Centennial Specialty Foods Announces Update DENVER, Dec. 21 /PRNewswire-FirstCall/ -- Centennial Specialty Foods Corporation (Nasdaq: CHLE; Boston Stock Exchange: CJS) had previously entered into a Memorandum of Understanding ("MOU") with its lessee and sole supplier seeking to settle all outstanding claims and make certain amendments to the existing Co-Pack Agreement and Lease Agreement between the parties. Centennial announced that it and its supplier have been unable to reach definitive agreements with regard to this MOU and therefore have not been able to reach global resolution. The supplier has notified Centennial that all further correspondence related to certain claims asserted by the supplier should be handled through legal counsel, and must be addressed by January 13, 2005, to avoid litigation. These claims relate to $400,000 of costs associated with a waste water treatment project relating to production operations and certain alleged misrepresentations by Centennial's outside legal counsel related to modifications of lease terms earlier this year. Centennial believes such claims are without merit, and accordingly, it will vigorously defend against them. Centennial also believes it has meritorious counterclaims against the supplier. Centennial has adequate inventories of its core products for the foreseeable future and is confident its products can be produced by other suppliers if necessary. In addition, the supplier has informed Centennial that it does not expect to have significant positive EBITDA (earnings before interest, taxes depreciation and amortization) for its fiscal year ended June 30, 2005. As any positive EBITDA earned by the supplier is to be shared with Centennial as additional revenue, the absence of significant positive EBITDA will have a negative impact on Centennial's revenues. Also, the lessee has informed Centennial that the Company's $57,000 share of EBITDA previously reported by the supplier to Centennial related to the supplier's fiscal year ended June 30, 2004 was inaccurate. The supplier is now reporting to Centennial that there is no EBITDA for that time period, which will result in a reversal of revenue of $57,000 by Centennial during the fourth quarter of 2004. The supplier has not provided current financial information to Centennial despite requests. Centennial intends to review the EBITDA results pursuant to the EBITDA Committee Agreement and dispute matters as appropriate. Additionally, Centennial also expects to assert various rights against the supplier under the EBITDA Sharing Agreement relative to financial disclosure and projected future EBITDA. Centennial has informed its lending bank of the changes in projected EBITDA of the supplier and the negative impact as a result of such changes. In addition, Centennial has informed its bank that Centennial will be recording an estimated shortfall penalty to the supplier related to reduced production levels. Centennial had previously built up Stokes Green Chile Sauce inventory levels for expansion into new markets and to mitigate the risk of an interruption of supply due to financial and legal uncertainties with its supplier. Additionally, the supplier has significantly increased product prices to Centennial on certain Ellis branded products making such products uncompetitive in the retail market, thereby reducing Centennial's need for production on such products. Due to the previous higher production levels, significantly slower than expected initial product sales during this quarter in the California market and reduced Ellis production requirements, Centennial is forecasting lower production requirements over the next few months, which will likely result in a production shortfall penalty being imposed by its supplier at June 30, 2005. Centennial estimates that the total shortfall penalty could approximate $200,000, but intends to audit the pricing and challenge the penalty related to the Ellis products. The impact of low initial sales in California, the reversal of the EBITDA previously reported to Centennial by the supplier and the accrued projected shortfall penalties will cause Centennial to incur a net loss for the quarter ending December 31, 2004. As a result of this net loss, Centennial expects to be in violation of the net worth covenant of $7,000,000 in its lending agreement with its bank. Centennial's management has contacted the bank and is working closely with the bank to seek to obtain a waiver or amend the existing loan agreement covenant, and the outcome is not certain. If such waiver or amendment is not obtained, Centennial would be in violation of the lending agreement, which could have a material adverse impact on its liquidity and capital resources. As stated above, initial sales in Centennial's California market are significantly less than expected. As previously announced, Centennial has launched its "consumer trial program" throughout this market. Under this program, Centennial is promoting its products at the shelf in order to expand consumer trial of its products. Centennial has only received limited reorders of all products in this expansion market, despite positive feedback from customers and consumers regarding the product quality and taste. Centennial expects to continue to pursue traditional marketing options available in seeking to stimulate consumer purchases. In addition, Centennial is reviewing certain non-traditional marketing options. Centennial is also evaluating contracting the services of an additional advertising and marketing company to research various non-traditional marketing options. Centennial Specialty Foods Corporation is a distributor of ethnic Southwestern food products. Its products are sold under the Stokes and Ellis labels, two well-known Southwestern brands that date back almost 100 years. Principal channels of distribution for Centennial's products are grocery retailers, superstores and club stores in Colorado, Arizona, California and, to a lesser extent, several major metropolitan markets in adjoining states. More information about Centennial can be found on its website at http://www.centennialspecialtyfoods.com/. Note Regarding Forward Looking Statements: Certain matters discussed in this press release could contain forward- looking information that involves risks and uncertainties that could cause actual results to differ materially from current trends or expected results. We identify forward looking statements through our use of words such as "expect," "believe," "project," "anticipate," and similar expressions. These risks that may affect our ability to achieve forward-looking statements are discussed in our final prospectus in the section entitled "Risk Factors" and other documents that are on file with the Securities and Exchange Commission. For further information, please contact Jeffrey Nieder, CEO or Douglas Evans, CFO at (303) 292-4018. Stokes and Ellis are registered trademarks of Centennial Specialty Foods Corporation. DATASOURCE: Centennial Specialty Foods Corporation CONTACT: Jeffrey Nieder, CEO, or Douglas Evans, CFO, both of Centennial Specialty Foods Corporation, +1-303-292-4018 Web site: http://www.centennialspecialtyfoods.com/

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