<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
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OR
[x] 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 number 333-20155
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GORGES\QUIK-TO-FIX FOODS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 58-2263508
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9441 LBJ Freeway, Suite 214, Dallas, Texas 75243
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (972) 690-7675
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N/A
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check x 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 such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No x
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Shares Outstanding
Class as of May 1, 1997
------ -----------------
Common Stock, $.01 par value 1,000
1
<PAGE>
Part I - Financial Information Item
Item 1. - Financial Statements
--------------------
GORGES/QUIK-TO-FIX FOODS, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------- ----------
SEPTEMBER 28, MARCH 29,
1996 1997
--------------- ----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9 $ -
Accounts receivable, net - 14,337
Inventory 31,325 25,242
Prepaid expenses and other - 543
--------------- ----------
Total current assets 31,334 40,122
Property, plant and equipment:
Land 1,088 1,499
Buildings and leasehold improvements 35,768 43,162
Machinery and equipment 52,853 42,573
Land improvements and other 1,186 3,615
--------------- ----------
90,895 90,849
Accumulated depreciation (44,439) (2,897)
--------------- ----------
Net property, plant and equipment 46,456 87,952
Other assets:
Intangible assets 59,508 63,261
Organizational and deferred debt - 9,404
issuance costs
Other - 52
--------------- ----------
Total assets $137,298 $200,791
=============== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued expenses $ - $ 14,340
Current portion of long-term debt - 5,000
--------------- ----------
Total current liabilities 19,340
Long-term debt, less current portion - 138,750
Deferred income taxes 6,375 -
Investment and advances by Tyson 130,923 -
Stockholders' equity:
Common stock, $.01 par value; 2,000
shares authorized,
1,000 shares issued and - -
outstanding
Additional paid-in capital - 45,000
Accumulated deficit - (2,299)
--------------- ----------
Total stockholders' equity - 42,701
--------------- ----------
Total liabilities and $137,298 $200,791
stockholder's equity
=============== ==========
</TABLE>
Note: The balance sheet at September 28, 1996 has been derived from the audited
financial statements at that date.
See accompanying notes to financial statements
2
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Predecessor Company Predecessor Company
------------------ -------------- ------------------------------- -------------------------------
Three months Three months Six months Eight weeks Eighteen weeks Pro-forma six
ended ended ended ended ended months ended
March 30, March 29, March 30, November 25, March 29, March 29,
1996 1997 1996 1996 1997 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------ -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sales $54,208 $48,559 $113,276 $31,966 $65,677 $97,643
Costs of goods sold 45,237 39,546 93,545 25,917 53,990 80,538
------------------ -------------- -------------- -------------- -------------- --------------
Gross profit 8,971 9,013 19,731 6,049 11,687 17,105
Operating expenses:
Selling, general and
Administrative 6,217 5,675 13,007 4,153 7,333 11,542
Amortization 407 761 813 250 1,049 1,399
------------------ ------------- -------------- -------------- -------------- --------------
Total operating 6,624 6,436 13,820 4,403 8,382 12,941
expenses
------------------ -------------- -------------- -------------- -------------- --------------
Operating income 2,347 2,577 5,911 1,646 3,305 4,164
Interest expense - 4,066 - - 5,604 8,293
Other (income) expense 295 272 - - -
------------------ -------------- -------------- -------------- -------------- --------------
Earnings before taxes on 2,052 (1,489) 5,639 1,646 (2,299) (4,129)
income
Income tax expense 903 - 2,481 731 - -
------------------ -------------- -------------- -------------- -------------- --------------
Net income (loss) $ 1,149 $(1,489) $ 3,158 $ 915 $(2,299) $(4,129)
================== ============== ============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-------------------------------------- --------------------
SIX MONTHS ENDED EIGHT WEEKS ENDED EIGHTEEN WEEKS ENDED
MARCH 30, 1996 NOVEMBER 25, 1996 MARCH 29, 1997
------------------ ----------------- --------------------
(Unaudited) (Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 3,158 $ 915 $ (2,299)
Adjustments to reconcile net income
(loss) to net
cash provided by (used in)
operating activities:
Depreciation 4,085 342 2,897
Amortization 813 250 1,330
Deferred income taxes (1,252) 26 -
Loss on disposition of equipment 295 - -
Changes in assets and liabilities:
Increase in accounts receivable - - (14,337)
(Increase) decrease in 3,275 (571) 5,685
inventory
Increase in prepaid expenses - - (595)
and other
Increase in accounts payable
and - - 13,762
Accrued expenses
------------------ ----------------- --------------------
Net cash provided by (used in) 10,374 962 6,443
operating activities
Cash flows from investing activities:
Purchases of plant and equipment (811) (141) (864)
Acquisition, net of cash received - - (184,349)
Proceeds from sale of equipment 1,080 - 15
Other - - -
------------------ ----------------- --------------------
Net cash provided by (used in) 269 (141) (185,198)
investing activities
Cash flows from financing activities:
Proceeds from note offering - - 100,000
Capital contributions - - 45,000
Proceeds from revolving line of - - 10,000
credit
Payments on revolving line of credit - - (5,000)
Proceeds from term loan - - 40,000
Payments on term loan - - (1,250)
Debt issuance and organizational - - (9,995)
costs
Decrease in Investment and advances
by Tyson (10,643) (821) -
------------------ ----------------- --------------------
Net cash (used in) provided by (10,643) (821) 178,755
financing activities
------------------ ----------------- --------------------
Net increase in cash and cash 0 0 0
equivalents
Cash and cash equivalents at beginning 9 9 -
of period
------------------ ----------------- --------------------
Cash and cash equivalents at end of $ 9 $ 9 $ -
period
================== ================= ====================
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 29, 1997
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
(a) Description of Business
Gorges/Quik-to-Fix Foods, Inc., (the "Company") is a leading producer,
marketer and distributor of value added processed fresh and frozen beef, and to
a lesser extent pork and poultry products primarily to the foodservice industry.
