SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended: March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from TO
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Commission File Numbers 333-23893; 333-23893-01; 333-23893-02; 333-23893-03
CFP GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4616486
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2013
(Primary Standard Industrial
Classification Code Number)
CFP HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4413619
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2013
(Primary Standard Industrial
Classification Code Number)
CUSTOM FOOD PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
California 95-3760291
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2013
(Primary Standard Industrial
Classification Code Number)
QF ACQUISITION CORP.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3174301
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2013
(Primary Standard Industrial
Classification Code Number)
-----------------------------
5501 Tabor Road
Philadelphia, PA 19120
(Address, Including Zip Code of Registrant's Principal Executive Offices)
-----------------------------
215-288-0888
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to filing requirements for the
past 90 days.
[x] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitely proxy of information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K.
[x]
All the outstanding shares of CFP Holdings, Inc., Custom Food Products,
Inc. and QF Acquisition Corp. are owned by CFP Group, Inc. The aggregate market
value of the voting and non-voting common equity of CFP Group, Inc. held by non
affiliates as of June 15, 1999 using an assumed value of $289.02 per share are
as follows:
Class Aggregate Market Value
----- ----------------------
Voting Common Stock - Class A $4,913
Non voting common stock - Class A $1,561,575
Non voting common stock - Class B $138,441
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
There is no public trading market for shares of the registrants Common
Stock.
Outstanding at
Class June 15, 1999
----- -------------
Voting Common Stock - Class A, $.01 par value 14,705
Non-voting common Stock - Class A, $.01 par value 11,241
Non-voting common Stock - Class B, $.01 par value 3,059
<PAGE>
CFP GROUP, INC.
CFP HOLDINGS, INC.
CUSTOM FOOD PRODUCTS, INC.
QF ACQUISITION CORP.
Form 10-K for the Fiscal Year Ended March 31, 1999
TABLE OF CONTENTS
PART I PAGE #
Item 1. Business 3
Item 2. Properties 18
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters 19
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation 21
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 29
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 30
PART III
Item 10. Directors and Executive Officers of the Registrant 30
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial
Owners and Management 41
Item 13. Certain relationships and related transactions 42
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 44
SIGNATURES 49
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Special Note Regarding Forward Looking Information
CFP Group, Inc. ("CFP Group") and it's subsidiaries (such subsidiaries,
together with CFP Group, being sometimes hereinafter collectively referred to as
the "Company"), or their representatives, may make forward looking statements,
oral or written, including statements in this Annual Report on Form 10-K, press
releases and other filings with the Securities and Exchange Commission (the
"Commission"), regarding estimated future operating results, planned capital
expenditures (including the amount and nature thereof) and the Company's
financing plans, if any, related thereto, increases in customers, the Company's
business strategy, financial position and other plans and objectives for future
operations. Certain of the matters discussed may involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from those
expressed or implied by such forward-looking statements. Important factors that
could cause the actual results, performance or achievements of the Company to
differ materially from the Company's expectations are set forth in the "Factors
Affecting Future Performance" section in Item 1 and elsewhere in this Annual
Report on Form 10-K, as well as factors contained in the Company's other filings
with the Commission.
All subsequent oral and written forward looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by these factors. The Company assumes no obligation to update any of
these statements.
Part I
Item 1. Business
History
CFP Group, Inc. became the parent of CFP Holdings,
Inc. ("CFP Holdings") on December 31, 1996 after the
recapitalization of CFP Holdings in a series of transactions
whereby each person owning capital stock (or options to
acquire capital stock of CFP Holdings) exchanged their equity
interests for equivalent interests of capital stock (or
options to acquire capital stock) of CFP Group. CFP Holdings
was formed in 1993 by First Atlantic Capital, LTD. ("First
Atlantic"), a private investment firm specializing in
acquiring and building middle market companies, and commenced
operations on April 1, 1993 after acquiring all of the
outstanding stock of Center of the Plate Foods, Inc. ("Center
of the Plate"), and all significant operating assets of Best
Western Foods, Inc. ("Best Western"). Best Western was a
leading supplier of uncooked beef to the Arby's restaurant
chain while Center of the Plate constituted what is today the
value-added operations of Custom Food Products, Inc. ("Custom
Foods"), a wholly owned subsidiary. Under First Atlantic's
sponsorship, Custom Foods has focused on building its core
value-added product line by expanding its manufacturing
facilities, enhancing its product development capabilities and
developing a growth strategy aimed at diversifying its
customer base.
On December 31, 1996 CFP Holdings acquired Quality
Foods, L.P. and its general partner, QF Acquisition Corp.
(collectively "Quality
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Foods"). Founded in the 1940's as William Cohen and Son
Company, Inc., Quality Foods has a 50-year history of
supplying the foodservice industry. Quality Foods is one of
the leading manufacturers of sandwich steak products in the
United States.
In May 1998, William Del Chiaro, President and CEO of
Quality Foods, was appointed President and CEO of CFP Group,
Inc. Concurrent with Mr. Del Chiaro's appointment, Mr. Richard
Griffith, then the President and CEO of the Custom Foods,
agreed to retire at the end of June 1998 and remain on the
Board of Directors. In addition, Mr. Robert Gioia, previously
the President and CEO of CFP Group, agreed to continue as an
active member of the Board of Directors and agreed to become a
consultant to the Company effective June 30, 1998.
Since his appointment as President and CEO, Mr. Del
Chiaro has established and implemented the strategic direction
for the Company. He has focused on consolidating the
operations of the Company under one management team and has
begun to build the infrastructure to support the planned
growth of the Company.
General
The Company is a leading developer, manufacturer and
marketer of value-added meat and poultry products sold to the
foodservice industry and manufacturers of packaged foods. The
Company provides a wide range of pre-cooked and uncooked
products, including beef and chicken sandwich steaks; beef,
pork and poultry meat rolls used in further processing;
charbroiled products and crumble toppings; barbecue-flavored
meats; and meatballs. The Company principally manufactures
higher margin specialty products that provide superior quality
and performance for the end-user and that are typically
custom-formulated to meet specific customer requirements. In
the foodservice industry, the Company supplies some of the
country's leading restaurant chains and outlets, including
Subway, Great Steak & Potato Company, International House of
Pancakes, Inc., Domino's Pizza, Inc., Wal-Mart Stores, Inc.,
Nathan's Famous Inc., Blimpie International, Inc. and Arby's.
The Company also serves many of the country's leading packaged
foods manufacturers, including Chef America, H.J. Heinz
Company, Inc., Foodbrands America, Inc., Schwan's Sales
Enterprises Inc., Kraft Foods Inc. and McLane Company, Inc.
The Company believes that its proprietary recipes and
manufacturing processes, national presence and long-standing
customer relationships pose barriers to entry for other
manufacturers seeking to provide competitive products. The
Company is comprised of two operating subsidiaries, Quality
Foods and Custom Foods.
Quality Foods
Quality Foods is one of the country's leading
manufacturers of pre-cooked and uncooked, thinly-sliced beef
used primarily in Philadelphia-style steak sandwiches. It also
supplies sliced chicken products and pre-cooked and uncooked
meatballs and hamburger patties. Quality Foods
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serves the foodservice industry, with particular emphasis on
Quick Service Restaurants ("QSRs"), sandwich chains and family
dining establishments. For over ten years, Quality Foods has
been the primary supplier of pre-cooked beef to the Subway
restaurant chain for its popular steak and cheese sandwich.
Quality Foods employs a proprietary forming and freezing
process that, the Company believes, produces a product with
excellent flavor and visual appearance, as well as superior
yield when cooked.
Quality Foods sells its products through eight
regional sales people and six sales support personnel in
addition to an established network of independent foodservice
brokers and over 400 foodservice distributors located in 42
states and six Canadian provinces.
In June 1997, the Company entered into a three-year
supply agreement with Subway, through Subway's independent
purchasing cooperative. This agreement called for the
establishment of an exclusive supply agreement between Quality
Foods and Subway for the "Steak & Cheese" product. Quality
Foods had substantially all of the volume prior to this
agreement and has since supplied all of Subway's needs for
this product. During the fiscal year ended March 31, 1999,
Subway accounted for $39.2 million or 21% of the Company's
total sales. See "Factors Affecting Future Performance -
Importance of Key Customers."
The agreement which called for fixed pricing for the
first year, allows for price adjustments every six months
thereafter based on the historical average cost of raw
materials plus a margin which covers the Company's processing
costs and profit.
In November 1998, Quality Foods installed a new oven
line to supplement the cooking capacity and enable Quality
Foods to reduce its reliance on an outside copacker. Quality
Foods continues to operate its original oven and is still in
the process of refining and improving the performance of the
new oven line. It is expected that during fiscal year 2000
Quality Foods will operate both cook lines and will have
substantially eliminated the reliance on the outside copacker.
Custom Foods
Custom Foods develops, manufactures and markets
pre-cooked meat and poultry products sold primarily to
manufacturers of branded and private label packaged foods,
also referred to as "industrial" users, and is also a major
supplier of frozen, uncooked beef product to the Arby's
restaurant chain. Custom Foods' pre-cooked products include a
variety of pork, beef, chicken and turkey items such as meat
rolls used in further processing; barbecue products; Mexican
specialties; charbroiled patties and crumble toppings. Custom
Foods focuses on sales to manufacturers of frozen and
refrigerated convenience foods, including items in the
fast-growing hand-held foods segment. Custom Foods is the
largest supplier of custom-formulated meat and poultry
fillings to Chef America for use in substantially all of its
microwave sandwich product lines. Chef America
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has accounted for a majority of Custom Foods' sales of
pre-cooked products for each of the past several years. See
"Factors Affecting Future Performance - Importance of Key
Customers." Sales to Chef America were $25.9 million, 27% of
total Company sales for the twelve month period ended March
31, 1997; $28.1 million, 15% of total Company sales, in fiscal
year 1998; and $24.3 million, 13% of total Company sales, in
fiscal year 1999. During the last quarter of fiscal year ended
March 31, 1998 and during the first two quarters of fiscal
year 1999, sales to Chef America declined when compared to the
prior year's comparable quarter. It was learned that Chef
America had obtained additional sources for its meat products
and was developing secondary suppliers. Chef America
management has assured the Company that it will remain a key
ingredient supplier to Chef America and during the quarters
ended December 31, 1998 and March 31, 1999 sales to Chef
America increased when compared with the comparable prior
year's quarter. The Company supplies Chef America under a one
year pricing arrangement whereby volumes are estimated but not
guaranteed and prices are fixed for the up coming twelve
calendar months. Chef America operates on a calendar year
basis and has issued purchase orders for products from the
Company for the 1999 calendar year.
Due to capacity constraints and the growing needs of
its customers, Custom Foods has, over the past several years,
significantly broadened its operations with the opening and
subsequent expansion of a new facility in Kentucky. With
capacity expansions substantially completed, Custom Foods
created a direct sales and research and development department
to develop new business with existing customers and new
customers. Custom Foods plans to focus its efforts on a few
key customers and continue to expand by supplying meat
ingredients to them.
In June 1996, Custom Foods entered into a three year
supply agreement with Arby's. Sales to Arby's were $39.0
million, 41% of total Company sales, for the twelve month
period ended March 31, 1997; $47.1 million, 26% of total
Company sales in fiscal year 1998; and $45.3 million, 25% of
total Company sales, in fiscal year 1999.
Custom Foods is currently in negotiations with Arby's
exclusive purchasing cooperative to renew its existing
agreement on substantially similar terms. Custom Foods
believes that a new agreement will be completed with Arby's
purchasing cooperative during the first half of fiscal year
2000, although there can be no assurance in this regard.
During the quarter ended March 31, 1999, the Company
began planning for the installation of a new computer system
to replace the existing systems at both operating divisions.
The new "enterprise wide" solution is expected to provide
additional information to manage the business and will be
operational during fiscal year 2000.
Industry
Value-Added Meat and Poultry Processors
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The Company is considered a value-added provider
within the meat and poultry industry and is focused on serving
the foodservice and industrial markets. The Company purchases
raw cuts of beef, pork, chicken and turkey and processes them
into packaged form for further processing or for distribution
into the foodservice and retail markets. Various steps
including blending, forming, cooking, slicing and mixing with
vegetables and flavorings are employed to create consistent
products that fulfill specific preparation or processing needs
of customers. Industry trends have increased the demand for
value-added meat and poultry products like those provided by
the Company, including the desire for more uniform and
consistent end-products, continuous focus on reduced
preparation and/or reduced manufacturing costs and increased
food safety concerns.
Foodservice
The foodservice industry is composed of
establishments that serve food outside the home and includes
restaurants; the food operations of health care providers,
schools and other institutions, hotels, resorts and
corporations; and other non-traditional foodservice outlets.
Growth in this industry has been driven by the increase in
away-from-home meal preparation, which has accompanied the
expanding number of both dual income and single-parent
households. Another trend within the foodservice industry is
the growth in the number of non-traditional foodservice
outlets such as convenience stores, retail stores,
supermarkets and food kiosks. These non-traditional locations
often lack extensive cooking, storage or preparation
facilities, resulting in a need for pre-cooked and prepared
foods similar to those provided by the Company. The expansion
in the foodservice industry has also been accompanied by the
continued consolidation and growth of broadline and specialty
foodservice distributors, many of which are long-standing
customers of the Company.
Industrial
The majority of the Company's existing and targeted
industrial customers are involved in the manufacture of
branded and private label packaged foods. The same trends
which have contributed to the increase in away-from-home meal
preparation have also fueled the growth in easy to prepare,
microwave frozen and refrigerated convenience foods. Among the
fastest growing segments is the frozen and refrigerated
hand-held foods market. This growth has been driven by
improved product quality and variety and the increasing need
for inexpensive, yet hearty, food items that require minimal
preparation. Despite rapid growth, many categories of frozen
and refrigerated hand-held foods have achieved minimal
household penetration. The Company believes it has been
successful in establishing and maintaining supply
relationships with certain selected leading manufacturers in
this market, including Chef America, and that it is
well-suited to service this customer base with a broad line of
value-added products which meet its customers needs.
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Products
The Company manufactures and markets a wide variety
of value-added beef, pork and poultry products for both
foodservice and industrial customers. Products are provided in
either "solid-muscle," natural cut form or "restructured"
form, whereby natural cuts are ground, blended or emulsified
to provide a generally more consistent and lower cost end
product. The Company manufactures both pre-cooked and uncooked
products in both portion-controlled and bulk form, depending
upon the specific preparation, storage or manufacturing needs
of the end customer. Various sauces, spices, marinades and
vegetable mixtures are also used in certain of the Company's
products.
Customers and End Purchasers
The Company serves several hundred active customers
including broad line and specialty foodservice distributors,
packaged foods manufacturers and major national and regional
restaurant chains. Arby's distributors, Subway distributors
and Chef America accounted for 25%, 21% and 13% of the
Company's net sales, respectively, in fiscal 1999. No other
customer accounts for as much as 5% of the Company's net sales
during fiscal 1999.
The Company supplies its foodservice customers
generally through distributors that take title to the product
and resell it. Among the Company's customers are many of the
country's largest broad line and specialty foodservice
distributors. For these and other large end purchasers, the
Company's products generally go through extensive
qualification procedures and its manufacturing capabilities
are subjected to thorough review by the end purchasers prior
to the Company's approval as a vendor. Large end purchasers
typically select suppliers that can consistently meet
increased volume requirements on a national basis during peak
promotional periods. In its value-added operations, the
Company believes that its manufacturing flexibility, national
presence and long-standing customer relationships pose
barriers to entry for other manufacturers seeking to provide
similar products to the Company's current large foodservice
end purchasers.
The Company's industrial customers comprise some of
the leading packaged food manufacturers in the country. Given
the highly customized nature of the Company's products,
relationships with our customers are generally maintained at
various levels within the Company. The Company believes that
it has been able to maintain and expand these relationships
through its attention to customer service, by providing
products that consistently meet the changing needs of its
customers and by remaining cost competitive. The Company
believes that once its value-added products are approved as
principal ingredients in its customers' end products, there
exist high barriers to entry for other manufacturers as long
as the Company's overall quality, costs and product support
remain competitive.
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Sales and Marketing
During the fiscal year ended March 31, 1999, the
Company organized its sales force into eight regions and added
five new regional managers to develop new business and oversee
the Company's network of independent brokers. The Quality
Foods regional managers have continued to call on national
accounts and manage the independent broker network. It is
expected that the new regional managers will be able to handle
new business development for both operating divisions of the
Company. Custom Foods sales managers target specific
industrial customers with a combination of research &
development and product expertise to satisfy the customers
need for meat products the Company has the capability to
manufacture.
The Sales Force
In its foodservice sales operations, the Company
employs 14 sales and sales support personnel, located
throughout the United States. These individuals oversee the
broker network and develop and maintain the Company's
relationships with large end purchasers, including Subway and
its various franchisee groups, QSRs, sandwich chains and major
distributors. Sales personnel also interface with the
Company's independent foodservice distributor network and
their customers, principally for the purposes of developing
new accounts for existing products as well as developing new
products to market through the existing channels.
Industrial sales are conducted by four in-house sales
and sales support personnel, located in California. Sales are
generally made without the use of foodservice brokers, and
involve a high degree of customer service and interaction with
the product development, manufacturing and purchasing
personnel of the end purchaser. Given the customer base, this
business is highly focused and targeted with its specific
products. The Company is in the process of adding to its
Research & Development capabilities in order to better service
the industrial market, as well as developing additional
products for its foodservice customers.
Independent Broker Network
The Company maintains a network of independent
foodservice brokers covering most of the states as well as
Canada, all of which are compensated on a commission basis.
The Company believes that its broker relationships in close
cooperation with the regional sales managers, are a valuable
asset providing significant new product and customer
opportunities. The regional sales managers perform several
significant functions for the Company including identifying
and developing new business opportunities and providing
customer service and support to the Company's distributors and
end purchasers through the effective use of the Company's
broker network.
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Manufacturing and Processing
The Company purchases whole cuts of raw meat and
poultry in either fresh or frozen form and subjects them to
various processing steps including blending, forming, cooking
and, in some cases, further processing including shredding,
cubing, slicing, freezing and the addition of sauces and
vegetables. The Company has developed highly specialized
products for customers which include proprietary recipes and
manufacturing processes that the Company believes would be
difficult for a competitor to duplicate. Specialized large
customers usually require the Company to develop the recipes
and manufacturing processes for them to meet their specific
needs or the Company receives general requirements and then
develops a product formulation and manufacturing process to
produce a product that meets the needs of its customers. These
requirements can include specific fat and nutritional content,
taste, texture and various performance characteristics
specific to the customer's manufacturing process.
The Company generally retains ownership of its
proprietary manufacturing processes and generally retains
ownership of its product recipes. Although the customer often
specifies the ultimate "label" requirements and product
specifications, the actual manufacturing steps and processes
typically remain confidential and proprietary to the Company.
Raw Materials and Suppliers
The Company's principal raw materials consist of
fresh and frozen cuts of beef, pork and poultry, purchased
from a variety of local, national and foreign suppliers. The
Company often makes forward volume commitments on raw
materials to lock in availability and pricing consistent with
its production expectations. The Company also purchases a
variety of spices, binders, sauces and other product additives
used in the manufacturing process.
The Company typically utilizes a variety of meat and
poultry cuts in the manufacture of its restructured products.
In its sandwich steak product lines, however, the Company
generally purchases beef lifter and loin tail cuts to ensure
product quality and consistency throughout the manufacturing
process. Lifter meat, and to a lesser extent loin tail, have
historically experienced significant price fluctuations during
the course of a year based on seasonal buying patterns of
large users and product availability relative to other cuts of
beef, with prices typically lowest from June to August and
highest in the Spring and Fall. Whenever possible and
economical, the Company purchases larger quantities during the
low points in the seasonal cycle, forms the product into an
intermediate stage and freezes it for further processing as
production requirements dictate.
The Company believes that its beef, pork and poultry
raw materials are available from a number of sources at market
prices and quantities sufficient to meet its anticipated
production needs. The Company does,
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however, concentrate certain beef and pork purchases to ensure
the highest quality and consistency of product and to improve
its overall costs. For fiscal 1999, the Company purchased a
significant amount of its meat and poultry requirements from
divisions of ConAgra, Inc. In addition, the Company will
contract with suppliers to provide product under minimum
volume and price commitments in order to ensure a consistent
supply of raw materials.
Patents and Trademarks
The Company has no material patents or trademarks on
which its business depends. However, the Company is in the
process of branding its steak product under the "Philly Up"
brand name. As the Company's branding effort becomes
successful and more widely recognized, this brand is expected
to become valuable to the Company.
Competition
The Company competes in highly competitive markets
with a significant number of companies of various sizes,
including divisions or subsidiaries of larger companies. The
principle competitive factors in its markets are product
quality and consistency, price, customer service, and ability
to produce highly specialized products to meet specific
customer requirements. Many of the Company's competitors are
larger and have greater financial, marketing and manufacturing
resources.
Government Regulatory Matters
The Company is subject to federal, state and local
health laws and regulations that establish standards for the
manufacture, storage, labeling and transport of foodstuffs.
The United States of America Department of Agriculture
("USDA") is the regulatory body that is primarily responsible
for monitoring the Company's operations. Beef, pork and
poultry inspection is mandatory under the jurisdiction of the
Food Safety and Inspection Service (a division of the USDA),
for meat that is transported across state lines or is
otherwise placed in interstate commerce.
The Company operates USDA-approved facilities. The
Company's procedures are designed to assure that its products
are manufactured under conditions that meet or exceed all
applicable government standards. Such programs are monitored
by federal inspectors and include: (i) inspection of meat at
various stages of processing, (ii) temperature monitoring for
both fresh and cooked meat, (iii), review and approval of
labeling and (iv) controlling and monitoring the use of
additives.
The operations and products of the Company are also
subject to state and local regulation through such measures as
licensing of plants, enforcement of health standards and
inspection of the facilities. Enforcement actions for
violations of federal, state and local regulations may include
seizure and condemnation of violative products, cease and
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desist orders, injunctions, monetary penalties and/or
impoundment. The Company believes that its facilities and
practices are adequate to maintain compliance with applicable
government regulations, although there can be no assurances in
this regard.
Employees
As of March 31, 1999, the Company had approximately
600 employees. Approximately 356 of the Company's employees
are represented by the Teamsters Union under contracts which
expire in March 2000 and January 2001. The Company has not had
a strike during the past ten years. The Company will be
negotiating new contracts with this union in the near term and
there can be no assurance that the Company will be successful
in negotiating new contracts.
Factors Affecting Future Performance
In addition to the other information in this Annual
Report on Form 10-K, readers are cautioned to carefully
consider the following factors that may affect the future
operations and performance of the Company.
Significant Leverage and Indebtedness Service
The Company incurred substantial indebtedness in
connection with the financing of the acquisition of Quality
Foods and is highly leveraged. As of March 31, 1999 the
Company had total consolidated indebtedness (including
capitalized lease obligations) of approximately $147.0 million
and a stockholders' deficiency of $28.5 million. Outstanding
debt at March 31, 1999 primarily relates to $115.0 million
outstanding principal amount of 11.625% Senior Notes due 2004
(the "Senior Notes") and borrowings under a $40.0 million loan
security agreement (the "Loan and Security Agreement").
Subject to the restrictions in the Loan and Security Agreement
and the Senior Notes Indenture, the Company and its
subsidiaries may incur additional indebtedness from time to
time to finance capital expenditures and acquisitions and for
other general corporate purposes. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations."
The degree to which the Company is leveraged will
have important consequences to the Company and to the holders
of the Senior Notes, including: (i) limitations on the
Company's ability to obtain additional financing for working
capital or other purposes; (ii) a substantial portion of the
Company's cash flow from operations will be dedicated to the
payment of the principal and interest on its indebtedness,
thereby reducing funds available for operations; (iii) certain
of the Company's borrowings, including the borrowings under
the Loan and Security Agreement, are at variable rates of
interest which will cause the Company to be vulnerable to
increases in interests rates; (iv) making the Company more
vulnerable to economic downturns and limiting its ability to
withstand competitive pressures; and (v) the Senior Notes will
mature after substantially all of the Company's other
indebtedness.
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The Company's ability to make scheduled payments of
principal of or interest on, or to refinance, its indebtedness
will depend on its future operating performance and cash flow,
which are subject to prevailing economic conditions,
prevailing interest rate levels, and financial, competitive,
business and other factors, many of which are beyond its
control, as well as the availability of borrowings under the
Loan and Security Agreement or successor facilities. If the
Company is unable to generate sufficient cash flow from
operations in the future to service its indebtedness, it will
be required to refinance all or a portion of its existing
indebtedness, or to obtain additional financing. There can be
no assurance that any such refinancing would be possible or
that any additional financing could be obtained. The inability
to obtain additional financing would have a material adverse
effect on the Company.
Importance of Key Customers
Certain customers are material to the business and
operations of the Company. Arby's distributors, Subway
distributors and Chef America accounted for 25%, 21% and 13%
of the Company's net sales, respectively, in fiscal 1999. No
other customer accounted for as much as 5% of the Company's
net sales during the fiscal year.
The Company's prospects will continue to depend upon
the success of the Subway and Chef America products that
incorporate meats provided by the Company, as well as Subway's
and Chef America's retention of the Company as a major
supplier. Although the Company believes that it has excellent
relationships with these customers and that such relationships
are mutually beneficial, the Company does not have a long-term
agreement with Chef America and its agreement with Subway
expires in June 2000. The Company's agreement with Arby's
expires in June 1999. The loss of any as a customer, or a
significant reduction in the Company's business with any of
them, would have a material adverse effect on the Company.
During the last quarter of fiscal year ended March 31, 1998
and during the first two quarters of fiscal year ended March
31, 1999, sales to Chef America declined when compared to the
prior year's comparable quarter. It was learned that Chef
America had obtained additional sources for its meat products
and was developing secondary suppliers. Chef America
management has assured the Company that it will remain a key
ingredient supplier to Chef America and during the quarters
ended December 31, 1998 and March 31, 1999 sales increased to
Chef America when compared with the comparable prior year's
quarters. The Company believes it has a good relationship with
all of its customers, including Chef America. However, the
loss of business from any key customer could have a negative
impact on the Company.
While Arby's is one of the Company's three largest
customers, sales to Arby's distributors produce relatively low
profit margins, compared to other higher margin value-added
products of the Company, and require a high level of the
Company's working capital relative to the profit margins
produced. While the Company believes that it will be
13
<PAGE>
successful in negotiating a new agreement with Arby's in the
first half of fiscal year 2000, no assurance can be given in
this regard.
Competition
The Company operates in highly competitive markets
with a significant number of companies of varying sizes,
including divisions of or subsidiaries of larger companies.
The Company's sales to Arby's and its sales of hamburger
patties and meatball items to other customers, because of
their low value-added nature are the most price sensitive and
competitive areas in which the Company competes. A number of
the Company's competitors have multiple product lines,
substantially greater financial and other resources available
to them and are, to varying degrees, vertically integrated.
There can be no assurance that the Company can continue to
compete successfully with such other companies. Competitive
pressures or other factors could cause the Company's products
to lose market share or result in significant price erosion,
which would have a material adverse effect on the Company.
General Risks of Food Industry
The food industry, and the markets within the food
industry in which the Company competes, are subject to various
risks, including: adverse changes in general economic
conditions; evolving consumer preferences; nutritional and
health-related concerns; federal, state and local food
inspection and processing controls; consumer product liability
claims; risks of product tampering; and the availability and
expense of liability insurance. The meat and poultry
industries have recently been subject to increasing scrutiny
due to the association of meat and poultry products with
recent outbreaks of illness, and on rare occasions even death,
caused by foodborne pathogens such as E. coli, Salmonella,
Listeria monocytogenes and others which are found in raw and
improperly cooked meat. Consumer demand for meat and poultry
fluctuates as the result of such outbreaks of illness. Product
recalls are sometimes required in the meat and poultry
industries to withdraw contaminated or mislabeled products
from the market. The Company has not experienced any product
recalls; however, there can be no assurance that a product
recall may not be required in the future.
Suppliers and Raw Materials
The Company purchases large quantities of commodity
beef, pork and poultry. Historically, market prices for
products processed by the Company have fluctuated in response
to a number of factors, including changes in the United States
government farm support programs, changes in international
agricultural and trading policies, weather and other
conditions during the growing and harvesting seasons. The
Company historically has been able to pass through some
increases in the prices of beef, pork and poultry to end
users. Failure to pass on significant price increases to its
customers for a prolonged period of time would have a material
adverse effect on the Company. Further, certain of the
14
<PAGE>
Company's customers, including Subway and Chef America, have
fixed price arrangements for certain products in which the
sale price is fixed for periods of up to one year. Although
the fixed price arrangements for Subway and Chef America are
for a targeted quantity of products, there is no requirement
to deliver the products until a purchase order is issued
establishing quantity and delivery time. Should the prices of
raw materials increase substantially for a prolonged period of
time, the Company could be required to deliver products to
these customers at lower gross margins than historically
achieved.
Government Regulation
The operations of the Company are subject to
extensive inspection and regulation by the USDA and by other
federal, state and local authorities, regarding the
processing, packaging, storage, transportation, distribution
and labeling of products that are manufactured, produced and
processed by the Company. The Company's processing facilities
and products are subject to frequent inspection by USDA and/or
other federal, state and local authorities. On July 25, 1996,
the USDA issued strict new policies against contamination by
foodborne pathogens such as E. coli and Salmonella, and
established a new system of regulation known as the Hazard
Analysis Critical Control Points ("HACCP") program. The HACCP
program required all meat and poultry processing plants to
develop and implement sanitary operating procedures and other
program requirements on or before January 26, 1998. As the
USDA's HACCP requirements continue to evolve, their full
impact on the meat and poultry industries is not yet fully
known. However, the Company believes that it is currently in
substantial compliance with all material governmental laws and
regulations (including the January 1998 HACCP requirements),
and that it maintains all material permits and licenses
relating to its operations. Nevertheless, there can be no
assurance that the Company will be able to maintain compliance
with existing laws or regulations or that it will be able to
comply with any future laws and regulations. Failure by the
Company to comply with applicable laws and regulations would
subject it to civil remedies, including withholding of
necessary USDA inspections, fines, injunctions, recalls or
seizures, as well as potential criminal sanctions, any of
which would have a material adverse effect on the Company.
Dependence on Key Management
The Company's executive officers and certain other
key employees have been primarily responsible for the
development and expansion of the Company's business, and the
loss of the services of one or more of these individuals could
have an adverse effect on the Company. The Company's future
success will be dependent in part upon its continued ability
to recruit, motivate and retain qualified personnel. There can
be no assurance that the Company will be successful in this
regard. The Company has employment and non-competition
agreements with certain key personnel.
15
<PAGE>
Controlling Stockholder
Atlantic Equity Partners, LP, a Delaware limited
partnership ("AEP"), of which First Atlantic is the investment
manager, owns 38.0% and 97.2% of the Company's fully-diluted
common stock and voting common stock, respectively. As
controlling stockholder, AEP is able, subject to certain
contractual limitations, to determine the outcome of any
corporate transaction or other matter submitted to the
stockholders of the Company for approval, including mergers,
consolidations or the sale of all or substantially all of the
assets of the Company, or any of its subsidiaries (including
the Company). In addition, AEP has the ability to elect a
majority of the Company's Board of Directors and the Boards of
Directors of its subsidiaries.
Year 2000
Introduction
The term "Year 2000 issue" is a general term used to
describe the various problems that may result from the
improper processing of dates and date sensitive calculations
by computers and other equipment as the year 2000 is
approached and reached. These problems generally arise from
the fact that computers and equipment historically used
two-digit fields that recognize dates using the assumption
that the first two digits are "19". On January 1, 2000,
systems using two-digit date fields could recognize a date
using "00" as 1900 rather than the year 2000, creating
erroneous results or system failures.
Company's State of Readiness
The Company has selected a new Year 2000 compliant
Enterprise Wide System; the Ross Systems Renaissance CS
Enterprise Resource Planning System ("Ross System"). The
Company believes that implementation of the Ross System will
address the major Year 2000 issues. The Company's plan for
addressing the remainder of its Year 2000 issues focuses on
the following areas: technical infrastructure (e.g. networks,
servers, desktop and laptop computers); vendor/customer
interfaces; facilities; and third party suppliers, vendors and
customers. The Year 2000 project consists of the following
phases: (1) conduct an inventory of items with Year 2000
implications; (2) assessment of Year 2000 compliance; (3)
remediation or replacement of items that are determined not to
be Year 2000 compliant; (4) testing (including verification of
remediated or replaced items); and (5) certification of Year
2000 compliancy. The initial inventory phase is complete. The
assessment phase is substantially completed with the exception
of the vendor disclosure/certification. The Company has
initiated formal communications with selected vendors and
customers to determine the extent to which the Company is
vulnerable. This dialogue shall continue throughout the third
quarter of fiscal year 2000 to minimize the probability of any
service interruption. The remediation and testing phases will
progress through the first and second quarter of fiscal year
2000. The
16
<PAGE>
Company currently plans to complete its internal Year 2000
project by the beginning of the third quarter fiscal year
2000.
Costs
The Company expended $291,000 on the Ross System
implementation through March 31, 1999. The Company currently
estimates that the aggregate cost of its Ross System
implementation project will be $1.3 million, although the
amount could be greater. The cost estimate includes
expenditures incurred pursuant to the Company's technology
upgrade and business process reengineering programs occurring
concurrently but not directly related to Year 2000 issues. In
addition, a portion of the estimated total costs of the Ross
System implementation will be funded by reallocation of
existing resources rather than in incurring incremental costs.
This reallocation of resources is not expected to have a
significant impact on the day-to-day operations of the
Company. The Company's aggregate cost estimate does not
include costs that may be incurred by the Company as a result
of the failure of any third parties, including suppliers, to
become Year 2000 ready or costs to implement any contingency
plans. Such costs may be material.
Risks
The Company believes that the completion of its Ross
System and Year 2000 projects as planned will result in the
Company being Year 2000 compliant in a timely manner. However,
the failure to correct a material Year 2000 problem could
result in an interruption in, or a failure of, certain normal
business activities or operations, which could materially and
adversely affect the Company's results of operations,
liquidity and financial condition. In addition, if third
parties that provide goods or services that are critical to
the Company's business activities fail to adequately address
their Year 2000 issues, there could be a similar material
adverse effect on the Company. The Company believes that its
most reasonably likely worst case scenario is the failure of
such a third party. Such a failure could result in, for
example, the inability of the Company to ship product, a
decrease in customer orders, or delays in product deliveries
from vendors. The Company believes that, with the completion
of its Year 2000 project, the possibility of significant
interruptions of normal operations should be reduced. The
Company also believes that the level of uncertainty about the
Year 2000 compliance and readiness of material third parties
("External Parties") should diminish through the first and
second quarter of fiscal year 2000.
