offers for the
Company as a whole or any of its assets, and take appropriate steps to
solicit all potential bids for the Company or its assets or consider
strategic alternatives;
b) act independently so that the interests of Chock's public stockholders'
will be protected;
c) adequately ensure that no conflicts of interest exist between the
Individual Defendants' own interests and their fiduciary obligations to
the public stockholders of Chock; and
<PAGE>
-8-
d) Adequately disclose all material events effecting the Company.
19. As a result of the actions of defendants, plaintiff and the other
members of the Class have been and will be damaged in that they will not be able
to maximize the value of their Chock shares.
20. Unless enjoined by this Court, the defendants will continue to
breach their fiduciary duties owed to plaintiff and the other members of the
Class, all to the irreparable harm of plaintiff and the other members of the
Class.
21. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment, as follows:
A. Declaring this to be a proper class action;
B. Ordering defendants to carry out their fiduciary duties to plaintiff
and the other members of the Class, including those of due care and candor
by announcing their intention to:
(i) undertake an appropriate evaluation of alternatives designed
to maximize value for Chock's public stockholders;
<PAGE>
-9-
(ii) adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to the public
stockholders or, if such conflicts exist, to ensure that all of the
conflicts would be resolved in the best interests of Chock's public
stockholders; and
(iii) preliminary and permanently enjoin defendant from proceeding
with the violations complained of herein.
C. Ordering defendants, jointly and severally, to account to plaintiff
and the Class all damages suffered and to be suffered by them as a result of the
acts alleged herein;
D. Ordering defendants to disgorge all profits earned from insider
stock transactions during the relevant time period;
E. Awarding plaintiff the costs and disbursements of the action,
including allowance for plaintiff's reasonable attorneys' and experts' fees; and
F. Granting such other and further relief as may be just and proper.
<PAGE>
-10-
Dated: April 26, 1999
ABBEY, GARDY & SQUITIERI, LLP
By: /s/ Joshua M. Lifshitz
---------------------------
Joshua M. Lifshitz
212 East 39th Street
New York, New York 10016
(212) 889-3700
Of Counsel
- ----------
FARUQI & FARUQI
Nadeem Faruqi
415 Madison Avenue
New York, New York 10017
(212) 986-1074
<PAGE>
Exhibit 5
---------
SUPREME COURT FOR THE STATE OF NEW YORK
COUNTY OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - x
SANDRA KAFENBAUM, ADELE BRODY and RITA :
WHALEN,
: C.A. Number 99602054
Plaintiffs,
:
-against- CLASS ACTION
: COMPLAINT
---------
MARK A. ALEXANDER, NORMAN E. ALEXANDER,
JERRY COLUMBUS, MARTIN J. CULLEN, :
MARVIN I. HAAS, STUART Z. KRINSLY,
HOWARD M. LEITNER, HENRY SALZHAUER, :
R. SCOTT SCHAFLER, DAVID S. WEIL, and
CHOCK FULL O' NUTS CORPORATION, :
Defendants. :
- - - - - - - - - - - - - - - - - - - - - x
Plaintiffs, by their attorneys, allege upon information and belief,
except as to paragraphs 1 and 2 which plaintiffs allege upon knowledge, as
follows:
THE PARTIES
-----------
1. Plaintiff Sandra Kafenbaum is and was, at all relevant times, a
stockholder of defendant Chock Full O' Nuts Corp. ("Chock" or the "Company").
2. Plaintiff Adele Brody, is and was, at all relevant times, a
stockholder of defendant Chock.
<PAGE>
-2-
3. Plaintiff Rita Whalen, is and was, at all relevant times, a
stockholder of defendant Chock.
4. Defendant Chock is a corporation duly organized and existing under
the laws of the State of New York, with its principal executive offices located
at 370 Lexington Ave., New York, New York 10017. Chock is primarily engaged in
the roasting, packing and marketing of a broad range of regular and
decaffeinated, ground roast, instant and specialty coffees for the food service
and retail grocery industries. These products are sold regionally throughout the
U.S. and Canada under trademarks that include Chock Full O' Nuts, LaTouraine,
and Cain's. The balance of the Company's business is derived from its Quickava
retail outlets, and from its real estate operations. As of March 12, 1999, there
were over 10,830,922 shares of common stock outstanding.
