<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
COLEMAN NATURAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5147 84-0886892
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
--------------------------
5140 RACE COURT
DENVER, COLORADO 80216
(303) 297-9393
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
LEE N. ARST, PRESIDENT
COLEMAN NATURAL PRODUCTS, INC.
5140 RACE COURT
DENVER, COLORADO 80216
(303) 297-9393
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
SUSAN L. OAKES, ESQ. TIMOTHY M. HEANEY, ESQ.
IRELAND, STAPLETON, PRYOR & PASCOE, FREDRIKSON & BYRON, P.A.
P.C. 1100 INTERNATIONAL CENTRE
1675 BROADWAY, 26TH FLOOR 900 SECOND AVENUE SOUTH
DENVER, COLORADO 80202 MINNEAPOLIS, MINNESOTA 55402
(303) 623-2700 (612) 347-7000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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 of
1933, check the following box. / /
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 number of the earlier effective
registration statement for the same offering. / /
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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share.......... 1,955,000 shares $11.00 $21,505,000 $7,416
</TABLE>
(1) Includes 255,000 shares that the Underwriters have the option to purchase
from certain selling stockholders to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
--------------------------
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER , 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[COLEMAN LOGO IN COLOR WITH MOUNTAINS AND CATTLE]
1,700,000 SHARES
COMMON STOCK
----------------
Of the 1,700,000 shares of Common Stock offered hereby, 1,475,000 shares are
being sold by Coleman Natural Products, Inc. ("Coleman" or the "Company"),
54,135 shares are being sold by certain selling stockholders and 170,865 shares
are being sold by the Underwriters upon the exercise of warrants to be purchased
from certain selling stockholders. The Company will not receive any of the
proceeds from the sale of shares by such selling stockholders ("Selling
Stockholders"). See "Principal and Selling Stockholders" and "Underwriting."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price will be between $9.50 and $11.00 per share. See "Underwriting" for
information relating to the method of determining the initial public offering
price. Application has been made for designation of the Common Stock as a Nasdaq
National Market security, upon completion of this offering, under the symbol
"NTRL."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 8.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total(2)................... $ $ $ $
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $600,000.
(2) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase 206,293 shares and warrants to purchase 48,707 shares solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Stockholders will be $ 00,000,000,
$00,000,000, $00,000,000 and $00,000,000, respectively. See "Underwriting."
------------------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of Principal Financial Securities, Inc., Dallas, Texas, on
or about , 1996.
PRINCIPAL FINANCIAL SECURITIES, INC. HANIFEN, IMHOFF INC.
The date of this Prospectus is , 1996
<PAGE>
[INSIDE FRONT COVER]
[PHOTO OF RETAIL PACKAGES OF COLEMAN BEEF]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTIN- UED AT ANY TIME.
2
<PAGE>
[TWO PAGE GATEFOLD UNDER FRONT AND INSIDE FRONT COVER]
[PHOTO OF MOUNTAINS AND CATTLE WITH
COLEMAN LOGO AND THE PHRASE
"NOT JUST A FOOD, BUT A LIFESTYLE"]
3
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1996 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Summary.................................................................................................... 5
Risk Factors............................................................................................... 8
Use of Proceeds............................................................................................ 13
Dividend Policy............................................................................................ 13
Capitalization............................................................................................. 14
Dilution................................................................................................... 14
Selected Financial Data.................................................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 17
Business................................................................................................... 28
Management................................................................................................. 36
Certain Transactions....................................................................................... 44
Principal and Selling Stockholders......................................................................... 46
Description of Capital Stock............................................................................... 48
Shares Eligible for Future Sale............................................................................ 50
Underwriting............................................................................................... 52
Legal Matters.............................................................................................. 53
Experts.................................................................................................... 53
Additional Information..................................................................................... 53
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------
The Company intends to distribute to its stockholders annual reports
containing financial statements examined by its independent public accounting
firm and make available to its stockholders quarterly reports for the first
three quarters of each fiscal year containing interim unaudited financial
information.
------------------------
Coleman Natural Meats-Registered Trademark-, Coleman Natural
Beef-Registered Trademark-, Coleman-Registered Trademark-, Origen-TM- and
Coleman Originals-TM- are trademarks of the Company. Laura's Lean
Beef-Registered Trademark-, Maverick Ranch Beef-TM-, Certified Angus
Beef-Registered Trademark- and Wegmans Beef You Feel Good About-TM-, are
trademarks of Laura's Lean Beef Company, Inc., Maverick Ranch Association, Inc.,
the American Angus Association and Wegmans Food Markets, respectively.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND FINANCIAL STATEMENTS AND NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Coleman Natural Products, Inc. ("Coleman" or the "Company") is the leading
U.S. supplier and marketer of fresh, branded, natural beef products from cattle
that have never received hormones and antibiotics ("Coleman Natural Meats").
Coleman believes that it is the only company with national distribution that has
an approved U.S. Department of Agriculture ("USDA") label describing its hormone
and antibiotic free cattle raising practices. In the United States, most
commodity beef comes from cattle which have been given antibiotics and implanted
with hormones to accelerate growth and weight gain. In 1979, Mel Coleman, Sr., a
fourth-generation Colorado rancher and the Company's founder, pioneered the
marketing of pure and natural beef, raised humanely and with respect for the
environment.
Coleman believes its products are not just a food, but a lifestyle. The
Company believes that there are a growing number of consumers demanding high
quality, safe and pure products, and that they are willing to pay a premium for
them. Consumer attitudes about food and eating habits are undergoing fundamental
changes relating to diet, health and food safety. Consumers are moving toward
foods which are less processed and closer to their natural state. Coleman
believes that these changes, which it considers long term in nature, are most
dramatically portrayed by the growth in the natural food industry, as well as by
the growth of many new premium products now offered in previously mature
commodity categories, such as produce, coffee and juices. As a result, Coleman
believes there is a significant growth opportunity for fresh, branded beef
promoted as natural ("Natural Beef") as a distinct segment within the $18
billion retail category for fresh beef sold annually in supermarkets. Given
Coleman's strong reputation, leadership position, unique product benefits and
focus on the consumer, the Company believes that it is strategically positioned
to capture an increasing share of the $18 billion fresh beef category.
Coleman believes the Natural Beef segment is in its early stages of
development. The fresh beef category is one of the few remaining areas in the
supermarket without a preponderance of recognizable consumer brands. Coleman has
capitalized on this opportunity by developing a premium branded natural product
. . .Coleman Natural Meats-Registered Trademark-. Today, Coleman Natural Meats
are the only beef carried in almost all of the largest natural food supermarket
chains, including substantially all of the Whole Foods/Fresh Fields and Wild
Oats/Alfalfa's stores. Coleman is also carried in conventional supermarket
stores, including various A&P divisions, Dorothy Lane, Grand Union, King Kullen,
Nob Hill and Wegmans. As of September 1996, Coleman Natural Meats were sold in
approximately 700 supermarkets. Coleman believes there is a signficant
opportunity to further expand into the approximately 27,000 chain and large
supermarkets in the U.S. not now carrying Natural Beef, as well as to increase
share and volume within existing and new accounts.
The Company's objective is to significantly expand the Natural Beef segment,
while profitably extending its leadership position within this segment. The
Company feels that it can achieve this growth by further expanding its
distribution in natural and conventional supermarket accounts; by building brand
awareness and household penetration and purchase rates; by improving operational
efficiencies; and by remaining true to its founding principles of producing food
that is superior tasting, good for you, safe and raised right.
The Company, originally incorporated in Colorado in 1982, was reincorporated
in Delaware in 1993. Its executive offices are located at 5140 Race Court,
Denver, Colorado 80216, and its telephone number at that location is (303)
297-9393.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.......... 1,475,000 shares
Common Stock Offered by the Selling
Stockholders................................ 225,000 shares(1)
Common Stock Outstanding after the
Offering.................................... 3,352,472 shares(1)(2)(3)
Use of Proceeds.............................. For capital expenditures for new
facilities, redemption of Series A
Preferred Stock, sales and marketing
programs, and general corporate purposes.
Proposed Nasdaq National Market Symbol....... NTRL
</TABLE>
- ------------------------
(1) Includes 170,865 shares to be issued in connection with the exercise of
warrants to be purchased by the Underwriters from certain Selling
Stockholders. The Underwriters intend to exercise the warrants in a cashless
exercise transaction, pursuant to which a portion of the shares to be issued
are redeemed as consideration for the warrant exercise price. The number of
shares to be redeemed depends on the public offering price, which is assumed
to be $10.25 per share. The Underwriters have agreed to purchase a portion
of warrants held by certain Selling Stockholders sufficient for the
Underwriters to receive 170,865 shares in the cashless exercise transaction.
See "Principal and Selling Stockholders" and "Underwriting."
(2) Includes an estimated 48,707 shares issuable upon exercise of the remaining
warrants owned by certain Selling Stockholders. These warrants are to be
purchased by the Underwriters, exercised for cash and the shares used to
cover a portion of the over-allotment option, to the extent the option is
exercised. To the extent the over-allotment option is not exercised, the
Selling Stockholders will exercise such warrants for cash. The number of
shares issuable upon exercise of the remaining warrants is affected by the
actual public offering price used in the cashless exercise transaction
described in footnote (1) above. See "Principal and Selling Stockholders"
and "Underwriting."
(3) Excludes (i) an aggregate of 314,671 shares of Common Stock reserved for
issuance pursuant to the exercise of outstanding stock options under the
Company's Amended and Restated Stock Option Plan at a weighted average price
of $2.49 per share and (ii) an aggregate of 5,700 shares of Common Stock
reserved for issuance pursuant to exercise of outstanding stock options at
an exercise price of $9.50 per share, and 326,300 shares of Common Stock
reserved for future issuance, pursuant to the Company's Omnibus Stock and
Incentive Plan.
UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES (I) THE EFFECTS OF A 2.85:1 STOCK SPLIT OF THE COMPANY'S COMMON STOCK IN
SEPTEMBER 1996 AND (II) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
SEE "DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITING."
THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS
AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH
STATEMENTS, PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS
FACTORS IDENTIFIED IN THIS PROSPECTUS, INCLUDING THE MATTERS SET FORTH UNDER THE
CAPTION "RISK FACTORS," WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE INDICATED IN SUCH FORWARD-LOOKING STATEMENTS.
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER OPERATING DATA)
<TABLE>
<CAPTION>
26 WEEK
53/52 WEEK FISCAL FISCAL 26/27 WEEK INTERIM
PERIODS ENDED(1) PERIOD PERIODS ENDED(1)
------------------------------- ENDED --------------------
JUNE 26, JUNE 25, JUNE 24, DECEMBER 23, JUNE 24, JUNE 29,
1993 1994 1995 1995(1) 1995 1996
--------- --------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................... $ 30,410 $ 34,559 $ 43,002 $ 28,791 $ 23,505 $ 27,122
Gross profit.................................. 3,304 2,829 4,635 2,696 2,530 2,971
Income (loss) from continuing operations...... 290 (370) 620 1,087 340 442
Net income (loss)............................. 290 (1,025) 505 1,087 289 442
Net income (loss) attributable to common
stock........................................ 222 (1,077) 477 771 277 244
Net income (loss) per common and common
equivalent share............................. $0.16 $(0.73) $0.28 $0.42 $0.16 $0.12
Weighted average common and common equivalent
shares outstanding........................... 1,415 1,479 1,686 1,826 1,686 2,021
OTHER OPERATING DATA:
Approximate number of natural supermarket
stores carrying Coleman's products........... N/A N/A 73 86 73 92
Approximate number of conventional supermarket
stores carrying Coleman's products........... N/A N/A 285 333 285 442
</TABLE>
<TABLE>
<CAPTION>
JUNE 29, 1996
-------------------------
DECEMBER 23, 1995 ACTUAL AS ADJUSTED(2)
----------------- --------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 22 $ -- $ 10,126
Working capital...................................................... 2,537 2,629 12,755
Total assets......................................................... 6,030 5,860 15,986
Notes payable........................................................ 1,161 671 671
Mandatorily redeemable preferred stock............................... 3,356 3,401 --
Total stockholders' equity (deficit)................................. (81) 163 13,690
</TABLE>
- ------------------------
(1) Prior to December 23, 1995, the Company's fiscal year was the 52/53 week
period ending on the last Saturday in June. Effective December 23, 1995, the
Company's changed its fiscal year to the 52/53 week period ending on the
last Saturday in December. Each fiscal quarter normally consists of one
five-week period and two four-week periods.
(2) Adjusted to give effect to (i) the sale of 1,475,000 shares of Common Stock
by the Company at an assumed public offering price of $10.25 per share and
the application of the net proceeds therefrom, (ii) the mandatory redemption
of the Series A Preferred Stock (estimated to be $3.5 million as of the
closing of the offering) and (iii) the issuance of an estimated 219,572
shares upon exercise of warrants and the receipt of the proceeds therefrom.
See "Use of Proceeds" and "Underwriting."
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY'S BUSINESS
BEFORE PURCHASING SHARES OF THE COMMON STOCK OFFERED HEREBY.
MAINTENANCE AND EXPANSION OF SALES. The Company believes that its continued
success as a supplier of Natural Beef is dependent upon its ability to increase
the total number of supermarkets carrying its products and to increase its
volume within its accounts. As of September 1996, the Company sold its products
to only 682 of the approximately 30,000 chain and large supermarkets in the
United States, which includes both natural food and conventional supermarkets.
The Company has had and expects to continue to have limited marketing and
advertising resources, which could limit its ability to support greater
distribution and to build widespread brand awareness. There can be no assurance
that the Company will be successful in increasing sales to existing customers or
expanding its base of supermarket customers, or that it can do so on a
profitable basis.
CUSTOMER CONCENTRATION. For the 27 week period ended June 1996, the
Company's largest accounts were Whole Foods Market and its Fresh Fields
subsidiary, and Wegmans Food Markets, which accounted for 25% and 22%,
respectively, of the Company's net sales. Additionally, the Company's top ten
customers for its branded products accounted for 70% and 73% of its net sales
for the 26 and 27 week periods ended December 1995 and June 1996, respectively.
The Company puts considerable effort into the maintenance of these accounts, but
there can be no assurance that sales to any of these customers will not decrease
or that such customers will continue purchasing the Company's products. The loss
of one or more of these customers or any significant decrease in the volume of
products purchased by them would materially and adversely affect the Company's
business, results of operations and financial condition. Continuity of customer
relations is important, and events outside the Company's control may have a
material adverse effect on the Company's ability to retain those relationships
and thus on its business, results of operations and financial condition. The
Company believes that it may experience resistance from existing accounts if it
expands into new supermarkets within geographic areas already served by such
existing accounts. There can be no assurance that the Company will be able to
retain such existing accounts when new customers are added within the same
geographic area. The Company intends to focus its marketing efforts, however, on
the large number of geographic areas where supermarkets are not currently
carrying Natural Beef. See "Business--Customers" and "Business--Sales and
Distribution."
AVAILABILITY OF DESIRED USDA MEAT GRADES. The Company is attempting to
improve its ability to match the demand for, with the supply of, specific USDA
meat quality grades, which are comprised of prime, choice and select. Currently,
approximately 61% of the Company's customers require choice grade meats. Since
the Company averaged 69% choice grade during the 1995 calendar year, seven
percentage points higher than the industry average for 1995, the Company has not
generally experienced problems meeting customer demands. However, the supply of
choice grade product can be lower than the Company needs in any given week. This
is particularly true in the second calendar quarter because of the cattle life
cycle and weather conditions. During any such period, the Company has and may
continue to obtain inadequate levels of choice graded meat, causing it to short
customer orders. This could result in the potential loss of customers who are
dissatisfied with the lack of availability. Moreover, the Company expects that
the number of customers requesting choice grades will increase. Therefore, it is
and will be increasingly important for the Company to maintain or improve its
choice meat grading percentage. To help address this concern, the Company
intends to reward ranchers for raising cattle with choice grades and to allow
cattle to stay on feed longer to ensure maturity and improve grading. There can
be no assurance that the Company will be successful in improving the
availability of choice graded cattle. To the extent the Company is not
successful in this effort, there could be a material adverse effect on the
Company's business, results of operations and financial condition.
PREMIUM PRICING. While the Company believes that it competes very favorably
on factors such as the quality, taste, safety and purity of its products, brand
name recognition and consumer loyalty, Coleman
8
<PAGE>
Natural Meats are sold at prices substantially higher than commodity beef and
somewhat higher than other fresh branded beef products. There can be no
assurance that the Company will not experience competitive pressure,
particularly with respect to pricing, that could adversely affect its business,
results of operations and financial condition. Additionally, unlike commodity
beef producers, the Company does not regularly change its prices to customers
for its branded products as a result of changes in the commodity price of beef.
The last price change of the Company's branded beef products occurred in January
1995. In time periods during which the price of beef is increasing, the Company
may need to increase its prices. There can be no assurance that supermarkets and
their consumers will be willing to pay these higher prices. See
"Business--Pricing" and "Business--Competition."
UNPREDICTABILITY IN CATTLE PRICES; SIGNIFICANT FLUCTUATIONS IN OPERATING
RESULTS. The Company has and may continue to experience significant
fluctuations in operating results. The price of the cattle purchased by the
Company is affected by a number of factors beyond the control of the Company,
such as weather conditions, grain prices, national herd size and consumer demand
for beef. Historically, cattle pricing has experienced ten-year cycles as well
as yearly seasonal fluctuations, and the Company believes that the cattle market
may be beginning a long-term price increase. Since the cost of cattle represents
approximately 68% of the Company's cost of goods sold, the Company has initiated
various strategies to minimize the risk of price unpredictability. The Company
uses its cattle purchase contracts with its certified ranchers ("Coleman
Certified Ranchers" or "Certified Ranchers") to help minimize the effect of
price fluctuations, by increasing the percentage of variable price contracts (in
which prices move in synchronization with the general cattle market) when the
price for cattle is decreasing and by increasing the percentage of fixed price
contracts when the price for cattle is increasing. There can be no assurance,
however, that the Company will accurately predict market price trends and adjust
the type of contract accordingly, or that ranchers will accept these contracts,
so as to permit the Company to minimize material and adverse effects on its
results of operations. The Company instituted a purchase contract risk
management program in June 1996 for its variable price contracts. Under the risk
management program, the Company purchases futures contracts on cattle to provide
a mechanism to fix the Company's cattle pricing, to permit it to make more
accurate projections of its cattle costs, and ultimately to obtain more
predictable gross margins. The Company only purchases futures contracts on the
number of cattle it expects to utilize. As a result of this program, losses on
futures contracts due to lower cattle market prices will be offset by lower
cattle costs. Conversely, gains on future contracts due to higher cattle market
prices will be offset by higher cattle costs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview--Production
and Cost of Goods Sold," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Risk Management Program,"
"Business--Coleman's Operations" and "Business--Pricing."
COMPETITION. The Company's products compete broadly with all protein
sources available to consumers, and more specifically with all other meat
products, including beef. The beef industry is competitive, and includes
national, regional and local producers and distributors, many of whom have
greater resources than the Company. The Company markets its products as natural
because they have never received hormones and antibiotics. The USDA definition
of "natural," however, simply requires that no artificial flavors, coloring
ingredients, chemical preservatives or any other artificial or synthetic
ingredients are added to the meat, and that the meat is not more than minimally
processed. This definition permits virtually any branded or unbranded meat
producer and its supermarket customers in the United States to label their meats
as "natural." The Company believes it has been successful in educating consumers
that beef, to be defined as truly natural, should be completely free of hormones
and antibiotics from birth, and the Company believes that it has associated its
brand name with this definition of natural. There can be no assurance, however,
that the Company will successfully continue to associate its brand name in this
manner. Certain other beef producers market Natural Beef, although Coleman
believes that any other companies which may be selling beef from cattle meeting
the Company's definition, if any, are not doing so on a national basis. See
"Business--Competition."
9
<PAGE>
Finally, there can also be no assurance that the commodity meat producers,
most of whom have significantly greater resources than the Company, will not
begin either to develop products making natural claims or to label their
conventional products as natural in an attempt to capitalize on the Company's
development of consumer recognition of this category. Although the Company has
not experienced any competition in the Natural Beef segment from these sources
to date, and while the Company believes that if such competition did develop,
consumers could differentiate its products favorably from any commodity meat
product in terms of taste and quality, a decision by any of these sources to
market its products with a natural claim could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business--Competition."
PRODUCT LIABILITY. All meat products are highly perishable and contain some
level of bacteria. Although the Company believes that its quality assurance
program insures that its meat is safe and clean, the Company is unable to insure
that its customers and their consumers handle Coleman's products in ways which
maintain the safety of such products. There can be no assurance that the
Company's products will not cause or be alleged to cause ill effects to
consumers, and that any such alleged ill effects will not result in adverse
publicity and a materially negative impact on consumer perception of the
Company's products. Any product liability issues could also result in claims
against the Company for monetary damages. Either of these results could
materially and adversely affect the Company's business, results of operations
and financial condition. The Company currently maintains more than $2,000,000 in
product liability insurance and a $10,000,000 umbrella policy, which may not be
sufficient to cover the cost of defense or related damages in the event of a
significant product liability claim.
ABILITY TO ACCURATELY FORECAST DEMAND. Cattle purchase contracts are based
on forecasted demand and can be entered into as much as one year in advance of
actual need. Since actual demand for cattle can be either higher or lower than
forecasted, cattle commitments can result in excess cattle, requiring the
Company to slaughter more than it needs or to keep the cattle on feed longer, or
in the event of a shortage, causing the Company not to fill customer orders. To
address this issue, the Company is attempting to purchase approximately 20% of
forecasted demand from Coleman Certified Ranchers on an as-needed basis to help
stabilize supply. While this strategy should reduce the degree to which the
Company is making advance commitments, there can be no assurance that the
Company will be successful in executing this strategy. See "Risk
Factors--Availability of Desired USDA Meat Grades" and "Management's Discussion
and Analysis of Financial Conditions and Results of Operations--Production and
Cost of Goods Sold."
MANAGEMENT OF GROWTH; FACILITIES EXPANSION. Over the last several years,
the Company has experienced substantial growth in net sales, operations and
employee base, and has undergone substantial changes in its business. This
growth has placed significant demands on the Company's management, its internal
control systems, and its current fabrication plant. One of the uses of proceeds
of this offering will be capital expenditures relating to the opening of a more
efficient fabrication plant, which the Company believes will result in cost
savings. If the Company is delayed in opening a new fabrication facility, it
believes that it could continue to use its existing facility and/or find
substitute facilities with no material interruption of its operations.
In order to have greater control over its costs and to accommodate the
Company's growth, Coleman is also investigating various options relating to
cattle slaughter, including the re-opening of its own facility in Limon,
Colorado (the "Limon Facility"). The Company's current expansion plans,
including the intended move to a new fabrication facility and any potential
opening of the Limon Facility, could consume a significant amount of management
resources. In addition, the success of any expansion plans will depend in part
upon the Company's ability to continue to improve and expand its management and
financial control systems. To the extent the Company fails to open a new
fabrication plant, experiences cost or timing difficulties if it decides to open
the Limon Facility, or encounters difficulties in upgrading its internal control
systems, there could be material adverse effects on the Company's business,
results of
10
<PAGE>
operations and financial condition. The Company's results of operations will be
adversely affected if revenues do not increase sufficiently to compensate for
the increase in operating expenses resulting from any expansion, and there can
be no assurance that any expansion will be profitable or that it will not
adversely affect the Company's results of operations. See "Risk
Factors--Dependence Upon Outside Slaughter Facilities."
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon the continued service of Lee N. Arst, its President and Chief
Executive Officer. The loss of Mr. Arst's services could have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company is the beneficiary of key man life insurance on Mr. Arst in the
amount of $1,000,000. The Company also has an employment agreement with Mr. Arst
pursuant to which he has agreed not to compete with the Company for a period of
one year after his termination for any reason or the period in which he is
receiving severance payments under his employment agreement, whichever is
longer. Furthermore, the Company's ability to achieve and manage sales growth
will depend in part upon its ability to attract and retain key management and
sales personnel. There can be no assurance that the Company will be successful
in such efforts or that such efforts will result in additional sales or
profitability in any future period. See "Management--Executive Compensation."
DEPENDENCE UPON OUTSIDE SLAUGHTER FACILITIES. The Company currently has its
cattle slaughtered at an Excel Corporation ("Excel") facility in Sterling,
Colorado, pursuant to an agreement with a six month termination clause. Although
the Company has certified seven other facilities, processing its cattle at any
of these other facilities would result in higher costs to the Company. The
Company is currently in discussions with Excel regarding its agreement, and
there can be no assurance that Excel will not demand unacceptable price
increases or terminate its contract with the Company. The Limon Facility has not
operated since 1992, but the Company believes it could reactivate and operate
the Limon Facility for substantially similar per head costs as the current Excel
contract. The Company currently believes the costs of reactivating this facility
would be approximately $1,000,000 and that it could reactivate the facility in
approximately six months. There can be no assurance, however, that the Company
will be able to reactivate this facility in this time period or for this cost,
or that its processing costs will be in line with the Company's projections; in
any such event, there could be material, adverse effects on the Company's
business, results of operations and financial condition. See "Risk
Factors--Management of Growth; Facilities Expansions" and "Business--Coleman's
Operations."
PUBLIC ATTITUDES TOWARD BEEF CONSUMPTION. In recent years, there has been
an increase in the level of health consciousness in the United States and
considerable debate has occured concerning the consumption of red meat. A number
of research reports have suggested that red meat should be limited in a healthy
diet. A decrease in general red meat consumption as a result of these reports
could have a material, adverse effect on the Company's business, financial
condition and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET
PRICE. Sales of substantial amounts of shares in the public market or the
prospect of such sales could adversely affect the market price of the Company's
Common Stock. The number of shares of Common Stock available for sale in the
public market is limited by restrictions under the Securities Act of 1933, as
amended (the "Securities Act"), and lockup agreements under which certain
stockholders have agreed not to sell or otherwise dispose of any of their shares
for a period of 90 or 180 days after the date of this Prospectus without the
prior written consent of Principal Financial Securities, Inc. However, Principal
Financial Securities, Inc. may, in its sole discretion and at any time without
public notice, release all or any portion of the securities subject to lock up
agreements. In addition, shortly after the date of this Prospectus, the Company
intends to register shares reserved for issuance under its Amended and Restated
Stock Option Plan and Omnibus Stock and Incentive Plan. After this offering,
subject to the lockup agreements described above, certain holders of shares of
Common Stock will be entitled to certain demand and piggyback registration
rights with respect to such shares. If such holders were to exercise their
demand registration rights and cause a large number
11
<PAGE>
of shares to be sold in the public market, such sales could have an adverse
effect on the market price for the Company's Common Stock. If the Company were
required to include shares held by such holders in a Company initiated
registration, such sales could have an adverse effect on the Company's ability
to raise needed capital in the future. See "Management--Amended and Restated
Stock Option Plan," "Management--Omnibus Stock and Incentive Plan," "Description
of Capital Stock--Registration Rights" and "Shares Eligible for Future Sale."
INFLUENCE BY EXISTING STOCKHOLDERS. Following this offering, and assuming
the issuance of an estimated 219,572 shares issuable upon exercise of warrants,
the Company's officers, directors and principal stockholders will beneficially
own approximately 35.2% of the outstanding shares of the Company's Common Stock
(approximately 30.3% if the Underwriters' over-allotment option is exercised in
full). As a result, such persons will have the ability to exercise significant
influence over all matters requiring stockholder approval, such as the election
of directors, mergers and acquisitions. This concentration of ownership by such
persons and entities could have the effect of delaying, deferring or preventing
a change in control of the Company. See "Principal and Selling Stockholders."
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's Amended and
Restated Certificate of Incorporation may be deemed to have anti-takeover
effects and may discourage or make more difficult a takeover attempt that a
stockholder might consider in such stockholder's best interest. The Board of
Directors may issue up to 5,000,000 shares of undesignated Preferred Stock in
the future without stockholder approval upon such terms as the Board of
Directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuances of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying or preventing a
change in control of the Company without further action by the stockholders. The
Company has no present plans to issue any shares of Preferred Stock. See
"Description of Capital Stock-- Series A Preferred Stock; Undesignated Preferred
Stock."
Following this offering, the Company will become subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which will prohibit the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change of
control of the Company. See "Description of Capital Stock--Delaware Anti-
Takeover Law and Certain Charter Provisions."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE. Prior to
this offering, there has been no public market for the Common Stock, and there
can be no assurance that an active trading market will develop or be sustained
after this offering. The initial public offering price was determined through
negotiations between the Company and the representatives of the Underwriters
based on several factors and may not be indicative of the market price of the
Common Stock after this offering. The market price of the shares of Common Stock
may be highly volatile and may be significantly affected by factors such as
actual or anticipated fluctuations in the Company's operating results, increased
competition, government regulatory action, fluctuations in the price of cattle,
general market conditions and other factors. In addition, the stock market has
from time to time experienced significant price and volume fluctuations which
have often been unrelated to the operating performance of particular companies.
These broad market fluctuations may also adversely affect the market price of
the Company's Common Stock. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation often
has occurred against the issuing company. There can be no assurance that such
litigation will not occur in the future with respect to the Company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on
12
<PAGE>
the Company's business, results of operations and financial condition. Any
adverse determinations in such litigation could also subject the Company to
significant liabilities. See "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION. The initial public offering price is
substantially higher than the net tangible book value per share of Common Stock.
Investors purchasing shares of Common Stock in this offering will therefore
incur immediate and substantial net tangible book value dilution. To the extent
that outstanding stock options and warrants to purchase the Company's Common
Stock are exercised, there will be further dilution. See "Dilution,"
"Management--Omnibus Stock and Incentive Plan" and "Management--Amended and
Restated Stock Option Plan."
USE OF PROCEEDS
The net proceeds from the sale of the 1,475,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$10.25 per share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, are estimated to be $13.6
million.
The Company is undertaking a major expansion of its production facilities.
This expansion includes plans to lease a new build-to-suit facility of
approximately 55,000 square feet in late 1997 or early 1998. The Company also
expects to purchase approximately $6.0 million in leasehold improvements,
production equipment and furniture/fixtures with proceeds from this offering.
The Company may also use approximately $1.0 million in proceeds to reactivate
the Limon Facility. Alternative long term financing for the equipment, as well
as for the Limon Facility, is expected to be obtained from other sources. This
aggregate of approximately $7.0 million may then be available for marketing,
advertising and other general corporate purposes. The Company also intends to
use approximately $3.5 million of the proceeds for the redemption of Series A
Preferred Stock. The remainder of the proceeds from this offering are expected
to be used for expanded sales and marketing programs and for working capital. A
portion of the net proceeds may also be used for the acquisition of businesses
that are complementary to those of the Company. The Company has no present
plans, agreements or commitments and is not currently engaged in any
negotiations with respect to any such transaction.
Pending the use of the net proceeds for the above purposes, the Company
intends to invest such funds in short-term, investment-grade securities,
including government obligations and money market instruments. The Company will
not receive any of the proceeds from the sale of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company has never declared nor paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future earnings
for the expansion and operation of its business and does not anticipate paying
cash dividends in the foreseeable future. In addition, the Company's credit
facility contains provisions restricting the payments of dividends. The Company
has paid cash and in-kind dividends on its Series A Preferred Stock. See
"Certain Transactions."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 29,
1996, and on an as adjusted basis after giving effect to (i) the sale of the
Common Stock offered by the Company hereby at an assumed initial public offering
price of $10.25 per share and (ii) the redemption of all outstanding shares of
Series A Preferred Stock upon the closing of this offering. See "Use of
Proceeds."
<TABLE>
<CAPTION>
JUNE 29, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
Notes payable.............................................................................. $ 671 $ 671
Mandatorily redeemable preferred stock, $.001 par value; 3,491,396 shares authorized;
3,400,962 shares issued and outstanding actual and none outstanding as adjusted(1)........ 3,401 --
Stockholders' equity:
Common stock, $.001 par value; 15,000,000 shares authorized; 1,651,650(2) shares issued
and outstanding actual and 3,346,222 shares outstanding as adjusted(3)................. 2 3
Additional paid-in capital............................................................... 808 14,333
Accumulated deficit...................................................................... (646) (646)
--------- -----------
Total stockholders' equity............................................................. 163 13,690
--------- -----------
Total capitalization................................................................. $ 4,236 $ 14,361
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Effective immediately upon the redemption of the outstanding Series A
Preferred Stock, there will be no authorized Series A Preferred Stock. After
such redemption, the Company will then have 5,000,000 shares of authorized
but undesignated Preferred Stock.
(2) Excludes (i) an aggregate of 315,227 shares of Common Stock reserved for
issuance pursuant to the exercise of outstanding stock options under the
Company's Amended and Restated Stock Option Plan at a weighted average price
of $2.49 per share, (ii) 5,700 shares of Common Stock reserved for issuance
pursuant to the exercise of outstanding stock options, and 326,300 shares of
Common Stock reserved for future issuance pursuant to the Company's Omnibus
Stock and Incentive Plan and (iii) 246,279 shares reserved for issuance upon
exercise of warrants at a weighted average exercise price of $1.39 per
share.
(3) Shares outstanding, as adjusted, includes an estimated 219,572 shares
issuable upon exercise of the warrants. See "Underwriting."
DILUTION
The net tangible book value of the Company's Common Stock at June 29, 1996,
was approximately $163,000 or $0.10 per share. Net tangible book value per share
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of Common Stock outstanding. After giving effect to the
sale of the 1,475,000 shares of Common Stock offered by the Company hereby
(based upon an assumed initial public offering price of $10.25 per share, and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company), the application of the net proceeds therefrom
and the issuance of an estimated 219,572 shares upon exercise of warrants and
the receipt of the net proceeds therefrom, the net tangible book value at June
29, 1996, would have been approximately $13.7 million, or $4.09 per share of
Common Stock. This represents an immediate dilution of $6.16 per share to new
investors purchasing shares in this offering and an immediate increase in net
tangible book value of $3.99 per share to existing stockholders. Dilution is
determined by subtracting pro
14
<PAGE>
forma net tangible book value per share after the offering from the amount of
cash paid by a new investor for a share of Common Stock. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................ $ 10.25
Net tangible book value before the offering........................ $ 0.10
Increase attributable to new stockholders.......................... 3.99
---------
Pro forma net tangible book value after the offering................. 4.09
---------
Dilution per share to new stockholders............................... $ 6.16
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis as of June 29, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average price paid per share by
existing stockholders and to be paid by purchasers of the shares offered by the
Company hereby (at an assumed initial public offering price of $10.25 per share
and before deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2)............... 1,871,222 55.9% $ 1,666,841 9.9% $ 0.89
New investors............................. 1,475,000 44.1% 15,118,750 90.1% $ 10.25
---------- ----- ------------- -----
Total................................... 3,346,222 100.0% $ 16,785,591 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Includes an estimated 219,572 shares issuable upon exercise of warrants. See
"Underwriting."
(2) Sales by the Selling Stockholders (assuming no exercise of the Underwriters'
over-allotment option) in this offering will cause the number of shares held
by existing stockholders to be reduced to 1,646,222 shares or 49.2% of the
total number of shares of Common Stock to be outstanding after this offering
and will increase the number of shares held by new stockholders to 1,700,000
shares or 50.8% of the total number of shares of Common Stock to be
outstanding after this offering. See "Principal and Selling Stockholders."
The foregoing computations do not include (i) an aggregate of 315,227 shares
of Common Stock reserved for issuance pursuant to the exercise of outstanding
stock options under the Company's Amended and Restated Stock Option Plan at a
weighted average price of $2.49 per share and (ii) and an aggregate of 5,700
shares of Common Stock reserved for issuance upon exercise of outstanding stock
options at an exercise price of $9.50 per share, and 326,300 shares of Common
Stock reserved for future issuance pursuant to the Company's Omnibus Stock and
Incentive Plan.
SELECTED FINANCIAL DATA
The following selected statement of operations data for the 52 weeks ended
June 26, 1993, the 52 weeks ended June 25, 1994 and the 52 weeks ended June 24,
1995, and the 26 weeks ended December 23, 1995, and the selected balance sheet
data at June 24, 1995 and December 23, 1995, have been derived from the
Consolidated Financial Statements of the Company, which have been audited by
KPMG Peat Marwick LLP, independent accountants, whose report thereon also is
included herein. The selected statements of operations data for the 53 weeks
ended June 29, 1991 and the 52 weeks ended June 27, 1992, and the selected
balance sheet data at June 29, 1991, June 27, 1992, June 26, 1993 and June 25,
1994, have been derived from the audited consolidated financial statements of
the Company that are not included in this Prospectus. The selected statement of
operations data for the 26 weeks ended June 24, 1995 and the 27 weeks ended June
29, 1996, and the selected balance sheet data at June 29, 1996, are unaudited
but have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, contain all adjustments,
consisting only of normally recurring adjustments, necessary for a fair
presentation of the financial information presented. The selected financial
15
<PAGE>
data set forth below is not necessarily indicative of results to be expected for
any future period. The selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere in the Prospectus.
<TABLE>
<CAPTION>
26/27 WEEK
INTERIM
26 WEEK PERIODS
53/52 WEEK FISCAL PERIODS ENDED(1) FISCAL PERIOD ENDED(1)
--------------------------------------------------------------- ENDED -----------
JUNE 29, JUNE 27, JUNE 26, JUNE 25, JUNE 24, DECEMBER 23, JUNE 24,
1991 1992 1993 1994 1995 1995(1) 1995
----------- ----------- ----------- ----------- ----------- ------------- -----------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................. $ 24,674 $ 26,987 $ 30,410 $ 34,559 $ 43,002 $ 28,791 $ 23,505
Cost of sales.............. 23,050 23,765 27,106 31,730 38,367 26,095 20,975
----------- ----------- ----------- ----------- ----------- ------------- -----------
Gross profit............... 1,624 3,222 3,304 2,829 4,635 2,696 2,530
Selling, general and
administrative expenses... 3,075 3,139 2,743 3,008 3,770 2,135 2,055
----------- ----------- ----------- ----------- ----------- ------------- -----------
Operating income (loss).... (1,451) (83) 561 (179) 865 561 475
Interest and other
expenses, net............. 219 662 271 191 245 118 135
----------- ----------- ----------- ----------- ----------- ------------- -----------
Income (loss) from
continuing operations
before income taxes....... (1,670) (579) 290 (370) 620 442 340
Income tax benefit
(expense)................. 7 -- -- -- -- 645 --
----------- ----------- ----------- ----------- ----------- ------------- -----------
Income (loss) from
continuing operations..... (1,663) (579) 290 (370) 620 1,087 340
Loss from discontinued
operations(2)............. -- -- -- (655) (115) -- (51)
----------- ----------- ----------- ----------- ----------- ------------- -----------
Net income (loss).......... $ (1,663) $ (579) $ 290 $ (1,025) $ 505 $ 1,087 $ 289
----------- ----------- ----------- ----------- ----------- ------------- -----------
----------- ----------- ----------- ----------- ----------- ------------- -----------
Net income (loss)
attributable to common
stock..................... $ (1,663) $ (649) $ 222 $ (1,077) $ 477 $ 771 $ 277
----------- ----------- ----------- ----------- ----------- ------------- -----------
----------- ----------- ----------- ----------- ----------- ------------- -----------
Net income (loss) per
common and common
equivalent share.......... $ (1.42) $ (0.47) $ 0.16 $ (0.73) $ 0.28 $ 0.42 $ 0.16
----------- ----------- ----------- ----------- ----------- ------------- -----------
----------- ----------- ----------- ----------- ----------- ------------- -----------
Weighted average common and
common equivalent shares
outstanding............... 1,173 1,388 1,415 1,479 1,686 1,824 1,686
----------- ----------- ----------- ----------- ----------- ------------- -----------
----------- ----------- ----------- ----------- ----------- ------------- -----------
<CAPTION>
JUNE 29,
1996
-----------
<S> <C>
STATEMENT OF OPERATIONS DAT
Net sales.................. $ 27,122
Cost of sales.............. 24,151
-----------
Gross profit............... 2,971
Selling, general and
administrative expenses... 2,246
-----------
Operating income (loss).... 725
Interest and other
expenses, net............. 45
-----------
Income (loss) from
continuing operations
before income taxes....... 680
Income tax benefit
(expense)................. (238)
-----------
Income (loss) from
continuing operations..... 442
Loss from discontinued
operations(2)............. --
-----------
Net income (loss).......... $ 442
-----------
-----------
Net income (loss)
attributable to common
stock..................... $ 244
-----------
-----------
Net income (loss) per
common and common
equivalent share.......... $ 0.12
-----------
-----------
Weighted average common and
common equivalent shares
outstanding............... 2,021
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
JUNE 29, JUNE 27, JUNE 26, JUNE 25, JUNE 24, DECEMBER 23,
1991 1992 1993 1994 1995 1995
----------- ----------- ----------- ----------- ----------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 145 $ 199 $ 237 $ 265 $ 297 $ 22
Working capital....................... 2,318 1,585 1,777 1,308 1,756 2,537
Total assets.......................... 8,539 8,055 5,726 5,783 7,329 6,030
Notes payable......................... 4,750 5,370 2,599 2,592 3,471 1,161
Mandatorily redeemable preferred
stock................................ 2,898 2,968 3,035 3,313 3,341 3,356
Total stockholders' equity
(deficit)............................ 27 (992) (770) (1,471) (994) (81)
<CAPTION>
JUNE 29,
1996
-----------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ --
Working capital....................... 2,629
Total assets.......................... 5,860
Notes payable......................... 671
Mandatorily redeemable preferred
stock................................ 3,401
Total stockholders' equity
(deficit)............................ 163
</TABLE>
- ------------------------------
(1) Prior to December 23, 1995, the Company's fiscal year was the 52/53 week
period ending on the last Saturday in June. Effective December 23, 1995, the
Company changed its fiscal year to the 53/53 week period ending on the last
Saturday in December. Each fiscal quarter normally consists of 1 five-week
period and 2 four-week periods.
(2) During fiscal 1995, the Company discontinued Coleman Originals, a line of
shelf-stable sauces. The Company liquidated its inventory, sold all related
machinery and equipment, trade accounts receivable were collected, and
accounts payable were settled. The loss from discontinued operations
primarily represents the operations of Coleman Originals in fiscal 1994 and
fiscal 1995. The loss from discontinued operations also includes $54,000
representing the loss on the disposition of inventory which could not be
sold and was donated to charity, along with miscellaneous costs associated
with the disposition of assets of the discontinued operation.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
PRODUCTS AND REVENUE
BRANDED NATURAL BEEF PRODUCTS. The Company derives its revenue primarily
from selling Coleman Natural Meats, which are fresh branded natural beef
products from cattle that have never received antibiotics, feed additives,
hormones or other growth-promoting drugs. Coleman Natural Meats consist of
primal cuts (such as steaks and roasts) and ground beef. The Company's beef
products are sold by natural food supermarkets, conventional supermarkets,
processors and export customers on a branded basis. The Company's sales to these
customers ("Branded Sales") represented approximately 80.3% of net sales for the
27 weeks ended June 1996.
Primal cuts are fabricated into either regular or close trim cuts.
Regular trim primal cuts require further preparation by supermarket
personnel while close trim primal cuts generally do not. For the 27 weeks
ended June 1996, the net selling price of close trim products, on a per
pound basis, was approximately 35% higher than the net selling price of
regular trim products. For the 27 weeks ended June 1996, customer demand for
close trim product had grown to 34.3% of Branded Sales compared to 11.0% for
the 26 weeks ended June 1995.
Ground beef is produced from chuck, round and trim generated from the
fabrication process. For the 27 weeks ended June 1996, customer demand for
ground beef increased to 16.3% of Branded Sales compared to 14.0% for the 26
weeks ended June 1995. The Company believes that the increase in sales of
close trim cuts and ground beef as a percentage of Branded Sales is a result
of a trend by conventional supermarkets, and to a lesser extent natural food
supermarkets, to reduce their freight and in-store labor costs by purchasing
products that require less preparation in the store.
BRANDED NATURAL LAMB PRODUCTS. The Company also sells branded natural lamb
products to its supermarket customers. Branded Sales of natural lamb represented
approximately 5.9% of net sales for the 27 weeks ended June 1996.
UNBRANDED BEEF AND LAMB PRODUCTS. The balance of the Company's net sales
represent sales of unbranded natural beef and lamb products. Unbranded beef
products are primarily comprised of excess trim generated from the fabrication
process that is not used in ground beef. Unbranded beef and lamb products also
include primal cuts that are not sold as branded products due to seasonal
fluctuations in consumer demand for particular cuts of meat. These unbranded
products are sold to meat brokers, distributors and processors at the prevailing
commodity market price, and represented approximately 13.8% of net sales for the
27 weeks ended June 1996.
PRODUCT MIX. The mix of products sold impacts the average net selling price
per pound as well as the gross profit per pound. An increase in the percentage
of production sold as branded products increases the net selling price and gross
profit per pound. Likewise, an increase in the amount of branded product sold as
close trim also increases the net selling price per pound, but to a lesser
extent the gross profit per pound. The effect of the increase in the net selling
price is offset in part by an increase in fabrication costs and an increase in
the amount of trim sold as ground beef or as unbranded product.
The extent of fabrication of the product also effects the average net
selling price and the gross profit per pound. Since February 1996, the Company
has implemented a practice of further fabricating certain cuts of unbranded
products (e.g. briskets) to remove the bones and fat. This additional
fabrication decreases the number of pounds available for sale as unbranded
products, and increases the volume of by-products (e.g. bones and fat) produced.
Proceeds from sales of by-products are recorded as a reduction of cost of sales
and offset in part the additional fabrication costs. This additional fabrication
also allows the Company to obtain a higher net selling price per pound for these
unbranded products and thereby increase
17
<PAGE>
its gross profit per pound. The effect of the increase in price more than
offsets the decrease in the number of pounds available for sale and the
additional fabrication costs.
PRICING. The Company has fixed wholesale prices for its branded products.
It offers price discounts to customers for in-store promotions, including
feature prices and advertising. The Company also offers discounts to increase
sales of off-season products when needed. Sales are recorded net of such
discounts. Unbranded products are sold at the prevailing commodity market
prices.
CUSTOMERS
Over the three year period ending June 29, 1996, the Company's net sales
have grown at a 22.5% compounded annual rate. The Company believes this growth
is due to the greater consumer exposure to Coleman's products resulting from the
increased number of national food and conventional supermarkets carrying Coleman
Natural Meats. Additionally, the overall growth in natural food consumption,
increased advertising and promotional activities by the Company and its
customers and the fundamental changes in consumer eating habits are all
contributing to the Company's sales growth.
During this period there were two significant changes in the Company's
customer base. In 1995, the Company discontinued sales to over 100 small or
unprofitable accounts. Sales to such customers were $2.3 million for the 26
weeks ended June 1995, $800,000 for the 26 weeks ended December 1995, and
$95,000 for the 27 weeks ended June 1996. Also during this period, the Company
added a significant new customer, Wegmans. This customer began selling the
Company's products on a pilot basis in October 1994, and on a chainwide basis in
April 1995. Net sales to Wegmans were $4.4 million for the 26 weeks ended June
1995, $7.5 million for the 26 weeks ended December 1995 and $6.0 million for the
27 weeks ended June 1996.
PRODUCTION AND COST OF GOODS SOLD
Production costs include the cost of raw materials, labor, packaging and
related overhead. Of these costs, approximately 68% relate to the cost of
cattle. The Company uses a variety of cattle purchase contracts with Coleman
Certified Ranchers and with feedlots which have been certified by the Company
("Coleman Certified Feedlots" or "Certified Feedlots"). The pricing of these
contracts is either set at the inception of the contract (fixed price contracts)
or floats with the cash and/or futures market for cattle (variable price
contracts). The Company also purchases approximately 20% of its cattle on an as
needed basis from Coleman Certified Ranchers when required by market demand.
Proper feedlot management improves the yield (i.e., the amount of beef
produced when the cattle are slaughtered) and the USDA grades of the beef.
Accordingly, the Company has developed various reporting tools to assist the
ranchers and feedlots in improving the yield and grading of their cattle and has
developed cattle contracts that reward ranchers and feedlots for higher yields
and choice graded cattle. The Company recently initiated a purchase contract
risk management program for variable price contracts as a strategy to minimize
its exposure to cattle price changes. See "Risk Factors--Unpredictability in
Cattle Prices; Significant Fluctuations in Operating Results" and "Management's
Discussion and Analysis of Financial Condition and Results of Operation--Risk
Management Program."
Substantially all of the cattle purchased by the Company are slaughtered by
Excel in Sterling, Colorado, for a per head processing fee. Excel pays the
Company for the hides and other related by-products (referred to as a drop
credit). Historically, the drop credit has exceeded the fee charged by Excel.
The drop credit, net of the related processing fees, is paid to the Company by
Excel and is recorded as a credit to cost of goods sold.
The beef is transported in quarters from Excel's plant to the Company's
fabrication plant in Denver, Colorado. After fabrication, the products are
vacuum packed for freshness, put into shipping boxes and
18
<PAGE>
delivered directly to the Company's customers. The costs to fabricate and
package the beef quarters consist of labor, packaging and related overhead.
These costs generally vary with the amount of product produced.
The Company purchases fabricated natural lamb from Iowa Lamb Corporation.
The cost of the lamb is based on a fixed premium over the commodity market
price, which is adjusted monthly, plus a processing fee.
CHANGE IN YEAR END
Effective December 23, 1995, the Company changed its fiscal year to a 52/53
week period ending on the last Saturday in December. Prior to that date, the
fiscal year had been the 52/53 week period ending on the last Saturday in June.
This change was made to allow for better planning with customers. As a result of
the change in year end, the Company has separately reported its operating
results for the transition period from June 24, 1995 to December 23, 1995. In
addition, the 27 week period ended June 1996 contains one more week of operating
results than the comparable period in 1995.
DISCONTINUED OPERATIONS
In October 1994, the Company discontinued Coleman Originals, a line of
shelf-stable sauces. The Company liquidated its inventory, sold all related
equipment, collected trade accounts receivable, and settled accounts payable.
The loss from discontinued operations includes a loss from operations of Coleman
Originals of $654,000 for the 52 weeks ended June 1994 and $61,000 for the 52
weeks ended June 1995. The loss from discontinued operations for the 52 weeks
ended June 1995 also includes a $54,000 loss on the disposition of inventory
which could not be sold and was donated to charity, along with miscellaneous
costs associated with the disposition of the assets.
RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
26/27 WEEK INTERIM
52 WEEK FISCAL PERIODS ENDED 26 WEEK FISCAL PERIODS ENDED
------------------------------------- PERIOD ENDED ------------------------
JUNE 26, JUNE 25, JUNE 24, DECEMBER 23, JUNE 24, JUNE 29,
1993 1994 1995 1995 1995 1996
----------- ----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 89.1 91.8 89.2 90.6 89.2 89.0
----- ----- ----- ----- ----- -----
Gross profit.................................... 10.9 8.2 10.8 9.4 10.8 11.0
Selling, general and administrative expenses.... 9.0 8.7 8.8 7.4 8.8 8.3
----- ----- ----- ----- ----- -----
Operating income (loss)......................... 1.9 (0.5) 2.0 2.0 2.0 2.7
Interest and other expenses, net................ (0.9) (0.6) (0.6) (0.4) (0.6) (0.2)
----- ----- ----- ----- ----- -----
Income (loss) from continuing operations before
income taxes................................... 1.0 (1.1) 1.4 1.6 1.4 2.5
Income tax benefit (expense).................... -- -- -- 2.2 -- (0.9)
----- ----- ----- ----- ----- -----
Income (loss) from continuing operations........ 1.0 (1.1) 1.4 3.8 1.4 1.6
Loss from discontinued operations............... -- (1.9) (0.2) -- (0.2) --
----- ----- ----- ----- ----- -----
Net income (loss)............................... 1.0% (3.0)% 1.2% 3.8% 1.2% 1.6%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
19
<PAGE>
The following table sets forth selected statement of operations data of the
Company expressed as an amount per pound of product sold, except total pounds
sold.
<TABLE>
<CAPTION>
26 WEEK
FISCAL PERIOD 26/27 WEEK INTERIM
52 WEEK FISCAL PERIODS ENDED ENDED PERIODS ENDED
------------------------------------- ------------- ------------------------
JUNE 26, JUNE 25, JUNE 24, DECEMBER 23, JUNE 24, JUNE 29,
1993 1994 1995 1995 1995 1996
----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total pounds sold (in thousands)................ 15,428 18,077 23,163 16,437 12,672 14,276
----------- ----------- ----------- ------ ----------- -----------
----------- ----------- ----------- ------ ----------- -----------
Net sales....................................... $1.97 1.91 1.86 1.75 1.85 1.90
Cost of sales................................... 1.76 1.75 1.66 1.59 1.65 1.69
----------- ----------- ----------- ------ ----------- -----------
Gross profit.................................... 0.21 0.16 0.20 0.16 0.20 0.21
Selling, general and administrative expenses.... 0.18 0.17 0.16 0.13 0.16 0.16
----------- ----------- ----------- ------ ----------- -----------
Operating income (loss)......................... $0.03 (0.01) 0.04 0.03 0.04 0.05
----------- ----------- ----------- ------ ----------- -----------
----------- ----------- ----------- ------ ----------- -----------
</TABLE>
27 WEEKS ENDED JUNE 1996 COMPARED TO 26 WEEKS ENDED JUNE 1995
INCOME FROM CONTINUING OPERATIONS. Income from continuing operations for
the 27 weeks ended June 1996 increased 30.0% to $442,000 compared to $340,000
for the 26 weeks ended June 1995. The increase in 1996 was primarily due to
higher gross profit on increased sales volume, offset by income tax expense of
$238,000. No income tax expense was recorded in 1995.
NET SALES. Net sales for the 27 weeks ended June 1996 increased 15.3% to
$27.1 million compared to $23.5 million for the 26 weeks ended June 1995. An
increase in sales to new and existing customers offset the effect of
discontinuing sales to approximately 100 small or unprofitable accounts. Sales
to these discontinued accounts amounted to $2.3 million for the 26 weeks ended
June 1995 and $95,000 for the 27 weeks ended June 1996. Excluding sales to these
discontinued accounts from both periods, sales increased 27.6%. The increase in
net sales in 1996 was the result of a 12.7% increase in volume from 12.7 million
pounds to 14.3 million pounds and a 2.7% increase in the average net selling
price per pound from $1.85 to $1.90. The increase in the average net selling
price was primarily attributable to an improvement in the net sales price per
pound of unbranded product. The Company's wholesale prices were unchanged during
these periods.
COST OF SALES. Cost of sales for the 27 weeks ended June 1996 increased to
$24.2 million compared to $21.0 million for the 26 weeks ended June 1995. For
1996, cost of sales as a percentage of net sales was 89.0% or $1.69 per pound,
compared to 89.2% or $1.65 per pound for 1995. The increase in the cost per
pound was primarily attributable to further fabrication of certain cuts of
unbranded products (E.G., briskets), partially offset by improved plant
productivity.
GROSS PROFIT. Gross profit was $3.0 million for the 27 weeks ended June
1996 compared to $2.5 million for the 26 weeks ended June 1995. For 1996, gross
profit as a percentage of net sales was 11.0% or $0.21 per pound, compared to
10.8% or $0.20 per pound for 1995. This increase was attributable to an
improvement in the mix of products sold and the further fabrication of certain
cuts of unbranded products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the 27 weeks ended June 1996 were $2.2 million
compared to $2.1 million for the 26 weeks ended June 1995. As a percentage of
net sales these expenses declined to 8.3% in 1996 compared to 8.8% for 1995. The
additional expenses in 1996 were primarily attributable to salary and benefit
costs associated with additional personnel. The increase in net sales in 1996
was achieved with a smaller increase in selling, general and administrative
expenses, many of which are fixed in nature.
20
<PAGE>
INTEREST AND OTHER EXPENSES. Interest and other expenses decreased to
$45,000 for the 27 weeks ended June 1996 compared to $135,000 for the 26 weeks
ended June 1995. This decrease was attributable to a 34.9% reduction in average
borrowings outstanding on the line of credit in 1996, along with a reduction in
the average interest rate from 10.5% in 1995 to 6.0% in 1996.
INCOME TAXES. Income tax expense was $238,000 for the 27 weeks ended June
1996, an effective tax rate of 35.0%. The Company recorded no income tax expense
for the 26 weeks ended June 1995 since the reversal of a portion of the
valuation allowance for net deferred tax assets offset income taxes that would
otherwise have been provided.
26 WEEKS ENDED DECEMBER 1995 COMPARED TO 52 WEEKS ENDED JUNE 1995
THE RESULTS OF OPERATIONS FOR THE 26 WEEK TRANSITION PERIOD ENDED DECEMBER
1995 AND THE 52 WEEKS ENDED JUNE 1995 ARE NOT NECESSARILY COMPARABLE DUE TO THE
SEASONALITY OF THE COMPANY'S BUSINESS AND BECAUSE THE RESULTS FOR A 26 WEEK
PERIOD ARE COMPARED TO THE RESULTS FOR A 52 WEEK PERIOD.
INCOME FROM CONTINUING OPERATIONS. Income from continuing operations for
the 26 weeks ended December 1995 increased 77.4% to $1.1 million compared to
$620,000 for the 52 weeks ended June 1995. The increase for the 26 weeks ended
December 1995 was primarily due to a deferred tax benefit of $645,000
attributable to the reversal of the remaining valuation allowance for the
Company's net operating loss carryforwards and other deferred tax assets.
NET SALES. Net sales for the 26 weeks ended December 1995 were $28.8
million compared to $43.0 million for the 52 weeks ended June 1995. Volume for
the 26 weeks ended December 1995 was 16.4 million compared to 23.2 million for
the 52 weeks ended June 1995. Net sales per pound for the 26 weeks ended
December 1995 was $1.75 compared to $1.86 for the 52 weeks ended June 1995. The
decrease in the average net selling price was attributable to the Company's
decision to reduce its wholesale price on branded products 3.0% in January 1995,
seasonal variations in the mix of branded products sold and seasonally lower
prices received for unbranded products.
COST OF SALES. Cost of sales for the 26 weeks ended December 1995 was $26.1
million compared to $38.4 million for the 52 weeks ended June 1995. For the 26
weeks ended December 1995, cost of sales as a percentage of net sales was 90.6%
or $1.59 per pound, compared to 89.2% or $1.66 per pound for the 52 weeks ended
June 1995. The majority of the decrease in the cost per pound was attributable
to a decline in the price of cattle.
GROSS PROFIT. Gross profit was $2.7 million for the 26 weeks ended December
1995 compared to $4.6 million for the 52 weeks ended June 1995. For the 26 weeks
ended December 1995, gross profit as a percentage of net sales, was 9.4% or
$0.16 per pound, compared to 10.8% or $0.20 per pound for the 52 weeks ended
June 1995. This decrease was attributable to the 3.0% wholesale price decrease
in January 1995 and the steps taken to address an over-supply of cattle during
that period, including selling some live natural cattle at commodity market
prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the 26 weeks ended December 1995 were $2.1 million
compared to $3.8 million for the 52 weeks ended June 1995. As a percentage of
net sales these expenses declined to 7.4% for the 26 weeks ended December 1995,
compared to 8.8% for the 52 weeks ended June 1995. The increase in net sales in
the period was achieved with a smaller increase in selling, general and
administrative expenses, many of which are fixed in nature.
INTEREST AND OTHER EXPENSES. Interest and other expenses decreased to
$118,000 for the 26 weeks ended December 1995 compared to $245,000 for the 52
weeks ended June 1995. This decrease was attributable to a 19.7% reduction in
average borrowings outstanding on the line of credit, along with a 30.0%
decrease in cattle notes payable outstanding as compared to the 52 weeks ended
June 1995. Average
21
<PAGE>
interest rates on the line of credit and the cattle notes payable were 10.1% and
10.4%, respectively, for the 26 weeks ended December 1995, compared to 10.4% and
9.3%, respectively, for the 52 weeks ended June 1995.
INCOME TAXES. An income tax benefit of $645,000 was recorded for the 26
weeks ended December 1995. This benefit related to the reversal of the remaining
valuation allowance for the Company's net operating loss carryforwards and other
deferred tax assets. The Company recorded no income tax expense for the 52 weeks
ended June 1995 since the reversal of a portion of the valuation allowance for
net deferred tax assets offset income taxes that would otherwise have been
provided.
52 WEEKS ENDED JUNE 1995 COMPARED TO 52 WEEKS ENDED JUNE 1994
INCOME (LOSS) FROM CONTINUING OPERATIONS. Income from continuing operations
for the 52 weeks ended June 1995 increased to $620,000 compared to a loss from
continuing operations of $370,000 for the 52 weeks ended June 1994. The
improvement in operating results for 1995 was due to an improvement in the mix
of products sold and improved plant productivity.
NET SALES. Net sales for the 52 weeks ended June 1995 increased 24.3% to
$43.0 million compared to $34.6 million for the 52 weeks ended June 1994. The
increase was primarily attributable to adding new customers, existing customers
opening new stores, and Wegmans' chainwide introduction of the Company's
products in April 1995. The increase in net sales in 1995 was the result of a
28.2% increase in volume from 18.1 million pounds to 23.2 million pounds,
partially offset by a 2.6% decrease in the average net selling price per pound
from $1.91 to $1.86. The decrease in the average net selling price was primarily
attributable to lower prices received for products sold as unbranded and the
Company's decision to reduce its wholesale price for branded products 3.0% in
January 1995.
COST OF SALES. Cost of sales for the 52 weeks ended June 1995 increased to
$38.4 million compared to $31.7 million for the 52 weeks ended June 1994. For
1995, cost of sales as a percentage of net sales was 89.2% or $1.66 per pound,
compared to 91.8% or $1.75 per pound for 1994. This decrease, both as a
percentage of sales and cost per pound was attributable to a reduction in the
cost of cattle, an increase in the drop credit received and improved plant
productivity.
GROSS PROFIT. Gross profit was $4.6 million for the 52 weeks ended June
1995 compared to $2.8 million for the 52 weeks ended June 1994. For 1995, gross
profit as a percentage of net sales was 10.8% or $0.20 per pound, compared to
8.2% or $0.16 per pound for 1994. This increase was attributable to an
improvement in the mix of products sold and higher sales volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the 52 weeks ended June 1995 were $3.8 million
compared to $3.0 million for the 52 weeks ended June 1994. As a percentage of
net sales these expenses were 8.8% in 1995 compared to 8.7% for 1994. The
additional expenses in 1995 were primarily attributable to additional broker
commissions on additional sales volume to conventional supermarkets, salary and
related benefit costs for additional personnel, and a charge for severance costs
associated with the former chief financial officer.
INTEREST AND OTHER EXPENSES. Interest and other expenses increased to
$245,000 for the 52 weeks ended June 1995 compared to $191,000 for the 52 weeks
ended June 1994. This increase was attributable to higher average outstanding
cattle notes payable of $667,000, partially offset by a decline in average
borrowings outstanding on the line of credit in 1995. Average interest rates on
the line of credit and the cattle notes payable were 10.4% and 9.3%,
respectively for 1995, compared to 8.1% and 7.4%, respectively for 1994.
INCOME TAXES. The Company recorded no income tax expense for the 52 weeks
ended June 1995 since a decrease in the valuation allowance for net deferred tax
assets offset income taxes that would otherwise have been provided.
22
<PAGE>
52 WEEKS ENDED JUNE 1994 COMPARED TO 52 WEEKS ENDED JUNE 1993
INCOME (LOSS) FROM CONTINUING OPERATIONS. Loss from continuing operations
for the 52 weeks ended June 1994 was $370,000 compared to income from continuing
operations of $290,000 for the 52 weeks ended June 1993. The loss in 1994 was
primarily attributable to a greater sales volume of unbranded products at a
lower net selling price per pound.
NET SALES. Net sales for the 52 weeks ended June 1994 increased 13.8% to
$34.6 million compared to $30.4 million for the 52 weeks ended June 1993. The
increase in net sales in 1994 was the result of a 17.5% increase in volume from
15.4 million pounds to 18.1 million pounds. This increase was attributable to
existing customers opening new stores and the addition of new customers. The
increase was partially offset by a 3.1% decrease in the average net selling
price per pound from $1.97 to $1.91. The decrease in the average net selling
price was attributable to lower prices received for products sold as unbranded.
COST OF SALES. Cost of sales for the 52 weeks ended June 1994 increased to
$31.7 million compared to $27.1 million for the 52 weeks ended June 1993. For
1994, cost of sales as a percentage of net sales was 91.8% or $1.75 per pound,
compared to 89.1% or $1.76 per pound for 1993. This increase in cost as a
percentage of net sales was primarily due to a decrease in the drop credit.
GROSS PROFIT. Gross profit was $2.8 million for the 52 weeks ended June
1994 compared to $3.3 million for the 52 weeks ended June 1993. In 1994, gross
profit, as a percentage of net sales was 8.2% or $0.16 per pound, compared to
10.9% or $0.21 per pound for 1993. This decrease was attributable to an increase
in the volume of products sold as unbranded.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the 52 weeks ended June 1994 were $3.0 million
compared to $2.7 million for the 52 weeks ended June 1993. As a percentage of
net sales these expenses declined to 8.7% in 1994 compared to 9.0% for 1993. The
additional expenses in 1994 were attributable to higher marketing costs, salary
and related benefit costs for additional personnel and a charge for severance
costs associated with the former chief executive officer.
INTEREST AND OTHER EXPENSES. Interest and other expenses decreased to
$191,000 for the 52 weeks ended June 1994 compared to $271,000 for the 52 weeks
ended June 1993. This decrease was attributable to the repayment of $600,000 in
debt in 1994 with proceeds from the sale of common stock and Series A Preferred
Stock. The average interest rate on cattle notes payable decreased to 7.4% in
1994 from 8.2% in 1993. The average interest rate on the line of credit was 8.0%
in both periods.
INCOME TAXES. The Company recorded no income tax expense for the 52 weeks
ended June 1994 since a valuation allowance was provided for the tax benefit of
the operating losses incurred during the period. The Company recorded no income
tax expense for the 52 weeks ended June 1993, since the reversal of a portion of
the valuation allowance for net deferred tax assets offset income taxes that
would otherwise have been provided.
23
<PAGE>
QUARTERLY DATA AND SEASONALITY
The following table sets forth certain financial information for the eight
quarters in the period ending June 29, 1996. The information for each of these
quarters is unaudited but includes all adjustments, consisting only of normal
recurring adjustments that management considers necessary to fairly present this
information when read in conjunction with the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus. The results of
operations for any quarter and any quarter-to-quarter trends are not necessarily
indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
SEP. 24 DEC. 24 MAR. 25 JUN. 24 SEP. 23 DEC. 23 MAR. 23 JUN. 29
1994 1994 1995 1995 1995 1995 1996 1996
--------- --------- --------- --------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 8,983 $ 10,514 $ 9,710 $ 13,795 $ 14,250 $ 14,541 $ 12,195 $ 14,927
Cost of sales................... 7,892 9,499 9,059 11,917 12,568 13,527 11,295 12,856
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit.................... 1,091 1,015 651 1,878 1,682 1,014 900 2,071
Selling, general and
administrative expenses........ 766 949 840 1,215 1,200 935 974 1,272
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss)......... 325 66 (189) 663 482 79 (74) 799
Interest and other expenses,
net............................ 42 68 66 69 54 65 22 23
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations before income
taxes.......................... 283 (2) (255) 594 428 14 (96) 776
Income tax benefit (expense).... -- -- -- -- -- 645 34 (272)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations..................... 283 (2) (255) 594 428 659 (62) 504
Loss from discontinued
operations..................... (53) (11) (51) -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)............... $ 230 $ (13) $ (306) $ 594 $ 428 $ 659 $ (62) $ 504
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
The following table sets forth certain of the foregoing financial
information as a percentage of the Company's net sales for the periods
indicated:
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
SEP. 24 DEC. 24 MAR. 25 JUN. 24 SEP. 23 DEC. 23 MAR. 23
1994 1994 1995 1995 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......................... 87.9 90.3 93.3 86.4 88.2 93.0 92.6
----- ----- ----- ----- ----- ----- -----
Gross profit.......................... 12.1 9.7 6.7 13.6 11.8 7.0 7.4
Selling, general and administrative
expenses............................. 8.5 9.0 8.7 8.8 8.4 6.4 8.0
----- ----- ----- ----- ----- ----- -----
Operating income (loss)............... 3.6 0.6 (2.0) 4.8 3.4 0.6 (0.6)
Interest and other expenses, net...... 0.4 0.7 0.7 0.5 0.4 0.5 0.2
----- ----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations before income taxes....... 3.2 -- (2.7) 4.3 3.0 0.1 (0.8)
Income tax benefit (expense).......... -- -- -- -- -- 4.4 0.3
----- ----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations........................... 3.2 -- (2.7) 4.3 3.0 4.5 (0.5)
Loss from discontinued operations..... (0.6) (0.1) (0.5) -- -- -- --
----- ----- ----- ----- ----- ----- -----
Net income (loss)..................... 2.6% (0.1)% (3.2 )% 4.3% 3.0% 4.5% (0.5)%
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
<CAPTION>
JUN. 29
1996
-----------
<S> <C>
Net sales............................. 100.0%
Cost of sales......................... 86.1
-----
Gross profit.......................... 13.9
Selling, general and administrative
expenses............................. 8.5
-----
Operating income (loss)............... 5.4
Interest and other expenses, net...... 0.2
-----
Income (loss) from continuing
operations before income taxes....... 5.2
Income tax benefit (expense).......... (1.8)
-----
Income (loss) from continuing
operations........................... 3.4
Loss from discontinued operations..... --
-----
Net income (loss)..................... 3.4%
-----
-----
</TABLE>
24
<PAGE>
Historically, the Company has experienced lower earnings in the first and
fourth calendar quarters of the year, due to changes in consumer demand,
inclement weather, and seasonally higher prices for cattle in those periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the issuance of
privately placed debt and equity securities, raising a total of $4.9 million
between March 1989 and November 1995. The Company also has maintained credit
facilities with a commercial bank under a revolving line of credit, and has
financed cattle purchases with notes payable to cattle feeders and ranchers.
