SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended January 31, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from_________________to________________
Commission File Number 0-8513
CHEFS INTERNATIONAL, INC.
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[Name of small business issuer in its charter]
DELAWARE 22-2058515
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
62 Broadway, P.O. Box 1332
Pt. Pleasant Beach, New Jersey 08742
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (732) 295-0350
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of Class)
Indicate by check mark whether the issuer [1] has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months [or for such shorter period that the issuer was required
to file such reports], and [2] has been subject to such filing requirements for
the past ninety days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for the year ended January 31, 1999 totalled $18,693,692.
On April 30, 1999, the aggregate market value of the voting stock of the issuer
(consisting of Common Stock, $.01 par value) held by non-affiliates was
approximately $2,175,000 based upon the last sale price for such Common Stock on
said date on the OTC Bulletin Board as reported by the National Quotation
Bureau, Inc. On such date, there were 4,488,369 shares of Common Stock of the
Issuer outstanding.
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CHEFS INTERNATIONAL, INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT - Chefs International, Inc. ("Chefs" or the
"Company") was organized under the laws of the State of Delaware in March 1975.
The Company currently operates eight restaurants on a year-round basis, seven of
which are free-standing seafood restaurants in New Jersey (four) and Florida
(three) and one of which is a Mexican theme restaurant operated under the name
"Garcia's," located in a shopping mall in New Jersey. Six of the seafood
restaurants are operated under the name "Lobster Shanty" and one under the name
"Baker's Wharfside." The Company opened its first seafood restaurant in November
1978 and opened its Garcia's restaurant in April 1996. The Company had operated
La Crepe restaurants in various shopping malls in New Jersey, Pennsylvania and
Florida (the first such restaurant opening in November 1975), but closed its
last La Crepe restaurant in December 1995 at its present Garcia's restaurant
site. (As used herein, the term the "Company" may also at times include Chefs
and its various subsidiaries.)
The Company's executive offices are located at 62 Broadway, Point
Pleasant Beach, New Jersey 08742. Its telephone number is (732) 295-0350.
Effective November 22, 1996, the Company completed a one-for-three
reverse stock split of its outstanding Common Stock in an effort to increase the
bid price of the Common Stock to $1.00 or more so as to preserve the listing of
the Common Stock on the NASDAQ Stock Market Small Cap System. Despite the
reverse stock split, the Common Stock was delisted from the NASDAQ Stock Market
Small Cap System at the close of business on December 16, 1998 because of the
failure of the Common Stock to maintain a closing bid price at or above $1.00
per share. Unless otherwise indicated, all share and per share information
contained in this report gives effect to the said one-for-three reverse stock
split. In addition, unless otherwise indicated, actual price quotations for the
Common Stock as quoted on the NASDAQ System have been adjusted throughout this
report by multiplying the actual price for the Common Stock for periods prior to
November 23, 1996 by three. No assurances can be given that the actual price
quotations for the Common Stock during such pre-split period would have
approximated such adjusted prices if the one-for-three reverse stock split had
been effectuated at such time.
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DEVELOPMENTS SINCE THE BEGINNING OF THE LAST FISCAL YEAR
At the conclusion of competitive bidding conducted in Trenton, New
Jersey on August 31, 1998 at the United States Bankruptcy Court for the District
of New Jersey, the Court ordered the sale of the 1,766,557 shares of the
Company's Common Stock (the "Brennan Shares") owned by the Bankruptcy Estate of
Robert E. Brennan (comprising approximately 39% of the Company's outstanding
Common Stock) to the highest bidder, JES Management Corp. ("JES"). The
successful bid was $2.5625 per share or $4,526,802.30 in the aggregate.
Subsequent to the auction, JES demanded that the Trustee of the Bankruptcy
Estate satisfy certain additional conditions before it would close the purchase.
The Trustee took the position that he was not required to satisfy such
conditions and that by failing to close the purchase, JES was in breach of its
contractual obligation.
On October 28, 1998, the Trustee filed an application with the
Bankruptcy Court for an order declaring that JES was in breach of its stock
purchase obligation thereby disqualifying JES as the purchaser of the Brennan
Shares and declaring that JES had forfeited its $100,000 good faith escrow
deposit. The Court signed an order in November 1998 granting the Trustee's
application so that JES has been disqualified as a purchaser. Presumably, the
Trustee will attempt another auction although the timing of same cannot be
predicted.
Also on August 31, 1998, the Bankruptcy Court ordered acceptance of the
Company's bid of $1,100,000 to purchase the Vero Beach, Florida real property
where it has been operating a Lobster Shanty restaurant since 1979 pursuant to a
"month to month" lease with a partnership in which Robert E. Brennan had been,
and the Chapter 11 Trustee of his Bankruptcy Estate was the principal partner,
from the partnership. On October 30, 1998, the Company completed the purchase of
this property for $1,100,000. To fund the purchase, the Company obtained an
$880,000 first mortgage loan from its principal lending bank, First Union
National Bank, and paid the balance of the purchase price from working capital.
The Company's successful bid was based upon an independent appraisal of the
property and was equal to the appraised value. See "Bank Loans" herein as to the
repayment terms of this loan.
At January 25, 1998 in connection with its sale of 95% of the
outstanding capital stock of its Mister Cookie Face, Inc. ("MCF") subsidiary to
a Company director, Frank "Doc" Koenemund, the Company held two MCF promissory
notes. One note with a principal balance of $500,000 outstanding (Note X) was
payable in monthly principal amounts, commencing March 1, 1998, of $16,667 or
$33,333 in each month other than the months of January, February and December
through July 2000 together with interest at the rate of 9 1/4% per annum. The
second note (Note Y) in the principal amount of $500,000 is payable together
with interest at an annual rate of 8
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1/4% on or before February 20, 2004 but is mandatorily prepayable quarterly from
30% of MCF's "cash flow" (if any) on a consolidated basis. Both Note X and Note
Y are secured by a first lien on all of MCF's assets but are subordinated to any
liens granted by MCF to its senior lending bank or institutional lender up to a
maximum of $1,750,000. MCF was also obligated to pay certain monthly amounts to
the Company equal to the monthly rental payments being paid by the Company under
two Master Lease Finance Schedules with respect to ice cream manufacturing and
packaging equipment installed at MCF's Lakewood, New Jersey plant, 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 advised the Company that it was unable to make the $33,333
principal payment under Note X which was due on September 1, 1998 due to cash
shortages and requested that the remaining indebtedness under Notes X and Y be
restructured. At the same time, MCF advised that it was obtaining a $450,000
working capital loan and requested that the Company subordinate its lien to the
lien of MCF's lending bank. In consideration for MCF applying $54,068 of the
loan proceeds to prepay the remaining balance outstanding under the two Master
Lease Schedules thereby releasing it from any further liability thereunder, the
Company agreed to so subordinate its lien.
Since October 1998, MCF has been making monthly payments of $10,000 to
the Company which the Company has applied to interest and to reduce the
outstanding principal amount of Note X. At January 31, 1999, an aggregate
$337,843 of principal was outstanding under Note X and the entire $500,000
principal amount was outstanding under Note Y. Management believes that
permitting MCF to continue to pay $10,000 per month under Note X, based on its
current financial condition, maximizes MCF's ability to pay the outstanding
balance of the Note. Because of MCF's lack of positive cash flow, no payments
were required to be made by MCF in fiscal 1999 with respect to Note Y. See Note
5 of Notes to the Consolidated Financial Statements.
At the end of the third quarter of fiscal 1999, the Company closed its
Belmar, New Jersey Lobster Shanty restaurant due to unsatisfactory operating
results. The Company had been leasing and operating this restaurant since
October 1994 and continued to make monthly lease payments through February 1999
when the lease expired.
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Pursuant to a decision of a Nasdaq Listing Qualifications Panel, the
Company's Common Stock was delisted from The Nasdaq Stock Market, effective at
the close of business on December 16, 1998. The cited cause of the delisting was
the failure of the Common Stock to maintain a closing bid price at or above
$1.00 per share for a minimum of ten consecutive days. Since December 17, 1998,
the Common Stock has been traded on the OTC Bulletin Board under the symbol
"CHEF."
On April 1, 1999, by mutual agreement, the Company and Moore Stephens
P.C. ("Moore Stephens") agreed to the replacement of Moore Stephens as the
Company's independent accountants for the audit of its financial statements for
the fiscal year ended January 31, 1999. The agreement was reached after the
Company was advised by the staff of the Securities and Exchange Commission that
in the staff's opinion, the existence of a relationship between a member of
Moore Stephens and an entity which held a direct or indirect interest in the
Company's securities adversely impacted Moore Stephens' independence with
respect to the Company. The staff further advised that for this reason, the
Company's financial statements for the three years ended January 25, 1998
contained in its annual report on Form 10-K for the year ended January 25, 1998
are considered by the staff to be unaudited. Moore Stephens has advised that it
disagrees with the staff's position and believes that it was at all times
independent with respect to the Company's audits. Excluding the above issue, the
staff has not alleged any inaccuracies in the Company's financial statements.
On April 1, 1999, the Company engaged the certified public accounting
firm of Edward Isaacs & Company LLP ("Edward Isaacs LLP") to serve as its
principal independent accounting firm to audit its balance sheet as of January
31, 1999 and the related statements of operations, stockholders' equity, and
cash flows for each of the two fiscal years in the period ended January 31,
1999. Prior to the engagement of Edward Isaacs LLP, the Company did not consult
with such firm on any accounting, auditing or financial reporting issue.
BANK LOANS
At January 25, 1998, the Company's principal bank financing was
provided pursuant to a $1,000,000 term loan ("Term Loan A") and a $525,000 term
loan ("Term Loan B") from First Union National Bank ("First Union") as well as a
$350,000 revolving line of credit ("L/C line") from First Union. At said date,
approximately $600,000 was outstanding under Term Loan A, payable in
installments of principal with interest at an annual rate of 7.51% through
November 2000; an aggregate $525,000 was outstanding under Term Loan B payable
in monthly installments of principal with interest at an annual rate of 9 1/4%
through December 2002 and approximately $325,000 was outstanding under the L/C
line, due June 30, 1998. Term Loan A and the L/C line were secured by first
mortgages on the
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Company's two Point Pleasant Beach, New Jersey seafood restaurants and Term Loan
B was secured by a first mortgage on the Toms River, New Jersey seafood
restaurant.
During fiscal 1999, the Company reduced the outstanding principal
balance of Term Loan A to approximately $400,000 and reduced the outstanding
principal balance of Term Loan B to approximately $420,000. At June 30, 1998,
the L/C line was renewed for the fifth consecutive year for an additional one
year term and increased to $500,000, repayable with interest at an annual rate
of LIBOR plus 2 1/4%. Approximately $225,000 was outstanding under the L/C line
at January 31, 1999.
In May 1998, the Company borrowed $124,000 from First Union to
partially fund the purchase of property adjoining its Toms River, New Jersey
seafood restaurant. The loan is repayable in monthly installments of principal
with interest at an annual rate of LIBOR plus 2 1/4% through May 2003 and is
secured by a first mortgage on the property. At January 31, 1999, approximately
$107,500 was outstanding under this loan.
In October 1998, the Company borrowed $880,000 from First Union to fund
the $1,100,000 purchase of its Vero Beach, Florida seafood restaurant. This loan
is repayable in monthly installments of principal and interest at an annual rate
of 7.82% through November 2008 and is secured by a first mortgage on the Vero
Beach property. At January 31, 1999, approximately $876,500 was outstanding
under this loan (which provides for a $431,429 "balloon" payment in November
2008).
Repayment of the Company's term loans and of borrowings under its line
of credit is guaranteed by each of the Company's subsidiaries.
Pursuant to its principal Loan Agreements, the Company has made certain
affirmative and negative covenants to First Union. The covenants contained in
the prior loan agreements were superseded by the covenants contained in the Vero
Beach Loan Agreement. Included in the Vero Beach Loan Agreement are covenants
not to pay dividends, effect stock redemptions, sell or issue shares of its
stock, make a material change of ownership that changes control of the Company
or its management structure, create certain liens or encumbrances, enter into
sale-leaseback transactions, sell assets not in the ordinary course of business,
merge with or acquire another entity, or enter into certain other transactions
without First Union's written consent, and to maintain on a consolidated basis,
tangible net worth of at least $11,650,000 increasing by $50,000 at each
subsequent fiscal year-end commencing with fiscal 1999; a debt to Tangible Net
Worth ratio of no greater than .50:1.00; a net income, depreciation and
amortization less Maintenance Capital Expenditures (defined as those
expenditures required on an annual basis to maintain existing restaurant
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locations) to the current portion of long term debt and capital leases ratio of
not less than 1.20:1.0; and cash and cash equivalents of not less than $750,000.
A failure by the Company to satisfy any such covenant would constitute an event
of default under the Loan Agreement enabling First Union to accelerate payment
of all outstanding indebtedness.
At the end of fiscal 1998, the Company was not in compliance with
certain of its covenants under its Loan Agreements by failing to maintain the
requisite Debt Service Coverage Ratio. However, the Company requested and First
Union granted a waiver of its right to declare a default based on the Company's
failure to comply with this covenant at January 25, 1998. The Company was in
compliance with all applicable covenants at January 31, 1999.
(B) BUSINESS OF ISSUER - The Company is engaged in one business; the
operation of eight restaurants in New Jersey and Florida on a year-round basis.
RESTAURANT OPERATIONS
The Company is principally engaged in the operation of eight
restaurants on a year-round basis, seven of which are free-standing seafood
restaurants in New Jersey (four) and Florida (three) and one of which is a
Mexican theme restaurant operated under the name "Garcia's," located in a
shopping mall in New Jersey. Six of the seafood restaurants are operated under
the name "Lobster Shanty" and one under the name "Baker's Wharfside." The
Company opened its first seafood restaurant in November 1978 and opened its sole
Garcia's restaurant in April 1996. The Company had operated La Crepe restaurants
in various shopping malls in New Jersey, Pennsylvania and Florida (the first
such restaurant opening in November 1975), but closed its last La Crepe
restaurant in December 1995 at its present Garcia's restaurant site. The
Company's restaurants, all of which are operated on a year-round basis, are as
follows:
Date of Opening
Under the Company's
Location Management
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SEAFOOD RESTAURANTS
Lobster Shanty
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Vero Beach, Florida December 1979
Pt. Pleasant Beach, New Jersey October 1980
Toms River, New Jersey October 1980
Jensen Beach, Florida December 1980
Cocoa Beach, Florida September 1981
Hightstown, New Jersey December 1981
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Date of Opening
Under the Company's
Location Management
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Baker's Wharfside
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Pt. Pleasant Beach, New Jersey October 1980
GARCIA'S RESTAURANT
Monmouth Mall, Eatontown,
New Jersey April 1996
SEAFOOD RESTAURANTS
The Company's seafood restaurants provide a variety of seafood dishes
including shellfish such as lobster, scallops, shrimp, oysters and clams, and
other fish including red snapper, bluefish, grouper and other varieties. A
limited selection of non-seafood entrees is also offered including steak and
chicken as well as a dessert selection.
Most of the Company's seafood restaurants have a nautical decor.
LOBSTER SHANTY RESTAURANTS
VERO BEACH, FLORIDA - This restaurant, consisting of approximately
6,900 square feet, is free standing in Vero Beach, Florida approximately 100
yards off U.S. Highway #60 on the intracoastal waterway, and seats approximately
200. It opened in December, 1979 pursuant to a lease from Gourmet Associates
("Gourmet") owned by Robert E. Brennan, the principal stockholder of the
Company. Gourmet had purchased the property for $700,000 in April, 1979 by
making a $200,000 down payment and issuing its $500,000 promissory note for the
balance, payable with 9 1/2% annual interest over 18 years secured by a first
mortgage. Gourmet expended approximately $315,000 in extensions and improvements
to the facility as well as for equipment therein prior to leasing this
restaurant to the Company. During fiscal 1998, the Company constructed an
outdoor deck with a bar and dining facilities at this restaurant at a cost of
approximately $125,000.
See "Developments Since the Beginning of the Last Fiscal Year" as to
the Company's purchase of this restaurant in October 1998.
PT. PLEASANT BEACH, NEW JERSEY - This restaurant, consisting of
approximately 17,000 square feet, is free standing with a waterfront location on
Channel Drive in Pt. Pleasant Beach, New Jersey and seats approximately 750. It
shares parking with the Baker's Wharfside restaurant in Pt. Pleasant Beach with
space for approximately 250 automobiles. The Company purchased this restaurant
and three others (including the land, buildings, improvements and businesses
including personal property and
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fixtures, liquor licenses and all of the outstanding stock of the four
corporations operating these restaurants) from Robert E. Brennan, the principal
stockholder of the Company, and from three partnerships owned by him, in
October, 1980 for an aggregate $7,750,000 less a subsequent $250,000 prepayment
discount.
TOMS RIVER, NEW JERSEY - This restaurant, consisting of approximately
10,750 square feet, is free standing on Robbins Parkway with a waterfront
location on the Toms River in Toms River, New Jersey and seats approximately
375. Municipal parking facilities are available nearby. The Company purchased
this restaurant and three others (including the land, buildings, improvements,
and businesses including personal property and fixtures, liquor licenses and all
of the outstanding stock of the four corporations operating these restaurants)
from Robert E. Brennan, the principal stockholder of the Company, and from three
partnerships owned by him, in October, 1980 for an aggregate $7,750,000 less a
subsequent $250,000 prepayment discount. During fiscal 1998, the Company
commenced an interior renovation of this restaurant, the bulk of which was
completed in fiscal 1998 with the balance completed early in fiscal 1999. The
total cost of this renovation was approximately $338,000. In fiscal 1999, the
Company constructed an outdoor deck with a bar and dining facilities at this
restaurant adding approximately 125 seats at a cost of approximately $188,000.
In May 1998, the Company spent $166,000 to purchase a lot and building
with a waterfront location adjacent to the Toms River Lobster Shanty. The
Company partially funded the purchase price with the bank loan previously
described. The Company is currently applying for the variances necessary for it
to develop an outdoor patio dining area with seating for 125 on this site. If it
is successful, it estimates the total costs of construction and outfitting at
approximately $350,000 for an opening anticipated in fiscal 2001.
JENSEN BEACH, FLORIDA - This 200 seat restaurant, consisting of
approximately 4,500 square feet, is located in a free standing building on the
intracoastal waterway in Jensen Beach, Martin County, approximately 50 miles
north of Palm Beach. The restaurant has parking for 100 automobiles. Acquired in
October, 1980 were two lots, the restaurant with furnishings and a liquor
license from an unaffiliated party for $975,000. The Company made a $295,000
down payment and paid the balance over a ten year period through September,
1990.
COCOA BEACH, FLORIDA - This approximately 240 seat restaurant,
consisting of approximately 9,600 square feet, is located in a free standing
building on Highway A1A in Cocoa Beach and has parking for approximately 90
cars. The Company acquired this restaurant as well as a seafood restaurant in
Titusville, Florida in September 1981 through the purchase from two unaffiliated
individuals of the
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outstanding capital stock of two corporations engaged in the ownership and
operation of a Florida seafood restaurant at each of the two sites. The
corporations owned the land on which the restaurants were located, the
restaurant buildings, the restaurant businesses including personal property and
fixtures and liquor licenses for each restaurant, all of which were included in
the sale. The purchase price paid by the Company for the stock of the two
corporations (prior to closing adjustments) was $3,370,000, the bulk of which
was represented by 20-year promissory notes payable monthly and secured by
mortgages on the restaurants. The Company sold the Titusville restaurant to an
unaffiliated third party in January 1988 realizing a loss of approximately
$942,000. The Company prepaid the balance of the remaining indebtedness under
the notes in July 1993 using the net proceeds from the sale in June 1993 of
another Florida restaurant property.
HIGHTSTOWN, NEW JERSEY - This restaurant, consisting of approximately
4,600 square feet, is free standing on State Highway 33 approximately two miles
east of Hightstown and seats approximately 175. The restaurant has parking for
approximately 100 automobiles. The Company purchased this restaurant and three
others (including the land, buildings, improvements and businesses including
personal property and fixtures, liquor licenses and all of the outstanding stock
of the four corporations operating these restaurants) from Robert E. Brennan,
the principal stockholder of the Company and from three partnerships owned by
him, in October, 1980 for an aggregate $7,750,000 less a subsequent $250,000
prepayment discount.
BAKER'S WHARFSIDE RESTAURANT
PT. PLEASANT BEACH, NEW JERSEY - This restaurant, consisting of
approximately 7,500 square feet, is free standing with a waterfront location on
Channel Drive in Pt. Pleasant Beach, New Jersey and seats approximately 500. It
shares parking with the Lobster Shanty restaurant in Pt. Pleasant Beach with
space for approximately 250 automobiles. The Company purchased this restaurant
and three others (including the land, buildings, improvements and businesses
including personal property and fixtures, liquor licenses and all of the
outstanding stock of the four corporations operating these restaurants) from
Robert E. Brennan, the principal stockholder of the Company, and from three
partnerships owned by him, in October, 1980 for an aggregate $7,750,000 less a
subsequent $250,000 prepayment discount.
GARCIA'S RESTAURANT
In November 1995, the Company entered into an agreement (the
"Agreement") with Garcimex of New Jersey, Inc. ("Garcimex"), the exclusive owner
of the "Garcia's" trade mark, service mark and trade name along with the
goodwill and recipes of a Mexican restaurant business associated with the marks.
Pursuant to the Agreement, the
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Company was granted the exclusive right to establish and open Mexican
restaurants using the marks, goodwill and recipes in six New Jersey counties,
Hunterdon, Mercer, Middlesex, Monmouth, Ocean and Somerset (the "Territory").
The Company was granted the right but not the obligation to open a restaurant
utilizing the marks and goodwill in each of the first five 12-month periods, in
the Territory, with a six-month grace period with respect to each such 12-month
period. If the Company did not open a Garcia's restaurant in each of the first
five 12-month periods (including the grace period), the Agreement provided that
it would lose the right to develop additional restaurants within the Territory.
The Company did not open an additional Garcia's restaurant within the prescribed
time period after the April 1996 opening of its initial Garcia's restaurant. The
Company retains the right to utilize the marks, goodwill and recipes at its
Garcia's restaurant and Garcimex has agreed not to open another Mexican
restaurant within an 18-mile radius of any Company operated Garcia's restaurant.
The Agreement is for an initial term of 20 years with additional
automatic ten-year renewal periods unless the Company elects not to renew the
Agreement. During the period that the Agreement is in effect, the Company is
required to pay 3% of the gross annual sales from each Garcia's restaurant which
it operates in the Territory, to Garcimex on a quarterly basis. The Company has
also been accorded a right of first refusal with respect to offers received by
Garcimex from third parties seeking to obtain rights in the marks, goodwill and
recipes for restaurants to be opened outside of the Territory. Furthermore, the
Agreement also provides the Company with certain rights to open Mexican
restaurants in New Jersey outside the Territory. To date, the Company has opened
one Garcia's restaurant which opened at the Monmouth Mall on April 29, 1996.
MONMOUTH MALL, EATONTOWN, MONMOUTH COUNTY, NEW JERSEY - The Company's
Garcia's restaurant at the Monmouth Mall consists of 4,371 square feet of leased
space and is decorated in a bright, multi-color Mexican motif. The restaurant
has a bar and tables and booths which can accommodate approximately 130 patrons.
The Company has a liquor license permitting the consumption of wine and
alcoholic beverages on the premises. The restaurant is open for lunch and dinner
seven days per week.
The restaurant features Mexican cuisine including fajitas, tortillas,
burritos and enchiladas with cheese, beef, chicken, pork and seafood fillings.
The menu also includes appetizers, soups and salads and a limited number of
American style offerings such as steaks and burgers. Alcoholic offerings such as
margaritas and tequilas complement fruit drinks and other soft drinks.
