CHEFS INTERNATIONAL, INC.
P.O. BOX 1332, POINT PLEASANT BEACH, NJ 08472 . 908-295-0350 . FAX 908-295-4514
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
November 7, 1996
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The Annual Meeting of Stockholders of Chefs International, Inc. (the
"Company") will be held at the Company's Jack Baker's Lobster Shanty Restaurant
at 2200 South Orlando Avenue, Cocoa Beach, Florida 32931 on Thursday, November
7, 1996 at 9:30 A.M. (local time) for the purpose of considering and acting upon
the following matters:
1.Election of directors for the ensuing year (Proposal One).
2.Authorization and approval of an amendment to the Company's Certificate of
Incorporation (a) to reduce the number of authorized shares of Common Stock from
50,000,000 shares of Common Stock, $.01 par value per share ("Old Common Stock")
to 15,000,000 shares of Common Stock, $.01 par value per share ("New Common
Stock"), and (b) to effect a one-for-three reverse stock split of the
outstanding 13,466,155 shares of Old Common Stock, thereby changing such shares
of Old Common Stock into approximately 4,488,719 shares of New Common Stock
(Proposal Two).
3.Such other business as may properly come before the meeting or any
adjournment thereof.
Pursuant to the provisions of the By-Laws, the Board of Directors has fixed
the close of business on October 3, 1996 as the record date for determining the
stockholders of the Company entitled to notice of, and to vote at the meeting or
any adjournment thereof.
Stockholders who do not expect to be present in person at the meeting are
urged to date and sign the enclosed proxy and promptly mail it in the
accompanying postage-paid envelope.
By Order of the Board of Directors
ANTHONY PAPALIA
President
Dated: Point Pleasant Beach, New Jersey 08742
October 7, 1996
PLEASE COMPLETE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE MEETING BUT WILL,
HOWEVER, HELP TO ASSURE A QUORUM AND AVOID ADDED PROXY SOLICITATION COSTS.
CHEFS INTERNATIONAL , INC.
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P.O. BOX 1332, POINT PLEASANT BEACH, NJ 08742 - 908-295-0350 - FAX 908-295-4514
PROXY STATEMENT
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Annual Meeting of Stockholders: November 7, 1996
This Proxy Statement of Chefs International, Inc., a Delaware corporation
(the "Company") is first being mailed to Stockholders on or about October 7,
1996 in connection with the solicitation of proxies by the Company's Board of
Directors to be used at the Annual Meeting of Stockholders of the Company to be
held on Thursday, November 7, 1996 at 9:30 A.M. (local time) at the Company's
Jack Baker's Lobster Shanty Restaurant at 2200 South Orlando Avenue, Cocoa
Beach, Florida 32931. Accompanying this Proxy Statement is a Notice of Annual
Meeting of Stockholders, a form of Proxy and a copy of the Company's 1996 Annual
Report containing financial statements and related data.
All proxies which are properly filled in, signed and returned to the Company
in time will be voted in accordance with the instructions thereon. Any such
proxy may be revoked by any stockholder giving the same prior to the exercise
thereof. Stockholders not attending the meeting may revoke their proxies prior
to the meeting, and stockholders who are present at the meeting may withdraw
their proxies and vote in person if they so desire.
The expenses of preparing, assembling, printing and mailing the form of
proxy and the material used in solicitation of proxies will be borne by the
Company. In addition to the solicitation of proxies by use of the mails, the
Company may utilize the services of some of its officers and regular employees
(who will receive no additional compensation therefor) to solicit proxies
personally, and by telephone and telegraph. The Company has requested banks,
brokers and other custodians, nominees and fiduciaries to forward copies of the
proxy material to their principals and to request authority for the execution of
proxies and will reimburse such persons for their services in doing so. The cost
of such additional solicitation incurred otherwise than by use of the mails is
estimated not to exceed $5,000.
Vote Required, Principal Stockholders
and Stockholdings of Management
The Board of Directors has fixed the close of business on October 3, 1996 as
the record date for the determination of stockholders who are entitled to notice
of, and to vote at the meeting or any adjournment thereof. At the record date,
the Company had 13,466,155 shares of its Common Stock, $.01 par value (the
"Common Stock") outstanding, the holders of which are each entitled to one vote
per share. The presence in person or by proxy of at least a majority of the
outstanding Common Stock of the Company is necessary to constitute a quorum at
the meeting. Election of directors (Proposal One) requires the affirmative vote
of a majority of the votes cast by the holders of Common Stock present in person
or by proxy at the meeting. Approval of the amendment to the Company's
Certificate of Incorporation and the reverse stock split (Proposal Two) requires
the affirmative vote of the holders of a majority of the outstanding Common
Stock.