The Company purchases fresh and frozen beef, pork and poultry, which it
processes into a broad range of fully cooked and ready to cook products
generally falling into one of two categories, value added products, and ground
beef. Value added products include but are not limited to: (i) breaded beef
items such as country fried steak and beef fingers; (ii) charbroiled beef items
such as fully cooked hamburger patties, fajita strips, meatballs, and meatloaf;
and (iii) other specialty products such as fully cooked and ready to cook pork
sausage, breaded pork and turkey, cubed steaks, and Philly steak slices. Ground
beef product offerings primarily consist of individually quick frozen hamburger
patties. The Company's products are primarily sold to the foodservice industry,
which encompasses all aspects of away-from-home food preparation, including
restaurants, schools, healthcare providers, corporations, and other commercial
feeding operations. The Company sells its products primarily through broadline
and specialty foodservice distributors.
(b) Basis of Presentation
The accompanying unaudited financial statements include financial
information of the Company, and its "Predecessor," which is the Company's
operations prior to its acquisition from Tyson Foods, Inc. ("Tyson"). The
Predecessor represents the beef processing assets and operations of Tyson, and
had been operated and accounted for as a consolidated operating division of
Tyson. Prior to the Acquisition (as defined herein), Tyson's accounting system
produced separate income statements for the Predecessor while certain balance
sheet accounts, including the majority of cash, receivables, prepaids, payables
and accruals were maintained only on a consolidated basis at the corporate
level, and are in effect reflected in Investment and Advances by Tyson. The
Predecessor also participated in Tyson's overall corporate cash management
program whereby Tyson provided operating funds with the corresponding charge or
credit reflected in the Investment and Advances by Tyson account. As a result,
the Predecessor maintained only nominal cash accounts. Portions of Tyson's
accounting and administrative costs related to these functions were allocated to
the Predecessor as discussed in Note 2. Additionally, the allocable portion of
the expenses associated with certain other assets and other liabilities recorded
at Tyson's corporate level for which the Predecessor received benefit was
reported in the Predecessor's operations.
On November 25, 1996, the assets of the Predecessor were sold to the
Company, an entity formed by CGW Southeast Partners III, L.P. ("CGW"), to
acquire the assets of the Predecessor. As a result of the acquisition, financial
information for periods through September 28, 1996 and periods subsequent to
September 29, 1996 is presented on a different cost basis and, therefore, such
information is not comparable.
In the opinion of management, the accompanying unaudited financial
information of the Company contains all adjustments, consisting only of those of
a normal recurring nature, necessary to present fairly the Company's financial
position as of March 29, 1997, and the results of operations and cash flows for
the three month and six month periods ended March 29, 1997 and March 30, 1996.
These results are not necessarily indicative of the results to be expected for
the full fiscal year.
5
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS-(Continued)
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Business utilizes a 52 or 53 week accounting period, ending on the
Saturday closest to September 30.
Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market
(replacement or net realizable value), consist of the following (in thousands):
<TABLE>
<CAPTION>
Predecessor Company
------------- ---------
September 28, March 29,
1996 1997
------------- ---------
<S> <C> <C>
Finished products $27,569 $22,841
Work in process 688 133
Supplies 3,068 2,268
----------- ---------
Total $31,325 $25,242
=========== =========
</TABLE>
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is calculated
primarily by the straight-line method over the estimated useful lives of the
assets, which range from 3 to 30 years.
Capital expenditures for equipment and capital improvements are generally
capitalized while maintenance is expensed.
Intangible assets and Organizational and Deferred Debt Issuance Costs
Intangible assets, consisting of goodwill and trademarks, are stated at
cost and are amortized on a straight-line basis over 10 to 30 years (40 years by
the Predecessor). Recoverability of the carrying value of intangible assets is
evaluated on a recurring basis with consideration toward recovery through future
operating results on an undiscounted basis.
Organizational costs are amortized on a straight line basis over five
years, and deferred debt issuance costs are amortized on a straight line basis
over the life of the debt instrument to which it relates.
At September 28, 1996 and March 29, 1997, the accumulated amortization was
$10.6 million and $1.4 million, respectively.
Long - Lived Assets
At each balance sheet date, the Company reviews the carrying value of long -
lived assets to determine if facts and circumstances suggest that it may be
impaired. If this review indicates that the carrying value of an asset may not
be fully recoverable, an estimate of the discounted cash flows is prepared and
the carrying value of the asset will be reduced by the estimated shortfall of
discounted cash flows, if any.
6
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS-(Continued)
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (CONTINUED)
Income Taxes
The Company follows the liability method of accounting for deferred income
taxes. The liability method provides that deferred tax liabilities are recorded
at currently enacted tax rates based on the difference between the tax basis of
assets and liabilities and their carrying amounts for financial reporting
purposes, referred to as temporary differences.
Selling Expenses
Selling expenses consist of direct selling expenses incurred by the
Company, and include direct product line expenses such as shipping and storage,
external handling, consignment freight, external freezer charges, product and
package design, brokerage expense, and other direct selling expenses such as
certain salaries, travel and research and development. Selling expenses for the
Predecessor also include an allocable share of other common Tyson selling
expenses as discussed below.
Allocation of Corporate Expenses
Prior to the Acquisition certain indirect administrative and selling
expenses incurred at the corporate level, which were not actually incurred for
programs specific to the Predecessor have been allocated to the Predecessor
based on net sales. Allocated administrative expenses include costs incurred for
all corporate support functions. Allocated selling expenses consisted of costs
incurred by Tyson's corporate sales and marketing department. Because Tyson
incurred these charges, actual charges, if the Predecessor had been a separate
entity at the time, might have differed. Certain expenses incurred at Tyson
corporate directly related to the Predecessor, such as production scheduling,
research and development and corporate aviation were allocated based on usage.
Selling, administrative and corporate expenses allocated to the Predecessor
and charged to operations for the three-month and six-month periods ended March
29, 1996 were $1.8 million and $3.75 million respectively.
