<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement
Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. ______)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 240.14a-11(c) or Rule 240.14a-12
Jerry's Famous Deli, Inc.
_______________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction
applies:
_______________________________________________________________
2) Aggregate number of securities to which transaction applies:
_______________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:*
_______________________________________________________________
4) Proposed maximum aggregate value of transaction:
_______________________________________________________________
5) Total fee paid:
_______________________________________________________________
*Set forth the amount on which the filing fee is calculated
and state how it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_______________________________________________________________
2) Form, Schedule or Registration Statement No.:
_______________________________________________________________
3) Filing Party:
_______________________________________________________________
4) Date Filed:
_______________________________________________________________
<PAGE> 2
JERRY'S FAMOUS DELI, INC.
12711 Ventura Boulevard, Suite 400
Studio City, California 91604
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 1997
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of Jerry's Famous Deli, Inc. (the
"Annual Meeting") will be held at the Jerry's Famous Deli, Inc. restaurant
located at 10923-10925 Weyburn Avenue, Los Angeles, California 90024, on May
27, 1997 at 10:00 a.m. Pacific Standard Time, to consider and act upon the
following matters, all as more fully described in the accompanying Proxy
Statement which is incorporated herein by this reference:
(1) To elect six members to the Board of Directors to serve until
the next Annual Meeting of Shareholders or until their
respective successors shall be elected and qualify.
(2) To ratify the appointment of Coopers & Lybrand L.L.P. as
independent accountants for the fiscal year ending December
31, 1997.
(3) To transact such other business and to consider and take
action upon any and all matters that may properly come before
the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 18,
1997, as the record date for the determination of the shareholders entitled to
notice of and to vote at the Annual Meeting. For ten days prior to the Annual
Meeting, a complete list of shareholders entitled to vote at the Annual Meeting
will be available for examination by any shareholder for any purpose germane to
the Annual Meeting during ordinary business hours at the Company's executive
office, located at the address set forth above.
All shareholders are invited to attend the Annual Meeting in person.
By Order of the Board of Directors
Isaac Starkman
Chief Executive Officer
Studio City, California
April 27, 1997
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE MARK, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE SO
THAT YOUR STOCK MAY BE REPRESENTED AT THE ANNUAL MEETING.
<PAGE> 3
JERRY'S FAMOUS DELI, INC.
12711 Ventura Boulevard, Suite 400
Studio City, California 91604
(818) 766-8311
PROXY STATEMENT
Approximate date proxy material first
sent to shareholders: April 27, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited by and on behalf of the Board of
Directors of Jerry's Famous Deli, Inc. (the "Company") in connection with the
Annual Meeting of Shareholders (the "Annual Meeting") and adjournments thereof
to be held on May 27, 1997 at the Westwood Jerry's Famous Deli restaurant
located at 10923-10925 Weyburn Avenue, Los Angeles, California 90024, at 10:00
a.m., Pacific Standard Time.
Shareholders are requested to complete, date and sign the accompanying
proxy and return it promptly to the Company. Any proxy given may be revoked by
a shareholder at any time before it is voted at the Annual Meeting and all
adjournments thereof by filing with the Secretary of the Company a notice in
writing revoking it, or by duly executing and submitting a proxy bearing a
later date. Proxies may also be revoked by any shareholder present at the
Annual Meeting who expresses a desire to vote such shares in person. Subject
to such revocation, all proxies duly executed and received prior to, or at the
time of, the Annual Meeting will be voted FOR the election of all six of the
nominee-directors specified herein and FOR the ratification of the selection of
Coopers & Lybrand L.L.P. as the Company's independent public accountants for
fiscal year 1997, unless a contrary choice is specified in the proxy. Where a
specification is indicated as provided in the proxy, the shares represented by
the proxy will be voted and cast in accordance with the specification made. As
to other matters, if any, to be voted upon, the persons designated as proxies
will take such actions as they, in their discretion, may deem advisable. The
persons named as proxies were selected by the Board of Directors of the Company
and each of them is a director of the Company.
Under the Company's bylaws and California law, shares represented by
proxies that reflect abstentions or "broker non-votes" (i.e., shares held by a
broker or nominee which are represented at the Annual Meeting, but with respect
to which such broker or nominee is not empowered to vote on a particular
proposal) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. Any shares not voted
(whether by abstention, broker non-vote or otherwise) will have no impact on
the election of directors, except to the extent that the failure to vote for an
individual results in another individual receiving a larger proportion of
votes. Any shares represented at the Annual Meeting but not voted (whether by
abstention, broker non-vote or otherwise) with respect to the proposal to
ratify the selection of Coopers & Lybrand L.L.P. will have no effect on the
vote for such proposal except to the extent the number of abstentions causes
the number of shares voted in favor of the proposal not to equal or exceed a
majority of the quorum required for the Annual Meeting.
The Company will bear the cost of the solicitation of proxies,
including the charges and expenses of brokerage firms and others forwarding the
solicitation material to beneficial owners of stock. Directors, officers and
regular employees of the Company may solicit proxies personally, by telephone
or by telegraph but will not be separately compensated for such solicitation
services.
Your execution of the enclosed proxy will not affect your right as a
shareholder to attend the Annual Meeting and to vote in person. Any
shareholder giving a proxy has a right to revoke it at any time by either (i) a
later-dated proxy, (ii) a written revocation sent to and received by the
Secretary of the Company prior to the Annual Meeting, or (iii) attendance at
the Annual Meeting and voting in person.
-1-
<PAGE> 4
SHAREHOLDERS' VOTING RIGHTS
Only holders of record of the Company's Common Stock, no par value
("Common Stock"), at the close of business on April 18, 1997 (the "Record
Date") will be entitled to notice of, and to vote at, the Annual Meeting. On
such date, there were 14,210,155 shares of Common Stock outstanding, with one
vote per share.
With respect to election of directors, assuming a quorum is present,
the six candidates receiving the highest number of votes are elected. See
"Nomination and Election of Directors; Cumulative Voting." To ratify the
appointment of Coopers & Lybrand L.L.P., assuming a quorum is present, the
affirmative vote of shareholders holding a majority of the voting power
represented and voting at the meeting is required. A quorum is the presence in
person or by proxy of shares representing a majority of the voting power of the
Common Stock.
STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership
of the Common Stock as of the Record Date by (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, (ii) each director of the Company, (iii) the Chief Executive
Officer and each other executive officer of the Company named in the Summary
Compensation Table, and (iv) all executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)
-------------------------------------------------------
Name(s) and Address(2) Number of Shares Percentage of Class(3)
---------------------- ---------------- ---------------------
<S> <C> <C>
Isaac and Carolyn Starkman (4) . . 6,335,000 44.72%
Guy Starkman(5) . . . . . . . . . 200,000 1.40%
Jason Starkman(6) . . . . . . . . 200,000 1.40%
Paul Gray(7) . . . . . . . . . . . 2,500 *
Stanley Schneider(8) . . . . . . . 2,500 *
Kenneth J. Abdalla(9) 3,986,405 27.93%
All Directors and executive officers 10,741,456 74.62%
as a group (8 persons) . . . . .
</TABLE>
___________________________
* Less than 1%
(1) The persons named in the table, to the Company's knowledge, have sole
voting and sole investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in the
footnotes hereunder. Shares of Common Stock which a person has the
right to acquire within 60 days are deemed beneficially owned by that
person.
(2) The shareholders' address is at the Company's principal executive
offices at 12711 Ventura Boulevard, Suite 400, Studio City, California
91604.
(3) Shares of Common Stock which a person had the right to acquire within
60 days are deemed outstanding in calculating the percentage ownership
of the person, but not deemed outstanding as to any other person.
-2-
<PAGE> 5
(4) All shares are held of record in The Starkman Family Trust, a
revocable trust of which Isaac Starkman and his wife, Carolyn
Starkman, are the Trustees. Guy and Jason Starkman are potential
beneficiaries under this trust.
(5) Consists of 150,000 shares of Common Stock and currently exercisable
stock options for 50,000 shares of Common Stock.
(6) Consists of 150,000 shares of Common Stock and currently exercisable
stock options for 50,000 shares of Common Stock.
