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As filed with the
Securities and Exchange Commission on June 8,
2011
Registration
No. 333-173445
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
CHEFS’ WAREHOUSE HOLDINGS,
LLC
(Exact name of registrant as
specified in its charter)
|
Delaware (State or Other Jurisdiction of Incorporation or Organization) |
5141 (Primary Standard Industrial Classification Code Number) |
20-3031526 (I.R.S. Employer Identification No.) |
100 East Ridge Road
Ridgefield, Connecticut
06877
(203) 894-1345
(Address, including zip code,
and telephone number,
including area code, of
registrant’s principal executive offices)
Christopher Pappas
President and Chief Executive
Officer
100 East Ridge Road
Ridgefield, Connecticut
06877
(203) 894-1345
(Name, address, including zip
code, and telephone number,
including area code, of agent
for service)
Copies to:
|
F. Mitchell Walker, Jr. Esq. D. Scott Holley, Esq. Bass, Berry & Sims PLC 150 Third Avenue South, Suite 2800 Nashville, Tennessee 37201 (615) 742-6200 |
Marc D. Jaffe, Esq. Ian D. Schuman, Esq. Latham & Watkins LLP 885 Third Avenue New York, New York 10022 (212) 906-1200 |
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act, check the following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
|
Large accelerated
filer o
|
Accelerated filer o |
Non-accelerated
filer þ (Do not check if a smaller reporting company) |
Smaller reporting company o |
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
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EXPLANATORY
NOTE
Chefs’ Warehouse Holdings, LLC, a limited liability company
organized under the laws of Delaware, is the registrant filing
this registration statement with the Securities and Exchange
Commission. Prior to the effectiveness of this registration
statement, Chefs’ Warehouse Holdings, LLC will be converted
into a corporation organized under the laws of Delaware pursuant
to
Section 18-216
of the Delaware Limited Liability Company Act and
Section 265 of the Delaware General Corporation Law. The
securities issued to investors in connection with this offering
will be common stock in that corporation, which will be named
The Chefs’ Warehouse, Inc.
The Chefs’ Warehouse, LLC, a Delaware limited liability
company and an indirect, wholly-owned subsidiary of Chefs’
Warehouse Holdings, LLC, is not the registrant under this
registration statement. Prior to the consummation of this
offering, we expect that its name will be changed to The
Chefs’ Warehouse Mid-Atlantic, LLC.
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|
The
information in this preliminary prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is declared effective. This preliminary prospectus is
not an offer to sell these securities and we are not soliciting
an offer to buy these securities in any state where the offer or
sale is not permitted. |
SUBJECT
TO COMPLETION DATED JUNE 8, 2011
PRELIMINARY PROSPECTUS
Shares
The Chefs’ Warehouse,
Inc.
Common Stock
We are
offering shares
of our common stock and the selling stockholders identified in
this prospectus are
offering shares
of our common stock. Because the selling stockholders are our
affiliates, a portion of the proceeds of the offering will
benefit such affiliates. We will not receive any proceeds from
the sale of shares by the selling stockholders. This is our
initial public offering, and, prior to this offering, there has
been no public market for our common stock. We expect the
initial public offering price to be between
$ and
$ per share. We have applied to
list our common stock for listing on The NASDAQ Global Market
under the symbol “CHEF.”
Investing in our common stock involves a high degree of risk.
Please read “Risk Factors” beginning on page 12
of this prospectus.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
| PER SHARE | TOTAL | |||||||
|
Public Offering Price
|
$ | $ | ||||||
|
Underwriting Discounts and Commissions
|
$ | $ | ||||||
|
Proceeds to The Chefs’ Warehouse, Inc. Before Expenses
|
$ | $ | ||||||
|
Proceeds to Selling Stockholders Before Expenses
|
$ | $ | ||||||
Delivery of the shares of common stock is expected to be made on
or
about ,
2011. We and the selling stockholders have granted the
underwriters an option for a period of 30 days to purchase
an
additional
and shares
of our common stock, respectively, to cover over-allotments. If
the underwriters exercise the option in full, the total
underwriting discounts and commissions payable by us and the
selling stockholders will be $ and
the total proceeds to us and the selling stockholders, before
expenses, will be $ .
Jefferies
Prospectus
dated ,
2011
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We and the selling stockholders have not, and the underwriters
have not, authorized anyone to give any information or to make
any representations other than those that are contained in this
prospectus or in any free writing prospectus issued by us. Do
not rely upon any information or representations made outside of
this prospectus or in any free writing prospectus issued by us.
This prospectus is not an offer to sell, and it is not
soliciting an offer to buy, (1) any securities other than
shares of our common stock or (2) shares of our common
stock in any circumstances in which the offer or solicitation is
unlawful. The information contained in this prospectus may
change after the date of this prospectus. Do not assume after
the date of this prospectus that the information contained in
this prospectus is still correct.
Persons outside the United States who come into possession of
this prospectus must inform themselves about and observe any
restrictions relating to the offering of the securities and the
distribution of the prospectus outside the United States.
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Basis of
Presentation
We utilize a 52/53 week fiscal year ending on a Friday near
the end of December. Our fiscal years ended December 24,
2010, December 25, 2009, December 26, 2008,
December 28, 2007 and December 29, 2006 were each
comprised of 52 weeks. Fiscal years are identified in this
prospectus according to the calendar year in which the fiscal
years end. For example, references to “2010,”
“fiscal 2010,” “fiscal year end 2010” or
other similar references refer to the fiscal year ended
December 24, 2010. Our fiscal year ending December 30,
2011 will have 53 weeks.
Industry and
Market Data
This prospectus includes industry and market data that we
derived from internal company records, publicly-available
information and industry publications and surveys. Industry
publications and surveys generally state that the information
contained therein has been obtained from sources believed to be
reliable. We believe that this data is accurate in all material
respects as of the date of this prospectus. You should carefully
consider the inherent risks and uncertainties associated with
the industry and market data contained in this prospectus.
Trademarks and
Trade Names
In this prospectus, we refer (without any ownership notation) to
several registered and common law trademarks, including The
Chefs’ Warehouse, Dairyland USA, Spoleto, Bel Aria and
Grand Reserve. All brand names or other trademarks appearing in
this prospectus are the property of their respective owners.
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The following summary highlights information contained
elsewhere in this prospectus and is qualified in its entirety by
the more detailed information and the historical consolidated
financial statements, and the related notes thereto, included
elsewhere in this prospectus. Because it is a summary, it does
not contain all of the information that you should consider
before investing in our common stock. You should read this
entire prospectus carefully, including the more detailed
information set forth under the caption “Risk Factors”
and the historical consolidated financial statements, and the
related notes thereto, included elsewhere in this prospectus
before investing in our common stock.
Prior to the effectiveness of this registration statement, we
will convert our company from a Delaware limited liability
company (Chefs’ Warehouse Holdings, LLC) to a Delaware
corporation (The Chefs’ Warehouse, Inc.). Unless otherwise
noted, the terms “Company,” “we,”
“us,” and “our” refer to Chefs’
Warehouse Holdings, LLC and its consolidated subsidiaries prior
to the conversion date and The Chefs’ Warehouse, Inc. and
its consolidated subsidiaries on and after the conversion date.
This prospectus assumes the completion of the conversion and
related transactions, as a result of which all membership
interests of Chefs’ Warehouse Holdings, LLC held by our
investors will be converted into
shares of common stock of The
Chefs’ Warehouse, Inc. See “Certain Relationships and
Related-Party Transactions — Reorganization
Transaction.” Unless otherwise indicated or the context
otherwise requires, financial and operating data in this
prospectus reflects the consolidated business and operations of
Chefs’ Warehouse Holdings, LLC and its wholly-owned
subsidiaries prior to the conversion and The Chefs’
Warehouse, Inc. and its wholly-owned subsidiaries from and after
the conversion.
Unless the context otherwise requires or indicates, the
information set forth in this prospectus assumes that
(1) the underwriters’ over-allotment option is not
exercised and (2) the common stock to be sold in this
offering is sold at $ per share,
which is the midpoint of the price range indicated on the cover
page of this prospectus.
Company
Overview
We are a premier distributor of specialty food products in the
United States. We are focused on serving the specific needs of
chefs who own
and/or
operate some of the nation’s leading menu-driven
independent restaurants, fine dining establishments, country
clubs, hotels, caterers, culinary schools and specialty food
stores. We believe that we have a distinct competitive advantage
in serving these customers as a result of our extensive
selection of distinctive and
hard-to-find
specialty food products, our product knowledge and our customer
service.
We define specialty food products as gourmet foods and
ingredients that are of the highest grade, quality or style as
measured by their uniqueness, exotic origin or particular
processing method. Our product portfolio includes over 11,500
stock-keeping units, or SKUs, and is comprised primarily of
imported and domestic specialty food products, such as artisan
charcuterie, specialty cheeses, unique oils and vinegars,
hormone-free protein, truffles, caviar and chocolate. We also
offer an extensive line of broadline food products, including
cooking oils, butter, eggs, milk and flour. Our core customers
are chefs, and we believe that, by offering a wide selection of
both distinctive and
hard-to-find
specialty products, together with staple broadline food
products, we are able to differentiate ourselves from larger,
traditional broadline foodservice distributors, while
simultaneously enabling our customers to utilize us as their
primary foodservice distributor.
Since the formation of our predecessor in 1985, we have expanded
our distribution network, product selection and customer base
both organically and through acquisitions. From fiscal 2009 to
fiscal 2010, net revenues, net income and earnings before
interest, taxes, depreciation and amortization, or EBITDA,
increased approximately $59.0 million, $6.9 million
and $8.7 million, respectively, to $330.1 million,
$15.9 million and $24.6 million, respectively. Net
revenues, net income and EBITDA for the three months ended
March 25, 2011 were $83.2 million, $1.0 million
and $5.5 million, respectively, increases of
$13.2 million, $0.7 million and $1.8 million,
respectively, over the comparable period in fiscal 2010. Pro
forma net income for fiscal 2010 and the three months ended
March 25, 2011 was $ and
$ , respectively. See footnote 4 to
the Summary Consolidated Financial Data for a reconciliation of
EBITDA to adjusted EBITDA and the information under the caption
“Unaudited Pro Forma Condensed Consolidated Financial
Statements” beginning on
page F-21
for the calculation of pro forma net income for fiscal 2010.
During these periods and in prior years, our sales to both new
and existing customers have increased as a result of an increase
in the breadth and depth of our product portfolio, our
commitment to customer service, the efforts of our experienced
and sophisticated sales professionals, the increased use of
technology in the operations and management of our business and
our ongoing
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consolidation of the fragmented specialty foodservice
distribution industry, including acquisitions in
San Francisco, Washington, D.C. and Miami since 2007.
Competitive
Strengths
We believe that, during our
26-year
history, we have achieved, developed
and/or
refined the following strengths which provide us with a distinct
competitive position in the foodservice distribution industry
and also the opportunity to achieve superior margins relative to
most large broadline foodservice distributors:
Leading Distributor of Specialty Food Products in Many of the
Key Culinary Markets. Based on our
management’s industry knowledge and experience, we believe
we are the largest distributor of specialty food products in the
New York, Washington, D.C., San Francisco and Los
Angeles metro markets as measured by net sales. We believe these
markets, along with a number of other markets we serve,
including Las Vegas, Miami, Philadelphia, Boston and Napa
Valley, create and set the culinary trends for the rest of the
United States and provide us with valuable insight into the
latest culinary and menu practices. Furthermore, we believe our
established relationships with many of the top chefs, culinary
schools and dining establishments in these key culinary markets
have benefited us when we entered into new markets where we
believe that chefs at our potential customers were generally
knowledgeable of our brand and commitment to quality and
excellence from their experience working in other markets which
we serve or through their personal relationships throughout the
culinary industry.
Expansive Product Offering. We offer an
extensive portfolio of high-quality specialty food products,
ranging from basic ingredients and staples, such as milk and
flour, to delicacies and specialty ingredients sourced from
North America, Europe, Asia and South America, which we believe
helps our customers distinguish their menu items. We carry more
than 11,500 SKUs, including approximately 7,000 that are
in-stock every day, and we constantly evaluate our portfolio and
introduce new products to address regional trends and
preferences and ensure that we are on the leading edge of
broader culinary trends. Through our importing division, we
provide our customers with access to a portfolio of exclusive
items, including regional olive oils, truffles and charcuterie
from Italy, Spain, France and other Mediterranean countries. In
addition, and as evidence of our commitment to aid our customers
in creating unique and innovative menu items, we regularly
utilize our sourcing relationships and industry insights to
procure additional products that we do not regularly carry but
that our customers specifically request. We believe that the
breadth and depth of our product portfolio facilitates our
customers’ ability to distinguish and enhance their menu
offerings and differentiates us from larger traditional
broadline foodservice distributors. For example, we provide a
selection of more than 125 different varieties of olive oil,
while large broadline foodservice distributors only carry, on
average,
5-10 types
of olive oil.
Critical
Route-to-Market
for Specialty Food Suppliers. We currently
distribute products from more than 1,000 different suppliers,
with no single supplier currently representing more than 5% of
our total disbursements. Our suppliers are located throughout
North America, Europe, Asia and South America and include
numerous small, family-owned entities and artisanal food
producers. We are the largest customer for many of our
suppliers. As a result, our experienced and sophisticated sales
professionals, customer relationships and distribution platform
are critical to these suppliers’
route-to-market,
which provides us with greater leverage in our relationships
with the suppliers and also enables us to offer a wide range of
products on an exclusive basis.
Expanding Base of Premier Customer
Relationships. Our breadth and depth of product
offerings coupled with our highly regarded customer service has
allowed us to develop and retain a loyal customer base that is
comprised of chefs who own or work at more than 7,000 of the
nation’s leading menu-driven independent restaurants, fine
dining establishments, country clubs, hotels, caterers, culinary
schools and specialty food stores. Our focus on product
selection, product knowledge and customer service has rewarded
us with a number of long-term customer relationships, which
often begin when chefs are introduced to us while attending the
nation’s leading culinary schools, including The Culinary
Institute of America and The French Culinary Institute, both of
which have been customers of ours for more than five years.
Collaborative Professional and Educational Relationships with
our Customers. We employ a sophisticated and
experienced sales force of approximately 125 sales
professionals, the majority of whom have formal culinary
training, degrees in the culinary arts or prior experience
working in the culinary industry. Equipped with advanced
culinary and industry knowledge, our sales professionals seek to
establish a rapport with our customers so that they can more
fully understand and anticipate the needs of and offer
cost-effective food product solutions to the chefs that own or
operate these businesses. We believe that the specialized
knowledge base of our sales professionals
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enables us to take a more collaborative and educational approach
to selling our gourmet foods and ingredients and to further
differentiate ourselves from our traditional broadline
competitors.
Expertise in Logistics and Distribution. We
have built a first-class, scalable inventory management and
logistics platform that enables us to efficiently fill an
average of 11,000 orders each week and to profitably meet our
customers’ needs for varying drop sizes, high service
levels and timely delivery. Our average distribution service
level, or the percentage of in-stock items ordered by customers
that were delivered by the requested date, was in excess of 99%
in 2010, which we believe is among the highest rates in the
foodservice distribution industry. With distribution centers
located in New York, Los Angeles, San Francisco, Washington
D.C., Las Vegas and Miami, we are able to leverage our
geographic footprint and reduce our inbound freight costs. This
scale enables us to maintain a portfolio of more than 11,500
SKUs through the operation of our sophisticated information
technology, inventory management and logistics systems, which we
believe allows us to provide our customers with the highest
level of customer service and responsiveness in our industry.
Experienced and Proven Management Team. Our
senior management team has demonstrated the ability to grow the
business through various economic environments. With collective
experience of more than 60 years at The Chefs’
Warehouse and its predecessor, our founders and senior
management are experienced operators and are passionate about
our future. Our senior management team is comprised of our
founders as well as experienced professionals with expertise in
a wide range of functional areas, including finance, sales and
marketing, information technology and human resources. We
believe our management team and employee base is, and will
remain, highly motivated as they will continue to own
% of our common stock following this offering.
Our Growth
Strategies
We believe substantial organic growth opportunities exist in our
current markets through increased penetration of our existing
customers and the addition of new customers, and we have
identified new markets that we believe also present
opportunities for future expansion. Key elements of our growth
strategy include the following:
Increase Penetration with Existing
Customers. We intend to sell more products to our
existing customers by increasing the breadth and depth of our
product selection and increasing the efficiency of our sales
professionals, while at the same time continuing to provide
excellent customer service. We are a data-driven and
goal-oriented organization, and we are highly focused on
increasing the number of unique products we distribute to each
customer and our weekly gross profit contribution from each
customer. Based on our management’s industry experience and
our relationships and dealings with our customers, we believe we
are the primary distributor of specialty food products to the
majority of our customers, and we intend to maintain that
position while adding to the number of customers for which we
serve as their primary distributor of specialty food products.
Expand our Customer Base Within our Existing
Markets. As of December 24, 2010, we served
more than 7,000 customer locations in the United States. We plan
to expand our market share in the fragmented specialty food
distribution industry by cultivating new customer relationships
within our existing markets through the continued penetration of
independent restaurants, fine dining establishments, country
clubs, hotels, caterers, culinary schools and specialty food
stores. We believe we have the opportunity to continue to gain
market share in our existing markets by offering an extensive
selection of specialty food products as well as traditional
broadline staple food products through our unique, collaborative
and educational sales efforts and efficient, scalable
distribution solution.
Continue to Improve our Operating Margins. As
we continue to grow, we believe we can improve our operating
margins by continuing to leverage our inventory management and
logistics platform and our general and administrative functions
to yield both improved customer service and profitability.
Utilizing our fleet of delivery trucks, we fill an average of
11,000 customer orders each week, usually within
12-24 hours
of order placement. We intend to continue to offer our customers
this high level of customer service while maintaining our focus
on realizing efficiencies and economies of scale in purchasing,
warehousing, distribution and general and administrative
functions which, when combined with incremental fixed-cost
leverage, we believe will lead to continued improvements in our
operating margin.
Pursue Selective Acquisitions. Throughout our
26-year
history, we have successfully identified, consummated and
integrated multiple new market and tuck-in acquisitions. We
believe we have improved the operations and overall
profitability of each acquired company by leveraging our
sourcing relationships to provide an expanded product portfolio,
implementing our tested sales force training techniques and
metrics and installing improved warehouse
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management and information systems. We believe we have the
opportunity to capitalize on our existing infrastructure and
expertise by continuing to selectively pursue opportunistic
acquisitions in order to expand the breadth of our distribution
network, increase our operating efficiency and add additional
products and capabilities.
Recent
Developments
On May 31, 2011, we entered into an agreement to purchase
certain of the assets of Harry Wils & Co., a specialty
foodservice distribution company headquartered in the New York
City metropolitan area. We are purchasing the inventory of Harry
Wils & Co. and certain intangible assets, including
Harry Wils & Co.’s customer list and certain
intellectual property. We are assuming no liabilities in
connection with the transaction and intend to relocate the
inventory we are purchasing to our Bronx, New York distribution
facility shortly following the closing of the transaction,
which, subject to the satisfaction of certain customary closing
conditions, we expect to occur by mid-July 2011. We intend to
finance the purchase price for these assets we are acquiring
through borrowings under our existing senior secured credit
facilities.
Reorganization
Transaction
Prior to the effectiveness of this registration statement, we
will complete a transaction in which we will convert Chefs’
Warehouse Holdings, LLC into The Chefs’ Warehouse, Inc.
Specifically, immediately prior to the time at which the
registration statement of which this prospectus is part is
declared effective, Chefs’ Warehouse Holdings, LLC, a
Delaware limited liability company, will convert into The
Chefs’ Warehouse, Inc., a Delaware corporation, and the
members of Chefs’ Warehouse Holdings, LLC will receive in
the
conversion shares
of common stock of The Chefs’ Warehouse, Inc. for each unit
of membership interest in Chefs’ Warehouse Holdings, LLC
owned by them at the time of the conversion. In total, we expect
to
issue shares
of common stock in this reorganization transaction. Of these
shares, shares
will be restricted shares of our common stock issued upon
conversion of our Class C units that have not vested as of
the date we consummate the reorganization transaction.
Refinancing
Transactions
In connection with our redemption of all of our outstanding
Class A units in October 2010, we entered into our existing
$100.0 million senior secured credit facilities with a
syndicate of lenders. The existing senior secured credit
facilities provide for (i) a $75.0 million term loan
facility and (ii) a revolving credit facility under which
we may borrow up to $25.0 million. We also issued
$15.0 million of our senior subordinated notes due 2014.
In connection with this offering, we intend to enter into a
commitment letter, which we expect will be replaced by
definitive loan documentation simultaneously with the closing of
this offering, with JPMorgan Chase Bank, N.A. with respect to
new senior secured credit facilities. Pursuant to the commitment
letter, we expect that the new senior secured credit facilities
will provide for (i) a four year, $30.0 million term
loan facility maturing in 2015, and (ii) a four year,
$50.0 million revolving credit facility maturing in 2015.
We intend to use the net proceeds of this offering, together
with a portion of borrowings under our new senior secured credit
facilities, to repay all of our loans outstanding under our
existing senior secured credit facilities and redeem or
repurchase all of our outstanding senior subordinated notes due
2014.
Risk
Factors
An investment in our common stock involves a high degree of
risk. Before you invest in our common stock, you should
carefully read and consider, among other things, the following
risks as well as those described under the caption “Risk
Factors” beginning on page 12 of this prospectus:
| • | Our success depends to a significant extent on general economic conditions, including changes in disposable income levels and consumer spending trends; | |
| • | Conditions beyond our control could materially affect the cost and/or availability of our specialty food products and/or interrupt our distribution network; | |
| • | Our business is low-margin in nature and our profit margins are sensitive to inflationary and deflationary pressures; | |
| • | Because our foodservice distribution operations are principally concentrated in six culinary markets, we are susceptible to economic and other developments, including adverse weather conditions, in these areas; |
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| • | Damage to our reputation or lack of acceptance of our specialty food products and/or the brands we carry in existing and new markets could materially and adversely impact our business, financial condition or results of operations; | |
| • | Our profit margins may be negatively affected if group purchasing organizations are successful in adding our independent restaurant customers as members; | |
| • | A significant portion of our future growth is dependent upon our ability to expand our operations in our existing markets and to penetrate new markets, including through acquisitions; and | |
| • | We may have difficulty managing and facilitating our future growth. |
Company
Information
Our principal executive office is located at 100 East Ridge
Road, Ridgefield, Connecticut 06877, and our telephone number is
(203) 894-1345.
Our website address is
http://www.chefswarehouse.com.
Our website and the information contained therein or connected
thereto is not and shall not be deemed to be incorporated into
this prospectus or the registration statement of which it forms
a part and is provided as an inactive textual reference.
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The
Offering
| Common stock offered by us | shares | |
| Common stock offered by the selling stockholders | shares | |
| Common stock to be outstanding immediately after this offering | shares |
Selling
Stockholders
See “Principal and Selling Stockholders” for
information regarding the selling stockholders who are
participating in this offering.
Over-Allotment
Option
We and the selling stockholders have granted to the underwriters
an option for a period of 30 days after the date of this
prospectus to purchase up
to
and
additional shares of our common stock, respectively, to cover
over-allotments. The information presented in this prospectus
assumes that the underwriters do not exercise their
over-allotment option.
Use of
Proceeds
We estimate the net proceeds to us from this offering will be
approximately $ million,
after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us, based upon an assumed
initial offering price of $ per
share, which is the midpoint of the range set forth on the cover
page of this prospectus. We intend to use the net proceeds of
this offering, together with borrowings under our new senior
secured credit facilities, to:
| • | redeem or repurchase all of our outstanding senior subordinated notes due 2014 and pay any accrued but unpaid interest thereon and other related fees, including the call premium associated with such redemption or repurchase; and |
| • | repay all of our loans outstanding under our existing senior secured credit facilities and any accrued but unpaid interest thereon and other related fees. |
Any remaining net proceeds will be used for general corporate
purposes.
An affiliate of Jefferies & Company, Inc., an
underwriter in this offering, is a lender under our existing
term loan facility and one of the holders of our senior
subordinated notes and will receive approximately
$ million of the net proceeds of this offering
used to redeem or repurchase our senior subordinated notes and
repay our existing term loan facility.
For a more complete description of our new senior secured credit
facilities, see the information under the caption
“Description of Our Indebtedness – New Senior
Secured Credit Facilities.”
We will not receive any of the proceeds from the sale of common
stock by the selling stockholders. See “Use of
Proceeds,” “Description of Our Indebtedness,”
“Principal and Selling Stockholders” and
“Underwriting – Affiliations and Conflicts of
Interest.”
6
Table of Contents
Risk
Factors
Investing in our common stock involves a high degree of risk.
You should carefully read this entire prospectus, including the
more detailed information set forth under the caption “Risk
Factors” and the historical consolidated financial
statements, and the related notes thereto, included elsewhere in
this prospectus, before investing in our common stock.
Lock-up
Agreements
Our directors, executive officers and holders of more than 5% of
our outstanding common stock have agreed with the underwriters,
subject to limited exceptions, not to sell, transfer or dispose
of any of our shares for a period of 180 days after the
date of this prospectus. See the information under the caption
“Underwriting — No Sales of Similar
Securities” for additional information.
Proposed NASDAQ
Global Market Symbol
We have applied to have our common stock approved for listing on
The NASDAQ Global Market under the symbol “CHEF.”
Conflicts of
Interest
As described under the caption “Use of Proceeds,” we
intend to use net proceeds from this offering, together with
borrowings under our new senior secured credit facilities, to
(1) redeem or repurchase any and all of our outstanding
senior subordinated notes and any accrued but unpaid interest
thereon and other related fees, including the call premium
associated with such redemption or repurchase, and
(2) repay all of our loans outstanding under our existing
senior secured credit facilities and any accrued but unpaid
interest thereon and other related fees. Because an affiliate of
Jefferies & Company, Inc. is a lender under our
existing term loan facility and one of the holders of our senior
subordinated notes and will receive approximately $ ,
or more than 5% of the net proceeds of this offering, due to
such redemption and repayments, this offering will be conducted
in accordance with Rule 5121 of the Financial Industry
Regulatory Authority, Inc., or FINRA. This rule requires, among
other things, that a “qualified independent
underwriter” has participated in the preparation of, and
has exercised the usual standards of “due diligence”
with respect to, the registration statement and this
prospectus. has agreed to act as qualified
independent underwriter for the offering and to undertake the
legal responsibilities and liabilities of an underwriter under
the Securities Act of 1933, as amended, or the Securities Act,
specifically including those inherent in Section 11 of the
Securities Act.
7
Table of Contents
Summary
Consolidated Financial Data
The following table sets forth, for the periods and as of the
dates indicated, our summary consolidated financial data on an
historical basis and, for the fiscal year ended
December 24, 2010 and for the three months ended
March 25, 2011, on both an as adjusted basis giving effect
to this offering, our reorganization transaction described below
and the application of the net proceeds of this offering as
described under the caption “Use of Proceeds” and
borrowings under our new senior secured credit facilities and a
pro forma basis giving effect to our redemption of our
Class A units, this offering, our reorganization
transaction described below and the application of the net
proceeds of this offering as described under the caption
“Use of Proceeds” and borrowings under our new senior
secured credit facilities. The statement of operations data for
the fiscal years ended December 24, 2010, December 25,
2009 and December 26, 2008 and the balance sheet data as of
December 24, 2010 are derived from our audited consolidated
financial statements appearing elsewhere in this prospectus. We
have derived the statement of operations data for the three
months ended March 25, 2011 and March 26, 2010 and
balance sheet data as of March 25, 2011 from our unaudited
interim consolidated financial statements appearing elsewhere in
this prospectus. In the opinion of management, the unaudited
interim consolidated financial statements reflect all
adjustments, consisting of normal and recurring adjustments,
necessary for the fair presentation of the Company’s
financial position at March 25, 2011 and results of its
operations and its cash flows for the three months ended
March 25, 2011 and March 26, 2010. The financial
condition and results of operations as of and for the three
months ended March 25, 2011 do not purport to be indicative
of the financial condition or results of operations to be
expected as of or for the fiscal year ending December 30,
2011. The pro forma data included in the table was prepared in
accordance with Article 11 of Regulation S-X of the
Securities Act.
The summary consolidated financial data presented below
represent only portions of our financial statements and,
accordingly, are not complete. You should read this information
in conjunction with the information included under the captions
“Use of Proceeds,” “Capitalization,”
“Selected Consolidated Financial Data,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” “Unaudited Pro
Forma Condensed Consolidated Financial Statements” and our
consolidated financial statements, and the related notes
thereto, which are included elsewhere in this prospectus.
Prior to the effectiveness of this registration statement, we
will convert our company from a Delaware limited liability
company (Chefs’ Warehouse Holdings, LLC) to a Delaware
corporation (The Chefs’ Warehouse, Inc.). See “Certain
Relationships and Related-Party Transactions —
Reorganization Transaction.” The summary consolidated
financial data relate to Chefs’ Warehouse Holdings, LLC and
its consolidated subsidiaries.
| PRO FORMA (1) | ||||||||||||||||||||||||||||
|
FISCAL YEAR |
THREE MONTHS |
|||||||||||||||||||||||||||
| FISCAL YEAR ENDED | THREE MONTHS ENDED |
ENDED |
ENDED |
|||||||||||||||||||||||||
|
DECEMBER 24, |
DECEMBER 25, |
DECEMBER 26, |
MARCH 25, |
MARCH 26, |
DECEMBER 24, |
MARCH 25, |
||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2011 | 2010 | 2010 | 2011 | ||||||||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||||||||||
|
Statement of Operations Data:
|
||||||||||||||||||||||||||||
|
Net revenues
|
$ | 330,118 | $ | 271,072 | $ | 281,703 | $ | 83,183 | $ | 70,000 | $ | 330,118 | $ | 83,183 | ||||||||||||||
|
Cost of sales
|
244,340 | 199,764 | 211,387 | 61,148 | 52,017 | 244,340 | 61,148 | |||||||||||||||||||||
|
Gross profit
|
85,778 | 71,308 | 70,316 | 22,035 | 17,983 | 85,778 | 22,035 | |||||||||||||||||||||
|
Operating expenses
|
64,206 | 57,977 | 60,314 | 16,976 | 14,953 | |||||||||||||||||||||||
|
Operating profit
|
21,572 | 13,331 | 10,002 | 5,059 | 3,030 | |||||||||||||||||||||||
|
Interest expense
|
4,041 | 2,815 | 3,238 | 3,450 | 627 | |||||||||||||||||||||||
|
(Gain)/loss on fluctuation of interest rate swap
|
(910 | ) | (658 | ) | 1,118 | (81 | ) | (183 | ) | (910 | ) | (81 | ) | |||||||||||||||
|
Other
|
— | — | — | 3 | — | — | 3 | |||||||||||||||||||||
|
Income from operations before income taxes
|
18,441 | 11,174 | 5,646 | 1,687 | 2,586 | |||||||||||||||||||||||
|
Provision for income taxes
|
2,567 | 2,213 | 3,450 | 667 | 1,050 | |||||||||||||||||||||||
|
Net income
|
$ | 15,874 | $ | 8,961 | $ | 2,196 | $ | 1,020 | $ | 1,536 | ||||||||||||||||||
8
Table of Contents
| PRO FORMA (1) | ||||||||||||||||||||||||||||
|
FISCAL YEAR |
THREE MONTHS |
|||||||||||||||||||||||||||
| FISCAL YEAR ENDED | THREE MONTHS ENDED |
ENDED |
ENDED |
|||||||||||||||||||||||||
|
DECEMBER 24, |
DECEMBER 25, |
DECEMBER 26, |
MARCH 25, |
MARCH 26, |
DECEMBER 24, |
MARCH 25, |
||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2011 | 2010 | 2010 | 2011 | ||||||||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||||||||||
|
Deemed dividend accretion on Class A members’
units(2)
|
(4,123 | ) | (6,207 | ) | (3,000 | ) | — | (1,180 | ) | |||||||||||||||||||
|
Deemed dividend paid to Class A members’
units(2)
|
(22,429 | ) | — | — | — | — | ||||||||||||||||||||||
|
Net income (loss) attributable to members’ units
|
$ | (10,678 | ) | $ | 2,754 | $ | (804 | ) | $ | 1,020 | $ | 356 | ||||||||||||||||
|
Basic net (loss) income per members’ unit
|
$ | (0.15 | ) | $ | 0.04 | $ | (0.01 | ) | $ | 0.02 | $ | 0.00 | ||||||||||||||||
|
Diluted net (loss) income per members’ unit
|
$ | (0.15 | ) | $ | 0.03 | $ | (0.01 | ) | $ | 0.02 | $ | 0.00 | ||||||||||||||||
|
Weighted average members’ units outstanding:
|
||||||||||||||||||||||||||||
|
Basic
|
72,494 | 77,827 | 76,663 | 52,526 | 76,573 | |||||||||||||||||||||||
|
Diluted
|
72,494 | 81,851 | 76,663 | 54,375 | 79,515 | |||||||||||||||||||||||
|
As Adjusted
Data: (3)
|
||||||||||||||||||||||||||||
|
Provision for income taxes
|
$ | |||||||||||||||||||||||||||
|
Net income available to common stockholders
|
||||||||||||||||||||||||||||
|
Basic net income per share available to common stockholders
|
||||||||||||||||||||||||||||
|
Diluted net income per share available to common stockholders
|
||||||||||||||||||||||||||||
|
Weighted average common shares outstanding:
|
||||||||||||||||||||||||||||
|
Basic
|
||||||||||||||||||||||||||||
|
Diluted
|
||||||||||||||||||||||||||||
|
Other Financial Data:
|
||||||||||||||||||||||||||||
|
Net cash provided by operating activities
|
$ | 13,524 | $ | 11,885 | $ | 1,616 | $ | 3,136 | $ | 2,515 | ||||||||||||||||||
|
Net cash used in investing activities
|
$ | (4,871 | ) | $ | (4,827 | ) | $ | (5,848 | ) | $ | (389 | ) | $ | (513 | ) | |||||||||||||
|
Net cash (used in) provided by financing activities
|
$ | (7,550 | ) | $ | (7,774 | ) | $ | 3,591 | $ | (3,869 | ) | $ | (1,547 | ) | ||||||||||||||
|
Capital expenditures
|
$ | (1,133 | ) | $ | (1,061 | ) | $ | (1,848 | ) | $ | (389 | ) | $ | (513 | ) | |||||||||||||
|
EBITDA (4)
|
$ | 24,585 | $ | 15,906 | $ | 10,869 | $ | 5,525 | $ | 3,676 | ||||||||||||||||||
|
Adjusted
EBITDA (4)
|
$ | 23,937 | $ | 16,345 | $ | 12,340 | $ | 5,134 | $ | 3,580 | ||||||||||||||||||
9
Table of Contents
|
ACTUAL |
AS ADJUSTED |
|||||||
|
AS OF |
AS OF |
|||||||
|
MARCH 25, |
MARCH 25, |
|||||||
| 2011 | 2011(6) | |||||||
| (In thousands) | ||||||||
|
Balance Sheet Data:
|
||||||||
|
Cash and cash equivalents
|
$ | 856 | ||||||
|
Working capital
|
$ | 12,866 | (5) | |||||
|
Total assets
|
$ | 81,297 | ||||||
|
Long-term debt, net of current portion
|
$ | 81,999 | ||||||
|
Total liabilities
|
$ | 129,089 | ||||||
|
Total members’/stockholders’ equity (deficit)
|
$ | (47,792 | ) | |||||
| (1) | The pro forma data gives effect to the redemption of our Class A units, our conversion to a subchapter C corporation, this offering and the use of proceeds therefrom and the incurrence of $ million of borrowings under our new senior secured credit facilities, as if they had been consummated on December 26, 2009. For a detailed presentation of this unaudited condensed consolidated pro forma statement of operations data, including a description of the transactions and assumptions underlying the pro forma adjustments giving rise to these results, please see the information contained under the caption “Unaudited Pro Forma Condensed Consolidated Financial Statements” beginning on page F-21 of this prospectus. |
| (2) | Accreted dividends and the distribution for the final redemption of the Class A unit are removed from earnings from the net income (loss) attributable to member’s units as these distributions were not available to those members. For more information, see Note 2 to our audited consolidated financial statements included elsewhere in this prospectus. |
| (3) | Gives effect to the reorganization transaction and the resulting conversion of Chefs’ Warehouse Holdings, LLC into a subchapter C corporation expected to occur prior to the effectiveness of this registration statement. As adjusted provision for income taxes reflects combined federal and state income tax on an as adjusted basis, as if we had been taxed as a subchapter C corporation, using an effective tax rate of %. As adjusted basic weighted average shares outstanding consist of the shares of common stock that will be outstanding following the consummation of the reorganization transaction. As adjusted diluted weighted average shares outstanding consist of the shares of common stock that will be outstanding following the consummation of the reorganization transaction, plus the potential dilution that would occur if all shares of restricted stock received in exchange for unvested Class C units become fully vested. |
| (4) | EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization plus adjustments (i) in each of the periods for the gain or loss associated with the marking to market of an interest rate swap we entered into in 2005 that expired in January 2011; (ii) in the three months ended March 25, 2011 for the gain associated with foreign exchange contracts; (iii) in 2009 for severance costs related to our management restructuring; and (iv) in each of the periods other than the three months ended March 25, 2011 for a management fee paid to BGCP/DL, LLC, or BGCP, a former member of ours, that will no longer be paid as a result of our redemption of all of our Class A units in October 2010. We are presenting EBITDA and Adjusted EBITDA, which are not measurements determined in accordance with U.S. generally accepted accounting principles, or GAAP, because we believe each of these measures provides an additional metric to evaluate our operations and which we believe, when considered with both our GAAP results and the reconciliation to net income, provides a more complete understanding of our business than could be obtained absent this disclosure. We use EBITDA and Adjusted EBITDA, together with financial measures prepared in accordance with GAAP, such as revenue and cash flows from operations, to assess our historical and prospective operating performance and to enhance our understanding of our core operating performance. Each of EBITDA and Adjusted EBITDA is presented because (i) we believe it is a useful measure for investors to assess the operating performance of our business without the effect of non-cash depreciation and amortization expenses and, in the case of Adjusted EBITDA, the above-described adjustments; (ii) we believe that investors will find it useful in assessing our ability to service or incur indebtedness; and (iii) we use it internally as a benchmark to evaluate our operating performance or compare our performance to that of our competitors. The use of EBITDA and Adjusted EBITDA as performance measures permits a comparative assessment of our operating performance relative to our performance based upon our GAAP results while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. Companies within the foodservice distribution industry exhibit significant variations with respect to capital structures and cost of capital (which affect interest expense and tax rates) and differences in book depreciation of facilities and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. Our management believes that both EBITDA and Adjusted EBITDA facilitate company-to-company comparisons within our industry by eliminating some of the foregoing variations. |
| Neither EBITDA nor Adjusted EBITDA is a measurement determined in accordance with GAAP and each should not be considered in isolation or as an alternative to net income, net cash provided by operating, investing or financing activities or other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. Neither EBITDA nor Adjusted EBITDA should be considered as a measure of discretionary cash available to us to invest in the growth of our business. EBITDA and Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies, and our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual items. | ||
| Our management recognizes that both EBITDA and Adjusted EBITDA have limitations as analytical financial measures, including the following: | ||
|
• neither EBITDA
nor Adjusted EBITDA reflects our capital expenditures or future
requirements for capital expenditures;
|
10
Table of Contents
|
• neither EBITDA
nor Adjusted EBITDA reflects the interest expense, or the cash
requirements necessary to service interest or principal
payments, associated with our indebtedness;
|
||
|
• neither EBITDA
nor Adjusted EBITDA reflects depreciation and amortization,
which are non-cash charges, although the assets being
depreciated and amortized will likely have to be replaced in the
future, nor does EBITDA or Adjusted EBITDA reflect any cash
requirements for such replacements; and
|
||
|
• neither EBITDA
nor Adjusted EBITDA reflects changes in, or cash requirements
for, our working capital needs.
|
||
| A reconciliation of EBITDA and Adjusted EBITDA to net income is provided below. |
| FISCAL YEAR ENDED | THREE MONTHS ENDED | |||||||||||||||||||
|
DECEMBER 24, |
DECEMBER 25, |
DECEMBER 26, |
MARCH 25, |
MARCH 26, |
||||||||||||||||
| 2010 | 2009 | 2008 | 2011 | 2010 | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Net income
|
$ | 15,874 | $ | 8,961 | $ | 2,196 | $ | 1,020 | $ | 1,536 | ||||||||||
|
Interest expense
|
4,041 | 2,815 | 3,238 | 3,450 | 627 | |||||||||||||||
|
Depreciation and amortization
|
2,103 | 1,917 | 1,985 | 388 | 463 | |||||||||||||||
|
Provision for income taxes
|
2,567 | 2,213 | 3,450 | 667 | 1,050 | |||||||||||||||
|
EBITDA
|
$ | 24,585 | $ | 15,906 | $ | 10,869 | $ | 5,525 | $ | 3,676 | ||||||||||
|
Adjustments:
|
||||||||||||||||||||
|
(Gain)/loss on fluctuation of interest rate
swap (a)
|
(910 | ) | (658 | ) | 1,118 | (81 | ) | (183 | ) | |||||||||||
|
(Gain)/loss on the marking to market of foreign exchange
contracts (b)
|
— | — | — | (310 | ) | — | ||||||||||||||
|
Management severance
costs (c)
|
— | 745 | — | — | — | |||||||||||||||
|
BGCP annual management
fee (d)
|
262 | 352 | 353 | — | 87 | |||||||||||||||
|
Adjusted EBITDA
|
$ | 23,937 | $ | 16,345 | $ | 12,340 | $ | 5,134 | $ | 3,580 | ||||||||||
| (a) | Represents the gain or loss we experienced on our interest rate swap in each period. When we entered into our interest rate swap in 2005, we did not elect to account for it under hedge accounting rules. As such, the mark-to-market movement of the swap is recorded through our statement of operations. This interest rate swap expired in January 2011. |
| (b) | Represents the unrealized gain we experienced on our Eurodollar collar we entered into as a hedge against imported products denominated, and paid for, in Euros. |
| (c) | Represents cash severance payments to individuals in connection with our 2009 management restructuring. |
| (d) | Represents the annual management fee we paid to BGCP in the respective periods. We redeemed all of our Class A units owned by BGCP in October 2010. |
| (5) | Working capital is defined as the difference between current assets and current liabilities. At March 25, 2011, the then-outstanding balance under our senior secured revolving credit facility of $9.7 million was included within the current portion of long-term debt. |
| (6) | Gives effect to (i) the reorganization transaction that is expected to occur prior to the effectiveness of this registration statement, (ii) this offering and (iii) the application of the net proceeds of this offering as described under the caption “Use of Proceeds” and $ million of borrowings under our new senior secured credit facilities. |
11
Table of Contents
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
You should consider carefully the following risk factors and the
other information in this prospectus, including our consolidated
financial statements and related notes to those statements,
before you decide to invest in our common stock. If any of the
following risks actually occur, our business, financial
condition or results of operations could be adversely affected.
As a result, the trading price of our common stock could decline
and you could lose part or all of your investment.
Risks Relating to
Our Business and Industry
Our success
depends to a significant extent upon general economic
conditions, including disposable income levels and changes in
consumer discretionary spending.
Because our target customers include menu-driven independent
restaurants, fine dining establishments, country clubs, hotels,
caterers and specialty food stores, our business is exposed to
reductions in disposable income levels and discretionary
consumer spending. The recent recession, coupled with high
unemployment rates, reduced home values, increases in home
foreclosures, investment losses, personal bankruptcies, reduced
access to credit and reduced consumer confidence, has adversely
impacted consumers’ ability and willingness to spend
discretionary dollars. Economic conditions may remain volatile
and may continue to repress consumer confidence and
discretionary spending for the near term. If the weak economy
continues for a prolonged period of time or worsens, consumers
may choose to spend discretionary dollars less frequently which
could result in a decline in consumers’ purchases of
food-away-from-home, particularly in more expensive restaurants,
and, consequently, the businesses of our customers by, among
other things, reducing the frequency with which our
customers’ customers choose to dine out or the amount they
spend on meals while dining out. If our customers’ sales
decrease, our profitability could decline as we spread fixed
costs across a lower volume of sales. Moreover, we believe that,
if the current negative economic conditions persist for an
extended period of time or become more pervasive, consumers
might ultimately make long-lasting changes to their
discretionary spending behavior, including dining out less
frequently on a permanent basis. Accordingly, adverse changes to
consumer preferences or consumer discretionary spending, each of
which could be affected by many different factors which are out
of our control, could harm our business, financial condition or
results of operations. Our continued success will depend in part
upon our ability to anticipate, identify and respond to changing
economic and other conditions and the impact that they may have
on discretionary consumer spending.
Conditions
beyond our control could materially affect the cost and/or
availability of our specialty food products and/or interrupt our
distribution network.
Our profitability and operating margins are dependent upon,
among other things, our ability to anticipate and react to any
interruptions in our distribution network and changes to food
costs and availability. We obtain a significant portion of our
specialty food products from local, regional, national and
international third-party suppliers. We generally do not enter
into long-term contracts with our suppliers whereby they would
be committed to provide products to us for any appreciable
duration of time. Although our purchasing volume can provide
leverage when dealing with suppliers, particularly smaller
suppliers for whom we may be their largest customer, suppliers
may not provide or may be unable to provide the specialty food
products we need in the quantities and at the times and prices
we request. Failure to identify an alternate source of supply
for these items or comparable products that meet our
customers’ expectations may result in significant cost
increases. Additionally, weather, governmental regulation,
availability and seasonality may affect our food costs or cause
a disruption in the quantity of our supply. For example, weather
patterns in recent years have resulted in lower than normal
levels of rainfall in key agricultural states such as
California, impacting the price of water and the corresponding
prices of food products grown in states facing drought
conditions. Additionally, the
route-to-market
for some of the products we sell, such as baking chocolate,
depends upon the stability of political climates in developing
nations, such as the Ivory Coast. In such countries, political
and social unrest may cause the prices for these products to
rise to levels beyond those that our customers are willing to
pay, if the product is available at all. If we are unable to
obtain these products, our customers may seek a different
supplier for these, or other, products which could negatively
impact our business, financial condition or results of
operations.
We do not currently use financial instruments to hedge our risk
exposure to market fluctuations in the price of food products.
Similarly, our suppliers may also be affected by higher costs to
source or produce and transport food products, as well as by
other related expenses that they pass through to their
customers, which could result in
12
Table of Contents
higher costs for the specialty food products they supply to us.
Our inability to anticipate and react to changing food costs
through our sourcing and purchasing practices in the future
could therefore negatively impact our business, financial
condition or results of operations.
We are also subject to material supply chain interruptions based
upon conditions outside of our control. These interruptions
could include work slowdowns, work interruptions, strikes or
other adverse employment actions taken by employees of
suppliers, short-term weather conditions or more prolonged
climate change, crop conditions, product recalls, water
shortages, transportation interruptions within our distribution
channels, unavailability of fuel or increases in fuel costs,
competitive demands and natural disasters or other catastrophic
events, such as food-borne illnesses or bioterrorism. The
efficiency and effectiveness of our distribution network is
dependent upon our suppliers’ ability to consistently
deliver the specialty food products we need in the quantities
and at the times and prices we request. Accordingly, if we are
unable to obtain the specialty food products that comprise our
product portfolio in a timely manner as a result of any of the
foregoing factors or otherwise, we may be unable to fulfill our
obligations to customers who may, as a result of any such
failure, resort to other distributors for their food product
needs.
Our business
is a low-margin business and our profit margins may be sensitive
to inflationary and deflationary pressures.
We operate within a segment of the foodservice distribution
industry, which is an industry characterized by a high volume of
sales with relatively low profit margins. Although our profit
margins are typically higher than more traditional broadline
foodservice distributors, they are still relatively low compared
to other industries’ profit margins. Most of our sales are
at prices that are based upon product cost plus a percentage
markup. As a result, volatile food costs have a direct impact
upon our profitability. Prolonged periods of product cost
inflation may have a negative impact on our profit margins and
results of operations to the extent we are unable to pass on all
or a portion of such product cost increases to our customers. In
addition, product cost inflation may negatively impact consumer
discretionary spending decisions within our customers’
establishments, which could adversely impact our sales.
Conversely, because most of our sales are at prices that are
based upon product cost plus a percentage markup, our profit
levels may be negatively impacted during periods of product cost
deflation even though our gross profit as a percentage of sales
may remain relatively constant. To compensate for lower gross
margins, we, in turn, must reduce the expenses that we incur to
service our customers. Our inability to effectively price our
specialty food products, to quickly respond to inflationary and
deflationary cost pressures and to reduce our expenses could
have a material adverse impact on our business, financial
condition or results of operations.
Group
purchasing organizations may become more active in our industry
and increase their efforts to add our customers as members of
these organizations.
Some of our customers, including a majority of our hotel
customers, purchase their products from us through group
purchasing organizations. These organizations have increased
their efforts to aggregate the purchasing power of smaller,
independent restaurants in an effort to lower the prices paid by
these customers on their foodservice orders, and we have
experienced some pricing pressure from these purchasers. If
these group purchasing organizations are able to add a
significant number of our customers as members, we may be forced
to lower the prices we charge these customers in order to retain
the business, which would negatively affect our business,
financial condition or results of operations. Additionally, if
we were unable or unwilling to lower the prices we charge for
our products to a level that was satisfactory to the group
purchasing organization, we may lose the business of those of
our customers that are members of these organizations, which
would negatively impact our business, financial condition or
results of operations.
Because our
foodservice distribution operations are concentrated principally
in six culinary markets, we are susceptible to economic and
other developments, including adverse weather conditions, in
these areas.
Our financial condition and results of operations are highly
dependent upon the local economies of the six culinary markets
in which we distribute our specialty food products. In recent
years, certain of these markets have been more negatively
impacted by the overall economic crisis, including experiencing
higher unemployment rates and weaker housing market conditions,
than other areas of the United States. Moreover, sales of our
specialty products in our New York market, which we define
as our operations on the East Coast of the United States
spanning from Boston to Atlantic City, accounted for
approximately 65% of our net revenues in our fiscal year ended
2010. We are therefore particularly exposed to downturns in this
regional economy. Any further deterioration in the economic
conditions of these markets generally, or in the local economy
of the New York metropolitan area, specifically, could affect
our business, financial condition or results of operations in a
materially adverse manner.
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In addition, given our geographic concentrations, other regional
occurrences such as adverse weather conditions, terrorist
attacks and other catastrophic events could have a material
adverse effect on our business, financial condition or results
of operations. Adverse weather conditions can significantly
impact our ability to profitably and efficiently conduct our
operations and, in severe cases, could result in our trucks
being unable to make deliveries or cause the temporary closure
or the destruction of one or more of our distribution centers.
Our operations
and/or
distribution centers which are located in (i) New York City
and Washington D.C. are particularly susceptible to significant
amounts of snowfall and ice, (ii) Miami are particularly
susceptible to hurricanes and (iii) Los Angeles and
San Francisco are particularly susceptible to earthquakes
and mudslides. Additionally, due to their prominence as, among
other characteristics, densely-populated major metropolitan
cities and as international hubs for intermodal transportation,
each of our six markets is a known target for terrorist activity
and other catastrophic events. If our operations are
significantly disrupted or if any one or more of our
distribution centers is temporarily closed or destroyed for any
of the foregoing reasons, our business, financial condition or
results of operations may be materially adversely affected. In
anticipation of any such adverse weather conditions, terrorist
attacks, man-made disasters or other unforeseen regional
occurrences, we have implemented a disaster recovery plan.
Should any of these events occur, if we are unable to execute
our disaster recovery plan, we may experience failures or delays
in the recovery of critical data, delayed reporting and
compliance with governmental entities, inability to perform
necessary corporate functions and other breakdowns in normal
operating procedures that could have a material adverse effect
on our business and create exposure to administrative and other
legal claims against us.
Damage to our
reputation or lack of acceptance of our specialty food products
and/or the brands we carry in existing and new markets could
materially and adversely impact our business, financial
condition or results of operations.
We believe that we have built a strong reputation for the
breadth and depth of our product portfolio and the brands we
carry and that we must protect and grow their value to be
successful in the future. Any incident that erodes consumer
confidence in or affinity for our specialty food products or
brands, whether or not justified, could significantly reduce
their respective values and damage our business. If our
customers perceive or experience a reduction in the quality or
selection of our products and brands or our customer service, or
in any way believe that we failed to deliver a consistently
positive experience, our business, financial condition or
results of operations may be affected in a materially adverse
manner.
A specialty foods distribution business such as ours can be
adversely affected by negative publicity or news reports,
whether or not accurate, regarding food quality issues, public
health concerns, illness, safety, injury or government or
industry findings concerning our products or others across the
food distribution industry. Although we have taken steps to
mitigate food quality, public health and other
foodservice-related risks, these types of health concerns or
negative publicity cannot be completely eliminated or mitigated
and may harm our results of operations and damage the reputation
of, or result in a lack of acceptance of, our products or the
brands we carry.
In addition, our ability to successfully penetrate new markets
may be adversely affected by a lack of awareness or acceptance
of our product portfolio or our brands in these new markets. To
the extent we are unable to foster name recognition and affinity
for our products and brands in new markets, we may not be able
to penetrate these markets as anticipated, and, consequently,
our growth may be significantly delayed or impaired.
Our customers
are generally not obligated to continue purchasing products from
us.
Most of our customers buy from us pursuant to individual
purchase orders, as we generally do not enter into long-term
agreements with our customers for the purchase of our products.
Because our customers are generally not obligated to continue
purchasing products from us, we cannot assure you that the
volume
and/or
number of our customers’ purchase orders will remain
constant or increase or that we will be able to maintain or add
to our existing customer base. Significant decreases in the
volume
and/or
number of our customers’ purchase orders or our inability
to retain or grow our current customer base may have a material
adverse effect on our business, financial condition or results
of operations.
We have
experienced losses due to our inability to collect accounts
receivable in the past and could experience increases in such
losses in the future if our customers are unable to pay their
debts to us in a timely manner or at all.
Certain of our customers have experienced bankruptcy, insolvency
and/or an
inability to pay their debts to us as they come due. If our
customers suffer significant financial difficulties or
bankruptcies, they may be unable to pay their debts to us in a
timely manner or at all. It is possible that our customers may
contest their obligations to pay us under bankruptcy laws or
otherwise. Even if our customers do not contest their
obligations to pay us, if our customers are unable to pay their
debts to us in a timely manner, it could adversely impact our
ability to collect accounts receivable and may require that we
take larger provisions for bad debt expense. Moreover, we may
have to
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negotiate significant discounts
and/or
extended financing terms with these customers in such a
situation in an attempt to secure payment for outstanding debts.
Accordingly, if we are unable to collect upon our accounts
receivable as they come due in an efficient and timely manner,
our business, financial condition or results of operations may
be materially and adversely affected. During periods of economic
weakness, like those we have been experiencing, small to
medium-sized businesses, like many of our independent restaurant
and fine dining establishment customers, may be impacted more
severely and more quickly than larger businesses. Consequently,
the ability of such businesses to repay their obligations to us
may deteriorate, and in some cases this deterioration may occur
quickly, which could adversely impact our business, financial
condition or results of operations.
Product
liability claims could have a material adverse effect on our
business, financial condition or results of
operations.
Like any other distributor of food products, we face an inherent
risk of exposure to product liability claims if the products we
sell cause injury or illness. We may be subject to liability,
which could be substantial, because of actual or alleged
contamination in products sold by us, including products sold by
companies before we acquired them. We have, and the companies we
have acquired have had, liability insurance with respect to
product liability claims. This insurance may not continue to be
available at a reasonable cost or at all, and it may not be
adequate to cover product liability claims against us or against
any of the companies we have acquired. We generally seek
contractual indemnification from manufacturers, but any such
indemnification is limited, as a practical matter, to the
creditworthiness of the indemnifying party. If we or any of our
acquired companies do not have adequate insurance or contractual
indemnification available, product liability claims and costs
associated with product recalls, including a loss of business,
could have a material adverse effect on our business, financial
condition or results of operations.
Increased fuel
costs may have a materially adverse effect on our business,
financial condition or results of operations.
Increased fuel costs may have a negative impact on our business,
financial condition or results of operations. The high cost of
diesel fuel can increase the price we pay for products as well
as the costs we incur to distribute products to our customers.
These factors, in turn, may negatively impact our net sales,
margins, operating expenses and operating results. Although we
have been able to pass along a portion of increased fuel costs
to our customers in the past, there is no guarantee we can do so
again if another period of high fuel costs occurs. In recent
months, fuel costs have increased, and remained higher than
historical levels, as a result of, among other things, political
turmoil in the Middle East and North Africa. If fuel costs
continue to increase in the future, we may experience
difficulties in passing all or a portion of these costs along to
our customers, which may have a negative impact on our business,
financial condition or results of operations.
New
information or attitudes regarding diet and health or adverse
opinions about the health effects of the specialty food products
we distribute could result in changes in consumer eating habits
which could materially and adversely affect our business,
financial condition or results of operations.
Consumer eating habits may impact our business as a result of
changes in attitudes regarding diet and health or new
information regarding the health effects of consuming the
specialty food products we distribute. If consumer eating habits
change significantly, we may be required to modify or
discontinue sales of certain items in our product portfolio, and
we may experience higher costs associated with the
implementation of those changes. Additionally, changes in
consumer eating habits may result in the enactment of laws and
regulations that impact the ingredients and nutritional content
of our specialty food products, or laws and regulations
requiring us to disclose the nutritional content of our
specialty food products. Compliance with these laws and
regulations, as well as others regarding the ingredients and
nutritional content of our specialty food products, may be
costly and time-consuming. We cannot make any assurances
regarding our ability to effectively respond to changes in
consumer health perceptions or resulting new laws or regulations
or to adapt our menu offerings to trends in eating habits.
We have
significant competition from a variety of sources, and we may
not be able to compete successfully.
The foodservice distribution industry is highly fragmented and
competitive, and our future success will be largely dependent
upon our ability to profitably meet our customers’ needs
for certain gourmet foods and ingredients, varying drop sizes,
high service levels and timely delivery. We compete with
numerous smaller distributors on a local level as well as with a
limited number of larger, traditional broadline foodservice
distributors. We cannot assure you that our current or potential
competitors will not provide specialty food products and
ingredients or services that are comparable or superior to those
provided by us or adapt more quickly than we do to evolving
culinary trends or changing market requirements. It is also
possible that alliances among competitors may develop and
rapidly acquire significant market share. Accordingly, we cannot
assure you that we will be able to compete effectively against
current and future competitors, and increased competition may
result in price reductions, reduced gross margins
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and loss of market share, any of which could materially
adversely affect our business, financial condition or results of
operations.
A significant
portion of our future growth is dependent upon our ability to
expand our operations in our existing markets and to penetrate
new markets through acquisitions.
We intend to expand our presence in our existing markets by
adding to our existing customer base through the expansion of
our product portfolio and the increase in the volume
and/or
number of purchase orders from our existing customers. We cannot
assure you, however, that we will be able to continue to
successfully expand or acquire critical market presence in our
existing markets, as we may not successfully market our
specialty food products and brands or may encounter larger
and/or more
well-established competitors with substantially greater
financial resources. Moreover, competitive circumstances and
consumer characteristics in new segments of existing markets may
differ substantially from those in the segments in which we have
substantial experience. If we are unable to expand in existing
markets, our ability to increase our revenues and profitability
may be affected in a material and adverse manner.
We also regularly evaluate opportunities to acquire other
companies. To the extent our future growth includes
acquisitions, we cannot assure you that we will successfully
identify suitable acquisition candidates, consummate such
potential acquisitions, effectively and efficiently integrate
any acquired entities or successfully expand into new markets as
a result of our acquisitions. We believe that there are risks
related to acquiring companies, including overpaying for
acquisitions, losing key employees of acquired companies and
failing to achieve potential synergies. Additionally, our
business could be adversely affected if we are unable to
integrate the companies acquired in our acquisitions and mergers.
A significant portion of our past growth has been achieved
through acquisitions of, or mergers with, other distributors of
specialty food products. Our future acquisitions, such as our
pending acquisition of certain of the assets of Harry Wils
& Co., if any, may have a material adverse effect on our
results of operations, particularly in periods immediately
following the consummation of those transactions while the
operations of the acquired business are being integrated with
our operations. Achieving the benefits of acquisitions depends
on timely, efficient and successful execution of a number of
post-acquisition events, including successful integration of the
acquired entity. Integration requires, among other things:
| • | maintaining the existing customer base; | |
| • | optimizing delivery routes; | |
| • | coordinating administrative, distribution and finance functions; and | |
| • | integrating management information systems and personnel. |
The integration process could divert the attention of
management, and any difficulties or problems encountered in the
transition process could have a material adverse effect on our
business, financial condition or results of operations. In
particular, the integration process may temporarily redirect
resources previously focused on reducing product cost, resulting
in lower gross profits in relation to sales. In addition, the
process of combining companies could cause the interruption of,
or a loss of momentum in, the activities of the respective
businesses, which could have an adverse effect on their combined
operations.
In connection with our acquisition of businesses in the future,
if any, we may decide to consolidate the operations of any
acquired business with our existing operations, as we are
planning to do with the operations of Harry Wils & Co., or
make other changes with respect to the acquired business, which
could result in special charges or other expenses. Our results
of operations also may be adversely affected by expenses we
incur in making acquisitions, by amortization of
acquisition-related intangible assets with definite lives and by
additional depreciation attributable to acquired assets. Any of
the businesses we acquire may also have liabilities or adverse
operating issues, including some that we fail to discover before
the acquisition, and our indemnity for such liabilities
typically has been limited and may, with respect to future
acquisitions, also be limited. Additionally, our ability to make
any future acquisitions may depend upon obtaining additional
financing or the consents of our lenders. We may not be able to
obtain this additional financing or these consents on acceptable
terms or at all. To the extent we seek to acquire other
businesses in exchange for our common stock, fluctuations in our
stock price could have a material adverse effect on our ability
to complete acquisitions.
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We may have
difficulty managing and facilitating our future
growth.
At times since our inception, we have rapidly expanded our
operations through organic growth, acquisitions or otherwise.
This growth has placed and will continue to place significant
demands upon our administrative, operational and financial
resources. This growth, however, may not continue. To the extent
that our customer base and our distribution networks continue to
grow, this future growth may be limited by our inability to
acquire new distribution facilities or expand our existing
distribution facilities, make acquisitions, successfully
integrate acquired entities, implement information systems
initiatives or adequately manage our personnel.
Further, our future growth may be limited in part by the size
and location of our distribution centers. As we near maximum
utilization of a given facility, our operations may be
constrained and inefficiencies may be created, which could
adversely affect our results of operations unless the facility
is expanded, volume is shifted to another facility or additional
processing capacity is added. Conversely, as we add additional
facilities or expand existing operations or facilities, excess
capacity may be created. Any excess capacity may also create
inefficiencies and adversely affect our results of operations.
We cannot assure you that we will be able to successfully expand
our existing distribution facilities or open new distribution
facilities in new or existing markets as needed to facilitate
growth.
Even if we are able to expand our distribution network, our
ability to compete effectively and to manage future growth, if
any, will depend on our ability to continue to implement and
improve operational, financial and management information
systems on a timely basis and to expand, train, motivate and
manage our employees. We cannot assure you that our existing
personnel, systems, procedures and controls will be adequate to
support the future growth of our operations. Accordingly, our
inability to manage our growth effectively could have a material
adverse effect on our business, financial condition or results
of operations.
Our
substantial indebtedness may limit our ability to invest in the
ongoing needs of our business.
We have a substantial amount of indebtedness. On an as adjusted
basis after giving effect to this offering and the use of the
offering proceeds as described under “Use of
Proceeds,” as well as our entry into our new senior secured
credit facilities, as of March 25, 2011, we would have had
approximately $ million of total indebtedness.
In particular, we expect to have approximately
$ million and $ million of
outstanding indebtedness under our new senior secured term loan
facility and new senior secured revolving credit facility,
respectively, following the consummation of this offering. See
“Use of Proceeds” and “Description of Our
Indebtedness.”
Our current indebtedness and expected future indebtedness
following the consummation of this offering could have important
consequences to you. For example, our current indebtedness:
| • | requires us to utilize a substantial portion of our cash flows from operations to make payments on our indebtedness, reducing the availability of our cash flows to fund working capital, capital expenditures, development activity and other general corporate purposes; | |
| • | increases our vulnerability to adverse general economic or industry conditions; | |
| • | limits our flexibility in planning for, or reacting to, changes in our business or the industries in which we operate; | |
| • | makes us more vulnerable to increases in interest rates, as borrowings under our new senior secured revolving credit facility are expected to be at variable rates; | |
| • | limits our ability to obtain additional financing in the future for working capital or other purposes, including to finance acquisitions; and | |
| • | places us at a competitive disadvantage compared to our competitors that have less indebtedness. |
We expect that the terms of our new senior secured credit
facilities that we intend to enter into simultaneously with the
consummation of this offering will have many of the same
consequences on us and our stockholders. If, following the
consummation of this offering, our earnings are insufficient, we
will need to raise additional capital to pay our indebtedness as
it comes due. If we are unable to obtain funds necessary to make
required payments or if we fail to comply with the various
requirements of our new senior secured credit facilities we
would be in default, which would permit the holders of our
indebtedness to accelerate the maturity of the indebtedness and
could cause defaults under any indebtedness we may incur in the
future. Any default under our indebtedness would have a material
adverse effect on our business, operating results and financial
condition. If we are unable to refinance or repay our
indebtedness as it becomes due, we may become insolvent and be
unable to continue operations.
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Although the agreements governing our new senior secured credit
facilities will contain restrictions on the incurrence of
additional indebtedness, these restrictions are subject to a
number of qualifications and exceptions, and the indebtedness
incurred in compliance with these restrictions could be
substantial. Also, these restrictions do not prevent us from
incurring obligations that do not constitute indebtedness.
The agreements governing our new senior secured credit
facilities we expect to enter into in conjunction with the
consummation of this offering are expected to require us to
maintain fixed charge coverage ratios and leverage ratios which
become more restrictive over time. Our ability to comply with
these ratios in the future may be affected by events beyond our
control, and our inability to comply with the required financial
ratios could result in a default under our new senior secured
credit facilities. In the event of any default, the lenders
under our new senior secured credit facilities could elect to
terminate lending commitments and declare all borrowings
outstanding, together with accrued and unpaid interest and other
fees, to be immediately due and payable.
See “Description of Our Indebtedness,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and
Capital Resources.”
We may be
unable to obtain debt or other financing on favorable terms or
at all.
There are inherent risks in our ability to borrow debt capital.
Our lenders, including the lenders participating in our new
senior secured credit facilities, may have suffered losses
related to their lending and other financial relationships,
especially because of the general weakening of the national
economy over the past three years, increased financial
instability of many borrowers and the declining value of their
assets. As a result, lenders may become insolvent or tighten
their lending standards, which could make it more difficult for
us to borrow under our new senior secured revolving credit
facility or term loan facility, refinance our existing
indebtedness or obtain other financing on favorable terms or at
all. Our access to funds under our new senior secured credit
facilities is dependent upon the ability of our lenders to meet
their funding commitments. Our financial condition and results
of operations would be adversely affected in a material manner
if we were unable to draw funds under our new senior secured
revolving credit facility because of a lender default or if we
had to obtain other cost-effective financing.
Longer term disruptions in the capital and credit markets as a
result of uncertainty, changing or increased regulation, reduced
alternatives or failures of significant financial institutions
could adversely affect our access to liquidity needed for our
business. Any disruption could require us to take measures to
conserve cash until the markets stabilize or until alternative
credit arrangements or other funding for our business can be
arranged. Such measures could include deferring capital
expenditures (including our entry into new markets, including
through acquisitions) and reducing or eliminating other
discretionary uses of cash.
Information
technology system failures or breaches of our network security
could interrupt our operations and adversely affect our
business.
We rely upon our computer systems and network infrastructure
across our operations. Our operations depend upon our ability to
protect our computer equipment and systems against damage from
physical theft, fire, power loss, telecommunications failure or
other catastrophic events, as well as from internal and external
security breaches, viruses, worms and other disruptive problems.
Any damage or failure of our computer systems or network
infrastructure that causes an interruption in our operations
could have a material adverse effect on our business, financial
condition or results of operations. Although we employ both
internal resources and external consultants to conduct auditing
and testing for weaknesses in our systems, controls, firewalls
and encryption and intend to maintain and upgrade our security
technology and operational procedures to prevent such damage,
breaches or other disruptive problems, there can be no assurance
that these security measures will be successful.
Our recent
investments in information technology may not produce the
benefits that we anticipate.
In an attempt to reduce our operating expenses, increase our
operational efficiencies and boost our gross margins, we have
aggressively invested in the development and implementation of
new information technology. We may not be able to implement
these technological changes in the time frame we have planned,
and any delays in implementation could negatively impact our
business, financial condition or results of operations. In
addition, the costs to make these changes may exceed our
estimates and will likely exceed any benefits that we realize
during the early stages of implementation. Even if we are able
to implement the changes as planned, and within our cost
estimates, we may not be able achieve the expected efficiencies
and cost savings from this investment which could have an
adverse effect on our business, financial condition or results
of operations.
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We may not be
able to adequately protect our intellectual property, which, in
turn, could harm the value of our brands and adversely affect
our business.
Our ability to implement our business plan successfully depends
in part upon our ability to further build brand recognition,
including for our proprietary products, using our trademarks,
service marks and other proprietary intellectual property,
including our names and logos. We have registered or applied to
register a number of our trademarks. We cannot assure you that
our trademark applications will be approved. Third parties may
also oppose our trademark applications, or otherwise challenge
our use of the trademarks. In the event that our trademarks are
successfully challenged, we could be forced to rebrand our goods
and services, which could result in loss of brand recognition
and could require us to devote resources to advertising and
marketing new brands. If our efforts to register, maintain and
protect our intellectual property are inadequate, or if any
third party misappropriates, dilutes or infringes upon our
intellectual property, the value of our brands may be harmed,
which could have a material adverse effect on our business,
financial condition or results of operations and might prevent
our brands from achieving or maintaining market acceptance.
We may also face the risk of claims that we have infringed third
parties’ intellectual property rights. If third parties
claim that we have infringed or are infringing upon their
intellectual property rights, our operating profits could be
affected in a materially adverse manner. Any claims of
intellectual property infringement, even those without merit,
could be expensive and time consuming to defend, require us to
rebrand our services, if feasible, divert management’s
attention and resources or require us to enter into royalty or
licensing agreements in order to obtain the right to use a third
party’s intellectual property. Any royalty or licensing
agreements, if required, may not be available to us on
acceptable terms or at all. A successful claim of infringement
against us could result in our being required to pay significant
damages, enter into costly license or royalty agreements, or
stop the sale of certain products or services, any of which
could have a negative impact on our business, financial
condition or results of operations and could harm our future
prospects.
Our business
operations and future development could be significantly
disrupted if we lose key members of our management
team.
The success of our business significantly depends upon the
continued contributions of our founders and key employees, both
individually and as a group. Our future performance will
substantially depend upon our ability to motivate and retain
Christopher Pappas, our chairman, president and chief executive
officer, John Pappas, our vice chairman, James Wagner, our chief
operating officer and Kenneth Clark, our chief financial
officer, as well as certain other senior key employees. The loss
of the services of any of our founders or key employees could
have a material adverse effect on our business, financial
condition or results of operations. We have no reason to believe
that we will lose the services of any of these individuals in
the foreseeable future; however, we currently have no effective
replacement for any of these individuals due to their
experience, reputation in the foodservice distribution industry
and special role in our operations.
Our insurance
policies may not provide adequate levels of coverage against all
claims, and fluctuating insurance requirements and costs could
negatively impact our profitability.
We believe that our insurance coverage is customary for
businesses of our size and type. However, there are types of
losses we may incur that cannot be insured against or that we
believe are not commercially reasonable to insure. These losses,
should they occur, could have a material and adverse effect on
our business, financial condition or results of operations. In
addition, the cost of workers’ compensation insurance,
general liability insurance and directors and officers’
liability insurance fluctuates based upon our historical trends,
market conditions and availability. Because our operations
principally are centered in large, metropolitan areas, our
insurance costs are higher than if our operations and facilities
were based in more rural markets. Additionally, health insurance
costs in general have risen significantly over the past few
years and are expected to continue to increase in 2011. These
increases, as well as recently-enacted federal legislation
requiring employers to provide specified levels of health
insurance to all employees, could have a negative impact upon
our business, financial condition or results of operations, and
there can be no assurance that we will be able to successfully
offset the effect of such increases with plan modifications and
cost control measures, additional operating efficiencies or the
pass-through of such increased costs to our customers.
Increases in
our labor costs, including as a result of labor shortages, the
price or unavailability of insurance and changes in government
regulation, could slow our growth or harm our
business.
We are subject to a wide range of labor costs. Because our labor
costs are, as a percentage of revenues, higher than other
industries, we may be significantly harmed by labor cost
increases.