Contingency Plans
As part of the Company's Year 2000 project, specific
contingency plans are being developed. The Company expects
that these plans will continue to be modified as the Company
obtains additional information regarding the Company's
internal systems and equipment during the remediation and
testing phases and regarding the status of the Year 2000
17
<PAGE>
readiness of External Parties. The Company expects these plans
to be finalized by the date of completion of all other areas
of the Year 2000 projects.
As a normal course of business, the Company maintains
and deploys contingency plans as part of its disaster recovery
program designed to address various potential business
interruptions. These plans may be applicable to address the
failure of External Parties to provide goods or services to
the Company as a result of their failure to be Year 2000
ready. During fiscal year 2000, the Company intends to expand
its disaster recovery program to cover systems for which
detailed contingency plans do not currently exist.
Readers are cautioned that forward-looking statements
contained under "Year 2000 issues" should be read in
conjunction with the Company's disclosures under the heading:
"Special Note Regarding Forward-Looking Information" on page
three.
Item 2. Properties
The following table sets forth the Company's principal
facilities:
Owned/ Square
Location Purpose Leased Footage
- -------- ------- ------ -------
Philadelphia, PA ......... Manufacturing and Owned 150,000
Administrative Offices
Montebello, CA ........... Manufacturing and Leased 32,000
Administrative Offices
Owingsville, KY .......... Manufacturing Leased 38,000
Vernon, CA ............... Manufacturing Leased 20,000
The Company also has a 45,000 square foot facility in Camden,
NJ that was closed in March 1998. The Company's current
intention is to sell this facility, however there have been no
formal offers to purchase this facility.
Environmental Matters
The business operations of the Company and the
operation of real property by Custom Foods and Quality Foods
are subject to extensive and changing federal, state and local
environmental laws, and regulations pertaining to the
discharge of materials into the environment, the handling and
disposition of wastes (including solid and hazardous wastes)
or otherwise relating to protection of the environment.
Compliance with federal, state and local environmental laws
and regulations is not expected to have a material impact on
the Company's capital expenditures, earnings or competitive
position. No assurance can be given, however, that additional
environmental issues relating to presently known matters or
identified sites or to other matters or sites will not require
additional, currently unanticipated investigation, assessment
or expenditures.
18
<PAGE>
Item 3. Legal Proceedings
The Company is not involved in any legal matters
within or outside of the normal course of business that would
have a material impact on the operations or financial position
of the Company.
The Company is likely to be subject to claims arising
from time to time in the ordinary course of its business. In
certain of such actions, plaintiffs may request punitive or
other damages that may not be covered by insurance and,
accordingly, no assurance can be given with respect to the
ultimate outcome of any such possible future claims or
litigation or their effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to a vote of
security holders during the year covered by this report.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
There is no established public trading market for the
Company's Voting Class A Common Stock, Nonvoting Class A
Common Stock or Nonvoting Class B Common Stock. As of June 15,
1999 there were seven holders of record of Voting Class A
Common Stock, there were 15 holders of record of Nonvoting
Class A Common Stock and there were seven holders of record of
Nonvoting Class B Common Stock. The Company has not declared
dividends in the last two fiscal years and does not anticipate
doing so in the foreseeable future. For additional
information, see "Security Ownership of Certain Beneficial
Owners and Management" in this Annual Report of Form 10-K.
Since April 1, 1996 the Company has issued
unregistered securities to investors and certain other
individuals as set forth below.
In December 1996 in connection with the
purchase by CFP Holdings of Quality Foods, the
Company issued 2,162 shares of its Nonvoting Class B
Common Stock to holders of equity interests in
Quality Foods valued at $1.5 million.
In January 1997, (i) in connection with the
recapitalization of CFP Holdings, each person owning
capital stock (or options to acquire capital stock of
CFP Holdings) exchanged their equity interests for
equivalent interests of capital stock (or options to
acquire capital stock) of CFP Group; (ii) the Company
issued 720 shares of its Nonvoting Class B Common
Stock to a group of Quality Foods management for
$500,000 with the Company receiving promissory notes
totaling $343,000 as partial consideration for such
sale; (iii) the Company issued 439 shares of
19
<PAGE>
its Nonvoting Class B Common Stock, valued at
$304,583 for $.01 per share to NationsBridge, L.L.C.
in exchange for services; (iv) the Company issued
4,538 shares of its Nonvoting Class A Common Stock
valued at $1,722,520 upon the exercise by
NationsCredit Commercial Corporation and CFP
Associates of warrants issued in exchange for
services; and (v) the Company issued 2,546 shares of
its Nonvoting Class A Common Stock for $735,845 to a
group of employees of the Company when Incentive
Stock Options were exercised in conjunction with the
payment of a special dividend by the Company in
connection with the offering of the Senior Notes.
In September 1997, the Company issued 72
shares of its Nonvoting Class B shares for $50,000 to
an employee of the Company. The Company received a
Promissory Note for $35,000 as partial consideration.
All of the aforementioned issuances were made in
reliance upon the exemption from the registration requirements
of the Securities Act. of 1933, as amended, contained in
Section 4(2) of the Securities Act
Item 6. Selected Financial Data
<TABLE>
The following Selected Consolidated Financial Data of
the Company should be read in conjunction with the
consolidated financial statements and related notes of the
Company and other financial data included elsewhere in this
filing. The balance sheet data presented below as of September
30, 1994, 1995 and 1996, and March 31, 1997, 1998 and 1999,
and the statement of operations data presented below for the
years ended September 30, 1994, 1995 and 1996, six months
ended March 31, 1997, and for the years ended March 31, 1998
and 1999, are derived from the audited consolidated financial
statements of the Company.
<CAPTION>
Six
Months
Ended Years Ended
Years Ended September 30, March 31, March 31,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 86,598 $ 61,543(1) $ 65,996 $ 60,529 $ 181,378 $ 183,164
Cost of Sales 76,485 49,868 53,818 52,276 152,484 147,518
--------- --------- --------- --------- --------- ---------
Gross profit 10,113 11,675 12,178 8,253 28,894 35,646
Selling, general and
administrative expenses 5,957 6,700 5,512 7,474 17,156 20,411
Other Charges 4,996(2)
--------- --------- --------- --------- --------- ---------
Income from operations 4,156 4,975 1,670 779 11,738 15,235
Interest expense 2,443 2,632 3,232 4,681 17,236 17,322
--------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes and extraordinary items 1,713 2,343 (1,562) (3,902) (5,498) (2,087)
Provision (benefit)
for income taxes 851 1,189 (409) (541) 30 467
--------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item 862 1,154 (1,153) (3,361) (5,528) (2,554)
Extraordinary loss on
early extinguishment of debt (4,489)(3) (1,003)(4)
--------- --------- --------- --------- --------- ---------
20
<PAGE>
Net Income (loss) $ 862 $ 1,154 $ (1,153) $ (7,850) $ (5,528) $ (3,557)
========= ========= ========= ========= ========= =========
Other Data:
EBITDA (5) $ 6,003 $ 6,685 $ 3,758 $ 3,026 $ 18,484 $ 22,224
Net cash provided by
operating activities 4,375 4,382 135 3,477 661 4,244
Net cash used in
investing activities (666) (1,785) (1,811) (67,293) (3,754) (6,643)
Net cash (used in)
provided by
financing activities (3,499) (2,807) 2,168 65,462 2,298 2,875
Depreciation and
amortization $ 1,847 $ 1,710 $ 2,088 $ 2,236 $ 6,732 $ 6,733
Interest expense 2,443 2,632 3,232 4,681 17,236 17,322
Capital expenditures 1,515 5,054 3,009 1,674 5,489 6,104
Ratio of earnings to
fixed charges (6) 1.64x 1.83x
Balance Sheet Data:
Working capital $ 4,309 $ 2,754 $ 3,153 $ 14,702 $ 15,373 $ 18,093
Total assets 27,709 30,148 32,203 132,822 133,079 136,404
Total debt, redeemable
preferred stock and
redeemable common stock 18,847 19,526 23,223 142,174 145,818 149,327
Total stockholders
equity (deficiency) 4,828 5,884 4,020 (19,383) (24,959) (28,516)
<FN>
(1) Sales declined during the year ended September 30, 1995 as a result of
the decline in sales to the Arby's restaurant chain.
(2) Represents one-time costs associated with the termination of a Sales
Brokerage Agreement.
(3) Represents the write-off of deferred financing costs due to early
payment of long-term debt, partially offset by discounts gained due to
early repayment of certain long-term debt.
(4) The Company used proceeds from new borrowings under the Loan and
Security Agreement to repay all amounts outstanding under its prior
credit agreement. This represents the write-off of unamortized deferred
financing costs associated with the prior credit agreement.
(5) EBITDA is the sum of income before income taxes and interest,
depreciation and amortization expense (and extraordinary and unusual
items). EBITDA is presented because it is a widely accepted financial
indicator of a Company's ability to service indebtedness. However,
EBITDA should not be considered as an alternative to income from
operations or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should
not be construed as an indication of a Company's operating performance
or as a measure of liquidity.
(6) In calculating the ratio of earnings to fixed charges, earnings consist
of income before income taxes plus fixed charges. Fixed charges consist
of interest (which includes amortization of deferred financing costs)
and one-third of rental expense, deemed representative of that portion
of rental expense estimated to be attributable to interest. A ratio of
earnings to fixed charges is not presented for the year ended September
30, 1996, the six months ended March 31, 1997 or the years ended March
31, 1998 and 1999, as earnings were not adequate to cover fixed
charges. The deficiency of earnings to cover fixed charges were $1.6
million for the fiscal year ended September 30, 1996, $3.9 million for
the six month period ended March 31, 1997, $5.5 million for the fiscal
year ended March 31, 1998 and $3.6 million for the fiscal year ended
March 31, 1999
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results from Operations
In March 1997, the Company changed its fiscal year
end from the Saturday closest to September 30 to the Saturday
closest to March 31. Accordingly, the information set forth
below sets forth unaudited operating results for the twelve
month period ended March 31, 1997 in order to provide
meaningful comparisons to the audited results of
21
<PAGE>
operations for the fiscal years ended March 31, 1998 and 1999.
In the opinion of management, the unaudited financial data set
forth below reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly, in all
material respects, the results of operations for the unaudited
period.
<TABLE>
Comparison of the referenced periods is affected by
the timing of the Quality Foods acquisition (the
"Acquisition"), which was completed in December 1996. As a
result, the twelve-month period ended March 31, 1997 includes
results from operations for Quality Foods for only three
months. Additionally, the twelve month period ended March 31,
1997 includes only three months of amortization expense on
goodwill acquired in the Acquisition and two months of
interest expense on the 11.625% Senior Notes which were issued
in January 1997. The years ended March 31, 1998 and 1999
include a full twelve-months of Quality Foods' operations and
goodwill amortization expense and interest expense on the
11.625% Senior Notes. In the discussion that follows, where
applicable, the Company has quantified the impact of the
Acquisition and related matters upon its operating results.
Amortization of intangible assets resulting from the
Acquisition approximates $3.1 million annually through
December 2016.
<CAPTION>
Year Ended March 31,
1997 1998 1999
--------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Statement of Operations Data:
Net sales $ 96,190 $ 181,378 $ 183,164
Cost of Sales 82,328 152,484 147,518
--------- --------- ---------
Gross profit 13,862 28,894 35,646
Selling, general and administrative expenses 10,043 17,156 20,411
--------- --------- ---------
Income from operations 3,819 11,738 15,235
Interest expense 6,401 17,236 17,322
--------- --------- ---------
Income (loss) before income taxes and extraordinary items (2,582) (5,498) (2,087)
Provision (benefit) for income taxes (288) 30 467
--------- --------- ---------
Income (loss) before extraordinary item (2,294) (5,528) (2,554)
Extraordinary (loss) on early extinguishment of debt (4,489) (1,003)
--------- --------- ---------
Net income (loss) $ (6,783) $ (5,528) $ (3,557)
Other Data:
Net sales
Value-added $ 57,191 $ 134,846 $ 137,885
Arby's 38,999 46,532 45,279
--------- --------- ---------
Total $ 96,190 $ 181,378 $ 183,164
========= ========= =========
Pounds sold 69,042 106,722 108,315
Average net sales price per pound $ 1.39 $ 1.70 $ 1.69
Average gross profit per pound $ 0.20 $ 0.27 $ 0.33
Year Ended March 31,
1997 1998 1999
--------- --------- ---------
Statement of Operations Data:
Net sales 100.0% 100.0% 100.0%
Cost of Sales 85.6 84.1 80.5
----- ----- -----
Gross profit 14.4 15.9 19.5
Selling, general and administrative expenses 10.4 9.4 11.1
----- ----- -----
Income from operations 4.0 6.5 8.4
Interest expense 6.7 9.5 9.5
----- ----- -----
Income (loss) before income taxes and extraordinary items (2.7) (3.0) (1.1)
Provision (benefit) for income taxes (0.3) 0.3
----- ----- -----
Income (loss) before extraordinary item (2.4) (3.0) (1.4)
Extraordinary (loss) on early extinguishment of debt (4.7) (0.5)
----- ----- -----
Net income (loss) (7.1)% (3.0)% (1.9)%
===== ===== =====
</TABLE>
22
<PAGE>
Fiscal Year Ended March 31, 1999 compared to the Fiscal Year
ended March 31, 1998
Net Sales. Net sales increased by $1.8 million or 1%
to $183.2 million for the year ended March 31, 1999 when
compared to $181.4 million for the fiscal year ended March 31,
1998. Total pounds sold by the Company increased by 1.6
million pounds or 1.5% for the year ended March 31, 1999 when
compared to the year ended March 31, 1998. This increase in
net sales reflects an overall increase in sales of the
Company's Quality Foods division, offset in large part by a
decrease in sales from the Custom Foods division. The increase
in sales at Quality Foods was a result of increases in sales
of its value added products. The decrease in net sales at
Custom Foods was a result of decreased sales of value added
products and the reduced sales prices of its value added
products as a result of the cost plus nature of the contract
with Arby's. Approximately $1.2 million of the reduced sales
at Custom Foods was a result of the lower prices charged to
Arby's due to the lower prices paid for raw materials. The
decrease in sales of Custom Foods' value added business was a
result of a reduction in sales to one of Custom Foods largest
customers, Chef America. Commencing with the last quarter of
fiscal year 1998 and continuing through the second quarter of
fiscal year 1999 sales to Chef America declined. However, as
of March 31, 1999, the growth in other value added business of
the Company had offset the impact of the decline in sales to
Chef America and the comparable quarterly sales to Chef
America increased during the quarters ended December 31, 1998
and March 31, 1999. The net sales price decreased to $1.69 per
pound from $1.70 per pound as a result of the above changes.
Gross Profit. Gross profit increased to $35.6 million
for the year ended March 31, 1999 from $28.9 million for the
year ended March 31, 1998. This $6.7 million increase was
primarily due to increased sales and improved efficiencies in
operations at the Company's Quality Foods division, as well as
lower prices paid for raw materials at both divisions. The
gross margin increased to 19.5% for the fiscal year ended
March 31, 1999 from 15.9% for the fiscal year ended March 31,
1998 for the same reasons.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased by $3.2
million to $20.4 million from $17.2 million. The increase in
expenses is primarily due to strategic staffing additions, as
the Company invested in its infrastructure to consolidate the
Company's businesses to support future sales growth. The
Company does not allocate Selling, General and Administrative
Expenses to each of the Company's operating divisions.
Income from Operations. As a result of the foregoing
items, income from operations increased to $15.2 million for
the fiscal year ended March 31, 1999 from $11.7 million of the
twelve month period ended March 31, 1998.
23
<PAGE>
Interest Expense. Interest expense increased slightly
to $17.3 million for the fiscal year ended March 31, 1999 from
$17.2 million for the fiscal year ended March 31, 1998.
Provision for Income Taxes. Provision for income
taxes increased to $467,000 for the fiscal year ended March
31, 1999 from $30,000 for the fiscal year ended March 31, 1998
due to the need to provide for an expected increase in income
tax expense in certain states in which the Company operates
and the disallowance of certain deductions resulting from an
IRS audit of prior years.
Extraordinary Loss. The Company used proceeds from
borrowings under the new Loan and Security Agreement to repay
all amounts outstanding under its prior credit agreement. In
connection with these repayments, an extraordinary loss on the
extinguishment of debt of approximately $1.0 million was
recorded. This amount principally consisted of unamortized
deferred financing costs.
Net Loss. A net loss of $3.6 million was incurred for
the year ended March 31, 1999 versus a net loss of $5.5
million for the prior year due to the net impact of the
foregoing items.
Fiscal Year ended March 31, 1998 compared to the Twelve Months
ended March 31, 1997
Net Sales. Net sales increased by $85.2 million or
89% for the fiscal year ended March 31, 1998 when compared to
the twelve month period ended March 31, 1997. Approximately
$65.3 million of this increase relates to the net sales
generated from Quality Foods which was acquired in December
1996 and as such the twelve month period ended March 31, 1997
includes only three months of Quality Foods operations. The
remaining amount of the increase relates to increased demand
for Custom Foods' value added products. Commencing with the
last quarter of fiscal year 1998 and continuing through the
second quarter of fiscal year 1999 sales to one of the
Company's largest customers, Chef America, declined. Total
revenue at the Company's Custom Foods division for the last
quarter of fiscal year 1998 were essentially unchanged when
compared to the three months ended March 31, 1997, as the
decline in Chef America volume was offset by sales to other
customers. Total pounds sold by the Company increased 37.7
million pounds or 55% for the fiscal year ended March 31, 1998
when compared to the twelve month period ended March 31, 1997.
Approximately 30.3 million pounds of this increase relates to
the sales generated from Quality Foods. Excluding the impact
of the acquisition of Quality, pounds sold increased 5.8
million pounds or 9.5% at Custom Foods for the fiscal year
ending March 31, 1998. The net sales price increased from
$1.65 per pound to $1.70 per pound as a result of an increase
in sales of the Company's value-added products.
24
<PAGE>
Gross Profit. Gross profit increased by $15 million
from $13.9 million for the twelve month period ended March 31,
1997 to $28.9 million for the year ended March 31, 1998.
During the same period, gross margin increased from 14.4% to
15.9%. The dollar increase is predominately attributable to a
full year of gross profit on Quality Foods sales included in
the year ended March 31, 1998 with only three months included
in the twelve months ended March 31, 1997. The increase in
gross margin also primarily relates to the inclusion of a full
year of sales of Quality Foods' products which tend to be of a
higher margin than Custom Foods' products. Notwithstanding the
decline in Chef America volume during the last quarter of
fiscal year 1998, gross profit and gross profit as a percent
of sales for such quarter increased when compared to the three
months ended March 31, 1997.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased by $7.1
million to $17.2 million from $10.0 million. Selling, general
and administrative expenses as a percentage of sales decreased
from 10.4% to 9.4%. The increase in expenses is principally
attributable to the acquisition of Quality Foods, amortization
expense of approximately $2.3 million associated with
intangible assets originating from the Quality Foods'
acquisition and increased overhead and infrastructure
additions to satisfy internal and external reporting
requirements, to refocus sales and marketing efforts, and
increased legal, accounting and other professional service
costs. The increase in gross expenses was more than offset by
the increase in sales.
Income from Operations. Income from operations
increased by $7.9 million from $3.8 million in the twelve
months ended March 31, 1997 to $11.7 million in fiscal year
1998 as a result of the factors discussed above.
Interest Expense. Interest expense increased by $10.8
million to $17.2 million in fiscal year 1998 from $6.4 million
in the twelve months ended March 31, 1997. The increase is
entirely attributable to interest expense on the 11.625%
Senior Notes which were issued in January 1997 and as such
were outstanding for only two months during the twelve months
ended March 31, 1997.
Provision for Income Taxes. Provision (benefit) for
income taxes increased to $30,000 for the year ended March 31,
1998 from ($288,000) for the prior year. The expected income
tax benefit based on the statutory rate was reduced to zero
because the Company provided a valuation allowance related to
its' net operating loss carryforwards. The provision of
$30,000 related to estimated minimum state tax liabilities.
Extraordinary Loss. The extraordinary loss of $4.5
million for the twelve months ended March 31, 1997 primarily
represents the write-off of deferred financing costs due to
early payment of long-term debt, partially offset by discounts
gained due to early repayment of certain long-term debt.
25
<PAGE>
Net Loss. A net loss of $5.5 million was incurred for
the fiscal year ended March 31, 1998 versus a net loss of $6.8
million for the twelve month period ending March 31, 1997 due
to the net impact of the foregoing.
Liquidity and Capital Resources.
The Company's total consolidated indebtedness was
$147.0 million at March 31, 1999, principally consisting of
$115 million in Senior Notes and $18.3 million in borrowings
under the Loan and Security Agreement (the "Loan and Security
Agreement") as well as various notes payable to government
agencies and capital leases. Borrowings under the Loan and
Security Agreement consist of a $10.0 million term loan, $5.8
million of revolving credit borrowings and $2.5 million in
equipment loans. The Loan and Security Agreement provides for
a $10.0 million term loan and a revolving credit facility up
to $30.0 million, subject to a borrowing base and other
limitations, including amounts outstanding under term loans,
equipment loans, letter of credit, and other borrowing
instruments under the Loan and Security Agreement. All amounts
outstanding under the Loan and Security Agreement become due
and payable in May 2002.
Borrowings under the Loan and Security Agreement are
secured by substantially all of the Company's assets,
including a pledge of all the stock of Quality Foods and
Custom Foods, are guaranteed by the Company's subsidiaries,
which guarantees are secured by substantially all of the
assets of the Company's subsidiaries, and are further secured
by a pledge of all the stock of CFP Holdings.
The Loan and Security Agreement and the Indenture
contain numerous restrictive covenants, which limit the
discretion of the management of the Company with respect to
certain business matters. These covenants place significant
restrictions on, among other things, the ability of the
Company to incur additional indebtedness, to create liens or
other encumbrances, to pay dividends or make other restricted
payments, to make investments, to make capital expenditures,
loans and guarantees and to sell or otherwise dispose of a
substantial portion of assets to, or merge or consolidate
with, another entity.
Net cash provided by operating activities increased
to $4.2 million in fiscal 1999 from $661,000 in fiscal 1998,
primarily reflecting the improvement in operations. Net cash
used in investing activities increased to $6.6 million in
fiscal 1999 from $3.8 million in fiscal 1998. Fiscal 1998
investment activity included $1.1 million from the proceeds of
a sale leaseback transaction. Cash provided by financing
activities increased from $2.3 million in fiscal 1998 to $2.9
million in fiscal 1999. For the six months ended March 31,
1997 the Company reported $3.5 million in net cash provided by
operating activities, $67.3 million net cash used in investing
activities and $65.5 million in net cash provided by financing
activities. The net cash used in investing activities and the
net cash
26
<PAGE>
provided by financing activities for the six months ended
March 31, 1997 relate to the Quality Foods acquisition and the
substantial indebtedness incurred with the financing thereof.
In addition to its debt service obligations, the
Company requires liquidity for working capital and capital
expenditures. The Company experiences seasonal increases in
its working capital as a result of large product promotions
and planned inventory increases based upon seasonally low raw
material prices. In fiscal 2000, the Company expects its
working capital to be at its lowest level in the Winter and to
peak between May and September. Historically, the Company has
experienced minimal bad debts with respect to accounts
receivable, as well as minimal inventory obsolescence or
shrinkage losses.
For the fiscal year ended March 31, 1999 the Company
spent $6.6 million on capital expenditures. The Company
presently anticipates that its capital expenditures for fiscal
2000 will be between $6.0 million and $7.0 million.
The Company's primary sources of liquidity are cash
flows from operations and borrowings under the Loan and
Security Agreement. Based upon the current and anticipated
level of operations, the Company believes that its working
capital requirements, capital expenditures and debt service
requirements for the next twelve to eighteen months will be
satisfied through a combination of cash flow from operations
and funds available under the Loan and Security Agreement.
Year 2000
Introduction
The term "Year 2000 issue" is a general term used to
describe the various problems that may result from the
improper processing of dates and date sensitive calculations
by computers and other equipment as the year 2000 is
approached and reached. These problems generally arise from
the fact that computers and equipment historically used
two-digit fields that recognize dates using the assumption
that the first two digits are "19". On January 1, 2000,
systems using two-digit date fields could recognize a date
using "00" as 1900 rather than the year 2000, creating
erroneous results or system failures.
Company's State of Readiness
The Company has selected a new Year 2000 compliant
Enterprise Wide System; the Ross Systems Renaissance CS
Enterprise Resource Planning System ("Ross System"). The
Company believes that implementation of the Ross System will
address the major Year 2000 issues. The Company's plan for
addressing the remainder of its Year 2000 issues focuses on
the following areas: technical infrastructure (e.g. networks,
servers, desktop and laptop computers); vendor/customer
27
<PAGE>
interfaces; facilities; and third party suppliers, vendors and
customers. The Year 2000 project consists of the following
phases: (1) conduct an inventory of items with Year 2000
implications; (2) assessment of Year 2000 compliance; (3)
remediation or replacement of items that are determined not to
be Year 2000 compliant; (4) testing (including verification of
remediated or replaced items); and (5) certification of Year
2000 compliancy. The initial inventory phase is complete. The
assessment phase is substantially completed with the exception
of the vendor disclosure/certification. The Company has
initiated formal communications with selected vendors and
customers to determine the extent to which the Company is
vulnerable. This dialogue shall continue throughout the third
quarter of fiscal year 2000 to minimize the probability of any
service interruption. The remediation and testing phases will
progress through the first and second quarter of fiscal year
2000. The Company currently plans to complete its internal
Year 2000 project by the beginning of the third quarter fiscal
year 2000.
Costs
The Company expended $291,000 on the Ross System
implementation through March 31, 1999. The Company currently
estimates that the aggregate cost of its Ross System
implementation project will be $1.3 million, although the
amount could be greater. The cost estimate includes
expenditures incurred pursuant to the Company's technology
upgrade and business process reengineering programs occurring
concurrently but not directly related to Year 2000 issues. In
addition, a portion of the estimated total costs of the Ross
System implementation will be funded by reallocation of
existing resources rather than in incurring incremental costs.
This reallocation of resources is not expected to have a
significant impact on the day-to-day operations of the
Company. The Company's aggregate cost estimate does not
include costs that may be incurred by the Company as a result
of the failure of any third parties, including suppliers, to
become Year 2000 ready or costs to implement any contingency
plans. Such costs may be material.
Risks
The Company believes that the completion of its Ross
System and Year 2000 projects as planned will result in the
Company being Year 2000 compliant in a timely manner. However,
the failure to correct a material Year 2000 problem could
result in an interruption in, or a failure of, certain normal
business activities or operations, which could materially and
adversely affect the Company's results of operations,
liquidity and financial condition. In addition, if third
parties that provide goods or services that are critical to
the Company's business activities fail to adequately address
their Year 2000 issues, there could be a similar material
adverse effect on the Company. The Company believes that its
most reasonably likely worst case scenario is the failure of
such a third party. Such a failure could result in, for
example, the inability of the Company to ship product, a
decrease in customer orders, or delays in product deliveries
from vendors. The Company believes that, with the
28
<PAGE>
completion of its Year 2000 project, the possibility of
significant interruptions of normal operations should be
reduced. The Company also believes that the level of
uncertainty about the Year 2000 compliance and readiness of
material third parties ("External Parties") should diminish
through the first and second quarter of fiscal year 2000.
Contingency Plans
As part of the Company's Year 2000 project, specific
contingency plans are being developed. The Company expects
that these plans will continue to be modified as the Company
obtains additional information regarding the Company's
internal systems and equipment during the remediation and
testing phases and regarding the status of the Year 2000
readiness of External Parties. The Company expects these plans
to be finalized by the date of completion of all other areas
of the Year 2000 projects.
As a normal course of business, the Company maintains
and deploys contingency plans as part of its disaster recovery
program designed to address various potential business
interruptions. These plans may be applicable to address the
failure of External Parties to provide goods or services to
the Company as a result of their failure to be Year 2000
ready. During fiscal year 2000, the Company intends to expand
its disaster recovery program to cover systems for which
detailed contingency plans do not currently exist.
Readers are cautioned that forward-looking statements
contained under "Year 2000 issues" should be read in
conjunction with the Company's disclosures under the heading:
"Special Note Regarding Forward-Looking Information" on page
three.
Inflation
Management does not believe that inflation had any
material impact upon its business for the fiscal years March
31, 1999 and 1998, and the twelve months ended March 31, 1997.
Item 7A. Quantitative and qualitative disclosures about market risk.
Long-term Debt
The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's current and
future debt obligations.
<TABLE>
The table below provides information concerning
long-term debt outstanding at March 31, 1999, including
principal amounts maturing each year, average interest rate
and fair value.
29
<PAGE>
<CAPTION>
Total
2002 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11.625% Senior Notes $115,000,000 $115,000,000 $96,097,000
Average Interest Rate 11.625% 11.625% 11.625% 11.625% 11.625%
Variable Rate Notes $357,000 $357,000 $357,000 $16,120,000 $357,000 $715,000 $18,263,000(a)
Average Interest Rate 7.75% 7.75% 7.75% 7.75% 7.75% 7.75%
Variable Government Notes $100,000 $200,000 $200,000 $200,000 $200,000 $3,200,000 $4,100,000(a)
Average Interest Rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Fixed Rate Notes $284,000 $289,000 $196,000 $189,000 $192,000 $2,297,000 $3,429,000(a)
Average Interest Rate 2.20% 2.18% 3.60% 3.50% 3.38% 3.23%
Capitalized Leases Fixed
Rates $372,000 $260,000 $311,000 $62,000 $69,000 $5,142,000 $6,216,000(a)
Average Interest Rate 14.13% 14.42% 14.62% 14.90% 14.90% 14.90%
<FN>
(a) The carrying value of these debt instruments approximates fair value as either the rate of interest is tied to
market rates or, if necessary, the Company believes it could refinance this instrument at similar terms as of
March 31, 1999.
</FN>
</TABLE>
Item 8. Financial statements and supplementary data
See Item 14 Exhibits, financial statements schedules, and
reports on Form 8-K.
Item 9. Changes in and disagreements with accountants on accounting
and financial disclosure.
None.
Part III
Item 10. Directors and Executive Officers of the registrant
MANAGEMENT
Directors and Executive Officers of the Company
<TABLE>
Set forth below are names, ages and positions of the
directors and executive officers of CFP Group. All directors
hold office until the next annual meeting of stockholders and
until their successors are duly elected and qualified, and all
executive officers hold office at the pleasure of the Board of
Directors.
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Executive Officers and Directors
Roberto Buaron 53 Director, Chairman
William Del Chiaro 46 Director, President & Chief Executive Officer
Robert Gioia 51 Director
Richard Griffith 66 Director
David Cohen 35 Director
Eric Ek 43 Director, Senior Vice President, Chief
Financial Officer and Secretary
James Long 56 Director, Vice Chairman & Treasurer
Andrew Kohn 32 Director
Jeffry Kohlhoff 51 Senior Vice President Operations
</TABLE>
30
<PAGE>
Roberto Buaron has been the Chairman and a
Director of CFP Group since December 1996. He is the
Chairman and Chief Executive Officer of First
Atlantic, which he founded in 1989. From 1987 to
1989, he was an Executive Vice President with
Overseas Partners, Inc., an investment management
firm. Mr. Buaron is currently a director of BPC
Holding Corporation.
William Del Chiaro joined the Company in
March 1998 as a Director and as President and CEO of
Quality Foods. In May 1998 he became President and
CEO of CFP Group. He was previously Executive Vice
President of Sara Lee Corporation's Hillshire Farm &
Kahn's division, a $1 billion manufacturer of
processed and packaged meats for the retail grocer,
foodservice and other markets. There he was
responsible for a substantial portion of the
business's operations, capital expenditures, sales
and marketing. Prior to this position, Mr. Del Chiaro
spent ten years as a senior executive of Mars, Inc.,
where he held top-level marketing and sales positions
in the Uncle Ben's, Dove International, M&M/Mars, and
foodservice divisions. His experience also includes
three years as Director of Marketing of Dr. Pepper
Company's food service division, as well as various
positions of increasing responsibility during a
seven-year career at Proctor & Gamble Company.
Robert Gioia has been a Director of CFP
Group since December 1996. From December 1996 to June
30, 1998 he served as the President and Chief
Executive Officer of the Company. Effective June 30,
1998 Mr. Gioia became a Consultant to the Company.
Prior to December 1996, he was the Chairman and Chief
Executive Officer of Quality Foods and of a
corporation (of which he is the sole stockholder)
which was a partner of Quality Foods since July 1992.
He has held management positions in the food
processing industry for over 22 years. Prior to
joining Quality Foods, Mr. Gioia was responsible for
sales and marketing of the foodservice division, both
restaurant and institutional, of the Red Wing
Company, a national food manufacturer and processor.
In addition, Mr. Gioia held several positions,
including Vice President, with the Gioia Macaroni
Company, a national pasta manufacturer founded by the
Gioia family in 1910.
Richard Griffith has been a Director of CFP
Group since December 1996 and a Director of CFP
Holdings and Custom Foods since April 1, 1993. He was
the President and Chief Executive Officer of Custom
Foods from March 1993 until his retirement from that
position on June 30, 1998. Effective July 1, 1998
through December 31, 1999, Mr. Griffith agreed to be
available to provide consulting services if requested
by the Company. Prior to the formation of CFP
Holdings, Mr. Griffith served as President and Chief
Executive Officer of the Company's predecessors, Best
Western and Center of the Plate, since November 1991.
Mr. Griffith was the founding Chairman of Arcop,
Inc., the purchasing cooperative of the Arby's
restaurant chain.
David Cohen has been a Director of CFP Group
since December 1996. Prior to that he served as
President and Chief Operating Officer of
31
<PAGE>
Quality Foods since July 1992 and President of a
corporation (of which he is the sole stockholder)
which was a partner of Quality Foods. Mr. Cohen
joined Quality Foods in 1983 and has served in
numerous positions, including National Sales Manager,
before becoming Chief Operating Officer.
Eric W. Ek has been the Vice President and
Chief Financial Officer of Custom Foods since July
1993 and a Vice President, Chief Financial Officer
and Director of CFP Group since December 1996. In
addition, in August 1998, he was promoted to Senior
Vice President. Previously, Mr. Ek was a Managing
Director at Takenaka & Company, a Pacific Rim focused
investment banking firm from 1990 to 1993. At
Takenaka, Mr. Ek was the Chief Financial Officer of a
residential homebuilder and a Chief Administrative
Officer for a manufacturing firm. Prior to joining
Takenaka, Mr. Ek was employed by KPMG Peat Marwick
and Ernst & Young from 1982 to 1990. Mr. Ek is a
Certified Public Accountant.
