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CHEFS INTERNATIONAL, INC.
P.O. Box 1332, Point Pleasant Beach, NJ 08742 * 908-295-0350 * Fax 908-295-4514
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AUGUST 26, 1997
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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 Tuesday, August 26,
1997 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. 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 July 21, 1997 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
July 22, 1997
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.
<PAGE>
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CHEFS INTERNATIONAL, INC.
P.O. Box 1332, Point Pleasant Beach, NJ 08742 * 908-295-0350 * Fax 908-295-4514
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS: AUGUST 26, 1997
This Proxy Statement of Chefs International, Inc., a Delaware corporation
(the "Company") is first being mailed to Stockholders on or about July 24, 1997
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 Tuesday, August 26, 1997 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 1997 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 July 21, 1997 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 4,489,539 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.
<PAGE>
The following table sets forth, as of July 21, 1997, 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).
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNERSHIP OF CLASS
--------------- ---------------- ------
<S> <C> <C>
DIRECTORS*
Anthony Papalia ............................... 71,390(1) 2%
James Fletcher ................................ 334 --
Martin Fletcher ............................... 65,167(2) 1%
Frank Koenemund ............................... 333,334 7%
Jack Mariucci ................................. 104,167(3) 2%
All executive officers and directors as a group
(five persons) .............................. 574,392(1)(2)(3) 12%
OTHER
Donald Conway CPA, Trustee(4).................. 1,766,557 39%
Druker Rahl & Fein
200 Canal Point Boulevard
Princeton, New Jersey 08540
Michael F. Lombardi, Robert M.................. 332,665(6) 7.4%
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) Includes 66,390 shares issuable upon exercise of stock options granted by
the Company.
(2) These 65,167 shares are issuable upon exercise of stock options granted by
the Company.
(3) These 104,167 shares are issuable upon exercise of stock options granted by
the Company.
(4) On June 10, 1997, Mr. Conway was appointed as the Trustee in the Chapter 11
Bankruptcy Proceeding involving the Company's principal stockholder, Robert
E. Brennan, as Debtor, pending in the United States District Court for the
District of New Jersey (Case No. 95-35502). Mr. Brennan is the record owner
of said 1,766,557 shares. By virtue of his appointment as Trustee, Mr.
Conway is empowered to vote (and with Court approval), to sell Mr. Brennan's
Common Stock and to direct the disposition of the sales proceeds. As a
result, Mr. Conway, in his capacity as Trustee, may be deemed a beneficial
owner of such shares and a controlling person of the Company.
(5) The five individuals and the law firm and Defined Benefit Plan of Lombardi &
Lombardi P.A. (the "Lombardi Group"), have filed a report on Schedule 13D
and three amendments 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." However,
by letter dated December 27, 1996, Michael F. Lombardi, presumably on behalf
of the Lombardi Group, wrote to counsel for Robert E. Brennan offering to
buy Mr. Brennan's 1,766,557 shares of the Company's Common Stock for
$1,095,264.72, which purchase if made, would have given the Lombardi Group
ownership of approximately 46.4% of the Company's outstanding Common Stock
and practical control. To date, such offer has not been accepted. See
"Recent Litigation."
</TABLE>
2
<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 26, 1997, the Company's board of directors held a total of
five meetings.
NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR
NOMINEE AGE SINCE POSITION WITH COMPANY
------ --- ----- -----------------
<S> <C> <C> <C>
Anthony Papalia 39 1985 President, Treasurer, Chief Executive Officer,
Chief Financial Officer and Director
Martin Fletcher(a) ..................... 44 1988 Secretary and Director
James Fletcher(a) ...................... 66 1978 Director
Frank Koenemund ........................ 53 1993 Director
Jack Mariucci .......................... 57 1993 Director
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(a) James Fletcher is the father of Martin Fletcher
</TABLE>
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, ("MCF")
which positions he resigned in February 1997 in connection with the Company's
sale of 95% of the capital stock of MCF to Frank Koenemund.
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 MCF, which
positions he resigned in February 1997 in connection with the Company's sale of
95% of the capital stock of MCF to Frank Koenemund.
