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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e) (2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to SS. 240.14a-12
CHEFS INTERNATIONAL, INC.
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(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
File No. 0-8513
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Exchange Act File No.
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value
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2) Aggregate number of securities to which transaction applies:
1,320,638 shares
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$3.12 per share*
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4) Proposed maximum aggregate value of transaction:
$4,120,040
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5) Total fee paid:
$484.93*
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[ ] Fee paid previously with preliminary material.
[X] 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:
$484.93
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2) Form, Schedule or Registration Statement No.:
Schedule 13E-3
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3) Filing Party:
CHEFS INTERNATIONAL, INC. et. al.
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4) Date Filed:
December 23, 2004
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* The fee was determined by multiplying the Transaction Valuation (the number of
shares of the Issuer's Common Stock held by existing stockholders whose shares
will be canceled in the merger transaction multiplied by the $3.12 per share
cash payment to be made in cancellation of each such share) by the applicable
filing fee calculation rate of $117.70 per $1,000,000 Transaction Valuation.
PRELIMINARY COPY
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CHEFS INTERNATIONAL, INC.
62 BROADWAY
POINT PLEASANT BEACH, NJ 08742
(732-295-0350)
January , 2005
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of the Stockholders
of Chefs International, Inc. (the "Company") which will be held on
_______________ February _ _, 2005 at 10:00 a.m. local time at the Company's
Jack Baker's Wharfside Restaurant at 101 Channel Drive, Point Pleasant Beach,
New Jersey 08742. At the Special Meeting, you will be asked to consider and vote
on a proposal to approve and adopt an Agreement and Plan of Merger dated
December 22, 2004 (the "Merger Agreement") providing for the merger of Lombardi
Restaurant Group, Inc. and the Company with the Company being the surviving
entity.
The proposed Transaction is designed to convert the Company from a public
corporation to a privately owned entity. If the Merger Agreement is approved and
adopted and the Merger is effected, you will no longer own any stock or have any
interest in the Company but you will be entitled to receive a cash payment of
$3.12 for each share of the Company's Common Stock that you own. Your shares
will also be subject to appraisal rights as described in the enclosed Proxy
Statement if you do not wish to accept the $3.12 per share cash purchase price.
We cannot complete the Merger unless all of the conditions to the closing
are satisfied, including the approval of the Merger Agreement and the proposed
Merger by holders of a majority of our outstanding Common Stock. We cannot
assure you that all of the closing conditions will be satisfied or, if
satisfied, when they will be satisfied.
Based on our reasons for the Merger described in the enclosed Proxy
Statement, our Board of Directors has determined that the Merger Agreement is
fair to you. ACCORDINGLY, OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
The enclosed Proxy Statement provides you with detailed information about
the Special Meeting, the proposed Merger, the Merger Agreement and related
matters. WE URGE YOU TO READ THIS ENTIRE DOCUMENT CAREFULLY, INCLUDING THE
ATTACHED MERGER AGREEMENT.
Your vote is extremely important. Approval of the Merger Agreement and
the proposed Merger requires the affirmative vote of the holders of a majority
of our outstanding Common Stock, so it is important that you vote your shares.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
TAKE THE TIME TO VOTE BY SIGNING AND DATING THE ENCLOSED PROXY CARD AND MAILING
IT IN THE ACCOMPANYING REPLY ENVELOPE AS PROMPTLY AS POSSIBLE.
Please do not send your stock certificates at this time. If the Merger is
completed, you will be sent instructions regarding the surrender of your stock
certificates.
Very truly yours,
Robert M. Lombardi
Chairman and President
PRELIMINARY COPY
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CHEFS INTERNATIONAL, INC.
62 BROADWAY
POINT PLEASANT BEACH, NJ 08742
(732-295-0350)
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Notice of Special Meeting of Stockholders
To Be Held on February _ _, 2005
To the Stockholders of Chefs International, Inc.:
Notice is hereby given that a Special Meeting of Stockholders of Chefs
International, Inc., a Delaware corporation (the "Company") will be held on
_____, February _ _, 2005 at 10:00 a.m. local time at the Company's Jack Baker's
Wharfside Restaurant at 101 Channel Drive, Point Pleasant Beach, New Jersey
08742, for the following purposes:
1. To vote on a proposal to approve and adopt an Agreement and
Plan of Merger dated December 22, 2004 (the "Merger
Agreement") between the Company and the Lombardi Restaurant
Group, Inc; and
2. To transact such other business as may properly come before
the Special Meeting or any adjournment or postponement of
the Special Meeting.
We have fixed the close of business on Friday, January 14, 2005 as the
record date for the Special Meeting (the "Record Date"). Only holders of the
Company's Common Stock of record at the close of business on that date will be
entitled to notice of and to vote at the Special Meeting or any adjournment or
postponement of the Special Meeting. At the close of business on the Record
Date, we had 3,926,105 shares of Common Stock issued and outstanding and
entitled to vote. In accordance with the General Corporation Law of the State of
Delaware, a list of stockholders entitled to vote at the Special Meeting will be
available for inspection at our principal executive offices at 62 Broadway,
Point Pleasant Beach, New Jersey 08742 commencing ten days prior to the Special
Meeting.
A copy of the Merger Agreement is attached to the enclosed Proxy
Statement as Appendix A. The affirmative vote of the holders of a majority of
the Company's Common Stock entitled to vote at the Special Meeting is necessary
to approve and adopt the Merger Agreement and the Merger.
As a stockholder of the Company, you have a right under Delaware law to
dissent from the Merger and to demand a judicial determination as to the fair
value of your shares of Common Stock if the Merger is completed. In order to
exercise this appraisal right, you must deliver a written demand to the Company
prior to the Special Meeting for an appraisal of your shares, and you must not
vote in favor of the approval and adoption
of the Merger Agreement and the Merger. Merely voting against the Merger
Agreement and the Merger, or abstaining from voting, is not sufficient to
perfect your appraisal right. A copy of the Delaware General Corporation Law
regarding your appraisal right is attached as Appendix C to the accompanying
proxy statement. See "Dissenters' Rights of Appraisal" on page 51 of the Proxy
Statement for a summary of these provisions.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NEITHER THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
OUR BOARD OF DIRECTORS AS WELL AS A SPECIAL COMMITTEE APPOINTED BY THE
BOARD HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT AND MERGER ARE FAIR
TO OUR STOCKHOLDERS AND RECOMMEND THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
By Order of the Board of Directors,
Michael F. Lombardi
Secretary
Point Pleasant Beach, NJ
January _ _, 2005
IMPORTANT
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN, DATE AND PROMPTLY
RETURN THE ACCOMPANYING PROXY CARD USING THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
CHEFS INTERNATIONAL, INC.
62 BROADWAY
POINT PLEASANT BEACH, NJ 08742
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PROXY STATEMENT FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY _ _, 2005
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TABLE OF CONTENTS
PAGE
SUMMARY TERM SHEET ........................................................ 4
SUMMARY INFORMATION IN
QUESTION AND ANSWER FORMAT ........................................... 5
INFORMATION ABOUT THE COMPANY ............................................. 15
INFORMATION ABOUT ACQUISITION CO .......................................... 18
CAUTIONARY STATEMENT AND RISKS CONCERNING
FORWARD-LOOKING STATEMENTS ........................................... 18
INFORMATION ABOUT THE SPECIAL MEETING ..................................... 19
Date, Time and Place of the Special Meeting .......................... 19
Purpose of the Special Meeting ....................................... 20
Record Date; Shares Entitled to Vote; Quorum ......................... 20
Vote Required ........................................................ 20
Voting of Proxies .................................................... 20
Proxy Solicitation ................................................... 21
SPECIAL FACTORS ........................................................... 21
Purpose .............................................................. 21
Background ........................................................... 22
Events Leading to the Proposal for and
the Acceptance of the Merger Offer .............................. 22
Recommendation of the Special Committee and the Board of Directors ... 25
Opinion of Houlihan Lokey Howard & Zukin Financial
Advisors, Inc. .................................................. 28
Certain Effects of the Merger ........................................ 34
i
Operation of the Company after the Merger ............................ 35
Operation of the Company if the Merger is not Consummated ............ 36
Interests of Certain Persons in the Merger ........................... 36
Common Stock-Market Prices, Trading Volume,
Stock Repurchases, Dividends, Book Value ........................ 41
THE MERGER AGREEMENT AND THE MERGER ....................................... 44
The Merger Agreement ................................................. 44
Structure of the Merger .............................................. 46
Effective Time of the Merger ......................................... 47
Exchange Procedures .................................................. 47
Federal Income Tax Consequences ...................................... 48
Regulatory Requirements .............................................. 49
Expenses of the Merger ............................................... 50
Sources of Funding ................................................... 50
DISSENTERS' RIGHTS OF APPRAISAL ........................................... 51
WHERE YOU CAN FIND MORE INFORMATION ....................................... 54
INFORMATION INCORPORATED BY REFERENCE ..................................... 55
APPENDIX A ..... AGREEMENT AND PLAN OF MERGER DATED DECEMBER 22, 2004
APPENDIX B ..... OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL
ADVISORS, INC. DATED DECEMBER 16, 2004
APPENDIX C ..... SECTION 262 OF THE DELAWARE GENERAL CORPORATION
LAW CONCERNING DISSENTERS' APPRAISAL RIGHTS
ii
PRELIMINARY COPY
CHEFS INTERNATIONAL, INC.
62 BROADWAY
POINT PLEASANT BEACH, NJ 08742
(732-295-0350)
----------------
PROXY STATEMENT
----------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY _ _, 2005
----------------
This Proxy Statement and the accompanying proxy card and notice are
first being mailed to stockholders on or about January , 2005 in connection with
the solicitation by the Board of Directors of Chefs International, Inc. (the
"Company") of proxies for use at the Special Meeting of Stockholders to be held
on ________, February _ _, 2005, at 10:00 a.m. local time at the Company's Jack
Baker's Wharfside Restaurant at 101 Channel Drive, Point Pleasant Beach, New
Jersey 08742. At the Special Meeting, stockholders will be asked to approve and
adopt the Merger Agreement dated December 22, 2004 between the Company and the
Lombardi Restaurant Group, Inc. ("Acquisition Co.") and the Merger contemplated
by the Merger Agreement. Acquisition Co. was founded in 2003 by Anthony M.
Lombardi, Joseph S. Lombardi, Michael F. Lombardi, Robert M. Lombardi and
Stephen F. Lombardi (the "Lombardi Brothers") for the sole purpose of effecting
the Merger. The Lombardi Brothers hold five of the eight seats on the Company's
Board of Directors and collectively with their related entities and their
affiliates own approximately 66% of the Company's outstanding Common Stock. One
of the Lombardi Brothers, Robert M. Lombardi, also serves as the Company's
Chairman and President. Consummation of the merger will result in:
o Acquisition Co. merging with and into the Company with the Company being
the surviving corporation;
o Each share of the Company's Common Stock that is issued and outstanding
immediately prior to the Effective Time of the Merger, other than shares
owned by the Lombardi Brothers and their affiliates or by stockholders
who have properly exercised their dissenters' rights, being canceled and
converted into the right to receive a cash payment of $3.12 per share
without interest; and
o The Company no longer being a publicly owned corporation.
The Merger may be a taxable transaction for stockholders who receive a cash
payment for their shares. See "THE MERGER AGREEMENT AND THE MERGER- Federal
Income Tax Consequences" for a discussion of the United States federal income
tax consequences of the Merger. Stockholders, other than the Lombardi Brothers
and their
affiliates, will have no equity interest in the Company after completion of the
Merger. A copy of the Merger Agreement is included as Appendix A to this Proxy
Statement.
The Board of Directors has fixed the close of business on Friday, January 14,
2005 as the Record Date for the Special Meeting. As of the Record Date, the
Company had 3,926,105 shares of Common Stock, par value $.01 per share,
outstanding. Only stockholders of record of the Company's Common Stock at the
close of business on the Record Date are entitled to notice of and to vote at
the Special Meeting or at any adjournment or postponement of the Special
Meeting. Each stockholder is entitled to one vote for each share of Common Stock
owned of record on the Company's transfer books and records at the close of
business on the Record Date. Approval of the Merger Agreement and the Merger
requires the affirmative vote of a majority of our Common Stock entitled to vote
at the Special Meeting.
All proxies duly submitted will be voted on all business properly
presented at the Special Meeting. Only such business that is brought before the
Special Meeting by or at the direction of the Board of Directors will be
conducted at the Special Meeting. Proxies that specify a vote on a proposal will
be voted in accordance with such specification. Proxies that do not specify a
vote on a proposal will be voted in accordance with the recommendation of the
Board of Directors and "FOR" approval and adoption of the Merger Agreement and
the Merger. The Board of Directors knows of no other business to be brought
before the Special Meeting. However, if other business is properly brought
before the Special Meeting, the holders of the proxies will vote on those
proposals at their discretion. A stockholder voting by means of a proxy has the
power to revoke it at any time before it is exercised by submitting another
proxy bearing a later date, by notifying the Company in writing of such
revocation (in the manner described in this Proxy Statement), or by voting in
person at the Special Meeting.
Our Board of Directors, after careful consideration, and based upon the
recommendation of a Special Committee composed of the three directors who are
not Lombardi Brothers nor their affiliates, and who hold no interests in
Acquisition Co., has recommended the approval and the adoption of the Merger
Agreement and the Merger, has declared the Merger Agreement and the Merger fair
to our stockholders, and recommends that the holders of our Common Stock vote
"FOR" approval and adoption of the Merger Agreement and the Merger.
We will bear the costs of printing this Proxy Statement. We will pay the
expense of soliciting proxies. Proxies will be solicited by mail. Proxies may
also be solicited by telephone calls or personal calls by officers, directors,
or employees of the Company, none of whom will be specially compensated for
soliciting proxies, other than reimbursement for actual expenses incurred.
Please carefully read the detailed information about the Merger
contained in this Proxy Statement. To obtain additional information about Chefs
International, Inc., see the disclosures under the heading "INFORMATION ABOUT
THE COMPANY" at page 15.
2
THE PROPOSED MERGER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
PASSED UPON THE FAIRNESS OR MERITS OF THE MERGER OR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
No persons have been authorized to give any information or to make any
representation other than that contained in this Proxy Statement in connection
with the solicitation of proxies made hereby and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any of its affiliates. This Proxy Statement does not
constitute the solicitation of a proxy in any jurisdiction to any person to whom
it is not lawful to make any such solicitation in such jurisdiction.
You should not assume that the information contained in this Proxy
Statement is accurate as of any date other than at January _ _, 2005, and the
delivery of this Proxy Statement shall not, under any circumstances, create an
implication that there has been no change in the affairs of the Company since
that date, or that the information in this Proxy Statement concerning the
Company is correct as of any time subsequent to that date.
3
SUMMARY TERM SHEET
The following transaction overview highlights selected information from
this Proxy Statement. Because it is a summary, it does not contain all the
information that may be important to you. You should read the entire Proxy
Statement and its appendices carefully before you decide how to vote.
Transaction Overview
--------------------
o Chefs International, Inc. (the "Company") is a publicly owned Delaware
corporation currently operating nine restaurants. Seven of the
restaurants are seafood restaurants (four in New Jersey and three in
Florida). The other two restaurants are each located in New Jersey. One
is a Mexican theme restaurant and the other features an eclectic
American food menu. The Company's principal office is located at 62
Broadway, Point Pleasant Beach, New Jersey 08742 where its telephone
number is (732) 295-0350. See "INFORMATION ABOUT THE COMPANY" at page
15.
o Lombardi Restaurant Group, Inc. ("Acquisition Co.") is proposing to
merge with and into the Company. The Company will be the surviving
entity of the Merger. See "THE MERGER AGREEMENT AND THE MERGER" at page
44.
o Acquisition Co. is a privately owned Delaware corporation formed for the
sole purpose of effecting the Merger. The stockholders of Acquisition
Co. are the Lombardi Brothers, a law firm in which two of the Lombardi
Brothers are principals, the law firm's pension plan, and two Maschler
Brothers who are unrelated to the Lombardi Brothers. See "INFORMATION
ABOUT ACQUISITION CO." at page 18.
o The Lombardi Brothers hold five of the eight seats on the Company's
Board of Directors. One of the Lombardi Brothers, Robert M. Lombardi,
serves as the Company's Chairman and President. See SPECIAL FACTORS -
Interests of Certain Persons in the Merger" at page 36.
o The Company's Board of Directors has called a Special Meeting of the
Company's stockholders to be held on February _ _, 2005 to vote with
respect to the Merger Agreement and the proposed Merger. See
"INFORMATION ABOUT THE SPECIAL MEETING" at page 19.
o This is a "going private" transaction. If the proposed Merger is
approved and adopted and Acquisition Co. is merged into the Company;
- The Company will no longer be a public company;
- The Company's Common Stock will no longer trade in the
over-the-counter market or be quoted on the OTC Bulletin
Board(R);
- The stockholders of Acquisition Co. (the "Continuing
Stockholders") will own all of the Company's outstanding Common
Stock;
- As a "Public Stockholder" of the Company, which term excludes
the Continuing Stockholders, and stockholders who properly
exercise dissenters' rights, your stock will be canceled and
converted into the right
4
to receive a cash payment of $3.12 per share, without interest,
for each share of the Company's outstanding Common Stock you own
at the Effective Time of the Merger; and
- As a Public Stockholder, you will no longer have any interest in
the Company's assets or its future earnings or growth, if any.
o The Board of Directors, after careful consideration and based in part
upon the recommendation of a Special Committee appointed by the Board,
has approved and adopted the Merger Agreement and the Merger and is
recommending that you vote "FOR" approval and adoption of the Merger
Agreement and the Merger. See "SPECIAL FACTORS" at page 21 and "THE
MERGER AGREEMENT AND THE MERGER" at page 44.
o If you do not wish to accept the $3.12 per share price and do not vote
in favor of the Merger, you will have the right to assert dissenters'
rights in accordance with Section 262 of the General Corporation Law of
the State of Delaware and to demand payment of the fair value of your
shares pursuant to an appraisal by the Delaware Court of Chancery. See
"DISSENTERS' RIGHTS OF APPRAISAL." at page 51.
SUMMARY INFORMATION IN QUESTION AND ANSWER FORMAT
The following information in question and answer format, summarizes many
of the material terms of the Company's proposed Merger with Acquisition Co. This
summary may not contain all of the information that you believe is important for
you to consider before voting on the proposed Merger. For a complete description
of the terms and conditions of the Merger, you are advised to carefully read
this entire Proxy Statement and the other documents referred to herein. The
actual terms and conditions of the Merger are contained in the Merger Agreement.
The Merger Agreement is included as Appendix A to this Proxy Statement.
WHAT IS THE PURPOSE OF THE MEETING?
At the Special Meeting, the Company's stockholders will vote on the
proposed merger (the "Merger") of the Company with Lombardi Restaurant Group,
Inc. ("Acquisition Co.") pursuant to the terms of the Agreement and Plan of
Merger dated as of December 22, 2004 (the "Merger Agreement").
WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
Approval of the Merger will require the affirmative vote of the holders
of not less than a majority of the Company's outstanding Common Stock, $.01 par
value (the "Common Stock"), as of the January 14, 2005 record date (the "Record
Date") for the Meeting.
5
WHAT CONSTITUTES A MAJORITY OF THE COMPANY'S OUTSTANDING COMMON STOCK?
On the Record Date, the Company had 3,926,105 shares of Common Stock
issued and outstanding. Even if 1,963,053 shares of Common Stock (representing a
majority of the outstanding Common Stock) vote in favor of the Merger, the
Merger will not take place unless the other terms and conditions to the Merger
described in this Proxy Statement and the Merger Agreement are fulfilled.
WHO ARE THE OWNERS OF ACQUISITION CO?
Lombardi Restaurant Group, Inc. ("Acquisition Co.") was formed in
November 2003 as a Delaware corporation to merge with and into the Company.
Acquisition Co. was formed by Michael F. Lombardi and his four brothers, Robert
M. Lombardi, Joseph S. Lombardi, Anthony M. Lombardi and Stephen F. Lombardi,
the law firm of Lombardi & Lombardi, P.A. and the Lombardi & Lombardi, P.A.
Defined Benefit Pension Plan (collectively, the "Lombardi Group"). Each of the
five Lombardi Brothers is a director of the Company and Robert M. Lombardi also
serves as the Company's Chairman and President. The Lombardi Group together with
two Maschler Brothers who are unrelated to the Lombardi Group, but who are also
stockholders of the Company, namely Lee Maschler and Matthew H. Maschler (the
"Maschler Group") are the sole owners of the outstanding shares of capital stock
of Acquisition Co. The Lombardi Group and the Maschler Group are collectively
referred to as the "Continuing Stockholders."
WHAT PERCENTAGES OF THE COMMON STOCK ARE OWNED BY THE CONTINUING STOCKHOLDERS?
The members of the Lombardi Group are the collective beneficial owners
(through Acquisition Co.) of approximately 61% and the members of the Maschler
Group are the collective beneficial owners (through Acquisition Co.) of
approximately 5% of the outstanding Common Stock so that the Continuing
Stockholders collectively own approximately 66% of the outstanding Common Stock.
The Continuing Stockholders have sufficient votes to approve the Merger
regardless of the votes of the Company's other stockholders (the "Public
Stockholders").
DO THE CONTINUING STOCKHOLDERS CURRENTLY INTEND TO VOTE AT THE MEETING TO
APPROVE THE MERGER?
Yes. The Continuing Stockholders (as well as the two members of the
Special Committee who are stockholders but not Continuing Stockholders)
currently intend to vote at the Meeting to approve the Merger.
6
IS APPROVAL OF A MAJORITY OF THE SHARES OF COMMON STOCK OWNED BY THE PUBLIC
STOCKHOLDERS REQUIRED TO APPROVE THE MERGER?
No. The affirmative vote of a majority of the issued and outstanding
shares of Common Stock is a sufficient vote to approve the Merger even if a
majority of the shares of Common Stock owned by the Public Stockholders are not
voted in favor of the Merger.
SINCE THE CONTINUING STOCKHOLDERS HAVE SUFFICIENT VOTES TO APPROVE THE MERGER,
WHY IS THE MEETING BEING HELD?
Management has determined that holding the Meeting is in the best
interests of all of the Company's stockholders as it will promote a full
discussion of the arguments for and against the Merger and the conversion of the
Company into a privately owned entity.
WHAT ARE THE BASIC TERMS OF THE MERGER AGREEMENT?
The Merger Agreement provides that, subject to stockholder approval and
the satisfaction or waiver of certain other conditions contained in the Merger
Agreement, Acquisition Co. will merge with and into the Company at the Effective
Time of the Merger. The Company will be the surviving corporation and is
expected to continue to operate its existing restaurants under their current
names.
If the Merger is approved and consummated, each share of Common Stock
owned at the Effective Time of the Merger by the "Public Stockholders", namely
the stockholders of the Company other than the Continuing Stockholders and those
stockholders who properly exercise dissenters' rights, will be canceled and
converted into the right to receive a cash payment of $3.12, without interest.
As a result, upon consummation of the Merger, the Continuing Stockholders (the
Lombardi Group and the Maschler Group) will own all of the Company's outstanding
Common Stock and the Public Stockholders will have no equity interest in the
Company.
WHY IS THE MERGER BEING PROPOSED?
The Merger is being proposed in order to convert the Company from a
publicly owned corporation, with the attendant costs of a publicly owned entity,
to a private company. If the Merger is consummated, the Continuing Stockholders
will own all of the Company's outstanding Common Stock and the Public
Stockholders will be afforded the opportunity to receive a cash payment for
their shares of Common Stock that represents a substantial premium (215%) over
the market price at which the shares were trading prior to the initial
announcement of the proposed Merger.
7
WHAT WILL HAPPEN TO THE COMPANY AFTER THE MERGER?
Assuming consummation of the Merger, the Company, as the surviving
corporation, is expected to continue to operate its existing restaurants under
their current names, and will no longer be a publicly owned corporation.
WHY IS THE COMPANY'S BOARD OF DIRECTORS RECOMMENDING THAT STOCKHOLDERS VOTE TO
APPROVE THE MERGER AND THE MERGER AGREEMENT?
For the past several years, the Board of Directors has attempted to
enhance the Company's value for its stockholders through the opening of
additional restaurants and the repurchase by the Company of outstanding shares
of its Common Stock. The Board has determined that these methods have not
enhanced value to a satisfactory degree and have concluded that a "going
private" transaction was the best method to enhance value. By converting to a
private company, the Company will reduce its operating expenses as it will no
longer need to incur the professional fees and stock transfer fees required of a
public company. The Board of Directors believes that the proposed "going
private" transaction represents the best opportunity at the present time for the
Public Stockholders to maximize the value for their shares of Common Stock. For
these and other reasons described in this Proxy Statement, the Board of
Directors, after taking into account the recommendation of the Special Committee
appointed by the Board to review and evaluate the Merger proposal, recommends
that stockholders vote for the Merger because it believes the Merger terms are
in the best interests of the Company and the Public Stockholders.