James Long has been the Vice Chairman and
Treasurer of CFP Group since December 1996 and a
director of CFP Holdings since March 1993. He has
been an Executive Vice President of First Atlantic
since March 1991. From January 1990 to February 1991,
Mr. Long was an Executive Vice President at Kleinwort
Benson Equity Fund, a leveraged buyout fund. Mr. Long
is currently a director of BPC Holding Corporation.
Andrew Kohn has been a Director of CFP Group
since December 1996. Mr. Kohn is a Vice President of
First Atlantic, with whom he has been employed since
1994. Previously, Mr. Kohn was employed by Berkshire
Partners, a private equity investment firm and Bear
Stearns & Co.
Jeffry Kohlhoff was promoted to Senior Vice
President, Operations for CFP Group effective April
1, 1999. Mr. Kohlhoff has been with the Company since
1995, first serving as Vice President of
Manufacturing for Custom Foods, and then serving as
Vice President of Operations for Quality Foods.
Previously, Mr. Kohlhoff was Director of Quality
Assurance for Chef America, Inc. from 1993 to 1994.
Mr. Kohlhoff was employed by Stokely USA, Inc. from
1986 to 1993 where he was the Vice President of
Quality Management. Prior to joining Stokely, Mr.
Kohlhoff was Quality Manager for Far East and
Worldwide Vegetable Development for the Pilsbury
Company.
Item 11. Executive Compensation
The following table sets forth a summary of
the compensation earned by the Company's current
Chief Executive Officer, former Chief Executive
Officer and its four other most highly compensated
executive officers (collectively, the "Named
Executive Officers") for services rendered in all
capacities during the last fiscal year.
32
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE(1)
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
NAME AND TITLE FISCAL SALARY BONUS OPTIONS LTIP ALL OTHER
YEAR ($) ($) GRANTED PAYOUTS COMPENSATION
(#) ($) ($)
<S> <C> <C> <C> <C> <C>
William Del Chiaro 1999 327,596 271,905 1,589(4) 15,900(5)
President and Chief 1998 12,500(3) 75,000(3)
Executive Officer 1997 (3)
Robert Gioia(2) 1999 331,500(6) 269,344 428(4) 3,540(9)
Director 1998 325,314 25,000 3,540(9)
1997 80,664(7) 12,500(8)
Richard Griffith(10) 1999 304,500 64,706 48,407(12)
Director 1998 315,246 48,387 18,918(12)
1997 300,000 196,200(11) 7,015(12)
Eric Ek 1999 202,000 172,550 200(4) 14,162(14)
Chief Financial Officer 1998 198,950 23,556 8,506(14)
1997 151,884 120,100(13) 7,015(14)
Jeffry Kohlhoff 1999 150,000 121,875 150(4)
Senior Vice President 1998 149,400 75,000 6,050(15)
Operations 1997 130,450 140,000(13)
David Cohen 1999 127,165 103,321 367(4) 13,337(17)
Director 1998 166,792 25,000 13,337(17)
1997 58,882(16) 12,500(8) 3,000(17)
<FN>
(1) For purposes of this table, the fiscal years referred to herein mean the
12-month periods ended March 31.
(2) Robert Gioia was President and Chief Executive Officer of the Company until
June 30, 1998. For 1999, amounts include his salary through June 30, 1998
and thereafter amounts payable under his consulting agreement. See
"Employment Contracts".
(3) Became an employee of the Company in March 1998. During 1998, compensation
included base salary of $325,000 since his start date of March 18, 1998 and
a signing bonus of $75,000.
(4) Options granted under the 1998 stock option plan.
(5) Consists of $14,400 car allowance and $1,500 excess term life insurance.
(6) Effective April 1, 1999 Mr. Gioia's compensation under his consulting
agreement will be $125,000 per year.
(7) Consists of compensation received for the last 3 months of the period from
the Company. Mr. Gioia's base compensation under his employment agreement
with the Company was $325,000.
(8) Consists of bonus earned for the last 3 months of the period from the
Company.
(9) Consists of $3,540 excess term life insurance for both 1999 and 1998.
(10) Richard Griffith was the President and Chief Executive Officer of Custom
Foods until his retirement on June 30, 1998. Effective July 1, 1998 through
December 31, 1999, Mr. Griffith agreed to be available to provide
consulting services if requested by the Company. For 1999, amounts include
his salary through June 30, 1998 and thereafter amounts payable under the
employment agreement. See "Employment Contracts".
(11) Includes (i) $42,857 of bonus received in connection with the consummation
of the Quality Foods Acquisition and (ii) $107,143 of bonus received in
connection with the consummation of the Senior Notes Offering.
(12) For 1999: Consists of $20,300 car allowance and a $28,107 payout in accrued
vacation. For 1998: Consists of $18,918 of car allowance and value of
personal use of the Company's automobile. For 1997: Consists of $7,015 of
value of personal use of the Company's automobile.
(13) Includes (i) $28,571 of bonus received in connection with the consummation
of the Quality Foods Acquisition and (ii) $71,429 of bonus received in
connection with the consummation of the Senior Notes Offering.
(14) For 1999: Consists of $8,400 for car allowance, $4,742 excess term life
insurance and $1,020 in disability insurance. For 1998: Consists of $8,400
for car allowance and $106 excess term life insurance. For 1997: Consists
of $4,545 of disability insurance, $370 excess term life insurance and
$2,100 of car allowance.
(15) Consists of $6,050 in disability insurance.
(16) Consists of compensation received for the last 3 months of the period from
the Company. Mr. Cohen's base compensation under his employment agreement
with the Company is $240,000 through September 1997 and $125,000
thereafter.
(17) For 1999: Consists of $12,000 for car allowance and $1,337 excess term life
insurance. For 1998: Consists of $1,337 excess term life insurance and
$12,000 car allowance. For 1997: Consists of $3,000 car allowance.
</FN>
</TABLE>
33
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
The following table sets forth the options
granted to the Named Executive Officers during the
last fiscal year under the 1998 stock option plan.
<CAPTION>
Percent
of Total
Options Potential
Number of Granted Realizable Value at
Securities to Assumed Annual
Underlying Employees Exercise of Rates of Stock
Options in Fiscal Base Price Expiration Price Appreciation
Granted Year ($/Sh) Date for Option Term
------- ---- ------ ---- 5% ($) 10% ($)
------ -------
<S> <C> <C> <C> <C> <C> <C>
William Del Chiaro 1,289/300 27.9% 289.02 7-15-2008/ $288,822 $731,931
12-4-2008
Robert Gioia 428 7.5% 693.96 7-15-2008 $0 $23,833
Eric Ek 200 3.5% 289.02 12-4-2008 $36,353 $92,125
Jeffry Kohlhoff 150 2.6% 289.02 12-4-2008 $27,264 $69,094
David Cohen 317/50 6.4% 693.96/289.02 7-15-2008/ $0 $40,683
12-4-2008
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
The following table sets forth information
with respect to each exercise of stock options during
the last fiscal year by each of the Named Executive
Officers and the number of options held at fiscal
year end and the aggregate value of in-the-money
options held at fiscal year end.
<CAPTION>
Value of
Number of Unexercised
Securities In-The-Money
Underlying Options Options At
at March 31, 1999
Shares Value March 31, 1999 ($)(1)
Acquired on Realized Exercisable / Exercisable /
Exercise ($) Unexercisable Unexercisable
-------- --- ------------- -------------
<S> <C> <C> <C> <C>
William G. Del Chiaro -- -- 0/1,589 0/0
Robert Gioia -- -- 0/428 0/0
Richard Griffith -- -- 1,149/0 0/0
Eric Ek -- -- 444/200 0/0
Jeffry Kohlhoff -- -- 230/150 0/0
David Cohen -- -- 0/367 0/0
<FN>
(1) Based on the assumed fair market value of the Common Stock at March 31, 1999
($289.02 per share or less), as determined by the Company's Board of Directors.
</FN>
</TABLE>
Compensation of Directors
All Directors are reimbursed for their usual
and customary expenses incurred in attending all
Board of Directors and committee meetings. Directors
of the Company receive no remuneration for serving as
directors.
Compensation Committee Interlocks and Insider
Participation
The Compensation Committee is comprised of
Roberto Buaron, Chairman of CFP Group and James Long,
Vice Chairman and Treasurer
34
<PAGE>
of CFP Group. See "Transaction with Certain
Stockholders."
Employment Contracts
The Company has entered into an employment
agreement with Mr. Del Chiaro (the "Del Chiaro
Employment Agreement") that expires on March 17, 2001
or on an earlier date in accordance with the terms of
the Del Chiaro Employment Agreement. Base
compensation under the Del Chiaro Employment
Agreement is $400,000 per year. Mr. Del Chiaro is
also eligible to participate in the Company's annual
cash bonus plan, which is based upon the achievement
of certain annual performance targets. The Company
may terminate Mr. Del Chiaro at any time for "cause"
or after a specified period upon a "disability" (such
as terms are defined in the Del Chiaro Employment
Agreement). If the Company terminates Mr. Del Chiaro
"without cause" (as such term is defined in the Del
Chiaro Employment Agreement), Mr. Del Chiaro is
entitled to receive, among other things, the
aggregate of his base salary payable for 18 months
from the date of termination by the Company.
The Company has entered into a consulting
agreement with Mr. Gioia (the "Gioia Consulting
Agreement") that expires on December 31, 2001 or on
an earlier date in accordance with the terms of the
Gioia Consulting Agreement. Base compensation under
the Gioia Consulting Agreement through March 31, 1999
was $331,500. Effective April 1, 1999, base
compensation is $125,000 per year. Mr. Gioia was also
eligible to participate in the Company's annual cash
bonus plan for the fiscal year ended March 31, 1999,
which was based upon the Company's achievement of
certain annual performance targets. Under this plan,
Mr. Gioia received a bonus of $239,344. The Company
may terminate Mr. Gioia at any time for "cause" or
after a specified period upon a "disability" (as such
terms are defined in the Gioia Consulting Agreement).
If the Company terminates Mr. Gioia "without cause"
(as such term is defined in the Gioia Employment
Agreement), Mr. Gioia is entitled to receive, among
other things, the aggregate of his annual consulting
fee through the later of December 31, 2001 or 18
months from the date of termination by the Company.
In accordance with Mr. Gioia's prior Employment
Agreement, with the adoption of the 1998 Stock Option
Plan, Mr. Gioia was granted options to purchase 428
shares of Class B Nonvoting Common Stock, $.01 par
value, of CFP Group (the "Class B Nonvoting Common
Stock").
The Company has entered into an employment
agreement with Mr. Griffith (the "Griffith Employment
Agreement") that provided for an employment term
through December 31, 1999 or an earlier date in
accordance with the terms of the Griffith Employment
Agreement. Base compensation under Mr. Griffith's
Employment Agreement was $304,500 per year. Mr.
Griffith participated in the Company's annual cash
bonus plan, which was based upon the achievement of
certain annual performance targets prorata for the
period through June 30, 1998. Under this plan, Mr.
Griffith received a bonus of $64,706. In connection
with Mr. Griffith's termination of employment, Mr.
Griffith is entitled to
35
<PAGE>
receive compensation and benefits as specified in the
Griffith Employment Agreement through December 31,
1999 and has agreed to be available to provide
consulting services to the Company. The Company may
continue Mr. Griffith as a Consultant after December
31, 1999 for an annual payment of $75,000 per year.
The Company has entered into an employment
agreement with Mr. Cohen as amended (the "Cohen
Employment Agreement") that expires on December 31,
2001 or on an earlier date in accordance with the
terms of the Cohen Employment Agreement. Base
compensation under the Cohen Employment Agreement is
$125,000 per year plus an annual adjustment beginning
in January 1998 based on the Consumer Price Index.
Mr. Cohen is also eligible to participate in the
Company's annual cash bonus plan which is based upon
the achievement of certain annual performance
targets, subject to the right to receive a minimum
annual cash bonus of $50,000. The Company may
terminate Mr. Cohen at any time for "cause" or after
a specified period upon a "disability" (as such terms
are defined in the Cohen Employment Agreement). If
the Company terminates Mr. Cohen "without cause" (as
such term is defined in the Cohen Employment
Agreement), Mr. Cohen is entitled to receive, among
other things, the aggregate of his base salary and
the pro rata portion of his minimum annual bonus
through the later of December 31, 2001 or 18 months
from the date of termination by the Company. In
accordance with the Cohen Employment Agreement, and
in conjunction with the adoption of the 1998 Stock
Option Plan, Mr. Cohen was granted options to
purchase up to 367 shares of Class B Nonvoting Common
Stock of CFP Group.
The Company has entered into an employment
agreement with Mr. Ek as amended (the "Ek Employment
Agreement") that expires on December 31, 1999 or on
an earlier date in accordance with the terms of the
Ek Employment Agreement. Base compensation under the
Ek Employment Agreement is $203,000 per year plus an
annual adjustment beginning in July of each year
based on the Consumer Price Index. Mr. Ek is also
eligible to participate in the Company's annual cash
bonus plan which is based upon the Company's
achievement of certain annual performance targets.
The Company may terminate Mr. Ek at any time for
"cause" or after a specified period upon a
"disability" (as such terms are defined in the Ek
Employment Agreement). If the Company terminates Mr.
Ek "without cause" (as such term is defined in the Ek
Employment Agreement), Mr. Ek is entitled to receive,
among other things, the aggregate of his base salary
payable for 12 months from the date of termination by
the Company and the pro rata portion of his annual
bonus for the fiscal year in which such termination
occurred.
Put Rights of Messrs. Gioia, Cohen and Griffith
Under the terms of their respective
employment agreements, each of Messrs. Gioia, Cohen
and Griffith have the right, in connection with the
termination of their employment under certain
circumstances, to sell to CFP Group, and CFP Group is
obligated to purchase, the shares of Class A
Nonvoting Common Stock (in the case of Mr. Griffith)
and Class B
36
<PAGE>
Nonvoting Common Stock (in the case of Messrs. Gioia
and Cohen) owned by them. The price at which such
shares may be purchased and sold is intended to be
the fair market value thereof as determined pursuant
to a formula (in the case of Mr. Griffith) and an
appraisal (in the case of Messrs. Gioia and Cohen).
The right of such individuals to sell their shares to
CFP Group is subject to the terms and conditions of
the then outstanding debt instruments of CFP Group
and its subsidiaries.
In addition, under the terms of the Griffith
Employment Agreement, CFP Group has the right, under
certain circumstances, to require Mr. Griffith to
sell the shares of Class A Nonvoting Common Stock
owned by him to CFP Group. The price at which such
shares may be purchased and sold is intended to be
the fair market value thereof as determined pursuant
to a formula. The right of CFP Group to purchase Mr.
Griffith's shares is also subject to the terms and
conditions of the then outstanding indebtedness of
CFP Group and its subsidiaries. See "Item 13. Certain
Relationships and Related Transactions - Certain
Transactions - Stockholders Agreement."
EMPLOYEE STOCK OPTION PLAN
1995 Stock Option Plan
The Company's 1995 Stock Option Plan (the
"Option Plan"), which was assumed by CFP Group in
December, 1996, provides for the grant of both
incentive stock options ("ISOs") and non-qualifying
stock options ("NSOs") to directors and employees of,
and independent consultants and contractors to, the
Company and its subsidiaries. A total of 11,586
shares of Nonvoting Common Stock has been authorized
and reserved for issuance under the Option Plan,
subject to adjustment to reflect changes in
capitalization resulting from stock splits, stock
dividends and similar events.
The Option Plan is administered by the Board
of Directors or a Stock Option Committee ("the
Committee") appointed by the Board of Directors. The
Committee has the authority to interpret the Option
Plan, to determine the persons to whom options will
be granted, to determine the basis upon which the
options will be granted, and to determine the
exercise price, duration and other terms of the
options to be granted under the Option Plan,
provided, among other things, that (a) the exercise
price of ISOs granted under the Option Plan may not
be less than the fair market value of the stock
subject to the option on the date of the grant (110%
of fair market value if the employee is the
beneficial owner of 10% or more of CFP Group's voting
securities), (b) the exercise price must be paid in
cash, by personal or certified check or by
surrendering previously owned shares of nonvoting
common stock upon the exercise of the option, (c) the
term of the option may not exceed ten years (or five
years in the case of an ISO granted to an employee
who is the beneficial owner of 10% or more of CFP
Group's voting securities), (d) no option is
transferable other than by will or the laws of
descent and distribution and (e) no option may be
granted by a member of the Committee.
37
<PAGE>
Upon the termination of an optionee's
employment (other than by death or disability), such
person's options may be exercised during the
three-month period following the date of such
termination. In the event of the death or disability
of an optionee, the option may be exercised by such
person or his personal representative during the six
month period following the date the optionee ceases
to be an employee of the Company by reason of such
death or disability. In the event of a Corporate
Transaction (as such term is defined in the Option
Plan), each outstanding option under the Option Plan
which is not assumed or replaced with a comparable
option from the successor corporation will
automatically terminate.
ISOs may not be granted under the plan to
any individual if the effect of such grant would be
to permit that person to have the first opportunity
to exercise such options, in any calendar year, for
the purchase of shares having a fair market value (at
the time of the grant of such options) in excess of
$100,000. ISOs granted under the Option Plan are
intended to have the federal income tax consequences
of a qualified stock option. An employee to whom an
incentive stock option ;("ISO") which qualifies under
Section 422 of the Code is granted will not recognize
income at the time of grant or exercise of such
Option. However, upon the exercise of an ISO, any
excess in the fair market price of the Common Stock
over the Option Price constitutes a tax preference
item which may have alternative minimum tax
consequences for the employee. If the employee sells
such shares more than one year after the date of
transfer of such shares and more than two years after
the date of grant of such ISO, the employee will
generally recognize a long-term capital gain or loss
equal to the difference, if any, between the sale
prices of such shares and the Option Price. In such
case, CFP Group will not be entitled to a federal
income tax deduction in connection with the grant or
exercise of the ISO. If the employee does not hold
such shares for the required period, when the
employee sells such shares, the employee will
recognize ordinary compensation income and possibly
capital gain or loss (long-term or short term,
depending on the holding period of the stock sold) in
such amounts as are prescribed by the Code and the
regulations thereunder, and CFP Group will generally
be entitled to a Federal income tax deduction in the
amount of such ordinary compensation income
recognized by the employee.
An employee to whom a nonqualified stock
option ("NSO") is granted will not recognize income
at the time of grant of such Option. When such
employee exercises such NSO, the employee will
recognize ordinary compensation income equal to the
excess, if any, of the fair market value, as of the
date of Option exercise, of the shares the employee
receives upon such exercise over the Option Price
paid. The tax basis of such shares to such employee
will be equal to the Option Price paid plus the
amount, if any, includible, in the employee's gross
income, and the employee's holding period for such
shares will commence on the date on which the
employee recognizes taxable income in respect of such
shares. Gain or loss upon a subsequent sale of any
Common Stock received upon
38
<PAGE>
the exercise of a NSO generally would be taxed as
capital gain or loss (long-term or short-term,
depending upon the holding period of the stock sold).
Certain additional rules apply if the Option Price is
paid in shares previously owned by the participant.
Subject to the applicable provisions of the Code and
regulations thereunder, CFP Group will generally be
entitled to a Federal income tax deduction in respect
of a NSO in an amount equal to the ordinary
compensation income recognized by the employee. This
deduction will, in general, be allowed for the
taxable year of CFP Group in which the participant
recognizes such ordinary income. The Board of
Directors may amend the Option Plan without
stockholder approval in any respect other than any
amendment that requires stockholder approval by law
or pursuant to the rules of the Code regarding
qualified stock options.
1998 Stock Option Plan
On June 17, 1998 the Company's Board of
Directors adopted a new incentive stock option
program (the "1998 Stock Option Plan"), which
provides for the grant of both incentive stock
options ("ISOs") and non-qualifying stock options
("NSOs") to directors and employees of, and
independent consultants and contractors to, the
Company and its subsidiaries. A total of 5,525 shares
of Nonvoting Common Stock has been authorized and
reserved for issuance under the Option Plan, subject
to adjustment to reflect changes in capitalization
resulting from stock splits, stock dividends and
similar events.
The Option Plan is administered by the Board
of Directors or a Stock Option Committee ("the
Committee") appointed by the Board of Directors. The
Committee has the authority to interpret the Option
Plan, to determine the persons to whom options will
be granted, to determine the basis upon which the
options will be granted, and to determine the
exercise price, duration and other terms of the
options to be granted under the Option Plan,
provided, among other things, that (a) the exercise
price of ISOs granted under the Option Plan may not
be less than the fair market value of the stock
subject to the option on the date of the grant (110%
of fair market value if the employee is the
beneficial owner of 10% or more of CFP Group's voting
securities), (b) the exercise price must be paid in
cash, by personal or certified check or by
surrendering previously owned shares of nonvoting
common stock upon the exercise of the option, (c) the
term of the option may not exceed ten years (or five
years in the case of an ISO granted to an employee
who is the beneficial owner of 10% or more of CFP
Group's voting securities), (d) no option is
transferable other than by will or the laws of
descent and distribution and (e) no option may be
granted by a member of the Committee.
Upon the termination of an optionee's
employment (other than by death or disability), such
person's options may be exercised during the
three-month period following the date of such
termination. In the event of the death or disability
of an optionee, the option may be exercised by such
person or his personal representative during the six
month period following the date the optionee ceases
to be an employee of the Company
39
<PAGE>
by reason of such death or disability. In the event
of a Corporate Transaction (as such term is defined
in the Option Plan), each outstanding option under
the Option Plan which is not assumed or replaced with
a comparable option from the successor corporation
will automatically terminate.
ISOs may not be granted under the plan to
any individual if the effect of such grant would be
to permit that person to have the first opportunity
to exercise such options, in any calendar year, for
the purchase of shares having a fair market value (at
the time of the grant of such options) in excess of
$100,000. ISOs granted under the Option Plan are
intended to have the federal income tax consequences
of a qualified stock option. An employee to whom an
incentive stock option ;("ISO") which qualifies under
Section 422 of the Code is granted will not recognize
income at the time of grant or exercise of such
Option. However, upon the exercise of an ISO, any
excess in the fair market price of the Common Stock
over the Option Price constitutes a tax preference
item which may have alternative minimum tax
consequences for the employee. If the employee sells
such shares more than one year after the date of
transfer of such shares and more than two years after
the dates of grant of such ISO, the employee will
generally recognize a long-term capital gain or loss
equal to the difference, if any, between the sale
prices of such shares and the Option Price. In such
case, CFP Group will not be entitled to a federal
income tax deduction in connection with the grant or
exercise of the ISO. If the employee does not hold
such shares for the required period, when the
employee sells such shares, the employee will
recognize ordinary compensation income and possibly
capital gain or loss (long-term or short term,
depending on the holding period of the stock sold) in
such amounts as are prescribed by the Code and the
regulations thereunder, and CFP Group will generally
be entitled to a Federal income tax deduction in the
amount of such ordinary compensation income
recognized by the employee.
An employee to whom a nonqualified stock
option ("NSO") is granted will not recognize income
at the time of grant of such Option. When such
employee exercises such NSO, the employee will
recognize ordinary compensation income equal to the
excess, if any, of the fair market value, as of the
date of Option exercise, of the shares the employee
receives upon such exercise over the Option Price
paid. The tax basis of such shares to such employee
will be equal to the Option Price paid plus the
amount, if any, includible, in the employee's gross
income, and the employee's holding period for such
shares will commence on the date on which the
employee recognizes taxable income in respect of such
shares. Gain or loss upon a subsequent sale of any
Common Stock received upon the exercise of a NSO
generally would be taxed as capital gain or loss
(long-term or short-term, depending upon the holding
period of the stock sold). Certain additional rules
apply if the Option Price is paid in shares
previously owned by the participant. Subject to the
applicable provisions of the Code and regulations
thereunder, CFP Group will generally be entitled to a
Federal income tax deduction in respect of a NSO in
an amount equal to the ordinary compensation income
recognized by the
40
<PAGE>
employee. This deduction will, in general, be allowed
for the taxable year of CFP Group in which the
participant recognizes such ordinary income. The
Board of Directors may amend the Option Plan without
stockholder approval in any respect other than any
amendment that requires stockholder approval by law
or pursuant to the rules of the Code regarding
qualified stock options.
Item 12. Security ownership of certain beneficial owners and
management
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth certain
information regarding the ownership of the capital
stock of CFP Group as of June 18, 1999 with respect
to (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares
of any class of its voting capital stock, (ii) each
of the Company's directors, (iii) the Named Executive
Officers and (iv) all directors and officers as a
group. Except as otherwise indicated, each of the
stockholders has sole voting and investment power
with respect to shares beneficially owned. Unless
otherwise indicated, the address for each stockholder
is c/o CFP Group, Inc., 5501 Tabor Road,
Philadelphia, Pennsylvania 19120.
<CAPTION>
Shares of Percentage of
Voting Percentage All Classes
Common of Voting Shares of Nonvoting of Common
Name and Address of Stock(1) Common Common Stock(1) Stock (Fully
Beneficial Owner Class A Stock Class A CLASS B -Diluted)
<S> <C> <C> <C> <C> <C>
Atlantic Equity Partners, L.P. (2) 14,293 97.2% - - 38.0%
Roberto Buaron (3) 14,293 97.2% - - 38.0%
William Del Chiaro 4.2%
Richard Griffith (4) - - 3,161 - 11.6%
Robert Gioia (5) - - - 1,081 4.0%
Eric Ek - - 1,095 - 4.6%
David Cohen (6) - - - 1,081 3.9%
James Long (7) 173 1.2% - - *
Jeffry Kohlhoff - - 459 - 2.2%
All officers and directors
as a group (9 persons) 14,466 98.4% 4,715 2,162 69.0%
<FN>
* Less than one percent.
(1) The authorized capital stock of CFP Group
consists of 160,000 shares of capital stock,
including 150,000 shares of Common Stock,
$.01 par value (the "Common Stock") and
10,000 shares of Preferred Stock, $.01 par
value (the "Preferred Stock"). Of the
150,000 shares of common Stock, 100,000
shares are designated Class A Voting Common
Stock (the "Class A Voting Stock"), 25,000
shares are designated Class A Nonvoting
Stock (the "Class A Nonvoting Stock"), and
25,000 shares are designed Class B Nonvoting
Stock (the "Class B Nonvoting Stock").
(2) Address is P.O. Box 847, One Capital Place,
Fourth Floor, Grand Cayman, Cayman Islands,
British West Indies. Atlantic Equity
Associates, L.P. ("AEA") is the sole general
partner of AEP and as such exercises voting
and/or investment power over shares of
capital stock owned by AEP, including the
shares of Common Stock held by AEP (the "AEP
Shares"). Mr. Buaron is the sole stockholder
of Buaron Capital Corporation ("BCC"). BCC
is the managing general partner of AEA.
Rodney Limited ("Rodney"), an indirect
wholly owned subsidiary of Akros Finanziana
S.p.a. ("Akros"), is also a general partner
of AEA. As general partners of AEA, BCC and
Rodney share voting and/or investment power
over, and may be deemed to beneficially own
the AEP Shares. BCC and Rodney disclaim any
beneficial ownership of any shares of
capital stock owned by AEP, including the
AEP Shares. Through their respective
affiliations with BCC, Rodney and AEA, Mr.
Buaron and Akros control the sole general
partner of AEP and therefore have the
authority to control voting and/or
investment power over, and may be deemed to
beneficially own, the AEP Shares. Mr. Buaron
and Akros disclaim any beneficial ownership
of any AEP Shares. Certain present and
former employees of First Atlantic, an
affiliate of AEP, owning an additional 412
shares (2.8%) of Class A Voting Stock, have
granted AEP the right to vote the shares of
Class A Voting Stock beneficially owned by
them accordingly, AEP has the right to vote
100% of the voting common stock of CFP
Group.
41
<PAGE>
(3) Address is c/o First Atlantic Capital, Ltd.,
135 East 57th Street, New York, New York
10022. Represents shares of Common Stock to
be owned and controlled by AEP. Mr. Buaron
is the sole shareholder of BCC. BCC is the
managing general partner of AEA. AEA is the
sole general partner of AEP and as such,
exercises voting and/or investment power
over shares of capital stock owned and
controlled by AEP, including the AEP Shares.
Mr. Buaron, as the sole shareholder and
Chief Executive Officer of BCC, and Rodney,
as a general partner of AEA, control the
sole general partner of AEP and therefore
share voting and/or investment power over,
and may be deemed to beneficially own, the
AEP Shares. Mr. Buaron disclaims any
beneficial ownership of the AEP Shares.
(4) Includes 70 shares of Class A Nonvoting
Stock owned by Mr. Griffith's Profit Sharing
Trust and 150 shares of Class A Nonvoting
Stock owned by Mr.
Griffith's wife.
(5) Represents 1,081 shares of Class B Nonvoting
Stock owned by RDG Food Corp., Inc. ("RDG").
Mr. Gioia, as the sole shareholder of RDG,
controls the voting and disposition of the
shares owned by RDG and, therefore, is
deemed to beneficially own the Class B
Nonvoting Stock owned by RDG.
(6) Represents 1,081 shares of Class B Nonvoting
of Amjor Holdings, Inc. ("AHI"). Mr. Cohen,
as the sole stockholder of AHI, controls the
voting and disposition of the shares owned
by AHI and, therefore, is deemed to
beneficially own the Class B Nonvoting Stock
owned by AHI.
(7) Address is c/o First Atlantic Capital, Ltd.,
135 East 57th Street, New York, New York
10022. These shares are within the shares
totaling 412 owned by present and former
employees of First Atlantic.
</FN>
</TABLE>
Item 13. Certain relationships and related transactions
CERTAIN TRANSACTIONS
Transactions with Certain Stockholders
Effective December 31, 1996, the Company
entered into a new management consulting agreement
with First Atlantic which provides for the annual
payment of compensation in the amount of $600,000
plus out of pocket expenses to First Atlantic in
exchange for providing management consulting services
to the Company and its subsidiaries. Payments under
this agreement during fiscal years 1997, 1998 and
1999 were $157,000, $666,000 and $698,000,
respectively. Such agreement will continue until
December 31, 2003 unless extended pursuant to its
terms.
Stockholders' Agreement
CFP Group, AEP, NationsCredit Commercial
Corporation, Richard Griffith, Robert Gioia, David
Cohen, Eric Ek and the other Stockholders named
therein entered into a Stockholders' Agreement (the
"Stockholders' Agreement") dated as of December 31,
1996, which contains certain restrictions with
respect to the transfer of CFP Group's capital stock,
certain rights granted by CFP Group with respect to
such shares and certain voting and other
arrangements. The rights and obligations of each
party to the Stockholders' Agreement shall terminate
as to such stockholder upon the earliest to occur of
(i) the transfer of all stock of CFP Group owned by
such stockholder, (ii) the twentieth anniversary of
the dates of the Stockholders' Agreement, (iii) a
sale of all or substantially all of the stock of CFP
Group in a single transaction, or (iv) the
consummation of an initial public offering of the
common stock of CFP Group which results in net
proceeds to CFP Group of at least $100 million
dollars.
The Corporation and the Stockholders shall
use its and their best
42
<PAGE>
efforts (including any action required to amend the
Certificate of Incorporation or By-Laws of the
Corporation) to cause the size of the Board to
consist of eight directors (or such other number as a
Majority in Interest of AEP Stockholders (as defined
in the Stockholders Agreement) shall determine) and
to provide that, notwithstanding any vacancies, any
corporate action taken by the Board of the
Corporation must be approved by at least five
directors (or such larger number as shall constitute
a majority of the Board).
The Stockholders' Agreement provides that
all of the parties to the Stockholders' Agreement
other than AEP (each such other party being referred
to herein as the "Selling Group") are prohibited from
transferring any stock to any person engaged in a
business which competes in any manner with the
business conducted by CFP Group and its subsidiaries.
In addition, subject to certain exceptions, no
Selling Group may transfer any stock prior to the
third anniversary of the date of the Stockholders'
Agreement and thereafter no Selling Group may
transfer stock unless it first offers such stock to
CFP Group. Should CFP Group fail to accept all or any
part of the stock offered for sale, AEP will have the
right to purchase all or any part of the stock
offered but not accepted for purchase by CFP Group.
Should AEP fail to accept all such stock offered for
sale, then the Selling Group may transfer the stock
so offered to an Institutional Investor (as such term
is defined in the Stockholders' Agreement) or to such
other purchaser as shall be approved by AEP (and its
transferees).
In the event that AEP receives an offer from
an unaffiliated third party to purchase that number
of shares of stock of CFP Group of which constitutes,
in the aggregate, more than 50% of the total number
of shares then outstanding, AEP shall not transfer
any stock unless the terms of such offer are extended
to the other stockholders and the other stockholders
are given the opportunity to participate on a pro
rata basis in such sale.
Pursuant to the Stockholders' Agreement, if
at any time AEP shall approve (i) a proposal from a
person that is not an affiliate of AEP for the
transfer of all of the stock of CFP Group, (ii) the
merger or consolidation of CFP Group with or into
another person that is not an affiliate of AEP in
which the stockholders will receive cash or
securities for their shares or (iii) the sale by CFP
Group or its subsidiaries of all or substantially all
of their assets to a person that is not an affiliate
of AEP, then each stockholder shall be required to
participate in such transaction and to take all
necessary action to cause CFP Group to consummate
such transaction.
In the event of a Termination of
Relationship of a Management Investor (as such terms
are defined in the Stockholders' Agreement), CFP
Group shall have the right to repurchase all or any
part of the stock owned by such Management Investor.
The price at which such shares are to be purchased
shall be either the lesser of the price paid by such
terminated Management Investor or the fair value per
share of the stock (as determined in accordance with
the provisions of the Stockholders' Agreement),
depending on whether the Management Investor was
terminated for "cause" (as defined in the
Stockholders' Agreement) or for
43
<PAGE>
any reason other than "cause."
Indemnification of Officers and Directors
The Certificates of Incorporation of CFP
Holdings, CFP Group, Custom Foods and Quality Foods
contain provisions eliminating the personal liability
of directors for monetary damages for breaches of
their duty of care, except in certain prescribed
circumstances. The Bylaws of CFP Holdings, CFP Group,
Custom Foods and Quality Foods also provide that
directors and officers will be indemnified to the
fullest extent authorized by Delaware law or
California law, as the case may be, as it now exists
or may in the future be amended, against all expenses
and liabilities reasonably incurred in connection
with service for or on behalf of CFP Holdings, CFP
Group, Custom Foods or Quality Foods (as the case may
be). The Bylaws of CFP Holdings, CFP Group and Custom
Foods provide that the right of directors and
officers to indemnification is not exclusive of any
other right now possessed or hereinafter acquired
under any statute, agreement or otherwise.