The following table sets forth, as of October 3, 1996, the number of shares
of Common Stock owned beneficially to the knowledge of the Company by each
beneficial owner of more than 5% of such Common Stock, by each director and by
all officers and directors of the Company as a group. The percentages have been
calculated on the basis of treating as outstanding for purposes of computing the
percentage ownership of a particular individual, all shares of Common Stock
outstanding as of such date and all shares of Common Stock issuable to such
individual in the event of exercise of his outstanding options. Except as
indicated in the footnote to the table, each individual is the sole beneficial
owner with sole voting rights and investment power with respect to the shares
set forth opposite his name (except for shares issuable upon exercise of his
options, none of which have been exercised).
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficially Ownership of Class
------------------- -------------------- -------
Directors*
Anthony Papalia................. 200,834(1) 1%
James Fletcher.................. 22,667(2) --
Martin Fletcher................. 197,167(3) 1%
Frank Koenemund................. 1,912,500(4) 13%
Jack Mariucci................... 312,500(5) 2%
All executive officers and directors as a group
(five persons)................ 2,645,668(1)(2)(3)(4)(5) 18%
Other
Robert E. Brennan............... 5,299,667 39%
264 Route 537 East
Colts Neck, New Jersey 07722
Michael F. Lombardi, Robert M... 832,500(6) 6%
Lombardi, Stephen F. Lombardi,
Joseph Lombardi, Joseph S.
Lombardi, Lombardi & Lombardi,
P.A., and Lombardi & Lombardi,
P.A. Defined Benefit Plan
c/o Michael F. Lombardi
1862 Oak Tree Road
Edison, New Jersey 08820
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* The address of each executive officer and director is c/o the Company, 62
Broadway, Point Pleasant Beach, New Jersey 08742.
(1)These 200,834 shares are issuable upon exercise of stock options granted by
the Company.
(2) Includes 21,667 shares issuable upon exercise of stock options granted by
the Company.
(3) These 197,167 shares are issuable upon exercise of stock options granted by
the Company.
(4)Includes 912,500 shares issuable upon exercise of stock options granted by
the Company and 1,000,000 shares of Common Stock issued in connection with
the July 1993 acquisition of Mr. Cookie Face.
(5)These 312,500 shares are issuable upon exercise of stock options granted by
the Company.
(6)The five individuals and the firm and Defined Benefit Plan of Lombardi &
Lombardi P.A., have filed a report on Schedule 13D and an amendment thereto
indicating their ownership of the Company's Common Stock as reflected in the
table. The filing parties have indicated in the Schedule 13D that they are
all acting separately and not as a group and that the purpose of their
acquisition of the Common Stock "...is for investment and accumulation of
shares in Chefs International, Inc."
<PAGE>
ACTION TO BE TAKEN AT THE MEETING
ELECTION OF DIRECTORS
(Proposal One)
Five directors of the Company are to be elected at the meeting, each to
serve until the next Annual Meeting and until his successor is elected and
qualifies. The shares represented by proxies will be voted in favor of the
election as directors of the persons named below who are nominees for election
and authority to vote for the election of directors shall be deemed granted
unless specifically withheld. Management has no reason to believe that any of
the nominees for the office of director will not be available for election as a
director. However, should any of them become unwilling or unable to accept
nomination for election, it is intended that the individuals named in the
enclosed proxy may vote for the election of such other person as Management may
recommend. The Company does not have a nominating committee. During the fiscal
year ended January 28, 1996, the Company's board of directors held a total of
six meetings.
Nominees for Election as Directors
Director
Nominee Age Since Position with Company
-------- ---- ------- ---------------------
Anthony Papalia............ 39 1985 President, Treasurer, Chief Executive
officer,Fiancial officer and director
James Fletcher(a).......... 66 1978 Vice President and Director
Martin Fletcher(a)......... 43 1988 Secretary and Director
Frank Koenemund............ 53 1993 Director
Jack Mariucci.............. 57 1993 Director
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(a) James Fletcher is the father of Martin Fletcher
Principal Occupations of Nominees for Director
and Executive Officers During Past Five Years
The following is a brief account of the business experience of each of the
Company's executive officers and nominees for director during the past five
years.