The Company's lease for this restaurant is for a 12-year term providing
for a minimum annual rental of $109,275 during each of the first five years and
a minimum annual rental of $118,017 per
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annum thereafter. The Company was granted a $24,000 per year Construction
Allowance for the five-year period commencing January 1, 1997 to be applied on a
monthly basis in reduction of the said minimum annual rental. The Company is
also required to pay additional rent equal to 5% of the restaurant's annual
gross revenues in excess of $2,185,000 in each of the first five years and in
excess of $2,360,340 in each subsequent year. The Company is also required to
pay a proportionate share of the Mall's real estate taxes, utility charges and
the Landlord's operating costs as well as certain other charges.
The restaurant is on the site of the Company's La Crepe restaurant
which closed in December 1995. The Company has spent approximately $720,000 to
construct its Garcia's restaurant on this site.
The Monmouth Mall has been in operation for approximately 20 years.
Macy's, J.C. Penny and Stern's are major department stores in the Mall. The Mall
is a large shopping center with 1,500,000 square feet of shopping area on 105
acres with parking for 7,200 cars.
SOURCES OF FOOD PRODUCTS
The food products used by the Company in the operation of its seafood
restaurants and its Garcia's restaurant are readily available from a variety of
sources including national distributors and local sources on an order basis when
needed.
SEASONAL ASPECTS
To date, the Company's New Jersey seafood restaurants have experienced
their greatest sales volumes from May through September whereas its Florida
seafood restaurants have experienced their greatest sales volumes from January
through April. The Company's Garcia's restaurant has experienced its greatest
sales volume during the Thanksgiving through Christmas period.
TRADEMARKS
The Company has no patents, trademarks, licenses, franchises or
concessions which it regards as material to its restaurant business with the
exception of the service mark "Jack Baker's Lobster Shanty"R registered for a 20
year period with the U.S. Patent and Trademark Office in February, 1989 and the
rights purchased from Garcimex as described above to use of the trade mark,
service mark and trade name "Garcia's."
COMPETITION
The restaurant business is highly competitive and the success of any
restaurant depends to a great extent upon the services it
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supplies and its location. The Company's seafood restaurants compete primarily
with other local seafood restaurants and to a lesser extent, with local
restaurants serving a more general fare. The principal national competition to
the Company's seafood restaurants is the Red Lobster restaurant chain. This
chain has substantially greater resources than the Company. The Company's
Florida seafood restaurants also face competition from Shells seafood
restaurants operating in their area. There are other restaurants in the mall and
in the vicinity of the mall where the Company is now operating a Garcia's
restaurant, all of which supply competition to the Company's Garcia's unit.
Although there are no Mexican style restaurants in the mall, there are other
Mexican style restaurants in the area. Typical "chain" competitors, all of which
are affiliated with better established and more prominent national chains, are
the Friendly Ice Cream chain, Ruby Tuesdays and TGI Fridays. There can be no
assurance that the Company's units will be able to successfully compete with any
of such other restaurants.
GOVERNMENT REGULATION
The Company is subject to various Federal, state and local laws
affecting the operation of its restaurants, including licensing and regulation
by health, sanitation, safety and fire departments and alcoholic beverage
control authorities. The Company is also subject to the Fair Labor Standards
Act, which governs such matters as minimum wages, overtime and other working
conditions. While such regulations have not had a material negative impact on
the Company's operations to date, difficulties in obtaining necessary licenses
or permits could result in delays or cancellations in the opening of new
restaurants and increases in the minimum wage could increase the Company's labor
cost.
Each of the Company's New Jersey and Florida restaurants holds a state
liquor license and is subject to the liquor licensing laws of New Jersey or
Florida (depending on location). Management regards the aggregate and per claim
liability insurance which it carries to be adequate for the nature of its
operations taking into account the fact that it serves liquor at each location.
EMPLOYEES
The Company maintains its administrative employees at its executive
offices including its principal officers (see "Item 9 - Directors, Executive
Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act"), secretarial and bookkeeping personnel. Each of the Company's
seafood restaurant units employs a general manager, two assistant managers and
between 40 and 130 other employees to serve as waitresses, waiters, busboys,
bartenders, cooks, dishwashers, kitchen help, hostesses and cashiers (some on a
part-time basis). The Company's Garcia's restaurant employs approximately 40
employees serving similar
12
<PAGE>
functions. The Company also presently employs three area supervisors, each
responsible for certain of the Company's restaurants. Managerial candidates are
recruited for the Company's restaurants from hotel and restaurant management
schools, restaurant recruiting agencies, through advertising in restaurant
management magazines and by promotion from within the Company's own
organization. At January 31, 1999, the Company had a total of approximately 415
employees (including part-time workers). The Company is not a party to any
collective bargaining agreements and has enjoyed satisfactory employee relations
since inception.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive and administrative offices are located in an
approximately 4,000 square foot two story Company owned building of cinder block
construction at 62 Broadway, Point Pleasant Beach, New Jersey.
See Item 1 herein for a description of the Company's operating
restaurants.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the quarter ended January 31, 1999.
13
<PAGE>
CHEFS INTERNATIONAL, INC.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Common Stock was listed on the NASDAQ Stock Market Small Cap System
under the symbol "CHEF" until the close of business on December 16, 1998 when it
was delisted because of the failure of the Common Stock to maintain a closing
bid price at or above $1.00 per share. Commencing December 17, 1998, the Common
Stock has been traded on the OTC Bulletin Board under the symbol "CHEF."
Quarter Bid Prices
Ended --------------------
High Low
April 27, 1997 $ .65625 $ .5625
July 27, 1997 $ .625 $ .50
October 26, 1997 $ 1.00 $ .5625
January 25, 1998 $ .90625 $ .53125
April 26, 1998 $ .9375 $ .46875
July 26, 1998 $ .875 $ .625
October 25, 1998 $ 1.25 $ .625
October 26
through
December 16, 1998 $ .90625 $ .71875
OTC BULLETIN BOARD TRADING
December 17, 1998
through
January 31, 1999 $ .71875 $ .625
The above quotations represent prices between dealers and do not
include retail mark-ups, mark-downs or commissions. They do not necessarily
represent actual transactions.
At April 30, 1999, the number of record holders of the Common Stock was
6,853. Such number of record owners was determined from the Company's
shareholder records and does not include beneficial owners whose shares are held
in nominee accounts with brokers, dealers, banks and clearing agencies.
Pursuant to the Company's Term Loan Agreement with First Union National
Bank, the Company is restricted during the period any loans are outstanding
under such agreement from paying dividends on any of its outstanding stock.
14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Company currently operates eight restaurants in Florida and New
Jersey. The three Florida restaurants trade under the name of Jack Baker's
Lobster Shanty and offer a predominantly seafood menu. The five New Jersey
restaurants include three Jack Baker's Lobster Shantys and Jack Baker's
Wharfside restaurant, which feature a seafood menu and Garcia's, the Company's
Mexican restaurant. At the end of the third quarter, the Company closed its
Belmar, New Jersey restaurant because of unsatisfactory operating results. The
Company operated nine restaurants, including Belmar, for all of fiscal 1998. The
statement of operations for fiscal 1999 was comprised of 53 weeks as compared to
52 weeks for fiscal 1998.
RESULT OF OPERATIONS
Sales for the 53 weeks ended January 31, 1999 were $18,693,700, an
increase of $596,600 or 3.3%, as compared to $18,097,100 for the 52 weeks ended
January 25, 1998. The extra week of sales accounted for approximately $260,000
of the increase and the Belmar restaurant, which did not operate during the
fourth quarter of fiscal 1999, had sales of $147,900 during the fourth quarter
of 1998. The increase in sales this year occurred in the New Jersey restaurants
primarily as a result of good weather and a successful renovation of the Toms
River restaurant which enjoyed a 16% sales increase over last year. Customer
counts for the chain were less than 1% higher in fiscal 1999 while the customer
check average increased by approximately 2.8%.
Gross profit was 67.1% of sales for fiscal 1999 as compared to 67.2% of
sales for fiscal 1998. The slight decrease can be attributed entirely to higher
liquor costs. Management instituted a modest liquor price increase in August
1998 to offset some of the higher costs. Overall food costs were unchanged
versus the prior year. While some food products did increase in cost during
fiscal 1999, management was able to offset those increases by raising selective
menu item prices and adjusting the menu meal mix to highlight lower cost items.
Payroll and related expenses were 29.9% of gross sales for fiscal 1999
compared to 30% for 1998. The sales increase offset the effects of higher
salaries and health and worker's compensation costs. Other operating expenses
were 20.5% of sales for fiscal 1999 versus 21.7% in 1998. The primary components
of the improvement were the increase in sales, the closure of the Belmar
restaurant, and lower miscellaneous operating expenses resulting from a
reduction in the overhead costs of maintaining the Company corporate food
freezers.
15
<PAGE>
Depreciation and amortization expenses were $12,600 higher than fiscal
1998 due primarily to capital expenditures of $650,000 at the Vero Beach,
Florida and Toms River, New Jersey restaurants offset by a decrease in
depreciation expense at the Wharfside restaurant due to the expiration (fully
depreciated) of a large portion of the costs associated with rebuilding the
restaurant after a 1987 fire. The Vero Beach restaurant real property was
purchased during the fourth quarter of fiscal 1999 for $1,189,000, inclusive of
closing costs of $89,000 from a partnership, the principal partner of which is
the Chapter 11 Trustee of the Bankruptcy Estate of Robert E. Brennan. During
fiscal 1999, the Company expended approximately $224,200 to complete the
renovation of the interior of the Toms River restaurant and to build a seasonal
outdoor dining area.
General and administrative expenses were $119,000 less in fiscal 1999
versus 1998 primarily due to a reduction of $61,300 in legal expenses, lower
insurance costs of $18,000 and a reduction in annual report costs of $28,500.
Legal expenses were higher in fiscal 1998 primarily due to $100,000 in legal
costs associated with a lawsuit brought against the Company's directors which
was dismissed in September 1997. The Company did not print annual reports during
fiscal 1999.
The loss on the closing of the Belmar restaurant consists primarily of
the loss associated with the abandonment of fixed assets totaling $43,700 and
rent payments of $25,900 which were required to be paid through February 28,
1999.
Interest expense was $12,900 higher in fiscal 1999 primarily because of
the interest expense associated with a May 1998 $124,000 five year term loan
used to partially fund the purchase of a property next to the Toms River
restaurant and with a November 1998 $880,000 first mortgage used to partially
fund the purchase of the Vero Beach property. Interest income was $20,000 higher
in fiscal 1999 due to interest collected on notes associated with the February
1997 sale of the Company's Mister Cookie Face ("MCF") ice cream subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ratio of current assets to current liabilities was 1.32:1
at January 31, 1999, compared to 1.20:1 at the end of fiscal 1998. Working
capital was $653,200 at the end of fiscal 1999 versus $465,100 at the end of the
prior year. During the year ended January 31, 1999, net cash decreased by
$264,100. Net cash provided from operating activities was $1,217,200. The
primary changes in assets and liabilities were a reduction of $287,700 in
accounts payable due to fiscal 1999's profitability and an increase of $104,100
in accrued liabilities primarily due to a successful holiday gift certificate
promotion. Investing activities during fiscal 1999 resulted in a net cash
outflow of $1,070,400. Capital
16
<PAGE>
expenditures totaled $2,079,400 with the major components including $1,188,500
associated with the purchase of the Vero Beach restaurant property, $166,000 to
purchase the Toms River property, approximately $224,200 to complete the Toms
River restaurant interior renovation and build the outdoor dining area and the
balance of $500,000 spent on routine restaurant improvements. Investing inflows
included payments of $240,800 by MCF on notes and capital leases (leases paid
off during the third quarter) receivable from the February 1997 sale. During the
third quarter of fiscal 1999, MCF requested a restructuring of the terms of the
notes it owes to the Company. Management has not yet agreed to new terms and MCF
was in arrears at January 31, 1999 in the payment of approximately $37,800 of
its indebtedness to the Company. MCF continues to make partial payments of such
indebtedness including months where the original terms called for interest only.
Financing activities netted a cash outflow of $410,800 as a result of new debt
proceeds totaling $349,000 offset by debt repayments of $759,800. The new debt
included the $124,000 bank loan incurred for the Toms River property purchase
and $225,000 in advances under the Company's $500,000 bank line of credit for
inventory purchases, leaving an available balance of $275,000 at year end. The
line was renewed in June of 1998 and increased from $350,000 to $500,000.
During fiscal 1998, net cash increased by $98,700. Fiscal 1998 cash
provided by operating activities was $847,300 with the primary component being
an increase in inventories of $113,700. Investing activities had a net outflow
of $303,000 resulting primarily from capital expenditures of $790,700 for
restaurant improvements including approximately $425,000 for the Vero Beach and
Toms River restaurants, offset by $670,500 received from MCF. Net cash outflows
from financing activities in fiscal 1998 were $445,700 resulting from debt
repayment of $1,295,600 offset by new debt proceeds of $850,000 which included a
December 1997 $525,000 five-year term loan, a portion of which was used to
partially finance the Toms River renovation, and $325,000 in borrowings under
the Company's $350,000 bank line of credit used for inventory purchases.
At the end of fiscal 1999, the Company was in compliance with all of
the covenants under its Loan Agreement with its primary bank, First Union. At
the end of fiscal 1998 the Company was not in compliance with one of the
covenants by failing to maintain the requisite funds Flow Coverage Ratio.
However, First Union granted a waiver of its right to declare a default under
the Loan Agreement.
Subsequent to the year ended January 31, 1999 the Company entered into
a contract to sell the Belmar liquor license to an unaffiliated buyer for
$150,000 cash pending approval by the Belmar, New Jersey municipal and New
Jersey state liquor board authorities.
17
<PAGE>
Management anticipates that funds from operations, the liquor license
sale proceeds, and the bank line of credit will be sufficient to meet
obligations in fiscal 2000, including projected capital expenditures of
approximately $535,000. Those capital expenditures include approximately $80,000
for Y2K expenses including computers and phone systems, $55,000 for one
restaurant point of sale system that may need to be replaced and $400,000 for
routine restaurant improvements. A majority of the capital expenses are expected
to occur during the second and third quarters.
YEAR 2000
Commencing in 1997, the Company began a review of its restaurant and
corporate computer systems to identify potential problems with the "Year 2000
Issue" ("Y2K"). As a result of that review, it was determined that certain
systems would require remediation, specifically, the corporate main frame
computer, various restaurant point of sale systems (POS) and personal computers
("PC"s) used throughout the Company.
At January 31, 1999, the Company was at various stages of completion of
the remediation process. The main frame software programming changes have been
completed and final testing will occur in May 1999. Mainframe Y2K expenditures
to date have not been material and have been expensed as incurred. The
restaurant POS process, including those systems not affected by Y2K issues, is
63% compliant and vendors for the impacted systems indicate that fixes should be
available during the second quarter of calendar 1999. It is anticipated that the
cost of such fixes will not be material and will be expensed as incurred and
funded from operating cash flows. The Company is in the final stages of the bid
process to replace non-compliant corporate PCs. It is anticipated that the new
PCs will be in place sometime during the third quarter ending October 31, 1999
and the cost is estimated to be $50,000 which will also be funded out of
operating cash flows.
Additionally, the Company contacted its various suppliers of goods and
services regarding their compliance with Y2K issues. Although the Company is
unable to verify the Y2K readiness of all third party vendors, the Company
believes that there are multiple vendors of goods and services it receives from
its suppliers and the risk of non-compliance with Y2K by any of its suppliers is
minimal. To date, several key vendors such as payroll/human resources, credit
card processors, the major food and liquor suppliers, and various public utility
companies have indicated that they are or will be compliant. At least 50% of the
remaining vendors contacted have indicated in writing that they will be Y2K
compliant or that they will not be affected.
18
<PAGE>
INFLATION
It is not possible for the Company to predict with any accuracy the
effect of inflation upon the results of its operations in future years. The
price of food is extremely volatile and projections as to its performance in the
future vary and are dependent upon a complex set of factors.
ITEM 7. FINANCIAL STATEMENTS
Attached.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
See Item 1, "Developments Since the Beginning of the Last Fiscal Year"
as to the replacement of Moore Stephens P.C. ("Moore Stephens") as the Company
independent accountants for the audit of its financial statements for the fiscal
year ended January 31, 1999 with the certified public accounting firm of Edward
Isaacs & Company LLP. The latter firm has rendered its audit opinion with
respect to the Company's consolidated balance sheet as of January 31, 1999 and
the related consolidated statement of operations, stockholders equity, and cash
flows for each of the two fiscal years in the period ended January 31, 1999
contained in this report.
Moore Stephens' report with respect to the Company's financial
statements for the two fiscal years ended January 25, 1998 did not contain an
adverse opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles.
The agreement to replace Moore Stephens and to retain a new principal
independent accounting firm was approved by the Company's audit committee and by
its board of directors.
During the two most recent fiscal years ended January 25, 1998, there
were no disagreements between the Company and Moore Stephens on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement, if not resolved to the satisfaction of
Moore Stephens, would have caused it to make a reference to the subject matter
of the disagreement in connection with its report.
19
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
YEAR ENDED JANUARY 31, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
FINANCIAL STATEMENTS:
Independent Auditors' Report F-1
Consolidated Balance Sheet - January 31, 1999 F-2-3
Consolidated Statements of Operations -
Years Ended January 31, 1999 and January 25, 1998 F-4
Consolidated Statements of Stockholders' Equity -
Years Ended January 31, 1999 and January 25, 1998 F-5
Consolidated Statements of Cash Flows
Years Ended January 31, 1999 and January 25, 1998 F-6
Notes to Consolidated Financial Statements F-7-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Chefs International, Inc. and Subsidiaries
Point Pleasant, New Jersey
We have audited the accompanying consolidated balance sheet of Chefs
International, Inc. and subsidiaries as of January 31, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two fiscal years in the period ended January 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financials
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Chefs
International, Inc. and subsidiaries as of January 31, 1999, and the
consolidated results of their operations and their cash flows for each of the
two fiscal years in the period ended January 31, 1999, in conformity with
generally accepted accounting principles.
April 26, 1999
F-1
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JANUARY 31, 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 871,950
Investments 400,000
Miscellaneous receivables 71,278
Inventories 995,647
Due on sale of discontinued operations
from related party 68,355
Assets held for sale 135,000
Prepaid expenses 157,472
-----------
TOTAL CURRENT ASSETS 2,699,702
-----------
PROPERTY, PLANT AND EQUIPMENT, at cost 19,747,731
Less: Accumulated depreciation 7,322,169
-----------
PROPERTY, PLANT AND EQUIPMENT, net 12,425,562
-----------
OTHER ASSETS:
Investments 534,000
Goodwill - net 502,580
Liquor licenses - net 544,233
Due on sale of discontinued operations
from related party 211,149
Equity in life insurance policies 458,600
Due from related party 2,427
Other 22,482
-----------
TOTAL OTHER ASSETS 2,275,471
-----------
$17,400,735
===========
See notes to consolidated financial statements.
F-2
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
JANUARY 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes and mortgages payable $ 586,342
Accounts payable 657,363
Accrued payroll 91,328
Accrued expenses 370,548
Other liabilities 321,263
Income taxes payable 19,700
------------
TOTAL CURRENT LIABILITIES 2,046,544
------------
NOTES AND MORTGAGES PAYABLE 1,442,470
------------
OTHER LIABILITIES 486,404
------------
STOCKHOLDERS' EQUITY:
Capital stock - common $.01 par value,
Authorized 15,000,000 shares,
Issued and outstanding 4,488,369 44,884
Additional paid-in capital 32,304,485
Accumulated deficit (18,924,052)
------------
TOTAL STOCKHOLDERS' EQUITY 13,425,317
------------
$ 17,400,735
============
See notes to consolidated financial statements.
F-3
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 31, 1999 AND JANUARY 25, 1998
1999 1998
------------ ------------
SALES $ 18,693,692 $ 18,097,100
COST OF GOODS SOLD 6,141,920 5,943,083
------------ ------------
GROSS PROFIT 12,551,772 12,154,017
------------ ------------
OPERATING EXPENSES:
Payroll and related expenses 5,582,361 5,424,262
Other operating expenses 3,840,887 3,929,281
Depreciation and amortization 1,014,895 1,002,238
General and administrative expenses 1,749,789 1,868,706
Loss on closing of restaurant 93,909 --
------------ ------------
TOTAL OPERATING EXPENSES 12,281,841 12,224,487
------------ ------------
INCOME (LOSS) FROM OPERATIONS 269,931 (70,470)
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (128,132) (115,181)
Interest income 169,393 149,399
------------ ------------
OTHER INCOME, NET 41,261 34,218
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 311,192 (36,252)
PROVISION FOR INCOME TAXES 20,600 --
------------ ------------
NET INCOME (LOSS) $ 290,592 $ (36,252)
============ ============
BASIC INCOME (LOSS) PER COMMON SHARE $ .06 $ (.01)
============ ============
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1999 AND JANUARY 25, 1998
Capital Additional Total
Number Stock Paid-in Accumulated Stockholders'
of Shares Par Value Capital Deficit Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE at January 26, 1997 4,488,291 $ 44,883 $ 32,304,486 $(19,178,392) $ 13,170,977
Fractional shares conversion 56 -- -- -- --
Net loss -- -- -- (36,252) (36,252)
------------ ------------ ------------ ------------ ------------
BALANCE at January 25, 1998 4,488,347 44,883 32,304,486 (19,214,644) 13,134,725
Fractional shares conversion 22 1 (1) -- --
Net income -- -- -- 290,592 290,592
------------ ------------ ------------ ------------ ------------
BALANCE at January 31, 1999 4,488,369 $ 44,884 $ 32,304,485 $(18,924,052) $ 13,425,317
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 1999 AND JANUARY 25, 1998
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 290,592 $ (36,252)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,014,895 1,002,238
Loss on closing of restaurant 93,909 --
Loss on disposal of assets 2,045 6,558
----------- -----------
CASH PROVIDED BY OPERATIONS 1,401,441 972,544
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Miscellaneous receivables (5,050) (7,942)
Inventories 43,556 (113,740)
Prepaid expenses (58,925) (10,038)
Accounts payable (287,704) (22,179)
Accrued expenses and other liabilities 104,144 28,699
Income taxes payable 19,700 --
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,217,162 847,344
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures (1,199,438) (790,701)
Proceeds from sale of restaurant assets 800 430
Loss on closing of restaurant (49,386) --
Sale or redemption of investments 196,000 160,000
Purchase of investments (249,000) (250,000)
Proceeds from notes receivable - discontinued operations - related party 240,803 670,544
Equity in life insurance policies (52,162) (48,032)
Other assets 41,937 (45,246)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,070,446) (303,005)
----------- -----------
FINANCING ACTIVITIES:
Repayment of debt (759,829) (1,295,655)
Proceeds from debt 349,000 850,000
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (410,829) (445,655)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (264,113) 98,684
CASH AND CASH EQUIVALENTS at beginning 1,136,063 1,037,379
----------- -----------
CASH AND CASH EQUIVALENTS at end $ 871,950 $ 1,136,063
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 122,819 $ 113,399
=========== ===========
Income taxes paid $ 900 $ --
=========== ===========
NONCASH TRANSACTIONS:
In fiscal 1999 the Company acquired the Vero Beach property and restaurant
for $1,188,507, payable $308,587 in cash and a $880,000 mortgage.
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Business:
Chefs International, Inc. and its subsidiaries (the "Company") operate
seven seafood restaurants, located in New Jersey and Florida, generally
under the trade name, "Lobster Shanty". The Company also operates
Garcia's, a franchised Mexican restaurant in New Jersey.