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Our operations are highly dependent upon our experienced and
sophisticated sales professionals. Qualified individuals have
historically been in short supply and an inability to attract
and retain them may limit our ability to expand our operations
in existing markets as well as to penetrate new markets. We can
make no assurances that we will be able to attract and retain
qualified individuals in the future. Additionally, the cost of
attracting and retaining qualified individuals may be higher
than we currently anticipate, and as a result, our profitability
could decline. We are subject to the risk of employment-related
litigation at both the state and federal levels, including
claims styled as class action lawsuits, which are more costly to
defend. Also, some employment-related claims in the area of wage
and hour disputes are not insurable risks.
Despite our efforts to control costs while still providing
competitive health care benefits to our staff members,
significant increases in health care costs continue to occur,
and we can provide no assurance that our cost containment
efforts in this area will be effective. Further, we are
continuing to assess the impact of recently-adopted federal
health care legislation on our health care benefit costs, and
significant increases in such costs could adversely impact our
operating results. There is no assurance that we will be able to
pass through the costs of such legislation in a manner that will
not adversely impact our operating results.
In addition, many of our delivery and warehouse personnel are
hourly workers subject to various minimum wage requirements.
Mandated increases in minimum wage levels have recently been and
continue to be proposed and implemented at both federal and
state government levels. Minimum wage increases may increase our
labor costs or effective tax rate.
We are also subject to the regulations of the
U.S. Citizenship and Immigration Services and
U.S. Customs and Immigration Enforcement. Our failure to
comply with federal and state labor laws and regulations, or our
employees’ failure to meet federal citizenship or residency
requirements, could result in a disruption in our work force,
sanctions or fines against us and adverse publicity.
Further, potential changes in labor legislation, including the
Employee Free Choice Act, or EFCA, could result in portions of
our workforce, such as our delivery personnel, being subjected
to greater organized labor influence. The EFCA could impact the
nature of labor relations in the United States and how union
elections and contract negotiations are conducted. The EFCA aims
to facilitate unionization, and employers of unionized employees
may face mandatory, binding arbitration of labor scheduling,
costs and standards, which could increase the costs of doing
business. Although we do not currently have any unionized
employees, EFCA or similar labor legislation could have an
adverse effect on our business, financial condition or results
of operations by imposing requirements that could potentially
increase costs and reduce our operating flexibility.
We are subject
to significant governmental regulation.
Our business is highly regulated at the federal, state and local
levels, and our specialty food products and distribution
operations require various licenses, permits and approvals. For
example:
| • | the products we distribute in the United States are subject to regulation and inspection by the U.S. Food and Drug Administration, or FDA, and the U.S. Department of Agriculture, or USDA; | |
| • | our warehouse, distribution facilities and operations also are subject to regulation and inspection by the FDA, the USDA and state health authorities; and | |
| • | our U.S. trucking operations are regulated by the U.S. Department of Transportation and the U.S. Federal Highway Administration. |
Our suppliers are also subject to similar regulatory
requirements and oversight. The failure to comply with
applicable regulatory requirements could result in civil or
criminal fines or penalties, product recalls, closure of
facilities or operations, the loss or revocation of any existing
licenses, permits or approvals or the failure to obtain
additional licenses, permits or approvals in new jurisdictions
where we intend to do business, any of which could have a
material adverse effect on our business, financial condition or
results of operations.
In addition, as a distributor of specialty food products, we are
subject to increasing governmental scrutiny of and public
awareness regarding food safety and the sale, packaging and
marketing of natural and organic products. Compliance with these
laws may impose a significant burden upon our operations. If we
were to distribute foods that are or are perceived to be
contaminated, or otherwise not in compliance with applicable
laws, any resulting product recalls could have a material
adverse effect on our business, financial condition or results
of operations. In
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January 2011, President Obama signed into law the FDA Food
Safety Modernization Act, which greatly expands the FDA’s
authority over food safety, including giving the FDA power to
order the recall of unsafe foods, increase inspections at food
processing facilities, issue regulations regarding the sanitary
transportation of food, enhance tracking and tracing
requirements and order the detention of food that it has
“reason to believe” is adulterated or misbranded,
among other provisions. If funding for this legislation is
appropriated, we cannot assure you that it will not impact our
industry, including suppliers of the products we sell, many of
whom are small-scale producers who may be unable or unwilling to
bear the expected increases in costs of compliance and as a
result cease operations or seek to pass along these costs to us.
Additionally, concern over climate change, including the impact
of global warming, has led to significant U.S. and
international legislative and regulatory efforts to limit
greenhouse gas, or GHG, emissions. Increased regulation
regarding GHG emissions, especially diesel engine emissions,
could impose substantial costs upon us. These costs include an
increase in the cost of the fuel and other energy we purchase
and capital costs associated with updating or replacing our
vehicles prematurely.
Until the timing, scope and extent of such regulation becomes
known, we cannot predict its effect on our business, financial
condition or results of operations. It is reasonably possible,
however, that such regulation could impose material costs on us
which we may be unable to pass on to our customers.
We will incur
increased costs and obligations as a result of being a public
company.
As a public company, we will incur significant legal,
accounting, insurance and other expenses that we have not
incurred as a private company, including costs associated with
public company reporting requirements. We also will incur costs
associated with complying with the requirements of the
Sarbanes-Oxley Act of 2002 and related rules implemented by the
SEC and The NASDAQ Stock Market. The expenses incurred by public
companies generally for reporting and corporate governance
purposes have been increasing. We expect these rules and
regulations to increase our legal and financial compliance costs
and to make certain activities more time-consuming and costly,
although we are currently unable to estimate these costs with
any degree of certainty. These laws and regulations could also
make it more difficult or costly for us to obtain certain types
of insurance, including director and officer liability
insurance, and we may be forced to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the
same or similar coverage. These laws and regulations could also
make it more difficult for us to attract and retain qualified
persons to serve on our board of directors, our board committees
or as our executive officers. Furthermore, if we are unable to
satisfy our obligations as a public company, we could be subject
to delisting of our common stock, fines, sanctions and other
regulatory action and potentially civil litigation.
Compliance
with Section 404 of the Sarbanes-Oxley Act of 2002 will
require our management to devote substantial time to new
compliance initiatives, and if our independent registered public
accounting firm is unable to provide an unqualified attestation
report on our internal controls, our stock price could be
adversely affected.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002,
or Section 404, we will be required to furnish a report by
our management on, and by our independent registered public
accounting firm attesting to, the effectiveness of our internal
control over financial reporting. We have not been subject to
these requirements in the past. The internal control report must
contain (i) a statement of management’s responsibility
for establishing and maintaining adequate internal control over
financial reporting, (ii) a statement identifying the
framework used by management to conduct the required evaluation
of the effectiveness of our internal control over financial
reporting, (iii) management’s assessment of the
effectiveness of our internal control over financial reporting
as of the end of our most recent fiscal year, including a
statement as to whether or not internal control over financial
reporting is effective, and (iv) a statement that our
independent registered public accounting firm has issued an
attestation report on internal control over financial reporting.
To achieve compliance with Section 404 within the
prescribed period, we will be engaged in a process to document
and evaluate our internal control over financial reporting,
which is both costly and challenging. In this regard, we will
need to continue to dedicate internal resources, hire additional
employees for our finance and audit functions, engage outside
consultants and adopt a detailed work plan to (i) assess
and document the adequacy of internal control over financial
reporting, (ii) continue steps to improve control processes
where appropriate, (iii) validate through testing that
controls are functioning as documented, and (iv) implement
a continuous reporting and improvement process for internal
control over financial reporting. In addition, in connection
with the attestation process by our independent registered
public accounting firm, we may encounter problems or delays in
completing the implementation of any required improvements and
receiving a favorable attestation. If we cannot favorably
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assess the effectiveness of our internal control over financial
reporting, or if our independent registered public accounting
firm is unable to provide an unqualified attestation report on
our internal controls, investors could lose confidence in our
financial information and our stock price could decline.
Federal, state
and local tax rules may adversely impact our business, financial
condition or results of operations.
We are subject to federal, state and local taxes in the United
States. Although we believe that our tax estimates are
reasonable, if the Internal Revenue Service, or IRS, or any
other taxing authority disagrees with the positions we have
taken on our tax returns, we could face additional tax
liability, including interest and penalties. If material,
payment of such additional amounts upon final adjudication of
any disputes could have a material impact upon our business,
financial condition or results of operations. In addition,
complying with new tax rules, laws or regulations could impact
our business, financial condition or results of operations, and
increases to federal or state statutory tax rates and other
changes in tax laws, rules or regulations may increase our
effective tax rate. Any increase in our effective tax rate could
have a material impact on our business, financial condition or
results of operations.
Risks Relating to
this Offering
The price of
our common stock may be volatile and you could lose all or part
of your investment.
Volatility in the market price of our common stock may prevent
you from being able to sell your shares at or above the price
you paid for your shares in this offering. The market price of
our common stock could fluctuate significantly for various
reasons, which include, but are not limited to:
| • | our quarterly or annual earnings or those of other companies in the foodservice distribution industry; | |
| • | changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to our business; | |
| • | the public’s reaction to our press releases, our other public announcements and our filings with the SEC; | |
| • | changes in accounting standards, policies, guidance, interpretations or principles; | |
| • | additions or departures of our founders or other key employees; | |
| • | sales of common stock by our directors, founders or other key employees; | |
| • | adverse market reaction to any indebtedness that we may incur or securities that we may issue in the future; | |
| • | actions by our stockholders; | |
| • | the level and quality of research analyst coverage of our common stock, changes in financial estimates or investment recommendations by securities analysts following our business or any failure to meet such estimates; | |
| • | the financial disclosure we may provide to the public, any changes in such disclosure or our failure to meet such disclosure; | |
| • | various market factors or perceived market factors, including rumors, whether or not correct, involving us, our suppliers or our customers; | |
| • | introductions of new offerings or new pricing policies by us or by our competitors; | |
| • | acquisitions or strategic alliances by us or our competitors; | |
| • | short sales, hedging and other derivative transactions involving shares of our common stock; | |
| • | the operating and stock price performance of other companies in the foodservice distribution industry; and | |
| • | other events or factors, including changes in general conditions in the United States and global economies or financial markets (including those resulting from Acts of God, war, incidents of terrorism or responses to such events). |
In addition, in recent years, the stock market has experienced
extreme price and volume fluctuations. This volatility has had a
significant impact on the market price of securities issued by
many companies, including companies in the foodservice
distribution industry. The price of our common stock could
fluctuate based upon factors that have little or nothing to do
with our company, and these fluctuations could materially reduce
our stock price.
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Historically, following periods of significant market volatility
in the price of a company’s securities, security holders
have often instituted class action litigation. If the market
value of our common stock experiences adverse fluctuations and
we become involved in this type of litigation, regardless of the
outcome, we could incur substantial legal costs and our
management’s attention could be diverted from the operation
of our business, causing our business to suffer.
Upon the
completion of this offering, the concentration of our capital
stock ownership with our founders and other executive officers
will likely limit an investor’s ability to influence
corporate matters.
Upon completion of this offering and the reorganization
transactions, our founders and executive officers will own
approximately % of our outstanding common stock or
approximately % if the underwriters exercise their
over-allotment option in full. See “Certain Relationships
and Related-Party Transactions — Reorganization
Transaction.” As a result, these stockholders, acting
individually or together, can exercise significant influence
over our business policies and affairs, including the power to
nominate a majority of the members of our board of directors.
Because of such power and because our board of directors is
responsible for appointing the members of our senior management
team, our founders and key employees could affect any attempt by
our stockholders to replace current members of our management
team. In addition, our founders and key employees can control
any action requiring the general approval of our stockholders,
including the adoption of amendments to our certificate of
incorporation and bylaws and the approval of mergers or sales of
substantially all of our assets. It is possible that the
interests of certain of our founders and other key employees
may, in certain circumstances, conflict with our interests, the
interests of our other founders, key employees or minority
stockholders, including you. For example, the concentration of
ownership and voting power of our founders and key employees may
delay, defer or even prevent an acquisition by a third party or
other change of control involving us and may make some
transactions more difficult or impossible without their support,
even if such events are in the best interests of our minority
stockholders. As a result, our founders and key employees could
pursue transactions that may not be in our best interests which
could have a material adverse effect on our business, financial
condition or results of operations.
We expect that upon our conversion to a corporation, we will opt
out of Section 203 of the General Corporation Law of the
State of Delaware, or the DGCL, which prohibits a publicly-held
Delaware corporation from engaging in a business combination
transaction with an interested stockholder for a period of three
years after the interested stockholder became such unless the
transaction fits within an applicable exemption, such as
approval of the business combination by our board of directors
or the transaction which resulted in such stockholder becoming
an interested stockholder. Therefore, after the
180-day
lock-up
period expires, our founders and key employees will be able to
transfer control of us to a third party by transferring their
common stock, which would not require the approval of our board
of directors or our minority stockholders.
For additional information regarding the share ownership of, and
our relationship with, our founders and key employees, see
“Principal and Selling Stockholders” and “Certain
Relationships and Related-Party Transactions.”
There is no
existing market for our common stock, and we do not know if one
will develop to provide you with adequate
liquidity.
Prior to this offering, there has not been a public market for
our common stock. An active market for our common stock may not
develop following the completion of this offering or, if it does
develop, may not be maintained. If an active trading market does
not develop, you may have difficulty selling any shares of our
common stock that you buy. The initial public offering price for
the shares of our common stock was determined by negotiations
between us, the selling stockholders and the representatives of
the underwriters and may not be indicative of prices that will
prevail in the open market following the completion of this
offering. Consequently, you may not be able to sell shares of
our common stock at prices equal to or greater than the price
you paid in this offering.
Future sales
of our common stock, including shares purchased in this
offering, in the public market could lower our stock
price.
Sales of substantial amounts of our common stock in the public
market following this offering by our existing stockholders may
adversely affect the market price of our common stock. Such
sales could also create public perception of difficulties or
problems with our business. These sales might also make it more
difficult for us to sell securities in the future at a time and
price we deem appropriate.
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Upon the completion of this offering and after giving effect to
the consummation of the reorganization transaction, we will have
outstanding shares of common stock, of which:
| • | shares will be shares that we and the selling stockholders are selling in this offering and, unless purchased by affiliates, may be resold in the public market without restriction immediately after this offering; and | |
| • | shares will be “restricted securities,” as defined in Rule 144 under the Securities Act, and eligible for sale in the public market pursuant to the provisions of Rule 144, all of which are subject to lock-up agreements and will become available for resale in the public market beginning 180 days after the date of this prospectus. |
With limited exceptions, as described under the caption
“Underwriting,” these
lock-up
agreements prohibit a stockholder from selling, contracting to
sell or otherwise disposing of any common stock or securities
that are convertible or exchangeable for common stock or
entering into any arrangement that transfers the economic
consequences of ownership of our common stock for at least
180 days from the date of this prospectus, although the
lead underwriter may, in its sole discretion and at any time
without notice, release all or any portion of the securities
subject to these
lock-up
agreements. The lead underwriter has advised us that it has no
present intent or arrangement to release any shares subject to a
lock-up and
will consider the release of any
lock-up on a
case-by-case
basis. Upon a request to release any shares subject to a
lock-up, the
lead underwriter would consider the particular circumstances
surrounding the request including, but not limited to, the
length of time before the
lock-up
expires, the number of shares requested to be released, reasons
for the request, the possible impact on the market for our
common stock and whether the holder of our shares requesting the
release is an officer, director or other affiliate of ours. As a
result of these
lock-up
agreements, notwithstanding earlier eligibility for sale under
the provisions of Rule 144, none of these shares may be
sold until at least 180 days after the date of this
prospectus. As restrictions on resale end, our stock price could
drop significantly if the holders of these restricted shares
sell them or are perceived by the market as intending to sell
them. These sales might also make it more difficult for us to
sell securities in the future at a time and at a price that we
deem appropriate.
If you
purchase shares of common stock in this offering, you will
experience immediate and significant dilution in the net
tangible book value per share.
The initial public offering price per share is substantially
higher than the pro forma net tangible book value per share
immediately after this offering. As a result, you will pay a
price per share that substantially exceeds the book value of our
assets after subtracting our liabilities. Assuming an offering
price of $ per share, which is the midpoint of the
price range indicated on the cover page of this prospectus, you
will incur immediate and substantial dilution in the amount of
$ per share. See “Dilution.” Any future
equity issuances, including in connection with our establishing
broad-based equity incentive plans for our employees, will
result in even further dilution to holders of our common stock.
If securities
analysts or industry analysts downgrade our stock, publish
negative research or reports or do not publish reports about our
business, our stock price and trading volume could
decline.
The trading market for our common stock will be influenced by
the research and reports that industry or securities analysts
publish about us, our business and our industry. If one or more
analysts adversely change their recommendation regarding our
stock or our competitors’ stock, our stock price may likely
decline. If one or more analysts cease coverage of us or fail to
regularly publish reports on us, we could lose visibility in the
financial markets, which in turn could cause our stock price or
trading volume to decline.
Since we do
not expect to pay any dividends for the foreseeable future,
investors in this offering may be forced to sell their stock in
order to realize a return on their investment.
We have not declared or paid any dividends on our common stock.
We do not anticipate that we will pay any dividends to holders
of our common stock for the foreseeable future. Any payment of
cash dividends will be at the discretion of our board of
directors and will depend upon our financial condition, capital
requirements, legal requirements and earnings, among other
factors. We anticipate that our ability to pay dividends will be
restricted by the terms of our new senior secured credit
facilities and might be restricted by the terms of any
additional indebtedness we incur in the future. Consequently,
you should not rely upon dividends in order to receive a return
on your investment. See “Dividend Policy.”
Our issuance
of preferred stock could adversely affect holders of our common
stock and discourage a takeover.
Following the consummation of this offering and the
reorganization transaction, our board of directors will be
authorized to issue up to shares of
preferred stock without any action on the part of our
stockholders. Our board of directors also has the power, without
stockholder approval, to set the terms of any series of
preferred stock that
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may be issued, including voting rights, dividend rights,
preferences over our common stock with respect to dividends or
in the event of a dissolution, liquidation or winding up and
other terms. In the event that we issue preferred stock in the
future that has preference over our common stock with respect to
payment of dividends or upon our liquidation, dissolution or
winding up, or if we issue preferred stock with voting rights
that dilute the voting power of our common stock, the rights of
the holders of our common stock or the market price of our
common stock could be adversely affected. In addition, the
ability of our board of directors to issue shares of preferred
stock without any action on the part of our stockholder may
impede a takeover of us and prevent a transaction favorable to
our stockholders.
Our ability to
raise capital in the future may be limited.
Our business and operations may consume resources faster than we
currently anticipate. In the future, we may need to raise
additional funds through the issuance of new equity securities,
debt or a combination of both. Additional financing may not be
available on favorable terms or at all. If adequate funds are
not available on acceptable terms, we may be unable to fund our
capital requirements. If we issue new debt securities, the debt
holders would have rights senior to our common stockholders to
make claims on our assets, and the terms of any debt could
restrict our operations, including our ability to pay dividends
on our common stock. If we issue additional equity securities,
existing stockholders will experience dilution, and the new
equity securities could have rights senior to those of our
common stock. Because our decision to issue securities in any
future offering will depend upon market conditions and other
factors beyond our control, we cannot predict or estimate the
amount, timing or nature of our future offerings. Thus, our
stockholders bear the risk of our future securities offerings
reducing the market price of our common stock and diluting their
interest.
Some
provisions of our charter documents and Delaware law may have
anti-takeover effects that could discourage an acquisition of us
by others, even if an acquisition would be beneficial to our
stockholders, and may prevent attempts by our stockholders to
replace or remove our current management.
Provisions in the certificate of incorporation and bylaws that
will become effective following the completion of our
reorganization transaction, as well as provisions of the
Delaware General Corporation Law, or DGCL, could make it more
difficult for a third party to acquire us or increase the cost
of acquiring us, even if doing so would benefit our
stockholders, including transactions in which stockholders might
otherwise receive a premium for their shares. These provisions
include:
| • | authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; | |
| • | prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; | |
| • | eliminating the ability of stockholders to call a special meeting of stockholders; and | |
| • | establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings. |
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CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements.
Forward-looking statements provide our current expectations or
forecasts of future events and are not statements of historical
fact. These forward-looking statements include information about
possible or assumed future events, including, among other
things, discussion and analysis of our future financial
condition, results of operations, our strategic plans and
objectives, cost management, liquidity and ability to refinance
our indebtedness as it matures, anticipated capital expenditures
(and access to capital) required to complete projects, amounts
of cash distributions to our stockholders in the future, if any,
and other matters. Words such as “anticipates,”
“expects,” “intends,” “plans,”
“believes,” “seeks,” “estimates”
and variations of these words and similar expressions are
intended to identify forward-looking statements. These
statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors, some of which
are beyond our control, are difficult to predict
and/or could
cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements.
Forward-looking statements involve inherent uncertainty and may
ultimately prove to be incorrect or false. You are cautioned not
to place undue reliance on forward-looking statements. Except as
otherwise may be required by law, we undertake no obligation to
update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or actual
operating results. Our actual results could differ materially
from those anticipated in these forward-looking statements as a
result of various factors, including, but not limited to:
| • | our sensitivity to general economic conditions, including the current economic environment, changes in disposable income levels and consumer discretionary spending on food-away-from-home purchases; | |
| • | our vulnerability to economic and other developments in the geographic markets in which we operate; | |
| • | risks of supply chain interruptions due to lack of long-term contracts, severe weather or more prolonged climate change, work stoppages or otherwise; | |
| • | changes in the availability or cost of our specialty food products; | |
| • | our ability to effectively price our specialty food products and reduce our expenses; | |
| • | the relatively low margins of the foodservice distribution industry and our sensitivity to inflationary pressures; | |
| • | the ability of group purchasing organizations to attract our independent restaurant customers and the resulting negative effect on our profit margins; | |
| • | damage to our reputation or lack of acceptance of our brands; | |
| • | changes in attitudes or negative publicity regarding food safety and health concerns; | |
| • | our ability to successfully identify, obtain financing for and complete acquisitions of other foodservice distributors and to realize expected synergies from those acquisitions; | |
| • | labor shortages or increased labor costs; | |
| • | changes in attitudes or negative publicity regarding food safety and health concerns; | |
| • | sales and expense trends; | |
| • | our expectation regarding the provision for losses on accounts receivable; | |
| • | increased fuel costs and expectations regarding the use of fuel surcharges; | |
| • | the loss of key members of our management team and our ability to replace such personnel; | |
| • | strain on our infrastructure and resources caused by our growth; | |
| • | the concentration of ownership among our existing executives, directors and principal stockholders, which may prevent new investors from influencing significant corporate decisions; | |
| • | the impact of litigation; | |
| • | our inability to obtain and/or maintain adequate levels of insurance coverage; | |
| • | the impact of our substantial indebtedness; | |
| • | our ability to raise capital in the future; |
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| • | future asset impairment charges; | |
| • | inadequate protection of our intellectual property; | |
| • | our ability to raise capital in the future; | |
| • | the failure or breach of our information technology systems; | |
| • | increased costs and obligations as a result of our being a public company; | |
| • | the impact of federal, state and local tax rules; and | |
| • | other factors included under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Our Business.” |
This list of risks and uncertainties, however, is only a summary
of some of the most important factors and is not intended to be
exhaustive. You should carefully review the risks that are set
forth under the caption “Risk Factors” included
elsewhere in this prospectus. New factors that are not currently
known to us or that we are currently unaware of may also emerge
from time to time that could materially and adversely affect us.
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USE OF
PROCEEDS
We estimate that the net proceeds to us from this offering will
be approximately $ million,
assuming an initial public offering price of
$ per share, which is the midpoint
of the range set forth on the cover page of this prospectus, and
after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by us, or
$ million if the underwriters
exercise in full their option to purchase additional shares of
common stock from us to cover over-allotments. Each $1 increase
or decrease in the assumed initial public offering price of
$ per share would increase or
decrease, as applicable, the net proceeds to us by approximately
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
The selling stockholders will receive
$ million in proceeds from
their sale
of shares
of common stock in this offering, or approximately
$ million if the underwriters
exercise in full their option to purchase additional shares of
common stock from the selling stockholders to cover
over-allotments. We will not receive any proceeds from the sale
of shares by the selling stockholders. See “Principal and
Selling Stockholders” and “Underwriting.”
Our existing senior secured credit facilities, which we entered
into in 2010, provide for (i) a $75.0 million term
loan facility and (ii) a revolving credit facility under
which we may borrow up to $25.0 million. We used a portion
of the borrowings under these facilities, together with all of
the borrowings under our senior subordinated notes due 2014, to
redeem, in October 2010, all of our outstanding Class A
units and for general corporate purposes. In connection with the
redemption of our Class A units, we paid our Class A unitholders
approximately $45.8 million, plus a dividend of
approximately $22.4 million. In connection with this
offering, we intend to enter into our new senior secured credit
facilities, consisting of a $30.0 million new term loan
facility and $50.0 million revolving credit facility. See
“Description of Our Indebtedness.” We intend to use
the net proceeds of this offering, together with borrowings
under our new senior secured credit facilities, as follows:
| • | To redeem or repurchase all of our outstanding senior subordinated notes due 2014 and any accrued but unpaid interest thereon and other related fees, including the call premium of approximately $0.8 million associated with such redemption or repurchase. Interest on our senior subordinated notes accrues at a rate of 20% semi-annually in arrears. As of March 25, 2011, approximately $16.3 million in aggregate principal amount of our senior subordinated notes were outstanding. Since October 2010, we have elected to capitalize accrued but unpaid interest on our senior subordinated notes. As of March 25, 2011, we had $1.3 million of capitalized and unpaid interest. |
| • | To repay all of our loans outstanding under our existing senior secured credit facilities and any accrued but unpaid interest thereon and other related fees. As of March 25, 2011, our existing senior secured term loan facility had an outstanding balance of approximately $72.5 million and matures on April 23, 2014. The weighted-average interest rate of our outstanding indebtedness under our existing senior secured term loan facility was 11% for both the year ended December 24, 2010 and the three months ended March 25, 2011. An affiliate of Jefferies & Company, Inc. is a lender under our existing term loan facility and one of the holders of our senior subordinated notes and will receive more than 5% of the proceeds from this offering (after taking into account underwriters’ discounts and commissions and offering expenses payable by us). See “Underwriting — Affiliations and Conflicts of Interest.” As of March 25, 2011, our existing senior secured revolving credit facility had an outstanding balance of approximately $9.7 million and matures on October 22, 2013. The weighted-average interest rate of our outstanding indebtedness under our existing senior secured revolving credit facility was approximately 3.4% for the year ended December 24, 2010 and 3.8% for the three months ended March 25, 2011. |
Any remaining net proceeds will be used for general corporate
purposes.
For a more detailed description of our new senior secured credit
facilities, see the information under the caption
“Description of Our Indebtedness — New Senior
Secured Credit Facilities.”
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DIVIDEND
POLICY
We currently do not intend to pay any dividends on our common
stock. We currently intend to retain any future earnings to fund
the operation, development and expansion of our business. Any
future determinations relating to our dividend policies will be
made in the sole and absolute discretion of our board of
directors and will depend upon then existing conditions,
including our financial condition, results of operations,
contractual restrictions, capital requirements, business
prospects and other factors that our board of directors may deem
relevant. In addition, we anticipate that our ability to declare
and pay dividends will be restricted by covenants in our new
senior secured credit facilities and may be further restricted
by the terms of any of our future indebtedness. See
“Description of Our Indebtedness — New Senior
Secured Credit Facilities” and “Risk
Factors – Our substantial indebtedness may limit our
ability to invest in the ongoing needs of our business.”
29
Table of Contents
CAPITALIZATION
The following table sets forth our capitalization as of March
25, 2011:
| • | on an actual basis; and |
| • | on an as adjusted basis to give effect to (i) the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated fees and expenses payable by us, (ii) the reorganization transactions, as described under the caption “Certain Relationships and Related-Party Transactions – Reorganization Transaction,” (iii) the new senior secured credit facilities, and (iv) the application of the net proceeds of this offering and borrowings under our new senior secured credit facilities as described under the caption “Use of Proceeds.” |
You should read this information in conjunction with the
information under the captions “Certain Relationships and
Related-Party Transactions – Reorganization
Transaction,” “Use of Proceeds,” “Selected
Consolidated Financial Data,” “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” “Description of Our Indebtedness”
and our consolidated financial statements and the related notes
thereto included elsewhere in this prospectus.
| AS OF MARCH 25, 2011 | ||||||||
| (In thousands) | ACTUAL | AS ADJUSTED | ||||||
|
Cash and cash equivalents
|
$ | 856 | $ | |||||
|
Debt:
|
||||||||
|
Existing senior secured revolving credit
facility (1)
|
9,701 | |||||||
|
Existing senior secured term loan
facility (2)
|
70,555 | (3) | ||||||
|
Senior subordinated notes due
2014 (4)
|
16,250 | |||||||
|
Note payable
|
82 | |||||||
|
New senior secured revolving credit
facility (5)
|
— | |||||||
|
New senior secured term loan
facility (5)
|
— | |||||||
|
Total debt
|
$ | 96,588 | ||||||
|
Total members’/stockholders’
(deficit)/equity (6)
|
(47,792 | ) | (7) | |||||
|
Total
capitalization (6)
|
$ | 48,796 | $ | |||||
| (1) | Our existing senior secured revolving credit facility provides for borrowings of up to $25.0 million, of which $15.3 million was available as of March 25, 2011 for working capital and general corporate purposes. At , 2011, we had borrowed $ under this revolving credit facility. |
| (2) | We had $72.5 million in term loans outstanding under our existing senior secured term loan facility as of March 25, 2011. Between October 22, 2010 and March 25, 2011, we repaid approximately $2.5 million of the outstanding balance of our existing senior secured term loan facility. |
| (3) | Net of original issue discount of $1.9 million. |
| (4) | Reflects our balance sheet liability related to our senior subordinated notes due 2014 calculated in accordance with GAAP. Interest on our senior subordinated notes accrues at a rate of 20% semi-annually in arrears. Since October 2010, we have elected to capitalize accrued but unpaid interest on the senior subordinated notes as permitted under the related note purchase agreement. As of March 25, 2011, total unpaid interest included in the balance of the senior subordinated notes since the issuance of the senior subordinated notes amounted to $1.3 million. |
| (5) | We expect that our new senior credit facilities will provide for (i) a $30.0 million senior secured term loan facility, maturing in July 2015, and (ii) a senior secured revolving credit facility under which we may initially borrow up to $50.0 million, maturing in July 2015. |
| (6) | A $1 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, total stockholders’ equity and total capitalization by $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
| (7) | Adjusted to reflect the write off of $ in deferred financing costs for the indebtedness being repaid in connection with this offering. |
30
Table of Contents
DILUTION
Purchasers of shares of common stock in this offering will
experience immediate and substantial dilution in the net
tangible book value of the common stock from the initial public
offering price. Net tangible book value per share represents the
amount of our total tangible assets less our total liabilities,
divided by the number of shares of our common stock outstanding.
Dilution in net tangible book value per share represents the
difference between the amount per share that you pay in this
offering and the net tangible book value per share immediately
after this offering. Our net tangible book value (deficit) as of
March 25, 2011 was approximately
$ million, or $
per share.
After giving effect to (i) the sale
of shares
of our common stock in this offering at an assumed initial
public offering price of $ per
share, which is the midpoint of the range set forth on the cover
page of this prospectus, (ii) the reorganization
transactions, as described under the caption “Certain
Relationships and Related-Party Transactions –
Reorganization Transaction,” and (iii) the deduction
of estimated underwriting discounts and commissions and
estimated fees and expenses payable by us, our pro forma net
tangible book value at March 25, 2011 would have been
approximately $ million, or
$ per share. This represents an
immediate increase in net tangible book value of
$ per share to existing
stockholders and an immediate and substantial dilution of
$ per share to new investors. This
calculation does not give effect to our use of proceeds from
this offering or any borrowings under our new senior secured
revolving credit facility or term loan facility. The following
table illustrates this per share dilution:
| PER SHARE | ||||
|
Initial public offering price per share
|
$ | |||
|
Actual net tangible book value per share as of March 25,
2011
|
$ | |||
|
Increase per share attributable to new investors
|
$ | |||
|
Pro forma net tangible book value per share after this offering
|
$ | |||
|
Dilution per share to new investors
|
$ | |||
Sales
of shares
of common stock by the selling stockholders in this offering
will reduce the number of shares of common stock held by
existing stockholders
to ,
or approximately % of the total
shares of common stock outstanding after this offering, and will
increase the number of shares held by new investors
to ,
or approximately % of the total
shares of common stock outstanding after this offering.
If the underwriters exercise in full their over-allotment option
to purchase additional shares of our common stock in this
offering from the selling stockholders at the assumed initial
public offering price of $ per
share, which is the midpoint of the range set forth on the cover
page of this prospectus, the number of shares of common stock
held by existing stockholders will be reduced
to ,
or % of the aggregate number of
shares of common stock outstanding after this offering, the
number of shares of common stock held by new investors will be
increased
to ,
or % of the aggregate number of shares of common
stock outstanding after this offering, the increase per share
attributable to new investors would be $ , the pro
forma net tangible book value per share after this offering
would be $ , and the dilution per share to new investors would
be $ .
A $1 increase (decrease) in the assumed initial public offering
price of $ per share, which is the
midpoint of the range set forth on the cover page of this
prospectus, would increase (decrease) our pro forma net tangible
book value by $ million, the
pro forma net tangible book value per share after this offering
by $ per share, and the dilution
per share to new investors by $
per share, assuming the number of shares offered by us, as set
forth on the cover page of this prospectus, remains the same and
after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us.
The following table summarizes, on the pro forma basis described
above as of March 25, 2011, after giving effect to the
reorganization transactions, the total number of shares of
common stock purchased from us and the selling stockholders and
the total consideration and the average price per share paid by
existing stockholders and by investors participating in this
offering. The calculation below is based on the assumed initial
public offering price of
31
Table of Contents
$ per share, which is the midpoint
of the range set forth on the cover page of this prospectus,
before deducting estimated underwriting discounts and
commissions and estimated fees and expenses payable by us.
| SHARES PURCHASED | TOTAL CONSIDERATION |
AVERAGE PRICE |
||||||||||||||||||
| NUMBER | PERCENTAGE | AMOUNT | PERCENTAGE | PER SHARE | ||||||||||||||||
|
Existing stockholders
|
% | % | ||||||||||||||||||
|
New investors
|
% | % | ||||||||||||||||||
|
Total
|
100 | % | 100 | % | ||||||||||||||||
Each $1 increase (decrease) in the assumed offering price of
$ per share, which is the midpoint
of the range set forth on the cover page of this prospectus,
would increase (decrease) total consideration paid by new
investors and total consideration paid by all stockholders by
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same, and before deducting the
underwriting discounts and commissions and estimated offering
expenses payable by us.
The pro forma dilution information above is for illustration
purposes only. Our net tangible book value following the
completion of this offering is subject to adjustment based on
the actual initial public offering price of our shares and other
terms of this offering determined at pricing. The number of
shares of our common stock outstanding after this offering as
shown above is based on the number of shares outstanding as of
March 25, 2011.
32
Table of Contents
SELECTED
CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial
data in conjunction with our consolidated financial statements
and the related notes to those statements included elsewhere in
this prospectus. You should also read “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.” The statement of operations data for the
fiscal years ended December 24, 2010, December 25,
2009 and December 26, 2008 and the balance sheet data as of
December 24, 2010 and December 25, 2009 are derived
from our consolidated financial statements audited by BDO USA
LLP, an independent registered public accounting firm, included
elsewhere in this prospectus. The statement of operations data
for the years ended December 28, 2007 and December 29,
2006 and the balance sheet data as of December 26, 2008,
December 28, 2007 and December 29, 2006 are derived
from our audited consolidated financial statements not included
elsewhere in this prospectus. We have derived the statement of
operations data for the three months ended March 25, 2011
and March 26, 2010 and balance sheet data as of
March 25, 2011 from our unaudited interim consolidated
financial statements appearing elsewhere in this prospectus. We
have derived the balance sheet data as of March 26, 2010
from our unaudited interim consolidated financial statements not
included elsewhere in this prospectus. In the opinion of
management, the unaudited interim consolidated financial
statements reflect all adjustments, consisting of normal and
recurring adjustments, necessary for the fair presentation of
the Company’s financial position at March 25, 2011 and
March 26, 2010 and results of its operations and its cash
flows for the three months ended March 25, 2011 and
March 26, 2010. The financial condition and results of
operations as of and for the three months ended March 25,
2011 do not purport to be indicative of the financial condition
or results of operations to be expected as of or for the fiscal
year ending December 30, 2011.
The selected consolidated financial data presented below
represent only portions of our financial statements and,
accordingly, are not complete. You should read this information
in conjunction with the information included under the captions
“Use of Proceeds,” “Capitalization,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our consolidated
financial statements, and the related notes thereto, which are
included elsewhere in this prospectus.
Prior to the effectiveness of this registration statement, we
will convert our company from a Delaware limited liability
company (Chefs’ Warehouse Holdings, LLC) to a Delaware
corporation (The Chefs’ Warehouse, Inc.). See “Certain
Relationships and Related-Party Transactions —
Reorganization Transaction.” The historical consolidated
financial operating data relate to Chefs’ Warehouse
Holdings, LLC and its consolidated subsidiaries.
| FISCAL YEAR ENDED | THREE MONTHS ENDED | |||||||||||||||||||||||||||
|
DECEMBER 24, |
DECEMBER 25, |
DECEMBER 26, |
DECEMBER 28, |
DECEMBER 29, |
MARCH 25, |
MARCH 26, |
||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | 2011 | 2010 | ||||||||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||||||||||
|
Statement of Operations Data:
|
||||||||||||||||||||||||||||
|
Net revenues
|
$ | 330,118 | $ | 271,072 | $ | 281,703 | $ | 256,134 | $ | 229,803 | $ | 83,183 | $ | 70,000 | ||||||||||||||
|
Cost of sales
|
244,340 | 199,764 | 211,387 | 190,787 | 170,624 | 61,148 | 52,017 | |||||||||||||||||||||
|
Gross profit
|
85,778 | 71,308 | 70,316 | 65,347 | 59,179 | 22,035 | 17,983 | |||||||||||||||||||||
|
Operating expenses
|
64,206 | 57,977 | 60,314 | 59,389 | 55,181 | 16,976 | 14,953 | |||||||||||||||||||||
|
Operating profit
|
21,572 | 13,331 | 10,002 | 5,958 | 3,998 | 5,059 | 3,030 | |||||||||||||||||||||
|
Interest expense
|
4,041 | 2,815 | 3,238 | 3,515 | 3,425 | 3,450 | 627 | |||||||||||||||||||||
|
(Gain)/loss on fluctuation of interest rate swap
|
(910 | ) | (658 | ) | 1,118 | 621 | — | (81 | ) | (183 | ) | |||||||||||||||||
|
(Gain) on settlement
|
— | — | — | (1,100 | )(1) | — | — | — | ||||||||||||||||||||
|
Other
|
— | — | — | — | — | 3 | — | |||||||||||||||||||||
|
Income from operations before income taxes
|
18,441 | 11,174 | 5,646 | 2,922 | 573 | 1,687 | 2,586 | |||||||||||||||||||||
|
Provision for income taxes
|
2,567 | 2,213 | 3,450 | 786 | 898 | 667 | 1,050 | |||||||||||||||||||||
|
Income (loss) from continuing operations
|
15,874 | 8,961 | 2,196 | 2,136 | (325 | ) | 1,020 | 1,536 | ||||||||||||||||||||
|
Discontinued operations, net of taxes
|
— | — | — | — | (355 | ) | — | — | ||||||||||||||||||||
|
Net income (loss)
|
$ | 15,874 | $ | 8,961 | $ | 2,196 | $ | 2,136 | $ | (680 | ) | $ | 1,020 | $ | 1,536 | |||||||||||||
|
Deemed dividend accretion on Class A members’ units
|
(4,123 | ) | (6,207 | ) | (3,000 | ) | (2,995 | ) | (2,992 | ) | — | (1,180 | ) | |||||||||||||||
|
Deemed dividend paid to Class A members’ units
|
(22,429 | ) | — | — | — | — | — | — | ||||||||||||||||||||
|
Net income (loss) attributable to members’ units
|
$ | (10,678 | ) | $ | 2,754 | $ | (804 | ) | $ | (859 | ) | $ | (3,672 | ) | $ | 1,020 | $ | 356 | ||||||||||
33
Table of Contents
| FISCAL YEAR ENDED | THREE MONTHS ENDED | |||||||||||||||||||||||||||
|
DECEMBER 24, |
DECEMBER 25, |
DECEMBER 26, |
DECEMBER 28, |
DECEMBER 29, |
MARCH 25, |
MARCH 26, |
||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | 2011 | 2010 | ||||||||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||||||||||
|
Basic net (loss) income per members’ unit
|
$ | (0.15 | ) | $ | 0.04 | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | 0.02 | $ | 0.00 | ||||||||||
|
Diluted net (loss) income per members’ unit
|
$ | (0.15 | ) | $ | 0.03 | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | 0.02 | $ | 0.00 | ||||||||||
|
Weighted average members’ units outstanding:
|
||||||||||||||||||||||||||||
|
Basic
|
72,494 | 77,827 | 76,663 | 75,436 | 75,000 | 52,526 | 76,573 | |||||||||||||||||||||
|
Diluted
|
72,494 | 81,851 | 76,663 | 75,436 | 75,000 | 54,375 | 79,515 | |||||||||||||||||||||
|
As Adjusted
Data: (2)
|
||||||||||||||||||||||||||||
|
Provision for income taxes
|
$ | |||||||||||||||||||||||||||
|
Net income available to common stockholders
|
$ | |||||||||||||||||||||||||||
|
Basic net income per share available to common stockholders
|
$ | |||||||||||||||||||||||||||
|
Diluted net income per share available to common stockholders
|
$ | |||||||||||||||||||||||||||
|
Weighted average common shares outstanding:
|
||||||||||||||||||||||||||||
|
Basic
|
||||||||||||||||||||||||||||
|
Diluted
|
||||||||||||||||||||||||||||
|
Balance Sheet Data (at end of period):
|
||||||||||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 1,978 | $ | 875 | $ | 1,591 | $ | 2,232 | $ | 1,490 | $ | 856 | $ | 1,330 | ||||||||||||||
|
Working capital
|
$ | 12,206 | (3) | $ | 22,479 | $ | 22,101 | $ | 18,806 | $ | 20,044 | $ | 12,866 | (3) | $ | 22,598 | ||||||||||||
|
Total assets
|
$ | 82,672 | $ | 65,937 | $ | 64,502 | $ | 62,917 | $ | 58,141 | $ | 81,297 | $ | 65,389 | ||||||||||||||
|
Long-term debt, net of current portion
|
$ | 82,580 | $ | 29,928 | $ | 37,323 | $ | 33,082 | $ | 37,299 | $ | 81,999 | $ | 29,063 | ||||||||||||||
|
Total liabilities
|
$ | 131,484 | $ | 60,603 | $ | 67,720 | $ | 68,331 | $ | 65,691 | $ | 129,089 | $ | 58,681 | ||||||||||||||
|
Redeemable Class A members’ units
|
$ | — | $ | 41,698 | $ | 35,491 | $ | 32,491 | $ | 29,496 | — | $ | 42,878 | |||||||||||||||
|
Total members’ equity (deficit)
|
$ | (48,812 | ) | $ | (36,364 | ) | $ | (38,709 | ) | $ | (37,905 | ) | $ | (37,046 | ) | $ | (47,792 | ) | $ | (36,170 | ) | |||||||
| (1) | The gain on settlement is the result of the Company settling a dispute with the former owner of a company that the Company had previously acquired. The settlement reduced the acquisition purchase price and corresponding note payable to that company. Since the goodwill associated with this acquisition had been written off at the time of the settlement, the settlement was recorded as a non-operating item within the Company’s statement of operations. |
(2)Gives
effect to the reorganization transaction and the resulting
conversion of Chefs’ Warehouse Holdings, LLC into a
subchapter C corporation expected to occur prior to the
effectiveness of this registration statement. As adjusted
provision for income taxes reflects combined federal and state
income tax on an as adjusted basis, as if we had been taxed as a
subchapter C corporation, using an effective tax rate
of %. As adjusted basic weighted
average shares outstanding consist of
the shares
of common stock that will be outstanding following the
consummation of the reorganization transaction. As adjusted
diluted weighted average shares outstanding consist of
the shares
of common stock that will be outstanding following the
consummation of the reorganization transaction, plus the
potential dilution that would occur if
all shares
of restricted stock received in exchange for unvested
Class C units became fully vested.
| (3) | Working capital is defined as the difference between current assets and current liabilities. At December 24, 2010 and March 25, 2011, the then-outstanding balance under our senior secured revolving credit facility of $12.2 million and $9.7 million, respectively, was included within the current portion of long-term debt. |
34
Table of Contents
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in
conjunction with our consolidated financial statements, and the
notes thereto, appearing elsewhere in this prospectus.
Our
Reorganization
Prior to the effectiveness of this registration statement, we
will convert from a Delaware limited liability company
(Chefs’ Warehouse Holdings, LLC) to a Delaware
corporation (The Chefs’ Warehouse, Inc.). The consolidated
financial statements included elsewhere in this prospectus,
which are the subject of the following discussion, are those of
Chefs’ Warehouse Holdings, LLC and its consolidated
subsidiaries. We expect that our conversion to the corporate
form of organization will not have any material effect on our
consolidated financial statements. When we use the terms
“we,” “our,” “us” and the
“Company” in the following discussion, we mean, prior
to the conversion and related transactions described under
“Certain Relationships and Related-Party
Transactions — Reorganization Transaction,”
Chefs’ Warehouse Holdings, LLC, a Delaware limited
liability company, and its consolidated subsidiaries and, after
the conversion and related transactions, The Chefs’
Warehouse, Inc., a Delaware corporation, and its consolidated
subsidiaries. For a discussion of the principal transactions in
the reorganization, see “Certain Relationships and
Related-Party Transactions — Reorganization
Transaction.”
Overview
We are a premier distributor of specialty foods in six of the
leading culinary markets in the United States. We offer more
than 11,500 SKUs, ranging from high-quality specialty foods
and ingredients to basic ingredients and staples. We serve more
than 7,000 customer locations, primarily located in our six
geographic markets across the United States, and the majority of
our customers are independent restaurants and fine dining
establishments.
We believe several key differentiating factors of our business
model have enabled us to execute our strategy consistently and
profitably across our expanding customer base. These factors
consist of a portfolio of distinctive and
hard-to-find
specialty food products, a highly trained and motivated sales
force, strong sourcing capabilities, a fully integrated
warehouse management system, a highly sophisticated distribution
and logistics platform and a focused, seasoned management team.
In recent years, our sales to existing and new customers have
increased through the continued growth in demand for specialty
food products in general; increased market share driven by our
sophisticated and experienced sales professionals, our
high-quality customer service and our extensive breadth and
depth of product offerings, especially in specialty products;
the acquisition of other specialty food distributors; the
expansion of our existing distribution centers; the construction
of a new distribution center; and the import and sale of our
proprietary brands. Through these efforts, we believe that we
have been able to expand our customer base, enhance and
diversify our product selections, broaden our geographic
penetration and increase our market share. We believe that as a
result of these efforts, we have increased sales from
$229.8 million in 2006 to $330.1 million in 2010.
Recent and
Pending Acquisitions
On May 31, 2011, we entered into an agreement to purchase
certain of the assets of Harry Wils & Co., a specialty
foodservice distribution company headquartered in the New York
City metropolitan area. We are purchasing the inventory of Harry
Wils & Co. and certain intangible assets including
Harry Wils & Co.’s customer list and certain
intellectual property. We are assuming no liabilities in
connection with the transaction and intend to relocate the
inventory we are purchasing to our Bronx, New York distribution
facility shortly following the closing of the transaction,
which, subject to the satisfaction of certain customary closing
conditions, we expect to occur by mid-July 2011. We intend to
finance the purchase price for these assets we are acquiring
through borrowings under our existing senior secured credit
facilities.
On June 18, 2010, we acquired the assets of
Monique & Me, Inc., doing business as Culinaire
Specialty Foods, for cash consideration of $3.7 million,
which provided us with an immediate platform for growth in the
south Florida market.
On August 28, 2009, we acquired the San Francisco
division of European Imports for total cash consideration of
$3.8 million, subject to certain adjustments set forth in
the acquisition agreement. The acquisition was integrated into
our existing San Francisco operation.
35
Table of Contents
In May 2008, we completed the acquisition of American Gourmet
Foods for cash consideration of $5.1 million. This
acquisition was integrated into our Hanover, Maryland operation.
Our Growth
Strategies and Outlook
We continue to invest in our people, facilities and technology
to achieve the following objectives and maintain our premier
position within the specialty foodservice distribution market:
| • | sales and service territory expansion; | |
| • | operational excellence and high customer service levels; | |
| • | expanded purchasing programs and improved buying power; | |
| • | product innovation and new product category introduction; | |
| • | operational efficiencies through system enhancements; and | |
| • | operating expense reduction through the centralization of general and administrative functions. |
Our continued profitable growth has allowed us to improve upon
our organization’s infrastructure, open a new facility and
pursue selective acquisitions. This improved infrastructure has
allowed us to achieve higher operating margins. Over the last
several years, we have increased our distribution capacity to
approximately 371,640 square feet in seven facilities.
Key Factors
Affecting Our Performance
Due to our focus on menu-driven independent restaurants, fine
dining establishments, country clubs, hotels, caterers and
specialty food stores, our results of operations are materially
impacted by the success of the “food-away-from-home”
industry in the United States, which is materially impacted by
general economic conditions, discretionary spending levels and
consumer confidence. When economic conditions deteriorate, as
they did throughout the second half of 2007, all of 2008 and the
first half of 2009, our customers’ businesses are
negatively impacted as fewer people eat away-from-home and those
that do spend less money. As economic conditions began to
improve in the second half of 2009 and into 2010, our
customers’ businesses began to improve, which likewise
contributed to improvements in our business.
Food price costs also significantly impact our results of
operations. Food price inflation, like that which we have
experienced in the first quarter of 2011, may increase the
dollar value of our sales because many of our products are sold
at our cost plus a percentage markup. When the rate of inflation
declines, however, the dollar value of our sales may fall
despite our unit sales remaining constant or growing. For those
of our products that we price on a fixed
fee-per-case
basis, our gross profit margins may be negatively affected in an
inflationary environment, even though our gross revenues may be
positively impacted. While we cannot predict whether inflation
will continue at current levels, prolonged periods of inflation
leading to cost increases above levels that we are able to pass
along to our customers, either overall or in certain product
categories, may have a negative impact on us and our customers,
as elevated food costs can reduce consumer spending in the
food-away-from-home market, and may negatively impact our sales,
gross margins and earnings.
The foodservice distribution industry is fragmented and
consolidating. Over the past five years, we have supplemented
our internal growth through selective strategic acquisitions. We
believe that the consolidation trends in the foodservice
distribution industry will continue to present acquisition
opportunities for us, which may allow us to grow our business at
a faster pace than we would otherwise be able to grow the
business organically.
Performance
Indicators
In addition to evaluating our income from operations, our
management team analyzes our performance based on sales growth,
gross profit and gross profit margin.
| • | Net sales. Our net sales growth is driven principally by changes in volume and, to a lesser degree, changes in price related to the impact of inflation in commodity prices. In particular, product cost inflation and deflation impacts our results of operations and, depending on the amount of inflation or deflation, such impact may be material. For example, inflation may increase the dollar value of our sales, and when the rate of inflation declines, the dollar value of our sales may fall despite our unit sales remaining constant or growing. | |
| • | Gross profit and gross profit margin. Our gross profit and gross profit as a percentage of net sales, or “gross profit margin,” are driven principally by changes in volume and fluctuations in food and commodity |
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prices and our ability to pass on any price increases to our
customers in an inflationary environment and maintain or
increase gross margin when our costs decline. Our gross margin
is also a function of the product mix of our net sales in any
period. Given our wide selection of product categories, as well
as the continuous introduction of new products, we can
experience shifts in product sales mix that have an impact on
net sales. This mix shift is most significantly impacted by the
introduction of new categories of products in markets that we
have more recently entered, as well as the continued growth in
item penetration on higher velocity items such as dairy products.
Key Financial
Definitions
| • | Net sales. Net sales consist primarily of sales of specialty and other food products to independently-owned restaurants and other high-end foodservice customers, which we report net of certain group discounts and customer sales incentives. | |
| • | Cost of sales. Cost of sales include the purchase price paid for products sold, plus the cost of transportation necessary to bring the product to our distribution facilities. Our cost of sales may not be comparable to other similar companies within our industry that include all costs related to their distribution network in their costs of sales rather than as operating expenses. | |
| • | Operating expenses. Our operating expenses include warehousing and distribution expenses (which include salaries and wages, employee benefits, facility and distribution fleet rental costs and other expenses related to warehousing and delivery) and selling, general and administrative expenses (which include selling, insurance, administrative, wage and benefit expenses and will also include share-based compensation expense). We expect to incur a compensation charge related to options to purchase our common stock that, as issued, will become fully vested and exercisable upon the consummation of this offering. See “Compensation Discussion and Analysis.” We expect this compensation expense will be approximately $ million. | |
| • | Interest expense. Interest expense consists primarily of interest on our outstanding indebtedness. | |
| • | (Gain) loss on fluctuation of interest rate swaps. (Gain) loss on fluctuation of interest rate swaps consists solely of the change in valuation on an interest rate swap not eligible for hedge accounting. |
Critical
Accounting Policies
The preparation of our consolidated financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. The
SEC has defined critical accounting policies as those that are
both most important to the portrayal of our financial condition
and results and require our most difficult, complex or
subjective judgments or estimates. Based on this definition, we
believe our critical accounting policies include the following:
(i) determining our allowance for doubtful accounts,
(ii) inventory valuation, with regard to determining our
reserve for excess and obsolete inventory, and
(iii) valuing goodwill and intangible assets. For all
financial statement periods presented, there have been no
material modifications to the application of these critical
accounting policies.
Allowance for
Doubtful Accounts
We analyze customer creditworthiness, accounts receivable
balances, payment history, payment terms and historical bad debt
levels when evaluating the adequacy of our allowance for
doubtful accounts. In instances where a reserve has been
recorded for a particular customer, future sales to the customer
are either conducted using
cash-on-delivery
terms or the account is closely monitored so that
agreed-upon
payments are received prior to orders being released. A failure
to pay results in held or cancelled orders. Our accounts
receivable balance was $36.2 million and
$31.0 million, net of the allowance for doubtful accounts
of $2.4 million and $2.2 million, as of
December 24, 2010 and December 25, 2009,
respectively. Our accounts receivable balance was
$36.2 million and $29.6 million, net of allowance for
doubtful accounts of $2.5 million and $2.4 million, as
of March 25, 2011 and March 26, 2010, respectively.
Inventory
Valuation
We maintain reserves for slow-moving and obsolete inventories.
These reserves are primarily based upon inventory age plus
specifically identified inventory items and overall economic
conditions. A sudden and unexpected change in consumer
preferences or change in overall economic conditions could
result in a significant change in the reserve
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balance and could require a corresponding charge to earnings. We
actively manage our inventory levels to minimize the risk of
loss and have consistently achieved a relatively high level of
inventory turnover.
Valuation of
Goodwill and Intangible Assets
We are required to test goodwill for impairment at least
annually and between annual tests if events occur or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. We
have elected to perform our annual tests for indications of
goodwill impairment during the fourth quarter of each fiscal
year. Based on future expected cash flows, we test for goodwill
impairment at the consolidated level, as we have only a single
reporting unit. The goodwill impairment analysis is a two-step
test. The first step, used to identify potential impairment,
involves comparing our estimated fair value to our carrying
value, including goodwill. If our estimated fair value exceeds
our carrying value, goodwill is considered not to be impaired.
If the carrying value exceeds estimated fair value, there is an
indication of potential impairment and the second step is
performed to measure the amount of impairment. If required, the
second step involves calculating an implied fair value of our
goodwill. The implied fair value of goodwill is determined in a
manner similar to the amount of goodwill calculated in a
business combination, by measuring the excess of the estimated
fair value, as determined in the first step, over the aggregate
estimated fair values of the individual assets, liabilities and
identifiable intangibles as if we were being acquired in a
business combination. If the implied fair value of our goodwill
exceeds the carrying value of our goodwill, there is no
impairment. If the carrying value of our goodwill exceeds the
implied fair value of our goodwill, an impairment charge is
recorded for the excess.
In accordance with the aggregation criteria of
ASC 280-10-50-11,
we evaluate our goodwill on a consolidated basis using a
discounted cash flow model, in which the key assumption is the
projection of future earnings and cash flow. Any material
adverse change in our business or operations could have a
negative effect on our valuation and thus cause an impairment of
our goodwill. As of December 24, 2010, our annual
assessment indicated that we are not at risk of failing step one
of the goodwill impairment test and no impairment of
goodwill existed, as our fair value exceeded our carrying value.
Total goodwill as of December 24, 2010 and
December 25, 2009 was $11.5 million and
$9.4 million, respectively.
Intangible assets with finite lives are tested for impairment
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Cash flows expected to be
generated by the related assets are estimated over the
assets’ useful lives based on updated projections. If the
evaluation indicates that the carrying amount of the asset may
not be recoverable, the potential impairment is measured based
on a projected discounted cash flow model. There have been no
events or changes in circumstances during 2010 indicating that
the carrying value of our finite-lived intangible assets are not
recoverable. Total finite-lived intangible assets as of
December 24, 2010 and December 25, 2009 were
$0.6 million and $0.1 million, respectively.
The assessment of the recoverability of goodwill and intangible
assets will be impacted if estimated future cash flows are not
achieved.
Vendor Rebates
and Other Promotional Incentives
We participate in various rebate and promotional incentives with
our suppliers, including volume and growth rebates, annual
incentives and promotional programs. In accounting for vendor
rebates, we follow the guidance in Accounting Standards
Codification, or ASC,
605-50
(Emerging Issues Task Force, or EITF,
No. 02-16,
Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor and EITF
No. 03-10,
Application of Issue
No. 02-16
by Resellers to Sales Incentives Offered to Consumers by
Manufacturers).
We generally record consideration received under these
incentives as a reduction of cost of goods sold; however, in
certain circumstances, we record marketing-related consideration
as a reduction of marketing costs incurred. We may receive
consideration in the form of cash
and/or
invoice deductions.
We record consideration that we receive for incentives volume
and growth rebates and annual incentives as a reduction of cost
of goods sold. We systematically and rationally allocate the
consideration for those incentives to each of the underlying
transactions that results in progress by us toward earning the
incentives. If the incentives are not probable and reasonably
estimable, we record the incentives as the underlying objectives
or milestones are achieved. We record annual incentives when we
earn them, generally over the agreement period. We record
consideration received to promote and sell the supplier’s
products as a reduction of our costs, as the consideration is
typically a reimbursement of costs incurred by us. If we
received consideration from the suppliers in excess of our
costs, we record any excess as a reduction of cost of goods sold.
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Management has discussed the development and selection of these
critical accounting policies with our board of directors, and
the board of directors has reviewed the above disclosure. Our
financial statements contained other items that require
estimation, but are not as critical as those discussed above.
These other items include our calculations for bonus accruals,
depreciation and amortization. Changes in estimates and
assumptions used in these and other items could have an effect
on our consolidated financial statements.
Results of
Operations
The following table presents, for the periods indicated, certain
income and expense items expressed as a percentage of net sales:
| FISCAL YEAR ENDED | THREE MONTHS ENDED | |||||||||||||||||||
|
DECEMBER 24, |
DECEMBER 25, |
DECEMBER 26, |
MARCH 25, |
MARCH 26, |
||||||||||||||||
| 2010 | 2009 | 2008 | 2011 | 2010 | ||||||||||||||||
|
Net sales
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
|
Cost of sales
|
74.0 | % | 73.7 | % | 75.0 | % | 73.5 | % | 74.3 | % | ||||||||||
|
Gross profit
|
26.0 | % | 26.3 | % | 25.0 | % | 26.5 | % | 25.7 | % | ||||||||||
|
Operating expenses
|
19.4 | % | 21.4 | % | 21.4 | % | 20.4 | % | 21.4 | % | ||||||||||
|
Operating income
|
6.5 | % | 4.9 | % | 3.6 | % | 6.1 | % | 4.3 | % | ||||||||||
|
Other expense (income):
|
||||||||||||||||||||
|
Interest expense
|
1.2 | % | 1.0 | % | 1.1 | % | 4.1 | % | 0.9 | % | ||||||||||
|
(Gain)/loss on fluctuation of interest rate swap
|
(0.3 | )% | (0.2 | )% | 0.4 | % | (0.1 | )% | (0.3 | )% | ||||||||||
|
Total other expense
|
0.9 | % | 0.8 | % | 1.5 | % | 4.0 | % | 0.6 | % | ||||||||||
|
Income before income taxes
|
5.6 | % | 4.1 | % | 2.0 | %* | 2.0 | % | 3.7 | % | ||||||||||
|
Provision for income taxes
|
0.8 | % | 0.8 | % | 1.2 | % | 0.8 | % | 1.5 | % | ||||||||||
|
Net income
|
4.8 | % | 3.3 | % | 0.8 | % | 1.2 | % | 2.2 | % | ||||||||||
| * | Total reflects rounding |
Three Months
Ended March 25, 2011 Compared to Three Months Ended
March 26, 2010
Net
Sales
Our net sales for the quarter ended March 25, 2011
increased approximately 18.8%, or $13.2 million, to
$83.2 million from $70.0 million for the quarter ended
March 26, 2010. The increase in net sales was principally
the result of increased case volume as well as increased revenue
per case, reflecting the impact of food cost inflation and
changes in product mix which together we estimate contributed
approximately 4.5% of our 18.8% of net sales improvement in the
first quarter of 2011. The product categories most impacted by
inflation were dairy, meat, seafood and oils. Our increase in
net sales also included approximately $2.1 million of net
sales related to our Florida operation which we acquired in June
2010.
Gross
Profit
Gross profit increased approximately 22.5%, or
$4.1 million, to $22.0 million for the quarter ended
March 25, 2011, from $18.0 million for the quarter
ended March 26, 2010. Our gross profit as a percentage of
net sales was 26.5% for the quarter ended March 25, 2011 as
compared to 25.7% for the quarter ended March 26, 2010. The
increase in gross profit as a percentage of net sales reflects
the 37 basis point improvement resulting from our recording
of $0.3 million of mark-to-market gain associated with our
Eurodollar collar that we entered into in the first quarter of
fiscal 2011 as a hedge against imported products denominated,
and paid for, in Euros, as well as the positive impact of the
results of our Florida operation along with improved margins on
our sales of meat driven by a shift in customer and product mix.
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Operating
Expenses
Total operating expenses increased by approximately 13.5%, or
$2.0 million, to $17.0 million for the quarter ended
March 25, 2011, from $15.0 million for the quarter
ended March 26, 2010. The increase in total operating
expenses was primarily due to higher sales volume and the
acquisition of our Florida operation. The increase in our salary
and benefit costs represented $1.5 million, or
approximately 72% of the year over year increase. The remaining
increase was comprised of $0.5 million of higher delivery
costs, along with slight increases in warehouse costs and travel
and entertainment.
As a percentage of net sales, total operating expenses decreased
to approximately 20.7% for the quarter ended March 25,
2011, from approximately 21.4% for the quarter ended
March 26, 2010. The decrease in total operating expenses as
a percentage of net sales was primarily attributable to our
higher sales levels as well as expense control programs across
our organization.
Operating
Income
Operating income increased approximately 67.0% to
$5.1 million for the quarter ended March 25, 2011, as
compared to $3.0 million for the quarter ended
March 26, 2010. This increase is reflective of higher sales
levels, improved gross profit margins and continued efforts in
controlling costs, which although higher on an absolute basis
were lower as a percentage of net sales for the first quarter of
2011 as compared to the comparable period in 2010.
Other Expense
(Income)
Total other expense (income) increased $2.7 million to
$3.1 million for the quarter ended March 25, 2011,
from $0.4 million for the quarter ended March 26,
2010. This increase was attributable to the increase in interest
expense for the quarter ended March 25, 2011 to
$3.2 million from $0.6 million for the quarter ended
March 26, 2010. This increase was primarily caused by the
significant increase in our total indebtedness and debt service
costs beginning in the fourth quarter of 2010 as we financed the
redemption of all of our outstanding class A units held by
BGCP and another investor with borrowings under our senior
secured notes and senior secured credit facilities.
Provision for
Income Taxes
Our effective income tax rate was 39.5% and 40.6% for the
quarters ended March 25, 2011 and March 26, 2010,
respectively.
Net
Income
Reflecting the factors described above, net income decreased
$0.5 million to $1.0 million for the quarter ended
March 25, 2011, compared to $1.5 million for the
quarter ended March 26, 2010.
Fiscal Year Ended
December 24, 2010 Compared to Fiscal Year Ended
December 25, 2009
Net
Sales
During fiscal 2010, we began to see steady improvement in our
net sales and a reduction in the volatility of net sales, as
compared to what we experienced throughout our 2009 fiscal year.
Our net sales for the fiscal year ended December 24, 2010
increased approximately 21.8%, or $59.0 million, to
$330.1 million from $271.1 million for the year ended
December 25, 2009. This increase was primarily due to
organic growth (sales growth excluding the impact of
acquisitions) of $50.7 million. Our organic growth was due
primarily to increased item penetration to existing customers,
as well as the success of our customer acquisition strategy,
that resulted in 49% and 51% of the increase in net sales,
respectively. Our improvement in net sales also reflected
year-over-year improvement in economic conditions.
Gross
Profit
Our gross profit increased approximately 20.3%, or
$14.5 million, to $85.8 million for the year ended
December 24, 2010, from $71.3 million for the year
ended December 25, 2009. Our gross profit as a percentage
of net sales was 26.0% for the year ended December 24,
2010, and 26.3% for the year ended December 25, 2009. The
decline in gross profit as a percentage of net sales is
primarily due to the change in the mix of net sales
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during fiscal 2010 compared to fiscal 2009. Given our wide
selection of product categories, as well as the continuous
introduction of new products, we can experience shifts in
product sales mix that have an impact on net sales. This mix
shift is most significantly impacted by the introduction of new
categories of products in markets that we have more recently
entered, as well as the continued growth in item penetration on
higher velocity items such as dairy products. Most
significantly, our gross profit margin was negatively impacted
by the increase in the amount of dairy products we sold in
fiscal 2010 as dairy products are traditionally a lower margin
product for us. Dairy products accounted for 8.5% of our net
sales in 2010, up from 7.4% of our net sales in 2009. Our gross
profit margin in 2010 was also negatively impacted by a combined
120 basis points due to margin pressure in our cheese and
oil product categories. Gross profit as a percentage of net
sales during the year ended December 24, 2010, was largely
unaffected by commodity price fluctuation, as food prices were
stable versus 2009.
Operating
Expenses
Our total operating expenses increased approximately 10.7%, or
$6.2 million, to $64.2 million for the year end
December 24, 2010, from $58.0 million for the year
ended December 25, 2009. The increase in total operating
costs was primarily due to higher sales volume and the
acquisition of Culinaire Specialty Foods. The increase in our
salary and benefit costs represented $5.4 million, or 87%,
of the year-over-year increase. The remaining increase was
comprised of $0.4 million of higher delivery costs,
$0.3 million of higher IT consulting costs and
$0.1 million of higher other operating costs, net of a
reduction in bad debt expense of $0.4 million.
As a percentage of net sales, total operating expenses decreased
to approximately 19.4% for the year ended December 24,
2010, from approximately 21.4% for the year ended
December 25, 2009. The decrease in total operating expenses
as a percentage of net sales was primarily attributable to our
higher level of sales, as well as expense control programs
across our organization. We were also able to manage our fuel
costs despite rising prices by updating and revising existing
routes to reduce miles traveled, reducing idle times and other
similar measures.
Operating
Income
Operating income increased 61.8% from $13.3 million in
fiscal 2009 to $21.6 million in fiscal 2010, reflecting not
only increasing sales but also our efforts at controlling costs
throughout fiscal 2009 and 2010.
Other Expense
(Income)
Total other expense (income) increased $1.0 million to
$3.1 million for the year ended December 24, 2010,
from $2.2 million for the year ended December 25,
2009. This increase in total other expense (income) is
attributable to the increase in interest expense for the year
ended December 24, 2010 to $4.0 million from
$2.8 million in the year ended December 25, 2009,
which occurred primarily because our debt level increased
significantly in the fourth quarter of fiscal 2010 as we
financed our redemption of all of our outstanding Class A
units which were held by BGCP and another investor.
Provision for
Income Taxes
Our effective income tax rate was 13.9% and 19.8% for the years
ended December 24, 2010 and December 25, 2009,
respectively. The decrease in the effective rate was the result
of the company and each of its operating subsidiaries that are
limited liability companies electing to be taxed as corporations
starting in October of 2010. In doing so, we recorded
significant deferred tax assets, thus lowering the current tax
provision. Our effective income tax rate will increase following
this offering as a result of our conversion from a limited
liability company to a corporation, as described above. Based on
current enacted tax rates, which could change, we expect our
effective tax rate for fiscal 2011 to approximate 39%.
Net
Income
Reflecting the factors described in more detail above, net
income increased $6.9 million to $15.9 million for the
year ended December 24, 2010, compared to $9.0 million
for the year ended December 25, 2009.
Fiscal Year Ended
December 25, 2009 Compared to Fiscal Year Ended
December 26, 2008
Net
Sales
Our net sales for the fiscal year ended December 25, 2009
decreased approximately 3.7%, or $10.6 million, to
$271.1 million from $281.7 million for the year ended
December 26, 2008. This decrease was primarily the result
of lower volume due to weak economic conditions which adversely
affected our customers’ businesses. The decline in sales
was also attributable to the stabilization of commodity prices
in 2009, as the dollar amount of our sales in 2009 did not
increase significantly because of inflation compared to the
significant impact of inflation on food prices in 2008.
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Gross
Profit
Our gross profit increased approximately 1.4%, or
$1.0 million, to $71.3 million for the year ended
December 24, 2010, from $70.3 million for the year
ended December 25, 2009. Our gross profit as a percentage
of net sales was 26.3% for the year ended December 25, 2009
compared to 25.0% for the year ended December 26, 2008. The
increase in gross profit as a percentage of net sales is
primarily due to the stabilization in food and commodity prices
in 2009.
Operating
Expenses
Our total operating expenses decreased approximately 3.9% or
$2.3 million, to $58.0 million for the year ended
December 25, 2009, from $60.3 million for the year
ended December 26, 2008. For comparable facilities, we
reduced operating costs by $3.7 million, or slightly over
6.1%. We incurred additional operating costs throughout fiscal
year 2009 of approximately $1.4 million related to
acquisitions. The decrease in total operating costs was
primarily due to cost cuts made during the fourth quarter of
2008 through the first half of fiscal 2009. The removal of
salary and benefit costs represented $1 million, or 43%, of
the
year-over-year
decrease. This reduction is net of a $1.6 million increase
in annual incentive and retention compensation as well as
$745,000 in management severance costs. Reductions in selling,
general and administrative costs represented $1.0 million,
or 48%, of the
year-over-year
decrease while the remaining decrease was comprised of
reductions in distribution costs of approximately
$0.2 million.
Operating
Income
Operating income increased from $10.0 million in fiscal
2008 to $13.3 million in fiscal 2009. As a percentage of
sales, operating income increased significantly from 3.6% in
fiscal 2008 to 4.9% in fiscal 2009. The increase reflects our
ability to improve our gross profit during a period of stable
commodity prices and our intense focus on controlling costs
during the challenging economic environment in 2009.
Other Expense
(Income)
Interest expense declined from $3.2 million in fiscal 2008
to $2.8 million in fiscal 2009, reflecting our efforts to
improve working capital utilization by focusing on better
collection of receivables and maintaining more efficient
inventory levels, which in each case allowed us to reduce our
level of indebtedness. The fluctuation of the market value of
our interest rate swap changed from an expense of
$1.1 million in fiscal 2008 to a gain of $0.7 million
in 2009, as the term of the interest rate swap neared its
conclusion at the beginning of 2011.
Provision for
Income Taxes
Our effective income tax rate was 19.8% and 61.1% for the years
ended December 25, 2009 and December 26, 2008,
respectively. The decrease in the effective income tax rate for
the year ended December 25, 2009 is primarily due to the
allocation of administrative costs between our corporate
subsidiary and our limited liability company subsidiaries, as
well as the recognition of a 2008 empire zone tax credit from
the State of New York in 2009, which was repealed in 2008 and
subsequently reinstated in 2009.
Net
Income
Reflecting the factors described in more detail above, net
income increased $6.8 million to $9.0 million, for the
year ended December 25, 2009, compared to
$2.2 million, for the year ended December 26, 2008.
