sv1
As filed with the
Securities and Exchange Commission on April 12, 2011
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
CHEFS WAREHOUSE HOLDINGS,
LLC
(Exact name of registrant as
specified in its charter)
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Delaware
(State or Other
Jurisdiction
of Incorporation or Organization)
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5141
(Primary Standard
Industrial
Classification Code Number)
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20-3031526
(I.R.S. Employer
Identification No.)
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100 East Ridge Road
Ridgefield, Connecticut
06877
(203) 894-1345
(Address, including zip code,
and telephone number,
including area code, of
registrants principal executive offices)
Christopher Pappas
President and Chief Executive
Officer
100 East Ridge Road
Ridgefield, Connecticut
06877
(203) 894-1345
(Name, address, including zip
code, and telephone number,
including area code, of agent
for service)
Copies to:
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F. Mitchell Walker, Jr. Esq.
D. Scott Holley, Esq.
Bass, Berry & Sims PLC
150 Third Avenue South, Suite 2800
Nashville, Tennessee 37201
(615) 742-6200
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Marc D. Jaffe, Esq.
Ian D. Schuman, Esq.
Latham & Watkins LLP
885 Third Avenue
New York, New York 10022
(212) 906-1200
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act, check the following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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CALCULATION OF
REGISTRATION FEE
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Proposed Maximum
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Amount of
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Title of Each Class of
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Aggregate Offering
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Registration
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Securities to be Registered
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Price (1)(2)
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Fee (1)
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Common Stock, $0.01 par value per share
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$100,000,000
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$11,610
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(1) |
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Estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(o) under
the Securities Act of 1933, as amended.
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(2) |
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Including shares of common stock
which may be purchased by the underwriters to cover
over-allotments, if any.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
EXPLANATORY
NOTE
Chefs Warehouse Holdings, LLC, a limited liability company
organized under the laws of Delaware, is the registrant filing
this registration statement with the Securities and Exchange
Commission. Prior to the effectiveness of this registration
statement, Chefs Warehouse Holdings, LLC will be converted
into a corporation organized under the laws of Delaware pursuant
to
Section 18-216
of the Delaware Limited Liability Company Act and
Section 265 of the Delaware General Corporation Law. The
securities issued to investors in connection with this offering
will be common stock in that corporation, which will be named
The Chefs Warehouse, Inc.
The Chefs Warehouse, LLC, a Delaware limited liability
company and an indirect, wholly-owned subsidiary of Chefs
Warehouse Holdings, LLC, is not the registrant under this
registration statement. Prior to the consummation of this
offering, we expect that its name will be changed to The
Chefs Warehouse Mid-Atlantic, LLC.
The
information in this preliminary prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is declared effective. This preliminary prospectus is
not an offer to sell these securities and we are not soliciting
an offer to buy these securities in any state where the offer or
sale is not permitted.
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SUBJECT
TO COMPLETION DATED April 12, 2011
PRELIMINARY PROSPECTUS
Shares
The Chefs Warehouse,
Inc.
Common Stock
We are
offering shares
of our common stock and the selling stockholders identified in
this prospectus are
offering shares
of our common stock. We will not receive any proceeds from the
sale of shares by the selling stockholders. This is our initial
public offering, and, prior to this offering, there has been no
public market for our common stock. We expect the initial public
offering price to be between $ and
$ per share. We intend to apply to
list our common stock for listing on The NASDAQ Global Market
under the symbol CHEF.
Investing in our common stock involves a high degree of risk.
Please read Risk Factors beginning on page 11
of this prospectus.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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PER SHARE
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TOTAL
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Public Offering Price
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$
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$
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Underwriting Discounts and Commissions
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$
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$
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Proceeds to The Chefs Warehouse, Inc. Before Expenses
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$
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$
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Proceeds to Selling Stockholders Before Expenses
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$
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$
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Delivery of the shares of common stock is expected to be made on
or
about ,
2011. We and the selling stockholders have granted the
underwriters an option for a period of 30 days to purchase
an
additional
and shares
of our common stock, respectively, to cover over-allotments. If
the underwriters exercise the option in full, the total
underwriting discounts and commissions payable by us and the
selling stockholders will be $ and
the total proceeds to us and the selling stockholders, before
expenses, will be $ .
Jefferies
Prospectus
dated ,
2011
Table of
Contents
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Page
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F-1
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EX-21.1 |
EX-23.1 |
EX-23.3 |
We and the selling stockholders have not, and the underwriters
have not, authorized anyone to give any information or to make
any representations other than those that are contained in this
prospectus. Do not rely upon any information or representations
made outside of this prospectus. This prospectus is not an offer
to sell, and it is not soliciting an offer to buy, (1) any
securities other than shares of our common stock or
(2) shares of our common stock in any circumstances in
which the offer or solicitation is unlawful. The information
contained in this prospectus may change after the date of this
prospectus. Do not assume after the date of this prospectus that
the information contained in this prospectus is still correct.
Persons outside the United States who come into possession of
this prospectus must inform themselves about and observe any
restrictions relating to the offering of the securities and the
distribution of the prospectus outside the United States.
Basis of
Presentation
We utilize a 52/53 week fiscal year ending on a Friday near
the end of December. Our fiscal years ended December 24,
2010, December 25, 2009, December 26, 2008,
December 28, 2007 and December 29, 2006 were each
comprised of 52 weeks. Fiscal years are identified in this
prospectus according to the calendar year in which the fiscal
years end. For example, references to 2010,
fiscal 2010, fiscal year end 2010 or
other similar references refer to the fiscal year ended
December 24, 2010. Our fiscal year ending December 30,
2011 will have 53 weeks.
Industry and
Market Data
This prospectus includes industry and market data that we
derived from internal company records, publicly-available
information and industry publications and surveys. Industry
publications and surveys generally state that the information
contained therein has been obtained from sources believed to be
reliable. We believe that this data is accurate in all material
respects as of the date of this prospectus. You should carefully
consider the inherent risks and uncertainties associated with
the industry and market data contained in this prospectus.
Trademarks and
Trade Names
In this prospectus, we refer (without any ownership notation) to
several registered and common law trademarks, including The
Chefs Warehouse, Dairyland USA, Spoleto, Bel Aria and
Grand Reserve. All brand names or other trademarks appearing in
this prospectus are the property of their respective owners.
ii
The following summary highlights information contained
elsewhere in this prospectus and is qualified in its entirety by
the more detailed information and the historical consolidated
financial statements, and the related notes thereto, included
elsewhere in this prospectus. Because it is a summary, it does
not contain all of the information that you should consider
before investing in our common stock. You should read this
entire prospectus carefully, including the more detailed
information set forth under the caption Risk Factors
and the historical consolidated financial statements, and the
related notes thereto, included elsewhere in this prospectus
before investing in our common stock.
Prior to the consummation of the offering, we will convert
our company from a Delaware limited liability company
(Chefs Warehouse Holdings, LLC) to a Delaware
corporation (The Chefs Warehouse, Inc.). Unless otherwise
noted, the terms Company, we,
us, and our refer to Chefs
Warehouse Holdings, LLC and its consolidated subsidiaries prior
to the conversion date and The Chefs Warehouse, Inc. and
its consolidated subsidiaries on and after the conversion date.
This prospectus assumes the completion of the conversion and
related transactions, as a result of which all membership
interests of Chefs Warehouse Holdings, LLC held by our
investors will be converted into
shares of common stock of The
Chefs Warehouse, Inc. See Certain Relationships and
Related-Party Transactions Reorganization
Transaction. Unless otherwise indicated or the context
otherwise requires, financial and operating data in this
prospectus reflects the consolidated business and operations of
Chefs Warehouse Holdings, LLC and its wholly-owned
subsidiaries prior to the conversion and The Chefs
Warehouse, Inc. and its wholly-owned subsidiaries from and after
the conversion.
Unless the context otherwise requires or indicates, the
information set forth in this prospectus assumes that
(1) the underwriters over-allotment option is not
exercised and (2) the common stock to be sold in this
offering is sold at $ per share,
which is the midpoint of the price range indicated on the cover
page of this prospectus.
Company
Overview
We are a premier distributor of specialty food products in the
United States. We are focused on serving the specific needs of
chefs who own
and/or
operate some of the nations leading independent
restaurants, fine dining establishments, country clubs, hotels,
caterers, culinary schools and specialty food stores. We believe
that we have a distinct competitive advantage in serving these
customers as a result of our extensive selection of distinctive
and
hard-to-find
specialty food products, our product knowledge and our customer
service, all of which we believe are superior to other
foodservice distributors.
We define specialty food products as gourmet foods and
ingredients that are of the highest grade, quality or style as
measured by their uniqueness, exotic origin or particular
processing method. Our product portfolio includes over 11,500
stock-keeping units, or SKUs, and is comprised primarily of
imported and domestic specialty food products, such as artisan
charcuterie, specialty cheeses, unique oils and vinegars,
hormone-free protein, truffles, caviar and chocolate. We also
offer an extensive line of broadline food products, including
cooking oils, butter, eggs, milk and flour. Our core customers
are chefs, and we believe that, by offering a wide selection of
both distinctive and
hard-to-find
specialty products, together with staple broadline food
products, we are able to differentiate ourselves from larger,
traditional broadline foodservice distributors, while
simultaneously enabling our customers to utilize us as their
primary foodservice distributor.
Since the formation of our predecessor in 1985, we have expanded
our distribution network, product selection and customer base
both organically and through acquisitions. Since 2008, we have
achieved net revenue, earnings before interest, taxes,
depreciation and amortization, or EBITDA, and net income
compound annual growth rates, or CAGRs, of 8.3%, 50.4% and
168.9%, respectively, as of December 24, 2010. During this
same period, our sales to both new and existing customers have
increased as a result of an increase in the breadth and depth of
our product portfolio, our commitment to customer service, the
efforts of our experienced and sophisticated sales
professionals, the increased use of technology in the operations
and management of our business and our ongoing consolidation of
the fragmented specialty foodservice distribution industry,
including acquisitions in San Francisco,
Washington, D.C. and Miami since 2007.
1
Competitive
Strengths
We believe that, during our
26-year
history, we have achieved, developed
and/or
refined the following strengths which provide us with a distinct
competitive position in the foodservice distribution industry
and also the opportunity to achieve superior margins relative to
most large broadline foodservice distributors:
Leading Distributor of Specialty Food Products in Many of the
Key Culinary Markets. We believe we are the
largest distributor of specialty food products in New York,
Washington, D.C., San Francisco and Los Angeles. We
believe these markets, along with Las Vegas and Miami, our other
primary markets, create and set the culinary trends for the rest
of the United States and provide us with valuable insight into
the latest culinary and menu practices. Furthermore, we believe
our established relationships with many of the top chefs,
culinary schools and dining establishments in these key culinary
markets have benefited us when we entered into new markets where
we believe that chefs at our potential customers were generally
knowledgeable of our brand and commitment to quality and
excellence from their experience working in other markets which
we serve or through their personal relationships throughout the
culinary industry.
Expansive Product Offering. We offer an
extensive portfolio of high-quality specialty food products,
ranging from basic ingredients and staples, such as milk and
flour, to delicacies and specialty ingredients sourced from
North America, Europe, Asia and South America, which we believe
helps our customers distinguish their menu items. We carry more
than 11,500 SKUs, including approximately 7,000 that are
in-stock every day, and we constantly evaluate our portfolio and
introduce new products to address regional trends and
preferences and ensure that we are on the leading edge of
broader culinary trends. Through our importing division, we
provide our customers with access to a portfolio of exclusive
items, including regional olive oils, truffles and charcuterie
from Italy, Spain, France and other Mediterranean countries. In
addition, and as evidence of our commitment to aid our customers
in creating unique and innovative menu items, we regularly
utilize our sourcing relationships and industry insights to
procure other products that we do not regularly carry but that
our customers specifically request. We believe that the breadth
and depth of our product portfolio facilitates our
customers ability to distinguish and enhance their menu
offerings and differentiates us from larger traditional
broadline foodservice distributors. For example, we provide a
selection of more than 125 different varieties of olive oil,
while large broadline foodservice distributors only carry, on
average,
5-10 types
of olive oil.
Critical
Route-to-Market
for Specialty Food Suppliers. We currently
distribute products from more than 1,000 different suppliers,
with no single supplier currently representing more than 5% of
our total disbursements. Our suppliers are located throughout
North America, Europe, Asia and South America and include
numerous small, family-owned entities and artisanal food
producers. We are the largest customer for many of our
suppliers. As a result, our experienced and sophisticated sales
professionals, customer relationships and distribution platform
are critical to these suppliers
route-to-market,
which provides us with greater leverage in our relationships
with the suppliers and also enables us to offer a wide range of
products on an exclusive basis.
Expanding Base of Premier Customer
Relationships. Our breadth and depth of product
offerings coupled with our highly regarded customer service has
allowed us to develop and retain a loyal customer base that is
comprised of chefs who own or work at more than 7,000 of the
nations leading independent restaurants, fine dining
establishments, country clubs, hotels, caterers, culinary
schools and specialty food stores. Our focus on product
selection, product knowledge and customer service has rewarded
us with a number of long-term customer relationships, which
often begin when chefs are introduced to us while attending the
nations leading culinary schools, including The Culinary
Institute of America and The French Culinary Institute, both of
which have been customers of ours for more than five years.
Collaborative Professional and Educational Relationships with
our Customers. We employ a sophisticated and
experienced sales force of approximately 125 sales
professionals, the majority of whom have formal culinary
training, degrees in the culinary arts or prior experience
working in the culinary industry. Equipped with advanced
culinary and industry knowledge, our sales professionals seek to
establish a rapport with our customers so that they can more
fully understand and anticipate the needs of and offer
cost-effective food product solutions to the chefs that own or
operate these businesses. We believe that the specialized
knowledge base of our sales professionals enables us to take a
more collaborative and educational approach to selling our
gourmet foods and ingredients and to further differentiate
ourselves from our traditional broadline competitors.
Expertise in Logistics and Distribution. We
have built a first-class, scalable inventory management and
logistics platform that enables us to efficiently fill an
average of 11,000 orders weekly and to profitably meet our
customers needs for varying drop sizes, high service
levels and timely delivery. Our average distribution service
level, or the percentage of in-
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stock items ordered by customers that were delivered by the
requested date, was in excess of 99% in 2010, which we believe
is among the highest rates in the foodservice distribution
industry. With distribution centers located in New York, Los
Angeles, San Francisco, Washington D.C., Las Vegas and
Miami, we are able to leverage our geographic footprint and
reduce our inbound freight costs. This scale enables us to
maintain a portfolio of more than 11,500 SKUs through the
operation of our sophisticated information technology, inventory
management and logistics systems, which we believe allows us to
provide our customers with the highest level of customer service
and responsiveness in our industry.
Experienced and Proven Management Team. Our
senior management team has demonstrated the ability to grow the
business through various economic environments. With collective
experience of more than 60 years at The Chefs
Warehouse and its predecessor, our founders and senior
management are experienced operators and are passionate about
our future. Our senior management team is comprised of our
founders as well as experienced professionals with expertise in
a wide range of functional areas, including finance, sales and
marketing, information technology and human resources. We
believe our management team and employee base is, and will
remain, highly motivated as they will continue to own
% of our common stock following this offering.
Our Growth
Strategies
We believe substantial organic growth opportunities exist in our
current markets through increased penetration of our existing
customers and the addition of new customers, and we have
identified new markets that we believe also present
opportunities for future expansion. Key elements of our growth
strategy include the following:
Increase Penetration with Existing
Customers. We intend to sell more products to our
existing customers by increasing the breadth and depth of our
product selection and increasing the efficiency of our sales
professionals, while at the same time continuing to provide
excellent customer service. We are a data-driven and
goal-oriented organization, and we are highly focused on
increasing the number of unique products we distribute to each
customer and our weekly gross profit contribution from each
customer. We intend to maintain our position as the primary
distributor of specialty food products to the majority of our
customers, while adding to the number of customers for which we
serve as their primary distributor of specialty food products.
Expand our Customer Base Within our Existing
Markets. As of December 24, 2010, we served
more than 7,000 customer locations in the United States. We plan
to expand our market share in the fragmented specialty food
distribution industry by cultivating new customer relationships
within our existing markets through the continued penetration of
independent restaurants, fine dining establishments, country
clubs, hotels, caterers, culinary schools and specialty food
stores. We believe we have the opportunity to continue to gain
market share in our existing markets by offering an extensive
selection of specialty food products as well as traditional
broadline staple food products through our unique, collaborative
and educational sales efforts and efficient, scalable
distribution solution.
Continue to Improve our Operating Margins. As
we continue to grow, we believe we can improve our operating
margins by continuing to leverage our inventory management and
logistics platform and our general and administrative functions
to yield both improved customer service and profitability.
Utilizing our fleet of delivery trucks, we fill an average of
11,000 customer orders weekly, usually within
12-24 hours
of order placement. We intend to continue to offer our customers
this high level of customer service while maintaining our focus
on realizing efficiencies and economies of scale in purchasing,
warehousing, distribution and general and administrative
functions which, when combined with incremental fixed-cost
leverage, we believe will lead to continued improvements in our
operating margin.
Pursue Selective Acquisitions. Throughout our
26-year
history, we have successfully identified, consummated and
integrated multiple new market and tuck-in acquisitions. We
believe we have improved the operations and overall
profitability of each acquired company by leveraging our
sourcing relationships to provide an expanded product portfolio,
implementing our tested sales force training techniques and
metrics and installing improved warehouse management and
information systems. We believe we have the opportunity to
capitalize on our existing infrastructure and expertise by
continuing to selectively pursue opportunistic acquisitions in
order to expand the breadth of our distribution network,
increase our operating efficiency and add additional products
and capabilities.
Reorganization
Transaction
Prior to the consummation of the offering, we will complete a
transaction in which we will convert Chefs Warehouse
Holdings, LLC into The Chefs Warehouse, Inc. Specifically,
immediately prior to the time at which the registration
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statement of which this prospectus is part is declared
effective, Chefs Warehouse Holdings, LLC, a Delaware
limited liability company, will convert into The Chefs
Warehouse, Inc., a Delaware corporation, and the members of
Chefs Warehouse Holdings, LLC will receive in the
conversion shares
of common stock of The Chefs Warehouse, Inc. for each unit
of membership interest in Chefs Warehouse Holdings, LLC
owned by them at the time of the conversion. In total, we expect
to
issue shares
of common stock in this reorganization transaction. Of these
shares, shares
will be restricted shares of our common stock issued upon
conversion of our Class C units that have not vested as of
the date we consummate the reorganization transaction.
Refinancing
Transaction
In connection with our redemption of all of our outstanding
Class A units in October 2010, we entered into our existing
$100.0 million senior secured credit facilities with a
syndicate of lenders. The existing senior secured credit
facilities provide for (i) a $75.0 million term loan
facility and (ii) a revolving credit facility under which
we may borrow up to $25.0 million. We also issued
$15.0 million of our senior subordinated notes due 2014.
In connection with this offering, we plan to procure new senior
secured credit facilities. We expect that the new senior secured
credit facilities will provide for (i) a
$ million term loan facility, maturing
in , and (ii) a revolving credit facility under
which we may borrow up to $ million, maturing
in .
Risk
Factors
An investment in our common stock involves a high degree of
risk. Before you invest in our common stock, you should
carefully read and consider, among other things, the following
risks as well as those described under the caption Risk
Factors beginning on page 11 of this prospectus:
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Our success depends to a significant extent on general economic
conditions, including changes in disposable income levels and
consumer spending trends;
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Conditions beyond our control could materially affect the cost
and/or
availability of our specialty food products
and/or
interrupt our distribution network;
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Our business is low-margin in nature and our profit margins are
sensitive to inflationary and deflationary pressures;
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Because our foodservice distribution operations are principally
concentrated in six culinary markets, we are susceptible to
economic and other developments, including adverse weather
conditions, in these areas;
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Damage to our reputation or lack of acceptance of our specialty
food products
and/or the
brands we carry in existing and new markets could materially and
adversely impact our business, financial condition or results of
operations;
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Our profit margins may be negatively affected if group
purchasing organizations are successful in adding our
independent restaurant customers as members;
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A significant portion of our future growth is dependent upon our
ability to expand our operations in our existing markets and to
penetrate new markets, including through acquisitions; and
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We may have difficulty managing and facilitating our future
growth.
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Company
Information
Our principal executive office is located at 100 East Ridge
Road, Ridgefield, Connecticut 06877, and our telephone number is
(203) 894-1345.
Our website address is
http://www.chefswarehouse.com.
Our website and the information contained therein or connected
thereto is not and shall not be deemed to be incorporated into
this prospectus or the registration statement of which it forms
a part and is provided as an inactive textual reference.
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The
Offering
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Common stock offered by us |
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shares |
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Common stock offered by the selling stockholders |
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Common stock to be outstanding immediately after this
offering |
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shares |
Selling
Stockholders
See Principal and Selling Stockholders for
information regarding the selling stockholders who are
participating in this offering.
Over-Allotment
Option
We and the selling stockholders have granted to the underwriters
an option for a period of 30 days after the date of this
prospectus to purchase up
to
and
additional shares of our common stock, respectively, to cover
over-allotments. The information presented in this prospectus
assumes that the underwriters do not exercise their
over-allotment option.
Use of
Proceeds
We estimate the net proceeds to us from this offering will be
approximately $ million,
after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us, based upon an assumed
initial offering price of $ per
share, which is the midpoint of the range set forth on the cover
page of this prospectus. We intend to use the net proceeds of
this offering to:
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|
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redeem or repurchase all of our outstanding senior subordinated
notes due 2014 and pay any accrued but unpaid interest thereon
and other related fees, including the call premium associated
with such redemption or repurchase; and
|
|
|
repay some or all of our loans outstanding under our existing
senior secured credit facilities and any accrued but unpaid
interest thereon and other related fees.
|
Any remaining net proceeds will be used for general corporate
purposes.
An affiliate of Jefferies & Company, Inc., an
underwriter in this offering, is a lender under our existing
term loan facility and one of the holders of our senior
subordinated notes and will receive approximately
$ million of the net proceeds of this offering
used to redeem or repurchase our senior subordinated notes and
repay our existing term loan facility.
For a more complete description of our new senior secured credit
facilities, see the information under the caption
Description of Our Indebtedness New Senior
Secured Credit Facilities.
We will not receive any of the proceeds from the sale of common
stock by the selling stockholders. See Use of
Proceeds, Description of Our Indebtedness,
Principal and Selling Stockholders and
Underwriting Affiliations and Conflicts of
Interest.
5
Risk
Factors
Investing in our common stock involves a high degree of risk.
You should carefully read this entire prospectus, including the
more detailed information set forth under the caption Risk
Factors and the historical consolidated financial
statements, and the related notes thereto, included elsewhere in
this prospectus, before investing in our common stock.
Lock-up
Agreements
Our directors, executive officers and holders of more than 5% of
our outstanding common stock have agreed with the underwriters,
subject to limited exceptions, not to sell, transfer or dispose
of any of our shares for a period of 180 days after the
date of this prospectus. See the information under the caption
Underwriting No Sales of Similar
Securities for additional information.
Proposed NASDAQ
Global Market Symbol
We intend to apply to have our common stock approved for listing
on The NASDAQ Global Market under the symbol CHEF.
Conflicts of
Interest
As described under the caption Use of Proceeds, we
intend to use a portion of the net proceeds from this offering
to (1) redeem or repurchase any and all of our outstanding
senior subordinated notes and any accrued but unpaid interest
thereon and other related fees, including the call premium
associated with such redemption or repurchase, and
(2) repay some or all of our loans outstanding under our
existing senior secured credit facilities and any accrued but
unpaid interest thereon and other related fees. Because an
affiliate of Jefferies & Company, Inc. is a lender
under our existing term loan facility and one of the holders of
our senior subordinated notes and will receive approximately
$ , or more than 5% of the net proceeds of this
offering, due to such redemption and repayments, this offering
will be conducted in accordance with Rule 5121 of the
Financial Industry Regulatory Authority, Inc., or FINRA. This
rule requires, among other things, that a qualified
independent underwriter has participated in the
preparation of, and has exercised the usual standards of
due diligence with respect to, the registration
statement and this prospectus. has agreed to act as
qualified independent underwriter for the offering and to
undertake the legal responsibilities and liabilities of an
underwriter under the Securities Act of 1933, as amended, or the
Securities Act, specifically including those inherent in
Section 11 of the Securities Act.
6
Summary
Consolidated Financial Data
The following table sets forth, for the periods and as of the
dates indicated, our summary consolidated financial data. The
statement of operations data for the fiscal years ended
December 24, 2010, December 25, 2009 and
December 26, 2008 and the balance sheet data as of
December 24, 2010 are derived from our audited consolidated
financial statements appearing elsewhere in this prospectus.
The summary consolidated financial data presented below
represent only portions of our financial statements and,
accordingly, are not complete. You should read this information
in conjunction with the information included under the captions
Use of Proceeds, Capitalization,
Selected Consolidated Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements, and the related notes thereto, which are
included elsewhere in this prospectus.
Prior to the consummation of the offering, we will convert our
company from a Delaware limited liability company (Chefs
Warehouse Holdings, LLC) to a Delaware corporation (The
Chefs Warehouse, Inc.). See Certain Relationships
and Related-Party Transactions Reorganization
Transaction. The summary consolidated financial data
relate to Chefs Warehouse Holdings, LLC and its
consolidated subsidiaries.
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|
|
|
|
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|
|
|
|
|
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FISCAL YEAR ENDED
|
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DECEMBER 24,
|
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DECEMBER 25,
|
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DECEMBER 26,
|
|
|
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2010
|
|
|
2009
|
|
|
2008
|
|
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(In thousands, except per share data)
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Statement of Operations Data:
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|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
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$
|
330,118
|
|
|
$
|
271,072
|
|
|
$
|
281,703
|
|
Cost of sales
|
|
|
244,340
|
|
|
|
199,764
|
|
|
|
211,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
85,778
|
|
|
|
71,308
|
|
|
|
70,316
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|
Operating expenses
|
|
|
64,206
|
|
|
|
57,977
|
|
|
|
60,314
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating profit
|
|
|
21,572
|
|
|
|
13,331
|
|
|
|
10,002
|
|
Interest expense
|
|
|
4,041
|
|
|
|
2,815
|
|
|
|
3,238
|
|
(Gain)/loss on fluctuation of interest rate swap
|
|
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(910
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)
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|
|
(658
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)
|
|
|
1,118
|
|
|
|
|
|
|
|
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|
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|
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Income from operations before income taxes
|
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18,441
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|
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|
11,174
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5,646
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Provision for income taxes
|
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|
2,567
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2,213
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3,450
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|
|
|
|
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|
|
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|
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Net Income
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$
|
15,874
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$
|
8,961
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$
|
2,196
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|
|
|
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|
|
|
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|
|
|
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Deemed dividend accretion on Class A members units
|
|
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(4,123
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)
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|
|
(6,207
|
)
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(3,000
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)
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Deemed dividend paid to Class A members units
|
|
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(22,429
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)
|
|
|
|
|
|
|
|
|
|
|
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|
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Net income (loss) attributable to members units
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$
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(10,678
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)
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$
|
2,754
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$
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(804
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)
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Basic net (loss) income per members unit
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$
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(0.15
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)
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$
|
0.04
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$
|
(0.01
|
)
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Diluted net (loss) income per members unit
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$
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(0.15
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)
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$
|
0.03
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|
$
|
(0.01
|
)
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Weighted average members units outstanding:
|
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|
|
|
|
|
|
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Basic
|
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|
72,494
|
|
|
|
77,827
|
|
|
|
76,663
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Diluted
|
|
|
72,494
|
|
|
|
81,851
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|
|
|
76,663
|
|
As Adjusted
Data: (1)
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|
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Provision for income taxes
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$
|
|
|
|
|
|
|
|
|
|
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Net income available to common stockholders
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|
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Basic net income per share available to common stockholders
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|
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Diluted net income per share available to common stockholders
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|
|
|
|
|
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Weighted average common shares outstanding:
|
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|
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Basic
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|
|
|
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Diluted
|
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|
|
|
|
|
|
|
|
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|
Pro Forma, As Adjusted
Data: (2)
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|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share available to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share available to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
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Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR ENDED
|
|
|
|
DECEMBER 24,
|
|
|
DECEMBER 25,
|
|
|
DECEMBER 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Other Financial Data:
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|
|
|
|
|
|
|
|
|
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Net cash provided by operating activities
|
|
$
|
13,524
|
|
|
$
|
11,885
|
|
|
$
|
1,616
|
|
Net cash used in investing activities
|
|
$
|
(4,871
|
)
|
|
$
|
(4,827
|
)
|
|
$
|
(5,848
|
)
|
Net cash (used in) provided by financing activities
|
|
$
|
(7,550
|
)
|
|
$
|
(7,774
|
)
|
|
$
|
3,591
|
|
Capital expenditures
|
|
$
|
(1,133
|
)
|
|
$
|
(1,061
|
)
|
|
$
|
(1,848
|
)
|
EBITDA (3)
|
|
$
|
24,585
|
|
|
$
|
15,906
|
|
|
$
|
10,869
|
|
Adjusted
EBITDA (3)
|
|
$
|
23,937
|
|
|
$
|
16,345
|
|
|
$
|
12,340
|
|
|
|
|
|
|
|
|
|
|
|
|
ACTUAL
|
|
|
AS ADJUSTED
|
|
|
|
AS OF
|
|
|
AS OF
|
|
|
|
DECEMBER 24,
|
|
|
DECEMBER 24,
|
|
|
|
2010
|
|
|
2010(5)
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,978
|
|
|
|
|
|
Working capital
|
|
$
|
12,206
|
(4)
|
|
|
|
|
Total assets
|
|
$
|
82,672
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
$
|
82,580
|
|
|
|
|
|
Total liabilities
|
|
$
|
131,484
|
|
|
|
|
|
Total members/stockholders equity (deficit)
|
|
$
|
(48,812
|
)
|
|
|
|
|
|
|
|
(1) |
|
Gives effect to the reorganization
transaction and the resulting conversion of Chefs
Warehouse Holdings, LLC into a subchapter C corporation expected
to occur prior to the consummation of this offering. As adjusted
provision for income taxes reflects combined federal and state
income tax on an as adjusted basis, as if we had been taxed as a
subchapter C corporation, using an effective tax rate
of %. As adjusted basic weighted
average shares outstanding consist of
the shares
of common stock that will be outstanding following the
consummation of the reorganization transaction. As adjusted
diluted weighted average shares outstanding consist of
the shares
of common stock that will be outstanding following the
consummation of the reorganization transaction, plus the
potential dilution that would occur if
all shares
of restricted stock received in exchange for unvested
Class C units become fully vested.
|
(2) |
|
Gives effect to (i) the
reorganization transaction and the resulting conversion of
Chefs Warehouse Holdings, LLC into a subchapter
C corporation expected to occur prior to the consummation
of this offering, (ii) this offering, (iii) the
application of net proceeds of this offering and of borrowings
under our senior secured credit facilities as described under
Description of Our Indebtedness New Senior
Secured Credit Facilities and (iv) all of the
adjustments mentioned below. Pro forma, as adjusted provision
for income taxes reflects combined federal and state income tax
on a pro forma, as adjusted basis, as if we had been taxed as a
subchapter C corporation, using an effective tax rate
of %.
|
|
|
Pro forma, as adjusted basic net
income per share available to common stockholders consists of
pro forma, as adjusted net income available to common
stockholders divided by the as adjusted, pro forma basic
weighted average common shares outstanding. As adjusted, pro
forma basic weighted average common shares outstanding for the
period presented consists of
the shares of our common
stock that will be outstanding following consummation of the
reorganization transaction and consummation of this offering. As
adjusted, pro forma diluted weighted average common shares
outstanding for the period presented reflects
the shares of our common
stock that will be outstanding following consummation of the
reorganization transaction and consummation of this offering as
well as the potential dilution that would occur if
the
shares of our restricted common stock to be issued in the
reorganization transaction in exchange for our unvested
Class C units become fully vested.
|
|
|
Pro forma adjustments to net income
(loss) attributable to members units for the year ended
December 24, 2010 reflect (i) the reversal of a
$0.9 million gain associated with the marking to market of
an interest rate swap we entered into in 2005 that expired in
January 2011, (ii) the removal of $0.3 million for a
management fee paid to
BGCP/DL,
LLC, a former member of ours until we redeemed all of our
Class A units in October 2010, (iii) a
$ million decrease in loan
amortization fees, (iv) an
$ million decrease in
interest expense resulting from our entry into our new senior
secured credit facilities as described in Description of
Our Indebtedness - New Senior Secured Credit Facilities
and the (1) redemption or repurchase of all of our
outstanding senior subordinated notes and payment of any accrued
but unpaid interest thereon; and (2) repayment of some or
all of our loans outstanding under our senior secured credit
facilities and any accrued but unpaid interest thereon, as
described in Use of Proceeds, (v) the
redemption of our Class A units as of December 26,
2009 and resulting elimination of dividends on those units
during the year ended December 24, 2010, and (vi) a
$ million increase in as adjusted tax expenses
due to higher income from operations before income taxes as a
result of the adjustment described above. Pro forma, as adjusted
net income available to common stockholders for the year ended
December 24, 2010, does not give effect to the following
non-recurring items arising in connection with this offering:
(i) a $ million
write-down of deferred financing costs and (ii) a
$ million increase in stock
compensation costs.
|
8
|
|
|
|
|
A reconciliation of net income
(loss) attributable to members units to pro forma, as
adjusted net income available to common stockholders for the
year ended December 24, 2010 is provided below:
|
|
|
|
|
|
|
|
FISCAL YEAR ENDED
|
|
|
|
DECEMBER 24, 2010
|
|
|
Net income (loss) attributable to members units
|
|
|
|
|
Adjustments:
|
|
|
|
|
Elimination of gain on the marking to market of interest rate
swap
|
|
|
|
|
Elimination of BGCP management fees
|
|
|
|
|
Elimination of loan amortization fees
|
|
|
|
|
Change in interest expense on outstanding debt assumed to be
repaid
|
|
|
|
|
Elimination of dividends on the Class A units as a result
of their redemption
|
|
|
|
|
Change in provision for income taxes
|
|
|
|
|
Pro forma, as adjusted net income available to common
stockholders
|
|
|
|
|
|
|
|
(3) |
|
EBITDA represents earnings before
interest, taxes, depreciation and amortization. Adjusted EBITDA
represents earnings before interest, taxes, depreciation and
amortization plus adjustments (i) in each of the periods
for the gain or loss associated with the marking to market of an
interest rate swap we entered into in 2005 that expired in
January 2011; (ii) in 2009 for severance costs related to
our management restructuring; and (iii) in each of the
periods for a management fee paid to BGCP/DL, LLC, or BGCP, a
former member of ours, that will no longer be paid as a result
of our redemption of all of our Class A units in October
2010. We are presenting EBITDA and Adjusted EBITDA, which are
not measurements determined in accordance with U.S. generally
accepted accounting principles, or GAAP, because we believe each
of these measures provides an additional metric to evaluate our
operations and which we believe, when considered with both our
GAAP results and the reconciliation to net income, provides a
more complete understanding of our business than could be
obtained absent this disclosure. We use EBITDA and Adjusted
EBITDA, together with financial measures prepared in accordance
with GAAP, such as revenue and cash flows from operations, to
assess our historical and prospective operating performance and
to enhance our understanding of our core operating performance.
Each of EBITDA and Adjusted EBITDA is presented because
(i) we believe it is a useful measure for investors to
assess the operating performance of our business without the
effect of non-cash depreciation and amortization expenses and,
in the case of Adjusted EBITDA, the above-described adjustments;
(ii) we believe that investors will find it useful in
assessing our ability to service or incur indebtedness; and
(iii) we use it internally as a benchmark to evaluate our
operating performance or compare our performance to that of our
competitors. The use of EBITDA and Adjusted EBITDA as
performance measures permits a comparative assessment of our
operating performance relative to our performance based upon our
GAAP results while isolating the effects of some items that vary
from period to period without any correlation to core operating
performance or that vary widely among similar companies.