WHAT STEPS HAS THE BOARD OF DIRECTORS TAKEN TO ASSURE THAT THE MERGER TERMS ARE
FAIR TO THE PUBLIC STOCKHOLDERS?
The Lombardi Brothers, who hold five of the eight seats on the Board of
Directors, will be Continuing Stockholders. In an attempt to avoid actual or
potential conflicts of interest, the Board of Directors appointed a Special
Committee to review and make a recommendation to the Board of Directors
regarding the fairness of the proposed transaction to the Public Stockholders.
The Special Committee is comprised of Kenneth Cubelli M.D. as chairman, Nicholas
B. Boxter C.P.A. and Raymond L. Dademo, Esq. who hold the remaining three seats
on the Board of Directors.
ARE THERE RELATIONSHIPS BETWEEN THE LOMBARDI BROTHERS AND THE MEMBERS OF THE
SPECIAL COMMITTEE, OUTSIDE THE COMPANY?
Kenneth Cubelli's wife and Joseph S. Lombardi's wife are sisters. The
Lombardi Brothers' mother, who passed away in 2003, was the sister of Raymond L.
Dademo's mother. Dr. Cubelli owns 100,000 shares and Mr. Dademo owns 2,000
shares of the Company's Common Stock. If the Merger is consummated, neither of
them will be Continuing Stockholders as they will each exchange their stock for
the right to receive a cash payment of $3.12 per share. Nicholas B. Boxter has
no family relationship with the
8
Lombardi Brothers and does not own shares of Common Stock. However, he does
render accounting services to the Lombardi Brothers and their affiliated
entities.
WHAT ACTIONS HAVE BEEN TAKEN BY THE SPECIAL COMMITTEE?
The original proposal made by the Lombardi Group through Acquisition Co.
and announced by the Company on November 21, 2003, proposed a purchase price of
$1.75 per share for the shares of Common Stock owned by the Public Stockholders.
The Special Committee retained its own legal counsel to advise it with respect
to its obligations and duties and on January 30, 2004, the Company announced
that the Special Committee had retained the investment banking firm of Houlihan
Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey") to render an
opinion to the Special Committee as to the fairness from a financial point of
view, of the consideration offered by the Lombardi Group to the Public
Stockholders. On March 8, 2004, the Company announced that the Special Committee
had voted unanimously to recommend the rejection of the offered purchase price
of $1.75 per share as being inadequate. On March 15, 2004, the Company announced
that the Lombardi Group had increased the offered purchase price to $2.50 per
share. On April 19, 2004, the Company announced that the Special Committee had
voted to recommend the rejection of the increased offered purchase price of
$2.50 per share as inadequate. On April 21, 2004, the Company announced that the
offered purchase price had been increased to $3.00 per share. The Special
Committee continued to find the price inadequate. On June 1, 2004, the Company
announced that the Lombardi Group had once again increased the offered purchase
price to the Public Stockholders to $3.12 per share and that the Special
Committee had determined that in its judgment, the proposed increased purchase
price of $3.12 per share was fair to the Public Stockholders. As a result, the
Special Committee recommended to the Board of Directors that the Board accept
the proposal of a purchase price of $3.12 per share for the shares of the Public
Stockholders. The Board of Directors has accepted the recommendation of the
Special Committee.
The recommendation of the Special Committee was based upon its own
deliberations and its consultations with its professional advisors as well as on
the written opinion of Houlihan Lokey described below.
WHAT OPINION HAS BEEN DELIVERED BY HOULIHAN LOKEY?
On December 16, 2004, Houlihan Lokey delivered its written opinion to
the Special Committee that, based upon and subject to the limitations,
qualifications and assumptions stated therein, the $3.12 per share price to be
paid to the Public Stockholders for their shares of Common Stock is fair to them
from a financial point of view. Houlihan Lokey's written opinion is included as
Appendix B to this Proxy Statement.
9
WHAT FACTORS WERE CONSIDERED BY THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS
IN RECOMMENDING THE $3.12 PER SHARE PURCHASE PRICE FOR THE COMMON STOCK OWNED BY
THE PUBLIC STOCKHOLDERS?
The Special Committee and the Board of Directors considered a number of
factors before recommending the $3.12 per share purchase price for the Common
Stock owned by the Public Stockholders, including but not limited to, the
following:
o the nature of the restaurant business in the areas where the Company's
restaurants are located
o the Company's financial condition and operating results
o the relative lack of growth in the Company's revenues over the past four
years
o the Company's limited ability to expand the number of its seafood
restaurant units due to the difficulties in acquiring additional
waterfront sites at reasonable cost
o the required future capital investment in order to maintain certain
restaurants
o the departure (at the end of June 2004) of the Company's long-time chief
executive and chief financial officer, Anthony C. Papalia
o the costs to continue to operate as a publicly owned entity
o the relatively low market prices for the Common Stock in the
over-the-counter market over the past three years
o the decline in market conditions for low-priced stocks
o the lack of positive impact on the market price for the Common Stock
following the Company's various stock repurchases
o the lack of liquidity in the market for the Common Stock as reflected by
the low average trading volume in the stock in the over-the-counter
market over the past three years
o the terms and conditions of the proposed Merger
o the belief that after several increases in the offered purchase price,
the $3.12 per share offered purchase price was the highest price that
the Lombardi Group was willing to offer
o the fact that the offered price of $3.12 per share represents a premium
of approximately 215% over the $1.45 per share last sale price for the
Common Stock in the over-the-counter market on November 17, 2003, the
last trading day on which a last sale price was available immediately
preceding the date on which the original $1.75 per share purchase
proposal was publicly announced
o the presentation and the opinion of Houlihan Lokey delivered to the
Special Committee on December 16, 2004.
o the requirements of the Delaware General Corporation Law (the "Delaware
Law") that the affirmative vote of at least a majority of the shares of
Common Stock present in person or by proxy at the Special Meeting is
required for approval and adoption of the Merger and the Merger
Agreement, and that stockholders who properly assert dissenters' rights
in accordance with Section 262 of the Delaware Law are entitled to
demand and be paid the fair value for their shares of Common Stock as
determined pursuant to an appraisal by the Delaware Court of Chancery.
10
HOW IS THE MERGER BEING FINANCED?
Acquisition Co. estimates that the total amount of funds required to
purchase all of the shares of Common Stock owned by the Public Stockholders will
be approximately $4,120,000 and that it will incur approximately $150,000 in
related fees and expenses. The Lombardi Group and the Maschler Group will pay
these amounts with personal funds and through anticipated bank borrowings. See
"THE MERGER AGREEMENT AND THE MERGER - Expenses of the Merger and Sources of
Funding."
WHAT RIGHTS DO STOCKHOLDERS HAVE TO DISSENT FROM THE MERGER?
As a stockholder, you have the right to dissent from the Merger and
demand a judicial determination as to the fair value of your shares of Common
Stock. The determination could result in your being paid an amount per share
which is more than, the same as, or less than the $3.12 per share offered price.
Your right to dissent and demand an appraisal is governed by Section 262 of the
Delaware Law, a copy of which is attached as Appendix C hereto.
In order to dissent from the Merger, a stockholder (i) must NOT vote his
or her shares for the Merger Agreement and the Merger and (ii) must deliver to
the Company BEFORE the vote on the Merger is taken at the Special Meeting, a
written demand for appraisal of his or her shares (the "Appraisal Demand"). The
Appraisal Demand will be sufficient if it is in writing and reasonably informs
the Company of the stockholder's identity and that the stockholder intends
thereby to demand the appraisal for a specified number of his or her shares. A
PROXY OR VOTE AGAINST THE MERGER SHALL NOT CONSTITUTE SUCH A DEMAND.
FURTHERMORE, A STOCKHOLDER ELECTING TO DEMAND AN APPRAISAL MUST DO SO BY AN
APPRAISAL DEMAND SEPARATE FROM ANY PROXY OR BALLOT. THE APPRAISAL DEMAND MUST BE
DELIVERED TO THE COMPANY ON A TIMELY BASIS AT 62 BROADWAY, POINT PLEASANT BEACH,
NJ 08742; ATT: CORPORATE SECRETARY.
Within ten days after the Effective Time of the Merger, the Company, as
the surviving corporation will send notice of the effectiveness of the Merger to
each person who prior to the Effective Time of the Merger satisfied the
foregoing conditions. Any stockholder entitled to appraisal rights may, within
20 days after the date of the mailing of such notice, demand in writing from the
Company, the appraisal of his or her shares of Common Stock. Such demand must
reasonably inform the Company of the name and mailing address of the holder of
record and of such stockholders' intention to demand appraisal of such holder's
shares of Common Stock.
Within 120 days after the Effective Time of the Merger, the Company as
the surviving corporation or any stockholder who has satisfied the foregoing
conditions and who is otherwise entitled to appraisal rights, may file a
petition in the Delaware Court of Chancery demanding a determination of the
value of the stock held by all stockholders
11
entitled to appraisal. The Company does not currently intend to file an
appraisal petition and stockholders seeking to exercise appraisal rights should
not assume that the Company will file a petition to appraise the value of their
stock or that the Company will initiate any negotiations with respect to the
"fair value" of such stock. Accordingly, holders of the Common Stock should
initiate all necessary action to perfect their appraisal rights within the time
periods prescribed in Section 262 of the Delaware Law.
Within 120 days after the Effective Time of the Merger, any stockholder
who has complied with the requirements for exercise of appraisal rights, as
discussed above, is entitled, upon written request, to receive from the Company,
a statement setting forth (i) the aggregate number of shares of Common Stock not
voted in favor of the Merger and with respect to which demands for appraisal
have been received and (ii) the aggregate number of holders of such shares of
stock. The Company is required to mail such statement within ten days after it
receives a written request to do so, or within ten days after expiration of the
period for delivery of demands for appraisal under Section 262, whichever is
later.
If a petition for an appraisal is timely filed and a copy is delivered
to the Company as the surviving corporation, the Company must within 20 days
after receipt of such petition file with the Delaware Court of Chancery in which
the petition was filed a list of the names and addresses of all stockholders who
have demanded appraisal rights and with whom agreements as to the value of their
shares has not been reached by the Company. After notice to the Company and
those stockholders, the Court can conduct a hearing to determine the
stockholders entitled to appraisal rights. The Court may require stockholders
who have demanded appraisal rights for their shares to submit their stock
certificates to the Court for a notation thereon, and if any stockholder fails
to comply with this requirement, the Court may dismiss the proceedings as to
such stockholder.
At a hearing on the petition, the Court will determine the stockholders
entitled to appraisal rights and will appraise the shares of stock owned by such
stockholders, determining their "fair value" exclusive of any element of value
arising from the accomplishment or expectation of the Merger and will determine
the amount of interest, if any, to be paid upon the value of the shares of stock
of the stockholders entitled to appraisal. In determining such "fair value," the
Court shall take into account all relevant factors. Any such judicial
determination of the "fair value" of stock could be based on considerations
other than or in addition to the price paid in the Merger and the market value
of the Common Stock, including asset values, the investment value of the Common
Stock and any other valuation considerations generally accepted in the
investment community. The value so determined for the Common Stock could be more
than, less than or the same as the consideration paid pursuant to the Merger
Agreement. The Court may, in its discretion, order that all or a portion of any
stockholder's expenses incurred in connection with an appraisal proceeding,
including, without limitation, reasonable attorney's fees and fees and expenses
of experts, be charged pro rata against the value of all the shares of the
Common Stock entitled to an appraisal, but a dissenting stockholder must be
prepared to pay his or her own expenses in connection with the proceeding.
12
Any stockholder who has demanded an appraisal in compliance with Section
262 will not, from and after the Effective Time of the Merger, be entitled to
vote the shares subject to such demand for any purpose or be entitled to
dividends or other distributions on those shares (other than those payable or
deemed to be payable to stockholders of record at a date which is prior to the
Effective Time of the Merger).
Holders of Common Stock lose the right to appraisal if no petition for
appraisal is filed within 120 days after the Effective Time of the Merger, or if
a stockholder delivers a written withdrawal of such stockholder's demand for an
appraisal to the Company, except that any such attempt to withdraw made more
than 60 days after the Effective Time of the Merger requires the Company's
written approval. If appraisal rights are not perfected or a demand for
appraisal rights is withdrawn, a stockholder will be entitled to receive the
$3.12 per share cash consideration otherwise payable pursuant to the Merger
Agreement.
If an appraisal proceeding is timely instituted, such proceeding may not
be dismissed without the approval of the Delaware Court of Chancery as to any
stockholder who has perfected a right of appraisal.
Failure by a stockholder to take any required step to perfect appraisal
rights may result in termination of his or her appraisal rights. BECAUSE THE
APPRAISAL PROVISIONS OF THE DELAWARE LAW ARE COMPLEX, STOCKHOLDERS WHO ARE
CONSIDERING EXERCISING THEIR APPRAISAL RIGHTS UNDER SECTION 262 SHOULD CONSULT
WITH THEIR OWN LEGAL ADVISORS.
The Merger Agreement provides that Acquisition Co. will not be obligated
to complete the merger if the number of shares of Common Stock held by
stockholders who comply with all the provisions of Section 262 and demand
appraisal rights exceeds 10% of the aggregate number of shares of the Company's
Common Stock outstanding on the closing date of the Merger.
VOTING AGAINST THE MERGER AND THE MERGER AGREEMENT WILL NOT PROTECT YOUR
RIGHT TO DISSENT IN THE ABSENCE OF YOUR DELIVERING A SEPARATE WRITTEN APPRAISAL
DEMAND ON A TIMELY BASIS. APPENDIX C TO THIS PROXY STATEMENT CONTAINS SECTION
262 OF THE DELAWARE LAW REGARDING DISSENTERS' RIGHTS. STOCKHOLDERS WHO INTEND TO
DISSENT SHOULD CAREFULLY REVIEW THIS PROXY STATEMENT AND APPENDIX C AND ARE
URGED TO CONSULT WITH THEIR OWN LEGAL ADVISORS.
WHAT ARE THE CONDITIONS TO THE MERGER?
There are a number of conditions that must be satisfied before either
the Company or Acquisition Co. is obligated to complete the Merger. The
following are certain of the most important of these conditions, all of which
must be satisfied at the time of the Merger:
13
o stockholders owning at least a majority of the outstanding shares of
Common Stock must approve and adopt the Merger and the Merger Agreement.
o there are no legal restraints rendering the Merger unlawful or
preventing the consummation of the transactions contemplated thereunder
and no pending litigation that could have a material adverse effect on
the Company.
o the Houlihan Lokey fairness opinion issued to the Special Committee and
attached hereto as Appendix B shall not have been withdrawn or revoked.
o all authorizations, consents and waivers required for the consummation
of the Merger shall have been obtained.
o the respective representations and warranties made in the Merger
Agreement by each of the parties to the Merger Agreement shall be true
and correct.
o stockholders shall not have exercised appraisal rights under the
Delaware Law with respect to more than 10% of the outstanding shares of
Common Stock (392,610 shares).
o neither the Special Committee nor the Board of Directors shall have
withdrawn, modified or otherwise changed its recommendation concerning
the terms of the Merger.
SHOULD YOU SEND IN YOUR STOCK CERTIFICATES NOW?
No. If the Merger is consummated, you will be sent written instructions
on how to forward your certificates for payment.
IF YOUR SHARES OF COMMON STOCK ARE HELD IN "STREET NAME" BY A BROKER, WILL THE
BROKER BE ABLE TO VOTE YOUR SHARES?
Your broker will vote your shares only if you provide instructions on
how to vote. Your broker should provide you with directions on how to instruct
your broker to vote your shares.
CAN YOU CHANGE YOUR VOTE AFTER YOU MAIL IN YOUR SIGNED PROXY CARD?
Yes. You can send in a signed proxy card dated at a later date or a
written revocation of your proxy prior to the Special Meeting or attend the
Special Meeting and vote in person.
WHEN WILL YOU RECEIVE PAYMENT FOR YOUR SHARES?
If the Merger Agreement is approved and adopted and the other conditions
to the Merger are satisfied, the Company intends to consummate the Merger
shortly thereafter. As soon as practicable after consummation of the Merger, the
Company's Payment Agent will send a letter to stockholders instructing them on
how to exchange certificates for their shares of Common Stock for the $3.12 per
share cash payment. Payment will be made promptly upon compliance with the
exchange procedures. See "THE MERGER AGREEMENT AND THE MERGER - Exchange
Procedures."
14
WHAT ARE THE INCOME TAX CONSEQUENCES OF THE MERGER?
Receipt of the $3.12 per share cash payment upon completion of the
Merger may be a taxable event for federal income tax purposes, depending on the
recipient's cost basis for the shares exchanged. A review of the tax
consequences to stockholders appears commencing on page 48 of this Proxy
Statement. Each stockholder is urged to consult with his or her tax advisor
concerning the tax consequences of the Merger to him or to her.
INFORMATION ABOUT THE COMPANY
CHEFS INTERNATIONAL, INC. (THE "COMPANY")
The Company was incorporated under the laws of the State of Delaware in
March 1975. The Company is publicly owned and currently files periodic reports
pursuant to Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") with the Securities and Exchange Commission. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act.
The Company currently operates nine restaurants on a year-round basis.
Seven of the restaurants are free-standing seafood restaurants (four in New
Jersey and three in Florida). The other two restaurants are located in Freehold,
New Jersey. Five of the seafood restaurants are operated under the name "Jack
Baker's Lobster Shanty", one under the name "Baker's Wharfside" and one under
the name "Mr. Manatee's Causal Grille". One of the two restaurants located in
Freehold, New Jersey is a Mexican theme restaurant operated under the name
"Escondido's Mexican Restaurant". The other is an eclectic American food
restaurant operated under the name "Moore's Tavern and Restaurant". The Company
opened its first seafood restaurant in November 1978, "Moore's Tavern and
Restaurant" in February 2000 and its Mexican theme restaurant in January 2002.
See "SPECIAL FACTORS - Interests of Certain Persons in the Merger" as to the
leasing by the Company of the two Freehold, New Jersey restaurant facilities and
a common parking area from an entity affiliated with the Lombardi Brothers.
The Company's principal office is located at 62 Broadway, Point Pleasant
Beach, New Jersey 08742 where its telephone number is (732) 295-0350.
MANAGEMENT
The following eight persons comprise the current Board of Directors of
the Company.
Name Position
---- --------
Robert M. Lombardi (a) Chairman of the Board (c)
Nicholas B. Boxter (b) Director
Kenneth Cubelli(b) Director
Raymond L. Dademo (b) Director
15
Anthony M. Lombardi (a) Director
Joseph S. Lombardi (a) Director
Michael F. Lombardi (a) Director
Stephen F. Lombardi (a) Director
----------
(a) The five Lombardis are Lombardi Brothers.
(b) Messrs. Boxter, Cubelli and Dademo comprise the Special Committee
appointed by the Board of Directors to review and analyze the Merger proposal
presented by Acquisition Co. and to determine and advise the Board whether in
its judgment, the proposed cash purchase price was fair to the Public
Stockholders. Assuming the Merger is consummated, Messrs. Boxter, Cubelli and
Dademo will resign as directors.
(c) Robert M. Lombardi also serves as the Company's President.
The following is a brief account of the business experience of each
director and executive officer of the Company during the past five years.
Robert M. Lombardi, M.D. is, and for more than the past five years has
been principally engaged as a physician and orthopedic surgeon with the
Edison-Metuchen Orthopedic Group, a medical practice group located in Edison,
New Jersey, where he also serves as a senior officer. He is also an officer of
Moore's Inn, Inc. and a partner in Moore's Realty. See "SPECIAL FACTORS -
Interests of Certain Persons in the Merger."
Nicholas B. Boxter, C.P.A. is, and for more than the past five years has
been principally engaged in the practice of accountancy with his own firm in
Whitehouse, New Jersey.
Kenneth Cubelli, M.D. is, and for more than the past five years has been
principally engaged as a physician and orthopedic surgeon with the Morris County
Orthopedic Group in Denville, New Jersey.
Raymond L. Dademo, Esq. is, and for more than the past five years has
been principally engaged as a practicing attorney with his own law firm in
Brick, New Jersey.
Anthony M. Lombardi, D.D.S. is, and for more than the past five years
has been principally engaged in the practice of dentistry in Edison, New Jersey.
He is also an officer of Moore's Inn, Inc. See "SPECIAL FACTORS - Interests of
Certain Persons in the Merger."
Joseph S. Lombardi, M.D. is, and for more than the past five years has
been principally engaged as a physician and orthopedic surgeon with the
Edison-Metuchen Orthopedic Group, where he is a senior officer. He is also an
officer of Moore's Inn, Inc. and a partner in Moore's Realty. See "SPECIAL
FACTORS - Interests of Certain Persons in the Merger."
16
Michael F. Lombardi, Esq. is, and for more than the past five years has
been principally engaged as a practicing attorney and a senior officer of
Lombardi & Lombardi, P.A., an Edison, New Jersey law firm. He is also an officer
of Moore's Inn, Inc. and a partner in Moore's Realty. See "SPECIAL FACTORS -
Interests of Certain Persons in the Merger."
Stephen F. Lombardi, Esq. is, and for more than the past five years has
been principally engaged as a practicing attorney and a senior officer of
Lombardi & Lombardi, P.A., an Edison, New Jersey law firm. He is also an officer
of Moore's Inn, Inc. and a partner in Moore's Realty. See "SPECIAL FACTORS -
Interests of Certain Persons in the Merger."
Martin W. Fletcher is not a director. He serves as the Company's Vice
President and Chief Financial Officer. He was employed by the Company as its
controller for more than the past five years and in 2004, was elected as the
Company's chief financial officer. He devotes all of his working time to the
business of the Company.
STOCK OWNERSHIP
The following table sets forth as of January 14, 2005 (the "Record
Date"), the number of shares of the Company's Common Stock beneficially owned
(a) by each of the Company's eight directors; (b) all directors and executive
officers of the Company as a group; and (c) by the Lombardi Group's affiliate,
the Maschler Group. It also sets forth the percentage such shares comprise of
the total outstanding shares of the Company's Common Stock. The Company has no
knowledge of any other individual or "group" as that term is used in Section
13(d)(3)of the Exchange Act, who is the beneficial owner of more than 5% of the
Company's outstanding Common Stock.
Beneficially Owned
at the
Record Date
----------------------------------
Name Shares Percentage
------------------------- ------------- ------------
Nicholas B. Boxter -- --
Kenneth Cubelli 100,000 (a) 2.5%
Raymond L. Dademo 2,000 (b) --
Anthony M. Lombardi 111,001 2.8%
Joseph S. Lombardi 598,633 15.2%
Michael F. Lombardi 251,735 (c) 6.4%
Robert M. Lombardi 1,335,825 34.0%
Stephen F. Lombardi 111,335 (c) 2.8%
All executive officers
and directors as a group
(nine persons) 2,510,529 (c) 63.9%
Maschler Group 196,938 (d) 5.0%
17
----------
(a) If the Merger is consummated, Dr. Cubelli's stock will be canceled and
converted into the right to receive a cash payment of $3.12 per share.
(b) If the Merger is consummated, Mr. Dademo's stock will be canceled and
converted into the right to receive a cash payment of $3.12 per share.
(c) Includes with respect to each of Michael F. Lombardi and Stephen F.
Lombardi, only one-half of the 111,668 shares owned by the Lombardi & Lombardi,
P.A. Defined Benefit Pension Plan and only one-half of the 49,000 shares owned
by the law firm of Lombardi & Lombardi P.A., although each has voting and
dispositive power with respect to all 111,668 shares owned by the Pension Plan
and all 49,000 shares owned by the law firm.
(d) The Maschler Group is comprised of two Maschler Brothers, Lee Maschler and
Matthew H. Maschler who each own 98,469 shares of Common Stock. They will be
responsible for their proportional share of Acquisition Co.'s expenses necessary
to finance the Merger.
For more information concerning the Company, see "WHERE YOU CAN FIND
MORE INFORMATION".
INFORMATION ABOUT ACQUISITION CO.
Lombardi Restaurant Group, Inc. ("Acquisition Co.") was incorporated
under the laws of the State of Delaware in November 2003. Acquisition Co. was
formed for the sole purpose of facilitating the Merger. If the Merger Agreement
and the Merger is approved by stockholders and if the Merger is effectuated,
Acquisition Co. will merge into the Company with the Company being the surviving
entity. As a newly-formed corporation, Acquisition Co. has had no operating
history. Its only business activity has been the execution and delivery of the
Merger Agreement and activities relating thereto. It is not anticipated that
Acquisition Co. will conduct any business other than in connection with its
formation and capitalization and the transactions contemplated by the Merger
Agreement.