Advertising and Promotion Expenses
Advertising and promotion expenses are charged to operations in the period
incurred. Advertising and promotion expenses were $1.4 million and $2.9 million
for the three month and the first six month periods ending March 29, 1997
compared to $1.3 million and $3.2 million for the same fiscal periods of 1996.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
7
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS- (Continued)
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- (CONTINUED)
Investment and Advances by Tyson
Investment and Advances by Tyson represent its' ownership interest in the
recorded net assets of the Predecessor. As discussed in Note 1, all cash and
inter-company transactions flow through this account. The Predecessor was not
charged interest on advances from Tyson.
3. LONG TERM DEBT
(a) Senior Debt
The Company has entered into a credit agreement (the "Credit Agreement")
with NationsBank of Texas, N.A., (the "Bank") as agent for a syndicate of banks
and financial institutions which provides the Company with a $30 million
Revolving Credit Facility (the "Revolver"), and a $40 million Term Credit
Facility (the "Term Loan"). The Revolver includes a subfacility of $7 million
for commercial and standby letters of credit. The Revolver has a term of five
years, and all amounts outstanding will become due and payable on November 25,
2001. As of March 29, 1997, the Company's available credit under the Revolver
was $25.0 million. The Term Loan also has a five year term and is subject to
quarterly principal payments in an aggregate amount of $2.5 million remaining in
fiscal 1997, $6.5 million in fiscal 1998, $8.5 million in fiscal 1999, $9.0
million in fiscal 2000, $9.75 million in fiscal 2001, and $2.5 million in fiscal
2002.
Outstanding borrowings under the Credit Agreement bear interest at floating
rates per annum equal to, at the Company's option: (i) the Base Rate plus 1.50%,
or (ii) the Eurodollar rate, LIBOR, plus 2.50%, provided, however, the interest
rate margins are subject to reductions in the event the Company meets certain
performance targets as set forth in the Credit Agreement. At March 29, 1996 the
interest rate for the Company based on this formula was 8.19%. The Company may
be required to make mandatory prepayments against both facilities, comprised of
principal payments totaling: (i) 100% of cash received in asset sales wherein
the proceeds are not used to purchase replacement assets, and (ii) 50% of the
Company's Excess Cash Flow as defined in the Credit Agreement. These payments
are to be applied first to the Term Loan and, upon the Term Loan's retirement,
to the Revolver as a permanent reduction. At March 29, 1997, the Company's
outstanding borrowings under these facilities were $43.75 million, $5 million on
the Revolver and $38.75 million on the Term Loan.
Under the Credit Agreement, the Company is subject to customary financial
and other covenants including certain financial limit and ratio covenants as
well as limitations on further indebtedness, guaranties, liens, dividends and
other restricted payments (including transactions with affiliates), prepayments
and redemption of debt, mergers, acquisitions, asset sales, consolidations, and
other investments. Additionally, the Credit Agreement provides that indebtedness
outstanding is secured by a first-priority security interest in, and lien upon,
substantially all of the Company's present and future tangible and intangible
assets and capital stock. The Company was in compliance with these covenants at
March 29, 1997.
(b) Subordinated Debt
On November 25, 1996, the Company consummated a private placement of $100
million aggregate principal amount of 11.5% Senior Subordinated Notes due 2006
(the "Notes"). The Notes will mature on December 1, 2006, unless previously
redeemed. Interest on the notes is payable semiannually in arrears, commencing
June 1, 1997, and will be payable on June 1 and December 1 of each year at a
rate of 11 1/2% per annum. The issuance of the Notes
8
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS-(Continued)
(Unaudited)
3. LONG TERM DEBT- (CONTINUED)
resulted in net proceeds to the Company of approximately $95 million and after
underwriting discounts and other debt issuance costs aggregating approximately
$5 million. On April 30, 1997, the Company consummated an exchange offer where
by the private placement Notes were replaced with similar Notes, which are
publicly traded. The Company's outstanding indebtedness under these Notes was
$100 million at March 29, 1997.
The Notes were issued pursuant to an Indenture, which contains certain
restrictive covenants and limitations. Among other things, the Indenture limits
the incurrence of additional indebtedness, limits the making of restricted
payments (as defined) including the declaration and/or payment of dividends,
places limitations on dividends and other payments by the Company, and places
limitations on liens, certain asset dispositions and merger/sale of assets
activity. The Company was in compliance with these covenants at March 29, 1997.
The Notes are unsecured subordinated general obligations of the Company.
The Notes become redeemable at the Company's option on December 1, 2001, at
which time the Notes are redeemable in whole or part, subject to a redemption
premium which begins at 105.75 % of the face value in 2001 and reduces at a
scheduled rate annually until 2004 at which time the redemption is 100% of face
value. Notwithstanding the foregoing, at any time prior to December 1, 1999, the
Company, at its option, may redeem the Notes, in part, with the net proceeds of
a public equity offering or of a capital contribution made to the common equity
of the Company. Any such redemption is also subject to a redemption premium,
which begins at 110.75% in 1997 and 110.00% in 1998 and 1999. No mandatory
redemption or sinking fund payments are required with respect to the Notes;
however, at each Note holder's option, the Company may be required to repurchase
the Notes at a redemption premium of 101% in the event the Company incurs a
change of control as defined by the Indenture
4. COMMITMENTS
Tyson (for the Predecessor), and the Company leased certain properties and
equipment for which the total rentals thereon approximated $43,000 and $54,000
for the second quarter and the six month period ended March 29, 1997, in
comparison to $11,000 and $22,000 for the same fiscal periods of 1996.
Future minimum lease payments for all noncancelable operating leases for
the Business at March 29, 1997 total $1,011,000, composed of $121,000, $205,000,
$207,000, $210,000, 199,000, and $68,000 annually for the remainder of fiscal
1997 through 2002.
5. BENEFIT PLANS
Tyson had and the Company has defined contribution retirement and incentive
benefit programs for various groups of personnel, all employees of the
Predecessor and the Company are eligible after meeting requirements concerning
time employed. Incentive benefit programs are of a profit sharing nature, and
are discretionary as to amount and timing. Tyson or the Company made no
incentive contributions. Discretionary contributions totaled $143,000 and
$288,000 for the three month and the six month period ended March 29, 1997, in
comparison to $218,000 and $562,000 for the same fiscal periods of 1996.