Anthony Papalia has been continuously employed by the Company for the
preceding five years. He has served as a manager of various New Jersey Lobster
Shanty restaurants and as an area supervisor. Mr. Papalia, who was elected
senior vice president and a director of the Company in September 1985 and
president and treasurer in March 1988, is currently devoting all of his working
time to the business of the Company. In July 1993, he was elected an executive
officer and a director of the Company's Mr. Cookie Face subsidiary.
James Fletcher was elected a vice president of the Company on February 10,
1978 and a director in December 1978. In April 1980 Mr. Fletcher became general
manager of the Company's Florida seafood restaurants. He is currently devoting
all of his working time to the business of the Company.
Martin Fletcher has been continuously employed by the Company for the
preceding five years in various capacities. He has served as general manager of
the Company's Toms River, New Jersey Lobster Shanty, as area supervisor for its
Florida west coast restaurants, as assistant controller, since September 1987 as
controller and since March 1988 as secretary and a director of the Company. He
is currently devoting all of his working time to the business of the Company. In
July 1993, he was elected an executive officer and a director of Mr. Cookie
Face.
Frank Koenemund was principally engaged from 1988 through 1991 as a
principal of Thin's Inn and Thin N'Creamy, two New Jersey entities packaging and
selling diet cookies in various United States markets. Since February 1992, Mr.
Koenemund has been principally engaged as sole owner and as an executive officer
of Mr. Cookie Face which was acquired by the Company in July 1993, at which
time, he was elected a director of the Company. He currently devotes all of his
working time to the business of the Company.
Jack Mariucci was principally engaged for more than the past five years and
until October 1994 as Executive Vice President and Executive Creative Director
of DDB Needham Worldwide--New York. DDB Needham is a global advertising agency
with offices in cities throughout the world. Mr. Mariucci was also a member of
the New York Management Board of DDB Needham. Since October 1994, Mr. Mariucci
has been principally engaged as an independent marketing consultant. He was
elected a director of the Company in July 1993.
Compliance with Section 16 (a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 and on representations that no
Forms 5 were required, the Company believes that with respect to fiscal 1996,
all Section 16(a) filing requirements applicable to its officers, directors and
beneficial owners of more than 10% of its equity securities were timely complied
with except for late filings made by Messrs. Koenemund and Mariucci with respect
to stock options authorized at the Company's annual meeting of stockholders held
on December 19, 1995.
INFORMATION REGARDING EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued by the Company during the three fiscal years ended January 28, 1996
to its Chief Executive Officer as well as to any other executive officer of the
Company or a subsidiary who earned at least $100,000 during fiscal 1996. During
the three-year period ended January 28, 1996, the Company did not grant any
restricted stock awards or have any long-term incentive plan in effect. The
Company maintains a Supplemental Employee Benefit Program for its officers,
supervisors, restaurant managers and assistant managers paying annual
contributions ranging from $1,000 to approximately $3,000 per individual (except
that the contribution for Mr. Koenemund who first became covered under the
Program in June 1995 was $8,352 in fiscal 1996). The Program provides life
insurance death benefits, disability income benefits and retirement income
benefits. James Fletcher is not covered under this Program but the Company has
agreed if he remains in its employ until age 65 and leaves such employ at any
time thereafter, the Company will pay him $20,000 annually for the ten year
period following such termination of employment or until his death, if he dies
prior thereto. The Company partially funds this obligation with an insurance
policy paying an annual premium of approximately $5,000.
SUMMARY COMPENSATION TABLE
Name and FiscalAnnual CompensationOther Annual
Principal Position Year Salary BonusCompensation
- --------------- ----- ----------------------------
Anthony Papalia........................... 1996 $119,692 $-0- $2,088(a)
President and Chief Executive Officer 1995 $110,600 $-0- $2,088(a)
1994 $107,139 $-0- $2,088(a)
Frank Koenemund........................... 1996 $111,539 $54,300$8,352(a)
Chief Executive Officer of MCF 1995 $100,000 $-0- $-0-
1994 $ 84,878 $-0- $-0-
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(a) Represents contributions under the Supplemental Employee Benefit Program.
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Long-Term Compensation
-----------------------
Name and Fiscal OptionsRestrictedLTIP All Other
Principal Position Year SARsStock AwardsPayoutsCompensation
- --------------- ----- --------------------------------------
Anthony Papalia.................. 1996 -0- 0 $-0- $-0-
President and Chief Executive Officer1995 162,500* 0 $-0- $-0-
1994 -0- 0 $-0- $-0-
Frank Koenemund.................. 1996 750,000** 0 $-0- $-0-
Chief Executive Officer of MCF. 1995 162,500* 0 $-0- $-0-
1994 -0- 0 $-0- $-0-
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*Each exercisable to purchase one share of Common Stock at $1.25 per share.