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. James Fetcher retired as
vice president and an employee of the Company at the conclusion of fiscal 1997
but he continues to serve as a director.
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 was principally engaged as sole owner and as an executive officer of
MCF which was acquired by the Company in July 1993, at which time, he was
elected a director of the Company. On February 20, 1997 (as of January 26,
1997), the Company sold 95% of the outstanding capital stock of MCF back to Mr.
Koenemund who currently devotes all of his working time to the business of MCF
as its chief executive officer. Mr. Koenemund continues to serve as a director
of the Company.
3
<PAGE>
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 1997,
all Section 16(a) filing requirements applicable to its officers, directors and
beneficial owners of more than 10% of its equity securities were timely filed.
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 26, 1997
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 1997. During
the three-year period ended January 26, 1997, 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 each of fiscal 1996 and fiscal 1997). 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 agreed that if he remained in its employ until age 65 and left such
employ at any time thereafter, the Company would 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 funded this obligation with an
insurance policy paying an annual premium of approximately $5,000. James
Fletcher's employment with the Company terminated at the conclusion of fiscal
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND FISCAL -------------------- OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------ ---- ------- ------ ---------
<S> <C> <C> <C> <C>
Anthony Papalia .............................................. 1997 $150,000 $-0- $2,088(a)
President and 1996 $119,692 $-0- $2,088(a)
Chief Executive Officer 1995 $110,600 $-0- $2,088(a)
Frank Koenemund .............................................. 1997 $150,000 $-0- $8,352(a)
Chief Executive 1996 $111,539 $54,300 $8,352(a)
Officer of MCF 1995 $100,000 $-0- $-0-
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(a) Represents contributions under the Supplemental Employee Benefit Program.
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
NAME AND FISCAL OPTIONS RESTRICTED LTIP ALL OTHER
PRINCIPAL POSITION YEAR SARS STOCK AWARDS PAYOUTS COMPENSATION
- ------------ ---- ---- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Anthony Papalia ................................. 1997 -0- 0 $-0- $-0-
President and 1996 -0- 0 $-0- $-0-
Chief Executive 1995 54,167* 0 $-0- $-0-
Officer
Frank Koenemund ................................. 1997 -0- 0 $-0- $-0-
Chief Executive 1996 250,000** 0 $-0- $-0-
Officer of MCF 1995 54,167* 0 $-0- $-0-
Officer of MCF
- ----------
* Each exercisable to purchase one share of Common Stock at $3.75 per share.
** Each exercisable to purchase one share of Common Stock at $3.00 per share.
</TABLE>
4
<PAGE>
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.
In connection with the Company's acquisition of MCF in July 1993, Frank
Koenemund executed an employment contract with MCF agreeing to serve as
president and chief executive officer at an annual salary of $100,000 plus a
percentage bonus based upon MCF's pre-tax income. Pursuant to the contract, Mr.
Koenemund earned a $54,300 bonus in fiscal 1996 but no bonus in prior years or
in fiscal 1997. In October 1995, the contract term was extended through January
31, 2001, Mr. Koenemund's salary was increased commencing October 31, 1995 to an
annual rate of $150,000 and the bonus provision was retained. On February 20,
1997 (as of January 26, 1997), Chefs sold 95% of the outstanding capital stock
of MCF back to Mr. Koenemund.
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 required Mr. Mariucci to devote at least 10% of his working
time in each month to providing the consulting services and terminated, among
other reasons, in the event of Mr. Mariucci's death or disability. In connection
with Chefs' sale on February 20, 1997 (as of January 26, 1997) of 95% of MCF's
outstanding capital stock back to Mr. Koenemund, it was agreed that Chefs would
have no further payment obligations to M&M or to Jack Mariucci for consulting
services provided that if such consulting services continued to be rendered,
each of Mr. Mariucci's outstanding options to purchase shares of Chefs' Common
Stock would remain in full force and effect until expiration of its term.
