<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.
I. Title of each class of securities to which transaction applies:
I. Aggregate number of securities to which transaction applies:
I. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
I. Proposed maximum aggregate value of transaction:
I. 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.
I. Amount Previously Paid:
I. Form, Schedule or Registration Statement No.:
I. Filing Party:
I. 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 25, 1999
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 restaurant located at
10923 - 10925 Weyburn Avenue, Los Angeles, California, on May 25, 1999 at 10:00
a.m., Pacific 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 and until their respective successors
shall be elected and qualify;
(2) To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants for the fiscal year ending December 31, 1999; and
(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 16, 1999,
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
May 7, 1999
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: MAY 7, 1999
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 any adjournments thereof to
be held on May 25, 1999 at the Westwood Jerry's Famous Deli restaurant located
at 10923 - 10925 Weyburn Avenue, Los Angeles, California 90024, at 10:00 a.m.,
Pacific 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
PricewaterhouseCoopers LLP as the Company's independent public accountants for
fiscal year 1999, 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
PricewaterhouseCoopers LLP 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 facsimile 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 16, 1999 (the "Record Date") will be
entitled to notice of, and to vote at, the Annual Meeting. On such date, there
were 14,467,502 shares of Common Stock outstanding, each share being entitled to
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 PricewaterhouseCoopers LLP, 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 contained elsewhere herein, 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....................... 5,985,000(4) 41.51%
Guy Starkman..................................... 687,334(5) 4.77%
Jason Starkman................................... 558,740(6) 3.89%
Paul Gray........................................ 8,000(7) *
Stanley Schneider................................ 8,000(8) *
Kenneth J. Abdalla............................... 1,952,692(9) 13.72%
Ami Saffron...................................... 37,500(10) *
Ronald W. Burkle Foundation...................... 1,679,951(11) 11.86%
All Directors and executive officers as a group
(8 persons).................................... 9,281,266 61.89%
</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.
(4) Consists of 5,735,000 shares of Common Stock which are held of record in
The Starkman Family Trust, a revocable trust of which Isaac Starkman and
his wife, Carolyn Starkman, are the Trustees, and currently exercisable
stock options for 250,000 shares of Common Stock. Guy and Jason Starkman
are potential beneficiaries under this trust.
(5) Consists of 454,000 shares of Common Stock and currently exercisable stock
options for 233,334 shares of Common Stock.
2
<PAGE> 5
(6) Consists of 375,406 shares of Common Stock and currently exercisable stock
options for 183,334 shares of Common Stock.
(7) Consists of currently exercisable options for 8,000 shares of Common Stock.
(8) Consists of currently exercisable options for 8,000 shares of Common Stock.
(9) Consists of 200,000 shares of Common Stock held of record by Kenneth
Abdalla, 107,698 shares of Common Stock held by Yucaipa Waterton Deli
Investors, LLC ("Yucaipa"), 1,579,994 shares of Common Stock held by
Jerry's Investors, LLC ("JILLC"), and currently exercisable warrants for
65,000 shares of Common Stock held by Waterton Management LLC ("Waterton").
As a result of Waterton's status as the manager of Yucaipa and JILLC, and
Mr. Abdalla's status as the manager of Waterton, Mr. Abdalla may be deemed
to have shared dispositive and voting power with respect to the shares held
by Yucaipa, JILLC and Waterton. However, Mr. Abdalla disclaims beneficial
ownership of such shares.
(10) Consists of currently exercisable options for 37,500 shares.
(11) As reported on a Schedule 13D filed by the Ronald W. Burkle Foundation on
March 25, 1998. According to such Schedule 13D, the Ronald W. Burkle
Foundation has sole voting power and sole dispositive power with respect to
all of these shares. Mr. Abdalla, President and director of the Company, is
a Director of the Ronald W. Burkle Foundation.
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.
