-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PSd4fWLEs3d/vCa1LKKbSSeqF7AanjqRBN9UYIcmnCKmvC3XTdPCYsrrkapeN1ME 0pFpOJ62uCkAFYs1wVcNSw== 0000950130-99-003201.txt : 19990521 0000950130-99-003201.hdr.sgml : 19990521 ACCESSION NUMBER: 0000950130-99-003201 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19990520 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CHOCK FULL O NUTS CORP CENTRAL INDEX KEY: 0000020041 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS [2090] IRS NUMBER: 130697025 STATE OF INCORPORATION: NY FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: SEC FILE NUMBER: 005-03132 FILM NUMBER: 99631399 BUSINESS ADDRESS: STREET 1: 370 LEXINGTON AVE STREET 2: 11TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125320300 MAIL ADDRESS: STREET 1: 370 LEXINGTON AVENUE STREET 2: 11TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CHOCK FULL O NUTS CORP CENTRAL INDEX KEY: 0000020041 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS [2090] IRS NUMBER: 130697025 STATE OF INCORPORATION: NY FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 370 LEXINGTON AVE STREET 2: 11TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125320300 MAIL ADDRESS: STREET 1: 370 LEXINGTON AVENUE STREET 2: 11TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 SC 14D9 1 SCHEDULE 14D-9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- SCHEDULE 14D-9 Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of the Securities Exchange Act of 1934 ---------------- Chock Full O'Nuts Corporation (Name of Subject Company) Chock Full O'Nuts Corporation (Name of Person(s) Filing Statement) ---------------- 8% Convertible Subordinated Debentures due September 15, 2006 7% Convertible Senior Subordinated Debentures due April 1, 2012 Common Stock, Par Value $0.25 Per Share (including associated common stock purchase rights) (Title of Class of Securities) 170268AC0 170268AB2 170268 10 6 (CUSIP Number of Classes of Securities) ---------------- Howard Leitner Chock Full O'Nuts Corporation 370 Lexington Avenue New York, New York 10017 (212) 532-0300 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on behalf of the Person Filing Statement) ---------------- With copies to: W. Leslie Duffy, Esq. Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 (212) 701-3000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Item 1. Security and Subject Company The name of the subject company is Chock Full O'Nuts Corporation, a New York corporation (the "Company"). The principal executive offices of the Company are located at 370 Lexington Avenue, New York, New York 10017. The classes of securities to which this Statement relates are (i) the Company's Common Stock, par value $0.25 per share (the "Common Stock"), including the associated Common Stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares") issued pursuant to the Amended and Restated Rights Agreement dated as of December 30, 1997 (the "Rights Agreement") between the Company and American Stock Transfer & Trust Company, (ii) the Company's 8% Convertible Subordinated Debentures due September 15, 2006, issued under an Indenture dated as of September 15, 1986 between the Company and Bank One Corporation, as successor to Manufacturers Hanover Trust Company (the "8% Convertible Debentures"), and (iii) the Company's 7% Convertible Senior Subordinated Debentures due April 1, 2012, issued under an Indenture dated as of April 1, 1987 between the Company and IBJ Whitehall Bank & Trust Company (the "7% Convertible Debentures" and, together with the 8% Convertible Debentures and the Shares, the "Securities"). Item 2. Tender Offer of the Bidder This Statement relates to the tender offer disclosed in a Tender Offer Statement on Schedule 14D-1 dated May 7, 1999 (the "Schedule 14D-1") filed by Sara Lee Corporation, a Delaware corporation ("Sara Lee"), and its wholly- owned subsidiary CFN Acquisition Corporation, a Delaware corporation (the "Purchaser" and, together with Sara Lee, the "Bidder"), to purchase (i) all of the outstanding Shares at a price of $10.50 per Share, (ii) all of the outstanding 8% Convertible Debentures at a price of $1,275.82 per $1,000 debenture and (iii) all of the outstanding 7% Convertible Debentures at a price of $1,344.43 per $1,000 debenture, upon the terms and subject to the conditions set forth in the Offer to Purchase dated May 7, 1999 (the "Offer to Purchase") and the related Letters of Transmittal (which, as amended from time to time, together with any amendments and supplements thereto, collectively constitute the "Offer"). The Offer to Purchase states that the principal executive office of each of Sara Lee and the Purchaser is Three First National Plaza, Chicago, Illinois 60602. Item 3. Identity and Background (a) The name and business address of the Company, which is the person filing this Schedule 14D-9, are set forth in Item 1 above. (b) Certain contracts, agreements, arrangements or understandings between the Company and its executive officers, directors or affiliates are described in the sections entitled "Executive Compensation and Transactions with Directors, Officers and Principal Holders", "Option/SAR Grants in Last Fiscal Year", "Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values", "Report of the Compensation Committee on Executive Compensation", "Pension Plan", "401(k) Cash or Deferred Com-pensation Plan", "Deferred Compensation Plan", "Employee Stock Ownership Plan", "Unfunded Directors Retirement Plan" and "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement for the 1998 Annual Meeting of Shareholders held on December 18, 1998 (the "Proxy Statement"). A copy of the pertinent portions of the Proxy Statement is filed as Exhibit 1 hereto, and such portions are incorporated herein by reference. Effective as of October 27, 1998, the employment agreement between the Company and Marvin Haas, the President and Chief Executive Officer of the Company, was amended and restated. The amended and restated employment agreement is substantially the same as his employment agreement previously in effect (as described in the Proxy Statement) except that benefits are payable in the event of his voluntary resignation for any reason following a Change in Control (as defined) and not just for certain specified reasons constituting "Good Reason" (as was provided in the prior employment agreement) and his base salary continued for the balance of the term after a termination of employment following a Change in Control is increased by $75,000 per year. 2 On April 30, 1999, in view of the need to minimize management distraction and to retain management's loyalty and dedication to the Company and to assure their attention to the Company's performance pending resolution of the Bidder's proposal, the Board of Directors of the Company (the "Board") approved the amendment of the annual incentive cash bonus plan covering nine individuals to provide for the payment of (1) a minimum bonus with respect to the fiscal year ending July 31, 1999 and (2) the maximum bonus with respect to a fiscal year if a Change in Control (as defined) of the Company occurs in such fiscal year. The minimum bonus for each individual is 1/3 of such individual's maximum bonus opportunity. Mr. Marvin Haas, the President and Chief Executive Officer of the Company, chose not to accept such amendment as it relates to the minimum bonus. In the event of a Change in Control of the Company, the maximum bonus would be payable within 30 days following a Change in Control. As six executive officers of the Company (including the two individuals named in the Proxy Statement) are covered by employment agreements which upon certain terminations of employment following a Change in Control provide for the payment of this maximum bonus for the fiscal year in which the Change in Control of the Company occurs, this amendment as approved by the Board of Directors does not require the Company to make material additional payments. See "Executive Compensation and Transactions with Directors, Officers and Principal Holders" in the Proxy Statement (the pertinent section of which is filed as Exhibit 1 hereto). To the knowledge of the Company, except as described above, as of the date hereof, there are no material contracts, agreements, arrangements or undertakings, or any actual or potential conflicts of interest between the Company or its affiliates and (1) the Company, its executive officers, directors or affiliates or (2) the Bidder or its executive officers, directors or affiliates except as described herein or incorporated by reference. Item 4. The Solicitation or Recommendation (a) Recommendation of the Board of Directors. In a letter dated August 15, 1997, the Bidder formally invited the Company to negotiate a business combination acceptable to both companies and their respective shareholders. On August 20, 1997 the Company indicated in a letter to the Bidder that it was not interested in pursuing such negotiations. On July 8, 1998, the Bidder submitted a written proposal to the Board of the Company proposing that the Bidder acquire the Company at a purchase price of $9.50 per Share in cash or shares of the Bidder's common stock ("Bidder Common Stock"). The Bidder, in a letter to the Board, reiterated its offer on July 29, 1998. On August 12, 1998, the Board responded, in a letter to the Bidder, that it was, with the assistance of Credit Suisse First Boston Corporation ("CSFB"), the Company's financial advisor, reviewing and evaluating the proposal. On September 15, 1998, representatives of the Company, the Bidder and their respective financial advisors met. At this meeting, the proposal and related matters were discussed. On October 2, 1998, the Company and the Bidder exchanged certain financial information. On October 16, 1998, the Bidder increased its proposal to $10.50 per Share in cash or shares of Bidder Common Stock. The Bidder, through a representative, subsequently indicated the possibility of a transaction at a price of $11.00 per Share in some combination of cash and Bidder Common Stock. On October 29, 1998, the Board, through CSFB, communicated to the Bidder's financial advisor that it was rejecting the Bidder's proposal, but that it would be willing to discuss a transaction at a higher price. On October 29, 1998, CSFB relayed to the Board that the Bidder had indicated it was not interested in increasing its offer and thereafter, the Bidder broke off all negotiations with the Company. In a March 10, 1999 letter to the Board, the Bidder indicated its renewed interest in acquiring the Company at a price of $9.50 per Share (a lower price than the Bidder had previously offered). On March 22, 1999, the Board rejected the Bidder's March 10th proposal as inadequate. The Board viewed the Bidder's proposal as an attempt by the Bidder to acquire a competitor at a bargain price, by taking advantage of commodity price fluctuations and depressed values for microcap stocks. On April 12, 1999, representatives of the Bidder informed CSFB that, as of that day, the Bidder had acquired (directly and through the ownership of convertible debentures) beneficial ownership of more than 5% of the Shares and that the Bidder would like to engage in discussions regarding a possible acquisition during the ten day period prior to filing its Schedule 13D with the Securities and Exchange Commission (the "SEC"). On April 19, 1999, the Bidder indicated it was willing to increase its proposal above $10.00 per Share in connection with such negotiations. 3 On April 20, 1999, the Bidder increased its proposal to $10.50 per Share in cash. Thereafter, CSFB, at the direction of the Company, told the Bidder that the Board would consider a transaction at $12.50 per Share, payable in the Bidder's Common Stock. Later that day the Bidder proposed to acquire the Company at a price of $10.50 per Share payable in the Bidder's Common Stock. In further discussions the Bidder indicated its willingness to enter into a stock transaction with a collar that would provide some protection against declines in the price of the Bidder's Common Stock, but give the Company's stockholders the benefit of increases, if any, in the value of the Bidder's Common Stock between the date of signing a definitive agreement and the closing. Additionally, the Bidder indicated that it was not willing to increase its offer to above $11.00 per Share. At this time the Executive Committee of the Board directed CSFB to make preliminary confidential inquiries to several other companies to determine if they would be interested in a transaction with the Company. On April 22, 1999, the Bidder filed a Schedule 13D with the SEC which indicated that between November 12, 1998 and April 16, 1999, the Bidder had purchased 111,200 shares of the Common Stock, $2,639,225.00 aggregate principal amount of 7% Convertible Debentures and a total (net of redemptions) of $1,272,764.00 aggregate principal amount of 8% Convertible Debentures. On May 4, 1999, the Bidder issued a press release announcing its intent to commence a tender offer to purchase all of the Company's outstanding Securities. On May 7, 1999, the Bidder filed its Schedule 14D-1 with the SEC. At a meeting held on May 14, 1999, the Board recommended that its Securityholders reject the Offer, based upon the Board's determination that the Offer is inadequate and not in the best interests of the Company and its Securityholders. After consideration of all relevant factors, including those discussed below, the Board determined that the $10.50 per Share amount of the Offer does not adequately reflect the potential value of the Company achievable for its Securityholders. ACCORDINGLY, THE BOARD RECOMMENDS THAT THE COMPANY'S SECURITYHOLDER'S