LINES OF CREDIT. The Company currently has a line of credit for up to $2.3
million under a loan agreement with a bank (the "Loan Agreement"). The maximum
that can be borrowed under the line of credit is based on a formula of eligible
accounts receivable, cattle inventory, and meat inventory. The Loan Agreement
contains provisions requiring the Company to maintain certain financial ratios
and provides for limits on the amount of additional debt, capital expenditures
and the payment of dividends. Currently, the Company is in compliance with the
covenants of the Loan Agreement. The line of credit expires on November 1, 1996,
and is subject to annual renewal. The interest rate on the line of credit is
0.5% over the bank prime rate. As of June 29, 1996, $2,000 was outstanding under
the line of credit.
The Company entered into an additional $2 million revolving line of credit
(the "New Loan Agreement") in June 1996, with interest at 0.5% over the bank
prime rate. The New Loan Agreement is used to fund any margin calls associated
with outstanding futures contracts related to the Company's risk management
program. The New Loan Agreement expires on November 1, 1996, is subject to
annual renewal, and contains generally the same provisions as the Loan
Agreement. Currently, the Company is in compliance with the covenants of the new
Loan Agreement. As of June 29, 1996, $18,000 was outstanding under this line of
credit.
NOTES PAYABLE. The Company occasionally utilizes notes payable to finance
cattle inventory when either the interest rate is lower than the Company's line
of credit or when the line of credit is fully utilized. The interest rates on
these notes generally range from 0.75% to 3% over prime, although some notes do
not bear interest. These notes are due when the cattle are delivered for
slaughter. As of June 29, 1996, $651,000 was outstanding on notes payable to
cattle feeders and ranchers.
The Company is discussing with its lender the renewal of the Loan Agreement
and the New Loan Agreement. In the event the Company does not renew such loans,
management believes that it would be able to find alternative sources for such
financing on similar terms.
CASH FLOWS. Net cash provided by operations for the 27 weeks ended June
1996 was $750,000 and primarily consisted of net income plus depreciation, a
decrease in the amount of cattle deposits required by ranchers, and a reduction
in accounts receivable due to cash collection efforts. These sources of cash
were partially offset by increased cattle inventory to meet growing customer
demand, an increase in prepaid expenses, lower accounts payable and lower
accrued expenses.
Net cash used in investing activities for the 27 weeks ended June 1996 was
$211,000 and primarily related to the purchase of new equipment for the
Company's fabrication plant. Net cash used in financing activities was $561,000
and consisted of net payments on the line of credit. These sources of cash were
offset in part by an increase in cattle notes payable.
Net cash used by operations for the 26 weeks ended June 1995 was $34,000 and
primarily consisted of net income plus depreciation, reduced cattle inventory,
reduced supplies inventory and increased accrued expenses. These sources of cash
were offset by an increase in accounts receivable and meat inventory due to
growth in sales and lower accounts payable.
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Net cash used in investing activities for the 26 weeks ended June 1995 was
$73,000 and primarily related to the purchase of new equipment for the Company's
fabrication plant. Net cash provided by financing activities was $22,000 and
consisted of borrowings on cattle notes payable. These borrowings were offset in
part by repayments on the line of credit and capital leases.
Net cash provided by operations for the 26 weeks ended December 1995 was
$2.2 million and primarily consisted of net income plus depreciation, reduced by
the deferred income tax benefit, a decrease in cattle inventory and an increase
in accounts payable. These sources of cash were partially offset by an increase
in accounts receivable resulting from higher sales volume and lower accrued
expenses.
Net cash used in investing activities for the 26 weeks ended December 1995
was $236,000 and related to the purchase of new equipment for the Company's
fabrication plant. Net cash used in financing activities for the 26 weeks ended
December 1995 was $2.3 million, and consisted of repayments on cattle notes and
the line of credit, and cash dividends paid to holders of Series A Preferred
Stock. These payments were offset by proceeds from the issuance of additional
Common Stock.
Net cash used by operations for the 52 weeks ended June 1995 was $677,000
and primarily consisted of net income plus depreciation and reduced cattle
deposits. These sources of cash were offset by an increase in accounts
receivable and cattle inventories in response to higher sales volume.
Net cash used in investing activities for the 52 weeks ended June 1995 was
$147,000 and related to the purchase of new equipment for the Company's
fabrication plant. Net cash provided by financing activities was $856,000 and
primarily consisted of borrowings on cattle notes payable.
Net cash used by operations for the 52 weeks ended June 1994 was $353,000
and primarily consisted of a net loss offset in part by depreciation, and an
increase in accounts receivable due to growth in sales. These uses of cash were
offset in part by an increase in accounts payable and accrued expenses, a
decrease in cattle deposits, and a decrease in prepaid expenses.
Net cash used in investing activities was $178,000 in 1994 and primarily
related to the purchase of new equipment for the Company's fabrication plant.
Net cash provided by financing activities was $559,000 for 1994 and primarily
consisted of proceeds from the issuance of additional Series A Preferred Stock
and Common Stock.
WORKING CAPITAL AND FUTURE OPERATIONS. At June 29, 1996, the Company had
working capital of $2.6 million compared to $2.5 million at December 23, 1995.
As of June 29, 1996, the Company's current ratio (ratio of current assets to
current liabilities) was 2.1:1 compared to a current ratio of 1.9:1 as of
December 23, 1995.
The Company intends to use a portion of the net proceeds from this offering
for working capital and general corporate purposes. The Company believes that
the cash generated from operations and the net proceeds to the Company from this
offering will be sufficient, based on the Company's presently anticipated needs,
to fund capital expenditures, including the proposed new fabrication facility,
to fund the redemption of the Series A Preferred Stock, to fund capital
expenditures and start-up operations in the event the Company reactivates the
Limon Facility, and to provide for working capital to finance the Company's
growth for the next 24 months. There can be no assurance, however, that the
Company will not require additional financing prior to such date to fund its
operations. There can be no assurance that the Company will be able to raise
such capital on acceptable terms, if required. See "Risk Factors-- Management of
Growth; Facilities Expansion" and "Use of Proceeds."
RISK MANAGEMENT PROGRAM
In June 1996, the Company initiated a risk management program which utilizes
non-speculative purchases of futures contracts to help manage the risk
associated with fluctuations in variable priced contracts. These futures
contracts are designed to make the cost of cattle more predictable. The Company
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has a risk management committee that reviews the Company's futures position on a
periodic basis to ensure compliance with the Company's risk management policies,
including the maximum amount of risk to be assumed in conjunction with such
activities. The Company expects that any gains or losses associated with the
risk management program will be offset on a dollar for dollar basis by higher or
lower cattle costs. The gains and losses associated with this program will be
recorded as an increase or reduction in cost of sales. See "Risk
Factors--Unpredictability in Cattle Prices; Significant Fluctuations in
Operating Results."
As of June 29, 1996, the Company had no futures contracts outstanding. As of
August 31, 1996, the Company had 505 futures contracts outstanding. Each futures
contract is for 40,000 pounds of live cattle weight or approximately 35 head of
cattle. The futures contracts are for cattle to be delivered for the period
September 1996 through June 1997 and represent approximately one third of
forecasted cattle requirements. The aggregate unrealized gain on the futures
contracts outstanding at August 31, 1996 was approximately $147,000.
RECENT ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) was issued by the Financial Accounting
Standards Board in October 1995. This standard addresses the timing and
measurement of stock-based compensation expense. Entities electing to continue
to follow Accounting Principles Board Opinion No. 25 (APB 25) must make pro
forma disclosures of net income and earnings per share, as if the fair value
based method of accounting defined by SFAS 123 had been applied. SFAS 123 is
applicable to fiscal years beginning after December 15, 1995. The Company has
elected to retain the approach of APB 25 (the intrinsic value method), for
recognizing stock-based compensation in its consolidated financial statements.
The Company will include the disclosures required by SFAS 123 in future
financial statements.
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BUSINESS
[Company logo of mountains and cattle in black & white with following slogan:
"Not just a food, but a lifestyle"]
Coleman is the leading U.S. supplier and marketer of fresh, branded, natural
beef products from cattle which have never received hormones and antibiotics.
Since first pioneering this product concept in 1979, Coleman Natural Meats have
grown to command an estimated 60% share of the Natural Beef market segment, more
than three times the market share of its nearest competitor. Coleman believes
that its products have built a strong brand loyalty with consumers. This loyalty
is based on consistent superior taste and purity resulting from its certified
raising practices. Cattle in Coleman's program never receive antibiotics, feed
additives, hormones or other growth-promoting drugs, unlike commodity beef, most
of which comes from cattle which have received hormones and have been fed growth
stimulants or antibiotics. Coleman believes that it is the only company with
national distribution that has a USDA approved label stating that it has never
used such drugs. Coleman believes that beef sold by other producers in the
Natural Beef segment come from cattle that either have received antibiotics, or
have only not been given drugs in the 100 days prior to slaughter.
The Company's products are targeted at consumers who are part of a growing
lifestyle trend toward choosing foods that are superior tasting, closer to their
natural state, safe and grown with a commitment to the environment. This trend
is evidenced by the 18.5% compound annual growth rate in the natural food
industry from 1991 to 1995. At June 1996, Coleman's products were sold in only
534 natural and conventional supermarkets, or 2% of total U.S. chain and large
supermarkets. Despite this limited penetration, the Company generated $55.9
million in net sales for the 53 weeks ending June 1996.
Since the 1870s, the Coleman family ranch in Saguache County, Colorado, has
raised cattle without growth-stimulating hormones and antibiotics. In 1979, Mel
Coleman, Sr., a fourth generation Colorado rancher and the Company's founder and
Chairman of the Board, pioneered the Natural Beef market segment. Mr. Coleman is
generally recognized as the first supplier of branded beef products raised
without hormones and antibiotics. Demand for the product soon exceeded the
cattle supply of the Coleman family ranch. In 1984, the Coleman Certified
Rancher and Feedlot program was established to ensure a consistent and on-going
supply of cattle. Under this program, Coleman Certified Ranchers and Feedlots
are required to raise cattle following strict protocols. In 1986, the Company
opened its own fabricating and packaging facility in Denver, Colorado. Coleman
believes its control over cattle raising and the production process provides
confidence in its products with customers and consumers.
Coleman's objective is to increase the Natural Beef segment while profitably
extending its leadership within this segment. Coleman believes it can achieve
this objective by further penetrating supermarket accounts (both natural food
and conventional grocery) in existing and new geographic markets, by building
brand awareness with targeted consumer groups, by continuously improving its
operational efficiencies and by remaining true to its founding principles of
producing food that is superior tasting, good for you, safe and raised right --
the "slow, old-fashioned way." The Company believes it enjoys a high degree of
credibility within the cattle and retail food industries as well as with
consumers because of its integrity and commitment to remain "true to the trail."
COLEMAN'S MARKETPLACE
The Company believes that consumer attitudes about foods are undergoing
fundamental, long term changes. These changes are being brought about by
healthier eating habits, changes in demographics caused by aging "baby boomers,"
increasing concerns regarding food safety, freshness and purity, and a greater
awareness of the environment. Consumers are rethinking what they eat and how
they live, creating many new market segments for lifestyle products such as
organic produce, bottled water and premium
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juices and coffees. The Company believes a growing number of consumers are not
only demanding high quality, good tasting, fresh and pure products, but are also
willing to pay a premium price for them.
In 1995, The Trends Research Institute projected that one of the top 10
trends for 1996 and beyond would be the CLEAN FOOD DIET -- "a diet of foods free
of artificial preservatives, coloring, irradiation, pesticides, drug residues
and growth hormones." Further national consumer research by The Hartman Group in
1996 confirms that one out of ten people is currently purchasing "clean foods"
and that four out of every ten people are pre-disposed to selecting this "clean
food diet." The Company believes that the motivations for this lifestyle change
are nutrition and health concerns, environmental issues and the perception that
clean is safer. A 1996 Food Marketing Institute consumer research study revealed
that 97% of U.S. consumers are changing their eating habits to a healthier diet,
nine in ten U.S. shoppers choose their primary grocery store based in part on
the quality of its meat, nearly eight out of ten U.S. shoppers believe that
hormones and antibiotics in meats constitute a health hazard and one out of two
U.S. consumers seek out products labeled "environmentally sound."
The Company believes that Coleman Natural Meats, which deliver superior
taste while addressing nutrition, safety, purity and environmental concerns, are
uniquely positioned to take advantage of these consumer lifestyle trends. The
Company's reputation for integrity, combined with its certified cattle raising
and production processes, provide the consumer with assurances that its product
benefits are genuine. The Company believes the Natural Beef segment is poised
for the same type of growth as other premium segments within commodity-like
industries, such as produce, fresh juices or coffee, where taste, freshness and
quality have created growth opportunities.
The Company believes the rise of consumer trends to buy fresh, pure, high
quality food is most dramatically portrayed by the growth of the natural food
industry. According to the NATURAL FOOD MERCHANDISER, the natural food industry
has experienced 18.5% compound annual growth from 1991 to 1995. Further, sales
in this industry increased 22% in each of 1994 and 1995, to a total market of
$9.2 billion. Natural food supermarkets, such as Whole Foods Market and its
Fresh Fields subsidiary and Wild Oats Community Market and its Alfalfa's
subsidiary, share the Company's commitment to fresh, good tasting foods that are
produced using ecologically sound principles. The Company's products are now
carried in virtually all of the largest natural food supermarket accounts, and
are generally the only beef sold in these natural food supermarkets.
The Company believes that natural food products are now being more readily
accepted by mainstream consumers, as evidenced by a recent Food Marketing
Institute study indicating that over 67% of conventional supermarkets now carry
these products. The Company also estimates that Natural Beef is presently
carried in approximately 2,300 supermarkets out of the nearly 30,000 chain and
large natural food and conventional supermarket stores in the U.S. Coleman
Natural Meats are currently distributed in approximately 682 supermarkets. The
Company estimates that, as of December 1995, total wholesale and retail sales of
Natural Beef were approximately $85 million and $110 million, respectively.
Coleman believes that, relative to its nearest competitor, its products are
carried in fewer stores but it has three times the net sales. Since there is no
trade or industry data available on the Natural Beef segment, the Company has
based these estimates on its review of certain publicly available information.
Although the Company believes such information is accurate, there can be no
assurance of this.
According to the USDA, after a decade of decline, per capita beef
consumption has risen 4% from 1993 to 1995. The Company believes that the
Natural Beef segment has grown dramatically in that same period. Given consumer
trends toward good tasting, safe, pure and healthful foods, the Company believes
that the Natural Beef segment will capture an increasing proportion of the
approximately $18 billion in annual retail supermarket sales. The Company
believes that as a result of its leadership position and marketing focus, it is
in a solid position to capitalize on this significant opportunity.
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COLEMAN'S STRATEGY
Coleman's objective is to continue to expand the market for Natural Beef
while profitably extending its leadership of that market. In 1994, the Company
hired a new management team experienced in branded consumer products. This team
developed and is implementing the following business strategies to achieve its
market share and financial growth objectives:
- GROW THROUGH RETAIL EXPANSION. The Company's strategy is to expand its
business in the $18 billion fresh retail beef category by growing its
share within existing accounts, expanding with existing accounts as they
open new stores, further penetrating existing accounts where the Company
does not have chain wide distribution, and gaining distribution in new
accounts among the over 27,000 chain and large supermarkets that currently
do not carry Natural Beef.
- BUILD BRAND AWARENESS. The Company is committed to building lasting
consumer relationships and brand loyalty by consistently providing
superior tasting, safe and wholesome products that are raised and produced
using ecologically focused principles. The Company's marketing research
indicates that its consumers have above average education levels and react
well to factual, issue-based information. In order to build brand
awareness and credibility and to educate consumers about the benefits of
Coleman's products, the Company employs various types of marketing
communications, including focused local and national public relations
efforts, an integrated program of co-op advertising, in-store education,
product demonstrations, couponing, sponsorship and participation in
various community events, including product tastings and cooking classes
developed by its customers. As the Company grows in particular geographic
areas, it intends to use other media vehicles, on a very targeted basis,
to increase household penetration and purchase rates.
- ENHANCE OPERATING EFFICIENCIES. A larger and more efficient production
facility, funded by a portion of the proceeds of this offering, will allow
the Company to capture efficiencies seen by larger commodity producers.
The Company will continue its efforts to improve the mix of products sold
as branded, thereby improving gross profits. The Company has made, and
intends to continue making, investments in technology in order to remain
"leading edge" in the areas of quality, safety and customer service. These
investments include its quality assurance program, expanded use of and
enhancements to its patented Origen animal tracking software system, and
information systems advancements such as a UPC system for variable case
weight products and EDI (electronic data interface) for the grocery
industry.
- STAY TRUE TO THE TRAIL. The Company's business strategy is built on a
foundation of integrity and credibility. The Company's cattle have always
been raised slowly, "the way nature intended," and have never received
growth hormones and antibiotics. Like many of its consumers, Coleman is
concerned that overuse of antibiotics in livestock production may
contribute to the reduced ability of antibiotics to fight disease. The
Company also does not believe in giving drugs to healthy animals just to
speed up their growth and maximize weight gain. The Company intends to
remain true to these founding principles even though using antibiotics and
growth-promoting hormones would help reduce its costs. In order to fulfill
this strategy, Coleman continues to emphasize food safety, environmental
leadership, strong team relationships with its customers and a culture for
its employees that fosters commitment to the Company's goals.
PRODUCT LINE
The Company provides to its retail, export and processing customers a full
range of fresh natural meat products, including steaks, roasts and ground beef,
from beef and lamb raised from birth without hormones and antibiotics. The
Company's retail customers receive products with approximately 28 days of shelf
life which is made possible by vacuum packaging. Products such as steaks and
roasts are sold in primal cuts, available in either regular or close trim.
Ground beef is produced from chuck, round and trim generated from the
fabrication process. The Company has approximately 50 different cuts of meat
that
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translate into approximately 350 stock keeping units ("SKUs") due to USDA
quality grades (prime, choice, select) and product specifications relating to
size ranges. Coleman Natural Meats are sold for a premium price which reflects
the value added to the products from the Company's natural raising process and
food safety practices. Supermarkets then market these products primarily under
the Coleman Natural Beef-Registered Trademark- or Coleman Natural
Lamb-Registered Trademark- brand names or, to a lesser extent, under a store
brand name such as "Wegmans Beef You Feel Good About-TM-." For the 27 weeks
ended June 1996, 86.2% of Coleman's net sales are attributable to these Branded
Sales. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Products and Revenue."
The Company sells the trim from its processing at commodity prices as
unbranded products. Occasionally, a small portion of the Company's branded
products cannot be sold at a premium due to seasonal fluctuations in consumer
demand for particular items and must be sold at commodity prices. Combined,
these items constituted 13.8% of the Company's net sales for the 27 weeks ended
June 1996.
COLEMAN'S OPERATIONS
AT THE RANCH AND FEEDLOT
There are over 900,000 ranchers in the United States, some of whom are
presently raising cattle without hormones and antibiotics. All Coleman cattle
and lambs are raised by Coleman Certified Ranchers and Coleman Certified
Feedlots. In order to be certified, ranchers and feedlots must follow Coleman's
raising protocols. Currently, the Company has 350 Certified Ranchers in 17
western states. Additionally, over 1,000 ranchers have expressed an interest in
becoming Coleman Certified Ranchers. The Company also utilizes 9 Certified
Feedlots. All Coleman cattle graze free range until they are 12 to 15 months
old, at which time they are moved to a feedlot for finishing. The Coleman
production protocols for its Certified Ranchers and Feedlots include:
- NO DRUGS ADMINISTERED OR ADDED TO FEEDS. Hormones, antibiotics and other
drugs may not be used . . . ever. If an animal does become ill and
requires therapeutic treatment, it is treated, but then it is removed from
the Coleman program.
- NO ANIMAL BY-PRODUCTS CAN BE USED IN FEEDS. All Coleman cattle are raised
as vegetarians, the way nature intended.
- PURE FOOD AND WATER. Feed and water are randomly and periodically tested
for pesticide and herbicide residues.
- HUMANE ANIMAL HUSBANDRY PRACTICES. The Company believes that minimizing
the stress an animal undergoes during transportation or handling can help
improve the quality of the beef. Overcrowding on shipping trailers and at
feedlots is strictly prohibited.
- CATTLE BREEDS. The Company focuses on Angus bloodlines for consistent
flavor and tenderness crossed with other breeds such as Limousin or
Charolais for leanness.
Adherence to these protocols is verified through an affidavit process,
through the Company's Origen animal tracking system, through random testing of
the animal's blood and urine, and by periodic, unannounced site checks by
Coleman personnel. As a final verification that hormones and antibiotics were
never used, all carcasses are tested for Coleman by an independent laboratory
for 48 different residues of antibiotics, pesticides, herbicides and hormones.
All Coleman Certified Ranchers and Feedlots must adhere to the Company's
protocols. In addition, these ranchers and feedlots are encouraged to follow
nutrition and wellness programs that build the animals' natural immunities so
later therapeutic interventions can be avoided. They are also encouraged and
taught to utilize a system of planned pasture rotation for cattle that can help
improve the quality of the grassland, improve the watershed and return wildlife
to natural grasslands.
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The Company typically takes title to and pays for cattle at the time of
slaughter. The Company pays a premium over the price of conventionally raised
cattle to compensate its Certified Ranchers and Feedlots for the extra time
required to raise Coleman certified cattle without growth-promotants and for the
extra care exercised in following the Coleman raising protocols.
The Company uses several types of cattle purchase contracts including a
variable price contract which follows either the cash or futures market and a
fixed price contract. The Company has implemented a purchase contract risk
management program to stabilize the cost of cattle. See "Risk
Factors--Unpredictability of Cattle Prices; Significant Fluctuations in
Operating Results" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Risk Management Program."
AT THE PRODUCTION FACILITIES
The Company has an agreement with Excel for cattle slaughter at its
Sterling, Colorado facility. The Company has also pre-qualified seven additional
facilities and is evaluating reactivating its Limon Facility. All Coleman cattle
are USDA inspected and graded. In addition, the Company maintains its own
quality inspectors at the Excel facility to augment the efforts of the USDA
inspection team. Throughout this process, all Coleman cattle are segregated to
ensure no commingling with conventionally raised cattle. See "Risk
Factors--Dependence Upon Outside Slaughter Facilities."
All fabrication of Coleman Natural Beef occurs at the Company's USDA
inspected facility in Denver, Colorado. Orders are received, fabricated and
shipped to customers weekly. This practice allows the Company to achieve
inventory turnover in excess of 60 times per year, further insuring the
freshness of its products. Coleman's Quality Assurance Department works closely
with the USDA inspection team during processing and fabrication to insure that
Coleman's safety and cleanliness standards are consistently met. Additionally,
Coleman's processes are certified by the OCIA, the Organic Crop Improvement
Association. The Company believes it is the only U.S. meat company to have such
a certification.
All Coleman Natural Lamb is USDA choice and is processed at Iowa Lamb
Corporation, a contract facility in Hawarden, Iowa. The Company also maintains
its own quality inspector at this facility. Boxed lamb is shipped to Coleman's
Denver facility for staging and shipment to customers.
FOOD SAFETY INITIATIVES
The safety, quality and integrity of Coleman Natural Meats have been
paramount to the Company since its inception. In 1993, the Company voluntarily
formalized many of its food safety initiatives in a Hazard Analysis and Critical
Control Points program ("HACCP"). HACCP is a recognized food industry approach
to food safety that is based on developing systems to keep food safe, rather
than just inspecting product. Under its HACCP program, the Company assesses
potential food safety hazards associated with each of its operational steps from
the ranch to processing to distribution. Preventative or corrective measures are
taken at each step as needed to insure that every Coleman product is safe, clean
and free of hormones and antibiotics. In July 1996, the USDA finalized
regulations requiring all federally inspected meat and poultry plants to have
HACCP programs. The required implementation date for a HACCP program for a
facility of Coleman's size is January 1999.
The primary focus of the Company's food safety program is to reduce and
eliminate bacteria. In a typical month, the Company performs over 5,500 tests or
inspections for over 70 conditions or bacteria that could compromise product
purity. Some of the Company's HACCP activities and testing include:
- Maintaining plant temperatures 5-10F DEG. below current USDA standards to
inhibit bacteria growth.
- Requiring microbial and visual inspections of the Company's fabrication
facility prior to the start of each day's production.
- Hiring additional meat inspectors to supplement the efforts of the USDA's
inspection team.
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- Testing every batch of ground beef for pathogens, including fecal
coliforms, the source of E.coli.
- Statistical sampling of all finished products for bacterial contamination.
- Maintaining a toll-free consumer information telephone line where the
Company can obtain direct consumer feedback. The Company historically has
received fewer than two consumer complaints for every 1 million pounds of
meat sold.
SALES AND DISTRIBUTION
The Company believes that, unlike most commodity meat companies, it is
consumer driven rather than production driven. The Company believes that one of
its strengths is the flexibility and responsiveness with which it meets
customers' needs. Coleman strives to become a partner with each account. The
Company's products are sold by a staff of five sales people who cover the
various distribution channels. In addition, five food brokers represent the
Company in selected geographic areas. The Company's products are distributed to
all customers via common carrier either to individual stores or to central
warehouses. In all instances, the freight costs are ultimately borne by the
customer. The Company intends to take advantage of alternative distribution
channels such as export and restaurant and other foodservice accounts, and may
also seek to expand through strategic acquisitions.
CUSTOMERS
BRANDED RETAIL CUSTOMERS. As of September 16, 1996, the Company distributed
its products to 17 natural food supermarket accounts representing 91 stores,
including chains such as Whole Foods Market and its Fresh Fields subsidiary, and
Wild Oats Community Market and its Alfalfa's subsidiary. These stores
concentrate on selling natural and organic foods. They share the Company's
philosophical commitment to minimizing the use of chemicals in agriculture and
providing high quality, good tasting, safe and pure foods. As a result, the only
brands of beef and lamb these stores typically carry are Coleman Natural Meats.
Coleman is carried chain wide in 16 of these accounts. For the 27 weeks ending
June 1996, this channel represented approximately 39.6% of net sales.
Additionally, as of September 16, 1996, the Company's products are
distributed either directly or through distributors to 37 conventional
supermarket accounts, representing approximately 591 stores. The Company has
chain wide distribution in 15 of these accounts. Some customers include Dorothy
Lane Market, Grand Union, King Kullen Grocery Co. Inc., Nob Hill Foods, Wegmans
Food Markets, and various divisions of the Great Atlantic & Pacific Tea Company,
Inc. ("A&P"). The Company's products are typically carried as a branded
alternative to the chain's commodity beef. These customers carry Coleman Natural
Meats because it allows them to address the growing consumer desire for natural
foods, differentiate themselves from their competition and feature a premium
branded alternative to commodity beef. A 1996 Food Marketing Institute consumer
research study indicates that the quality of meat carried by a supermarket is
the third most frequently mentioned reason for shopping that supermarket. For
the 27 weeks ending June 1996, this channel represented approximately 43.1% of
net sales.
The Company has two Japanese distributors who specialize in home delivery of
prepared meals. The Company also sells to processors that use its products as an
ingredient in a further processed product which carries the benefits of Coleman.
These two channels combined represent approximately 3.5% of the Company's net
sales for the 27 weeks ending June 1996.
OTHER CUSTOMERS. The Company's unbranded trim and primal cuts not sold as
branded are sold on a commodity basis to numerous meat brokers, distributors or
foodservice processors. This channel represented approximately 13.8% of net
sales for the 27 weeks ending June 1996.
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PRICING
The Company's branded products are premium priced, reflecting the extra time
required to raise cattle without growth-promotants and the value added to the
products through the Company's strict raising protocols and food safety
initiatives. The Company believes that, as the largest producer of Natural Beef,
it is able to establish its own prices and historically has not followed the
commodity market or any competitors in determining price. The Company's prices
have not changed since January 1995. This pricing strategy creates retail price
stability and makes it easier for customers to plan promotional and
merchandising activities for the Company's products. The Company estimates the
retail prices charged by its customers for its products are, on average,
approximately 50-80% higher than retail prices for comparable cuts of commodity
beef. See "Risk Factors--Premium Pricing."
MARKETING
The Company's primary marketing focus is to expand the leadership position
it currently holds in the Natural Beef segment by continuing to build brand
awareness and educate the consumer. The Company believes this focus will
increase household penetration and purchase rates of the Company's products.
Coleman tries to build dialogues with consumers by educating them about the
uniqueness and benefits of its products. To do this, the Company relies
primarily on public relations activities, extensive point-of-sale materials and
targeted advertising programs. The Company also maintains a toll-free consumer
information line, displayed on its point-of-sale information materials, to
provide a direct link for consumers. Because the Company believes that meat
departments are regularly shopped by 92% of the Company's targeted consumers,
its complete program of merchandising tools, including posters, signs, brochures
and recipes, helps educate the consumer at the point where meal decisions are
made.
The Company believes that due to the commodity nature of beef sales in
general, very little consumer advertising occurs other than generic advertising
by beef industry trade associations. The Company believes this makes it easier
and more efficient for a branded niche company like Coleman to build brand
equity and awareness than it might be in other highly advertised branded
consumer categories. As the Company's distribution in specific geographic areas
increases, Coleman intends to increase the advertising programs for its
products.
COMPETITION
The Company's products compete broadly with all protein sources available to
consumers. More specifically, it competes with commodity beef and lamb sold in
most grocery stores, and with other branded beef and lamb products sold with
"natural" or other claims. As the Company's products are sold at prices
substantially higher than commodity beef, and somewhat higher than other fresh
branded beef products, there can be no assurance that the Company will not
experience competitive pressure with respect to pricing that could adversely
affect its business, results of operations and financial condition. See "Risk
Factors--Premium Pricing."
The Company believes it has no direct competition in the national sale and
distribution of beef from cattle that have never received hormones and
antibiotics and that were raised on feed and water tested for pesticides and
herbicides. There are several companies, such as Laura's Lean Beef Company, Inc.
and Maverick Ranch Association, Inc., which sell branded meat products that are
marketed under various leanness, natural or other claims. The Company believes
that some of these producers do not administer hormones to their cattle, but do
give antibiotic treatment, while others only avoid the administration of such
drugs, including hormones, during the 100 days prior to slaughter. The Company
also competes with Certified Angus Beef-Registered Trademark-, a marketing and
licensing program of the American Angus Association, which bases its brand
positioning on taste, but does not make any claims to be drug free or natural.
Coleman believes that it competes favorably on product quality and taste, brand
name recognition, safety and cleanliness, nutritional claims, customer service
(including the ability to service large volume accounts) and
34
<PAGE>
customer and consumer loyalty. However, there can be no assurance that Coleman
will not experience increased competition, including price, from any one of
these entities, or from new companies that may enter the market.
The USDA's Food Safety and Inspection Service defines "natural" to mean that
during processing, nothing synthetic is added to the meat, a definition which
permits almost any beef producer to make natural claims. Thus, the Company has
focused its attention on developing brand name recognition by consumers as a
supplier of beef from cattle which is raised from birth completely free of
hormones and antibiotics. There can be no assurance that the Company will
successfully continue to associate its brand name in this manner or that any one
of the commodity meat producers or any retailer will not begin to make natural
claims for their commodity beef products in an attempt to benefit from the
Company's development of consumer recognition of this category. Most of these
commodity producers, and many grocery retailers, have significantly greater
resources than the Company. Although to date the Company has not experienced any
competition from commodity producers or retailers making natural claims, the
Company believes that if such competition did develop, consumers could
differentiate its products favorably on the basis of taste and quality from any
commodity meat product marketed under a natural claim. However, a decision by
any of these sources to market conventional products with a natural claim could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Risk Factors--Competition."
PROPRIETARY RIGHTS
The Company regards its trademarks, trade dress, trade secrets and similar
intellectual property as important to its success and attempts to protect such
property with registered and common law trademarks and copyrights, restrictions
on disclosure and other actions to forestall infringement. The Company has
developed and patented the proprietary Origen animal tracking system, which, if
fully implemented, would permit the Company to identify any meat product and its
origin at any point in the distribution stream, starting at its Certified
Ranchers. There can be no assurance that third parties will not infringe or
misappropriate the Company's trademarks, trade dress, patent or similar
proprietary rights.
GOVERNMENTAL REGULATIONS
The production and sale of the Company's products are subject to the rules
and regulations of various federal, state and local food and health agencies,
including the USDA. USDA inspectors are present at each slaughter facility used
by the Company and at the Company's fabrication plant on a daily basis. The
Company has not experienced any difficulty meeting the USDA requirements, and
believes it exceeds all USDA requirements as to cleanliness and processing
practices.
In addition to laws relating to its products, the Company is subject to
various federal, state and local environmental laws and regulations that limit
the discharge, storage, handling and disposal of a variety of substances.
Operations of the Company, and especially its processing facilities, are
governed by laws and regulations relating to workplace safety and worker health,
principally the Occupational Safety and Health Administration Act and
regulations thereunder as well as similar state laws and regulations. The
Company believes that it presently complies in all material respects with the
foregoing laws and regulations, although there can be no assurance that future
compliance with such laws, including any new laws which may be adopted, will not
have a material adverse effect on the Company's business, results of operations
or financial condition.
EMPLOYEES
As of August 31, 1996, the Company had 139 employees, including 98 in
operations and 41 in selling, general and administrative positions. The Company
believes that it generally has good relationships with its employees. None of
its work force is unionized.
35
<PAGE>
FACILITIES/PROPERTIES
Coleman's principal offices and its production facility are located in
Denver, Colorado, and consist of approximately 25,000 square feet of processing,
warehouse and office space. The Company leases this property pursuant to a lease
expiring December 1997. The Company is currently exploring the lease or purchase
of new facilities for its offices and fabrication plant and the reopening of the
Limon Facility, which has not been used by the Company since 1992. The Company's
Limon Facility is not subject to any mortgage or lien.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors and executive officers as of September 16, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
G. Melvin Coleman, Sr........................... 71 Chairman of the Board of Directors
Lee N. Arst..................................... 50 President and Chief Executive Officer; Director
Richard P. Dutkiewicz........................... 41 Vice President of Finance, Chief Financial
Officer, Treasurer and Secretary
Barry M. Davis(1)(2)............................ 56 Director
Wayne B. Kingsley(1)(2)......................... 53 Director
Howard Liszt.................................... 50 Director
C. Mickey Skinner............................... 62 Director
</TABLE>
- ------------------------
(1) Member of compensation committee.
(2) Member of audit committee.
G. MELVIN COLEMAN, SR., the founder of Coleman, has been Chairman of the
Board since the Company's incorporation in 1982, and served as President from
1982 until 1990. Mr. Coleman acts as the Company's public relations
spokesperson, but is not active in the day-to-day operations of the business.
Mr. Coleman also serves on the Board of Directors of The Nature Conservancy and
the Humane Sustainable Agriculture Advisory Board. Mr. Coleman received his B.S.
degree in Electrical Engineering from the University of Colorado.
LEE N. ARST has been President, Chief Executive Officer and a director since
July 1994. Prior to joining Coleman, Mr. Arst was President of DCCM, Inc., a
consulting firm, from September 1993 to June 1994. From 1972 to September 1993,
Mr. Arst was employed by Borden, Incorporated, including as Group Vice President
for the North American Pasta Division from February 1991 to August 1993, and as
Group Vice President of Confection and Main Meals, Grocery Products Division,
from 1986 to 1991. Mr. Arst received B.B.A. and M.B.A. degrees in Business from
the University of Wisconsin.
RICHARD P. DUTKIEWICZ has been Vice President of Finance, Treasurer and
Secretary, since April 1995. From December 1993 to March 1995, Mr. Dutkiewicz
was Controller of Tetrad Corporation, a manufacturer of image guided medical
products. Prior to his association with Tetrad, Mr. Dutkiewicz served as
Director of Finance and Administration for MicroLithics, Inc. from June 1990 to
November 1993, and in various accounting and finance positions with United
Technologies Corporation, Hamilton Trust Interests and KPMG Peat Marwick. Mr.
Dutkiewicz received a B.B.A. degree in Accounting from Loyola University of
Chicago, and received his C.P.A. designation in Illinois in 1978.
36
<PAGE>
BARRY M. DAVIS has served as a director of the Company since March 1989.
Since 1985, Mr. Davis has been the Managing General Partner of Davis Venture
Partners, a venture capital partnership and a principal stockholder of the
Company. Mr. Davis serves on the board of directors of Numar Corporation, a
publicly traded energy technology company, Hillcrest Healthcare Systems, a
non-profit hospital management system located in Tulsa, and the University of
Tulsa. Mr. Davis is the past national Board Chairman of NASBIC and a recent past
director of the National Venture Capital Association. Mr. Davis received a
B.B.A. degree in Finance from the University of Oklahoma.
WAYNE B. KINGSLEY has served as a director of the Company since March 1989.
Since 1984, Mr. Kingsley has been Chairman of InterVen Partners, Inc., a venture
capital management firm, and since 1985 has been a general partner of the
general partnership which is the general partner of InterVen II, L.P., a
principal stockholder of the Company. Mr. Kingsley serves on the Board of
Directors of several private companies, as well as Northwest Pipe Company, a
publicly traded manufacturer of steel pipe. Mr. Kingsley received a B.A. degree
in Government from Miami University and an M.B.A. from the Darden School at the
University of Virginia.
HOWARD LISZT has served as a director of the Company since September 1996.
Since January 1995, Mr. Liszt has been Chief Executive Officer of Campbell
Mithun Esty, a national marketing communications agency. Prior to that time, Mr.
Liszt served as President and Chief Operating Officer of Campbell Mithun Esty
from April 1989, and as General Manager of its Minneapolis office from 1984
until April 1989. Mr. Liszt received a B.A. in Journalism/Marketing and an
M.B.A. from the University of Minnesota.
C. MICKEY SKINNER has served as a director of the Company since August 1996.
Since April 1996, Mr. Skinner has been President of the Hershey Pasta and
Grocery Group, a division of Hershey Foods Corporation. Previously, he served as
President of the Hershey Pasta Group, a position he held since January 1984. Mr.
Skinner was an executive with Skinner Macaroni Company from 1972 until that
company was acquired by Hershey Foods Corporation in 1979, and has held various
executive positions with Hershey since that time. Mr. Skinner received a B.A.
degree in Business Administration and Engineering from the University of
Nebraska.
See "Certain Transactions" and "Principal and Selling Stockholders" for
information concerning certain of the Company's directors and executive
officers.
Directors of the Company hold office until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier resignation or removal. All officers are appointed and serve at
the discretion of the Board of Directors. There are no family relationships
among any directors or executive officers of the Company.
The Company has established a compensation committee, an audit committee and
a risk management committee. The compensation committee reviews executive
salaries, administers any bonus, incentive compensation and stock option plans
of the Company, including the Company's Amended and Restated Stock Option Plan
and Omnibus Stock and Incentive Plan, and makes recommendations to the Board of
Directors regarding the salaries and other benefits of the executive officers of
the Company. In addition, the compensation committee consults with the Company's
management regarding benefit plans, and compensation policies and practices of
the Company.
The audit committee reviews the professional services provided by the
Company's independent auditors, the independence of such auditors from
management of the Company, the annual financial statements of the Company and
the Company's system of internal accounting controls. The audit committee also
reviews such other matters with respect to the accounting, auditing and
financial reporting practices and procedures of the Company as it may find
appropriate or as may be brought to its attention, and meets with the Company's
management.
The risk management committee consists of the Chief Executive Officer and
the Chief Financial Officer of the Company, as well as employees of the cattle
acquisition department. It reviews the practices
37
<PAGE>
and procedures of the Company's risk management program on a periodic basis, and
regularly reports its findings to the Board of Directors.
Messrs. Davis, Kingsley, Coleman and Arst were elected to the Board of
Directors pursuant to a shareholders agreement entered into in connection with a
transaction pursuant to which entities affiliated with Messrs. Kingsley and
Davis purchased Common Stock and Series A Preferred Stock of the Company. Such
agreement terminates upon the consummation of the offering contemplated by this
Prospectus.
KEY PERSONNEL
The following are key management employees of the Company:
JOHN VAN ORMAN, 55, has been Director of Operations for the Company since
October 1987. Mr. Van Orman oversees the Company's plant operations, purchasing
and distribution functions. Mr. Van Orman has over 36 years of meat industry
experience, including with the Armour Company and Sterling Beef Company, a
division of Excel.
D'LEA MARTENS, 37, has been Director of Marketing for the Company since
April 1994. Ms. Martens oversees advertising, promotions, product development
and quality assurance. Prior to April 1994, Ms. Martens was a Business Line
Manager for Gerry Baby Products Company, a division of Huffy Corp., and a
Marketing Manager at Celestial Seasonings, Inc. She also held various marketing
positions with Vipont Pharmaceutical. Ms. Martens has a B.S. degree from
Stanford University and an M.B.A. degree from the University of California, Los
Angeles.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Beginning in fiscal 1995, the Company's Compensation Committee has made
recommendations to the Board of Directors regarding the compensation of its
executive officers. Messrs. Arst and Coleman are members of the Board of
Directors, and Mr. Arst is the President of the Company. Messrs. Arst and
Coleman have participated in the deliberations of the Board of Directors
concerning executive officer compensation, other than their own compensation.
DIRECTOR COMPENSATION
Directors are reimbursed for their expenses in performing duties and
attending board and committee meetings. Effective after this offering, each
non-employee director will receive $1,000 for each meeting of the Board of
Directors which he attends, $500 for each telephonic meeting of the Board of
Directors at which he is present, and $500 for each committee meeting attended.
At the meeting of the Board of Directors held on August 7, 1996, the Board of
Directors granted non-qualified stock options to purchase 2,850 shares of the
Company's Common Stock to each of Messrs. Kingsley, Davis and Skinner at an
exercise price per share of $6.15. Fifty percent of these options become
exercisable on August 7, 1997, and are fully exercisable on August 7, 1998. In
addition, Mr. Skinner was granted an immediately exercisable non-qualified stock
option to purchase 2,850 shares of Common Stock at a price of $6.15 per share.
On September 16, 1996, the Board of Directors granted a non-qualified stock
option to purchase 2,850 shares of the Company's Common Stock to Mr. Liszt at an
exercise price per share of $9.50. Fifty percent of these options became
exercisable on September 16, 1997 and are fully exercisable on September 16,
1998. In addition, Mr. Liszt was granted an immediately exercisable
non-qualified stock option to purchase 2,850 shares of Common Stock, also at a
price of $9.50 per share.
38
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation earned for services rendered in all capacities to the Company for
the calendar year ended December 31, 1995 ("Calendar Year 1995"), by the
Company's Chief Executive Officer and each other executive officer whose salary
and bonus for such calendar year was in excess of $100,000 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
------------------------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OTHER($) GRANTED(#) COMPENSATION($)
- ----------------------------------------- ---------- ----------- ------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Lee N. Arst, Chief Executive Officer and
President............................... $ 162,500 $ 25,000(2) $ 1,466(4) -- $ 555(6)
G. Melvin Coleman, Sr., Chairman of the
Board................................... $ 114,442 $ 7,000(3) $ 17,470(5) -- --
</TABLE>
- ------------------------
(1) Prior to December 23, 1995, the Company's fiscal year was the 52/53 week
period ending on the last Saturday in June. Effective December 23, 1995, the
Company's fiscal year is the 52/53 week period ending on the last Saturday
in December. The compensation set forth in this table reflects the
compensation for Calendar Year 1995.
(2) Consists of a $25,000 bonus earned and paid in Calendar Year 1995.
(3) Consists of a $7,000 bonus earned in Calendar Year 1995.
(4) Consists of payments by the Company for additional life and disability
insurance policies, which the Company provides to all senior management
employees.
(5) Consists of $8,109 for use of an automobile leased by the Company. Also,
includes $9,361 in payments for life and disability insurance policies which
are separate from the Company's group insurance policies because of Mr.
Coleman's age.
(6) Consists of payments for a country club membership owned by the Company of
which Mr. Arst is currently the designated user.
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<PAGE>
OPTION GRANTS
The following table contains information concerning the stock options
granted under the Company's Stock Option Plan to each of the Named Executive
Officers during the Calendar Year 1995.
OPTION GRANTS IN THE CALENDAR YEAR 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE
UNDERLYING EMPLOYEES IN EXERCISE OR APPRECIATION FOR
OPTIONS CALENDAR YEAR BASE PRICE/ EXPIRATION OPTION TERM(2)
NAME GRANTED(1) 1995 SHARE DATE 5% 10%
- -------------------------------------------- ------------- ------------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lee N. Arst................................. -- -- -- -- -- --
G. Melvin Coleman Sr........................ 5,273 7.3% $ 1.74 8/1/2000 $ 2,535 $ 5,601
</TABLE>
- ------------------------
(1) All options were granted under the Company's Amended and Restated Stock
Option Plan. Generally, options granted under the Company's Amended and
Restated Stock Option Plan become exercisable as to 25% of the shares
underlying the option one year from the date of grant, and an additional 2%
every month thereafter, becoming fully vested four years after the grant
date. Options have ten-year terms so long as the optionee's employment with
the Company continues. Incentive stock options granted to a 10% stockholder,
of which Mr. Coleman is one, have terms no longer than five years. Incentive
stock options are granted at no less than fair market value as determined by
the Board of Directors, provided that grants to 10% stockholders, of which
Mr. Coleman is one, have an exercise price not less than 110% of fair market
value. Non-qualified stock options have an exercise price not less than fair
market value. All of the options shown above were granted as incentive stock
options.
(2) This column reflects the potential realizable value of each grant assuming
that the market value of the Company's stock appreciates at five percent or
ten percent annually from the date of grant over the term of the option,
which is five years for Mr. Coleman. There is no assurance provided to any
executive officer or any other holder of the Company's securities that the
actual stock price appreciation over the option term will be at the assumed
five percent and ten percent levels or at any other defined level. Unless
the market price of the Common Stock does in fact appreciate over the option
term, no value will be realized from the option grants made to the Named
Executive Officers.
OPTION EXERCISES AND HOLDINGS
None of the Named Executive Officers exercised any options during Calendar
Year 1995. The following table sets forth information concerning option holdings
and the value of exercised options under the Company's Stock Option Plan for the
Calendar Year 1995, with respect to the Named Executive Officers.
CALENDAR YEAR 1995 OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED,
OPTIONS HELD AT DECEMBER IN-THE-MONEY OPTIONS
31, 1995 AT DECEMBER 31, 1995(2)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Lee N. Arst............................................. 35,786 66,461 $ 38,796 $ 72,048
G. Melvin Coleman, Sr................................... 8,761 6,515(3) $ 9,498( (4) $ 7,063(3)(4)
</TABLE>
- ------------------------
(1) Prior to December 23, 1995, the Company's fiscal year was the 52/53 week
period ending on the last Saturday in June. Effective December 23, 1995, the
Company's fiscal year is the 52/53 week period
40
<PAGE>
ending on the last Saturday in December. The numbers set forth in this table
reflect the option values at January 26, 1996.
(2) Based on the fair market value of the underlying shares of Common Stock of
$2.47 per share, as determined by the Company's Board of Directors at the
then most recent Board meeting held January 26, 1996, less the per share
exercise price.
(3) Includes 306 and 406 exercisable and unexercisable options held by Polly
Coleman, Mr. Coleman's wife.
(4) Mr. Coleman, as a holder of greater than 10% of the Company's Common Stock,
has exercise prices for his options of 110% of the fair market value at the
date of grant.
EMPLOYMENT AGREEMENT
As of July 1, 1996, Mr. Arst entered into a two-year employment agreement
with the Company which is automatically renewable for additional one-year terms.
Under the Agreement, Mr. Arst will receive two years of salary and benefits upon
a termination of his employment with the Company, other than a termination for
cause. Mr. Arst has agreed to be subject to a non-compete for the longer of one
year after his termination for any reason or the period in which he is receiving
severance payments under the Agreement. See "Risk Factors--Dependence on Key
Personnel" and "Certain Transactions."
OMNIBUS STOCK AND INCENTIVE PLAN
On September 6, 1996, the Company adopted an Omnibus Stock and Incentive
Plan (the "Omnibus Plan") to provide long-term incentives to the Company's
directors, consultants and employees and to provide flexibility to the Company
in its ability to motivate, attract and retain the services of key employees
whose judgment, interest and special effort the Board considers especially
important to the success of the Company. As of September 16, 1996, options to
purchase 5,700 shares of Common Stock had been granted under the Omnibus Plan.
The Omnibus Plan is administered by the Company's Compensation Committee
(the "Committee") consisting of not less than two non-employee Directors. All
actions of the Committee, including all awards granted, are subject to
ratification by the Board of Directors. The Committee or the Board of Directors
select the key employees or consultants ("Participants") to whom grants
("Awards") are made under the Omnibus Plan; the size and type of Awards; and the
terms and conditions of such Awards. Awards may include Non-Qualified Stock
Options ("NQSOs"), Incentive Stock Options ("ISOs"), Stock Appreciation Rights
("SARs"), Phantom Stock Rights ("Phantom Rights"), restricted shares of Common
Stock ("Restricted Stock") and incentive compensation in the form of shares of
Common Stock ("Performance Shares") or valued by reference to shares
("Performance Units"). The Committee may make any Award in conjunction with any
other amount or compensation, including Awards previously made under the Omnibus
Plan or any other plan. Subject to the right of the Board of Directors to
terminate the Omnibus Plan, it remains in effect until all shares subject to it
have been purchased or acquired pursuant to its provisions; however, no Award
may be granted on or after September 5, 2006.
Subject to adjustment as set forth therein, the maximum number of shares
that may be granted under the Omnibus Plan is 332,000. Shares delivered under
the Omnibus Plan are authorized and unissued shares or treasury shares. All
shares subject to any Award which terminates, expires or lapses for any reason
without the issuance of such shares or without payment therefor, are available
for further Awards under the Omnibus Plan.
Options may be granted under the Omnibus Plan, either as ISOs, which comply
with the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or NQSOs which do not meet such requirements. The purchase
or option price per share, as determined by the Committee, may not be less than
100% of the fair market value of a share of Common Stock on the date of grant of
an ISO and not less than 85% of the fair market value of a share of Common Stock
on the date of grant of an
41
<PAGE>
NQSO. An ISO granted to a holder of more than 10% of the combined voting power
for all classes of stock of the Company, must have an exercise price which is at
least 110% of the fair market value of the shares.
The Committee determines the duration and conditions of exercisability of
Options, provided that no ISO may be exercisable later than the tenth
anniversary date of its grant. Further, no Participant may receive an Award of
ISOs that are first exercisable during any calendar year to the extent that the
aggregate fair market value of the shares subject to the Award or any other ISOs
under the Omnibus Plan or any other of the Company's option plans (determined as
of the date the Award is granted) exceeds $100,000.
SARs may be granted to Participants in lieu of Options, in addition to
Options, upon lapse of Options, independent of Options, and in each of the
foregoing manners in connection with previously awarded Options. Each Award of
an SAR shall specify the fair market value of the underlying shares of Common
Stock on the date of grant, the term of the SAR (not to exceed ten years) and
such other provisions as the Committee determines. Upon exercise of an SAR, a
Participant receives the excess of the fair market value of the Common Stock on
the date of exercise over the price fixed by the Committee at the day of grant,
multiplied by the number of shares as to which the SAR is exercised.
The Committee may grant Phantom Rights to Participants in such amounts, upon
such terms and subject to such conditions as the Committee shall determine. The
Committee shall establish the appropriate method of establishing the value of
each Phantom Right, provided that the method used at date of payment may not
differ from the method used to establish the initial value. Holders of Phantom
Rights shall not be deemed stockholders and have no rights related to any shares
of Common Stock, except to the extent provided in the Omnibus Plan. Payment for
Phantom Rights may be made in cash, in shares of Common Stock of equivalent
value or any combination thereof.
The Committee may grant shares of Restricted Stock to Participants in such
amounts, subject to such restrictions and for such periods as the Committee
determines. Shares subject to restrictions established by the Committee may not
be sold or otherwise transferred prior to the lapse of such restrictions.
The Committee may grant Performance Units or Performance Shares to
Participants in such amounts as the Committee determines. Each Award of a
Performance Unit or Performance Share specifies the value of the Performance
Unit or Performance Share, the duration of the performance period, the number of
Performance Units or Performance Shares and such other provisions as the
Committee determines. Each Performance Unit has an initial value of $1.00, and
each Performance Share initially represents one share. The Committee sets
performance goals which, depending on the extent to which they are met, will
determine the ultimate value of the Performance Unit or Performance Share to the
Participant. Payment for Performance Units or Performance Shares shall be made
in cash, shares of Common Stock of equivalent value or any combination thereof.
In the event of a change in control of the Company, the Omnibus Plan
generally provides for the acceleration of applicable exercise dates and vesting
periods for the Options and other Awards granted to Participants under the
Omnibus Plan, in order to maintain the rights of the Participants. Performance
Units and Performance Shares shall be paid out based upon the extent to which
performance goals during the performance period have been met up to the date of
the change in control.
The Company believes that under current federal tax laws, the grant of
Options will not result in any tax liability for the Company. The Company will
be entitled to subsequent deductions to the extent, and only to the extent, that
Participants recognize ordinary income upon exercise of Options. A Participant
must generally recognize ordinary income equivalent to the difference between
the exercise price and the fair market value of a share of Common Stock on the
date of exercise of an NQSO. A Participant generally will have no taxable income
upon exercise of an ISO. Generally, if the Participant does not dispose of
shares acquired pursuant to the exercise of an ISO within two years of the grant
or one year of the exercise, any gain or loss realized on their subsequent
disposition will be capital gain or loss. If such holding period requirements
are not satisfied, the Participant generally will realize ordinary income at the
time of
42
<PAGE>
disposition in an amount equal to the excess of the fair market value of the
shares of Common Stock on the date of exercise (or, if less, the amount realized
upon disposition) over the option price. Any remaining gain is taxed as long- or
short-term capital gain.
The Committee, with the approval of the Board of Directors, may terminate,
amend or modify the Omnibus Plan, but without the approval of the stockholders
of the Company, no such termination, amendment or modification may: increase the
total number of shares of Common Stock which may be issued under the Omnibus
Plan or change the class of employees eligible to participate in the Omnibus
Plan.
The foregoing description of the Omnibus Plan is qualified in its entirety
by the provisions of the Omnibus Plan, a copy of which has been filed as an
exhibit to the Company's Registration Statement of which this Prospectus is a
part.
AMENDED AND RESTATED STOCK OPTION PLAN
On March 24, 1989, the Company adopted the Company's Stock Option Plan,
which was amended and restated on September 6, 1996 (the "Option Plan"). The
Option Plan provides for the grant of ISOs and NQSOs to key employees and
directors of the Company.
ADMINISTRATION. The Option Plan is administered by the Compensation
Committee of the Company's Board of Directors (the "Committee") consisting of
not less than two non-employee Directors. All actions of the Committee,
including grants of ISOs and NQSOs under the Option Plan, are subject to
ratification by the Board of Directors. The Committee or the Board of Directors
determines the key employees and directors eligible to receive options and the
terms thereof, all in a manner consistent with the Option Plan.
SHARES SUBJECT TO OPTIONS. The Option Plan provides that the total number
of shares of Common Stock that may be subject to options shall be 334,929
shares. As a result of the adoption of the Omnibus Plan, the Company no longer
intends to grant options under this Plan.
OPTIONS. The Option Plan provides for the grant of ISOs to key employees of
the Company and of non-qualified stock options to key employees, consultants and
directors, as selected by the Committee or the Board of Directors. The exercise
price of incentive stock options granted under the Option Plan must be at least
100% of the fair market value of the Common Stock on the date of grant and at
least 110% of such value for ISOs granted to any holder of 10% or more of the
voting power of all classes of stock of the Company. The exercise price of
NQSO's shall be at least 85% of the fair market value of the Common Stock on the
date of grant. Options granted under the Option Plan shall be exercisable for no
more than ten years or, in the case of ISOs granted to a 10% stockholder, for no
more than five years. The Committee may provide that any optionee may pay for
shares upon exercise of an option (i) in cash or (ii) by transferring to the
Company shares of Common Stock held for at least six months prior to the date of
exercise. In the event of a change in control of the Company, all vesting or
outstanding options would be accelerated. As of August 30, 1996, options to
purchase a total of 7,482 shares of Common Stock had been exercised, and options
to purchase a total of 314,671 shares at a weighted average price of $2.49 per
share were outstanding. See "Management--Omnibus Stock and Incentive Plan" for
tax effects of grants of ISOs and NQSOs under the Option Plan.
The foregoing description of the Option Plan is qualified in its entirety by
he provisions of the Option Plan, a copy of which has been filed as an exhibit
to Company's Registration Statement of which the Prospectus is a part.
401(K) PLAN
The Company adopted a 401(k) plan, effective March 5, 1992. The plan is
available to all employees who may join on the first of the month following 30
days of employment with the Company. An employee may contribute, on a pre-tax
basis, from 2% to 15% of the employee's total annual compensation from the
43
<PAGE>
Company, not to exceed in any given year the maximum amount allowable under
Internal Revenue Service Regulations. The Company may make matching
contributions, but is not required to under the 401(k) plan. Employee
contributions, as well as certain other contributions, are fully vested and
non-forfeitable.
CERTAIN TRANSACTIONS
In October 1993, the Company issued and sold to entities that may be deemed
affiliates of certain directors and/or principal stockholders of the Company an
aggregate of 216,000 shares of Series A Preferred Stock for an aggregate
purchase price of $216,000 and 51,953 shares of Common Stock for an aggregate
purchase price of $72,005, paid in cash. Additionally, such entities were issued
warrants to purchase an aggregate of 82,148 shares of Common Stock at an
exercise price of $1.3859 per share in consideration of the agreement by such
entities to waive the Company's failure to pay accrued cash dividends on shares
of Series A Preferred Stock, to waive the default interest which would have
accumulated on such dividends, to extend the dividend accrual dates for the
Series A Preferred Stock and to extend the redemption date for such Series A
Preferred Stock. In May 1994, the Company issued and sold to entities that may
be deemed affiliates of certain directors and/or principal stockholders of the
Company an aggregate of 213,206 shares of Common Stock for an aggregate price of
$295,496, paid in cash. See "Principal and Selling Shareholders."
The ownership of such Series A Preferred Stock, Common Stock and/or warrants
purchased or issued in 1993 and 1994 is as follows (Series A Preferred Stock,
Common Stock and warrants to purchase Common Stock issued in prior years are not
included in the following table):
<TABLE>
<CAPTION>
SHARES OF SERIES WARRANTS TO PURCHASE
NAME A PREFERRED STOCK SHARES OF COMMON STOCK COMMON STOCK(1)
- ------------------------------------------------ ----------------- ----------------------- ---------------------
<S> <C> <C> <C>
Boettcher Venture Capital Partners, L.P......... 34,824 42,750 13,249
InterVen II, L.P.(2)............................ 90,814 111,483 34,536
Davis Venture Partners, L.P.(3)................. 90,362 110,925 34,365
</TABLE>
- ------------------------
(1) These warrants, along with other warrants held by such persons, are required
to be exercised in connection with the offering to which this Prospectus
relates.
(2) Includes 452 shares of Series A Preferred Stock, 556 shares of Common Stock
and warrants to purchase 174 shares of Common Stock held by InterVen
Ventures 1987.
(3) Includes 18,072 shares of Series A Preferred Stock, 22,184 shares of Common
Stock and warrants to purchase 3,947 shares of Common Stock held by Energy
Minerals, L.L.C.
In October 1995, certain entities that may be deemed affiliates of certain
directors and/or principal stockholders of the Company agreed with the Company
to waive the failure of the Company to pay accrued dividends and to waive the
payment of default interest thereon, and to extend the redemption date of the
Series A Preferred Stock, in exchange for (a) the payment in cash by the Company
of such previously accrued dividends and (b) the payment by the Company of
additional dividends on a quarterly basis, paid in shares of Series A Preferred
Stock (the "Paid-in-Kind Dividend"), on the shares of Series A Preferred Stock
which had been scheduled for redemption. The following table sets forth the
shares of Series A Preferred Stock which have been issued pursuant to the
Paid-in-Kind Dividend to such entities as
44
<PAGE>
of June 30, 1996, and which would be issued to such entities prior to the
redemption date of the Series A Preferred Stock on November 30, 1996, if such
stock is not earlier redeemed.
<TABLE>
<CAPTION>
SHARES REQUIRED TO BE
SHARES ISSUED ON OR PRIOR ISSUED
NAME TO JUNE 30, 1996 PRIOR TO NOVEMBER 30, 1996
- ------------------------------------------------------------ ------------------------- ---------------------------
<S> <C> <C>
Boettcher Venture Capital Partners, L.P..................... 9,632 8,027
InterVen II, L.P.(1)........................................ 25,112 20,928
Davis Venture Partners, L.P.(2)............................. 24,988 20,823
</TABLE>
- ------------------------
(1) Includes 124 and 105 shares issued and to be issued, respectively, to
InterVen Ventures 1987.
(2) Includes 3,008 and 2,506 shares issued and to be issued, respectively, to
Energy Minerals, L.L.C.
In May 1995, Lee N. Arst, the Company's Chief Executive Officer and
President, purchased 102,247 shares of the Company's Common Stock for aggregate
consideration of $141,710, paid in cash. See "Principal and Selling
Shareholders."
Mr. Arst entered into an Employment Agreement effective as of July 1, 1996,
with the Company. See "Management--Employment Agreement."
During the 52 weeks ended June 25, 1994 and June 24, 1995 the 26 weeks ended
December 23, 1995 and the 27 weeks ended June 29, 1996, the Company purchased
approximately $827,000, $588,000, $246,000 and $609,000, respectively, of cattle
from Coleman Ranches, Inc. pursuant to an Organic Cattle Supply Agreement dated
May 10, 1990 and amended as of May 7, 1992, May 7, 1993 and March 3, 1994. The
Organic Cattle Supply Agreement was initially entered into because the Company
intended to market and sell organic cattle in Japan; however, most of the
organic cattle purchased from Coleman Ranches, Inc. were sold by the Company as
natural, not organic. The aggregate purchase price for the cattle purchased
pursuant to this Agreement was approximately $123,000, $145,000, $90,000 and
$239,000, respectively, above the average market price for natural cattle
purchased by the Company from various Coleman Certified Ranchers during these
periods. G. Melvin Coleman, Sr., a director and principal shareholder of the
Company, is the President, a director and a principal shareholder of Coleman
Ranches, Inc. This agreement has expired.
On October 31, 1996, the Company is required to redeem all outstanding
shares of Series A Preferred Stock. The holders of Series A Preferred Stock have
agreed to waive the mandatory redemption date of such shares until November 30,
1996. Certain entities that may be deemed affiliates of certain directors and/or
principal stockholders of the Company hold shares of Series A Preferred Stock,
and assuming the redemption of such shares on November 30, 1996, such entities
will receive the following payments in such redemption:
<TABLE>
<CAPTION>
DOLLAR AMOUNTS TO BE PAID FOR REDEMPTION OF
SERIES A PREFERRED STOCK ON OR PRIOR TO NOVEMBER 30,
NAME 1996
- ----------------------------------------------------------- -----------------------------------------------------
<S> <C>
Boettcher Venture Capital Partners, L.P.................... $ 552,775
InterVen II, L.P.(1)....................................... $ 1,441,260
Davis Venture Partners, L.P.(2)............................ $ 1,434,088
</TABLE>
- ------------------------
(1) Includes $7,171 to be paid to InterVen Ventures 1987.
(2) Includes $172,599 to be paid to Energy Minerals, L.L.C.
Certain holders of shares of Common Stock, including Mr. Coleman, Mr. Arst,
Boettcher Venture Capital Partners, L.P., InterVen II, L.P. and InterVen
Ventures 1987 (of which entities Mr. Kingsley, a director of the Company, may be
deemed to be an affiliate), and Davis Venture Partners, L.P., and Energy
Minerals, L.L.C. (of which entities Mr. Davis, a director of the Company, may be
deemed to be an affiliate), have been granted certain demand and piggyback
registration rights, all of which have been
45
<PAGE>
waived in connection with this offering except to the extent any such person or
entity is a Selling Stockholder. See "Description of Capital Stock--Registration
Rights."
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of September 16, 1996, and as
adjusted to reflect the sale of the Common Stock offered hereby, by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
Common Stock; (ii) each of the Company's directors; (iii) the Company's Chief
Executive Officer and each of the Named Executive Officers; (iv) each Selling
Shareholder; and (v) the Company's directors and executive officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING SHARES OWNED AFTER OFFERING
----------------------- BEING -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED(3) NUMBER PERCENT
- ---------------------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
InterVen II, L.P.(2)(4)............................. 557,077 29.7% 71,550 485,527 14.5%
1011 Swarthmore Avenue, Suite 5
Pacific Palisades, CA 90272
Davis Venture Partners(2)(5)........................ 554,301 29.5 71,190 483,111 14.4
One Williams Center, Suite 2000
Tulsa, OK 74172
Boettcher Venture Capital Partners, L.P.(2)(6)...... 213,628 11.4 27,450 186,178 5.6
77 West Wacker Drive, 26th Floor
Chicago, IL 60601
G. Melvin Coleman, Sr.(7)........................... 148,254 7.8 34,695 113,559 3.4
5140 Race Court
Denver, CO 80216
James W. Coleman(8)................................. 120,641 6.4 17,348 103,293 3.1
P.O. Box 196
Saguache, CO 81149
Lee N. Arst(9)...................................... 164,174 8.5 -- 164,174 4.8
Barry M. Davis(2)(5)................................ 554,301 29.5 71,190 483,111 14.4
Wayne B. Kingsley(2)(4)............................. 557,077 29.7 71,550 485,527 14.5
Howard Liszt(10).................................... 2,850 * -- 2,850 *
C. Mickey Skinner(10)............................... 2,850 * -- 2,850 *
Ted V. Bell(2)(11).................................. 5,228 * 675 4,553 *
Mack H. Graves...................................... 16,701 * 2,092 14,609 *
All directors and executive officers as a group
(7 persons)(2)(12)................................ 1,437,403 73.4% 177,435 1,259,968 36.7%
</TABLE>
- ------------------------
* less than 1%
(1) The persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and except as indicated
in the other footnotes to this table. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. In
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
46
<PAGE>
(2) Warrants to purchase Common Stock held by any such persons will be
exercised in connection with this offering and are included in the
computations of shares beneficially owned by a person and the percentage
ownership of that person. The number of shares issuable upon exercise of
warrants has been estimated assuming that a portion of such warrants are
exercised on a cashless basis using $10.25 per share as the fair market
price for purposes of determining the number of shares tendered in
consideration for the exercise price. See "Underwriting."
(3) Assumes that the Underwriters' over-allotment option is not exercised. If
such over-allotment option is exercised in full, InterVen II, L.P. (and its
affiliate, InterVen Ventures 1987), Davis Venture Partners (and its
affiliate, Energy Minerals, Inc.), Boettcher Venture Capital Partners,
L.P., G. Melvin Coleman, Sr., James W. Coleman, Ted V. Bell and Mack H.
Graves will sell an additional 81,090 (including 20,402 upon exercise of
warrants), 80,682 (including 20,305 upon exercise of warrants), 31,110
(including 7,816 upon exercise of warrants), 39,321, 19,660, 765 (including
184 upon exercise of warrants) and 2,372 shares, respectively, in this
offering.
(4) Consists of 554,299 shares (including 91,940 upon exercise of warrants)
held by InterVen II, L.P. and 2,778 shares (including 462 upon exercise of
warrants) held by InterVen Ventures 1987. Does not include an option to
purchase 2,850 shares of Common Stock held by Mr. Kingsley, which option is
not currently exercisable. Mr. Kingsley, a director of the Company, is a
general partner of the partnership which is the general partner of InterVen
II, L.P., and is a trustee of a general partner of Interven Ventures 1987
and, as such, may be deemed to share voting and investment power with
respect to such shares. Mr. Kingsley disclaims beneficial ownership of such
shares, except to the extent of his interest in such shares arising from
his interests in the entities referred to herein. The number of shares
being offered includes 360 shares held by InterVen Ventures 1987.
(5) Consists of 475,963 shares (including 78,718 upon exercise of warrants)
held by Davis Venture Partners, L.P., and 78,388 shares (including 12,777
upon exercise of warrants) held by Energy Minerals, L.L.C. Does not include
an option to purchase 2,850 shares of Common Stock held by Mr. Davis, which
option is not currently exercisable. Mr. Davis, a director of the Company,
is the general partner of Davis Venture Partners, L.P., and the managing
member of Energy Minerals, L.L.C., and, as such, may be deemed to share
voting and investment power with respect to such shares. Mr. Davis
disclaims beneficial ownership of such shares, except to the extent of his
interest in such shares arising from his interests in Davis Venture
Partners, L.P., and Energy Minerals, L.L.C. The number of shares being
offered includes 10,058 shares being offered by Energy Minerals, L.L.C.
(6) Includes 35,266 shares issuable upon exercise of warrants.
(7) Includes 10,925 shares issuable upon exercise of options held by Mr.
Coleman and 449 shares issuable upon exercise of options held by his spouse
which are exercisable within the next 60 days. Does not include 138,633
shares which are held by Mr. Coleman's children, grandchildren and their
spouses, and of which Mr. Coleman disclaims beneficial ownership.
(8) Held jointly with his wife. Does not include 17,100 shares held by Mr.
Coleman's children, grandchildren and their spouses, and of which Mr.
Coleman disclaims beneficial ownership.
(9) Includes 56,236 shares issuable upon exercise of options held by Mr. Arst
which are exercisable within the next 60 days.
(10) Consists of a currently exercisable option to purchase 2,850 shares of
Common Stock.
(11) Includes 859 shares issuable upon exercise of warrants.
(12) Includes 81,207 shares issuable upon exercise of options which are
currently exercisable.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares of
common stock, $.001 par value (the "Common Stock"), and 5,000,000 shares of
undesignated preferred stock, $.001 par value (the "Preferred Stock"), after
giving effect to the redemption of the Series A Preferred Stock immediately
following the closing of this offering, and the authorization of shares of
undesignated Preferred Stock, as described below. The discussions of the Common
Stock and Preferred Stock here and elsewhere in this Prospectus are qualified in
their entirety by reference to (i) the Amended and Restated Certificate of
Incorporation of the Company, as amended, a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part, and
(ii) the applicable provisions of Delaware law.
COMMON STOCK
As of September 16, 1996, there were 1,657,900 shares of Common Stock
outstanding which were held of record by 29 stockholders. There will be
3,352,472 shares of Common Stock outstanding (assuming the exercise of warrants
to purchase 219,572 shares of Common Stock, no exercise of outstanding options
after September 16, 1996, and no exercise of the Underwriters' over-allotment
option) after giving effect to the sale of the shares of Common Stock to the
public offered hereby.