3
<PAGE> 6
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 and 61
Secretary of the Company
Guy Starkman...................... Director of Operations and Vice-President of the Company 28
Jason Starkman.................... Management Information Systems Director and Vice-President 25
of the Company
Paul Gray......................... President and Tax Partner of Brenner, Gray and Associates 43
Stanley Schneider................. Managing Partner of Gursey, Schneider & Co. LLP 63
Kenneth J. Abdalla................ President of the Company and managing member of Waterton 35
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 is the son of Isaac Starkman, and 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.
Mr. Jason Starkman is the son of Isaac Starkman, and 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.
Mr. Paul Gray became a director of the Company in January 1995. Mr. Gray
co-founded Brenner, Gray and Associates, an accountancy corporation in Woodland
Hills, California in 1988, where he is President and a Tax Partner. Prior to
1993, Brenner, Gray and Associates 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, Chicago Pizza & Brewery, Inc., a multi-unit restaurant
chain, The Autry Museum of Western Heritage and P.A.T.H., an organization
dedicated to helping
4
<PAGE> 7
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 and
President of the Company on March 27, 1997. As President of the Company, Mr.
Abdalla has provided and will continue to provide limited services to the
Company in connection with restaurant acquisitions through June 30, 1999, as
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. Mr. Abdalla 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 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 1998.
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 one meeting during 1998.
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 1998.
There were eight meetings of the Board of Directors of the Company during
1998. 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.
5
<PAGE> 8
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."
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Pursuant to provisions of the California General Corporation Law (the
"CGCL"), 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.
6
<PAGE> 9
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning compensation of the
Chief Executive Officer and each executive officer of the Company other than the
Chief Executive Officer whose salary and bonus compensation were at least
$100,000 in the fiscal year ended December 31, 1998 (sometimes collectively
referred to herein, with the Chief Executive Officer, as the "Named
Executives"), for the fiscal years ended December 31, 1998, 1997 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION(2) -------------
--------------------------- STOCK OPTIONS
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS (SHARES)
------------------------------ ---- -------- --------------- -------------
<S> <C> <C> <C> <C>
Isaac Starkman.............................. 1998 $335,000 -0- 125,000
Chief Executive Officer and Chairman 1997 $376,250 $ 98,427(3) 125,000
of the Board 1996 $390,000 $148,511(4) -0-
Guy Starkman................................ 1998 $112,500 $ 26,000(5) 25,000
Vice-President and Director of Operations 1997 $121,875 $ 24,752(6) 75,000
1996 $125,000 $ 47,600(7) -0-
Ami Saffron................................. 1998 $126,000 -0- -0-
Vice President-Development 1997 $118,512 -0- 22,500
1996 $109,800 -0- 7,500
</TABLE>
- ---------------
(1) No other executive officer received salary and bonuses in excess of $100,000
in 1998.
(2) The amounts shown above, except as otherwise indicated in the footnotes to
this table, 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, 1997, Mr. Isaac Starkman received $98,427 of
the $174,379 bonus to which he was entitled under his employment agreement,
and waived the balance of such bonus.
(4) 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.
(5) For the year ended December 31, 1998, Mr. Guy Starkman received
approximately $26,000 in perquisites and other personal benefits.
(6) For the year ended December 31, 1997, Mr. Guy Starkman received $24,752 of
the $49,096 bonus to which he was entitled under his employment agreement,
and waived the balance of such bonus.
(7) 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.
7
<PAGE> 10
Options
OPTION GRANTS DURING 1998. 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."