**Each exercisable to purchase one share of Common Stock at $1.00 per share.
Employment Agreements
At the annual meeting of the Company's stockholders held on December 19,
1995, stockholders ratified employment contracts between the Company and Anthony
Papalia as chief executive officer and chief financial officer and between the
Company and Martin Fletcher as controller. Each contract expires at the
conclusion of the Company's 1999 fiscal year and is automatically renewed on a
year by year basis for up to five consecutive additional one-year terms unless
either party gives at least six months prior notice that he or it does not
desire such renewal. Mr. Papalia's annual salary under the contract is $150,000
and Mr. Fletcher's annual salary under the contract is $87,000. Each
individual's salary is subject to automatic increase in each Renewal Year based
on increases in the Consumer Price Index. If the employment of either individual
is terminated other than for cause, he will become entitled to a Severance
Payment equal to the amount of his compensation over the balance of the contract
term. Each individual is also entitled to terminate his employment and receive a
Severance Payment equal to six months salary in the event of a "change of
control" of the Company.
Frank Koenemund, in connection with the Company's acquisition of Mr. Cookie
Face in July 1993, executed an approximately four and one-half year employment
contract with Mr. Cookie Face (through January 31, 1998) agreeing to serve as
president and chief executive officer and to devote at least 90% of his working
time to such duties. Pursuant to the employment contract, Mr Koenemund was
compensated at an annual salary of $100,000 and was also entitled to an annual
bonus equal to the following percentages of Mr. Cookie Face's pre-tax income
(excluding extraordinary items) provided that no losses from any fiscal period
will be carried over to reduce profits in any other fiscal period.
MCF Pre-Tax Income Percentage Bonus
------------------- ----------------
On amounts up to $1,000,000...................... 10%
On amounts in excess of $1,000,000
but not in excess of $2,000,000................ 7.5%
On amounts in excess of $2,000,000
but not in excess of $3,000,000................ 5%
On amounts in excess of $3,000,000............... 2.5%
On October 30, 1995, the term of Mr. Koenemund's employment contract was
extended through January 31, 2001, his salary was increased commencing October
30, 1995 to an annual rate of $150,000 and the bonus provision was retained.
Based on the bonus formula, Mr. Koenemund, who did not earn a bonus in fiscal
1994 or fiscal 1995, earned a bonus of $54,300 with respect to fiscal 1996.
Effective October 2, 1995, the Company executed a Consulting Agreement with
M&M Creative Services, Inc. ("M&M") retaining M&M as a consultant for an
approximately three-year term through the conclusion of fiscal 1999, to provide
marketing, advertising and similar promotional services for a monthly consulting
fee of $3,000. Jack Mariucci, a director of the Company, is the principal
employee of M&M and his wife is the president and sole stockholder. The
Consulting Agreement requires Mr. Mariucci to devote at least 10% of his working
time in each month to providing the consulting services and terminates, among
other reasons, in the event of Mr. Mariucci's death or disability. The
Consulting Agreement is automatically renewed on a year by year basis for up to
five consecutive additional one-year terms unless either party gives at least
six months prior notice that he or it does not desire such renewal.
Stock Options
On November 18, 1986, the Company's Board of Directors granted Incentive
Stock Options ("ISOs") exercisable to purchase an aggregate 36,334 shares of
Chefs's Common Stock at $.375 per share, pursuant to the Company's 1982
Incentive Stock Option Plan (the "Plan") to 27 employees including three
officers. The options are exercisable until ten years after the Date of Grant
but only by the employee (or his estate in the event of death). The Company's
three present executive officers each were granted options to purchase 1,667
shares. On November 18, 1986, the closing bid price for the Company's common
stock on the NASDAQ system was $.375. None of such options have been exercised
to date and an aggregate 22,334 of such options have been cancelled due to
terminations of employment.
On November 3, 1989, the Company's Board of Directors granted additional
ISOs, identical in form and exercisable to purchase an aggregate 146,334 shares
of Common Stock at $.328125 per share (equal to the mean between the closing bid
price and the closing asked price for the Common Stock on NASDAQ on November 2,
1989), pursuant to the Plan, to ten employees including three officers. Anthony
Papalia, James Fletcher and Martin W. Fletcher were granted 36,667, 20,000 and
33,000 of these options, respectively. To date, ISOs have been exercised to
purchase an aggregate 6,667 shares and an aggregate 6,664 of such options have
been cancelled due to terminations of employment. The Company's ISO Plan
terminated in August 1992.