9
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS-(Continued)
(Unaudited)
6. INCOME TAXES
The Predecessor was included in the consolidated federal income tax return
of Tyson and computed its federal tax provision as if it filed a separate
return. The state tax provision was computed using an effective state tax rate
as if the Predecessor filed separate state tax returns. The Company has not
recorded any income tax benefit and deferred tax asset associated with the net
loss for the period ended March 29, 1997 because in the opinion of management it
is uncertain when the Company will be able to realize such deferred tax asset.
7. SIGNIFICANT CUSTOMERS
Certain of the Predecessor's and the Company's products are sold to major
foodservice distributors for distribution to foodservice outlets. As a result,
the Business's top three customers accounted for approximately 44% of sales for
the six month period ended March 30,1996 and 37% for the six month period ended
March 29, 1997. Sales to one of these customers are likely to be significantly
lower in fiscal 1997 than in fiscal 1996 due to the customer's decision to
increase its purchases with one of the Company's competitors.
8. TRANSACTIONS WITH AFFILIATES
The Company has entered into a consulting agreement with an affiliate of
majority shareholder CGW, under which CGW will receive a monthly fee of $30,000
for financial and management consulting services. In addition to the monthly fee
to CGW, the Board of Directors may approve an additional fee not to exceed
$500,000 annually, based upon overall Company operations. At the closing of the
acquisition (see Note 10), CGW received a fee of $2.65 million, included as part
of the Company's organizational costs, for its services in assisting the Company
with the structuring and negotiating of this transaction.
NationsBank of Texas, N.A., an affiliate of NationsBanc Investment Corp.
("NBIC") a minority shareholder and a limited partner of CGW, is a lender to the
Company and in that capacity has received usual and customary fees for
underwriting, structuring, syndicating and administering the Facilities under
the Credit Agreement. NationsBanc Capital Markets, Inc., another affiliate of
NBIC, was the initial purchaser of the Company's Senior Subordinated Notes, and
in that capacity received usual and customary fees and commissions in connection
with that transaction.
9. ACQUISITION
On November 25, 1996 the Company acquired certain assets and liabilities of
the beef processing division of Tyson, in exchange for a cash payment of
$184,349,151 (the "Acquisition"). The cash used to consummate the Acquisition
was obtained through the issuance of $45,000,000 in common stock, and the
proceeds from the borrowings described in the notes above. The details of the
assets and liabilities purchased are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fixed and intangible assets $154,000,000
Inventory 30,927,166
Liabilities assumed (578,015)
--------------
$184,349,151
==============
</TABLE>
10
<PAGE>
GORGES/QUIK-TO-FIX FOODS, INC.
NOTES TO FINANCIAL STATEMENTS- (Continued)
(Unaudited)
9. ACQUISITION- (CONTINUED)
The Company assumed no liabilities or obligations of Tyson or the
Predecessor with the exception of those defined in the purchase agreement:
future obligations of normal course of business executory contracts, agreements
to purchase inventory or supply products, accrued vacation pay, and certain
property tax obligations. Tyson has agreed to indemnify the Company from any and
all liabilities and obligations relating to the Predecessor, other than the
aforementioned liabilities assumed by the Company. The Company and Tyson have
also entered into a non-competition agreement which expires two years from the
date of closing, in which the parties have agreed, subject to certain exceptions
and limitations, to not compete with each other in the production or sale of
beef and pork items, in the case of Tyson, and poultry items, in the case of the
Company. Pursuant to a Transition Service agreement between the parties, Tyson
will also continue to provide the Company with administrative and computer
support for a period of up to twelve months after the date of closing.
10. PRO FORMA INFORMATION
The pro forma income statement included herein for the six month period
ended March 29, 1997 gives effect to the completion of the Acquisition, the
application of the net proceeds of the of the financing and the related events
as described in the notes above, as though they had occurred on September 29,
1996. Adjustments made to the income statement include: (i) a $563,000 reduction
in cost of sales related to the elimination of redundant staffing which resulted
in the elimination of approximately 106 plant personnel; (ii) a $1,193,000
increase in cost of sales related to the depreciation expense increase as a
result of the write-up to fair market value of property, plant and equipment
acquired; (v) a $55,000 increase in selling, general and administrative expenses
representing the maximum addition of estimated costs expected to be incurred by
the Company in connection with the consulting contract with CGW described in the
Notes above; (vi) a $101,000 increase in amortization of intangible assets
representing an increase in the basis of the assets being amortized and a
reduction in the number of years they are amortized over; (vii) a $2,689,000
increase in interest expense representing the estimated interest expense for the
first eight weeks of the period prior to the closing of the acquisition; and
(viii) the elimination of $731,000 of income tax expense to reflect the changes
above which combine to generate a loss before income taxes.
11
<PAGE>
Part 1-Financial Information
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading producer of value added processed fresh and frozen
beef, and to a lesser extent pork and poultry products primarily for the
foodservice industry. The Company purchases fresh and frozen beef, pork and
poultry, which it processes into a broad range of fully cooked and ready to cook
products generally falling into one of two categories, value added products and
ground beef. Value added products include but are not limited to: (i) breaded
beef items such as country fried steak and beef fingers; (ii) charbroiled beef
items such as fully cooked hamburger patties, fajita strips, meatballs, and
meatloaf; and (iii) other specialty products such as fully cooked and ready to
cook pork sausage, breaded pork and turkey, cubed steaks, and Philly steak
slices. Ground beef product offerings consist of primarily individually quick
frozen hamburger patties. The Company's products are sold primarily to the
foodservice industry which encompasses all aspects of away-from-home food
preparation, including restaurants, schools, healthcare providers, corporations,
and other commercial feeding operations. The Company sells its products
primarily through broadline and specialty foodservice distributors.
On November 25, 1996, the Company acquired the Gorges/Quik-to-Fix Foods
operations (the Predecessor") from Tyson Foods, Inc. ("Tyson") (the
"Acquisition"). As a result of the Acquisition, financial information for
periods through September 28, 1996 and periods subsequent to September 29, 1996
are presented on a different cost basis and, therefore, such information is not
comparable. Prior to the Acquisition, (i) Gorges/Quik-to-Fix Foods, Inc. had no
significant assets or liabilities and had not conducted any business, other than
in connection with the Acquisition, and (ii) Tyson did not operate the
Predecessor as a distinct legal entity.