Principals of Consolidation:
The accompanying consolidated financial statements include the accounts
of the Company and all of its wholly-owned subsidiaries. Intercompany
transactions and balances have been eliminated in consolidation.
Concentrations of Credit Risk:
The Company maintains cash balances at several financial institutions
in New Jersey and Florida. The balances are insured by the Federal
Deposit Insurance Corporation up to $100,000. Uninsured cash balances
totaled approximately $632,000.
Cash and Cash Equivalents:
Cash equivalents are comprised of certain highly liquid investments
with a maturity of three months or less when purchased.
Investments:
Investments consist of certificates of deposit stated at actual cost,
which approximates market value and are classified as current or
long-term based on maturities at the balance sheet date. At January 31,
1999, investments include $35,000 representing the estimated fair value
of 5% of the stock of the Mr. Cookie Face, a business segment the
Company sold to a related party in 1997 (see Note 5).
Inventories:
Inventories consist of food, beverages and supplies. Inventories are
stated at the lower of cost (determined by the first-in, first-out
method) or market.
Property, Plant and Equipment and Depreciation:
Property, plant and equipment are carried at cost. Depreciation is
computed over the estimated useful lives of the assets using the
straight-line method ranging from 3 to 40 years.
Goodwill:
Goodwill represents cost in excess of fair value of businesses acquired
and is being amortized over an estimated useful life of 40 years under
the straight-line method.
F-7
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Impairment:
Certain long-term assets of the Company, including goodwill, liquor
licenses and property, plant and equipment, are reviewed at least
annually as to whether their carrying value has become impaired. This
evaluation is done by comparing the carrying value of the asset to the
value of the projected discounted net cash flow from related
operations. Impairment, if any, is measured by the amount that the
carrying value of the asset exceeds the fair value usually measured by
projected discounted net cash flow.
Management also re-evaluates annually the periods of amortization to
determine whether subsequent events and circumstances warrant revised
estimates of useful lives. As of January 31, 1999, management expects
these assets to be fully recoverable.
Liquor Licenses:
Liquor licenses are amortized over 40 years under the straight-line
method.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Income Taxes:
The Company uses the asset and liability method in accounting for
income taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected
to reverse.
Advertising:
The Company expenses advertising costs as incurred. Advertising costs
for fiscal 1999 and 1998 were $541,464 and $548,355, respectively.
F-8
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVENTORIES
Inventories consist of the following:
Food $ 522,253
Beverages 104,301
Supplies 369,093
-----------
Totals $ 995,647
===========
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
Land $ 3,262,159
Buildings and improvements, including leaseholds 14,629,266
Furniture and equipment 1,696,460
Construction in progress 57,011
China, glassware and utensils (a) 102,835
-----------
$19,747,731
===========
(a) Carried at original cost for each restaurant. All replacement
purchases are charged to expense as incurred.
Depreciation expense was $964,590 and $950,161 for fiscal 1999 and
1998, respectively.
4. INTANGIBLE ASSETS
Intangible assets consist of:
Liquor
Goodwill Licenses
------------ ------------
Cost $ 949,820 $ 837,307
Less: Accumulated amortization 447,240 293,074
------------ ------------
$ 502,580 $ 544,233
============ ============
Amortization expense was $51,138 and $52,077 for fiscal 1999 and 1998,
respectively.
The liquor license for the Company's Belmar restaurant, which was
closed during fiscal 1999, is included in the accompanying consolidated
balance sheet as asset held for sale. The offers in all of the
negotiations for the sale of the license are in excess of its recorded
value.
F-9
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. DUE ON SALE OF DISCONTINUED OPERATIONS FROM RELATED PARTY
On February 20, 1997 (as of January 26, 1997), the Company sold 95% of
the common stock of Mr. Cookie Face ("MCF"), its ice cream production
segment, to a director for an aggregate purchase price of $1,600,000,
consisting of a $500,000 cash payment and three notes totaling
$1,100,000. The first note for $100,000 was due on or before March 24,
1997, the second note for $500,000, is due in installments through July
1, 2000, and the third note for $500,000 is due on or before February
20, 2004, with mandatory prepayments based on MCF's cash flow. The
notes are secured by a first lien on all of MCF's assets, however, the
Company has agreed to subordinate the loans up to $1,750,000 for
additional financing obtained by the purchaser. Based on the estimated
present value of the payments, management recorded a valuation
allowance of $601,050 against the second and third notes. During fiscal
1999, MCF requested a restructuring of the terms of the second and
third notes. As of January 31, 1999 management has not yet agreed to
the restructuring terms but has permitted MCF to make partial payments
until a restructured agreement is finalized.
Cash receipts for these notes are applied to principal and interest
based on the discounted note payment schedules, which resulted in an
additional $40,000 of interest income being recognized in fiscal 1999,
and have been applied as follows for fiscal 1999 and 1998:
<TABLE>
<CAPTION>
January 31, January 25,
1999 1998
---------------- ---------------
<S> <C> <C>
Interest income $ 78,541 $ 58,480
================ ===============
Average recorded investment in loans $ 326,222 $ 398,950
================ ===============
Cash basis interest income $ 79,427 $ 54,883
================ ===============
Valuation Allowance $ 561,050 $ 601,050
================ ===============
6. NOTES AND MORTGAGES PAYABLE
<S> <C>
Mortgage payable in monthly installments of $8,319,
inclusive of interest at 7.82%, through November 2008,
collateralized by real estate located in Vero Beach, Florida $ 876,348
Mortgage payable in various monthly installments to amortize the mortgage at the
rate of $105,000 annually, through December 2002 with interest at 9.25%,
collateralized by real estate located in Toms River, New Jersey 420,000
Mortgage payable in monthly installments of $2,067 through May 2003, plus
interest at LIBOR plus 2.25%, collateralized by real estate located in Toms
River, New Jersey 107,467
-----------
Carried forward $ 1,403,815
-----------
</TABLE>
F-10
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. NOTES AND MORTGAGES PAYABLE (Continued)
<TABLE>
<CAPTION>
<S> <C>
Brought forward $ 1,403,815
Note payable in various monthly installments to amortize the note at the rate of
$200,000 annually through November 15, 2000, with interest at 7.51%,
collateralized by real estate located in Point Pleasant Beach, New Jersey 399,997
Line of credit due June 30, 1999, with interest at LIBOR plus 2.25%,
collateralized by real estate located in Point Pleasant Beach, New Jersey 225,000
-----------------
2,028,812
Less: Current maturities 586,342
-----------------
$ 1,442,470
=================
</TABLE>
Annual maturities for fiscal years 2001 through 2004 are $364,087,
$166,707, $169,746 and $51,492, respectively.
At January 31, 1999 LIBOR and the prime rate were 5.08% and 7.75%,
respectively, and the weighted average interest rate for short-term
borrowings was 7.33%. The unused amount under the line of credit at
January 31, 1999 was $275,000.
All of the Company's mortgages and loans are with the same financial
institution. The loan covenant governing the borrowings includes, among
other items, requirements relating to tangible net worth, capital
expenditures, working capital components and restrictions on dividends.
7. TRANSACTIONS WITH RELATED PARTIES
A principal stockholder of the Company is the principal owner of a
partnership which leased the Vero Beach restaurant to the Company. In
October 1998 the Company acquired the property for $1,100,000. Total
rent expense was $90,000 and $120,000 for fiscal 1999 and 1998,
respectively.
A director purchased 95% of a subsidiary as of January 26, 1997 (see
Note 5).
The Company has a retirement agreement with a director/former employee
(see Note 8).
F-11
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RETIREMENT PROGRAMS
The Company has a non-qualified supplemental retirement program which
provides life insurance to certain eligible employees. The Company is
the owner of all cash values of the policies. The death benefit is
split, reimbursing the Company for premiums paid with the balance paid
to the beneficiary designated by the employee. Employees vest in the
program after ten years, with the option to take ownership of the
policy at that time or let the Company continue to fund the policy for
an additional 5 years. The Company has recorded, as a long-term asset
in the accompanying balance sheet, its equity in life insurance for
premiums advanced and has included in other long-term liabilities the
Company's estimated liability for the amount of the equity in life
insurance which the Company will be required to turn over to employees.
Additionally, the Company has an agreement with a director/former
employee which provides for the payment of $20,000 per year through
2007. The discounted present value of this agreement is included in
other long-term liabilities. The amount has been partially insured with
a life insurance contract owned by the Company.
The Company's expense for these plans was $46,253 and $56,129, for
fiscal 1999 and 1998, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company leases a restaurant, parking lot and equipment under
operating leases expiring at various times through the year 2008.
Minimum future rental payments under noncancelable operating leases as
of January 31, 1999, are as follows:
Year Ending January
2000 $ 126,256
2001 114,114
2002 123,870
2003 138,398
2004 118,017
Thereafter 462,233
-----------------
$ 1,082,888
=================
Rent expense was $389,612 and $434,347, for fiscal 1999 and 1998,
respectively.
The Company has employment agreements terminating January 2000 with two
employee/directors for annual amounts ranging from $92,800 to $160,000.
These agreements provide for lump sum payments in the event of the
termination of the employee/directors without cause or a change in
control of the Company, as defined, for a portion of the unexpired term
of the contracts.
F-12
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. EARNINGS PER SHARE
Effective January 25, 1998 the Company adopted SFAS No. 128, "Earnings
Per Share", which established standards for computing and presenting
both basic and diluted earnings per share. The weighted average number
of shares outstanding used to compute basic earnings per share for
fiscal 1999 and basic loss per share for fiscal 1998 was 4,488,369 and
4,488,347, respectively. Stock options to purchase 249,060 shares in
fiscal 1999 were outstanding, but were not included in the computation
of diluted earnings per share because the options exercise price was
greater than the average market price of the common shares, and
therefore the effect would be anti-dilutive. Stock options to purchase
249,060 shares in fiscal 1998 were outstanding but were not included in
the computation of diluted loss per share because the effect would be
anti-dilutive.
11. STOCK OPTIONS
Under its 1982 Incentive Stock Option Plan, the Company was permitted
to grant key executives stock options through June 1992. Under the
plan, an aggregate of 55,556 shares of common stock were reserved for
issuance. Options vested immediately and were exercisable over a period
of five or ten years. As of January 31, 1999 options for 36,560 shares
were outstanding. The options expire November 1999.
In October 1994 and 1995, the Company's stockholders approved grants of
216,667 and 300,000 non-qualified options to directors of the Company.
The exercise prices for the 1994 and 1995 grants were $3.75 and $3.00,
respectively. The options granted in both years vested immediately and
were exercisable over five years. As part of the sale of Mister Cookie
Face (see Note 5), a director forfeited 304,167 options issued in 1994
and 1995.
The Company utilizes the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation" and applies Accounting
Principles Board ("APB") Opinion No. 25 and related interpretations in
accounting for its stock option plans. Under APB No. 25, because the
exercise prices of the Company's employee stock options are equal to or
greater than the market prices of the underlying Company stock on the
date of grant, no compensation expense is recognized. Since the options
issued were for past service, there would have been no effect on net
income for 1999 and 1998 if the options had been recorded at fair value
under SFAS No. 123.
Summary of stock option activity is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------- -----------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
Outstanding - beginning of year 249,060 $3.19 256,839 $ 3.13
Granted or sold during the year - - - -
Canceled during the year - - (7,779) 0.984
Expired during the year - - - -
Exercised during the year - - - -
------------- ---------- -------------- -------------
Outstanding - end of year 249,060 $3.19 249,060 $ 3.19
============= ========== ============== =============
Exercisable - end of year 249,060 $3.19 249,060 $ 3.19
============= ========== ============== =============
</TABLE>
F-13
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS (Continued)
The following table summarizes stock option information as of January
31, 1999:
<TABLE>
<CAPTION>
Weighted-Average
Remaining Weighted-Average
Range of Exercise Prices Shares Contractual Life Exercise Price
------------------------------------------ -------------- --------------------- ------------------
<S> <C> <C> <C> <C>
$ 0.984 $ 36,560 .7 Years $ 0.984
$ 3.00 to $3.75 212,500 .9 Years 3.570
------------- ---------- ------------------
$ 249,060 .9 Years $ 3.190
============= ==================
</TABLE>
12. INCOME TAXES
The significant components of deferred tax assets and liabilities as of
January 31, 1999 are as follows:
Deferred Tax Assets:
Tax loss carryforwards $ 3,726,000
Capital loss carryforwards 215,000
Other 86,000
------------------
Totals 4,027,000
------------------
Deferred Tax Liabilities:
Depreciation 249,000
Valuation reserves 230,000
------------------
Totals 479,000
------------------
Net Deferred Tax Assets 3,548,000
Less: Valuation allowance 3,548,000
------------------
$ -
==================
As of January 31, 1999 the valuation allowance reduces the net deferred
tax asset to zero. The net change in the valuation allowance was
$102,000 for fiscal year 1999. The change in fiscal 1999 was primarily
due to the utilization of tax loss carryfowards.
F-14
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES (Continued)
The Company used approximately $567,000 and $230,000 of operating loss
carryforwards in fiscal 1999 and 1998, respectively. The tax effect was
as follows:
1999 1998
------------ ------------
Federal:
Income tax expense $ 182,000 $ 73,000
Operating loss carryforward (182,000) (73,000)
------------ ------------
Total $ -- $ --
============ ============
State:
Income tax expense $ 44,000 $ 18,000
Operating loss carryforward (23,400) (18,000)
------------ ------------
Total $ 20,600 $ --
============ ============
The Company has available at January 31, 1999, operating loss
carryforwards as follows:
Year of Expiration
------------------
2000 $ 1,104,930
2001 1,565,887
2002 1,509,463
2003 2,072,345
2004 2,942,316
2005 472,062
2006 220,595
2007 215,047
2008 196,704
2009 155,075
2010 103,553
2011 144,559
2012 88,405
------------
TOTAL $ 10,790,941
============
F-15
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES (Continued)
A reconciliation of the Company's effective tax rate to the statutory
U.S. Federal tax rate is as follows:
1999 1998
---------- ----------
Federal statutory rate 34.0 % (34.0) %
State taxes net of Federal benefit 5.0 (5.0)
Valuation allowance change 28.6 -
Operating loss carryforwards (61.0) 39.0
---------- ----------
Effective Rate 6.6 % - %
========== ==========
13. FAIR VALUE
The following table summarizes the carrying amount and estimated fair
value of the Company's significant financial instruments, all of which
are held for non-trading purposes.
<TABLE>
<CAPTION>
January 31, 1999
-----------------------------------------
Carrying Estimated
Amount Fair Value
----------------- ------------------
<S> <C> <C>
Long-term investments $ 534,000 $ 534,000
Related party long-term receivables $ 211,149 $ 211,149
Long-term debt $ 1,442,470 $ 1,442,470
</TABLE>
For certain short-term instruments, including cash and cash equivalents,
investments, receivables, related party receivables, payables, and debt,
it was assumed that the carrying amount approximated fair value for the
majority of these instruments because of their short maturities. The fair
value of long-term financial instruments is determined to be the same as
the carrying amount, based on the similarity of current market interest
rates with the interest rates of the financial instruments.
14. 52-53 WEEK PERIOD
The Company's year end is the last Sunday in January. The statements of
operations are comprised of a 53-week period for fiscal 1999, and a
52-week period for fiscal 1998.
F-16
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which becomes effective
for the Company's financial statements beginning January 31, 2000. SFAS
No. 133 requires a company to recognize all derivative instruments as
assets or liabilities in its balance sheet and measure them at fair
value. The adoption of SFAS No. 130 will have no impact on the Company's
consolidated financial statements.
The American Institute of Certified Public Accountants issued Statement
of Position (SOP) 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use which are effective for the
Company's fiscal 2000 financial statements. Adoption of SOP No. 98-1 will
have no material effect on the Company's consolidated financial
statements.
F-17
<PAGE>
CHEFS INTERNATIONAL, INC.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth certain information with respect to each
of the directors and executive officers of the Company:
Name Age Office
---- --- ------
Anthony Papalia 41 President, Treasurer, Chief
Executive Officer, Chief Financial
Officer and Director
James Fletcher(a) 68 Director
Martin W. Fletcher(a) 46 Secretary and Director
Frank Koenemund 55 Director
Jack Mariucci 59 Director
- ------------
(a) James Fletcher is the father of Martin Fletcher.
The Company does not have an Executive Committee. The term of office of
each director and executive officer expires when his successor is elected and
qualified. Executive officers are elected by and hold office at the discretion
of the Board of Directors.
The following is a brief account of the business experience of each
director and executive officer of the Company 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.
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. Mr. Fletcher
retired as a vice president and an employee of the Company at the conclusion of
fiscal 1997 but continues to serve as a director.
20
<PAGE>
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.
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. Commencing in February
1992, Mr. Koenemund was 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. On February 20, 1997 (as
of January 26, 1997), the Company sold 95% of the outstanding capital stock of
Mr. Cookie Face back to Mr. Koenemund who currently devotes substantially all of
his working time to the business of Mr. Cookie Face as its chief executive
officer. Mr. Koenemund continues to serve as a director 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. Mr. Mariucci
is also a director of International Thoroughbred Breeders, Inc., a publicly
owned Delaware corporation which owns Garden State Park in Cherry Hill, New
Jersey and the El Rancho Hotel in Las Vegas, Nevada.
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 1999,
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.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid or accrued by the Company during the three fiscal years ended January 31,
1999 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 1999.
During the three-
21
<PAGE>
year period ended January 31, 1999, the Company did not grant any restricted
stock awards or have any long-term incentive plan in effect. The Company
maintains a non-qualified 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. 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 until Mr.
Fletcher's retirement at the conclusion of fiscal 1997.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation
- ------------------ ---- ------ ----- ------------
Anthony Papalia 1999 $150,000 $-0- $2,088(a)
President and 1998 $150,000 $-0- $2,088(a)
Chief Executive 1997 $150,000 $-0- $2,088(a)
Officer
- ----------
(a) Represents contributions under the Supplemental Employee Benefit
Program.
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 expired 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. As no such notice was given during fiscal 1999, each
contract is currently in its first renewal year. Mr. Papalia's annual salary
under the contract was $150,000 and Mr. Fletcher's annual salary under the
contract was $87,000 but each individual's salary is subject to automatic
increase in each Renewal Year based on increases in the Consumer Price Index. As
a result, during fiscal 2000, Mr. Papalia's annual salary was increased to
$160,000 and Mr. Fletcher's annual salary was increased to $92,800. 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
22
<PAGE>
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. 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, Mr.
Mariucci's outstanding options to purchase shares of Chefs' common stock would
remain in full force and effect until expiration of their 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 9,997 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.
23
<PAGE>
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
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.
24
<PAGE>
The following table sets forth certain information concerning
unexercised options held by Mr. Papalia. No options were exercised in fiscal
1999.
1999 FISCAL YEAR-END OPTION VALUES
Number of Unexercised Options At 1999 Fiscal Year-end
-----------------------------------------------------
Value of Unexercised
In-The-Money
Name Exercisable Unexercisable Options At 1/31/99(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 31, 1999.
DIRECTORS' COMPENSATION
During fiscal 1999, Jack Mariucci, was compensated at a monthly rate of
$1,500 for serving as a director. Such compensation is continuing in fiscal
2000. In addition, James Fletcher was paid a monthly director's fee of $1,250 in
fiscal 1999, which compensation is continuing in fiscal 2000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 30, 1999 with
respect to their ownership of Chefs' Common Stock by (i) each person known by
the Company to be the beneficial owner of more than 5% of Chefs' outstanding
Common Stock, (ii) each director of the Company, (iii) each executive officer of
the Company, and (iv) all directors and executive officers as a group. The
percentages have been calculated on the basis of treating as outstanding for a
particular holder, all shares of Chefs' Common Stock outstanding on said date
and all shares of Common Stock issuable to such holder in the event of exercise
or conversion of outstanding options, warrants and convertible securities owned
by such holder at said date which are exercisable or convertible within 60 days
of such date.
Shares of
Name and Address of Common Stock Percentage
Beneficial Owner Beneficially Owned Ownership
- ---------------- ------------------ ---------
Directors*
- ----------
Anthony Papalia 71,390(1) 2%
James Fletcher 334 --
25
<PAGE>
Shares of
Name and Address of Common Stock Percentage
Beneficial Owner Beneficially Owned Ownership
- ---------------- ------------------ ---------
Directors*
- ----------
Martin Fletcher 65,167(2) 1%
Frank Koenemund 233,334 5%
Jack Mariucci 104,167(3) 2%
All executive officers
and directors as a group
(five persons) 474,392(1)(2)(3) 10%
OTHER
Donald F. Conway 1,766,557(4) 39%
Chapter 11 Trustee of
the Bankruptcy Estate
of Robert E. Brennan
Druker, Rahl & Fein
200 Canal Pointe Boulevard
Princeton, New Jersey 08540
Michael F. Lombardi, 358,665(5) 8%
Robert M. Lombardi,
Stephen F. Lombardi,
Joseph Lombardi,
Joseph S. Lombardi,
December `95 Investment
Club, 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
- ----------
*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) Includes 65,167 shares issuable upon exercise of stock options
granted by the Company.
(3) Includes 104,167 shares issuable upon exercise of stock options
granted by the Company.
(4) On June 10, 1997, Donald Conway, CPA was appointed as Trustee in
the Chapter 11 Bankruptcy proceedings involving Mr. Brennan pending in the
United States District Court for the District of New Jersey (Case No. 95-35502).
As a result, Mr. Conway in his capacity as Trustee is deemed the beneficial
owner of these shares.
26
<PAGE>
(5) The five individuals, the Investment Club and the firm and Defined
Benefit Plan of Lombardi & Lombardi, P.A. (collectively the "Lombardi Group"),
have filed a report on Schedule 13D and 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 their acquisition of the Common Stock is for
investment purposes. However, the Lombardi Group offered to purchase the shares
owned by Robert E. Brennan which purchase, if consummated, would give the
Lombardi Group beneficial ownership of approximately 47% of the outstanding
Common Stock and would thereby enable the Lombardi Group to control the Company.
To date, the Lombardi Group offer has not been accepted.