At the Company's annual meeting of stockholders held on October 3, 1994,
stockholders approved the grant to four key members of management of stock
options exercisable to purchase an aggregate 650,000 shares of Common Stock. The
options are each exercisable over a term of five years from October 3, 1994 at
an exercise price of $1.25 per share (the last sales price for the Common Stock
on the NASDAQ Small-Cap System on July 29, 1994, the last trading day prior to
the date of grant of the options by the Board of Directors). Each option is
non-transferable (except on death) and is exercisable by the optionee only while
serving as an officer, director or employee of the Company or one of its
subsidiaries. The optionees and the number of shares issuable upon exercise of
the options granted to such optionees are as follows:
Optionee Number of Shares
-------- ----------------
Anthony Papalia......................................162,500
(President, Treasurer, CEO, CFO and Director)
Martin Fletcher......................................162,500
(Secretary and Director)
Frank Koenemund......................................162,500
(President of Mr. Cookie Face subsidiary and Director)
Jack Mariucci........................................162,500
(Director)
At the Company's annual meeting of stockholders held on December 19, 1995,
stockholders approved the grant to Messrs. Koenemund and Mariucci of stock
options exercisable to purchase 750,000 shares and 150,000 shares of Common
Stock respectively. The options are each exercisable over a term of five years
from December 19, 1995 at an exercise price of $1.00 per share. On October 20,
1995, the last trading day prior to the date of grant of the options by the
Board of Directors, the last sales price for the Common Stock on the NASDAQ
Small-Cap System was $.40625. Each option is non-transferable (except on death)
and is exercisable, in the case of Mr. Koenemund, only while serving as an
officer, director or employee of the Company or a subsidiary, and in the case of
Mr. Mariucci, only while rendering marketing and advertising services to the
Company or a subsidiary pursuant to a consulting agreement.
The following table illustrates information concerning stock option grants
made during fiscal 1996 to each of the executive officers named in the "Summary
Compensation Table."
<TABLE>
Option Grants in Fiscal 1996
Percent of Potential Realizable
Total Options Value at Assumed Annual
Number of Shares Granted to Rates of Stock Price
of Common Stock "Employees and Exercise Appreciation for
Underlying Consultants" Price Expiration Option Term(1)
Name Options Granted in Fiscal Year Per Share Date 5%($) 10%($)
- ----- --------------- ---------------- ------------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Frank Koenemund 750,000 83% $1.00 12/18/00 -0- -0-
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(1)Assumes appreciation at the stated rates in the market price for Chefs'
Common Stock. The option will have no value unless, and only to the extent
that the market price for Chefs' Common Stock appreciates from the grant date
to the exercise date.
</TABLE>
<PAGE>
The following table sets forth certain information concerning unexercised
options for each of the executive officers named in the "Summary Compensation
Table." No options were exercised by either individual in fiscal 1996.
1996 Fiscal Year-End Option Values
Number of Unexercised Value of
Options at 1996 Unexercised
Fiscal Year-End In-The-Money
Name ExercisableUnexercisableOptions at 1/28/96(1)
--------- --------------------------------------
- ------------------------------
Anthony Papalia......... 38,334 -0- -0-
162,500 -0- -0-
Frank Koenemund......... 162,500 -0- -0-
750,000 -0- -0-
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(1)The option exercise price exceeded the closing bid price for the Common
Stock in the over-the-counter market on the last trading day preceding
January 28, 1996.
Directors' Compensation
Directors who are not employees of the Company or its subsidiaries are
compensated at a monthly rate of $1,500. At present, the sole non-employee
director is Jack Mariucci.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is composed of Anthony Papalia, James Fletcher
and Martin Fletcher, the Company's three principal executive officers. The
Compensation Committee is responsible, subject to the approval of the Board of
Directors, for establishing the Company's compensation program.
Compensation Philosophy and Policy
The Company's compensation plan generally is designed to motivate and reward
the Company's executive officers and other personnel responsible for attaining
financial, operational and strategic objectives. In administering the plan, the
Compensation Committee assesses the performance of individuals and the Company
relative to those objectives.
The Company's compensation plan generally provides incentives to achieve
annual and longer term objectives. The principal elements of the compensation
plan include base salary and stock awards in the form of grants of stock
options. These elements generally are blended in order to provide compensation
packages which provide competitive pay, reward the achievement of financial,
operational and strategic objectives and align the interests of the Company's
executive officers and other higher level personnel with those of the Company's
shareholders.