STOCK OPTIONS
On November 3, 1989, the Company's Board of Directors granted ten-year
Incentive Stock Options ("ISOs") exercisable to purchase an aggregate 48,778
shares of Common Stock at $.984375 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 Company's 1982 Incentive Stock Option Plan
(the "ISO Plan"), to ten employees including three officers. Anthony Papalia,
James Fletcher and Martin W. Fletcher were granted 12,223, 6,667 and 11,000 of
these options, respectively. To date, ISOs have been exercised to purchase an
aggregate 2,222 shares and an aggregate 8,885 of such options including the ISOs
granted to James Fletcher have been cancelled due to terminations of employment.
The Company's ISO Plan terminated in August 1992.
At Chefs' 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 216,668 shares of Common Stock. The
options were each exercisable over a term of five years from October 3, 1994 at
an exercise price of $3.75 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
5
<PAGE>
subsidiaries. The Optionees and the number of shares issuable upon exercise of
the options granted to such Optionees were as follows:
OPTIONEE NUMBER OF SHARES
-------- ----------------
Anthony Papalia ............................................ 54,167
(President, Treasurer, CEO, CFO and Director)
Martin Fletcher ............................................ 54,167
(Secretary and Director)
Frank Koenemund ............................................ 54,167
(President of Mr. Cookie Face and Director)
Jack Mariucci .............................................. 54,167
(Director)
At Chefs' annual meeting of stockholders held on December 19, 1995,
stockholders approved the grant to Messrs. Koenemund and Mariucci of stock
options exercisable to purchase 250,000 shares and 50,000 shares of Common Stock
respectively. The options were each exercisable over a term of five years from
December 19, 1995 at an exercise price of $3.00 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 $1.22. Each option was non-transferable (except on death) and was
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.
In connection with Chefs' sale on February 20, 1997 (as of January 26,
1997) of 95% of the outstanding capital stock of MCF back to Mr. Koenemund, all
of Mr. Koenemund's options were cancelled.
The following table sets forth certain information concerning unexercised
options held by Mr. Papalia. No options were exercised in fiscal 1997.
1997 FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED
OPTIONS AT 1997 VALUE OF
FISCAL YEAR-END UNEXERCISED
--------------------------- IN-THE-MONEY
NAME EXERCISABLE UNEXERCISABLE OPTIONS AT 1/26/97(1)
---- ----------- ------------- ---------------------
Anthony Papalia ..... 12,223 -0- -0-
54,167 -0- -0-
- ----------
(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 26, 1997.
DIRECTORS' COMPENSATION
During fiscal 1997 only one director, Jack Mariucci, was compensated for
serving as such. His compensation as a director at a monthly rate of $1,500 is
continuing in fiscal 1998. In addition, James Fletcher is being paid a monthly
director's fee of $1,250 in fiscal 1998.
RECENT LITIGATION
In May 1997, a lawsuit was filed in the Superior Court of New Jersey,
Chancery Division, Middlesex County (Docket No. C-133-97) by Michael F.
Lombardi, various Lombardi relatives, the law firm of Lombardi & Lombardi, P.A.
and the Lombardi & Lombardi, P.A. Defined Benefit Pension Plan (collectively the
"Lombardi Group") as plaintiffs, against the Company's five individual
directors, Anthony C. Papalia, James Fletcher, Martin Fletcher, Frank Koenemund
and Jack Mariucci (the "Director Group") and the Company's former wholly-owned
subsidiary, Mister Cookie Face, Inc. ("MCF") as defendants. Because the lawsuit
is a purported shareholder derivative action brought on behalf of the Company,
the Company is named as a nominal defendant.