REJECT THE OFFER AND NOT TENDER ANY SECURITIES TO THE BIDDER. The letter from the Chairman of the Board and the Chief Executive Officer of the Company to the Securityholders communicating the Board's recommendation and a press release announcing such recommendation are filed as Exhibits 2 and 3 hereto, respectively, and are incorporated by reference herein. (b) Reasons for the Recommendation. In reaching the determination and recommendation discussed in paragraph (a) above, the principal factors, considered by the Board were: (i) the Board's familiarity with the business, assets, financial condition, results of operations, business plans and current business strategy and future prospects of the Company, the nature of the industry in which the Company operates and the Company's competitive position in such industry; (ii) a presentation by CSFB, indicating that, based upon discounted cash flow analyses (using various operating assumptions for the Company and management's estimates of synergies achievable by an acquiror), the per Share value of the Company is higher than the Bidder's Offer of $10.50 per Share; (iii) the Board's belief that the Offer is an attempt by the Bidder to acquire a competitor at bargain price, which belief is based, in part, upon the fact that the Bidder has, more than once, indicated the possibility of a transaction at a price of $11.00 per Share; (iv) the Board's and management's perception that the long-term prospects for the coffee industry as a whole are generally positive, despite the industry's recent weakness; (v) the Board's belief, based in part on the factors referred to in paragraphs (i) through (iv), that the per Share price of the Offer does not adequately reflect the potential value of the Company achievable for its Securityholders; (vi) the Board's belief that it is in the best interest of the Securityholders at this time to evaluate, with the assistance of CSFB, alternatives to the Offer, including pursuing current discussions with other potential purchasers; and 4 (vii) the Board's commitment to protecting the best interests of the Company and enhancing the value of the Company for the benefit of the Securityholders. In view of the variety of factors considered in connection with its evaluation, the Board did not find it practicable and did not quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual members of the Board may have given different weight to different factors. Item 5. Persons Retained, Employed or to Be Compensated The Company has retained CSFB as its financial advisor in connection with the Offer and the evaluation of strategic alternatives. Pursuant to the terms of CSFB's engagement, the Company has agreed to pay CSFB the following fees: (i) a financial advisory fee of $250,000 (the "Initial Financial Advisory fee"), (ii) a transaction fee (the "Transaction Fee") equal to the sum of (a) 1.5% of the total fair market value (at the time of closing) of the aggregate consideration paid or payable to the Company or the Company's stockholders in connection with an acquisition transaction or other extraordinary corporate transaction involving the Company, up to and including the aggregate consideration implied in a transaction valued at $11.00 per Share and (b) 5.0% of the incremental amount of the aggregate consideration implied in a transaction valued in excess of $11.00 per share and (iii) in the event of an unsolicited tender offer for the Company's securities, (a) a fee of $500,000 (the "Opinion Fee"), payable upon the rendering of an opinion by CSFB as to the fairness, from a financial point of view, of the consideration to be received in such unsolicited tender offer, (b) a fee of $500,000 (the "Additional Advisory Fee"), payable within 180 days from the date of the unsolicited tender offer if the Company is independent at such time and (c) if, during the term of CSFB's engagement or within two years after termination of CSFB's engagement, another transaction for the Company is consummated, a customary transaction fee as mutually agreed upon by the Company and CSFB. The Initial Financial Advisory Fee, to the extent previously paid, will be credited against the Opinion Fee and the Additional Advisory Fee, and the Initial Financial Advisory Fee, the Opinion Fee and the Additional Advisory Fee, to the extent previously paid, will be credited against the Transaction Fee or such other transaction fee paid to CSFB pursuant to clause (iii)(c) above. The Company has also agreed to reimburse CSFB for reasonable out-of-pocket expenses, including the fees and expenses of legal counsel and any other advisor retained by CSFB (with the Company's prior approval), and to indemnify CSFB and certain related parties against certain liabilities, including liabilities under the federal securities laws, arising out of CSFB's engagement. In addition, the Company has agreed to engage CSFB in connection with any external financing in connection with CSFB's engagement and any public offering or private placement of the Company's securities during the term of CSFB's engagement. CSFB has in the past provided financial services to the Company unrelated to the Offer. In the ordinary course of business, CSFB and its affiliates may actively trade or hold the securities of the Company and the Bidder for their own account or for the account of customers and, accordingly, may at any time hold a long or short position in such securities. The Company has retained Kekst & Co. ("Kekst") as its public relations advisor in connection with the Offer and related matters. The Company has also retained The Altman Group ("Altman") to assist the Company in connection with its communications with Securityholders and to provide other services in connection with the Offer and related matters. The Company will pay Kekst and Altman reasonable and customary compensation for their services plus reimbursement for reasonable out-of-pocket expenses. The Company has also agreed to indemnify each of Kekst and Altman against certain liabilities and expenses, including certain liabilities under the federal securities laws. Item 6. Recent Transactions and Intent with Respect to Securities (a) Except as set forth below, there have been no transactions in the Securities during the past 60 days by the Company or, to the best of the Company's knowledge, by any executive officer, director, affiliate or subsidiary of the Company. 5 Between April 1, 1999 and April 9, 1999, Howard M. Leitner, the Senior Vice President and Chief Financial Officer and director of the Company, sold a total of 8,884 Shares for aggregate gross proceeds of $49,330. Mr. Leitner consummated the sale of such Shares in compliance with the requirements of a Qualified Domestic Relations Order to which he is subject. (b) To the best of the Company's knowledge, none of its executive officers, directors, affiliates or subsidiaries presently intend to tender to the Bidder pursuant to the Offer any Securities which are held of record or beneficially owned by such persons or to otherwise sell any such Securities. Item 7. Certain Negotiations and Transactions by the Subject Company (a) For the reasons discussed in Item 4 above, the Board has concluded that the Bidder's Offer is inadequate and not in the best interests of the Company and its Securityholders. At the May 14, 1999 meeting of the Board, the Board further concluded that it was in the best interest of the Company and its Securityholders that management, with the assistance the Company's legal and financial advisors, continue to develop and evaluate alternatives to the Bidder's Offer in order to maximize the value of the Company to its Shareholders, including pursuing current discussions with other potential purchasers. Accordingly, the Company has undertaken preliminary exploratory discussions and negotiations which relate to or would result in: (i) an extraordinary transaction such as a merger or reorganization involving the Company or any of its subsidiaries, (ii) a purchase, sale or transfer of a material amount of assets by the Company or any of its subsidiaries, or (iii) a material change in the present capitalization of the Company. In this regard, the Company has had preliminary discussions with other parties regarding their potential interest in a possible transaction involving the Company of the types described above, and the Company has furnished confidential information to certain parties indicating an interest in such a transaction and has responded to due diligence inquiries from such parties. Although the Board has made no decision to sell the Company, the Board will give careful consideration to any acquisition proposal that appropriately reflects the Company's value. There can be no assurance that the aforementioned activity will result in any transaction being recommended by the Board or that any transaction which is recommended will be authorized or consummated. The Board has determined that disclosure at this time with respect to the parties to, and the possible terms of, any transactions or proposals of the type referred to in this Item 7 might jeopardize the institution or continuation of any discussions that the Company has conducted or may conduct. Accordingly, the Board adopted a resolution at its May 14, 1999 meeting instructing management not to disclose the possible terms of any such transactions or proposals, or the parties thereto, unless and until an agreement in principle relating thereto has been reached or, upon the advice of counsel, as may otherwise be required by law. (b) Except as described in Item 3(b) and Item 4 above, there are no transactions, board resolutions, agreements in principle or signed contracts in response to the Offer which relate to or would result in one or more of the matters referred to in paragraph (a) of this item. Item 8. Additional Information to Be Furnished The Rights Agreement. As of December 30, 1997, the Company entered into the Rights Agreement which amended the Rights Agreement, dated as of December 30, 1987, between the Company and IBJ Schroder Bank and Trust Company, as rights agent, to, among other things, (i) extend the expiration date thereof to December 30, 2007, (ii) establish an exercise price of $28 per Right (as hereinafter defined), subject to adjustment, (iii) reduce the redemption price to $.01 per Right, (iv) add an exchange provision which permits the Board, at its option, in certain circumstances after the Rights become exercisable to exchange one share of the Company's Common Stock for each Right, (v) provide certain exclusions from the operation of the Rights Agreement for certain inadvertent acquisitions, (vi) name American Stock Transfer & Trust Company as successor Rights Agent and (vii) make certain other technical modifications. 6 On December 30, 1987, the Board authorized and declared a dividend distribution of one Right (as defined below) for each outstanding share of Common Stock of the Company to shareholders of record at the close of business on January 22, 1988 (the "Record Date"). Except as set forth below, each Right, when exercisable, entitles the registered holder to purchase from the Company one share of Common Stock at a price of $28 per share (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement. The Rights are initially attached to all certificates representing shares of Common Stock outstanding, and no separate Right certificates have been distributed. Until the earlier to occur of (i) a public announcement that, without the prior consent of the Company, (A) a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, after December 30, 1987, beneficial ownership of securities having 20% or more of the voting power of all outstanding voting securities of the Company, or (B) a person or group of affiliated or associated persons that, on December 30, 1987, beneficially owned securities having 20% or more of the Company's voting power, has acquired, or obtained the right to acquire, after December 30, 1987, beneficial ownership of securities representing an additional 2% or more of the Company's voting power (any such person or group referred to in clauses (A) or (B) being an "Acquiring Person" and such date being the "Stock Acquisition Date") or (ii) the tenth business day following the commencement of (or a public announcement of an intention to make) a tender offer or exchange offer which would result in any person or group of related persons becoming an Acquiring Person without the prior consent of the Company, or such later date as may be fixed by the Board of Directors of the Company (the earlier of such dates being called the "Distribution Date"), the Rights will be evidenced, with respect to any of the Common Stock certificates outstanding as of the Record Date, by such Common Stock certificate. The Rights Agreement provides that, until the Distribution Date, the Rights will be transferred only in conjunction with the corresponding transfer of the Common Stock certificates. From as soon as practicable after the Record Date and until the later of the Stock Acquisition Date or the Distribution Date (or earlier redemption, exchange or expiration of the Rights), new Common Stock certificates issued after the Record Date (including Common Stock certificates issued at any time after the Record Date upon conversion of the Company's outstanding 8% Convertible Debentures and 7% Convertible Debentures (together, the "Convertible Debentures")) upon transfer or new issuance of the Common Stock will contain a notation incorporating the Rights Agreement by reference. Until the later of the Stock Acquisition Date or the Distribution Date (or earlier redemption, exchange or expiration of the Rights), the surrender