Part IV
Item 14. Exhibits, financial statement schedules, and reports
on Form 8-K
Set forth below are consolidated financial
statements, financial statement schedules and
exhibits filed as part of this Annual Report on Form
10-K.
1) Consolidated Financial Statements
Filed herewith.
2) Financial Statement Schedules
Schedule II, Valuation and Qualifying
Accounts, is filed herewith. All other
schedules are not included because they are
not applicable.
3) Exhibits
The following Exhibits are filed as a part
of, or incorporated by reference into this
report:
3.1 Amended and Restated Certificate of
Incorporation of CFP Holdings
(incorporated by reference to
Exhibit 3.1 of the Registrants
Registration Statement on Form S-4
(File Nos. 333-23893, 333-23893-01,
333-23893-02 and 333-23893-03 (the
"S-4 Registration Statement").
3.2 By-laws of CFP Holdings
(incorporated by reference to
Exhibit 3.2 of the S-4 Registration
Statement).
44
<PAGE>
3.3 Amended and Restated Certificate of
Incorporation of CFP Group
(incorporated by reference to
Exhibit 3.3 of the S-4 Registration
Statement).
3.4 By-Laws of CFP Group (incorporated
by reference to Exhibit 3.4 of the
S-4 Registration Statement).
3.5 Amended and Restated Certificate of
Incorporation of QFAC (incorporated
by reference to Exhibit 3.5 of the
S-4 Registration Statement).
3.6 By-laws of QFAC (incorporated by
reference to Exhibit 3.6 of the S-4
Registration Statement).
3.7 Amended and Restated Articles of
Incorporation of Custom Foods
(incorporated by reference to
Exhibit 3.7 of the S-4 Registration
Statement).
3.8 By-laws of Custom Foods
(incorporated by reference to
Exhibit 3.8 of the S-4 Registration
Statement).
4.1 Indenture dated January 28, 1997,
among CFP Holdings, CFP Group,
Custom Foods, QFAC and United
States Trust Company of New York,
as Trustee (the "Trustee")
(including the form of Note as
Exhibit A and the other exhibits
thereto) (incorporated by reference
to Exhibit 4.1 of the S-4
Registration Statement).
4.2 Registration Rights Agreement dated
January 28, 1997 among CFP
Holdings, CFP Group, Custom Foods,
QFAC, NCMI and DLJ (incorporated by
reference to Exhibit 4.2 of the S-4
Registration Statement).
10.1 Securities Purchase Agreement dated
December 31, 1996, among CFP
Holdings, Quality Foods, L.P., the
Partners of Quality Foods, L.P.,
certain additional beneficial
owners of Quality Foods, L.P., the
Stockholders of QFAC and the
stockholders of QF Management Corp
(incorporated by reference to
Exhibit 10.1 of the S-4
Registration Statement).
10.2 Employment agreement dated December
31, 1996, between CFP Holdings and
David Cohen (incorporated by
reference to Exhibit 10.2 of the
S-4 Registration Statement).
10.3 Employment Agreement dated December
31, 1996 between CFP Holdings and
Eric W. Ek (incorporated by
reference to Exhibit 10.3 of the
S-4 Registration Statement).
10.4 Employment Agreement dated December
31, 1996 between CFP Holdings and
Robert D. Gioia (incorporated by
45
<PAGE>
reference to Exhibit 10.4 of the
S-4 Registration Statement).
10.5 Employment Agreement dated December
31, 1996 between CFP Holdings and
Richard W. Griffith (incorporated
by reference to Exhibit 10.5 of the
S-4 Registration Statement).
10.7 Management consulting agreement
dated December 31, 1996 between CFP
Holdings and First Atlantic
Capital, Ltd. ("FACL")
(incorporated by reference to
Exhibit 10.7 of the S-4
Registration Statement).
10.8 Investment Banking Agreement dated
March 1, 1996, between CFP Holdings
and FACL (incorporated by reference
to Exhibit 10.8 of the S-4
Registration Statement).
10.9 Stockholders' Agreement dated
December 31, 1996, among CFP Group
and the stockholders listed on
Annex I thereto (incorporated by
reference to Exhibit 10.9 of the
S-4 Registration Statement).
10.10 Standard Industrial Lease dated
April 7, 1981, between Philip E.
Bauer Properties and Best Western
Foods, Inc. (including material
Amendments and Addendums thereto)
(incorporated by reference to
Exhibit 10.10 of the S-4
Registration Statement).
10.11 Standard Industrial Lease--Net
dated November 3, 1991, among
William I. Altshuler, Maxine
Altshuler and Center of the Plate
Foods Inc. (including material
Amendments and Addendums thereto)
(incorporated by reference to
Exhibit 10.11 of the S-4
Registration Statement).
10.12 Lease Agreement dated September 30,
1994, between CFP Associates and
Custom Foods (Including Material
Amendments and Addendums thereto)
(incorporated by reference to
Exhibit 10.12 of the S-4
Registration Statement).
10.13 Employment Agreement dated March 9,
1998 between CFP Holdings, Inc. and
William G. Del Chiaro (incorporated
by reference to Exhibit 10.2 of the
Registrants Form 10-K for the year
ended March 31, 1998).
10.14 Amendment No. 1 dated September 15,
1997 to Employment Agreement
between CFP Holdings, Inc. and
David Cohen (incorporated by
reference to Exhibit 10.3 of the
Registrants Form 10-K for the year
ended March 31, 1998).
46
<PAGE>
10.15 Loan and Security Agreement Dated
May 5, 1998 between Fleet Capital
Corporation and CFP Holdings, Inc.
(incorporated by reference to
Exhibit 10.1 of the Registrants
Form 10-K for the year ended March
31, 1998).
10.16 Trademark Collateral Security
Agreement dated May 5, 1998 between
QF Acquisition Corp. (d/b/a Quality
Foods), and Fleet Capital
Corporation (Filed herewith).
10.17 Patent Collateral Security
Agreement dated May 5, 1998 between
QF Acquisition Corp. (d/b/a Quality
Foods and Fleet Capital Corporation
(Filed herewith).
10.18 Patent Assignment of Security dated
May 5, 1998 between QF Acquisition
Corp. and Fleet Capital Corporation
(Filed herewith).
10.19 Pledge Agreement dated May 5, 1998
between CFP Holdings, Inc. and
Fleet Capital Corporation (Filed
herewith).
10.20 Pledge Agreement dated May 5, 1998
between CFP Group, Inc. and Fleet
Capital Corporation (Filed
herewith).
10.21 Consulting Agreement dated June 30,
1998 between CFP Holdings, Inc. and
Robert D. Gioia (incorporated by
reference to Exhibit 10.1 of the
Registrants Form 10-Q for the
quarter ended September 30, 1998).
10.22 CFP Holdings, Inc. 1995 Stock
Option Plan dated March 1, 1995
(Filed herewith).
10.23 CFP Group Inc. 1998 Stock Option
Plan dated July 15, 1998
(incorporated by reference to
Exhibit 10.2 of the Registrants
Form 10-Q for the quarter ended
September 30, 1998).
12.1 Computation of Ratio of Earnings to
Fixed Charges (Filed herewith).
21 Subsidiaries of the CFP Group, Inc.
CFP Holdings, Inc., A Delaware
Corporation
Custom Food Products, Inc., a
California Corporation
QF Acquisition Corp., a Delaware
Corporation
23.1 Consent of Deloitte & Touche LP,
Independent auditors (Filed
herewith).
27 Financial Data Schedule (Filed
herewith).
47
<PAGE>
4) Reports on Form 8-K (None.)
No reports on form 8-K were filed by the
Registrants during the last quarter of the
period covered by this Report on Form 10-K.
5. SUPPLEMENTAL INFORMATION TO BE
FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE
ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
Except for a copy of this Annual
Report on Form 10-K, no annual
report to securities holders
covering the registrants' last
fiscal year or proxy material will
be sent to security holders.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the ____ day of
June, 1999.
CFP GROUP, INC.
By:
--------------------------------------
William G. Del Chiaro
President and Chief Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed on the _____ day of June, 1999, by the following persons
in the capacities indicated:
Name Title
---- -----
____________________________________ Chairman of the Board and Director
Roberto Buaron
____________________________________ President, Chief Executive Officer
William G. Del Chiaro and Director
____________________________________ Director
Robert Gioia
____________________________________ Senior Vice President, Chief
Eric W. Ek Financial Officer, Secretary and
Director (Principal Financial
Officer and Principal
Accounting Officer)
____________________________________ Director
Richard W. Griffith
____________________________________ Vice Chairman of the Board,
James A. Long Treasurer and Director
____________________________________ Director
David Cohen
____________________________________ Director
Andrew Kohn
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the ____ day of
June, 1999.
CFP HOLDINGS, INC.
By:
--------------------------------------
William G. Del Chiaro
President and Chief Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed on the _____ day of June, 1999, by the following persons
in the capacities indicated:
Name Title
---- -----
____________________________________ Chairman of the Board and Director
Roberto Buaron
____________________________________ President, Chief Executive Officer
William G. Del Chiaro and Director
____________________________________ Director
Robert Gioia
____________________________________ Senior Vice President, Chief
Eric W. Ek Financial Officer, Secretary and
Director (Principal Financial
Officer and Principal
Accounting Officer)
____________________________________ Director
Richard W. Griffith
____________________________________ Vice Chairman of the Board,
James A. Long Treasurer and Director
____________________________________ Director
David Cohen
____________________________________ Director
Andrew Kohn
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the ____ day of
June, 1999.
CUSTOM FOOD PRODUCTS, INC.
By:
--------------------------------------
William G. Del Chiaro
President and Chief Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed on the _____ day of June, 1999, by the following persons
in the capacities indicated:
Name Title
---- -----
____________________________________ Director
Roberto Buaron
____________________________________ President, Chief Executive Officer
William G. Del Chiaro and Director
____________________________________ Director
Robert Gioia
____________________________________ Senior Vice President, Chief
Eric W. Ek Financial Officer, Secretary and
Director (Principal Financial
Officer and Principal
Accounting Officer)
____________________________________ Director
Richard W. Griffith
____________________________________ Chairman of the Board and Director
James A. Long
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the ____ day of
June, 1999.
QF ACQUISITION CORP.
By:
--------------------------------------
William G. Del Chiaro
President and Chief Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed on the _____ day of June, 1999, by the following persons
in the capacities indicated:
Name Title
---- -----
____________________________________ Director
Roberto Buaron
____________________________________ President, Chief Executive Officer
William G. Del Chiaro and Director
____________________________________ Director
Robert Gioia
____________________________________ Senior Vice President, Chief
Eric W. Ek Financial Officer, Secretary and
Director (Principal Financial
Officer and Principal
Accounting Officer)
____________________________________ Chairman of the Board and Director
James A. Long
____________________________________ Vice Chairman of the Board and
David Cohen Director
52
<PAGE>
- --------------------------------------------------------------------------------
CFP Group, Inc.
Consolidated Financial Statements for the Year Ended September 30, 1996, the
Six Months Ended March 31, 1997 and the Years Ended March 31, 1998 and 1999
and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
CFP Group, Inc.:
We have audited the accompanying consolidated balance sheets of CFP Group, Inc.
and subsidiaries (the "Company") as of March 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficiency), and
cash flows for the year ended September 30, 1996, the six months ended March 31,
1997, and the years ended March 31, 1998 and 1999. Our audits also included the
financial statement schedule listed at Item 14. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of March 31, 1998
and 1999, and the results of its operations and its cash flows for the year
ended September 30, 1996, the six months ended March 31, 1997, and the years
ended March 31, 1998 and 1999 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
June 3, 1999
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1999
- ----------------------------------------------------------------------------------------------------
<CAPTION>
March 31,
--------------------
ASSETS 1998 1999
(In Thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,344 $ 1,820
Accounts receivable, net of allowance for doubtful accounts of $115,000 and
$369,000 at March 31, 1998 and 1999, respectively (Note 2) 12,007 15,448
Inventories (Notes 2 and 4) 15,584 16,839
Prepaid expenses and other current assets 890 692
-------- --------
Total current assets 29,825 34,799
PROPERTY AND EQUIPMENT, Net (Notes 2 and 5) 27,138 29,922
COSTS IN EXCESS OF NET ASSETS ACQUIRED, 68,608 65,195
Net (Notes 2 and 3)
INTANGIBLE AND OTHER ASSETS, Net (Notes 2 and 6) 7,508 6,488
-------- --------
TOTAL $133,079 $136,404
======== ========
</TABLE>
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1999
- ----------------------------------------------------------------------------------------------------
<CAPTION>
March 31,
--------------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 1998 1999
(In Thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term obligations (Note 7) $ 2,232 $ 1,113
Accounts payable 6,816 8,904
Accrued expenses and other current liabilities 5,404 6,689
-------- --------
Total current liabilities 14,452 16,706
-------- --------
LONG-TERM OBLIGATIONS (Note 7) 141,267 145,895
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 12)
REDEEMABLE COMMON STOCK (Note 9) 2,319 2,319
-------- --------
Preferred stock, $.01 par value; 6,472 shares authorized;
none issued and outstanding
Voting common stock - Class A, $.01 par value; 100,000 shares
authorized; 14,705 shares issued and outstanding 3,196 3,196
Nonvoting common stock - Class A, $.01 par value; 25,000 shares
authorized; 11,241 shares (inclusive of 3,011 shares classified as
redeemable common stock) issued and outstanding 2,204 2,204
Nonvoting common stock - Class B, $.01 par value; 25,000 shares
authorized; 3,059 shares (inclusive of 2,162 shares classified as
redeemable common stock) issued and outstanding 623 623
Stockholders' notes receivable (203) (203)
Accumulated deficit (30,779) (34,336)
-------- --------
Total stockholders' deficiency (24,959) (28,516)
-------- --------
TOTAL $133,079 $136,404
======== ========
</TABLE>
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996, SIX MONTHS ENDED MARCH 31, 1997 AND
YEARS ENDED MARCH 31, 1998 AND 1999
- -----------------------------------------------------------------------------------------
<CAPTION>
Six
Months Year Ended
Year Ended Ended March 31,
September 30, March 31, ---------------------
1996 1997 1998 1999
(In Thousands)
<S> <C> <C> <C> <C>
SALES (Note 2) $ 65,996 $ 60,529 $ 181,378 $ 183,164
COST OF SALES 53,818 52,276 152,484 147,518
--------- --------- --------- ---------
GROSS PROFIT 12,178 8,253 28,894 35,646
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 8 and 13) 5,512 7,474 17,156 20,411
OTHER CHARGES (Note 8) 4,996
--------- --------- --------- ---------
INCOME FROM OPERATIONS 1,670 779 11,738 15,235
INTEREST EXPENSE (Note 7) 3,232 4,681 17,236 17,322
--------- --------- --------- ---------
LOSS BEFORE (BENEFIT) PROVISION FOR
INCOME TAXES AND EXTRAORDINARY ITEM (1,562) (3,902) (5,498) (2,087)
(BENEFIT) PROVISION FOR INCOME
TAXES (Notes 2 and 11) (409) (541) 30 467
--------- --------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEM (1,153) (3,361) (5,528) (2,554)
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT (Note 7) (4,489) (1,003)
--------- --------- --------- ---------
NET LOSS $ (1,153) $ (7,850) $ (5,528) $ (3,557)
========= ========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 3 -
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLERS' EQUITY (DEFICIENCY)
YEAR ENDED SEPTEMBER 30, 1996, SIX MONTHS ENDED MARCH 31, 1997 AND
YEARS ENDED MARCH 31, 1998 AND 1999
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Nonvoting- Nonvoting-
Voting Class A- Class A Class B Retained
Common Stock Common Stock Common Stock Shareholder Earnings
------------ ------------ ------------ Notes (Accumulated
Shares Amount Shares Amount Shares Amount Reveivable Deficit) Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1995 14,705 $3,196 2,725 $ 592 $ 2,096 $ 5,884
Net loss (1,153) (1,153)
Redeemable preferred dividends (94) (94)
Increase in carrying value of stock
warrant purchase obligations (617) (617)
------ ------ ----- ------ --- ----- ------ -------- --------
BALANCE, SEPTEMBER 30, 1996 14,705 3,196 2,725 592 232 4,020
Net loss (7,850) (7,850)
Redeembale preferred dividends (27) (27)
Increanse in carrying value of stock
warrant purchase obligations (207) (207)
Exercise of stock warrants 4,538 1,723 1,723
Exercise of stock options 7,487 2,163 2,163
Issuance of common stock 1 1 3,321 $2,305 $ (343) 1,963
Repayment of stock notes 6 6
Repurchase of common stock (3,510) (1,456) (1,456)
Distribution to stockholders (17,399) (17,399)
Shares reclassified to redeemable
common stock (3,011) (819) (2,162) (1,500) (2,319)
------ ------ ----- ------ --- ----- ------ -------- --------
BALANCE, MARCH 31, 1997 14,705 3,196 8,230 2,204 1,159 805 (337) (25,251) (19,383)
Issuance of common stock and
grant of note receivable 72 50 (35) 15
Repurchase of common stock and
cancellation of note receivable (334) (232) 169 (63)
Net loss (5,528) (5,528)
------ ------ ----- ------ --- ----- ------ -------- --------
BALANCE, MARCH 31, 1998 14,705 3,196 8,230 2,204 897 623 (203) (30,779) (24,959)
Net loss (3,557) (3,557)
------ ------ ----- ------ --- ----- ------ -------- --------
BALANCE, MARCH 31, 1999 14,705 $3,196 8,230 $2,204 897 $ 623 $ (203) $(34,336) $(28,516)
====== ====== ===== ====== === ===== ====== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 4 -
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996, SIX MONTHS ENDED MARCH 31, 1997 AND
YEARS ENDED MARCH 31, 1998 AND 1999
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Six
Months Year Ended
Year Ended Ended March 31,
September 30, March 31, ---------------------
1996 1997 1998 1999
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,153) $ (7,850) $ (5,528) $ (3,557)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,088 2,236 6,732 6,733
Amortization of deferred financing costs and
original issue discount 630 389 1,283 1,199
Deferred income taxes (10) (546)
Loss (gain) on sale of equipment 15 (9)
Extraordinary loss on early extinguishment of debt 4,489 1,003
Changes in assets and liabilities, net of the effects
from the acquisition of Quality Foods LP:
Accounts receivable (658) (170) (1,288) (3,441)
Inventories (479) 1,802 (4,378) (1,255)
Prepaid expenses and other current assets 324 (963) 1,636 198
Accounts payable 84 289 1,852 2,088
Accrued expenses and other current liabilities (691) 3,801 337 1,285
------ ------- ------ ------
Net cash provided by operating activities 135 3,477 661 4,244
------ ------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,432) (1,674) (4,497) (6,104)
Proceeds from sale of property and equipment 44 1,137 9
Acquisition of Quality Foods LP (65,647)
Other assets (379) (16) (394) (548)
------ ------- ------ ------
Net cash used in investing activities (1,811) (67,293) (3,754) (6,643)
------ ------- ------ ------
<FN>
See accompanying notes to consolidated financing statements.
</FN>
</TABLE>
- 5 -
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996, SIX MONTHS ENDED MARCH 31, 1997 AND
YEARS ENDED MARCH 31, 1998 AND 1999
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Six
Months Year Ended
Year Ended Ended March 31,
September 30, March 31, ----------------------
1996 1997 1998 1999
(In Thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving loan facility $ 9,725 $ 14,821 $ 23,000 $ 21,263
Repayment of revolving loan facilities (9,975) (15,821) (18,500) (20,500)
Proceeds from issuance of long-term debt 5,681 218,500 12,500
Repayment of long-term debt and capitalized lease
obligations (3,120) (122,847) (1,847) (9,754)
Deferred financing costs (11,455) (308) (634)
Proceeds from sale of common stock 157 15
Purchase of redeemable preferred stock (143) (1,207)
Collection of shareholder notes receivable 6 1
Purchase of common stock (692) (63)
Distributions to shareholders (16,000)
--------- --------- --------- ---------
Net cash provided by financing activities 2,168 65,462 2,298 2,875
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 492 1,646 (795) 476
CASH, BEGINNING OF PERIOD 1 493 2,139 1,344
--------- --------- --------- ---------
CASH, END OF PERIOD $ 493 $ 2,139 $ 1,344 $ 1,820
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION -
Cash paid (received) during the year for:
Interest $ 2,265 $ 2,099 $ 15,386 $ 16,128
Income taxes (93) 33 403
<FN>
See accompanying notes to consolidated financial statements.
(Continued)
</FN>
</TABLE>
- 6 -
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996, SIX MONTHS ENDED MARCH 31, 1997 AND
YEARS ENDED MARCH 31, 1998 AND 1999
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six
Months Year Ended
Year Ended Ended March 31,
September 30, March 31, ----------------------
1996 1997 1998 1999
(In Thousands)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITY:
Acquisition of property and equipment through
capital leases $ 1,577 $ 1,019
Accrued dividends on redeemable preferred stock 94 $ 27
Issuance of common stock in exchange for equity
interest in Quality Foods LP 1,500
Issuance of employee notes in exchange for nonvoting
Class B common stock 343 35
Exercise price of stock options for which the cost to
exercise was deducted from the distribution to
stockholders 1,399
Issuance of nonvoting Class B common stock to
a financial institution for services rendered in
1997 and to an employee in 1998 305 50
<FN>
During the year ended September 30, 1996 and the six months ended March 31,
1997, the carrying value of stock warrant purchase obligations increased by
$617,000 and $207,000, respectively, with a corresponding charge to retained
earnings. During the six months ended March 31, 1997, the stock warrant
purchase obligations with a carrying value of $1,723,000 were redeemable for
nonvoting Class A common stock.
On December 31, 1996, the Company acquired all of the equity interests in
Quality Foods LP and its two general partners, which are now operated as QF
Acquisition Corp. ("Quality Foods") for a purchase price of $65.6 million (see
Note 3).
See accompanying notes to consolidated financial statements.
(Concluded)
</FN>
</TABLE>
- 7 -
<PAGE>
CFP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1996, SIX MONTHS ENDED MARCH 31, 1997 AND
YEARS ENDED MARCH 31, 1998 AND 1999
- --------------------------------------------------------------------------------
1. BUSINESS
CFP Group, Inc. (the "Company") was incorporated on November 26, 1996 as
New CFP Holdings, Inc. and subsequently changed its name to CFP Group,
Inc. The Company was formed to recapitalize CFP Holdings, Inc. On December
31, 1996, each person owning capital stock (or options to acquire capital
stock) of CFP Holdings, Inc. exchanged his/her equity interests for
equivalent interests of capital stock (or options to acquire capital
stock) of the Company. Accordingly, these consolidated financial
statements include the historical results of CFP Holdings, Inc. for all
periods presented. CFP Group, Inc. and CFP Holdings, Inc. are companies
that have no operations or assets separate from their investments in their
respective subsidiaries and rely on CFP Holdings, Inc.'s subsidiaries for
their cash flows.
CFP Group, Inc., through its wholly owned subsidiaries, develops,
manufactures and markets precooked and uncooked meat products sold
primarily to manufacturers of branded and private label packaged foods,
foodservice distributors, and restaurants.
On December 31, 1996, the Company acquired all of the equity interests in
Quality Foods LP. Quality Foods is a Pennsylvania-based manufacturer
primarily of pre-cooked and uncooked, thinly sliced beef used in
"Philadelphia-style" steak sandwiches. The financial statements include
the operations of Quality Foods from the date of acquisition (see Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of CFP Group, Inc. and its wholly owned
subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
Fiscal Periods - During March 1997, the Company changed its year-end from
the Saturday closest to September 30 to the Saturday closest to March 31.
All full years presented are 52 weeks; the six-month period ended March 31
consists of 26 weeks. For clarity of presentation, the Company describes
its prior year-ends as September 30 and its prior quarter-end and current
year-end as March 31. The Company's fiscal quarter-end is the Saturday
closest to the calendar quarter-end.
Revenue Recognition - The Company recognizes revenue as products are
shipped.
Concentration of Credit Risk - Financial instruments that subject the
Company to credit risk consist primarily of accounts receivable. The
Company performs ongoing credit evaluations of its customers and maintains
an allowance for potential credit losses. The Company has one significant
customer that accounted for more than 10% of its sales. Sales to this
customer totaled 40%, 23%, 15% and 13% of total sales for the year ended
September 30, 1996, the six months ended March 31, 1997, and the years
ended March 31, 1998 and 1999, respectively. Accounts receivable from this
customer totaled 7% and 9% of total accounts receivable at March 31, 1998
and 1999, respectively. In addition, pursuant to franchise supply
agreements with two different international franchising operations, the
Company sells
- 8 -
<PAGE>
products to authorized distributors, who in turn sell these products to
two franchising operations. During the year ended September 30, 1996, the
six months ended March 31, 1997, and the years ended March 31, 1998 and
1999, approximately 45%, 46%, 46% and 46% of sales, respectively, were to
such distributors.
Inventories - Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out method.
Property and Equipment - Property and equipment are stated at cost. The
Company uses the straight-line method of depreciation and amortization for
buildings and leasehold improvements and both the straight-line and
double-declining methods for all other property and equipment.
Depreciation is provided for over the estimated useful lives of the
related assets, ranging from 3 to 10 years. Leasehold improvements are
amortized over the shorter of their useful lives or the term of the lease.
Intangible and Long-Lived Assets - The Company reviews the recoverability
of intangible and long-lived assets whenever events or changes in
circumstances indicate that the carrying value of such assets may not be
recoverable. If the expected future cash flows from the use of such assets
(undiscounted and without interest charges) are less than the carrying
value, the Company's policy is to record a write-down that is determined
based on the difference between the carrying value of the asset and its
estimated fair value.
Cost in Excess of Net Assets Acquired - Cost in excess of net assets
acquired is amortized over periods of 20 to 40 years. Accumulated
amortization was $5,332,000 and $8,745,000 as of March 31, 1998 and 1999,
respectively (see Note 3).
Income Taxes - Deferred income taxes are determined based on temporary
differences between the financial reporting and income tax bases of assets
and liabilities at the balance sheet date, multiplied by the applicable
tax rates. Future tax benefits are recognized to the extent that
realization of such benefits is more likely than not.
Fair Value of Financial Instruments - The fair value of financial
instruments, other than long-term debt, closely approximates their
carrying values because of their short-term maturity. The estimated fair
value of long-term debt, including current maturities, based on references
to quoted market prices was below its carrying value by approximately
$18.9 million and $1.2 million as of March 31, 1999 and 1998,
respectively.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Reclassification - Certain reclassifications were made to prior year
statements to conform to the current year presentation.
- 9 -
<PAGE>
3. BUSINESS ACQUISITIONS
On December 31, 1996, pursuant to a securities purchase agreement, the
Company acquired all of the equity interests in Quality Foods for a total
purchase price of $67.1 million, which was composed of cash payments to
sellers of $64.0 million less a purchase price adjustment refund received
from the sellers of $354,000, the issuance of 2,162 shares of nonvoting
common stock - Class B valued at $1.5 million plus acquisition costs of
$2.6 million less cash assumed of $600,000. Funds for the acquisition,
repayment of certain existing indebtedness, and working capital were
primarily provided by $76.0 million in term loans, a $20.0 million
revolving credit facility and $25.0 million of subordinated bridge loans.
This acquisition has been accounted for under the purchase method, and the
results of the operations of Quality Foods have been included in the
consolidated financial statements since the date of acquisition. The
purchase price has been allocated to the assets acquired and liabilities
assumed, based on fair values at the date of acquisition. This resulted in
an excess of cost over net assets acquired of $62.6 million, which is
being amortized on a straight-line basis over 20 years.
If the acquisition and the related equity and debt transactions had
occurred on October 1, 1995, the results on a pro forma basis for the
combined operations of the Company and Quality Foods for the year ended
September 30, 1996 and for the six months ended March 31, 1997 would have
been as follows:
September 30, March 31,
1996 1997
(In Thousands)
Net sales $ 156,645 $ 81,578
Loss before extraordinary item $ (3,297) $ (4,265)
The fair value of the assets acquired was $95.4 million, the cash paid was
$65.6 million, the fair value of common stock issued was $1.5 million, and
liabilities assumed or paid upon the acquisition were $28.3 million.
4. INVENTORIES
Inventories consisted of the following:
March 31,
-------------------------
1998 1999
(In Thousands)
Raw materials $ 5,655 $ 5,820
Work-in-process 3,470 3,773
Finished goods 6,710 7,918
-------- --------
Total 15,835 17,511
Reserve (251) (672)
-------- --------
Inventory, net $ 15,584 $ 16,839
======== ========
- 10 -
<PAGE>
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
March 31,
---------------------
1998 1999
(In Thousands)
Land $ 376 $ 376
Building 19,171 19,550
Machinery and equipment 11,269 15,872
Office furniture and fixtures 759 1,288
Leasehold improvements 2,531 2,110
Construction in progress 80 371
-------- --------
Total 34,186 39,567
Accumulated depreciation (7,048) (9,645)
-------- --------
Property and equipment, net $ 27,138 $ 29,922
6. INTANGIBLES AND OTHER ASSETS
Intangible and other assets consisted of the following:
March 31,
---------------------
1998 1999
(In Thousands)
Deferred financing costs $ 12,539 $ 7,835
Other assets 568 1,116
-------- --------
Total 13,107 8,951
Accumulated amortization (5,599) (2,463)
-------- --------
Intangible and other assets, net $ 7,508 $ 6,488
- 11 -
<PAGE>
7. LONG-TERM OBLIGATIONS
<TABLE>
Long-term obligations consisted of the following:
<CAPTION>
March 31,
-----------------------
1998 1999
(In Thousands)
<S> <C> <C>
Senior notes payable, interest at 11.625%, payable semiannually, principal due
January 2004 $ 115,000 $ 115,000
Term note payable to a bank, interest at a reference rate (7.75% at March 31, 1999) or
eurodollar rate (5.06% at March 31, 1999) plus 2.25%, interest payable monthly,
principal payable on May 1, 2002 9,000 10,000
Revolving loan payable to a bank, interest at a reference rate (7.75% at
March 31, 1999) or eurodollar rate (5.06% at March 31, 1999)
plus 2.25%, interest payable monthly, expires May 1, 2002 5,000 5,763
Term note payable to a bank, interest at a reference rate (7.75% at March 31, 1999) or
eurodollar rate (5.06%) at March 31,1999) plus 2.25%, interest payable monthly,
principal quarterly at $89,285.72, principal payable January through February 2006 2,500
Revenue bond payable to a government financing authority, interest at a
reference rate (5.0% at March 31, 1999) not to exceed 18%, payable monthly,
principal payable annually at $100,000, increasing to $400,000 through
December 2014 4,200 4,100
Notes payable to a government agency, interest at 2%, payable monthly
through April 2012, collateralized in a second position on the Company's
Philadelphia facility 1,649 1,545
Note payable to a government agency, interest at 0.5%, payable monthly
beginning February 1999 through July 2005, principal and interest payable
in equal monthly installments from August 2005 through January 2012,
collateralized in a shared third position on the Company's Philadelphia
facility 1,000 1,000
Notes payable to a government agency, interest at 5.25%, payable monthly
with principal through March 2012, collateralized in a shared first
position on the Company's Philadelphia facility 710 678
Notes payable to a government agency, interest at 2%, payable with principal
monthly through April 2001 306 206
Capital lease obligations payable in varying monthly installments through 2021,
collateralized by buildings and equipment with a net book value of $6,317,000
and $5,787,000 at March 31, 1998 and 1999, respectively 6,634 6,216
--------- ---------
Total 143,499 147,008
Current portion (2,232) (1,113)
--------- ---------
Long-term debt $ 141,267 $ 145,895
========= =========
</TABLE>
The senior notes payable are senior unsecured obligations that rank pari
passu in the right of payment with all other existing and future senior
debt of the Company. The senior notes payable provide limitations on the
sale or transfer of the Company's subsidiaries and also provide for the
holders of the notes to require the Company to purchase the notes upon a
change in control of the Company. The senior notes payable contain certain
financial covenants, including limitations on incurring additional
- 12 -
<PAGE>
debt, payments to stockholders, capital stock transactions and
transactions with affiliates. At March 31, 1999, no amounts were available
for dividend payments. The Company may redeem the notes prior to maturity,
subject to certain redemption premiums. The senior notes payable are
obligations of CFP Holdings and are, jointly and severally,
unconditionally guaranteed in full by CFP Group and each of CFP Holdings'
subsidiaries.
In May 1998, the Company entered into a $40.0 million loan and security
agreement (the "Loan and Security Agreement") with a financial institution
providing for revolving credit loans (the "Revolver") and term loan
options. Maximum borrowings under the Revolver cannot exceed $40.0
million, limited to a borrowing base and other limitations, including
amounts outstanding under term loans, letters of credit and other
borrowing instruments under the Loan and Security Agreement. At March 31,
1999, the Company had $5.76 million outstanding under the revolver and
$10.0 million outstanding under term loans. All amounts outstanding under
the Loan and Security Agreement become due and payable in May 2002.
The Company repaid all amounts outstanding under an existing bank
borrowing arrangement with advances under the Loan and Security Agreement.
In connection with this repayment the Company recorded an extraordinary
loss on the extinguishment of debt of $1,003,000, which primarily
consisted of unamortized deferred financing costs.
The Bank Debt is collateralized by substantially all of the Company's
assets and is guaranteed jointly and severally, and unconditionally, in
full by each of the Company's subsidiaries. The bank credit agreement
provides for the maintenance of certain financial ratios and other
financial covenants and also includes limitations on capital expenditures,
incurrence of additional debt, payment of dividends, capital stock
transactions and asset dispositions.
The revenue bond payable provides for monthly escrow deposits in amounts
sufficient to fund annual sinking fund requirements. Mandatory sinking
fund redemptions are required each December 1 through final redemption in
2014. The bonds are supported by an irrevocable letter of credit, which is
backed by a guarantee provided by a commercial lender. The letter of
credit and guarantee are collateralized by a first priority lien on the
Company's Philadelphia real property. The commercial lender also has a
lien on certain production equipment owned by the Company.
One of the notes payable to a government agency requires that the Company
maintain a letter of credit for $750,000.
In connection with a loan agreement and a capital lease, the Company
issued warrants, which contained antidilution provisions, to purchase
2,700 and 412 shares, respectively, of common stock at $0.01 per share.