5. Defendant Norman E. Alexander is and was, at all times relevant
hereto, Chock's Chairman of the Board of Directors.
6. Defendant Marvin I. Haas is and was, at all times relevant hereto,
Chock's President and Chief Executive Officer and a Director of the Company.
<PAGE>
-3-
7. Defendant Howard M. Leitner is and was, at all times relevant hereto,
Chock's Senior Vice President, Chief Financial Officer and a Director of the
Company.
8. Defendant Martin J. Cullen is and was, at all times relevant hereto,
Chock's Vice President, Treasurer, Secretary and a Director of the Company.
9. Defendants Mark A. Alexander, Jerry Columbus, Stuart Z. Krinsly,
Henry Salzhauer, R. Scott Schafler, and David S. Weil are and were, at all times
relevant hereto, Directors of the Company.
10. The defendants named in paragraphs 3-7 are sometimes collectively
referred to herein as the "Individual Defendants."
11. The Individual Defendants, as officers and/or directors of Chock,
have a fiduciary relationship and responsibility to plaintiffs and the other
common public stockholders of Chock and owe to plaintiffs and the other class
members the highest obligations of good faith, loyalty, fair dealing, due care
and candor.
<PAGE>
-4-
CLASS ACTION ALLEGATIONS
------------------------
12. Plaintiffs bring this action as a class action pursuant to Section
901, et seq. of New York's Civil Practice Law and Rules on their own behalf
-- ---
and on behalf of all common stockholders of Chock, or their successors in
interest, who have been, are being, and will be harmed by defendants' actions
described below (the "Class"). Excluded from the Class are defendants herein and
any person, firm, trust, corporation, or other entity related to or affiliated
with any of defendants.
13. This action is properly maintainable as a class action because:
(a) The Class is so numerous that joinder of all members is
impracticable. There are hundreds of Chock stockholders of record who are
located throughout the United States;
(b) There are questions of law and fact which are common to the Class,
including: whether the defendants have engaged or are continuing to act in a
matter which is in breach of their duties to Chock's stockholders; and whether
plaintiffs and the other members of the Class would be irreparably damaged if
the defendants are not enjoined in the manner described below:
<PAGE>
-5-
(c) The defendants have acted or refused to act on grounds generally
applicable to the Class, thereby making appropriate final injunctive relief with
respect to the Class as a whole.
(d) Plaintiffs are committed to prosecuting this action and have
retained competent counsel experienced in litigation of this nature. The claims
of plaintiffs are typical of the claims of the other members of the Class and
plaintiffs have the same interests as the other members of the Class.
Accordingly, plaintiffs are adequate representatives of the Class and will
fairly and adequately protect the interests of the Class; and
(e) Plaintiffs anticipate no difficulty in the management of this
litigation.
14. For the reasons stated herein, a class action is superior to other
available methods of the fair and efficient adjudication of this controversy and
the requirements of Section 901, et seq. of New York's Civil Practice Law and
-- ---
Rules.
CLAIM FOR RELIEF
----------------
15. Over the past two years, Sara Lee Corporation ("Sara Lee") has made
not less than four specific proposals to acquire all of Chock's outstanding
stock. During this time,
<PAGE>
-6-
Chock has conducted on-going negotiations with Sara Lee and permitted Sara Lee,
on a confidential basis, to conduct due diligence to determine what would
constitute a fair price. The multiple offers, negotiations, and due diligence
were never made known to the investing public until April 22, 1999.
16. All during this time, certain members of the Chock board, including
Chock's Chairman, Norman Alexander, Henry Salzhauer, and Jerry Columbus, who
knew of Chock's negotiations with Sara Lee, bought Chock securities on the open
market.
17. Sara Lee first offered to acquire Chock in August 1997. Chock
refused outright to enter into negotiations at that time.