Holders of Common Stock are entitled to one vote per share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights in the election of directors. Stockholders casting a plurality of votes
of the shares present in person or represented by proxy at a meeting for an
election of directors may elect all of the directors standing for election.
Subject to the preferences that may be applicable to any outstanding Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. Dividends are not cumulative,
except to the extent they are declared but unpaid. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of Preferred Stock, if any, then
outstanding. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and the shares of Common Stock to be issued upon
completion of this offering will be fully paid and nonassessable. The rights,
preferences and privileges of holders of Common Stock are subject to the rights
of the holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
SERIES A PREFERRED STOCK; UNDESIGNATED PREFERRED STOCK
The Company's Amended and Restated Certificate of Incorporation authorizes
3,491,396 shares of Series A Preferred Stock, of which 3,400,962 shares are
outstanding at September 16, 1996. The Company expects to redeem all outstanding
Series A Preferred Stock immediately following the closing of this offering.
Upon such redemption, the shares of Series A Preferred Stock so redeemed, as
well as the remaining shares of authorized Series A Preferred Stock, are
automatically cancelled and shall return to the status of undesignated Preferred
Stock, of which the Company will then have 5,000,000 shares authorized under its
Amended and Restated Certificate of Incorporation. The Board of Directors has
the authority to issue such Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. The issuance of Preferred Stock with
voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. At
present, the Company has no plans to issue any of the Preferred Stock.
48
<PAGE>
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (for the purposes of determining the number of shares
outstanding, under Delaware law, those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer are
excluded from the calculation); or (iii) on or subsequent to such date, the
business combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder.
Section 203 defines a business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation, equity incentive plans, Bylaws and Delaware law may have a
significant effect in delaying, deferring or preventing a change in control of
the Company and may adversely affect the voting and other rights of other
holders of Common Stock. In particular, the ability of the Board of Directors to
issue Preferred Stock without further stockholder approval may have the effect
of delaying, deferring or preventing a change in control of the Company and may
adversely affect the voting and other rights of other holders of Common Stock.
REGISTRATION RIGHTS
After this offering, the holders of 1,672,932 shares of Common Stock
(assuming no exercise of the Underwriters' overallotment option) will be
entitled to certain rights with respect to the registration of such shares under
the Act. Under the terms of the agreement between the Company and the holders of
such registrable securities, if the Company proposes to register any of its
securities under the Act, either for its own account or for the account of other
security holders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include shares of such Common
Stock therein. The stockholders benefiting from these rights may also require
the Company on two (2) separate occasions to file a registration statement under
the Act at the Company's expense with respect to their shares of Common Stock,
and the Company is required to use its diligent best efforts to effect such
registration. These rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit (but not
eliminate) the number of shares included in such registration.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Norwest Shareowner
Services.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 3,352,472 shares of
Common Stock outstanding (assuming the exercise of warrants to purchase 219,572
shares of Common Stock, no exercise of the Underwriters' overallotment option,
and no exercise of outstanding options after September 16, 1996). Of these
shares, the 1,700,000 shares sold in this offering will be freely tradable
without restriction or further registration under the Act, except that any
shares purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Act ("Affiliates"), may generally only be sold in compliance with
the limitations of Rule 144 described below. See "Underwriting."
SALES OF RESTRICTED SHARES
The remaining 1,652,472 shares of Common Stock outstanding upon completion
of this offering are deemed "Restricted Shares" under Rule 144, of which
1,651,916 shares are subject to the lock-up agreements described below (the
"Lock-up Agreements"). Beginning 90 days and 180 days after the date of this
Prospectus, 156,289 and 1,496,183 Restricted Shares, respectively, will first
become eligible for sale in the public market pursuant to Rules 144 and 701
under the Act, upon the expiration of the Lock-up Agreements, or as a result of
a combination of the foregoing. Of the Restricted Shares that will first become
available for sale in the public market 180 days after the date of this
Prospectus, approximately 1,178,761 shares will be subject to certain volume and
other resale restrictions pursuant to Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
including an Affiliate, who has beneficially owned Restricted Shares for at
least two years, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) one percent of the then
outstanding shares of the Common Stock (approximately 33,735 shares immediately
after this offering) or (ii) the average weekly trading volume of the Common
Stock in the Nasdaq National Market during the four calendar weeks preceding the
date on which notice of the sale is filed, provided certain requirements
concerning availability of public information, manner of sale and notice of sale
are satisfied. In addition, Affiliates must comply with the restrictions and
requirements of Rule 144, other than the two-year holding period requirement, in
order to sell shares of Common Stock which are not restricted securities. Under
Rule 144(k), a person who is not an Affiliate and has not been an Affiliate for
at least three months prior to the sale and who has beneficially owned
Restricted Shares for at least three years may resell such shares without
compliance with the foregoing requirements. In meeting the two and three year
holding periods described above, a holder of Restricted Shares can include the
holding periods of a prior owner who was not an Affiliate. The two and three
year periods described above do not begin to run until the full purchase price
or other consideration is paid by the person acquiring the Restricted Shares
from the issuer or an Affiliate.
In addition, the Commission has proposed an amendment to Rule 144 which
would reduce the holding period for shares subject to Rule 144 to become
eligible for sale in the public market. This proposal, if adopted, would
increase the number of shares of the Company's Common Stock eligible for
immediate resale following the expiration of the Lock-up Agreements.
OPTIONS
Rule 701 under the Act provides that the shares of Common Stock acquired on
the exercise of options granted under the Company's stock plans prior to the
date of this Prospectus may be resold by persons, other than Affiliates,
beginning 90 days after the date of this Prospectus, subject only to the manner
of sale provisions of Rule 144, and by Affiliates under Rule 144 without
compliance with its two-year minimum holding period, subject to certain
limitations.
At September 16, 1996, there were 7,482 shares of Common Stock outstanding
from prior exercises of options and 108,950 shares of Common Stock were issuable
upon the exercise of currently exercisable stock options (collectively, the
"Option Shares"). Beginning 90 days after the date of this Prospectus, all of
50
<PAGE>
the Option Shares would be eligible for sale in reliance on Rule 701; the
holders of 81,207 Option Shares have entered into Lock-up Agreements pursuant to
which they have agreed not to offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of any Option Shares for a period of 180 days
after the date of this Prospectus.
The Company intends to file a registration statement on Form S-8 under the
Act to register approximately 646,671 shares of Common Stock issuable upon
exercise of outstanding stock options and options that may be granted pursuant
to the Company's Option Plan and Omnibus Plan. Such registration statement is
expected to be filed shortly after the date of this Prospectus and will become
effective automatically upon filing. Shares covered by such registration
statement will thereupon be eligible for sale in the public markets to the
extent applicable.
LOCK-UP AGREEMENTS
The Selling Stockholders and all executive officers and directors of the
Company have agreed, pursuant to the Lock-up Agreements, not to directly or
indirectly without the prior written consent of Principal Financial Securities,
Inc., offer to sell, contract to sell or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to an aggregate of 1,496,183 shares of
Common Stock, options or warrants to purchase an aggregate of 300,779 shares of
Common Stock and any securities convertible or exchangeable for shares of Common
Stock beneficially owned by them or any such securities hereafter acquired by
them for a period of 180 days after the date of this Prospectus otherwise than
(a) as a bona fide gift or gifts or (b) as a distribution to such holder's
limited partners or shareholders, provided the donee or donees or distributees
thereof, as the case may be, agree to be bound by the Lock-up Agreement. Certain
other stockholders of the Company have agreed to similar 90-day Lock-up
Agreements with respect to an aggregate of 155,733 shares of Common Stock and
options to purchase an aggregate of 3,543 shares of Common Stock. The Company
has agreed to a similar 180-day Lock-up Agreement, provided, that such Lock-up
Agreement does not apply to securities issued pursuant to the Company's Option
Plan and Omnibus Plan.
REGISTRATION RIGHTS
After the offering pursuant to this Prospectus, certain stockholders will be
entitled to registration rights with respect to shares held by them.
Registration of such shares under the Act would result in such shares becoming
freely tradeable without restriction under the Act (except for shares purchased
by affiliates of the Company) immediately upon the effectiveness of such
registration. See "Description of Capital Stock--Registration Rights."
51
<PAGE>
UNDERWRITING
The Underwriters named below, acting through the representatives, Principal
Financial Securities, Inc. and Hanifen, Imhoff Inc. (the "Representatives"),
have severally agreed with the Company and the Selling Stockholders, subject to
the terms and conditions of the Underwriting Agreement, to purchase from the
Company and the Selling Stockholders the number of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all of such shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Principal Financial Securities, Inc........................................
Hanifen, Imhoff Inc........................................................
-----------------
Total.................................................................. 1,700,000
-----------------
-----------------
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not in
excess of $ per share, of which $ may be reallowed to other dealers.
After the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representative. No such reduction
shall change the amount of proceeds to be received by the Company and the
Selling Stockholders as set forth on the cover page of this Prospectus.
Warrants to purchase an aggregate of 197,572 shares of Common Stock are
being purchased by the Underwriters from certain Selling Stockholders. The
Underwriters intend to exercise these warrants as part of this offering in a
cashless exercise transaction. In this cashless exercise transaction, a portion
of the shares to be issued are redeemed as consideration for the warrant
exercise price. The portion of shares to be redeemed depends on the public
offering price, which is assumed to be $10.25 per share. Upon such cashless
exercise, the Underwriters will receive 170,865 shares, which shares will be
sold in the offering. The purchase price paid by the Underwriters for such
warrants will be the public offering price for the 170,865 shares to be received
upon exercise less the related underwriting discounts and commissions.
Solely to cover over-allotments, if any, the Selling Stockholders have
granted to the Underwriters an option, exercisable during the 30-day period
after the date of this Prospectus, to purchase 206,293 shares and warrants to
purchase 48,707 shares (assuming the previously described cashless exercise
transaction is effected using a $10.25 per share market price). The 206,293
shares would be purchased by the Underwriters at the offering price less
underwriting discounts and commissions. The warrants would be purchased at the
public offering price less underwriting discounts and commissions and the
warrant exercise price. The Underwriters intend to exercise such warrants for
cash at an exercise price of $1.3859 per share. Upon exercise, the Underwriters
will pay the Company the warrant exercise price. If the Underwriters do not
exercise their over-allotment option, the Selling Stockholders must exercise
these warrants for cash. To the extent that the Underwriters exercise the
over-allotment option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage of such additional shares that the
number of shares of Common Stock to be purchased by it shown in the above table
represents as a percentage of the
52
<PAGE>
1,700,000 shares offered hereby. If purchased, the additional shares will be
sold by the Underwriters on the same terms as those on which the 1,700,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Act.
Pursuant to the terms of lock-up agreements, all officers and directors and
the Selling Stockholders have agreed with Principal Financial Securities, Inc.
that, until 180 days after the date of this Prospectus, they will not offer to
sell, contract to sell or otherwise sell, dispose of or grant any rights with
respect to any shares of Common Stock, (other than shares and warrants sold in
this offering), any options or warrants to purchase shares of Common Stock or
any securities convertible or exchangeable for shares of Common Stock, now owned
or hereafter acquired directly by such holders or with respect to which they
have the power of disposition, other than with the prior written consent of
Principal Financial Securities, Inc., which may, in its sole discretion and at
any time without public notice, release all or any portion of the securities
subject to lock-up agreements. Certain other stockholders of the Company have
agreed to a similar lock-up for 90 days after the date of this Prospectus. The
Company has also agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or any options or warrants to
purchase Common Stock other than options or other securities issued under the
Company's Omnibus Plan until 180 days after the date of this Prospectus, except
with the prior written consent of Principal Financial Securities, Inc. See
"Shares Eligible for Future Sale."
The Underwriters will not make sales to accounts over which they exercise
discretionary authority (i) in excess of 5% of the number of shares of Common
Stock offered hereby, and (ii) unless they obtain specific written consent from
the customer.
Prior to this offering, there was been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock has been determined through negotiations among the Company and the
Representatives. Among the factors considered in such negotiations were
prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon for the
Company by Ireland, Stapleton, Pryor & Pascoe, P.C., Denver, Colorado. Certain
legal matters in connection with the offering are being passed upon for the
Underwriters by Fredrikson & Byron, P.A., Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of Coleman Natural Products, Inc. as
of June 24, 1995 and December 23, 1995 and for the 52 weeks ended June 26, 1993,
June 25, 1994 and June 24, 1995 and for the 26 weeks ended December 23, 1995
have been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto, part of which has been omitted in accordance
with the
53
<PAGE>
rules and regulations of the Commission. For further information about the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as part thereof.
Statements contained in the Prospectus as to the contents of any contract or any
other document referred to are not necessarily complete, and in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement. The Registration Statement (with exhibits
and schedules thereto) can be inspected and copied at the public reference
facilities maintained by the Commission at its principal offices at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can also be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
54
<PAGE>
COLEMAN NATURAL PRODUCTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................................................... F-1
Consolidated Balance Sheets, June 24, 1995 and December 23, 1995........................................... F-2
Consolidated Statements of Operations, 52 weeks ended June 26, 1993, June 25, 1994 and June 24, 1995, and
26 weeks ended December 23, 1995......................................................................... F-4
Consolidated Statements of Stockholders' Deficit, 52 weeks ended June 26, 1993, June 25, 1994 and June 24,
1995, and 26 weeks ended December 23, 1995............................................................... F-5
Consolidated Statements of Cash Flows, 52 weeks ended June 26, 1993, June 25, 1994 and June 24, 1995, and
26 weeks ended December 23, 1995......................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
INTERIM FINANCIAL STATEMENTS
Balance Sheets, December 23, 1995 and June 29, 1996 (Unaudited)............................................ F-16
Statements of Operations, 26 weeks ended June 24, 1995 and 27 weeks ended June 29, 1996 (Unaudited)........ F-18
Statements of Stockholders' Equity (Deficit), 52 weeks ended June 24, 1995, 26 weeks ended December 23,
1995, and 27 weeks ended June 29, 1996 (Unaudited)....................................................... F-19
Statements of Cash Flows, 26 weeks ended June 24, 1995 and 27 weeks ended June 29, 1996 (Unaudited)........ F-20
Notes to Interim Financial Statements (Unaudited).......................................................... F-21
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
COLEMAN NATURAL PRODUCTS, INC.:
We have audited the accompanying consolidated balance sheets of Coleman
Natural Products, Inc. and subsidiaries (the Company) as of June 24, 1995 and
December 23, 1995, and the related consolidated statements of operations,
stockholders' deficit, and cash flows for the 52 weeks ended June 26, 1993, June
25, 1994 and June 24, 1995 and for the 26 weeks ended December 23, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Coleman
Natural Products, Inc. and subsidiaries as of June 24, 1995 and December 23,
1995, and the results of their operations and their cash flows for the 52 weeks
ended June 26, 1993, June 25, 1994 and June 24, 1995 and for the 26 weeks ended
December 23, 1995, in conformity with generally accepted accounting principles.
Denver, Colorado
July 19, 1996, except as to
note 13, which is as
of September 17, 1996
F-2
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 24, DECEMBER 23,
1995 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 296,591 $ 21,531
Trade accounts receivable net of allowance for doubtful accounts of $15,000 at June
24, 1995 and $20,000 at December 23, 1995 (notes 4 and 6)........................ 3,102,229 3,297,290
Other receivables.................................................................. 94,199 101,476
Inventories (notes 3, 4 and 7)..................................................... 2,971,365 992,211
Deposits on cattle purchases (notes 7 and 12)...................................... 248,360 198,902
Prepaid expenses................................................................... 25,516 36,209
Deferred tax assets (note 5)....................................................... -- 645,000
------------ ------------
Total current assets............................................................. 6,738,260 5,292,619
------------ ------------
Property and equipment:
Machinery and equipment............................................................ 379,424 384,663
Office furniture and equipment..................................................... 631,601 750,188
Leasehold improvements............................................................. 157,366 258,599
Vehicles........................................................................... 18,161 29,243
------------ ------------
1,186,552 1,422,693
Less accumulated depreciation...................................................... 699,088 766,425
------------ ------------
Net property and equipment....................................................... 487,464 656,268
------------ ------------
Other assets......................................................................... 102,879 80,977
------------ ------------
$ 7,328,603 $6,029,864
------------ ------------
------------ ------------
</TABLE>
(CONTINUED)
F-3
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
JUNE 24, DECEMBER 23,
1995 1995
------------- -------------
<S> <C> <C>
Current liabilities:
Cash overdrafts................................................................... $ -- $ 211,144
Accounts payable.................................................................. 887,746 978,432
Accrued expenses.................................................................. 596,986 390,951
Notes payable (note 4)............................................................ 3,470,621 1,161,084
Obligation under capital lease.................................................... 26,495 13,745
------------- -------------
Total current liabilities....................................................... 4,981,848 2,755,356
------------- -------------
Mandatorily redeemable preferred stock, $.001 par value, 5,000,000 shares
authorized, 3,340,826 and 3,355,860 shares issued and outstanding at June 24, 1995
and December 23, 1995, respectively; aggregate liquidation preference of
$3,355,860 at December 23, 1995 (note 8).......................................... 3,340,826 3,355,860
Stockholders' deficit:
Common stock, $.001 par value, authorized 15,000,000 shares; issued 1,549,403
shares at June 24, 1995 and 1,651,650 shares at December 23, 1995 (note 13)..... 1,549 1,652
Additional paid-in capital........................................................ 1,179,862 1,005,083
Accumulated deficit............................................................... (2,175,482) (1,088,087)
------------- -------------
Total stockholders' deficit..................................................... (994,071) (81,352)
------------- -------------
Commitments (note 12)
$ 7,328,603 $ 6,029,864
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 WEEKS ENDED 26 WEEKS
------------------------------------------- ENDED
JUNE 26, JUNE 25, JUNE 24, DECEMBER 23,
1993 1994 1995 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales (note 6).................................. $ 30,410,215 $ 34,558,685 $ 43,002,412 $ 28,790,675
Cost of goods sold (note 7)......................... 27,106,128 31,729,728 38,367,453 26,094,755
------------- ------------- ------------- -------------
Gross profit.................................... 3,304,087 2,828,957 4,634,959 2,695,920
------------- ------------- ------------- -------------
Operating expenses:
Selling........................................... 1,302,797 1,322,918 1,403,205 841,075
General and administrative........................ 1,440,662 1,685,240 2,367,005 1,294,190
------------- ------------- ------------- -------------
2,743,459 3,008,158 3,770,210 2,135,265
------------- ------------- ------------- -------------
Operating income (loss)......................... 560,628 (179,201) 864,749 560,655
------------- ------------- ------------- -------------
Other income (expense):
Interest expense.................................. (269,409) (200,855) (256,483) (118,826)
Other, net........................................ (1,663) 9,748 11,471 566
------------- ------------- ------------- -------------
(271,072) (191,107) (245,012) (118,260)
------------- ------------- ------------- -------------
Income (loss) from continuing operations before
income taxes.................................. 289,556 (370,308) 619,737 442,395
Income tax benefit (note 5)......................... -- -- -- 645,000
------------- ------------- ------------- -------------
Income (loss) from continuing operations........ 289,556 (370,308) 619,737 1,087,395
Discontinued operations (note 2):
Loss from operations of Coleman Originals, Inc.... -- (654,283) (61,015) --
Loss on disposal of Coleman Originals, Inc........ -- -- (54,088) --
------------- ------------- ------------- -------------
Net income (loss)............................... $ 289,556 $ (1,024,591) $ 504,634 $ 1,087,395
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income (loss) attributable to common stock...... $ 222,090 $ (1,076,885) $ 477,258 $ 771,009
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings (loss) per share........................... $ .16 $ (.73) $ .28 $ .42
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common and common equivalent shares
outstanding....................................... 1,415,497 1,479,077 1,686,250 1,825,982
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK (NOTE 13) ADDITIONAL TOTAL
------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 27, 1992...................... 1,278,650 $ 953,293 $ -- $ (1,945,081) $ (991,788)
Accretion of preferred stock................ -- (67,466) -- -- (67,466)
Net income.................................. -- -- -- 289,556 289,556
------------ ----------- ----------- ------------ ------------
BALANCE, JUNE 26, 1993...................... 1,278,650 885,827 -- (1,655,525) (769,698)
Common stock issued for cash................ 270,753 375,254 -- -- 375,254
Accretion of preferred stock................ -- (52,294) -- -- (52,294)
Net loss.................................... -- -- -- (1,024,591) (1,024,591)
------------ ----------- ----------- ------------ ------------
BALANCE, JUNE 25, 1994...................... 1,549,403 1,208,787 -- (2,680,116) (1,471,329)
Change in par value of common stock......... -- (1,207,238) 1,207,238 -- --
Accretion of preferred stock................ -- -- (27,376) -- (27,376)
Net income.................................. -- -- -- 504,634 504,634
------------ ----------- ----------- ------------ ------------
BALANCE, JUNE 24, 1995...................... 1,549,403 1,549 1,179,862 (2,175,482) (994,071)
Common stock issued for cash................ 102,247 103 141,607 -- 141,710
Cash dividends paid on preferred stock...... -- -- (301,352) -- (301,352)
In-kind dividends paid on preferred stock... -- -- (15,034) -- (15,034)
Net income.................................. -- -- -- 1,087,395 1,087,395
------------ ----------- ----------- ------------ ------------
BALANCE, DECEMBER 23, 1995.................. 1,651,650 $ 1,652 $ 1,005,083 $ (1,088,087) $ (81,352)
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
52 WEEKS ENDED 26 WEEKS
----------------------------------------- ENDED
JUNE 26, JUNE 25, JUNE 24, DECEMBER 23,
1993 1994 1995 1995
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 289,556 $ (1,024,591) $ 504,634 $ 1,087,395
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization.......................... 134,241 127,862 142,640 67,337
Loss (gain) on sale of property and equipment.......... (15,032) 1,226 1,602 --
Deferred income tax benefit............................ -- -- -- (645,000)
Changes in operating assets and liabilities:
Trade accounts receivable, net....................... (308,253) (334,570) (945,497) (195,061)
Other receivables.................................... (54,431) 1,123 (11,651) (7,277)
Inventories.......................................... 3,236,227 37,674 (833,651) 1,979,154
Deposits on cattle purchases......................... (387,020) 208,859 327,435 49,458
Prepaid expenses..................................... (56,227) 84,703 (9,587) (10,693)
Other assets......................................... (14,574) 21,500 (21,902) 21,902
Accounts payable and accrued expenses................ 342,016 522,750 169,225 (115,349)
------------- ------------- ----------- -------------
Net cash provided (used) by operating activities... 3,166,503 (353,464) (676,752) 2,231,866
------------- ------------- ----------- -------------
Cash flows from investing activities:
Purchase of equipment.................................... (190,720) (212,834) (171,561) (236,141)
Proceeds from the sale of equipment...................... 23,250 58,397 24,250 --
Increase in other assets................................. -- (23,183) -- --
------------- ------------- ----------- -------------
Net cash used by investing activities.............. (167,470) (177,620) (147,311) (236,141)
------------- ------------- ----------- -------------
Cash flows from financing activities:
Net borrowings (payments) under notes
payable................................................ 144,139 (7,440) 879,079 (2,309,537)
Increase (decrease) in cash overdrafts................... (97,898) -- -- 211,144
Cash dividends paid...................................... -- -- -- (301,352)
Payments on long-term debt and capital leases............ (3,007,253) (34,230) (23,436) (12,750)
Proceeds from the issuance of common stock............... -- 375,254 -- 141,710
Proceeds from the issuance of preferred stock............ -- 225,856 -- --
------------- ------------- ----------- -------------
Net cash provided (used) by financing activities... (2,961,012) 559,440 855,643 (2,270,785)
------------- ------------- ----------- -------------
Increase (decrease) in cash and cash equivalents... 38,021 28,356 31,580 (275,060)
Cash and cash equivalents at beginning of period........... 198,634 236,655 265,011 296,591
------------- ------------- ----------- -------------
Cash and cash equivalents at end of period................. $ 236,655 $ 265,011 $ 296,591 $ 21,531
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Supplemental disclosures of cash flow information-- cash
paid during the period for interest...................... $ 370,956 $ 197,347 $ 256,139 $ 118,826
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
Supplemental disclosure of noncash investing and financing
activities--equipment acquired under capital leases...... $ -- $ -- $ 15,970 $ 29,470
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 24, 1995 AND DECEMBER 23, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Coleman Natural Products, Inc. and subsidiaries (the Company) is engaged in
producing, packaging and marketing fresh branded natural beef and lamb products,
primarily in the United States. The Company's branded natural beef and lamb
products are produced from cattle and lamb raised from birth without
antibiotics, feed additives, hormones, or other growth-promoting drugs. The
principal customers of the Company are natural food supermarkets and
conventional grocery supermarkets.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
Coleman Natural Meats, Inc., Coleman Originals, Inc., Coleman Environmental
Systems, Inc., Coleman Packing Company and Rocky Mountain Pure Cattle Company.
All significant intercompany balances and transactions have been eliminated in
consolidation.
CHANGE IN YEAR END
Effective for the 26 weeks ended December 23, 1995, the Company changed its
fiscal year to the 52/53 week period ending on the last Saturday in December.
The years ended June 26, 1993, June 25, 1994 and June 24, 1995 each included 52
weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers treasury bills,
commercial paper, certificates of deposit, and money market funds with a
maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
The provision for doubtful accounts was $10,091, none, $71,264, and $5,582
and uncollectible accounts charged to the allowance were $57,898, none, $106,265
and $582 for the 52 weeks ended June 26, 1993, June 25, 1994 and June 24, 1995
and for the 26 weeks ended December 23, 1995, respectively. The allowance for
doubtful accounts was $97,807 as of June 26, 1992 and $50,000 as of June 27,
1993.
F-8
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 24, 1995 AND DECEMBER 23, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Dressed meat, meat products, and by-product inventories are stated at the
lower of cost, based on a weighted average cost basis, or market.
Cattle inventories are stated at the lower of cost, based on a specific lot
identification, or market, and include feed and freight costs.
Losses on cattle purchase commitments are recorded when the price of the
purchase commitments exceeds the current market price.
Supply inventories are stated at the lower of cost (first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided
principally using the straight-line method over the estimated useful lives of
the assets, which range from 3 to 7 years.
Machinery and equipment includes equipment acquired under capital leases
with a net book value of $26,556 at June 24, 1995 and $17,400 at December 23,
1995.
On an ongoing basis, the Company assesses the recoverability of property and
equipment taking into consideration any events or circumstances which may have
diminished its fair value. Impairment losses are recorded when indications of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Based on current
circumstances, management has determined that no indicators of impairment exist.
SALES
Sales are recognized upon shipment to the customer and are recorded net of
discounts granted to customers for in-store promotions.
PER SHARE DATA
Earnings (loss) per share is computed based on net income (loss) for the
period reduced by dividends on and accretion of mandatorily redeemable preferred
stock, divided by the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares include stock
options and warrants. Common and common equivalent shares issued at prices below
the anticipated public offering price during the 12-month period prior to the
proposed offering have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method and the
anticipated initial public offering price).
The weighted average number of common and common equivalent shares
outstanding was 1,415,497, 1,479,077, and 1,686,250 for the 52 weeks ended June
26, 1993, June 25, 1994 and June 24, 1995, respectively, and 1,825,982 for the
26 weeks ended December 23, 1995.
F-9
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 24, 1995 AND DECEMBER 23, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES (SFAS No.
109). Under the asset and liability method of SFAS No. 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period that includes the enactment date.
FUTURES CONTRACTS
From time to time, the Company manages the risk associated with fluctuations
in the price of cattle through the use of futures contracts. Gains and losses
from hedging transactions are recognized in the period the corresponding cattle
purchases or sales are recorded. Hedging transactions to date have not been
significant.
(2) DISCONTINUED OPERATIONS
During the 52 weeks ended June 25, 1994, the Company discontinued operations
of its subsidiary, Coleman Originals, Inc., a producer of shelf-stable sauces.
Throughout the 52 weeks ended June 24, 1995, the Company continued to fill
customer orders to liquidate its inventory. During the 52 weeks ended June 24,
1995, all machinery and equipment was sold, trade receivables were collected,
and trade accounts payable were paid. The loss on disposal represents the loss
on the inventory which could not be sold and was donated to charity, and
miscellaneous costs associated with the disposition of the assets. The Company
reported total cumulative losses of this former subsidiary of $769,386. These
losses were recognized over a period commencing the quarter ended December 1993
and terminating the quarter ended March 1995. An additional loss of $54,088 from
the disposal of this former subsidiary was reported during the quarter ended
March 1995.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 24, DECEMBER 23,
1995 1995
------------ ------------
<S> <C> <C>
Live cattle (3,108 and 249 head, respectively)............................. $ 2,341,650 $ 181,164
Dressed meat and by-products............................................... 526,595 722,758
Supplies................................................................... 103,120 88,289
------------ ------------
$ 2,971,365 $ 992,211
------------ ------------
------------ ------------
</TABLE>
F-10
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 24, 1995 AND DECEMBER 23, 1995
(4) NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
JUNE 24, DECEMBER 23,
1995 1995
------------ ------------
<S> <C> <C>
Notes payable under line of credit, variable interest rate of .5% over the
bank's prime rate (8.5% at December 23, 1995), interest payable
monthly.................................................................. $ 1,495,186 $1,161,084
Notes payable to cattle feeders and ranchers, variable interest rates
ranging from 1.5% to 2% over prime rates charged by various banks........ 1,975,435 --
------------ ------------
$ 3,470,621 $1,161,084
------------ ------------
------------ ------------
</TABLE>
The Company has a $3,100,000 line of credit under a loan agreement with a
bank which expires November 1, 1996. The line consists of an operating line of
credit with a maximum amount of $2,865,000 and a letter of credit line with a
maximum amount of $235,000. Advances under the line are limited to amounts
determined under a borrowing base formula contained in the agreement. Maximum
borrowings available under the line were approximately $2,587,000 of which
$1,161,084 was outstanding at December 23, 1995. Advances under the agreement
are collateralized by the Company's accounts receivable and inventories. The
agreement contains provisions requiring the Company to maintain certain
financial ratios and provides for limits on the amount of additional debt,
capital expenditures and the payment of dividends.
Notes payable to cattle feeders and ranchers are secured by the related
cattle and are due when the cattle are delivered to the Company for processing.
(5) INCOME TAXES
The income tax benefit for the six months ended December 23, 1995 represents
a deferred federal tax benefit of $645,000.
F-11
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 24, 1995 AND DECEMBER 23, 1995
(5) INCOME TAXES (CONTINUED)
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
the deferred taxes at June 24, 1995 and December 23, 1995 related to the
following:
<TABLE>
<CAPTION>
JUNE 24, DECEMBER 23,
1995 1995
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................................................... $ 662,000 $ 589,000
Accrued items, principally due to loss on fixed price contracts and severance pay,
deductible when paid for tax purposes............................................. 94,000 50,000
Property and equipment, principally due to differences in depreciation.............. 56,000 --
Inventories, due to additional costs inventoried for tax purposes and obsolescence
reserves.......................................................................... 39,000 9,000
Accounts receivable, due to the allowance for doubtful accounts..................... 5,000 7,000
----------- ------------
Total gross deferred tax assets................................................... 856,000 655,000
Less valuation allowance.............................................................. (856,000) --
----------- ------------
Net deferred tax assets........................................................... -- 655,000
Deferred tax liability--property and equipment, principally due to differences in
depreciation........................................................................ -- 10,000
----------- ------------
Net deferred tax assets........................................................... $ -- $ 645,000
----------- ------------
----------- ------------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. As of June 24, 1995,
management believed that the benefits of future deductible differences might not
be realized, due to the losses incurred in recent years and the uncertainty
about future earnings. Accordingly, a valuation allowance was provided for the
net deferred tax assets at that date.
As of December 23, 1995, based upon projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes the "more likely than not" criteria has been satisfied at that date,
and that the benefits of future deductible differences will be realized.
Accordingly, the remaining valuation allowance was reversed to income for the 26
weeks ended December 23, 1995.
F-12
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 24, 1995 AND DECEMBER 23, 1995
(5) INCOME TAXES (CONTINUED)
Total income tax expense differed from the amounts computed by applying the
U.S. federal statutory income tax rate of 34% for the 52 weeks ended June 26,
1993, June 25, 1994 and June 24, 1995 and for the 26 weeks ended December 23,
1995 to income (loss) before income taxes as a result of the following:
<TABLE>
<CAPTION>
52 WEEKS ENDED 26 WEEKS
------------------------------------- ENDED
JUNE 26, JUNE 25, JUNE 24, DECEMBER 23,
1993 1994 1995 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Income tax expense (benefit) computed at the statutory
rate...................................................... $ 98,000 $ (348,000) $ 172,000 $ 150,000
Nondeductible expenses...................................... 11,000 11,000 8,000 8,000
Increase (decrease) in valuation allowance for net deferred
tax assets................................................ (109,000) 337,000 (180,000) (856,000)
Other....................................................... -- -- -- 53,000
----------- ----------- ----------- ------------
Total income tax benefit.................................. $ -- $ -- $ -- $ (645,000)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
The Company has net operating loss carryforwards of approximately $1,731,000
which, unless previously utilized, will expire as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
2006............................................................................ $ 724,000
2007............................................................................ 523,000
2008............................................................................ 5,000
2009............................................................................ 479,000
------------
$ 1,731,000
------------
------------
</TABLE>
(6) TRANSACTIONS WITH MAJOR CUSTOMERS
The Company had net sales to five major customers for the 52 weeks ended
June 26, 1993 amounting to $11,252,327 and to four major customers for the 52
weeks ended June 25, 1994 and June 24, 1995 amounting to $15,927,000 and
$24,245,500, respectively. Net sales to these customers for the 52 weeks ended
June 26, 1993, June 25, 1994 and June 24, 1995 represent 36%, 45% and 56% of net
sales, respectively. During the 26 weeks ended December 23, 1995, the Company
had net sales to five customers amounting to $18,172,284 or 63% of net sales.
Trade accounts receivable included balances of four major customers at June
24, 1995 totaling $1,469,030. Trade accounts receivable include balances of five
major customers totaling $1,633,210 at December 23, 1995.
F-13
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 24, 1995 AND DECEMBER 23, 1995
(7) RELATED PARTY TRANSACTIONS
The Company has agreements with Coleman Ranches, Inc., an affiliate, to
purchase up to 1,000 head of cattle per crop year comprised of 500 organic
feeder cattle at a fixed price per pound and up to 500 head of natural cattle at
a formula price based on current market and for the use of Coleman Ranches,
Inc.'s name in marketing its product. These agreements expire in December 1996
and April 1999, respectively.
The consolidated financial statements include the following balances
relating to these agreements:
<TABLE>
<CAPTION>
JUNE 26, JUNE 25, JUNE 24, DECEMBER 23,
1993 1994 1995 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Inventories................................................. $ 212,931 $ 426,039 $ 388,525 $ 211,287
Deposits on cattle purchases (1,579, 1,458, 1,401, and 865
head, respectively)....................................... 87,900 56,200 61,560 60,950
Cost of goods sold (for the period ended)................... 1,156,556 996,167 526,614 285,090
</TABLE>
(8) MANDATORILY REDEEMABLE PREFERRED STOCK
The Company authorized and issued 3,114,970 shares of no par value Series A
Preferred Stock on November 21, 1990. The shares were issued at a discount and
the preferred stock balance was accreted annually using the interest method of
amortization such that the book value of the preferred shares equaled the
redemption value as of March 31, 1995, the original redemption date. During the
period November 21, 1990 to October 6, 1995, the Company entered into various
agreements with the preferred stockholders to waive the payment of dividends for
the period from November 18, 1993 through January 1, 1995 and to extend the
redemption dates by issuing warrants to the preferred stockholders (see note 9).
Effective January 1, 1995, the Company is required to pay a quarterly
dividend of 9% per annum, in cash or common stock, on the Series A Preferred
Stock outstanding. In the 26 weeks ended December 23, 1995, the Company paid
$301,352 of dividends in cash.
Effective October 6, 1995, the Company entered into an agreement with the
holders of the Series A Preferred Stock to extend the redemption date of the
preferred stock to October 31, 1996. The Company agreed to pay an additional
dividend of 6% per annum payable quarterly in shares of Series A Preferred Stock
during the term of the extension.
During the 52 weeks ended June 25, 1994, the Company issued 225,856 shares
of Series A Preferred Stock for $225,856.
The preferred stockholders and certain common stockholders have preemptive
rights relating to any additional preferred stock offered by the Company.
(9) STOCK OPTION PLANS AND WARRANTS
The Company has a non-qualified stock option plan and an incentive stock
option plan. Up to 334,929 shares of common stock may be issued under the plans
at December 23, 1995. The option prices and terms,
F-14
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 24, 1995 AND DECEMBER 23, 1995
(9) STOCK OPTION PLANS AND WARRANTS (CONTINUED)
not to exceed 10 years, are determined by the Board of Directors. Options
granted vest over four years. Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
SHARES UNDER
OPTION PRICE RANGE
------------- -------------
<S> <C> <C>
Options outstanding at June 27, 1992...................................... 114,276 $ 1.17 - 1.39
Canceled................................................................ (21,859) 1.17
-------------
Options outstanding at June 26, 1993...................................... 92,417 1.17 - 1.39
Granted................................................................. 16,533 1.39
Canceled................................................................ (64,182) 1.17 - 1.39
-------------
Options outstanding at June 25, 1994...................................... 44,768 1.17 - 1.39
Granted................................................................. 175,714 1.39
Canceled................................................................ (23,615) 1.39
-------------
Options outstanding at June 24, 1995...................................... 196,867 1.39
Granted................................................................. 48,142 1.58
-------------
Options outstanding at December 23, 1995.................................. 245,009 1.39 - 1.58
-------------
-------------
Options exercisable at December 23, 1995.................................. 60,297
-------------
-------------
</TABLE>
On November 21, 1990, the Company issued warrants to purchase 81,339 shares
of common stock in conjunction with the conversion of subordinated debentures to
preferred stock. These warrants are exercisable at $1.3849 per share and expire
on November 21, 1998. The warrants provide that the exercise price may be paid
in cash or by redeeming shares of common stock issuable upon exercise of such
warrants, valued at the fair market value of the common stock on the date of
exercise.
On June 25, 1992 and November 18, 1993, the Company issued warrants to
purchase shares of common stock and warrants to purchase 82,470 shares of common
stock in conjunction with the waiver of preferred stock dividends payable for
the period from July 1, 1992 to June 30, 1993 and from July 1, 1993 through
November 18, 1993, respectively. These warrants are exercisable at $1.3859 per
share and expire on June 25, 1998 and November 18, 1998, respectively. The
warrants provide that the exercise price may be paid in cash or by redeeming
shares of common stock issuable upon exercise of such warrants, valued at the
fair market value of the common stock on the date of exercise.
(10) EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan which is qualified under Section
401(a) of the Internal Revenue Code. All employees are eligible to participate
in the plan. Contributions to the plan are made through employee salary
reductions and discretionary employer matching contributions. No employer
contributions were made to the plan for the 52 weeks ended June 26, 1993 and
June 25, 1994, or for the 26 weeks ended December 23, 1995. The Company
contributed $23,905 to the plan for the 52 weeks ended June 24, 1995.
F-15
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 24, 1995 AND DECEMBER 23, 1995
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, (SFAS No. 107) requires that all entities
disclose the fair value of certain on and off-balance sheet financial
instruments in their financial statements. SFAS No. 107 defines the fair value
of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. The carrying amounts
of certain of the Company's financial instruments, including cash and cash
equivalents, trade accounts receivable, other receivables, cash overdrafts, and
accounts payable, approximate fair value because of their short maturity. The
fair value of notes payable approximate the carrying value because of the short
maturity of these notes and because the notes bear interest at a variable
interest rate.
(12) COMMITMENTS
At December 23, 1995, the Company had outstanding agreements with cattle
suppliers to purchase 19,858 head of cattle at fixed prices ranging from $1.11
to $1.23 per carcass pound for cattle to be slaughtered from January 1996 to
January 1997. Certain of the purchase commitments are in excess of market by an
aggregate of approximately $127,000 at December 23, 1995, which amount has been
recorded as an increase in accrued expenses and an increase in cost of sales for
the 26 weeks ended December 23, 1995.
The Company has deposits with cattle suppliers of between $30 and $105 per
head of cattle that the Company has contracted to purchase. In the event the
Company fails to purchase the cattle, the deposits are forfeited. At December
23, 1995, the Company has deposits totaling $198,902 on 3,212 head of cattle.
The Company has an operating lease expiring in 1997 for part of its
operating facilities for which future minimum rental payments are as follows:
<TABLE>
<S> <C>
1996...................................................... $ 154,800
1997...................................................... 154,800
---------
$ 309,600
---------
---------
</TABLE>
For the 52 weeks ended June 26, 1993, June 25, 1994 and June 24, 1995, and
for the 26 weeks ended December 23, 1995 rent expense was approximately
$147,000, $158,000, $155,900 and $77,400, respectively.
(13) SUBSEQUENT EVENTS
On September 6, 1996, the stockholders approved an increase in the
authorized number of shares of common stock to 15,000,000 and an increase in the
authorized number of shares of preferred stock to 5,000,000, par value $.001 per
share. Also on that date, the Board of Directors of the Company declared a 2.85
to 1 split of the Company's common stock, to be effected in the form of a stock
dividend. In the accompanying consolidated financial statements, all numbers of
common shares and per share amounts have been restated to reflect the common
stock split retroactively.
Effective September 6, 1996, the Company entered into an agreement with the
holders of the Series A Preferred Stock to extend the redemption date of the
preferred stock to November 30, 1996. The Company agreed to pay an additional
dividend of 6% per annum payable quarterly in shares of Series A Preferred Stock
during the term of the extension.
F-16
<PAGE>
COLEMAN NATURAL PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 24, 1995 AND DECEMBER 23, 1995
(13) SUBSEQUENT EVENTS (CONTINUED)
Effective September 6, 1996, the Board of Directors also amended and
restated the Stock Option Plan. Up to 334,929 shares of common stock may be
issued under this plan. This plan permits the granting of incentive stock
options and nonqualified stock options.
Effective September 6, 1996, the Board of Directors adopted and approved an
Omnibus Stock and Incentive Plan (the "Omnibus Plan") whereby 332,000 shares of
common stock are reserved for issuance. This plan permits the granting of
nonqualified stock options, incentive stock options, stock appreciation rights,
phantom stock rights, restricted stock, performance units, and performance
shares.
On September 16, 1996, options to purchase 5,700 shares of common stock at
$9.50 per share were granted under the Omnibus Plan.
F-17
<PAGE>
COLEMAN NATURAL PRODUCTS, INC.
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 23, JUNE 29,
1995 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 21,531 $ --
Trade accounts receivable, net of allowance for doubtful accounts of $20,000 at
December 23, 1995 and $75,000 at June 29, 1996................................... 3,297,290 2,782,820
Other receivables.................................................................. 101,476 113,774
Inventories........................................................................ 992,211 1,418,644
Deposits on cattle purchases....................................................... 198,902 45,553
Prepaid expenses................................................................... 36,209 157,247
Deferred tax assets................................................................ 645,000 407,000
------------ ------------
Total current assets............................................................. 5,292,619 4,925,038
------------ ------------
Property and equipment:
Machinery and equipment............................................................ 384,663 505,067
Office furniture and equipment..................................................... 750,188 834,537
Leasehold improvements............................................................. 258,599 261,166
Vehicles........................................................................... 29,243 35,471
------------ ------------
1,422,693 1,636,241
Less accumulated depreciation...................................................... 766,425 848,076
------------ ------------
Net property and equipment......................................................... 656,268 788,165
------------ ------------
Other assets......................................................................... 80,977 146,740
------------ ------------
$6,029,864 $ 5,859,943
------------ ------------
------------ ------------
</TABLE>
(CONTINUED)
F-18
<PAGE>
COLEMAN NATURAL PRODUCTS, INC.
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DECEMBER 23, JUNE 29,
1995 1996
------------- ------------
<S> <C> <C>
Current liabilities:
Cash overdrafts.................................................................... $ 211,144 $ 358,725
Accounts payable................................................................... 978,432 949,058
Accrued expenses................................................................... 390,951 313,568
Notes payable (note 2)............................................................. 1,161,084 671,174
Obligation under capital lease..................................................... 13,745 3,323
------------- ------------
Total current liabilities........................................................ 2,755,356 2,295,848
------------- ------------
Mandatorily redeemable preferred stock, $.001 par value, 5,000,000 shares authorized,
3,355,860 and 3,400,962 shares issued and outstanding at December 23, 1995 and June
29, 1996, respectively; aggregate liquidation preference of $3,400,962 at June 29,
1996............................................................................... 3,355,860 3,400,962
Stockholders' equity (deficit):
Common stock, $.001 par value, authorized 15,000,000 shares; issued 1,651,650
shares at December 23, 1995 and June 29, 1996 (note 4)........................... 1,652 1,652
Additional paid-in capital......................................................... 1,005,083 807,937
Accumulated deficit................................................................ (1,088,087) (646,456)
------------- ------------
Total stockholders' equity (deficit)............................................. (81,352) 163,133
------------- ------------
$ 6,029,864 $ 5,859,943
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
COLEMAN NATURAL PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS 27 WEEKS
ENDED ENDED
JUNE 24, 1995 JUNE 29, 1996
------------- -------------
<S> <C> <C>
Net sales.......................................................................... $ 23,504,759 $ 27,122,192
Cost of goods sold................................................................. 20,975,347 24,151,403
------------- -------------
Gross profit................................................................... 2,529,412 2,970,789
------------- -------------
Operating expenses:
Selling.......................................................................... 773,805 835,495
General and administrative....................................................... 1,280,743 1,410,094
------------- -------------
2,054,548 2,245,589
------------- -------------
Operating income............................................................... 474,864 725,200
------------- -------------
Other income (expense):
Interest expense................................................................. (132,805) (55,101)
Other, net....................................................................... (1,581) 9,532
------------- -------------
(134,386) (45,569)
------------- -------------
Income from continuing operations before income taxes.......................... 340,478 679,631
Income tax expense................................................................. -- (238,000)
------------- -------------
Income from continuing operations.............................................. 340,478 441,631
Discontinued operations--loss on disposal of Coleman Originals, Inc................ (51,386) --
------------- -------------
Net income..................................................................... $ 289,092 $ 441,631
------------- -------------
------------- -------------
Net income attributable to common stock............................................ $ 276,920 $ 244,485
------------- -------------
------------- -------------
Earnings per share................................................................. $ .16 $ .12
------------- -------------
------------- -------------
Weighted average common and common equivalent shares outstanding................... 1,683,607 2,018,377
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
COLEMAN NATURAL PRODUCTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK (NOTE 4) ADDITIONAL STOCKHOLDERS'
------------------------ PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 25, 1994........................ 1,549,403 $ 1,208,787 $ -- $(2,680,116) $(1,471,329)
Change in par value of common stock........... -- (1,207,238) 1,207,238 -- --
Accretion of preferred stock.................. -- -- (27,376) -- (27,376)
Net income.................................... -- -- -- 504,634 504,634
----------- ----------- ----------- ------------ ------------
BALANCE, JUNE 24, 1995........................ 1,549,403 1,549 1,179,862 (2,175,482) (994,071)
Common stock issued for cash.................. 102,247 103 141,607 -- 141,710
Cash dividends paid on preferred stock........ -- -- (301,352) -- (301,352)
In-kind dividends paid on preferred stock..... -- -- (15,034) -- (15,034)
Net income.................................... -- -- -- 1,087,395 1,087,395
----------- ----------- ----------- ------------ ------------
BALANCE, DECEMBER 23, 1995.................... 1,651,650 1,652 1,005,083 (1,088,087) (81,352)
Cash dividends paid on preferred stock........ -- -- (152,044) -- (152,044)
In-kind dividends paid on preferred stock..... -- -- (45,102) -- (45,102)
Net income.................................... -- -- -- 441,631 441,631
----------- ----------- ----------- ------------ ------------
BALANCE, JUNE 29, 1996........................ 1,651,650 $ 1,652 $ 807,937 $ (646,456) $ 163,133
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
COLEMAN NATURAL PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS 27 WEEKS
ENDED JUNE ENDED JUNE
24, 1995 29, 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................ $ 289,092 $ 441,631
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation and amortization....................................................... 49,576 81,651
Loss (gain) on sale of property and equipment....................................... 1,000 (3,000)
Deferred income tax expense......................................................... -- 238,000
Changes in operating assets and liabilities:
Trade accounts receivable, net.................................................... (333,011) 514,470
Other receivables................................................................. 18,533 (12,298)
Inventories....................................................................... 91,225 (426,433)
Deposits on cattle purchases...................................................... (2,122) 153,349
Prepaid expenses.................................................................. (13,449) (121,038)
Other assets...................................................................... (21,902) (9,573)
Accounts payable and accrued expenses............................................. (113,269) (106,757)
----------- -----------
Net cash provided (used) by operating activities................................ (34,327) 750,002
----------- -----------
Cash flows from investing activities:
Purchase of equipment................................................................. (85,424) (213,548)
Proceeds from the sale of equipment................................................... 12,000 3,000
----------- -----------
Net cash used by investing activities........................................... (73,424) (210,548)
----------- -----------
Cash flows from financing activities:
Net borrowings (payments) under notes payable......................................... 40,971 (489,910)
Increase in cash overdrafts........................................................... -- 147,581
Cash dividends paid................................................................... -- (152,044)
Payments on long-term debt and capital leases......................................... (19,188) (10,422)
Deferred offering costs............................................................... -- (56,190)
----------- -----------
Net cash provided (used) by financing activities................................ 21,783 (560,985)
----------- -----------
Decrease in cash and cash equivalents........................................... (85,968) (21,531)
Cash and cash equivalents at beginning of period........................................ 382,559 21,531
----------- -----------
Cash and cash equivalents at end of period.............................................. $ 296,591 $ --
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
COLEMAN NATURAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 29, 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and the regulations of the Securities and Exchange Commission for
quarterly reporting. Accordingly, the financial statements do not include all
the information and notes required by generally accepted accounting principles
for complete financial statements. As a result, these unaudited financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto included herein. In the opinion of
management, all adjustments, consisting only of normal recurring accruals, have
been made which are necessary for a fair presentation of the financial position
of the Company and the results of its operations and cash flows. Operating
results for interim periods are not necessarily indicative of the results that
may be expected for the complete fiscal year.
On June 28, 1996, Coleman Natural Products, Inc. (the Parent), entered into
an agreement and plan of merger whereby each of its wholly-owned subsidiaries
merged with and into the Parent.
(2) NOTES PAYABLE
The Company maintains two credit facilities with a commercial bank under
revolving lines of credit, and has financed cattle purchases with notes payable
to cattle feeders and ranchers. Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 23, JUNE 29,
1995 1996
------------ ----------
<S> <C> <C>
Notes payable under line of credit, variable interest rate of .5% over the
bank's prime rate (8.75% at June 29, 1996), interest payable monthly....... $1,161,084 $ 2,000
Notes payable under line of credit, variable interest rate of .5% over the
bank's prime rate (8.75% at June 29, 1996), interest payable monthly....... -- 18,190
Notes payable to cattle feeders and ranchers, variable interest rates ranging
from .75% to 3% over prime rates charged by various banks.................. -- 650,984
------------ ----------
$1,161,084 $ 671,174
------------ ----------
------------ ----------
</TABLE>
The Company has entered into a loan agreement (loan agreement) which
provides for borrowings under a line of credit up to a maximum of $2.3 million,
with interest at .5% over the bank's prime rate. The loan agreement contains
provisions requiring the Company to maintain certain financial statement ratios
and provides for limits on the amount of additional debt, capital expenditures
and the payment of dividends. The line of credit expires on November 1, 1996,
and is subject to annual renewal. As of June 29, 1996, $2,000 was outstanding
under this line of credit.
In June 1996, the Company entered into an agreement (the new loan agreement)
covering an additional revolving line of credit for up to a maximum of $2
million, with interest at .5% over the bank's prime rate. The new loan agreement
is to be used to fund any margin calls associated with outstanding
F-23
<PAGE>
COLEMAN NATURAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 29, 1996
(UNAUDITED)
(2) NOTES PAYABLE (CONTINUED)
futures contracts. The new loan agreement expires on November 1, 1996, is
subject to annual renewal, and contains generally the same provisions as the
loan agreement. As of June 29, 1996, $18,190 was outstanding under this line of
credit.
Advances under the agreement are collateralized by the Company's accounts
receivable and inventories. Maximum borrowings available on the loan agreement
and the new loan agreement are limited to an amount which is based on a formula
of eligible accounts receivable, cattle inventory, and meat inventory. Maximum
borrowings under the lines of credit totaled $2.5 million at June 29, 1996.
(3) STOCK OPTIONS
During the 27 weeks ended June 29, 1996, options to purchase 3,700 shares of
common stock were issued at exercise prices ranging from $7.05 to $9.58.
(4) SUBSEQUENT EVENTS
On September 6, 1996, the stockholders approved an increase in the
authorized number of shares of common stock to 15,000,000 and an increase in the
authorized number of shares of preferred stock to 5,000,000, par value $.001 per
share. Also on that date, the Board of Directors of the Company declared a 2.85
to 1 split of the Company's common stock, to be effected in the form of a stock
dividend. In the accompanying financial statements, all numbers of common shares
and per share amounts have been restated to reflect the common stock split
retroactively.
Effective September 6, 1996, the Company entered into an agreement with the
holders of the Series A Preferred Stock to extend the redemption date of the
preferred stock to November 30, 1996. The Company agreed to pay an additional
dividend of 6% per annum payable quarterly in shares of Series A Preferred Stock
during the term of the extension.
Effective September 6, 1996, the Board of Directors also amended and
restated the Stock Option Plan. Up to 334,929 shares of common stock may be
issued under this plan. This plan permits the granting of incentive stock
options and nonqualified stock options.
Effective September 6, 1996, the Board of Directors adopted and approved an
Omnibus Stock and Incentive Plan (the "Omnibus Plan") whereby 332,000 shares of
common stock are reserved for issuance. This plan permits the granting of
nonqualified stock options, incentive stock options, stock appreciation rights,
phantom stock rights, restricted stock, performance units, and performance
shares.
On September 16, 1996, options to purchase 5,700 shares of common stock at
$9.50 per share were granted under the Omnibus Plan.
F-24
<PAGE>
[Artwork/Photos with chart
on Coleman's production process]
<PAGE>
[COLEMAN LOGO IN COLOR WITH MOUNTAINS AND CATTLE,
WITH WORDS, "THE BEGINNING."]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than underwriting discounts
and commissions) of the issuance and distribution of the securities being
registered, all of which will be paid by the Registrant.
<TABLE>
<S> <C>
SEC registration fee...................................... $ 7,416
NASD filing fee........................................... 2,651
Nasdaq listing Fee........................................ 21,762
Blue Sky filing fees and expenses......................... 3,000
Printing and engraving expenses........................... 110,000
Legal fees and expenses................................... 250,000
Accounting fees and expenses.............................. 65,000
Transfer agent and registrar fees......................... 10,000
Premium on directors and officers liability insurance..... 100,000
Miscellaneous............................................. 30,171
---------
Total................................................... $ 600,000
---------
---------
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
indemnification of directors, officers, employees and agents of corporations
under certain conditions and subject to certain limitations. The Registrant's
Certificate of Incorporation and Bylaws include provisions to require the
Registrant to indemnify its directors and officers to the fullest extent
permitted by the DGCL, including circumstances in which indemnification is
otherwise discretionary. The Registrant has entered into indemnification
agreements with each of its directors and officers to effect such
indemnification obligations. In addition, the Registrant maintains directors'
and officers' liability coverage to insure its indemnification of its directors
and officers.
Section 10 of the Underwriting Agreement filed as Exhibit 1.1 hereto
provides for the indemnification by the Underwriters of the Registrant and its
directors and officers, and by the Registrant of the Underwriters, for certain
liabilities arising under the Securities Act of 1933, as amended (the "Act"), or
otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant has issued unregistered
securities in the transactions described below. Securities issued in such
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Act, relating to sales by an issuer not
involving any public offering, or under Rule 701 under the Act. The sales of
securities were made without the use of an underwriter and the certificates
evidencing the shares bear a restrictive legend permitting the transfer thereof
only upon registration of the shares or an exemption under the Act. The prices
and number of shares set forth below have been adjusted to reflect a 2.85:1
split of the Company's Common Stock in September 1996.
(1) On August 7, 1996, the Registrant issued an aggregate of 5691 shares of
Common Stock to Lee N. Arst in heir of a $35,000 cash bonus.
II-1
<PAGE>
(2) Between September , 1993 and September 16, 1996, the Registrant issued
an aggregate of 556 shares of Common Stock to an employee, at a price of $1.3859
per share for aggregate consideration of $771, pursuant to the exercise of an
option granted under the Company's Amended and Restated Stock Option Plan.
(3) In May 1995, the Registrant issued 102,247 shares of Common Stock to Lee
N. Arst. The purchase price was approximately $1.3859 per share for an aggregate
consideration of $141,710.
(4) In May 1994, the Registrant issued an aggregate of 216,458 shares of
Common Stock to five sophisticated venture capital investors and two individual
investors. The purchase price was approximately $1.3859 per share, for an
aggregate consideration of $300,002, paid in cash.
(5) In October 1993, the Registrant issued an aggregate of 225,856 shares of
Series A Preferred Stock and 54,295 shares of Common Stock to five sophisticated
venture capital investors and two individual investors. The purchase price was
$1.00 per share of Series A Preferred Stock and approximately $1.3859 per share
of Common Stock, for an aggregate consideration of $301,107, paid in cash. The
Registrant also issued Warrants to purchase an aggregate of 82,470 shares of
Common Stock at an exercise price of approximately $1.3859 per share to the five
venture capital investors and one of the individual investors.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1 Specimen Common Stock Certificate.*
5.1 Opinion of Ireland, Stapleton, Pryor & Pascoe, P.C.*
10.1 Amended and Restated Stock Option Plan.
10.2 Omnibus Stock and Incentive Plan
10.3 Form of Indemnification Agreement with directors and executive officers of the Registrant.
10.4 Contract dated May 14, 1996, between Cervi Ranches, Inc. and Registrant (as successor by merger
to Coleman Natural Meats, Inc.).
10.5 Western Food Center Lease Agreement dated July 11, 1989, between the Registrant (as successor
by merger to Coleman Natural Meats, Inc.) and Norwest Bank Denver, N.A. (f/k/a United Bank of
Denver, N.A.), together with Agreement to Amend and Extend Lease between said parties.
10.6 Amended and Restated Registration and Preemptive Rights Agreement dated May 25, 1995, among the
Registrant, Melvin Coleman, Sr., Lee N. Arst and certain purchasers of the Registrant's
Common and Preferred Stock.
10.7 Form of Employee Non-Disclosure Agreement used between the Registrant and certain employees.
10.8 Form of Employee Non-Competition Agreement used between the Registrant and certain employees.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------
<C> <S>
10.9 Letter Agreement dated October 27, 1995 and amended as of February 1, 1996 and June 7, 1996
between the Registrant (as successor by merger to Coleman Natural Meats, Inc.) and Norwest
Bank Colorado, N.A.
10.10 Letter Agreement dated June 7, 1996 between the Registrant (as successor by merger to Coleman
Natural Meats, Inc.) and Norwest Bank Colorado, N.A.
10.11 Security Agreement as to Inventory and Accounts dated June 7, 1996 between the Registrant (as
successor by merger to Coleman Natural Meats, Inc.) and Norwest Bank Colorado, N.A.
10.12 Security Agreement as to Livestock dated June 7, 1996 by the Registrant (as successor by merger
to Coleman Natural Meats, Inc.) for the benefit of Norwest Bank Colorado, N.A.
10.13 Security Agreement and Assignment of Hedging Account dated June 7, 1996 between the Registrant
(as successor by merger to Coleman Natural Meats, Inc.) for the benefit of Norwest Bank
Colorado, N.A.
10.14 General Security Agreement dated June 7, 1996 between the Registrant (as successor by merger to
Coleman Natural Meats, Inc.) and Norwest Bank Colorado, N.A.
10.15 Employment Agreement dated as of July 1, 1996, with Lee N. Arst.
10.16 Forms of Carcass Beef Purchase Agreements.
11 Statement re computation of earnings per share.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Ireland, Stapleton, Pryor & Pascoe, P.C. (included in Exhibit 5.1)*.
24.1 Power of Attorney (included in signature pages).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable and therefore have been omitted or the
information required by the applicable schedule is included in the Notes to the
Consolidated Financial Statements.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
II-3
<PAGE>
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Denver, Colorado, on this 18th day of
September 1996.
COLEMAN NATURAL PRODUCTS, INC.
By: /s/ LEE N. ARST
-----------------------------------
Lee N. Arst,
PRESIDENT
POWER OF ATTORNEY
The undersigned directors and/or officers of the Registrant, by virtue of
their signatures to this Registration Statement appearing below, hereby
constitute and appoint Lee N. Arst or Richard P. Dutkiewicz, or either of them,
with full power of substitution, as attorney-in-fact in their names, places and
steads to execute any and all amendments to this Registration Statement in the
capacities set forth opposite their names and hereby ratify all that said
attorneys-in-fact may do by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
- --------------------------------- ----------------------- --------------------
/s/ LEE N. ARST
- --------------------------------- Principal Executive September 18, 1996
Lee N. Arst Officer and Director
/s/ RICHARD P. DUTKIEWICZ Principal Financial
- --------------------------------- Officer and Principal September 18, 1996
Richard P. Dutkiewicz Accounting Officer
/s/ G. MELVIN COLEMAN, SR.
- --------------------------------- Director September 18, 1996
G. Melvin Coleman, Sr.
/s/ WAYNE B. KINGSLEY
- --------------------------------- Director September 18, 1996
Wayne B. Kingsley
/s/ BARRY M. DAVIS
- --------------------------------- Director September 18, 1996
Barry M. Davis
/s/ C. MICKEY SKINNER
- --------------------------------- Director September 18, 1996
C. Mickey Skinner
II-5
<PAGE>
SIGNATURES TITLE DATE
- --------------------------------- ----------------------- --------------------
- --------------------------------- Director
Howard Liszt
II-6
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COLEMAN NATURAL PRODUCTS, INC.
(ORIGINALLY INCORPORATED AS COLEMAN NATURAL HOLDINGS CORP.
ON OCTOBER 12, 1993)
We, the undersigned, President and Secretary, respectively, of Coleman
Natural Products, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"), do
hereby certify that, pursuant to Sections 242 and 245 of the Delaware General
Corporation Law ("DGCL"), this Amended and Restated Certificate of Incorporation
of the Corporation was duly adopted by the Board of Directors and approved by
the stockholders in accordance with Sections 228 of the DGCL, with written
notice in accordance with Section 228(d) to be provided to stockholders who did
not consent in writing, all in order to amend and restate the corporation's
Certificate of Incorporation to read in its entirety as follows:
FIRST: The name of the corporation shall be Coleman Natural Products,
Inc.
SECOND: The address of the corporation's registered office in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware 19801. The name of the corporation's registered agent at such
address is The Corporation Trust Company.
THIRD: The objects or purposes for which the corporation is created
and the nature of the business to be transacted, promoted or carried on by this
Corporation, either within or outside the State of Delaware, and the powers with
which it shall be vested are to engage in any activity or business not in
conflict with the laws of the State of Delaware or of the United States of
America, and to engage in the transaction of all lawful business for which
corporations may be incorporated pursuant to the Delaware General Corporation
Law.
In general, to do any or all of the things herein set forth or
permitted under the laws of the State of Delaware to the same extent as natural
persons might or could do in any part of the world, as principals, agents,
contractors, fiduciaries or otherwise, within or without the State of Delaware,
or the United States of America, either alone or in company with others, and to
carry on any other business in connection therewith, and to do all things not
forbidden, and with all the powers conferred upon corporations by the laws of
the State of Delaware.
It is the intention that each of the objects, purposes and powers
specified in each of the paragraphs of this Article THIRD of this Amended and
Restated Certificate of Incorporation shall, except whether otherwise specified,
be nowise limited or restricted by
<PAGE>
reference to or inference from the terms of any other paragraph or of any
other Article in this Amended and Restated Certificate of Incorporation, but
that the objects, purposes and powers specified in this Article THIRD shall
be regarded as independent objects, purposes and powers of this Corporation;
nor shall the expression of one thing be deemed to exclude another, although
it be of similar or dissimilar nature. The enumeration of object or purposes
herein shall not be deemed to exclude or in any way limit by inference any
powers, objects or purposes which this corporation is empowered to exercise,
whether expressly or by force of the laws of the State of Delaware, now or
hereafter in effect, or impliedly by any reasonable construction of said laws.
FOURTH: A. The aggregate number of shares which the corporation
shall have the authority to issue is 15,000,000 shares, $.001 par value, of
common stock (the "Common Stock") and 5,000,000 shares, $.001 par value, of
preferred stock (the "Preferred Stock").
B. Three Million Four Hundred Ninety-one Thousand Three Hundred
Ninety-six (3,491,396) shares of Preferred Stock are hereby designated Series A
Preferred Stock (hereinafter referred to as the "Series A Stock") with the
powers, preferences and rights and the qualifications, restrictions, and
limitations thereon, specified in this Article FOURTH.
1. DIVIDENDS.
(a) PAYABLE IN CASH OR COMMON STOCK. The corporation shall pay to
the holders of the Series A Stock out of either the funds of the corporation
legally available therefor or shares of the corporation's Common Stock, at the
corporation's sole discretion, a preferential dividend as provided herein (the
"Series A Dividend"). The Series A Dividend shall be paid in preference to the
declaration or payment of any other dividends of this corporation (other than
the Preferred Dividends, as provided below). The Series A Dividend on each
share of Series A Stock shall be cumulative after January 1, 1995, whether or
not at the time such Series A Dividend shall accrue or become due with respect
to such issued Series A Stock, or at any other time, there shall be profits,
surplus or other funds of the corporation legally available for payment of the
Series A Dividend. The Series A Dividend shall accrue on the Series A Stock
which is outstanding on both (i) the first day of each calendar quarter and
(ii) on the Dividend Payment Date (as defined below) at the rate of nine percent
(9%) per share per annum (unless increased to ten percent (10%) per share per
annum pursuant to paragraph 3(a)) (the "Series A Dividend Rate") on the Original
Issue Price of such Series A Stock, from and including January 1, 1995
(regardless of the number of transfers of such Series A Stock indicated on the
stock records of the corporation), to and including the date of redemption of
the Series A Stock as provided in paragraph 3 below. The Series A Dividend
shall be payable on the Series A Stock on the last day of each calendar quarter,
with the first dividend payment due on March 31, 1995 (each such date in this
subparagraph 1(a) is called a "Dividend Payment Date"). On each Dividend
Payment
-2-
<PAGE>
Date the Series A Dividend on all Series A Stock outstanding during such
calendar quarter shall be deemed to become "due" for all purposes of this
paragraph 1 regardless of whether the corporation shall be legally permitted to
pay cash for such Series A Dividend on such Dividend Payment Date. To the
extent all or any portion of the Series A Dividend required to be paid on any
Dividend Payment Date is to be paid in shares of the corporation's Common Stock,
the Fair Value (as defined in paragraph 5(a), below) of the Common Stock on the
Dividend Payment Date shall be the value for purposes of determining the number
of shares to be issued in payment of the Series A Dividend. If any Series A
Dividend shall for any reason not be paid at the time such Series A Dividend
becomes due, then such Series A Dividend in arrears shall be paid as soon as
payment of the same shall be legally permissible. Series A Dividends in arrears
shall accrue interest at the rate of twelve percent (12%) per annum until such
Series A Dividends in arrears are paid in full, including accrued interest. The
holders of the then outstanding Common Stock shall not be entitled to any
dividend (other than pro rata dividends or distributions payable solely in
Common Stock) unless and until all Series A Dividends in arrears have been paid
in full to the date of such declaration or payment of a dividend on Common
Stock.
(b) PAYABLE IN SERIES A STOCK. The corporation also shall pay to the
holders of Series A Stock a preferential dividend payable in shares of Series A
Stock as provided herein (the "Preferred Dividend"). The Preferred Dividend
shall be paid in preference to the declaration or payment of any other dividends
of this corporation (other than the Series A Dividends, as provided above). The
Preferred Dividend shall accrue at the rate of six percent (6%) per annum (the
"Preferred Dividend Rate") on the Original Issue Price of such Series A Stock,
as to (i) 1,002,248 shares (the "First Dividend Shares") of the Series A Stock
for the period from and including July 1, 1995, through and including June 30,
1996 (the "First Dividend Period"); and (ii) 3,340,826 shares (the "Second
Dividend Shares") of the Series A Stock for the period on and after July 1,
1996, through and including the date of redemption of the Series A Stock as
provided in paragraph 3, below (the "Second Dividend Period"). The First
Dividend Shares and the Second Dividend Shares are hereinafter referred to
collectively as the "Dividend Shares." The payment of the Series A Dividend
shall be made proportionally as to each holder of Series A Preferred such that
the number of Dividend Shares held by each holder on any Dividend Payment Date
(as defined below) during the First Dividend Period or Second Dividend Period,
as the case may be, shall be in the same ratio as to the Dividend Shares held by
all such holders during the First Dividend Period or Second Dividend Period, as
the case may be, as the total number of shares of Series A Preferred held by
such holder is to the total number of Series A Preferred held by all holders
thereof during the First Dividend Period or Second Dividend Period, as
applicable. Payment of the Preferred Dividend on any shares of Series A Stock
shall be made only if such share was outstanding on the first and last day of
the calendar quarter in which such Series A Dividend is payable. The Preferred
Dividend shall be payable in quarterly segments on the last day of each calendar
quarter, with the first dividend payment due on September 30, 1995 (each such
date in this subparagraph 1(b) is called a "Dividend Payment Date"). The
holders of the then outstanding Common Stock shall not be entitled to
-3-
<PAGE>
any dividend (other than pro rata dividends or distributions payable solely
in Common Stock) unless and until all Preferred Dividends in arrears have
been paid in full to the date of such declaration or payment of a dividend on
Common Stock.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, the holders of Series A Stock
shall be entitled to be paid out of the assets of the corporation available for
distribution to its stockholders, before any payment or declaration and setting
apart for payment of any amount shall be made in respect of the Common Stock,
$1.00 per share (the "Original Issue Price") of the Series A Stock, plus an
amount equal to any Series A Dividend in arrears. If, upon liquidation or
dissolution of the corporation, the assets of the corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
Series A Stock the full preferences to which they are entitled as set forth
above, then the holders of the Series A Stock shall be entitled to receive all
of the assets of the corporation available for distribution to its stockholders
on a pro rata basis among such holders according to their respective ownership
of Series A Stock.