The accompanying unaudited condensed financial statements include financial
information of the Company, and the Predecessor, which is the Company prior to
its acquisition from Tyson. The Predecessor had been operated and accounted for
as a consolidated operating division of Tyson. Prior to the Acquisition, Tyson's
accounting system produced separate income statements for the Predecessor while
certain balance sheet accounts, including the majority of cash, receivables,
prepaids, payables and accruals which were maintained only on a consolidated
basis at the corporate level, which are in effect reflected in Investment and
Advances by Tyson. The Predecessor also participated in Tyson's overall
corporate cash management program whereby Tyson provided operating funds with
the corresponding charge or credit reflected in the Investment and Advances by
Tyson account. As a result, the Predecessor maintained only nominal cash
accounts. Portions of Tyson's accounting and administrative costs related to
these functions were allocated to the Predecessor as discussed in Note 2 to the
Financial Statements. Additionally, the allocable portion of the expenses
associated with certain other assets and other liabilities recorded at Tyson's
corporate level for which the Predecessor received benefit was reported in the
Predecessor's operations.
The following discussion should be read in conjunction with the unaudited
Financial Statements and the Notes thereto, included elsewhere in this Document.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
Overview
Discussion of the results of operations for the Company as they relate to
the fiscal 1997 six month period are made in reference to the Pro-forma
Statement of Income, which represents an adjusted combination of the two stub
periods, one of the Predecessor, and one of the Company, which together
completes coverage of the time of the six month period ended March 29, 1997. As
a result of the Acquisition, the post acquisition amounts will not be comparable
to prior periods.
The Company has experienced an overall decrease in net sales during the
past two years and continuing into the three month and six-month periods ended
March 29, 1997. The decreases are primarily due to reduced sales volumes, and to
a lesser extent, decreases in average selling prices. The decreases in average
selling prices are primarily due to lower prices for two key raw materials, 90%
lean beef trimmings and rib lifter meat, which the Company has passed on, in
part, to customers. Overall, the lower sales volumes in the fiscal 1997 periods
is related to uncertainties which surrounded the Company when Tyson announced
its intent to sell the Predecessor in early 1996, the sales declines in the
ground beef business, primarily sales to a large national customer that gave a
larger part of its volume to a competitor during the period of time the
Predecessor was for sale (the Company does not know if it will ever recover this
business), and the discontinuance from the prior year of frozen portion control
steaks, a business which the Company discontinued in fiscal 1996. Sales volumes
for the Company's value added products have generally increased during the past
two years due to overall market growth for these products and the introduction
of new products. These increases in sales volumes for value added products were
partially offset by the loss of some business with several national accounts.
Gross profit increased in the three month period ended March 29, 1997, and
decreased in the six month period ended March 29, 1997, as compared to the three
month and six month periods ended March 30, 1996. The decline in year to date
gross profit dollars in fiscal 1997 is attributable primarily to the lower sales
volumes described above. As a percent of sales, gross profits increased 2.0 %
and 0.1% for the three month and the six months periods ended March 29, 1997,
compared to the same periods in fiscal 1996. The increase in gross profit as a
percentage of sales is primarily attributable to cost decreases which are a
direct result of a change in operations since the Acquisition and the increase
in sales of value added products and commodity products and a decrease in lower
margin ground beef sales. These increases are being partially offset by higher
depreciation costs, which are a result of the acquisition, and increased
overhead expenses per pound related to lower production volumes as a result of
the excess inventory on hand at the time of the acquisition. The Company
continues to work down the amount of inventory in an effort to get to a level
management believes is operationally efficient for the Company.
The Company's operating income increased in the three-month period ended
March 29, 1997, and decreased in the six-month period ended March 29, 1997. The
increase in the three-month period is attributable to higher margins as a result
of overall lower operating costs and lower current selling and general and
administrative costs. The decrease year to date is due primarily to the overall
decrease in the level of sales as discussed above, lower production volumes also
discussed above, as well as increases in amortization and depreciation expenses
as a result of the Acquisition.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS- (CONTINUED)
The three month period and pro-forma six month period ended March 29, 1997
compared to the three month period and pro-forma six month period ended March
30, 1996
Sales decreased by 10.4% and 13.8% for the three and six month periods
ended March 29, 1997 when compared to the three and six-month periods ended
March 30, 1996. The decrease as discussed above is primarily related to the
discontinuance of certain products, the restructure and sale of the business and
the resultant loss of sales in product lines which require contract and annual
bid processes (processes that were limited during the acquisition), and certain
national and ground beef customers that were lost during the second half of
1996.
Operating expenses decreased by 2.8% and 6.8% for the three and six month
periods ended March 29, 1997 when compared to the three and six-month periods
ended March 30, 1996. The decrease was attributable to the differences in the
method of operations between the Company and the Predecessor. Also, as a direct
result of the Acquisition, amortization expense increased by $.4 million and $.6
million for the three and six month periods ended March 29, 1997 when compared
to the three and six month periods ended March 30, 1996.
Interest and Other (income) expense increased by $3.8 million and $8.0
million for the three and six month periods ended March 29, 1997 when compared
to the three and six-month periods ended March 30, 1996. The increase in these
expenses is primarily due to the interest on debt incurred as a direct result of
the Acquisition, and amortization of debt issuance costs related to the issuance
of the Notes totaling $5.2 million, with no comparable amount in 1996. Tyson did
not allocate interest expense to the Predecessor.