Liquidity and
Capital Resources
We finance our day-to-day operations and growth primarily with
cash flows from operations, borrowings under our existing senior
secured credit facilities, operating leases, trade payables and
bank indebtedness. In addition, from time to time we may issue
equity and debt securities to finance our operations and
acquisitions. We believe that our cash on hand and available
credit through our existing revolving credit facility as
discussed below is sufficient for our operations and planned
capital expenditures over the next twelve months.
On October 22, 2010, we redeemed all authorized and then
outstanding Class A units (which were held by third party
investors) for a redemption price of $68.3 million. The
redemption price, which was calculated in accordance with our
Amended and Restated Limited Liability Company Agreement, was
based on a total valuation of the company at an agreed upon
multiple of projected EBITDA less total indebtedness, with the
Class A unit holders being allocated the first
$45.8 million of such amount based on the carrying amount
of those units and then being allocated, along with our other
members, their pro rata share of the remaining value as a deemed
dividend. The redemption resulted in our founders, management
and employees increasing their ownership interest in us from
68.5% to 100%. The capital structure described in this section
reflects borrowings made to finance the redemption.
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On April 15, 2010, we entered into a term loan and
revolving credit facility (the “Credit Agreement”).
The term loan commitment was in the amount of $7.5 million,
while the revolving credit facility provided us with up to
$37.5 million in borrowing capacity. Upon the redemption of
Class A units on October 22, 2010, the
$7.5 million term note was paid in full and the credit
facility was amended to provide us with up to $25.0 million
in revolving borrowing capacity. The amended Credit Agreement
matures on October 22, 2013. Borrowings under the Credit
Agreement bear interest, at our option, at the CB Floating Rate
(defined as the Administrative Agent’s prime rate, never to
be less than the adjusted one-month London Interbank Offered
Rate, or LIBOR, plus applicable rate), or LIBOR plus applicable
rate. The applicable rate is contingent upon our leverage ratio.
As of December 24, 2010, the CB Floating applicable rate
was 1.25% and the LIBOR applicable rate was 3.25%. The Credit
Agreement also provides for an annual fee of 0.25% of unused
commitments. The Credit Agreement requires the maintenance of
certain financial ratios, as described in the Credit Agreement,
and contains customary events of default. Balances outstanding
under our existing senior secured credit facilities are secured
by our receivables and inventory. As of December 24, 2010
and March 25, 2011, we had approximately $12.2 million
and $9.7 million, respectively, of borrowings outstanding
under our existing revolving credit facility, which generally
reduce our available borrowing capacity under our revolving
credit facility on a dollar for dollar basis. Therefore, our
resulting remaining availability under our existing revolving
credit facility was approximately $12.8 million and
$15.2 million as of December 24, 2010 and
March 25, 2011, respectively.
On October 22, 2010, we entered into a $75.0 million
second lien term note (the “Term Loan Agreement”).
This Term Loan Agreement requires principal payments of
$5.0 million by the end of the third fiscal quarter of
2011, an additional $6.0 million by the end of the third
fiscal quarter of 2012 and an additional $7.0 million by
the end of the third fiscal quarter of 2013. Two additional
principal payments are due in $1,750,000 installments, with the
first installment due at the end of fiscal year 2013 and the
second installment due at the end of the first fiscal quarter of
2014. The remaining outstanding principal amount is due at
maturity, on April 23, 2014. Borrowings under the facility
bear interest at our option of ABR Loan (defined as the greater
of the Federal funds rate, the adjusted one-month LIBOR rate or
3%) plus 8% or LIBOR plus 9%, with LIBOR having a floor of 2%.
The Term Loan Agreement requires the maintenance of certain
financial ratios, as described in the Term Loan Agreement, and
contains customary events of default. Balances outstanding under
the Term Loan Agreement are secured by a second lien on trade
receivables and inventory, as well as a first lien on all of our
other assets.
On October 22, 2010, we issued $15.0 million in senior
subordinated notes due October 22, 2014 (the “PIK
Notes”). Pursuant to the terms of a note purchase agreement
dated as of that date (the “Note Purchase Agreement”),
the PIK Notes bear interest at 20% and accrete interest every
six months. The PIK Notes require the maintenance of certain
financial ratios, as described in the Note Purchase Agreement,
and contain customary events of default.
Borrowings under the Term Loan Agreement and the PIK Notes were
used to finance the Class A unit redemption, repay debt and
pay related fees and expenses. We intend to use the proceeds of
this offering, together with borrowings under our new senior
secured credit facilities, to redeem or repurchase all of the
PIK Notes and to repay all of the principal and interest
outstanding under our existing senior secured credit facilities.
For a description of our new senior secured credit facilities,
see the information under the caption “Description of Our
Indebtedness — New Senior Secured Credit
Facilities.”
In 2006, we entered into an interest rate swap agreement which
expired in January 2011. This interest rate swap agreement had
an initial notional amount of $21.8 million and called for
us to pay interest at a fixed rate of 4.86% while receiving
interest for the same period at one-month LIBOR on the same
notional principal amount. The swap was entered into as a hedge
against LIBOR movements on variable rate indebtedness totaling
over $36.5 million at LIBOR plus a spread based upon our
attainment of certain financial ratios. One-month LIBOR was
0.2615% as of March 25, 2011. The swap agreement did not
qualify for hedge accounting under Accounting Standards
Codification, or ASC, 815, Derivatives and Hedging.
Our capital expenditures, excluding cash paid for acquisitions,
for the 2010 fiscal year were $1.1 million. Our capital
expenditures for the quarter ended March 25, 2011 were
$389,000. We believe that our capital expenditures, excluding
cash paid for acquisitions, for fiscal 2011 will be between
$1.0 million and $2.0 million and for fiscal 2012 will
be between $7.5 million and $9.0 million. We expect to
finance these requirements with cash generated from operations
and borrowings under our revolving credit facility. Our planned
capital projects will provide both new and expanded facilities
and improvement to our technology that we believe will produce
increased
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efficiency and the capacity to continue to support the growth
of our customer base. Future investments and acquisitions will
be financed through either internally generated cash flow,
borrowings under our new senior secured credit facilities
negotiated at the time of the potential acquisition or issuance
of our common stock.
Net cash provided by operations was $13.5 million for the
year ended December 24, 2010, an increase of
$1.6 million from the $11.9 million provided by
operations for the year ended December 25, 2009. The
primary reasons for the change was the $6.9 million
increase in net income offset by an increase of
$0.9 million in working capital and a $2.5 million
increase in deferred tax assets. The increase in working capital
was principally the result of an increase in trade and other
accounts receivable of $5.4 million, an increase of
$0.7 million in prepaid expenses and other assets, an
increase of $0.5 million in inventory levels, offset by a
$4.7 million increase in trade payables and other accrued
liabilities, as well as a $0.2 million increase in income
and sales tax payable, while the increase in the deferred tax
assets resulted principally from our limited liability company
subsidiaries electing to be taxed as “C-corporations”
prior to our redemption of the class A units in October
2010. Net cash provided by operations was $11.9 million for
the year ended December 25, 2009, an increase of
$10.3 million from the $1.6 million provided by
operating activities for the year ended December 26, 2008.
The increase in net cash provided by operating activities was
primarily the result of a $6.8 million increase in net
income over fiscal 2008, together with no significant change in
working capital. In 2008 working capital increased by
$3.1 million, which was driven by a significant reduction
in trade payables. Net cash provided by operations of
$1.6 million for the year ended December 26, 2008 was
the result of slightly lower levels of net income and a
$3.2 million increase in working capital resulting from a
$6.1 million reduction in accounts payable and accrued
liabilities reflecting management’s decision to pay
suppliers more timely, offset by a $2.5 million decrease in
inventory levels and a $2.4 million decrease in trade
accounts receivable.
Net cash provided by operations was $3.1 million for the
quarter ended March 25, 2011, an increase of
$0.6 million from the $2.5 million provided by
operations for the quarter ended March 26, 2010. The
increase was driven by higher net income taking into account
non-cash items such as amortization of original issue discount
as well as PIK interest on our senior subordinated notes.
Net cash used in investing activities remained flat
year-over-year, with $4.9 million used in fiscal 2010 and
$4.8 million used in fiscal 2009. The largest component of
cash used in investing activities in each of fiscal 2009 and
fiscal 2010 was cash paid for acquisitions. We expect that our
cash paid for acquisitions will be higher in fiscal 2011 than
fiscal 2010 as a result of our pending acquisition of certain
assets of Harry Wils & Co. Net cash used in investing
activities was $5.8 million for the year ended
December 26, 2008. The decrease in the fiscal 2009 compared
to the fiscal 2008 was primarily due to lower capital
expenditures.
Net cash used in investing activities was $0.4 million for
the quarter ended March 25, 2011, a decrease of
$0.1 million from the $0.5 million used in investing
activities for the quarter ended March 26, 2010. The
decrease was primarily due to lower capital expenditures in the
quarter ended March 25, 2011, as well as the fact that we
did not redeem any of our class C units in the first
quarter of 2011 as we had in the first quarter of 2010.
Net cash used in financing activities also remained relatively
flat year-over-year despite significant movements between debt
and equity. We used $7.6 million in fiscal 2010 and
$7.8 million in fiscal 2009. We incurred net borrowings of
approximately $68.8 million during fiscal 2010 that were
used for the redemption of our Class A units
($68.3 million) and the associated fees to obtain the
financing. Net cash provided by financing activities was
$3.6 million for the year ended December 26, 2008,
primarily due to financing related to an acquisition, partially
offset by repayments on long-term debt. For a description of our
new senior secured credit facilities which we expect to enter
into in connection with the consummation of this offering, see
the information under the caption “Description of Our
Indebtedness — New Senior Secured Credit
Facilities.”
Net cash used in financing activities was $3.9 million for
the quarter ended March 25, 2011, an increase of
$2.3 million from the $1.5 million used in financing
activities for the quarter ended March 26, 2010. This
increase was the result of $0.7 million of higher payments
under our Term Loan Agreement as well as an increase of
$1.7 million in payments applied to the revolver portion of
our Credit Agreement. The increase in payments under the
revolver portion of our Credit Agreement was funded by higher
cash provided by operations, a decrease in the amount of cash
used in investing activities as well as a decrease in cash on
hand of $1.1 million.
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Commitments and
Contingencies
The following schedule summarizes our contractual obligations
and commercial commitments as of December 24, 2010:
| PAYMENTS DUE BY PERIOD | ||||||||||||||||||||
|
LESS THAN |
1-3 |
3-5 |
||||||||||||||||||
| TOTAL | ONE YEAR | YEARS | YEARS | THEREAFTER | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Inventory purchase commitments
|
$ | 5,576 | $ | 5,576 | $ | — | $ | — | $ | — | ||||||||||
|
Indebtedness (1)
|
$ | 99,525 | $ | 16,945 | (2) | $ | 12,010 | $ | 70,570 | $ | — | |||||||||
|
Long-term non-capitalized leases
|
$ | 23,373 | $ | 6,674 | $ | 10,082 | $ | 5,272 | $ | 1,345 | ||||||||||
|
Total
|
$ | 128,474 | $ | 29,195 | (2) | $ | 22,092 | $ | 75,842 | $ | 1,345 | |||||||||
| (1) | For a description of the reduction in our indebtedness that will result from this offering, see “Use of Proceeds” and “Capitalization.” |
| (2) | Reflects the inclusion of $12.2 million of borrowings under our senior secured revolving credit facility which are included within the current portion of long-term debt on our balance sheet despite not being due until October 22, 2013. |
The indebtedness and non-capitalized lease obligations shown
above exclude interest payments due. A portion of the
indebtedness obligations shown reflect the expiration of the
credit facility, not necessarily the underlying individual
borrowings. In addition, cash to be paid for income taxes is
excluded from the table above.
We had outstanding letters of credit of approximately $120,000
at both December 24, 2010 and March 25, 2011.
All of our assets are pledged as collateral to secure our
borrowings under our senior secured credit facilities.
Seasonality
Generally, we do not experience any material seasonality.
However, our sales and operating results may vary from quarter
to quarter due to factors such as changes in our operating
expenses, management’s ability to execute our operating and
growth strategies, personnel changes, demand for natural
products, supply shortages and general economic conditions.
Inflation
Our profitability is dependent, among other things, on our
ability to anticipate and react to changes in the costs of key
operating resources, including food and other raw materials,
labor, energy and other supplies and services. Substantial
increases in costs and expenses could impact our operating
results to the extent that such increases cannot be passed along
to our customers. The impact of inflation on food, labor, energy
and occupancy costs can significantly affect the profitability
of our operations.
Recently Issued
Financial Accounting Standards
In December 2007, the Financial Accounting Standards Board, or
FASB, issued ASC 805, Business Combinations
(“ASC 805”). ASC 805 continues to require the
purchase method of accounting for business combinations and the
identification and recognition of intangible assets separately
from goodwill. ASC 805 requires the buyer to, among other
things: (1) account for the fair value of assets and
liabilities acquired as of the acquisition date (i.e., a
“fair value” model rather than a “cost
allocation” model); (2) expense acquisition-related
costs; (3) recognize assets or liabilities assumed arising
from contractual contingencies at the acquisition date using
acquisition-date fair values; (4) recognize goodwill as the
excess of the consideration transferred plus the fair value of
any non-controlling interest over the acquisition-date fair
value of net assets acquired; (5) recognize at acquisition
any contingent consideration using acquisition-date fair values
(i.e., fair value earn-outs in the initial accounting for the
acquisition); and (6) eliminate the recognition of
liabilities for restructuring costs expected to be incurred as a
result of the business combination. ASC 805 also defines a
“bargain” purchase as a business combination where the
total acquisition-date fair value of the identifiable net assets
acquired exceeds the fair value of the consideration transferred
plus the fair value of any non-controlling interest. Under this
circumstance, the buyer is required to recognize such excess
(formerly referred to as “negative goodwill”) in
earnings as a gain. In addition, if the buyer
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determines that some or all of its previously booked deferred
tax valuation allowance is no longer needed as a result of the
business combination, ASC 805 requires that the reduction
or elimination of the valuation allowance be accounted as a
reduction of income tax expense. ASC 805 is effective for
fiscal years beginning on or after December 15, 2008. We
have applied ASC 805 to the acquisitions consummated after
December 26, 2008, described herein and will apply
ASC 805 to any future acquisitions.
In December 2007, the FASB issued ASC 810,
Consolidation. This statement establishes accounting and
reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. This
statement is effective for fiscal years beginning on or after
December 15, 2008. The adoption of ASC 810 did not
have a material effect on our consolidated financial statements.
In April 2008, the FASB issued
ASC 350-30,
Determination of the Useful Life of Intangible Assets.
ASC 350-30
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under ASC 350,
Intangibles — Goodwill and Other. The intent of
ASC 350-30
is to improve the consistency between the useful life of a
recognized intangible asset and the period of expected cash
flows used to measure the fair value of the asset.
ASC 350-30
is effective for fiscal years beginning after December 15,
2008 and interim periods within those fiscal years. The adoption
of ASC
350-30 did
not have a material effect on our consolidated financial
statements.
In June 2008, the FASB issued
ASC 260-10,
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities.
ASC 260-10
provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to
the two-class method.
ASC 260-10
is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods
within those years.
ASC 260-10
requires that all earnings per share data presented for prior
periods be adjusted retrospectively (including interim financial
statements, summaries of earnings and selected financial data)
to conform. The adoption of
ASC 260-10
did not have a material effect on our consolidated financial
statements in the periods presented.
Quantitative and
Qualitative Disclosures About Market Risk
Interest Rate
Risk
We are subject to interest rate risk in connection with our
borrowings under our existing senior secured credit facilities,
which provide for (i) a $75.0 million term loan
facility and (ii) a revolving credit facility under which
we may borrow up to $25.0 million (including a sublimit cap
of up to $1.0 million for letters of credit and up to
$5.0 million for swing-line loans). As of December 24,
2010 and March 25, 2011, approximately $86.0 and
$82.2 million, respectively, of principal amount of loans
were outstanding under our existing senior secured credit
facilities. Borrowings under our existing term loan facility
bear interest, at our option, at a rate equal to the greater of
the federal funds rate, the adjusted one month London Interbank
Offered Rate, or LIBOR, or 3%, in each case plus 8%, or LIBOR
plus 9%, with LIBOR having a 2% floor. Borrowings under our
existing revolving credit facility bear interest, at our option,
at a rate per annum based on the administrative agents’
prime rate, plus a margin of up to 1.25%, or LIBOR, plus a
margin of up to 3.5%, with the margins determined by certain
financial ratios. Floating rate debt, like our senior secured
credit facilities, where the interest rate fluctuates
periodically, exposes us to short-term changes in market
interest rates.
In 2006, we entered into an interest rate swap agreement which
expired in January 2011. This interest rate swap agreement had
an initial notional amount of $21.8 million and called for
us to pay interest at a fixed rate of 4.86% while receiving
interest for the same period at one-month LIBOR on the same
notional principal amount. The swap was entered into as a hedge
against LIBOR movements on variable rate indebtedness totaling
over $36.5 million at LIBOR plus a spread based upon our
attainment of certain financial ratios. With the expiration of
this interest rate swap, all of our outstanding indebtedness
under our senior secured credit facilities is exposed to
short-term changes in market interest rates.
Because of interest rate floors embedded in our existing senior
secured credit facilities, a 100 basis-point increase in market
interest rates on our existing senior secured credit facilities
would result in a decrease in net earnings and cash flows of
less than $0.1 million per annum, after tax, holding other
variables constant.
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OUR
BUSINESS
Company
Overview
We are a premier distributor of specialty food products in the
United States. We are focused on serving the specific needs of
chefs who own
and/or
operate some of the nation’s leading menu-driven
independent restaurants, fine dining establishments, country
clubs, hotels, caterers, culinary schools and specialty food
stores. We believe that we have a distinct competitive advantage
in serving these customers as a result of our extensive
selection of distinctive and
hard-to-find
specialty food products, our product knowledge and our customer
service.
We define specialty food products as gourmet foods and
ingredients that are of the highest grade, quality or style as
measured by their uniqueness, exotic origin or particular
processing method. Our product portfolio includes over 11,500
SKUs and is comprised primarily of imported and domestic
specialty food products, such as artisan charcuterie, specialty
cheeses, unique oils and vinegars, hormone-free protein,
truffles, caviar and chocolate. We also offer an extensive line
of broadline food products, including cooking oils, butter,
eggs, milk and flour. Our core customers are chefs, and we
believe that, by offering a wide selection of both distinctive
and
hard-to-find
specialty products, together with staple broadline food
products, we are able to differentiate ourselves from larger,
traditional broadline foodservice distributors, while
simultaneously enabling our customers to utilize us as their
primary foodservice distributor.
Founded in 1985 as Dairyland USA Corporation, a distributor of
butter, eggs and select specialty food products in the New York
metropolitan area, we focus our sales efforts on developing
relationships with the chefs who own or operate independent
restaurants, fine dining establishments, country clubs, hotels,
caterers, culinary schools and specialty food stores in six of
the nation’s leading culinary markets, including New York,
Washington, D.C., Los Angeles, San Francisco, Las
Vegas and Miami. Our more than 7,000 customer locations include
many of the leading independent restaurants in each of our
markets. By leveraging an experienced and sophisticated sales
force of approximately 125 sales professionals, we maintain
collaborative relationships with thousands of chefs while also
acting as a critical marketing arm and
route-to-market
for many of our suppliers. Operating out of seven distribution
centers and providing service six days a week in many of our
service areas, we utilize our fleet of delivery trucks to fill
an average of 11,000 orders weekly.
Since the formation of our predecessor in 1985, we have expanded
our distribution network, product selection and customer base
both organically and through acquisitions. From fiscal 2009 to
fiscal 2010, net revenues, net income and EBITDA increased
approximately $59.0 million, $6.9 million and
$8.7 million, respectively, to $330.1 million,
$15.9 million and $24.6 million, respectively. Net
revenues, net income and EBITDA for the three months ended
March 25, 2011 were $83.2 million, $1.0 million
and $5.5 million, respectively, increases of
$13.2 million, $0.7 million and $1.8 million,
respectively, over the comparable period in fiscal 2010. Pro
forma net income for fiscal 2010 was $ . See footnote 4 to the
Summary Consolidated Financial Data for a reconciliation of
EBITDA to adjusted EBITDA and the information under the caption
“Unaudited Pro Forma Condensed Consolidated Financial
Statements” beginning on
page F-21
for the calculation of pro forma net income for fiscal 2010.
Since 2008, our sales to both new and existing customers have
increased as a result of an increase in the breadth and depth of
our product portfolio, our commitment to customer service, the
efforts of our experienced and sophisticated sales
professionals, the increased use of technology in the operations
and management of our business and our ongoing consolidation of
the fragmented specialty foodservice distribution industry,
including acquisitions in San Francisco,
Washington, D.C. and Miami since 2007.
Our Market
Opportunity
The United States foodservice distribution industry recorded
sales of $191.0 billion in 2009, according to industry
sources. The industry, which includes more than 16,500
distributors, is highly fragmented, with the largest broadline
distributors, Sysco Corporation and U.S. Foodservice, Inc.,
accounting for only 17% and 9%, respectively, of total industry
sales. These 16,500 distributors service an equally fragmented
end-market which is comprised of more than 550,000 customer
locations, including chain and non-chain, independent
restaurants, country clubs, hotels, caterers, hospitals,
schools, military installations, correctional facilities and
other institutional customer locations. The largest customer
segment for the foodservice distribution industry is
restaurants, which accounted for an estimated
$110.0 billion of distribution sales in 2009. The
restaurant segment is dominated by large chain
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restaurants, the top 100 of which accounted for 55.9% of retail
sales in 2009. Conversely, smaller chain and non-chain,
independent restaurants, which we define as our target market,
accounted for 44.1% of retail sales in 2009.
Competitive
Strengths
We believe that, during our
26-year
history, we have achieved, developed
and/or
refined the following strengths which provide us with a distinct
competitive position in the foodservice distribution industry
and also the opportunity to achieve superior margins relative to
most large broadline foodservice distributors:
Leading Distributor of Specialty Food Products in Many of the
Key Culinary Markets. Based on our
management’s industry knowledge and experience, we believe
we are the largest distributor of specialty food products in the
New York, Washington, D.C., San Francisco and Los
Angeles metro markets as measured by net sales. We believe these
markets, along with a number of other markets we serve,
including Las Vegas, Miami, Philadelphia, Boston and Napa
Valley, create and set the culinary trends for the rest of the
United States and provide us with valuable insight into the
latest culinary and menu practices. Furthermore, we believe our
established relationships with many of the top chefs, culinary
schools and dining establishments in these key culinary markets
have benefited us when we entered into new markets where we
believe that chefs at our potential customers were generally
knowledgeable of our brand and commitment to quality and
excellence from their experience working in other markets which
we serve or through their personal relationships throughout the
culinary industry.
Expansive Product Offering. We offer an
extensive portfolio of high-quality specialty food products,
ranging from basic ingredients and staples, such as milk and
flour, to delicacies and specialty ingredients sourced from
North America, Europe, Asia and South America, which we believe
helps our customers distinguish their menu items. According to
Mintel Group Ltd., the average specialty food distributor
carries only 1,609 SKUs. In comparison, we carry more than
11,500 SKUs, including approximately 7,000 that are
in-stock every day, and we constantly evaluate our portfolio and
introduce new products to address regional trends and
preferences and ensure that we are on the leading edge of
broader culinary trends. Through our importing division, we
provide our customers with access to a portfolio of exclusive
items, including regional olive oils, truffles and charcuterie
from Italy, Spain, France and other Mediterranean countries. In
addition, and as evidence of our commitment to aid our customers
in creating unique and innovative menu items, we regularly
utilize our sourcing relationships and industry insights to
procure additional products that we do not regularly carry but
that our customers specifically request. We believe that the
breadth and depth of our product portfolio facilitates our
customers’ ability to distinguish and enhance their menu
offerings and differentiates us from larger traditional
broadline foodservice distributors. For example, we provide a
selection of more than 125 different varieties of olive oil,
while large broadline foodservice distributors only carry, on
average, 5-10 types of olive oil.
In addition, we carry numerous gourmet brands, and at the same
time, we also seek to maximize product contribution through the
sale of our proprietary brands, which we offer in a number of
staple products, including bulk olive oil, Italian grating
cheeses and butter. We believe that our ability to offer
simultaneously high-quality specialty foods and ingredients and
more traditional broadline staple food products provides our
customers with foodservice distribution solutions that are
efficient and cost effective.
Critical
Route-to-Market
for Specialty Food Suppliers. We currently
distribute products from more than 1,000 different suppliers,
with no single supplier currently representing more than 5% of
our total disbursements. Our suppliers are located throughout
North America, Europe, Asia and South America and include
numerous small, family-owned entities and artisanal food
producers. We are the largest customer for many of our
suppliers. As a result, our experienced and sophisticated sales
professionals, customer relationships and distribution platform
are critical to these suppliers’
route-to-market,
which provides us with greater leverage in our relationships
with the suppliers and also enables us to offer a wide range of
products on an exclusive basis.
Expanding Base of Premier Customer
Relationships. Our breadth and depth of product
offerings coupled with our highly regarded customer service has
allowed us to develop and retain a loyal customer base that is
comprised of chefs who own or work at more than 7,000 of the
nation’s leading menu-driven independent restaurants, fine
dining establishments, country clubs, hotels, caterers, culinary
schools and specialty food stores. By offering an extensive
portfolio of specialty food products, many of which are in-stock
every day, as well as many staple broadline food products, we
have the ability to serve as our customers’ primary
foodservice distributor. Our focus on product selection, product
knowledge and customer service has rewarded us with a number of
long-term customer
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relationships, which often begin when chefs are introduced to
us while attending the nation’s leading culinary schools,
including The Culinary Institute of America and The French
Culinary Institute, both of which have been customers of ours
for more than five years. In a continuous effort to capture
market share, we remain focused on expanding our customer base,
and we enjoy no meaningful customer concentration, as we serve
multiple geographic markets and our top 10 customers accounted
for less than 10% of total net revenue for the year ended
December 24, 2010.
Collaborative Professional and Educational Relationships with
our Customers. We employ a sophisticated and
experienced sales force of approximately 125 sales
professionals, the majority of whom have formal culinary
training, degrees in the culinary arts or prior experience
working in the culinary industry. Equipped with advanced
culinary and industry knowledge, our sales professionals seek to
establish a rapport with our customers so that they can more
fully understand and anticipate the needs of and offer
cost-effective food product solutions to the chefs that own or
operate these businesses. We believe that the specialized
knowledge base of our sales professionals enables us to take a
more collaborative and educational approach to selling our
gourmet foods and ingredients and to further differentiate
ourselves from our traditional broadline competitors.
Expertise in Logistics and Distribution. We
have built a first-class, scalable inventory management and
logistics platform that enables us to efficiently fill an
average of 11,000 orders each week and to profitably meet our
customers’ needs for varying drop sizes, high service
levels and timely delivery. Our average distribution service
levels, or the percentage of in-stock items ordered by customers
that were delivered by the requested date, was in excess of 99%
in 2010, which we believe is among the highest rates in the
foodservice distribution industry. With distribution centers
located in New York, Los Angeles, San Francisco, Washington
D.C., Las Vegas and Miami, we are able to leverage our
geographic footprint and reduce our inbound freight costs. This
scale enables us to maintain a portfolio of more than
11,500 SKUs through the operation of our sophisticated
information technology, inventory management and logistics
systems, which we believe allows us to provide our customers
with the highest level of customer service and responsiveness in
our industry.
Moreover, we have made significant investments since the
beginning of 2007 to develop our information technology platform
in an effort to ensure that our customers’ orders are
filled and delivered efficiently and on time, usually within
12-24 hours
following order placement. We employ routing and logistics
planning software which we believe maximizes the number of daily
deliveries that each of our trucks can make, while also allowing
us to make deliveries within each of our customers’
preferred 2-3 hour time windows. We also use GPS and
vehicle monitoring technology to regularly monitor the condition
of our delivery trucks and measure our drivers’
performance, enabling proactive fleet maintenance, excellent
customer service and improved risk management. To determine
optimal inventory levels, we utilize advanced forecasting
algorithms. Additionally, we currently employ an integrated
warehouse management system in our New York distribution
facilities to track inventory and manage working capital, and we
plan to integrate this system into the remainder of our
distribution facilities by the end of 2011.
Experienced and Proven Management Team. Our
senior management team has demonstrated the ability to grow the
business through various economic environments. With collective
experience of more than 60 years at The Chefs’
Warehouse and its predecessor, our founders and senior
management are experienced operators and are passionate about
our future. Our senior management team is comprised of our
founders as well as experienced professionals with expertise in
a wide range of functional areas, including finance, sales and
marketing, information technology and human resources. We
believe our management team and employee base is, and will
remain, highly motivated as they will continue to own
% of our common stock following this offering.
Our Growth
Strategies
We believe substantial organic growth opportunities exist in our
current markets through increased penetration of our existing
customers and the addition of new customers, and we have
identified new markets that we believe also present
opportunities for future expansion. Key elements of our growth
strategy include the following:
Increase Penetration with Existing
Customers. We intend to sell more products to our
existing customers by increasing the breadth and depth of our
product selection and increasing the efficiency of our sales
professionals, while at the same time continuing to provide
excellent customer service. We are a data-driven and
goal-oriented organization, and we are highly focused on
increasing the number of unique products we distribute to each
customer and our weekly gross profit contribution from each
customer. Based on our management’s industry experience and
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our relationships and dealings with our customers, we believe
we are the primary distributor of specialty food products to the
majority of our customers, and we intend to maintain that
position while adding to the number of customers for which we
serve as their primary distributor of specialty food products.
Expand our Customer Base Within our Existing
Markets. As of December 24, 2010, we served
more than 7,000 customer locations in the United States. We plan
to expand our market share in the fragmented specialty food
distribution industry by cultivating new customer relationships
within our existing markets through the continued penetration of
independent restaurants, fine dining establishments, country
clubs, hotels, caterers, culinary schools and specialty food
stores. We believe we have the opportunity to continue to gain
market share in our existing markets by offering an extensive
selection of specialty food products as well as traditional
broadline staple food products through our unique, collaborative
and educational sales efforts and efficient, scalable
distribution solution.
Continue to Improve our Operating Margins. As
we continue to grow, we believe we can improve our operating
margins by continuing to leverage our inventory management and
logistics platform and our general and administrative functions
to yield both improved customer service and profitability.
Utilizing our fleet of delivery trucks, we fill an average of
11,000 customer orders weekly, usually within 12-24 hours
of order placement. We intend to continue to offer our customers
this high level of customer service while maintaining our focus
on realizing efficiencies and economies of scale in purchasing,
warehousing, distribution and general and administrative
functions which, when combined with incremental fixed-cost
leverage, we believe will lead to continued improvements in our
operating margin.
Pursue Selective Acquisitions. Throughout our
26-year
history, we have successfully identified, consummated and
integrated multiple new market and tuck-in acquisitions. We
believe we have improved the operations and overall
profitability of each acquired company by leveraging our
sourcing relationships to provide an expanded product portfolio,
implementing our tested sales force training techniques and
metrics and installing improved warehouse management and
information systems. We believe we have the opportunity to
capitalize on our existing infrastructure and expertise by
continuing to selectively pursue opportunistic acquisitions in
order to expand the breadth of our distribution network,
increase our operating efficiency and add additional products
and capabilities.
We believe there are a number of markets in the United States
that would support our business model. Each of these markets
maintains a high density of independent restaurants, fine dining
establishments, country clubs, hotels, caterers, culinary
schools and specialty food stores that are currently served by
multiple specialty foodservice distributors, each of which we
believe lacks our product selection, experienced and
sophisticated sales professionals, commitment to customer
service, scale and infrastructure. Additionally, we continue to
compete with several smaller local or regional competitors
within each of our existing markets. Industry sources estimate
that there are more than 2,000 specialty foodservice
distributors in the United States with sales between
$10.0 million and $70.0 million. Although all of these
distributors may not prove to be attractive acquisition targets
for us, we believe that, as a premier specialty foodservice
distributor in the United States, we are well positioned to
further consolidate the fragmented specialty foodservice
distribution industry.
Our Markets and
the Customers that We Serve
We distribute our specialty food products to over 7,000 distinct
customer locations from distribution centers located in our six
primary markets, which include New York, Washington, D.C.,
San Francisco, Los Angeles, Las Vegas and Miami. We also
serve customers in a number of other markets including
Philadelphia, Boston and Napa Valley. We believe that these
markets collectively set the culinary trends for the rest of the
United States and provide us with valuable insight into the
latest culinary and menu trends. We have the unique ability to
service the nation’s most demanding chefs through the
establishment of collaborative professional and educational
relationships which allows us to anticipate the needs of and
offer cost-effective food product solutions to our customers
while allowing our customers to locate ingredients that will
enable them to create unique and differentiated menu items. Our
target customers include menu-driven independent restaurants,
fine dining establishments, country clubs, hotels, caterers,
culinary schools and specialty food stores. We enjoy no
meaningful customer concentration as our top 10 customers
accounted for less than 10% of total net revenue for our 2010
fiscal year.
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Set forth below is a breakdown of the geographic markets we
serve, the year we entered each market:
|
MARKET NAME
|
GEOGRAPHIES SERVED
|
YEAR ENTERED | ||||
|
New York
|
Boston to Atlantic City | 1985 | ||||
|
Washington, D.C.
|
Philadelphia to Richmond | 1999 | ||||
|
Los Angeles
|
Santa Barbara to San Diego | 2005 | ||||
|
San Francisco
|
Napa Valley to Monterey Bay | 2005 | ||||
|
Las Vegas
|
Las Vegas | 2005 | ||||
|
Miami
|
Miami | 2010 | ||||
Although we believe we are the largest specialty food
distributor in the majority of our markets, we remain focused on
expanding our existing customer base and increasing the average
order size and profitability of our existing customers. We
believe that we currently distribute one or more products on a
weekly basis to more than 60% of our addressable market in the
New York metropolitan area and between 20%-30% of our
addressable market in the other markets that we serve. We define
our addressable market as independent restaurants with an
average entrée price of greater than $15.00 according to an
online menu aggregator that provides detailed menu listings for
various markets around the country.
We extend credit to virtually all of our customers on varying
terms with average payment maturities of approximately
21 days. We complete a formal credit assessment of all new
customers, and our Credit and Collections Department, which
consists of 11 full-time employees, regularly evaluates
credit terms for each individual customer based upon several
factors, including order frequency, average order size, the
types of products purchased and the length of the relationship.
We believe that we are skilled at managing customer credit as
evidenced by our historical write-offs which have averaged
approximately 0.32% over the past three years.
We believe our established relationships with many of the top
chefs, culinary schools and fine dining establishments in our
existing culinary markets benefited us when we entered into new
markets where we believe that potential customers were generally
knowledgeable of our brand and commitment to quality and
excellence from their experience working in other markets which
we serve or through their personal relationships throughout the
culinary industry.
Our Specialty
Food Products
We strive to be the primary food source solution for our
customers, and, to this end, we offer our customers a
comprehensive product portfolio that ranges from staple
broadline products, such as milk and flour, to high-quality,
specialty food products and ingredients sourced from North
America, Europe, Asia and South America. We carry more than
11,500 SKUs, including 7,000 that are in-stock every day, and we
are fully committed to utilizing our sourcing relationships and
industry insights to procure products that we do not regularly
carry but that our customers specifically request as they seek
to create unique and innovative menu items.
We continuously evaluate potential additions to our product
portfolio based on both existing and anticipated trends in the
culinary industry. Our buyers have numerous contacts with
suppliers throughout North America, South America, Europe and
Asia and are always looking for new and interesting products
that will aid our customers as they seek to keep up with the
latest developments in the culinary industry. Our ability to
successfully distribute a significant portion of the total
production of smaller, regional and artisanal specialty food
producers allows us the opportunity to be these producers’
primary
route-to-market
in our markets without, in most cases, requiring us to make
contractual commitments regarding guaranteed volume. We are also
able to utilize our size and successful track record of
distributing products sourced from outside the United States to
resist efforts from many of our foreign suppliers to push
importing costs off onto us.
We seek to differentiate ourselves from our competitors by
offering a more extensive depth and breadth of specialty
products. We carry a wide range of high-quality specialty food
products including artisan charcuterie, specialty cheeses,
unique oils and vinegars, hormone-free protein, truffles, caviar
and chocolate across each of our markets, but we also offer a
number of items in each of our respective markets that are
tailored to meet the unique preferences of the individual chefs
in that market. We regularly rotate our inventory to identify
and bring to market new products that will continue to support
our value proposition.
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Within our product offerings, we carry numerous gourmet brands,
and at the same time, we also seek to maximize product
contribution through the sale of our proprietary brands, which
we offer in a number of staple products, including bulk olive
oil, Italian grating cheeses and butter. We believe that our
ability to offer simultaneously high-quality specialty foods and
ingredients and more traditional broadline staple food products
provides our customers with foodservice distribution solutions
that are efficient and cost effective.
Our Sophisticated
and Experienced Sales Professionals
We employ a sophisticated and experienced sales force of
approximately 125 sales professionals focused on meeting our
customers’ goals and objectives while concurrently
educating them regarding our latest products and broader
culinary trends. To ensure a high level of customer service, we
seek to maintain a ratio of approximately one sales professional
for every 65 customers. Our sales force is composed of the
following three distinct groups which are all focused on
providing outstanding service to our customers:
| • | Outside Sales Associates: Responsible for identifying sales opportunities, educating customers and acting as our public representatives. | |
| • | Inside Sales Associates: Responsible for processing customer orders and arranging for delivery and payment. | |
| • | Product Specialists: Responsible for maintaining specialized product knowledge and educating our outside sales associates and customers regarding new products and general developments in several specific categories including protein, seafood, pastry and cheese. |
The majority of our sales professionals have formal culinary
training, degrees in the culinary arts
and/or prior
experience working in the culinary industry. We strive to
harness this culinary knowledge and passion for food and to
concurrently promote an entrepreneurial working environment.
Utilizing advanced pricing optimization software available to
them on a real-time basis, our sales professionals are afforded
flexibility to determine the pricing of individual items for our
customers within a range of pricing options. The majority of our
sales professionals are compensated on a commission basis, and
their performance is measured primarily upon their gross profit
dollars obtained. We have historically experienced low turnover
among our seasoned sales professionals.
Because we are highly focused on collaborating with our
customers and educating them regarding our latest products and
broader culinary trends, we view the ongoing education and
training of our sales force as crucial to our continued success.
To ensure that our sales professionals remain on the forefront
of new culinary products and trends, we regularly hold
“vendor shows” at our distribution centers where our
sales force is able to interact with vendors and learn more
about the vendors’ latest product offerings and the
performance of these products relative to competitive offerings.
Our
Suppliers
We are committed to providing our customers with an unrivaled
portfolio of specialty food products as well as a comprehensive
broadline product offering. To fulfill this commitment, we
maintain strong sourcing relationships with numerous producers
of high-quality artisan and regional specialty food products as
well as a wide range of broadline product suppliers. Our
importing arm also provides us with access to exclusive items
such as regional olive oils, truffles and charcuterie sourced
from Italy, Spain, France and other Mediterranean countries.
We constantly seek out and evaluate new products in order to
satisfy our customers’ desire to be at the forefront of the
latest culinary and menu trends, and, as evidence of our
commitment to aid our customers in creating unique and
innovative menu items, we regularly utilize our sourcing
relationships and industry insights to procure other products
that we do not regularly carry but that our customers
specifically request.
We currently distribute products from more than 1,000 different
suppliers and no single supplier represented more than 5% of our
total disbursements for the quarter ended March 25, 2011.
We carry multiple products and utilize multiple suppliers in all
of our product categories, thereby eliminating our dependence
upon any single supplier. Additionally, we seek to limit
commodity risk by utilizing sophisticated forecasting and
inventory management systems to minimize the inventory carrying
time of commodity-oriented products and by leveraging the
specialized product knowledge of our Product Specialists to
manage purchasing and inventory levels when appropriate.
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Table of Contents
Our Operations
and Distribution Centers
Operating out of seven distribution centers of varying size and
providing service six days a week in many areas, we utilize our
fleet of delivery trucks to fill an average of 11,000 orders
weekly, usually within
12-24 hours
of order placement. Our average distribution service level, or
the percentage of in-stock items ordered by customers that were
delivered by the requested date, was in excess of 99% as of
fiscal year end 2010, which our management believes is among the
highest in the foodservice distribution industry. To achieve
these high service levels, we have invested significantly in
sophisticated warehousing, inventory control and distribution
systems as described in more detail below.
The following table provides information about our distribution
locations as of December 24, 2010:
| OVERVIEW OF OUR DISTRIBUTION CENTERS | ||||||
|
NAME/LOCATION
|
OWNED / LEASED | APPROXIMATE SIZE (SQUARE FEET) | ||||
|
Bronx, New York #1
|
Leased | 120,000 | ||||
|
Bronx, New York #2
|
Leased | 55,000 | ||||
|
Hanover, Maryland
|
Leased | 55,200 | ||||
|
Miami,
Florida (1)
|
Leased | 10,000 | ||||
|
Los Angeles, California
|
Leased | 80,000 | ||||
|
Hayward, California
|
Leased | 40,000 | ||||
|
Las Vegas, Nevada
|
Leased | 11,440 | ||||
|
Total
|
371,640 | |||||
| (1) | We have entered into a lease agreement for a separate distribution center in the Miami, Florida area. We expect we will move our Miami operations in the third quarter of 2011. |
Our primary New York City distribution facility utilizes a
fully-integrated warehouse management system which provides
real-time inventory visibility across the distribution center
and detailed metrics related to inventory turns. We plan to
integrate this system into the remainder of our distribution
facilities by the end of 2011. Additionally, we have begun to
implement pick-to-voice technology in each of our distribution
facilities which will enable our warehouse employees to fill
orders with greater speed and accuracy.
Products are delivered to our distribution centers primarily by
our fleet of trucks, contract carriers and the suppliers
themselves. We lease our trucks from national leasing companies
and regional firms that offer competitive services. Customer
orders are assembled in our distribution centers and then
sorted, placed on pallets and loaded onto trucks and trailers in
delivery sequence. The majority of our trucks and delivery
trailers have separate, temperature-controlled compartments.
We employ advanced routing and logistics planning software which
maximizes the number of daily deliveries that each of our trucks
can make while also enabling us to make deliveries within each
customer’s preferred 2-3 hour time window. We also use
GPS and vehicle monitoring technology to regularly evaluate the
condition of our delivery trucks and monitor the performance of
our drivers by tracking their progress relative to their
delivery schedule and providing information regarding hard
braking, idling and fast starts. Our use of this technology
allows us to conduct proactive fleet maintenance, provide timely
customer service and improve our risk management.
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Our Technology
Systems
We maintain an advanced information technology platform that
enables us to manage our operations across our six markets as we
seek to drive our growth and profitability and ensure that the
needs of our customers are met in an accurate and efficient
manner. We have made significant investments in distribution,
sales, information and warehouse management systems over the
last three years, including the implementation of a
fully-integrated warehouse management system in our primary New
York City distribution facility, which we anticipate will be
installed in our other distribution facilities by the end of
2011. Our systems improvements include the implementation or
enhancement of a web-based purchasing and advanced planning
system that provides advanced forecasting and planning tools,
vehicle monitoring and route optimization software and
pick-to-voice
and directed put-away systems. Over the last three years, we
have also implemented an internally developed, web-based
reporting tool which provides real-time sales, pricing and
profitability analysis for our management and sales
professionals. These improvements have been made in an effort to
improve our efficiency as we continue to grow our business, and
we believe that our current systems are scalable and can be
leveraged to support our future growth.
Intellectual
Property
Except for the Spoleto, Bel Aria, Grand Reserve and The
Chefs’ Warehouse trademarks, we do not own or have the
right to use any patent, trademark, tradename, license,
franchise or concession, the loss of which would have a material
adverse effect on our business, financial condition or results
of operations.
Competition
The foodservice distribution industry is highly competitive. We
compete with numerous smaller distributors on a local level, as
well as with a limited number of national broadline foodservice
distributors. Certain of these distributors have greater
financial and other resources than we do. Bidding for contracts
or arrangements with customers, particularly larger hotels and
caterers, is highly competitive and distributors may market
their services to a particular customer over a long period of
time before they are invited to bid. We believe that most
purchasing decisions in the foodservice distribution industry
are based upon the quality and price of the product distributed
and the distributor’s ability to completely and accurately
fill orders and deliver them in a timely manner.
Employees
We maintain a dedicated workforce of 191 hourly and 352 salary-
or commission-based employees. We offer attractive compensation
and benefit packages, and none of our workforce is represented
by a union or covered by a collective bargaining agreement. Our
management has historically, and plans to continue to, instill a
commitment to quality and excellence throughout our workforce,
stressing personal accountability in all areas of our business.
Regulation
As a distributor of specialty food products in the United
States, we are subject to regulation by numerous federal, state
and local regulatory agencies. For example, at the federal
level, we are subject to the Federal Food, Drug and Cosmetic
Act, the Bioterrorism Act and regulations promulgated by the
FDA. The FDA regulates manufacturing and holding requirements
for foods, specifies the standards of identity for certain foods
and prescribes the format and content of certain information
required to appear on food product labels, among other
responsibilities. For certain product lines, we are also subject
to the Federal Meat Inspection Act, the Poultry Products
Inspection Act, the Perishable Agricultural Commodities Act, the
Country of Origin Labeling Act and regulations promulgated
thereunder by the USDA. The USDA imposes standards for product
quality and sanitation, including the inspection and labeling of
meat and poultry products and the grading and commercial
acceptance of produce shipments from vendors. In January 2011,
President Obama signed into law the FDA Food Safety
Modernization Act, which greatly expands the FDA’s
authority over food safety, including giving the FDA power to
order the recall of unsafe foods, increase inspections at food
processing facilities, issue regulations regarding the sanitary
transportation of food, enhance tracking and tracing
requirements and order the detention of food that it has
“reason to believe” is adulterated or misbranded,
among other provisions. Our suppliers are also subject to
similar regulatory requirements. We and our suppliers are
subject to inspection by the FDA and the USDA and the failure to
comply with applicable regulatory requirements could result in
civil or criminal fines or penalties, product recalls, closure
of facilities or operations, the loss or revocation of existing
licenses, permits or approvals or the failure to obtain
additional licenses, permits or approvals in new jurisdictions
where we intend to do business.
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We are also subject to state and local regulation through such
measures as the licensing of our facilities, enforcement by
state and local health agencies of state and local standards for
our products and facilities and regulation of our trade
practices in connection with the sale of products. Our
facilities are generally inspected at least annually by federal
and/or state
authorities. These facilities are also subject to inspections
and regulations issued pursuant to the Occupational Safety and
Health Act by the U.S. Department of Labor which require us
to comply with certain manufacturing, health and safety
standards to protect our employees from accidents and to
establish hazard communication programs to transmit information
about the hazards of certain chemicals present in certain
products that we distribute.
Our trucking operations are regulated by the Surface
Transportation Board and the Federal Highway Administration. In
addition, interstate motor carrier operations are subject to
safety requirements prescribed by the U.S. Department of
Transportation and other relevant federal and state agencies.
Such matters as weight and dimension of equipment are also
subject to federal and state regulations. We believe that we are
in substantial compliance with applicable regulatory
requirements relating to our motor carrier operations. Our
failure to comply with the applicable motor carrier regulations
could result in substantial fines or revocation of our operating
permits.
Our operations are subject to a broad range of federal, state
and local environmental health and safety laws and regulations,
including those governing discharges to air, soil and water, the
handling and disposal of hazardous substances and the
investigation and remediation of contamination resulting from
releases of petroleum products and other hazardous substances.
We believe that we are in material compliance with all federal,
state and local regulations applicable to our operations, and
management is unaware of any related issues that may have a
material adverse effect upon our business, financial condition
or results of operations.
Litigation and
Insurance
We may be subject to lawsuits, claims and assessments in the
normal course of business. Our management does not believe that
there are any suits, claims or unasserted claims or assessments
pending which would have a material adverse effect on our
operations or financial condition. We currently have exposure to
a pending claim against the New York Worker’s Compensation
Trust which management estimates at approximately $500,000. We
plan to cover any future judgment with the proceeds of our
operations.
We maintain comprehensive insurance packages with respect to our
facilities, equipment, product liability, directors and
officers, workers’ compensation and employee matters in
amounts which management believes to be prudent and customary
within the foodservice distribution industry.
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OUR
MANAGEMENT
Executive
Officers and Directors
The following table sets forth certain information with respect
to our executive officers, directors and director nominees as of
June 7, 2011.
|
NAME
|
AGE
|
POSITION
|
||
|
Christopher
Pappas (1)
|
51 | Founder, Chairman, President and Chief Executive Officer | ||
|
John
Pappas (1)
|
47 | Founder, Director and Vice Chairman | ||
|
Dean Facatselis
(1)
|
55 | Founder and Director | ||
|
John A. Couri
|
69 | Director | ||
|
Kevin Cox
|
47 | Director Nominee (2) | ||
|
John Austin
|
49 | Director Nominee (2) | ||
|
Stephen Hanson
|
61 | Director Nominee (2) | ||
|
Kenneth Clark
|
43 | Chief Financial Officer | ||
|
James Wagner
|
41 | Chief Operating Officer | ||
|
Frank O’Dowd
|
53 | Chief Information Officer | ||
|
Patricia Lecouras
|
55 | Executive Vice President of Human Resources | ||
|
Alexandros Aldous
|
30 | Legal Services Director | ||
| (1) | Christopher Pappas and John Pappas are brothers. Dean Facatselis is married to Christopher Pappas’ and John Pappas’ sister. | |
| (2) | This individual has agreed to become a director upon the closing of this offering and is expected to be “independent” as such term is defined under The NASDAQ Marketplace Rules. |
The board of directors believes that each of the directors and
director nominees set forth above has the necessary
qualifications to serve as a member of the board of directors.
Each of our incumbent directors has exhibited during his prior
service as a director the ability to operate cohesively with the
other members of the board of directors. Moreover, the board of
directors believes that each director and director nominee
brings a strong background and skill set to the board of
directors, giving the board of directors as a whole competence
and experience in diverse areas, including corporate governance
and board service, finance, management and foodservice
distribution industry experience.
Each of our directors will be subject to re-election annually
and each of our executive officers is an at-will employee.
Set forth below is a brief description of the business
experience of each of our directors, director nominees and
executive officers, as well as certain specific experiences,
qualifications and skills that led to the board of
directors’ conclusion that each of the directors and
director nominees set forth below is qualified to serve as a
director:
Christopher Pappas is our founder and has served as our
chief executive officer since 1985 and has been our chairman
since March 1, 2011. He has been our president since
April 11, 2009 and before that was our president from our
formation to January 1, 2007. Prior to founding our
company, Mr. Pappas played basketball professionally in
Europe for several years following his graduation from Adelphi
University in 1981 with a Bachelor of Arts degree in Business
Administration. Mr. Pappas currently oversees all of our
business activities, with a focus on product procurement, sales,
marketing and strategy development. Mr. Pappas’s
qualifications to serve on our board of directors include his
extensive knowledge of our company and the specialty food
products distribution business and his years of leadership at
the Company.
John Pappas is a founder of our company and currently
serves as our vice chairman, a position he has held since
March 1, 2011. From our founding in 1985 to March 1,
2011, he served as our chief operating officer. He has
25 years of experience in logistics, facility management
and global procurement and oversees our network of distribution
centers nationwide. Mr. Pappas is also active in the
development of our corporate strategy. Mr. Pappas’s
qualifications to serve on our board of directors include his
extensive knowledge of our company and the specialty food
products distribution industry and his years of leadership at
the Company.
Dean Facatselis is a founder of our company and has been
a director of our company since January 1, 2007. He served
as our chief financial officer from June 1, 1985 to
December 31, 2006. Mr. Facatselis is a certified
public
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accountant, and he attended Baruch College of the City
University of New York, where earned a Bachelor of Business
Administration degree in 1977. Mr. Facatselis’s
qualifications to serve on our board of directors include his
extensive knowledge of our company and the specialty food
products distribution business, his accounting and financial
expertise and his years of leadership at the company.
John A. Couri has been a director of ours since July
2005. Mr. Couri is the president of Couri
Foundation, Inc., which was founded in 1988 to operate youth
programs for underprivileged children. He is also the president
of the Ridgefield Senior Center Foundation, Inc., which operates
a senior center in Ridgefield, Connecticut. In 1983,
Mr. Couri co-founded Duty Free International (DFI), a New
York Stock Exchange-listed public company, now Duty Free
Americas, and served as president and chief executive officer of
that company until it was sold to BAA in 1997. Mr. Couri
served as a member of the Listed Company Advisory Board of the
New York Stock Exchange from January 1993 to December 1995 and
served as chairman of the Board of Trustees of Syracuse
University from May 2004 to May 2008. Mr. Couri holds a
Bachelor of Arts degree in Economics, with a minor in Business,
from Syracuse University and received an honorary doctorate
degree from Syracuse University in 2008. Mr. Couri’s
qualifications to serve on our board of directors include his
experiences as having been a founder, president and chief
executive officer of a publicly traded company, his expertise
involving listed companies and his understanding of corporate
finance matters.
Kevin Cox has agreed to join our board of directors
effective immediately following the consummation of this
offering. Mr. Cox is the executive vice president of human
resources at American Express Company, a global provider of
payment solutions and travel-related services for consumers and
businesses, a position he has held since 2005. Prior to joining
America Express, Mr. Cox spent 16 years at PepsiCo and
Pepsi Bottling Group, where he held positions leading strategy,
business development, technology and human resources. He is a
current member of the board of directors of Corporate Executive
Board Company, a registered public company, and Ability Beyond
Disability, and he served as a member of the board of directors
of Virgin Mobile USA, Inc., a registered public company, from
2007 to 2009. Mr. Cox holds a Master of Labor and
Industrial Relations from Michigan State University and a
Bachelor of Arts from Marshall University. Mr. Cox’s
qualifications to serve on our board of directors include his
extensive knowledge of compensation matters, including the
design, implementation and maintenance of compensation programs
for publicly traded companies, as well as his experiences gained
from serving on boards of directors of other publicly traded
companies and his having been involved in the initial public
offering of Pepsi Bottling Group.
John Austin has agreed to join our board of directors
effective immediately following the consummation of this
offering. Mr. Austin is a founder and the chief financial
officer of The Hilb Group, LLC, a regional mid-market insurance
brokerage firm formed in 2009 which focuses primarily on
property and casualty insurance and employee benefits services.
Prior to joining The Hilb Group in 2009, Mr. Austin was
employed by Performance Food Group Company, or PFG, a Richmond,
Virginia-based publicly traded foodservice distributor, from
1995 to 2009. Mr. Austin served his last six years at PFG
as that company’s chief financial officer. Prior to joining
PFG, Mr. Austin spent four years as the assistant
controller for General Medical Corporation, a Richmond,
Virginia-based distributor of medical supplies. He also spent
the first six years of his career in public accounting,
primarily with the Richmond, Virginia office of
Deloitte & Touche. Mr. Austin’s
qualifications to serve on our board of directors include his
extensive background and experience in finance and the
operations of a public company operating within the foodservice
distribution industry. Furthermore, he will qualify as our
“audit committee financial expert,” as such term is
defined in the rules and regulations of the SEC.
Stephen Hanson has agreed to join our board of directors
effective immediately following the consummation of this
offering. Mr. Hanson is the founder and president of B.R.
Guest Restaurants, a New York multi-concept operator that began
with one restaurant in 1987 and has since expanded to over 20
properties in New York City, Las Vegas and Florida.
Mr. Hanson is a member of the Department of Consumer
Affairs’ Consumers Council for New York City, a position he
has held since January 2011. He also sits on the boards of
directors for Publicolor, a
not-for-profit
organization that uses color, collaboration, design and the
painting process to empower students to transform themselves,
their schools and their communities, and City Harvest, a
not-for-profit
organization dedicated to ending hunger in New York City.
Mr. Hanson earned a business degree from New York
University’s Stern School of Business in 1976.
Mr. Hanson’s qualifications to serve on our board of
directors include his more than twenty years of experience in
the restaurant industry, as well as his general business and
investing background.
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Kenneth Clark is our chief financial officer, a position
he has held since March 6, 2009. From July 7, 2007 to
March 6, 2009, Mr. Clark served as our controller.
Prior to joining our company, Mr. Clark was vice
president — controller at Credit Suisse Energy, LLC
from June 2005 to July 2007. He has also held key financial
positions at United Rentals, Inc., Sempra Energy Trading
Corporation and Arthur Andersen, LLC. Mr. Clark holds a
Bachelor of Business Administration degree in Accounting from
Western Connecticut State University and is a certified public
accountant.
James Wagner is our chief operating officer, a position
he has held since March 1, 2011. Over the past six years he
has served in a variety of management positions with our
company, most recently serving as our chief commercial officer
from August 1, 2010 to February 28, 2011 prior to his
promotion to chief operating officer. From March 2009 to
August 1, 2010 he served as our executive vice president of
marketing, business development and, for our non-New York
markets, sales. From March 2006 through February 2009, he was
our executive vice president of marketing and business
development. From October 2005 through February 2006, Mr. Wagner
was the general manager of our Los Angeles market. Prior to
joining our company in 2005, Mr. Wagner was a principal and
co-founder of TrueChocolate, Inc., a chocolate manufacturing and
processing
start-up. He
also held key management positions at Clear!Blue Marketing and
was principal and founder of Jump Communications.
Mr. Wagner holds a Bachelor of Arts degree from the
University of California, Berkeley where he was member of the
school’s NCAA National Championship Water Polo teams in
1989, 1990, 1991 and 1992.
Frank O’Dowd is our chief information officer, a
position he has held since January 28, 2007.
Mr. O’Dowd has extensive experience managing
information technology in rapidly growing organizations. Prior
to joining our company, he was the chief information officer at
GAF Materials Corporation, a North American roofing
manufacturer, from June 1997 to April 2006 where he guided the
company’s IT function as the organization grew from a
regional supplier to a large multinational corporation.
Mr. O’Dowd’s prior professional experience also
includes experiences at Reed Elsevier, Newsweek Magazine and
Wyeth Pharmaceuticals. Mr. O’Dowd holds a Bachelor of
Arts degree from The University of Dayton and a Master of Arts
degree from Stony Brook University.
Patricia Lecouras is our executive vice president of
human resources, a position she has held since January 31,
2007. Ms. Lecouras joined our company from GE Capital
Commercial Finance where she was vice president, human resources
from 2001 to 2007. Prior to her time with GE Capital Commercial
Finance, Ms. Lecouras was with Nine West Shoes (f/k/a
Fischer Camuto Corporation) and Xerox. Ms. Lecouras’s
professional experience is multi-disciplinary and includes prior
experience working in finance and tax-related functions. She
also has earned a six sigma master black belt certification.
Ms. Lecouras holds a Bachelor of Arts degree in Psychology
and Social Work from Skidmore College.
Alexandros Aldous is our legal services director, a
position he has held since March 2011. Prior to joining our
company, he served as a legal consultant in London to Barclays
Capital, the investment banking division of Barclays Bank PLC,
from November 2009 to December 2010. Mr. Aldous also served
as an attorney with Watson, Farley & Williams from
August 2008 to September 2009, where he specialized in mergers
and acquisitions and capital markets, and as an attorney with
Shearman & Sterling LLP from October 2005 to August
2008, where he specialized in mergers and acquisitions.
Mr. Aldous received a Bachelor of Arts degree in Classics
and Government from Colby College, a Juris Doctor and M.A. from
American University and an LL.M. from the London School of
Economics and Political Science. Mr. Aldous is licensed to
practice law in the State of New York, Washington, D.C. and
England and Wales.
Corporate
Governance Profile
Board
Composition
Our business and affairs are managed under the direction of our
board of directors. Our board of directors is currently
comprised of four members. Our bylaws will provide that our
board of directors will consist of a number of directors to be
fixed from time to time by a resolution of the board of
directors. Upon the completion of this offering, we expect that
our board of directors will be comprised of at least seven
directors, of which no less than four will be
“independent” as such term is defined under The NASDAQ
Marketplace Rules. Our board of directors has determined that
John Couri, Kevin Cox, John Austin and Stephen Hanson are, or
when appointed to our board of directors will be, independent.
Moreover, our board of directors will not be staggered and each
of our directors will be subject to re-election annually. Each
director’s term will continue until the election and
qualification of his or her successor, or his or her earlier
death, resignation or removal.
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Committees of
the Board of Directors
Following the consummation of this offering, our board of
directors will establish an audit committee, a compensation
committee and a nominating and corporate governance committee.
Each committee member will be appointed by the board of
directors and will serve until the election and qualification of
his or her successor, or his or her earlier death, resignation
or removal.
Audit
Committee
Upon the completion of this offering, we will have an audit
committee that will have responsibility for, among other things:
| • | overseeing management’s maintenance of the reliability and integrity of our accounting policies and financial reporting and our disclosure practices; | |
| • | overseeing management’s establishment and maintenance of processes to assure that an adequate system of internal control is functioning; | |
| • | overseeing management’s establishment and maintenance of processes to assure our compliance with all applicable laws, regulations and corporate policies; | |
| • | reviewing our annual and quarterly financial statements prior to their filing and prior to the release of earnings; and | |
| • | reviewing the performance of the independent accountants and making decisions regarding the appointment or termination of the independent accountants and considering and approving any non-audit services proposed to be performed by the independent accountants. |
We expect that upon completion of this offering our audit
committee will be comprised solely of independent directors as
that term is defined by the rules and regulations of the SEC and
The NASDAQ Stock Market. In addition, we believe Mr. Austin
will qualify as an “audit committee financial expert,”
as such term is defined in the rules and regulations of the SEC.
The audit committee will have the power to investigate any
matter brought to its attention within the scope of its duties
and to retain counsel for this purpose where appropriate.
Our board of directors will adopt a written charter for our
audit committee, which will be available on our corporate
website at
http://www.chefswarehouse.com
upon completion of this offering.
Compensation
Committee
Upon the completion of this offering, we will have a
compensation committee that will have responsibility for, among
other things:
| • | reviewing our compensation practices and policies, including equity benefit plans and incentive compensation; | |
| • | reviewing key employee compensation policies; | |
| • | monitoring performance and compensation of our employee-directors, officers and other key employees; and | |
| • | preparing recommendations and periodic reports to the board of directors concerning these matters. |
We expect that upon completion of this offering our compensation
committee will be comprised solely of independent directors as
that term is defined by the rules and regulations of the SEC and
The NASDAQ Stock Market.
Our board of directors will adopt a written charter for our
compensation committee, which will be available on our corporate
website at
http://www.chefswarehouse.com
upon completion of this offering.
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Nominating and
Corporate Governance Committee
Upon the completion of this offering, we will have a nominating
and corporate governance committee that will have responsibility
for, among other things:
| • | making recommendations as to the size, composition, structure, operations, performance and effectiveness of the board of directors; | |
| • | establishing criteria and qualifications for membership on the board of directors and its committees; | |
| • | assessing and recommending to the board of directors strong and capable candidates qualified to serve on the board of directors and its committees; | |
| • | developing and recommending to the board of directors a set of corporate governance principles; and | |
| • | considering and recommending to the board of directors other actions relating to corporate governance. |
We expect that upon completion of this offering our nominating
and corporate governance committee will be comprised solely of
independent directors as that term is defined by the rules and
regulations of the SEC and The NASDAQ Stock Market.
Our board of directors will adopt a written charter for our
nominating and corporate governance committee, which will be
available on our corporate website at
http://www.chefswarehouse.com
upon completion of this offering.
Compensation
Committee Interlocks and Insider Participation
None of our executive officers currently serve, or in the past
year have served, as a member of the board of directors or
compensation committee of any entity that has one or more
executive officers serving on our board of directors or
compensation committee.
Code of
Business Conduct and Ethics
In connection with this offering, our board of directors will
adopt a code of business conduct and ethics that establishes the
standards of ethical conduct applicable to all of our directors,
officers, employees, consultants and contractors. The code of
business conduct and ethics will address, among other things,
competition and fair dealing, conflicts of interest, financial
matters and external reporting, company funds and assets,
confidentiality and corporate opportunity requirements and the
process for reporting violations of the code of business conduct
and ethics, employee misconduct, conflicts of interest or other
violations. Our code of business conduct and ethics will be
publicly available on our website at
http://www.chefswarehouse.com.
Any waiver of our code of business conduct and ethics with
respect to our chief executive officer, chief financial officer,
controller or persons performing similar functions may only be
authorized by our audit committee and will be disclosed as
required by applicable law.
Risk
Oversight
Our board of directors oversees risk management with a focus on
our primary areas of risk: risk related to our business
strategy, financial risk, legal/compliance risk and operational
risk. Our president and chief executive officer and each of our
other executive officers are responsible for managing risk in
their respective areas of authority and expertise, identifying
key risks to the board and explaining to the board how those
risks are being addressed.
Following the consummation of this offering, we expect that the
standing committees of the board will also have responsibility
for risk oversight. The audit committee will focus on financial
risk, including fraud risk and risks relating to our internal
controls over financial reporting. The nominating and corporate
governance committee is expected to assist the board of
directors in fulfilling its oversight responsibility with
respect to regulatory compliance and will receive regular
reports from our legal services director and other employees
responsible for our regulatory compliance. The compensation
committee is expected to address risks relating to our executive
compensation strategies and will be tasked with monitoring our
executive compensation program to ensure that it does not
encourage our executive officers to take unnecessary and
excessive risks. We anticipate that our board will receive
regular reports from the chairs of these committees regarding
these committees’ risk management efforts and receive
reports and other meeting materials provided to each of the
committees.
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COMPENSATION
DISCUSSION AND ANALYSIS
Compensation
Discussion and Analysis
This compensation discussion and analysis discusses the
objectives and elements of our compensation programs and the
compensation awarded to our named executive officers in the 2010
fiscal year. This information should be read in conjunction with
the Summary Compensation Table and the related tables and
narratives that follow this compensation discussion and
analysis. For fiscal 2010, the following individuals were our
named executive officers:
| l | Christopher Pappas, our chairman, president and chief executive officer; | |
| l | John Pappas, our vice chairman; | |
| l | James Wagner, our chief operating officer; | |
| l | Kenneth Clark, our chief financial officer; and | |
| l | Frank O’Dowd, our chief information officer. |
Overview of
Compensation Process
As a private company with a relatively small number of owners,
we have historically employed an informal process for setting
the compensation of our named executive officers. For fiscal
2010, the compensation for our chief executive officer and our
vice chairman was established through negotiations between those
executives and representatives of BGCP, the holder of a majority
of our Class A units of membership interest prior to the
redemption of those units in October 2010. The compensation for
our other named executive officers was established by our chief
executive officer, with the input of representatives of BGCP,
and was principally based on BGCP’s representatives’
recommendations, our chief executive officer’s assessment
of our operating performance in fiscal 2009 and the individual
named executive officer’s performance of his duties and the
compensation of executive officers in comparable positions at
other companies operating within our business sector.
Following the consummation of this offering, we will establish a
compensation committee of our board of directors. This
committee, which will consist solely of directors that are
“independent” under the rules and regulations of the
SEC and The NASDAQ Stock Market, will have overall
responsibility for the compensation program for our named
executive officers.
Compensation
Philosophy and Objectives
Presently, the principal objectives of our named executive
officer compensation program are to attract and retain
highly-qualified executives by providing competitive total
compensation for each position, based on compensation levels at
other similarly-sized companies operating within our business
sector. We also seek to provide appropriate incentives for our
named executive officers to achieve performance metrics related
to our company-wide performance and the individual’s
relevant performance goals. Finally, through the issuance of
equity-based incentives, we seek to retain our key employees and
reward performance that enhances our long-term value.
Following the consummation of this offering, we expect that our
compensation committee will maintain these principal objectives
as the key components of our named executive officer
compensation program. Accordingly, we believe that our
compensation committee will strive to implement a compensation
program that enables us to attract and retain
high-quality
leadership and to assure that our named executive officers are
compensated in a manner consistent with stockholder interests,
the policies adopted by the compensation committee, internal
equity considerations, competitive practice and the requirements
of appropriate regulatory bodies. In determining the relevant
amounts of each of these components, we believe our compensation
committee will adopt a compensation program that consists of a
mix of compensation that is:
| l | Performance-based: A significant component of compensation should be determined based on whether or not our named executive officers meet performance criteria that are aligned with growth in stockholder value without engaging in unreasonable risk-taking. |
| l | Competitive: Pay-for-performance scales will be established to ensure that the competitive positioning of an executive’s total compensation reflects the competitive positioning of our performance (i.e., the better our performance relative to peers, the higher total compensation payable to a named executive officer relative to competitive benchmarks, and vice versa). |
| l | Balanced: Performance-oriented features and retention-oriented features should be balanced so that the compensation program accomplishes our pay-for-performance and executive retention objectives, while encouraging prudent risk-taking that is aligned with our overall strategy. |
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| l | Fair: Compensation levels and plan design should reflect competitive practices, our performance relative to peer companies and the relationship of compensation levels from one executive to another. |
Principal
Components of Our Compensation Packages
Taking into account the above-described objectives, historically
we have focused on designing a compensation package that
consists of two primary elements: (i) base salary and
(ii) performance-based, annual cash incentive awards. We
have also awarded our named executive officers, when hired,
promoted or both, equity interests in our company that vest on a
pro-rata basis over a four-year period. We expect that,
following the consummation of this offering, our compensation
committee will continue to design a compensation package made up
of base salaries, performance-based, annual cash incentive
awards and equity-based awards consisting of a mix of time-based
vesting stock options and restricted stock awards, together with
performance-based restricted stock.
Components of
Fiscal 2010 Compensation for Our Named Executive
Officers
For our 2010 fiscal year, our named executive officers’
compensation consisted of the following principal components:
Base Salary. We provide our named
executive officers with a base salary to compensate them for
performing their daily responsibilities during the year. We
believe that base salaries must be competitive based upon the
named executive officer’s scope of responsibilities and
market rates of compensation for executives performing similar
functions for comparable companies within our business sector.
For fiscal 2010, the base salaries for our chief executive
officer and vice chairman were established through negotiations
between those executives and representatives of BGCP, the holder
of a majority of our Class A units prior to the redemption
of those units in October 2010. The fiscal 2010 base salaries
for our named executive officers other than our chief executive
officer and vice chairman were based on our chief executive
officer’s and BGCP’s representatives’ assessment
of our operating performance in fiscal 2009 and the individual
named executive officer’s performance of his duties during
that year. Our named executive officers, other than
Messrs. C. Pappas and J. Pappas, have had their
performance reviewed periodically, and have been eligible for
merit-based base salary increases as a result of these reviews.
Taking all of these factors into account, our named executive
officers received the following base salaries for the 2010
fiscal year:
|
Percentage |
||||||||
|
Increase |
||||||||
|
2010 |
Over Prior |
|||||||
|
Name
|
Base Salary | Year | ||||||
|
Christopher Pappas
|
$ | 400,000 | 0% | |||||
|
John Pappas
|
$ | 400,000 | 0% | |||||
|
James Wagner
|
$ | 227,458 | (1) | 7.2% | ||||
|
Kenneth Clark
|
$ | 242,500 | (2) | 15.5% | ||||
|
Frank O’Dowd
|
$ | 218,500 | 3.0% | |||||
| (1) | Mr. Wagner’s annual base salary was $218,500 for the first seven months of 2010. On August 1, 2010, Mr. Wagner’s annual base salary increased to $240,000. |
| (2) | Mr. Clark’s annual base salary was $210,000 for the first two months of 2010. Effective as of March 1, 2010, Mr. Clark’s annual base salary increased to $249,000. |
Performance-Based, Annual Cash Incentive
Compensation. To closely align our named
executive officers’ compensation to our goals, we believe
that a significant portion of a named executive officer’s
compensation should be incentive-based. Accordingly, we have
utilized, and anticipate that we will continue to utilize
following the consummation of this offering, an annual cash
incentive program that provides our named executive officers
with the opportunity to earn substantial cash incentive
compensation for the achievement of annual goals related to both
our performance and the executive officer’s individual
performance.
For 2010, each of Messrs. C. Pappas and J. Pappas were
eligible to earn a performance-based cash incentive tied to our
achieving at least a threshold level of EBITDA. Specifically,
each individual was eligible to receive a cash payment equal to
25% of our EBITDA over $18.25 million, with a maximum award
of $350,000. For 2010, each of Christopher Pappas and John
Pappas received a cash incentive payment of $350,000. For fiscal
2010, we based each of the other named executive officers’
performance-based cash incentive award primarily on the
achievement
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of company-wide targeted financial goals.
Mr. Wagner’s award was tied to our achieving revenue
of $291.0 million and gross profits of $75.6 million.
He also had an individual performance goal tied to the
reorganization of our sales management by January 1, 2011.
Mr. Clark’s and Mr. O’Dowd’s awards
were not tied specifically to any particular performance metric,
but rather were determined in the discretion of our chief
executive officer. Although the awards for Mr. Clark and
Mr. O’Dowd were not specifically tied to any
particular performance metric, Mr. C. Pappas did consider
our performance against budgeted revenue and gross profit
targets of $291.0 million and $75.6 million, respectively, when
determining the amount of incentive-based compensation to pay
Messrs. Clark and O’Dowd. Our chief executive officer
has, and prior to our redemption of all of our then-issued
Class A units, BGCP’s representatives together with
our chief executive officer had, a significant amount of
discretion to pay the full amount of a targeted award or a
smaller percentage thereof if we did not meet any of these
targets or to reduce the amount of an award even if we achieved
a specific target.