for transfer of any certificates for Common Stock outstanding (with or without the Summary of Rights to Purchase Common Shares attached) will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Rights Certificates") will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date, and the separate Rights Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date. The Rights will expire on the earliest of (i) December 30, 2007, (ii) consummation of a merger transaction with a person or group who acquired Common Stock pursuant to a Permitted Offer (as defined below) and who is offering the same price per share and form of consideration paid in the Permitted Offer, or (iii) redemption or exchange by the Company as described below. The Purchase Price payable, and the number of shares of Common Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Common Stock, (ii) upon the grant to holders of the Common Stock of certain rights or warrants to subscribe for Common Stock, certain convertible securities or securities having the same or more favorable rights, privileges and preferences as the Common Stock at less than the current market price of the Common Stock or (iii) upon the distribution to holders of the Common Stock of evidences of indebtedness or assets (excluding regular cash dividends out of earned surplus and dividends payable in Common Stock) or of subscription rights or warrants (other than those referred to above). In the event that a person becomes an Acquiring Person (unless pursuant to a tender or exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members 7 of the Board of Directors of the Company, who are not an Acquiring Person or an affiliate or associate of an Acquiring Person, to be both adequate and otherwise in the best interests of the Company and its various constituents, including, without limitation, both the long term and short term interests of the Company and its shareholders (a "Permitted Offer")), proper provision shall be made so that each holder of a Right will for a 60-day period thereafter have the right to receive upon exercise thereof that number of shares of Common Stock having a market value of two times the then current exercise price of the Right, subject to the availability of a sufficient number of authorized but unissued shares (such right being called the "Subscription Right"). In the event that after a Stock Acquisition Date the Company is acquired in a merger or other business combination transaction involving the Company or 50% or more of its assets or earning power are sold (in one transaction or a series of transactions), proper provision shall be made so that each holder of a Right shall thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring company (or, in the event there is more than one acquiring company, the acquiring company receiving the greatest portion of the assets or earning power transferred) which at the time of such transaction would have a market value of two times the exercise price of the Right (such right being called the "Merger Right"). The holder of a Right will continue to have the Merger Right whether or not such holder exercises the Subscription Right. Upon the occurrence of any of the events giving rise to the exercisability of the Subscription Right or the Merger Right, any Rights that are or were at any time owned by an Acquiring Person engaging in any of such transactions or receiving the benefits thereof on or after the time the Acquiring Person becomes such shall become void insofar as they relate to the Subscription Right or the Merger Right. With certain exceptions, no adjustments in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractions of shares will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Common Stock on the last trading date prior to the date of exercise. At any time prior to the earlier to occur of (i) a person becoming an Acquiring Person or (ii) the expiration of the Rights, the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption Price"), which redemption shall be effective upon the action of the Board. Additionally, the Company may thereafter redeem the then outstanding Rights in whole, but not in part, at the Redemption Price provided that such redemption is incidental to a merger or other business combination transaction or series of transactions involving the Company but not involving an Acquiring Person or any person who was an Acquiring Person or following an event giving rise to, and the expiration of the exercise period for, the Subscription Right if and for as long as no person beneficially owns securities representing 20% or more of the voting power of the Company's voting securities. The redemption of Rights described in the preceding sentence shall be effective only as of such time when the Subscription Right is not exercisable, and in any event, only after 10 business days prior notice. Upon the effective date of the redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. At any time after the acquisition by a person or group of affiliated or associated persons of beneficial ownership of 20% or more of the Company's voting power and prior to the acquisition by any such person or group of 50% or more of the Company's voting power, the Board of Directors, at its option, may exchange all or part of the then outstanding and existing Rights (other than Rights owned by such person or group which shall become void), for Common Stock, at an exchange ratio of one share of Common Stock per Right (subject to adjustment). Until a Right is exercised, the holder thereof, as such, will have no rights as a stock-holder of the Company, including, without limitation, the right to vote or to receive dividends. The foregoing description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement. 8 Section 912 of the New York Business Corporation Law. The Offer is conditioned upon, among other things, the Bidder being satisfied that the restrictions on business combinations contained in Section 912 of the New York Business Corporation Law ("Section 912") are inapplicable to the proposed merger set forth in the Offer to Purchase. Section 912 regulates certain business combinations, including mergers, of a New York corporation, such as the Company, with a person that has, individually or with or through its affiliates or associates, acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding voting stock of such corporation (an "Interested Shareholder"). Section 912 provides that no New York corporation may engage in any business combination with any Interested Shareholder of such corporation for a period of five years following the date on which such Interested Shareholder becomes an Interested Shareholder (a "Stock Acquisition Date") unless such business combination or the purchase of stock made by such Interested Shareholder on such Interested Shareholder's Stock Acquisition Date is approved by the board of directors of such corporation prior to such Interested Shareholder's Stock Acquisition Date. Unless the Bidder satisfies the requirements of Section 912, the Bidder would be unable to effect the proposed merger with the Company as contemplated by the Offer to Purchase for a period of five years. The foregoing summary of Section 912 does not purport to be complete and is qualified in its entirety to references to the provisions of Section 912. Litigation. Between April 26, 1999 and April 27, 1999, two putative class action lawsuits were filed by alleged Shareholders of the Company against certain officers and directors of the Company and the Company, in the Supreme Court of the State of New York, styled LAURA BENJAMIN V. CHOCK FULL O'NUTS CORP., ET AL., C.A. No. 9108759 and SANDRA KAFENBAUM ET AL. V. MARK A. ALEXANDER ET AL., C.A. No. 99602054. In addition, on April 26, 1999 a shareholder's derivative complaint was filed by alleged Shareholders of the Company against certain officers and directors of the Company and the Company, in the Supreme Court of the State of New York, styled HARBOR FINANCE PARTNERS AND ALAN FREBURG V. MARVIN I. HAAS ET AL., No. 99-602013. Each of the class action suits and the shareholder's derivative suit set forth substantially similar allegations of purported misconduct and breach of fiduciary duties by certain officers and directors of the Company and the Board related to their conduct and consideration of certain business combinations. The shareholder plaintiffs seek, in each case unspecified damages, attorneys' fees and equitable relief, including, among other things, orders requiring the individual defendants to carry out their fiduciary duties, enjoining them from proceeding with alleged violations complained of in the complaints, and requiring them to disgorge all profits allegedly earned from purported insider stock transactions during the relevant time period. The Board has received a letter from another shareholder threatening a shareholder's derivative suit similar to that set forth above. In addition, the Company has been informed that several additional lawsuits have been filed which the Company believes contain allegations substantially similar to those set forth above, however, the Company has not been served with complaints in such matters. The descriptions of the litigation contained in this section are qualified in their entirety by the complaints filed as Exhibits 4, 5 and 6 hereto. 9 Item 9. Material to Be Filed as Exhibits
Exhibit No. ----------- Exhibit 1 Excerpts from Proxy Statement Chock Full O'Nuts Corporation, dated October 26, 1998.+ Exhibit 2 Letter to Shareholders, dated May 20, 1999.+ Exhibit 3 Press Release of Chock Full O'Nuts Corporation, dated May 20, 1999.+ Exhibit 4 Complaint filed in the Supreme Court of the State of New York, Laura Benjamin v. Chock Full O'Nuts Corp., et al. (C.A. No. 9108759).+ Exhibit 5 Complaint filed in the Supreme Court of the State of New York, Sandra Kafenbaum et al. v. Mark A. Alexander et al. (C.A. No. 99602054).+ Exhibit 6 Complaint filed in the Supreme Court of the State of New York, Harbor Finance Partners and Alan Freburg v. Marvin I. Haas et al. (No. 99-602013).+
- -------- + Filed herewith. 10 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Chock Full O'Nuts Corporation /s/ Howard M. Leitner By: _________________________________ Name:Howard M. Leitner Title:Senior Vice President and Chief Financial Officer Dated: May 20, 1999 Exhibit Index Exhibit 1 Excerpts from Proxy Statement Chock Full O'Nuts Corporation, dated October 26, 1998.+ Exhibit 2 Letter to Shareholders, dated May 20, 1999.+ Exhibit 3 Press Release of Chock Full O'Nuts Corporation, dated May 20, 1999.+ Exhibit 4 Complaint filed in the Supreme Court of the State of New York, Laura Benjamin v. Chock Full O'Nuts Corp., et al. (C.A. No. 9108759).+ Exhibit 5 Complaint filed in the Supreme Court of the State of New York, Sandra Kafenbaum et al. v. Mark A. Alexander et al. (C.Al. No. 99602054).+ Exhibit 6 Complaint filed in the Supreme Court of the State of New York, Harbor Finance Partners and Alan Freburg v. Marvin I. Haas et al. (No. 99-602013).+ - -------- + Filed herewith. EX-1 2 EXCERPTS FROM PROXY STATEMENT CHOCK FULL O'NUTS CORP. Exhibit 1 --------- Excerpts from October 26, 1998 Proxy Statement of Chock Full O'Nuts Corporation EXECUTIVE COMPENSATION AND TRANSACTIONS WITH DIRECTORS, OFFICERS AND PRINCIPAL HOLDERS The following information is furnished with respect to each of the five highest compensated executive officers of the Company who were executive officers of the Company at any time during the fiscal year ended July 31, 1998: COMPENSATION TABLE
Annual Compensation Name and Fiscal Other Annual Principal Position Year Salary Bonus Compensation (a) Marvin I. Haas 1998 $268 $20 President and 1997 269 $205 Chief Executive Officer 1996 269 Howard M. Leitner 1998 222 20 Senior Vice President and 1997 221 84 Chief Financial Officer 1996 222 Thomas Donnell 1998 170 34 5 Officer of Cain's Coffee Company 1997 163 65 President and Chief Executive 1996 167 52 Martin J. Cullen 1998 184 20 Vice President, Secretary 1997 183 45 and Treasurer 1996 186 Anthony Fazzari 1998 172 8 11 Senior Vice President - Retail 1997 170 50 Sales and Marketing 1996 175 28 ----
(a) Perquisites include use of corporate automobiles (ranging from $1,000 and $10,000) and life insurance (ranging between $2,000 and $10,000). On August 5, 1998, the Company entered into employment agreements with Marvin I. Haas, Howard M. Leitner and four other officers. The agreements are effective in the event of a change in control (as defined) and provide, among other matters, for a term of three years beginning immediately after the change in control and for base salary, bonus and other employee benefits at amounts existing immediately prior to the change in control. -2- OPTIONS/SAR GRANTS IN LAST FISCAL YEAR The following table sets forth certain information concerning options/SARs granted during fiscal 1998 to the named executives: Individual Grants Number of % of Total Securities Options/SARs Exercise Grant Date Underlying Granted to or Base Present Options/SARs Employees in Price Expiration Value Name Granted Fiscal Year ($/Share) Date (1)(2) Howard M. Leitner 8,000 15.1% $6.94 12/11/02 $16,080 Thomas Donnell 7,500 14.2% 6.94 12/11/02 $15,075 Anthony Fazarri 7,500 14.2% 6.94 12/11/02 $15,075