The sole directors of Acquisition Co. are the Lombardi Brothers and
Matthew H. Maschler. The sole stockholders of Acquisition Co. are the Lombardi
Brothers, the Lombardi Brothers' related entities and the two Maschler Brothers,
all of whom have the same proportional ownership to each other in Acquisition
Co. as they own in the Company.
Acquisition Co.'s office is located c/o Lombardi & Lombardi, 1862 Oak
Tree Road, Edison, New Jersey 08818 where its telephone number is (732)
906-1500.
CAUTIONARY STATEMENT AND RISKS CONCERNING FORWARD-LOOKING STATEMENTS
Except for historical information, the matters discussed in this Proxy
Statement contain forward-looking statements within the meaning of Section 27A
of the Securities
18
Act of 1933 and Section 21E of Exchange Act. Such statements are intended to be
covered by the safe harbor created by such provisions. These statements include,
but are not limited to: management's beliefs regarding the Company's future
operations, operating results and any plans or objectives of management
regarding the future of the Company.
No assurances can be given that future results or events anticipated by
the forward looking statements will be achieved. Important factors which may
affect the Company's future results include, but are not limited to, changing
market conditions; weather (Florida hurricanes in the third quarter of fiscal
2004 caused the closing of the Company's three Florida restaurants for
approximately ten days in the case of one restaurant, and for approximately two
months and two and one-half months in the case of the other two restaurants);
the state of the economy; substantial increases in insurance costs; the impact
of competition to the Company's restaurants; pricing; and the acceptance of the
Company's food products. In addition, the Company's future performance could be
adversely affected if it is unable to find a satisfactory successor to its
former President and Chief Executive Officer, Anthony C. Papalia, who left the
Company's employ at the end of June 2004. Although Robert M. Lombardi currently
serves in these positions, he is doing so on a part-time basis, his principal
occupation being that of a physician and orthopedic surgeon.
The above discussion together with discussions contained elsewhere in
this Proxy Statement, highlight some of the more important risks to the
Company's future performance identified by its management. Such risks should not
be assumed to be the only risks that can adversely affect the Company's future
performance. Certain risk factors may also be identified by the Company from
time to time in filings with the Securities and Exchange Commission, press
releases and other communications.
In light of the significant uncertainties inherent in the
forward-looking statements included in this Proxy Statement, the inclusion of
such forward-looking statements should not be regarded as a representation by
the Company, its management or any other person that such future objectives will
be achieved.
INFORMATION ABOUT THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
This Proxy Statement is being furnished to the holders of the
outstanding shares of the Company's Common Stock as of the Record Date in
connection with the solicitation of proxies by the Board of Directors for use at
the Special Meeting to be held on ________________, February _ _, 2005, at 10:00
a.m. local time, at the Company's Jack Baker's Wharfside Restaurant at 101
Channel Drive, Point Pleasant Beach, New Jersey 08742, and at any adjournments
or postponements thereof.
19
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the Company's stockholders will be asked (i) to
consider and vote upon a proposal to approve and adopt the Merger Agreement and
the transactions contemplated thereby, and (ii) to transact such other business
as may properly come before the Special Meeting. Additional information
concerning the Special Meeting, the Merger and the Merger Agreement is set forth
below, and a copy of the Merger Agreement is attached hereto as Appendix A.
TAKING INTO ACCOUNT THE RECOMMENDATION OF A SPECIAL COMMITTEE APPOINTED
BY THE BOARD OF DIRECTORS, THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
The Board of Directors has fixed the close of business on January 14,
2005 as the Record Date for the Special Meeting. Only stockholders of record of
the Company's Common Stock on the Record Date are entitled to notice of and to
vote at the Special Meeting. Stockholders are entitled to one vote for each
share held on the Record Date on matters properly presented at the Special
Meeting. At the close of business on the Record Date, there were 3,926,105
shares of Common Stock issued and outstanding. The holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Special Meeting will
constitute a quorum for the transaction of business at the Special Meeting.
VOTE REQUIRED
Pursuant to Delaware Law, the affirmative vote of not less than a
majority of the outstanding shares of Common Stock whose holders are entitled to
notice of and to vote at the Special Meeting is required to approve and adopt
the Merger Agreement and the Merger. The affirmative vote of a majority of the
issued and outstanding shares of Common Stock is a sufficient vote to approve
and adopt the Merger Agreement and the Merger even if a majority of the shares
of Common Stock owned by the Public Stockholders are not voted in favor of such
approval and adoption. Each share of Common Stock is entitled to one vote on all
matters presented to the Special Meeting. Failure to return an executed proxy
card (including broker non-votes) or to vote in person at the Special Meeting or
voting to abstain will constitute, in effect, a vote against approval and
adoption of the Merger Agreement and the Merger.
VOTING OF PROXIES
All proxies that are properly executed and returned to the Company's
transfer agent, Continental Stock Transfer & Trust Company, 17 Battery Place,
New York, New York 10004 on or before the date of the Special Meeting, and not
subsequently revoked, will be voted at the Special Meeting or any adjournments
or postponements thereof in
20
accordance with any instructions thereon, or, if no instructions are provided,
will be voted FOR approval and adoption of the Merger Agreement and the
transactions contemplated thereby. Any stockholder who has given a proxy
pursuant to this solicitation may revoke it by attending the Special Meeting and
giving oral notice of his or her intention to vote in person, without compliance
with any other formalities. In addition, any proxy given pursuant to this
solicitation may be revoked prior to the Special Meeting by delivering an
instrument to the Secretary of the Company revoking it or by delivering a duly
executed proxy bearing a later date. A vote in favor of the Merger Agreement and
the transactions contemplated thereby means that a Stockholder will NOT have the
right to dissent and seek payment of the fair value of his or her shares of
Common Stock.
Management of the Company does not know of any matters other than those
set forth herein which may come before the Special Meeting. If any other matters
are properly presented to the Special Meeting for action, it is intended that
the persons named in the enclosed form of proxy and acting thereunder will vote
in accordance with their best judgment on such matters. Such matters may include
an adjournment or postponement of the Special Meeting from time to time in the
event the Board of Directors determines to adjourn or postpone the Special
Meeting. If any such adjournment or postponement is made, additional proxies may
but will not necessarily be solicited during such adjournment period.
PROXY SOLICITATION
The expense of preparing, printing and mailing this Proxy Statement and
the proxies solicited hereby will be borne by the Company. In addition to the
use of the mails, proxies may be solicited by officers and directors and regular
employees of the Company, without additional remuneration, by personal
interviews, written communication, telephone, telegraph or facsimile
transmission. The Company has requested brokerage firms, nominees, custodians
and fiduciaries to forward proxy materials to the beneficial owners of shares of
the Company's Common Stock held of record on the Record Date and will provide
reimbursement for the cost of forwarding the material in accordance with
customary charges.
STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING SHARES OF COMMON
STOCK WITH THEIR PROXY CARD. IF THE MERGER IS CONSUMMATED, THE PROCEDURE FOR THE
EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMMON STOCK, WILL BE AS SET
FORTH IN THIS PROXY STATEMENT.
SPECIAL FACTORS
PURPOSE
The purpose of the Merger is to convert the Company into a non-public
corporation owned by the Continuing Stockholders. At the same time, the Public
Stockholders are being given the opportunity to receive a cash payment of $3.12
per
21
share owned which represents a substantial premium over the $1.45 last sale
price per share at which the Company's Common Stock was trading in the
over-the-counter market prior to the announcement of the Merger proposal.
BACKGROUND
PURCHASE OF CONTROL BY THE LOMBARDI GROUP - On May 20, 1999, the five
Lombardi Brothers purchased an aggregate 1,722,445 shares of the Company's
Common Stock for an aggregate $4,306,113 or $2.50 per share from the Chapter 11
Trustee for the bankruptcy estate of the Company's former principal stockholder.
On May 25, 1999, the Company received notice that the five Lombardi Brothers and
their related entities (the "Lombardi Group") owned in excess of 50% of the
Company's issued and outstanding Common Stock and as a result, owned voting
control of the Company. On that date, Robert M. Lombardi was elected as a
director of the Company and chairman of the board at the request of the Lombardi
Group.
On July 7, 1999, the four remaining Company directors resigned as
directors and four Lombardi Group nominees, namely Anthony M. Lombardi, Joseph
S. Lombardi, Michael F. Lombardi and Stephen F. Lombardi were elected as
directors in their place. In December 1999, Nicholas Boxter, Kenneth Cubelli and
Raymond L. Dademo were elected as directors bringing the number of the Company's
directors to a total of eight. In June 2004, Robert M. Lombardi was elected as
President and Chief Executive Officer of the Company to succeed Anthony C.
Papalia who resigned from those positions effective June 28, 2004.
EVENTS LEADING TO THE PROPOSAL FOR AND THE ACCEPTANCE OF THE MERGER OFFER
During the third and fourth quarters of fiscal 2004, Robert M. Lombardi
and his brother Michael F. Lombardi, Chairman of the Board and Secretary,
respectively, of the Company, had a number of conversations with their Lombardi
Brothers, Anthony M. Lombardi, Joseph S. Lombardi and Stephen F. Lombardi
concerning whether the Company should remain a public company. The Lombardi
Brothers concluded that based on the Company's relatively small size, the fact
that substantial stock repurchases made by the Company had not had a significant
positive effect on the market price for the Common Stock, the illiquidity of the
Common Stock, the Company's lack of growth and the costs inherent in remaining a
public company, it would be in all of the stockholders' interests to "take the
Company private" at a fair price. At the time, the five Lombardi Brothers
comprised five of the Company's eight directors and the Lombardi Brothers and
their related entities (collectively the "Lombardi Group") were the beneficial
owners of in excess of 60% of the Common Stock.
The Lombardi Brothers organized Lombardi Restaurant Group, Inc.
("Acquisition Co.") in November 2003. Acquisition Co. is a Delaware corporation
formed to merge into the Company. The present stockholders of Acquisition Co.
are the Lombardi Group and the Maschler Group. It is anticipated that as a
result of the Merger, the Company will
22
acquire the shares of the Public Stockholders, thereby converting the Company
into a private corporation owned solely by the stockholders of Acquisition Co.
On November 21, 2003, the Company announced that it had received a
proposal made by the Lombardi Group through Acquisition Co., to acquire all of
the outstanding shares of the Company's Common Stock not owned by the Lombardi
Group for a cash purchase price of $1.75 per share. The proposal contemplated
that the acquisition would take the form of a Merger pursuant to which
Acquisition Co. would be merged into the Company and the Company's stockholders
other than the members of the Lombardi Group would receive a $1.75 per share
cash payment for their shares of the Company's Common Stock.
The Company also announced that the proposal was subject to various
conditions including the requirement that the Company's Board of Directors
determine and recommend the $1.75 per share acquisition price to be fair to the
Company's minority stockholders ("Public Stockholders"). At the same time, the
Company announced that the Board of Directors had appointed a Special Committee
consisting of the three non-Lombardi brother directors, namely Nicholas Boxter,
C.P.A., Kenneth Cubelli M.D. and Raymond Dademo, Esq., to review and analyze the
proposal and to determine whether the Special Committee, in its judgment, deemed
the proposed acquisition price fair to the Public Stockholders.
On December 17, 2003, the Special Committee engaged the New York City
law firm of Ellenoff Grossman & Schole LLP to serve as independent counsel to
the Special Committee to advise the members with respect to their legal
responsibilities.
On January 30, 2004, the Company announced that the Special Committee
had retained the investment banking firm of Houlihan Lokey Howard & Zukin
Financial Advisors, Inc. ("Houlihan Lokey") to render an opinion to the Special
Committee as to the fairness, from a financial point of view, of the
consideration offered by the Lombardi Group to the Public Stockholders.
On March 8, 2004, the Company announced that after review with its
financial and legal advisors, the Special Committee had voted unanimously to
reject the offered cash purchase price of $1.75 per share concluding that the
offer price did not adequately reflect the Company's value.
On March 15, 2004, the Company announced that the Lombardi Group had
increased the offered purchase price to $2.50 per share. Although the offer had
an initial termination date of March 19, 2004, it was extended after discussions
between counsel to the Special Committee and counsel to the Lombardi Group.
On April 19, 2004, the Company announced that after further review with
its financial and legal advisors, the Special Committee had voted unanimously to
recommend rejection of the increased offered purchase price of $2.50 per share.
In making its recommendation, the Committee took into account the possible
departure of
23
the Company's chief executive and chief financial officer, Anthony C. Papalia,
but concluded that the revised offered purchase price was still inadequate from
a financial point of view as it did not adequately reflect the Company's value.
On April 21, 2004, the Company announced than the Lombardi Group had
once again increased the offered purchase price, this time to $3.00 per share.
Counsel to the Special Committee, after conferring with the members of the
Committee, informed counsel for the Lombardi Group that the $3.00 offer appeared
to be inadequate. At this point, counsel for the Lombardi Group engaged in a
number of telephone discussions with counsel to the Special Committee in which
he indicated that the Lombardi Group did not wish to continue a pattern of offer
and rejection and requested an indication from the Committee as to an acceptable
price. A price was established after discussions among the members of the
Special Committee as well as with Houlihan Lokey and communicated by counsel to
the Special Committee to counsel to the Lombardi Group.
In May 2004, counsel to the Lombardi Group advised counsel to the
Special Committee that the Lombardi Group's "final" offer was $3.12 per share.
On June 1, 2004, the Company announced that the Special Committee, after review
with its financial and legal advisors, had advised the Board of Directors that
in the Committee's judgment, the proposed increased purchase price of $3.12 per
share was fair to the Public Stockholders, and recommended that the Board accept
the proposal.
Houlihan Lokey subsequently updated its analysis with respect to the
Merger and, on December 16, 2004, provided the Special Committee with a written
opinion as of the date thereof that based on the matters described in its
opinion, the consideration to be received by the Public Stockholders in the
Merger ($3.12 per share) is fair to them from a financial point of view.
On December 16, 2004, after a review of the proposed Merger Agreement
and the Plan of Merger and taking into account the recommendation of the Special
Committee, the Board of Directors unanimously approved the proposal as well as
the form of Merger Agreement and the Plan of Merger. The Merger Agreement was
executed on December 22, 2004.
On December 17, 2004, the Continuing Stockholders, namely the Lombardi
Group and the Maschler Group, executed a Contribution Agreement pursuant to
which each member of each Group agreed to contribute his or its Common Stock to
Acquisition Co. prior to the Merger in exchange for an identical number of
shares of Acquisition Co. stock. If the Merger is consummated, the Common Stock
contributed by the Continuing Stockholders to Acquisition Co. will be canceled
as will their shares of Acquisition Co. stock and they will each be issued new
shares of Common Stock identical in number to the shares he or it agreed to
contribute to Acquisition Co. Matthew H. Maschler had initially contacted the
Company in February 2004 after the Company's announcement of the Merger proposal
with an offered cash purchase price of $1.75 per share to the Public
Stockholders. Mr. Maschler advised that he and his family owned a significant
number of shares of Common Stock and wanted to be certain that the Board of
Directors would act
24
independently when evaluating the proposal. After a subsequent series of
discussions between Michael F. Lombardi on behalf of the Lombardi Group and
Matthew H. Maschler on behalf of the Maschler Group, it was agreed that in
consideration for the Maschler Group executing the Contribution Agreement and
assuming its proportionate share of the Merger expenses (7.6% or approximately
$320,000), the Maschler Group would join the Lombardi Group as Continuing
Stockholders and Matthew H. Maschler would be elected as a director of
Acquisition Co. and after the Merger, as a director of the Company.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS
The Special Committee and the Board of Directors have each unanimously
determined that the Merger Agreement and the Merger are fair to and in the best
interests of the Company's Public Stockholders. The Special Committee and the
Board recommend that you vote "For" approval and adoption of the proposed Merger
pursuant to the terms and conditions of the Merger Agreement. See "Interests of
Certain Persons in the Merger - Actual or Potential Conflicts of Interest" as to
actual or potential conflicts of interest between the members of the Board and
the Public Stockholders.
The Special Committee and the Board believe that the Merger is a more
desirable alternative for the Public Stockholder than continuing to hold equity
interests in the Company. In reaching the determination that the Merger
Agreement and the Merger are fair to the Public Stockholders, the Special
Committee consulted with its financial consultant, Houlihan Lokey and with its
legal advisors and the Board consulted with its legal advisors. Each member also
relied on his knowledge of the Company's business operations, properties,
financial condition, operating results, and prospects in the restaurant
business. Also reviewed were trading prices for and trading volume of the
Company's Common Stock in the over-the-counter market. Each of the following
factors, in the opinion of the Special Committee and the Board, supported the
determination.
o the relative lack of growth in the Company's revenues over the past four
years as follows:
Fiscal 2001 Fiscal 2002 Fiscal 2003 Fiscal 2004
----------- ----------- ----------- -----------
$20,156,890 $20,798,333 $22,953,925 $22,283,169
o the Company's limited ability to expand the number of its seafood
restaurants due to the difficulties in acquiring additional waterfront sites
at reasonable cost
o the required future capital investment to maintain certain of the Company's
existing restaurants. Restaurant maintenance expense including property and
equipment replacement costs in fiscal 2004 aggregated approximately
$450,000.
o the costs to operate the Company as a publicly owned entity. In fiscal 2004,
these costs, including legal, auditing and transfer agent fees aggregated
approximately $160,000.
25
o the relatively low market prices for the Common Stock in the
over-the-counter market over the past three years. See "Common Stock"
herein.
o the lack of positive impact on the market price for the Common Stock
following the Company's various stocks repurchases. See "Common Stock"
herein.
o the lack of liquidity in the market for the Common Stock as reflected by the
low average trading volume in the stock in the over-the-counter market over
the past three years. See "Common Stock" herein.
o the limited public float in the market for the Common Stock. At the date of
this Proxy Statement, the Public Stockholders own an aggregate of
approximately 1,350,000 shares of the Common Stock.
o the fact that the $3.12 per share cash price to be offered to the Public
Stockholders if the Merger is effected represents a premium of approximately
215% over the $1.45 per share last sale price for the Common Stock in the
over-the-counter market on November 17, 2003, the last trading day on which
a last sale price was available immediately preceding the date (November 21,
2003) on which the original $1.75 per share purchase proposal was publicly
announced.
o the written opinion of Houlihan Lokey, delivered to the Special Committee on
December 16, 2004, that based upon and subject to the limitations,
qualifications and assumptions stated therein, the $3.12 per share price to
be received by the Public Stockholders for their shares of Common Stock is
fair to them from a financial point of view. See the information under the
caption "Opinion of Houlihan Lokey" hereunder. A copy of Houlihan Lokey's
written opinion is included as Appendix B to this Proxy Statement.
o the belief that after several increases in the offered purchase price, the
$3.12 per share offered purchase price was the highest price that the
Lombardi Group was willing to offer.
o the fact that stockholders who properly assert dissenters' rights in
connection with the Merger in accordance with Section 262 of the Delaware
Law are entitled to demand and be paid the fair value for their shares of
Common Stock as determined pursuant to an appraisal by the Delaware Court of
Chancery. See "Dissenters' Rights" herein. A copy of Section 262 of the
Delaware Law is attached as Appendix C to this Proxy Statement.
In concluding that the Merger is fair to the Public Stockholders, the
Special Committee and the Board also considered the following factors, each one
of which they considered to be a negative factor.
26
o the fact that consummation of the Merger will preclude the Public
Stockholders from having the opportunity to participate in any future
growth of the Company.
o the fact that if the Merger is consummated, the Lombardi Group and the
Maschler Group, who currently own the controlling interest in the
Company, will have the sole opportunity to benefit from any increases in
the value of the Company as a result of their increased equity ownership
in the Company (from 66% to 100%) and therefore could receive a
substantial economic benefit from the transaction.
o the fact that the Company's net book value per share and net tangible
book value per share ($3.75 and $3.53 per share, respectively, as of
April 25, 2004, the last day of the Company's fiscal quarter immediately
preceding the date on which the Special Committee initially determined
to recommend acceptance of the Merger offer) exceeds the $3.12 per share
cash price being offered to the Public Stockholders in connection with
the Merger by $.63 and $.41 per share (20% and 13% respectively).
o the conflicts of interest of the Lombardi Group who may realize
substantial benefits if the Merger is consummated. The five Lombardi
Brothers comprise five of the eight directors of the Company. One
brother, Robert M. Lombardi, also serves as the Company's Chairman and
President. The Lombardi Brothers, their related entities and the
Maschler Group own approximately 66% of the outstanding Common Stock and
if the Merger is consummated, will own 100% of the outstanding Common
Stock. The Company also leases two buildings in Freehold, New Jersey in
which it operates restaurants and a parking lot used for the two
restaurants from an entity affiliated with the Lombardi Group. Two
members of the Special Committee have family relationships with the
Lombardi Brothers and the third member renders accounting services to
the Lombardi Brothers and their affiliated entities. See "Interests of
Certain Persons in the Merger - Actual or Potential Conflicts of
Interest" herein. The Special Committee and the Board, being fully aware
of these conflicts, believe that the procedures followed in considering
the Merger proposal including the appointment of the Special Committee
and the retention of Houlihan Lokey resulted in a negotiated transaction
that is fair to the Public Stockholders despite these conflicts.
The above listing of the factors considered by the Special Committee and
the Board is not meant to be exhaustive, but includes the material factors
considered by them as part of their determination that the Merger and the Merger
Agreement are fair to the Public Stockholders and their recommendation that
Stockholders approve the Merger and the Merger Agreement. In addition to
considering the above factors, the Special Committee and the Board reviewed the
analysis and conclusions of Houlihan Lokey as described below before making the
determination that the Merger and the Merger Agreement are fair to the Public
Stockholders. Based on the above engagement of
27
Houlihan Lokey and of separate legal counsel to negotiate on its behalf, the
Board and the Special Committee also believe that the Merger is procedurally
fair to the Public Stockholders. The members of the Special Committee and the
Board have not assigned relative weights or quantifiable values to the above
positive and negative factors and each has based his recommendation on the
totality of the information presented to and considered by him. In the opinion
of the Special Committee and the Board of Directors, the positive factors set
forth above outweigh the negative factors set forth above.
OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
On January 30, 2004, we announced that the Special Committee had engaged
the investment banking firm of Houlihan Lokey Howard & Zukin Financial Advisors,
Inc. ("Houlihan Lokey") to render an opinion as to the fairness, from a
financial point of view, of the consideration to be received by our public
stockholders, excluding the Lombardi Group, (the "Public Stockholders") in
connection with the Merger.
The Special Committee selected Houlihan Lokey based on its reputation,
experience and expertise in the valuation of businesses, and their securities in
connection with mergers and acquisitions, particularly within the restaurant
sector. Houlihan Lokey is a nationally recognized investment banking firm that
is continually engaged in providing financial advisory services for business and
securities valuations and rendering fairness opinions in connection with mergers
and acquisitions and leveraged buyouts for a variety of regulatory and planning
purposes, recapitalizations, financial restructurings and private placements of
debt and equity securities.
In May 2004, Houlihan Lokey advised the Special Committee that based on
the information received and analysis performed through that point that, if
asked by the Special Committee, Houlihan Lokey could opine favorably that, as of
that date and subject to the matters orally described to the Special Committee,
the consideration to be received by the Public Stockholders in connection with
the Merger is fair to them from a financial point of view. Houlihan Lokey
subsequently updated its analysis with respect to the Merger and, on December
16, 2004, provided the Special Committee with a written opinion as of the date
thereof that based on the matters described in its opinion, the consideration to
be received by the Public Stockholders in the Merger is fair to them from a
financial point of view. Houlihan Lokey's written opinion neither addresses any
other aspect of the Merger, nor the relative merits of the Merger as compared to
any alternative business strategies that might exist for us or the effect of any
other transaction in which we might engage.
The summary of Houlihan Lokey's written opinion set forth below is
qualified in its entirety by reference to the full text of the opinion attached
as Appendix B to this Proxy Statement. Houlihan Lokey provided its written
opinion for the information and assistance of the Special Committee in
connection with its consideration of the Merger. Houlihan Lokey's written
opinion is not a recommendation as to how any stockholder should vote or
otherwise act (including with respect to dissenting) at the Special Meeting.
Stockholders are encouraged to read the written opinion carefully in its
entirety for a
28
description of the assumptions made, matters considered and limitations on the
review undertaken.
No limitations were imposed by the Special Committee upon Houlihan Lokey
with respect to the investigations made or procedures followed by it in
rendering its written opinion. The opinion speaks only as of its date. Events
that could affect the fairness of the Merger to the Public Stockholders from a
financial point of view include adverse changes in industry performance or
market conditions and changes to our business, financial condition and results
of operations.