Donald F. Conway in his capacity as Chapter 11 Trustee of the
Bankruptcy Estate of Robert E. Brennan may be deemed to be the controlling
stockholder of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 1 herein, "Developments Since the Beginning of the Last Fiscal
Year" as to the Company's purchase in October 1998 of the Vero Beach, Florida
real property where it had been operating a Lobster Shanty restaurant since 1979
from a partnership, the principal partner of which was the Chapter 11 Trustee of
the Bankruptcy Estate of Robert E. Brennan, and as to Management's acceptance,
pending further negotiation, of a modified schedule of installment payments
under a promissory note issued to the Company by MCF in connection with the
Company sale on February 20, 1997 (as of January 26, 1997) of 95% of the
outstanding capital stock of MCF to a director, Frank "Doc" Koenemund.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Restated Certificate of Incorporation of the Company
3.2 By-Laws of the Company, as amended(A)
4.1 Specimen Common Stock Certificate(A)
10.1 Monmouth Mall Shopping Center Lease for Garcia's restaurant(B)
10.2 Employment Agreement dated as of December 19, 1995 between
Chefs and Anthony Papalia(B)
10.3 Employment Agreement dated as of December 19, 1995 between
Chefs and Martin Fletcher(B)
27
<PAGE>
10.4 Stock Option Agreement dated as of October 3, 1994 between
Chefs and Anthony Papalia. Substantially similar option
agreements were executed by Chefs with Martin Fletcher, Frank
Koenemund and Jack Mariucci as of October 3, 1994 for 54,167
shares each at an exercise price of $3.75 per share and as of
December 19, 1995 with Frank Koenemund (250,000 shares) and
Jack Mariucci (50,000 shares) at an exercise price of $3.00
per share(B)
10.5 Stock Purchase/Sale Agreement as of January 26, 1997 between
Chefs and Frank Koenemund concerning the sale of 95% of MCF
and the three MCF Promissory Notes (A, B and C) issued
thereunder(C)
10.6 Agreement of Sale dated August 1998 between Gourmet Associates
and the Company concerning the purchase by the Company of the
Vero Beach, Florida Lobster Shanty Restaurant
10.7 Loan Agreement dated October 30, 1998 between the Company and
First Union National Bank and the Company's $880,000
Promissory Note issued pursuant thereto for funding utilized
by the Company to purchase the Vero Beach, Florida Lobster
Shanty Restaurant
16 Letter of the Company's former auditors, Moore Stephens, P.C.
dated April 6, 1999 as required by Item 304(a)(3) of
Regulation S-B(D)
21 Subsidiaries - The following table indicates the wholly owned
subsidiaries of the Company, their respective states of
incorporation and the restaurants operated by each
State of
Name Incorporation Restaurants
- ---- ------------- -----------
Chefs International Florida Lobster Shantys -
Palm Beach, Inc. Vero Beach and Jensen
Beach, Florida
Kev, Inc. New Jersey Lobster Shanty -
Pt. Pleasant Beach,
New Jersey
Robbins Parkway New Jersey Lobster Shanty - Toms
Realty Co., Inc. River, New Jersey
Hightstown REB, Inc. New Jersey Lobster Shanty -
Hightstown, New Jersey
27 Financial Data Schedule
28
<PAGE>
- -----------
(A) Incorporated by reference to exhibit filed with the Company's
Registration Statement on Form SB-2 (File no. 33-66936)
(B) Incorporated by reference to exhibit filed with the Company's
annual report on Form 10-K for the fiscal year ended January 28, 1996
(C) Incorporated by reference to exhibit filed with the Company's
current report on Form 8-K for February 20, 1997
(D) Incorporated by reference to exhibit filed with Amendment No. 1 to
the Company's current report on Form 8-K/A for April 1, 1999
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year ended January 31, 1999.
29
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) Chefs International, Inc.
-------------------------
By /s/ANTHONY C. PAPALIA
------------------------------------
Anthony C. Papalia, President,
Principal Executive, financial
and accounting officer and director
Date May 14, 1999
------------------------------------
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.
By /s/ ANTHONY C. PAPALIA By /s/ FRANK KOENEMUND
----------------------------------- ----------------------------------
Anthony C. Papalia, Principal Frank Koenemund, Director
executive, financial and
accounting officer and director Date May 14, 1999
--------------------------------
Date May 14, 1999
---------------------------------
By /s/ MARTIN FLETCHER By /s/ JACK MARIUCCI
----------------------------------- ----------------------------------
Martin Fletcher, Director Jack Mariucci, Director
Date May 14, 1999 Date May 14, 1999
--------------------------------- --------------------------------
By /s/ JAMES FLETCHER
-----------------------------------
James Fletcher, Director
Date May 14, 1999
---------------------------------
30
<PAGE>
EXHIBIT INDEX
3.1 Restated Certificate of Incorporation of the Company
3.2 By-Laws of the Company, as amended(A)
4.1 Specimen Common Stock Certificate(A)
10.1 Monmouth Mall Shopping Center Lease for Garcia's restaurant(B)
10.2 Employment Agreement dated as of December 19, 1995 between Chef and
Anthony Papalia(B)
10.3 Employment Agreement dated as of December 19, 1995 between Chefs and
Martin Fletcher(B)
10.4 Stock Option Agreement dated as of October 3, 1994 between Chefs and
Anthony Papalia. Substantially similar option agreements were executed
by Chefs with Martin Fletcher, Frank Koenemund and Jack Mariucci as of
October 3, 1994 for 54,167 shares each at an exercise price of $3.75
per share and as of December 19, 1995 with Frank Koenemund (250,000
shares) and jack Mariucci (50,000 shares) at an exercise price of
$3.00 per share(B)
10.5 Stock Purchase/Sale Agreement as of January 26, 1997 between Chefs and
Frank Koenemund concerning the sale of 95% of MCF and the three MCF
Promissory Notes (A, B and C) issued thereunder(C)
10.6 Agreement of Sale dated August 1998 between Gourmet Associates and the
Company concerning the purchase by the Company of the Vero Beach,
Florida Lobster Shanty Restaurant
10.7 Loan Agreement dated October 30, 1998 between the Company and First
Union National Bank and the Company's $880,000 Promissory Note issued
pursuant thereto for funding utilized by the Company to purchase the
Vero Beach, Florida Shanty Restaurant
16 Letter of the Company's former auditors, Moore Stephens, P.C. dated
April 6, 1999 as required by Item 304(a)(3) of Regulation S-B(D)
21 Subsidiaries - The following table indicates the wholly owned
subsidiaries of the Company, their respective states of incorporation
and the restaurants operated by each
State of
Name Incorporation Restaurants
- ---- ------------- -----------
Chefs International Florida Lobster Shanty -
Palm Beach, Inc. Vero Beach and Jensen
Beach, Florida
Kev, Inc. New Jersey Lobster Shanty -
Pt. Pleasant Beach,
New Jersey
Robbins Parkway New Jersey Lobster Shanty -
Realty Co., Inc. Toms River, New Jersey
Highstown REB, Inc. New Jersey Lobster Shanty -
Highstown, New Jersey
27 Financial Data Schedule
<PAGE>
EXHIBIT INDEX CONT'D
- ---------------
(A) Incorporated by reference to exhibit filed with the Company's
Registration Statement on Form SB-2 (File no 33-66936)
(B) Incorporated by reference to exhibit filed with the Company's
annual report on Form 10-K for the fiscal year ended January 28, 1996
(C) Incorporated by reference to exhibit filed with the Company's
current report on Form 8-K for February 20, 1997
(D) Incorporated by reference to exhibit filed with Amendment No. 1 to
the Company's current report on Form 8-K/A for April 1, 1999
RESTATED CERTIFICATE OF INCORPORATION
OF
CHEFS INTERNATIONAL, INC.
CHEFS INTERNATIONAL, INC., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is CHEFS INTERNATIONAL, INC. and the
name under which the corporation was originally incorporated is CHEF'S
INTERNATIONAL, INC. The date of filing of its original Certificate of
Incorporation with the Secretary of State was March 5, 1975.
2. This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the Certificate of
Incorporation of this corporation as heretofore amended or supplemented and
there is no discrepancy between those provisions and the provisions of this
Restated Certificate of Incorporation.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated without further amendments or changes
to read as herein set forth in full:
* * * * *
1. The name of the corporation is
CHEFS INTERNATIONAL, INC.
2. The address of its registered office in the State of Delaware is No.
100 West Tenth Street, in the City of Wilmington,
<PAGE>
County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
3. The nature of the business or purposes to be
conducted or promoted is:
To establish, build, purchase or otherwise acquire, lease, maintain,
manage and operate restaurants and other eating places, and to deal in, sell and
dispose of foods, beverages, liquors, and food products of all kinds.
To construct, own, buy, sell, lease, equip and operate restaurants and
restaurant enterprises of all kinds.
To conduct a general public relations business furnishing services in
advertising, promoting and developing the restaurant and catering business.
To develop methods for increasing and improving the restaurant business
and to promote the all aspects of the restaurant business.
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
To manufacture purchase or otherwise acquire, invest in, own, mortgage,
pledge, sell, assign and transfer or otherwise dispose of, trade, deal in and
deal with goods, wares and merchandise and personal property of every class and
description.
To acquire, and pay for in cash, stock or bonds of this corporation or
otherwise, the good will, rights, assets and
2
<PAGE>
property, and to undertake or assume the whole or any part of the obligations or
liabilities of any person, firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant licenses in respect
of, mortgage or otherwise dispose of letters patent of the United States or any
foreign country, patent rights, licenses and privileges, inventions,
improvements and processes, copyrights, trade-marks and trade names, relating to
or useful in connection with any business of this corporation.
To acquire by purchase, subscription or otherwise, and to receive,
hold, own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or
otherwise dispose of or deal in and with any of the shares of the capital stock,
or any voting trust certificates in respect of the shares of capital stock,
scrip, warrants, rights, bonds, debentures, notes, trust receipts, and other
securities, obligations, choses in action and evidences of indebtedness or
interest issued or created by any corporations, joint stock companies,
syndicates, associations, firms, trusts or persons, public or private, or by the
government of the United States of America, or by any foreign government, or by
any state, territory, province, municipality or other political subdivision or
by any governmental agency, and as owner thereof to possess and exercise all the
rights, powers and privileges of ownership, including the right to execute
consents and vote thereon, and to do any and all acts and things necessary or
advisable for the preservation, protection, improvement and enhancement in value
thereof.
3
<PAGE>
To borrow or raise money for any of the purposes of the corporation
and, from time to time without limit as to amount, to draw, make, accept,
endorse, execute and issue promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-negotiable instruments
and evidences of indebtedness, and to secure the payment of any thereof and of
the interest thereon by mortgage upon or pledge, conveyance or assignment in
trust of the whole or any part of the property of the corporation, whether at
the time owned or thereafter acquired, and to sell, pledge or otherwise dispose
of such bonds or other obligations of the corporation for its corporate
purposes.
To purchase, receive, take by grant, gift, devise, bequest or
otherwise, lease, or otherwise acquire, own, hold, improve, employ, use and
otherwise deal in and with real or personal property, or any interest therein,
wherever situated, and to sell convey, lease, exchange, transfer or otherwise
dispose of, or mortgage or pledge, all or any of the corporation's property and
assets, or any interest therein, wherever situated.
In general, to possess and exercise all the powers and privileges
granted by the General Corporation Law of Delaware or by any other law of
Delaware or by this certificate of incorporation together with any powers
incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, promotion or attainment of the business or purposes
of the corporation.
4
<PAGE>
The business and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in nowise limited or restricted by
reference to, or inference from, the terms of any other clause in this
certificate of incorporation, but the business and purposes specified in each of
the foregoing clauses of this article shall be regarded as independent business
and purposes.
4. The total number of shares of stock which the corporation shall have
authority to issue is fifteen million (15,000,000) shares of Common Stock having
a par value of $.01 per share.
5. The name and mailing address of each incorporator is as follows:
Name Mailing Address
---- ---------------
B.A. Pennington 100 West Tenth Street
Wilmington, Delaware 19800
W.J. Reif 100 West Tenth Street
Wilmington, Delaware 19800
R.F. Andrews 100 West Tenth Street
Wilmington, Delaware 19800
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
5
<PAGE>
To make, alter or repeal the by-laws of the corporation.
To authorize and cause to be executed mortgages and liens upon the real
and personal property of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By a majority of the whole board, to designate one or more committees,
each committee to consist of one or more of the directors of the corporation,
The board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The by-laws may provide that in the absence or disqualification
of a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member, Any such
committee, to the extent provided in the resolution of the board of directors,
or in the by-laws of the corporation, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and
affairs of the corporation and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
6
<PAGE>
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
by-laws of the corporation; and, unless the resolution or by-laws, expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with statute,
to sell, lease or exchange all or substantially all of the property and assets
of the corporation, including its good will and its corporate franchises, upon
such terms and conditions and for such consideration, which may consist in whole
or in part of money or property including shares of stock in, and/or other
securities of, any other corporation or corporations, as its board of directors
shall deem expedient and for the best interests of the corporation.
8. Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation. Elections of directors
need not be by written ballot unless the by-laws of the corporation shall so
provide.
7
<PAGE>
9. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
10. No Director of the corporation shall have liability to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director occurring after the date on which the Certificate of
Amendment amending the Certificate of Incorporation to include this Article 10
is filed with the Secretary of State of Delaware; provided, however, that the
foregoing shall not limit or eliminate the liability of a director (i)for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law or (iv) for any transaction from which the
director derived an improper personal benefit.
* * * * *
4. This Restated Certificate of Incorporation was duly adopted by the
Board of Directors of this corporation in accordance with Section 245 of the
General Corporation Law of the State of Delaware.
8
<PAGE>
5. This Restated Certificate of Incorporation shall be effective on the
date this Restated Certificate of Incorporation is filed with the Secretary of
State of Delaware.
IN WITNESS WHEREOF, said CHEFS INTERNATIONAL, INC. has caused this
Certificate to be signed by Anthony Papalia, its President, this 12th day of
March, 1999.
CHEFS INTERNATIONAL, INC.
By /s/ANTHONY PAPALIA
--------------------------------
Anthony Papalia, President
9
AGREEMENT OF SALE
BETWEEN
GOURMET ASSOCIATES,
A NEW JERSEY LIMITED PARTNERSHIP,
SELLER
AND
CHEFS INTERNATIONAL, INC.
A DELAWARE CORPORATION,
PURCHASER
DATED: AUGUST , 1998
FOR
1 ROYAL PALM BOULEVARD
VERO BEACH, FLORIDA
PREPARED BY: ROBERT A. DEL VECCHIO, ESQ.
SHANLEY & FISHER, P.C.
131 MADISON AVENUE
MORRISTOWN, NEW JERSEY 07962-1979
<PAGE>
TABLE OF CONTENTS
PAGE
PRELIMINARY STATEMENT............................................... 1
ARTICLE 1 SALE OF PROPERTY; PURCHASE PRICE;
PAYMENT TERMS; ESCROW............................. 1
1.1 Sale of Property......................... 1
1.2 Price.................................... 1
1.3 Payment Terms............................ 1
1.4 Escrow................................... 2
1.5 Federal Tax Identification Number........ 4
1.6 Continued Representation of Seller....... 4
ARTICLE 2 TITLE TO PROPERTY; DEFECTS........................ 5
2.1 Title Insurance.......................... 5
2.2 Right to Pay Off Monetary
Encumbrances............................. 6
2.3 Affidavits............................... 6
ARTICLE 3 CONTINGENCIES..................................... 7
3.1 Bankruptcy Court Approval................ 7
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER;
LIMITATION ON SELLER'S REPRESENTATIONS AND
WARRANTIES........................................ 7
4.1 Representations and Warranties........... 7
4.2 Survival................................. 9
4.3 Limitation on Seller's
Representations, Warranties,
Covenants and Agreements................. 9
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER....... 9
5.1 Purchaser's Representations and
Warranties............................... 9
5.2 Survival of Purchaser's
Representations and Warranties........... 9
ARTICLE 6 DAMAGE, DESTRUCTION AND CONDEMNATION.............. 10
6.1 Risk of Loss............................. 10
6.2 Condemnation............................. 10
i
<PAGE>
TABLE OF CONTENTS
(Continued)
PAGE
ARTICLE 7 CLOSING DATE AND DELIVERY OF DOCUMENTS, ETC....... 11
7.1 Closing Date............................. 11
7.2 Closing Costs............................ 11
7.3 Deliveries by Seller..................... 11
7.4 Deliveries by Purchaser.................. 12
ARTICLE 8 CLOSING ADJUSTMENTS............................... 13
8.1 Adjustment Time.......................... 13
8.2 Description of Items to be Adjusted...... 13
8.3 Bulk Transfers........................... 13
ARTICLE 9 DEFAULT; REMEDIES................................. 13
9.1 Defaults; Remedies....................... 13
ARTICLE 10 MISCELLANEOUS............................................ 14
10.1 Brokerage Commission and Finder's Fee.... 14
10.2 Notices.................................. 14
10.3 Attorney's Fees.......................... 15
10.4 Assignment............................... 15
10.5 Successors and Assigns................... 16
10.6 Governing Law............................ 16
10.7 Incorporation of Prior Agreements........ 16
10.8 Modification of Agreement................ 16
10.9 Further Assurances....................... 16
10.10 No Recordation........................... 16
10.11 Interpretation........................... 16
10.12 Counterparts............................. 17
10.13 Acceptance of Deed....................... 17
ii
<PAGE>
AGREEMENT OF SALE
AGREEMENT OF SALE (this "Agreement"), dated August __, 1998, between
GOURMET ASSOCIATES, a New Jersey limited partnership ("Seller") and CHEFS
INTERNATIONAL, INC., a Delaware corporation ("Purchaser" or "Buyer").
PRELIMINARY STATEMENT
Seller is the owner of land lying and the building and improvements
thereon located in Indian River County, Florida, more particularly described on
Exhibit A (the "Property") annexed hereto.
Seller desires to sell and convey to Purchaser, and Purchaser desires
to purchase and acquire from Seller, the Property, subject, nevertheless, to the
contingencies set forth herein.
NOW, THEREFORE, for and in consideration of the premises, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
SALE OF PROPERTY; PURCHASE PRICE; PAYMENT TERMS; ESCROW
1.1 SALE OF PROPERTY. Seller hereby agrees to sell and convey to
Purchaser, and Purchaser agrees to purchase and acquire from Seller, the
Property upon the terms and conditions herein contained.
1.2 PRICE. The purchase price for the Property shall be
$1,100,000.00 (the "Price").
1.3 PAYMENT TERMS. The Price shall be payable as follows:
(a) upon execution of this Agreement by Purchaser, One Hundred Thousand
Dollars ($100,000.00) (the "Deposit") shall be paid by Purchaser to
Shanley & Fisher, P.C., 131 Madison Avenue, Morristown, New Jersey
07962-1979 (the "Escrow Agent") by a certified check or wired funds to
be held pursuant to the provisions of SECTION 1.4 hereof;
<PAGE>
(b) on the Closing Date, the balance of the Price (plus or minus any
net closing adjustments provided herein), by attorney trust account
check.
1.4 ESCROW.
(a) The Deposit shall be held in escrow in an interest bearing account
by Escrow Agent until delivered as herein provided. Any interest earned
on the Deposit shall be paid to whichever party is entitled thereto.
Such interest shall not be credited against the Aggregate Price. The
Deposit shall be held and disbursed by Escrow Agent in the following
manner:
(i) to Seller at the Closing Date upon consummation of the
closing; or
(ii) to Seller upon receipt of written demand therefor,
stating that Purchaser has defaulted in the performance of
Purchaser's obligations under this Agreement and the facts and
circumstances underlying such default; provided, however, that
Escrow Agent shall not honor such demand until at least five
(5) days after it has sent a copy of such demand to Purchaser,
nor thereafter if Escrow Agent shall have received written
notice of objection from Purchaser in accordance with the
provisions of clause (b) of this SECTION 1.4; or
(iii) to Purchaser upon receipt of written demand therefor,
stating that either (x) this Agreement has been terminated and
certifying the basis for such termination, or (y) Seller has
defaulted in performance of Seller's obligations and the facts
and circumstances underlying such default or that Purchaser is
otherwise entitled to the Deposit under the provisions of this
Agreement; provided, however, that Escrow Agent shall not
honor such demand until at least five (5) days after it has
sent a copy of such demand to Seller, nor thereafter if Escrow
Agent shall have received written notice of objection from
Seller in accordance with the provisions of clause (b) of this
SECTION 1.4.
(b) Upon receipt of written demand for the Deposit by Purchaser or
Seller pursuant to clause (ii) or (iii) of SECTION 1.4(A), Escrow Agent
shall promptly send a copy thereof to the other party. The other party
shall have the right to object to the delivery of the Deposit by
sending written notice of such objection to Escrow
2
<PAGE>
Agent within five (5) days after Escrow Agent sends a copy of the
written demand to the objecting party but not thereafter. Such notice
shall set forth the basis for objecting to the delivery of the Deposit.
Upon receipt of such notice, Escrow Agent shall promptly send a copy
thereof to the party who made the written demand.
(c) In the event of any dispute between the parties, Escrow Agent, at
its option, may disregard all instructions received and may hold the
Deposit until the dispute is mutually resolved and Escrow Agent is
advised of this fact in writing by both Seller and Purchaser, or Escrow
Agent is otherwise instructed by a final judgment of a court of
competent jurisdiction.
(d) In the event Escrow Agent shall be uncertain as to its duties or
rights hereunder or shall receive conflicting instructions, claims or
demands from the parties hereto, or instructions which conflict with
any of the provisions of this Agreement, Escrow Agent shall be entitled
(but not obligated) to refrain from taking any action other than to
keep safely the Deposit until Escrow Agent shall be instructed
otherwise in writing signed by both Seller and Purchaser, or by final
judgment of a court of competent jurisdiction.
(e) Escrow Agent may rely upon, and shall be protected in acting or
refraining from acting upon, any written notice, instruction or request
furnished to it hereunder and believed by it to be genuine and to have
been signed or presented by the proper party or parties, provided that
any modification of this Agreement shall be signed by Escrow Agent,
Purchaser and Seller.
(f) Seller and Purchaser shall jointly and severally hold Escrow Agent
harmless against any loss, damage, liability or expense incurred by
Escrow Agent not caused by its willful misconduct or gross negligence,
arising out of or in connection with its entering into this Agreement
and the carrying out of its duties hereunder, including the costs and
expenses of defending itself against any claim of liability or
participating in any legal proceeding. Escrow Agent may consult with
counsel of its choice, and shall have full and complete authorization
and protection for any action taken or suffered by it hereunder in good
faith and in accordance with the opinion of such counsel.
3
<PAGE>
(g) Escrow Agent may resign at will and be discharged from its duties
or obligations hereunder by giving notice in writing of such
resignation specifying a date when such resignation shall take effect;
provided, however, that prior to such resignation a substitute escrow
agent is approved in writing by Seller and Purchaser, which approval
shall not be unreasonably withheld or delayed. After such resignation,
Escrow Agent shall have no further duties or liability hereunder.
(h) Purchaser and Seller, together, shall have the right to terminate
the appointment of Escrow Agent hereunder by giving to it notice of
such termination, specifying the date upon which such termination shall
take effect and designating a replacement escrow agent, who shall sign
a counterpart of this Agreement. Upon demand of such successor escrow
agent, the Deposit shall be turned over and delivered to such successor
escrow agent, who shall thereupon be bound by all of the provisions
hereof.
(i) Seller and Purchaser shall be jointly and severally responsible for
the reimbursement to Escrow Agent of all expenses, disbursements and
advances (including reasonable attorneys' fees) incurred or made by
Escrow Agent in connection with the carrying out of its duties
hereunder.
(j) Escrow Agent's agreements and obligations hereunder shall terminate
and Escrow Agent shall be discharged from further duties and
obligations hereunder upon final payment of the Deposit in accordance
with the terms of this Agreement.
1.5 FEDERAL TAX IDENTIFICATION NUMBER. Purchaser represents that its
federal identification number is 22-2058515. Seller agrees that its tax
identification number shall be used by the Escrow Agent when the escrow account
is opened. In the event the interest on the Deposit is paid to Purchaser, the
Escrow Agent is authorized and directed to file a revised Form 1099 identifying
Purchaser as the recipient thereof.
1.6 CONTINUED REPRESENTATION OF SELLER.Notwithstanding that Escrow
Agent is acting as an escrow agent for the Deposit, and, further,
notwithstanding any subsequent dispute which arises between the parties related
to this Agreement or otherwise, Purchaser agrees that Escrow Agent may continue
to represent Seller as legal counsel in connection with this Agreement and the
transactions contemplated hereby and/or with respect to any dispute or
litigation concerning the same.
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ARTICLE 2
TITLE TO PROPERTY; DEFECTS
2.1 TITLE INSURANCE.
(a) Within twenty (20) days after the Date of this Agreement, Buyer
shall obtain, at Buyer's expense, with a title insurance commitment (the
"Commitment") committing a title insurance company to insure Buyer's title to
the Subject Property, together with copies of all documents listed in the
Commitment as exceptions or matters required to be corrected prior to Closing.