The $1.5 million net loss for the three-month period ended March 29, 1997,
and $4.1 million pro-forma net loss for the six-month period ended March 29,
1997 compares to a net income of $1.1 million and $3.2 million for the same
fiscal periods of 1996. The $2.6 million and $7.3 million increase in net loss
for the respective periods resulted primarily from the additional depreciation,
amortization and interest expense related to the Acquisition, as well as the
decrease is sales all partially being offset by an overall lower level of
operating costs. In addition, also offsetting the increase is the related
effects of the above losses on income taxes.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Acquisition, and the related financing, the Company has
a significant annual principal and interest obligation. Borrowings under the
Company's senior secured credit facilities, which totaled $43.75 million at
March 29,1997 ($38.75 million under the term loan and $5.0 million under the
revolving line of credit) accrued interest at an average rate of 8.35% in the
eighteen week period ended March 29, 1997. Borrowings under the Company's Senior
Subordinated Notes, Due 2006, totaled $100 million at March 29, 1997, and
accrued interest at a rate of 11.5%.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
LIQUIDITY AND CAPITAL RESOURCES- (CONTINUED)
In addition to its debt service obligations, the Company will need
liquidity for working capital and capital expenditures. For the fiscal year
ended September 28, 1996 the Company spent $0.7 million on capital projects. For
the six-month period ended March 29, 1997, the company spent $0.9 million on
capital projects. The Company expects to spend an additional $3.6 million for
capital projects in fiscal 1997. As much as $2.0 million will be spent in fiscal
1997 on the establishment of a corporate infrastructure and administrative
function, principally for computer software and hardware, as well as office
furniture, fixtures and equipment. The remaining capital expenditures are
primarily for the capital maintenance of the Company's facilities as well as the
establishment of a research and development facility. The Company is in the
process of creating a corporate infrastructure that will provide administrative
services. Tyson is currently providing many of these administrative services to
the Company. The Company entered into a Transition Services Agreement with Tyson
that provides for the Company to continue to receive administrative support for
up to one year after the acquisition closing date from Tyson. In connection with
the effort to establish an administrative structure the Company is hiring
additional personnel into its newly leased Dallas corporate office. The Company
estimates fiscal 1997 expenses for its stand-alone administrative functions will
be approximately $3.4 million.
The Company's primary sources of liquidity are cash flows from operations
and borrowing under its revolving line of credit. The Company had additional
credit availability of $25 million under its revolving line of credit at March
29, 1997. In the six month period ended March 29,1997, net cash from financing
activities of $185.1 million ($194 million net of $8.9 million in transaction
and financing related expenditures) was partially used by investing activities
of $184.7 million in connection with the Acquisition and normal capital
expenditures. Also, the Company had cash used by operating activities of $0.9
million, primarily in connection with the increases of working capital assets.
The Company anticipates that its working capital requirements, capital
expenditures and scheduled repayments for fiscal 1997 will be satisfied through
a combination of cash flows generated from operations together with funds
available under its revolving credit facility.
EFFECTS OF INFLATION
Inflation has not had a significant effect on the operations of the
Company. However, in the event of increases in inflation or commodity prices
from recent levels, the Company could experience sudden and significant
increases in beef costs. Over periods of 90 days or less, the Company may be
unable to completely pass these price increases on to its customers. The Company
currently believes that over longer periods of time, it will be able to pass on
the price increases to its customers.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not plan to adopt the fair value-based measurement
methodology for employees stock options contemplated by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" for
financial reporting purposes. Accordingly, this Standard is not expected to have
a significant effect on the Company's financial position or results of
operations.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
FUTURE OPERATING RESULTS; FORWARD LOOKING STATEMENTS
The Company's future revenues and profitability may vary due to a variety
of risks and uncertainties, including (i) business conditions and growth in the
Company's existing markets, (ii) the success of new products and development of
new markets, (iii) the Company's existing indebtedness and the capital needs for
debt service and additional growth, (iv) government regulation, including USDA
regulations, (v) the successful integration of future acquisitions, (vi)
numerous competitive factors, including number and size of competitors and
alternative distribution and (vii) market price and availability of raw
materials.
The Company expects to pursue business growth strategies, add customers,
product lines and possibly acquire other businesses; however, the success of
these strategies and their impact on the Company's future revenues and
profitability cannot be estimated with precision or certainty. The Company
believes that selling, general and administrative, interest, and depreciation
and amortization expenses will continue to increase to support overall growth.
There can be no assurance, however, that these expenses will not increase at a
faster rate than the Company's revenues. Should these expenses increase faster
than revenues, the Company's profitability could be adversely affected.
Because of the foregoing uncertainties affecting the Company's future
operating results, past performance should not be considered to be a reliable
indicator of future performance, and investors should not use historical trends
to anticipate results or trends in future periods. In addition, the Company's
participation in a dynamic industry often may result in significant volatility
in the price of the Company's bonds.
In addition to the matters noted above, certain other statements made in
this report are "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are based on an
assessment of a variety of factors, contingencies and uncertainties deemed
relevant by management, including technological changes, competitive products
and services, management issues as well as those matters discussed specifically
elsewhere herein. As a result, the actual results realized by the Company could
differ materially from the statements made herein. Readers of this report are
cautioned not to place undue reliance on the forward-looking statements made in
this report.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Exchange Agency Agreement, dated March 28, 1997, between
Gorges/Quik-to-Fix Foods, Inc., and IBJ Schroder Bank and Trust
Company.
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
Dated: May 13, 1997 GORGES/QUIK-TO-FIX FOODS, INC.
By: /s/A. Scott Letier
--------------------------------------
A. Scott Letier
Vice President-Finance and Chief Financial Officer
(Principal Financial Officer)
18
<PAGE>
EXHIBIT 10.1
EXCHANGE AGENCY AGREEMENT
THIS AGREEMENT is entered into as of March 28, 1997, between IBJ Schroder
Bank & Trust Company, a banking corporation organized under the laws of the
State of New York, as Exchange Agent (the "Agent"), and Gorges Quik-to-Fix
Foods, Inc., a corporation organized under the laws of the State of Delaware
(the "Issuer").