There were no material relationships or transactions between Houlihan
Lokey and us, our affiliates or any other party to the Merger prior to or at the
time that Houlihan Lokey and the Special Committee entered into the engagement
letter with respect to Houlihan Lokey's written opinion, none has since
developed and none is mutually understood to be contemplated other than the
matters contemplated by the engagement letter.
In arriving at the conclusions expressed in Houlihan Lokey's written
opinion, among other things, Houlihan Lokey undertook the following actions:
o met with certain members of our senior management to discuss our
operations, financial condition, future prospects and projected
operations and performance;
o visited certain of our restaurants and business offices;
o reviewed our publicly traded stock price history and trading volume;
o reviewed a draft of the Merger Agreement dated December 16, 2004;
o reviewed our certificate of incorporation, as amended;
o reviewed our Annual Report to shareholders on Form 10-KSB for the fiscal
years ended January 25, 1998 through January 25, 2004;
o reviewed our Form 10-QSB for the quarterly period ended October 24,
2004;
o reviewed our tax assessments of our owned properties;
o reviewed our restaurant lease agreements;
o reviewed certain publicly available financial data for certain companies
that Houlihan Lokey deemed appropriate; and
o conducted such other studies, analyses and inquiries, as Houlihan Lokey
has deemed appropriate.
ANALYSES
In connection with rendering its written opinion, Houlihan Lokey
performed a variety of financial and comparative analyses (including those
described below) to assess the fairness of the consideration per share to be
received in the Merger. The summary of these analyses is not a complete
description of the analyses underlying Houlihan Lokey's opinion. The preparation
of a financial opinion is a complex analytical process involving
29
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, a financial opinion is not readily susceptible to
summary description. Houlihan Lokey arrived at its written opinion based on the
results of all analyses undertaken by it and assessed as a whole and did not
draw, in isolation, conclusions from or with regard to any one factor or
analysis or method of analysis. Accordingly, Houlihan Lokey believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and factors, without considering all analyses and factors or the
narrative description of the analyses, could create a misleading or incomplete
view of the processes underlying its analyses and opinion.
PUBLIC MARKET PRICING: Houlihan Lokey reviewed the historical market
prices and trading volume for our publicly held Common Stock and reviewed news
articles and press releases relating to us. For the 52-week period prior to the
Lombardi Group's initial proposal of $1.75 per share, our publicly traded Common
Stock traded at a low of $1.36 per share and high of $1.50 per share. Prior to
the announcement of the revised offer of $3.12 per share, our stock price had
not traded above $3.00 per share since May 5, 1995. Since the announcement, our
stock price has traded slightly below the revised offer price of $3.12 per
share. Additionally, our daily trading volume has been very thin averaging less
than 1,500 shares per day over the past year, and there are days in which it
does not trade at all.
MARKET MULTIPLE METHODOLOGY: Houlihan Lokey reviewed certain financial
information of publicly traded comparable companies which were similar to us in
terms of operations and product mix. The comparable companies included:
o Buca, Inc. o Landry's Restaurant, Inc.
o Champps Entertainment, Inc. o O'Charley's Inc.
o Darden Restaurants, Inc. o Total Entertainment Restaurant
Corporation
o Famous Dave's of America, Inc.
Houlihan Lokey calculated certain financial ratios of the comparable
companies based on the most recent publicly available information. These
financial ratios include the multiples of: (i) enterprise value (the equity
value of the comparable company plus all interest-bearing debt less all cash and
cash equivalents) to latest twelve months earnings before interest, taxes,
depreciation and amortization ("EBITDA") and (ii) enterprise value to latest
twelve months earnings before interest, taxes, depreciation, amortization and
rent expense ("EBITDAR"). Houlihan Lokey derived enterprise value indications of
the Company by applying selected EBITDA and EBITDAR multiples to certain
adjusted operating results for the last twelve months ended October 24, 2004.
Based on the above,
30
the resulting indications of the enterprise value of our operations ranged from
approximately $8.3 million to $9.3 million (after incorporating a 20.0%
premium).
After determining our enterprise value from operations, Houlihan Lokey
made certain adjustments to determine our equity value including adjustments to
reflect current holdings of cash, cash equivalents, equity in certain life
insurance policies, equity in a liquor license at Escondido's Monmouth Mall and
the fair market value of certain nonoperating real property we own and
subtracting debt obligations, as applicable for each valuation indication. The
resulting indicated range of value from the market multiple methodology was
$3.09 per share to $3.37 per share.
COMPARABLE MERGER METHODOLOGY: Houlihan Lokey reviewed the consideration
paid in fifteen restaurant sector acquisitions that occurred between January 1,
2001 and December10, 2004. Specifically, Houlihan Lokey reviewed the following
transactions:
--------------------------------------- --------------------------------------
TARGET ACQUIROR
Quality Dining, Inc. Quality Dining, Inc./Management
Mimi's Cafe Bob Evans Farm, Inc.
Garden Fresh Restaurants Fairmont Capital, Inc.
Ninety Nine Restaurant & Pub O'Charley's, Inc.
Tumbleweed, Inc. Private Group
Dave & Busters, Inc. Management Group
Morton's Restaurant Group, Inc. Castle Harlan, Inc.
Chart House Enterprise, Inc. Landry's Restaurants, Inc.
Shoney's, Inc. Lone Star Funds
Interfoods of America, Inc. Management
Mexican Restaurants, Inc. Wyndcrest Holdings, Inc.
Santa Barbara Restaurant Group, Inc. CKE Restaurants, Inc.
Panchos Mexican Buffet, Inc. Private Group
McCormick & Schmicks Castle Harlan
Vicorp Restaurant BancBoston Capital & Goldner Hawn
--------------------------------------- --------------------------------------
In performing its analysis, Houlihan Lokey considered that the merger
and acquisition transaction environment varies over time because of, among other
things, interest rate and equity market fluctuations and industry results and
growth expectations. No company or transaction used in the analysis was directly
comparable to us. All fifteen acquisitions reviewed represent controlling
interest purchases. Accordingly, Houlihan Lokey reviewed these transactions to
understand the range of multiples of EBITDA and EBITDAR paid for companies in
the restaurant industry.
Houlihan Lokey derived enterprise value indications of the Company by
applying selected EBITDA and EBITDAR multiples to certain adjusted operating
results for the last twelve months ended October 24, 2004. Based on the above,
the resulting indications of the enterprise value of our operations ranged from
approximately $8.1 million to $9.0 million.
31
After determining our enterprise value, Houlihan Lokey made certain
adjustments to determine our equity value including adjustments to reflect
current holdings of cash, cash equivalents, equity in certain life insurance
policies, equity in a liquor license at Escondido's Monmouth Mall and the fair
market value of certain nonoperating real property we own and subtracting debt
obligations, as applicable for each valuation indication. The resulting
indicated range from the comparable transaction methodology was $3.06 per share
to $3.29 per share.
BOOK VALUE ANALYSIS: Houlihan Lokey also took into account that the
consideration being offered in the Merger is less than the net book value per
share and net tangible book value per share of our Common Stock as of October
24, 2004. Houlihan Lokey noted that the net book value per share and net
tangible book value per share of our Common Stock do not take into account:
o the inherent uncertainty and contingencies associated with
realizing those values, many of which are beyond our control;
o the extended time that it would typically take for us to
actually sell our properties and related assets, if at all, in
order to realize any such value; or
o the transaction costs which we would incur in order to realize
any such value.
Houlihan Lokey also performed additional financial analysis of our book
value to determine an estimation of our value if we were to liquidate. Houlihan
Lokey did not make, and we did not obtain, any independent appraisal of any of
our properties or assets. Houlihan Lokey's financial analysis assumed an orderly
liquidation of our assets and satisfaction of our liabilities. With the
exception of our property, plant and equipment, Houlihan Lokey relied on the
book value of our assets discounted at customary recovery rates. With respect to
the real estate and related restaurants and equipment, Houlihan Lokey relied on
(i) market rents quoted by local real estate agents for comparable restaurant
space, assuming triple-net lease terms, multiplied by regional capitalization
rates from a national real-estate publication, (ii) comparable real estate
listings, (iii) estimated recovery rates based on discussions with liquidation
professionals, and (iv) tax assessments. Houlihan Lokey assumed a nominal value
with respect to our equipment. Additionally, they deducted transaction costs
estimated at 5.0% of gross proceeds from asset sales to account for expenses (in
other words, real estate commissions and other professional fees) typically
incurred in an orderly liquidation.
This financial analysis is qualified by the limitations identified
above. Therefore, there can be no assurance that the assumptions and estimates
employed in performing this financial analysis resulted in an accurate estimate
of the proceeds that would be realized were we to undergo an actual liquidation.
This financial analysis does not purport to be a valuation of our assets and is
not necessarily indicative of the values that may be realized in an actual
liquidation. Actual valuations realized in a liquidation could vary materially
from the estimates provided above.
Houlihan Lokey also took into account that, in the Merger Agreement,
Acquisition Co. represented to us that Acquisition Co. did not have any present
plans for
32
and was not presently considering any proposal that contemplates or would result
in an extraordinary corporate transaction after the Merger involving our
corporate structure, business or assets such as a merger, reorganization,
liquidation, relocation or sale or transfer of a material amount of assets.
CONCLUSION
Houlihan Lokey delivered its written opinion dated December 16, 2004 to
the Special Committee stating that, as of that date, based upon the assumptions
made, matters considered and limitations on the review described in its written
opinion, the consideration per share to be received by the Public Stockholders
in the Merger is fair to them from a financial point of view.
Houlihan Lokey's written opinion is based on the business, economic,
market and other conditions, as they existed as of December 16, 2004. In
rendering its written opinion, Houlihan Lokey relied upon and assumed, without
independent verification that the accuracy and completeness of the financial and
other information provided to Houlihan Lokey by our management was reasonably
prepared and reflects the best currently available estimates of our financial
results and condition; and that no material changes have occurred in the
information reviewed between the date the information was provided and the date
of Houlihan Lokey's written opinion. Houlihan Lokey did not independently verify
the accuracy or completeness of the information supplied to it with respect to
us and does not assume responsibility for it. Houlihan Lokey did not make any
independent appraisal of our specific properties, assets or liabilities.
Houlihan Lokey was not asked to opine and does not express any opinion
as to: (i) the tax or legal consequences of the Merger; or (ii) the fairness of
any aspect of the Merger not expressly addressed in its opinion.
Houlihan Lokey's written opinion neither addresses any other aspect of
the Merger, nor the relative merits of the Merger as compared to any alternative
business strategies that might exist for the Company or the effect of any other
transaction in which we might engage; nor does it constitute a recommendation to
any stockholder as to how they should vote or otherwise act (including with
respect to dissenting) at the Special Meeting. Houlihan Lokey has no obligation
to update its written opinion. Houlihan Lokey did not, and was not requested by
us or any other person to solicit third party indications of interest in
acquiring all or any part of the Company or to make any recommendations as to
the form or amount of consideration in connection with the transaction.
Furthermore, at the request of the Special Committee, Houlihan Lokey neither
negotiated any portion of the Merger nor advised the Special Committee with
respect to alternatives to it.
The summary set forth above describes the material points of more
detailed analyses performed by Houlihan Lokey in arriving at its written
opinion. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey made qualitative
33
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Houlihan Lokey believes that its analyses and summary set forth
herein must be considered as a whole and that selecting portions of its
analyses, without considering all analyses and factors, or portions of this
summary, could create an incomplete and/or inaccurate view of the processes
underlying the analyses set forth in its opinion. In its analysis, Houlihan
Lokey made numerous assumptions with respect to us, the Merger, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the respective entities.
The estimates contained in such analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be more or
less favorable than suggested by such analyses. Additionally, analyses relating
to the value of our business or securities are not appraisals. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Furthermore, Houlihan Lokey assumed that the Merger would be consummated on the
terms described in the Merger Agreement.
The full text of Houlihan Lokey's written opinion, which describes,
among other things, the assumptions made, general procedures followed, matters
considered and limitations on the review undertaken by Houlihan Lokey in
rendering its written opinion is attached hereto as Appendix B and is
incorporated herein by reference. The summary of Houlihan Lokey's written
opinion in this Proxy Statement is qualified in its entirety by reference to the
full text of Houlihan Lokey's written opinion. You are urged to read Houlihan
Lokey's written opinion in its entirety.
Under our engagement letter with Houlihan Lokey, we have agreed to pay
Houlihan Lokey an aggregate fee of $225,000 as compensation for its services in
connection with the Merger, as well as reimbursement of its out-of-pocket
expenses incurred in connection with its engagement. No portion of Houlihan
Lokey's fee is contingent upon the successful completion of the Merger, any
other related transaction, or the conclusions reached in Houlihan Lokey's
written opinion. We also agreed to indemnify Houlihan Lokey and related persons
against certain liabilities, including liabilities under federal securities laws
that arise out of the engagement of Houlihan Lokey, or, if such indemnification
is not available to Houlihan Lokey or insufficient to hold it harmless, we have
agreed to contribute to the amount paid or payable by Houlihan Lokey as a result
of such liabilities in proportion to the relative benefits received by and the
fault of the parties, with the amount of Houlihan Lokey's contribution being
capped at its fee amount.
CERTAIN EFFECTS OF THE MERGER
Assuming approval and adoption of the Merger Agreement and subject to
the fulfillment or waiver of certain conditions, Acquisition Co. will be merged
with and into the Company and the Company will continue to operate its current
business as the surviving corporation of the Merger. Each share of Common Stock
(other than shares owned by the Continuing Stockholders or owned by Dissenting
Stockholders) will be canceled and converted into the right to receive a cash
payment of $3.12 without interest, as a result of the Merger. The shares of
Common Stock owned by the Continuing Stockholders will be transferred to
Acquisition Co. prior to the Merger, and canceled as a
34
result of the Merger as will their shares of Acquisition Co. stock. In exchange,
each Continuing Stockholder will receive one "new" share of Common Stock for
each "old" share of Common Stock he owned prior to the Merger. Each "new" share
of Common Stock will be identical to each "old" share of Common Stock. As a
result, upon consummation of the Merger, the Continuing Stockholders will own
all of the outstanding Common Stock.
If the Merger is consummated, the Public Stockholders will no longer be
stockholders of, and will no longer have any equity or other interest in the
Company. As a result, they will be unable to benefit from future growth or
earnings of the Company, if any, or any increase in the market price for their
Common Stock that might have occurred if the Merger had not been consummated.
Conversely, the Public Stockholders will no longer bear the risk of any
decreases in the value of the Company or in the market price for their Common
Stock that might have occurred had the Merger not been consummated.
The Company is currently subject to the reporting requirements imposed
by the Exchange Act and its Common Stock is currently listed for trading on the
OTC Bulletin Board(R) under the symbol "CHEF". After consummation of the Merger,
the shares will be delisted from trading on the OTC Bulletin Board(R). In
addition, based upon the reduced number of record holders of its Common Stock
after the Merger, the Company intends to file the necessary certification with
the Securities and Exchange Commission to terminate the registration of its
Common Stock under the Exchange Act thereby suspending its duty to comply with
the Exchange Act reporting requirements.
Upon consummation of the Merger, the Company's Board of Directors will
be reduced from eight to six directors. The following five persons, all of whom
currently serve as directors of the Company, namely Anthony M. Lombardi, Joseph
S. Lombardi, Michael F. Lombardi, Robert M. Lombardi and Stephen F. Lombardi,
and Matthew H. Maschler who will be added to the Board after the Merger, will
then comprise all of the directors of the Company and will serve until such time
as their successors are elected and qualified. The current officers of the
Company will continue to serve in such capacities as officers of the surviving
corporation. See INFORMATION ABOUT THE COMPANY - Management" herein. Matthew H.
Maschler is and for more than the past five years has been principally engaged
as a practicing attorney in New Jersey.
OPERATION OF THE COMPANY AFTER THE MERGER
Following consummation of the Merger, it is anticipated that the
business and operations of the Company, as the surviving corporation of the
Merger, will continue to be conducted substantially in the same manner as they
are now being conducted. The Company's management contemplates that the Company
will continue to operate its six New Jersey and three Florida restaurants at
their present locations under their current names. See "INFORMATION ABOUT THE
COMPANY".
35
Neither the Company nor the Continuing Stockholders have any present
plans for or are presently considering any proposals that contemplate or would
result in an extraordinary corporate transaction after the Merger involving the
Company's corporate structure, business or assets such as a merger,
reorganization, liquidation, relocation or closing of existing restaurants or
opening of additional restaurants, or sale or transfer of a material amount of
assets. However, management will continue to evaluate the Company's business and
operations after the Merger and may develop new proposals which it considers to
be in the best interests of the Company and its then stockholders.
OPERATION OF THE COMPANY IF THE MERGER IS NOT CONSUMMATED
If the Merger is not consummated for any reason, it is anticipated that
the Company's business and operations will continue to be conducted by the
Company's current management, subject to the direction of the Board of
Directors, substantially in the same manner as they are currently being
conducted. No other transaction is currently being considered by management as
an alternative to the Merger.
If the Merger is not consummated, the Company may, from time to time,
repurchase outstanding shares of its Common Stock on terms more or less
favorable to the Public Stockholders than the terms of the Merger, or offer to
sell shares of its Common Stock, from time to time, in each case subject to
availability and at prices it deems acceptable, pursuant to open market or
privately negotiated transactions, a merger transaction, a tender offer or
otherwise.
Consummation of the Merger is subject to various conditions more fully
described herein under the caption "THE MERGER AGREEMENT AND THE MERGER"
including the condition that stockholders shall not have exercised appraisal
rights under the Delaware Law with respect to more than 10% of the outstanding
shares of Common Stock (392,610 shares). Accordingly, even if the requisite
stockholder approval is obtained, there can be no assurance that the Merger will
be consummated.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Actual or Potential Conflicts of Interest - In considering the
recommendations of the Special Committee and the Board of Directors with respect
to the Merger, stockholders should be aware that members of the Board of
Directors, including members of the Special Committee, have certain interests in
the Merger as well as certain relationships, including those referred to below,
that can be considered as giving rise to divided interests in considering the
Merger. The members of the Special Committee and the Board of Directors were
aware of these potential or actual conflicts of interest and considered them in
addition to other factors before concluding to recommend the Merger to
stockholders.
Directorships and Officerships - The Company's Board of Directors
currently consists of the following eight persons, namely the five Lombardi
Brothers (Anthony M., Joseph S., Michael F., Robert M. and Stephen F.), and
Nicholas B. Boxter, Kenneth
36
Cubelli and Raymond Dademo. Messrs. Boxter, Cubelli and Dademo also comprise the
three members of the Special Committee. Robert M. Lombardi also serves as
Chairman of the Board and President, and Michael F. Lombardi serves as Secretary
of the Company. Assuming the Merger is consummated, the three members of the
Special Committee will resign from their positions as directors and the Board of
Directors will then consist of the five Lombardi Brothers and Matthew H.
Maschler who will be added to the Board after the Merger.
Certain relationships between the members of the Special Committee and
the Lombardi Brothers - The three members of the Special Committee have certain
relationships with the Lombardi Brothers. The Lombardi Brothers' mother, who
passed away in 2003, was the sister of Raymond L. Dademo's mother. Kenneth
Cubelli's wife and Joseph S. Lombardi's wife are sisters. Although Nicholas B.
Boxter has no family relationship with the Lombardi Brothers, he has in the past
and will continue to render accounting services after the Merger to the Lombardi
Brothers and their affiliated entities. See "Stock Transactions" as to
transactions in the Company's Common Stock by members of the Board of Directors
(including members of the Special Committee) since the beginning of the
Company's 2003 fiscal year and by the two Maschler Brothers since becoming
affiliates of the Lombardi Group.
Stock Ownership - The following table sets forth (a) the number of
shares of the Company's Common Stock beneficially owned by each of the Company's
eight directors as well as the Lombardi Group's affiliate, the Maschler Group,
as of the January 14, 2005 Record Date; (b) the percentage such shares comprise
of the total outstanding shares of Common Stock as of the Record Date; (c) the
number of shares of Common Stock that will be beneficially owned by each of the
eight individuals and the Maschler Group after the Merger (assuming it is
consummated) and (d) the percentage such shares will constitute of the total
outstanding shares of Common Stock after the Merger.
Beneficially Owned Beneficially Owned
as of the after the
Record Date Merger
-------------------------- --------------------------
Name Shares Percentage Shares Percentage
---- ------------ ---------- ------------ ----------
Nicholas B. Boxter -- -- -- --
Kenneth Cubelli 100,000 2.5% --(a) --(a)
Raymond L. Dademo 2,000 -- --(b) --(b)
Anthony M. Lombardi 111,001 2.8% 111,001 4.3%
Joseph S. Lombardi 598,633 15.2% 598,633 23.0%
Michael F. Lombardi 251,735(c) 6.4% 251,735(c) 9.7%(c)
Robert M. Lombardi 1,335,825 34.0% 1,335,825 51.3%
Stephen F. Lombardi 111,335(c) 2.8% 111,335(c) 4.3%(c)
Maschler Group 196,938(d) 5.0% 196,938(d) 7.6%(d)
37
----------
(a) If the Merger is consummated, Dr. Cubelli's stock will be canceled and
converted into the right to receive a cash payment of $3.12 per share.
(b) If the Merger is consummated, Mr. Dademo's stock will be canceled and
converted into the right to receive a cash payment of $3.12 per share.
(c) Includes with respect to each of Michael F. Lombardi and Stephen F.
Lombardi, only one-half of the 111,668 shares owned by the Lombardi & Lombardi,
P.A. Defined Benefit Pension Plan and only one-half of the 49,000 shares owned
by the law firm of Lombardi & Lombardi P.A., although each has voting and
dispositive power with respect to all 111,668 shares owned by the Pension Plan
and all 49,000 shares owned by the law firm.
(d) The Maschler Group is comprised of two Lombardi Brothers, Lee Maschler and
Matthew H. Maschler, who each own 98,469 shares of Common Stock. They will be
responsible for their proportional share of Acquisition Co.'s expenses necessary
to finance the Merger.
The Lombardi Group and the Maschler Group will each own the identical
percentages of the capital stock of Acquisition Co. as they will own in the
Company as reflected in the above table if the Merger is consummated. Prior to
the Merger, the Continuing Stockholders will transfer all of their shares of
Common Stock to Acquisition Co. Upon consummation of the Merger, Acquisition Co.
will be merged into the Company with the Company being the surviving
corporation. As a result of the Merger, the shares of Common Stock owned by the
Continuing Stockholders will be canceled as will their shares of Acquisition Co.
stock and in exchange, each Continuing Stockholder will receive one "new" share
of Common Stock for each "old" share of Common Stock owned immediately prior to
the Merger. Each "new" share of Common Stock will be identical to each "old"
share of Common Stock. As a result, upon consummation of the Merger, the
Continuing Stockholders will own all of the Company's outstanding Common Stock.
Stock Transactions - Since January 28, 2002 (the commencement of the
Company's 2003 fiscal year), through the date of this Proxy Statement, certain
of the Continuing Stockholders (and one member of the Special Committee), while
affiliates of the Company, engaged in certain transactions in the Common Stock,
as follows:
o Kenneth Cubelli - On July 23, 2002, Dr. Cubelli acquired 100,000 shares
of Common Stock from Joseph S. Lombardi as consideration for
cancellation of a $250,000 loan previously extended by Dr. Cubelli to
Joseph S. Lombardi.
o Joseph S. Lombardi - In February 2002, Joseph S. Lombardi purchased an
aggregate 3,000 shares of Common Stock in open market purchases at
prices ranging from $1.99 to $2.30 per share.
- In March 2002, Joseph S. Lombardi purchased 1,000 shares of
Common Stock in an open market purchase at $1.50 per share.
- On July 23, 2002, Joseph S. Lombardi transferred 100,000 shares
of Common Stock to Kenneth Cubelli as consideration for
cancellation of a $250,000 loan previously extended by Dr.
Cubelli to Joseph S. Lombardi.
38
- On March 25, 2003, Joseph S. Lombardi purchased 12,000 shares of
Common Stock in an open market purchase at $1.35 per share.
- In view of the fact that Joseph S. Lombardi's purchases of an
aggregate 4,000 shares of Common Stock in February and March
2002 occurred within six months of his July 2002 transfer of
100,000 shares to Dr. Cubelli and therefore resulted in a
matching short-swing profit of $1,990, Joseph S. Lombardi
reimbursed the Company for the $1,990 short-swing profit.
o Michael F. Lombardi - In March 2002, Michael F. Lombardi purchased 500
shares of Common Stock in an open market purchase at $1.45 per share.
o Robert M. Lombardi - In February 2002, Robert M. Lombardi purchased 600
shares of Common Stock in an open market purchase at $2.00 per share.