Companies within the foodservice distribution industry exhibit
significant variations with respect to capital structures and
cost of capital (which affect interest expense and tax rates)
and differences in book depreciation of facilities and equipment
(which affect relative depreciation expense), including
significant differences in the depreciable lives of similar
assets among various companies. Our management believes that
both EBITDA and Adjusted EBITDA facilitate
company-to-company
comparisons within our industry by eliminating some of the
foregoing variations.
|
|
|
Neither EBITDA nor Adjusted EBITDA
is a measurement determined in accordance with GAAP and each
should not be considered in isolation or as an alternative to
net income, net cash provided by operating, investing or
financing activities or other financial statement data presented
as indicators of financial performance or liquidity, each as
presented in accordance with GAAP. Neither EBITDA nor Adjusted
EBITDA should be considered as a measure of discretionary cash
available to us to invest in the growth of our business. EBITDA
and Adjusted EBITDA as presented may not be comparable to other
similarly titled measures of other companies, and our
presentation of EBITDA and Adjusted EBITDA should not be
construed as an inference that our future results will be
unaffected by unusual items.
|
|
|
Our management recognizes that both
EBITDA and Adjusted EBITDA have limitations as analytical
financial measures, including the following:
|
|
|
neither EBITDA
nor Adjusted EBITDA reflects our capital expenditures or future
requirements for capital expenditures;
|
|
|
neither EBITDA
nor Adjusted EBITDA reflects the interest expense, or the cash
requirements necessary to service interest or principal
payments, associated with our indebtedness;
|
|
|
neither EBITDA
nor Adjusted EBITDA reflects depreciation and amortization,
which are non-cash charges, although the assets being
depreciated and amortized will likely have to be replaced in the
future, nor does EBITDA or Adjusted EBITDA reflect any cash
requirements for such replacements; and
|
|
|
neither EBITDA
nor Adjusted EBITDA reflects changes in, or cash requirements
for, our working capital needs.
|
9
|
|
|
|
|
A reconciliation of EBITDA and
Adjusted EBITDA to net income is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR ENDED
|
|
|
|
DECEMBER 24,
|
|
|
DECEMBER 25,
|
|
|
DECEMBER 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
15,874
|
|
|
$
|
8,961
|
|
|
$
|
2,196
|
|
Interest expense
|
|
|
4,041
|
|
|
|
2,815
|
|
|
|
3,238
|
|
Depreciation and amortization
|
|
|
2,103
|
|
|
|
1,917
|
|
|
|
1,985
|
|
Provision for income taxes
|
|
|
2,567
|
|
|
|
2,213
|
|
|
|
3,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
24,585
|
|
|
$
|
15,906
|
|
|
$
|
10,869
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain)/loss on the marking to market of interest rate
swap (a)
|
|
|
(910
|
)
|
|
|
(658
|
)
|
|
|
1,118
|
|
Management severance
costs (b)
|
|
|
|
|
|
|
745
|
|
|
|
|
|
BGCP annual management
fee (c)
|
|
|
262
|
|
|
|
352
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
23,937
|
|
|
$
|
16,345
|
|
|
$
|
12,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents the gain or loss we experienced on our interest rate
swap in each period. When we entered into our interest rate swap
in 2005, we did not elect to account for it under hedge
accounting rules. As such, the mark-to-market movement of the
swap is recorded through our statement of operations. This
interest rate swap expired in January 2011.
|
|
(b)
|
Represents cash severance payments to individuals in connection
with our 2009 management restructuring.
|
|
(c)
|
Represents the annual management fee we paid to BGCP in the
respective periods. We redeemed all of our Class A units
owned by BGCP in October 2010.
|
|
|
(4)
|
Working capital is defined as the difference between current
assets and current liabilities. At December 24, 2010, the
then-outstanding balance under our senior secured revolving
credit facility of $12.2 million was included within the
current portion of long-term debt.
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|
(5)
|
Gives effect to (i) the reorganization transaction that is
expected to occur prior to the consummation of this offering,
(ii) this offering and (iii) the application of the
net proceeds of this offering as described under the caption
Use of Proceeds.
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10
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
You should consider carefully the following risk factors and the
other information in this prospectus, including our consolidated
financial statements and related notes to those statements,
before you decide to invest in our common stock. If any of the
following risks actually occur, our business, financial
condition or results of operations could be adversely affected.
As a result, the trading price of our common stock could decline
and you could lose part or all of your investment.
Risks Relating to
Our Business and Industry
Our success
depends to a significant extent upon general economic
conditions, including disposable income levels and changes in
consumer discretionary spending.
We, together with the rest of the foodservice distribution
industry, depend significantly upon consumer discretionary
spending. Because our target customers operate principally
within the fine dining and more expensive segment of the dining
and culinary market, our business is more exposed to reductions
in discretionary spending than our larger, more traditional
broadline distributor competitors who focus a significant amount
of their efforts on servicing the casual dining and quick
service segments of the restaurant industry. The recent
recession, coupled with high unemployment rates, reduced home
values, increases in home foreclosures, investment losses,
personal bankruptcies, reduced access to credit and reduced
consumer confidence, has adversely impacted consumers
ability and willingness to spend discretionary dollars. Economic
conditions may remain volatile and may continue to repress
consumer confidence and discretionary spending for the near
term. If the weak economy continues for a prolonged period of
time or worsens, consumers may choose to spend discretionary
dollars less frequently which could result in a decline in
consumers purchases of food-away-from-home, particularly
in more expensive restaurants, and, consequently, the businesses
of our customers by, among other things, reducing the frequency
with which our customers customers choose to dine out or
the amount they spend on meals while dining out. If independent
restaurant and fine dining establishment sales decrease, our
profitability could decline as we spread fixed costs across a
lower volume of sales. Moreover, we believe that, if the current
negative economic conditions persist for an extended period of
time or become more pervasive, consumers might ultimately make
long-lasting changes to their discretionary spending behavior,
including dining out less frequently on a permanent basis.
Accordingly, adverse changes to consumer preferences or consumer
discretionary spending, each of which could be affected by many
different factors which are out of our control, could harm our
business, financial condition or results of operations. Our
continued success will depend in part upon our ability to
anticipate, identify and respond to changing economic and other
conditions and the impact that they may have on discretionary
consumer spending.
Conditions
beyond our control could materially affect the cost and/or
availability of our specialty food products and/or interrupt our
distribution network.
Our profitability and operating margins are dependent upon,
among other things, our ability to anticipate and react to any
interruptions in our distribution network and changes to food
costs and availability. We obtain a significant portion of our
specialty food products from local, regional, national and
international third-party suppliers. We generally do not enter
into long-term contracts with our suppliers whereby they would
be committed to provide products to us for any appreciable
duration of time. Although our purchasing volume can provide
leverage when dealing with suppliers, particularly smaller
suppliers for whom we may be their largest customer, suppliers
may not provide or may be unable to provide the specialty food
products we need in the quantities and at the times and prices
we request. Failure to identify an alternate source of supply
for these items or comparable products that meet our
customers expectations may result in significant cost
increases. Additionally, weather, governmental regulation,
availability and seasonality may affect our food costs or cause
a disruption in the quantity of our supply. For example, weather
patterns in recent years have resulted in lower than normal
levels of rainfall in key agricultural states such as
California, impacting the price of water and the corresponding
prices of food products grown in states facing drought
conditions. Additionally, the
route-to-market
for some of the products we sell, such as baking chocolate,
depends upon the stability of political climates in developing
nations, such as the Ivory Coast. In such countries, political
and social unrest may cause the prices for these products to
rise to levels beyond those that our customers are willing to
pay, if the product is available at all. If we are unable to
obtain these products, our customers may seek a different
supplier for these, or other, products which could negatively
impact our business, financial condition or results of
operations.
11
We do not currently use financial instruments to hedge our risk
exposure to market fluctuations in the price of food products.
Similarly, our suppliers may also be affected by higher costs to
source or produce and transport food products, as well as by
other related expenses that they pass through to their
customers, which could result in higher costs for the specialty
food products they supply to us. Our inability to anticipate and
react to changing food costs through our sourcing and purchasing
practices in the future could therefore negatively impact our
business, financial condition or results of operations.
We are also subject to material supply chain interruptions based
upon conditions outside of our control. These interruptions
could include work slowdowns, work interruptions, strikes or
other adverse employment actions taken by employees of
suppliers, short-term weather conditions or more prolonged
climate change, crop conditions, product recalls, water
shortages, transportation interruptions within our distribution
channels, unavailability of fuel or increases in fuel costs,
competitive demands and natural disasters or other catastrophic
events, such as food-borne illnesses or bioterrorism. The
efficiency and effectiveness of our distribution network is
dependent upon our suppliers ability to consistently
deliver the specialty food products we need in the quantities
and at the times and prices we request. Accordingly, if we are
unable to obtain the specialty food products that comprise our
product portfolio in a timely manner as a result of any of the
foregoing factors or otherwise, we may be unable to fulfill our
obligations to customers who may, as a result of any such
failure, resort to other distributors for their food product
needs.
Our business
is a low-margin business and our profit margins may be sensitive
to inflationary and deflationary pressures.
We operate within a segment of the foodservice distribution
industry, which is an industry characterized by a high volume of
sales with relatively low profit margins. Although our profit
margins are typically higher than more traditional broadline
foodservice distributors, they are still relatively low compared
to other industries profit margins. Most of our sales are
at prices that are based upon product cost plus a percentage
markup. As a result, volatile food costs have a direct impact
upon our profitability. Prolonged periods of product cost
inflation may have a negative impact on our profit margins and
results of operations to the extent we are unable to pass on all
or a portion of such product cost increases to our customers. In
addition, product cost inflation may negatively impact consumer
discretionary spending decisions within our customers
establishments, which could adversely impact our sales.
Conversely, because most of our sales are at prices that are
based upon product cost plus a percentage markup, our profit
levels may be negatively impacted during periods of product cost
deflation even though our gross profit as a percentage of sales
may remain relatively constant. To compensate for lower gross
margins, we, in turn, must reduce the expenses that we incur to
service our customers. Our inability to effectively price our
specialty food products, to quickly respond to inflationary and
deflationary cost pressures and to reduce our expenses could
have a material adverse impact on our business, financial
condition or results of operations.
Group
purchasing organizations may become more active in our industry
and increase their efforts to add our customers as members of
these organizations.
Some of our customers, including a majority of our hotel
customers, purchase their products from us through group
purchasing organizations. These organizations have increased
their efforts to aggregate the purchasing power of smaller,
independent restaurants in an effort to lower the prices paid by
these customers on their foodservice orders, and we have
experienced some pricing pressure from these purchasers. If
these group purchasing organizations are able to add a
significant number of our customers as members, we may be forced
to lower the prices we charge these customers in order to retain
the business, which would negatively affect our business,
financial condition or results of operations. Additionally, if
we were unable or unwilling to lower the prices we charge for
our products to a level that was satisfactory to the group
purchasing organization, we may lose the business of those of
our customers that are members of these organizations, which
would negatively impact our business, financial condition or
results of operations.
Because our
foodservice distribution operations are concentrated principally
in six culinary markets, we are susceptible to economic and
other developments, including adverse weather conditions, in
these areas.
Our financial condition and results of operations are highly
dependent upon the local economies of the six culinary markets
in which we distribute our specialty food products. In recent
years, certain of these markets have been more negatively
impacted by the overall economic crisis, including experiencing
higher unemployment rates and weaker housing market conditions,
than other areas of the United States. Moreover, sales of our
specialty products in the New York metropolitan area accounted
for approximately 65% of our net revenues in our fiscal year
ended 2010. We are therefore particularly exposed to downturns
in this local economy. Any further deterioration in the economic
12
conditions of these markets generally, or in the local economy
of the New York metropolitan area, specifically, could affect
our business, financial condition or results of operations in a
materially adverse manner.
In addition, given our geographic concentrations, other regional
occurrences such as adverse weather conditions, terrorist
attacks and other catastrophic events could have a material
adverse effect on our business, financial condition or results
of operations. Adverse weather conditions can significantly
impact our ability to profitably and efficiently conduct our
operations and, in severe cases, could result in our trucks
being unable to make deliveries or cause the temporary closure
or the destruction of one or more of our distribution centers.
Our operations
and/or
distribution centers which are located in (i) New York City
and Washington D.C. are particularly susceptible to significant
amounts of snowfall and ice, (ii) Miami are particularly
susceptible to hurricanes and (iii) Los Angeles and
San Francisco are particularly susceptible to earthquakes
and mudslides. Additionally, due to their prominence as, among
other characteristics, densely-populated major metropolitan
cities and as international hubs for intermodal transportation,
each of our six markets is a known target for terrorist activity
and other catastrophic events. If our operations are
significantly disrupted or if any one or more of our
distribution centers is temporarily closed or destroyed for any
of the foregoing reasons, our business, financial condition or
results of operations may be materially adversely affected. In
anticipation of any such adverse weather conditions, terrorist
attacks, man-made disasters or other unforeseen regional
occurrences, we have implemented a disaster recovery plan.
Should any of these events occur, if we are unable to execute
our disaster recovery plan, we may experience failures or delays
in the recovery of critical data, delayed reporting and
compliance with governmental entities, inability to perform
necessary corporate functions and other breakdowns in normal
operating procedures that could have a material adverse effect
on our business and create exposure to administrative and other
legal claims against us.
Damage to our
reputation or lack of acceptance of our specialty food products
and/or the brands we carry in existing and new markets could
materially and adversely impact our business, financial
condition or results of operations.
We believe that we have built a strong reputation for the
breadth and depth of our product portfolio and the brands we
carry and that we must protect and grow their value to be
successful in the future. Any incident that erodes consumer
confidence in or affinity for our specialty food products or
brands, whether or not justified, could significantly reduce
their respective values and damage our business. If our
customers perceive or experience a reduction in the quality or
selection of our products and brands or our customer service, or
in any way believe that we failed to deliver a consistently
positive experience, our business, financial condition or
results of operations may be affected in a materially adverse
manner.
A specialty foods distribution business such as ours can be
adversely affected by negative publicity or news reports,
whether or not accurate, regarding food quality issues, public
health concerns, illness, safety, injury or government or
industry findings concerning our products or others across the
food distribution industry. Although we have taken steps to
mitigate food quality, public health and other
foodservice-related risks, these types of health concerns or
negative publicity cannot be completely eliminated or mitigated
and may harm our results of operations and damage the reputation
of, or result in a lack of acceptance of, our products or the
brands we carry.
In addition, our ability to successfully penetrate new markets
may be adversely affected by a lack of awareness or acceptance
of our product portfolio or our brands in these new markets. To
the extent we are unable to foster name recognition and affinity
for our products and brands in new markets, we may not be able
to penetrate these markets as anticipated, and, consequently,
our growth may be significantly delayed or impaired.
Our customers
are generally not obligated to continue purchasing products from
us.
Most of our customers buy from us pursuant to individual
purchase orders, as we generally do not enter into long-term
agreements with our customers for the purchase of our products.
Because our customers are generally not obligated to continue
purchasing products from us, we cannot assure you that the
volume
and/or
number of our customers purchase orders will remain
constant or increase or that we will be able to maintain or add
to our existing customer base. Significant decreases in the
volume
and/or
number of our customers purchase orders or our inability
to retain or grow our current customer base may have a material
adverse effect on our business, financial condition or results
of operations.
13
We have
experienced losses due to our inability to collect accounts
receivable in the past and could experience increases in such
losses in the future if our customers are unable to pay their
debts to us in a timely manner or at all.
Certain of our customers have experienced bankruptcy, insolvency
and/or an
inability to pay their debts to us as they come due. If our
customers suffer significant financial difficulties or
bankruptcies, they may be unable to pay their debts to us in a
timely manner or at all. It is possible that our customers may
contest their obligations to pay us under bankruptcy laws or
otherwise. Even if our customers do not contest their
obligations to pay us, if our customers are unable to pay their
debts to us in a timely manner, it could adversely impact our
ability to collect accounts receivable and may require that we
take larger provisions for bad debt expense. Moreover, we may
have to negotiate significant discounts
and/or
extended financing terms with these customers in such a
situation in an attempt to secure payment for outstanding debts.
Accordingly, if we are unable to collect upon our accounts
receivable as they come due in an efficient and timely manner,
our business, financial condition or results of operations may
be materially and adversely affected. During periods of economic
weakness, like those we have been experiencing, small to
medium-sized businesses, like many of our independent restaurant
and fine dining establishment customers, may be impacted more
severely and more quickly than larger businesses. Consequently,
the ability of such businesses to repay their obligations to us
may deteriorate, and in some cases this deterioration may occur
quickly, which could adversely impact our business, financial
condition or results of operations.
Product
liability claims could have a material adverse effect on our
business, financial condition or results of
operations.
Like any other distributor of food products, we face an inherent
risk of exposure to product liability claims if the products we
sell cause injury or illness. We may be subject to liability,
which could be substantial, because of actual or alleged
contamination in products sold by us, including products sold by
companies before we acquired them. We have, and the companies we
have acquired have had, liability insurance with respect to
product liability claims. This insurance may not continue to be
available at a reasonable cost or at all, and it may not be
adequate to cover product liability claims against us or against
any of the companies we have acquired. We generally seek
contractual indemnification from manufacturers, but any such
indemnification is limited, as a practical matter, to the
creditworthiness of the indemnifying party. If we or any of our
acquired companies do not have adequate insurance or contractual
indemnification available, product liability claims and costs
associated with product recalls, including a loss of business,
could have a material adverse effect on our business, financial
condition or results of operations.
Increased fuel
costs may have a materially adverse effect on our business,
financial condition or results of operations.
Increased fuel costs may have a negative impact on our business,
financial condition or results of operations. The high cost of
diesel fuel can increase the price we pay for products as well
as the costs we incur to distribute products to our customers.
These factors, in turn, may negatively impact our net sales,
margins, operating expenses and operating results. Although we
have been able to pass along a portion of increased fuel costs
to our customers in the past, there is no guarantee we can do so
again if another period of high fuel costs occurs. In recent
weeks, fuel costs have increased as a result of, among other
things, political turmoil in the Middle East and North Africa.
If fuel costs continue to increase in the future, we may
experience difficulties in passing all or a portion of these
costs along to our customers, which may have a negative impact
on our business, financial condition or results of operations.
New
information or attitudes regarding diet and health or adverse
opinions about the health effects of the specialty food products
we distribute could result in changes in consumer eating habits
which could materially and adversely affect our business,
financial condition or results of operations.
Consumer eating habits may impact our business as a result of
changes in attitudes regarding diet and health or new
information regarding the health effects of consuming the
specialty food products we distribute. If consumer eating habits
change significantly, we may be required to modify or
discontinue sales of certain items in our product portfolio, and
we may experience higher costs associated with the
implementation of those changes. Additionally, changes in
consumer eating habits may result in the enactment of laws and
regulations that impact the ingredients and nutritional content
of our specialty food products, or laws and regulations
requiring us to disclose the nutritional content of our
specialty food products. Compliance with these laws and
regulations, as well as others regarding the ingredients and
nutritional content of our specialty food products, may be
costly and time-consuming. We cannot make any assurances
regarding our ability to effectively respond to changes in
consumer health perceptions or resulting new laws or regulations
or to adapt our menu offerings to trends in eating habits.
14
We have
significant competition from a variety of sources, and we may
not be able to compete successfully.
The foodservice distribution industry is highly fragmented and
competitive, and our future success will be largely dependent
upon our ability to profitably meet our customers needs
for certain gourmet foods and ingredients, varying drop sizes,
high service levels and timely delivery. We compete with
numerous smaller distributors on a local level as well as with a
limited number of larger, traditional broadline foodservice
distributors. We cannot assure you that our current or potential
competitors will not provide specialty food products and
ingredients or services that are comparable or superior to those
provided by us or adapt more quickly than we do to evolving
culinary trends or changing market requirements. It is also
possible that alliances among competitors may develop and
rapidly acquire significant market share. Accordingly, we cannot
assure you that we will be able to compete effectively against
current and future competitors, and increased competition may
result in price reductions, reduced gross margins and loss of
market share, any of which could materially adversely affect our
business, financial condition or results of operations.
A significant
portion of our future growth is dependent upon our ability to
expand our operations in our existing markets and to penetrate
new markets through acquisitions.
We intend to expand our presence in our existing markets by
adding to our existing customer base through the expansion of
our product portfolio and the increase in the volume
and/or
number of purchase orders from our existing customers. We cannot
assure you, however, that we will be able to continue to
successfully expand or acquire critical market presence in our
existing markets, as we may not successfully market our
specialty food products and brands or may encounter larger
and/or more
well-established competitors with substantially greater
financial resources. Moreover, competitive circumstances and
consumer characteristics in new segments of existing markets may
differ substantially from those in the segments in which we have
substantial experience. If we are unable to expand in existing
markets, our ability to increase our revenues and profitability
may be affected in a material and adverse manner.
We also regularly evaluate opportunities to acquire other
companies. To the extent our future growth includes
acquisitions, we cannot assure you that we will successfully
identify suitable acquisition candidates, consummate such
potential acquisitions, effectively and efficiently integrate
any acquired entities or successfully expand into new markets as
a result of our acquisitions. We believe that there are risks
related to acquiring companies, including overpaying for
acquisitions, losing key employees of acquired companies and
failing to achieve potential synergies. Additionally, our
business could be adversely affected if we are unable to
integrate the companies acquired in our acquisitions and mergers.
A significant portion of our past growth has been achieved
through acquisitions of, or mergers with, other distributors of
specialty food products. Our future acquisitions, if any, may
have a material adverse effect on our results of operations,
particularly in periods immediately following the consummation
of those transactions while the operations of the acquired
business are being integrated with our operations. Achieving the
benefits of acquisitions depends on timely, efficient and
successful execution of a number of post-acquisition events,
including successful integration of the acquired entity.
Integration requires, among other things:
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maintaining the existing customer base;
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optimizing delivery routes;
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|
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coordinating administrative, distribution and finance functions;
and
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integrating management information systems and personnel.
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The integration process could divert the attention of
management, and any difficulties or problems encountered in the
transition process could have a material adverse effect on our
business, financial condition or results of operations. In
particular, the integration process may temporarily redirect
resources previously focused on reducing product cost, resulting
in lower gross profits in relation to sales. In addition, the
process of combining companies could cause the interruption of,
or a loss of momentum in, the activities of the respective
businesses, which could have an adverse effect on their combined
operations.
In connection with our acquisition of businesses in the future,
if any, we may decide to consolidate the operations of any
acquired business with our existing operations or make other
changes with respect to the acquired business, which could
result in special charges or other expenses. Our results of
operations also may be adversely affected by expenses we incur
in making acquisitions, by amortization of acquisition-related
intangible assets with definite lives and by additional
depreciation attributable to acquired assets. Any of the
businesses we acquire may also have
15
liabilities or adverse operating issues, including some that we
fail to discover before the acquisition, and our indemnity for
such liabilities typically has been limited and may, with
respect to future acquisitions, also be limited. Additionally,
our ability to make any future acquisitions may depend upon
obtaining additional financing. We may not be able to obtain
additional financing on acceptable terms or at all. To the
extent we seek to acquire other businesses in exchange for our
common stock, fluctuations in our stock price could have a
material adverse effect on our ability to complete acquisitions.
We may have
difficulty managing and facilitating our future
growth.
At times since our inception, we have rapidly expanded our
operations through organic growth, acquisitions or otherwise.
This growth has placed and will continue to place significant
demands upon our administrative, operational and financial
resources. This growth, however, may not continue. To the extent
that our customer base and our distribution networks continue to
grow, this future growth may be limited by our inability to
acquire new distribution facilities or expand our existing
distribution facilities, make acquisitions, successfully
integrate acquired entities, implement information systems
initiatives or adequately manage our personnel.
Further, our future growth may be limited in part by the size
and location of our distribution centers. As we near maximum
utilization of a given facility, our operations may be
constrained and inefficiencies may be created, which could
adversely affect our results of operations unless the facility
is expanded, volume is shifted to another facility or additional
processing capacity is added. Conversely, as we add additional
facilities or expand existing operations or facilities, excess
capacity may be created. Any excess capacity may also create
inefficiencies and adversely affect our results of operations.
We cannot assure you that we will be able to successfully expand
our existing distribution facilities or open new distribution
facilities in new or existing markets as needed to facilitate
growth.
Even if we are able to expand our distribution network, our
ability to compete effectively and to manage future growth, if
any, will depend on our ability to continue to implement and
improve operational, financial and management information
systems on a timely basis and to expand, train, motivate and
manage our employees. We cannot assure you that our existing
personnel, systems, procedures and controls will be adequate to
support the future growth of our operations. Accordingly, our
inability to manage our growth effectively could have a material
adverse effect on our business, financial condition or results
of operations.
Our
substantial indebtedness may limit our ability to invest in the
ongoing needs of our business.
We have a substantial amount of indebtedness. On an as adjusted
basis after giving effect to this offering and the use of the
offering proceeds as described under Use of
Proceeds, as well as our entry into our new senior secured
credit facilities, as of December 24, 2010, we would have
had approximately $ million of total
indebtedness. In particular, we expect to have approximately
$ million and $ million of
outstanding indebtedness under our new senior secured term loan
facility and new senior secured revolving credit facility,
respectively. See Use of Proceeds and
Description of Our Indebtedness.
Our indebtedness could have important consequences to you. For
example, it:
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requires us to utilize a substantial portion of our cash flows
from operations to make payments on our indebtedness, reducing
the availability of our cash flows to fund working capital,
capital expenditures, development activity and other general
corporate purposes;
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increases our vulnerability to adverse general economic or
industry conditions;
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limits our flexibility in planning for, or reacting to, changes
in our business or the industries in which we operate;
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makes us more vulnerable to increases in interest rates, as
borrowings under our new senior secured revolving credit
facility are expected to be at variable rates;
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limits our ability to obtain additional financing in the future
for working capital or other purposes, including to finance
acquisitions; and
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places us at a competitive disadvantage compared to our
competitors that have less indebtedness.
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If our earnings are insufficient, we will need to raise
additional capital to pay our indebtedness as it comes due. If
we are unable to obtain funds necessary to make required
payments or if we fail to comply with the various requirements
of our indebtedness we would be in default, which would permit
the holders of our indebtedness to accelerate the maturity of
the indebtedness and could cause defaults under any indebtedness
we may incur in the
16
future. Any default under our indebtedness would have a material
adverse effect on our business, operating results and financial
condition. If we are unable to refinance or repay our
indebtedness as it becomes due, we may become insolvent and be
unable to continue operations.
Although the agreements governing our new senior secured credit
facilities will contain restrictions on the incurrence of
additional indebtedness, these restrictions are subject to a
number of qualifications and exceptions, and the indebtedness
incurred in compliance with these restrictions could be
substantial. Also, these restrictions do not prevent us from
incurring obligations that do not constitute indebtedness.
The agreements governing our new senior secured credit
facilities we expect to enter into in conjunction with the
consummation of this offering are expected to require us to
maintain fixed charge coverage ratios and leverage ratios which
become more restrictive over time. Our ability to comply with
these ratios in the future may be affected by events beyond our
control, and our inability to comply with the required financial
ratios could result in a default under our new senior secured
credit facilities. In the event of any default, the lenders
under our new senior secured credit facilities could elect to
terminate lending commitments and declare all borrowings
outstanding, together with accrued and unpaid interest and other
fees, to be immediately due and payable.
See Description of Our Indebtedness,
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources.
We may be
unable to obtain debt or other financing on favorable terms or
at all.
There are inherent risks in our ability to borrow debt capital.
Our lenders, including the lenders participating in our new
senior secured credit facilities, may have suffered losses
related to their lending and other financial relationships,
especially because of the general weakening of the national
economy over the past three years, increased financial
instability of many borrowers and the declining value of their
assets. As a result, lenders may become insolvent or tighten
their lending standards, which could make it more difficult for
us to borrow under our new senior secured revolving credit
facility or term loan facility, refinance our existing
indebtedness or obtain other financing on favorable terms or at
all. Our access to funds under our new senior secured credit
facilities is dependent upon the ability of our lenders to meet
their funding commitments. Our financial condition and results
of operations would be adversely affected in a material manner
if we were unable to draw funds under our new senior secured
revolving credit facility because of a lender default or if we
had to obtain other cost-effective financing.
Longer term disruptions in the capital and credit markets as a
result of uncertainty, changing or increased regulation, reduced
alternatives or failures of significant financial institutions
could adversely affect our access to liquidity needed for our
business. Any disruption could require us to take measures to
conserve cash until the markets stabilize or until alternative
credit arrangements or other funding for our business can be
arranged. Such measures could include deferring capital
expenditures (including our entry into new markets, including
through acquisitions) and reducing or eliminating other
discretionary uses of cash.
Information
technology system failures or breaches of our network security
could interrupt our operations and adversely affect our
business.
We rely upon our computer systems and network infrastructure
across our operations. Our operations depend upon our ability to
protect our computer equipment and systems against damage from
physical theft, fire, power loss, telecommunications failure or
other catastrophic events, as well as from internal and external
security breaches, viruses, worms and other disruptive problems.
Any damage or failure of our computer systems or network
infrastructure that causes an interruption in our operations
could have a material adverse effect on our business, financial
condition or results of operations. Although we employ both
internal resources and external consultants to conduct auditing
and testing for weaknesses in our systems, controls, firewalls
and encryption and intend to maintain and upgrade our security
technology and operational procedures to prevent such damage,
breaches or other disruptive problems, there can be no assurance
that these security measures will be successful.
Our recent
investments in information technology may not produce the
benefits that we anticipate.
In an attempt to reduce our operating expenses, increase our
operational efficiencies and boost our gross margins, we have
aggressively invested in the development and implementation of
new information technology. We may not be able to implement
these technological changes in the time frame we have planned,
and any delays in implementation could negatively impact our
business, financial condition or results of operations. In
addition, the costs to make these changes may exceed our
estimates and will likely exceed any benefits that we realize
during the early stages of implementation. Even if we are able
to implement the changes as planned, and within our cost
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estimates, we may not be able achieve the expected efficiencies
and cost savings from this investment which could have an
adverse effect on our business, financial condition or results
of operations.
We may not be
able to adequately protect our intellectual property, which, in
turn, could harm the value of our brands and adversely affect
our business.
Our ability to implement our business plan successfully depends
in part upon our ability to further build brand recognition,
including for our proprietary products, using our trademarks,
service marks and other proprietary intellectual property,
including our names and logos. We have registered or applied to
register a number of our trademarks. We cannot assure you that
our trademark applications will be approved. Third parties may
also oppose our trademark applications, or otherwise challenge
our use of the trademarks. In the event that our trademarks are
successfully challenged, we could be forced to rebrand our goods
and services, which could result in loss of brand recognition
and could require us to devote resources to advertising and
marketing new brands. If our efforts to register, maintain and
protect our intellectual property are inadequate, or if any
third party misappropriates, dilutes or infringes upon our
intellectual property, the value of our brands may be harmed,
which could have a material adverse effect on our business,
financial condition or results of operations and might prevent
our brands from achieving or maintaining market acceptance.
We may also face the risk of claims that we have infringed third
parties intellectual property rights. If third parties
claim that we have infringed or are infringing upon their
intellectual property rights, our operating profits could be
affected in a materially adverse manner. Any claims of
intellectual property infringement, even those without merit,
could be expensive and time consuming to defend, require us to
rebrand our services, if feasible, divert managements
attention and resources or require us to enter into royalty or
licensing agreements in order to obtain the right to use a third
partys intellectual property. Any royalty or licensing
agreements, if required, may not be available to us on
acceptable terms or at all. A successful claim of infringement
against us could result in our being required to pay significant
damages, enter into costly license or royalty agreements, or
stop the sale of certain products or services, any of which
could have a negative impact on our business, financial
condition or results of operations and could harm our future
prospects.
Our business
operations and future development could be significantly
disrupted if we lose key members of our management
team.
The success of our business significantly depends upon the
continued contributions of our founders and key employees, both
individually and as a group. Our future performance will
substantially depend upon our ability to motivate and retain
Christopher Pappas, our chairman, president and chief executive
officer, John Pappas, our vice chairman, James Wagner, our chief
operating officer and Kenneth Clark, our chief financial
officer, as well as certain other senior key employees. The loss
of the services of any of our founders or key employees could
have a material adverse effect on our business, financial
condition or results of operations. We have no reason to believe
that we will lose the services of any of these individuals in
the foreseeable future; however, we currently have no effective
replacement for any of these individuals due to their
experience, reputation in the foodservice distribution industry
and special role in our operations.
Our insurance
policies may not provide adequate levels of coverage against all
claims, and fluctuating insurance requirements and costs could
negatively impact our profitability.
We believe that our insurance coverage is customary for
businesses of our size and type. However, there are types of
losses we may incur that cannot be insured against or that we
believe are not commercially reasonable to insure. These losses,
should they occur, could have a material and adverse effect on
our business, financial condition or results of operations. In
addition, the cost of workers compensation insurance,
general liability insurance and directors and officers
liability insurance fluctuates based upon our historical trends,
market conditions and availability. Because our operations
principally are centered in large, metropolitan areas, our
insurance costs are higher than if our operations and facilities
were based in more rural markets. Additionally, health insurance
costs in general have risen significantly over the past few
years and are expected to continue to increase in 2011. These
increases, as well as recently-enacted federal legislation
requiring employers to provide specified levels of health
insurance to all employees, could have a negative impact upon
our business, financial condition or results of operations, and
there can be no assurance that we will be able to successfully
offset the effect of such increases with plan modifications and
cost control measures, additional operating efficiencies or the
pass-through of such increased costs to our customers.
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Increases in
our labor costs, including as a result of labor shortages, the
price or unavailability of insurance and changes in government
regulation, could slow our growth or harm our
business.
We are subject to a wide range of labor costs. Because our labor
costs are, as a percentage of revenues, higher than other
industries, we may be significantly harmed by labor cost
increases.
Our operations are highly dependent upon our experienced and
sophisticated sales professionals. Qualified individuals have
historically been in short supply and an inability to attract
and retain them may limit our ability to expand our operations
in existing markets as well as to penetrate new markets. We can
make no assurances that we will be able to attract and retain
qualified individuals in the future. Additionally, the cost of
attracting and retaining qualified individuals may be higher
than we currently anticipate, and as a result, our profitability
could decline. We are subject to the risk of employment-related
litigation at both the state and federal levels, including
claims styled as class action lawsuits, which are more costly to
defend. Also, some employment-related claims in the area of wage
and hour disputes are not insurable risks.
Despite our efforts to control costs while still providing
competitive health care benefits to our staff members,
significant increases in health care costs continue to occur,
and we can provide no assurance that our cost containment
efforts in this area will be effective. Further, we are
continuing to assess the impact of recently-adopted federal
health care legislation on our health care benefit costs, and
significant increases in such costs could adversely impact our
operating results. There is no assurance that we will be able to
pass through the costs of such legislation in a manner that will
not adversely impact our operating results.
In addition, many of our delivery and warehouse personnel are
hourly workers subject to various minimum wage requirements.
Mandated increases in minimum wage levels have recently been and
continue to be proposed and implemented at both federal and
state government levels. Minimum wage increases may increase our
labor costs or effective tax rate.
We are also subject to the regulations of the
U.S. Citizenship and Immigration Services and
U.S. Customs and Immigration Enforcement. Our failure to
comply with federal and state labor laws and regulations, or our
employees failure to meet federal citizenship or residency
requirements, could result in a disruption in our work force,
sanctions or fines against us and adverse publicity.