For our 2010 fiscal year, Mr. Wagner’s
performance-based cash incentive target award expressed as a
percentage of his base salary was 50% of his $218,500 base
salary for the first seven months of 2010 and 75% of his
$240,000 base salary for the last five months of 2010. The
percentage target for Mr. Clark was 50% of his increased
annualized base salary of $249,000 and for Mr. O’Dowd
was 50% of his base salary of $218,500. As we achieved each of
our budgeted performance targets for the 2010 fiscal year and as
Mr. Wagner achieved his individual performance goals, each
of Messrs. Wagner, Clark and O’Dowd received his
maximum target cash incentive payment. These payments were made
on March 2, 2011. The amounts actually paid to Messrs.
Pappas, Pappas, Wagner, Clark and O’Dowd under the annual,
performance-based cash incentive program, and the related target
amounts, are set forth in the following table:
|
NAME
|
TARGET AWARD | ACTUAL AWARD | ||||||
|
Christopher Pappas
|
$ | 350,000 | $ | 350,000 | ||||
|
John Pappas
|
$ | 350,000 | $ | 350,000 | ||||
|
James Wagner
|
$ | 138,730 | $ | 138,730 | ||||
|
Kenneth Clark
|
$ | 124,500 | $ | 124,500 | ||||
|
Frank O’Dowd
|
$ | 109,250 | $ | 109,250 | ||||
Long-term Equity Incentive Compensation. In fiscal
2010 and prior years, we did not have a specific plan or
arrangement under which our named executive officers were
granted options or other equity awards. We did, however, from
time-to-time
award Class C units to our named executive officers. We
issued these units, which do not have voting rights before or
after vesting, as a retention tool and to include a component of
long-term, performance-based equity compensation in our named
executive officers’ total compensation. These awards were
typically issued in connection with our hiring, and in the case
of Mr. Clark, promoting, a named executive officer. In
total, we have issued our named executive officers 2,083,333
Class C units of ownership interest. These awards, which
were issued in 2007 and 2009, as described in the following
table, vest 25% per year over the first four years following
issuance:
|
NAME
|
GRANT DATE | NUMBER OF CLASS C UNITS ISSUED (1) | ||||||
|
James Wagner
|
August 1, 2007 | 833,333 | ||||||
|
Kenneth Clark
|
July 31, 2007 | 200,000 | ||||||
| March 5, 2009 | 516,667 | |||||||
| June 16, 2009 | 116,667 | |||||||
|
Frank O’Dowd
|
June 13, 2007 | 416,666 | ||||||
| (1) | In connection with the reorganization transaction, these units will convert into common shares of The Chefs’ Warehouse, Inc., shares of which will be unvested restricted common stock, immediately prior to the effectiveness of this registration statement at a conversion ratio of shares of common stock per Class C unit. See the information under the caption “Certain Relationships and Related-Party Transactions — Reorganization Transaction.” |
The number of units issued to each individual was based
primarily on a combination of internal pay equity
considerations, job responsibilities, overall dilution of
current ownership and our lack of any equity incentive
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compensation prior thereto. Each of the named executive officers
made Section 83(b) elections under the Code in connection
with these awards. The vesting of these awards will not
accelerate upon the consummation of this offering.
In connection with this offering, we expect to adopt The
Chefs’ Warehouse, Inc. 2011 Omnibus Equity Incentive Plan,
or the Omnibus Plan. The Omnibus Plan will allow us to provide a
variety of incentive awards (including annual and long-term
incentive awards) to our named executive officers and other
employees following completion of the offering. The Omnibus Plan
will permit us to issue stock options, restricted stock units,
restricted stock, stock appreciation rights, performance units,
performance shares and cash incentive awards to eligible
employees (including our named executive offers), directors and
advisors, as determined by the compensation committee. For more
details regarding this plan, see the information under the
caption “— 2011 Omnibus Equity Incentive
Plan” beginning on page 72 of this prospectus.
Retirement Plans and Other
Benefits. We believe that an important
aspect of attracting and retaining qualified individuals to
serve as executive officers involves providing health and
welfare benefits as well as methods for those individuals to
save for retirement. Accordingly, we provide our named executive
officers with the following benefits:
| l | Health Insurance. We provide each of our named executive officers and their spouses and children the same health, dental and vision insurance coverage we make available to our other eligible employees. We pay both our portion and the executive’s portion of the premiums for these benefits. | |
| l | Disability Insurance. We provide each of our named executive officers with disability insurance. | |
| l | Retirement Benefits. We do not provide pension arrangements or post-retirement health coverage for our named executive officers or employees; however, our named executive officers and other eligible employees are eligible to participate in our 401(k) defined contribution plan. Prior to our 2011 fiscal year we did not match employee contributions under our 401(k) plan. Beginning in 2011, we are making matching contributions for each of our employees, including our named executive officers, in an amount equal to 3% of the employee’s contributions up to 6% of his or her base salary. | |
| l | Nonqualified Deferred Compensation. We do not currently provide any nonqualified defined contribution or other deferred compensation plans to any of our employees. | |
| l | Perquisites. In 2010, we provided certain personal-benefit perquisites to our named executive officers. Other than automobile allowances for certain of our named executive officers and a temporary housing allowance for Mr. O’Dowd, the aggregate incremental cost to us of the perquisites received by each of the named executive officers in 2010 did not exceed $10,000. The cost of the perquisites provided to the named executive officers in 2010 is included in the Summary Compensation Table. |
Employment
Agreements, Letter Agreements and Severance
Benefits
Employment Agreements. We have entered
into an employment agreement with each of Christopher Pappas and
John Pappas. Our agreement with Christopher Pappas provides for
an annual base salary of $1,000,000 per year as well as
reimbursement for a leased automobile. Although his employment
agreement provides for a base salary of $1,000,000 annually, in
2006 Mr. C. Pappas’s base salary was reduced to $400,000
with his consent. Mr. C. Pappas’s annual base
salary will be $750,000 for fiscal 2011 with his consent. This
agreement does not have a stated expiration date, but rather is
terminable by Mr. Pappas on 60 days’ notice and
by us upon approval of a resolution by our board of directors.
This employment agreement also includes a non-competition and
non-solicitation provision, pursuant to which Mr. Pappas
has agreed, among other things, that for two years following the
termination of his employment with us, he will not
(i) compete with us or our subsidiaries; (ii) induce
an employee of ours to leave our employ; (iii) hire any of
our senior executives or full-time sales professionals; or
(iv) induce a customer or supplier of ours to cease doing
business with us. If Mr. Pappas is terminated by us without
cause under certain scenarios, the non-competition and
non-solicitation provisions of his employment agreement expire
as of the date of termination unless we exercise an option to
extend those provisions for up to two years, in exchange for
annual payments of $500,000 during those two years.
Our agreement with John Pappas provides for an annual base
salary of $1,000,000 per year as well as reimbursement for a
leased automobile. Although his employment agreement provides
for a base salary of $1,000,000 annually, in 2006 Mr. J.
Pappas’s base salary was reduced to $400,000 with his
consent. Mr. J. Pappas’s annual base salary will
be $750,000 for fiscal 2011 with his consent. This agreement
does not have a stated expiration date, but rather is terminable
by Mr. Pappas on 60 days’ notice and by us upon
approval of a resolution by our board of directors. This
employment agreement also includes a non-competition and
non-solicitation provision, pursuant to which Mr. Pappas
has agreed, among other things, that, for two years following
the termination of his employment with us, he will not
(i) compete with us or our subsidiaries; (ii) induce
an
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employee of ours to leave our employ; (iii) hire any of our
senior executives or full-time sales professionals; or
(iv) induce a customer or supplier of ours to cease doing
business with us. If Mr. Pappas is terminated by us under
certain scenarios, the non-competition and non-solicitation
provisions of his employment agreement expire as of the date of
termination unless we exercise an option to extend those
provisions for up to two years, in exchange for annual payments
of $500,000 during those two years.
We expect that we will enter into a replacement employment
agreement with each of Christopher Pappas and John Pappas prior
to the consummation of this offering. Although the annual base
salary for Messrs. C. Pappas and J. Pappas was
increased to $750,000 in 2011, their total non-equity
compensation in 2011 is expected to be comparable to their total
non-equity compensation paid in 2010 after taking into account
the $350,000 bonus payment that was made to each in 2010.
Letter Agreements. On
April 8, 2011, we entered into a letter agreement with
James Wagner, our chief operating officer. The letter agreement
has no specific term and provides that Mr. Wagner is an
at-will employee. Mr. Wagner’s annual base salary
under the letter agreement is $250,000 and he is eligible to
participate in our annual, performance-based cash incentive
program at a target of 100% of his base salary. In connection
with entering into the letter agreement with Mr. Wagner, we
agreed to issue him Class C units (which will convert to
restricted shares of our common stock in connection with the
reorganization transaction) equal to approximately 0.8% of our
outstanding shares of common stock following the consummation of
this offering, which will result in our incurring a non-cash
compensation charge amortized over the life of the award. These
units vest 50% on grant and 12.5% per year for each of the first
four years following issuance. Any unvested portion of this
award would vest immediately upon our termination of
Mr. Wagner without cause, Mr. Wagner’s
resignation, or upon consummation of a change in control of our
company.
On March 6, 2009, we entered into a letter agreement with
Kenneth Clark, our chief financial officer. The letter agreement
has no specific term and provides that Mr. Clark is an
at-will employee. Mr. Clark’s base salary under the
letter agreement was initially $210,000. This amount was
increased to $249,000 per year effective as of March 1,
2010. Pursuant to the terms of the letter agreement,
Mr. Clark is eligible to participate in our annual,
performance-based cash incentive program at a target of 50% of
his annual base salary. Mr. Clark’s letter agreement
also provides that he is entitled to receive his base salary for
a period of twelve months following his termination by us
without “cause.”
We entered into a letter agreement, effective as of
February 15, 2007, with Frank O’Dowd, our chief
information officer. The letter agreement has no specific term
and provides that Mr. O’Dowd is an at-will employee.
Mr. O’Dowd’s annual base salary under the letter
agreement was initially $200,000, which was subsequently
increased to $218,500, and he is eligible to participate in our
annual, performance-based cash incentive program at a target of
50% of his annual base salary. Mr. O’Dowd’s
letter agreement also provides that he is entitled to receive
his base salary for a period of six months following his
termination by us without “cause.”
Neither Mr. Wagner’s nor Mr. O’Dowd’s
letter agreement defines “cause.”
Mr. Clark’s letter agreement defines “cause”
as termination of employment by us due to (i) conviction
of, or plea of, nolo contendre, with respect to any
felony, or any act of fraud, embezzlement or dishonesty against
us or any of our subsidiaries, or any act of moral turpitude or
any conduct in which he engages during his employment that tends
to bring us or any of our subsidiaries into substantial public
disgrace or disrepute, (ii) the commission of any act or
omission involving fraud with respect to us or any of our
subsidiaries or in connection with any relationship between us
or any of our subsidiaries and any customer or supplier,
(iii) use of illegal drugs or repetitive abuse of other
drugs or repetitive excess consumption of alcohol interfering
with the performance of his duties, (iv) the gross
negligence or willful misconduct in the performance of his
duties with respect to us or any of our subsidiaries or
(v) failure to follow the lawful directives of our
president.
Other Severance Benefits. As described
above, we have entered into letter agreements with each of
Messrs. Clark and O’Dowd pursuant to which we have
agreed to pay these individuals severance benefits if they are
terminated by us without “cause.” We have entered into
a separate severance and release agreement with Mr. Wagner
pursuant to which Mr. Wagner is entitled to receive his
base salary for twelve months following our termination of his
employment without “cause,” or, if earlier, until the
date he begins employment with a new company or business;
provided that Mr. Wagner provides the release
described therein. Mr. Clark’s agreement with us
provides that we will pay him his base salary for twelve months
following our termination of his employment without
“cause.” Our
65
Table of Contents
agreement with Mr. O’Dowd requires that we pay him his
base salary for six months following our termination of his
employment without “cause.”
Mr. Wagner’s agreement defines “cause” as
(i) willful refusal to perform, in any material respect,
his duties or responsibilities for us; (ii) material breach
of his Confidentiality, Non-Solicit, Non-Interference,
Non-Compete and Severance Agreement with us; (iii) gross
negligence or willful disregard in the performance of his duties
or responsibilities; (iv) willful disregard, in any
material respect, of any financial or other budgetary
limitations applicable to Mr. Wagner; (v) the
commission of any act or omission involving fraud with respect
to us or our subsidiaries or any customer or supplier of ours
that were established in good faith; or (vi) use of illegal
drugs, repetitive abuse of other drugs or repetitive consumption
of alcohol interfering with the performance of his duties.
In determining the length of the severance benefits that we
would pay these named executive officers following their
termination, we considered the need to be able to competitively
recruit and retain talented executive officers who often times
seek protection against the possibility that they might be
terminated without cause or forced to resign without cause,
particularly following a change of control. None of our named
executive officers are entitled to receive single trigger cash
payments upon a change in control involving us.
2011
Compensation
For 2011, the base salary for Messrs. C. Pappas and
J. Pappas was increased to $750,000. They will not be
eligible for any non-equity incentive plan compensation for
2011. Mr. Wagner’s annual base salary was increased to
$250,000 in connection with his promotion to chief operating
officer. The annual base salaries of Messrs. Clark and
O’Dowd are unchanged for fiscal 2011. Each of our named
executive officers, other than Messrs. C. Pappas and
J. Pappas, will be eligible to receive performance-based
cash incentive payments in the first quarter of 2012 if we
achieve performance targets related to our fiscal 2011 revenues,
operating profit and EBITDA. The bonus target, expressed as a
percentage of annual base salary, that Messrs. Clark and
O’Dowd are each entitled to receive is the same as the
target for fiscal 2010, and Mr. Wagner’s target is
100% of his annual base salary. In connection with our promoting
Mr. Wagner to chief operating officer, we intend to award
him an additional equity interest in our company equal to 0.8%
of our outstanding common stock following the consummation of
this offering. This award, which will be issued prior to the
consummation of this offering, vests 50% on grant and 12.5% per
year on each of the first four anniversaries following the grant
date. Any unvested portion of this award would vest immediately
upon our termination of Mr. Wagner without cause or upon
consummation of a change in control of our company.
Tax and
Accounting Implications
Deductibility of Executive
Compensation. The accounting and tax
treatment of particular forms of compensation have not, to date,
materially affected our compensation decisions. Following the
consummation of this offering, we expect that our compensation
committee will consider the effect of accounting and tax
treatment regarding executive compensation when making decisions
regarding the amount and form of compensation that we will pay
our named executive officers. For instance, we expect that our
compensation committee will review and consider the
deductibility of executive compensation under
Section 162(m) of the Code, which generally disallows tax
deductions to public companies for certain compensation in
excess of $1,000,000 that is paid in any one tax year to certain
of our most highly compensated employees. There is an exception
to the limit on deductibility for performance-based compensation
that meets certain requirements. We believe that the
compensation paid under the Omnibus Plan, including any
performance-based cash incentive compensation, should be fully
deductible for federal income tax purposes. In certain
situations, however, we may approve compensation that will not
meet these requirements in order to ensure competitive levels of
total compensation for our named executive officers.
Accounting for Equity-Based
Compensation. Accounting rules require that
we expense equity-based compensation awards, including awards
under the Omnibus Plan.
66
Table of Contents
2010 Summary
Compensation Table
The table below summarizes the compensation paid or accrued by
us during the 2010 fiscal year for our chief executive officer,
chief financial officer and each of our next three highest paid
executive officers whose total compensation exceeded $100,000
for the 2010 fiscal year.
|
CHANGE IN PENSION |
||||||||||||||||||||||||||||||||||||
|
VALUE AND |
||||||||||||||||||||||||||||||||||||
|
NONQUALIFIED |
||||||||||||||||||||||||||||||||||||
|
NON-EQUITY |
DEFERRED |
|||||||||||||||||||||||||||||||||||
|
STOCK |
OPTION |
INCENTIVE PLAN |
COMPENSATION |
ALL OTHER |
||||||||||||||||||||||||||||||||
|
NAME AND PRINCIPAL |
SALARY |
BONUS |
AWARDS |
AWARDS |
COMPENSATION(1) |
EARNINGS |
COMPENSATION |
|||||||||||||||||||||||||||||
|
POSITION
|
YEAR | ($) | ($) | ($) | ($) | ($) | ($) | (2) ($) | TOTAL ($) | |||||||||||||||||||||||||||
|
Christopher Pappas –
|
2010 | $ | 400,000 | — | — | — | $ | 350,000 | — | $ | 29,605 | $ | 779,605 | |||||||||||||||||||||||
|
Chief Executive Officer
|
||||||||||||||||||||||||||||||||||||
|
John Pappas –
|
2010 | $ | 400,000 | — | — | — | $ | 350,000 | — | $ | 28,324 | $ | 778,324 | |||||||||||||||||||||||
|
Vice Chairman
|
||||||||||||||||||||||||||||||||||||
|
James Wagner –
|
2010 | $ | 227,458 | — | — | — | $ | 138,730 | — | $ | 9,355 | $ | 375,543 | |||||||||||||||||||||||
|
Chief Operating Officer
(3)
|
||||||||||||||||||||||||||||||||||||
|
Kenneth Clark –
|
2010 | $ | 242,500 | — | — | — | $ | 124,500 | — | $ | 5,497 | $ | 372,497 | |||||||||||||||||||||||
|
Chief Financial Officer
(4)
|
||||||||||||||||||||||||||||||||||||
|
Frank O’Dowd –
|
2010 | $ | 218,500 | — | — | — | $ | 109,250 | — | $ | 29,321 | $ | 357,071 | |||||||||||||||||||||||
|
Chief Information Officer
|
||||||||||||||||||||||||||||||||||||
| (1) | Amounts reflect those amounts earned by the named executive officer under our fiscal 2010 performance-based, annual cash incentive program. For a description of this program, please see the information under the caption “Performance-Based, Annual Cash Incentive Compensation” above. | |
| (2) | The following table breaks out the components of the “All Other Compensation” paid to our named executive officers in fiscal 2010: |
|
MEDICAL, DENTAL AND |
||||||||||||||||
|
VISION INSURANCE |
HOUSING |
|||||||||||||||
|
NAME
|
PREMIUMS(a) | AUTOMOBILE(b) | ALLOWANCE | TOTAL | ||||||||||||
|
Christopher Pappas
|
$ | 5,605 | $ | 24,000 | — | $ | 29,605 | |||||||||
|
John Pappas
|
5,524 | 22,800 | — | 28,324 | ||||||||||||
|
James Wagner
|
5,605 | 3,750 | (c) | — | 9,355 | |||||||||||
|
Kenneth Clark
|
5,497 | — | — | 5,497 | ||||||||||||
|
Frank O’Dowd
|
4,121 | — | $ | 25,200 | 29,321 | |||||||||||
| (a) | This amount reflects each named executive officer’s portion of the premiums for his and his family’s medical, dental and vision insurance that we pay on his behalf. | |
| (b) | Mr. Christopher Pappas and Mr. Wagner are provided with monthly car allowances and Mr. John Pappas is provided with an automobile leased by us. | |
| (c) | Mr. Wagner receives a car allowance of $750 per month, which began in August 2010. |
| (3) | Mr. Wagner’s annual base salary was $218,500 for the first seven months of 2010. On August 1, 2010, Mr. Wagner’s annual base salary increased to $240,000. |
| (4) | Mr. Clark’s annual base salary was $210,000 for the first two months of 2010. Effective as of March 1, 2010, Mr. Clark’s annual base salary increased to $249,000. |
2010 Grants of
Plan-Based Awards
We did not grant any plan-based awards in 2010.
67
Table of Contents
Outstanding
Equity Awards at 2010 Fiscal Year End
The following table sets forth certain information with respect
to our Class C units, the only class of our outstanding
equity held by our named executive officers that had not yet
vested as of December 24, 2010:
| UNIT AWARDS | ||||||||||||
|
NUMBER |
MARKET |
|||||||||||
|
OF UNITS |
VALUE OF |
|||||||||||
|
THAT |
UNITS |
|||||||||||
|
HAVE |
THAT |
|||||||||||
|
NOT |
HAVE NOT |
|||||||||||
|
VESTED |
VESTED
(2) |
|||||||||||
|
NAME
|
TYPE OF UNITS (1) | (#) | ($) | |||||||||
|
Christopher Pappas
|
N/A | N/A | N/A | |||||||||
|
John Pappas
|
N/A | N/A | N/A | |||||||||
|
James Wagner
|
Class C Units | 208,333 | (3) | N/A | ||||||||
|
Kenneth Clark
|
Class C Units | 395,834 | (4) | N/A | ||||||||
|
Frank O’Dowd
|
Class C Units | 104,167 | (5) | N/A | ||||||||
| (1) | In connection with the reorganization transaction, these units will convert into common shares of The Chefs’ Warehouse, Inc. immediately prior to the effectiveness of this registration statement at a conversion ratio of shares of common stock per Class C unit. See the information under the caption “Certain Relationships and Related-Party Transactions — Reorganization Transaction” for more information regarding this reorganization transaction. |
| (2) | Because the Class C units are equity interests in a private limited liability company, the market value of such interests is not readily determinable. Using the midpoint of the estimated price range set forth on the cover page of this prospectus, the market value of the unvested Class C units for each of Messrs. Wagner, Clark and O’Dowd would be $ , $ and $ , respectively. |
| (3) | Mr. Wagner’s 208,333 unvested Class C units will vest on August 1, 2011. |
| (4) | Of Mr. Clark’s 395,834 unvested Class C units, 50,000 units will vest on July 31, 2011; 129,167 units will vest on each of March 5, 2012 and March 5, 2013; 29,167 units will vest on each of June 16, 2011 and June 16, 2012; and 29,166 units will vest on June 16, 2013. |
| (5) | Mr. O’Dowd’s 104,167 unvested Class C units will vest on June 13, 2011. |
2010 Units Vested
Table
The following table sets forth certain information with respect
to the number of Class C units that our named executive
officers received upon vesting in fiscal 2010. There were no
other equity-based awards that vested in fiscal 2010.
| CLASS C UNITS | ||||||||
|
NUMBER OF |
||||||||
|
UNITS |
||||||||
|
ACQUIRED |
VALUE REALIZED |
|||||||
|
ON VESTING |
ON VESTING
(1) |
|||||||
|
NAME
|
(#) | ($) | ||||||
|
Christopher Pappas
|
N/A | N/A | ||||||
|
John Pappas
|
N/A | N/A | ||||||
|
James Wagner
|
208,333 | N/A | ||||||
|
Kenneth Clark
|
208,334 | N/A | ||||||
|
Frank O’Dowd
|
104,167 | N/A | ||||||
| (1) | Because the Class C units are equity interests in a private limited liability company, the market value of such interests is not readily determinable. Using the midpoint of the estimated price range set forth on the cover page of this prospectus, the market value of the Class C units that vested in 2010 for each of Messrs. Wagner, Clark and O’Dowd would be $ , $ and $ , respectively. The actual amounts that would have been received could only have been determined at the time of an actual change in control based on the actual net proceeds received in connection with such change in control which likely would have varied from these amounts. |
68
Table of Contents
Change in Control
and Termination Pay Tables
The tables below reflect the amount of compensation payable to
each of our named executive officers in the event of termination
of such executive’s employment. The amount of compensation
payable to each named executive officer upon voluntary
termination, early or normal retirement and involuntary
not-for-cause
termination and in the event of disability or death of the
executive is shown below. The amounts shown assume that such
termination was effective as of December 24, 2010, and thus
include amounts earned through such time, and are estimates of
the amounts which would be paid out to the executives upon their
termination. The actual amounts to be paid out can only be
determined at the time of such executive’s separation from
us.
Christopher
Pappas
|
VOLUNTARY |
EARLY |
NORMAL |
INVOLUNTARY |
|||||||||||||||||||||
|
EXECUTIVE BENEFITS |
TERMINATION |
RETIREMENT |
RETIREMENT |
NOT-FOR-CAUSE |
DISABILITY |
DEATH |
||||||||||||||||||
|
AND PAYMENTS UPON |
ON |
ON |
ON |
TERMINATION |
ON |
ON |
||||||||||||||||||
|
SEPARATION
|
12/24/2010 | 12/24/2010 | 12/24/2010 | ON 12/24/2010 | 12/24/2010 | 12/24/2010 | ||||||||||||||||||
|
Performance-based Cash Incentive Plan
|
— | — | — | — | — | — | ||||||||||||||||||
|
Acceleration of Vesting of Class B Units
|
— | — | — | — | — | — | ||||||||||||||||||
|
Change in Control Payment
|
— | — | — | — | — | — | ||||||||||||||||||
|
Cash Severance Payment
|
— | — | — | — | — | — | ||||||||||||||||||
|
Health and Welfare Benefits
|
— | — | — | — | — | — | ||||||||||||||||||
|
Excise Tax and
Gross-Up
|
— | — | — | — | — | — | ||||||||||||||||||
|
Total
|
— | — | — | — | — | — | ||||||||||||||||||
John
Pappas
|
VOLUNTARY |
EARLY |
NORMAL |
INVOLUNTARY |
|||||||||||||||||||||
|
EXECUTIVE BENEFITS |
TERMINATION |
RETIREMENT |
RETIREMENT |
NOT-FOR-CAUSE |
DISABILITY |
DEATH |
||||||||||||||||||
|
AND PAYMENTS UPON |
ON |
ON |
ON |
TERMINATION |
ON |
ON |
||||||||||||||||||
|
SEPARATION
|
12/24/2010 | 12/24/2010 | 12/24/2010 | ON 12/24/2010 | 12/24/2010 | 12/24/2010 | ||||||||||||||||||
|
Performance-based Cash Incentive Plan
|
— | — | — | — | — | — | ||||||||||||||||||
|
Acceleration of Vesting of Class B Units
|
— | — | — | — | — | — | ||||||||||||||||||
|
Change in Control Payment
|
— | — | — | — | — | — | ||||||||||||||||||
|
Cash Severance Payment
|
— | — | — | — | — | — | ||||||||||||||||||
|
Health and Welfare Benefits
|
— | — | — | — | — | — | ||||||||||||||||||
|
Excise Tax and
Gross-Up
|
— | — | — | — | — | — | ||||||||||||||||||
|
Total
|
— | — | — | — | — | — | ||||||||||||||||||
69
Table of Contents
James
Wagner
|
VOLUNTARY |
EARLY |
INVOLUNTARY |
||||||||||||||||||||||
|
EXECUTIVE BENEFITS |
TERMINATION |
RETIREMENT |
NORMAL |
NOT-FOR-CAUSE |
DISABILITY |
DEATH |
||||||||||||||||||
|
AND PAYMENTS UPON |
ON |
ON |
RETIREMENT |
TERMINATION |
ON |
ON |
||||||||||||||||||
|
SEPARATION
|
12/24/2010 | 12/24/2010 | ON 12/24/2010 | ON 12/24/2010 | 12/24/2010 | 12/24/2010 | ||||||||||||||||||
|
Performance-based Cash Incentive Plan
|
$ | 138,730 | $ | 138,730 | $ | 138,730 | $ | 138,730 | $ | 138,730 | $ | 138,730 | ||||||||||||
|
Acceleration of Vesting of Class C Units
(1)
|
— | — | — | — | — | — | ||||||||||||||||||
|
Change in Control Payment
|
— | — | — | — | — | — | ||||||||||||||||||
|
Cash Severance Payment
|
— | — | — | $ | 250,000 | (2) | — | — | ||||||||||||||||
|
Health and Welfare Benefits
|
— | — | — | — | — | — | ||||||||||||||||||
|
Excise Tax and
Gross-Up
|
— | — | — | — | — | — | ||||||||||||||||||
|
Total
|
138,730 | 138,730 | 138,730 | $ | 388,730 | 138,730 | 138,730 | |||||||||||||||||
| (1) | Pursuant to the terms of our Amended and Restated Limited Liability Company Agreement, Mr. Wagner would forfeit all of his unvested shares upon his termination of employment for any reason. Mr. Wagner would forfeit all of his vested and unvested Class C units upon our termination of his employment for “Cause” (as defined in our Amended and Restated Limited Liability Company Agreement) or upon his engaging in any activity that is competitive with us, including soliciting our customers or soliciting or hiring our employees. In the event of an Approved Company Sale, as defined in our Amended and Restated Limited Liability Company Agreement, Mr. Wagner’s unvested Class C units will immediately vest. Because the Class C units are equity interests in a private limited liability company, the market value of such interests is not readily determinable. Using the midpoint of the estimated price range set forth on the cover page of this prospectus, the market value of the unvested Class C units would be $ . The actual amount that would have been received could only have been determined at the time of an actual change in control based on the actual net proceeds received in connection with such change in control which likely would have varied from this amount. | |
| (2) | Mr. Wagner is entitled to receive his base salary for twelve months following our termination of his employment without cause. These payments would cease earlier than the 12-month anniversary of our termination of his employment if Mr. Wagner becomes employed by another company during that period. |
Kenneth
Clark
|
VOLUNTARY |
EARLY |
INVOLUNTARY |
||||||||||||||||||||||
|
EXECUTIVE BENEFITS |
TERMINATION |
RETIREMENT |
NORMAL |
NOT-FOR-CAUSE |
DISABILITY |
DEATH |
||||||||||||||||||
|
AND PAYMENTS UPON |
ON |
ON |
RETIREMENT |
TERMINATION |
ON |
ON |
||||||||||||||||||
|
SEPARATION
|
12/24/2010 | 12/24/2010 | ON 12/24/2010 | ON 12/24/2010 | 12/24/2010 | 12/24/2010 | ||||||||||||||||||
|
Performance-based Cash Incentive Plan
|
$ | 124,500 | $ | 124,500 | $ | 124,500 | $ | 124,500 | $ | 124,500 | $ | 124,500 | ||||||||||||
|
Acceleration of Vesting of Class C
Units (1)
|
— | — | — | — | — | — | ||||||||||||||||||
|
Change in Control Payment
|
— | — | — | — | — | — | ||||||||||||||||||
|
Cash Severance Payment
|
— | — | — | $ | 249,000 | (2) | — | — | ||||||||||||||||
|
Health and Welfare Benefits
|
— | — | — | — | — | — | ||||||||||||||||||
|
Excise Tax and
Gross-Up
|
— | — | — | — | — | — | ||||||||||||||||||
|
Total
|
$ | 124,500 | $ | 124,500 | $ | 124,500 | $ | 373,500 | $ | 124,500 | $ | 124,500 | ||||||||||||
| (1) | Pursuant to the terms of our Amended and Restated Limited Liability Company Agreement, Mr. Clark would forfeit all of his unvested shares upon his termination of employment for any reason. Mr. Clark would forfeit all of his vested and unvested Class C units upon our termination of his employment for “Cause” (as defined in our Amended and Restated Limited Liability Company Agreement) or upon his engaging in any activity that is competitive with us, including soliciting our customers or soliciting or hiring our employees. In the event of an Approved Company Sale, as defined in our Amended and Restated Limited Liability Company Agreement, Mr. Clark’s unvested Class C units will immediately vest. Because the Class C units are equity interests in a private limited liability company, the market value of such interests is not readily determinable. Using the midpoint of the estimated price range set forth on the cover page of this prospectus, the market value of the unvested Class C units would be $ . The actual amount that would have been received could only have been determined at the time of an actual change in control based on the actual net proceeds received in connection with such change in control which likely would have varied from this amount. | |
| (2) | Mr. Clark is entitled to receive his base salary for twelve months following our termination of his employment without cause. |
70
Table of Contents
Frank
O’Dowd
|
VOLUNTARY |
EARLY |
INVOLUNTARY |
||||||||||||||||||||||
|
EXECUTIVE BENEFITS |
TERMINATION |
RETIREMENT |
NORMAL |
NOT-FOR-CAUSE |
DISABILITY |
DEATH |
||||||||||||||||||
|
AND PAYMENTS UPON |
ON |
ON |
RETIREMENT |
TERMINATION |
ON |
ON |
||||||||||||||||||
|
SEPARATION
|
12/24/2010 | 12/24/2010 | ON 12/24/2010 | ON 12/24/2010 | 12/24/2010 | 12/24/2010 | ||||||||||||||||||
|
Performance-based Cash Incentive Plan
|
$ | 109,250 | $ | 109,250 | $ | 109,250 | $ | 109,250 | $ | 109,250 | $ | 109,250 | ||||||||||||
|
Acceleration of Vesting of Class C
Units(1)
|
— | — | — | — | — | — | ||||||||||||||||||
|
Change in Control Payment
|
— | — | — | — | — | — | ||||||||||||||||||
|
Cash Severance Payment
|
— | — | — | $ | 109,250 | (2) | — | — | ||||||||||||||||
|
Health and Welfare Benefits
|
— | — | — | — | — | — | ||||||||||||||||||
|
Excise Tax and
Gross-Up
|
— | — | — | — | — | — | ||||||||||||||||||
|
Total
|
$ | 109,250 | $ | 109,250 | $ | 109,250 | $ | 218,500 | $ | 109,250 | $ | 109,250 | ||||||||||||
| (1) | Pursuant to the terms of our Amended and Restated Limited Liability Company Agreement, Mr. O’Dowd would forfeit all of his unvested shares upon his termination of employment for any reason. Mr. O’Dowd would forfeit all of his vested and unvested Class C units upon our termination of his employment for “Cause” (as defined in our Amended and Restated Limited Liability Company Agreement) or upon his engaging in any activity that is competitive with us, including soliciting our customers or soliciting or hiring our employees. In the event of an Approved Company Sale, as defined in our Amended and Restated Limited Liability Company Agreement, Mr. O’Dowd’s unvested Class C units will immediately vest. Because the Class C units are equity interests in a private limited liability company, the market value of such interests is not readily determinable. Using the midpoint of the estimated price range set forth on the cover page of this prospectus, the market value of the unvested Class C units would be $ . The actual amount that would have been received could only have been determined at the time of an actual change in control based on the actual net proceeds received in connection with such change in control which likely would have varied from this amount. | |
| (2) | Mr. O’Dowd is entitled to receive his base salary for six months following our termination of his employment without cause. |
Director
Compensation
During 2010, we did not pay any compensation to our directors
other than John Couri and Dean Facatselis for their service on
our board. We paid Mr. Couri a $25,000 retainer and Mr.
Facatselis a $39,780 retainer.
Following consummation of this offering, we intend to pay each
of our independent directors an annual retainer of $50,000
consisting of an equal mix of cash and equity-based
compensation. We do not intend to pay directors for attending
meetings of the board or its committees, or for chairing
committees of the board. We may also grant additional
equity-based awards to our independent directors. In addition,
we will reimburse our independent directors for their expenses
incurred in attending board and committee meetings.
71
Table of Contents
The table below summarizes the compensation paid by us to our
directors for the 2010 fiscal year:
2010 DIRECTOR
COMPENSATION TABLE
|
CHANGE IN PENSION |
||||||||||||||||||||||||||||
|
VALUE AND |
||||||||||||||||||||||||||||
|
FEES |
NONQUALIFIED |
|||||||||||||||||||||||||||
|
EARNED |
NON-EQUITY |
DEFERRED |
||||||||||||||||||||||||||
|
OR PAID |
STOCK |
OPTION |
INCENTIVE PLAN |
COMPENSATION |
ALL OTHER |
|||||||||||||||||||||||
|
IN CASH |
AWARDS |
AWARDS |
COMPENSATION |
EARNINGS |
COMPENSATION |
TOTAL |
||||||||||||||||||||||
|
NAME
|
($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
|
Christopher
Pappas(1)
|
— | — | — | — | — | — | ||||||||||||||||||||||
|
John
Pappas (1)
|
— | — | — | — | — | — | ||||||||||||||||||||||
|
John Couri
|
$ | 25,000 | — | — | — | — | — | $ | 25,000 | |||||||||||||||||||
|
Dean Facatselis
|
$ | 39,780 | — | — | — | — | — | $ | 39,780 | |||||||||||||||||||
|
Joseph M. Sharfenberger,
Jr.(1)(2)
|
— | — | — | — | — | — | — | |||||||||||||||||||||
|
Stephen
Murray(1)(2)
|
— | — | — | — | — | — | — | |||||||||||||||||||||
| (1) | These individuals did not receive any compensation for their service as a director. |
| (2) | These individuals no longer serve as directors of our company. |
2011 Omnibus
Equity Incentive Plan
Overview
We anticipate that prior to the consummation of this offering,
The Chefs’ Warehouse, Inc. 2011 Omnibus Equity Incentive
Plan, or the Omnibus Plan, will be adopted by our board of
directors and approved by our stockholders. The purpose of the
Omnibus Plan will be to promote the interests of the Company and
its stockholders by (i) attracting and retaining key
officers, employees and directors; (ii) motivating such
individuals by means of performance-related incentives to
achieve long-range performance goals; (iii) enabling such
individuals to participate in the long-term growth and financial
success of the Company; (iv) encouraging ownership of stock
in the Company by such individuals; and (v) linking their
compensation to the long-term interests of the Company and its
stockholders.
Set forth below is a summary of the expected terms of the
Omnibus Plan, which is qualified in its entirety by the full
text of the Omnibus Plan, a copy of which is filed as an exhibit
to the registration statement of which this prospectus is a part.
Summary of
Material Terms
Eligibility and Administration of the Omnibus
Plan. Any key officer, employee, consultant
or director shall be eligible to be a designated participant.
The Omnibus Plan will be administered by a “Committee”
composed of at least two “non-employee directors,”
within the meaning of Section 16 of the Securities Exchange
Act of 1934, as amended, or the Exchange Act, and
Rule 16b-3
thereunder, each of whom is designated as: (i) an
“outside director” for purposes of Section 162(m)
of the Internal Revenue Code of 1986, as amended, or the Code,
and (ii) “independent” within the meaning of the
listing standards of The NASDAQ Stock Market.
Subject to the terms of the Omnibus Plan and applicable law, and
in addition to other express powers and authorizations conferred
on the Committee by the Omnibus Plan, the Committee shall have
full power and authority in its discretion (and in accordance
with Section 409A of the Code with respect to awards
subject thereto) to: (i) designate participants;
(ii) determine eligibility for participation in the Omnibus
Plan and decide all questions concerning eligibility for and the
amount of awards under the Omnibus Plan; (iii) determine
the type or types of awards to be granted to a participant;
(iv) determine the number of shares to be covered by, or
with respect to which payments, rights or other matters are to
be calculated in connection with awards; (v) determine the
timing, terms, and conditions of any award; (vi) accelerate
the time at which all or any part of an award may be settled or
exercised; (vii) determine whether, to what extent, and
under what circumstances awards may be settled or
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exercised in cash, shares, other securities, other awards or
other property, or canceled, forfeited or suspended and the
method or methods by which awards may be settled, exercised,
canceled, forfeited or suspended; (viii) determine whether,
to what extent, and under what circumstances cash, shares, other
securities, other awards, other property, and other amounts
payable with respect to an award shall be deferred either
automatically or at the election of the holder thereof or of the
Committee; (ix) grant awards as an alternative to, or as
the form of payment for grants or rights earned or payable
under, other bonus or compensation plans, arrangements or
policies of the Company or a subsidiary or affiliate;
(x) grant substitute awards on such terms and conditions as
the Committee may prescribe, subject to compliance with the
incentive stock option rules under Section 422 of the Code
and the nonqualified deferred compensation rules under
Section 409A of the Code, where applicable; (xi) make
all determinations under the Omnibus Plan concerning any
participant’s separation from service with the Company or a
subsidiary or affiliate, including whether such separation
occurs by reason of cause, good reason, disability, retirement,
or in connection with a change in control and whether a leave
constitutes a separation from service; (xii) interpret and
administer the Omnibus Plan and any instrument or agreement
relating to, or award made under, the Omnibus Plan;
(xiii) except to the extent prohibited under the terms of
the Omnibus Plan, amend or modify the terms of any award at or
after grant with the consent of the holder of the award;
(xiv) establish, amend, suspend or waive such rules and
regulations and appoint such agents as it shall deem appropriate
for the proper administration of the Omnibus Plan; and
(xv) make any other determination and take any other action
that the Committee deems necessary or desirable for the
administration of the Omnibus Plan.
Limitations on Omnibus Plan Awards. No
participant may receive options or stock appreciation rights, or
SARs, under the Omnibus Plan in any calendar year that, taken
together, relate to more than shares. With
respect to any covered officer, the maximum annual number of
shares in respect of which all performance awards may be granted
under the Omnibus Plan is , and the maximum amount of
all performance awards that are settled in cash and that may be
granted under the Omnibus Plan in any year is $ .
Shares Subject to Omnibus
Plan. The number of shares of common stock,
no par value per share, of the Company (each, a
“Share” and collectively, the “Shares”)
which may be issued pursuant to all awards after the effective
date of the Omnibus Plan is equal to (the
“Share Reserve”). Each Share issued pursuant to an
option, restricted stock award, restricted stock unit or
redeemed portion of a SAR shall reduce the Share Reserve by one
(1) share. If any award granted under the Omnibus Plan
(whether before or after the effective date of the Omnibus Plan)
shall expire, terminate, be settled in cash (in whole or in
part) or otherwise be forfeited or canceled for any reason
before it has vested or been exercised in full, the shares
subject to such award shall, to the extent of such expiration,
cash settlement, forfeiture, or termination, again be available
for awards under the Omnibus Plan. The Committee may make such
other determinations regarding the counting of shares issued
pursuant to the Omnibus Plan as it deems necessary or advisable,
provided that such determinations shall be permitted by law.
Notwithstanding the foregoing, if an option or SAR is exercised,
in whole or in part, by tender of shares or if the
Company’s tax withholding obligation is satisfied by
withholding shares, the number of shares deemed to have been
issued under the Omnibus Plan shall be the number of shares that
were subject to the option or SAR or portion thereof, and not
the net number of shares actually issued and any SARs to be
settled in shares shall be counted in full against the number of
shares available for issuance under the Omnibus Plan, regardless
of the number of shares issued upon the settlement of the SAR.
Stock Options and Stock Appreciation
Rights. The Committee shall have sole and
complete authority to determine the participants to whom options
and SARs shall be granted, the number of shares subject to each
award, the exercise price and the conditions and limitations
applicable to the exercise of each option and SAR. An option may
be granted with or without a related SAR. A SAR may be granted
with or without a related option. The grant of an option or SAR
shall occur when the Committee by resolution, written consent or
other appropriate action determines to grant such option or SAR
for a particular number of shares to a particular participant at
a particular option price or grant price, as the case may be, or
such later date as the Committee shall specify in such
resolution, written consent or other appropriate action. The
Committee shall have the authority to grant incentive stock
options and to grant non-qualified stock options. In the case of
incentive stock options, the terms and conditions of such grants
shall be subject to and comply with Section 422 of the
Code, as from time to time amended, and any regulations
implementing such statute. To the extent the aggregate fair
market value (determined at the time the incentive stock option
is granted) of the shares with respect to which all incentive
stock options are exercisable for the first time by an employee
during any calendar year (under all plans described in
Section 422(d) of the Code of the employee’s employer
corporation and its parent and subsidiaries) exceeds $100,000,
such options shall be treated as non-
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qualified stock options. Incentive stock options may not be
granted to any individual who, at the time of grant owns stock
possessing more than 10% of the total combined voting power of
all of the outstanding common stock of the Company or any of its
subsidiaries, unless the exercise price is not less than 110% of
the fair market value of the common stock on the date of the
grant and the exercise of such option is prohibited by its terms
after the expiration of five years from the date of grant of
such option.
Each option and SAR shall be exercisable at such times and
subject to such terms and conditions as the Committee may, in
its sole discretion, specify in the applicable award agreement
or thereafter. The Committee may impose such conditions with
respect to the exercise of options or SARs, including without
limitation, any relating to the application of federal, state or
foreign securities laws or the Code, as it may deem necessary or
advisable. The exercise of any option granted under the Omnibus
Plan shall be effective only at such time as the sale of shares
pursuant to such exercise will not violate any state or federal
securities or other laws.
An option or SAR may be exercised in whole or in part at any
time, with respect to whole shares only, within the period
permitted thereunder for the exercise thereof, and shall be
exercised by written notice of intent to exercise the option or
SAR, delivered to the Company at its principal office, and
payment in full to the Company at the direction of the Committee
of the amount of the option price for the number of Shares with
respect to which the option is then being exercised.
Payment of the option price shall be made in (i) cash or
cash equivalents, or, (ii) at the discretion of the
Committee, by transfer, either actually or by attestation, to
the Company of unencumbered shares previously acquired by the
participant, valued at the fair market value of such shares on
the date of exercise (or next succeeding trading date, if the
date of exercise is not a trading date), together with any
applicable withholding taxes, such transfer to be upon such
terms and conditions as determined by the Committee,
(iii) by a combination of (i) or (ii), or (iv) by
any other method approved or accepted by the Committee in its
sole discretion, including, if the Committee so determines,
(x) a cashless (broker-assisted) exercise that complies
with applicable laws or (y) withholding shares
(net-exercise) otherwise deliverable to the participant pursuant
to the option having an aggregate fair market value at the time
of exercise equal to the total option price. Until the optionee
has been issued the shares subject to such exercise, he or she
shall possess no rights as a stockholder with respect to such
shares. The Company reserves, at any and all times in the
Company’s sole discretion, the right to establish, decline
to approve or terminate any program or procedures for the
exercise of options by means of a method set forth in
subsection (iv) above, including with respect to one or
more participants specified by the Company notwithstanding that
such program or procedures may be available to other
participants.
Restricted Shares and Restricted Share
Units. The Committee shall have sole and
complete authority to determine the participants to whom
restricted shares and restricted share units shall be granted,
the number of restricted shares
and/or the
number of restricted share units to be granted to each
participant, the duration of the period during which, and the
conditions under which, the restricted shares and restricted
share units may be forfeited to the Company, and the other terms
and conditions of such awards. The restricted share and
restricted share unit awards shall be evidenced by award
agreements in such form as the Committee shall from time to time
approve, which agreements shall comply with and be subject to
the terms and conditions provided hereunder and any additional
terms and conditions established by the Committee that are
consistent with the terms of the Omnibus Plan.
Each restricted share and restricted share unit award made under
the Omnibus Plan shall be for such number of shares as shall be
determined by the Committee and set forth in the award agreement
containing the terms of such restricted share or restricted
share unit award. Such agreement shall set forth a period of
time during which the grantee must remain in the continuous
employment (or other service-providing capacity) of the Company
in order for the forfeiture and transfer restrictions to lapse.
If the Committee so determines, the restrictions may lapse
during such restricted period in installments with respect to
specified portions of the shares covered by the restricted share
or restricted share unit award. The award agreement may also, in
the discretion of the Committee, set forth performance or other
conditions that will subject the shares to forfeiture and
transfer restrictions. The Committee may, at its discretion,
waive all or any part of the restrictions applicable to any or
all outstanding restricted share and restricted share unit
awards.
Each restricted share unit shall have a value equal to the fair
market value of a share. Restricted share units may be paid in
cash, shares, other securities or other property, as determined
in the sole discretion of the Committee, upon
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the lapse of the restrictions applicable thereto, or otherwise
in accordance with the applicable award agreement. The
applicable award agreement shall specify whether a participant
will be entitled to receive dividend equivalent rights in
respect of restricted share units at the time of any payment of
dividends to stockholders on shares.
Performance Awards. The Committee shall
have sole and complete authority to determine the participants
who shall receive a performance award, which shall consist of a
right that is (i) denominated in cash or shares (including
but not limited to restricted shares and restricted share
units), (ii) valued, as determined by the Committee, in
accordance with the achievement of such performance goals during
such performance periods as the Committee shall establish, and
(iii) payable at such time and in such form as the
Committee shall determine.
Subject to the terms of the Omnibus Plan and any applicable
award agreement, the Committee shall determine the performance
goals to be achieved during any performance period, the length
of any performance period, the amount of any performance award
and the amount and kind of any payment or transfer to be made
pursuant to any performance award, and may amend specific
provisions of the performance award, provided, however, that
such amendment may not adversely affect existing performance
awards made within a performance period commencing prior to
implementation of the amendment.
Performance awards may be paid in a lump sum or in installments
following the close of the performance period or, in accordance
with the procedures established by the Committee, on a deferred
basis. Separation from service prior to the end of any
performance period, other than for reasons of death or
disability, will result in the forfeiture of the performance
award, and no payments will be made. Notwithstanding the
foregoing, the Committee may in its discretion, waive any
performance goals
and/or other
terms and conditions relating to a performance award. A
participant’s rights to any performance award may not be
sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered or disposed of in any manner, except by will or the
laws of descent and distribution,
and/or
except as the Committee may determine at or after grant.
Awards that are granted as performance-based awards to certain
officers of the Company shall be based upon the attainment of
performance goals established by the Committee and payable at
such time and in such form as the Committee shall determine. The
performance objectives of performance-based awards to certain
officers under the Omnibus Plan may include one or more or a
combination of objectives, including the following:
(i) earnings before any one or more of the following:
interest, taxes, depreciation, amortization
and/or stock
compensation; (ii) operating (or gross) income or profit;
(iii) operating efficiencies; (iv) return on equity,
assets, capital, capital employed or investment; (v) after
tax operating income; (vi) net income; (vii) earnings
or book value per share; (viii) financial ratios;
(ix) cash flow(s); (x) total sales or revenues or
sales or revenues per employee; (xi) production (separate
work units); (xii) stock price or total stockholder return;
(xiii) dividends; (xiv) debt or cost reduction;
(xv) strategic business objectives, consisting of one or
more objectives based on meeting specified cost targets,
business expansion goals (including, without limitation,
developmental, strategic or manufacturing milestones of products
or projects in development, execution of contracts with current
or prospective customers and development of business expansion
strategies) and goals relating to acquisitions, joint ventures
or collaborations or divestitures; or (xvi) any combination
thereof.
To the extent necessary to comply with Section 162(m) of
the Code, with respect to grants of performance awards, no later
than 90 days following the commencement of each performance
period (or such other time as may be required or permitted by
Section 162(m) of the Code), the Committee shall, in
writing, (1) select the performance goal or goals
applicable to the performance period, (2) establish the
various targets and bonus amounts which may be earned for such
performance period, and (3) specify the relationship
between performance goals and targets and the amounts to be
earned by each covered officer for such performance period.
Following the completion of each performance period, the
Committee shall certify in writing whether the applicable
performance targets have been achieved and the amounts, if any,
payable to covered officers for such performance period. In
determining the amount earned by a covered officer for a given
performance period, subject to any applicable award agreement,
the Committee shall have the right to reduce (but not increase)
the amount payable at a given level of performance to take into
account additional factors that the Committee may deem relevant
in its sole discretion to the assessment of individual or
corporate performance for the performance period.
Other Stock-Based Awards. The Committee
shall have the authority to determine the participants who shall
receive other equity-based awards, as deemed by the Committee to
be consistent with the purposes of the Omnibus Plan.
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Subject to the terms of the Omnibus Plan and any applicable
award agreement, the Committee shall determine the terms and
conditions of any such other stock-based award.
Non-Employee Director Awards. The board
of directors may provide that all or a portion of a non-employee
director’s annual retainer, meeting fees
and/or other
awards or compensation as determined by the board of directors,
be payable (either automatically or at the election of a
non-employee director) in the form of non-qualified stock
options, restricted shares, restricted share units
and/or other
stock-based awards, including unrestricted shares. The board of
directors shall have full power and authority in its discretion
to determine the terms and conditions of any such awards,
including the terms and conditions which may apply upon a
termination of the non-employee director’s service as a
member of the board of directors and shall have full power and
authority in its discretion to administer such awards, subject
to the terms of the Omnibus Plan and applicable law.
Separation from Service. The Committee
shall have the full power and authority to determine the terms
and conditions that shall apply to any award upon a separation
from service with the Company, its subsidiaries and affiliates,
including a separation from the Company with or without cause,
by a participant voluntarily, or by reason of death, disability,
early retirement or retirement, and may provide such terms and
conditions in the award agreement or in such rules and
regulations as it may prescribe.
Change in Control. Unless
otherwise provided by the Committee, or in an award agreement or
by a contractual agreement between the Company and a
participant, if, within one year following a change in control,
a participant separates from service with the Company (or its
successor) by reason of (a) death; (b) disability;
(c) normal retirement or early retirement; (d) for
good reason by the participant; or (e) involuntary
termination by the Company for any reason other than for cause,
all outstanding awards of such participant shall vest, become
immediately exercisable and payable and have all restrictions
lifted. For purposes of an award subject to Section 409A of
the Code, good reason shall exist only if (i) the
participant notifies the Company of the event establishing good
reason within 90 days of its initial existence,
(ii) the Company is provided 30 days to cure such
event and (iii) the participant separates from service with
the Company (or its successor) within 180 days of the
initial occurrence of the event.
In the event of a change in control, the surviving, continuing,
successor, or purchasing corporation or other business entity or
parent thereof, as the case may be, or the Acquiror (in
accordance with Section 409A of the Code, to the extent
applicable), may, without the consent of any participant, either
assume or continue the Company’s rights and obligations
under each or any award or portion thereof outstanding
immediately prior to the change in control or substitute for
each or any such outstanding award or portion thereof a
substantially equivalent award with respect to the
Acquiror’s stock, as applicable, provided, that in the
event of such an assumption, the Acquiror must grant the rights
set forth above to the participant in respect of such assumed
awards.
The Committee may (in accordance with Section 409A of the Code,
to the extent applicable), in its discretion and without the
consent of any participant, determine that, upon the occurrence
of a change in control, each or any award or a portion thereof
outstanding immediately prior to the change in control and not
previously exercised or settled shall be canceled in exchange
for a payment with respect to each vested share (and each
unvested share, if so determined by the Committee) subject to
such canceled award in (i) cash, (ii) stock of the
Company or of a corporation or other business entity a party to
the change in control, or (iii) other property which, in
any such case, shall be in an amount having a fair market value
equal to the fair market value of the consideration to be paid
per share in the change in control, reduced by the exercise or
purchase price per share, if any, under such award (which
payment may, for the avoidance of doubt, be $0, in the event the
per share exercise or purchase price of an award is greater than
the per share consideration in connection with the change in
control). In the event such determination is made by the
Committee, the amount of such payment (reduced by applicable
withholding taxes, if any), if any, shall be paid to
participants in respect of the vested portions of their canceled
awards as soon as practicable following the date of the change
in control and in respect of the unvested portions of their
canceled awards in accordance with the vesting schedules
applicable to such awards.
Term and Amendment of Omnibus
Plan. The board of directors may
amend, alter, suspend, discontinue or terminate the Omnibus Plan
or any portion thereof at any time, provided that no such
amendment, alteration, suspension, discontinuation or
termination shall be made without stockholder approval if such
approval is necessary to comply with any tax or regulatory
requirement for which or with which the board of directors deems
it necessary or desirable to comply. The Committee shall not
have the power to (i) amend the terms of previously granted
options
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to reduce the option price of such options, (ii) amend the
terms of any previously granted SAR to reduce the grant price of
such SAR, (iii) cancel such options and grant substitute
options with a lower option price than the cancelled options, or
(iv) cancel such SARs and grant substitute SARs with a
lower grant price than the cancelled SARs, in each case without
the approval of the Company’s stockholders.
The Omnibus Plan will terminate on on the tenth anniversary of
its adoption, after which no new awards may be granted under the
Omnibus Plan.
Certain Federal Income Tax
Consequences. The following is a brief
summary of certain Federal income tax laws in effect on the date
hereof. This summary is not intended to be exhaustive and the
exact tax consequences to any participant will depend on his or
her particular circumstances and other factors. The Omnibus Plan
participants are encouraged to consult their own tax advisors
with respect to any state tax consequences or particular federal
tax implications of awards granted under the Omnibus Plan.
Tax consequences to the Company and to participants receiving
awards will vary with the type of award. Generally, a
participant will not recognize income, and the Company is not
entitled to take a deduction, upon the grant of an incentive
stock option, a nonqualified option, a SAR, a restricted share,
or a restricted share unit award. A participant will not have
taxable income upon exercising an incentive stock option (except
that the alternative minimum tax may apply). Upon exercising an
option other than an incentive stock option, the participant
must generally recognize ordinary income equal to the difference
between the exercise price and fair market value of the freely
transferable and non-forfeitable shares of common stock acquired
on the date of exercise. Similarly, the exercise of an SAR will
result in ordinary income on the value of the SAR to the
individual at the time of exercise.
If a participant sells shares of common stock acquired upon
exercise of an incentive stock option before the end of two
years from the date of grant and one year from the date of
exercise, the participant must generally recognize ordinary
income equal to the difference between (i) the fair market
value of the shares of common stock at the date of exercise of
the incentive stock option (or, if less, the amount realized
upon the disposition of the incentive stock option shares of
common stock), and (ii) the exercise price. Otherwise, a
participant’s disposition of shares of common stock
acquired upon the exercise of an option (including an incentive
stock option for which the incentive stock option holding period
is met) or SAR generally will result in short-term or long-term
capital gain or loss measured by the difference between the sale
price and the participant’s tax basis in such shares of
common stock. A participant’s tax basis generally will be
the sum of the exercise price of the option or SAR plus any
amount previously recognized as ordinary income in connection
with the exercise of the option or SAR.
The Company generally will be entitled to a tax deduction equal
to the amount recognized as ordinary income by the participant
in connection with an option or SAR. The Company generally is
not entitled to a tax deduction relating to amounts that
represent a capital gain to a participant. Accordingly, the
Company will not be entitled to any tax deduction with respect
to an incentive stock option if the participant holds the shares
of common stock for the incentive stock option holding periods
prior to disposition of the shares.
With respect to the grant of restricted shares, the participant
will recognize ordinary income on the fair market value of the
common stock at the time restricted shares vest (less any amount
paid for the shares) unless a participant makes an election
under Section 83(b) of the Code to be taxed at the time of
grant. With respect to a grant of restricted share units, the
participant will recognize ordinary income on the amount of cash
(for units payable in cash) or the fair market value of the
common stock (for units settled in stock) at the time such
payments are made available to the participant under the terms
of the restricted share unit award. The participant also is
subject to capital gains treatment on the subsequent sale of any
common stock acquired through the vesting of a SAR, restricted
share award, or restricted share unit award. For this purpose,
the participant’s basis in the common stock is its fair
market value at the time the SAR is exercised, the restricted
share becomes vested (or is granted, if an election under
Section 83(b) is made), or the restricted share units
become vested (unless delivery of the shares has been validly
deferred). The Company will be allowed a deduction for the
amount of ordinary income recognized by a participant with
respect to a restricted share award.
Payments made under performance awards are taxable as ordinary
income at the time an individual attains the performance goals
and the payments are made available to, and are transferable by,
the participant. Participants receiving performance awards
settled in shares of the Company’s common stock will
recognize ordinary income equal to the fair market value of the
shares of the Company’s common stock received as the
performance goals are
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met and such shares vest, less any amount paid by the
participant for the performance shares, unless the participant
makes an election under Section 83(b) of the Code to be
taxed at the time of the grant. A Section 83(b) election
may not be available with respect to certain forms of
performance awards. The participant is also subject to capital
gain or loss treatment on the subsequent sale of any of the
Company’s common stock awarded to a participant as
performance shares. Unless a participant makes a
Section 83(b) election, his or her basis in the stock is
its fair market value at the time the performance goals are met
and the performance shares become vested.
Section 162(m) of the Code generally disallows a public
company’s tax deduction for compensation paid in excess of
$1.0 million in any tax year to its chief executive officer
and certain other most highly compensated executives. However,
compensation that qualifies as “performance-based
compensation” is excluded from this $1.0 million
deduction limit and therefore remains fully deductible by the
company that pays it. The Company generally intends that, except
as otherwise determined by the Compensation Committee
(i) performance awards and (ii) options granted
(a) with an exercise price at least equal to 100% of the
fair market value of the underlying shares of common stock at
the date of grant (b) to employees the Compensation
Committee expects to be named executive officers at the time a
deduction arises in connection with such awards, qualify as
“performance-based compensation” so that these awards
will not be subject to the Section 162(m) deduction
limitations. The Compensation Committee will not necessarily
limit executive compensation to amounts deductible under
Section 162(m) of the Code, however, if such limitation is
not in the best interests of the Company and its stockholders.
Substitute payments for dividends made to participants with
respect to restricted shares or certain performance awards
payable in the Company’s stock will be taxed as ordinary
income to the participant until the shares vest. After vesting,
dividend payments may be qualified dividend income subject to a
current maximum federal tax rate of 15% provided that the
stockholder meets certain other requirements with respect to
those shares. If a participant makes a Section 83(b)
election with respect to restricted shares or certain eligible
performance awards, these payments may be qualified dividend
income, provided that the other requirements are met. We
recommend that participants consult with their tax advisors to
determine whether such dividends are qualified dividend income.
Section 409A of the Code provides generally that
nonqualified deferred compensation that does not meet certain
requirements will subject the recipients of such compensation to
accelerated taxation, enhanced underpayment interest and an
additional twenty percent tax. Although the Company intends to
administer the Omnibus Plan so that awards will be exempt from,
or will comply with, the requirements of Section 409A of
the Code, the Company does not warrant that any award under the
Omnibus Plan will qualify for favorable tax treatment under
Section 409A of the Code or any other provision of federal,
state, local or foreign law. The Company shall not be liable to
any participant for any tax, interest, or penalties that such
participant might owe as a result of the grant, holding,
vesting, exercise, or payment of any award under the Omnibus
Plan.
The foregoing discussion is general in nature and is not
intended to be a complete description of the Federal income tax
consequences of the Omnibus Plan. This discussion does not
address the effects of other Federal taxes or taxes imposed
under state, local or foreign tax laws. Participants in the
Omnibus Plan are urged to consult a tax advisor as to the tax
consequences of participation.
The Omnibus Plan is not intended to be qualified under
Section 401(a) of the Code.
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PRINCIPAL AND
SELLING STOCKHOLDERS
The following table sets forth information regarding the
beneficial ownership of units of ownership interest in our
company as of June 7, 2011 by:
| • | each of our named executive officers; | |
| • | each of our directors and director nominees; | |
| • | all directors, director nominees and executive officers as a group; | |
| • | each selling stockholder; and | |
| • | each person known to us to beneficially own more than 5% of the outstanding units of ownership interest in our company. |
The table also sets forth such persons’ beneficial
ownership of common stock immediately after the completion of
this offering and after giving effect to the reorganization
transaction.
We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe that, based upon the information furnished to us, the
persons and entities named in the tables below have sole voting
and investment power with respect to all of the units that they
beneficially own, subject to applicable community property laws.
We have based our calculation of the percentage of beneficial
ownership upon, without giving effect to the reorganization
transactions expected to occur prior to the consummation of this
offering, 54,375,000 units outstanding on June 7, 2011
and, after giving effect to the reorganization
transactions, shares of common stock
outstanding upon completion of this offering.
In computing the number of shares of common stock beneficially
owned by a person or group and the percentage ownership of that
person or group, we deemed to be outstanding any shares of
common stock subject to options held by that person or group
that are currently exercisable or exercisable within
60 days after June 7, 2011. We did not deem these
shares to be outstanding, however, for the purpose of computing
the percentage ownership of any other person.
Unless otherwise noted below, the address of each beneficial
owner set forth in the table is
c/o The
Chefs’ Warehouse, Inc., 100 East Ridge Road, Ridgefield,
Connecticut 06877, and our telephone number is
(203) 894-1345.
|
BEFORE OFFERING AND REORGANIZATION |
||||||||||||||||||||||||
| TRANSACTIONS | AFTER OFFERING AND REORGANIZATION TRANSACTION | |||||||||||||||||||||||
|
NUMBER OF |
||||||||||||||||||||||||
|
ADDITIONAL |
||||||||||||||||||||||||
|
NUMBER OF |
PERCENT OF |
NUMBER OF |
SHARES OF |
NUMBER OF |
||||||||||||||||||||
|
UNITS OF |
UNITS OF |
SHARES OF |
COMMON |
SHARES OF |
PERCENT OF |
|||||||||||||||||||
|
OWNERSHIP |
OWNERSHIP |
COMMON |
STOCK TO BE |
COMMON |
COMMON |
|||||||||||||||||||
|
INTEREST |
INTEREST |
STOCK TO BE |
SOLD AT |
STOCK |
STOCK |
|||||||||||||||||||
|
BENEFICIALLY |
BENEFICIALLY |
SOLD IN THIS |
UNDERWRITERS |
BENEFICIALLY |
BENEFICIALLY |
|||||||||||||||||||
|
NAME OF BENEFICIAL OWNER
|
OWNED(1) | OWNED(1) | OFFERING | OPTION | OWNED | OWNED | ||||||||||||||||||
|
Christopher Pappas
|
16,666,667 | 30.70 | % | |||||||||||||||||||||
|
John Pappas
|
16,666,667 | 30.70 | % | |||||||||||||||||||||
|
Dean Facatselis
|
16,666,667 | (2) | 30.70 | %(2) | ||||||||||||||||||||
|
Kay Facatselis
|
16,666,667 | (2) | 30.70 | %(2) | ||||||||||||||||||||
|
John A. Couri
|
— | — | ||||||||||||||||||||||
|
Kevin Cox
|
— | — | ||||||||||||||||||||||
|
Kenneth Clark
|
519,667 | (3) | 0.96 | % | ||||||||||||||||||||
|
James Wagner
|
833,334 | (4) | 1.53 | % | ||||||||||||||||||||
|
Frank O’Dowd
|
416,667 | (4) | 0.77 | % | ||||||||||||||||||||
|
All directors, director nominees and executive officers as a
group (12 persons)
|
52,186,336 | (3)(4)(5) | 95.97 | % | ||||||||||||||||||||
| (1) | Christopher Pappas, John Pappas, Dean Facatselis and Kay Facatselis own 100% of our Class B units. Only Class B units have voting rights. | |
| (2) | Includes 8,333,333.5 units owned individually by Dean Facatselis and 8,333,333.5 units owned individually by Kay Facatselis, his wife. |
| (3) | Includes Class C units owned by Mr. Clark that have vested or will vest within 60 days of the date of this prospectus, but excludes 129,167 Class C units that will vest on March 5, 2012; 29,167 Class C units that will vest on June 16, 2012; 129,167 Class C units that will vest on March 5, 2013; and 26,166 Class C units that will vest on June 16, 2013. |
| (4) | Includes Class C units that have vested or will vest within 60 days of the date of this prospectus. |
| (5) | Includes 8,333,333.5 units owned by Dean Facatselis’s wife. |
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CERTAIN
RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
The following sets forth certain transactions involving us and
our directors, executive officers and affiliates.
We do not have a formal written policy for review and approval
of transactions required to be disclosed pursuant to
Item 404(a) of
Regulation S-K.
Following the completion of this offering, we expect that our
audit committee will be responsible for review, approval and
ratification of “related-person transactions” between
us and any related person. Under SEC rules, a related person is
an officer, director, nominee for director or beneficial holder
of more than 5% of any class of our voting securities since the
beginning of the last fiscal year or an immediate family member
of any of the foregoing. Any member of the audit committee who
is a related person with respect to a transaction under review
will not be able to participate in the deliberations or vote on
the approval or ratification of the transaction. However, such a
director may be counted in determining the presence of a quorum
at a meeting of the committee that considers the transaction.
Other than the transactions described below and the arrangements
described under “Compensation Discussion and
Analysis,” since December 29, 2006, there has not
been, and there is not currently proposed, any transaction or
series of similar transactions to which we were or will be a
participant in which the amount involved exceeded or will exceed
$120,000 and in which any related person had or will have a
direct or indirect material interest.
Reorganization
Transaction
Prior to the effectiveness of this registration statement, we
will complete a transaction in which we will convert Chefs’
Warehouse Holdings, LLC into The Chefs’ Warehouse, Inc.
Specifically, immediately prior to, or at the time, the
registration statement of which this prospectus is part is
declared effective by the SEC, Chefs’ Warehouse Holdings,
LLC, a Delaware limited liability company, will convert into The
Chefs’ Warehouse, Inc., a Delaware corporation, and the
members of Chefs’ Warehouse Holdings, LLC will receive in
the conversion shares of common stock of The
Chefs’ Warehouse, Inc. for each unit of membership interest
in Chefs’ Warehouse Holdings, LLC owned by them at the time
of the conversion. In total, we expect to
issue shares
of common stock in this reorganization transaction. Of these
shares, shares
will be restricted shares of our common stock issued upon
conversion of our Class C units that have not vested as of the
date we consummate the reorganization transaction.
Warehouse and
Office Leases
We lease two warehouse and office facilities from two entities
that are wholly-owned by three of our directors pursuant to
long-term operating lease agreements.
Our subsidiary, Dairyland USA Corporation, subleases a warehouse
and office facility in the Bronx, New York from The Chefs’
Warehouse Leasing Co., LLC, a New York limited liability company
that is wholly-owned by Christopher Pappas, John Pappas and Dean
Facatselis, pursuant to a sublease agreement dated
December 29, 2004, which expires on December 31, 2014.
Dairyland USA Corporation paid The Chefs’ Warehouse Leasing
Co., LLC $1,128,302, $1,090,147 and $1,053,282 under the terms
of the sublease agreement in fiscal 2010, fiscal 2009 and fiscal
2008, respectively. The annual base rent under the sublease
agreement is subject to cumulative annual increases of 3.5%. The
aggregate amount of all periodic payments under the sublease
agreement due on or after the beginning of fiscal year 2011
through the end of the sublease is approximately $4,922,180,
plus annual taxes and operating expenses.
Dairyland USA Corporation also leases a warehouse and office
facility in Hanover, Maryland from Candlewood Road Property,
LLC, a Maryland limited liability company that is wholly-owned
by Christopher Pappas, John Pappas and Dean Facatselis, pursuant
to a lease agreement dated September 14, 2004. Candlewood
Road Property, LLC is the owner of the property. The lease
expires on September 30, 2014. The initial annual base rent
under the lease agreement was $360,000 and is subject to
cumulative annual increases of 3.5%. In fiscal 2010, Dairyland
USA Corporation paid Candlewood Road Property, LLC $431,308 in
rent under the terms of the lease. In fiscal 2009 and fiscal
2008, respectively, the lease payments totaled $416,723 and
$402,631. The aggregate amount of all periodic payments under
the lease agreement due on or after the beginning of fiscal year
2011 through the end of the lease is approximately $1,754,613,
plus annual taxes and operating expenses.
Employment of
Family Members
John Pappas’s brother-in-law, Constantine Papataros, is one
of our employees. We paid him $184,795, $175,100 and $170,000 in
total compensation in each of fiscal 2010, fiscal 2009 and
fiscal 2008, respectively.
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DESCRIPTION OF
OUR CAPITAL STOCK
Our
Reorganization
Prior to the effectiveness of this registration statement, we
will convert from a Delaware limited liability company
(Chefs’ Warehouse Holdings, LLC) to a Delaware
corporation (The Chefs’ Warehouse, Inc.). The consolidated
financial statements included elsewhere in this prospectus,
which are the subject of the following discussion, are those of
Chefs’ Warehouse Holdings, LLC and its consolidated
subsidiaries. We expect that our conversion to the corporate
form of organization will not have any material effect on our
consolidated financial statements. When we use the terms
“we,” “our,” “us” and the
“Company” in the following discussion, we mean, prior
to the conversion and related transactions described under
“Certain Relationships and Related-Party
Transactions — Reorganization Transaction,”
Chefs’ Warehouse Holdings, LLC, a Delaware limited
liability company, and its consolidated subsidiaries and, after
the conversion and related transactions, The Chefs’
Warehouse, Inc., a Delaware corporation, and its consolidated
subsidiaries. For a discussion of the principal transactions in
the reorganization, see “Certain Relationships and
Related-Party Transactions — Reorganization
Transaction.”
Common
Stock
Holders of our common stock, which has a par value of $0.01, are
entitled to one vote for each share held on all matters
submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares
of our common stock entitled to vote in any election of
directors may elect all of the directors standing for election.
Holders of our common stock are entitled to receive ratably such
dividends, if any, as may be declared by our board of directors
out of funds legally available therefor, subject to any
preferential dividend rights of outstanding preferred stock.
Upon our liquidation, dissolution or winding up, the holders of
our common stock are entitled to receive ratably our net assets
available after the payment of all debts and other liabilities
and subject to the prior rights of any outstanding preferred
stock. Holders of our common stock have no preemptive,
subscription, redemption or conversion rights. In the opinion of
our counsel, the outstanding shares of our common stock are, and
the shares offered by us pursuant to this prospectus will be,
when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of our common
stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock
which we may designate and issue in the future.
Preferred
Stock
Our board of directors is authorized, subject to any limitations
prescribed by law, without stockholder approval, to issue shares
of preferred stock in one or more series at any time or from
time to time. Each such series of preferred stock will have
rights, preferences, privileges and restrictions, including
voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as will be determined by
our board of directors.