(7) Consists of currently exercisable options for 2,500 shares.
(8) Consists of currently exercisable options for 2,500 shares.
(9) Consists of 1,837,649 shares of Common Stock held by Yucaipa Waterton
Deli Investors, LLC, 1,883,756 shares of Common Stock held by Jerry's
Investors, LLC, currently exercisable warrants for 65,000 shares of
Common Stock held by Waterton Management LLC, and 200,000 shares of
Common Stock which the Company has committed to issue to Kenneth J.
Abdalla.
The Company knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
NOMINATION AND ELECTION OF DIRECTORS; CUMULATIVE VOTING
The Company's directors are to be elected at each annual meeting of
shareholders. At this Annual Meeting, six directors are to be elected to serve
until the next annual meeting of shareholders and until their successors are
elected and qualify. The nominees for election as directors at this Annual
Meeting set forth in the table below are all recommended by and all currently
serve as members of the Board of Directors of the Company.
In the event that any of the nominees for director should become
unable to serve if elected, it is intended that shares represented by proxies
which are executed and returned will be voted for such substitute nominee(s) as
may be recommended by the Company's existing Board of Directors.
The six nominee-directors receiving the highest number of votes cast
at the Annual Meeting will be elected as the Company's directors. Subject to
certain exceptions specified below, shareholders of record on the Record Date
are entitled to cumulate their votes in the election of the Company's directors
(i.e., they are entitled to the number of votes determined by multiplying the
number of shares held by them times the number of directors to be elected) and
may cast all of their votes so determined for one person, or spread their votes
among two or more persons as they see fit. No shareholder shall be entitled to
cumulate votes for a given candidate for director unless such candidate's name
has been placed in nomination prior to the vote and the shareholder has given
notice at the Annual Meeting, prior to the voting, of the shareholder's
intention to cumulate his or her votes. If any one shareholder has given such
notice, all shareholders may cumulate their votes for candidates in nomination.
Discretionary authority to cumulate votes is hereby solicited by the Board of
Directors.
The following table sets forth certain information concerning the
nominees for election as directors (all of such nominees being continuing
members of the Company's present Board of Directors):
<TABLE>
<CAPTION>
NOMINEE(1) PRINCIPAL OCCUPATION AGE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Isaac Starkman Chairman of the Board, Chief Executive Officer 59
and Secretary of the Company
Guy Starkman Director of Operations and Vice-President of the Company 26
Jason Starkman Management Information Systems Director
</TABLE>
-3-
<PAGE> 6
<TABLE>
<S> <C> <C>
and Vice-President of the Company 23
Paul Gray President and Tax Partner of Brenner, Leavitt
& Gray 41
Stanley Schneider Managing Partner of Gursey, Schneider & Co. 61
Kenneth J. Abdalla President of the Company and managing 33
member of Waterton Management, LLC
- -----------------------------------
</TABLE>
(1) The Executive Committee of the Board of Directors acts as the
Nominating Committee of the Board of Directors. The nominees for
election as directors at this Annual Meeting were selected by the
Executive Committee of the Board of Directors of the Company.
Mr. Isaac Starkman founded Jerry's Famous Deli in 1978 with his then
partner, Jerry Seidman, whose interest Mr. Starkman purchased in 1984. Mr.
Starkman has been Chief Executive Officer of the Company since February 1984.
He has been the Chairman of the Board of Directors of the Company since the
creation of the position in January 1995 and a director of the Company since
1978. Mr. Starkman maintains a direct involvement in the day-to-day operations
of the Company and is the primary architect of the Company's expansion program.
In 1971, Mr. Starkman founded Aquarius Concession Co., a national theater
concessionaire (whose headquarters are in New York) which he still partially
owns. Mr. Starkman began his career in the food services industry in 1965 as
a field manager for Ogden Foods. Mr. Starkman was born and raised in Israel
where he served as a Lieutenant in the Israeli Defense Force.
Mr. Guy Starkman has been involved with the general operations of the
Company since 1987. He became employed by the Company on a full-time basis in
1989, and has been a director of the Company since January 1995. He has been a
Director of Operations since 1989 and Vice- President of the Company since
January of 1995. Mr. Starkman is generally responsible for the overall
operations of the restaurants. Specifically, Mr. Starkman negotiates with
vendors, reviews purchases at each restaurant, oversees the delivery fleet and
participates in major personnel decisions. Mr. Starkman studied Business
Administration at the University of Southern California. Guy Starkman is the
son of Isaac Starkman.
Mr. Jason Starkman has been involved with the general operations of
the Company since 1989. He became employed by the Company on a full-time basis
as Management Information Systems Director in June 1992, in which position he
has been directly responsible for the automation of the Company's restaurant
information systems. He has been a director and Vice-President of the Company
since January 1995. Jason Starkman is the son of Isaac Starkman.
Mr. Paul Gray became a director of the Company in January 1995. Mr.
Gray co-founded Brenner, Leavitt & Gray, an accountancy corporation in Woodland
Hills, California in 1988, where he is President and a Tax Partner. Prior to
1993, Brenner, Leavitt & Gray served as the Company's independent public
accountants. Between 1980 and 1988, Mr. Gray was a staff accountant and a
partner at Maidy, Biller, Frith- Smith & Brenner in Santa Monica, California.
Between 1979 and 1980, Mr. Gray was a staff accountant at Grant Thornton in
Newport Beach, California. Mr. Gray obtained a Bachelors and a Masters of
Accounting at Brigham Young University in 1977 and 1978, respectively.
Mr. Stanley Schneider became a director of the Company in June 1995.
He is a founding member and the managing partner of Gursey, Schneider & Co.
LLP, an independent public accounting firm founded in 1964 specializing in
general accounting services, litigation support, audits, tax consulting and
compliance as well as business management and management advisory services.
Mr. Schneider serves as a director of Perceptronics, Inc., a Woodland Hills,
California based high-tech defense firm, American Recreation Centers Co., the
largest publicly-owned bowling center company in the United States, Golden West
Baseball Co., the former co-owner of the American League California Angels,
Golden West Broadcasters, Inc., a broadcast media holding company, The Autry
Museum of Western Heritage and P.A.T.H., an organization dedicated to helping
the homeless in Los Angeles. Mr. Schneider obtained a Bachelor of Science
degree in Accounting from the University of California at Los Angeles in 1958.
Mr. Kenneth Abdalla became a director of the Company in December 1996.
He is the founder and managing member of Waterton Management, LLC, a private
investment firm established in July 1995. Mr. Abdalla also currently serves as
a director of Xing Technology and GTI Telecom. Prior to July 1995, Mr. Abdalla
was a Vice President at Salomon
-4-
<PAGE> 7
Brothers, Inc., where he managed a team of professionals in the private
investment department. Mr. Abdalla obtained a Bachelor of Science degree from
the University of the Pacific in 1986.
The terms of all directors will expire at the next annual meeting of
shareholders or when their successors are elected and qualified. The Board of
Directors may fill interim vacancies of directors. Each officer is elected by
and serves at the discretion of, the Board of Directors, subject to the terms
of any employment agreement.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
AND CERTAIN COMMITTEES THEREOF
The business of the Company's Board of Directors is conducted through
full meetings of the Board, as well as through meetings of its committees. Set
forth below is a description of the committees of the Board.
The Audit Committee reviews and reports to the Board on various
auditing and accounting matters, including the annual audit report from the
Company's independent public accountants. The Audit Committee consists of Paul
Gray and Stanley Schneider. Mr. Gray is the Chairman of the Audit Committee.
The Audit Committee held two meetings during 1996.
The Stock Option Committee administers and determines appropriate
awards under the Company's 1995 Stock Option Plan. See "Executive Compensation
and Other Matters -- Stock Option Plan." The Stock Option Committee consists
of Paul Gray and Stanley Schneider. Mr. Schneider is the Chairman of the Stock
Option Committee. The Stock Option Committee held two meetings during 1996.