The Commitment and resulting title insurance policy (the "Policy") shall be in
the amount of the Purchase Price. All costs of the Commitment and Policy shall
be paid by Buyer. The Commitment and Policy shall be in an ALTA standard form as
currently authorized and approved by the Insurance Commissioner of the State of
Florida. The Policy shall insure marketable title. The Commitment shall be
delivered to Seller's attorney, unless Seller directs otherwise. Buyer's
attorney shall have ten (10) business days before Closing to give written notice
to the Seller of any objections by the Buyer to the title. Failure of Buyer's
attorney to deliver such written notice of disapproval to Seller within the said
time period shall be conclusive evidence that the Buyer has approved each and
every matter contained in the Commitment and that Buyer will accept title in
that condition subject to the other terms hereof relating to the status of such
title at Closing. The Buyer shall not be required to make objection to the
existence of any mortgage lien, materialmen or mechanic's lien, assessment lien
or any other lien encumbering all or any part of the Subject Property, all of
which are hereby deemed to be title objections. After due notice, Seller shall
have a reasonable time, not to exceed fifteen (15) days, to cure any title
defect and, if necessary, the Closing shall be delayed for that period. If
Seller fails to cure any title defect as to which due notice is given, Buyer
shall have the option to terminate this Agreement and to notify Seller that
Buyer will not proceed with the purchase, whereupon this Agreement shall
terminate and the Buyer shall be entitled to the return of the Earnest Money
deposited with the Escrow Agent. In the alternative, Buyer shall have the right
to accept the title in its then existing condition and proceed to Closing as
otherwise provided herein. Seller agrees to use its best efforts, in good faith
to cure all title defects.
(b) Within fifteen (15) days prior to the date of Closing, Buyer shall
deliver to Seller's attorney a written endorsement (the"Endorsement") to the
Commitment. The Endorsement shall revise the effective date of the Commitment to
a date not earlier than fifteen (15) days prior to the date of Closing. If the
Endorsement shows any new exceptions to title, Buyer shall have until Closing to
object thereto and in the event of objection, the
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preceding terms of this Section 2.1 shall apply. The commitment must be endorsed
at Closing to provide that the Policy will insure against adverse matters
arising between the effective date of the Commitment and the recording of the
deed given to Buyer.
2.2 RIGHT TO PAY OFF MONETARY ENCUMBRANCES. Seller shall have the right
to pay off any monetary encumbrances against the Properties on the Closing
Dates, as hereinafter defined, out of the cash then payable provided recordable
instruments of release or discharge of such encumbrances in form and substance
reasonably satisfactory to Purchaser's counsel are then delivered to Purchaser.
2.3 AFFIDAVITS. At Closing, Seller shall provide Buyer with an
Affidavit of No Lien and such additional documentation as is required in such
form as is necessary to enable the Title Insurance Company issuing said
Commitment to remove the mechanics lien and parties in possession exceptions
thereto, which affidavit shall (i) run to the benefit of Buyer and said Title
Insurance Company, (ii) be in form acceptable to Buyer and the Title Insurance
Company and (iii) contain without limitation the following information:
(a) That there are no outstanding unrecorded contracts for sale,
option, lease or other arrangement with respect to the Subject Property
to any person other than Buyer.
(b) That the Subject Property is being conveyed unencumbered except for
the Permitted Exceptions.
(c) That no construction or repairs have been made by Seller nor any
work done to or on the Subject Property by Seller which have not been
fully paid for, nor any contract entered into nor anything done the
consequence of which would result in a lien or a claim of lien to be
made against the Subject Property pursuant to Chapter 713, Florida
Statutes or otherwise.
(d) That there are no parties in possession of the Subject Property
being conveyed other than Seller or Buyer.
(e) That there are no filings in the office of the Clerk of the Circuit
Court of Indian River County, Florida, nor in the office of the
Secretary of State, State of Florida, which indicate a lien or security
interest in, on or under the Subject Property which will not be
released or terminated at Closing.
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ARTICLE 3
CONTINGENCIES
3.1. BANKRUPTCY COURT APPROVAL.This Agreement is contingent upon Seller
obtaining approval from the United States Bankruptcy Court, District of New
Jersey as part of the existing case titled "In re Robert E. Brennan, Debtor"
(the "Brennan Estate") currently pending as a Chapter 11 proceeding in the
United States Bankruptcy Court, District of New Jersey, Case No. 95-35502 (KCF).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER;
LIMITATION ON SELLER'S REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES. As an inducement to Purchaser to
enter into this Agreement, Seller represents and warrants to Purchaser that:
(a) Seller is a limited partnership duly organized and validly existing
under the laws of the State of New Jersey and authorized to transact
business in the State of Florida, has the power and authority to enter
into this Agreement and to consummate the transactions herein
contemplated and the execution and delivery hereof, and the performance
by Seller of its obligations hereunder will not violate or constitute
an event of default under the terms or provisions of any agreement,
document or other instrument to which Seller is a party or by which it
or the Property is bound;
(b) the execution and delivery of this Agreement and the consummation
of the transaction contemplated hereby have been duly authorized by the
general partner of Seller and this Agreement constitutes a valid and
binding obligation of Seller enforceable in accordance with its terms;
(c) the execution, delivery and performance of this Agreement by Seller
and the consummation of the transactions contemplated hereby in the
manner contemplated herein will not violate any provision of law,
statute, rule or regulation to which Seller or the Property is subject,
or violate any judgment, order, writ, injunction or decree of any court
applicable to Seller or the Property;
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(d) Seller is not a "foreign person" under the Foreign Investment in
Real Property Tax Act of 1980 ("FIRPTA") and upon consummation of the
transaction contemplated hereby, Purchaser will not be required to
withhold from the Price any withholding tax;
(e) there are no leases or tenancies which affect the Property except
Purchaser's tenancy;
(f) That the Seller has good, insurable and marketable title to the
Property, free and clear of all liens, encumbrances and restrictive
covenants, except as otherwise set forth herein;
(g) That there are no special assessments against or relating to the
Property;
(h) That Seller has not entered into any outstanding agreements of
sale, options or other rights of third parties to acquire an interest
in the Property;
(i) That there are no encroachments upon the Property except as
disclosed in Buyer's Commitment;
(j) That Seller has full power to sell, convey, transfer and assign the
Property on behalf of all parties having an interest therein;
(k) That there is access for ingress and egress to and from the
Property to the public roads, streets, highways and avenues, in front
of or adjoining all or any part of the Property;
(l) That all utilities, including but not limited to, sewer, water,
telephone and electricity, are available to the perimeter of the
Property in such quantities and capacities as to permit operation of
the Property;
(m) That the Property has never been used as a garbage dump, landfill,
or hazardous waste dump and is not in violation of any federal or state
environmental law or regulation, including, but not limited to 42
U.S.C. ss.9601 ET Seq. (CERCLA) and 42 U.S.C. ss.6901 ET seq. (RCRA);
(n) That there are no pending or threatened condemnation or similar
proceedings affecting the Property; Seller shall notify Buyer of any
changes affecting this representation prior to the Closing.
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4.2 SURVIVAL. The representations or warranties set forth in SECTION
4.1 shall not survive the closing of title.
4.3 LIMITATION ON SELLER'S REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY SET
FORTH IN THIS AGREEMENT, NEITHER SELLER, NOR ANY AGENT OR REPRESENTATIVE OF
SELLER HAS MADE, AND SELLER IS NOT LIABLE OR RESPONSIBLE FOR OR BOUND IN ANY
MANNER BY, ANY EXPRESS OR IMPLIED REPRESENTATIONS, WARRANTIES, COVENANTS,
AGREEMENTS, OBLIGATIONS, GUARANTEES, STATEMENTS, INFORMATION OR INDUCEMENTS
PERTAINING TO THE PROPERTY OR ANY PART THEREOF, THE TITLE OR PHYSICAL CONDITION
THEREOF, THE QUANTITY, FITNESS AND QUALITY THEREOF, THE VALUE AND PROFITABILITY
THEREOF, THE USES WHICH CAN BE MADE THEREOF OR ANY OTHER MATTER OR THING
WHATSOEVER WITH RESPECT THERETO. PURCHASER ACKNOWLEDGES, AGREES, REPRESENTS AND
WARRANTS THAT IT HAS HAD SUCH ACCESS TO THE PROPERTY AS PURCHASER HAS CONSIDERED
NECESSARY, PRUDENT, APPROPRIATE OR DESIRABLE FOR THE PURPOSES OF THIS
TRANSACTION AND, WITHOUT LIMITING THE FOREGOING, THAT PURCHASER AND ITS AGENTS
AND REPRESENTATIVES HAVE INDEPENDENTLY INSPECTED, EXAMINED, INVESTIGATED,
ANALYZED AND APPRAISED ALL OF SAME INCLUDING THE CONDITION, ENVIRONMENTAL
CONDITION, VALUE AND PROFITABILITY THEREOF. WITHOUT LIMITING THE FOREGOING,
PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, SELLER IS NOT LIABLE OR RESPONSIBLE FOR OR BOUND IN ANY MANNER BY
(AND PURCHASER HAS NOT RELIED UPON) ANY VERBAL OR WRITTEN OR SUPPLIED
REPRESENTATIONS, WARRANTIES, COVENANTS, AGREEMENTS, OBLIGATIONS, GUARANTEES,
STATEMENTS, INFORMATION OR INDUCEMENTS PERTAINING TO THE PROPERTY OR ANY PART
THEREOF. WITHOUT LIMITING THE FOREGOING, PURCHASER ACKNOWLEDGES AND AGREES THAT
PURCHASER IS PURCHASING THE PROPERTY "AS IS" AT THE DATE HEREOF.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1 PURCHASER'S REPRESENTATIONS AND WARRANTIES. As an inducement to
Seller to enter into this Agreement, Purchaser represents and warrants that:
(a) Purchaser is a duly organized and validly existing under the laws
of the State of Delaware, is in good standing, and has the power and
authority to enter into this Agreement, is authorized to do business in
Florida and to consummate the transactions herein contemplated, and the
execution and delivery hereof and the performance by Purchaser of its
obligations hereunder will not violate or constitute an event of
default under the terms or provisions of any agreement, document or
other instrument to which Purchaser is a party or by which it is bound;
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(b) the execution, delivery and performance of this Agreement by
Purchaser and the consummation of the transactions contemplated hereby
in the manner contemplated herein will not violate any provisions of
any legal requirement to which Purchaser is subject, or violate any
judgment, order, writ, injunction or decree of any court applicable to
Purchaser; and
(c) no consent, authorization, license, permit, registration or
approval of, or exemption or other action by any governmental or public
body, commission or authority is required in connection with the
execution and delivery by Purchaser of this Agreement except as
otherwise stated herein.
(d) Purchaser shall not sell or lease the Property for a period of six
months after the closing of the sale of the Brennan Estate's 1,766,557
shares of Purchaser's common stock but not to exceed one year after
Closing.
5.2 SURVIVAL OF PURCHASER'S REPRESENTATIONS AND WARRANTIES. The
representations, warranties and covenants set forth in SECTION 5.1 (a) through
(c) shall not survive the closing.
ARTICLE 6
DAMAGE, DESTRUCTION AND CONDEMNATION
6.1 RISK OF LOSS. In the event of loss or damage to the Property prior
to Closing by either fire or other casualty, the Buyer, at its option, may
rescind its obligations to close on this Agreement and receive an immediate
refund of the Deposit or, Buyer may elect to close on this Agreement and take
title to the Property together with whatever insurance proceeds accrue by virtue
of said loss or damage.
6.2 CONDEMNATION. In the event any proceedings or negotiations are
instituted which do or may result in a taking by condemnation or eminent domain
of the Property or any portion thereof, Seller shall promptly notify Purchaser
thereof, describing the nature and extent thereof. In the event of such
condemnation or eminent domain proceedings, Purchaser shall have the right on
notice to Seller to terminate this Agreement, whereupon, except as expressly
provided herein, neither party shall have and further rights hereunder. If this
Agreement is not so terminated, Purchaser shall close title on the Closing Date
and shall pay the entire Price, but Purchaser shall be entitled to a credit
against
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the Price for the amount of any condemnation award received by Seller on account
of such proceedings. If the award has not been paid to Seller on the Closing
Date, Seller shall then assign to Purchaser all of Seller's right, title and
interest in and to all awards payable by reason thereof.
ARTICLE 7
CLOSING DATE AND DELIVERY OF DOCUMENTS, ETC.
7.1 CLOSING DATE. The closing of the transaction contemplated hereby
(the "Closing") shall occur on or before September 30, 1998 at 4:00 p.m. local
time at the offices of Shanley a Fisher, P.C., or at such other time and place
as the parties shall mutually agree (the "Closing Date"). The parties agree that
time shall be of the essence with respect to the Closing Date. In the event the
Closing does not occur by the Closing Date, Purchaser shall have the right to
cancel this Agreement and receive a return of the Deposit.
7.2 CLOSING COSTS.
(a) SELLER: Seller will pay all costs of (i) documentary stamps to be
affixed to the Warranty Deed; (ii) preparation and recordation of any
instruments necessary to correct title; and (iii) Seller's attorney's
fee's.
(b) BUYER: Buyer will pay all costs of (i) recording Warranty Deed;
(ii) documentary stamps, intangible tax and recording fee on any
purchase money note and mortgage; (iii) the Title Insurance premium
based on the Price; and (iv) Buyer's attorney's fees.
7.3 DELIVERIES BY SELLER. At the time of Closing, the Sellers shall
execute and delivered or cause to be delivered to Buyer executed originals of
the following documents:
(a) Statutory General Warranty Deed.
(b) Affidavit of Lien as required by Article 5.02 above.
(c) FIRPTA Affidavit in compliance with the Foreign Investment in Real
Property tax Act of 1980, as amended ("FIRPTA").
(d) Such other documents as may be required to be executed and
delivered to complete the transaction contemplated hereunder.
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(e) Originals of all leases (and any amendments thereto) and all
records and correspondence relating thereto covering any portion of the
Property, any security deposits relating thereto, and a duly executed
and acknowledged assignment of leases in the form attached hereto as
Exhibit C.
(f) An assignment of all subsisting assignable guaranties and
warranties issued in connection with the construction, improvement,
alteration and repair of the buildings and improvements located on the
Property, and the purchase and repairs of the personal property located
thereon, together with the original of each such guaranty and warranty.
(g) Any and all municipal, county and state permits or licenses
necessary for the use or occupancy of the buildings located on the
Property, including without limitation, a final certificate of
occupancy or its equivalent.
Seller shall deliver copies of all documents to be delivered at Closing
to Buyer's attorney not less than seven (7) days prior to Closing.
In the event any mortgage or lien encumbers the Property, Seller shall
provide to Buyer, prior to Closing, an estoppel certificate and/or payoff letter
from such mortgagee or lien holder stating the present unpaid balance of the
lien, including accrued interest to the proposed date of Closing, and the amount
required to satisfy and release the lien as the proposed Closing date.
7.4 DELIVERIES BY PURCHASER. At the time of Closing, Buyer shall pay
the Price to Seller and shall execute and deliver or cause to be delivered to
Seller, executed originals of any and all documents as may be required to be
executed and delivered to complete the transaction contemplated hereunder.
Buyer shall deliver copies of all documents to be delivered at Closing
to Seller's attorney not less than seven (7) days prior to Closing.
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ARTICLE 8
CLOSING ADJUSTMENTS
8.1 ADJUSTMENT TIME. All apportionments and adjustments shall be made
as of 12:00 midnight on the day immediately preceding the Closing Date for the
applicable property (all such apportionments and adjustments being herein called
the "Closing Adjustment").
8.2 DESCRIPTION OF ITEMS TO BE ADJUSTED. The following apportionments
and adjustments shall be made:
(a) Real estate taxes payable in connection with the Property based
upon the calendar year. Real estate taxes shall be prorated on the basis of the
fiscal year for which the Property has last been assessed. If the Closing Date
shall occur before the tax rate is fixed, the apportionment of taxes shall be
upon the basis of the tax rate for the next preceding year applied to the latest
assessed evaluation. The parties agree that upon receipt of the actual tax bill,
real property taxes shall be reprorated and readjusted within ten (10) business
days after a written request from the party seeking readjustment; and
(b) Certified, confirmed and ratified special assessment liens as of
the date of Closing shall be paid by Seller. Pending liens as of the date of
Closing shall be assumed by Buyer; provided, however, that where the
improvements have been substantially completed as of the date of Closing, such
pending liens shall be deemed certified, confirmed and ratified and Seller, at
Closing, shall be charged an amount equal to the amount of such assessment.
8.3 BULK TRANSFERS. In that event that this transaction is affected by
Chapter 676, FL. STAT. Bulk Transfers, or any similar legislation shall effect
this transaction, Seller shall comply with all applicable provisions thereon and
shall indemnify, defend and hold Buyer harmless from and against any and all
loss or damage suffered by Buyer as a result of the failure of Seller to comply
therewith.
ARTICLE 9
DEFAULT; REMEDIES
9.1 DEFAULTS; REMEDIES. In the event this transaction does not close
solely as a consequence of the default of Purchaser, Seller shall have the right
to retain the Deposit as liquidated damages. In the event this transaction does
not close solely as a consequence of a default by Seller, Purchaser shall have
the right
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to terminate this Agreement and receive a return of the Deposit. Purchaser
acknowledges and agrees that the foregoing remedy shall be its sole and
exclusive remedy. Under no circumstances shall Purchaser be entitled to any
damages, costs or expenses (including, but not limited to, consequential
damages) in the event of a default by Seller.
ARTICLE 10
MISCELLANEOUS
10.1 BROKERAGE COMMISSION AND FINDER'S FEE. The parties agree that they
have dealt with each other and not through any real estate broker, investment
banker, person, firm or entity who would by reason of such dealings be able to
claim a real estate brokerage, business opportunity brokerage or finder's fee as
the procuring cause of this transaction. Each of the parties agrees to indemnify
the other and hold the other harmless of and from any and all loss, cost,
damage, injury or expense arising out of, or in any way related to, assertions,
by any other person, firm or entity, of a claim to real estate brokerage,
business opportunity brokerage or finder's fee based on alleged contacts between
the claiming party and the indemnifying party which have resulted in allegedly
providing the claiming party the right to claim such commission or finder's fee.
The provisions of this SECTION 10.1 shall survive the closing of title.
10.2 NOTICES. All notices or other communications required or permitted
to be given hereunder shall be given in writing and delivered either by (a)
certified mail, postage prepaid, (b) a reputable messenger service or a
nationally recognized priority delivery service such as Federal Express, or
facsimile or other telecopy transmission (followed by a hard copy sent as
provided in clause (b) above), addressed as follows:
To Seller:
Gourmet Associates
c/o Druker, Rahl & Fein
200 Canal Pointe Boulevard
Princeton, New Jersey 08540-5998
Attention: Donald F. Conway
Chapter 11 Trustee
Fax # (609) 243-9799
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copy to:
Robert K. Malone, Esq.
Shanley & Fisher, P.C.
131 Madison Avenue
Morristown, New Jersey 07962-1979
Fax # (973) 539-6960
To Purchaser:
Chefs International, Inc.
62 Broadway
Point Pleasant Beach, New Jersey 08742
Attention: Anthony Papalia, President
Fax # (732) 295-4514
copy to:
Roger A. Tolins, Esq.
Tolins & Lowenfels, P.C.
12 East 49th Street
New York, New York 10017
Fax # (212) 888-7706
The foregoing addresses may be changed or supplemented by written notice given
as above provided. Any such notice sent by mail shall be deemed to have been
received by the addressee on the third business day after posting in the United
States mail, or, if transmitted by messenger or a priority delivery service, on
the first business day after transmittal, or, if transmitted by facsimile, upon
receipt, provided receipt occurs before 5:00 P.M. on a business day in the
jurisdiction of the recipient. Counsel for a party may give notice to the other
party with the same effect as if given by a party.
10.3 ATTORNEY'S FEES. In the event any action or proceeding is
commenced to obtain a declaration of rights hereunder, to enforce any provision
hereof, or to seek rescission of this Agreement for default contemplated herein,
whether legal or equitable, the prevailing party in such action shall be
entitled to recover its reasonable attorney's fees in addition to all other
relief to which it may be entitled therein. All indemnities provided for herein
shall include, but without limitation, the obligation to pay costs of defense in
the form of court costs and attorneys' fees.
10.4 ASSIGNMENT. Purchaser may not assign its interest under this
Agreement to any person or entity without the prior written consent of Seller
which shall not be unreasonably withheld provided, however, that Purchaser may
assign its interest under
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this Agreement to an entity owned or controlled by it or owning or controlling
it. Purchaser agrees to notify Seller in writing of any such assignment at least
fourteen (14) days prior to the Closing Date.
10.5 SUCCESSORS AND ASSIGNS. Subject to the provisions of SECTION 10.4,
the terms, covenants and conditions herein contained shall be binding upon and
inure to the benefit of the successors and assigns of the parties hereto.
10.6 GOVERNING LAW. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of New Jersey.
10.7 INCORPORATION OF PRIOR AGREEMENTS. This Agreement contains the
entire understanding of the parties hereto with respect to the subject matter
hereof, and no prior or other written or oral agreement or undertaking
pertaining to any such matter shall be effective for any purpose.
10.8 MODIFICATION OF AGREEMENT.Agreement may not be amended or
modified, nor may any obligation hereunder be waived orally, and no such
amendment, modification or waiver shall be effective for any purpose unless it
is in writing, signed by the party against whom enforcement thereof is sought.
10.9 FURTHER ASSURANCES. After the Closing Date Seller shall execute,
acknowledge and deliver, for no further consideration, all such assignments,
transfers, documents as Purchaser may reasonably request to vest title in
Purchaser.
10.10 NO RECORDATION. Neither this Agreement nor any memorandum thereof
shall be recorded by Purchaser and any such recording or attempt to record shall
be deemed to be a material breach hereof by Purchaser. Purchaser hereby waives
any right to file a LIS PENDENS or other form of attachment against the Property
in connection with this Agreement or the transactions contemplated hereby. To
the extent any such filing is made in violation of this provision, Purchaser
shall indemnify and hold Seller harmless from and against any damages incurred
by Seller in connection therewith.
10.11 INTERPRETATION. This Agreement shall be construed reasonably to
carry out its intent without presumption against or in favor of either party. If
any provision hereof shall be declared invalid by any court or in any
administrative proceedings, then the provisions of this Agreement shall be
construed in such manner so as to preserve the validity hereof and the substance
of the transaction herein contemplated to the extent possible. The captions and
paragraph headings are provided for purposes of
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convenience of reference only and are not intended to limit, define the scope
of, or aid in interpretation of any of the provisions hereof.
10.12 COUNTERPARTS. This Agreement may be executed and delivered in
several counterparts, each of which, when so executed and delivered, shall
constitute an original, fully enforceable counterpart for all purposes.
10.13 ACCEPTANCE OF DEED. The acceptance of the deed to the Property by
Purchaser shall be deemed an acknowledgment by Purchaser that Seller has fully
complied with all of its obligations hereunder and that Seller is discharged
from all obligations hereunder, except for those obligations which expressly
survive the closing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
WITNESS: GOURMET ASSOCIATES
___________________________ By:_________________________________
Name:
Title
WITNESS: CHEFS INTERNATIONAL, INC.
___________________________ By: /s/ ANTHONY PAPALIA
---------------------------------
Name: Anthony Papalia
Title: President
ESCROW AGENT:
SHANLEY & FISHER, P.C.
By:_________________________________
Name:
Title:
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EXHIBIT A
LEGAL DESCRIPTION
All that certain tract or parcel of Land lying and being located in Indian River
County, State of Florida and more particularly described as follows:
PARCEL 1
Lots 1 and 2, Block 1, VERO ISLES SUBDIVISION, according to the plat thereof as
recorded in Plat Book 31 Page 18, Public Records of Indian River County,
Florida.