Our board of directors could authorize the issuance of shares of
preferred stock with terms and conditions which could have the
effect of discouraging a takeover or other transaction that
might involve a premium price for holders of shares of our
common stock or which holders of our common stock might believe
to be in their best interests.
Certain
Anti-Takeover Matters
Delaware
Business Combination Statute
Under Section 203 of the DGCL, a corporation is prohibited
from engaging in any business combination with a stockholder
who, together with its affiliates or associates, owns (or who is
an affiliate or associate of the corporation and within a
three-year period did own) 15% or more of the corporation’s
outstanding voting stock, or an interested stockholder, for a
three-year period following the time the stockholder became an
interested stockholder, unless:
| • | prior to the time the stockholder became an interested stockholder, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; | |
| • | the interested stockholder owned at least 85% of the voting stock of the corporation, excluding specified shares, upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder; or |
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| • | at or subsequent to the time the stockholder became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized by the affirmative vote, at an annual or special meeting, and not by written consent, of at least two-thirds of the outstanding voting shares of the corporation, excluding shares held by that interested stockholder. |
A business combination generally includes:
| • | mergers and consolidations with or caused by an interested stockholder; | |
| • | sales or other dispositions of 10% or more of the assets of a corporation to an interested stockholder; | |
| • | specified transactions resulting in the issuance or transfer to an interested stockholder of any capital stock of a corporation or its subsidiaries; and | |
| • | other transactions resulting in a disproportionate financial benefit to an interested stockholder. |
The provisions of Section 203 of the DGCL do not apply to a
corporation if, subject to certain requirements, the certificate
of incorporation or bylaws of the corporation contain a
provision expressly electing not to be governed by the
provisions of the statute or the corporation does not have
voting stock listed on a national securities exchange or held of
record by more than 2,000 stockholders.
Because we have “opted out” of Section 203 of the
DGCL in our Certificate of Incorporation, the statute will not
apply to business combinations involving us.
Provisions of
our Certificate of Incorporation and Bylaws
Our Certificate of Incorporation provides that directors may be
removed only for cause by the affirmative vote of the holders of
two-thirds of the shares of our capital stock entitled to vote.
Under our Certificate of Incorporation, any vacancy on our board
of directors, however occurring, including a vacancy resulting
from an enlargement of the board, may only be filled by vote of
a majority of the directors then serving. The limitations on the
removal of directors and filling of vacancies could have the
effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, control of us.
Our Certification of Incorporation also provides that any action
required or permitted to be taken by our stockholders at an
annual meeting or special meeting of stockholders may be taken
only if it is properly brought before such meeting and may not
be taken by written consent in lieu of a meeting. Our
Certificate of Incorporation further provides that special
meetings of the stockholders may only be called by the chairman
of the board of directors, the chief executive officer or, if
none, the president of the Company, or by the board of
directors. Under our Bylaws, in order for any matter to be
considered “properly brought” before a meeting, a
stockholder must comply with certain requirements regarding
advance notice to the company. The foregoing provisions could
have the effect of delaying until the next stockholders meeting
stockholder actions which are favored by the holders of a
majority of our outstanding voting securities. These provisions
also may discourage another person or entity from making a
tender offer for our common stock because such person or entity,
even if it acquired a majority of our outstanding voting
securities, would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly
called stockholders meeting and not by written consent.
The DGCL provides, generally, that the affirmative vote of a
majority of the shares entitled to vote on any matter is
required to amend a corporation’s certificate of
incorporation or bylaws, unless a corporation’s certificate
of incorporation or bylaws, as the case may be, requires a
greater percentage. Our Certificate of Incorporation and our
Bylaws require the affirmative vote of the holders of at least
two-thirds of the shares of our capital stock issued and
outstanding and entitled to vote to amend or repeal any of the
provisions described in the prior two paragraphs.
NASDAQ Global
Market Listing Trading
We have applied to have our common stock approved for listing on
The NASDAQ Global Market under the symbol “CHEF.”
Transfer Agent
and Registrar
We have appointed American Stock Transfer & Trust Company,
LLC to be our transfer agent and registrar for our common stock.
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DESCRIPTION OF
OUR INDEBTEDNESS
New Senior
Secured Credit Facilities
In connection with the transactions described under the caption
“Use of Proceeds,” we intend to enter into a
commitment letter, which we expect will be replaced with
definitive loan documentation simultaneously with the closing of
this offering, with JPMorgan Chase Bank, N.A., General Electric
Capital Corporation and a syndicate of financial institutions
and other entities with respect to a new senior secured credit
facility. The new senior secured credit facility will provide
for (i) a $30.0 million term loan facility, maturing
in 2015 and (ii) a $50.0 million revolving credit
facility maturing in 2015. We will also be entitled to increase
our borrowing capacity under the revolving credit facility by up
to $20.0 million if no event of default exists and certain
other requirements are satisfied. We anticipate that our new
revolving credit facility will be (i) jointly and severally
guaranteed by each of our existing or subsequently acquired or
formed subsidiaries, (ii) secured by a first priority
security interest on substantially all of the Company’s and
all of our subsidiaries’ tangible and intangible personal
property, (iii) secured by a first priority security
interest on all owned real property and (iv) secured by a
pledge of all of the capital stock of our subsidiaries.
We also expect that our new senior secured credit facilities
will require us to meet financial tests, including a maximum
consolidated total leverage ratio and a minimum consolidated
fixed charge coverage ratio. In addition, our new senior secured
credit facilities will contain negative covenants limiting,
among other things, additional indebtedness, transactions with
affiliates, additional liens, sales of assets, dividends,
investments and advances, capital expenditures, prepayments of
debt, mergers and acquisitions, and other matters customarily
restricted in such agreements. Our new senior secured credit
facilities will contain customary events of default, including
payment defaults, breaches of representations and warranties,
covenant defaults, defaults under other material debt, material
damage or destruction of any collateral that is not insured,
events of bankruptcy and insolvency, failure of any guaranty or
security document supporting the new senior secured credit
facilities to be in full force and effect, and a change of
control of our business.
Borrowings under our new senior secured credit facilities will
bear interest at our option of either (i) the Chase Bank
floating rate plus the applicable margin of 0.5% (revolving
loans) or 2.0% (term loans) or (ii) the Adjusted LIBO Rate
plus the applicable margin of 2.25% (revolving loans) or 4.0%
(term loans). The Chase Bank floating rate means the prime rate
of interest announced from time to time by Chase or its parent,
changing when and as said prime rate changes; provided that such
rate shall never be less than the adjusted one month LIBOR Rate
on such day. The Adjusted LIBO Rate means the rate for
eurodollar deposits for a period equal to one, two, three or six
months appearing on Reuters Screen LIBOR01 Page (or on any other
service providing comparable rate quotations), two business days
prior to the first day of the applicable interest period.
In addition to paying on any outstanding principal amount under
our new senior secured credit facilities, we will be required to
pay an unused facility fee to the lenders equal to .375% per
annum on the aggregate amount of the unused revolving credit
facility, commencing on the execution and delivery of the new
senior secured credit facilities and payable quarterly in
arrears. A fronting fee of .25% per annum of the face amount of
each letter of credit issued will be payable to the issuing
lender, together with any processing charges.
Existing Senior
Secured Credit Facilities
In connection with our 2010 recapitalization, we entered into
our existing $100.0 million senior credit facilities with a
syndicate of lenders. The existing senior secured credit
facilities provide for (i) a $75.0 million term loan
facility and (ii) a revolving credit facility under which
we may borrow up to $25.0 million (including a sublimit cap
of up to $1.0 million for letters of credit and up to
$5.0 million for swing-line loans). Payment of all
obligations under the existing senior credit facilities is
collateralized by a first priority security interest in
substantially all of our assets and those of our subsidiaries.
Borrowings under our existing term loan facility bear interest,
at our option, at a rate equal to the greater of the federal
funds rate, the adjusted one month London Interbank Offered
Rate, or LIBOR, or 3%, in each case plus 8%, or LIBOR plus 9%,
with LIBOR having a 2% floor. Borrowings under the existing
revolving credit facility bear interest, at our option, at a
rate per annum based on the administrative agents’ prime
rate, plus a margin of up to 1.25%, or LIBOR, plus a margin of
up to 3.5%, with the margins determined by certain financial
ratios. In addition to the interest on our borrowings, we must
pay an annual commitment fee of 0.25% on the unused portion of
the existing revolving credit facility. The weighted-average
interest rate under our
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existing senior secured revolving credit facility was
approximately 3.4% for the year ended December 24, 2010 and
3.8% for the three months ended March 25, 2011.
We expect to use net proceeds from this offering, together with
borrowings under our new senior secured credit facilities, to
repay all of our loans outstanding under our existing senior
secured credit facilities and any accrued and unpaid interest
thereon and other related fees. As of December 24, 2010 and
March 25, 2011, approximately $86.0 million and
$82.2 million, respectively, principal amount of loans were
outstanding under our existing senior secured credit facilities.
The existing senior secured credit facilities contain certain
customary events of default, including, without limitation, upon
the occurrence of certain change of control transactions that
include the completion of this offering.
Senior
Subordinated Notes
In connection with our 2010 recapitalization, we also issued
$15.0 million of our senior subordinated notes. Interest on
these notes is not payable in cash prior to the maturity date,
but rather in kind through the issuance of additional notes, and
accrues at a rate of 20% semi-annually in arrears. Interest may,
however, be paid in cash if our leverage ratio is below certain
levels. The principal on the notes is due on October 22,
2014.
We expect to use net proceeds from this offering, together with
borrowings under our new senior secured credit facilities, to
redeem or repurchase all of our outstanding senior subordinated
notes due 2014 and any accrued and unpaid interest thereon
including the call premium associated with such redemption or
repurchase. As of December 24, 2010 and March 25,
2011, approximately $15.5 million and $16.3 million,
respectively, aggregate principal amount of senior subordinated
notes were outstanding. Our senior subordinated notes include a
call premium, which we expect would equal approximately
$0.8 million in connection with the redemption of these
notes in connection with the offering.
The senior subordinated notes contain certain customary events
of default, including, without limitation, upon the occurrence
of certain change of control transactions that include the
completion of this offering.
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SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no market for shares of
our common stock. We cannot predict the effect, if any, future
sales of shares of our common stock, or the availability for
future sales of shares of our common stock, will have on the
market price of shares of our common stock prevailing from time
to time. The sale of substantial amounts of shares of our common
stock in the market, or the perception that such sales could
occur, could harm the prevailing market price of shares of our
common stock.
Reorganization
Transaction
Prior to the effectiveness of this registration statement, we
will complete a transaction in which we will convert Chefs’
Warehouse Holdings, LLC into The Chefs’ Warehouse, Inc.
Specifically, immediately prior to, or at the time, the
registration statement of which this prospectus is part is
declared effective by the SEC, Chefs’ Warehouse Holdings,
LLC, a Delaware limited liability company, will convert into The
Chefs’ Warehouse, Inc., a Delaware corporation, and the
members of Chefs’ Warehouse Holdings, LLC will receive in
the conversion shares of common stock of The Chefs’
Warehouse, Inc. for each unit of membership interest in
Chefs’ Warehouse Holdings, LLC owned by them at the time of
the conversion. As of the date hereof, we had 15 members, four
of whom own Class B units and 11 of whom own Class C
units. Immediately following this reorganization transaction, we
will have 15 holders of shares of our common stock. In total, we
expect to
issue shares
of common stock in this reorganization transaction. Of these
shares, shares
will be restricted shares of our common stock issued upon
conversion of our Class C units that have not vested as of
the date we consummate the reorganization transaction.
Sale of
Restricted Shares
Upon completion of this offering and the reorganization
transactions, we will have shares of common
stock outstanding, based upon 54,375,000 units of ownership
interest outstanding as of April 11, 2011. Of these shares,
the shares sold in this offering, plus any shares sold upon
exercise of the underwriters’ over-allotment option, will
be freely tradable without restriction under the Securities Act,
except for any shares purchased by our “affiliates” as
that term is defined in Rule 144 promulgated under the
Securities Act. In general, affiliates include our executive
officers, directors, and 10% stockholders. Shares purchased by
affiliates will remain subject to the resale limitations of
Rule 144.
Upon completion of this offering, shares of our
common stock will be “restricted securities,” as that
term is defined in Rule 144 promulgated under the
Securities Act. These restricted securities are eligible for
public sale only if they are registered under the Securities Act
or if they qualify for an exemption from registration under
Rules 144 or 701 promulgated under the Securities Act,
which are summarized below.
As a result of the
lock-up
agreements described below and the provisions of Rule 144
promulgated under the Securities Act, the shares of our common
stock (excluding the shares sold in this offering) will be
available for sale in the public market as follows:
| • | no shares will be eligible for sale on the date of this prospectus; and | |
| • | shares will be eligible for sale upon the expiration of the lock-up agreements, as more particularly described below, beginning 180 days after the date of this prospectus. |
Lock-Up
Agreements
Our officers, directors and holders of more than 5% of our
outstanding common stock will enter into
lock-up
agreements in connection with this offering, generally providing
that they will not offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of our common stock,
units or any securities that are convertible into, that are
exercisable for or that represent the right to receive shares of
common stock owned by them for a period of at least
180 days after the date of this prospectus without the
prior written consent of the underwriters’ representative.
Despite possible earlier eligibility for sale under the
provisions of Rule 144, shares subject to
lock-up
agreements will not be salable until these agreements expire or
are waived by the underwriters. The
lock-up
agreements will provide exceptions, however, for the transfer of
shares in certain limited situations, including, but not limited
to, transfers made as a bona fide gift, transfers made to any
trust, corporation, partnership or limited liability company the
beneficiaries, stockholders, partners or members of which are
the transferor or the transferor’s
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immediate family, the exchange of Class B units and
Class C units for shares of our common stock in connection
with the reorganization transaction and transfers made pursuant
to a will or other testamentary document or applicable laws of
descent. Approximately % of our outstanding shares of
common stock will be subject to such
lock-up
agreements. These agreements are more fully described in
“Underwriting — No Sales of Similar
Securities.”
We have been advised by the underwriters that they may at their
discretion waive the
lock-up
agreements; however, they have no current intention of releasing
any shares subject to a
lock-up
agreement. The release of any
lock-up
would be considered on a
case-by-case
basis. In considering any request to release shares covered by a
lock-up
agreement, the representatives would consider circumstances of
emergency and hardship. No agreement has been made between the
underwriters and us or any of our stockholders pursuant to which
the underwriters will waive the
lock-up
restrictions.
Rule 144
Generally, Rule 144 provides that an affiliate who has
beneficially owned “restricted” shares of our common
stock for at least six months will be entitled to sell on the
open market in brokers’ transactions, within any
three-month period, a number of shares that does not exceed the
greater of:
| • | 1% of the number of shares of our common stock then outstanding, which will equal shares upon completion of this offering; or | |
| • | the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
In addition, sales under Rule 144 are subject to
requirements with respect to manner of sale, notice, and the
availability of current public information about us.
In the event that any person who is deemed to be our affiliate
purchases shares of our common stock in this offering or
acquires shares of our common stock pursuant to one of our
employee benefits plans, sales under Rule 144 of the shares
held by that person will be subject to the volume limitations
and other restrictions described in the preceding two paragraphs.
The volume limitation, manner of sale and notice provisions
described above will not apply to sales by non-affiliates. For
purposes of Rule 144, a non-affiliate is any person or
entity who is not our affiliate at the time of sale and has not
been our affiliate during the preceding three months. Once we
have been a reporting company for 90 days, a non-affiliate
who has beneficially owned restricted shares of our common stock
for six months may rely upon Rule 144 provided that certain
public information regarding us is available. The six-month
holding period increases to one year in the event we have not
been a reporting company for at least 90 days. However, a
non-affiliate who has beneficially owned the restricted shares
proposed to be sold for at least one year will not be subject to
any restrictions under Rule 144 regardless of how long we
have been a reporting company.
Form S-8
Registration Statements
We intend to file one or more registration statements on
Form S-8
under the Securities Act as soon as practicable after the
completion of this offering for shares issued upon the exercise
of options and shares to be issued under our employee benefit
plans, including the Omnibus Plan. As a result, any such options
or shares will be freely tradable in the public market.
Notwithstanding that we will have filed a registration statement
covering shares of our common stock issuable under our employee
benefit plans, such shares held by affiliates will still be
subject to the volume limitation, manner of sale, notice and
public information requirements of Rule 144 of the
SEC’s rules and regulations.
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MATERIAL U.S.
FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED
STATES HOLDERS
The following discussion is a general summary of the material
U.S. federal tax consequences of the purchase, ownership
and disposition of shares of our common stock applicable to
“non-U.S. holders.”
As used herein, a
non-U.S. holder
means a beneficial owner of shares of our common stock that is
not a “U.S. person” (as defined below) or a
partnership for U.S. federal income tax purposes, and that
will hold shares of our common stock as capital assets (within
the meaning of Section 1221 of the Code). For
U.S. federal income tax purposes, a
“U.S. person” includes:
| • | an individual who is a citizen or resident of the United States; | |
| • | a corporation (or other business entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia; | |
| • | an estate the income of which is subject to United States federal income taxation regardless of its source; or | |
| • | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons, or (2) was in existence on August 20, 1996, was treated as a U.S. domestic trust immediately prior to that date, and has validly elected to continue to be treated as a U.S. domestic trust. |
In the case of a holder that is classified as a partnership for
U.S. federal income tax purposes that holds our common
stock, the tax treatment of a partner in such partnership
generally will depend upon the status of the partner and the
activities of the partnership. If you are a partner of a
partnership holding our common stock, then you should consult
your own tax advisors.
This summary does not consider specific facts and circumstances
that may be relevant to a particular
non-U.S. holder’s
tax position and does not consider state and local or
non-U.S. tax
consequences. It also does not consider
non-U.S. holders
subject to special tax treatment under the U.S. federal
income tax laws (including partnerships or other pass-through
entities, financial institutions, insurance companies, regulated
investment companies, real estate investment trusts, dealers in
securities, holders of shares of our common stock that hold such
shares as part of a “straddle,” “hedge,”
“conversion transaction” or other risk-reduction
transaction, controlled foreign corporations, passive foreign
investment companies, companies that accumulate earnings to
avoid U.S. federal income tax, tax-exempt organizations,
former U.S. citizens or residents and persons who hold or
receive shares of our common stock as compensation). This
summary is based on provisions of the Code, applicable Treasury
regulations, administrative pronouncements of the
U.S. Internal Revenue Service, or the “IRS,” and
judicial decisions, all as in effect on the date hereof, and all
of which are subject to change, possibly on a retroactive basis,
and different interpretations.
Each prospective
non-U.S. holder
should consult its tax advisor with respect to the
U.S. federal, state, local and
non-U.S. income,
estate and other tax consequences of purchasers holding and
disposing of shares of our common stock.
U.S. Trade or
Business Income
For purposes of this discussion, dividend income, and gain on
the sale or other taxable disposition of our common stock, will
be considered to be “U.S. trade or business
income” if such dividend income or gain is
(1) effectively connected with the conduct by a
non-U.S. holder
of a trade or business within the United States and (2) in
the case of a
non-U.S. holder
that is eligible for the benefits of an income tax treaty with
the United States, attributable to a “permanent
establishment” (or, for an individual, a “fixed
base”) maintained by the
non-U.S. holder
in the United States. Generally, U.S. trade or business
income is not subject to U.S. federal withholding tax
(provided the
non-U.S. holder
complies with applicable certification and disclosure
requirements); instead, U.S. trade or business income is
subject to U.S. federal income tax on a net income basis at
regular U.S. federal income tax rates in the same manner as
a U.S. person. Any U.S. trade or business income
received by a
non-U.S. holder
that is a corporation also may be subject to an additional
“branch profits tax” at a 30% rate, or at a lower rate
prescribed by an applicable income tax treaty, under specific
circumstances.
The U.S. federal withholding tax does not apply to any
dividends that are U.S. trade or business income, as
described above, of a
non-U.S. holder
who provides a properly executed IRS
Form W-8ECI
(or appropriate substitute
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or successor form), certifying that the dividends are
effectively connected with the
non-U.S. holder’s
conduct of a trade or business within the United States.
Distributions
Distributions of cash or property (other than certain stock
distributions) that we pay on shares of our common stock (or
certain redemptions that are treated as distributions of shares
of our common stock) will be taxable as dividends for
U.S. federal income tax purposes to the extent paid from
our current or accumulated earnings and profits (as determined
under U.S. federal income tax principles). If the amount of
a distribution exceeds our current and accumulated earnings and
profits, such excess first will be treated as a tax-free return
of capital to the extent of the
non-U.S. holder’s
adjusted tax basis in its shares of our common stock, and
thereafter will be treated as capital gain. See
“Dispositions of Shares of Our Common Stock” below. A
non-U.S. holder
generally will be subject to U.S. federal withholding tax
at a 30% rate, or at a reduced rate prescribed by an applicable
income tax treaty, on any dividends received in respect of
shares of our common stock. In order to obtain a reduced rate of
U.S. federal withholding tax under an applicable income tax
treaty, a
non-U.S. holder
will be required to provide a properly executed IRS
Form W-8BEN
(or appropriate substitute or successor form) certifying its
entitlement to benefits under the treaty. Special certification
and other requirements apply to certain
non-U.S. holders
that act as intermediaries. A
non-U.S. holder
of shares of our common stock that is eligible for a reduced
rate of U.S. federal withholding tax under an income tax
treaty may obtain a refund or credit of any excess amounts
withheld by filing an appropriate claim for a refund with the
IRS. A
non-U.S. holder
should consult its own tax advisor regarding its possible
entitlement to benefits under an income tax treaty.
Dispositions of
Shares of Our Common Stock
A
non-U.S. holder
generally will not be subject to U.S. federal income or
withholding tax in respect of any gain on a sale or other
disposition of shares of our common stock unless:
| • | the gain is U.S. trade or business income, as described above; | |
| • | the non-U.S. holder is an individual who is present in the United States for 183 or more days in the taxable year of the disposition and meets certain other conditions; or | |
| • | we are or have been a “U.S. real property holding corporation,” which we refer to as a “USRPHC,” under section 897 of the Code at any time during the shorter of the five-year period ending on the date of disposition and the non-U.S. holder’s holding period for its shares of our common stock. |
In general, a corporation is a USRPHC if the fair market value
of its “U.S. real property interests” equals or
exceeds 50% of the sum of the fair market value of its worldwide
(domestic and foreign) real property interests and its other
assets used or held for use in a trade or business. We believe
that we currently are not a USRPHC. In addition, based on our
financial statements and current expectations regarding the
value and nature of our assets and other relevant data, we do
not anticipate becoming a USRPHC, although there can be no
assurance these conclusions are correct or might not change in
the future based on changed circumstances. If we are found to be
a USRPHC, a
non-U.S. holder,
nevertheless, will not be subject to U.S. federal income or
withholding tax in respect of any gain on a sale or other
disposition of shares of our common stock so long as shares of
our common stock are “regularly traded on an established
securities market” as defined under applicable Treasury
regulations and a
non-U.S. holder
owns, actually and constructively, 5% or less of the shares of
our common stock during the shorter of the five year period
ending on the date of disposition and such
non-U.S. holder’s
holding period for its shares of our common stock. Prospective
investors should be aware that no assurance can be given that
shares of our common stock will be so regularly traded when a
non-U.S. holder
sells its shares of our common stock.
Gain described in the second bullet point above will be subject
to a flat 30% tax, which may be offset by certain
U.S. source capital losses.
Information
Reporting Requirements, Backup Withholding and Certain Other
Required Withholding
We must annually report to the IRS and to each
non-U.S. holder
any dividend income and any amount of tax, if any, withheld with
respect to such dividends that is subject to U.S. federal
withholding tax, or that is exempt from such withholding tax
pursuant to an income tax treaty. Copies of these information
returns also may be made available under the provisions of a
specific treaty or agreement to the tax authorities of the
country in which the
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non-U.S. holder
resides. Under certain circumstances, the Code imposes a backup
withholding obligation (at a rate of 28% through 2012 and 31%
thereafter, absent U.S. Congressional action) on certain
reportable payments. Dividends paid to a
non-U.S. holder
of shares of our common stock generally will be exempt from
backup withholding if the
non-U.S. holder
provides a properly executed IRS
Form W-8BEN
(or appropriate substitute or successor form) or otherwise
establishes an exemption.
The payment of the proceeds from the disposition of shares of
our common stock to or through the U.S. office of any
broker, U.S. or foreign, will be subject to information
reporting and possible backup withholding unless the holder
certifies (generally on IRS
Form W-8BEN)
that the holder is not a U.S. person under penalties of
perjury or otherwise establishes an exemption, provided that the
broker does not have actual knowledge or reason to know that the
holder is a U.S. person or that the conditions of any other
exemption are not, in fact, satisfied. The payment of the
proceeds from the disposition of shares of our common stock to
or through a
non-U.S. office
of a
non-U.S. broker
will not be subject to information reporting or backup
withholding unless the
non-U.S. broker
is a foreign person with certain specified U.S. connections
(a “U.S. related person”). In the case of the
payment of the proceeds from the disposition of shares of our
common stock to or through a
non-U.S. office
of a broker that is either a U.S. person or a
“U.S. related person,” the Treasury regulations
require information reporting (but not backup withholding) on
the payment unless the holder certifies under penalties of
perjury (usually on IRS
Form W-8BEN)
that the holder is not a U.S. person or otherwise
establishes an exemption and the broker has no knowledge to the
contrary.
Non-U.S. holders
should consult their own tax advisors on the application of
information reporting and backup withholding to them in their
particular circumstances (including upon their disposition of
shares of our common stock).
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from a payment to a
non-U.S. holder
will be refunded or credited against the
non-U.S. holder’s
U.S. federal income tax liability, if any, if the
non-U.S. holder
timely provides the required information to the IRS and meets
certain other requirements.
For taxable years beginning after 2012, a U.S. federal
withholding tax at a 30% rate will be imposed on dividends and
proceeds of sale in respect of shares of our common stock paid
to a foreign financial institution or to a foreign non-financial
entity, unless (i) the foreign financial institution
undertakes certain diligence and reporting obligations or
(ii) the foreign non-financial entity either certifies it
does not have any substantial United States owners or furnishes
identifying information regarding each substantial United States
owner. If the payee is a foreign financial institution, it must
enter into an agreement with the United States Treasury
requiring, among other things, that it undertake to identify
accounts held by certain United States persons or United
States-owned foreign entities, annually report certain
information about such accounts and withhold 30% on payments to
account holders whose actions prevent it from complying with
these reporting and other requirements. If payment of
U.S. federal withholding tax is required,
non-U.S. holders
that are otherwise eligible for an exemption from, or reduction
of, U.S. federal withholding taxes with respect to such
dividends and proceeds will be required to seek a refund from
the IRS to obtain the benefit of such exemption or reduction.
The legislation would apply to payments made after
December 31, 2012. Prospective investors should consult
their tax advisor regarding this legislation. We will not pay
any additional amounts in respect of any amounts withheld.
Federal Estate
Tax
Individual
non-U.S. holders
and entities the property of which is potentially includible in
such an individual’s gross estate for U.S. federal
estate tax purposes (for example, a trust funded by such an
individual and with respect to which the individual has retained
certain interests or powers), should note that, absent an
applicable treaty benefit, shares of our common stock will be
treated as U.S. situs property and, therefore, will be
subject to U.S. federal estate tax.
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UNDERWRITING
Subject to the terms and conditions set forth in the
underwriting agreement to be dated on or
about ,
2011, between us, the selling stockholders and the underwriters
named below, we and the selling stockholders have agreed to sell
to the underwriters, and the underwriters have severally agreed
to purchase from us and the selling stockholders, the number of
shares indicated in the table below:
|
UNDERWRITERS
|
NUMBER OF SHARES
|
|||
|
Jefferies & Company, Inc.
|
||||
|
Total
|
||||
Jefferies & Company, Inc. is acting as sole
book-running manager of this offering and as representative of
the underwriters named above.
The underwriting agreement provides that the obligations of the
several underwriters are subject to certain conditions precedent
such as the receipt by the underwriters of officers’
certificates and legal opinions and approval of certain legal
matters by their counsel. The underwriting agreement provides
that the underwriters will purchase all of the shares if any of
them are purchased. If an underwriter defaults, the underwriting
agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the underwriting
agreement may be terminated. We and the selling stockholders
have agreed to indemnify the underwriters and certain of their
controlling persons against certain liabilities, including
liabilities under the Securities Act, and to contribute to
payments that the underwriters may be required to make in
respect of those liabilities.
The underwriters have advised us that they currently intend to
make a market in the shares. However, the underwriters are not
obligated to do so and may discontinue any market-making
activities at any time without notice. No assurance can be given
as to the liquidity of the trading market for the shares.
The underwriters are offering the shares subject to their
acceptance of the shares from us and the selling stockholders
and subject to prior sale. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject
orders in whole or in part. In addition, the underwriters have
advised us that they do not intend to confirm sales to any
account over which they exercise discretionary authority.
Commission and
Expenses
The underwriters have advised us that they propose to offer the
shares to the public at the initial public offering price set
forth on the cover page of this prospectus and to certain
dealers at that price less a concession not in excess of
$ per share. The underwriters may
allow, and certain dealers may reallow, a discount from the
concession not in excess of $ per
share to certain brokers and dealers. After the offering, the
initial public offering price, concession and reallowance to
dealers may be reduced by the representative. No such reduction
will change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus.
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The following table shows the public offering price, the
underwriting discounts and commissions that we and the selling
stockholders are to pay the underwriters and the proceeds,
before expenses, to us and the selling stockholders in
connection with this offering. Such amounts are shown assuming
both no exercise and full exercise of the underwriters’
option to purchase additional shares.
| PER SHARE | TOTAL | |||||||||||||||
|
WITHOUT |
WITH |
WITHOUT |
WITH |
|||||||||||||
|
OPTION TO |
OPTION TO |
OPTION TO |
OPTION TO |
|||||||||||||
|
PURCHASE |
PURCHASE |
PURCHASE |
PURCHASE |
|||||||||||||
|
ADDITIONAL |
ADDITIONAL |
ADDITIONAL |
ADDITIONAL |
|||||||||||||
| SHARES | SHARES | SHARES | SHARES | |||||||||||||
|
Public offering price
|
$ | $ | $ | $ | ||||||||||||
|
Underwriting discounts and commissions paid by us
|
$ | $ | $ | $ | ||||||||||||
|
Proceeds to us, before expenses
|
$ | $ | $ | $ | ||||||||||||
|
Underwriting discounts and commissions paid by the selling
stockholders
|
$ | $ | $ | $ | ||||||||||||
|
Proceeds to the selling stockholders, before expenses
|
$ | $ | $ | $ | ||||||||||||
We estimate expenses payable by us in connection with this
offering, other than the underwriting discounts and commissions
referred to above, will be approximately
$ . We estimate expenses payable by
the selling stockholders in connection with this offering, other
than the underwriting discounts and commissions referred to
above, will be approximately $ .
Determination of
Offering Price
Prior to the offering, there has not been a public market for
our shares. Consequently, the initial public offering price for
our shares will be determined by negotiations between us and the
underwriters. Among the factors to be considered in these
negotiations will be prevailing market conditions, our financial
information, market valuations of other companies that we and
the underwriters believe to be comparable to us, estimates of
our business potential, the present state of our development and
other factors deemed relevant.
We offer no assurances that the initial public offering price
will correspond to the price at which the shares will trade in
the public market subsequent to the offering or that an active
trading market for the shares will develop and continue after
the offering.
Listing
We have applied to have our shares approved for listing on The
NASDAQ Global Market under the trading symbol “CHEF.”
Over-Allotment
Option
We and the selling stockholders have granted the underwriters an
over-allotment option. This option, which is exercisable for up
to 30 days after the date of this prospectus, permits the
underwriters to purchase up to an aggregate
of additional shares from us and
up to an aggregate of additional
shares from the selling stockholders solely to cover
over-allotments. If the underwriters exercise all or part of
this option, they will purchase shares covered by the option at
the public offering price that appears on the cover of this
prospectus, less the underwriting discount. If this option is
exercised in full, the total price to the public will be
approximately $ million, the
total underwriting discounts and commissions payable by us and
the selling stockholders will be approximately
$ million. The underwriters
have severally agreed that, to the extent the over-allotment
option is exercised, they will each purchase a number of
additional shares proportionate to the underwriter’s
initial amount reflected in the table above.
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No Sales of
Similar Securities
We, our officers, directors and holders of more than 5% of our
outstanding stock have agreed, subject to specified exceptions,
not to directly or indirectly:
| • | sell, offer, contract or grant any option to sell (including any short sale), pledge, transfer, establish an open “put equivalent position” within the meaning of Rule 16a-l(h) under the Securities Exchange Act of 1934, as amended, or, the Exchange Act, or | |
| • | otherwise dispose of any shares, options or warrants to acquire shares, or securities that are convertible into, that are exercisable for or that represent the right to shares of common stock currently or hereafter owned either of record or beneficially, or | |
| • | publicly announce an intention to do any of the foregoing for a period of 180 days after the date of this prospectus without the prior written consent of Jefferies & Company, Inc. |
This restriction terminates after the close of trading of the
shares on and including the 180th day after the date of
this prospectus. However, subject to certain exceptions, in the
event that either:
| • | during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs, or | |
| • | prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day restricted period, |
then in either case the expiration of the
180-day
restricted period will be extended until the expiration of the
18-day
period beginning on the date of the issuance of an earnings
release or the occurrence of the material news or event, as
applicable, unless Jefferies & Company, Inc. waives,
in writing, such an extension.
Jefferies & Company, Inc. may, in its sole discretion
and at any time or from time to time before the termination of
the 180-day
period, without public notice, release all or any portion of the
securities subject to
lock-up
agreements. There are no existing agreements between the
underwriters and any of our stockholders who will execute a
lock-up
agreement, providing consent to the sale of shares prior to the
expiration of the
lock-up
period.
Stabilization
The underwriters have advised us that, pursuant to
Regulation M under the Exchange Act, certain persons
participating in the offering may engage in transactions,
including over-allotment, stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have
the effect of stabilizing or maintaining the market price of the
shares at a level above that which might otherwise prevail in
the open market. Over-allotment involves syndicate sales in
excess of the offering size, which creates a syndicate short
position.
“Covered” short sales are sales made in an amount not
greater than the underwriters’ option to purchase
additional shares in this offering. The underwriters may close
out any covered short position by either exercising their option
to purchase additional shares or purchasing shares in the open
market. In determining the source of shares to close out the
covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase
shares through the option to purchase additional shares.
“Naked” short sales are sales in excess of the option
to purchase additional shares. The underwriters must close out
any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after
pricing that could adversely affect investors who purchase in
this offering.
A stabilizing bid is a bid for the purchase of shares on behalf
of the underwriters for the purpose of fixing or maintaining the
price of the shares. A syndicate covering transaction is the bid
for or the purchase of shares on behalf of the underwriters to
reduce a short position incurred by the underwriters in
connection with the offering. A penalty bid is an arrangement
permitting the underwriters to reclaim the selling concession
otherwise accruing to a syndicate member in connection with the
offering if the shares originally sold by such syndicate member
are purchased in a syndicate covering transaction and therefore
have not been effectively placed by such syndicate member.
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None of we, the selling stockholders or any of the underwriters
makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above
may have on the price of our shares. The underwriters are not
obligated to engage in these activities, and, if commenced, any
of the activities may be discontinued at any time.
Directed Share
Program
At our request, the underwriters have reserved for sale, at the
initial public offering price, up
to
shares of common stock offered by this prospectus for sale to
our directors, officers, employees, business associates and
related persons. Reserved shares purchased by our directors and
officers will be subject to the
lock-up
provisions described above. The number of shares of our common
stock available for sale to the general public will be reduced
to the extent these persons purchase such reserved shares. Any
reserved shares of our common stock that are not so purchased
will be offered by the underwriters to the general public on the
same terms as the other shares of our common stock offered by
this prospectus. We have agreed to indemnify the underwriters
against certain liabilities and expenses, including liabilities
under the Securities Act, in connection with sales of the
directed shares.
Electronic
Distribution
A prospectus in electronic format may be made available by
electronic mail or on the websites or through online services
maintained by one or more of the underwriters or their
affiliates. In those cases, prospective investors may view
offering terms online and may be allowed to place orders online.
The underwriters may agree with us to allocate a specific number
of shares for sale to online brokerage account holders. Any such
allocation for online distributions will be made by the
underwriters on the same basis as other allocations. Other than
the prospectus in electronic format, the information on the
underwriters’ websites and any information contained in any
other website maintained by any of the underwriters is not part
of this prospectus, has not been approved
and/or
endorsed by us or the underwriters and should not be relied upon
by investors.
Affiliations and
Conflicts of Interest
The underwriters and certain of their respective affiliates are
full service financial institutions engaged in various
activities, which may include securities trading, commercial and
investment banking, financial advisory, investment management,
investment research, principal investment, hedging, financing
and brokerage activities. The underwriters and certain of their
respective affiliates have, from time to time, performed, and
may in the future perform, various financial advisory and
investment banking services for the Company, for which they
received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the
underwriters and certain of their respective affiliates may make
or hold a broad array of investments and actively trade debt and
equity securities (or related derivative securities) and
financial instruments (including bank loans) for their own
account and for the accounts of their customers, and such
investment and securities activities may involve securities
and/or
instruments of the Company. The underwriters and certain of
their respective affiliates may also make investment
recommendations
and/or
publish or express independent research views in respect of such
securities or instruments and may at any time hold, or recommend
to clients that they acquire, long
and/or short
positions in such securities and instruments.
As described under the caption “Use of Proceeds,” we
intend to use a portion of the net proceeds from this offering
to redeem or repurchase all of our senior subordinated notes and
repay all of our loans outstanding under our existing senior
secured credit facilities. Because an affiliate of
Jefferies & Company, Inc. is a lender under our
existing term loan facility and one of the holders of our senior
subordinated notes and will receive more than 5% of the net
proceeds of this offering, Jefferies & Company, Inc.
may be deemed to have a “conflict of interest” under
the applicable provisions of Rule 5121 of FINRA.
Accordingly, this offering will be made in compliance with the
applicable provisions of Rule 5121. Rule 5121
currently requires that a “qualified independent
underwriter,” as defined by the FINRA rules, participate in
the preparation of the registration statement and the prospectus
and exercise the usual standards of due diligence in respect
thereto. has served in that capacity and will not
receive any additional fees for serving as qualified independent
underwriter in connection with this offering. We have agreed to
indemnify against liabilities incurred in connection
with acting as a qualified independent underwriter, including
liabilities under the Securities Act. In accordance with
Rule 5121, Jefferies & Company, Inc. will not
make sales to discretionary accounts without the prior written
consent of the account holder.
93
Table of Contents
Selling
Restrictions
European Economic Area. In relation to each
Member State of the European Economic Area which has implemented
the Prospectus Directive (each, a “Relevant Member
State”) an offer to the public of any shares which are the
subject of the offering contemplated by this prospectus may not
be made in that Relevant Member State except that an offer to
the public in that Relevant Member State of any shares may be
made at any time under the following exemptions under the
Prospectus Directive, if they have been implemented in that
Relevant Member State:
| (a) | to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
| (b) | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; |
| (c) | to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or |
| (d) | in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of the shares shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive. |
Each person in a Relevant Member State who receives any
communication in respect of, or who acquires any shares under,
the offers contemplated in this prospectus will be deemed to
have represented, warranted and agreed to and with each
underwriter and us that:
| (a) | it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive; and |
| (b) | in the case of any shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the shares acquired by it in the offer have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State, other than qualified investors, as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of the representatives has been given to the offer or resale; or (ii) where shares have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those shares to it is not treated under the Prospectus Directive as having been made to such persons. |
For the purposes of this provision, the expression an
“offer to the public” in relation to any shares in any
Relevant Member State means the communication in any form and by
any means of sufficient information on the terms of the offer
and any shares to be offered so as to enable an investor to
decide to purchase any shares, as the same may be varied in that
Member State by any measure implementing the Prospectus
Directive in that Member State and the expression
“Prospectus Directive” means Directive 2003/71/EC and
includes any relevant implementing measure in each Relevant
Member State.
Each underwriter has represented, warranted and agreed that:
| (a) | it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) to persons who are investment professionals falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 or in circumstances in which Section 21(1) of the FSMA does not apply to us; and |
| (b) | it has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom. |
Switzerland. The shares offered pursuant to
this document will not be offered, directly or indirectly, to
the public in Switzerland and this document does not constitute
a public offering prospectus as that term is understood pursuant
to art. 652a or art. 1156 of the Swiss Federal Code of
Obligations. We have not applied for a listing of the shares
being offered pursuant to this prospectus supplement on the SWX
Swiss Exchange or on any other regulated securities market, and
consequently, the information presented in this document does
not necessarily comply with the information standards set out in
the relevant listing rules. The shares being offered pursuant to
this prospectus supplement have not been registered with the
Swiss Federal Banking Commission as foreign investment funds,
and the investor protection afforded to acquirers of investment
fund certificates does not extend to acquirers of shares.
Investors are advised to contact their legal, financial or tax
advisers to obtain an independent assessment of the financial
and tax consequences of an investment in shares.
94
Table of Contents
LEGAL
MATTERS
The validity of the shares offered hereby will be passed upon
for us by Bass, Berry & Sims PLC, Nashville,
Tennessee. Certain legal matters in connection with this
offering will be passed upon for the underwriters by
Latham & Watkins LLP, New York, New York.
EXPERTS
The consolidated financial statements as of December 24,
2010 and December 25, 2009 and for each of the three years
in the period ended December 24, 2010 included in this
prospectus have been so included in reliance on the report of
BDO USA, LLP (“BDO”), an independent registered public
accounting firm, appearing elsewhere therein, given on the
authority of said firm as experts in auditing and accounting.
In 2011, BDO informed us that in 2008, Trenwith Valuation, LLC,
an affiliate of BDO, provided certain valuation services to our
company in connection with the acquisition of American Gourmet
Foods, Inc., and that these services were not in accordance with
the Auditor Independence Rules of
Regulation S-X
and the Public Company Accounting Oversight Board (PCAOB). BDO
informed our management that, after considering the impact that
the provision of the non audit service may have had on
BDO’s independence with respect to us, it believes that it
is and was capable of exercising its objective and impartial
judgment on all issues encompassed within the audit engagement
noted above.
Throughout the first quarter of 2011, members of our senior
management and our board of directors considered the impact that
the non audit service may have had on BDO’s independence
with respect to us. Our board members, in discussion with
members of our senior management, considered this matter in
light of all the facts and circumstances and determined that a
reasonable investor with knowledge of all relevant facts and
circumstances would conclude that BDO is and was capable of
exercising objective and impartial judgment on all issues
encompassed within the accounting engagement.
Members of our senior management and our board of directors
based our conclusion on the fact that management prepared the
initial analysis that was reported on by Trenwith Valuation,
LLC. Furthermore management prepared the analysis on all other
aspects of the acquisition such as valuation of accounts
receivable, inventory and liabilities.
WHERE YOU CAN
FIND MORE INFORMATION
This prospectus is part of a registration statement on
Form S-1
that we have filed with the SEC under the Securities Act
covering the shares of common stock that we are offering. As
permitted by the rules and regulations of the SEC, this
prospectus omits certain information contained in the
registration statement. For further information with respect to
us and our common stock, you should refer to the registration
statement and to its exhibits and schedules. We make reference
in this prospectus to certain of our contracts, agreements and
other documents that are filed as exhibits to the registration
statement. For additional information regarding those contracts,
agreements and other documents, please see the exhibits attached
to this registration statement.
You can read the registration statement and the exhibits and
schedules filed with the registration statement or any reports,
statements or other information we have filed or file, at the
public reference facilities maintained by the SEC at the public
reference room (Room 1580), 100 F Street, N.E.,
Washington, D.C. 20549. You may also obtain copies of the
documents from such offices upon payment of the prescribed fees.
You may call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room. You may also request copies of the documents upon payment
of a duplicating fee, by writing to the SEC. In addition, the
SEC maintains a website that contains reports and other
information regarding registrants (including us) that file
electronically with the SEC, which you can access at
http://www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Exchange
Act, and, in accordance with such requirements, we will file
periodic and current reports, proxy statements and other
information with the SEC. These periodic and current reports,
proxy statements and other information will be available for
inspection and copying at the public reference facilities and
website of the SEC referred to above.
95
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
INDEX TO FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
|
Unaudited Pro Forma Condensed Consolidated Financial Statements
|
F-21 | |||
F-1
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
The Chefs’ Warehouse Holdings, LLC
Ridgefield, CT
We have audited the accompanying consolidated balance sheets of
The Chefs’ Warehouse Holdings, LLC as of December 24,
2010 and December 25, 2009 and the related consolidated
statements of operations, Redeemable Class A Units and
members’ deficit, and cash flows for each of the three
years in the period ended December 24, 2010. These
financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of The Chefs’ Warehouse Holdings, LLC at
December 24, 2010 and December 25, 2009 and the
related consolidated statements of operations and cash flows for
each of the three years in the period ended December 24,
2010, in conformity with accounting principles generally
accepted in the United States of America.
/s/ BDO
USA, LLP
Melville, New York
March 14, 2011
F-2
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
|
MARCH 25, 2011 |
||||||||||||
| DECEMBER 24, 2010 | DECEMBER 25, 2009 | (UNAUDITED) | ||||||||||
| (In thousands) | ||||||||||||
|
Assets
|
||||||||||||
|
Current Assets
|
||||||||||||
|
Cash and cash equivalents
|
$ | 1,978 | $ | 875 | $ | 856 | ||||||
|
Accounts receivable, net of allowance of $2,400 in 2010 and
$2,150 in 2009 and $2,472 as of March 25, 2011
|
36,200 | 30,977 | 36,223 | |||||||||
|
Inventories
|
16,441 | 15,289 | 17,284 | |||||||||
|
Deferred taxes, net
|
1,651 | 1,481 | 1,631 | |||||||||
|
Prepaid expenses and other current assets
|
3,608 | 2,087 | 2,909 | |||||||||
|
Total Current Assets
|
59,878 | 50,709 | 58,903 | |||||||||
|
Equipment and leasehold improvements, net
|
4,228 | 4,240 | 4,342 | |||||||||
|
Receivables and advances — related parties
|
— | 190 | — | |||||||||
|
Software costs, net
|
373 | 539 | 322 | |||||||||
|
Goodwill
|
11,479 | 9,359 | 11,479 | |||||||||
|
Intangible assets, net
|
635 | 115 | 606 | |||||||||
|
Deferred taxes
|
2,362 | 62 | 2,168 | |||||||||
|
Other assets
|
3,717 | 723 | 3,477 | |||||||||
|
Total Assets
|
$ | 82,672 | $ | 65,937 | $ | 81,297 | ||||||
|
Liabilities, Redeemable Class A Units and Members’
Deficit
|
||||||||||||
|
Current Liabilities
|
||||||||||||
|
Accounts payable
|
$ | 23,563 | $ | 19,290 | $ | 25,241 | ||||||
|
Accrued liabilities
|
3,686 | 3,396 | 3,777 | |||||||||
|
Accrued compensation
|
3,478 | 2,750 | 2,430 | |||||||||
|
Current portion of long term debt
|
16,945 | 2,794 | 14,589 | |||||||||
|
Total Current Liabilities
|
47,672 | 28,230 | 46,037 | |||||||||
|
Long-term debt, net of current portion
|
82,580 | 29,928 | 81,999 | |||||||||
|
Other liabilities and deferred credits
|
1,232 | 2,445 | 1,053 | |||||||||
|
Total Liabilities
|
131,484 | 60,603 | 129,089 | |||||||||
|
Commitments and Contingencies
|
||||||||||||
|
Redeemable Class A members’ units, 0, 25,000,000 and 0
authorized, issued and outstanding, at liquidation value at
December 24, 2010, December 25, 2009 and
March 25, 2011, respectively
|
— | 41,698 | — | |||||||||
|
Members’ Deficit:
|
||||||||||||
|
Class B members’ units, no par, 50,000,000 units
authorized, issued and outstanding at December 24, 2010,
December 25, 2009 and March 25, 2011, respectively
|
(48,812 | ) | (36,364 | ) | (47,792 | ) | ||||||
|
Class C members’ units, no par, 8,333,333 units
authorized, 4,375,000, 4,927,084 and 4,375,000 issued and
outstanding at December 24, 2010, December 25, 2009
and March 25, 2011, respectively
|
— | — | — | |||||||||
|
Members’ deficit
|
(48,812 | ) | (36,364 | ) | (47,792 | ) | ||||||
|
Total Liabilities, Redeemable Class A Units and
Members’ Deficit
|
$ | 82,672 | $ | 65,937 | $ | 81,297 | ||||||
See notes to consolidated financial statements.
F-3
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
|
FOR THE THREE |
FOR THE THREE |
|||||||||||||||||||
|
MONTHS |
MONTHS |
|||||||||||||||||||
|
FOR THE YEAR |
FOR THE YEAR |
FOR THE YEAR |
ENDED |
ENDED |
||||||||||||||||
|
ENDED |
ENDED |
ENDED |
MARCH 25, |
MARCH 26, |
||||||||||||||||
|
DECEMBER |
DECEMBER 25, |
DECEMBER |
2011 |
2010 |
||||||||||||||||
| 24, 2010 | 2009 | 26, 2008 | (UNAUDITED) | (UNAUDITED) | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Net Revenues
|
$ | 330,118 | $ | 271,072 | $ | 281,703 | $ | 83,183 | $ | 70,000 | ||||||||||
|
Cost of sales
|
244,340 | 199,764 | 211,387 | 61,148 | 52,017 | |||||||||||||||
|
Gross profit
|
85,778 | 71,308 | 70,316 | 22,035 | 17,983 | |||||||||||||||
|
Operating expenses
|
64,206 | 57,977 | 60,314 | 16,976 | 14,953 | |||||||||||||||
|
Operating profit
|
21,572 | 13,331 | 10,002 | 5,059 | 3,030 | |||||||||||||||
|
Interest expense
|
4,041 | 2,815 | 3,238 | 3,450 | 627 | |||||||||||||||
|
(Gain)/Loss on fluctuation of interest rate swap
|
(910 | ) | (658 | ) | 1,118 | (81 | ) | (183 | ) | |||||||||||
|
Other
|
— | — | — | 3 | — | |||||||||||||||
|
Income before income taxes
|
18,441 | 11,174 | 5,646 | 1,687 | 2,586 | |||||||||||||||
|
Provision for income taxes
|
2,567 | 2,213 | 3,450 | 667 | 1,050 | |||||||||||||||
|
Net Income
|
$ | 15,874 | $ | 8,961 | $ | 2,196 | $ | 1,020 | $ | 1,536 | ||||||||||
|
Deemed dividend accretion on Class A members’ units
|
(4,123 | ) | (6,207 | ) | (3,000 | ) | — | (1,180 | ) | |||||||||||
|
Deemed dividend paid to Class A members’ units
|
(22,429 | ) | — | — | — | — | ||||||||||||||
|
Net income (loss) attributable to members’ units
|
$ | (10,678 | ) | $ | 2,754 | $ | (804 | ) | $ | 1,020 | $ | 356 | ||||||||
|
Net (loss) income per members’ unit:
|
||||||||||||||||||||
|
Basic
|
$ | (0.15 | ) | $ | 0.04 | $ | (0.01 | ) | $ | 0.02 | $ | 0.00 | ||||||||
|
Diluted
|
$ | (0.15 | ) | $ | 0.03 | $ | (0.01 | ) | $ | 0.02 | $ | 0.00 | ||||||||
|
Weighted average members’ units outstanding:
|
||||||||||||||||||||
|
Basic
|
72,494 | 77,827 | 76,663 | 52,526 | 76,573 | |||||||||||||||
|
Diluted
|
72,494 | 81,851 | 76,663 | 54,375 | 79,515 | |||||||||||||||
|
Pro Forma net income (loss) per common share (unaudited)
(Note 2)
|
||||||||||||||||||||
|
Basic
|
||||||||||||||||||||
|
Diluted
|
||||||||||||||||||||
|
Pro Forma weighted average shares used in computing net loss per
common share (unaudited) (Note 3)
|
||||||||||||||||||||
|
Basic
|
||||||||||||||||||||
|
Diluted
|
||||||||||||||||||||
See notes to consolidated financial statements.
F-4
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
| CLASS A | CLASS B | CLASS C |
MEMBERS’ |
||||||||||||||||||
| UNITS | AMOUNT | UNITS | UNITS | DEFICIT | |||||||||||||||||
| (In thousands) | |||||||||||||||||||||
|
December 26, 2007
|
25,000 | $ | 32,491 | 50,000 | 6,033 | $ | (37,905 | ) | |||||||||||||
|
Accretion of Class A Units to liquidation value
|
— | 3,000 | — | — | (3,000 | ) | |||||||||||||||
|
Issuance of Class C Units
|
— | 1,843 | |||||||||||||||||||
|
Net Income
|
— | — | — | — | 2,196 | ||||||||||||||||
|
December 26, 2008
|
25,000 | 35,491 | 50,000 | 7,876 | (38,709 | ) | |||||||||||||||
|
Accretion of Class A Units to liquidation value
|
— | 6,207 | — | — | (6,207 | ) | |||||||||||||||
|
Issuance of Class C Units
|
— | — | — | 633 | |||||||||||||||||
|
Purchase of Class C Units
|
(1,788 | ) | (263 | ) | |||||||||||||||||
|
Forfeiture of Class C Units
|
(1,794 | ) | |||||||||||||||||||
|
Distribution to Members
|
— | — | — | (146 | ) | ||||||||||||||||
|
Net Income
|
— | — | — | — | 8,961 | ||||||||||||||||
|
December 25, 2009
|
25,000 | 41,698 | 50,000 | 4,927 | (36,364 | ) | |||||||||||||||
|
Accretion of Class A Units to liquidation value
|
— | 4,123 | — | (4,123 | ) | ||||||||||||||||
|
Redemption of Class A Units
|
(25,000 | ) | (45,821 | ) | — | — | (22,429 | ) | |||||||||||||
|
Purchases of Class C Units
|
— | — | — | (552 | ) | (173 | ) | ||||||||||||||
|
Distribution to Members
|
— | — | — | — | (1,597 | ) | |||||||||||||||
|
Net Income
|
— | — | — | — | 15,874 | ||||||||||||||||
|
December 24, 2010
|
— | $ | — | 50,000 | 4,375 | $ | (48,812 | ) | |||||||||||||
|
Net Income (unaudited)
|
— | — | — | — | 1,020 | ||||||||||||||||
|
March 25, 2011 (unaudited)
|
— | — | 50,000 | 4,375 | $ | (47,792 | ) | ||||||||||||||
See notes to consolidated financial statements
F-5
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
|
FOR THE THREE |
FOR THE THREE |
|||||||||||||||||||
|
MONTHS |
MONTHS |
|||||||||||||||||||
|
FOR THE YEAR |
FOR THE YEAR |
ENDED |
ENDED |
|||||||||||||||||
|
ENDED |
FOR THE YEAR |
ENDED |
MARCH 25, |
MARCH 26, |
||||||||||||||||
|
DECEMBER 24, |
ENDED DECEMBER 25, |
DECEMBER 26, |
2011 |
2010 |
||||||||||||||||
| 2010 | 2009 | 2008 | (UNAUDITED) | (UNAUDITED) | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||||||
|
Net income
|
$ | 15,874 | $ | 8,961 | $ | 2,196 | $ | 1,020 | $ | 1,536 | ||||||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||||||||||
|
Depreciation and amortization
|
1,388 | 1,520 | 1,626 | 322 | 316 | |||||||||||||||
|
Original issue discount amortization
|
123 | — | — | 182 | — | |||||||||||||||
|
Deferred credits
|
(302 | ) | 63 | 297 | — | — | ||||||||||||||
|
Deferred taxes
|
(2,470 | ) | 369 | (614 | ) | 214 | — | |||||||||||||
|
Unrealized (gain)/loss on interest rate swap
|
(910 | ) | (658 | ) | 1,118 | (81 | ) | (183 | ) | |||||||||||
|
Accrual of paid in kind interest
|
500 | — | — | 750 | — | |||||||||||||||
|
Amortization of deferred financing fees
|
715 | 397 | 359 | 320 | 147 | |||||||||||||||
|
Loss on sale lease back
|
— | — | 87 | — | — | |||||||||||||||
|
Loss on asset disposal
|
— | — | — | 3 | — | |||||||||||||||
|
Unrealized gain on forward contracts
|
— | — | — | (310 | ) | — | ||||||||||||||
|
Changes in assets and liabilities, net of acquisitions:
|
||||||||||||||||||||
|
Accounts receivable
|
(4,601 | ) | (1,577 | ) | 2,380 | (23 | ) | 1,364 | ||||||||||||
|
Inventories
|
(450 | ) | 1,584 | 2,512 | (843 | ) | (1,208 | ) | ||||||||||||
|
Prepaid expenses and other current assets
|
(658 | ) | (390 | ) | (228 | ) | 1,009 | 999 | ||||||||||||
|
Accounts payable and accrued liabilities
|
4,988 | 813 | (7,794 | ) | 721 | (299 | ) | |||||||||||||
|
Other assets
|
(863 | ) | (11 | ) | (98 | ) | (98 | ) | (113 | ) | ||||||||||
|
Other liabilities
|
— | — | — | (50 | ) | (56 | ) | |||||||||||||
|
Receivable from related party
|
190 | 814 | (225 | ) | — | 12 | ||||||||||||||
|
Net cash provided by operating activities
|
13,524 | 11,885 | 1,616 | 3,136 | 2,515 | |||||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Capital expenditures
|
(1,133 | ) | (1,061 | ) | (1,848 | ) | (389 | ) | (513 | ) | ||||||||||
|
Cash paid for acquisitions
|
(3,738 | ) | (3,766 | ) | (4,000 | ) | — | — | ||||||||||||
|
Net cash used in investing activities
|
(4,871 | ) | (4,827 | ) | (5,848 | ) | (389 | ) | (513 | ) | ||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Cash paid for Class C Shares
|
(173 | ) | (263 | ) | — | — | (161 | ) | ||||||||||||
|
Redemption of Class A Shares
|
(68,250 | ) | — | — | — | — | ||||||||||||||
|
Borrowings of debt
|
97,500 | — | 250 | — | — | |||||||||||||||
|
Payment of debt
|
(20,400 | ) | (2,100 | ) | — | (1,351 | ) | (622 | ) | |||||||||||
|
Borrowings under revolving credit line
|
325,810 | 323,090 | 342,450 | — | — | |||||||||||||||
|
Payments under revolving credit line
|
(334,085 | ) | (327,695 | ) | (338,155 | ) | (2,518 | ) | (764 | ) | ||||||||||
|
Distribution to shareholders
|
(1,597 | ) | (146 | ) | — | — | — | |||||||||||||
|
Debt issuance costs
|
(5,961 | ) | — | — | — | — | ||||||||||||||
|
Other
|
(394 | ) | (660 | ) | (954 | ) | — | — | ||||||||||||
|
Net cash provided by (used in) financing activities
|
(7,550 | ) | (7,774 | ) | 3,591 | (3,869 | ) | (1,547 | ) | |||||||||||
|
Net change in cash and cash equivalents
|
1,103 | (716 | ) | (641 | ) | (1,122 | ) | 455 | ||||||||||||
|
Cash and cash equivalents at beginning of year
|
875 | 1,591 | 2,232 | 1,978 | 875 | |||||||||||||||
|
Cash and cash equivalents end of year
|
$ | 1,978 | $ | 875 | $ | 1,591 | $ | 856 | $ | 1,330 | ||||||||||
|
Supplemental disclosures of cash flow information:
|
||||||||||||||||||||
|
Cash paid for income taxes
|
$ | 5,789 | $ | 3,067 | $ | 3,040 | $ | 151 | $ | 643 | ||||||||||
|
Cash paid for interest
|
$ | 3,536 | $ | 2,817 | $ | 3,099 | $ | 1,695 | $ | 748 | ||||||||||
|
Non-cash financing activities:
|
||||||||||||||||||||
|
Accretion of Class A Units
|
$ | 4,123 | $ | 6,207 | $ | 3,000 | — | $ | 1,180 | |||||||||||
See notes to consolidated financial statements.
F-6
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
Note 1 – Operations
and Basis of Presentation
Description of
Business and Basis of Presentation
The financial statements include the consolidated accounts of
Chefs’ Warehouse Holdings, LLC (the “Company”),
and its wholly owned subsidiaries. Our fiscal year is comprised
of 52 or 53 weeks, ending on the fifth Friday of each December
and included 52 weeks for fiscal years ended
December 24, 2010, December 25, 2009 and
December 26, 2008. Our quarters contain 13 weeks ending on
March 25, 2011 and March 26, 2010. The Company operates in one
segment, food product distribution, which is concentrated on the
East and West Coasts of the United States. Our customer base is
primarily high-end restaurants, hotels, country clubs and other
similar institutions.
Unaudited
Interim Financial Statements
The accompanying unaudited consolidated balance sheet as of
March 25, 2011, consolidated statements of operations and
cash flows for the three months ended March 25, 2011 and
March 26, 2010 and the consolidated statements of changes
in Redeemable Class A units and members’ deficit for
the three months ended March 25, 2011, and the related
interim information contained within the notes to the
consolidated financial statements, have been prepared in
accordance with the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the
information and the notes required by accounting principles
generally accepted in the United States of America
(“GAAP”) for complete financial statements. In the
opinion of management, the unaudited interim consolidated
financial statements reflect all adjustments, consisting of
normal and recurring adjustments, necessary for the fair
presentation of the Company’s financial position at
March 25, 2011 and results of its operations and its cash
flows for the three months ended March 25, 2011 and
March 26, 2010. The results for the three-month period
ended March 25, 2011 are not necessarily indicative of
future results.
Consolidation
of Ownership
On October 22, 2010, the Company redeemed all authorized
and outstanding class A units, for a redemption price of
$68,250. The redemption price consisted of $45,821 of principal
and accreted interest as well as $22,429 of deemed equity value.
The redemption price was calculated in line with the
Company’s LLC agreement and was mutually agreed upon by all
participating parties. The redemption resulted in Chefs’
Warehouse Holdings, LLC’s founders, management and
employees increasing their ownership interests from 68.5% to
100%. The class A units were retired at the time of
redemption.
Consolidation
The wholly-owned operating companies include Dairyland USA
Corporation (“Dairyland”), a New York corporation,
engaged in business as a food product distribution company of
dairy, meat, and specialty foods; Bel Canto Foods, LLC (a
wholly-owned subsidiary of Dairyland), a New York limited
liability company, engaged in a business of importing primarily
Mediterranean-style food products; The Chefs’ Warehouse,
LLC, a Delaware limited liability company engaged in a business
similar to Dairyland, primarily in the state of Maryland and the
District of Columbia; The Chefs Warehouse West Coast, LLC, a
Delaware limited liability company, engaged in a business
similar to Dairyland, primarily in California and Nevada, and
The Chefs Warehouse of Florida, LLC, a Delaware limited
liability company engaged in a business similar to Dairyland,
primarily in southern Florida. All significant intercompany
accounts and transactions have been eliminated.
Acquisitions
On June 18, 2010 the Company purchased all the assets of
Monique & Me, Inc. doing business as Culinaire
Specialty Foods, Inc. The financial statements include the
results of the acquired operations from the respective
acquisition date. See Note 5 for additional information.
On August 28, 2009 the Company purchased all the assets of
European Imports SF, Inc. (“EI”). The operations of EI
were integrated into the Company’s San Francisco, CA
operations. The financial statements include the results of the
acquired operations from the respective acquisition date. See
Note 5 for additional information.
F-7
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
On May 30, 2008 the Company purchased all the assets of
American Gourmet Foods, Inc. The financial statements include
the results of the acquired operations from the respective
acquisition date. See Note 5 for additional information.
Use of
Estimates
The preparation of the Company’s consolidated financial
statements in conformity with generally accepted accounting
principles requires us to make estimates and assumptions that
affect reported amounts of assets, liabilities, revenues,
expenses and disclosure of contingent assets and liabilities.
Estimates are used in determining, among other items, the
allowance for doubtful accounts, reserves for inventories,
future cash flows associated with impairment testing for
goodwill and long-lived assets, useful lives for intangible
assets, and tax reserves. Actual results could differ from these
estimates.
Subsequent
Events
The Company accounts for subsequent events in accordance with
Accounting Standard Update
2010-09,
“Amendments to Certain Recognition and Disclosure
Requirements”, which amended ASC 855 “Subsequent
Events”. These financial statements considered subsequent
events through March 14, 2011, the date the financial
statements were available to be issued. Subsequent to the date
of the balance sheet but prior to March 14, 2011, the
Company settled an ongoing contract dispute with a former
employee in the amount of $175. The settlement of this dispute
has been expensed in the Company’s 2010 financial
statements. There were no other material subsequent events
during this time period. The Company is in the process of filing
an Initial Public Offering, the proceeds of which will be used
for working capital purposes and to retire certain debt.
Note 2 – Net
Income (Loss) Per Unit and Pro Forma Net Income Per Share
(Unaudited)
Net income (loss) per unit is presented by combining all classes
of units. In the event a dividend is paid on Class B
members’ units, holders of all outstanding Class A
members’ units are entitled to a proportionate share of any
such dividend. For all periods presented, dividends attributable
to holders of Class A members’ units were cumulative.
Basic net income (loss) per unit attributable to Class A,
Class B and vested Class C members’ units is
computed by dividing the net income (loss) attributable to
members by the weighted average number of members’ units
outstanding during the period. Diluted net income (loss) per
unit attributable to Class A, Class B and Class C
members’ units is computed by using the weighted average
number of members’ units outstanding, including unvested
Class C members’ units which will be automatically
converted into shares of common stock upon an initial public
offering. 2,521 and 5,105 units were not included for 2010 and
2008, respectively, as the effect would be anti-dilutive.
Pro forma basic and diluted net income per share attributable to
common stockholders represents net income, as adjusted (see
below), divided by the pro forma weighted average shares
outstanding as though the conversion of the
F-8
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
Company’s Class C members’ units into common
stock occurred on the original issuance dates or date. Pro forma
diluted weighted average shares outstanding also reflects the
effect of any dilutive stock options.
| DECEMBER 24, 2010 | DECEMBER 25, 2009 | DECEMBER 26, 2008 | MARCH 25, 2011 | MARCH 26, 2010 | ||||||||||||||||
|
Net income
|
$ | 15,874 | $ | 8,961 | $ | 2,196 | $ | 1,020 | $ | 1,536 | ||||||||||
|
Deemed dividend accretion on Class A common members’
units(1)
|
(4,123 | ) | (6,207 | ) | (3,000 | ) | — | (1,180 | ) | |||||||||||
|
Deemed dividend paid to Class A members’
units(1)
|
(22,429 | ) | — | — | — | — | ||||||||||||||
|
Net income (loss) attributable to members’ units
|
$ | (10,678 | ) | $ | 2,754 | $ | (804 | ) | $ | 1,020 | $ | 356 | ||||||||
|
Net (loss) income per members’ unit:
|
||||||||||||||||||||
|
Basic
|
$ | (0.15 | ) | $ | 0.04 | $ | (0.01 | ) | $ | 0.02 | $ | 0.00 | ||||||||
|
Diluted
|
$ | (0.15 | ) | $ | 0.03 | $ | (0.01 | ) | $ | 0.02 | $ | 0.00 | ||||||||
|
Weighted average members’ units outstanding:
|
||||||||||||||||||||
|
Basic
|
72,494 | 77,827 | 76,663 | 52,526 | 76,573 | |||||||||||||||
|
Diluted
|
72,494 | 81,851 | 76,663 | 54,375 | 79,515 | |||||||||||||||
| (1) | Accreted dividends and the distribution for the final redemption of the Class A units are removed from earnings from the net income (loss) attributable to member’s units as these distributions were not available to those members. |
Pro Forma net income attributable to common shares (Unaudited):
|
MARCH 25, 2011 |
||||||||
|
BASIC AND DILUTED
|
DECEMBER 24, 2010 | (UNAUDITED) | ||||||
|
Historical income before provision for income taxes
|
$ | 18,441 | $ | 1,687 | ||||
|
Pro forma provision for income taxes(A)
|
7,376 | 667 | ||||||
| 11,065 | 1,020 | |||||||
|
Class A deemed dividend and discount accretion
|
(26,552 | ) | — | |||||
|
Other pro forma adjustments, net of tax(B)
|
||||||||
|
Net income (loss) attributable to Common shares
|
||||||||
|
Weighted average shares(C)
|
||||||||
|
Pro forma net income (loss) per share
|
||||||||
The pro forma earnings per share has been computed to give
effect to the conversion of the Company’s Class B and
Class C members’ units into shares of common stock and
accordingly reflect:
| A | Pro forma effective tax rate of 40% for the full year ended December 24, 2010 and the three months ended March 25, 2011. |
F-9
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
| B | The elimination of historical interest expense, including the amortization of debt issuance costs and the write-off of deferred debt costs of $3,334 and $3,094, respectively, related to the loan balances at December 24, 2010 and March 25, 2011 under the Company’s credit facility which is assumed to be repaid using a portion of the net proceeds of the Company’s initial public offering of its common stock. |
| C | The issuance of shares of common stock at the assumed initial offering price of $ per share (the midpoint of the range set forth on the cover page of the prospectus of which these financial statements are a part), where the proceeds of such issuance of shares would have been sufficient to repay outstanding loan balances as of December 24, 2010 and March 25, 2011, respectively. |
Note 3 – Members’
Equity
The Company is authorized to issue three classes of units
consisting of 25,000,000 Class A Units; 50,000,000
Class B Units and 8,333,333 Class C Units.
| i. | Class A Units – On October 22, 2010, the Company redeemed and retired all outstanding Class A units held by BGCP c/o CCMP Capital Advisors, LLC and Drawbridge Special Opportunities Fund LP. As of December 24, 2010 and March 25, 2011 there were zero Class A units authorized and outstanding. |
| ii. | Class B Units — All Class B units were issued to the founders of the Company and carry a single vote per unit. |
| iii. | Class C Units – All Class C units were reserved for issuance to employees, directors and other service providers. As of December 24, 2010 and December 25, 2009, there were 4,375,000 and 4,927,084 Class C units issued, respectively. The Class C units are redeemable upon a liquidity event or upon termination of the holder at the option of the Company. Compensation charges associated with these units were immaterial in the reported periods. |
Note 4 – Summary
of Significant Accounting Policies
Revenue
Recognition
Revenue from the sale of a product is recognized at the point at
which the product is delivered to the customer. The Company
grants certain customers sales incentives such as rebates or
discounts and treats these as a reduction of sales at the time
the sale is recognized. Sales tax billed to customers is not
included in revenue but rather recorded as a liability owed to
the respective taxing authorities at the time the sale is
recognized.
Cost of Goods
Sold (COGS)
The Company records COGS based upon the purchase price paid for
product, including applicable freight charges incurred to
deliver the product to the Company’s warehouse.
Operating
Expenses
Operating Expenses include the costs of facilities, product
handling and replenishment, delivering, selling and general
administrative activities.
Cash and Cash
Equivalents
The Company considers all highly liquid investments with an
original maturity of less than three months to be cash
equivalents.
The Company maintains balances at financial institutions which
may exceed Federal Deposit Insurance Corporation
(“FDIC”) insured limits. The Company has not
experienced any losses in such accounts and believes it is not
exposed to any significant risks on its cash in bank accounts.
Accounts
Receivable
Accounts receivable consist of trade receivables from customers
and are recorded net of an allowance for doubtful accounts.
F-10
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
The allowance for doubtful accounts is determined based upon a
number of specific criteria, such as whether a customer has
filed for or been placed into bankruptcy, has had accounts
referred to outside parties for collections or has had accounts
significantly past due. The allowance also covers short paid
invoices the Company deems to be uncollectable as well as a
portion of trade accounts receivable balances projected to
become uncollectable based upon historic patterns.
Inventories
Inventories consist primarily of finished goods, food and
related food products held for resale and are valued at the
lower of cost
(first-in
first-out method) or market. The Company maintains reserves for
slow-moving and obsolete inventories.
Purchase
Incentives
The Company receives consideration and product purchase credits
from certain vendors that we account for as a reduction of cost
of goods sold. There are several types of cash consideration
received from vendors. The purchase incentive is primarily in
the form of a specified amount per pound or per case. For the
year ended December 24, 2010, year ended December 25,
2009, and December 26, 2008 the recorded purchase
incentives totaled approximately $3,996, $3,164 and $2,536,
respectively. For the three months ended March 25, 2011 and
March 26, 2010 the recorded purchase incentives totaled
approximately $817 and $698, respectively.
Concentrations
of Credit Risks
Financial instruments that subject us to concentrations of
credit risk consist of cash, temporary cash investments, trade
receivables, and short-term and long-term debt. Our policy is to
deposit our cash and temporary cash investments with major
financial institutions.
The Company distributes its food and related products to a
customer base that consists primarily of restaurants, country
clubs, catering halls, hotels and other institutions. To reduce
credit risk, the Company performs ongoing credit evaluations of
its customers’ financial conditions. The Company generally
does not require collateral. However, the Company, in certain
instances, has obtained personal guarantees from certain
customers. There is no significant balance with any individual
customer.