Further, potential changes in labor legislation, including the
Employee Free Choice Act, or EFCA, could result in portions of
our workforce, such as our delivery personnel, being subjected
to greater organized labor influence. The EFCA could impact the
nature of labor relations in the United States and how union
elections and contract negotiations are conducted. The EFCA aims
to facilitate unionization, and employers of unionized employees
may face mandatory, binding arbitration of labor scheduling,
costs and standards, which could increase the costs of doing
business. Although we do not currently have any unionized
employees, EFCA or similar labor legislation could have an
adverse effect on our business, financial condition or results
of operations by imposing requirements that could potentially
increase costs and reduce our operating flexibility.
We are subject
to significant governmental regulation.
Our business is highly regulated at the federal, state and local
levels, and our specialty food products and distribution
operations require various licenses, permits and approvals. For
example:
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the products we distribute in the United States are subject to
regulation and inspection by the U.S. Food and Drug
Administration, or FDA, and the U.S. Department of
Agriculture, or USDA;
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our warehouse, distribution facilities and operations also are
subject to regulation and inspection by the FDA, the USDA and
state health authorities; and
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our U.S. trucking operations are regulated by the
U.S. Department of Transportation and the U.S. Federal
Highway Administration.
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Our suppliers are also subject to similar regulatory
requirements and oversight. The failure to comply with
applicable regulatory requirements could result in civil or
criminal fines or penalties, product recalls, closure of
facilities or operations, the loss or revocation of any existing
licenses, permits or approvals or the failure to obtain
additional licenses, permits or approvals in new jurisdictions
where we intend to do business, any of which could have a
material adverse effect on our business, financial condition or
results of operations.
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In addition, as a distributor of specialty food products, we are
subject to increasing governmental scrutiny of and public
awareness regarding food safety and the sale, packaging and
marketing of natural and organic products. Compliance with these
laws may impose a significant burden upon our operations. If we
were to distribute foods that are or are perceived to be
contaminated, or otherwise not in compliance with applicable
laws, any resulting product recalls could have a material
adverse effect on our business, financial condition or results
of operations. In January 2011, President Obama signed into law
the FDA Food Safety Modernization Act, which greatly expands the
FDAs authority over food safety, including giving the FDA
power to order the recall of unsafe foods, increase inspections
at food processing facilities, issue regulations regarding the
sanitary transportation of food, enhance tracking and tracing
requirements and order the detention of food that it has
reason to believe is adulterated or misbranded,
among other provisions. If funding for this legislation is
appropriated, we cannot assure you that it will not impact our
industry, including suppliers of the products we sell, many of
whom are small-scale producers who may be unable or unwilling to
bear the expected increases in costs of compliance and as a
result cease operations or seek to pass along these costs to us.
Additionally, concern over climate change, including the impact
of global warming, has led to significant U.S. and
international legislative and regulatory efforts to limit
greenhouse gas, or GHG, emissions. Increased regulation
regarding GHG emissions, especially diesel engine emissions,
could impose substantial costs upon us. These costs include an
increase in the cost of the fuel and other energy we purchase
and capital costs associated with updating or replacing our
vehicles prematurely.
Until the timing, scope and extent of such regulation becomes
known, we cannot predict its effect on our business, financial
condition or results of operations. It is reasonably possible,
however, that such regulation could impose material costs on us
which we may be unable to pass on to our customers.
We will incur
increased costs and obligations as a result of being a public
company.
As a public company, we will incur significant legal,
accounting, insurance and other expenses that we have not
incurred as a private company, including costs associated with
public company reporting requirements. We also will incur costs
associated with complying with the requirements of the
Sarbanes-Oxley Act of 2002 and related rules implemented by the
SEC and The NASDAQ Stock Market. The expenses incurred by public
companies generally for reporting and corporate governance
purposes have been increasing. We expect these rules and
regulations to increase our legal and financial compliance costs
and to make certain activities more time-consuming and costly,
although we are currently unable to estimate these costs with
any degree of certainty. These laws and regulations could also
make it more difficult or costly for us to obtain certain types
of insurance, including director and officer liability
insurance, and we may be forced to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the
same or similar coverage. These laws and regulations could also
make it more difficult for us to attract and retain qualified
persons to serve on our board of directors, our board committees
or as our executive officers. Furthermore, if we are unable to
satisfy our obligations as a public company, we could be subject
to delisting of our common stock, fines, sanctions and other
regulatory action and potentially civil litigation.
Compliance
with Section 404 of the Sarbanes-Oxley Act of 2002 will
require our management to devote substantial time to new
compliance initiatives, and if our independent registered public
accounting firm is unable to provide an unqualified attestation
report on our internal controls, our stock price could be
adversely affected.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002,
or Section 404, we will be required to furnish a report by
our management on, and by our independent registered public
accounting firm attesting to, the effectiveness of our internal
control over financial reporting. We have not been subject to
these requirements in the past. The internal control report must
contain (i) a statement of managements responsibility
for establishing and maintaining adequate internal control over
financial reporting, (ii) a statement identifying the
framework used by management to conduct the required evaluation
of the effectiveness of our internal control over financial
reporting, (iii) managements assessment of the
effectiveness of our internal control over financial reporting
as of the end of our most recent fiscal year, including a
statement as to whether or not internal control over financial
reporting is effective, and (iv) a statement that our
independent registered public accounting firm has issued an
attestation report on internal control over financial reporting.
To achieve compliance with Section 404 within the
prescribed period, we will be engaged in a process to document
and evaluate our internal control over financial reporting,
which is both costly and challenging. In this regard, we will
need to continue to dedicate internal resources, hire additional
employees for our finance and audit functions, engage outside
consultants and adopt a detailed work plan to (i) assess
and document the adequacy of internal
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control over financial reporting, (ii) continue steps to
improve control processes where appropriate, (iii) validate
through testing that controls are functioning as documented, and
(iv) implement a continuous reporting and improvement
process for internal control over financial reporting. In
addition, in connection with the attestation process by our
independent registered public accounting firm, we may encounter
problems or delays in completing the implementation of any
required improvements and receiving a favorable attestation. If
we cannot favorably assess the effectiveness of our internal
control over financial reporting, or if our independent
registered public accounting firm is unable to provide an
unqualified attestation report on our internal controls,
investors could lose confidence in our financial information and
our stock price could decline.
Federal, state
and local tax rules may adversely impact our business, financial
condition or results of operations.
We are subject to federal, state and local taxes in the United
States. Although we believe that our tax estimates are
reasonable, if the Internal Revenue Service, or IRS, or any
other taxing authority disagrees with the positions we have
taken on our tax returns, we could face additional tax
liability, including interest and penalties. If material,
payment of such additional amounts upon final adjudication of
any disputes could have a material impact upon our business,
financial condition or results of operations. In addition,
complying with new tax rules, laws or regulations could impact
our business, financial condition or results of operations, and
increases to federal or state statutory tax rates and other
changes in tax laws, rules or regulations may increase our
effective tax rate. Any increase in our effective tax rate could
have a material impact on our business, financial condition or
results of operations.
Risks Relating to
this Offering
The price of
our common stock may be volatile and you could lose all or part
of your investment.
Volatility in the market price of our common stock may prevent
you from being able to sell your shares at or above the price
you paid for your shares in this offering. The market price of
our common stock could fluctuate significantly for various
reasons, which include, but are not limited to:
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our quarterly or annual earnings or those of other companies in
the foodservice distribution industry;
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changes in laws or regulations, or new interpretations or
applications of laws and regulations, that are applicable to our
business;
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the publics reaction to our press releases, our other
public announcements and our filings with the SEC;
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changes in accounting standards, policies, guidance,
interpretations or principles;
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additions or departures of our founders or other key employees;
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sales of common stock by our directors, founders or other key
employees;
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adverse market reaction to any indebtedness that we may incur or
securities that we may issue in the future;
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actions by our stockholders;
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the level and quality of research analyst coverage of our common
stock, changes in financial estimates or investment
recommendations by securities analysts following our business or
any failure to meet such estimates;
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the financial disclosure we may provide to the public, any
changes in such disclosure or our failure to meet such
disclosure;
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various market factors or perceived market factors, including
rumors, whether or not correct, involving us, our suppliers or
our customers;
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introductions of new offerings or new pricing policies by us or
by our competitors;
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acquisitions or strategic alliances by us or our competitors;
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short sales, hedging and other derivative transactions involving
shares of our common stock;
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the operating and stock price performance of other companies in
the foodservice distribution industry; and
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other events or factors, including changes in general conditions
in the United States and global economies or financial markets
(including those resulting from Acts of God, war, incidents of
terrorism or responses to such events).
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In addition, in recent years, the stock market has experienced
extreme price and volume fluctuations. This volatility has had a
significant impact on the market price of securities issued by
many companies, including companies in the foodservice
distribution industry. The price of our common stock could
fluctuate based upon factors that have little or nothing to do
with our company, and these fluctuations could materially reduce
our stock price.
Historically, following periods of significant market volatility
in the price of a companys securities, security holders
have often instituted class action litigation. If the market
value of our common stock experiences adverse fluctuations and
we become involved in this type of litigation, regardless of the
outcome, we could incur substantial legal costs and our
managements attention could be diverted from the operation
of our business, causing our business to suffer.
Upon the
completion of this offering, the concentration of our capital
stock ownership with our founders and other executive officers
will likely limit an investors ability to influence
corporate matters.
Upon completion of this offering and the reorganization
transactions, our founders and executive officers will own
approximately % of our outstanding common stock or
approximately % if the underwriters exercise their
over-allotment option in full. See Certain Relationships
and Related-Party Transactions Reorganization
Transaction. As a result, these stockholders, acting
individually or together, can exercise significant influence
over our business policies and affairs, including the power to
nominate a majority of the members of our board of directors.
Because of such power and because our board of directors is
responsible for appointing the members of our senior management
team, our founders and key employees could affect any attempt by
our stockholders to replace current members of our management
team. In addition, our founders and key employees can control
any action requiring the general approval of our stockholders,
including the adoption of amendments to our certificate of
incorporation and bylaws and the approval of mergers or sales of
substantially all of our assets. It is possible that the
interests of certain of our founders and other key employees
may, in certain circumstances, conflict with our interests, the
interests of our other founders, key employees or minority
stockholders, including you. For example, the concentration of
ownership and voting power of our founders and key employees may
delay, defer or even prevent an acquisition by a third party or
other change of control involving us and may make some
transactions more difficult or impossible without their support,
even if such events are in the best interests of our minority
stockholders. As a result, our founders and key employees could
pursue transactions that may not be in our best interests which
could have a material adverse effect on our business, financial
condition or results of operations.
We expect that upon our conversion to a corporation, we will opt
out of Section 203 of the General Corporation Law of the
State of Delaware, or the DGCL, which prohibits a publicly-held
Delaware corporation from engaging in a business combination
transaction with an interested stockholder for a period of three
years after the interested stockholder became such unless the
transaction fits within an applicable exemption, such as
approval of the business combination by our board of directors
or the transaction which resulted in such stockholder becoming
an interested stockholder. Therefore, after the
180-day
lock-up
period expires, our founders and key employees will be able to
transfer control of us to a third party by transferring their
common stock, which would not require the approval of our board
of directors or our minority stockholders.
For additional information regarding the share ownership of, and
our relationship with, our founders and key employees, see
Principal and Selling Stockholders and Certain
Relationships and Related-Party Transactions.
There is no
existing market for our common stock, and we do not know if one
will develop to provide you with adequate
liquidity.
Prior to this offering, there has not been a public market for
our common stock. An active market for our common stock may not
develop following the completion of this offering or, if it does
develop, may not be maintained. If an active trading market does
not develop, you may have difficulty selling any shares of our
common stock that you buy. The initial public offering price for
the shares of our common stock was determined by negotiations
between us, the selling stockholders and the representatives of
the underwriters and may not be indicative of prices that will
prevail in the open market following the completion of this
offering. Consequently, you may not be able to sell shares of
our common stock at prices equal to or greater than the price
you paid in this offering.
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Future sales
of our common stock, including shares purchased in this
offering, in the public market could lower our stock
price.
Sales of substantial amounts of our common stock in the public
market following this offering by our existing stockholders may
adversely affect the market price of our common stock. Such
sales could also create public perception of difficulties or
problems with our business. These sales might also make it more
difficult for us to sell securities in the future at a time and
price we deem appropriate.
Upon the completion of this offering and after giving effect to
the consummation of the reorganization transaction, we will have
outstanding shares of common stock, of which:
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shares will be shares that we and the selling stockholders are
selling in this offering and, unless purchased by affiliates,
may be resold in the public market without restriction
immediately after this offering; and
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shares will be restricted securities, as defined in
Rule 144 under the Securities Act, and eligible for sale in
the public market pursuant to the provisions of Rule 144,
all of which are subject to
lock-up
agreements and will become available for resale in the public
market beginning 180 days after the date of this prospectus.
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With limited exceptions, as described under the caption
Underwriting, these
lock-up
agreements prohibit a stockholder from selling, contracting to
sell or otherwise disposing of any common stock or securities
that are convertible or exchangeable for common stock or
entering into any arrangement that transfers the economic
consequences of ownership of our common stock for at least
180 days from the date of this prospectus, although the
lead underwriter may, in its sole discretion and at any time
without notice, release all or any portion of the securities
subject to these
lock-up
agreements. The lead underwriter has advised us that it has no
present intent or arrangement to release any shares subject to a
lock-up and
will consider the release of any
lock-up on a
case-by-case
basis. Upon a request to release any shares subject to a
lock-up, the
lead underwriter would consider the particular circumstances
surrounding the request including, but not limited to, the
length of time before the
lock-up
expires, the number of shares requested to be released, reasons
for the request, the possible impact on the market for our
common stock and whether the holder of our shares requesting the
release is an officer, director or other affiliate of ours. As a
result of these
lock-up
agreements, notwithstanding earlier eligibility for sale under
the provisions of Rule 144, none of these shares may be
sold until at least 180 days after the date of this
prospectus. As restrictions on resale end, our stock price could
drop significantly if the holders of these restricted shares
sell them or are perceived by the market as intending to sell
them. These sales might also make it more difficult for us to
sell securities in the future at a time and at a price that we
deem appropriate.
If you
purchase shares of common stock in this offering, you will
experience immediate and significant dilution in the net
tangible book value per share.
The initial public offering price per share is substantially
higher than the pro forma net tangible book value per share
immediately after this offering. As a result, you will pay a
price per share that substantially exceeds the book value of our
assets after subtracting our liabilities. Assuming an offering
price of $ per share, which is the midpoint of the
price range indicated on the cover page of this prospectus, you
will incur immediate and substantial dilution in the amount of
$ per share. See Dilution. Any future
equity issuances, including in connection with our establishing
broad-based equity incentive plans for our employees, will
result in even further dilution to holders of our common stock.
If securities
analysts or industry analysts downgrade our stock, publish
negative research or reports or do not publish reports about our
business, our stock price and trading volume could
decline.
The trading market for our common stock will be influenced by
the research and reports that industry or securities analysts
publish about us, our business and our industry. If one or more
analysts adversely change their recommendation regarding our
stock or our competitors stock, our stock price may likely
decline. If one or more analysts cease coverage of us or fail to
regularly publish reports on us, we could lose visibility in the
financial markets, which in turn could cause our stock price or
trading volume to decline.
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Since we do
not expect to pay any dividends for the foreseeable future,
investors in this offering may be forced to sell their stock in
order to realize a return on their investment.
We have not declared or paid any dividends on our common stock.
We do not anticipate that we will pay any dividends to holders
of our common stock for the foreseeable future. Any payment of
cash dividends will be at the discretion of our board of
directors and will depend upon our financial condition, capital
requirements, legal requirements and earnings, among other
factors. We anticipate that our ability to pay dividends will be
restricted by the terms of our new senior secured credit
facilities and might be restricted by the terms of any
additional indebtedness we incur in the future. Consequently,
you should not rely upon dividends in order to receive a return
on your investment. See Dividend Policy.
Our issuance
of preferred stock could adversely affect holders of our common
stock and discourage a takeover.
Following the consummation of this offering and the
reorganization transaction, our board of directors will be
authorized to issue up to shares of
preferred stock without any action on the part of our
stockholders. Our board of directors also has the power, without
stockholder approval, to set the terms of any series of
preferred stock that may be issued, including voting rights,
dividend rights, preferences over our common stock with respect
to dividends or in the event of a dissolution, liquidation or
winding up and other terms. In the event that we issue preferred
stock in the future that has preference over our common stock
with respect to payment of dividends or upon our liquidation,
dissolution or winding up, or if we issue preferred stock with
voting rights that dilute the voting power of our common stock,
the rights of the holders of our common stock or the market
price of our common stock could be adversely affected. In
addition, the ability of our board of directors to issue shares
of preferred stock without any action on the part of our
stockholder may impede a takeover of us and prevent a
transaction favorable to our stockholders.
Our ability to
raise capital in the future may be limited.
Our business and operations may consume resources faster than we
currently anticipate. In the future, we may need to raise
additional funds through the issuance of new equity securities,
debt or a combination of both. Additional financing may not be
available on favorable terms or at all. If adequate funds are
not available on acceptable terms, we may be unable to fund our
capital requirements. If we issue new debt securities, the debt
holders would have rights senior to our common stockholders to
make claims on our assets, and the terms of any debt could
restrict our operations, including our ability to pay dividends
on our common stock. If we issue additional equity securities,
existing stockholders will experience dilution, and the new
equity securities could have rights senior to those of our
common stock. Because our decision to issue securities in any
future offering will depend upon market conditions and other
factors beyond our control, we cannot predict or estimate the
amount, timing or nature of our future offerings. Thus, our
stockholders bear the risk of our future securities offerings
reducing the market price of our common stock and diluting their
interest.
Some
provisions of our charter documents and Delaware law may have
anti-takeover effects that could discourage an acquisition of us
by others, even if an acquisition would be beneficial to our
stockholders, and may prevent attempts by our stockholders to
replace or remove our current management.
Provisions in the certificate of incorporation and bylaws that
will become effective following the completion of our
reorganization transaction, as well as provisions of the
Delaware General Corporation Law, or DGCL, could make it more
difficult for a third party to acquire us or increase the cost
of acquiring us, even if doing so would benefit our
stockholders, including transactions in which stockholders might
otherwise receive a premium for their shares. These provisions
include:
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authorizing the issuance of blank check preferred
stock, the terms of which may be established and shares of which
may be issued without stockholder approval;
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prohibiting stockholder action by written consent, thereby
requiring all stockholder actions to be taken at a meeting of
our stockholders;
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eliminating the ability of stockholders to call a special
meeting of stockholders; and
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establishing advance notice requirements for nominations for
election to the board of directors or for proposing matters that
can be acted upon at stockholder meetings.
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24
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements.
Forward-looking statements provide our current expectations or
forecasts of future events and are not statements of historical
fact. These forward-looking statements include information about
possible or assumed future events, including, among other
things, discussion and analysis of our future financial
condition, results of operations, our strategic plans and
objectives, cost management, liquidity and ability to refinance
our indebtedness as it matures, anticipated capital expenditures
(and access to capital) required to complete projects, amounts
of cash distributions to our stockholders in the future, if any,
and other matters. Words such as anticipates,
expects, intends, plans,
believes, seeks, estimates
and variations of these words and similar expressions are
intended to identify forward-looking statements. These
statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors, some of which
are beyond our control, are difficult to predict
and/or could
cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements.
Forward-looking statements involve inherent uncertainty and may
ultimately prove to be incorrect or false. You are cautioned not
to place undue reliance on forward-looking statements. Except as
otherwise may be required by law, we undertake no obligation to
update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or actual
operating results. Our actual results could differ materially
from those anticipated in these forward-looking statements as a
result of various factors, including, but not limited to:
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our sensitivity to general economic conditions, including the
current economic environment, changes in disposable income
levels and consumer discretionary spending on
food-away-from-home purchases;
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our vulnerability to economic and other developments in the
geographic markets in which we operate;
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risks of supply chain interruptions due to lack of long-term
contracts, severe weather or more prolonged climate change, work
stoppages or otherwise;
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changes in the availability or cost of our specialty food
products;
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our ability to effectively price our specialty food products and
reduce our expenses;
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the relatively low margins of the foodservice distribution
industry and our sensitivity to inflationary pressures;
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the ability of group purchasing organizations to attract our
independent restaurant customers and the resulting negative
effect on our profit margins;
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damage to our reputation or lack of acceptance of our brands;
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changes in attitudes or negative publicity regarding food safety
and health concerns;
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our ability to successfully identify, obtain financing for and
complete acquisitions of other foodservice distributors and to
realize expected synergies from those acquisitions;
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labor shortages or increased labor costs;
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changes in attitudes or negative publicity regarding food safety
and health concerns;
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sales and expense trends;
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our expectation regarding the provision for losses on accounts
receivable;
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increased fuel costs and expectations regarding the use of fuel
surcharges;
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the loss of key members of our management team and our ability
to replace such personnel;
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strain on our infrastructure and resources caused by our growth;
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the concentration of ownership among our existing executives,
directors and principal stockholders, which may prevent new
investors from influencing significant corporate decisions;
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the impact of litigation;
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our inability to obtain
and/or
maintain adequate levels of insurance coverage;
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the impact of our substantial indebtedness;
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our ability to raise capital in the future;
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25
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future asset impairment charges;
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inadequate protection of our intellectual property;
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our ability to raise capital in the future;
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the failure or breach of our information technology systems;
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increased costs and obligations as a result of our being a
public company;
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the impact of federal, state and local tax rules; and
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other factors included under the captions Risk
Factors, Managements Discussion and Analysis
of Financial Condition and Results of Operations and
Our Business.
|
This list of risks and uncertainties, however, is only a summary
of some of the most important factors and is not intended to be
exhaustive. You should carefully review the risks that are set
forth under the caption Risk Factors included
elsewhere in this prospectus. New factors that are not currently
known to us or that we are currently unaware of may also emerge
from time to time that could materially and adversely affect us.
26
USE OF
PROCEEDS
We estimate that the net proceeds to us from this offering will
be approximately $ million,
assuming an initial public offering price of
$ per share, which is the midpoint
of the range set forth on the cover page of this prospectus, and
after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by us, or
$ million if the underwriters
exercise in full their option to purchase additional shares of
common stock from us to cover over-allotments. Each $1 increase
or decrease in the assumed initial public offering price of
$ per share would increase or
decrease, as applicable, the net proceeds to us by approximately
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
The selling stockholders will receive
$ million in proceeds from
their sale
of shares
of common stock in this offering, or approximately
$ million if the underwriters
exercise in full their option to purchase additional shares of
common stock from the selling stockholders to cover
over-allotments. We will not receive any proceeds from the sale
of shares by the selling stockholders. See Principal and
Selling Stockholders and Underwriting.
Our existing senior secured credit facilities, which we entered
into in 2010, provide for (i) a $75.0 million term
loan facility and (ii) a revolving credit facility under
which we may borrow up to $25.0 million. We used the
borrowings under these facilities to redeem, in October 2010,
all of our outstanding Class A units and for general
corporate purposes. In connection with this offering, we intend
to enter into our new senior secured credit facilities,
consisting of a $ million new
term loan facility and
$ million revolving credit
facility. See Description of Our Indebtedness. We
intend to use the net proceeds of this offering as follows:
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To redeem or repurchase all of our outstanding senior
subordinated notes due 2014 and any accrued but unpaid interest
thereon and other related fees, including the call premium
associated with such redemption or repurchase. Interest on our
senior subordinated notes accrues at a rate of 20% semi-annually
in arrears. As of December 24, 2010, approximately
$15.5 million in aggregate principal amount of our senior
subordinated notes were outstanding. Since October 2010, we have
elected to capitalize accrued but unpaid interest on our senior
subordinated notes. As of December 24, 2010, we had
$0.5 million of capitalized and unpaid interest.
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To repay some or all of our loans outstanding under our existing
senior secured credit facilities and any accrued but unpaid
interest thereon and other related fees. As of December 24,
2010, our existing senior secured term loan facility had an
outstanding balance of approximately $73.8 million and
matures on April 23, 2014. The weighted-average interest
rate of our outstanding indebtedness under our existing senior
secured term loan facility was 11% for the year ended
December 24, 2010. An affiliate of Jefferies &
Company, Inc. is a lender under our existing term loan facility
and one of the holders of our senior subordinated notes and will
receive more than 5% of the proceeds from this offering (after
taking into account underwriters discounts and commissions
and offering expenses payable by us). See
Underwriting Affiliations and Conflicts of
Interest. As of December 24, 2010, our existing
senior secured revolving credit facility had an outstanding
balance of approximately $12.2 million and matures on
October 22, 2013. The weighted-average interest rate of our
outstanding indebtedness under our existing senior secured
revolving credit facility was approximately 3.6% for the year
ended December 24, 2010.
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Any remaining net proceeds will be used for general corporate
purposes.
27
DIVIDEND
POLICY
We currently do not intend to pay any dividends on our common
stock. We currently intend to retain any future earnings to fund
the operation, development and expansion of our business. Any
future determinations relating to our dividend policies will be
made in the sole and absolute discretion of our board of
directors and will depend upon then existing conditions,
including our financial condition, results of operations,
contractual restrictions, capital requirements, business
prospects and other factors that our board of directors may deem
relevant. In addition, we anticipate that our ability to declare
and pay dividends will be restricted by covenants in our new
senior secured credit facilities and may be further restricted
by the terms of any of our future indebtedness. See
Description of Our Indebtedness New Senior
Secured Credit Facilities and Risk
Factors Our substantial indebtedness may limit our
ability to invest in the ongoing needs of our business.
28
CAPITALIZATION
The following table sets forth our capitalization as of
December 24, 2010:
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on an actual basis; and
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on an as adjusted basis to give effect to (i) the sale
of shares
of common stock in this offering at an assumed initial public
offering price of $ per share,
which is the midpoint of the range set forth on the cover page
of this prospectus, and after deducting underwriting discounts
and commissions and estimated fees and expenses payable by us,
(ii) the reorganization transactions, as described under
the caption Certain Relationships and Related-Party
Transactions Reorganization Transaction,
(iii) the new senior secured credit facilities, and
(iv) the application of the net proceeds of this offering
as described under the caption Use of Proceeds.
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You should read this information in conjunction with the
information under the captions Certain Relationships and
Related-Party Transactions Reorganization
Transaction, Use of Proceeds, Selected
Consolidated Financial Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Description of Our Indebtedness
and our consolidated financial statements and the related notes
thereto included elsewhere in this prospectus.
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AS OF DECEMBER 24, 2010
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(In thousands)
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ACTUAL
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AS ADJUSTED
|
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Cash and cash equivalents
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$
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1,978
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$
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Debt:
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Existing senior secured revolving credit
facility (1)
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12,219
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Existing senior secured term loan
facility (2)
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71,623
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(3)
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Senior subordinated notes due
2014 (4)
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15,500
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Note payable
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183
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New senior secured revolving credit
facility (5)
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New senior secured term loan
facility (5)
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Total debt
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$
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99,525
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Total members/stockholders
(deficit)/equity (6)
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(48,812
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)
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(7)
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Total
capitalization (6)
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$
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50,713
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$
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(1) |
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Our existing senior secured
revolving credit facility provides for borrowings of up to
$25.0 million, of which $12.8 million was available as
of December 24, 2010 for working capital and general
corporate purposes.
At ,
2011, we had borrowed $ under this
revolving credit facility.
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(2) |
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We had $75.0 million in term
loans outstanding under our existing senior secured term loan
facility as of December 24, 2010. Between October 22,
2010 and December 24, 2010, we repaid approximately
$1.25 million of the outstanding balance of our existing
senior secured term loan facility.
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(3) |
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Net of original issue discount of
$2.1 million.
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(4) |
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Reflects our balance sheet
liability related to our senior subordinated notes due 2014
calculated in accordance with GAAP. Interest on our senior
subordinated notes accrues at a rate of 20% semi-annually in
arrears. Since October 2010, we have elected to capitalize
accrued but unpaid interest on the senior subordinated notes as
permitted under the related note purchase agreement. As of
December 24, 2010, total unpaid interest included in the
balance of the senior subordinated notes since the issuance of
the senior subordinated notes amounted to $0.5 million.
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(5) |
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We expect that our new senior
credit facilities will provide for (i) a
$ million senior secured term
loan facility, maturing
in ,
and (ii) a senior secured revolving credit facility under
which we may borrow up to
$ million (including a
sublimit cap of up to
$ million for letters of
credit and up to $ million
for swing-line loans), maturing
in .
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(6) |
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A $1 increase (decrease) in the
assumed initial public offering price of
$ per share, which is the midpoint
of the range set forth on the cover page of this prospectus,
would increase (decrease) each of cash and cash equivalents,
total stockholders equity and total capitalization by
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
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(7) |
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Adjusted to reflect the write off
of $ in deferred financing costs
for the indebtedness being repaid as described above.
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29
DILUTION
Purchasers of shares of common stock in this offering will
experience immediate and substantial dilution in the net
tangible book value of the common stock from the initial public
offering price. Net tangible book value per share represents the
amount of our total tangible assets less our total liabilities,
divided by the number of shares of our common stock outstanding.
Dilution in net tangible book value per share represents the
difference between the amount per share that you pay in this
offering and the net tangible book value per share immediately
after this offering. Our net tangible book value (deficit) as of
December 24, 2010 was approximately
$ million, or $
per share.
After giving effect to (i) the sale
of shares
of our common stock in this offering at an assumed initial
public offering price of $ per
share, which is the midpoint of the range set forth on the cover
page of this prospectus, (ii) the reorganization
transactions, as described under the caption Certain
Relationships and Related-Party Transactions
Reorganization Transaction, and (iii) the deduction
of estimated underwriting discounts and commissions and
estimated fees and expenses payable by us, our pro forma net
tangible book value at December 24, 2010 would have been
approximately $ million, or
$ per share. This represents an
immediate increase in net tangible book value of
$ per share to existing
stockholders and an immediate and substantial dilution of
$ per share to new investors. This
calculation does not give effect to our use of proceeds from
this offering or any borrowings under our new senior secured
revolving credit facility or term loan facility. The following
table illustrates this per share dilution:
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PER SHARE
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Initial public offering price per share
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$
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Actual net tangible book value per share as of December 24,
2010
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$
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Increase per share attributable to new investors
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$
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Pro forma net tangible book value per share after this offering
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$
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Dilution per share to new investors
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$
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Sales
of shares
of common stock by the selling stockholders in this offering
will reduce the number of shares of common stock held by
existing stockholders
to ,
or approximately % of the total
shares of common stock outstanding after this offering, and will
increase the number of shares held by new investors
to ,
or approximately % of the total
shares of common stock outstanding after this offering.
If the underwriters exercise in full their over-allotment option
to purchase additional shares of our common stock in this
offering from the selling stockholders at the assumed initial
public offering price of $ per
share, which is the midpoint of the range set forth on the cover
page of this prospectus, the number of shares of common stock
held by existing stockholders will be reduced
to ,
or % of the aggregate number of
shares of common stock outstanding after this offering, the
number of shares of common stock held by new investors will be
increased
to ,
or % of the aggregate number of shares of common
stock outstanding after this offering, the increase per share
attributable to new investors would be $ , the pro
forma net tangible book value per share after this offering
would be $ , and the dilution per share to new investors would
be $ .
A $1 increase (decrease) in the assumed initial public offering
price of $ per share, which is the
midpoint of the range set forth on the cover page of this
prospectus, would increase (decrease) our pro forma net tangible
book value by $ million, the
pro forma net tangible book value per share after this offering
by $ per share, and the dilution
per share to new investors by $
per share, assuming the number of shares offered by us, as set
forth on the cover page of this prospectus, remains the same and
after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us.
The following table summarizes, on the pro forma basis described
above as of December 24, 2010, after giving effect to the
reorganization transactions, the total number of shares of
common stock purchased from us and the selling stockholders and
the total consideration and the average price per share paid by
existing stockholders and by investors participating in this
offering. The calculation below is based on the assumed initial
public offering price of
30
$ per share, which is the midpoint
of the range set forth on the cover page of this prospectus,
before deducting estimated underwriting discounts and
commissions and estimated fees and expenses payable by us.
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SHARES PURCHASED
|
|
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TOTAL CONSIDERATION
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AVERAGE PRICE
|
|
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NUMBER
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PERCENTAGE
|
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AMOUNT
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PERCENTAGE
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PER SHARE
|
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Existing stockholders
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%
|
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%
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|
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New investors
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%
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|
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%
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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Total
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
100
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Each $1 increase (decrease) in the assumed offering price of
$ per share, which is the midpoint
of the range set forth on the cover page of this prospectus,
would increase (decrease) total consideration paid by new
investors and total consideration paid by all stockholders by
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same, and before deducting the
underwriting discounts and commissions and estimated offering
expenses payable by us.
The pro forma dilution information above is for illustration
purposes only. Our net tangible book value following the
completion of this offering is subject to adjustment based on
the actual initial public offering price of our shares and other
terms of this offering determined at pricing. The number of
shares of our common stock outstanding after this offering as
shown above is based on the number of shares outstanding as of
December 24, 2010.
31
SELECTED
CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial
data in conjunction with our consolidated financial statements
and the related notes to those statements included elsewhere in
this prospectus. You should also read Managements
Discussion and Analysis of Financial Condition and Results of
Operations. The statement of operations data for the
fiscal years ended December 24, 2010, December 25,
2009 and December 26, 2008 and the balance sheet data as of
December 24, 2010 and December 25, 2009 are derived
from our consolidated financial statements audited by BDO USA
LLP, an independent registered public accounting firm, included
elsewhere in this prospectus. The statement of operations data
for the years ended December 28, 2007 and December 29,
2006 and the balance sheet data as of December 26, 2008,
December 28, 2007 and December 29, 2006 are derived
from our audited consolidated financial statements not included
elsewhere in this prospectus.
The selected consolidated financial data presented below
represent only portions of our financial statements and,
accordingly, are not complete. You should read this information
in conjunction with the information included under the captions
Use of Proceeds, Capitalization,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements, and the related notes thereto, which are
included elsewhere in this prospectus.
Prior to the consummation of the offering, we will convert our
company from a Delaware limited liability company (Chefs
Warehouse Holdings, LLC) to a Delaware corporation (The
Chefs Warehouse, Inc.). See Certain Relationships
and Related-Party Transactions Reorganization
Transaction. The historical consolidated financial
operating data relate to Chefs Warehouse Holdings, LLC and
its consolidated subsidiaries.
