<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
{X} Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter ended September 30, 1998
{ } Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 1-13747
ATLANTIC PREMIUM BRANDS, LTD.
- --------------------------------------------------------------------------------
(Exact Name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 36-3761400
- ------------------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
650 Dundee Road, Suite 370 60062
Northbrook, Illinois
- ------------------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (847) 480-4000
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
----- -----
As of November 11, 1998, there were outstanding 7,385,679 shares of Common
Stock, par value $.01 per share, of the Registrant.
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1.
ATLANTIC PREMIUM BRANDS, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,262,805 $ 2,453,265
Accounts receivable, net of allowance for doubtful accounts
of $117,000 and $217,000, respectively 9,448,489 9,156,255
Inventory 4,213,026 6,545,753
Prepaid expenses and other 672,386 827,841
------------ ------------
Total current assets 15,596,706 18,983,114
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, net 4,939,536 13,507,726
GOODWILL, net 12,790,619 13,168,338
OTHER ASSETS, net 1,626,831 1,745,107
------------ ------------
Total Assets $ 34,953,692 $ 47,404,285
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 1,491,557 $ 3,109,277
Line of credit 6,839,323 4,035,620
Current portion of long-term debt 1,659,310 1,284,110
Accounts payable 8,216,422 7,199,847
Accrued expenses 1,061,338 2,546,728
------------ ------------
Total current liabilities 19,267,950 18,175,582
------------ ------------
LONG-TERM DEBT, net of current portion 6,297,288 17,311,121
PUT WARRANTS -- 1,435,000
------------ ------------
Total liabilities 25,565,238 36,921,703
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value; 30,000,000 shares authorized;
and 7,373,574 shares issued in 1997 and 7,432,109 issued in
1998 73,770 74,355
Additional paid-in capital 12,141,176 12,200,124
Accumulated deficit (2,826,492) (1,791,897)
------------ ------------
Total Stockholders' Equity 9,388,454 10,482,582
------------ ------------
Total Liabilities and Stockholders' Equity $ 34,953,692 $ 47,404,285
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
<PAGE> 3
Page 1 of 2
ATLANTIC PREMIUM BRANDS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended Three Months Ended
September 30, September 30,
-------------------------------- ---------------------------------
1997 1998 1997 1998
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 128,234,946 $ 145,463,948 $ 44,179,213 $ 52,453,537
COST OF GOODS SOLD, exclusive of
depreciation shown below 113,121,840 123,946,263 38,968,529 44,419,952
-------------- -------------- -------------- --------------
Gross Profit 15,113,106 21,517,685 5,210,684 8,033,585
-------------- -------------- -------------- --------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Salaries and benefits 6,437,028 8,555,208 2,282,605 3,277,328
Other operating expenses 6,087,906 8,504,189 2,115,945 3,263,552
Depreciation and amortization 947,666 1,505,918 356,858 554,791
-------------- -------------- -------------- --------------
Total selling, general and
administrative expenses 13,472,600 18,565,315 4,755,408 7,095,671
-------------- -------------- -------------- --------------
Income from operations 1,640,506 2,952,370 455,276 937,914
INTEREST EXPENSE (1,276,373) (1,902,521) (432,498) (720,131)
OTHER INCOME 240,780 189,239 112,830 116,513
-------------- -------------- -------------- --------------
Income before income tax
provision 604,913 1,239,088 135,608 334,296
-------------- -------------- -------------- --------------
INCOME TAX PROVISION (15,000) (9,500) (15,000) (125,000)
-------------- -------------- -------------- --------------
Net income before extraordinary
loss $ 589,913 $ 1,229,588 $ 120,608 $ 209,296
============== ============== ============== ==============
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT, net of
income tax benefit of $122,000 - 194,993 - -
-------------- -------------- -------------- -------------
Net income $ 589,913 $ 1,034,595 $ 120,608 $ 209,296
============== ============== ============== ==============
INCOME PER COMMON SHARE DATA
BASIC EPS:
Net income before extraordinary loss $ .09 $ .17 $ .02 $ .03
Extraordinary loss, net of tax - (.03) - -
-------------- --------------- -------------- -----------
Net income $ .09 $ .14 $ .02 $ .03
============== ============== ============== ==============
</TABLE>
<PAGE> 4
Page 2 of 2
ATLANTIC PREMIUM BRANDS, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended Three Months Ended
September 30, September 30,
-------------------------------- --------------------------------
1997 1998 1997 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
DILUTED EPS:
Net income before extraordinary loss $ .09 $ .17 $ .02 $ .03
Extraordinary loss, net of tax - (.03) - -
-------------- -------------- -------------- --------------
Net income $ .09 $ .14 $ .02 $ .03
============== ============== ============== ==============
WEIGHTED AVERAGE SHARES
OUSTANDING:
Basic calculation 6,668,206 7,402,977 7,207,490 7,432,109
============== ============== ============== ==============
Diluted calculation 6,922,107 7,627,637 7,430,170 7,607,239
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
Page 1 of 2
ATLANTIC PREMIUM BRANDS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended
September 30,
--------------------------------
1997 1998
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 589,913 $ 1,034,595
Adjustments to reconcile net income to cash flows provided
by operating activities, net of non-cash items and effect of
business combinations:
Extraordinary loss on early extinguishment of debt, net - 194,993
Depreciation and amortization 947,666 1,505,918
Deferred income tax provision - 9,500
Amortization of debt discount and deferred financing costs 141,566 261,227
Other - 80,138
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 1,726,578 1,827,301
Increase in inventory (1,444,240) (580,261)
Increase in prepaid expenses and other (667,336) (120,238)
Increase in other assets (426,008) (12,500)
Decrease in accounts payable (884,920) (1,790,019)
Increase in accrued expenses 118,740 1,132,572
Net cash flows provided by (used in) operating activities of -
Continuing operations 101,959 3,543,226
Discontinued operations (171,526) -
-------------- -------------
Net cash flows (used in) provided by operating
activities (69,567) 3,543,226
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (772,030) (963,457)
Purchase of distribution rights (267,885) -
Cash paid for acquisition, including related costs (11,667,181)
Proceeds from disposals of equipment - 121,688
-------------- --------------
Net cash flows used in investing activities (1,039,915) (12,508,950)
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
Page 2 of 2
ATLANTIC PREMIUM BRANDS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended
September 30,
--------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in bank overdraft, net $ (166,506) $ 1,617,120
Repayment of long-term debt (1,579,930) (5,606,509)
Cash paid for financing fees - (605,077)
Borrowings (payments) under line of credit 1,244,016 (2,803,703)
Borrowings under senior subordinated note - 5,065,000
Borrowings under capital lease obligations - 41,853
Proceeds from private placement of common stock, net 2,428,253 -
Issuance of put warrants - 1,435,000
Issuance of common stock options - 12,500
Borrowings under term loan - 11,000,000
-------------- --------------
Net cash flows provided by financing activities 1,925,833 10,156,184
-------------- --------------
NET INCREASE IN CASH 816,351 1,190,460
CASH, beginning of period 1,248,963 1,262,805
-------------- --------------
CASH, end of period $ 2,065,314 $ 2,453,265
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
ATLANTIC PREMIUM BRANDS, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements present the accounts of
Atlantic Premium Brands, Ltd. (the "Company") and its wholly-owned subsidiaries.
The Company, together with its subsidiaries, is engaged in the distribution of
specialty nonalcoholic beverages to the retail trade in the Baltimore and
Washington, D.C. metropolitan areas and in the manufacturing, marketing and
distribution of meat products in Texas, Louisiana, Kentucky, Oklahoma and
surrounding states. The operating results of the Company's food division are
impacted by changes in commodity markets.
The consolidated financial statements included herein for Atlantic Premium
Brands, Ltd. have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. In management's
opinion, the interim financial data presented includes all adjustments (which
include only normal recurring adjustments) necessary for a fair presentation.
Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
understand the information presented. The results of operations for the three
months and nine months ending September 30, 1998, are not necessarily indicative
of the operating results expected for the entire year. It is suggested that
these consolidated financial statements be read in conjunction with the
Company's December 31, 1997, consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K dated March 31, 1998.
Revenue Recognition
The Company records sales when product is delivered to the customers. Discounts
provided, principally volume, are accrued at the time of the sale.
Cash
Cash consists of cash held in various deposit accounts with financial
institutions. As of September 30, 1998, $175,000 was restricted to meet minimum
balance funding requirements.
<PAGE> 8
Inventory
Inventory is stated at the lower of cost or market. It is comprised of raw
materials, finished goods and inventory supplies. Cost is determined using the
first-in, first-out method (FIFO). Inventory consisted of the following as of:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------- --------------
<S> <C> <C>
Raw materials $ 297,297 $ 336,014
Finished goods 3,380,766 4,877,933
Packaging supplies 534,963 1,331,806
-------------- --------------
Total inventory $ 4,213,026 $ 6,545,753
============== ==============
</TABLE>
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation is provided using the straight-line method over the
following useful lives.
Buildings and building improvements 5-30 years
Machinery and equipment 5-10 years
Furniture and fixtures 5 years
Leasehold improvements 2-5 years
Vehicles 5-10 years
Other Assets
Other assets consist of noncompete agreements, deferred acquisition costs, cash
surrender value of life insurance, distribution, exclusivity and license
agreements and deferred financing costs (see Note 4). Noncompete agreements and
distribution, exclusivity and license agreements are being amortized over 2-5
years using the straight-line method. The deferred financing costs, net of
related accumulated amortization, related to extinguished debt were written off
in March 1998 (see Note 4).