- In September 2002, Robert M. Lombardi purchased an aggregate
2,500 shares of Common Stock in open market purchases at $1.40
per share.
o On November 24, 2004, Lee Maschler and Matthew H. Maschler each
purchased 32,823 shares of Common Stock in a private purchase from their
brother Erik Maschler at a purchase price of $3.03 per share.
Restaurant Transactions between the Company and the Lombardi Group - At
the time of the acquisition in May 1999 of voting control of the Company by the
Lombardi Group, the Company was operating seven free-standing seafood
restaurants in New Jersey (four) and in Florida (three) and one Mexican theme
restaurant located in a New Jersey shopping mall. In February 2000, the Company
commenced the operation of an existing restaurant in Freehold, New Jersey which
was being operated by Moore's Inn, Inc., an entity affiliated with the Lombardi
Group, under the name "Moore's Inn." The Company changed the name of the
restaurant to "Moore's Tavern and Restaurant" and began restaurant operations
featuring an eclectic American food menu pursuant to a lease from Moore's Realty
Associates, a New Jersey partnership ("Moore's Realty") whose partners are
members of the Lombardi Group and other Lombardi family members.
The lease, which currently expires in February 2007, contains three
consecutive five-year renewals at the Company's option. It provides for a
minimum annual rental of $90,000 during each year through February 2007;
increasing to $100,000 during each year of the first five-year renewal period;
further increasing to $112,500 during each year of the second five-year renewal
period; and finally increasing to $125,500 during each year of the third
five-year renewal period. The Company is also required to pay as additional rent
in each year, an amount equal to (i) 6% of the total gross sales of food and
beverages at the restaurant for the year (excluding taxes and gratuities) (the
"gross annual rental") less (ii) the minimum annual rental for that year. The
lease is a "net net" lease so that the Company pays the real estate taxes,
insurance and heating and air conditioning costs with respect to the restaurant.
Moore's Realty can terminate the lease upon twelve months prior written notice
if, for the preceding year, the gross annual rental did not exceed the minimum
annual rental for that year.
39
In connection with the lease, the Company purchased a New Jersey state
liquor license from Moore's Inn, Inc. for $350,000 and agreed to sell the
license back to the Seller or to Moore's Realty upon termination of the lease
for the same $350,000. In addition, the Company purchased the existing
furniture, fixtures and equipment at Moore's Inn from Moore's Inn, Inc. for
$250,000 and agreed to leave them at the premises upon the termination of the
lease.
In January 2002, the Company opened a Mexican theme restaurant under the
name "Escondido's Mexican Restaurant" in a free-standing vacant structure next
to Moore's Tavern and Restaurant in Freehold, New Jersey pursuant to a second
lease with Moore's Realty. The terms of this second lease are identical to the
terms of the lease for Moore's Tavern and Restaurant. It provides for identical
renewal options, minimum annual rental payments and additional rent.
The Company expended approximately $1,300,000 to renovate, decorate and
equip this restaurant. The Company is permitted to use the same liquor license
at this restaurant that it uses at Moore's Tavern and Restaurant.
The Company also leases an adjacent pad site from Moore's Realty for use
as a parking lot for its two Freehold, New Jersey restaurants. The site can
accommodate approximately sixty five (65) automobiles. The lease, executed in
September 2002, expires in February 2007 and contains provisions for three
consecutive five-year renewals at the Company's option. Either party has the
right to terminate the lease upon twelve months prior written notice after
February 2007 provided that if Moore's Realty elects to terminate the lease, it
must offer the Company the right to lease an adjoining paved parking area
sufficient to park at least fifty (50) automobiles on terms and conditions
similar to those contained in the lease.
The terms of the lease for the pad site are identical to the terms of
the lease for the two Freehold, New Jersey restaurants except that the minimum
annual rental during the initial term is $40,000; increasing to $44,000 during
each year of the first five-year renewal period; to $50,000 during each year of
the second five-year renewal period; and to $55,000 during each year of the
third five-year renewal period and that the additional rent in each year is
equal to 1% of the total gross food sales and beverages (excluding taxes and
gratuities) from the two Freehold, New Jersey restaurants in that year less the
minimum annual rental for that year.
During fiscal 2003, the Company installed curbing, paving and other
improvements to the pad site at a cost of approximately $134,000. Moore's Realty
has agreed to reimburse the Company's costs by applying credits against the
Company's rent obligations under the lease.
The three Freehold, New Jersey lease transactions and the Company's
purchases of the liquor license and the existing furniture, fixtures and
equipments at Moore's Inn cannot be deemed "arms length" transactions due to the
interests in each transaction of
40
the Lombardi Group and members of the Lombardi family. At the time of each
transaction, the Lombardi Group was in control of the Company through its
ownership of a majority of the Company's outstanding Common Stock and the fact
that the Lombardi Brothers comprised five of the eight directors of the Company.
Each transaction was negotiated on behalf of the Company by Anthony C. Papalia,
its then president and chief executive officer. Mr. Papalia and the non-Lombardi
brother directors concluded that each of the transactions were fair and in the
best interests of the Company.
Regardless of whether the Merger is consummated, management intends that
the Company will continue to operate Moore's Tavern and Restaurant and
Escondido's Mexican Restaurant.
COMMON STOCK - MARKET PRICES, TRADING VOLUME, STOCK REPURCHASES, DIVIDENDS,
BOOK VALUE
Three of the factors cited by the Special Committee and by the Board of
Directors in supporting their recommendation of the Merger terms to the Public
Stockholders were;
o the relatively low market price for the Common Stock in the
over-the-counter market over the past three years
o the lack of liquidity in the market for the Common Stock as reflected by
the low average trading volume in the stock in the over-the-counter
market over the past three years
o the lack of positive impact on the market price for the Common Stock
following the Company's various stock repurchases
Market prices and trading volume - The Common Stock currently trades in
the over-the-counter market and is quoted on the OTC Bulletin Board(R) under the
symbol "CHEF". The following chart sets forth the range of high and low closing
bid price quotations and the trading volume for the Common Stock in the
over-the-counter market for the periods indicated, as obtained from Pink Sheets
LLC.
The price quotations represent prices between dealers and do not include
retail mark-ups, mark-downs or commissions. They do not necessarily represent
actual transactions.
Bid Prices Total Share Trading
--------------------- Volume during the Quarterly Period
High Low in the Over-the-Counter Market
------ ---------- ----------------------------------
Fiscal 2002
Quarter ended
-------------
April 29, 2001 $ .90 $ .70 103,900
July 29, 2001 1.37 .81 180,900
October 28, 2001 1.41 1.07 45,400
January 27, 2002 2.15 1.15 148,900
41
Bid Prices Total Share Trading
--------------------- Volume during the Quarterly Period
High Low in the Over-the-Counter Market
------ ---------- ----------------------------------
Fiscal 2003
Quarter ended
-------------
April 28, 2002 $2.10 $1.42 87,400
July 28, 2002 1.72 1.42 76,900
October 27, 2002 1.46 1.33 58,700
January 26, 2003 1.50 1.35 288,100
Fiscal 2004
Quarter ended
-------------
April 27, 2003 $1.42 $1.35 187,500
July 27, 2003 1.38 1.35 30,800
October 26, 2003 1.40 1.38 35,600
January 25, 2004 1.85(a) 1.40(a) 35,393(a)
Fiscal 2005
Quarter ended
-------------
April 25, 2004 $2.76(b) $1.55(b) 49,500(b)
July 25, 2004 3.05(c) 2.76(c) 91,100(c)
October 24, 2004 3.05 3.03 184,694
----------
(a) During the quarter (on November 21, 2003), the Company publicly
announced its receipt of the Merger offer from the Lombardi Group offering to
purchase the outstanding Common Stock owned by the Public Stockholders for a
cash purchase price of $1.75 per share.
(b) During the quarter, after publicly announcing on March 8, 2004, the
rejection of the $1.75 per share offered purchase price, the Company, on March
15, 2004, publicly announced the increased offer by the Lombardi Group to a cash
purchase price of $2.50 per share. After publicly announcing on April 19, 2004,
the rejection of the $2.50 per share offered purchase price, the Company, on
April 21, 2004, publicly announced the increased offer by the Lombardi Group to
a cash purchase price of $3.00 per share.
(c) During the quarter (on June 1, 2004), the Company publicly announced
that the Special Committee had advised the Board of Directors that in the
Committee's judgment, the proposed increased purchase price of $3.12 per share
(increased after discussions between counsel for the Special Committee and
counsel for the Lombardi Group), was fair to the Company's Public Stockholders,
and to recommend that the Board accept the proposal.
Stock Repurchases - On June 8, 2000, the Company announced a program
authorized by the Board of Directors to repurchase up to 400,000 shares of its
Common Stock over the following 24 months. In announcing the repurchase program,
the Company stated that the Board of Directors believed that the Company's
Common Stock was undervalued and that repurchases at then market prices could
constitute an appropriate investment for the benefit of the Company's
stockholders. Through the end of fiscal 2002, the Company repurchased an
aggregate 28,191 shares of Common Stock in the over-the-counter market at
prevailing per share market prices ranging from $.73 to
42
$1.20. In addition, on August 29, 2001, the Company repurchased an aggregate
262,603 shares of Common Stock from a limited group of unaffiliated stockholders
in a block transaction at a repurchase price of $2.10 per share. The block
purchase was also authorized by the Board. During the third quarter of fiscal
2002 (July 30, 2001 through October 28, 2001) the bid price for the Common Stock
in the over-the-counter market ranged from a high of $1.41 to a low of $1.07 per
share. It was the opinion of the Board that although the repurchase price for
the block transaction was greater than the then market price for the Common
Stock, the size of the block and the fact that the per share repurchase price of
$2.10 was substantially below the net tangible per share book value of the
Common Stock (approximately $3.36 net tangible book value per share at July 29,
2001) rendered the repurchase an appropriate investment beneficial to the
Company's stockholders. No additional share repurchases were made pursuant to
the repurchase program announced on June 8, 2000.
On January 21, 2003, the Company announced that a second share
repurchase program had been authorized by the Board of Directors to repurchase
up to 100,000 shares of its Common Stock over the following twelve months.
During the first quarter of fiscal 2004, the Company repurchased an aggregate
40,000 shares of Common Stock in the over-the-counter market at the then market
price of $1.49 per share. No other repurchases were made pursuant to the second
share repurchase program which has since expired. No further repurchase programs
are currently contemplated (other than the offered payment by the Company of
$3.12 per share to the Public Stockholders if the Merger is approved and
adopted.)
Dividends - The Company has not paid any dividends with respect to its
Common Stock and does not currently anticipate paying any dividends in the
future.
Book Value - One factor which the Special Committee and the Board of
Directors cited as being a negative factor in considering whether the $3.12 per
share cash payment to be offered to the Public Stockholders if the Merger is
effected is fair to the Public Stockholders is the fact that the $3.12 per share
amount was exceeded by the Company's net book value per share.
The following are the net book values per share and net tangible book
values per share of the Common Stock (a) as of April 25, 2004 (the last day of
the Company's fiscal quarter immediately preceding the date on which the Special
Committee determined to recommend acceptance of the $3.12 per share offered
price to the Pubic Stockholders), and (b) as of October 24, 2004 (the last day
of the Company's most recently completed fiscal quarter).
As of Net Book Value Per Share Net Tangible Book Value Per Share
----- ------------------------ ---------------------------------
April 23, 2004 $3.75 $3.53
October 24, 2004 $3.91 $3.69
Due to the seasonality of the Company's restaurant business, the net
book value and the net tangible book value per share of the Common Stock has
decreased in the
43
fourth quarter in each of the Company's last five fiscal years as compared to
the net book value and net tangible book value per share at the end of the
immediately preceding third quarter. Management believes this pattern will
continue in the fourth quarter of fiscal 2005.
Although the Special Committee and the Board of Directors considered the
per share book value to be a negative factor, they concluded that it was
outweighed by the positive factors previously enumerated in determining that the
$3.12 per share price was fair to the Public Stockholders.
THE MERGER AGREEMENT AND THE MERGER
The following information describes certain material terms of the Merger
Agreement and the Merger. The description does not purport to be complete. It is
qualified in its entirety by the information contained in the appendices to this
Proxy Statement including the Agreement and Plan of Merger (the "Merger
Agreement") attached as Appendix A. You are urged to carefully read the Merger
Agreement and the other appendices in their entirety.
THE MERGER AGREEMENT
Covenants - The Company has agreed pursuant to the Merger Agreement to
hold a special meeting of its stockholders for the purpose of considering the
approval of the Merger Agreement and the Merger. Under the terms of the Merger
Agreement, the Company has agreed that the Board of Directors will recommend
that Stockholders vote to approve the Merger Agreement and the Merger, unless,
at any time prior to the Special Meeting, the Special Committee determines in
good faith, after consultation with Houlihan Lokey and its counsel, that
modification or withdrawal of its recommendation to the Board is required in
order to satisfy the fiduciary duties of the Special Committee under applicable
law.
The Company has also agreed in the Merger Agreement to prepare and file
a preliminary proxy statement relating to the Merger Agreement and the Merger
with the Securities and Exchange Commission (the "SEC"), to respond to the SEC's
comments with respect thereto, and to cause a definitive proxy statement (this
Proxy Statement) to be mailed to stockholders. Pursuant to the Merger Agreement,
the Company has consulted with Acquisition Co. with respect to such filings.
Acquisition Co. has provided the Company with information concerning Acquisition
Co. and its stockholders for inclusion in this Proxy Statement. The Company and
Acquisition Co. have also agreed to file and cause any other person deemed to be
an affiliate of the Company to file a Statement on Schedule 13E-3 under the
Exchange Act with the SEC as well as any required amendments or supplements.
Representation and Warranties - The Merger Agreement contains various
representations and warranties of the Company to Acquisition Co., including with
respect to the following matters: (i) the due organization and valid existence
of the Company and
44
its subsidiaries and similar corporate matters; (ii) the capitalization of the
Company; (iii) the due authorization, execution and delivery of the Merger
Agreement and its binding effect on the Company; (iv) the lack of conflicts
between the Merger Agreement and the transactions contemplated thereby with the
Company's certificate of incorporation or bylaws, contracts to which it or its
subsidiaries are parties or any law, rule, regulation, order, writ, injunction
or decree binding upon the Company or its subsidiaries; and (v) the approval of
the Merger by the Company's Board of Directors.
The Merger Agreement also contains representations and warranties of
Acquisition Co. to the Company, including with respect to the following matters:
(i) the due organization and valid existence of Acquisition Co. and similar
corporate matters; (ii) the capitalization of Acquisition Co.; (iii) the due
authorization, execution and delivery of the Merger Agreement by Acquisition Co.
and its binding effect; (iv) the lack of conflicts between the Merger Agreement
and the transactions contemplated thereby with the certificate of incorporation
or bylaws of Acquisition Co., contracts to which it is a party or any law, rule,
regulation, order, writ, injunction or decree binding upon Acquisition Co.; (v)
the availability of funds to complete the Merger; and (vi) the lack of any
future planned extraordinary transaction.
Conditions to Consummation of the Merger - The obligations of the
Company and Acquisition Co. to consummate the Merger are subject to the
fulfillment or waiver (if permissible) at or prior to the Effective Time of
certain conditions, including (i) the majority vote of the Stockholders of both
the Company and Acquisition Co., as required by the Delaware Law; (ii) there not
being in effect any statute, rule, regulation, executive order, decree, ruling
or injunction or other order of a court or agency directing than the
transactions contemplated by the Merger Agreement not be consummated; (iii) all
required consents, waivers and approvals having been obtained and continuing to
be in effect at the Effective Time; and (iv) the opinion of Houlihan Lokey shall
not have been withdrawn or revoked.
The obligation of the Company to effect the Merger is subject to the
fulfillment or waiver (if permissible) at or prior to the Effective Time of the
following conditions: (i) the representations and warranties of Acquisition Co.
contained in the Merger Agreement being true when made as of the Effective Time;
(ii) Acquisition Co. having performed in all material respect its obligations
required to be performed or complied with by Acquisition Co. at or prior to the
Effective Time; and (iii) that neither the Special Committee nor the Company's
Board of Directors has, prior to the Effective Time, withdrawn, modified or
changed its favorable recommendation regarding the Merger Agreement or the
Merger, or recommended or declared advisable any other Acquisition Offer or
Acquisition Proposal.
The obligation of Acquisition Co. to effect the Merger is subject to the
fulfillment or waiver (if permissible) at or prior to the Effective Time of the
following conditions: (i) the representations and warranties of the Company
contained in the Merger Agreement being true when made and as of the Effective
Time; and (ii) the Company having
45
performed in all material respects its obligations required to be performed or
complied with by the Company at or prior to the Effective Time.
Transactions, Amendments, Withdrawal of Recommendations - The Merger
Agreement provides that it may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, whether before or after the requisite
approval and adoption by the Company's stockholders at the Special Meeting: (i)
by written mutual consent of the boards of directors of the Company and
Acquisition Co.; (ii) by the Company or Acquisition Co. if (a) any court or
competent jurisdiction or United States governmental authority shall have issued
an order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting or delaying the Merger and such order, decree, ruling or
other action shall have become final and nonappealable, or (b) if the Company's
Board of Directors or the Special Committee withdraws or modifies in a manner
adverse to Acquisition Co., its approval or recommendation of the Merger
Agreement or the Merger or recommends another merger, consolidation, business
combination with, or acquisition, of the Company or its assets, or (c) if the
requisite approval in accordance with Delaware law of the Company's stockholder
necessary to consummate the Merger is not obtained. In addition, either party
may terminate the Merger Agreement and the Merger may be abandoned in the event
of the breach by the other party of any representation, warranty or covenant
contained in the Merger Agreement which breach is not cured within fifteen days
after notice. The Purchaser may also elect to terminate the Merger Agreement and
the prospective Merger if stockholders exercise their dissenters' rights of
appraisal pursuant to the Delaware Law with respect to more than an aggregate
392,610 shares of Common Stock.
The Merger Agreement further provides that it may be amended by written
agreement of the parties at any time prior to the Effective Time provided that
after approval and adoption by stockholders of the Merger Agreement and the
Merger, no amendment can be made which would reduce or change the type of
consideration into which each share of the Company's Common Stock will be
converted upon consummation of the Merger.
The Merger Agreement permits the Company's Board of Directors or the
Special Committee, at any time prior to the Effective Time, to withdraw, modify
or change its recommendation regarding the Merger or the Merger Agreement, or
recommend and declare advisable any other offer or proposal, if, in the opinion
of the Board of Directors or the Special Committee, after consultation with
their respective counsel and advisors, such withdrawal, modification or change
is required by the exercise of its fiduciary duties to the stockholders of the
Company under applicable law.
STRUCTURE OF THE MERGER
Pursuant to the Merger Agreement, Acquisition Co. will merge with and
into the Company. As a result of the Merger, Acquisition Co.'s corporate
existence will cease and the Company will continue as the surviving corporation.
At the Effective Time of the Merger, each share of Common Stock that is issued
and outstanding immediately prior
46
thereto, other than shares owned by the Continuing Stockholders or by
stockholders who have properly exercised their dissenters' rights, will be
canceled and converted into the right to receive a cash payment of $3.12 per
share. The amounts payable with respect to such shares is referred to as the
"Common Stock Merger Consideration". The shares of Common Stock owned by the
Continuing Stockholders will be transferred to Acquisition Co. and canceled as a
result of the Merger as will their shares of Acquisition Co. stock. In exchange,
each Continuing Stockholder will receive one "new" share of Common Stock for
each "old" share of Common Stock he owned prior to the Merger. Each "new" share
of Common Stock will be identical to each "old" share of Common Stock. As a
result, upon consummation of the Merger, the Continuing Stockholders will own
all of the outstanding Common Stock.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that the Merger shall be consummated
"...as promptly as practicable ..." after the satisfaction or, if permitted, the
waiver of the conditions set forth in Article V of the Merger Agreement. The
Merger will be consummated by the filing of a Certificate of Merger with the
Secretary of State of the State of Delaware, in such form as is required by, and
executed in accordance with the relevant provisions of Delaware law. The date
and time of such filing are referred to as the "Effective Time".
EXCHANGE PROCEDURES
Acquisition Co. has designated the Company's transfer agent, Continental
Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004, to
act as the Paying Agent for those holders of shares of Common Stock who become
entitled to receive payment of the Common Stock Merger Consideration pursuant to
the Merger. At the Effective Time, Acquisition Co. will cause immediately
available funds to be deposited with the Paying Agent sufficient in amount to
pay the aggregate Common Stock Merger Consideration upon surrender of the
certificates representing the Common Stock. Promptly after the Effective Time,
the Company (through the Paying Agent) will mail a notice and letter of
transmittal to each record holder of the Company's Common Stock advising such
holder of the effectiveness of the Merger and providing the holder with
instructions on how to surrender his or her certificates of Common Stock in
order to be paid the $3.12 per share cash payment to which the holder is
entitled to receive as a result of the Merger. You will also receive
instructions for handling certificates which have been lost, stolen or
destroyed. YOU SHOULD NOT SUBMIT CERTIFICATES FOR SHARES OF COMMON STOCK UNTIL
YOU HAVE RECEIVED WRITTEN INSTRUCTIONS TO DO SO.
After the Effective Time of the Merger, the Company's stock transfer
books will be closed and no further transfers of Common Stock will be recorded.
47
Any portion of the Common Stock Merger Consideration delivered to the
Paying Agent by Acquisition Co. that remains unclaimed by the Company's
stockholders for one year after the Effective Time of the Merger will be
transferred to the Company as the surviving corporation. Any Company stockholder
who has not exchanged his or her certificates for payment within one year of the
Effective Time may look only to the Company, as the surviving corporation, for
payment of his or her share of the Common Stock Merger Consideration.
NONE OF ACQUISITION CO., THE COMPANY, THE PAYING AGENT, THEIR
AFFILIATES, OR ANY OTHER PARTY TO THE MERGER AGREEMENT SHALL BE LIABLE TO ANY
COMPANY STOCKHOLDER FOR ANY AMOUNTS PAID TO A PUBLIC OFFICIAL PURSUANT TO
APPLICABLE ABANDONED PROPERTY, ESCHEAT OR SIMILAR LAWS.
The Company, as the surviving corporation, or the Paying Agent, as the
case may be, is entitled to deduct and withhold from the consideration otherwise
payable to holders of the Company's Common Stock, any amounts which it is
required to deduct and withhold with respect to such payment under the Internal
Revenue Code or any provision of state, local or foreign tax law.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequence of the Merger based upon the Internal Revenue Code of 1986, as
amended, (the "Code"); regulations promulgated or proposed by the Treasury
Department, judicial authorities, and rulings and interpretations by the
Internal Revenue Service, as currently in effect. All of these are subject to
change at any time, possibly with retroactive effect. The discussion assumes
that you hold shares of Common Stock as a capital asset (within the meaning of
Code Section 1221), and does not address aspects of federal income taxation that
might be relevant to you if you are subject to special circumstances (e.g., a
dealer in securities, a bank, an insurance company, a financial institution, a
tax-exempt organization, a person that holds Common Stock as part of a straddle,
hedge, constructive sale, or conversion transaction, a holder subject to the
alternative minimum tax, or a United States person whose functional currency is
not the United States dollar, a person who elects to treat gains from a
disposition of shares as investment income for purposes of the limitation on the
deduction for investment interest expense, a person who acquired his or her
shares through the exercise of employee stock options or otherwise as
compensation for services, a foreign person, etc.). In addition, the discussion
does not address state, local or foreign tax consequences of the Merger.
Finally, this discussion applies only to United States persons. A United States
person is an individual U.S. citizen or resident alien; a corporation (or entity
taxable as a corporation) that was created or organized in or under the laws of
the United States, any state thereof, or the District of Columbia; an estate the
worldwide income of which is subject to U.S. federal income tax regardless of
its source; or a trust if both a court within the United States is able to
exercise primary supervision over its administration and one or more United
States persons have the authority to control all of its substantial decisions
(or if the trust
48
otherwise has a valid election in effect under applicable U.S. Treasury
Regulations to be treated as a United States person). If a partnership holds
Common Stock, the tax treatment of a partner will generally depend upon both the
status of the partner and the activities of the partnership.
Generally, the receipt of cash in exchange for shares of Common Stock in
the Merger will be a taxable transaction for federal income tax purposes. Your
gain or loss will be equal to the difference between the cash consideration you
receive for your shares of Common Stock pursuant to the Merger and your adjusted
tax basis in such shares. Your gain or loss from the exchange will be
characterized as capital gain or capital loss if your shares of Common Stock are
held as a capital asset. The gain or loss will be long-term if your holding
period for the shares is longer than twelve months. Under current law, net
long-term capital gains recognized by individuals are subject to a maximum
federal income tax rate of 15%. There are limitations on the deductibility of
capital losses for federal income tax purposes.