The Executive Committee has the authority to act on behalf of the full
Board of Directors in between meetings of the Board, except that the Executive
Committee does not have the authority to amend the Company's Articles of
Incorporation, as amended (the "Articles"), or the Bylaws of the Company, adopt
an agreement of merger or consolidation, recommend to the shareholders a
dissolution of the Company or a revocation of dissolution or remove or
indemnify a director. To the extent authorized by the Board of Directors, the
Executive Committee is also authorized to declare dividends of the Company and
to issue shares of authorized and unissued Common Stock or any series of
Preferred Stock of the Company. The Executive Committee also acts as the
Nominating Committee to nominate officers and directors of the Company for
election. The Executive Committee consists of Isaac Starkman, Guy Starkman and
Jason Starkman. Isaac Starkman is the Chairman of the Executive Committee.
The Executive Committee held no meetings during 1996.
There were six meetings of the Board of Directors of the Company
during 1996. Each of the directors of the Company attended 75% or more of the
aggregate of the total number of meetings of the Board of Directors held during
the period in which he was a director and the total number of meetings held by
all committees of the Board of Directors on which he served during such period.
COMPENSATION OF BOARD OF DIRECTORS
Fees.
Prior to June 1995, directors had not received any cash compensation
for serving on the Board of Directors. Beginning on such date, the Company
began paying fees to its non-officer and non-employee directors for serving on
the Board of Directors and for their attendance at Board and committee
meetings. The Company pays each non-officer and non-employee director an
annual fee of $1,000, plus $750 per board or committee meeting attended in
person, $400 per telephonic board meeting over 30 minutes, $200 per telephonic
board meeting under 30 minutes, $500 per committee meeting in person, $300 per
telephonic committee meeting over 30 minutes, and $100 per telephonic committee
meeting under 30 minutes.
Option Plan.
For options granted to certain of the Company's directors pursuant to
the Company's 1995 Stock Option Plan, see "Executive Compensation and Other
Matters -- Stock Option Plan -- Options to Non-Employee Directors" and " --
Grant of Options."
-5-
<PAGE> 8
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Pursuant to provisions of the California General Corporation Law (the
"DGCL"), the Articles include a provision which limits the personal liability
of a director to the Company and its shareholders for monetary damages to the
fullest extent permissible under California law. Liability is not eliminated
for (i) acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law, (ii) acts or omissions that such director believes
to be contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of the director, (iii) any
transaction from which such director derived an improper personal benefit or in
which such director has a material financial interest, (iv) acts or omissions
that show a reckless disregard for the director's duty to the Company or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing his or her duties, of a risk
of serious injury to the Company or its shareholders, (v) acts or omissions
constituting an unexcused pattern of inattention to the director's duty to the
Company or its shareholders, or (vi) unlawful distributions, loans or
guarantees pursuant to Section 316 of the CGCL. The provision does not
eliminate or limit the liability of an officer for any act or omission as an
officer, notwithstanding the fact that the officer is also a director or that
his or her actions, if negligent or improper, have been ratified by the Board
of Directors of the Company.
The Articles authorize the Company to indemnify its officers,
directors and other agents to the fullest extent permitted by California law.
The Articles also authorize the Company to indemnify its officers, directors
and agents for breach of duty to the Company and its shareholders through bylaw
provisions, agreements or both, in excess of the indemnification otherwise
provided under California law, subject to certain limitations. The Company has
entered into indemnification agreements with its non-employee directors whereby
the Company will indemnify each such person (an "indemnitee") against certain
claims arising out of certain past, present or future acts, omissions or
breaches of duty committed by an indemnitee while serving in his employment
capacity. Such indemnification does not apply to acts or omissions which are
knowingly fraudulent, deliberately dishonest or arise from willful misconduct.
Indemnification will only be provided to the extent that the indemnitee has not
already received payments in respect of a claim from the Company or from an
insurance company.
The Company maintains a directors' and officers' liability policy
insuring directors and officers of the Company.
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning compensation of
the Chief Executive Officer and the two most highly compensated executive
officers of the Company other than the Chief Executive Officer whose salary and
bonus compensation was at least $100,000 in the fiscal year ended December 31,
1996 (sometimes collectively referred to herein, with the Chief Executive
Officer, as the "Named Executives"), for the fiscal years ended December 31,
1996, 1995 and 1994:
-6-
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation(2) -------------
Name and ---------------------------------- Stock Options
Principal Position(1) Year Salary Bonus (Shares)
------------------ ---- ------ ----- --------
<S> <C> <C> <C> <C>
Isaac Starkman
Chief Executive Officer 1996 $390,000 $148,511(3) -0-
and Chairman of the 1995 $690,785 $ -0- -0-
Board . . . . . . . . . . . . . . . . . . . . 1994 $500,000(4) $ -0- -0-
Guy Starkman 1996 $125,000 $ 47,600(5) 50,000
Vice-President and 1995 $125,008 $ -0- 150,000
Director of Operations 1994 $ 82,150 $ -0- -0-
Ami Saffron 1996 $109,800 -0- 22,500
Vice President- 1995 $ 81,640 -0- 20,000
Development 1994 $ 78,000 -0- -0-
Jason Starkman 1996 $ 90,000 $ 34,272(6) 50,000
Vice-President and Director of Management 1995 $ 90,012 -0- 150,000
Information Systems 1994 $ 28,150 -0- -0-
</TABLE>
__________________________
(1) No other executive officer received salary and bonuses in excess of
$100,000 in 1996, 1995 or 1994.
(2) The amounts shown above do not include the value of perquisites and
other personal benefits, including gasoline costs, car telephone
costs, automobile insurance costs, health insurance for Mr. Isaac
Starkman's spouse, salary for a personal secretary and personal
accounting services which did not exceed the lesser of $50,000 or 10%
of the total annual salary and bonus of the named executives.
(3) For the year ended December 31, 1996, Mr. Isaac Starkman received
$148,511 of the $192,165 bonus to which he was entitled under his
employment agreement, and waived the balance of such bonus.
(4) Does not include cash and noncash dividends from the Company to Mr.
Starkman as the sole shareholder of an S corporation. See "Certain
Transactions."
(5) For the year ended December 31, 1996, Mr. Guy Starkman received
$47,600 of the $61,591 bonus to which he was entitled under his
employment agreement, and waived the balance of such bonus.
(6) For the year ended December 31, 1996, Mr. Jason Starkman received
$34,272 of the $44,346 bonus to which he was entitled under his
employment agreement, and waived the balance of such bonus.
Options
OPTION GRANTS DURING 1996. The following sets forth information
concerning the grant of stock options during the last fiscal year to the Named
Executives under the Company's Stock Option Plan. See " -- Stock Option Plan."
No options were granted in the last fiscal year to any of the other persons
named in the Summary Compensation Table. On
-7-
<PAGE> 10
January 22, 1997, all stock options granted in August and October of 1996 were
canceled and reissued at an exercise price of $4.50 per share.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term
-------------------------------- -----------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total Exercise
Securities Options or
Underlying Granted to Base
Options Granted Employees in Price
Name (#) Fiscal Year $/Share Expiration Date 5% ($) 10%($)
- ---------------- --------------- ------------ --------- --------------- ---------- ------------
Guy Starkman 50,000 19 $9.99 Aug 2001 $79,326.70 $229,729.50
Jason Starkman 50,000 19 $9.99 Aug 2001 $79,326.70 $229,729.50
Ami Saffron 22,500 8 15,000 / 9.00 15,000 Dec 2006 $ 84900.77 $215,155,23
7,500 / 4.69 7,500 Aug 2006 $22,121,37 $ 56,059.89
</TABLE>
OPTION EXERCISES IN 1996 AND CURRENT OPTION VALUES. No options
were exercised during the last fiscal year. The following table
provides certain information concerning unexercised options held as of
December 31, 1996, by the Named Executives who held options at the end
of 1996:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUES
<TABLE>
<CAPTION>
(d) (e)
Number of Securities Underlying Value of Unexercised
Unexercised In-the-Money
Options at Options at
December 31, 1996(#) December 31, 1996($)
(a) (b) (c) Exercisable Unexercisable Exercisable Unexercisable
Shares Value
Name Acquired Upon Realized($)
Exercise
<S> <C> <C> <C> <C> <C> <C>
Guy Starkman -0- -0- 50,000 150,000 -0- -0-
Jason Starkman -0- -0- 50,000 150,000 -0- -0-
Ami Saffron -0- -0- 6,667 35,833 -0- -0-
</TABLE>
Employment Agreements
The Company entered into an employment agreement with Isaac Starkman,
commencing June 1, 1995 and ending June 1, 1997. The Company assigned the
employment agreement to JFD, Inc., a newly formed subsidiary wholly-owned the
Company, effective September 1, 1995. See "Certain Relationships and Related
Transactions -- Employment of Managing Officers." Pursuant to such agreement,
Mr. Starkman is required to devote a substantial majority of his time to the
Company as its Chief Executive Officer. Mr. Starkman's base salary was
$800,000 per year from January 1, 1995 through October 27, 1995, when it was
reduced to $390,000 per year. He is also entitled to a bonus in an amount
equal to a percentage of his base salary, determined as the percentage of
growth of the Company's annual earnings before interest, taxes, depreciation
and amortization ("EBITDA") for the most recently ended fiscal year as compared
with the Company's annual EBITDA for the fiscal year immediately prior to the
most recently ended fiscal year. The agreement is terminable for: (i) fraud,
embezzlement or personal dishonesty against the Company; (ii) conviction of a
felony; (iii) willful misconduct or gross negligence in connection with his
service
-8-
<PAGE> 11
to the Company; (iv) mutual agreement between Mr. Starkman and the Company; or
(v) death or physical or mental disability which results in the inability of
Mr. Starkman to perform the required services for three consecutive months.