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|
|
|
|
|
|
|
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FISCAL YEAR ENDED
|
|
|
|
DECEMBER 24,
|
|
|
DECEMBER 25,
|
|
|
DECEMBER 26,
|
|
|
DECEMBER 28,
|
|
|
DECEMBER 29,
|
|
|
|
2010
|
|
|
2009
|
|
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2008
|
|
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2007
|
|
|
2006
|
|
|
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(In thousands, except per share data)
|
|
|
Statement of Operations Data:
|
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|
|
|
|
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|
|
|
|
|
|
|
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Net revenues
|
|
$
|
330,118
|
|
|
$
|
271,072
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|
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$
|
281,703
|
|
|
$
|
256,134
|
|
|
$
|
229,803
|
|
Cost of sales
|
|
|
244,340
|
|
|
|
199,764
|
|
|
|
211,387
|
|
|
|
190,787
|
|
|
|
170,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
85,778
|
|
|
|
71,308
|
|
|
|
70,316
|
|
|
|
65,347
|
|
|
|
59,179
|
|
Operating expenses
|
|
|
64,206
|
|
|
|
57,977
|
|
|
|
60,314
|
|
|
|
59,389
|
|
|
|
55,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
21,572
|
|
|
|
13,331
|
|
|
|
10,002
|
|
|
|
5,958
|
|
|
|
3,998
|
|
Interest expense
|
|
|
4,041
|
|
|
|
2,815
|
|
|
|
3,238
|
|
|
|
3,515
|
|
|
|
3,425
|
|
(Gain)/loss on fluctuation of interest rate swap
|
|
|
(910
|
)
|
|
|
(658
|
)
|
|
|
1,118
|
|
|
|
621
|
|
|
|
|
|
(Gain) on settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
Income from operations before income taxes
|
|
|
18,441
|
|
|
|
11,174
|
|
|
|
5,646
|
|
|
|
2,922
|
|
|
|
573
|
|
Provision for income taxes
|
|
|
2,567
|
|
|
|
2,213
|
|
|
|
3,450
|
|
|
|
786
|
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
15,874
|
|
|
|
8,961
|
|
|
|
2,196
|
|
|
|
2,136
|
|
|
|
(325
|
)
|
Discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
15,874
|
|
|
$
|
8,961
|
|
|
$
|
2,196
|
|
|
$
|
2,136
|
|
|
$
|
(680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend accretion on Class A members units
|
|
|
(4,123
|
)
|
|
|
(6,207
|
)
|
|
|
(3,000
|
)
|
|
|
(2,995
|
)
|
|
|
(2,992
|
)
|
Deemed dividend paid to Class A members units
|
|
|
(22,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to members units
|
|
$
|
(10,678
|
)
|
|
$
|
2,754
|
|
|
$
|
(804
|
)
|
|
$
|
(859
|
)
|
|
$
|
(3,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR ENDED
|
|
|
|
DECEMBER 24,
|
|
|
DECEMBER 25,
|
|
|
DECEMBER 26,
|
|
|
DECEMBER 28,
|
|
|
DECEMBER 29,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Basic net (loss) income per members unit
|
|
$
|
(0.15
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
Diluted net (loss) income per members unit
|
|
$
|
(0.15
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
Weighted average members units outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
72,494
|
|
|
|
77,827
|
|
|
|
76,663
|
|
|
|
75,436
|
|
|
|
75,000
|
|
Diluted
|
|
|
72,494
|
|
|
|
81,851
|
|
|
|
76,663
|
|
|
|
75,436
|
|
|
|
75,000
|
|
As Adjusted
Data: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share available to common stockholders
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share available to common stockholders
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,978
|
|
|
$
|
875
|
|
|
$
|
1,591
|
|
|
$
|
2,232
|
|
|
$
|
1,490
|
|
Working capital
|
|
$
|
12,206
|
(2)
|
|
$
|
22,479
|
|
|
$
|
22,101
|
|
|
$
|
18,806
|
|
|
$
|
20,044
|
|
Total assets
|
|
$
|
82,672
|
|
|
$
|
65,937
|
|
|
$
|
64,502
|
|
|
$
|
62,917
|
|
|
$
|
58,141
|
|
Long-term debt, net of current portion
|
|
$
|
82,580
|
|
|
$
|
29,928
|
|
|
$
|
37,323
|
|
|
$
|
33,082
|
|
|
$
|
37,299
|
|
Total liabilities
|
|
$
|
131,484
|
|
|
$
|
60,603
|
|
|
$
|
67,720
|
|
|
$
|
68,331
|
|
|
$
|
65,691
|
|
Redeemable Class A members units
|
|
$
|
|
|
|
$
|
41,698
|
|
|
$
|
35,491
|
|
|
$
|
32,491
|
|
|
$
|
29,496
|
|
Total members equity (deficit)
|
|
$
|
(48,812
|
)
|
|
$
|
(36,364
|
)
|
|
$
|
(38,709
|
)
|
|
$
|
(37,905
|
)
|
|
$
|
(37,046
|
)
|
|
|
|
(1) |
|
Gives effect to the reorganization
transaction and the resulting conversion of Chefs
Warehouse Holdings, LLC into a subchapter C corporation
expected to occur prior to the consummation of this offering. As
adjusted provision for income taxes reflects combined federal
and state income tax on an as adjusted basis, as if we had been
taxed as a subchapter C corporation, using an effective tax rate
of %. As adjusted basic weighted
average shares outstanding consist of
the shares
of common stock that will be outstanding following the
consummation of the reorganization transaction. As adjusted
diluted weighted average shares outstanding consist of
the shares
of common stock that will be outstanding following the
consummation of the reorganization transaction, plus the
potential dilution that would occur if
all shares
of restricted stock received in exchange for unvested
Class C units became fully vested.
|
(2) |
|
Working capital is defined as the
difference between current assets and current liabilities. At
December 24, 2010, the then-outstanding balance under our
senior secured revolving credit facility of $12.2 million
was included within the current portion of long-term debt.
|
33
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in
conjunction with our consolidated financial statements, and the
notes thereto, appearing elsewhere in this prospectus.
Our
Reorganization
Prior to the consummation of this offering, we will convert from
a Delaware limited liability company (Chefs Warehouse
Holdings, LLC) to a Delaware corporation (The Chefs
Warehouse, Inc.). The consolidated financial statements included
elsewhere in this prospectus, which are the subject of the
following discussion, are those of Chefs Warehouse
Holdings, LLC and its consolidated subsidiaries. We expect that
our conversion to the corporate form of organization will not
have any material effect on our consolidated financial
statements. When we use the terms we,
our, us and the Company in
the following discussion, we mean, prior to the conversion and
related transactions described under Certain Relationships
and Related-Party Transactions Reorganization
Transaction, Chefs Warehouse Holdings, LLC, a
Delaware limited liability company, and its consolidated
subsidiaries and, after the conversion and related transactions,
The Chefs Warehouse, Inc., a Delaware corporation, and its
consolidated subsidiaries. For a discussion of the principal
transactions in the reorganization, see Certain
Relationships and Related-Party Transactions
Reorganization Transaction.
Overview
We are a premier distributor of specialty foods in six of the
leading culinary markets in the United States. We offer more
than 11,500 SKUs, ranging from high-quality specialty foods
and ingredients to basic ingredients and staples. We serve more
than 7,000 customer locations, primarily located in our six
geographic markets across the United States, and the majority of
our customers are independent restaurants and fine dining
establishments.
We believe several key differentiating factors of our business
model have enabled us to execute our strategy consistently and
profitably across our expanding customer base. These factors
consist of a portfolio of distinctive and
hard-to-find
specialty food products, a highly trained and motivated sales
force, strong sourcing capabilities, a fully integrated
warehouse management system, a highly sophisticated distribution
and logistics platform and a focused, seasoned management team.
In recent years, our sales to existing and new customers have
increased through the continued growth in demand for specialty
food products in general; increased market share driven by our
sophisticated and experienced sales professionals, our
high-quality customer service and our extensive breadth and
depth of product offerings, especially in specialty products;
the acquisition of other specialty food distributors; the
expansion of our existing distribution centers; the construction
of a new distribution center; and the import and sale of our
proprietary brands. Through these efforts, we believe that we
have been able to expand our customer base, enhance and
diversify our product selections, broaden our geographic
penetration and increase our market share. We believe that as a
result of these efforts, we have increased sales from
$229.8 million in 2006 to $330.1 million in 2010.
Recent
Acquisitions
On June 18, 2010, we acquired the assets of
Monique & Me, Inc., doing business as Culinaire
Specialty Foods, for cash consideration of $3.7 million,
which provided us with an immediate platform for growth in the
south Florida market.
On August 28, 2009, we acquired the San Francisco
division of European Imports for total cash consideration of
$3.8 million, subject to certain adjustments set forth in
the acquisition agreement. The acquisition was integrated into
our existing San Francisco operation.
In May 2008, we completed the acquisition of American Gourmet
Foods for cash consideration of $5.1 million. This
acquisition was integrated into our Hanover, Maryland operation.
Our Growth
Strategies and Outlook
We continue to invest in our people, facilities and technology
to achieve the following objectives and maintain our premier
position within the specialty foodservice distribution market:
|
|
|
|
|
sales and service territory expansion;
|
34
|
|
|
|
|
operational excellence and high customer service levels;
|
|
|
expanded purchasing programs and improved buying power;
|
|
|
product innovation and new product category introduction;
|
|
|
operational efficiencies through system enhancements; and
|
|
|
operating expense reduction through the centralization of
general and administrative functions.
|
Our continued profitable growth has allowed us to improve upon
our organizations infrastructure, open a new facility and
pursue selective acquisitions. This improved infrastructure has
allowed us to achieve higher operating margins. Over the last
several years, we have increased our distribution capacity to
approximately 371,640 square feet in seven facilities.
Performance
Indicators
In addition to evaluating our income from operations, our
management team analyzes our performance based on sales growth,
gross profit and gross profit margin.
|
|
|
|
|
Net sales. Our net sales growth is driven
principally by changes in volume and, to a lesser degree,
changes in price related to the impact of inflation in commodity
prices. In particular, product cost inflation and deflation
impacts our results of operations and, depending on the amount
of inflation or deflation, such impact may be material. For
example, inflation may increase the dollar value of our sales,
and when the rate of inflation declines, the dollar value of our
sales may fall despite our unit sales remaining constant or
growing.
|
|
|
Gross profit and gross profit margin. Our
gross profit and gross profit as a percentage of net sales, or
gross profit margin, are driven principally by
changes in volume and fluctuations in food and commodity prices
and our ability to pass on any price increases to our customers
in an inflationary environment and maintain or increase gross
margin when our costs decline. Our gross margin is also a
function of the product mix of our net sales in any period.
|
Key Financial
Definitions
|
|
|
|
|
Net sales. Net sales consist primarily of
sales of specialty and other food products to
independently-owned restaurants and other high-end foodservice
customers, which we report net of certain group discounts and
customer sales incentives.
|
|
|
Cost of sales. Cost of sales include the
purchase price paid for products sold, plus the cost of
transportation necessary to bring the product to our
distribution facilities. Our cost of sales may not be comparable
to other similar companies within our industry that include all
costs related to their distribution network in their costs of
sales rather than as operating expenses.
|
|
|
Operating expenses. Our operating expenses
include warehousing and distribution expenses (which include
salaries and wages, employee benefits, facility and distribution
fleet rental costs and other expenses related to warehousing and
delivery) and selling, general and administrative expenses
(which include selling, insurance, administrative, wage and
benefit expenses and will also include share-based compensation
expense). We expect to incur a compensation charge related to
options to purchase our common stock that, as issued, will
become fully vested and exercisable upon the consummation of
this offering. See Compensation Discussion and
Analysis. We expect this compensation expense will be
approximately $ million.
|
|
|
Interest expense. Interest expense consists
primarily of interest on our outstanding indebtedness.
|
|
|
(Gain) loss on fluctuation of interest rate
swaps. (Gain) loss on fluctuation of interest
rate swaps consists solely of the change in valuation on an
interest rate swap not eligible for hedge accounting.
|
35
Critical
Accounting Policies
The preparation of our consolidated financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. The
SEC has defined critical accounting policies as those that are
both most important to the portrayal of our financial condition
and results and require our most difficult, complex or
subjective judgments or estimates. Based on this definition, we
believe our critical accounting policies include the following:
(i) determining our allowance for doubtful accounts,
(ii) inventory valuation, with regard to determining our
reserve for excess and obsolete inventory, and
(iii) valuing goodwill and intangible assets. For all
financial statement periods presented, there have been no
material modifications to the application of these critical
accounting policies.
Allowance for
Doubtful Accounts
We analyze customer creditworthiness, accounts receivable
balances, payment history, payment terms and historical bad debt
levels when evaluating the adequacy of our allowance for
doubtful accounts. In instances where a reserve has been
recorded for a particular customer, future sales to the customer
are either conducted using
cash-on-delivery
terms or the account is closely monitored so that
agreed-upon
payments are received prior to orders being released. A failure
to pay results in held or cancelled orders. Our accounts
receivable balance was $36.2 million and
$31.0 million, net of the allowance for doubtful accounts
of $2.4 million and $2.2 million, as of
December 24, 2010 and December 25, 2009, respectively.
Inventory
Valuation
We maintain reserves for slow-moving and obsolete inventories.
These reserves are primarily based upon inventory age plus
specifically identified inventory items and overall economic
conditions. A sudden and unexpected change in consumer
preferences or change in overall economic conditions could
result in a significant change in the reserve balance and could
require a corresponding charge to earnings. We actively manage
our inventory levels to minimize the risk of loss and have
consistently achieved a relatively high level of inventory
turnover.
Valuation of
Goodwill and Intangible Assets
We are required to test goodwill for impairment at least
annually and between annual tests if events occur or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. We
have elected to perform our annual tests for indications of
goodwill impairment during the fourth quarter of each fiscal
year. Based on future expected cash flows, we test for goodwill
impairment at the consolidated level, as we have only a single
reporting unit. The goodwill impairment analysis is a two-step
test. The first step, used to identify potential impairment,
involves comparing our estimated fair value to our carrying
value, including goodwill. If our estimated fair value exceeds
our carrying value, goodwill is considered not to be impaired.
If the carrying value exceeds estimated fair value, there is an
indication of potential impairment and the second step is
performed to measure the amount of impairment. If required, the
second step involves calculating an implied fair value of our
goodwill. The implied fair value of goodwill is determined in a
manner similar to the amount of goodwill calculated in a
business combination, by measuring the excess of the estimated
fair value, as determined in the first step, over the aggregate
estimated fair values of the individual assets, liabilities and
identifiable intangibles as if we were being acquired in a
business combination. If the implied fair value of our goodwill
exceeds the carrying value of our goodwill, there is no
impairment. If the carrying value of our goodwill exceeds the
implied fair value of our goodwill, an impairment charge is
recorded for the excess.
As of December 24, 2010, our annual assessment indicated
that no impairment of goodwill existed, as our fair value
exceeded our carrying value. Total goodwill as of
December 24, 2010 and December 25, 2009 was
$11.5 million and $9.4 million, respectively.
Intangible assets with finite lives are tested for impairment
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Cash flows expected to be
generated by the related assets are estimated over the
assets useful lives based on updated projections. If the
evaluation indicates that the carrying amount of the asset may
not be recoverable, the potential impairment is measured based
on a projected discounted cash flow model. There have been no
events or changes in circumstances during 2010 indicating that
the carrying value of our finite-lived intangible assets are not
recoverable. Total finite-lived intangible assets as of
December 24, 2010 and December 25, 2009 were
$0.6 million and $0.1 million, respectively.
The assessment of the recoverability of goodwill and intangible
assets will be impacted if estimated future cash flows are not
achieved.
36
Vendor Rebates
and Other Promotional Incentives
We participate in various rebate and promotional incentives with
our suppliers, including volume and growth rebates, annual
incentives and promotional programs. In accounting for vendor
rebates, we follow the guidance in Accounting Standards
Codification, or ASC,
605-50
(Emerging Issues Task Force, or EITF,
No. 02-16,
Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor and EITF
No. 03-10,
Application of Issue
No. 02-16
by Resellers to Sales Incentives Offered to Consumers by
Manufacturers).
We generally record consideration received under these
incentives as a reduction of cost of goods sold; however, in
certain circumstances, we record marketing-related consideration
as a reduction of marketing costs incurred. We may receive
consideration in the form of cash
and/or
invoice deductions.
We record consideration that we receive for incentives volume
and growth rebates and annual incentives as a reduction of cost
of goods sold. We systematically and rationally allocate the
consideration for those incentives to each of the underlying
transactions that results in progress by us toward earning the
incentives. If the incentives are not probable and reasonably
estimable, we record the incentives as the underlying objectives
or milestones are achieved. We record annual incentives when we
earn them, generally over the agreement period. We record
consideration received to promote and sell the suppliers
products as a reduction of our costs, as the consideration is
typically a reimbursement of costs incurred by us. If we
received consideration from the suppliers in excess of our
costs, we record any excess as a reduction of cost of goods sold.
Management has discussed the development and selection of these
critical accounting policies with our board of directors, and
the board of directors has reviewed the above disclosure. Our
financial statements contained other items that require
estimation, but are not as critical as those discussed above.
These other items include our calculations for bonus accruals,
depreciation and amortization. Changes in estimates and
assumptions used in these and other items could have an effect
on our consolidated financial statements.
Results of
Operations
The following table presents, for the periods indicated, certain
income and expense items expressed as a percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR ENDED
|
|
|
|
DECEMBER 24,
|
|
|
DECEMBER 25,
|
|
|
DECEMBER 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
74.0
|
%
|
|
|
73.7
|
%
|
|
|
75.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
26.0
|
%
|
|
|
26.3
|
%
|
|
|
25.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
19.4
|
%
|
|
|
21.4
|
%
|
|
|
21.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6.5
|
%
|
|
|
4.9
|
%
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1.2
|
%
|
|
|
1.0
|
%
|
|
|
1.1
|
%
|
(Gain)/loss on fluctuation of interest rate swap
|
|
|
(0.3
|
)%
|
|
|
(0.2
|
)%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
0.9
|
%
|
|
|
0.8
|
%
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
5.6
|
%
|
|
|
4.1
|
%
|
|
|
2.0
|
%*
|
Provision for income taxes
|
|
|
0.8
|
%
|
|
|
0.8
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4.8
|
%
|
|
|
3.3
|
%
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Total reflects
rounding |
37
Fiscal Year Ended
December 24, 2010 Compared to Fiscal Year Ended
December 25, 2009
Net
Sales
During fiscal 2010, we began to see steady improvement in our
net sales and a reduction in the volatility of net sales, as
compared to what we experienced throughout our 2009 fiscal year.
Our net sales for the fiscal year ended December 24, 2010
increased approximately 21.7%, or $59.0 million, to
$330.1 million from $271.1 million for the year ended
December 25, 2009. This increase was primarily due to
organic growth (sales growth excluding the impact of
acquisitions) of $50.7 million. Our organic growth is due
to the continued growth of demand for specialty food products in
general, increased market share as a result of our focus on
service and value-added services and the opening of a new
distribution center. Our improvement in net sales also reflected
year-over-year improvement in economic conditions.
Gross
Profit
Our gross profit increased approximately 20.3%, or
$14.5 million, to $85.8 million for the year ended
December 24, 2010, from $71.3 million for the year
ended December 25, 2009. Our gross profit as a percentage
of net sales was 26.0% for the year ended December 24,
2010, and 26.3% for the year ended December 25, 2009. The
decline in gross profit as a percentage of net sales is
primarily due to the change in the mix of net sales during
fiscal 2010 compared to fiscal 2009. Gross profit as a
percentage of net sales during the year ended December 24,
2010, was largely unaffected by commodity price fluctuation, as
food prices were stable versus 2009.
Operating
Expenses
Our total operating expenses increased approximately 10.6%, or
$6.2 million, to $64.2 million for the year end
December 24, 2010, from $58.0 million for the year
ended December 25, 2009. The increase in total operating
costs was primarily due to higher sales volume and the
acquisition of Culinaire Specialty Foods. The increase in our
salary and benefit costs represented $5.4 million, or 87%,
of the year-over-year increase. The remaining increase was
comprised of $0.4 million of higher delivery costs,
$0.3 million of higher IT consulting costs and
$0.1 million of higher other operating costs, net of a
reduction in bad debt expense of $0.4 million.
As a percentage of net sales, total operating expenses decreased
to approximately 19.4% for the year ended December 24,
2010, from approximately 21.4% for the year ended
December 25, 2009. The decrease in total operating expenses
as a percentage of net sales was primarily attributable to our
higher level of sales, as well as expense control programs
across our organization. We were also able to manage our fuel
costs despite rising prices by updating and revising existing
routes to reduce miles traveled, reducing idle times and other
similar measures.
Operating
Income
Operating income increased 62.4% from $13.3 million in
fiscal 2009 to $21.6 million in fiscal 2010, reflecting not
only increasing sales but also our efforts at controlling costs
throughout fiscal 2009 and 2010.
Other Expense
(Income)
Total other expense (income) increased $1.0 million to
$3.1 million for the year ended December 24, 2010,
from $2.2 million for the year ended December 25,
2009. This increase in total other expense (income) is
attributable to the increase in interest expense for the year
ended December 24, 2010 to $4.0 million from
$2.8 million in the year ended December 25, 2009,
which occurred primarily because our debt level increased
significantly in the fourth quarter of fiscal 2010 as we
financed our redemption of all of our outstanding Class A
units which were held by BGCP and another investor.
Provision for
Income Taxes
Our effective income tax rate was 13.9% and 19.8% for the years
ended December 24, 2010 and December 25, 2009,
respectively. The decrease in the effective rate was the result
of the company and each of its operating subsidiaries that are
limited liability companies electing to be taxed as corporations
starting in October of 2010. In doing so, we recorded
significant deferred tax assets, thus lowering the current tax
provision. Our effective income tax rate will increase following
this offering as a result of our conversion from a limited
liability company to a corporation, as described above. Based on
current enacted tax rates, which could change, we expect our
effective tax rate for fiscal 2011 to approximate 39%.
38
Net
Income
Reflecting the factors described in more detail above, net
income increased $6.9 million to $15.9 million for the
year ended December 24, 2010, compared to $9.0 million
for the year ended December 25, 2009.
Fiscal Year Ended
December 25, 2009 Compared to Fiscal Year Ended
December 26, 2008
Net
Sales
Our net sales for the fiscal year ended December 25, 2009
decreased approximately 3.7%, or $10.6 million, to
$271.1 million from $281.7 million for the year ended
December 26, 2008. This decrease was primarily the result
of lower volume due to weak economic conditions which adversely
affected our customers businesses. The decline in sales
was also attributable to the stabilization of commodity prices
in 2009, as the dollar amount of our sales in 2009 did not
increase significantly because of inflation compared to the
significant impact of inflation on food prices in 2008.
Gross
Profit
Our gross profit increased approximately 1.4%, or
$1.0 million, to $71.3 million for the year ended
December 24, 2010, from $70.3 million for the year
ended December 25, 2009. Our gross profit as a percentage
of net sales was 26.3% for the year ended December 25, 2009
compared to 25.0% for the year ended December 26, 2008. The
increase in gross profit as a percentage of net sales is
primarily due to the stabilization in food and commodity prices
in 2009.
Operating
Expenses
Our total operating expenses decreased approximately 3.9% or
$2.3 million, to $58.0 million for the year ended
December 25, 2009, from $60.3 million for the year
ended December 26, 2008. For comparable facilities, we
reduced operating costs by $3.7 million, or slightly over
6.1%. We incurred additional operating costs throughout fiscal
year 2009 of approximately $1.4 million related to
acquisitions. The decrease in total operating costs was
primarily due to cost cuts made during the fourth quarter of
2008 through the first half of fiscal 2009. The removal of
salary and benefit costs represented $1 million, or 43%, of
the
year-over-year
decrease. This reduction is net of a $1.6 million increase
in annual incentive and retention compensation as well as
$745,000 in management severance costs. Reductions in selling,
general and administrative costs represented $1.1 million,
or 48%, of the
year-over-year
decrease while the remaining decrease was comprised of
reductions in distribution costs of approximately
$0.2 million.
Operating
Income
Operating income increased from $10.0 million in fiscal
2008 to $13.3 million in fiscal 2009. As a percentage of
sales, operating income increased significantly from 3.6% in
fiscal 2008 to 4.9% in fiscal 2009. The increase reflects our
ability to improve our gross profit during a period of stable
commodity prices and our intense focus on controlling costs
during the challenging economic environment in 2009.
Other Expense
(Income)
Interest expense declined from $3.2 million in fiscal 2008
to $2.8 million in fiscal 2009, reflecting our efforts to
improve working capital utilization by focusing on better
collection of receivables and maintaining more efficient
inventory levels, which in each case allowed us to reduce our
level of indebtedness. The fluctuation of the market value of
our interest rate swap changed from an expense of
$1.1 million in fiscal 2008 to a gain of $0.7 million
in 2009, as the term of the interest rate swap neared its
conclusion at the beginning of 2011.
Provision for
Income Taxes
Our effective income tax rate was 19.8% and 61.1% for the years
ended December 25, 2009 and December 26, 2008,
respectively. The decrease in the effective income tax rate for
the year ended December 25, 2009 is primarily due to the
allocation of administrative costs between our corporate
subsidiary and our limited liability company subsidiaries, as
well as the recognition of a 2008 empire zone tax credit from
the State of New York in 2009, which was repealed in 2008 and
subsequently reinstated in 2009.
39
Net
Income
Reflecting the factors described in more detail above, net
income increased $6.8 million to $9.0 million, for the
year ended December 25, 2009, compared to
$2.2 million, for the year ended December 26, 2008.
Liquidity and
Capital Resources
We finance our day-to-day operations and growth primarily with
cash flows from operations, borrowings under our existing senior
secured credit facilities, operating leases, trade payables and
bank indebtedness. In addition, from time to time we may issue
equity and debt securities to finance our operations and
acquisitions. We believe that our cash on hand and available
credit through our existing revolving credit facility as
discussed below is sufficient for our operations and planned
capital expenditures over the next twelve months.
On October 22, 2010, we redeemed all authorized and then
outstanding Class A units (which were held by third party
investors) for a redemption price of $68.3 million. The
redemption price was calculated in accordance with our Amended
and Restated Limited Liability Company Agreement and was
mutually agreed upon by all participating parties. The
redemption resulted in our founders, management and employees
increasing their ownership interest in us from 68.5% to 100%.
The capital structure described in this section reflects
borrowings made to finance the redemption.
On April 15, 2010, we entered into a term loan and
revolving credit facility (the Credit Agreement).
The term loan commitment was in the amount of $7.5 million,
while the revolving credit facility provided us with up to
$37.5 million in borrowing capacity. Upon the redemption of
Class A units on October 22, 2010, the
$7.5 million term note was paid in full and the credit
facility was amended to provide us with up to $25.0 million
in revolving borrowing capacity. The amended Credit Agreement
matures on October 22, 2013. Borrowings under the Credit
Agreement bear interest, at our option, at the CB Floating Rate
(defined as the Administrative Agents prime rate, never to
be less than the adjusted one-month London Interbank Offered
Rate, or LIBOR, plus applicable rate), or LIBOR plus applicable
rate. The applicable rate is contingent upon our leverage ratio.
As of December 24, 2010, the CB Floating applicable rate
was 1.25% and the LIBOR applicable rate was 3.25%. The Credit
Agreement also provides for an annual fee of 0.25% of unused
commitments. The Credit Agreement requires the maintenance of
certain financial ratios, as described in the Credit Agreement,
and contains customary events of default. Balances outstanding
under our existing senior secured credit facilities are secured
by our receivables and inventory.
On October 22, 2010, we entered into a $75.0 million
second lien term note (the Term Loan Agreement).
This Term Loan Agreement requires principal payments of
$5.0 million by the end of the third fiscal quarter of
2011, an additional $6.0 million by the end of the third
fiscal quarter of 2012 and an additional $7.0 million by
the end of the third fiscal quarter of 2013. Two additional
principal payments are due in $1,750,000 installments, with the
first installment due at the end of fiscal year 2013 and the
second installment due at the end of the first fiscal quarter of
2014. The remaining outstanding principal amount is due at
maturity, on April 23, 2014. Borrowings under the facility
bear interest at our option of ABR Loan (defined as the greater
of the Federal funds rate, the adjusted one-month LIBOR rate or
3%) plus 8% or LIBOR plus 9%, with LIBOR having a floor of 2%.
The Term Loan Agreement requires the maintenance of certain
financial ratios, as described in the Term Loan Agreement, and
contains customary events of default. Balances outstanding under
the Term Loan Agreement are secured by a second lien on trade
receivables and inventory, as well as a first lien on all of our
other assets.
On October 22, 2010, we issued $15.0 million in senior
subordinated notes due October 22, 2014 (the PIK
Notes). Pursuant to the terms of a note purchase agreement
dated as of that date (the Note Purchase Agreement),
the PIK Notes bear interest at 20% and accrete interest every
six months. The PIK Notes require the maintenance of certain
financial ratios, as described in the Note Purchase Agreement,
and contain customary events of default.
Borrowings under the Term Loan Agreement and the PIK Notes were
used to finance the Class A unit redemption, repay debt and
pay related fees and expenses. We intend to use the proceeds of
this offering, together with borrowings under our new senior
secured credit facilities, to redeem or repurchase all of the
PIK Notes and to repay all of the principal and interest
outstanding under our existing senior secured credit facilities.
In 2006, we entered into an interest rate swap agreement which
expired in January 2011. This interest rate swap agreement had
an initial notional amount of $21.8 million and called for
us to pay interest at a fixed rate of 4.86%
40
while receiving interest for the same period at one-month LIBOR
on the same notional principal amount. The swap was entered into
as a hedge against LIBOR movements on variable rate indebtedness
totaling over $36.5 million at LIBOR plus a spread based
upon our attainment of certain financial ratios. One-month LIBOR
was 0.2606% as of December 24, 2010. The swap agreement did
not qualify for hedge accounting under Accounting Standards
Codification, or ASC, 815, Derivatives and Hedging.
Our capital expenditures, excluding cash paid for acquisitions,
for the 2010 fiscal year were $1.1 million. We believe that
our capital expenditures, excluding cash paid for acquisitions,
for fiscal 2011 will be between $1.0 million and
$2.0 million and for fiscal 2012 will be between
$7.5 million and $9.0 million. We expect to finance
these requirements with cash generated from operations and
borrowings under our revolving credit facility. Our planned
capital projects will provide both new and expanded facilities
and improvement to our technology that we believe will produce
increased efficiency and the capacity to continue to support the
growth of our customer base. Future investments and acquisitions
will be financed through either internally generated cash flow,
borrowings under our senior secured credit facilities negotiated
at the time of the potential acquisition or issuance of our
common stock.
Net cash provided by operations was $13.5 million for the
year ended December 24, 2010, an increase of
$1.6 million from the $11.9 million provided by
operations for the year ended December 25, 2009. The
primary reason for the change was the increase in net income
offset by an increase in working capital and deferred tax
assets. Net cash provided by operations of $11.9 million
for the year ended December 25, 2009 was primarily the
result of an increase in net income together with a focus on
collecting receivables and better inventory management. Net cash
provided by operations of $1.6 million for the year ended
December 26, 2008 was the result of lower levels of net
income and a concerted effort on our part to bring trade
payables in line with credit terms.
Net cash used in investing activities remained flat
year-over-year, with $4.9 million used in fiscal 2010 and
$4.8 million used in fiscal 2009. Net cash used in
investing activities was $5.8 million for the year ended
December 26, 2008. The decrease in the fiscal 2009 compared
to the fiscal 2008 was primarily due to lower capital
expenditures.
Net cash used in financing activities also remained relatively
flat year-over-year despite significant movements between debt
and equity. We used $7.6 million in fiscal 2010 and
$7.8 million in fiscal 2009. We incurred net borrowings of
approximately $70.0 million during fiscal 2010 that were
used for the redemption of our Class A units
($68.3 million) and the associated fees to obtain the
financing. Net cash provided by financing activities was
$3.6 million for the year ended December 26, 2008,
primarily due to financing related to an acquisition, partially
offset by repayments on long-term debt.
Commitments and
Contingencies
The following schedule summarizes our contractual obligations
and commercial commitments as of December 24, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAYMENTS DUE BY PERIOD
|
|
|
|
|
|
|
LESS THAN
|
|
|
1-3
|
|
|
3-5
|
|
|
|
|
|
|
TOTAL
|
|
|
ONE YEAR
|
|
|
YEARS
|
|
|
YEARS
|
|
|
THEREAFTER
|
|
|
|
(In thousands)
|
|
|
Inventory purchase commitments
|
|
$
|
5,576
|
|
|
$
|
5,576
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Indebtedness (1)
|
|
$
|
99,525
|
|
|
$
|
16,945
|
(2)
|
|
$
|
12,010
|
|
|
$
|
70,570
|
|
|
$
|
|
|
Long-term non-capitalized leases
|
|
$
|
23,373
|
|
|
$
|
6,674
|
|
|
$
|
10,082
|
|
|
$
|
5,272
|
|
|
$
|
1,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
128,474
|
|
|
$
|
29,195
|
(2)
|
|
$
|
22,092
|
|
|
$
|
75,842
|
|
|
$
|
1,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For a description of the reduction in our indebtedness that will
result from this offering, see Use of Proceeds and
Capitalization.
|
|
(2)
|
Reflects the inclusion of $12.2 million of borrowings under
our senior secured revolving credit facility which are included
within the current portion of long-term debt on our balance
sheet despite not being due until October 22, 2013.
|
41
The indebtedness and non-capitalized lease obligations shown
above exclude interest payments due. A portion of the
indebtedness obligations shown reflect the expiration of the
credit facility, not necessarily the underlying individual
borrowings. In addition, cash to be paid for income taxes is
excluded from the table above.
We had outstanding letters of credit of approximately $120,000
at December 24, 2010.
All of our assets are pledged as collateral to secure our
borrowings under our senior secured credit facilities.
Seasonality
Generally, we do not experience any material seasonality.
However, our sales and operating results may vary from quarter
to quarter due to factors such as changes in our operating
expenses, managements ability to execute our operating and
growth strategies, personnel changes, demand for natural
products, supply shortages and general economic conditions.
Inflation
Our profitability is dependent, among other things, on our
ability to anticipate and react to changes in the costs of key
operating resources, including food and other raw materials,
labor, energy and other supplies and services. Substantial
increases in costs and expenses could impact our operating
results to the extent that such increases cannot be passed along
to our customers. The impact of inflation on food, labor, energy
and occupancy costs can significantly affect the profitability
of our operations.
Recently Issued
Financial Accounting Standards
In December 2007, the Financial Accounting Standards Board, or
FASB, issued ASC 805, Business Combinations
(ASC 805). ASC 805 continues to require the
purchase method of accounting for business combinations and the
identification and recognition of intangible assets separately
from goodwill. ASC 805 requires the buyer to, among other
things: (1) account for the fair value of assets and
liabilities acquired as of the acquisition date (i.e., a
fair value model rather than a cost
allocation model); (2) expense acquisition-related
costs; (3) recognize assets or liabilities assumed arising
from contractual contingencies at the acquisition date using
acquisition-date fair values; (4) recognize goodwill as the
excess of the consideration transferred plus the fair value of
any non-controlling interest over the acquisition-date fair
value of net assets acquired; (5) recognize at acquisition
any contingent consideration using acquisition-date fair values
(i.e., fair value earn-outs in the initial accounting for the
acquisition); and (6) eliminate the recognition of
liabilities for restructuring costs expected to be incurred as a
result of the business combination. ASC 805 also defines a
bargain purchase as a business combination where the
total acquisition-date fair value of the identifiable net assets
acquired exceeds the fair value of the consideration transferred
plus the fair value of any non-controlling interest. Under this
circumstance, the buyer is required to recognize such excess
(formerly referred to as negative goodwill) in
earnings as a gain. In addition, if the buyer determines that
some or all of its previously booked deferred tax valuation
allowance is no longer needed as a result of the business
combination, ASC 805 requires that the reduction or
elimination of the valuation allowance be accounted as a
reduction of income tax expense. ASC 805 is effective for
fiscal years beginning on or after December 15, 2008. We
have applied ASC 805 to the acquisitions consummated after
December 26, 2008, described herein and will apply
ASC 805 to any future acquisitions.
In December 2007, the FASB issued ASC 810,
Consolidation. This statement establishes accounting and
reporting standards for the non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. This
statement is effective for fiscal years beginning on or after
December 15, 2008. The adoption of ASC 810 did not
have a material effect on our consolidated financial statements.
In April 2008, the FASB issued
ASC 350-30,
Determination of the Useful Life of Intangible Assets.
ASC 350-30
amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under ASC 350,
Intangibles Goodwill and Other. The intent of
ASC 350-30
is to improve the consistency between the useful life of a
recognized intangible asset and the period of expected cash
flows used to measure the fair value of the asset.
ASC 350-30
is effective for fiscal years beginning after December 15,
2008 and interim periods within those fiscal years. The adoption
of ASC
350-30 did
not have a material effect on our consolidated financial
statements.