Base Salary. The cash compensation paid to or accrued for Anthony Papalia
and Martin Fletcher with respect to fiscal 1996 was $119,692 and $79,424
respectively. Such compensation was initially determined taking into account the
duties and responsibilities of each such individual and the size of the Company
in terms of financial condition and operations as well as the competitive
marketplace for similar executive talent. The compensation being paid to Mr.
Koenemund as chief executive officer of Mr. Cookie Face pursuant to his
employment agreement previously described, was determined in arms-length
negotiations between Management and Mr. Koenemund in connection with the
Company's acquisition of Mr. Cookie Face in July 1993. In view of the increase
in size of the Company due principally to the acquisition of Mr. Cookie Face and
the added responsibilities they assumed in connection therewith, the cash
compensation packages of Anthony Papalia and Martin Fletcher were restructured
by the Board of Directors at a directors' meeting held on October 20, 1995 at
which time the employment contracts described under "Employment Agreements" were
authorized by the Board of Directors, subject to stockholder approval.
Stockholders ratified the employment contracts at the December 19, 1995 annual
meeting of stockholders. In addition, Mr. Koenemund's annual salary was
increased by the Board of Directors on October 20, 1995 in consideration for his
agreement to extend his employment contract to January 31, 2001. See "Employment
Agreements."
Base pay levels and increases for other key employees take into
consideration the recent performance of the individual and the Company, the
experience of the individual, the scope and complexity of the position and the
base compensation levels established by competitors for comparable positions.
Stock Awards. To promote the Company's long-term objectives, stock awards
are made to executive officers and other key management personnel (including key
employees) who are in a position to make a significant contribution to the
Company's long-term success. Stock options had previously been granted to
executive officers and other key employees pursuant to the Company's 1982
Incentive Stock Option Plan but the Plan expired in 1992. No stock options were
granted during fiscal 1993 or fiscal 1994. On August 1, 1994 pursuant to the
recommendation of the Compensation Committee, the Board of Directors authorized
the grant to four key members of management of stock options exercisable to
purchase an aggregate 650,000 shares of Common Stock, subject to stockholder
approval which approval was obtained at the Company's October 3, 1994
stockholder meeting. On October 20, 1995 pursuant to the recommendation of the
Compensation Committee, the Board of Directors authorized the grant to Mr.
Koenemund and to Mr. Mariucci of stock options exercisable to purchase 750,000
shares and 150,000 shares of Common Stock respectively, in each case subject to
stockholder approval which approval was obtained at the Company's December 19,
1995 stockholder meeting.
Stock options represent rights to purchase shares of Common Stock within a
fixed period of time at a price per share specified on the date of grant of the
option. Since stock options may grow in value over time, these components of the
Company's compensation plan are designed to reward performance over a sustained
period. All of the options to purchase Common Stock granted to date may only be
exercised by the optionee during his lifetime while serving as an officer,
employee or director of the Company or one of its subsidiaries (except that Mr.
Mariucci's options are only exercisable while he is rendering marketing and
advertising services to the Company or a subsidiary pursuant to a consulting
agreement). The Company intends that these awards will strengthen the focus of
its executives and other key members of management as well as key employees on
managing the Company from the perspective of a person with an equity stake in
the Company.
COMPENSATION COMMITTEE
Anthony Papalia
James Fletcher
Martin Fletcher
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PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO REDUCE THE AUTHORIZED SHARES OF COMMON STOCK AND
EFFECT A ONE-FOR-THREE REVERSE STOCK SPLIT OF THE COMMON STOCK
- --------------------------------------------------------------------------------
The Board of Directors of the Company has adopted resolutions proposing an
amendment to the Company's Certificate of Incorporation, as amended, (a) to
reduce the number of authorized shares of Common Stock from 50,000,000 shares to
15,000,000 shares and to effect a one-for-three reverse stock split of the
outstanding Common Stock by amending the outstanding Common Stock so that each
presently outstanding share of Common Stock, $.01 par value ("Old Common Stock")
will be changed into one-third (1/3rd) of one share of new Common Stock, $.01
par value ("New Common Stock").
If this Proposal is adopted, certificates for New Common Stock will be
issued in place of and upon surrender of certificates for Old Common Stock on
the basis of one share of New Common Stock for every three shares of Old Common
Stock. In connection with the reverse stock split, fractional shares of New
Common Stock will not be issued but any stockholder entitled to a fractional
share will be issued one whole share of New Common Stock therefor.