6
<PAGE>
The complaint alleges that certain corporate actions including the
Company's purchase of MCF in July 1993 from Frank Koenemund, the subsequent
increase in Mr. Koenemund's salary, a bonus payment made to Mr. Koenemund during
fiscal 1996 and the February 1997 sale (as of January 26, 1997) by the Company
of 95% of the stock of MCF back to Mr. Koenemund constituted a waste of the
Company's assets. Among other remedies sought by the plaintiffs is a judgment
finding that the defendants "wasted" the Company's assets in violation of their
fiduciary duties and ordering them to account for damages incurred and profits
lost by the Company; a judgment declaring the Stock Purchase/Sale Agreement by
which the Company sold 95% of MCF to Mr. Koenemund in February 1997 to be null
and void "ab initio"; a judgment enjoining borrowings, fund raising or loan
transactions on behalf of MCF; a judgment enjoining Mr. Koenemund and MCF from
transferring, encumbering, hypothecating or diluting the 950 shares of MCF stock
transferred to Mr. Koenemund in the February 1997 sale and placing a
constructive trust on said shares; a judgment enjoining Mr. Koenemund from
transferring, encumbering, hypothecating or diluting his approximately 7% stock
ownership in the Company; and in the alternative, a judgment awarding
compensatory and/or punitive damages against the defendants, jointly and
severally in an amount to be determined at trial. The plaintiffs have also asked
for an award of costs and disbursements in the lawsuit including a reasonable
allowance for their attorneys' and experts' fees, and such other or further
relief as "may be just and proper under the circumstances."
Although management intends to respond at an appropriate time to the
substance of the complaint, if required, the suit appears to be legally
deficient for several reasons and management has filed a motion with respect
thereto. Management notes that subsequent to the Company's 1993 acquisition of
MCF, the terms of which were fully disclosed, the Lombardi Group continued to
accumulate a substantial position in the Company's Common Stock through
purchases of same and according to the most recently filed amendment to its
Schedule 13D, the Lombardi Group appears to be the beneficial owner of
approximately 7.4% of the Company's outstanding Common Stock. In addition, in
October 1996, in an apparent effort to gain control of the Company, Michael F.
Lombardi wrote to the Company's attorneys stating a wish to explore with the
Company's Board of Directors, the possibility of the Lombardi Group purchasing
2,000,000 shares of the Company's Common Stock. Management rejected such
possibility. Furthermore, by letter dated December 27, 1996, Michael F.
Lombardi, presumably on behalf of the Lombardi Group, wrote to counsel for
Robert E. Brennan offering to buy Mr. Brennan's 1,766,557 shares of the
Company's Common Stock for $1,095,264.72, which purchase, if made, would have
given the Lombardi Group ownership of approximately 46.4% of the Company's
outstanding Common Stock and practical control. To date, such offer has not been
accepted.
This lawsuit is in its initial stages so that no assurances can be given as
to the eventual outcome.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is composed of Anthony Papalia, James Fletcher
and Martin Fletcher. 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.
7
<PAGE>
BASE SALARY. The cash compensation paid to or accrued for Anthony Papalia
and Martin Fletcher with respect to fiscal 1997 was $150,000 and $87,000
respectively. Such compensation was initially determined taking into account the
duties and responsibilities of each such individual and the Company's financial
condition and operations as well as the competitive marketplace for similar
executive talent. 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. 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, Messrs. Papalia, Fletcher,
Koenemund and Mariucci, of stock options exercisable to purchase an aggregate
216,668 shares of Common Stock (54,167 each), 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 250,000 shares and 50,000
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. In connection with the Company's sale on February 20, 1997
(as of January 26, 1997) of 95% of the outstanding capital stock of MCF back to
Mr. Koenemund, all of Mr. Koenemund's options were cancelled.
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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STOCK PRICE PERFORMANCE
Set forth below is a line graph 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
[The following table represents a graph in the printed piece.]
CHEFS
INTERNATIONAL S&P 500 INDEX RESTAURANTS-500
Jan92 100.00 100.00 100.00
Jan93 74.80 110.58 112.45
Jan94 400.04 124.82 138.56
Jan95 91.60 125.48 145.52
Jan96 45.87 174.00 214.53
Jan97 24.98 219.83 195.33
CERTAIN TRANSACTIONS
Robert E. Brennan was the principal stockholder of the Company and is the
principal partner 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.
On February 20, 1997 (as of January 26, 1997), the Company sold 95% of the
outstanding capital stock of its wholly-owned Mister Cookie Face, Inc.
subsidiary ("MCF") to a director, Frank Koenemund.