You may be subject to backup withholding at the rate of 28% on cash
amounts payable to you pursuant to the Merger in exchange for your stock
certificates, unless you (a) provide a correct taxpayer identification number
("TIN") in the manner required or (b) are exempt from such withholding and
certify this fact, when required. To prevent the possibility of backup
withholding, you must provide the Paying Agent (or the Company if payment is
being made to you by the Company more than one year after the Effective Time),
with your correct TIN by completing and transmitting a duly completed Form W-9.
This form will be provided with the letter of transmittal which will be
forwarded to stockholders of record at the Effective Time of the Merger by the
Paying Agent shortly thereafter. If you do not provide the Paying Agent with
your correct TIN, you may be subject to backup withholding as well as penalties
imposed by the Internal Revenue Service.
The foregoing discussion of the federal income tax consequences to the
Public Stockholders is for general information only. Your particular tax
consequences will depend upon the facts and circumstances applicable to you.
Accordingly, we urge you to consult with your own tax advisor to determine the
tax consequences of the Merger to you in light of your particular circumstances,
including the applicability and effect of state, local, foreign and other tax
laws and any possible changes in those laws.
REGULATORY REQUIREMENTS
To effectuate the Merger, the Company and Acquisition Co. will be
required to file a Certificate of Merger with the Delaware Secretary of State in
compliance with the Delaware General Corporation Law after the approval and
adoption by stockholders of the Merger Agreement and the transactions
contemplated thereby is obtained pursuant to Delaware law. Other than compliance
with Delaware law and federal securities laws, neither the Company nor
Acquisition Co. is aware of any material federal, state or foreign governmental
regulatory requirement necessary to be complied with in connection with the
Merger.
49
EXPENSES OF THE MERGER
The estimated aggregate costs and fees to be incurred by the Company
(including the Special Committee) and Acquisition Co. in connection with the
Merger and the related transaction are as follows:
o To be paid by the Company on behalf of the Company and on behalf of the
Special Committee;
Legal Fees: $ *
Payment Agent Fees: 22,500
Houlihan Lokey: 225,000
Printing and Distribution:
Other:
----------
Total: $
----------
* Includes the legal fees and expenses of Houlihan Lokey's counsel. The Company
on behalf of itself and the Special Committee has agreed to reimburse Houlihan
Lokey for the reasonable fees and expenses of its legal counsel in connection
with the delivery of its opinion.
o To be paid by Acquisition Co.:
Legal Fees: $ 135,000
Common Stock Merger Consideration: 4,120,040
Other: 15,000
----------
Total $4,270,000
SOURCES OF FUNDING
The expenses of the Transaction listed above to be paid by the Company
will be paid from working capital. The expenses listed above to be paid by
Acquisition Co. will be paid with cash advances from its stockholders (the
Lombardi Group and the Maschler Group). These cash advances will be provided
from personal funds and from an aggregate of approximately $4,000,000 in five
year bank loans to members of the Lombardi Group from Enterprise Bank,
Kenilworth, New Jersey. No formal loan agreements have been executed as of the
date of this Proxy Statement. These bank loans, which will be repayable with
annual interest of approximately 6.25% to 6.50% will be collateralized by
approximately 16 acres of real estate owned by the Lombardi Group and their
affiliates in Freehold, New Jersey. Included as part of the collateral are
approximately six acres containing the two restaurants and the pad site utilized
for
50
parking by the two restaurants which have been leased to the Company by an
affiliate of the Lombardi Group. See "SPECIAL FACTORS - Interests of Certain
Persons in the Merger." The Lombardi Group has not formulated any financing
plans or made any financing arrangements at this date to repay the bank loans.
DISSENTERS' RIGHTS OF APPRAISAL
As a stockholder of the Company, you have a right to dissent from the
Merger and demand a determination by the Delaware Court of Chancery as to the
fair value of your shares of Common Stock. Exercising this right to dissent as a
Dissenting Stockholder could result, in the event the Merger in consummated, in
your receiving an amount per share which is more than, the same as, or less than
the amount per share ($3.12) payable in cash to the Public Stockholders pursuant
to the Merger Agreement.
Notwithstanding any provision of the Merger Agreement to the contrary,
any shares of Common Stock held by a stockholder who does not vote to approve
the Merger and complies with all of the provisions of Section 262 of the General
Corporation Law of the State of Delaware (the "Delaware Law") concerning the
right to dissent from the Merger and require payment of fair value shall not be
converted into the right to receive $3.12 per share pursuant to the Merger
Agreement. Instead, such dissenting holder shall only be entitled to receive
such consideration as may be determined to be due to the holder pursuant to the
Delaware Law. However, if the holder of shares of Common Stock who has demanded
an appraisal of his or her shares under the Delaware Law withdraws the demand or
fails to perfect or otherwise loses his or her right to an appraisal, his or her
shares will be deemed to be canceled and converted at the Effective Time of the
Merger into the right to receive $3.12 per share pursuant to the Merger
Agreement.
The following is a summary of the principal provisions of Section 262 of
the Delaware Law and does not purport to be a complete description. A copy of
Section 262 is attached to this Proxy Statement as Appendix C. Failure to take
any action required by Section 262 will result in a termination or waiver of a
stockholder's rights under Section 262. Perfecting your appraisal rights can be
complicated and costly.
Only a holder of record of the Company's Common Stock is entitled to
demand appraisal rights for Common Stock registered in that holder's name. The
demand must be executed by or for the holder of record, fully and correctly, as
the holder's name appears on the holder's stock certificates. If stock is owned
of record in a fiduciary capacity, such as by a trustee, guardian or custodian,
the demand should be executed in that capacity. If stock is owned of record by
more than one person, as in a joint tenancy or tenancy in common, the demand
should be executed by or for all owners. An authorized agent, including one of
two or more joint owners, may execute the demand for appraisal for a holder of
record; however, the agent must identify the owner or owners of record and
expressly disclose the fact that, in executing the demand, the agent is acting
as agent for the owner or owners of record. A holder of record, such as a
broker, who holds stock as nominee for beneficial owners may exercise a holder's
right of appraisal with respect to stock held for all or less than all of such
beneficial owners. In such case, the written demand should set forth the number
of shares of stock covered by the demand. Where no
51
number of shares of stock is expressly mentioned, the demand will be presumed to
cover all shares of stock standing in the name of the holder of record.
In order to dissent from the Merger, a stockholder (i) must NOT vote his
or her shares for the Merger Agreement and the Merger and (ii) must deliver to
the Company BEFORE the vote on the Merger is taken at the Special Meeting, a
written demand for appraisal of his or her shares (the "Appraisal Demand"). The
Appraisal Demand will be sufficient if it is in writing and reasonably informs
the Company of the stockholder's identity and that the stockholder intends
thereby to demand the appraisal for a specified number of his or her shares. A
PROXY OR VOTE AGAINST THE MERGER SHALL NOT CONSTITUTE SUCH A DEMAND.
FURTHERMORE, A STOCKHOLDER ELECTING TO DEMAND AN APPRAISAL MUST DO SO BY AN
APPRAISAL DEMAND SEPARATE FROM ANY PROXY OR BALLOT. THE APPRAISAL DEMAND MUST BE
DELIVERED TO THE COMPANY ON A TIMELY BASIS AT 62 BROADWAY, POINT PLEASANT BEACH,
NJ 08742; ATT: CORPORATE SECRETARY.
Within ten days after the Effective Time of the Merger, the Company, as
the surviving corporation, will send notice of the effectiveness of the Merger
to each person who prior to the Effective Time of the Merger satisfied the
foregoing conditions. Any stockholder entitled to appraisal rights may, within
20 days after the date of the mailing of such notice, demand in writing from the
Company, the appraisal of his or her shares of Common Stock. Such demand must
reasonably inform the Company of the name and mailing address of the holder of
record and of such stockholders' intention to demand appraisal of such holder's
shares of Common Stock.
Within 120 days after the Effective Time of the Merger, the Company as
the surviving corporation or any stockholder who has satisfied the foregoing
conditions and who is otherwise entitled to appraisal rights, may file a
petition in the Delaware Court of Chancery demanding a determination of the
value of the stock held by all stockholders entitled to appraisal. The Company
does not currently intend to file an appraisal petition and stockholders seeking
to exercise appraisal rights should not assume that the Company will file a
petition to appraise the value of their stock or that the Company will initiate
any negotiations with respect to the "fair value" of such stock. Accordingly,
holders of the Common Stock should initiate all necessary action to perfect
their appraisal rights within the time periods prescribed in Section 262.
Within 120 days after the Effective Time of the Merger, any stockholder
who has complied with the requirements for exercise of appraisal rights, as
discussed above, is entitled, upon written request, to receive from the Company,
a statement setting forth (i) the aggregate number of shares of Common Stock not
voted in favor of the Merger and with respect to which demands for appraisal
have been received and (ii) the aggregate number of holders of such shares of
stock. The Company is required to mail such statement within ten days after it
receives a written request to do so, or within ten days after expiration of the
period for delivery of demands for appraisal under Section 262, whichever is
later.
52
If a petition for an appraisal is timely filed and a copy is delivered
to the Company as the surviving corporation, the Company must within 20 days
after receipt of such petition file with the Delaware Court of Chancery in which
the petition was filed a list of the names and addresses of all stockholders who
have demanded appraisal rights and with whom agreements as to the value of their
shares have not been reached by the Company. After notice to the Company and
those stockholders, the Court can conduct a hearing to determine the
stockholders entitled to appraisal rights. The Court may require stockholders
who have demanded appraisal rights for their shares to submit their stock
certificates to the Court for a notation thereon, and if any stockholder fails
to comply with this requirement, the Court may dismiss the proceedings as to
such stockholder.
At a hearing on the petition, the Court will determine the stockholders
entitled to appraisal rights and will appraise the shares of stock owned by such
stockholders, determining their "fair value" exclusive of any element of value
arising from the accomplishment or expectation of the Merger and will determine
the amount of interest, if any, to be paid upon the value of the shares of stock
of the stockholders entitled to appraisal. In determining such "fair value," the
Court shall take into account all relevant factors. Any such judicial
determination of the "fair value" of stock could be based on considerations
other than or in addition to the price paid in the Merger and the market value
of the Common Stock, including asset values, the investment value of the Common
Stock and any other valuation considerations generally accepted in the
investment community. The value so determined for the Common Stock could be more
than, less than or the same as the consideration paid pursuant to the Merger
Agreement. The Court may, in its discretion, order that all or a portion of any
stockholder's expenses incurred in connection with an appraisal proceeding,
including, without limitation, reasonable attorney's fees and fees and expenses
of experts, be charged pro rata against the value of all the shares of the
Common Stock entitled to an appraisal, but a dissenting stockholder must be
prepared to pay his or her own expenses in connection with the proceeding..
Any stockholder who has demanded an appraisal in compliance with Section
262 will not, from and after the Effective Time of the Merger, be entitled to
vote the shares subject to such demand for any purpose or be entitled to
dividends or other distributions on those shares (other than those payable or
deemed to be payable to stockholders of record at a date which is prior to the
Effective Time of the Merger).
Holders of Common Stock lose the right to appraisal if no petition for
appraisal is filed within 120 days after the Effective Time of the Merger, or if
a stockholder delivers a written withdrawal of such stockholder's demand for an
appraisal to the Company, except that any such attempt to withdraw made more
than 60 days after the Effective Time of the Merger requires the Company's
written approval. If appraisal rights are not perfected or a demand for
appraisal rights is withdrawn, a stockholder will be entitled to receive the
$3.12 per share cash consideration otherwise payable pursuant to the Merger
Agreement.
53
If an appraisal proceeding is timely instituted, such proceeding may not
be dismissed without the approval of the Delaware Court of Chancery as to any
stockholder who has perfected a right of appraisal.
Failure by a stockholder to take any required step to perfect appraisal
rights may result in termination of his or her appraisal rights. BECAUSE THE
APPRAISAL PROVISIONS OF THE DELAWARE LAW ARE COMPLEX, STOCKHOLDERS WHO ARE
CONSIDERING EXERCISING THEIR APPRAISAL RIGHTS UNDER SECTION 262 SHOULD CONSULT
WITH THEIR OWN LEGAL ADVISORS.
The Merger Agreement provides that Acquisition Co. will not be obligated
to complete the merger if the number of shares of Common Stock held by
stockholders who comply with all the provisions of Section 262 exceeds 10% of
the aggregate number of shares of the Company's Common Stock outstanding on the
closing date of the Merger.
VOTING AGAINST THE MERGER AND THE MERGER AGREEMENT WILL NOT PROTECT YOUR
RIGHT TO DISSENT IN THE ABSENCE OF YOUR DELIVERING A SEPARATE WRITTEN APPRAISAL
DEMAND ON A TIMELY BASIS. APPENDIX C TO THIS PROXY STATEMENT CONTAINS SECTION
262 OF THE DELAWARE LAW REGARDING DISSENTERS' RIGHTS. STOCKHOLDERS WHO INTEND TO
DISSENT SHOULD CAREFULLY REVIEW THIS PROXY STATEMENT AND APPENDIX C AND ARE
URGED TO CONSULT WITH THEIR OWN LEGAL ADVISORS.
WHERE YOU CAN FIND MORE INFORMATION
As required by the Securities Exchange Act of 1934 (the "Exchange Act"),
the Company files annual reports on Form 10-KSB, quarterly reports on Form
10-QSB, current reports on Form 8-K, and has filed this Proxy Statement with the
Securities and Exchange Commission. These reports contain additional information
about the Company. You may read and copy any report, statements or other
information the Company files, at the public reference room of the Securities
and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. You
may obtain information about the operation of the public reference room by
calling the Securities and Exchange Commission at 1-800-SEC-0330. The Company's
Exchange Act filings with the Securities and Exchange Commission are also
available to the public from commercial document retrieval services and on the
Securities and Exchange Commission's web site at http://www.sec.gov. In
addition, a copy of any of the Company's Exchange Act filings over the past two
years are available to any Company stockholder without charge upon written
request addressed to Chefs International, Inc., 62 Broadway, Point Pleasant
Beach, New Jersey 08742; Attn: Chief Financial Officer.
TO INSURE TIMELY DELIVERY OF ANY OF THESE DOCUMENTS BEFORE THE SPECIAL
MEETING OF STOCKHOLDERS, YOUR REQUEST SHOULD BE MADE BY FEBRUARY _ _, 2005
(seven business days before the date of the Special Meeting).
54
The Company has not provided and has not authorized anyone to provide
you with any information other than the information contained in or incorporated
by reference into this Proxy Statement. This Proxy Statement is dated
January __, 2005. You should not assume that the information in this Proxy
Statement is accurate as of any other date. This Proxy Statement does not
constitute a solicitation in any jurisdiction where, or to any person to whom,
it is unlawful to make a proxy solicitation.
INFORMATION INCORPORATED BY THE REFERENCE
The Company's Annual Report on Form 10-KSB for the fiscal year ended
January 25, 2004 and its Quarterly Report on Form 10-QSB for the quarter ended
October 24, 2004, filed by the Company with the Securities and Exchange
Commission ('34 Act File No. 0-8513), are incorporated by reference into this
Proxy Statement. The Company's Form 10-KSB and Form 10-QSB are not included in
this Proxy Statement or being delivered with it. They are available (without
exhibits except to the extent an exhibit is specifically incorporated by
reference into this Proxy Statement), to any beneficial and/or record
stockholder of the Company, without charge, upon written or telephone request
directed to the Company at 62 Broadway, Point Pleasant Beach, New Jersey 08742;
Attn: Chief Financial Officer,
No person has been authorized to give any information or to make any
representation other than those contained or incorporated by reference into this
Proxy Statement and, if given or made, any such information or representation
must not be relied upon as having been authorized by the Company or any other
person. The Company has provided all of the information contained in this Proxy
Statement relating to the Company and its affiliates except for the information
relating to the Continuing Stockholders other than in their capacities as
officers and/or directors of the Company. Acquisition Co. has supplied all of
the information contained in the Proxy Statement relating to Acquisition Co. and
its affiliates in such capacities.
By Order of the Board of Directors
Michael F. Lombardi
Secretary
Point Pleasant Beach, New Jersey
January _ _ , 2005
55
CHEFS INTERNATIONAL, INC.
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER
BETWEEN
LOMBARDI RESTAURANT GROUP, INC.
AND
CHEFS INTERNATIONAL, INC.
DATED AS OF
DECEMBER 22, 2004
================================================================================
AGREEMENT AND PLAN OF MERGER, dated as of December 22, 2004 (this
"AGREEMENT") between Lombardi Restaurant Group, Inc., a Delaware corporation
("PURCHASER"), and Chefs International, Inc., a Delaware corporation (the
"COMPANY").
WHEREAS, prior to organizing Purchaser, the shareholders of Purchaser (the
"CONTINUING SHAREHOLDERS") owned, in the aggregate, 2,605,467 shares of Common
Stock, par value $.01 per share (the "COMMON STOCK" and the "SHARES"), of the
Company, representing approximately 66% of the shares of Common Stock
outstanding (excluding treasury stock); and
WHEREAS, the Continuing Shareholders have transferred all of their Shares
to the Purchaser in exchange for all the issued and outstanding shares of
capital stock of the Purchaser; and
WHEREAS, it is proposed that Purchaser be merged with and into the Company
(the "MERGER") upon the terms and subject to the conditions set forth in this
Agreement and in the certificate of merger (the "CERTIFICATE OF MERGER"), in
substantially the form attached hereto as Exhibit A, and in accordance with
Delaware Law (as hereafter defined); and
WHEREAS, Houlihan, Lokey Howard and Zukin Financial Advisors, Inc.
("HOULIHAN") has advised the Special Committee (the "SPECIAL COMMITTEE") of the
Board of Directors of the Company (the "BOARD"), that, subject to various
assumptions and limitations, the cash consideration to be received in the Merger
by the stockholders of the Company other than Purchaser or its affiliates is
fair to such stockholders from a financial point of view; and
WHEREAS, the Special Committee, in May 2004, (A) unanimously determined
that $3.12 is a fair price for a share of Common Stock, (B) determined that this
Agreement and the transactions contemplated by this Agreement (the
"TRANSACTIONS") are fair to the stockholders of the Company (other than
Purchaser and its affiliates), and (C) on the basis of the foregoing and the
oral opinion of Houlihan, unanimously recommended that the Board approve and
authorize the Merger and this Agreement (such opinion confirmed in writing as of
December 16, 2004); and
WHEREAS, the Board, at a meeting duly called and held on December 16, 2004,
has (A) approved and adopted this Agreement and the Transactions, including the
Merger in accordance with the Delaware General Corporation Law ("DELAWARE LAW")
and upon the terms and subject to the conditions set forth in this Agreement,
and (B) resolved to recommend that the stockholders of the Company approve and
adopt this Agreement and the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Purchaser and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Delaware Law, at the Effective
Time (as hereinafter defined) Purchaser shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "SURVIVING CORPORATION").
SECTION 1.02 EFFECTIVE TIME; CLOSING. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
V, the parties hereto shall cause the Merger to be consummated by filing this
Agreement or a certificate of merger (in either case, the "CERTIFICATE OF
MERGER") with the Secretary of State of the State of Delaware, in such form as
is required by, and executed in accordance with the relevant provisions of,
Delaware Law (the date and time of such filing being the "EFFECTIVE TIME").
Prior to such filing, a closing shall be held at the offices of Brown Rudnick
Berlack Israels LLP, 120 West 45th Street, New York, New York, 10036, or such
other place as the parties shall agree, for the purpose of confirming the
satisfaction or waiver, as the case may be, of the conditions set forth in
Article V.
SECTION 1.03 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Purchaser shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions, disabilities and duties of the
Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 1.04 CERTIFICATE OF INCORPORATION; BY-LAWS. (a) Unless otherwise
determined by Purchaser prior to the Effective Time, at the Effective Time the
Certificate of Incorporation of the Company shall be amended and restated as set
forth in Exhibit 1.04 hereto and such Certificate of Incorporation, as amended
and restated, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such Certificate of
Incorporation.
(b) Unless otherwise determined by Purchaser prior to the Effective
Time, the By-laws of the Company, as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of the
Surviving Corporation and such By-laws.
SECTION 1.05 DIRECTORS AND OFFICERS. The directors of Purchaser immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
2
SECTION 1.06 CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of Purchaser, the Company or the
holders of any of the following securities:
(a) Each share of Common Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of Common Stock to be
canceled pursuant to Section 1.06(b) and any Dissenting Shares (as hereinafter
defined)) shall be canceled and shall be converted automatically into the right
to receive an amount equal to $3.12 in cash (the "COMMON STOCK MERGER
CONSIDERATION") payable, without interest, to the holder of such share of Common
Stock, upon surrender, in the manner provided in Section 1.09, of the
certificate that formerly evidenced such share of Common Stock;
(b) Each Share held in the treasury of the Company and each Share
owned by Purchaser, any Affiliate of Purchaser or any direct or indirect
subsidiary of the Company, immediately prior to the Effective Time shall be
canceled without any conversion thereof and no payment or distribution shall be
made with respect thereto; and
(c) Each share of Common Stock, par value $.01 per share, of Purchaser
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the Surviving
Corporation, and transferred to the Continuing Stockholders.
SECTION 1.07 [INTENTIONALLY OMITTED]
SECTION 1.08 DISSENTING SHARES. Notwithstanding any provision of this
Agreement to the contrary, Shares that are outstanding immediately prior to the
Effective Time and which are held by stockholders who shall have not voted in
favor of the Merger or consented thereto in writing and who shall have demanded
properly in writing appraisal for such Shares in accordance with Section 262 of
the Delaware Law (collectively, the "DISSENTING SHARES") shall not be converted
into or represent the right to receive the Merger Consideration. Such
stockholders shall be entitled to receive payment of the appraised value of such
Shares held by them in accordance with the provisions of such Section 262,
except that all Dissenting Shares held by stockholders who shall have failed to
perfect or who effectively shall have withdrawn or lost their rights to
appraisal of such Shares under such Section 262 shall thereupon be deemed to
have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive the Common Stock Merger Consideration,
without any interest thereon, upon surrender, in the manner provided in Section
1.09, of the certificate or certificates that formerly evidenced such Shares.
SECTION 1.09 SURRENDER OF SHARES; STOCK TRANSFER BOOKS. (a) Prior to the
Effective Time, Purchaser shall designate a bank or trust company to act as
agent (the "PAYING AGENT") for the holders of Shares in connection with the
Merger to receive the funds to which holders of Shares shall become entitled
pursuant to Section 1.06(a). At the Effective Time, Purchaser shall cause to be
deposited with the Paying Agent in immediately available funds the aggregate
amount of the Merger Consideration. Such funds shall be invested by the Paying
Agent as directed by the Surviving Corporation, provided that such investments
shall be in obligations of or guaranteed by the United States of America or of
any agency thereof and
3
backed by the full faith and credit of the United States of America, in
commercial paper obligations rated A-1 or P-1 or better by Moody's Investors
Services, Inc. or Standard & Poor's Corporation, respectively, or in deposit
accounts, certificates of deposit or banker's acceptances of, repurchase or
reverse repurchase agreements with, or Eurodollar time deposits purchased from,
commercial banks with capital surplus and undivided profits aggregating in
excess of $50 million (based on the most recent financial statements of such
bank which are then publicly available at the SEC or otherwise).
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each person who was, at the Effective Time, a holder of
record of Shares entitled to receive Common Stock Merger Consideration pursuant
to Section 1.06(a) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the "CERTIFICATES") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor the Common Stock Merger Consideration for each
Share formerly evidenced by such Certificate, and such Certificate shall then be
canceled. No interest shall accrue or be paid on the Common Stock Merger
Consideration payable upon the surrender of any Certificate for the benefit of
the holder of such Certificate. If payment of the Common Stock Merger
Consideration is to be made to a person other than the person in whose name the
surrendered Certificate is registered on the stock transfer books of the
Company, it shall be a condition of payment that the Certificate so surrendered
shall be endorsed properly or otherwise be in proper form for transfer and that
the person requesting such payment shall have paid all transfer and other taxes
required by reason of the payment of the Common Stock Merger Consideration, to a
person other than the registered holder of the Certificate surrendered or shall
have established to the satisfaction of the Surviving Corporation that such
taxes either have been paid or are not applicable.
(c) At any time following one year after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds which had been made available to the Paying Agent and not
disbursed to holders of Shares (including, without limitation, all interest and
other income received by the Paying Agent in respect of all funds made available
to it), and thereafter such holders shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws) only
as general creditors thereof with respect to any Common Stock Merger
Consideration that may be payable upon due surrender of the Certificates held by
them. Notwithstanding the foregoing, neither the Surviving Corporation nor the
Paying Agent shall be liable to any holder of a Share for any Common Stock
Merger Consideration delivered in respect of such Share to a public official
pursuant to any abandoned property, escheat or other similar law.