On the October 3, 1996 record date, the Company had an aggregate 13,466,155
shares of its Common Stock, $.01 par value ("Old Common Stock") outstanding and
an additional 1,697,000 shares of Old Common Stock reserved for issuance upon
exercise of outstanding options. Therefore, assuming effectiveness of the
proposed one-for-three reverse stock split, the Company will have approximately
4,488,719 shares of Common Stock, $.01 par value ("New Common Stock")
outstanding, and an additional approximate 565,667 shares of New Common Stock
reserved for issuance upon exercise of outstanding options.
With the exception of the reduction in outstanding shares caused by the
one-for-three reverse stock split, the Old Common Stock and the New Common Stock
are identical. As was the case with the Old Common Stock, holders of the New
Common Stock will be entitled to dividends when and as declared by the Board of
Directors from funds legally available therefor, and, upon liquidation will be
entitled to share pro rata in any distribution to shareholders. Holders of the
New Common Stock (as was the case with holders of the Old Common Stock) will
have one non-cumulative vote for each share held so that holders of more than
50% of the New Common Stock will be able to elect all the directors and the
remaining stockholders will be unable to elect any directors. There are no
preemptive, conversion or redemption privileges, nor sinking fund provisions
with respect to either the New Common Stock or the Old Common Stock. All of the
outstanding shares of the Old Common Stock are (and all of the shares of the New
Common Stock issued upon the reverse stock split will be) validly issued, fully
paid and non-assessable.
The reverse stock split will not effect any change in the rights of minority
stockholders concerning a change in control or takeover of the Company. Receipt
of New Common Stock upon surrender of Old Common Stock in connection with the
reverse stock split will not constitute taxable income to stockholders under
federal income tax laws.
Assuming that this Proposal is approved and effected, the Company will have
approximately 9,945,614 shares of New Common Stock authorized but unissued and
unreserved for future issuances. Although there are no present plans or
arrangements to issue any of such shares, in view of the Company's limited
working capital position, the Board of Directors may in the future attempt to
raise additional financing for the Company through the sale of such shares, in
whole or in part, on terms which cannot now be predicted.
Reasons for the Proposed Reverse Stock Split
The Common Stock is quoted and traded in the over-the-counter market on the
NASDAQ Small Cap System under the symbol "CHEF." The high bid price for the
Common Stock has been lower than $1.00 at all times since January 30, 1995. A
requirement for continued listing on the System is that the minimum bid price
for the Common Stock be at least $1.00. As a result of the bid price for the
Common Stock being less than $1.00, the Common Stock has continued to trade on
the NASDAQ Small Cap System only because the Company is in compliance with the
alternative criteria for continued listing on the System which allows the bid
price to be less than $1.00 provided the issuer has at least $2 million in
capital and surplus and a public float market value of at least $1 million.
The Company has been advised by The NASDAQ Stock Market, Inc. that its Board
of Directors is currently in the midst of a comprehensive review of the listing
standards for NASDAQ and that "...it is probable, while not a certainty at this
time, that the Board...will move to eliminate the alternative criteria...." In
such event, the Common Stock would lose its listing on NASDAQ if it continued to
trade at a bid price of less than $1.00. In an effort to increase the bid price
of the Common Stock to $1.00 or more, the Board of Directors has authorized and
recommends the proposed reverse stock split.
It should be noted that even if the reverse stock split of the Common Stock
is effected, no assurances can be given that it will trade at a higher market
price or that it will continue to be listed on NASDAQ. The Board of Directors
believes that the proposed reduction in the number of outstanding shares of
Common Stock will afford a better opportunity for the market price for such
securities to increase on a per share basis in the event of future earnings,
although no assurances can be given that such will be the case. However, the
Board of Directors believes that in the event the alternative criteria for
listing on NASDAQ is eliminated, the failure to effectuate the proposed reverse
stock split could significantly increase the possibility that the Common Stock
will be delisted from trading on NASDAQ which would result in a limited trading
market for such securities thereby adversely affecting their liquidity. It
should also be noted that non-NASDAQ securities may not be eligible for
exemptions accorded NASDAQ listed stocks under several state blue-sky laws,
thereby making it more difficult to qualify for secondary trading in such
states.
THE BOARD OF DIRECTORS STRONGLY URGES THAT HOLDERS OF THE
COMPANY'S COMMON STOCK CAST THEIR PROXIES FOR THIS PROPOSAL.