Goodwill
Goodwill recorded in connection with business combinations is being amortized
using the straight-line method over 5 to 40 years.
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 as of 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.
<PAGE> 9
Earnings Per Share
The weighted average shares used to calculate basic and diluted earnings per
share for the three months ended September 30, 1997 and 1998, in accordance with
SFAS No. 128 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Common stock outstanding 7,207,490 7,432,109
========= =========
Weighted average shares outstanding for basic EPS 7,207,490 7,432,109
Dilutive effect of common stock equivalents 222,680 175,130
--------- ---------
Weighted average shares outstanding for dilutive EPS 7,430,170 7,607,239
========= =========
</TABLE>
Options to purchase 542,841 shares of common stock at prices ranging from $2.81
to $4.00 per share were outstanding during the third quarter of 1998 but were
not included in the computation of diluted EPS because the options' exercise
price was greater than the average market price of the common shares during the
quarter.
Put warrants to purchase up to a maximum of 1,095,700 shares of common stock, as
of September 30, 1998 at $3.38 per share were outstanding during the third
quarter of 1998 but were not included in the computation of diluted EPS because
the warrants' exercise price was greater than the average market price of the
common shares during the quarter.
The weighted average shares used to calculate basic and diluted earnings per
share for the nine months ended September 30, 1997 and 1998, in accordance with
SFAS No. 128 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Common stock outstanding 6,668,206 7,432,109
========= =========
Weighted average shares outstanding for basic EPS 6,668,206 7,402,977
Dilutive effect of common stock equivalents 253,901 224,660
--------- ---------
Weighted average shares outstanding for dilutive EPS 6,922,107 7,627,637
========= =========
</TABLE>
Options to purchase 309,991 shares of common stock at prices ranging from $3.30
and $4.00 per share were outstanding during the nine months ended September 30,
1998, but were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the common
shares during the nine month period.
Put warrants to purchase up to a maximum of 1,095,700 shares of common stock, as
of September 30, 1998 at $3.38 per share were outstanding during a portion of
the nine months ended September 30, 1998, but were not included in the
computation of diluted EPS because the warrants' exercise price was greater than
the average market price of the common shares during the nine month period.
<PAGE> 10
Accounting Pronouncements
During June 1997, the FASB issued Statement No. 130 (SFAS No. 130), "Reporting
Comprehensive Income", which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. The Company has had no items of other comprehensive income in
the nine months ended September 30, 1997 or 1998.
During July 1997, the FASB issued Statement No. 131 (SFAS No. 131), "Disclosures
About Segments of an Enterprise and Related Information", which establishes a
new approach for determining segments within a company and reporting information
on those segments. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Management has not yet determined whether the implementation
of SFAS No. 131 will have any significant impact on the Company's current method
of disclosing business segment information.
Reclassifications
Certain reclassifications have been made to the prior period amounts in order to
conform with the current period presentation.
2. CONTINGENCIES:
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages and
no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position or results of operations.
3. BUSINESS COMBINATIONS:
As of March 20, 1998, the Company acquired substantially all of the assets and
certain liabilities of J.C. Potter, a food processing business in Durant,
Oklahoma, specializing in a line of premium products including breakfast
sausage, link sausage and sausage and biscuits. In connection with the Potter
transaction, the Company paid $11,667,181 in cash, plus related transaction
costs. The business combination was accounted for using the purchase method of
accounting, whereby the purchase price is allocated to the assets acquired and
liabilities assumed based upon fair value. A
<PAGE> 11
preliminary purchase price allocation was performed as of March 31, 1998. As of
September 30, 1998, the revised allocation has taken into account additional
liabilities assumed, resulting in additional goodwill of $500,000.
<TABLE>
<S> <C>
Cash paid $ 10,495,407
Transaction costs 1,801,774
--------------
Total purchase price $ 12,297,181
==============
Current assets acquired $ 3,572,750
Noncurrent assets acquired 8,720,693
Current liabilities acquired (626,262)
--------------
Net assets acquired 11,667,181
--------------
Goodwill $ 630,000
==============
</TABLE>
4. DEBT REFINANCING:
On March 20, 1998, the Company refinanced its senior revolver and term debt. The
new debt consists of an $11 million term note, a $15 million line of credit and
$6.5 million Senior Subordinated Note with detachable put warrants.
The new term debt bears interest at either the bank's prime rate plus 1% or
Adjusted LIBOR plus 2.5%, at the Company's option. This loan is due in varying
amounts monthly through March 2003 and is secured by all assets of the Company.
Under the terms of the new line of credit agreement, the Company is permitted to
borrow up to $15,000,000, subject to advance formulas based on accounts
receivable, inventory and letter of credit obligations outstanding through March
2003. Amounts borrowed are due on demand and bear interest at either the bank's
prime rate plus 1% or adjusted LIBOR plus 2.5%. Interest is payable monthly and
amounts are secured by all assets of the Company.
The $6.5 million Senior Subordinated Note, maturing on June 30, 2005, bears
interest at 10%. Principal is payable in quarterly installments beginning June
30, 2003. The subordinated debt was issued with detachable put warrants to
purchase 666,947 shares of nonvoting common stock at $3.38 per share and a
contingent put warrant to purchase up to a maximum of 428,753 shares of
nonvoting common stock at $3.38 per share based upon the equity value of the
Company on certain dates. The warrants have been recorded at an estimated fair
value of $1,435,000, resulting in a discount on the Senior Subordinated Note of
the same amount. This discount is being amortized over the seven year term of
the note as additional interest expense. For the nine months ended September 30,
1998, amortization of the debt discount was approximately $108,250.
On the occurrence of a Put Trigger Event (defined below), if the average trading
volume of the Company's stock for four consecutive weeks is less than 15% of the
number of shares issuable to the holder of the put warrants, such holders would
have a thirty day right to require the Company to redeem the warrants for a cash
amount equal to the greater of a cash flow formula (defined in the Warrant
Agreement) or the fair market value of the underlying shares based upon an
appraisal, in each case, net of an exercise price of $3.38 per share. For these
purposes, a "Put Trigger Event" would occur upon the earlier of certain events,
including the fifth anniversary of the warrants, a sale of all or substantially
all of the assets of the Company, or a business combination in which the Company
is not the surviving corporation.
In accordance with EITF 96-13, the Company is required to accrete the value of
the warrants and mark-to-market the estimated fair value of the put option
described above. Any increases to such value would be charged to earnings as
additional interest expense. To the extent of any charges to earnings, any
subsequent decreases to the value of the warrants would be added to earnings as
additional interest income. Furthermore, any such additional interest expense
would not be deductible in the Company's federal or state income tax returns
and, therefore, would increase the effective income tax rate of the Company. For
purposes of these calculations, the fair value of the warrants will be estimated
using a Black-Scholes option pricing model. During the quarter ended September
30, 1998, the Company recorded thirty-five thousand dollars of interest income
representing the decrease in the estimated fair value of the warrants.
<PAGE> 12
During the nine months ended September 30, 1998, the Company did not record
additional interest expense as the estimated fair value of the warrants did not
increase.
In connection with this debt refinancing, the Company recorded an extraordinary
loss of $194,993 related to the write off of deferred financing costs, net of an
income tax benefit of $122,000. Also, the Company incurred additional financing
costs which have been deferred and are being amortized over the terms of the
related debt.
5. INCOME TAXES:
As of December 31, 1997, the Company had recorded a valuation allowance of
$462,500 against its net deferred tax assets in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." However,
after considering the Company's recent historical results and future projections
of taxable income, the Company believes that it is more likely than not that the
deferred tax assets will be realized prior to expiration of such assets. As a
result, the Company has reversed this allowance as of March 31, 1998, by
recording a benefit for deferred income taxes.
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
In 1996, the Company implemented a new corporate strategy that resulted
in the acquisition of five food businesses. Each of these businesses represents
a local or regional branded processed meat company. In addition to significantly
increasing the Company's size, the newly acquired businesses have created a
broader platform for future growth.
In order to acquire and operate its food businesses, the Company formed
four subsidiaries during 1996: Prefco Corp., Carlton Foods Corp., Richards Cajun
Foods Corp., and Grogan's Farm, Inc. On March 20, 1998, the Company formed a
fifth subsidiary to operate the business of the J.C. Potter Sausage Company
("Potters").
The Company continues to operate as a distributor of non-alcoholic
beverages in the Baltimore and Washington D.C. metropolitan areas. This business
represents the Company's Beverage Division, while the five subsidiaries
collectively represent the Company's Food Division.
ACQUISITION
On March 20, 1998, the Company acquired substantially all of the assets
of Potters, a branded food processing company based in Durant, Oklahoma, in
consideration for approximately $13.0 million cash plus related transaction
costs. In connection with this acquisition, the Company borrowed approximately
$6.5 million in senior subordinated debt (the "Senior Subordinated Note") from
Banc One Capital Corporation ("BancOne"). The Senior Subordinated Note included
detachable common stock put warrants. The Company also refinanced its senior
revolver and term debt through Fleet Capital. The new senior debt facility (the
"Fleet Facility") provided a term loan of $11 million, which was approximately
$6.0 million greater than the balance previously outstanding under the Company's
former senior debt facility with LaSalle National Bank (the "LaSalle Facility").