(1) Options are exercisable in three equal annual installments commencing one year after the date of grant. (2) Grant date present value is determined using the Black-Scholes Model. The Black-Scholes Model is a complicated mathematical formula widely used to value exchange traded options. However, stock options granted by the Company to its executives differ from exchange traded options in three key respects; options granted by the Company to its executives are long-term, non-transferable and subject to vesting restrictions while exchange traded options are short-term and can be exercised or sold immediately in a liquid market. In this presentation, the Black-Scholes Model has been adapted to estimate the present value of the options set forth in the table, taking into consideration a number of factors, including the volatility of the Common Stock, its dividend rate, the term of the option and interest rates. Consequently, because the Black-Scholes Model is adapted to value the options set forth in the table and is assumption-based, it may not accurately determine present value. The actual value, if any, an optionee will realize will depend on the excess of the market value of the Common Stock over the exercise price on the date the option is exercised. -3- AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES The following table summarizes options and SARs exercised during fiscal 1998 and presents the value of the unexercised options and SARs held by the named executives at fiscal year end:
Value of Unexercised In-the-Money Number of Options/SARs Unexercised at Fiscal Shares Options/SARs at Year-End Acquired Fiscal Year-End Exercisable (E) on Valued Exercisable (E) Unexercisable Name Exercise Realized Unexercisable (U) (U) Marvin I. Haas 0 0 166,667 E $93,750E 83,333 U $46,875U Howard M. Leitner 0 0 10,667 E 13,333 U Thomas Donnell 0 0 6,667 E 10,833 U Martin J. Cullen 0 0 6,667 E 3,333 U Anthony Fazzari 0 0 6,667 E 10,833 U
Restricted stock share holdings at July 31, 1998 from Mr. Leitner and Mr. Cullen amounted to 35,778 shares ($225,800) and 3,577 ($22,580), respectively. These shares are to vest ratably through 2001. The unvested portion of the shares are subject to forfeiture in the event the Company terminates employment for Cause (as defined) or the employee terminates employment for a reason (as defined) other than death, disability, retirement at or after normal retirement date or Good Reason and to accelerated vesting in the event of termination of employment by the employee for Good Reason, death, disability or retirement, or after a Change in Control (as defined). The Company has established a Benefits Protection Trust with State Street Bank and Trust Company (the "Trust Fund") and has contributed $700,000 thereto. The Trust Fund is to be used for litigation expenses incurred by Company employees, including all executive officers of the Company, in the event that after a change in control (as defined) the new management of the Company refuses to pay benefits under any employment contract or any employee benefit plan maintained by the Company. At the present time, the Company has no intention of making additional contributions to the Trust Fund. -4- As compensation for their services, each independent director (i.e., a --- director who is not also an officer or employee of the Company) is paid $16,000 annually in cash. Each independent director who is a member of the Audit Committee or the Compensation Committee is paid $1,000 for attendance at a meeting of the Committee on which he serves. The Company does not pay director fees to directors who are employees of the Company. Annual pension payments as of July 31, 1998 under the Company's defined benefit plan which would be payable for Messrs. Haas, Leitner, Donnell, Cullen and Fazzari (assuming normal retirement date) amount to approximately $30,000, $48,000, $17,000, $109,000 and $39,000, respectively. REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION The Compensation Committee's responsibilities include establishing the Company's policies governing compensation of officers and other key executives of the Company. The Committee's principal objective in setting such policies is to develop a program designed to attract and retain officers and other key executives critical to the success of the Company and to reward and motivate those executives for performance which enhances the profitability of the Company and creates value for its shareholders. To achieve these objectives, the Compensation Committee has developed a competitive, market-driven base salary program coupled with an annual incentive cash bonus plan geared toward performance. Base salaries, prior to bonus awards, for officers and key executives have been fixed at levels believed to be within a competitive range for comparable positions in comparable companies. The President and Chief Executive Officer can receive a bonus of from 25% to 90% of base pay dependent upon the achievement of certain targeted levels of earnings per share and a return on net assets at an agreed upon percent. The President and Chief Executive Officer of Cain's Coffee Company can receive a bonus of from 25% to 45% of base pay dependent upon a return on net assets at an agreed upon percentage of such company. The Senior Vice President and Chief Financial Officer can receive a bonus from 12.5% to 45% of base pay dependent upon the achievement of certain targeted levels of earnings per share and a return on net assets at an agreed upon percent. The Vice-President, Secretary/Treasurer can receive a bonus of from 8% to 30% of base pay dependent upon the achievement of certain targeted levels of earnings per share and a return on net assets at an agreed upon percent. The Senior Vice -5- President of Retail Sales and Marketing can receive a bonus of from 18% to 45% of base pay dependent upon sales volume, a return on net assets and operating profit at an agreed upon percent and levels. In addition, certain other officers and key executives can receive a bonus up to 45% of base pay based on specified levels of sales volume, margins, purchasing efficiencies, manufacturing plan expenditures, operating results, a return on net assets at an agreed upon percent and the achievement of certain targeted levels of earnings per share. Tying a significant portion of overall executive compensation to the achievement of performance objectives and thus making such bonus "at risk" is believed to align the financial interests of the participating executives with those of the Company and its shareholders. The bonus is only paid if the executive is employed as at the last day of the fiscal year. In addition, non-qualified stock options are also granted, from time to time, based upon long-term corporate objectives and individual circumstances. In determining long-term incentive grants, the Compensation Committee has set shareholder value creation as a priority. During fiscal 198, 23,000 non-qualified stock options were granted to the named executives. The incentive cash bonus program for fiscal 1998 is substantially the same as fiscal 1997 which was reviewed for the Compensation Committee by a senior external compensation consulting specialist and found to utilize accepted incentive compensation techniques, including quantifiable operating objectives that must be met to receive an incentive award and structures that tie awards directly to performance through sliding scale payout schedules that include performance thresholds and payout caps. The base salary levels for the President and Chief Executive Officer and all other officers and key executives are reviewed and approved by the Compensation Committee based upon competitive salary data developed for the Committee in consultation with a compensation specialist from a major New York law firm. This data includes salaries paid to the executives at comparable corporations and is affected by overall salary movement in the workplace, generally, and the food industry in which the Company operates. Salary changes are recommended to the Compensation Committee based upon a comparison between each executive's base pay and those of other companies of similar size in the food industry, the length of service of each executive and how well each executive has performed in relation to predetermined goals and other operational issues which may have arisen during the preceding year. Compensation for the Chief Executive Officer for 1998 was determined in accordance with the preceding factors. Mr. -6- Haas' compensation also reflected his inclusion in the incentive bonus program which can provide a substantial part of his overall potential compensation dependent upon the performance of the Company. COMPENSATION COMMITTEE JERRY COLUMBUS HENRY SALZHAUER R. SCOTT SCHAFLER DAVID S. WEIL PENSION PLAN The Chock Full O'Nuts Corporation Pension Plan ("Plan") is a noncontributory defined benefit plan covering all non-union employees of the Company. Employees become eligible for membership in the Plan on the anniversary dates coinciding with or next following the date of attainment of age 20 1/2 and completion of six months of services. Participants become fully vested after 5 years of service. Prior thereto there are no benefits payable under the Plan. The Plan provides normal retirement benefits, reduced early retirement benefits and increased post-retirement benefits which are available at the employee's option. Benefits are payable in the form of a straight life annuity or a 50% joint and survivor annuity. At Normal Retirement (age 65) or Postponed Retirement (age 70), a participant receives an annual pension payable in equal monthly installments equal to 2% of his final 5 year average compensation times credited service to a maximum of 50% of the final 5 year average compensation. Credited service includes years of service rendered after reaching age 22. The years of credited service under the Plan at July 31, 1998 of Messrs. Haas, Leitner, Donnell, Cullen, and Fazzari are 8, 18, 4, 25, and 10, respectively. Marvin I. Haas and Howard M. Leitner are the Trustees of the Plan. The Company maintains a non-qualified, unfunded Supplemental Employee Retirement Plan ("SERP"), which covers those participants of the Plan whose benefits would otherwise be denied by reason of certain Internal Revenue Code limitations on qualified plan benefits. A participant in the SERP is entitled to a benefit equaling the difference between the amount of benefits the participant is entitled to without reduction -7- (limited to $130,000 at normal retirement) and the amount of benefits the participant is entitled to after the reduction (those payable under the Plan). The SERP provides for immediate funding in the event of a change in control (as defined) of the Company. The table below shows the estimated annual pension benefits at normal retirement age to an employee upon retirement under the Plan, taking into account the Company's SERP.
Final Average Earnings 15 Years 20 Years 25 Years 30 Years 35 Years - ---------- -------- -------- -------- -------- -------- $300,000 and higher $78,000 $104,000 $130,000 $130,000 $130,000 $250,000 75,000 100,000 125,000 125,000 125,000 $200,000 60,000 80,000 100,000 100,000 100,000 $150,000 45,000 60,000 75,000 75,000 75,000 $100,000 30,000 40,000 50,000 50,000 50,000
401(k) CASH OR DEFERRED COMPENSATION PLAN The Company maintains a tax-qualified 401(k) cash or deferred compensation plan that covers certain employees who have completed one year of service and attained age 20. Participants are permitted, within the limitations imposed by the Internal Revenue Code, to make pre-tax contributions to the plan pursuant to salary reduction agreements. The contributions of the participants are held in separate accounts which are always fully vested. DEFERRED COMPENSATION PLAN The Chock Full O'Nuts Deferred Compensation plan for certain key executives (the "Deferred Compensation Plan") became effective August 1, 1987. The purpose of the Deferred Compensation Plan is to supplement the pension benefits available to certain officers and key employees of the Company under the Chock Full O'Nuts Corporation Pension Plan and to further the growth in the earnings of the Company by offering long-term incentives to such officers and key employees who will be largely responsible for such growth. While the arrangement is considered unfunded for tax purposes, the Company and Wachovia Bank & Trust Company have entered into a grantor trust agreement establishing a trust fund to aid the Company in accumulating the amounts necessary to satisfy its liability for deferred compensation benefits. The assets of the trust will at all times be subject to the claims of the Company's creditors. The -8- Company will make contributions annually in an amount which will fully fund each covered executive's benefit as of his expected retirement, and will make payments of deferred compensation benefits to the extent the trust does not. Pursuant to the provisions of the Deferred Compensation Plan, the Compensation Committee of the Board shall determine those employees who shall be entitled to participate in the Deferred Compensation Plan and the amount of the supplemental benefits to be paid to any such participant. Upon such determination, such employee and the Company shall enter into a deferred compensation agreement which specifies the amount and rights of such participant to receive supplemental pension benefits. As of the date hereof there are no deferred compensation agreements outstanding under the Deferred Compensation Plan. EMPLOYEE STOCK OWNERSHIP PLAN In November 1988, the Company's Board of Directors approved the Chock Full O'Nuts Corporation Employee Stock Ownership Plan ("ESOP") which is a noncontributory plan established to acquire shares of the Company's common stock for the benefit of all eligible employees. In January 1991, April 1991, May 1995, September 1995 and August 1997 the Company loaned the ESOP $325,000, $675,000, $500,000, $500,000 and $1,000,000, respectively, to be repaid in equal annual installments over eight years from the date