(b) After setting apart or paying in full the preferential amounts
due the holders of Series A Stock, any remaining assets of the corporation
available for distribution to its stockholders shall be distributed pro rata
among the holders of Common Stock.
(c) (i) Except as otherwise provided in subparagraph 2(c)(ii) below,
a consolidation or merger of this corporation with or into any other corporation
or other entity or person in which this corporation shall not survive, or a
sale, conveyance or disposition of all or substantially all of the assets of
this corporation or the effectuation by the corporation of any reorganization or
any other transaction or series of related transactions in which more than 50%
of the voting power of the corporation is disposed of, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this paragraph 2;
provided, however, that the holders of sixty percent (60%) of the Series A Stock
outstanding on the record date for any such transaction may waive the
application of this subparagraph 2(c)(i).
(ii) The consideration paid under this paragraph 2(c) shall be
valued as provided in paragraph 5 of this Article FOURTH and consummation of
such transaction shall be subject to the provisions of such paragraph 5.
-4-
<PAGE>
3. REDEMPTION.
(a) MANDATORY REDEMPTION BY CORPORATION.
(i) To the extent allowed by law, the corporation shall redeem
the Series A Stock, pro rata among the holders of the Series A Stock, as
follows:
Redemption Date Percent of Outstanding Series A Stock
--------------- -------------------------------------
October 31, One Hundred Percent (100%)
1996
The redemption price for the Series A Stock shall be the Original Issue Price
thereof, plus any Series A Dividends in arrears on all of the Series A Stock
(the "Redemption Price"), plus, to the extent applicable, any interest which has
accrued pursuant to paragraph 1(a) of this Paragraph B, on Series A Dividends in
arrears. If the funds of the corporation legally available for redemption of
Series A Stock on a Redemption Date are insufficient to redeem such Series A
Stock on such date, funds to the extent legally available for such purpose shall
be used to redeem the number of shares of Series A Stock which may be legally
redeemed. At any time thereafter, when additional funds of the corporation are
legally available for the redemption of shares, such funds shall be immediately
used to redeem the balance of the Series A Stock required to be redeemed on such
Redemption Date. Any partial redemption shall be made on a pro rata basis among
the holders of the Series A Stock according to their respective ownership of
Series A Stock. If the corporation fails to timely redeem the Series A Stock,
the Series A Dividend Rate shall increase to ten percent (10%) per share per
annum on all the Series A Stock from the date of such failure to the date the
Series A Stock which the Company failed to redeem is thereafter redeemed.
(b) OPTIONAL REDEMPTION BY CORPORATION. The corporation may at any
time redeem any or all shares of the Series A Stock, pro rata among the holders
of the Series A Stock, by giving notice to such holders of the date set for
redemption (also a "Redemption Date"), as provided in paragraph (c)(i), below.
(c) GENERAL.
(i) At least thirty (30) but no more than sixty (60) days prior
to the date for any redemption of Series A Stock under paragraphs (a) or (b),
above, written notice shall be mailed, postage prepaid, to each holder of record
(at the close of business on the business day next preceding the day on which
notice is given) of the Series A Stock, at the address last shown on the records
of the corporation for such holder or given by the holder to the corporation for
the purpose of notice, notifying such holder of the redemption to be effected,
specifying the Redemption Date, the Redemption Price and the place at which
payment may be obtained, and calling upon such holder to surrender to the
corporation, in the manner and at the place designated, his or her certificate
or certificates representing the shares to be redeemed (a "Redemption Notice").
Except as provided in paragraph 3(c)(ii),
-5-
<PAGE>
on or after each Redemption Date, each holder of Series A Stock to be
redeemed shall surrender to the corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled.
(ii) From and after the close of business on any Redemption Date,
unless there shall have been a default in payment of the applicable Redemption
Price, all rights of the holders of the shares to be redeemed on such date as
holders of such shares (except the right to receive the applicable Redemption
Price without interest upon surrender of their certificate or certificates)
shall cease with respect to such shares and such shares shall not thereafter be
transferred on the books of the corporation or be deemed to be outstanding for
any purpose whatsoever.
(iii) On or prior to any Redemption Date, this corporation
shall deposit the applicable Redemption Price for all outstanding shares of
Series A Stock to be redeemed pursuant to paragraph 3(a) or 3(b) with a bank or
trust company having aggregate capital and surplus in excess of $50,000,000 as a
trust fund for the benefit of the respective holders of such shares.
Simultaneously, this corporation shall deposit irrevocable instruction and
authority to such bank or trust company to pay, on and after the Redemption
Date, the Redemption Price to the holders of the Series A Stock to be redeemed
upon surrender of their certificates therefor. The balance of any monies
deposited by the corporation pursuant to this paragraph 3(c)(iii) remaining
unclaimed at the expiration of one year following the applicable Redemption Date
shall thereafter be returned to the corporation, provided that the stockholder
to whom such monies would be payable hereunder shall be entitled, upon proof of
its ownership of the stock to be redeemed and payment of any bond requested by
the corporation, to receive such monies but without interest from the Redemption
Date.
4. VOTING RIGHTS. Each share of Common Stock shall be entitled to
one vote per share on any matter submitted to the stockholders. Except as
otherwise required by law, the holder of each share of Series A Stock shall not
have the right to vote.
5. VALUATION OF CONSIDERATION.
(a) Any securities to be delivered to the holders of Series A Stock
pursuant to paragraph 2(c) of this Article FOURTH or any Common Stock to be
delivered to the holders of Series A Stock pursuant to paragraph 1(a) of this
Article FOURTH shall be valued (the "Fair Value") as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
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(1) if traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the thirty (30)-day period ending three (3) days prior to the
closing;
(2) if actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the thirty (30)-day
period ending three (3) days prior to the closing; and
(3) if there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the corporation and the
holders of not less than sixty percent (60%) of the then outstanding shares of
Series A Stock with respect to which such securities are being distributed;
provided that if the corporation's Board of Directors engages a firm of
appraisal experts to value the Corporation's Common Stock, and the Board of
Directors accepts the valuation so issued, the determination of the Board of
Directors shall be the Fair Value of the Common Stock.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in (i)(1), (2) or
(3) to reflect the approximate fair market value thereof, as mutually determined
by the corporation and the holders of a majority of the then outstanding shares
of Series A Stock with respect to which such securities are being distributed.
(b) In the event the requirements of paragraph 2(c) are not complied
with, the corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of paragraph 2(c) have been complied with, or
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of Series A Stock shall revert to and
be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in paragraph 5(c) hereof.
(c) The corporation shall give each holder of record of Series A
Stock written notice of any impending transaction described in paragraph 2(c)
not later than twenty (20) days prior to the stockholders' meeting called to
approve such transaction, or twenty (20) days prior to the closing of such
transaction, whichever is earlier, and shall also notify such holders in writing
of the final approval of such transaction. The first of such notices shall
describe the material terms and conditions of the proposed transaction and of
paragraph 2(c), and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten days after the
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corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written
consent of the holders of not less than sixty percent (60%) of the shares of
Series A Stock then outstanding.
6. CANCELLATION AND RE-DESIGNATION OF PREFERRED STOCK ON REDEMPTION.
(a) Upon redemption of the Series A Stock pursuant to the terms of
this Article FOURTH, all certificates of Series A Stock surrendered for
redemption shall be appropriately cancelled on the books of the Corporation, and
all of the shares so redeemed represented by all certificates of the Series A
Stock shall be deemed to be cancelled.
(b) Upon such redemption, the existing designation, rights and
preferences of the Series A Stock shall terminate and the number of authorized
shares of Preferred Stock set forth in this Article FOURTH shall be
automatically reinstated at 5,000,000 shares of undesignated Preferred Stock
which may be issued from time to time in one or more classes or series, each of
which class or series shall have such distinctive designation or title as shall
be fixed by the affirmative vote of a majority of the whole Board of Directors
prior to the issuance of any shares thereof. Each such class or series of
Preferred Stock shall have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions,
including the dividend rate, redemption price and liquidation preference, and
may be convertible into, or exchangeable for, at the option of either the holder
or the Corporation or upon the happening of a specified event, shares of any
other class or classes or any other series of the same or any other class or
classes of capital stock, or any debt securities, of the Corporation at such
price or prices or at such rate or rates of exchange and with such adjustments
as shall be stated and expressed in this Amended and Restated Certificate of
Incorporation or in any amendment hereto or in such resolution or resolutions
providing for the issuance of such class or series of Preferred Stock as may be
adopted from time to time by the affirmative vote of a majority of the whole
Board of Directors prior to the issuance of any shares thereof pursuant to the
authority hereby expressly vested in it, all in accordance with the General
Corporation Law of the state of Delaware. The authority of the Board of
Directors with respect to each series shall also include, but not be limited to,
the determination of restrictions, if any, on the issue or reissue of any
additional shares of Preferred Stock.
FIFTH: The stockholders of the corporation shall not have cumulative
voting rights in the election of directors.
SIXTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized and empowered, but
subject to the limitations of this Amended and Restated Certificate of
Incorporation:
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A. to make, alter and repeal the Amended and Restated Bylaws of the
corporation, subject to the power of the stockholders of the corporation to
alter or repeal any Bylaws made by the Board of Directors;
B. subject to the laws of the State of Delaware and this Amended and
Restated Certificate of Incorporation, from time to time to sell, lease, or
otherwise dispose of any part or parts of the properties of the corporation and
to cease to conduct the business connected therewith or again to resume the
same, as it may deem best; and
C. in addition to the powers and authorities hereinabove and by the
laws of the State of Delaware conferred upon the Board of Directors, to exercise
all such powers and to do all such acts and things as may be exercised or done
by the corporation; subject, nevertheless, to the provisions of such laws, the
Amended and Restated Certificate of Incorporation of the corporation, as from
time to time amended, and by its Amended and Restated Bylaws.
SEVENTH: No director of the corporation shall be personally liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
EIGHTH: Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the corporation under the
provisions of section 291 of Title 8 of the Delaware General Corporation Law or
on the application of trustees in dissolution or of any receiver or receivers
appointed for the corporation under the provisions of section 279 of Title 8 of
the Delaware General Corporation Law order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of the
corporation, as the case may be, to be summoned in such manner as the court
directors. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the corporation as a consequence of
such compromise or arrangement, the compromise or arrangement and the
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the corporation, as the case
may be, and also on the corporation.
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IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by Lee N. Arst, its
President, and Richard Dutkiewicz, its Secretary, this 12th day of September,
1996.
COLEMAN NATURAL PRODUCTS, INC.
By: /s/ Lee N. Arst
----------------------------
Lee N. Arst, President
By: /s/ Richard Dutkiewicz
----------------------------
Richard P. Dutkiewicz, Secretary
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AMENDED AND RESTATED BY-LAWS
OF
COLEMAN NATURAL PRODUCTS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
Offices
SECTION A. REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be at 1209 Orange Street, City of
Wilmington, County of New Castle, Delaware. The name of the Corporation's
registered agent at such address shall be The Corporation Trust Company.
SECTION B. OTHER OFFICES. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
Stockholders
SECTION A. ANNUAL MEETING. The annual meeting of the stockholders of
the Corporation shall be held for the purpose of electing Directors and for the
transaction of such other business as may properly be brought before the meeting
on such date and at such time as may be designated by the Board of Directors.
SECTION B. SPECIAL MEETINGS. Special meetings of the stockholders
for any purpose or purposes may be called by the Board of Directors, by the
Chairman of the Board or by the President. Any special meeting shall be held on
such date (subject to the provisions on notice) and at such time as shall be
designated by the Board of Directors or by the officer calling the meeting. At
a special meeting of the stockholders, no business shall be transacted and no
corporate action shall be taken other than that stated in the notice of the
meeting unless all of the stockholders of the Corporation are present in person
or by proxy, in which case any and all business may be transacted at the meeting
even though not included in the notice of meeting and even though the meeting
itself was held without notice.
<PAGE>
SECTION C. PLACE OF MEETING. Every annual meeting of the
stockholders of the Corporation shall be held at such place within or without
the State of Delaware as may be designated by the Board of Directors. Every
special meeting of the stockholders of the Corporation shall be held at such
place within or without the State of Delaware as may be designated by the Board
of Directors or the officer calling the meeting.
SECTION D. NOTICE OF MEETINGS. It shall be the duty of the Secretary
to cause notice of each meeting of the stockholders to be mailed to each
stockholder of the Corporation entitled to vote at such meeting at his address
as it appears upon the records of the Corporation not less than ten nor more
than sixty days before the day of the meeting. The notice of the meeting shall
state the place, date, and hour of the meeting and, in case of a special
meeting, also shall state the purpose or purposes for which the meeting is
called.
Notice of a special meeting may be given by the person or persons
calling the meeting, or, upon the written request of such person or persons, by
the Secretary of the Corporation on behalf of such person or persons. If the
person or persons calling a special meeting of stockholders give notice thereof,
such person or persons shall forward a copy thereof to the Secretary. Every
request to the Secretary for the giving of notice of a special meeting of
stockholders shall state the purpose or purposes of such meeting.
SECTION E. QUORUM.
1. At any meeting of the stockholders, the holders of a
majority in number of the total outstanding shares of the Common Stock of the
Corporation that are entitled to vote at such meeting, present in person or
otherwise represented by proxy, shall constitute a quorum of the stockholders
for all purposes, unless the presence or representation of a larger number of
shares shall be required by law, by the Amended and Restated Certificate of
Incorporation, or by these Amended and Restated By-Laws, and, in that case, the
presence or representation of the number of shares so required shall constitute
a quorum.
2. Any meeting may be adjourned (even though a quorum is not
present) by the holders of a majority in number of the shares of Common Stock of
the Corporation present in person and represented by proxy and entitled to vote
at such meeting to another time or place, and notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken and the adjournment is for less than thirty days
and a new record date is not set for the adjourned meeting.
SECTION F. ORGANIZATION.
1. The Chairman, if he is present at the meeting, or the
President, if the Chairman is not present, shall call the meeting of the
stockholders to order, and shall
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act as chairman of the meeting. In the absence of the Chairman and the
President, the holders of a majority in number of the shares of Common Stock
of the Corporation present in person and represented by proxy and entitled to
vote at such meeting shall elect a chairman.
2. The Secretary of the Corporation shall act as secretary of
all meetings of the stockholders; but, in the absence of the Secretary, the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
3. At least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting shall be
prepared and maintained in accordance with of the Delaware General Corporation
Law.
SECTION G. VOTING.
1. Except as otherwise provided for in the Amended and Restated
Certificate of Incorporation, in these Amended and Restated By-laws, in
resolutions of the Board of Directors, or by law, each stockholder shall be
entitled to one vote in person or by proxy for each share of Common Stock of the
Corporation registered in his name upon the books of the Corporation, but no
proxy shall be voted after three years from the date of its being granted unless
the proxy provides for a longer period.
2. Upon the demand of any stockholder, the vote upon any matter
before the meeting shall be by ballot.
3. Shares of the Common Stock of the Corporation owned directly
or indirectly by the Corporation shall not be voted directly or indirectly or
counted in determining whether a quorum is present at any meeting.
4. Each proxy shall submit his power of attorney to the
Secretary or to the Treasurer for examination before the commencement of the
meeting at which the proxy intends to represent a stockholder who has given him
a proxy. The certificate of the Secretary or the Treasurer as to the regularity
of any powers of attorney so submitted, and as to the number of shares held by
the persons who severally and respectively executed the powers of attorney so
submitted, shall be received as prima facie evidence of the number of shares
represented by the holders of the powers of attorney for the purposes of
establishing the presence of a quorum at such meeting, for organizing the same,
for voting, and for all other purposes.
SECTION H. INFORMAL ACTION. Any action required to be taken at any
annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so
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taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing. Any action taken
pursuant to such written consent of the stockholders shall have the same
force and effect as if taken by the stockholders at a meeting thereof.
SECTION I. INSPECTORS OF ELECTION. When required by law or upon the
demand of any stockholder or proxy entitled to vote, but not otherwise, the
polls shall be opened and closed, the proxies and ballots shall be received and
taken in charge, and all questions touching the qualification of voters, the
validity of proxies, and the acceptance or rejection of votes shall be decided
at any meeting of the stockholders by two or more Inspectors or Judges of
Elections, who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the chairman of the meeting. If any
person so appointed fails to appear or act, the vacancy may be filled by
appointment by the chairman of the meeting.
ARTICLE III
Board of Directors
SECTION A. GENERAL POWERS. The business, property and affairs of the
Corporation shall be managed by the Board, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by law or by
the Amended and Restated Certificate of Incorporation directed or required to be
exercised or done by the stockholders.
SECTION B. NUMBER AND TERM OF OFFICE. Subject to the rights, if any,
of holders of Preferred Stock of the Corporation, the number of directors shall
be established from time to time by resolution of the Board. The directors
shall be elected at the annual meeting of the stockholders, except as provided
in Section D of this Article III, and each director elected shall hold office
until the next annual meeting of stockholders and until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
SECTION C. RESIGNATION, REMOVAL, AND VACANCIES.
1. Any Director may resign at any time by giving written notice
of his resignation to the Chairman, the President, or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified in
the notice of resignation, or, if the
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time when it shall become effective shall not be specified therein, it shall
take effect when accepted by action of the Board. The acceptance of a
resignation shall not be necessary to make it effective.
2. Subject to the rights of the holders of any series of
Preferred Stock or any other class of Capital Stock of the Corporation (other
than the Common Stock) then outstanding, newly created directorships resulting
from any increase in the number of Directors and any other vacancy occurring on
the Board of Directors resulting from death, resignation, disqualification,
removal or other cause may be filled only by an affirmative vote of a majority
of the remaining Directors then in office, even though less than a quorum of the
Board of Directors, or by the sole remaining director. Any director elected in
accordance with the preceding sentence shall hold office until the next annual
meeting of stockholders and until a successor is duly elected and qualified, or
until his or her earlier death, resignation or removal as provided herein. No
decrease in the number of Directors constituting the Board of Directors shall
shorten the term of any incumbent Director.
3. Any Director or the entire Board of Directors may be removed
at any time, with or without cause, by the holders of a majority of the shares
of stock of the corporation then entitled to vote at an election of Directors,
except as otherwise provided by law.
SECTION D. PLACE OF MEETING. The Board of Directors may hold its
meetings at such place or places within or without the State of Delaware as the
Board from time to time shall determine or as shall be designated in the notice
or waiver of notice of the meeting.
SECTION E. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be (i) mailed to each
Director at least three days before the first meeting held in pursuance thereof
or (ii) delivered personally or by prepaid commercial delivery or courier
service, or sent by telegram, cable, or wireless, to every Director at least one
day before the first meeting held in pursuance thereof.
SECTION F. SPECIAL MEETINGS.
1. Special meetings of the Board of Directors shall be held
whenever called by direction of the Chairman, the President, or a majority of
the Directors then in office.
2. The Secretary or an Assistant Secretary shall give notice of
the day, hour, and place of each special meeting (i) by mailing the same to each
Director at least
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three days before the meeting or (ii) by causing the same to be delivered
personally or by prepaid commercial delivery or courier service, or to be
sent by telegraph, cable or wireless, to each Director at least one day
before the meeting.
3. Unless otherwise indicated in the notice thereof, any and
all business may be transacted at any special meeting; and an amendment of these
Amended and Restated By-Laws may be acted upon if the notice of the meeting
shall have stated an amendment of the Amended and Restated By-Laws to be one of
its purposes. At any meeting at which every Director shall be present and no
Director shall object, any business may be transacted, even though no notice is
given.
SECTION G. QUORUM. Except as otherwise provided for herein or in the
Amended and Restated Certificate of Incorporation, a majority of the members of
the Board of Directors in office (but in no case less than one-third of the
total number of Directors) shall constitute a quorum for the transaction of
business and the action of the Board of Directors at which a quorum is present
shall be the action of the Board of Directors. If less than a quorum is present
at any meeting of the Board, a majority of those present may adjourn the meeting
from time to time.
SECTION H. CHAIRMAN AND SECRETARY OF THE MEETING. The Chairman of
the Board, if any and if present, shall preside at all meetings of the Board of
Directors. Otherwise, the President, if present, or, if not, any other Director
chosen by the Board, shall preside. The Chairman of the Board, the President,
or other presiding Director, as the case may be, may appoint any person to act
as secretary of the meeting.
SECTION I. COMMITTEES. The Board of Directors, by resolution passed
by all members of the Board, may designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any
committee, to replace any absent or disqualified member at any meeting of the
committee. Each committee, to the extent provided for in the resolution of the
Board, shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers that may require it. In the
absence or disqualification of any member of any committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
SECTION J. ACTION BY CONSENT IN LIEU OF MEETING. Any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing. All consents in lieu
of meetings shall be filed with the minutes of proceedings of the Board or
committee.
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SECTION K. TELEPHONE MEETINGS. Members of the Board of Directors or
of any committee thereof may participate in a meeting of the Board or committee
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear, and speak to, each
other. Participation in a telephone meeting pursuant to this Section K shall
constitute presence in person at such meeting. The person designated to be
secretary of the meeting by the Director initiating the telephone meeting shall
take minutes of the meeting, and such minutes shall be filed with the other
minutes of proceedings of the Board or committee.
SECTION L. COMPENSATION. Each Director, in consideration of his
serving as a Director, shall be entitled to receive from the Corporation such
amount per annum or such fees for attendance at meetings of the Board or of any
committee, or both, as the Board from time to time shall determine. The Board
likewise may provide that the Corporation shall reimburse each Director or
member of a committee for any expenses incurred by him on account of his
attendance at any such meeting. Nothing contained in this Section L shall be
construed to preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE IV
Officers
SECTION A. OFFICERS.
1. The officers of the Corporation shall be a President, one or
more Vice Presidents, a Secretary, and a Treasurer. All such officers shall be
elected by the Board of Directors at its first meeting after each annual meeting
of the stockholders and shall hold office until the earlier of their removal or
their respective successors shall have been elected and shall qualify.
2. In addition to the powers and duties of the officers of the
Corporation as set forth in these Amended and Restated By-Laws, each shall have
such authority and shall perform such duties as from time to time may be
determined by the Board of Directors or the President.
SECTION B. RESIGNATION, REMOVAL, AND VACANCIES.
1. Any officer may resign at any time by giving written notice
of his resignation to the Board of Directors. Any such resignation shall take
effect at the time specified therein, or, if the time when it shall become
effective shall not be specified therein,
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the resignation shall take effect when accepted by action of the Board.
Except as aforesaid, the acceptance of such resignation shall not be
necessary to make it effective.
2. All officers and agents elected or appointed by the Board
shall be subject to removal with or without cause at any time by the Board.
3. A vacancy in any office may be filled at any time by the
Board of Directors.
SECTION C. POWERS AND DUTIES OF THE PRESIDENT. The President shall
be the Chief Executive Officer of the Company. Subject to the control and
general supervision of the Board of Directors, the Chief Executive Officer shall
have general charge and control of all its business and affairs and shall
perform all duties incident to the office of Chief Executive Officer.
SECTION D. POWERS AND DUTIES OF THE VICE PRESIDENTS. The Board of
Directors may appoint one or more Vice Presidents. Each Vice President shall
have such powers and shall perform such duties as the Board of Directors or the
President shall assign to him.
SECTION E. POWERS AND DUTIES OF THE SECRETARY. Except as otherwise
provided for in these Amended and Restated By-Laws, the Secretary shall keep the
minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors shall authorize and
direct; he shall have charge of the stock certificate books, transfer books,
stock ledgers, and such other books and papers as the Board of Directors or the
President shall direct, all of which shall at all reasonable times be open to
the examination of any Director or officer of the Corporation upon application
at the office of the Corporation during business hours; and he shall perform all
other duties incident to the office of Secretary. The Secretary shall also have
such other powers and shall perform such other duties as may be assigned to him
by these Amended and Restated By-Laws, the Board of Directors, or the President.
SECTION F. POWERS AND DUTIES OF THE TREASURER. Unless otherwise
determined by the Board of Directors, the Treasurer shall have custody of, and,
when proper, may pay out, disburse or otherwise dispose of, all funds and
securities of the Corporation that may have come into his hands; he may endorse
on behalf of the Corporation for collection checks, notes, and other obligations
and deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; he shall
enter or cause to be entered regularly in the books of the Corporation kept for
the purpose full and accurate accounts of all moneys received or paid or
otherwise disposed of by him and, whenever required by the Board of Directors,
shall render
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statements of such accounts; he shall exhibit his books and accounts to any
Director or officer of the Corporation upon application at the Office of the
Corporation during business hours; and he shall perform all acts incident to
the position of Treasurer and shall also have such powers and shall perform
such other or different duties as may be assigned to him from time to time by
these Amended and Restated By-Laws or the Board of Directors or the President.
SECTION G. ADDITIONAL OFFICERS. The Board of Directors may from time
to time appoint such other officers, including Chairman of the Board, Assistant
Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board
may deem advisable. Such officers shall have such powers and duties as usually
pertain to their offices, except as modified by the Board of Directors, and
shall also have such other powers and duties as may from time to time be
conferred upon them by the Board of Directors or the President.
SECTION H. GIVING OF BOND BY OFFICERS. If required to do so by the
Board of Directors, each officer designated by the Board shall furnish a bond to
the Corporation for the faithful performance of his duties with such penalties,
conditions, and security as the Board may require.
SECTION I. VOTING OF STOCK. Unless otherwise ordered by the Board of
Directors, each officer of the Corporation shall have full power and authority
on behalf of the Corporation to attend and to act and to vote, or in the name of
the Corporation to execute proxies to vote, at any meetings of stockholders of
any corporation in which the Corporation may hold stock, and at any such
meetings, shall possess and may exercise, in person or by proxy, any and all
rights, powers, and privileges incident to the ownership of such stock. The
Board of Directors, by resolution, from time to time, may confer like powers
upon any other person or persons.
SECTION J. COMPENSATION OF OFFICERS. The officers of the Corporation
shall be entitled to receive such compensation for their services as officers as
the Board of Directors from time to time may determine.
ARTICLE V
Indemnification
SECTION A. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section C of this
Article V, the Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee, or agent of
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the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit, or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit, or
proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
SECTION B. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR
IN THE RIGHT OF THE CORPORATION. Subject to Section C of this Article V, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION C. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this Article V (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section A or Section B of this Article V, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, (iii) by the
stockholders, or (iv) if a Change in Control has occurred and the director,
officer, employee, or agent seeking indemnification so requests, in a written
opinion rendered by independent legal counsel chosen by the person requesting
indemnification and not reasonably objected to by the Board of Directors. To
the
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extent, however, that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding described above, or in defense of any claim, issue,
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith, without the necessity of authorization in the specific case. For
purposes of subclause (iv) of the second sentence of this Section C,
"independent legal counsel" shall mean legal counsel other than an attorney, or
a firm having associated with it an attorney, who has been retained by or who
has performed services for either the Corporation or the person seeking
indemnification within the past five years. For purposes of said subclause
(iv), a "Change in Control" shall mean a change in control of the Corporation of
a nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A promulgated under the Act, whether or not the
Corporation is then subject to such reporting requirement; provided that,
without limitation, such a change in control shall be deemed to have occurred if
(A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Corporation representing 35% or
more of the combined voting power of the Corporation's then outstanding
securities without the prior approval of the Board of Directors in office
immediately prior to such acquisition, (ii) the Corporation is a party to a
merger, consolidation, sale of assets, or other reorganization, or proxy
contest, as a consequence of which members of the Board of Directors sitting
immediately prior to such transaction or event constitute less than a majority
of the Board of Directors thereafter, or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors, including for this purpose any new director whose
election or nomination for election by the Corporation's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period, cease for any reason to
constitute at least a majority thereof.
SECTION D. GOOD FAITH DEFINED. For purposes of any determination
under Section C of this Article V, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section D shall mean
any other corporation or any partnership, joint venture, trust or other
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The provisions of this
Section D shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have
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met the applicable standard of conduct set forth in Section A or B of this
Article V, as the case may be.
SECTION E. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section C of this Article V, and
notwithstanding the absence of any determination thereunder, any director,
officer, employee, or agent may apply to the Court of Chancery for
indemnification to the extent otherwise permissible under Sections A and B of
this Article V. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director, officer,
employee, or agent is proper in the circumstances because he has met the
applicable standards of conduct set forth in Sections A or B of this Article V,
as the case may be. Notice of any application for indemnification pursuant to
this Section E shall be given to the Corporation promptly upon the filing of
such application.
SECTION F. EXPENSES PAYABLE IN ADVANCE. Expenses (including
attorneys' fees) incurred by an officer or director in defending or
investigating a threatened or pending action, suit or proceeding may be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article V.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
SECTION G. NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION. The
indemnification and advancement of expenses provided by this Article V shall not
be deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any Bylaw, agreement, contract,
vote of stockholders, or disinterested directors or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, it being the policy of the Corporation that indemnification
of the persons specified in Sections A and B of this Article V shall be made to
the fullest extent permitted by law. The provisions of this Article V shall not
be deemed to preclude the indemnification of any person who is not specified in
Sections A or B of this Article V but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article V shall continue as
to a person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
SECTION H. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other
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enterprise against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power or the obligation to indemnify him against
such liability under the provisions of this Article V.
SECTION I. MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE V. For
purposes of this Article V, references to "the Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee, or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, shall stand in the same position
under the provisions of this Article V with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
SECTION J. REPEAL OR MODIFICATION. Any repeal or modification of
this Article V by the stockholders of the Corporation shall not adversely affect
any rights to indemnification and to advancement of expense that any person may
have at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
ARTICLE VI
The Corporation's Stock
SECTION A. STOCK CERTIFICATES. Stock certificates representing all
shares to which stockholders are entitled shall be in the form determined by
the Board of Directors. Certificates shall be numbered consecutively and
shall be entered in the books of the Corporation as they are issued. They
shall be signed by the Chairman of the Board, the President, or a Vice
President and by the Treasurer, an Assistant Treasurer, the Secretary, or an
Assistant Secertary. If the Board of Directors has designated a transfer
agent or registrar and if any certificate is countersigned by a transfer
agent, or an assistant transfer agent or registered by a registrar (either of
which is other than the Corporation or an employee of the Corporation), the
signature of any officer of the Corporation may be a facsimile.
SECTION B. LOST, STOLEN, OR DESTROYED CERTIFICATES. The Corporation
or its transfer agent may issue a new certificate of stock of the Corporation in
place of any certificate theretofore issued by it, alleged by its owner, or his
legal representative, to have
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been lost, stolen, or destroyed, and the Board of Directors or its transfer
agent may require the owner, or his legal representative, to give the
Corporation and its transfer agent a bond sufficient to indemnify the
Corporation and its transfer agent against any claim that may be made against
them on account of the alleged loss, theft, or destruction of any such
certificate or the issuance of any such new certificate.
SECTION C. TRANSFER OF SHARES. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
and applicable statutory requirements, registration of transfers of shares of
stock of the Corporation shall be made on the books of the Corporation.
SECTION D. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION E. CLOSING OF TRANSFER BOOKS; FIXING OF RECORD DATES. For
the purpose of determining the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
or dissent from any corporate action in writing without a meeting, or for the
purpose of determining stockholders entitled to receive payment of any dividend
or other distribution or the allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion, or exchange of stock, or for
the purpose of any other lawful action, the directors may fix, in advance, a
date as the record date for any such determination of stockholders. Such date
shall not be more than sixty days nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If no record date
is fixed, the record date for the determination of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed; the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. When a
determination of stockholders of record entitled to notice of or to vote at any
meeting of stockholders has been made as provided for in this Section E, such
determination shall apply to any adjournment thereof; provided, however, that
the Board of Directors may fix a new record date for the adjourned meeting.
SECTION F. REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof; accordingly, the Corporation shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it has express or other notice
thereof, except as otherwise provided for by law.
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SECTION G. DIVIDENDS.
1. Subject to the provisions of the Amended and Restated
Certificate of Incorporation, the Board of Directors shall have power to declare
and pay dividends upon shares of stock of the Corporation but only out of funds
available for the payment of dividends as provided for by law.
2. Subject to the provisions of the Amended and Restated
Certificate of Incorporation, any dividends declared upon the stock of the
Corporation shall be payable on such date or dates as the Board of Directors
shall determine. If the date fixed for the payment of any dividend shall in any
year fall upon a Saturday, Sunday, or legal holiday, the dividend payable on
such date shall be paid on the next day that is not a Saturday, Sunday, or legal
holiday.
ARTICLE VII
Corporate Seal; Fiscal Year; Miscellaneous Provisions
SECTION A. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which, unless otherwise
determined by the Board of Directors, shall be in the custody of the Secretary.
If and when so directed by the Board of Directors or the Chief Executive
Officer, a duplicate of the seal may be kept and be used by any officer of the
Corporation designated by the Board.
SECTION B. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION C. CHECKS, NOTES, ETC. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors, shall be
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
SECTION D. WAIVERS OF NOTICE. Whenever any notice whatever is
required to be given under the provisions of these Amended and Restated By-Laws
or the Amended and Restated Certificate of Incorporation to any person or
persons, a waiver thereof in writing, signed by the person or persons entitled
to the notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
SECTION E. OFFICES OUTSIDE OF DELAWARE. Except as otherwise required
by the laws of the State of Delaware, the Corporation may have an office or
offices and keep its
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books, documents, and papers outside of the State of Delaware at such place
or places as from time to time may be determined by the Board of Directors.
ARTICLE VIII
Amendment of the By-laws
Subject to the provisions of the Amended and Restated Certificate of
Incorporation and the power of the stockholders to alter or repeal any By-Law
made by the Board, these Amended and Restated By-Laws may be altered or repealed
by the vote of a majority of the members of the Board.
These Amended and Restated By-Laws were adopted by the Board of Directors of the
Corporation effective as of September 6, 1996.
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COLEMAN NATURAL PRODUCTS, INC.
AMENDED AND RESTATED
STOCK OPTION PLAN
(as of September 6, 1996)
1. INTRODUCTION. This Stock Option Plan (the "Plan") is established
for the purpose of providing key employees and directors of Coleman Natural
Products, Inc., a Delaware corporation (the "Corporation"), the opportunity to
participate in the growth of the Corporation through the purchase of $.001 par
value Common Stock of the Corporation (the "Common Stock"). The Board of
Directors believes that the Plan affords an appropriate means of encouraging key
employees and directors to remain in or enter the service of the Corporation and
of rewarding such employees and directors for their past and future
contributions to the Corporation's growth. The options granted under the Plan
are intended to qualify as incentive stock options under the Internal Revenue
Code of 1986, as amended (the "Code"), unless designated as non-qualified stock
options.
2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
committee (the "Committee") of the Board of Directors of the Corporation (the
"Board") consisting solely of two or more members of the Board, each of whom
shall be a "non-employee director" as that term is defined in Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Any vacancy
occurring in the membership of the Committee shall be filled by appointment by
the Board. As used herein, the term Board shall also mean the Committee of the
Board, and vice versa, and all actions described herein as being undertaken by,
or the responsibility of, the Committee, may be taken by the Board; provided
that all actions of the Committee must be ratified by the Board of Directors;
and further provided that, with respect to Insiders (as defined below),
transactions under this Plan are intended to comply with the next sentence of
this Section 2 and all applicable conditions of Rule 16b-3 or its successors
under the Exchange Act. All grants of options hereunder to Insiders shall be
either (i) made by the full Board, (ii) made by the Committee, or (iii) approved
in advance by the Corporation's stockholders or ratified by such stockholders at
a date which is no later than the date of the next annual meeting of
stockholders. The term "Insiders" shall mean those officers, directors and
other persons who are subject to Section 16 of the Securities Exchange Act of
1934 and the rules and regulations thereunder.
The Committee may from time to time adopt such rules and regulations
as it may deem advisable for the administration of the Plan, and may alter,
amend or rescind any such rules and regulations in its discretion. The
Committee shall have the power to interpret or amend or discontinue the Plan,
except that any amendment which increases the aggregate number of shares for
which options may be granted under the Plan, or which alters the class of
<PAGE>
employees to whom options may be granted, shall take effect only upon approval
of the stockholders of the Corporation holding a majority of the voting stock of
the Corporation; and further provided that without the written consent of an
optionee, no amendment or suspension of the Plan shall alter or impair any
option previously granted to him under the Plan, subject to any provisions
otherwise in the Plan. All decisions made by the Committee in the
administration and interpretation of the Plan shall be binding and conclusive
for all purposes. No member of the Committee shall be liable for any action
taken or decisions made by him in good faith with respect to the Plan or any
option granted under it. The Committee may delegate the grant of options to a
committee of management of the Corporation so long as the Board or Committee
ratifies by formal Board or Committee actions all options granted by such
committee of management.
3. GRANT OF OPTION. Except as provided in Section 8 hereof, options
may be granted under the Plan for a total of 334,929 shares of Common Stock
(taking into effect the 2.85:1 split of the Company's Common Stock declared by
the Board of Directors on September 6, 1996) to one or more key employees or
directors of the Corporation selected by the Committee in the Committee's sole
discretion. Non-employee directors may only be granted non-qualified stock
options. The grant of an option hereunder shall be evidenced by the
Corporation's written agreement of the grant, which shall also indicate the
terms and conditions of the option granted, and whether the option is an
incentive stock option or non-qualified stock option. Such agreement shall be
delivered to and executed by the individual to whom the option is granted. No
stock option may be granted under the Plan more than 10 years after the initial
adoption of the Plan by the Board, which tenth anniversary shall be March 23,
1999.
4. TERMS AND CONDITIONS OF OPTIONS. The type of option, the number
of shares which may be purchased under each option and the purchase price per
share, shall be designated by the Committee at the time the option is granted.
The purchase price per share of an option shall in no event be less than 100% of
the fair market value of each share at the time the option is granted; provided,
however, that incentive stock options may not be granted to any holder of the
voting rights of 10% or more of the total combined voting power of all classes
of stock of the Corporation at time of grant, unless the purchase price shall be
at least 110% of the fair market value of the shares at the time of grant.
"Fair market value" shall be determined as set forth in Section 6 below. An
incentive stock option granted under the Plan shall not be transferable by the
individual to whom it is granted otherwise than by will or the laws of descent
and distribution. A non-qualified stock option shall be transferrable, except
that non-qualified stock options held by Insiders may be transferred only in
accordance with Rule 16b-3 of the Exchange Act. Incentive stock options shall
be exercisable during the lifetime of an optionee only by him; provided,
however, that if such individual becomes legally disabled (as such term is
defined in Section 105(d)(4) of the Code), his legal representative may exercise
the incentive stock option on his behalf. No incentive stock options shall be
granted under the Plan to any employee where the aggregate fair market value
(determined at the time the option is granted) of the stock with respect to
which incentive stock options are exercisable for the first time by such
employee during any calendar year (under all such plans of the Corporation and
its parent
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and subsidiary corporations) shall exceed $100,000. All options shall be
exercisable even though there may be outstanding any other option(s) which
was or were granted before the granting of such option. The Committee may
impose on any option any additional terms and conditions which it deems
advisable and which are not inconsistent with the Plan.
5. EXERCISE OF OPTIONS. (a) Unless otherwise determined by the
Committee and specifically set forth in optionee's Non-Qualified or Incentive
Stock Option Agreement, as applicable, options granted hereunder shall mature
and become exercisable as follows:
Percentage of
Period of Time Shares for
After Date of Which Option May
Grant Be Exercised
-------------- -----------------
At the end of
12 months 25%
At the end of
every month thereafter
through the 47th month 2%
At the end of the
48th month Any remaining shares
(b) An optionee may exercise less than all the matured portion of the option, in
which case such unexercised, matured portion shall continue to remain
exercisable, subject to the terms of the Plan, until the option terminates as
provided below.
(c) Unless otherwise specified by the Committee, options granted
hereunder shall be exercisable by an optionee for a period of three months after
optionee's employment by, or service on the Board for, the Corporation
terminates, other than for cause (as defined below); provided that no additional
shares shall become exercisable following the date of termination. If an
optionee's employment with the Corporation is terminated for cause, the option
shall not be exercisable at any time after such termination. "Cause" shall mean
(i) optionee's commission of a felony, fraud or willful misconduct which has
resulted, or is likely to result, in damage to the Corporation, as determined in
the sole discretion of the Committee, or (ii) the breach by optionee of the
terms of any non-disclosure or non-competition agreement with the Corporation,
as determined in the sole discretion of the Committee. If optionee's employment
is terminated due to his death or legal disability (as that term is defined in
Section 105(d)(4) of the Code) at a time when he could have exercised an
incentive or non-qualified stock option or any part thereof, then the option
shall remain exercisable for a period of one (1) year from the date of such
individual's termination as a result of disability or death; provided, however,
that no additional shares shall become exercisable following the date of
termination. Notwithstanding
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any other provision of this section or of any other section of the Plan, no
stock option granted hereunder shall be exercisable after the expiration of
ten (10) years from the date such option is granted; provided that no
incentive stock option granted to a 10% stockholder (as referenced in Section
4 hereof) shall be exercisable after the expiration of five (5) years from
the date such option is granted.
(d) Incentive stock options may be granted only to employees
(including officers) of the Corporation. A director of the Corporation shall
not be eligible to be granted an incentive stock option unless the director is
also an employee of the Corporation. An optionee may, if he is otherwise
eligible, be granted additional options. Employment with the Corporation shall
include employment with any parent or subsidiary as defined in Section 425 of
the Code.
(e) Optionee shall exercise his option by delivering to the
Corporation's President, at the principal office of the Corporation, the form of
Stock Option Exercise Notice attached hereto, or otherwise provided to optionee
by the Corporation, which notice shall set forth the number of shares desired to
be purchased and state whether the employee is exercising an incentive stock
option or non-qualified stock option; such Exercise Notice shall also be
accompanied by cash or check in the amount equal to the full purchase price of
the shares being purchased; provided, however, that the Corporation may in its
discretion allow the optionee to pay the purchase price in whole or in part by
transferring to the Corporation shares of Common Stock held by him for at least
six (6) months prior to the date of exercise, in which case such certificate
shall reflect the number of shares after payment of the exercise price. The
Exercise Notice shall be signed by the holder of the option; and shall, at the
option of the Corporation, contain a representation that the shares are being
purchased for investment only and not for resale or distribution. The
Corporation may place a legend on any certificate issued hereunder which it
deems necessary to comply with any applicable law. Within a reasonable time
after receipt of notice in the form specified above, the Corporation shall cause
to be issued and delivered to the holder of the option a certificate for the
number of shares of Common Stock which the holder has purchased; provided,
however, that the Corporation may in its discretion allow the optionee to elect
to pay any withholding taxes payable, in whole or in part, by transferring to
the Corporation shares of Common Stock of the Corporation owned by him or by
being credited by the Corporation for shares he has a right to acquire in the
option being exercised, in which case such certificate shall reflect the number
of shares after payment of the taxes. All documentary stamp taxes payable on
account of such issue shall be paid for by the Corporation. In no event shall
the Corporation be required to issue fractional shares upon the exercise of an
option.
(f) No person shall have any rights as a stockholder with respect to
any shares covered by an option until the date of the issuance of a stock
certificate(s) for the shares for which the option has been exercised. No
adjustments shall be made for dividends or distributions or other rights for
which the record date is prior to the date such stock certificate(s) are issued,
except as provided in Section 8. Nothing in this Plan or in any option
agreement
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shall confer upon any optionee any right to continue in the employ of the
Corporation or interfere in any way with any right of the Corporation to
terminate the optionee's employment at any time. The adoption of the Plan of
itself, shall not be deemed to entitled any employee to any rights to be
granted options.
(g) Insiders who are granted an option under the Plan which does not
comply with the provisions of the last sentence of Section 2 of this Plan shall
not sell the shares of Common Stock acquired upon exercise of such option sooner
than six (6) months following the date of grant of such option except as
specifically permitted in writing by the Committee.
6. DEFINITION OF FAIR MARKET VALUE. For the purposes of this Plan,
"fair market value" shall mean either the exercise price per share established
in the discretion of the Board of Directors or, in the event the Company's stock
is publicly traded: (i) the average of the closing bid and ask price per share
of Common Stock of the Company on the date preceding the date of grant, as
reported by the NASDAQ National Market, (ii) the average of the closing bid and
ask price per share of Common Stock of the Company on the date preceding the
date of grant, as reported on the over-the-counter market, or (iii) if the
Company's Common Stock is listed on a national securities exchange, fair market
value shall mean the closing price of the Common Stock on such exchange on such
preceding date as reported by THE WALL STREET JOURNAL.
7. RIGHT OF FIRST REFUSAL. The Committee may impose upon any
optionee, in the Non-Qualified or Incentive Stock Option Agreement pertaining to
any option granted, the obligation to first offer any shares of Common Stock
received upon exercise of an option or options to the Corporation before selling
or otherwise transferring (including transfer by operation of law), such shares.
8. STOCK SPLITS, MERGERS, ETC. In case of any stock split, stock
dividend or similar transaction which increases or decreases the number of
outstanding shares of the Corporation's Common Stock, appropriate adjustment
will be made to both the number of shares which may be purchased under the Plan
and the number and price per share of Common Stock which may be purchased under
any outstanding options. In the event of a Change in Control (as defined below)
of the Company, all outstanding Options that are still outstanding and not yet
exercisable or are subject to restrictions, shall become immediately
exercisable, and all restrictions shall be removed, as of the first date that
the Change in Control has been deemed to have occurred, and shall remain as such
for the remaining life of the Option. A "Change in Control" shall be deemed to
have occurred if the stockholders of the Company approve a definitive agreement
(a) to merge or consolidate the Company with or into another entity in which the
Company is not the continuing or surviving corporation or pursuant to which any
shares of Common Stock would be converted into cash, securities, or other
property of another entity, other than a merger of the Company in which the
holders of common stock immediately prior to the merger have the same
proportionate ownership of common stock (or equivalent securities) of the
surviving entity immediately after the merger as immediately before, or (b) to
-5-
<PAGE>
sell or otherwise dispose of all or substantially all of the assets of the
Company. All options outstanding on the date any such event or transaction is
consummated, to the extent not assumed by the surviving or acquiring corporation
or exercised by the optionee, shall be terminated and no longer exercisable.
9. EFFECTIVE DATE. The Plan shall take effect upon the adoption of
the Plan by the Board, being March 24, 1989. The Plan shall be approved and
ratified by the shareholders of the Corporation within twelve months of such
date or else all incentive stock options issued under the Plan shall lapse and
be cancelled.
-6-
<PAGE>
COLEMAN NATURAL PRODUCTS, INC.
INCENTIVE STOCK OPTION AGREEMENT
COLEMAN NATURAL PRODUCTS, INC. (the "Corporation"), a Delaware
corporation, hereby grants to ______________________ (the "Optionee"), an option
to purchase a total of ___________ (_______) shares of common stock ("Common
Stock") of the Corporation, at the price determined as provided herein, and in
all respects subject to the terms, definitions and provisions of this Agreement
and the Stock Option Plan (the "Plan") adopted by the Corporation, which is
incorporated herein by reference.
i. OPTION PRICE.
The option price is $________ for each share.
ii. EXERCISE OF OPTION.
Unless otherwise determined by the Board of Directors, the option
shall be exercisable in accordance with provisions of the Plan as
follows:
i) RIGHT TO EXERCISE.
The Board of Directors has determined that Optionee's options
shall be exercisable in accordance with the following formula:
a) 25% of such shares exercisable at the end of the 12th month
from the date of grant;
b) 2% of such shares exercisable at the end of every month
thereafter through the 47th month; and
c) 100% of such shares exercisable at the end of the 48th month
from the date of grant.
ii) METHOD OF EXERCISE.
This option shall be exercisable by written notice in the form
attached hereto which shall state the election to exercise the
option, the number of shares in respect of which the option is
being exercised, and such other representations and agreements as
to the holder's investment intent with respect to such shares as
may be required by the Corporation pursuant to the provisions of
the Plan. Such written notice shall be signed by the
<PAGE>
Optionee and shall be delivered in person or by certified mail
to the President of the Corporation prior to the expiration of
the term of the option as set forth in Section 4 below,
accompanied by full payment of the purchase price in cash, by
tender of stock of the Corporation having a fair market value
not less than the purchase price, or as otherwise approved by the
Corporation's Board of Directors. The certificate or
certificates from the shares as to which the option shall be
exercised shall be registered in the name of the person or
persons exercising the option.
iii) RESTRICTIONS TO EXERCISE.
This option may not be exercised if the issuance of such shares
upon such exercise would constitute a violation of any applicable
federal or state securities laws or other law or regulations. As
a condition to the exercise of this option, the Corporation may
require the Optionee to make any representation or warranty to
the Corporation as may be required by any applicable law or
regulation.
3. NON-TRANSFERABILITY OF OPTION.
This option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised
during the lifetime of the Optionee only by him. The terms of this
option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
4. TERM OF OPTION.
This option may not be exercised after ten (10) years from the date of
grant of this option, as set forth below, and may be exercised during
such term only in accordance with the Plan and the terms of this
option.
5. LEGENDS.
All certificates representing any shares of Common Stock of the
Corporation subject to the provisions of this Agreement may have
endorsed thereon the following legend and any other legends if, in the
opinion of the Corporation, such legend(s) are necessary for
compliance with securities or other applicable laws:
i) "These securities have not been registered under the Securities
Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration
statement as to the securities under said Act or an opinion of
counsel satisfactory to the Corporation that such registration is
not required."
-2-
<PAGE>
6. RIGHTS OF OPTIONEE.
The Corporation shall not be required (i) to transfer on its books any
shares of Common Stock of the Corporation which shall have been sold
or transferred in violation of any of the provisions of this
Agreement, or (ii) to treat as owner of such shares or to accord the
right to vote as such owner or to pay dividends to any transferee to
which such shares have been so transferred.
DATE OF GRANT: 19
----------------------------, ----.
COLEMAN NATURAL PRODUCTS, INC.
By:
------------------------------------
Title:
---------------------------------
Optionee acknowledges receipt of a copy of the Plan, a copy of which is annexed
hereto, and represents that he is familiar with the terms and provisions
thereof, and hereby accepts this option subject to all the terms and provisions
thereof. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions arising under the
Plan or this Agreement.
OPTIONEE:
Date:
--------------------- -----------------------------------
Name Printed:
-----------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Social Security
Number:
-----------------------------------
-3-
<PAGE>
COLEMAN NATURAL PRODUCTS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
COLEMAN NATURAL PRODUCTS, INC., (the "Corporation"), a Delaware
corporation, hereby grants to ___________________ (the "Optionee"), an option to
purchase a total of _______ shares of common stock ("Common Stock") of the
Corporation, at the price determined as provided herein, and in all respects
subject to the terms, definitions and provisions of this Agreement and the Stock
Option Plan (the "Plan") adopted by the Corporation, which is incorporated
herein by reference.
1. OPTION PRICE.
The option price is $_________ for each share.
2. EXERCISE OF OPTION.
Unless otherwise determined by the Board of Directors, the option
shall be exercisable in accordance with provisions of the Plan as
follows:
(i) RIGHT TO EXERCISE.
The Board of Directors has determined that Optionee's options
shall be exercisable in accordance with the following formula:
(a) 25% of such shares exercisable at the end of the 12th month
from the date of grant;
(b) 2% of such shares exercisable at the end of every month
thereafter through the 47th month; and
(c) 100% of such shares exercisable at the end of the 48th month
from the date of grant.
(ii) METHOD OF EXERCISE.
This option shall be exercisable by written notice in the form
attached hereto which shall state the election to exercise the
option, the number of shares in respect of which the option is
being exercised, and such other representations and agreements as
to the holder's investment intent with
<PAGE>
respect to such shares as may be required by the Corporation
pursuant to the provisions of the Plan. Such written notice
shall be signed by the Optionee and shall be delivered in person
or by certified mail to the President of the Corporation prior
to the expiration of the term of the option as set forth in
Section 4 below, accompanied by full payment of the purchase
price in cash, by tender of stock of the Corporation having a
fair market value not less than the purchase price, or as
otherwise approved by the Corporation's Board of Directors. The
certificate or certificates for the shares as to which the
option shall be exercised shall be registered in the name of the
person or persons exercising the option.
(iii) RESTRICTIONS ON EXERCISE.
This option may not be exercised if the issuance of such shares
upon such exercise would constitute a violation of any applicable
federal or state securities laws or other law or regulations. As
a condition to the exercise of this option, the Corporation may
require the Optionee to make any representation or warranty to
the Corporation as may be required by any applicable law or
regulation.
3. TRANSFERABILITY OF OPTION.
This option may be transferred by the Optionee. The terms of this
option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
4. TERM OF OPTION.
This option may not be exercised after ten (10) years from the date of
grant of this option, as set forth below, and may be exercised during
such term only in accordance with the Plan and the terms of this
option.
5. LEGEND.
All certificates representing any shares of Common Stock of the
Corporation subject to the provisions of this Agreement may have
endorsed thereon the following legend, and any other legends if, in
the opinion of the Corporation, such legend(s) are necessary for
compliance with securities or other applicable laws:
(i) "These securities have not been registered under the Securities
Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration
statement as to the securities
-2-
<PAGE>
under said Act or an opinion of counsel satisfactory to the
Corporation that such registration is not required."
6. RIGHTS OF OPTIONEE.
The Corporation shall not be required (i) to transfer on its books any
shares of Common Stock of the Corporation which shall have been sold
or transferred in violation of any of the provisions of this Agreement
or (ii) to treat as owner of such shares or to accord the right to
vote as such owner or to pay dividends to any transferee to whom such
shares have been so transferred.
DATE OF GRANT: 19
---------------, ---.
COLEMAN NATURAL PRODUCTS, INC.
By:
------------------------------------
Title:
---------------------------------
Optionee acknowledges receipt of a copy of the Plan, a copy of which is annexed
hereto, and represents that he is familiar with the terms and provisions
thereof, and hereby accepts this option subject to all the terms and provisions
thereof. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions arising under the
Plan and this Agreement.
OPTIONEE:
Date:
--------------------- -----------------------------------
Name Printed:
-----------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Social Security
Number:
-----------------------------------
-3-
<PAGE>
OMNIBUS STOCK AND INCENTIVE PLAN
COLEMAN NATURAL PRODUCTS, INC.
SEPTEMBER 6, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION . . . . . . . . . . . . . -1-
1.1 ESTABLISHMENT OF THE PLAN. . . . . . . . . . . . . . . . . . . -1-
1.2 PURPOSE OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . -1-
1.3 DURATION OF THE PLAN.. . . . . . . . . . . . . . . . . . . . . -1-
ARTICLE 2. DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . -1-
2.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . -1-
2.2 GENDER AND NUMBER. . . . . . . . . . . . . . . . . . . . . . . -4-
2.3 SEVERABILITY.. . . . . . . . . . . . . . . . . . . . . . . . . -4-
ARTICLE 3. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . -4-
3.1 THE COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . . . -4-
3.2 AUTHORITY OF THE COMMITTEE.. . . . . . . . . . . . . . . . . . -5-
3.3 DECISIONS BINDING. . . . . . . . . . . . . . . . . . . . . . . -5-
ARTICLE 4. SHARES SUBJECT TO THE PLAN . . . . . . . . . . . . . . . . . . -5-
4.1 NUMBER OF SHARES.. . . . . . . . . . . . . . . . . . . . . . . -5-
4.2 LAPSED AWARDS. . . . . . . . . . . . . . . . . . . . . . . . . -5-
4.3 ADJUSTMENTS IN AUTHORIZED SHARES.. . . . . . . . . . . . . . . -5-
ARTICLE 5. ELIGIBILITY AND PARTICIPATION. . . . . . . . . . . . . . . . . -6-
5.1 ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . -6-
5.2 ACTUAL PARTICIPATION.. . . . . . . . . . . . . . . . . . . . . -6-
ARTICLE 6. STOCK OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . -6-
6.1 GRANT OF OPTIONS.. . . . . . . . . . . . . . . . . . . . . . . -6-
6.2 OPTION AGREEMENT.. . . . . . . . . . . . . . . . . . . . . . . -6-
6.3 OPTION PRICE.. . . . . . . . . . . . . . . . . . . . . . . . . -7-
6.4 DURATION OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . -7-
6.5 EXERCISE OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . -7-
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. . . . . . . . . . . . . -8-
6.8 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . -8-
6.9 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. . . . . . . . . . -8-
6.10 NONTRANSFERABILITY OF ISOS.. . . . . . . . . . . . . . . . . . -9-
ARTICLE 7. STOCK APPRECIATION RIGHTS. . . . . . . . . . . . . . . . . . . -9-
7.1 GRANT OF STOCK APPRECIATION RIGHTS.. . . . . . . . . . . . . . -9-
7.2 SAR AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . -9-
7.3 EXERCISE OF SARS IN LIEU OF OPTIONS. . . . . . . . . . . . . . -9-
7.4 EXERCISE OF SARS IN ADDITION TO OPTIONS. . . . . . . . . . . . -10-
i
<PAGE>
7.5 EXERCISE OF SARS INDEPENDENT OF OPTIONS. . . . . . . . . . . . -10-
7.6 EXERCISE OF SARS UPON LAPSE OF OPTIONS.. . . . . . . . . . . . -10-
7.7 PAYMENT OF SAR AMOUNT. . . . . . . . . . . . . . . . . . . . . -10-
7.8 FORM OF PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . -10-
7.9 LIMIT ON APPRECIATION. . . . . . . . . . . . . . . . . . . . . -10-
7.10 RULE 16b-3 REQUIREMENTS. . . . . . . . . . . . . . . . . . . . -10-
7.11 TERM OF SARS.. . . . . . . . . . . . . . . . . . . . . . . . . -10-
7.12 TERMINATION OF EMPLOYMENT. . . . . . . . . . . . . . . . . . . -11-
7.13 NONTRANSFERABILITY OF SARS.. . . . . . . . . . . . . . . . . . -11-
ARTICLE 8. PHANTOM STOCK RIGHTS . . . . . . . . . . . . . . . . . . . . . -11-
8.1 GRANT OF PHANTOM STOCK RIGHTS. . . . . . . . . . . . . . . . . -11-
8.2 PHANTOM STOCK RIGHT AGREEMENT. . . . . . . . . . . . . . . . . -11-
8.3 VALUE OF PHANTOM STOCK RIGHT.. . . . . . . . . . . . . . . . . -11-
8.4 NONTRANSFERABILITY OF PHANTOM STOCK RIGHTS.. . . . . . . . . . -11-
8.5 RIGHTS AS A SHAREHOLDER. . . . . . . . . . . . . . . . . . . . -11-
8.6 DIVIDENDS AND OTHER DISTRIBUTIONS. . . . . . . . . . . . . . . -11-
8.7 PAYMENT OF PHANTOM STOCK RIGHTS. . . . . . . . . . . . . . . . -12-
8.8 TERMINATION OF EMPLOYMENT. . . . . . . . . . . . . . . . . . . -12-
ARTICLE 9. RESTRICTED STOCK . . . . . . . . . . . . . . . . . . . . . . . -12-
9.1 GRANT OF RESTRICTED STOCK. . . . . . . . . . . . . . . . . . . -12-
9.2 RESTRICTED STOCK AGREEMENT.. . . . . . . . . . . . . . . . . . -12-
9.3 NONTRANSFERABILITY OF RESTRICTED STOCK.. . . . . . . . . . . . -12-
9.4 OTHER RESTRICTIONS.. . . . . . . . . . . . . . . . . . . . . . -13-
9.5 CERTIFICATE LEGEND.. . . . . . . . . . . . . . . . . . . . . . -13-
9.6 REMOVAL OF RESTRICTIONS. . . . . . . . . . . . . . . . . . . . -13-
9.7 VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . -13-
9.8 DIVIDENDS AND OTHER DISTRIBUTIONS. . . . . . . . . . . . . . . -13-
9.9 TERMINATION OF EMPLOYMENT. . . . . . . . . . . . . . . . . . . -14-
ARTICLE 10. PERFORMANCE UNITS AND PERFORMANCE SHARES . . . . . . . . . . . -14-
10.1 GRANT OF PERFORMANCE UNITS OR PERFORMANCE SHARES.. . . . . . . -14-
10.2 PERFORMANCE UNIT AND PERFORMANCE SHARE AGREEMENTS. . . . . . . -14-
10.3 VALUE OF PERFORMANCE UNITS AND PERFORMANCE SHARES. . . . . . . -14-
10.4 PAYMENT OF PERFORMANCE UNITS AND PERFORMANCE SHARES. . . . . . -15-
10.5 FORM AND TIMING OF PAYMENT.. . . . . . . . . . . . . . . . . . -15-
10.6 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . -15-
10.7 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. . . . . . . . . . -15-
10.8 NONTRANSFERABILITY OF PERFORMANCE UNITS OR PERFORMANCE SHARES. -15-
ii
<PAGE>
ARTICLE 11. RIGHTS OF EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . -16-
11.1 EMPLOYMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . -16-
11.2 PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . -16-
ARTICLE 12. CHANGE IN CONTROL. . . . . . . . . . . . . . . . . . . . . . . -16-
ARTICLE 13. AMENDMENT, MODIFICATION, AND TERMINATION . . . . . . . . . . . -16-
13.1 AMENDMENT, MODIFICATION, AND TERMINATION.. . . . . . . . . . . -16-
13.2 AWARDS PREVIOUSLY GRANTED. . . . . . . . . . . . . . . . . . . -17-
ARTICLE 14. TAX WITHHOLDING. . . . . . . . . . . . . . . . . . . . . . . . -17-
ARTICLE 15. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . -17-
ARTICLE 16. BENEFICIARY DESIGNATION. . . . . . . . . . . . . . . . . . . . -17-
ARTICLE 17. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
ARTICLE 18. REQUIREMENTS OF LAW. . . . . . . . . . . . . . . . . . . . . . -18-
18.1 REQUIREMENTS OF LAW. . . . . . . . . . . . . . . . . . . . . . -18-
18.2 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . -18-
iii
<PAGE>
COLEMAN NATURAL PRODUCTS, INC.
OMNIBUS STOCK AND INCENTIVE PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Coleman Natural Products, Inc., a
Delaware corporation, hereby establishes an incentive compensation plan to be
known as the "Coleman Natural Products, Inc. Omnibus Stock and Incentive Plan"
(hereinafter referred to as the "Plan"), as set forth in this document. The
Plan permits the granting of Nonqualified Stock Options, Incentive Stock
Options, Stock Appreciation Rights, Phantom Stock Rights, Restricted Stock,
Performance Units, and Performance Shares.
Upon approval by the Board of Directors of the Company, subject to
ratification within twelve (12) months by an affirmative vote of the holders of
a majority of Shares, the Plan shall become effective as of September 6, 1996
(the "Effective Date"), and shall remain in effect as provided in Section 1.3
herein.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the
long-term and financial success, and enhance the value of the Company by
aligning the personal interests of employees, directors and consultants to those
of Company stockholders and allowing the employees, directors and consultants to
participate in the success of the Company.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract, and retain the services of Employees upon
whose judgment, interest, and special effort the successful conduct of its
operation largely is dependent.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective
Date, as described in Section 1.1 herein, and shall remain in effect, subject to
the right of the Board of Directors to terminate the Plan at any time pursuant
to Article 12 herein, until all Shares subject to it shall have been purchased
or acquired according to the Plan's provisions. However, in no event may an
Award be granted under the Plan on or after the tenth (10th) anniversary of the
Plan's Effective Date.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Whenever used in the Plan, the following terms
shall have the meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
<PAGE>
(a) "Award" means, individually or collectively, a grant under
this Plan of Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Phantom Stock Rights, Restricted Stock, Performance Units,
or Performance Shares.
(b) "Beneficial Owner" shall have the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
(c) "Board" or "Board or Directors" means the Board of Directors
of Coleman Natural Products, Inc.
(d) "Cause" means (i) a Participant's commission of a felony,
fraud or willful misconduct which has resulted, or is likely to result, in
damage to the Company, as determined in the sole discretion of the Committee, or
(ii) the breach by a Participant of the terms of any non-disclosure or non-
competition agreement with the Company, as determined in the sole discretion of
the Committee.
(e) "Change in Control" of the Company shall be deemed to have
occurred if the stockholders of the Company approve a definitive agreement (a)
to merge or consolidate the Company with or into another entity in which the
Company is not the continuing or surviving corporation or pursuant to which the
Shares would be converted into cash, securities, or other property of another
entity, other than a merger of the Company in which the holders of common stock
immediately prior to the merger have the same proportionate ownership of common
stock (or equivalent securities) of the surviving entity immediately after the
merger as immediately before, or (b) to sell or otherwise dispose of all or
substantially all of the assets of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Company" means Coleman Natural Products, Inc., a Delaware
corporation (including any and all subsidiaries), or any successor thereto as
provided in Article 17 herein.
(h) "Director" means any individual who is a member of the Board
of Directors of the Company.
(i) "Disability" means a permanent and total disability, within
the meaning of the Code Section 22(e)(3), as determined by the Committee in
good faith, upon receipt of sufficient competent medical advice from one or more
individuals, selected by the Committee, who are qualified to give professional
medical advice.
(j) "Employee" means a full-time, nonunion, salaried or hourly
(both exempt and non-exempt) employee of the Company.
-2-
<PAGE>
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(l) "Fair Market Value" means the average of the highest and
lowest quoted selling prices for the Shares on the relevant date, or (if there
were no sales on such date) the weighted average of the means between the
highest and the lowest quoted selling prices on the nearest day before and the
nearest day after the relevant date, as prescribed by Treasury Regulation
20.2031-2(b)(2), as reported in the WALL STREET JOURNAL or a similar
publication selected by the Committee, or, if no such prices for the Shares are
quoted, the fair market value as determined by the Committee.
(m) "Incentive Stock Option" or "ISO" means an option to
purchase Shares, granted under Article 6 herein, which is designated as an
Incentive Stock Option and is intended to meet the requirements of Section 422
of the Code.
(n) "Insiders" shall mean those officers, directors and other
persons who are subject to Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "Non-employee Director" shall mean a member of the Board of
Directors who is not also an employee of (or, under some circumstances, not a
consultant to the Company) and who meets the requirements set forth in Rule
16b-3 of the Exchange Act.
(p) "Nonqualified Stock Option" or "NQSO" means an option to
purchase Shares, granted under Article 6 herein, which is not intended to be an
Incentive Stock Option.
(q) "Option" means an Incentive Stock Option or a Nonqualified
Stock Option.
(r) "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as determined by the
Committee.
(s) "Participant" means an Employee or Director of, or
consultant to, the Company who has outstanding a viable Award granted under the
Plan.
(t) "Performance Unit" means a right to receive a payment from
the Company in an amount equal to the value of a Performance Unit pursuant to
Article 10 of the Plan.
(u) "Performance Share" means a right to receive a payment from
the Company in an amount equal to the value of a Performance Share pursuant to
Article 10 of the Plan.
-3-
<PAGE>
(v) "Period of Restriction" means the period during which the
transfer of Shares of Restricted Stock is restricted in some way (based on the
passage of time, the achievement of performance goals, or upon the occurrence of
other events as determined by the Committee, at its discretion), and is subject
to a substantial risk of forfeiture, as provided in Article 9 herein.
(w) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
(x) "Phantom Stock" means a right to receive a payment from the
Company in an amount pursuant to Article 8 of the Plan.
(y) "Restricted Stock" means an Award granted to a Participant
pursuant to Article 9 herein.
(z) "Retirement" means age 65 or older.
(aa) "Stock Appreciation Right" or "SAR" means an Award in lieu
of Options, in addition to Options, upon lapse of Options, independent of
Options, or each of the preceding forms in connection with previously awarded
Options, designated as an SAR, granted to a Participant pursuant to Article 7
herein.
(ab) "Shares" means the Common Stock of Coleman Natural Products,
Inc., par value $.001 per share.
2.2 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
2.3 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by a Committee
(the "Committee") consisting of not less than two Non-employee Directors who
shall be appointed from time to time by, and shall serve at the discretion of,
the Board of Directors. As used herein, the term Board of Directors shall also
mean the Committee, and vice versa, and all
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actions described herein as being undertaken by, or the responsibility of the
Committee, may be taken by the full Board of Directors; provided that all
actions of the Committee must be ratified by the Board of Directors; and
further provided that, with respect to Insiders, transactions under this Plan
are intended to comply with Section 5.2, below, and with all applicable
conditions of Rule 16b-3, as it may be amended from time to time.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions herein,
the Committee shall have full power to select Employees to whom Awards are
granted; to determine the size and types of Awards; to determine the terms and
conditions of such Awards in a manner consistent with the Plan; to construe and
interpret the Plan and any agreement or instrument entered into under the Plan;
to establish, amend, or waive rules and regulations for the Plan's
administration; and (subject to the provisions of Article 12 herein) to amend
the terms and conditions of any outstanding Award to the extent such terms and
conditions are within the discretion of the Committee as provided in the Plan.
Further, the Committee shall have the full power to make all other
determinations which may be necessary or advisable for the administration of the
Plan.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding on
all Persons, including the Company, its stockholders, Insiders, Employees,
Participants, and their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section
4.3 herein, the maximum number of Shares that may be granted under the Plan is
332,000. The Shares available for grant under the Plan may be either authorized
but unissued or reacquired Shares. In no event, except as subject to adjustment
under Section 4.3 or otherwise approved by the Board and the stockholders, shall
more than 332,000 Shares be cumulatively available for issuance pursuant to the
exercise of ISOs granted under the Plan.