RESULTS OF OPERATIONS
All of the acquisitions were recorded utilizing the purchase method of
accounting. Therefore, results of the acquired businesses prior to the effective
date of such acquisitions are not included in the Company's results of
operations.
During 1997 and 1998, the Company's Carlton subsidiary and the
Company's Grogan's subsidiary both sold product to the Company's Prefco
subsidiary. During 1998, the Company's Potter subsidiary sold product to both
the Company's Carlton and Prefco subsidiaries and purchased product from the
Company's Grogan's subsidiary. The Company's financial statements do not reflect
this activity, as it is eliminated on a consolidated basis.
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997
Net Sales. Net sales increased by approximately $8.3 million or 18.7%
from approximately $44.2 million for the quarter ended September 30, 1997 to
approximately $52.5 million for the quarter ended September 30, 1998. Net sales
of the Company's Food Division increased by approximately 24.9%, while net sales
of the Company's Beverage Division decreased by approximately 14.6%. The
increase in net sales of the Food Division was primarily attributable to the
acquisition of Potters, which the Company did not own during the third quarter
of 1997.
<PAGE> 14
Gross Profit. Gross profit increased by approximately $2.8 million or
54.2% from approximately $5.2 million for the quarter ended September 30, 1997
to approximately $8.0 million for the quarter ended September 30, 1998. This
increase primarily reflects the factor discussed above in Net Sales. As a
percentage of net sales, gross profit increased from 11.8% to 15.3%, reflecting
a greater proportion of the sales being generated by the Food Division in 1998,
whose product lines include branded products, and the availability of certain of
the Food Division's raw materials at prices below those paid in the same period
of 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $2.3 million or 49.2% from
approximately $4.8 million for the quarter ended September 30, 1997 to
approximately $7.1 million for the quarter ended September 30, 1998. This
increase is primarily attributable to the factor discussed above in Net Sales.
As a percentage of net sales, selling, general and administrative expenses
increased from 10.8% to 13.5%. This increase reflected the addition of new
branded products, which generally involve higher selling, general and
administrative costs per sales dollar. It also reflected significant sales and
marketing expenses incurred in connection with new product development and the
launch of new branded products in the third quarter of 1998.
Income from Operations. Income from operations increased approximately
$1.4 million from approximately $0.5 million for the quarter ended September 30,
1997 to approximately $1.9 million for the quarter ended September 30, 1998.
This increase is attributable to the factors discussed above in Net Sales, Gross
Profit and Selling, General and Administrative Expenses.
Interest Expense. Interest expense increased approximately $0.3 million
from approximately $0.4 million for the quarter ended September 30, 1997 to
approximately $0.7 million for the quarter ended September 30, 1998. This
increase was primarily attributable to debt that the Company incurred (and the
related amortization of deferred financing costs, and note discounts) in
connection with the acquisition of Potters and the Fleet Facility. On the
occurrence of a Put Trigger Event (defined below), if the average trading
volume of the Company's stock for four consecutive weeks is less than 15% of
the number of shares issuable to the holder of the put warrants, such holders
would have a thirty day right to require the Company to redeem the warrants for
a cash amount equal to the greater of a cash flow formula (defined in the
Warrant Agreement) or the fair market value of the underlying shares based upon
an appraisal, in each case, net of an exercise price of $3.38 per share. For
these purposes, a "Put Trigger Event" would occur upon the earlier of certain
events, including the fifth anniversary of the warrants, a sale of all or
substantially all of the assets of the Company, or a business combination in
which the Company is not the surviving corporation.
In accordance with EITF 96-13, the Company is required to accrete the value of
the warrants and mark-to-market the estimated fair value of the put option
described above. Any increases to such value would be charged to earnings as
additional interest expense. To the extent of any charges to earnings, any
subsequent decreases to the value of the warrants would be added to earnings as
additional interest income. Furthermore, any such additional interest expense
would not be deductible in the Company's federal or state income tax returns
and, therefore, would increase the effective income tax rate of the Company. For
purposes of these calculations, the fair value of the warrants will be estimated
using a Black-Scholes option pricing model. During the quarter ended September
30, 1998, the Company recorded thirty-five thousand dollars of interest income
representing the decrease in the estimated fair value of the warrants.
Tax Provision. The income tax provision increased from fifteen thousand
for the quarter ended September 30, 1997 to approximately $0.1 million for the
quarter ended September 30, 1998 primarily due to increases in book income and
non-deductible expenses such as goodwill. Additionally, the Company's federal
income tax provision in the quarter ended September 30, 1997 was entirely offset
by the reversal of a valuation allowance.
<PAGE> 15
Net Income. Net income increased by approximately $0.1 million from
approximately $0.1 million for the quarter ended September 30,1997 to
approximately $0.2 million for the quarter ended September 30, 1998. This
increase is attributable to factors discussed above in Net Sales, Gross Profit,
Selling, General and Administrative Expenses, Interest Expense and Tax
Provision.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Net Sales. Net sales increased by approximately $17.2 million or 13.4%
from approximately $128.2 million for the nine months ended September 30, 1997
to approximately $145.5 million for the nine months ended September 30, 1998.
Sales of the Company's Food Division increased by approximately 16.5%, while
sales of the Company's Beverage Division decreased by approximately 5.9%. The
increase in food sales was primarily due to the acquisition of Potters, which
the Company acquired on March 20, 1998. The decrease in the Beverage Divisions
net sales reflected increasing price competition and an overall decline in the
product category demand.
Gross Profit. Gross profit increased by approximately $6.2 million or
41.1% from approximately $15.1 million for the nine months ended September 30,
1997 to approximately $21.5 million for the nine months ended September 30,
1998. This increase reflects the factors discussed above in Net Sales and the
availability of certain of the Company's raw materials at prices below those
paid in the first nine months of 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $5.1 million or 37.8% from
approximately $13.5 million for the nine months ended September 30, 1997 to
approximately $18.6 million for the nine months ended September 30, 1998. This
increase is attributable primarily to the factors discussed above in Net Sales.
As a percentage of net sales, selling, general and administrative expenses
increased from 10.5% to 12.8%. This increase was primarily attributable to an
increasing proportion of branded product sales, which generally require higher
selling, general and administrative expenses per dollar of sales.
Income from Operations. Income from operations increased approximately
$1.4 million from approximately $1.6 million for the nine months ended September
30, 1997 to approximately $3.0 million for the nine months ended September 30,
1998. This increase is attributable to factors discussed above in Net Sales,
Gross Profit and Selling, General and Administrative Expenses.
Interest Expense. Interest expense increased approximately $0.6 million
from approximately $1.3 million for the nine months ended September 30, 1997 to
approximately $1.9 million for the nine months ended September 30, 1998. This
increase was primarily attributable to debt that the Company incurred (and the
related amortization of deferred financing costs and note discounts in
connection with the acquisition of Potters and the Fleet Facility. On the
occurrence of a Put Trigger Event (defined below), if the average trading volume
of the Company's stock for four consecutive weeks is less than 15% of the number
of shares issuable to the holder of the put warrants, such holders would have a
thirty day right to require the Company to redeem the warrants for a cash amount
equal to the greater of a cash flow formula (defined in the Warrant Agreement)
or the fair market value of the underlying shares based upon an appraisal, in
each case, net of an exercise price of $3.38 per share. For these purposes, a
"Put Trigger Event" would occur upon the earlier of certain events, including
the fifth anniversary of the warrants, a sale of all or substantially all of the
assets of the Company, or a business combination in which the Company is not the
surviving corporation.
In accordance with EITF 96-13, the Company is required to accrete the
value of the warrants and mark-to-market the estimated fair value of the put
option described above. Any increases to such value
<PAGE> 16
would be charged to earnings as additional interest expense. To the extent of
any charges to earnings, any subsequent decreases to the value of the warrants
would be added to earnings as additional interest income. Furthermore, any such
additional interest expense would not be deductible in the Company's federal or
state income tax returns and, therefore, would increase the effective income tax
rate of the Company. For purposes of these calculations, the fair value of the
warrants will be estimated using a Black-Scholes option pricing model. During
the nine month period ended September 30, 1998, the Company recorded no
additional interest expense resulting from the changes in the estimated fair
value of the warrants.
Other Income. Other income was approximately $0.2 million for the nine
months ended September 30, 1997 and September 30, 1998.
Extraordinary Item. During the nine months ended September 30, 1998 the
Company recorded a one-time extraordinary expense of $0.3 million resulting from
the early extinquishment of debt and the related unamortized cost of acquiring
the LaSalle Facility which was refinanced through the Fleet Facility. This
extraordinary expense was recorded net of the related tax benefit of $0.1
million.
Tax Provision. The Income tax provision decreased from $15,000 for the
nine months ended September 30, 1997 to approximately $9,500 for the nine months
ended September 30, 1998. Based on the Company's historical results, and the
weight of all other available evidence, management believes it is more likely
than not that the deferred tax asset included in it's September 30, 1998
financial statements will be fully realized. Accordingly, management concluded
that the valuation allowance on its deferred tax asset was no longer necessary.
The reversal of the valuation allowance was recorded as a benefit from income
taxes during the three months ended March 31, 1998.