42
In June 2008, the FASB issued
ASC 260-10,
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities.
ASC 260-10
provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to
the two-class method.
ASC 260-10
is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods
within those years.
ASC 260-10
requires that all earnings per share data presented for prior
periods be adjusted retrospectively (including interim financial
statements, summaries of earnings and selected financial data)
to conform. The adoption of
ASC 260-10
did not have a material effect on our consolidated financial
statements in the periods presented.
Quantitative and
Qualitative Disclosures About Market Risk
Interest Rate
Risk
We are subject to interest rate risk in connection with our
indebtedness. Our principal interest rate exposure relates to
the loans outstanding under our credit facility.
43
OUR
BUSINESS
Company
Overview
We are a premier distributor of specialty food products in the
United States. We are focused on serving the specific needs of
chefs who own
and/or
operate some of the nations leading independent
restaurants, fine dining establishments, country clubs, hotels,
caterers, culinary schools and specialty food stores. We believe
that we have a distinct competitive advantage in serving these
customers as a result of our extensive selection of distinctive
and
hard-to-find
specialty food products, our product knowledge and our customer
service, all of which we believe are superior to other
foodservice distributors.
We define specialty food products as gourmet foods and
ingredients that are of the highest grade, quality or style as
measured by their uniqueness, exotic origin or particular
processing method. Our product portfolio includes over 11,500
SKUs and is comprised primarily of imported and domestic
specialty food products, such as artisan charcuterie, specialty
cheeses, unique oils and vinegars, hormone-free protein,
truffles, caviar and chocolate. We also offer an extensive line
of broadline food products, including cooking oils, butter,
eggs, milk and flour. Our core customers are chefs, and we
believe that, by offering a wide selection of both distinctive
and
hard-to-find
specialty products, together with staple broadline food
products, we are able to differentiate ourselves from larger,
traditional broadline foodservice distributors, while
simultaneously enabling our customers to utilize us as their
primary foodservice distributor.
Founded in 1985 as Dairyland USA Corporation, a distributor of
butter, eggs and select specialty food products in the New York
metropolitan area, we focus our sales efforts on developing
relationships with the chefs who own or operate independent
restaurants, fine dining establishments, country clubs, hotels,
caterers, culinary schools and specialty food stores in six of
the nations leading culinary markets, including New York,
Washington, D.C., Los Angeles, San Francisco, Las
Vegas and Miami. Our more than 7,000 customer locations include
many of the leading independent restaurants in each of our
markets. By leveraging an experienced and sophisticated sales
force of approximately 125 sales professionals, we maintain
collaborative relationships with thousands of chefs while also
acting as a critical marketing arm and
route-to-market
for many of our suppliers. Operating out of seven distribution
centers and providing service six days a week in many of our
service areas, we utilize our fleet of delivery trucks to fill
an average of 11,000 orders weekly.
Since the formation of our predecessor in 1985, we have expanded
our distribution network, product selection and customer base
both organically and through acquisitions. Since 2008, we have
achieved net revenue, EBITDA, and net income CAGRs of 8.3%,
50.4% and 168.9%, respectively, as of December 24, 2010.
During this same period, our sales to both new and existing
customers have increased as a result of an increase in the
breadth and depth of our product portfolio, our commitment to
customer service, the efforts of our experienced and
sophisticated sales professionals, the increased use of
technology in the operations and management of our business and
our ongoing consolidation of the fragmented specialty
foodservice distribution industry, including acquisitions in
San Francisco, Washington, D.C. and Miami since 2007.
Our Market
Opportunity
The United States foodservice distribution industry recorded
sales of $191.0 billion in 2009, according to industry
sources. The industry, which includes more than 16,500
distributors, is highly fragmented, with the largest broadline
distributors, Sysco Corporation and U.S. Foodservice, Inc.,
accounting for only 17% and 9%, respectively, of total industry
sales. These 16,500 distributors service an equally fragmented
end-market which is comprised of more than 550,000 customer
locations, including chain and non-chain, independent
restaurants, country clubs, hotels, caterers, hospitals,
schools, military installations, correctional facilities and
other institutional customer locations. The largest customer
segment for the foodservice distribution industry is
restaurants, which accounted for an estimated
$110.0 billion of distribution sales in 2009. The
restaurant segment is dominated by large chain restaurants, the
top 100 of which accounted for 55.9% of retail sales in 2009.
Conversely, smaller chain and non-chain, independent
restaurants, which we define as our target market, accounted for
44.1% of retail sales in 2009.
44
Competitive
Strengths
We believe that, during our
26-year
history, we have achieved, developed
and/or
refined the following strengths which provide us with a distinct
competitive position in the foodservice distribution industry
and also the opportunity to achieve superior margins relative to
most large broadline foodservice distributors:
Leading Distributor of Specialty Food Products in Many of the
Key Culinary Markets. We believe we are the
largest distributor of specialty food products in the New York,
Washington, D.C., San Francisco and Los Angeles
culinary markets. We believe these markets, along with Las Vegas
and Miami, our other primary markets, create and set the
culinary trends for the rest of the United States and provide us
with valuable insight into the latest culinary and menu
practices. Furthermore, we believe our established relationships
with many of the top chefs, culinary schools and dining
establishments in these key culinary markets have benefited us
when we entered into new markets where we believe that chefs at
our potential customers were generally knowledgeable of our
brand and commitment to quality and excellence from their
experience working in other markets which we serve or through
their personal relationships throughout the culinary industry.
Expansive Product Offering. We offer an
extensive portfolio of high-quality specialty food products,
ranging from basic ingredients and staples, such as milk and
flour, to delicacies and specialty ingredients sourced from
North America, Europe, Asia and South America, which we believe
helps our customers distinguish their menu items. We carry more
than 11,500 SKUs, including approximately 7,000 that are
in-stock every day, and we constantly evaluate our portfolio and
introduce new products to address regional trends and
preferences and ensure that we are on the leading edge of
broader culinary trends. Through our importing division, we
provide our customers with access to a portfolio of exclusive
items, including regional olive oils, truffles and charcuterie
from Italy, Spain, France and other Mediterranean countries. In
addition, and as evidence of our commitment to aid our customers
in creating unique and innovative menu items, we regularly
utilize our sourcing relationships and industry insights to
procure other products that we do not regularly carry but that
our customers specifically request. We believe that the breadth
and depth of our product portfolio facilitates our
customers ability to distinguish and enhance their menu
offerings and differentiates us from larger traditional
broadline foodservice distributors. For example, we provide a
selection of more than 125 different varieties of olive oil,
while large broadline foodservice distributors only carry, on
average, 5-10 types of olive oil.
In addition, we carry numerous gourmet brands, and at the same
time, we also seek to maximize product contribution through the
sale of our proprietary brands, which we offer in a number of
staple products, including bulk olive oil, Italian grating
cheeses and butter. We believe that our ability to offer
simultaneously high-quality specialty foods and ingredients and
more traditional broadline staple food products provides our
customers with foodservice distribution solutions that are
efficient and cost effective.
Critical
Route-to-Market
for Specialty Food Suppliers. We currently
distribute products from more than 1,000 different suppliers,
with no single supplier currently representing more than 5% of
our total disbursements. Our suppliers are located throughout
North America, Europe, Asia and South America and include
numerous small, family-owned entities and artisanal food
producers. We are the largest customer for many of our
suppliers. As a result, our experienced and sophisticated sales
professionals, customer relationships and distribution platform
are critical to these suppliers
route-to-market,
which provides us with greater leverage in our relationships
with the suppliers and also enables us to offer a wide range of
products on an exclusive basis.
Expanding Base of Premier Customer
Relationships. Our breadth and depth of product
offerings coupled with our highly regarded customer service has
allowed us to develop and retain a loyal customer base that is
comprised of chefs who own or work at more than 7,000 of the
nations leading independent restaurants, fine dining
establishments, country clubs, hotels, caterers, culinary
schools and specialty food stores. By offering an extensive
portfolio of specialty food products, many of which are in-stock
every day, as well as many staple broadline food products, we
have the ability to serve as our customers primary
foodservice distributor. Our focus on product selection, product
knowledge and customer service has rewarded us with a number of
long-term customer relationships, which often begin when chefs
are introduced to us while attending the nations leading
culinary schools, including The Culinary Institute of America
and The French Culinary Institute, both of which have been
customers of ours for more than five years. In a continuous
effort to capture market share, we remain focused on expanding
our customer base, and we enjoy no meaningful customer
concentration, as our top 10 customers accounted for less than
10% of total net revenue for the year ended December 24,
2010.
45
Collaborative Professional and Educational Relationships with
our Customers. We employ a sophisticated and
experienced sales force of approximately 125 sales
professionals, the majority of whom have formal culinary
training, degrees in the culinary arts or prior experience
working in the culinary industry. Equipped with advanced
culinary and industry knowledge, our sales professionals seek to
establish a rapport with our customers so that they can more
fully understand and anticipate the needs of and offer
cost-effective food product solutions to the chefs that own or
operate these businesses. We believe that the specialized
knowledge base of our sales professionals enables us to take a
more collaborative and educational approach to selling our
gourmet foods and ingredients and to further differentiate
ourselves from our traditional broadline competitors.
Expertise in Logistics and Distribution. We
have built a first-class, scalable inventory management and
logistics platform that enables us to efficiently fill an
average of 11,000 orders weekly and to profitably meet our
customers needs for varying drop sizes, high service
levels and timely delivery. Our average distribution service
levels, or the percentage of in-stock items ordered by customers
that were delivered by the requested date, was in excess of 99%
in 2010, which we believe is among the highest rates in the
foodservice distribution industry. With distribution centers
located in New York, Los Angeles, San Francisco, Washington
D.C., Las Vegas and Miami, we are able to leverage our
geographic footprint and reduce our inbound freight costs. This
scale enables us to maintain a portfolio of more than
11,500 SKUs through the operation of our sophisticated
information technology, inventory management and logistics
systems, which we believe allows us to provide our customers
with the highest level of customer service and responsiveness in
our industry.
Moreover, we have made significant investments since the
beginning of 2007 to develop our information technology platform
in an effort to ensure that our customers orders are
filled and delivered efficiently and on time, usually within
12-24 hours
following order placement. We employ routing and logistics
planning software which we believe maximizes the number of daily
deliveries that each of our trucks can make, while also allowing
us to make deliveries within each of our customers
preferred 2-3 hour time windows. We also use GPS and
vehicle monitoring technology to regularly monitor the condition
of our delivery trucks and measure our drivers
performance, enabling proactive fleet maintenance, excellent
customer service and improved risk management. To determine
optimal inventory levels, we utilize advanced forecasting
algorithms. Additionally, we currently employ an integrated
warehouse management system in our New York distribution
facilities to track inventory and manage working capital, and we
plan to integrate this system into the remainder of our
distribution facilities by the end of 2011.
Experienced and Proven Management Team. Our
senior management team has demonstrated the ability to grow the
business through various economic environments. With collective
experience of more than 60 years at The Chefs
Warehouse and its predecessor, our founders and senior
management are experienced operators and are passionate about
our future. Our senior management team is comprised of our
founders as well as experienced professionals with expertise in
a wide range of functional areas, including finance, sales and
marketing, information technology and human resources. We
believe our management team and employee base is, and will
remain, highly motivated as they will continue to own
% of our common stock following this offering.
Our Growth
Strategies
We believe substantial organic growth opportunities exist in our
current markets through increased penetration of our existing
customers and the addition of new customers, and we have
identified new markets that we believe also present
opportunities for future expansion. Key elements of our growth
strategy include the following:
Increase Penetration with Existing
Customers. We intend to sell more products to our
existing customers by increasing the breadth and depth of our
product selection and increasing the efficiency of our sales
professionals, while at the same time continuing to provide
excellent customer service. We are a data-driven and
goal-oriented organization, and we are highly focused on
increasing the number of unique products we distribute to each
customer and our weekly gross profit contribution from each
customer. We intend to maintain our position as the primary
distributor of specialty food products to the majority of our
customers, while adding to the number of customers for which we
serve as their primary distributor of specialty food products.
Expand our Customer Base Within our Existing
Markets. As of December 24, 2010, we served
more than 7,000 customer locations in the United States. We plan
to expand our market share in the fragmented specialty food
distribution industry by cultivating new customer relationships
within our existing markets through the continued penetration of
independent restaurants, fine dining establishments, country
clubs, hotels, caterers, culinary schools
46
and specialty food stores. We believe we have the opportunity to
continue to gain market share in our existing markets by
offering an extensive selection of specialty food products as
well as traditional broadline staple food products through our
unique, collaborative and educational sales efforts and
efficient, scalable distribution solution.
Continue to Improve our Operating Margins. As
we continue to grow, we believe we can improve our operating
margins by continuing to leverage our inventory management and
logistics platform and our general and administrative functions
to yield both improved customer service and profitability.
Utilizing our fleet of delivery trucks, we fill an average of
11,000 customer orders weekly, usually within 12-24 hours
of order placement. We intend to continue to offer our customers
this high level of customer service while maintaining our focus
on realizing efficiencies and economies of scale in purchasing,
warehousing, distribution and general and administrative
functions which, when combined with incremental fixed-cost
leverage, we believe will lead to continued improvements in our
operating margin.
Pursue Selective Acquisitions. Throughout our
26-year
history, we have successfully identified, consummated and
integrated multiple new market and tuck-in acquisitions. We
believe we have improved the operations and overall
profitability of each acquired company by leveraging our
sourcing relationships to provide an expanded product portfolio,
implementing our tested sales force training techniques and
metrics and installing improved warehouse management and
information systems. We believe we have the opportunity to
capitalize on our existing infrastructure and expertise by
continuing to selectively pursue opportunistic acquisitions in
order to expand the breadth of our distribution network,
increase our operating efficiency and add additional products
and capabilities.
We believe there are a number of markets in the United States
that would support our business model. Each of these markets
maintains a high density of independent restaurants, fine dining
establishments, country clubs, hotels, caterers, culinary
schools and specialty food stores that are currently served by
multiple specialty foodservice distributors, each of which we
believe lacks our product selection, experienced and
sophisticated sales professionals, commitment to customer
service, scale and infrastructure. Additionally, we continue to
compete with several smaller local or regional competitors
within each of our existing markets. Industry sources estimate
that there are more than 2,000 specialty foodservice
distributors in the United States with sales between
$10.0 million and $70.0 million. Although all of these
distributors may not prove to be attractive acquisition targets
for us, we believe that, as a premier specialty foodservice
distributor in the United States, we are well positioned to
further consolidate the fragmented specialty foodservice
distribution industry.
Our Customers and
the Markets We Serve
We distribute our specialty food products to over 7,000 distinct
customer locations primarily located in our six existing
markets. We have the unique ability to service the nations
most demanding chefs through the establishment of collaborative
professional and educational relationships which allows us to
anticipate the needs of and offer cost-effective food product
solutions to our customers while allowing our customers to
locate ingredients that will enable them to create unique and
differentiated menu items. Our target customers include
independent restaurants, fine dining establishments, country
clubs, hotels, caterers, culinary schools and specialty food
stores. We enjoy no meaningful customer concentration as our top
10 customers accounted for less than 10% of total net revenue
for our 2010 fiscal year. We supply customers in six of the
leading culinary markets in the United States, including New
York, Washington, D.C., San Francisco, Los Angeles,
Las Vegas and Miami. We believe these markets set the culinary
trends for the rest of the United States and provide us with
valuable insight into the latest culinary and menu trends.
Set forth below is a breakdown of the geographic markets we
serve, the year we entered each market:
|
|
|
|
|
|
|
MARKET NAME
|
|
GEOGRAPHIES SERVED
|
|
YEAR ENTERED
|
|
|
New York
|
|
Boston to Atlantic City
|
|
|
1985
|
|
Washington, D.C.
|
|
Philadelphia to Richmond
|
|
|
1999
|
|
Los Angeles
|
|
Santa Barbara to San Diego
|
|
|
2005
|
|
San Francisco
|
|
Napa Valley to Monterey Bay
|
|
|
2005
|
|
Las Vegas
|
|
Las Vegas
|
|
|
2005
|
|
Miami
|
|
Miami
|
|
|
2010
|
|
|
|
47
Although we believe we are the largest specialty food
distributor in the majority of our markets, we remain focused on
expanding our existing customer base and increasing the average
order size and profitability of our existing customers. We
believe that we currently distribute one or more products on a
weekly basis to more than 60% of our addressable market in the
New York metropolitan area and between 20%-30% of our
addressable market in the other markets that we serve. We define
our addressable market as independent restaurants with an
average entrée price of greater than $15.00 according to
Menupages.com.
We extend credit to virtually all of our customers on varying
terms with average payment maturities of approximately
21 days. We complete a formal credit assessment of all new
customers, and our Credit and Collections Department, which
consists of 11 full-time employees, regularly evaluates
credit terms for each individual customer based upon several
factors, including order frequency, average order size, the
types of products purchased and the length of the relationship.
We believe that we are skilled at managing customer credit as
evidenced by our historical write-offs which have averaged
approximately 0.32% over the past three years.
We believe our established relationships with many of the top
chefs, culinary schools and fine dining establishments in our
existing culinary markets benefited us when we entered into new
markets where we believe that potential customers were generally
knowledgeable of our brand and commitment to quality and
excellence from their experience working in other markets which
we serve or through their personal relationships throughout the
culinary industry.
Our Specialty
Food Products
We strive to be the primary food source solution for our
customers, and, to this end, we offer our customers a
comprehensive product portfolio that ranges from staple
broadline products, such as milk and flour, to high-quality,
specialty food products and ingredients sourced from North
America, Europe, Asia and South America. We carry more than
11,500 SKUs, including 7,000 that are in-stock every day, and we
are fully committed to utilizing our sourcing relationships and
industry insights to procure products that we do not regularly
carry but that our customers specifically request as they seek
to create unique and innovative menu items.
We continuously evaluate potential additions to our product
portfolio based on both existing and anticipated trends in the
culinary industry. Our buyers have numerous contacts with
suppliers throughout North America, South America, Europe and
Asia and are always looking for new and interesting products
that will aid our customers as they seek to keep up with the
latest developments in the culinary industry. Our ability to
successfully distribute a significant portion of the total
production of smaller, regional and artisanal specialty food
producers allows us the opportunity to be these producers
primary
route-to-market
in our markets without, in most cases, requiring us to make
contractual commitments regarding guaranteed volume. We are also
able to utilize our size and successful track record of
distributing products sourced from outside the United States to
resist efforts from many of our foreign suppliers to push
importing costs off onto us.
We seek to differentiate ourselves from our competitors by
offering a more extensive depth and breadth of specialty
products. We carry a wide range of high-quality specialty food
products including artisan charcuterie, specialty cheeses,
unique oils and vinegars, hormone-free protein, truffles, caviar
and chocolate across each of our markets, but we also offer a
number of items in each of our respective markets that are
tailored to meet the unique preferences of the individual chefs
in that market. We regularly rotate our inventory to identify
and bring to market new products that will continue to support
our value proposition.
Within our product offerings, we carry numerous gourmet brands,
and at the same time, we also seek to maximize product
contribution through the sale of our proprietary brands, which
we offer in a number of staple products, including bulk olive
oil, Italian grating cheeses and butter. We believe that our
ability to offer simultaneously high-quality specialty foods and
ingredients and more traditional broadline staple food products
provides our customers with foodservice distribution solutions
that are efficient and cost effective.
Our Sophisticated
and Experienced Sales Professionals
We employ a sophisticated and experienced sales force of
approximately 125 sales professionals focused on meeting our
customers goals and objectives while concurrently
educating them regarding our latest products and broader
culinary trends. To ensure a high level of customer service, we
seek to maintain a ratio of approximately one
48
sales professional for every 65 customers. Our sales force is
composed of the following three distinct groups which are all
focused on providing outstanding service to our customers:
|
|
|
|
|
Outside Sales Associates: Responsible for
identifying sales opportunities, educating customers and acting
as our public representatives.
|
|
|
Inside Sales Associates: Responsible for
processing customer orders and arranging for delivery and
payment.
|
|
|
Product Specialists: Responsible for
maintaining specialized product knowledge and educating our
outside sales associates and customers regarding new products
and general developments in several specific categories
including protein, seafood, pastry and cheese.
|
The majority of our sales professionals have formal culinary
training, degrees in the culinary arts
and/or prior
experience working in the culinary industry. We strive to
harness this culinary knowledge and passion for food and to
concurrently promote an entrepreneurial working environment.
Utilizing advanced pricing optimization software available to
them on a real-time basis, our sales professionals are afforded
flexibility to determine the pricing of individual items for our
customers within a range of pricing options. The majority of our
sales professionals are compensated on a commission basis, and
their performance is measured primarily upon their gross profit
dollars obtained. We have historically experienced low turnover
among our seasoned sales professionals.
Because we are highly focused on collaborating with our
customers and educating them regarding our latest products and
broader culinary trends, we view the ongoing education and
training of our sales force as crucial to our continued success.
To ensure that our sales professionals remain on the forefront
of new culinary products and trends, we regularly hold
vendor shows at our distribution centers where our
sales force is able to interact with vendors and learn more
about the vendors latest product offerings and the
performance of these products relative to competitive offerings.
Our
Suppliers
We are committed to providing our customers with an unrivaled
portfolio of specialty food products as well as a comprehensive
broadline product offering. To fulfill this commitment, we
maintain strong sourcing relationships with numerous producers
of high-quality artisan and regional specialty food products as
well as a wide range of broadline product suppliers. Our
importing arm also provides us with access to exclusive items
such as regional olive oils, truffles and charcuterie sourced
from Italy, Spain, France and other Mediterranean countries.
We constantly seek out and evaluate new products in order to
satisfy our customers desire to be at the forefront of the
latest culinary and menu trends, and, as evidence of our
commitment to aid our customers in creating unique and
innovative menu items, we regularly utilize our sourcing
relationships and industry insights to procure other products
that we do not regularly carry but that our customers
specifically request.
We currently distribute products from more than 1,000 different
suppliers and no single supplier represented more than 5% of our
total disbursements for the quarter ended March 25, 2011.
We carry multiple products and utilize multiple suppliers in all
of our product categories, thereby eliminating our dependence
upon any single supplier. Additionally, we seek to limit
commodity risk by utilizing sophisticated forecasting and
inventory management systems to minimize the inventory carrying
time of commodity-oriented products and by leveraging the
specialized product knowledge of our Product Specialists to
manage purchasing and inventory levels when appropriate.
Our Operations
and Distribution Centers
Operating out of seven distribution centers of varying size and
providing service six days a week in many areas, we utilize our
fleet of delivery trucks to fill an average of 11,000 orders
weekly, usually within
12-24 hours
of order placement. Our average distribution service level, or
the percentage of in-stock items ordered by customers that were
delivered by the requested date, was in excess of 99% as of
fiscal year end 2010, which our management believes is among the
highest in the foodservice distribution industry. To achieve
these high service levels, we have invested significantly in
sophisticated warehousing, inventory control and distribution
systems as described in more detail below.
49
The following table provides information about our distribution
locations as of December 24, 2010:
|
|
|
|
|
|
|
OVERVIEW OF OUR DISTRIBUTION CENTERS
|
|
NAME/LOCATION
|
|
OWNED / LEASED
|
|
APPROXIMATE SIZE (SQUARE FEET)
|
|
|
Bronx, New York #1
|
|
Leased
|
|
|
120,000
|
|
Bronx, New York #2
|
|
Leased
|
|
|
55,000
|
|
Hanover, Maryland
|
|
Leased
|
|
|
55,200
|
|
Miami,
Florida (1)
|
|
Leased
|
|
|
10,000
|
|
Los Angeles, California
|
|
Leased
|
|
|
80,000
|
|
Hayward, California
|
|
Leased
|
|
|
40,000
|
|
Las Vegas, Nevada
|
|
Leased
|
|
|
11,440
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
371,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We have entered into a lease
agreement for a separate distribution center in the Miami,
Florida area. We expect we will move our Miami operations in the
third quarter of 2011.
|
Our primary New York City distribution facility utilizes a
fully-integrated warehouse management system which provides
real-time inventory visibility across the distribution center
and detailed metrics related to inventory turns. We plan to
integrate this system into the remainder of our distribution
facilities by the end of 2011. Additionally, we have begun to
implement pick-to-voice technology in each of our distribution
facilities which will enable our warehouse employees to fill
orders with greater speed and accuracy.
Products are delivered to our distribution centers primarily by
our fleet of trucks, contract carriers and the suppliers
themselves. We lease our trucks from national leasing companies
and regional firms that offer competitive services. Customer
orders are assembled in our distribution centers and then
sorted, placed on pallets and loaded onto trucks and trailers in
delivery sequence. The majority of our trucks and delivery
trailers have separate, temperature-controlled compartments.
We employ advanced routing and logistics planning software which
maximizes the number of daily deliveries that each of our trucks
can make while also enabling us to make deliveries within each
customers preferred 2-3 hour time window. We also use
GPS and vehicle monitoring technology to regularly evaluate the
condition of our delivery trucks and monitor the performance of
our drivers by tracking their progress relative to their
delivery schedule and providing information regarding hard
braking, idling and fast starts. Our use of this technology
allows us to conduct proactive fleet maintenance, provide
superior customer service and improve our risk management.
Our Technology
Systems
We maintain an advanced information technology platform that
enables us to manage our operations across our six markets as we
seek to drive our growth and profitability and ensure that the
needs of our customers are met in an accurate and efficient
manner. We have made significant investments in distribution,
sales, information and warehouse management systems over the
last three years, including the implementation of a
fully-integrated warehouse management system in our primary New
York City distribution facility, which we anticipate will be
installed in our other distribution facilities by the end of
2011. Our systems improvements include the implementation or
enhancement of a web-based purchasing and advanced planning
system that provides advanced forecasting and planning tools,
vehicle monitoring and route optimization software and
pick-to-voice
and directed put-away systems. Over the last three years, we
have also implemented an internally developed, web-based
reporting tool which provides real-time sales, pricing and
profitability analysis for our management and sales
professionals. These improvements have been made in an effort to
improve our efficiency as we continue to grow our business, and
we believe that our current systems are scalable and can be
leveraged to support our future growth.
Intellectual
Property
Except for the Spoleto, Bel Aria, Grand Reserve and The
Chefs Warehouse trademarks, we do not own or have the
right to use any patent, trademark, tradename, license,
franchise or concession, the loss of which would have a material
adverse effect on our business, financial condition or results
of operations.
50
Competition
The foodservice distribution industry is highly competitive. We
compete with numerous smaller distributors on a local level, as
well as with a limited number of national broadline foodservice
distributors. Certain of these distributors have greater
financial and other resources than we do. Bidding for contracts
or arrangements with customers, particularly larger hotels and
caterers, is highly competitive and distributors may market
their services to a particular customer over a long period of
time before they are invited to bid. We believe that most
purchasing decisions in the foodservice distribution industry
are based upon the quality and price of the product distributed
and the distributors ability to completely and accurately
fill orders and deliver them in a timely manner.
Employees
We maintain a dedicated workforce of 191 hourly and 352 salary-
or commission-based employees. We offer attractive compensation
and benefit packages, and none of our workforce is represented
by a union or covered by a collective bargaining agreement. Our
management has historically, and plans to continue to, instill a
commitment to quality and excellence throughout our workforce,
stressing personal accountability in all areas of our business.
Regulation
As a distributor of specialty food products in the United
States, we are subject to regulation by numerous federal, state
and local regulatory agencies. For example, at the federal
level, we are subject to the Federal Food, Drug and Cosmetic
Act, the Bioterrorism Act and regulations promulgated by the
FDA. The FDA regulates manufacturing and holding requirements
for foods, specifies the standards of identity for certain foods
and prescribes the format and content of certain information
required to appear on food product labels, among other
responsibilities. For certain product lines, we are also subject
to the Federal Meat Inspection Act, the Poultry Products
Inspection Act, the Perishable Agricultural Commodities Act, the
Country of Origin Labeling Act and regulations promulgated
thereunder by the USDA. The USDA imposes standards for product
quality and sanitation, including the inspection and labeling of
meat and poultry products and the grading and commercial
acceptance of produce shipments from vendors. In January 2011,
President Obama signed into law the FDA Food Safety
Modernization Act, which greatly expands the FDAs
authority over food safety, including giving the FDA power to
order the recall of unsafe foods, increase inspections at food
processing facilities, issue regulations regarding the sanitary
transportation of food, enhance tracking and tracing
requirements and order the detention of food that it has
reason to believe is adulterated or misbranded,
among other provisions. Our suppliers are also subject to
similar regulatory requirements. We and our suppliers are
subject to inspection by the FDA and the USDA and the failure to
comply with applicable regulatory requirements could result in
civil or criminal fines or penalties, product recalls, closure
of facilities or operations, the loss or revocation of existing
licenses, permits or approvals or the failure to obtain
additional licenses, permits or approvals in new jurisdictions
where we intend to do business.
We are also subject to state and local regulation through such
measures as the licensing of our facilities, enforcement by
state and local health agencies of state and local standards for
our products and facilities and regulation of our trade
practices in connection with the sale of products. Our
facilities are generally inspected at least annually by federal
and/or state
authorities. These facilities are also subject to inspections
and regulations issued pursuant to the Occupational Safety and
Health Act by the U.S. Department of Labor which require us
to comply with certain manufacturing, health and safety
standards to protect our employees from accidents and to
establish hazard communication programs to transmit information
about the hazards of certain chemicals present in certain
products that we distribute.
Our trucking operations are regulated by the Surface
Transportation Board and the Federal Highway Administration. In
addition, interstate motor carrier operations are subject to
safety requirements prescribed by the U.S. Department of
Transportation and other relevant federal and state agencies.
Such matters as weight and dimension of equipment are also
subject to federal and state regulations. We believe that we are
in substantial compliance with applicable regulatory
requirements relating to our motor carrier operations. Our
failure to comply with the applicable motor carrier regulations
could result in substantial fines or revocation of our operating
permits.
Our operations are subject to a broad range of federal, state
and local environmental health and safety laws and regulations,
including those governing discharges to air, soil and water, the
handling and disposal of hazardous substances and the
investigation and remediation of contamination resulting from
releases of petroleum products and other hazardous substances.
51
We believe that we are in material compliance with all federal,
state and local regulations applicable to our operations, and
management is unaware of any related issues that may have a
material adverse effect upon our business, financial condition
or results of operations.
Litigation and
Insurance
We may be subject to lawsuits, claims and assessments in the
normal course of business. Our management does not believe that
there are any suits, claims or unasserted claims or assessments
pending which would have a material adverse effect on our
operations or financial condition. We currently have exposure to
a pending claim against the New York Workers Compensation
Trust which management estimates at approximately $500,000. We
plan to cover any future judgment with the proceeds of our
operations.
We maintain comprehensive insurance packages with respect to our
facilities, equipment, product liability, directors and
officers, workers compensation and employee matters in
amounts which management believes to be prudent and customary
within the foodservice distribution industry.
52
OUR
MANAGEMENT
Executive
Officers and Directors
The following table sets forth certain information with respect
to our executive officers, directors and director nominees as of
April 11, 2011.
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|
|
|
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NAME
|
|
AGE
|
|
POSITION
|
|
Christopher
Pappas (1)
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|
51
|
|
Founder, Chairman, President and Chief Executive Officer
|
John
Pappas (1)
|
|
47
|
|
Founder, Director and Vice Chairman
|
Dean Facatselis
(1)
|
|
55
|
|
Founder and Director
|
John A. Couri
|
|
69
|
|
Director
|
Kevin Cox
|
|
47
|
|
Director
Nominee (2)
|
Kenneth Clark
|
|
43
|
|
Chief Financial Officer
|
James Wagner
|
|
41
|
|
Chief Operating Officer
|
Frank ODowd
|
|
53
|
|
Chief Information Officer
|
Patricia Lecouras
|
|
55
|
|
Executive Vice President of Human Resources
|
Alexandros Aldous
|
|
30
|
|
Legal Services Director
|
|
|
|
|
|
(1) |
|
Christopher Pappas and John Pappas
are brothers. Dean Facatselis is married to Christopher
Pappas and John Pappas sister.
|
(2) |
|
This individual has agreed to
become a director upon the closing of this offering and is
expected to be independent as such term is defined
under The NASDAQ Marketplace Rules.
|
The board of directors believes that each of the directors and
director nominees set forth above has the necessary
qualifications to serve as a member of the board of directors.
Each of our incumbent directors has exhibited during his prior
service as a director the ability to operate cohesively with the
other members of the board of directors. Moreover, the board of
directors believes that each director and director nominee
brings a strong background and skill set to the board of
directors, giving the board of directors as a whole competence
and experience in diverse areas, including corporate governance
and board service, finance, management and foodservice
distribution industry experience.
Set forth below is a brief description of the business
experience of each of our directors, director nominees and
executive officers, as well as certain specific experiences,
qualifications and skills that led to the board of
directors conclusion that each of the directors and
director nominees set forth below is qualified to serve as a
director:
Christopher Pappas is our founder and has served as our
chief executive officer since 1985 and has been our chairman
since March 1, 2011. He has been our president since
April 11, 2009 and before that was our president from our
formation to January 1, 2007. Prior to founding our
company, Mr. Pappas played basketball professionally in
Europe for several years following his graduation from Adelphi
University in 1981 with a Bachelor of Arts degree in Business
Administration. Mr. Pappas currently oversees all of our
business activities, with a focus on product procurement, sales,
marketing and strategy development. Mr. Pappass
qualifications to serve on our board of directors include his
extensive knowledge of our company and the specialty food
products distribution business and his years of leadership at
the Company.
John Pappas is a founder of our company and currently
serves as our vice chairman, a position he has held since
March 1, 2011. From our founding in 1985 to March 1,
2011, he served as our chief operating officer. He has
25 years of experience in logistics, facility management
and global procurement and oversees our network of distribution
centers nationwide. Mr. Pappas is also active in the
development of our corporate strategy. Mr. Pappass
qualifications to serve on our board of directors include his
extensive knowledge of our company and the specialty food
products distribution industry and his years of leadership at
the Company.
Dean Facatselis is a founder of our company and has been
a director of our company since January 1, 2007. He served
as our chief financial officer from June 1, 1985 to
December 31, 2006. Mr. Facatselis is a certified
public account, and he attended Baruch College of the City
University of New York, where earned a Bachelor of Business
Administration degree in 1977. Mr. Facatseliss
qualifications to serve on our board of directors include his
53
extensive knowledge of our company and the specialty food
products distribution business, his accounting and financial
expertise and his years of leadership at the company.
John A. Couri has been a director of ours since July
2005. Mr. Couri is the president of Couri
Foundation, Inc., which was founded in 1988 to operate youth
programs for underprivileged children. He is also the president
of the Ridgefield Senior Center Foundation, Inc., which operates
a senior center in Ridgefield, Connecticut. In 1983,
Mr. Couri co-founded Duty Free International (DFI), a New
York Stock Exchange-listed public company, now Duty Free
Americas, and served as president and chief executive officer of
that company until it was sold to BAA in 1997. Mr. Couri
served as a member of the Listed Company Advisory Board of the
New York Stock Exchange from January 1993 to December 1995 and
served as chairman of the Board of Trustees of Syracuse
University from May 2004 to May 2008. Mr. Couri holds a
Bachelor of Arts degree in Economics, with a minor in Business,
from Syracuse University and received an honorary doctorate
degree from Syracuse University in 2008. Mr. Couris
qualifications to serve on our board of directors include his
experiences as having been a founder, president and chief
executive officer of a publicly traded company, his expertise
involving listed companies and his understanding of corporate
finance matters.