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------- ANNUAL RATES OF
(b) (c) (d) STOCK PRICE
NUMBER OF % OF TOTAL EXERCISE APPRECIATION
SECURITIES OPTIONS OR FOR OPTION TERM
UNDERLYING GRANTED TO BASE (e) --------------------
(a) OPTIONS GRANTED EMPLOYEES IN PRICE EXPIRATION (f) (g)
NAME (#) FISCAL YEAR $/SHARE DATE 5%($) 10%($)
---- --------------- ------------ -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Isaac Starkman....... 125,000 66 $2.56 January 2008 207,043 546,253
Guy Starkman......... 25,000 13 $2.56 January 2008 518,135 41,300
Ami Saffron.......... -0- -0- -0- -- -0- -0-
</TABLE>
OPTION EXERCISES IN 1998 AND CURRENT OPTION VALUES. No options were
exercised by the Named Executives during the last fiscal year. The following
table provides certain information concerning unexercised options held as of
December 31, 1998, by the Named Executives who held options at the end of 1998:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUES
<TABLE>
<CAPTION>
(d) (e)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
(b) (c) DECEMBER 31, 1998(#) DECEMBER 31, 1998($)(1)
(a) SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME UPON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Isaac Starkman........... -0- -0- 250,000 -- -0- -0-
Guy Starkman............. -0- -0- 233,334 16,666 -0- -0-
Ami Saffron.............. -0- -0- 37,500 12,500 -0- -0-
</TABLE>
- ---------------
(1) The value of the "in-the-money" options represents the difference between
the exercise price of such options and $1.22, the closing sale price of the
Common Stock on December 31, 1998.
8
<PAGE> 11
OPTION REPRICING DURING FISCAL 1997
On January 22, 1997, all stock options granted in August and October of
1996 were canceled and reissued at exercise prices of $4.50 per share for
certain officers and employees and $4.95 per share for certain executive
officers. The following table provides certain information with respect to
options repriced held by each of the Named Executives.
TEN-YEAR OPTION REPRICING
<TABLE>
<CAPTION>
MARKET PRICE EXERCISE PRICE LENGTH OF
DATE OF NUMBER OF STOCK AT TIME OF AT TIME OF NEW EXERCISE ORIGINAL OPTION
NAME AND POSITION REPRICING OPTIONS REPRICED REPRICING REPRICING(1) PRICE(2) TERM REMAINING(3)
----------------- --------- ---------------- ------------ -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Isaac Starkman....... -- -- -- -- -- --
Chairman of the
Board and Chief
Executive
Officer
Guy Starkman......... 1/22/97 50,000 $4.50 $9.90 $4.95 4.6 years
Vice President
Ami Saffron.......... 1/22/97 15,000 $4.50 $9.00 $4.50 9.6 years
Vice President-
Development
</TABLE>
- ---------------
(1) The original exercise price of each option was the market price of the
Common Stock of the Company on the date of the original grant.
(2) The new exercise price of each amended option is the market price of the
Common Stock of the Company on the effective date of repricing, except that
the exercise price for Guy Starkman is equal to 110% of the market price of
the Common Stock of the Company on the effective date of repricing.
(3) The amount of time remaining before the original stock option would have
expired. The term of the stock options issued in the repricing commenced on
January 22, 1997 and terminates five years from the date thereof for Guy
Starkman and terminates 10 years from the date thereof for Ami Saffron.
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 wholly-owned subsidiary of the Company,
effective September 1, 1995. Pursuant to such agreement, Mr. Starkman was
required to devote a substantial majority of his time to the Company as its
Chief Executive Officer. Under such agreement, Mr. Starkman's base salary was
$390,000 per year and he was 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 employment agreement for Isaac Starkman was
amended and extended effective as of July 1, 1997. The terms of the amended
agreement reduced the annual base salary, effective as of October 1, 1997, to
$335,000 per year and extended the term of the employment agreement until
December 31, 2000. Pursuant to the amended agreement, Mr. Starkman is entitled
to a bonus equal to 10% of the Company's net after-tax profits, calculated in
accordance with generally accepted accounting principles. The amended agreement
also provided for the issuance to Mr. Starkman of non-qualified options for
125,000 shares of Common Stock on each of June 30, 1997, January 2, 1998 and
January 2, 1999, at an exercise price equal to 110% of the fair market value of
the Common Stock on June 30, 1997, and at 101% of the fair market value of the
Common Stock on January 2, 1998 and January 2, 1999. 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 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
9
<PAGE> 12
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. 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. Pursuant to the employment agreements, Guy Starkman
earned a base salary of $125,000 per year, and Jason Starkman earned a base
salary of $90,000 per year. In addition, each of them was entitled to an annual
bonus in an amount equal to a percentage of his base salary, 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 was not to exceed
$250,000 per year during the term of the employment agreement. Effective July 1,
1997, the employment agreements of Guy and Jason Starkman were amended and
extended. The terms of the amended agreement reduced the annual base salary,
effective as of October 1, 1997, to $112,500 for Guy Starkman and to $81,000 for
Jason Starkman. The terms of their agreements were also extended until December
31, 2000. In addition, pursuant to this amended agreement, Guy Starkman is
entitled to a bonus equal to 2% of the Company's net after-tax profits,
calculated in accordance with generally accepted accounting principles. No
specified bonus formula is provided in the amended employment agreement of Jason
Starkman. The amended agreement for Guy Starkman also provided for the issuance
to Mr. Starkman of non-qualified options for 25,000 shares of Common Stock on
each of June 30, 1997, January 2, 1998 and January 2, 1999, at an exercise price
equal to 110% of the fair market value of the Common Stock on June 30, 1997, and
at 101% of the fair market value of the Common Stock on January 2, 1998 and
January 2, 1999. 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.