18. Nevertheless, in July 1998, Sara Lee again expressed interest in
acquiring Chock for $9.50 per share in cash.
19. At this time, representatives of the companies met to review the
offer and continued to negotiate through multiple meetings held over the next
three months.
20. In October 1998, Sara Lee raised its offer to $10.50 per share in
cash. Despite the fact that definitive offers had been made and extensive
negotiation had been con-
<PAGE>
-7-
ducted, Chock did not disclose the existence of the $10.50 offer because, as
subsequently stated by Fredric Spar, a Chock spokesman, the talks "had not
ripened to the point where they would require disclosure."
21. Sara Lee continued to express its interest in acquiring Chock and on
April 22, 1999, filed a Form 13D with the Securities & Exchange Commission
("SEC") disclosing its offer to purchase Chock for $10.50. The Form 13D reported
that negotiations had continued with Chock. As evidence of the ongoing
negotiations, it was reported that Chock's position was that the Company should
not be sold for less than $12.50 per share. The Form 13D filing by Sara Lee was
the first public disclosure of the lengthy negotiations.
22. During these non-public discussions, certain directors bought Chock
securities. In January 1999, director Sa1zhauer bought 2,500 shares of Chock.
Salzhauer had previously purchased stock on insider information in August 1998
and, when it was finally discovered by Chock, he was forced to sell those
shares.
23. Director Columbus purchased 3,000 shares of Chock at $5.00 per share
for a total value of $15,000. After the public announcement of the Sara Lee
offer, these shares have a value of $28,500.
<PAGE>
-8-
24. On February 24, 1999, director Norman Alexander, who is also the
Chief Executive of Sequa Corporation, a company that also employees director
Krinsly, bought 533,100 shares at $5.00 per share for a total value of
$2,665,500. After announcement of the Sara Lee offer, these shares have a value
of $5,064,450.
25. On February 25, 1999, director Sa1zhauer purchased 6,000 shares at
$5.28 per share for a total value of $31,680. After announcement of the Sara Lee
Offer, these shares have a value of $57,000.
26. The Individual Defendants are in a position of control and power
over Chock and its stockholders and have access to internal financial
information about Chock and its true value and the benefits of 100 percent
ownership of Chock to which plaintiffs and the Class members are not privy.
27. In light of the foregoing, the Individual Defendants must, as their
fiduciary obligations require:
. undertake an appropriate evaluation of Chock's worth as an
acquisition candidate, including but not limited to an auction of
Chock;
. act independently so that the interests of Chock's public
stockholders will be protected, including but not limited to the
retention of independent advisors and the appointment of a Special
Committee of some or all of the members of Chock's board to consider
any acquisition offer by Sara Lee or
<PAGE>
-9-
any other entity and negotiate with any suitor for Chock on behalf of
its public shareholders;
. adequately ensure that no conflicts of interest exist between
defendants' own interests and their fiduciary obligation to maximize
stockholder value or, if such conflicts exist, to ensure that all
conflicts be resolved in the best interests of Chock's public
stockholders; and
. if an acquisition is to go forward, require that it be approved by a
majority of Chock's stockholders.
28. Plaintiffs and the other members of the Class have been, are being,
and will be damaged by any failure of the Individual Defendants to take the
foregoing steps in that they have not and will not receive their proportionate
share of the value of the Company's assets and business, and will be prevented
from obtaining a fair price for their common stock.
29. As a result of the foregoing, plaintiffs and the other members of
the Class will be irreparably harmed in that they will not receive their fair
portion of the value of Chock's assets and business and will be prevented from
obtaining the real value of their equity ownership of the Company. Unless all of
the steps set forth above are taken prior to defendants' entry into an
acquisition or merger agreement, such transaction must be enjoined by the Court,
so as to preclude defendants from breaching their fiduciary duties owed to
plaintiffs and the members of the Class.
<PAGE>
-10-
30. Plaintiffs and the other members of the Class have no adequate
remedy at law.