The stock warrant purchase obligations were initially recorded at their
estimated fair value at the date of issuance. Adjustments to the carrying
value of the stock warrants purchase obligations to the estimated
redemption price were recognized during the period from the date of
issuance to the earliest put date of the warrants. During the year ended
September 30, 1996, the Company had increased the carrying value of the
warrants from $899,000 to $1,516,000 with a corresponding charge to
retained earnings of $617,000. During the six months ended March 31, 1997,
the carrying value of the warrants was increased by $207,000 and the
warrants were converted into 4,538 nonvoting shares of Class A common
stock.
- 13 -
<PAGE>
As part of the acquisition of Quality Foods, the Company borrowed $76.0
million under term loans and $25.0 million under bridge notes. The bridge
notes, $66.0 million of the term notes, and certain other long-term
obligations were repaid upon the issuance of the senior notes payable,
resulting in an extraordinary loss of $4.5 million. No income tax benefit
was allocated to the extraordinary loss, as the Company's income tax
benefit was fully allocated to the loss from operations.
Minimum principal payments of long-term obligations as of March 31, 1999
are as follows:
Year Ending 1999
March 31, (In Thousands)
2000 $ 1,113
2001 1,106
2002 1,064
2003 16,571
2004 115,818
Thereafter 11,336
---------
Total $ 147,008
=========
8. RELATED PARTY TRANSACTIONS
The Company had a sales brokerage agreement with a stockholder under which
the stockholder was paid a specified commission based on sales of certain
products to certain customers. The agreement was terminated in January
1996 for a fee of $4,996,000. Commission expense under this agreement was
$570,000 for the year ended September 30, 1996. Upon termination of the
sales brokerage agreement, the Company entered into a consulting agreement
that provided for a one-year contract with an option to extend for one
additional year. The consulting agreement provided for annual payments of
$100,000 with an additional bonus of $100,000 at the discretion of the
Company. During 1996, the Company paid $100,000. During December 1996, the
Company purchased all 865 nonvoting Class A common shares owned by this
stockholder for $692,000.
Effective December 31, 1996, the Company entered into a new management
consulting agreement with an affiliate of a stockholder under which the
Company is obligated to pay $600,000 per year plus expenses through
December 2003, at which time the agreement is automatically extended
annually, until terminated by the Company or the stockholder. Consulting
expense under this and a preceding agreement was $400,000, $292,000,
$666,000 and $736,000, including reimbursed expenses, for the year ended
September 30, 1996, the six months ended March 31, 1997, and the years
ended March 31, 1998 and 1999, respectively. The Company paid an
investment banking fee of $750,000 to the same affiliate of a stockholder
upon consummation of a 1996 acquisition.
The Company and certain of its shareholders have entered into a
shareholder agreement that restricts the transfer or sale of the Company's
stock. Among other provisions, the shareholder agreement provides for the
right of first refusal upon sale of the stock in addition to providing for
the election of certain directors of the Company.
- 14 -
<PAGE>
The Company has entered into employment agreements with certain of its
executive officers, which expire at various dates through December 2001.
Such agreements provided for minimum salary levels, adjusted annually for
cost-of-living changes, as well as for incentive bonuses, which are
payable if specified management goals are attained, and for the issuance
of stock options. The aggregate commitment for future salaries and minimum
bonuses at March 31, 1999, was approximately $1.5 million through December
2001. Additionally, the Company has entered into consulting agreements
with key individuals, which expire at various dates through December 2001,
and total commitment for future salaries of approximately $600,000.
9. REDEEMABLE COMMON STOCK
In December 1996, in connection with the execution of certain employment
agreements (see Note 8), three management shareholders were granted the
right to sell certain shares of common stock and shares to be issued upon
the exercise of certain stock options back to the Company. The management
shareholders have the right to sell these shares upon the occurrence of
certain employment-related events, which include termination without
cause, termination for nonrenewal of employment agreement and involuntary
termination. With respect to 3,011 shares of redeemable nonvoting - Class
A common stock, the redemption price is determined by a formula specified
in the agreement. With respect to 2,162 shares of redeemable nonvoting
Class B common stock, the redemption price is the fair value of shares or
in certain circumstances the higher of the price paid for the stock or the
fair value. The redemption amounts are payable in cash or, in certain
circumstances, subordinated notes payable. With respect to the 3,011
shares, in certain circumstances, the Company has the right to purchase
the stock from the management shareholder at a formula-driven price as
determined in the agreement.
The redeemable common stock was initially recorded at its fair value at
the date the common stock was issued. Adjustments to the carrying value of
the redeemable common stock are recorded when the redemption value exceeds
the carrying value. As of March 31, 1999, no change in the carrying value
was necessary.
10. STOCK OPTION PLAN
In connection with the recapitalization (see Note 1), the Company assumed
all obligations of CFP Holdings under the CFP Holdings Stock Option Plan
(the "1995 Stock Option Plan"). Under the plan, which is administered by
the Board of Directors, 11,586 shares of nonvoting common stock were
reserved for the issuance of incentive stock options or nonqualified stock
options to directors, employees and consultants of the Company. The price,
terms and conditions of each issuance are determined based on the
provisions of the plan. During the year ended September 30, 1995, 11,239
options were granted at an exercise price of $289 per share, of which
7,437 options were exercisable as of September 30, 1996. In December 1996,
7,487 options at $289 per share were exercised for nonvoting common stock.
Thereafter, the Company repurchased 2,645 shares of these newly issued
shares for $2.1 million less the exercise cost of $764,000 for net cash
paid of $1,352,000 that was recorded as compensation expense. During
fiscal year 1999 there were no options granted or shares exercised
relating to the 1995 Stock Option Plan. As of March 31, 1999, 2,206 vested
options at an exercise price of $289 per share, expiring 2002, were
outstanding.
- 15 -
<PAGE>
In June 1998 the Company's Board of Directors, adopted a new incentive
stock option plan (the "1998 Stock Option Plan"), which allows the grant
of both incentive stock options and nonqualified stock options to key
employees of the Company. A total of 5,525 shares of nonvoting common
stock has been authorized and reserved for issuance under this plan. As of
March 31, 1999, 4,862 options had been granted at an exercise price of
either $289 or $694. As of March 31, 1999, all stock options granted and
outstanding under the 1998 Stock Option Plan were unvested.
The Company has adopted the disclosure-only provision of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." As such, compensation cost has been recognized
under its stock-based compensation plans in accordance with APB No. 25,
"Accounting for Stock Issued to Employees." The estimated fair value of
options granted under the 1995 Stock Option Plan and the 1998 Stock Option
Plan pursuant to SFAS No. 123 was $664,000 and $50,000, respectively. Had
compensation cost for the Company's stock option plan been determined
based on their fair value at the date of grant consistent with the
provisions of SFAS No. 123, the Company's pro forma net loss would have
been $1.3 million, $8.0 million, $5.7 million and $3.7 for the year ended
September 30, 1996, the six months ended March 31, 1997 and the years
ended March 31, 1998 and 1999, respectively. The fair value of each option
grant was estimated using the Black-Scholes option pricing model with the
following assumptions for the 1995 and 1998 plans, respectively: dividend
yield and volatility of zero for both years, a risk-free interest rate of
6.28% and 5.48%, and expected option lives of 3.7 and 5 years.
11. INCOME TAXES
The (benefit) provision for income taxes consisted of the following:
Six Months Year Ended
Year Ended Ended March 31
September 30, March 31 --------------
1996 1997 1998 1999
(In Thousands)
Current:
Federal $(401)
State 2 $ 5 $ 30 $ 467
----- ----- ----- -----
(399) 5 30 467
----- ----- ----- -----
Deferred:
Federal 39 (427)
State (49) (119)
----- ----- ----- -----
(10) (546)
----- ----- ----- -----
Total (benefit) provision $(409) $(541) $ 30 $ 467
===== ===== ===== =====
- 16 -
<PAGE>
<TABLE>
The major elements contributing to the difference between the federal
statutory income tax rate and the effective income tax rate relating to
loss before income taxes are as follows:
<CAPTION>
Six Months Year Ended
Year Ended Ended March 31,
September 30, March 31, --------------------
1996 1997 1998 1999
<S> <C> <C> <C> <C>
Statutory rate (35.0)% (35.0)% (35.0)% (35.0)%
Officer's life insurance and other
nondeductible expenses 4.0 1.0 2.0 0.6
Goodwill amortization 6.4 1.6 1.8 3.2
State taxes, net (1.6) 2.6 (2.0) 10.6
Valuation allowance 23.4 33.2 35.7
---- ---- ---- ----
Effective tax rate (26.2)% (6.4)% 0.0 % 15.1 %
==== ==== ==== ====
</TABLE>
<TABLE>
Deferred income taxes consist of the following:
<CAPTION>
March 31,
September 30, -------------------------------------------
1996 1997 1998 1999
(In Thousands)
<S> <C> <C> <C> <C>
Deferred income tax assets:
Federal net operating loss carryforwards $ 2,894 $ 4,747 $ 5,171
State taxes $ 26 160 113
Accrued vacation 39 114 113 102
Expense accruals 21 38 485 767
State net operating loss carryforwards 43 627 849 452
AMT credit carryforward 189 126 126
Other 106
Valuation allowances (3,149) (5,333) (4,785)
------- ------- ------- -------
$ 318 $ 650 $ 1,147 $ 1,926
======= ======= ======= =======
Deferred income tax liabilities:
Depreciation and amortization $ 681 $ 405 $ 1,135 $ 1,905
Prepaid expenses 51 101 12
Other 131 144 21
------- ------- ------- -------
$ 863 $ 650 $ 1,147 $ 1,926
======= ======= ======= =======
</TABLE>
At March 31, 1999, the Company had federal net operating loss
carryforwards of approximately $14.8 million, of which $3.8 million expire
in 2003 and the remaining $11 million expire in 2013 through 2019. At
March 31, 1999, the Company had various states operating loss
carryforwards of approximately $7.5 million, which expire in the years
2001 through 2019.
During the six months ended March 31, 1997 and the years ended March 31,
1998 and 1999, the Company established a valuation allowance equal to the
net deferred tax asset of $3.1 million, $5.3 million, and $4.8 million,
respectively.
- 17 -
<PAGE>
12. COMMITMENTS
The Company leases its facilities and certain equipment under both capital
and noncancelable operating leases that expire through November 2021. Rent
expense under operating leases totaled $618,000, $618,000, $444,000 and
$1,220,000 for the year ended September 30, 1996, the six months ended
March 31, 1997, and the years ended March 31, 1998 and 1999, respectively.
Certain of the leases require the payment of related property taxes,
insurance, maintenance and other costs.
Minimum future lease payments under both capital and operating leases,
together with the present value of the net minimum lease payments under
capital leases as of March 31, 1999, are summarized as follows:
Capital Operating
Leases Leases
------ ------
March 31, (In Thousands)
2000 $ 1,240 $ 229
2001 1,094 202
2002 1,113 115
2003 844 53
2004 841 26
Thereafter 13,754 10
------- -----
Total minimum lease payments 18,886 $ 635
Amount representing interest (12,670) =====
-------
Present value of net minimum lease payments $ 6,216
=======
The Company is involved in certain legal proceedings arising in the
ordinary course of business, none of which is expected to have a material
impact on the financial condition of the Company.
13. BENEFIT PLAN
One of the Company's subsidiaries has a defined contribution
profit-sharing salary reduction plan covering substantially all of its
employees not otherwise covered under a collective bargaining agreement.
Company contributions to the profit-sharing plan are determined by the
Board of Directors and are a percentage of each participant's
compensation. Benefit plan expense recorded by the Company was $98,000 and
$266,000 for the years ended March 31, 1998 and 1999, respectively.
14. SEGMENT INFORMATION
In fiscal year 1999, the Company implemented SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." SFAS No. 131
requires disclosure of certain information about operating segments,
geographic areas in which the Company operates, and major customers. In
accordance with SFAS No. 131, the Company has determined it has two
operating segments, Custom Food Products and Quality Foods. Each of these
segments is managed separately primarily because of geography and
differences in products and customer base. Custom Food Products develops,
manufactures and markets precooked meat and poultry products sold
primarily to manufacturers of branded and private label packaged foods.
Custom Food Products is also a major supplier of frozen uncooked beef
products to a national franchise operation. Quality Foods is the country's
leading manufacturer of thinly sliced beef supplying quick service
restaurants, sandwich chains, and family dining establishments.
- 18 -
<PAGE>
Custom Foods Products has one significant customer that represents
approximately $14 million, $28 million, and $24 million for the six months
ended March 31, 1997, and the years ended March 31, 1998 and 1999,
respectively. Additionally, the Company sells products to authorized
distributors, who in turn sell these products to two franchising
operations. For Custom Food Products one of these franchising operations
is significant in total with $21 million, $47 million, and $45 million for
the six months ended March 31, 1997, and the years ended March 31, 1998
and 1999, respectively. Quality Foods also has a significant customer
franchise with sales of $6 million, $36 million and $39 million for the
six months ended March 31, 1997, and the years ended March 31, 1998 and
1999, respectively.
The accounting policies of these segments are the same as those described
in the summary of significant accounting principles. The Company does not
maintain separate stand-alone financial statements prepared in accordance
with generally accepted accounting principles for each of its operating
segments. In accordance with SFAS No. 131, the Company has prepared the
following tables, which present information related to each operating
segment included in internal management reports.
<TABLE>
1999
(In Thousands)
<CAPTION>
Custom Quality Corporate
Foods Foods and Other Eliminations Total
<S> <C> <C> <C> <C> <C>
Net sales to external customers $ 87,676 $ 95,488 $ 183,164
Interest expense 945 394 $ 15,983 17,322
Depreciation and amortization
expense 1,539 4,910 284 6,733
Extraordinary item 1,003 1,003
Segment profit (loss) from
operations 11,177 5,055 (997) 15,235
Long-lived assets 27,468 87,948 117,959 $ (131,770) 101,605
Total segments assets 41,245 108,816 118,113 (131,770) 136,404
Capital expenditures 1,224 4,880 6,104
1998
(In Thousands)
Custom Quality Corporate
Foods Foods and Other Eliminations Total
Net sales to external customers $ 94,992 $ 86,386 $ 181,378
Interest expense 863 4,490 $ 11,883 17,236
Depreciation and amortization
expense 2,190 4,197 345 6,732
Extraordinary item
Segment profit (loss) from
operations 9,555 3,256 (1,073) 11,738
Long-lived assets 27,903 75,977 160,086 $ (160,712) 103,254
Total segments assets 40,848 92,597 160,346 (160,712) 133,079
Capital expenditures 2,132 3,384 5,516
</TABLE>
- 19 -
<PAGE>
<TABLE>
1997
(In Thousands)
Note: Statement of Operations Information for the Six Months Ended March 31, 1997
<CAPTION>
Custom Quality Corporate
Foods Foods and Other Eliminations Total
<S> <C> <C> <C> <C> <C>
Net sales to external customers $ 42,254 $ 18,275 $ 60,529
Interest expense 3,405 95 $ 3,706 $ (2,525) 4,681
Depreciation and amortization
expense 1,165 247 1,116 (292) 2,236
Extraordinary item 4,489 4,489
Segment profit (loss) from
operations 3,215 294 (2,730) 779
Long-lived assets 28,988 21,018 137,767 (81,675) 106,098
Total segments assets 40,751 34,163 139,583 (81,675) 132,822
Capital expenditures 1,459 215 1,674
</TABLE>
There is no segment disclosure for the year ended September 30, 1996, as Custom
Food Products was the Company's only segment prior to the December 31, 1996
acquisition of Quality Foods.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
Selected financial information for the quarterly periods for the years
ended March 31, 1998 and 1999.
<CAPTION>
1999
-------------------------------------------------------------
June 30 September 30 December 31 March 31
(In Thousands)
<S> <C> <C> <C> <C>
Net sales $ 44,276 $ 45,070 $ 46,137 $ 47,682
Gross profit 8,173 9,108 8,761 9,605
Income from operations 3,201 4,274 3,913 3,801
Loss before income taxes (1,142) (79) (393) (472)
Net loss (2,195) (260) (393) (708)
1998
-------------------------------------------------------------
June 30 September 30 December 31 March 31
(In Thousands)
Net sales $ 44,755 $ 46,593 $ 47,335 $ 42,695
Gross profit 7,472 8,088 6,675 6,659
Income from operations 3,346 3,928 2,172 2,292
Loss before income taxes (804) (484) (2,160) (2,050)
Net loss (804) (484) (2,160) (2,080)
</TABLE>
- 20 -
<PAGE>
16. SUMMARIZED FINANCIAL INFORMATION
<TABLE>
The full financial statements of each of the other co-guarantors of the
senior notes payable (see Note 7) have not been provided because the
Company's management believes that the presentation of full financial
statements is not material to investors. Summarized financial information
of CFP Group, Inc. and CFP Holdings, Inc. as of March 31, 1999 and 1998 is
as follows:
<CAPTION>
March 31, 1999
----------------------------------------------------------
CFP
Holdings CFP CFP Group,
Inc. Group, Inc.
Consolidated Inc. Eliminations Consolidated
(In Thousands)
<S> <C> <C> <C> <C>
Total current assets $ 34,799 $ 34,799
Total noncurrent assets 101,605 101,605
Investment in subsidiary $ 2,490 $ (2,490)
--------- ------- -------- ---------
Total $ 136,404 $ 2,490 $ (2,490) $ 136,404
========= ======= ======== =========
Total current liabilities $ 16,706 $ 16,706
--------- ---------
Total noncurrent liabilities 145,895 145,895
--------- ---------
Intercompany (receivable) payable (28,687) $ 28,687
--------- ------- ---------
Redeemable preferred stock 1,228 $ (1,228)
--------- ------- -------- ---------
Common stock subject to redemption 2,319 2,319
--------- ------- -------- ---------
Stockholder's equity (deficiency):
Voting common stock 3,196 3,196 (3,196) 3,196
Nonvoting common stock 5,146 2,827 (5,146) 2,827
Stockholder's notes receivable (203) (203)
Accumulated deficit (7,080) (34,336) 7,080 (34,336)
--------- ------- -------- ---------
Total stockholder's equity (deficiency) 1,262 (28,516) (1,262) (28,516)
--------- ------- -------- ---------
Total $ 136,404 $ 2,490 $ (2,490) $ 136,404
========= ======= ======== =========
</TABLE>
- 21 -
<PAGE>
<TABLE>
<CAPTION>
Year Ended March 31, 1999
-------------------------------------------------------------
CFP
Holdings CFP CFP Group,
Inc. Group, Inc.
Consolidated Inc. Eliminations Consolidated
(In Thousands)
<S> <C> <C> <C> <C>
Sales $ 183,164 $ 183,164
Cost of sales 147,518 147,518
--------- ---------
Gross profit 35,646 35,646
Selling, general and administrative expenses 20,458 20,458
--------- ---------
Income from operations 15,188 15,188
Equity in loss of subsidiary $ (3,557) $ 3,557
Interest expense 17,275 17,275
--------- -------- ------- ---------
Loss before income taxes and
extraordinary item (2,087) (3,557) 3,557 (2,087)
Provision for income taxes 467 467
--------- -------- ------- ---------
Loss before extraordinary item (2,554) (3,557) 3,557 (2,554)
Extraordinary loss on early
extinguishment of debt (1,003) (1,003)
--------- -------- ------- ---------
Net loss $ (3,557) $ (3,557) $ 3,557 $ (3,557)
========= ======== ======= =========
</TABLE>
- 22 -
<PAGE>
<TABLE>
<CAPTION>
March 31, 1998
--------------------------------------------------------------
CFP
Holdings CFP CFP Group,
Inc. Group, Inc.
Consolidated Inc. Eliminations Consolidated
(In Thousands)
<S> <C> <C> <C> <C>
Total current assets $ 29,829 $ (4) $ 29,825
Total noncurrent assets 103,254 103,254
Investment in subsidiary 6,047 $ (6,047)
--------- ------- -------- ---------
Total $ 133,083 $ 6,043 $ (6,047) $ 133,079
========= ======== ======== =========
Total current liabilities $ 14,452 $ 14,452
--------- ---------
Total noncurrent liabilities 141,267 141,267
--------- ---------
Intercompany (receivable) payable (28,683) $ 28,683
--------- --------- ---------
Redeemable preferred stock 1,228 $ (1,228)
--------- --------- -------- ---------
Common stock subject to redemption 2,319 2,319
--------- --------- -------- ---------
Stockholder's equity (deficiency):
Voting common stock 3,196 3,196 (3,196) 3,196
Nonvoting common stock 5,146 2,827 (5,146) 2,827
Stockholder's notes receivable (203) (203)
Accumulated deficit (3,523) (30,779) 3,523 (30,779)
--------- --------- -------- ---------
Total stockholder's equity (deficiency) 4,819 (24,959) (4,819) (24,959)
--------- --------- -------- ---------
Total $ 133,083 $ 6,043 $ (6,047) $ 133,079
========= ========= ======== =========
</TABLE>
- 23 -
<PAGE>
<TABLE>
<CAPTION>
Year Ended March 31, 1998
------------------------------------------------------
CFP
Holdings CFP CFP Group,
Inc. Group, Inc.
Consolidated Inc. Eliminations Consolidated
(In Thousands)
<S> <C> <C> <C> <C>
Sales $ 181,378 $ 181,378
Cost of sales 152,484 152,484
--------- ---------
Gross profit 28,894 28,894
Selling, general and administrative
expenses 17,156 17,156
--------- ---------
Income from operations 11,738 11,738
Equity in loss of subsidiary $ (5,528) $ 5,528
Interest expense 17,236 17,236
-------- -------- ------- --------
Loss before income taxes and
extraordinary item (5,498) (5,528) 5,528 (5,498)
Provision for income taxes 30 30
-------- -------- ------- --------
Loss before extraordinary item (5,528) (5,528) 5,528 (5,528)
Extraordinary loss on early
extinguishment of debt
-------- -------- ------- --------
Net loss $ (5,528) $ (5,528) $ 5,528 $ (5,528)
======== ======== ======= ========
</TABLE>
******
(15045)
- 24 -
<PAGE>
CFP HOLDINGS, INC.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
Years Ended September 1995, and 1996
Six Months Ended March 31, 1997
Years Ended March 31, 1998 and 1999
<CAPTION>
Balance at Balance at
beginning Charged to Charged to end
Description of period Expenses Other Deductions of period
----------- --------- -------- ----- ---------- ---------
Accounts Receivable: (In Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended September 30, 1995 9 129 -- -- 138
Year ended September 30, 1996 138 12 -- (100) 50
Year ended March 31, 1997 50 22 50 (29) 93
Year ended March 31, 1998 93 119 (79) (18) 115
Year ended March 31, 1999 115 256 -- (2) 369
</TABLE>
53
EXHIBIT 10.16
TRADEMARK COLLATERAL SECURITY AGREEMENT
THIS TRADEMARK COLLATERAL SECURITY AGREEMENT is made as of the ___ day
of May, 1999, by and between QF ACQUISITION CORP. (d/b/a Quality Foods), a
Delaware corporation having its chief executive office at 5501 Tabor Road,
Philadelphia, Pennsylvania 13120 ("Company") and FLEET CAPITAL CORPORATION,
having a mailing address at 200 Glastonbury Boulevard, Glastonbury, Connecticut
06033 ("Lender").
BACKGROUND
Custom Food Products, Inc., Company and CFP Holdings, Inc. (each a
"Borrower" and collectively, "Borrowers") and Lender have entered into a Loan
and Security Agreement of even date herewith (as amended, modified, restated and
supplemented from time to time, the "Loan Agreement") providing for loans and
advances by Lender to Borrowers. In order to induce Lender to execute and
deliver the Loan Agreement, Company agreed to execute and deliver to Lender this
Trademark Collateral Security Agreement (as amended, modified, restated or
supplemented from time to time, the "Security Agreement"). This Security
Agreement, covering Trademarks (as hereinafter defined), is being executed
contemporaneously with the Loan Agreement under which Lender is granted a lien
on and security interest in, inter alia, machinery, equipment formulations,
manufacturing procedures, quality control procedures and product specifications
("Other Assets") relating to products sold under the Trademarks whereby Lender
shall have the right to foreclose on the Trademarks and Other Assets in the
event of the occurrence and continuation of a default hereunder or an Event of
Default under the Loan Agreement.
NOW, THEREFORE, in consideration of the premises, Borrower and Lender
hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
Loan Agreement shall have their defined meanings when used herein and the
following terms shall have the following meanings, unless the context otherwise
requires:
"Code" shall mean the Uniform Commercial Code as the same may
from time to time be in effect in the State of New York.
"Collateral" shall have the meaning assigned to it in Section
2 of this Security Agreement.
"Licenses" shall mean the trademark license agreements of
Borrower designated on Schedule I hereto, as any of the same may from time to
time be amended or supplemented.
"Proceeds" shall have the meaning assigned to it under Section
9-306 of the Code, and in any event, shall include, but not be limited to, (i)
any and all proceeds of any insurance, indemnity, warranty or guarantee payable
to Borrower from time to time with respect to any of the Collateral, (ii) any
and all payments (in any form whatsoever) made or due and payable to Borrower
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental body, authority, bureau or agency (or any person acting under color
of governmental authority), and (iii) any and all other amounts from time to
time paid or payable under or in connection with any
<PAGE>
of the Collateral.
"Security Agreement" shall mean this Security Agreement, as
the same may from time to time be amended or supplemented.
"Trademarks" shall mean the U.S., Canadian and foreign
registered trademarks, service marks and pending applications shown in the
attached Schedule A, and those trademarks and service marks which are hereafter
adopted or acquired by Company, and all right, title and interest therein and
thereto, and all registrations, applications, and recordings thereof, including,
without limitation, applications, registrations and recordings in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof, Canada and any other country, all whether now
owned or hereafter acquired by Company.
2. Grant of Security Interest. As collateral security for the prompt
payment of the Obligations (except PMSI Loans which are secured by the Equipment
financed thereby), Company hereby grants and conveys to Lender a security
interest in and to (a) the entire right, title and interest of Borrower in and
to the Trademarks, including the registrations and applications appurtenant
thereto, listed in Schedule A hereto (as the same may be amended pursuant hereto
from time to time), and in and to any and all trademarks, and registrations and
applications appurtenant thereto, hereafter acquired or filed by Company,
including without limitation all renewals thereof, all proceeds of infringement
suits, the rights to sue for past, present and future infringements and all
rights corresponding thereto in the United States, Canada and any other country,
and the goodwill of the business to which each of the Trademarks relates and (b)
all of Company's right, title and interest in, to and under the following:
(i) all Licenses;
(ii) all Accounts, contract rights and General
Intangibles arising under or relating to each and every License (including,
without limitation, (A) all moneys due and to become due under any License, (B)
any damages arising out of or for breach or default in respect of any such
License, (C) all other amounts from time to time paid or payable under or in
connection with any such License, and (D) the right of Company to terminate any
such License or to perform and to exercise all remedies thereunder); and,
(iii) to the extent not otherwise included, all
Proceeds and products of any or all of the foregoing. All of the property
referred to in this paragraph 2 is hereinafter collectively called the
"Collateral."
provided, however, that the foregoing grant of a security interest and Lien
shall not include any rights or interests in the Property listed on Exhibit 4.1
of the Loan Agreement and any other comparable General Intangibles, Licenses or
contract rights or any Property of Company that is the subject of a Permitted
Purchase Money Lien securing Permitted Purchase Money Indebtedness if and to the
extent that (a) the terms of the document or documents creating or evidencing
such General Intangibles or contract rights or Permitted Purchase Money Lien or
Permitted Purchase Money Indebtedness as the case may be, prohibit such grant or
encumbrance thereof and (b) the term prohibiting such assignment or encumbrance
is effective as a matter of law and (c) the term prohibiting such assignment or
encumbrance has not been waived or the consent of the necessary party to the
grant of a security interest or Lien to Lender has not been obtained; provided
further, however, that (i) if any such prohibition is subsequently lifted,
terminated or is otherwise no longer effective as a matter of law or is waived
or the consent of the necessary party is obtained, the security interest granted
hereby shall automatically include
<PAGE>
such rights or interests in General Intangibles or contract rights formerly
subject to such prohibition without any further action on the part of Company or
Lender and (ii) the exclusion in the foregoing proviso shall not limit, impair
or otherwise affect Lender's security interest in any rights or interests of
Company in or to monies due or to become due under any such General Intangibles
or contract rights (including, without limitation, any Accounts).
3. Representations and Warranties. Company covenants and warrants that
as of the date of this Security Agreement:
(a) Company is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to each of the Trademarks, free
and clear of any liens, charges and encumbrances, (including without limitation
pledges, assignments, licenses, registered user agreements and covenants by
Company not to sue third persons), except (i) for the Licenses referred to in
Schedule I attached hereto, (ii) for any Permitted Liens, and (iii) to an extent
that does not constitute or result in a Material Adverse Effect.
(b) Company has used, and will continue to use for the
duration of this Security Agreement, proper statutory notice, where appropriate,
in connection with its use of the Trademarks, except where the failure to use or
to continue to use such notice would not have a Material Adverse Effect; and
(c) Company has used, and will continue to use for the
duration of this Security Agreement, consistent standards of quality in its
manufacture of products sold under the Trademarks, except where the failure to
use or to continue to use such standards would not have a Material Adverse
Effect.
4. New Trademarks. (a) If, before the Obligations shall have been paid
in full, Company shall obtain rights to any new trademarks, the provisions of
paragraph 2 shall automatically apply thereto and Company shall give Lender
prompt written notice thereof. (b) Company grants Lender a power-of-attorney,
irrevocable so long as the Loan Agreement is in existence, to modify this
Security Agreement by amending Schedule A to include any future trademarks,
including trademark registrations or applications appurtenant thereto covered by
this Security Agreement.
5. Covenants. Company covenants and agrees with Lender that from and
after the date of this Security Agreement and until the Obligations are fully
satisfied:
(a) Maintenance of Trademarks. Company will not do any act, or
omit to do any act, whereby the Trademarks or any registration or application
appurtenant thereto, may become abandoned, invalidated, unenforceable, avoided,
avoidable, or will otherwise diminish in value, except where the failure to act
or omit to do any act would not have a Material Adverse Effect, and shall notify
Lender immediately if it knows of any reason or has reason to know of any ground
under which this result may occur. Company shall take appropriate action at its
expense to halt the infringement of the Trademarks and shall properly exercise
its duty to control the nature and quality of the goods offered by any licensees
in connection with the Licenses set forth in Schedule I except where the failure
to do so would not have a Material Advance Effect.
(b) Indemnification. (A) Company assumes all responsibility
and liability arising from the use of the Trademarks, and Company hereby
indemnifies and holds Lender harmless from and against any claim, suit, loss,
damage or expense (including reasonable attorneys' fees) arising out of
Company's operations of its business from the use of the
<PAGE>
Trademarks. (B) In any suit, proceeding or action brought by Lender under any
License for any sum owing thereunder, or to enforce any provisions of such
License, Company will indemnify and keep Lender harmless from and against all
expense, loss or damage suffered by reason of any defense, set off,
counterclaim, recoupment or reduction or liability whatsoever of the obligee
thereunder, arising out of a breach of Company of any obligation thereunder or
arising out of any other agreement, indebtedness or liability at any time owing
to or in favor of such obligee or its successors from Company, and all such
obligations of Company shall be and remain enforceable against and only against
Company and shall not be enforceable against Lender.
6. Lender's Appointment as Attorney-in-Fact.
(a) Company hereby irrevocably constitutes and appoints Lender
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of Company and in the name of Company or in its own name, from
time to time in Lender's discretion, for the purposes of carrying out the terms
of this Security Agreement, upon the occurrence and continuance of an Event of
Default to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Security Agreement and, without limiting the generality of the
foregoing, hereby gives Lender the power and right, on behalf of Company, to do
the following:
(i) Upon the occurrence and continuance of an Event
of Default, to ask, demand, collect, receive and give acquittances and receipts
for any and all moneys due and to become due under any License and, in the name
of Company or its own name or otherwise, to take possession of and endorse and
collect any checks, drafts, notes, acceptances or other instruments for the
payment of moneys due under any License and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise deemed
appropriate by Lender for the purpose of collecting any and all such moneys due
under any License whenever payable; and
(ii) Upon the occurrence and continuance of an Event
of Default, (A) to direct any party liable for any payment under any of the
Licenses to make payment of any and all moneys due and to become due thereunder
directly to Lender or as Lender shall direct; (B) to receive payment of and
receipt for any and all moneys, claims and other amounts due and to become due
at any time in respect of or arising out of any Collateral; (C) to commence and
prosecute any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (D) to defend any suit,
action or proceeding brought against Company with respect to any Collateral; (E)
to settle, compromise, or adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or releases as Lender may
deem appropriate; and (F) generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though Lender were the absolute owner thereof for all
purposes, and to do, at Lender's option all acts and things which Lender deems
necessary to protect, preserve or realize upon the Collateral and Lender's
security interest therein, in order to effect the intent of this Security
Agreement, all as fully and effectively as Company might do.
This power of attorney is a power coupled with an interest and shall be
irrevocable. Notwithstanding the foregoing, Company further agrees to execute
any additional documents which Lender may require in order to confirm this power
of attorney, or which Lender may deem necessary to enforce any of its rights
contained in this Security Agreement.
<PAGE>
(b) The powers conferred on Lender hereunder are solely to
protect its interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and neither it nor
any of its officers, directors, employees or agents shall be responsible to
Company for any act or failure to act, except for its own gross negligence or
willful misconduct.
(c) Company also authorizes Lender to execute, in connection
with the sale provided for in paragraph 8(b) of this Security Agreement, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
7. Execution of Power of Attorney. Concurrently with the execution and
delivery hereof, Company is executing and delivering to Lender, in the form of
Schedule II hereto, five (5) originals of a Power of Attorney for the
implementation of the assignment, sale or other disposal of the Trademarks
pursuant to this Agreement or the Loan Agreement. Notwithstanding the provisions
of such Power of Attorney, Lender shall not exercise its rights thereunder
except upon the occurrence and during the continuation of an Event of Default.
8. Remedies, Rights Upon Event of Default.
(a) If an Event of Default shall occur and be continuing, all
payments received by Company under or in connection with any of the Collateral
shall be held and applied as provided in the Loan Agreement.
(b) If any Event of Default shall occur and be continuing,
Lender may exercise in addition to all other rights and remedies granted to it
in this Security Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the Uniform Commercial Code. Company shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled.
9. Termination. At such time as Borrowers shall completely pay in full
all of the Obligations and the Loan Agreement is terminated, this Security
Agreement shall terminate and Lender shall execute and deliver to Company all
such releases, deeds, assignments and other instruments as may be necessary or
proper to re-vest in Company full title to the Trademarks, subject to any
disposition thereof which may have been made by Lender pursuant hereto.