Kevin Cox has agreed to join our board of directors prior
to the commencement of this offering. Mr. Cox is the
executive vice president of human resources at American Express
Company, a global provider of payment solutions and
travel-related services for consumers and businesses, a position
he has held since 2005. Prior to joining America Express,
Mr. Cox spent 16 years at PepsiCo and Pepsi Bottling
Group, where he held positions leading strategy, business
development, technology and human resources. He is a current
member of the board of directors of Corporate Executive Board
Company, a registered public company, and Ability Beyond
Disability, and he served as a member of the board of directors
of Virgin Mobile USA, Inc., a registered public company, from
2007 to 2009. Mr. Cox holds a Master of Labor and
Industrial Relations from Michigan State University and a
Bachelor of Arts from Marshall University. Mr. Coxs
qualifications to serve on our board of directors include his
extensive knowledge of compensation matters, including the
design, implementation and maintenance of compensation programs
for publicly traded companies, as well as his experiences gained
from serving on boards of directors of other publicly traded
companies and his having been involved in the initial public
offering of Pepsi Bottling Group.
Kenneth Clark is our chief financial officer, a position
he has held since March 6, 2009. From July 7, 2007 to
March 6, 2009, Mr. Clark served as our controller.
Prior to joining our company, Mr. Clark was vice
president controller at Credit Suisse Energy, LLC
from June 2005 to July 2007. He has also held key financial
positions at United Rentals, Inc., Sempra Energy Trading
Corporation and Arthur Andersen, LLC. Mr. Clark holds a
Bachelor of Business Administration degree in Accounting from
Western Connecticut State University and is a certified public
accountant.
James Wagner is our chief operating officer, a position
he has held since March 1, 2011. Over the past six years he
has served in a variety of management positions with our
company, most recently serving as our chief commercial officer
from August 1, 2010 to February 28, 2011 prior to his
promotion to chief operating officer. From March 2009 to
August 1, 2010 he served as our executive vice president of
marketing, business development and, for our non-New York
markets, sales. From March 2006 through February 2009, he was
our executive vice president of marketing and business
development. From October 2005 through February 2006, Mr. Wagner
was the general manager of our Los Angeles market. Prior to
joining our company in 2005, Mr. Wagner was a principal and
co-founder of TrueChocolate, Inc., a chocolate manufacturing and
processing
start-up. He
also held key management positions at Clear!Blue Marketing and
was principal and founder of Jump Communications.
Mr. Wagner holds a Bachelor of Arts degree from the
University of California, Berkeley where he was member of the
schools NCAA National Championship Water Polo teams in
1989, 1990, 1991 and 1992.
Frank ODowd is our chief information officer, a
position he has held since January 28, 2007.
Mr. ODowd has extensive experience managing
information technology in rapidly growing organizations. Prior
to joining our company, he was the chief information officer at
GAF Materials Corporation, a North American roofing
manufacturer, from June 1997 to April 2006 where he guided the
companys IT function as the organization grew from a
regional supplier to a large multinational corporation.
Mr. ODowds prior professional experience also
includes experiences at Reed Elsevier, Newsweek Magazine and
Wyeth Pharmaceuticals. Mr. ODowd holds a Bachelor of
Arts degree from The University of Dayton and a Master of Arts
degree from Stony Brook University.
Patricia Lecouras is our executive vice president of
human resources, a position she has held since January 31,
2007. Ms. Lecouras joined our company from GE Capital
Commercial Finance where she was vice president, human
54
resources from 2001 to 2007. Prior to her time with GE Capital
Commercial Finance, Ms. Lecouras was with Nine West Shoes
(f/k/a Fischer Camuto Corporation) and Xerox.
Ms. Lecourass professional experience is
multi-disciplinary and includes prior experience working in
finance and tax-related functions. She also has earned a six
sigma master black belt certification. Ms. Lecouras holds a
Bachelor of Arts degree in Psychology and Social Work from
Skidmore College.
Alexandros Aldous is our legal services director, a
position he has held since March 2011. Prior to joining our
company, he served as a legal consultant in London to Barclays
Capital, the investment banking division of Barclays Bank PLC,
from November 2009 to December 2010. Mr. Aldous also served
as an attorney with Watson, Farley & Williams from
August 2008 to September 2009, where he specialized in mergers
and acquisitions and capital markets, and as an attorney with
Shearman & Sterling LLP from October 2005 to August
2008, where he specialized in mergers and acquisitions.
Mr. Aldous received a Bachelor of Arts degree in Classics
and Government from Colby College, a Juris Doctor and M.A. from
American University and an LL.M. from the London School of
Economics and Political Science. Mr. Aldous is licensed to
practice law in the State of New York, Washington, D.C. and
England and Wales.
Corporate
Governance Profile
Board
Composition and Controlled Company Status
Our business and affairs are managed under the direction of our
board of directors. Our board of directors is currently
comprised of four members. Our bylaws will provide that our
board of directors will consist of a number of directors to be
fixed from time to time by a resolution of the board of
directors. Upon the completion of this offering, we expect that
our board of directors will be comprised of at least six
directors, of which no less than three will be
independent as such term is defined under The NASDAQ
Marketplace Rules. Our board of directors has determined that
John Couri, Kevin Cox and Stephen Hanson are, or when appointed
to our board of directors will be, independent. Moreover, our
board of directors will not be staggered and each of our
directors will be subject to re-election annually. Each
directors term will continue until the election and
qualification of his or her successor, or his or her earlier
death, resignation or removal.
Although we are seeking to have a majority of independent
directors following the consummation of this offering, we may
nonetheless avail ourselves of the controlled
company exception under The NASDAQ Marketplace Rules.
Accordingly, our board of directors may not be comprised of a
majority of independent directors and our compensation committee
and nominating and corporate governance committee may not be
composed entirely of independent directors. Further, a majority
of independent directors would not determine either the
compensation of our executive officers or the selection of our
director nominees. The controlled company exception
does not modify the independence requirements for the audit
committee, however, and we intend to comply with the
requirements of Sarbanes-Oxley and The NASDAQ Marketplace Rules,
which require that our audit committee be composed of at least
three members, one of whom will be independent upon the
completion of this offering, a majority of whom will be
independent within 90 days from the date of this prospectus
and each of whom will be independent within one year from the
date of this prospectus.
Committees of
the Board of Directors
Following the consummation of this offering, our board of
directors will establish an audit committee, a compensation
committee and a nominating and corporate governance committee.
Each committee member will be appointed by the board of
directors and will serve until the election and qualification of
his or her successor, or his or her earlier death, resignation
or removal.
Audit
Committee
Upon the completion of this offering, we will have an audit
committee that consists of at least one director who is
independent and that will have responsibility for, among other
things:
|
|
|
|
|
overseeing managements maintenance of the reliability and
integrity of our accounting policies and financial reporting and
our disclosure practices;
|
|
|
overseeing managements establishment and maintenance of
processes to assure that an adequate system of internal control
is functioning;
|
55
|
|
|
|
|
overseeing managements establishment and maintenance of
processes to assure our compliance with all applicable laws,
regulations and corporate policies;
|
|
|
reviewing our annual and quarterly financial statements prior to
their filing and prior to the release of earnings; and
|
|
|
reviewing the performance of the independent accountants and
making decisions regarding the appointment or termination of the
independent accountants and considering and approving any
non-audit services proposed to be performed by the independent
accountants.
|
We expect that , and will
serve on the audit committee upon the completion of this
offering, with serving as the chair of the audit
committee. Our board of directors has affirmatively determined
that and are independent directors
according to the rules and regulations of the SEC and The NASDAQ
Stock Market. In addition, has been determined by
our board of directors to be an audit committee financial
expert, as such term is defined in the rules and
regulations of the SEC. The audit committee will have the power
to investigate any matter brought to its attention within the
scope of its duties and to retain counsel for this purpose where
appropriate.
Our board of directors will adopt a written charter for our
audit committee, which will be available on our corporate
website at
http://www.chefswarehouse.com
upon completion of this offering.
Compensation
Committee
Upon the completion of this offering, we will have a
compensation committee that will have responsibility for, among
other things:
|
|
|
|
|
reviewing our compensation practices and policies, including
equity benefit plans and incentive compensation;
|
|
|
reviewing key employee compensation policies;
|
|
|
monitoring performance and compensation of our
employee-directors,
officers and other key employees; and
|
|
|
preparing recommendations and periodic reports to the board of
directors concerning these matters.
|
We expect that , and will
serve on the compensation committee upon completion of this
offering, with serving as the chair of the
compensation committee. Our board of directors has affirmatively
determined that is an independent director according
to the rules and regulations of the SEC and The NASDAQ Stock
Market.
Our board of directors will adopt a written charter for our
compensation committee, which will be available on our corporate
website at
http://www.chefswarehouse.com
upon completion of this offering.
Nominating and
Corporate Governance Committee
Upon the completion of this offering, we will have a nominating
and corporate governance committee that will have responsibility
for, among other things:
|
|
|
|
|
making recommendations as to the size, composition, structure,
operations, performance and effectiveness of the board of
directors;
|
|
|
establishing criteria and qualifications for membership on the
board of directors and its committees;
|
|
|
assessing and recommending to the board of directors strong and
capable candidates qualified to serve on the board of directors
and its committees;
|
|
|
developing and recommending to the board of directors a set of
corporate governance principles; and
|
|
|
considering and recommending to the board of directors other
actions relating to corporate governance.
|
We expect that , and will
serve on the nominating and corporate governance committee upon
the completion of this offering, with serving as the
chair of the nominating and corporate governance committee.
Our board of directors has affirmatively determined
that is an independent director according to the
rules and regulations of the SEC and The NASDAQ Stock Market.
56
Our board of directors will adopt a written charter for our
nominating and corporate governance committee, which will be
available on our corporate website at
http://www.chefswarehouse.com
upon completion of this offering.
Compensation
Committee Interlocks and Insider Participation
None of our executive officers currently serve, or in the past
year have served, as a member of the board of directors or
compensation committee of any entity that has one or more
executive officers serving on our board of directors or
compensation committee.
Code of
Business Conduct and Ethics
In connection with this offering, our board of directors will
adopt a code of business conduct and ethics that establishes the
standards of ethical conduct applicable to all of our directors,
officers, employees, consultants and contractors. The code of
business conduct and ethics will address, among other things,
competition and fair dealing, conflicts of interest, financial
matters and external reporting, company funds and assets,
confidentiality and corporate opportunity requirements and the
process for reporting violations of the code of business conduct
and ethics, employee misconduct, conflicts of interest or other
violations. Our code of business conduct and ethics will be
publicly available on our website at
http://www.chefswarehouse.com.
Any waiver of our code of business conduct and ethics with
respect to our chief executive officer, chief financial officer,
controller or persons performing similar functions may only be
authorized by our audit committee and will be disclosed as
required by applicable law.
Risk
Oversight
Our board of directors oversees risk management with a focus on
our primary areas of risk: risk related to our business
strategy, financial risk, legal/compliance risk and operational
risk. Our president and chief executive officer and each of our
other executive officers are responsible for managing risk in
their respective areas of authority and expertise, identifying
key risks to the board and explaining to the board how those
risks are being addressed.
Following the consummation of this offering, we expect that the
standing committees of the board will also have responsibility
for risk oversight. The audit committee will focus on financial
risk, including fraud risk and risks relating to our internal
controls over financial reporting. The nominating and corporate
governance committee is expected to assist the board of
directors in fulfilling its oversight responsibility with
respect to regulatory compliance and will receive regular
reports from our legal services director and other employees
responsible for our regulatory compliance. The compensation
committee is expected to address risks relating to our executive
compensation strategies and will be tasked with monitoring our
executive compensation program to ensure that it does not
encourage our executive officers to take unnecessary and
excessive risks. We anticipate that our board will receive
regular reports from the chairs of these committees regarding
these committees risk management efforts and receive
reports and other meeting materials provided to each of the
committees.
57
COMPENSATION
DISCUSSION AND ANALYSIS
Compensation
Discussion and Analysis
This compensation discussion and analysis discusses the
objectives and elements of our compensation programs and the
compensation awarded to our named executive officers in the 2010
fiscal year. This information should be read in conjunction with
the Summary Compensation Table and the related tables and
narratives that follow this compensation discussion and
analysis. For fiscal 2010, the following individuals were our
named executive officers:
|
|
|
|
l
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Christopher Pappas, our chairman, president and chief executive
officer;
|
|
|
l
|
John Pappas, our vice chairman;
|
|
|
l
|
James Wagner, our chief operating officer;
|
|
|
l
|
Kenneth Clark, our chief financial officer; and
|
|
|
l
|
Frank ODowd, our chief information officer.
|
Overview of
Compensation Process
As a private company with a relatively small number of owners,
we have historically employed an informal process for setting
the compensation of our named executive officers. For fiscal
2010, the compensation for our chief executive officer and our
vice chairman was established through negotiations between those
executives and representatives of BGCP, the holder of a majority
of our Class A units of membership interest prior to the
redemption of those units in October 2010. The compensation for
our other named executive officers was established by our chief
executive officer, with the input of representatives of BGCP,
and was principally based on BGCPs representatives
recommendations, our chief executive officers assessment
of our operating performance in fiscal 2009 and the individual
named executive officers performance of his duties and the
compensation of executive officers in comparable positions at
other companies operating within our business sector.
Following the consummation of this offering, we will establish a
compensation committee of our board of directors. This
committee, which will consist solely of directors that are
independent under the rules and regulations of the
SEC and The NASDAQ Stock Market, will have overall
responsibility for the compensation program for our named
executive officers.
Compensation
Philosophy and Objectives
Presently, the principal objectives of our named executive
officer compensation program are to attract and retain
highly-qualified executives by providing competitive total
compensation for each position, based on compensation levels at
other similarly-sized companies operating within our business
sector. We also seek to provide appropriate incentives for our
named executive officers to achieve performance metrics related
to our company-wide performance and the individuals
relevant performance goals. Finally, through the issuance of
equity-based incentives, we seek to retain our key employees and
reward performance that enhances our long-term value.
Following the consummation of this offering, we expect that our
compensation committee will maintain these principal objectives
as the key components of our named executive officer
compensation program. Accordingly, we believe that our
compensation committee will strive to implement a compensation
program that enables us to attract and retain
high-quality
leadership and to assure that our named executive officers are
compensated in a manner consistent with stockholder interests,
the policies adopted by the compensation committee, internal
equity considerations, competitive practice and the requirements
of appropriate regulatory bodies. In determining the relevant
amounts of each of these components, we believe our compensation
committee will adopt a compensation program that consists of a
mix of compensation that is:
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l
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Performance-based: A significant
component of compensation should be determined based on whether
or not our named executive officers meet performance criteria
that are aligned with growth in stockholder value without
engaging in unreasonable risk-taking.
|
|
|
|
|
l
|
Competitive: Pay-for-performance
scales will be established to ensure that the competitive
positioning of an executives total compensation reflects
the competitive positioning of our performance (i.e., the better
our performance relative to peers, the higher total compensation
payable to a named executive officer relative to competitive
benchmarks, and vice versa).
|
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l
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Balanced: Performance-oriented
features and retention-oriented features should be balanced so
that the compensation program accomplishes our
pay-for-performance
and executive retention objectives, while encouraging prudent
risk-taking that is aligned with our overall strategy.
|
58
|
|
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|
l
|
Fair: Compensation levels and plan
design should reflect competitive practices, our performance
relative to peer companies and the relationship of compensation
levels from one executive to another.
|
Principal
Components of Our Compensation Packages
Taking into account the above-described objectives, historically
we have focused on designing a compensation package that
consists of two primary elements: (i) base salary and
(ii) performance-based, annual cash incentive awards. We
have also awarded our named executive officers, when hired,
promoted or both, equity interests in our company that vest on a
pro-rata basis over a four-year period. We expect that,
following the consummation of this offering, our compensation
committee will continue to design a compensation package made up
of base salaries, performance-based, annual cash incentive
awards and equity-based awards consisting of a mix of time-based
vesting stock options and restricted stock awards, together with
performance-based restricted stock.
Components of
Fiscal 2010 Compensation for Our Named Executive
Officers
For our 2010 fiscal year, our named executive officers
compensation consisted of the following principal components:
Base Salary. We provide our named
executive officers with a base salary to compensate them for
performing their daily responsibilities during the year. We
believe that base salaries must be competitive based upon the
named executive officers scope of responsibilities and
market rates of compensation for executives performing similar
functions for comparable companies within our business sector.
For fiscal 2010, the base salaries for our chief executive
officer and vice chairman were established through negotiations
between those executives and representatives of BGCP, the holder
of a majority of our Class A units prior to the redemption
of those units in October 2010. The fiscal 2010 base salaries
for our named executive officers other than our chief executive
officer and vice chairman were based on our chief executive
officers and BGCPs representatives assessment
of our operating performance in fiscal 2009 and the individual
named executive officers performance of his duties during
that year. Our named executive officers, other than
Messrs. C. Pappas and J. Pappas, have had their
performance reviewed periodically, and have been eligible for
merit-based base salary increases as a result of these reviews.
Taking all of these factors into account, our named executive
officers received the following base salaries for the 2010
fiscal year:
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|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
Increase
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|
|
2010
|
|
Over Prior
|
Name
|
|
Base Salary
|
|
Year
|
|
Christopher Pappas
|
|
$
|
400,000
|
|
|
|
0
|
%
|
John Pappas
|
|
$
|
400,000
|
|
|
|
0
|
%
|
James Wagner
|
|
$
|
215,500
|
(1)
|
|
|
0
|
%
|
Kenneth Clark
|
|
$
|
249,000
|
|
|
|
0
|
%
|
Frank ODowd
|
|
$
|
218,500
|
|
|
|
0
|
%
|
|
|
|
|
|
(1) |
|
Mr. Wagners annual base
salary was $215,500 for the first seven months of 2010. On
August 1, 2010, Mr. Wagners annual base salary
increased to $240,000.
|
Performance-Based, Annual Cash Incentive
Compensation. To closely align our named
executive officers compensation to our goals, we believe
that a significant portion of a named executive officers
compensation should be incentive-based. Accordingly, we have
utilized, and anticipate that we will continue to utilize
following the consummation of this offering, an annual cash
incentive program that provides our named executive officers
with the opportunity to earn substantial cash incentive
compensation for the achievement of annual goals related to both
our performance and the executive officers individual
performance.
For 2010, each of Messrs. C. Pappas and J. Pappas were
eligible to earn a performance-based cash incentive tied to our
achieving at least a threshold level of EBITDA. Specifically,
each individual was eligible to receive a cash payment equal to
25% of our EBITDA over $18.25 million, with a maximum award
of $350,000. For 2010, each of Christopher Pappas and John
Pappas received a cash incentive payment of $350,000. For fiscal
2010, we based each of the other named executive officers
performance-based cash incentive award primarily on the
achievement of company-wide targeted financial goals.
Mr. Wagners award was tied to our achieving revenue
of $291.0 million and gross profits of $75.6 million.
He also had an individual performance goal tied to the
reorganization of our sales
59
management by January 1, 2011. Mr. Clarks and
Mr. ODowds awards were not tied specifically to
any particular performance metric, but rather were determined in
the discretion of our chief executive officer. Although the
awards for Mr. Clark and Mr. ODowd were not
specifically tied to any particular performance metric,
Mr. C. Pappas did consider our performance against budgeted
revenue and gross profit targets when determining the amount of
incentive-based compensation to pay Messrs. Clark and
ODowd. Our chief executive officer has, and prior to our
redemption of all of our then-issued Class A units,
BGCPs representatives together with our chief executive
officer had, a significant amount of discretion to pay the full
amount of a targeted award or a smaller percentage thereof if we
did not meet any of these targets or to reduce the amount of an
award even if we achieved a specific target.
For our 2010 fiscal year, Mr. Wagners
performance-based cash incentive target award expressed as a
percentage of his base salary was 50% of his $215,500 base
salary for the first seven months of 2010 and 75% of his
$240,000 base salary for the last five months of 2010. The
percentage target for each of Mr. Clark and
Mr. ODowd was 50% of base salary. As we achieved each
of our budgeted performance targets for the 2010 fiscal year and
as Mr. Wagner achieved his individual performance goals,
each of Messrs. Wagner, Clark and ODowd received his
maximum target cash incentive payment. These payments were made
on March 2, 2011. The amounts actually paid to
Mr. Wagner, Mr. Clark and Mr. ODowd under
the annual, performance-based cash incentive program, and the
related target amounts, are set forth in the following table:
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NAME
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TARGET AWARD
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|
ACTUAL AWARD
|
|
James Wagner
|
|
$
|
138,730
|
|
|
$
|
138,730
|
|
Kenneth Clark
|
|
$
|
124,500
|
|
|
$
|
124,500
|
|
Frank ODowd
|
|
$
|
109,250
|
|
|
$
|
109,250
|
|
|
|
Long-term Equity Incentive Compensation. In fiscal
2010 and prior years, we did not have a specific plan or
arrangement under which our named executive officers were
granted options or other equity awards. We did, however, from
time-to-time
award Class C units to our named executive officers. We
issued these units, which do not have voting rights before or
after vesting, as a retention tool and to include a component of
long-term, performance-based equity compensation in our named
executive officers total compensation. These awards were
typically issued in connection with our hiring, and in the case
of Mr. Clark, promoting, a named executive officer. In
total, we have issued our named executive officers 2,083,333
Class C units of ownership interest. These awards, which
were issued in 2007 and 2009, as described in the following
table, vest 25% per year over the first four years following
issuance:
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|
|
|
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NAME
|
|
GRANT DATE
|
|
NUMBER OF CLASS C UNITS ISSUED
(1)
|
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James Wagner
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|
|
August 1, 2007
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|
|
|
833,333
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|
Kenneth Clark
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|
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July 31, 2007
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|
|
|
200,000
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|
|
|
|
March 5, 2009
|
|
|
|
516,667
|
|
|
|
|
June 16, 2009
|
|
|
|
116,667
|
|
Frank ODowd
|
|
|
June 13, 2007
|
|
|
|
416,666
|
|
|
|
|
|
|
(1) |
|
In connection with the
reorganization transaction, these units will convert into common
shares of The Chefs Warehouse,
Inc.,
shares of which will be unvested restricted common stock,
immediately prior to the consummation of this offering at a
conversion ratio
of shares
of common stock per Class C unit. See the information under
the caption Certain Relationships and Related-Party
Transactions Reorganization Transaction.
|
The number of units issued to each individual was based
primarily on a combination of internal pay equity
considerations, job responsibilities, overall dilution of
current ownership and our lack of any equity incentive
compensation prior thereto. Each of the named executive officers
made Section 83(b) elections under the Code in connection
with these awards. The vesting of these awards will not
accelerate upon the consummation of this offering.
In connection with this offering, we expect to adopt The
Chefs Warehouse, Inc. 2011 Omnibus Equity Incentive
Compensation Plan, or the Omnibus Plan. The Omnibus Plan will
allow us to provide a variety of incentive awards (including
annual and long-term incentive awards) to our named executive
officers and other employees following completion of the
offering. The Omnibus Plan will permit us to issue stock
options, restricted stock units, restricted stock, stock
appreciation rights, performance units, performance shares and
cash incentive awards to eligible
60
employees (including our named executive offers), directors and
advisors, as determined by the compensation committee. For more
details regarding this plan, see the information under the
caption 2011 Omnibus Equity Incentive
Compensation Plan beginning on page 68 of this
prospectus.
Retirement Plans and Other
Benefits. We believe that an important
aspect of attracting and retaining qualified individuals to
serve as executive officers involves providing health and
welfare benefits as well as methods for those individuals to
save for retirement. Accordingly, we provide our named executive
officers with the following benefits:
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l
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Health Insurance. We provide each of our named
executive officers and their spouses and children the same
health, dental and vision insurance coverage we make available
to our other eligible employees. We pay both our portion and the
executives portion of the premiums for these benefits.
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|
|
l
|
Disability Insurance. We provide each of our
named executive officers with disability insurance.
|
|
|
l
|
Retirement Benefits. We do not provide pension
arrangements or post-retirement health coverage for our named
executive officers or employees; however, our named executive
officers and other eligible employees are eligible to
participate in our 401(k) defined contribution plan. Prior to
our 2011 fiscal year we did not match employee contributions
under our 401(k) plan. Beginning in 2011, we are making matching
contributions for each of our employees, including our named
executive officers, in an amount equal to 3% of the
employees contributions up to 6% of his or her base salary.
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|
l
|
Nonqualified Deferred Compensation. We do not
currently provide any nonqualified defined contribution or other
deferred compensation plans to any of our employees.
|
|
|
l
|
Perquisites. In 2010, we provided certain
personal-benefit perquisites to our named executive officers.
Other than automobile allowances for certain of our named
executive officers and a temporary housing allowance for
Mr. ODowd, the aggregate incremental cost to us of
the perquisites received by each of the named executive officers
in 2010 did not exceed $10,000. The cost of the perquisites
provided to the named executive officers in 2010 is included in
the Summary Compensation Table.
|
Employment
Agreements, Letter Agreements and Severance
Benefits
Employment Agreements. We have entered
into an employment agreement with each of Christopher Pappas and
John Pappas. Our agreement with Christopher Pappas provides for
an annual base salary of $1,000,000 per year as well as
reimbursement for a leased automobile. Although his employment
agreement provides for a base salary of $1,000,000 annually, in
2006 Mr. C. Pappass base salary was reduced to $400,000
with his consent. Mr. C. Pappass annual base
salary will be $750,000 for fiscal 2011 with his consent. This
agreement does not have a stated expiration date, but rather is
terminable by Mr. Pappas on 60 days notice and
by us upon approval of a resolution by our board of directors.
This employment agreement also includes a non-competition and
non-solicitation provision, pursuant to which Mr. Pappas
has agreed, among other things, that for two years following the
termination of his employment with us, he will not
(i) compete with us or our subsidiaries; (ii) induce
an employee of ours to leave our employ; (iii) hire any of
our senior executives or full-time sales professionals; or
(iv) induce a customer or supplier of ours to cease doing
business with us. If Mr. Pappas is terminated by us without
cause under certain scenarios, the non-competition and
non-solicitation provisions of his employment agreement expire
as of the date of termination unless we exercise an option to
extend those provisions for up to two years, in exchange for
annual payments of $500,000 during those two years.
Our agreement with John Pappas provides for an annual base
salary of $1,000,000 per year as well as reimbursement for a
leased automobile. Although his employment agreement provides
for a base salary of $1,000,000 annually, in 2006 Mr. J.
Pappass base salary was reduced to $400,000 with his
consent. Mr. J. Pappass annual base salary will
be $750,000 for fiscal 2011 with his consent. This agreement
does not have a stated expiration date, but rather is terminable
by Mr. Pappas on 60 days notice and by us upon
approval of a resolution by our board of directors. This
employment agreement also includes a non-competition and
non-solicitation provision, pursuant to which Mr. Pappas
has agreed, among other things, that, for two years following
the termination of his employment with us, he will not
(i) compete with us or our subsidiaries; (ii) induce
an employee of ours to leave our employ; (iii) hire any of
our senior executives or full-time sales professionals; or
(iv) induce a customer or supplier of ours to cease doing
business with us. If Mr. Pappas is terminated by us under
certain scenarios, the non-competition and non-solicitation
provisions of his employment agreement expire as of the date of
termination unless we exercise an option to extend those
provisions for up to two years, in exchange for annual payments
of $500,000 during those two years.
We expect that we will enter into an amended and restated
employment agreement with each of Christopher Pappas and John
Pappas prior to consummation of this offering. Although the
annual base salary for Messrs. C. Pappas and
61
J. Pappas was increased to $750,000 in 2011, their total
compensation in 2011 is expected to be comparable to their total
compensation paid in 2010 after taking into account the $350,000
bonus payment that was made to each in 2010.
Letter Agreements. On
April 8, 2011, we entered into a letter agreement with
James Wagner, our chief operating officer. The letter agreement
has no specific term and provides that Mr. Wagner is an
at-will employee. Mr. Wagners annual base salary
under the letter agreement is $250,000 and he is eligible to
participate in our annual, performance-based cash incentive
program at a target of 100% of his base salary. In connection
with entering into the letter agreement with Mr. Wagner, we
agreed to issue him Class C units (which will convert to
restricted shares of our common stock in connection with the
reorganization transaction) equal to approximately 0.8% of our
outstanding shares of common stock following the consummation of
this offering, which will result in our incurring a non-cash
compensation charge amortized over the life of the award. These
units vest 50% on grant and 12.5% per year for each of the first
four years following issuance. Any unvested portion of this
award would vest immediately upon our termination of
Mr. Wagner without cause or upon consummation of a change
in control of our company.
On March 6, 2009, we entered into a letter agreement with
Kenneth Clark, our chief financial officer. The letter agreement
has no specific term and provides that Mr. Clark is an
at-will employee. Mr. Clarks base salary under the
letter agreement was initially $210,000. This amount was
increased to $249,000 per year effective as of March 1,
2010. Pursuant to the terms of the letter agreement,
Mr. Clark is eligible to participate in our annual,
performance-based cash incentive program at a target of 50% of
his annual base salary. Mr. Clarks letter agreement
also provides that he is entitled to receive his base salary for
a period of twelve months following his termination by us
without cause.
On January 28, 2007, we entered into a letter agreement
with Frank ODowd, our chief information officer. The
letter agreement has no specific term and provides that
Mr. ODowd is an at-will employee.
Mr. ODowds annual base salary under the letter
agreement was initially $200,000, which was subsequently
increased to $218,500, and he is eligible to participate in our
annual, performance-based cash incentive program at a target of
50% of his annual base salary. Mr. ODowds
letter agreement also provides that he is entitled to receive
his base salary for a period of six months following his
termination by us without cause.
Neither Mr. Wagners nor Mr. ODowds
letter agreement defines cause.
Mr. Clarks letter agreement defines cause
as termination of employment by us due to (i) conviction
of, or plea of, nolo contendre, with respect to any
felony, or any act of fraud, embezzlement or dishonesty against
us or any of our subsidiaries, or any act of moral turpitude or
any conduct in which he engages during his employment that tends
to bring us or any of our subsidiaries into substantial public
disgrace or disrepute, (ii) the commission of any act or
omission involving fraud with respect to us or any of our
subsidiaries or in connection with any relationship between us
or any of our subsidiaries and any customer or supplier,
(iii) use of illegal drugs or repetitive abuse of other
drugs or repetitive excess consumption of alcohol interfering
with the performance of his duties, (iv) the gross
negligence or willful misconduct in the performance of his
duties with respect to us or any of our subsidiaries or
(v) failure to follow the lawful directives of our
president.
Other Severance Benefits. As described
above, we have entered into letter agreements with each of
Messrs. Clark and ODowd pursuant to which we have
agreed to pay these individuals severance benefits if they are
terminated by us without cause. We have entered into
a separate severance and release agreement with Mr. Wagner
pursuant to which Mr. Wagner is entitled to receive his
base salary for twelve months following our termination of his
employment without cause, or, if earlier, until the
date he begins employment with a new company or business;
provided that Mr. Wagner provides the release
described therein. Mr. Clarks agreement with us
provides that we will pay him his base salary for twelve months
following our termination of his employment without
cause. Our agreement with Mr. ODowd
requires that we pay him his base salary for six months
following our termination of his employment without
cause.
Mr. Wagners agreement defines cause as
(i) willful refusal to perform, in any material respect,
his duties or responsibilities for us; (ii) material breach
of his Confidentiality, Non-Solicit, Non-Interference,
Non-Compete and Severance Agreement with us; (iii) gross
negligence or willful disregard in the performance of his duties
or responsibilities; (iv) willful disregard, in any
material respect, of any financial or other budgetary
limitations applicable to Mr. Wagner; (v) the
commission of any act or omission involving fraud with respect
to us or our subsidiaries or any customer or supplier of ours
that were established in good faith; or (vi) use of illegal
drugs, repetitive abuse of other drugs or repetitive consumption
of alcohol interfering with the performance of his duties.
62
In determining the length of the severance benefits that we
would pay these named executive officers following their
termination, we considered the need to be able to competitively
recruit and retain talented executive officers who often times
seek protection against the possibility that they might be
terminated without cause or forced to resign without cause,
particularly following a change of control. None of our named
executive officers are entitled to receive single trigger cash
payments upon a change in control involving us.
2011
Compensation
For 2011, the base salary for Messrs. C. Pappas and
J. Pappas was increased to $750,000. They will not be
eligible for any non-equity incentive plan compensation for
2011. Mr. Wagners annual base salary was increased to
$250,000 in connection with his promotion to chief operating
officer. The annual base salaries of Messrs. Clark and
ODowd are unchanged for fiscal 2011. Each of our named
executive officers, other than Messrs. C. Pappas and
J. Pappas, will be eligible to receive performance-based
cash incentive payments in the first quarter of 2012 if we
achieve performance targets related to our fiscal 2011 revenues,
operating profit and EBITDA. The bonus target, expressed as a
percentage of annual base salary, that Messrs. Clark and
ODowd are each entitled to receive is the same as the
target for fiscal 2010, and Mr. Wagners target is
100% of his annual base salary. In connection with our promoting
Mr. Wagner to chief operating officer, we intend to award
him an additional equity interest in our company equal to 0.8%
of our outstanding common stock following the consummation of
this offering. This award, which will be issued prior to the
consummation of this offering, vests 50% on grant and 12.5% per
year on each of the first four anniversaries following the grant
date. Any unvested portion of this award would vest immediately
upon our termination of Mr. Wagner without cause or upon
consummation of a change in control of our company.
Tax and
Accounting Implications
Deductibility of Executive
Compensation. The accounting and tax
treatment of particular forms of compensation have not, to date,
materially affected our compensation decisions. Following the
consummation of this offering, we expect that our compensation
committee will consider the effect of accounting and tax
treatment regarding executive compensation when making decisions
regarding the amount and form of compensation that we will pay
our named executive officers. For instance, we expect that our
compensation committee will review and consider the
deductibility of executive compensation under
Section 162(m) of the Code, which generally disallows tax
deductions to public companies for certain compensation in
excess of $1,000,000 that is paid in any one tax year to certain
of our most highly compensated employees. There is an exception
to the limit on deductibility for performance-based compensation
that meets certain requirements. We believe that the
compensation paid under the Omnibus Plan, including any
performance-based cash incentive compensation, should be fully
deductible for federal income tax purposes. In certain
situations, however, we may approve compensation that will not
meet these requirements in order to ensure competitive levels of
total compensation for our named executive officers.
Accounting for Equity-Based
Compensation. Accounting rules require that
we expense equity-based compensation awards, including awards
under the Omnibus Plan.
2010 Summary
Compensation Table
The table below summarizes the compensation paid or accrued by
us during the 2010 fiscal year for our chief executive officer,
chief financial officer and each of our next three highest paid
executive officers whose total compensation exceeded $100,000
for the 2010 fiscal year.