Mr. Starkman is authorized to continue his historic involvement with certain
concession and souvenir businesses in New York and other business ventures in
which he currently has an ownership interest. Mr. Starkman is also authorized
to participate in existing family businesses, to the extent such participation
does not interfere with the performance of his duties for the Company.
The Company entered into employment agreements with each of Guy and
Jason Starkman, commencing June 1, 1995 and ending June 1, 1998. The Company
assigned the employment agreements to JFD, Inc., a wholly-owned subsidiary of
the Company, effective September 1, 1995. See "Certain Transactions --
Employment of Managing Officers." Each of Guy and Jason Starkman is required
to devote his full time to the Company in the positions of Vice-President and
Director of Operations and Vice-President and Management Information Systems
Director, respectively. Guy Starkman earns a base salary of $125,000 per year,
and Jason Starkman earns a base salary of $90,000 per year. In addition, each
of them is entitled to an annual bonus in an amount equal to a percentage of
his base salary, which percentage shall be determined as the percentage of
growth of EBITDA for the most recently ended fiscal year over the fiscal year
ended immediately prior to the most recently ended fiscal year. The total
compensation payable to each of Guy or Jason Starkman may not exceed $250,000
per year during the term of the employment agreement. Events of termination
are the same as under the employment agreement with Isaac Starkman described
above. Guy and Jason Starkman are also authorized to participate in existing
family businesses, to the extent such participation does not interfere with the
performance of their duties for the Company.
STOCK OPTION PLAN
1995 STOCK OPTION PLAN. The 1995 Jerry's Famous Deli, Inc. Stock
Option Plan (the "1995 Plan"), adopted by the Company's shareholders on June
28, 1995, is designed to promote and advance the interests of the Company and
its shareholders by (1) enabling the Company to attract, retain, and reward
managerial and other key employees and non-employee directors, and (2)
strengthening the mutuality of interests between participants in the 1995 Plan
and the shareholders of the Company in its long term growth, profitability and
financial success by offering stock options. The 1995 Plan was amended in
October 1996 to reflect certain amendments adopted by the Securities and
Exchange Commission to its Rule 16(b) promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act").
SUMMARY OF THE 1995 PLAN. The 1995 Plan empowers the Company to award
or grant from time to time until December 31, 2004, to officers, directors and
key employees of the Company and its subsidiaries, Incentive and Non-Qualified
Stock Options (collectively, "Options") authorized by the Stock Option
Committee of the Board of Directors (the "Committee") which administers the
1995 Plan.
ADMINISTRATION. The 1995 Plan is administered by the Committee. The
1995 Plan provides that the Committee must consist of at least two directors of
the Company who are "non-employee directors" within the meaning of Rule 16b-3
under the Exchange Act. The Committee has the sole authority to construe and
interpret the 1995 Plan, to make rules and procedures relating to the
implementation of the 1995 Plan, to select participants, to establish the terms
and conditions of Options and to grant Options, with broad authority to
delegate its responsibilities to others, except with respect to the selection
for participation of, and the granting of Options to, persons subject to
Sections 16(a) and 16(b) of the Exchange Act. Non-employee directors are not
eligible to receive discretionary Options under the 1995 Plan.
ELIGIBILITY CONDITIONS. All officers, directors, key employees and
outside consultants of the Company and its subsidiaries and non- employee
directors are eligible to receive Options under the 1995 Plan. Non-employee
directors are only eligible to receive Non-Qualified Stock Options under the
1995 Plan. Except for Non-Qualified Stock Options granted to non-employee
directors, the selection of recipients of, and the nature and size of, Options
granted under the 1995 Plan will be wholly within the discretion of the
Committee. Subject to specific formula provisions relating to the grant of
options to non-employee directors and except with respect to the exercisability
of Incentive Stock Options and the total shares available for option grants
under the 1995 Plan, there is no limit on the number of shares of Common Stock
or type of option in respect of which Options may be granted to or exercised by
any person.
SHARES SUBJECT TO 1995 PLAN. The maximum number of shares of Common
Stock in respect of which Options may be granted under the Plan (the "Plan
Maximum") is 2,000,000. For the purpose of computing the total number of
shares of Common Stock available for Options under the 1995 Plan, the above
limitations shall be reduced by the number of shares of Common Stock subject to
issuance upon exercise or settlement of Options previously granted, determined
at the date of the grant of such Options. However, if any Options previously
granted are forfeited, terminated, settled in cash or exchanged for other
Options or expire unexercised, the shares of Common Stock previously subject to
such Options shall again be available for further grants under the 1995 Plan.
The shares of Common Stock which may be issued to participants in the 1995 Plan
upon exercise of an Option may be either authorized and unissued Common Stock
or issued Common Stock reacquired by the Company. No fractional shares may be
issued under the 1995 Plan.
-9-
<PAGE> 12
The maximum number of shares of Common Stock issuable upon the
exercise of Options granted under the 1995 Plan is subject to appropriate
equitable adjustment in the event of a reorganization, stock split, stock
dividend, combination of shares, merger, consolidation or other
recapitalization of the Company.
TRANSFERABILITY. No Option granted under the 1995 Plan, and no right
or interest therein, shall be assignable or transferable by a participant
except by will or the laws of descent and distribution.
TERM, AMENDMENT AND TERMINATION. The 1995 Plan will terminate on
December 31, 2004, except with respect to Options then outstanding. The Board
of Directors of the Company may amend or terminate the 1995 Plan at any time,
except that, to the extent restricted by Rule 16b-3 promulgated under the
Exchange Act, as amended and in effect from time to time (or any successor
rule), the Board of Directors may not, without approval of the shareholders of
the Company, make any amendment that would increase the total number of shares
covered by the 1995 Plan, change the class of persons eligible to receive
Options granted under the 1995 Plan, reduce the exercise price of Options
granted under the 1995 Plan or extend the latest date upon which Options may be
exercised.
INCENTIVE STOCK OPTIONS. Options designated as Incentive Stock
Options, within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), in respect of up to the Plan Maximum may be
granted under the 1995 Plan. The number of shares of Common Stock in respect
of which Incentive Stock Options are first exercisable by any participant in
the 1995 Plan during any calendar year shall not have a fair market value
(determined at the date of grant) in excess of $100,000 (or such other limit as
may be imposed by the Code). To the extent the fair market value of the shares
for which options are designated as Incentive Stock Options that are first
exercisable by any optionee during any calendar year exceed $100,000, the
excess amount shall be treated as Non-Qualified Stock Options. Incentive Stock
Options shall be exercisable for such period or periods, not in excess of ten
years after the date of grant, as shall be determined by the Committee.