4.2 LAPSED AWARDS. If any Award granted under this Plan terminates,
expires, or lapses for any reason, any Shares subject to such Award again shall
be available for the grant of an Award under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, split-up, share combination, or other change in the corporate
structure of the Company affecting the Shares, such adjustment shall be made in
the number and class of Shares which may be delivered under the Plan, and in the
number and class of and/or price of Shares subject to outstanding Options, SARs,
Phantom Stock Rights, Restricted Stock, Performance Units, and Performance
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Shares granted under the Plan, as may be determined to be appropriate and
equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; and provided that the number of Shares subject to any
Award shall always be a whole number. Any adjustment of an ISO under this
paragraph shall be made in such a manner so as not to constitute a
"modification" within the meaning of Section 425(h)(3) of the Code.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan
include all Employees and Directors of the Company and any consultants to the
Company.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, Directors
and consultants, those Employees, Directors and consultants to whom Awards shall
be granted and shall determine the nature and amount of each Award. No
Employee, Director or consultant shall have any right to be granted an Award
under this Plan. All grants of Awards hereunder to Insiders shall be either (i)
made by the full Board of Directors, (ii) made by the Committee, or (iii)
approved in advance by the Corporation's stockholders or ratified by such
stockholders by a date which is no later that the date of the next annual
meeting of stockholders. Insiders who are granted an Award under this Plan
which does not comply with the provisions of the previous sentence shall not be
permitted to sell the shares of Common Stock so acquired (including upon
exercise of any Option granted) sooner than six (6) months following the date of
grant of such Award.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the
Plan, Options may be granted to Employees, Directors and consultants at any time
and from time to time as shall be determined pursuant to Section 5.2. The
Committee shall have complete discretion in determining the number of Shares
subject to Options granted to each Participant. The Committee may grant ISOs,
NQSOs, or a combination thereof. However, no Employee (including Employees who
are also Directors) may receive an Award of ISOs that are first exercisable
during any calendar year to the extent that the aggregate Fair Market Value of
the Shares, subject of the Award (determined at the time the options are
granted), exceeds $100,000. Nothing in this Article 6 shall be deemed to
prevent the grant of NQSOs in excess of the maximum established by Section 422
of the Code.
6.2 OPTION AGREEMENT. Each Option grant shall be evidenced by an
Option Agreement that shall specify the Option Price, the duration of the
Option, the number of Shares to which the Option pertains, and such other
provisions as the Committee shall determine. The
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Option Agreement also shall specify whether the Option is intended to be an
ISO within the meaning of Section 422 of the Code, or an NQSO whose grant is
intended not to fall under the Code provisions of Section 422. In no event
may an ISO be granted after the date which is ten (10) years from the date
the Plan is adopted or the date such Plan is approved by the stockholders of
the Company, whichever is earlier.
6.3 OPTION PRICE. The purchase price per Share covered by an Option
shall be determined by the Committee but, in the case of an ISO, shall not be
less than 100% of the Fair Market Value of such Share on the date the Option is
granted; and in the case of a NQSO, shall not be less than 85% of the Fair
Market Value of such Share on the date the Option is granted. An ISO granted to
an Employee who, at the time of grant, owns Shares possessing more than 10% of
the total combined voting power of all classes of stock of the Company, shall
have an exercise price which is at least 110% of the Fair Market Value of the
Shares.
6.4 DURATION OF OPTIONS. Each Option shall expire at such time as
the Committee shall determine at the time of grant provided, however, that no
ISO shall be exercisable later than the tenth (10th) anniversary date of its
grant.
6.5 EXERCISE OF OPTIONS. Unless otherwise determined by the
Committee and specifically set forth in a Participant's Award (which need not be
the same for each grant or each Participant), as applicable, Options granted
hereunder shall mature and become exercisable as follows:
Percentage of
Period of Time Shares for
After Date of Which Option May
Grant Be Exercised
--------------- ----------------
At the end of
12 months 25%
At the end of
every month thereafter
through the 47th month 2%
At the end of the
48th month Any remaining shares
6.6 PAYMENT. Options shall be exercised by the delivery of a written
notice of exercise to the Secretary of the Company, setting forth the number of
Shares with respect to which the Option is to be exercised, accompanied by full
payment for the Shares.
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The Option Price upon exercise of any Option shall be payable to the
Company in full either (a) in cash or its equivalent, or (b) by tendering Shares
previously acquired and held for a minimum of six (6) months prior to such
tender and having a Fair Market Value at the time of exercise equal to the total
Option Price, or (c) by a combination of (a) and (b). The proceeds from such a
payment shall be added to the general funds of the Company and shall be used for
general corporate purposes.
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Options exercised.
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee shall
impose such restrictions on any Shares acquired pursuant to the exercise of an
Option under the Plan, as it may deem advisable, including, without limitation,
restrictions under applicable Federal securities laws, under the requirements of
any Stock exchange or market upon which such Shares are then listed and/or
traded, and under any blue sky or state securities laws applicable to such
Shares.
6.8 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT. In the event the employment (including service on the Board of
Directors or as a consultant to the Company) of a Participant is terminated by
reason of death, any outstanding Options held by such Participant shall remain
exercisable at any time prior to their expiration date or for one (1) year after
the date that employment was terminated, whichever period is shorter, by such
person or persons as shall have been named as the Participant's beneficiary, or
by such persons that have acquired the Participant's rights under the Option by
will or by the laws of descent and distribution. In the event the Participant
names his estate as the beneficiary, the Option shall be exercisable by the
personal representative or executor of the deceased Participant.
In the event the employment (including service on the Board of
Directors or as a consultant to the Company) of a Participant is terminated by
reason of Disability, any outstanding Options held by such Participant shall
remain exercisable by the Participant or the Participant's attorney-in-fact,
agent, or conservator at any time prior to their expiration date or for one (l)
year after the date that employment was terminated, whichever period is shorter.
In the event the employment (including service on the Board of
Directors or as a consultant to the Company) of a Participant is terminated by
reason of Retirement, any outstanding Options shall remain exercisable at any
time prior to their expiration date or for three (3) months after the date that
employment was terminated, whichever period is shorter.
6.9 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment
(including service on the Board of Directors or as a consultant to the Company)
of the Participant shall terminate for any reason other than for death,
Disability, Retirement, or Cause, all Options held by the Participant shall
remain exercisable by the Participant at any time prior
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to their expiration date or for three (3) months after the Participant's
employment was terminated, but in no event beyond the expiration date of the
Options, and only to the extent that the Options were exercisable by the
Participant at the date of termination.
If the employment (including service on the Board of Directors or as a
consultant to the Company) of the Participant shall terminate for Cause, all
outstanding Options immediately shall be forfeited to the Company and no
additional exercise period shall be allowed.
6.10 NONTRANSFERABILITY OF ISOS. No ISO granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all
ISOs granted to a Participant under the Plan shall be exercisable during his or
her lifetime only by such Participant. NQSOs granted hereunder may be
transferred by Insiders only in compliance with Section 16 of the Exchange Act
and the rules and regulations promulgated thereunder.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and
conditions of the Plan, Stock Appreciation Rights ("SARs") may be granted to
Participants at any time and from time to time as shall be determined by the
Committee. An SAR may be granted at the discretion of the Committee in any of
the following forms:
(a) In lieu of Options,
(b) In addition to Options,
(c) Upon lapse of Options,
(d) Independent of Options,
(e) Each of the above in connection with previously awarded
options.
7.2 SAR AGREEMENT. Each SAR grant shall be evidenced by an SAR
Agreement that shall specify the Fair Market Value of the underlying Shares on
the date of grant (the "Grant Price"), the term of the SAR, and such other
provisions as the Committee shall determine.
7.3 EXERCISE OF SARS IN LIEU OF OPTIONS. SARs granted in lieu of
Options may be exercised for all or part of the Shares subject to the related
Option upon the surrender of the right to exercise an equivalent number of
Options. The SAR may be exercised only with
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respect to the Shares for which its related Option is then exercisable.
Shares with respect to which an SAR shall have been exercised may not be
subject again to an Award under this Plan. SARs granted pursuant to this
Section 7.3 with respect to which the related option has been exercised will
immediately lapse upon such exercise.
7.4 EXERCISE OF SARS IN ADDITION TO OPTIONS. SARs granted in
addition to Options shall be deemed to be exercised upon the exercise of the
related Options.
7.5 EXERCISE OF SARS INDEPENDENT OF OPTIONS. SARs granted
independent of Options may be exercised upon whatever terms and conditions the
Committee, in its sole discretion, imposes upon the SARs.
7.6 EXERCISE OF SARS UPON LAPSE OF OPTIONS. SARs granted upon lapse
of Options shall be deemed to have been exercised upon the lapse of the related
Options as to the number of Shares subject to the Options. Notwithstanding
Section 4.2 above, lapsed Options in an amount equal to the related SARs shall
not be available again for Awards under the Plan.
7.7 PAYMENT OF SAR AMOUNT. Upon exercise of the SAR, the holder
shall be entitled to receive payment of an amount (subject to Section 7.9 below)
determined by multiplying:
(a) The difference between the Fair Market Value of a Share at
the date of exercise over the price fixed by the Committee at the date of grant,
by
(b) The number of Shares with respect to which the SAR is
exercised.
7.8 FORM OF PAYMENT. At the discretion of the Committee, payment for
SARs may be made in cash or in Shares of equivalent value or in a combination
thereof.
7.9 LIMIT ON APPRECIATION. At the time of grant, the Committee may
establish in its sole discretion, a maximum amount per Share which will be
payable upon exercise of an SAR.
7.10 RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of
the Plan, the Committee may impose such conditions on exercise of an SAR by an
Insider (including, without limitation, the right of the Committee to limit the
time of exercise to specified periods) as may be required to satisfy the
requirements of Rule 16b-3 (or any successor rule), under the Exchange Act.
7.11 TERM OF SARS. The term of an SAR granted under the Plan shall be
determined by the Committee in its sole discretion; however, such term shall not
exceed ten (10) years.
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7.12 TERMINATION OF EMPLOYMENT. In the event the employment
(including service on the Board of Directors or as a consultant to the Company)
of a Participant is terminated by reason of death, Disability, Retirement, or
any other reason, any SARs outstanding shall terminate in the same manner as
specified for Options under Section 6.8 and 6.9 herein.
7.13 NONTRANSFERABILITY OF SARS. No SAR granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
until the satisfaction of any restriction, as specified by the Committee in its
sole discretion and set forth in the SAR Agreement.
ARTICLE 8. PHANTOM STOCK RIGHTS
8.1 GRANT OF PHANTOM STOCK RIGHTS. Subject to the terms and
provisions of the Plan, the Committee, at any time and from time to time, may
grant Phantom Stock Rights to Employees in such amounts as the Committee shall
determine.
8.2 PHANTOM STOCK RIGHT AGREEMENT. Each Phantom Stock Right grant
shall be evidenced by a Phantom Stock Right Agreement that shall specify the
number of Phantom Stock Rights granted and such other provisions as the
Committee shall determine.
8.3 VALUE OF PHANTOM STOCK RIGHT. The Committee in its sole
discretion shall establish the appropriate method of determining the value of
each Phantom Stock Right. In no case, however, shall the method of determining
the value of a Phantom Stock Right at date of payment differ from the method
used to establish the initial value.
8.4 NONTRANSFERABILITY OF PHANTOM STOCK RIGHTS. No Phantom Stock
Right issued under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, until the satisfaction of any restriction,
as specified by the Committee in its sole discretion and set forth in the
Phantom Stock Right Agreement.
8.5 RIGHTS AS A SHAREHOLDER. Holders of Phantom Stock Rights shall
not be deemed shareholders and, except to the extent provided in the Plan, shall
have no rights related to any Shares.
8.6 DIVIDENDS AND OTHER DISTRIBUTIONS. Unless otherwise determined
by the Committee at the time of grant, holders of Phantom Stock Rights shall not
be entitled to receive cash payments equal to any cash dividends or other
distributions paid with respect to any corresponding number of Shares.
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8.7 PAYMENT OF PHANTOM STOCK RIGHTS. At the discretion of the
Committee, payment for Phantom Stock Rights may be made in cash, in Shares of
equivalent value, or in a combination thereof.
8.8 TERMINATION OF EMPLOYMENT. In the event that a Participant
experiences a termination of employment with the Company (including service on
the Board of Directors or as a consultant to the Company) for reason of death,
Disability, or Retirement, any and all restrictions on the Participant's Phantom
Stock Rights shall lapse as of the date of termination; provided, however, that
the Committee, in its sole discretion, may add such new conditions to those
Phantom Stock Rights as it deems appropriate, including restrictions
substantially similar to those in effect at the date of termination.
In the event that a Participant experiences a termination of
employment with the Company (including service on the Board of Directors or as a
consultant to the Company) for any reason other than for death, Disability, or
Retirement, any and all of the Participant's Phantom Stock Rights which are
still subject to restrictions as of the date of termination shall automatically
be forfeited and returned to the Company; provided, however, that the Committee,
in its sole discretion, may waive some or all of the remaining restrictions on
any or all Phantom Stock Rights, pursuant to this Article 8, and add such new
conditions to those Phantom Stock Rights as it deems appropriate, including
restrictions substantially similar to those in effect at the date of
termination.
If the employment of the Participant shall terminate for Cause
(including service on the Board of Directors or as a consultant to the Company),
all Phantom Stock Rights still subject to restriction as of the date of
termination shall automatically be forfeited and returned to the Company.
ARTICLE 9. RESTRICTED STOCK
9.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions
of the Plan, the Committee, at any time and from time to time, may grant Shares
of Restricted Stock to Employees in such amounts as the Committee shall
determine.
9.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement that shall specify the Period of
Restriction, or Periods, the number of Restricted Stock Shares granted, and such
other provisions as the Committee shall determine.
9.3 NONTRANSFERABILITY OF RESTRICTED STOCK. Except as provided in
this Article 9, the Shares of Restricted Stock granted herein may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction
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established by the Committee and specified in the Restricted Stock Agreement,
or upon earlIer satisfaction of any other conditions, as specified by the
Committee in its sole discretion and set forth in the Restricted Stock
Agreement. All rights with respect to the Restricted Stock granted to a
Participant under the Plan shall be available during his or her lifetime only
by such Participant.
9.4 OTHER RESTRICTIONS. The Committee shall impose such other
restrictions on any Shares of Restricted Stock granted pursuant to the Plan as
it may deem advisable including, without limitation, restrictions based upon the
achievement of specific (Company-wide, divisional, and/or individual)
performance goals, and/or restrictions under applicable Federal or state
securities laws; and may legend the certificates representing shares of
Restricted Stock to give appropriate notice of such restrictions.
9.5 CERTIFICATE LEGEND. In addition to any legends placed on
certificates pursuant to Section 9.4 herein, each certificate representing
Shares of Restricted Stock granted pursuant to the Plan shall bear the following
legend:
"The sale or other transfer of the shares represented by
this certificate, whether voluntary, involuntary, or by
operation of law, is subject to certain restrictions on
transfer as set forth in the Coleman Natural Products, Inc.
Omnibus Stock and Incentive Plan and in a Restricted Stock
Agreement dated __________ . A copy of the Plan and such
Restricted Stock Agreement may be obtained from the Secretary
of Coleman Natural Products, Inc."
9.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this
Article 9, Shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan shall become freely transferable by the Participant after
the last day of the Period of Restriction. Once the Shares are released from
the restrictions, the Participant shall be entitled to have the legend required
by Section 9.5 removed from his Share certificate.
9.7 VOTING RIGHTS. During the Period of Restriction, Participants
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares.
9.8 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Participants holding Shares of Restricted Stock granted hereunder
shall be entitled to receive all dividends and other distributions paid with
respect to those Shares while they are so held. If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
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9.9 TERMINATION OF EMPLOYMENT. In the event that a Participant
experiences a termination of employment with the Company (including service on
the Board of Directors or as a consultant to the Company) for reason of death,
Disability, or Retirement, any and all restrictions on the Participant's Shares
of Restricted Stock shall lapse as of the date of termination; provided,
however, that the Committee, in its sole discretion, may add such new
restrictions to those Shares of Restricted Stock as it deems appropriate,
including restrictions substantially similar to those in effect at the date of
termination.
In the event that a Participant experiences a termination of
employment with the Company (including service on the Board of Directors or as a
consultant to the Company) for any reason other than for death, Disability, or
Retirement, any and all of the Participant's Shares of Restricted Stock still
subject to restrictions as of the date of termination shall automatically be
forfeited and returned to the Company; provided, however, that the Committee, in
its sole discretion, may waive some or all of the restrictions remaining on any
or all Shares of Restricted Stock, pursuant to this Article 9, and add such new
restrictions to those Shares of Restricted Stock as it deems appropriate,
including restrictions substantially similar to those in effect at the date of
termination.
If the employment of the Participant shall terminate for Cause
(including service on the Board of Directors or as a consultant to the Company),
all shares of Restricted Stock still subject to restriction as of the date of
termination shall automatically be forfeited and returned to the Company.
ARTICLE 10. PERFORMANCE UNITS AND PERFORMANCE SHARES
10.1 GRANT OF PERFORMANCE UNITS OR PERFORMANCE SHARES. Subject to the
terms and conditions of the Plan, Performance Units or Performance Shares may be
granted to Participants at any time and from time to time as shall be determined
by the Committee. The Committee shall have complete discretion in determining
the number of Performance Units or Performance Shares granted to each
Participant.
10.2 PERFORMANCE UNIT AND PERFORMANCE SHARE AGREEMENTS. Each
Performance Unit and Performance Share grant shall be evidenced by a Performance
Unit or Performance Share Agreement (whichever is applicable) that shall specify
the value of a Performance Unit or Performance Share, the duration of the
performance period, the number of Performance Units or Performance Shares, and
such other provisions as the Committee shall determine.
10.3 VALUE OF PERFORMANCE UNITS AND PERFORMANCE SHARES. Each
Performance Unit shall have an initial value of one dollar ($1), and each
Performance Share initially shall represent one Share. The Committee shall set
performance goals in its discretion which, depending on the extent to which they
are met, will determine the ultimate value of the
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Performance Unit or Performance Share to the Participant. The time period
during which the performance goals must be met shall be called a performance
period, and also is to be determined by the Committee.
10.4 PAYMENT OF PERFORMANCE UNITS AND PERFORMANCE SHARES. After a
performance period has ended, the holder of a Performance Unit or Performance
Share shall be entitled to receive the value thereof as determined by the extent
to which performance goals discussed in Section 10.3 have been met.
10.5 FORM AND TIMING OF PAYMENT. Payment for Performance Units or
Performance Shares in Section 10.4 above shall be made in cash, Shares of
equivalent value, or a combination thereof as determined by the Committee.
Payment may be made in a lump sum or in installments as prescribed by the
Committee. If any payment is to be made on a deferred basis, the Committee may
provide for the payment of dividend equivalents or interest during the deferral
period.
10.6 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT. In the case of death, Disability, or Retirement, the holder of a
Performance Unit or Performance Share shall receive pro rata payment based on
the number of months' service during the performance period but based on the
achievement of performance goals during the entire performance period. Payment
shall be made at the time payments are made to Participants who did not
terminate service during the performance period.
10.7 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant terminates employment with the Company (including service on the
Board of Directors or as a consultant to the Company) for any reason other than
death, Disability, or Retirement, all Performance Units and Performance Shares
shall be forfeited; provided, however, that in the event of an involuntary
termination of the employment of the Participant by the Company, the Committee
in its sole discretion may waive the automatic forfeiture provisions and pay out
on a pro rata basis.
If the employment of the Participant shall terminate for Cause
(including service on the Board of Directors or as a consultant to the Company),
all Performance Units and Performance Shares shall be forfeited.
10.8 NONTRANSFERABILITY OF PERFORMANCE UNITS OR PERFORMANCE SHARES.
No Performance Units or Performance Shares granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
otherwise than by will or by the laws of descent and distribution until the
termination of the applicable performance period. All rights with respect to
Performance Units and Performance Shares granted to a Participant under the Plan
shall be exercisable during his lifetime only by such Participant.
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ARTICLE 11. RIGHTS OF EMPLOYEES
11.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Participant's employment at
any time, or confer upon any Participant any right to continue in the employ of
the Company.
11.2 PARTICIPATION. No Employee shall have the right to be selected
to receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
ARTICLE 12. CHANGE IN CONTROL
In the event of a Change in Control of the Company, all Awards granted
under this Plan, including NQSOs, ISOs, SARs, Phantom Stock Rights, Restricted
Stock, Performance Units, and Performance Shares that are still outstanding and
not yet exercisable or are subject to restrictions, shall become immediately
exercisable, and all restrictions shall be removed, as of the first date that
the Change in Control has been deemed to have occurred, and shall remain as such
for the remaining life of the Award, as such life is provided herein and within
the provisions of the related individual Award Agreements. Performance Units and
Performance Shares shall be paid out based upon the extent to which performance
goals during the performance period have been met up to the date of the Change
in Control. All Options, SARs and Phantom Stock Rights outstanding on the date
any such event or transaction is consummated shall be terminated and no longer
exercisable.
ARTICLE 13. AMENDMENT, MODIFICATION, AND TERMINATION
13.1 AMENDMENT, MODIFICATION, AND TERMINATION. With the approval of
the Board, at any time and from time to time, the Committee may terminate,
amend, or modify the Plan. The termination, amendment, or modification of the
Plan may be in response to changes in the Code, Exchange Act, national
securities exchange regulations, or for other reasons deemed appropriate by the
Committee. However, without the approval of the stockholders of the Company, no
such termination, amendment, or modification may:
(a) Increase the total amount of Shares which may be issued
under this Plan, except as provided in Section 4.3 herein; or
(b) Change the class of Employees eligible to participate in the
Plan.
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13.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall in any manner adversely affect any Award
previously granted under the Plan, without the written consent of the
Participant.
ARTICLE 14. TAX WITHHOLDING
The Company shall have the power and the right to deduct or withhold,
or require a Participant to remit to the Company, an amount sufficient to
satisfy Federal, state, and local taxes (including the Participant's FICA
obligation) required by law to be withheld with respect to any grant, exercise,
or payment made under or as a result of the Plan.
ARTICLE 15. INDEMNIFICATION
Each Person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified and held harmless by the Company against and
from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him in connection with or resulting from any claim,
action, suit, or proceeding to which he may be a party or in which he may be
involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him in settlement thereof, with the
Company's approval, or paid by him in satisfaction of any judgment in any such
action, suit, or proceeding against him, provided he shall give the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such Persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless.
ARTICLE 16. BENEFICIARY DESIGNATION
Each Participant under the Plan may name, from time to time, any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his death before he
receives any or all of such benefit. Each designation will revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Participant in writing
with the Committee during his lifetime. In the absence of any such designation,
benefits remaining unpaid at the Participant's death shall be paid to his
estate.
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ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 18. REQUIREMENTS OF LAW
18.1 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under this Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
18.2 GOVERNING LAW. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
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INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT made and entered into as of September ,
1996, by and between Coleman Natural Products, Inc., a Delaware corporation
(the "Company"), and (the "Indemnitee");
WHEREAS, highly competent persons are becoming more reluctant to serve
corporations as directors, officers or in other capacities unless they are
provided with adequate protection through insurance and indemnification against
inordinate risks of claims and actions against them arising out of their service
to and activities on behalf of the Company; and
WHEREAS, the current difficulties of obtaining adequate insurance have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors has determined that the inability to
attract and retain such persons is detrimental to the best interests of the
Company's stockholders and that the Company should act to assure such persons
that there will be increased certainty of such protection in the future; and
WHEREAS, the Amended and Restated Bylaws of the Company (the "Bylaws")
provide for the indemnification of the officers and directors of the Company to
the fullest extent permitted by the General Corporation Law of the State of
Delaware (the "GCL"); and
WHEREAS, in recognition of the foregoing, and in part to provide the
Indemnitee with specific contractual assurance that the protection promised by
the Bylaws will be available to the Indemnitee (regardless of, among other
things, any amendment to or revocation of the Bylaws or any change in the
composition of the Company's Board of Directors or acquisition of the Company),
the Company wishes to provide in this Agreement for the indemnification of and
the advancing of expenses to the Indemnitee to the full extent permitted by law
and as set forth in this Agreement; and
WHEREAS, the GCL specifically contemplates that agreements may be entered
into between the Company and its directors or officers with respect to their
indemnification; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
<PAGE>
WHEREAS, the Indemnitee is willing to serve, continue to serve and take on
additional service for or on behalf of the Company on the condition that he or
she be so indemnified.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and the Indemnitee do hereby covenant and agree as
follows:
SECTION 1. INDEMNIFICATION. The Company shall indemnify the Indemnitee to
the fullest extent permitted by applicable law in effect on the date hereof or
to such greater extent as such laws may thereafter from time to time permit.
Without diminishing the scope of the indemnification provided by this Section 1,
the rights of indemnification of the Indemnitee provided hereunder shall include
but shall not be limited to those rights hereinafter set forth, except that no
indemnification shall be paid to the Indemnitee:
(a) On account of any suit in which judgment is rendered against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;
(b) On account of the Indemnitee's conduct which is finally adjudged
to have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct;
(c) To the extent expressly prohibited by applicable law;
(d) For which payment is actually made to the Indemnitee under a
valid and collectible insurance policy or under a valid and enforceable
indemnity clause, the Company's Certificate of Incorporation or Bylaws
(collectively, the "Charter Documents"), or agreement, except in respect of any
excess beyond payment under such insurance, clause, Charter Document or
agreement;
(e) If a final decision by a court having jurisdiction in the matter
shall determine that such indemnification is not lawful (and, in this respect,
both the Company and the Indemnitee have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising under
the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to the
appropriate court for adjudication); or
(f) In connection with any proceeding (or part thereof) initiated by
the Indemnitee, or any proceeding by the Indemnitee against the Company or its
directors, officers, employees or other Indemnitees, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board of Directors of the Company, (iii) such indemnification
is provided by the Company, in its sole discretion,
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pursuant to the powers vested in the Company under applicable law, or (iv)
except as provided in Sections 11 and 12 hereof.
SECTION 2. ACTION OR PROCEEDING OTHER THAN AN ACTION BY OR IN THE RIGHT OF
THE COMPANY. The Indemnitee shall be entitled to the indemnification rights
provided in this section if he or she is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative in nature, other than
an action by or in the right of the Company, by reason of the fact that he or
she is or was a director, officer, employee, agent or fiduciary of the Company,
or is or was serving at the request of the Company as a director, officer,
employee, agent or fiduciary of any other entity, including, but not limited to,
another corporation, partnership, joint venture, trust, or by reason of anything
done or not done by him or her in any such capacity. Pursuant to this section,
the Indemnitee shall be indemnified against all expenses (including attorneys'
fees), costs, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding (including, but not limited to, the investigation, defense or
appeal thereof), if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
SECTION 3. ACTIONS BY OR IN THE RIGHT OF THE COMPANY. The Indemnitee
shall be entitled to the indemnification rights provided in this section if he
or she is a person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding brought by or in
the right of the Company to procure a judgment in its favor by reason of the
fact that he or she is or was a director, officer, employee, agent or fiduciary
of the Company, or is or was serving at the request of the Company as a
director, officer, employee, agent or fiduciary of another entity, including,
but not limited to, another corporation, partnership, joint venture, trust, or
by reason of anything done or not done by him or her in any such capacity.
Pursuant to this section, the Indemnitee shall be indemnified against all
expenses (including attorneys' fees), costs and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding (including, but not limited to, the investigation, defense or
appeal thereof) if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company; provided, however, that no such indemnification shall be made in
respect of any claim, issue, or matter as to which applicable law expressly
prohibits such indemnification by reason of any adjudication of liability of the
Indemnitee to the Company, unless and only to the extent that, the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnity for such expenses and costs which
such court shall deem proper.
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SECTION 4. INDEMNIFICATION FOR COSTS, CHARGES AND EXPENSES OF SUCCESSFUL
PARTY. Notwithstanding the other provisions of this Agreement, to the extent
that the Indemnitee has served as a witness on behalf of the Company or has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 2 and 3 hereof, or in defense of any claim,
issue or matter therein, including, without limitation, the dismissal of any
action without prejudice, he or she shall be indemnified against all costs,
charges and expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of authorization
in the specific case.
SECTION 5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of the expenses (including attorneys' fees), costs, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with the investigation, defense, appeal or settlement of such suit,
action, investigation or proceeding described in Section 2 or 3 hereof, but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify the Indemnitee for the portion of such expenses (including reasonable
attorneys' fees), costs, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by him or her to which the
Indemnitee is entitled.
SECTION 6. DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION. Upon written
request by the Indemnitee for indemnification pursuant to Section 2 or 3 hereof,
the entitlement of the Indemnitee to indemnification pursuant to the terms of
this Agreement shall be determined by the following person or persons who shall
be empowered to make such determination, and indemnification shall be made by
the Company promptly upon such determination: (a) the Board of Directors of the
Company by a majority vote of Disinterested Directors (as defined in Section 17
below), even though less than a quorum; (b) if there are no such directors, or
if such directors so direct, by Independent Counsel (as defined in Section 17
below) in a written opinion to the Board of Directors, a copy of which shall be
delivered to the Indemnitee, (c) by the stockholders or (d) if a Change in
Control has occurred and the Indemnitee so requests, in a written opinion
rendered by Independent Counsel chosen by the Indemnitee and not reasonably
objected to by the Board of Directors. Except with regard to subsection (d),
such Independent Counsel shall be selected by the Board of Directors and
approved by the Indemnitee. Upon failure of the Board to so select such
Independent Counsel or upon failure of the Indemnitee to so approve (or in the
case of subsection (d), if Indemnitee fails to select or the Board fails to
approve such Independent Counsel) such Independent Counsel shall be selected by
the Chancellor of the State of Delaware or such other person as the Chancellor
shall designate to make such selection. Such determination of entitlement to
indemnification shall be made not later than 45 days after receipt by the
Company of a written request for indemnification. Such request shall include
documentation or information which is necessary for such determination and which
is reasonably available to the Indemnitee. Any costs or expenses (including
attorneys' fees) incurred by the Indemnitee in connection with his or her
request for indemnification hereunder shall be borne by the Company. The
Company hereby indemnifies and agrees to
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hold the Indemnitee harmless therefrom irrespective of the outcome of the
determination of the Indemnitee's entitlement to indemnification. If the
person making such determination shall determine that the Indemnitee is
entitled to indemnification as to part (but not all) of the application for
indemnification, such person shall reasonably prorate such partial
indemnification among such claims, issues or matters.
SECTION 7. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. The Secretary
of the Company shall, promptly upon receipt of the Indemnitee's request for
indemnification, advise in writing the Board of Directors or such other person
or persons empowered to make the determination as provided in Section 6 that the
Indemnitee has made such request for indemnification. Upon making such request
for indemnification, the Indemnitee shall be presumed to be entitled to
indemnification hereunder and the Company shall have the burden of proof in the
making of any determination contrary to such presumption. If the person or
persons so empowered to make such determination shall have failed to make the
requested indemnification within 45 days after receipt by the Company of such
request, the requisite determination of entitlement to indemnification shall be
deemed to have been made and the Indemnitee shall be absolutely entitled to such
indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, investigation or
proceeding described in Section 2 or 3 hereof by judgment, order, settlement or
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself: (a) create a presumption that the Indemnitee did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, that the Indemnitee had reasonable cause to believe that his or her
conduct was unlawful; or (b) otherwise adversely affect the rights of the
Indemnitee to indemnification except as may be provided herein.
SECTION 8. ADVANCEMENT OF EXPENSES AND COSTS. All reasonable expenses and
costs incurred by the Indemnitee (including attorneys' fees, retainers and
advances of disbursements required of the Indemnitee) shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
at the request of the Indemnitee within twenty days after the receipt by the
Company of a statement or statements from the Indemnitee requesting such advance
or advances from time to time. The Indemnitee's entitlement to such expenses
shall include those incurred in connection with any proceeding by the Indemnitee
seeking an adjudication or award in arbitration pursuant to this Agreement.
Such statement or statements shall reasonably evidence the expenses and costs
incurred by him or her in connection therewith and shall include or be
accompanied by an undertaking by or on behalf of the Indemnitee to repay such
amount if it is ultimately determined that the Indemnitee is not entitled to be
indemnified against such expenses and costs by the Company as provided by this
Agreement or otherwise.
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<PAGE>
SECTION 9. REMEDIES OF THE INDEMNITEE IN CASES OF DETERMINATION NOT TO
INDEMNIFY OR TO ADVANCE EXPENSES. In the event that a determination is made
that the Indemnitee is not entitled to indemnification hereunder or if payment
has not been timely made following a determination of entitlement to
indemnification pursuant to Sections 6 and 7, or if expenses are not advanced
pursuant to Section 8, the Indemnitee shall be entitled to a final adjudication
in an appropriate court of the State of Delaware or any other court of competent
jurisdiction of his or her entitlement to such indemnification or advance.
Alternatively, the Indemnitee at his or her option may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association, such award to be made within sixty days
following the filing of the demand for arbitration. The Company shall not oppose
the Indemnitee's right to seek any such adjudication or award in arbitration or
any other claim. Such judicial proceeding or arbitration shall be made de novo
and the Indemnitee shall not be prejudiced by reason of a determination (if so
made) that he or she is not entitled to indemnification. If a determination is
made or deemed to have been made pursuant to the terms of Section 6 or Section 7
hereof that the Indemnitee is entitled to indemnification, the Company shall be
bound by such determination and is precluded from asserting that such
determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. The Company
further agrees to stipulate in any such court or before any such arbitrator that
the Company is bound by all the provisions of this Agreement and is precluded
from making any assertions to the contrary. If the court or arbitrator shall
determine that the Indemnitee is entitled to any indemnification hereunder, the
Company shall pay all reasonable expenses (including attorneys' fees) and costs
actually incurred by the Indemnitee in connection with such adjudication or
award in arbitration (including, but not limited to, any appellant proceedings).
SECTION 10. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
the Indemnitee of notice of the commencement of any action, suit or proceeding,
the Indemnitee will, if a claim in respect thereof is to be made against the
Company under this Agreement, notify the Company in writing of the commencement
thereof; but the omission to so notify the Company will not relieve it from any
liability that it may have to the Indemnitee otherwise than under this Agreement
or, to the extent such failure has not materially prejudiced the rights of the
Company to defend any such claim, under this Agreement. Notwithstanding any
other provision of this Agreement, with respect to any such action, suit or
proceeding as to which the Indemnitee notifies the Company of the commencement
thereof:
(a) The Company will be entitled to participate therein at its own
expense; and
(b) Except as otherwise provided in this Section 10(b), to the extent
that it may wish, the Company, jointly with any other indemnifying party
similarly notified, shall be entitled to assume the defense thereof, with
counsel satisfactory to the Indemnitee. After
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notice from the Company to the Indemnitee of its election to so assume the
defense thereof, the Company shall not be liable to the Indemnitee under this
Agreement for any legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense thereof other than reasonable costs
of investigation or as otherwise provided below. The Indemnitee shall have
the right to employ his or her own counsel in such action, suit or
proceeding, but the fees and expense of such counsel incurred after notice
from the Company of its assumption of the defense thereof shall be at the
expense of the Indemnitee unless (i) the employment of counsel by the
Indemnitee has been authorized by the Company, (ii) the Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and the Indemnitee in the conduct of the defense of such action or
(iii) the Company shall not in fact have employed counsel to assume the
defense of the action, in each of which cases the fees and expenses of
counsel shall be at the expense of the Company. The Company shall not be
entitled to assume the defense of any action, suit or proceeding brought by
or on behalf of the Company or as to which the Indemnitee shall have made the
conclusion provided for in (ii) above.
(c) The Company shall not be liable to indemnify the Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action
or claim in any manner that would impose any penalty or limitation on the
Indemnitee without the Indemnitee's written consent. Neither the Company nor
the Indemnitee will unreasonably withhold their consent to any proposed
settlement.
SECTION 11. OTHER RIGHTS TO INDEMNIFICATION. The indemnification and
advancement of expenses (including attorneys' fees) and costs provided by this
Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may now or in the future be entitled under any provision of a Charter
Document, agreement, vote of stockholders or Disinterested Directors, provision
of law or otherwise, both as to action in his or her official capacity and as to
action in another capacity while holding such office, it being the intent of the
Company that indemnification of the persons specified in Sections 2 and 3 of
this Agreement shall be made to the fullest extent permitted by law.
SECTION 12. ATTORNEYS' FEES AND OTHER EXPENSES TO ENFORCE AGREEMENT. In
the event that the Indemnitee is subject to or intervenes in any proceeding in
which the validity or enforceability of this Agreement is at issue or seeks an
adjudication or award in arbitration to enforce his or her rights under, or to
recover damages for breach of, this Agreement, the Indemnitee, if he or she
prevails in whole or in part in such action, shall be entitled to recover from
the Company and shall be indemnified by the Company against any actual expenses
for attorneys' fees and disbursements reasonably incurred by him or her.
SECTION 13. DURATION OF AGREEMENT. This Agreement shall continue until
and terminate upon the later of: (a) ten years after the Indemnitee has ceased
to occupy any of the positions or have any relationships described in Sections 2
and 3 of this Agreement; and
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(b) the final termination of all pending or threatened actions, suits,
proceedings or investigations to which the Indemnitee may be subject by
reason of the fact that he or she is or was a director, officer, employee,
agent or fiduciary of the Company or is or was serving at the request of the
Company as a director, officer, employee, agent or fiduciary of any other
entity, including, but not limited to, another corporation, partnership,
joint venture or trust, or by reason of anything done or not done by him or
her in any such capacity. The indemnification provided under this Agreement
shall continue as to the Indemnitee even though he or she may have ceased to
be a director or officer of the Company. This Agreement shall be binding
upon the Company and its successors and assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, and shall
inure to the benefit of the Indemnitee and his or her spouse, assigns, heirs,
devises, executors, administrators or other legal representatives. Nothing
in this Agreement shall confer upon the Indemnitee the right to continue in
the employ of the Company or affect the right of the Company to terminate the
Indemnitee's employment at any time in the sole discretion of the Company,
with or without cause.
SECTION 14. SEVERABILITY. If any provision or provisions of this
Agreement shall be held invalid, illegal or unenforceable for any reason
whatsoever, (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, all portions of
any paragraphs of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal
or unenforceable) shall not in any way be affected or impaired thereby, and
(b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portions of any paragraph of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifest by the
provision held invalid, illegal or unenforceable.
SECTION 15. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to
be an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of
this Agreement.
SECTION 16. HEADINGS. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part
of this Agreement or to affect the construction thereof.
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SECTION 17. DEFINITIONS. For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company
who is not or was not a party to the action, suit, investigation or
proceeding in respect of which indemnification is being sought by the
Indemnitee.
(b) "Independent Counsel" shall mean legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services for either the Company or the
Indemnitee within the past five years. Notwithstanding the foregoing, the
term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or the Indemnitee in
an action to determine the Indemnitee's right to indemnification under this
Agreement.
(c) "Change in Control" shall mean a change in control of the Company
of a nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A promulgated under the Act, whether or not the
Company is then subject to such reporting requirement; provided that, without
limitation, such a change in control shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 35% or more of
the combined voting power of the Company's then outstanding securities without
the prior approval of the Board of Directors in office immediately prior to such
acquisition, (ii) the Company is a party to a merger, consolidation, sale of
assets or other reorganization, or proxy contest, as a consequence of which
members of the Board of Directors sitting immediately prior to such transaction
or event constitute less than a majority of the Board thereafter, or (iii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board, including for this purpose any new director
whose election or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period, cease for any reason to
constitute at least a majority thereof.
(d) "good faith." A person shall be deemed to have acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Company, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Company or
another enterprise, or on information supplied to him by the officers of the
Company or another enterprise in the course of their duties, or on the advice of
legal counsel for the Company or another enterprise or on information or records
given or reports made to the Company or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Company or another enterprise.
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SECTION 18. LIABILITY INSURANCE. To the extent the Company maintains a
directors and officers liability insurance policy, Indemnitee shall be covered
by such policy or policies, in accordance with its or their terms, to the
maximum extent of the coverage available for any Company director or officer.
SECTION 19. PERIOD OF LIMITATIONS. No legal action shall be brought and
no cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
SECTION 20. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
SECTION 21. SUBROGATION. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all the rights
of recovery of the Indemnitee, who shall execute all instruments and documents
required and shall do everything that may be necessary to secure such rights,
including the execution of such instruments and documents as may be necessary to
enable the Company effectively to bring suit to enforce such rights.
SECTION 22. NO DUPLICATIVE PAYMENT. The Company shall not be liable under
this Agreement to make any payment of amounts otherwise indemnifiable hereunder
if and to the extent that the Indemnitee has otherwise actually received such
payment under any insurance policy, contract, agreement or otherwise.
SECTION 23. NOTICES. All notices, requests, demands or other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand or courier, on the date of delivery, or (ii)
if mailed by certified or registered mail with postage prepaid, on the third
business day after the date on which it is so mailed:
(a) If to the Indemnitee, to:
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(b) If to the Company, to:
Coleman Natural Products, Inc.
5140 Race Court
Denver, Colorado 80216
Attention: President
with a copy to:
Susan L. Oakes, Esq.
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway, Suite 2600
Denver, Colorado 80202
or to such other address as may be furnished to the Indemnitee by the Company
or to the Company by the Indemnitee, as the case may be.
SECTION 24. GOVERNING LAW. The parties hereto agree that this Agreement
shall be governed by, construed and enforced in accordance with, the Laws of
the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
COLEMAN NATURAL PRODUCTS, INC.
By:
-----------------------------
Its:
----------------------------
INDEMNITEE
---------------------------------
Name Printed:
--------------------
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<PAGE>
[LETTERHEAD]
CATTLE PURCHASE CONTRACT
This contract ("Contract") is made this 14th day of May, 1996, between Cervi
Ranches with its principle place of business located at 103 Sierra Vista,
PO Box 169, Sterling, CO 80751 ("SELLER") and Coleman Natural Meats, Inc., with
its principal place of business at 5140 Race Court #4, Denver, Colorado 80216
("BUYER").
The Seller agrees to sell and the Buyer agrees to buy at slaughter cattle
that are described on Invoices attached and made part of this Contract as
exhibit "A". The exact amount of the Invoices being $643,814.54 plus all
other accrued expenses incurred by Seller for the care and maintenance of the
cattle.
Location and identification of cattle:
<TABLE>
<S> <C> <C> <C> <C>
Decker Bros. Feedlot Scott County, Kansas Lot D 28-A 167 Steers $175,123.15
Decker Bros. Feedlot Scott County, Kansas Lot D 28-B 169 Steers $166,380.83
Decker Bros. Feedlot Scott County, Kansas Lot D 28-C 163 Steers $150,282.28
Zion Feedlot Philipps County, Colorado Lot 95-5 344 Heifers $152,028.28
-----------
Total: $643,814.54
</TABLE>
Cattle are branded with 00 on the left side.
Interest will be calculated on the exact amount of the Invoices attached, and
on accrued expenses incurred by Seller for the care and maintenance of the
cattle described therein. The interest rate will be floating at 3/4 of a point
above prime (8.25%) as quoted on page 14 of the Data Transmission Network
Financial Summary.
Payment will be made as cattle are slaughtered or as otherwise agreed by the
parties.
Cattle will be slaughtered on or near September 30, 1996.
Seller: Cervi Ranches
By: /s/ MIKE CERVI 5-20-96
----------------------- --------
Mike Cervi Date
Buyer: Coleman Natural Meats, Inc.
By: /s/ LEE ARST 6-3-96
----------------------- --------
Lee Arst Date
<PAGE>
WESTERN FOOD CENTER LEASE AGREEMENT
THIS LEASE between:
UNITED BANK OF DENVER NATIONAL ASSOCIATION, TRUSTEE ("Lessor"), whose
address is United Bank of Denver, Trust Real Estate, One United Bank
Center, Denver, Colorado 80274-0091,
and
Coleman Natural Beef, Inc., a Colorado
Corporation ("Lessee"), whose address is Unit
#4, 5140 Race Court, Denver, Colorado 80216.
In consideration of the covenants contained in this lease
agreement (the "Lease"), Lessor and Lessee agree as follows:
1. LEASE OF PREMISES. Lessor leases to Lessee for the Term, at the Basic
Rent and Additional Rent, and upon all terms and conditions contained in the
Lease the following real property located in the City and County of Denver,
State of Colorado:
Unit(s) # 3, 4 & 5 of the Western Food Center (the "Premises"), being
first and second floor areas of the spaces where perimeters are
outlined on the attached Exhibit A, located within the structure (the
"Building") at 5140 Race Court, Denver, Colorado.
together with
(a) A right to use the enclosed common dock area of the Building
jointly with other tenants of units in the Building with such reasonable
allocations and rules of use as Lessor shall from time to time impose;
(b) All existing equipment and fixtures located within the
Premises or which are provided by Lessor exclusively for the benefit of the
Premises; and
(c) A right to use the parking area and yard of 5140 Race
Court, Denver, Colorado jointly with other tenants of units in the Building.
2. TERM OF LEASE. The term (the "Term") of this Lease shall be for
Three Years, commencing July 1, 1989 and ending on June 30, 1992.
If for any reason Lessor cannot deliver possession of the Premises to
Lessee on the commencement date of this Term, Lessor shall not be liable to
Lessee for such a failure to deliver possession nor shall such a failure affect
the validity of this Lease, the obligations of Lessee created by this Lease or
extend the Term, provided that Lessor has acted in good faith and has exercised
reasonable diligence in attempting to make the Premises available for Lessee.
In the event of any failure of Lessor to deliver possession of the Premises to
Lessee at the commencement of the Term, Lessee shall not be obligated to pay
either the Basic Rent or the Additional Rent until Lessor tenders possession of
the premises to Lessee, and if Lessor has not delivered possession of the
Premises within sixty days from the stated commencement date of the Term, Lessee
may by written notice given to Lessor before possession of the Premises has been
tendered cancel this Lease, in which event both Lessor and Lessee shall be
discharged from all obligations created by this lease. If Lessee takes
possession of the Premises prior to the stated commencement date of the Term,
that possession shall be subject to all provisions of this Lease, shall not
advance the termination date of the Term and Lessee shall pay Basic Rent and
Additional Rent for the period of advance possession.
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An option to extend the Term of this Lease is described in attached
Exhibit D.
3. BASIC RENT. Lessee shall pay to Lessor as the Basic Rent for the
Premises for the full Term of this Lease the sum of Three Hundred Fourteen
Thousand Five-Hundred Dollars and No/100 Dollars ($314,500.00) in equal monthly
installments of Nine Thousand Two Hundred and Fifty Dollars ($9,250.00), in
advance, on or before the first day of each month commencing September 1, 1989.
An installment of the Basic Rent which is for less than one month
shall be a pro rata portion of the previously stated monthly installment.
All payments of Basic Rent and Additional Rent shall be paid to Lessor
at the stated business office of Lessor or to such other persons and at such
other addresses as Lessor may designate in writing.
The Basic Rent and the Additional Rent shall be paid without notice
(except as provided in Section 4 with respect to invoices for items of
Additional Rent), demand, set off or deduction.
4. ADDITIONAL RENT. Lessee shall pay to Lessor as Additional Rent an
amount equal to 28.85% of:
(a) Any increase in real estate taxes or special assessments
over those assessed or levied against the property know as 5140 Race Court,
Denver, Colorado, for the year 1988;
(b) Any increase in the premiums of insurance policies carried
by Lessor on or in connection with the property known as 5140 Race Court,
Denver, Colorado over the premiums paid by Lessor for insurance in the year
1989;
(c) Any costs which may be incurred by Lessor in cleaning the
parking area and yard at 5140 Race Court, Denver, Colorado; and
(d) Each annual storm drainage assessment levied against 5140
Race Court, Denver, Colorado.
Items of Additional Rent shall be due and payable within ten days of
the date of Lessor's invoice.
5. SECURITY DEPOSIT. Lessee, at the time of execution of this Lease,
shall deposit with Lessor Nine Thousand Two Hundred Fifty Dollars and No/100,
($9,250.00), as security for the faithful performance by Lessee of all
obligations of Lessee created by this Lease. If Lessee fails to pay any rent or
other charges payable under this Lease, or otherwise defaults with respect to
any provision of this Lease, Lessor may use, apply or retain all or any part of
the security deposit for the payment of rent or other charge in defaults or for
the payment of any other sum which Lessor may become obligated to pay by reason
of Lessee's default, or to compensate Lessor for any loss or damage which Lessor
may suffer through a default by Lessee. If Lessor uses or applies all or any
portion of the security deposit for any of the authorized purposes, Lessee shall
within ten days after written demand from Lessor deposit with Lessor cash in an
amount sufficient to restore the security deposit to the full original amount.
Any failure of Lessee to restore the security deposit amount shall be a material
breach of this Lease.
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<PAGE>
Lessor shall not be required to keep the security deposit separate
from the general accounts of Lessor.
If Lessee performs all obligations of Lessee under this Lease, the
security deposit, or so much of the security deposit as has not been applied by
Lessor for the authorized purposes, shall be returned to Lessee (or, at Lessor's
option, to the assignee of Lessee's interest under this Lease), without payment
of interest within ten days following the expiration of the Term or after Lessee
has vacated the Premises, whichever is the later date. No trust relationship
shall be deemed to have been created between Lessor and Lessee with respect to
the security deposit.
6. USE OF PREMISES. Lessee shall continuously use and occupy the
Premises for the purpose of the processing, storage and distribution of meat
products and for no other purpose without first obtaining in writing the consent
of Lessor.
Lessee shall use the Premises in a careful, safe and proper manner.
Lessee shall conduct its business and control its employees, agents, invites and
visitors in such a manner as not to create any nuisance, or interfere with,
annoy or disturb operation of the Building. Lessee shall not create any
situation, including without limitation obnoxious odors, unsanitary conditions,
unusual noise or litter, either within or outside the Premises. Lessee shall
not receive, store or otherwise handle any product, material or merchandise that
is explosive, highly flammable or otherwise hazardous.
7. QUIET ENJOYMENT. Lessor covenants and agrees with Lessee that upon
Lessee paying the Basic Rent and the Additional Rent and Lessee observing and
performing all the terms, conditions and covenants of this Lease to be observed
and performed by Lessee, Lessee may peaceably and quietly enjoy the Premises,
subject to the terms, conditions and covenants of this Lease and the lien of the
underlying encumbrance.
8. ACCEPTANCE OF PREMISES. Taking possession of the Premises by Tenant
shall conclusively establish against Tenant that the Premises were in good and
satisfactory order, condition and repair when possession was taken. Tenant
accepts the Premises in "as is" condition and shall be solely responsible for
all costs of alteration and renovation, except for the alterations described on
Exhibit B hereto which such alterations shall be at Landlord's expense.
9. MAINTENANCE, REPAIRS AND ALTERATIONS.
9.1 LESSOR'S OBLIGATIONS. Subject to the provisions of section 8 and
Exhibit B, and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's agents, employees, or invites (in which event
Lessee shall repair the damage) and except for the failure of Lessee to keep in
effect a Lessor approved maintenance and repair program throughout the Term on
all refrigeration equipment, Lessor shall: (a) keep in good order, condition,
and repair the foundations, exterior walls and roof of the Building; (b) replace
refrigeration coils and compressors which are defective or worn out through
normal use; (c) periodically clean the parking and yard areas of 5140 Race
Court, Denver, Colorado; and (d) maintain the common grease trap and the
existing exterior area lights.
9.2 LESSEE'S OBLIGATIONS. Subject to the provisions of sections 8 and
9.1 of this Lease, Lessee, at Lessee's expense, shall keep in good order,
condition and repair, including but not limited to, all plumbing, heating,
air conditioning, refrigeration, ventilating, electrical and lighting
facilities and equipment within the Premises; all fixtures, interior walls
and interior surfaces of exterior walls, ceiling, windows, doors, plate glass
and skylights within the premises; all heating, air conditioning and
refrigeration equipment exclusively serving the Premises located on the roof
or
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<PAGE>
other exterior portions of the Building; and all exterior dock seals and
bumpers serving the Premises; within the Premises and Lessee shall keep clean
and free of all litter the truck apron serving the Premises. Lessee shall
enter into on the commencement of the Term and maintain throughout the Term a
contract for a preventive maintenance program for the heating, air
conditioning and refrigeration equipment serving the Premises with a private
contractor approved by Lessor. The contract shall provide for inspection and
preventive maintenance services not less frequently than every four months
during the Term. All necessary repairs and replacement of parts, except for
refrigeration coils and compressors, shall be at the expense of Lessee. The
service contractor shall be required to prepare a written service and
maintenance report immediately following each inspection and copy of each
inspection and maintenance report shall be forwarded promptly to Lessor.
If Lessee fails to perform Lessee's obligations under this
section or under any other section of this Lease, Lessor may at Lessor's option
enter upon the Premises after ten days' prior written notice to Lessee (except
in the case of emergency, in which case no notice shall be required), perform
such obligations and on Lessee's behalf and put the Premises in good order,
condition and repair, and the cost of doing so, together with interest at the
maximum rate then allowable by law, shall be due and payable as Additional Rent
to Lessor together with Lessee's next Basic Rent Installment.
On the last day of the Term, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as
received, ordinary wear and tear excepted, clean and free of debris. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of its trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall lease
the air lines, power panels, electrical distribution systems, lighting
fixtures, space heaters, air conditioning, refrigeration equipment and
plumbing in a good operating condition.
9.3 ALTERATIONS BY LESSEE. Lessee shall promptly pay for all costs and
charges for work done by Lessee to the Premises and for all materials furnished
for or in connection with such work. Lessee hereby indemnifies and agrees to
hold Lessor, the Premises and the Building free, clear and harmless of and from
all mechanics' liens and claims of liens, and all other liabilities, liens,
claims and demands on account of such work. If any such lien shall at any time
be filed against the Premises or the Building, Lessee shall cause such lien to
be discharged of record within ten days after the filing of such lien, whether
by payment, posting of a statutory surety bond with the appropriate court or
otherwise. If a final judgment establishing the validity or existence of a lien
for any amount is entered, Lessee shall pay and satisfy the judgment at once.
If Lessee shall fail to pay any charge for which a mechanics' lien has been
filed, and such lien shall not have been discharged of record as described above
Lessor may, at Lessor's option, pay such charge and related costs and interest,
and the amount paid, together with reasonable attorneys' fees incurred, shall be
immediately due and payable from Lessee to Lessor. Nothing contained in this
Lease shall be deemed the consent or agreement of Lessor to subject Lessor's
interest in the Building to liability under any mechanics' or other lien law. On
the contrary (and notice is hereby given), the right and power to charge any
such lien or encumbrance of any kind against Lessor or its estate is hereby
expressly denied.
At least fifteen days prior to commencement of any work, including
repairs and alterations, in or to the Premises, Lessee shall give written notice
to Lessor of the proposed work and the names and addresses of the persons
supplying labor and materials so that Lessor may avail Lessor of the provision
of statutes such as Section 38-22-105(2) of Colorado Revised Statutes (1973, as
amended). During and prior to any such work on the Premises, Lessor and its
agents shall have the right to go upon the Premises and to post and, keep posted
4
<PAGE>
105(2) or to take any further action that Lessor may deem to be proper for the
protection of Lessor's interest in the Premises.
10. INSURANCE AND INDEMNIFY.
10.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's
expense, obtain and keep in force during the Term a policy of Combined Single
Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises and all other areas appurtenant thereto. Such insurance shall be in an
amount not less than $1,000,000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this section 10. This
limits of the insurance shall not, however, limit the liability of Lessee under
this Lease.
10.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in
force during the Term a policy of Combined Single Limit Bodily Injury and
Property Damage Insurance insuring Lessor, but no Lessee, against any liability
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto in an amount not less than $500,000 per
occurrence.
10.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force
during the Term a policy or policies of insurance covering loss or damage to the
premises and the Building, but not Lessee's fixtures, equipment or tenant
improvements, in an amount not to exceed their full replacement value, as they
may exist from time to time, providing protection against all perils included
within the classification of fire, extended coverage, vandalism, malicious
mischief, flood, special extended perils ("all risk", as such term is used in
the insurance industry), but not plate glass insurance. In addition, Lessor
shall obtain and keep in force, during the Term, a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all real estate taxes and insurance costs for said
period.
10.4 INSURANCE POLICIES. Insurance required by this section 10 shall
be in companies holding a "General Policyholders Rating" of at least B plus, or
such other rating as may be required by a lender having a lien on the Premises,
as set forth in the most current issue of "Best's Insurance Guide". Lessee
shall deliver to Lessor copies of policies of liability insurance required under
section 10.1 or certificates evidencing the existence and amounts of such
insurance prior to taking possession of the Premises. No such policy shall be
cancellable or subject to reduction of coverage or other modification except
after thirty days' prior written notice to Lessor. Lessee shall, at least
thirty days prior to the expiration of such policies, furnish Lessor with
renewals or "binders", or Lessor may order such insurance and charge the cost
thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee
shall not do or permit to be done anything which shall invalidate the insurance
policies referred to in section 10.3.
10.5 WAIVER OF SUBROGATION. Lessee and Lessor each release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under section 10.3, which perils to the negligence of Lessor or Lessee or their
agents, employees, contractors or invites. Lessee and Lessor shall, upon
obtaining the policies required by this Lease, give notice to the insurance
carrier or carriers that the mutual waiver of subrogation is contained in this
Lease.
10.6 ENVIRONMENTAL COMPLIANCE. Tenant and its agents and employees
shall use the Premises and conduct any operations thereon in compliance with all
applicable federal, state and local environmental statutes, regulations,
ordinances and any permits, approvals or judicial or administrative orders
issued thereunder.
5
<PAGE>
10.7 ENVIRONMENTAL HAZARDS. Tenant covenants that:
(a) no Hazardous Substances shall be generated, treated, stored
or disposed of, or otherwise deposited in or located on the Premises, including
without limitation, the surface and subsurface waters of the Premises;
(b) no activity shall be undertaken on the Premises which would
cause:
(i) the Premises to become a hazardous waste treatment,
storage or disposal facility within the meaning of, or otherwise cause the
Premises to be in violation of the Resource Conservation and Recovery Act of
1976 ("RCRA"), 42 U.S.C. 6901 ET SEQ., or any similar state law or local
ordinance;
(ii) a release or threatened release from any source on the
Premises of Hazardous Substances from the Premises within the meaning of, or
otherwise cause the Premises to be in violation of, the Comprehensive
Environmental Response Compensation and Liability Act, as amended ("CERCLA"), 2
U.S.C. 9601 ET SEQ., or any similar state law or local ordinance or any other
environmental law; or
(iii) the discharge of pollutants or effluent into any
water source or system, or the discharge into the air of any emissions, which
would require permit under the Federal Water Pollution Control Act ("FWPCA"), 33
U.S.C. 1251 ET SEQ., or the Clean Air Act ("CAA"), 42 U.S.C. 7401 ET SEQ., or
any similar state law or local ordinance;
(c) there shall be no substances or conditions in or on the
Premises which may support a claim or cause of action under RCRA, CERCLA, any
other federal, state or local environmental statutes, regulations, ordinances or
other environmental regulatory requirements or under any common law claim
relating to environmental matters, or could result in recovery by any
governmental or private party of remedial or removal costs, natural resources
damages, property damages, damages in personal injuries or other costs, expenses
or damages, or could result in injunctive relief arising from any alleged injury
or threat of injury to health, safety or the environment; and
(d) there shall be no underground storage tanks or releases or
threatened releases from such tanks located on the Premises.
For the purposes of this lease, "Hazardous Substances" shall mean any and
all hazardous or toxic substances, hazardous constituents, contaminants, wastes,
pollutants or petroleum (including without limitation crude oil or any fraction
thereof), including without limitation hazardous or toxic substances, pollutants
and/or contaminants as such terms are defined in CERCLA or RCRA; asbestos or
material containing asbestos; and PCBs, PCB articles, PCB containers, PCB
article containers, PCB equipment, PCB transformers or PCB contaminated
electrical equipment (as such terms are defined in Park 761 of Title 40, Code of
Federal Regulations).
10.8 CLEANUP OBLIGATION. If it is discovered that any Hazardous
Substances or other materials described in paragraph 10.7 above have been
deposited, released, discharged or otherwise caused to exist, on or from the
Premises in violation of the provision of paragraph 10.7 above, then Tenant
agrees within a reasonable time to remove, clean up or take such other remedial
action with regard to such substances as may be required by applicable law or
regulations. Any such remedial action shall be the sole responsibility of
Tenant and shall be conducted at Tenant's sole cost and expense. If Tenant
fails to commence or diligently pursue such remedial action in Landlord's sole
judgment, then after notice to Tenant, Landlord may either declare an event of
default under this lease and exercise any and all remedies hereunder, or cause
the taking of such remedial
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action as may be required at Tenant's sole cost and expense. Tenant grants to
Landlord and its agents and employees access to the Premises and the license to
carry out such remedial action.
10.9 ENVIRONMENTAL NOTICES. Tenant shall give Landlord prompt notice
of any of the following occurrences arising with regard to the Premises or
Tenant's activities thereon:
(a) any spill, release, threatened release or other occurrence
that would constitute a violation of the provisions of paragraphs 10.6 and 10.7
above;
(b) the notification of any of the events set forth in paragraph
10.9(a) to any federal, state or local governmental agency or authority;
(c) any notices, claims or allegations of environmental
violations or contamination received from any federal, state or local
governmental agency or authority or the filing or commencement of any judicial
or administrative proceeding by any such agency; or
(d) the filing or threatened filing of any judicial or
administrative proceeding by any private party alleging injury or threat of
injury to property, health, safety or the environment.
10.10 INDEMNITY. (a) Lessee hereby agrees to indemnify, defend and
hold harmless the Lessor and its agents, affiliates, officers, directors and
employees (all of such entities and persons being referred to herein
individually as an "Indemnified person" and collectively as the "Indemnified
Parties") from and against any and all liability, claims, demands, actions
and causes of action whatsoever (including without limitation reasonable
attorneys' fees and expenses, and costs and expenses reasonably incurred in
investigating, preparing or defending against any litigation or claim,
action, suit proceeding or demand of any kind or character) to which any
Indemnified Person may be subject insofar as they arise out of or relate to
any alleged contamination of the Premises arising from any violation of
Tenant's obligations under paragraphs 10.6 through 10.09 above.
(b) those costs, damages, liabilities, losses, claims, expenses
(including without limitation reasonable attorneys' fees and disbursements) for
which the Indemnified Parties are indemnified hereunder shall be reimbursable as
incurred without any requirement of waiting for the ultimate outcome of any
litigation, claim or other proceeding, and Tenant shall pay such costs,
expenses, damages, liabilities, losses, claims, expenses (including without
limitation reasonable attorneys' fees and disbursements) as incurred by Landlord
or other Indemnified Persons within 15 days after notice itemizing the amounts
incurred to the date of such notice.
10.11 SURVIVAL. The obligations of Tenant set forth in paragraphs
10.6 through 10.10 above shall survive the expiration or termination of the term
of this lease or the exercise by Landlord of any of its remedies hereunder.
10.12 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury to Lessee's business or any loss of income from such business or for
damage to the goods, wares, merchandise or other property of Lessee, Lessee's
employees, invites, customers, or any other person in or about the Premises or
the Building, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, obstruction or other defects of Pipes,
sprinklers, wires, appliances, plumbing, air conditioning, refrigeration or
lighting fixtures, or from any other cause, whether the damage or injury results
from conditions arising upon the Premises or upon other portions of the Building
or from other sources or places and regardless of whether the cause of such
damage or injury or the means of repairing the same is inaccessible to Lessee.
Lessor shall
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not be liable for any damage arising from any act or neglect of any other
tenant of the Building.
11. DAMAGE OR DESTRUCTION. If the Premises or the Building shall be
so damaged by fire or other casualty as to render the Premises untenantable, and
if such damage shall be so great that an architect selected by Lessor shall
certify in writing to Lessor and Lessee that the Premises, with the exercise of
reasonable diligence (but without the payment of overtime or other premiums),
cannot be made fit for occupancy within one hundred twenty days, then this Lease
may be terminated by Lessor or Lessee as of the happening of the fire or other
casualty by giving written notice of termination to the other within thirty days
after receipt of the architect's certification. If, however, the architect
shall certify that the Premises can be made tenantable within one hundred twenty
days, or if neither party terminates this Lease within the specified period,
then, unless this Lease is terminated as provided below, Lessor shall repair the
damage with all reasonable speed, subject to delays due to adjustment of loss
under insurance policies and other delays beyond Lessor's reasonable control.
In all events, Lessor shall be obligated to restore the Premises only to a
building standard condition and in no event shall Lessor be required to make any
repairs to or replacements of any of Lessee's furniture, furnishings, fixtures,
equipment and other property. Until Lessor completes repairs necessary to make
the Premises tenantable, Basic Rent and Additional Rent shall abate from the
date of the casualty in proportion to the portion of the Premises that is
untenantable. If the Premises shall be damaged by fire or other casualty, but
not so as to render them untenantable, Lessor shall repair the Premises, but
only to a building standard condition, with all reasonable speed, subject to
delays as provided above.
If more than one-third of the Building is damaged or destroyed by
fire or other casualty (whether or not the Premises are affected) or the damage
shall be so great that Lessor shall decide to reconstruct, rebuild or raze the
Building, then Lessor may terminate this Lease upon twenty days' prior written
notice to Lessee, which notice shall be given, if at all, within sixty days
after the happening of such fire or other casualty. Upon any termination of
this Lease pursuant to this section, Lessee shall surrender to Lessor the
Premises and all interest therein of the Premises. Lessee shall pay Basic Rent
and Additional Rent through the effective date of such termination, and Lessor
and Lessee shall be free and discharged from all obligations arising after the
effective date of such termination, except those obligations expressly state in
this Lease to survive the termination of this Lease.
12. EMINENT DOMAIN. If so much of the Premises or the Building as
shall render the Premises untenantable shall be taken by right of eminent domain
or by condemnation or shall be conveyed in lieu of any such taking, then this
Lease, at the option of either party, exercised by written notice to the other
given no later than thirty days after the surrender of possession to the
condemning authority, shall cease and terminate and the rent shall be properly
apportioned to the date of such taking. If so much of the Building is so taken
(whether or not the Premises are affected) that, in the sole and absolute
discretion of Lessor, it is not feasible or to Lessor's best interest to restore
or rebuild the Building, then, and in that event, Lessor shall have the right to
terminate this Lease by the surrender of possession to the condemning authority.
Upon any termination of this Lease pursuant to this section, Lessee shall
surrender to Lessor the premises and all interest therein under this Lease.
Lessor may re-enter and take possession of the premises. Lessee shall pay Basic
Rent and Additional Rent prorated through the effective date of such
termination, and Lessor and Lessee shall be free and discharged from all
obligations under this Lease arising after the effective date of such
termination, except those obligations expressly stated in this Lease to survive
the termination of this Lease. All compensation awarded or received for any
taking, whether for the whole or part of the premises or the Building or
otherwise, shall be the property of Lessor, whether awarded or received as
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compensation for diminution in the value of the leasehold or to the fee of the
Building or the Premises, or otherwise, and Lessee hereby assigns to Lessor all
of Lessee's right, title and interest in and to any and all of such
compensation.
Notwithstanding the foregoing, Lessee shall have the right to claim and
recover from the taking authority, but not from Lessor and only to the extent
that such separate award does not diminish any amount to which Lessor would
otherwise be entitled under this Section 12, such compensation as may be
separately awarded or recoverable by Lessee in Lessee's own right on account
of (i) any and all costs or loss to which Lessee might be put in removing
Lessee's inventory, furniture, fixtures and equipment to a new location, (ii)
the taking of personal property and fixtures owned by Lessee, or (iii) for
disruption and relocation of Lessee's business.
13. UTILITIES. Lessee shall pay for all water, wastewater, gas, heat,
light, power, telephone and other utilities and services supplied to the
Premises, together with all taxes related to those utilities and services.
14. ASSIGNMENT AND SUBLETTING. Lessee shall not voluntarily, by operation
of law or otherwise, assign, convey, mortgage, hypothecate, encumber or
otherwise transfer this Lease or any interest, sublet all or any part of the
Premises, or suffer or permit the premises or any part thereof to be used by
others, without the prior written consent of Lessor in each instance. Lessor
may withhold such consent in its sole and absolute discretion. Any attempted
transfer without Lessor's prior written consent shall be void and shall confer
no rights upon any third person.
Regardless of the consent of Lessor to any transfer, no transfer
shall release Lessee of Lessee's obligation or alter the primary liability of
Lessee to pay the Basic Rent and Additional Rent and to perform all other
obligations to be performed by Lessee under this Lease. The acceptance by
Lessor of Basic Rent or Additional Rent from any other person shall not be
deemed to be a waiver by Lessor of any of the provisions of this section 14.
15. HOLDOVER. If Lessee or anyone claiming under Lessee shall holdover in
the Premises after the end of the Term without the express written consent of
Lessor, Lessee shall be deemed to be illegally retaining possession and shall
pay Lessor monthly for the entire holdover period, as liquidated damages for
loss of use of the Premises, an amount equal to twice the Basic Rent payable
immediately prior to the end of the Term. No such holding over and no
acceptance by Lessor of payments of liquidated damages as provided in this
section shall be construed to extend this lease or to constitute Lessee a tenant
of the Premises on any basis whatsoever.
16. SUBORDINATION AND ATTORNMENT. This Lease, including the
covenant of quiet enjoyment, is and shall be subject and deed of trust or other
encumbrances, and any and all conditions, renewals, extensions, modifications,
consolidations and replacements of any or all of the foregoing, now or hereafter
affecting such leases or all or any portion of the Building (except to the
extent any such instrument shall expressly provide that this Lease is superior
thereto). This clause shall be self-operative and no further instrument of
subordination shall be required in order to effectuate it. Nevertheless, Lessee
shall execute and deliver promptly any certificate or other assurance in
confirmation of such subordination requested by any lessor, mortgagee or by
Lessor. In the event any proceedings are brought for default under any ground
or underlying lease or for the foreclosure of any mortgage, deed of trust or
other encumbrance to which this lease is subject and subordinate, Lessee shall,
upon request of the party succeeding to the interest of Lessor as a result of
such proceedings, automatically attorn to and become the tenant of such
successor in interest without change in the terms of this Lease. Lessee shall on
request by and without cost to Lessor or such successor in interest, execute and
deliver any instruments
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confirming such attornment.
17. STATEMENT OF PERFORMANCE. Lessee shall, from time to time, within
ten days after Lessor's request, deliver to Lessor a statement in recordable
form certifying that
(a) this Lease is in full force and effect;
(b) this Lease is unmodified, or if modified, stating
any such modification;
(c) there are no defenses or offsets to the Lease by Lessee, or
stating such defenses or offsets as are claimed by Lessee; and
(d) to Lessee's knowledge, Lessor is not in default hereunder,
and no events or conditions then exist which, with the passage of time, the
giving of notice, or both, would constitute a default on Lessor's part, or
specifying any such defaults, events or condition, if any are claimed. Such
statement shall also specify the date to which Basic Rent and Additional Rent
have been paid and specify any further information about this Lease or the
Premises that Landlord may reasonably request. Lessee's failure to deliver such
certificate within such time shall be conclusive upon Lessee that this Lease is
in full force and effect without modification except as may be represented by
Lessor and that there are no uncured defaults in Lessor's performance.