(d) At the close of business on the day of the Effective Time, the
stock transfer books of the Company shall be closed and thereafter there shall
be no further registration of transfers of Shares on the records of the Company.
From and after the Effective Time, the holders of Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares except as otherwise provided herein or by applicable law.
4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser that:
SECTION 2.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
Material Adverse Effect (as defined below). The Company is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect. When used in connection with the Company, the term
"MATERIAL ADVERSE EFFECT" means any change or effect that, when taken together
with all other adverse changes and effects that are within the scope of the
representations and warranties made by the Company in this Agreement and which
are not individually or in the aggregate deemed to have a Material Adverse
Effect, is or is reasonably likely to be materially adverse to the business,
operations, properties, condition (financial or otherwise), assets or
liabilities (including, without limitation, contingent liabilities) or prospects
of the Company. Except as set forth on Schedule 2.01, the Company does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
SECTION 2.02 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the Transactions. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the Transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the Transactions
(other than, with respect to the Merger, the approval and adoption of this
Agreement by the holders of a majority of the then outstanding shares, and the
filing and recordation of appropriate merger documents as required by Delaware
Law). This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by
Purchaser, constitutes a legal, valid and binding obligation of the Company. The
Board of Directors has approved the Merger and the Transactions in accordance
with the provisions of Section 251 of the Delaware Law.
SECTION 2.03 CAPITALIZATION. The authorized capital stock of the Company
consists of 15,000,000 shares of Common Stock, par value $.01 per share ("Common
Stock"). As of the date hereof, 3,926,105 shares of Common Stock are issued and
outstanding, all of which are validly issued, fully paid and nonassessable.
There are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or
5
unissued capital stock of the Company or obligating the Company to issue or sell
any shares of capital stock of, or other equity interests in, the Company.
SECTION 2.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The execution
and delivery of this Agreement by the Company does not, and the performance of
this Agreement by the Company will not, (i) conflict with or violate the
Certificate of Incorporation or By-laws or equivalent organizational documents
of the Company, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to the Company by which any property or asset of
the Company is bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation, which will have a Material Adverse Effect on the
Company.
(b) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except for
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), state securities or "blue sky" laws ("BLUE SKY
LAWS") and state takeover laws, and filing and recordation of appropriate merger
documents as required by Delaware Law; except where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of Merger, or otherwise
prevent the Company from performing its obligation under this Agreement, and
would not, individually or in the aggregate, have a Material Adverse Effect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company that:
SECTION 3.01 CORPORATE ORGANIZATION. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
material adverse effect on the business or operations of Purchaser, and would
not reasonably be expected to prevent or delay consummation of the Merger.
Purchaser was formed for the sole purpose of effectuating the Merger and has not
engaged in any activities except those in connection with the Merger. The
Purchaser has no subsidiaries.
SECTION 3.02 CAPITALIZATION. As of the date hereof, 3,926,105 shares of
Purchaser's Common Stock, par value $.01 per share, are issued and outstanding,
all of which
6
have been issued to the Continuing Shareholders in consideration of the
respective transfer to Purchaser by each such Continuing Shareholder of all of
his Shares.
SECTION 3.03 AUTHORITY RELATIVE TO THIS AGREEMENT. Purchaser has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the Transactions. The
execution and delivery of this Agreement by Purchaser and the consummation by
Purchaser of the Transactions have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Purchaser are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the filing and recordation
of appropriate merger documents as required by Delaware Law). This Agreement has
been duly and validly executed and delivered by Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms.
SECTION 3.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The execution
and delivery of this Agreement by Purchaser do not, and the performance of this
Agreement by Purchaser will not, (i) conflict with or violate the Certificate of
Incorporation or By-laws of Purchaser, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Purchaser or by which
any of its property or assets is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Purchaser
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Purchaser
is a party or by which Purchaser or any property or asset of Purchaser is bound
or affected, except for any such conflicts, violations, breaches, defaults or
other occurrences which would not, individually or in the aggregate, have a
material adverse effect on the business or operations of Purchaser.
(b) The execution and delivery of this Agreement by Purchaser do not,
and the performance of this Agreement by Purchaser will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Exchange Act, Blue Sky Laws and
state takeover laws, and filing and recordation of appropriate merger documents
as required by Delaware Law and (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the Merger, or otherwise prevent
Purchaser from performing its obligations under this Agreement.
SECTION 3.05 AVAILABILITY OF FUNDS. Purchaser and/or its shareholders have
sufficient funds or has received commitments from creditworthy financial
institutions, to provide sufficient funds at the Effective Time to pay the
Common Stock Merger Consideration and to permit Purchaser to timely perform all
of its obligations under this Agreement.
SECTION 3.06 NO PLANNED EXTRAORDINARY CORPORATE TRANSACTION. The Purchaser
does not have any present plans for and is not presently considering any
proposal that
7
contemplates or would result in an extraordinary corporate transaction after the
Merger involving the Company's corporate structure, business or assets such as a
merger, reorganization, liquidation, relocation or closing of existing
restaurants or opening of additional restaurants, or sale or transfer of a
material amount of assets.
ARTICLE IV
ADDITIONAL AGREEMENTS
SECTION 4.01 STOCKHOLDERS' MEETING. The Company, acting through the Board,
shall, in accordance with applicable law and the Company's Certificate of
Incorporation and By-laws, duly call, give notice of, convene and hold an annual
or special meeting of its stockholders as soon as practicable for the purpose of
considering and approving this Agreement and the Merger (the "SPECIAL MEETING").
In connection with the Special Meeting, the Board shall recommend that the
shareholders of the Company vote to approve this Agreement and the Merger unless
the Special Committee has determined at any time prior to the Special Meeting in
good faith, after consultation with and based upon the reasonably concluded
advice of (i) Houlihan that the terms of this Agreement or the Merger are no
longer fair to the stockholders of the Company (other than Purchaser or any of
its affiliates) and (ii) counsel to the Special Committee that the modification
or withdrawal of its recommendation to the Board is required to satisfy the
fiduciary duties of the Special Committee under applicable law.
SECTION 4.02 PROXY MATERIALS AND SCHEDULE 13E-3. (a) In connection with the
Special Meeting, the Company shall prepare and file a preliminary proxy
statement relating to the transactions contemplated by this Agreement and the
Merger (the "PRELIMINARY PROXY STATEMENT") with the United States Securities and
Exchange Commission (the "SEC") and shall use its reasonable best efforts to
respond to the comments of the SEC and to cause a definitive proxy statement to
be mailed to the Company's shareholders (the "DEFINITIVE PROXY STATEMENT") all
as soon as reasonably practicable; provided, that prior to the filing of each of
the Preliminary Proxy Statement and the Definitive Proxy Statement, the Company
shall consult with Purchaser with respect to such filings and shall afford
Purchaser reasonable opportunity to comment thereon. Purchaser shall provide the
Company with any information for inclusion in the Preliminary Proxy Statement
and the Definitive Proxy Statement that may be required under applicable law and
is reasonably requested by the Company.
(b) The Company and Purchaser shall, and shall cause any other Person
that may be deemed to be an affiliate of the Company to, prepare and file
concurrently with the filing of the Preliminary Proxy Statement a Statement on
Schedule 13E-3 ("SCHEDULE 13E-3") with the SEC. If at any time prior to the
Special Meeting any event should occur that is required by applicable law to be
set forth in an amendment of, or supplement to, the Schedule 13E-3, the Company
and Purchaser shall, and shall cause such Person to, file such amendments or
supplements.
SECTION 4.03 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. (a)
The Certificate of Incorporation of the Surviving Corporation shall contain
provisions no less favorable with respect to indemnification than are set forth
in the Certificate of Incorporation of the Company, which provisions shall not
be amended, repealed or otherwise modified for a
8
period of six years from the Effective Time in any manner that would affect
adversely the rights thereunder of individuals who at the Effective Time were
directors, officers, employees, fiduciaries or agents of the Company, unless
such modification shall be required by law.
(b) The Company shall, to the fullest extent permitted under
applicable law and regardless of whether the Merger becomes effective, indemnify
and hold harmless, and, after the Effective Time, the Surviving Corporation
shall, to the fullest extent permitted under applicable law, indemnify and hold
harmless, each present and former director, officer, employee, fiduciary and
agent of the Company (collectively, the "INDEMNIFIED PARTIES") against all costs
and expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission in their
capacity as an officer, director, employee, fiduciary or agent, whether
occurring before or after the Effective Time, for a period of six years after
the date hereof. In the event of any such claim, action, suit, proceeding or
investigation, (i) the Company or the Surviving Corporation, as the case may be,
shall advance to the Indemnified Parties and pay the reasonable fees and
expenses of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to the Company or the Surviving Corporation, promptly
after statements therefor are received and (ii) the Company and the Surviving
Corporation shall cooperate in the defense of any such matter; PROVIDED,
HOWEVER, that neither the Company nor the Surviving Corporation shall be liable
for any settlement effected without its written consent (which consent shall not
be unreasonably withheld); and PROVIDED, FURTHER, that neither the Company nor
the surviving Corporation shall be obligated pursuant to this Section 4.03(b) to
pay the fees and expenses of more than one counsel for all Indemnified Parties
in any single action except to the extent that two or more of such Indemnified
Parties shall have conflicting interests in the outcome of such action; and
PROVIDED, FURTHER, that, in the event that any claim for indemnification is
asserted or made within such six-year period, all rights to indemnification in
respect of such claim shall continue until the disposition of such claim.
SECTION 4.04 INTENTIONALLY OMITTED.
SECTION 4.05 FURTHER ACTION; REASONABLE BEST EFFORTS. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
Transactions, including, without limitation, using its reasonable best efforts
to obtain and/or retain all licenses, permits (including, without limitation,
Environmental Permits and Liquor Licenses), consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company as are necessary for the consummation of the Transactions and
to fulfill the conditions of the Merger. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall use their reasonable best efforts to take all such action.
SECTION 4.06 REAL PROPERTY TRANSFER TAXES. Either Purchaser or the
Surviving Corporation shall pay all state taxes on real estate transfers in any
jurisdiction, if any (and any
9
penalties or interest with respect to such taxes), payable in connection with
the Merger or the acquisition of a controlling interest in the Company by
Purchaser, and shall indemnify and hold harmless the stockholders of the Company
from and against any liability with respect to such taxes (including any
penalties, interest and professional fees). The Company and Purchaser shall
cooperate in the preparation and filing of any required returns with respect to
such taxes (including returns on behalf of the stockholders of the Company).
SECTION 4.07 OTC BULLETIN BOARD(R) LISTING. Until the Effective Time, the
Company shall use all commercially reasonable efforts to maintain the listing of
the Common Stock on the OTC Bulletin Board(R); maintain the registration of such
securities under the Exchange Act, as amended; and comply with the rules and
regulations of the SEC.
SECTION 4.08 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The
Company covenants and agrees that, prior to the Effective Time or earlier
termination of this Agreement as provided herein, unless Purchaser shall
otherwise agree in writing and except as contemplated by this Agreement:
(a) The Company shall, and shall cause each of its subsidiaries to,
act and carry on its respective business in the ordinary course of business
substantially consistent with past practice and use its respective reasonable
best efforts to preserve substantially intact its current material business
organizations, keep available the services of its current officers and employees
(except for terminations of employees in the ordinary course of business) and
preserve its material relationships with others having significant business
dealings with it;
(b) The Company shall not (i) amend its certificate of incorporation
or bylaws, or (ii) declare, set aside or pay any dividend or other distribution
or payment in cash, stock or property in respect of any of its shares of capital
stock;
(c) Neither the Company nor any of its subsidiaries shall (i) issue,
grant, sell, pledge or transfer or agree or propose to issue, grant, sell,
pledge or transfer any shares of capital stock, stock options, warrants,
securities or rights of any kind or rights to acquire any such shares,
securities or rights of the Company, any of its subsidiaries or any successor
thereto, or (ii) enter into or modify any contract, agreement, commitment or
arrangement with respect to any of the foregoing; and
(d) Neither the Company nor any of its subsidiaries shall split,
combine or reclassify any capital stock of the Company or any subsidiary or
issue or authorize the issuance of any other securities in respect of, in lieu
of or substitution for shares of capital stock of the Company or any subsidiary.
SECTION 4.09 NOTIFICATION OF CERTAIN MATTERS. Each of the parties hereto
shall, promptly upon obtaining knowledge of any of the following occurring
subsequent to the date of this Agreement and prior to the Effective Time, notify
all other parties to this Agreement of: (a) any material claims, actions,
proceedings, tax audits or investigations commenced or, to its knowledge,
threatened in writing, involving or affecting such party or any of its
subsidiaries or any of their properties or assets, that if adversely resolved
could have a Material Adverse Effect on such party or could prevent, hinder or
materially delay the ability of such party to
10
consummate the Merger or the transactions contemplated by this Agreement, (b)
any notice of, or other communication relating to, a default or event that, with
notice or lapse of time or both, would become a default, received by such party
or any of its subsidiaries, under any agreement, lease, indenture or instrument
to which such party or any of its subsidiaries is a party or is subject where
such a default could have a Material Adverse Effect on such party, or (c) any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement. As used in this Section 4.09, with respect to
the Company, the term "Material Adverse Effect" shall have the meaning given to
it in Section 2.01, and, with respect to Purchaser, the term "Material Adverse
Effect" shall mean any effect that is materially adverse to the business,
assets, prospects, operations, properties, financial condition or results of
operations of Purchaser.
SECTION 4.10 ACCESS TO THE COMPANY'S BOOKS AND RECORDS. Upon reasonable
notice, the Company shall afford Purchaser and its representatives and
representatives of all sources of Financing reasonable access during normal
business hours to the properties, books, records and personnel of The Company
and its subsidiaries and such additional information concerning the business and
properties of The Company and its subsidiaries as Purchaser and its
representatives may reasonably request.
SECTION 4.11 ACQUISITION PROPOSALS. Any offer or proposal by any Person or
group concerning any tender or exchange offer, proposal for a merger, share
exchange, recapitalization, consolidation or other business combination
involving the Company or any of its subsidiaries or divisions, or any proposal
or offer to acquire in any manner, directly or indirectly, a significant equity
interest in, or a substantial portion of the assets of, the Company or any of
its subsidiaries, other than pursuant to the transactions contemplated by this
Agreement, is hereby defined as an "Acquisition Proposal". The Company shall
not, nor shall it permit any of its officers, directors, affiliates,
representatives or agents to, directly or indirectly, (a) take any action to
solicit, initiate or encourage any Acquisition Proposal, or (b) participate in
any discussions or negotiations with or encourage any effort or attempt by any
other Person or take any other action to facilitate an Acquisition Proposal.
From and after the date hereof, the Company, its subsidiaries and all officers,
directors, employees of, and all investment bankers, attorneys and other
advisors and representatives of, the Company and its subsidiaries shall cease
doing any of the foregoing. Notwithstanding the foregoing, the Company or any
such Persons may, directly or indirectly, subject to a confidentiality agreement
containing customary terms, furnish to any party information and access in
response to a request for information or access made incident to an Acquisition
Proposal made after the date hereof and may participate in discussions and
negotiate with such party concerning any written Acquisition Proposal made after
the date hereof (provided that neither the Company nor any such Person, after
the date hereof, solicited, initiated or encouraged such Acquisition Proposal),
if the Special Committee shall have determined in good faith based upon the
reasonably concluded advice of counsel to the Special Committee that the taking
of such action is necessary to discharge the Board's fiduciary duties under
applicable law. During the term of this Agreement, the Board shall notify
Purchaser immediately if any Acquisition Proposal is made and shall in such
notice indicate in reasonable detail the identity of the offeror and the terms
and conditions of such Acquisition Proposal and shall keep Purchaser promptly
advised of all material developments that could culminate in the Board
withdrawing, modifying or amending its recommendation of the Merger and the
other transactions contemplated by this Agreement. During the term of this
Agreement,
11
the Company shall not waive or modify any provisions contained in any
confidentiality agreement entered into relating to a possible acquisition
(whether by merger, stock purchase, asset purchase or otherwise) or
recapitalization of the Company unless the Special Committee shall have
determined in good faith based on reasonably concluded advice of counsel to the
Special Committee that the taking of such action is necessary to discharge the
Board's fiduciary duties under applicable law. Notwithstanding the foregoing,
the Company may make the disclosure contemplated by Rule 14e-2(a) under the
Exchange Act to the extent that such disclosure is required to be taken and made
by such Rule; provided, that the Company may only recommend a tender offer
giving rise to such obligation as contemplated by such Rule if the Special
Committee has made the good faith determination described in the third preceding
sentence.
ARTICLE V
CONDITIONS TO THE MERGER
SECTION 5.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Transactions shall
have been approved and adopted by the affirmative vote of the stockholders of
the Company and the Purchaser to the extent required by Delaware Law and the
Certificate of Incorporation of the Company;
(b) NO ORDER. No United States or state governmental authority or
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of making the consummation of the Merger unlawful or preventing or
prohibiting consummation of the Transactions or, with respect to any litigation
in connection with the Merger, which could result in an award of damages that
could have a Material Adverse Effect; and
(c) FAIRNESS OPINION. The opinion of Houlihan referenced in the
recitals to this Agreement shall not have been withdrawn at or prior to the
Effective Time.
SECTION 5.02 CONDITIONS TO OBLIGATIONS OF PURCHASER TO EFFECT THE MERGER.
The obligations of Purchaser to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following additional
conditions, unless waived by Purchaser:
(a) The representations and warranties of the Company set forth in
Article II hereof shall be true and correct in all material respects (except
that any such representation and warranty that is qualified as to materiality by
reference to "Material Adverse Effect" or any similar term shall be true and
correct) as of the date of this Agreement and as of the Effective Time as though
all of such representations were made on and as of the Effective Time by the
Company, and Purchaser shall have received a certificate of the Company signed
by the Chief
12
Financial Officer or a Vice President of the Company to that effect, provided
that such signatory or signatories shall not have any personal liability in
connection therewith;
(b) The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement prior to the
Effective Time and Purchaser shall have received a certificate of the Company
signed by the Chief Financial Officer or a Vice President of the Company to that
effect, provided that such signatory or signatories shall not have any personal
liability in connection therewith;
(c) No change, condition, event or development shall have occurred
that has a Material Adverse Effect.
SECTION 5.03 CONDITIONS TO OBLIGATIONS OF COMPANY TO EFFECT THE MERGER. The
obligations of Company to effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of the following additional conditions, unless
waived by Company:
(a) The representations and warranties of the Purchaser set forth in
Article III hereof shall be true and correct in all material respects as of the
date of this Agreement and as of the Effective Time as though all of such
representations were made on and as of the Effective Time by the Purchaser, and
Company shall have received a certificate of the Purchaser signed by the Chief
Executive Officer or President of the Purchaser to that effect, provided that
such signatory or signatories shall not have any personal liability in
connection therewith;
(b) The Purchaser shall have performed in all material respects all
obligations required to be performed by it under this Agreement prior to the
Effective Time and Company shall have received a certificate of the Purchaser
signed by the Chief Executive Officer or President of the Purchaser to that
effect, provided that such signatory or signatories shall not have any personal
liability in connection therewith;
(c) That neither the Special Committee nor the Board has withdrawn,
modified, or changed its favorable recommendation regarding this Agreement, the
Merger or any other Transaction or shall have recommended another merger,
consolidation, business combination with, or acquisition of , the Company or its
assets or a tender for the Shares, or shall have resolved to do any of the
foregoing;
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.01 TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval and adoption of this Agreement and the Transactions by the
stockholders of the Company:
(a) By mutual written consent duly authorized by the board of
directors of Purchaser and the Board; or
13
(b) If any court of competent jurisdiction in the United States or
other United States governmental authority shall have issued an order, decree,
ruling or taken any other action restraining, enjoining or otherwise prohibiting
or delaying the Merger and such order, decree, ruling or other action shall have
become final and nonappealable; provided, however that each of the parties shall
have used reasonable best efforts to prevent the entry of any such injunction or
other order and to appeal as promptly as possible any injunction or other order
that may be entered; or
(c) By Purchaser if the Board or any committee thereof shall have
withdrawn or modified in a manner adverse to Purchaser its approval or
recommendation of this Agreement, the Merger or any other Transaction or shall
have recommended another merger, consolidation, business combination with, or
acquisition of, the Company or its assets or a tender offer for Shares, or shall
have resolved to do any of the foregoing;
(d) By the Company, upon approval of the Board, if (i) the Board shall
have withdrawn or modified in a manner adverse to Purchaser its approval or
recommendation of this Agreement, the Merger or any other Transaction or shall
have recommended another merger, consolidation, business combination with, or
acquisition of, the Company or its assets or a tender offer for Shares, or shall
have resolved to do any of the foregoing or (ii) the Houlihan opinion shall have
been withdrawn or revoked;
(e) By Purchaser (i) in the event the Company has breached any
representation, warranty, or covenant contained in this Agreement in any
material respect, Purchaser has notified the Company of the breach and such
breach cannot be or has not been cured within 15 days after the giving of such
notice, (ii) if shareholders of more than 392,611 shares of the Company's common
stock have exercised their appraisal rights under Delaware Law, or (iii) if the
Closing shall not have occurred on or before June 30, 2005 and any condition
precedent in Article V hereof shall not have been met or fulfilled (unless the
failure results primarily from Purchaser breaching any representation, warranty
or covenant contained in this Agreement);
(f) By the Company (i) in the event Purchaser has breached any
representation, warranty, or covenant contained in this Agreement in any
material respect, the Company has notified Purchaser of the breach and such
breach cannot be or has not been cured within 15 days after the giving of such
notice, or (ii) if the Closing shall not have occurred on or before June 30,
2005 and any condition precedent in Article V hereof shall not have been met or
fulfilled (unless the failure results primarily from the Company breaching any
representation, warranty, or covenant contained in this Agreement); or
(g) By the Company or Purchaser if upon a vote at the Special Meeting,
any approval of the shareholders of the Company necessary to consummate the
Merger and the transactions contemplated hereby shall not have been obtained.
SECTION 6.02 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 6.01, this Agreement shall forthwith become void,
and there shall be no liability on the part of any party hereto, except (i) as
set forth in Sections 6.03 and 7.01 and (ii) nothing herein shall relieve any
party from liability for any willful breach hereof.
14
SECTION 6.03 FEES AND EXPENSES. (a) If this Agreement is terminated
pursuant to Section 6.01 (c), (d) or (e)(i) and Purchaser is not in material
breach of its material covenants and agreements contained in this Agreement or
its representations and warranties contained in this Agreement, the Company
shall reimburse Purchaser (and its stockholders and Affiliates) not later than
one business day after submission of statements therefor for all out-of-pocket
expenses and fees up to $150,000.00 in the aggregate (including, without
limitation, fees and expenses payable to all banks, investment banking firms,
other financial institutions and other persons and their respective agents and
counsel, for arranging, committing to provide or providing any financing for the
Transactions or structuring the Transactions and all fees of counsel,
accountants, experts and consultants to Purchaser and its respective
stockholders and Affiliates, and all printing and advertising expenses) actually
incurred or accrued by it or on its behalf in connection with the Transactions,
including, without limitation, the financing thereof, and actually incurred or
accrued by banks, investment banking firms, other financial institutions and
other persons and assumed by Purchaser (or its stockholders or Affiliates) in
connection with the negotiation, preparation, execution and performance of this
Agreement, the structuring and financing of the Transactions and any financing
commitments or agreements relating thereto (all (the foregoing being referred to
herein collectively as the "EXPENSES").
(b) If this Agreement is terminated pursuant to Section 6.01(f), and
if the Company is not in material breach of its material covenants and
agreements contained in this Agreement or its representations and warranties
contained in this Agreement, the Purchaser shall reimburse the Company, not
later than one business day after submission of statements therefor, for all
Expenses up to $150,000.00 in the aggregate.
(c) Except as set forth in this Section 6.03, all costs and expenses
incurred in connection with this Agreement and the Transactions shall be paid by
the party incurring such expenses, whether or not any Transaction is
consummated.
(d) In the event that the Company or the Purchaser shall fail to pay
any Expenses when due, the term "Expenses" shall be deemed to include the costs
and expenses actually incurred or accrued by the Company or the Purchaser (and
its stockholders and Affiliates) as the case may be(including, without
limitation, fees and expenses of counsel) in connection with the collection
under and enforcement of this Section 6.03, together with interest on such
unpaid Expenses, commencing on the date that such Expenses became due, at a rate
equal to the rate of interest publicly announced by The Chase Manhattan Bank,
from time to time, in the City of New York, as such bank's Base Rate plus 2%.