PARCEL 2
The Northeasterly one-half of Lot 3, Block 1, VERO ISLES SUBDIVISION, according
to the plat thereof as recorded in Plat Book 3, Page 18, Public Records of
Indian River County, Florida, more particularly described as follows:
Beginning at the Northernmost corner of said Lot 3, run Southwesterly along the
Northwest boundary line of said Lot, a distance of 53.5 feet to a point; thence
run Southeasterly on a straight line to a point on the Southeast boundary line
of said Lot 3, which point is located 48.5 feet from the Easternmost corner of
said Lot; thence run Northeasterly a distance of 48.5 feet to said Easternmost
corner; thence run Northwesterly along the line dividing Lot 3 from Lot 2 of
said Subdivision, to the point of beginning. Said land lying and being in Indian
River County, Florida.
PARCEL 3
Beginning at the Northwesterly corner of Lot 1, Block 1, VERO ISLES SUBDIVISION,
as recorded in Plat Book 3, Page 18, Public Records of Indian River County,
Florida, said point of beginning being on the South right of way and lying 70
feet Southerly of, and radially from, the centerline of State Road 502 (Royal
Palm Boulevard), as shown on the State of Florida, State Road Department, Right
of Way map, State Section 8803-104, and also shown on said Plat of Vero Isles,
run thence South 20E24'00" East along the Westerly line of said Lot 1, a
distance of 20 feet to the Northeasterly corner of Lot 2 of said Vero Isles
Subdivision; thence run Southwesterly along the Northerly line of Lot 2 and East
half of Lot 3 of said
<PAGE>
Vero Isles Subdivision on a curve being concave to the Southeast having a radius
of 1342.69 feet, a central angle of 7E29'20", an arc distance of 175.50 feet to
the mid-point of the North line of said Lot 3; thence run North 36E53'20" West
along the Northerly projection of the West line of the East half of said Lot 3,
a distance of 20 feet to a point on the southerly right of way of State Road 502
(Royal Palm Boulevard); thence run Northeasterly on said South right of way of
State Road 502 (Royal Palm Boulevard) along a curve being concave to the
Southeast having a radius of 1362.69 feet, a central angle of 7E29'20", an arc
distance of 178.11 feet to the Point of Beginning.
<PAGE>
EXHIBIT B
PERMITTED EXCEPTIONS
1. Notice of Commencement recorded May 30, 1997, in Official Records Book
1154, Page 2619, of the Public Records of Indian River County, Florida.
2. Order by the Board of Adjustment for the City of Vero Beach, as
recorded October 15, 1996, in Official Records Book 1125, Page 777, of
the Public Records of Indian River County, Florida.
3. Order by the Board of Adjustment for the City of Vero Beach, as
recorded October 15, 1996, in Official Records Book 1125, Page 780, of
the Public Records of Indian River County, Florida.
4. Satisfaction of Mortgage recorded January 28, 1992, in Official Records
Book 922, Page 355, of the Public Records of Indian River County,
Florida.
5. Affidavit of Operators Using Trade Name, by Chef's International - Palm
Beach, Inc., recorded May 19, 1981, in Official Records Book 622, Page
2946, of the Public Records of Indian River County, Florida.
[FIRST UNION GRAPHIC LOGO OMITTED]
LOAN AGREEMENT
First Union National Bank
1889 Highway 27
Edison, New Jersey 09817
(Hereinafter referred to as the "Bank")
Chefs International, Inc., a Delaware corporation
62 Broadway
Point Pleasant Beach, New Jersey O8742
(Individually and collectively "Borrower")
This Loan Agreement ("Agreement") is entered into October 30, 1998, by and
between Bank and Borrower, a Corporation (For profit) organized under the laws
of Delaware.
Borrower has applied to Bank for a loan or loans (individually and collectively,
the "Loan") evidenced by one or more promissory notes (whether one or more, the
"Note") as follows:
Term Loan - in the principal amount of $880,000.00 which is evidenced by the
Promissory Note dated October 30, 1998. The Loan proceeds are to be used by
Borrower solely for purchase real estate, land and building housing the Vero
Beach Lobster Shanty.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations," as used in this Agreement, are defined in the
Note. The term "Borrower" shall include its Subsidiaries and Affiliates. As used
in this Agreement as to Borrower, "Subsidiary" shall mean any corporation of
which more than 50% of the issued and outstanding voting stock is owned directly
or indirectly by Borrower. As to Borrower, "Affiliate" shall have the meaning as
defined in 11 U.S.C. Ss 101, except that the term "debtor" therein shall be
substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
CONDITIONS PRECEDENT TO THE LOAN CLOSING.
A. The obligation of the Bank to make the advance to the Borrower on
the loan shall be conditional upon prior compliance, at the expense of the
Borrower, with the following conditions precedent to same.
(1) The delivery to the Bank of a note in the principal amount of $880,000.00,
the Mortgage, a Uniform Commercial Code Financing Statement, and financing
filings in order to perfect a first lien on all equipment, fixtures and other
business assets of Borrower, said UCC-l's to be filed in Indian River County,
Florida and with the Secretary of State, and Assignments and other documents and
matters as called for in this Agreement evidencing to the Bank that no liens
prior to the Bank's have been filed on the security pledged.
(2) The delivery to the Bank, on the property listed in Exhibit "A", a
satisfactory ALTA Mortgagee Title Insurance Commitment in an amount equal to the
full amount of the loancontemplated by this commitment letter. The title
insurance company and the form must besatisfactory to the Bank. "FIRST UNION
NATIONAL BANK, ITS SUCCESSOR AND/OR ASSIGNS"
<PAGE>
shall be named as the proposed insured. There are to be no "exceptions" other
than routine utility easements, routine restrictions and current year's taxes
not yet due and payable. Copies of all commitment exceptions, including but not
limited to deed restrictions and covenants and easements must be attached to
said Mortgagee Title Commitment. All exceptions are subject to the prior written
approve of the Bank and its counsel. There are to be no "reverter" provisions or
possibilities affecting title. In addition to any affirmative coverages and/or
special endorsements required by the Bank or its counsel, a Florida Endorsements
Form 9 (Restrictions, Easements, Minerals) shall be required.
The Bank may require co-insurance or re-insurance giving Bank direct access to
the reinsurers In the event reinsurance is required by the Bank, an ALTA
Facultative Form of Reinsurance Agreement with companies and in amounts
preapproved by the Bank, together with duplicate originals of the executed
agreements, shall be furnished to the Bank with the title policy.
Within thirty (30) days after the closing of the Loan or prior to the first
disbursement after closing, whichever occurs firm, Borrower, at its sole cost
and expense shall cause to be furnished to the Bank a satisfactory ALTA
Mortgagee Title Insurance Policy which conforms to the above-mentioned Title
Insurance Commitment approved by the Bank. The policy shall indicate that
Owner/Borrower possesses a good and marketable fee simple title. The policy
shall insure the Bank of a first lien or on the mortgaged premises in the
principal amount of the Loan subject only to those encumbrances interests, and
exceptions approved in advance and in writing by the Bank and its counsel. The
policy shall contain such special endorsements affirmative insurance coverages
as the Bank may require.
After the closing of the loan, Borrower, at its sole cost and expense, shall
furnish the Bank with such title endorsements or updates to said ALTA Title
Insurance Policy as the Bank may require from time to time to insure the Bank
that no other matters of record affect the condition of title or the priority of
Bank's lien.
At any time upon request by the Bank, the Borrower, at its sole cost and
expense, shall furnish the bank UCC (Financing Statement) searches and reports.
(3) The delivery to the Bank of corporate guarantees as follows:
Chef's International Palm Beach, Inc., Kev, Inc., Robbins Parkway Realty,
Inc. and Hightstown Reb, Inc.
(4) The delivery to the Bank of two (2) sealed copies of a current as-built
survey [done within sixty (60) days of closing] of the mortgaged premises,
including all adjoining allays and appurtenant easements, prepared by a Florida
registered surveyor or licensed professional civil engineer. Said survey, which
shall be subject to the approval of the Bank and Bank's attorneys, shall show
the full legal description of the mortgaged premises, disclose the location and
dimensions of all existing improvements, available water and sewer mains,
utility lines, encroachments (which shall be subject to the approval of the Bank
and the Bank's attorneys), easements, roads, and rights-of-way, if any, as well
as all lot lines, access to public streets, and total acreage or square footage
thereof. Additionally, the survey shall also show any and all setback lines
established by the applicable zoning and/or governmental ordinances, statutes,
or regulations. All surveys shall be certified to "First Union National Bank"
and the title insurance company insuring the lien of the Bank's Mortgage and
shall also be certified to comply with Rule 61G17 of the Florida Administrative
Code relating to minimum technical standards for surveys. In addition, the
survey must show whether or not the mortgaged premises, and specifically any
building improvements, is located in a U.S. Department of Housing and Urban
Development (H.U.0.) identified "special flood hazard" area. The survey must
identify the specific flood zone in which the mortgaged premises or the
improvements are located, the finished ground floor elevations of the
improvements, and the base
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<PAGE>
flood elevation. Flood Hazard Certification must comply with the National Flood
Insurance Act Of 1968, the Flood Disaster Protection Act of 1973, and the
Housing and Community Development Act of 1977, all as amended as applicable.
(5) The delivery of the following insurance policies:
(a) Standard Fire Insurance with Extended Coverage Endorsement, including
Vandalism and Malicious Mischief, without co-insurance, in an amount equal to at
least 100% of the replacement cost of the improvements existing on the real
property described in the loan documents contemplated by this commitment.
(b) Rental Loss Insurance shall be required if any lease provides for the
abatement of rent. Business Interruption Insurance shall be required if the
mortgaged premises are or will be occupied by the Owner(s). Either type of
insurance must cover debt service, real estate taxes, and insurance premiums for
a period of at least six (6) months.
(c) If any improvements (existing and/or proposed) on the mortgaged premises
are or will be located in an area identified by the U.S. Department of Housing
and Urban Development (H.U.D.) as an area having "special flood hazards," flood
insurance must be purchased and maintained in the amount of the principal
balance of the mortgage loan or the maximum limit of coverage available under
the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of
1973, and the Housing and Community Development Acts of 1974 and 1977, all as
amended, whichever is less.
(d) Borrower shall also maintain single limit comprehensive general
liability insurance for not less than One Million dollars ($1,000,000.00)
against claims and liability for bodily injury or property damage to persons or
property occurring on the mortgaged premises. Evidence of such coverage shall be
provided to Bank in the form of a certified copy of the policy or an insurance
certificate.
All policies must be issued by insurance companies and agencies licensed by
the Insurance Commissioner of the State of Florida to conduct business in the
State of Florida. Bank shall have the right to approve each and every insurance
carrier and policy. All policies shall be in the amounts, form and content
(including mortgages clauses) and issued by such companies as are acceptable to
the Bank. Each company must have a rating of A-or better (Excellent or Superior)
and Class IX or better, in A.M. Best's Insurance Reports.
All policies must contain provisions obligating the insurance carrier(s) to
provide to Bank at least thirty (30) days advance written notice of the
expiration, termination or cancellation of any such policy or policies and
immediate notification of a lapse. All policies and endorsement must be manually
signed.
Policy premiums for all coverages (including personal property if given as
security) must be prepaid and Bank may require 'Paid' receipts as proof of
payment.
Except for liability insurance, the above-referenced insurance policies shall
contain a Standard Mortgagee Clause naming "FIRST UNION NATIONAL BANK, ITS
SUCCESSORS AND/OR ASSIGNS" as first mortgagee, which states that the insurance
coverage shall not be affected by any act or neglect of the mortgagor or owner
of the improvements.
The applicable policies must be maintained during the term of the Loan. All
annual policy renewals must be forwarded to:
Page 3
<PAGE>
First Union National Bank
Commercial Insurance Support
________________________________
________________________________
The Bank reserves the right to require the escrow of insurance premiums during
the term of the loan.
(6) Satisfactory evidence that all applicable requirements under the National
Flood Insurance Program have been met and flood insurance has been obtained, if
required.
(7) Certification in letter from that the Borrower's and Guarantor's financial
standing which was relied upon in conjunction with the issuance of a Commitment
has not substantially changed since the submission of said information to the
Bank. Any material misrepresentation shall constitute a default and, at the
election of the Bank, said Loan may be accelerated in its entirety.
(8) Certification that there are no litigation proceedings which are pending or
threatened which might adversely affect the Borrower's or any Guarantor's
liability to perform under this Loan Agreement, Note, Mortgage and ancillary
documents.
(9) Satisfactory evidence that the mortgaged property complies with all
requirements of the Americans with Disabilities Act Title 111, per inspection
report ordered by Bank, or is exempt from said requirements.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any advances
pursuant to this Agreement are subject to the following conditions precedent:
Additional Documents. Receipt by Bank of such additional supporting documents as
Bank or its counsel may reasonably request. Opinion of Counsel. On or prior to
the date of any borrowing hereunder, Bank shall have received a written opinion
of the counsel of Borrower acceptable to Bank that includes confirmation of the
following: (a) The accuracy of the representations set forth in this Agreement
in the Representations Subparagraphs entitled "Authorization;
Non-Contravention"; "Compliance with Laws", and "Organization and Authority".
(b) This Agreement and other Loan Documents have been duly executed and
delivered by Borrower and constitute the legal, valid and binding obligations of
Borrower, enforceable in accordance with their terms. (c) No registration with,
consent of, approval of, or other action by, any federal, state or other
governmental authority or regulatory body to the execution and delivery of this
Agreement, the borrowing under this Agreement or other Loan Documents, is
required by law, or, if so required, such registration has been made, and
consent or approval given or such other appropriate action taken. (d) The Loan
is not usurious. (e) The Loan Documents create the priority of lien on or
security interest in the Collateral (as defined in the Loan Documents) that is
contemplated by the Loan Documents.
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: Accurate Information. All
information now and here after furnished to Bank is and will be true, correct
and complete. Any such information relating to Borrower's financial condition
will accurately reflect Borrower's financial condition as of the date(s)
thereof, (including all contingent liabilities of every type), and Borrower
further represents that its financial condition has not changed materially or
adversely since the date(s) of such documents. Authorization; Non-Contravention.
The execution, delivery and performance by Borrower and any guarantor, as
applicable, of this Agreement and other Loan Documents to which it is a party
are within its power, have been duly authorized by all necessary action taken by
the duly authorized officers of Borrower and any guarantors and, if necessary,
by making appropriate filings with any governmental agency or unit and are the
legal, binding, valid and enforceable obligations of Borrower and any
guarantors; and do not (i) contravene, or constitute (with or without the giving
of
Page 4
<PAGE>
notice or lapse of time or both) a violation of any provision of applicable law,
a violation of the organizational documents of Borrower or any guarantor, or a
default under any agreement, judgment, injunction, order, decree or other
instrument binding upon or affecting Borrower or any guarantor, (ii) result in
the creation or imposition of any lien (other than the lien(s) created by the
Loan Documents) on any of Borrower's or guarantor's assets, or (iii) give cause
for the acceleration of any obligations of Borrower or any guarantor to any
other creditor. Asset Ownership. Borrower has good and marketable title to all
of the properties and assets reflected on the balance sheets and financial
statements supplied Bank by Borrower, and all such properties and assets are
free and clear of mortgages, security deeds, pledges, liens, charges, and all
other encumbrances, except as otherwise disclosed to Bank by Borrower in writing
("Permitted Liens"). To Borrower's knowledge, no default has occurred under any
Permitted Liens and no claims or interests adverse to Borrower's present rights
in its properties and assets have arisen. Discharge of Liens and Taxes. Borrower
has duty filed, paid and/or discharged all taxes or other claims which may
become a lien on any of its property or assets, except to the extent that such
items are being appropriately contested in good faith and an adequate reserve
for the payment there of is being maintained. Sufficiency of Capital. Borrower
is not, and after consummation of this Agreement and after giving effect to all
indebtedness incurred and liens created by Borrower in connection with the Loan,
will not be, insolvent within the meaning of 11 U.S.C. ss. 101 (32). Compliance
with Laws. Borrower is in compliance in all respects with all federal, state and
local laws, rules and regulations applicable to its properties, operations,
business, and finances, including, without limitation, any federal or state laws
relating to liquor (including 18 U.S.C. ss. 3617, at seg, or narcotics
(including 21 U.S.C. ss. 801,et seg.) and/or any commercial crimes; all
applicable federal, state and local laws and regulations intended to protect the
environment; and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), if applicable. Organization and Authority. Each corporate or limited
liability company Borrower and any guarantor, as applicable, is duly created,
validly existing and in good standing under the laws of the state of its
organization, and has all powers, governmental licenses, authorizations,
consents and approvals required to operate its business as now conducted. Each
corporate or limited liability company Borrower and any guarantor, if any, is
duly qualified, licensed and in good standing in each jurisdiction where
qualification or licensing is required by the nature of its business or the
character and location of its property, business or customers, and in which the
failure to so qualify or be licensed, as the case may be, in the aggregate,
could have a material adverse effect on the business, financial position,
results of operations, properties or prospects of Borrower or any such
guarantor. No Litigation. There are no pending or threatened suits, claims or
demands against Borrower or any guarantor that have not been disclosed to Bank
by Borrower in writing. ERISA. Borrower has no employee pension benefit plans,
as defined in ERISA.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will: Business Continuity. Conduct its business in
substantially the same manner and locations as such business is now and has
previously been conducted. Maintain Properties. Maintain, preserve and keep its
property in good repair, working order and condition, making all needed
replacements, additions and improvements thereto, to the extent allowed by this
Agreement. Access to Books & Records. Allow Bank, or its agents, during normal
business hours, access to the books, records and such other documents of
Borrower as Bank shall reasonably require, and allow Bank to make copies thereof
at Bank's expense. Insurance. Maintain adequate insurance coverage with respect
to its properties and business against loss or damage of the kinds and in the
amounts customarily insured against by companies of established reputation
engaged in the same or similar businesses including, without limitation,
commercial general liability insurance, workers compensation insurance, and
business interruption insurance; all acquired in such amounts and from such
companies as Bank may reasonably require. Notice of Default and Other Notices.
(a) Notice of Default. Furnish to Bank immediately upon becoming aware of the
existence of any condition or event which constitutes a Default (as defined in
the Loan Documents) or any event which, upon the giving of notice or lapse of
time or both, may become a Default, written notice specifying the nature and
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<PAGE>
period of existence thereof and the action which Borrower is taking or proposes
to take with respect thereto. (b) Other Notices. Promptly notify Bank in writing
of (i) any material adverse change in its financial condition or its business;
(ii) any default under any material agreement, contract or other instrument to
which it is a party or by which any of its properties are bound, or any
acceleration of the maturity of any indebtedness owing by Borrower; (iii) any
material adverse claim against or affecting Borrower or any part of its
properties; (iv) the commencement of, and any material determination in, any
litigation with any third party or any proceeding before any governmental agency
or unit affecting Borrower; and (v) at least 30 days prior thereto, any change
in Borrower's name or address as shown above, and/or any change in Borrower's
structure. Compliance with Other Agreements. Comply with all terms and
conditions contained in this Agreement, and any other Loan Documents, and swap
agreements, if applicable, as defined in the Note. Payment of Debts. Pay and
discharge when due, and before subject to penalty or further charge, and
otherwise satisfy before maturity or delinquency, all obligations, debts, taxes,
and liabilities of whatever nature or amount, except those which Borrower in
good faith disputes. Reports and Proxies. Deliver to Bank, promptly, a copy of
all financial statements, reports, notices, and proxy statements, sent by
Borrower to stockholders, and all regular or periodic reports required to be
filed by Borrower with any governmental agency or authority. Other Financial
Information. Deliver promptly such other information regarding the operation,
business affairs, and financial condition of Borrower which Bank may reasonably
request. Non-Default Certificate From Borrower. Deliver to Bank, with the
Financial Statements required herein, a certificate signed by Borrower, if
Borrower is an individual, or by a principal financial officer of Borrower
warranting that no "Default" as specified in the Loan Documents or any event
which, upon the giving of notice or lapse of time or both, would constitute such
a Default, has occurred. Estoppel Certificate. Furnish, within 15 days after
request by Bank, a written statement duly acknowledged of the amount due under
the Loan and whether offsets or defenses exist against the Obligations.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not Default on Other Contracts or Obligations.
Default on any material contract with or obligation when due to a third party or
default in the performance of any obligation to a third party incurred for money
borrowed. Judgment Entered. Permit the entry of any monetary judgment or the
assessment against, the filing of any tax lien against, or the issuance of any
writ of garnishment or attachment against any property of or debts due Borrower
in an amount in excess of $50,000.00 and that is not discharged or execution is
not stayed within Thirty (30) days of entry. Government Intervention. Permit the
assertion or making of any seizure, vesting or intervention by or under
authority of any government by which the management of Borrower or any guarantor
is displaced of its authority in the conduct of its respective business or such
business is curtailed or materially impaired. Prepayment of Other Debt. Retire
any long-term debt entered into prior to the date of this Agreement at a date in
advance of its legal obligation to do so. Retire or Repurchase Capital Stock.
Retire or otherwise acquire any of its capital stock. Payment of Dividends;
Redemption of Stock. Borrower shall not pay any dividends, make any withdrawal
from its capital, make any other distributions and/or repurchase, redeem, or
otherwise acquire, or set aside reserves to acquire, any of its outstanding
stock, partnership or other equity interests, except for such actions by any
subsidiaries in favor of the Borrower. Accounts. Borrower shall not sell,
assign, transfer or dispose of any of its accounts or notes receivable, with or
without recourse, except to the Bank. Cross-Default. Default in payment or
performance of any obligation under any other loans, contracts, or agreements of
Borrower, any subsidiary or affiliate of Borrower, any general partner of the
holder(s) of the majority ownership interests of Borrower, with Bank or its
affiliates. Investments. Borrower shall no purchase any stock, securities, or
evidence of indebtedness of any other person or entity except, investments in
direct obligations of the United States Government and certificates of deposit
of United States commercial banks having a tier 1 capital ratio of not less than
6%, and, then in an amount not exceeding 10% of the issuing bank's unimpaired
capital and surplus. Guarantees. Borrower shall not guarantee or otherwise
become responsible for
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obligations of any other person or entity except for the benefit of Bank or its
affiliates, and except as an endorser of checks or drafts negotiated in the
ordinary course of the Borrower's business. Encumbrances. Borrower shall not
create, assume, or permit to exist any mortgage, security deed, deed of trust,
pledge, lien, charge or other encumbrance on any of its assets, whether now
owned or hereafter acquire, other than: (i) security interests required by the
loan documents; (ii) liens for taxes contested in good faith; (iii) liens
accruing by law for employee benefits; or (iv) permitted liens; (v) indebtedness
not to exceed $150,000, in any fiscal year for the purpose of purchasing
machinery and equipment. Sale-Leaseback Transactions. Borrower shall not enter
into any sale-lease back transaction or any transaction however termed which
would have the same or substantially the same result or effect as a
sale-leaseback. Sale of Assets; Liquidation; Merger; Acquisition. Borrower shall
not convey, lease, sell, transfer or assign any assets except in the ordinary
course of the Borrower's business for value received; liquidate or discontinue
its normal operations with intent to liquidate; enter into any merger or
consolidation; or acquire all or substantially all of the assets, stock, or
other equity interests of any other entity. Sale or Issuance of Stock. Borrower
shall not sell, issue, or agree to sell or issue, any shares (voting,
non-voting, preferred or common) of the Borrower, or purchase any such shares.
Hazardous Substances. Borrower shall not cause or permit to exist a dumping of
hazardous substances or wastes into the atmosphere or waters or onto lands
resulting in damage to the Natural Resources unless the dumping is pursuant to
and in compliance with the conditions of a permit issued by the appropriate
federal, state, or local governmental authorities. Change of Control. Borrower
shall not make a material change of ownership that effectively changes control
of Borrower or changes the current management structure and personnel.