of the loan with interest primarily at 9% and 10%. Each full-time employee of the Company who is not represented by a labor union is eligible to participate in the ESOP on the date which is one year after the date of his employment by the Company. All such participating employees are vested in those shares allocated to their specific accounts after a period of five years or in the event of a change in control (as defined). Shares are allocated to participant's accounts annually based upon the annual compensation (up to $160,000) earned by each participant. As the Company makes annual contributions to the ESOP, these contributions are used to repay the loans to the Company, together with accrued interest. Deferred compensation equal to the loans has been recorded as a reduction of stockholders' equity representing the Company's prepayment of future compensation expense. As contributions are made, common stock is allocated to ESOP participants and deferred compensation is reduced by the amount of the principal payment on the loans. Marvin I. Haas and Howard M. Leitner are the administrators of the ESOP. -9- As of the date of this proxy statement a total of 4,740 shares, 4,608 shares, 1,831 shares, 6,236 shares and 5,667 shares of common stock were allocated to each of the accounts of Messrs. Haas, Leitner, Donnell, Cullen and Fazzari, respectively. UNFUNDED DIRECTORS RETIREMENT PLAN The Board of Directors has adopted an Unfunded Directors Retirement Plan (the "Directors Plan") for directors who are not and never have been employees of the Company (the "Outside Directors"). Each Outside Director who retires from the Board with at least five full years of service as a director of the Company shall, at the latter of age 65 or on the date on which such director retires from the Board (the "Payment Date") receive for a period of 10 years from the Payment Date an annual cash benefit payment (the "Retired Director's Fee") equal to the regular annual director's fee in effect upon such director's retirement; provided, however, that if such director is terminated as a director following a change in control (as defined) the balance of such director's then current term shall be credited toward his five-year service requirement and in addition, the surviving spouse of any director who dies (in office or after retirement) after meeting the foregoing age and service requirements shall receive or continue to receive such director's benefits of the balance of the 10 year period during which the deceased director was entitled thereto, and payment of such Retired Director's Fee shall terminate upon the death of any such director and such director's surviving spouse. Benefits are currently being paid to the surviving spouses of two deceased directors. As of the date hereof, three Outside Directors meet the age and service requirements for the receipt of benefits in the event of their retirement. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of September 30, 1998, the shares of the Company's Common Stock owned beneficially by the present directors and nominees of the Company individually and by all present directors, nominees and executive officers of the Company as a group:
Name of Beneficial Owner Common Stock Beneficially Owned Percent of Class - -------------------- ------------------------------- ---------------- Marvin I. Haas 746,591(1)(7) 6.8%(1)(7) Howard M. Leitner 447,958(1)(7) 4.1%(1))(7)
-10-
Name of Beneficial Owner Common Stock Beneficially Owned Percent of Class - -------------------- ------------------------------- ---------------- Mark A. Alexander 3,020(3) * Norman E. Alexander 46,179(4) * Martin J. Cullen 23,446(7) * Stuart Z. Krinsly 1,280(5) * Henry Salzhauer 127,175(6) 1.2% R. Scott Schafler 3,182 * David S. Weil 6,796 *
All Directors and executive officers as a group (17 persons), including the above named persons 1,838,451(1)(2)(7) 16.7%(1)(2)(7) * Less than 1% of class. (1) Includes 389,100 shares owned by the Chock Full O'Nuts Corporation Pension Trust of which Marvin I. Haas and Howard M. Leitner are the Trustees. See "Pension Plan." (2) Includes 800,078 shares owned by the Chock Full O'Nuts Corporation Employee Stock Ownership Plan of which Marvin I. Haas and Howard M. Leitner are the administrators. See "Employee Stock Ownership Plan". (3) Includes 1,920 shares which would be received upon conversion of $15,000 of the Company's 5% Convertible Subordinated Debentures. (4) Includes 44,884 shares owned by Galleon Syndication Corporation of which Norman E. Alexander owns 100% of the issued and outstanding capital stock. (5) Represents shares which would be received upon the conversion of $10,000 of the Company's 8% Convertible Subordinated Debentures. (6) Includes 6,075 shares which would be received upon the conversion of $50,000 of the Company's 7% Convertible Senior Subordinated Debentures. (7) Includes for Messrs. Haas, Leitner and Cullen, respectively, 166,667, 10667 and 6,667 shares granted under stock option agreements which are currently exercisable. -11- The following tables set forth, as of October 6, 1998, the shares of the Company's Common Stock owned beneficially by persons known to the Company to own more than five percent of the outstanding shares of Common Stock of the Company:
Name and Address of Beneficial Common Stock Beneficially Percent Owner Owned of Class - ------------------------------ ------------------------- -------- Chock Full O'Nuts Corporation Employee Stock Ownership Plan Chock Full O'Nuts Corporation 370 Lexington Avenue New York, New York 10017 800,078(1) 7.4%(1) Gabelli Funds, Inc. One Corporate Center Rye, New York 10580 1,753,315(2) 15.3%(2) Dimensional Fund Advisors, Inc. 1299 Ocean Avenue 11th Floor Santa Monica, California 90401 735,576(3) 6.8%(3) The TCW Group, Inc. 865 South Figueroa Street Los Angeles, California 90017 823,588(6) 7.6%(4)
(1) See "Employee Stock Ownership Plan". (2) Includes 369,744 shares which would be received upon conversion of $3,043,000 of the Company's 7% Convertible Senior Subordinated Debentures and 222,919 shares which would be received on conversion of $1,741,000 of the Company's 8% Convertible Subordinated Debentures. This information has been confirmed to the Company by Gabelli Funds, Inc. on October 2, 1998. -12- (3) This information as of June 30, 1998 has been confirmed to the Company by Dimensional Fund Advisors, Inc. on October 6, 1998. (4) The information has been confirmed to the Company by The TCW Group, Inc. on October 5, 1998. EX-2 3 LETTER TO SHAREHOLDERS, DATED MAY 20, 1999 EXHIBIT 2 [LOGO of Chock full o'Nuts] 370 LEXINGTON AVE. NEW YORK, NY 10017 TEL:(212) 532-0300 FAX:(212) 679-9737 May 20, 1999 Dear Fellow Securityholder: We want to report to you on your Board's review of the offer by Sara Lee Corporation to acquire Chock Full O'Nuts. After careful consideration, the Board has unanimously concluded that the $10.50 per share offer does not adequately reflect the potential value of the Company achievable for its securityholders. Accordingly, the Board recommends that Chock Full O'Nuts securityholders reject the Sara Lee offer and not tender any securities to the bidder. In reaching its conclusion, the Board considered, among other things: . discounted cash flow analyses (including management's estimates of synergies achievable by an acquiror) indicating that the per share value of Chock Full O'Nuts is higher than Sara Lee's offer of $10.50 per share; . the long-term prospects of the coffee industry, which the Board perceives to be generally positive, despite the industry's recent weakness; and . its belief that the $10.50 per share offer is an attempt by Sara Lee to acquire a competitor at a bargain price, a belief that is based in part upon the fact that Sara Lee has more than once indicated the possibility of a transaction at a price of $11.00 per share. The Board also determined that it is in the best interests of its securityholders at this time for the Company to evaluate alternatives to the Sara Lee offer, including pursuing current discussions with other potential purchasers. Accordingly we have asked our independent financial advisor, Credit Suisse First Boston Corporation, to assist in this process. We are committed to protecting the best interests of the Chock Full O'Nuts securityholders and are determined to proceed with a careful exploration of alternatives to the Sara Lee offer that would serve the best interests of our securityholders. We will keep you informed of our progress. In the meantime, we urge you not to tender any securities to the bidder. Sincerely, /s/ Norman E. Alexander /s/ Marvin I. Haas Chairman of the Board President and Chief Executive Officer EX-3 4 PRESS RELEASE OF CHOCK FULL O'NUTS CORP. EXHIBIT 3 AT THE COMPANY: KEKST AND COMPANY Howard Leitner Fredric J. Spar/Jessica Barist Chief Financial Officer (212) 521-4800 (212) 532-0300 CHOCK FULL O'NUTS BOARD URGES SHAREHOLDERS TO REJECT SARA LEE OFFER NEW YORK, NY, MAY 20, 1999--Chock Full O'Nuts Corporation (NYSE:CHF) said today that its Board of Directors has unanimously concluded that the $10.50 per share offer from Sara Lee Corporation does not adequately reflect the potential value of the company achievable for its securityholders. Accordingly, the Board recommends that Chock Full O'Nuts securityholders reject the Sara Lee offer and not tender any securities to the bidder. In reaching its conclusion, the Board, considered, among other things: . discounted cash flow analyses (including management's estimates of synergies achievable by an acquiror) indicating that the per share value of Chock Full O'Nuts is higher than Sara Lee's offer of $10.50 per share; . the long-term prospects of the coffee industry, which the Board perceives to be generally positive, despite the industry's recent weakness; and . its belief that the $10.50 per share offer is an attempt by Sara Lee to acquire a competitor at a bargain price, a belief that is based in part upon the fact that Sara Lee has more than once indicated the possibility of a transaction at a price of $11.00 per share. The Board also said that it believes that it is in the best interests of its securityholders at this time for the company to evaluate alternatives to the Sara Lee offer, including pursuing current discussions with other potential purchasers. Accordingly, it has asked its independent financial advisor, Credit Suisse First Boston Corporation, to assist it in this process. "The Board is committed to protecting the best interests of the Company's securityholders and has unanimously concluded that the Sara Lee offer does not meet this objective," said Marvin Haas, president and chief executive officer. "We are determined to proceed with a careful exploration of alternatives to the Sara Lee offer that would serve the best interests of all securityholders." Chock Full O'Nuts roasts, packs and markets regular, instant and decaffeinated coffees under the Chock Full O'Nuts label. Its best known coffee product is its premium, vacuum-packed, all method grind coffee. The Company is also one of the largest marketers of food service and private label coffee, tea and related products. Chock is also franchising Quikava, a 600-square-foot drive-through and fresh-baked-goods concept, in its core markets in the Northeast and Mid-Atlantic states. To receive additional information on Chock Full O'Nuts, via fax, at no charge, dial 1-800-PRO-INFO and enter code CHF. # # # EX-4 5 COMPLAINT - LAURA BENJAMIN V. CHOCK FULL O'NUTS CORP. Exhibit 4 --------- SUPREME COURT OF NEW YORK COUNTY OF NEW YORK - - - - - - - - - - - - - - - - - - - - - x : LAURA BENJAMIN, individually and on behalf of all others : similarly situated, : C.A No. 9108759/99 Plaintiff, : v. : CLASS ACTION COMPLAINT CHOCK FULL O' NUTS CORP., NORMAN E. ALEXANDER, MARTIN J. CULLEN, : MARVIN I. HAAS, HOWARD M. LEITNER, MARK A. ALEXANDER, JERRY COLUMBUS, : STUART Z. KRINSLY, HENRY SALZHAUER, R. SCOTT SCHAFLER, and DAVID S. WEIL, : Defendants. : - - - - - - - - - - - - - - - - - - - - - x Plaintiff, by her attorneys, alleges upon information and belief, except as to paragraph 1 which Plaintiff alleges upon knowledge, as follows: PARTIES ------- 1. Plaintiff Laura Benjamin is a stockholder of defendant Chock Full O' Nuts Corp. ("Chock" or "the Company"), and has been at all times relevant hereto. 2. Defendant Chock is a corporation duly organized and existing under the laws of the State of New York, with its principal executive offices located at 370 Lexington Avenue, -2- New York, NY. Chock roasts, packs and markets regular, instant and decaffeinated coffees, regular and decaffeinated teas and other related food products to foodservice customers and conducts real estate operations. As of October 8, 1998, there were approximately 10,831,000 shares of Chock common stock issued and outstanding, which are listed and trade on the New York Stock Exchange. Chock has approximately 1,430 shareholders of record. Most of these record holders hold as nominees for a much larger group of beneficial owners. 3. Defendant Norman E. Alexander ("Alexander") was Chock's Chairman of the Board at all times relevant hereto. 4. Defendant Martin J. Cullen ("Cullen") was Chock's Vice President, Treasurer, Secretary, and a Director at all times relevant hereto. 5. Defendant Marvin I. Haas ("Haas") was Chock's President, Chief Executive Officer, and a Director at all times relevant hereto. 6. Defendant Howard M. Leitner ("Leitner") was Chock's Senior Vice President, Chief Financial Officer, and a Director at all times relevant hereto. 7. Defendants Mark A. Alexander ("Alexander"), Jerry Columbus ("Columbus"), Stuart Z. Krinsly ("Krinsly") , -3- Henry Salzhauer ("Salzhauer"), R. Scott Schafler ("Schafler"), and David S. Weil ("Weil") were outside directors of Chock at all times relevant hereto. 