10. Notices. Any notice to Lender or Company shall be deemed to have
been duly given when delivered in the manner and to the addresses set forth in
the Loan Agreement.
11. No Waiver. No course of dealing between Company and Lender, nor any
failure to exercise, nor any delay in exercising, on the part of Lender, any
right, power or privilege hereunder or under the Loan Agreement shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder or thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
12. Cumulative Remedies. All of Lender's rights and remedies with
respect to the Collateral, whether established hereby or by the Loan Agreement,
or by any other agreements or by law, shall be cumulative and may be exercised
singularly or concurrently.
13. Severability. The provisions of this Security Agreement are
severable, and if any clause or provision shall be held invalid and
unenforceable in whole or in part in any
<PAGE>
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such clause or provision in any other jurisdiction, or any other
clause or provision of this Agreement in any jurisdiction.
14. No Modification Except in Writing. This Security Agreement is
subject to modification only by a writing signed by the parties, except as
provided in paragraphs 4 and 6.
15. Successors and Assigns. The benefits and burdens of this Security
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. This Security Agreement shall
not be assigned by either party except in connection with a permitted assignment
of the Loan Agreement.
<PAGE>
16. Governing Law. The validity and interpretation of this Security
Agreement and the rights and obligations of the parties shall be governed by the
laws of the State of New York (without giving effect to principles of conflicts
of laws).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the day and year first above written.
QF ACQUISITION CORP.
(d/b/a quality Foods)
By:__________________________________
Name: Eric Ek
Title: Vice President and CFO
FLEET CAPITAL CORPORATION
By:___________________________
Name:
Title:
<PAGE>
SCHEDULE A
Schedule A to a Trademark Collateral Security Agreement dated May __, 1999, by
and between QF ACQUISITION CORP. (d/b/a Quality Foods) and FLEET CAPITAL
CORPORATION.
Reg. No. or State or Reg. or
Application No. Mark Country Issue Date
- --------------- ---- ------- ----------
1528471 TASTY CHEF U.S.A 3/7/89
<PAGE>
STATE OF ____________ )
: ss.:
COUNTY OF ___________ )
Before me, the undersigned, on this ____ day of May, 1999, personally
appeared Eric Ek to me known personally, and who being by me duly sworn, deposes
and says that he is the Vice President and CFO of QF ACQUISITION CORP., the
corporation described in and which executed the above instrument and that he was
authorized to sign said instrument on behalf of said corporation.
________________________________
Notary Public
STATE OF NEW YORK )
:ss.:
COUNTY OF NEW YORK)
Before me, the undersigned, on this ____ day of May, 1999, personally
appeared __________, to me known personally, and who being by me duly sworn,
deposes and says that he is the __________ of FLEET CAPITAL CORPORATION, the
corporation described in and which executed the above instrument and that he was
authorized to sign said instrument on behalf of said corporation.
________________________________
Notary Public
<PAGE>
SCHEDULE I
None
<PAGE>
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that QF ACQUISITION CORP. (d/b/a
Quality Foods), a corporation formed under the laws of Delaware ("Company"),
with its chief executive office at 5501 Tabor Road, Philadelphia, Pennsylvania
13120, pursuant to a Trademark Collateral Security Agreement, dated the date
hereof (the "Security Agreement"), hereby appoints and constitutes a Connecticut
corporation, with offices at 200 Glastonbury Boulevard, Glastonbury, Connecticut
06033, in its capacity as lender ("Lender") under a Loan and Security Agreement
dated the date hereof among Company, CFP Holdings, Inc. and Custom Food
Products, Inc., and Lender (the "Loan Agreement"), its true and lawful attorney,
with full power of substitution, and with full power and authority to perform
the following acts on behalf of Company:
Assigning, selling or otherwise disposing of all right, title and
interest of Company in and to the Trademarks listed on Schedule A of
the Security Agreement, and including those trademarks which are added
to the same subsequent hereto, and all registrations and recordings
thereof, and all pending applications therefor, and for the purpose of
the recording, registering and filing of, or accomplishing any other
formality with respect to the foregoing, and to execute and deliver any
and all agreements, documents, instruments of assignment or other
papers necessary or advisable to effect such purpose;
This power of attorney is made pursuant to the Security Agreement,
dated the date hereof, between Company and Lender and may not be revoked until
the payment in full of all Obligations as defined in, and the irrevocable
termination of, the Loan Agreement.
Dated: May __, 1998
QF ACQUISITION CORP. (d/b/a Quality Foods)
By: _______________________________________
Name: Eric Ek
Title: Vice President and
Chief Financial Officer
<PAGE>
STATE OF ___________ )
: ss.:
COUNTY OF ___________ )
On this ____ day of May, 1999, before me personally came Eric Ek, to me
known, who, being by me duly sworn, did depose and say that he is the Vice
President and Chief Financial Officer of QF Acquisition Corp., the corporation
described in and which executed the foregoing instrument; and that he was
authorized to sign his name thereto by on behalf of said corporation.
________________________________
Notary Public
EXHIBIT 10.17
PATENT COLLATERAL SECURITY AGREEMENT
THIS PATENT COLLATERAL SECURITY AGREEMENT is made as of the ____ day of
May, 1999, by and between QF ACQUISITION CORP. (d/b/a Quality Foods), a Delaware
corporation having its chief executive office at 5501 Tabor Road, Philadelphia,
Pennsylvania 13120 ("Company") and FLEET CAPITAL CORPORATION, having a mailing
address at 200 Glastonbury Boulevard, Glastonbury, Connecticut 06033 ("Lender").
BACKGROUND
Company, Custom Food Products, Inc. and CFP Holdings, Inc. (each a
"Borrower" and collectively, the "Borrowers") and Lender have entered into a
Loan and Security Agreement of even date herewith (as amended, modified,
restated and supplemented from time to time, the "Loan Agreement") providing for
loans and advances by Lender to Borrowers. In order to induce Lender to execute
and deliver the Loan Agreement, Company agreed to execute and deliver to Lender
this Patent Collateral Security Agreement (as amended, modified, restated and
supplemented from time to time, the "Security Agreement"). This Security
Agreement, covering Patents (as hereinafter defined), is being executed
contemporaneously with the Loan Agreement under which Lender is granted a lien
on and security interest in the Patents, whereby Lender shall have the right to
foreclose on the Patents in the event of the occurrence and continuation of a
default hereunder or an Event of Default under the Loan Agreement.
NOW, THEREFORE, in consideration of the premises, Company and
Lender hereby agree as follows:
1. Defined Terms. As used in this Security Agreement, terms defined in
the Loan Agreement shall have their defined meanings when used herein and the
following terms shall have the following meanings, unless the context otherwise
requires:
"Code" shall mean the Uniform Commercial Code as the same may
from time to time be in effect in the State of New York.
"Collateral" shall have the meaning assigned to it in Section
2 of this Security Agreement.
"Licenses" shall mean the patent license agreements of Company
designated on Schedule I hereto, as any of the same may from time to time be
amended or supplemented.
"Patents" shall mean all right, title and interest in and to
the U.S., Canadian and foreign patent applications and U.S., Canadian and
foreign patents shown in the attached Schedule A and those patents which are
hereafter obtained or acquired by Company and all registrations, applications
and recordings thereof, including, without limitation, all reissues, divisions,
continuations, renewals, extensions and continuations-in-part thereof, and all
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof, Canada and any other country, all whether now owned or hereafter
acquired by Company.
"Proceeds" shall have the meaning assigned to it under Section
9-306 of the Code, and in any event, shall include, but not be limited to, (i)
any and all proceeds of any
<PAGE>
insurance, indemnity, warranty or guarantee payable to Company from time to time
with respect to any of the Collateral, (ii) any and all payments (in any form
whatsoever) made or due and payable to Company from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any governmental body, authority, bureau or
agency (or any person acting under color of governmental authority), and (iii)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
"Security Agreement" shall mean this Security Agreement, as
the same may from time to time be amended or supplemented.
2. Grant of Security Interest. As collateral security for the prompt
payment of the Obligations (except PMSI Loans which are secured by the Equipment
financed thereby), Company hereby grants and conveys to Lender a security
interest in and to (a) the entire right, title and interest of Company in and to
the Patents, including the registrations and applications appurtenant thereto,
listed in Schedule A hereto (as the same may be amended pursuant hereto from
time to time), and in and to any and all patents, and registrations and
applications appurtenant thereto, hereafter acquired or filed by Company,
including without limitation all renewals thereof, all proceeds of infringement
suits, the rights to sue for past, present and future infringements and all
rights corresponding thereto in the United States, Canada and any other country,
and all reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof, and (b) all of Company's right, title and
interest in, to and under the following:
(i) all Licenses;
(ii) all Accounts, contract rights and General
Intangibles arising under or relating to each and every License (including,
without limitation, (A) all moneys due and to become due under any License, (B)
any damages arising out of or for breach or default in respect of any such
License, (C) all other amounts from time to time paid or payable under or in
connection with any such License, and (D) the right of Company to terminate any
such License or to perform and to exercise all remedies thereunder); and,
(iii) to the extent not otherwise included, all
Proceeds and products of any or all of the foregoing. All of the property
referred to in this paragraph 2 is hereafter collectively called the
"Collateral".
provided, however, that the foregoing grant of a security interest and Lien
shall not include any rights or interests in the Property listed on Exhibit 4.1
of the Loan Agreement and any other comparable General Intangibles, Licenses or
contract rights or any Property of Company that is the subject of a Permitted
Purchase Money Lien securing Permitted Purchase Money Indebtedness if and to the
extent that (a) the terms of the document or documents creating or evidencing
such General Intangibles or contract rights or Permitted Purchase Money Lien or
Permitted Purchase Money Indebtedness as the case may be, prohibit such grant or
encumbrance thereof and (b) the term prohibiting such assignment or encumbrance
is effective as a matter of law and (c) the term prohibiting such assignment or
encumbrance has not been waived or the consent of the necessary party to the
grant of a security interest or Lien to Lender has not been obtained; provided
further, however, that (i) if any such prohibition is subsequently lifted,
terminated or is otherwise no longer effective as a matter of law or is waived
or the consent of the necessary party is obtained, the security interest granted
hereby shall automatically include such rights or interests in General
Intangibles or contract rights formerly subject to such prohibition without any
further action on the part of Company or Lender and (ii) the exclusion in the
foregoing proviso shall not limit, impair or otherwise affect Lender's security
interest in any rights or interests of Company in or to monies due or to become
due under any such General Intangibles or contract rights (including, without
<PAGE>
limitation, any Accounts).
3. Representations and Warranties. Company covenants and warrants that
as of the date of this Security Agreement:
(a) Company is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to each of the Patents, free and
clear of any liens, charges and encumbrances, (including without limitation
pledges, assignments, licenses, registered user agreements and covenants by
Company not to sue third persons), except (i) for the items disclosed in
Schedule I attached hereto, (ii) for any Permitted Liens and (iii) to an extent
that does not constitute or result in a Material Adverse Effect.
(b) Company has used, and will continue to use for the
duration of this Security Agreement, proper statutory notice, where appropriate,
in connection with its use of the Patents, except where the failure to use or
continue to use such notice would not have a Material Adverse Effect; and
(c) Company has used, and will continue to use for the
duration of this Security Agreement, consistent standards of quality in its
manufacture of products sold under the Patents, except where the failure to use
or continue to use such standards would not have a Material Adverse Effect.
4. New Patents. (a) If, before the Obligations shall have been paid in
full, Company shall obtain rights to any new Patents or become entitled to the
benefit of any patent application or patent for any reissue, division,
continuation, renewal, extension, or continuation-in-part of any Patent or any
improvement on any Patent, the provisions of paragraph 2 shall automatically
apply thereto and Company shall give Lender prompt written notice thereof. (b)
Company grants Lender a power-of-attorney, irrevocable so long as the Loan
Agreement is in existence, to modify this Security Agreement by amending
Schedule A to include any future Patents, including Patent registrations or
applications appurtenant thereto covered by this Security Agreement.
5. Covenants. Company covenants and agrees with Lender that from and
after the date of this Security Agreement and until the Obligations are fully
satisfied:
(a) Maintenance of Patents. Company will not do any act, or
omit to do any act, whereby the Patents or any registration or application
appurtenant thereto, may become abandoned, invalidated, unenforceable, avoided,
avoidable, or will otherwise diminish in value, except where the failure to act
or omit to do any act would not have a Material Adverse Effect, and shall notify
Lender immediately if it knows of any reason or has reason to know of any ground
under which this result may occur. Company shall take appropriate action at its
expense to halt the infringement of the Patents and shall properly exercise its
duty to control the nature and quality of the goods offered by any licensees in
connection with the Licenses set forth in Schedule I except when the failure to
do so would not have a Material Adverse Effect.
(b) Indemnification. (A) Company assumes all responsibility
and liability arising from the use of the Patents, and Company hereby
indemnifies and holds Lender harmless from and against any claim, suit, loss,
damage or expense (including reasonable attorneys' fees) arising out of
Company's operations of its business from the use of the Patents. (B) In any
suit, proceeding or action brought by Lender under any License for any sum owing
thereunder, or to enforce any provisions of such License, Company will indemnify
and keep Lender harmless from and against all expense, loss or damage suffered
by reason of any defense, set off, counterclaim,
<PAGE>
recoupment or reduction or liability whatsoever of the obligee thereunder,
arising out of a breach of Company of any obligation thereunder or arising out
of any other agreement, indebtedness or liability at any time owing to or in
favor of such obligee or its successors from Company, and all such obligations
of Company shall be and remain enforceable against and only against Company and
shall not be enforceable against Lender.
6. Lender's Appointment as Attorney-in-Fact.
(a) Company hereby irrevocably constitutes and appoints Lender
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of Company and in the name of Company or in its own name, from
time to time in Lender's discretion, for the purposes of carrying out the terms
of this Security Agreement, upon the occurrence and continuance of an Event of
Default to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Security Agreement and, without limiting the generality of the
foregoing, hereby gives Lender the power and right, on behalf of Company, to do
the following:
(i) Upon the occurrence and continuance of an Event
of Default, to ask, demand, collect, receive and give acquittances and receipts
for any and all moneys due and to become due under any License and, in the name
of Company or its own name or otherwise, to take possession of and endorse and
collect any checks, drafts, notes, acceptances or other instruments for the
payment of moneys due under any License and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise deemed
appropriate by Lender for the purpose of collecting any and all such moneys due
under any License whenever payable; and
(ii) Upon the occurrence and continuance of an Event
of Default, (A) to direct any party liable for any payment under any License to
make payment of any and all moneys due and to become due thereunder directly to
Lender or as Lender shall direct; (B) to receive payment of and receipt for any
and all moneys, claims and other amounts due and to become due at any time in
respect of or arising out of any Collateral; (C) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral; (D) to defend any suit, action or
proceeding brought against Company with respect to any Collateral; (E) to
settle, compromise, or adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or releases as Lender may
deem appropriate; and (F) generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though Lender were the absolute owner thereof for all
purposes, and to do, at Lender's option all acts and things which Lender deems
necessary to protect, preserve or realize upon the Collateral and Lender's
security interest therein, in order to effect the intent of this Security
Agreement, all as fully and effectively as Company might do.
This power of attorney is a power coupled with an interest and shall be
irrevocable. Notwithstanding the foregoing, Company shall execute any additional
documents which Lender may require in order to confirm this power of attorney,
or which Lender may deem necessary to enforce any of its rights contained in
this Security Agreement.
(b) The powers conferred on Lender hereunder are solely to
protect its interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and neither it nor
any of its officers, directors, employees or agents shall be responsible to
Company for any act or failure to act, except for its own recklessness or
willful misconduct.
<PAGE>
(c) Company also authorizes Lender to execute, in connection
with the sale provided for in paragraph 8(b) of this Security Agreement, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
7. Execution of Power of Attorney. Concurrently with the execution and
delivery hereof, Company is executing and delivering to Lender, in the form of
Schedule II hereto, five (5) originals of a Power of Attorney for the
implementation of the assignment, sale or other disposal of the Patents pursuant
to this Agreement or the Loan Agreement. Notwithstanding the provisions of such
Power of Attorney, Lender shall not exercise its rights thereunder except upon
the occurrence and during the continuation of an Event of Default.
8. Remedies, Rights Upon Event of Default.
(a) If an Event of Default shall occur and be continuing, all
payments received by Company under or in connection with any of the Collateral
shall be held and applied as provided in the Loan Agreement.
(b) If any Event of Default shall occur and be continuing,
Lender may exercise in addition to all other rights and remedies granted to it
in this Security Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the Uniform Commercial Code. Company shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled.
9. Termination. At such time as Borrowers shall completely pay in full
all of the Obligations and the Loan Agreement is terminated, this Security
Agreement shall terminate and Lender shall execute and deliver to Company all
such releases, deeds, assignments and other instruments as may be necessary or
proper to re-vest in Company full title to the Patents, subject to any
disposition thereof which may have been made by Lender pursuant hereto.
10. Notices. Any notice to Lender or Company shall be deemed to have
been duly given when delivered in the manner and to the addresses set forth in
the Loan Agreement.
11. No Waiver. No course of dealing between Company and Lender, nor any
failure to exercise, nor any delay in exercising, on the part of Lender, any
right, power or privilege hereunder or under the Loan Agreement shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder or thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
12. Cumulative Remedies. All of Lender's rights and remedies with
respect to the Collateral, whether established hereby or by the Loan Agreement,
or by any other agreements or by law, shall be cumulative and may be exercised
singularly or concurrently.
13. Severability. The provisions of this Security Agreement are
severable, and if any clause or provision shall be held invalid and
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Agreement in
any jurisdiction.
14. No Modification Except in Writing. This Security Agreement is
subject to modification only by a writing signed by the parties, except as
provided in paragraphs 4 and 6.
<PAGE>
15. Successors and Assigns. The benefits and burdens of this Security
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. This Security Agreement shall
not be assigned by either party except in connection with a permitted assignment
of the Loan Agreement.
<PAGE>
16. Governing Law. The validity and interpretation of this Security
Agreement and the rights and obligations of the parties shall be governed by the
laws of the State of New York (without giving effect to principles of conflicts
of laws).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the day and year first above written.
QF ACQUISITION CORP.
(d/b/a Quality Foods)
By:_______________________________
Name: Eric Ek
Title: Vice President and CFO
FLEET CAPITAL CORPORATION
By:_______________________________
Name:
Title:
<PAGE>
SCHEDULE A
Schedule A to a Patent Collateral Security Agreement dated May __, 1999, by and
between QF ACQUISITION CORP. (d/b/a Quality Foods) and FLEET CAPITAL CORPORATION
STATE OR ISSUE OR
PATENT NO. COUNTRY FILING DATE TITLE
- ---------- ------- ----------- -----
4,975,294 U.S.A. 12/4/90 Process for making a
restructured meat product
<PAGE>
STATE OF ____________ )
: ss.:
COUNTY OF ____________ )
Before me, the undersigned, on this ____ day of May, 1999, personally
appeared Erik Ek to me known personally, and who being by me duly sworn, deposes
and says that he is the Vice President and CFO of QF ACQUISITION CORP., the
corporation described in and which executed the above instrument and that he was
authorized to sign said instrument on behalf of said corporation.
_____________________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
Before me, the undersigned, on this ____ day of May, 1999, personally
appeared _____________________, to me known personally, and who being by me duly
sworn, deposes and says that he is the _____________________ of FLEET CAPITAL
CORPORATION, the corporation described in and which executed the above
instrument and that he was authorized to sign said instrument on behalf of said
corporation.
_____________________________________
Notary Public
<PAGE>
SCHEDULE I
NONE
<PAGE>
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that QF ACQUISITION CORP. (d/b/a
Quality Foods), a corporation formed under the laws of Delaware, with its chief
executive office at 5501 Tabar Road, Philadelphia, Pennsylvania 13120
("Company"), pursuant to a Patent Collateral Security Agreement ("Security
Agreement"), hereby appoints and constitutes FLEET CAPITAL CORPORATION, a
Connecticut corporation, with offices at 200 Glastonbury Boulevard, Glastonbury,
Connecticut 06033, in its capacity as lender ("Lender") under a Loan and
Security Agreement dated the date hereof AMONG Company, CFP Holdings, Inc. and
Custom Food Products, Inc. and Lender (the "Loan Agreement"), its true and
lawful attorney, with full power of substitution, and with full power and
authority to perform the following acts on behalf of Company:
Assigning, selling or otherwise disposing of all right, title and
interest of Company in and to the Patents listed on Schedule A of the
Security Agreement, and including those trademarks which are added to
the same subsequent hereto, and all registrations and recordings here
of, and all pending applications therefor, and for the purpose of the
recording, registering and filing of, or accomplishing any other
formality with respect to the foregoing, and to execute and deliver any
and all agreements, documents, instruments of assignment or other
papers necessary or advisable to effect such purpose;
This power of attorney is made pursuant to the Security Agreement,
dated the date hereof, between Company and Lender and may not be revoked until
the payment in full of all Obligations as defined in the Loan Agreement.
Dated: May __, 1998
QF ACQUISITION CORP.
(d/b/a Quality Foods)
By:______________________________
Name: Erik Ek
Title: Vice President and CFO
<PAGE>
STATE OF ______________ )
: ss.:
COUNTY OF ____________ )
On this ____ day of May, 1999, before me personally came Erik Ek to me
known, who, being by me duly sworn, did depose and say that he is the Vice
President & CFO of QF ACQUISITION CORP., the corporation described in and which
executed the foregoing instrument; and that he was authorized to sign his name
thereto on behalf of said corporation.
_____________________________________
Notary Public
EXHIBIT 10.18
PATENT ASSIGNMENT OF SECURITY
WHEREAS, QF ACQUISITION CORP. (d/b/a Quality Foods), a corporation
formed under the laws of Delaware, having a principal place of business at 5501
Tabor Road, Philadelphia, Pennsylvania 13120 ("Company"), owns the patents and
patent applications shown in the attached Schedule A (the "Patents"), for which
there are recordings or applications in the United States Patent and Trademark
Office under the numbers shown in the attached Schedule A; and
WHEREAS, Company is obligated to Fleet Capital Corporation ("Lender"),
pursuant to (i) a certain Loan and Security Agreement, dated the date hereof,
among Lender, Custom Food Products, Inc., QF Acquisition Corp. and CFP Holdings,
Inc.; and (ii) a certain Patent Collateral Security Agreement, dated the date
hereof, made by Company in favor of Lender (as each may be amended, modified,
restated or supplemented from time to time, collectively, the "Agreements"); and
WHEREAS, pursuant to the Agreements, Company is granting to Lender a
security interest in the Patents, all proceeds thereof, all rights corresponding
thereto and all reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof, and the recordings and applications therefore.
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, Company does hereby assign unto Lender and grant to
Lender a security interest in and to the Patents, and recordings and
applications therefor, which assignment and security interest shall secure all
the Obligations as defined in the Agreements and in accordance with the terms
and provisions thereof.
Company expressly acknowledges and affirms that the rights and remedies
of Lender with respect to the assignment and security interest granted hereby
are more fully set forth in the Agreements.
Dated: New York, New York
May __, 1998
Witness: QF ACQUISITION CORP. (d/b/a Quality
Foods)
______________________________ By:________________________________
Name: Eric Ek
Title: Vice President and CFO
Witness: FLEET CAPITAL CORPORATION
______________________________ By:________________________________
Name:
Title:
<PAGE>
STATE OF ___________ )
: ss.:
COUNTY OF _________ )
On this ___ day of May, 1998, before me personally came Eric Ek to me
known, who, being by me duly sworn, did depose and say that he is the Vice
President and CFO of QF Acquisition Corp., the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the board of directors of said corporation.
______________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this ___ day of May, 1998, before me personally came __________, to
me known, who, being by me duly sworn, did depose and say that he is the
__________ of Fleet Capital Corporation, the corporation described in and which
executed the foregoing instrument; and that he was authorized to sign his name
thereto on behalf of said corporation.
______________________________
Notary Public
<PAGE>
SCHEDULE A
Schedule A to a Patent Assignment of Security dated May __, 1998, by
and between QF ACQUISITION CORP. (d/b/a Quality Foods) and Fleet Capital
Corporation.
APPLICATION OR ISSUE OR
PATENT NO. FILING DATE TITLE
---------- ----------- -----
4,975,294 12/4/90 Process for making a
restructured meat product
EXHIBIT 10.19
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of May 5, 1998, made by CFP Holdings, Inc.
("Pledgor") to Fleet Capital Corporation (the "Pledgee").
BACKGROUND TO THE AGREEMENT
Pledgee and each of Custom Food Products, Inc., QF Acquisition Corp.
and CFP Holdings, Inc. (each a "Borrower" and collectively, "Borrowers") are
parties to a Loan and Security Agreement dated as of May 5, 1998 (as amended,
modified and supplemented from time to time, the "Loan Agreement") pursuant to
which Pledgee agreed, subject to the terms and conditions contained therein, to
provide certain financial accommodations to Borrowers.
In order to induce Pledgee to provide the financial accommodations
described in the Loan Agreement, Pledgor has agreed to pledge and grant a
security interest to Pledgee in the Pledged Collateral (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, Pledgor hereby agrees with Pledgee as follows:
SECTION 1. Defined Terms
Unless otherwise defined herein, terms defined in the Loan Agreement
shall have such defined meanings when used herein.
SECTION 2. Pledge
Pledgor hereby pledges, assigns, hypothecates, transfers and grants a
security interest to Pledgee in all of the following (the "Pledged Collateral"):
(a) the shares of stock set forth next to Pledgor's name on Schedule A
annexed hereto and expressly made a part hereof (the "Pledged Stock"), the
certificates representing the Pledged Stock and all dividends, cash, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Stock;
(b) all additional shares of stock of any issuer of the Pledged Stock
(the "Issuer") from time to time acquired by Pledgor in any manner, including,
without limitation, stock dividends or a distribution in connection with any
increase or reduction of capital, reclassification, merger, consolidation, sale
of assets, combination of shares, stock split, spin-off or split-off (which
shares shall be deemed to be part of the Pledged Collateral), and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares; and
(c) all options and rights, whether as an addition to, in substitution
of or in exchange for any shares of the Pledged Stock and all dividends, cash
and instruments.
<PAGE>
SECTION 3. Indebtedness Secured
This pledge is made to secure and the Pledged Collateral is security
for the payment of (a) all the Obligations (except PMSI Loans which are secured
by the Equipment financed thereby) and (b) any and all other indebtedness,
obligations and liabilities of Borrowers to Pledgee whether now existing or
hereafter arising, direct or indirect, liquidated or unliquidated, absolute or
contingent, due or not due and whether under, pursuant to or evidenced by a
note, agreement, guaranty, other instrument or otherwise ((a) and (b)
collectively, the "Indebtedness").
SECTION 4. Delivery of Pledged Collateral
All certificates representing or evidencing the Pledged Stock shall be
delivered to and held by or on behalf of Pledgee pursuant hereto and shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to Pledgee. Pledgor hereby authorizes each
Issuer upon demand by Pledgee to deliver any certificates or instruments issued
in connection with the Pledged Collateral directly to Pledgee, in each case to
be held by Pledgee, subject to the terms hereof. After the occurrence and during
the continuation of an Event of Default, upon notice to Pledgor, Pledgee shall
have the right, at any time in its discretion and without notice to the Pledgor,
to transfer to or to register in the name of Pledgee or any of its nominees any
or all of the Pledged Stock. In addition, Pledgee shall have the right at any
time to exchange certificates or instruments representing or evidencing Pledged
Stock for certificates or instruments of smaller or larger denominations.
SECTION 5. Representations and Warranties
Pledgor represents and warrants to Pledgee that:
(a) Pledgor has the requisite power and authority to enter into this
Agreement, to pledge the Pledged Collateral for the purposes described herein.
(b) The execution, delivery and performance by Pledgor of this
Agreement has been duly and properly authorized and does not and will not result
in any violation of any agreement, indenture or other instrument, license,
judgment, decree, order, law, statute, ordinance or other governmental rule or
regulation applicable to Pledgor.
(c) This Agreement constitutes a legal, valid and binding obligation of
Pledgor enforceable in accordance with its terms except to the extent limited by
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally or by general principles of equity.
(d) Pledgor is the direct and beneficial owner of each share of the
Pledged Stock.
(e) All of the shares of the Pledged Stock have been duly authorized,
validly issued and are fully paid and nonassessable.
(f) Upon delivery of the Pledged Stock to Pledgee or an agent for
Pledgee, in the State of New York and continuous possession thereby this
Agreement creates and grants a valid first lien on and perfected security
interest in the Pledged Collateral and the proceeds thereof, subject to no prior
Lien, or to any agreement purporting to grant to any third party a Lien upon the
property or assets of Pledgor which would include the Pledged Collateral.
<PAGE>
(g) There are no restrictions on transfer of the Pledged Stock
contained in the Certificate of Incorporation or by-laws of the Issuers or
otherwise which have not otherwise been enforceably and legally waived by the
necessary parties.
(h) None of the Pledged Stock has been issued or transferred in
violation of the securities registration, securities disclosure or similar laws
of any jurisdiction to which such issuance or transfer may be subject.
(i) No consent, approval, authorization or other order of any Person
and no consent, authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required by
Pledgor either (i) for the pledge of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement or
(ii) for the exercise by the Pledgee of the voting or other rights provided for
in this Agreement or the remedies in respect of the Pledged Collateral pursuant
to this Agreement, except as may be required in connection with such disposition
by laws affecting the offering and sale of securities generally.
(j) No notification of the pledge evidenced hereby to any Person is
required.
(k) As of the date hereof, there are no existing options, warrants,
calls or commitments of any such character whatsoever relating to any Pledged
Stock and no indebtedness or other security convertible into any Pledged Stock.
(l) The Pledged Stock constitutes one hundred percent (100%) in the
aggregate, and the indicated percentage for Pledgor, of the issued and
outstanding shares of capital stock of the Issuers thereof set forth on Schedule
A annexed hereto.
The representations and warranties set forth in this Section 5 (other
than those contained in Section (k)) shall survive the execution and delivery of
this Agreement.
SECTION 6. Covenants
Pledgor covenants that, until the Indebtedness shall be satisfied in
full and the Loan Agreement is irrevocably terminated:
(a) Pledgor will not sell, assign, transfer, convey, or otherwise
dispose of its rights in or to the Pledged Collateral or any interest therein;
nor will Pledgor create, incur or permit to exist any Lien whatsoever with
respect to any of the Pledged Collateral or the proceeds thereof other than that
created hereby.
(b) Pledgor will, at its expense, defend Pledgee's right, title and
security interest in and to the Pledged Collateral against the claims of any
Person.
(c) Pledgor shall at any time, and from time to time, upon the written
request of Pledgee, execute and deliver such further documents and do such
further acts and things as Pledgee may reasonably request in order to effect the
purposes of this Agreement including, but without limitation, delivering to
Pledgee upon the occurrence of an Event of Default irrevocable proxies in
respect of the Pledged Collateral in form satisfactory to Pledgee. Until receipt
thereof, this Agreement shall constitute Pledgor's proxy to Pledgee or its
nominee to vote all shares of Pledged Collateral then registered in Pledgor's
name.
<PAGE>
(d) Pledgor will not consent to or approve the issuance of (i) any
additional shares of any class of capital stock of the Issuer; (ii) any
securities convertible either voluntarily by the holder thereof or automatically
upon the occurrence or nonoccurrence of any event or condition into, or any
securities exchangeable for, any such shares; or (iii) any warrants, options,
contracts or other commitments entitling any person to purchase or otherwise
acquire any such shares.
SECTION 7. Voting Rights and Dividends
In addition to Pledgee's rights and remedies set forth in Section 9
hereof, in case an Event of Default shall have occurred and has been declared by
Pledgee, Pledgee shall (i) vote the Pledged Collateral (ii) be entitled to give
consents, waivers and ratifications in respect of the Pledged Collateral
(Pledgor hereby irrevocably constituting and appointing Pledgee, with full power
of substitution, the proxy and attorney-in-fact of Pledgor for such purposes)
and (iii) be entitled to collect and receive for its own use cash dividends paid
on the Pledged Collateral. Pledgor shall not be permitted to exercise or refrain
from exercising any voting rights or other powers if, in the reasonable judgment
of Pledgee, such action would have a material adverse effect on the value of the
Pledged Collateral or any part thereof; and, provided, further, that Pledgor
shall give at least five (5) days' written notice of the manner in which Pledgor
intends to exercise, or the reasons for refraining from exercising, any voting
rights or other powers other than with respect to any election of directors and
voting with respect to any incidental matters. After the occurrence and
continuance of an Event of Default, upon notice from Pledgee to Pledgor, all
dividends and all other distributions in respect of any of the Pledged
Collateral, whenever paid or made, shall be delivered to Pledgee to hold as
Pledged Collateral and shall, if received by Pledgor, be received in trust for
the benefit of Pledgee, be segregated from the other property or funds of
Pledgor, and be forthwith delivered to Pledgee as Pledged Collateral in the same
form as so received (with any necessary endorsement).
SECTION 8. Event of Default
An Event of Default shall be deemed to have occurred and may be
declared by Pledgee upon the happening of any of the following events:
(a) An Event of Default shall occur under the Loan Agreement
(b) Pledgor shall default in the performance of any of its obligations
under any agreement between Pledgor and Pledgee, including, without limitation,
this Agreement;
(c) Any representation, warranty, statement or covenant made or
furnished to Pledgee by or on behalf of Pledgor proves to have been false in any
material respect when made or furnished or is breached, violated or not complied
with; or
(d) Pledgor shall (i) apply for, consent to, or suffer to exist the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or other fiduciary of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vi) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of the
foregoing.
<PAGE>
SECTION 9. Remedies
In case an Event of Default shall have occurred and be declared by
Pledgee, Pledgee may:
(a) Transfer any or all of the Pledged Collateral into its name, or
into the name of its nominee or nominees;
(b) Exercise all corporate rights with respect to the Pledged
Collateral including, without limitation, all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any shares
of the Pledged Collateral as if it were the absolute owner thereof, including,
but without limitation, the right to exchange, at its discretion, any or all of
the Pledged Collateral upon the merger, consolidation, reorganization,
recapitalization or other readjustment of the Issuer thereof, or upon the
exercise by the Issuer of any right, privilege or option pertaining to any of
the Pledged Collateral, and, in connection therewith, to deposit and deliver any
and all of the Pledged Collateral with any committee, depository, transfer
agent, registrar or other designated agent upon such terms and conditions as it
may determine, all without liability except to account for property actually
received by it;
(c) Subject to any requirement of applicable law, sell, assign and
deliver the whole or, from time to time, any part of the Pledged Collateral at
the time held by Pledgee, at any private sale or at public auction, with or
without demand, advertisement or notice of the time or place of sale or
adjournment thereof or otherwise (all of which are hereby waived, except such
notice as is required by applicable law and cannot be waived), for cash or
credit or for other property for immediate or future delivery, and for such
price or prices and on such terms as Pledgee in its sole discretion may
determine, or as may be required by applicable law.