WHEREFORE, plaintiffs pray for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying plaintiffs as the Class representatives;
B. Ordering the Individual Defendants to disgorge and pay to the Class
the trading profits which they have earned on the basis of undisclosed material
information;
C. Declaring that unless they take all steps set forth in paragraph 26
above, defendants will have breached their fiduciary and other duties to
plaintiffs and the other members of the Class;
D. Entering an order requiring defendants to take the steps set forth
herein above;
E. Preliminarily and permanently enjoining the defendants and their
counsel, agents, employees and all persons acting under, in concert with, or for
them, from proceeding with, consummating or closing the proposed transaction
unless such steps are taken;
<PAGE>
-11-
F. In the event a merger or acquisition is consummated without
defendants having taken those steps, rescinding it and setting it aside;
G. Awarding compensatory damages against defendants individually and
severally in an amount to be determined at trial, together with prejudgment
interest at the maximum rate allowable by law;
H. Awarding costs and disbursements, including plaintiffs' counsels'
fees and experts' fees; and
I. Granting such other and further relief as to the Court may seem just
and proper.
<PAGE>
-12-
Dated: April 27, 1999
WEISS & YOURMAN
By: /s/ Joseph H. Weiss
-----------------------------
Joseph H. Weiss
551 Fifth Avenue
Suite 1600
New York, New York 10176
(212) 682-3025
STULL, STULL & BRODY
Jules Brody
6 East 45th Street
New York, New York 10017
(212) 687-7230
LAW OFFICES OF
JEFFREY S. ABRAHAM
Jeffrey S. Abraham
60 East 42nd Street
New York, New York 10165
(212) 692-0555
Attorneys for Plaintiffs
<PAGE>
Exhibit 6
---------
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - x
:
HARBOR FINANCE PARTNERS,
And ALAN FREBERG, :
Derivatively On Behalf Of
CHOCK FULL O' NUTS CORPORATION, :
Plaintiffs, : Index No. 99-602013
- - against - :
VERIFIED DERIVATIVE
MARVIN I. HAAS, HOWARD M. LEITNER, : COMPLAINT
MARVIN J. CULLEN, NORMAN E. --------------------------------
ALEXANDER, STUART Z. KRINSLY :
MARK A. ALEXANDER, JERRY COLUMBUS,
HENRY SALZHAUER, R. SCOTT :
SCHAFLER, and DAVID S. WEIL,
:
Defendants,
:
CHOCK FULL O' NUTS CORPORATION,
:
Nominal Defendant.
:
- - - - - - - - - - - - - - - - - - - - - x
Plaintiffs, as and for their complaint, by their attorneys, allege
upon personal knowledge as to themselves and their own acts and upon information
and belief as to all other matters based upon the investigation conducted by
plaintiffs and their attorneys which included, among other things, a review of
the filings by Chock Full O' Nuts Corporation ("CFN" or the "Company") with the
Securities and Exchange Commission "SEC"), news wire services, press releases
issued by the Com-
<PAGE>
-2-
pany, and other publicly published filings and materials, as follows:
SUMMARY OF THE ACTION
---------------------
1. Plaintiff brings this derivative action on behalf of CFN to remedy,
among other things, the foreseeable and avoidable harm caused by the individual
defendants in connection with permitting or failing to institute a policy that
prevents stock trading by CFN directors and employees based non-public insider
information. Certain directors of CFN have repeated bought and sold CFN
securities during on-going discussions concerning the sale of CFN to the Sara
Lee Corporation ("Sara Lee"). The failure to prevent the insider trading has
subjected, and is likely to continue to subject, the Company to damages in form
of harm from violation of laws and regulations concerning insider trading, a
loss in the business and financial communities and wasted corporate assets.
Additionally, through the defendants' culpable inaction in permitting such a
transaction to occur, the defendants failed to maintain adequate controls and
due care in the management and administration of the affairs of CFN. Defendants'
supervisory failures permitted the Company to carry out the fraudulent schemes
described below.
<PAGE>
-3-
THE PARTIES
-----------
2. Plaintiff Harbor Finance Partners, a Colorado partnership, is
presently and has been a shareholder of nominal defendant CFN during the
defendants' on-going course of illegal conduct and continuing breaches of
fiduciary duties.