NON-QUALIFIED STOCK OPTIONS. Non-Qualified Stock Options may be
granted for such number of shares of Common Stock and will be exercisable for
such period or periods as the Committee shall determine.
OPTIONS TO NON-EMPLOYEE DIRECTORS. The 1995 Plan also provides for
the grant of Options to non-employee directors of the Company who do not own
more than a 1% interest in the outstanding Common Stock of the Company, without
any action on the part of the Board or the Committee, only upon the terms and
conditions set forth in the 1995 Plan. Each non-employee director shall
automatically receive Non-Qualified Options to acquire 5,000 shares of Common
Stock upon appointment, and shall receive Options to acquire an additional
2,000 shares of Common Stock for each additional year that the non-employee
director continues to serve on the Board of Directors. Each Option shall
become exercisable as to 50% of the shares of Common Stock subject to the
Option on the first anniversary date of the grant and 50% on the second
anniversary date of the grant, and will expire on the earlier of ten years from
the date the Option was granted, upon expiration of the 1995 Plan or three
months after the optionee ceases to be a director of the Company. The exercise
price of such Options shall be equal to 100% of the fair market value of the
Common Stock subject to the Option on the date on which such Options are
granted. Each Option shall be subject to the other provisions of the 1995
Plan.
OPTION EXERCISE PRICES. The exercise price of any Option granted
under the 1995 Plan shall be at least 100% of the fair market value of the
Common Stock on the date of grant, except that the exercise price of any Option
granted to any participant in the 1995 Plan who owns in excess of 10% of the
outstanding voting stock of the Company shall be 110% of the fair market value
of the Common Stock on the date of grant. Fair market value per share of
Common Stock shall be determined as the closing price per share on the last
trading day if the Common Stock is listed on an established stock exchange, or
as the average of the closing bid and asked prices per share if the Common
Stock is quoted by the Nasdaq National Market, or as the amount determined in
good faith by the Committee if the Common Stock is neither listed for trading
on an exchange or quoted by the Nasdaq National Market.
EXERCISE OF OPTIONS. No Option may be exercised, except as provided
below, unless the holder thereof remains in the continuous employ or service of
the Company. Options shall be exercisable upon the payment in full of the
applicable option exercise price in cash or, if approved by the Committee, by
instruction to a broker directing the broker to sell the Common Stock for which
such Option is exercised and remit to the Company the aggregate exercise price
of the Option or, in the discretion of the Plan Administrator, upon such terms
as the Committee shall approve, in shares of the Common Stock then owned by the
optionee (at the fair market value thereof at exercise date).
GRANT OF OPTIONS. In addition to the Options for 5,000 shares of
Common Stock granted to each of the Company's two non-employee directors who do
not own more than 1% of the outstanding Common Stock, the Company has granted a
total of 491,500 options to certain executive officers of the Company, at
exercise prices ranging from $4.69 to $9.00 per share. Certain options for an
aggregate of 178,500 shares granted in August and October of 1996 at exercise
prices of $9.00 and $8.50 per share were replaced on January 22, 1997 with the
same number of options at an exercise price of $4.50 per share. Options
granted to Guy and Jason Starkman are exercisable at 110% of the fair market
value of the stock on the date of grant of such options, and options to all
other officers and employees are exercisable at 100% of such
-10-
<PAGE> 13
price. All Incentive Stock Options granted by the Company to date will be
exercisable in three equal annual installments, beginning one year from the
date of grant. See "-- Options -- Option Grants During 1996."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, its controlling beneficial shareholders, Isaac Starkman
and Kenneth J. Abdalla, and certain other officers and directors of the Company
have engaged in numerous transactions as described below.
AGREEMENTS WITH KENNETH J. ABDALLA AND AFFILIATES. On August 22, 1996,
the Company entered an agreement with Waterton Management, LLC ("Waterton"), of
which Kenneth J. Abdalla is managing director. Although Mr. Abdalla was not at
that time affiliated with the Company, he became a director of the Company in
December 1996, and was appointed President of the Company as of March 27, 1997.
Under its agreement with Waterton, the Company granted Waterton an option to
purchase a maximum of 19,000 Series A Preferred Shares of the Company at a
purchase price of $1,000 per share and warrants exercisable at $1.00 for a
maximum of 205,833 shares of Common Stock. On August 30, 1996, the Company
completed the sale of 6,000 Series A Preferred Shares and a warrant for 65,000
shares to Yucaipa Waterton Deli Investors, LLC ("Yucaipa"). On November 8,
1996, the Company completed the sale of an additional 6,000 Series A Preferred
Shares and a warrant for 65,000 shares to Jerry's Investors, LLC ("JILLC"). On
December 11, 1996, Yucaipa converted 2,000 shares of Series A Preferred Shares
into 516,812 shares of Common Stock. On January 14, 1997, Yucaipa and JILLC
converted all of the 10,000 outstanding Series A Preferred Shares into Series B
Preferred Shares, which were substantially identical to the Series A Preferred
Shares except for a right to vote the Series B Preferred Shares. On March 6,
1997, Yucaipa exercised its warrant to purchase 65,000 shares of Common Stock.
On March 27, 1997, Yucaipa and JILLC converted all of the 10,000 outstanding
Series B Preferred Shares into 3,139,593 shares of Common Stock.
Concurrently with the conversion of Series B Preferred Shares, the
Company entered into a consulting agreement with Mr. Abdalla to act as the
Company's President and to provide advice and consultation, with the
assistance of Waterton, with respect to sites to be leased or purchased or
other assets or entities to be acquired by the Company, through December 1,
1998. The Company agreed to pay Waterton a fee of $600,000 and to issue
200,000 shares of Common Stock to Mr. Abdalla for their services under the
agreement.
LEASES. The Company has entered into leases in Westwood (including a
restaurant site and eight adjacent parking spaces) and West Hollywood (two
parking lots) with The Starkman Family Partnership, an entity controlled by
Isaac Starkman, the controlling beneficial shareholder of the Company. There
is no assurance that these leases are as favorable to the Company as if they
had been negotiated at arm's length. The leases were not negotiated at arm's
length, and Mr. Starkman had a conflict of interest in negotiating these
transactions. The extensions on these leases are to be at agreed upon rates.
There is no assurance that any negotiated rates for extensions will be on the
same terms as would have been available from an unaffiliated landlord, although
all extensions will be submitted for approval by the independent directors of
the Company and reviewed by an independent national or regional real estate
evaluation firm or commercial leasing firm which must determine, in a written
opinion, that the terms of the leases are at least as favorable as the Company
could obtain from an unaffiliated third party. The Company had been paying a
base rent to The Starkman Family Partnership of $16,000 per month on one
portion of the Westwood site since July 1, 1993. From August 24, 1995, when
The Starkman Family Partnership acquired the adjacent building which was
combined with an existing site, until October 1, 1995, the Company paid a total
of $31,000 per month for the combined Westwood sites. From October 1 through
October 20, two-thirds of the rent payable at $50,000 per month was paid.
Effective October 20, 1995, The Starkman Family Partnership agreed to roll back
the rent to $35,000 per month. After the opening of the Westwood Restaurant in
June 1996, the terms of the lease provide for rental payments equal to the
higher of $35,000 or 8% of gross revenues of the restaurant. The total rent
paid by the Company for the Westwood properties in 1996 was $420,000. The
Starkman Family Partnership has granted the Company a two-year option to
purchase both Westwood properties at the then current fair market value and a
seven-year right of first refusal on all proposed sales of either or both
properties.