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN PENSION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VALUE AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONQUALIFIED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-EQUITY
|
|
DEFERRED
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCK
|
|
OPTION
|
|
INCENTIVE PLAN
|
|
COMPENSATION
|
|
ALL OTHER
|
|
|
NAME AND PRINCIPAL
|
|
|
|
SALARY
|
|
BONUS
|
|
AWARDS
|
|
AWARDS
|
|
COMPENSATION(1)
|
|
EARNINGS
|
|
COMPENSATION
|
|
|
POSITION
|
|
YEAR
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
(2) ($)
|
|
TOTAL ($)
|
|
Christopher Pappas
|
|
|
2010
|
|
|
$
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
350,000
|
|
|
|
|
|
|
$
|
29,605
|
|
|
$
|
779,605
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Pappas
|
|
|
2010
|
|
|
$
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
350,000
|
|
|
|
|
|
|
$
|
28,324
|
|
|
$
|
778,324
|
|
Vice Chairman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Wagner
|
|
|
2010
|
|
|
$
|
225,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
138,730
|
|
|
|
|
|
|
$
|
9,355
|
|
|
$
|
373,945
|
|
Chief Operating Officer
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth Clark
|
|
|
2010
|
|
|
$
|
242,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
124,500
|
|
|
|
|
|
|
$
|
5,497
|
|
|
$
|
372,497
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank ODowd
|
|
|
2010
|
|
|
$
|
218,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
109,250
|
|
|
|
|
|
|
$
|
29,321
|
|
|
$
|
357,071
|
|
Chief Information Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
63
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(1) |
|
Amounts reflect those amounts
earned by the named executive officer under our fiscal 2010
performance-based, annual cash incentive program. For a
description of this program, please see the information under
the caption Performance-Based, Annual Cash Incentive
Compensation above.
|
(2) |
|
The following table breaks out the
components of the All Other Compensation paid to our
named executive officers in fiscal 2010:
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|
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|
|
|
|
|
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|
|
|
|
|
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MEDICAL, DENTAL AND
|
|
|
|
|
|
|
|
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VISION INSURANCE
|
|
|
|
HOUSING
|
|
|
NAME
|
|
PREMIUMS(a)
|
|
AUTOMOBILE(b)
|
|
ALLOWANCE
|
|
TOTAL
|
|
Christopher Pappas
|
|
$
|
5,605
|
|
|
$
|
24,000
|
|
|
|
|
|
|
$
|
29,605
|
|
John Pappas
|
|
|
5,524
|
|
|
|
22,800
|
|
|
|
|
|
|
|
28,324
|
|
James Wagner
|
|
|
5,605
|
|
|
|
3,750
|
(c)
|
|
|
|
|
|
|
9,355
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|
Kenneth Clark
|
|
|
5,497
|
|
|
|
|
|
|
|
|
|
|
|
5,497
|
|
Frank ODowd
|
|
|
4,121
|
|
|
|
|
|
|
$
|
25,200
|
|
|
|
29,321
|
|
|
|
|
|
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(a) |
|
This amount reflects each named
executive officers portion of the premiums for his and his
familys medical, dental and vision insurance that we pay
on his behalf.
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(b) |
|
Mr. Christopher Pappas and Mr.
Wagner are provided with monthly car allowances and Mr. John
Pappas is provided with an automobile leased by us.
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(c) |
|
Mr. Wagner receives a car
allowance of $750 per month, which began in August 2010.
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(3) |
|
Mr. Wagner was promoted to the
position of chief operating officer effective March 1,
2011. In connection with this promotion, his base salary was
increased from $240,000 to $250,000 per year.
|
2010 Grants of
Plan-Based Awards
We did not grant any plan-based awards in 2010.
Outstanding
Equity Awards at 2010 Fiscal Year End
The following table sets forth certain information with respect
to our Class C units, the only class of our outstanding
equity held by our named executive officers that had not yet
vested as of December 24, 2010:
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UNIT AWARDS
|
|
|
|
|
NUMBER
|
|
MARKET
|
|
|
|
|
OF UNITS
|
|
VALUE OF
|
|
|
|
|
THAT
|
|
UNITS
|
|
|
|
|
HAVE
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|
THAT
|
|
|
|
|
NOT
|
|
HAVE NOT
|
|
|
|
|
VESTED
|
|
VESTED
(2)
|
NAME
|
|
TYPE OF UNITS
(1)
|
|
(#)
|
|
($)
|
|
Christopher Pappas
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
John Pappas
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
James Wagner
|
|
|
Class C Units
|
|
|
|
208,333
|
|
|
|
N/A
|
|
Kenneth Clark
|
|
|
Class C Units
|
|
|
|
525,001
|
|
|
|
N/A
|
|
Frank ODowd
|
|
|
Class C Units
|
|
|
|
104,167
|
|
|
|
N/A
|
|
|
|
|
|
|
(1) |
|
In connection with the
reorganization transaction, these units will convert into common
shares of The Chefs Warehouse, Inc. immediately prior to
the consummation of this offering at a conversion ratio
of shares
of common stock per Class C unit. See the information under
the caption Certain Relationships and Related-Party
Transactions Reorganization Transaction for
more information regarding this reorganization transaction.
|
(2) |
|
Because the Class C units are
equity interests in a private limited liability company, the
market value of such interests is not readily determinable.
Using the midpoint of the estimated price range set forth on the
cover page of this prospectus, the market value of the unvested
Class C units for each of Messrs. Wagner, Clark and
ODowd would be $ ,
$ and
$ , respectively. The actual
amounts that would have been received could only have been
determined at the time of an actual change in control based on
the actual net proceeds received in connection with such change
in control which likely would have varied from these amounts.
|
64
2010 Units Vested
Table
The following table sets forth certain information with respect
to the number of Class C units that our named executive
officers received upon vesting in fiscal 2010. There were no
other equity-based awards that vested in fiscal 2010.
|
|
|
|
|
|
|
|
|
|
|
CLASS C UNITS
|
|
|
NUMBER OF
|
|
|
|
|
UNITS
|
|
|
|
|
ACQUIRED
|
|
VALUE REALIZED
|
|
|
ON VESTING
|
|
ON VESTING
(1)
|
NAME
|
|
(#)
|
|
($)
|
|
Christopher Pappas
|
|
|
N/A
|
|
|
|
N/A
|
|
John Pappas
|
|
|
N/A
|
|
|
|
N/A
|
|
James Wagner
|
|
|
208,333
|
|
|
|
N/A
|
|
Kenneth Clark
|
|
|
208,334
|
|
|
|
N/A
|
|
Frank ODowd
|
|
|
104,167
|
|
|
|
N/A
|
|
|
|
|
|
|
(1) |
|
Because the Class C units are
equity interests in a private limited liability company, the
market value of such interests is not readily determinable.
Using the midpoint of the estimated price range set forth on the
cover page of this prospectus, the market value of the
Class C units that vested in 2010 for each of
Messrs. Wagner, Clark and ODowd would be
$ , $ and $ , respectively.
The actual amounts that would have been received could only have
been determined at the time of an actual change in control based
on the actual net proceeds received in connection with such
change in control which likely would have varied from these
amounts.
|
Change in Control
and Termination Pay Tables
The tables below reflect the amount of compensation payable to
each of our named executive officers in the event of termination
of such executives employment. The amount of compensation
payable to each named executive officer upon voluntary
termination, early or normal retirement and involuntary
not-for-cause
termination and in the event of disability or death of the
executive is shown below. The amounts shown assume that such
termination was effective as of December 24, 2010, and thus
include amounts earned through such time, and are estimates of
the amounts which would be paid out to the executives upon their
termination. The actual amounts to be paid out can only be
determined at the time of such executives separation from
us.
Christopher
Pappas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOLUNTARY
|
|
EARLY
|
|
NORMAL
|
|
INVOLUNTARY
|
|
|
|
|
EXECUTIVE BENEFITS
|
|
TERMINATION
|
|
RETIREMENT
|
|
RETIREMENT
|
|
NOT-FOR-CAUSE
|
|
DISABILITY
|
|
DEATH
|
AND PAYMENTS UPON
|
|
ON
|
|
ON
|
|
ON
|
|
TERMINATION
|
|
ON
|
|
ON
|
SEPARATION
|
|
12/24/2010
|
|
12/24/2010
|
|
12/24/2010
|
|
ON 12/24/2010
|
|
12/24/2010
|
|
12/24/2010
|
|
Performance-based Cash Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acceleration of Vesting of Class B Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control Payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and Welfare Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excise Tax and
Gross-Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
John
Pappas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOLUNTARY
|
|
EARLY
|
|
NORMAL
|
|
INVOLUNTARY
|
|
|
|
|
EXECUTIVE BENEFITS
|
|
TERMINATION
|
|
RETIREMENT
|
|
RETIREMENT
|
|
NOT-FOR-CAUSE
|
|
DISABILITY
|
|
DEATH
|
AND PAYMENTS UPON
|
|
ON
|
|
ON
|
|
ON
|
|
TERMINATION
|
|
ON
|
|
ON
|
SEPARATION
|
|
12/24/2010
|
|
12/24/2010
|
|
12/24/2010
|
|
ON 12/24/2010
|
|
12/24/2010
|
|
12/24/2010
|
|
Performance-based Cash Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acceleration of Vesting of Class B Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control Payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and Welfare Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excise Tax and
Gross-Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Wagner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOLUNTARY
|
|
EARLY
|
|
|
|
INVOLUNTARY
|
|
|
|
|
EXECUTIVE BENEFITS
|
|
TERMINATION
|
|
RETIREMENT
|
|
NORMAL
|
|
NOT-FOR-CAUSE
|
|
DISABILITY
|
|
DEATH
|
AND PAYMENTS UPON
|
|
ON
|
|
ON
|
|
RETIREMENT
|
|
TERMINATION
|
|
ON
|
|
ON
|
SEPARATION
|
|
12/24/2010
|
|
12/24/2010
|
|
ON 12/24/2010
|
|
ON 12/24/2010
|
|
12/24/2010
|
|
12/24/2010
|
|
Performance-based Cash Incentive Plan
|
|
$
|
138,730
|
|
|
$
|
138,730
|
|
|
$
|
138,730
|
|
|
$
|
138,730
|
|
|
$
|
138,730
|
|
|
$
|
138,730
|
|
Acceleration of Vesting of Class C Units
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control Payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,000
|
(2)
|
|
|
|
|
|
|
|
|
Health and Welfare Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excise Tax and
Gross-Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
138,730
|
|
|
|
138,730
|
|
|
|
138,730
|
|
|
$
|
388,730
|
|
|
|
138,730
|
|
|
|
138,730
|
|
|
|
|
|
|
(1) |
|
Pursuant to the terms of our
Amended and Restated Limited Liability Company Agreement,
Mr. Wagner would forfeit all of his unvested shares upon
his termination of employment for any reason. Mr. Wagner
would forfeit all of his vested and unvested Class C units
upon our termination of his employment for Cause (as
defined in our Amended and Restated Limited Liability Company
Agreement) or upon his engaging in any activity that is
competitive with us, including soliciting our customers or
soliciting or hiring our employees. In the event of an Approved
Company Sale, as defined in our Amended and Restated Limited
Liability Company Agreement, Mr. Wagners unvested
Class C units will immediately vest. Because the
Class C units are equity interests in a private limited
liability company, the market value of such interests is not
readily determinable. Using the midpoint of the estimated price
range set forth on the cover page of this prospectus, the market
value of the unvested Class C units would be
$ .
The actual amount that would have been received could only have
been determined at the time of an actual change in control based
on the actual net proceeds received in connection with such
change in control which likely would have varied from this
amount.
|
(2) |
|
Mr. Wagner is entitled to
receive his base salary for twelve months following our
termination of his employment without cause. These payments
would cease earlier than the
12-month
anniversary of our termination of his employment if
Mr. Wagner becomes employed by another company during that
period.
|
66
Kenneth
Clark
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOLUNTARY
|
|
EARLY
|
|
|
|
INVOLUNTARY
|
|
|
|
|
EXECUTIVE BENEFITS
|
|
TERMINATION
|
|
RETIREMENT
|
|
NORMAL
|
|
NOT-FOR-CAUSE
|
|
DISABILITY
|
|
DEATH
|
AND PAYMENTS UPON
|
|
ON
|
|
ON
|
|
RETIREMENT
|
|
TERMINATION
|
|
ON
|
|
ON
|
SEPARATION
|
|
12/24/2010
|
|
12/24/2010
|
|
ON 12/24/2010
|
|
ON 12/24/2010
|
|
12/24/2010
|
|
12/24/2010
|
|
Performance-based Cash Incentive Plan
|
|
$
|
124,500
|
|
|
$
|
124,500
|
|
|
$
|
124,500
|
|
|
$
|
124,500
|
|
|
$
|
124,500
|
|
|
$
|
124,500
|
|
Acceleration of Vesting of Class C
Units (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control Payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
249,000
|
(2)
|
|
|
|
|
|
|
|
|
Health and Welfare Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excise Tax and
Gross-Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
124,500
|
|
|
$
|
124,500
|
|
|
$
|
124,500
|
|
|
$
|
373,500
|
|
|
$
|
124,500
|
|
|
$
|
124,500
|
|
|
|
|
|
|
(1) |
|
Pursuant to the terms of our
Amended and Restated Limited Liability Company Agreement,
Mr. Clark would forfeit all of his unvested shares upon his
termination of employment for any reason. Mr. Clark would
forfeit all of his vested and unvested Class C units upon
our termination of his employment for Cause (as
defined in our Amended and Restated Limited Liability Company
Agreement) or upon his engaging in any activity that is
competitive with us, including soliciting our customers or
soliciting or hiring our employees. In the event of an Approved
Company Sale, as defined in our Amended and Restated Limited
Liability Company Agreement, Mr. Clarks unvested
Class C units will immediately vest. Because the
Class C units are equity interests in a private limited
liability company, the market value of such interests is not
readily determinable. Using the midpoint of the estimated price
range set forth on the cover page of this prospectus, the market
value of the unvested Class C units would be
$ .
The actual amount that would have been received could only have
been determined at the time of an actual change in control based
on the actual net proceeds received in connection with such
change in control which likely would have varied from this
amount.
|
(2) |
|
Mr. Clark is entitled to
receive his base salary for twelve months following our
termination of his employment without cause.
|
Frank
ODowd
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VOLUNTARY
|
|
EARLY
|
|
|
|
INVOLUNTARY
|
|
|
|
|
EXECUTIVE BENEFITS
|
|
TERMINATION
|
|
RETIREMENT
|
|
NORMAL
|
|
NOT-FOR-CAUSE
|
|
DISABILITY
|
|
DEATH
|
AND PAYMENTS UPON
|
|
ON
|
|
ON
|
|
RETIREMENT
|
|
TERMINATION
|
|
ON
|
|
ON
|
SEPARATION
|
|
12/24/2010
|
|
12/24/2010
|
|
ON 12/24/2010
|
|
ON 12/24/2010
|
|
12/24/2010
|
|
12/24/2010
|
|
Performance-based Cash Incentive Plan
|
|
$
|
109,250
|
|
|
$
|
109,250
|
|
|
$
|
109,250
|
|
|
$
|
109,250
|
|
|
$
|
109,250
|
|
|
$
|
109,250
|
|
Acceleration of Vesting of Class C
Units(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control Payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance Payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
109,250
|
(2)
|
|
|
|
|
|
|
|
|
Health and Welfare Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excise Tax and
Gross-Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109,250
|
|
|
$
|
109,250
|
|
|
$
|
109,250
|
|
|
$
|
218,500
|
|
|
$
|
109,250
|
|
|
$
|
109,250
|
|
|
|
|
|
|
(1) |
|
Pursuant to the terms of our
Amended and Restated Limited Liability Company Agreement,
Mr. ODowd would forfeit all of his unvested shares
upon his termination of employment for any reason.
Mr. ODowd would forfeit all of his vested and
unvested Class C units upon our termination of his
employment for Cause (as defined in our Amended and
Restated Limited Liability Company Agreement) or upon his
engaging in any activity that is competitive with us, including
soliciting our customers or soliciting or hiring our employees.
In the event of an Approved Company Sale, as defined in our
Amended and Restated Limited Liability Company Agreement,
Mr. ODowds unvested Class C units will
immediately vest. Because the Class C units are equity
interests in a private limited liability company, the market
value of such interests is not readily determinable. Using the
midpoint of the estimated price range set forth on the cover
page of this prospectus, the market value of the unvested
Class C units would be
$ .
The actual amount that would have been received could only have
been determined at the time of an actual change in control based
on the actual net proceeds received in connection with such
change in control which likely would have varied from this
amount.
|
|
(2) |
|
Mr. ODowd is entitled to
receive his base salary for six months following our termination
of his employment without cause.
|
67
Director
Compensation
During 2010, we did not pay any compensation to our directors
other than John Couri and Dean Facatselis for their service on
our board. We paid Mr. Couri a $25,000 retainer and Mr.
Facatselis a $39,780 retainer.
Following consummation of this offering, we intend to pay each
of our independent directors an annual retainer as well as fees
for chairing committees and attending board and committee
meetings. Some of these fees may be paid in cash and some may be
paid with equity-based compensation, including shares of
restricted stock and stock options. We may also grant additional
equity-based awards to our independent directors. In addition,
we will reimburse our independent directors for their expenses
incurred in attending board and committee meetings.
The table below summarizes the compensation paid by us to our
directors for the 2010 fiscal year:
2010 DIRECTOR
COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN PENSION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VALUE AND
|
|
|
|
|
|
|
FEES
|
|
|
|
|
|
|
|
NONQUALIFIED
|
|
|
|
|
|
|
EARNED
|
|
|
|
|
|
NON-EQUITY
|
|
DEFERRED
|
|
|
|
|
|
|
OR PAID
|
|
STOCK
|
|
OPTION
|
|
INCENTIVE PLAN
|
|
COMPENSATION
|
|
ALL OTHER
|
|
|
|
|
IN CASH
|
|
AWARDS
|
|
AWARDS
|
|
COMPENSATION
|
|
EARNINGS
|
|
COMPENSATION
|
|
TOTAL
|
NAME
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Christopher
Pappas(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Pappas (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Couri
|
|
$
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,000
|
|
Dean Facatselis
|
|
$
|
39,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,780
|
|
Joseph M. Sharfenberger,
Jr.(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
Murray(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These individuals did not receive
any compensation for their service as a director.
|
2011 Omnibus
Equity Incentive Compensation Plan
Overview
We anticipate that prior to the consummation of this offering,
The Chefs Warehouse, Inc. 2011 Omnibus Equity Incentive
Compensation Plan, or the Omnibus Plan, will be adopted by our
board of directors and approved by our stockholders. The purpose
of the Omnibus Plan will be to promote the interests of the
Company and its stockholders by (i) attracting and
retaining key officers, employees and directors;
(ii) motivating such individuals by means of
performance-related incentives to achieve long-range performance
goals; (iii) enabling such individuals to participate in
the long-term growth and financial success of the Company;
(iv) encouraging ownership of stock in the Company by such
individuals; and (v) linking their compensation to the
long-term interests of the Company and its stockholders.
Set forth below is a summary of the expected terms of the
Omnibus Plan, which is qualified in its entirety by the full
text of the Omnibus Plan, a copy of which is filed as an exhibit
to the registration statement of which this prospectus is a part.
Summary of
Material Terms
Eligibility and Administration of the Omnibus
Plan. Any key officer, employee, consultant
or director shall be eligible to be a designated participant.
The Omnibus Plan will be administered by a Committee
composed of at least two non-employee directors,
within the meaning of Section 16 of the Securities Exchange
Act of 1934, as amended, or the Exchange Act, and
Rule 16b-3
thereunder, each of whom is designated as: (i) an
outside director for purposes of Section 162(m)
of the Internal Revenue Code of 1986, as amended, or the Code,
and (ii) independent within the meaning of the
listing standards of The NASDAQ Stock Market.
68
Subject to the terms of the Omnibus Plan and applicable law, and
in addition to other express powers and authorizations conferred
on the Committee by the Omnibus Plan, the Committee shall have
full power and authority in its discretion (and in accordance
with Section 409A of the Code with respect to awards
subject thereto) to: (i) designate participants;
(ii) determine eligibility for participation in the Omnibus
Plan and decide all questions concerning eligibility for and the
amount of awards under the Omnibus Plan; (iii) determine
the type or types of awards to be granted to a participant;
(iv) determine the number of shares to be covered by, or
with respect to which payments, rights or other matters are to
be calculated in connection with awards; (v) determine the
timing, terms, and conditions of any award; (vi) accelerate
the time at which all or any part of an award may be settled or
exercised; (vii) determine whether, to what extent, and
under what circumstances awards may be settled or exercised in
cash, shares, other securities, other awards or other property,
or canceled, forfeited or suspended and the method or methods by
which awards may be settled, exercised, canceled, forfeited or
suspended; (viii) determine whether, to what extent, and
under what circumstances cash, shares, other securities, other
awards, other property, and other amounts payable with respect
to an award shall be deferred either automatically or at the
election of the holder thereof or of the Committee;
(ix) grant awards as an alternative to, or as the form of
payment for grants or rights earned or payable under, other
bonus or compensation plans, arrangements or policies of the
Company or a subsidiary or affiliate; (x) grant substitute
awards on such terms and conditions as the Committee may
prescribe, subject to compliance with the incentive stock option
rules under Section 422 of the Code and the nonqualified
deferred compensation rules under Section 409A of the Code,
where applicable; (xi) make all determinations under the
Omnibus Plan concerning any participants separation from
service with the Company or a subsidiary or affiliate, including
whether such separation occurs by reason of cause, good reason,
disability, retirement, or in connection with a change in
control and whether a leave constitutes a separation from
service; (xii) interpret and administer the Omnibus Plan
and any instrument or agreement relating to, or award made
under, the Omnibus Plan; (xiii) except to the extent
prohibited under the terms of the Omnibus Plan, amend or modify
the terms of any award at or after grant with the consent of the
holder of the award; (xiv) establish, amend, suspend or
waive such rules and regulations and appoint such agents as it
shall deem appropriate for the proper administration of the
Omnibus Plan; and (xv) make any other determination and
take any other action that the Committee deems necessary or
desirable for the administration of the Omnibus Plan.
Limitations on Omnibus Plan Awards. No
participant may receive options or stock appreciation rights, or
SARs, under the Omnibus Plan in any calendar year that, taken
together, relate to more than shares. With
respect to any covered officer, the maximum annual number of
shares in respect of which all performance awards may be granted
under the Omnibus Plan is , and the maximum amount of
all performance awards that are settled in cash and that may be
granted under the Omnibus Plan in any year is $ .
Shares Subject to Omnibus
Plan. The number of shares of common stock,
no par value per share, of the Company (each, a
Share and collectively, the Shares)
which may be issued pursuant to all awards after the effective
date of the Omnibus Plan is equal to (the
Share Reserve). Each Share issued pursuant to an
option, restricted stock award, restricted stock unit or
redeemed portion of a SAR shall reduce the Share Reserve by one
(1) share. If any award granted under the Omnibus Plan
(whether before or after the effective date of the Omnibus Plan)
shall expire, terminate, be settled in cash (in whole or in
part) or otherwise be forfeited or canceled for any reason
before it has vested or been exercised in full, the shares
subject to such award shall, to the extent of such expiration,
cash settlement, forfeiture, or termination, again be available
for awards under the Omnibus Plan. The Committee may make such
other determinations regarding the counting of shares issued
pursuant to the Omnibus Plan as it deems necessary or advisable,
provided that such determinations shall be permitted by law.
Notwithstanding the foregoing, if an option or SAR is exercised,
in whole or in part, by tender of shares or if the
Companys tax withholding obligation is satisfied by
withholding shares, the number of shares deemed to have been
issued under the Omnibus Plan shall be the number of shares that
were subject to the option or SAR or portion thereof, and not
the net number of shares actually issued and any SARs to be
settled in shares shall be counted in full against the number of
shares available for issuance under the Omnibus Plan, regardless
of the number of shares issued upon the settlement of the SAR.
Stock Options and Stock Appreciation
Rights. The Committee shall have sole and
complete authority to determine the participants to whom options
and SARs shall be granted, the number of shares subject to each
award, the exercise price and the conditions and limitations
applicable to the exercise of each option and SAR. An option may
be granted with or without a related SAR. A SAR may be granted
with or without a related option. The grant of an option or SAR
shall occur when the Committee by resolution, written consent or
other appropriate action determines
69
to grant such option or SAR for a particular number of shares to
a particular participant at a particular option price or grant
price, as the case may be, or such later date as the Committee
shall specify in such resolution, written consent or other
appropriate action. The Committee shall have the authority to
grant incentive stock options and to grant non-qualified stock
options. In the case of incentive stock options, the terms and
conditions of such grants shall be subject to and comply with
Section 422 of the Code, as from time to time amended, and
any regulations implementing such statute. To the extent the
aggregate fair market value (determined at the time the
incentive stock option is granted) of the shares with respect to
which all incentive stock options are exercisable for the first
time by an employee during any calendar year (under all plans
described in Section 422(d) of the Code of the
employees employer corporation and its parent and
subsidiaries) exceeds $100,000, such options shall be treated as
non-qualified stock options. Incentive stock options may not be
granted to any individual who, at the time of grant owns stock
possessing more than 10% of the total combined voting power of
all of the outstanding common stock of the Company or any of its
subsidiaries, unless the exercise price is not less than 110% of
the fair market value of the common stock on the date of the
grant and the exercise of such option is prohibited by its terms
after the expiration of five years from the date of grant of
such option.
Each option and SAR shall be exercisable at such times and
subject to such terms and conditions as the Committee may, in
its sole discretion, specify in the applicable award agreement
or thereafter. The Committee may impose such conditions with
respect to the exercise of options or SARs, including without
limitation, any relating to the application of federal, state or
foreign securities laws or the Code, as it may deem necessary or
advisable. The exercise of any option granted under the Omnibus
Plan shall be effective only at such time as the sale of shares
pursuant to such exercise will not violate any state or federal
securities or other laws.
An option or SAR may be exercised in whole or in part at any
time, with respect to whole shares only, within the period
permitted thereunder for the exercise thereof, and shall be
exercised by written notice of intent to exercise the option or
SAR, delivered to the Company at its principal office, and
payment in full to the Company at the direction of the Committee
of the amount of the option price for the number of Shares with
respect to which the option is then being exercised.
Payment of the option price shall be made in (i) cash or
cash equivalents, or, (ii) at the discretion of the
Committee, by transfer, either actually or by attestation, to
the Company of unencumbered shares previously acquired by the
participant, valued at the fair market value of such shares on
the date of exercise (or next succeeding trading date, if the
date of exercise is not a trading date), together with any
applicable withholding taxes, such transfer to be upon such
terms and conditions as determined by the Committee,
(iii) by a combination of (i) or (ii), or (iv) by
any other method approved or accepted by the Committee in its
sole discretion, including, if the Committee so determines,
(x) a cashless (broker-assisted) exercise that complies
with applicable laws or (y) withholding shares
(net-exercise) otherwise deliverable to the participant pursuant
to the option having an aggregate fair market value at the time
of exercise equal to the total option price. Until the optionee
has been issued the shares subject to such exercise, he or she
shall possess no rights as a stockholder with respect to such
shares. The Company reserves, at any and all times in the
Companys sole discretion, the right to establish, decline
to approve or terminate any program or procedures for the
exercise of options by means of a method set forth in
subsection (iv) above, including with respect to one or
more participants specified by the Company notwithstanding that
such program or procedures may be available to other
participants.
Restricted Shares and Restricted Share
Units. The Committee shall have sole and
complete authority to determine the participants to whom
restricted shares and restricted share units shall be granted,
the number of restricted shares
and/or the
number of restricted share units to be granted to each
participant, the duration of the period during which, and the
conditions under which, the restricted shares and restricted
share units may be forfeited to the Company, and the other terms
and conditions of such awards. The restricted share and
restricted share unit awards shall be evidenced by award
agreements in such form as the Committee shall from time to time
approve, which agreements shall comply with and be subject to
the terms and conditions provided hereunder and any additional
terms and conditions established by the Committee that are
consistent with the terms of the Omnibus Plan.
Each restricted share and restricted share unit award made under
the Omnibus Plan shall be for such number of shares as shall be
determined by the Committee and set forth in the award agreement
containing the terms of such restricted share or restricted
share unit award. Such agreement shall set forth a period of
time during which the grantee must remain in the continuous
employment (or other service-providing capacity) of the Company
in order for
70
the forfeiture and transfer restrictions to lapse. If the
Committee so determines, the restrictions may lapse during such
restricted period in installments with respect to specified
portions of the shares covered by the restricted share or
restricted share unit award. The award agreement may also, in
the discretion of the Committee, set forth performance or other
conditions that will subject the shares to forfeiture and
transfer restrictions. The Committee may, at its discretion,
waive all or any part of the restrictions applicable to any or
all outstanding restricted share and restricted share unit
awards.
Each restricted share unit shall have a value equal to the fair
market value of a share. Restricted share units may be paid in
cash, shares, other securities or other property, as determined
in the sole discretion of the Committee, upon the lapse of the
restrictions applicable thereto, or otherwise in accordance with
the applicable award agreement. The applicable award agreement
shall specify whether a participant will be entitled to receive
dividend equivalent rights in respect of restricted share units
at the time of any payment of dividends to stockholders on
shares.
Performance Awards. The Committee shall
have sole and complete authority to determine the participants
who shall receive a performance award, which shall consist of a
right that is (i) denominated in cash or shares (including
but not limited to restricted shares and restricted share
units), (ii) valued, as determined by the Committee, in
accordance with the achievement of such performance goals during
such performance periods as the Committee shall establish, and
(iii) payable at such time and in such form as the
Committee shall determine.
Subject to the terms of the Omnibus Plan and any applicable
award agreement, the Committee shall determine the performance
goals to be achieved during any performance period, the length
of any performance period, the amount of any performance award
and the amount and kind of any payment or transfer to be made
pursuant to any performance award, and may amend specific
provisions of the performance award, provided, however, that
such amendment may not adversely affect existing performance
awards made within a performance period commencing prior to
implementation of the amendment.
Performance awards may be paid in a lump sum or in installments
following the close of the performance period or, in accordance
with the procedures established by the Committee, on a deferred
basis. Separation from service prior to the end of any
performance period, other than for reasons of death or
disability, will result in the forfeiture of the performance
award, and no payments will be made. Notwithstanding the
foregoing, the Committee may in its discretion, waive any
performance goals
and/or other
terms and conditions relating to a performance award. A
participants rights to any performance award may not be
sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered or disposed of in any manner, except by will or the
laws of descent and distribution,
and/or
except as the Committee may determine at or after grant.
Awards that are granted as performance-based awards to certain
officers of the Company shall be based upon the attainment of
performance goals established by the Committee and payable at
such time and in such form as the Committee shall determine. The
performance objectives of performance-based awards to certain
officers under the Omnibus Plan may include one or more or a
combination of objectives, including the following:
(i) earnings before any one or more of the following:
interest, taxes, depreciation, amortization
and/or stock
compensation; (ii) operating (or gross) income or profit;
(iii) operating efficiencies; (iv) return on equity,
assets, capital, capital employed or investment; (v) after
tax operating income; (vi) net income; (vii) earnings
or book value per share; (viii) financial ratios;
(ix) cash flow(s); (x) total sales or revenues or
sales or revenues per employee; (xi) production (separate
work units); (xii) stock price or total stockholder return;
(xiii) dividends; (xiv) debt or cost reduction;
(xv) strategic business objectives, consisting of one or
more objectives based on meeting specified cost targets,
business expansion goals (including, without limitation,
developmental, strategic or manufacturing milestones of products
or projects in development, execution of contracts with current
or prospective customers and development of business expansion
strategies) and goals relating to acquisitions, joint ventures
or collaborations or divestitures; or (xvi) any combination
thereof.
To the extent necessary to comply with Section 162(m) of
the Code, with respect to grants of performance awards, no later
than 90 days following the commencement of each performance
period (or such other time as may be required or permitted by
Section 162(m) of the Code), the Committee shall, in
writing, (1) select the performance goal or goals
applicable to the performance period, (2) establish the
various targets and bonus amounts which may be earned for such
performance period, and (3) specify the relationship
between performance goals and targets and the amounts to be
earned by each covered officer for such performance period.
Following the completion of each performance period, the
Committee shall certify in writing whether the applicable
performance targets have been
71
achieved and the amounts, if any, payable to covered officers
for such performance period. In determining the amount earned by
a covered officer for a given performance period, subject to any
applicable award agreement, the Committee shall have the right
to reduce (but not increase) the amount payable at a given level
of performance to take into account additional factors that the
Committee may deem relevant in its sole discretion to the
assessment of individual or corporate performance for the
performance period.
Other Stock-Based Awards. The Committee
shall have the authority to determine the participants who shall
receive other equity-based awards, as deemed by the Committee to
be consistent with the purposes of the Omnibus Plan. Subject to
the terms of the Omnibus Plan and any applicable award
agreement, the Committee shall determine the terms and
conditions of any such other stock-based award.
Non-Employee Director Awards. The board
of directors may provide that all or a portion of a non-employee
directors annual retainer, meeting fees
and/or other
awards or compensation as determined by the board of directors,
be payable (either automatically or at the election of a
non-employee director) in the form of non-qualified stock
options, restricted shares, restricted share units
and/or other
stock-based awards, including unrestricted shares. The board of
directors shall have full power and authority in its discretion
to determine the terms and conditions of any such awards,
including the terms and conditions which may apply upon a
termination of the non-employee directors service as a
member of the board of directors and shall have full power and
authority in its discretion to administer such awards, subject
to the terms of the Omnibus Plan and applicable law.
Separation from Service. The Committee
shall have the full power and authority to determine the terms
and conditions that shall apply to any award upon a separation
from service with the Company, its subsidiaries and affiliates,
including a separation from the Company with or without cause,
by a participant voluntarily, or by reason of death, disability,
early retirement or retirement, and may provide such terms and
conditions in the award agreement or in such rules and
regulations as it may prescribe.
Change in Control. Unless
otherwise provided by the Committee, or in an award agreement or
by a contractual agreement between the Company and a
participant, if, within one year following a change in control,
a participant separates from service with the Company (or its
successor) by reason of (a) death; (b) disability;
(c) normal retirement or early retirement; (d) for
good reason by the participant; or (e) involuntary
termination by the Company for any reason other than for cause,
all outstanding awards of such participant shall vest, become
immediately exercisable and payable and have all restrictions
lifted. For purposes of an award subject to Section 409A of
the Code, good reason shall exist only if (i) the
participant notifies the Company of the event establishing good
reason within 90 days of its initial existence,
(ii) the Company is provided 30 days to cure such
event and (iii) the participant separates from service with
the Company (or its successor) within 180 days of the
initial occurrence of the event.
In the event of a change in control, the surviving, continuing,
successor, or purchasing corporation or other business entity or
parent thereof, as the case may be, or the Acquiror (in
accordance with Section 409A of the Code, to the extent
applicable), may, without the consent of any participant, either
assume or continue the Companys rights and obligations
under each or any award or portion thereof outstanding
immediately prior to the change in control or substitute for
each or any such outstanding award or portion thereof a
substantially equivalent award with respect to the
Acquirors stock, as applicable, provided, that in the
event of such an assumption, the Acquiror must grant the rights
set forth above to the participant in respect of such assumed
awards.
The Committee may (in accordance with Section 409A of the Code,
to the extent applicable), in its discretion and without the
consent of any participant, determine that, upon the occurrence
of a change in control, each or any award or a portion thereof
outstanding immediately prior to the change in control and not
previously exercised or settled shall be canceled in exchange
for a payment with respect to each vested share (and each
unvested share, if so determined by the Committee) subject to
such canceled award in (i) cash, (ii) stock of the
Company or of a corporation or other business entity a party to
the change in control, or (iii) other property which, in
any such case, shall be in an amount having a fair market value
equal to the fair market value of the consideration to be paid
per share in the change in control, reduced by the exercise or
purchase price per share, if any, under such award (which
payment may, for the avoidance of doubt, be $0, in the event the
per share exercise or purchase price of an award is greater than
the per share consideration in connection with the change in
control). In the event such determination is made by the
Committee, the amount of such payment (reduced by applicable
withholding taxes, if any), if any, shall be paid to
participants in respect of the vested portions of their canceled
awards as soon as practicable
72
following the date of the change in control and in respect of
the unvested portions of their canceled awards in accordance
with the vesting schedules applicable to such awards.
Term and Amendment of Omnibus
Plan. The board of directors may
amend, alter, suspend, discontinue or terminate the Omnibus Plan
or any portion thereof at any time, provided that no such
amendment, alteration, suspension, discontinuation or
termination shall be made without stockholder approval if such
approval is necessary to comply with any tax or regulatory
requirement for which or with which the board of directors deems
it necessary or desirable to comply. The Committee shall not
have the power to (i) amend the terms of previously granted
options to reduce the option price of such options,
(ii) amend the terms of any previously granted SAR to
reduce the grant price of such SAR, (iii) cancel such
options and grant substitute options with a lower option price
than the cancelled options, or (iv) cancel such SARs and
grant substitute SARs with a lower grant price than the
cancelled SARs, in each case without the approval of the
Companys stockholders.