Net Income. Net income increased approximately $0.4 million from
approximately $0.6 million for the nine months ended September 30, 1997 to
approximately $1.0 million for the nine months ended September 30, 1998. This
increase reflects the factors discussed above in Income from Operations,
Interest Expense, Other Income and Tax Benefit.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the nine months ended
September 30, 1998 was approximately $3.5 million. This amount was principally
affected by net income, the add-back of depreciation, amortization and non-cash
interest; increases in inventory and accrued expenses, and decreases in accounts
receivable, and accounts payable. Cash used in investing activities for the nine
months ended September 30, 1998 was approximately $12.5 million and reflected
the acquisition of equipment and the payment of cash in connection with business
combinations. Cash provided by financing activities was approximately $10.2
million and was principally affected by the refinancing of the LaSalle Facility
with the Fleet Facility, the borrowings under the Senior Subordinated Note and
the related common stock put warrants, payments on the Company's term debt and
line of credit under the Fleet Facility and an increase in the bank overdraft
balance. Net cash increase during the period was approximately $1.2 million.
As of September 30, 1998, the Company had outstanding under the Fleet
Facility approximately $10.5 million in term debt and approximately $4.0 million
in line-of-credit borrowings. The Company owed $6.5 million to Bank One under
the Senior Subordinated Note, and approximately $2.7 million of subordinated
debt to former owners of Prefco, Richard's, Grogan's and Partin's. The Senior
Subordinated Note bears interest at 10% per annum. The subordinated debt owed to
former owners bears interest at an average rate of approximately 7.7% per annum.
The term debt and line of credit agreement under the Fleet
<PAGE> 17
Facility bear annual interest at either the bank's prime rate plus 1% or
adjusted LIBOR plus 2.5% at the Company's option. Currently, the interest rate
under the Fleet Facility is based on the bank's prime rate, which was 8.25% at
September 30, 1998.
The Company has entered a put option agreement with the holder of
certain warrants described above under "Results of Operations - Interest
Expense." If the holder of the warrants exercises the put option, the Company's
ability to satisfy such obligation will depend on its ability to raise
additional capital. The Company's ability to secure additional capital at such
time will depend upon the Company's overall operating performance, which will be
subject to general business, financial, competitive and other factors affecting
the Company and the processed meat distribution industry or the beverage
distribution industry, certain of which factors are beyond the control of the
Company. No assurance can be given that the Company will be able to raise the
necessary capital on terms acceptable to the Company, if at all, to satisfy the
put obligation in a timely manner. If the Company is unable to satisfy such
obligation, the Company's business, financial condition and operations will be
materially and adversely effected.
As of September 30, 1998, the Company believes that cash generated from
operations and bank borrowings will be sufficient to fund its debt service,
working capital requirements and capital expenditures as currently contemplated
for the remainder of 1998 and 1999. However, the Company's ability to fund its
working capital requirements and capital expenditures will depend in large part
on the Company's ability to continue to comply with covenants in the Fleet
Facility. The Company's ability to continue to comply with the covenants in the
Fleet Facility will depend on a number of factors, certain of which are beyond
the Company's control, including but not limited to, successful integration of
acquired businesses and implementation of its business strategy, prevailing
economic conditions, uncertainty as to evolving consumer preferences,
sensitivity to such factors as weather and raw material costs, the impact of
competition and the effect of each of these factors on its future operating
performance. No assurance can be given that the Company will remain in
compliance with such covenants throughout the term of the Fleet Facility.
The Company's balance sheet as of September 30, 1998 reflected a net
deferred tax asset of approximately $0.6 million. A valuation allowance that
existed as of December 31, 1997 was reversed because, based on the weight of all
available evidence, management believes it is more likely than not that the
remaining deferred tax asset will be fully realized.
In the first quarter of 1998, the Company acquired substantially all of
the assets of Potters, a branded food processing company based in Durant,
Oklahoma in consideration for approximately $13.0 million cash plus related
transaction costs. In connection with this acquisition, the Company borrowed
approximately $6.5 million in Senior Subordinated debt from Banc One. This
subordinated debt included detachable common stock put warrants. The Company
also refinanced its senior revolver and term debt through Fleet Capital. The
Fleet Facility provided a line of credit balance as of March 31, 1998, of
approximately $7 million, which was $0.4 million greater than the balance
previously outstanding under the LaSalle Facility. The Fleet Facility provided a
term loan of $11 million, which was approximately $6.0 million greater than the
balance previously outstanding under the LaSalle Facility.
The Company, from time to time, reviews the possible acquisition of
other products or businesses. The Company's ability to expand successfully
through acquisition depends on many factors, including the successful
identification and acquisition of products or businesses and the Company's
ability to integrate and operate the acquired products or businesses
successfully. There can be no assurance that the Company will be successful in
acquiring or integrating any such products or businesses.
<PAGE> 18
YEAR 2000
The Year 2000 issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. These
two-digit computer systems will be unable to interpret dates beyond the year
1999, which could cause a system failure or other computer errors, leading to
disruptions in operations. The Company has focused on three major areas in
conducting an assessment of its Year 2000 readiness: (1) information technology,
(2) embedded technology, and (3) third party relationships.
Information Technology. The Company began its assessment of its Year
2000 readiness by conducting a review of the computer hardware and software
applications which comprise the Company's information technology systems. This
review was completed by the end of the third quarter of 1998. As a result of
this review, the Company believes that, with the exception of its Potters
subsidiary, the information technology being utilized by each of its six
operating subsidiaries is Year 2000 compliant, and the Company has received
written confirmation of Year 2000 compliance from its hardware and software
vendors. The Company has determined that its Potters subsidiary requires the
installation of a new data processing system, after which Potters will also be
Year 2000 compliant due to the system's recent implementation. The Company
expects that this installation will be completed in the first quarter of 1999.
Through the end of the third quarter, the historical costs paid to third parties
in connection with the Company's review of its information technology were
approximately fifty thousand dollars, and future estimated expenses are
$100,000, consisting of the costs associated with the new Potters data
processing system.
Embedded Technology. The next phase of the Company's assessment began
recently and involves an audit of the non-information technology systems and
embedded technology at its facilities. The Company expects to complete this
audit in the first quarter of 1999 and does not anticipate that the costs paid
to third parties in connection with its Year 2000 efforts in this area will be
material.
Third Party Relationships. The Company relies on third party suppliers
and vendors for raw materials and other key supplies and services. The Company
is also dependent upon its customers for sales and cash flow. Interruption of
supplier or vendor operations or customer sales due to a failure of those third
parties to be Year 2000 compliant could adversely affect the Company's
operations. The Company, however, is not dependent on any particular supplier,
vendor or customer (with the exception of one customer which comprises a
significant portion of the sales of the Food Division). The Company does not
currently have any formal information concerning the Year 2000 readiness of its
suppliers and customers, but will inquire of all suppliers and customers with
whom the Company has an electronic data interface (EDI). The Company intends to
query its largest customer to ensure that it is Year 2000 compliant. While the
Company believes that the impact of isolated occurrences resulting from the
failure of third parties to be Year 2000 compliant would not be material, a
wide-spread Year 2000 interruption throughout the food or beverage industry or a
Year 2000 problem with respect to its largest customer would have a material
adverse effect on the Company's results of operations and financial position.
<PAGE> 19
Contingency Plan. Although the Company does not currently have a
contingency plan for Year 2000 issues, it does intend to begin developing one in
the second quarter of 1999 to prepare the Company for Year 2000 interruptions
such as delays in its accounting systems or customer sales and the inability of
its lenders or other sources of capital and liquidity to make funds available
when required.
SEASONALITY
Consumer demand for beverage products distributed by the Company tends
to be greater during warmer months although variances are possible as was the
case in May and June of 1998. Accordingly, the Company's beverage sales and
profits are generally highest in the second and third calendar quarters.
Management believes that this effect will be mitigated by the results of its
Food Division which are less dependent on seasonal factors.
FORWARD LOOKING STATEMENTS
The Company wants to provide stockholders and investors with more
meaningful and useful information. Therefore, this Quarterly Report on Form 10-Q
contains forward looking information and describes the Company's belief
concerning future business conditions and the outlook for the Company based on
currently available information. Whenever possible, the Company has identified
these "forward looking" statements by words such as "believes," "estimated,"
"will be," "tends to be" and similar expressions. These forward looking
statements are subject to risks and uncertainties which would cause the
Company's actual results or performance to differ materially from those
expressed in these statements. These risks and uncertainties include the
following: risks associated with acquisitions, including integration of acquired
businesses; new product development and other aspects of the Company's business
strategy; uncertainty as to evolving consumer preferences; seasonality of demand
for certain products; customer and supplier concentration; the impact of
competition; the impact of changes in the valuation of the put warrants on the
Company's net income and effective tax rate; the Company's ability to raise
additional capital; sensitivity to such factors as weather and raw material
costs; and the factors discussed above under the caption "Year 2000." Readers
are encouraged to review the Company's Annual Report on Form 10-K and its
Current Report on Form 8-K dated June 4, 1997 filed with the Securities and
Exchange Commission for a more complete description of these factors. The
Company assumes no obligation to update the information contained in this
Quarterly Report on Form 10-Q.
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: The following are filed as Exhibits to this Quarterly Report
on Form 10-Q:
Exhibit
Number Description
3(i) Certificate of Incorporation of the Company, including all
amendments thereto*
3(ii) By-Laws of the Company (1)
10 Employment Agreement dated August 10, 1998 between the Company
and Steven Englander*
11.1 Statement Regarding Computation of Earnings Per Share for the
three months ended September 30, 1998 *
11.2 Statement regarding Computation of Earnings Per Share for the
nine months ended September 30, 1998*
27 Financial Data Schedule *
------------------
* Filed herewith.