ENCINO RESTAURANT PARTNERSHIP. Jerry's Famous Deli in Encino is owned
by JFD-Encino, a California limited partnership (the "Partnership"). The
Company owns Jerry's Famous Deli, L.A., Inc. ("JFDLA"), a co-general partner of
the Partnership. JFDLA was wholly-owned by Isaac Starkman, who on January 12,
1995 contributed the shares of JFDLA to the Company for no additional
consideration. JFDLA owns 80% of the general partner interest in the
Partnership. The other co-general partner, owning 20% of the general partners'
interest in the Partnership, is Valley Deli, Inc., a California corporation,
the principal shareholder of which is Robert Schenkman. The general partners
receive an aggregate management fee equal to 3% of the gross revenues of the
Encino restaurant. The general partners are also allocated 25% of all net
profits, net losses, net gains and distributions of the Partnership until such
time as the limited partners have received cash distributions equal to 100% of
their contributed capital plus an amount equal to 10% per annum on their
adjusted capital (generally, capital less prior distributions) (the "Preferred
Return"). After the limited partners have received cash distributions equal to
100% of their initial contributed capital and cumulative Preferred Return, the
general partners will be allocated 65% of all net profits, net gains and
distributions. All
-11-
<PAGE> 14
management fees, net losses, net profits, net gains and distributions payable
by the Partnership to the co-general partners are allocated to the co-general
partners based upon their respective interests in the Partnership.
The limited partners initially invested an aggregate of $980,000 in
1989 and received $677,838 in distributions as of April 10, 1996 (which covers
Preferred Returns, but does not reduce the $980,000 in original contributed
capital). Isaac and Carolyn Starkman borrowed $250,000 from Mechanics National
Bank for additional improvement and refurbishment of the Encino restaurant, the
debt service on which was paid by the Partnership. Service on this debt has
limited cash available for distributions. The loan bore interest at 2% above
prime rate, is payable in equal installments over five years, and was repaid in
full as of December 31, 1995.
On March 13, 1996, JFDLA made a tender offer to purchase up to 100% of
the outstanding limited partnership units of the Partnership. If all of the
units had tendered, JFDLA would have paid a total purchase price of $1,568,000,
based upon management's estimated total value of $2,660,000 for the Encino
restaurant. The Company concurrently made an offer to purchase all of the
general partner's and management fee interest of the 20% general partner of the
Partnership for a purchase price of $399,900, which required approval by a
majority in interest of limited partners. The tender offer expired on April
13, 1996. Isaac Starkman, the principal shareholder of the Company, was the
only limited partner who tendered his limited partner interest to JFDLA. As a
result of its purchase of his interest, JFDLA now owns a 7.5% limited partner
interest in JFD-Encino.
ACQUISITION OF PIZZA BY THE POUND, INC. (JERRY'S FAMOUS PIZZA). On
January 12, 1995, the Company acquired all the shares of Pizza by the Pound,
Inc., which leased a 2,300 square foot pizza restaurant in Sherman Oaks,
California, operated as Jerry's Famous Pizza. Pizza by the Pound, Inc. was
owned by Isaac Starkman and Ami Saffron, an employee of the Company. On that
date, Pizza by the Pound, Inc. had a negative net worth of $517,400. Mr.
Starkman and Mr. Saffron contributed all of the stock of Pizza by the Pound,
Inc. to the Company for no additional compensation to Mr. Starkman and $100 to
Mr. Saffron. Jerry's Famous Pizza was not profitable (with an operating loss
of approximately $162,000 for the year ended December 31, 1994 and $247,300 for
the six months ended June 30, 1995) and Pizza by the Pound, Inc. had a negative
net worth of approximately $517,400 and $764,724 as of December 31, 1994 and
June 30, 1995, respectively and had an approximate $685,000 liability to Isaac
Starkman, the controlling beneficial shareholder of the Company, prior to its
acquisition by the Company. Included in the general and administrative
expenses is the forgiveness of a debt of $41,800 owed by Pizza by the Pound,
Inc. to Ami Saffron, a co-owner and employee of Pizza by the Pound, Inc. This
debt in the amount of $41,800 represented Mr. Saffron's 1989 salary plus
accrued interest and was forgiven, while the other co-owner, The Starkman
Family Trust, continued to invest capital into Jerry's Famous Pizza in order to
compensate for operating losses. The Company has since closed and discontinued
this operation, effective at the close of business on June 25, 1995. The terms
of the debt and its repayment to Isaac Starkman are described below. See "--
Distribution in Connection With Termination of Subchapter S Status of JFD and
Reorganization of Debt."
MARINA DEL REY PURCHASE. Management of the Company determined in
March 1996 that it would be beneficial for the Company to acquire the property
that is the site of its Marina del Rey restaurant, which the Company had been
leasing from the owner thereof (the "Marina Landlord"), because the Marina
Landlord offered to provide financing in connection with the purchase, which
management could not assure would be available when the lease term expired. On
March 27, 1996, the Company purchased the Marina del Rey property from the
Marina Landlord for a total purchase price of $3,963,510, paid $713,510 in cash
and $3,250,000 in the form of a collateralized promissory note payable to the
Marina Landlord. The note payable to the Marina Landlord provides for interest
only payments for five years at 9% per annum, and for principal and accrued
interest to be paid in full on March 27, 2001. In connection with the
purchase, the Company paid a $1,130,000 debt owed to its principal shareholder,
Isaac Starkman, who in turn paid a $1,200,000 debt owed to the Marina Landlord,
as required under the purchase agreement. See "-- Distribution in Connection
With Termination of Subchapter S Status of JFD and Reorganization of Debt."
DISTRIBUTION IN CONNECTION WITH TERMINATION OF SUBCHAPTER S STATUS OF
JFD AND REORGANIZATION OF DEBT. As part of the termination of the Company's S
corporation status, Isaac Starkman, the Company and Pizza by the Pound, Inc.
entered into a series of transactions pursuant to which a subchapter S
distribution was made to Mr. Starkman and certain obligations on the part of
Mr. Starkman to the Company and certain obligations on the part of Pizza by the
Pound, Inc. to Mr. Starkman were terminated. The following summarizes such
transactions.
A. Debt.
At December 31, 1994 the following related party debt
involving Isaac Starkman was outstanding:
1. Starkman Receivable. As of December 31, 1994, Isaac
Starkman owed $804,948 to JFD for advances he had taken in 1994 in excess of
salary amounts to which he was entitled (the "Starkman Receivable").
2. Debt to Starkman. Pizza by the Pound, Inc. owed
Isaac Starkman approximately $685,000 (the "Pizza Debt") for advances by Mr.
Starkman to Pizza by the Pound, Inc. made while Mr. Starkman was a 50%
shareholder of Pizza by the Pound, Inc. prior to its acquisition by JFD on
January 12, 1995, plus accrued interest on those advances at 10% per annum.
-12-
<PAGE> 15
3. Starkman Debt Related to Rent on Marina del Rey
Restaurant. Isaac Starkman had a personal note to the Marina Landlord for
$1,200,000, bearing 10% annual interest and due October 1, 1997 (the "MDR First
Note") and a second note for $350,000 bearing 9.5% annual interest and paid on
December 15, 1995 (the "MDR Second Note") (collectively with the MDR First
Note, the "MDR Landlord Debt").
B. Subchapter S Distribution.
For 1994 and prior years, JFD was taxed as an S corporation
resulting in, among other things, its shareholder, Isaac Starkman, and not the
Company, being subject to federal income taxation on any profits of the
Company. As of December 31, 1994, Isaac Starkman was the sole shareholder of
JFD and owed or paid federal income tax on an aggregate of approximately
$1,600,000 of accumulated earnings of the Company as to which Mr. Starkman did
not receive distributions. Mr. Starkman received a tax free distribution of
that portion of the undistributed earnings equal to the Starkman Receivable on
December 31, 1994 and the balance of the undistributed earnings were paid to
him between January 1st and January 10th, 1995 (collectively, the "Subchapter S
Distribution"). Mr. Starkman, however, received the Subchapter S Distribution
in the form of debt as described below. On January 10, 1995, JFD terminated
its election to be taxed as an S corporation. Isaac Starkman is responsible
for a portion of the Company's federal income tax liability for 1995 in
connection with the Company's earnings for the ten days of January 1995 prior
to the termination of the S corporation election. The amount of such tax
liability was determined by closing the financial books of the Company as of
January 31, 1995 and then allocating one-third of the tax liability for such
period to Mr. Starkman.
C. Debt Creation, Transfer and Exchange.
Prior to the termination of the S corporation status as
described above, the Company made the Subchapter S Distribution by canceling
the Starkman Receivable and by giving Mr. Starkman a note in the principal
amount of $795,052 (the "Starkman Note"), which principal amount equaled the
difference between the Starkman Receivable and the Subchapter S Distribution.