The Issuer has heretofore issued $100,000,000 in aggregate principal amount
of their 11 1/2% Senior Subordinated Notes Due 2006 (the "Original Notes"). The
Issuer now proposes to offer to exchange $1,000 principal amount of their
11 1/2% Senior Subordinated Notes Due 2006, Series B (the "New Notes") for each
$1,000 principal amount of the outstanding Original Notes. Such offer to
exchange the New Notes for the outstanding Original Notes (the "Exchange Offer")
shall be made upon the terms and subject to the conditions set forth in a
Prospectus of the Issuer dated March 28, 1997 (the "Exchange Offer Prospectus")
and a related Letter of Transmittal (the "L/T") in the form attached hereto. The
effective date of the Exchange Offer shall be March 28, 1997, and the
termination date of the Exchange Offer shall be April 28, 1997.
Subject to the provisions hereof, the Issuer hereby appoints and the Agent
hereby accepts, the appointment as Agent for the purposes of receiving,
accepting for delivery and otherwise acting upon tenders of the Original Notes
in accordance with the provisions of the L/T and with the terms and conditions
set forth herein.
The Agent has received the following documents in connection with its
appointment:
(1) L/T
(2) Specimen Original Note
The Agent shall receive from IBJ Schroder Bank & Trust Company, in its
capacity as the registrar for the Original Notes (the "Registrar") no later than
5:00 p.m., New York City Time, on the effective date (as specified above) a list
of all holders of Original Notes eligible to participate in the Exchange Offer,
which list shall include the principal amount of Original Notes owned of record
by each such holder. The Registrar will also promptly notify the Agent of any
changes in the registered ownership of the Original Notes during the Exchange
Offer.
The Agent is authorized and hereby agrees to act as follows:
(a) to receive all tenders of Original Notes made pursuant to the L/T and
stamp the L/T with the day, month and approximate time of receipt;
(b) to examine each L/T and Original Note received to determine that all
requirements for a valid tender set forth in the L/T have been met;
<PAGE>
(c) to take such actions necessary and appropriate to correct any
irregularity or deficiency associated with any tender which does not
meet the requirements in the L/T;
(d) to follow instructions of A. Scott Letier, Chief Financial Officer of
the Company, with respect to the waiver of any irregularities or
deficiencies associated with any tender;
(e) to render a written report, in the form of Exhibit A attached hereto,
on each business day that Original Notes are tendered during the
Exchange Offer and promptly confirm, by telephone, the information
contained therein to A. Scott Letier (each such report shall be
delivered by facsimile (No. 972/907-7658) followed by mailing of the
original);
(f) to return to the presenters, in accordance with the provisions of the
L/T, any Original Notes that were not received in proper order and as
to which irregularities or deficiencies were not cured or waived;
(g) to deliver by First Class Mail, postage prepaid, the consideration to
which the presenters are entitled, at the addresses specified in the
L/Ts as soon as practicable after the receipt thereof;
(h) to determine that an endorsements, guarantees, signatures,
authorities, stock transfer taxes (if any) and such other requirements
are fulfilled in connection with any request for issuance of the
consideration in a name other than that of the registered owner of the
Original Notes;
(i) to deliver to the Registrar all certificates received under the
Exchange Offer, together with any related assignment forms and other
documents; and
(j) to follow and act upon any written amendment, modification or
supplement to this Agreement, any of which may be given to the
Authority by the designated officer of the Company or such other as it
may designate in writing.
The Agent shall:
(a) have no duties or obligations under this Agreement other than those
specifically set forth herein;
(b) not be required to refer to any documents for the performance of its
obligations hereunder other than this Agreement, the L/T and the
documents required to be submitted with the L/T; except to the extent
set forth in such documents, the Agent will not be responsible or
liable for any
-2-
<PAGE>
directions or information in the Exchange Offer prospectus or any
other document unless the Agent specifically agrees thereto in
writing;
(c) not be required to act on the directions of any person unless the
Company provides a corporate resolution to the Agent or other evidence
satisfactory to the Agent of the authority of such person;
(d) not be required to and shall make no representations and have no
responsibilities as to the validity, accuracy, value or genuineness of
(i) the Exchange Offer, (ii) the Exchange Offer Prospectus, (iii) any
Original Notes, L/Ts or documents prepared by the Company in
connection with the Exchange Offer or (iv) any signatures or
endorsements, other than its own;
(e) not be obligated to take any legal action hereunder that might, in its
judgment, involve any expense or liability, unless it has been
furnished with reasonable indemnity by the Issuers;
(f) be able to rely on and shall be protected in acting on the written or
oral instructions with respect to any matter relating to its actions
as Agent specifically covered by this Agreement, of any officer of the
Company authorized to give instructions;
(g) be able to rely on and shall be protected in acting upon any
certificate, instrument opinion, notice, letter, telegram or any other
document or security delivered to it and believed by it reasonably and
in good faith to be genuine and to have been signed by the proper
party or parties;
(h) not be responsible for or liable in any respect on account of the
identity, authority or rights of any person executing or delivering or
purporting to execute or deliver any document or property under this
Agreement and shall have no responsibility with respect to the use or
application of any property delivered by it pursuant to the provisions
hereof;
(i) be able to consult with counsel satisfactory to it (including counsel
for the Company or staff counsel of the Agent) and the advice or
opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with advice or opinion of
such counsel;
(j) not be called on at any time to advise, and shall not advise, any
person delivering an L/T pursuant to the Exchange Offer as to the
value of the consideration to be received;
-3-
<PAGE>
(k) not be liable for anything which it may do or refrain from doing in
connection with this Agreement except for its own gross negligence,
willful misconduct or bad faith;
(1) not be bound by any notice or demand, or any waiver or modification of
this Agreement or any of the terms hereof, unless evidenced by a
writing delivered to the Agent signed by the proper authority or
authorities and, if the Agent's duties or rights are affected, unless
the Agent shall give its prior written consent thereto;
(m) have no duty to enforce any obligation of any person to make delivery,
or to direct or cause any delivery to be made, or to enforce any
obligation of any person to perform any other act;
(n) have the right to assume, in the absence of written notice to the
contrary from the proper person or persons, that a fact or an event by
reason of which an action would or might be taken by the Agent does
not exist or has not occurred without incurring liability for any
action taken or omitted, or any action suffered by the Agent to be
taken or omitted, in good faith or in the exercise of the Agent's best
judgment, in reliance upon such assumption; and
(o) have no liability whatsoever in connection with Original Notes
tendered to it which may have stops placed against them or in
connection with the payment made against stopped certificates unless
it is furnished with a stop list from the Registrar.