Equipment and
Leasehold Improvements
The Company records equipment and leasehold improvements at
cost. Equipment that has been financed through capital leases is
recorded at the present value of the minimum lease payments,
which approximates cost. Equipment and leasehold improvements,
including capital lease assets, are depreciated on a
straight-line basis as follows:
| ESTIMATED USEFUL LIVES (IN YEARS) | ||||
|
Leasehold improvements (lesser of life of lease or)
|
7-15 | |||
|
Machinery and equipments
|
5-10 | |||
|
Computer, data processing and other equipment
|
3-7 | |||
|
Furniture and fixtures
|
7 | |||
|
Vehicles
|
5 | |||
|
Other
|
7 | |||
Software
Costs
The Company capitalizes certain computer software licenses and
software implementation costs that are included in Software
costs in our Consolidated Balance Sheets. These costs were
incurred in connection with developing or obtaining computer
software for internal use if it has a useful life in excess of
one year, in accordance with Accounting Standards Codification
(ASC) 350-40
“Internal-Use Software”. Subsequent additions,
modifications or upgrades to internal-use software are
capitalized only to the extent that they allow the software to
perform a task that it previously did not perform. Internal use
software is amortized on a straight-line basis over a three to
seven year period.
F-11
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
Capitalized costs include direct acquisitions as well as
software and software development acquired under capitalized
leases. Capitalized software purchases and related development
costs, net of accumulated amortization, were $373 at
December 24, 2010, $539 at December 25, 2009 and $322
at March 25, 2011.
Impairment of
Long-Lived Assets
Long-lived assets, other than goodwill, are reviewed for
impairment in accordance with Accounting Standards Codification
(ASC)
360-10-35-15,
“Impairment or Disposal of Long-Lived Assets”
that only requires testing whenever events or changes in
circumstances indicate that the carrying amount of the assets
may not be recoverable. If any indicators are present, a
recoverability test is performed by comparing the carrying
amount of the asset to the net undiscounted cash flows expected
to be generated from the asset. If the net undiscounted cash
flows do not exceed the carrying amount (i.e., the asset is not
recoverable), an additional step is performed that determines
the fair value of the asset and records an impairment, if any.
Debt Issuance
Costs and Debt Discount
Certain costs associated with the issuance of debt instruments
are capitalized and included in non-current assets in the
Consolidated Balance Sheets. The Company had unamortized debt
issuance costs of $2,941, $3,344 and $188 as of March 25, 2011,
December 24, 2010 and December 25, 2009 respectively.
These costs are amortized over the terms of the related debt
instruments on a straight-line basis. Amortization of debt
issuance costs was $715 for the fiscal year ended
December 24, 2010, $397 for the fiscal year ended
December 25, 2009 and $359 for the year ended
December 26, 2008. Amortization of debt issuance costs was
$292 and $137 for the three months ended March 25, 2011 and
March 26, 2010, respectively. The unamortized portion of
original issue discount (OID) is classified with the related
debt, and the amortization of the OID is charged to interest
expense using the effective interest method. As of
March 25, 2011, December 24, 2010 and
December 25, 2009 the Company had unamortized OID of
$1,944, $2,127 and $0 respectively.
Intangible
Assets
The intangible assets recorded by the Company consist of
customer relationships which are amortized over their useful
lives on a schedule that approximates the pattern in which
economic benefits of the intangible assets are consumed.
Goodwill
Goodwill is the excess of the acquisition cost of businesses
over the fair value of identifiable net assets acquired. In
accordance with Accounting Standards Codification (ASC) 350,
“Intangibles-Goodwill and Other”, Impairment
testing for goodwill is performed at least annually unless
indicators of impairment exist. The impairment test for goodwill
uses a two-step approach, which is performed at the consolidated
level, as the Company has a single reporting unit. Step one
compares the fair value of the Company (calculated using a
discounted cash flow method) to its carrying value. If the
carrying value exceeds the fair value, there is potential
impairment and step two must be performed. Step two compares the
carrying value of the entity’s goodwill to its implied fair
value (i.e., fair value of the entity less the fair value of the
entity’s assets and liabilities, including identifiable
intangible assets). If the carrying value of goodwill exceeds
its implied fair value, the excess is required to be recorded as
impairment. Through March 25, 2011 there have been no
impairments recorded.
Derivative
Financial Instruments
Derivatives are carried as assets or liabilities at their fair
values in accordance with Accounting Standards Codification
(ASC) 820 “Fair Value Measurements”. The
Company’s derivative is comprised of an interest rate swap
commitment entered into with a financial institution to hedge
the risk associated with the Company’s variable rate debt.
The financial instrument does not qualify for hedge accounting
and is carried at fair value with the changes in fair value
recorded in earnings. As of March 25, 2011,
December 24, 2010 and December 25, 2009, the fair
value of the interest rate swap was $0, $(81) and $(991),
respectively, and is included in Other Liabilities.
F-12
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
Employee
Benefit Programs
The Company sponsors a defined contribution plan covering
substantially all full-time employees (the “401(k)
Plan”). The Company, at the discretion of its Board Of
Directors, may make contributions to the 401(k) Plan. The
Company has not made nor has it accrued for any discretionary
contributions for the three months ended March 25, 2011 and
March 26, 2010 and the years ended December 24, 2010,
December 25, 2009 and December 26, 2008, respectively.
Income
Taxes
We account for income taxes in accordance with Accounting
Standards Codification (ASC) 740, “Income Taxes”.
Deferred tax assets or liabilities are recorded to reflect
the future tax consequences of temporary differences between the
financial reporting basis of assets and liabilities and their
tax basis at each year-end. These amounts are adjusted, as
appropriate, to reflect enacted changes in tax rates expected to
be in effect when the temporary differences reverse.
On December 26, 2008, the Company adopted certain
provisions of ASC 740, “Income Taxes” (previously
reported as Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation
of FASB Statement No. 109) which established a single
model to address accounting for uncertain tax positions and
clarifies the accounting for income taxes by prescribing a
minimum recognition threshold that a tax position is required to
meet before being recognized in the financial statements. The
Company evaluates uncertain tax positions, if any, by
determining if it is more likely than not to be sustained upon
examination by the tax authorities. The Company records
uncertain tax positions when they are estimatable and probable
that such liabilities have been incurred. The adoption of this
guidance did not result in any reserves for uncertain tax
provisions. The Company, when required, will accrue interest and
penalties related to income tax matters in income tax expense.
Commitments
and Contingencies
We are subject to various claims and contingencies related to
lawsuits, taxes and environmental matters, as well as
commitments under contractual and other commercial obligations.
We recognize liabilities for contingencies and commitments when
a loss is probable and can be reasonably estimated.
Fair Value
Measurements
Effective December 26, 2008, the Company adopted Accounting
Standards Codification (ASC) 820, “Fair Value
Measurements”, as it relates to financial assets and
financial liabilities. The adoption of ASC 820 did not have
material impact on the consolidation financial statements. The
carrying values of the Company’s liabilities approximate
the fair values except for the fair value of the Company’s
debt, which are based on prevailing interest rates and market
prices for debt of similar terms and maturities.
As of December 24, 2010, the Company’s only financial
instruments required to be measured at fair value is an interest
rate swap. As of March 25, 2011 the Company’s only
financial instrument required to be measured at fair value is a
foreign exchange contract. The interest rate swap and foreign
exchange contract are valued using current quoted market prices,
and are considered level two instruments.
Note 5 – Acquisitions
We account for acquisitions in accordance with Accounting
Standards Codification (ASC) 805, “Business
Combinations”. Assets acquired and liabilities assumed
are recorded in the accompanying consolidated balance sheet at
their estimated fair values as of the acquisition date.
On June 18, 2010, the Company completed the acquisition of
Monique & Me, Inc. doing business as Culinaire
Specialty Foods, Inc. based in Miami, Florida. On
August 28, 2009, the Company completed the acquisition of
European Imports, SF, Inc., (“EI”), based in
San Francisco. On May 30, 2008 the Company completed
the acquisition of American Gourmet Foods, Inc. (“AG”).
F-13
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
The table below details the assets and liabilities acquired as
part of the acquisitions of Monique & Me, as of
June 18, 2010, EI as of August 28, 2009, and American
Gourmet as of May 30, 2008 respectively.
| MONIQUE & ME | EI | AG | ||||||||||
|
Current assets
|
$ | 1,324 | $ | 1,096 | $ | 2,385 | ||||||
|
Intangible assets other than goodwill
|
596 | 50 | 75 | |||||||||
|
Goodwill
|
2,120 | 2,650 | 4,273 | |||||||||
|
Current liabilities
|
(302 | ) | (30 | ) | (1,608 | ) | ||||||
|
Purchase Price
|
$ | 3,738 | $ | 3,766 | $ | 5,125 | ||||||
The goodwill recognized as part of these acquisitions is
expected to be deductible for income tax purposes. The results
of operations for the period subsequent to the acquisition date
for these acquisitions are included in the consolidated
financial statements. The revenues subsequent to the acquisition
date and the pro forma effect assuming the acquisitions happened
at the beginning of the respective fiscal years is not material.
Note 6 – Plant
and Equipment
Plant, equipment and leasehold improvements consisted of:
| As of | ||||||||||||||||
|
March 25, |
||||||||||||||||
|
December 24, |
December 25, |
2011 |
||||||||||||||
| USEFUL LIVES | 2010 | 2009 | (unaudited) | |||||||||||||
|
Machinery and equipment
|
5-10 years | $ | 5,390 | $ | 5,312 | $ | 5,379 | |||||||||
|
Computers, data processing and other equipment
|
3-7 years | 2,821 | 2,383 | 2,947 | ||||||||||||
|
Leasehold improvements
|
7-15 years | 5,566 | 4,176 | 5,570 | ||||||||||||
|
Furniture and fixtures
|
7 years | 509 | 479 | 509 | ||||||||||||
|
Vehicles
|
5 years | 507 | 482 | 502 | ||||||||||||
|
Other
|
7 years | 85 | 85 | 85 | ||||||||||||
|
Construction-in-process
|
32 | 926 | 282 | |||||||||||||
| 14,910 | 13,843 | 15,294 | ||||||||||||||
|
Less: accumulated depreciation and amortization
|
(10,682 | ) | (9,603 | ) | (10,952 | ) | ||||||||||
|
Plant and equipment, net
|
$ | 4,228 | $ | 4,240 | $ | 4,342 | ||||||||||
Depreciation expense was $1,312, $1,334, $1,512, $321 and $316
for the years ended December 24, 2010, December 25,
2009, December 26, 2008 and the three months ended
March 25, 2011 and March 26, 2010, respectively.
Note 7 – Goodwill
and Other Intangible Assets
The changes in the carrying amount of goodwill are presented as
follows:
|
Carrying amount as of December 26, 2008
|
$ | 6,709 | ||
|
Goodwill acquired during the year
|
2,650 | |||
|
Carrying amount as of December 25, 2009
|
9,359 | |||
|
Goodwill acquired during the year
|
2,120 | |||
|
Carrying amount as of December 24, 2010 (audited) and
March 25, 2011 (unaudited)
|
$ | 11,479 | ||
F-14
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
Other intangible assets consist of customer relationships being
amortized over a period ranging from six to eight years. The
changes in the carrying amount of other intangible assets for
the years presented are as follows:
|
Carrying amount as of December 26, 2008
|
$ | 99 | ||
|
Customer relations recorded during the year
|
50 | |||
|
Amortization expense incurred during the year
|
(34 | ) | ||
|
Carrying amount as of December 25, 2009
|
115 | |||
|
Customer relations recorded during the year
|
596 | |||
|
Amortization expense incurred during the year
|
(76 | ) | ||
|
Carrying amount as of December 24, 2010
|
$ | 635 | ||
|
Amortization expense for the three months ended March 25,
2011 (unaudited)
|
29 | |||
|
Carrying amount as of March 25, 2011 (unaudited)
|
$ | 606 | ||
Amortization expense for the next five years is expected to be
$112, $91, $83, $83 and $81.
Note 8 – Debt
Obligations
Debt obligations as of December 24, 2010, December, 25 2009
and March 25, 2011 consisted of the following:
|
March 25, |
||||||||||||
| December 24, |
2011 |
|||||||||||
| 2010 | 2009 | (unaudited) | ||||||||||
|
Revolving credit facility
|
$ | 12,219 | $ | 20,495 | $ | 9,701 | ||||||
|
Term loan
|
73,750 | 11,650 | 72,500 | |||||||||
|
Original issue discount-term loan
|
(2,127 | ) | — | (1,945 | ) | |||||||
|
Note payable
|
183 | 577 | 82 | |||||||||
|
Senior subordinated PIK note
|
15,500 | — | 16,250 | |||||||||
|
Total debt obligations
|
99,525 | 32,722 | 96,588 | |||||||||
|
Less: current installments
|
(16,945 | ) | (2,794 | ) | (14,589 | ) | ||||||
|
Total debt obligations, excluding current installments
|
$ | 82,580 | $ | 29,928 | $ | 81,999 | ||||||
Maturities of debt obligations are as follows:
|
YEAR ENDED DECEMBER:
|
PRINCIPAL | OID | NET | |||||||||
|
2011
|
$ | 17,652 | $ | (707 | ) | $ | 16,945 | |||||
|
2012
|
6,250 | (653 | ) | 5,597 | ||||||||
|
2013
|
7,000 | (587 | ) | 6,413 | ||||||||
|
2014
|
70,750 | (180 | ) | 70,570 | ||||||||
| $ | 101,652 | $ | (2,127 | ) | $ | 99,525 | ||||||
Credit
Facility
On April 15, 2010, the Company entered into a term loan and
revolving credit facility (the “Revolving Credit
Agreement”). The term loan commitment was in the amount of
$7,500, while the revolving credit facility provided
F-15
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
the Company with up to $37,500 in borrowing capacity. In line
with the redemption of Class A units on October 22,
2010, the $7,500 term note was paid in full and the credit
facility was amended to provide the Company with up to $25,000
in revolving borrowing capacity. The Revolving Credit Agreement
matures on October 22, 2013. The outstanding revolver
balance as of December 24, 2010, is being classified on the
balance sheet in accordance with Accounting Standards
Codifications (ASC) 470 “Debt”. The Revolving
Credit Agreement contains certain events of default that under
certain circumstances could call for the immediate repayment of
the outstanding revolver balance. These “subjective
acceleration clauses” in addition to the Revolving Credit
Agreement requiring full dominion of lockbox receipts, requires
that the outstanding revolver balance be presented in current
portion of long term debt. Borrowings under the Revolving Credit
Agreement bear interest, at the Company’s option, at the CB
Floating Rate (defined as the Administrative Agent’s prime
rate, never to be less than the adjusted one month Libor rate,
plus applicable rate) or LIBOR plus applicable rate. The
applicable rate is contingent upon the Company’s leverage
ratio. As of December 24, 2010 the CB Floating applicable
rate was 1.25% and the Libor applicable rate was 3.25%. The
Revolving Credit Agreement also provides for an annual fee of
.25% of unused commitments. The Revolving Credit Agreement
contains various covenants that require the maintenance of
certain financial ratios, as described in the Credit Agreement,
and also contains customary events of default. Balances
outstanding on the credit facility are secured against the
assets of the Company.
Term
Debt
On October 22, 2010, the Company entered into a $75,000
second lien term note (the “Term Loan Credit
Agreement”). The Term Loan Credit Agreement requires
principal payments of $5,000 in year 1, $6,000 in year 2, $7,000
in year 3, with the remaining principal due at maturity, on
April 23, 2014. Borrowings under the Term Loan Credit
Agreement bear interest at the Company’s option of ABR Loan
(defined as the greater of the Federal funds rate, the adjusted
one month LIBOR rate or 3%) plus 8% or LIBOR plus 9%, with LIBOR
having a floor of 2%. The Term Loan Credit Agreement contains
various covenants that require the maintenance of certain
financial ratios, as described in the Term Loan Credit
Agreement, and also contains customary events of default.
Balances outstanding on the term note are secured by a second
lien on trade receivables and inventory, as well as a first lien
on all other assets of the Company. This term debt was issued
with an OID of $2,250 which is classified with the debt and is
charged to interest expense, using the effective interest method.
Senior
Subordinated Debt
On October 22, 2010, the Company entered into a $15,000
unsecured PIK note (the “Note”) due October 22,
2014. The note bears interest at 20% and accrues interest every
six months. The balance at March 25, 2011 and
December 24, 2010 is $16,250 and $15,500, respectively,
which includes accrued interest. The note contains various
covenants that require the maintenance of certain financial
ratios, as described in the note agreement, and contains
customary events of default.
Note 9 – Leases
The Company leases various warehouse and office facilities and
certain vehicles and equipment under long-term operating lease
agreements that expire at various dates, with related parties
and with others. See Note 11 for additional discussion of
related party transactions. The Company records operating lease
costs, including any
F-16
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
determinable rent increases, on a straight-line basis over the
lease term. As of December 24, 2010, the Company is
obligated under non-cancelable operating lease agreements to
make future minimum lease payments as follows:
|
THIRD |
THIRD |
|||||||||||||||||||
|
RELATED PARTY |
PARTY REAL |
THIRD PARTY |
PARTY |
|||||||||||||||||
| REAL ESTATE | ESTATE | VEHICLES | OTHER | TOTAL | ||||||||||||||||
|
2011
|
$ | 1,614 | $ | 1,828 | $ | 2,641 | $ | 591 | $ | 6,674 | ||||||||||
|
2012
|
1,671 | 1,514 | 2,082 | 299 | 5,566 | |||||||||||||||
|
2013
|
1,729 | 1,013 | 1,599 | 175 | 4,516 | |||||||||||||||
|
2014
|
1,663 | 901 | 1,187 | 40 | 3,791 | |||||||||||||||
|
2015
|
— | 905 | 576 | — | 1,481 | |||||||||||||||
|
Thereafter
|
— | 901 | 444 | — | 1,345 | |||||||||||||||
|
Total minimum lease payments
|
$ | 6,677 | $ | 7,062 | $ | 8,529 | $ | 1,105 | $ | 23,373 | ||||||||||
Total rent expense for operating leases for the years ended
December 24, 2010, December 25, 2009 and
December 26, 2008 were $7,241, $7,066 and $7,269,
respectively. Total rent expense for operating leases for the
three months ended March 25, 2011 and March 26, 2010 was $1,917
and $1,754, respectively.
Note 10 – Income
Taxes
Certain subsidiaries of the Company are taxed as a “C”
Corporation. As part of the Class A unit redemption that
occurred on October 22, 2010, the remaining subsidiaries of
the Company elected to be taxed as a “C” corporation.
These subsidiaries of the Company were taxed as a partnership
for the first ten months of the year, and then as a
“C” Corporation for the last two months of the year.
The income of the partnership is subject to tax at the LLC
member level, with the exception of certain unincorporated
business taxes. Dairyland is a “C” Corporation that is
taxed as a stand alone entity subject to the corporate tax rates.
The provision for income taxes consists of the following for the
years ended December 24, 2010, December 25, 2009 and
December 26, 2008, respectively:
| 2010 | 2009 | 2008 | ||||||||||
|
Current income tax expense (benefit)
|
||||||||||||
|
Federal
|
$ | 4,035 | $ | 1,908 | $ | 2,614 | ||||||
|
State
|
1,002 | (64 | ) | 1,450 | ||||||||
|
Total current income tax expense
|
5,037 | 1,844 | 4,064 | |||||||||
|
Deferred income tax expense (benefit)
|
||||||||||||
|
Federal
|
(1,983 | ) | 316 | (469 | ) | |||||||
|
State
|
(487 | ) | 53 | (145 | ) | |||||||
|
Total deferred income tax (benefit)
|
(2,470 | ) | 369 | (614 | ) | |||||||
|
Total income tax expense
|
$ | 2,567 | $ | 2,213 | $ | 3,450 | ||||||
F-17
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
The income tax expense differed from the total statutory income
tax expense as computed by applying the statutory
U.S. Federal income tax rate to income before income taxes.
The reasons for the differences for the years ended
December 24, 2010, December 25, 2009 and
December 26, 2008 are as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
Statutory U. S. Federal tax
|
$ | 6,270 | $ | 3,799 | $ | 1,920 | ||||||
|
Differences due to:
|
||||||||||||
|
Non-taxable operating results
|
(1,792 | ) | (987 | ) | 559 | |||||||
|
Other permanent differences
|
114 | 78 | 168 | |||||||||
|
State and local taxes, net of federal benefit
|
548 | 419 | 1,309 | |||||||||
|
Change to C-Corp status
|
(2,744 | ) | — | — | ||||||||
|
Change in prior year tax estimate
|
411 | (966 | ) | (20 | ) | |||||||
|
Other/net
|
(240 | ) | (130 | ) | (486 | ) | ||||||
| $ | 2,567 | $ | 2,213 | $ | 3,450 | |||||||
Deferred tax assets and liabilities at December 24, 2010
and December 25, 2009 consist of the following:
| 2010 | 2009 | |||||||
|
Current deferred tax assets:
|
||||||||
|
Receivables and inventory
|
$ | 1,562 | $ | 898 | ||||
|
Unrealized loss on swap
|
35 | 436 | ||||||
|
Paid time off accrual
|
325 | 276 | ||||||
|
Other
|
224 | 26 | ||||||
|
Current deferred tax assets:
|
2,146 | 1,636 | ||||||
|
Current deferred tax liabilities:
|
||||||||
|
Deduction of prepaid expenses
|
(495 | ) | (155 | ) | ||||
|
Current deferred tax asset, net
|
$ | 1,651 | $ | 1,481 | ||||
|
Non-current deferred tax assets:
|
||||||||
|
Goodwill
|
$ | 2,263 | $ | — | ||||
|
Rent accrual
|
629 | 455 | ||||||
|
Reserve on deposits
|
— | 233 | ||||||
|
Other
|
25 | — | ||||||
|
Noncurrent deferred tax asset
|
2,917 | 688 | ||||||
|
Non-current deferred tax liabilities:
|
||||||||
|
Property & equipment
|
(555 | ) | (138 | ) | ||||
|
Goodwill
|
— | (488 | ) | |||||
|
Non-current deferred tax liabilities
|
(555 | ) | (626 | ) | ||||
|
Non-current deferred tax asset, net
|
$ | 2,362 | $ | 62 | ||||
The deferred tax provision results from the effects of net
changes during the year in deferred tax assets and liabilities
arising from temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The Company saw a
significant increase in its
F-18
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
deferred tax assets recorded on its financial statements as a
result of the “C” corporation tax election made during
the year. This increase in deferred tax assets, which was
primarily due to the establishment of a $2.8 million
deferred tax asset for goodwill established at the time of
issuance of our Class A units and will be deductible for
tax purposes after October 22, 2010, resulted in the
recording of a large tax benefit, lowering the Company’s
overall effective tax rate.
The Company files income tax returns in the U.S. Federal
and various state and local jurisdictions. For Federal income
tax purposes, the 2007 through 2010 tax years remain open for
examination by the tax authorities under the normal three-year
statute of limitations. For state tax purposes, the 2007 through
2010 tax years remain open for examination by the tax
authorities under a four-year statute of limitations. The
Company records interest and penalties, if any, in income tax
expense.
Note 11 – Related
Parties
The Company leases two warehouse facilities from related
parties. These facilities are 100% owned by certain members of
the Company and are deemed to be affiliates, (see Note 9).
Expense related to the above facilities was $1,537 for each of
the years ended December 24, 2010, and December 25,
2009 and December 26, 2008 and $384 for each of the three
months ended March 25, 2011 and March 26, 2010.
Note 12 – Legal
Matters
The Company is subject to a number of claims and proceedings
that generally arise in the ordinary conduct of our business.
Although the outcome of these matters cannot be predicted with
certainty and the impact of the final resolution of these
matters on the Company’s results of operations is not
known, management does not believe that the resolution of these
matters will have a material adverse effect on the financial
position of the Company or the ability of the Company to meet
its financial obligations as they become due.
Note 13 – Product
Information
The Company offers a full line of products to its customers. The
sales mix for the principal product categories for each fiscal
year is as follows:
| 2010 | 2009 | 2008 | ||||||||||
|
Dry Goods
|
$ | 86,413 | $ | 70,456 | $ | 71,802 | ||||||
|
Center of Plate
|
70,655 | 57,969 | 57,401 | |||||||||
|
Cheeses
|
49,283 | 40,764 | 42,957 | |||||||||
|
Pastries and Other Bakery Products
|
44,259 | 37,162 | 36,254 | |||||||||
|
Oils and Vinegars
|
39,065 | 34,216 | 39,295 | |||||||||
|
Other Dairy Products
|
33,290 | 25,334 | 29,074 | |||||||||
|
Kitchen Supplies
|
7,153 | 5,171 | 4,920 | |||||||||
|
Total
|
$ | 330,118 | $ | 271,072 | $ | 281,703 | ||||||
F-19
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT DATA)
(Information as of March 25, 2011 and for the three months ended
March 25, 2011 and March 26, 2010 is unaudited)
Note 14 – Subsequent
Event
On May 31, 2011, the Company entered into an agreement to
purchase certain of the assets of Harry Wils & Co., a
specialty foodservice distribution company headquartered in the
New York City metropolitan area. We are purchasing the inventory
of Harry Wils & Co. and certain intangible assets
including Harry Wils & Co.’s customer list and
certain intellectual property. The Company is assuming no
liabilities in connection with the transaction and intends to
relocate the inventory we are purchasing to our Bronx, New York
distribution facility shortly following the closing of the
transaction, which, subject to the satisfaction of certain
customary closing conditions, and is expected to occur by
mid-July 2011. The Company intends to finance the purchase price
for these assets we are acquiring through borrowings under our
Revolving Credit Agreement.
F-20
Table of Contents
UNAUDITED PRO
FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated
financial statements, which consist of unaudited pro forma
condensed consolidated statements of operations for the fiscal
year ended December 24, 2010 and the three months ended
March 25, 2011, give effect to:
| • | the redemption of our Class A units and the resulting incurrence of the indebtedness necessary to finance such redemption, together with the resulting elimination of dividends on those units during the fiscal year ended December 24, 2010; |
| • | our conversion to a subchapter C corporation prior to the effectiveness of this registration statement in connection with the reorganization transaction described elsewhere in this prospectus; |
| • | the sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, and our receipt of $ million in net proceeds, after deducting the underwriting discount and estimated expenses of the offering; |
| • | the use of the net proceeds from this offering to (1) redeem or repurchase all of our outstanding senior subordinated notes due 2014 and to pay any accrued but unpaid interest thereon and other related fees, including the call premium associated with such redemption or repurchase; and (2) repay all of our loans outstanding under our existing senior secured credit facilities and any accrued but unpaid interest thereon and other related fees; and |
| • | our incurrence of $ million of borrowings under our new senior secured credit facilities |
as if all of those transactions had occurred on
December 26, 2009.
The unaudited pro forma condensed consolidated financial
statements set out below should be read in conjunction with the
sections of this prospectus entitled “Use of
Proceeds,” “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” our
audited financial statements and the corresponding notes as of
and for the year ended December 24, 2010 and our unaudited
financial statements and the corresponding notes as of and for
the three months ended March 25, 2011 included elsewhere in
this prospectus.
The unaudited pro forma condensed consolidated financial
statements set out below have been derived from our historical
financial statements included elsewhere in this prospectus. The
unaudited pro forma condensed consolidated financial statements
appearing below are based upon a number of assumptions and
estimates and are subject to uncertainties, and do not purport
to be indicative of the actual results of operations or
financial condition that would have occurred had the
transactions described above in fact occurred on the dates
indicated, nor do they purport to be indicative of future
results of operations or financial condition that we may achieve
in the future. The assumptions and estimates used and pro forma
adjustments derived from such assumptions are based on currently
available information, and we believe such assumptions are
reasonable under the circumstances.
F-21
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 24, 2010
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 24, 2010
|
CHEFS’ |
PRO FORMA FOR |
COMMON STOCK |
||||||||||||||||||
|
WAREHOUSE |
OCTOBER 2010 |
OCTOBER 2010 |
OFFERING AND |
|||||||||||||||||
|
HOLDINGS, LLC |
RECAPITALIZATION |
RECAPITALIZATION |
REORGANIZATION |
|||||||||||||||||
| HISTORICAL | TRANSACTION | TRANSACTION | TRANSACTION | PRO FORMA | ||||||||||||||||
| (In thousands, except per unit data) | ||||||||||||||||||||
|
Net Revenues
|
$ | 330,118 | $ | — | $ | 330,118 | ||||||||||||||
|
Cost of sales
|
244,340 | — | 244,340 | |||||||||||||||||
|
Gross profit
|
85,778 | — | 85,778 | |||||||||||||||||
|
Operating expenses
|
64,206 | (220 | )(a) | 63,986 | ||||||||||||||||
|
Operating profit
|
21,572 | 220 | (a) | 21,792 | ||||||||||||||||
|
Interest expense
|
4,041 | 9,083 | (b) | 13,124 | ||||||||||||||||
|
(Gain)/loss on fluctuation of interest rate swap
|
(910 | ) | — | (910 | ) | |||||||||||||||
|
Income before income taxes
|
18,441 | (8,863 | ) | 9,578 | ||||||||||||||||
|
Provision for income taxes
|
2,567 | 1,168 | (c) | 3,735 | ||||||||||||||||
|
Net Income
|
$ | 15,874 | $ | (10,031 | ) | $ | 5,843 | |||||||||||||
|
Deemed dividend accretion on Class A members’ units
|
(4,123 | ) | 4,123 | (d) | — | |||||||||||||||
|
Deemed dividend paid to Class A members’ units
|
(22,429 | ) | 22,429 | (d) | — | |||||||||||||||
|
Net income attributable to members’ units/ common
stockholders
|
$ | (10,678 | ) | $ | 16,521 | $ | 5,843 | |||||||||||||
|
Net income per members’ unit/share of common stock
|
||||||||||||||||||||
|
Basic
|
$ | (0.15 | ) | $ | 0.11 | |||||||||||||||
|
Diluted
|
$ | (0.15 | ) | $ | 0.11 | (e) | ||||||||||||||
|
Weighted average members’ units/common shares outstanding
|
||||||||||||||||||||
|
Basic
|
72,494 | (20,535 | ) | 51,959 | ||||||||||||||||
|
Diluted
|
72,494 | (18,084 | ) | 54,410 |
(e) |
|||||||||||||||
F-22
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 25, 2011
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 25, 2011
|
COMMON STOCK |
||||||||||||
|
CHEFS’ WAREHOUSE |
OFFERING AND |
|||||||||||
|
HOLDINGS, LLC |
REORGANIZATION |
|||||||||||
| HISTORICAL | TRANSACTION | PRO FORMA | ||||||||||
| (In thousands, except per unit data) | ||||||||||||
|
Net Revenues
|
$ | 83,183 | ||||||||||
|
Cost of sales
|
61,148 | |||||||||||
|
Gross profit
|
22,035 | |||||||||||
|
Operating expenses
|
16,976 | |||||||||||
|
Operating profit
|
5,059 | |||||||||||
|
Interest expense
|
3,450 | |||||||||||
|
(Gain)/loss on fluctuation of interest rate swap
|
(81 | ) | ||||||||||
|
Loss on asset disposal
|
3 | |||||||||||
|
Income before income taxes
|
1,687 | |||||||||||
|
Provision for income taxes
|
667 | |||||||||||
|
Net Income
|
$ | 1,020 | ||||||||||
|
Deemed dividend accretion on Class A members’ units
|
— | |||||||||||
|
Deemed dividend paid to Class A members’ units
|
— | |||||||||||
|
Net income attributable to members’ units/ common
stockholders
|
$ | 1,020 | ||||||||||
|
Net income per members’ unit/share of common stock
|
||||||||||||
|
Basic
|
$ | 0.02 | ||||||||||
|
Diluted
|
$ | 0.02 | ||||||||||
|
Weighted average members’ units/common shares outstanding
|
||||||||||||
|
Basic
|
52,526 | |||||||||||
|
Diluted
|
54,375 | |||||||||||
F-23
Table of Contents
CHEFS’
WAREHOUSE HOLDINGS, LLC
NOTES TO THE
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(IN THOUSANDS,
EXCEPT PER UNIT DATA)
| (a) | This adjustment reflects the removal of $262 for a management fee paid to BGCP/DL, LLC in fiscal 2010, net of $42 of administrative agent fees incurred in connection with the management of the debt structure associated with the redemption of the Class A units. |
| (b) | This adjustment reflects $593 of additional original issue discount amortization fees, $7,882 of additional interest expense and $608 of additional amortization of deferred financing costs, in each case related to the borrowings used to finance the redemption of our Class A units. |
| (c) | This adjustment reflects additional tax provision expense as a result of our electing to be taxed as a subchapter C corporation as of December 26, 2009 at a full year assumed effective tax rate of 39%. |
| (d) | These adjustments reflect the elimination of the impact of the accretion of the dividend on the Class A units during fiscal 2010 and the elimination of the deemed dividend associated with the redemption of the Class A units. |
| (e) | Pro forma diluted weighted average shares outstanding exclude the 25,000 Class A members units and include the weighted average dilutive impact of 2,451 shares of Class C units, which had been excluded from the calculation of Chefs’ Warehouse Holdings, LLC Historical net (loss) income per members’ unit because of the net loss attributable to members’ units for the fiscal year ended December 24, 2010 as a result of the dividend accretion and deemed dividend associated with the Class A units. |
F-24
Table of Contents
Shares
THE CHEFS’ WAREHOUSE,
INC.
Common Stock
PRELIMINARY PROSPECTUS
Jefferies
Until ,
2011 (25 days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers’ obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
,
2011
Table of Contents
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
| Item 13. | Other Expenses of Issuance and Distribution. |
The following table sets forth the costs and expenses, other
than the underwriting discount, payable by the registrant in
connection with the sale of the common stock being registered.
All amounts shown are estimates except for the SEC registration
fee, the FINRA filing fee and The NASDAQ Global Market listing
fee.
|
SEC Registration Fee
|
$ | 11,610 | ||
|
FINRA Filing Fee
|
$ | 10,500 | ||
|
NASDAQ Global Market Listing Fee
|
* | |||
|
Accounting Fees and Expenses
|
* | |||
|
Legal Fees and Expenses
|
* | |||
|
Printing and Engraving Expenses
|
* | |||
|
Transfer Agent and Registrar Fees
|
* | |||
|
Blue Sky Fees and Expenses
|
* | |||
|
Miscellaneous
|
* | |||
|
Total
|
* | |||
| * | To be completed by amendment. |
| Item 14. | Indemnification of Directors and Officers. |
Section 145(a) of the Delaware General Corporation Law
provides, in general, that a corporation shall have the power to
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the
corporation, because the person is or was a director or officer
of the corporation. Such indemnity may be against expenses,
including attorneys’ fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by the
person in connection with such action, suit or proceeding, if
the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best
interests of the corporation and if, with respect to any
criminal action or proceeding, the person did not have
reasonable cause to believe the person’s conduct was
unlawful.
Section 145(b) of the Delaware General Corporation Law
provides, in general, that a corporation shall have the power to
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a
judgment in its favor because the person is or was a director or
officer of the corporation, against any expenses (including
attorneys’ fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such
action or suit if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the
best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to be
indemnified for such expenses which the Court of Chancery or
such other court shall deem proper.
Section 145(g) of the Delaware General Corporation Law
provides, in general, that a corporation shall have the power to
purchase and maintain insurance on behalf of any person who is
or was a director or officer of the corporation against any
liability asserted against the person in any such capacity, or
arising out of the person’s status as such, whether or not
the corporation would have the power to indemnify the person
against such liability under the provisions of the law. Our
amended and restated certificate of incorporation will provide
that, to the fullest extent permitted by applicable law, a
director will not be liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director. In
addition, our by-laws provide that we will indemnify each
director and
II-1
Table of Contents
officer and may indemnify employees and agents, as determined by
our board, to the fullest extent provided by the laws of the
State of Delaware.
The foregoing statements are subject to the detailed provisions
of section 145 of the Delaware General Corporation Law and
provisions that will be included in our amended and restated
certificate of incorporation and by-laws.
Section 102 of the Delaware General Corporation Law permits
the limitation of directors’ personal liability to the
corporation or its stockholders for monetary damages for breach
of fiduciary duties as a director except for (i) any breach
of the director’s duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
the law, (iii) breaches under section 174 of the
Delaware General Corporation Law, which relates to unlawful
payments of dividends or unlawful stock repurchase or
redemptions, and (iv) any transaction from which the
director derived an improper personal benefit.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling us under the foregoing provisions, we have
been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
We refer you to Item 17 for our undertakings with respect
to indemnification for liabilities arising under the Securities
Act.
We maintain directors’ and officers’ liability
insurance for our officers and directors.
Our Underwriting Agreement for this offering will provide that
each underwriter severally agrees to indemnify and hold harmless
us, each of our directors, each of our officers who signs the
registration statement, and each person who controls The
Chefs’ Warehouse, Inc. within the meaning of the Securities
Act but only with respect to written information relating to
such underwriter furnished to The Chefs’ Warehouse, Inc. by
or on behalf of such underwriter specifically for inclusion in
the documents referred to in the foregoing indemnity.
We expect to enter into an indemnification agreement with each
of our executive officers and directors that provides, in
general, that we will indemnify them to the fullest extent
permitted by law in connection with their service to us or on
our behalf.
| Item 15. | Recent Sales of Unregistered Securities. |
Except as set forth below, in the three years preceding the
filing of this registration statement, we have not issued any
securities that were not registered under the Securities Act.
From July 22, 2008 to June 16, 2009, we awarded
2,508,332 Class C units to our executive officers and other
employees. The units were issued for no cash consideration as
compensation for past and future services provided by the
executive officers and other employees to the Company and in
reliance upon the exemption from registration under
Section 4(2) of the Securities Act. None of these issuances
involved any underwriters, underwriting discounts or commissions
or any public offering. The recipients of the securities in such
transactions represented their intentions to acquire the
securities for investment only and not with a view to or for
sale in connection with any distribution thereof. In addition,
these units were at the time of issuance, and remain as of the
date hereof, subject to restrictions on transfer under the terms
of our Amended and Restated Limited Liability Company Agreement.
All recipients either received adequate information about us or
had adequate access, through their relationship with us, to such
information.
| Item 16. | Exhibits and Financial Statement Schedules. |
| (a) | Exhibits. The attached Exhibit Index is incorporated herein by reference. |
| (b) | Financial Statement Schedules. See the Index to Financial Statements included on page F-1 for a list of the financial statements included in this registration statement. |
| Item 17. | Undertakings. |
| (a) | The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the |
II-2
Table of Contents
| underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. |
| (b) | Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the undersigned registrant pursuant to the foregoing provisions, or otherwise, the undersigned registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the undersigned registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
| (c) | The undersigned registrant hereby undertakes that: |
| (1) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the undersigned registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
| (2) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-3
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Ridgefield, State of Connecticut, on
the
8th day
of June, 2011.
CHEFS’ WAREHOUSE HOLDINGS, LLC
| By: |
/s/ Christopher
Pappas
|
Christopher Pappas
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
SIGNATURE
|
TITLE
|
DATE
|
||||
|
/s/ Christopher
Pappas Christopher Pappas |
Chairman, President and Chief Executive Officer (Principal Executive Officer) | June 8, 2011 | ||||
|
* John Pappas |
Director and Vice Chairman | June 8, 2011 | ||||
|
/s/ Kenneth
Clark Kenneth Clark |
Chief Financial Officer (Principal Financial and Accounting Officer) |
June 8, 2011 | ||||
|
* Dean Facatselis |
Director | June 8, 2011 | ||||
|
* John Couri |
Director | June 8, 2011 | ||||
| *By: |
/s/Christopher
Pappas Christopher Pappas Attorney-in-fact |
|||||
II-4
Table of Contents
EXHIBIT INDEX
|
EXHIBIT |
||||
|
NUMBER
|
EXHIBIT DESCRIPTION
|
|||
| 1 | .1* | Form of Underwriting Agreement. | ||
| 3 | .1 | Certificate of Formation of Chefs’ Warehouse Holdings, LLC. | ||
| 3 | .2* | Second Amended and Restated Limited Liability Company Agreement of Chefs’ Warehouse Holdings, LLC. | ||
| 3 | .3* | Form of Certificate of Incorporation of The Chefs’ Warehouse, Inc. | ||
| 3 | .4* | Form of Bylaws of The Chefs’ Warehouse, Inc. | ||
| 4 | .1* | Form of Common Stock Certificate. | ||
| 5 | .1* | Opinion of Bass, Berry & Sims PLC. | ||
| 10 | .1 | Sublease between A.L. Bazzini Co., Inc. and Dairyland USA Corporation, dated as of April 1, 2003. | ||
| 10 | .2 | Lease between The Chefs’ Warehouse Leasing Co., LLC and Dairyland USA Corporation, dated as of December 29, 2004. | ||
| 10 | .3† | Employment Letter by and among Chefs’ Warehouse Holdings, LLC, Dairyland USA Corporation, The Chefs’ Warehouse, LLC, The Chefs’ Warehouse West Coast, LLC, Bel Canto Foods, LLC, and Christopher Pappas. | ||
| 10 | .4† | Written Description of Oral Amendment to Employment Letter by and among Chefs’ Warehouse Holdings, LLC, Dairyland USA Corporation, The Chefs’ Warehouse, LLC, The Chefs’ Warehouse West Coast, LLC, Bel Canto Foods, LLC, and Christopher Pappas. | ||
| 10 | .5† | First Amendment to Employment Letter by and between Chefs’ Warehouse Holdings, LLC, Dairyland USA Corporation, The Chefs’ Warehouse, LLC, The Chefs’ Warehouse West Coast, LLC, Bel Canto Foods, LLC, JP Morgan Chase & Co, and Christopher Pappas, dated as of December 12, 2008. | ||
| 10 | .6† | Employment Letter by and among Chefs’ Warehouse Holdings, LLC, Dairyland USA Corporation, The Chefs’ Warehouse, LLC, The Chefs’ Warehouse West Coast, LLC, Bel Canto Foods, LLC, and John Pappas. | ||
| 10 | .7† | Written Description of Oral Amendment to Employment Letter by and among Chefs’ Warehouse Holdings, LLC, Dairyland USA Corporation, The Chefs’ Warehouse, LLC, The Chefs’ Warehouse West Coast, LLC, Bel Canto Foods, LLC, and John Pappas. | ||
| 10 | .8† | First Amendment to Employment Letter by and between Chefs’ Warehouse Holdings, LLC, Dairyland USA Corporation, The Chefs’ Warehouse, LLC, The Chefs’ Warehouse West Coast, LLC, Bel Canto Foods, LLC, JP Morgan Chase & Co, and John Pappas, dated as of December 12, 2008. | ||
| 10 | .9† | Letter Agreement between Chefs’ Warehouse Holdings, LLC and Kenneth Clark, dated as of March 6, 2009. | ||
| 10 | .10† | Letter Agreement between Chefs’ Warehouse Holdings, LLC and James Wagner, dated as of April 8, 2011. | ||
| 10 | .11† | Letter Agreement between Chefs’ Warehouse Holdings, LLC and Frank O’Dowd, dated as of January 28, 2007. | ||
| 10 | .12†* | Employee Confidentiality, Non-Solicit, Non-Interference, Non-Compete and Severance Agreement by and between Chefs’ Warehouse Holdings, LLC, The Chefs’ Warehouse, LLC, Dairyland USA Corporation, and James Wagner, dated as of April 16, 2008. | ||
| 10 | .13†* | The Chefs’ Warehouse, Inc. 2011 Omnibus Equity Incentive Plan. | ||
| 10 | .14†* | Form of Non-Qualified Stock Option Agreement (Officers and Employees). | ||
| 10 | .15†* | Form of Non-Qualified Stock Option Agreement (Directors). | ||
| 10 | .16†* | Form of Restricted Share Unit Award Agreement (Directors). | ||
| 10 | .17†* | Form of Restricted Share Award Agreement (Officers and Employees). | ||
| 10 | .18†* | Form of Restricted Share Award Agreement (Directors). | ||
| 10 | .19†* | Form of Incentive Stock Option Agreement. | ||
| 21 | .1** | Subsidiaries of Chefs’ Warehouse Holdings, LLC. | ||
| 23 | .1 | Consent of BDO USA, LLP. | ||
| 23 | .2* | Consent of Bass, Berry & Sims PLC. | ||
| 23 | .3** | Consent of Kevin Cox. | ||
II-5
Table of Contents
|
EXHIBIT |
||||
|
NUMBER
|
EXHIBIT DESCRIPTION
|
|||
| 23 | .4 | Consent of Stephen Hanson. | ||
| 23 | .5 | Consent of John Austin. | ||
| 24 | .1** | Power of Attorney. | ||
| * | To be filed by amendment. |
| ** | Previously filed. |
| † | Denotes a management contract or compensatory plan or arrangement. |
II-6
Exhibit 3.1
CERTIFICATE OF FORMATION
OF
CHEFS’ WAREHOUSE HOLDINGS, LLC
This Certificate of Formation of Chefs’ Warehouse Holdings, LLC (the “LLC”) has been
duly executed and is being filed by the undersigned, as an authorized person, to form a limited
liability company under the Delaware Limited Liability Act (6 Del. C. § 18-201, et. seq.).
FIRST. The name of the limited liability company formed hereby is Chefs’ Warehouse Holdings,
LLC.
SECOND. The address of the registered office of the LLC in the State of Delaware is c/o
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, New Castle County,
Delaware 19808.
THIRD. The name and address of the registered agent for service of process on the LLC in the
State of Delaware is Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, New
Castle County, Delaware 19808.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of Formation as of this
17th day of June, 2005.
| By: | /s/ Robert G. Frucht
|
|||||
| Name: | Robert G. Frucht, Esq. | |||||
| Title: | Sole Organizer Rivkin Radler LLP 926 EAB Plaza Uniondale, NY 11556-0926 |
Exhibit 10.1
SUBLEASE
This Agreement of Sublease is made as of April 1, 2003, between A.L. BAZZINI CO., INC., a New
York Corporation having its principal office at 200 Food Center Drive, Bronx, New York 10474
(“Sublessor”) and DAIRYLAND USA CORP., having its principal office at 1300 Viele Avenue, Bronx, New
York 10474 (“Sublessee”).
WITNESSETH:
A. Pursuant to a lease dated as of March 1, 2003 (the “Master Lease”) between THE CITY OF NEW
YORK (“Landlord”), as landlord, and Sublessor, as tenant, Sublessor is the tenant of a portion of
the premises constituting of the Hunts Point Food Distribution Center, 240 Food Center Drive,
Bronx, New York, identified as Block 2770, part of Lot 1, more particularly described on Exhibit A
of the Master Lease (the “Demised Premises”).
B. Sublessee desires to sublease a Fifty-Five Thousand square foot (55,000 sq. ft.) portion of
the Demised Premises from Sublessor, which portion of the Demised Premises (the “Subleased
Premises”) is identified by cross-hatching on Exhibit A hereto.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other good and
valuable consideration, Sublessor and Sublessee hereby agree as follows:
ARTICLE I.
Subleased Premises, Sublease Term
Subleased Premises, Sublease Term
1.01 Subject to the provisions of Section 1.02 hereof, Sublessor hereby subleases the
Subleased Premises to Sublessee, and Sublessee hereby hires and takes the Subleased Premises from
Sublessor, subject to the terms, provisions, covenants and conditions of the Master Lease and this
Sublease. This Sublease includes the right of Sublessee to use the parking, loading and staging
areas in and around the Demised Premises, and a grant of access and right of passage to Sublessee,
its employees, agents and invitees, including trucks, automobiles and other vehicles,
to and on to the Subleased Premises over the driveways, alleys, walking paths and other
vehicle and pedestrian access routes and areas.
1.02 The term of this Sublease (the “Sublease Term”) shall commence on April 1, 2003 (the
“Commencement Date”) and shall end at 11:59 p.m. on March 31, 2013 (the “Expiration Date”), unless
the Sublease Term shall sooner end pursuant to any of the terms, provisions or conditions of this
Sublease, the Master Lease or pursuant to law. Subtenant’s obligation to pay rent hereunder shall
begin on the Commencement Date.
1.03 (a) Sublessee acknowledges that it has inspected the Subleased Premises and, except as
provided in this Section 1.03, hereby accepts the same in its “as is” condition on the date hereof.
Sublessor shall have no obligation whatsoever to make any alterations, improvements, or repairs to
the Subleased Premises. Except as provided in Sections 1.03(b) and 2.06(a), Sublessor shall have no
obligation whatsoever to make any alterations, improvements, or repairs to the Subleased Premises
in order for the Subleased Premises to comply with any applicable environmental laws, rules,
regulations, requirements or ordinances. Sublessee may, in accordance with the terms and conditions
of this Sublease and the Master Lease, make leasehold improvements (the “Improvements”) to the
Subleased Premises in accordance with plans and specifications which shall be submitted to
Sublessor and Landlord and are subject to their respective consents. Sublessor shall submit the
Plans to Landlord for its consent in accordance with Article 13 of the Master Lease within three
business days following Sublessor’s receipt thereof from Sublessee. Sublessee shall bear all of its
own costs and expenses incurred in the preparation and revision of the Plans. Sublessee shall also
bear the actual reasonable costs and expenses incurred by Sublessor and Landlord to third party
architects and engineers necessarily engaged by Sublessor and Landlord to review the Plans and
revisions thereto.
2
(b) Sublessor shall, at Sublessor’s sole cost and expense, construct and erect demising walls
to separate physically the Subleased Premises from the remainder of the Demised Premises. Such
construction shall be conducted in accordance with all Requirements, and Sublessor shall be solely
responsible at its sole cost to obtain Landlord’s consent thereto.
1.04 Sublessee shall, no later than the Expiration Date or sooner termination of this
Sublease, and in accordance with all of the terms of this Sublease and the Master Lease, vacate and
surrender to Sublessor the Subleased Premises, together with all alterations, in good order,
condition and repair, reasonable wear and tear excepted and loss by fire or other casualty
excepted. Sublessee acknowledges that, with respect to the Subleased Premises, Sublessee shall be
solely responsible for any and all Restoration obligations imposed upon the Sublessor pursuant to
Article 8 of the Master Lease. Sublessee’s obligation to observe or perform this covenant shall
survive the expiration or earlier termination of this Sublease. Sublessee expressly waives, for
itself and for any person claiming through or under Sublessee, any rights which Sublessee or any
such person may have under the provisions of Section 2201 of the New York Civil Practice Law and
Rules and any successor law of like import then in force in connection with any holdover summary
proceedings which Sublessor may institute to enforce the foregoing provisions of this Article.
1.05 If Sublessee shall fail to duly and timely surrender the Subleased Premises in accordance
with the terms and conditions of this Sublease and the Master Lease, either on the Expiration Date,
upon the occurrence of a default which continues beyond the expiration of applicable grace or cure
periods, or upon the occurrence of any other event causing the termination of this Sublease (a
“Holdover”), in addition to all of the rights and remedies available to Sublessor under this
Sublease and the Master Lease, in equity or in law, it is
3
understood that Sublessor may elect, by notice to Sublessee, to treat Sublessee as a holdover
upon a month-to-month basis at a rent equal to the greater of (i) the then current fair market
rental value of the Subleased Premises or (ii) one and one-half times the fixed rent and additional
rent per month which Sublessee was required to pay during (or in the case of additional rent, on
account of or attributable to) the calendar month immediately prior to termination. If the
Subleased Premises are not surrendered upon termination, the terms of this Sublease (other than
those modified by this paragraph) shall continue in full force and effect and Sublessee shall
indemnify and hold harmless Sublessor against Sublessor’s actual loss, costs, liability or expenses
(including attorneys’ fees) resulting from Sublessee’s failure to surrender, including any and all
claims made by Landlord or any succeeding lessee or sublessee founded upon such delay or failure to
vacate the Subleased Premises. Nothing contained in this Section shall be deemed to give to
Sublessee any right to fail to surrender possession or hold over, and the provisions of this
Section shall not constitute an offer to rent on a month-to-month bases or at the rent set forth
above.
ARTICLE II.
Rent, Additional Rent and Utilities
Rent, Additional Rent and Utilities
2.01 Sublessee covenants and agrees to pay to Sublessor, at the address of Sublessor set forth
above, or at such other address as Sublessor shall supply to Sublessee in writing, an annual fixed
rental as follows:
(a) From the Commencement Date to and including the day immediately prior to the first
anniversary of the Commencement Date (“Sublease Year”; each sequential twelve (12) month period
being hereinafter referred to as the sequential “Sublease Year”): Three Hundred Forty-Three
Thousand Seven Hundred Fifty and 00/100 ($343,750.00) Dollars, payable
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in equal monthly installments of Twenty-Eight Thousand Six Hundred Forty-Five and 84/100
($28,645.84) Dollars.
(b) Sublease Year 2: Three Hundred Sixty Thousand Nine Hundred Thirty-Seven and 50/100
($360,937.50) Dollars, payable in equal monthly installments of Thirty Thousand Seventy-Eight and
13/100 ($30,078.13) Dollars.
(c) Sublease Year 3: Three Hundred Seventy-Eight Thousand Nine Hundred Eighty-Four and 38/100
($378,984.38) Dollars, payable in equal monthly installments of Thirty-One Thousand Five Hundred
Eighty-Two and 04/100 ($31,582.04) Dollars.
(d) Sublease Year 4: Three Hundred Ninety-Seven Thousand Nine Hundred Thirty-Three and 60/100
($397,933.60) Dollars, payable in equal monthly installments of Thirty-Three Thousand One Hundred
Sixty-One and 14/100 ($33,161.14) Dollars.
(e) Sublease Year 5: Four Hundred Seventeen Thousand Eight Hundred Thirty and 28/100
($417,830.28) Dollars, payable in equal monthly installments of Thirty-Four Thousand Eight Hundred
Nineteen and 19/100 ($34,819.19) Dollars.
(f) Sublease Year 6: Four Hundred Thirty-Eight Thousand Seven Hundred Twenty-One and 80/100
($438,721.80) Dollars, payable in equal monthly installments of Thirty-Six Thousand Five Hundred
Sixty and 15/100 ($36,560.15) Dollars.
(g) Sublease Year 7: Four Hundred Sixty Thousand Six Hundred Fifty-Seven and 89/100
($460,657.89) Dollars, payable in equal monthly installments of Thirty-Eight Thousand Three Hundred
Eighty-Eight and 16/100 ($38,388.16) Dollars.
(h) Sublease Year 8: Four Hundred Eighty-Three Thousand Six Hundred Ninety and 79/100
($483,690.79) Dollars, payable in equal monthly installments of Forty Thousand Three Hundred Seven
and 57/100 ($40,307.57) Dollars.
5
(i) Sublease Year 9: Five Hundred Seven Thousand Eight Hundred Seventy-Five and 33/100
($507,875.33) Dollars, payable in equal monthly installments of Forty-Two Thousand Three Hundred
Twenty-Two and 95/100 ($42,322.95) Dollars.
(j) Sublease Year 10 through the Expiration Date: Five Hundred Thirty-Three Thousand Two
Hundred Sixty-Nine and 10/100 ($533,269.10) Dollars, payable in equal monthly installments of
Forty-Four Thousand Four Hundred Thirty-Nine and 10/100 ($44,439.10) Dollars.
The monthly fixed rental shall be paid in advance on the first day of each calendar month
without notice or demand and without abatement, deduction or set-off of any amount whatsoever
except as may be expressly provided for herein. An amount equal to one full month’s rent shall be
payable on the signing of this Sublease and shall be applied by Sublessor to the fixed rental
payment for the first full month of the Sublease Term. If the Commencement Date shall occur on a
day other than the first day of a calendar month, fixed rent for such calendar month shall be
prorated for the period from the Commencement Date to the last day of the said calendar month. The
fixed rent for the calendar month in which the termination date of this Sublease occurs shall be
similarly prorated and paid on the first day of the month in which said termination falls.
2.02 Rent shall be absolutely net to Sublessor without any abatement, diminution, reduction,
deduction, counterclaim, credit, setoff or offset whatsoever (except as may be required in any
proceeding where the right to assert any claim against Sublessor would be extinguished unless a
counterclaim, set off, or deduction is asserted in such proceeding) so that each Sublease Year of
the Sublease Term shall yield, net to Sublessor, all fixed rent. Sublessee shall pay all costs,
expenses and charges of every kind relating to the Subleased Premises that may arise or
6
become due or payable during or after (but attributable to a period falling within) the
Sublease Term.
2.03 Sublessee covenants and agrees to pay to Sublessor one-third (1/3) of the costs of the
security guard(s) on the Subleased Premises as additional rent, on a monthly basis.
2.04 (a) “Proportionate Share” means Sixty-Six and 52/100 percent (66.52%). Sublessee
covenants and agrees to pay to Sublessor a Proportionate Share of the Building Insurance as
additional rent, as provided in Article X hereof, and the expenses, costs and charges described
below in Section 2.04(b).
(b) Except as otherwise stated herein, Sublessee hereby agrees to reimburse Sublessor for
Sublessee’s Proportionate Share of the costs and expenses under the Master Lease actually paid by
Sublessor to Landlord, consisting of Operating Expenses pursuant to Section 4.09(a), maintenance
under Section 12.05, and Impositions actually charged and paid in Article 5 of the Master Lease (it
being understood that neither Sublessor nor Sublessee shall be obligated to pay Taxes). Sublessee
shall be responsible for Rail Car Fees incurred by Sublessee’s use of rail cars pursuant to Section
4.05 of the Master Lease
2.05 It is expressly understood that Sublessee is responsible for a proportionate Share of all
utilities furnished to the Demised Premises, except that Sublessee’s share of and obligation to pay
for electricity consumed at the Subleased Premises shall be computed as follows:
(a) The amount of electric consumption consumed (as measured in KW or Kwha) that Sublessee
shall pay Sublessor for shall be determined by calculating (i) the difference between the total
electric consumed for the entire Demised Premises, (ii) less the sum of electric consumed as
indicated on and for (A) Sublessor’s submeter, (B) the submeter of any other tenant in the Demised
Premises and (C) the existing submeter for measuring electricity consumed by
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Sublessee’s refrigeration, and then (iii) multiplying the result by (A) so long as the office
area in the Demised Premises (“Office Area”) remains unoccupied, 100% and (B) at any time the
Office Area becomes occupied, 77.47% and (iv) adding back the consumption shown on the meter
referred to in (ii)(C); or
(b) If Sublessor installs a submeter pursuant to Section 2.06(b) in the now unmetered areas of
Subleased Premises, the electric consumption shown on such submeter and the refrigeration submeter
described in (a)(ii)(C) above.
2.06 (a) Sublessor represents that there are electric utility systems and appliances supplying
electricity to the Subleased Premises, If Sublessee requires additional electric power or any
electrical upgrades for its particular needs and consumption, Sublessee shall make at its sole cost
all necessary arrangements with the public utility companies supplying services to the Subleased
Premises for the installation of such additional utility systems and/or appliances necessary to
furnish sufficient electricity and other utilities to the Subleased Premises for Sublessee’s
purposes. Sublessor is under no obligation and shall not supply to the Subleased Premises any
utilities. Sublessee agrees to make its own arrangements with the public utility company servicing
the Subleased Premises for billing and payment of all charges for electricity, gas, water, and all
other utilities consumed by Sublessee in the Subleased Premises, and shall furnish its own air
conditioning to the Subleased Premises, all at its own cost and expense. Sublessee covenants and
agrees to reimburse Sublessor for 77.47% of any and all deposits required to provide initial
electricity to the Subleased Premises. In no event shall Sublessor be responsible for charges for
electricity or any other utilities consumed in the Subleased Premises by Sublessee.
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(b) In connection with making arrangements to supply electricity for Sublessee’s use,
Sublessor shall have the right in Sublessor’s sole discretion to install a submeter to measure
Sublessee’s usage of electricity in the Subleased Premises. If Sublessor shall install such a
submeter, the amount to be paid by Sublessee for electricity consumed in the Subleased Premises
shall be determined by meter or meters and related equipment installed by Sublessor, at Sublessor’s
expense and billed in the aggregate shown on such meters. Bills for electricity consumed by
Sublessee, which Sublessee hereby agrees to pay, shall be rendered by Sublessor to Sublessee at
such time as Sublessor may elect and shall be payable as additional rent within 15 days after
rendition of any such bill. The amount to be charged to Sublessee by Sublessor per “KW” and “KWHR”
pursuant to this Article for electricity supplied to the Subleased Premises on a submetered basis
and consumed within the Subleased Premises, as shown on the meter(s) measuring Sublessor’s
consumption of electricity, shall be at the same cost which Sublessor from time to time purchases
each KW and KWHR of electricity for the same period from the utility company. It is the intent and
purpose of the parties hereto that the additional rent payable by Sublessee pursuant to this
Article for submetered electric shall be equal to Sublessor’s cost to furnish electric energy to
the Subleased Premises.
(c) Unless caused by the actions, omissions or neglect of the Sublessor, its other tenants,
agents, servants and/or employees, interruption or curtailment of electric services shall not
constitute a constructive or partial eviction nor entitle Sublessee to any compensation or
abatement of rent. Sublessee covenants and agrees that at all times its use of electric current
shall never exceed the capacity of the existing feeders to the building or of the risers or wiring
installation. Sublessee shall make no alteration or addition to the electrical equipment without
the prior written consent required in Article I of this Sublease.
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ARTICLE III.
Subordination; Assumption of
Certain Master Lease Terms by Sublessee
Subordination; Assumption of
Certain Master Lease Terms by Sublessee
3.01 Sublessor has delivered to Sublessee a complete and accurate copy of the Master Lease,
except for the rent and certain other financial provisions contained in Sections 4.01 and 4.02,
which have been redacted. This Sublease shall be subject and subordinate to (i) the Master Lease (a
true copy of which, with Sections 4.02 and 4.03 redacted, is attached hereto as Exhibit B)
and to all of the terms, provisions, covenants and conditions thereof and (ii) any and all
amendments of the Master Lease or supplemental agreements relating thereto hereafter made between
Landlord and Sublessor provided, however, that Sublessor shall not enter into any such amendments
or supplemental agreements that shall (I) adversely affect Sublessee’s rights hereunder, (2)
increase Sublessee’s obligations hereunder beyond a de minimus extent, (3) decrease
the size of the Subleased Premises, or (4) shorten the Sublease Term to a date that is earlier than
the Expiration Date. Sublessee shall in no case have any rights under this Sublease greater than
Sublessor’s rights as Tenant under the Master Lease. The foregoing provisions shall be
self-operative, and no further instrument of subordination shall be necessary to effectuate such
provisions unless required by Landlord or Sublessor, in which event Sublessee shall, upon demand by
Landlord or Sublessor at any time and from time to time, execute, acknowledge and deliver to
Sublessor and Landlord any and all instruments that Sublessor or Landlord deem reasonably necessary
or proper to confirm such subordination of this Sublease and the rights of Sublessee hereunder.
Sublessee hereby appoints Sublessor its attorney in fact, coupled with an interest, for the purpose
of executing an instrument confirming this subordination if Sublessee shall fail to execute,
acknowledge and/or deliver any such instrument of subordination within ten (10) business days after
Landlord’s or Sublessor’s demand therefor.
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3.02 To the extent not inconsistent with the agreements or understandings expressed or implied
in this Sublease or applicable only to the original parties to the Master Lease (e.g., the rent and
additional rent reserved under the Master Lease), the terms, provisions, covenants and conditions
of the Master Lease are hereby incorporated herein by reference on the following understandings:
(a) The term “Landlord” as used therein shall refer to Sublessor hereunder, its successors and
assigns and the term “Tenant” as used therein shall refer to Sublessee hereunder, its permitted
successors and assigns. Whenever the Master Lease refers to an obligation of Landlord or Tenant
with respect to the “Demised Premises”, the same shall mean an obligation of Sublessor or Sublessee
hereunder with respect to the Subleased Premises.
(b) Wherever it is provided in the Master Lease that Landlord has the right to elect to
perform any covenant of the Tenant thereunder upon default of the Tenant in observing or complying
with such covenant, Sublessor shall have corresponding rights with respect to any default of
Sublessee.
(c) Sublessor shall not be obligated to perform and shall not be liable for the performance by
Landlord of any of the obligations of Landlord under the Master Lease, but shall perform such
obligations hereunder to the extent the word “Landlord” means “Sublessor” as provided in Section
3.02(a) above. Sublessee shall have no claim against Sublessor by reason of any default on the part
of Landlord under the Master Lease. Sublessor shall fully perform all of its payment and other
obligations under the Master Lease as and when such obligations are required to be performed.
Sublessor shall not accept any cancellation or surrender of the Master Lease, or take any action
which would cause a voluntary or involuntary termination of the Master Lease, prior to the
Expiration Date or sooner termination of this Sublease. Sublessor shall
11
take whatever action shall be reasonably required to enforce for the benefit of Sublessee the
obligations of Landlord to Sublessor under the Master Lease insofar as they relate to the Subleased
Premises. Subject to the foregoing provisions of this Section, Sublessor shall not be responsible
for Landlord’s failure to furnish any service, maintenance or repairs to the Subleased Premises,
and Sublessee shall in no event be entitled to any allowance, reduction, or adjustment of the rent
or additional rent payable under this Sublease by reason of the failure of Landlord to comply with
Landlord’s obligations under the Master Lease, if any, to supply or render the same.
(d) Except as expressly modified or superseded by the terms of this Sublease, with respect to
the Subleased Premises, Sublessee shall observe and perform the terms, provisions, covenants and
conditions of the Master Lease on the part of the Tenant thereunder to be observed and performed,
and shall not do or suffer or permit anything to be done which would result in a default under the
Master Lease or cause the same to be terminated or forfeited.
(e) For the purposes of incorporating the terms of the Master Lease into this Sublease, the
Master Lease is modified as follows: (i) Sections 2.02, 2.04, 4.01, 4.02, 4.07(a), 4.09(b)(i),
4.10, 10.01, 10.02, 23.01 are deleted in their entirety, and (ii) Article 8 and 9 are subject to
the rights of Sublessor.
(f) Sublessor shall give Sublessee any notice of default that it receives from Landlord under
the Master Lease. Sublessee shall have the right to use “self help” to cure any monetary or
nonmonetary breach of Sublessor’s obligations hereunder or under the Master Lease which has caused
the Landlord to notify Sublessor that it has committed a Default or Event of Default under the
Master Lease. If the Master Lease terminates as a result of an action or omission within
Sublessor’s control that causes a default or breach by Sublessor under this Sublease and/or the
Master Lease, then Sublessor shall be liable to Sublessee for the actual
12
damage suffered as a result of such termination, but in no event shall Sublessor be
responsible for any consequential damages.
(g) Sublessee acknowledges that in the event of Landlord’s (i) termination of the Master Lease
for any reason, or (ii) re-entry or dispossess by Landlord under the Master Lease, Landlord may, at
its option, take over all of the right, title and interest of Sublessor hereunder and Sublessee
agrees that it shall, at Landlord’s option, attorn to Landlord pursuant to the then executory
provisions of this Sublease, except that Landlord shall not (i) be liable for any previous act or
omission of Sublessor under this Sublease, other than continuing defaults, (ii) be subject to any
offset not expressly provided in this Sublease which previously accrued to the Sublessee against
Sublessor, or (iii) be bound by any previous modification of this Sublease which is made without
Landlord’s consent or by any previous prepayment of more than one month’s rent unless previously
expressly approved by Landlord.
ARTICLE IV.
Notices and Service
Notices and Service
4.01 Whenever it is provided herein that notice, demand, request, consent, approval or other
communication shall or may be given to, or served upon, either of the parties by the other, or
whenever either of the parties desires to give or serve upon the other any notice, demand, request,
consent, approval or other communication with respect hereto or to the Subleased Premises, each
such notice, demand, request, consent, approval or other communication shall be in writing and
shall be effective for any purpose only if given (a) by hand to an officer of the entity with proof
of delivery, (b) by any recognized overnight courier, or (c) by mailing the same by express or
certified mail, postage prepaid, return receipt requested, and addressed in the case of (b) or (c)
to:
If to Sublessor:
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A.L. Bazzini Co., Inc.
200 Food Center Drive
Bronx, New York 10474
Attention: Rocco Damato, President
200 Food Center Drive
Bronx, New York 10474
Attention: Rocco Damato, President
with a copy to:
Law Offices of Harvey I. Krasner
641 Lexington Avenue
Twentieth Floor
New York, New York 10022
Attention: Harvey I. Krasner, Esq.
641 Lexington Avenue
Twentieth Floor
New York, New York 10022
Attention: Harvey I. Krasner, Esq.
(a) If to Sublessee:
Dairyland USA Corp.
1300 Viele Avenue
Bronx, New York 10474
Attention: Dean Facatselis
1300 Viele Avenue
Bronx, New York 10474
Attention: Dean Facatselis
with a copy to:
Rivkin Radler LLP
EAB Plaza
Uniondale, NY 11556-0111
Attention: William Cornachio
EAB Plaza
Uniondale, NY 11556-0111
Attention: William Cornachio
or to such other address as Sublessee may from time to time designate by notice given to Sublessor
by express or certified mail, return receipt requested.
4.02 Every notice, demand, request, consent, approval or other communication hereunder shall
be deemed to have been given or served three (3) business days after the time that the same shall
have been actually deposited in the United States mails, postage prepaid, as aforesaid, except that
notice by overnight courier or express mail shall be deemed effective on the business day following
the date delivered to the express mail or overnight courier and notice by hand shall be effective
upon delivery, as evidenced by a signed receipt, as the case may be.
4.03 Except as otherwise set forth herein, whenever in the Master Lease a time is specified
for Tenant’s giving of any notice to or making any demand upon Landlord, such time is
14
hereby changed by subtracting one day therefrom for the purpose of Sublessee’s notice to or
demands upon Sublessor, and whenever in the Master Lease a time is specified for Landlord’s giving
of any notice to or making any demand upon Tenant, such time is hereby changed by adding one day
for the purposes of Sublessor’s notices to or demands upon Sublessee. Whenever in the Master Lease
a time is specified within which the Tenant thereunder must give notice to or make a demand upon
Landlord following an event, or within which Tenant must respond to any notice, request, or demand
previously given or made by Landlord thereunder, or comply with any obligation on Tenant’s part
thereunder, such time is hereby changed by subtracting one day therefrom for purposes of
Sublessee’s notices to or demands upon Sublessor, or for the purpose of a response to a notice
request or demand by Sublessor. Whenever in the Master Lease a time is specified within which the
Landlord thereunder must give notice to or make a demand upon Tenant following an event, or within
which Landlord must respond to any notice, request, or demand previously given or made by Tenant
thereunder, such time is hereby changed by adding one day thereto for purposes of Sublessor’s
notices to or demands upon Sublessee, or the purpose of a response to a notice, request or demand
by sublessee. It is the purpose and intent of the foregoing provisions to provide Sublessor with
time within which to transmit to Landlord any notices or demands received from Sublessee, and to
transmit to Sublessee any notices or demands received from Landlord.
ARTICLE V.
Right of Sublessor to Cure Sublessee’s Defaults
Right of Sublessor to Cure Sublessee’s Defaults
5.01 (a) If Sublessee shall fail to perform any of the terms, provisions, covenants or
conditions of this Sublease on its part to be performed, and if such failure shall constitute a
default under the Master Lease, then Sublessor may, after written notice, at its option, perform
any such term, provision, covenant or condition, and the full cost and expense of such
15
performance shall immediately be due and owing by Sublessee to Sublessor, together with
interest thereon at the Late Charge Rate plus one percent from the date of payment thereof by
Sublessor.
(b) If Sublessor shall fail to perform any of the terms, provisions, covenants or conditions
of this Sublease or the Master Lease on its part to be performed, and if such failure shall
constitute a default under this Sublease or the Master Lease, then Sublessee may, after written
notice, at its option, perform any such term, provision, covenant or condition, and the full cost
and expense of such performance shall immediately be due and owing by Sublessor to Sublessee,
together with interest thereon at the Late Charge Rate plus one percent from the date of payment
thereof by Sublessee.
5.02 (a) If Sublessee shall default in the performance or observance of any term, covenant, or
agreement contained herein or in the Master Lease as herein incorporated, and if such default shall
not have been remedied after notice given by Sublessor to Sublessee within any grace period and
period of time providing an opportunity to cure (as modified by Article 4 of this Sublease)
provided for under the Master Lease, then Sublessor shall be entitled to exercise any and all
rights and remedies to which Sublessor is entitled by law or which are specifically granted to
Landlord under the Master Lease, which rights and remedies are hereby incorporated herein and made
a part hereof with the same force and effect as though herein specifically set forth, except in no
case shall there be a recovery of any consequential damages by Sublessor against Sublessee.
(b) If Sublessor shall default in the performance or observance of any term, covenant, or
agreement contained herein or in the Master Lease as herein incorporated, and if such default shall
not have been remedied after notice given by Sublessee to Sublessor within
16
any grace period and period of time providing an opportunity to cure (as modified by Article 4
of this Sublease) provided for under the Master Lease, then Sublessee shall be entitled to exercise
any and all rights and remedies to which Sublessee is entitled by law or which are specifically
granted to Tenant under the Master Lease, which rights and remedies are hereby incorporated herein
and made a part hereof with the same force and effect as though herein specifically set forth,
except in no case shall there be a recovery of any consequential damages by Sublessee against
Sublessor.