The Company then paid the Pizza Debt to Mr. Starkman by increasing the
principal amount of the Starkman Note by approximately $685,000, which is the
amount of the Pizza Debt, to a total of approximately $1,480,000. The terms of
the Starkman Note were the same as the terms of the MDR Landlord Debt, using
the terms of the MDR First Note for the first $1,200,000 and the terms of the
MDR Second Note for the $280,000 balance. Effective March 31, 1995, the
Starkman Note was modified to provide that $1,130,000 of the debt would be paid
in accordance with the terms of the MDR First Note and the remaining $350,000
balance would be paid in accordance with the terms of the MDR Second Note. The
$350,000 note was repaid on December 15, 1995, in accordance with its terms.
The remaining $1,130,000 owed by the Company was paid in full in accordance
with the terms of the purchase agreement for the Marina del Rey property. See
"-- Marina del Rey Purchase."
The net result of the transactions was that (i) Isaac Starkman
owed nothing to the Company, (ii) the Company and Pizza by the Pound, Inc. owed
no debts to Mr. Starkman, other than the Starkman Note of $1,480,000 and (iii)
the Subchapter S Distribution was effected.
In addition, beginning in 1995, the Company became a C
corporation, liable for federal income taxes (as opposed to having all federal
income taxes paid by the shareholder) and California state income taxes at a
significantly higher rate than when it was an S corporation. Taxation as a C
corporation will generally decrease net income of the Company going forward as
a result of the income tax expense as compared to an S corporation.
PRIVATE PLACEMENT. On March 15, 1995, the Company and The Starkman
Family Trust completed a private placement of 1,056,250 shares of Common Stock
to certain non-affiliated shareholders of the Company, all of whom were
accredited investors at the time of such transaction, at a price of $4.00 per
share of Common Stock. The Company placed 931,250 of the above 1,056,250
shares of Common Stock and The Starkman Family Trust placed 125,000 shares of
the above 1,056,250 shares of Common Stock. The purchasers of shares of Common
Stock in the private placement were granted registration rights enabling them
to demand registration of such shares upon certain events, including a public
offering of additional shares. Concurrently with the registration of shares in
the Company's initial public offering, the Company registered the shares sold
in the private placement, satisfying the registration rights applicable
thereto.
PUBLIC OFFERING. In connection with the Company's initial public
offering, Isaac Starkman registered and sold 460,000 shares of Common Stock at
a price of $6.00 per share.
LEGAL SERVICES AGREEMENT. The Company has an arrangement for legal
services with an attorney in Los Angeles for which, pursuant to a November 15,
1994 agreement, as amended on January 2, 1995, he was to be paid $100,000 in
cash to assist the Company regarding various legal matters (including
restructuring and positioning the Company for additional financing). In
connection with such arrangement, on January 9, 1995, the Company issued 40,000
shares of Common Stock in lieu of the above-referenced consideration for legal
services. The attorney granted an option to Isaac Starkman to purchase his
40,000 shares of Common Stock on June 30, 1996 for $500 if by that time certain
conditions have not been met. The close of the Company's initial public
offering satisfied those conditions, terminating the option to Mr. Starkman.
-13-
<PAGE> 16
EMPLOYMENT OF MANAGING OFFICERS. The Company's headquarters staff
currently numbers seventeen employees, all of which were employed by Isaac's,
Inc., a corporation wholly-owned by Isaac Starkman, until September 1, 1995,
when they were transferred to JFD, Inc., a wholly-owned subsidiary of the
Company formed in June 1995. All employment-related expenses of JFD, Inc. with
respect to the headquarters staff are passed through, without mark-up or
discount, to the Company. All employment-related expenses of Isaac's Inc.
related to the Company were passed through, without mark-up or discount, by the
Company. The total amount paid by the Company to Isaac's, Inc. for the fiscal
years ended December 31, 1995 and 1994 were $747,155 and $718,170. Isaac's,
Inc. has no other operating function, except for providing certain services of
Isaac Starkman to a New York corporation unrelated to the Company's business.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1996, the Board of Directors
of the Company determined compensation for the executive officers of the
Company. Messrs. Isaac Starkman, Guy Starkman and Jason Starkman were
executive officers and were on the Board of Directors in 1995 when the
Employment Agreements between the Company and each of them were approved. The
Board of Directors serves the function of a Compensation Committee for the
Company.
REPORT OF BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Board of Directors makes this report on executive compensation
pursuant to Item 402 of Regulation S-K. Notwithstanding anything to the
contrary set forth in any of the Company's previous filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, that might incorporate future filings, including this Proxy Statement,
in whole or in part, this report and the performance graph which follows this
report shall not be incorporated by reference into any such filings, and such
information shall be entitled to the benefits provided in Item 402(a)(9).
The Board of Directors of the Company serves the function of a
Compensation Committee. The Board will review the performance of the executive
officers of the Company, and review the compensation programs for other key
employees, including salary and cash bonus levels. The Stock Option Committee
of the Board of Directors, consisting of Paul Gray and Stanley Schneider,
reviews, authorizes and awards stock option grants pursuant to the 1995 Plan.
COMPENSATION POLICIES AND PHILOSOPHY
The Company's executive compensation policies are designed to attract,
retain and reward executive officers who contribute to the Company's success,
to provide economic incentives for executive officers to achieve the Company's
business objectives by linking the executive officers' compensation to the
performance of the Company, to strengthen the relationship between executive
pay and shareholder value and to reward individual performance. The Company
uses a combination of base salary, cash bonuses and stock options to achieve
these objectives.
The Board of Directors considers a number of factors which will
include the level and types of compensation paid to executive officers in
similar positions by comparable companies. In addition, the Board evaluates
corporate performance by looking at factors such as performance relative to
competitors, performance relative to business conditions and the success of the
Company in meeting its financial objectives. The Board also reviews the
performance of each executive officer, including a review of his or her ability
to meet individual performance objectives, demonstration of job knowledge and
skills and the ability to work with others toward the achievement of the
Company's goals.
COMPONENTS OF COMPENSATION
Executive officer salaries are established in relation to a range of
salaries for comparable positions in companies of comparable size and
complexity. The Company seeks to pay salaries to executive officers that are
commensurate with the qualifications, duties and responsibilities and that are
competitive in the marketplace. In making its annual salary recommendations,
the Board reviews the Company's financial position and performance, the
contribution of the individual executive officers during the prior fiscal year
in helping to meet the Company's financial and business objectives as well as
the executive officers' performance of their individual responsibilities.
Executive officer cash bonuses are used to provide executive officers
with financial incentives to meet annual performance targets of the Company.
Performance targets and bonus recommendations for executives other than the
Chief Executive Officer will be proposed by the Chief Executive Officer,
reviewed and, when appropriate, will be revised and approved by the Board.
The Board believes that equity ownership by executive officers
provides incentive to build shareholder value and align the interests of
executive officers with the interests of shareholders. Upon hiring executive
officers, the Stock Option Committee of the Board will typically recommend
stock option grants to the officers under the 1995 Plan, subject to applicable
vesting periods. Thereafter, the Stock Option Committee will consider awarding
additional grants, usually on an annual basis, under the 1995 Plan. The Stock
Option Committee believes
-14-
<PAGE> 17
that these additional annual grants will provide incentives for executive
officers to remain with the Company. Options will be granted at the current
market price of the Company's Common Stock and, consequently, will have value
only if the price of the Company's Common Stock increases over the exercise
price. The size of the initial grant will usually be determined based upon
prior grants to executive officers. In determining the size of the periodic
grants the Stock Option Committee will consider prior option grants to the
executive officer, the executive's performance during the current fiscal year
and his or her expected contributions during the succeeding fiscal year.