FINANCIAL COVENANTS. Borrower agrees to the following provisions from the date
hereof until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing, and all financial covenants shall be calculated on
a consolidated basis, using the consolidated financial information for Borrower,
its subsidiaries, affiliates and its holding or parent company, as applicable:
Tangible Net Worth. Borrower shall maintain a Tangible Net Worth of at least
$11,650,000.00 at closing. Tangible Net Worth shall increase by not less than
$50,000 each fiscal year measured annually commencing January 1999. "Tangible
Net Worth" shall mean the total assets minus total liabilities. For purposes of
this computation, the aggregate amount of any intangible assets of Borrower
including, without limitation, good will, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks, and brand names, shall be
subtracted from total assets, and total liabilities shall include fully
subordinated debt. Total Liabilities to Tangible Net Worth Ratio. Borrower
shall, at all times, maintain a ratio of Total Liabilities, including fully
subordinated debt, divided by Tangi0ble Net Worth of not more than .50 to 1.00.
For purposes of this computation, "Total Liabilities" shall mean all liabilities
of Borrower, including capitalized leases and all reserves for deferred taxes
and other deferred sums appearing on the liabilities side of a balance sheet of
Borrower, in accordance with generally accepted accounting principles applied on
a consistent basis. Deposit Relationship. Borrower shall maintain its primary
depository account with -Bank. Capital Expenditures. Borrower shall not during
any fiscal year expend on gross fixed assets (including gross leases to be
capitalized under generally accepted accounting principles and leasehold
improvements) an amount exceeding $900,000.00 in the aggregate. Leases. Borrower
shall not incur, create, or assume any direct or indirect liability for the
payment of rent or otherwise, under any lease or rental arrangement (excluding
capitalized leases) if immediately there after the sum of such lease or rental
payments to be made by Borrower during any 12-month period is increased by
$50,000.00 in the aggregate. Loans and Advances. Borrower shall not, during any
fiscal year, make loans or advances, excepting ordinary course of business
travel and expense advances, to any person or entity, which total more than
$50,000.00 in the aggregate. Debt Service Coverage Ratio. Borrower shall
maintain a Debt Service Coverage Ratio not less than1.20 to 1.0, measured
annually. "Debt Service Coverage Ratio" means the ratio of net income plus
interest expense (after giving effect to the fixed interest rate payable under
the Swap Agreement) plus income tax expense plus depreciation and amortization
of the Borrower and its consolidated
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subsidiaries for any fiscal year minus Maintenance Capital Expenditures to
interest expense (after giving effect to the fixed interest rate payable under
the Swap Agreement) of the Borrower and its consolidated subsidiaries for such
period plus the current portion of long term debt and capital leases of the
Borrower and its consolidated subsidiaries (as reflected on the Borrower's
consolidated financial statements as of the end of the fiscal period immediately
preceding such current period) to be less than 1.20:1. "Maintenance Capital
Expenditures" is defined as those expenditures required on an annual basis to
maintain existing restaurant locations. Liquidity Requirement. Borrower shall,
at all times, maintain Liquid Assets of not less than $750,000."Uquid Assets"
shall mean the sum of all cash, time deposits and marketable securities.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 120 days
after the close of each fiscal year, audited financial statements reflecting its
operations during such fiscal year, including, without limitation, a balance
sheet, profit and loss statement and statement of cash flows, with supporting
schedules; all on a consolidated and consolidating basis and in reasonable
detail, prepared in conformity with generally accepted accounting principles,
applied on a basis consistent with that of the preceding year. All such
statements shall be examined by an independent certified public accountant
acceptable to Bank. The opinion of such independent certified public accountant
shall not be acceptable to Bank if qualified due to any limitations in scope
imposed by Borrower or its Subsidiaries, if any. Any other qualification of the
opinion by the accountant shall render the acceptability of the financial
statements subject to Bank's approval. Borrower's accountant shall provide Bank
with a written acknowledgment of Bank's reliance upon the statements in
accordance with N.J.S. SS 2A:53A-25.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank unaudited
management-prepared quarterly financial statements, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules, as soon as available and in any event within
60 days after the close of each such period; all in reasonable detail and
prepared in conformity with generally accepted accounting principles, applied on
a basis consistent with that of the preceding year. Such statements shall be
certified as to their correctness by a principal financial officer of Borrower
and in each case, if audited statements are required, subject to audit and
year-end adjustments.
Borrower shall deliver to Bank: a) the following statements and schedules
pertaining to the Borrower's business operations, monthly or at such other times
as may be requested by Bank; accounts receivable agings, accounts payable
agings, inventory schedules and tax returns; b) not later than five (5) calendar
days after receipt there of by Borrower, a copy of any management letter or
report for Borrower prepared by a CPA; c) not later than 120 days after the end
of each fiscal year income statements by store location prepared in a format
acceptable to Bank, certified as true, correct and complete by Borrower's chief
financial officer; d) not later than 30 days prior to the and of each fiscal
year, consolidating cash flow projections for the subsequent fiscal year in a
format acceptable to Bank; and e) such other information respecting the
operations, financial or otherwise, of Borrower or any of its subsidiaries, as
Bank may from time to time reasonably request.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
MISCELLANEOUS PROVISIONS.
1. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be an original. Complete sets of
the counterparts hereto shall be provided to Borrower and Bank.
Page 8
<PAGE>
2. GOVERNING LAW. This Agreement and all loan documentation executed
pursuant hereto shall be governed by the laws of the State of Florida.
3. SUPERSEDES PRIOR AGREEMENTS. This Agreement supersedes all previous
loan agreements between Bank and Borrower, which may relate to this loan.
4. INDIRECT MEANS. Any act which the Borrower is prohibited from doing
shall not be done indirectly through any Person controlled or owned by, or any
subsidiary of, Borrower, or by any other indirect means.
5. NON-IMPAIRMENT. If any one or more provisions contained in this
Agreement or any other document executed pursuant to this Agreement shall be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained in this Agreement and
the documentation executed pursuant hereto shall not in any way be affected or
impaired there by and this Agreement shall otherwise remain in full force and
effect.
6. NON-WAIVE. Neither the failure to exercise, nor any delay on the part
of Bank in exercising, any right, power or privilege granted pursuant to this
Agreement, the Notes, or any other documents executed pursuant to this
Agreement, shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise or the exercise of any
other right, power or privilege.
7. MODIFICATION. No modification, amendment, or waiver of any provision of
this Agreement, any Note or any other document executed pursuant to this
Agreement shall be effective unless in writing and signed by all parties
thereto, it being acknowledged by the parties hereto that all terms, conditions
and covenants therein and herein contained are deemed to be material and relied
upon by Bank.
8. ATTORNEY'S FEES. In the event that Borrower shall default in any of its
obligations under this Agreement, any Note or any other document executed
pursuant to this Agreement and Bank believes it reasonably necessary or proper
to employ attorneys to assist in the enforcement or collection of the
indebtedness of such Borrower to Bank or to enforce any other term or condition
of this Agreement, the Notes or any other document executed pursuant to this
Agreement, or in the event the Bank voluntarily or otherwise shall become a
party to any suit or legal proceeding with respect to any such document,
agreement, indebtedness or obligation relating to either Borrower (including a
proceeding conducted under the Federal Bankruptcy Code), Borrower agrees to pay
the reasonable attorneys' fees of Bank with respect thereto and all related
costs that may reasonably be incurred by Bank. Borrowers shall be liable for
such attorneys' fees and costs whether or not any suit or proceeding is
commenced (including costs for appellate proceedings, if any).
9. INTEREST. Notwithstanding anything to the contrary contained herein, it
is not the intention of the parties hereto to make any agreement which shall be
violative of the laws of the State of Florida or the United States of America
relating to usury, and in no event shall Borrower pay to Bank, or Bank accept or
charge any interest to Borrower which, together with any other charges upon the
principal or any portion thereof, howsoever computed, shall exceed the maximum
lawful rate of interest allowable under the laws of the State of Florida or the
United States of America, whichever is higher or unlimited. Anything contained
herein, in any Note, or in any other document executed pursuant to this
Agreement notwithstanding, if for an reason the effective rate of interest which
shall be deemed reduced to and shall be such maximum lawful rate, and any sums
of interest which have been collected in excess of such maximum lawful rate
shall be applied by Bank as a credit against the unpaid principal amount due
under the respective Note.
Page 9
<PAGE>
10. BINDING AGREEMENT/ASSIGNMENT. This Agreement shall be binding upon the
parties and their respective permitted successor and permitted assigns. Bank's
interest in the Note, and the other Loans Documents, and its rights hereunder
and thereunder, are freely assignable, in whole or in part. the Borrower may not
assign any of its rights and interests hereunder or under the Note, except with
the prior written consent of the Bank, which consent may be withheld at bank's
sole and absolute discretion. Any said assignment shall not release such
Borrower from any responsibility hereunder or under the Note or the other Loan
Documents, notwithstanding Bank's consent to the same.
11. LIMITATIONS ON BORROWER. In the event financial statements are not
received as specified in this Paragraph 6.2 then the following provision shall
apply:
a) In the event of default for this the Borrower does not accelerate
the loan, including the failure of Borrower to provide the financial statements
as required hereunder or under the Loan Agreement, the applicable interest rate
to the loan, for a period beginning (3) days after written notice of such
default and ending upon the curing of said noticed default, shall increase one
quarter of one percent (.25%) for the first thirty (30) days of said default and
increase an additional one quarter of one percent (.255) during each thirty (30)
day period thereafter during which the notice default continues. However, under
no conditions shall the interest rate exceed the maximum amount allowed by law
under any state or federal law having jurisdiction over the promissory note.
Such default interest rate shall apply to the outstanding principal balance of
the loan. Upon the curing of the notice default, the interest rate of the Loan
shall revert to the initially agreed-upon interest rate effective on the date on
which the default is cured.
12. NOTICE. For all purposes hereof, where the giving of written notice is
required, notice will be deemed to have been properly "given" as of the date
sent by United States mail or the date delivered by third-party courier service,
if sent in accordance with the provision of this Section. (1) Said notices shall
be in writing and sent by 91) United States Express Mail, or (2) third party
independent courier service, with a receipt showing the sender and the date and
address of transmittal and delivery, or (3) United States registered or
certified mail, return receipt requested, postage prepaid; and in all such cases
addressed as follows or to the respective parties at the last addresses provided
in writing by said parties prior to the preparation of the notice in question.
IF TO BANK:
First Union National Bank
1889 Highway 27
Edison, NJ 09817
Attention:
With copy to:
Calvin B. Brown, Esq.
Collins, Brown, Caldwell, Barkett, Rossway,
Garavaglia & Moore Chartered
756 Beachland Blvd.
Vero Beach, FL 32963
IF TO BORROWER
Chefs International, Inc.
62 Broadway
Point Pleasant Beach, NJ 08742
Page 10
<PAGE>
With copy to
Christopoher H. Marine, Esq.
Gould, Cooksey, Fennell,
O'Neill & Marine
979 Beachland Boulevard
Vero Beach, FL 32963
13. SURVIVAL OF COVENANTS AND REPRESENTATIONS. All covenants and agreements
made by or on behalf of the parties hereto which are contained or all
incorporated in this agreement shall bind and inure to the benefit of the
successors and/or assigns of all parties hereto.
14. CLOSING EXPENSES. On or before the closing date, Borrowers will pay all
out-of-pocket expenses incurred by Bank in connection with the negotiations, and
consummation of the loan, including those related to the preparation of all
related documentation and the closing of the transactions contemplated herein,
including but not limited to reasonable Bank counsel fees and expenses.
15. REMEDIES CUMULATIVE. Any rights or remedies of the Bank hereunder or
under the Note or any other Loan Document or under any other writing shall be
cumulative and in addition to every other right or remedy contained therein or
herein, or now or hereafter existing, a law or in equity, or by statute or
otherwise. Upon the occurrence of an Event of Default, Bank may proceed to
enforce any of its rights and remedies against either Borrower or against any
collateral given as security for the Note and Bank may enforce such rights and
remedies simultaneously, or in such order and at such time, or from time to
time, as Bank, in its sole discretion, shall determine.
16. APPLICATION OF PAYMENTS. Payments received by Bank from Borrower,
whether direct or from realizations on any collateral securing the loans and
advances made or to be made hereunder, may be applied toward payment of such
liabilities of Borrower, and in such order of application as Bank may from time
to time elect, and Borrower hereby waives any rights to designate to which of
their liabilities any such payments shall be applied.
17. CONFLICT PROVISIONS.
A. If a conflict exists or arises between a provision of this Agreement and
any note or Security Agreement, the provision in the note or Security
Agreement(s) shall prevail.
B. Nothing herein shall be construed to waive or diminish any right or
security of the Mortgagee under the Notes, Mortgage, or other Security. It is
the purpose and intent hereof to provide safeguards, protection, and rights to
the Bank in addition to those provided in the Security and to better secure the
Bank for and on account of the Loan.
18. VENUE. For any action arising out of this Loan Agreement, the Note, the
Mortgage or other security interest, same shall be in a court of competent
jurisdiction in Indian River County, Florida.
19. Nothing in this or other documents regarding the transaction herein
shall prohibit the Bank from pledging or assigning this Loan Agreement,
including collateral therefor, to any Federal Reserve Bank in accordance with
applicable law.
INTEREST SWAP AGREEMENT. The parties have entered into one or more interest rate
swap transactions and may enter into additional transactions pursuant to the
terms and conditions of a Master
Page 11
<PAGE>
Agreement with an accompanying Schedule and confirmations (together, the "Master
Agreement") Absolute and contingent liabilities are created under the terms and
conditions of the Master Agreement.
Each of the Promissory Note, Mortgage, Security Agreement, Loan Agreement,
Assignment of Leases, Rents and Profits and Guaranties is hereby specifically
cross-defaulted with the Master Agreement, such that a default or event of
default under the Master Agreement, and a default or event of default under the
Master Agreement is considered a default or event of default under each of them.
The Mortgage, Security Agreement and Assignment of Leases, Rents and Profits is
also given as security for the payment of all present and future obligations
under the Master Agreement. The term "Secured Obligation" or similar term as set
out in the Mortgage, Security Agreement, Assignment of Leases, Rents and Profits
and Guaranties shall include the obligations under the Master Agreement.
In the event of foreclosure of the security interest following a default, the
proceeds of the sale of the collateral shall first by applied to principal.
Thereafter, proceeds shall be applied to interest under the Note and obligation
under the Master Agreement on a pari passu basis and the remainder shall be
applied to any other obligations secured thereby.
The Mortgage, Security Agreement and Assignment of Leases, Rents and Profits
shall only be satisfied and extinguished after payment in full of all principal,
interest and other obligations that are due or may become due under the Note or
are otherwise secured by the Mortgage, Security Agreement and Assignment of
Leases, Rents and Profits, and payment in full of all obligations under the
Master Agreement.
Nothing in this or other documents regarding the transaction herein shall
prohibit the Lender from pledging or assigning this mortgage, including
collateral therefor, to any Federal Reserve Bank in accordance with applicable
law.
ARBITRATION. Under demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy arising out of
or relating to the Loan Documents between parties hereto (a "Dispute") shall be
resolved by binding arbitration conducted under and governed by the Commercial
Financial disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes
may include, without limitation, tort claims, counter claims arising from
documents executed in the future. A judgment upon the award may be entered in
any court having jurisdiction. Notwithstanding the foregoing, the arbitration
provision does not apply to disputes under or related to swap agreements.
SPECIAL RULES. All arbitration hearings shall be conducted in the city named in
the address of Bank first stated above. A hearing shall begin within 90 days of
demand for arbitration and all hearings shall conclude within 120 days of demand
for arbitration. These time limitation may not be extended unless a party shows
cause for extension and then for no more than a total of 60 days. The expedited
procedures set forth in Rule 51 ET SEQ. of the Arbitration Rules shall be
applicable to claims of less than $1,000,000.00. Arbitrators shall be licensed
attorneys selected from the Commercial Financial Dispute Arbitration Panel of
the AAA. The parties do not waive applicable Federal or state substantive law
except as provided herein.
PRESERVATION AND LIMITATION OR REMEDIES. Notwithstanding the preceding binding
arbitration provisions, the parties agree to preserve, without diminution,
certain remedies that any party may exercise before or after an arbitration
proceeding is brought. The parties shall have the right to proceed in any court
of proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (I) all rights to foreclose against any real or
personal property or
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<PAGE>
other security by exercising a power of sale or under applicable law by judicial
foreclosure including a proceeding to confirm the sale; (ii) all rights of
self-help including peaceful occupation of real property and collection of
rents, set-off, and peaceful possession of personal property; (iii) obtaining
provisional or ancillary remedies including injunctive relief, sequestration,
garnishment, attachment, appointment of receiver and filing an involuntary
bankruptcy proceeding; and (iv) when applicable, a judgement by confession of
judgment. Any claim or controversy with regard to any party's entitlement to
such remedies is a Dispute.
The parties agree that they shall not have a remedy of punitive or exemplary
damages against other parties in any Dispute and hereby waive any right or claim
to punitive or exemplary damages they have now or which may arise in the future
in connection with any Dispute whether the Dispute is resolved by arbitration or
judicially.
WAIVER OF JURY TRIAL. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING
ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL
WITH REGARD TO A DISPUTE.
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above,
have caused this Agreement to be executed under seal.
Chefs International, Inc., a Delaware corporation
CORPORATE By:
SEAL -----------------------------------
Anthony Papalia, President
First Union National Bank
CORPORATE By: /s/ JOSEPH J. LEBAL, VICE PRESIDENT
SEAL -----------------------------------
Joseph J. Lebal, Vice President
Page 13
<PAGE>
other security by exercising a power of sale or under applicable law by judicial
foreclosure including a proceeding to confirm the sale; (ii) all rights of
self-help including peaceful occupation of real property and collection of
rents, set-off, and peaceful possession of personal property; (iii) obtaining
provisional or ancillary remedies including injuctive relief, sequestration,
garnishment, attachment, appointment of receiver and filing an involuntary
bankruptcy proceeding; and (iv) when applicable, a judgement by confession of
judgment. Any claim or controversy with regard to any party's entitlement to
such remedies is a Dispute.
The parties agree that they shall not have a remedy of punitive or exemplary
damages against other parties in any Dispute and hereby waive any right or claim
to punitive or exemplary damages they have now or which may arise in the future
in connection with any Dispute whether the Dispute is resolved by arbitration or
judicially.
WAIVER OF JURY TRIAL. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING
ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL
WITH REGARD TO A DISPUTE.
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above,
have caused this Agreement to be executed under seal.
Chefs International, Inc., a Delaware corporation
CORPORATE By: /s/ ANTHONY PAPALIA, PRESIDENT
SEAL -----------------------------------
Anthony Papalia, President
First Union National Bank
CORPORATE By:
SEAL -----------------------------------
Joseph J. Lebal, Vice President
Page 13
<PAGE>
EXHIBIT "A"
PARCEL 1:
LOTS 1 AND 2, BLOCK 1, VERO ISLES SUBDIVISION, ACCORDING TO THE PLAT THEREOF AS
RECORDED IN PLAT BOOK 3, PAGE 18, PUBLIC RECORDS OF INDIAN RIVER COUNTY,
FLORIDA.
PARCEL 2:
THE NORTHEASIERLY ONE-HALF OF LOT 3, BLOCK 1, VERO ISLES SUBDIVISION, ACCORDING
TO THE PLAT THEREOF, AS RECORDED IN PLAT BOOK 3, PAGE 18 OF THE PUBLIC RECORDS
OF INDIAN RIVER COUNTY, FLORIDA, MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE NORTHERNMOST CORNER OF SAID LOT 3, RUN SOUTHWESTERLY ALONG THE
NORTHWEST BOUNDARY LINE OF SAID LOT, A DISTANCE OF 53.5 FEET TO A POINT; THENCE
RUN SOUTHEASTERLY ON A STRAIGHT LINE TO A POINT ON THE SOUTHEAST BOUNDARY LINE
OF SAID LOT 3, WHICH POINT IS LOCATED 48.5 FEET FROM THE EASTERN MOST CORNER OF
SAID LOT; THENCE NORTHEASTERLY, A DISTANCE OF 48.5 FEET TO SAID EASTERN MOST
CORNER; THENCE RUN NORTHWESTERLY ALONG THE LINE DIVIDING LOT 3 FROM LOT 2 OF
SAID SUBDIVISION, TO THE POINT OF BEGINNING. SAID LAND LYING AND BEING IN INDIAN
RIVER COUNTY, FLORIDA.
PARCEL 3:
BEGINNING AT THE NORTHWESTERLY CORNER OF LOT 1, BLOCK 1, VERO ISLES SUBDIVISION,
AS RECORDED IN PLAT BOOK 3, PAGE 18 OF THE PUBLIC RECORDS OF INDIAN RIVER
COUNTY, FLORIDA, SAID POINT OF BEGINNING BEING ON THE SOUTH RIGHT-OF-WAY AND
LYING 70 FEET SOUTHERLY OF, AND RADIALLY FROM, THE CENTERLINE OF STATE ROAD 502
(ROYAL PALM BOULEVARD), AS SHOWN ON THE STATE OF FLORIDA, STATE ROAD DEPARTMENT,
RIGHT-OF-WAY MAP, STATE SECTION 8803-104, AND ALSO SHOWN ON SAID PLAT OF VERO
ISLES, RUN THENCE SOUTH 29o 24 "OO" EAST ALONG THE WESTERLY LINE OF SAID LOT 1,
A DISTANCE OF 20 FEET TO THE NORTHEASTERLY CORNER OF LOT 2 OF SAID VERO ISLES
SUBDIVISION; THENCE RUN SOUTHWESTERLY ALONG THE NORTHERLY UNE OF LOT 2 AND EAST
HALF OF LOT 3 OF SAID VERO ISLES SUBDIVISION ON A CURVE BEING CONCAVE TO THE
SOUTHEAST HAVING A RADIUS OF 1342.69 FEET, A CENTRAL ANGLE OF 7o 29' 2O", AN ARC
DISTANCE OF 175.50 FEET TO THE MID-POINT OF THE NORTh LINE OF SAID LOT 3; THENCE
RUN NORTH 36o 53' 20" WEST ALONG THE NORTHERLY PROJECTION OF THE WEST LINE OF
THE EAST HALF OF SAID LOT 3, A DISTANCE OF 20 FEET TO A POINT ON THE SOUTHERLY
RIGHT-OF-WAY OF STATE ROAD 502 (ROYAL PALM BOULEVARD); THENCE RUN NORTHEASTERLY
ON SAID SOUTH RIGHT-OF-WAY OF STATE ROAD 502 (ROYAL PALM BOULEVARD) ALONG A
CURVE BEING CONCAVE TO THE SOUTHEAST HAVING A RADIUS OF 1362.69 FEET, A CENTRAL
ANGLE OF 7o 29' 20", AN ARC DISTANCE OF 178.11 FEET TO THE POINT OF BEGINNING.
<PAGE>
FIRST UNION
[logo omitted]
PROMISSORY NOTE
$880,000.00 October 30, 1998
Chefs International, Inc., a Delaware corporation
62 Broadway
Point Pleasant Beach, New Jersey 08742
(Individually and collectively "Borrower")
First Union National Bank
1889 Highway 27
Edison, New Jersey 09817
(Hereinafter referred to as the "Bank")
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of Eight Hundred Eighty Thousand and no/100 Dollars
($880,000.00) or such sum as may be advanced and outstanding from time to time
with interest on the unpaid principal balance at the rate and on the terms
provided in this Promissory Note (including all renewals, extensions or
modifications hereof, this "Note").