(1) Filed as an exhibit to the Company's Registration Statement No.
33-69438 or the amendments thereto and incorporated herein by
reference.
(b) Reports on Form 8-K:
None.
<PAGE> 21
SIGNATURES
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.
ATLANTIC PREMIUM BRANDS, LTD.
Dated as of November 13, 1998 By: /s/ THOMAS M. DALTON
-----------------------------
Thomas M. Dalton, Chief
Financial Officer and
Senior Vice President (On
behalf of Registrant and as
Chief Accounting Officer)
<PAGE> 22
INDEX TO EXHIBITS
Exhibit Description
Number
- ----------- ----------------------------------------------------------------
3(i) Certificate of Incorporation of the Company, including all
amendments thereto*
3(ii) By-Laws of the Company (1)
10 Employment Agreement dated August 10, 1998 between the Company
and Steven Englander*
11.1 Statement Regarding Computation of Earnings Per Share for the
three months ended September 30, 1998 *
11.2 Statement Regarding Computation of Earnings Per Share for the
nine months ended September 30, 1998*
27 Financial Data Schedule *
- ------------------
* Filed herewith.
(1) Filed as an exhibit to the Company's Registration Statement No. 33-69438 or
the amendments thereto and incorporated herein by reference.
<PAGE> 1
EXHIBIT 3(i)
CERTIFICATE OF INCORPORATION
OF
ATLANTIC BEVERAGE COMPANY, INC.
1. NAME
The name of this corporation is Atlantic Beverage Company, Inc. (the
"Corporation").
2. REGISTERED OFFICE AND AGENT
The registered office of the Corporation shall be located at 1013 Centre
Road, Wilmington, Delaware 19805 in the County of New Castle. The registered
agent of the Corporation at such address shall be Corporation Service Company.
3. PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (the "Delaware General Corporation Law"). The Corporation
shall have all power necessary or helpful to engage in such acts and activities.
4. CAPITAL STOCK
4.1. AUTHORIZED SHARES
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 35,000,000, of which 5,000,000
shares shall be Preferred Stock, having a par value of $.01 per share
("Preferred Stock") and 30,000,000 shares shall be Common Stock having a par
value of $.01 per share ("Common Stock"). The Board of Directors is expressly
authorized to provide for the classification and reclassification of any
unissued shares of Preferred Stock or Common Stock and the unissued shares of
Preferred Stock or Common Stock and the issuance thereof in one or more classes
or series without the approval of the stockholders of the Corporation.
4.2. COMMON STOCK
4.2.1. RELATIVE RIGHTS
The Common Stock shall be subject to all of the rights,
privileges, preferences and priorities of the Preferred Stock as set forth in
the certificate of designations filed to establish the
<PAGE> 2
respective series of Preferred Stock. Each share of Common Stock shall have the
same relative rights as and be identical in all respects to all the other shares
of Common Stock.
4.2.2. DIVIDENDS
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of shares of any class of stock having preference over
the Common Stock as to the payment of dividends, the full amount of dividends
and of sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then dividends may be
paid on the Common Stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available for
the payment of dividends thereon, but only when and as declared by the Board of
Directors of the Corporation.
4.2.3. DISSOLUTION, LIQUIDATION, WINDING UP
In the event of any dissolution, liquidation, or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Common Stock
shall become entitled to participate in the distribution of any assets of the
Corporation remaining after the Corporation shall have paid, or set aside for
payment, to the holders of any class of stock having preference over the Common
Stock in the event of dissolution, liquidation or winding up the full
preferential amounts (if any) to which they are entitled.
4.2.4. VOTING RIGHTS
Each holder of shares of Common Stock shall be entitled to attend
all special and annual meetings of the stockholders of the Corporation and,
share for share and without regard to class, together with the holders of all
other classes of stock entitled to attend such meetings and to vote (except any
class or series of stock having special voting rights), to cast one vote for
each outstanding share of Common Stock so held upon any matter or thing
(including, without limitation, the election of one or more directors) properly
considered an act upon by the stockholders.
4.3. PREFERRED STOCK
4.3.1. ESTABLISHMENT OF SERIES
The Board of Directors is expressly authorized, subject to
limitations prescribed by the Delaware General Corporation Law and the
provisions of this Certificate of Incorporation, to provide, by resolution and
by filing a certificate of designations pursuant to the Delaware General
Corporation Law, for the issuance of the shares of Preferred Stock in series, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and other rights of the
shares of each such series and to fix the qualifications, limitations and
restrictions thereon. The authority of the Board of Directors with respect to
each series shall include, but not be limited to, determination of the
following:
<PAGE> 3
(i) the number of shares constituting that series and the
distinctive designation of that series;
(ii) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends
on shares of that series;
(iii) whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including
provisions for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(v) whether or not the shares of that series shall be redeemable,
and if so, the terms and conditions of such redemption, including the
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
(vi) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(vii) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment
of shares of that series; and
(viii) any other relative powers, preferences, and rights of that
series, and qualifications, limitations or restrictions on that
series.
4.3.2. ADJUSTMENTS IN NUMBER OF SHARES AUTHORIZED
Except as provided to the contrary in the provisions establishing
a series of Preferred Stock, the number of shares of any such series may be
increased (but not above the total number of authorized shares of Preferred
Stock) or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of a majority of the directors.
5. INCORPORATOR
<PAGE> 4
The name and mailing address of the incorporator (the "Incorporator") is
Ann E. Flowers, Hogan & Hartson, 555 Thirteenth Street, NW, Washington, DC
20004.
6. BOARD OF DIRECTORS
6.1. NUMBER AND ELECTION
The number of directors of the corporation shall be such
number as from time to time shall be fixed by, or in the manner provided in, the
Bylaws of the corporation. The directors shall be divided into three classes, as
nearly equal in number as possible, to be designated as Class I, Class II and
Class III. The initial term of office of the Class I directors shall expire at
the annual meeting of stockholders to be held in 1994; the initial term of
office of the Class II directors shall expire at the annual meeting of
stockholders to be held in 1995; and the initial term of office of the Class III
directors shall expire at the annual meeting of stockholders to be held in 1996.
At each annual meeting of stockholders, the successors of the class of directors
whose term expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election.
6.2. INITIAL DIRECTORS
The powers of the Incorporator shall terminate upon the
filing of this Certificate of Incorporation, and the following persons, having
the indicated mailing address, shall serve as the directors of the Corporation
until their successor or successors are elected and qualify, as set forth in the
Section 6.1. above:
<TABLE>
<S> <C> <C>
========================================================= ----- ====================================================
Name Mailing Address
========================================================= ----- ====================================================
CLASS I DIRECTORS
========================================================= ----- ====================================================
Eric D. Becker One South Street, Suite 800
Baltimore, Maryland 21202
========================================================= ----- ====================================================
William E. O'Leary 1587 Sulphur Spring Road
Baltimore, Maryland 21227
========================================================= ----- ====================================================
CLASS II DIRECTORS
========================================================= ----- ====================================================
Merrick M. Elfman 111 North Canal Street, Suite 933
Chicago, Illinois 60606
========================================================= ----- ====================================================
Steven M. Taslitz 111 North Canal Street, Suite 933
Chicago, Illinois 60606
========================================================= ----- ====================================================
CLASS III DIRECTORS
========================================================= ===== ====================================================
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
========================================================= ===== ====================================================
Rudolph C. Hoehn-Saric 9135 Guilford Road
Columbia, Maryland 21046
========================================================= ===== ====================================================
</TABLE>
6.3. REMOVAL
(a) Except as otherwise provided pursuant to the provisions of
this Certificate of Incorporation or a certificate of designations relating to
the rights of the holders of any class or series of Preferred Stock, voting
separately by class or series, to elect directors under specified circumstances,
any director or directors may be removed from office at any time, but only for
cause (as defined in Section 6.3(b) hereof) and only by the affirmative vote, at
a special meeting of the stockholders called for such a purpose, of not less
than a majority of the total number of votes of the then outstanding shares of
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, but only if notice of such
proposal was contained in the notice of such meeting. At least 30 days prior to
such special meeting of stockholders, written notice shall be sent to the
director or directors whose removal will be considered at such meeting. Any
vacancy in the Board of Directors resulting from any such removal or otherwise
shall be filled only by vote of a majority of the directors then in office,
although less than a quorum, and any director so chosen shall hold office until
the next election of the class for which such director shall have been chosen
and until such director's successor shall be elected and qualified or until any
such director's earlier death, resignation or removal.
(b) For the purposes of this Section 6.8, "cause" shall mean
only (i) conduct as a director of the Corporation or any subsidiary involving
dishonest of a material nature that relates to the performance of the director's
duties as a director of the Corporation or any subsidiary or (ii) criminal
conduct (other than minor infractions and traffic violations) that relates to
the performance of the director's duties as a director of the Corporation or any
subsidiary.
6.4. CHANGE OF AUTHORIZED NUMBER
In the event of any increase or decrease in the authorized
number of directors, the newly created or eliminated directorships resulting
from such increase or decrease shall be apportioned by the Board of Directors
among the three classes of directors so as to maintain such classes as nearly
equal as possible. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
6.5. DIRECTORS ELECTED BY HOLDERS OF PREFERRED STOCK
Notwithstanding the foregoing, whenever the holders of any one
or more classes or series of Preferred Stock issued by the Corporation shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or a certificate of designations
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to this Section 6 unless expressly provided by the certificate
of designations.