3. Plaintiff Alan Freberg, a New York resident, is presently and has
been a shareholder of nominal defendant CFN during the defendants' on-going
course of illegal conduct and continuing breaches of fiduciary duties.
4. CFN is a corporation organized under the laws of the state of New
York with its principal place of business at 370 Lexington Avenue, New York, New
York 10018. CFN sell coffee through retail establishments and through direct
marketing and sales to consumers. There are approximately 10,831,000 shares of
CFN stock outstanding which is held by hundreds of shareholders. CFN stock
trades on the New York Stock Exchange.
5. Defendant Marvin I. Haas ("Haas"), at all times material hereto, has
been the Chief Executive Officer, President, and a Director of CFN.
6. Defendant Howard M. Leitner ("Leitner"), at all times material
hereto, has been the Chief Financial Officer and a Director of CFN.
<PAGE>
-4-
7. Defendant Martin J. Cullen ("Cullen"), at all times material hereto,
has been a Vice President of the Company, Treasurer, and a Director of CFN.
8. Defendant Norman E. Alexander, at all times material hereto, has been
the Chairman of the CFN Board of Directors.
9. Defendants Stuart Z. Krinsly ("Krinsly"), Mark A. Alexander, who is
the son of Norman Alexander, Jerry Columbus ("Columbus"), Henry Salzhauer
("Salzhauer"), R. Scott Schafler ("Schafler"), and David S. Weil ("Weil"), at
all times material hereto, have been directors of CFN.
FACTS COMMON TO ALL CLAIMS
--------------------------
10. Over the past two years, Sara Lee has made not less than four
specific proposals to acquire all of CFN's outstanding stock. During this time,
CFN has conducted on-going negotiations with Sara Lee and invited Sara Lee on a
confidential basis, to conduct due diligence to determine what would constitute
a fair price. The multiple offers, negotiations, and due diligence were never
made known to the investing public until April 22, 1999.
11. All during this time, certain members of the CFN board, including
CFN's Chairman, Norman Alexander, Henry Salz-
<PAGE>
-5-
hauer, and Jerry Columbus, who knew of CFN's activities with Sara Lee bought CFN
securities.
12. Sara Lee first offered to acquire CFN in August 1997. CFN refused
outright to enter into negotiations at that time.
13. Nevertheless, in July 1998, Sara Lee again expressed interest in
acquiring CFN for $9.50 per share in cash.
14. At this time, representatives of the companies met to review the
offer and continued to negotiate through multiple meeting held over the next
three months.
15. In October 1998, Sara Lee raised its offer to $10.50 per share in
cash. Despite the facts, that definitive offers had been made and extensive
negotiation had been conducted, CFN did not disclose the existence of the $10.50
offer because, as stated by Fredric Spar, a CFN spokesman, the talks "had not
ripened to the point where they would require disclosure."
16. Sara Lee continued to express its interest in acquiring CFN and on
April 22, 1999, filed a Form 13D with the Securities & Exchange Commission
("SEC") disclosing its offer to purchase CFN for $10.50. The Form 13D reported
that negotiation had continued with CFN. As evidence on the on-going
<PAGE>
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negotiation, it was reported that CFN's position was that the Company should not
be sold for less than $12.50 per share. The Form 13D filing by Sara Lee was the
first public disclosure of the lengthy negotiations.
17. During these non-public discussions, certain directors bought CFN
securities. In January 1999, director Salzhauer bought 2,500 shares of CFN.
Salzhauer had previously purchased stock on insider information in August 1998
and, when it was finally discovered by CFN, forced to sell those shares.
18. Director Columbus purchased 3,000 shares of CFN at $5.00 per share
for a total value of $15,000. After the public announcement of the Sara Lee
offer, these shares have a value of $28,500.
19. On February 24, 1999, director Norman Alexander, who is also the
Chief Executive of Sequa Corporation -- a company that also employs director
Krinsly bought 533,100 shares at $5.00 per share for a total value of
$2,665,500. After announcement of the Sara Lee offer, these shares have a value
of $5,064,450.