8. The individual defendants named above (sometimes collectively referred to herein as the "Individual Defendants"), as officers and/or directors of Chock, have a fiduciary relationship and responsibility to Plaintiff and the other common public stockholders of Chock, and owe to Plaintiff and the other class members the highest obligations of good faith, loyalty, fair dealing, due care and candor. CLASS ACTION ALLEGATIONS ------------------------ 9. Plaintiff brings this action on his own behalf and as a class action, pursuant to CPLR (S) 908, on behalf of all common stockholders of Chock, or their successors in interest, who are being and will be harmed by defendants' actions described below (the "Class"). Excluded from the Class are defendants herein and any person, firm, trust, corporation, or other entity related to or affiliated with any of defendants. 10. This action is properly maintainable as a class action because: -4- a. The Class is so numerous that joinder of all members is impracticable. There are hundreds of Chock stockholders who are located throughout the United States; b. There are question of law and fact which are common to the Class, including: whether the defendants have engaged or are continuing to act in a manner calculated to benefit themselves at the expense of Chock stockholders; and whether Plaintiff and the other members of the Class would be irreparably damaged if the defendants are not enjoined in the manner described below; c. The defendants have acted or refused to act on grounds generally applicable to the Class, thereby making appropriate final injunctive relief with respect to the Class as a whole. d. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. The claims of Plaintiff are typical of the claims of the other members of the Class and Plaintiff has the same interests as the other members of the Class. Accordingly, Plaintiff is an adequate representative of the Class and will fairly and adequately protect the interests of the Class; and -5- e. Plaintiff anticipates that there will be no difficulty in the management of this litigation. 11. For the reasons stated herein, a class action is superior to other available methods for the fair and efficient adjudication of this controversy and the requirements of CPLR (S) 908 of the Chancery Court Rules are satisfied. CLAIM FOR RELIEF ---------------- 12. Between August and October 1998, Sara Lee Corp. ("Sara Lee") held discussions with Chock regarding a possible merger transaction at a price of $11.00 per Chock share. The information regarding a potential transaction was not disclosed to the investing public. 13. Acting on information regarding the potential merger transaction, certain defendant directors purchased stock during and/or after the merger discussions held with Sara Lee: -6-
- -------------------------------------------------------------------------------------------------- Purchase Price Date Shares per share Total Price ------ -------- --------- ----------- - -------------------------------------------------------------------------------------------------- Alexander 2/14/99 266,550 5.00 $1,332,750.00 - -------------------------------------------------------------------------------------------------- Columbus 1/12/99 3,000 5.50 16,500.00 - -------------------------------------------------------------------------------------------------- Salzhauzer 2/25/99 5,000 5.28 26,400.00 1,000 5.28 5,280.00 1/12/99 1,000 5.78 5,780.00 1/11/99 1,500 5.47 8,250.00 8/26/98 4,200 5.08 21,336.00 8/21/98 4,200 5.25 22,050.0O - -------------------------------------------------------------------------------------------------- TOTAL 286,450 $1,432,566.00 - --------------------------------------------------------------------------------------------------
14. On April 22, 1999, Bloomberg News reported that Sara Lee acquired a 5.3% stake in Chock and is seeking to buy the rest of the Company for at least $10.50 per share. Financial advisors to Chock made a counter offer of $12.50 a share in Sara Lee stock. Sara Lee then made another bid of $10.50 a share but offered to pay investors in Sara Lee stock. 15. Under such circumstances, the loyalties of Chock's board members are, at best, divided and the board members cannot be expected to act in the best interest of Chock's stockholders. 16. The Individual Defendants, who dominate and control the Company through their directorial and management positions, are obligated to explore all alternatives to maximize shareholder value. The Individual Defendants have or will breach their fiduciary duties owed to plaintiff and other Chock -7- public shareholders by failing to fully explore any potential bona fide offers for the purchase of the Company and by failing to respond reasonably and on an informed basis to potential offers for the Company. 17. By reason of the foregoing acts, practices and course of conduct, the defendants have failed to exercise ordinary care and diligence in the exercise of their fiduciary obligations towards plaintiff and the other Chock public shareholders. 18. The Individual Defendants' fiduciary obligations require them to: a) undertake an appropriate evaluation of any bona fide offers for the Company as a whole or any of its assets, and take appropriate steps to solicit all potential bids for the Company or its assets or consider strategic alternatives; b) act independently so that the interests of Chock's public stockholders' will be protected; c) adequately ensure that no conflicts of interest exist between the Individual Defendants' own interests and their fiduciary obligations to the public stockholders of Chock; and -8- d) Adequately disclose all material events effecting the Company. 19. As a result of the actions of defendants, plaintiff and the other members of the Class have been and will be damaged in that they will not be able to maximize the value of their Chock shares. 20. Unless enjoined by this Court, the defendants will continue to breach their fiduciary duties owed to plaintiff and the other members of the Class, all to the irreparable harm of plaintiff and the other members of the Class. 21. Plaintiff and the Class have no adequate remedy at law. WHEREFORE, plaintiff demands judgment, as follows: A. Declaring this to be a proper class action; B. Ordering defendants to carry out their fiduciary duties to plaintiff and the other members of the Class, including those of due care and candor by announcing their intention to: (i) undertake an appropriate evaluation of alternatives designed to maximize value for Chock's public stockholders; -9- (ii) adequately ensure that no conflicts of interest exist between defendants' own interests and their fiduciary obligation to the public stockholders or, if such conflicts exist, to ensure that all of the conflicts would be resolved in the best interests of Chock's public stockholders; and (iii) preliminary and permanently enjoin defendant from proceeding with the violations complained of herein. C. Ordering defendants, jointly and severally, to account to plaintiff and the Class all damages suffered and to be suffered by them as a result of the acts alleged herein; D. Ordering defendants to disgorge all profits earned from insider stock transactions during the relevant time period; E. Awarding plaintiff the costs and disbursements of the action, including allowance for plaintiff's reasonable attorneys' and experts' fees; and F. Granting such other and further relief as may be just and proper. -10- Dated: April 26, 1999 ABBEY, GARDY & SQUITIERI, LLP By: /s/ Joshua M. Lifshitz --------------------------- Joshua M. Lifshitz 212 East 39th Street New York, New York 10016 (212) 889-3700 Of Counsel - ---------- FARUQI & FARUQI Nadeem Faruqi 415 Madison Avenue New York, New York 10017 (212) 986-1074 EX-5 6 COMPLAINT - SANDRA KAFENBAUM V. MARK A. ALEXANDER Exhibit 5 --------- SUPREME COURT FOR THE STATE OF NEW YORK COUNTY OF NEW YORK - - - - - - - - - - - - - - - - - - - - - x SANDRA KAFENBAUM, ADELE BRODY and RITA : WHALEN, : C.A. Number 99602054 Plaintiffs, : -against- CLASS ACTION : COMPLAINT --------- MARK A. ALEXANDER, NORMAN E. ALEXANDER, JERRY COLUMBUS, MARTIN J. CULLEN, : MARVIN I. HAAS, STUART Z. KRINSLY, HOWARD M. LEITNER, HENRY SALZHAUER, : R. SCOTT SCHAFLER, DAVID S. WEIL, and CHOCK FULL O' NUTS CORPORATION, : Defendants. : - - - - - - - - - - - - - - - - - - - - - x Plaintiffs, by their attorneys, allege upon information and belief, except as to paragraphs 1 and 2 which plaintiffs allege upon knowledge, as follows: THE PARTIES ----------- 1. Plaintiff Sandra Kafenbaum is and was, at all relevant times, a stockholder of defendant Chock Full O' Nuts Corp. ("Chock" or the "Company"). 2. Plaintiff Adele Brody, is and was, at all relevant times, a stockholder of defendant Chock. -2- 3. Plaintiff Rita Whalen, is and was, at all relevant times, a stockholder of defendant Chock. 4. Defendant Chock is a corporation duly organized and existing under the laws of the State of New York, with its principal executive offices located at 370 Lexington Ave., New York, New York 10017. Chock is primarily engaged in the roasting, packing and marketing of a broad range of regular and decaffeinated, ground roast, instant and specialty coffees for the food service and retail grocery industries. These products are sold regionally throughout the U.S. and Canada under trademarks that include Chock Full O' Nuts, LaTouraine, and Cain's. The balance of the Company's business is derived from its Quickava retail outlets, and from its real estate operations. As of March 12, 1999, there were over 10,830,922 shares of common stock outstanding. 5. Defendant Norman E. Alexander is and was, at all times relevant hereto, Chock's Chairman of the Board of Directors. 6. Defendant Marvin I. Haas is and was, at all times relevant hereto, Chock's President and Chief Executive Officer and a Director of the Company. -3- 7. Defendant Howard M. Leitner is and was, at all times relevant hereto, Chock's Senior Vice President, Chief Financial Officer and a Director of the Company. 8. Defendant Martin J. Cullen is and was, at all times relevant hereto, Chock's Vice President, Treasurer, Secretary and a Director of the Company. 9. Defendants Mark A. Alexander, Jerry Columbus, Stuart Z. Krinsly, Henry Salzhauer, R. Scott Schafler, and David S. Weil are and were, at all times relevant hereto, Directors of the Company. 10. The defendants named in paragraphs 3-7 are sometimes collectively referred to herein as the "Individual Defendants." 11. The Individual Defendants, as officers and/or directors of Chock, have a fiduciary relationship and responsibility to plaintiffs and the other common public stockholders of Chock and owe to plaintiffs and the other class members the highest obligations of good faith, loyalty, fair dealing, due care and candor. -4- CLASS ACTION ALLEGATIONS ------------------------ 12. Plaintiffs bring this action as a class action pursuant to Section 901, et seq. of New York's Civil Practice Law and Rules on their own behalf -- --- and on behalf of all common stockholders of Chock, or their successors in interest, who have been, are being, and will be harmed by defendants' actions described below (the "Class"). Excluded from the Class are defendants herein and any person, firm, trust, corporation, or other entity related to or affiliated with any of defendants. 13. This action is properly maintainable as a class action because: (a) The Class is so numerous that joinder of all members is impracticable. There are hundreds of Chock stockholders of record who are located throughout the United States; (b) There are questions of law and fact which are common to the Class, including: whether the defendants have engaged or are continuing to act in a matter which is in breach of their duties to Chock's stockholders; and whether plaintiffs and the other members of the Class would be irreparably damaged if the defendants are not enjoined in the manner described below: -5- (c) The defendants have acted or refused to act on grounds generally applicable to the Class, thereby making appropriate final injunctive relief with respect to the Class as a whole. (d) Plaintiffs are committed to prosecuting this action and have retained competent counsel experienced in litigation of this nature. The claims of plaintiffs are typical of the claims of the other members of the Class and plaintiffs have the same interests as the other members of the Class. Accordingly, plaintiffs are adequate representatives of the Class and will fairly and adequately protect the interests of the Class; and (e) Plaintiffs anticipate no difficulty in the management of this litigation. 14. For the reasons stated herein, a class action is superior to other available methods of the fair and efficient adjudication of this controversy and the requirements of Section 901, et seq. of New York's Civil Practice Law and -- --- Rules. CLAIM FOR RELIEF ---------------- 15. Over the past two years, Sara Lee Corporation ("Sara Lee") has made not less than four specific proposals to acquire all of Chock's outstanding stock. During this time, -6- Chock has conducted on-going negotiations with Sara Lee and permitted Sara Lee, on a confidential basis, to conduct due diligence to determine what would constitute a fair price. The multiple offers, negotiations, and due diligence were never made known to the investing public until April 22, 1999. 16. All during this time, certain members of the Chock board, including Chock's Chairman, Norman Alexander, Henry Salzhauer, and Jerry Columbus, who knew of Chock's negotiations with Sara Lee, bought Chock securities on the open market. 