18. DEFAULT. The occurrence or existence of any one or more of the
following events or circumstances shall constitute a material default by Lessee
under this Lease:
(a) Lessee shall fail to pay when due any Basic Rent or
Additional Rent;
(b) Lessee shall vacate or abandon the Premises;
(c) Lessee shall fail to perform or observe any other
provision of this Lease to be performed or observed by Lessee and such failure
continues for ten days after written notice by Lessor to Lessee (or for such
period, if any, as may be reasonably required to cure such default if it is of
such nature that it cannot be cured within such ten day period, provided that
Lessee commences to remedy such default within such ten day period and proceeds
with reasonable diligence thereafter to cure such default);
(d) Any representation or warranty by Lessee under this Lease
shall be inaccurate, incomplete or misleading in any way; or
(e) This Lease or the Premises or any part thereof shall be
taken upon execution or by other process of law directed against Lessee, or
shall be taken upon or subject to any attachment at the insistence of any
creditor of or claimant against Lessee, and such attachment shall not be
disposed of within thirty days after the levy thereof;
(f) Lessee or any guarantor of Lessee's obligations hereunder
shall (i) admit in writing its inability to pay its debts generally as they
become due, (ii) make an assignment of all or a substantial part of its property
for the benefit of creditors, (iii) apply for or consent to or acquiesce in the
appointment of a receiver, trustee or liquidator of Lessee or such guarantor's
property or of the Premises or of Lessee's interest in this Lease; or (iv) file
a voluntary petition in bankruptcy or a petition or an answer seeking
reorganization under any bankruptcy or insolvency law or an arrangement with
creditors, or take advantage of any insolvency law or file an answer admitting
the material allegations of a petition filed against Lessee or such guarantor in
any bankruptcy, reorganization or insolvency proceedings; or
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(g) The entry of a court order, judgment or decree without the
application, approval or consent of Lessee or any guarantor of Lessee's
obligations hereunder, as the case may be, approving a petition seeking
reorganization of Lessee or such guarantor under any bankruptcy or insolvency
law or appointing a receiver, trustee, or liquidator of Lessee or such guarantor
or of all or a substantial part of Lessee's or such guarantor's property or of
the premises or of Lessee's interest in this Lease, or adjudicating Lessee or
such guarantor a bankrupt or insolvent, and such order, judgment or decree shall
not be vacated, set aside or dismissed within thirty days from the date of
entry.
19. REMEDIES. If Lessee shall default under this Lease as set forth
in section 18, Lessor shall have the following rights and remedies, in addition
to all other remedies at law or equity, and none of the following, whether or
not exercised by Lessor, shall preclude the exercise of any right or remedy
whether herein set forth or existing at law or equity:
(a) Lessor shall have the right to terminate this Lease by
giving Lessee written notice at any time. No act by or on behalf of Lessor,
such as entry on the Premises by Lessor to perform maintenance and repairs or
efforts to relet the Premises, other than giving Lessee written notice of
termination, shall terminate this Lease. If Lessor gives such notice, this Lease
and the Term as well as the right, title and interest of Lessee under this Lease
shall wholly cease and expire in the same manner and with the same force and
effect (except as to Lessee's liability) on the date specified in such notice
as if such date were the expiration date of the Term without the necessity of
reentry or any other act on Lessor's part, any requirement for any other act or
notice by Lessor being waived by Lessee. Upon any termination of this Lease
Lessee shall quit and surrender to Lessor the Premises. If this Lease is
terminated, Lessee shall be and remain liable to Lessor for damages and Lessor
shall be entitled to recover from Lessee as damages an amount equal to the total
of: (i) all Basic Rent, Additional Rent and other sums accrued and unpaid at the
time of termination of the Lease, plus interest at the legal rate; and (ii) the
amount of Basic Rent, Additional Rent and all other sums that would have been
payable hereunder if this Lease had not been terminated, less the net proceeds,
if any, of any reletting of the Premises, after deducting all of Lessor's
expenses in connection with such reletting, or alternatively, at Lessor's
option, an amount equal to the present value (discounted at the rate of 8% per
annum) of the balance of the Basic Rent, Additional Rent and other sums payable
for the remainder of the Term after the termination date less the present value
(discounted at the same rate) of the reasonable rental value of the Premises
for such period (taking into account the time likely to be needed to relet the
Premises), plus all of Lessor's expenses incurred in reletting (or attempting to
relet) the Premises; and (iii) all of Lessor's expenses incurred in repossessing
the Premises and all other amounts necessary to compensate Lessor fully for all
damage caused by Lessee's default.
(b) Lessor may, without demand or notice, reenter and take
possession of the Premises, and repossess the same as of Lessor's former estate
and expel Lessee and those claiming through or under Lessee, and remove the
effects of any and all of any manner of trespass and without prejudice to any
remedies for arrears of the Basic Rent or Additional Rent or preceding breach of
covenants. If Lessor elects to so reenter, or if Lessor take possession pursuant
to legal proceedings or pursuant to any notice provided for by law, Lessor may,
from time to time, without terminating this Lease, relet the Premises or any
part thereof for such term or terms and at such rental or rentals, and upon such
other conditions as Lessor may in its absolute discretion deem advisable, with
the right to make alterations and repairs to the Premises. No such reentry,
repossession or reletting of the Premises by Lessor shall be construed as an
election of Lessor's part to terminate this Lease unless a written notice of
termination is given to Lessee by Lessor. No such reentry, repossession or
reletting of the Premises shall relieve Lessee of its
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liability and obligation under this Lease, all of which shall survive such
reentry, repossession or reletting. Upon the occurrence of such reentry or
repossession, Lessor shall be entitled to the amount of the monthly Base
Rent, Additional Rent and all other sums which would be payable hereunder if
such reentry or repossession had not occurred, less the net proceeds, if any,
of any reletting of the premises after deducting all of Lessor's expenses in
connection with such reletting. Lessee shall pay such amounts to Lessor on
the days on which the Basic Rent, Additional Rent and other sums due would
have been payable if possession had not be retaken.
(c) Lessor shall have the right to recover from Lessee the
rents and damages provided for above by suit or suits brought from time to
time without Lessor being required to wait until the expiration of the Term,
or if this Lease is terminated, the date on which such expiration would have
occurred. Lessor may, but shall not be obligated to, cure, at any time,
without notice, any default by Lessee under this Lease; and whenever Lessor
so elects, all costs and expenses incurred by Lessor in curing a default,
including, without limitation, reasonable attorneys' fees, together with
interest on the amount of costs and expenses so incurred at the legal rate
shall be paid by Lessee to Lessor on demand, and shall be recoverable as
Additional Rent. No such payment or expenditure by Lessor shall be deemed a
waiver of Lessee's default nor shall it affect any other remedy of Lessor by
reason of such default. As used in this Lease, the terms "reenter,"
"reentry," "take Possession," "repossess" and "repossession" are not restricted
to their technical legal meaning.
20. SIGNS. Lessee shall place no signs, poster, advertisements or
the like in or on the windows, window display areas, doors or exterior of the
Premises, nor upon the exterior of the Building or upon the Building grounds,
without Lessor's prior written consent.
21. PARKING. Lessee shall have the nonexclusive right to use the
parking areas adjacent to the Building. Lessor shall have the right, without
obligation, and from time to time, to change the number, sizes, locations,
shapes and arrangements of parking areas, restrict parking of tenants or their
guests to designated areas, change the level or grade of parking surfaces, and
do and perform such other acts in and to such areas as Lessor, in its sole
discretion, deems advisable.
22. LESSOR'S INABILITY TO PERFORM. This Lease and Lessee's
obligations under this Lease, shall not be affected or excused because of
Lessor's delay or failure to perform or comply with any of Lessor's obligations
for reasons beyond the reasonable control of Lessor, including, without
limitation, strikes or other labor difficulties, inability to obtain necessary
governmental approvals, unavailability of materials, war, riot, civil
insurrection or governmental preemption in connection with a national emergency.
Further, Lessor shall not be deemed to be in default in the performance of any
of its obligations unless and until it has failed to perform such obligation
within thirty days after receiving written notice from Lessee specifying
Lessor's failure to perform; but if the nature of Lessor's obligation is such
that more than thirty days are required for its performance, then Lessor shall
not be deemed to be in default if it shall commence such performance within such
thirty day period and thereafter diligently prosecutes to completion.
23. PAYMENTS AFTER TERMINATION. No payments of money by Lessee to
Lessor after the termination of this Lease, in any manner, or after the
giving of any notice (other than a demand for payment of money) by Lessor to
Lessee, shall reinstate, continue or extend the term of this Lease or make
ineffective any notice given to Lessee prior to the payment of such money.
After the service of notice or the commencement of a suit or after final
judgment granting Lessor possession of the Premises, Lessor may receive and
collect any sums of Basic Rent and Additional Rent due or any other sums due
under the terms of this Lease, and the payment of such sums of money, whether
as
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<PAGE>
rent or otherwise, shall not make ineffective any notice, or in any manner
affect any pending suit or any judgment theretofore obtained.
24. NO IMPLIED SURRENDER OR WAIVER. No provisions of this Lease shall be
deemed to have been waived by Lessor unless such waiver is in writing signed by
Lessor. The failure of Lessor to seek redress for violation of, or to insist
upon the strict performance of, any covenant or condition of this Lease or any
rules and regulations shall not prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect of an
original violation. The receipt by Lessor of Basic Rent or Additional Rent
with knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. No act or thing done by Lessor or Lessor's agents during
the Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept such surrender shall be valid unless in writing signed by
Lessor. Time is of the essence hereof.
25. NO REPRESENTATIONS BY LESSOR; ENTIRE AGREEMENT. Tenant acknowledges
and agrees that it has not relied upon any statements, representations,
warranties, agreements or promises with respect to this Lease, the Premises or
the Building except the generality of the foregoing, Lessor and Lessor's agents
have made no representations, warranties, agreements or promises with respect to
the exact size of the Premises or the Building or any other tenants or types of
tenants in the Building. The entire contract of the parties is contained in
this Lease, and there are no promises, agreements, representations, warranties,
conditions or understandings, either oral or written, between them, other than
as are herein set forth.
26. NOTICE AND BILLS. Any bill, invoice, statement, notice or demand that
Lessor may desire or be required to give to Lessee shall be in writing and shall
be deemed sufficiently given or rendered if delivered personally to Lessee or
any of its officers, agents, employees or representatives, at the Premises or
sent by certified or registered United States mail, postage prepaid, addressed
to Lessee at the above set forth address of Lessee, or, after commencement of
the Term, at the Premises, and any such notice or demand shall be deemed to have
been given at the time when it is personally delivered or mailed. Any notice or
demand by Lessee to Lessor shall be in writing and must be served by certified
or registered United States mail postage prepaid, addressed to Lessor at the
above set forth address of Lessor. Either party shall have the right to change
its address for notice by giving notice as provided above.
27. LESSOR DEFINED. The term "Lessor" as used in this Lease insofar as
covenants or obligations on the part of Lessor are concerned, shall be limited
to mean and include only the owner or future owners of the Building at the time
in questions. In the event of any transfer of title to the Building, United
Bank of Denver National Association, Trustee (and in the case of any subsequent
transfer or conveyances, the then grantor) shall be automatically freed and
relieved, from and after the date of such transfer or conveyance, of all
liability as respects the performance of any covenants or obligations on the
part of Lessor contained in this Lease thereafter to be performed; provided,
however, that any funds in the hands of Lessor, or the then grantor, at the time
of such transfer, in which Lessee has an interest, shall be delivered to the
grantee, and any amount then due and payable to Lessee by Lessor, or the then
grantor, under any provisions of this Lease, shall be paid to Lessee.
28. MISCELLANEOUS. (a) If any provision of this Lease shall prove to be
illegal, invalid or unenforceable, the remainder of this Lease shall not be
affected thereby, and in lieu of each provision of this Lease that is illegal,
invalid or unenforceable, there shall be added as a part of this Lease a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and would be legal, valid and enforceable.
(b) Except as otherwise provided, no amendment or
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modification of this Lease shall be valid or binding unless expressed in
writing and signed by the party or parties sought to be bound thereby.
(c) The covenants, conditions and agreements contained in this
Lease shall bind and inure to the benefit of Lessor and Lessee and their
respective heirs, distributees, executors, administrators, successors and their
assigns. If there is more than one entity or person which or who are the Lessee
under this Lease, the obligations imposed upon Lessee under this Lease shall be
joint and several.
(d) In the event of any litigation or other action between
Lessor and Lessee to enforce any provision of this Lease or otherwise with
respect to the subject matter hereof, the unsuccessful party in such litigation
or other action shall pay to the successful party all costs and expenses,
including reasonable attorneys' fees, incurred therein by the successful party.
(e) Lessor shall not be liable to Lessee or any other person for
any damages or injury to person or property, including, without limitation,
damages for injury to or loss of Lessee's business, resulting from interruption,
curtailment or cessation of any utility service, air conditioning, heat,
refrigeration or parking unless willfully and wantonly caused by Lessor; nor
shall the same entitle Lessee to any abatement of the Basic Rent or Additional
Rent or be deemed an eviction of Lessee in whole or in part.
(f) In the event that Lessee fails to pay when due any Basic
Rent or Additional Rent, Lessee shall pay a late charge equal to 10% of the
amount due, plus any attorneys' fees incurred by Lessor by reason of Lessee's
delinquency. The parties agree that such late charge represents a fair and
reasonable estimate of the costs and damages that Lessor will incur by reason of
the late payment by Lessee, which costs and damages are extremely difficult to
ascertain. The late charge shall be in addition to and not a substitute for the
legal rate of interest which may be assessed pursuant to any judgment obtained
in a court of law for non-payment of rent. The late charge shall not be in
derogation of any other right that Lessor may assert. Additionally, Lessee
shall pay a $10.00 charge for any checks written to Lessor that are returned due
to insufficient funds.
(g) The language in all parts of this Lease shall be in all
cases construed according to its fair meaning, and not strictly for or against
Lessor or Lessee. The caption of each section is added as a matter of
convenience only and shall be considered of no effect in the construction of any
provision of this Lease.
(h) Lessee shall not record this Lease or any portion or
memorandum hereof or any reference hereto. However, if requested by Lessor,
Lessee shall, within ten days after request, execute a short form memorandum of
Lease, in recordable form, which may, at Lessor's option, be placed of record.
(i) Lessor shall have the right to name the Building and, from
time to time, to change the name, number or designation of the Building.
(j) The submission of this Lease by Lessor, its agent or
representative for examination or execution by Lessee does not constitute an
option or offer to lease the Premises or a reservation of the Premises in favor
of Lessee, and this Lease shall become effective only upon the execution by
Lessor and delivery of a fully executed counterpart to Lessee.
(k) Lessee, its employees and customers shall abide by
reasonable rules and regulations promulgated from time to time by Lessor for the
Building.
(l) This Lease shall be governed by and interpreted in
accordance with the Laws of the State of Colorado.
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29. ADDITIONAL PROVISIONS. If there are any provisions of this Lease, in
addition to those contained in this document and attached Exhibits A, B and C,
those additional provisions shall be only those set forth in attached Exhibit D.
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<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have respectively executed
this Lease as of the 11th day of July, 1989.
LESSOR: LESSEE:
UNITED BANK OF DENVER NATIONAL Coleman Natural Beef, Inc., a
ASSOCIATION, TRUSTEE* Colorado Corporation
By /s/ [Illegible] By /s/ MELVIN COLEMAN
---------------------------- ------------------------------
Melvin Coleman
President
* It is understood and agreed that United Bank of Denver National Association
has executed this lease as Trustee for Denver Union Corporation Liquidating
Trust. The agreements of Lessor contained herein shall only be enforceable
against the equity in the property for the payment of any claim hereunder.
By executing this lease, Lessee agrees to look solely to the equity in the
property for the enforcement of its respective rights hereunder and lessee
hereby waives any respective claim or any respective right to proceed for
the enforcement of any of Lessee's rights hereunder against United Bank of
Denver National Association in its personal or corporate capacity.
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EXHIBIT A
(Exhibit A to Western Food Center Lease Agreement dated July 11, 1989,
between united Bank of Denver National Association, Trustee, and Coleman
Natural Beef, Inc. a Colorado Corporation.
DIAGRAM OF PREMISES
WESTERN FOOD CENTER
Second Floor Areas
- ------------------
[DIAGRAM]
Initials:
Lessor
-------
Lessee
-------
<PAGE>
EXHIBIT A
(Exhibit A to Western Food Center Lease Agreement dated July 11, 1989,
between United Bank of Denver National Association, Trustee, and Coleman
Natural Beef, Inc. a Colorado Corporation.
DIAGRAM OF PREMISES
WESTERN FOOD CENTER
- -------------------
a multi-tenant refrigerated food processing plant
5140 Race Court
Denver, CO 00216
[DIAGRAM]
Initials:
Lessor
-------
Lessee
-------
17
<PAGE>
EXHIBIT B
(Exhibit B to Western Food Center Lease Agreement dated July 11, 1989,
between United Bank of Denver National Association, Trustee, and Coleman
Natural Beef, Inc. a Colorado Corporation)
LESSOR ALTERATIONS AND ADDITIONS
Alterations to be completed by Lessee in excess of Twenty-Five Hundred Dollars
($2,500.00) shall have prior written Lessor approval. A complete set of plans
and specifications shall be delivered to the permanent files of the Lessor.
Lessor's prior written approval shall not be unreasonably withheld.
Initials:
Lessor
---------
Lessee
---------
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EXHIBIT C
(Exhibit C to Western Food Center Lease Agreement dated July 11, 1989,
between United Bank of Denver National Association, Trustee, and Coleman
Natural Beef, Inc. a Colorado Corporation.
ADDITIONAL LEASE PROVISIONS
"30. TERMINATION. Provided that Lessee is not in default, and that no event of
default has occurred, under lease (the "Prior Lease") dated July 1, 1987,
between Lessor and Lessee covering a portion of the premises, known as Units 4
and 5, currently subject to the Lease, the Prior Lease shall automatically
terminate on the Commencement Date of this lease. If any such default occurs
under the prior lease before the Commencement Date hereto, Lessor may terminate
this Lease, and whether or not Lessor terminates this Lease, pursue any and all
remedies available to Lessor under the prior lease, this Lease and at law and in
equity".
Initials:
Lessor
---------
Lessee
---------
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EXHIBIT D
(Exhibit D to Western Food Center Lease Agreement dated July 11, 1989,
between United Bank of Denver National Association, Trustee, and Coleman
Natural Beef, Inc., a Colorado Corporation.
OPTION TO EXTEND TERM OF LEASE
Lessor hereby grants to Lessee, providing Lessee is not in default of the terms
and conditions of this Lease for more than five (5) days,* an Option to Re-
Lease ("Option to Re-Lease") the Premises for one additional Lease Term
(Additional Lease Term) of three (3) years. In the event Lessee elects to
exercise the option to Re-Lease, Lessee must notify Landlord in writing of such
election not less than forty five (45) days and not more than ninety (90) days
prior to the expiration of the Lease Term.
Upon receipt from Lessee of said notice, Lessor agrees to extend the Lease Term
for an additional three (3) years beginning June 1, 1992 and ending on May 31,
1995. The basic Rent during the extended Lease Term shall be the same as the
monthly Basic Rent set forth in Section 3 of this Lease but the Basic Rent shall
be increased by the proportion of the United States All City Average, All Urban
Consumers, Consumer Price Index changes, if any, during the thirty-six month
period beginning June 1, 1989. If publication of the specified index is
discontinued, then there shall be substituted for the specified index such
comparable replacement cost of living index for the United States All City
Average as may be published by an agency of the United States government.
Termination of the Lease prior to the expiration of the Lease Term stated in the
Lease shall also terminate this Option to Re-Lease their Premises. Lessor and
Lessee further agree that any assignment or subletting of the Premises shall not
include an assignment or subletting of the Option to Re-Lease and that Lessee's
rights under said option to Re-Lease shall be extinguished upon any assignment
or subletting of the demised Premises.
* from the date Lessor notifies Lessee in writing of said default, and
subject to said default reasonably being able to be cured within said period.
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AGREEMENT TO AMEND AND EXTEND LEASE
This Agreement to Amend and Extend Lease (the "Lease Amendment") between
Norwest Bank Denver, National Association, (formerly known as United Bank of
Denver National Association) Trustee ("Lessor"), and Coleman Natural Meats,
Inc., a Colorado corporation (formerly known as Coleman Natural Beef, Inc., a
Colorado corporation), ("Lessee").
RECITALS
1. Lessor and Lessee entered into a certain Western Food Center Lease
Agreement (the "Lease") dated July 11, 1989, relating to certain real
property located in the City and County of Denver, State of Colorado:
Unit(s) #3, 4, & 5 of the Western Food Center (the "Premises"),
being first and second floor areas of the spaces where perimeters
are outlined on the attached Exhibit A, located within the structure
(the "Building") at 5140 Race Court, Denver, Colorado 80216.
2. Lessor and Lessee desire to amend certain provisions of the Lease as
modified by the Lease Amendment.
AGREEMENT
In consideration of the covenants and recitals contained herein and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Lessee and Lessor hereto agree that said Lease
shall be amended and extended effective January 1, 1993, as follows (all
terms not defined here shall have the meaning given in the Lease):
a) PREMISES: Western Food Center Unit #5 is deleted from said Lease and
is not included in this Lease Amendment.
Western Food Center Unit #2 is added to said Lease and is included in
this Lease Amendment.
Therefore, the only units included in this Lease Amendment are Western
Food Center Units #2, #3, and #4, being first and second floor areas of
the spaces where perimeters are outlined on the attached Exhibit A,
located within the structure at 5140 Race Court, Denver, Colorado.
b) TERM: The term (the "Term") of this Lease shall end December 31,
1997, ("Expiration Date").
c) RENT: Basic Rent beginning January 1, 1993, shall be $154,800.00
per year, payable in equal monthly installments of $12,900.00.
Initial
--------
Initial
--------
Page 1 of 3
<PAGE>
d) RENEWAL OPTIONS: Lessee shall have the option to nenew this Lease,
as amended, for two (2) two-year periods and one (1) one-year period
(the "Renewal Period", the "Second Renewal Period", and the "Third
Renewal Period", respectively) on the condition that;
i) At the time Lessee gives notice of exercise of each of its
three options to renew this lease and at the time of
commencement of the Renewal Period, the Second Renewal Period,
and the Third Renewal Period, Lessee shall not be in default
under this lease; and
ii) Written notice of intention to renew this Lease is given to
Lessor by Lessee not less than forty five (45) days nor more
than ninety (90) days prior to the expiration date of (a) the
initial term of the Lease, for the Renewal Period; (b) the
Renewal Period, for the Second Renewal Period; and (c) the
Second Renewal Period, for the Third Renewal Period.
All of the renewal periods shall be on all of the terms and conditions
of this Lease as amended and extended, except;
(i) Lessee shall not have any further right to renew this lease
beyond the Third Renewal Period.
(ii) For purposes of this paragraph, the Consumers Price Index - All
Urban Consumers, U.S. City Average - All Items (1982-1984=100)
published by the Bureau of Labor Statistics of the United
States Department of Labor shall be defined as the "CPI". The
annual Basic Rent during each of the renewal periods shall be as
follows:
a) Renewal Period Annual Basic Rent:
$154,800 multiplied by the quantity 1 plus the percentage
CPI change from July 1992 to December 1997.
b) Second Renewal Period Annual Basic Rent:
Renewal Period Annual Basic Rent multiplied by the quantity
1 plus the percentage CPI change from December 1997 to
December 1999.
c) Third Renewal Period Annual Basic Rent:
Second Renewal Period Annual Basic Rent multiplied by the
quantity 1 plus the percentage CPI change from December
1999 to December 2001.
Provided, however, that in no event shall the Basic Rent for any
renewal period be decreased from the lease term or renewal period
immediately preceding it.
In the event the Bureau of Labor Statistics changes the base period
from the present base period of (1982-1984=100) to another base period,
the appropriate adjustments shall be made. If the the CPI is
discontinued, the parties shall accept comparable statistics on the
purchasing power of the consumer dollar as published at the time of said
discontinuation by a responsible financial periodical or recognized
authority to be then chosen by the parties. If the parties cannot agree
as to comparable statistics, then comparable statistics shall be designated
by three arbitrators, one to be selected by Lessor, one to be selected by
Lessee and the third to be selected by
Initial
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<PAGE>
the two chosen arbitrators. Within 20 days after their selection, the
three arbitrators shall prepare and deliver to Lessor and Lessee a
written report, signed by each arbitrator, identifying the comparable
statistics to be used. The decision of a majority of the arbitrators shall
be binding on Lessor and Lessee. Lessor and Lessee shall share equally the
arbitrators' fees and expenses. All other expenses shall be borne by the
party incurring them.
Termination of the Lease for any reason shall serve to terminate
the right of Lessee for any Renewal Options.
(iii) The Commencement Date of the Renewal Period will be January 1,
1998.
The Commencement Date of the Second Renewal Period will be
January 1, 2000.
The Commencement Date of the Third Renewal Period will be
January 1, 2002.
e) LESSOR'S ADDRESS: Lessor's address under the Lease is as follows:
Norwest Bank Denver, N.A., Trustee
c/o Norwest Investment Management and Trust
1740 Broadway
Denver, Colorado 80274-8691
f) REAFFIRMATION OF THE LEASE: All other terms and conditions of the
Lease shall apply during the Extended Term. The lease is expressly
ratified and confirmed in all respects.
In witness whereof, the parties have executed this Lease Amendment as of
the date first set forth above.
AGREED:
LESSOR: LESSEE:
Norwest Bank Denver, National Coleman Natural Meats, Inc., a
Association, (formerly known as Colorado corporation,
the United Bank of Denver (formerly known as Coleman
National Association) Trustee Natural Beef, Inc.)
By: /s/ KEN R. INGLEE By: /s/ MACK H. GRAVES
------------------------------ -------------------------------
Ken R. Inglee Mack H. Graves
Trustee Officer President and
Chief Executive Officer
APPROVED:
By: /s/ JOHN F. O'DEA
------------------------------
John F. O'Dea
Approved For Signature:
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<PAGE>
DIAGRAM OF PREMISES
Western Food Center
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a multi-tenant refrigerated food processing plant
5140 Race Court
Denver, CO 80216
FIRST FLOOR
[DIAGRAM]
SECOND FLOOR
[DIAGRAM]
Initial
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Initial
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<PAGE>
SECOND AGREEMENT TO AMEND LEASE
This Agreement to Amend Lease (the "Second Lease Amendment") between
Norwest Bank Denver, National Association, (formerly known as United Bank of
Denver National Association) Trustee ("Lessor"), and Coleman Natural Meats,
Inc., a Colorado corporation (formerly known as Coleman Natural Beef, Inc.,
Colorado corporation), ("Lessee").
RECITALS
1. Lessor and Lessee entered into a certain Western Food Center Lease
Agreement (the "Lease") dated July 11, 1983, and an Agreement to Amend and
Extend Lease with an effective date of January 1, 1993, relating to certain real
property located in the City and County of Denver, State of Colorado:
Unit(s) #2, 3, & 4 of the Western Food Center (the "Premises"),
being first and second floor areas of the spaces where perimeters
are outlined on the attached Exhibit A, located within the structure
(the "Building") at 5140 Race Court, Denver, Colorado 80216.
2. Lessor and Lessee desire to further amend certain provisions of the
Lease as modified by the Second Lease Amendment.
AGREEMENT
In consideration of the covenants and recitals contained herein and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Lessee and Lessor hereto agree that said Lease
shall be amended effective June 1, 1996, as follows (all terms not defined
here shall have the meaning given in the Lease):
(a) PREMISES: Western Food Center Unit #5 is added to said Lease and
is included in this Second Lease Amendment.
Therefore, the only units included in this Second Lease Amendment are
Western Food Center Units #2, #3, #4, and #5, being first and second floor
areas of the spaces where perimeters are outlined on the attached Exhibit A
located within the structure at 5140 Race Court, Denver, Colorado.
(b) CONDITIONS PRECEDENT: The effective date of the Second Lease
Amendment is subject to Unit #5 being vacated by the current lessee. In the
event that Unit #5 has not been vacated by the current lessee by June 1,
1996, then the effective date of this Second Lease Amendment shall be delayed
until Lessor can deliver occupancy of Unit #5 to Lessee.
(c) RENT: Basic Rent beginning June 1, 1996, or in the event of a
delay, on the effective date as described in Section 2(b) above, shall be
$184,800.00 per year, payable in equal monthly installments of $15,400.00.
(d) RENEWAL OPTIONS: The amount described in the Agreement to Amend
and Extend Lease paragraph d)(ii)a) shall be increased from $154,800 to
$184,800.
(e) REAFFIRMATION OF THE LEASE: All other terms and conditions of the
Lease and Lease Amendment shall apply during the Term of the Lease. The
Lease is expressly ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties have executed this Second Lease
Amendment as of the date first set above.
AGREED:
LESSOR: LESSEE:
Norwest Bank Denver, National Coleman Natural Meats, a Colorado
Association, (formerly known as corporation (formerly known as
the United Bank of Denver Coleman Natural Beef, Inc.)
National Association) Trustee
By: By: /s/ LEE ARST
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Title: Title: President/CEO
------------------------- -------------------------
APPROVED:
By:
---------------------------
John F. Dea
<PAGE>
AMENDED AND RESTATED
REGISTRATION AND
PREEMPTIVE RIGHTS AGREEMENT
THIS AGREEMENT is entered into as of the 24th day of May, 1995, among
Coleman Natural Holdings Corp., a Delaware corporation (the "Company"), Melvin
Coleman, Sr. ("Coleman"), and the persons named in SCHEDULE 1 (the "Investors"),
including Lee N. Arst ("Arst").
RECITALS:
A. The Company (or its predecessor by merger, Coleman Natural Meats,
Inc.) and certain of the Investors entered into that certain Registration and
Preemptive Rights Agreement dated November 21, 1990, and amended as of June 28,
1991, June 26, 1992, October 18, 1993 and May 12, 1994 (the "Original
Agreement").
B. Arst has agreed to purchase 35,876 shares of the Company's Common
Stock pursuant to the terms of the Series A Preferred Stock and Common Stock
Purchase Agreement dated November 21, 1990 and amended as of June 28, 1991, June
26, 1992, October 18, 1993, May 12, 1994 and of even date herewith (the
"Purchase Agreement") and has been granted an option to purchase 35,876 shares
of the Company's Common Stock pursuant to the Company's Stock Option Plan.
C. In consideration of Arst purchasing such shares of Common Stock,
including shares which may be issued upon exercise of such option, the Company,
Coleman and each of the Investors desire to set forth in this Agreement all of
the registration rights and preemptive rights of the Investors and Coleman with
respect to the Common Stock of the Company held by them, issued or issuable upon
exercise of certain warrants held by the Investors, issued or issuable upon
exercise of certain options held by or granted in the future to Coleman and/or
certain of the Investors.
NOW, THEREFORE, the parties agree as follows:
1. PREEMPTIVE RIGHTS. Neither the Company nor any subsidiary of the
Company ("Subsidiary") shall authorize, issue, or sell any shares of capital
stock or equity securities or other right or claim upon earnings of the Company
or such Subsidiary of any kind or class, other than the issuance of Common Stock
in lieu of payment of required cash dividends on the Series A Preferred Stock
("Capital Stock"), except as follows:
<PAGE>
1.1 Each time the Company or a Subsidiary proposes to issue
shares of its Capital Stock for cash other than pursuant to a registration
statement under the 1933 Act with respect to an underwritten public offering of
securities, the Company or Subsidiary shall first offer such shares to the
Investors and to Coleman in accordance with this Section 1.1; provided, however,
that this Section 1.1 shall not be applicable to the issuance of Capital Stock
(i) in connection with a merger or consolidation of the Company, (ii) pursuant
to an incentive stock option or bonus plan for the Company's officers,
directors, employees, or consultants which has been approved by the Company's
board of directors, (iii) upon exercise of the warrants to purchase an aggregate
of 28,540 shares of Common Stock dated October 13, 1993 and expiring on November
21, 1996 (the "November Warrants"), (iv) upon exercise of the Warrants to
purchase an aggregate of 28,937 shares of Common Stock dated October 13, 1993
and expiring on June 25, 1998 (the "June Warrants"), and (v) upon exercise of
the Warrants to purchase an aggregate of 28,937 shares of Common Stock dated
October 13, 1993 and expiring October 18, 1998 (the "October Warrants")
(collectively, the November Warrants, June Warrants and October Warrants being
referred to herein as the "Warrants").
1.2 Not later than fifteen (15) days prior to a proposed
offering of Capital Stock for cash, the Company or Subsidiary shall
simultaneously give to each Investor who then holds of record any common stock
and to Coleman, if he then holds of record any common stock (such Investors and
Coleman referred to collectively as the "Offerees") a notice specifying the
number of shares and the class or series of Capital Stock to be offered and the
price and terms on which it proposes to offer such shares ("Offer"). Within ten
(10) days after the Offer is given, any Offeree may elect (by giving written
notice to the Company) to purchase, at the price and on the terms specified in
the Offer, the number of such shares which equals the proportion that the number
of shares of Common Stock Equivalents (as defined in Section 1.4, below) held by
such Offeree bears to the total number of shares of Common Stock Equivalents
held by all Offerees (a "Pro Rata Interest"). If any Offeree does not elect to
purchase its full Pro Rata Interest, each remaining Offeree who has elected to
purchase its full Pro Rata Interest may elect (by giving written notice to the
Company within five (5) days after the expiration of such 10-day period) to
purchase all or any portion of such unsubscribed shares (provided that if such
remaining Offerees elect to purchase more than the number of such unsubscribed
shares, such unsubscribed shares shall be allocated among such electing
remaining Offerees in accordance with the Pro Rata Interests of such remaining
electing Offerees, or in any other proportion as the electing remaining Offerees
may agree upon). For purposes of determining the number of shares of common
stock held by Coleman in determining his purchase rights as an Offeree under
this Section 1.2, Coleman shall be deemed to hold all shares of Common Stock
then owned of record by Coleman, James W. Coleman, or any relative of either of
them by blood or marriage to the third degree.
1.3 If all of the shares of Capital Stock referred to in the
Offer given under this Section 1.3 are not elected to be purchased by the
Offerees in accordance
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with this Section 1, the Company may, during the 60-day period after the
Offer is given, sell the remaining unsubscribed shares to any other person(s)
at a price not less than, and on terms no more favorable to such other
person(s), or less favorable to the Company than, those specified in the
Offer.
1.4 "Common Stock Equivalents" as used in this Agreement shall
mean common stock of the Company (i) held by the Investors and Coleman on the
date hereof, (ii) issued or issuable to certain of the Investors upon exercise
of the Warrants, (iii) issued or issuable to Coleman or to any Investor upon
exercise of an option to purchase the Company's Common Stock outstanding on the
date hereof or granted to Coleman or such Investor hereafter by the Board of
Directors ("Options"), or (iv) issued or issuable to the Investors as Exchanged
Securities or upon conversion of any Exchanged Securities (as that term is
defined in Section 1.6, below).
1.5 Notwithstanding the foregoing, if the proposed issuance of
Capital Stock is coupled with the proposed issuance of any notes, debentures or
other instruments of the Company, an Investor or Coleman, as the case may be,
may exercise the right to purchase Capital Stock granted by this Section 1.5
only if, and to the extent, it or he purchases a comparable portion of such
note, debenture or other instrument offered with the Capital Stock.
1.6 Notwithstanding the foregoing, if the Company issues any
shares of Capital Stock to those Investors holding Series A Preferred Stock, in
exchange for or conversion of the outstanding Series A Preferred Stock held by
them, and such Capital Stock so issued is Common Stock or is directly or
indirectly convertible into shares of the Company's Common Stock ("Exchanged
Securities"), Coleman and the Investors shall have the rights provided for in
this Section 1 to purchase shares of such Exchanged Securities so that Coleman's
or any such Investor's Pro Rata Interest immediately after the issuance of
Exchanged Securities will equal Coleman's and any such Investor's respective Pro
Rata Interest immediately prior to the issuance of the Exchanged Securities.
The purchase price for the shares of Exchanged Securities shall equal the
exchange or conversion rate into which the Series A Preferred Stock is
ultimately convertible into shares of the Company's Common Stock, or if such
Exchanged Securities are shares of Common Stock, the exchange or conversion rate
of the Series A Preferred Stock into Common Stock. As way of example, if the
Investors exchanged the 3,340,826 outstanding shares of Series A Preferred Stock
for 845,779 shares of Series B Convertible Preferred Stock (and such Series B
Preferred Stock is convertible into Common Stock on a one-to-one basis), an
Investor whose Pro Rata Interest prior to the exchange was 10% and whose Pro
Rata Interest would be diluted by the issuance of the convertible Series B
Preferred would be permitted to purchase that number of shares of Series B
Convertible Preferred Stock at $3.95 per share (the exchange rate of the Series
A Preferred into Series B Preferred, without further adjustment for the 1:1
conversion into Common Stock) so as to maintain his Pro Rata Interest of 10%.
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<PAGE>
2. REGISTRATION RIGHTS.
2.1 DEFINITIONS. For purposes of this Section 2:
2.1.1 The terms "register," "registration," and "registered"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the 1933 Act and the
declaration or ordering of effectiveness of such registration statement or
document;
2.1.2 The term Registrable Securities means (i) the shares of
Common Stock held by each Investor and by Coleman on the date of this Agreement;
(ii) Common Stock issued or issuable upon exercise of the Warrants, and (iii)
any common stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, option, right, or other security which is issued as) a
dividend or other distribution with respect to, in exchange for, or in
replacement of such Common Stock; provided however, that the Company shall only
be required to register shares of Common Stock; provided further that for
purposes of determining the number of shares of Common Stock held by Coleman
under this Section 2.1.2, Coleman shall be deemed to hold all shares of Common
Stock then owned of record by Coleman, James W. Coleman, or any relative of
either of them by blood or marriage to the third degree;
2.1.3 The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable convertible securities, including Warrants or
Options, which upon issuance would be, Registrable Securities;
2.1.4 The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 2.12 of this Agreement; and
2.1.5 The term Form S-3 means such form under the Securities
and Exchange Act of 1933 (the "1933 Act") as in effect on the date hereof or any
successor registration form to Form S-3 under the 1933 Act subsequently adopted
by the Securities and Exchange Commission ("SEC").
2.2 REQUEST FOR REGISTRATION.
2.2.1 If the Company receives, at any time after the earlier
of (i) six (6) months after the effective date of the first registration
statement for a public offering of securities of the Company or (ii) two (2)
years from March 24, 1989, a written request from the Holders of at least
fifty-one percent (51%) of the Registrable Securities then outstanding and
entitled to registration rights under this Section 2.2 that the Company file
a registration statement under the 1933 Act covering the registration of at
least ten percent (10%) of the Registrable Securities then outstanding, then
the Company shall, within five (5) days of the receipt thereof, give written
notice of such request to all Holders and shall, subject to the limitations
of subsection 2.2.2 of this Agreement, use its diligent best efforts to
effect as
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<PAGE>
soon as possible, the registration under the 1933 Act of all Registrable
Securities which the Holders request to be registered within thirty (30) days
of the mailing of such notice by the Company.
2.2.2 If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 2.2 of this
Agreement and the Company shall include such information in the written notice
referred to in subsection 2.2.1. In such event, the right of any Holder to
include Registrable Securities in such registration shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company as
provided in subsection 2.4.5) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders, which underwriters shall be
reasonably satisfactory to the Company. Notwithstanding any other provision of
this Section 2.2 if the underwriter advises the Initiating Holders in writing
that marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder.
2.2.3 The Company is obligated to effect only two such
registrations pursuant to this Section 2.2 (which must be at least six (6)
months apart), provided, however, for the purpose of calculating the number of
registrations pursuant to this Section 2.2, only registrations that have been
declared effective shall be counted.
2.2.4 Notwithstanding the foregoing, (i) the Company shall
not be obligated to file a registration statement pursuant to this Section 2.2
during the period starting with the date sixty (60) days prior to the Company's
good faith estimated date of filing of, and ending on the date ninety (90) days
(one hundred eighty (180) days in the case of the Company's initial public
offering) following the effective date of, a registration statement pertaining
to an underwritten public offering of securities for the account of the Company,
provided the Company is at all times during such period diligently pursuing such
registration and (ii) if the Company furnishes to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by the
president of the Company stating that, in the good faith judgment of the board
of directors of the Company, it would be seriously detrimental to the Company
and its shareholders for such registration statement to be filed and it is
therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for a period of not more than
one hundred twenty
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<PAGE>
(120) days after receipt of the request of the Initiating Holders; provided,
however, that the Company may not exercise this right more than once in any
12-month period.
2.2.5 Notwithstanding the foregoing, if the registration
requested hereunder is the Company's initial registration for a public offering
of its securities, the Company will be obligated to effect the registration only
if the registration would result, in the judgment of the Initiating Holders, in
aggregate gross proceeds to the selling Holders equal to or in excess of
$6,000,000 and if, immediately prior to such closing date, the aggregate market
value of all outstanding shares of the common stock (including Common Stock
Equivalents) (determined by the 30-day average of the daily bid and asked prices
for publicly traded shares of Common Stock over a period ending on the public
offering closing date or, if such shares are not publicly traded, determined by
multiplying the number of Common Stock Equivalents by the offering price) equals
or exceeds $12,000,000, and the registration is to be effected by means of a
firm commitment underwriting managed by an investment banking firm of national
reputation or a major regional investment banking firm.
2.2.6 At any time after the Company has effected two
registrations pursuant to this Section 2.2, the demand registration rights in
this Section shall be available to Coleman, James W. Coleman, or any of their
relatives (by blood or marriage to the third degree) (the "Coleman Family
Shareholders"), provided that the Company shall be obligated to file no more
than one registration statement pursuant to the exercise of such rights.
2.3 COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the 1933 Act in connection with the public
offering of such securities (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company shall, at such time, promptly give each
Holder and to Coleman written notice of such registration. Upon the written
request of any Holder (and, with the consent of the Holders, any Coleman Family
Shareholder) given within fifteen (15) days after mailing of such notice by the
Company in accordance with Section 3.4 of this Agreement, the Company shall,
subject to the provisions of Section 2.7 of this Agreement, use its best efforts
to cause to be registered under the 1933 Act all of the Registrable Securities
that each such Holder (and, if applicable, any such Coleman Family Shareholder)
has requested to be registered.
2.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
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<PAGE>
2.4.1 Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to nine months.
2.4.2 Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
2.4.3 Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they reasonably
request to facilitate the disposition of Registrable Securities owned by them.
2.4.4 Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of the states or jurisdictions reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general-consent
to service of process in any such states or jurisdictions.
2.4.5 In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
2.4.6 Notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
2.4.7 Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Agreement, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Agreement if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date the registration statement with respect to
such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if
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<PAGE>
any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
2.4.8 Use its best efforts to list the Registrable Securities
being registered on any national securities exchange on which a class of the
Company's equity securities are listed or qualify the Registrable Securities
being registered for inclusion on the automated quotation system of the National
Association of Securities Dealers, Inc. if the Company does not have a class of
equity securities listed on a national securities exchange.
2.5 FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 2 of
this Agreement that the selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them, the
intended method of disposition of such securities, and such other information as
shall be required to effect the registration of their Registrable Securities.
2.6 EXPENSES OF REGISTRATION. All expenses other than
underwriting discounts and commissions relating to Registrable Securities
incurred in connection with the registrations, filings, or qualifications
pursuant to Sections 2.2 and 2.3, including (without limitation) all
registration, filing, and qualification fees, printing and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders, shall be borne by the
Company; provided, however, if the selling Holders use the services of
accountants other than the Company's regular firm of certified public
accountants, the selling Holders shall pay the accounting fees of such other
accountants. Notwithstanding the foregoing, the Company shall not be required to
pay for any expenses of any registration proceedings begun pursuant to this
Section 2 if the registration request is subsequently withdrawn at any time at
the request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to this Section 2; provided
further, however, that if at the time of such withdrawal, the Holders have
learned of a material adverse change in the condition, business, or prospects of
the Company from that known to the Holders at the time of their request, or the
Holders request to withdraw is based upon an adverse change in market
conditions, then the Holders shall not be required to pay any of such expenses
and shall retain their rights pursuant to this Section 2.
2.7 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Section 2.3 of this Agreement to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between
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<PAGE>
the Company and the underwriters selected by it, and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize the
success of the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by shareholders to be included in
such offering exceeds the amount of securities sold other than by the Company
that the underwriters reasonably believe is compatible with the success of
the offering, then the Company shall be required to include in the offering
only that number of such securities, including Registrable Securities, which
the underwriters believe will not jeopardize the success of the offering
(Includable Securities) (the securities so included to be apportioned as
follows: (i) if all the Registrable Securities requested by Holders to be
included in the offering exceeds the amount of Includable Securities, then an
amount of Registrable Securities equal to the amount of Includable Securities
shall be included and such amount shall be apportioned pro rata among the
Holders according to the total amount of Registrable Securities which each
Holder requested to be included therein or to such other proportions as shall
mutually be agreed to by such Holders; or (ii) if all the Registrable
Securities requested by Holders to be included in the offering does not
exceed the amount of Includable Securities, then all Registrable Securities
requested to be included shall be included and the balance of the Includable
Securities shall be apportioned among the other selling shareholders entitled
to include securities in such proportions as shall mutually be agreed to by
such selling shareholders); but in no event shall the amount of securities of
the selling Holders included in the offering be reduced below thirty-three
and one-third percent (33-1/3%) of the total amount of securities included in
such offering, unless such offering is the initial public offering of the
Company's securities, in which case the selling Holders may be excluded if
the underwriters believe that to include the selling Holders would jeopardize
the success of the offering.
2.8 DELAY OF REGISTRATION. So long as the Company has given any
notice required by this Agreement, no Holder shall have any right to take any
action to restrain or otherwise delay any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement; but nothing in this Section 2.8 of this
Agreement shall be construed as limiting a Holder's right to damages for breach
of this Agreement.
2.9 INDEMNIFICATION. If any Registrable Securities are included
in a registration statement under this Agreement:
2.9.1 Except as otherwise provided below, the Company will
indemnify and hold harmless each Holder, the officers and directors of each
Holder, any underwriter (as defined in the 1933 Act) for such Holder, and each
person, if any, who controls such Holder or underwriter within the meaning of
the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the 1933 Act, the 1934 Act, or other federal
or state law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements,
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<PAGE>
omissions, or violations (collectively a Violation): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any
applicable state securities law, or any rule or regulation promulgated under the
1933 Act, the 1934 Act, or any applicable state securities law. The Company will
reimburse each such Holder, officer or director, underwriter, or controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 2.9.1 of this Agreement shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld). The Company shall not be liable under this subsection
2.9.1 for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by or on behalf of any such Holder, underwriter, or
controlling person.
2.9.2 Each selling Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
registration statement, each person, if any, who controls the Company within the
meaning of the 1933 Act, each agent and any underwriter for the Company, and any
other person selling securities in such registration statement or any of its
directors or officers or any individual or entity which controls such person or
underwriter, against any losses, claims, damages, or liabilities (joint or
several) to which the Company or any such director, officer, controlling person,
agent, or underwriter or controlling person, or other such person or director,
officer, or controlling person may become subject, under the 1933 Act, the 1934
Act, or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by or on behalf of such Holder expressly for use in connection with
such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, agent, underwriter, or controlling person, other person,
officer, director, or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 2.9.2 shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; provided further that the maximum
liability of any selling Holder under this subsection 2.9.2 in regard to any
registration statement shall in no event exceed
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the amount of the proceeds received by such selling Holder from the sale of
securities under such registration statement.
2.9.3 Promptly after receipt by an indemnified party under
this Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, reasonably satisfactory to the
Company, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.9.
2.9.4 The obligations of the Company and each Holder under
this Section 2.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Agreement and otherwise.
2.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the 1933 Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
2.10.1 make and keep public information available, as those
terms are understood and defined in Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
2.10.2 take such action, including the voluntary registration
of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable
the Holders to use Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable (but not later than ninety (90) days)
after the end of the fiscal year in which the first registration statement filed
by the Company for the offering of its securities to the general public is
declared effective and its securities are sold to the public;
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<PAGE>
2.10.3 file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act; and
2.10.4 furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the information requirements of Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company) and the reporting requirements of
the 1934 Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
2.11 FORM S-3 REGISTRATION. If the Company receives a written
request from the Holders of at least ten percent (10%) of the Registrable
Securities then outstanding and entitled to registration rights under this
Section 2.11 of this Agreement that the Company file a registration statement on
Form S-3, if available, and any related qualification or compliance with respect
to all or a part of the Registrable Securities owned by such Holders, the
Company will:
2.11.1 promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
2.11.2 as soon as practicable, file such registration
statement and use its best efforts to effect such registration, qualification,
or compliance as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Holder's or Holders' Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within fifteen (15) days
after receipt of such written notice from the Company; provided, however, that
the Company shall not be obligated to effect any such registration,
qualification, or compliance pursuant to this Section 2.11 of this Agreement
if; (i) Form S-3 is not available for such offering by the Holders; (ii) the
Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities or any such other securities (if any) at an aggregate price to the
public of less than $200,000; or (iii) the Company shall furnish to the
Holders a certificate signed by the president of the Company stating that in
the good faith judgment of the board of directors of the Company it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall
have the right to defer the filing of the Form S-3 Registration for a period
of not more than one hundred twenty (120) days after receipt of the request
of the Holder or Holders under this Section 2.11; provided,
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<PAGE>
however, that the Company shall not utilize this right more than once in any
12-month period.
2.11.3 Subject to the foregoing, the Company shall file a Form
S-3 covering the Registrable Securities and other securities requested to be
registered as soon as practicable after receipt of the request or requests of
the Holders. All expenses other than underwriting discounts and commissions
incurred in connection with a registration requested pursuant to this Section
2.11, including (without limitation) all registration, filing, qualification,
printing and accounting fees, and the reasonable fees and disbursements of
counsel for the selling Holder or Holders and counsel for the Company, shall be
borne by the Company. Registrations effected pursuant to this Section 2.11 shall
not be counted as demands for registration or registrations effected pursuant to
Section 2.2 of this Agreement.
2.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of such securities provided the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act.
2.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of fifty-one percent (51%) of the outstanding
Registrable Securities, enter into any agreement with any holder or prospective
holder of any securities of the Company granting any registration rights to such
holder or prospective holder.
2.14 MARKET STAND-OFF AGREEMENT. Each Holder agrees that it
shall not, to the extent requested by the Company and an underwriter of Common
Stock or other securities of the Company, sell or otherwise transfer or dispose
(other than to donees who agree to be similarly bound) any Registrable
Securities during such period following the effective date of a registration
statement of the Company filed under the 1933 Act as requested by the
underwriter; provided, however, that:
2.14.1 such agreement shall be applicable only to the first
such registration statement of the Company which covers Common Stock to be sold
on its behalf to the public in an underwritten offering;
2.14.2 all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements; and
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<PAGE>
2.14.3 such period shall not exceed four (4) months.
3. MISCELLANEOUS.
3.1 AMENDMENTS AND WAIVERS. Investors holding at least
sixty percent (60%) of the aggregate Common Stock Equivalents then held by all
Investors and, with respect to modification of those provisions hereof
specifically applicable to Coleman or the Coleman Family Shareholders, the
Coleman Family Shareholders holding at least fifty-one percent (51%) of the
common stock held by all Coleman Family Shareholders, from time to time may,
with the consent of the Company, amend this Agreement or waive any of its
restrictions or provisions. Any amendment or waiver effected in accordance with
this Section 3.1 shall be binding upon each Investor, each future holder of any
Common Stock, and the Company. Nothing herein contained shall preclude an
individual Investor from agreeing with the Company to waive any provision of
this Agreement, provided it relates only to such Investor.
3.2 SURVIVAL OF WARRANTIES. All covenants, representations, and
warranties made herein shall survive the execution and delivery hereof.
3.3 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of any Holder in the exercise of any power, right, or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right, or privilege preclude other or further
exercises thereof or of any other right, power, or privilege hereunder. All
rights and remedies existing hereunder are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
3.4 NOTICES. Any notice herein required or permitted to be
given shall be in writing and may be personally served or sent by United States
mail and shall be deemed to have been given when personally delivered to an
officer of the Company or on the third business day after deposit in the United
States mail, registered or certified, return receipt requested, with postage
prepaid and properly addressed. For the purposes hereof, the addresses of the
Company and Coleman (the address of Coleman shall be deemed the address of all
of the Coleman Family Shareholders), (until notice of a change thereof served as
provided in this Section 3.4) shall be as follows:
Coleman Natural Holdings Corp.
P.O. Box 17045
Denver, CO 80217
Attn: President
Melvin Coleman
314 Diamond Circle
Louisville, CO 80027
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The addresses of the Investors (until notice of a change thereof
served as provided in this Section 3.4) shall be as stated in Schedule 1.
3.5 ASSIGNABILITY. This Agreement shall be binding upon the
Company, its successors, and assigns, and shall inure to the benefit of each
Investor's successors and assigns.
3.6 LAW GOVERNING. This Agreement shall be construed in
accordance with and governed by the laws of Colorado.
3.7 COUNTERPARTS. This Agreement may be signed by each party
hereto upon a separate copy, in which event all of such copies shall constitute
a single counterpart of this Agreement. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Agreement to produce or account for more
than one such counterpart.
3.8 DESCRIPTIVE HEADINGS. The descriptive headings herein have
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision hereof.
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<PAGE>
Registration Agreement
Signature Page
DATED AND EFFECTIVE as of the date first above written.
COLEMAN NATURAL MEATS, INC.
By: /s/ Richard P. Dutkiewicz
---------------------------------
Richard P. Dutkiewicz, Vice President-Finance
/s/ Lee N. Arst
---------------------------------
LEE N. ARST
/s/ John Van Orman
---------------------------------
JOHN VAN ORMAN
/s/ Melvin Coleman, Sr.
---------------------------------
MELVIN COLEMAN, SR.
---------------------------------
MACK H. GRAVES
ALLIANCE BUSINESS INVESTMENT COMPANY
By: /s/ Barry M. Davis
---------------------------------
Barry Davis
DAVIS VENTURE PARTNERS COMPANY
By: /s/ Barry M. Davis
---------------------------------
Barry Davis
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<PAGE>
INTERVEN VENTURES 1987, a California limited partnership
By: ACORN ONE TRUST, Its General Partner
By: /s/ Wayne B. Kingsley
---------------------------------
Wayne Kingsley, Trustee
INTERVEN II, L.P.
By: INTERVEN II PARTNERS, L.P., Its General Partner
By: /s/ Wayne B. Kingsley
---------------------------------
Wayne Kingsley, General Partner
/s/ Ted V. Bell
------------------------------------
TED V. BELL
BOETTCHER VENTURE CAPITAL PARTNERS, L.P.
By: Kemper Securities Group, Inc., Its Managing
General Partner
By: /s/ Foye F. Black, Jr.
---------------------------------
Foye F. Black, Jr., under power of attorney from
Kemper Securities Group, Inc. (successor by
merger to Boettcher & Co. Inc.)
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<PAGE>
SCHEDULE 1
Schedule of Investors
Interven II, L.P.
227 SW Pine Street
Suite 200
Portland, OR 97204
Attn: Wayne Kingsley
InterVen Ventures 1987
227 SW Pine Street
Suite 200
Portland, OR 97204
Attn: Wayne Kingsley
Ted V. Bell
Bell Farms, Inc.
3213 Waconda Road
Gervais, OR 97026
Davis Venture Partners
One Williams Center
Suite 2000
Tulsa, OK 74172
Attn: Barry Davis
Alliance Business Investment Company
One Williams Center
Suite 2000
Tulsa, OK 74172
Attn: Barry Davis
Boettcher Venture
Capital Partners, L.P.
828 Seventeenth Street
Denver, Colorado 80201
Attn: William G. Nash
Mack H. Graves
17576 East Kettle Place
Aurora, CO 80016
<PAGE>
John Van Orman
5140 Race Court
Denver, CO 80216
Lee N. Arst
5140 Race Court
Denver, CO 80216
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<PAGE>
EMPLOYEE
NON-DISCLOSURE AGREEMENT
This Non-Disclosure Agreement (the "Agreement") is made and entered into as of
, 19 by and among ("Employee") and Coleman
Natural Products, Inc., a Delaware corporation, together with its parent and
subsidiaries (collectively called the "Company").
RECITALS
A. WHEREAS, the Company is devoted to the design and development, manufacture
and marketing of meat, meat products, animal raising verification practices and
other products and services relating thereto or growing out of such; and
B. WHEREAS, Employee has been employed by the Company; and
C. WHEREAS, Employee agrees that the purpose of his employment would be
hindered by the disclosure by Employee of any Confidential Information or
Inventions of the Company to any person outside of the Company; and
D. WHEREAS, the parties accordingly desire to enter into this Agreement and to
reduce their full agreement and understanding to writing.
NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is
hereby acknowledged, together with the mutual covenants contained herein, it is
agreed as follows:
1. CONFIDENTIAL INFORMATION AND MATERIALS. Employee hereby agrees that all
information, ideas and material, in tangible or intangible form, formerly, now
or hereafter created, whether by or for the Company, which is not generally
known to the public and which relates to the past, present or future businesses,
customers, products, supplies, plans or technology of the Company, shall be
deemed Confidential Information, whether or not such information, ideas or
material have been formally marked or identified as confidential. Confidential
Information shall further include material, ideas or information provided to the
Company by a third party pursuant to an agreement to treat such information as
confidential.
2. GENERAL KNOWLEDGE. Information publicly available or generally known
within the industries or trades in which the Company competes is not considered
Confidential Information.
3. NON-DISCLOSURE. During Employee's employment by the Company, Employee has
had and will continue to have access to the Confidential Information and has
occupied and will continue to occupy a position of trust and confidence with
respect to the Confidential Information and the affairs and business of the
Company. Employee agrees to take the following steps to preserve the
confidential and proprietary nature of the Confidential Information:
3.1 NON-DISCLOSURE. Both during Employee's employment by the Company
and after the Date of Termination (as defined in Section 9.1), Employee
will not use, disclose or otherwise permit and will take all reasonable
precautions to prevent any person or entity access to any of the
Confidential Information other than as required in the performance of
Employee's duties with the Company. Employee agrees that he has not
previously used, disclosed or otherwise permitted access to the
Confidential Information other than as required in the performance of his
duties. Employee understands that he or she is not allowed to sell,
license, market or otherwise exploit any products or services (including
software in any form) which embody in whole or in part any Confidential
Information.
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<PAGE>
3.2 PREVENT DISCLOSURE. Employee has and will take all reasonable
precautions to prevent disclosure of the Confidential Information to
unauthorized persons or entities.
3.3 ABIDE BY THE COMPANY'S RESTRICTIONS. Employee has and will treat
as confidential and proprietary any information or materials from outside
the Company which the Company is obligated to treat as confidential or
proprietary, in accordance with the Company's reasonable instructions to
Employee.
3.4 RETURN ALL MATERIALS. Upon the Date of Termination (as
hereinafter defined), Employee will deliver to the Company all tangible
materials embodying the Confidential Information, including without
limitation any computer software, input sheets and descriptions, practice
aids and practice aid materials (work sheets, schedules, tables, brochures,
manuals, etc.), documentation, records, listings, notes, data, sketches,
drawings, memoranda, models, accounts, reference materials, samples, human
or machine-readable media and equipment and any other materials which in
any way relate to the Confidential Information, to the businesses of the
Company, to the representation of the Company, or to the clients,
customers, suppliers, vendors, or similar contacts of the Company.
Employee agrees not to retain any copies of any of the above materials.
4. IDEAS AND INVENTIONS. Employee agrees to assign to the Company all of
Employee's right, title and interest in or to any and all ideas, concepts, know-
how, techniques, processes, inventions, discoveries, developments, works of
authorship, innovations and improvements ("Inventories") conceived or made by
Employee, whether alone or with others, whether patentable or not, except those
that the Employee developed entirely on Employee's own time without using the
equipment, supplies, facilities, or trade secret information of the Company and
which neither (a) relate at the time of conception or reduction to practice of
the Invention to any of the businesses of the Company, or actual or demonstrably
anticipated business of the Company, nor (b) result from any work performed by
the Employee or any other employees of the Company for the Company. Employee
agrees to promptly inform and disclose all Inventions to the Company in writing,
and with respect to Inventions which Employee is required to assign to the
Company hereunder, to provide all assistance reasonably requested by the Company
in the preservation of its interests in the Inventions (such as by executing
documents, testifying, etc.), such assistance to be provided at the Company's
expense but without any additional compensation to the Employee.
5. RESERVED INVENTIONS. All ideas, concepts, know-how, techniques, processes,
inventions, discoveries, developments, innovations and improvements which
Employee made, conceived or acquired prior to Employee's employment by the
Company, or which are excepted from this Agreement by the terms of Section 4,
above, and all patents and patent applications relating thereto shall be
excluded from this Agreement, unless Employee transfers or otherwise assigns
such rights to the Company.
6. COPYRIGHTS. Employee agrees that any work prepared by Employee during the
course of Employee's employment or engagement with the Company which is eligible
for United States copyright protection or protection under the Universal
Copyright Convention, the Berne Copyright Convention and/or the Buenos Aires
Copyright Convention shall be a "work made for hire." In the event any such
work is deemed not to be a work made for hire, Employee hereby assigns all
right, title and interest in and to the copyright in such work to the Company,
and agrees to provide all assistance reasonably requested in the establishment,
preservation and enforcement of its copyright in such work, such assistance to
be provided at the Company's expense but without any additional compensation to
Employee.
7. LIMITATION ON OUTSIDE ACTIVITIES. Until the Date of Termination, Employee
agrees not to solely or jointly with others, undertake or join any planning for
or organization of any business activity competitive with any of the businesses
of the Company, engage in activities or render services similar or reasonably
related to those in which the Company is engaged in (or plans to be engaged in)
or otherwise take part in activities which could in any way jeopardize the
competitive position of any of the businesses engaged in (or to be engaged in)
by the Company.
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<PAGE>
8. FORMER EMPLOYMENT. Employee acknowledges and agrees that he or she has not
brought and will not bring with him or her or use in the performance of his or
her responsibilities at the Company any materials or documents of any former
employer which are not generally available to the public, unless Employee has
obtained written authorization from such former employer for their possession
and use. Employee also understands and agrees that, in his or her employment
with the Company, Employee is not to breach any obligation of confidentiality or
duty that Employee has to former employers, and agrees that Employee will
fulfill all such obligations during his or her employment with the Company.
9. MISCELLANEOUS.
9.1 DATE OF TERMINATION. For purposes of this Agreement, "Date of
Termination" shall mean the date the Employee is no longer employed by the
Company.
9.2 ASSIGNMENT. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of each of the parties
hereto and shall also bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation, and
any assignee of all or substantially all of the Company's businesses and
properties, but, except as to any such successor or assignee, neither this
Agreement nor any rights or benefits hereunder may be assigned by the
Company or by Employee.
9.3 TERM. The term of this Agreement shall commence on the date
hereof and continue until the Date of termination. Notwithstanding the
foregoing, upon the expiration of such term, such obligations of Employee
as shall, by the provisions of this Agreement, continue beyond such term,
shall so continue after the expiration of the term.
9.4 GOVERNING LAW. This Agreement is made under and shall be
governed by the laws of the State of Colorado applicable to contracts made
and to be performed entirely within Colorado.
9.5 INTERPRETATION. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. If, moreover, any
one or more of the provisions contained in this Agreement shall for any
reason be held to be excessively broad as to duration, activity or subject
in any jurisdiction, it shall be construed by limiting and reducing it, so
as to be enforceable to the extent compatible with the applicable law in
such jurisdiction as it shall then appear. This Agreement (including such
contested clause, provision or term) shall remain in full force and effect
in all other jurisdictions.
9.6 REMEDIES FOR BREACH. Employee acknowledges that a remedy at law
for any breach or threatened breach by Employee of the provisions of this
Agreement would alone be inadequate and Employee therefore agrees that the
Company shall be entitled to a preliminary restraining order and/or
injunctive relief in case of any such breach or threatened breach.
Notwithstanding any of the above, nothing in this Agreement shall be
construed to prohibit the Company from pursuing any other available
remedies either at law or in equity, for such breach or threatened breach,
including the recovery of monetary damages from Employee.
9.7 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties. This Agreement may not be amended,
supplemented or waived except by a writing signed by the party against whom
such amendment, supplement or waiver is sought to be enforced.
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<PAGE>
9.8 NON-WAIVER. No delay or failure by the Company in exercising any
right under this Agreement, and no partial or single exercise of that
right, will constitute a waiver of that or any other right.
9.9 INDEMNITY. Employee agrees to indemnify and hold the Company
harmless from and against any and all damages, loss or expenses, including
attorneys' fees, relating to any breach of the covenants set forth herein.
9.10 NOTICES. Any notice required or permitted to be given hereunder
shall be effective when received and shall be sufficient if in writing and
if personally delivered or sent by prepaid cable, telex or registered air
mail, return receipt requested, to the party to receive such notice at its
address set forth at the end of this Agreement or at such other address as
a party may by notice specify to the other.
9.11 BINDING EFFECT. This Agreement shall be binding on the
successors and assigns of the parties hereto.
9.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which is an original but all of which shall together
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
By:
---------------------------
Title: President & C.E.O.
EMPLOYEE:
- ------------------------------
(Signature)
- ------------------------------
(Name Printed)
Address:
----------------------
- ------------------------------
Page 4
<PAGE>
NON-COMPETITION AGREEMENT
THIS AGREEMENT is made as of this day of , 1996, between
Coleman Natural Products, Inc. ("Company"), a Delaware corporation, and
("Employee").
WHEREAS Employee is a key, valued employee of the Company, serving the Company
in an executive and management position or in a key position, and, as such, is
in a position to damage the business of the Company by engaging in competing
activities; and
WHEREAS the Company wishes to protect itself from competitive activities of the
Employee which would injure its business.
NOW, THEREFORE, in consideration of the grant of an option to purchase shares of
the Company's common stock, the promises and mutual covenants and agreements
herein set forth, and for other good and valuable consideration, including all
salary and wages paid to Employee, the parties hereby agree as follows:
1. (a) Employee agrees that he or she possesses, or will posses by virtue
of his or her employment with the Company, knowledge, skills and reputation in
the industry in which the Company operates which are of material importance to
the Company, and which are special, unique and extraordinary. Employee
acknowledges that his or her services cannot be replaced and that the loss of
his or her services, or the use of his or her services by a competitor, may
cause irreparable harm to the Company. Therefore, the employee agrees that
during the period commencing with the date hereof and ending one year after his
or her employment with the Company is terminated (voluntarily or involuntarily)
and in the geographic area of the U.S., Employee will not (i) knowingly,
directly or indirectly, as a principal, officer, director, shareholder (other
than as a holder of 2% or less of a publicly traded corporation's capital
stock), partner, employee, consultant, or in any other capacity whatsoever,
engage in, be or become associated with, or advise or assist any business, firm,
partnership, individual, corporation, or any other entity which is principally
engaged in the business of designing, developing, manufacturing, marketing and
selling fresh natural beef and lamb products, and including any "then" current
business of the Company, its successors or assigns; or (ii) hire or solicit the
employment or services of any person who is an employee of the Company or its
successors or assigns, or any former employee of the Company whose employment
has been terminated for less than six (6) months; or (iii) directly or
indirectly solicit business which is directly competitive with the Company's
then current business from any customer which has done business with the Company
within one (1) year from the date of such solicitation.
(b) It is agreed that Employee's services are unique, and that any
breach or threatened breach by Employee of any provisions of this Paragraph 1
may not be remedied solely by damages. Accordingly, in the event of a breach or
threatened breach by Employee of any of the provisions of this Paragraph 1, the
Company shall be entitled to injuctive relief, restraining Employee and any
business, firm, partnership, individual corporation, or entity participating in
such breach or attempted breach, from engaging in any activity which would
constitute a breach of this Paragraph 1. Nothing herein, however, shall be
construed as prohibiting the Company from pursuing any other remedies available
at law or in equity for such breach or threatened breach, including the recovery
of damages.
(c) Employee acknowledges and agrees that the duration, scope of
activities and geographic area covered by the covenant not-to-compete contained
in this Section 1 are fair and reasonable under the circumstances, that such
covenants are necessary for the protection of the Company, including without
limitation the protection of the confidential information and trade secrets of
the Company, that such covenants do not impose an undue or unreasonable hardship
upon Employee and the Employee has received satisfactory consideration from the
Company for such agreements.
2. The Agreement, including the provisions of Section 1 hereof, shall
terminate then (10) years from the date thereof.
<PAGE>
3. Any waiver of any of the terms and conditions of this Agreement shall not
operate as a waiver of any other breach of such terms and conditions, or any
other term or condition, nor shall any failure to enforce any provision hereof
operate as a waiver of such provision or any other provision hereof.
4. Any and all notices referred to herein shall be sufficient if furnished in
writing, sent by registered or certified mail to Employee at his other address
as shall be furnished to the Company in writing, and to the Company at its
principal office in Denver, Colorado.
5. This Agreement shall be governed by and construed in accordance with the
laws of the State of Colorado.
6. No modification of changes in this Agreement shall be valid unless such
modification or changes are in writing and signed by all parties hereto.
7. If any clause, provision or term of this Agreement is declared illegal,
invalid, or unenforceable under applicable present or future laws, then the
remainder of this Agreement shall not be affected and, in lieu of any such
clause, provision, or term, there shall be added as a part hereof a substitute
clause, provision or term as similar in substance to such illegal, invalid or
unenforceable clause, provision or term as may be possible.
8. This Agreement may not be assigned by either party, provided that the
Company may assign this Agreement in connection with: (i) any purchase of all or
substantially all of its assets, or (ii) any merger, consolidation or sale of
all or substantially all of its stock.
9. As used herein, any reference to the masculine shall include, if
appropriate, the feminine.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the
date and year first above written.
COLEMAN NATURAL PRODUCTS, INC.
By:
---------------------------
Its:
--------------------------
EMPLOYEE:
- ------------------------------
(Signature)
- ------------------------------
(Name Printed)
- ------------------------------
- ------------------------------
(Address)
<PAGE>
[LETTERHEAD]
October 27, 1995
Coleman Natural Meats, Inc.