Pledgor hereby waives and releases any and all right or equity of
redemption, whether before or after sale hereunder. At any such sale, unless
prohibited by applicable law, Pledgee may bid for and purchase the whole or any
part of the Pledged Collateral so sold free from any such right or equity of
redemption. All moneys received by Pledgee hereunder whether upon sale of the
Pledged Collateral or any part thereof or otherwise shall be held by Pledgee and
applied by it as provided in Section 12 hereof. No failure or delay on the part
of Pledgee in exercising any rights hereunder shall operate as a waiver of any
such rights nor shall any single or partial exercise of any such rights preclude
any other or future exercise thereof or the exercise of any other rights
hereunder. Pledgee shall have no duty as to the collection or protection of the
Pledged Collateral or any income thereon nor any duty as to preservation of any
rights pertaining thereto, except to apply the funds in accordance with the
requirements of Section 12 hereof. Pledgee may exercise its rights with respect
to property held hereunder without resort to other security for or sources of
reimbursement for the Indebtedness. In addition to the foregoing, Pledgee shall
have all of the rights, remedies and privileges of a secured party under the
Uniform Commercial Code of New York regardless of the jurisdiction in which
enforcement hereof is sought.
SECTION 10. Registration
If Pledgee shall exercise its right to sell all or any part of the Pledged
Collateral, and if, in the opinion of counsel for Pledgee, it is necessary to
have the Pledged Collateral being sold registered under the provisions of the
Securities Act of 1933, as amended (the "Securities Act"), (i) Pledgor will use
its best efforts to cause the Issuer to execute and deliver, and to cause the
directors and officers of the Issuer to execute and deliver, all at Pledgor's
expense, all such instruments and documents and to do or cause to be done all
such other acts and things as may be
<PAGE>
necessary to register the Pledged Collateral being sold under the provisions of
the Securities Act; (ii) Pledgor shall use commercially reasonable efforts to
cause any such registration statement to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Collateral being sold and to make all amendments thereto and to
related documents which, in the opinion of Pledgee or its counsel, are necessary
or advisable, all in conformity with the requirements of the Securities Act and
the rules and regulations of the Securities and Exchange Commission applicable
thereto; (iii) Pledgor shall also use commercially reasonable efforts to cause
the Issuer to comply with the provisions of the "Blue Sky" law of any
jurisdiction which Pledgee shall designate in connection with any sale
hereunder; and to cause the Issuer to make available to its security holders, as
soon as practicable, an earnings statement (which need not be audited) covering
a period of at least twelve months but not more than eighteen months, beginning
with the first month after the effective date of any such registration
statement, which earnings statement will satisfy the provisions of Section 11(a)
of the Securities Act; and (iv) Pledgor acknowledges that a breach of any of the
covenants contained in this Section may cause irreparable injury to Pledgee,
that Pledgee will have no adequate remedy at law with respect to such breach
and, as a consequence, such covenants of Pledgor shall be specifically
enforceable against Pledgor.
SECTION 11. Private Sale
Notwithstanding anything contained in Section 10, Pledgor recognizes
that Pledgee may be unable to effect (or to do so only after delay which would
adversely affect the value that might be realized from the Pledged Collateral) a
public sale of all or part of the Pledged Collateral by reason of certain
prohibitions contained in the Securities Act, and may be compelled to resort to
one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such Pledged Collateral for
their own account, for investment and not with a view to the distribution or
resale thereof. Pledgor agrees that any such private sale may be at prices and
on terms less favorable to the seller than if sold at public sales and that such
private sales shall be deemed to have been made in a commercially reasonable
manner. Pledgor agrees that Pledgee has no obligation to delay sale of any
Pledged Collateral for the period of time necessary to permit the Issuer to
register the Pledged Collateral for public sale under the Securities Act.
SECTION 12. Proceeds of Sale
The proceeds of any collection, recovery, receipt, appropriation,
realization or sale of the Pledged Collateral shall be applied by Pledgee as
follows:
(a) First, to the payment of all costs, expenses and charges of
Pledgee, as such, or the reimbursement of Pledgee for the prior payment of such
costs, expenses and charges incurred in connection with the care and safekeeping
of any of the Pledged Collateral (including, without limitation, the expenses of
any sale or other proceeding, the expenses of any taking, reasonable attorneys'
fees and expenses, court costs, any other expenses incurred or expenditures or
advances made by Pledgee in the protection, enforcement or exercise of its
rights, powers or remedies hereunder) with interest on any such reimbursement at
the rate prescribed in the Loan Agreement as the applicable Default Rate for
Base Rate Loans from the date of payment.
(b) Second, to the payment of the Indebtedness, in whole or in part, in
such order as Pledgee may elect, whether such Indebtedness is then due or not
due.
(c) Third, to such Persons as required by applicable law including,
without
<PAGE>
limitation, Section 9-504(1)(c) of the Uniform Commercial Code.
(d) Fourth, to the extent of any surplus thereafter remaining, to
Pledgor or as a court of competent jurisdiction may direct.
In the event that the proceeds of any collection, recovery, receipt,
appropriation, realization or sale are insufficient to satisfy the Indebtedness,
Pledgor shall be liable for the deficiency together with interest thereon at the
rate prescribed in the Loan Agreement as the Default Rate for Base Rate Loans
plus the reasonable fees of any attorneys employed by Pledgee to collect such
deficiency.
Pledgee, in its sole and absolute discretion, with or without notice to
Pledgor, may deposit any proceeds of any collection, recovery, receipt,
appropriation or sale of the Pledged Collateral in a non-interest bearing cash
collateral deposit account to be maintained as security for the Indebtedness.
SECTION 13. Information
Pledgor will promptly give or cause to be given written notice to
Pledgee of any notices or other documents received by it with respect to Pledged
Collateral registered in the name of Pledgor.
SECTION 14. Termination
This Agreement shall terminate and Pledgor shall be entitled to the
return, at Pledgor's expense, of such of the Pledged Collateral as has not
theretofore been sold or otherwise applied pursuant to this Agreement, together
with any moneys at any time held by Pledgee (pro-rata to Pledgor), upon payment
in full of the Indebtedness and irrevocable termination of the Loan Agreement.
SECTION 15. Concerning Pledgee
The recitals of fact herein shall be taken as statements of Pledgor for
which Pledgee assumes no responsibility. Pledgee makes no representation to
anyone as to the value of the Pledged Collateral or any part thereof or as to
the validity or adequacy of the security afforded or intended to be afforded
thereby or as to the validity of this Agreement. Pledgee shall be protected in
relying upon any notice, consent, request or other paper or document believed by
it to be genuine and correct and to have been signed by a proper person. The
permissive rights of Pledgee hereunder shall not be construed as duties of
Pledgee. Pledgee shall be under no obligation to take any action toward the
enforcement of this Agreement or rights or remedies in respect of any of the
Pledged Collateral. Pledgee shall not be personally liable for any action taken
or omitted by it in good faith and reasonably believed by it to be within the
power or discretion conferred upon it by this Agreement.
SECTION 16. Notices
Any notice or request hereunder may be given to Pledgor or to Pledgee
at their respective addresses set forth below or at such other address as may
hereafter be specified in a notice designated as a notice of change of address
under this Section. Any notice or request hereunder shall be given by (a) hand
delivery, (b) registered or certified mail, return receipt requested, (c) telex
or telegram, subsequently confirmed by registered or certified mail, or (d)
telex to the number set out below (or such other number as may hereafter be
specified in a notice
<PAGE>
designated as a notice of change of address) with telephone communication to a
duly authorized officer of the recipient confirming its receipt as subsequently
confirmed by registered or certified mail. Any notice or other communication
required or permitted pursuant to this Agreement shall be deemed given (a) when
personally delivered to any officer of the party to whom it is addressed, (b) on
the earlier of actual receipt thereof or three (3) days following posting
thereof by certified or registered mail, postage prepaid, or (c) upon actual
receipt thereof when sent by a recognized overnight delivery service or (d) upon
actual receipt thereof when sent by telecopier to the number set forth below
with telephone communication confirming receipt and subsequently confirmed by
registered, certified or overnight mail to the address set forth below, in each
case addressed to each party at its address set forth below or at such other
address as has been furnished in writing by a party to the other by like notice:
(A) If to Pledgee, at: Fleet Capital Corporation
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Telephone: (860) 659-3200
Telecopier: (860) 657-7759
Attention: Northeast Loan
Administration Manager
with a copy to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118-0075
Attention: Daniel J. Krauss, Esq.
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
(B) If to Pledgor, at: CFP Holdings, Inc.
1117 West Olympic Boulevard
Montebello, California 90640
Attention: Chief Financial Officer
Telephone: (213) 727-0900
Telecopier: (213) 727-0412
with a copy to: O'Sullivan Graev & Karabell
30 Rockefeller Plaza
New York, New York 10112
Attention: Stewart Kagan, Esq.
Telephone: (212) 408-2400
Telecopier: (212) 408-2420
SECTION 17. Governing Law.
This Agreement and all rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the State of New York
applied to contracts to be performed wholly within the State of New York.
SECTION 18. Waivers.
(a) PLEDGOR AND PLEDGEE EACH HEREBY EXPRESSLY WAIVE ANY AND ALL RIGHTS
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR
IN ANY WAY CONNECTED WITH OR
<PAGE>
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OTHER
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS
RELATING HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE; AND PLEDGOR AND
PLEDGEE EACH HEREBY AGREE AND CONSENT THAT ANY SUCH ACTIONS OR PROCEEDINGS SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT EITHER PARTY MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE OTHER PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL
BY JURY.
(b) Pledgee may at any time and from time to time, either before or
after the maturity thereof, without notice to or further consent of Pledgor,
extend the time of payment of, exchange or surrender any collateral for, renew
or extend any of the Indebtedness or increase or decrease the interest rate
thereon, and may also make any agreement with Borrowers or with any other party
to or person liable on any of the Indebtedness, or interested therein, for the
extension, renewal, payment, compromise, discharge or release thereof, in whole
or in part, or for any modification of the terms thereof or of any agreement
between Pledgee and Borrowers or any such other party or person, or make any
election of rights Pledgee may deem desirable under the United States Bankruptcy
Code, as amended, or any other federal or state bankruptcy, reorganization,
moratorium or insolvency law relating to or affecting the enforcement of
creditors' rights generally without in any way impairing or affecting this
Agreement.
(c) Pledgor waives any rights to interpose any defense, counterclaim or
offset of any nature and description which it may have or which may exist
between and among Pledgee, Borrowers and/or Pledgor with respect to Pledgor's
obligations under this Agreement, or which Borrowers may assert on the
underlying debt, including but not limited to failure of consideration, breach
of warranty, fraud, payment (other than cash payment in full of the
Indebtedness), statute of frauds, bankruptcy, infancy, statute of limitations,
accord and satisfaction, and usury.
(d) Pledgor further waives (i) notice of the making of any loans or
extensions of credit by Pledgee to Borrowers, and of all notices and demands of
any kind to which Pledgor may be entitled, including, without limitation, notice
of adverse change in any Borrower's financial condition or of any other fact
which might materially increase the risk of Pledgor; and (ii) presentment to or
demand of payment from anyone whomsoever liable upon any of the Indebtedness,
protest, notices of presentment, non-payment or protest and notice of any sale
of collateral security or any default of any sort.
(e) Until the Indebtedness is paid in full, Pledgor expressly waives
any and all rights of subrogation, reimbursement, indemnity, exoneration,
contribution or any other claim which Pledgor may now or hereafter have against
Borrowers or any other person directly or contingently liable for the
Indebtedness, or against or with respect to any Borrower's property (including,
without limitation, property collateralizing Pledgor's obligations to Pledgee),
arising from the existence or performance of this Agreement. In furtherance, and
not in limitation, of the preceding waiver, Pledgor agrees that any payment to
Pledgee by Pledgor pursuant to this Agreement shall be deemed a contribution to
the capital of Borrowers or any other obligated party and any such payment shall
not constitute Pledgor a creditor of any such party.
SECTION 19. Litigation.
PLEDGOR EXPRESSLY CONSENTS TO THE JURISDICTION AND VENUE
<PAGE>
OF THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, AND OF THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR ALL
PURPOSES IN CONNECTION WITH THIS AGREEMENT. ANY JUDICIAL PROCEEDING BY PLEDGOR
AGAINST PLEDGEE INVOLVING, DIRECTLY OR INDIRECTLY ANY MATTER OR CLAIM IN ANY WAY
ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT
ONLY IN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK OR THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. PLEDGOR
FURTHER CONSENTS THAT ANY SUMMONS, SUBPOENA OR OTHER PROCESS OR PAPERS
(INCLUDING, WITHOUT LIMITATION, ANY NOTICE OR MOTION OR OTHER APPLICATION TO
EITHER OF THE AFOREMENTIONED COURTS OR A JUDGE THEREOF) OR ANY NOTICE IN
CONNECTION WITH ANY PROCEEDINGS HEREUNDER, MAY BE SERVED INSIDE OR OUTSIDE OF
THE STATE OF NEW YORK OR THE SOUTHERN DISTRICT OF NEW YORK BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY PERSONAL SERVICE PROVIDED A
REASONABLE TIME FOR APPEARANCE IS PERMITTED, OR IN SUCH OTHER MANNER AS MAY BE
PERMISSIBLE UNDER THE RULES OF SAID COURTS. PLEDGOR WAIVES ANY OBJECTION TO
JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREON AND SHALL NOT ASSERT ANY
DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON
CONVENIENS.
SECTION 20. No Waiver; Cumulative Remedies.
No failure on the part of Pledgee to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any such right, power or
remedy by Pledgee preclude any other or further exercise thereof or the exercise
of any right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law.
SECTION 21. Severability.
In case any security interest or other right of Pledgee shall be held
to be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability shall not affect any other security interest or other right,
privilege or power granted under this Agreement.
SECTION 22. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which when taken together shall
constitute one and the same instrument.
SECTION 23. Miscellaneous
Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing, signed by
Pledgee and Pledgor. The provisions of this Agreement shall be binding upon the
successors and assigns of Pledgor. The term "Pledgee", as used herein, shall
include any successor or assign of Pledgee at the time entitled to the pledged
interest in the Pledged Collateral. The headings in this Agreement are for
purposes of reference only and shall not limit or define the meaning hereof.
SECTION 24. Captions
<PAGE>
The captions at various places in this Agreement are intended for
convenience only and do not constitute and shall not be interpreted as part of
this Agreement.
SECTION 25. Recapture
Anything in this Agreement to the contrary notwithstanding, if Pledgee
receives any payment or payments on account of the Indebtedness, which payment
or payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver, or any other party under the United States Bankruptcy Code, as
amended, or any other federal or state bankruptcy, reorganization, moratorium or
insolvency law relating to or affecting the enforcement of creditors' rights
generally, common law or equitable doctrine, then to the extent of any sum not
finally retained by Pledgee, Pledgor's obligations to Pledgee shall be
reinstated and this Agreement shall remain in full force and effect (or be
reinstated) until payment shall have been made to Pledgee, which payment shall
be due on demand.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the ___ day of May, 1998.
CFP HOLDINGS, INC.
By:______________________________________
Name: Eric Ek
Title: Vice President and CFO
FLEET CAPITAL CORPORATION
By:______________________________________
Name:
Title:
<PAGE>
SCHEDULE A
<TABLE>
PLEDGED STOCK
ISSUER: CFP HOLDINGS, INC.
<CAPTION>
Issuer Class of Stock Stock Certificate Par Value Number of
Number Shares
<S> <C> <C> <C> <C>
Custom Food Products, Common 1 .01 100
Inc.
QF Acquisition Corp. Class A Common Voting A9 .01 1,960
Class B Common Voting B2 .01 140
</TABLE>
EXHIBIT 10.20
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of May 5, 1998, made by CFP Group, Inc.
("Pledgor") to Fleet Capital Corporation (the "Pledgee").
BACKGROUND TO THE AGREEMENT
Pledgee and each of Custom Food Products, Inc., QF Acquisition Corp.
and CFP Group, Inc. (each a "Borrower" and collectively, "Borrowers") are
parties to a Loan and Security Agreement dated as of May 5, 1998 (as amended,
modified and supplemented from time to time, the "Loan Agreement") pursuant to
which Pledgee agreed, subject to the terms and conditions contained therein, to
provide certain financial accommodations to Borrowers.
In order to induce Pledgee to provide the financial accommodations
described in the Loan Agreement, Pledgor has agreed to pledge and grant a
security interest to Pledgee in the Pledged Collateral (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, Pledgor hereby agrees with Pledgee as follows:
SECTION 1. Defined Terms
Unless otherwise defined herein, terms defined in the Loan Agreement
shall have such defined meanings when used herein.
SECTION 2. Pledge
Pledgor hereby pledges, assigns, hypothecates, transfers and grants a
security interest to Pledgee in all of the following (the "Pledged Collateral"):
(a) the shares of stock set forth next to Pledgor's name on Schedule A
annexed hereto and expressly made a part hereof (the "Pledged Stock"), the
certificates representing the Pledged Stock and all dividends, cash, instruments
and other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Stock;
(b) all additional shares of stock of any issuer of the Pledged Stock
(the "Issuer") from time to time acquired by Pledgor in any manner, including,
without limitation, stock dividends or a distribution in connection with any
increase or reduction of capital, reclassification, merger, consolidation, sale
of assets, combination of shares, stock split, spin-off or split-off (which
shares shall be deemed to be part of the Pledged Collateral), and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares; and
(c) all options and rights, whether as an addition to, in substitution
of or in exchange for any shares of the Pledged Stock and all dividends, cash
and instruments.
<PAGE>
SECTION 3. Indebtedness Secured
This pledge is made to secure and the Pledged Collateral is
security for the payment of (a) all the Obligations (except PMSI Loans which are
secured by the Equipment financed thereby) and (b) any and all other
indebtedness, obligations and liabilities of Borrowers to Pledgee whether now
existing or hereafter arising, direct or indirect, liquidated or unliquidated,
absolute or contingent, due or not due and whether under, pursuant to or
evidenced by a note, agreement, guaranty, other instrument or otherwise ((a) and
(b) collectively, the "Indebtedness").
SECTION 4. Delivery of Pledged Collateral
All certificates representing or evidencing the Pledged Stock
shall be delivered to and held by or on behalf of Pledgee pursuant hereto and
shall be accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to Pledgee. Pledgor hereby
authorizes each Issuer upon demand by Pledgee to deliver any certificates or
instruments issued in connection with the Pledged Collateral directly to
Pledgee, in each case to be held by Pledgee, subject to the terms hereof. After
the occurrence and during the continuation of an Event of Default, upon notice
to Pledgor, Pledgee shall have the right, at any time in its discretion and
without notice to the Pledgor, to transfer to or to register in the name of
Pledgee or any of its nominees any or all of the Pledged Stock. In addition,
Pledgee shall have the right at any time to exchange certificates or instruments
representing or evidencing Pledged Stock for certificates or instruments of
smaller or larger denominations.
SECTION 5. Representations and Warranties
Pledgor represents and warrants to Pledgee that:
(a) Pledgor has the requisite power and authority to enter into this
Agreement, to pledge the Pledged Collateral for the purposes described herein.
(b) The execution, delivery and performance by Pledgor of this
Agreement has been duly and properly authorized and does not and will not result
in any violation of any agreement, indenture or other instrument, license,
judgment, decree, order, law, statute, ordinance or other governmental rule or
regulation applicable to Pledgor.
(c) This Agreement constitutes a legal, valid and binding obligation of
Pledgor enforceable in accordance with its terms except to the extent limited by
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally or by general principles of equity.
(d) Pledgor is the direct and beneficial owner of each share of the
Pledged Stock.
(e) All of the shares of the Pledged Stock have been duly authorized,
validly issued and are fully paid and nonassessable.
(f) Upon delivery of the Pledged Stock to Pledgee or an agent for
Pledgee, in the State of New York and continuous possession thereby this
Agreement creates and grants a valid first lien on and perfected security
interest in the Pledged Collateral and the proceeds thereof, subject to no prior
Lien, or to any agreement purporting to grant to any third party a Lien upon the
property or assets of Pledgor which would include the Pledged Collateral.
<PAGE>
(g) There are no restrictions on transfer of the Pledged Stock
contained in the Certificate of Incorporation or by-laws of the Issuers or
otherwise which have not otherwise been enforceably and legally waived by the
necessary parties.
(h) None of the Pledged Stock has been issued or transferred in
violation of the securities registration, securities disclosure or similar laws
of any jurisdiction to which such issuance or transfer may be subject.
(i) No consent, approval, authorization or other order of any Person
and no consent, authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required by
Pledgor either (i) for the pledge of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement or
(ii) for the exercise by the Pledgee of the voting or other rights provided for
in this Agreement or the remedies in respect of the Pledged Collateral pursuant
to this Agreement, except as may be required in connection with such disposition
by laws affecting the offering and sale of securities generally.
(j) No notification of the pledge evidenced hereby to any Person is
required.
(k) As of the date hereof, there are no existing options, warrants,
calls or commitments of any such character whatsoever relating to any Pledged
Stock and no indebtedness or other security convertible into any Pledged Stock.
(l) The Pledged Stock constitutes one hundred percent (100%) in the
aggregate, and the indicated percentage for Pledgor, of the issued and
outstanding shares of capital stock of the Issuers thereof set forth on Schedule
A annexed hereto.
The representations and warranties set forth in this Section 5 (other
than those contained in Section (k)) shall survive the execution and delivery of
this Agreement.
SECTION 6. Covenants
Pledgor covenants that, until the Indebtedness shall be satisfied in
full and the Loan Agreement is irrevocably terminated:
(a) Pledgor will not sell, assign, transfer, convey, or otherwise
dispose of its rights in or to the Pledged Collateral or any interest therein;
nor will Pledgor create, incur or permit to exist any Lien whatsoever with
respect to any of the Pledged Collateral or the proceeds thereof other than that
created hereby.
(b) Pledgor will, at its expense, defend Pledgee's right, title and
security interest in and to the Pledged Collateral against the claims of any
Person.
(c) Pledgor shall at any time, and from time to time, upon the written
request of Pledgee, execute and deliver such further documents and do such
further acts and things as Pledgee may reasonably request in order to effect the
purposes of this Agreement including, but without limitation, delivering to
Pledgee upon the occurrence of an Event of Default irrevocable proxies in
respect of the Pledged Collateral in form satisfactory to Pledgee. Until receipt
thereof, this Agreement shall constitute Pledgor's proxy to Pledgee or its
nominee to vote all shares of Pledged Collateral then registered in Pledgor's
name.
<PAGE>
(d) Pledgor will not consent to or approve the issuance of (i) any
additional shares of any class of capital stock of the Issuer; (ii) any
securities convertible either voluntarily by the holder thereof or automatically
upon the occurrence or nonoccurrence of any event or condition into, or any
securities exchangeable for, any such shares; or (iii) any warrants, options,
contracts or other commitments entitling any person to purchase or otherwise
acquire any such shares.
SECTION 7. Voting Rights and Dividends
In addition to Pledgee's rights and remedies set forth in Section 9
hereof, in case an Event of Default shall have occurred and has been declared by
Pledgee, Pledgee shall (i) vote the Pledged Collateral (ii) be entitled to give
consents, waivers and ratifications in respect of the Pledged Collateral
(Pledgor hereby irrevocably constituting and appointing Pledgee, with full power
of substitution, the proxy and attorney-in-fact of Pledgor for such purposes)
and (iii) be entitled to collect and receive for its own use cash dividends paid
on the Pledged Collateral. Pledgor shall not be permitted to exercise or refrain
from exercising any voting rights or other powers if, in the reasonable judgment
of Pledgee, such action would have a material adverse effect on the value of the
Pledged Collateral or any part thereof; and, provided, further, that Pledgor
shall give at least five (5) days' written notice of the manner in which Pledgor
intends to exercise, or the reasons for refraining from exercising, any voting
rights or other powers other than with respect to any election of directors and
voting with respect to any incidental matters. After the occurrence and
continuance of an Event of Default, upon notice from Pledgee to Pledgor, all
dividends and all other distributions in respect of any of the Pledged
Collateral, whenever paid or made, shall be delivered to Pledgee to hold as
Pledged Collateral and shall, if received by Pledgor, be received in trust for
the benefit of Pledgee, be segregated from the other property or funds of
Pledgor, and be forthwith delivered to Pledgee as Pledged Collateral in the same
form as so received (with any necessary endorsement).
SECTION 8. Event of Default
An Event of Default shall be deemed to have occurred and may be
declared by Pledgee upon the happening of any of the following events:
(a) An Event of Default shall occur under the Loan Agreement;
(b) Pledgor shall default in the performance of any of its obligations
under any agreement between Pledgor and Pledgee, including, without limitation,
this Agreement;
(c) Any representation, warranty, statement or covenant made or
furnished to Pledgee by or on behalf of Pledgor proves to have been false in any
material respect when made or furnished or is breached, violated or not complied
with; or
(d) Pledgor shall (i) apply for, consent to, or suffer to exist the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or other fiduciary of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vi) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of the
foregoing.
<PAGE>
SECTION 9. Remedies
In case an Event of Default shall have occurred and be declared by
Pledgee, Pledgee may:
(a) Transfer any or all of the Pledged Collateral into its name, or
into the name of its nominee or nominees;
(b) Exercise all corporate rights with respect to the Pledged
Collateral including, without limitation, all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any shares
of the Pledged Collateral as if it were the absolute owner thereof, including,
but without limitation, the right to exchange, at its discretion, any or all of
the Pledged Collateral upon the merger, consolidation, reorganization,
recapitalization or other readjustment of the Issuer thereof, or upon the
exercise by the Issuer of any right, privilege or option pertaining to any of
the Pledged Collateral, and, in connection therewith, to deposit and deliver any
and all of the Pledged Collateral with any committee, depository, transfer
agent, registrar or other designated agent upon such terms and conditions as it
may determine, all without liability except to account for property actually
received by it;
(c) Subject to any requirement of applicable law, sell, assign and
deliver the whole or, from time to time, any part of the Pledged Collateral at
the time held by Pledgee, at any private sale or at public auction, with or
without demand, advertisement or notice of the time or place of sale or
adjournment thereof or otherwise (all of which are hereby waived, except such
notice as is required by applicable law and cannot be waived), for cash or
credit or for other property for immediate or future delivery, and for such
price or prices and on such terms as Pledgee in its sole discretion may
determine, or as may be required by applicable law.
Pledgor hereby waives and releases any and all right or equity of
redemption, whether before or after sale hereunder. At any such sale, unless
prohibited by applicable law, Pledgee may bid for and purchase the whole or any
part of the Pledged Collateral so sold free from any such right or equity of
redemption. All moneys received by Pledgee hereunder whether upon sale of the
Pledged Collateral or any part thereof or otherwise shall be held by Pledgee and
applied by it as provided in Section 12 hereof. No failure or delay on the part
of Pledgee in exercising any rights hereunder shall operate as a waiver of any
such rights nor shall any single or partial exercise of any such rights preclude
any other or future exercise thereof or the exercise of any other rights
hereunder. Pledgee shall have no duty as to the collection or protection of the
Pledged Collateral or any income thereon nor any duty as to preservation of any
rights pertaining thereto, except to apply the funds in accordance with the
requirements of Section 12 hereof. Pledgee may exercise its rights with respect
to property held hereunder without resort to other security for or sources of
reimbursement for the Indebtedness. In addition to the foregoing, Pledgee shall
have all of the rights, remedies and privileges of a secured party under the
Uniform Commercial Code of New York regardless of the jurisdiction in which
enforcement hereof is sought.
SECTION 10. Registration
If Pledgee shall exercise its right to sell all or any part of the
Pledged Collateral, and if, in the opinion of counsel for Pledgee, it is
necessary to have the Pledged Collateral being sold registered under the
provisions of the Securities Act of 1933, as amended (the "Securities Act"), (i)
Pledgor will use its best efforts to cause the Issuer to execute and deliver,
and to cause the directors and officers of the Issuer to execute and deliver,
all at Pledgor's expense, all such instruments and documents and to do or cause
to be done all such other acts and things as may be
<PAGE>
necessary to register the Pledged Collateral being sold under the provisions of
the Securities Act; (ii) Pledgor shall use commercially reasonable efforts to
cause any such registration statement to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Collateral being sold and to make all amendments thereto and to
related documents which, in the opinion of Pledgee or its counsel, are necessary
or advisable, all in conformity with the requirements of the Securities Act and
the rules and regulations of the Securities and Exchange Commission applicable
thereto; (iii) Pledgor shall also use commercially reasonable efforts to cause
the Issuer to comply with the provisions of the "Blue Sky" law of any
jurisdiction which Pledgee shall designate in connection with any sale
hereunder; and to cause the Issuer to make available to its security holders, as
soon as practicable, an earnings statement (which need not be audited) covering
a period of at least twelve months but not more than eighteen months, beginning
with the first month after the effective date of any such registration
statement, which earnings statement will satisfy the provisions of Section 11(a)
of the Securities Act; and (iv) Pledgor acknowledges that a breach of any of the
covenants contained in this Section may cause irreparable injury to Pledgee,
that Pledgee will have no adequate remedy at law with respect to such breach
and, as a consequence, such covenants of Pledgor shall be specifically
enforceable against Pledgor.
SECTION 11. Private Sale
Notwithstanding anything contained in Section 10, Pledgor recognizes
that Pledgee may be unable to effect (or to do so only after delay which would
adversely affect the value that might be realized from the Pledged Collateral) a
public sale of all or part of the Pledged Collateral by reason of certain
prohibitions contained in the Securities Act, and may be compelled to resort to
one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such Pledged Collateral for
their own account, for investment and not with a view to the distribution or
resale thereof. Pledgor agrees that any such private sale may be at prices and
on terms less favorable to the seller than if sold at public sales and that such
private sales shall be deemed to have been made in a commercially reasonable
manner. Pledgor agrees that Pledgee has no obligation to delay sale of any
Pledged Collateral for the period of time necessary to permit the Issuer to
register the Pledged Collateral for public sale under the Securities Act.
SECTION 12. Proceeds of Sale
The proceeds of any collection, recovery, receipt, appropriation,
realization or sale of the Pledged Collateral shall be applied by Pledgee as
follows:
(a) First, to the payment of all costs, expenses and charges of
Pledgee, as such, or the reimbursement of Pledgee for the prior payment of such
costs, expenses and charges incurred in connection with the care and safekeeping
of any of the Pledged Collateral (including, without limitation, the expenses of
any sale or other proceeding, the expenses of any taking, reasonable attorneys'
fees and expenses, court costs, any other expenses incurred or expenditures or
advances made by Pledgee in the protection, enforcement or exercise of its
rights, powers or remedies hereunder) with interest on any such reimbursement at
the rate prescribed in the Loan Agreement as the applicable Default Rate for
Base Rate Loans from the date of payment.
(b) Second, to the payment of the Indebtedness, in whole or in part, in
such order as Pledgee may elect, whether such Indebtedness is then due or not
due.
(c) Third, to such Persons as required by applicable law including,
without limitation, Section 9-504(1)(c) of the Uniform Commercial Code.
<PAGE>
(d) Fourth, to the extent of any surplus thereafter remaining, to
Pledgor or as a court of competent jurisdiction may direct.
In the event that the proceeds of any collection, recovery, receipt,
appropriation, realization or sale are insufficient to satisfy the Indebtedness,
Pledgor shall be liable for the deficiency together with interest thereon at the
rate prescribed in the Loan Agreement as the Default Rate for Base Rate Loans
plus the reasonable fees of any attorneys employed by Pledgee to collect such
deficiency.
Pledgee, in its sole and absolute discretion, with or without notice to
Pledgor, may deposit any proceeds of any collection, recovery, receipt,
appropriation or sale of the Pledged Collateral in a non-interest bearing cash
collateral deposit account to be maintained as security for the Indebtedness.
SECTION 13. Information
Pledgor will promptly give or cause to be given written notice to
Pledgee of any notices or other documents received by it with respect to Pledged
Collateral registered in the name of Pledgor.
SECTION 14. Termination
This Agreement shall terminate and Pledgor shall be entitled to the
return, at Pledgor's expense, of such of the Pledged Collateral as has not
theretofore been sold or otherwise applied pursuant to this Agreement, together
with any moneys at any time held by Pledgee (pro-rata to Pledgor), upon payment
in full of the Indebtedness and irrevocable termination of the Loan Agreement.
SECTION 15. Concerning Pledgee
The recitals of fact herein shall be taken as statements of Pledgor for
which Pledgee assumes no responsibility. Pledgee makes no representation to
anyone as to the value of the Pledged Collateral or any part thereof or as to
the validity or adequacy of the security afforded or intended to be afforded
thereby or as to the validity of this Agreement. Pledgee shall be protected in
relying upon any notice, consent, request or other paper or document believed by
it to be genuine and correct and to have been signed by a proper person. The
permissive rights of Pledgee hereunder shall not be construed as duties of
Pledgee. Pledgee shall be under no obligation to take any action toward the
enforcement of this Agreement or rights or remedies in respect of any of the
Pledged Collateral. Pledgee shall not be personally liable for any action taken
or omitted by it in good faith and reasonably believed by it to be within the
power or discretion conferred upon it by this Agreement.
SECTION 16. Notices
Any notice or request hereunder may be given to Pledgor or to Pledgee
at their respective addresses set forth below or at such other address as may
hereafter be specified in a notice designated as a notice of change of address
under this Section. Any notice or request hereunder shall be given by (a) hand
delivery, (b) registered or certified mail, return receipt requested, (c) telex
or telegram, subsequently confirmed by registered or certified mail, or (d)
telex to the number set out below (or such other number as may hereafter be
specified in a notice designated as a notice of change of address) with
telephone communication to a duly authorized
<PAGE>
officer of the recipient confirming its receipt as subsequently confirmed by
registered or certified mail. Any notice or other communication required or
permitted pursuant to this Agreement shall be deemed given (a) when personally
delivered to any officer of the party to whom it is addressed, (b) on the
earlier of actual receipt thereof or three (3) days following posting thereof by
certified or registered mail, postage prepaid, or (c) upon actual receipt
thereof when sent by a recognized overnight delivery service or (d) upon actual
receipt thereof when sent by telecopier to the number set forth below with
telephone communication confirming receipt and subsequently confirmed by
registered, certified or overnight mail to the address set forth below, in each
case addressed to each party at its address set forth below or at such other
address as has been furnished in writing by a party to the other by like notice:
(A) If to Pledgee, at: Fleet Capital Corporation
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Telephone: (860) 659-3200
Telecopier: (860) 657-7759
Attention: Northeast Loan
Administration Manager
with a copy to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118-0075
Attention: Daniel J. Krauss, Esq.