17. Sara Lee first offered to acquire Chock in August 1997. Chock refused outright to enter into negotiations at that time. 18. Nevertheless, in July 1998, Sara Lee again expressed interest in acquiring Chock for $9.50 per share in cash. 19. At this time, representatives of the companies met to review the offer and continued to negotiate through multiple meetings held over the next three months. 20. In October 1998, Sara Lee raised its offer to $10.50 per share in cash. Despite the fact that definitive offers had been made and extensive negotiation had been con- -7- ducted, Chock did not disclose the existence of the $10.50 offer because, as subsequently stated by Fredric Spar, a Chock spokesman, the talks "had not ripened to the point where they would require disclosure." 21. Sara Lee continued to express its interest in acquiring Chock and on April 22, 1999, filed a Form 13D with the Securities & Exchange Commission ("SEC") disclosing its offer to purchase Chock for $10.50. The Form 13D reported that negotiations had continued with Chock. As evidence of the ongoing negotiations, it was reported that Chock's position was that the Company should not be sold for less than $12.50 per share. The Form 13D filing by Sara Lee was the first public disclosure of the lengthy negotiations. 22. During these non-public discussions, certain directors bought Chock securities. In January 1999, director Sa1zhauer bought 2,500 shares of Chock. Salzhauer had previously purchased stock on insider information in August 1998 and, when it was finally discovered by Chock, he was forced to sell those shares. 23. Director Columbus purchased 3,000 shares of Chock at $5.00 per share for a total value of $15,000. After the public announcement of the Sara Lee offer, these shares have a value of $28,500. -8- 24. On February 24, 1999, director Norman Alexander, who is also the Chief Executive of Sequa Corporation, a company that also employees director Krinsly, bought 533,100 shares at $5.00 per share for a total value of $2,665,500. After announcement of the Sara Lee offer, these shares have a value of $5,064,450. 25. On February 25, 1999, director Sa1zhauer purchased 6,000 shares at $5.28 per share for a total value of $31,680. After announcement of the Sara Lee Offer, these shares have a value of $57,000. 26. The Individual Defendants are in a position of control and power over Chock and its stockholders and have access to internal financial information about Chock and its true value and the benefits of 100 percent ownership of Chock to which plaintiffs and the Class members are not privy. 27. In light of the foregoing, the Individual Defendants must, as their fiduciary obligations require: . undertake an appropriate evaluation of Chock's worth as an acquisition candidate, including but not limited to an auction of Chock; . act independently so that the interests of Chock's public stockholders will be protected, including but not limited to the retention of independent advisors and the appointment of a Special Committee of some or all of the members of Chock's board to consider any acquisition offer by Sara Lee or -9- any other entity and negotiate with any suitor for Chock on behalf of its public shareholders; . adequately ensure that no conflicts of interest exist between defendants' own interests and their fiduciary obligation to maximize stockholder value or, if such conflicts exist, to ensure that all conflicts be resolved in the best interests of Chock's public stockholders; and . if an acquisition is to go forward, require that it be approved by a majority of Chock's stockholders. 28. Plaintiffs and the other members of the Class have been, are being, and will be damaged by any failure of the Individual Defendants to take the foregoing steps in that they have not and will not receive their proportionate share of the value of the Company's assets and business, and will be prevented from obtaining a fair price for their common stock. 29. As a result of the foregoing, plaintiffs and the other members of the Class will be irreparably harmed in that they will not receive their fair portion of the value of Chock's assets and business and will be prevented from obtaining the real value of their equity ownership of the Company. Unless all of the steps set forth above are taken prior to defendants' entry into an acquisition or merger agreement, such transaction must be enjoined by the Court, so as to preclude defendants from breaching their fiduciary duties owed to plaintiffs and the members of the Class. -10- 30. Plaintiffs and the other members of the Class have no adequate remedy at law. WHEREFORE, plaintiffs pray for judgment and relief as follows: A. Ordering that this action may be maintained as a class action and certifying plaintiffs as the Class representatives; B. Ordering the Individual Defendants to disgorge and pay to the Class the trading profits which they have earned on the basis of undisclosed material information; C. Declaring that unless they take all steps set forth in paragraph 26 above, defendants will have breached their fiduciary and other duties to plaintiffs and the other members of the Class; D. Entering an order requiring defendants to take the steps set forth herein above; E. Preliminarily and permanently enjoining the defendants and their counsel, agents, employees and all persons acting under, in concert with, or for them, from proceeding with, consummating or closing the proposed transaction unless such steps are taken; -11- F. In the event a merger or acquisition is consummated without defendants having taken those steps, rescinding it and setting it aside; G. Awarding compensatory damages against defendants individually and severally in an amount to be determined at trial, together with prejudgment interest at the maximum rate allowable by law; H. Awarding costs and disbursements, including plaintiffs' counsels' fees and experts' fees; and I. Granting such other and further relief as to the Court may seem just and proper. -12- Dated: April 27, 1999 WEISS & YOURMAN By: /s/ Joseph H. Weiss ----------------------------- Joseph H. Weiss 551 Fifth Avenue Suite 1600 New York, New York 10176 (212) 682-3025 STULL, STULL & BRODY Jules Brody 6 East 45th Street New York, New York 10017 (212) 687-7230 LAW OFFICES OF JEFFREY S. ABRAHAM Jeffrey S. Abraham 60 East 42nd Street New York, New York 10165 (212) 692-0555 Attorneys for Plaintiffs EX-6 7 COMPLAINT - HARBOR FINANCE PARTNERS V. MARVIN HAAS Exhibit 6 --------- SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK - - - - - - - - - - - - - - - - - - - - - x : HARBOR FINANCE PARTNERS, And ALAN FREBERG, : Derivatively On Behalf Of CHOCK FULL O' NUTS CORPORATION, : Plaintiffs, : Index No. 99-602013 - - against - : VERIFIED DERIVATIVE MARVIN I. HAAS, HOWARD M. LEITNER, : COMPLAINT MARVIN J. CULLEN, NORMAN E. -------------------------------- ALEXANDER, STUART Z. KRINSLY : MARK A. ALEXANDER, JERRY COLUMBUS, HENRY SALZHAUER, R. SCOTT : SCHAFLER, and DAVID S. WEIL, : Defendants, : CHOCK FULL O' NUTS CORPORATION, : Nominal Defendant. : - - - - - - - - - - - - - - - - - - - - - x Plaintiffs, as and for their complaint, by their attorneys, allege upon personal knowledge as to themselves and their own acts and upon information and belief as to all other matters based upon the investigation conducted by plaintiffs and their attorneys which included, among other things, a review of the filings by Chock Full O' Nuts Corporation ("CFN" or the "Company") with the Securities and Exchange Commission "SEC"), news wire services, press releases issued by the Com- -2- pany, and other publicly published filings and materials, as follows: SUMMARY OF THE ACTION --------------------- 1. Plaintiff brings this derivative action on behalf of CFN to remedy, among other things, the foreseeable and avoidable harm caused by the individual defendants in connection with permitting or failing to institute a policy that prevents stock trading by CFN directors and employees based non-public insider information. Certain directors of CFN have repeated bought and sold CFN securities during on-going discussions concerning the sale of CFN to the Sara Lee Corporation ("Sara Lee"). The failure to prevent the insider trading has subjected, and is likely to continue to subject, the Company to damages in form of harm from violation of laws and regulations concerning insider trading, a loss in the business and financial communities and wasted corporate assets. Additionally, through the defendants' culpable inaction in permitting such a transaction to occur, the defendants failed to maintain adequate controls and due care in the management and administration of the affairs of CFN. Defendants' supervisory failures permitted the Company to carry out the fraudulent schemes described below. -3- THE PARTIES ----------- 2. Plaintiff Harbor Finance Partners, a Colorado partnership, is presently and has been a shareholder of nominal defendant CFN during the defendants' on-going course of illegal conduct and continuing breaches of fiduciary duties. 3. Plaintiff Alan Freberg, a New York resident, is presently and has been a shareholder of nominal defendant CFN during the defendants' on-going course of illegal conduct and continuing breaches of fiduciary duties. 4. CFN is a corporation organized under the laws of the state of New York with its principal place of business at 370 Lexington Avenue, New York, New York 10018. CFN sell coffee through retail establishments and through direct marketing and sales to consumers. There are approximately 10,831,000 shares of CFN stock outstanding which is held by hundreds of shareholders. CFN stock trades on the New York Stock Exchange. 5. Defendant Marvin I. Haas ("Haas"), at all times material hereto, has been the Chief Executive Officer, President, and a Director of CFN. 6. Defendant Howard M. Leitner ("Leitner"), at all times material hereto, has been the Chief Financial Officer and a Director of CFN. -4- 7. Defendant Martin J. Cullen ("Cullen"), at all times material hereto, has been a Vice President of the Company, Treasurer, and a Director of CFN. 8. Defendant Norman E. Alexander, at all times material hereto, has been the Chairman of the CFN Board of Directors. 9. Defendants Stuart Z. Krinsly ("Krinsly"), Mark A. Alexander, who is the son of Norman Alexander, Jerry Columbus ("Columbus"), Henry Salzhauer ("Salzhauer"), R. Scott Schafler ("Schafler"), and David S. Weil ("Weil"), at all times material hereto, have been directors of CFN. FACTS COMMON TO ALL CLAIMS -------------------------- 10. Over the past two years, Sara Lee has made not less than four specific proposals to acquire all of CFN's outstanding stock. During this time, CFN has conducted on-going negotiations with Sara Lee and invited Sara Lee on a confidential basis, to conduct due diligence to determine what would constitute a fair price. The multiple offers, negotiations, and due diligence were never made known to the investing public until April 22, 1999. 11. All during this time, certain members of the CFN board, including CFN's Chairman, Norman Alexander, Henry Salz- -5- hauer, and Jerry Columbus, who knew of CFN's activities with Sara Lee bought CFN securities. 12. Sara Lee first offered to acquire CFN in August 1997. CFN refused outright to enter into negotiations at that time. 13. Nevertheless, in July 1998, Sara Lee again expressed interest in acquiring CFN for $9.50 per share in cash. 14. At this time, representatives of the companies met to review the offer and continued to negotiate through multiple meeting held over the next three months. 15. In October 1998, Sara Lee raised its offer to $10.50 per share in cash. Despite the facts, that definitive offers had been made and extensive negotiation had been conducted, CFN did not disclose the existence of the $10.50 offer because, as stated by Fredric Spar, a CFN spokesman, the talks "had not ripened to the point where they would require disclosure." 16. Sara Lee continued to express its interest in acquiring CFN and on April 22, 1999, filed a Form 13D with the Securities & Exchange Commission ("SEC") disclosing its offer to purchase CFN for $10.50. The Form 13D reported that negotiation had continued with CFN. As evidence on the on-going -6- negotiation, it was reported that CFN's position was that the Company should not be sold for less than $12.50 per share. The Form 13D filing by Sara Lee was the first public disclosure of the lengthy negotiations. 17. During these non-public discussions, certain directors bought CFN securities. In January 1999, director Salzhauer bought 2,500 shares of CFN. Salzhauer had previously purchased stock on insider information in August 1998 and, when it was finally discovered by CFN, forced to sell those shares. 18. Director Columbus purchased 3,000 shares of CFN at $5.00 per share for a total value of $15,000. After the public announcement of the Sara Lee offer, these shares have a value of $28,500. 19. On February 24, 1999, director Norman Alexander, who is also the Chief Executive of Sequa Corporation -- a company that also employs director Krinsly bought 533,100 shares at $5.00 per share for a total value of $2,665,500. After announcement of the Sara Lee offer, these shares have a value of $5,064,450. 20. On February 25, 1999, director Salzhauer purchased $6,000 shares at $5.28 per share for a total value of -7- $31,680. After announcement of the Sara Lee offer, these shares have a value of $57,000. 