5.03 (a) Sublessee covenants and agrees to indemnify Sublessor and hold it safe and harmless
against any and all claims, losses, damages and liabilities (including reasonable attorneys’ fees)
resulting from or arising out of (i) any breach or default hereunder on the part of Sublessee, (ii)
any work done in or to the Subleased Premises by Sublessee or its agents, servants, employees or
contractors, or by any person claiming through or under Sublessee, (iii) any act, omission,
negligence or other fault on the part of Sublessee or its agents, servants, employees, contractors,
undertenants, or licensees, or (iv) any accident, injury or damage whatsoever to any person or
entity occurring during the Sublease Term in or about the Subleased Premises, unless the same shall
have been caused by the negligence of Landlord or Sublessor, a breach or default by Landlord or
Sublessor under this Sublease or the Master Lease, or resulting from or arising out of Sublessor’s
use and occupancy of the Demised Premises.
(b) Sublessor covenants and agrees to indemnify Sublessee and hold it safe and harmless
against any and all claims, losses, damages and liabilities (including reasonable attorneys’ fees)
resulting from or arising out of (i) any breach or default hereunder or under the Master Lease on
the part of Sublessor, (ii) any work done in or to the Subleased Premises or the Demised Premises
by Sublessor or its agents, servants, employees or contractors, or by any
17
person claiming through or under Sublessor, (iii) any act, omission, negligence or other fault
on the part of Sublessor or its agents, servants, employees, contractors, undertenants, or
licensees, or (iv) any accident, injury or damage whatsoever to any person or entity occurring
during the Sublease Term hereof in or about the Subleased Premises or the Demised Premises, unless
the same shall have been caused by the negligence of Sublessee, a breach or default by Sublessee
under this Sublease or the Master Lease, or resulting from or arising out of Sublessee’s use and
occupancy of the Subleased Premises.
ARTICLE VI.
Covenants and Approvals of Sublessor
Covenants and Approvals of Sublessor
6.01 If this Sublease requires the consent or approval of Sublessor prior to the taking of any
action, then it shall be a condition precedent to the taking of such action that the prior consent
or approval of Landlord shall have been obtained if the same must be obtained under the Master
Lease. Except as set forth below, Sublessor shall have no duty or responsibility with respect to
obtaining the consent or approval of Landlord when the same is required under the terms of the
Master Lease other than the mere transmission by Sublessor to Landlord of Sublessee’s request for
such consent or approval.
6.02 Sublessor shall obtain the consent of Landlord to this Sublease in accordance with the
provisions of Section 10.02 of the Master Lease, and shall use its best reasonable efforts to
obtain an estoppel certificate from Landlord in the form of Exhibit C. Sublessee represents that
neither it nor any of its officers, directors or shareholders is a Prohibited Person.
ARTICLE VII.
Broker
Broker
7.01 Sublessee and Sublessor each covenants, warrants and represents that it did not consult
with or negotiate with any broker or finder in connection with the rental of the Subleased Premises
or in procuring this Sublease. Sublessor and Sublessee hereby indemnify and agree to
18
hold each other harmless from and against any and all claims, actions, losses, costs and
expenses (including reasonable attorneys’ fees) which may arise in connection with or be suffered
by Sublessor or Sublessee by reason of any breach of the foregoing covenants, warranties and
representations.
ARTICLE VIII.
Termination of Master Lease
Termination of Master Lease
8.01 If the Master Lease shall be terminated by Landlord for any reason other than default by
Sublessor, as Tenant thereunder, pursuant to any right given to Landlord under the Master Lease,
then this Sublease shall terminate automatically without notice to Sublessee and without any
liability on the part of Sublessor to Sublessee as a result of such termination. Sublessor agrees
that Sublessor will not voluntarily terminate the Master Lease, other than due to circumstances of
fire, casualty, condemnation or Landlord’s default.
ARTICLE IX.
Security
Security
9.01 Sublessee shall, and hereby does covenant to, deposit with Sublessor, immediately prior
to and also as a condition of the commencement of this Sublease, an amount equal to one sixth of
the rent for the first Sublease Year (i.e. $57,291.68), and thereafter, on or before the first day
of each subsequent Sublease Year, an amount sufficient to increase the amount of deposit with
Sublessor so that such amount on deposit is equal to one sixth of the rent of such Sublease Year,
as a security deposit for the faithful performance by Sublessee of its obligations under the terms
hereof. If Sublessee defaults in the performance of any of the terms of this Sublease, including
the payment of rent or any additional rent, Sublessor may use, apply or retain the whole or any
part of the security so deposited to the extent required for the payment of any rent or for any sum
which Sublessor may expend or may be required to expend by reason of Sublessee’s default in respect
of any of the terms of this Sublease, including any damages or
19
deficiency in the re-letting of the Subleased Premises, whether accruing before or after
summary proceedings or other re-entry by Sublessor. In the case of every such use, application or
retention, Sublessee shall, on demand, pay to Sublessor the sum so used, applied or retained which
shall be added to the security deposit so that the same shall be replenished to its former amount.
If Sublessee shall fully and punctually comply with all of the terms of this Sublease, the security
shall be returned to Sublessee within ten (10) days after the termination of this Sublease and
delivery of exclusive possession of the Subleased Premises to the Sublessor.
ARTICLE X.
Insurance
Insurance
10.01 (a) Sublessee shall not violate, or permit the violation of, any order, rule or
regulation of the New York Board of Fire Underwriters, and shall not do, or permit anything to be
done, or keep or permit anything to be kept in the Subleased Premises which would increase the fire
or other casualty insurance rate on the Building or the property therein over the rate which would
otherwise then be in effect (unless Sublessee pays the resulting increased amount of premium as
provided in Section (b) of this Article) or which would result in insurance companies of good
standing refusing to insure the Building or any equipment or property contained therein in amounts
and at normal rates reasonably satisfactory to Sublessor and Landlord.
(b) If, by reason of any act or omission on the part of Sublessee, the rate of fire insurance
with extended coverage on the Building or equipment or other property of Sublessor or Landlord
shall be higher than it otherwise would be, Sublessee shall reimburse Sublessor or Landlord, as the
case may be, on demand, for that part of the premiums for fire insurance and extended coverage paid
by Sublessor or Landlord, as the case may be, because of such act or omission on the part of
Sublessee, which sum shall be deemed to be additional rent and collectible as such.
20
(c) In the event that any dispute should arise between Sublessor or Landlord and Sublessee
concerning rates, a schedule or make up of rates for the Building or the Subleased Premises, as the
case may be, issued by the New York Fire Insurance Rating Organization or other similar body making
rates for fire insurance and extended coverage for the premises concerned, shall be presumptive
evidence of the facts therein stated and of the several items and charges in the fire insurance
rates with extended coverage then applicable to such premises.
(d) Sublessee shall obtain and keep in full force and effect during the Sublease Term at its
own cost and expense comprehensive general liability insurance including contractual liability,
such insurance to afford protection in an amount of not less than $1,000,000 primary coverage with
$3,000,000 umbrella coverage combined single limit per occurrence for bodily injury (or death), and
for damage to property, protecting the Sublessor, the Landlord and the Administrator as additional
insureds, against any and all claims for personal injury, death or property damage occurring in,
upon, adjacent, or connected with the Subleased Premises and any part thereof. Said insurance is to
be written on a form satisfactory to Sublessor by good and solvent insurance companies of
recognized standing, admitted to do business in the State of New York which shall be satisfactory
to the Sublessor and Landlord. Sublessee shall pay all premiums and charges therefor and upon
failure to do so Sublessor or Landlord may, but shall not be obligated, to make such payments, and
in such latter event the Sublessee agrees to pay the amount thereof to Sublessor or Landlord, as
the case may be, on demand and said sum shall be deemed to be additional rent and in each instance
collectible on the first day of any month following the date of notice to Sublessee in the same
manner as though it were rent originally reserved hereunder. Sublessee will use its best efforts to
include in such Public Liability Insurance policy a provision to the effect that same will be
non-cancelable except upon thirty
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days’ advance written notice to Sublessor, Landlord and the Administrator. Sublessee shall
furnish Sublessor with certificates evidencing such insurance, together with any renewals,
replacements or endorsements, to the end that said insurance shall be in full force and effect for
the benefit of the Sublessor, Landlord and Administrator throughout the Sublease Term. In the event
Sublessee shall fail to procure and place such insurance, Sublessor or Landlord may, but shall not
be obligated to, procure and place same, in which event the amount of the premium paid shall be
refunded by Sublessee to Sublessor or Landlord, as the case may be, upon demand and shall in each
instance be collectible on the first day of the month or any subsequent month following the date of
payment by Sublessor or Landlord, in the same manner as though said sums were additional rent
reserved hereunder.
(e) Each party agrees to use its best efforts to include in each of its insurance policies
(insuring the Building and Landlord’s and Sublessor’s property therein and rental value thereof in
the case of Landlord, and insuring Sublessee’s Property and business interest in the Subleased
Premises (business interruption insurance) in the case of Sublessee, against loss, damage, or
destruction by fire or other casualty) a waiver of the insurer’s right of subrogation against the
other party, or if such waiver should be unobtainable or unenforceable (a) an express agreement
that such policy shall not be invalidated if the insured waives the right of recovery against any
party responsible for a casualty covered by the policy before the casualty or (b) any other form of
permission for the release of the other party. If such waiver, agreement or permission shall not
be, or shall cease to be, obtainable without additional charge or at all, the insured party shall
so notify the other party promptly after learning thereof. In such case, if the other party shall
so elect and shall pay the insurer’s additional charge therefor, such waiver, agreement or
permission shall be included in the policy, or the other party shall be named as an
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additional insured in the policy. Each such policy which shall so name a party hereto as an
additional insured shall contain, if obtainable, agreements by the insurer that the policy will not
be canceled without at least ten (10) days prior notice to both insureds and that the act or
omission of one insured will not invalidate the policy as to the other insured. Any failure by
Sublessee, if named as an additional insured, promptly to endorse to the order of Sublessor or
Landlord, without recourse, any instrument for the payment of money under or with respect to the
policy of which Sublessor is the owner or original or primary insured, shall be deemed a default
under this Sublease.
(f) Each party hereby releases the other party with respect to any claim (including a claim
for negligence) which it might otherwise have against the other party for loss, damage or
destruction with respect to its property (including rental value or business interruption)
occurring during the Sublease Term and with respect and to the extent to which it is insured under
a policy or policies containing a waiver of subrogation or permission to release liability or
naming the other party as an additional insured, as provided in Sections (d) and (e) of this
Article. If notwithstanding the recovery of insurance proceeds by either party for loss, damage or
destruction of its property (or rental value or business interruption) the other party is liable to
the first party with respect thereto or is obligated under this Sublease to make replacement,
repair or restoration or payment, then provided the first party’s right of full recovery under its
insurance policies is not thereby prejudiced or otherwise adversely affected, the amount of the net
proceeds of the first party’s insurance against such loss, damage or destruction shall be offset
against the second party’s liability to the first party therefor, or shall be made available to the
second party to pay for replacement, repair or restoration, as the case may be.
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(g) The waiver of subrogation or permission for release referred to in Section (e) of this
Article shall extend to the agents of each party and its and their employees and, in the case of
Sublessee, shall also extend to all other persons and entities occupying or using the Subleased
Premises in accordance with the terms of the Master Lease, but only if and to the extent that such
waiver or permission can be obtained without additional charge (unless such party shall pay such
charge). The releases provided for in Section (f) of this Article shall likewise extend to such
agents, employees and other persons and entities, if and to the extent that such waiver or
permission is effective as to them. Nothing contained in this Article shall be deemed to relieve
either party of any duty imposed elsewhere in this Sublease or the Master Lease to repair, restore
or rebuild or to nullify any abatement of Rents provided for elsewhere in this Sublease or the
Master Lease. Except as otherwise provided in Section (d) of this Article, nothing contained in
Sections (e) and (f) of this Article shall be deemed to impose upon either party any duty to
procure or maintain any of the kinds of insurance referred to therein or any particular amounts or
limits of any such kinds of insurance. However, each party shall advise the other, upon request,
from time to time (but not more often than once a year) of all of the policies of insurance it is
carrying of any of the kinds referred to in Section (d) of this Article, and if it shall
discontinue any such policy or allow it to lapse, shall notify the other party thereof with
reasonable promptness. The insurance policies referred to in Section (d) of this Article shall be
deemed to include policies procured and maintained by a party for the benefit of its lessor,
mortgagee or pledgee.
(h) Sublessee agrees and acknowledges that Sublessee is responsible for and shall pay to
Sublessor as additional rent a Proportionate Share of the cost of obtaining and
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maintaining all risk property damage insurance meeting all of the standards, limits, minimums
and requirements described in Section 7.08 of the Master Lease.
ARTICLE XI.
Miscellaneous
Miscellaneous
11.01 If Sublessee fails to pay any rent or additional rent within ten days after the same is
due and payable, Sublessee shall pay a late charge on such unpaid amount at the rate of 1% in
excess of the Late Charge Rate.
11.02 This Sublease and the Master Lease incorporated herein contain the entire agreement
between the parties with respect to the subject matter of this Sublease, and all prior negotiations
and agreements with respect thereto are merged in this Sublease.
11.03 This Sublease may not be changed, modified or discharged, in whole or in part, and no
oral or executory agreement shall be effective to change, modify or discharge this Sublease, in
whole or in part, or any obligations hereunder, unless such agreement is set forth in a written
instrument executed by the party against whom enforcement is sought.
11.04 No consent or approval of Sublessor shall be deemed to have been given or to be
effective for any purpose unless such consent or approval is set forth in a written instrument
executed by Sublessor.
11.05 The terms, covenants, and conditions contained in this Sublease shall bind and inure to
the benefit of Sublessor and Sublessee and their successors and assigns, except as other-wise
expressly provided in this Sublease.
11.06 Sublessee and Sublessor each represents and warrants that it has the right and authority
to enter into this Sublease. Sublessor warrants and represents to Sublessee that (i) the Master
Lease is in full force and effect, without default, and has not been amended or modified, (ii) all
rent and additional rent and all other charges required to be paid under the Master Lease
25
have been paid through the date hereof, (iii) neither Landlord nor Sublessor is in default
under the terms of the Master Lease and (iv) no event has occurred which, with notice or lapse of
time, would constitute a default under the Master Lease by Sublessor or Landlord.
11.07 (a) This Sublease is subject to approval of Landlord in accordance with the terms of the
Master Lease. If Landlord does not consent to this Sublease for any reason whatsoever within 20
business days after full execution of this Sublease, then at Sublessee’s option, this Sublease
shall be terminated and of no force or effect. If Landlord does not consent to this Sublease for
any reason whatsoever within 60 business days after full execution of this Sublease, then at either
party’s option, this Sublease shall be terminated. In either such case, all rent and other charges,
if any, paid to cover periods in advance of the termination date shall be refunded, without
interest, to Sublessee.
(b) Sublessor agrees to promptly submit this Sublease to Landlord, but shall be under no
obligation or requirement to take any further action to obtain such consent, except as provided
below. Sublessee and Sublessor each agree to submit to Landlord, upon request, any information or
documentation required by Landlord in processing Sublessor’s application for consent to this
Sublease. Sublessee agrees to pay any and all fees and expenses charged by Landlord to Sublessor
and/or Sublessee in connection with the issuance of its consent to this Sublease and/or the review
of the documentation and information submitted in connection therewith.
11.08 Sublessee shall promptly furnish Sublessor with copies of all notices which Sublessee
shall receive from Landlord, and Sublessor shall promptly furnish Sublessee with copies of all
notices from Landlord relating to the Subleased Premises, the Demised Premises or the Master Lease
which Sublessor receives from Landlord.
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11.09 If Sublessor is unable to give possession of the Subleased Premises on the Commencement
Date for any reason, Sublessor shall not be subject to any liability for failure to give possession
on said date and the validity of this Sublease shall not be impaired under such circumstances, nor
shall the same be construed in any wise to extend the Sublease Term, but the fixed rent and
additional rent payable hereunder shall be abated (provided Sublessee is not responsible for the
inability to obtain possession) for the period of time after the Commencement Date that Sublessor
is delayed in delivering possession of Subleased Premises to Sublessee. The provisions of this
Article are intended to constitute “an express provision to the contrary” within the meaning of
Section 223-a of the New York Real Property Law.
11.10 This Sublease and the Exhibits attached hereto contain the entire agreement between the
parties, and any agreement hereafter made shall be ineffective to change, modify or discharge it in
whole or in part unless such agreement is in writing and signed by the party against whom
enforcement of the change, modification or discharge is sought. Sublessee shall not record this
Sublease without prior written consent of Sublessor. This Sublease shall bind and inure to the
benefit of the parties hereto and their respective successors and, subject to this Sublease,
assigns.
11.11 This Sublease is submitted to Sublessee for signature with the understanding that it
shall not bind Sublessor or Sublessee unless and until it is duly executed by both Sublessee and
Sublessor and an executed copy delivered to Sublessee.
11.12 At any time and from time to time within ten (10) days after a written request from
Sublessor, Sublessee shall execute, acknowledge and deliver to the Sublessor a written statement
certifying (i) that this Sublease has not been modified and is in full force and effect or, if
there has been modifications of this Sublease, that this Sublease is in full force and effect as
27
modified, and stating such modifications, (ii) the dates to which the fixed rent, additional
rent and other charges hereunder have been paid, (iii) that to the best of Sublessee’s knowledge,
no defaults exist under this Sublease or, if any defaults do exit, specifying the nature of each
such default and (iv) as to such other matters as Sublessor may reasonably request.
11.13 (a) Sublessee acknowledges that an assignment and/or sublet of the Subleased Premises,
either in whole or in part, is not permitted, except as provided in the following provisions of
this Section.
(b) Sublessor hereby consents to and Sublessee shall have the right to assign this Sublease,
or permit use and occupancy of all or any part of the Subleased Premises to or by its wholly owned
subsidiary, Bel Canto Foods, LLC.
(c) Sublessor shall not unreasonably withhold or delay its consent to an assignment or
sublease of all or part of the Subleased Premises to or by (i) an entity with which Sublessee may
merge or consolidate, (ii) any corporation, partnership, limited liability company or other entity,
which, directly or indirectly, control, is controlled by or under common control with Sublessee
(“control” meaning ownership of more than fifty (50%) percent of the equity interest in such
entity), or (iii) an acquirer of substantially all of Sublessee’s assets. No such sublease or
assignment of this Sublessee shall be permitted unless, in instance, (A) Sublessee (to the extent
that it continues to exist) and the permitted user or assignee both continue to remain liable to
Sublessor for all terms and obligations on the part of Sublessee to be performed under this
Sublease, (B) no such user, assignee or successor, or any Affiliate of such person or entity, is a
Prohibited Person and (C) Sublessor is given at least ten (10) days prior written notice of such
proposed use or assignment.
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(d) If Sublessee desires to assign this Sublease or sublet any portion of the Subleased
Premises other than as provided in Sections 11.13(b) or (c) above, Sublessee shall submit to
Sublessor a request to do so. Within 30 days of receipt of such request, Sublessor shall exercise
in writing its option to (i) cancel and terminate this Sublease if the request was to assign the
Sublease or (ii) if the request is to sublet either (A) the entire Subleased Premises or (B) a
portion of the Subleased Premises for the balance of the Sublease Term, to cancel and terminate
this Sublease with respect to such portion. Subject to the foregoing and to the consent of
Sublessor which shall not be unreasonably withheld or delayed, Sublessee may at any time during the
Sublease Term assign this Sublease or sublet the Subleased Premises, provided that (i) Sublessee
shall furnish Sublessor with the names of each proposed subtenant and the individual principals in
such proposed subtenant’s business entity, each of whom shall be a Permitted Person, (ii) such
proposed subtenant or assignee and principals submit to the Landlord’s “Vendex” background
investigation (or successor system serving the same function) at least forty-five (45) days prior
to the proposed commencement date of the assignment or sublease, (iii) the proposed subtenant or
assignee is not a Prohibited Person and (iv) Sublessee shall comply with the applicable provisions
of Article 10 of the Master Lease.
(e) Sublessee acknowledges that, under the circumstances set forth in the Master Lease, the
consent of Landlord will be required to a sublease or assignment of the kind described in Sections
11.13(c) and (d). Sublessee acknowledges that Sublessor has no control over the consent of Landlord
in those circumstances, and that it may be given or withheld, as provided in the Master Lease.
(f) During the Sublease Term, Sublessee shall cause any assignee or subtenant to comply with
its obligations under this Sublease as such obligations relate to the obligations of
29
Sublessee hereunder and Sublessor under the Master Lease. A violation or breach of any of the
terms, provisions or conditions of this Sublease or the Master Lease that results from, or is
caused by, an act or omission by any assignee or subtenant shall not prevent such violation or
breach from being an Event of Default hereunder nor relieve Sublessee of Sublessee’s obligation to
cure such violation or breach, provided that Sublessor provide Sublessee with a reasonable period
to cause such violation or breach to be cured.
(g) Sublessee shall not charge or collect from any assignee or subtenant an amount in excess
of the rental under this Sublease. Notwithstanding the foregoing, if, in any Sublease Year, the
total amount of the monies, including, without limitation, the rental, collected by Sublessee with
respect to any assignment or subleases during such Sublease Year exceeds the amount of the fixed
annual rent set forth in Article II, Sublessee shall pay fifty percent (50%) of such excess to
Sublessor. However, any amounts paid to Sublessee to pay or reimburse it for (i) the cost of the
sublease or assignment, such as (without limitation) brokerage fees or commissions or (ii) the
unamortized cost of any of Sublessee’s leasehold improvements, shall not be considered excess rent
for this purpose.
11.14 Certain capitalized words and phrases used in this Sublease which are not defined herein
shall have the meanings given them in the Master Lease.
11.15 (a) Sublessee acknowledges that Sublessor is the sole owner of the existing pallet
racks, rack storage units, freezer equipment and refrigeration equipment (collectively the
“Equipment”) now located on the Subleased Premises. Sublessor shall allow Sublessee to use the
Equipment during the Sublease Term. Sublessor shall have no obligation to repair or maintain the
Equipment, and at its sole cost and expense, Sublessee shall maintain the Equipment in reasonably
good condition and repair, consistent with sound business practice, but shall not be
30
required to make any repair which would be treated as a capital expenditure, or any repairs
beyond the normal useful life of the Equipment. If Sublessee vacates the Subleased Premises or if
the Sublease is terminated, the Equipment shall not be removed by Sublessee, shall remain on the
Subleased Premises and shall continue to belong to Sublessor.
(b) The parties acknowledge that there are a number of wooden pallets now located on the
Demised Premises, which Sublessee shall have the ability and right to use during the Sublease Term,
without any obligation to repair or replace any pallets which are damaged or which are no longer
usable. Sublessee shall not dispose of any usable pallets for cash or other consideration, and
shall return all of Sublessor’s pallets, to the extent they then exist, to Sublessor at the end of
the Sublease Term.
ARTICLE XII.
Master Lease Compliance
Master Lease Compliance
12.01 Required Sublease Clauses. The following provisions are in specific compliance with
Section 10.05 of the Master Lease:
(a) This Sublease is subordinate and subject to the Master Lease, and shall be subject to the
prior approval of the Landlord.
(b) Attached as Exhibit A is a diagram of the Subleased Premises.
(c) The Subleased Premises constitutes 66.52% of the Demised Premises.
(d) Sublessee agrees to defend, indemnify and hold Landlord harmless to the same extent and in
the same manner as does Sublessor pursuant to Article 17 of the Master Lease.
(e) Except for security deposits, Sublessee shall not pay to Sublessor rent or other sums
payable under this Sublease for more than one (1) month in advance.
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(f) At Landlord’s option, on the termination of this Lease pursuant to Article 22 of the
Master Lease, Sublessee shall attorn to or shall enter into a direct lease on terms identical to
the Sublease with Landlord, for the balance of the unexpired term of the Sublease.
(g) Sublessee shall maintain full and accurate books of account and records of its business
operation or enterprise, which books and records shall be so kept and maintained for at least six
(6) years after the end of each Sublease Year, as applicable.
(h) Landlord or Landlord’s agents or representatives, from time to time during regular
business hours, upon reasonable notice shall be permitted to inspect and audit all books and
records and other papers and files of Sublessee relating to this Sublease and Sublessee shall
produce such books and records for such inspection, audit and for the reproduction, if requested,
by Landlord.
(i) Sublessee shall comply with all Requirements.
(j) Sublessee shall comply with the applicable requirements of Article 19 of the Master Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease as of the day and year
first above written.
| SUBLESSOR: | SUBLESSEE: | |||||||||
| A.L. BAZZINI CO., INC. | Dairyland USA Corp. | |||||||||
By:
|
/s/ Rocco Damato, PRES
|
By: | /s/ Dean Facatselis
|
|||||||
| Chief Financial Officer | ||||||||||
32
Exhibit 10.2
LEASE AGREEMENT
LEASE AGREEMENT (this “Lease”) dated December 29, 2004, between The Chefs’ Warehouse Leasing
Co., LLC, a New York limited liability company with an address at 1300 Viele Avenue, Bronx, New
York 10474 (“Landlord”) and Dairyland USA Corporation, a New York corporation with an address at
1300 Viele Avenue, Bronx, New York 10474 (“Tenant”).
1. BASIC LEASE PROVISIONS
1.1. Leased Premises. Landlord owns the real property at 1300 Viele Avenue, Bronx,
New York 10474 (the “Property”). Landlord hereby leases to Tenant, and Tenant leases from
Landlord, the Property and building located thereon (the “Building,” and collectively with the
Property, the “Premises”). The Premises includes the land upon which the Building stands and any
part or parts thereof utilized for parking, landscaped areas or other areas or improvements used in
connection with the Building, and the Building.
1.2. Term. This Lease shall have a term of ten years beginning on December 29, 2004
(the “Commencement Date”), and ending December 31, 2014 (the “Term”). Each “Lease Year” shall
commence on December 1 and end on December 31, with the exception of the First Lease Year which
shall begin on the date Tenant takes occupancy of the Premises.
1.3. Condition of Premises. Landlord shall deliver, and Tenant shall accept, the
Premises in “as-is” condition. Tenant acknowledges that, prior to the date hereof, Tenant has
inspected the Premises, is acquainted with its condition and accepts the Premises in its present
condition.
2. RENT
2.1. Rent. Rent shall accrue hereunder from the first day of the Term. Tenant shall
pay Landlord base rent at the annual rate of $950,000, subject to cumulative annual
increases effective the first day of each Lease Year of 3.5% (“Base Rent”). The Base Rent plus
the “Additional Rent” (defined in Section 2.2 below) together shall constitute the “Rent.” Base
Rent is payable by Tenant in advance, in equal monthly installments as indicated above. All
monthly installments of Base Rent shall be due and payable, without demand and without set-off, on
the first day of each calendar month during the Term. Base Rent due for any partial month shall be
prorated based on the actual number of days in the month in question.
2.2. Additional Rent. In addition to Base Rent, Tenant shall pay, as “Additional
Rent,” (i) all Taxes (defined in Section 5.1 below), (ii) Landlord’s hazard, liability or other
insurance premiums, (iii) maintenance charges and all other costs and expenses associated with the
operation of the Premises, including but not limited to those costs and expenses related to
Tenant’s garbage removal and snow removal for Tenant’s parking and walk areas, and (iv) electric,
gas and water charges. Landlord shall have the same remedies for non-payment of Additional Rent as
Landlord has for non-payment of Base Rent. If not otherwise provided for herein, any Additional
Rent payable to Landlord under applicable provisions of this Lease shall be paid within 20 days of
demand. It is the parties’ intention and expectation that, for all purposes, this shall be a
“triple net” lease.
2.3. Payment. On signing this Lease, Tenant shall pay Landlord $N/A, representing the
proportionate Base Rent for the two days of the month of December, 2004. Tenant shall pay Landlord
all amounts it is required to pay to Landlord hereunder, whether for Rent or otherwise, at the
place designated for the delivery of notices to Landlord pursuant to Section 17.
3. USE
(a) The Premises shall be used as a warehouse and wholesale distribution facility in
connection with Tenant’s specialty food distribution business, with ancillary administrative and
executive offices, and for no other purpose.
(b) Tenant shall not use or occupy the Premises in any manner which in the reasonable judgment
of Landlord would (i) violate any laws or regulations of public authorities or other Requirements
(defined below), (ii) make void or voidable any insurance policy then in force with respect to the
Building or (iii) increase the insurance rate for the Building or any property located therein to
an amount great than the rate in effect prior to the commencement of Tenant’s occupancy.
(c) Tenant shall not at any time use or occupy the Premises in violation of (i) the
certificate of occupancy or (ii) any special permit issued for the Building, Tenant’s portion
thereof or Tenant’s use of the Premises.
4. REQUIREMENTS
4.1. Compliance with Requirements of Law. Tenant currently is in compliance with and
shall be responsible for maintaining compliance with requirements of all laws, including
environmental laws, rules, regulations, ordinances, orders and licenses, whether enacted prior to
or after the date hereof (“Requirements”) of all state, federal, municipal and local governments
and any direction of any public officer pursuant to law (each a “Governmental Authority”) with
respect to or arising out of Tenant’s conduct of its business and the use or manner of use of the
Premises. Tenant shall not use the Premises for any illegal purpose or for any purpose for which
all necessary permits, licenses or authorizations have not validly been issued in accordance with
applicable Requirements. Tenant shall obtain and at all times maintain in good standing all
licenses, permits or authorizations in accordance with all Requirements which are necessary to
Tenant’s conduct of its business at the Premises (“Permits”).
4.2 Abatement of Nuisances. Tenant shall at its expense comply with all Requirements
requiring the correction, prevention and abatement of nuisances connected with Tenant’s use or
occupancy of the Premises.
5. TAXES
5.1. Definitions. As used herein, “Taxes” shall mean the real estate taxes,
assessments (special or otherwise), sewer rents, rates and charges, and any other governmental
charges, general, specific, ordinary or extraordinary, foreseen or unforeseen, levied on a calendar
year or fiscal year basis against the Real Property. If at any time during the Term the method of
taxation prevailing at the date hereof shall be altered so that there shall be levied, assessed or
imposed in lieu of, or as an addition to, or as a substitute for, the whole or any part of the
taxes, levies, impositions or charges now levied, assessed or imposed on all or any part of the
Real Property (i) a tax, assessment, levy, imposition or charge based upon the rents received by
Landlord, whether or not wholly or partially as a capital levy or otherwise, (ii) a tax,
assessment, levy, imposition or charge measured by or based in whole or in part upon all or any
part of the Real Property and imposed on Landlord, (iii) a license fee measured by the rent payable
by Tenant to Landlord or (iv) any other tax, levy, imposition, charge or license fee however
described or imposed, then all such taxes, levies, impositions, charges or license fees or any part
thereof, so measured or based, shall be deemed to be Taxes.
5.2. Payment of Taxes.
(a) Tenant shall pay any and all Taxes levied or assessed against the Premises. Landlord
shall provide Tenant copies of the tax bills, and Tenant shall pay to Landlord or directly to the
taxing authority (as instructed by Landlord) the amount shown on such bills within ten days of
receipt. If Landlord requests, on the first day of each month, in addition to and together with
the monthly installment of Base Rent, Tenant shall pay Landlord on account of
Tenant’s Share of future increases in Taxes an amount equal to 1/12 of the amount shown on the
most recent tax bills, subject to adjustment for subsequent increases in Taxes. Landlord’s failure
to furnish the tax bills shall not affect Tenant’s obligation to pay Taxes.
(b) Taxes shall be prorated between Landlord and Tenant to the extent that the Lease
commencement and termination dates do not correspond to the particular fiscal year for the
imposition and payment of Taxes. The obligations of Landlord and Tenant under the provisions of
this Article shall survive the expiration or any sooner termination of the Term.
6. TENANT’S MAINTENANCE AND REPAIRS
6.1. Tenant’s Maintenance. Tenant shall maintain and keep the entire Premises in good
order and repair, at Tenant’s sole cost and expense, and shall perform all repairs it is required
to make hereunder promptly. Tenant’s responsibility hereunder shall include structural repairs,
including but not limited to roof leaks, roof replacement, and maintenance, repair and replacement
of all doors, windows and garage doors in Tenant’s portion of the Premises. At the end of the
Term, Tenant shall deliver the Premises to Landlord in good order and condition, reasonable wear
and tear excepted, except in the case of fire or other casualty permitting Landlord the right to
terminate this Lease.
6.2. Landlord’s Right to Repair. If within 30 days after the receipt of notice from
Landlord, Tenant fails to make the repairs it is required herein to make or fails to begin to
complete same with due diligence, Landlord may (but shall not be obliged to) make the necessary
repairs, and the expense incurred by Landlord in that connection shall be payable as Additional
Rent. Landlord also may complete, at Tenant’s expense without notice to Tenant, any and all
repairs which Tenant is herein obligated to make which Landlord believes to be of an emergency
nature requiring immediate attention.
7. ALTERATIONS
7.1. No Right to Alter. Tenant shall have no right to make any alteration, addition,
repair or improvement to the Premises without the prior written consent of the Landlord, which
shall not be unreasonably withheld or delayed.
7.2. Alteration Permits. All alterations and improvements made by Tenant shall
conform to all Requirements. At Tenant’s request and at its sole cost, Landlord shall apply for or
join with Tenant in applying for all such permits as may be necessary for the completion of any
alteration to the Premises by Tenant and shall execute and deliver to Tenant all such consents as
may be needed to comply with all Requirements. Upon completion of any such alterations and
improvements, Tenant shall obtain all such certificates, permits or other licenses as are necessary
under applicable Requirements in connection with the use and occupancy of the Premises.
8. LIENS
Tenant shall not (and shall not cause or permit a third party to) create or place any lien or
encumbrance of any kind upon the Premises.
9. UTILITIES.
9.1. Utility Services. Tenant shall make arrangements with each utility company and
public body to provide, in Tenant’s name, electricity, telephone, heat, and water service necessary
for Tenant’s use of the Premises.
9.2. Payment. Tenant shall pay directly to the companies furnishing utility service
the cost of all service connection fees and the cost of all utilities consumed by Tenant throughout
the Term. Tenant’s obligations for the payment of the costs incurred for utilities that serve the
Premises prior to the termination of this Lease shall survive termination hereof.
10. INSURANCE
10.1. Tenant’s Insurance Obligations. Tenant shall carry and maintain, at its sole
cost and expense, a broad form comprehensive general liability or commercial general liability
policy insuring Landlord and Tenant against any liability arising out of the ownership, use,
occupancy or maintenance of the Premises and a property and casualty insurance policy covering the
Premises and improvements thereon. In addition, during any time that Tenant
conducts any
construction at the Premises, Tenant shall maintain in effect a Builder’s All-Risk policy of
casualty and liability insurance.
10.2. Insurance Policies. All of the policies required to be obtained by Tenant
pursuant to the provisions of this Article 10 shall be with companies authorized to do business in
New York and otherwise reasonably acceptable to Landlord. Each policy shall permit the release in
Section 10.3 below.
10.3. Release of Liability. Landlord and Tenant hereby release each other from any
and all liability or responsibility to each other or any one claiming through or under them by way
of subrogation or otherwise, or any loss or damage caused by fire or any of the extended coverage
casualties, even if such fire or other casualty shall have been caused by the fault or negligence
of Landlord or Tenant or of any one for whom they may be responsible, provided that this release
shall be effective only with respect to loss or damage occurring during such time as Landlord’s and
Tenant’s policies of insurance shall contain a clause or endorsement to the effect that such
release shall not adversely affect or impair such policies or breach the right of Tenant or
Landlord (as the case may be) to recover thereunder. Each party shall have such a clause or
endorsement included in its policy and shall pay any cost of same.
11. ASSIGNMENT AND SUBLETTING
Tenant shall not assign, mortgage or encumber this Lease, or sublease any portion of the
Premises, without Landlord’s consent, which Landlord shall not unreasonably delay or
withhold. Tenant shall have the unrestricted right to assign or sublease the Premises to any
entity affiliated by common ownership with Tenant.
12. SUBORDINATION.
This Lease and the lien hereof upon the Premises, and all rights of Tenant hereunder, shall at
all times be subject and subordinate to the lien of any mortgage or mortgages which now affects, or
may hereafter, affect the Premises, and to all the renewals, modifications, consolidations,
replacements and extensions thereof. The recording of any such mortgage or mortgages shall
automatically create the priority hereinabove described, but Tenant shall upon request execute,
acknowledge and deliver to Landlord any instruments which are necessary to subordinate this Lease
and all rights hereunder to the lien of any such mortgage.
13. SURRENDER.
Upon the expiration or sooner termination of the Term of this Lease, Tenant shall surrender
the Premises in good condition, reasonable wear and tear and casualty excepted. If Tenant elects
to remove its trade fixtures, furniture, equipment and other personal property installed in the
Premises prior to the expiration or earlier termination of this Lease, Tenant shall repair any
damage to the Premises resulting from or caused by such removal.
14. LANDLORD’S REPRESENTATIONS AND OTHER AGREEMENTS.
14.1. Quiet Enjoyment. Upon paying the Rent herein set forth and performing its other
covenants and agreements herein set forth, Tenant shall peaceably and quietly have, hold and enjoy
the Premises for the Term without hindrance or molestation from Landlord, subject to the terms and
provisions of this Lease. Upon any sale of the Premises or Landlord’s estate therein, or the
assignment of Landlord’s interest under this Lease, Tenant shall look to each respective succeeding
grantee or assignee for the performance of Landlord’s obligations under
this Lease, provided such succeeding assignee assumes all performance and other obligations of
Landlord under this Lease.
14.2. Ownership of Premises. Landlord warrants and represents that it is the sole
owner possessing good and marketable title to the Premises. Landlord has full right and authority
to execute this Lease for the Term, upon the conditions herein contained.
15. EVENTS OF DEFAULT
The following events shall be deemed to be events of default by Tenant under this Lease:
15.1. Failure to Pay Rent. If Tenant shall fail to pay any Rent when due.
15.2. Bankruptcy. If there shall be commenced by Tenant a voluntary case under the
Federal Bankruptcy Code or under any other applicable federal or state bankruptcy, insolvency or
other similar law, or if there shall be entered a decree or order for relief by a court having
jurisdiction in respect of Tenant under any involuntary case under the Federal Bankruptcy Code or
under any other applicable federal or state bankruptcy, insolvency or similar law which is not
withdrawn or dismissed within 60 days after filing, or if there shall be appointed any arrangement
for a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator or similar
official of or for Tenant or for any substantial part of Tenant’s property which is not terminated
in 60 days.
15.3. Assignments for Creditors; Attachments. If Tenant makes an assignment for
benefit of its creditors, or petitions for or submits this Lease under a writ of execution or
attachment.
15.4. Failure to Comply with Lease Terms. If Tenant fails to comply with any other
term, provision or covenant of this Lease, and does not cure such failure within 15 days after
notice, unless such failure is of a nature that cannot be completely cured or remedied within
15 days, provided that Tenant shall have diligently commenced curing such default within such
15 day period and shall continue thereafter with reasonable diligence and in good faith to
proceed
to remedy or cure such default, then Tenant shall be permitted a reasonable additional period of
time to remedy or cure such default.
16. LANDLORD’S REMEDIES
Upon the occurrence of an event of default, Landlord shall have the right to terminate this
Lease, and at any time thereafter to recover possession of the Premises or any part thereof and
expel and remove therefrom Tenant and any other person occupying the same, by any lawful means, and
repossess the Premises. Landlord shall also be entitled to recover from Tenant any deficiency
between the Rent and the net amount, if any, of the rents collected on account of the leases(s) of
the Premises for each month of the period which would otherwise have constituted the balance of the
Term. The foregoing are without prejudice to any of the remedies that Landlord may have under this
Lease, at law or in equity by reason of Tenant’s default or of such termination.
17. NOTICES AND CONSENTS
All notices, consents, approvals and other communications required or permitted to a party
under this Agreement shall be in writing and shall be delivered personally to, sent by any national
overnight courier or mailed first class certified mail, return receipt requested, to the respective
party at the address set forth on the first page of this Lease. Any item delivered in accordance
with the provisions of this Section shall be deemed to have been delivered (i) on the date of
personal delivery, (ii) on the business day following the date sent by overnight courier or (iii)
on the fifth day following the date on which it was so mailed, as the case may be. Addresses for
notices may be changed, as provided herein.
18. SIGNS
Tenant may erect and maintain, at its sole cost and expense, one or more signs, subject to the
provisions of this Section. The sign shall comply with all Requirements, and the
covenants,
restriction and agreements, if any, affecting the Building on the Premises. Tenant shall maintain
such sign in good repair, and upon termination of this Lease, Tenant shall, at its sole cost and
expense, remove the sign or signs and repair any damage caused by erection, maintenance or removal
of same.
19. MISCELLANEOUS
19.1. Singular and Plural. Words of gender used in this Lease shall be held and
construed to include the other gender, and words in the singular number shall be held to include
the plural, unless the context otherwise requires.
19.2. Binding Effect. The terms, provisions, covenants and conditions contained in
this Lease shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns, except as otherwise
herein expressly provided.
19.3. Choice of Law. This Lease shall be governed by New York law.
19.4. Captions. The captions inserted in this Lease are for convenience only and in
no way define, limit or otherwise describe the scope or intent of this Lease, or any provision
hereof, or in any way affect the interpretation of this Lease.
19.5. Estoppel Certificates. Tenant agrees from time to time, within ten days after
request of Landlord, to deliver to Landlord or to any lender providing financing for the Premises
an estoppel certificate stating that this Lease is in full force and effect, the date to which Rent
has been paid and the unexpired Term, acknowledging that there are no uncured defaults on the part
of Landlord (or specifying such defaults, if any as are claimed by Tenant),
and containing such other information pertaining to this Lease and may be reasonably requested
by Landlord.
19.6. Amendments. This Lease may not be altered, modified, changed or amended except
by an instrument in writing signed and dated by both parties hereto.
19.7. Entire Agreement. This Lease constitutes the entire understanding and agreement
of Landlord and Tenant with respect to the subject matter of this Lease, and contains all of the
covenants and agreements of Landlord and Tenant with respect thereto. Landlord and Tenant each
acknowledge that there are no representations, promises or agreements by Landlord or Tenant, or
anyone acting on behalf of Landlord or Tenant, which are not contained herein.
19.8. Waivers. The waiver by Landlord or Tenant of any term, agreement or condition
herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any
other term, agreement or condition herein contained. The subsequent acceptance of Rent hereunder
by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term,
agreement or condition of this Lease, other than the failure of Tenant to pay the particular Rent
so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance
of such Rent.
19.9. Broker’s Fees. Landlord and Tenant each represent and warrant as to itself that
it has dealt with no broker, agent or other person in connection with this transaction. Landlord
and Tenant each agree to indemnify and hold the other harmless from and against any claims arising
from a breach of the foregoing representations, such indemnity to include the reasonable attorneys’
fees and disbursements of the indemnified party.
20. DESIGNATION AS LEASE.
Despite the designation of this document as a Lease, the same shall be deemed to be a sublease
for so long as the lease agreement dated December 29, 2004 between the New York City Industrial
Development Agency and The Chefs’ Warehouse Leasing Co., LLC, as owner
of the Premises, entered into in connection with Landlord’s acquisition and financing of the
Premises, remains in effect.
IN WITNESS WHEREOF, the parties hereto have executed this Lease on the date first above
written.
| The Chefs’ Warehouse Leasing Co., LLC | Dairyland USA Corporation | |||||||||
By:
|
/s/ Dean Facatselis
|
By: | /s/ John D. Pappas
|
|||||||
| Name: Dean Facatselis | Name: John D. Pappas | |||||||||
| Title: Manager | Title: Vice President | |||||||||
LEASE
The Chefs’ Warehouse Leasing Co., LLC
as Landlord
and
Dairyland USA Corporation
as Tenant
Premises:
|
1300 Viele Avenue | |
| Bronx, NY 10474 | ||
Dated:
|
December 29, 2004 |
Exhibit 10.3
EXECUTION COPY
Chefs’ Warehouse Holdings, LLC
1300 Viele Avenue
Bronx, NY 10474
1300 Viele Avenue
Bronx, NY 10474
Christopher Pappas
c/o Chefs’ Warehouse Holdings, LLC
1300 Viele Avenue
Bronx, NY 10474
c/o Chefs’ Warehouse Holdings, LLC
1300 Viele Avenue
Bronx, NY 10474
Re: Employment
Dear Mr. Pappas:
The purpose of this letter is to formalize the salary and certain benefits that you are
entitled to receive from Chefs’ Warehouse Holdings, LLC, a Delaware limited liability company (the
“CW Holdings”), Dairyland USA Corporation, a New York corporation (“Dairyland”),
The Chefs’ Warehouse West Coast, LLC, a Delaware limited liability company (“TCW”), The
Chefs’ Warehouse West Coast, LLC, a Delaware limited liability company (“West Coast”) and
Bel Canto Foods, LLC, a New York limited liability company (“Bel Canto” and collectively
with CW Holdings, Dairyland, TCW and West Coast, the “Company”), in connection with your
employment with the Company. Your execution of this letter (the “Agreement”) will represent
your acceptance of all of the terms set forth below.
1. Nature of Agreement and Relationship: This Agreement does not represent an
employment contract for any specified term. Your employment relationship thus will remain
“at-will,” meaning that, subject to the terms hereof, either party to this Agreement may terminate
your employment at any time for any lawful reason; provided, that if the Company desires to
terminate your employment, a resolution by CW Holding’s board of directors (the “Board of
Directors”) is required. In return for the consideration set forth herein, however, you agree
to provide CW Holdings with 60 days’ notice of your resignation.
2. Salary and Bonus: For the period beginning on the date hereof and continuing until
the termination of your employment with the Company (the “Employment Period”), your base
salary will be $1,000,000 per annum (the “Base Salary”). During the period beginning on the
date hereof and ending December 31, 2005, the Base Salary will be pro rated on an annualized basis.
You will be paid by the Company or its subsidiaries in regular installments in accordance with the
Company’s or such subsidiary’s general payroll policies and practices. In addition to the Base
Salary, you will be eligible for a bonus in accordance with the terms of CW Holding’s 2005 Senior
Executive Bonus Plan adopted as of July 1, 2005.
3. Employee Benefits: During the Employment Period, the Company shall, or shall cause
its subsidiaries to, pay (or promptly reimburse you) for any and all documented, out-of-pocket
expenses reasonably incurred by you in the course of performing your duties and responsibilities as
an executive officer of CW Holdings which are consistent with CW Holding’s policies in effect from
time to time with respect to business expenses, subject to the Company’s
requirements with respect to reporting of such expenses. Additionally, during the Employment
Period, you will be reimbursed by the Company or its subsidiaries up to $1,800 per month for a
leased motor vehicle for your use in connection with your duties as an executive officer of CW
Holdings.
4. Withholding. All amounts payable to you as compensation hereunder shall be subject
to all required and customary withholding by the Company or the applicable subsidiary of the
Company.
5. Noncompete; Nonsolicitation.
(a) You acknowledge that during the Employment Period, you shall become familiar with, and
during such time as you were an employee, officer or manager of Dairyland, TCW, Bel Canto and West
Coast, as applicable, you became familiar with, the Company’s and its subsidiaries’ trade secrets
and with other confidential information concerning the Company and its subsidiaries and therefore,
you agree that during the Employment Period and, except as set forth in Section 5(c), for a
period of two years thereafter (the “Noncompete Period”), you shall not engage in a
Competitive Activity.
(b) For purposes of this Agreement, to engage in a “Competitive Activity” shall mean
to (i) directly or indirectly, own any interest in, manage, control, participate in, consult with,
render services for, operate or in any manner engage in any business in which the Company or its
subsidiaries engage, or, to your knowledge at the date of termination of the Employment Period,
have plans to engage (including, without limitation, if the Company or any of its subsidiaries, at
the date of termination of the Employment Period, is negotiating, or has entered into, an agreement
for an acquisition, joint venture or other transaction or the Board of Directors has approved, on
or prior to such date, any new line of business, new geographic area, pursuing any acquisition or
other similar action), anywhere in the world in which the Company’s or its subsidiaries’ products
are (or are expected to be, based on existing plans) directly or through third parties marketed or
sold at the date of termination of the Employment Period (provided that you shall not be prohibited
from owning up to 5% of the outstanding stock of a corporation which is publicly traded, so long as
you have no active participation in the business of such corporation), or (ii) induce or attempt to
induce any employee of the Company or its subsidiaries to leave the employ of the Company or its
subsidiaries, or in any way actively interfere with the relationship between the Company or its
subsidiaries and any employee thereof, or (iii) hire directly or through another entity any person
who was a senior executive, a full-time sales representative or, to your knowledge after due
inquiry, any other employee or sales representative of the Company or its subsidiaries at any time
during the Noncompete Period, within nine months following the date of termination of such person’s
employment with the Company or its subsidiaries, or (iv) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company or its subsidiaries to cease doing
business with the Company or its subsidiaries, or in any way interfere with the relationship
between the Company or its subsidiaries and any customer, supplier, licensee or other business
relation thereof (including, without limitation, by inducing or attempting to induce any such
person or entity to reduce the amount of business it does with the Company and its subsidiaries).
2
(c) If, during such time as (i) an Event of Noncompliance (as defined in CW Holding’s Amended
and Restated Limited Liability Company Agreement, dated as of July 1, 2005, as amended or
otherwise modified from time to time (the “LLC Agreement”)) shall have occurred and (ii)
the Class A Directors are entitled to cast five (5) votes with respect to each matter brought
before the Board of Directors for approval pursuant to Section 6.1(c)(i) of the LLC Agreement, your
employment is terminated by the Board of Directors (without the consent of all the Class B
Directors (as defined in the LLC Agreement) other than you if you are a Class B Director at such
time), the Noncompete Period shall expire as of the date of such termination; provided, that the
Company shall have the option, by delivering written notice to you on or prior to the date of such
termination, to extend the Noncompete Period to either the first or second anniversary of such date
of termination, in exchange for aggregate payments to you of $500,000 per annum, payable in equal
installments on the Company’s regular salary payment dates (the “Noncompete Payments”). If
the Company fails to make any required Noncompete Payment pursuant to this Section 5(c) and
fails to cure such nonpayment within 15 calendar days following receipt of written notice from you
of such failure to pay such Noncompete Payment, then the Noncompete Period shall immediately
expire, without the need for further action of any kind, at the end of such 15-day period.
Notwithstanding the foregoing, upon any breach by you of this Section 5 or of Section
6 below, the Company’s obligation to make any further Noncompete Payments shall immediately
terminate, which termination shall not limit, restrict or otherwise affect your continuing
obligations under such Sections.
(d) If, during such time as (i) an Event of Noncompliance shall have occurred and (ii) the
Class A Directors are entitled to cast five (5) votes with respect to each matter brought before
the Board of Directors for approval pursuant to Section 6.1(c)(i) of the LLC Agreement, CW Holdings
either (1) makes a Distribution (as defined in the LLC Agreement) in respect of the Class B Units
(as defined in the LLC Agreement), but in violation of the LLC Agreement fails to make a
Distribution in respect of the Class B Units held by you or (2) in violation of the LLC Agreement,
fails to make a Distribution in respect of all of the Class B Units (provided, that it is
acknowledged and agreed that with respect to a Tax Distribution (as defined in the LLC Agreement),
this clause (2) shall apply only if CW Holdings makes a Tax Distribution in respect of the Class A
Units and, in violation of the LLC Agreement, fails to make a Tax Distribution in respect of the
Class B Units), then (unless CW Holdings is entitled to offset the amount it has failed to
distribute against amounts owed by you to the Company or its subsidiaries) if CW Holdings fails to
cure such violation within 15 calendar days following receipt of written notice from you of such
violation the Noncompete Period shall immediately expire, without the need for further action of
any kind, at the end of such 15-day period.
(e) You hereby acknowledge that the enforcement of the provisions of this Section 5
may potentially interfere with your ability to pursue a proper livelihood. You recognize and agree
that the enforcement of this Agreement is necessary to ensure the preservation, protection and
continuity of the business, trade secrets and goodwill of the Company and its subsidiaries. You
agree that, due to the proprietary nature of the Company’s and its subsidiaries’ business, the
restrictions set forth in this Agreement are reasonable as to time and scope. You hereby
acknowledge that you have been advised to consult with an attorney before executing this Agreement
and that you have done so or, after careful reading and consideration, you have chosen not to do so
of your own volition.
3
6. Confidential Information.
(a) Obligation to Maintain Confidentiality. You acknowledge that the continued success
of the Company and its subsidiaries depends upon the use and protection of a large body of
confidential and proprietary information, including confidential and proprietary information now
existing or to be developed in the future. “Confidential Information” will be defined as
all information of any sort (whether merely remembered or embodied in a tangible or intangible
form) that is (i) related to the Company’s or its subsidiaries’ prior, current or potential
business and (ii) not generally or publicly known. Confidential Information includes, without
specific limitation, the information, observations and data of the Company and its subsidiaries
including, without limitation, designs, drawings, photographs and reports; flow charts, manuals,
documentation and databases; inventions, devices, new developments, methods and processes, whether
patentable or unpatentable and whether or not reduced to practice; all technology and trade
secrets; information concerning acquisition opportunities in or reasonably related to the Company’s
or its subsidiaries’ business or industry of which you are aware or become aware during the
Employment Period, the persons or entities that are current, former or prospective suppliers or
customers of any one or more of them during the Employment Period; development, transition and
transformation plans, methodologies and methods of doing business, strategic, marketing and
expansion plans, including plans regarding planned and potential sales, financial and business
plans, employee lists and telephone numbers, locations of sales representatives, new and existing
programs and services, prices and terms, customer service, integration processes, requirements and
costs of providing service, support and equipment; and all similar and related information in
whatever form. Therefore, you agree that you shall not disclose or use for your own account any of
such Confidential Information, except as reasonably necessary for the performance of your duties as
an employee of the Company and its subsidiaries, without prior written consent of the Board of
Directors, unless and to the extent that any Confidential Information (i) becomes generally known
to and available for use by the public other than as a result of your improper acts or omissions to
act or (ii) is required to be disclosed pursuant to any applicable law, regulatory action or court
order; provided, however, that you must give the Company prompt written notice of any such legal
requirement, disclose no more information than is so required, and cooperate fully with all efforts
by the Company (at the Company’s sole expense) to obtain a protective order or similar
confidentiality treatment for such information. Upon the termination of the Employment Period, you
agree to deliver to the Company, upon request, all memoranda, notes, plans, records, reports and
other documents (and copies thereof) relating to the business of the Company or its subsidiaries
(including, without limitation, all Confidential Information) that you may then possess or have
under your control, other than such documents as are generally or publicly known; provided,
that such documents are not known as a result of your breach or actions in violation of this
Agreement.
(b) Ownership of Intellectual Property. If you create, invent, design, develop,
contribute to or improve any works of authorship, inventions, materials, documents or other work
product or other intellectual property, either alone or in conjunction with third parties, at any
time during the Employment Period (“Works”), to the extent that such Works were created,
invented, designed, developed, contributed to, or improved with the use of any Company resources
and/or within the scope of such employment (collectively, the “Company Works”), you shall
promptly and fully disclose such Company Works to the Company. Any copyrightable work falling
within the definition of Company Works shall be deemed a “work made for hire” as
4
such term is defined in 17 U.S.C. § 101. You hereby (i) irrevocably assign, transfer and
convey, to the extent permitted by applicable law, all right, title and interest in and to the
Company Works on a worldwide basis (including, without limitation, rights under patent, copyright,
trademark, trade secret, unfair competition and related laws) to the Company or such other entity
as the Company shall designate, to the extent ownership of any such rights does not automatically
vest in the Company under applicable law and (ii) waive any moral rights therein to the fullest
extent permitted under applicable law. You agree that you will not use any Company Works for your
personal benefit, the benefit of a competitor, or for the benefit of any person or entity other
than the Company or its subsidiaries. You agree to execute any further documents and take any
further reasonable actions requested by the Company to assist it in validating, effectuating,
maintaining, protecting, enforcing, perfecting, recording, patenting or registering any of its
rights hereunder, all at the Company’s sole expense. Upon termination of the Employment Period, you
shall deliver to the Company all originals and all duplicates and copies of all documents, records,
notebooks, and similar repositories of or containing Confidential Information then in your
possession, whether prepared by you or not; and at any time thereafter, if any such materials are
brought to your attention or you discover them in your possession, you shall deliver such materials
to the Company immediately upon such notice or discovery.
(c) Third Party Information. You understand that the Company and its subsidiaries will
receive from third parties confidential or proprietary information (“Third Party
Information”) subject to a duty on the Company’s and its subsidiaries’ part to maintain the
confidentiality of such information and to use it only for certain limited purposes. During the
Employment Period and at all times thereafter, and without in any way limiting the provisions of
Section 5(a), you will hold information which you know, or reasonably should know, to be
Third Party Information in the strictest confidence and will not disclose to anyone (other than
personnel of the Company or its subsidiaries who need to know such information in connection with
their work for the Company or such subsidiaries) or use, except in connection with your work for
the Company or its subsidiaries, Third Party Information unless expressly authorized in writing by
the Board of Directors or the information (i) becomes generally known to and available for use by
the public other than as a result of your improper acts or omissions or (ii) is required to be
disclosed pursuant to any applicable law, regulatory action or court order.
(d) Use of Information of Prior Employers. During the Employment Period, you shall not
use or disclose any Confidential Information including trade secrets, if any, of any former
employers or any other person to whom you have an obligation of confidentiality, and shall not
bring onto the premises of the Company or its subsidiaries any unpublished documents or any
property belonging to any former employer or any other person to whom you have an obligation of
confidentiality unless consented to in writing by the former employer or person. You shall use in
the performance of your duties only information that is (i) generally known and used by persons
with training and experience comparable to yours and that is (x) common knowledge in the industry
or (y) is otherwise legally in the public domain, (ii) otherwise provided or developed by the
Company or its subsidiaries or (iii) in the case of materials, property or information belonging to
any former employer or other person to whom you have an obligation of confidentiality, approved for
such use in writing by such former employer or person.
5
(e) Disparaging Statements. During the Employment Period and at all times thereafter,
you shall not disparage the Company or its subsidiaries or any of their respective investors,
officers, directors, employees, agents or representatives, or any of such entities’ products or
services; provided, that the foregoing shall not prohibit you from making any general competitive
statements or communications about the Company or its subsidiaries or their businesses in the
ordinary course of competition after the Noncompete Period has expired. The Company agrees that (i)
it shall not issue any public statements disparaging you and (ii) it shall ensure that the senior
executive officers of the Company or its subsidiaries shall not disparage you. Notwithstanding the
foregoing, nothing in this Section 6(e) shall prevent you or the Company and its
subsidiaries from enforcing your or their rights under this Agreement or any other agreement to
which you and the Company (or any of its subsidiaries) are party, or otherwise limit such
enforcement.
7. Enforcement. If, at the time of enforcement of Section 5 or 6, a
court holds that the restrictions stated herein are unreasonable under circumstances then existing,
the parties hereto agree that the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area, and the covenants should
be interpreted and enforced to the maximum extent which such court deems reasonable. The parties
hereto agree that money damages would not be an adequate remedy for any breach of this Agreement by
you or any breach of Section 6(e) by the Company, and any breach of the terms of
Section 5 or 6 by you or Section 6(e) by the Company would result in
irreparable injury and damage to the other party for which such party would have no adequate remedy
at law. Therefore, in the event of a breach or threatened breach of this Agreement by you or of
Section 6(e) by the Company, the Company or its successors or assigns or you, as
applicable, in addition to other rights and remedies existing in their or your favor, shall be
entitled to specific performance and/or immediate injunctive or other equitable relief from a court
of competent jurisdiction in order to enforce, or prevent any violations of, the provisions hereof
(in the case of a breach by you) or Section 6(e) (in the case of a breach by the Company)
(without posting a bond or other security), without having to prove damages, and to the payment by
the breaching party of all of the other party’s costs and expenses, including reasonable attorneys’
fees and costs, in addition to any other remedies to which the other party may be entitled at law
or in equity. In addition, in the event of an alleged breach or violation by you of Section
5 or 6, the Noncompete Period shall be tolled until such breach or violation has been
duly cured. The terms of this Section shall not prevent either party from pursuing any other
available remedies for any breach or threatened breach hereof, including but not limited to the
recovery of damages from the other party.
8. Entire Agreement. This Agreement (and the LLC Agreement) constitutes your entire
agreement with the Company relating to the subject matter hereof, and supersedes in its entirety
any and all prior agreements, understandings or arrangements. For the avoidance of doubt, the
covenants contained herein are separate and apart from any covenants not to compete or solicit set
forth in any non-competition and non-solicitation agreement between you and the Company (or its
subsidiaries).
9. Amendment. This provisions of this Agreement may be amended or waived only with the
prior written consent of CW Holdings, you and the Majority Class A Holders (as defined in the LLC
Agreement).
6
10. Governing Law. All issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be
governed by, and construed in accordance with, the laws of the State of New York, without giving
effect to any choice of law or conflict of law rules or provisions (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
11. Waiver of Jury Trial. AS A SPECIFICALLY BARGAINED FOR INDUCEMENT FOR EACH OF THE
PARTIES HERETO TO ENTER INTO THIS AGREEMENT (AFTER HAVING THE OPPORTUNITY TO CONSULT WITH COUNSEL),
EACH PARTY HERETO EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING
TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY. The losing party
in any lawsuit or proceeding relating to or arising in any way from this Agreement or the matters
contemplated hereby shall pay the reasonable attorneys’ fees and costs of the prevailing party in
such lawsuit or proceeding.
* * * *
7
| Sincerely: | ||||||||
| CHEFS’ WAREHOUSE HOLDINGS, LLC | Dated: | |||||||
By: Name: |
/s/ Dean Facatselis
|
|||||||
Title:
|
Chief Financial Officer | |||||||
| DAIRYLAND USA CORPORATION | Dated: | |||||||
By: Name: |
/s/ Dean Facatselis
|
|||||||
Title:
|
Vice President | |||||||
| BEL CANTO FOODS, LLC | Dated: | |||||||
By:
|
Dairyland USA Corporation, its sole manager | |||||||
By: Name: |
/s/ Dean Facatselis
|
|||||||
Title:
|
Vice President | |||||||
| THE CHEFS’ WAREHOUSE, LLC | Dated: | |||||||
By:
|
Chefs’ Warehouse Holdings, LLC, its sole manager | |||||||
By: Name: |
/s/ Dean Facatselis
|
|||||||
Title:
|
Chief Financial Officer | |||||||
| THE CHEFS’ WAREHOUSE WEST COAST, LLC | Dated: | |||||||
By: Name: |
/s/ Dean Facatselis
|
|||||||
Title:
|
Vice President | |||||||
| /s/ Christopher Pappas | Dated: | |||||||
| Christopher Pappas | ||||||||
Signature Page to Executive Agreement
Exhibit 10.4
Written Description of Oral Amendment to
Employment Letter by and among Chefs’ Warehouse Holdings, LLC, Dairyland USA
Corporation, The Chefs’ Warehouse, LLC, The Chefs’ Warehouse West Coast, LLC, Bel
Canto Foods, LLC, and Christopher Pappas
Employment Letter by and among Chefs’ Warehouse Holdings, LLC, Dairyland USA
Corporation, The Chefs’ Warehouse, LLC, The Chefs’ Warehouse West Coast, LLC, Bel
Canto Foods, LLC, and Christopher Pappas
In 2006, Section 2 of Christopher Pappas’ employment letter was orally amended to decrease his
base salary from $1,000,000 per annum to $400,000 per annum.
Effective
January 1, 2011, Section 2 of Christopher Pappas’
employment letter was orally amended to increase his base salary from
$400,000 per annum to $750,000 per annum.
Exhibit 10.5
FIRST AMENDMENT TO EMPLOYMENT LETTER
This FIRST AMENDMENT TO EMPLOYMENT LETTER (this “First Amendment”) is made and entered into as
of December 12, 2008, by and between Christopher Pappas (“Employee”) and Chefs’ Warehouse
Holdings, LLC, a Delaware limited liability company (the “CW Holdings”), Dairyland USA
Corporation, a New York corporation (“Dairyland”), The Chefs’ Warehouse, LLC, a Delaware
limited liability company (“TCW”), The Chefs’ Warehouse West Coast, LLC, as Delaware
limited liability company (“West Coast”), Bel Canto Foods, LLC, a New York limited
liability company (“Bel Canto”) and JPMorgan Chase & Co., a Delaware Corporation
(“JPMorgan” and collectively with CW Holdings, Dairyland, TCW, West Coast and Bel Canto,
the “Company”).
RECITALS
WHEREAS, the Company and Employee are parties to that certain Employment Letter, dated as of
[INSERT DATE OF ORIGINAL EMPLOYMENT AGREEMENT] (the “Employment Agreement”).
WHEREAS, pursuant to Section 9 of the Employment Agreement, the Company and Employee wish to
amend the Employment Agreement by this First Amendment in order to comply with the requirements of
Section 409A of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
to this First Amendment hereby agree as follows:
1. The first sentence of Section 5(c) of the Employment Agreement is hereby amended and
restated to read as follows:
“(c) If, during such time as (i) an Event of Noncompliance (as defined in CW
Holdings’ Amended and Restated Limited Liability Company Agreement, dated as of July
1, 2005, as amended or otherwise modified from time to time (the “LLC
Agreement”)) shall have occurred and (ii) the Class A Directors are entitled to
cast five (5) votes with respect to each matter brought before the Board of
Directors for approval pursuant to Section 6.1(c)(i) of the LLC Agreement, your
employment is terminated by the Board of Directors (without consent of all the Class
B Directors (as defined in the LLC Agreement) other than you if you are a Class B
Director at such time), the Noncompete Period shall expire as of the date of such
termination; provided, that the Company in its sole discretion shall
have the option, by delivering written notice to you on or prior to that date of
such termination, to extend the Noncompete Period to either the first or second
anniversary of such date of termination, in exchange for aggregate payments to you
of $500,000 per annum, payable in substantially equal installments on the Company’s
regular salary payment dates and commencing on the regular salary payment date that
first follows your date of termination (the “Noncompete Payments”).”
2. A new Section 12 is hereby added to the Employment Agreement to read as follows:
“12. Compliance with 409A. This Agreement is intended to comply with the
requirements of Section 409A of the Internal Revenue Code of 1986, as amended
(“409A”). The Company shall undertake to administer, interpret and construe the
provisions of the Agreement in a manner that does not result in the imposition of
any additional tax, penalty or interest under 409A. Notwithstanding any provision in
the Agreement to the contrary, if upon Employee’s “separation from service” within
the meaning of 409A, Employee is then a “specified employee” (as defined in 409A),
then to the extent necessary to comply with 409A and avoid the imposition of taxes
under 409A, the Company shall defer payment of nonqualified deferred compensation
subject to 409A payable as a result of and within six (6) months following such
separation from service until the earlier of (i) the first business day of the
seventh month following Employee’s separation from service, or (ii) ten (10) days
after the Company receives notification of Employee’s death. Any such delayed
payments shall be paid without interest. Notwithstanding anything herein to the
contrary, any reimbursement of expenses or in-kind benefits provided pursuant to
this Agreement shall be subject to the following conditions: (1) the expenses
eligible for reimbursement or in-kind benefits in one taxable year shall not affect
the expenses eligible for reimbursement or in-kind benefits in any other taxable
year; (2) the reimbursement of eligible expenses or in-kind benefits shall be made
promptly, subject to the Company’s applicable policies, but in no event later than
the end of the year after the year in which such expense was incurred; and (3) the
right to reimbursement or in-kind benefits shall not be subject to liquidation or
exchange for another benefit.”
3. Ratification and Incorporation of Employment Agreement. Except as expressly amended
hereby, all the terms, conditions and provisions of the Employment Agreement shall remain in full
force and effect. This First Amendment shall form a part of the Employment Agreement for all
purposes.
4. Governing Law. This First Amendment shall be governed by, and construed under, the
laws of the State of New York, without giving effect to any rules, principles or provisions of
choice of law or conflict of laws.
5. Severability. In case any one or more of the provisions contained in this First
Amendment should be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
6. Counterparts. This First Amendment may be executed in any number of counterparts,
each of which so executed and delivered shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
2
7. Section Headings. Headings have been inserted in this First Amendment as a matter
of convenience for reference only and such section headings shall not be used in the interpretation
of any provision of this First Amendment.
[Signature Page Follows]
3
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed
all as of the day and year first above written.
| CHEFS’ WAREHOUSE HOLDINGS, LLC | ||||||
By: Name: |
/s/ Michael DeCata
|
Dated: 12/10/08 | ||||
Title:
|
President | |||||
| DAIRYLAND USA CORPORATION | ||||||
By: Name: |
/s/ Michael DeCata
|
Dated: 12/10/08 | ||||
Title: |
||||||
| BEL CANTO FOODS, LLC | ||||||
By: Name: |
/s/ Michael DeCata
|
Dated: 12/10/08 | ||||
Title: |
||||||
| THE CHEFS’ WAREHOUSE, LLC | ||||||
By: Name: |
/s/ Michael DeCata
|
Dated: 12/10/08 | ||||
Title: |
||||||
| THE CHEFS’ WAREHOUSE WEST COAST, LLC | ||||||
By: Name: |
/s/ Michael DeCata
|
Dated: 12/10/08 | ||||
Title: |
||||||
| JPMORGAN CHASE & CO. | ||||||
By: Name: |
/s/ Joseph M. Scharfenberger
|
Dated: 12/15/08 | ||||
Title:
|
Managing Director | |||||
| /s/ Christopher Pappas | Dated: 12/10/08 | |||||
| CHRISTOPHER PAPPAS | ||||||
4
Exhibit 10.6
EXECUTION COPY
Chefs’ Warehouse Holdings, LLC
1300 Viele Avenue
Bronx, NY 10474
1300 Viele Avenue
Bronx, NY 10474
John Pappas
c/o Chefs’ Warehouse Holdings, LLC
1300 Viele Avenue
Bronx, NY 10474
c/o Chefs’ Warehouse Holdings, LLC
1300 Viele Avenue
Bronx, NY 10474
Re: Employment
Dear Mr. Pappas:
The purpose of this letter is to formalize the salary and certain benefits that you are
entitled to receive from Chefs’ Warehouse Holdings, LLC, a Delaware limited liability company (the
“CW Holdings”), Dairyland USA Corporation, a New York corporation (“Dairyland”),
The Chefs’ Warehouse West Coast, LLC, a Delaware limited liability company (“TCW”), The
Chefs’ Warehouse West Coast, LLC, a Delaware limited liability company (“West Coast”) and
Bel Canto Foods, LLC, a New York limited liability company (“Bel Canto” and collectively
with CW Holdings, Dairyland, TCW and West Coast, the “Company”), in connection with your
employment with the Company. Your execution of this letter (the “Agreement”) will represent
your acceptance of all of the terms set forth below.
1. Nature of Agreement and Relationship: This Agreement does not represent an
employment contract for any specified term. Your employment relationship thus will remain
“at-will,” meaning that, subject to the terms hereof, either party to this Agreement may terminate
your employment at any time for any lawful reason; provided, that if the Company desires to
terminate your employment, a resolution by CW Holding’s board of directors (the “Board of
Directors”) is required. In return for the consideration set forth herein, however, you agree
to provide CW Holdings with 60 days’ notice of your resignation.
2. Salary and Bonus: For the period beginning on the date hereof and continuing until
the termination of your employment with the Company (the “Employment Period”), your base
salary will be $1,000,000 per annum (the “Base Salary”). During the period beginning on the
date hereof and ending December 31, 2005, the Base Salary will be pro rated on an annualized basis.
You will be paid by the Company or its subsidiaries in regular installments in accordance with the
Company’s or such subsidiary’s general payroll policies and practices. In addition to the Base
Salary, you will be eligible for a bonus in accordance with the terms of CW Holding’s 2005 Senior
Executive Bonus Plan adopted as of July 1, 2005.
3. Employee Benefits: During the Employment Period, the Company shall, or shall cause
its subsidiaries to, pay (or promptly reimburse you) for any and all documented, out-of-pocket
expenses reasonably incurred by you in the course of performing your duties and responsibilities as
an executive officer of CW Holdings which are consistent with CW Holding’s policies in effect from
time to time with respect to business expenses, subject to the Company’s
requirements with respect to reporting of such expenses. Additionally, during the Employment
Period, you will be reimbursed by the Company or its subsidiaries up to $1,800 per month for a
leased motor vehicle for your use in connection with your duties as an executive officer of CW
Holdings.
4. Withholding. All amounts payable to you as compensation hereunder shall be subject
to all required and customary withholding by the Company or the applicable subsidiary of the
Company.
5. Noncompete; Nonsolicitation.
(a) You acknowledge that during the Employment Period, you shall become familiar with, and
during such time as you were an employee, officer or manager of Dairyland, TCW, Bel Canto and West
Coast, as applicable, you became familiar with, the Company’s and its subsidiaries’ trade secrets
and with other confidential information concerning the Company and its subsidiaries and therefore,
you agree that during the Employment Period and, except as set forth in Section 5(c), for a
period of two years thereafter (the “Noncompete Period”), you shall not engage in a
Competitive Activity.