The Agent shall be entitled to compensation as set forth in Exhibit B
attached hereto.
The Company covenants and agrees to reimburse the Agent for, indemnify it
against, and hold it harmless from any and all reasonable costs and expenses
(including reasonable fees and expenses of counsel and allocated costs of staff
counsel) that may be paid or incurred or suffered by it or to which it may
become subject without gross negligence, willful misconduct or bad faith on its
part by reason of or as a result of its compliance with the instructions set
forth herein or with any additional or supplemental written or oral instructions
delivered to it pursuant hereto, or which may arise out of or in connection with
the administration and performance of its duties under this Agreement.
This Agreement shall be construed and enforced in accordance with the laws
of the State of New York and shall inure to the benefit of, and the obligations
created hereby shall be binding upon, the successors and assigns of the parties
hereto.
Unless otherwise expressly provided herein, all notices, requests, demands
and other communications hereunder shall be in writing, shall be delivered by
hand or by First
-4-
<PAGE>
Class Mail, postage prepaid, shall be deemed given when received and shall be
addressed to the Agent and the Issuers at the respective addresses listed below
or to such other addresses as they shall designate from time to time in writing,
forwarded in like manner.
If to the Agent, to,
IBJ Schroder Bank & Trust Company
One State Street
New York. New York 10004
Attention: Corporate Agency Administration
Telephone: (212) 858-2103
Facsimile: (212) 858-2611
If to the Company, to:
Gorges/Quik-to-Fix Foods, Inc.
9441 LBJ Freeway, Suite 214
Dallas, Texas 75243
Attention: A. Scott Letier
Telephone: (972) 690-7675
Facsimile: (972) 907-7658
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their Officers thereunto duly authorized, all as of
the day and year first above written.
IBJ SCHRODER BANK & TRUST COMPANY
By: [Signature Not Eligible]
-----------------------------------------
Its Assistant Vice President
------------------------------------
GORGES/QUIK-TO-FIX FOODS, INC.
By: /s/ J.David Culwell
-----------------------------------------
Its CEO
------------------------------------
-5-
<PAGE>
EXHIBIT A
SAMPLE REPORT LETTER
Date: ____________________________________________
Report Number: ____________________________________________
As of Date: ____________________________________________
Gorges/Quik-to-Fix Foods, Inc.
9441 LBJ Freeway, Suite 214
Dallas, Texas 75243
Attention: A. Scott Letier
Re: Exchange Offer of 11 1/2% Senior Subordinated Notes due 2006, Series B
for 11 1/2% Senior Subordinated Notes due 2006, Series A (the "Offer")
Gentlemen:
As Exchange Agent for the above Offer dated __________________, we hereby
render the following report:
Original Notes previously received: __________________________________
Original Notes received today: __________________________________
Total Original Notes received to date: __________________________________
Very truly yours,
-6-
<PAGE>
EXHIBIT B
November 12, 1996
Bryan E. Davis
Alston & Bird
One Atlanta Center
1201 West Peachtree Street
Atlanta, GA 30309-3424
RE: $100,000,000 Gorges/Quik-to-Fix Foods, Inc. Senior Subordinated Notes Due
2006
Dear Bryan:
Thank you for your interest in having IBJ Schroder Bank & Trust Company serve as
Trustee, Registrar, Paying Agent and Exchange Agent for the above captioned
issue. I am pleased to submit, herein, our proposal for your consideration.
We understand the Company intends to issue approximately $100 million principal
amount of Notes due 2006 under Rule 144A. The Notes will be DTC eligible and pay
taxable interest semiannually in arrears. The Notes will be issued in connection
with a LBO transaction by Cravey Green & Wahlen (an Atlanta-based buyout firm)
and Tyson Foods (the seller). NationsBank, through its appropriate entities,
will be providing senior debt financing and underwriting the Notes.
Based on this understanding our fees are as follows:
a) $4,500 Initial Acceptance Fee payable at closing for reviewing all
related documents and setting up the Trust Accounts.
b) $4,500 Annual Trustee Administration Fee payable in advance at closing
and on each anniversary date thereafter for as long as any Notes remain
outstanding.
c) $2,500 Exchange Agent Administration Fee payable in advance upon the
filing of the registration.
Additionally, attached please find a copy of our Bond Registrar & Paying Agency
Fee Schedule.
As is our customary practice, legal fees, out-of-pocket expenses and
disbursements are not included in the above mentioned fees. These expenses will
be billed at closing. While we expect the issue to proceed to a successful
closing, you should understand that if the deal
<PAGE>
is postponed or canceled, we would expect payment of our Initial Acceptance Fee
and expenses, including those costs incurred by the Trustee Counsel.
In addition, this proposal is based on our current understanding of the
transaction and subject to our review of the indenture and related documents.
The proposal is also contingent upon your acceptance of our reasonable comments
regarding provisions related to the duties of IBJ Schroder. Should the duties
and responsibilities of IBJ Schroder significantly differ from our present
understanding, we reserve the right to amend this proposal and adjust our fees
accordingly.
The Trustee may be called upon to perform services not covered under this
proposal. These extraordinary services may be partially classified as releases,
unusual studies, considerations and actions with respect to the Agreement
provisions, the preparation of special reports which the Trustee must provide to
the holders, default situations or any services which involve the Trustee in any
unusual activity. Fees for such services will be determined by an appraisal of
the services involved.
Please indicate your acceptance of this proposal by having the appropriate
person sign and return the enclosed copy of this letter to my attention. If you
have any questions concerning this proposal, please feel free to contact me or
my colleague, Max Volmar, Vice President. Max can be reached by telephone at
(212) 858-2428.
We look forward to working with you on a successful closing.
Sincerely,
/s/ MICHAEL W. DIAZ
AGREED TO
By: /s/ JAMES A. O'DONNELL
--------------------------------------------
Company: Gorges/QUIK-to-Fix Foods, Inc.
Name: James A. O'Donnell
Title: President
DATE: November 13, 1996
-2-
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