21. These director defendants have been buying and profiting based upon special knowledge that is unknown to the public, namely that Sara Lee has continued to express interest in acquiring the Company. Duties And Obligations Of The Company's Officers And Directors - -------------------------------- 22. At all relevant times, CFN's Board of Directors (the "Board") and its senior officers operated as a collective entity through periodic meetings held either in person or telephonically where they discussed matters affecting the Company's businesses and reached collective and consensual decisions regarding actions taken. The members of the Board also received information in the form of written or oral reports relating to the Company's businesses, including internal, periodic (including monthly) financial statements and official data and reports in advance of, at, and subsequent to Board meetings in connection therewith. CFN's corporate business, including offers of acquisition, at the Board level was conducted through, inter alia, formal resolutions passed ----- ---- by its directors acting collectively, as is reflected in the minutes of Board meetings. Pursuant to other consensual agreements, on the basis of, inter ----- -8- alia, recommendations of CFN'S senior executives, and the Board acted - ---- collectively to issue the Company's annual and quarterly reports and proxy statements to the SEC and its stockholders, which were presented to and approved by the Board either before their issuance or shortly thereafter. Thus, because the Board and CFN's senior executives acted as a unit, conducted CFN's business pursuant to consensual agreements and formal resolutions and received collectively and/or disseminated the same information about CFN's business at or about the same time, it is appropriate to treat the defendants as a collective group for the purposes of this complaint. 23. As set forth above, each of the defendants, as a result of their directorships and long standing involvement with CFN and/or the industry, knew or was reckless in not knowing of the importance of their duty to exercise loyalty and due care in the management and administration of the affairs of the Company and its subsidiaries and in the use and preservation of its property and assets. Further, CFN's officers and directors owed a duty to the Company and its shareholders to ensure that CFN and its subsidiaries did not engage in any unsafe or unsound practices, including business combinations that waste corporate assets. As a result, each defendant as principal guardian of the stockholders' interests, had a direct and heightened fiduciary responsibility to assure that the Company -9- had designed, implemented and monitored appropriate internal controls and mechanisms to insure strict and unequivocal adherence in this critical area. Not only did the defendants fail in these most critical of fiduciary responsibilities of loyalty avoidance of corporate waste, but each defendant knew or should have known that insider selling, was not only wrong but engaged in by certain of the CFN board, yet did little, if anything, to rectify this conduct which jeopardizes CFN's continued financial integrity. 24. Each defendant further owed to the Company and its shareholders the duty to exercise due care and diligence in the management and administration of the affairs of CFN. 25. To discharge these duties, each defendant was required to exercise reasonable and prudent supervision over the management, policies, practices, controls, and financial affairs of CFN, and to insure that the Company seeks recompense from those responsible for prior and current wrongs done to it. By virtue of this obligation of due care and diligence, defendants were required to, inter alia: ----- ---- a. manage, conduct, supervise, and direct the employees, business, and affairs of CFN in accordance with state and federal laws and regulations, and the -10- charters, regulations, rules, and by-laws of the Company; b. exercise reasonable control and supervision over the officers, employees, and agents of CFN; c. ensure the prudence and soundness of the policies and practices undertaken, or proposed to be undertaken, by CFN, including extraordinary transactions; d. remain informed as to how CFN was, in fact, operating and, upon receiving notice or information of an imprudent or unsound decision, condition, or practice, to make a reasonable investigation in connection therewith and to take steps to correct that decision, condition, or practice; and e. conduct the affairs of the Company in an efficient business-like manner so as to make it possible to provide the highest quality services and maximize the profitability of the Company for the benefit of its shareholders. 26. The defendants breached their fiduciary duties by, among other things: -11- a. failing to design, implement and monitor appropriate controls and policies with respect to the Company's practices and procedures, including controls and policies to ensure that neither the Company nor its stockholders will suffer damages in any extraordinary transaction, including related-party transactions; b. failing to supervise adequately the operations of CFN to avoid corporate waste; and c. failing to supervise adequately the employees and managers of CFN to avoid self-dealing and failing to instruct them to act with honesty and integrity in order to preserve and enhance CFN's reputation with the business community. Derivative Allegations Regarding Demand Futility - ------------------------- 27. Plaintiffs bring this action as a derivative action on behalf of, and for the benefit of, CFN to remedy the director defendants' wrongdoing alleged herein. 28. Plaintiffs will fairly and adequately represent the interests of CFN and its shareholders in enforcing and prosecuting the Company's rights. -12- 29. Under the circumstances, demand upon the Board of Directors is futile and thereby excused because more than a majority of the board is conflicted through their participation in the wrongdoing alleged or under the control of those parties engaged in the wrongdoing. 30. Further, the defendants are in no position to prosecute this action because: a. Defendants have known of the potential for trading on insider information and the proclivity of certain directors to trade on the privileged information and have taken no steps to prevent the wrongdoing from repeatedly occurring. b. The directors of CFN cannot defend their actions by any alleged "independent" business judgment in seeking to have this action dismissed since it would undoubtedly be to the benefit of CFN and the detriment of the defendants to recover the damages caused by the defendants and to assert these derivative claims. c. As a general matter in recent years, insurance policies covering the liability of a corporation's officers and directors purport to exclude legal claims asserted directly by the corporation against such per- -13- sons. Thus, there was, and is, a substantial disincentive for CFN to bring any action directly against the individual defendants herein; and d. Generally, under the terms of such directors and officers' insurance policies, a corporation would be required by the carriers to cooperate in the defense of any claims, such as the present action, which seek to impose liability upon certain officers and directors of CFN, including the individual defendants in this action, for misconduct and mismanagement. Thus, if the policy or policies which CFN maintains contain the foregoing provision, the insurance carriers would argue that CFN and its Board of Directors are thereby contractually disabled from complying with any demand that would cause CFN to institute, and/or prosecute any action against the individual defendants for such misconduct and mismanagement; because to do so could result in the loss to CFN of its insurance coverage. Similarly, CFN would be disabled from pursuing the individual defendants as it would not benefit from any insurance they may have. 31. Each of the defendants had a direct self-interest in and personally benefitted from the illegal and -14- wrongful acts at issue in this action. The personal financial benefits received by the majority of the defendants include, inter alia, payment for service as a ----- ---- director, payment for attending meetings, salaries for directors, and extensive stock options. The defendants also benefit through the continued power and prestige that their directorships afford. 32. As alleged herein, the defendants participated in or knowingly acquiesced, individually and collectively, in schemes carried out by the Company's subsidiaries, units, or divisions to engage in billing practices which resulted in illegal overcharges. The defendants will receive benefits at the expense of the shareholders because the wrongful conduct through which they were obtained put CFN at risk. AS AND FOR A FIRST CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY AGAINST THE DEFENDANTS ------------------------------- 33. Plaintiffs hereby incorporate by reference all paragraphs set forth above. 34. Each of the defendants, jointly and severally, is liable for the wrongdoing alleged herein regarding, inter alia, the buying of CFN securities by ----- ---- defendants upon non-public information and the failure to prevent such actions. Such acts, and/or omissions to act constitute a waste of corpo- -15- rate assets, gross mismanagement, gross negligence or recklessness, and, being illegal, are incapable of ratification by the Board. 35. The defendants, because of their positions of control and authority as executive or operating officers and/or directors of the Company, were able to and did, directly or indirectly control the conduct of its business, employees, and consultants. Therefore, each defendant identified herein is liable as a direct participant in, a conspirator and/or an aider and abettor of the egregious wrongs. 36. This conduct was carried on at the expense of CFN. Additionally, the defendants have committed one or more acts or omissions which furthered their own personal interest and were not for the benefit of the Company. As a direct and proximate result of defendants' failure to exercise due care in the performance of their duties as alleged herein, CFN has engaged in imprudent and unlawful activities all of which have caused significant losses to CFN. 37. By reason of defendants' misconduct as set forth above, CFN has suffered damages, in an amount not presently determinable. -16- AS AND FOR A SECOND CAUSE OF ACTION FOR GROSS NEGLIGENCE AGAINST THE DEFENDANTS ------------------------------ 38. Plaintiffs hereby incorporate by reference all paragraphs set forth above. 39. Each of the defendants committed one or more acts of gross negligence in the conduct of the Company's business. Defendants, as officers, directors, and managers of CFN, owed CFN duties of care in the performance of their duties. Each defendant breached his duty of care to CFN by acting in a grossly negligent fashion in the performance of such duty. 40. The Company has been greatly damaged in, among other ways, the following manner: a. The Company risks fines and penalties for violation of securities laws concerning trading on insider information. In addition, the Company will face increased scrutiny by all applicable federal agencies. b. The Company has been exposed to civil suits alleging securities fraud, exposing the Company to future losses in the millions of dollars due to settlements or judgments in such actions; -17- c. Because of the continued course of illegal conduct by the senior officers and directors of CFN, the Company will likely experience greater difficulty and higher costs in future efforts to raise funds in the securities markets, as well as additional scrutiny by the Securities and Exchange Commission and comparable state regulators; and d. The Company was further injured by the waste of valuable corporate assets, loss of goodwill and business opportunities that were proximately caused by the defendants' misconduct. 41. CFN has been seriously and irreparably damaged by the wrongs alleged herein and entitled to equitable relief in the nature of a mandatory injunction. WHEREFORE, plaintiffs demand judgment as follows: A. Against each named defendant and in favor of the Company for the amount of damages sustained by the Company as a result of the breaches of fiduciary duty by each defendant; B. Against each named defendant and in favor of the Company for damages sustained as a result of their gross negligence; -18- C. Awarding to plaintiffs equitable relief; D. Awarding the costs and disbursements of this action, including reasonable attorneys' fees, accountants' and experts' fees, costs, and expenses; and E. Granting such other and further relief as may be deemed just and proper. Dated: New York, New York April 26, 1999 WECHSLER HARWOOD HALEBIAN & FEFFER LLP By: /s/ Matthew M. Houston -------------------------------- Matthew M. Houston 488 Madison Avenue New York, New York 10022 (212) 935-7400 Attorneys for Plaintiffs Of Counsel: GARWIN, BRONZAFT, GERSTEIN & FISHER, LLP 1501 Broadway New York, NY 10036 (212) 398-0055 -19- VERIFICATION ------------ STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK) I, Matthew M. Houston, being duly sworn, depose and say that I am a member of the law firm of Wechsler Harwood Halebian & Feffer LLP counsel for plaintiffs in this action, I have read the foregoing Derivative Complaint and, to the best of my knowledge, information and belief, the allegations are true. This verification is made by plaintiffs' counsel rather than plaintiffs because plaintiffs do not reside in the county in which plaintiffs' counsel's office is located. ------------------------- Matthew M. Houston Sworn to before me this 26th day of April, 1999, - ------------------------ Notary Public -----END PRIVACY-ENHANCED MESSAGE-----