20. On February 25, 1999, director Salzhauer purchased $6,000 shares at
$5.28 per share for a total value of
<PAGE>
-7-
$31,680. After announcement of the Sara Lee offer, these shares have a value of
$57,000.
21. These director defendants have been buying and profiting based upon
special knowledge that is unknown to the public, namely that Sara Lee has
continued to express interest in acquiring the Company.
Duties And Obligations Of The
Company's Officers And Directors
- --------------------------------
22. At all relevant times, CFN's Board of Directors (the "Board") and
its senior officers operated as a collective entity through periodic meetings
held either in person or telephonically where they discussed matters affecting
the Company's businesses and reached collective and consensual decisions
regarding actions taken. The members of the Board also received information in
the form of written or oral reports relating to the Company's businesses,
including internal, periodic (including monthly) financial statements and
official data and reports in advance of, at, and subsequent to Board meetings in
connection therewith. CFN's corporate business, including offers of acquisition,
at the Board level was conducted through, inter alia, formal resolutions passed
----- ----
by its directors acting collectively, as is reflected in the minutes of Board
meetings. Pursuant to other consensual agreements, on the basis of, inter
-----
<PAGE>
-8-
alia, recommendations of CFN'S senior executives, and the Board acted
- ----
collectively to issue the Company's annual and quarterly reports and proxy
statements to the SEC and its stockholders, which were presented to and approved
by the Board either before their issuance or shortly thereafter. Thus, because
the Board and CFN's senior executives acted as a unit, conducted CFN's business
pursuant to consensual agreements and formal resolutions and received
collectively and/or disseminated the same information about CFN's business at or
about the same time, it is appropriate to treat the defendants as a collective
group for the purposes of this complaint.
23. As set forth above, each of the defendants, as a result of their
directorships and long standing involvement with CFN and/or the industry, knew
or was reckless in not knowing of the importance of their duty to exercise
loyalty and due care in the management and administration of the affairs of the
Company and its subsidiaries and in the use and preservation of its property and
assets. Further, CFN's officers and directors owed a duty to the Company and its
shareholders to ensure that CFN and its subsidiaries did not engage in any
unsafe or unsound practices, including business combinations that waste
corporate assets. As a result, each defendant as principal guardian of the
stockholders' interests, had a direct and heightened fiduciary responsibility to
assure that the Company
<PAGE>
-9-
had designed, implemented and monitored appropriate internal controls and
mechanisms to insure strict and unequivocal adherence in this critical area. Not
only did the defendants fail in these most critical of fiduciary
responsibilities of loyalty avoidance of corporate waste, but each defendant
knew or should have known that insider selling, was not only wrong but engaged
in by certain of the CFN board, yet did little, if anything, to rectify this
conduct which jeopardizes CFN's continued financial integrity.
24. Each defendant further owed to the Company and its shareholders the
duty to exercise due care and diligence in the management and administration of
the affairs of CFN.
25. To discharge these duties, each defendant was required to exercise
reasonable and prudent supervision over the management, policies, practices,
controls, and financial affairs of CFN, and to insure that the Company seeks
recompense from those responsible for prior and current wrongs done to it. By
virtue of this obligation of due care and diligence, defendants were required
to, inter alia:
----- ----
a. manage, conduct, supervise, and direct the employees, business, and
affairs of CFN in accordance with state and federal laws and regulations,
and the
<PAGE>
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charters, regulations, rules, and by-laws of the Company;
b. exercise reasonable control and supervision over the officers,
employees, and agents of CFN;
c. ensure the prudence and soundness of the policies and practices
undertaken, or proposed to be undertaken, by CFN, including extraordinary
transactions;
d. remain informed as to how CFN was, in fact, operating and, upon
receiving notice or information of an imprudent or unsound decision,
condition, or practice, to make a reasonable investigation in connection
therewith and to take steps to correct that decision, condition, or
practice; and
e. conduct the affairs of the Company in an efficient business-like
manner so as to make it possible to provide the highest quality services and
maximize the profitability of the Company for the benefit of its
shareholders.