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
(B) If to Pledgor, at: CFP Holdings, Inc.
1117 West Olympic Boulevard
Montebello, California 90640
Attention: Chief Financial Officer
Telephone: (213) 727-0900
Telecopier: (213) 727-0412
with a copy to: O'Sullivan Graev & Karabell
30 Rockefeller Plaza
New York, New York 10112
Attention: Stewart Kagan, Esq.
Telephone: (212) 408-2400
Telecopier: (212) 408-2420
SECTION 17. Governing Law.
This Agreement and all rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the State of New York
applied to contracts to be performed wholly within the State of New York.
SECTION 18. Waivers.
(a) PLEDGOR AND PLEDGEE EACH HEREBY EXPRESSLY WAIVE ANY AND ALL RIGHTS
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR
IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY
<PAGE>
OTHER AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS
RELATING HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE; AND PLEDGOR AND
PLEDGEE EACH HEREBY AGREE AND CONSENT THAT ANY SUCH ACTIONS OR PROCEEDINGS SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT EITHER PARTY MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE OTHER PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL
BY JURY.
(b) Pledgee may at any time and from time to time, either before or
after the maturity thereof, without notice to or further consent of Pledgor,
extend the time of payment of, exchange or surrender any collateral for, renew
or extend any of the Indebtedness or increase or decrease the interest rate
thereon, and may also make any agreement with Borrowers or with any other party
to or person liable on any of the Indebtedness, or interested therein, for the
extension, renewal, payment, compromise, discharge or release thereof, in whole
or in part, or for any modification of the terms thereof or of any agreement
between Pledgee and Borrowers or any such other party or person, or make any
election of rights Pledgee may deem desirable under the United States Bankruptcy
Code, as amended, or any other federal or state bankruptcy, reorganization,
moratorium or insolvency law relating to or affecting the enforcement of
creditors' rights generally without in any way impairing or affecting this
Agreement.
(c) Pledgor waives any rights to interpose any defense, counterclaim or
offset of any nature and description which it may have or which may exist
between and among Pledgee, Borrowers and/or Pledgor with respect to Pledgor's
obligations under this Agreement, or which Borrowers may assert on the
underlying debt, including but not limited to failure of consideration, breach
of warranty, fraud, payment (other than cash payment in full of the
Indebtedness), statute of frauds, bankruptcy, infancy, statute of limitations,
accord and satisfaction, and usury.
(d) Pledgor further waives (i) notice of the making of any loans or
extensions of credit by Pledgee to Borrowers, and of all notices and demands of
any kind to which Pledgor may be entitled, including, without limitation, notice
of adverse change in any Borrower's financial condition or of any other fact
which might materially increase the risk of Pledgor; and (ii) presentment to or
demand of payment from anyone whomsoever liable upon any of the Indebtedness,
protest, notices of presentment, non-payment or protest and notice of any sale
of collateral security or any default of any sort.
(e) Until the Indebtedness is paid in full, Pledgor expressly waives
any and all rights of subrogation, reimbursement, indemnity, exoneration,
contribution or any other claim which Pledgor may now or hereafter have against
Borrowers or any other person directly or contingently liable for the
Indebtedness, or against or with respect to any Borrower's property (including,
without limitation, property collateralizing Pledgor's obligations to Pledgee),
arising from the existence or performance of this Agreement. In furtherance, and
not in limitation, of the preceding waiver, Pledgor agrees that any payment to
Pledgee by Pledgor pursuant to this Agreement shall be deemed a contribution to
the capital of Borrowers or any other obligated party and any such payment shall
not constitute Pledgor a creditor of any such party.
SECTION 19. Litigation.
PLEDGOR EXPRESSLY CONSENTS TO THE JURISDICTION AND VENUE OF THE SUPREME
COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK,
<PAGE>
AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
FOR ALL PURPOSES IN CONNECTION WITH THIS AGREEMENT. ANY JUDICIAL PROCEEDING BY
PLEDGOR AGAINST PLEDGEE INVOLVING, DIRECTLY OR INDIRECTLY ANY MATTER OR CLAIM IN
ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE
BROUGHT ONLY IN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK
OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK.
PLEDGOR FURTHER CONSENTS THAT ANY SUMMONS, SUBPOENA OR OTHER PROCESS OR PAPERS
(INCLUDING, WITHOUT LIMITATION, ANY NOTICE OR MOTION OR OTHER APPLICATION TO
EITHER OF THE AFOREMENTIONED COURTS OR A JUDGE THEREOF) OR ANY NOTICE IN
CONNECTION WITH ANY PROCEEDINGS HEREUNDER, MAY BE SERVED INSIDE OR OUTSIDE OF
THE STATE OF NEW YORK OR THE SOUTHERN DISTRICT OF NEW YORK BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY PERSONAL SERVICE PROVIDED A
REASONABLE TIME FOR APPEARANCE IS PERMITTED, OR IN SUCH OTHER MANNER AS MAY BE
PERMISSIBLE UNDER THE RULES OF SAID COURTS. PLEDGOR WAIVES ANY OBJECTION TO
JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREON AND SHALL NOT ASSERT ANY
DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON
CONVENIENS.
SECTION 20. No Waiver; Cumulative Remedies.
No failure on the part of Pledgee to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any such right, power or
remedy by Pledgee preclude any other or further exercise thereof or the exercise
of any right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law.
SECTION 21. Severability.
In case any security interest or other right of Pledgee shall be held
to be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability shall not affect any other security interest or other right,
privilege or power granted under this Agreement.
SECTION 22. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which when taken together shall
constitute one and the same instrument.
SECTION 23. Miscellaneous
Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing, signed by
Pledgee and Pledgor. The provisions of this Agreement shall be binding upon the
successors and assigns of Pledgor. The term "Pledgee", as used herein, shall
include any successor or assign of Pledgee at the time entitled to the pledged
interest in the Pledged Collateral. The headings in this Agreement are for
purposes of reference only and shall not limit or define the meaning hereof.
SECTION 24. Captions
The captions at various places in this Agreement are intended for
convenience
<PAGE>
only and do not constitute and shall not be interpreted as part of this
Agreement.
SECTION 25. Recapture
Anything in this Agreement to the contrary notwithstanding, if Pledgee
receives any payment or payments on account of the Indebtedness, which payment
or payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver, or any other party under the United States Bankruptcy Code, as
amended, or any other federal or state bankruptcy, reorganization, moratorium or
insolvency law relating to or affecting the enforcement of creditors' rights
generally, common law or equitable doctrine, then to the extent of any sum not
finally retained by Pledgee, Pledgor's obligations to Pledgee shall be
reinstated and this Agreement shall remain in full force and effect (or be
reinstated) until payment shall have been made to Pledgee, which payment shall
be due on demand.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the 5th day of May, 1998.
CFP GROUP, INC.
By:_________________________________
Name: Eric Ek
Title: Vice President
FLEET CAPITAL CORPORATION
By:_________________________________
Name:
Title:
<PAGE>
SCHEDULE A
<TABLE>
PLEDGED STOCK
ISSUER: CFP GROUP, INC.
<CAPTION>
Issuer Class of Stock Stock Certificate Par Value Number of
Number Shares
<S> <C> <C> <C> <C>
CFP Holdings, Inc. Voting Common 10 .01 14,705
Non-Voting Common 14 .01 6,398
Series A Preferred 10 .01 3,528
</TABLE>
EXHIBIT 10.22
CFP HOLDINGS, INC.
1995 Stock Option Plan
1. PURPOSE OF THE PLAN
The purpose of the CFP HOLDINGS, INC. 1995 STOCK OPTION PLAN
(the "Plan") is (i) to further the growth and success of CFP HOLDINGS, INC. (the
"Company") and its Subsidiaries (as hereinafter defined) by enabling directors
and employees of, and independent consultants and contractors to, the Company
and any of its Subsidiaries to acquire shares of the nonvoting common stock,
$.01 par value (the "Common Stock"), of the Company, thereby increasing their
personal interest in such growth and success, and (ii) to provide a means of
rewarding outstanding performance by such persons to the Company and/or its
Subsidiaries. Options granted under the Plan may be either "incentive stock
options" ("ISOs"), intended to qualify as such under the provisions of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options ("NSOs"). For purposes of the Plan, the terms
"Parent" and "Subsidiary" shall mean "Parent Corporation" and "Subsidiary
Corporation" respectively, as such terms are defined in Sections 425(e) and (f)
of the Code. Unless the context otherwise requires, any ISO or NSO shall
hereinafter be referred to as an "Option."
2. ADMINISTRATION OF THE PLAN
(a) Stock Option Committee
The Plan shall be administered by the Board of Directors of
the Company (the "Board") or a three-person Stock Option Committee (the
"Committee") appointed from time to time by the Board; provided, however, that,
so long as it shall be required to comply with Rule 16b-3 ("Rule 16b-3")
promulgated by the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934 (the "1934 Act") in order to permit officers and
directors of the Company to be exempt from the provisions of Section 16(b) of
the 1934 Act with respect to transactions pursuant to the Plan, each of such
persons, at the effective date of his or her appointment to the Committee, shall
be a "disinterested person" within the meaning of Rule 16b-3. The members of the
Committee may be removed by the Board at any time either with or without cause.
Any vacancy on the Committee, whether due to action of the Board or any other
cause, shall be filled by the Board. The term "Committee" shall, for all
purposes of the Plan other than this Section 2, be deemed to refer to the Board
if the Board is administering the Plan.
(b) Procedures
If the Plan is administered by a Committee, the Board shall
from time to time select a Chairman from among the members of the Committee. The
Committee shall adopt such rules and regulations as it shall deem appropriate
concerning the holding of meetings and the administration of the Plan. A
majority of the entire Committee shall constitute a quorum and the actions of a
majority of the members of the Committee present at a meeting at which a quorum
is present, or actions approved in writing by all of the members of the
Committee, shall be the actions of the Committee.
(c) Interpretation
<PAGE>
Except as otherwise expressly provided in the Plan, the
Committee shall have all powers with respect to the administration of the Plan,
including, without limitation, full power and authority to interpret the
provisions of the Plan and any Option Agreement (as defined in Section 5(b)),
and to resolve all questions arising under the Plan. All decisions of the Board
or the Committee, as the case may be, shall be conclusive and binding on all
participants in the Plan.
3. SHARES OF STOCK SUBJECT TO THE PLAN.
(a) Number of Shares
Subject to the provisions of Section 9 (relating to
adjustments upon changes in capital structure and other corporate transactions),
the number of shares of Common Stock subject at any one time to Options granted
under the Plan, plus the number of shares of Common Stock theretofore issued and
delivered pursuant to the exercise of Options granted under the Plan, shall not
exceed 11,586 shares. If and to the extent that Options granted under the Plan
terminate, expire or are canceled without having been fully exercised, new
Options may be granted under the Plan with respect to the shares of Common Stock
covered by the unexercised portion of such terminated, expired or canceled
Options.
(b) Character of Shares
The shares of Common Stock issuable upon exercise of.an Option
granted under the Plan shall be (i) authorized but unissued shares of Common
Stock, (ii) shares of Common Stock held in the Company's treasury or (iii) a
combination of the foregoing.
(c) Reservation of Shares
The number of shares of Common Stock reserved for issuance
under the Plan shall at no time be less than the maximum number of shares which
may be purchased at any time pursuant to outstanding Options.
4. ELIGIBILITY
(a) General
Options may be granted under the Plan only to (i) persons who
are employees of, or independent consultants to, the Company or any of its
Subsidiaries and (ii) persons who are directors of the Company or any of its
Subsidiaries.
Options granted to employees of the Company or any of its
Subsidiaries shall be, in the discretion of the Committee, either ISOs or NSOs,
and Options granted to independent consultants to or directors of the Company or
any of its Subsidiaries who are not employees of the Company or any of its
Subsidiaries shall be NSOs. Notwithstanding the foregoing, Options may be
conditionally granted to persons who are prospective employees or directors of,
or independent consultants to, the Company or any of its Subsidiaries; provided,
however, that any such conditional grant of an ISO to a prospective employee
shall, by its terms, become effective no earlier than the date on which such
person actually becomes an employee.
(b) Exceptions
<PAGE>
Notwithstanding anything contained in Section 4(a) to the
contrary:
(i) no ISO may be granted under the Plan to an
employee who owns, directly or indirectly (within the meaning of
Sections 422(b)(6) and 425(d) of the Code), stock possessing more than
10% of the total combined voting power of all classes of stock of the
Company or of its Parent, if any, or any of its Subsidiaries, unless
(A) the Option Price (as defined in Section 6(a)) of the shares of
Common Stock subject to such ISO' is fixed at not less than 110% of the
Fair Market Value on the date of grant (as determined in accordance
with Section 6(b)) of such shares and (B) such ISO by its terms is not
exercisable after the expiration of five years from the date it is
granted; and
(ii) no Option may be granted to a person (A) who has
been appointed pursuant to Section 2(a) to serve on the Committee
effective as of a future date at any time-during the period from the
date such appointment is made to the date such appointment is to become
effective or (B) who is serving as a member of the Committee.
5. GRANT OF OPTIONS
(a) General
Options may be granted under the Plan at any time and from
time to time on or prior to the tenth anniversary of the Effective Date (as
defined in Section 11). Subject to the provisions of the Plan, the Committee
shall have plenary authority, in its discretion, to determine:
(i) the persons (from among the class of persons
eligible to receive Options under the Plan) whom Options shall be
granted (the "Optionees");
(ii) the time or times at which Options shall be
granted;
(iii) the number of shares subject to each Option;
(iv) the Option Price of the shares subject to each
Option, which price, in the case of ISOs, shall be not less than the
minimum specified in Section 4(b)(i) or 6(a) (as applicable); and
(v) the time or times when each Option shall become
exercisable and the duration of the exercise period.
(b) Option Agreements
Each Option granted under the Plan shall be designated as an
ISO or an NSO and shall be subject to the terms and conditions applicable to
ISOs and/or NSOs (as the case may be) set forth in the Plan. In addition, each
Option shall be evidenced by a written agreement (an "Option Agreement"),
containing such terms and conditions and in such form, not inconsistent with the
Plan, as the Committee shall, in its discretion, provide. Each Option Agreement
shall be executed by the Company and the Optionee.
(c) No Evidence of Employment or Service
<PAGE>
Nothing contained in the Plan or in any Option Agreement shall
confer upon any Optionee any right with respect to the continuation of his or
her employment by or service with the Company or any of its Subsidiaries or
interfere in any way with the right of the Company or any such Subsidiary
(subject to the terms of any separate agreement to the contrary) at any time to
terminate such employment or service or to increase or decrease the compensation
of the Optionee from the rate in existence at the time of the grant of an
Option.
(d) Date of Grant
The date of grant of an Option under this Plan shall be the
date as of which the Committee approves the grant; provided, however, that in
the case of an ISO, the date of grant shall in no event be earlier than the date
as of which the Optionee becomes an employee of the Company or one of its
Subsidiaries.
6. OPTION PRICE
(a) General
Subject to Section 9, the price (the "Option Price") at which
each share of Common Stock subject to an Option granted under the Plan may be
purchased shall be determined by the Committee at the time the Option is
granted; provided, however, that in the case of an ISO, such Option Price shall
in no event be less than 100% of the Fair Market Value on the date of grant (as
determined in accordance with Section 6(b)) of such share of Common Stock; and
provided further, however, that in the case of an NSO granted at any time after
the initial public offering of the Common Stock, such Option Price shall in no
event be less than 100% of the Fair Market Value on the date of grant (as
determined in accordance with Section 6(b)) of such Common Stock.
(b) Determination of Fair Market Value
Subject to the requirements of Section 422 of the Code, for
purposes of the Plan, the "Fair Market Value" of shares of Common Stock shall be
equal to:
(i) if such shares are publicly traded, (x) the
closing price, if applicable, or the average of the last bid and asked
prices on the date of grant or, if lower, the average of the daily
closing prices (or the means between the last bid and asked prices for
days on which no sales took place) of the 30 business days immediately
preceding the date of grant, in the over-the-counter market as reported
by NASDAQ or (y) if the Common Stock is then traded on a national
securities exchange, the average of the high and low prices on the date
of grant or, if lower, the average of the daily closing prices (or the
means between the last bid and asked prices for days on which no sales
took place) of the 30 business days immediately preceding the date of
grant, on the principal national securities exchange on which it is so
traded; or
(ii) if there is no public trading market for such
shares, the fair value of such shares on the date of grant as
determined by the Committee, without regard in respect to any such
determination for any discount, including, without limitation, for the
fact that such share is nonvoting common stock, is held by a minority
stockholder, that there is no public market for the stock or, if there
were a public market for such stock, such stock would be "restricted"
as defined under Rule 144 promulgated under the
<PAGE>
Securities Act of 1933, after taking into consideration all other
factors which it deems appropriate, including, without limitation,
recent sale and offer prices of the Common Stock in private
transactions negotiated at arms' length; provided, however, with
respect to any such shares exercised by Richard W. Griffith
("Griffith"), in the event that Griffith shall object to such Fair
Market Value determination by the Committee within 90 days following
his receipt of such notice of determination by the Committee, the
operative provisions for the determination of the term "Fair Market
Value Per Share" as defined in that certain Stockholders' Agreement
dated as of March 31, 1993, shall apply and be binding upon Griffith
and the Committee.
Notwithstanding anything contained in the Plan to the
contrary, all determinations pursuant to Section 6(b)(ii) shall be made without
regard to any restriction other than a restriction which, by its terms, will
never lapse.
(c) Repricing of NSOs
Subsequent to the date of grant of any NSO, the Committee may,
at its discretion and with the consent of the Optionee, establish a new Option
Price for such NSO so as to increase or decrease the Option Price of such NSO.
7. EXERCISABILITY OF OPTIONS
(a) Committee Determination
Each Option granted under the Plan shall be exercisable at
such time or times, or upon the occurrence of such event or events, and for such
number-of shares subject to the Option, as shall be determined by the Committee
and set forth in the Option Agreement evidencing such Option; provided, however,
that if the Company files a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), for the initial public offering of its
securities, no Option granted under the plan shall be exercisable during the
180-day period immediately following the effective date of such registration
statement. Subject to the proviso of the immediately preceding sentence, if an
Option is not at the time of grant immediately exercisable, the Committee may
(i) in the Option Agreement evidencing such Option, provide for the acceleration
of the exercise date or dates of the subject Option upon the occurrence of
specified events and/or (ii) at any time prior to the complete termination of an
Option, accelerate the exercise date or dates of such Option.
(b) Automatic Termination of Option
The unexercised portion of any Option granted under the plan
shall automatically terminate and shall become null and void and be of no
further force or effect upon the first to occur of the following:
(i) the tenth anniversary of the date on which such
Option is granted or, in the case of any ISO granted to a person
described in Section 4(b), the fifth anniversary of the date on which
such ISO is granted;
(ii) the expiration of three months from the date
that the Optionee ceases to be an employee or director of, or
independent consultant or contractor to, the Company or any of its
Subsidiaries (other than as a result of an Involuntary Termination (as
defined in clause (iii) below)); provided, however, that if the
Optionee shall die during such
<PAGE>
three-month period, the time of termination of the unexercised portion
of such Option shall be the expiration of 12 months from the date that
such Optionee ceased to be an employee or director of, or independent
consultant or contractor to, the Company or any of its Subsidiaries;
[provided, further, that in the event that the employment of Griffith
by the Company pursuant to that certain Employment Agreement dated as
of March 31, 1993, shall have been terminated by the Company pursuant
to a Termination without cause (as such term is defined in such
Employment Agreement), the time of termination of the unexercised
portion of Griffith's Option attached hereto as Exhibit H-2 shall be
three months from the last day of the fiscal year in which such
Termination shall have occurred if the Company shall have achieved the
EBITDA Target and Total Indebtedness Target for each of the prior
Accelerated Vesting Periods (as defined in such Option Agreement);]
(iii) the expiration of 6 months from the date that
the Optionee ceases to be an employee or director of, or independent
consultant or contractor to, the Company or any of its Subsidiaries, if
such termination is due to such Optionee's death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Code) (an
"Involuntary Termination");
(iv) the expiration of such period of time or the
occurrence of such event as the Committee in its discretion may provide
in the Option Agreement;
(v) on the effective date of a Corporate Transaction
(as defined in Section 9(b)(i)) to which Section 9(b)(ii) (relating to
assumptions and substitutions of Options) does not apply; provided,
however, that an Optionee's right to exercise any Option outstanding
prior to such effective date shall in all events be suspended during
the period commencing 10 days prior to the proposed effective date of
such Corporate Transaction and ending on either the actual effective
date of such Corporate Transaction or upon receipt of notice from the
Company that such Corporate Transaction will not in fact occur; and
(vi) except to the extent permitted by Section
9(b)(ii), the date on which an Option or any part thereof or right or
privilege relating thereto is transferred (otherwise than by will or
the laws of descent and distribution), assigned, pledged, hypothecated,
attached or otherwise disposed of by the Optionee.
[The Board shall have the power to determine what constitutes
a Termination For Cause for purposes of the Plan, and the date upon which such
Termination For Cause shall occur. All such determinations shall be final and
conclusive and binding upon the Optionee.]
Anything contained in the Plan to the contrary
notwithstanding, unless otherwise provided in an Option Agreement, no Option
granted under the Plan shall be affected by any change of duties or position of
the Optionee (including a transfer to or from the Company or one of its
Subsidiaries), so long as such Optionee continues to be an employee or director
of, or independent consultant or contractor to, the Company or one of its
Subsidiaries.
(c) Limitations on Exercise
Anything contained in the Plan to the contrary
notwithstanding, an ISO granted under the Plan to an Optionee shall not be
considered an ISO to the extent that the aggregate Fair Market Value on the date
of grant of such ISO (as determined in accordance with Section 6(b))
<PAGE>
of all stock with respect to which incentive stock options are exercisable for
the first time by such Optionee during any calendar year (under all plans of the
Company and its subsidiaries) exceeds $100,000.
8. PROCEDURE FOR EXERCISE
(a) Payment
At the time an Option is granted under the Plan, the Committee
shall permit the Optionee to specify one or more of the following forms of
payment which may be used by an Optionee upon exercise of his Option:
(i) cash or personal or certified check payable to
the Company in an amount equal to the aggregate Option Price of the
shares with respect to which the Option is being exercised;
(ii) stock certificates representing shares of Common
Stock having a Fair Market Value on the date of exercise (as determined
in accordance with Section 6(b) as if the date of exercise were the
date of grant) equal to the aggregate Option Price of the shares with
respect to which the Option is being exercised;
(iii) in the case of Griffith, by the issuance of a
promissory note in form reasonably acceptable to the Committee, which
note shall not bear interest and shall be due and payable on the
earlier to occur of 90 days after the issuance thereof or the date on
which Fair Market Value per share shall have been determined in
accordance with Section 6(b) hereof, and such note shall be payable by
the delivery of shares which shall be deemed to have a value to the
Company equal to the aggregate fair market value of such shares
determined at the date of such issuance in accordance with Section 6(b)
hereof; or
(iv) a combination of the methods set forth in
clauses (i) and (ii).
(b) Notice
An Optionee (or other person, as provided in Section 10(b))
may exercise an Option granted under the Plan in whole or in part (but for the
purchase of whole shares only), as provided in the Option Agreement evidencing
his Option, by delivering a written notice (the "Notice") to the Secretary of
the Company. The Notice shall state:
(i) that the Optionee elects to exercise the Option;
(ii) the number of shares with respect to which the
Option is being exercised (the "Optioned Shares");
(iii) the method of payment for the Optioned Shares
(which method must be available to the Optionee under the terms of his
or her Option Agreement);
(iv) the date upon which the Optionee desires to
consummate the purchase (which date must be prior so the termination of
such Option);
<PAGE>
(v) a copy of any election filed by the Optionee
pursuant to Section 83(b) of the Code; and
(vi) such further provisions consistent with the Plan
as the Committee may from time to time require.
The exercise date of an Option shall be the date on which the
Company receives the Notice from the Optionee.
(c) Issuance of Certificates
The Company shall issue a stock certificate in the name of the
Optionee (or such other person exercising the Option in accordance with the
provisions of Section 10(b)) for the Optioned Shares as soon as practicable
after receipt of the Notice and payment of the aggregate Option Price for such
shares. Neither the Optionee nor any person exercising an Option in accordance
with the provisions of Section 10(b) shall have any privileges as a stockholder
of the Company with respect to any shares of stock subject to an Option granted
under the Plan until the date of issuance of a stock certificate pursuant to
this Section 8(c).
9. ADJUSTMENTS
(a) Changes in Capital Structure
Subject to Section 9(b), if the Common Stock is changed by
reason of a stock split, reverse stock split, stock dividend or
recapitalization, or converted into or exchanged for other securities as a
result of a merger, consolidation or reorganization, the Committee shall make
such adjustments in the number and class of shares of stock with respect to
which Options may be granted under the Plan as shall be equitable and
appropriate in order to make such Options, as nearly as may be practicable,
equivalent to such Options immediately prior to such change. A corresponding
adjustment changing the number and class of shares allocated to, and the Option
Price of, each Option or portion thereof outstanding at the time of such change
shall likewise be made. Notwithstanding anything contained in the Plan to the
contrary, in the case of ISOs, no adjustment under this Section 9(a) shall be
appropriate if such adjustment (i) would constitute a modification, extension or
renewal of such ISOs within the meaning of Sections 422 and 425 of the Code, and
the regulations promulgated by the Treasury Department thereunder, or (ii)
would, under Section 422 of the Code and the regulations promulgated by the
Treasury Department thereunder, be considered as the adoption of a new plan
requiring stockholder approval.
(b) Corporate Transactions
The following rules shall apply in connection with the
dissolution or liquidation of the Company, a reorganization, merger or
consolidation in which the Company is not the surviving corporation, or a sale
of all or substantially all of the assets of the Company to another person or
entity (each, a "Corporate Transaction"):
(i) each holder of an Option outstanding at such time
shall be given (A) written notice of such Corporate Transaction at
least 20 days prior to its proposed effective date (as specified in
such notice) and (B) an opportunity, during the period commencing with
delivery of such notice and ending 10 days prior to such proposed
effective date, to exercise the Option to the full extent to which such
Option would have
<PAGE>
been exercisable by the Optionee at the expiration of such 20-day
period; provided, however, that upon the occurrence of a Corporate
Transaction, all Options granted under the Plan and not so exercised
shall automatically terminate; and
(ii) notwithstanding anything contained in the Plan
to the contrary, Section 9(b)(i) shall not be applicable if provision
shall be made in connection with such Corporate Transaction for the
assumption of outstanding Options by, or the substitution for such
Options of new options covering the stock of, the surviving, successor
or purchasing corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number, kind and option prices of
shares subject to such options; provided, however, that in the case of
ISOs, the Board shall, to the extent not inconsistent with the best
interests of the Company or its Subsidiaries (such best interests to be
determined in good faith by the Board in its sole discretion), use its
best efforts to ensure that any such assumption or substitution will
not constitute a modification, extension or renewal of the ISOs within
the meaning of Section 425(h) of the Code and the regulations
promulgated by the Treasury Department thereunder.
(c) Special Rules
The following rules shall apply in connection with Section
9(a) and (b) above:
(i) no fractional shares shall be issued as a result
of any such adjustment, and any fractional shares resulting from the
computations pursuant to Section 9(a) or (b) shall be eliminated
without consideration from the respective Options;
(ii) no adjustment shall be made for cash dividends
or the issuance to stockholders of rights to subscribe for additional
shares of Common Stock or other securities; and
(iii) any adjustments referred to in Section 9(a) or
(b) shall be made by the Board or Committee (as the case may be) in its
sole discretion and shall be conclusive and binding on all persons
holding Options granted under the Plan.
10. RESTRICTIONS ON OPTIONS AND OPTIONED SHARES
(a) Compliance With Securities Laws
No Options shall be granted under the Plan, and no shares of
Common Stock shall be issued and delivered upon the exercise of Options granted
under the Plan, unless and until the Company and/or the Optionee shall have
complied with all applicable Federal or state registration, listing and/or
qualification requirements and all other requirements of law or of any
regulatory agencies having jurisdiction.
The Committee in its discretion may, as a condition to the
exercise of any Option granted under the Plan, require an Optionee (i) to
represent in writing that the shares of Common Stock received upon exercise of
an Option are being acquired for investment and not with a view to distribution
and (ii) to make such other representations and warranties as are deemed
appropriate by the Company. Stock certificates representing shares of Common
Stock acquired upon the exercise of Options that have not been registered under
the Securities Act shall, if required by the Committee, bear the following
legend and such additional legends as may be required by the Option Agreement
evidencing a particular Option:
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OR AN
OPINION OF COUNSEL TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT."
(b) Nonassignability of Option Rights
No Option granted under this Plan shall be assignable or
otherwise transferable by the Optionee except by will or by the laws of descent
and distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee. If an Optionee dies, his or her Option shall thereafter be
exercisable, during the period specified in Section 7(b)(ii) or (iii) (as the
case may be), by his or her executors or administrators to the full extent to
which such Option was exercisable by the Optionee at the time of his or her
death.
11. EFFECTIVE DATE OF PLAN
This Plan shall become effective on the date (the "Effective
Date") of its adoption by the Board; provided, however, that no Option shall be
exercisable by an Optionee unless and until the Plan shall have been approved by
the stockholders of the Company in accordance with the provisions of its
Certificate of Incorporation and By-laws, which approval shall be obtained by a
simple majority vote of stockholders, voting either in person or by proxy, at a
duly held stockholders' meeting, or by written consent, within 12 months before
or after the adoption of the Plan by the Board.
12. EXPIRATION AND TERMINATION OF THE PLAN
Except with respect to Options then outstanding, the Plan
shall expire on the first to occur of (i) the seventh anniversary of the date on
which the Plan is adopted by the Board, (ii) the tenth anniversary of the date
on which the Plan is approved by the stockholders of the Company and (iii) the
date as of which the Board, in its sole discretion, determines that the Plan
shall terminate (the "Expiration Date"). Any Options outstanding as of the
Expiration Date shall remain in effect until they have been exercised or
terminated or have expired by their respective terms.
13. AMENDMENT OF PLAN
The Board may at any time prior to the Expiration Date modify
and amend the Plan in any respect; provided, however, that the approval of the
holders of a majority of the votes that may be cast by all of the holders of
shares of Common Stock and preferred stock of the Company, if any, entitled to
vote (voting as a single class) shall be obtained prior to any such amendment
becoming effective if such approval is required by law or is necessary to comply
with regulations promulgated by the SEC under Section 16(b) of the 1934 Act or
with Section 422 of the Code or the regulations promulgated by the Treasury
Department thereunder.
14. CAPTIONS
<PAGE>
The use of captions in this Plan is for convenience. The
captions are not intended to provide substantive rights.
15. DISQUALIFYING DISPOSITIONS
If Optioned Shares acquired by exercise of an ISO granted
under this Plan are disposed of within two years following the date of grant of
the ISO or one year following the issuance of the Optioned Shares to the
Optionee (a "Disqualifying Disposition"), the holder of the Optioned Shares
shall, immediately prior to such Disqualifying Disposition, notify the Company
in writing of the date and terms of such Disqualifying Disposition and provide
such other information regarding the Disqualifying Disposition as the Company
may reasonably require.
16. WITHHOLDING TAXES
Whenever under the Plan shares of Common Stock are to be
delivered by an Optionee upon exercise of an NSO, the Company shall be entitled
to require as a condition of delivery that the Optionee remit or, in appropriate
cases, agree to remit when due, an amount sufficient to satisfy all current or
estimated future Federal, state and local withholding tax and employment tax
requirements relating thereto. At the time of a Disqualifying Disposition, the
Optionee shall remit to the Company in cash the amount of any applicable
Federal, state and local withholding taxes and employment taxes.
17. OTHER PROVISIONS
Each Option granted under the Plan may contain such other
terms and conditions not inconsistent with the Plan as may be determined by the
Committee, in its sole discretion. Notwithstanding the foregoing, each ISO
granted under the Plan shall include those terms and conditions which are
necessary to qualify the ISO as an "incentive stock option" within the meaning
of Section 422 of the Code and the regulations thereunder and shall not include
any terms or conditions which are inconsistent therewith.
18. NUMBER AND GENDER
With respect to words used in this Plan, the singular form
shall include the plural form, the masculine gender shall include the feminine
gender, and vice-versa, as the context requires
19. GOVERNING LAW
The validity and construction of this Plan and the instruments
evidencing the Options granted hereunder shall be governed by the laws of the
State of Delaware.
As adopted by the Board of Directors
of CFP HOLDINGS, INC. as of March 1, 1995.
Exhibit 12.1
<TABLE>
CFP Group, Inc.
Earnings to Fixed Charge Ratio
<CAPTION>
Six Months
Ended Year Ended
Year Ended September 30, March 31, March 31,
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(Loss) Earnings Before Tax $1,713 $2,343 $(1,562) $(3,902) $(5,498) $(3,557)
--------------------------------------------------------------------------------------
Plus: Fixed Charges
Interest Expense 2,443 2,632 3,232 4,681 17,236 17,275
1/3 of Rent Expense 217 206 206 148 406 372
--------------------------------------------------------------------------------------
Total Fixed Charges 2,660 2,838 3,438 4,829 17,642 17,647
--------------------------------------------------------------------------------------
Earnings 4,373 5,181 1,876 927 12,144 14,090
--------------------------------------------------------------------------------------
Ratio 1.64 1.83 - - - -
Deficiency (1,562) (3,902) (5,498) (3,557)
</TABLE>
54
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,820
<SECURITIES> 0
<RECEIVABLES> 15,448
<ALLOWANCES> 369
<INVENTORY> 16,839
<CURRENT-ASSETS> 34,799
<PP&E> 39,567
<DEPRECIATION> 9,645
<TOTAL-ASSETS> 136,404
<CURRENT-LIABILITIES> 16,706
<BONDS> 115,000
0
0
<COMMON> 8,342
<OTHER-SE> (34,336)
<TOTAL-LIABILITY-AND-EQUITY> 136,404
<SALES> 183,164
<TOTAL-REVENUES> 183,164
<CGS> 147,518
<TOTAL-COSTS> 147,518
<OTHER-EXPENSES> 20,411
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,322
<INCOME-PRETAX> (2,087)
<INCOME-TAX> 467
<INCOME-CONTINUING> (2,554)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,003)
<CHANGES> 0
<NET-INCOME> (3,557)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