5140 Race Court, Suite 4
Denver, Colorado 80216
Attention: Rick Dutkiewicz
Vice President and Chief Financial Officer
Ladies and Gentlemen:
Norwest Bank Colorado, National Association, located at 1740 Broadway,
Denver, Colorado 80274 (the "Bank") is pleased to confirm with Coleman
Natural Meats, Inc. (the "Borrower") the following understanding we have
reached concerning a Three Million, One Hundred Thousand and No/100 Dollars
($3,100,000.00) revolving line of credit (the "Line") for the purpose of
refinancing a loan with FBS Ag Credit Corp and for future advances to fund
inventory and receivables.
1. AMOUNT. The Borrower has requested and the Bank has agreed to make
advances to the Borrower from the date hereof until and including
November 1, 1996, provided, however, that the Bank shall not be
obligated to make any advance if, after giving effect to the advance
the aggregate unpaid principal amount of all advances under the Line
would exceed the lesser of (a) the Borrowing Base (except during any
period a Borrowing Base Exception Advance is in effect pursuant to
Section 8 as set forth below) or (b) Three Million, One Hundred Thousand
and No/100 Dollars ($3,100,000.00). During the term hereof, the Borrower
may borrow, repay and reborrow amounts under the Line. The Line may also
be used for issuances of standby letters of credit, in the aggregate, not
to exceed $1,000,000.00. Availability of funds under the Line will be
reduced by the amount of issued letters of credit. The Bank shall not be
obligated to issue any letter of credit which has an Expiry Date after the
Maturity Date of the Line.
<PAGE>
Coleman Natural Meats, Inc.
Attention: Rick Dutkiewicz
October 27, 1995
Page 2
2. BORROWING BASE. The Borrowing Base shall consist of:
(a) 80% of eligible accounts receivable, which shall consist of accounts
which are: (i) less than 28 days in age; (ii) not subject to offset or
dispute; (iii) not representing booked but unfilled orders; (iv) not
due from the United States Government, foreign entities, employees,
subsidiaries or affiliates of the Borrower; and (v) not offset by
credit balances or marketing accruals; At any time the accounts
receivable of a single account debtor of Borrower comprises more than
10% of all eligible accounts receivable, all such accounts receivable
in excess of 10% shall be excluded as an eligible account receivable,
unless the Borrower receivers the Bank's prior written approval. In
addition, in the event that 10% or more of the aggregate accounts
receivable for any single account debtor cannot be considered as an
eligible account receivable by reason of subparagraph (i) above, then
all the accounts receivable of such debtor shall be excluded as an
eligible account receivable, unless the Borrower receives the Bank's
prior written approval; plus
(b) 70% of the Borrower's cattle inventory less cattle payables; less
(c) the amount that meat payables exceed the Borrower's meat inventory;
less
(d) the loan balance, amounts under outstanding letters of credit
(including Letter of Credit now or hereafter issued for benefity of
Packer and Stockyards Administration), all other accounts payable,
overdrafts, outstanding checks and other similar items, and any
amounts reserved for, or committed to be paid to any escrow agents.
3. THE NOTE. The obligation of the Borrower to repay the Line shall be
evidenced by a single promissory note dated October 27, 1995, in the
principal amount of Three Million, One Hundred Thousand and No/100 Dollars
($3,100,000.00) (the "Note") a copy of which is attached to this Agreement
and made a part hereof.
<PAGE>
Coleman Natural Meats, Inc.
Attention: Rick Dutkiewicz
October 27, 1995
Page 3
4. INTEREST RATE. Except as set forth in Section 8 below, interest on the
principal amount outstanding on the Line shall be calculated at an annual
rate equal to 0.5% in excess of the Base Rate in effect from time to time,
on the basis of the actual number of days elapsed in a year of 360 days as
and when the Base Rate changes. Base Rate shall mean the "base" or "prime"
rate of interest as established by the Bank as in effect from time to time.
5. REPAYMENT. Interest shall be paid monthly beginning on December 1, 1995
and on the same day of each month thereafter until and including November
1, 1996, when all accrued but unpaid interest and all outstanding principal
shall be due and payable.
6. REQUIRED PREPAYMENTS. The Borrower shall be required to make prepayments
of amounts outstanding under the Line at any time said amounts are found to
exceed the amount authorized under the Borrowing Base except during any
30-day period in which the Borrowing Base Exception Advance is in effect as
set forth in Section 8 below. Such required prepayments shall be in an
amount equal to the difference between the amount outstanding under the
Line and the Borrowing Base.
7. FEES. Prior to or simultaneous with the execution and delivery of this
Agreement, the Borrower shall pay the Bank a nonrefundable facility fee in
the amount of $7,750.00. Upon the issuance of a letter of credit, the
Borrower shall pay the Bank a nonrefundable fee of 1% of the amount of such
letter of credit.
8. BORROWING BASE EXCEPTION ADVANCE. Upon the Borrower's written request and
upon the conditions set forth herein, the Bank shall agree to advance funds
which would increase the total amount outstanding under the Line to an
amount in excess of the Borrowing Base (but never in excess of
$3,100,000.00) for a period continuing no longer than thirty consecutive
days for each request (the "Borrowing Base Exception Advance"). The
Borrower shall be entitled to request the Borrowing Base Exception Advance
three times in any twelve-month period, and only if the Borrower is not in
default under Section 14 of this Agreement. The Borrowing Base Exception
Advance shall equal the lesser of (a) $250,000.00; or (b) 50% of the
Borrower's meat inventory in excess of the Borrower's meat inventory
payables. During any
<PAGE>
Coleman Natural Meats, Inc.
Attention: Rick Dutkiewicz
October 27, 1995
Page 4
period in which the Borrowing Base Exception Advance is outstanding, the
interest rate on the principal amount outstanding on the entire balance of
the Line shall be calculated at an annual rate equal to 1% in excess of the
Base Rate. On the thirty-first day after any Borrowing Base Exception
Advance is made, the Borrower shall be required to make a prepayment of
principal in an amount equal to the difference between the amount
outstanding under the Line and the Borrowing Base.
9. CONDITIONS PRECEDENT. The Borrower shall have delivered the following
documents to the Bank, all in form and substance satisfactory to the Bank,
on or before the date hereof:
(a) The Note properly executed by the Borrower;
(b) A certified copy of the resolutions of the Board of Directors for each
corporate Guarantor authorizing the execution of its guaranty.
(c) A Guaranty by Coleman Natural Products, Inc. (the "Guarantor");
(d) Certificates of insurance indicating that the Borrower is in
compliance with the covenants requiring insurance contained herein.
(e) A Security Agreement properly executed by the Borrower and all
financing statements that the Bank reasonably believes to be
necessary.
(f) A certified copy of the Borrower's Articles of Incorporation and
Bylaws;
(g) A certificate of the Borrower's corporate secretary as to the
incumbency and signatures of the officers of the Borrower signing this
Agreement and all documents executed in connection therewith;
(h) A certificate as of the most recent date practicable of the Secretary
of State of the State of Colorado as to the good standing of the
Borrower;
(i) A certified copy of the resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this
Agreement and all documents executed in connection therewith.
<PAGE>
Coleman Natural Meats, Inc.
Attention: Rick Dutkiewicz
October 27, 1995
Page 5
(j) The written opinion of the Borrower's and Guarantor's legal counsel,
addressed to the Bank, that (i) the Borrower and Guarantor have been
duly formed, are validity existing and have the legal capacity to
enter into this transaction; (ii) the due authorization, execution
and delivery of the loan documents by the Borrower and the guaranty
agreement by the Guarantor have been duly authorized by all necessary
action on the part of the Borrower and the Guarantor; (iii) the loan
documents are valid and binding obligations of the Borrower and the
Guarantor, enforceable in accordance with their respective terms;
(iv) to counsel's knowledge neither the Borrower nor the Guarantor is
required to obtain any governmental approvals beyond those already
obtained (if necessary); (v) to counsel's knowledge that there is no
material action, suit or legal proceeding pending, or to the knowledge
of such attorneys, threatened against the Borrower or the Guarantor or
affecting any of their property, and to counsel's knowledge neither
the Borrower nor the Guarantor is in default with respect to any
order, writ, injunction, decree or demand of any court or governmental
authority; and (vi) the execution and delivery of the loan documents
and consummation of the transactions required thereby will not
conflict with or be in contravention of any law, order, rule or
regulation applicable to the Borrower or the Guarantor or any of their
governing documents or to counsel's knowledge any other material
agreement or instrument to which the Borrower or Guarantor is a party,
or by which they are bound or affected; Counsel may rely upon
certificate of public officials and officers of Borrower and Guarantor
at to any matter of fact;
10. COLLATERAL. The Borrower has granted the Bank a security interest in the
Borrower's accounts, Lock Box/Assignee Account, cattle and inventory as
more fully described in the Security Agreement, and other collateral as
more fully described in the applicable forms granting or assigning to
the Bank the Borrower's interest in such other collateral.
11. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to
the Bank that:
(a) The Borrower is a corporation duly organized, existing and in good
standing under the laws of the State of Colorado.
<PAGE>
Coleman Natural Meats, Inc.
Attention: Rick Dutkiewicz
October 27, 1995
Page 6
(b) No litigation or governmental proceeding is pending or threatened
against the Borrower which the Borrower has not previously disclosed
in writing to the Bank.
(c) All financial statements delivered to the Bank by or for the Borrower
fully and fairly, as of the date thereof, present the financial
condition of the Borrower and there have been no material adverse
changes in the Borrower's financial condition to the date hereof.
(d) This Agreement and all documents executed in connection herewith are
valid and enforceable in accordance with their terms and the Borrower
has the necessary power and authority to execute such documents.
12. AFFIRMATIVE COVENANTS. The Borrower shall, while any indebtedness remains
outstanding under the Line or the Borrower has the right to request an
advance under the Line:
(a) Furnish to the Bank promptly such other information as the Bank may
reasonable request;
(b) Maintain the Borrower's existence as a corporation;
(c) Furnish to the Bank the Borrower's and the Guarantor's consolidated
annual CPA audited financial statement within 120 days of the
Borrower's and the Guarantor's year-end;
(d) Furnish to the Bank the Borrower's and the Guarantor's consolidated
interim financial statement including balance sheets and income
statements within 30 days of each month-end;
(e) Maintain working capital of not less than $1,500,000.00;
(f) Maintain a ratio of senior debt to net worth of not more than 2.75 to
1.0; net worth means the Borrower's total assets, plus subordinated
debt, less total liabilities, less intangible assets, less receivables
and other amounts due from any shareholder, director, officer or any
other person or entity related or affiliated with the Borrower;
<PAGE>
Coleman Natural Meats, Inc.
Attention: Rick Dutkiewicz
October 27, 1995
Page 7
(g) Maintain stockholders' equity of $2,000,000.00 or greater;
(h) Maintain a debt service coverage ratio of not less than 3.0 to 1.0;
"Debt service coverage" shall be defined as net income after taxes
plus depreciation and interest, divided by current maturities of long
term debt;
(i) Maintain a ratio of current liabilities to current assets of not less
than 1.25 to 1.0;
(j) Maintain insurance coverage with such companies, in such amounts and
against such risks and hazards as are standard in amount and terms of
coverage for similar businesses in Borrower's industry;
(k) Maintain adequate books and records and allow the Bank the right, from
time to time, to inspect them and make copies of them; permit the Bank
at any reasonable time, during normal business hours, to visit and
inspect the properties of the Borrower;
(l) Permit collateral audits by the Bank's representatives, semi-annually,
at the Borrower's expense with the first audit to occur prior to the
Bank's funding on the Line; the audit expense for the initial audit
and any subsequent audits to occur during the term of the loan shall
not exceed $8,000.00;
(m) All the Borrower's meat inventory and cattle inventory must be kept at
a locations disclosed to and reasonably approved by the Bank;
(n) Maintain a Lock Box/Assignee Account and pledge such account to the
Bank pursuant to a Collateral Account Agreement, a copy of which is
attached to this Agreement and made a part hereof;
(o) On a monthly basis, on or before the 20th day of each month, the
Borrower shall deliver to the Bank a schedule of accounts receivable
agings, cattle inventory, accounts payable aging owed by the Borrower
as of the 15th day of such month, including the Line balance and such
reasonably information as the Bank shall require;
<PAGE>
Coleman Natural Meats, Inc.
Attention: Rick Dutkiewicz
October 27, 1995
Page 8
(p) On or before the 15th day of the following month, and every month
thereafter, the Borrower shall deliver to the Bank a borrowing base
certificate as of the close of the preceding month which shall include
a schedule of accounts receivable aging report, accounts payable aging
report and inventory valuation, and such other information as the Bank
may reasonably require; on the basis thereof, the Bank shall determine
and notify the Borrower of the amount of accounts and inventory which
were ineligible on the date as of which such certificate was prepared.
13. NEGATIVE COVENANTS. The Borrower shall not, while any indebtedness remains
outstanding under the Line or the Borrower has the right to request an
advance under the Line, without the Bank's prior written consent:
(a) Use any proceeds from the Line for other than the stated purpose of
the Line;
(b) Make capital expenditures in an aggregate amount exceeding $500,000
in the twelve month period beginning June 25, 1995; further capital
expenditures from June 26, 1996, through November 1, 1996, will
require the Bank's prior approval;
(c) Permit any lien to exist against the collateral in which the Bank has
been granted an interest other than the Bank's security interest or
assignment, liens existing as of the date of this Agreement which were
previously disclosed in writing to the Bank and liens for taxes which
are not delinquent or which the Borrower is contesting in good faith;
(d) Not permit any loans or advance (other than travel advances consistent
with past travel policy) to any officer, shareholder, director,
employee, or related entity of the Borrower, without the Bank's prior
written consent;
(e) Make a material change in accounting procedures of the Borrower;
(f) Create, incur, permit, assume or suffer to exist any indebtedness,
except the obligations created hereby or indebtedness incurred in the
ordinary course of business as determined by the Bank in its
reasonable discretion;
<PAGE>
Coleman Natural Meats, Inc.
Attention: Rick Dutkiewicz
October 27, 1995
Page 9
(g) Unless the Borrower is in full compliance with all financial covenants
herein and has obtained the Bank's written permission, the Borrower
shall not (i) declare or pay any distribution or dividend (except
dividends payable in its capital stock) on any shares of any class of
its capital stock in excess of the budgeted $80,000.00 per quarter,
(ii) apply any assets to the purchase, redemption or other retirement
of, or set aside any sum for the payment of any dividends on or for
the purchase, redemption or other retirement of, or make any other
distribution by reduction of capital or otherwise in respect of, any
shares of any class of capital stock of the Borrower, (iii) issue any
right, option or warrant to purchase any class of capital stock of the
Borrower, or (iv) alter or amend its capital structure;
(h) Merge or consolidate into or with any other corporation or limited
liability company, or permit any other corporation or limited
liability company to merge into the Borrower, or dissolve or
liquidate, or sell, lease or otherwise dispose of, in a single
transaction or a series of related transactions, all or a substantial
part of its assets or operating properties or the Collateral except
in the ordinary course of business. The Borrower shall not sell,
assign, lease or otherwise dispose of the Collateral or any asset,
contract right, general intangible or chose in action material to the
generation of the Collateral, except to the Bank or in the ordinary
course of business.
14. DEFAULT. Upon the occurrence of any one or more of the following events,
or any time thereafter, the Bank may declare the Line terminated and would
be under no obligation to make further advance under the Note and/or
declare the unpaid principal, accrued interest and all other amounts
payable under the Note and this Agreement to be immediately due and
payable:
(a) Default in the payment when due of any principal or interest due under
the Note and the continuance for more than 10 days.
(b) Default in the observance or performance of any covenant or agreement
contained in this Agreement or any related documents and continuance
for more than 3 business days from the date Bank notifies Borrower of
such default in writing.
<PAGE>
Coleman Natural Meats, Inc.
Attention: Rick Dutkiewicz
October 27, 1995
Page 10
(c) Default in the observance or performance of any covenant or agreement
contained in any security agreement executed in connection with the
Line or any related documents and continuance for more than 3 business
days from the date Bank notifies Borrower of such default in writing.
(d) Any representation or warranty made by the Borrower to the Bank is
untrue in any material respect.
(e) Default by the Borrower in any agreement relating to any indebtedness
of the Borrower to the Bank that would allow the maturity of such
indebtedness or liability to be accelerated.
(f) The occurrence of any litigation or governmental proceeding that is
pending or threatened against the Borrower, which could have a
material adverse effect on the Borrower or the existence of a lien on
or a levy against any of the Borrower's property given to Bank as
collateral under Section 10.
(g) A garnishment summons or a writ of attachment is issued against or
served upon the Bank for the attachment of any property of the
Borrower in the Bank's possession or indebtedness owed to the Borrower
by the Bank.
(h) Bankruptcy, liquidation or reorganization proceedings are instituted
by or against any Guarantor and if instituted against a Guarantor
remain undismissed for 30 days or, if a Guarantor is an individual,
the death of the Guarantor.
(i) There shall be a material adverse change in the creditworthiness or
condition (financial or otherwise) or affairs of the Borrower.
15. IMMEDIATE DEFAULT. Should, with or without the Borrower's consent, a
custodian, trustee or receiver be appointed for the majority of the
Borrower's properties or should a petition be filed by or against the
Borrower under the United States Bankruptcy Code, and remain in effect
for 30 days, then the Line shall immediately terminate, the Bank shall be
under no obligation to make
<PAGE>
Coleman Natural Meats, Inc.
Attention: Rick Dutkiewicz
October 27, 1995
Page 11
further advances under the Note, and the unpaid principal, accrued interest
and all other amounts payable under the Note and this Agreement will become
immediately due and payable.
16. ARBITRATION. Subject to the provisions of the next paragraph below, the
Bank and the Borrower (and their respective employees, officers, directors,
attorneys and other agents) agree to submit to binding arbitration any and
all claims, disputes and controversies between or among them, whether in
tort, contract or otherwise arising out of or relating to in any way (i)
the line and related loan and security documents which are the subject of
this Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution,
formation, inducement, enforcement, default or termination; or (ii)
requests for additional credit. However, "Core Proceedings" under the
United States Bankruptcy Code shall be exempted from arbitration. Such
arbitration shall proceed in Denver, Colorado, shall be governed by the
Federal Arbitration Act (Title 9 of the United States Code), and shall be
conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA"). The arbitrator shall give effect
to statutes of limitation in determining any claim. Any controversy
concerning whether an issue is arbitrable shall be determined by the
arbitrator. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction.
Nothing in the preceding paragraph, nor the exercise of any right to arbitrate,
shall limit the right of any party hereto (1) to foreclose against real or
personal property collateral by the exercise of the power of sale, under a deed
of trust, mortgage, or other pledge, security agreement, or instrument, or
applicable law; (2) to exercise self-help remedies relating to collateral or
proceeds of collateral such as setoff or repossession; or (3) to obtain
provisional or ancillary remedies such as replevin, injunctive relief,
attachment, or appointment of a receiver from a court having jurisdiction,
before, during or after the pendency of any arbitration proceeding. The
institution and maintenance of any action for such judicial relief, or pursuit
of provisional or ancillary remedies, or exercise of self-help remedies shall
not constitute a waiver of the right or obligation of any party to submit any
claim or dispute to arbitration, including those claims or disputes arising from
exercise of any such judicial relief, or provisional or ancillary remedies, or
exercise of self-help remedies.
<PAGE>
Coleman Natural Meats, Inc.
Attention: Rick Dutkiewicz
October 27, 1995
Page 12
Arbitration under this Agreement shall be before a single arbitrator, who
shall be a neutral attorney who has practiced in the area of commercial law
for at least 10 years, selected in the manner established by the Commercial
Arbitration Rules of the AAA.
17. MISCELLANEOUS.
(a) EXPENSES. The Borrower agrees to pay all reasonable expenses
incurred by the Bank in connection with the administration, amendment
or enforcement of this Agreement.
(b) GAAP. Except as otherwise stated in this Agreement, all financial
terms will be defined in accordance with generally accepted accounting
principles consistently applied ("GAAP").
(c) NO WAIVER; CUMULATIVE REMEDIES. No failure or delay by either party
in exercising any rights under this Agreement shall be deemed a waiver
of those rights. The remedies provided for in this Agreement are
cumulative and not exclusive of any remedies provided by law.
(d) AMENDMENTS, ETC. Any amendment, modification, termination or waiver
of any provision of this Agreement must be in writing and signed by
the party against whom such waiver is to be enforced.
(e) GOVERNING LAW. This Agreement is governed by the substantive laws of
the state of Colorado.
(f) SEVERABILITY OF PROVISIONS. if any part of this Agreement is
unenforceable, the rest of the Agreement may still be enforced.
(g) NOTICES. All notices required under this Agreement will be delivered
or mailed to the addresses set forth on the first page hereof, unless
such address is changed by written notice hereunder.
<PAGE>
Coleman Natural Meats, Inc.
Attention: Rick Dutkiewicz
October 27, 1995
Page 13
The Borrower's signature below shall constitute an acknowledgment that the
Borrower has read this letter, understands its terms, is authorized by the
Borrower to approve its terms, and does so.
NORWEST BANK COLORADO,
NATIONAL ASSOCIATION
By: /s/ D. MOELLENBERG
------------------------------------
D. Moellenberg
Its: Vice President
-----------------------------------
Agreed to and accepted this 27th
day of October, 1995.
COLEMAN NATURAL MEATS, INC.
By: /s/ LEE N. ARST
-----------------------------
Lee N. Arst
Its: President and CEO
----------------------------
By: /s/ RICHARD DUTKIEWICZ
-----------------------------
Richard Dutkiewicz
Its: Vice President and CFO
----------------------------
<PAGE>
[LETTERHEAD]
FIRST AMENDMENT TO AGREEMENT
This First Amendment to Agreement is made between NORWEST BANK COLORADO,
NATIONAL ASSOCIATION (the "Bank"), and COLEMAN NATURAL MEATS, INC. (the
"Borrower"). This Amendment is effective of the 1st day of February, 1996.
1. RECITALS. The Bank and the Borrower entered into a letter agreement
dated October 27, 1995, providing for a revolving line of credit in the amount
of $3,100,000.00 ("Agreement").
2. AMENDMENT. The Agreement is hereby amended by deleting in its entirety
item (o) of Section 12. AFFIRMATIVE COVENANTS of that Agreement which reads:
(o) On a monthly basis, on or before the 20th day of each month, the
Borrower shall deliver to the Bank a schedule of accounts
receivable agings, cattle inventory, accounts payable aging owed
by the Borrower as of the 15th day of such month, including the
Line balance and such reasonable information as the Bank shall
require;
3. DEFINED TERMS. All terms used in this Agreement as defined terms will
have the meaning ascribed to them in the Agreement.
4. CONTINUED EFFECTIVENESS. The Letter Agreement, as amended by this
writing, remains in full force and effect.
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
By: /s/ DARYL MOELLENBERG
----------------------------------------
Daryl Moellenberg, Vice President
Accepted and Agreed to on _______________,
1996.
BORROWER: COLEMAN NATURAL MEATS, INC.
By: /s/ LEE N. ARST
---------------------------------------
Lee N. Arst, President
<PAGE>
[LETTERHEAD]
June 7, 1996
Coleman Natural Meats, Inc.
5140 Race Court, Suite 4
Denver, Colorado 80216
Ladies and Gentlemen:
Norwest Bank Colorado, National Association, located at 1740 Broadway, Denver,
Colorado 80274 (the "Bank") is pleased to confirm with Coleman Natural Meats,
Inc. (the "Borrower") the following understanding we have reached concerning a
TWO MILLION AND N0/100 DOLLARS ($2,000,000) revolving line of credit (the
"Line") for the purpose of financing margin calls on futures contracts to hedge
future purchases of meat.
1. AMOUNT. The Borrower has requested and the Bank may make advances to the
Borrower from the date hereof until and including November 1, 1996,
provided, however, that the Bank shall not be obligated to make any advance
if, after giving effect to the advance the aggregate unpaid principal
amount of all advances under the Line would exceed the lesser of (a) the
Borrowing Base (except during any period a Borrowing Base Exception Advance
is in effect as set forth in this Agreement or (b) TWO MILLION AND N0/100
DOLLARS ($2,000,000). During the term hereof the Borrower may borrow,
repay and reborrow amounts under the Line.
2. BORROWING BASE. The Borrowing Base shall consist of:
(a) 80% of eligible accounts receivable, which shall consist of accounts
which are: (i) less than 28 days in age; (ii) not subject to offset or
dispute; (iii) not representing booked but unfilled orders; (iv) not
due
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Page 2
from the United States Government, foreign entities, employees,
subsidiaries or affiliates of the Borrower; and (v) not offset by
credit balances or marketing accruals; At any time the accounts
receivable of a single account debtor of Borrower comprises more than
10% of all eligible accounts receivable, all such accounts receivable
in excess of 10% shall be excluded as an eligible account receivable,
unless the Borrower receives the Bank's prior written approval. In
addition, in the event that 10% or more of the aggregate accounts
receivable for any single account debtor cannot be considered as an
eligible account receivable by reason of subparagraph (i) above, then
all the accounts receivable of such debtor shall be excluded as an
eligible account receivable, unless the Borrower receives the Bank's
prior written approval; plus
(b) 70% of the Borrower's cattle inventory less cattle payables; plus
(c) 100% of the future contracts; less
(d) the amount that meat payables exceed the Borrower's meat inventory.
less
(e) overdrafts, outstanding checks mailed in excess of 24 hours prior to
the Borrowing Base date and other similar items, and any amounts
reserved for, or committed to be paid to any escrow agents.
3. BORROWING BASE EXCEPTION ADVANCE. Upon the Borrower's written request and
upon the conditions set forth herein, the Bank shall agree to advance funds
which would increase the total amount outstanding under the Line to an
amount in excess of the Borrowing Base (but never in excess of
$2,000,000.00) for a period continuing no longer than thirty consecutive
days for each request (the "Borrowing Base Exception Advance"). The
Borrower shall be entitled to request the Borrowing Base Exception Advance
three times in any twelve-month period, and only if the Borrower is not in
default of this Agreement. The Borrowing Base Exception Advance shall equal
the lesser of (a) $250,000.00; or (b) 50% of the Borrower's meat inventory
in excess of the Borrower's meat inventory payables. During any period in
which the Borrowing Base Exception Advance is outstanding, the interest
rate on the principal amount outstanding on the entire balance of the Line
shall be calculated at an annual rate equal to 1% in excess of the Prime
Rate. On the thirty-first day after any
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Borrowing Base Exception Advance is made, the Borrower shall be required to
make a prepayment of principal in an amount equal to the difference between
the amount outstanding under the Line and the Borrowing Base.
4. BORROWING BASE CERTIFICATE AND ADVANCES. Borrower shall provide Bank a
Borrowing Base Certificate in conformity with the requirements of this
Agreement. Each Borrowing Base Certificate shall, as part of the
certificate, contain a signed certification by Borrower which states, as
of the date of the Borrower's request, that no material adverse change has
occurred and remains outstanding in the Borrower's financial condition
since the date of this Agreement and that no event of default or event
which, after the lapse of time or giving of notice or lapse of time, would
be an event of default has occurred. The Borrowing Base Certificate shall
be in form and substance satisfactory to the Bank, indicating the Borrower
is in compliance with the Borrower's Borrowing Base. Regardless of any
other requirements contained in this Agreement, Bank reserves the right to
refuse to advance under the Line if an event of default exists under this
Agreement.
5. THE NOTE. The obligation of the Borrower to repay the Line shall be
evidenced by a single promissory note dated June 7, 1996, in the principal
amount of TWO MILLION AND NO/100 DOLLARS ($2,000,000) (the "Note") a copy
of which is attached to this Agreement and made a part hereof.
6. INTEREST RATE. Except as set forth in Section 3 above, interest on the
principal amount outstanding shall be calculated at an annual rate equal to
.5% in excess of the Prime Rate in effect from time to time, on the basis
of the actual number of days elapsed in a year of 360 days as and when the
Prime Rate changes. Prime Rate shall mean the "prime" rate of interest as
established by the Bank as in effect from time to time.
7. REPAYMENT. Interest shall be paid monthly beginning on July 1, 1996, and
on the same day of each month thereafter until and including November 1,
1996, when all accrued but unpaid interest and all outstanding principal
shall be due and payable.
8. REQUIRED PREPAYMENTS. The Borrower shall be required to make prepayments
of amounts outstanding under the Line at any time said amounts are found to
exceed the amount authorized under the Borrowing Base. Such required
prepayments shall be in an amount equal to the
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Page 4
difference between the amount outstanding under the Line and the
Borrowing Base.
9. FEES. Prior to or simultaneous with the execution and delivery of this
Agreement, the Borrower shall pay the Bank a nonrefundable facility fee
in the amount of $1,355.
10. CONDITIONS PRECEDENT. The Borrower shall deliver the following documents
to the Bank, all in form and substance satisfactory to the Bank on or
before the date hereof:
(a) The Note properly executed by the Borrower;
(b) A copy of the resolutions of the Board of Directors of the Guarantor
authorizing the execution of its guaranty.
(c) A Guaranty by Coleman Natural Products, Inc. (the "Guarantor");
(d) A Security Agreement(s) properly executed by the Borrower and all
financing statements that the Bank reasonably believes to be
necessary.
(e) A certificate from Borrower's corporate secretary as to the incumbency
and signatures of the officers of the Borrower signing this Agreement
and all documents executed in connection therewith;
(f) A certificate as of the most recent date practicable of the Secretary
of State of the State of Colorado as to the good standing of Borrower;
(g) A certified copy of the resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this
Agreement and all documents executed in connection therewith.
(h) Verbal verification by Bank that Borrower has established a hedging
account with LFG, LLC, aka Linnco Futures Group ("Linnco") located at
8480 E. Orchard Road, Suite 1250, Englewood, Colorado 80111.
11. COLLATERAL. The Borrower has granted the Bank a first security interest in
the Borrower's accounts, Lock Box/Assignee Account, cattle and inventory,
all cash collateral accounts maintained at Norwest Investment Services,
Inc., hedging account as more fully described in the Security
<PAGE>
Page 5
Agreements, and other collateral as more fully described in the applicable
forms granting or assigning to the Bank the Borrower's interest in such
other collateral.
12. LINNCO. As part of the Collateral requirements, Borrower shall establish
and maintain a hedging account with Linnco, and at such time as Borrower
purchases a futures contract Borrower shall immediately deposit in the
hedging account with Linnco an amount equal to $450.00. To the extent the
hedging account falls below an average of $450.00 per contract, Linnco
shall notify Bank and Bank is authorized, without any notice to Borrower,
to advance an amount equal to the margin call but not to exceed in the
aggregate, the Borrowing Base. If at the end of any business day, the
amount in the hedging account exceeds an average of $450 for each then
outstanding futures contract, then Borrower shall have instructed Linnco,
which instructions cannot be modified except with the written consent of
Bank, to send the difference to the Bank where upon Bank may, at its sole
election, reduce the Line or invest the funds in an interest bearing
collateral account with Norwest Investment Services, Inc., account
#841126668801 for the benefit of the Borrower; Upon the expiration or
liquidation of any futures contract, Borrower may submit a written request
to Bank requesting Bank to release any profits derived from the specific
contract.
13. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to
the Bank that:
(a) The Borrower is a corporation duly organized, existing and in good
standing under the laws of the State of Colorado.
(b) No litigation or governmental proceeding is pending or threatened
against the Borrower which the Borrower has not previously disclosed
in writing to the Bank.
(c) All financial statements delivered to the Bank by or for the Borrower
fully and fairly, as of the date thereof, present the financial
condition of the Borrower and there have been no material adverse
changes in the Borrower's financial condition to the date hereof.
(d) This Agreement and all documents executed in connection herewith are
valid and enforceable in accordance with their terms and the Borrower
has the necessary power and authority to execute such documents.
<PAGE>
Page 6
14. AFFIRMATIVE COVENANTS. The Borrower shall, while any indebtedness remains
outstanding under the Line or the Borrower has the right to request an
advance under the Line:
(a) Furnish to the Bank promptly such other information as the Bank may
reasonable request;
(b) Maintain the Borrower's existence as a corporation, except that
Borrower may make a distribution to Coleman Natural Products, Inc.,
the holder of 100% of Borrower's capital stock, of all of Borrower's
assets and liabilities, in which case the covenants, representations,
warranties and other provisions of this Agreement and the related note
and security agreements, shall all apply to Coleman Natural Products,
Inc. as if such entity was the Borrower hereunder, and Coleman Natural
Products, Inc. hereby agrees that, in the event of such distribution,
it shall be the Borrower hereunder;
(c) Furnish to the Bank the Borrower's and the Guarantor's consolidated
annual CPA audited financial statement within 120 days of the
Borrower's and the Guarantor's year-end;
(d) Furnish to the Bank the Borrower's and the Guarantor's consolidated
interim financial statement including balance sheets and income
statements within 30 days of each month-end;
(e) On or before the 15th day of the following month, and every month
thereafter the Borrower shall deliver to Bank an updated sales
forecast (along with copies of delivery contracts and broker
statements) in form and content satisfactory to the Bank, which shall
include, without limitation (i) forecasted meat sales and needs for
next twelve calendar months, (ii) listing of all cattle delivery and
future contracts for the next 12 months, and (iii) purchase price of
each future contracts and its then current value.
(f) On or before the 15th day of the following month, and every month
thereafter, the Borrower shall deliver to the Bank a Borrowing Base
Certificate as of the close of the preceding month which shall include
a schedule of accounts receivable aging report, accounts payable aging
report and inventory valuation, and projected cattle needs and
commitments and such other information as the Bank may reasonably
<PAGE>
Page 7
require; on the basis thereof, the Bank shall determine and notify
the Borrower of the amount of accounts and inventory which were
ineligible on the date as of which such certificate was prepared.
(g) Maintain working capital of not less than $1,500,000.00;
(h) Maintain a ratio of total liabilities debt to net worth of not more
than 2.75 to 1.0; net worth means the Borrower's total assets, plus
subordinated debt, less total liabilities, less intangible assets,
less receivables and other amounts due from any shareholder, director,
officer or any other person or entity related to or affiliated, with
the Borrower;
(i) Maintain stockholders' equity of $2,000,000.00 or greater;
(j) Maintain a debt service coverage ratio of not less than 3.0 to 1.0;
"Debt service coverage" shall be defined as net income after taxes
plus depreciation and interest, divided by current maturities of long
term debt;
(k) Maintain a ratio of current liabilities to current assets of not less
than 1.25 to 1.0;
(l) Maintain insurance coverage with such companies, in such amounts and
against such risks and hazards as are standard in amount and terms of
coverage for similar businesses in Borrower's industry;
(m) Maintain adequate books and records and allow the Bank the right, from
time to time, to inspect them and make copies of them; permit the Bank
at any reasonable time, during normal business hours, to visit and
inspect the properties of the Borrower;
(n) Maintain a Lock Box/Assignee Account and pledge such account to the
Bank pursuant to an existing Collateral Account Agreement as amended
or modified from time to time;
(o) Maintain, at all times, a hedging account with LFG, LLC, aka Linnco
Futures Group located at 8480 E. Orchard Road, Suite 1250, Englewood,
Colorado 80111.
<PAGE>
Page 8
(p) Permit collateral audits by the Bank's representatives, semi-annually,
at the Borrower's expense which shall not exceed $8,000.00 for
collateral audits performed under this or any other loan agreement
with the Bank during the term of the loan;
(q) All the Borrower's meat inventory and cattle inventory must be kept at
a locations disclosed to and reasonably approved by the Bank;
(r) Maintain a first lien security interest in all the Collateral set
forth in paragraph 11.
15. NEGATIVE COVENANTS. The Borrower shall not, without the express written
consent of Bank, while any indebtedness remains outstanding under the Line
or Borrower has the right to request an advance under the Line:
(a) Use any proceeds from the Line for other than the stated purpose of
the Line;
(b) Make capital expenditures in an aggregate amount exceeding $500,000 in
the twelve month period beginning June 26, 1996, through November 1,
1996, will require the Banks prior approval;
(c) Permit any lien to exist against the collateral in which the Bank has
been granted an interest other than the Banks security interest or
assignment, liens existing as of the date of this Agreement which were
previously disclosed in writing to the Bank and liens for taxes which
are not delinquent or which the Borrower is contesting in good faith;
(d) Permit or establish any other margin account, other than with the
Linnco and Futures Group and Piper Jaffrey, without the express
written consent of Lender.
(e) Not permit any loans or advance (other than travel advances consistent
with past travel policy) to any officer, shareholder, director,
employee, or related entity of the Borrower, without the Bank's prior
written consent;
(f) Make a material change in accounting procedures of the Borrower except
to go to a different fiscal year end;
<PAGE>
Page 9
(g) Create, incur, permit, assume or suffer to exist any indebtedness,
except the obligations created hereby or indebtedness incurred in the
ordinary course of business as determined by the Bank in its
reasonable discretion;
(h) Unless the Borrower is in firm compliance with all financial covenants
herein, (i) declare or pay any distribution or dividend (except
dividends payable in its capital stock) on any shares of any class of
its capital stock in excess of the budgeted $80,000 per quarter, (ii)
apply any assets to the purchase, redemption or other retirement of,
or set aside any sum for the payment of any dividends on or for the
purchase, redemption or other retirement of, or make any other
distribution by reduction of capital or otherwise in respect of, any
shares of any class of capital stock of the Borrower, except for the
redemption of up to $3,500,000 of the Borrower's Series A Preferred
Stock following the closing of any public offering of the Borrower
securities in which the gross proceeds to the Borrower exceed
$10,000,000, (iii) issue any right, option or warrant to purchase any
class of capital stock of the Borrower other than options to purchase
shares of common stock issued pursuant to employee equity plans
adopted by the Borrower's Board of Directors and other than the grant
of an over-allotment option to the underwriter(s) in any public
offering of the Borrower's equity securities, and (v) alter or amend
its capital structure other than pursuant to (a) a stock split (which
may be in the form of a stock dividend), (b) an increase in the
authorized number of shares of common stock, or (c) a distribution to
the parent company of Borrower of all of borrower's assets in the form
of a dividend to such parent.
(i) Merge or consolidate into or with any other corporation or limited
liability company (except as permitted by Section 14 of the
AFFIRMATIVE COVENANTS relating to Borrower's existence as a
corporation), or permit any other corporation or limited liability
company to merge into the Borrower, or dissolve or liquidate, or sell,
lease or otherwise dispose of, in a single transaction or a series of
related transactions, all or a substantial part of its assets or
operating properties or the Collateral except in the ordinary course
of business. The Borrower shall not sell, assign, lease or otherwise
dispose of the Collateral or any asset, contract right, general
intangible or chose in
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Page 10
action material to the generation of the Collateral, except to the
Bank or in the ordinary course of business.
(j) Permit the number of future contracts at any one time outstanding to
exceed a number determined by dividing the Excess Margin by $4,000.
By way of example, assuming the Borrowing Base is $2,500,000.00, the
amount advanced under the Note is $1,000,000.00, then the difference
between the two divided by $4,000 equals the maximum number of future
contracts which is 375. Excess Margin as in effect at any time shall
equal the then most current Borrowing Base less the amount currently
advanced under the Note.
(k) Purchase any new future contracts if at any time the number of
existing future contracts exceeds a number determined by dividing the
Excess Margin (as defined above) by $4,000.
16. DEFAULT. Upon the occurrence of any one or more of the following events,
or any time thereafter, the Bank may declare the Line terminated and/or
declare the unpaid principal, accrued interest and all other amounts
payable under the Note and this Agreement to be immediately due and
payable.
(a) Default in the payment when due of any principal or interest due under
the Note and the continuance for more than 10 days.
(b) Default in the observance or performance of any covenant or agreement
contained in this Agreement or related documents and continuance for
more than 3 business days from the date Bank notifies Borrower of such
default in writing.
(c) Default in the observance or performance of any covenant or agreement
contained in any security agreement executed in connection with the
Line or any related documents and continuance for more than 3 business
days from the date Bank notifies Borrower of such default in writing.
(d) Any representation or warranty made by the Borrower to the Bank is
untrue in any material respect.
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Page 11
(e) Default by the Borrower in any agreement relating to any indebtedness
of the Borrower to the Bank that would allow the maturity of such
indebtedness or liability to be accelerated.
(f) The occurrence of any litigation or governmental proceeding that is
pending or threatened against the Borrower, which could have a
material adverse effect on the Borrower or the existence of a lien on
or a levy against any of the Borrower's property given to Bank as
collateral under the section on Collateral.
(g) A garnishment summons or a writ of attachment is issued against or
served upon the Bank for the attachment of any property of the
Borrower in the Bank's possession or indebtedness owed to the Borrower
by the Bank.
(h) Bankruptcy, liquidation or reorganization proceedings are instituted
by or against any Guarantor and if instituted against a Guarantor
remain undismissed for 30 days or, if a Guarantor is an individual,
the death of the Guarantor.
(i) There shall be a material adverse change in the creditworthiness or
condition (financial or otherwise) or affairs of the Borrower.
17. IMMEDIATE DEFAULT. Should, with or without the Borrower's consent, a
custodian, trustee or receiver be appointed for the majority of the
Borrower's properties or should a petition be filed by or against the
Borrower under the United States Bankruptcy Code, and remain in effect
for 30 days, then the Line shall immediately terminate and the unpaid
principal, accrued interest and all other amounts payable under the Note
and this Agreement will become immediately due and payable.
18. ARBITRATION. Subject to the provisions of the next paragraph below, the
Bank and the Borrower and their respective employees, officers, directors,
attorneys and other agents agree to submit to binding arbitration any and
all claims, disputes and controversies between or among them, whether in
tort, contract or otherwise arising out of or relating to in any way (i)
the line and related loan and security documents which are the subject of
this Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution,
formation, inducement, enforcement, default or termination; or (ii)
requests for additional credit. However, "Core
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Page l2
Proceedings" under the United States Bankruptcy Code shall be exempted from
arbitration. Such arbitration shall proceed in Denver, Colorado, shall be
governed by the Federal Arbitration Act (Title 9 of the United States
Code), and shall be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"). The arbitrator shall
give effect to statutes of limitation in determining any claim. Any
controversy concerning whether an issue is arbitrable shall be determined
by the arbitrator. Judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction.
Nothing in the preceding paragraph, nor the exercise of any right to
arbitrate, shall limit the right of any party hereto (1) to foreclose
against real or personal property collateral by the exercise of the power
of sale, under a deed of trust, mortgage, or other pledge, security
agreement, or instrument, or applicable law; (2) to exercise self-help
remedies relating to collateral or proceeds of collateral such as setoff or
repossession; or (3) to obtain provisional or ancillary remedies such as
replevin, injunctive relief, attachment, or appointment of a receiver from
a court having jurisdiction, before, during or after the pendency of any
arbitration proceeding. The institution and maintenance of any action for
such judicial relief, or pursuit of provisional or ancillary remedies, or
exercise of self-help remedies shall not constitute a waiver of the right
or obligation of any party to submit any claim or dispute to arbitration,
including those claims or disputes arising from exercise of any such
judicial relief, or provisional or ancillary remedies, or exercise of
self-help remedies.
Arbitration under this Agreement shall be before a single arbitrator, who
shall be a neutral attorney who has practiced in the area of commercial law
for at least 10 years, selected in the manner established by the Commercial
Arbitration Rules of the AAA.
19. MISCELLANEOUS.
(a) EXPENSES. The Borrower agrees to pay all expenses incurred by the
Bank in connection with the preparation, administration, amendment or
enforcement of this Agreement.
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Page 13
(c) NO WAIVER: CUMULATIVE REMEDIES. No failure or delay by either party
in exercising any rights under this Agreement shall be deemed a
waiver of those rights. The remedies provided for in this Agreement
are cumulative and not exclusive of any remedies provided by law.
(d) AMENDMENTS, ETC. Any amendment, modification, termination or waiver
of any provision of this Agreement must be in writing and signed by
the party against whom such waivers is to be enforced.
(e) GOVERNING LAW. This Agreement is governed by the substantive laws of
the State of Colorado.
(f) SEVERABILITY OF PROVISIONS. If any part of this Agreement is
unenforceable, the rest of the Agreement may still be enforced.
(g) NOTICES. All notices required under this Agreement will be delivered
or mailed to the addresses set forth on the first page hereof, unless
such address is changed by written notice hereunder.
The Borrower's signature below shall constitute an acknowledgment that the
Borrower has read this letter, understands its terms, is authorized by the
Borrower to approve its terms, and does so.
NORWEST BANK, COLORADO
NATIONAL ASSOCIATION
By: /s/ DARYL MOELLENBERG
-----------------------------------
Daryl Moellenberg, Vice President
Agreed to and accepted this
7th day of June, 1996.
COLEMAN NATURAL MEATS, INC.
By: /s/ LEE N. ARST By: /s/ RICHARD DUTKIEWICZ
------------------------------ -----------------------------------
Lee N. Arst, President Richard Dutkiewicz, Vice President
<PAGE>
Page 14
GUARANTOR ACKNOWLEDGED:
COLEMAN NATURAL PRODUCTS, INC.
By: /s/ LEE N. ARST
------------------------------
Lee N. Arst
Title: Pres./CEO
---------------------------
By: /s/ RICHARD DUTKIEWICZ
------------------------------
Richard Dutkiewicz
Title: Vice President
---------------------------
<PAGE>
SECOND AMENDMENT TO
LETTER AGREEMENT
THIS SECOND AMENDMENT TO LETTER AGREEMENT ("Second Amendment") is dated
as of the 7th day of June, 1996, and is between COLEMEN NATURAL MEATS, INC.,
("Borrower"), and NORWEST BANK COLORADO, NATIONAL ASSOCIATION, a national
banking association ("Bank").
RECITALS
A. On October 27, 1995, Borrower and Bank entered into a Letter
Agreement as amended on February 2, 1996 (together, the "Letter Agreement")
wherein Borrower obtained a committed revolving line of credit for the purpose
of refinancing a loan with FBS Ag Credit Corp and future advances to fund
inventory and receivable in the amount not to exceed Three Million One Hundred
Thousand and no/100 Dollars ($3,100,000.00).
B. Borrower has requested that revolving line of credit be reduced from
the amount set forth in paragraph A above to Two Million Three Hundred
Thousand and No/100 Dollars ("$2,300,000.00) (the "Line").
C. Bank has agreed to reduce the revolving line of credit to the amount
requested by Borrower subject to the terms and conditions contained in this
Second Amendment.
NOW, THEREFORE, for and in consideration of the above premises and other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the parties hereto, Borrower and Bank hereby covenant
and agree as follows:
1. Unless otherwise specifically defined herein, each capitalized term
used herein which is defined in the Letter Agreement shall have the meaning
assigned to such term in the Letter Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in
the Letter Agreement shall from and after the date hereof refer to the Letter
Agreement amended hereby.
2. In the introduction and in paragraphs 1 and 8 of the Letter
Agreement, the amount "Three Million One Hundred Thousand and No/100 Dollars
(3,100,000.00)" is hereby deleted and the amount of "Two Million Three
Hundred Thousand and No/100 Dollars ($2,300,000.00)" is inserted in lieu
thereof.
3. Section 2(d) of the Letter Agreement is hereby deleted in its
entirety and the following inserted in lieu thereof:
"(d) the loan balance, amounts under outstanding letters of credit
(including Letter of Credit now or hereafter issued for benefit of
Packer and Stockyards Administration), overdrafts, outstanding checks
mailed in excess of 24 hours prior to Borrowing Base date and other
similar items, and any amounts reserved for, or committed to be paid
to any escrow agents."
<PAGE>
4. Section 3 of the Letter Agreement, is hereby deleted in its entirety
and the following inserted in lieu thereof:
"THE NOTE. The obligation of the Borrower to repay the Line shall be
evidenced by a single promissory note dated June 7, 1996, in the
principal amount of Two Million Three Hundred Thousand and no/100
Dollars ($2,300,000.00) and shall replace and be in substitution of
that certain promissory note dated October 27, 1995, executed by
Borrower in favor of Bank."
5. Section 4 of the Letter Agreement is hereby deleted in its entirety
and the following inserted in lieu thereof:
"INTEREST RATE. Except as set forth in Section 8 below, interest on
the principal amount outstanding on the Line shall be calculated at an
annual rate equal to 0.5% in excess of the Prime Rate in effect from
time to time, on the basis of the actual number of days elapsed in a
year of 360 days as and when the Prime Rate changes. Prime Rate shall
mean the "prime" rate of interest as established by the Bank as in
effect from time to time."
6. In Section 8 of the Letter Agreement, the words "Base Rate" are
hereby deleted and the words "Prime Rate are inserted in lieu thereof.
7. Section 10 of the Letter Agreement is hereby amended to add "hedging
accounts" and "all cash collateral accounts maintained at Norwest Investment
Services, Inc." as part of the collateral in which Borrower has granted the
Bank a security interest.
8. RESTATEMENT OF REPRESENTATIONS AND WARRANTIES. Borrower hereby
restates and renews each and every representation and warranty heretofore
made by Borrower in the Letter Agreement and the other loan documents as
fully as if made on the date hereof and all other loan documents executed
and/or delivered in connection herewith or therewith.
9. EFFECT OF AMENDMENT. Except as set forth expressly herein above,
all terms of the Letter Agreement and the other loan documents shall be and
remain in full force and effect, and shall constitute the legal, valid,
binding and enforceable obligations of Borrower.
10. RATIFICATION. Borrower hereby restates, ratifies and reaffirms each
and every term, covenant and condition set forth in the Letter Agreement and
the other loan documents effective as of the date hereof.
11. COUNTERPARTS. The Second Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which counterparts, taken together, shall constitute but one and the
same instrument.
12. NO DEFAULT. To induce Bank to enter into this Second Amendment and
to continue to make advances pursuant to the Letter Agreement, Borrower
hereby acknowledges and agrees that, as of the date hereof, and after giving
effect to the terms hereof, there exists (i) no Default or Event of Default
and (ii) no right of offset, defense, counterclaim, claim or objection in
favor of Borrower
2
<PAGE>
arising out of or with respect to any of the obligations arising under the
Letter Agreement and the other loan documents.
13. FURTHER ASSURANCES. Borrower agrees to take such further actions
as Bank shall reasonably request in connection herewith to evidence the
amendment herein contained to the Letter Agreement.
14. GOVERNING LAW. This Amendment shall be governed by and construed and
interpreted in accordance with the laws of the State of Colorado.
15. SUCCESSORS. This Second Amendment shall be binding upon and shall
inure to the benefit of the parties hereto and their successors and assigns.
16. EFFECTIVE DATE. This Second Amendment is to be effective on June 1,
1996.
IN WITNESS WHEREOF, Borrower and Bank have caused this Second Amendment
go be duly executed, by their respective duly authorized officers as of the
day and year first above written.
BORROWER:
COLEMAN NATURAL MEATS, INC.
By: Lee N. Arst
--------------------------------
Lee N. Arst, President
By: Richard Dutkiewicz
--------------------------------
Richard Dutkiewicz
Vice President
BANK:
NORWEST BANK COLORADO,
NATIONAL ASSOCIATION
By: Daryl Moellenberg
--------------------------------
Daryl Moellenberg
Vice President
GUARANTOR ACKNOWLEDGED:
COLEMAN NATURAL PRODUCTS, INC.
By: Lee N. Arst By: Richard Dutkiewicz
-------------------------------- ---------------------------------
Title: President/CEO Title: Vice President/CFO
3
<PAGE>
SECURITY AGREEMENT
(Inventory and Accounts)
1. Debtor (name and address)(1):
COLEMAN NATURAL MEATS, INC.
5140 RACE COURT, SUITE 4
DENVER, CO 80216
2. Bank: NORWEST BANK COLORADO, NATIONAL ASSOCIATION
1740 BROADWAY
DENVER, CO 80274
3. COLLATERAL: (a) All inventory of Debtor, now owned or hereafter acquired;
(b) all accounts and contract rights of Debtor, now existing or hereafter
created; (c) all interest of Debtor now existing or hereafter arising, in
goods the sale or lease of which gave rise to any accounts; (d) all chattel
paper, documents, instruments and general intangibles relating to any such
accounts; (e) all guaranties and other collateral held by Debtor as
security for or with respect to any of the foregoing; and (f) any other
property, rights or interests of Debtor which shall at any time come into
the possession, custody or control of Bank for any purpose and in any
manner.
4. OBLIGATIONS: (a) All indebtedness evidenced and created by the following
described promissory note (the "Note") payable to the order of Bank, and
all renewals, extensions and amendments thereof:
1st Note 2nd Note
Date: June 07, 1996 June 07, 1996
Amount: $2,300,000.00 Plus Interest $2,000,000.00 Plus Interest
(substituted for note dated 10-27-95)
Maturity Date: November 01, 1996 November 01, 1996
Maker (if other than Debtor):
(b) future advances made by Bank to Debtor, plus interest thereon; (c) all
expenditures made or incurred by Bank pursuant to the provisions of the
Note and this agreement; and (d) all other obligations of Debtor to Bank,
direct or indirect, absolute or contingent, now existing or hereafter
arising.
Other:
THE TERMS AND CONDITIONS ON THE FOLLOWING PAGES ARE A PART OF THIS
AGREEMENT.
Dated: June 07, 1996 COLEMAN NATURAL MEATS, INC.
By: /s/ LEE N. ARST
----------------------------------
Lee N. Arst
Title: President/CEO
-------------------------------
By: /s/ RICHARD DUTKIEWICZ
----------------------------------
Richard Dutkiewicz
Title: Vice President/CFO
-------------------------------
(1) Give address of Debtor's chief executive office. If the Collateral is kept
at any other location, list such other address and so indicate.
<PAGE>
EVENTS OF DEFAULT. The Events of Default are as set forth in Loan Agreements.
REMEDIES. (a) Upon the occurrence of any event of default and at any time
thereafter Bank shall have, in addition to all other rights and remedies, the
remedies of a secured party under the Uniform Commercial Code ("UCC"), as then
in effect in Colorado, regardless of whether the UCC applies to the security
transactions covered by this agreement, including without limitation the right
to accelerate the maturity of the Obligations, without notice or demand, and to
take possession of the Collateral and any proceeds thereof wherever located.
Debtor shall make the Collateral available to the Bank at a place to be
designated by Bank that is reasonably convenient for both parties. If notice
is required, Bank shall give to Debtor at least five days' prior written notice
of the time and place of any public sale of the Collateral or of the time after
which any private sale or any other intended disposition is to made. (b) If Bank
in good faith believes that the Securities Act of 1933 or any other state or
federal law prohibits or restricts the customary manner of sale or distribution
of any of the Collateral, Bank may sell such Collateral privately or in any
other manner deemed advisable by Bank at such price or prices as Bank determines
in its sole discretion. Debtor recognizes that such inhibition or restriction
may cause the Collateral to have less value than it otherwise would have and
that, consequently, such sale disposition by Bank may result in a lower sales
price than if the sale were otherwise held. (c) As a supplementary or additional
remedy, Bank shall also be entitled, without notice or demand and to the extent
permitted by law, (i) to exercise or continue to exercise all of the rights
granted to Bank in paragraph 11 or (ii) to have a receiver appointed to take
charge of all or any part of the collateral, exercising all of the rights
granted to Bank in paragraph 11. (d) To the extent allowed by law, Debtor shall
pay Bank all expenses of retaking, holding, preparing for sale, selling and the
like, including reasonable attorneys' fees and legal expenses, and such costs
shall be paid out of the proceeds of disposition of the Collateral. Such
proceeds may be applied to the Obligations in any order of priority determined
by Bank.
GENERAL. (a) The terms "Debtor", "Bank," "Collateral," "Obligations" and
"Note" are defined in paragraphs 1, 2, 3 and 4. Where Debtor and the obligor on
the Obligations are not the same, the term "Debtor" herein means the owner of
the Collateral in any provision dealing with the Collateral, the obligor in any
provision dealing with the Obligations, or both where the context so requires.
(b) No default shall be waived by Bank except in writing and no waiver of any
payment or other right under this agreement shall operate as a waiver of any
other payment or right. (c) Bank may assign, transfer or deliver any of the
Collateral to any transferee of any of the Obligations, and thereafter shall be
fully discharged from all responsibility with respect to such Collateral. The
transferee shall be vested with all the powers and rights of Bank hereunder
with respect to such Collateral, but Bank shall retain rights and powers
hereunder with respect to such Collateral, but Bank shall retain all rights and
powers hereunder with respect any of the Collateral remaining. (d) If there is
more than one Debtor, all of the terms and conditions of this agreement shall
apply to each and any of them. (e) Without affecting any Obligations of Debtor
under this agreement Bank without notice or demand may renew or extend any of
the Obligations; release any Collateral as security for any of the Obligations,
and add or release any guarantor, endorser, surety or other party to any of the
Obligations. (f) Any consent, notice and other communication required or
contemplated by this agreement shall be in writing. ****It shall be deemed
given if mailed*****, postage prepaid to Debtor at the address ******given on
the first page hereof or at such other address given by notice as herein
provided.** (g) A carbon, photographic or other reproduction of this agreement
or a financing statement shall be sufficient as a financing statement. (h)
Debtor hereby expressly grants Bank a power of attorney, and appoints and
constitutes Bank as Debtor's agent for the purpose and with the power to sign on
behalf of Debtor in Debtor's name, one or more financing statements covering any
of the Collateral described herein or in any other Bank security agreement
executed by Debtor. (i) Debtor hereby authorizes each city, county, state or
federal government to release to Bank all information which Bank may request
pertaining to any sales, use or other taxes imposed by such governmental entity,
other than personal or corporate income tax. The state may retain a copy of this
agreement. (j) (k) This agreement shall be construed under and governed by the
laws of Colorado. (l) All of the rights of Bank under this agreement shall be
cumulative and shall inure to the benefit of its successors and assigns. All
obligations of Debtor hereunder shall be binding upon the heirs, legal
representatives, successors and assigns of Debtor. *******See Exhibit A which
is attached hereto and incorporated herein.
<PAGE>
** in accordance with that certain Loan Agreement executed between Debtor and
Bank dated October 27, 1995, modified February 2, 1996 and again on June 7,
1996 and concurrent Loan Agreement governing $2,000,000.00 loan dated June 7,
1996 (Loan Agreements).
***as required in the Loan Agreements.
ADDITIONAL TERMS AND CONDITIONS
6. SECURITY INTEREST. To secure payment and performance of the Obligations,
Debtor hereby grants to Bank a security interest in the Collateral and in its
proceeds, products and accessions. Unless the context otherwise indicates,
the term "Inventory" or "account" or "accounts" in this agreement refers to that
part of the Collateral consisting of such property. Inventory shall include
goods of Debtor in the hands of manufacturers or suppliers or in the process of
delivery to Debtor or any representative of Debtor.
7. WARRANTIES AND REPRESENTATIONS. Debtor warrants and represents to Bank:
(a) except for the security interest created by this Agreement, Debtor is the
owner of all of the inventory, or will be at the time such inventory is created
or acquired, free and clear of liens, security interests and encumbrances; (b)
except as otherwise indicated by Debtor to Bank in writing, at the time each
account is assigned to Bank or otherwise becomes subject to the security
interest granted in this agreement (i) Debtor will be the owner of the account,
with the absolute right to transfer any interest therein, and (ii) the account
will be a valid obligation of the account debtor, enforceable in accordance with
its terms and, to the best of Debtor's knowledge and belief, free and clear of
all liens, security interests, restrictions, setoffs, adverse claims,
assignments, defaults, prepayments, defenses and conditions precedent other than
the security interest created by this agreement; (c) the unpaid amount and all
other information shown as to the account in Debtor's books and on any schedule,
certificate or report at any time given by Debtor to Bank is and will be true
and correct as of the date indicated; (d) all chattel paper, documents and
instruments which are part of the Collateral are valid and genuine and comply
with applicable laws concerning form, content and manner of preparation and
execution,* and all persons appearing to be obligated thereon have authority and
capacity to contract and are bound as they appear to be; (e) no financing
statement covering any of the Collateral is on file in any public office other
than those which reflect the security interest created by this agreement; (f) if
Debtor is a corporation, its certificate or articles of incorporation and bylaws
do not prohibit any term or condition of this agreement; (g) the execution and
delivery of this agreement will not violate any law or agreement governing
Debtor or to which Debtor is a party, and (h) all information and statements on
the front page of this agreement are true and correct.
* To Debtor's knowledge.
7. COVENANTS OF DEBTOR. Unless and until Bank consents in writing to another
course of action, Debtor covenants and agrees: (a) Debtor will at such intervals
and in such form and manner as Bank may require, execute, deliver and otherwise
provide Bank with (i) schedules confirming or assigning to Bank the accounts or
other Collateral therein described and intended to be covered by this agreement
and (ii) copies of invoices, evidences of shipment or delivery and such other
information, including aging and reconciliation reports, as Bank may deem
advisable. Additionally, Debtor will from time to time execute financing
statements and other documents in form satisfactory to Bank (and pay the cost
of filing or recording them in whatever public offices Bank deems necessary) and
perform such other acts as Bank may request to perfect and maintain a valid
security interest in the Collateral. (b) At Bank's request Debtor will mark or
stamp each of its individual ledger sheets or cards pertaining to any of the
Collateral with the legend "For value received, this account has been assigned
to [Bank]" and will stamp or otherwise mark and keep its books and records
relating to the Collateral in such manner as Bank may deem advisable. (c) Debtor
will (i) keep such books and records pertaining to the Collateral, and at such
office or offices of Debtor, as may be satisfactory to Bank, (ii) permit
representatives of Bank at all reasonable times to inspect the Collateral, and
to inspect and make abstracts from Debtor's books and records pertaining to
the Collateral, and (iii) prepare or cause to be prepared and deliver to Bank
all financial statements**. (d) Debtor will give such written notice to account
debtors as Bank may at any time request. Bank may at any time, whether or not a
default exists under this agreement, (i) notify any account debtor of Bank's
interest in the Collateral, (ii) request information as to the Collateral
from any account debtor, and (iii) notify any account debtor to make all
payments with respect to the Collateral directly to Bank or in any other manner
directed by Bank. (e) Debtor will not sell or assign any of the Collateral
(except that the inventory may be sold in the ordinary course of business);
will promptly notify Bank of any event of default, as defined in paragraph 12;
will defend the Collateral against the claims and demands of all persons, and
will pay promptly all taxes and assessments with respect to the Collateral.
(f) Debtor will carry such insurance on the inventory***. If requested by Bank
all insurance policies shall be written for the benefit of Debtor and Bank as
their interests may appear, will provide for 10 days' written notice to Bank
prior to cancellation and will be deposited with Bank. Bank may act as attorney
for Debtor in making, adjusting and settling claims under or cancelling such
insurance and endorsing Debtor's name on any draft relating thereto. Bank may
apply any proceeds of insurance toward payment of the Obligations, whether or
not due, in any order of priority. (g) Debtor will not pledge, mortgage or
otherwise encumber, or create or permit a security interest to exist in, any
of the Collateral to or in favor of anyone other than Bank, and will keep the
inventory in good condition and repair. At its option Bank may discharge taxes,
liens, security interests and other encumbrances against the Collateral and may
pay for the repair of any damage to the Collateral, the maintenance and
preservation thereof and insurance thereon. Debtor will reimburse Bank on
demand for any payments so made, plus interest thereon at the Note rate from
the date of such payment. Any such payments by Bank will become part of the
Obligations. (h) Except for temporary processing or storage, all inventory will
be kept at Debtor's address or addresses listed on the front page of this
agreement or at such other location as will be satisfactory to the Bank.
(i) Debtor will notify Bank promptly upon the violation of any covenant
contained in this agreement.
<PAGE>
8. ENVIRONMENTAL COVENANT AND INDEMNITY. Debtor covenants and agrees that
Debtor or property of Debtor is not currently the subject of any threatened or
ongoing litigation, judgment, decree, order, citation, complaint, or notice of
violation relating to or arising out of environmental laws or issues. To the
best of Debtor's knowledge, (i) the activities of Debtor will not result in
Contamination or threatened Contamination, and no property of Debtor is
Contaminated or threatened to be Contaminated that could lead to the payment of
or for damages, penalties, injunctive relief or clean-up costs, or would require
clean up, removal or remedial action under any environmental law or
regulation thereunder or common law, and (ii) Debtor is in compliance with
all applicable environmental laws. (b) Debtor agrees to defend, indemnify,
and hold harmless Bank for, from, and against, and to reimburse Bank with
respect to any and all claims, actions, costs and expenses whatsoever
(including, without limitation, attorneys' fees and expenses and costs
reasonably incurred) known or unknown, asserted against or incurred by Bank
at any time by reason of or arising out of or relating to any actual or
alleged violation of any existing or future environmental law or regulation
thereunder or actual or threatened Contamination relating to the property or
activities of Debtor, whether or not such specifically intended to survive
this agreement and the release of any Collateral. (c) The terms Contamination
or Contaminated shall mean the presence of solid or hazardous wastes,
hazardous substances, pollutants or contaminants, petroleum, toxic or
hazardous constituents, or similar materials, as such terms are defined under
any federal, state, or local statute, whether currently or subsequently
enacted or regulation thereunder or under common law.
9. COLLECTION OF ACCOUNTS. Until revocation of this authority Debtor, as
agent of Bank and at the expense of Debtor: (a) Shall endeavor to collect all
amounts due and owing on the accounts, including the taking of such action to
repossess goods, impose liens or enforce payment as Bank or Debtor may deem
proper. (b) Shall receive in trust for the account of Bank such goods as may be
returned or rejected by or repossessed from account debtors, and hold such
goods and the proceeds thereof separate and identified by suitable markings as
Bank's property, without intermingling them with Debtor's property, and remit
promptly any proceeds of sale or lease of such goods in the manner described in
paragraph 10 below. (c) May in the ordinary course of business grant to account
debtors any rebate, refund or allowance to which they are entitled, and in
connection therewith may accept the return of any goods the sale or lease of
which gave rise to the accounts. With respect to the credits and repossessed or
returned goods described in this paragraph 9, Debtor shall not less often than
monthly make a full accounting thereof to Bank and shall, if requested by Bank,
promptly pay to Bank the aggregate amount of (i) all such credits allowed and
(ii) all balances owing with respect to such returned or repossessed goods.
Bank shall apply such payments to the Obligations in the manner described in
paragraph 10.
10. PAYMENT OF PROCEEDS TO BANK. (a) Debtor shall receive all payments with
respect to the Collateral in trust for Bank, without commingling them with any
other funds or property of Debtor, and (until such authority is revoked or
different instructions are given by Bank) shall immediately deliver them to
Bank in the exact form received, bearing Debtor's full-recourse endorsement or
liability of a general endorser with respect to such payments and hereby
waives presentment, notice of dishonor, protest, demand and all other notices
with respect thereto, whether or not Debtor endorses the instruments or other
evidences of payment and regardless of the form of payment or Debtor's
endorsement or assignment thereon. (b) At the election of Bank, all payments
described in the preceding subparagraph (a) shall be deposited in a separate
bank account maintained by Bank (the "Collateral Account"), from which Debtor
shall have no right to withdraw funds. All instruments evidencing payment
shall be deposited in the Collateral Account subject to final payment, and
all deposits therein shall be held as security for the Obligations. From
time to time in its discretion Bank may (and if requested by Debtor shall,
but not more often than once a week) apply all or any of the Balance in the
Collateral Account to payment of the Obligations in any order of priority
determined by Bank. Additionally, Bank in its discretion may release all or
any of the balance in the Collateral Account to Debtor.
11. RIGHTS OF BANK. Bank shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if it takes such action for that
purpose as Debtor shall request, but failure to honor any such request shall
not of itself be deemed a failure to exercise reasonable care. Bank shall not
be required to take any steps necessary to preserve any rights in the
Collateral against prior parties nor to protect, preserve or maintain any
security interest given to secure any of the Collateral. (b) Debtor hereby
irrevocably appoints Bank as the attorney of the Debtor, with full powers of
substitution and at the cost and expense of Debtor, to exercise any of the
following powers with respect to any of the accounts: (i) demand, sue for,
collect and give receipts for any payments due thereon or by virtue thereof;
(ii) receive, take, endorse, assign and deliver chattel paper, documents,
instruments and all other property taken or received by Bank in connection
therewith; (iii) settle, compromise, compound, prosecute or defend any action
or proceeding with respect thereto; (iv) sell, transfer, assign or otherwise
deal therein or therewith as fully and effectually as if Bank were the absolute
owner thereof, and (v) extend the time of payment thereof and make allowances
and other adjustments with reference thereto. In exercising any power herein
granted Bank may act in its name or the name of Debtor. (d) Bank shall be under
no duty to exercise or to withhold the exercise of any of the rights, powers,
privileges and options expressly or implicitly granted to Bank in this
agreement, and shall not be responsible for any failure to do so or delay in
so doing.
<PAGE>
EXHIBIT A
This Exhibit is attached and made a part of the Security Agreement for
Inventory and Accounts between Coleman Natural Meats, Inc. (Borrower) and
Norwest Bank Colorado, National Association (Bank) and further describes the
changes in the Security Agreement.
**** and
***** three (3) days after being mailed.
****** or Bank
******* (N) This Agreement is subject to Arbitration in accordance with the
Loan Agreement.
COLEMAN NATURAL MEATS, INC.
By: /s/ LEE N. ARST
-------------------------------
Title: President/CEO
---------------------------
By: /s/ RICHARD DUTKIEWICZ
------------------------------
Title: Vice President
---------------------------
<PAGE>
SECURITY AGREEMENT
(Livestock)
1. Debtor (name and mailing address):
COLEMAN NATURAL MEATS, INC.
5140 RACE COURT, SUITE 4
DENVER, CO 80216
2. Bank: NORWEST BANK COLORADO, NATIONAL ASSOCIATION
1740 BROADWAY
DENVER, CO 80274
3. Collateral: (a) All livestock of Debtor, now owned or hereafter acquired;
(b) the increase thereof; (c) all holding marks and brands and branding
irons of Debtor that at any time cover any such livestock; (d) if the
livestock includes sheep, all wool pulled, clipped or shorn therefrom;
and (e) all hay, feed and other supplies now owned or hereafter acquired
in connection with such livestock.
4. Location of Collateral (1) :
Including but not limited to: Decker Feedlot, Rt. 3, Box 136, Scott City,
KS 67871
/X/ Livestock may be sold in the ordinary course of business.*
/X/ Livestock shall not be sold without Bank's consent, (not including
the slaughter of cattle)
/ / Other:
*unless the cattle is purchased from Coleman Ranches, Inc.
then the box below shall apply
S. Obligations: (a) all indebtedness evidenced and created by the following
described promissory note (the "Note") payable to the order of Bank, and
all renewals, extensions and amendments thereof:
1st Note 2nd Note
Date: June 07, 1996 June 07, 1996
(substituted for note dated 10-27-95)
Amount: $2,300,000.00 Plus Interest $2,000,000.00 Plus Interest
Maturity Date: November 01, 1996 November 01, 1996
Maker (if other than Debtor):
(b) future advances made by Bank to Debtor, plus interest thereon; (c) all
expenditures made or incurred by Bank pursuant to the provisions of the
Note and this agreement; and (d) all other obligations of Debtor to Bank,
direct or indirect, absolute or contingent, now existing or hereafter
arising.