26. The defendants breached their fiduciary duties by, among other
things:
<PAGE>
-11-
a. failing to design, implement and monitor appropriate controls and
policies with respect to the Company's practices and procedures, including
controls and policies to ensure that neither the Company nor its
stockholders will suffer damages in any extraordinary transaction, including
related-party transactions;
b. failing to supervise adequately the operations of CFN to avoid
corporate waste; and
c. failing to supervise adequately the employees and managers of CFN to
avoid self-dealing and failing to instruct them to act with honesty and
integrity in order to preserve and enhance CFN's reputation with the
business community.
Derivative Allegations
Regarding Demand Futility
- -------------------------
27. Plaintiffs bring this action as a derivative action on behalf of,
and for the benefit of, CFN to remedy the director defendants' wrongdoing
alleged herein.
28. Plaintiffs will fairly and adequately represent the interests of CFN
and its shareholders in enforcing and prosecuting the Company's rights.
<PAGE>
-12-
29. Under the circumstances, demand upon the Board of Directors is
futile and thereby excused because more than a majority of the board is
conflicted through their participation in the wrongdoing alleged or under the
control of those parties engaged in the wrongdoing.
30. Further, the defendants are in no position to prosecute this action
because:
a. Defendants have known of the potential for trading on insider
information and the proclivity of certain directors to trade on the
privileged information and have taken no steps to prevent the wrongdoing
from repeatedly occurring.
b. The directors of CFN cannot defend their actions by any alleged
"independent" business judgment in seeking to have this action dismissed
since it would undoubtedly be to the benefit of CFN and the detriment of the
defendants to recover the damages caused by the defendants and to assert
these derivative claims.
c. As a general matter in recent years, insurance policies covering the
liability of a corporation's officers and directors purport to exclude legal
claims asserted directly by the corporation against such per-
<PAGE>
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sons. Thus, there was, and is, a substantial disincentive for CFN to bring
any action directly against the individual defendants herein; and
d. Generally, under the terms of such directors and officers' insurance
policies, a corporation would be required by the carriers to cooperate in
the defense of any claims, such as the present action, which seek to impose
liability upon certain officers and directors of CFN, including the
individual defendants in this action, for misconduct and mismanagement.
Thus, if the policy or policies which CFN maintains contain the foregoing
provision, the insurance carriers would argue that CFN and its Board of
Directors are thereby contractually disabled from complying with any demand
that would cause CFN to institute, and/or prosecute any action against the
individual defendants for such misconduct and mismanagement; because to do
so could result in the loss to CFN of its insurance coverage. Similarly, CFN
would be disabled from pursuing the individual defendants as it would not
benefit from any insurance they may have.
31. Each of the defendants had a direct self-interest in and personally
benefitted from the illegal and
<PAGE>
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wrongful acts at issue in this action. The personal financial benefits received
by the majority of the defendants include, inter alia, payment for service as a
----- ----
director, payment for attending meetings, salaries for directors, and extensive
stock options. The defendants also benefit through the continued power and
prestige that their directorships afford.
32. As alleged herein, the defendants participated in or knowingly
acquiesced, individually and collectively, in schemes carried out by the
Company's subsidiaries, units, or divisions to engage in billing practices which
resulted in illegal overcharges. The defendants will receive benefits at the
expense of the shareholders because the wrongful conduct through which they were
obtained put CFN at risk.
AS AND FOR A FIRST CAUSE OF
ACTION FOR BREACH OF FIDUCIARY
DUTY AGAINST THE DEFENDANTS
-------------------------------
33. Plaintiffs hereby incorporate by reference all paragraphs set forth
above.
34. Each of the defendants, jointly and severally, is liable for the
wrongdoing alleged herein regarding, inter alia, the buying of CFN securities by
----- ----
defendants upon non-public information and the failure to prevent such actions.