<PAGE> 6
6.6. LIMITATION OF LIABILITY
No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provisions shall not eliminate or limit
the liability of a director (a) for any breach of the director's duty of loyalty
to the Corporation or its stockholders; (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; (c)
for the types of liability set forth in Section 174 of the Delaware General
Corporation Law; or (d) for any transaction from which the director received any
improper personal benefit.
7. INDEMNIFICATION
To the extent permitted by law, the Corporation shall fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees and all related costs
and expenses of such threatened, pending or completed action, suit or
proceeding), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
To the extent permitted by law, the Corporation shall fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees and all related costs
and expenses of such threatened, pending or completed action, suit or
proceeding), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
The Corporation shall advance expenses (including attorneys'
fees and all related costs and expenses of such threatened, pending or completed
action, suit or proceeding) incurred by a director or officer in advance of the
final disposition of such action, suit or proceeding upon the receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that such director or officer is not entitled
to indemnification. The Corporation may advance expenses (including attorneys'
fees and all related costs and expenses of such threatened, pending or completed
action, suit or proceeding) incurred by an employee or agent in advance of the
final disposition of such action, suit or proceeding upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
Notwithstanding anything in this Article to the contrary, the
Corporation will not have the obligation of indemnifying any person with respect
to proceedings, claims, suits or actions initiated or brought voluntarily by
such person and not by way of defense.
<PAGE> 7
8. AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred
by the Delaware General Corporation Law, the Board of Directors is expressly
authorized and empowered to adopt, amend and repeal the Bylaws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to amend or repeal Bylaws adopted by the Board of Directors as
provided for in this Certificate of Incorporation or in the Bylaws of the
Corporation.
9. ACTION BY STOCKHOLDERS
Any action required or permitted to be taken by the
stockholders of the Corporation may be effected at a duly called annual or
special meeting of stockholders, and, except as provided below, may be effected
without a meeting, without prior notice and without a vote, by a consent in
writing in accordance with the Bylaws of the Corporation. At any time that a
class of the equity securities of the Corporation is registered pursuant to
Section 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended,
action shall be taken by the stockholders only at a duly called annual or
special meeting, and action without a meeting shall be prohibited.
10. SPECIAL MEETINGS
Special meetings of the stockholders may be called at any time
but only by (a) the chairman of the board of the Corporation, (b) a majority of
the directors in office, although less than a quorum, or (c) the holders of not
less than 20% of the total number of votes of the then outstanding shares of
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
11. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Corporation elects not to be governed by the provisions of
Section 203 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned, being the Incorporator
hereinabove named, for the purpose of forming a corporation pursuant to the
Delaware General Corporation Law, hereby certifies that the facts hereinabove
stated are truly set forth, and accordingly executes this Certificate of
Incorporation this 13th day of September, 1993.
/s/ ANN E. FLOWERS
Ann E. Flowers
Incorporator
<PAGE> 8
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Atlantic Beverage Company, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting duly
held, adopted a resolution proposing and declaring advisable the following
amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of Atlantic Beverage
Company, Inc. be amended by changing Article I thereof so that, as
amended, said Article shall be and read as follows:
"The name of the corporation is Atlantic Premium Brands, Ltd."
SECOND: That the majority of the stockholders voted in favor of the
amendment at a meeting duly held.
THIRD: That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the State
of Delaware.
FOURTH: That this Certificate of Amendment of the Certificate of
Incorporation shall be effective on June 1, 1997.
IN WITNESS WHEREOF, said Atlantic Beverage Company, Inc. has caused this
certificate to be signed by Merrick M. Elfman, its Chairman of the Board of
Directors, and attested by Tom D. Wippman, its Secretary this 29th day of May
1997.
ATLANTIC BEVERAGE COMPANY, INC.
By: /S/ MERRICK M. ELFMAN
Merrick M. Elfman, Chairman
ATTEST:
By: /s/ TOM D. WIPPMAN
Tom D. Wippman, Secretary
<PAGE> 9
CERTIFICATE OF ELIMINATION
OF
ATLANTIC PREMIUM BRANDS, LTD.
(DELAWARE FILE NO. 2350747)
ATLANTIC PREMIUM BRANDS, LTD., a corporation organized and existing under the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors by unanimous written consent of its
members, filed with the minutes of the Board, duly adopted resolutions
setting forth the proposed elimination of the Series A Non-Voting
Convertible Preferred Stock as set forth herein:
RESOLVED that no shares of the Series A Non-Voting Convertible
Preferred Stock are outstanding and none will be issued.
RESOLVED that a Certificate of Elimination be executed, which shall
have the effect when filed in Delaware of eliminating from the
Certificate of Incorporation all reference to the Series A Non-Voting
Convertible Preferred Stock.
SECOND: None of the authorized shares of the Series A Non-Voting Convertible
Preferred Stock are outstanding and none will be issued.
THIRD: In accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Certificate of
Incorporation is hereby amended to eliminate all reference to the
Series A Non-Voting Convertible Preferred Stock.
IN WITNESS WHEREOF, said ATLANTIC PREMIUM BRANDS, LTD. has caused this
Certificate of Elimination to be signed by Tom D. Wippman, its Secretary, this
Second day of April, 1998.
ATLANTIC PREMIUM BRANDS, LTD.
By /s/ TOM D. WIPPMAN
Tom D. Wippman, its Secretary
<PAGE> 1
EXHIBIT 10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT"), dated as of the 10th day
of August, 1998, by and between ATLANTIC PREMIUM BRANDS, LTD., a Delaware
corporation (the "COMPANY"), whose principal place of business is 650 Dundee
Road, Suite 370, Northbrook, Illinois, and STEVEN ENGLANDER (the "EMPLOYEE"),
whose current principal residence is 18736 Greenside Drive, Dallas, Texas 75252.
WITNESSETH:
WHEREAS, the Company, through its wholly owned subsidiaries, is engaged
in the business (the "BUSINESS") of selling, marketing, manufacturing and
distributing meat products, mainly under brand names owned by the Company and
its subsidiaries; and
WHEREAS, Employee is skilled and experienced in the marketing/brand
management business; and
WHEREAS, the Company desires to employ Employee and recognizes that
certain inducements must be offered to Employee in order for the Company to
retain Employee's services; and
WHEREAS, Employee and the Company are desirous of entering into an
agreement providing for the employment by the Company of Employee in the
positions and upon the terms provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements and promises contained herein, the parties agree as
follows:
1. Employment. Company hereby employs Employee and Employee hereby
accepts employment by the Company as its Senior Vice President - Marketing.
2. Duties. Employee agrees to perform such duties and tasks as the
Company may from time to time reasonably request, subject to the direction of
the Company's Board of Directors, Chairman, Vice Chairman, Chief Operating
Officer and President, such duties to include managing all aspects of the
marketing and brand management for the Company's meat products, and such other
functions as the Board may require. Employee further agrees to comply with all
policies, obey willingly all rules, regulations and instructions of the Company,
and also to faithfully, diligently and competently perform to the best of his
ability all of the duties assigned, or refrain from such activities proscribed
by the Company, subject, however, to the supervision and control of the Board of
Directors of the Company. Employee shall devote all of his business time, energy
and skill to his duties hereunder, shall not accept employment of any kind from,
perform duties for, or render services to any person other than the Company,
without the prior written consent of the Company.
3. Change in Duties. Nothing herein shall preclude the Board of
Directors of the Company from changing Employee's title and duties if the Board
has concluded in its reasonable judgment that such change is in the Company's
best interests; provided, however, that at all times during the his employment
with the Company, Employee shall be employed as an executive of the Company with
appropriate and commensurate compensation as provided in Section 4 below.
4. Compensation.
(a). Base Salary. During his employment with the Company, the
Company shall pay to Employee compensation equal to an annual base salary (the
"BASE SALARY") at the rate of ONE HUNDRED SEVEN THOUSAND AND NO/100ths DOLLARS
($107,000.00) per annum, payable in accordance with the Company's normal payroll
periods, less normal payroll deductions. The Company shall reimburse Employee
for all approved expenses necessarily and reasonably incurred by Employee in
connection with the Business, against presentation of
<PAGE> 2
proper receipts or other proof of expenditure, and subject to such reasonable
guidelines or limitations provided to Employee, and which are to be applied
prospectively only as the Board of Directors of the Company may impose. The Base
Salary will be increased on an annual basis to reflect cost of living
adjustments in the metropolitan area in which Employee resides.
(b) Incentive Compensation. Employee shall have the opportunity to
earn up to 30% of the Base Salary per year as incentive cash compensation, 50%
of which will be based on overall Company performance, and 50% of which will be
based upon management objectives described by the Chief Executive Officer of the
Company on an annual basis. Any bonus will be payable on or before April 15 for
the preceding year; any bonus for 1998 and Employee's last year of employment
will be pro rated for the number of days Employee was employed during the
appropriate year.
(c) Equity in Company. Subject to the terms of the Non-Qualified
Stock Option Agreement, attached hereto, and the terms and conditions therein,
Employee shall be granted an aggregate of 45,000 shares of common stock of the
Company.