Each of the employment agreements for Messrs. Isaac Starkman, Guy Starkman,
and Jason Starkman provide for severance payments in the event of a corporate
change. A "corporate change" will be deemed to occur upon any of the following
events: (a) a transaction in which the Company ceases to be an independent
publicly owned corporation that is required to file quarterly and annual reports
under the Securities Exchange Act of 1934, (b) a sale or other disposition of
all or substantially all of the assets, or a majority of the outstanding capital
stock, of the Company (including but not limited to the assets or stock of the
Company's subsidiaries that results in all or substantially all of the assets or
stock of the Company on a consolidated basis being sold), (c) as a result of, or
in connection with, any cash tender offer, exchange offer, merger or other
business combination, sale of assets, or contested election for the Board, or
combination of the foregoing, persons who were directors of the Company just
prior to such event(s) shall cease to constitute a majority of the Board (d) any
person, including a group as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, becomes the beneficial owner of shares of the
Company with respect to which twenty percent (20%) or more of the total number
of votes for the election of the Board may be cast, (e) the Company's
stockholders cause a change in the majority of the members of the Board within a
twelve (12) month period, provided, however, that the election of one or more
new directors shall not be deemed to be a change in the membership of the Board
if the nomination of the newly elected directors was approved by the vote of
three-fourths of the directors then still in office who were directors at the
beginning of such twelve (12) month period, or (f) a tender offer or exchange
offer is made for shares of the Company's Common Stock (other than one made by
the Company) and shares of Common Stock are acquired thereunder.
Following a corporate change of the Company, if any of Messrs. Isaac
Starkman's, Guy Starkman's, or Jason Starkman's employment with the Company is
terminated by such executive or by the Company during the next 12 months, the
Company is obligated to pay such executive a lump sum payment equal to the sum
of (i) such executive's full annual base salary for the remaining term of the
amended employment agreement and (ii) an amount equal to the higher of the
annual bonus compensation earned by such executive for the last
10
<PAGE> 13
completed fiscal year or the annualized bonus compensation that would have been
earned by such executive based upon the annualized net earnings of the Company
from the beginning of the current year through the last completed month of the
current year. In addition, Mr. Isaac Starkman shall receive any stock options
which the Company has agreed to grant to Mr. Starkman, but which have not been
granted as of the date of termination of Mr. Starkman's employment, all of which
options shall be immediately exercisable at an exercise price equal to the fair
market value of the Common Stock on the date of grant.
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.
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.
11
<PAGE> 14
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
12
<PAGE> 15
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 18,000 shares of Common
Stock granted to 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
1,010,900 options to certain executive officers and employees of the Company, at
exercise prices ranging from $2.50 to $6.60 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 Isaac, Guy and Jason Starkman are exercisable at 110% of the fair market
value of the stock on the date of grant of such options for 1997 and 101% of the
fair market value of the stock for grants in 1998 and 1999, and options to all
other officers and employees are exercisable at 100% of such 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.
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 Interim 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
Interim 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 31, 1998. During 1998,
the agreement was extended to June 30, 1999. 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
13
<PAGE> 16
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 1998 was approximately $430,000. 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1998, 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.
