Exhibit 1
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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 $10,000).
On August 5, 1998, the Company entered into employment agreements with
Marvin I. Haas, Howard M. Leitner and four other officers. The agreements are
effective in the event of a change in control (as defined) and provide, among
other matters, for a term of three years beginning immediately after the change
in control and for base salary, bonus and other employee benefits at amounts
existing immediately prior to the change in control.
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OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning
options/SARs granted during fiscal 1998 to the named executives:
Individual Grants
Number of % of Total
Securities Options/SARs Exercise Grant Date
Underlying Granted to or Base Present
Options/SARs Employees in Price Expiration Value
Name Granted Fiscal Year ($/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.
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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.
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As compensation for their services, each independent director (i.e., a
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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
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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.
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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
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(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
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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.
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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)
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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.
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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.
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(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.