5. Benefits. During his employment with the Company, Employee shall be
entitled to participate in any profit sharing plan, retirement plan, group life
insurance plan or other insurance plan or medical expense plan maintained by the
Company for its employees, and three (3) weeks paid vacation per year and
reasonable sick leave. All medical plans maintained by the Company shall be made
available to Employee on an individual basis free of charge, so that any
incremental charge for any family coverage by Employee shall be paid by
Employee. Company shall pay a monthly allowance to Employee of $1,000, which
shall be used, to the extent necessary, to pay for the family coverage described
in the immediately preceding sentence. Such benefits shall not be subject to
execution, attachment or similar process except as an offset to claims by the
Company against Employee or as otherwise required by law. Vacation time not
taken in any year shall be deemed forfeited.
6. Termination.
(a) Employee's Death or Resignation. Upon the death or
resignation of Employee, this Agreement and Employee's and his heirs',
executors' and administrators' entitlement to compensation and other benefits
and rights hereunder (other than compensation and other benefits which shall
have accrued up to the date of death or resignation) shall automatically
terminate. Notwithstanding Employee's resignation hereunder, Employee will
continue to be bound by the terms and conditions of Section 8 hereof. Any
resignation pursuant to this Section shall be deemed ineffective if Employee's
termination under Section 6(c) hereof is imminent.
(b) Employee's Disability. The Company may, at its option,
terminate this Agreement upon written notice to Employee if Employee, because of
physical or mental incapacity or disability, fails in any material respect to
perform the services required of him hereunder, or is unable to substantially
perform his duties hereunder for a continuous period of 30 days or any 60 days
out of any twelve-month period. Upon such termination, all obligations hereunder
of the Company shall cease, except for compensation and other benefits and
rights hereunder which shall have accrued up to the date of termination. If,
within ten (10) days of the written notice referred to above, Employee notifies
the Company in writing that he disputes the Company's determination of his
disability (for reasons other than days missed), the Company and Employee shall,
within five days of Employee's notice, each name a physician who is a member of
the American Medical Association ("AMA"), who shall select a third physician who
is a member of AMA to examine Employee. The decision of the third physician
shall be certified in writing to the Company and Employee, and said decision
shall be binding and conclusive upon the Company and Employee. If Employee shall
fail to notify Company within the ten (10) day period herein prescribed that he
disputes the Company's determination of disability, then the Company's
determination thereof shall be final and conclusive and Employee's employment
shall terminate. Employee will submit to the appropriate medical examinations
for such purpose.
(c) Cause. The Company may, at its option, immediately
terminate this Agreement due to a material breach hereof by Employee, or for
"JUST CAUSE." Notwithstanding anything herein to the contrary, in the event of a
termination for either of such reasons, all obligations of any nature of the
Company, except for compensation which
<PAGE> 3
will have accrued up to the date of termination, shall terminate. "JUST CAUSE"
hereunder shall be limited to one of the following grounds:
(i) Willful failure to follow customer prescribed
quality control procedures, after notice thereof, and a reasonable
opportunity to cure;
(ii) Any material conflict of interest, except a
material conflict of which the Company has been notified and the
Company has agreed to allow;
(iii)Employee's use of Company's proprietary
information for his own benefit or in a way adverse to Company's
interests;
(iv)Employee's breach of the terms and conditions of
Section 8 hereof;
(v) Employee has materially breached any of the
provisions of this Agreement;
(vi) Employee's refusal, after notice thereof, to
perform specific directives of the Board of Directors which are
consistent with the scope and nature of Employee's duties and
responsibilities as set forth herein;
(vii) Habitual drunkenness or use of drugs (unless
medically prescribed) which interferes with the performance of
Employee's obligations hereunder;
(viii)Employee's engagement at any time in any act of
fraud, embezzlement or Employee's admission or conviction of or plea of
nolo contendere to a felony or of any crime at any time involving moral
turpitude, fraud, or misrepresentation;
(ix) Any gross or willful misconduct of Employee at
any time resulting in a material loss to the Company, substantial
damage to the Company's reputation, or theft or defalcation from the
Company;
(x) Any intentional act of Employee having the
purpose of materially injuring the reputation, business or business
relationships of the Company; or
(xi) Any breach by Employee of his fiduciary duty to
the Company, or the restrictive covenants contained in Section 8
hereof, or of any policy, written or unwritten, of the Company (e.g.,
prohibition of sexual harassment in the work place or discrimination in
hiring practices).
(d) Termination Without Cause. In the event that the Company
desires to relieve Employee of his employment duties hereunder for any reason
other than in Sections 6(a), 6(b) and 6(c), then, the Company may immediately
terminate the Employee under this Section by giving Employee written notice, and
by paying the Employee the Base Salary and the $1,000 monthly allowance payable
under Section 5 hereof only which would otherwise be payable hereunder for the
following periods: if the termination occurs during the first year of
employment, three (3) months; if the termination occurs during the second year
of employment, four and one-half (4.5) months; and, if the termination occurs
during the third year of employment and thereafter, six (6) months, all in
accordance with the Company's normal payroll policies commencing following the
delivery of such notice. Notwithstanding the foregoing, if a termination
pursuant to this Section 6(d) occurs after the Company has failed to reach
eighty per cent (80%) of its operating income budget over the twelve month
period immediately preceding such termination, then the Company shall pay
Employee the Base Salary and the $1,000 monthly allowance payable under Section
5 hereof only which would otherwise be payable hereunder for the following
periods: if the termination occurs during the second year of employment, two and
one-quarter (2.25) months; and, if the termination occurs during the third year
of employment and thereafter, three (3) months, all in accordance with the
Company's normal payroll policies commencing following the delivery of such
notice.
<PAGE> 4
Notwithstanding any termination pursuant to this Section 8(d), Employee
will continue to be bound by the terms and conditions of Section 8 hereof. The
payments payable to Employee under this Section shall be Employee's sole and
exclusive remedies.
(e) Termination by Employee for Good Cause. Employee shall have
the right, but not the obligation, to terminate this Agreement, such right to be
exercised, if at all, within ten (10) days after Alan Sussna ceases to be the
Chief Executive Officer of the Company for any reason, but in no event after the
third anniversary hereof. If Employee exercises such right, then the Company
shall pay Employee the Base Salary only which would otherwise be payable
hereunder for the following periods: if the exercise occurs during the first
year of employment, one and one-half (1.5) months; if the exercise occurs during
the second year of employment, two and one-quarter (2.25) months; and, if the
exercise occurs during the third year of employment, three (3) months, all in
accordance with the Company's normal payroll policies commencing following the
delivery of such notice. Employee's right hereunder shall terminate on the third
anniversary hereof. Notwithstanding any termination pursuant to this Section
8(e), Employee will continue to be bound by the terms and conditions of Section
8 hereof. The payments payable to Employee under this Section shall be
Employee's sole and exclusive remedies.
7. Effect of Termination. Notwithstanding anything to the contrary
contained herein, should Employee's employment with the Company be terminated
for any reason whatsoever, Employee agrees that he will not, under any
circumstances, purposefully disparage, criticize or denigrate the talents,
skills, prospects, abilities, integrity or character of the Company, its
management, directors, employees, agents or representatives (including those of
the Company's affiliates). Employee further agrees that he will not, at any time
after the date hereof and without the Company's written consent, contact any
past, present or prospective customer, supplier, employee or agent or
representative of the Company with the intent or purpose of injuring the
reputation, business or business relationships of the Company. The provisions of
this Section shall survive the execution and termination hereof, irrespective of
the reason for such termination.
8. Restrictive Covenants.
(a) Non-disclosure. Employee acknowledges that he will be
entrusted with trade secrets, data base information, marketing, operating and
strategic and business plans, customer and supplier lists, proprietary
information and other confidential or specialized data and/or information
relative to the business of the Company, whether now existing or to be developed
or created after today's date (collectively, "TRADE SECRETS"). Employee shall at
all times during his employment with the Company and thereafter hold in
strictest confidence any and all Trade Secrets that may have come or may come
into his possession or within his knowledge concerning the Trade Secrets,
including the products, services, plans, data base information, processes,
businesses, suppliers, customers and clients of the Company and the Business and
also that the Trade Secrets constitute assets owned exclusively by the Company.
Employee agrees that neither he nor any person or enterprise controlled by him
will for any reason directly or indirectly, for himself or for the benefit of
any other person or enterprise, use, copy, divulge or otherwise disseminate or
disclose any of the Trade Secrets owned or used by, or licensed to, the Company
or any of its affiliates or otherwise relating to the Company or its business,
provided that Employee may disclose Trade Secrets pursuant to an order by a
court of competent jurisdiction, provided, further, that Employee shall give the
Company notice of such order and any court pleading requesting such disclosure,
in order to provide the Company with an opportunity to prevent such disclosure
or procure an appropriate protective order.
(b) Customers. Employee acknowledges that intangible property,
customers, customer accounts and the Trade Secrets of the Company are and will
at all times be the sole and separate property of the Company, in which Employee
has no rights whatsoever, and all activities of or work performed by Employee
pursuant hereto or as an employee of the Company have been and in the future
will be performed solely for the benefit of the Company and the goodwill
resulting from Employee's efforts is and at all times will be the sole and
separate property of the Company, which goodwill is intended to be protected, in
part, by this Section.