See "Certain Relationships And Related Transactions" above for a discussion
of transactions involving the Company and certain directors and their
affiliates.
JOINT REPORT OF BOARD OF DIRECTORS AND STOCK OPTION
COMMITTEE ON EXECUTIVE COMPENSATION
The Board of Directors and Stock Option Committee of 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
14
<PAGE> 17
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 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 provided 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. Effective July 1, 1997,
the employment agreements for each of Isaac Starkman, Jason Starkman and Guy
Starkman were amended and extended. The terms of the amended agreement reduced
the base salaries, effective October 1, 1997, to an annual base salary of
$335,000 for Isaac Starkman, $112,500 for Guy Starkman, and $81,000 for Jason
Starkman. In addition, the formula for calculating the performance incentive
bonus for each was changed to be calculated as a percentage of net after-tax
profits, determined in accordance with generally accepted accounting principles.
Furthermore, effective July 1, 1997, the performance incentive bonus was limited
to only the two top executive officers of the Company. Based on the results of
operations in 1998, the Company paid no bonuses. For the year ended December 31,
1997, Mr. Isaac Starkman was entitled to receive a bonus of $174,379 under the
terms of his employment agreement, $98,427 of which was paid and $75,952 of
which was waived by him. Mr. Guy Starkman was entitled to a bonus of $49,096, of
which $24,752 was paid and $24,344 was waived by him. See "Executive
Compensation and Other Matters -- Executive Compensation -- Employment
Agreements."
15
<PAGE> 18
OPTION REPRICING
In January 1997, the Stock Option Committee determined that it was in the
best interests of the Company to reprice certain stock options granted in August
and October 1996 at exercise prices of $9.00 to $9.90 per share. The new
exercise price was set at $4.50 per share, the fair market value of the
Company's Common Stock on January 22, 1997, the grant date of the options, for
certain employees and officers of the Company, and $4.95 per share for certain
officers of the Company. See "Option Repricing During Fiscal 1997" above for
further information. It was the view of the Stock Option Committee that stock
options with exercise prices above the current market price of the Company's
Common Stock provided little, if any, equity incentive to the optionees. In
making this decision, the Stock Option Committee also considered the fairness of
such a determination in relation to other shareholders, and concluded that the
shareholders' long-term best interests were served by the motivation of
optionees provided by the option repricing.
Respectfully submitted,
Board of Directors:
Isaac Starkman
Guy Starkman
Jason Starkman
Paul Gray
Stanley Schneider
Kenneth Abdalla
Stock Option Committee:
Paul Gray
Stanley Schneider
16
<PAGE> 19
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, 1998. 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.
<TABLE>
<CAPTION>
10/24/95 12/95 12/96 12/97 12/98
-------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
JERRY'S FAMOUS DELI, INC. 100 138 77 39 20
NASDAQ STOCK MARKET (U.S.) 101 124 152 215
S&P RESTAURANTS 115 114 122 192
</TABLE>
* In calculating cumulative total shareholder return, reinvestment of dividends,
if any, was assumed.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
Action is to be taken by the shareholders at the Annual Meeting with
respect to the ratification of PricewaterhouseCoopers LLP
("PricewaterhouseCoopers") as independent accountants for the Company for the
fiscal year ending December 31, 1999. PricewaterhouseCoopers 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 PricewaterhouseCoopers.
17
<PAGE> 20
The Board of Directors of the Company and its Audit Committee have approved
PricewaterhouseCoopers 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 PricewaterhouseCoopers 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
PricewaterhouseCoopers, 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, 1999.
ANNUAL REPORT
The Company's Annual Report to Shareholders containing its financial
statements for the fiscal year ended December 31, 1998, 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.
18
<PAGE> 21
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
/s/
--------------------------------------
ISAAC STARKMAN
Chief Executive Officer and
Chairman of the Board
Studio City, California
May 7, 1999
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.
19
<PAGE> 22
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 25, 1999
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
25, 1999, 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 PRICEWATERHOUSECOOPERS LLP, 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> 23
(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: __________ __,
1999
________________________
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.