At the closing, the Company received a $500,000 payment which amount was
paid to its lending bank, First Union National Bank (the "Bank") to extinguish
the Company's outstanding indebtedness under its revolving line of credit with
the Bank. Borrowings under the line had been utilized to fund the operations of
MCF, a Lakewood, New Jersey manufacturer and distributor of ice cream
sandwiches. In addition, at the closing, the Company received three MCF
promissory notes in the aggregate principal amount of $1,100,000. The first note
(Note A) in the principal amount of $100,000 was payable on or before March 24,
1997 together with interest at an annual rate of 8 1/4% and was secured by a
first lien on all of MCF's assets. Note A was paid in full prior to its due
date.
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The second note (Note B) in the principal amount of $500,000 is payable in
the following principal installments
PRINCIPAL PAYMENT DUE DATE PRINCIPAL PAYMENT AMOUNT
-------------------- ------------------------
March 1, 1998, March 1, 1999, March 1, 2000 ............. $16,667 each
April 1, 1998, April 1, 1999, April 1, 2000 ............. $16,667 each
May 1, 1998, May 1, 1999, May 1, 2000................... $16,667 each
June 1, 1998, June 1, 1999, June 1, 2000 ................ $16,667 each
October 1, 1998, October 1, 1999 ........................ $16,667 each
November 1, 1998, November 1, 1999 ...................... $16,667 each
July 1, 1998, July 1, 1999 .............................. $33,333 each
August 1, 1998, August 1, 1999 .......................... $33,333 each
September 1, 1998, September 1, 1999 .................... $33,333 each
July 1, 2000 (Balance) .................................. $33,330
together with interest on the unpaid principal balance at the rate of 9 1/4% per
annum payable monthly commencing March 1, 1997. Note B, although secured by a
first lien on all of MCF's assets, is subordinated to any liens granted in the
future by MCF to its senior lending bank or institutional lender but solely with
respect to a maximum aggregate $1,750,000 of indebtedness.
The third note (Note C) in the principal amount of $500,000 is payable
together with interest at an annual rate of 8 1/4% on or before February 20,
2004 but is mandatorily prepayable on a quarterly basis from 30% of MCF's "cash
flow" on a consolidated basis, commencing with the quarter ending April 30,
1997. Note C is also secured by a first lien on all of MCF's assets and is also
subordinated to any liens granted in the future by MCF to its senior lending
bank or institutional lender but solely with respect to a maximum $1,750,000 of
indebtedness.
Notes B and C are also required to be prepaid in full upon consummation of
a public offering of MCF's securities or of a private sale or sales of MCF's
securities for gross proceeds aggregating at least $100,000 (excluding loans
from MCF's senior bank or institutional lender). As part of the transaction, the
Company cancelled all prior indebtedness owed to it prior to the closing
(excluding the indebtedness paid or agreed to be paid by MCF to the Company or
for its account pursuant to the Stock Purchase/Sale Agreement between the
parties).
MCF also agreed to pay the Company certain monthly amounts equal to the
monthly rental payments being paid by the Company to the Bank under two Master
Lease Finance Schedules with respect to ice cream manufacturing and packaging
equipment installed at MCF's Lakewood, New Jersey plant. The payments are as
follows:
Schedule #1 -- $6,214 monthly commencing February 24, 1997 through March
24, 1999 with a final payment of $6,215 on April 30, 1999.
Schedule #2 -- $1,403 monthly commencing February 15, 1997 through April
15, 1999 with a final payment of $1,404 on May 30, 1999.
MCF had been acquired by the Company in July 1993 (as of June 30, 1993)
from Mr. Koenemund. In the last three fiscal years (1995, 1996, 1997), MCF's
sales had declined from approximately $15,873,000 to $14,711,000 to $11,261,000.
The Company had advanced substantial sums to fund MCF's operations and at the
closing, was indebted to the Bank under a revolving line of credit, all of the
proceeds of which had been advanced to or on behalf of MCF, in the approximate
amount of $500,000.