SECURITY. Borrower has granted Bank a security interest in the collateral
described in the Loan Documents, including, but not limited to, real property
collateral described in that certain Deed dated October 29, 1998
INTEREST RATE DEFINITIONS.
LIBOR. 1-month LIBOR plus 2.00% (200 Basis Points) ("LIBOR-Based Rate"). "LIBOR"
is the rate for U.S. dollar deposits of that many months maturity as reported on
Telerate page 3750 as of 11:00 a.m., London time, on the second London business
day before the relevant Interest Period begins (or if not so reported, then as
determined by Bank from another recognized source of interbank quotation).
INTEREST RATE TO BE APPLIED.
INTEREST RATE. The unpaid principal balance of this Note shall bear interest
from the date hereof at the LIBOR-Based Rate, as determined by Bank prior to the
commencement of each consecutive interest period of 1 month (each an "Interest
Period") provided, the first Interest Period shall commence on the date this
Note and end on the first date thereafter that interest is due. Each LIBOR-Based
Rate shall remain in effect, subject to the provisions hereof, for the entire
Interest Period until redetermined for the next successive Interest Period.
INDEMNIFICATION. Borrower indemnifies Bank against Bank's loss or expense in
employing deposits as a consequence (a) of Borrower's failure to make any
payment when due under this Note, or (b) any payment, prepayment or conversion
of any loan on a date other than the last day of the Interest Period
("Indemnified Loss or Expense"). The amount of such Indemnified Loss or Expense
shall be determined by Bank based upon the assumption that Bank funded 100% of
that portion of the loan in the London interbank market.
DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the
<PAGE>
LIBOR-Based Rate plus 3% ("Default Rate"). The Default Rate shall also apply
from acceleration until the Obligations or any judgment thereon is paid in full.
INTEREST AND FEE (S) COMPUTATION. (ACTUAL/360). Interest and fees, if any, shall
be computed on the basis of a 360-day year for the actual number of days in the
applicable period ("Actual/360 Computation"). The Actual/360 Computation
determines the annual effective yield by taking the stated (nominal) rate for a
years period and then dividing said rate by 360 to determine the daily periodic
rate to be applied for each day in the applicable period. Application of the
Actual/36O Computation produces an annualized effective rate exceeding that of
the nominal rate.
REPAYMENT TERMS. This Note shall be due and payable in principal payments as set
forth in Schedule A attached hereto and made a part hereof together with accrued
interest thereon on the date each principal payment is due. All remaining
principal and interest shall be due and payable on NOVEMBER 3, 2008.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for application
toward payment of the Obligations shall be applied to accrued interest and then
to principal. If a Default occurs, monies may be applied to the Obligations in
any manner or order deemed appropriate by Bank.
If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.
REQUIRED HEDGE. Borrower shall hedge the Loan's floating interest expense for
the full term of the Loan by maintaining either: (i) the Swap Agreement; or (ii)
a comparable interest rate swap agreement with Bank or other counterparty
acceptable to Bank in a notional amount equal to the then principal balance of
the Loan and providing for a fixed rate [sufficient to satisfy the Debt Service
Coverage Ration requirement set forth below] [satisfactory to Bank], and
containing such other terms and conditions as shall be reasonably acceptable to
Bank. "SWAP AGREEMENT" that certain ISDA Master Agreement entered into between
Borrower and Bank dated September 18, 1998, including the Schedule and all
Confirmations (as such terms are defied in the ISDA Master Agreement).
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and
other Loan Documents refers to all documents executed in connection with the
loan evidenced by this Note and any prior notes which evidence all or any
portion of the loan evidenced by this Note, any letters of credit issued
pursuant to any loan agreement executed in connection with this Note, any
applications for such letters of credit and any other documents executed in
connection therewith, and may include, without limitation, a commitment letter
that survives closing, a loan agreement, this Note, guaranty agreements,
security agreements, security instruments, financing statements, mortgage
instruments, any renewals or modifications, whenever any of the foregoing are
executed, but does not include swap agreements (as defined in 11 U.S.C. &101).
The term "Obligations" used in this Note refers to any and all indebtedness and
other obligations under this Note, all other obligations under any other Loan
Document (s), and all obligations under any swap agreements as defined in 11
U.S.C. &101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 5% of each payment past due for 10 or more days.
Page 2
<PAGE>
Acceptance by Bank of any late payment without an accompanying late charge shall
not be deemed a waiver of Bank's right to collect such late charge or to collect
a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office of Bank first shown above is located, the
late charge laws of the state where the real property is located shall apply to
this Note and the late charge shall be the highest amount allowable under such
laws. If no amount is stated thereunder, the late charge shall be 5% of each
payment past due for 10 or more days.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals', attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit, in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. If at any time the effective interest rate under this Note would, but for
this paragraph, exceed the maximum lawful rate, the effective interest rate
under this Note shall be the maximum lawful rate, and any amount received by
Bank in excess of such rate shall be applied to principal and then to fees and
expenses, or, if no such amounts are owing, returned to Borrower.
DEFAULT. If any of the following occurs, a default ("Default") under this Note
shall exist: NONPAYMENT; NONPERFORMANCE. The failure of timely payment or
performance of the Obligations or Default (however denominated) under this Note
or any other Loan Documents. FALSE WARRANTY. A warranty or representation made
or deemed made in the Loan Documents or furnished Bank in connection with the
loan evidenced by this Note proves materially false, or if of a continuing
nature, becomes materially false. CROSS DEFAULT. At Bank's option, any default
in payment or performance of any obligation under any other loans, contracts or
agreements of Borrower, any Subsidiary or Affiliate of Borrower ("Affiliate"
shall have the meaning as defined in 11 U.S.C. & 101, except that the term
"debtor" therein shall be substituted by the term "Borrower"" herein;
"Subsidiary" shall mean any corporation of which more than 50% of the issued and
outstanding voting stock is owned directly or indirectly by Borrower).
CESSATION; BANKRUPTCY. The death of, appointment of guardian for, dissolution
of, termination of existence of, loss of good standing status by, appointment of
a receiver for, assignment for the benefit of creditors of, or commencement of
any bankruptcy or insolvency proceeding by or against the Borrower, its
Subsidiaries or Affiliates, if any, or any party to the Loan Documents.
REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan
Documents, Bank may at any time thereafter, take the following actions: BANK
LIEN. Foreclose its security interest or lien against Borrower's accounts
without notice. ACCELERATION UPON DEFAULT. Accelerate the maturity OF this Note
and all other Obligations, and all of the Obligations shall be immediately due
and payable. CUMULATIVE. Exercise any rights and remedies as provided under the
Note and other Loan Documents, or as provided by law or equity.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 120 days
after the close of each fiscal year, audited financial statements reflecting its
operations during such fiscal year, including, without limitation, a balance
sheet, profit and loss statement and statement of cash flows, with supporting
schedules; all on a consolidated and consolidating basis and in reasonable
detail, prepared in conformity with generally accepted accounting principles,
applied on a basis consistent with that of the preceding year. All such
statements shall be examined by an independent certified public accountant
acceptable to Bank. The opinion of such independent certified public accountant
shall not be acceptable to Bank if qualified due to any limitations in scope
imposed by Borrower or its Subsidiaries, if any. Any other qualification of the
opinion by the
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<PAGE>
accountant shall render the acceptability of the financial statements subject to
Bank's approval. Borrower's accountant shall provide Bank with a written
acknowledgment of Bank's reliance upon the statements in accordance with N.J.S.
& 2A25.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank unaudited
management-prepared quarterly financial statements, including, without
limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules, as soon as available and in any event within
60 days after the close of each such period; all in reasonable detail and
prepared in conformity with generally accepted accounting principles, applied on
a basis consistent with that of the preceding year. Such statements shall be
certified as to their correctness by a principal financial officer of Borrower
and in each case, if audited statements are required, subject to audit and year
end adjustments.
Borrower shall deliver to Bank: a} the following statements and schedules
pertaining to the Borrower's business operations, monthly or at such other times
as may be requested by Bank; accounts receivable agings, accounts payable
agings, inventory schedules and tax returns; b) not later than five (5) calendar
days after receipt thereof by Borrower, a copy of any management letter or
report for Borrower prepared by a CPA; c) not later than 120 days after the end
of each fiscal year income statements by store location prepared In a format
acceptable to Bank, certified as true, correct and complete by Borrower's chief
financial officer; d) not later than 30 days prior to the end of each fiscal
year, consolidating cash flow projections for the subsequent fiscal year in a
format acceptable to Bank; and e) such other information respecting the
operations, financial or otherwise, of Borrower or any of its subsidiaries, as
Bank may from time to time reasonably request.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information
as Bank may reasonably request from time to time, including without limitation,
financial statements and information pertaining to Borrower's financial
condition. Such information shall be true, complete, and accurate.
YEAR 2000 COMPATIBILITY. Borrower shall take all action necessary to assure that
Borrower's computer based systems are able to operate and effectively process
data including dates on and after January 1, 2000. At the request of Bank,
Borrower shall provide Bank assurance acceptable to Bank of Borrower's Year 2000
compatibility.
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and
other Loan Documents shall be valid unless in writing and signed by an officer
of Bank. No waiver by Bank of any Default shall operate as a waiver of any other
Default or the same Default on a future occasion. Neither the failure nor any
delay on the part of Bank in exercising any right, power, or remedy under this
Note and other Loan Documents shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
Each Borrower or any person liable under this Note waives presentment, protest,
notice of dishonor, demand for payment, notice of intention to accelerate
maturity, notice of acceleration of maturity, notice of sale and all other
notices of any kind. Further, each agrees that Bank may extend, modify or renew
this Note or make a novation of the loan evidenced by this Note for any period
and grant any releases, compromises or indulgences with respect to any
collateral securing this Note, or with respect to any other Borrower or any
other person liable under this Note or other Loan Documents, all without notice
to or consent of each Borrower or each person who may be liable under this Note
or other Loan Documents and without affecting the liability of Borrower or any
person who may be liable under this Note or other Loan Documents.
Page 4
<PAGE>
MISCELLANEOUS PROVISIONS. Assignment. This Note and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Note and other Loan Documents are freely assignable, in whole
or in part, by Bank. In addition, nothing in this Note or any of the Loan
Documents shall prohibit Bank from pledging or assigning this Note or any of the
Loan Documents or any interest therein to any Federal Reserve Bank. Borrower
shall not assign its rights and interest hereunder without the prior written
consent of Bank, and any attempt by Borrower to assign without Bank's prior
written consent is null and void. Any assignment shall not release Borrower from
the Obligations. Applicable Law; Conflict Between Documents. This Note and other
Loan Documents shall be governed by and construed under the laws of the state of
Florida. If the terms of this Note should conflict with the terms of the loan
agreement or any commitment letter that survives closing, the terms of this Note
shall control. Borrower's Accounts. Except as prohibited by law, Borrower grants
Bank a security interest in all of Borrower's accounts with Bank and any of its
affiliates. Jurisdiction. Borrower irrevocably agrees to non-exclusive personal
jurisdiction in the state named in Bank's address shown above. Severability. If
any provision of this Note or of the other Loan Documents shall be prohibited or
invalid under applicable law, such provision shall be ineffective but only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Note or other such
document. Notices. Any notices to Borrower shall be sufficiently given, if in
writing and mailed or delivered to the Borrower's address shown above or such
other address as provided hereunder, and to Bank, if in writing and mailed or
delivered to Bank's office address shown above or such other address as Bank may
specify in writing from time to time. In the event that Borrower changes
Borrower's address at any time prior to the date the Obligations are paid in
full, Borrower agrees to promptly give written notice of said change of address
by registered or certified mail, return receipt requested, all charges prepaid.
Plural; Captions. All references in the Loan Documents to Borrower, guarantor,
person, document or other nouns of reference mean both the singular and plural
form, as the case may be, and the term "person" shall mean any individual,
person or entity. The captions contained in the Loan Documents are inserted for
convenience only and shall not affect the meaning or interpretation of the Loan
Documents. Binding Contract. Borrower by execution of and Bank by acceptance of
this Note agree that each party is bound to all terms and provisions of this
Note. Advances. Bank in its sole discretion may make other Advances under this
Note pursuant hereto. Posting of Payments. All payments received during normal
banking hours after 2:00 p.m. local time at the office of Bank first shown above
shall be deemed received at the opening of the next banking day. Joint and
Several Obligations. Each Borrower is jointly and severally obligated under this
Note. Fees and Taxes. Borrower shall promptly pay all documentary, intangible
recordation and/or similar taxes on this transaction whether assessed at closing
or arising from time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy arising out of
or relating to the Loan Documents between parties hereto (a "Dispute") shall be
resolved by binding arbitration conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes
may include, without limitation, tort claims, counterclaims, a dispute as to
whether a matter is subject to arbitration, claims brought as class actions, or
claims arising from documents executed in the future. A judgment upon the award
may be entered in any court having jurisdiction. Notwithstanding the foregoing,
this arbitration provision does not apply to disputes under or related to swap
agreements.
SPECIAL RULES. All arbitration hearings shall be conducted in the city named in
the address of Bank first stated above. A hearing shall begin within 90 days of
demand for arbitration and all hearings shall conclude within 120 days of demand
for arbitration. These time limitations may not be extended unless a party shows
cause for extension and then for no more than a total of 60
Page 5
<PAGE>
days. The expedited procedures set forth in Rule 51 ET SEQ.. of the Arbitration
Rules shall be applicable to claims of less than $1 ,0O0,000.00. Arbitrators
shall be licensed attorneys selected from the Commercial Financial Dispute
Arbitration Panel of the AAA. The parties do not waive applicable Federal or
state substantive law except as provided herein.
PRESERVATION AND LIMITATiON OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, the parties agree to preserve, without diminution,
certain remedies that any party may exercise before or after an arbitration
proceeding is brought. The parties shall have the right to proceed in any court
of proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose against any real or
personal property or other security by exercising a power of sale or under
applicable law by judicial foreclosure including a proceeding to confirm the
sale; (ii) all rights of self-help Including peaceful occupation of real
property and collection of rents, ET SEQ., and peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver and
filing an involuntary bankruptcy proceeding; and (iv) when applicable, a
judgment by confession of judgment. Any claim or controversy with regard to any
party's entitlement to such remedies is a Dispute.
The parties agree that they shall not have a remedy of punitive or exemplary
damages against other parties in any Dispute and hereby waive any right or claim
to punitive or exemplary damages they have now or which may arise in the future
in connection with any Dispute whether the Dispute is resolved by arbitration or
judicially.
WAIVER OF JURY TRIAL. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING
ARBITRATION ThEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL
WITH REGARD TO A DISPUTE.
IN WITNESS WHEREOF, Borrower, on the day and year first above written, has
caused this Note to be executed under seal.
Chefs International, Inc., a Delaware corporation
Taxpayer Identification Number: 22-2058515
CORPORATE By /s/ ANTHONY PAPALIA
SEAL -----------------------------------------------------
Anthony Papalia, President
STATE OF NEW JERSEY
COUNTY OF OCEAN
The foregoing instrument was acknowledged before me this 23rd day of October,
1998, by
Anthony Papalia, as President of CHEFS INTERNATIONAL, INC., a Delaware
corporation, 1998, by on behalf of the corporation. He is personally known to me
or has produced drivers license as identification.
/s/ CYNTHIA L. WALSH NOTARY PUBLIC
- ----------------------------- Name of Acknowledger Typed, Printed or Stamped
Cynthia L. Walsh
CYNTHIA L. WALSH
Notary Public of New Jersey
My Commission Expires 4/20/2002
Page 6
<PAGE>
S96721127364
SCHEDULE A TO PROMISSORY NOTE
The Note will be paid in the principal amounts plus accrued interest on the
dates as shown below:
Payment Due Date Principal Payment Due Remaining Principal
- ---------------- --------------------- -------------------
Outstanding
-----------
(following scheduled
principal payment)
Oct 28, 1998 0.00 880,000.00
Dec 1, 1999 1,819.26 878,180.74
Jan 4, 1999 1,832.70 876,348.04
Feb 1, 1999 2,988.41 873,359.63
Mar 1, 1999 3,006.58 870,353.05
Apr 1, 1999 2,457,69 867,895.36
May 3, 1999 2,285.71 865,609.65
Jun 1, 1999 2,865.69 862,743.96
Jul 1, 1999 2,696.34 860,047.62
Aug 2, 1999 2,340.26 857,707.36
Sep 1, 1999 2,729.16 854,978.20
Oct 1, 1999 2,746.94 852,231.26
Nov 1, 1999 2,579.72 849,651.54
Dec 1, 1999 2,781.65 846,869.89
Jan 4, 2000 2,063.95 844,805.94
Feb 1, 2000 3,180.25 841,625.69
Mar 1, 2000 3,016.78 838,608.91
Apr 3, 2000 2,307.12 836,301.79
May 1, 2000 3,231.98 833,069.81
Jun 1, 2000 2,708.75 830,361.06
Jul 3, 2000 2,546.62 827,814.44
Aug 1, 2000 3,103.78 824,710.66
Sep 1, 2000 2,765.04 821,945.62
Oct 2, 2000 2,783.66 819,161.96
Nov 1, 2000 2,980.34 816,181.62
Dec 1, 2000 2,999.77 813,181.85
Jan 2, 2001 2,666.03 810,515.82
Feb 1, 2001 3,036.69 807,479.13
Mar 1, 2001 3,407.28 804,071.85
Apr 2, 2001 2,729.36 801,342.49
May 1, 2001 3,270.54 798,071.95
Jun 1, 2001 2,944.42 795,127.53
Jul 2, 2001 2,964.25 792,163.28
Aug 1, 2001 3,156.29 789,006.99
Sep 4, 2001 2,491.30 786,515.69
Oct 1, 2001 3,705.64 782,810.05
Nov 1, 2001 3,047.19 779,762.86
Dec 3, 2001 2,898.33 776,864.53
Jan 2, 2002 3,255.98 773,608.55
Feb 1, 2002 3,277.20 770,331.35
Mar 1, 2002 3,633.22 766,698.13
Apr 1, 2002 3,155.69 763,542.44
May 1, 2002 3,342.80 760,199.64
Jun 3, 2002 2,869.19 757,330.45
Jul 1, 2002 3,712.30 753,618.15
Aug 1, 2002 3,243.77 750,374.38
7
<PAGE>
Payment Due Date Principal Payment Due Remaining Principal
- ---------------- --------------------- -------------------
Outstanding
-----------
(following scheduled
principal payment)
Sep 3, 2002 2,939.62 747,434.76
Oct 1, 2002 3,772.49 743,662.27
Nov 1, 2002 3,310.81 740,351.46
Dec 2, 2002 3,333.11 737,018.35
Jan 2, 2003 3,355.55 733,662.80
Feb 3, 2003 3,218.78 730,444.02
Mar 3, 2003 3,875.83 726,568.19
Apr 1, 2003 3,741.57 722,826.62
May 1, 2003 3,608.13 719,218.49
Jun 2, 2003 3,319.18 715,899.31
Jul 1, 2003 3,808.78 712,090.53
Aug 1, 2003 3,523.41 708,567.12
Sep 2, 2003 3,393.22 705,173.90
Oct 1, 2003 3,876.35 701,297.55
Nov 3, 2003 3,291.42 698,006.13
Dec 1, 2003 4,073.12 693,933.01
Jan 2, 2004 3,494.94 690,438.07
Feb 2, 2004 3,669.22 686,768.85
Mar 1, 2004 4,141.47 682,627.38
Apr 1, 2004 3,721.81 678,905.57
May 3, 2004 3,599.40 675,306.17
Jun 1, 2004 4,064.50 671,241.67
Jul 1, 2004 3,944.29 667,297.38
Aug 2, 2004 3,680.09 663,617.29
Sep 1, 2004 3,993.98 659,623.31
Oct 1, 2004 4,020.00 655,603.31
Nov 1, 2004 3,903.79 651,699.52
Dec 1, 2004 4,071.64 647,627.88
Jan 4, 2005 3,535.46 644,092.42
Feb 1, 2005 4,401.04 639,691.38
Mar 1, 2005 4,427.80 635,263.58
Apr 1, 2005 4,040.76 631,222.82
May 2, 2005 4,067.97 627,154.85
Jun 1, 2005 4,231.59 622,923.26
Jul 1, 2005 4,259.17 618,664.09
Aug 1, 2005 4,152.53 614,511.56
Sep 1, 2005 4,180.50 610,331.06
Oct 3, 2005 4,076.07 606,254.99
Nov 1, 2005 4,499.48 601,755.51
Dec 1, 2005 4,397.11 597,358.40
Jan 3, 2006 4,036.49 593,321.91
Feb 1, 2006 4,580.95 588,740.96
Mar 1, 2006 4,737.70 584,003.26
Apr 3, 2006 4,132.22 579,871.04
May 1, 2006 4,791.65 575,079.39
Jun 1, 2006 4,446.03 570,633.36
Jul 3, 2006 4,352.01 566,281.35
Aug 1, 2006 4,751.29 561,530.06
Sep 1, 2006 4,537.27 556,992.79
8
<PAGE>
Payment Due Date Principal Payment Due Remaining Principal
- ---------------- --------------------- -------------------
Outstanding
-----------
(following scheduled
principal payment)
Oct 2, 2006 4,567.82 552,424.97
Nov 1, 2006 4,718.58 547,706.39
Dec 1, 2006 4,749.33 542,957.06
Jan 2, 2007 4,544.40 538,412.66
Feb 1, 2007 4,809.89 533,602.77
Mar 1, 2007 5,073.06 528,529.71
Apr 2, 2007 4,644.68 523,885.03
May 1, 2007 5,018.37 518,866.66
Jun 1, 2007 4,824.56 514,042.10
Jul 2, 2007 4,857.05 509,185.05
Aug 1, 2007 5,000.36 504,184.69
Sep 4, 2007 4,594.87 499,589.82
Oct 1, 2007 5,388.46 494,201.36
Nov 1, 2007 4,990.65 489,210.71
Dec 3, 2007 4,917.99 484,292.72
Jan 2, 2008 5,162.58 479,130.14
Feb 1, 2008 5,196.22 473,933.92
Mar 3, 2008 5,127.13 468,806.79
Apr 1, 2008 5,365.33 463,441.46
May 1, 2008 5,298.46 458,143.00
Jun 2, 2008 5,133.95 453,009.05
Jul 1, 2008 5,464.84 447,544.21
Aug 1, 2008 5,304.84 442,239.37
Sep 2, 2008 5,244.50 436,994.87
Oct 1, 2008 5,565.73 431,429.14
Nov 3, 2008 431,429.14 0.00
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Chefs International, Inc. and Subsidiaries included in
the Company's Form 10-KSB for the year ended January 31,1999, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000201424
<NAME> Chefs International, Inc. and Subsidiaries
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> JAN-26-1998
<PERIOD-END> JAN-31-1999
<EXCHANGE-RATE> 1
<CASH> 871,950
<SECURITIES> 0
<RECEIVABLES> 71,278
<ALLOWANCES> 0
<INVENTORY> 995,647
<CURRENT-ASSETS> 2,699,702
<PP&E> 19,747,731
<DEPRECIATION> 7,322,169
<TOTAL-ASSETS> 17,400,735
<CURRENT-LIABILITIES> 2,046,544
<BONDS> 0
0
0
<COMMON> 44,884
<OTHER-SE> 13,380,433
<TOTAL-LIABILITY-AND-EQUITY> 17,400,735
<SALES> 18,693,692
<TOTAL-REVENUES> 18,863,085
<CGS> 6,141,920
<TOTAL-COSTS> 18,329,852
<OTHER-EXPENSES> 93,909
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128,132
<INCOME-PRETAX> 311,192
<INCOME-TAX> 20,600
<INCOME-CONTINUING> 290,592
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 290,592
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