Other:
THE TERMS AND CONDITIONS ON THE FOLLOWING PAGES ARE A PART OF THIS
AGREEMENT.
Dated: June 07, 1996
COLEMAN NATURAL MEATS, INC.
By: Lee N. Arst
----------------------------------
Title: President/CEO
By: Richard Dutkiewicz
----------------------------------
Title: Vice President/CFO
(1) Give street or other reasonably identifiable location or locations, if
possible. Otherwise give name of county or counties.
<PAGE>
Additional Terms and Conditions
6. SECURITY INTEREST. To secure payment and performance of the Obligations,
Debtor hereby grants to Bank a security interest in the Collateral and in its
proceeds, products and accessions. Unless the context otherwise indicates, the
term "livestock" in this agreement refers to that part of the Collateral
consisting of such property.
7. WARRANTIES AND REPRESENTATIONS. Debtor warrants and represents to Bank:
(a) Debtor has, or in the case of after-acquired property will acquire, title to
the Collateral free and clear of all liens, security interests and encumbrances
other than the security interest created by this agreement; (b) Debtor has the
right to use all holding marks and brands which are part of the Collateral and
has the right to transfer them as herein provided; (c) no financing statement
covering any of the Collateral is on file in any public office; (d) if Debtor is
a corporation, its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this agreement; (e) the execution and delivery
of this agreement will not violate any law or agreement governing Debtor or to
which Debtor is a party and (f) all other information and statements on the
front page hereof are true and correct.
8. COVENANTS OF DEBTOR. Unless and until Bank consents in writing to another
course of action, Debtor covenants and agrees: (a) Except for marketing (with
Bank's consent as herein provided) and temporary processing, the Collateral will
be kept at the location or locations specified in paragraph 4 on the first page
hereof. (b) Except as specified in paragraph 9, Debtor will not sell, consign,
transfer or otherwise dispose of any of the Collateral or any interest therein
(c) Debtor will properly protect and maintain the Collateral in accordance with
standards of good husbandry followed in operations of a similar type, and will
keep all of the Collateral, including proceeds in the form of accounts, free of
liens, security interests and encumbrances other than the security interest
created by this agreement*, will promptly notify Bank of any event of default,
as defined in paragraph 10; will not use, maintain or otherwise deal with the
Collateral in violation of any applicable statute, ordinance or insurance
policy; will defend the Collateral against the claims and demands of all
persons, and will pay promptly all taxes, assessments and expenses with respect
to the Collateral and the protection and maintenance thereof. Bank may inspect
the Collateral at any time, wherever located. (d) Debtor will keep the
Collateral insured with companies acceptable to Bank against such casualties and
in such amounts as**. If requested by Bank all insurance policies shall be
written for the benefit of Debtor and Bank as their interests may appear, will
provide for 10 days' written notice to Bank prior to cancellation and will be
deposited with Bank. Bank may act as attorney for Debtor in making, adjusting
and settling claims under or cancelling such insurance and endorsing Debtor's
name on any drafts relating thereto. Bank may apply any proceeds of insurance
toward payment of the Obligations, whether or not due, in any order of priority.
(e) At its option Bank may discharge taxes, liens, security interests and other
encumbrances against the Collateral and may pay for the protection, maintenance
and insuring of the Collateral and the enforcement of any other term or
condition of this agreement, Debtor will reimburse Bank on demand for any
payments so made. Any such payments by Bank will become part of the Obligations,
bearing interest at the same rate as the Note. (f) Debtor will at such intervals
and in such form and manner as Bank may require, (i) execute, deliver and
otherwise provide Bank with schedules confirming or assigning to Bank the
Collateral therein described and intended to be covered by this agreement,
and copies of invoices, evidences of shipment or delivery and such other
information, including reports of sales, as Bank may deem advisable; (ii) keep
such books and records pertaining to the Collateral as may be satisfactory to
Bank; (iii) permit representatives of Bank at all reasonable times to inspect
and make abstracts from Debtor's books and records pertaining to the Collateral,
and (iv) prepare or cause to be prepared and deliver to Bank all financial
statements, reports and data***. (g) Debtor shall from time to time execute
financing statements and other documents in form satisfactory to Bank (and pay
the cost of filing or recording them in whatever public offices Bank deems
necessary) and perform such other acts as Bank may request to perfect and
maintain a valid security interest in the Collateral, including conveyance to
Bank and registration in its name of the right to use the marks and brands that
are or become part of the Collateral. (h) Debtor will notify Bank promptly upon
the violation of any covenant contained in this agreement.
9. SALE OF LIVESTOCK; PROCEEDS, ETC. (a) Debtor shall have the right to sell
any livestock which is part of the Collateral only if both of these conditions
are met: (i) Bank has consented to the sale, either by so indicating on the
first page of this agreement or by an express agreement given in some other
manner, and (ii) no event of default (as defined in paragraph 10) then exists.
(b) All cash proceeds of any sale, whether or not permitted hereunder, shall be
segregated and held separate from Debtor's funds, in trust for Bank, and shall
be immediately delivered to Bank in the exact form received, bearing Debtor's
full-recourse endorsement or assignment when necessary, for application on the
Obligations in any order of priority determined by Bank. Any non-cash proceeds
such as promissory notes, installment sale contracts and other documents,
instruments and chattel paper shall be delivered to Bank at Bank's request. With
respect to proceeds in the form of accounts, Bank may at any time notify account
debtors that the accounts have been assigned to Bank and shall be paid to Bank.
Bank shall have the right (and is hereby irrevocably appointed Debtor's
attomey-in-fact) to collect, compromise, endorse, sell or otherwise deal with
all proceeds (in whatever form) in its name or the name of Debtor. Debtor shall
have the liability of a general endorser as to proceeds of any type delivered to
Bank and hereby waives presentment, notice of dishonor, protest, demand and all
other notices with respect thereto, whether or not Debtor endorses the
instruments of other evidences of payment and regardless of the form of payment
or of Debtor's endorsement or assignment thereon.
10. EVENTS OF DEFAULT. The Events of Default are set forth in the Loan
Agreements.
<PAGE>
11. REMEDIES. (a) Upon the occurrence of any event of default and at any
time thereafter Bank shall have, in addition to all other rights and
remedies, the remedies of a secured party under the Uniform Commercial Code
("UCC"), as then in effect in Colorado regardless of whether the UCC applies
to the security transactions covered by this agreement, including without
limitation the right to accelerate the maturity of the Obligations, without
notice or demand, and to take possession of the Collateral and any proceeds
thereof wherever located. Debtor shall make the Collateral available to the
Bank at a place to be designated by Bank that is reasonably convenient for
both parties. If notice is required, Bank shall give to Debtor at least five
days' prior written notice of the time and place of any public sale of the
Collateral or of the time after which any private sale or any other intended
disposition is to be made. (b) During the time that Bank is in possession of
the Collateral, and to the extent permitted by law, Bank shall have the right
to hold, use, operate, manage and control all or any part of the Collateral;
to make all such repairs, replacements, alterations, additions and
improvements to the Collateral as it may deem proper; and to demand, collect
and retain all earnings, proceeds and other sums due or to become due with
respect to the Collateral, accounting only for the net earnings arising from
such use and charging against recepts from such use all other costs,
expenses, charges, damage or loss by reason of such use. Notwithstanding the
foregoing, Bank shall also be entitled, without notice or demand and to the
extent permitted by law, to have a receiver appointed to take charge of all
or any part of the Collateral, exercising all of the rights specified in the
immediately preceding sentence. (c) To the extent allowed by law, Debtor
shall pay Bank all expenses of retaking, holding, preparing for sale, selling
and the like, including reasonable attorneys' fees and legal expenses, and
such costs shall be paid out of the proceeds of disposition of the
Collateral. Such proceeds may be applied to the Obligations in any order of
priority determined by Bank.
12. GENERAL. (a) The terms "Debtor," "Bank," "Collateral," "Obligations" and
"Note" are defined in paragraphs 1, 2, 3 and 5. Where Debtor and the obligor on
the Obligations are not the same, the term "Debtor" herein means the owner of
the Collateral in any provision dealing with the Collateral, the obligor in any
provision dealing with the Obligations, and both where the context so requires.
(b) No default shall be waived by Bank except in writing and no waiver of any
payment or other right under this agreement shall operate as a waiver of any
other payment or right. (c) Bank may assign, transfer or deliver any of the
Collateral to any transferee of any of the Obligations, and thereafter shall be
fully discharged from all responsibility with respect to such Collateral. The
transferee shall be vested with all the powers and rights of Bank hereunder
with respect to such Collateral, but Bank shall retain all rights and powers
hereunder with respect to such Collateral, but Bank shall retain all rights and
powers hereunder with respect to any of the Collateral remaining. (d) If there
is more than one Debtor, all of the terms and conditions of this agreement
shall apply to each and any of them. (e) Without affecting any Obligations of
Debtor under this agreement Bank without notice or demand may renew, extend or
otherwise change the terms and conditions of any of the Obligations; release
any Collateral as security, and add or release any guarantor, endorser, surety
or other party to any of the Obligations. (f) Any consent, notice and other
communication required or contemplated by agreement shall be in writing. If
intended for Debtor**** it shall be deemed given if mailed***** postage prepaid,
to Debtor****** at the address given on the first page hereof or at such other
address given by notice as herein provided. (g) A carbon, photographic or other
reproduction of this agreement or a financing statement shall be sufficient
as a financing statement. (h) Debtor hereby expressly, grants Bank a power of
attorney, and appoints and constitutes Bank as Debtor's agent, for the purpose
and with the power to sign on behalf of Debtor in Debtor's name, one or more
financing statements covering any of the Collateral described herein or in
any other Bank security agreement executed by Debtor. (i) Debtor hereby
authorizes each city, county, state or federal government to release to Bank
all information which Bank may request pertaining to any sales, use or other
taxes imposed by such governmental entity, other than personal or corporate
income tax. The state may retain a copy of this agreement. (j) This
agreement shall be construed under and governed by the laws of Colorado. (k)
All of the rights of Bank under this agreement shall be cumulative and shall
inure to the benefit of its successors and assigns. All obligations of Debtor
hereunder shall be binding upon the heirs, legal representatives, successors
and assigns of Debtor.*******
See Exhibit A which is attached hereto and incorporated herein.
<PAGE>
EXHIBIT A
This Exhibit is attached and made a part of the Security Agreement for
Livestock between Coleman Natural Meats, Inc. (Borrower) and Norwest Bank
Colorado, National Association (Bank) and further describes the changes in
the Security Agreement.
* The Loan Agreement executed between Debtor and Bank dated
October 27, 1995, modified February 2, 1996 and June 7, 1996
and concurrent Loan Agreement governing the $2,000,000.00 line
dated June 7, 1996 ("Loan Agreements"), and any other related
Agreement with the Bank.
** required in the Loan Agreements.
*** in accordance with the Loan Agreements.
**** or Bank
***** three (3) days after being mailed.
****** or Bank
******* These Agreements are subject to Arbitration in accordance with
the Loan Agreements.
COLEMAN NATURAL MEATS, INC.
By: Lee N. Arst
--------------------------------
Title: President/CEO
-------------------------
BY: Richard Dutkiewicz
--------------------------------
Title: Vice President/CFO
-----------------------------
<PAGE>
SECURITY AGREEMENT
AND
ASSIGNMENT OF HEDGING ACCOUNT
The undersigned, COLEMAN NATURAL MEATS. INC., (the "Debtor" whether one or
more) carried one or more accounts numbered _____________ (the "Account")
with the firm of ______________________, as brokers (the "Broker") for
trading in commodity futures contracts; and
The Debtor is now or may hereafter become indebted to Norwest Bank Colorado,
National Association (the "Secured Party") and wishes to provide Secured
Party with a security interest in the Account.
It is hereby agreed among the Debtor, the Broker and the Secured Party that
as long as any indebtedness under any note remains outstanding then:
1. As additional security for any and all indebtedness of the Debtor owed to
the Secured Party (the "Obligations") and for the payment of all money
which the Secured Party may hereafter loan or advance to the Debtor, the
Debtor hereby grants a security interest in and assigns and transfers to
the Secured Party all proceeds of the Account of the Debtor with the
Broker, including any balance which may remain to the credit of said
Account upon the closing thereof; subject, however, to the prior payment
of all indebtedness of the Debtor to the Broker, as such may exist from
time to time, including fees and commissions, which may have been
incurred in connection with the Debtor's transactions with the Broker,
and to the Broker's lien and the right of foreclosure thereof in
connection with any indebtedness of the Debtor to the Broker (including
any right of the Broker to close out open positions without prior demand
for additional margin and without prior notice).
2. The Broker is hereby authorized and directed to pay to the Secured Party
upon its demand all funds that may hereafter be withdrawn or payable out
of said Account and the Debtor agrees that the Debtor will not withdraw
or attempt to withdraw any funds or other property from said Account
except as permitted by this Agreement. The Secured Party is hereby
authorized and fully empowered, without further authority from the
Debtor, to request the Broker to remit to the Secured Party any funds
that may be due to the Debtor, and the Broker is hereby authorized and
directed to pay to the Secured Party such sums as it shall request.
3. The Debtor hereby constitutes and appoints the Secured Party its true,
lawful and irrevocable attorney to demand, receive and enforce payments,
and to give receipts, releases, satisfactions for, and to sue for all
monies payable to the Debtor, and this may be performed in the name of
the Secured Party with the same force and effect as the Debtor could do
had this Agreement not been made. Any and all proceeds which may be
received by the Debtor, to which the Secured Party is entitled under and
by reason of this Agreement will be received by the Debtor as trustee
for the Secured Party and will be immediately delivered in kind to the
Secured Party without commingling.
<PAGE>
Page 2
4. Nothing herein contained shall be construed as preventing the Debtor
from remaining the owner, subject to the interest of the Secured Party,
of the Account. Unless and until the Secured Party elects to the
contrary and delivers notice of such election in writing to the Broker,
the Debtor may make such additional transactions in the Account as the
Broker shall be willing to accept for execution. In the event the
Secured Party does make such election and does deliver such notice to
the Broker, the Debtor shall not thereafter execute any transactions in
the account and the Broker shall not accept for execution any such
transactions without the concurrence of the Secured Party, except
transactions in liquidation of any then outstanding commodity or
commodity futures position.
5. In the event of default under the Loan Agreements, the Secured Party may
direct the Broker to liquidate any and all then outstanding open
positions in the Debtor's Account and to direct the Broker to pay to the
Secured Party the credit balance as shall exist in the Account after
such liquidation and after the payment to the Broker of all the
indebtedness of the Debtor to the Broker in connection with transactions
in the Account.
6. Any sums paid by the Broker from the Account of the Debtor to the Secured
Party under this Agreement shall be applied by the Secured Party to the
payment of any indebtedness, expenses, costs and reasonable attorneys'
fees owed by the Debtor to the Secured Party. Any remaining balance
shall thereafter be paid to the Debtor. The receipt of the Secured
Party for such funds so paid to it by the Broker shall, as to the
Broker, operate as the receipt of the Debtor as fully as if funds had
been paid to the Debtor and receipted for by the Debtor.
7. If at any time during the continuance of any commodity futures contracts,
the Broker may require additional margin in order to protect such
contract or contracts, the Secured Party may advance to the Broker on
behalf of the Debtor such amounts as may be required to protect such
contracts, provided, however, that the Debtor shall in all respects
remain liable to the Secured Party for any amounts so advanced pursuant
to the terms of any agreement entered into between the Secured Party and
the Debtor in connection with the transactions contemplated by this
Agreement and further provided that the Secured Party shall not be
obligated to advance funds to the Broker if the Secured Party elects not
to do so, unless at the time of such an advance, Borrower is not in
default of any of the loan documents, is in compliance, after the
advance, with any Borrowing Base contained in the loan agreement and the
funds, after advancement, do not exceed the face amount of the
applicable promissory note.
8. The Secured Party is hereby authorized and empowered to receive from the
Broker, and the Broker is authorized and directed to deliver to the
Secured Party, copies of confirmations of all contracts executed for the
Account of the Debtor, copies of the monthly position and ledger account
of the Debtor, and copies of any and all matters pertaining to the
account of the Debtor with the Broker.
<PAGE>
Page 3
As between the Debtor and the Secured Party, this instrument shall
remain in full force and effect until cancelled in writing by the
Secured Party. The Secured Party shall not cancel this agreement unless
there is an event of default as defined in the Loan Agreements.
Moreover, this Agreement shall terminate and be of no further force or
effect when all indebtedness owed the Secured Party by the Debtor has
been paid in full. With respect to the Broker, this Agreement shall
remain in effect for a period of six months from the date hereof unless
terminated by the Secured Party. After six months have elapsed, the
Broker shall make inquiry to the Secured Party to ascertain the
continued effectiveness of this Agreement.
10. The Debtor hereby represents and warrants to the Secured Party that the
Account has not been previously alienated or assigned.
11. The Broker hereby represents and warrants to the Secured Party that no
previous assignment or claims against the Account have been received by
the Broker.
12. This Agreement shall be binding upon and shall inure to the benefit of
the respective heirs, personal representatives, successors and assigns
of the parties hereto.
13. OBLIGATIONS:
A. All indebtedness evidenced and created by the following described
promissory note (the "Note") payable to the order of Bank, and all
renewals, extensions and amendments thereof:
Note #1 Note #2
------- -------
DATE: June 7, 1996 June 7, 1996
AMOUNT: $2,300,000.00 plus interest $2,000,000.00 plus
(substituted for note dated interest
10-27-95)
MATURITY DATE: November 1, 1996 November 1, 1996
MAKER (if other than debtor):
B. Future advances made by Bank to Debtor, plus interest thereon;
C. All expenditures made or incurred by Bank pursuant to the provisions of
the Note and this agreement; and
D. All other obligations of Debtor to Bank, direct or indirect, absolute or
contingent, now existing or hereafter arising.
<PAGE>
Page 4
WITNESS WHEREOF, the parties have hereunto subscribed their signatures
effective this 7th day of June, 1996.
DEBTOR: Coleman Natural Meats, Inc.
By: /s/ LEE N. ARST
--------------------------------
Lee N. Arst
Title: President/CEO
-----------------------------
By: /s/ RICHARD DUTKIEWICZ
--------------------------------
Richard Dutkiewicz
Title: Vice President/CFO
-----------------------------
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
By: /s/ DARYL MOELLENBERG
-------------------------------
Daryl Moellenberg
Authorized Agent
Address:
1740 Broadway
Denver, CO 80274-8678
Attn: Financial Institutions/Agribusiness
BROKER:
----------------------------
By:
--------------------------------
Title
Address:
--------------------------------
--------------------------------
seccole
<PAGE>
GENERAL SECURITY AGREEMENT
(Including Pledge of Securities by Borrower)
1. DEBTOR (name and address)(1):
COLEMAN NATURAL MEATS, INC.
5140 RACE COURT, SUITE 4
DENVER, CO 80216
2. BANK: NORWEST BANK COLORADO, NATIONAL ASSOCIATION
1740 BROADWAY
DENVER, CO 80274
3. COLLATERAL: Norwest Investment Services, Inc. account #84126668801 in the
name of Coleman Natural Meats, Inc. and all proceeds thereof.
and all money, securities and other instruments, documents, chattel paper,
accounts, contract rights, general intangibles, credits, claims, demands and
any other property, rights and interests of Debtor which shall at any time
come into the possession, custody or control of Bank for any purpose and in
any manner. Bank shall be deemed in possession of any of the collateral in
transit to Bank.
4. OBLIGATIONS: (a) All Indebtedness evidenced and created by the following
described promissory note (the "Note") payable to the order of Bank, and all
renewals, extensions and amendments thereof:
1st Note 2nd Note
Date: June 07, 1996 June 07, 1996
Amount: $2,300,000.00 Plus Interest $2,000,000.00 Plus Interest
(substituted for note dated 10-27-95)
Maturity Date: November 01, 1996 November 01, 1996
Maker (If other than Debtor):
(b) future advances made by Bank to Debtor, plus interest thereon; (c) all
expenditures made or incurred by Bank pursuant to the provisions of the Note
and this agreement; and (d) all other obligations of Debtor to Bank, direct or
indirect, absolute or contingent, now existing or hereafter arising.
Other:
THE TERMS AND CONDITIONS ON THE REVERSE SIDE ARE A PART OF THIS AGREEMENT.
Dated: June 07, 1996
-----------------------
COLEMAN NATURAL MEATS, INC.
By: /s/ LEE ARST
----------------------------------
Title: President/CEO
-------------------------------
By: /s/ RICHARD DUTKIEWICZ
----------------------------------
Title: Vice President/CFO
-------------------------------
ADDITIONAL TERMS AND CONDITIONS
5. SECURITY INTEREST. To secure payment and performance of the Obligations,
Debtor hereby grants to Bank a security interest in the Collateral and
in its products and accessions.
6. WARRANTIES AND REPRESENTATIONS. Debtor warrants and represents to Bank:
(a) Debtor has title to the Collateral free and clear of all liens,
security interests, restrictions, setoffs, adverse claims, assessments,
defaults, prepayments, defenses and conditions precedent except as
disclosed thereon or to Bank; (b) the Collateral is enforceable in
accordance with its terms, is genuine and complies with applicable laws
concerning form, content and manner of preparation and execution, and
all persons appearing to be obligated thereon have authority and
capacity to contract and are bound as they appear to be; (c) no
financing statement covering any of the Collateral is on file in any
public office other than those: (i) which reflect the security interest
created by this agreement or (ii) to which Bank has specifically
consented; (d) if Debtor is a corporation, its certificate or articles of
incorporation and bylaws do not prohibit any term or condition of this
agreement; (e) the execution and delivery of this agreement will not
violate any law or agreement governing Debtor or to which Debtor is a
party; and (f) all information and statements on the front page of this
agreement are true and correct.
(1) If any of the Collateral is accounts or general intangibles, give also,
if different, the address of Debtor's chief executive office.
<PAGE>
7. COVENANTS OF DEBTOR. Unless and until Bank consents in writing to another
course of action, Debtor covenants and agrees (a) Bank will also have a
security interest in all securities and other property, rights or interests
of any description at any time issued or issuable as an addition to, in
substitution or exchange for or with respect to the Collateral, including
without limitation shares issued as dividends or as the result of any
reclassification, split-up or other corporate reorganization. Debtor will hold
in trust for and deliver promptly to Bank, in the exact form received all
such securities or other property that comes into the possession, custody or
control of Debtor. Upon demand Debtor will execute, assign and endorse all
proxies, applications, acceptances, stock powers, chattel paper, documents,
instruments and other evidences of payment or writings constituting or
relating to any of the Collateral or such other property. All assignments
and endorsements by Debtor will be in such form and substance as may be
satisfactory to Bank and Debtor hereby waives presentment, notice of
dishonor, protest, demand and all other notices with respect thereto. (b) if
Bank at any time deems the Collateral unsatisfactory, upon demand Debtor will
furnish such additional collateral or make such payment upon the Obligations
as Bank may* request. (c) Debtor will not sell or assign any of the
Collateral, will keep it free of liens, security interests and adverse claims
other than the security interests contemplated by (c) or paragraph 6; will
promptly notify Bank of any event of default as defined in paragraph 9; will
defend the Collateral against the claims and demands of all persons, and will
pay promptly all taxes and assessments with respect to the Collateral. (d) At
its option Bank may discharge taxes, liens, security interests and other
claims against the Collateral and may pay for the maintenance, preservation
and protection thereof, including costs and expenses incidental to any
actions undertaken by Bank pursuant to paragraph 8. Debtor will reimburse
Bank on demand for any payments so made. Any such payments by Bank shall
become part of the Obligations, bearing interest at the same rate as the
Note. (e) Debtor will from time to time execute financing statements and
other documents in form satisfactory to Bank (and pay the cost of filing or
recording them in whatever public offices the Bank deems necessary) and
perform such other acts as Bank may request to perfect and maintain a valid
security interest in the Collateral. *reasonably
8. RIGHTS OF BANK. (a) Bank shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral if it takes such
action for that purpose as Debtor shall request, but failure to honor any
such request shall not of itself be deemed a failure to exercise reasonable
care. Bank shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties nor to protect, preserve or
maintain any security interest given to secure the Collateral. (b) In its
discretion and without notice Bank may take any one or more of the following
actions (and Bank is hereby irrevocably appointed Debtor's attorney-in-fact to
accomplish this), without liability except to account for property actually
received by it: (i) transfer to or register in its name or the name of its
nominee any of the Collateral, with or without indication of the security
interest herein created, and whether or not so transferred or registered,
receive the income, dividends and other distributions thereon and hold them
or apply them to the Obligations in any order of priority; (ii) insure any of
the Collateral; (iii) exchange any of the Collateral for other property upon
a reorganization, recapitalization or other readjustment and, in connection
therewith, deposit any of the Collateral with any committee or depository
upon such terms as Bank may determine, (iv) in its names or in the name of
Debtor demand, sue for, collect or receive any money of property at any time
payable or receivable on account of or in exchange for any of the Collateral
and, in connection therewith, endorse notes, checks, drafts, money orders,
documents of little or other evidences of payment, shipment or storage in the
name of Debtor; (v) make any compromise or settlement deemed advisable with
respect to any of the Collateral; (vi) renew, extend, or otherwise change the
terms and conditions of any of the Collateral or the Obligations*; (vii)
release any Collateral or any property given as security for any of the
Obligations, and (viii) add or release any guarantor, endorser, surety or
other party of any of the Collateral or the Obligations. (c) Bank shall be
under no duty to exercise or to withhold the exercise of any of the rights,
powers, privileges and options expressly or implicitly granted to bank in
this agreement, and shall not be responsible for any failure to do so or
delay in so doing. * upon written request of Debtor.
9. EVENTS OF DEFAULT. The Events of Defaults are set forth in the Loan
Agreements.
10. REMEDIES. (a) Upon the occurrence of any event of default and at any
time thereafter Bank shall have, in addition to all other rights and
remedies, the remedies of a secured party under the Uniform Commercial Code
("UCC") as then in effect in Colorado, regardless of whether the UCC applies to
the security transactions covered by this agreement, including without
limitation the right to accelerate the maturity of the Obligations, without
notice or demand, and to take possession of the Collateral and any proceeds
thereof wherever located. Debtor shall make the Collateral available to Bank
at a place to be designated by Bank that is reasonably convenient for both
parties. If notice is required, Bank shall give to Debtor at least five
days' prior written notice of the time and place of any public sale of the
Collateral or of the time after which any private sale or any other intended
disposition is to be made. (b) If Bank in good faith believes that the
Securities Act of 1933 or any other state or federal law prohibits or
restricts the customary manner of sale or distribution of any of the
Collateral, Bank may sell such Collateral privately or in any other manner
deemed advisable by Bank at such price or prices as Bank determines in its
sole discretion. Debtor recognizes that such prohibition or restriction may
cause the Collateral to have less value than it otherwise would have and
that, consequently, such sale or disposition by Bank may result in a lower
sales price than if the sale were otherwise held. (c) As a supplementary or
additional remedy, Bank shall also be entitled, without notice or demand and
to the extent permitted by law: (i) to exercise of continue to exercise all of
the rights granted to Bank in paragraph 8 or (ii) to have a receiver
appointed to take charge of all or any part of the Collateral, exercising all
of the rights granted to Bank in paragraph 8. (d) Bank may also cause any of
the Collateral to be transferred to or registered in its name or the name of
its nominee and, whether or not transferred or registered, may exercise or
cause to be exercised all voting powers with respect to such Collateral as if
the absolute owner thereof. For this purpose Bank is hereby irrevocably
appointed Debtor's attorney-in-fact. (e) To the extent allowed by law, Debtor
shall pay Bank all expenses of retaking, holding, preparing for sale, sellng
and the like, including reasonable attorneys' fees and legal expenses, and
such costs shall be paid out of the proceeds of disposition of the
Collateral. Such proceeds may be applied to the Obligations in any order of
priority determined by Bank.
11. GENERAL. (a) The terms "Debtor," "Bank," "Collateral," "Obligations" and
"Note" are defined in paragraphs 1, 2, 3 and 4. Where Debtor and the obligor
on the Obligations are not the same, the term "Debtor" herein means the owner
of the Collateral in any provision dealing with the Collateral, the obligor
in any provision dealing with the Obligations, and both where the context so
requires. (b) No default shall be waived by Bank except in writing and no
waiver of any payment or other right under this agreement shall operate as a
waiver of any other payment or right. (c) Bank may assign, transfer or
deliver any of the Collateral to any transferee of any of the Obligations, and
thereafter shall be fully discharged from all responsibility with respect to
such Collateral. The transferee shall be vested with all the powers and
rights of Bank hereunder with respect to such Collateral, but Bank shall
retain all rights and powers hereunder with respect to any of the Collateral
remaining. (d) If there is more than one Debtor, all of the terms and
conditions of this agreement shall apply to each and any of them. (e) Without
affecting any obligations of Debtor under this agreement Bank without notice
or demand may renew, extend of any of the Obligations, release any
Collateral, and add or release any guarantor, endorsor, surety or other
party to any of the Obligations. (f) Any consent, notice and other
communication required or contemplated by this agreement shall be in writing
****it shall be deemed given if mailed*****, postage prepaid to Debtor****** at
the address given on the reverse side hereof or at such other address given by
notice as herein provided. (g) A carbon, photographic or other reproduction of
this agreement or a financing statement shall be sufficient as a financing
statement. (h) Debtor hereby expressly grants Bank a power of attorney and
appoints and constitutes Bank as Debtor's agent, for the purpose and with the
power to sign on behalf of Debtor in Debtor's name, one or more financing
statements covering any of the Collateral described herein or in any other
Bank security agreement executed by Debtor. (i) Debtor hereby authorizes each
city, county, state of federal government to release to Bank all information
which Bank may request pertaining to any sales, use or other taxes imposed by
such governmental entity, other then personal or corporate income tax. The
state may retain a copy of this agreement. (j) (k) This agreement shall be
construed under and governed by the laws of Colorado. (l) All of the rights of
Bank under this agreement shall be cumulative and shall inure to the benefit
of its successors and assigns. All obligations of Debtor hereunder shall be
binding upon the heirs, legal representatives, successors and assigns of Debtor.
*******See Exhibit A which is attached hereto and incorporated herein.
<PAGE>
EXHIBIT A
This Exhibit is attached and made a part of the General Security Agreement
for Inventory and Accounts between Coleman Natural Meats, Inc. (Borrower) and
Norwest Bank Colorado, National Association (Bank) and further describes the
changes in the General Security Agreement.
**** and
***** three (3) days after being mailed.
****** or Bank
******* (N) This Agreement is subject to Arbitration in accordance with the
Loan Agreement.
COLEMAN NATURAL MEATS, INC.
By: /s/ LEE ARST
------------------------------------
Lee Arst
Title: President/CEO
---------------------------------
By: /s/ RICHARD DUTKIEWICZ
------------------------------------
Richard Dutkiewicz
Title: Vice President/CFO
---------------------------------
<PAGE>
COLEMAN NATURAL PRODUCTS, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement is made as of the 1st day of July, 1996, by and
between Coleman Natural Products, Inc., a Delaware corporation (the "Company"),
and Lee N. Arst, an individual currently residing at 2276 Afton Lane, Evergreen,
Colorado 80439 ("Employee").
RECITALS
WHEREAS, the Company is desirous of retaining Employee in the position of
Chief Executive Officer and President on the terms and conditions, and for the
consideration, hereinafter set forth, and
WHEREAS, Employee is desirous of continuing to perform services for the
Company as its Chief Executive Officer and President on such terms and
conditions and for such consideration.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and obligations contained herein, the Company and Employee agree as follows:
1. EMPLOYMENT. Employee is employed as the Company's Chief Executive
Officer and President, and Employee agrees to continue in such position, and to
perform the duties and services appertaining to such position and such other
duties as may be assigned to Employee from time to time by the Board of
Directors of the Company.
2. NO OTHER EMPLOYMENT. Employee agrees, during the term of his
employment by the Company, to devote his entire time, energy and best efforts to
the business and affairs of the Company and not to engage, directly or
indirectly, in any other business or businesses, whether or not similar to that
of the Company, except with the consent of the Board of Directors. The
foregoing notwithstanding, the parties recognize and agree that Employee may
engage in passive personal investments and other business activities that do not
conflict with the business and affairs of the Company or interfere unreasonably
with Employee's performance of his duties hereunder.
3. TERM. The term of this Agreement shall commence as of July 1, 1996
and continue for two (2) years therefrom (the "Term"), and shall be
automatically renewed for successive one year periods after the Term unless the
Company or Employee gives written notice to the other party at least sixty (60)
days prior to the end of the Term, or any one year extension thereof, that this
Agreement (but not Employee's employment, unless the notice specifically
<PAGE>
states otherwise) shall terminate at the end of the Term or such extension
period; provided, however, that the Company may terminate Employee's
employment, with or without Cause (as defined herein), at any time upon
fourteen (14) days written notice to Employee.
4. (a) PAYMENTS FOR AGREEMENT NOT TO COMPETE AND OTHER SERVICES TO BE
PERFORMED. The following payments are in consideration of Employee's covenants
and agreements set forth in Sections 4(e) and (f), below. If Employee is
terminated by the Company for any reason (including a Constructive Termination,
as defined below) other than for Cause (as defined below), the Company shall
continue to pay to Employee on each regularly scheduled payday during the period
ending on the second anniversary of the date of termination, his then current
base salary, pro-rated on the basis of the number of regular paydays in each one
year period, and shall, for the same period, pay and maintain for Employee's
benefit Employee's participation and/or rights under the Company's health, life
and disability insurance plans and provide the same benefits to Employee as
if he could still participate under its 401(k) or similar retirement plan,
and any other benefits then in effect. If, at the end of such two (2) year
period Employee is unable to obtain group health insurance, then the expiration
of the two year period shall be deemed a qualifying event for purposes of
Employee's rights to continuation of any benefits pursuant to federal or state
laws and regulations, including COBRA. Moreover, to the extent not accelerated
pursuant to the terms of the Company's Amended and Restated Stock Option Plan,
all outstanding options held by Employee as of the date of this Agreement under
the Company's Stock Option Plan shall immediately, with no further action by the
Company or Employee, be fully exercisable; provided that this sentence shall
only be effective if, as of the date of such termination, the Company has closed
an initial public offering of its Common Stock pursuant to a registration
statement filed with and declared effective by the Securities an Exchange
Commission. Finally, in the event of any termination to which this Section 4(a)
applies, and notwithstanding any terms to the contrary in any incentive or bonus
plan which the Company may adopt from time to time, Employee shall also receive
a lump sum payment, within ten (10) business days of the date of termination,
equal to the dollar amount of the bonus Employee was paid in the prior fiscal
year multiplied by the fraction with a numerator equal to the number of weeks
which have passed as of the date of termination in the Company's then current
fiscal year and a denominator equal to 52.
(b) TERMINATION FOR CAUSE. If Employee's employment is terminated
for Cause (as defined below), the Company shall not be obligated to pay Employee
any amounts except salary for work previously performed. Employee shall be
eligible to continuation of any benefits pursuant to federal or state laws and
regulations, including COBRA.
(c) TERMINATION BY EMPLOYEE. If Employee terminates his employment
(other than a Constructive Termination, as defined below), no compensation or
payments will be made other than those to which Employee would be entitled by
law or under terms of the Company's benefit plans in effect at the time of
termination.
2
<PAGE>
(d) TERMINATION UPON DEATH. If Employee's employment is terminated
as a result of his death, the Company shall have no obligations under this
Agreement other than to provide Employee's spouse and/or estate the rights
available to them by law or pursuant to the terms and conditions of the
Company's benefit plans, including without limitation, the Company's Stock
Option Plan and any and all health, life or other insurance policies.
(e) COVENANT NOT TO COMPETE. Employee covenants and agrees that in
consideration of, and during the period in which he is receiving payments under
Section 4(a), above, and during the period ending one (1) year following the
date of his termination for any reason (including a voluntary termination by
Employee), whichever is longer, he will not directly or indirectly (1) engage in
(whether as an employee, consultant, proprietor, partner, director or
otherwise), or have any ownership interest in, or participate in the financing,
operation, management or control of, any person, firm, corporation, business or
other entity that engages in a Restricted Business (as defined below) in a
Restricted Territory (as defined below), or (2) solicit, encourage or take any
other action which is intended to induce any other employee of the Company to
terminate his or her employment with the Company, or (3) intentionally interfere
with the contractual or employment relationship between the Company and any
employee, consultant, supplier or customer of the Company.
(f) SERVICES UPON CHANGE IN CONTROL. Employee agrees that, in the
event his employment is terminated (including pursuant to a Constructive
Termination) upon a Change in Control, he will make himself available to the
Company to perform such services as may reasonably be requested from time to
time by the Board of Directors in order to wind up the affairs of the Company
and its stockholders following the Change in Control.
(g) NO PAYMENTS UPON NEW EMPLOYMENT. In the event that Employee
accepts full time employment during any period in which he is receiving
compensation or benefits under this Section 4, the Company's obligation to pay
such compensation or make available such benefits shall terminate effective the
first day of full time employment; provided that, to the extent Employee is
entitled to any such benefits pursuant to any state or federal law or
regulation, the Company shall be obligated to make such benefits available as
required by such law or regulation. Employee's obligations under Section 4(f),
above, shall also terminate effective the first day of such full time
employment.
5. DEFINITIONS.
"Cause" shall mean Employee's (i) commission of a felony, (ii) act of fraud
against, or the misappropriation of property belonging to the Company, (iii)
knowing and intentional breach in any material respect of the terms of this
Agreement or the Non-Disclosure Agreement between the Company and Employee, and
the failure to cure such breach within ten (10) days of notice of such breach by
the Company, (v) conviction of any crime involving moral turpitude, and (vi)
illegal drug use.
3
<PAGE>
"Change in Control" shall mean (1) any sale or issuance or related series
of sales and/or issuances of the Company's capital stock by the Company or any
holders of its stock (other than a public offering of the Company's securities)
which results in any person or group of affiliated persons (other than the
holders of the Company's capital stock as of the date of this Agreement) owning
capital stock of the Company possessing the voting power to elect a majority of
the Company's Board of Directors, (2) a sale or transfer of all or substantially
all of the assets of the Company in any transaction or series of related
transactions, and (3) any merger or consolidation to which the Company is a
party, except for a merger in which the Company is the surviving corporation
and, after giving effect to such merger, the holders of the Company's
outstanding capital stock immediately prior to the merger shall own the
Company's outstanding capital stock possessing the voting power to elect a
majority of the Corporation's Board of Directors after such merger.
"Constructive Termination" shall mean Employee's termination of his
employment with the Company, including (with the exception of item (v), below),
as a result of a Change in Control, due to (i) a reduction in his base salary,
(ii) a change in the location of employment to outside the metropolitan Denver
area, (iii) a material decrease in benefits (other than a Company-wide decrease
in benefits), (iv) a material decrease in Employee's responsibilities, or (v) a
material decrease in Employee's title or reporting line. Notwithstanding the
above, if Employee affirmatively votes as a member of the Board of Directors
upon any matter or action (other than a Change in Control transaction), Employee
may not use the existence of such matter or the occurrence of such action as a
Constructive Termination event.
"Disability" shall mean Employee's physical or mental incapacity or
disability which renders him, in the reasonable judgment of the Board of
Directors, unable to perform the services required of him under this Agreement
for a period of 90 consecutive days or for 180 days or more during any twelve
month period; provided that such Disability shall be subject to verification by
a qualified physician if requested by Employee.
"Restricted Business" shall mean the raising, production, marketing and
sale of natural or organic meat products or any other business which the Company
may enter into, or reasonably intend to enter into, from time to time during
Employee's employment with the Company.
"Restricted Territory" shall mean the countries, cities or states of the
United States, each country (or political subdivision thereof) in Europe, South
America, Central America, Canada, Japan, Australia, New Zealand, South Korea and
Taiwan.
6. COMPENSATION AND BENEFITS; EXCESS PARACHUTE PAYMENTS.
(a) Employee shall receive a base salary at the annual rate of
$200,000, payable bi-monthly in accordance with the customary practices of the
Company. The Board of Directors of the Company will evaluate such salary
periodically, and may, in its sole discretion,
4
<PAGE>
increase such base salary at any time. During the term of this Agreement,
Employee shall have the right to participate in any bonus plan, retirement
plan, profit sharing plan, option or other equity plan, qualified retirement
plan, group life insurance plan, health or accident insurance and any other
employee benefit that may be in effect or hereafter adopted for the benefit
of all of the Company's employees or all of its management employees. With
respect to any bonus plan adopted by the Company, Employee shall have the
right to payment of his bonus under such plan in cash and/or shares of the
Company's Common Stock, with shares of stock being valued for purposes of
such payment at the average of the closing bid and ask price per share of
Common Stock of the Company on the date preceding the date such bonus is
paid, as reported by the NASDAQ National Market, or if such stock is not
listed on the NASDAQ National Market, as reported on the over-the-counter
market, or if such stock is not listed or reported, at the fair market value
determined by the Board of Directors. Additionally, the Company agrees to
purchase and maintain for Employee's benefit during the term of this
Agreement and for any period during which benefits are being maintained by
the Company under Section 4(a), above, supplemental long term disability
insurance for the maximum amount for which Employee is able to obtain
coverage, and such long term disability insurance shall be, by its terms,
transferable without additional cost or expense, and no increase in premium,
to Employee at the end of such benefit coverage period. Finally, Employee
shall be eligible to take up to four weeks of vacation per year.
(b) Notwithstanding anything to the contrary herein, if the aggregate
amounts payable pursuant to Section 4(a) hereof (including the acceleration of
previously unvested options) would cause any payment under such Section 4(a) to
be subject to an excise tax as an "excess parachute payment" under Section 4999
of the Internal Revenue Code, such aggregate amounts payable hereunder shall be
reduced, if necessary, to maximize Employee's net payments under Section 4(a)
(after taking into account the excise tax payments under Section 4999). The
Company agrees to reimburse Employee for any fees and expenses he may incur in
receiving tax advice and assistance (legal or accounting) in connection with
excess parachute payment issue caused by the terms of this Agreement, up to an
aggregate of $25,000. Nothing herein shall prevent the Company from obtaining
its own tax counsel and advice relating to the same matter, but Employee shall
not be required to rely upon, or to otherwise be dependent upon the Company's
retention of such advice, and the $25,000 amount provided for herein shall not
include any additional amounts which the Company may expend.
7. CONFIDENTIALITY AGREEMENT. As a condition to entering into this
Agreement, the Company and the Employee shall enter into an agreement regarding
confidentiality, inventions and discoveries, substantially in the form of the
Company's standard non-disclosure agreement.
8. MISCELLANEOUS.
(a) NOTICES. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly
5
<PAGE>
given when personally delivered, when delivered by express
courier, or three days after deposit in the U.S. Mail, postage prepaid,
addressed as follows:
If to the Company: Coleman Natural Products, Inc.
5140 Race Court
Denver, Colorado 80216
Attn: Vice President-Finance
If to Employee: Lee N. Arst
2276 Afton Lane
Evergreen, Colorado 80439
or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
(b) APPLICABLE LAW. This Agreement is entered into under, and shall
be governed for all purposes by, the laws of the State of Colorado.
(c) NO WAIVER. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement, shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or any prior or subsequent time.
(d) SEVERABILITY. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(f) HEADINGS. The paragraph headings have been inserted for purposes
of convenience only and shall not be used for interpretive purposes.
(g) ASSIGNMENT. This Agreement, and the rights and obligations of
the parties hereunder, are personal and neither this Agreement, nor any right,
benefit or obligation of Employee or the Company may be assigned or transferred
in any manner (except by operation of law in connection with a Change of Control
transaction) by Employee or the Company; provided that, in connection with any
Change in Control which is a sale of all or substantially all of the Company's
assets, if Employee accepts employment with the company acquiring such assets,
the Company's obligations hereunder shall terminate and the Company shall
transfer
6
<PAGE>
this Agreement to the acquiring entity in connection with any sale of
assets, and the acquiring company shall assume all the Company's obligations
hereunder.
(h) ENTIRE AGREEMENT; AMENDMENT. This Agreement and the agreements
and plans referenced herein, constitute the entire agreement of the parties with
regard to the subject matter hereof. Any amendment or modification of this
Agreement will be effective only if it is in writing and signed by both parties
hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first above written.
COLEMAN NATURAL PRODUCTS, INC.
By: /s/ Richard P. Dutkiewicz
-----------------------------
Its: Vice President-Finance
EMPLOYEE:
/s/ Lee N. Arst
--------------------------------
Name Printed: Lee N. Arst
7
<PAGE>
CARCASS BEEF PURCHASE AGREEMENT NO. C 96026
LOT NUMBER
----------------
This agreement is by and between Coleman Natural Products, Inc. ("PURCHASER")
with its principal place of business at 5140 Race Court, #4, Denver, Colorado
80216 and ______________________ located at ________________ ("SELLER").
The parties herein agree as follows:
1. PURCHASER agrees to purchase, and SELLER agrees to sell, approximately
_______________________ steer/heifers (circle one) which are being
cared for in accordance with Coleman Natural Products' "Natural
Certificate/Feeding Agreement(s)" # __________________________ (attach
copies). SELLER will notify PURCHASER within forty-eight (48) hours of
arrival that the cattle have been placed on feed.
SELLER agrees to bear all costs and risk of loss associated with the
delivery of all cattle through the slaughter plant. PURCHASER will arrange
for the slaughter of all cattle, and agrees to bear all costs associated
with the slaughter of all cattle.
2. Delivery of the cattle to the slaughter plant will be as follows (Include
head count in space to the right of delivery month provided below):
Jan. Feb. Mar. Apr. May Jun.
--- --- --- --- --- ---
Jul. Aug. Sep. Oct. Nov. Dec.
--- --- --- --- --- ---
Exact delivery date within the delivery month will be determined by the
PURCHASER.
3. All animals which qualify will be purchased at a premium over the Dressed
Base Price. A qualified animal will have a carcass which falls within the
following specifications:
a. Individual carcass weights: 600 and 850 lbs. hot weight for
heifers, 600 and 900 lbs. hot weight for steers.
b. Yield Grade: USDA Yield Grade 3 or better.
c. Damaged Carcasses: Single X (minimum bruises in chuck, thin
meats, or rounds) is acceptable.
4. The Dressed Base Price will be determined by accumulating and averaging the
Colorado, Nebraska and Kansas markets as quoted and recorded by the
U.S.D.A. The Dressed Base Price will be calculated from the week the
cattle are slaughtered. Premiums will be paid in the following manner:
a. Choice yield grade #1, #2, & #3 carcass premium is $10.00 cwt.
over the Dressed Base Price.
b. Select yield grade #1, #2, & #3 carcass premium is $2.00 cwt.
over the Dressed Base Price.
5. All carcasses falling outside of the specifications outlined in paragraphs
3 and 4 above will be priced as follows:
a. Those carcasses falling outside the weight parameters in
paragraph 3a. above will be priced as follows: The first 50
pounds of carcass weight above or below the listed parameters
will result in a carcass discount of $5.00 per cwt., (plus the
applicable premium shown in paragraph 4 a., or b. above.) Those
that weight 51 to 100 pounds outside will be discounted $10.00
per cwt., (plus the applicable premium shown in paragraph 4 a.,
or b. above.) Those that are 101 pounds or more outside the
specified weights will be discounted $15.00 per cwt., (plus the
applicable premium shown in paragraph 4 a., or b. above.) These
weight discounts will apply to both choice and select carcasses.
b. Yield grade #4 carcass discount is $18.00 cwt. below the Dressed
Base Price.
c. Yield grade #5 carcass discount is $23.00 cwt. below the Dressed
Base Price.
d. All other carcasses, including but not limited to all standards,
dark cutters, hard bones, measle and bruised, will be discounted
$18.00 cwt. below the Dressed Base Price.
e. Carcasses will be discounted for each specification not met. For
example:
Over weight 910# carcass x $5.00 = $ 45.50
Yield grade #4 910# x $18.00 cwt. = $163.80
-------
Total Discount = $209.30
6. Regardless of the actual number of carcasses which qualify, this Agreement
shall remain in full force until all cattle are slaughtered.
PAYMENT
Partial payment will be made by PURCHASER by check issued to SELLER the
next business day following the day of kill for each load of cattle. Final
settlement for the week's kill will be paid by check issued to SELLER following
the week of the kill. Title to the carcasses shall pass to PURCHASER upon
payment.
SELLER warrants that he has good title in the cattle sold hereunder and
that the cattle will be delivered free from any security interest or other lien
or encumbrances whatsoever except for ones held by:
- --------------------------------------------------------------------------------
Bank Name Address
If any liens exist at any time of delivery, PURCHASER shall pay the SELLER
and all parties, jointly, who have such liens.
PACKING PLANT
It is the PURCHASER'S intent to slaughter all cattle at Excel located in
Sterling, Colorado or an alternative USDA inspected plant as will be specified
by PURCHASER with freight rates comparable to the plant specified.
FEED YARD LOCATION & PROCEDURES
The feedyard will be ___________________________________________________
located at ____________________________________ . The owner/lessor agrees
to sign a Coleman Natural Products Feeding Agreement, and provide a veterinary
verification of the same.
Cattle will be ear tagged with a Coleman Natural Products tag(s).
This Agreement contains the entire agreement between the parties, and
cannot be varied except by written agreement, and shall be binding upon the
heirs, successors and assigns of the parties. This Agreement is governed by and
construed in accordance with the laws of the State of Colorado.
Dated this __________________ day of___________ , 19 ___ .
COLEMAN NATURAL PRODUCTS, INC.
PURCHASER SELLER
BY: BY:
--------------------------- ---------------------------
Agent Agent
<PAGE>
CARCASS BEEF PURCHASE AGREEMENT NO. F 96007
LOT NUMBER
---------------
This agreement is by and between Coleman Natural Products, Inc. ("PURCHASER")
with its principal place of business at 5140 Race Court, #4, Denver, Colorado
80216 and _____________________ located at ____________________ ("SELLER").
The parties herein agree as follows:
1. PURCHASER agrees to purchase, and SELLER agrees to sell, approximately
_________________________ steer/heifers (circle one) which are being
cared for in accordance with Coleman Natural Products' "Natural
Certificate/Feeding Agreement(s)" # _________________________ (attach
copies). SELLER will notify PURCHASER within forty-eight (48) hours of
arrival that the cattle have been placed on feed.
SELLER agrees to bear all costs and risk of loss associated with the
delivery of all cattle through the slaughter plant. PURCHASER will arrange
for the slaughter of all cattle, and agrees to bear all costs associated
with the slaughter of all cattle.
2. Delivery of the cattle to the slaughter plant will be as follows (Include
head count in space to the right of delivery month provided below):
Jan. Feb. Mar. Apr. May Jun.
--- --- --- --- --- ---
Jul. Aug. Sep. Oct. Nov. Dec.
--- --- --- --- --- ---
Exact delivery date within the delivery month will be determined by the
PURCHASER.
3. All animals which qualify will be purchased at a premium over the Dressed
Base Price. A qualified animal will have a carcass which falls within the
following specifications:
a. Individual carcass weights: 600 and 850 lbs. hot weight for
heifers, 600 and 900 lbs. hot weight for steers.
b. Quality Grade: 70% or more USDA Choice, Balance USDA Select.
c. Yield Grade: USDA Yield Grade 3 or better.
d. Damaged Carcasses: Single X (minimum bruises in chuck, thin
meats, or rounds) is acceptable.
4. The Dressed Base Price will be determined by accumulating and averaging the
Colorado, Nebraska and Kansas markets as quoted and recorded by the
U.S.D.A. The Dressed Base Price will be calculated from the week the
cattle are slaughtered. Premiums will be paid in the following manner:
a. Yield grade #1 carcass premium is $10.00 cwt. over the Dressed
Base Price.
b. Yield grade #2 carcass premium is $10.00 cwt. over the Dressed
Base Price.
c. Yield grade #3 carcass premium is $6.00 cwt. over the Dressed
Base Price.
d. On the final settlement, a $.10 premium will be given for every
pound exceeding 70% Choice.
5. All carcasses falling outside of the specifications outlined in paragraphs
3 and 4 above will be priced as follows:
a. Those carcasses falling outside the weight parameters in
paragraph 3a. above will be priced as follows: The first 50
pounds of carcass weight above or below the listed parameters
will result in a carcass discount of $5.00 per cwt., (plus the
applicable premium shown in paragraph 4 a., b. or c.; and d.,
above.) Those that weigh 51 to 100 pounds outside will be
discounted $10.00 per cwt., (plus the applicable premium shown
in paragraph 4 a., b., or c.; and d., above.) Those that are 101
pounds or more outside the specified weights will be discounted
$15.00 per cwt., (plus the applicable premium shown in paragraph
4 a., b., or c.; and d., above.) These weights will apply to
both choice and select carcasses.
b. Yield grade #4 carcass discount is $18.00 cwt. below the Dressed
Base Price.
c. Yield grade #5 carcass discount is $23.00 cwt. below the Dressed
Base Price.
d. All other carcasses, including but not limited to all standards,
dark cutters, hard bones, measle and bruised, will be discounted
$18.00 cwt. below the Dressed Base Price.
e. Carcasses will be discounted for each specification not met. For
example:
Over weight 910# carcass x $5.00 = $ 45.50
Yield grade #4 910# x $18.00 cwt. = $163.80
-------
Total Discount = $209.30
f. On the final settlement, a $.05 discount will be taken for every
pound exceeding 30% Select.
6. Regardless of the actual number of carcasses which qualify, this Agreement
shall remain in full force until all cattle are slaughtered.
PAYMENT
Partial payment will be made by PURCHASER by check issued to SELLER the
next business day following the day of kill for each load of cattle. Final
settlement for the week's kill will be paid by check issued to SELLER following
the week of the kill. Title to the carcasses shall pass to PURCHASER upon
payment.
SELLER warrants that he has good title in the cattle sold hereunder and
that the cattle will be delivered free from any security interest or other lien
or encumbrances whatsoever except for ones held by:
- --------------------------------------------------------------------------------
Bank Name Address
If any liens exist at any time of delivery, PURCHASER shall pay the SELLER
and all parties, jointly, who have such liens.
PACKING PLANT
It is the PURCHASER'S intent to slaughter all cattle at Excel located in
Sterling, Colorado or an alternative USDA inspected plant as will be specified
by PURCHASER with freight rates comparable to the plant specified.
FEED YARD LOCATION & PROCEDURES
The feedyard will be __________________________________________________
located at ____________________________________ . The owner/lessor agrees
to sign a Coleman Natural Products Feeding Agreement, and provide a veterinary
verification of the same.
Cattle will be ear tagged with a Coleman Natural Products tag(s).
This Agreement contains the entire agreement between the parties, and
cannot be varied except by written agreement, and shall be binding upon the
heirs, successors and assigns of the parties. This Agreement is governed by and
construed in accordance with the laws of the State of Colorado.
Dated this ______________ day of _________________ , 19____ .
COLEMAN NATURAL PRODUCTS, INC.
PURCHASER SELLER
BY: BY:
--------------------------- ---------------------------
Agent Agent
<PAGE>
CARCASS BEEF PURCHASE AGREEMENT NO. L 96006
LOT NUMBER
----------------
This agreement is by and between Coleman Natural Products, Inc. ("PURCHASER")
with its principal place of business at 5140 Race Court, #4, Denver, Colorado
80216 and _________________ located at _____________________ ("SELLER").
The parties herein agree as follows:
1. PURCHASER agrees to purchase, and SELLER agrees to sell, approximately
___________________________ steer/heifers (circle one) which are being
cared for in accordance with Coleman Natural Products' "Natural
Certificate/Feeding Agreement(s)" # __________________________ (attach
copies). SELLER will notify PURCHASER within forty-eight (48) hours of
arrival that the cattle have been placed on feed.
SELLER agrees to bear all costs and risk of loss assoiated with the
delivery of all cattle through the slaughter plant. PURCHASER will arrange
for the slaughter of all cattle, and agrees to bear all costs associated
with the slaughter of all cattle.
2. Delivery of the cattle to the slaughter plant will be as follows (Include
head count in space to the right of delivery month provided below):
Jan. Feb. Mar. Apr. May Jun.
--- --- --- --- --- ---
Jul. Aug. Sep. Oct. Nov. Dec.
--- --- --- --- --- ---
Exact delivery date within the delivery month will be determined by the
PURCHASER.
3. All animals which qualify will be purchased at a premium over the Dressed
Base Price. A qualified animal will have a carcass which falls within the
following specifications:
a. Individual carcass weights: 600 and 850 lbs. hot weight for
heifers, 600 and 900 lbs. hot weight for steers.
b. Quality Grade: 70% or more USDA Choice, Balance USDA Select.
c. Yield Grade: USDA Yield Grade 3 or better.
d. Damaged Carcasses: Single X (minimum bruises in chuck, thin
meats, or rounds) is acceptable.
4. The Dressed Base Price will be determined by accumulating and averaging the
Colorado, Nebraska and Kansas markets as quoted and recorded by the
U.S.D.A. The Dressed Base Price will be calculated from the week the
cattle are slaughtered. Premiums will be paid in the following manner:
a. Yield grade #1 carcass premium is $18.00 cwt. over the Dressed
Base Price.
b. Yield grade #2 carcass premium is $10.00 cwt. over the Dressed
Base Price.
c. Yield grade #3 carcass premium is $4.00 cwt. over the Dressed
Base Price.
5. All carcasses falling outside of the specifications outlined in paragraphs
3 and 4 above will be priced as follows:
a. Those carcasses falling outside the weight parameters in
paragraph 3a. above will be priced as follows: The first 50
pounds of carcass weight above or below the listed parameters
will result in a carcass discount of $5.00 per cwt., (plus the
applicable premium shown in paragraph 4 a., b., or c., above.)
Those that weight 51 to 100 pounds outside will be discounted
$10.00 per cwt., (plus the applicable premium shown in paragraph
4 a., b., or c., above.) Those that are 101 pounds or more
outside the specified weights will be discounted $15.00 per cwt.,
(plus the applicable premium shown in paragraph 4 a., b., or c.,
above.) These weight discounts will apply to both choice and
select carcasses.
b. Yield grade #4 carcass discount is $18.00 cwt. below the Dressed
Base Price.
c. Yield grade #5 carcass discount is $23.00 cwt. below the Dressed
Base Price.
d. All other carcasses, including but not limited to all standards,
dark cutters, hard bones, measle and bruised, will be discounted
$18.00 cwt. below the Dressed Base Price.
e. Carcasses will be discounted for each specification not met. For
example:
Over weight 910# carcass x $5.00 = $ 45.50
Yield grade #4 910# x $18.00 cwt. = $163.80
-------
Total Discount = $209.30
f. On the final settlement, a $.05 discount will be taken for every
pound exceeding 30% Select.
6. Regardless of the actual number of carcasses which qualify, this Agreement
shall remain in full force until all cattle are slaughtered.
PAYMENT
Partial payment will be made by PURCHASER by check issued to SELLER the
next business day following the day of kill for each load of cattle. Final
settlement for the week's kill will be paid by check issued to SELLER following
the week of the kill. Title to the carcasses shall pass to PURCHASER upon
payment.
SELLER warrants that he has good title in the cattle sold hereunder and
that the cattle will be delivered free from any security interest or other lien
or encumbrances whatsoever except for ones held by:
- --------------------------------------------------------------------------------
Bank Name Address
If any liens exist at any time of delivery, PURCHASER shall pay the SELLER
and all parties, jointly, who have such liens.
PACKING PLANT
It is the PURCHASER'S intent to slaughter all cattle at Excel located in
Sterling, Colorado or an alternative USDA inspected plant as will be specified
by PURCHASER with freight rates comparable to the plant specified.
FEED YARD LOCATION & PROCEDURES
The feedyard will be ____________________________________________________
located at _______________________________________ . The owner/lessor agrees
to sign a Coleman Natural Products Feeding Agreement, and provide a veterinary
verification of the same.
Cattle will be ear tagged with a Coleman Natural Products tag(s).
This Agreement contains the entire agreement between the parties, and
cannot be varied except by written agreement, and shall be binding upon the
heirs, successors and assigns of the parties. This Agreement is governed by and
construed in accordance with the laws of the State of Colorado.
Dated this_______________ day of _____________ , 19__________.
COLEMAN NATURAL PRODUCTS, INC.
PURCHASER SELLER
BY: BY:
--------------------------- ---------------------------
Agent Agent
<PAGE>
CARCASS BEEF PURCHASE AGREEMENT NO. B 96025
LOT NUMBER
----------------
This agreement is by and between Coleman Natural Products, Inc. ("PURCHASER")
with its principal place of business at 5140 Race Court, #4, Denver, Colorado
80216 and ____________________ located at______________________ ("SELLER").
The parties herein agree as follows:
1. PURCHASER agrees to purchase, and SELLER agrees to sell, approximately
_______________________________ steer/heifers (circle one) which are being
cared for in accordance with Coleman Natural Products' "Natural
Certificate/Feeding Agreement(s)" # __________________________ (attach
copies). SELLER will notify PURCHASER within forty-eight (48) hours of
arrival that the cattle have been placed on feed.
2. PRICE [Check appropriate box.]
/ / OPTION I: Fixed carcass price: $ [subject to specifications
listed herein].
/ / OPTION II:
Deferred Price:$ Plus Basis:$ =$ /63% =$
---- ---- ---- --------------
live cwt. live cwt. live cwt. Qualified Carcass
Deferred Price is an alternative to the fixed carcass price and may be set
by SELLER during the pricing period by notifying Buyer at any time during
which the Chicago Mercantile Exchange ("CME") is open and trading. If
SELLER wishes to establish the deferred price and requests a current CME
futures price for the futures month, the Deferred Price will be the first
available CME price obtained by Buyer after Buyer's receipt of notification
by SELLER, adjusted up or down by the agreed Basis. Alternatively, SELLER
may request a price above the current CME price for the futures month.
If SELLER's requested price is filled by the CME, the requested price,
adjusted by the Basis, will be the Deferred Price for this Agreement.
SELLER may cancel his request at any time before the requested price has
been filled by the CME. Buyer will confirm the Deferred Price to SELLER
in writing.
The pricing period runs from the date of this contract up to but not
including the earlier of either (i) the day prior to delivery date or (ii)
the first day of the futures month. (For example, if the futures month is
August with an August 15 delivery date, the last day of the pricing period
is July 31. If the futures month is August with a July 15 delivery date,
the last day of the pricing period is July 14). If no Deferred Price has
been set by the last day of the pricing period, the Agreement price shall
be the closing CME price on the last day of the pricing period, adjusted up
or down by the agreed basis.
SELLER agrees to bear all costs associated with the delivery of all cattle
though the slaughter plant. PURCHASER will arrange for the slaughter of
all cattle, and agrees to bear all costs associated with the slaughter of
all cattle.
3. Delivery of the cattle to the slaughter plant will be as follows (Include
head count in space to the right of delivery month provided below):
Jan. Feb. Mar. Apr. May Jun.
--- --- --- --- --- ---
Jul. Aug. Sep. Oct. Nov. Dec.
--- --- --- --- --- ---
4. Animals will have a carcass which falls within the following
specifications:
a. Individual carcass weights: 600 to 850 lbs. hot weight for
heifers, 600 to 900 lbs. hot weight for steers.
b. Yield Grade: USDA Yield Grade 3 or better.
c. Damaged Carcasses: Single X (minimum bruises in chuck, thin
meats, or rounds) is acceptable.
5. All carcasses falling outside of the specifications outlined in paragraph 4
above will be priced as follows:
a. Those carcasses falling outside the weight parameters in paragraph 4a.
above will be priced as follows: the first 50 pounds of carcass weight
above or below the listed parameters will result in a carcass discount
of $5.00 per cwt, 51 to 100 pounds outside the parameter will discount
the carcass $10.00 per cwt, 101 pounds or more outside the specified
weights will discount the carcass $15.00 per cwt. These weight
discounts will apply to choice and select carcasses respectively.
b. All USDA yield grade 4 carcasses and yield grade 5 carcasses will be
discounted $125.00 per head.
c. All other carcasses, including but not limited to all standards, dark
cutters, hard bones, measles, and bruised will discount the carcass
$18.00 per cwt.
6. Regardless of the actual number of carcasses which qualify, this Agreement
shall remain in full force until all cattle are slaughtered.
PAYMENT
Partial payment will be made by PURCHASER by check issued to SELLER the
next business day following the day of kill for each load of cattle. Final
settlement for the week's kill will be paid by check issued to SELLER following
the week of the kill. Title to the carcasses shall pass to PURCHASER upon
payment.
SELLER warrants that he has good title in the cattle sold hereunder and
that the cattle will be delivered free from any security interest or other lien
or encumbrances whatsoever except for ones held by:
- --------------------------------------------------------------------------------
Bank Name Address
If any liens exist at any time of delivery, PURCHASER shall pay the SELLER
and all parties, jointly, who have such liens.
PACKING PLANT
It is the PURCHASER'S intent to slaughter all cattle at Excel located in
Sterling, Colorado or an alternative USDA inspected plant as will be specified
by PURCHASER with freight rates comparable to the plant specified.
FEED YARD LOCATION & PROCEDURES
The feedyard will be ____________________________________________________
located at _____________________________________ . The owner/lessor agrees
to sign a Coleman Natural Products Feeding Agreement, and provide a veterinary
verification of the same.
Cattle will be ear tagged with a Coleman Natural Products tag(s).
This Agreement contains the entire agreement between the parties, and
cannot be varied except by written agreement, and shall be binding upon the
heirs, successors and assigns of the parties. This Agreement is governed by and
construed in accordance with the laws of the State of Colorado.
Dated this____________________ day of _______________ , 19 ___ .
COLEMAN NATURAL PRODUCTS, INC.
PURCHASER SELLER
BY: BY:
--------------------------- ---------------------------
Agent Agent
<PAGE>
EXHIBIT 11
COLEMAN NATURAL PRODUCTS, INC.
Calculation of Earnings Per Share of Common Stock
(Unaudited)
<TABLE>
52 weeks 52 weeks 52 weeks 26 weeks 26 weeks 27 weeks
ended ended ended ended ended ended
June 26, June 25, June 24, December 23, June 24, June 29,
1993 1994 1995 1995 1995 1996
--------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Primary earnings (loss) per common share:
Net income (loss) 289,556 (1,024,591) 504,634 1,087,395 289,092 441,631
Accretion of preferred stock (67,466) (52,294) (27,376) - (12,172) -
Cash dividends paid on preferred stock - - - (301,352) - (152,044)
In-kind dividends paid on preferred stock - - - (15,034) - (45,102)
--------- ---------- --------- --------- --------- ---------
Net income attributable to common stock 222,090 (1,076,885) 477,258 771,009 276,920 244,485
--------- ---------- --------- --------- --------- ---------
Common and common equivalent shares outstanding:
Historical common shares outstanding
at beginning of period 1,278,650 1,278,650 1,549,403 1,549,403 1,549,403 1,651,650
Effect of common stock and common stock
equivalents issued within one year prior
to initial public offering 134,570 134,570 134,570 109,791 134,570 46,145
Weighted average common equivalent shares issued - - - 135,859 - 320,948
Weighted average common shares issued - 63,580 - 28,652 - -
--------- ---------- --------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding 1,413,220 1,476,800 1,683,973 1,823,705 1,683,973 2,018,743
--------- ---------- --------- --------- --------- ---------
--------- ---------- --------- --------- --------- ---------
Primary earnings (loss) per common share 0.16 (0.73) 0.28 0.42 0.16 0.12
</TABLE>
(1) Common Stock and Common Stock equivalents issued within one year prior to
initial public offering.
Number
of Shares Price/Share Net Proceeds
--------- ----------- ------------
Options - 10/6/95 4,432 4.50 19,944
Options - 11/2/95 35,876 3.95 141,710
Options - 1/26/96 2,500 7.05 17,625
Options - 3/8/96 600 9.58 5,748
Options - 5/1/96 600 9.58 5,748
Options - 8/7/96 22,750 17.53 398,808
Options - 8/7/96 1,000 19.29 19,290
Options - 9/16/96 1,754 27.08 47,500
Common Stock issued - 9/4/96 195 3.95 770
-------- -------
69,707 657,143
-------
-------
Effect of Stock Split 2.85
--------
198,665
--------
--------
Equivalent shares issued within one year prior to initial
public offering 198,665
Assumed treasury shares repurchased ($657,143/$10.25) (64,095)
-------
Increase in shares outstanding for earnings per share
calculation 134,570
-------
-------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
COLEMAN NATURAL PRODUCTS, INC.:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
KPMG Peat Marwick LLP
Denver, Colorado
September 17, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE TRANSITION PERIOD ENDED
DECEMBER 23, 1995 AND THE UNAUDITED FINANCIAL STATEMENTS FOR THE 27 WEEK
INTERIM PERIOD ENDED JUNE 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-23-1995 DEC-28-1996
<PERIOD-START> JUN-25-1995 DEC-24-1995
<PERIOD-END> DEC-23-1995 JUN-29-1996
<CASH> 22 0
<SECURITIES> 0 0
<RECEIVABLES> 3,419 2,972
<ALLOWANCES> 20 75
<INVENTORY> 992 1,419
<CURRENT-ASSETS> 5,293 4,925
<PP&E> 1,423 1,636
<DEPRECIATION> 766 848
<TOTAL-ASSETS> 6,030 5,860
<CURRENT-LIABILITIES> 2,755 2,296
<BONDS> 0 0
3,356 3,401
0 0
<COMMON> 2 2
<OTHER-SE> (83) 161
<TOTAL-LIABILITY-AND-EQUITY> 6,030 5,860
<SALES> 28,791 27,122
<TOTAL-REVENUES> 28,791 27,122
<CGS> 26,095 24,151
<TOTAL-COSTS> 26,095 24,151
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 6 55
<INTEREST-EXPENSE> 119 55
<INCOME-PRETAX> 442 680
<INCOME-TAX> (645) 238
<INCOME-CONTINUING> 1,087 442
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,087 442
<EPS-PRIMARY> .42 .12
<EPS-DILUTED> .42 .12
</TABLE>