The Omnibus Plan will terminate on on the tenth anniversary of
its adoption, after which no new awards may be granted under the
Omnibus Plan.
Certain Federal Income Tax
Consequences. The following is a brief
summary of certain Federal income tax laws in effect on the date
hereof. This summary is not intended to be exhaustive and the
exact tax consequences to any participant will depend on his or
her particular circumstances and other factors. The Omnibus Plan
participants are encouraged to consult their own tax advisors
with respect to any state tax consequences or particular federal
tax implications of awards granted under the Omnibus Plan.
Tax consequences to the Company and to participants receiving
awards will vary with the type of award. Generally, a
participant will not recognize income, and the Company is not
entitled to take a deduction, upon the grant of an incentive
stock option, a nonqualified option, a SAR, a restricted share,
or a restricted share unit award. A participant will not have
taxable income upon exercising an incentive stock option (except
that the alternative minimum tax may apply). Upon exercising an
option other than an incentive stock option, the participant
must generally recognize ordinary income equal to the difference
between the exercise price and fair market value of the freely
transferable and non-forfeitable shares of common stock acquired
on the date of exercise. Similarly, the exercise of an SAR will
result in ordinary income on the value of the SAR to the
individual at the time of exercise.
If a participant sells shares of common stock acquired upon
exercise of an incentive stock option before the end of two
years from the date of grant and one year from the date of
exercise, the participant must generally recognize ordinary
income equal to the difference between (i) the fair market
value of the shares of common stock at the date of exercise of
the incentive stock option (or, if less, the amount realized
upon the disposition of the incentive stock option shares of
common stock), and (ii) the exercise price. Otherwise, a
participants disposition of shares of common stock
acquired upon the exercise of an option (including an incentive
stock option for which the incentive stock option holding period
is met) or SAR generally will result in short-term or long-term
capital gain or loss measured by the difference between the sale
price and the participants tax basis in such shares of
common stock. A participants tax basis generally will be
the sum of the exercise price of the option or SAR plus any
amount previously recognized as ordinary income in connection
with the exercise of the option or SAR.
The Company generally will be entitled to a tax deduction equal
to the amount recognized as ordinary income by the participant
in connection with an option or SAR. The Company generally is
not entitled to a tax deduction relating to amounts that
represent a capital gain to a participant. Accordingly, the
Company will not be entitled to any tax deduction with respect
to an incentive stock option if the participant holds the shares
of common stock for the incentive stock option holding periods
prior to disposition of the shares.
With respect to the grant of restricted shares, the participant
will recognize ordinary income on the fair market value of the
common stock at the time restricted shares vest (less any amount
paid for the shares) unless a participant makes an election
under Section 83(b) of the Code to be taxed at the time of
grant. With respect to a grant of restricted share units, the
participant will recognize ordinary income on the amount of cash
(for units payable in cash) or the fair market value of the
common stock (for units settled in stock) at the time such
payments are made available to the participant under the terms
of the restricted share unit award. The participant also is
subject to capital gains treatment on the subsequent sale of any
common stock acquired through the vesting of a SAR, restricted
share award, or restricted share unit award. For this purpose,
the participants basis in the common stock is its fair
market value at the time the SAR is exercised, the restricted
share becomes vested (or is granted, if an
73
election under Section 83(b) is made), or the restricted
share units become vested (unless delivery of the shares has
been validly deferred). The Company will be allowed a deduction
for the amount of ordinary income recognized by a participant
with respect to a restricted share award.
Payments made under performance awards are taxable as ordinary
income at the time an individual attains the performance goals
and the payments are made available to, and are transferable by,
the participant. Participants receiving performance awards
settled in shares of the Companys common stock will
recognize ordinary income equal to the fair market value of the
shares of the Companys common stock received as the
performance goals are met and such shares vest, less any amount
paid by the participant for the performance shares, unless the
participant makes an election under Section 83(b) of the
Code to be taxed at the time of the grant. A Section 83(b)
election may not be available with respect to certain forms of
performance awards. The participant is also subject to capital
gain or loss treatment on the subsequent sale of any of the
Companys common stock awarded to a participant as
performance shares. Unless a participant makes a
Section 83(b) election, his or her basis in the stock is
its fair market value at the time the performance goals are met
and the performance shares become vested.
Section 162(m) of the Code generally disallows a public
companys tax deduction for compensation paid in excess of
$1.0 million in any tax year to its chief executive officer
and certain other most highly compensated executives. However,
compensation that qualifies as performance-based
compensation is excluded from this $1.0 million
deduction limit and therefore remains fully deductible by the
company that pays it. The Company generally intends that, except
as otherwise determined by the Compensation Committee
(i) performance awards and (ii) options granted
(a) with an exercise price at least equal to 100% of the
fair market value of the underlying shares of common stock at
the date of grant (b) to employees the Compensation
Committee expects to be named executive officers at the time a
deduction arises in connection with such awards, qualify as
performance-based compensation so that these awards
will not be subject to the Section 162(m) deduction
limitations. The Compensation Committee will not necessarily
limit executive compensation to amounts deductible under
Section 162(m) of the Code, however, if such limitation is
not in the best interests of the Company and its stockholders.
Substitute payments for dividends made to participants with
respect to restricted shares or certain performance awards
payable in the Companys stock will be taxed as ordinary
income to the participant until the shares vest. After vesting,
dividend payments may be qualified dividend income subject to a
current maximum federal tax rate of 15% provided that the
stockholder meets certain other requirements with respect to
those shares. If a participant makes a Section 83(b)
election with respect to restricted shares or certain eligible
performance awards, these payments may be qualified dividend
income, provided that the other requirements are met. We
recommend that participants consult with their tax advisors to
determine whether such dividends are qualified dividend income.
Section 409A of the Code provides generally that
nonqualified deferred compensation that does not meet certain
requirements will subject the recipients of such compensation to
accelerated taxation, enhanced underpayment interest and an
additional twenty percent tax. Although the Company intends to
administer the Omnibus Plan so that awards will be exempt from,
or will comply with, the requirements of Section 409A of
the Code, the Company does not warrant that any award under the
Omnibus Plan will qualify for favorable tax treatment under
Section 409A of the Code or any other provision of federal,
state, local or foreign law. The Company shall not be liable to
any participant for any tax, interest, or penalties that such
participant might owe as a result of the grant, holding,
vesting, exercise, or payment of any award under the Omnibus
Plan.
The foregoing discussion is general in nature and is not
intended to be a complete description of the Federal income tax
consequences of the Omnibus Plan. This discussion does not
address the effects of other Federal taxes or taxes imposed
under state, local or foreign tax laws. Participants in the
Omnibus Plan are urged to consult a tax advisor as to the tax
consequences of participation.
The Omnibus Plan is not intended to be qualified under
Section 401(a) of the Code.
74
PRINCIPAL AND
SELLING STOCKHOLDERS
The following table sets forth information regarding the
beneficial ownership of units of ownership interest in our
company as of April 11, 2011 by:
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each of our named executive officers;
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each of our directors and director nominees;
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all directors, director nominees and executive officers as a
group;
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each selling stockholder; and
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each person known to us to beneficially own more than 5% of the
outstanding units of ownership interest in our company.
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The table also sets forth such persons beneficial
ownership of common stock immediately after the completion of
this offering and after giving effect to the reorganization
transaction.
We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe that, based upon the information furnished to us, the
persons and entities named in the tables below have sole voting
and investment power with respect to all of the units that they
beneficially own, subject to applicable community property laws.
We have based our calculation of the percentage of beneficial
ownership upon, without giving effect to the reorganization
transactions expected to occur prior to the consummation of this
offering, 54,375,000 units outstanding on April 11,
2011 and, after giving effect to the reorganization
transactions, shares of common stock
outstanding upon completion of this offering.
In computing the number of shares of common stock beneficially
owned by a person or group and the percentage ownership of that
person or group, we deemed to be outstanding any shares of
common stock subject to options held by that person or group
that are currently exercisable or exercisable within
60 days after April 11, 2011. We did not deem these
shares to be outstanding, however, for the purpose of computing
the percentage ownership of any other person.
Unless otherwise noted below, the address of each beneficial
owner set forth in the table is
c/o The
Chefs Warehouse, Inc., 100 East Ridge Road, Ridgefield,
Connecticut 06877, and our telephone number is
(203) 894-1345.
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BEFORE OFFERING AND REORGANIZATION
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TRANSACTIONS
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AFTER OFFERING AND REORGANIZATION TRANSACTION
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NUMBER OF
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ADDITIONAL
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NUMBER OF
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PERCENT OF
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NUMBER OF
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SHARES OF
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NUMBER OF
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UNITS OF
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UNITS OF
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SHARES OF
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COMMON
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SHARES OF
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PERCENT OF
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OWNERSHIP
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OWNERSHIP
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COMMON
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STOCK TO BE
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COMMON
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COMMON
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INTEREST
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INTEREST
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STOCK TO BE
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SOLD AT
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STOCK
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STOCK
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BENEFICIALLY
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BENEFICIALLY
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SOLD IN THIS
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UNDERWRITERS
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BENEFICIALLY
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BENEFICIALLY
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NAME OF BENEFICIAL OWNER
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OWNED(1)
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OWNED(1)
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OFFERING
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OPTION
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OWNED
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OWNED
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Christopher Pappas
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16,666,667
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30.70
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%
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John Pappas
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16,666,667
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30.70
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%
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Dean Facatselis
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16,666,667
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(2)
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30.70
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%(2)
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Kay Facatselis
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16,666,667
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(2)
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30.70
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%(2)
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John A. Couri
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Kevin Cox
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Kenneth Clark
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833,334
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1.53
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%
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James Wagner
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833,334
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1.53
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%
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Frank ODowd
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416,667
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0.77
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%
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All directors, director nominees and executive officers as a
group (10 persons)
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52,500,002
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(3)
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96.55
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%
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(1)
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Christopher Pappas, John Pappas,
Dean Facatselis and Kay Facatselis own 100% of our Class B
units. Only Class B units have voting rights.
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(2)
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Includes 8,333,333.5 units
owned individually by Dean Facatselis and 8,333,333.5 units
owned individually by Kay Facatselis, his wife.
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(3)
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Includes 8,333,333.5 units
owned by Dean Facatseliss wife.
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75
CERTAIN
RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
The following sets forth certain transactions involving us and
our directors, executive officers and affiliates.
We do not have a formal written policy for review and approval
of transactions required to be disclosed pursuant to
Item 404(a) of
Regulation S-K.
Following the completion of this offering, we expect that our
audit committee will be responsible for review, approval and
ratification of related-person transactions between
us and any related person. Under SEC rules, a related person is
an officer, director, nominee for director or beneficial holder
of more than 5% of any class of our voting securities since the
beginning of the last fiscal year or an immediate family member
of any of the foregoing. Any member of the audit committee who
is a related person with respect to a transaction under review
will not be able to participate in the deliberations or vote on
the approval or ratification of the transaction. However, such a
director may be counted in determining the presence of a quorum
at a meeting of the committee that considers the transaction.
Other than the transactions described below and the arrangements
described under Compensation Discussion and
Analysis, since December 29, 2006, there has not
been, and there is not currently proposed, any transaction or
series of similar transactions to which we were or will be a
party in which the amount involved exceeded or will exceed
$120,000 and in which any related person had or will have a
direct or indirect material interest.
Reorganization
Transaction
Prior to the consummation of the offering, we will complete a
transaction in which we will convert Chefs Warehouse
Holdings, LLC into The Chefs Warehouse, Inc. Specifically,
immediately prior to, or at the time, the registration statement
of which this prospectus is part is declared effective by the
SEC, Chefs Warehouse Holdings, LLC, a Delaware limited
liability company, will convert into The Chefs Warehouse,
Inc., a Delaware corporation, and the members of Chefs
Warehouse Holdings, LLC will receive in the
conversion shares of common stock of The
Chefs Warehouse, Inc. for each unit of membership interest
in Chefs Warehouse Holdings, LLC owned by them at the time
of the conversion. In total, we expect to
issue shares
of common stock in this reorganization transaction. Of these
shares, shares
will be restricted shares of our common stock issued upon
conversion of our Class C units that have not vested as of the
date we consummate the reorganization transaction.
Warehouse and
Office Leases
We lease two warehouse and office facilities from two entities
that are wholly-owned by three of our directors pursuant to
long-term operating lease agreements.
Our subsidiary, Dairyland USA Corporation, subleases a warehouse
and office facility in the Bronx, New York from The Chefs
Warehouse Leasing Co., LLC, a New York limited liability company
that is wholly-owned by Christopher Pappas, John Pappas and Dean
Facatselis, pursuant to a sublease agreement dated
December 29, 2004, which expires on December 31, 2014.
Dairyland USA Corporation paid The Chefs Warehouse Leasing
Co., LLC $1,128,302, $1,090,147 and $1,053,282 under the terms
of the sublease agreement in fiscal 2010, fiscal 2009 and fiscal
2008, respectively. The annual base rent under the sublease
agreement is subject to cumulative annual increases of 3.5%.
Dairyland USA Corporation also leases a warehouse and office
facility in Hanover, Maryland from Candlewood Road Property,
LLC, a Maryland limited liability company that is wholly-owned
by Christopher Pappas, John Pappas and Dean Facatselis, pursuant
to a lease agreement dated September 14, 2004. Candlewood
Road Property, LLC is the owner of the property. The lease
expires on September 30, 2014. The initial annual base rent
under the lease agreement was $360,000 and is subject to
cumulative annual increases of 3.5%. In fiscal 2010, Dairyland
USA Corporation paid Candlewood Road Property, LLC $431,308 in
rent under the terms of the lease. In fiscal 2009 and fiscal
2008, respectively, the lease payments totaled $416,723 and
$402,631.
Employment of
Family Members
John Pappass brother-in-law, Constantine Papataros, is one
of our employees. We paid him $184,795, $175,100 and $170,000 in
total compensation in each of fiscal 2010, fiscal 2009 and
fiscal 2008, respectively.
76
DESCRIPTION OF
OUR CAPITAL STOCK
Our
Reorganization
Prior to the consummation of this offering, we will convert from
a Delaware limited liability company (Chefs Warehouse
Holdings, LLC) to a Delaware corporation (The Chefs
Warehouse, Inc.). The consolidated financial statements included
elsewhere in this prospectus, which are the subject of the
following discussion, are those of Chefs Warehouse
Holdings, LLC and its consolidated subsidiaries. We expect that
our conversion to the corporate form of organization will not
have any material effect on our consolidated financial
statements. When we use the terms we,
our, us and the Company in
the following discussion, we mean, prior to the conversion and
related transactions described under Certain Relationships
and Related-Party Transactions Reorganization
Transaction, Chefs Warehouse Holdings, LLC, a
Delaware limited liability company, and its consolidated
subsidiaries and, after the conversion and related transactions,
The Chefs Warehouse, Inc., a Delaware corporation, and its
consolidated subsidiaries. For a discussion of the principal
transactions in the reorganization, see Certain
Relationships and Related-Party Transactions
Reorganization Transaction.
Common
Stock
Holders of our common stock are entitled to one vote for each
share held on all matters submitted to a vote of stockholders
and do not have cumulative voting rights. Accordingly, holders
of a majority of the shares of our common stock entitled to vote
in any election of directors may elect all of the directors
standing for election. Holders of our common stock are entitled
to receive ratably such dividends, if any, as may be declared by
our board of directors out of funds legally available therefor,
subject to any preferential dividend rights of outstanding
preferred stock. Upon our liquidation, dissolution or winding
up, the holders of our common stock are entitled to receive
ratably our net assets available after the payment of all debts
and other liabilities and subject to the prior rights of any
outstanding preferred stock. Holders of our common stock have no
preemptive, subscription, redemption or conversion rights. The
outstanding shares of our common stock are, and the shares
offered by us pursuant to this prospectus will be, when issued
and paid for, fully paid and nonassessable. The rights,
preferences and privileges of holders of our common stock are
subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which we may
designate and issue in the future.
Preferred
Stock
Our board of directors is authorized, subject to any limitations
prescribed by law, without stockholder approval, to issue shares
of preferred stock in one or more series at any time or from
time to time. Each such series of preferred stock will have
rights, preferences, privileges and restrictions, including
voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as will be determined by
our board of directors.
All shares of preferred stock offered will be, when issued and
paid for, fully paid and nonassessable. Our board of directors
could authorize the issuance of shares of preferred stock with
terms and conditions which could have the effect of discouraging
a takeover or other transaction that might involve a premium
price for holders of shares of our common stock or which holders
of our common stock might believe to be in their best interests.
Certain
Anti-Takeover Matters
Delaware
Business Combination Statute
Under Section 203 of the DGCL, a corporation is prohibited
from engaging in any business combination with a stockholder
who, together with its affiliates or associates, owns (or who is
an affiliate or associate of the corporation and within a
three-year period did own) 15% or more of the corporations
outstanding voting stock, or an interested stockholder, for a
three-year period following the time the stockholder became an
interested stockholder, unless:
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prior to the time the stockholder became an interested
stockholder, the board of directors of the corporation approved
either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
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the interested stockholder owned at least 85% of the voting
stock of the corporation, excluding specified shares, upon
consummation of the transaction which resulted in the
stockholder becoming an interested stockholder; or
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at or subsequent to the time the stockholder became an
interested stockholder, the business combination is approved by
the board of directors of the corporation and authorized by the
affirmative vote, at an annual or special meeting, and not by
written consent, of at least two-thirds of the outstanding
voting shares of the corporation, excluding shares held by that
interested stockholder.
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A business combination generally includes:
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mergers and consolidations with or caused by an interested
stockholder;
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sales or other dispositions of 10% or more of the assets of a
corporation to an interested stockholder;
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specified transactions resulting in the issuance or transfer to
an interested stockholder of any capital stock of a corporation
or its subsidiaries; and
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other transactions resulting in a disproportionate financial
benefit to an interested stockholder.
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The provisions of Section 203 of the DGCL do not apply to a
corporation if, subject to certain requirements, the certificate
of incorporation or bylaws of the corporation contain a
provision expressly electing not to be governed by the
provisions of the statute or the corporation does not have
voting stock listed on a national securities exchange or held of
record by more than 2,000 stockholders.
Because we have opted out of Section 203 of the
DGCL in our Certificate of Incorporation, the statute will not
apply to business combinations involving us.
Provisions of
our Certificate of Incorporation and Bylaws
Our Certificate of Incorporation provides that directors may be
removed only for cause by the affirmative vote of the holders of
two-thirds of the shares of our capital stock entitled to vote.
Under our Certificate of Incorporation, any vacancy on our board
of directors, however occurring, including a vacancy resulting
from an enlargement of the board, may only be filled by vote of
a majority of the directors then serving. The limitations on the
removal of directors and filling of vacancies could have the
effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, control of us.
Our Certification of Incorporation also provides that any action
required or permitted to be taken by our stockholders at an
annual meeting or special meeting of stockholders may be taken
only if it is properly brought before such meeting and may not
be taken by written consent in lieu of a meeting. Our
Certificate of Incorporation further provides that special
meetings of the stockholders may only be called by the chairman
of the board of directors, the chief executive officer or, if
none, the president of the Company, or by the board of
directors. Under our Bylaws, in order for any matter to be
considered properly brought before a meeting, a
stockholder must comply with certain requirements regarding
advance notice to the company. The foregoing provisions could
have the effect of delaying until the next stockholders meeting
stockholder actions which are favored by the holders of a
majority of our outstanding voting securities. These provisions
also may discourage another person or entity from making a
tender offer for our common stock because such person or entity,
even if it acquired a majority of our outstanding voting
securities, would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly
called stockholders meeting and not by written consent.
The DGCL provides, generally, that the affirmative vote of a
majority of the shares entitled to vote on any matter is
required to amend a corporations certificate of
incorporation or bylaws, unless a corporations certificate
of incorporation or bylaws, as the case may be, requires a
greater percentage. Our Certificate of Incorporation and our
Bylaws require the affirmative vote of the holders of at least
two-thirds of the shares of our capital stock issued and
outstanding and entitled to vote to amend or repeal any of the
provisions described in the prior two paragraphs.
NASDAQ Global
Market Listing Trading
We intend to apply to have our common stock approved for listing
on The NASDAQ Global Market under the symbol CHEF.
Transfer Agent
and Registrar
We intend to appoint a transfer agent and registrar for our
common stock prior to the consummation of this offering.
78
DESCRIPTION OF
OUR INDEBTEDNESS
New Senior
Secured Credit Facilities
In connection with this offering, we plan to procure new senior
secured credit facilities. We expect that the new senior secured
credit facilities will provide for (i) a
$ million term loan facility, maturing
in ,
and (ii) a revolving credit facility under which we may
borrow up to $ million (including a sublimit
cap of up to $ million for letters of credit
and up to $ million for swing-line loans),
maturing
in .
We expect that our new senior secured credit facilities will
contain customary affirmative and negative covenants and will
require us to meet certain financial ratios. We anticipate that
the new senior secured credit facilities will be secured by
substantially all of our assets.
Existing Senior
Secured Credit Facilities
In connection with our 2010 recapitalization, we entered into
our existing $100.0 million senior credit facilities with a
syndicate of lenders. The existing senior secured credit
facilities provide for (i) a $75.0 million term loan
facility and (ii) a revolving credit facility under which
we may borrow up to $25.0 million (including a sublimit cap
of up to $1.0 million for letters of credit and up to
$5.0 million for swing-line loans). Payment of all
obligations under the existing senior credit facilities is
collateralized by a first priority security interest in
substantially all of our assets and those of our subsidiaries.
Borrowings under our existing term loan facility bear interest,
at our option, at a rate equal to the greater of the federal
funds rate, the adjusted one month London Interbank Offered
Rate, or LIBOR, or 3%, in each case plus 8%, or LIBOR plus 9%,
with LIBOR having a 2% floor. Borrowings under the existing
revolving credit facility bear interest, at our option, at a
rate per annum based on the administrative agents prime
rate, plus a margin of up to 1.25%, or LIBOR, plus a margin of
up to 3.5%, with the margins determined by certain financial
ratios. In addition to the interest on our borrowings, we must
pay an annual commitment fee of 0.25% on the unused portion of
the existing revolving credit facility. The weighted-average
interest rate under our revolving credit facility at
December 24, 2010 was approximately 3.6%.
We expect to use net proceeds from this offering to repay some
or all of our loans outstanding under our existing senior
secured credit facilities and any accrued and unpaid interest
thereon and other related fees. As of December 24, 2010,
approximately $86.0 million principal amount of loans were
outstanding under our existing senior secured credit facilities.
The existing senior secured credit facilities contain certain
customary events of default, including, without limitation, upon
the occurrence of certain change of control transactions that
include the completion of this offering.
Senior
Subordinated Notes
In connection with our 2010 recapitalization, we also issued
$15.0 million of our senior subordinated notes. Interest on
these notes is not payable in cash prior to the maturity date,
but rather in kind through the issuance of additional notes, and
accrues at a rate of 20% semi-annually in arrears. Interest may,
however, be paid in cash if our leverage ratio is below certain
levels. The principal on the notes is due on October 22,
2014.
We expect to use net proceeds from this offering to redeem or
repurchase all of our outstanding senior subordinated notes due
2014 and any accrued and unpaid interest thereon including the
call premium associated with such redemption or repurchase. As
of December 24, 2010, approximately $15.5 million
aggregate principal amount of senior subordinated notes were
outstanding. Our senior subordinated notes include a call
premium, which we expect would equal approximately
$0.8 million in connection with the redemption of these
notes in connection with the offering.
The senior subordinated notes contain certain customary events
of default, including, without limitation, upon the occurrence
of certain change of control transactions that include the
completion of this offering.
79
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no market for shares of
our common stock. We cannot predict the effect, if any, future
sales of shares of our common stock, or the availability for
future sales of shares of our common stock, will have on the
market price of shares of our common stock prevailing from time
to time. The sale of substantial amounts of shares of our common
stock in the market, or the perception that such sales could
occur, could harm the prevailing market price of shares of our
common stock.
Sale of
Restricted Shares
Upon completion of this offering and the reorganization
transactions, we will have shares of common
stock outstanding, based upon 54,375,000 units of ownership
interest outstanding as of April 11, 2011. Of these shares,
the shares sold in this offering, plus any shares sold upon
exercise of the underwriters over-allotment option, will
be freely tradable without restriction under the Securities Act,
except for any shares purchased by our affiliates as
that term is defined in Rule 144 promulgated under the
Securities Act. In general, affiliates include our executive
officers, directors, and 10% stockholders. Shares purchased by
affiliates will remain subject to the resale limitations of
Rule 144.
Upon completion of this offering, shares of our
common stock will be restricted securities, as that
term is defined in Rule 144 promulgated under the
Securities Act. These restricted securities are eligible for
public sale only if they are registered under the Securities Act
or if they qualify for an exemption from registration under
Rules 144 or 701 promulgated under the Securities Act,
which are summarized below.
As a result of the
lock-up
agreements described below and the provisions of Rule 144
promulgated under the Securities Act, the shares of our common
stock (excluding the shares sold in this offering) will be
available for sale in the public market as follows:
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no shares will be eligible for sale on the date of this
prospectus; and
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shares will be eligible for
sale upon the expiration of the
lock-up
agreements, as more particularly described below, beginning
180 days after the date of this prospectus.
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Lock-Up
Agreements
Our officers, directors and holders of more than 5% of our
outstanding common stock will enter into
lock-up
agreements in connection with this offering, generally providing
that they will not offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of our common stock,
units or any securities that are convertible into, that are
exercisable for or that represent the right to receive shares of
common stock owned by them for a period of at least
180 days after the date of this prospectus without the
prior written consent of the underwriters representative.
Despite possible earlier eligibility for sale under the
provisions of Rule 144, shares subject to
lock-up
agreements will not be salable until these agreements expire or
are waived by the underwriters. The
lock-up
agreements will provide exceptions, however, for the transfer of
shares in certain limited situations, including, but not limited
to, transfers made as a bona fide gift, transfers made to any
trust, corporation, partnership or limited liability company the
beneficiaries, stockholders, partners or members of which are
the transferor or the transferors immediate family, the
exchange of Class B units and Class C units for shares
of our common stock in connection with the reorganization
transaction and transfers made pursuant to a will or other
testamentary document or applicable laws of descent.
Approximately % of our outstanding shares of common
stock will be subject to such
lock-up
agreements. These agreements are more fully described in
Underwriting No Sales of Similar
Securities.
We have been advised by the underwriters that they may at their
discretion waive the
lock-up
agreements; however, they have no current intention of releasing
any shares subject to a
lock-up
agreement. The release of any
lock-up
would be considered on a
case-by-case
basis. In considering any request to release shares covered by a
lock-up
agreement, the representatives would consider circumstances of
emergency and hardship. No agreement has been made between the
underwriters and us or any of our stockholders pursuant to which
the underwriters will waive the
lock-up
restrictions.
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Rule 144
Generally, Rule 144 provides that an affiliate who has
beneficially owned restricted shares of our common
stock for at least six months will be entitled to sell on the
open market in brokers transactions, within any
three-month period, a number of shares that does not exceed the
greater of:
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1% of the number of shares of our common stock then outstanding,
which will equal shares upon completion of this
offering; or
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the average weekly trading volume of the common stock during the
four calendar weeks preceding the filing of a notice on
Form 144 with respect to such sale.
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In addition, sales under Rule 144 are subject to
requirements with respect to manner of sale, notice, and the
availability of current public information about us.
In the event that any person who is deemed to be our affiliate
purchases shares of our common stock in this offering or
acquires shares of our common stock pursuant to one of our
employee benefits plans, sales under Rule 144 of the shares
held by that person will be subject to the volume limitations
and other restrictions described in the preceding two paragraphs.
The volume limitation, manner of sale and notice provisions
described above will not apply to sales by non-affiliates. For
purposes of Rule 144, a non-affiliate is any person or
entity who is not our affiliate at the time of sale and has not
been our affiliate during the preceding three months. Once we
have been a reporting company for 90 days, a non-affiliate
who has beneficially owned restricted shares of our common stock
for six months may rely upon Rule 144 provided that certain
public information regarding us is available. The six-month
holding period increases to one year in the event we have not
been a reporting company for at least 90 days. However, a
non-affiliate who has beneficially owned the restricted shares
proposed to be sold for at least one year will not be subject to
any restrictions under Rule 144 regardless of how long we
have been a reporting company.
Form S-8
Registration Statements
We intend to file one or more registration statements on
Form S-8
under the Securities Act as soon as practicable after the
completion of this offering for shares issued upon the exercise
of options and shares to be issued under our employee benefit
plans, including the Omnibus Plan. As a result, any such options
or shares will be freely tradable in the public market.
Notwithstanding that we will have filed a registration statement
covering shares of our common stock issuable under our employee
benefit plans, such shares held by affiliates will still be
subject to the volume limitation, manner of sale, notice and
public information requirements of Rule 144 of the
SECs rules and regulations.
81
MATERIAL U.S.
FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED
STATES HOLDERS
The following discussion is a general summary of the material
U.S. federal tax consequences of the purchase, ownership
and disposition of shares of our common stock applicable to
non-U.S. holders.
As used herein, a
non-U.S. holder
means a beneficial owner of shares of our common stock that is
not a U.S. person (as defined below) or a
partnership for U.S. federal income tax purposes, and that
will hold shares of our common stock as capital assets (within
the meaning of Section 1221 of the Code). For
U.S. federal income tax purposes, a
U.S. person includes:
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an individual who is a citizen or resident of the United States;
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a corporation (or other business entity treated as a corporation
for U.S. federal income tax purposes) created or organized
in the United States or under the laws of the United States, any
state thereof or the District of Columbia;
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an estate the income of which is subject to United States
federal income taxation regardless of its source; or
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a trust that (1) is subject to the primary supervision of a
court within the United States and the control of one or more
U.S. persons, or (2) was in existence on
August 20, 1996, was treated as a U.S. domestic trust
immediately prior to that date, and has validly elected to
continue to be treated as a U.S. domestic trust.
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In the case of a holder that is classified as a partnership for
U.S. federal income tax purposes that holds our common
stock, the tax treatment of a partner in such partnership
generally will depend upon the status of the partner and the
activities of the partnership. If you are a partner of a
partnership holding our common stock, then you should consult
your own tax advisors.
This summary does not consider specific facts and circumstances
that may be relevant to a particular
non-U.S. holders
tax position and does not consider state and local or
non-U.S. tax
consequences. It also does not consider
non-U.S. holders
subject to special tax treatment under the U.S. federal
income tax laws (including partnerships or other pass-through
entities, financial institutions, insurance companies, regulated
investment companies, real estate investment trusts, dealers in
securities, holders of shares of our common stock that hold such
shares as part of a straddle, hedge,
conversion transaction or other risk-reduction
transaction, controlled foreign corporations, passive foreign
investment companies, companies that accumulate earnings to
avoid U.S. federal income tax, tax-exempt organizations,
former U.S. citizens or residents and persons who hold or
receive shares of our common stock as compensation). This
summary is based on provisions of the Code, applicable Treasury
regulations, administrative pronouncements of the
U.S. Internal Revenue Service, or the IRS, and
judicial decisions, all as in effect on the date hereof, and all
of which are subject to change, possibly on a retroactive basis,
and different interpretations.
Each prospective
non-U.S. holder
should consult its tax advisor with respect to the
U.S. federal, state, local and
non-U.S. income,
estate and other tax consequences of purchasers holding and
disposing of shares of our common stock.
U.S. Trade or
Business Income
For purposes of this discussion, dividend income, and gain on
the sale or other taxable disposition of our common stock, will
be considered to be U.S. trade or business
income if such dividend income or gain is
(1) effectively connected with the conduct by a
non-U.S. holder
of a trade or business within the United States and (2) in
the case of a
non-U.S. holder
that is eligible for the benefits of an income tax treaty with
the United States, attributable to a permanent
establishment (or, for an individual, a fixed
base) maintained by the
non-U.S. holder
in the United States. Generally, U.S. trade or business
income is not subject to U.S. federal withholding tax
(provided the
non-U.S. holder
complies with applicable certification and disclosure
requirements); instead, U.S. trade or business income is
subject to U.S. federal income tax on a net income basis at
regular U.S. federal income tax rates in the same manner as
a U.S. person. Any U.S. trade or business income
received by a
non-U.S. holder
that is a corporation also may be subject to an additional
branch profits tax at a 30% rate, or at a lower rate
prescribed by an applicable income tax treaty, under specific
circumstances.
The U.S. federal withholding tax does not apply to any
dividends that are U.S. trade or business income, as
described above, of a
non-U.S. holder
who provides a properly executed IRS
Form W-8ECI
(or appropriate substitute
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or successor form), certifying that the dividends are
effectively connected with the
non-U.S. holders
conduct of a trade or business within the United States.
Distributions
Distributions of cash or property (other than certain stock
distributions) that we pay on shares of our common stock (or
certain redemptions that are treated as distributions of shares
of our common stock) will be taxable as dividends for
U.S. federal income tax purposes to the extent paid from
our current or accumulated earnings and profits (as determined
under U.S. federal income tax principles). If the amount of
a distribution exceeds our current and accumulated earnings and
profits, such excess first will be treated as a tax-free return
of capital to the extent of the
non-U.S. holders
adjusted tax basis in its shares of our common stock, and
thereafter will be treated as capital gain. See
Dispositions of Shares of Our Common Stock below. A
non-U.S. holder
generally will be subject to U.S. federal withholding tax
at a 30% rate, or at a reduced rate prescribed by an applicable
income tax treaty, on any dividends received in respect of
shares of our common stock. In order to obtain a reduced rate of
U.S. federal withholding tax under an applicable income tax
treaty, a
non-U.S. holder
will be required to provide a properly executed IRS
Form W-8BEN
(or appropriate substitute or successor form) certifying its
entitlement to benefits under the treaty. Special certification
and other requirements apply to certain
non-U.S. holders
that act as intermediaries. A
non-U.S. holder
of shares of our common stock that is eligible for a reduced
rate of U.S. federal withholding tax under an income tax
treaty may obtain a refund or credit of any excess amounts
withheld by filing an appropriate claim for a refund with the
IRS. A
non-U.S. holder
should consult its own tax advisor regarding its possible
entitlement to benefits under an income tax treaty.
Dispositions of
Shares of Our Common Stock
A
non-U.S. holder
generally will not be subject to U.S. federal income or
withholding tax in respect of any gain on a sale or other
disposition of shares of our common stock unless:
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the gain is U.S. trade or business income, as described
above;
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the
non-U.S. holder
is an individual who is present in the United States for 183 or
more days in the taxable year of the disposition and meets
certain other conditions; or
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we are or have been a U.S. real property holding
corporation, which we refer to as a USRPHC,
under section 897 of the Code at any time during the
shorter of the five-year period ending on the date of
disposition and the
non-U.S. holders
holding period for its shares of our common stock.
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In general, a corporation is a USRPHC if the fair market value
of its U.S. real property interests equals or
exceeds 50% of the sum of the fair market value of its worldwide
(domestic and foreign) real property interests and its other
assets used or held for use in a trade or business. We believe
that we currently are not a USRPHC. In addition, based on our
financial statements and current expectations regarding the
value and nature of our assets and other relevant data, we do
not anticipate becoming a USRPHC, although there can be no
assurance these conclusions are correct or might not change in
the future based on changed circumstances. If we are found to be
a USRPHC, a
non-U.S. holder,
nevertheless, will not be subject to U.S. federal income or
withholding tax in respect of any gain on a sale or other
disposition of shares of our common stock so long as shares of
our common stock are regularly traded on an established
securities market as defined under applicable Treasury
regulations and a
non-U.S. ho