SECTION 6.04 AMENDMENT. This Agreement may be amended by the parties hereto
by action taken by or on behalf of the board of directors of Purchaser and the
Board at any time prior to the Effective Time; PROVIDED, HOWEVER, that, after
the approval and adoption of this Agreement and the Transactions by the
stockholders of the Company, no amendment may be made which would reduce the
amount or change the type of consideration into which each Share shall be
converted upon consummation of the Merger. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 6.05 WAIVER. At any time prior to the Effective Time, any party
hereto may (i) extend the time for the performance of any obligation or other
act of any other party
15
hereto, (ii) waive any inaccuracy in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any agreement or condition contained herein. Any such extension
or waiver shall be valid if (a) it is the result of action taken by or on behalf
of the board of directors of Purchaser, if Purchaser is the party granting the
extension or waiver, or the Board, if the Company is the party granting the
extension or waiver, and (b) it is set forth in an instrument in writing signed
by the party or parties to be bound thereby.
SECTION 6.06 SPECIAL COMMITTEE. Any action permitted or required to be
taken under this Agreement by the Board, including without limitation any
termination of this Agreement pursuant to Section 6.01 hereof, any amendment of
this Agreement pursuant to Section 6.04 or any waiver pursuant to Section 6.05,
and any consent, approval or determination permitted or required to be made or
given by the Company pursuant to this Agreement, shall be made, taken or given,
as the case may be, only with the concurrence, or at the direction, of the
Special Committee, as the Special Committee may determine, from time to time, in
its sole discretion.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.01 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
The representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Section 6.01, as the case may be, except that the agreements set forth in
Article I shall survive the Effective Time indefinitely and those set forth in
Section 6.03 shall survive termination indefinitely.
SECTION 7.02 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 7.02):
if to Purchaser:
Lombardi Restaurant Group, Inc.
1862 Oak Tree Road
Edison, NJ 08820
Telephone: 732-906-1500
Facsimile: 732-906-7625
Attn: Michael F. Lombardi, Esq.
16
with a copy to:
Brown Rudnick Berlack Israels LLP
120 West 45th Street
New York, NY 10036
Telephone: 212-209-4999
Facsimile: 212-704-0196
Attn: Steven F. Wasserman, Esq.
if to the Company:
Chefs International, Inc.
62 Broadway
Pt. Pleasant Beach, NJ 08742
Telephone: 732-295-0350
Facsimile: 732-295-4514
Attention: Martin Fletcher
17
if to the Company:
with a copy to:
Tolins & Lowenfels, P.C.
747 Third Ave., 19th Fl.
New York, New York 10017
Telephone: 212-421-1965
Facsimile: 212-888-7706
Attention: Roger Tolins, Esq.
SECTION 7.03 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "AFFILIATE" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with, such specified person;
(b) "BENEFICIALLY OWN" or any variation thereon with respect to a
person holding Shares means that such person shall be deemed to be the
beneficial owner of such Shares (i) which such person or any of its Affiliates
or associates (as such term is defined in Rule 12b-2 promulgated under the
Exchange Act) beneficially owns, directly or indirectly, (ii) which such person
or any of its Affiliates or associates has, directly or indirectly, (A) the
right to acquire (whether such right is exercisable immediately or subject only
to the passage of time), pursuant to any agreement, arrangement or understanding
or upon the exercise of consideration rights, exchange rights, warrants or
options, or otherwise, or (B) the right to vote pursuant to any agreement,
arrangement or understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its Affiliates
or associates or person with whom such person or any of its Affiliates or
associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any Shares;
(c) "BUSINESS DAY" means any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in the City of New York;
(d) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise;
(e) "PERSON" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person" as
defined in Section 13(d)(3) of the Exchange Act), trust, association or entity
or government, political subdivision, agency or instrumentality of a government;
and
18
(f) "SUBSIDIARY" or "SUBSIDIARIES" of the Company, the Surviving
Corporation, or any other person means an Affiliate controlled by such person,
directly or indirectly, through one or more intermediaries.
SECTION 7.04 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Transactions is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
Transactions be consummated as originally contemplated to the fullest extent
possible.
SECTION 7.05 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise, except that
Purchaser may assign all or any of its rights and obligations hereunder to any
Affiliate of Purchaser provided that no such assignment shall relieve the
assigning party of its obligations hereunder if such assignee does not perform
such obligations.
SECTION 7.06 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
SECTION 7.07 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 7.08 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed in that State. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in any state or federal court sitting in the State of Delaware.
SECTION 7.09 HEADINGS. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 7.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
19
IN WITNESS WHEREOF, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
LOMBARDI RESTAURANT GROUP, INC.
Attest:
s/ Zachary Angelus Carpenter By: s/ Michael Lombardi,
------------------------------------ ----------------------------
Zachary Angelus Carpenter Michael Lombardi, President
CHEFS INTERNATIONAL, INC.
Attest:
s/ Michael F. Lombardi By: s/ Robert Lombardi
------------------------------------ ----------------------------
Title: Michael F. Lombardi Robert Lombardi, Chairman
Secretary and Chief Executive Officer
20
APPENDIX B
[HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC. LETTERHEAD]
December 16, 2004
To the Special Committee of the
Board of Directors
Chefs International, Inc.
62 Broadway
Point Pleasant Beach, New Jersey 08742
Gentlemen:
We understand that Chefs International, Inc., ("Chefs" or the "Company") has
received a draft Merger Agreement dated December 16, 2004 (the "Agreement") from
the Lombardi Restaurant Group, Incorporated ("Acquisition Co.") concerning a
transaction to acquire all of the outstanding shares of the Company not owned by
the Buyer Group (defined below), for a cash purchase price of $3.12 per share.
Acquisition Co. is a privately owned Delaware corporation formed for the sole
purpose of effecting the merger and is owned by Robert Lombardi, Anthony
Lombardi, Joseph Lombardi, Michael Lombardi, and Stephen Lombardi ("Lombardi
Brothers") and two brothers unrelated to the Lombardi Brothers, the Maschler
Group, (collectively the "Buyer Group"). The Agreement contemplates that the
acquisition will take the form of a merger in which Acquisition Co. will be
merged with Chefs, and Chefs will be the surviving corporation (the "Merger").
Additionally, Chefs' stockholders (the "Public Stockholders"), other than the
Buyer Group, would receive in the Merger a cash payment for their shares of
Chefs' common stock. Currently, the Lombardi Brothers own 2,408,529 shares or
approximately 61% of Chefs' outstanding common stock and hold five of the eight
seats on Chefs' Board of Directors (the "Board"). Additionally, the Buyer Group
owns 2,605,467 shares, or approximately 66% of Chefs' outstanding common stock.
Such transaction and all related transactions are referred to collectively
herein as the "Transaction." The Board has appointed a Special Committee (the
"Committee" hereinafter) consisting of the three non-Buyer Group directors to
consider certain matters relating to the Transaction.
You have requested our opinion (this "Opinion") as to the matters set forth
below. This Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. met with certain members of the senior management to discuss the
operations, financial condition, future prospects and projected
operations and performance;
2. visited certain restaurants and business offices of the Company;
8
The Special Committee of the
Board of Directors
Chefs International, Inc.
December 16, 2004
3. reviewed the Company's publicly traded stock price history and
trading volume;
4. reviewed a draft of the Merger Agreement dated December 16, 2004;
5. reviewed the Company's certificate of incorporation, as amended;
6. reviewed the Company's Annual Reports to shareholders on Form 10-KSB
for the fiscal years ended January 31, 1998 through January 31,
2004;
7. reviewed the Company's Form 10-QSB for the quarterly period ended
October 24, 2004;
8. reviewed the Company's tax assessments of its owned properties;
9. reviewed the Company's restaurant lease agreements;
10. reviewed certain publicly available financial data for certain
companies that we deemed appropriate; and
11. conducted such other studies, analyses and inquiries, as we have
deemed appropriate.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter. We have
assumed, for the purpose of this Opinion, that neither the Company, the Buyer
Group, nor the Board has entered into any discussions or otherwise has any
intentions to sell or liquidate the Company as of the date of this Opinion. We
have also assumed that the Buyer Group's equity interests in the Company on the
date hereof represent control of the Company. If the foregoing assumption is not
correct then the conclusion set forth in this Opinion may be adversely effected.
Furthermore, Houlihan Lokey is under no obligation to update, revise or reaffirm
this Opinion.
This Opinion is furnished solely for your benefit and may not be relied upon by
any other person without our express, prior written consent. This Opinion is
furnished for your benefit and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote or otherwise
act at the special meeting of Chefs' stockholders to approve the Transaction.
This Opinion is delivered to the Committee subject to the conditions, scope of
engagement, limitations and understandings set forth in this Opinion and our
engagement letter, and subject to the understanding that the obligations of
Houlihan Lokey in the Transaction are solely corporate obligations, and no
officer, director, employee, agent, shareholder or controlling person of
Houlihan Lokey shall be subjected to any personal liability whatsoever to any
person, nor will any such claim be asserted by or on behalf of you or your
affiliates.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
consideration to be received by the Public Stockholders of the Company (other
than the Buyer Group or any of its affiliates) in the Merger is fair to them
from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
/s/ Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
CHEFS INTERNATIONAL, INC.
APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW -- APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss.251 (other than a merger effected pursuant to ss.251(g)
of this title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss.251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
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a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss.253 of this title is not owned
by the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
1such stockholder's shares shall deliver to the corporation, before the taking
of the vote on the merger or consolidation, a written demand for appraisal of
1such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of 1such stockholder's
shares. A proxy or vote against the merger or consolidation shall not constitute
such a demand.
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A stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to ss.228 or
ss.253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in
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the Court of Chancery demanding a determination of the value of the stock of all
such stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder shall
have the right to withdraw 1such stockholder's demand for appraisal and to
accept the terms offered upon the merger or consolidation. Within 120 days after
the effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon written
request, shall be entitled to receive from the corporation surviving the merger
or resulting from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after 1such stockholder's written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
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borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded 1 appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of 1such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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CHEFS INTERNATIONAL, INC.
SCHEDULE 13E-3
CONTRIBUTION AGREEMENT
This Contribution Agreement (the "Agreement") is entered into as of the
17th day of December, 2004, by and among Lombardi Restaurant Group, Inc., a
Delaware corporation (the "Company"), and the persons set forth on the signature
pages hereto (collectively, the "Transferors" and, each individually, a
"Transferor").
WHEREAS, pursuant to that certain proposed Merger Agreement of even date
herewith (the "Merger Agreement") by and among the Company and Chefs
International, Inc., a Delaware corporation ("Chefs"), the Company will be
merged with and into Chefs (the "Merger"), upon the terms and subject to the
conditions set forth in the Merger Agreement; and
WHEREAS, it is contemplated that under the Merger Agreement each of the
Transferors owns the number of shares (the "Contribution Shares") of common
stock, par value $.01 per share, of Chefs ("Chefs Common Stock") set forth
opposite such Transferors name on Schedule A attached hereto ("Schedule A"); and
WHEREAS, each Transferor desires to make a capital contribution of his
Contribution Shares to the Company in exchange for the same number of shares
(the "Company Shares") of Company common stock, par value $0.01 per share (the
"Company Common Stock"), on the terms and conditions contained herein; and
WHEREAS, each Transferor desires to make (i) an initial capital
contribution to the Company in cash in the amount set forth opposite the name of
such Transferor on Schedule A (the "Initial Cash Contribution"), (ii) a
subsequent capital contribution to be paid to stockholders of Chefs as
consideration in the Merger (the "Merger Cash Contribution") and (iii) such
additional capital contributions in cash as set forth in this Agreement (the
"Additional Cash Contributions", combined with the Initial Cash Contribution and
the Merger Cash Contribution shall be collectively referred to as the "Cash
Contributions") in exchange for no additional shares of Company Common Stock, on
the terms and conditions contained herein; and
WHEREAS, the Company desires to issue the Company Shares to the Transferors
in exchange for the Contribution Shares and the Cash Contributions; and
WHEREAS, the Company is a transitory entity formed solely for the purposes
of effecting the Merger.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, the parties to
this Agreement, intending to be legally bound, mutually agree as follows:
EXHIBIT - Item 16 (d)
ARTICLE I
CONTRIBUTION AND ISSUANCE OF SHARES OF COMPANY COMMON STOCK
1.1 TRANSFER OF CONTRIBUTION INTERESTS. Subject to the terms and
conditions, relying on the representations and warranties and in consideration
of the covenants and agreements set forth herein, each Transferor severally
agrees irrevocably to contribute, convey, grant, transfer and deliver on the
date hereof to the Company, and the Company agrees to accept and take delivery
on the date hereof from the Transferors of, the Contribution Shares, free and
clear of any lien, claim or encumbrance of any nature whatsoever, except for
Company's obligations hereunder. The transfer of the Contribution Shares by each
Transferor pursuant to the terms of this Agreement shall constitute a
contribution transaction under which all the benefits and risks relating to the
Contribution Shares shall pass from the Transferors to the Company and shall not
constitute in any way a lending transaction or any other transaction.
1.2 INITIAL CASH CONTRIBUTION; MERGER CASH CONTRIBUTION; ADDITIONAL CASH
CONTRIBUTIONS. (a) Subject to the terms and conditions, relying on the
representations and warranties and in consideration of the covenants and
agreements set forth herein, each Transferor severally agrees irrevocably to
contribute, convey, grant, transfer and deliver on the date hereof to the
Company, and the Company does hereby agree to accept and take on the date hereof
the Initial Cash Contributions in the amount set forth opposite the name of each
Transferor on Schedule A by wire transfer (or deposit) of immediately available
funds denominated in U.S. dollars to an account established by the Company.
(b) Prior to the consummation of the Merger, the Company shall notify each
Transferor as to the proposed effective date of the Merger and the date by which
each Transferor is required to deposit (the "Deposit Date") the Merger Cash
Contribution set forth opposite such Transferors name on Schedule A (or such
other amount as reasonably instructed by the Company) with the exchange agent
with respect to the Merger. Each Transferor severally agrees irrevocably to
contribute, convey, grant, transfer and deliver on or prior to the Deposit Date
to the exchange agent the appropriate Merger Cash Contribution by wire transfer
(or deposit) of immediately available funds.
(c) In the event that additional cash sums are required by the Company to
pay for expenses incurred in connection with the Merger, or to be paid as
consideration to stockholders of Chefs in the Merger, the Company shall so
notify each Transferor in writing. Such notice shall specify (i) the total
amount of the additional cash required (and the reasons therefore), (ii) such
Transferor's pro rata share of such amount (based upon such Transferor's number
of Contribution Shares relative to the total number of Contribution Shares
contributed to the Company by all Transferors) (the "Applicable Percentage"),
and (iii) the date on which such Subsequent Cash Contribution is required to be
transferred by the Transferor to the Company which date may not be less than
four (4) business date following the date on which such notice is delivered to
the Transferor.
(d) Each Transferor agrees that the failure to comply with the terms and
conditions of this Section 1.2 shall constitute a material breach of this
Agreement. Upon a breach of this Section 1.2, the Company shall so notify such
Transferor who shall have an additional 2 business days within which to cure the
alleged breach of this Agreement. Failure to cure such breach, shall
2
constitute an event of the default hereunder. Upon the occurrence of an event of
default by a Transferor, the Company may elect to cancel a number of shares of
Company Common Stock issued to such Transferor having a value equal to the
damage incurred by the Company based upon the shares of Company Common Stock
having a value of $3.00 per share.
1.3 CONSIDERATION. Subject to the terms and conditions, relying on the
representations and warranties and in consideration of the covenants and
agreements set forth herein, in consideration of the transfer of the Cash
Contributions and the Contribution Shares to the Company by each Transferor as
set forth in Sections 1.1 and 1.2 above, the Company agrees to issue the number
of Company Shares to each Transferor equal to the number of Contribution Shares
being contributed by each Transferor to the Company.
1.4 CLOSING. Subject to the terms set forth herein, the contribution of the
Contribution Shares and the Initial Cash Contributions and the issuance of the
Company Shares hereunder shall occur at a closing (the "Closing") to be held at
the offices of Brown Rudnick Berlack Israels LLP, 120 West 45th Street, New
York, NY 10036, on the date hereof (the "Closing Date"). Upon delivery of the
Cash Contributions and the Contribution Shares in accordance with the terms of
this Agreement, the Company shall deliver a share certificate representing the
Company Shares issuable to each Transferor in accordance with Section 1.3.
1.5 MERGER CONSIDERATION. Each party hereto acknowledges and agrees that
the aggregate consideration payable by Chefs upon consummation of the Merger
pursuant to the Merger Agreement shall be a number of shares of Chefs Common
Stock (the "Merger Shares") equal to the total number of Contribution Shares and
such Merger Shares shall be delivered by Chefs to the Transferors pro rata based
upon the Applicable Percentage.
1.6 BOARD OF DIRECTORS. Immediately following the Closing, the stockholders
of the Company shall elect the following individuals as members of the Board of
Directors (the "Board"):
Michael F. Lombardi;
Robert M. Lombardi;
Joseph S. Lombardi;
Anthony M. Lombardi;
Stephen F. Lombardi; and
Matthew H. Maschler
The Chairman of the Board shall be Robert M. Lombardi. In the event that
Mr. Maschler shall no longer serve as a member of the Board, Mr. Maschler (or
his representative) shall have the right to nominate an individual reasonably
acceptable to the Board as a replacement for Mr. Maschler and the stockholders
shall so elect that individual to the Board of Directors. The Company shall
cause the Merger Agreement to provide that the Board of Directors of the Company
shall become the Board of Directors of Chefs upon the effective time of the
Merger.
3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the following representations and warranties, which
representations and warranties shall be true, correct and complete in all
respects on the date hereof and shall be true, correct and complete in all
material respects as of the Closing (except for those representations and
warranties that address matters only as of a particular date or only with
respect to a specific period of time, which representations and warranties shall
be true and correct as of such particular date or period of time) to each
Transferor that:
2.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to carry on its business as
now conducted and as proposed to be conducted.
2.2 AUTHORIZATION. All corporate action on the part of the Company
necessary for the authorization, execution, delivery and performance of this
Agreement by the Company, and for the authorization, issuance and delivery of
the Company Shares being issued under this Agreement has been taken. This
Agreement, when executed and delivered by all parties hereto, shall constitute
the valid and legally binding obligation of the Company, except to the extent
the enforceability thereof may be limited by bankruptcy laws, insolvency laws,
reorganization laws, moratorium laws or other laws affecting creditors' rights
generally or by general equitable principles.
2.3 VALIDITY OF COMPANY COMMON STOCK. The shares of Company Common Stock,
when issued, sold and delivered in accordance with the terms of this Agreement,
shall be duly and validly issued, and fully paid and nonassessable.
2.4 SECURITIES ACT. The issuance of the shares of the Company Common Stock
in accordance with the terms of this Agreement (assuming the accuracy of the
representations and warranties of each Transferor contained in Article III
hereof) is exempt from the registration requirements of the Securities Act of
1933, as amended (the "1933Act").
ARTICLE III
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE TRANSFERORS
Each Transferor, separately and not jointly, makes the following
representations and warranties, which representations and warranties shall be
true, correct and complete in all respects on the date hereof and shall be true,
correct and complete in all material respects as of the Closing (except for
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time, which
representations and warranties shall be true and correct as of such particular
date or period of time) to the Company and each other Transferor that:
3.1 AUTHORIZATION. Such Transferor has full legal capacity and unrestricted
power to execute and deliver this Agreement to which he, she or it is a party,
and any other agreements or instruments executed by it in connection herewith or
therewith and to consummate the transactions contemplated herein or therein.
This Agreement, when executed and delivered by each Transferor, will constitute
its valid and legally binding obligation, except to the extent the
enforceability thereof may be limited by bankruptcy laws, insolvency laws,
reorganization laws,
4
moratorium laws or other laws affecting creditors' rights generally or by
general equitable principles.
3.2 INVESTMENT REPRESENTATIONS.
(a) The shares of Company Common Stock to be received by each
Transferor will be acquired by such Transferor for investment for his, her or
its own account, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof in violation of applicable federal and state
securities laws, and such Transferor has no current intention of selling,
granting participation in or otherwise distributing the same, in each case, in
violation of applicable federal and state securities laws. By executing this
Agreement, such Transferor further represents that such Transferor does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person, or to any third person, with
respect to any of the shares of Company Common Stock, in each case, in violation
of applicable federal and state securities laws.
(b) Such Transferor understands that the shares of Company Common
Stock have not been registered under the 1933 Act on the basis that the issuance
provided for in this Agreement and the issuance of securities hereunder is
exempt from registration under the 1933 Act pursuant to Section 4(2) thereof and
regulations issued thereunder.
(c) Such Transferor has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of his, her
or its investment. Such Transferor further represents that such Transferor has
had access, during the course of the transactions contemplated hereby and prior
to its purchase of shares of Company Common Stock, to the same kind of
information that is specified in Part I of a registration statement under the
1933 Act and that it has had, during the course of the transactions contemplated
hereby and prior to his, her or its investment of the shares of Company Common
Stock, the opportunity to ask questions of, and receive answers from, the
Company concerning the terms and conditions of the offering and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access. Such
Transferor understands that no federal or state agency has passed upon this
investment or upon the Company, nor has any such agency made any finding or
determination as to this investment.
(d) Such Transferor understands that the shares of Company Common
Stock may not be sold, transferred or otherwise disposed of without registration
under the 1933 Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the shares of Company Common Stock or
an available exemption from registration under the 1933 Act, the shares of
Company Common Stock must be held indefinitely. Such Transferor must be prepared
to bear the economic risk of this investment for an indefinite period of time.
In particular, such Transferor acknowledges that it is aware that the shares of
Company Common Stock may not be sold pursuant to Rule 144 promulgated under the
1933 Act unless all of the conditions of that Rule are met. Among the current
conditions for use of Rule 144 by certain holders is the availability to the
public of current information about the Company. Such information is not now
available, and the Company has no current plans to make such information
available. Such Transferor represents that, in the absence of an effective
registration
5
PRELIMINARY COPY
CHEFS INTERNATIONAL, INC.
REVOCABLE PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
For the Special Meeting of Stockholders - February _ _, 2005
The undersigned, a Stockholder of CHEFS INTERNATIONAL, INC. (the
"Company") hereby appoints Robert M. Lombardi and Michael F. Lombardi or either
of them, as proxy or proxies of the undersigned, with full power of
substitution, to vote, in the name, place and stead of the undersigned, with all
of the powers which the undersigned would possess if personally present, on
behalf of the undersigned, all shares of Common Stock which the undersigned is
entitled to vote at the Special Meeting of the Stockholders of CHEFS
INTERNATIONAL, INC. to be held at 10:00 A.M. (local time) on ___________,
February _ _, 2005 at the Company's Jack Baker's Wharfside Restaurant at 101
Channel Drive, Point Pleasant New Jersey 08742 and at any and all adjournments
or postponements thereof. The undersigned directs that this proxy be voted as
follows:
[ X ] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
This proxy revokes any and all proxies heretofore given by the
undersigned.
The shares represented by this proxy will be voted in the manner
directed. IN THE ABSENCE OF ANY DIRECTION, THE SHARES WILL BE VOTED "FOR" THE
PROPOSALS. The undersigned acknowledges receipt of the Notice of Special Meeting
of Stockholders and the Proxy Statement dated January _ _, 2005.
Please mark, sign and date this proxy and return it promptly whether
you plan to attend the meeting or not. If you do attend, you may vote in person
if you so desire.
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE
SEE REVERSE SIDE SEE REVERSE SIDE
YOUR PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS
1. To approve and adopt the Agreement and Plan of Merger dated as of
December 22, 2004 between Lombardi Restaurant Group Inc., a Delaware corporation
("Acquisition Co.") and the Company and the Merger pursuant to which Acquisition
Co. will be merged with and into the Company and each share of the Company's
Common Stock (other than shares owned by Acquisition Co.) will be canceled and
converted into the right to receive a cash payment of $3.12, without interest.
FOR AGAINST ABTAIN
[ ] [ ] [ ]
2. In the discretion of the above-named proxies, on such other matters
as may properly come before the Special Meeting.
FOR AGAINST ABTAIN
[ ] [ ] [ ]
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED ABOVE.
IN THE ABSENCE OF ANY DIRECTION, THE SHARES WILL BE VOTED "FOR" THE PROPOSALS.
Dated:_______________________________, 2005
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(Signature of Stockholder)
Please date and sign exactly as name appears on this Proxy. If
shares are registered in more than one name, the signatures of
all such persons are required. A corporation should sign in
its full corporate name by a duly authorized officer, stating
his title. Trustees, guardians, executors and administrators
should sign in their official capacity, giving their full
title as such. If a partnership, please sign in partnership
name by authorized person.
PLEASE SIGN AND RETURN THIS PROXY PROMPTLY
No postage is required if returned in the enclosed
envelope and mailed in the United States