COMPENSATION OF THE PRINCIPAL EXECUTIVE OFFICERS
The Board of Directors reviews the performance of the chief executive
officer of the Company, as well as other executive officers of the Company,
annually. In 1995, the Company entered into employment agreements with Isaac
Starkman, the Chief Executive Officer of the Company, which provides an annual
base salary of $390,000 with an annual bonus based on the performance of the
Company, and with each of Guy and Jason Starkman, Vice-Presidents of the
Company who also serve respectively as Director of Operations and Management
Information Systems Director, which provide for an annual base salary of
$125,000 and $90,000 respectively, with an annual bonus based on the
performance of the Company; provided that the total salary payable to either
Guy or Jason Starkman in any year shall not exceed $250,000. For the year
ended December 31, 1996, Mr. Isaac Starkman was entitled to receive a bonus of
$192,165 under the terms of his employment agreement, $148,511 of which was
paid and $43,654 of which was waived by him. Mr. Guy Starkman was entitled to
a bonus of $61,591, of which $34,272 was paid and $13,991 was waived by him.
Mr. Jason Starkman was entitled to a bonus of $44,346, of which $47,600 was
paid and $10,074 was waived. See "Executive Compensation and Other Matters --
Executive Compensation -- Employment Agreements."
Respectfully submitted,
Board of Directors:
Isaac Starkman
Guy Starkman
Jason Starkman
Paul Gray
Stanley Schneider
Kenneth Abdalla
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The graph below compares the cumulative total shareholder return on
the Company's Common Stock with the cumulative total return on the Nasdaq Stock
Market US Index and the S&P Restaurants Index for the period commencing on
October 25, 1995 (the date trading of the Company's Common Stock commenced on
the Nasdaq National Market) and ending on December 31, 1996. The data set
forth below assumes the value of an investment in the Company's Common Stock
and each Index was $100 on October 25, 1995.
COMPARISON OF TOTAL RETURN*
SINCE THE INITIAL PUBLIC OFFERING OF JERRY'S FAMOUS DELI, INC.
Company Stock Index Industry Group Index
------- ----------- --------------------
1989 N/A
1990 N/A
1991 N/A
10/24/1995 100 100 100
1995 138 101 115
1996 77 124 114
*In calculating cumulative total shareholder return, reinvestment of dividends,
if any, was assumed.
-15-
<PAGE> 18
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
Action is to be taken by the shareholders at the Annual Meeting with
respect to the ratification of Coopers & Lybrand L.L.P. ("Coopers") as
independent accountants for the Company for the fiscal year ending December 31,
1997. Coopers does not have and has not had at any time any direct or indirect
financial interest in the Company or any of its subsidiaries and does not have
and has not had at any time any connection with the Company or any of its
subsidiaries in the capacity of promoter, underwriter, voting trustee,
director, officer, or employee. Neither the Company nor any officer or
director of the Company has or has had any interest in Coopers.
The Board of Directors of the Company and its Audit Committee have
approved Coopers as its independent accountants. Prior thereto, they have
questioned partners of that firm about its methods of operation and have
received assurances that any litigation or other matters involving it do not
affect its ability to perform as the Company's independent accountants.
Representatives of Coopers will be present at the Annual Meeting, will
have an opportunity to make statements if they so desire, and will be available
to respond to appropriate questions.
Notwithstanding the ratification by shareholders of the appointment of
Coopers, the Board of Directors or the Audit Committee may, if the
circumstances dictate, appoint other independent accountants.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and persons who own
more than 10% of a registered class of the Company's equity securities to file
various reports with the Securities and Exchange Commission concerning their
holdings of, and transactions in, securities of the Company. Copies of these
filings must be furnished to the Company.
Based on a review of the copies of such forms furnished to the Company
and written representations from the Company's executive officers and
directors, the Company believes all filings were made on a timely basis.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
In order for a shareholder proposal to be included in the Board of
Directors' Proxy Statement for the next annual meeting of shareholders, such
proposal must be received at 12711 Ventura Boulevard, Suite 400, Studio City,
California 91604, Attention: Corporate Secretary, no later than the close of
business on December 27, 1997.
ANNUAL REPORT
The Company's Annual Report to Shareholders containing its financial
statements for the fiscal year ended December 31, 1996, has been mailed
concurrently herewith. The Annual Report to Shareholders is not incorporated
in this Proxy Statement and is not deemed to be a part of the proxy
solicitation material. Any shareholder who does not receive a copy of such
Annual Report to Shareholders may obtain one by writing to the Company.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does
not know of any other matter which will be brought before the Annual Meeting.
However, if any other matter properly comes before the Annual Meeting, or any
adjournment thereof, the person or persons voting the proxies will vote on such
matters in accordance with their best judgment and discretion.
-16-
<PAGE> 19
REPORT FILED WITH SECURITIES AND EXCHANGE COMMISSION
ANY BENEFICIAL OWNER OF SECURITIES OF THE COMPANY WHOSE PROXY IS
HEREBY SOLICITED MAY REQUEST AND RECEIVE WITHOUT CHARGE A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS THERETO, BUT
EXCLUDING EXHIBITS AND SCHEDULES, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. SUCH REQUEST SHOULD BE ADDRESSED TO: JERRY'S FAMOUS DELI, INC.,
12711 VENTURA BOULEVARD, SUITE 400, STUDIO CITY, CALIFORNIA 91604, ATTENTION:
CORPORATE SECRETARY.
By Order of the Board of Directors
ISAAC STARKMAN
Chief Executive Officer and
Chairman of the Board
Studio City, California
April 27, 1997
SHAREHOLDERS ARE URGED TO SPECIFY THEIR CHOICES AND TO DATE, SIGN, AND RETURN
THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND
YOUR COOPERATION WILL BE APPRECIATED.
-17-
<PAGE> 20
JERRY'S FAMOUS DELI, INC.
12711 Ventura Boulevard, Suite 400
Studio City, California 91604
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS ON MAY 27, 1997
THE UNDERSIGNED HEREBY APPOINTS ISAAC STARKMAN AND GUY STARKMAN AS PROXIES,
EACH WITH THE POWER TO APPOINT HIS SUBSTITUTE, AND HEREBY AUTHORIZES THEM OR
EITHER OF THEM TO REPRESENT AT THE ANNUAL MEETING OF SHAREHOLDERS OF JERRY'S
FAMOUS DELI, INC. TO BE HELD AT 10:00 A.M. PACIFIC DAYLIGHT SAVINGS TIME, ON
MAY 27, 1997, AT JERRY'S FAMOUS DELI, 10923-10925 WEYBURN AVENUE, WESTWOOD,
CALIFORNIA, 90024 AND AT ANY ADJOURNMENT THEREOF AND TO VOTE ALL SHARES OF
COMMON STOCK WHICH THE UNDERSIGNED MAY BE ENTITLED TO VOTE AT SUCH MEETING AS
FOLLOWS:
(1) ______ FOR ALL NOMINEES LISTED BELOW (EXCEPT AS MARKED TO CONTRARY
BELOW)
______ WITHHOLDING AUTHORITY TO VOTE FOR ALL NOMINEES LISTED BELOW
ISAAC STARKMAN, GUY STARKMAN, JASON STARKMAN, PAUL
GRAY, STANLEY SCHNEIDER, AND KENNETH ABDALLA.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE,
STRIKE THE NOMINEE'S NAME LISTED ABOVE.)
(2) TO RATIFY THE APPOINTMENT OF COOPERS & LYBRAND L.L.P., AS
INDEPENDENT ACCOUNTANTS.
______FOR ______AGAINST ______ABSTAIN
(3) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE ANNUAL
MEETING OR ANY ADJOURNMENT THEREOF.
(Continued and to be Signed on the Other Side)
<PAGE> 21
(Continued from Reverse Side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO SPECIFICATION IS MADE, IT WILL BE VOTED FOR PROPOSALS 1 AND 2.
DATED: ____________ ___, 1997
___________________________________________
___________________________________________
SIGNATURE OF SHAREHOLDER
___________________________________________
SIGNATURE(S) IF HELD JOINTLY
THIS PROXY SHOULD BE SIGNED EXACTLY AS YOUR NAME APPEARS HEREON. JOINT OWNERS
SHOULD BOTH SIGN. IF SIGNED BY EXECUTORS, ADMINISTRATORS, TRUSTEES AND OTHER
PERSONS SIGNING IN REPRESENTATIVE CAPACITY, THEY SHOULD GIVE FULL TITLES.
PLEASE READ, COMPLETE, DATE, AND SIGN THIS PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE.