(b) For purposes of this Agreement, to engage in a “Competitive Activity” shall mean
to (i) directly or indirectly, own any interest in, manage, control, participate in, consult with,
render services for, operate or in any manner engage in any business in which the Company or its
subsidiaries engage, or, to your knowledge at the date of termination of the Employment Period,
have plans to engage (including, without limitation, if the Company or any of its subsidiaries, at
the date of termination of the Employment Period, is negotiating, or has entered into, an agreement
for an acquisition, joint venture or other transaction or the Board of Directors has approved, on
or prior to such date, any new line of business, new geographic area, pursuing any acquisition or
other similar action), anywhere in the world in which the Company’s or its subsidiaries’ products
are (or are expected to be, based on existing plans) directly or through third parties marketed or
sold at the date of termination of the Employment Period (provided that you shall not be prohibited
from owning up to 5% of the outstanding stock of a corporation which is publicly traded, so long as
you have no active participation in the business of such corporation), or (ii) induce or attempt to
induce any employee of the Company or its subsidiaries to leave the employ of the Company or its
subsidiaries, or in any way actively interfere with the relationship between the Company or its
subsidiaries and any employee thereof, or (iii) hire directly or through another entity any person
who was a senior executive, a full-time sales representative or, to your knowledge after due
inquiry, any other employee or sales representative of the Company or its subsidiaries at any time
during the Noncompete Period, within nine months following the date of termination of such person’s
employment with the Company or its subsidiaries, or (iv) induce or attempt to induce any customer,
supplier, licensee or other business relation of the Company or its subsidiaries to cease doing
business with the Company or its subsidiaries, or in any way interfere with the relationship
between the Company or its subsidiaries and any customer, supplier, licensee or other business
relation thereof (including, without limitation, by inducing or attempting to induce any such
person or entity to reduce the amount of business it does with the Company and its subsidiaries).
2
(c) If, during such time as (i) an Event of Noncompliance (as defined in CW Holding’s Amended
and Restated Limited Liability Company Agreement, dated as of July 1, 2005, as amended or
otherwise modified from time to time (the “LLC Agreement”)) shall have occurred and (ii)
the Class A Directors are entitled to cast five (5) votes with respect to each matter brought
before the Board of Directors for approval pursuant to Section 6.1(c)(i) of the LLC Agreement, your
employment is terminated by the Board of Directors (without the consent of all the Class B
Directors (as defined in the LLC Agreement) other than you if you are a Class B Director at such
time), the Noncompete Period shall expire as of the date of such termination; provided, that the
Company shall have the option, by delivering written notice to you on or prior to the date of such
termination, to extend the Noncompete Period to either the first or second anniversary of such date
of termination, in exchange for aggregate payments to you of $500,000 per annum, payable in equal
installments on the Company’s regular salary payment dates (the “Noncompete Payments”). If
the Company fails to make any required Noncompete Payment pursuant to this Section 5(c) and
fails to cure such nonpayment within 15 calendar days following receipt of written notice from you
of such failure to pay such Noncompete Payment, then the Noncompete Period shall immediately
expire, without the need for further action of any kind, at the end of such 15-day period.
Notwithstanding the foregoing, upon any breach by you of this Section 5 or of Section
6 below, the Company’s obligation to make any further Noncompete Payments shall immediately
terminate, which termination shall not limit, restrict or otherwise affect your continuing
obligations under such Sections.
(d) If, during such time as (i) an Event of Noncompliance shall have occurred and (ii) the
Class A Directors are entitled to cast five (5) votes with respect to each matter brought before
the Board of Directors for approval pursuant to Section 6.1(c)(i) of the LLC Agreement, CW Holdings
either (1) makes a Distribution (as defined in the LLC Agreement) in respect of the Class B Units
(as defined in the LLC Agreement), but in violation of the LLC Agreement fails to make a
Distribution in respect of the Class B Units held by you or (2) in violation of the LLC Agreement,
fails to make a Distribution in respect of all of the Class B Units (provided, that it is
acknowledged and agreed that with respect to a Tax Distribution (as defined in the LLC Agreement),
this clause (2) shall apply only if CW Holdings makes a Tax Distribution in respect of the Class A
Units and, in violation of the LLC Agreement, fails to make a Tax Distribution in respect of the
Class B Units), then (unless CW Holdings is entitled to offset the amount it has failed to
distribute against amounts owed by you to the Company or its subsidiaries) if CW Holdings fails to
cure such violation within 15 calendar days following receipt of written notice from you of such
violation the Noncompete Period shall immediately expire, without the need for further action of
any kind, at the end of such 15-day period.
(e) You hereby acknowledge that the enforcement of the provisions of this Section 5
may potentially interfere with your ability to pursue a proper livelihood. You recognize and agree
that the enforcement of this Agreement is necessary to ensure the preservation, protection and
continuity of the business, trade secrets and goodwill of the Company and its subsidiaries. You
agree that, due to the proprietary nature of the Company’s and its subsidiaries’ business, the
restrictions set forth in this Agreement are reasonable as to time and scope. You hereby
acknowledge that you have been advised to consult with an attorney before executing this Agreement
and that you have done so or, after careful reading and consideration, you have chosen not to do so
of your own volition.
3
6. Confidential Information.
(a) Obligation to Maintain Confidentiality. You acknowledge that the continued success
of the Company and its subsidiaries depends upon the use and protection of a large body of
confidential and proprietary information, including confidential and proprietary information now
existing or to be developed in the future. “Confidential Information” will be defined as
all information of any sort (whether merely remembered or embodied in a tangible or intangible
form) that is (i) related to the Company’s or its subsidiaries’ prior, current or potential
business and (ii) not generally or publicly known. Confidential Information includes, without
specific limitation, the information, observations and data of the Company and its subsidiaries
including, without limitation, designs, drawings, photographs and reports; flow charts, manuals,
documentation and databases; inventions, devices, new developments, methods and processes, whether
patentable or unpatentable and whether or not reduced to practice; all technology and trade
secrets; information concerning acquisition opportunities in or reasonably related to the Company’s
or its subsidiaries’ business or industry of which you are aware or become aware during the
Employment Period, the persons or entities that are current, former or prospective suppliers or
customers of any one or more of them during the Employment Period; development, transition and
transformation plans, methodologies and methods of doing business, strategic, marketing and
expansion plans, including plans regarding planned and potential sales, financial and business
plans, employee lists and telephone numbers, locations of sales representatives, new and existing
programs and services, prices and terms, customer service, integration processes, requirements and
costs of providing service, support and equipment; and all similar and related information in
whatever form. Therefore, you agree that you shall not disclose or use for your own account any of
such Confidential Information, except as reasonably necessary for the performance of your duties as
an employee of the Company and its subsidiaries, without prior written consent of the Board of
Directors, unless and to the extent that any Confidential Information (i) becomes generally known
to and available for use by the public other than as a result of your improper acts or omissions to
act or (ii) is required to be disclosed pursuant to any applicable law, regulatory action or court
order; provided, however, that you must give the Company prompt written notice of any such legal
requirement, disclose no more information than is so required, and cooperate fully with all efforts
by the Company (at the Company’s sole expense) to obtain a protective order or similar
confidentiality treatment for such information. Upon the termination of the Employment Period, you
agree to deliver to the Company, upon request, all memoranda, notes, plans, records, reports and
other documents (and copies thereof) relating to the business of the Company or its subsidiaries
(including, without limitation, all Confidential Information) that you may then possess or have
under your control, other than such documents as are generally or publicly known; provided,
that such documents are not known as a result of your breach or actions in violation of this
Agreement.
(b) Ownership of Intellectual Property. If you create, invent, design, develop,
contribute to or improve any works of authorship, inventions, materials, documents or other work
product or other intellectual property, either alone or in conjunction with third parties, at any
time during the Employment Period (“Works”), to the extent that such Works were created,
invented, designed, developed, contributed to, or improved with the use of any Company resources
and/or within the scope of such employment (collectively, the “Company Works”), you shall
promptly and fully disclose such Company Works to the Company. Any copyrightable work falling
within the definition of Company Works shall be deemed a “work made for hire” as
4
such term is defined in 17 U.S.C. § 101. You hereby (i) irrevocably assign, transfer and
convey, to the extent permitted by applicable law, all right, title and interest in and to the
Company Works on a worldwide basis (including, without limitation, rights under patent, copyright,
trademark, trade secret, unfair competition and related laws) to the Company or such other entity
as the Company shall designate, to the extent ownership of any such rights does not automatically
vest in the Company under applicable law and (ii) waive any moral rights therein to the fullest
extent permitted under applicable law. You agree that you will not use any Company Works for your
personal benefit, the benefit of a competitor, or for the benefit of any person or entity other
than the Company or its subsidiaries. You agree to execute any further documents and take any
further reasonable actions requested by the Company to assist it in validating, effectuating,
maintaining, protecting, enforcing, perfecting, recording, patenting or registering any of its
rights hereunder, all at the Company’s sole expense. Upon termination of the Employment Period, you
shall deliver to the Company all originals and all duplicates and copies of all documents, records,
notebooks, and similar repositories of or containing Confidential Information then in your
possession, whether prepared by you or not; and at any time thereafter, if any such materials are
brought to your attention or you discover them in your possession, you shall deliver such materials
to the Company immediately upon such notice or discovery.
(c) Third Party Information. You understand that the Company and its subsidiaries will
receive from third parties confidential or proprietary information (“Third Party
Information”) subject to a duty on the Company’s and its subsidiaries’ part to maintain the
confidentiality of such information and to use it only for certain limited purposes. During the
Employment Period and at all times thereafter, and without in any way limiting the provisions of
Section 5(a), you will hold information which you know, or reasonably should know, to be
Third Party Information in the strictest confidence and will not disclose to anyone (other than
personnel of the Company or its subsidiaries who need to know such information in connection with
their work for the Company or such subsidiaries) or use, except in connection with your work for
the Company or its subsidiaries, Third Party Information unless expressly authorized in writing by
the Board of Directors or the information (i) becomes generally known to and available for use by
the public other than as a result of your improper acts or omissions or (ii) is required to be
disclosed pursuant to any applicable law, regulatory action or court order.
(d) Use of Information of Prior Employers. During the Employment Period, you shall not
use or disclose any Confidential Information including trade secrets, if any, of any former
employers or any other person to whom you have an obligation of confidentiality, and shall not
bring onto the premises of the Company or its subsidiaries any unpublished documents or any
property belonging to any former employer or any other person to whom you have an obligation of
confidentiality unless consented to in writing by the former employer or person. You shall use in
the performance of your duties only information that is (i) generally known and used by persons
with training and experience comparable to yours and that is (x) common knowledge in the industry
or (y) is otherwise legally in the public domain, (ii) otherwise provided or developed by the
Company or its subsidiaries or (iii) in the case of materials, property or information belonging to
any former employer or other person to whom you have an obligation of confidentiality, approved for
such use in writing by such former employer or person.
5
(e) Disparaging Statements. During the Employment Period and at all times thereafter,
you shall not disparage the Company or its subsidiaries or any of their respective investors,
officers, directors, employees, agents or representatives, or any of such entities’ products or
services; provided, that the foregoing shall not prohibit you from making any general competitive
statements or communications about the Company or its subsidiaries or their businesses in the
ordinary course of competition after the Noncompete Period has expired. The Company agrees that (i)
it shall not issue any public statements disparaging you and (ii) it shall ensure that the senior
executive officers of the Company or its subsidiaries shall not disparage you. Notwithstanding the
foregoing, nothing in this Section 6(e) shall prevent you or the Company and its
subsidiaries from enforcing your or their rights under this Agreement or any other agreement to
which you and the Company (or any of its subsidiaries) are party, or otherwise limit such
enforcement.
7. Enforcement. If, at the time of enforcement of Section 5 or 6, a
court holds that the restrictions stated herein are unreasonable under circumstances then existing,
the parties hereto agree that the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area, and the covenants should
be interpreted and enforced to the maximum extent which such court deems reasonable. The parties
hereto agree that money damages would not be an adequate remedy for any breach of this Agreement by
you or any breach of Section 6(e) by the Company, and any breach of the terms of
Section 5 or 6 by you or Section 6(e) by the Company would result in
irreparable injury and damage to the other party for which such party would have no adequate remedy
at law. Therefore, in the event of a breach or threatened breach of this Agreement by you or of
Section 6(e) by the Company, the Company or its successors or assigns or you, as
applicable, in addition to other rights and remedies existing in their or your favor, shall be
entitled to specific performance and/or immediate injunctive or other equitable relief from a court
of competent jurisdiction in order to enforce, or prevent any violations of, the provisions hereof
(in the case of a breach by you) or Section 6(e) (in the case of a breach by the Company)
(without posting a bond or other security), without having to prove damages, and to the payment by
the breaching party of all of the other party’s costs and expenses, including reasonable attorneys’
fees and costs, in addition to any other remedies to which the other party may be entitled at law
or in equity. In addition, in the event of an alleged breach or violation by you of Section
5 or 6, the Noncompete Period shall be tolled until such breach or violation has been
duly cured. The terms of this Section shall not prevent either party from pursuing any other
available remedies for any breach or threatened breach hereof, including but not limited to the
recovery of damages from the other party.
8. Entire Agreement. This Agreement (and the LLC Agreement) constitutes your entire
agreement with the Company relating to the subject matter hereof, and supersedes in its entirety
any and all prior agreements, understandings or arrangements. For the avoidance of doubt, the
covenants contained herein are separate and apart from any covenants not to compete or solicit set
forth in any non-competition and non-solicitation agreement between you and the Company (or its
subsidiaries).
9. Amendment. This provisions of this Agreement may be amended or waived only with the
prior written consent of CW Holdings, you and the Majority Class A Holders (as defined in the LLC
Agreement).
6
10. Governing Law. All issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be
governed by, and construed in accordance with, the laws of the State of New York, without giving
effect to any choice of law or conflict of law rules or provisions (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
11. Waiver of Jury Trial. AS A SPECIFICALLY BARGAINED FOR INDUCEMENT FOR EACH OF THE
PARTIES HERETO TO ENTER INTO THIS AGREEMENT (AFTER HAVING THE OPPORTUNITY TO CONSULT WITH COUNSEL),
EACH PARTY HERETO EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING
TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY. The losing party
in any lawsuit or proceeding relating to or arising in any way from this Agreement or the matters
contemplated hereby shall pay the reasonable attorneys’ fees and costs of the prevailing party in
such lawsuit or proceeding.
* * * *
7
| Sincerely: | ||||||||
| CHEFS’ WAREHOUSE HOLDINGS, LLC | Dated: | |||||||
By: Name: |
/s/ Dean Facatselis
|
|||||||
Title:
|
Chief Financial Officer | |||||||
| DAIRYLAND USA CORPORATION | Dated: | |||||||
By: Name: |
/s/ Dean Facatselis
|
|||||||
Title:
|
Vice President | |||||||
| BEL CANTO FOODS, LLC | Dated: | |||||||
By:
|
Dairyland USA Corporation, its sole manager | |||||||
By: Name: |
/s/ Dean Facatselis
|
|||||||
Title:
|
Vice President | |||||||
| THE CHEFS’ WAREHOUSE, LLC | Dated: | |||||||
By:
|
Chefs’ Warehouse Holdings, LLC, its sole manager | |||||||
By: Name: |
/s/ Dean Facatselis
|
|||||||
Title:
|
Chief Financial Officer | |||||||
| THE CHEFS’ WAREHOUSE WEST COAST, LLC | Dated: | |||||||
By: Name: |
/s/ Dean Facatselis
|
|||||||
Title:
|
Vice President | |||||||
| /s/ John Pappas | Dated: | |||||||
| John Pappas | ||||||||
Signature Page to Executive Agreement
Exhibit 10.7
Written Description of Oral Amendment to
Employment Letter by and among Chefs’ Warehouse Holdings, LLC, Dairyland USA
Corporation, The Chefs’ Warehouse, LLC, The Chefs’ Warehouse West Coast, LLC, Bel
Canto Foods, LLC, and John Pappas
Employment Letter by and among Chefs’ Warehouse Holdings, LLC, Dairyland USA
Corporation, The Chefs’ Warehouse, LLC, The Chefs’ Warehouse West Coast, LLC, Bel
Canto Foods, LLC, and John Pappas
In 2006, Section 2 of John Pappas’ employment letter was orally amended to decrease his base
salary from $1,000,000 per annum to $400,000 per annum.
Effective
January 1, 2011, Section 2 of John Pappas’
employment letter was orally amended to increase his base salary from
$400,000 per annum to $750,000 per annum.
Exhibit 10.8
FIRST AMENDMENT TO EMPLOYMENT LETTER
This FIRST AMENDMENT TO EMPLOYMENT LETTER (this “First Amendment”) is made and entered into as of
December 12, 2008 (“First Amendment”), by and between John Pappas (“Employee”) and
Chefs’ Warehouse Holdings, LLC, a Delaware limited liability company (the “CW Holdings”),
Dairyland USA Corporation, a New York corporation (“Dairyland”), The Chefs’ Warehouse, LLC,
a Delaware limited liability company (“TCW”), The Chefs’ Warehouse West Coast, LLC, as
Delaware limited liability company (“West Coast”), Bel Canto Foods, LLC, a New York limited
liability company (“Bel Canto”) and JPMorgan Chase & Co., a Delaware Corporation
(“JPMorgan” and collectively with CW Holdings, Dairyland, TCW, West Coast and Bel Canto,
the “Company”).
RECITALS
WHEREAS, the Company and Employee are parties to that certain Employment Letter, dated as of
[INSERT DATE OF ORIGINAL EMPLOYMENT AGREEMENT] (the “Employment Agreement”).
WHEREAS, pursuant to Section 9 of the Employment Agreement, the Company and Employee wish to amend
the Employment Agreement by this First Amendment in order to comply with the requirements of
Section 409A of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
to this First Amendment hereby agree as follows:
1. The first sentence of Section 5(c) of the Employment Agreement is hereby amended and
restated to read as follows:
"(c) If, during such time as (i) an Event of Noncompliance (as defined in CW
Holdings’ Amended and Restated Limited Liability Company Agreement, dated as of July
1, 2005, as amended or otherwise modified from time to time (the “LLC
Agreement”)) shall have occurred and (ii) the Class A Directors are entitled to
cast five (5) votes with respect to each matter brought before the Board of
Directors for approval pursuant to Section 6.1(c)(i) of the LLC Agreement, your
employment is terminated by the Board of Directors (without consent of all the Class
B Directors (as defined in the LLC Agreement) other than you if you are a Class B
Director at such time), the Noncompete Period shall expire as of the date of such
termination; provided, that the Company in its sole discretion shall
have the option, by delivering written notice to you on or prior to that date of
such termination, to extend the Noncompete Period to either the first or second
anniversary of such date of termination, in exchange for aggregate payments to you
of $500,000 per annum, payable in substantially equal installments on the Company’s
regular salary payment dates and commencing on the regular salary payment date that
first follows your date of termination (the “Noncompete Payments”).”
2. A new Section 12 is hereby added to the Employment Agreement to read as follows:
“12. Compliance with 409A. This Agreement is intended to comply with the
requirements of Section 409A of the Internal Revenue Code of 1986, as amended
(“409A”). The Company shall undertake to administer, interpret and construe the
provisions of the Agreement in a manner that does not result in the imposition of
any additional tax, penalty or interest under 409A. Notwithstanding any provision in
the Agreement to the contrary, if upon Employee’s “separation from service” within
the meaning of 409A, Employee is then a “specified employee” (as defined in 409A),
then to the extent necessary to comply with 409A and avoid the imposition of taxes
under 409A, the Company shall defer payment of nonqualified deferred compensation
subject to 409A payable as a result of and within six (6) months following such
separation from service until the earlier of (i) the first business day of the
seventh month following Employee’s separation from service, or (ii) ten (10) days
after the Company receives notification of Employee’s death. Any such delayed
payments shall be paid without interest. Notwithstanding anything herein to the
contrary, any reimbursement of expenses or in-kind benefits provided pursuant to
this Agreement shall be subject to the following conditions: (1) the expenses
eligible for reimbursement or in-kind benefits in one taxable year shall not affect
the expenses eligible for reimbursement or in-kind benefits in any other taxable
year; (2) the reimbursement of eligible expenses or in-kind benefits shall be made
promptly, subject to the Company’s applicable policies, but in no event later than
the end of the year after the year in which such expense was incurred; and (3) the
right to reimbursement or in-kind benefits shall not be subject to liquidation or
exchange for another benefit.”
3. Ratification and Incorporation of Employment Agreement. Except as expressly amended
hereby, all the terms, conditions and provisions of the Employment Agreement shall remain in full
force and effect. This First Amendment shall form a part of the Employment Agreement for all
purposes.
4. Governing Law. This First Amendment shall be governed by, and construed under, the
laws of the State of New York, without giving effect to any rules, principles or provisions of
choice of law or conflict of laws.
5. Severability. In case any one or more of the provisions contained in this First
Amendment should be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
6. Counterparts. This First Amendment may be executed in any number of counterparts,
each of which so executed and delivered shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
2
7. Section Headings. Headings have been inserted in this First Amendment as a matter
of convenience for reference only and such section headings shall not be used in the interpretation
of any provision of this First Amendment.
[Signature Page Follows]
3
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed all as
of the day and year first above written.
CHEFS’ WAREHOUSE HOLDINGS, LLC
By: Name: |
/s/ Michael DeCata
|
Dated: 12/12/08 | ||||
Title:
|
President | |||||
| DAIRYLAND USA CORPORATION | ||||||
By: Name: |
/s/ Michael DeCata
|
Dated: 12/12/08 | ||||
Title: |
||||||
| BEL CANTO FOODS, LLC | ||||||
By: Name: |
/s/ Michael DeCata
|
Dated: 12/12/08 | ||||
Title: |
||||||
| THE CHEFS’ WAREHOUSE, LLC | ||||||
By: Name: |
/s/ Michael DeCata
|
Dated: 12/12/08 | ||||
Title: |
||||||
| THE CHEFS’ WAREHOUSE WEST COAST, LLC | ||||||
By: Name: |
/s/ Michael DeCata
|
Dated: 12/12/08 | ||||
Title: |
||||||
| JPMORGAN CHASE & CO. | ||||||
By: Name: |
/s/ Joseph M. Scharfenberger
|
Dated: 12/15/08 | ||||
Title:
|
Managing Director | |||||
| /s/ John Pappas
|
Dated: ______ | |||||
4
Exhibit 10.9
Kenneth A. Clark |
||
15 Sunswept Drive |
||
New Fairfield, CT 06812
|
February 19, 2009 |
Dear Ken,
The Chefs’ Warehouse is pleased to offer you the position of Chief Financial Officer.
In your position of CFO you will report to the Christopher Pappas, Chief Executive Officer. The
gross annual salary for this position is $210,000. (This quoted rate is for convenience and is not
intended as a guarantee of employment for any fixed period of time). In addition to your base
salary, the following will also be part of your Chefs’ Warehouse employment package:
| • | You will be entitled to 4 weeks of vacation annually. | ||
| • | Eligibility to participate in Chefs’ Warehouse Individual Variable Compensation Plan (Bonus) at a target of 50% of your annual base salary. This plan rewards participants for their success against business and individual goals and objectives (a portion which may be discretionary). | ||
| • | Eligibility to participate in Chefs’ Warehouse equity plan. | ||
| • | The Chefs’ Warehouse will pay the employee contribution of your Health Insurance Plan. | ||
| • | Guarantee twelve months’ severance if terminated not for cause. | ||
| For purposes of this agreement, “Cause” shall mean the termination of your employment by the Company due to (i) conviction of, or plea of, nolo contendre with respect to any felony, or any act of fraud, embezzlement or dishonesty against any Company Entity, or any act of moral turpitude or any conduct in which you engage in during employment that tends to bring any Company Entity into substantial public disgrace or disrepute, (ii) the commission of any act or omission involving fraud with respect to any Company Entity or in connection with any relationship between any Company Entity and any customer or supplier, (iii) use of illegal drugs or repetitive abuse of other drugs or repetitive excess consumption of alcohol interfering with the performance of your duties, (iv) the gross negligence or willful misconduct in the performance of your duties with respect to any Company entity, (v) failure to follow the lawful directives of the President. |
1
Your employment with the Company is at-will. This means that neither you nor the Company has
entered into a contract regarding the duration of your employment.
Sincerely,
/s/ Patricia Lecouras
Patricia Lecouras
Executive Vice President, Human Resources
Executive Vice President, Human Resources
Candidate Acknowledgement [name]:
|
/s/ Kenneth Clark
|
Date: 3/6/09
2
Exhibit 10.10
February 25, 2011
REVISED on April 8, 2011
REVISED on April 8, 2011
James Wagner
46 Grace Street
New Canaan, Connecticut 06840
46 Grace Street
New Canaan, Connecticut 06840
Dear Jim:
It is my pleasure to offer you the position of Chief Operating Officer, The Chefs’ Warehouse. You
will report directly to me. This letter constitutes our offer. Please keep in mind that this letter
and its contents are confidential.
The terms of this offer are as follows (pending Board of Directors approval):
| • | Weekly salary of $4807.69 ($250,000 annually). | |
| • | Eligibility to participate in Chefs’ Warehouse Individual Variable Compensation Plan (Bonus) at a target of 100% of your annual base salary. This plan rewards participants for their success against business and individual goals and objectives (a portion which may be discretionary). | |
| • | Restricted stock equivalent to 80 Basis points (.8 of 1%) of equity post IPO dilution | |
| • | Vesting Schedule |
| • | 50% immediately | ||
| • | 12.5% each anniversary of initial award for 4 years. |
| • | Equity vests 100% upon termination for any reason other than cause or you resigning. |
Goals for 2011 will be based on the 2011 budgeted amounts used in the prepared lender presentation
for Recapitalization.
Your 2011 Bonus Target will be 100% of Base Salary and will be structured as follows:
| • | If Revenue and Gross Profit Dollars meets or exceeds 100% of budgeted Revenue and Gross Profit Dollars, and EBITDA meets or exceeds budget you earn 100% of Bonus. | ||
| • | If Revenue and Gross Profit Dollars meets or exceeds budgeted Revenue and Gross Profit Dollars, and EBITDA comes in at 95% or higher than budgeted you earn 90% of Bonus | ||
| • | If Revenue and Gross Profit Dollars meets or exceeds 90% of budgeted Revenue and Gross Profit Dollars, and EBITDA comes in at 90% or higher than budgeted you earn 60% of Bonus | ||
| • | Any results less than outlined above, the bonus is at the discretion of the Chief Executive Officer. |
| • | You will continue to receive a monthly car allowance of $750. |
If this offer is acceptable, please sign this letter and return it to us for our files.
Sincerely,
|
Accepted By James Wagner: | |||||
/s/ Christopher Pappas
|
/s/ James Wagner
|
|||||
President & Chief Executive Officer |
||||||
The Chefs’ Warehouse |
Exhibit 10.11
January 28, 2007
Mr. Frank O’Dowd
19 Slaton Road
Glenwood, New Jersey 07418
19 Slaton Road
Glenwood, New Jersey 07418
Dear Frank:
It is with great pleasure that we confirm our offer to you for employment with Chefs Warehouse
as Vice President & Chief Information Officer. Your salary will be $3846.15 weekly, ($200,000 per
annum), effective on your start date, which will be February 15, 2007. In this position you will
report directly to me.
In addition to the starting base salary, the following will also be part of your Chefs Warehouse
employment package:
| • | Four (4) weeks of vacation effective 2007. | ||
| • | Eligibility to participate in Chef Warehouse’s 2007 Individual Variable Compensation Plan (Bonus) at a target of 50% of your annual base salary. We will work together to plan for targets that will be based upon both company and personal objectives. | ||
| • | Eligibility to participate in Chefs Warehouse’s equity plan (document attached). | ||
| • | In the event that your employment is terminated by the Chefs Warehouse for reasons other than cause, you will be eligible for 6 months severance. |
This offer is contingent upon the following: your signing of the Employee Patent and Confidential
Information Agreement and Code of Ethics and a background verification, (to include previous
employers and education/degrees) prior to your start date.
Chef Warehouse offers an excellent benefits program designed to meet the needs of you and your
eligible dependents. Coverage under most of these programs commences on the first day of
employment. Information regarding these programs and other Company benefits, along with guidelines
concerning employment, will be discussed at your employee orientation. The terms and conditions of
all benefit plans are governed by the summary plan descriptions which I have enclosed.
Please be advised that Chefs Warehouse, the Company and its subsidiaries and affiliated companies
intends to hire only legal workers (those individuals who, by law, have the right to work in the
United States). As a condition of employment with the Company, you will be required to show proof
of work eligibility to the Human Resources Department no later than your first scheduled day of
employment. Enclosed is a copy of Form I-9 showing the necessary documentation needed to complete
Section 2 on the form. Please bring this necessary documentation with you on your start date.
On your first day, we ask that you report to our warehouse at 1300 Viele Avenue, Bronx, New York.
At that time I will provide you with additional documentation necessary to begin your employment.
As evidence of your acceptance of this position, please sign and return to me immediately
this offer letter US Mail and the enclosed New Hire Paperwork. However, this letter does not
establish a contract of employment for any duration. You or the Company may terminate your
employment at any time without notice. We are delighted that you have decided to join the team at
Chefs Warehouse. We are confident that your employment with us can make a positive contribution to
your career and that you, in turn, will help us in attaining our corporate vision.
Sincerely,
Michael G. DeCata
President
Chefs Warehouse
President
Chefs Warehouse
MD/mm
Cc: Christopher Pappas
Enclosures
Cc: Christopher Pappas
Enclosures
Accepted Start Date |
/s/ Frank O’Dowd
|
Exhibit 23.1
Chefs’ Warehouse Holdings, LLC
Ridgefield, CT 06877
Ridgefield, CT 06877
We hereby consent to the use in the Prospectus constituting a part of this Registration Statement
of our report dated March 14, 2011, relating to the consolidated financial statements of Chefs’
Warehouse Holdings, LLC, which is contained in that Prospectus.
We also consent to the reference to us under the caption “Experts” in the Prospectus.
/s/BDO USA, LLP
New York, New York
New York, New York
June 7, 2011
Exhibit 23.4
Consent of Stephen Hanson
The undersigned hereby consents, pursuant to Rule 438 of Regulation C promulgated under the
Securities Act of 1933, as amended (the “Act”) to be named as a nominee for director of The Chefs’
Warehouse, Inc. (the “Company”) in the Registration Statement on Form S-1, and in any and all
amendments or supplements thereto, under the Act filed by the Company in accordance with the
Company’s articles of incorporation and regulations and accepts such nomination. The undersigned
also hereby confirms the undersigned’s intent to serve as director of the Company.
IN WITNESS WHEREOF, the undersigned has executed this Consent as of the 19th day of
May, 2011.
| /s/ Stephen Hanson | ||
| Name: Stephen Hanson |
Exhibit 23.5
Consent of John Austin
The undersigned hereby consents, pursuant to Rule 438 of Regulation C promulgated under the
Securities Act of 1933, as amended (the “Act”) to be named as a nominee for director of The Chefs’
Warehouse, Inc. (the “Company”) in the Registration Statement on Form S-1, and in any and all
amendments or supplements thereto, under the Act filed by the Company in accordance with the
Company’s articles of incorporation and regulations and accepts such nomination. The undersigned
also hereby confirms the undersigned’s intent to serve as director of the Company.
IN WITNESS WHEREOF, the undersigned has executed this Consent as of the 15th day of
May, 2011.
| /s/ John Austin | ||||
| Name: | John Austin | |||
Chefs’
Warehouse Holdings, LLC
100 East Ridge Road
Ridgefield, Connecticut 06877
100 East Ridge Road
Ridgefield, Connecticut 06877
June 8, 2011
Via EDGAR & Overnight Courier
Mr. H. Christopher Owings
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549-0303
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549-0303
| Re: | Chefs’ Warehouse Holdings, LLC Registration Statement on Form S-1 Filed April 12, 2011 File No. 333-173445 |
Dear Mr. Owings:
On behalf of Chefs’ Warehouse Holdings, LLC (the “Company”), and in response to the comments
of the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) contained
in your letter dated May 10, 2011 (the “Comment Letter”), I submit this letter containing the
Company’s responses to the Comment Letter. The Company has today filed Amendment No. 1 (“Amendment
No. 1”) to its Registration Statement on Form S-1 (Registration No. 333-173445) (as amended, the
“Registration Statement”) with the Commission via EDGAR. The Company’s responses to the Comment
Letter correspond to the numbered comments in the Comment Letter.
FORM S-1
General
| 1. | Please revise throughout the prospectus to include all information that may not properly be excluded under Securities Act Rule 430A. Please allow us sufficient time to review your complete disclosure prior to any distribution of preliminary prospectuses. | ||
| RESPONSE: The Company will provide the requested information in a subsequent amendment to the Registration Statement after the anticipated price range within which it intends to offer shares of its common stock in the offering has been determined. | |||
| 2. | Please file or submit all of your exhibits with your next amendment, or as soon as possible. Please allow us sufficient time to review such exhibits prior to requesting acceleration of the effectiveness of the registration statement. | ||
| RESPONSE: The Company has filed a significant number of exhibits with Amendment No. 1. The Company intends to file substantially all of its remaining exhibits with its next amendment to the Registration Statement. |
| 3. | Prior to the effectiveness of the registration statement, please arrange to have FINRA call us or provide us with a letter indicating that FINRA has cleared the offering. | ||
| RESPONSE: The Company will arrange to have FINRA call the Staff or provide the Staff with a letter, prior to the effectiveness of the Registration Statement, indicating that FINRA has cleared the offering. | |||
| 4. | We note the statement in the Explanatory Note, “Prospectus Summary — Reorganization Transaction” and “Certain Relationships and Related-Party Transactions - Reorganization Transaction” that Chefs’ Warehouse Holdings, LLC will be converted into Chefs’ Warehouse, Inc. prior to the effectiveness of the registration statement. However, in “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Reorganization” and “Description of Our Capital Stock—Our Reorganization,” you state that the conversion will occur prior to the consummation of the offering. Please revise throughout the registration statement to consistently disclose the timing of the reorganization transaction. | ||
| RESPONSE: The disclosure on pages 1, 4, 8, 10, 11, 33, 34, 35, 63, 68, 80 and 81 of the prospectus has been revised in accordance with the Staff’s comment to reflect that the reorganization transaction will occur prior to the effectiveness of the Registration Statement. |
Outside Front Cover Page of Prospectus
| 5. | Please disclose in the first paragraph any affiliation between you and the selling stockholders. | ||
| RESPONSE: The disclosure on the outside front cover page of the prospectus has been revised in accordance with the Staff’s comment. |
Inside Front Cover Page of Prospectus
| 6. | Please provide a copy of any inside cover graphics that you intend to include in the prospectus. | ||
| RESPONSE: The Company will provide the Staff with a copy of any inside cover graphics that it intends to include in the prospectus when those graphics are available. | |||
| 7. | Investors may also rely on information contained in a free writing prospectus issued by you. Accordingly, please revise the first two sentences of the paragraph following the table of contents. | ||
| RESPONSE: The disclosure on the inside front cover page of the prospectus has been revised in accordance with the Staff’s comment. |
2
Prospectus Summary, page 1
| 8. | Please disclose, in this section and in “Our Business,” whether your competitive assertions listed below are based on independent analysis or your management’s reasonable belief. If an assertion is based on independent analysis, then please disclose the source of such analysis. If an assertion is based on your management’s reasonable belief, then please disclose your basis for such belief. With respect to the assertion listed in the second bullet below, please disclose the specific metric by which you describe yourself as “the largest.” |
| • | You have a superior selection of distinctive and hard-to-find specialty food products; superior product knowledge; and superior customer service, compared to other foodservice distributors. | ||
| RESPONSE: The disclosure on pages 1 and 47 of the prospectus has been revised to eliminate the use of the term “superior” in describing our selection of distinctive and hard-to-find specialty food products, product knowledge, and customer service. | |||
| • | You are the largest distributor of specialty food products in the New York, Washington, D.C., San Francisco and Los Angeles culinary markets. | ||
| RESPONSE: The disclosure on pages 2 and 48 of the prospectus has been revised in accordance with the Staff’s comment. The Company supplementally informs the Staff that the Company’s management reasonably believes that the Company is the largest distributor of specialty food products in the New York, Washington, D.C., San Francisco and Los Angeles culinary markets measured by net sales. This belief is based on management’s industry experience, conversations and dealings with customers and suppliers, and information learned by management’s attendance at industry and trade shows. | |||
| • | You are the primary distributor of specialty food products to the majority of your customers. | ||
| RESPONSE: The disclosure on pages 3 and 50 of the prospectus has been revised in accordance with the Staff’s comment. The Company supplementally informs the Staff that the Company’s management reasonably believes that the Company is the primary distributor of specialty food products to the majority of its customers based on management’s industry experience, including management’s knowledge of the types and amounts of products that the Company’s customers require to operate their businesses, and management’s relationships and dealings with the Company’s customers. |
3
| 9. | Refer to your statement, “Since 2008, we have achieved net revenue, earnings before interest, taxes, depreciation and amortization, or EBITDA, and net income compound annual growth rates, or CAGRs, of 8.3%, 50.4% and 168.9%, respectively, as of December 24, 2010.” Please also disclose the dollar changes in such measurements for the fiscal 2009 and 2010 reporting periods. Lastly, please provide a cross reference to your non-GAAP EBITDA disclosures presented on pages 9 and 10 of the prospectus. | ||
| RESPONSE: The disclosure on pages 1 and 47 of the prospectus has been revised in accordance with the Staff’s comment. |
Summary Consolidated Financial Data, page 7
| 10. | We note your inclusion of “Pro Forma, As Adjusted Data” on page 7 and “Pro Forma as Adjusted net income available to common stockholders” reconciliation on page 9. Please revise to disclose, on page 7, that the Pro Forma information was prepared in accordance with Article 11 of Regulation S-X. | ||
| RESPONSE: The disclosure on page 8 of the prospectus has been revised in accordance with the Staff’s comment. | |||
| 11. | Please provide full pro forma financial statements prepared in accordance with Article 11 of Regulation S-X, which separately present the pro forma impact of the redemption of Class A units, the Corporate Reorganization next, then the sale of your common shares in your initial public offering, and the repayment of long term debt and the procurement of new senior secured credit facility so that readers can understand the impact of each of these transactions on your capitalization and results of operations, or advise us why pro forma financial statements are unnecessary. | ||
| RESPONSE: The requested pro forma financial statements have been included in the Registration Statement beginning on page F-21. The pro forma effect for the offering, the reorganization transaction, the repayment of long term debt and the procurement of the new senior secured credit facilities is not currently determinable, but will be included in the pro forma financial statements following the establishment of a price range within which the Company intends to offer its shares of common stock in the offering. Because the redemption of the Class A units happened in the previous year, it is thus reflected in the Company’s historical balance sheet as of March 25, 2011, and the pro forma effect of the offering, the reorganization transaction, the repayment of long term debt and the procurement of the new senior secured credit facilities will be reflected in the “As Adjusted” column of the Capitalization Table, the Company is not presenting a pro forma balance sheet as of March 25, 2011. Similarly, because the impact of the redemption of the Class A units is reflected in the Company’s unaudited statement of operations for the three months ended March 25, 2011, the Company is presenting a pro forma statement of operations for the three months ended March 25, 2011 giving effect only to the offering, reorganization transaction, repayment of long term debt and procurement of the new senior secured credit facility, which information is not currently determinable, but will be included following establishment of the price range within which the Company intends to offer its shares of common stock in the offering. | |||
| 12. | We note the $68.3 million redemption of your Class A units on October 22, 2010. Please explain to us, and clarify in your footnote disclosures here and elsewhere in the prospectus, the terms of Class A units including their redemption feature(s). Please also indicate why the redemption amount significantly exceeded the $45.8 million carrying amount upon redemption and why the excess was accounted for as a dividend and whether earnings available for common shareholders was also reduced. Please also tell us, and disclose, if the pro forma earnings per share data has given effect to the number of shares whose proceeds would be necessary to pay the excess distribution to the extent that it exceeds the current year earnings. Also, provide a cross reference to footnote 2 on page F-8 where you disclose the effect on your pro forma net income available to common shares. | ||
| RESPONSE: The Company supplementally informs the Staff that the redemption price for the Class A units was calculated in accordance with the terms of the Company’s amended and restated limited liability company agreement then in effect, and was based on a total valuation for the Company based on an agreed upon multiple of projected EBITDA less total indebtedness, with the Class A unit holders being first allocated $45.8 million on account of the carrying value of the Class A units plus dividends accreted thereon at 12%, and then being allocated $22.4 million as a deemed dividend on account of their pro rata share of the remaining value. This $22.4 million was accounted for as a dividend as it was only available to the Class A unit holders, and thus the Company believes it is appropriate to exclude this distribution from earnings available to the other members. As the Class A units have been redeemed in full, the Company does not believe that the other terms of the units are material to an investor in the offering and respectfully requests that the Company not be required to summarize those terms in the prospectus. The Company has revised page 42 of the prospectus to disclose how the redemption price for the Class A units was determined. |
4
| 13. | Please show us and disclose how you calculated pro forma earnings per share on “as adjusted” and on “pro forma as adjusted” basis. | ||
| RESPONSE: The Company will provide the requested information on pages F-21 through F-24 and a cross reference thereto on page 8 after the anticipated price range within which it intends to offer shares of its common stock in the offering has been determined. | |||
| 14. | Refer to your pro forma adjustment 2 disclosure on page 8. Please note that pro forma income statement adjustments must be factually supportable and have a continuing impact to be included in your pro forma results. Please tell us why you believe your planned refinancing transaction, as disclosed on page 4, is factually supportable at this time, and should be included in your pro forma results, or revise. | ||
| RESPONSE: The Company believes that its planned refinancing transaction, which it intends to consummate simultaneously with the consummation of this offering, is factually supportable based on the fact that the Company plans to enter into a commitment letter and term sheet with respect to the transaction (the “Commitment Letter”) prior to the distribution of a preliminary prospectus with respect to this offering, with the expectation that definitive documentation with respect to its new senior secured credit facilities will be executed simultaneously with the consummation of this offering. | |||
| 15. | Please ensure the number of shares in your pro forma diluted weighted average common shares outstanding calculation include shares that were previously excluded because of their anti-dilutive effect. In this regard, we note the elimination of the dividends on your Class A units will reverse the net losses for your fiscal years ended December 24, 2010, and December 26, 2008 in your pro forma financial statements. | ||
| RESPONSE: The Company will ensure that the number of shares in the pro forma diluted weighted average common shares outstanding calculation will include those shares that were previously excluded because of their anti-dilutive effect. | |||
| 16. | Please provide a more comprehensive discussion regarding the exchange ratio of units into common stock and how it was determined and clarify in the disclosures if and how the exchange ratio will vary based on the offering price. | ||
| RESPONSE: The Company will provide the requested disclosure in a subsequent amendment to the Registration Statement after the anticipated price range within which the Company intends to offer shares of its common stock in the offering has been determined. |
Risk Factors, page 11
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Risks Relating to Our Business and Industry, page 11
Our substantial indebtedness may limit our ability to invest in the ongoing needs of our
business, page 16
| 17. | If you enter into your new senior secured credit facilities prior to the effectiveness of the registration statement, then please update this risk factor to disclose the specific amount of additional indebtedness that may be incurred pursuant to the new senior secured credit facilities. | ||
| RESPONSE: The Company anticipates that it will enter into its new senior secured credit facilities simultaneously with its consummation of the offering. The Company plans to enter into the Commitment Letter with respect to its new senior secured credit facilities prior to the distribution of a preliminary prospectus with respect to this offering. The disclosure on pages 17 and 18 of the prospectus has been revised in accordance with the Staff’s comment and reflects the proposed terms of the new senior secured credit facilities as the Company expects those terms to be set forth in the Commitment Letter. |
Risks Relating to this Offering, page 21
| 18. | Please add a risk factor to explain the risks associated with your qualification for, and potential reliance on, the “controlled company” exemption offered by the NASDAQ Listing Rules. | ||
| RESPONSE: The Company supplementally informs the Staff that the Company no longer intends to avail itself of the “controlled company” exemption offered by the NASDAQ Listing Rules. Accordingly, the Company has eliminated all references to the “controlled company” exemption in the Registration Statement. |
Use of Proceeds, page 27
| 19. | Please disclose in the third paragraph the dollar amount of the Class A units redeemed in October 2010. | ||
| RESPONSE: The disclosure on page 28 of the prospectus has been revised in accordance with the Staff’s comment. | |||
| 20. | Because you are using proceeds to redeem all of your outstanding senior subordinated notes due 2014, and you incurred this debt within one year, please describe the use of proceeds from the notes. See Instruction 4 to Item 504 of Regulation S-K. | ||
| RESPONSE: The disclosure on page 28 of the prospectus has been revised in accordance with the Staff’s comment. The Company supplementally informs the Staff that the proceeds from the Company’s outstanding senior subordinated notes due 2014 were used, together with the borrowings under |
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| the Company’s senior secured credit facilities, to redeem, in October of 2010, all of the Company’s outstanding Class A units. | |||
| 21. | Please disclose in the first bullet point following the third paragraph the amount of the call premium, which you disclose in “Description of our Indebtedness—Senior Subordinated Notes” to be approximately $0.8 million. | ||
| RESPONSE: The disclosure on page 28 of the prospectus has been revised in accordance with the Staff’s comment. | |||
| 22. | Please clarify whether you intend to use net proceeds to repay all of your outstanding loans under the senior secured credit facilities, assuming a sufficient amount of net proceeds, or, even if you receive a sufficient amount of net proceeds, you intend to repay only a portion of outstanding loans under the senior secured credit facilities and intend to use the remainder for general corporate purposes. Please note that if you have no current specific plan for a significant amount of the proceeds, you should state so in this section and discuss the principal reasons for the offering. See Item 504 of Regulation S-K. | ||
| RESPONSE: The disclosure on pages 6, 7, 28 and 84 of the prospectus has been revised in accordance with the Staff’s comment to reflect that the Company intends to use the net proceeds of the offering, together with borrowings under the Company’s new senior secured credit facilities, which will be entered into simultaneously with the consummation of the offering, to redeem or repurchase all of the Company’s outstanding senior subordinated notes due 2014 and to repay all of the Company’s loans outstanding under the Company’s existing senior secured credit facilities. |
Dividend Policy, page 28
| 23. | If any portion of your existing senior secured credit facilities will remain outstanding after the consummation of the offering, then please disclose any restrictions on declaration and payment of dividends imposed by the existing senior secured credit facilities. See Item 201(c)(1) of Regulation S-K. | ||
| RESPONSE: The Company supplementally informs the Staff that the Company does not expect that any of its existing senior secured credit facilities will remain outstanding after the consummation of the offering. |
Selected Consolidated Financial Data, page 32
| 24. | Please tell us and disclose what is netted against revenues here and in Statement of Operations on page F-4. Further, please tell us and disclose the nature of the gain on settlement of $1,100 for your fiscal year ended December 28, 2007. | ||
| RESPONSE: As described in footnote 4 to the Company’s financial statements included in the prospectus, customer discounts and customer rebates are treated as a reduction of sales at the time the sale is recognized. |
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| The gain on settlement is the result of the Company settling a dispute with the former owner of a company that the Company had previously acquired. The settlement reduced the acquisition purchase price and corresponding note payable to that company. Since the goodwill associated with this acquisition had been written off at the time of the settlement, the settlement was recorded as a non-operating item within the Company’s statement of operations. | |||
| 25. | Please disclose cash dividend declared per common unit for all periods presented. See Item 301 of Regulation S-K. | ||
| RESPONSE: The Company supplementally informs the Staff that the Company has not declared or issued any dividends over the past five years. The amount paid by the Company to redeem its outstanding Class A units over the principal and accreted interest was deemed a dividend under generally accepted accounting principles because this amount was only available to the holders of the Class A units. The amount of the deemed dividend was $22.4 million. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page
34
| 26. | Please discuss any known trends, demands, commitments, events or uncertainties that are reasonably likely to have a material impact on your liquidity, capital resources or results of operations or that would cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. For example, we note your disclosure in “Risk Factors” on page 12 that volatile food costs have a direct impact on your profitability. Please discuss any known trends regarding food cost price movements or the other factors that you reasonably expect will have a material impact on your profits. See Item 303(a)(1)-(3) of Regulation S-K, Instruction 3 to Item 303(a) of Regulation S-K, Section III.B of Release No. 33-6835 (May 18, 1989), Section II.A.1 of Release No. 33-8056 (January 22, 2002) and Section III.B of Release No. 33-8350 (December 19, 2003). | ||
| RESPONSE: The disclosure on pages 36 and 39 of the prospectus has been revised in accordance with the Staff’s comment. |
Critical Accounting Policies, page 36
Inventory valuation, page 36
| 27. | We note you maintain reserves for slow-moving and obsolete inventories. In this regard, please tell us and disclose a roll-forward schedule of your inventory reserve amounts, to the extent material, for all periods presented, in a footnote or in a supplemental Schedule II in accordance with Rule 5-04 of Regulation S-X. |
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| RESPONSE: The Company’s inventory reserve balance as of December 24, 2010, December 25, 2009, December 26, 2008, March 25, 2011 and March 26, 2010 was approximately $570,000, $525,000, $575,000, $573,000 and $506,000, respectively. These amounts represented approximately 3.5%, 3.4%, 3.5%, 3.2% and 3.0% of the Company’s total inventory levels at those dates, respectively. The Company does not believe that these inventory reserve amounts, or the movement in these amounts between periods, are material. |
Valuation of Goodwill and Intangible Assets, page 36
| 28. | We note that goodwill represents approximately 14% of your assets as of December 24, 2010. In light of the significance of your goodwill balance, we expect a more robust and comprehensive disclosure both in your footnote and in your critical accounting policies regarding your impairment testing policy. This disclosure should provide investors with sufficient information about management’s insights and assumptions with regard to the recoverability of goodwill. Specifically, please disclose the following information for each of your reporting unit: |
| • | Percentage by which fair value exceeded carrying value as of the most recent step-one test. | ||
| • | Description of key assumptions that drive fair value. | ||
| • | Discussion of the uncertainty associated with the key assumptions and any potential events and/or circumstances that could have a negative effect. |
| Otherwise, please disclose in your critical accounting policies that your reporting unit is not at risk of failing step one of the goodwill impairment test. | |||
| RESPONSE: For the reasons stated below in response to comment #29, the Company evaluates its goodwill on an aggregated basis. The Company’s most recent impairment test resulted in the fair value exceeding the carrying value by approximately $184 million. The Company tests its goodwill using a discounted cash flow model, in which the key assumptions that drive the fair value are the projections of future earnings and cash flow. Any material adverse change in the Company’s business or operations could have a negative effect on its valuation and thus cause an impairment of its goodwill. | |||
| The Company has revised the prospectus by expanding the disclosure in the footnotes to the financial statements to include a discussion of these points, and has disclosed in the footnotes to the financial statements and on page 38 of the prospectus that the Company is not at risk of failing step one of its goodwill impairment test. |
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| 29. | We note your disclosure that you test goodwill impairment at the consolidated level and that you have one single reporting unit. Please tell us and disclose how you reasonably determined that you have one reporting unit for goodwill impairment purposes in light of the six different geographic markets you serve in the U.S. and different operating locations as disclosed in “Our Business—Our Customers and the Markets We Serve.” Please note that a reporting unit is to be at the operating segment level or one level below for the purpose of goodwill impairment testing. | ||
| RESPONSE: In considering how to evaluate the Company’s goodwill, the Company applied the aggregation criteria from ASC 280-10-50 to aggregate the geographical components into one reporting unit. A reporting unit is an operating segment or one level below an operating segment referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. However, two or more components of an operating segment shall be aggregated and deemed a single reporting unit if the components have similar economic characteristics. An operating segment shall be deemed to be a reporting unit if all of its components are similar, and none of its components is a reporting unit, or if it comprises only a single component. | |||
| Determining whether a component of an operating segment is a reporting unit is a matter of judgment based upon an entity’s individual facts and circumstances. The Financial Accounting Standards Board staff believes that the manner in which an entity manages its operations is key to determining the reporting units of an entity. The Company has discrete financial information for each of its geographical regions and each constitutes a component. | |||
| When analyzing whether to aggregate the above geographical components into one reporting unit the Company considers whether each geographical component has similar economic characteristics. The Company has evaluated the economic characteristics of its different geographic markets along with the similarity of the operations and margins, nature of the products, type of customer and methods of distribution of products and the regulatory environment in which the Company operates and concluded that the geographical components are one reporting unit. | |||
| The Company has revised page 38 of the prospectus to disclose that, in accordance with the aggregation criteria of ASC 280-10-50-11, the Company evaluates its goodwill on a consolidated basis using a discounted cash flow model, in which the key assumption is the projection of future earnings and cash flow. |
Results of Operations, page 37
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| 30. | Please expand your discussion under results of operations for all periods to: |
| • | Quantify each factor you cite as impacting your operations, including quantifying the effects due to sales volume versus those due to pricing. For example, you disclose the increase in net sales for the fiscal year ended December 24, 2010 was primarily due to the continued growth of demand for specialty food products in general, increased market share as a result of your focus on service and value-added services and the opening of a new distribution center, without quantifying the impact attributed to each component. | ||
| RESPONSE: The disclosure beginning on page 39 of the prospectus has been revised in accordance with the Staff’s comment. | |||
| • | Describe unusual or infrequent events, significant economic changes, and significant components of revenue and expenses. For example, your discussion of the increase in net sales for the fiscal year ended December 24, 2010 does not explain why there was a continued growth of demand for specialty food products in general and whether this may continue in the future and the impact on future sales. | ||
| RESPONSE: The disclosure beginning on page 39 of the prospectus has been revised in accordance with the Staff’s comment. |
| Please note that these examples are not meant to represent an all-inclusive list of where your MD&A should be improved. We encourage you to provide quantification of amounts and further clarification throughout your discussion. See Item 303(a)(3) of Regulation S-K. |
Fiscal Year Ended December 24, 2010 Compared to Fiscal Year Ended December 25, 2009, page 38
Net Sales, page 38
| 31. | Please also disclose separately the dollar impact on your sales due to existing and new customers. Based on your disclosures in “—Overview,” it appears you are monitoring trends in sales derived from new and existing customers in evaluating your performance. | ||
| RESPONSE: The disclosure on page 40 of the prospectus has been revised in accordance with the Staff’s comment. |
Gross Profit, page 38
| 32. | Please clarify how the mix of net sales changed and describe the factors for such change. |
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| RESPONSE: The disclosure on pages 40 and 41 of the prospectus has been revised in accordance with the Staff’s comment. |
Liquidity and Capital Resources, page 40
| 33. | Please disclose the available capacity of the revolving credit facility as of December 24, 2010. See Item 303(a)(1) of Regulation S-K. | ||
| RESPONSE: The disclosure on page 43 of the prospectus has been revised in accordance with the Staff’s comment. | |||
| 34. | Refer to the last three paragraphs of this subsection. Please expand your cash flow from operating activities discussion to provide the substantive factors that significantly affected the operating cash flows, including the underlying reasons that lead to the changes in these factors. | ||
| RESPONSE: The disclosure on page 44 of the prospectus has been revised in accordance with the Staff’s comment. | |||
| 35. | We note the statement in the sixth paragraph, second sentence that you will use proceeds from the offering to repay all of the principal and interest outstanding under your existing senior secured credit facilities. However, you disclose elsewhere in the prospectus, including “Use of Proceeds,” that you will use proceeds to repay some of the outstanding balance. Please reconcile. | ||
| RESPONSE: The disclosure throughout the prospectus has been revised in accordance with the Staff’s comment to reflect that the Company intends to use the net proceeds of the offering, together with borrowings under the Company’s new senior secured credit facilities, which the Company expects to enter into simultaneously with the consummation of the offering, to repay all of our loans outstanding under our existing senior secured credit facilities and to redeem or repurchase all of the Company’s outstanding senior subordinated notes due 2014. | |||
| 36. | If you enter into your new senior secured credit facilities prior to the effectiveness of the registration statement, then please disclose in this section, or include a cross-reference to another section of the prospectus that discusses, the material terms of the new senior secured credit facilities. | ||
| RESPONSE: The Company plans to enter into the Commitment Letter with respect to its new senior secured credit facilities prior to the distribution of a preliminary prospectus with respect to this offering and intends to enter into definitive documentation for its new senior secured credit facilities simultaneously with the consummation of the offering. The disclosure has been revised on page 44 of the prospectus to include a cross-reference to the revised disclosure on page 83 of the prospectus in accordance with the Staff’s comment. |
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Quantitative and Qualitative Disclosures About Market Risk, page 43
| 37. | We note your disclosure of interest rate risk in connection with your indebtedness without any substantive quantitative and/or qualitative disclosures of the significance of this risk. Please provide the required disclosures pursuant to Item 305 of Regulation S-K. | ||
| RESPONSE: The disclosure on page 46 of the prospectus has been revised in accordance with the Staff’s comment. |
Our Business, page 44
Our Operations and Distribution Centers, page 49
| 38. | Please file as exhibits to the registration statement the lease for each of your distribution centers or explain to us why you do not consider any such lease to be material. See Item 601(b)(10)(ii)(D) of Regulation S-K. | ||
| RESPONSE: The Company has filed with Amendment No. 1 as Exhibits 10.1 and 10.2 thereto the Company’s leases relating to its two distribution centers in New York City, New York. The Company does not believe any of its other lease agreements are material, in terms of financial obligations thereunder or in terms of significance to the Company, as contemplated by Item 601(b)(10)(ii)(D) of Regulation S-K. The Company believes there is suitable alternative warehouse space available for lease in each of the other four markets in which the Company presently leases facilities, without additional material cost, in the event any of these four leases is terminated. Moreover, the individual lease payments on a monthly basis are not material in amount to the Company. |
Our Management, page 53
Executive Officers and Directors, page 53
| 39. | Please disclose the term of office for each director and executive officer. See Item 401(a)-(b) of Regulation S-K. | ||
| RESPONSE: The disclosure on page 56 of the prospectus has been revised in accordance with the Staff’s comment. |
Corporate Governance Profile, page 55
Board Composition and Controlled Company Status, page 55
| 40. | We note the statement in the first paragraph, fifth sentence that Stephen Hanson will be appointed to your board of directors. Please provide the disclosure required by Item 401 of Regulation S-K with respect to Mr. Hanson. Please also |
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| file a consent by Mr. Hanson to being named in the registration statement. See Securities Act Rule 438. | |||
| RESPONSE: The disclosure on pages 56 and 57 of the prospectus has been revised in accordance with the Staff’s comment and Mr. Hanson’s consent to being named in the Registration Statement has been filed with Amendment No. 1 as Exhibit 23.4 thereto. | |||
| 41. | Please disclose your basis for your conclusion that the controlled company exception is available to you. See Instruction 1 to Item 407(a) of Regulation S-K. | ||
| RESPONSE: The Company supplementally informs the Staff that the Company no longer intends to avail itself of the “controlled company” exemption offered by the NASDAQ Listing Rules. Accordingly, the Company has eliminated all references to the “controlled company” exemption in the Registration Statement. |
Compensation Discussion and Analysis, page 58
Compensation Discussion and Analysis, page 58
Components of Fiscal 2010 Compensation for Our Named Executive Officers, page 59
Performance-Based, Annual Cash Incentive Compensation, page 59
| 42. | Please clarify whether the revenue and gross profit targets for Messrs. Clark and O’Dowd were the same as the $291 million revenue target and $75.6 million gross profit target for Mr. Wagner. | ||
| RESPONSE: The Company supplementally informs the Staff that the revenue and gross profit targets for Messrs. Clark and O’Dowd were the same as the $291.0 million revenue target and $75.6 million gross profit target for Mr. Wagner. The disclosure on page 63 of the prospectus has been revised in accordance with the Staff’s comment. | |||
| 43. | Please add Christopher Pappas and John Pappas to the table on page 60 showing the target award and actual award paid to each named executive officer. | ||
| RESPONSE: The table on page 63 of the prospectus has been revised in accordance with the Staff’s comment. |
Employment Agreements, Letter Agreements and Severance Benefits, page 61
| 44. | Please file as exhibits to the registration statement the employment agreements currently in effect and the amended and restated employment agreements to be entered into between you and each of Christopher Pappas and John Pappas. See Item 601 (b)(10)(iii)(A) of Regulation S-K. |
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| RESPONSE: The employment agreements as amended and currently in effect between the Company and each of Christopher Pappas and John Pappas have been filed with Amendment No. 1 as Exhibits 10.3, 10.4, 10.5, 10.6, 10.7 and 10.8 thereto. The Company will file the new employment agreements between the Company and each of Christopher Pappas and John Pappas, which will take effect immediately following the consummation of the offering, with a subsequent amendment to the Registration Statement. |
Other Severance Benefits, page 62
| 45. | Please file as an exhibit to the registration statement the severance and release agreement between you and James Wagner. See Item 601(b)(10)(iii)(A) of Regulation S-K. | ||
| RESPONSE: The Company will file the severance and release agreement between the Company and James Wagner in a subsequent amendment to the Registration Statement. |
Summary Compensation Table, page 63
| 46. | We note that you state in the table that Kenneth Clark received a salary of $242,500 in 2010. However, on page 59, you state that Kenneth Clark’s base salary for 2010 is $249,000. Please reconcile. | ||
| RESPONSE: The disclosure on pages 62 and 67 of the prospectus has been revised in accordance with the Staff’s comment. The Company supplementally informs the Staff that Mr. Clark’s annual base salary was $210,000 for the first two months of 2010. On March 1, 2010, Mr. Clark’s base salary was increased to $249,000. Mr. Clark received an average base salary of $242,500 in 2010. | |||
| 47. | We note the statement in footnote (3) that Mr. Wagner’s base salary increased from $240,000 to $250,000 in connection with his promotion effective March 1, 2011 However, because the table discloses Mr. Wagner’s salary for 2010, please revise footnote (3) to disclose the increase in Mr. Wagner’s salary from $215,000 to $240,000 on August 1, 2010. | ||
| RESPONSE: The disclosure on page 67 of the prospectus has been revised in accordance with the Staff’s comment. The Company supplementally informs the Staff that Mr. Wagner’s base salary for the first seven months of 2010 was $218,500. Mr. Wagner’s base salary was increased to $240,000 effective as of August 1, 2010. |
Outstanding Equity Awards at 2010 Fiscal Year End, page 64
| 48. | Please disclose by footnote the vesting dates of the Class C Units that have not vested. See Instruction 2 to Item 402(f)(2) of Regulation S-K. For further guidance, please consider Question 122.02 in our Regulation S-K Compliance and Disclosure Interpretations. |
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| RESPONSE: The disclosure on page 68 of the prospectus has been revised in accordance with the Staff’s comment. | |||
| 49. | Please disclose the market value of unvested units in this table and the value realized upon vesting of units in the units vested table. Please also disclose in the applicable footnote how you determined the value of the interests, including any underlying assumptions in conducting a valuation. Disclosure that the market value of such interests is not readily determinable is insufficient. | ||
| RESPONSE: The Company will revise the disclosure in accordance with the Staff’s comment in a subsequent amendment to the Registration Statement after the anticipated price range within which the Company intends to offer shares of its common stock in the offering has been determined. |
2010 Director Compensation Table, page 68
| 50. | Please clarify by footnote, if correct, that Joseph M. Sharfenberger, Jr. and Stephen Murray are no longer serving as your directors. | ||
| RESPONSE: The disclosure on page 72 of the prospectus has been revised in accordance with the Staff’s comment to reflect that Messrs. Sharfenberger, Jr. and Murray are no longer directors. |
Principal and Selling Stockholders, page 75
| 51. | Please explain to us why you have included units that are unvested, and would not vest within 60 days of the date of the prospectus, in determining the number of units beneficially owned by each of James Wagner and Kenneth Clark. See Item 403 of Regulation S-K and Exchange Act Rule 13d-3. | ||
| RESPONSE: The Company inadvertently included units that are unvested and units that will not vest within 60 days of the date of the prospectus in determining the number of units owned by Kenneth Clark. The disclosure on page 79 of the prospectus has been revised in accordance with the Staff’s comment. The Company respectfully informs the Staff that all units owned by James Wagner have vested or will vest within 60 days of the date of the prospectus. | |||
| 52. | Please disclose the number of shares of common stock beneficially owned and the percentage represented by such number, after the offering and the reorganization transaction, assuming both exercise by the underwriters of their overallotment option and no exercise by the underwriters of their overallotment option. | ||
| RESPONSE: This information is not currently known, but will be included in a subsequent amendment to the Registration Statement. |
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Certain Relationships and Related-Party Transactions, page 76
| 53. | We note the statement in the third paragraph that the disclosure in this section includes all related party transactions in which you were or will be a “party.” Item 404(a) of Regulation S-K requires disclosure of all related party transactions in which you were or will be a “participant.” Please revise the third paragraph and the disclosure in this section accordingly. See Section V.A.1 of Release No. 33-8732A (August 29, 2006). | ||
| RESPONSE: The disclosure on page 80 of the prospectus has been revised in accordance with the Staff’s comment. |
Warehouse and Office Leases, page 76
| 54. | With respect to the leases between Dairyland USA Corporation and each of Chefs’ Warehouse Leasing Co., LLC and Candlewood Road Property, LLC, please disclose the aggregate amount of all periodic payments due on or after the beginning of fiscal 2011 through the end of each lease, including any required or optional payments due during or at the conclusion of each lease. See Item 404(a)(3) of Regulation S-K and Instruction 3.a to Item 404(a) of Regulation S-K. | ||
| RESPONSE: The disclosure on page 80 of the prospectus has been revised in accordance with the Staff’s comment. |
Description of Capital Stock, page 77
Common Stock, page 77
| 55. | Please disclose the par value of your common stock. See Instruction 1.A to Item 202 of Regulation S-K. | ||
| RESPONSE: The disclosure on page 81 of the prospectus has been revised in accordance with the Staff’s comment. | |||
| 56. | Counsel must opine on whether shares of your common stock offered by the prospectus will be fully paid and nonassessable. Accordingly, please revise the sixth sentence to disclose that such statement is the opinion of your counsel. | ||
| RESPONSE: The disclosure on page 81 of the prospectus has been revised in accordance with the Staff’s comment. |
Preferred Stock, page 77
| 57. | Counsel must opine on whether your shares of your preferred stock will be fully paid and nonassessable at the time of issuance. Accordingly, please delete the first sentence in the second paragraph, as no shares of preferred stock are being offered by the prospectus. |
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| RESPONSE: The disclosure on page 81 of the prospectus has been revised in accordance with the Staff’s comment. |
Description of Our Indebtedness, page 79
| 58. | If you enter into your new senior secured credit facilities prior to the effectiveness of the registration statement, then please file as an exhibit to the registration statement the agreement governing the new senior secured credit facilities. If any portion of your existing senior secured credit facilities will remain outstanding after the consummation of the offering, then please file as an exhibit to the registration statement the agreement governing the existing senior secured credit facilities. See Item 601(b)(10) of Regulation S-K. | ||
| RESPONSE: The Company intends to enter its new senior secured credit facilities simultaneously with the consummation of the offering and will file as an exhibit to the Registration Statement, or to a Form 8-K filed promptly following the consummation of the offering, the material agreements governing the new senior secured credit facilities. No portion of the Company’s existing senior secured credit facilities will remain outstanding after the consummation of the offering. |
Shares Eligible for Future Sale, page 80
| 59. | Please disclose, as of the latest practicable date, the approximate number of holders of each class of your membership units. Please also disclose the approximate number of holders of your common stock after giving effect to the reorganization transaction. See Item 201(b)(1) of Regulation S-K. | ||
| RESPONSE: The disclosure on page 85 of the prospectus has been revised in accordance with the Staff’s comment. |
Index to Financial Statements, page F-1
| 60. | Please update your financial statements to include the subsequent interim period financial statements. See Article 10 of Regulation S-X. | ||
| RESPONSE: The Company has updated the financial statements in accordance with the Staff’s comment. | |||
| 61. | Please provide pro forma tax information on the face of the financial statements to give effect to the conversion of your company from a limited liability company to a corporation upon the consummation of the offering. | ||
| RESPONSE: Effective October 21, 2010, the Company converted its tax structure from a traditional LLC flow-through entity to a corporate tax paying entity. Accordingly, all deferred taxes have been provided for as of March 25, 2011 and December 24, 2010 and there will be no adjustments to the Company’s deferred tax assets as a result of the reorganization |
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| transaction described in the prospectus. The Company notes that the effective tax rate for the three months ended March 25, 2011 is 39%, which is in line with the effective tax rates the Company expects following consummation of the offering. This is in contrast to the effective tax rate of 14% for the fiscal year ended December 24, 2010, due to the recognition of certain deferred taxes as disclosed in the footnotes to the financial statements. |
Note 1 — Operations and Basis of Presentation, page F-7
Description of Business and Basis of Presentation, page F-7
| 62. | You state that you operate in one reporting unit and therefore apparently one reportable segment. However, we note from your website you offer numerous different products. Please revise your footnotes to adhere to the product disclosure requirements of FASB ASC 280-10-50-40. | ||
| RESPONSE: The disclosure on page F-19 of the prospectus has been revised in accordance with the Staff’s comment. |
Note 10 — Income Taxes, page F-16
| 63. | Refer to your disclosure on page F-18 where you disclose the increase in deferred tax assets also resulted in the recording of a large tax benefit. Please tell us and disclose the amount and nature of the tax benefit recorded, and what accounting literature you relied on to record such benefit. | ||
| RESPONSE: The large tax benefit that was recorded was to the increase in the deferred tax assets, which was primarily due to the establishment of a $2.8 million deferred tax asset for goodwill which was established for tax purposes when the Company issued its Class A units. There was approximately $7.4 million of unamortized goodwill related to the sale of the Class A units, the tax benefit of which reverted to the Company upon the redemption of the Class A units. This deferred tax asset will be deductible after October 22, 2010. | |||
| The Company’s deferred tax assets were previously not included as part of the provision calculation due to the pass-through treatment of this entity. Upon electing to be treated as a C corporation, the deferred tax asset was recorded to recognize existing temporary differences as projected to be reflected on the final partnership return. | |||
| ASC 740-10 (FAS 109.28) requires that the deferred tax effects of a change in tax status be included in income from continuing operations at the date the change in tax status occurs. When an entity changes its tax status and becomes subject to income taxes, deferred tax assets and liabilities should be recognized for existing temporary differences. Likewise, when a taxable enterprise ceases to be taxable, deferred tax assets and liabilities should be eliminated. In both cases, the resulting adjustment would be included in income tax expense for the period in which the change in status is effective. |
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| Furthermore ASC 740-10 (FAS 109.28) states that an election for a voluntary change in tax status is recognized at the time the change is effective in accordance with the applicable tax laws, which is normally the date the approval for the change is granted by the taxing authorities, or the filing date, if approval is not necessary. The Company’s filing date was October 21, 2010, which is the date the Company recorded this benefit. | |||
| The Company has revised pages F-17 through F-19 of the prospectus to disclose the amount and nature of the tax benefit recorded. |
Other Expenses of Issuance and Distribution, page II-1
| 64. | Please disclose in this item the portion of expenses that will be borne by the selling stockholders. See Item 511 of Regulation S-K. | ||
| RESPONSE: The amount is not currently known, but the Company will provide the requested disclosure in a subsequent amendment to the Registration Statement. |
Recent Sales of Unregistered Securities, page II -2
| 65. | Please disclose the nature of the transaction and the nature and aggregate amount of consideration you received for your issuance of 2,508,332 Class C units to your executive officers and other employees. See Item 701(c) of Regulation S-K. | ||
| RESPONSE: The disclosure has been revised in accordance with the Staff’s comment on page II-2 of the prospectus. |
Undertakings, page II -3
| 66. | Please add the undertakings required by Item 512(a)(5)(ii) and (a)(6) of Regulation S-K. For further guidance, please consider Question 229.01 in our Securities Act Rules Compliance and Disclosure Interpretations. | ||
| RESPONSE: Item 512(a) of Regulation S-K applies to the registration of securities pursuant to Rule 415 under the Securities Act. The Company respectfully informs the Staff that the Company is not contemplating an offering of securities pursuant to Rule 415 under the Securities Act. Accordingly, the Company does not believe that the undertakings required by Item 512(a)(5)(ii) and (a)(6) of Regulation S-K are required to be added to the Registration Statement. |
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If you
have any questions, please feel free to contact the undersigned at
(203) 894-1345 or our outside counsel, F. Mitchell Walker,
Jr., by telephone at (615) 742-6275 or by e-mail at mwalker@bassberry.com or, in his absence, D.
Scott Holley by telephone at (615) 742-7721 or by e-mail at sholley@bassberry.com. Thank you for
your cooperation and prompt attention to this matter.
Sincerely,
/s/ Kenneth Clark
Kenneth
Clark
Chief Financial Officer
Chief Financial Officer
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