In view of the substantial advances made to MCF, the fact that MCF's loss
in fiscal 1997 was approximately $600,000, the decline in MCF's sales and other
factors, the Company management concluded that it was in the Company's best
interest to sell MCF. The Company's management examined a number of alternatives
and the Board of Directors (with Mr. Koenemund abstaining) concluded that the
transaction proposed by Mr. Koenemund afforded the Company with the best chance
to recoup all or a significant portion of its substantial investment in MCF. The
board noted that the Company also was retaining a 5% equity interest in MCF,
protected by a pre-emptive right until all of the Notes were paid.
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<PAGE>
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 25, 1998. 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 August 26, 1997 Annual Meeting of Stockholders.
STOCKHOLDER PROPOSALS FOR 1998 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 1998 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, 1998.
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
July 22, 1997
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CHEFS INTERNATIONAL, INC.
REVOCABLE PROXY SOLICITED ONBEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS - AUGUST 26, 1997
The undersigned, a stockholder of CHEFS INTERNATIONAL, INC. (the "Company")
hereby appoints Anthony Papalia and Martin Fletcher or either of them, as proxy
or proxies of the undersigned, with full power of substitution, to vote, in the
name, place and stead of the undersigned, with all of the powers which the
undersigned would possess if personally present, on behalf of the undersigned,
all the shares which the undersigned is entitled to vote at the Annual Meeting
of the Stockholders of Chefs International, Inc. to be held at 9:30 A.M. (local
time) on Tuesday, August 26, 1997, at the Company's Jack Baker's Lobster Shanty
Restaurant at 2200 South Orlando Avenue, Cocoa Beach, Florida 32931 and at any
and all adjournments thereof. The undersigned directs that this Proxy be voted
as follows:
1) To elect directors for the ensuing year
/ / FOR all nominees listed below
(except as marked to the contrary below)
/ / WITHHOLD AUTHORITY to vote
for all nominees listed below
Nominees: JAMES FLETCHER, MARTIN FLETCHER, FRANK KOENEMUND, JACK MARIUCCI,
ANTHONY PAPALIA
(INSTRUCTIONS: To withhold authority to vote for an individual nominee,
write that nominee's name on the line provided)
- --------------------------------------------------------------------------------
2) In their discretion, on all other matters as shall properly
come before the meeting.
/ / AUTHORITY GRANTED
/ / AUTHORITY WITHHELD
(Continued and To be Signed on the Reverse Side)
<PAGE>
(continued from Reverse Side)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE FOREGOING. UNLESS
OTHERWISE SPECIFIED AS ABOVE PRO-VIDED, THIS PROXY WILL BE VOTED "FOR" THE
ELECTION OF DIRECTORS (PROPOSAL ONE) AS SET FORTH IN THE PROXY STATEMENT. IN
ADDITION, DISCRETIONARY AUTHORITY IS CONFERRED AS TO ALL OTHER MATTERS THAT MAY
COME BEFORE THE MEETING UNLESS SUCH AUTHORITY IS SPECIFICALLY WITHHELD.
STOCKHOLDERS WHO ARE PRESENT AT THE MEETING MAY WITHDRAW THEIR PROXY AND VOTE IN
PERSON IF THEY SO DESIRE.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY. No postage is
required if returned in the enclosed envelope and mailed in the United States.
Receipt of the Notice of Annual Meeting of Stockholders, and the accompanying
Proxy Statement of the Board of Directors and the Company's Annual Report for
the year ended January 26, 1997 is acknowledged.
Dated: _____________________________, 1997
__________________________________________
__________________________________________
(Signature of Stockholder)
Please sign exactly as name appears on this Proxy. If shares are registered
in more than one name, the signatures of all such persons are required. A
corporation should sign in its full corporate name by a duly authorized officer,
stating his title. Trustees, guardians, executors and administrators should sign
in their official capacity, giving their full title as such. If a partnership,
please sign in partnership name by authorized person.
PLEASE SIGN AND RETURN THIS PROXY CARD PROMPTLY
NO POSTAGE IS REQUIRED IF RETURNED IN THE ENCLOSED
ENVELOPE AND MAILED IN THE UNITED STATES.