(c) Non-Solicitation; Non-Hire. Employee agrees that from the
date hereof and continuing for a period of two (2) years following the
termination (for whatever reason) of his employment with the Company (the
<PAGE> 5
"NON-COMPETE PERIOD") for whatever reason, neither he nor any person or
enterprise controlled by him will solicit or hire or contract with, for
employment, consulting or any other reason, any director, officer, shareholder,
department head, marketing person, salesman and each of their assistants who was
employed by the Company or its predecessors at any time within one (1) year to
the time of the act of solicitation or hire. The Non-Compete Period shall be
extended for that period of time during which Employee is in violation of the
covenants contained in this Section 8.
(d) Non-Competition. Employee agrees that during (i) the
Non-Compete Period, neither he nor any person or enterprise controlled by him
will become a stockholder, director, officer, agent, employee or representative
of, or consultant or lender to, a corporation or member of a partnership or any
other enterprise, engage as a sole proprietor in any business, act as a
consultant to any of the foregoing or otherwise engage, directly or indirectly,
in any enterprise which competes with the Company in the Business, or any other
business in which the Company is engaged at the time of termination. The
geographic scope of such prohibited activities shall include any state, province
or other jurisdiction located anywhere in which the Company is engaged in the
Business at the time of the termination of his employment with the Company;
provided, however, that the foregoing shall not prohibit the ownership of less
than two percent (2%) of the outstanding shares of the stock of any corporation
engaged in any business, which shares are regularly traded on a national
securities exchange or in any over-the-counter market. The Non-Compete Period
shall be extended for that period of time during which Employee is in violation
of the covenants contained in this Section 8.
(e) Relief, Reformation; Severability. Employee agrees that
the covenants contained in this Section 8 are separate and are reasonable in
their scope and duration and may be enforced by specific performance or
otherwise. Employee shall not raise any issue of reasonableness as a defense in
any proceeding to enforce any of such covenants. Notwithstanding the foregoing,
in the event that a covenant included in this Section 8 shall be deemed by any
court to be unreasonably broad in any respect, then, to the extent permitted by
law, the Court which makes such finding shall modify such covenant for the
purpose of making such covenant reasonable in scope and duration. The validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected by any such modification.
(f) Survival. The provisions of this Section shall survive the
termination of this Agreement and Employee's employment with the Company,
irrespective of the reason therefor.
9. Inventions. Employee shall and hereby assigns to the Company his
entire right, title and interest in all discoveries, processes and improvements,
patentable or otherwise, trade secrets and ideas, writings and copyrightable
material, which have been or may be conceived by Employee or developed or
acquired by hin during the term hereof, which may pertain directly or indirectly
to the Company's business. Employee agrees to promptly and fully disclose in
writing all such developments. Employee acknowledges that all Trade Secrets and
other ideas relating to the Business which were conceived by Employee before the
date hereof have been assigned by Employee to the Company. Employee will, upon
the Company's request, execute, acknowledge and deliver to the Company all
instruments and do all other acts which are necessary or desirable to enable the
Company to file and prosecute applications for, and to acquire, maintain and
enforce all letters, patents, trademark registrations, or copyrights or enforce
all rights in any intangible or intellectual property in all countries.
10. Remedies. Employee acknowledges that any breach of any covenant or
agreement in Section 8 of this Agreement by him will cause irreparable harm to
the Company, that such harm will be difficult if not impossible to ascertain.
Therefore, if any action or proceeding is commenced by or on behalf of the
Company to enforce the provisions of Section 8 hereof, the Company shall be
entitled to equitable relief, including injunction, against any actual or
threatened breach hereof, and any damages arising therefrom including, without
limitation, reasonable fees of its attorneys and their support staff and all
other costs and expenses incurred in connection therewith without bond and
without liability should such relief be denied, modified or vacated. Neither the
right to obtain such relief nor the obtaining of such relief shall be exclusive
of or preclude the Company from any other remedy. Employee hereby waives the
claim or defense to an action for equitable relief by the Company that the
Company has an adequate remedy at law or has not been or is not being
irreparably injured by such breach.
<PAGE> 6
11. Insurance. The Company may, at its election and for its benefit,
insure Employee against disability, accidental loss or death and Employee shall
submit to such physical examinations and supply such information as may be
required in connection therewith.
12. Assignment. Employee acknowledges that the services to be rendered
by him hereunder are unique and personal and that Employee may not assign any of
his rights or delegate any of his duties or obligations hereunder to any other
person or entity, whether by voluntary or involuntary assignment or transfer.
This Agreement shall be binding upon and inure to the benefit of the successors
and assigns of the Company, and the heirs, executors, administrators and
personal representatives of Employee, and shall be assignable by the Company to
any entity acquiring substantially all of the assets of the Company.
13. Notices. All notices, demands and communications required or
permitted to be given hereunder shall be sufficient if in writing and shall be
deemed to have been duly given on the date received if delivered personally or
two days after the date such notice, demand or communication is sent if sent by
first class, certified or registered mail, return receipt requested, postage
pre-paid and addressed, or one day after the date such notice, demand or
communication is sent if sent by overnight courier service to Employee at his
residence set forth above, or to the Company at its principal place of business,
or to such other person at such location as either party hereto may subsequently
designate in a similar manner.
14. Waiver of Breach. The failure of a party at any time to require
performance by the other of any provision expressed herein shall in no way
affect such party's right thereafter to enforce such provision. Furthermore, a
waiver by a party of a breach of any provision hereof by the other party shall
not operate or be construed as a waiver of any subsequent breach by the other
party.
15. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof. Any prior statements,
negotiations, representations, understandings, proposals or agreements relating
to the subject matter hereof shall be deemed to be merged into this Agreement,
and to the extent inconsistent herewith shall be deemed to be of no force or
effect. No alteration, amendment or modification of any of the terms or
provisions hereof shall be valid unless made pursuant to an instrument in
writing signed by the parties hereto.
16. No Conflicting Agreements. Employee represents and warrants that he
is not a party to any agreement, contract or understanding, whether employment
or otherwise, which would in any way restrict or prohibit him from undertaking
or performing employment in accordance with the terms and conditions hereof.
17. Expenses upon Default. If any party defaults in the performance of
any of its covenants, agreements or obligations described herein, then in
addition to any and all other rights or remedies which the non-defaulting party
may have against the defaulting party, the defaulting party will be liable to
and will pay to the non-defaulting party a sum equal to all of the
non-defaulting party's court costs and fees of its attorneys and their support
staff and all other costs and expenses associated with such dispute incurred in
enforcing the covenants, agreements or obligations of the defaulting party
described herein.
18. Offset. Any amounts which may be due and owing from Employee to the
Company shall be paid to the Company on demand therefore, and if not so paid,
such amounts may be deducted from any amounts which the Company may owe to
Employee.
19. Mutual Drafting. This Agreement is the joint product of the Company
and Employee and their respective counsel, and each provision hereof has been
subject to the mutual consultation, negotiation and agreement of such parties
and counsel, and shall not be construed for or against any party hereto.
20. Applicable Law. The terms and conditions of this Agreement shall be
governed by and construed in accordance with the laws of the State of Illinois.
**********************
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have entered into this
Employment Agreement as of the date first written above.
ATLANTIC PREMIUM BRANDS, LTD.
By /s/ ALAN F. SUSSNA /s/ STEVEN ENGLANDER
-------------------------------------- ------------------------------
Alan F. Sussna, Chief Executive Officer Steven Englander
<PAGE> 1
EX-11-1
ATLANTIC PREMIUM BRANDS, LTD.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the
Three Months
Ended
September 30,
1998
------------
<S> <C>
NET INCOME $ 209,296
==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 7,607,239
==========
NET INCOME PER COMMON SHARE $ .03
==========
COMPUTATION OF WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (DILUTED CALCULATION):
Shares outstanding as of September 30, 1998 7,432,109
Impact of dilutive stock options as of September 30, 1998 175,130
----------
7,607,239
==========
</TABLE>
<PAGE> 1
EXHIBIT 11.2
ATLANTIC PREMIUM BRANDS, LTD.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the
Nine months
Ended
September 30,
1998
-------------
<S> <C>
INCOME BEFORE EXTRAORDINARY LOSS $ 1,229,588
EXTRAORDINARY LOSS, net 194,993
-----------
Net income $ 1,034,595
===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 7,627,637
INCOME PER COMMON SHARE BEFORE EXTRAORDINARY LOSS $ .17
EXTRAORDINARY LOSS PER COMMON SHARE (.03)
-----------
Net income per common share $ .14
===========
COMPUTATION OF WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (DILUTED CALCULATION):
Shares outstanding as of September 30, 1998 7,402,977
Impact of dilutive stock options as of September 30, 1998 224,660
-----------
7,627,637
===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,453,265
<SECURITIES> 0
<RECEIVABLES> 9,372,814
<ALLOWANCES> 217,000
<INVENTORY> 6,545,753
<CURRENT-ASSETS> 18,983,114
<PP&E> 16,238,065
<DEPRECIATION> 2,730,339
<TOTAL-ASSETS> 47,404,285
<CURRENT-LIABILITIES> 18,175,582
<BONDS> 0
0
0
<COMMON> 74,355
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 47,404,285
<SALES> 52,453,537
<TOTAL-REVENUES> 52,453,537
<CGS> 44,419,952
<TOTAL-COSTS> 7,095,671
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 720,131
<INCOME-PRETAX> 334,296
<INCOME-TAX> 125,000
<INCOME-CONTINUING> 209,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 209,296
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