Such acts, and/or omissions to act constitute a waste of corpo-
<PAGE>
-15-
rate assets, gross mismanagement, gross negligence or recklessness, and, being
illegal, are incapable of ratification by the Board.
35. The defendants, because of their positions of control and authority
as executive or operating officers and/or directors of the Company, were able to
and did, directly or indirectly control the conduct of its business, employees,
and consultants. Therefore, each defendant identified herein is liable as a
direct participant in, a conspirator and/or an aider and abettor of the
egregious wrongs.
36. This conduct was carried on at the expense of CFN. Additionally, the
defendants have committed one or more acts or omissions which furthered their
own personal interest and were not for the benefit of the Company. As a direct
and proximate result of defendants' failure to exercise due care in the
performance of their duties as alleged herein, CFN has engaged in imprudent and
unlawful activities all of which have caused significant losses to CFN.
37. By reason of defendants' misconduct as set forth above, CFN has
suffered damages, in an amount not presently determinable.
<PAGE>
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AS AND FOR A SECOND CAUSE
OF ACTION FOR GROSS NEGLIGENCE
AGAINST THE DEFENDANTS
------------------------------
38. Plaintiffs hereby incorporate by reference all paragraphs set forth
above.
39. Each of the defendants committed one or more acts of gross
negligence in the conduct of the Company's business. Defendants, as officers,
directors, and managers of CFN, owed CFN duties of care in the performance of
their duties. Each defendant breached his duty of care to CFN by acting in a
grossly negligent fashion in the performance of such duty.
40. The Company has been greatly damaged in, among other ways, the
following manner:
a. The Company risks fines and penalties for violation of securities
laws concerning trading on insider information. In addition, the Company
will face increased scrutiny by all applicable federal agencies.
b. The Company has been exposed to civil suits alleging securities
fraud, exposing the Company to future losses in the millions of dollars due
to settlements or judgments in such actions;
<PAGE>
-17-
c. Because of the continued course of illegal conduct by the senior
officers and directors of CFN, the Company will likely experience greater
difficulty and higher costs in future efforts to raise funds in the
securities markets, as well as additional scrutiny by the Securities and
Exchange Commission and comparable state regulators; and
d. The Company was further injured by the waste of valuable corporate
assets, loss of goodwill and business opportunities that were proximately
caused by the defendants' misconduct.
41. CFN has been seriously and irreparably damaged by the wrongs alleged
herein and entitled to equitable relief in the nature of a mandatory injunction.
WHEREFORE, plaintiffs demand judgment as follows:
A. Against each named defendant and in favor of the Company for the
amount of damages sustained by the Company as a result of the breaches of
fiduciary duty by each defendant;
B. Against each named defendant and in favor of the Company for damages
sustained as a result of their gross negligence;
<PAGE>
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C. Awarding to plaintiffs equitable relief;
D. Awarding the costs and disbursements of this action, including
reasonable attorneys' fees, accountants' and experts' fees, costs, and
expenses; and
E. Granting such other and further relief as may be deemed just and
proper.
Dated: New York, New York
April 26, 1999
WECHSLER HARWOOD HALEBIAN & FEFFER LLP
By: /s/ Matthew M. Houston
--------------------------------
Matthew M. Houston
488 Madison Avenue
New York, New York 10022
(212) 935-7400
Attorneys for Plaintiffs
Of Counsel:
GARWIN, BRONZAFT,
GERSTEIN & FISHER, LLP
1501 Broadway
New York, NY 10036
(212) 398-0055
<PAGE>
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VERIFICATION
------------
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK)
I, Matthew M. Houston, being duly sworn, depose and say that I am a
member of the law firm of Wechsler Harwood Halebian & Feffer LLP counsel for
plaintiffs in this action, I have read the foregoing Derivative Complaint and,
to the best of my knowledge, information and belief, the allegations are true.
This verification is made by plaintiffs' counsel rather than plaintiffs because
plaintiffs do not reside in the county in which plaintiffs' counsel's office is
located.
-------------------------
Matthew M. Houston
Sworn to before me this
26th day of April, 1999,
- ------------------------
Notary Public