STOCK PRICE PERFORMANCE
Set forth below is a table comparing the yearly cumulative total
shareholder return on the Common Stock, based on the market price of the Common
Stock, with the cumulative total return of companies in the S&P 500 and the S&P
Restaurant Index.
COMPARISON OF FIVE YEAR TOTAL RETURN
FOR CHEFS INTERNATIONAL, INC., S&P 500 AND S&P RESTAURANT INDEX
Total Shareholders Returns
base
company Period
- ------- Jan91 Jan92 Jan93 Jan94 jan95 Jan96
Chefs International Inc 100 114.16 85.39 456.62 104.57 52.36
S&P INDEX 100 122.69 135.67 153.14 153.96 213.48
Restaurant- 500 100 154.03 173.20 213.43 224.14 330.45
- --------------------------------------------------------------------------------
CERTAIN TRANSACTIONS
Robert E. Brennan is a principal stockholder of the Company as well as the
owner of Gourmet Associates ("Gourmet") which has leased the Vero Beach, Florida
Lobster Shanty restaurant to the Company since 1979. During the Company's two
most recently completed fiscal years and at present, the lease has been and
continues to be a month to month "net" lease at a monthly rental of $10,000 with
the Company also paying personal property taxes and insurance thereunder.
Management regards this lease to be advantageous to the Company.
In February 1995, Mr. Cookie Face agreed to purchase certain furniture,
fixtures and equipment at a restaurant operated by a corporation wholly-owned by
Frank Koenemund in a strip mall in Manalapan, New Jersey for a $125,000 note,
payable out of 50% of the annual profits derived from Mr. Cookie Face's
operation of an ice cream parlor and restaurant at said location. Chefs'
management was of the opinion that the replacement cost of such furniture,
fixtures and equipment approximated $125,000. Mr. Koenemund represented that his
approximate cost for same two and three years prior was also $125,000. Mr.
Cookie Face entered into a five-year lease for the premises through January 31,
2000 to operate its first Mister Cookie Face restaurant at such location at an
annual rental initially at approximately $32,000, reducing to an annual rental
in the last year of $26,700.
In May 1995, the Company opened a Mr. Cookie Face restaurant at the strip
mall location offering a limited menu during lunch and dinner hours as well as
Mr. Cookie Face and other ice cream and dessert products for both on premises
consumption and retail take-out. Due to disappointing sales, the Company closed
this restaurant in September 1995. The restaurant lost $160,700 in fiscal 1996.
In April 1996, Mr Cookie Face sold the restaurant furniture, fixtures and
equipment and assigned the lease for the restaurant to WW Ice Cream Parlors,
Inc. and Welsh Farms, Inc. (collectively "Welsh") at a sales price of $190,000,
payable solely out of certain monetary credits which Welsh agreed to provide Mr.
Cookie Face for future purchases of ice cream mix and ice cream products.
Despite the assignment, Mr. Cookie Face continued to remain liable with Welsh
under the lease. At the same time, Mr. Koenemund's corporation agreed with Mr.
Cookie Face to reduce the principal amount of the above described $125,000 note
to $95,000 and to provide that it would be payable solely out of 50% of the
amount of any monetary credits received by Mr. Cookie Face from Welsh pursuant
to the above described arrangement.
Auditors
The firm of Moore Stephens, P.C., certified public accountants, has been
selected by the Board of Directors to audit the accounts of the Company and its
subsidiaries for the current fiscal year ending January 26, 1997. Moore
Stephens, P.C., is the successor in interest to the firm of Mortenson and
Associates, certified public accountants, which firm served as the Company's
auditors since 1978. Representatives of such firm are not expected to be present
at the November 7, 1996 Annual Meeting of Stockholders.
Stockholder Proposals for 1997 Annual Meeting
Under current rules of the Securities and Exchange Commission, stockholders
wishing to submit proposals for inclusion in the Proxy Statement of the Board of
Directors for the 1997 Annual Meeting of Stockholders must submit such proposals
so as to be received by the Company at P.O. Box 1332, Point Pleasant Beach, New
Jersey 08742 on or before April 30, 1997.
OTHER MATTERS
Management does not know of any other matters which are likely to be brought
before the Meeting. However, in the event that any other matters properly come
before the Meeting, the persons named in the enclosed proxy will vote said proxy
in accordance with their judgment in said matters.
By Order of the Board of Directors
ANTHONY PAPALIA
President
Point Pleasant Beach, New Jersey 08742
October 7, 1996
